**v131216UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington, D.C. 20549





**Form
      10-Q**




(Mark
      One)




x Quarterly Report under Section 13 or 15(d) of the Securities


Exchange
      Act of 1934




For
      the
      quarterly period ended September 30, 2008




 ̈ Transition Report under Section 13 or 15(d) of the Exchange Act For
      the


Transition
      Period from ________ to ___________




**Adrenalina**


(Exact
      Name of Registrant as Specified in its Charter)





Nevada
            333-134568
            20-8837626(State or other jurisdiction
              of incorporation)
            (Commission
              File Number)
            (IRS Employer
              Identification No.)





20855 NE 16 Ave., Suite #C-16


Miami, Florida 33179


(Address of principal executive offices)





Phone: 305-770-4488 Fax:
      305-770-4489


(Issuer's
      telephone numbers)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      past 12 months (or for such shorter period that the registrant was required
      to
      file such reports), and (2) has been subject to such filing requirements for
      the
      past 90 days.  Yes x No  ̈ .


Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company.  See definition of “accelerated filer”, “large accelerated
      filer”, “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of
      the Exchange Act.




Large accelerated filer ̈
            Accelerated filer ̈
            Non-accelerated filer ̈
            Smaller reporting companyx





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




State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date:




As
      of
      November 7, 2008 the registrant's outstanding common stock consisted of
      20,167,921 shares, $0.001 par value.











**ADRENALINA**





**TABLE
      OF CONTENTS**




**Page****PART
                I - FINANCIAL INFORMATION**Item
                1. Financial StatementsCondensed
                Consolidated Balance Sheets as of September 30, 2008 (unaudited)
                and
                December 31, 2007
            1Condensed
                Consolidated Statements of Operations for the three months ended
                September
                30, 2008 and September 30, 2007 (unaudited)
            2Condensed
                Consolidated Statements of Operations for the nine months ended September
                30, 2008 and September 30, 2007 (unaudited)
            3Condensed
                Consolidated Statement of Shareholders’ Equity (unaudited)
            4Condensed
                Consolidated Statements of Cash Flows (unaudited)
            5Notes
                to Condensed Consolidated Financial Statements (unaudited)
            7Item
                2. Management’s Discussion and Analysis or Plan of
                Operation
            18Item
                3. Quantitative and Qualitative Disclosure About Market
                Risk
            25Item
                4T. Controls and Procedures
            25**PART
                II - OTHER INFORMATION**Item
                1. Legal Proceedings
            29Item
                1A. Risk Factors
            29Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            29Item
                3. Defaults Upon Senior Securities
            30Item
                4. Submission of Matters to a Vote of Security Holders
            30Item
                5. Other Information
            30Item
                6. Exhibits
            30**SIGNATURES**











**PART
      I. FINANCIAL INFORMATION**


**ADRENALINA**


Condensed
      Consolidated Balance Sheets




September 30,2008
            
            December 31,2007(Unaudited)
            
            (restated)**Assets**Current
                Assets:Cash
                and cash equivalents
            
            $
            655,908
            
            $
            444,843Investments
                in securities available for sale
            
            
            ─
            
            
            27,773Accounts
                receivable, net
            
            
            234,683
            
            
            35,197Merchandise
                inventories, net
            
            
            1,923,161
            
            
            1,678,937Film
                costs, net
            
            
            47,450
            
            
            96,800Prepaid
                expenses and other current assets
            
            
            137,274
            
            
            211,621Total
                Current Assets
            
            
            2,998,467
            
            
            2,495,171Deferred
                loan costs, net
            
            
            641,717
            
            
            643,027Property
                and equipment, net
            
            
            8,051,527
            
            
            4,963,920Intangible
                assets, net
            
            
            242,444
            
            
            248,444Total
                Other Assets
            
            
            8,935,688
            
            
            5,855,391Total
                Assets
            
            $
            11,934,164
            
            $
            8,350,562**Liabilities
                and Shareholders’ Equity**Current
                Liabilities:Accounts
                payable and accrued liabilities
            
            $
            2,836,247
            
            $
            1,106,924Shareholder
                advances
            
            
            1,144,203
            
            
            399,930Current
                portion of convertible debentures, net of discount of $1,308,463
                and $0,
                respectively
            
            
            1,163,759
            
            
            ─Total
                Current Liabilities
            
            
            5,144,209
            
            
            1,506,854Long-Term
                Liabilities:Deferred
                rent
            
            
            2,589,073
            
            
            582,114Related
                party note
            
            
            3,294,267
            
            
            3,294,267Convertible
                debentures, net of discount of $3,738,897 and $2,924,891,
                respectively
            
            
            288,881
            
            
            75,109Total
                Long-Term Liabilities
            
            
            6,172,221
            
            
            3,951,490Total
                Liabilities
            
            
            11,316,973
            
            
            5,458,344Shareholders’
                Equity:Common
                stock, $0.001 par value, 70,000,000 shares authorized, 20,167,921
                and
                19,453,000 issued and outstanding, respectively
            
            
            20,168
            
            
            19,453Additional
                paid-in-capital
            
            
            16,235,378
            
            
            12,312,364Accumulated
                deficit
            
            
            (15,637,812
            )
            
            (9,439,599
            )Total
                Shareholders’ Equity
            
            
            617,734
            
            
            2,892,218Total
                Liabilities and Shareholders’ Equity
            
            $
            11,934,164
            
            $
            8,350,562





See
      accompanying notes to the condensed consolidated financial
      statement


1





**ADRENALINA**


Condensed
      Consolidated Statements of Operations


For
      the
      Three Months Ended September 30, 2008 and 2007


(Unaudited)




2008
            
            2007Revenues:Retail
                sales
            
            $
            1,241,421
            
            $
            675,676Entertainment
                – other
            
            
            20,479
            
            
            226,200Publishing
            
            
            187,368
            
            
            29,449Total
                Revenues
            
            
            1,449,268
            
            
            931,325Cost
                of Revenues:Retail
                and Merchandise
            
            
            732,247
            
            
            475,843Entertainment
                licensing fees
            
            
            9,782
            
            
            185,226Production
            
            
            64,310
            
            
            59,779Total
                Cost of Revenues
            
            
            806,929
            
            
            720,849Gross
                Profit
            
            
            642,929
            
            
            210,476Operating
                Expenses:Payroll
                and employee benefits
            
            
            649,399
            
            
            490,617Occupancy
                expense
            
            
            764,623
            
            
            282,274Marketing
                and advertising expense
            
            
            28,662
            
            
            11,309Professional
                fees
            
            
            156,675
            
            
            211,189Other
                selling, general and administrative
            
            
            242,317
            
            
            230,144Amortization
            
            
            18,450
            
            
            168,921Depreciation
            
            
            130,938
            
            
            78,576Total
                Operating Expenses
            
            
            1,991,064
            
            
            1,473,029Other
                (Income) and Expenses:Interest
                income
            
            
            (2,276
            )
            
            (2,105
            )Interest
                expense
            
            
            584,066
            
            
            1,808Total
                Other Expenses and (Income)
            
            
            581,790
            
            
            (297
            )Net
                Loss
            
            $
            (1,929,925
            )
            $
            (1,262,256
            )Net
                loss per share
            
            $
            (0.10
            )
            $
            (0.07
            )Weighted
                average common shares used in calculation of per share data – basic and
                diluted
            
            
            20,061,034
            
            
            19,100,000




See
      accompanying notes to the condensed consolidated
      financial statement


2





**ADRENALINA**


Condensed
      Consolidated Statements of Operations


For
      the
      Nine Months Ended September 30, 2008 and 2007


(Unaudited)




2008
            
            2007Revenues:Retail
                sales
            
            $
            3,431,242
            
            $
            1,647,397Entertainment
                - related party
            
            
            ─
            
            
            282,219Entertainment
                – other
            
            
            55,308
            
            
            420,400Publishing
            
            
            274,276
            
            
            121,060Total
                Revenues
            
            
            3,760,825
            
            
            2,471,077Cost
                of Revenues:Retail
                and Merchandise
            
            
            1,920,937
            
            
            967,306Entertainment
                licensing fees
            
            
            29,395
            
            
            716,466Production
            
            
            205,715
            
            
            287,626Total
                Cost of Revenues
            
            
            2,156,084
            
            
            1,971,398Gross
                Profit
            
            
            1,604,741
            
            
            499,679Operating
                Expenses:Payroll
                and employee benefits
            
            
            1,780,024
            
            
            1,333,799Occupancy
                expense
            
            
            2,504,030
            
            
            740,565Marketing
                and advertising expense
            
            
            117,248
            
            
            250,406Professional
                fees
            
            
            682,405
            
            
            310,667Other
                selling, general and administrative
            
            
            538,319
            
            
            608,611Amortization
            
            
            55,350
            
            
            505,491Depreciation
            
            
            336,169
            
            
            229,202Total
                Operating Expenses
            
            
            6,013,545
            
            
            3,978,741Other
                (Income) and Expenses:Interest
                income
            
            
            (2,573
            )
            
            (3,134
            )Loss
                on sale of available for sale securities
            
            
            67,740
            
            
            ─Interest
                expense
            
            
            1,724,242
            
            
            10,461Total
                Other Expenses
            
            
            1,789,410
            
            
            7,327Net
                Loss
            
            $
            (6,198,213
            )
            $
            (3,486,389
            )Net
                loss per share
            
            $
            (0.31
            )
            $
            (0.18
            )Weighted
                average common shares used in calculation of per share data – basic and
                diluted
            
            
            19,785,671
            
            
            19,100,000




See
      accompanying notes to the condensed consolidated
      financial statement


3





**ADRENALINA**


Condensed
      Consolidated Statements of Equity


For
      the
      Nine Months Ended September 30, 2008


(Unaudited)




Common StockShares
            
            Amount
            
            Paid-in
              Capital
            
            Accumulated
              Deficit
            
            TotalBalance
                at December 31, 2007
            
            
            19,453,000
            
            $
            19,453
            
            $
            12,312,364
            
            $
            (9,439,599
            )
            $
            2,892,218Issuance
                of warrants and beneficially convertible debt
            
            
            ─
            
            
            ─
            
            
            3,256,941
            
            
            ─
            
            
            3,256,941Sale
                of common stock and warrants
            
            
            566,667
            
            
            567
            
            
            549,433
            
            
            ─
            
            
            550,000Private
                Placement commissions paid
            
            
            ─
            
            
            ─
            
            
            (32,000
            )
            
            ─
            
            
            (32,000
            )Issuance
                of common stock in exchange for liquidated damages on convertible
                debt
            
            
            148,254
            
            
            148
            
            
            145,600
            
            
            
            
            
            145,748Share-based
                compensation
            
            
            ─
            
            
            ─
            
            
            3,040
            
            
            ─
            
            
            3,040Net
                loss
            
            
            ─
            
            
            ─
            
            
            ─
            
            
            (6,198,213
            )
            
            (6,198,213
            )Balance
                at September 30 , 2008 (Unaudited)
            
            
            20,167,921
            
            $
            20,168
            
            $
            16,235,378
            
            $
            (15,637,812
            )
            $
            617,734




See
      accompanying notes to the condensed consolidated financial
      statements.


4





**ADRENALINA**


Condensed
      Consolidated Statements of Cash Flows


For
      the
      Nine Months Ended September 30, 2008 and 2007


(Unaudited)




2008
            
            2007Cash
                Flows from Operating Activities:Net
                loss
            
            $
            (6,198,213
            )
            $
            (2,224,132
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            391,519
            
            
            487,197Amortization
                of discount on convertible debenture
            
            
            1,134,472
            
            
            ─Deferred
                loan costs amortization
            
            
            241,310
            
            
            ─Deferred
                compensation expense
            
            
            3,040
            
            
            ─Deferred
                rent expense
            
            
            2,006,959
            
            
            ─Reserve
                for obsolete inventory
            
            
            150,000
            
            
            ─Loss
                on sale of investments
            
            
            67,740
            
            
            ─Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (199,486
            )
            
            128,376Merchandise
                inventories
            
            
            (394,224
            )
            
            (214,439
            )Prepaid
                expenses and other assets
            
            
            74,347
            
            
            55,389Accounts
                payable and accrued liabilities
            
            
            1,729,354
            
            
            332,288Total
                Adjustments
            
            
            5,205,000
            
            
            788,811Net Cash Used in Operating Activities
            
            
            (993,212
            )
            
            (1,435,321
            )Cash
                Flows from Investing Activities:Incurred
                film costs
            
            
            ─
            
            
            (625,190
            )Purchases
                of investments in available for sale securities
            
            
            (3,501,189
            )
            
            ─Proceeds
                from sales of investments in available for sale Securities
            
            
            3,606,968
            
            
            ─Purchase
                of property and equipment, net
            
            
            (3,423,775
            )
            
            (1,148,613
            )Net Cash Used in Investing Activities
            
            
            (3,317,996
            )
            
            (1,773,803
            )Cash
                Flows from Financing Activities:Repayments
                of notes receivable - related parties
            
            
            ─
            
            
            (1,366,790
            )Proceeds
                from related party advances
            
            
            744,273
            
            
            4,432,981Repayment
                of affiliate note receivable
            
            
            ─
            
            
            (25,304
            )Proceeds
                from sales of common stock
            
            
            518,000
            
            
            ─Deferred
                loan costs
            
            
            (240,000
            )
            
            ─Proceeds
                from convertible debentures
            
            
            3,500,000
            
            
            ─Net
                Cash Provided by Financing Activities
            
            
            4,522,273
            
            
            3,040,887Net Increase in Cash and Cash Equivalents
            
            
            (211,065
            )
            
            (168,237
            )Cash and Cash Equivalents – Beginning of Period
            
            
            444,843
            
            
            297,801Cash and Cash Equivalents - End of Period
            
            $
            655,908
            
            $
            129,564





See
      accompanying notes to the condensed consolidated financial
      statements.


5





**ADRENALINA**


Condensed
      Consolidated Statements of Cash Flows


For
      the
      Nine Months Ended September 30, 2008 and 2007


(Unaudited)




2008
            
            2007Supplemental
                Disclosures of Cash Flow Information:Cash
                paid for interest
            
            $
            153,563
            
            $
            ─Supplemental
                Disclosure of Non-Cash Financing Activities:Issuance
                of warrants with convertible debt
            
            $
            1,807,980
            
            $
            ─Effect
                of beneficial conversion feature
            
            $
            1,448,961
            
            $
            ─Issuance
                of restricted common stock in satisfaction of liquidating damages
                on
                registration of convertible debentures and warrants
            
            $
            145,748
            
            $
            ─Capitalized
                interest
            
            $
            100,825
            
            $
            ─





6


**ADRENALINA**


Unaudited
      Notes to Condensed Consolidated Financial Statements


Nine
      Months Ended September 30, 2008 and 2007





**Note
      1 - Description of Business, Basis of Presentation and Summary of
      Significant Accounting Policies**




**Description
      of Business and Basis of Consolidation**





*Interim
      Financial Statements*





The
      accompanying condensed consolidated financial statements for the three and
      nine
      months ended September 30, 2008 and September 30, 2007, are unaudited except
      for
      the balance sheet information at December 31, 2007, which is derived from the
      audited consolidated financial statements filed on October 17, 2008 in the
      Company’s Annual Report on Form 10-KSB/A for the year ended December 31, 2007.
      These statements have been prepared in accordance with accounting principles
      generally accepted in the United States of America (“GAAP”) for interim
      financial information and with the instructions to Form 10-Q and Article 10
      of
      Regulation S-X. Accordingly, they do not include all of the information and
      footnotes required by GAAP for complete financial statements. In the opinion
      of
      management, all adjustments (consisting of normal recurring accruals) considered
      necessary for a fair presentation have been included. These financial statements
      should be read in conjunction with the consolidated financial statements
      included in the Company’s Annual Report on Form 10-KSB/A for the year ended
      December 31, 2007.





*Business*





Adrenalina
      (the “Company” or “Adrenalina”), f/k/a LQD Adrenalina, LLC, was formed as a
      privately-held Limited Liability Company headquartered in Miami, Florida on
      September 13, 2004, as a media, retail and entertainment company





Basic
      Services, Inc. (“BSI”), a Nevada corporation, was organized March 28, 2007 (Date
      of Inception) and incorporated as a subsidiary of Eaton Laboratories, Inc.,
      ("Eaton"), also a Nevada corporation. On March 30, 2007, BSI's parent
      corporation, Eaton entered into an Acquisition Agreement and Plan of Merger
      ("Agreement") with Hydrogen Hybrid Technologies, Inc. ("HHT"), a privately-held
      Canadian corporation. Pursuant to the terms of the Agreement, HHT acquired
      Eaton, and Eaton agreed to spin off its wholly-owned subsidiary, Basic Services,
      Inc. On April 30, 2007, the record shareholders of Eaton received one
      unregistered, par value $0.001, share of Basic Services, Inc. common stock
      for
      every share of Eaton Laboratories common stock owned. The Basic Services, Inc.
      stock dividend was based on 10,873,750 shares of Eaton common stock that were
      issued and outstanding as of the record date. The spin off did not include
      any
      stock issued to the shareholders of Hydrogen Hybrid Technologies, Inc., who
      received Eaton shares pursuant to the Agreement with Eaton. Eaton retained
      no
      ownership in BSI following the spin off. Further, BSI was no longer a subsidiary
      of Eaton.




On
      October 26, 2007, BSI and a newly formed subsidiary of BSI ("Merger Sub") and
      Adrenalina entered into an Acquisition Agreement and Plan of Merger
      ("Acquisition") pursuant to which BSI, through its wholly-owned subsidiary,
      Merger Sub, acquired 100% of the membership interests in Adrenalina in exchange
      for 18,000,000 shares of the BSI common stock which were issued to the owners
      of
      the membership interests in Adrenalina. Immediately after the Acquisition was
      consummated and further to the Acquisition Agreement, the four largest
      shareholders of BSI cancelled 9,773,750 shares of the BSI Common Stock held
      by
      them. The transaction contemplated by the Agreement was intended to be a
      "tax-free" reorganization pursuant to the provisions of Section 351 and
      368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. Immediately
      prior
      to the Acquisition, BSI was a reporting corporation with limited
      activity.




For
      accounting purposes, this transaction was accounted for as a reverse acquisition
      and recapitalization, since the stockholders of Adrenalina own a majority of
      the
      issued and outstanding shares of common stock of BSI and the directors and
      executive officers of Adrenalina became the directors and executive officers
      of
      BSI. As a consequence the historical financial information presented herein
      represents that of Adrenalina, adjusted to give retroactive effect to the
      recapitalization of Adrenalina.





On
      December 13, 2007, BSI changed its name to Adrenalina.




7


**ADRENALINA**


Unaudited
      Notes to Condensed Consolidated Financial Statements


Nine
      Months Ended September 30, 2008 and 2007 - continued





**Note
      1 - Description of Business, Basis of Presentation and Summary of
      Significant Accounting Policies (Continued)**





*Basis
      of Consolidation*





As
      of
      September 30, 2008 and December 31, 2007, the consolidated financial statements
      include the company and all wholly-owned subsidiaries. All intercompany accounts
      and transactions between consolidated companies have been eliminated in
      consolidation.





**Restated
      Financial Statements**





During
      the third quarter of 2008, the Company discovered an error in their previously
      issued financial statements as of December 31, 2007, related to the accounting
      for the Beneficial Conversion Features on their November convertible debt issue.
      This error occurred because the Company incorrectly applied a marketability
      discount to the market value of their common stock based on a limited history
      and insufficient trading volume, which was then used to calculate the fair
      value
      of the embedded instruments. The correction of this error resulted in the
      reduction in the carrying amount of the debt due to an increase in the debt
      discount and an increase in equity by approximately $1,698,000 from their
      November convertible debt issue, as well as an understatement of the non-cash
      interest expense and net loss by approximately $31,700 as of December 31,
      2007.





On
      October 17, 2008 the Company amended their previously issued financial
      statements on Form 10-KSB/A to reflect the correction of this error.





**Use
      of Estimates**




The
      preparation of consolidated financial statements in conformity with generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the amounts reported in the financial statements and
      footnotes thereto. Actual results could differ from those estimates. Significant
      estimates inherent in the preparation of the accompanying consolidated financial
      statements include accounting for depreciation and amortization, allowance
      for
      uncollectible accounts, reserve for obsolete inventory, film costs, goodwill,
      barter transactions, business combinations, the beneficial conversion feature
      on
      the convertible debenture, warrants, deferred rent, loan costs and
      contingencies.





**Recently
      Adopted Accounting Pronouncements**





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value
      Measurements” (“SFAS 157”), which defines fair value, establishes a framework
      for measuring fair value in GAAP, and expands disclosures about fair value
      measurements. SFAS 157 does not require any new fair value measurements, but
      provides guidance on how to measure fair value by providing a fair value
      hierarchy used to classify the source of the information. In February 2008,
      the FASB deferred the effective date of SFAS 157 by one year for certain
      non-financial assets and non-financial liabilities, except those that are
      recognized or disclosed at fair value in the financial statements on a recurring
      basis (at least annually). On January 1, 2008, we adopted the provisions of
      SFAS 157, except as it applies to those nonfinancial assets and nonfinancial
      liabilities for which the effective date has been delayed by one year. The
      adoption of SFAS 157 did not have a material effect on our financial position
      or
      results of operations.





On
      January 1, 2008, we adopted the provisions of 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 provides
      companies with an option to report selected financial assets and financial
      liabilities at fair value. Unrealized gains and losses on items for which the
      fair value option has been elected are reported in earnings at each subsequent
      reporting date. The fair value option: (i) may be applied instrument by
      instrument, with a few exceptions, such as investments accounted for by the
      equity method; (ii) is irrevocable (unless a new election date occurs); and
      (iii) is applied only to entire instruments and not to portions of
      instruments. We did not elect to report any additional assets or liabilities
      at
      fair value and accordingly, the adoption of SFAS 159 did not have a material
      effect on our financial position or results of operations.


8


**ADRENALINA**


Unaudited
      Notes to Condensed Consolidated Financial Statements


Nine
      Months Ended September 30, 2008 and 2007 - continued





**Note
      1 - Description of Business, Basis of Presentation and Summary of
      Significant Accounting Policies (Continued)**





**Recently
      Issued Accounting Pronouncements – continued**





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“SFAS 141(R)”). SFAS 141(R) establishes the principles and
      requirements for how an acquirer: (i) recognizes and measures in its financial
      statements the identifiable assets acquired, the liabilities assumed and any
      noncontrolling interest in the acquiree; (ii) recognizes and measures the
      goodwill acquired in the business combination or a gain from a bargain purchase;
      and (iii) determines what information to disclose to enable users of the
      financial statements to evaluate the nature and financial effects of the
      business combination. SFAS 141(R) is to be applied prospectively to business
      combinations consummated on or after the beginning of the first annual reporting
      period on or after December 15, 2008, with early adoption prohibited. We
      are currently evaluating the impact SFAS 141(R) will have upon adoption on
      our
      accounting for acquisitions. Previously any changes in valuation allowances
      as a
      result of income from acquisitions for certain deferred tax assets would serve
      to reduce goodwill whereas under SFAS 141(R), any changes in the valuation
      allowance related to income from acquisitions currently or in prior periods
      will
      serve to reduce income taxes in the period in which the reserve is reversed.


In
      December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
      Consolidated Financial Statements - an amendment of ARB No. 51. SFAS No.
      160 requires the Company to establish accounting and reporting standards for
      the
      non-controlling interest in a subsidiary and for the deconsolidation of a
      subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods
      within those fiscal years, beginning on or after December 15, 2008. Earlier
      adoption is prohibited. The Company does not expect the implementation of SFAS
      No. 160 to have a material impact on its consolidated financial
      statements.




In
      April 2008, the FASB issued FSP FAS No. 142-3, which amends the
      factors that must be considered in developing renewal or extension assumptions
      used to determine the useful life over which to amortize the cost of a
      recognized intangible asset under FAS No. 142, “Goodwill and Other
      Intangible Assets.” The FSP requires an entity to consider its own assumptions
      about renewal or extension of the term of the arrangement, consistent with
      its
      expected use of the asset, and is an attempt to improve consistency between
      the
      useful life of a recognized intangible asset under FAS No. 142 and the
      period of expected cash flows used to measure the fair value of the asset under
      FAS No. 141, “Business Combinations.” The FSP is effective for fiscal years
      beginning after December 15, 2008, and the guidance for determining the
      useful life of a recognized intangible asset must be applied prospectively
      to
      intangible assets acquired after the effective date. The FSP is not expected
      to
      have a significant impact on the Company’s results of operations, financial
      condition or liquidity.





In
      May
      2008 the FASB issued FASB Staff Position APB 14-1, “Accounting for Convertible
      Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
      Cash Settlement).” APB 14-1 requires the issuer to separately account for the
      liability and equity components of convertible debt instruments in a manner
      that
      reflects the issuer’s nonconvertible debt borrowing rate. The guidance will
      result in companies recognizing higher interest expense in the statement of
      operations due to amortization of the discount that results from separating
      the
      liability and equity components. APB 14-1 will be effective for financial
      statements issued for fiscal years beginning after December 15, 2008, and
      interim periods within those fiscal years. The Company is currently evaluating
      the impact of adopting APB 14-1 on it consolidated financial
      statements.




In
      May 2008, the FASB issued Financial Accounting Standard
      (FAS) No. 162, “The Hierarchy of Generally Accepted Accounting
      Principles.” The statement is intended to improve financial reporting by
      identifying a consistent hierarchy for selecting accounting principles to be
      used in preparing financial statements that are prepared in conformance with
      generally accepted accounting principles. Unlike Statement on Auditing Standards
      (SAS) No. 69, “The Meaning of Present in Conformity With GAAP,” FAS
      No. 162 is directed to the entity rather than the auditor. The statement is
      effective 60 days following the SEC’s approval of the Public Company
      Accounting Oversight Board (PCAOB) amendments to AU Section 411, “The
      Meaning of Present Fairly in Conformity with GAAP,” and is not expected to have
      any impact on the Company’s results of operations, financial condition or
      liquidity.





In
      June 2008, the Financial Accounting Standards Board (FASB) issued FASB
      Staff Position (FSP) Emerging Issues Task Force (EITF) No. 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions
      Are
      Participating Securities.” Under the FSP, unvested share-based payment awards
      that contain rights to receive nonforfeitable dividends (whether paid or unpaid)
      are participating securities, and should be included in the two-class method
      of
      computing EPS. The FSP is effective for fiscal years beginning after
      December 15, 2008, and interim periods within those years, and is not
      expected to have a significant impact on the Company’s results of operations,
      financial condition or liquidity.


9


**ADRENALINA**


Unaudited
      Notes to Condensed Consolidated Financial Statements


Nine
      Months Ended September 30, 2008 and 2007 - continued





**Note
      1 - Description of Business, Basis of Presentation and Summary of
      Significant Accounting Policies (Continued)**





**Summary
      of Significant Accounting Policies**





**Revenue
      Recognition**





*Retail*





Revenue
      for sales of merchandise is recognized when merchandise is sold and delivered
      to
      the customer. The Company maintains a reserve for product returns and discounts.
      Retail revenue also includes income from its point-of-sale entertainment
      attraction, the Flow Rider ®. Revenue from the FlowRider ® is recorded at the
      time services are provided to the customer. Retail revenue is reported net
      of
      sales tax which amounted to approximately $59,000, $181,000, $38,000 and
      $102,000 for the three and nine month periods ended September 30, 2008 and
      2007, respectively.




**Advertising
      Costs**




The
      Company expenses advertising costs when incurred. Advertising expense incurred
      during the three and nine month periods ended September 30, 2008 and 2007 was
      $29,000, $117,000, $11,000 and $250,000, respectively. Additionally, the Company
      included in advertising expense bartered transactions with broadcasters, in
      which the Company provides its film for broadcast and receives in return air
      time which is used to promote their products.





**Capitalized
      Interest**





The
      Company capitalizes interest as part of the cost of major projects during
      extended construction periods. Capitalized interest, which is recorded as
      reduction to interest and financing costs in the condensed statements of
      consolidated operations, totaled approximately $102,000 for the three and nine
      months ended September 30, 2008. The Company did not capitalize any interest
      expense during the three and nine months ended September 30, 2007.





**Earnings
      per share**




The
      Company computed basic and diluted loss per common share by dividing the losses
      applicable to   common stock by the weighted average number of basic and
      diluted common shares outstanding. The Company’s basic and diluted EPS
      calculation for the three and nine month periods ended September 30, 2008 and
      2007, respectively are the same since the number of shares that would be
      included in the dilutive calculation from assumed exercise of common stock
      equivalents would have been antidilutive due to the net loss in each of the
      periods reported. For the three and nine month periods ended September 30,
      2008
      the Company excluded 3,404,762 and 3,089,506 common shares from their earnings
      per share calculation. The Company did not have dilutive shares during the
      three
      and nine month periods ended September 30, 2007.




**Reclassifications**





Certain
      amounts from prior consolidated financial statements and related notes have
      been
      reclassified to conform to the current year presentation.




**Note
      2 — Going Concern**




The
      accompanying financial statements have been prepared assuming the Company will
      continue as a going concern. The Company continued to incur significant
      operating losses through the nine months ended September 30, 2008 which raise
      substantial doubt about the Company’s ability to continue as a going concern. As
      shown in the accompanying financial statements, the Company has incurred net
      losses of approximately $6,198,000 and $3,486,000 for the nine months ended
      September 30, 2008 and 2007, respectively. Additionally, the Company has used
      cash flows in operations of approximately $993,000 and $1,435,000 for the nine
      months ended September 30, 2008 and 2007, respectively. The operations of the
      Company have been funded through related party borrowings, contributed capital
      and convertible debentures. Management’s plans to generate cash flow include
      expanding the Company’s operations through additional store openings and raising
      additional capital through debt or equity offerings in an effort to fund the
      Company’s anticipated expansion. There is no assurance additional capital or
      debt financing will be available to the Company on acceptable terms. The
      financial statements do not include any adjustments that might result from
      the
      outcome of this uncertainty.


10


**ADRENALINA**


Unaudited
      Notes to Condensed Consolidated Financial Statements


Nine
      Months Ended September 30, 2008 and 2007 - continued





**Note
      3 — Property and Equipment**




Major
      categories of property and equipment at September 30, 2008 and December 31,
      2007
      were as follows:





September 30,
              2008
            
            December 31,
              2007Leasehold
                improvements
            
            $
            2,292,603
            
            $
            2,162,295Furniture,
                fixtures and equipment
            
            
            2,033,228
            
            
            1,747,462Software
            
            
            113,518
            
            
            90,978Vehicles
            
            
            15,000
            
            
            15,000Construction
                in process
            
            
            1,848,427
            
            
            35,929Deposits
                on FlowRider ® equipment purchase contracts
            
            
            2,509,163
            
            
            1,336,5008,811,939
            
            
            5,388,164Less:
                accumulated depreciation and amortization
            
            
            (760,412
            )
            
            (424,244
            )Total
                property and equipment
            
            $
            8,051,527
            
            $
            4,963,920





Depreciation
      expense totaled approximately $131,000, $336,000, $79,000 and $229,000 for
      the
      three and nine month periods ended September 30, 2008 and 2007,
      respectively.





**Note
      4 — Long-term Debt**





*Related
      party note*





On
      November 1, 2007 the Company issued a $3,294,267, 5% note payable to a
      shareholder, with monthly payments of $94,122 commencing on November 1, 2010
      and
      continuing monthly through October 2013, when the balance of unpaid principal
      and interest is due.





*Convertible
      debentures*





During
      November, 2007, the Company issued a $3,000,000 5% Senior Secured Convertible
      Debenture, with quarterly interest payments commencing in January 2008.
      Principal amounts under this debenture are payable in 18 equal monthly
      installments commencing the 12th month following the issuance date. The Company
      may also elect to make principal payments in shares of common stock if there
      exists an effective registration statement with respect to the shares issuable
      upon conversion of the Debenture. If the Company elects to make principal
      payments in common stock, the conversion rate will be the lesser of the
      conversion price (see below) or 88% of the volume weighted average price for
      the
      ten consecutive trading days ending immediately prior to the applicable date
      a
      principal payment is due.





During
      February 2008, the Company issued a $2,500,000 5% Senior Secured Convertible
      Debenture, with quarterly interest payments commencing in May 2008. Principal
      amounts under this debenture are payable in 18 equal monthly installments
      commencing the 12th month following the issuance date. The Company may also
      elect to make principal payments in shares of common stock if there exists
      an
      effective registration statement with respect to the shares issuable upon
      conversion of the Debenture. If the Company elects to make principal payments
      in
      common stock, the conversion rate will be the lesser of the conversion price
      (see below) or 88% of the volume weighted average price for the ten consecutive
      trading days ending immediately prior to the applicable date a principal payment
      is due.


11


**ADRENALINA**


Unaudited
      Notes to Condensed Consolidated Financial Statements


Nine
      Months Ended September 30, 2008 and 2007 - continued





**Note
      4 — Long-term Debt - continued**





*Convertible
      debentures - continued*





At
      any
      time during the life of the November and February debentures the holder may
      convert the debenture into shares of the Company’s common stock at a fixed
      conversion price of $0.75, subject to adjustment in the event that the Company
      issues new common stock at a price below the conversion price. Following the
      effective date of the registration statement filed in connection with the
      shares, the Company may force conversion of the debentures if the market price
      of their common stock is at least $2.75 for any 20 out of 30 consecutive trading
      days. The Company may also prepay these debentures in cash at 115% of the then
      outstanding principal balance provided there is a registration statement in
      effect with respect to the shares issuable upon conversion of the
      debentures.







During
      August 2008, the Company issued a $1,000,000 5% Senior Secured Convertible
      Debenture, with quarterly interest payments commencing in September 2008. The
      principal amount under this debenture are payable in 24 months following the
      issuance date. The Company may also elect to make principal payments in shares
      of common stock if there exists an effective registration statement with respect
      to the shares issuable upon conversion of the Debenture. If the Company elects
      to make principal payments in common stock, the conversion rate will be the
      lesser of the then effective conversion price (see below) or 88% of the volume
      weighted average price for the ten consecutive trading days ending immediately
      prior to the applicable date a principal payment is due.





At
      any
      time during the life of the August debenture the holder may convert the
      debenture into shares of the Company’s common stock at a fixed conversion price
      of $1.50, subject to adjustment in the event that the Company issues new common
      stock at a price below the conversion price. Following the effective date of
      the
      registration statement filed in connection with the shares, the Company may
      force conversion of the debentures if the market price of their common stock
      is
      at least $3.00 for any 20 out of 30 consecutive trading days. The Company may
      also prepay these debentures in cash at 115% of the then outstanding principal
      balance provided there is a registration statement in effect with respect to
      the
      shares issuable upon conversion of the debentures.




These
      debentures rank senior to all of the Company’s current and future indebtedness
      and are secured by substantially all of the Company’s assets.





*Beneficial
      Conversion Feature*




`
            In
                connection with the November 2007, February 2008 and August 2008
                convertible debentures, the Company determined that a beneficial
                conversion feature existed on the date the notes were issued. The
                beneficial conversion feature related to these notes was valued as
                the
                difference between the effective conversion price (computed by dividing
                the relative fair value allocated to the convertible debt by the
                number of
                shares the debt is convertible into) and the fair value of the common
                stock multiplied by the number of shares into which the debt may
                be
                converted.




In
      accordance with EITF 00-27 “ *Application
      of Issue No. 98-5 to*  *Certain
      Convertible Instruments* ,”
the
      intrinsic value of the beneficial conversion features were recorded as a debt
      discount with a corresponding amount to additional paid in capital. The debt
      discount is amortized to interest expense over the life of the instruments.
      The
      Company recorded beneficial conversion features related to the August 2008
      financing of $412,000. The Company recorded beneficial conversion features
      related to the November 2007 and February 2008 financing of $1,507,000 and
      $1,037,000, respectively. Amortization of these beneficial conversion features,
      included in interest expense was approximately $289,000 and $728,000 for the
      three and nine months ended September 30, 2008, respectively.


12


**ADRENALINA**


Unaudited
      Notes to Condensed Consolidated Financial Statements


Nine
      Months Ended September 30, 2008 and 2007 – continued





**Note
      4 — Long-term Debt - continued**





*Detachable
      Common Stock Warrants*





In
      connection with the convertible debentures issued during November 2007, February
      2008 and August 2008, respectively, the Company issued five-year warrants to
      purchase 4,000,000, 3,333,333 and 333,333 shares of common stock, respectively,
      at $2.00 per share. The exercise price of these warrants is subject to full
      ratchet anti-dilution rights in the event that the Company issues securities
      at
      less than $1.38 per share. The warrants vested immediately and expire in five
      years.





The
      aggregate fair value of these warrants was estimated at approximately
      $1,493,000, $1,463,000 and $345,000, respectively, based on the Black-Scholes
      option pricing model using the following assumptions: a risk free rate of 3.89%,
      2.10% and 3.14%, respectively, an expected life of 5 years, a volatility factor
      of 69%, 69% and 85%, respectively and an expected dividend yield of 0%.





Amortization
      of the warrants, included in interest expense was $159,000 and $406,000 for
      the
      three and nine months ended September 30, 2008, respectively.





*Interest
      Expense, net*




Three
                months
              ended
                September 30,
            
            Nine
                months
              ended
                September 30,2008
            
            2007
            
            2008
            
            2007Interest
                expense related to debt
            
            $
            141,199
            
            $
            1,808
            
            $
            302,060
            
            $
            10,461Amortization
                of deferred financing costs
            
            
            89,937
            
            
            —
            
            
            237,143
            
            
            —Amortization
                of debt discount
            
            
            448,007
            
            
            —
            
            
            1,136,541
            
            
            —Capitalized
                interest on construction in process
            
            
            (100,825
            )
            
            —
            
            
            (100,825
            )
            
            —Liquidating
                Damages on debt
            
            
            5,748
            
            
            —
            
            
            145,748
            
            
            —Total
                interest expense
            
            $
            584,066
            
            $
            1,808
            
            $
            1,724,242
            
            $
            10,461




Maturities
      of the Company’s long term debt for the next five years are as
      follows:





2009
            
            $
            2,472,2222010
            
            
            4,027,7782011
            
            
            941,2202012
            
            
            1,129,4642013
            
            
            1,129,464Thereafter
            
            
            94,119Total
            
            $
            9,794,267




As
      part
      of the November 2007 financing, the Company also entered into a registration
      rights agreement that requires it to register all of the shares issuable upon
      conversion of the debentures (calculated by dividing the principal debenture
      amount by the conversion price) and exercise of the warrants. Since the Company
      failed to cause the registration statement to be declared effective within
      180
      days after the closing dates, it became subject to liquidating damages. On
      August 12, 2008 the Company entered into an agreement with the holders pursuant
      to which the holders waived any (i) cash payments due as liquidated damages
      and
      (ii) default by the Company as a result of the non-effectiveness of the
      registration statement in consideration for the issuance to them of 148,254
      shares of restricted common stock. As such the Company has recorded
      approximately $146,000 of liquidating damages, based on the fair value of recent
      sales of restricted common stock, which is included in the interest expense
      for
      the nine months ended September 30, 2008.


13


**ADRENALINA**


Unaudited
      Notes to Condensed Consolidated Financial Statements


Nine
      Months Ended September 30, 2008 and 2007 - continued





**Note
      5 — Commitments and Contingencies**





*Operating
      Leases*




The
      Company’s rent expense amounted to approximately $657,000, $2,149,000, $233,000
      and $741,000 for the three and nine month periods ended September 30, 2008
      and
      2007, respectively. The Company has various long-term non-cancelable lease
      commitments certain of which are guaranteed by officers and shareholders of
      the
      Company, for its offices, warehouse and stores which expire through 2019. The
      minimum rental commitments under non-cancelable long-term operating leases
      during the next five years are as follows:





2009
            
            $
            2,504,0612010
            
            
            3,027,6692011
            
            
            3,214,0742012
            
            
            3,236,3342013
            
            
            3,270,036Thereafter
            
            
            14,884,436Total
            
            $
            30,136,610




*Capital
      Commitments*




*FlowRider* ®




Effective
      April 2007, the Company entered into an exclusive five year agreement to acquire
      thirty-six FlowRider®, water-themed entertainment units for placement in its
      future mall-based retail shops in an aggregate amount approximating $21,000,000.
      The agreement is subject to a performance schedule governing order timing and
      equipment deposits. Non-refundable deposits placed as of September 30, 2008
      and
      December 31, 2007 were $2,509,200 and $1,336,500, respectively.





*Retail
      Locations*





At
      September 30, 2008, the Company had signed leases and construction agreements
      to
      develop six new retail locations. Capital commitments under these agreements
      were approximately $5.4 million.




*Litigation*





The
      Company is involved in various claims and legal proceedings in the ordinary
      course of its business activities. The Company believes that any potential
      liability associated with the ultimate outcome of these matters will not have
      a
      material adverse effect on its financial position or results of
      operations.




**Note
      6 - Related Party Transactions**




*Advertising
      Revenue*




During
      2007, the Company sold advertising to Parlux, Inc., a company whose Chairman
      and
      CEO was also a 67.7% shareholder of Adrenalina. These advertising revenues
      amounted to approximately $0 and $282,200 for the three and nine month periods
      ended September 30, 2007. (None for the three or nine month periods ended
      September 30, 2008).




*Related
      Party Note Payable*





On
      November 1, 2007, the Company issued a 5%, $3,294,267 note to a shareholder.
      (see note 4)


14


**ADRENALINA**


Unaudited
      Notes to Condensed Consolidated Financial Statements


Nine
      Months Ended September 30, 2008 and 2007 - continued





**Note
      7 - Concentration of Risk**




*Vendor
      Concentration*




During
      the three and nine month periods ended September 30, 2008 and 2007 no single
      vendor supplied more than 5% of the Companies retail inventories
      purchases.




*FlowRider* ®




Sales
      related to the FlowRider® entertainment product, amounted to approximately
      $224,000, $588,000, $123,000 and $330,000 for the three and nine month periods
      ended September 30, 2008 and 2007, respectively. These sales represented 18.0%,
      17.1%, 18.2% and 20.0% of retail revenues and 15.0%, 15.6%, 13.2% and 13.4%
      of
      total revenues for the three and nine month periods ended September 30, 2008
      and
      2007, respectively.




**Note
      8 - Income Taxes**




The
      Company has fully reserved its U.S. net deferred tax assets as of September
      30,
      2008 due to the uncertainty of future taxable income. The Company has U.S.
      net
      operating loss carry-forwards of approximately $2,453,000 which will expire
      through 2028 and state net operating loss carry-forwards of approximately
      $2,471,000 which will expire through 2028.





**Note
      9 - Warrants**





The
      following is a summary of the status of all of the Company’s stock warrants for
      the year ended December 31, 2007 and the nine months period ended September
      30,
      2008:




Number
                of
              Shares
            
            Weighted-Average
              Exercise
                PriceOutstanding
                at January 1, 2007
            
            
            —
            
            $
            —Granted
            
            
            4,000,000
            
            
            2.00Exercised
            
            
            —
            
            
            —Cancelled
            
            
            —
            
            
            —Outstanding
                at December 31, 2007
            
            
            4,000,000
            
            
            2.00Granted
            
            
            3,750,000
            
            
            2.01Exercised
            
            
            —
            
            
            —Cancelled
            
            
            —
            
            
            —Outstanding
                at September 30, 2008
            
            
            7,750,000
            
            
            2.00Warrants
                exercisable at December 31, 2007
            
            
            4,000,000
            
            
            2.00Warrants
                exercisable at September 30, 2008
            
            
            7,750,000
            
            $
            2.00


15


**ADRENALINA**


Unaudited
      Notes to Condensed Consolidated Financial Statements


Nine
      Months Ended September 30, 2008 and 2007 - continued





**Note
      9 – Warrants – continued**





The
      following tables summarize information about stock warrants outstanding and
      exercisable at September 30, 2008:





Stock
                Warrants OutstandingExercise
                Prices
            
            Number
                of
              Shares
              Outstanding
            
            Weighted-
              Average
              Remaining
              Contractual
                Life
              in
                Years
            
            Weighted-
              Average
                Exercise
              Price$2.00
            
            
            
            
            
            7,666,666
            
            
            
            
            
            4.31
            
            
            
            
            $
            2.00$2.25
            
            
            
            
            
            83,334
            
            
            
            
            
            4.81
            
            
            
            
            $
            2.257,750,000
            
            
            
            
            
            4.32
            
            
            
            
            $
            2.00








In
      July
      2008 and in connection with the Securities Purchase Agreement to sell shares
      of
      common stock (see Note 11), the Company issued 83,334 warrants to certain
      accredited investors. The warrants are exercisable at any time for a period
      of 5
      years at an exercise price of $2.25. The warrants were valued using the
      Black-Scholes pricing model and resulted in a fair value of $108,387. The fair
      value of these warrants was recorded as additional paid-in capital and is
      considered part of the proceeds received from the investors.





**Note
      10 - Share-Based Compensation**




On
      February 28, 2008, the Company granted 20,000 options to certain non-employee
      directors, to acquire common stock during a five-year period at $1.50 per share.
      These options vest over a five-year period at the annual rate of 4,000 shares
      per year. The fair value of the options at the grant date was
      determined to be $11,300 and the options are being expensed as share-based
      compensation over the applicable vesting periods.




The
      fair
      value of these options at the date of grant was estimated using a Black-Scholes
      option pricing model with the following weighted average assumptions.





Expected
                life (years)
            
            
            5.0Expected
                volatility
            
            
            69.0
            %Risk-free
                interest rate
            
            
            2.10
            %Dividend
                yield
            
            
            0.0
            %





The
      expected life of options represented the estimated period of time until exercise
      based on expectations of future behavior. The expected volatility was estimated
      using the historical volatility of the Company's stock which management believes
      is the best indicator at this time. The risk-free interest rate was based on
      the
      implied yield available on U.S. Treasury zero coupon issues with an equivalent
      term. The Company has not paid dividends in the past and does not intend to
      in
      the foreseeable future.




Included
      in compensation expense for the three and nine months ended September 30, 2008,
      are $1,301 and $3,040 of share-based compensation relating to the options issued
      in February 2008. The Company did not have any share-based compensation during
      the three and nine months ended September 30, 2007.





16


**ADRENALINA**


Unaudited
      Notes to Condensed Consolidated Financial Statements


Nine
      Months Ended September 30, 2008 and 2007 - continued





**Note
      11 – Sales of Restricted Common Stock**





During
      April 2008 the Company sold 400,000 shares of its restricted common stock,
      in a
      Securities Purchase Agreement to an accredited investor, at $0.75 per
      share.





During
      July 2008, the Company entered into a Securities Purchase Agreement to sell
      certain accredited investors 166,667 shares of restricted common stock and
      83,334 warrants to purchase shares of common stock at $1.50 per share, for
      the
      sum of $250,000. Professional fees paid in connection with a finder’s fee and
      related legal expenses were $32,000.





During
      August 2008 the Company issued 148,254 shares of its restricted common stock
      to
      an accredited investor in satisfaction of liquidated damages on convertible
      debentures.





**Note
      12 - Subsequent Events**




On
      October 10, 2008, the Company opened its third retail store in the International
      Mall of Tampa, Florida.





17





**Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations.**




**Cautionary
      Note about Forward-Looking Statements**




**Forward-Looking
      Statements**





We
      caution that any forward-looking statements (as such term is defined in the
      Private Securities Litigation Reform Act of 1995) contained in this Quarterly
      Report on Form 10-Q or made by our management involve risks and uncertainties
      and are subject to change based on various important factors, many of which
      may
      be beyond our control. Accordingly, our future performance and financial results
      may differ materially from those expressed or implied in any such
      forward-looking statements. Accordingly, investors should not place undue
      reliance on forward-looking statements as a prediction of actual results. You
      can identify these statements as those that may predict, forecast, indicate
      or
      imply future results, performance or advancements and by forward-looking words
      such as *“believe,”
      “anticipate,” “expect,” “estimate,” “predict,” “intend,” “plan,” “project,”
“will,” “will be,” “will continue,” “will result,” “could,” “may,”
“might”* or any
      variations of such words or other words with similar meanings. Forward-looking
      statements address, among other things, our expectations, our growth strategies,
      including our plans to open new stores, our efforts to increase our gross
      margins and create a return on invested capital, plans to grow our private
      label
      business, projections of our future profitability, results of operations,
      capital expenditures or our financial condition or other “forward-looking”
information and includes statements about revenues, earnings, spending, margins,
      liquidity, store openings and operations, inventory, private label products,
      our
      actions, plans or strategies. We are including this cautionary statement in
      this
      report to make applicable and take advantage of the safe harbor provisions
      of
      the Private Securities Litigation Reform Act of 1995 for any forward-looking
      statements made by, or on behalf, of us.





The
      following factors, among others, in some cases have affected and in the future
      could affect our financial performance and actual results and could cause actual
      results for fiscal 2008 and beyond to differ materially from those expressed
      or
      implied in any forward-looking statements included in this report or otherwise
      made by our management: the intense competition in the sporting goods industry
      and actions by our competitors; our inability to manage our growth, open new
      stores on a timely basis and expand successfully in new and existing markets;
      the availability of retail store sites on terms acceptable to us; the cost
      of
      real estate and other items related to our stores; our ability to access
      adequate capital; changes in consumer demand; risks relating to product
      liability claims and the availability of sufficient insurance coverage relating
      to those claims; our relationships with our suppliers, distributors or
      manufacturers and their ability to provide us with sufficient quantities of
      products; any serious disruption at our distribution or return facilities;
      the
      seasonality of our business; the potential impact of natural disasters or
      national and international security concerns on us or the retail environment;
      risks related to the economic impact or the effect on the U.S. retail
      environment relating to instability and conflict in the Middle East or
      elsewhere; risks relating to the regulation of the products we sell, risks
      associated with relying on foreign sources of production; risks relating to
      implementation of new management information systems; factors associated with
      our pursuit of strategic acquisitions; risks and uncertainties associated with
      assimilating acquired companies; risks associated with our exclusive brand
      offerings; the loss of our key executives, our ability to meet our labor needs;
      changes in general economic and business conditions and in the specialty retail
      or sporting goods industry in particular; our ability to repay or make the
      cash
      payments under our senior convertible notes; changes in our business strategies;
      any factor described under Part II-Item 1A Risk Factors in our Form 10-Q
      filings and other factors discussed in other reports or filings filed by us
      with
      the Securities and Exchange Commission.





In
      addition, we operate in a highly competitive and rapidly changing environment;
      therefore, new risk factors can arise, and it is not possible for management
      to
      predict all such risk factors, nor to assess the impact of all such risk factors
      on our business or the extent to which any individual risk factor, or
      combination of factors, may cause results to differ materially from those
      contained in any forward-looking statement. We do not assume any obligation
      and
      do not intend to update any forward-looking statements except as may be required
      by securities laws.


18


**Overview**





Adrenalina
      is a retail, entertainment, media and publishing company that is focused on
      the
      nature and lifestyle surrounding extreme sports and outdoor adventures. We
      are
      also the nation's first and only retailer that has enhanced the retail shopping
      experience, with our particular mix of shopping and entertainment that includes
      the FlowRider®. Currently we have three stores open and are in the process of
      opening [six] additional stores during 2008 and the first quarter of
      2009.





Historically
      we were considered a media company which produced the show “Adrenalina”
primarily in Latin America. However over the last twelve months we have moved
      away from our original focus and placed a greater emphasis on our retail stores,
      with current plans of expanding into new markets throughout the United States.
      During 2008 we will continue our transformation to a retail focused operation.
      Although we will continue to produce our television show we will no longer
      receive any material revenues related to its production. Instead our focus
      will
      be on getting the show as much air time as possible in an effort to increase
      our
      brand awareness and to put us in front of our targeted audience.





We
      expect
      the next 12 months to be our most challenging as we transform our operations
      and
      expand into new markets. We are also going to face extreme financial pressure
      as
      we continue the construction of our Atlanta and Houston stores and start
      building out our stores in Dallas and Denver. Each of these endeavors will
      take
      significant cash to open and currently we do not have sufficient financial
      capacity to fund their openings.





Also,
      through the rest of 2008 we anticipate that our current trend of losses will
      continue and that these losses will exceed our losses incurred during 2007.
      These continued losses have placed greater pressures on our existing employees
      which may in turn lead to greater turnover. Coupled with the fact that we may
      not be able to find suitable additional employees or replacements for
      key personnel, this may hamper our growth strategy. We may also face delays
      in
      opening our new stores and, if they are not completed on time, we may miss
      retail sales opportunities fourth quarter retail sales opportunities which
      is
      traditionally the retail industry’s most profitable quarter. We may additionally
      face economic pressures if our sales in our new markets do not meet up to our
      anticipated results, because of the continued pressure placed on our buying
      capacity as a result of a declining currency or our customers ability to
      purchase our products because of a decline in their disposable
      income.





We
      are
      however, developing additional channels to make our products available
      throughout the rest of the world with our wholesale operations. During 2007
      our
      total wholesale operations were not material to our financial results. We
      believe that this will turn during the fourth quarter of 2008 as we expect
      to
      see our sales in this area increase. These increased sales, in turn will help
      provide us with some of the cash flows that will be necessary to support our
      operations.





While
      many of our competitors are slowing their expansion because of recent declines
      in the national retail sales, we believe that now is the time to push into
      new
      markets which will be key drivers in our future success. As recent economic
      trends have softened the real estate market, we believe that incentives offered
      by malls will help to finance most of our development costs during the
      fourth quarter of 2008 and our 2009 fiscal year.





**Critical
      Accounting Policies and Estimates**





We
      have
      prepared our financial statements in conformity with U.S. generally accepted
      accounting principles, and these financial statements necessarily include some
      amounts that are based on our informed judgments and estimates. Our senior
      management has discussed the development and selection of these critical
      accounting estimates, and the disclosure in this section of this report
      regarding them, with the Board of Directors. Our significant accounting policies
      are discussed in Note 1 of Notes to Condensed Consolidated Financial Statements.
      Our critical accounting policies represent those policies that are subject
      to
      judgments and uncertainties. As discussed below, our financial position and
      results of operations may be materially different when reported under different
      conditions or when using different assumptions in the application of these
      policies. In the event estimates or assumptions prove to be different from
      actual amounts, adjustments are made in subsequent periods to reflect more
      current information. Our critical accounting policies include:


19


*Merchandise
      Inventories* —Merchandise
      inventories are valued at the lower of cost or market, with cost determined
      using a weighted average method. Included in our cost basis are costs incurred
      in making inventories available for sale in our stores, such as freight and
      other distribution costs. We utilize perpetual inventory records to value
      inventory in our stores. Physical inventory counts are performed during each
      fiscal quarter and we adjust our perpetual records based on the results of
      the
      physical counts. Cost is calculated based upon the purchase order cost of an
      item at the time it is received by us, reconciled to actual vendor invoices,
      and
      also includes the cost of warehousing, handling, purchasing, and transporting
      the inventory to the stores. The cost of warehousing, handling, purchasing,
      and
      transporting, as well as vendor allowances, are recognized through cost of
      sales
      when the inventory is sold.  Due to systems limitations, it is
      impracticable for us to assign specific costs and allowances to individual
      units
      of inventory. As such, to properly match net costs against the related revenues,
      we must use all available information to appropriately estimate the costs and
      allowances to be deferred and recognized each period. Our estimate of when
      inventory is sold affects the deferral, and subsequent income statement
      recognition, of costs incurred in preparing inventory for sale and represents
      the most significant estimate in that calculation; any changes in this estimate
      could have a material impact on the financial statements.  Vendor
      allowances, which primarily represent volume rebates and cooperative advertising
      funds, are recorded as a reduction of the cost of the merchandise inventories.
      We earn vendor allowances as a consistent percentage of certain merchandise
      purchases with no minimum purchase requirements. We did not have any vendor
      allowance programs in fiscal 2008 and 2007 that were based on purchase volume
      milestones.





We
      maintain a provision for estimated shrinkage based on the actual historical
      results of our physical inventories. We compare our estimates to the actual
      results of the physical inventory counts as they are taken and adjust the
      shrinkage estimates accordingly. We also record adjustments to the value of
      inventory equal to the difference between the carrying value and the estimated
      market value, based on assumptions about future demand.





*Film
      Costs* —
We
      account for our film costs and related revenues (“film accounting”), in
      accordance with the guidance in SOP 00-2, which requires the exercise of
      judgment related to the film’s ultimate revenues. Our current film costs consist
      of the costs of completed television episodes, completed and unreleased episodes
      and in process production costs, all reflected at the lower of cost, less
      accumulated amortization, or fair value. Prior to release, we estimate our
      ultimate revenues for each film on factors such as our historical performance
      of
      similar films. On an annual basis we evaluate and update our estimates based
      on
      information available on the progress of the film’s production and, upon
      release, the actual results of each film. Changes in our estimate of the
      ultimate revenues from period to period affect the amount of film costs
      amortized in a given period and, therefore, could have an impact on the
      financial results for that period.





*Intangible
      Assets* —
We
      perform annual impairment tests of our intangible assets by comparing the book
      values of our reporting units to their estimated fair values. The estimated
      fair
      values of our reporting units are computed using estimates that include a
      discount factor in valuing future cash flows. There are assumptions and
      estimates underlying the determination of fair value and any resulting
      impairment loss. Another estimate using different, but still reasonable,
      assumptions could produce different results.




*Revenue
      Recognition*





*Retail
      Items* —
Revenue
      from sales of our merchandise is recognized at the time of the merchandise
      sale.
      Revenue is presented net of sales taxes collected. We allow for merchandise
      to
      be returned under most circumstances and provide for a reserve of estimated
      returns. Additionally, retail revenue includes income from our point-of-sale
      attraction, Flow Rider ® revenue, which is recorded at the time services are
      provided to the end user.





*Gift
      cards—* We
      record a gift card liability on the date we issue the gift card to the customer.
      We record revenue and reduce the gift card liability as the customer redeems
      the
      gift card. Gift card breakage is recorded as revenue based on an estimated
      amount of gift cards that are expected to go unused that are not subject to
      escheatment. For the periods ended September 30, 2008 and December 31,
      2007, we did not record an estimate for breakage due to our limited history
      and
      the limited estimated amount of gift cards expected to remain
      unused.





*Film—* Revenue
      from our entertainment series are recognized when we have persuasive evidence
      of
      a sale or licensing arrangement; the film is complete and has been delivered
      or
      is available for immediate and unconditional delivery and the license period
      of
      the arrangement has begun.





*Publishing* —
We
      record magazine advertising revenues and subscriptions at the magazine cover
      date. Our magazine sales revenues are primarily generated from bulk orders
      from
      retail outlets such as newsstands, supermarkets and convenience stores. Revenues
      from bulk sales are recorded when the magazines are placed with the vendor,
      less
      an allowance for returns, based on our historical performance of the closed
      sales of our magazines.





*Internet
      Sales* — ** Revenue
      from internet sales are recognized upon estimated receipt by the
      customer.


20


*Barter—* From
      time to time and in the normal course of operations we enter into various barter
      transactions whereby, we exchange programming product for advertising time
      that
      we can use or resell. Generally, this advertising time is provided to us by
      broadcasting companies in the United States and Central and South America.
      For
      all recorded barter transactions we record the fair value of the related
      programming products based on comparable arrangements in the broadcast areas
      or
      from our existing contracts. These transactions are accounted for at the time
      the programming is broadcast and the advertising is used.





*Beneficial
      Conversion and Warrant Valuation* —We
      account for our convertible debentures with beneficial conversion features,
      in
      accordance with EITF No. 98-5 *,
      Accounting for Convertible Securities with Beneficial Conversion Features or
      Contingently Adjustable Conversion Ratios* and EITF
      No. 00-27, *Application
      of Issue No. 98-5 to Certain Convertible Instruments* . We
      record a beneficial conversion feature (“BCF”) related to the issuance of
      convertible debt instruments that have conversion features at fixed rates that
      are in the money when issued and the fair value of warrants issued in connection
      with those instruments as a discount to the debt. The discounts recorded in
      connection with the BCF and warrant valuation are recognized as non-cash
      interest expense over the term of the instruments.





The
      valuation of the warrants and conversion feature require us to make certain
      estimates about their fair value. If actual results differ from estimated
      results and these notes and warrants convert to common stock, then the
      differences on the date of conversion could be material to our financial
      position.





*Income
      Taxes* —We
      record income tax expense using the liability method for taxes and are subject
      to federal, state, and local jurisdictions. As necessary, our current tax
      liability or asset is recognized for the estimated taxes payable or refundable
      on the tax returns for the current year and a deferred tax liability or asset
      is
      recognized for the estimated future tax effects attributable to temporary
      differences and carry-forwards. Deferred tax assets and liabilities are measured
      using enacted income tax rates expected to apply to taxable income in the years
      in which those temporary differences are expected to be recovered or settled.
      The effect of a change in tax rates is recognized as income or expense in the
      period that includes the enactment date. Also a valuation allowance is recorded
      to reduce the carrying amounts of deferred tax assets unless it is more likely
      than not that such assets will be realized. If different assumptions had been
      used, our tax expense, assets, and liabilities could have varied from recorded
      amounts. If actual results differ from estimated results or if we adjust these
      assumptions in the future, we may need to adjust our deferred tax assets or
      liabilities, which could impact our effective tax rate.





**General**





**Restatement**





During
      the third quarter of 2008, we discovered errors in our previously issued
      financial statements as of December 31, 2007, March 31, 2008 and June 30, 2008
      related to the accounting for the Beneficial Conversion Features on our November
      and February convertible debt issues. These errors occurred because we
      incorrectly applied a marketability discount to the market value of our common
      stock based on our limited trading history and low trading volume. This
      discounted market value was then used to calculate the fair value of the
      embedded instruments. In October 2008 we filed an amended 10-KSB and amended
      our
      quarterly reports to correct these errors. The correction these errors resulted
      in the reduction in the carrying amount of the debt due to an increase in the
      debt discount and an increase in the equity by approximately $1,698,000 and
      $1,455,000 from their November and February convertible debt issues, as well
      as
      an understatement of our non-cash interest expense and net loss by approximately
      $31,700, $119,300 and $286,800 for the periods ended December 31, 2007, March
      31, 2008 and June 30, 2008, respectively.


21


**Results
      of Reporting Lines**





We
      classify our business interests in three reportable lines:





Retail
      sales from our stores which focus on extreme sports and adventure themed
      clothing and merchandise; Entertainment which is comprised of theatrical and
      TV
      films as well as musical productions and distribution; and Publishing which
      is
      made up of publications centered around the life styles of extreme sports
      enthusiast and alternative music trends.




The
      following table sets forth the percentage relationship net sales to costs of
      sales for each of our reporting lines in our condensed consolidated statements
      of operations. This table should be read in conjunction with the following
      discussion and with our consolidated financial statements, including the related
      notes.




**For
                the nine months ended****September
                30,**
            
            **September
                30,**(Amounts
                in thousands of dollars)
            
            **2008**
            
            **2007****Retail
                Sales**
            
            $
            3,431
            
            
            1,647Cost
                of sales
            
            $
            1,921
            
            
            967**Gross
                profit**
            
            
            44.0
            %
            
            41.3
            %**Entertainment**
            
            $
            55
            
            
            703Cost
                of sales
            
            $
            29
            
            
            716**Gross
                profit**
            
            
            47.3
            %
            
            (1.8
            )%**Publishing**
            
            $
            274
            
            
            121Cost
                of sales
            
            $
            206
            
            
            288**Gross
                profit**
            
            
            24.8
            %
            
            (138.0
            )%**Total
                Sales**
            
            $
            3,761
            
            
            2,471Cost
                of sales
            
            $
            2,156
            
            
            1,971**Gross
                profit**
            
            
            42.7
            %
            
            20.2
            %





**Results
      of Operations**





**Three
      Months Ended September 30, 2008 compared to September 30,
      2007**





*Revenues.* Total
      revenues for the three months ended September 30, 2008 increased $518,000 or
      55.6% as compared to the three months ended September 30, 2007, primarily due
      to
      increased volume in retail operations. Revenues from our retail stores amounted
      to $1,241,000 for the three months ended September 30, 2008 as compared to
      $676,000 for the three months ended September 30, 2007 resulting in an increase
      of $566,000 or 83.7% primarily resulting from the revenues of an additional
      store, which opened in December 2007. Revenues from entertainment and publishing
      were $20,000 and $187,000 for the three months ended September 30, 2008 as
      compared to $226,000 and $29,000 for the three months ended September 30, 2007;
      resulting in a total decrease of $48,000 in entertainment and publishing revenue
      from the same period in 2007. This decrease is attributable to a shift in
      corporate strategy from a film based entertainment company to one focused on
      expanding its revenue base primarily through merchandise sales and entertainment
      via retail operations nationwide.




*Gross
      Profit.* Our
      gross profit for the three months ended September 30, 2008 increased $432,000
      to
      $643,000 from $210,000 for the three months ended September 30, 2007.
      This $432,000 increase, equal to a 205.5% increase, is due to an
      increase in gross profit from retail sales of $310,000 and an increase in
      gross profit from our entertainment and publishing activities equal to
      $122,000.


22


*Payroll
      and Employee Benefits.* Payroll
      and employee benefits increased to $649,000 for the three months ended September
      30, 2008 from $491,000 for the three months ended September 30, 2007, an
      increase of $159,000 or 32.4%. This increase is primarily attributable to
      additional employees to support the retail operations and an increase in support
      personnel in anticipation of increased operations.




*Occupancy
      Expense.* Occupancy expense includes rent, utilities, insurance and other costs necessary
      for the occupancy of the stores and main office. During the three months ended
      September 30, 2008 this cost increased to $765,000 from $282,000 or 170.9%
      from
      the three months ended September 30, 2007. This increase is primarily
      attributable to our new stores which opened during the fourth quarter of 2007
      and 2008, as well as our recognition of rent expense for stores currently under
      construction.




*All
      Other Selling, General and Administrative Expenses.* Other
      Selling, general and administrative expenses are primarily made up of marketing
      and advertising expenses, professional fees, bad debt expense, amortization
      expense, depreciation expense and costs related to maintaining our patents
      and
      trademarks. For the three months ended September 30, 2008 these costs decreased
      by $123,000, a decrease of 17.6% from the three months ended September 30,
      2007.
      This change was mainly comprised of lower professional fees of $55,000; due
      to
      merger related costs, along with a decrease in amortization expense on our
      film
      products of $150,000, which was partially offset with an increase in
      depreciation expense of $52,000, from the three months ended September 30,
      2007.





*Net
      Loss.* The net
      loss for the three months ended September 30, 2008 increased to $1,929,000
      from
      $1,262,000 for the three months ended September 30, 2007, an increase of
      $668,000 or 52.9%. This increase is primarily due to increased interest expense
      of $582,000 from our convertible debentures from amortization of the debt
      discount and an increase in our occupancy expense of $482,000 related to the
      leases we signed during the fourth quarter of 2007, partially offset by an
      increase in gross profit of $432,000.





**Nine
      Months Ended September 30, 2008 compared to September 30,
      2007**





*Revenues.* Total
      revenues for the nine months ended September 30, 2008 increased $1,290,000
      or
      52.2% as compared to the nine months ended September 30, 2007, primarily due
      to
      increased volume in retail operations as we had an additional store opened
      in
      December 2007. Revenues from our retail stores amounted to $3,431,000 for the
      nine months ended September 30, 2008 as compared to $1,647,000 for the nine
      months ended September 30, 2007 resulting in a increase of $1,784,000 or 108.3%.
      Revenues from entertainment and publishing amounted to $55,000 and $274,000
      for
      the nine months ended September 30, 2008 as compared to $703,000 and $121,000
      for the nine months ended September 30, 2007; resulting in a decrease of
      $495,000 in entertainment and publishing revenue from the same period in 2007.
      This decrease is attributable to a shift in corporate strategy from a film
      based
      entertainment company to one focused on expanding its revenue base primarily
      through merchandise sales.




*Gross
      Profit.* Gross
      Profit for the nine months ended September 30, 2008 increased $1,105,000 to
      $1,605,000 from $500,000, for the nine months ended September 30, 2007. This
      $1,105,000 increase, equal to a 221.2% increase,  is due to an
      increase in gross profit from retail sales of $830,000 and an increase in
      gross profit from our entertainment and publishing activities equal to
      $275,000.




*Payroll
      and Employee Benefits.* Payroll
      and employee benefits increased to $1,780,000 for nine months ended September
      30, 2008 from $1,334,000 for the nine months ended September 30, 2007, an
      increase of $446,000 or 33.4%. This increase is primarily related to our
      expansion into new stores.




*Occupancy
      Expense.* Occupancy expense includes rent, utilities, insurance and other costs necessary
      for the occupancy of the stores and main office. During the nine months ended
      September 30, 2008 this cost increased to $2,504,000 from $741,000, an increase
      of $1,763,000 or 238.1% from the nine months ended September 30, 2007. This
      increase is primarily attributable to the increase in rent expense related
      to
      the additional leases signed. Rent expense for the nine months ended September
      30, 2008 was $2,149,000 which was an increase of $1,408,000 or 190.0% for the
      same period during 2007. This increase is primarily attributable to our new
      stores which opened during the fourth quarter of 2007 and during the first
      nine
      months of 2008, as well as our recognition of rent expense for stores currently
      under construction.





*All
      Other Selling, General and Administrative Expenses.* Other
      Selling, general and administrative expenses are primarily made up of marketing
      and advertising expenses, professional fees, bad debt expense, amortization
      expense, depreciation expense and cost related to maintaining our patents and
      trademarks. For the nine months ended September 30, 2008 these costs decreased
      by $175,000 or 9.2% verse the nine months ended September 30, 2007. This
      decrease was primarily comprised of a decrease in our marketing expense of
      $133,000 and a decrease in our film amortization of $450,000, which was offset
      by an increase in our professional fees of $372,000 which was related to our
      annual audit, residual merger related expenses and registration statement
      expenses as compared to the nine months ended September 30,
      2007.


23


*Net
      Loss.* The net
      loss for nine months ended September 30, 2008 increased to $6,198,000 from
      $3,486,000 for the nine months ended September 30, 2007, an increase of
      $2,712,000 or 77.8%. This increase is primarily due to an increased interest
      expense of $1,714,000 on our convertible debentures, an increase in our
      occupancy expense of $1,763,000 offset by an increase in our gross profit of
      $1,105,000. This overall increase is primarily attributable to a change in
      our
      focus on retail stores as we expand our operations.





**Plan
      of Operation**





Currently
      we do not believe that the Company will be able to generate any significant
      cash
      flow during the coming year to fund our planned expansion or to fund our current
      operations. However, under our current model of funding operations through
      capital contributions and debt we believe that we can sustain ourselves for
      the
      next twelve months. Currently we are seeking additional outside funding to
      keep
      the business operational beyond 2009; however there is no assurance additional
      debt or capital will be available to us on acceptable terms.




**Liquidity
      and Capital Resources**





As
      of
      September 30, 2008, the Company's current liabilities exceeded its current
      assets by $2,146,000. This is mainly due to retail operations under construction
      where the current liability is incurred during the purchase of a long term
      asset
      and maturities of our convertible debentures. At September 30, 2008, $428,000
      was included in accrued expenses for properties under construction.




As
      of
      September 30, 2008, the Company has cash and cash equivalents of $656,000 and
      net accounts receivable of $235,000, which provided available capital for
      operations primarily from the proceeds of the debt incurred by the Company
      during August 2008. The lack of available cash from the operations of the
      Company has an adverse impact on the Company's liquidity, activities and
      operations. Without realization of additional capital, it would be unlikely
      for
      the Company to execute its business plan. Management is seeking additional
      working capital through additional debt or equity private placements, additional
      notes payable to banks or related parties, or from other available funding
      sources at market rates of interest, or a combination of these. The ability
      to
      raise necessary financing will depend on many factors, including the economic
      and market conditions prevailing at the time financing is sought. No assurances
      can be given that any necessary financing can be obtained on terms favorable
      to
      the Company, if at all.





During
      February and August 2008, we issued to three accredited investors our 5% Senior
      Secured Convertible Debentures in the principal amount of $2,500,000 and
      $1,000,000, respectively. Most of the proceeds from these offerings have already
      been used in connection with new store openings and equipment purchases. In
      addition as of September 30, 2008, we had signed commitments to build out our
      new store locations and had committed under our lease agreements in excess
      of
      $35.5 million. Without additional funding, and the rapid generation of
      significant cash flow from operations, we will likely be unable to meet these
      commitments and we may have to curtail our operations. We are looking for
      additional funding which may or may not become available to us on acceptable
      terms. Any such funding may be in the form of equity and/or debt financing
      and
      will likely dilute the ownership interest of our current
      shareholders.





Net
      cash
      flows used in operating activities for the nine months ended September 30,
      2008
      were $993,000 as compared to net cash used in operating activities of $1,435,000
      for the nine months ended September 30, 2007. For the nine months ended
      September 30, 2008, our net loss amounted to $6,198,000, which included a
      non-cash adjustment due to depreciation and amortization of $633,000, a non-cash
      adjustment due to amortization of discount on convertible debenture of
      $1,134,000 and a non-cash charge due to deferred rent of $2,006,000. Changes
      in
      current assets and liabilities provided $1,210,000 in cash. For the nine months
      ended September 30, 2007 our net loss amounted to $2,224,000, which included
      a
      non-cash adjustment due to depreciation and amortization of $487,000. Changes
      in
      current assets and liabilities provided $302,000 in cash.





Net
      cash
      flows used in investing activities for the nine months ended September 30,
      2008
      was $3,318,000 as compared to $1,774,000 for the nine months ended September
      30,
      2007. For the nine months ended September 30, 2008 and 2007 our net cash used
      in
      investing activities was primarily attributable to the purchase of property
      and
      equipment for our retail operations. Additionally during the nine months ended
      September 30, 2008 we purchased and sold available for sale securities. We
      held
      no securities at the end of the quarter.


24


Net
      cash
      flows provided by financing activities for the nine months ended September
      30,
      2008 were $4,522,000 as compared to $3,041,000 for the nine months ended
      September 30, 2007. This cash provided by financing activities was primarily
      attributable to proceeds of $3,500,000 related to the issuance of convertible
      debentures and $1,262,000 from the sale of our restricted common stock and
      proceeds from related party borrowings. Cash provided by financing activities
      in
      the nine months ended September 30, 2007 was primarily attributable to proceeds
      of $4,433,000 in cash from related parties.





The
      Company has made capital commitments for leases, construction agreements and
      purchases of equipment. At September 30, 2008, the Company had signed leases
      and
      construction agreements to develop six new retail locations. Capital commitments
      under these agreements were approximately $5.4 million. Further, effective
      April
      2007, the Company entered into an exclusive five year agreement to acquire
      thirty-six FlowRider®, water-themed entertainment units for placement in its
      future mall-based retail shops in an aggregate amount approximating $21,000,000.
      The agreement is subject to a performance schedule governing order timing and
      equipment deposits. Non-refundable deposits placed as of September 30, 2008
      and
      December 31, 2007 were $2,509,200 and $1,336,500, respectively.





**Dividends**




Holders
      of common stock are entitled to receive such dividends as the board of directors
      may from time to time declare out of funds legally available for the payment
      of
      dividends. No cash dividends have been paid on our common stock, and we do
      not
      anticipate paying any cash dividends on our common stock in the foreseeable
      future.




On
      August
      13, 2007, we formed and spun-off our wholly-owned subsidiary, Generic Marketing
      Services, Inc. a Nevada corporation to its shareholders of record, in a
      one-for-one special stock dividend. Following the spin-off, we did not retain
      any ownership in Generic Marketing Services, Inc.





**Item
      3. Quantitative and Qualitative Disclosure About Market
      Risk**





None.





**Item
      4T. Controls and Procedures**





**Disclosure
      Controls and Procedures**





As
      required by SEC Rule 13a-15 or Rule 15d-15, our Chief Executive and Chief
      Financial Officer carried out an evaluation under the supervision and with
      the
      participation of our management, of the effectiveness of the design and
      operation of our disclosure controls and procedures as of the end of the period
      covered by this report. Based on the foregoing evaluation, we have concluded
      that our disclosure controls and procedures are not effective as of September
      30, 2008, and that they do not allow for information required to be disclosed
      by
      the company in the reports that it files or submits under the Exchange Act
      to be
      recorded, processed, summarized and reported, within the time periods specified
      in the SEC's rules and forms. Based on the foregoing, our Chief Executive and
      Chief Financial Officer concluded that our disclosure controls and procedures
      were not effective. Specifically, the Company identified several material
      weaknesses in our internal control over financial reporting as described in
      Item
      8A and 8A(T) in our annual report on Form 10-KSB filed with the SEC on April
      15,
      2008 (as amended on October 17, 2008), which had not been corrected as of
      September 30, 2008. Disclosure controls and procedures include, without
      limitation, controls and procedures designed to ensure that information required
      to be disclosed by the company in the reports that it files or submits under
      the
      Exchange Act is accumulated and communicated to the Company’s management,
      including its Chief Executive and Chief Financial Officer as appropriate to
      allow timely decisions regarding required disclosure.





Our
      management does not expect that our disclosure controls and procedures or our
      internal control over financial reporting will necessarily prevent all fraud
      and
      material error. Our disclosure controls and procedures are designed to provide
      reasonable assurance of achieving our objectives and our Chief Executive and
      Chief Financial Officer concluded that our disclosure controls and procedures
      are effective at that reasonable assurance level. Further, the design of a
      control system must reflect the fact that there are resource constraints, and
      the benefits of controls must be considered relative to their costs. Because
      of
      the inherent limitations in all control systems, no evaluation of controls
      can
      provide absolute assurance that all control issues and instances of fraud,
      if
      any, within the Company have been detected. These inherent limitations include
      the realities that judgments in decision-making can be faulty, and that
      breakdowns can occur because of simple error or mistake. Additionally, controls
      can be circumvented by the individual acts of some persons, by collusion of
      two
      or more people, or by management override of the internal control. The design
      of
      any system of controls also is based in part upon certain assumptions about
      the
      likelihood of future events; and, there can be no assurance that any design
      will
      succeed in achieving its stated goals under all potential future conditions.
      Over time, controls may become inadequate because of changes in conditions,
      or
      the degree of compliance with the policies or procedures may
      deteriorate.


25


**Internal
      Control over Financial Reporting**




Pursuant
      to Rule 13a-15(d) or Rule 15d-15(d) of the Exchange Act, our management, with
      participation with the Company’s Chief Executive and Chief
      Financial Officer, are responsible for evaluating any change in the
      Company's internal control over financial reporting (as defined in Rule
      13a-15(f) or Rule 15d-15(f) under the Exchange Act), that occurred during each
      of our fiscal quarters that has materially affected, or is reasonably likely
      to
      materially affect, the Company's internal control over financial
      reporting.





Our
      internal controls over financial reporting are designed to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles and includes those policies and
      procedures that: (i) Pertain to the maintenance of records that in reasonable
      detail accurately and fairly reflect the transactions and dispositions of the
      assets of the company; (ii) Provide reasonable assurance that transactions
      are
      recorded as necessary to permit preparation of financial statements in
      accordance with generally accepted accounting principles, and that receipts
      and
      expenditures of the company are being made only in accordance with
      authorizations of management and directors of the company; and (iii) Provide
      reasonable assurance regarding prevention or timely detection of unauthorized
      acquisition, use or disposition of the company’s assets that could have a
      material effect on the financial statements. Our internal controls framework
      is
      based on the criteria set forth in the Internal Control - Integrated Framework
      issued by the Committee of Sponsoring Organizations of the Treadway Commission
      (COSO).




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions or that the degree of compliance
      with the policies or procedures may deteriorate.




Based
      on
      the foregoing evaluation, the Company has concluded that there was no change
      in
      our internal control over financial reporting that occurred during the nine
      months ended September 30, 2008, that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.





We
      continue to have the following material weaknesses in our internal control
      over
      financial reporting, as described in Item 8A and 8A(T) in our annual report
      on
      Form 10-KSB filed with the SEC on April 15, 2008..





1.
            *Lack
                of sufficient resources in our accounting and finance
                organization*.
                The Company did not maintain a sufficient complement of personnel
                to
                maintain an appropriate accounting and financial reporting structure
                to
                support the activities of the Company. As of December 31, 2007, the
                Company had an insufficient number of personnel with clearly delineated
                and documented responsibilities in order to timely prepare and file
                its
                year-end financial statements and Annual Report on Form 10-KSB. Due
                to the Company’s limited resources, it has had to rely on an outside
                consultant to perform period closings and key reconciliations of
                the
                Company’s transactions and accounts, and a second outside accountant to
                prepare its annual financial statements in anticipation of the audit
                by
                the independent certified public accountants. In addition, the Company’s
                Chief Financial Officer is responsible for preparing or compiling
                certain
                critical portions of the annual financial information and is often
                responsible for performing the final review of this information.
                These
                represent a material weakness in design of internal controls over
                financial reporting. Due to the potential pervasive effect on the
                financial statements and disclosures and the absence of other mitigating
                controls there is a more than remote likelihood that a material
                misstatement of the annual financial statements could occur and not
                be
                prevented or detected. This material weakness has also contributed
                to the
                material weaknesses in Nos. 2 and 3
                below





2.
            *Lack
                of sufficient resources to provide for suitable segregation of
                duties*.
                Specifically, in connection with the lack of sufficient accounting
                and
                finance resources described in material weakness No. 1 above, certain
                financial and accounting personnel had incompatible duties that permitted
                creation, review, processing and potential management override of
                certain
                financial data with limited independent review and authorization
                affecting
                cash, inventory, accounts payable and accounts receivable. The increase
                in
                the Company’s administrative staffing has not been commensurate with the
                rapid growth in the volume of business transactions. These represent
                a
                material weakness in design of internal controls over financial reporting.
                Due to the potential pervasive effect on the financial statements
                and
                disclosures and the absence of other mitigating controls there is
                a more
                than remote likelihood that a material misstatement of the annual
                financial statements could occur and not be prevented or
                detected.


26


3.
            *Inadequate
                access controls with regard to computer master file
                information*.
                Specifically, certain of the Company’s personnel in accounts payable,
                accounts receivable and inventory had access and could make changes
                to
                master files without approval. The internal controls were not adequately
                designed. Due to the potential pervasive effect on the financial
                statements and disclosures and the absence of other mitigating controls
                there is a more than remote likelihood that a material misstatement
                of the
                interim and annual financial statements could occur and not be prevented
                or detected.





4.
            *Inadequate
                controls over the processing of certain expenses.*Costs relating to the Company’s products and services are a significant
                cost of operations. The internal controls were not adequately designed
                or
                operating in a manner to establish specific controls to ensure that
                all
                expenses were approved and processed on a timely basis. This material
                weakness is the result of aggregate deficiencies in internal control
                activities and could result in a material misstatement of financial
                statements that would not be prevented or
                detected.




5.
            *Inadequate
                controls over the processing of adjustments to accrued
                expense*.
                The internal controls over accrued expenses, period accruals and
                adjustments, were not adequately designed or operating in a manner
                to
                effectively support the expenditure cycle. Certain adjustments were
                processed without proper approval, or the Company’s procedures did not
                specifically document the approvals that would be required. This
                material
                weakness is the result of aggregate deficiencies in internal control
                activities and could result in a material misstatement of the accrued
                expenses and operating expenditures that would not be prevented or
                detected.





6.
            *Inadequate
                controls over the measurement and adjustments to Capitalized Film
                Costs.*The Company did not have in place adequate processes and procedures
                for
                measuring and evaluating capitalized film costs under the ultimate
                revenues method of accounting. This material weakness resulted in
                a
                restatement of our 2006 consolidated financial
                statements




7.
            *Inadequate
                Safeguards of Personnel Files and Customer Information.*The Company did not have in place adequate physical safeguards to
                prevent
                an employee from gaining access to sensitive customer information
                and
                employee records.





8.
            *Audit
                Committee and Financial Expert*.
                The Company does not have a formal audit committee with a financial
                expert, and thus the Company lacks the board oversight role within
                the
                financial reporting process.





9.
            *Fraud
                Prevention and Detection*.
                In conjunction with the lack of segregation of duties, the company
                did not
                institute specific anti-fraud
                controls.





10.
            *Whistle
                Blower Policy*.
                The company did not institute, as of December 31, 2007, a
                whistle-blower policy and procedure as required by Section 301 of the
                Sarbanes-Oxley Act.





11.
            *Written
                Policies and Procedures*.
                The Company did not have any written policies or procedures that
                cover the
                Board of Director, Management or its Employees. Currently the Company
                lacks any written policy regarding the
                following:





a)
            Code
                of Ethicsb)
            Management
                and Board over-sitec)
            Employee
                responsibilitiesd)
            Program
                application and other IT applicationse)
            Data
                security and Customer Informationf)
            Fraud
                prevention and detection


27


*Remediation
      of Material Weaknesses*





As
      of
      December 31, 2007 and September 30, 2008, there were control deficiencies
      which constituted material weaknesses in our internal control over financial
      reporting. To the extent reasonably possible in our current financial condition,
      we will continue to seek the advice of outside consultants and internal
      resources to implement additional internal controls.




In
      addition, we are taking steps to hire additional personnel, implement new
      policies and procedures within the financial reporting process with adequate
      review and approval procedures. During the nine months ended September 30,
      2008,
      the company hired a Director of IT and new Chief Financial Officer. These 2
      additions to the Company’s senior management have begun to improve the internal
      control over financial reporting which may help to mitigate the material
      weaknesses in the future.




Through
      these steps, we believe we are addressing the deficiencies that affected our
      internal control over financial reporting as of December 31, 2007, and
      September 30, 2008. Because the remedial actions additionally require hiring
      of
      personnel, upgrading certain of our information technology systems, and relying
      extensively on manual review and approval, the successful operation of these
      controls for at least several quarters may be required before management may
      be
      able to conclude that the material weaknesses have been remediated. We intend
      to
      continue to evaluate and strengthen our ICFR systems. These efforts require
      significant time and resources. If we are unable to establish adequate ICFR
      systems, we may encounter difficulties, which in turn may have a material
      adverse effect on our ability to prepare financial statements in accordance
      with
      GAAP and to comply with our SEC reporting obligations.


28


**PART
      II OTHER INFORMATION**





**Item
      1. Legal Proceedings**




The
      Company is involved in various claims and legal proceedings in the ordinary
      course of its business activities. The Company believes that any potential
      liability associated with the ultimate outcome of these matters will not have
      a
      material adverse effect on its financial position or results of
      operations.





**Item
      1A. Risk Factors**





In
      addition to the other information set forth in this report, you should carefully
      consider the factors discussed in Part I, “Item 1A. Risk Factors” in
      our Annual Report on Form 10-KSB/A for the year ended December 31, 2007, as
      filed with the Securities and Exchange Commission on October 17, 2008, which
      could materially affect our business, financial condition, financial results
      or
      future performance. Reference is made to “Item 2. Management’s Discussion
      and Analysis of Financial Condition and Results of Operations — Forward-Looking
      Statements” of this report which is incorporated herein by
      reference.





**Unauthorized
      disclosure of sensitive or confidential customer information could harm the
      Company’s business and standing with our customers.**





The
      protection of our customer, employee and Company data is critical to us. The
      Company relies on commercially available systems, software, tools and monitoring
      to provide security for processing, transmission and storage of confidential
      customer information, such as payment card and personal information. Despite
      the
      security measures the Company has in place, its facilities and systems, and
      those of its third party service provider, may be vulnerable to security
      breaches, acts of vandalism, computer viruses, misplaced or lost data,
      programming and/or human errors, or other similar events. Any security breach
      involving the misappropriation, loss or other unauthorized disclosure of
      confidential information, whether by the Company or its vendors, could damage
      our reputation, expose us to risk of litigation and liability, disrupt our
      operations and harm our business.





**We
      may be subject to claims and our insurance may not be sufficient to cover
      damages related to those claims.**





We
      may be
      subject to lawsuits resulting from injuries associated with the use of sporting
      goods equipment that we sell. In addition, we may also be subject to lawsuits
      relating to the design, manufacture or distribution of our private label
      products. Additionally, we may incur losses relating to these claims or the
      defense of these claims and there is a risk that claims or liabilities will
      exceed our insurance coverage and we may be unable to retain adequate liability
      insurance in the future. Although we have entered into product liability
      indemnity agreements with many of our vendors, we cannot assure you that we
      will
      be able to collect payments sufficient to offset product liability losses or
      in
      the case of our private label products, collect anything at all.




**Our
      inability to address the special risks associated with acquisitions could
      adversely impact our business.**




We
      may
      investigate acquisition opportunities complementary to our business. We may
      pay
      for these acquisitions in cash or securities or a combination of both. There
      is
      no assurance that attractive acquisition targets will be available at reasonable
      prices or that we will be successful in any such transaction. Acquisitions
      involve a number of special risks, including:





·
            diversion
                of our management’s attention;·
            integration
                of acquired businesses with our business; and·
            unanticipated
                legal liabilities and other circumstances or
                events.





**Item
      2. Changes in Securities and Use of Proceeds**




During
      July 2008, the Company entered into a Securities Purchase Agreement to sell
      certain accredited investors 166,667 shares of common stock and 83,334 warrants
      to purchase shares of common stock at $1.50 per share, for the sum of $250,000.
      Professional fees paid in connection with a finder’s fee and related legal
      expenses were $32,000. During August 2008 the Company issued 148,254 shares
      of
      its common stock to an accredited investor in exchange for liquidated damages
      on
      debt.


29


**Item
      3. Defaults upon Senior Securities**




None.





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




None.





**Item
      5. Other Information**




See
      Part
      II. Item 2 above.





The
      Company filed a Form 8-K on October 20, 2008 and a Form 8-K on October 29,
      2008 (together, the “Forms 8-K”).  The Forms 8-K were filed to report our
      press releases that disclosed our communications with Pacific Sunwear of
      California, Inc. (“PacSun”).





**Item
      6. Exhibits**





**Index
      to Exhibits**





31.1
            Certification
                of Chief Executive Officer under Rule 13(a) - 14(a) of the Exchange
                Act.31.2
            Certification
                of Chief Financial Officer under Rule 13(a) - 14(a) of the Exchange
                Act..32
            Certification
                of CEO and CFO under 18 U.S.C. Section
                1350


30


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act
      of 1934, the Registrant has duly caused this report to be signed on November
      10,
      2008 on its behalf by the undersigned, thereunto duly authorized.




**Adrenalina**By:Ilia
                LekachChief
                Executive OfficerBy:Jeffrey
                GellerPresidentChief
                Operating OfficerBy:Michael
                LabinskiChief
                Financial Officer