**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-QSB**




(Mark
      One)


þ
            
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the quarterly report period ended March 31, 2007**


o
            
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the transition period from __________**  **to
      __________**




**Commission
      File Number: 333-109903**





**SUB-URBAN
      BRANDS, INC.**


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


**NEVADA**
            
            **47-0926492**(State
                or other jurisdiction of incorporation or organization)
            
            (IRS
                Employer Identification No.)




**8723
      Bellanca Ave, Bldg A, Los Angeles, CA 90045**


(Address
      of Principal Executive Offices)





**(310) 670-0132**


Issuer’s
      telephone number, including area code





(Former
      name, former address and former fiscal year, if changed since last
      report)




Check
      whether the issuer (1) 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  
      þ No
      o




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


Yes
o No
      þ





As
      of May
      21, 2007, there were 53,196,338 common shares outstanding.










TABLE
      OF
      CONTENTS





SPECIAL
                NOTE REGARDING FORWARD-LOOKING STATEMENTS
            
            1PART
                I — FINANCIAL INFORMATION
            
            2ITEM
                1. CONSOLIDATED FINANCIAL STATEMENTS
            
            2Consolidated
                Balance Sheet as of March 31, 2007
            
            2-3Consolidated
                Statements of Operations for three months ended March 31,
                2007
            
            4Consolidated
                Statements of Cash Flows for the three months ended March 31,
                2007
            
            5Notes
                to the Consolidated Financial Statements as of March 31,
                2007
            
            7ITEM
                2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
                OPERATION
            
            27ITEM
                3. CONTROLS AND PROCEDURES
            
            37PART
                II — OTHER INFORMATION
            
            37ITEM
                1. Legal Proceedings
            
            37ITEM
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            37ITEM
                3. Defaults Upon Senior Securities
            
            38ITEM
                4. Submission of Matters to a Vote of Security Holders
            
            38ITEM
                5. Other Information
            
            38ITEM
                6. Exhibits
            
            38SIGNATURES
            
            39







**Forward
      Looking Statements**





This
      Report on Form 10-QSB contains discussion, analysis and forward-looking
      statements that reflect management's current views and expectations with respect
      to our business, strategies, products, future results and events and financial
      performance. All statements made in this Report other than statements of
      historical fact, including statements that address operating performance, events
      or developments that management expects or anticipates will or may occur in
      the
      future, including statements related to distributor channels, volume growth,
      revenues, profitability, new products, acquisitions plans, adequacy of funds
      from operations, statements expressing general optimism about future operating
      results and non-historical information, are forward-looking statements. In
      particular, the words "believe," "expect," "intend," " anticipate," "estimate,"
      "may," "will," variations of such words, and similar expressions, identify
      forward-looking statements, but are not the exclusive means of identifying
      such
      statements, and their absence does not mean that the statement is not
      forward-looking. These forward-looking statements are subject to certain risks
      and uncertainties, including those discussed specifically within this Report.
      Our actual results, performance or achievements could differ materially from
      historical results as well as those expressed in, anticipated or implied by
      these forward-looking statements. We do not undertake any obligation to revise
      these forward-looking statements to reflect any future events or circumstances.





Readers
      should not place undue reliance on these forward-looking statements, which
      are
      based on management's current expectations and projections about future events,
      are not guarantees of future performance, are subject to risks, uncertainties
      and assumptions (including those discussed specifically within this Report)
      and
      apply only as of the date of this Report. Our actual results, performance or
      achievements could differ materially from the results expressed in, or implied
      by, these forward-looking statements. We undertake no obligation to publicly
      update or revise any forward-looking statements, whether as a result of new
      information, future events or otherwise.





All
      discussion and statements made in this Report, other than statements of
      historical fact, should be read in conjunction with our consolidated financial
      statements and the related notes that appear elsewhere in this Report. Our
      actual results could differ materially from those discussed in forward looking
      statements. Factors that could cause or contribute to such differences include,
      but are not limited to those discussed specifically within this Report,
      particularly in the section entitled “Risk Factors” of this Report.





As
      used
      in this report, the terms “we”, “us”, “our”, and “Sub-Urban Brands” mean
      Sub-Urban Brands, Inc. and our subsidiary Sub-Urban Industries, Inc.





THIS
      REPORT CONTAINS DISCUSSION, ANALYSIS AND FORWARD-LOOKING STATEMENTS WHICH
      PROVIDE INFORMATION THAT OUR MANAGEMENT BELIEVES IS RELEVANT TO AN ASSESSMENT
      AND UNDERSTANDING OF OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION. ALL
      SUCH
      DISCUSSION, ANALYSIS AND FORWARD-LOOKONG STATEMENTS SHOULD BE READ TOGETHER
      WITH
      OUR FINANCIAL STATEMENTS AND THE NOTES TO FINANCIAL STATEMENTS WHICH ARE
      INCLUDED IN THIS REPORT, AND WITH OUR COMPANY’S CURRENT REPORT ON FORM 8-K FILED
      ON MAY 15, 2006 AND ALL SUBSEQUENT FILINGS.




1




**PART
      I: FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEET**


**AS
      OF MARCH 31, 2007**  **(UNAUDITED)**





**March
                31,****2007****(Unaudited)**ASSETSCurrent
                AssetsCash
                and cash equivalents
            
            $
            20,236Accounts
                receivable (net of allowance for doubtful accounts of
                $5,043)
            
            
            2,670Inventory
                (net of inventory reserve of $0)
            
            
            22,025Prepaid
                expenses and advances
            
            
            4,302Notes
                receivable
            
            
            20,000Other
                receivables
            
            
            2,850Deferred
                financing fees
            
            
            36,544Total
                Current Assets
            
            
            108,627Property
                and Equipment (net of accumulated depreciation of $15,972)
            
            
            19,476Deposits
            
            
            28,092Total
                Assets
            
            $
            156,195





See
      accompanying notes.




2




**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEET**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





LIABILITIES
      AND SHAREHOLDERS’ DEFICIT





**March
                31, 2007****(Unaudited)**Current
                LiabilitiesAccounts
                payable
            
            $
            237,091Accrued
                salaries and benefits
            
            
            290,326Accrued
                expenses
            
            
            92,511Accrued
                interest
            
            
            367,314Warrant
                liabilities
            
            
            30,492Convertible
                secured notes payable (net of unamortized debt
                discounts)
            
            
            723,316Convertible
                unsecured notes payable (net of unamortized debt
                discounts)
            
            
            1,790,961Convertible
                notes payable - conversion features derivative liabilities
            
            
            83,988Notes
                payable
            
            
            1,023,754Notes
                payable - related party
            
            
            20,000Total
                Current Liabilities
            
            
            4,659,753Total
                Liabilities
            
            
            4,659,753Shareholders’
                deficitPreferred
                stock, $0.001 par value (10 million shares authorized; none issued
                or
                outstanding)
            
            
            —Common
                stock, $0.001 par value (190,000,000 shares authorized;52,446,338
                sharesissued and outstanding)
            
            
            52,446Additional
                paid-in capital
            
            
            7,245,233Accumulated
                deficit
            
            
            (11,801,237
            )Total
                Shareholders’ Deficit
            
            
            (4,503,558
            )Total
                Liabilities and Shareholders’ Deficit
            
            $
            156,195





See
      accompanying notes.




3




**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**THREE
      MONTHS ENDED MARCH 31, 2007 AND 2006**


**(UNAUDITED)**




**Three
                Months Ended**
              **March
                31,****2007**
            
            **2006**Revenue
            
            $
            30,624
            
            $
            8,679Cost
                of revenue
            
            
            (28,246
            )
            
            (3,632
            )Gross
                profit
            
            
            2,378
            
            
            5,047Operating
                ExpensesSelling
                expense
            
            
            39,232
            
            
            159,020Product
                development
            
            
            17,837
            
            
            43,308General
                and administrative expense
            
            
            390,148
            
            
            427,797Total
                Operating Expenses
            
            
            447,217
            
            
            630,125Loss
                from operations
            
            
            (444,839
            )
            
            (625,078
            )Other
                Income (Expense)Interest
                expense
            
            
            (654,739
            )
            
            (160,631
            )Gain
                (loss) on conversion of mandatorily redeemable preferred
                stock
            
            
            —
            
            
            (67,712
            )Amortization
                of loan guarantees
            
            
            (9,411
            )
            
            (109,256
            )Amortization
                of deferred financing fees
            
            
            (85,162
            )
            
            —Gain
                (loss) due to change in warrant liabilities
            
            
            138,874
            
            
            —Gain
                (loss) due to change in conversion feature liabilities
            
            
            128,544
            
            
            (17,437
            )Interest
                income
            
            
            1,143
            
            
            —(Loss)
                on disposition of property and equipment
            
            
            (1,340
            )
            
            —Total
                Other Income (Expense)
            
            
            (482,091
            )
            
            (355,036
            )Provision
                for income taxes
            
            
            —
            
            
            —Net
                Loss
            
            
            (926,930
            )
            
            (980,114
            )Loss
                per weighted average share of common stock outstanding - basic and
                diluted
            
            $
            (0.02
            )
            $
            (0.04
            )Weighted
                average shares outstanding - basic and diluted
            
            
            52,809,117
            
            
            26,266,004




**Three
                months ended**
              **March
                31,****2007**
            
            **2006**Includes
                the following amounts related to share-based compensation expense
                for
                stock options and warrants:General
                and administrative
            
            $
            72,482
            
            $
            144,557Total
            
            $
            72,482
            
            $
            144,557





See
      accompanying notes.




4




**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**THREE
      MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED)**





**Three
                    months ended**
              **March
                31, 2007**
            
            **Three
                months ended**
              **March
                31, 2006**Cash
                flows from operating activities:Net
                loss
            
            $
            (926,930
            )
            $
            (980,114
            )Adjustments
                to reconcile net loss to net cash provided by (used for) operating
                activities:Depreciation
                and amortization
            
            
            577
            
            
            757Provision
                for doubtful accounts
            
            
            —
            
            
            (334
            )Provision
                for inventory markdowns
            
            
            (152,666
            )
            
            —Write-off
                of note and accrued interest receivable
            
            
            76,143
            
            
            —Preferred
                stock redemption accretion
            
            
            —
            
            
            67,712(Gain)
                / loss on notes payable conversion price
            
            
            (2,752
            )
            
            17,437Amortization
                of discount and conversion features on notes payable
            
            
            554,274
            
            
            104,888Option
                compensation expense
            
            
            72,482
            
            
            134,788Issuance
                of notes payable for services
            
            
            —
            
            
            —Issuance
                of warrants for services
            
            
            —
            
            
            9,769Issuance
                of warrants for loan extension
            
            
            85,163
            
            
            —(Gain)
                / loss on warrant liability
            
            
            (138,874
            )
            
            —(Gain)
                / loss on conversion features
            
            
            (125,791
            )
            
            —Issuance
                of warrants and common stock for loan guarantee
            
            
            9,411
            
            
            109,256(Gain)
                / loss on disposition of property and equipment
            
            
            1,340
            
            
            —Changes
                in operating assets and liabilities:(Increase)
                decrease in accounts receivable
            
            
            18,203
            
            
            6,658(Increase)
                decrease in inventory
            
            
            180,491
            
            
            (33,571
            )(Increase)
                decrease in prepaid expenses and other current assets
            
            
            21,314
            
            
            (104,908
            )Increase
                (decrease) in accounts payable
            
            
            (20,251
            )
            
            (13,371
            )Increase
                (decrease) in accrued salary and related benefits
            
            
            23,991
            
            
            (10,639
            )Increase
                (decrease) in accrued expenses
            
            
            (11,343
            )
            
            (8,706
            )Increase
                (decrease) in accrued interest
            
            
            95,108
            
            
            55,372Net
                cash used for operating activities
            
            
            (240,110
            )
            
            (645,006
            )Cash
                flows from investing activities:Proceeds
                from disposition of property and equipment
            
            
            1,200
            
            
            —Purchase
                of property and equipment
            
            
            —
            
            
            (3,257
            )Purchase
                of interest bearing note receivable
            
            
            (75,000
            )
            
            —Net
                cash used for investing activities
            
            
            (73,800
            )
            
            (3,257
            )Cash
                flows from financing activities:Payments
                on secured credit financing
            
            
            (14,845
            )
            
            —Proceeds
                from unsecured convertible notes payable
            
            
            435,000
            
            
            679,600Payments
                on unsecured convertible notes payable
            
            
            (105,000
            )
            
            (25,000
            )Net
                cash provided by financing activities
            
            
            315,155
            
            
            654,600Net
                increase (decrease) in cash and cash equivalents
            
            
            1,245
            
            
            6,337Cash
                and cash equivalents, beginning of period
            
            
            18,991
            
            
            1,867Cash
                and cash equivalents, end of period
            
            $
            20,236
            
            $
            8,204**Supplemental
                disclosures of cash flow information:**Cash
                paid during the period for:Interest
            
            $
            4,162
            
            $
            0Taxes
            
            $
            —
            
            $
            —





See
      accompanying notes.




5




**Supplemental
      disclosures of non-cash investing and financing transactions:**





During
      the three months ended March 31, 2007, the Company entered into the following
      non-cash transactions:





·
            $200,764
                for the revision of certain terms on 6,950,000 warrants for loan
                extensions and loan guarantees·
            Warrants
                issued in conjunction with debt financing having a fair value of
                $66,334·
            2,350,000
                shares of common stock issued in conjunction with debt
                financing.





During
      the three months ended March 31, 2006, the Company entered into the following
      non-cash transactions:




·
            $250,000
                  for the issuance of 1,000,000 shares of its restricted common stock
                  and
                  $77,768 for 1,000,000 warrants for loan
                  guarantees·
            $101,341
                  for the issuance of 600,000 warrants for
                  services




The
      accompanying notes are an integral part of these financial statements.




6





**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**1.**  **Significant
      Accounting Policies**





Description
      of the Company





**Formation
      and Business of the Company:**





Sub-Urban
      Brands, Inc. (“SUB”) was incorporated in Nevada on March 1, 2001 under the name
      DP&D, Inc. (“DPD”). On May 11, 2006, Sub-Urban Brands, Inc., (formerly known
      as "DP&D, Inc.”) acquired all the outstanding shares of Sub-Urban
      Industries, Inc. ("SUI"), pursuant to a share exchange agreement (the “Share
      Exchange Agreement”) in exchange for 31,673,363 restricted shares of its common
      stock in a reverse merger (the "Merger"). Pursuant to the Share Exchange
      Agreement, the shareholders of SUI immediately prior to the Merger received
      one
      share of DPD common stock for each share of Company common stock they held,
      or
      an aggregate of 31,673,363 **** shares
      of
      DPD common stock. These shares represented approximately 68.6% of the 46,173,363
      shares of DPD common stock outstanding immediately following the Merger. The
      acquisition has been accounted for as a reverse merger (recapitalization) with
      SUI deemed to be the accounting acquirer. Accordingly, the historical financial
      statements presented herein are those of SUI, as adjusted to give effect to
      any
      difference in the par value of the issuer's and the accounting acquirer's stock
      with an offset to capital in excess of par value. The retained earnings of
      the
      accounting acquirer have been carried forward after the acquisition and SUI's
      basis of its assets and liabilities were carried over in the recapitalization.
      Operations prior to the business combination are those of the accounting
      acquirer.





In
      these
      financial statements, references to the "Company" mean Sub-Urban Brands, Inc.,
      and its wholly owned legal subsidiary SUI.





SUI,
      a
      privately-held California corporation, was incorporated March 24, 2003 to
      develop and promote several lifestyle apparel brands. The Company designs,
      sells
      and markets apparel (Shirts, Outerwear, Sweatshirts, T-shirts and Accessories)
      and pursues intellectual property to develop for the retail apparel and
      accessories market. The Company leads its product line with the Mash Culture
      LabTM  and
      WHITEBOY®  brands,
      marketed in the “urban”, “street” and “board” apparel markets. Inventory
      production is outsourced. The Company also pursues the acquisition of third
      party brands.





**Merger
      of Sub-Urban Brands, Inc, and Sub-Urban Industries, Inc.:**





SUI
      completed a reverse merger transaction on May 11, 2006 with DP&D, Inc., a
      Nevada corporation formed on March 1, 2001. As of May 11, 2006, the effective
      date of the merger, DPD had nominal assets and liabilities. Effective with
      the
      merger, the directors and management of SUI became the directors and management
      of DPD. SUI has been considered the acquirer in this transaction, frequently
      referred to as a “reverse merger” of a shell company, and accounted for as a
      recapitalization. Accordingly, no goodwill or other adjustment in basis of
      assets is recorded. The shares of the shell, the legal surviving entity, are
      treated as issued as of the date of the transaction, and the shares held by
      the
      controlling shareholders after the transaction, are treated as outstanding
      for
      the entirety of the reporting periods. DPD was formed as a full-service provider
      of consulting services for weddings, holy unions and anniversaries. It had
      not
      commenced business operations as of May 11, 2006, and had nominal assets or
      liabilities. Pursuant to the reorganization, the controlling shareholders of
      SUI
      became DPD’s controlling shareholders. On April 27, 2006, the Company changed
      its corporate name from DPD, Inc. to Sub-Urban Brands, Inc., and its trading
      symbol to SUUB.OB. SUI currently remains a wholly owned subsidiary of Sub-Urban
      Brands, Inc. The Company stock is quoted and traded on the NASDAQ OTC Bulletin
      Board.





Basis
      of Presentation





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with the instructions to Form 10-QSB and Regulation
      SB do
      not include all of the information and footnotes required by accounting
      principles generally accepted in the United States of America for complete
      consolidated financial statements. These condensed consolidated financial
      statements and related notes should be read in conjunction with the audited
      consolidated financial statements of Sub-Urban Brands, Inc. (unless the context
      indicates otherwise, together with its wholly-owned subsidiary Sub-Urban
      Industries, Inc., the "Company" or “SUB”) for the fiscal years ended December
      31, 2006 and 2005 included in the Company's Annual Report on Form 10-KSB for
      the
      year ended December 31, 2006. In the opinion of management, these unaudited
      condensed consolidated financial statements reflect all adjustments which are
      of
      a normal recurring nature and which are necessary to present fairly the
      consolidated financial position of the Company as of March 31, 2007, and the
      results of operations for the three months ended March 31, 2007 and 2006 and
      cash flows for the three months ended March 31, 2007 and 2006. The results
      for
      the three months ended March 31, 2007 are not necessarily indicative of the
      results that may be expected for the entire fiscal year. The
      financial statements and notes are representations of the management and the
      Board of Directors, who are responsible for their integrity and objectivity.





Basis
      of Consolidation





The
      consolidated financial statements include the accounts of Sub-Urban Brands,
      Inc., and its wholly owned subsidiary Sub-Urban Industries, Inc. All significant
      inter-company balances and transactions have been eliminated.




**SIGNIFICANT
        ACCOUNTING POLICIES**
  There
        have been no significant changes in SUB’s significant accounting policies during
        the three months ended March 31, 2007 as compared to what was previously
        disclosed in SUB’s Annual Report on 10-KSB for the year ended December 31, 2006,
        except for the adoption of FIN 48 as discussed in this quarterly
        report.


7


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**1.**  **Significant
      Accounting Policies (continued)**





Use
      of
      Estimates





The
      preparation of these financial statements requires the Company to make estimates
      and judgments that affect the reported amounts of assets, liabilities, revenues
      and expenses. The Company evaluates its estimates on an on-going basis,
      including those related to provisions for doubtful accounts, reserve for
      chargebacks, inventories, valuation of stock, valuation of options, analysis
      of
      deferred taxes and provision for income taxes, contingencies and litigation.
      The
      Company bases its estimates on historical experience and on various other
      assumptions that are believed to be reasonable under the circumstances, the
      results of which form the basis for making judgments about the carrying values
      of assets and liabilities that are not readily apparent from other sources.
      Actual results may differ from these estimates.





Cash
      and Cash Equivalents





For
      purposes of the statement of cash flows, cash equivalents include all highly
      liquid debt instruments with original maturities of three months or less which
      do not secure any corporate obligations.





Fair
      Value of Financial Instruments





The
      Company’s financial instruments, none of which are held for trading, are cash
      and cash equivalents, accounts receivable, other receivables, accounts payable,
      and notes payable. The recorded values of cash and cash equivalents, accounts
      receivable, and accounts payable approximate their fair values based on their
      short-term nature. The recorded values of notes payable approximate their fair
      values, as the interest approximates market rates.





Accounts
      Receivable





The
      Company extends credit to customers based upon an evaluation of the customer’s
      financial condition and credit history and generally requires no collateral.
      Management performs regular evaluations concerning the ability of its customers
      to satisfy their obligations and records a provision for doubtful accounts
      based
      on these evaluations. The Company’s allowance for doubtful accounts was $5,043 at March
      31, 2007.





Inventory





Inventory
      is valued at the lower of cost or market, cost being determined by the first-in,
      first-out method. The Company’s inventory at March 31, 2007, consisted of
      finished goods valued at
      $22,025. The Company
      continually evaluates its inventories by assessing slow moving products. Market
      value of inventory is estimated based on historical sales, current demand,
      inventory levels and an evaluation of current market trends and economic
      conditions. The reserve for lower-of-cost-or-market adjustments at March 31,
      2007 was zero.





Deferred
      Financing Costs





Costs
      relating to obtaining debt financing are capitalized and amortized over the
      term
      of the related debt using the effective interest method. When a loan is paid
      in
      full, any unamortized financing costs are removed from the related accounts
      and
      charged to operations.




8


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**1.**  **Significant
      Accounting Policies (continued)**





Convertible
      Debt Financing and Derivative Liabilities





The
      Company has issued convertible debt securities with non-detachable conversion
      features and detachable warrants. The Company accounts for such securities
      in
      accordance with Emerging Issues Task Force Issue Nos. 98-5, 00-19, 00-27, 05-02,
      05-04, 05-07, 05-08 and 06-06, and Statement of Financial Accounting Standards
      No. 133, “Accounting for Derivative Instruments and Hedging Activities” as
      amended (“SFAS 133”). In accordance with SFAS 133, holder's conversion right
      provision, potential liquidated damages clause, and the reset option
      (collectively, the debt features) contained in the terms governing the Notes
      are
      not clearly and closely related to the characteristics of the Notes.
      Accordingly, the features qualified as embedded derivative instruments at
      issuance and, because they do not qualify for any scope exception within SFAS
      133, they were required by SFAS 133 to be accounted for separately from the
      debt
      instrument and recorded as derivative financial instruments. The Company is
      currently evaluating the impact of FSP 00-19-2.





At
      each
      balance sheet date, the Company adjusts the derivative financial instruments
      to
      their estimated fair value and analyzes the instruments to determine their
      classification as a liability or equity.





If
      the
      holders of the Notes and Warrants have registration rights that require the
      Company to file a registration statement with the Securities and Exchange
      Commission to register the resale of the common stock issuable upon conversion
      of the Convertible Notes or the exercise of the Warrants, under EITF No. 00-19, *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company's Own Stock,* the
      ability to register stock is deemed to be outside of the Company's control.
      Accordingly, the initial fair value of the Warrants and the initial fair value
      of the embedded derivatives (i.e., conversion feature) are recorded as an
      accrued warrant liability and conversion feature liability in the consolidated
      balance sheet, and are marked to market at the end of each reporting period.
      The
      estimated fair value of the warrants was determined using the Black-Scholes
      option-pricing model.





The
      Financial Accounting Standards Board Emerging Issues Task Force issued EITF
      05-04, "The Effect of a Liquidated Damages Clause on a Freestanding Financial
      Instrument Subject to EITF Issue No. 00-19, Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”.
      Under EITF 05-04, liquidated damages clauses may qualify as freestanding
      financial instruments for treatment as a derivative liability. Furthermore,
      EITF
      05-04 addresses the question of whether a registration rights agreement should
      be combined as a unit with the underlying financial instruments and be evaluated
      as a single instrument. EITF 05-04 doesn’t reach a consensus on this question
      and allows for treatment as a combined unit (Views A and B) as well as separate
      freestanding financial instruments (View C).




9


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**1.**  **Significant
      Accounting Policies (continued)**





In
      conjunction with the issuance of the Company’s senior and convertible debentures
      and the related warrants and registration rights, the Company adopted View
      A of
      EITF 05-04. Accordingly, the registration rights agreements, the warrants
      associated with the senior and convertible debentures, the debentures
      themselves, as well as certain features of the debentures were evaluated as
      if
      they are free standing financial instruments. This treatment resulted in
      classification of the warrants and certain features of the debentures as either
      liability or equity while the registration rights agreements and other features
      of the debentures were treated as combined embedded derivative liabilities.
      Derivative liability treatment requires adjusting the carrying value of the
      instrument to its fair value at each balance sheet date and recognizes any
      change since the prior balance sheet date as a component of other income or
      expense. The recorded value of such derivative liabilities can fluctuate
      significantly based on fluctuations of the market value of the underlying
      securities of the Company, as well as on the volatility of the Company’s stock
      price during the term used for observation and the term remaining for the
      underlying financial instruments. The debt features of the debentures and
      associated warrants previously classified as equity or liability are evaluated
      as a combined unit with the registration rights agreements. This combination
      will result in these instruments being treated as derivative liabilities
      requiring periodic re-evaluation of fair value with potentially significant
      fluctuation in fair value from period to period.





Capital
      Stock





The
      Company’s authorized capital stock consists of 200,000,000 shares of $0.001 par
      value stock, with 190,000,000 shares designated as common and 10,000,000 shares
      designated as preferred. On April 25, 2006, the board of directors of the legal
      acquirer (Sub-Urban Brands) approved a forward stock split on a 29-for-1 basis.
      Accordingly, all references to number of shares, except for shares authorized,
      and to per share information in the financial statements have been adjusted
      to
      reflect these stock splits on a retroactive basis.





Legal
      Actions





The
      Company is periodically involved in legal actions and claims that arise as
      a
      result of events that occur in the normal course of operations. The Company
      is
      not currently aware of any formal legal proceedings or claims that the Company
      believes will have, individually or in the aggregate, a material adverse effect
      on the Company's financial position or results of operations.





Comprehensive
      Income (Loss)





Comprehensive
      loss consists of net loss and other gains and losses affecting shareholders’
equity, which under generally accepted accounting principles, are excluded
      from
      net loss in accordance with Statement of Financial Accounting Standards No.
      130,
“Reporting Comprehensive Income.” The Company, however, does not have any
      components of other comprehensive loss as defined by SFAS No. 130 and therefore,
      for the three-month periods ended March 31, 2007and 2006, comprehensive loss
      is
      equivalent to the Company’s reported net loss. Accordingly, a separate statement
      of comprehensive loss is not presented.




10


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**1.**  **Significant
      Accounting Policies (continued)**





Revenue
      Recognition





The
      Company recognizes revenue upon the delivery of its product to its customers.
      The Company charges shipping and handling costs for inventory and sales items
      to
      cost of sales and inventory. Shipping costs recovered from customers is recorded
      as freight revenue and included in net sales. Revenue is recorded net of an
      allowance for estimated returns, price concessions, and other discounts. Such
      allowance is reflected as a reduction to accounts receivable when the Company
      expects to grant credits for such items; otherwise, it is reflected as a
      liability.





The
      Company recognizes revenue only when all of the following criteria have been
      met:





·
            Persuasive
                evidence of an arrangement exists;·
            Delivery
                has occurred or services have been rendered;





·
            The
                fee for the arrangement is fixed or determinable; and·
            Collectibility
                is reasonably assured.





*Persuasive
      Evidence of an Arrangement* —
The
      Company documents all terms of an arrangement in a written contract or purchase
      order signed by the customer prior to recognizing revenue.





*Delivery
      Has Occurred* —
      Products are considered delivered upon delivery to a customer’s designated
      location.





*The
      Fee for the Arrangement is Fixed or Determinable* —
Prior
      to recognizing revenue, the amount is either fixed or determinable under the
      terms of the written contract or purchase order. The amount recognized as
      revenue is negotiated at the outset of the arrangement and is not subject to
      refund or adjustment during the initial term of the arrangement.





*Collectibility
      is Reasonably Assured* —
The
      Company determines that collectibility is reasonably assured prior to
      recognizing revenue. Collectibility is assessed on a customer-by-customer basis
      based on criteria outlined by management. New customers are subject to a credit
      review process, which evaluates the customer’s financial position and ultimately
      its ability to pay. The Company does not enter into arrangements unless
      collectibility is reasonably assured at the outset. Existing customers are
      subject to ongoing credit evaluations based on payment history and other
      factors. If it is determined during the arrangement that collectibility is
      not
      reasonably assured, revenue is recognized on a cash basis.





Advertising





The
      Company expenses advertising costs as incurred, consisting primarily of
      advertising at events, placement in multiple print and internet publications,
      along with design, production and printing costs of sales materials. Advertising
      expense for the three-month periods ended March 31, 2007 and 2006 amounted
      to $0 and $62,567, respectively .





Stock-
      Based Compensation





*Equity
      Incentive Plan*





The
      Company has an Equity Incentive Plan (“Plan”) under which officers, key
      employees, consultants, and non-employee directors may be granted options to
      purchase shares of the Company’s authorized but un-issued common stock. The
      maximum number of shares of the Company’s common stock available for issuance
      under the Plan at March 31, 2007 is 18,375,178 shares (see Note 10).





Prior
      to
      December 31, 2005, the Company had elected to follow Financial Accounting
      Standards Board Statement No. 123 (Accounting for Stock-Based Compensation)
      in
      accounting for its employee and non-employee stock options. Accordingly, the
      Company determined compensation costs based on the fair value at the grant
      date
      for its stock options using the Black-Scholes valuation method. The
      Black-Scholes option valuation model was developed for estimating the fair
      value
      of traded options that have no vesting restrictions and are fully transferable.
      Because option valuation models require the use of subjective assumptions,
      changes in these assumptions can materially affect the fair value of the
      options. The Company’s options do not have the complete characteristics of
      traded options. The option valuation models do not necessarily provide a
      reliable measure of the fair value of its options (see Note 10). Effective
      January 1, 2006, the Company has adopted the fair value based method of
      accounting prescribed in FASB Statement of Financial Accounting Standards No.
      123R *Accounting
      for Share-Based Payment.*




11


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**1.**  **Significant
      Accounting Policies (continued)**





Share-based
      Compensation Expense





SFAS
      123(R) requires the measurement and recognition of compensation expense for
      all
      share-based payment awards made to employees and directors, including stock
      options issued under the New Plan. The financial statements for the three months
      ended March 31, 2006, reflect the effect of SFAS 123(R). The differences between
      SFAS 123 and SFAS 123R were relatively minor to the Company. Share-based
      compensation expense recognized is based on the value of the portion of
      share-based payment awards that is ultimately expected to vest. Share-based
      compensation expense recognized in the Consolidated Statements of Operations
      during the three months ended March 31, 2007 and 2006, include compensation
      expense for share-based payment awards granted prior to, but not yet vested
      as
      of, December 31, 2005 based on the grant date fair value estimated in accordance
      with the provisions of SFAS 123 and compensation expense for the share-based
      payment awards granted subsequent to January 1, 2006 based on the grant date
      fair value estimated in accordance with the provisions of SFAS 123(R). In
      conjunction with the adoption of SFAS 123(R), we elected to attribute the value
      of share-based compensation to expense using the straight-line attribution
      method.





Upon
      adoption of SFAS 123(R), the Company elected to continue valuing the Company’s
      share-based payment awards granted after January 1, 2006 using the Black-Scholes
      option-pricing model, which the Company previously used for the recognition
      of
      compensation expense required under SFAS 123. The Black-Scholes model was
      developed for use in estimating the fair value of traded options that have
      no
      vesting restrictions and are fully transferable. The Black-Scholes model
      requires the input of certain assumptions. The Company’s options have
      characteristics significantly different from those of traded options, and
      changes in the assumptions can materially affect the fair value estimates.
      The
      determination of fair value of share-based payment awards on the date of grant
      using the Black-Scholes model is affected by the stock price as well as the
      input of other subjective assumptions. These assumptions include, but are not
      limited to the expected term of stock options and expected stock price
      volatility over the term of the awards





The
      expected term of stock options represents the weighted-average period the stock
      options are expected to remain outstanding. The expected term is based on the
      observed and expected time to post-vesting exercise and forfeitures of option
      by
      our employees. Upon the adoption of SFAS 123(R), management determined the
      expected term of stock options using the simplified method as allowed under
      SAB
      107. Upon adoption of SFAS 123(R), The Company used average historical
      volatility of two publicly traded companies in the apparel business, measured
      over a period equal to the option expected terms in deriving its expected
      volatility assumption as allowed under SFAS 123(R) and SAB 107. Prior to January
      1, 2006, the Company had also used historical stock price volatility in
      accordance with SFAS 123 for purposes of recognizing compensation expense.
      The
      risk-free interest rate assumption is based upon observed interest rates
      appropriate for the term of the Company’s stock options and warrants. The
      dividend yield assumption is based on history and expectation of dividend
      payouts.





As
      share-based compensation expense recognized in the Consolidated Statements
      of
      Operations for the three months ended March 31, 2007 and 2006 is based on awards
      ultimately expected to vest SFAS 123(R) requires forfeitures to be estimated
      at
      the time of grant and revised, if necessary, in subsequent periods if actual
      forfeitures differ from those estimates. However, based on the Company’s
      relatively short operating history to develop a meaningful rate for estimating
      forfeitures. Prior to January 1, 2006, the Company accounted for forfeitures
      as
      they occurred. If factors change and the Company should utilizes different
      assumptions in the application of SFAS 123(R) in future periods, the
      compensation expense that the Company recorded under SFAS 123(R) may differ
      from
      what was recorded in the current period. For the three months ending March
      31,
      2007, the Company had forfeitures resulting in an expense adjustment of $4,730.
      At March 31, 2007 there is total unrecognized compensation expense related
      to
      stock options granted under the plan of $378,121. This unrecognized compensation
      expense is expected to be recognized over a weighted average period of 1.1
      years.




12


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**1.**  **Significant
      Accounting Policies (continued)**





Warrants





The
      Company accounts for stock warrants issued to third parties in accordance with
      the provisions of the Emerging Issues Task Force (EITF) Issue No. 96-18, *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling Goods or Services,* and
      EITF
      01-9, *Accounting
      for Consideration Given by a Vendor to a Customer (Including a Reseller of
      the
      Vendor’s Products).* Under
      the
      provisions of EITF 96-18, because none of the Company’s agreements have a
      disincentive for nonperformance, the Company records a charge for the fair
      value
      of the portion of the warrants earned from the point in time when vesting of
      the
      warrants becomes probable. Final determination of fair value of the warrants
      occurs upon actual vesting. EITF 01-9 requires that the fair value of certain
      types of warrants issued to customers be recorded as a reduction of revenue
      to
      the extent of cumulative revenue recorded from that customer.





Income
      Tax





In
      June
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes (FIN 48), an interpretation of FASB Statements No. 109.” FIN 48
      clarifies the accounting for uncertainty in income taxes by prescribing a
      two-step method of first evaluating whether a tax position has met a more likely
      than not recognition threshold and second, measuring that tax position to
      determine the amount of benefit to be recognized in the financial statements.
      FIN 48 provides guidance on the presentation of such positions within a
      classified statement of financial position as well as on derecognition, interest
      and penalties, accounting in interim periods, disclosure, and transition. FIN
      48
      is effective for fiscal years beginning after December 15, 2006.





The
      Company adopted the provisions of FIN 48 on January 1, 2007. As a result of
      the
      implementation of FIN 48, the Company recognized no material adjustment in
      the
      liability for unrecognized income tax benefits. At the adoption date of January
      1, 2007, the Company has fully reserved its tax assets as a result of tax
      benefits.





The
      Company does recognize interest and penalties related to uncertain tax positions
      in income tax expense. As of March 31, 2007, the Company has no accrued interest
      or penalties related to uncertain tax positions.





The
      tax
      years 2001 - 2006 remain open to examination by federal and state taxing
      authorities to which the Company is subject.





The
      Company does not anticipate that total unrecognized tax benefits will
      significantly change due to the settlement of any potential audits and the
      expiration of statute of limitations prior to March 31, 2008.





13


Recent
        Accounting Pronouncements
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities—Including an amendment of FASB
        Statement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value
        accounting but does not affect existing standards which require assets or
        liabilities to be carried at fair value. Under SFAS 159, a company may elect
        to
        use fair value to measure accounts and loans receivable, available-for-sale
        and
        held-to-maturity securities, equity method investments, accounts payable,
        guarantees and issued debt. Other eligible items include firm commitments
        for
        financial instruments that otherwise would not be recognized at inception
        and
        non-cash warranty obligations where a warrantor is permitted to pay a third
        party to provide the warranty goods or services. If the use of fair value
        is
        elected, any upfront costs and fees related to the item must be recognized
        in
        earnings and cannot be deferred, e.g., debt issue costs. The fair value election
        is irrevocable and generally made on an instrument-by-instrument basis, even
        if
        a company has similar instruments that it elects not to measure based on
        fair
        value. At the adoption date, unrealized gains and losses on existing items
        for
        which fair value has been elected are reported as a cumulative adjustment
        to
        beginning retained earnings. Subsequent to the adoption of SFAS 159, changes
        in
        fair value are recognized in earnings. SFAS 159 is effective for fiscal years
        beginning after November 15, 2007 and is required to be adopted by the Company
        in the first quarter of 2008. The Company is currently is determining whether
        fair value accounting is appropriate for any of its eligible items and cannot
        estimate the impact, if any, which SFAS 159 will have on its consolidated
        results of operations and financial condition.
 
 **2.**  **Liquidity
        and Capital Resources**
 
 The
        accompanying financial statements have been prepared on a going-concern basis,
        which contemplates the realization of assets and the satisfaction of liabilities
        in the normal course of business. The Company incurred net losses
        of
        $926,930 and $5,529,877 for the three months ended March 31, 2007, and the year
        ended December 31, 2006, respectively, and had negative operating cash flows
        of
        $240,110 and $2,883,397 for the respective periods. These factors raise
        substantial doubt about the Company’s
        ability to continue as a going concern. In view of the matters described
        above,
        recoverability of a major portion of the recorded asset amounts shown in
        the
        accompanying balance sheets is dependent upon the Company’s ability to generate
        sufficient sales volume to cover its operating expenses and to raise sufficient
        capital to meet its payment obligations. Management is taking action to address
        these matters, which include:
  ·
              The
                  Company is seeking investment capital through bridge financing
                  and a
                  private placement offering.


·
            The
                Company is developing sales channels for commercialization of MASH
                CULTURE
                LABTMand the WHITEBOY® brand of products.·
            Announcement
                of two non-binding letters of intent for the acquisition of two companies,
                each with established brands and revenues. The acquisition of these
                two
                entities is dependent upon the Company obtaining a significant amount
                of
                new capital financing.





Historically,
      management has been able to raise additional capital. Subsequent to March 31,
      2007, the Company obtained an additional $212,500 in capital. (See Note 12
      on
      subsequent events.) The proceeds were used for
      working capital. The financial statements do not include any adjustments
      relating to the recoverability and classification of recorded asset amounts,
      or
      amounts and classification of liabilities that might be necessary should the
      Company be unable to continue in existence.




14




**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**2.**  **Liquidity
      and Capital Resources (continued)**





The
      successful outcome of future activities cannot be determined at this time and
      there is no assurance that if achieved, the Company will have sufficient funds
      to execute its intended business plan or generate positive operating results.





In
      an
      effort to address the above issues, the Company is focused on revenue growth
      and
      raising additional capital. Although the Company believes that it will obtain
      the additional financing, there is no assurance that such financing will be
      available in the amount or on the terms necessary to sustain the Company’s
      operations.





Additionally,
      The Company markets specialty urban apparel brand of fashionable and
      contemporary apparel and accessory items designed for consumers with a young,
      active lifestyle. The Company’s success is largely dependent on its ability to
      gauge the fashion tastes of its customers and to provide merchandise that
      satisfies customer demand. The Company’s failure to anticipate, identify, or
      react to changes in fashion trends could adversely affect its results of
      operations.





**3.**  **Secured
      Line of Credit - Accounts Receivable**





In
      September 2006, the Company obtained a new secured lending facility with a
      $200,000 limit from a financial institution, American Business Finance LLC
      (ABF). Under the terms of the agreement, the Company assigned most of its trade
      receivables, whereby ABF advanced up to 80% of the assigned receivables, but
      retained full right of recourse to have the Company repurchase any receivables
      that remain unpaid 90 days from date of invoice. The Company’s borrowings were
      secured by the underlying assigned trade receivables, as well as by a general
      grant of security interest in the Company’s receivables, inventories, equipment,
      furniture, fixtures, intangibles and various other assets. The receivables
      were
      subject to full recourse; therefore, the transactions did not qualify as a
      sale
      under the terms of Financial Accounting Standards Board Statement No. 125
      (Accounting for Transfers and Servicing of Financial Assets and Extinguishments
      of Liabilities). The Company did not transfer any receivables to the financial
      institution during the three-month period ending March 31, 2007. Advance
      borrowings at March 31, 2007 had been fully repaid. At March 31, 2007, there
      were no receivables that were assigned and collateralized under this financing
      agreement. The Company terminated the agreement on May 2, 2007. The financing
      institution owed the company $2,850 at March 31, 2007 from collected receivables
      that had not yet been remitted to the Company.





**4.**  **Basic
      and Diluted Loss Per Share**





In
      accordance with SFAS No. 128, “Earnings Per Share,” the basic loss per share is
      computed by dividing the loss attributable to common stockholders by the
      weighted average number of common shares outstanding during the period. Basic
      net loss per share excludes the dilutive effect of stock options or warrants
      and
      convertible notes. Diluted net loss per share was the same as basic net loss
      per
      share for all periods presented, since the effect of any potentially dilutive
      securities is excluded, as they are anti-dilutive due to the Company’s net
      losses.





The
      following table sets forth the computation of basic and diluted net loss per
      common share:





**Three
                Months Ended****March
                31,****2007**
            
            **2006**NumeratorNet
                loss available to common shareholders
            
            $
            (926,930
            )
            $
            (980,114
            )DenominatorWeighted
                average common shares outstandingBasic
                and diluted
            
            
            52,809,117
            
            
            26,266,004Net
                loss per common share:Basic
                and diluted
            
            $
            (0.02
            )
            $
            (0.04
            )





15


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**4.**  **Basic
      and Diluted Loss Per Share (continued)**





The
      potential shares, which are excluded from the determination of basic and diluted
      net loss per share as their effect is anti-dilutive, are as follows:





**March
                31, 2007**
            
            **March
                31, 2006**Preferred
                Shares of SUI convertible to common stock (1)
            
            —
            
            2,841,532Secured
                promissory notes convertible to common stock (2)
            
            
            3,286,521
            
            
            —Promissory
                Notes convertible to common stock (3)
            
            
            8,763,334
            
            
            7,660,173Options
                to purchase common stock
            
            
            8,769,752
            
            
            5,632,698Warrants
                to purchase common stock
            
            
            25,217,910
            
            
            7,322,245Potential
                equivalent shares excluded
            
            
            46,037,517
            
            
            23,456,648





(1)
      Converted to common stock in 2006




(2)
      Consists of
      secured convertible promissory notes issued in 2006 with a principal and accrued
      interest balance of $821,630.




(3)
      For
      the three months ended March 31, 2007, consists of notes issued in 2004 with
      a
      principal and accrued interest balance of $121,348 convertible into 374,143
      shares of common stock; notes issued in 2005 with a principal and accrued
      interest balance of $148,245 convertible into 584,728 shares of common stock;
      and notes issued in 2006 with a principal and accrued interest balance of
      $2,772,746 convertible into 11,090,984 shares of common stock. For the three
      months ended March 31, 2006, consists of notes issued in 2004 with a principal
      and accrued interest balance of $1,012,800 convertible into 3,122,692 shares
      of
      common stock, notes issued in 2005 with a principal and accrued interest balance
      of $632,881 convertible into 2,498,489 shares of common stock, and notes issued
      in 2006 with a principal and accrued interest balance of $509,748 convertible
      into 2,038,992 shares of common stock





**5.**  **Property
      and Equipment**





At
      March
      31, 2007, property and equipment consisted of the following:





March
                31, 2007Computers
                and other equipment
            
            $
            24,120Furniture
                and fixtures
            
            
            2,379Machinery
                & equipment
            
            
            8,949Total
                property and equipment
            
            
            35,448Less:
                accumulated depreciation
            
            
            (15,972
            )Property
                and equipment, net
            
            $
            19,476





Depreciation
      expense for the three-month periods ended March 31, 2007 and 2006, was
      $577
      and $757, respectively ,
      and is
      included as a component of general and administrative expenses in the
      accompanying financial statements.




16


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**6.**  **Notes
      Payable**





Details
      of Debentures





Debt
      consists of the following at March 31, 2007:





Convertible
                secured notes payable
            
            $
            750,000Discount
                on convertible secured notes payable
            
            
            (26,684
            )Sub-total
            
            
            723,316Convertible
                unsecured notes payable
            
            
            2,403,800Conversion
                price liability
            
            
            3,741Discount
                on convertible unsecured notes payable
            
            
            (616,580
            )Sub-total
            
            
            1,790,961Conversion
                features derivative liabilities
            
            
            83,988Non-convertible
                notes payable
            
            
            1,145,056Non-convertible
                note discounts and premiums
            
            
            (121,302
            )Sub-total
            
            
            1,023,754Non-convertible
                notes payable - related party
            
            
            20,000Total
                debt
            
            $
            3,642,019Less:
                current portion
            
            
            (3,642,019
            )Long-term
                debt, less current portion
            
            $
            0





Convertible
      Notes Payable





Schedule
      of Changes in Convertible Notes Payable during the three months ended March
      31,
      2007:





Convertible
                Notes
              Payable
                - Secured
            
            Convertible
              Notes
                Payable
            
            Total
                convertible
              Notes
                PayableBalance
                at December 31, 2006
            
            $
            750,000
            
            $
            2,073,800
            
            $
            2,823,800New
                financing arrangements
            
            
            —
            
            
            435,000
            
            
            435,000Note
                conversions to common stock
            
            
            —
            
            
            —
            
            
            —Note
                principal repayments
            
            
            —
            
            
            (105,000
            )
            
            (105,000
            )Principal
                Balance at March 31, 2007
            
            $
            750,000
            
            $
            2,403,800
            
            $
            3,153,800





17


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**6.**  **Notes
      Payable (continued)**





Transactions
      during the three
      months ended March 31, 2007:





*Convertible
      Debt Issued with Stock Purchase Warrants and Common Stock*





During
      the three months ended March 31, 2007, the Company sold in a private placement
      to qualified buyers and accredited investors Note Units (the Note Offering).
      The
      Note Units consisted of an aggregate of $400,000 principal amount of 10.0%
      unsecured Notes (collectively, the Notes) with $250,000 due December 15, 2007,
      $125,000 due February 13, 2008, and $25, 000
      due
      March 28, 2008  ,
      and an
      aggregate of 2,350,000 shares of unregistered common stock and Common Stock
      Purchase Warrant (collectively the Warrants) to purchase an aggregate of 1.8
      million shares of the Company’s common stock, par value $0.01 per share (the
      Common Stock), at an exercise price of $0.15 per share. The
      proceeds were used to fund working capital needs of the Company.





The
      values assigned to the warrants and commons shares issued followed the guidance
      of the EITF Issue No. 98-5, “Accounting for Convertible Securities with
      Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”,
      EITF 00-19: “Accounting for Derivative Financial Instruments Indexed to, and
      Potentially Settled in, a Company’s Own Stock”, FAS No. 150, “Accounting for
      Certain Financial Instruments with Characteristics of both Liabilities and
      Equity” and EITF Issue No. 00-27, “Application of Issue No. 98-5 to Certain
      Convertible Instruments” of the FASB’s Emerging Issues Task Force. The debt
      discount associated with the Warrants and common shares is amortized to interest
      expense over the life of the Debenture or upon earlier conversion of the
      Debenture using the effective yield method. The Company did not assign any
      value
      to the embedded beneficial conversion feature, since the option to convert
      is at
      the sole discretion of the Company and contingent upon obtaining an additional
      $1 million in financing. The
      Notes
      contain representations, warranties and default provision typical of financings
      of this nature.




Total
      funds received of $400,000 were allocated $216,600 to the Common Stock, $66,334
      to the Warrants and $117,066 to the Notes. The fair value of the warrants at
      the
      time of issuance, which was determined using the Black-Scholes option-pricing
      model, was recorded as additional paid-in capital and reduced the carrying
      value
      of the Notes. The fair value of the common stock issued reduced the carrying
      value of the Notes, which was determined using the market price of the stock
      at
      the time of issuance. The discount on the Notes is being amortized to interest
      expense over the term of the Notes. The Company incurred $52,064 of interest
      expense during the three months ended March 31, 2006 related to these notes.





The
      notes
      are convertible at the sole option of the Company with interest at 10%. The
      Company can (i) prepay the note in full prior to or on the maturity date or
      (ii)
      convert at the sole option of the Company at a conversion price of 50% of the
      then current quoted market price only in the event of a financing of at least
      $1,000,000. If converted, such shares would need to be registered by the Company
      within 7 months of February 22, 2007.





In
      connection with these financings, the Company issued 2,350,000 shares of common
      stock, which the company must register by Sept 22, 2007. The
      Company agreed to file a registration statement with the Securities and Exchange
      Commission (the “SEC”) in order to register the Shares, for resale and to cause
      such registration to be declared effective by the SEC within seven (7) months
      of
      the Closing. In the event that the registration statement is not declared
      effective by the SEC on or before the seven-month anniversary of the Closing
      Date, the Company shall, at the first day of each calendar month thereafter
      and
      continuing for so long as the Registrable Shares are not registered, issue
      to
      the Investor as “bonus shares” 10% of the shares issued. Notwithstanding the
      foregoing, the Company will include the Shares on its next Registration
      Statement filed with the SEC. The Investor specifically acknowledges and agrees
      that the SEC may request that the number of shares in any registration
      statements filed by the Company for selling shareholders be cut back or
      registration delayed pursuant to the SEC’s interpretation of Rule 415 or other
      rules and regulations promulgated under the Securities Act of 1933, as amended.
      The Investor agrees that any such cutbacks or delays in registration shall
      not
      be a breach of the Company’s obligation to register the Registrable Shares and
      shall not result in payment of Bonus Shares hereby. The
      maximum amount of Bonus Shares that could be issued is 1,065,000.




The
      Company issued 1,800,000 warrants for the purchase
      of common stock at a price of $0.15 with an exercise period of five years.
      The
      warrants have piggyback registration rights. A net exercise is restricted to
      one
      year after issuance, and is not permitted if the underlying shares have been
      registered for resale. The fair value of the warrants was $65,794.


18


The
        Company’s intention is to repay these notes in cash.
 
 Debt
        Repayment
  The
        Company repaid an aggregate of $70,000 of principal on certain convertible
        notes
        issued in 2005 and accrued interest of $4,162 on a convertible note also
        issued
        in 2005.
 
 Warrant
        Liability
  For
        the
        three months ended March 31, 2007, the warrant liability for warrants issued
        in
        connection with 2006 convertible note financings were remarked to market
        as of
        March 31, 2007, with a net total decrease in the warrant liability and a
        non-cash gain of $138,874.


Beneficial
      Conversion Features Liability




For
      the
      three months ended March 31, 2007, the beneficial conversion features in
      connection with 2006 convertible note financings were remarked to market as
      of
      March 31, 2007, with a net total decrease in the conversion feature liability
      and a non-cash gain of $125,792.





Other
      Convertible Debt




During
      the three months ended March 31, 2007, the Company obtained financing through
      the issuance of a short-term convertible promissory note for $35,000, which
      was
      subsequently repaid by the Company within two days.





Related
      Party Notes Payable




In
      December 2006, the Company issued a subordinated promissory note in the
      aggregate principal amount of $15,000 to a member of the board of directors
      of
      the Company. The notes bears interest at a rate of 8%, plus a $5,000 loan bridge
      fee, all due on February 11, 2007. Accrued interest on this note at March 31,
      2007 was $362.





Events
      of Default




The
      Company had certain notes that had events of default; however, the holders
      of
      these notes have not exercised any of their rights under these
      provisions.




19


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**7.**  **Common
      Stock**





Transactions
      during the three months ended March 31, 2007





The
      Company issued 2,350,000 shares of common stock in connection with $400,000
      of
      new convertible securities in private placements to qualified buyers and
      accredited investors, with investment units consisting of notes, common stock
      and warrants described in Note 6.





**8.**  **Warrants**





As
      of
      March 31, 2007 and 2006, the Company has 25,217,910 and 7,322,245 warrants
      to
      purchase shares of common stock respectively outstanding. The fair value of
      the
      warrants was determined using the Black-Scholes option-pricing model (with
      the
      same assumptions as those used for the options, see Note 10).





There
      were no warrants exercised during the three-month periods ended March 31, 2007
      and 2006.





Changes
      in the status of warrants, prior to any conversion price adjustments are
      summarized below for the three-month periods ended March 31, 2007 and
      2006:




**Three
                Months ended**
              **March
                31, 2007**
            
            **Three
                Months ended**
              **March
                31, 2006****Warrants**
            
            **Weighted**
              **Average**
              **Price**
            
            **Warrants**
            
            **Weighted**
              **Average**
              **Price**Outstanding
                at beginning of period
            
            
            29,906,310
            
            $
            0.299
            
            
            3,603,845
            
            $
            0.329Granted
            
            
            1,850,000
            
            
            0.150
            
            
            3,718,400
            
            
            0.230Cancelled
                or expired
            
            
            6,538,400
            
            
            0.334
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —
            
            
            —
            
            
            —Outstanding
                at end of period
            
            
            25,217,910
            
            $
            0.242
            
            
            7,322,245
            
            $
            0.280Exercisable
                at the end of the period
            
            
            25,217,910
            
            $
            0.242
            
            
            7,322,245
            
            $
            0.280Price
                range of warrants
            
            $
            0.10
                - 0.40
            
            
            
            
            $
            $0.10
                - 0.25
            
            $





Transactions
      during the three months ended March 31, 2007





During
      the three months ended March 31, 2007 the Company issued warrants convertible
      into 1,850,000 shares of its common stock in connection with the extension
      of
      debt. The exercise price of the warrants was $0.15 per share. The value of
      these
      warrants was $65,794 on the dates of the grants. The Company uses the
      Black-Scholes Model to determine fair value for valuing warrants issued. The
      Black-Scholes method is based on the following assumptions for the three months
      ended March 31, 2007: average risk free interest rate ranging from 4.55% to
      4.81%; dividend yield of 0%; average volatility factor of the expected market
      price of the Company’s common stock of 55.92% and the actual term of the
      warrant. These warrants include “piggy-back” registration rights, unless the
      Registrable Shares can be sold under the provisions of Rule 144 without
      limitation as to volume, whether pursuant to Rule 144(k) or otherwise. If the
      Company shall determine to register any Common Stock under the Securities Act
      for sale in connection with a public offering of Common Stock (other than
      pursuant to an employee benefit plan or a merger, acquisition or similar
      transaction), the Company will give written notice thereof to Holder and will
      include in such Registration Statement any of the Registrable Shares which
      Holder may request be included **(“** Included
      Shares **”)** by a
      writing delivered to the Company within 15 days after the notice given by the
      Company to Holder; provided, however, that if the offering is to be firmly
      underwritten, and the representative of the underwriters of the offering refuse
      in writing to include in the offering all of the shares of Common Stock
      requested by the Company and others, the shares to be included shall be
      allocated first to the Company and any shareholder who initiated such
      Registration and then among the others based on the respective number of shares
      of Common Stock held by such persons. If the Company decides not to, and does
      not, file a Registration Statement with respect to such Registration, or after
      filing determines to withdraw the same before the effective date thereof, the
      Company will promptly so inform Holder, and the Company will not be obligated
      to
      complete the registration of the Included Shares included therein.




20


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**8.**  **Warrants
      (continued)**





During
      the three months ended March 31, 2007, in exchange for a loan extension and
      third-party loan guarantees on a portion of the Company’s existing debt, the
      Company modified the warrant exercise period and the exercise price of warrants
      previously issued. The Company uses the Black-Scholes Model to determine fair
      value for valuing warrants issued. The Black-Scholes method is based on the
      following assumptions for the three months ended March 31, 2007: average risk
      free interest rate ranging from 4.55% to 4.81%; dividend yield of 0%; average
      volatility factor of the expected market price of the Company’s common stock of
      55.92% and the actual term of the warrant. The specific changes to warrant
      terms
      were as follows:





i)
      On Feb
      13. 2007 the Company (i) extended by three years the exercise period for two
      warrants each for the purchase of 2,000,000 shares of the Company’s common
      stock, and (ii) reduced the exercise price from $0.25 to $0.15. The change
      in
      the fair value of the warrants was $115,405 and was charged to Note Discount,
      and $48,630 of amortization was charged for the quarter ended March 31, 2007.





ii)
      On
      Feb 13. 2007 the Company (i) extended by three years the exercise period a
      warrant for the purchase of 1,850,000 shares of the Company’s common stock, and
      (ii) reduced the exercise from $0.50 to $0.15. The change in the fair value
      of
      the warrants was $54,255 and was charged to Deferred Financing, and $36,532
      of
      amortization was charged for the quarter ended March 31, 2007.





iii)
      On
      March 12, 2007 the Company (i) extended by four years the exercise period for
      two warrants, each for the purchase of 50,000 shares of the Company’s common
      stock, and (ii) reduced the exercise price from $0.25 to $0.15. The change
      in
      the fair value of the warrants was $2,873 and was charged to Note Discount,
      and
      $958 of amortization was charged for the quarter ended March 31, 2007.





iv)
      On
      March 12, 2007 the Company (i) extended by three years the exercise period
      for
      two warrants, each for the purchase of 500,000 shares of the Company’s common
      stock, and (ii) reduced the exercise price from $0.25 to $0.15. The change
      in
      the fair value of the warrants was $28,231 and was charged to Deferred
      Financing, and $9,410 of amortization was charged for the quarter ended March
      31, 2007 .




**9.**  **Stock-Based
      Compensation**





On
      June
      25, 2003 the Board of Directors of the Company adopted an equity incentive
      plan.
      At March 31, 2007, the plan has authorized a share pool 18,375,178 shares,
      of
      which a total of 8,869,752, were outstanding. There were no exercises of stock
      options during the three-month periods ended March 31, 2007 and 2006.





The
      Company accounts for its stock-based compensation based on SFAS No. 123R,
“Accounting for Stock-Based Compensation”. Pursuant to SFAS No.123R, the Company
      recognized an expense for the fair market value of the stock-based instrument
      granted to third parties and employees. Pursuant to SFAS No. 123, compensation
      cost is determined using the fair value of stock-based compensation determined
      as of the date of grant and is recognized over the periods in which the related
      services are rendered. The Company uses the Black-Scholes Model to determine
      fair value for valuing options issued.





During
      the three months ended March 31, 2007, the company canceled options convertible
      into 100,000 shares of its common stock due to forfeitures as a result of an
      employee’s separation. The exercise price of the options was $0.25 per share.
      The Company recorded a credit of $4,730 to non-cash compensation expense for
      the
      value of non-vested options expensed prior to the forfeiture.





The
      fair
      value of options granted under the plan was estimated at the date of grant
      using
      the Black-Scholes model with the following weighted average assumptions:





**Three
                Months ended**
              **March
                31,****2007**
            
            **2006**Expected
                term (in years)
            
            
            N/A
            
            
            6.0Risk-free
                interest rate
            
            
            N/A
            
            
            4.68
            %Expected
                volatility
            
            
            N/A
            
            
            50.28
            %Expected
                dividend yield
            
            
            N/A
            
            
            0
            %Weighted
                average fair value at grant date
            
            
            N/A
            
            $
            0.13





The
      Company issued no stock options during the three months ended March 31, 2007
      to
      employees or consultants.




21


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**9.**  **Stock-Based
      Compensation (continued)**





The
      effect of recording share-based compensation expense for the three-month periods
      ended March 31, 2007 and 2006 is as follows:





**Three
                Months Ended**
              **March
                31,**
              **2007**
            
            **Three
                Months Ended**
              **March
                31,**
              **2006**Stock-based
                compensation expense related to employee stock options
            
            $
            72,482
            
            $
            134,788Tax
                benefit
            
            
            —
            
            
            —Net
                decrease in net earnings
            
            $
            72,482
            
            $
            134,788Effect
                on:Cash
                flows from operating activities
            
            $
            —
            
            $
            —Cash
                flows from financing activities
            
            $
            —
            
            $
            —Effect
                on:Net
                earnings per share — Basic
            
            $
            0.00
            
            $
            0.01Net
                earnings per share — Diluted
            
            $
            0.00
            
            $
            0.01





For
      the
      three-month periods ended March 31, 2007 and 2006, total share-based
      compensation expense recognized in earnings before taxes was $72,482 and
      $134,788, respectively ,
      and the
      total related recognized tax benefit was zero in both years.





Changes
      in the status of options are summarized below for three-month periods ended
      March 31, 2007:





**Shares
                Available**
              **for
                Grant**
            
            **Number
                of**
              **Shares**
            
            **Weighted**
              **Average
                Exercise**
              **Price**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Term**
              **(in
                years)**
            
            **Aggregate**
              **Intrinsic
                Value**
              **(1)**Balance
                at December 31, 2006
            
            
            9,988,722
            
            
            8,869,752
            
            
            0.310GrantedAuthorized
            
            
            (483,296
            )
            
            —
            
            
            —Cancelled
                or expired
            
            
            100,000
            
            
            (100,000
            )
            
            0.250Exercised
            
            
            —
            
            
            —
            
            
            —Balance
                at March 31, 2007
            
            
            9,605,426
            
            
            8,769,752
            
            $
            0.310
            
            
            8.7
            
            $
            —Vested
                and Exercisable at March 31, 2007
            
            
            
            
            
            4,465,989
            
            
            
            
            
            
            
            $
            —





(1)
      The
      aggregate intrinsic value represents the total pre-tax intrinsic value, based
      on
      the Company’s closing stock price at the end of the reporting period. The
      Company’s stock began trading on the NASDAQ OTC Bulletin Board in May of 2006,
      concurrent with the Company’s reverse merger. As of March 31, 2007, the
      Company’s closing price was $0.074, as a result there is no intrinsic value as
      of that date.





The
      total
      pre-tax intrinsic value of options exercised was $0, and $0, during the
      three-month periods ended March 31, 2007 and 2006, respectively.




22


**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**9.**  **Stock-Based
      Compensation (continued)**





Total
      options under the Plan at March 31, 2007, comprised the following:





**Option
                Exercise**
              **Price**
            
            **Number
                Outstanding**
              **as
                of**
              **March
                31, 2007**
            
            **Weighted
                Average**
              **Remaining**
              **Contractual
                Life (Years)**
            
            **Number**
              **Exercisable**
              **as
                of**
              **March
                31, 2007**$0.64
            
            
            656,950
            
            
            9.3
            
            
            246,5820.42
            
            
            1,000,000
            
            
            9.5
            
            
            265,7540.38
            
            
            400,500
            
            
            7.4
            
            
            400,5000.33
            
            
            531,165
            
            
            9.5
            
            
            132,4280.28
            
            
            632,198
            
            
            6.5
            
            
            632,1980.25
            
            
            5,548,939
            
            
            8.8
            
            
            3,626,659Total
            
            
            8,769,752
            
            
            
            
            
            5,304,121





As
      of
      March 31, 2007, there was $378,121 of total unrecognized compensation cost
      related to non-vested share-based compensation arrangements granted. This
      unrecognized compensation expense is expected to be recognized over a
      weighted-average period of 1.1 years.





At
      March
      31, 2007, the Company has 3,465,631 options that are not vested, with total
      outstanding options at March 31, 2007 of 8,769,752.





**10.**  **Commitments**





In
      July
      of 2004, the Company entered into a lease for approximately 4,000 square feet
      of
      combined office and warehouse space located at 2222 E. Washington, Los Angeles,
      California, at a monthly rental rate of $2,500. The lease commenced July 15,
      2004 and expired July 15, 2006. In August 2006, the Company moved its operations
      and entered into a lease for approximately 10,600 square feet of combined office
      and warehouse space in leased premises located at 8723 Bellanca Avenue, Los
      Angeles, California, at a monthly base rental rate of $8,931 to $9,569 over
      the
      term of the lease. The lease commenced on August 21, 2006 and expires October
      31, 2009. The Company conducts all of its executive, administrative,
      distribution and operational functions in this facility.





Future
      minimum lease payments under this operating lease as of March 31, 2007 are
      as
      follows:




2007
            
            
            81,9732008
            
            
            112,5932009
            
            
            95,688Total
            
            $
            290,254





Rent
      expense under operating leases for the three months ended March 31, 2007 is $36,921 .




23





**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**11.**  **Concentrations
      of Certain Risks**





Concentration
      of Credit Risk





The
      Company’s financial instruments that are exposed to concentrations of credit
      risk consist primarily of cash and accounts receivable. The Company maintains
      its cash in bank deposit accounts, which at times may exceed federally insured
      limits. The Company has not experienced any losses in such accounts.





The
      Company extends credit to customers located throughout North America whose
      sales
      invoices are not subject to the secured line of credit accounts receivable
      program based upon an evaluation of the customer’s financial condition and
      credit history. The Company’s customers located outside of North America pay on
      a cash-in-advance basis.





The
      Company performs ongoing credit evaluations of its customer’s financial
      condition, and limits the amount of credit extended when deemed necessary,
      but
      generally does not require collateral. At March 31, 2007 ,
      six of
      the Company’s customers accounted for 84% of the Company’s gross accounts
      receivable, each with 6% to 30% of the Company’s gro ss
      accounts receivable. Two
      customers accounted for 91% of the Company’s gross sales for the three months
      ended March 31, 2007, each with 9% and 82% of th e
      total. As
      of
      March 31, 2006, four of the Company’s customers accounted for 100%, each with 1%
      to 59% of the Company’s accounts receivable. Four customers accounted for 41% of
      the Company’s gross sales for the three months ended March 31, 2006, each with
      6% to 18% of the total.





**12.**  **** **Subsequent
      Events**





Issuance
      of Promissory Note and Securities Purchase Agreements





On
      April
      25, 2007, the Company received an advance of $125,000 from an accredited
      investor on securities purchase agreements executed on May 15, 2007. The
      securities issued under these agreements consist of the following: a 10%
      Subordinated Promissory Notes in the principal amount of $125,000; 750,000
      restricted shares of the Company’s Common Stock; and warrants to purchase
      500,000 shares of the Company’s restricted Common Stock at $0.15 per share.





The
      Note
      is due and payable at the earlier of (i) one year from the date of financing
      or
      (ii) upon the occurrence of an event of default, as defined therein. The Company
      may (i) prepay the outstanding principal balance and unpaid accrued interest
      on
      the Note in full or (ii) convert the outstanding principal balance and unpaid
      accrued interest of the Note into shares of the Company’s Common Stock
      (“Conversion Shares”) at a conversion price per share equal to 50% of the
      average market price during the five (5) days prior to conversion, immediately
      prior to or concurrently with the consummation of any sale of securities of
      the
      Company occurring after the date of the Agreement and having gross proceeds
      to
      the Company of at least $1,000,000.





In
      connection with the Agreements, the Company agrees to file a registration
      statement with the Commission in order to register the Conversion Shares,
      together with any Bonus Shares (as such term is defined below) (collectively,
      the “Registrable Shares”), for resale and to cause such registration to be
      declared effective by the Commission within seven (7) months of the date of
      issuance of the Note. In the event that the registration statement is not
      declared effective by the Commission on or before the seven-month anniversary
      of
      the date of issuance of the Note, the Company shall, at the first day of each
      calendar month thereafter and continuing for so long as the Registrable Shares
      are not registered, issue 10% of the outstanding shares of Common Stock to
      the
      Investor under the Note. The Investor specifically acknowledges and agrees
      that
      the SEC may request that the number of shares in any registration statements
      filed by the Company for selling shareholders be reduced or registration delayed
      pursuant to the SEC’s interpretation of Rule 415 or other rules and regulations
      promulgated under the Securities Act of 1933, as amended. The Investor agrees
      that any such cutbacks or delays in registration shall not be a breach of the
      Company’s obligation to register the Registrable Shares and shall not result in
      payment of Bonus Shares hereby. The Chief Executive Officer of the Company,
      Joe
      Shortal, personally guaranteed payment in full of all principal, interest and
      other monetary obligations of the Company under the Note.





The
      securities issued under the Agreements were offered and sold to the Investor
      in
      private placement transactions made in reliance upon exemptions from
      registration pursuant to Section 4(2) under the Securities Act of 1933 and
      Rule
      506 promulgated there under. The Investor is an accredited investor as defined
      in Rule 501 of Regulation D promulgated under the Securities Act of
      1933.





Advances
      on Anticipated Promissory Note and Securities Purchase
      Agreements





On
      April
      13, April 25, May 11 and May 14, 2007, the Company received advances in
      aggregate of $87,500 from various qualified and accredited investors. The term
      of these advances will be similar to the terms noted above in regards to the
      $125,000 advance received on April 25, 2007. Although such agreements have
      not
      currently been fully executed as of the date hereof, The Company anticipates
      that the securities to be issued will consist of the following: 10% Subordinated
      Promissory Notes in the aggregate principal amount of $87,500; 525,000
      restricted shares of the Company’s Common Stock; and warrants to purchase
      350,000 shares of the Company’s restricted Common Stock at $0.15 per share.




24





**SUB-URBAN
      BRANDS, INC. AND SUBSIDIARY**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF MARCH 31, 2007 (UNAUDITED)**





**12.**  **** **Subsequent
      Events** **(continued)**





Agreement
      to Acquire The Apparel Agent, LLC.





On
      May 8,
      2007, Sub-Urban Brands, Inc. (the "Company") entered into a definitive agreement
      (the “Agreement”) with The Apparel Agent, LLC(TAA) , Jiun Ku and Shirley Fong
      (the “Sellers”) to acquire 22.5%, 22.5% and 22.5%%, respectively, to acquire
      their membership interest in The Apparel Agent, LLC, a design, marketing, sales
      and manufacturing firm headquartered in Los Angeles, CA.





The
      Company has agreed to purchase 22.5% of the membership interest from Jiun Ku
      for
      $180,000, of which the Company must pay $100,000 in cash at the closing date
      and
      the remaining $80,000 shall be delivered to Jiun Ku in the form of a secured
      8%
      promissory note. The company has agreed to purchase 22.5% of the membership
      interest from Shirley Fong for $195,000, of which the company must pay $100,000
      in cash at the closing. The remaining $95,000 shall be delivered to Shirley
      Fong
      in the form of a secured 8% promissory note. TAA has the option to repurchase
      from Mr. Larry Block for $125,000 his 22.5% membership interest in the TAA,
      which upon the closing date the Company will purchase Mr. Block’s 22.5%
      membership interest through the TAA repurchase option.





The
      Company shall, at the Closing, have at least Three Hundred Thousand Dollars
      ($300,000) in cash or cash equivalents deposited in one or more accounts
      maintained for the Company or TAA. In addition, the Company shall directly
      invest into TAA an aggregate amount of at least One Million Fifty Thousand
      Dollars ($1,050,000) during the twelve (12) months following the closing. The
      Company has already advanced TAA Seventy-Five Thousand Dollars ($75,000) which
      both parties agreed that the Company will have made as an investment in the
      TAA
      at Closing pursuant to the terms of a promissory note issued by TAA to the
      Company dated February 23, 2007. In the event that the Company is not able
      to
      close this transaction by June 30, 2007, this $75,000 advance will not be repaid
      to the Company. The Note and related accrued interest receivable have been
      fully
      written off as of March 31, 2007.





Both
      of
      the promissory notes to Shirley Fong and Jiun Ku will bear interest at 8% per
      annum and will be due and payable at the earlier of (i) the first anniversary
      of
      the closing or (ii) upon the occurrence of an event of default, as defined
      therein. The Company may prepay the outstanding principal balance and unpaid
      accrued interest of both of the promissory notes in full. The notes will be
      secured by the assets of the Company pursuant to the terms of a security
      agreement between the parties; however, Ms. Ku and Ms. Fong have agreed to
      subordinate such notes as requested by the Company in connection with certain
      merger or combination transactions or future fundraising events.





The
      Company intends to fund the cash portion of the purchase price of the
      acquisition through a subsequent financing; however, there is no guarantee
      the
      Company will be successful in raising the required capital by June 30, 2007.
      The
      Agreement contains representations, warranties and covenants typical of
      transactions of this nature. Consummation of the transaction is subject to
      conditions typical of transactions of this type in the United States, including
      completion of due diligence by the Company and obtaining the required minimum
      capital to finance the acquisition.





The
      Company has not included pro-forma financial information related to this
      potential acquisition of TAA, due to the significant contingencies associated
      with the consummation of this transaction, primarily, the Company’s ability to
      raise the required minimum capital to finance the transaction.




25





**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
      OPERATION.**




The
      following discussion summarizes the significant factors affecting the
      consolidated operating results, financial condition and liquidity/cash flows
      of
      the Company for the three months ended March 31, 2007, compared to the three
      months ended March 31, 2006. This discussion should be read in conjunction
      with
      the Consolidated Financial Statements and Notes included in the company's Annual
      Report on Form 10-KSB for the year ended December 31, 2006.





In
      this
      Report, the term "the Company" and its variants is generally used to refer
      to
      Sub-Urban Brands, Inc. and its subsidiaries.




**Forward
      Looking Statements**





Various
      portions of this Quarterly Report, including but not limited to the section
      captioned "Management's Discussion and Analysis of Financial Condition and
      Results of Operations," contain forward-looking information. Such information
      involves risks and uncertainties that are based on current expectations,
      estimates and projections about the Company's business, Management's beliefs,
      and assumptions made by Management. Words such as "expects," "anticipates,"
      "intends," "plans," "believes," "seeks," "estimates," and variations of those
      and similar words are intended to identify such forward-looking information.
      Any
      forward-looking statements made by the Company are intended to provide investors
      with additional information with which they may assess the Company's future
      potential. All forward-looking statements are based on assumptions about an
      uncertain future and are based on information available at the date such
      statements are issued. Actual outcomes and results may differ materially from
      what is expressed or forecasted in such forward-looking information due to
      numerous factors, including but not limited to: changes in the pricing
      environment for the Company's products; changes in demand for products; the
      impact of competition; availability of financing for operations, changes in
      interest rates; and other risks discussed elsewhere in this Quarterly Report
      and
      from time to time in the Company's Securities and Exchange Commission (the
      "Commission") filings and reports. In addition, such statements could be
      affected by general industry and market conditions and growth rates, and in
      general economic and political conditions. The Company undertakes no obligation
      to update these forward-looking statements to reflect facts, circumstances,
      assumptions or events that occur after the date the forward-looking statements
      are made or to publicly release the results of any revision to these
      forward-looking statements. Readers are cautioned not to place undue reliance
      on
      these forward-looking statements.




***Completion
      of Merger***





Sub-Urban
      Brands, Inc. (“SUB”) was incorporated in Nevada on March 1, 2001 under the name
      DP&D, Inc. (“DPD”). On May 11, 2006, Sub-Urban Brands, Inc., (formerly known
      as "DP&D, Inc.”) acquired all the outstanding shares of Sub-Urban
      Industries, Inc. ("SUI"), pursuant to a share exchange agreement (the “Share
      Exchange Agreement”) in exchange for 31,673,363 restricted shares of its common
      stock in a reverse merger (the "Merger"). Pursuant to the Share Exchange
      Agreement, the shareholders of SUI immediately prior to the Merger received
      one
      share of DPD common stock for each share of Company common stock they held,
      or
      an aggregate of 31,673,363 **** shares
      of
      DPD common stock. These shares represented approximately 68.6% of the 46,173,363
      shares of DPD common stock outstanding immediately following the Merger. The
      acquisition has been accounted for as a reverse merger (recapitalization) with
      SUI deemed to be the accounting acquirer. Accordingly, the historical financial
      statements presented herein are those of SUI, as adjusted to give effect to
      any
      difference in the par value of the issuer's and the accounting acquirer's stock
      with an offset to capital in excess of par value. The retained earnings of
      the
      accounting acquirer have been carried forward after the acquisition and SUI's
      basis of its assets and liabilities were carried over in the recapitalization.
      Operations prior to the business combination are those of the accounting
      acquirer.





In
      these
      financial statements, references to the "Company" mean Sub-Urban Brands, Inc.,
      and its wholly owned legal subsidiary SUI.


On
      August
      21, 2006, we moved our corporate offices and entered into a 38 month lease
      for
      10,632 square feet located at 8723 Bellanca Ave, Bldg. A., Los Angeles, CA
      90045.





**Cash
      Requirements and Additional Funding.** We
      will
      require additional financing, either from loans, or the issuance of debt and
      equity securities. We are unlikely to obtain material commercial bank financing.
      If we cannot obtain sufficient additional financing, we may be forced to slow
      down or suspend our operations. The success of our business will be dependent
      on
      a number of factors, many of which are beyond our control (see "Risk Factors,"
      below). Accordingly, we can give no assurance that the Company will become
      profitable. Further, we can give no assurance that we will be able to obtain
      sufficient financing to implement our business plan, or that if financing is
      obtained, such financing will not materially dilute our existing shareholders.
      Our ability to obtain additional financing in the coming months will depend
      upon
      a number of factors, including market conditions, our results of operations,
      our
      success in implementing our business plan for brand launches, our acquisition
      strategy and investors' perception of our business and prospects.





**Assets.** Our
      current assets total $108,627, consisting primarily of cash and cash equivalents
      of $20,236, inventory (net of reserves) of $22,025, notes receivable of $20,000,
      and deferred financing fees of $36,544. Long-term assets consist of property
      and
      equipment (net of accumulated depreciation) of $19,476 and deposits of
      $28,092.




26





**Liabilities
      and Working Capital.** Our
      liabilities of $4,659,753 are all current and consist primarily of accounts
      payable and accrued expenses of $329,602, accrued salary and benefits of
      $290,326, secured convertible notes payable in the principal amount of $750,000,
      convertible notes payable in the principal amount of $2,403,800, non-convertible
      notes payable in the principal amount of $1,145,056, and related-party notes
      payable in the amount of $20,000. These notes also have discounts, premiums,
      conversion price liabilities, and conversion features liability adjustments
      which on a net basis reduce liabilities by $676,837. The Company also has
      warrant liabilities of $30,492 and accrued interest payable of $367,314. The
      Company had a working capital deficit of $4,551,126 at March 31,
      2007.





**Results
      of Operations**





Comparing
      three months ended March 31, 2007 and 2006:





In
      2006,
      the Company focused on rebuilding the infrastructure of the Company and
      redesigning current brands and developing our new brand, Mash Culture LabTM,
      which was launched in August 2006. The brand did not achieve the level of market
      penetration and sales we had expected, resulting in our revised strategy,
      changing our focus from developing brands internally to also acquiring
      established brands through acquisitions.





The
      Company ended the first quarter of 2007 with a net loss of $926,930, as compared
      to a net loss of $980,114 for the same period in 2006.  We
      recorded sales of $30,624, for the three months ended March 31, 2007, compared
      to $8,679 for the three months ended March 31, 2006, an increase of 253%,
      reflecting the Company’s investment and focus on the development of future
      products and brand name recognition, as well as seeking other revenue generating
      apparel organizations to become the primary source of revenue. Our gross margin
      was 8% for the three months ended March 31, 2007, and 58% for the same period
      last year, reflecting reduced prices due to markdowns as result of disappointing
      sales of our WHITEBOY® and Mash Culture LabTM product lines. Our operating
      expenses for the quarter ended March 31, 2007 were $447,217, compared to
      $630,125 for the same period last year, a decrease of 29%. This change was
      due
      primarily to the 9% decrease of $37,649 in general and administrative expenses;
      a 75% decrease in sales and marketing expenditures of $119,788; and a 59%
      decrease in product development expenses of $25,469.





The
      decrease in general and administrative expenses is due primarily to i) decreases
      in investment banking and professional fees of $60,742; ii) decrease in non-cash
      compensation of $62,307; and iii) a decrease in travel and entertainment expense
      of $15,813; which were partially offset by iv) an increase of $18,322 in
      insurance expense related to the addition of D&O coverage in the second
      quarter of 2006 and v) the write-off of a note receivable of $75,000 and related
      accrued interest receivable of $1,143. (See note 12 of the Notes to the
      Consolidated Financial Statements as of March 31, 2007, included herein under
      Item 1.). The decrease in sales and marketing and product development expenses
      reflect the Company’s shift in strategy in late 2006 from developing its own
      brands to acquiring established brands through acquisition. The decrease in
      selling expense is due primarily to i) decreases in sales salaries of $20,000;
      ii) decreases in advertising expenditures of $62,567; iii) decreases in
      marketing and promotions of $14,624; iv) decrease in public relations expense
      of
      $10,000; and v) decreases in trade show expenses of $12,771. The decrease in
      product development expense of $25,469 is due to reduced expenditures for
      product design and sampling.





The
      net
      of other expenses for the quarter ended March 31, 2007 was $482,091, compared
      to
      $355,036, an increase of 36% and $127,055 from the same quarter last year.
      This
      change is due primarily to i) an increase of $444,671 in non-cash interest
      expense from equity instruments issued in connection with convertible notes;
      ii)
      an increase of non-cash loan extension expense of $85,163; and iii) an increase
      of $43,898 in interest expense. These increases were offset by i) a decrease
      of
      $67,712 in preferred stock redemption accretion due to the conversion of
      preferred stock to common stock prior to the Merger of May 11, 2006; ii) a
      non-cash gain on the revaluation of warrant liabilities of $138,874; iii) a
      non-cash gain on the revaluation of conversion feature liabilities of $125,792;
      and iv) a favorable swing in the non-cash gain (loss) on notes payable
      conversion price adjustments of $20,188.





The
      Company’s net loss was $926,930 compared to $980,114 for the quarters ended
      March 31, 2007 and 2006, respectively. Cash used for the Company’s operating
      activities was $240,110, and $645,006 for the quarters ended March 31, 2007
      and
      2006, respectively.





**Liquidity
      and Capital Resources**





At
      March
      31, 2007, the Company had a working capital deficit of $4,551,126. The Company’s
      total assets at March 31, 2007 were $156,195, of which $20,236 was cash and
      $5,520 was accounts receivable (including the receivable from secured lender).
      At March 31, 2007, the Company’s total liabilities were $4,659,753. The Company
      has invested in the redesign and launch of its new brands, and does not
      anticipate material revenues from these products prior to the first quarter
      of
      fiscal 2008. Historically, management has been able to raise additional capital.
      Subsequent to March 31, 2007, the Company obtained an additional $212,500 from
      accredited investors as proceeds from the sale of securities, and advances
      on
      anticipated sales of securities. (See note 12 of the Notes to the Consolidated
      Financial Statements as of March 31, 2007, included herein under Item 1.) The
      successful outcome of future fundraising activities cannot be determined at
      this
      time and there is no assurance that the Company will have sufficient funds
      to
      execute its intended business plan or generate positive operating results.





In
      an
      effort to address the above issues, the Company is focused on revenue growth
      and
      raising additional capital. The Company believes it will need to raise an
      additional $3.5 million to execute its business plan for 2007. Although the
      Company believes that it will obtain this additional financing, there is no
      assurance that such financing will be sufficient or available on terms necessary
      to sustain the Company’s operations.




27





Additionally,
      The Company markets specialty-urban apparel brands of fashionable and
      contemporary apparel and accessory items designed for consumers with a young,
      active lifestyle. The Company’s success is largely dependent on its ability to
      gauge the fashion tastes of its customers and to provide merchandise that
      satisfies customer demand. The Company’s failure to anticipate, identify, or
      react to changes in fashion trends could adversely affect its results of
      operations.





**Our
      Plan for Operations in 2007**





The
      primary focus for the Company in 2007 will be to acquire leading edge companies
      who have an established brand identity, revenues, industry average or above
      average margins and an existence in a growing segment of the apparel industry. On
      May 8,
      2007, the Company entered into a definitive agreement with The Apparel Agent,
      LLC, Jiun Ku and Shirley Fong (the “Sellers”) to acquire 22.5%, 22.5% and 22.5%,
      respectively, of the equity interests of The Apparel Agent, LLC. (See
      note
      12 of the Notes to the Consolidated Financial Statements as of March 31, 2007,
      included herein under Item 1.) We have also entered into a Letter of Intent
      with
      REO STARR, LLC dated 9/29/2006, which is non-binding, except for confidentiality
      and certain other matters. The Company will attempt to complete both
      acquisitions by the end of the second quarter of 2007. In order to complete
      these intended acquisitions, the Company will be actively pursuing capital
      from
      retail and institutional investors and will work with its current debt holders
      to reduce all of the outstanding debt of the company. There is no assurance
      that
      we will obtain the additional and required capital financing to conclude these
      acquisition transactions.





If
      these
      acquisitions are consummated, they will provide immediate revenue and a product
      mix that encompasses denim as well as a vast array of knit top programs.
      Sub-Urban will be able to leverage the combined infrastructure of these two
      entities to drive multiple private label programs aimed at big box retailers
      such as Federated, Kohl’s Sears and Target to name a few. In addition, the
      Company will be able to produce its current labels of WHITEBOY for Men and
      WHITEBOY for Women at a substantially reduced cost through our acquisitions
      as
      well as leverage the relationships of the management of both acquisition to
      drive distribution deals through retail and on-line channels.





Sub-Urban
      Brands management team will focus on improving the financial and operational
      management in all our acquisitions. The Company will also work with the
      acquisitions to identify personnel needs and vendors who can facilitate growth
      and efficiency for their operations. These would include skilled personnel,
      consultants and vendors whose specialties are in production, sales, marketing,
      public relations and on-line media. The management team at Sub-Urban Brands
      will
      also concentrate on raising capital to complete the two announced acquisitions,
      working with current debt holders to convert all debt to common stock,
      integrating and upgrading accounting systems, practices and resources, as well
      as identifying future acquisitions in the marketplace.





Sub-Urban
      Brands, Inc will look to add to its financial staff as we continue to grow
      through acquisition. The primary focus of the organization for 2007 and going
      forward will be to grow revenues and earnings through acquisition of profitable
      high growth companies. The company will also seek to establish key licensing
      arrangements for our current brands and non core product categories of our
      intended acquisition. The Company expects to be raising capital on an ongoing
      basis to fund our acquisition and growth strategy.





**Risk
      Factors**





**RISKS
      RELATED TO OUR BUSINESS**





**We
      have experienced historical losses and a substantial accumulated deficit. If
      we
      are unable to reverse this trend, we will likely be forced to cease
      operations.**





We
      have
      incurred losses since inception, including losses of $926,930 and $5,529,877
      for
      the three months ended March 31, 2007, and the year ended December 31, 2006,
      respectively, and expect to incur net losses for the foreseeable future. In
      addition, at March 31, 2007, we had a working
      capital deficit of $4,551,126 and a
      retained earnings deficit of $ 11,801,237 .
      Our
      operating results for future periods will include significant expenses,
      including new product development expenses, potential marketing costs,
      professional fees and administrative expenses, and will be subject to numerous
      uncertainties. As a result, we are unable to predict whether we will achieve
      profitability in the foreseeable future, or at all.





**We
      have a working capital deficit and significant capital requirements. Since
      we
      will continue to incur losses until we are able to generate sufficient revenues
      to offset our expenses, investors may be unable to sell our shares at a profit
      or at all.**





The
      Company had a net loss of $ 926,930 for the
      three months ended March 31, 2007 and net cash used in operations of
      $ 240,110 for the
      three months ended March 31, 2007, and a working capital deficit of
      $ 4,551,126 at March
      31, 2007.  Because the Company has not yet achieved or acquired sufficient
      operating capital, and given these financial results along with the Company's
      expected cash requirements in 2007, additional capital investment will be
      necessary to develop and sustain the Company's operations.





**Our
      independent registered public accounting firm has raised doubt over our
      continued existence as a going concern.**





We
      have
      incurred substantial operating and net losses, as well as negative operating
      cash flow and do not have financing commitments in place to meet expected cash
      requirements for the next twelve months.




28





We
      have
      incurred losses for the past two fiscal years and had a net loss of
      $ 926,930 for the
      three months ended March 31, 2007. In addition, at March 31, 2007, we had a
      retained earnings deficit of $ 11,801,237 .
      We are
      unable to fund our day-to-day operations through revenues alone and management
      believes we will incur operating losses for the near future while we expand
      our
      sales channels.  While we have expanded our product line and expect to
      establish new sales channels, we may be unable to increase revenues to the
      point
      that we attain and are able to maintain profitability.  As a result we rely
      on private financing to cover cash shortfalls.





As
      a
      result, we continue to have significant working capital and stockholders'
      deficits including a substantial accumulated deficit at March 31, 2007 and
      December 31, 2006. In recognition of such, our independent registered public
      accounting firm has included an explanatory paragraph in its report on our
      consolidated financial statements for the fiscal years ended December 31, 2006
      and December 31, 2005 that expressed substantial doubt regarding our ability
      to
      continue as a going concern.





**We
      need additional external capital and if we are unable to raise sufficient
      capital to fund our plans, we may be forced to delay or cease
      operations** .





We
      are
      currently in negotiations with potential investors who may fund us and whose
      terms may or may not be favorable to the Company and its debt holders with
      respect to valuation and conversion of the existing debt





Based
      on
      our current growth plan, we believe we may require approximately $3.5 million
      in
      additional financing within the next twelve months to achieve our goals for
      2007. Our success will depend upon our ability to access equity capital
      markets and borrow on terms that are financially advantageous to us. However,
      we
      may not be able to obtain additional funds on acceptable terms. If we fail
      to
      obtain funds on acceptable terms, then we might be forced to delay or abandon
      some or all of our business plans or may not have sufficient working capital
      to
      develop products, finance acquisitions, or pursue business opportunities.
 If we borrow funds, then we could be forced to use a large portion of our
      cash reserves, if any, to repay principal and interest on those loans.  If
      we issue our securities for capital, then the interests of investors and
      stockholders will be diluted.





**Our
      future success depends upon our ability to consummate acquisitions on terms
      favorable to the Company.**





We
      have
      few assets and our business plan in large part involves making acquisitions
      of
      other businesses and assets.  We have currently identified and are
      negotiating with two potential acquisition targets. On May 8, 2007, the Company
      entered into a definitive agreement with The Apparel Agent, LLC , Jiun Ku and
      Shirley Fong (the “Sellers”) to acquire 22.5%, 22.5% and 22.5%%, respectively,
      of the equity interests of The Apparel Agent, LLC. (See note 12 of the Notes
      to
      the Consolidated Financial Statements as of March 31, 2007, included herein
      under Item 1.) The Company has also entered into a Letters of Intent with REO
      STARR, LLC and it members that are non-binding, except for confidentiality
      and
      certain other binding matters.





We
      may
      also seek to identify other potential targets.  We can provide no assurance
      that we will be able to complete any of these acquisitions in a timely manner
      or
      on terms favorable to the Company.  Each of these acquisitions may require
      us to restructure our current capitalization or debt and/or seek additional
      equity financing, which may be dilutive to current shareholders, or debt
      financing, which may be on terms that are not favorable to the Company.  In
      addition, the process of identifying, acquiring and integrating future
      acquisitions may constrain valuable management resources, and our failure to
      integrate future acquisitions may result in the loss of key employees and the
      dilution of stockholder value and have an adverse effect on our operating
      results. We expect to pursue strategic acquisitions in the future.
      Completing any potential future acquisitions could cause significant diversions
      of management time and resources.





Acquisition
      transactions involve inherent risks, such as:





·
            uncertainties
                in assessing the value, strengths, weaknesses, contingent and other
                liabilities and potential profitability of acquisition or other
                transaction candidates;·
            the
                potential loss of key personnel of an acquired
                business;·
            the
                ability to achieve identified operating and financial synergies
                anticipated to result from an acquisition or other
                transaction;·
            problems
                that could arise from the integration of the acquired
                business;·
            unanticipated
                changes in business, industry or general economic conditions that
                affect
                the assumptions underlying the acquisition or other transaction rationale;
                and·
            unexpected
                development costs that adversely affect our
                profitability.





Financing
      for future acquisitions may not be available on favorable terms, or at all.
      If
      we identify an appropriate acquisition candidate for our businesses, we may
      not
      be able to negotiate the terms of the acquisition successfully, finance the
      acquisition or integrate the acquired business, technologies or employees into
      our existing business and operations. Future acquisitions may not be well
      received by the investment community, which may cause our stock price to
      fluctuate. We cannot ensure that we will be able to identify or complete any
      acquisition in the future.




29





**Our
      business strategy is unproven, and we may not be successful in addressing early
      stage challenges, such as establishing our position in the market and developing
      our products and services. To implement our business plan, we will require
      additional financing. We cannot guaranty that such additional financing will
      be
      available. In the absence of additional financing we may be required to
      significantly reduce our operations.**





Our
      prospects must be considered speculative, considering the risks, expenses,
      and
      difficulties frequently encountered in the establishment of a new business,
      specifically the risks inherent in developmental stage companies. We expect
      to
      continue to incur significant operating and capital expenditures and, as a
      result, we expect significant net losses in the future. We cannot guaranty
      that
      we will be able to achieve profitable operations or, if profitability is
      achieved, that it will be maintained for any significant period, or at all.
      If
      we are unable to achieve profitable operations, investors will likely lose
      their
      entire investment.





We
      may
      not be successful in the implementation of our business strategy or our business
      strategy may not be successful, either of which will impede our development
      and
      growth. Our business strategy involves leveraging brand acceptance into
      profitable sales and licensing opportunities. Our ability to implement this
      business strategy is dependent on our ability to:





·
            Identify
                and engage additional business opportunities;·
            Sell
                our products to end consumers;·
            Establish
                brand recognition and customer loyalty; and·
            Manage
                growth in administrative overhead costs.





In
      assessing our ability to meet these challenges, a potential investor should
      take
      into account our lack of operating history and brand recognition, our
      significant losses since inception, our management’s relative inexperience, the
      competitive conditions existing in our industry and general economic conditions
      and consumer discretionary spending habits. Our growth is largely dependent
      on
      our ability to successfully implement our business strategy. Our revenues will
      be adversely affected if we fail to implement our business strategy or if we
      divert resources to a business strategy that ultimately proves unsuccessful.





Our
      continued development involves other significant risks, including but are not
      limited to:





·
            An
                unproven business model;·
            Negative
                net cash flow since inception;·
            High
                investments in product development and marketing programs.·
            No
                guaranty of acceptance of our products and services.·
            Changes
                in style and trends.·
            Raw
                material shortages.·
            Changes
                in consumer spending.





**We
      depend on independent manufacturers and suppliers of raw materials, which
      reduces our ability to control the manufacturing process, which could harm
      our
      sales, reputation and overall profitability.**





We
      depend
      on independent contract manufacturers and suppliers of raw materials to secure
      a
      sufficient supply of raw materials and maintain sufficient manufacturing and
      shipping capacity in an environment characterized by declining prices, labor
      shortage, continuing cost pressure and increased demands for product innovation
      and speed-to-market. This dependence could subject us to difficulty in obtaining
      timely delivery of products of acceptable quality. In addition, a contractor’s
      failure to ship products to us in a timely manner or to meet the required
      quality standards could cause us to miss the delivery date requirements of
      our
      customers. The failure to make timely deliveries may cause our customers to
      cancel orders, refuse to accept deliveries, impose non-compliance charges
      through invoice deductions or other charge-backs, demand reduced prices or
      reduce future orders, any of which could harm our sales, reputation and overall
      profitability.





**We
      do not have long-term contracts with any of our independent contractors and
      any
      of these contractors may unilaterally terminate their relationship with us
      at
      any time. While we believe there is an adequate supply of contractors to provide
      products and services to us, to the extent we are not able to secure or maintain
      relationships with independent contractors that are able to fulfill its
      requirements, our business would be harmed.**





We
      have
      initiated standards for our suppliers, and monitor our independent contractors’
compliance with applicable labor laws, but we do not control our contractors
      or
      their labor practices. The violation of federal, state or foreign labor laws
      by
      one of our contractors could result in us being subject to fines and our goods
      that are manufactured in violation of such laws being seized or their sale
      in
      interstate commerce being prohibited. To date, we have not been subject to
      any
      sanctions that, individually or in the aggregate, have had a material adverse
      effect on our business, and we are not aware of any facts on which any such
      sanctions could be based. There can be no assurance, however, that in the future
      we will not be subject to sanctions as a result of violations of applicable
      labor laws by our contractors, or that such sanctions will not have a material
      adverse effect on our business and results of operations.




30





**We
      have limited existing brand identity and customer loyalty; if we fail to develop
      and maintain our proposed brand, our business could suffer.**





The
      Company must be able to acquire brands and or apparel companies that have strong
      brand identities in order to be successful in a highly competitive environment.
      We have determined that there is an affinity to the term “WHITEBOY®” and MASH
      CULTURE LAB ༬࿠within our targeted consumer groups, but this is no guaranty that
      the Company will be able to establish brand loyalty for them and the Company
      will focus on acquiring those brands or organizations that already have proven
      themselves successful.





**We
      may not be able to operate profitably if we fail to anticipate and interpret
      fashion trends.**





We
      believe that our success depends in part on our ability to anticipate, gauge
      and
      respond to changing consumer demands and fashion trends in a timely manner.
      We
      cannot guaranty that we will be successful in anticipating consumer tastes
      and
      preferences. If we misjudge the market for our proposed line of clothing and
      accessories, we may be faced with a significant amount of unsold inventory,
      which could keep us from generating profits.





**Our
      inability to obtain sufficient financing will harm our development and growth
      strategy.**





We
      will
      require substantial amounts of working capital to fund our business and we
      cannot guaranty that additional financing will be available. We expect to
      require substantial additional capital to fund our acquisition strategy and
      operating expenses. We cannot be certain that any additional financing will
      be
      available to us on favorable terms when required, or at all. If we are unable
      to
      obtain sufficient additional capital when needed, we could be forced to alter
      our business strategy, delay or abandon some of our development plans or
      terminate our operations. In addition, if we raise additional funds through
      the
      issuance of equity, equity-linked or debt securities, such securities may have
      rights, preferences or privileges senior to those of the rights of our Common
      Stock and our stockholders may experience additional dilution.


We
      currently operate two principal brands, WHITEBOY® for men and WHITEBOY® for
      girls as well as we are actively seeking revenue streams thru acquisitions.
      If
      we are unable to successfully acquire successful brands and or market and
      distribute our current brands our results of operations and financial condition
      will be adversely affected.





**Our
      operating results may fluctuate significantly.**





Management
      expects that we will experience substantial variations in our net sales and
      operating results from quarter to quarter. We believe the factors that influence
      this variability of quarterly results include:





·
            the
                potential to acquire successful brands or apparel related
                companies·
            the
                timing of our introduction of new product lines thru private labeling;·
            general
                economic and industry conditions that affect consumer spending and
                retailer purchasing;·
            the
                availability of manufacturing capacity;·
            the
                seasonality of the markets in which we participate;·
            the
                timing of trade shows;·
            the
                product mix of customer orders;·
            the
                timing of the placement or cancellation of customer orders;·
            the
                weather;·
            transportation
                delays;·
            quotas
                and other regulatory matters;·
            the
                occurrence of charge backs in excess of reserves; and·
            the
                timing of expenditures in anticipation of increased sales and actions
                of
                competitors.





As
      a
      result of fluctuations in our revenue and operating expenses that may occur,
      management believes that period-to-period comparisons of our results of
      operations may not necessarily indicate future performance.





**The
      financial condition of our customers could affect our results of operations.**





Certain
      retailers, including some of our customers, have experienced in the past, and
      may experience in the future, financial difficulties, that increase the risk
      of
      extending credit to such retailers and the risk that financial failure will
      eliminate a customer entirely. These retailers have attempted to improve their
      own operating efficiencies by concentrating their purchasing power among a
      narrowing group of vendors. There can be no assurance that we will remain a
      preferred vendor for our existing customers. A decrease in business from or
      loss
      of a major customer could harm our results of operations. There can be no
      assurance that our factor will approve the extension of credit to certain retail
      customers in the future. If a customer’s credit is not approved by the factor,
      we could assume the collection risk on sales to the customer itself, require
      that the customer provide a letter of credit, or choose not to make sales to
      the
      customer.





**Our
      business is subject to risks associated with importing products.**





A
      portion
      of our import operations are subject to tariffs imposed on imported products
      and
      quotas imposed by trade agreements. In addition, the countries from which our
      products are imported may from time to time impose additional new duties,
      tariffs or other restrictions on its imports or adversely modify existing
      restrictions. Adverse changes in these import costs and restrictions, or our
      suppliers’ failure to comply with customs or similar laws, could harm our
      business. We cannot assure that future trade agreements will not provide our
      competitors with an advantage over us, or increase our costs, either of which
      could have an adverse effect on our business and financial condition.




31





**Our
      operations are also subject to the effects of international trade agreements
      and
      regulations such as the North American Free Trade Agreement, and the activities
      and regulations of the World Trade Organization.**





Generally,
      these trade agreements benefit our business by reducing or eliminating the
      duties assessed on products or other materials manufactured in a particular
      country. However, trade agreements can also impose requirements that adversely
      affect our business, such as limiting the countries from which we can purchase
      raw materials and setting duties or restrictions on products that may be
      imported into the United States from a particular country.





**Our
      ability to import raw materials in a timely and cost-effective manner may also
      be affected by problems at ports or issues that otherwise affect transportation
      and warehousing providers, such as labor disputes.**





These
      problems could require us to locate alternative ports or warehousing providers
      to avoid disruption to our customers. These alternatives may not be available
      on
      short notice or could result in higher transit costs, which could have an
      adverse impact on our business and financial condition.





**We
      may not be able to adequately protect our intellectual property rights.**





The
      loss
      of or inability to enforce our trademarks, including “WHITEBOY®” ࿠or any of our
      other or future proprietary or licensed trademarks, designs, patents, know-how
      and trade secrets could adversely affect our business. If any third party copies
      or otherwise gains access to our trademarks or other proprietary rights, or
      develops similar products independently, it may be costly to enforce our rights
      and we would not be able to compete as effectively. Additionally, the laws
      of
      foreign countries may provide inadequate protection of intellectual property
      rights, making it difficult to enforce such rights in those countries.





**We
      may need to bring legal claims to enforce or protect our intellectual property
      rights.**





Any
      litigation, whether successful or unsuccessful, could result in substantial
      costs and diversions of resources. In addition, notwithstanding the rights
      we
      have secured in our intellectual property, third parties may bring claims
      against us alleging that we have infringed on their intellectual property rights
      or that our intellectual property rights are not valid. Any claims against
      us,
      with or without merit, could be time consuming and costly to defend or litigate
      and therefore could have an adverse affect on our business.





**The
      loss of our designers and creative staff would harm our future development
      and
      could significantly impair our ability to achieve our business objectives.**





Our
      success is largely dependent upon the expertise and knowledge of our management
      and the principal creative staff of our acquisitions, and our ability to
      continue to hire and retain other key personnel. The loss of any of our key
      personnel could have a material adverse effect on our business, development,
      financial condition, and operating results. We do not maintain “key person” life
      insurance on any of our management or key personnel.




**RISKS
      RELATED TO OUR INDUSTRY**





**Our
      sales are heavily influenced by general economic cycles.**





Apparel
      is a cyclical industry that is heavily dependent upon the overall level of
      consumer spending. Purchases of apparel and related goods tend to be highly
      correlated with cycles in the disposable income of our consumers. Our customers
      anticipate and respond to adverse changes in economic conditions and uncertainty
      by reducing inventories and canceling orders. As a result, any substantial
      deterioration in general economic conditions, increases in interest rates,
      acts
      of war, terrorist or political events that diminish consumer spending and
      confidence in any of the regions in which we compete, could reduce our sales
      and
      adversely affect our business and financial condition.





**The
      apparel industry is highly competitive.**





We
      face a
      variety of competitive challenges including:




·
            anticipating
                and quickly responding to changing consumer demands;




32




·
            developing
                innovative, high-quality products in sizes and styles that appeal
                to
                consumers;·
            competitively
                pricing our products and achieving customer perception of value;
                and·
            the
                need to provide strong and effective marketing support.





**We
      must successfully gauge fashion trends and changing consumer preferences to
      succeed.**





Our
      success is largely dependent upon our ability to gauge the fashion tastes of
      our
      customers and to provide merchandise that satisfies retail and customer demand
      in a timely manner. The apparel business fluctuates according to changes in
      consumer preferences dictated in part by fashion and season. To the extent
      we
      misjudge the market for our merchandise, our sales may be adversely affected.
      Our ability to anticipate and effectively respond to changing fashion trends
      depends in part on our ability to attract and retain key personnel in our
      design, merchandising and marketing staff. Competition for these personnel
      is
      intense, and we cannot be sure that we will be able to attract and retain a
      sufficient number of qualified personnel in future periods.





**Our
      business may be subject to seasonal trends.**





In
      the
      experience of our management, operating results in the targeted apparel industry
      in which we operate have been subject to seasonal trends when measured on a
      quarterly basis. This trend is dependent on numerous factors, including:





·
            trends
                among young shoppers;·
            holiday
                seasons;·
            climate;·
            economic
                conditions; and·
            numerous
                other factors beyond our control.





**Distributors
      may not accept our merchandise.**





In
      order
      to generate sales of our proposed apparel and accessory lines, we need to
      develop relationships with clothing manufacturers and distributors, and
      establish channels of distribution. We cannot guaranty that we can establish
      distribution in key locations through retail distributors of specialty shops
      and
      through chain stores. It is uncertain that our fashions or any new products
      or
      collections that we may add in the future will achieve success or profitability.
      Introducing new collections and products under a private label generally entails
      relatively high start-up costs and inefficiencies in producing, distributing,
      and marketing the initial limited quantities of such products. However, due
      to
      inefficiencies associated with operating a private label, we may not be able
      to
      obtain a sufficient inventory in these products. We cannot guaranty that any
      collection or product which we may introduce will achieve profitable sales
      levels. Expanding our operations or lines of merchandise also could require
      capital greater than our cash flow or available credit resources.





**Our
      success depends on our ability to attract and retain high quality management
      and
      independent contractors.**





We
      face
      significant competition in the recruitment of qualified employees. We also
      rely
      on the services of independent contractors for production and some our
      marketing, advertising and public relations programs. Our business may suffer
      if
      we are unable to recruit or retain a sufficient number of qualified employees,
      the costs of employee compensation or benefits increase substantially or the
      costs of outsourcing certain tasks to third party providers increase
      substantially. In addition, we will likely expend resources in training new
      employees and should we experience a high turnover during the course of our
      business, we may incur additional recruiting and training costs and our business
      may suffer.





**Our
      Articles of Incorporation and our Bylaws limit the liability of our officers
      and
      directors and include a provision eliminating or limiting the personal liability
      of our directors to the Company and its shareholders for damages for breach
      of
      fiduciary duty as a director.**





Moreover,
      the Corporation Code of Nevada provides for the indemnification, under certain
      circumstances, of officers and directors. Accordingly, directors may have no
      liability to our shareholders for any mistakes or errors of judgment or for
      any
      act of omission, unless such act or omission involves intentional misconduct,
      fraud, or a knowing violation of law or results in unlawful distributions to
      our
      shareholders.





We
      do not
      anticipate paying dividends on our Common Stock in the foreseeable future;
      but,
      rather, we plan to retain earnings, if any, for the operation and expansion
      of
      our business.





RISKS
      RELATED TO OUR SECURITIES





**A
      purchase of our Common Stock is speculative and involves significant risks.**





The
      Common Stock should not be purchased by any person who cannot afford the loss
      of
      his or her entire purchase price for the Common Stock. A purchase of the Common
      Stock would be “unsuitable” for a person who cannot afford to lose his or her
      entire purchase price for the Common Stock.




33





**Our
      Common Stock is currently listed for trading on the OTC Bulletin Board
      maintained by the National Association of Securities Dealers, Inc.**





Our
      Common Stock is thinly traded, meaning the number of persons interested in
      purchasing our shares at or near ask prices at any given time may be relatively
      small or non-existent. This situation is attributable to a number of factors,
      including the fact that we have a small number of freely tradable shares, and
      we
      are a small public company that is relatively unknown to stock analysts, stock
      brokers, institutional investors and others in the investment community that
      generate or influence sales volume, and that even if we came to the attention
      of
      such persons, they tend to be risk-averse and would be reluctant to follow
      a
      company of our size that is expanding into a related but new line of business
      as
      we are, or purchase or recommend the purchase of our shares until such time
      as
      we became more seasoned and proven. As a consequence, there may be periods
      when
      trading activity in our shares is minimal or non-existent, as compared to a
      seasoned issuer which has a large and steady volume of trading activity that
      will generally support continuous sales without an adverse effect on share
      price. We cannot give any assurance that a broader or more active public trading
      market for our Common Stock will develop or be sustained, or that current
      trading levels will be sustained. Due to these conditions, we give no assurance
      that shareholders will be able to sell shares at or near ask prices or at all
      if
      you need money or otherwise desire to liquidate your shares.





**If
      securities or industry analysts do not publish research reports about our
      business, our stock price and trading volume could decline.**





Small,
      relatively unknown public companies can achieve visibility in the trading market
      through research and reports that industry or securities analysts publish.
      However, to our knowledge, no analysts routinely cover our company. The lack
      of
      published reports by independent securities analysts could limit the interest
      in
      our stock and negatively affect our stock price. We have no control over
      research and reports these analysts publish or whether they will be published
      at
      all. If any analyst who does cover us downgrades our stock, our stock price
      could decline. If any analyst initiates and then ceases coverage of our company
      or fails to regularly publish reports on us, we could lose visibility in the
      financial markets or never achieve such visibility, which in turn could cause
      our stock price or trading volume to stagnate or decline.





**Shareholders
      may have difficulty selling our shares because they are deemed "penny stocks."**





Since
      our
      Common Stock is not listed on the NASDAQ Stock Market or any national securities
      exchange, if the trading price of our Common Stock is below $5.00 per share,
      trading in our Common Stock will be subject to the requirements of certain
      rules
      promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
      Act"). These rules require additional disclosures by broker-dealers in
      connection with any trades involving a stock defined as a penny stock. Such
      rules require the delivery, prior to any penny stock transaction, of a
      disclosure schedule explaining the penny stock market and the risks associated
      therewith and impose various sales practice requirements on broker-dealers
      who
      sell penny stocks to persons other than established customers and accredited
      investors (generally defined as an investor with a net worth in excess of
      $1,000,000 or annual income exceeding $200,000 individually or $300,000 together
      with a spouse). For these types of transactions, the broker-dealer must make
      a
      special suitability determination for the purchaser and have received the
      purchaser's written consent to the transaction prior to the sale. The
      broker-dealer also must disclose the commissions payable to the broker-dealer,
      current bid and offer quotations for the penny stock and, if the broker-dealer
      is the sole market maker, the broker-dealer must disclose this fact and the
      broker-dealer's presumed control over the market. Such information must be
      provided to the customer orally or in writing before or with the written
      confirmation of trade sent to the customer. Monthly statements must be sent
      disclosing recent price information for the penny stock held in the account
      and
      information on the limited market in penny stocks. The additional burdens
      imposed upon broker-dealers by such requirements could discourage broker-dealers
      from effecting transactions in our common stock, which could severely limit
      the
      market liquidity of the common stock and the ability of holders of the common
      stock to sell their shares.





**The
      market price of our Common Stock may be adversely affected by market volatility.**





The
      market price of our Common Stock is likely to be volatile and could fluctuate
      widely in response to many factors, including:





·
            announcements
                of the results of our operations or the operations of our competitors,·
            developments
                with respect to intellectual property rights,·
            announcements
                of technological innovations by us or our competitors,·
            announcements
                of new services, products or new contracts by us or our competitors,·
            actual
                or anticipated variations in our operating results due to the level
                of
                development expenses and other factors,·
            changes
                in financial estimates by securities analysts and whether our earnings
                meet or exceed such estimates,·
            conditions
                and trends in the online digital music distribution or production
                industries,·
            new
                accounting standards,





34


·
              general
                  economic, political and market conditions and other factors, and
                  the
                  occurrence of any of the risks described in this
                  Report.




**We
      cannot control many of these factors, and we believe that period-to-period
      comparisons of our financial results will not necessarily be indicative of
      our
      future performance.**





In
      addition, the stock market in general, and the market for apparel companies
      in
      particular, has experienced extreme price and volume fluctuations that may
      have
      been unrelated or disproportionate to the operating performance of individual
      companies. These broad market and industry factors may seriously harm the market
      price of our Common Stock, regardless of our operating performance.





**DISCLOSURE
      OF OPINION OF SECURITIES AND EXCHANGE COMMISSION REGARDING INDEMNIFICATION
      FOR
      SECURITIES ACT LIABILITIES**





Insofar
      as indemnification for liabilities resulting from violations of the Securities
      Act of 1933 may be permitted to our directors, officers or controlling persons
      pursuant to the foregoing provisions, we have been informed that in the opinion
      of the Securities and Exchange Commission such indemnification is against public
      policy as expressed in the Securities Act of 1933 and is, therefore,
      unenforceable.





Our
      ability to succeed will depend on the ability of our management to control
      costs. We have used reasonable efforts to assess and predict costs and expenses
      based on experience of our management. However, we have a short operating
      history upon which to base predictions. Implementing our business plan may
      require more employees, equipment, supplies or other expenditure items than
      we
      have predicted. Similarly, the cost of compensating additional management,
      employees and consultants or other operating costs may be more than our
      estimates, which could result in sustained losses.




35


**ITEM
      3. CONTROLS AND PROCEDURES**





The
      Company maintains disclosure controls and procedures (as defined in Exchange
      Act
      Rule 13a-15(e)) that are designed to assure that information required to be
      disclosed in its Securities Exchange Act of 1934 reports is recorded, processed,
      summarized and reported within the time periods specified in the Securities
      and
      Exchange Commission's rules and forms, and that such information is accumulated
      and communicated to management, including the Chief Executive Officer and Chief
      Financial Officer, as appropriate, to allow timely decisions regarding required
      disclosures.





In
      designing and evaluating the disclosure controls and procedures, management
      recognizes that any controls and procedures, no matter how well designed and
      operated, can provide reasonable assurance only of achieving the desired control
      objectives, and management necessarily is required to apply its judgment in
      weighing the costs and benefits of possible new or different controls and
      procedures. Limitations are inherent in all control systems, so no evaluation
      of
      controls can provide absolute assurance that all control issues and any fraud
      within the company have been detected.





As
      required by Rule 13a-15 under the Exchange Act, as of the end of the period
      covered by this quarterly report, being March 31, 2007, we have carried out
      an
      evaluation of the effectiveness of the design and operation of our company's
      disclosure controls and procedures. This evaluation was carried out under the
      supervision and with the participation of our company's management, including
      our company's Chief Executive Officer along with our company's Chief Financial
      Officer. Based upon that evaluation, our company's Chief Executive Officer
      along
      with our company's Chief Financial Officer concluded that our company's
      disclosure controls and procedures are effective as of the end of the period
      covered by this report. There have been no significant changes in our company's
      internal controls over financial reporting that occurred during our most recent
      fiscal quarter that have materially affected, or are reasonably likely to
      materially affect our internal controls over financial reporting.




There
      have been no significant changes in our internal controls or in other factors
      that could significantly affect those controls subsequent to the date of their
      last valuation.


36




**PART
      II — OTHER INFORMATION**





**Item
      1. Legal Proceedings**





The
      Company is periodically involved in legal actions and claims that arise as
      a
      result of events that occur in the normal course of operations. The Company
      is
      not currently aware of any formal legal proceedings or claims that the Company
      believes will have, individually or in the aggregate, a material adverse effect
      on the Company's financial position or results of operations.





**Item
      2. Unregistered Sales of Equity Securities**





During
      the three months ended March 31, 2007, the Company issued $400,000 of new
      convertible securities in private placements to qualified buyers and accredited
      investors, with investment units consisting of notes, common stock and warrants.
      The fair value of the warrants at the time of issuance, which was determined
      using the Black-Scholes option-pricing model, was recorded as additional paid-in
      capital and reduced the carrying value of the Notes. The value of the common
      stock issued was recorded at par plus additional paid-in capital and reduced
      the
      carrying value of the Notes, which was determined using the market price of
      the
      stock at the time of issuance, The discount on the Notes is being amortized
      to
      interest expense over the term of the Notes. The notes are convertible at the
      sole option of the Company with interest at 10%. The company can (i) prepay
      the
      note in full prior to or on the maturity date or (ii) convert at the sole option
      of the Company at the conversion price of 50% of the then current market price
      in the event of a financing of at least $1,000,000. If converted, such shares
      would need to be registered by the Company within 7 months of February 22,
      2007.





In
      connection with these financings, the Company issued 2,350,000 shares of common
      stock, which the company must register by Sept 22, 2007. In the event the
      registration of the shares are not declared effective by that date, there is
      a
      penalty of 10% of the registrable common shares for each month in which the
      shares are not registered. The penalty shall be waived in the event the SEC
      cuts
      back the number of shares due to Rule 415 issues. The market value of the common
      stock was $216,600, and $39,925 of interest expense was recorded during the
      three months ended March 31, 2007.





In
      addition, the Company issued 1,800,000 warrants for the purchase of common
      stock
      at a price of $0.15, for 5 years. The warrants have piggyback registration
      rights. A net exercise is restricted to one year after issuance, and is not
      permitted if the underlying shares have been registered for resale. The fair
      value of the value of the warrants was $65,794, and $12,139 of interest expense
      was recorded during the three months ended March 31, 2007.





The
      Company believes it can repay the notes prior to the due date and thus shares
      from the notes would not be converted or registered and no value was assigned
      to
      the beneficial conversion and registration rights.




37





On
      February 12, 2007, the Company also issued a short term convertible promissory
      note in the amount of $35,000 which was repaid in two days.





The
      securities described above were offered and sold in private placement
      transactions made in reliance upon exemptions from registration pursuant to
      Section 4(2) under the Securities Act of 1933 and Rule 506 promulgated there
      under. The investors are accredited investors as defined in Rule 501 of
      Regulation D promulgated under the Securities Act of 1933.





**Item
      3. Defaults Upon Senior Securities**





None.





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





None.





**Item
      5. Other Information**





None.





**Item
      6. Exhibits**





(a) Exhibits




4.1
            
            Form
                of promissory notes for convertible financing and warrants for $125,000
                and $250,000, of February 13, 2007 and February 22, 2007, respectively
                (incorporated by reference to Form 8-K filed with the Securities
                and
                Exchange Commission on March 1, 2007, 2006)4.2
            
            Form
                of promissory note for convertible financing and warrants for $25,000,
                of
                March 28, 2007 (incorporated by reference to Form 8-K filed with
                the
                Securities and Exchange Commission on April 3, 2007)4.3
            
            Form
                of promissory note for convertible financing and warrants for $125,000,
                of
                May 15, 2007 (incorporated by reference to Form 8-K filed with the
                Securities and Exchange Commission on May 18, 2007)10.1
            
            Entry
                into a material definitive agreement to acquire The Apparel Agent
                LLC
                (incorporated by reference to Form 8-K filed with the Securities
                and
                Exchange Commission on May 14, 2007)31.1
            
            Certification
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act31.2
            
            Certification
                of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act32.1
            
            Certification
                of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act32.2
            
            Certification
                of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act




38


SIGNATURES





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned hereunto
      duly authorized.


Date:
                May 21, 2007**Sub-Urban
                Brands, Inc.**By:  
                  /s/
                  Joseph Shortal
                
                Joseph
                    Shortal, Chief Executive Officer
            
            
            By: 
                  /s/
                  Jack Mott
                
                Jack
                    Mott, Chief Financial Officer, Chief Operating
                    OfficerPrincipal
                Executive Officer
            
            
            Principal
                Financial and Accounting Officer




39




INDEX
      TO
      EXHIBITS




**Exhibit
                Number**
            
            **Description**4.1
            
            Form
                of promissory notes for convertible financing and warrants for $125,000
                and $250,000, of February 13, 2007 and February 22, 2007, respectively
                (incorporated by reference to Form 8-K filed with the Securities
                and
                Exchange Commission on March 1, 2007)4.2
            
            Form
                of promissory note for convertible financing and warrants for $25,000,
                of
                March 28, 2007 (incorporated by reference Form 8-K filed with the
                Securities and Exchange Commission on April 3, 2007)4.3
            
            Form
                of promissory note for convertible financing and warrants for $125,000,
                of
                May 15, 2007 (incorporated by reference to Form 8-K filed with the
                Securities and Exchange Commission on May 18, 2007)10.1
            
            Entry
                into a material definitive agreement to acquire The Apparel Agent
                LLC
                (incorporated by reference to Form 8-K filed with the Securities
                and
                Exchange Commission on May 14, 2007)31.1
            
            Certification
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act31.2
            
            Certification
                of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act32.1
            
            Certification
                of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act32.2
            
            Certification
                of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act


40