**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**FORM
      10-KSB**





**ANNUAL
      OR TRANSITIONAL REPORT**


(Mark
      One)


x  **ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE**


**SECURITIES
      AND EXCHANGE ACT OF 1934**


**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2005**


**OR**


 ̈  **TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES**


**AND
      EXCHANGE ACT OF 1934**





**COMMISSION
      FILE NUMBER 000-32307**





**SEA
      SUN CAPITAL CORPORATION**


(Exact
      Name Of Registrant As Specified In Its Charter)




**DELAWARE**
            **59-3518707**(State
                or other jurisdiction of
            IRS
                Employer Identification No.)incorporation
                or organization)




**940
                Sheldon Court, Suite 201, Burlington, Ontario,
                Canada**
            **L7L
                5K6**(Address
                of principal executive offices)
            (Zip
                Code)





Registrant's
      Telephone Number, Including Area Code: **(250) 717-3003**





SECURITIES
      REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: **NONE**





SECURITIES
      REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:




Title
                of each class
              **Common
                Stock, $.001 par
                value**
            Name
                of each exchange on which registered
              **None**




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




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB.  ̈





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




Revenues
      for the most recent fiscal year were **$0.00**





The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant as of November 29, 2006, computed by reference to the price at which
      the stock was sold, or the average high and low prices of such stock on that
      date was $0.00. Solely for purposes of the foregoing calculation all of the
      registrant's directors and officers are deemed to be affiliates.





20,565,141
      shares of the registrant's common stock were outstanding as of November 29,
      2006.





Transitional
      Small Business Disclosure Format Yes  ̈ No x









**PART
      I**





**Item
      1. Description of Business**





**General**





We
      are an
      international distributor of water leisure craft to the tourism market. Our
      mission is to introduce marine products into the eco-tourism market and focus
      on
      travel destinations where the underwater world is the primary
      attraction.




Eco-tourism,
      responsible travel that conserves the environment, is a growing niche market
      within the larger travel industry and is considered to be one of the fastest
      growing market segments of the worldwide tourism industry. Sea Sun eco-tours
      are
      conducted using a local qualified and knowledgeable guide from the area in
      conjunction with our environmentally friendly personal glass bottom
      watercraft.




**Our
      History**





Prior
      to
      December 16, 2004, we were called Alpha Holding, Inc., or Alpha, and had not
      conducted any commercial activities. We were incorporated under the laws of
      Delaware in 1997 as a “blind pool” or “blank check” company for the purpose of
      acquiring one or more properties or businesses, and pursuing other related
      activities intended to enhance shareholder value. On September 30, 2004, in
      anticipation of our acquisition of Sea Sun Capital Corporation, or Sea Sun
      Alberta, a private corporation incorporated under the Business Corporations
      Act
      of Alberta, Canada, we amended our certificate of incorporation to change our
      name to Sea Sun Capital Corporation, and to increase our authorized
      capitalization to 100 million $.001 par value common shares and 50 million
      $.001
      par value preferred shares.




On
      December 16, 2004, we acquired Sea Sun Alberta in a transaction that is commonly
      referred to as a “reverse merger.” In a typical reverse merger, a privately held
      operating company is “acquired” by a public company that no longer engages in
      the business that it had conducted. Thus, as in our case, it has shareholders
      and in some cases, as in ours, it makes periodic filings under the Securities
      Exchange Act of 1934, or the Exchange Act. Also, as in our case, it usually
      does
      not have an operating business. As a result of the “acquisition,” the
      shareholders of the private company deliver their shares to the public company
      in exchange for a majority ownership of new shares in the public
      company.




In
      our
      case, as a result of the reverse merger transaction, we acquired all of the
      issued and outstanding shares of Sea Sun Alberta.




Sea
      Sun
      Alberta was incorporated to acquire the assets of Seahorse International Inc.,
      or Seahorse. Seahorse, which is owned by Rodney Koch, the founder of Sea Sun
      Alberta, acquired the distribution rights to an environmentally friendly
      watercraft called the Sea Vu TM from
      Clearwater Management Inc., or Clearwater, a corporation which was located
      in
      Florida. The development of the Sea Vu began in 1994 and by 1998 a model had
      been developed and units were delivered into Florida and areas in the Caribbean.
      Mr. Koch became aware of the craft and in 2000 purchased Sea Vu products for
      his
      own purposes. Seahorse subsequently entered into an agreement with Clearwater
      which permitted Sea Sun Alberta to manufacture and distribute the Sea Vu
      watercraft.




2




Before
      completion of the Sea Sun Alberta acquisition, we had 8,330,000 shares of common
      stock outstanding, and Sea Sun Alberta had 8,607,228 shares of common stock
      outstanding. As a result of the acquisition, Sea Sun Alberta’s shareholders
      received 8,607,228 shares of our common stock in exchange for their Sea Sun
      Alberta shares. Subsequent non-public stock issuance transactions and exercises
      of warrants resulted in the currently outstanding total of 20,565,141 shares
      of
      our common stock. As a result of the acquisition, Sea Sun Alberta became our
      wholly owned subsidiary and the former shareholders of Sea Sun Alberta and
      related parties became the owners of approximately 90% of our issued and
      outstanding common stock.




**Our
      Original Business Model**





In
      2003,
      Sea Sun Alberta began pursuing a business model that was based upon the sale
      of
      investment opportunities in international maritime eco-tour locations, or
      locations, to various individuals and entities who we will collectively call
      the
      location investors. Pursuant to the agreements that each location investor
      entered into with Sea Sun Alberta, the location investor was:




·
            required
                to pay a sales price for the location which typically ranged from
                $100,000
                - $150,000, to fund the:




·
            production
                of the glass-bottom watercraft manufactured pursuant to Sea Sun’s
                proprietary designs and specifications to be employed at the locations;
                and




·
            set-up
                of, and the licensing and marketing for, the locations, and




·
            entitled
                to receive between 30% and 40% of the net revenues (gross revenues
                less
                selling commissions) generated from the ongoing operations from the
                specific location in which the location investor had invested.




Sea
      Sun
      Alberta also began to manufacture, through unaffiliated parties, the watercraft
      to be delivered to each location, obtained, where necessary, the permits and
      licensing required by certain jurisdictions, undertook to engage the services
      of
      qualified eco-tour operators at each location, and also began to perform the
      accounting and other administrative functions for each location.




Sea
      Sun
      Alberta did not enter into any agreements for the sale of locations with any
      location investors in 2004. During 2005, we entered into 47 agreements with
      various location investors pertaining to the establishment and operation of
      68
      locations. The agreements provided that the specific site of a location would
      be
      subsequently determined by mutual agreement between Sea Sun Alberta and the
      location investor. However, each agreement set forth a specific number of our
      single passenger watercraft, called the *Sea
      Spi ITM* ,
      and our
      two passenger watercraft, the *Sea
      Spi IITM* ,
      to be
      manufactured for that location. The agreements required payment of an initial
      deposit that was due upon signing. If the location investor did not pay the
      entire sales price upon signing the agreement, a second deposit was due within
      a
      year subsequent to signing, and the remaining amount could be financed over
      a
      period not to exceed two years subsequent to the commencement of operations
      at
      the location. Of the aggregate sales price of $7,743,400 stated in the location
      agreements we entered into in 2005, we received cash aggregating $3,903,590,
      resulting in location sales receivable of $3,839,810 at December 31, 2005.
      Second deposits totaling $971,610 are payable to us during the year ended
      December 31, 2006.




3




We
      accounted for all revenues derived from the location agreements we entered
      into
      in 2005 in accordance with EITF Issue 88-18, *“Sales
      of Future Revenues,”* which
      requires all sums payable to us pursuant to those Agreements to be recognized
      not as revenue, but rather as debt to be amortized using the effective interest
      method. Since none of the locations commenced operations prior to December
      31,
      2005, no amortization was recorded in 2005, and the entire debt amount has
      been
      treated as long-term debt.




**Our
      Present Business Model**





In
      June
      2006, we entered into a master license agreement with Sea Sun Enterprises,
      Inc.,
      or SSEI, a Barbados corporation that we do not own or control, and whose owners
      are not affiliated with us. Pursuant to that agreement:




·
            we
                granted to SSEI a worldwide license to develop and operate Sea Sun
                eco-tour business operations and to use our intellectual property
                in
                connection with those operations;




·
            SSEI
                became fully responsible for establishing and operating, either directly
                or through local water sports location operators trained and supervised
                by
                it, Sea Sun eco-tour operations at all of the locations that we had
                agreed
                to set up pursuant to the assigned location agreements and at all
                new
                locations to be established; and




·
            SSEI
                agreed to pay us boat rental fees and license fees with regard to
                the use
                of our watercraft and intellectual property in connection with the
                eco-tour operations to be conducted at the
                locations.




At
      the
      same time, we entered into a transfer and assignment agreement with SSEI
      pursuant to which:




·
            we
                assigned all of our rights and interests in




·
            the
                47 location agreements that we had entered into in 2005, plus 10
                additional location agreements that we entered into in 2006;
                and




·
            all
                accounts receivable due and owing to us pursuant to those agreements;
                and




·
            SSEI
                agreed to pay us, in consideration of such assignment, $3,886,910
                in
                various installments over a period of three
                years.




4




Inasmuch
      as SSEI is now responsible for the operation of the locations, including set-up,
      marketing, tour operations and revenue collection activities, and is obligated
      to pay all expenses associated with those operations, our revenues in 2006
      and
      subsequent years will no longer be accounted for pursuant to EITF Issue
      88-18.




**Our
      Product Line**




We
      acquired the manufacturing and distribution rights to the Sea Vu watercraft.
      We
      have redesigned the Sea Vu watercraft to create our new electric motor powered *Sea
      Spi I* single
      person watercraft and *Sea
      Spi II* two
      person watercraft. We have also designed additional products, one of which
      is
      the *Sea
      CruzTM* ,
      a
      single person electrically powered personal watercraft. Another product that
      we
      intend to begin manufacturing and selling is an electrically powered deck
      boat.




**The** ***Sea
      Spi*** **s**





The
      single person *Sea
      Spi 1* is 115
      inches long, 46 inches wide and 24 inches deep. The craft with two batteries
      weighs approximately 300 pounds and has a maximum speed of approximately 10
      knots or 11.5 mph. The two person *Sea
      Spi II* is 115
      inches long by 75 inches wide with a depth of 24 inches. The weight of the
      craft
      with four batteries is approximately 575 pounds, and its maximum speed is the
      same as the *Sea
      Spi I* .




The *Sea
      Spi* hull is
      designed to provide maximum load and stability for the craft and accommodate
      the
      propulsion system sectioned and filled with foam to provide additional strength
      and positive flotation. The high buoyancy and stability allow the products
      be
      used on many different types of water. The craft also has been designed to
      reduce hull noise that may alarm marine life.




The
      deck
      design incorporates a new ergonomically correct position to provide maximum
      comfort for the operator, eliminates water leakage and has also been designed
      to
      be self-bailing. Should the watercraft be flooded with a large wave, the craft
      is designed so that the water will rush off in three directions, the left and
      right sides as well as the stern. This feature was incorporated to achieve
      maximum safety. Both the Sea Vu and *Sea
      Spi* s
      comply
      with all applicable USCG and CE (EU) category standards.




Perhaps
      the single most important aspect of the watercraft is a proprietary viewing
      window at the bow water line, which offers an unparalleled view of the beauty
      of
      the underwater world. The lens is optically correct and disperses bubbles and
      turbulence for clear viewing while moving. Glass bottom boats currently in
      existence have to be stopped in order to allow a clear underwater view. The
      2006 *Sea
      Spi* also has
      been modified and the new viewing lens designed by a major optical manufacturer
      will further increase the operator’s visibility range and provides additional
      clarity.




Marine
      life is not confined to deep water. The *Sea
      Spis* ’
      proprietary design also allows the craft to operate in shallow water. This
      feature allows the user to discover an undersea world that is rich in beauty
      and
      teeming with magnificent marine life.




5




In
      January 2006, we discovered that some of the motors on a number of the *Sea
      Spis* that we
      had manufactured and shipped to Thailand, Australia, the Bahamas and Grand
      Cayman were burning out. After a three month investigation, we resolved that
      problem by replacing the wiring harness connected to the motors and by adding
      a
      joystick thrust and propulsion control system. In April 2006, we began to
      retrofit our existing fleet of approximately 750 *Sea
      Spi I* and *Sea
      Spi II* watercraft to incorporate the new wiring harness and joystick systems. As of
      the
      date of filing of this Report, retrofits had been completed on approximately
      400
      of those 750 *Sea
      Spi* s.
      All of
      such costs are being capitalized and will be recorded as part of our fixed
      assets.




All
      new
      and retrofitted single and the twin *Sea
      Spi* s
      are
      powered by two 82 pound digitally controlled Mercury Marine electric motors
      that
      maximize the watercraft’s maneuverability. The *Sea
      Spis* are
      operated by an opposing thrust steering system that is controlled by a joystick
      which maneuvers the craft by controlling the direction and amount of thrust
      from
      each motor. Depending on the direction chosen, one motor can thrust forward
      while the other goes into reverse, making it possible for the craft to turn
      within its own radius. The joystick also controls the speed of the *Sea
      Spi* and
      shuts the motor off when released by the operator. The key advantages to this
      system are that it is virtually maintenance free; is completely sealed to
      prevent galvanic corrosion; provides higher throughput; is quiet; has a smooth
      performance; provides an efficient glide; and operates more efficiently
      resulting in extended battery life and more time on the water.




We
      are
      constantly searching for alternative propulsion systems and have provided our *Sea
      Spi* s
      to a
      research and development company that is in the final stages of testing a new
      electric propulsion system. That company has developed a number of successful
      electric propulsion systems for both marine and land applications. While
      continuous testing is still being conducted, preliminary results indicate that
      the system may be far superior in every respect to our existing
      system.




The *Sea
      Spis* currently deployed use two 24 volt absorbed glass mat, or AGM, batteries in
      the *Sea
      Spi*  *I* and four
      24 volt AGM batteries in the *Sea
      Spi*  *II* .
      AGM
      batteries are advanced deep cycle versions of the same lead acid batteries
      used
      in cars and trucks. They are completely sealed and maintenance free. No water
      is
      required and there is no risk of leaking acid. They have a very low discharge
      rate when stored for long periods and will still have ample power left in them
      after prolonged periods of storage. Conventional lead acid batteries by
      comparison, when stored over long periods of time, self-discharge, and in some
      instances, are damaged. AGM batteries will generally last 4-5 years before
      they
      need to be replaced.




The
      new
      propulsion system that we will be employing in the 2007 models of the *Sea
      Spis* will
      include scalable battery packs of stabilized lithium. Lithium which is the
      lightest of all metals provides for the largest energy density for weight and
      is
      also a low maintenance battery with a relatively low self-discharge rate that
      is
      typically less than half that of conventional lead acid batteries. The
      substitution of scalable lithium battery packs in place of the AGM batteries
      currently in use will provide substantial weight reductions of as much as 230
      pounds in the case of the *Sea
      Spi II* .




6




**Manufacturing**





We
      have
      chosen, and are the final stages of contract negotiations with, two US boat
      manufacturers, to produce our *Sea
      Spi I* , *Sea
      Spi II* and, in
      the future, our *Sea
      Cruz* and
      deckboat. Both of those manufacturers are subsidiaries of one of the world’s
      largest recreational boat manufacturers, and employ a state of the art,
      computer-controlled, fiberglass molding process, which reduces styrene emissions
      during lamination by more than 90%. That process has been the recipient of
      a
      number of awards including one from the Environmental Protection Agency in
      which
      they received the prestigious Clean Air Excellence Award.




According
      to those two manufacturers, the automated, computer-controlled, closed-mold
      process they employ:





·
            is
                four times faster than open
                molding;





·
            reduces
                emissions during lamination by more than
                90%;





·
            reduces
                waste by 50%;





·
            results
                in a high quality, high strength product with weight consistencies
                within
                one percent; and





·
            produces
                a product that has little impact on the
                environment.





Sea
      Sun
      outsources additional products including: trailers, kiosks, storage racks,
      clothing accessories, as well as any other products.




**Product
      Warranties**





We
      do not
      offer our own product warranties covering our watercraft and replacement parts.
      The propulsion system warranty is provided by the marine manufacturer and the
      watercraft warranty is provided by the watercraft manufacturers.




**Our
      Master License**





We
      have
      entered into a ten year master license agreement with Sea Sun Enterprises Inc.,
      or SSEI, a Barbados company that is owned by parties who are not affiliated
      with
      us or any of the members of our management. SSEI is fully responsible for
      establishing and operating Sea Sun eco-tour locations internationally. In
      certain locations, SSEI will be charged an initial territory fee and a monthly
      rental fee based on the number of *Sea
      Spis* installed at the location. In other locations the initial territory fee will
      be
      waived and SSEI will pay an on-going monthly licensing fee in addition to the
      monthly rental fee.




7




Pursuant
      to the master license agreement, SSEI has:




·
            the
                exclusive, non-transferable, worldwide right and license to establish
                and
                operate at warm weather tourist destination locations that we have
                approved business outlets which offer and sell eco-tours using our*Sea
                Spi I*and*Sea Spi II*watercraft; and




·
            the
                right to enter into agreements with water sports business providers
                to
                provide those Sea Sun eco-tours as SSEI’s sublicensees at any of those
                approved locations.




SSEI’s
      exclusive rights are subject to our rights to:




·
            sell*Sea
                Spi*watercraft to any person or entity as long as the purchaser does
                not use
                them to offer and sell eco-tours,
                and




·
            rent*Sea
                Spi*watercraft to the members, owners, partners, associates or affiliates
                of
                organizations, such as The Professional Association of Diving Instructors,
                as long as those renters do not use them to offer and sell
                eco-tours.




**Principal
      Markets and Customers**





The
      principal users of our *Sea
      Spi* watercraft include cruise line passengers, hotel guests, travel industry clients
      and people booking tours through the Internet. The principal locations where
      those customers will use our watercraft are the clear water, coral reef, marine
      environments located throughout the warm water segments of the world’s oceans.




Coral
      reefs are fragile and depend on specific temperatures, water salinity, and
      different species to keep it alive. Any disruption such as a rise of silt levels
      in the water, a rise or fall in water temperature, or the extinction of a
      species can severely damage a reef. All of these changes can be created by
      an
      invasive human presence in and around the structure that the coral reef depends
      on.




Ecotourism
      is a rapidly growing niche market within the tourism market. It is primarily
      advertised as a form of nature tourism. Today travelers are seeking pristine,
      natural and cultural sites. As the number of visitors to protected areas
      continues to increase, the need for ecotourism will become mandatory.




The
      effects of tourists on any ecosystem are numerous, but traffic on coral reefs
      can be extremely deadly. Visiting boats can anchor improperly and severely
      damage coral and touching or harvesting coral illegally also damages the reef.
      Even small scale use can damage the natural resources which attract tourists
      in
      the first place.




Whether
      called nature tourism or ecotourism, recreational and educational travel based
      on natural attractions is a potential means of advancing environmental
      objectives in countries. It offers countries new opportunities for investment
      and employment and increases the country’s stake in protecting its natural
      resources.




Islands
      are amongst the most visited tourist destinations in the world. They are
      vulnerable areas with limited resources and delicate ecosystems. The
      implementation of ecotourism will eventually become essential because most
      islands have distinctive flora and fauna with different species, coral reefs
      and
      marine ecosystems.




8




**Caribbean
      Locations**





The
      crystal clear waters in the Caribbean are ideal for anyone wishing to experience
      the vast underwater treasures that it has to offer. Throughout the Caribbean,
      large multinational resort companies are investing substantial revenue in
      national economies. To handle the increasing volume of tourists, Caribbean
      countries are investing in upgrading and expanding airports, roads and port
      facilities.




The
      Caribbean is an obvious focus for us because of its combination of water
      quality, warmth and consistent tourism traffic from cruise lines, resorts and
      holiday tour operators.




In
      the
      Bahamas, SSEI currently has one Sea Sun eco-tour location operating 24 *Sea
      Spi I* s
      and 12 *Sea*  *Spi
      II* s
      at
      Blackbeards Cay, Nassau.




In
      the
      Cayman Islands, SSEI currently has one location running on Grand Cayman that
      is
      operating 24 *Sea
      Spi*  *I* s
      and 12 *Sea
      Spi II* s.
      That
      location is adjacent to the cruise ship port facilities. SSEI’s eco-tour
      customers at that location include passengers on the Royal Caribbean and
      Carnival cruise ships that disembark at that port facility.




In
      Barbados, SSEI has one location utilizing eight *Sea
      Spi I* s
      and
      eight *Sea
      Spi*  *II* s
      that is
      scheduled to commence operations in January 2007. We have been negotiating
      a
      partnership arrangement with Bridgetown Cruise Terminals, or BCT, a company
      that
      provides services for the use of cruise passengers and crewmembers visiting
      Barbados. If those negotiations are successfully completed, BCT will work with
      SSEI and us to obtain eco-tour referrals from one or more of the following
      cruise lines: Royal Caribbean, Princess, Norwegian, Carnival, Ocean Villages,
      P&O and Regent Seven Seas lines.




**Australian
      Locations**





In
      Australia, the Great Barrier Reef remains one of the world’s most important
      natural resources. It is the largest natural feature on Earth. According to
      the
      Australian Department of the Environment and Heritage, every year the reef
      attracts millions of tourists and is responsible for generating billions of
      dollars in revenue in the region. The Great Barrier Reef is a chain of almost
      3,000 reefs and is more than 1,250 miles long and up to 70 miles wide. It
      supports thousands of species of marine corals, fish and invertebrates. There
      are over 30 historic shipwrecks in the area and on the islands are ruins and
      operating lighthouses that are of cultural and historical
      significance.




The
      Great
      Barrier Reef Marine Park Authority, or Reef Authority, was established to ensure
      the preservation of this ecosystem. The Reef Authority has created zones within
      the reef that provide for certain ecologically sustainable activities. Each
      zone
      has an underlying set of conservation objectives. Many zones allow activities
      such as tourism, fishing, boating, diving and research. In a number of zones
      however, there are restrictions on any activity that is not eco-friendly.




We
      are
      awaiting final approval from the Reef Authority for permits that will sanction
      the operation of our watercraft in selected zones that provide for the area’s
      biodiversity. Our products have however been approved by Ecotourism Australia,
      a
      non-profit organization that operates an eco-certification program to identify
      genuine ecotourism and nature tourism operators in Australia. Its certification
      programs, which accredit products not companies, are designed to set world-class
      standards for nature based tourism in Australia.




9




We
      expect
      that at least eight *Sea
      Spi IIs* will
      begin operating in this market prior to the end of 2006. We anticipate that
      SSEI
      will establish three additional eco-tour locations in the first quarter of
      2007,
      each of which will encompass a combination of 50 *Sea
      Spi Is* and *Sea
      Spi IIs* .
      At
      present we have placed 108 of our craft in position to take advantage of the
      Australian market place.




**South
      Pacific Locations**





The
      South
      Pacific Islands have thousands of miles of white sand beaches, azure lagoons
      and
      some of the world’s most pristine coral reefs. There are an abundant number of
      remote areas on the islands offering wonderful eco-tourism opportunities. The
      remoteness and vastness of the region has promoted the evolution of unique
      species of marine life in each region. More endangered marine species live
      in
      the South Pacific than any other equivalent landmass in the world.




We
      have
      identified 22 islands in the South Pacific which we believe are ideally suited
      for Sea Sun eco-tour operations. Included among them are: the Cook Islands,
      Guam, Marshal Islands, New Caledonia, New Zealand, Papua New Guinea, Solomon
      Islands, Samoa, Tahiti and Tonga. The first shipment of 24 *Sea
      Spi I* s
      and 24 *Sea
      Spi II* s
      has
      been sent to Fiji. We anticipate that SSEI will be commencing Sea Sun eco-tour
      operations in the Cook Islands during the first quarter of 2007.




**Indian
      Ocean Locations**




The
      Republic of the Seychelles comprises 115 islands in the western Indian Ocean.
      The islands are home to some of the rarest species of flora and fauna on Earth.
      In keeping with our promotion of sustainable tourism, the Seychelles have an
      enviable record of conservation policies to protect their environment. A full
      50% of their landmass has been set aside as national parks and reserves.




We
      have
      shipped 16 *Sea
      Spi I* s
      and
      four *Sea
      Spi II* s
      to the
      Seychelles and anticipate that Sea Sun eco-tour operations will be commenced
      there during the first quarter of 2007.




**Mediterranean
      Locations**





The
      Mediterranean Basin is the world’s largest tourist attraction. The World
      Wildlife Federation estimates that by 2020, 350 million tourists will visit
      this
      region annually representing 22% of international tourist visits. Due to its
      climate, beautiful landscape, rich historical and cultural heritage and marine
      ecosystem, the Mediterranean area is very popular with citizens from other
      countries. The Mediterranean Sea is a region with the highest percentage of
      marine species that only live in that part of the world and has been identified
      as one of the most important regions in the world for its outstanding
      biodiversity features.




10




Many
      endangered species of marine life however are heavily threatened by habitat
      degradation mostly due to human activities. Mass tourism is one of the main
      causes behind ecological loss in the Mediterranean region. According to the
      World Tourism organization, or WTO, France, Spain and Italy ranked two, three
      and four, respectively, among the top ten tourism earners in the world in 2004.
      The arrival of tourists is highly seasonal with the peak period in the summer.
      This large onslaught of people concentrated in a short period of time has had
      a
      severe impact on the environment. The Mediterranean coastal areas are already
      seriously damaged. Many locations, which were once pristine, are now beyond
      repair.




Concern
      for the region’s environment has led to the implementation of a number of
      ecological controls and a focus on sustainable tourism for the region. We
      believe that with the emerging focus on tourism alternatives within the area
      that can provide sustainable development, significant revenue opportunities
      will
      open up within this area for providers of eco-friendly tourism opportunities
      such as those available via a Sea Sun eco-tour.





In
      Italy,
      we currently have one *Sea
      Spi II* and
      eight *Sea
      Spi I* s
      available for eco-tour operations. We anticipate eco-tour operations will begin
      generating revenues there during the 2007 tourism season that will be in full
      swing during the late Spring and Summer months..




In
      Greece, we currently have nine *Sea
      Spi II* s
      and 16 *Sea
      Spi I* ’s
      available for eco-tour operations. As in the case of Italy, we do not expect
      significant revenues to be generated from eco-tour operations until around
      mid-Summer 2007.




In
      Egypt,
      we have a total of 54 *Sea
      Spi II* s
      and 62 *Sea
      Spi I* s
      available for eco-tour operations. We intend to place those watercraft in Sharm
      el Sheikh - a world renowned dive and resort location situated on the tip of
      the
      Sinai peninsula in the Red Sea. SSEI has advised us that it is seeking to
      commence eco-tour operations at five locations in Egypt. Two of those locations,
      utilizing 16 *Sea
      Spis,* are
      scheduled begin operations before the end of 2007. We believe that the other
      three locations will open during the first quarter of 2007.




**Central
      American Locations**





Tourism
      has been a growing industry in Central America in the last decade. The countries
      in this region include: Belize, Costa Rica, El Salvador, Guatemala, Honduras,
      Nicaragua and Panama. These countries together support 7% of the Earth’s marine
      species in a region that is geographically diverse, from volcanoes, rift lakes,
      and coral reefs to wetlands, semi-deserts, rainforests, and the world’s second
      largest barrier reef system, the Mesoamerican Reef.




Thanks
      to
      an ambitious plan aimed at boosting El Salvador as a destination for business
      and pleasure, that country is now one of the fastest growing tourism markets
      in
      Latin America and in 2005 posted a 15.6 percent increase in tourist visits
      from
      2004. El Salvador is not the only Central American destination experiencing
      strong tourism growth, as the region reported the highest tourism growth rate
      worldwide last year at 14.1 %. Costa Rica remains the top tourism destination
      in
      the region and is the destination of choice for Europeans looking for
      environmentally friendly vacations.




11




We
      have
      shipped 24 *Sea
      Spi I* s
      and 12 *Sea
      Spi II* s
      to the
      Pacific Coast of Costa Rica. SSEI currently has two Sea Sun eco-tour locations
      operating at the Playa Coco Four Seasons Hotel with six *Sea
      Spi I* s
      and two *Sea
      Spi II* s,
      and at
      Coco Water Sports which is now operating four *Sea
      Spi I* s.
      We
      anticipate that SSEI will open a third location involving eight more *Sea
      Spis* before
      the end of 2006, and that it will add more *Sea
      Spis* to the
      Playa Coco Four Seasons location. We expect the remaining *Sea
      Spis* that we
      have in Costa Rica will be in operation during the first quarter of
      2007.




SSEI
      has
      secured its first location in Bocas del Toro, Panama. That location will receive
      eight *Sea
      Spi I* s
      and
      eight *Sea
      Spi II* s,
      in the
      first quarter of 2007. We anticipate they will begin generating revenue during
      that same quarter.




**Mexican
      Locations**





Mexico
      leads Latin America in tourist arrivals and accounts for a third of all tourism
      arrivals in that region. According to the WTO, in 2005, Mexico ranked eighth
      in
      the number of international visitors and tenth in international tourism
      revenues. Last year the number of tourist arrivals to the country grew by 6.3
      percent and the country is a leading destination worldwide. The country is
      becoming one of the richest eco-tourism destinations in the world, and
      environmentally conscious travelers choose this location because of the number
      of species of flora and fauna and the eco-tour options available to
      them.




We
      have
      shipped 16 *Sea
      Spi I* s
      and
      eight *Sea
      Spi II* s
      to
      Mexico and anticipate that Sea Sun eco-tour operations will be commenced at
      one
      location in that country during the fourth quarter of 2006.




**Cruise
      Lines**





The
      cruise ship industry is the fastest growing segment of leisure travel. The
      number of cruise tourists has increased rapidly in the last ten years at an
      average annual rate of 8%. According to statistics provided by Cruise Lines
      International Association, or CLIA, members’ passenger growth continued in 2005
      with a record 11.18 million passengers taking a cruise. CLIA also reports that
      in the past five years 65 new cruise liners have been launched and an additional
      20 are being constructed that will accommodate and additional 55,000 passengers.




A
      cruise
      is one of the few vacation experiences that offer the tourist an all-inclusive
      vacation package whose cost includes transportation, accommodations, all meals,
      and entertainment and off-ship excursion activities. In addition, it provides
      for advance budgeting of monies for a vacation, and for this reason, it is
      very
      appealing to many families.




CLIA
      also
      has reported that the Caribbean remains the most popular cruise destination
      in
      the world. Total cruise-passenger visits to the Caribbean have increased by
      nearly forty percent since 1988, equivalent to an annual growth rate of 8.5%.
      The three largest cruise destinations in the region are the Bahamas, the U.S.
      Virgin Islands, and Puerto Rico. Large cruise tourism increases were also
      registered in Aruba, Belize, Bonaire, the Cayman Islands, Dominica, Jamaica,
      St.
      Kitts and Nevis. The individual performances of these destinations in terms
      of
      cruise-passenger visits were impressive; recording rises of over twenty-five
      percent. The cruise ship sector is expected to continue growing rapidly during
      the remainder of this decade. Much of this growth is likely to take place in
      the
      Caribbean, increasing its share of a growing market that currently represents
      more than fifteen million visits to the region.




12




CLIA
      has
      reported that the Mediterranean occupies the number two spot in cruise
      destinations in the world. There are over 2000 islands in the Mediterranean,
      which is the world’s largest inland sea. The Mediterranean’s most popular
      destinations are the French Rivera, Amalfi Coast, the Isle of Capri, Portofino
      and the City of Dubrovnik in Croatia.




The
      cruise lines in many instances provide and arrange on shore activities for
      their
      passengers. In order to receive an endorsement from the cruise lines, the
      product that is being promoted has to have broad appeal to a cruise line’s
      passengers. We have worked very closely with the world’s three largest cruise
      lines - Carnival, Royal Caribbean and Norwegian — to have
      Sea Sun
      eco-tour offerings included on their in-port activity lists. As cruise ships
      have increased in size, passengers, and ports, much has been written about
      their
      collective impact on the environment, coral reefs, beaches, and coastal
      communities. Although cruise ships make up a small percentage of the world’s
      oceangoing vessels, they are a leader in the field of finding new technologies
      that enhance passenger experiences while minimizing the environmental impact
      of
      doing so. Included in their offering are on shore activities that protect the
      environment, such as Sea Sun’s eco-tour experiences.




Carnival
      Cruise Lines and Royal Caribbean Cruise Lines advertise the availability of
      Sea
      Sun eco-tours on their websites. Both lines also sell tickets for Sea Sun
      eco-tours to passengers traveling to the Cayman Islands on their vessels. Those
      eco-tours are provided by SSEI on our *Sea
      Spi* watercraft located at Grand Cayman Island.




In
      those
      cases in which a cruise line owns a private island, such as Royal Caribbean’s
      Coco Cay, and Princess Cruise Lines’ Princess Cay in the Bahamas, the cruise
      lines directly offer and operate off-ship amenity packages to their passengers.




We
      have
      begun negotiations with the water sports operators at Princess Cay and Coco
      Cay.
      Our goals for those locations include placement of a combination of 20 *Sea
      Spi Is* and *Sea
      Spi IIs* on each
      of those islands in 2007. If our negotiations prove to be successful, we will
      generate boat rental income from the use of our *Sea
      Spis* ,
      but our
      watercraft will not be used to provide Sea Sun eco-tours at those locations.




**Scuba
      Diving Locations**




The
      diving market has undergone a recent overall decline, which was principally
      due
      to the general worldwide economic slowdown and a consequent decrease in the
      number of end users of diving products traveling on holiday to diving and other
      resorts. Despite these decreases, the diving industry still represents a
      significant segment of the tourism industry.




According
      to the Diving Equipment Manufacturers Association, or DEMA, 83% of individuals
      visiting clear water resorts are either uncomfortable swimming in the water
      or
      are afraid of the marine life. DEMA has expressed to its members its view that
      there is a need for new equipment and products that will allow tourists to
      experience the natural beauty of the oceans and marine life without compromising
      their comfort level. DEMA has also stated its view that a product that permits
      those individuals to experience what divers and snorkelers have been enjoying
      for years would be highly successful.




13




The
      use
      of our *Sea
      Spi* watercraft
      provides divers with an inexpensive and safe way to search for new dive sites.
      The best diving locations are often within one mile of the shoreline. Dive
      charter boat excursions are usually limited and somewhat expensive to operate
      within this distance. Diving from shore is dangerous because of the fatigue
      factor. The *Sea
      Spis* provide
      an excellent environmentally friendly scouting platform offering divers
      flexibility along with quiet operation that ensures that the marine life will
      not be frightened away. The benefit of the *Sea
      Spi II* also
      extends to couples by allowing one person dives while the other person can
      view
      the experience safely from above. We believe this will foster a unique
      interaction between divers and non-divers.




The
      Professional Association of Diving Instructors, or PADI, is the world’s largest
      recreational diving membership and diver training organization. PADI members,
      including dive centers, resorts, educational facilities, instructors, and
      divemasters, teach the majority of the world’s recreational divers how to dive
      safely. PADI issues nearly 946,000 diver certifications each year. PADI offices
      also serve more than 130,000 individual professional members and more than
      5,000
      dive centers and resorts in more than 175 countries and territories.
      Translations of PADI materials are available in more than 20 languages. PADI’s
      members’ worldwide market share of diver training and certification activities
      is more than 50%.




PADI
      has
      fully endorsed the use of *Sea
      Spi* watercraft by its members. We have been discussing a licensing arrangement
      with
      PADI that will provide us with monthly rental revenues on each boat operating
      at
      a PADI member’s location. However, we have not entered into any agreement with
      PADI in that regard, and can not give any assurances that we will be able to
      do
      so.




**Hotels
      and Resorts**





We
      believe that hotels located in warm water tourist destinations will also prove
      to be an indirect, but significant source of revenues for us. In order to be
      able to satisfy the demands of their guests for interesting activities to pursue
      while on vacation, hotels are always seeking new amenities to offer to their
      guests. We have held extensive negotiations with a number of hotel chains in
      promoting the Sea Sun product line. It is our intention to compensate hotels
      that refer their guests to one of our Sea Sun eco-tour locations, or book their
      guests on a Sea Sun eco-tour. However, we have not entered into any agreements
      in that regard, and can not give assurances that we will be able to do so.




**Travel
      Agents**





According
      to the American Society of Travel Agencies, in 2005, 43% of international air
      travelers booked air travel with a travel agent. Travel agents assist travelers
      in making important decisions in their travel arrangements. We have a program
      in
      place that will provide compensation to an agency for every tour booked on
      a *Sea
      Spi* by one
      of its customers.




14




We
      also
      intend to introduce a travel card program which would entitle the user to
      significant discounts on travel related items, and have begun discussions with
      two travel companies regarding the formation of a partnership through which
      the
      program would be implemented. It is our goal to complete those negotiations
      and
      start up the program during the first quarter of 2007.




**Sales
      and Marketing**





We
      are
      pursuing or intend to pursue three separate and distinct marketing approaches
      for our *Sea
      Spi* product
      line.




**Conventional
      Location License and Boat Rental Approach**





In
      most
      cases, we receive or will receive a one-time license fee from SSEI for a
      particular location, monthly rental payments for the *Sea
      Spis* employed
      or to be employed at that location and monthly licensing fees for the use of
      our
      business model, trademarks and trade names. In certain situations, we will
      waive
      the initial fee in return for a higher monthly licensing fee, or a higher
      monthly rental fee. SSEI is responsible for all aspects of the location’s
      management including, but not limited to:




·
            choosing
                an internationally identified
                location;




·
            hiring,
                training and properly supervising a staff of area managers and other
                personnel who shall be responsible
                for:




·
            identifying
                suitable location venues;




·
            identifying
                water sports operators to provide eco-tours at various locations
                as SSEI’s
                sublicensees;




·
            providing
                suitable training to water sports operators and their personnel with
                regard to provision of eco-tours at, and the maintenance of the*Sea
                Spi I*and*Sea
                Spi II*watercraft assigned to, each
                location;




·
            undertaking
                to create, acquire and provide initial marketing programs and materials
                at
                each location, and/or supervising the efforts of third party providers
                of
                marketing materials and services, in connection with their provision
                of
                such initial marketing programs.




SSEI
      ensures that its personnel and the personnel operating the location are highly
      trained and carry an enthusiastic attitude to the customers being served.




Our
      responsibilities include, but are not limited to:




·
              manufacturing
                  and delivering*Sea
                  Spi I*and*Sea
                  Spi II*watercraft and spare parts in sufficient quantities to permit SSEI
                  or its
                  sublicensees to conduct eco-tour operations at each location;
                  and




15




·
              furnishing
                  training and guidance to SSEI with regard
                  to:




·
              standards,
                  specifications and operating procedures and methods to be utilized
                  by the
                  SSEI and its sublicensees in connection with the conduct of eco-tour
                  operations at each location;




·
              purchasing
                  products, equipment, signs, materials and supplies to be employed
                  by SSEI
                  and its sublicensees in the conduct of eco-tour operations;
                  and




·
              various
                  advertising and marketing programs to be employed by SSEI and its
                  sublicensees.




**Marketing
      Partnerships**





We
      also
      will negotiate or facilitate SSEI’s negotiation of marketing partnerships with
      local companies such as Bridgetown Cruise Terminals in Barbados. Under these
      agreements, the marketing partner will be responsible for providing referrals
      or
      sources of eco-tour customer referrals from cruise lines and local resorts,
      and
      SSEI or its sublicense will be responsible for providing the tours. The
      marketing partner will either receive a fixed fee or a share of the tour
      revenues derived from its referrals, and SSEI will receive or retain the balance
      of the revenues. From the moneys SSEI receives or retains, it will pay our
      rental and licensing fees, as well as its other operating expenses from those
      receipts. Our focus will be to develop strategic business relationships with
      partners who share the same business ideals, offering premium-quality,
      market-leading products and superior customer service.




**Sales
      of Watercraft to Third Parties**





We
      will
      selectively sell *Sea
      Spis* and
      other watercraft that we may develop outright through a dealer network. Our
      dealers and all parties who purchase our craft from them will be required to
      agree not to use the craft to engage in business which is competitive with
      the
      business operations conducted at SSEI’s locations and at our partners’
locations. We will sell the new products through a variety of methods including
      dealer networks, the Internet, trade magazines and trade shows. We will support
      our dealers through participation at North American trade show programs in
      order
      to attract dealers and increase the volume of sales per dealer. We will require
      that dealers be trained on the features of our watercraft as well as service
      and
      repair issues. The development of this network is part of the process of quickly
      building both sales and the Sea Sun brand.




**Competition**





In
      the
      most general sense, we compete with all suppliers and providers of recreational
      activities at ocean resort destinations, and the companies that manufacture
      the
      equipment used by consumers in engaging in those activities.




We
      consider our major competition to be manufacturers and other providers of
      personal water craft, or PWC. These craft are powered by a gasoline engine
      and
      are configured much like a motorcycle with a saddle for one, two or three
      passengers and a handlebar for steering. The use of PWC as a leisure or tourism
      activity has undergone a significant growth pattern, especially over the last
      decade. PWC became commercially available thirty years ago when Kawasaki Motors
      Corporation introduced its JetSki ® .
      Other
      major brands of PWCs include the Waverunner ® by
      Yamaha, the Aquatrax ® by Honda
      and the SeaDoo ® by
      Bombardier Recreational Products. Bombardier, Yamaha and a host of other
      recreational power boat companies also manufacture traditionally configured
      lines of gasoline engine powered boats that can be used to transport passengers
      to coral reefs and provide them with a platform from which they may dive to
      explore those reefs either with snorkels or scuba gear.




16




Some
      ocean resorts offer only non-motorized water sports to their patrons in order
      to
      avoid disturbing the peace and to provide for protection of the environment.
      Most ocean resorts offer water-skiing, jet skiing and parasailing, and may
      offer
      other extensive activities on, in and under the water, including snorkeling
      excursions, motorboat journeys, sailing, deep-sea diving, deep-sea fishing,
      windsurfing, surfing, submarine adventures and kayak trips. We do not believe
      that *Sea
      Spi* currently has any direct product competition. However, all of the foregoing
      activities compete for the tourist’s business.




The
      following is a partial list and average pricing of water sports activities
      offered at most ocean resorts throughout the Caribbean.




Water
                Activity
            
            Duration
            
            CostCatamaran
                rental
            
            
            1
                hour
            
            
            $37.00Catamaran
                courses
            
            
            1
                hour
            
            
            $47.00Catamaran
                Excursion
            
            
            half day
            
            
            $39.00Canoe
                rental
            
            
            1
                hour
            
            
            $20.00Hydro
                Bike Rental
            
            
            1
                hour
            
            
            $15.00Jet
                Ski
            
            
            30
                min.
            
            
            $60.00Paddle
                Boats
            
            
            1
                hour
            
            
            $15.00Parasail
            
            
            20
                min.
            
            
            $47.00Scuba
                Diving
            
            
            per tour
            
            
            $95.00Snorkeling
                Excursions
            
            
            per tour
            
            
            $50.00Speed
                boat excursion
            
            
            1
                hour
            
            
            $65.00Tube
                Towing
            
            
            15
                min.
            
            
            $14.00Water-ski
            
            
            25
                min.
            
            
            $60.00Windsurfing
                board rental
            
            
            1
                hour
            
            
            $25.00Windsurfing
                courses
            
            
            1
                hour
            
            
            $50.00Submarine
            
            
            50
                min.
            
            
            $95.00***Sea
                Spi*****eco-tour**
            
            
            **60
                min**
            
            
            **$65.00 - $90.00**





All
      of
      our major PWC competitors have greater financial, technical, research and
      development and marketing resources than we do. They have established a
      significant demand for their PWC and other marine pleasure craft product
      offerings that has enabled them to operate profitably over the course of a
      number of years. In order to be able to compete with them effectively, our
      beliefs that consumers traveling to ocean resort tourist destinations will
      have
      a sufficiently high demand for the ecologically friendly vacation experiences
      to
      be had through operation of our watercraft must be proven to be correct. At
      this
      still early stage in the life of our company, we do not possess sufficient
      information to be able to give any assurances in that regard.




17




**Research
      and Development**





During
      the past two years we conducted modest product development activities to enhance
      and improve our existing product line and to create new ecofriendly watercraft
      and related products. During 2005, our R&D expenditures amounted to $32,662
      which was approximately $4,000 less than we spent on R&D in 2004.




It
      is our
      intention, as we become economically successful, to devote larger amounts to
      our
      product development efforts. Especially in regard to new and better propulsion
      and battery technologies. We believe that our *Sea
      Spi* watercraft have provided us with a technological edge in the niche market for
      an
      ecologically friendly PWC. We further believe that maintaining that edge will
      be
      a critical factor as we endeavor to expand and strengthen our business.




**Intellectual
      Property**





We
      have
      not sought patent protection for the proprietary design of our *Sea
      Spi I and Sea Spi II* watercraft, or for the innovative electric opposing thrust propulsion
      technologies and proprietary viewing window incorporated into the bow water
      line
      of our *Sea
      Spi* s.




The
      protection of proprietary technology and information which we have developed
      or
      may in the future develop will be limited primarily to the protections available
      under applicable trade secret or copyright laws, or under any confidentiality
      agreements which we may enter into. At the present time, we do not own any
      registered trademarks, and we have no applications for registration of
      trademarks pending. We intend to register various trademarks and trade names
      for
      certain of our products. However, we cannot give any of our investors any
      assurances in any of those regards.




We
      have
      entered into confidentiality agreements with our key personnel and with various
      third parties. We can not assure our investors that the scope of any protection
      we have been able to secure through those agreements will be adequate to protect
      our proprietary information, or that we will have the financial resources to
      engage in litigation against parties who may infringe our proprietary technology
      or copyrights. We also cannot provide our investors with any degree of assurance
      regarding the possible independent development by others of technology similar
      to ours. We do believe, however, our business or future prospects will not
      be
      adversely impacted by reason of the fact that we have only been able to secure
      limited protections for our intellectual property. We also believe that our
      products do not infringe the proprietary rights of third parties. However,
      we
      cannot give any assurance to our investors that third parties will not assert
      infringement claims in the future.




**Employees**





As
      of
      December 31, 2005, our staff was comprised of three employees, all of whom
      were
      full time executives. None of our other employees is represented by a union.
      We
      have not experienced any strikes or work stoppages and, our management is of
      the
      opinion that we have good working relations with our employees.




18




**Forward-Looking
      Statements**





Some
      of
      the statements made in this Form 10-KSB are forward-looking in nature, including
      but not limited to our business strategy, marketing assumptions, product
      development, plans concerning the commercialization of products, risks
      associated with demand for and market acceptance of existing and newly developed
      products as to which we have made significant investments, general economic
      and
      industry conditions; competitive products and pricing pressures and increased
      pricing pressures from our customers. The occurrence of the events described,
      and the achievement of the intended results are subject to the future occurrence
      of certain events and scientific results, some or all of which are not
      predictable or within our control. Therefore, actual results may differ
      materially from those anticipated in any forward-looking statements. These
      forward-looking statements are made only as of the date hereof, and we undertake
      no obligation to update or revise the forward-looking statements, whether as
      a
      result of new information, future events or otherwise.





**Item
      1A. Risk Factors**





**Our
      relationship with our Master Licensee, and its ability to establish and manage
      local eco-tour operations throughout the world are extremely important factors
      which will materially impact our business and our financial
      condition.**





Under
      the
      business model that we adopted in June of this year, we are responsible for
      the
      strategic aspects of identifying suitable eco-tour locations and eco-tour
      partners throughout the world, and for developing, producing and supplying
      the *SeaSpi* and
      other watercraft to be used at those locations. We have contractually ceded
      to
      our master licensee, SSEI, all tactical responsibilities regarding the
      establishment, staffing and operation of each Sea Sun eco-tour
      location.




The
      acceptance of Sea Sun eco-tours by the consumer public will be largely dependent
      on the degree to which SSEI will be successful either in directly operating
      the
      eco-tour businesses that will be established at each location, or in
      identifying, entering into sublicenses with and supervising the water sports
      business providers who will be operating those Sea Sun eco-tour locations as
      SSEI’s sublicensees.




Our
      business and financial condition could be materially adversely affected if
      the
      business relationship between SSEI and us were to suffer any material setbacks
      as a result of our disagreement or dissatisfaction regarding SSEI’s operations
      or otherwise.




19




**If
      any of the small number of companies who produce the engines, batteries and
      other major components of our watercraft, or the company that integrates those
      components into the watercraft that it manufactures for us were to cease doing
      business with us, our ability to expand our business could be materially
      adversely affected.**





The
      engine, propulsion, energy storage and steering systems employed in the
      manufacture of our *Sea
      Spi* watercraft are produced by separate and unrelated companies. And, only one
      manufacturer produces the hulls and integrates those various components into
      a
      finished vessel. We believe that we would be able to find suitable replacements
      for each of those manufacturers. However, the failure or refusal of any of
      those
      manufacturers to ship those various components to our watercraft manufacturer
      or
      the failure or refusal of that manufacturer to produce finished *Sea
      Spis* in a
      timely manner or to meet our quality standards could adversely affect our
      ability to deliver watercraft to various locations in a timely manner. Any
      delays in delivery of our watercraft to new and existing locations caused by
      component delivery delays, watercraft manufacturing delays, disruption in
      services of delivery carriers or other factors could have a material adverse
      effect on our financial condition or results of operations.




**We
      operate in a highly competitive industry which may adversely affect our results
      of operations.**





The
      industry in which we operate is highly competitive. We have a number of
      significant competitors, all of whom have financial and marketing resources
      which are substantially greater than ours. In order to be able to compete
      effectively, demand for the ecologically friendly vacation experiences to be
      had
      through operation of our watercraft must occur, and we must be able to take
      advantage of that demand by operating our business in a profitable
      manner.




**Our
      ability to operate profitably is dependent on the sale of our watercraft and
      the
      conduct of eco-tour business operations by SSEI and others in areas of the
      world
      where weather conditions may materially adversely affect such activities.**





We
      are a
      company that derives substantially all of its revenues from the sale of
      watercraft and from boat rental fees resulting from the use of that watercraft
      at ocean resorts located throughout the world. Our sales, inventory levels
      and
      resulting profitability are affected by weather conditions that influence
      tourists’ decisions to travel to and stay in those locales. Those decisions will
      be adversely affected by largely unpredictable weather phenomena such as lengthy
      periods of rain and hurricane activity.




**A
      downturn in general economic or business conditions could adversely affect
      our
      business and prospects.**




The
      rental of our watercraft is purely a discretionary expenditure by the consumers
      comprising our target market. Therefore, sales of our watercraft to SSEI and
      others, and the rental of those vessels to the consumer public, should be
      expected to decline during periods of economic uncertainty when consumer
      confidence is lower. Accordingly, any significant decline in general economic
      conditions, including uncertainty regarding future economic prospects, could
      have a material adverse effect on our business, financial condition and results
      of operations.




20




**Our
      future growth will largely depend on Sea Sun eco-tour operations conducted
      in
      markets outside of North America, which are both unpredictable and not within
      our control.**





We
      will
      derive our watercraft rental revenues from more many countries outside of North
      America. The business environments in these international markets are not well
      known by us. What we do know is that those environments can change rapidly
      due
      to the diversity of their respective economic, political and social factors.
      Those factors include political and economic instability, changes to trade
      tariffs as well as to applicable tax laws. Our inability to accurately predict
      or control these factors due to our inexperience in those markets could affect
      our profitability.




**If
      our competitors develop and patent equivalent or superior technologies for
      watercraft competing against ours, our competitive position may be
      harmed.**




The
      design of our *Sea
      Spi* watercraft is not protected against exploitation via patents. We intend to
      rely
      on trade secret laws, to the extent they may be available in other countries,
      to
      protect certain aspects of our business. Our failure or inability to obtain
      worldwide patent protection for the design of our watercraft may result in
      other
      companies copying and marketing products based on our designs outside of the
      United States. This could impede our growth in existing markets and our entry
      into new markets, and result in a greater supply of similar products that could
      diminish the demand for Sea Sun eco-tours and our ability to generate revenues.




It
      is
      possible that our competitors will develop and patent equivalent or superior
      watercraft designs and technologies that will compete with ours. They may assert
      these patents against us in markets located outside of the United States and
      we
      may be required to license these patents on unfavorable terms or cease using
      the
      designs covered by these patents, either of which would harm our competitive
      position and may materially adversely affect our business.




The
      failure to adequately build, maintain and enforce our intellectual property
      portfolio could impair the strength of our product attractiveness and our brand
      recognition, and harm our competitive position.




**Our
      stock is not listed on any exchange or admitted to trading in any market. If
      and
      when our stock does become listed or admitted to trading, it may be a penny
      stock subject to the SEC’s penny stock regulations which may limit an investor’s
      ability to buy and sell our shares.**





Our
      common stock is not currently traded anywhere. It is our intention to undertake
      the steps necessary for trading to commence on the OTC Bulletin as soon after
      the filing of this Report as possible. However, we cannot give any assurances
      that such efforts will be successful, or if they are, that any market for our
      shares will be successfully established. If our shares are not admitted to
      trading on the OTC Bulletin Board, they will be traded on the over-the-counter
      market and quoted in the Pink Sheets. The over-the-counter market for securities
      has historically experienced extreme price and volume fluctuations during
      certain periods. These broad market fluctuations may adversely affect the price
      of our common stock in any market for them that may be established. To the
      extent that such a market does become established, our stock may fall within
      the
      SEC’s definition of a penny stock. The SEC has adopted Rule 15g-9 which
      generally defines “penny stock” to be any equity security that has a market
      price (as defined) less than $5.00 per share or an exercise price of less than
      $5.00 per share, subject to certain exceptions. The penny stock rules impose
      sales practice requirements on broker-dealers who sell a penny stock to persons
      other than established customers and “accredited investors.” The term
“accredited investor” refers generally to institutions with assets in excess of
      $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
      income exceeding $200,000 or $300,000 jointly with their spouse. The penny
      stock
      rules require a broker-dealer, prior to a transaction in a penny stock not
      otherwise exempt from the rules, to deliver a standardized risk disclosure
      document in a form prepared by the SEC which provides information about penny
      stocks and the nature and level of risks in the penny stock market. The
      broker-dealer also must provide the customer with current bid and offer
      quotations for the penny stock, the compensation of the broker-dealer and its
      salesperson in the transaction and monthly account statements showing the market
      value of each penny stock held in the customer’s account. The bid and offer
      quotations, and the broker-dealer and salesperson compensation information,
      must
      be given to the customer orally or in writing prior to effecting the transaction
      and must be given to the customer in writing before or with the customer’s
      confirmation. In addition, the penny stock rules require that prior to a
      transaction in a penny stock not otherwise exempt from these rules, the
      broker-dealer must make a special written determination that the penny
      stock is a suitable investment for the purchaser and receive the
      purchaser’s written agreement to the transaction. These disclosure requirements
      may have the effect of reducing the level of trading activity in the secondary
      market for the stock that is subject to these penny stock rules. Consequently,
      these penny stock rules may affect the ability of broker-dealers to trade our
      securities. We believe that, in the past, the penny stock rules have discouraged
      investor interest in and have limited the marketability of the securities
      covered by those rules.




21




**NASD
      sales practice requirements may also limit an investor’s ability to buy and sell
      our shares.**





In
      addition to the “penny stock” rules described above, the NASD has adopted rules
      that require that in recommending an investment to a customer, a broker-dealer
      must have reasonable grounds for believing that the investment is suitable
      for
      that customer. Prior to recommending speculative low priced securities to their
      non-institutional customers, broker-dealers must make reasonable efforts to
      obtain information about the customer’s financial status, tax status, investment
      objectives and other information. Under interpretations of these rules, the
      NASD
      believes that there is a high probability that speculative low priced securities
      will not be suitable for at least some customers. In the event that our stock
      will become subject to the SEC’s penny stock rules, the NASD’s requirements will
      make it more difficult for broker-dealers to recommend that their customers
      buy
      our stock. That, in turn, could limit an investor’s ability to buy and sell our
      stock which could adversely affect the market for our shares.




**Trading
      on the OTC Bulletin Board may be sporadic because it is not a stock exchange,
      and stockholders may have difficulty reselling their
      shares.**




Trading
      in stock quoted on the OTC Bulletin Board is often thin and characterized by
      wide fluctuations in trading prices, due to many factors that may have little
      to
      do with our operations or business prospects. Moreover, the OTC Bulletin Board
      is not a stock exchange, and trading of securities on the OTC Bulletin Board
      is
      often more sporadic than the trading of securities listed on a quotation system
      like Nasdaq or a stock exchange like the New York Stock Exchange. In the event
      that our stock becomes admitted to trading on the OTC Bulletin Board, the
      characteristics described above could limit an investor’s ability to buy and
      sell our stock which could adversely affect the market for our
      shares.




22




**Item
      2. Description of Property**





We
      maintain our corporate headquarters at 940 Sheldon Court; Suite 201, Burlington,
      Ontario, Canada. Our offices consist of approximately 500 square feet at that
      location which we rent from Izumi Outdoors Inc. on a month to month basis.
      Our
      monthly rent is Cdn$500. Izumi Outdoors Inc. is a company affiliated with Wayne
      Izumi, one of our directors. We began occupying and incurring rental obligations
      for those premises in September, 2006.




**Item
      3. Legal Proceedings**





We
      are
      not a party, and our property is not subject to, any pending material legal
      proceedings.





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





Not
      applicable





**PART
      II**





**Item
      5. Market for Common Equity and Related Stockholder
      Matters**





Our
      common stock is not yet traded on or through any listing service, market or
      exchange. It is our intention to undertake the steps necessary for trading
      of
      our common stock to commence on the OTC Bulletin Board as soon after the filing
      of this Report as possible.




We
      believe that our common stock is held beneficially and of record by
      approximately **** 270
      persons.




**Dividend
      Policy**





We
      have
      never paid or declared any cash or other dividends on our common stock. We
      have
      no current plans to pay common stock dividends. We intend to retain earnings,
      if
      any, for working capital purposes. Any future determination as to the payment
      of
      dividends will depend upon our results of operations, and on our capital
      requirements financial condition and other relevant factors which be in effect
      at that time.




23




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





The
      following discussion and analysis provides information which our management
      believes is relevant to an assessment and understanding of our results of
      operations and financial condition. This discussion should be read in
      conjunction with the audited financial statements and notes thereto appearing
      elsewhere in this Report. See also “Business.”




**Results
      of Operations**





**Year
      Ended December 31, 2005 Compared To Year Ended December 31,
      2004**





During
      2005 and 2004, we did not derive any revenues from the licensing of locations
      or
      from the rental of our watercraft. All of our activities during those two years
      were focused on:


·
              developing
                  our new*Sea
                  Spi*watercraft,
 
 ·
              negotiating
                  location investment agreements with various
                  investors,
 
 ·
              and
                  marketing our Sea Sun eco-tour program to potential eco-tour referral
                  sources, such as:
 
 ·
              hotel
                  chains and cruise lines, and
 
 ·
              potential
                  providers of eco-tours, such as operators of scuba diving and other
                  recreational water sports
                  businesses.


**Revenues**





As
      a
      result of our efforts to attract location investors, we entered into 47 location
      agreements regarding 68 locations in 2005. Pursuant to those agreements, our
      investors agreed to pay us a total of $7,743,400. $3,903,590 of that amount
      was
      paid during 2005, and the balance of $2,868,200 became due and payable over
      the
      ensuing three years. We did not enter into any investment agreements in 2004.
      In
      accordance with EITF
      Issue 88-18, the funds that we received pursuant to those location agreements
      were recorded as debt. Inasmuch as we did not derive licensing or rental income
      from the operation of those locations in 2005, we did not amortize any portion
      of those funds.




**Operating
      Expenses**





During
      2005, our operating expenses were approximately $2,168,000 as compared to
      approximately $348,000 in 2004. The six-fold increase was primarily due
      to:




·
              an
                  increase of approximately $1,031,000 (from $0.00 in 2004) in location
                  sales costs,




·
              an
                  increase of approximately $414,000 in wages and contractor fees,




·
              an
                  increase of approximately $76,068 in travel related expenses,
                  and




24




·
              an
                  increase of approximately 45,732 in professional
                  fees.





**Research
      and Development Expenses**





Research,
      development and engineering expenses consist primarily of the payments we made
      to unaffiliated contractors with regard to the development of our *Sea
      Spi* watercraft. In 2005, research, development, and engineering expenses decreased
      to approximately $33,000 from the approximately $37,000 we spent in
      2004.




We
      intend
      to increase our research and development investment at such time as our
      operating income warrants such actions, so that we will be in a position to
      enhance our existing product and eco-tour offerings and provide innovative
      new
      products and offerings. However, we cannot give our investors any assurances
      that we will be successful in that regard.




**Loss
      from Operations**





Our
      loss
      from operations for 2005 was approximately $2,168,000 compared to a loss of
      approximately $348,000 for 2004. The six fold increase was due primarily to
      the
      increased investor location sales activities and the professional fees we
      incurred in pursuing those activities.




**Currency
      Exchange Rate Effects**





We
      did
      not incur any currency exchange rate gains or losses in 2005 or 2004. However,
      Sea Sun Alberta’s functional currency is the Canadian dollar, while our
      functional currency is the United States dollar. Sea Sun Alberta’s financial
      statements were translated to US dollars prior to consolidation using year-end
      exchange rates for the balance sheet, and weighted average exchange rates for
      the statements of operations. Equity transactions were translated using
      historical rates. This resulted in a positive foreign currency translation
      adjustment of approximately $43,000 at December 31, 2005 and a negative
      adjustment of approximately $10,000 at December 31, 2004.




**Income
      Taxes**





Our
      estimated annual effective tax rate for 2005 was 0% based on our pre-tax loss
      for 2005. As of December 31, 2005, we had net operating loss carryforwards
      of
      approximately $3,044,000, which begin to expire in 2017, for income tax
      reporting purposes for which no income tax benefit has been recorded due to
      the
      uncertainty over the level of future taxable income.




**Net
      Loss Per Share**





Our
      2005
      basic and diluted net loss per share was $0.12 compared to a basic and diluted
      net loss of $0.02 per share for 2004.




25




**Liquidity
      and Capital Resources**





As
      of
      December 31, 2005, we held cash and cash equivalents of approximately
      $1,319,000. Our working capital increased to approximately $2,877,000 at
      December 31, 2005 from approximately $46,000 at December 31, 2004. The increase
      in our working capital was due to the funds we received from the location
      agreements we entered into during 2005 and the sales of our common stock that
      occurred in that year.




Our
      net
      cash used in operating activities for the year ended December 31, 2005 was
      approximately $1,864,000. That usage funded the operating loss we incurred
      that
      year.




Cash
      used
      in investing activities was approximately $1,755,000, all of which was
      attributable to capital expenditures for new watercraft.




Cash
      provided by financing activities of approximately $4,769,000 for the year ended
      December 31, 2005 resulted primarily from our location sales, sales of our
      common stock and the exercise of warrants.




We
      do not
      have any revolving credit or other sources of debt financing. Furthermore,
      we do
      not intend to enter into any new location sales agreements. We believe that
      current levels of cash and cash equivalents, together with cash from operations,
      will be sufficient to meet our capital requirements for the next 12
      months.




At
      December 31, 2005, our contractual obligations and commitments to make future
      payments were, as follows:




**PAYMENT
                DUE BY FISCAL YEAR**TOTAL
            
            2006
            
            2007
            
            2008
            
            2009
            
            2010
            
            FUTUREOffice
                lease,Kelowna
            
            $
            193,989
            
            $
            34,026
            
            $
            36,676
            
            $
            39,326
            
            $
            41,976
            
            $
            41,976
            
            $
            —Total
                contractualobligations
            
            $
            193,989
            
            $
            34,026
            
            $
            36,676
            
            $
            39,326
            
            $
            41,976
            
            $
            41,976
            
            $
            —





**Off-Balance
      Sheet Arrangements**





We
      were
      not a party to any off-balance sheet arrangement during the years ended December
      31, 2005 and 2004.




**Critical
      Accounting Estimates**





We
      prepare our financial statements in accordance with accounting principles
      generally accepted in the United States. Preparing financial statements in
      accordance with accounting principles requires us to make estimates and
      assumptions that affect the reported amounts of the assets and liabilities
      and
      disclosure of contingent assets and liabilities as of the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. The following paragraphs include a discussion of some critical
      areas where estimates are required. You should also review Note 1 to the
      financial statements contained in this Report for further discussion of
      significant accounting policies.




26




**Revenue
      recognition** - we
      have four sources of revenue under our new business model:




·
              Sales
                  of watercraft products —revenue
                  is
                  generally recorded when all of the following conditions have been
                  met:




·
              an
                  order for a product has been received from the
                  purchaser,




·
              written
                  approval for payment has been received from the purchaser’s financial
                  institution,




·
              a
                  common carrier signs the delivery ticket accepting responsibility
                  for the
                  product as agent for the purchaser,
                  and




·
              the
                  product is removed from our inventory for delivery to the
                  purchaser;




**Initial
      licensing fees on locations financed by SSEI** -
      initial licensing fees are non-revocable, and revenue is recognized ratably
      over
      the license term.




**Monthly
      rental income from SSEI** - we
      invoice SSEI on the first day of each month for that month, and revenue is
      recorded on the invoice date.




**On-going
      licensing fees from SSEI from locations financed by us** - we
      invoice SSEI on the first day of each month for that month, and revenue is
      recorded on the invoice date.




**Accounts
      receivable and allowance for bad debt** -we
      perform a detailed review of amounts receivable on a monthly basis to determine
      if they are impaired based on factors affecting the collectibility of those
      balances. Our estimate of the allowance for doubtful accounts requires us to
      exercise significant judgment about the timing, frequency, and severity of
      collection losses, which affects the allowances and net income.




**New
      Accounting Pronouncements**





In
      November 2004, the Financial Accounting Standards Board, or FASB, issued SFAS
      151, “Inventory Costs.” This pronouncement amends ARB No. 43, “Inventory
      Pricing” to clarify the accounting for abnormal amounts of idle facility
      expense, freight, handling costs and waste material. SFAS 151 is not expected
      to
      have a material effect on our financial position or results of
      operations.




In
      December 2004, the FASB issued SFAS 153 “Exchanges of Nonmonetary Assets.” SFAS
      153 amends Accounting Principles Board Opinion No. 29, “Accounting for
      Nonmonetary Transactions,” to eliminate the exception for nonmonetary exchanges
      of similar productive assets and replaces it with a general exception for
      exchanges of nonmonetary assets that do not have commercial substance. This
      pronouncement does not currently apply to us.





In
      December 2004, the FASB issued SFAS 123R, “Share-Based Payment,” which is a
      revision of SFAS 123 “Accounting for Stock-Based Compensation” and supersedes
      APB Opinion 25, “Accounting for Stock Issued to Employees.” SFAS 123R focuses
      primarily on share-based payments for employee services, requiring these
      payments to be recorded using a fair-value-based method. The use of APB 25’s
      intrinsic value method of accounting for employee stock options has been
      eliminated. As a result, the fair value of stock options granted to employees
      in
      the future will be required to be expensed. The impact on the results of
      operations of us will be dependent on the number of options granted and the
      fair
      value of those options. SFAS 123R was effective August 1, 2005.




27




In
      May
      2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections.” This
      pronouncement replaces Accounting Practices Bulletin, or APB, Opinion 20
“Accounting Changes” and SFAS 3, “Reporting Accounting Changes in Interim
      Financial Statements” and changes the requirements for the accounting for and
      reporting of a change in accounting principle. This Statement applies to all
      voluntary changes in accounting principle and changes required by an accounting
      pronouncement when that pronouncement does not include specific transition
      provisions. This Statement requires retrospective application to prior periods’
financial statements of changes in accounting principle. The prior pronouncement
      required that most voluntary changes in accounting principle be recognized
      by
      including in net income the cumulative effect of changing to the new accounting
      principle. The effect of this pronouncement is that future accounting changes,
      generally, will not have an effect on the current period income
      statement.




In
      May
      2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments
      with Characteristics of both Liabilities and Equity.” This statement establishes
      standards for how an issuer classifies and measures certain financial
      instruments with characteristics of both liabilities and equity. It requires
      that an issuer classify a financial instrument that is within its scope as
      a
      liability (or an asset, in some circumstances), whereas many of these
      instruments were previously classified as equity. SFAS 150 is not expected
      to
      have a material effect on our financial position or results of
      operations.




**Item
      7. Financial Statements**





Our
      balance sheet at December 31, 2005 and the related statements of operations,
      stockholders' equity and statements of cash flows for each of the years ended
      December 31, 2005 and 2004 and the report of the independent registered public
      accounting firm thereon required under Regulation S-X are included herein as
      a
      separate section following Item 14 of this Report.





**Item
      8. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure**





There
      were no changes or disagreements with our accountants on accounting and
      financial disclosure. See
      our
      report on Form 8-K filed on January 6, 2006 regarding the change in legal
      composition of our accountants from a corporation to a professional limited
      liability company.




28




**Item
      8A - Controls and Procedures**


In
        accordance with our management’s responsibilities for establishing and
        maintaining adequate internal control over our financial reporting, we maintain
        disclosure controls and procedures that are designed to provide reasonable
        assurance that:
  ·
              information
                  required to be disclosed in our Exchange Act reports
  ·
              is
                  recorded, processed, summarized and reported within the time periods
                  specified in the SEC’s rules and
                  forms,
  ·
              is
                  accumulated and communicated to our management, including our Chief
                  Executive Officer and Chief Financial Officer, as appropriate,
                  to allow
                  timely decisions regarding required disclosure,
  ·
              our
                  transactions are properly
                  authorized;
  ·
              our
                  assets are safeguarded against unauthorized or improper use;
                  and
  ·
              our
                  transactions are properly recorded and
                  reported,


all
      to
      permit the preparation of our financial statements in conformity with generally
      accepted accounting principles.




We
      conducted an evaluation, under the supervision and with the participation of
      our
      management, including our Chief Executive Officer and Chief Financial Officer,
      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 on Form 10-KSB.
      Among other matters, we sought in our evaluation to determine whether there
      were
      any significant deficiencies or material weaknesses in our disclosure controls
      and procedures, and whether we had identified any acts of fraud involving
      personnel who have a significant role in the implementation of those controls
      and procedures.




Based
      upon that evaluation, our CEO and CFO have concluded that, as of the end of
      the
      period covered by this Report on Form 10-KSB, our disclosure controls and
      procedures were effective to provide reasonable assurance that information
      required to be disclosed in our Exchange Act reports is recorded, processed,
      summarized and reported within the time periods specified by the SEC, and that
      material information relating to us and our consolidated subsidiaries is made
      known to management, including our CEO and CFO, particularly during the period
      when our periodic reports are being prepared.




There
      were no changes in our disclosure controls and procedures during the fourth
      quarter of fiscal 2005 that materially affected, or that were reasonably likely
      to materially affect, our internal control over financial
      reporting.




**Item
      8B - Other Information**





None.




29




**PART
      III**





**Item
      9. Directors, Executive Officers, Promoters and Control Persons of the
      Registrant; Compliance with Section 16(a) of the Exchange
      Act**





Our
      directors are elected annually and serve until the next annual meeting of
      stockholders following their election at which their respective successors
      have
      been elected and qualified, or until their earlier resignation or removal.
      Our
      executive officers are appointed by, and serve at the pleasure of, the Board.




The
      Board
      of Directors does not currently have an Audit, Compensation or Nominating
      Committee. It is our intention to nominate for election to the Board at our
      next
      annual meeting, in addition to our sole current independent director, two other
      independent directors. At that time, the Board will adopt written charters
      for,
      and appoint independent directors to serve as members of, standing audit,
      compensation and nominating committees.




Our
      Certificate of Incorporation contains provisions indemnifying our officers,
      directors, employees and agents against certain liabilities.




The
      following table sets forth the names and ages of our directors and executive
      officers, and provides a description of their positions of employment for at
      least the past five years:




Rodney
                Koch
              42
                years old
              Director
                since 2004
              
              Chairman
                of the Board
            
            Mr.
                Koch has been the Chairman of our Board since May 2004. Since February
                2003, he has served as Chairman of Sea Sun Alberta’s Board, and he served
                as its President between February 2003 and October 2003. Since May
                2000,
              Mr.
                Koch has also served as President of Seahorse International Ventures
                Inc.,
                a company that he founded and which is engaged in the leisure water
                sports
                business.Graham
                Millington
              56
                years old
              Director
                since 2004
              
              President
                and Chief Executive Officer
            
            In
                May 2004, Mr. Millington became our President and Chief Executive
                Officer.
                In October 2003, he became President and Chief Executive Officer
                of Sea
                Sun Alberta, a position that he still holds. From August 2001 - September
                2003, he served as Chief Financial Officer of Martin Health Group
                Inc., a
                manufacturer and distributor of health care products. Between July
                1996
                and July 2001, he served as President and a director of Jaffa Sweet
                Juices, a company that he acquired in 1996, and the Canadian Highland
                Beverage company, which he founded in 1999. Both companies were engaged
                in
                the manufacture and distribution of beverage products. Between 1995
                and
                1996, he served as Chief Financial Officer of Farini Corporation,
                a
                publicly held manufacturer and distributor of pasta products. Mr.
                Millington holds a graduate business degree from Lakehead University.




30




Gregory
                N. Heller
              49
                years old
              
              Vice
                President and Chief
              Financial
                Officer
            
            Mr.
                Heller joined us in June 2005. He has more than 20 years experience
                with
                finance, operations and strategic business development. In 1985,
                he
                co-founded Bio Ped Franchising Inc., a privately held franchisor
                of foot
                health products and services, with over 27 franchised locations.
                He served
                as President and a director of that company until March 2005. Mr.
                Heller
                holds a BA in Economics from the University of Western Ontario and
                a
                Masters in Business Administration (M.B.A.) from York
                University.Wayne
                Izumi
              58
                years old
              
              Director
                since 2004
            
            Mr.
                Izumi is President of Stoller Canada Inc., a Canadian agricultural
                chemical corporation that he founded more than 25 years ago. He is
                also
                the founder and President of Izumi Outdoors Inc., a multi-media
                corporation which has produced TV fishing shows in Canada for more
                than 20
                years. Since 2004, Mr. Izumi has been a director of Jenex Corp.,
                a
                Canadian publicly held company.





**Compliance
      with Section 16(a) of the Exchange Act** ****





Section
      16(a) of the Securities Exchange Act of 1934 requires our executive officers,
      directors and persons who beneficially own more than 10% of our common stock
      to
      file initial reports of ownership and reports of changes in ownership with
      the
      SEC. Such persons are required by SEC regulations to furnish us with copies
      of
      all Section 16(a) forms filed by such persons. Based solely on our review of
      the
      forms furnished to us, we believe that all of those filing requirements were
      complied with by our executive officers and directors during fiscal 2005, except
      as follows: Each of Messrs. Koch, Millington, Heller and Izumi should have
      filed
      initial statements regarding their holdings of our common stock on SEC Form
      3 on
      or about December 16, 2004. Also, each of Messrs. Koch, Millington and Heller
      should have filed statements disclosing the changes in their holdings which
      resulted from the issuance of options to them on or about December 1, 2005.
      Those filings were not made by us for Messrs. Koch, Millington, Heller until
      October 5, 2006, and Mr. Izumi’s Form 3 filing was not made by us until October
      11, 2006.




**Codes
      of Ethics**





We
      have
      adopted a code of ethics for senior executive officers that applies to every
      employee or officer who holds the office of principal executive officer,
      principal financial officer, principal accounting officer, treasurer or
      controller, or any person performing similar functions. We have also adopted
      a
      Code of Ethics and Business Conduct that applies to each of our officers,
      directors and employees, and the officers, directors and employees of each
      of
      our subsidiaries.




31




**Item
      10 - Executive Compensation**





We
      will
      refer to our Chairman, Chief Executive Officer and Chief Financial Officer
      as
      our named executive officers. We have entered into employment agreements with
      our named executive officers that obligate us to pay each of them in excess
      of
      $100,000 commencing at such time when the board determines that we are
      adequately capitalized. As of the date of filing of this report, the Board
      had
      not made that determination. During the three years ended December 31, 2005,
      we
      did not pay compensation to any of named executive officers in excess of
      $100,000. The particulars of the compensation paid to each of those persons
      during 2005 and the month of December 2004 - the month when we acquired Sea
      Sun
      Alberta, are set out in the following summary compensation table.




We
      did
      not pay any compensation that would qualify as payouts pursuant to long-term
      incentive plans (“LTIP Payouts”), or “All Other Compensation” and we did not
      issue any SARs during that period of time.




**Summary
      Compensation Table**




Annual
                CompensationName
                and PrincipalPosition
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            Other
                Annual
              Compensation
                ($)
            
            Securities
              Underlying
              Options
                (#)Rodney
                Koch, Chairman
            
            
            2005
            
            
            96,840
            
            
            —
            
            
            —
            
            
            400,000
            (1)Rodney
                Koch, Chairman
            
            
            2004
            
            
            8,640
            (2)
            
            —
            
            
            —
            
            
            —Graham
                Millington, CEO
            
            
            2005
            
            
            76,640
            
            
            —
            
            
            —
            
            
            400,000
            (1)Graham
                Millington, CEO
            
            
            2004
            
            
            8,640
            (2)
            
            —
            
            
            —
            
            
            —Gregory
                Heller, CFO
            
            
            2005
            
            
            20,000
            
            
            —
            
            
            —
            
            
            200,000
            (1)Gregory
                Heller, CFO
            
            
            2004
            
            
            —
            
            
            —
            
            
            —
            
            
            —







(1)  This
      person’s right to purchase one half of the shares issuable under this option
      will vest on December 1, 2006 and his right to purchase the other half of those
      shares will vest on December 1, 2007.





(2)  In
      2004,
      we only paid compensation to this person during the month of
      December.




32





**Option/SAR
      Grants in Last Fiscal Year**





We
      did
      not grant any options or SARs to any of the named executive officers during
      the
      year ended December 31, 2005, except to the extent indicated in the following
      table:




**Option/SAR
                Grants in Last Fiscal Year****Individual
                Grants****Name**
            
            **Number
                of Securities**
              **Underlying
                Options/SARs**
              **Granted
                (#)**
            
            **%
                of Total Options/SARs**
              **Granted
                to Employees**
              **in
                Fiscal Year**
            
            **Exercise
                or**
              **Base
                Price**
              **($/Sh)**
            
            **Expiration
                Date**Rodney
                Koch
            
            400,000
            
            40%
            
            $0.75
            
            11/30/2015Graham
                Millington
            
            400,000
            
            40%
            
            $0.75
            
            11/30/2015Gregory
                Heller
            
            200,000
            
            20%
            
            $0.75
            
            11/30/2015




**Aggregated
      Option/SAR Exercises in Last Fiscal Year**


**and
      Fiscal Year-End Option/SAR Values**





None
      of
      the named executive officers exercised any of their options during the year
      ended December 31, 2005.




**Comp** **ensation
      of Directors**





We
      have
      not paid and do not presently propose to pay cash compensation to any director
      for acting in such capacity, except for reimbursement for reasonable expenses
      in
      attending our Board and Board Committee meetings.




**Employment
      Contracts, Termination of Employment and**


**Change
      in Control Arrangements**





We
      entered into employment agreements effective December 1, 2005 with Messrs.
      Koch,
      Millington and Heller to serve, respectively, as Chairman, President/Chief
      Executive Officer and Chief Financial Officer. The initial term of each
      agreement shall expire on December 31, 2008, but shall be automatically extended
      for additional periods of one year unless sooner terminated, or unless either
      party gives 60 days’ notice of its desire not to extend the
      agreement.





Pursuant
      to Mr. Koch’s and Mr. Millington’s agreements, each of them shall:





·
            be
                paid a base salary of $225,000 per annum commencing at such time
                when the
                Board determines that we are adequately
                capitalized;




·
            be
                entitled to receive such increases in that base salary and such annual
                bonuses as the Compensation Committee of the Board may
                determine;




·
            receive
                a ten year option to purchase 400,000 shares of our common stock
                at an
                exercise price of $0.75 per share, half of which shall vest on the
                first
                and second anniversaries of the grant date of the option;
                and




·
            receive
                two ten year options to purchase 100,000 shares of our common stock
                on the
                first day of our 2007 and 2008 fiscal years at an exercise price
                equal to
                the fair market value of the common stock on such dates, half of
                which
                shall vest on the first and second anniversary’s of the grant date of the
                option.




33




Pursuant
      to Mr. Heller’s agreement, he shall:





·
            be
                paid a base salary of $150,000 per annum commencing at such time
                when the
                Board determines that we are adequately
                capitalized;




·
            be
                entitled to receive such increases in that base salary and such annual
                bonuses as the Compensation Committee of the Board may
                determine;




·
            receive
                a ten year option to purchase 200,000 shares of our common stock
                at an
                exercise price of $0.75 per share, half of which shall vest on the
                first
                and second anniversaries of the grant date of the option;
                and




·
            receive
                two ten year options to purchase 100,000 shares of our common stock
                on the
                first day of our 2007 and 2008 fiscal years at an exercise price
                equal to
                the fair market value of the common stock on such dates, half of
                which
                shall vest on the first and second anniversary’s of the grant date of the
                option.




**Stock
      Option Plan**





The
      Board
      has adopted a stock option and stock appreciation rights plan, or Plan. We
      became authorized to issue non-qualified options, that is options that do not
      qualify for the special treatment accorded to so-called “incentive options”
under the Internal Revenue Code, on December 20, 2005. The issuance of incentive
      options under the Plan is subject to approval of our shareholders. It is
      anticipated that the shareholders will approve the adoption of the Plan at
      the
      next annual meeting of shareholders. A total of 2,000,000 shares of common stock
      may be issued under the Plan. Pursuant to the Plan, our officers, directors,
      employees and consultants may be awarded incentive and non-qualified options
      to
      purchase shares of our common stock and rights to participate in the
      appreciation in value of our common stock. During 2005, we granted non-qualified
      options to various consultants to purchase 1,000,000 shares of common stock
      under the Plan at a weighted average exercise price of $.75 per
      share.




**Item
      11 - Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**





The
      following table sets forth, as of the date of filing of this report, the number
      of shares of Common Stock owned of record and beneficially by executive
      officers, directors and persons who hold 5.0% or more of our outstanding common
      stock. Also included are the shares held by all executive officers and directors
      as a group.




Name
                and Address of Beneficial Owner (1)
            
            Amount
                and Nature of
              Beneficial
              Ownership
                (2)
            
            Percentage
                of Outstanding
              Shares
              Owned
                (3)Rodney
                Koch, Chairman
            
            
            5,720,000
            (4)
            
            27.5
            %Graham
                Millington, President and CEO
            
            
            2,556,500
            (5)
            
            12.3
            %Gregory
                N. Heller, Chief Financial Officer
            
            
            350,000
            (6)
            
            1.7
            %Wayne
                Izumi, Director (7)
            
            
            100,000
            
            
            0.5
            %All
                Officers and Directors as a Group (of 4)
            
            
            8,726,500
            (8)
            
            41.4
            %





(1) Unless
      otherwise noted, the address of each shareholder is c/o Sea Sun Capital
      Corporation, 940 Sheldon Court; Suite 201, Burlington, Ontario,
      Canada.




34




(2) All
      shares are owned beneficially and of record unless indicated otherwise.




(3) Based
      upon 20,565,141 shares issued and outstanding on the date of this report, plus
      where indicated, shares issuable under outstanding options.





(4) Includes
      3,020,000 shares held by Sea Horse International, Inc., a corporation owned
      and
      controlled by Mr. Koch, and 200,000 shares that Mr. Koch is entitled to purchase
      within 60 days of the date of this report pursuant to an option granted pursuant
      to his employment agreement. Does not include 550,000 shares held by Mr. Koch’s
      wife, mother and daughters, as to which Mr. Koch disclaims all voting rights
      and
      rights of beneficial ownership.





(5) Includes
      200,000 shares that Mr. Millington is entitled to purchase within 60 days of
      the
      date of this report pursuant to an option granted pursuant to his employment
      agreement. Does not include 538,000 shares held by Mr. Millington’s wife, two
      sons and daughter, as to which Mr. Millington disclaims all voting rights and
      rights of beneficial ownership.





(6) Includes
      100,000 shares that Mr. Heller is entitled to purchase within 60 days of the
      date of this report pursuant to an option granted pursuant to his employment
      agreement. Does not include 27,500 shares held by Mr. Heller’s parents and
      sister, as to which Mr. Heller disclaims all voting rights and rights of
      beneficial ownership.





(7) The
      address of this shareholder is 251 Appleby Rd., Ancaster, Ontario, Canada L9G
      2V6.





(8) Includes
      the shares issuable within 60 days of this report upon exercise of the options
      held by Messrs. Koch, Millington and Heller.




35





**Equity
      Compensation Plan Information**





The
      following table sets forth, as of the end of our fiscal year ended December
      31,
      2005, information regarding all compensation plans (including individual
      compensation arrangements) under which any of our equity securities have been
      authorized for issuance:




**Equity
                Compensation Plan Information**Plan
                Category
            
            Number
                of Securities
              to
                be issued upon
              exercise
                of outstanding
              options,
                warrants
              or
                rights
            
            Weighted-average
              exercise
                price of
              outstanding
                options,
              warrants
                or rights
            
            Number
                of securities
              remaining
                available for
              future
                issuance under
              equity
                compensation plans
              (excluding
                securities reflected
              in
                column (a))(a)
            
            (b)
            
            (c)Equity
                compensation plans approved by security holders
            
            
            0
            
            $
            0.00
            
            
            0Equity
                compensation plans not approved by security holders
            
            
            1,000,000
            
            $
            0.75
            
            
            0Total
            
            
            1,000,000
            
            $
            0.75
            
            
            0





**Item
      12 - Certain Relationships and Related Transactions**





In
      December 2003,we acquired Sea Vu watercraft and accessories having an aggregate
      fair market value of $196,490 Canadian dollars from Seahorse, a corporation
      owned and controlled by Mr. Koch. We paid Seahorse $350,000 Canadian dollars
      for
      those assets, which resulted in our recognition of an intangible asset of
      $153,510 Canadian dollars. The intangible asset consisted of marketing and
      other
      efforts made by Seahorse to establish brand recognition of the Sea Vu
      watercraft.




During
      2005 and 2004, Seahorse paid for several of our or Seas Sun Alberta’s expenses.
      During 2005, Seahorse paid approximately $114,000 in our behalf, and received
      approximately $124,000 from us in reimbursements. During 2004, Seahorse paid
      for
      approximately $80,000 in our behalf, and received approximately $25,000 from
      Sea
      Sun Alberta in reimbursements. At December 31, 2005, we owed Seahorse
      approximately $117,000.




In
      October 2006, we began renting our headquarters office premises from Izumi
      Outdoors Inc., a corporation owned and controlled by Mr. Izumi.




**Item
      13 - Exhibits**





Exhibits
      required by Item 601 of Regulation S-B





Number
            
            Description3.1
            
            Our
                Certificate of Incorporation (incorporated by reference to Exhibit
                3.1 to
                our Registration Statement on Form 10-SB filed with the SEC on February
                7,
                2001 under Commission File No. 0003207)3.2
            
            Certificate
                of Amendment of our Certificate of Incorporation3.3
            
            Our
                By-Laws




36




4.1
            
            Specimen
                of the certificate representing our common stock, $.001 per
                value4.2
            
            Our
                stock option and stock appreciation plan.10.1
            
            Transfer
                and Assignment Agreement dated the 29th day of June 2006 between
                us and
                Sea Sun Enterprises, Inc.10.2
            
            Amended
                and Restated Master License Agreement between us and Sea Sun Enterprises,
                Inc.10.3
            
            Employment
                Agreement dated December 1, 2005 between us and Rodney
                Koch10.4
            
            Employment
                Agreement dated December 1, 2005 between us and Graham
                Millington10.5
            
            Employment
                Agreement dated December 1, 2005 between us and Gregory
                Heller14.1
            
            Code
                of Ethics for Senior Executive and Financial Officers14.2
            
            Code
                of Ethics and Business Conduct21.1
            
            List
                of our subsidiaries31.1
            
            Certification
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
            
            Certification
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002





**Item
      14 - Principal Accountant Fees and Services**





Fees
      paid
      to Child, Van Wagoner & Bradshaw, PLLC





Years
                EndedDecember
                31,2005
            
            2004Audit
                Fees (1)
            
            $
            18,000
            
            $
            12,500Audit-related
                fees (2)
            
            
            11,500
            
            
            0Tax
                Fees
            
            
            0
            
            
            0Total
            
            $
            29,500
            
            $
            12,500





(1)
                Audit
                    services of Child, Van Wagoner & Bradshaw, PLLC consisted of the audit
                    of our consolidated financial statements, quarterly review of
                    our
                    financial statements and filings on SEC Forms 10-KSB and 10-QSB.





(2)
            Includesconsultations on accounting
                matters.





37





**SEA
      SUN CAPITAL CORPORATION**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**INDEX**





Page
              NumberReport
                of Independent Registered Public Accounting Firm
            
            
            F-2Consolidated
                Financial StatementsConsolidated
                Balance Sheet at December 31, 2005
            
            
            F-3Consolidated
                Statements of Operations and Comprehensive Loss for the Years Ended
              December
                31, 2005 and 2004
            
            
            F-4Consolidated
                Statements of Stockholders’ Equity (Deficit) for the Years
                EndedDecember
                31, 2005 and 2004
            
            
            F-5Consolidated
                Statements of Cash Flows for the Years EndedDecember
                31, 2005 and 2004
            
            
            F-6Notes
                to Consolidated Financial Statements
            
            
            F-7





F-1




**Report
      of Independent Registered Public Accounting Firm**




Board
      of
      Directors and Stockholders


Sea
      Sun
      Capital Corporation





We
      have
      audited the consolidated balance sheet of Sea Sun Capital Corporation as of
      December 31, 2005, and the related consolidated statements of operations and
      comprehensive loss, stockholders’ equity (deficit) and cash flows for the years
      ended December 31, 2005 and 2004. These financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Sea Sun Capital Corporation
      as of December 31, 2005, and the results of its operations and its cash flows
      for the years ended December 31, 2005 and 2004, in conformity with accounting
      principles generally accepted in the United States of America.





Child,
      Van Wagoner & Bradshaw, PLLC


Kaysville,
      Utah




June
      30,
      2006




F-2
 
 **SEA
          SUN CAPITAL CORPORATION**
 Consolidated
          Balance Sheet


December
                    31,
                  2005ASSETSCURRENT
                  ASSETSCash
                  and cash equivalents
              
              $
              1,318,979Accounts
                  receivable - location sales, current portion (Note 3)
              
              
              1,688,660Accounts
                  receivable - other
              
              
              21,448Equipment
                  deposits
              
              
              196,465Prepaid
                  expenses
              
              
              25,244Total
                  Current Assets
              
              
              3,250,796PROPERTY
                  AND EQUIPMENT - NET
              
              
              1,838,749OTHER
                  ASSETSAccounts
                  receivable - location sales, long-term portion (Note 3)
              
              
              2,151,150Intangible
                  asset (Note 5)
              
              
              131,700Total
                  Other Assets
              
              
              2,282,850TOTAL
                  ASSETS
              
              $
              7,372,395LIABILITIES
                  AND STOCKHOLDERS' DEFICITCURRENT
                  LIABILITIESAccounts
                  payable
              
              $
              44,226Accounts
                  payable - related parties
              
              
              117,280Accrued
                  liabilities
              
              
              211,952Total
                  Current Liabilities
              
              
              373,458LONG-TERM
                  DEBT - LOCATION SALES
              
              
              7,743,400TOTAL
                  LIABILITIES
              
              
              8,116,858STOCKHOLDERS'
                  DEFICITPreferred
                  stock, $0.001 USD par value; 50,000,000 sharesauthorized,
                  no shares issued and outstanding (Note 4)
              
              
              -Common
                  stock, $0.001 USD par value; 100,000,000 sharesauthorized,
                  19,995,161 shares issued and outstanding (Note 4)
              
              
              19,995Additional
                  paid-in capital
              
              
              2,602,651Stock
                  deposits (Note 4)
              
              
              107,596Accumulated
                  deficit
              
              
              (3,440,841
              )Foreign
                  currency translation adjustment
              
              
              (33,864
              )Total
                  Stockholders' Deficit
              
              
              (744,463
              )TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT
              
              $
              7,372,395




The
        accompanying notes are an integral part of these financial
        statements




F-3




**SEA
        SUN CAPITAL CORPORATION**
 Consolidated
        Statements of Operations and Comprehensive Loss
 
 For
                  the Years EndedDecember
                  31,2005
              
              2004REVENUE
              
              $
              -
              
              $
              -OPERATING
                  EXPENSESLocation
                  sales costs (Note 3)
              
              
              1,030,505
              
              
              -Wages
                  and contractor fees
              
              
              464,849
              
              
              50,980Professional
                  fees
              
              
              220,466
              
              
              174,734Depreciation
              
              
              182,182
              
              
              34,506Travel,
                  meals, and entertainment
              
              
              111,944
              
              
              35,876Research
                  and development
              
              
              32,662
              
              
              36,657Office
                  expenses
              
              
              14,004
              
              
              8,784Advertising
              
              
              13,161
              
              
              1,626Facilities
                  rent
              
              
              5,406
              
              
              -Other
                  general and administrative
              
              
              93,289
              
              
              4,568Total
                  Operating Expenses
              
              
              2,168,468
              
              
              347,731LOSS
                  FROM OPERATIONS
              
              
              (2,168,468
              )
              
              (347,731
              )OTHER
                  INCOME (EXPENSES)Write-off
                  of obsolete inventory
              
              
              (4,530
              )
              
              -Loss
                  on disposal of fixed assets
              
              
              -
              
              
              (22,147
              )Interest
                  income
              
              
              371
              
              
              10Total
                  Other Income (Expenses)
              
              
              (4,159
              )
              
              (22,137
              )LOSS
                  BEFORE INCOME TAXES
              
              
              (2,172,627
              )
              
              (369,868
              )PROVISION
                  FOR INCOME TAX EXPENSE
              
              
              -
              
              
              -NET
                  LOSS
              
              $
              (2,172,627
              )
              $
              (369,868
              )BASIC
                  AND DILUTED:Net
                  loss per common share
              
              $
              (0.12
              )
              $
              (0.02
              )Weighted
                  average shares outstanding
              
              
              18,605,579
              
              
              15,249,338OTHER
                  COMPREHENSIVE LOSSNET
                  LOSS
              
              $
              (2,172,627
              )
              $
              (369,868
              )Foreign
                  currency translation adjustment
              
              
              42,879
              
              
              (10,002
              )COMPREHENSIVE
                  LOSS
              
              $
              (2,129,748
              )
              $
              (379,870
              )
  The
        accompanying notes are an integral part of these
        financial statements
 F-4


**SEA
        SUN CAPITAL CORPORATION**
 Consolidated
        Statements of Stockholders' Equity (Deficit)
 
 Accumulated
              
              TotalAdditional
              
              
              
              
              
              Other
              
              Stockholders'Common
                  Stock
              
              Paid-in
              
              Stock
              
              Accumulated
              
              Comprehensive
              
              EquityShares
              
              Amount
              
              Capital
              
              Deposits
              
              Deficit
              
              Loss
              
              (Deficit)Balance,
                  December 31, 2003
              
              
              7,715,228
              
              $
              5,970
              
              $
              1,206,852
              
              $
              -
              
              $
              (898,346
              )
              $
              (66,741
              )
              $
              247,735Shares
                  issued at $0.415 per sharefor
                  cash, par value $.001 CND
              
              
              30,000
              
              
              25
              
              
              12,440
              
              
              -
              
              
              -
              
              
              -
              
              
              12,465Shares
                  issued at $0.249 per sharefor
                  fixed assets, par value $.001 CND
              
              
              300,000
              
              
              249
              
              
              74,539
              
              
              -
              
              
              -
              
              
              -
              
              
              74,788Shares
                  issued for services, parvalue
                  $.001 CND
              
              
              562,000
              
              
              467
              
              
              158,316
              
              
              -
              
              
              -
              
              
              -
              
              
              158,783Recapitalization
              
              
              8,330,000
              
              
              10,226
              
              
              (10,226
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Cash
                  advances for common stock
              
              
              -
              
              
              -
              
              
              -
              
              
              306,208
              
              
              -
              
              
              -
              
              
              306,208Foreign
                  currency translation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (10,002
              )
              
              (10,002
              )Net
                  loss for the year endedDecember
                  31, 2004
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (369,868
              )
              
              -
              
              
              (369,868
              )Balance,
                  December 31, 2004
              
              
              16,937,228
              
              
              16,937
              
              
              1,441,921
              
              
              306,208
              
              
              (1,268,214
              )
              
              (76,743
              )
              
              420,109Shares
                  issued at $0.25 per shareagainst
                  cash advances
              
              
              1,246,833
              
              
              1,247
              
              
              304,961
              
              
              (306,208
              )
              
              -
              
              
              -
              
              
              -Shares
                  issued for services
              
              
              200,000
              
              
              200
              
              
              99,800
              
              
              -
              
              
              -
              
              
              -
              
              
              100,000Shares
                  issued at $0.50 per sharefor
                  cash
              
              
              929,000
              
              
              929
              
              
              463,571
              
              
              -
              
              
              -
              
              
              -
              
              
              464,500Exercise
                  of warrants at $0.327
              
              
              577,500
              
              
              577
              
              
              187,903
              
              
              -
              
              
              -
              
              
              -
              
              
              188,480Shares
                  issued at $1.00 per sharefor
                  cash
              
              
              104,600
              
              
              105
              
              
              104,495
              
              
              -
              
              
              -
              
              
              -
              
              
              104,600Cash
                  advances for exercise ofwarrants
              
              
              -
              
              
              -
              
              
              -
              
              
              107,596
              
              
              -
              
              
              -
              
              
              107,596Foreign
                  currency translation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              42,879
              
              
              42,879Net
                  loss for the year endedDecember
                  31, 2005
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,172,627
              )
              
              -
              
              
              (2,172,627
              )Balance,
                  December 31, 2005
              
              
              19,995,161
              
              $
              19,995
              
              $
              2,602,651
              
              $
              107,596
              
              $
              (3,440,841
              )
              $
              (33,864
              )
              $
              (744,463
              )
 
 The
        accompanying notes are an integral part of these
        financial statements
  F-5


**SEA
          SUN CAPITAL CORPORATION**
 Consolidated
          Statements of Cash Flows
  For
                    the Years EndedDecember
                    31,2005
                
                2004CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    loss
                
                $
                (2,172,627
                )
                $
                (369,868
                )Adjustments
                    to reconcile net loss to net cashused
                    in operating activities:Depreciation
                
                
                182,182
                
                
                34,506Common
                    stock issued for services
                
                
                100,000
                
                
                158,783Write-off
                    of obsolete inventory
                
                
                4,530
                
                
                -Loss
                    on disposal of fixed assets
                
                
                -
                
                
                22,147Changes
                    in operating assets and liabilities:Increase
                    in other receivables
                
                
                (20,722
                )
                
                -Increase
                    in equipment deposits
                
                
                (189,816
                )
                
                -Increase
                    in prepaid expenses
                
                
                (24,558
                )
                
                -Increase
                    in accounts payable
                
                
                34,440
                
                
                1,543Increase
                    in accounts payable - related parties
                
                
                10,851
                
                
                -Increase
                    in accrued liabilities
                
                
                211,653
                
                
                36,245Net
                    Cash Used in Operating Activities
                
                
                (1,864,067
                )
                
                (116,644
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Purchases
                    of fixed assets
                
                
                (1,754,652
                )
                
                (19,556
                )Net
                    Cash Used by Investing Activities
                
                
                (1,754,652
                )
                
                (19,556
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Proceeds
                    from location sales
                
                
                3,903,590
                
                
                -Proceeds
                    from common stock sales
                
                
                569,100
                
                
                12,465Proceeds
                    from advances on common stock sales
                
                
                107,596
                
                
                306,208Proceeds
                    from exercise of warrants
                
                
                188,480
                
                
                -Net
                    Cash Provided by Financing Activities
                
                $
                4,768,766
                
                $
                318,673EFFECT
                    OF FOREIGN CURRENCY TRANSLATION ADJUSTMENT
                
                
                (44,839
                )
                
                (3,607
                )NET
                    INCREASE IN CASH AND CASH EQUIVALENTS
                
                $
                1,105,208
                
                $
                178,866CASH
                    AND CASH EQUIVALENTS, BEGINNING OF YEAR
                
                
                213,771
                
                
                34,905CASH
                    AND CASH EQUIVALENTS, END OF YEAR
                
                $
                1,318,979
                
                $
                213,771SUPPLEMENTAL
                    CASH FLOW INFORMATIONCash
                    Payments For:Interest
                
                $
                -
                
                $
                -Income
                    taxes
                
                $
                -
                
                $
                -Non-Cash
                    Investing and Financing ActivitiesLocation
                    sales financed with notes receivable
                
                $
                3,839,810
                
                $
                -Fixed
                    assets purchased on credit
                
                $
                -
                
                $
                6,648Common
                    stock issued for fixed assets
                
                $
                -
                
                $
                74,788
  The
          accompanying notes are an integral part of these
          financial statements
 F-6


**SEA
        SUN CAPITAL CORPORATION**
 **Notes
        to Consolidated Financial Statements**
 **Years
        Ended December 31, 2005 and 2004**
  **Note
        1 - Organization**





Sea
      Sun
      Capital Corporation (the Parent) was organized as a blank check company under
      the laws of the state of Delaware as Alpha Holding, Inc. on August 19, 1997.
      A
      name change to Sea Sun Capital Corporation was effected September 29, 2004.
      The
      Parent engaged in minimal operations from its inception until December 16,
      2004,
      on which date it acquired 100% of the stock of Sea Sun Capital Corporation
      (the
      Subsidiary), which was organized under the laws of Alberta, Canada on February
      19, 2003. The acquisition was accounted for as a recapitalization, commonly
      referred to as a reverse merger, inasmuch as the post-acquisition owners and
      control persons of the Parent are substantially the same as the pre-acquisition
      owners and control persons of the Subsidiary. The financial statements reflect
      primarily the operations of the Subsidiary, with a recapitalization to
      illustrate the effects of the reverse merger. The consolidated entity is
      hereafter referred to as ‘the Company.’




The
      Company sells, rents and licenses the use of water leisure craft manufactured
      by
      unaffiliated entities pursuant to the Company’s proprietary designs and
      specifications to an unaffiliated master licensee and other eco-tour operators
      located in domestic and international markets.





The
      Company is not considered to be a development stage company in accordance with
      SFAS No. 7, *“Accounting
      and Reporting by Development Stage Enterprises.”*  Although
      the Company has accumulated a deficit and has not recorded any revenues, the
      Company has commenced its planned principal operations, and has generated
      substantial proceeds from Location sales. Pursuant to EITF 88-18, *“Sales
      of Future Revenues,”* the
      Company could not recognize any portion of the proceeds generated from the
      Location sales recorded by the Company in 2005 as revenue. Instead, those
      amounts have been recorded as debt to be amortized using the interest effective
      method. In
      addition, the Company has raised a significant amount of capital due to sales
      of
      its common stock. Based on these factors, and the Company’s favorable current
      ratio, the Company  is
      deemed
      capable of continuing as a going concern for the foreseeable
      future.





**Note
      2 - Basis of Presentation and Summary of Significant Accounting
      Policies**





Generally
      Accepted Accounting Principles - The
      accompanying financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America (US
      GAAP). This basis differs from that used in the statutory accounts of the
      Subsidiary, which were prepared in accordance with the accounting principles
      and
      relevant financial regulations applicable to enterprises in Canada. All
      necessary adjustments have been made to present the financial statements in
      accordance with US GAAP.





Foreign
      Currency and Comprehensive Income - The
      Subsidiary’s functional currency is the Canadian dollar (CND), while the
      Parent’s functional currency is the United States dollar (USD). The financial
      statements of the Subsidiary were translated to USD prior to consolidation
      using
      year-end exchange rates for the balance sheet, and weighted average exchange
      rates for the statements of operations. Equity transactions were translated
      using historical rates. The year-end exchange rate of $.85793 was used to
      convert the Subsidiary’s December 31, 2005 balance sheet, and the statements of
      operations used weighted average rates of $.82889 and $.77169 for the years
      ended December 31, 2005 and 2004, respectively. All amounts in the financial
      statements and footnotes are presumed to be stated in USD, unless otherwise
      identified. Foreign currency translation gains or losses as a result of
      fluctuations in the exchange rates are reflected in the Statement of Other
      Comprehensive Income or Loss.




F-7


**SEA
        SUN CAPITAL CORPORATION**
 **Notes
        to Consolidated Financial Statements**
 **Years
        Ended December 31, 2005 and 2004**


**Note
      2 - Basis of Presentation and Summary of Significant Accounting Policies
      (continued)**




Net
      Earnings Per Share - The
      computation of net income (loss) per share of common stock is based on the
      weighted average number of shares outstanding during the periods presented.
      In
      2003, the Subsidiary issued 1,715,228 warrants, each exercisable for one share
      of the Company’s common stock. In December 2005, the Company issued options to
      purchase 1,000,000 shares to its officers. Due to net losses sustained in 2005
      and 2004, the outstanding options and warrants would have an antidilutive effect
      on net loss per share. Accordingly, basic and diluted loss per share is the
      same.




Income
                Taxes-
                The Company recognizes the tax effects of transactions in the year
                in
                which such transactions enter into the determination of net income,
                regardless of when reported for tax purposes. Deferred taxes are
                provided
                in the financial statements under SFAS No. 109,*“Accounting
                for Income Taxes,”*to
                give effect to the resulting temporary differences which may arise
                from
                differences in the bases of fixed assets, depreciation methods,
                allowances, etc., based on the income taxes expected to be payable
                in
                future years. Deferred tax assets totaling $1,204,294 have arisen
                as a
                result of net operating loss carryforwards, and have been offset
                completely by a valuation allowance due to the uncertainty of their
                utilization in future periods. The valuation allowance increased
                during
                the years ended December 31, 2005 and 2004 by $760,419 and $129,454,
                respectively, due to the increase in net operating losses. Operating
                loss
                carryforwards generated during the period from February 19, 2003
                (inception) through December 31, 2005 of $3,440,841 will begin to
                expire
                in 2023.




Income
      tax expense (benefit) differs from amounts derived using statutory federal
      rates
      as follows:


Years
                  Ended December 31,2005
              
              2004Income
                  tax benefit at federal statutory rate of 35%
              
              $
              760,419
              
              $
              129,454State
                  income tax benefit
              
              
              -
              
              
              -Increase
                  in valuation allowance
              
              
              (760,419
              )
              
              (129,454
              )Income
                  tax expense (benefit)
              
              $
              -
              
              $
              -
  Deferred
                  tax assets (liabilities) are comprised of the following:Years
                  Ended December 31,2005
              
              
              2004Net
                  operating loss carryforwards
              
              $
              1,204,294
              
              $
              443,875Valuation
                  allowance
              
              
              (1,204,294
              )
              
              (443,875
              )Net
              
              $
              -
              
              $
              -




Cash
      and Cash Equivalents - For
      purposes of the statement of cash flows, the Company considers all highly liquid
      debt instruments purchased with a maturity of three months or less to be cash
      equivalents. During the year ended December 31, 2005 and 2004, the Company
      did
      not have non-cash investing activities other than as disclosed on the statements
      of cash flows.




F-8




**SEA
        SUN CAPITAL CORPORATION**
 **Notes
        to Consolidated Financial Statements**
 **Years
        Ended December 31, 2005 and 2004**




**Note
      2 - Basis of Presentation and Summary of Significant Accounting Policies
      (continued)**




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




Shipping
      and Handling Costs -
      Shipping and handling costs are expensed as incurred and included with ‘Location
      sales costs’ on the statement of operations. These costs totaled $101,763 and $0
      for the years ended December 31, 2005 and 2004.




Fixed
      Assets - Fixed
      assets are stated at cost less accumulated depreciation, which is computed
      using
      the straight-line method based on estimated useful lives ranging from three
      (3)
      to five (5) years. Long-term assets of the Company are reviewed annually to
      assess whether the carrying value has become impaired, according to the
      guidelines established in SFAS No. 144, *“Accounting
      for the Impairment or Disposal of Long-Lived Assets.”* The
      Company also evaluates the periods of amortization to determine whether
      subsequent events and circumstances warrant revised estimates of useful lives.
      No impairment of assets was recorded in the periods reported.




Revenue
      Recognition - The
      Company has four sources of revenue pertaining to its revised business model;
      (1) Sales of watercraft products; (2) Initial licensing fees on locations
      financed by the Master Licensee; (3) Monthly rental income from the Master
      Licensee and (4) On-going licensing fees from the Master Licensee from locations
      financed by the Company.





**Sales
      of watercraft products** -
      Revenue
      is generally recorded when all of the following conditions have been
      met:





·
            order
                for a product has been received from the
                purchaser,


·
            written
                approval for payment has been received from the purchaser’s financial
                institution,


·
            an
                a common carrier signs the delivery ticket accepting responsibility
                for
                the product as agent for the purchaser,
                and


·
            the
                product is removed from the Company’s inventory for delivery to the
                purchaser.





Product
      sales are generally made for cash, with purchasers providing a commercial LOC
      from an approved and recognized financial institution. Products are not sold
      on
      consignment and purchasers do not have the right to return products. On average,
      the Company expects to receive payments from the LOC provider within 5 days
      of legal transfer of ownership of the specified products.





Amounts
      billed to purchasers for delivery of products are recognized as revenue with
      the
      corresponding delivery expense charged to cost of sales. Sales commissions
      are
      treated as a selling expense.





**Initial
      licensing fees** - The
      Company licenses parties to use the Company’s trademarks, trade names, and
      watercraft for a specified term. The Initial Licensing Fee is non-revocable,
      and
      revenue is recognized ratably over the license term.





**Rental
      sales** - The
      Company invoices the Master Licensee on the first day of each month for that
      month, and revenue is recorded on the invoice date.




F-9


**SEA
        SUN CAPITAL CORPORATION**
 **Notes
        to Consolidated Financial Statements**
 **Years
        Ended December 31, 2005 and 2004**


**Note
      2 - Basis of Presentation and Summary of Significant Accounting Policies
      (continued)**





**On-going
      licensing fees** - The
      Company invoices the Master Licensee on the first day of each month for that
      month, and revenue is recorded on the invoice date.





Product
      Warranty Costs - The
      Company records a liability for product warranties at the time revenue is
      recognized. As the Company has no historical experience, the liability is
      estimated using management’s best judgment. The Company adjusts its liability
      for specific warranty matters when they become known and the exposure can be
      estimated. The Company’s warranty reserves are affected by product failure rates
      and material usage and labor costs incurred in correcting a product failure.
      If
      these estimated costs differ from actual costs, a revision to the warranty
      reserve would be required.





Accounts
      Receivable - The
      Company believes that its credit review procedures have adequately provided
      for
      usual and customary credit-related losses. The allowance account and accounts
      receivable are charged to bad debts expense when an amount is determined to
      be
      uncollectible based on a periodic review of the accounts by management. Based
      on
      the Company’s policy for charging off accounts receivables and the low risk of
      uncollectibility of Eco Tour License sales, the bad debts allowance is
      insignificant at December 31, 2005. In the future, the Company plans to sell
      its
      watercrafts to independent dealers, at which time the Company will set up an
      allowance based on estimation of uncollectible accounts.




Advertising
      Costs - The
      Company generally expenses advertising costs as incurred. The minimal
      advertising costs incurred by the Company during the years ended December 31,
      2005 and 2004 are included in ‘Other general administrative’ expenses on the
      statements of operations.




Reclassifications - Some
      of the December 31, 2004 balances have been reclassified to conform to December
      31, 2005 presentation.




Recently
      Issued Accounting Pronouncements - The
      following pronouncements were issued or became effective during the years ended
      December 31, 2005 or 2004. None of the new pronouncements has current
      application to the Company.




·
            SFAS
                No. 154,*“Accounting
                Changes and Error Corrections - a replacement of APB Opinion No.
                20 and
                FASB Statement No. 3,”*issued in May 2005




·
            SFAS
                123 (revised 2004),*“Share-Based
                Payment,’*issued December 2004




·
            SFAS
                No. 153,*“Exchanges
                of Non-Monetary Assets - an amendment of APB Opinion No.
                29,”*issued in December 2004




**·**
            SFAS
                No. 152,*“Accounting
                for Real Estate Time-Sharing Transactions - an amendment of FASB
                Statements No. 66 and 67,”*issued in December 2004




·
            SFAS
                No. 151,*“Inventory
                Costs - an amendment of ARB No. 43, Chapter 4,”*issued
                in November 2004




·
            SFAS
                No. 132 (revised 2003),*“Employers’
                Disclosures about Pensions and Other Postretirement Benefits - and
                amendment of FASB Statements No. 87, 88, and 106,”*issued December 2003




F-10


**SEA
        SUN CAPITAL CORPORATION**
 **Notes
        to Consolidated Financial Statements**
 **Years
        Ended December 31, 2005 and 2004**


**Note
      2 - Basis of Presentation and Summary of Significant Accounting Policies
      (continued)**




·
            SFAS
                No. 150,*“Accounting
                for Certain Financial Instruments with Characteristics of both Liabilities
                and Equity,”*issued in May 2003




·
            SFAS
                No. 149,*“Amendment
                of Statement 133 on Derivative Instruments and Hedging
                Activities,”*issued in April 2003




**Note
      3 - Location Sales**




During
      2005 and 2004, the Company continued to pursue its business plan it initiated
      in
      February 2003, i.e., the sale of investment opportunities in international
      maritime eco-tour Locations (the “Locations”) to individuals or entities
      (“Location Investors”). Under the form of eco-tour Location Agreements that the
      Subsidiary employed (the Location Agreement), the Location Investor
      was:




·
            required
                to pay a sales price, typically ranging from $100,000 - $150,000,
                to fund
                the:




·
            production
                of the watercraft to be employed at the Locations (the eco-tours
                are
                conducted via glass-bottom watercraft manufactured pursuant to the
                Company’s proprietary designs and specifications);
                and




·
            set-up
                of, and the licensing and marketing for, the Locations, and




·
            entitled
                to receive between 30% and 40% of the net revenues (net revenues
                equal
                gross revenue less selling commissions) generated from the ongoing
                operations from the specific Location in which it invests.




Also
      during 2005 and 2004, the Company facilitated the manufacture of the watercraft,
      marketed the Locations, obtained the required permits and licensing, and planned
      to perform the accounting and other administrative functions for each Location.
      In return, the Company was entitled to receive 60% to 70% of net revenues of
      each Location.




The
      Company entered into 47 and 0 Agreements with Location Investors during 2005
      and
      2004, respectively, representing 68 and 0 Locations, respectively. The Location
      Agreements required payment of an initial deposit that was due upon the signing
      of the Location Agreement. If the Location Owner did not pay the entire sales
      price upon the signing of the Location Agreement, a second deposit was due
      within a year subsequent to the signing of the Location Agreement, and the
      remaining amount could be financed over a period not to exceed two years
      subsequent to the commencement of the Location Owner’s individual Location’s
      operations. Of the aggregate sales price of $7,743,400 stated in the Location
      Agreements, the Company received cash of $3,903,590 during 2005, resulting
      in
      Location sales receivable of $3,839,810 at December 31, 2005. Second deposits
      totaling $971,610 were payable to the Company at December 31, 2005. Of the
      total
      financing portion of $2,868,200, 25% is due during 2006, 50% during 2007, and
      the remaining 25% during 2008.




F-11


**SEA
      SUN CAPITAL CORPORATION**


**Notes
      to Consolidated Financial Statements**


**Years
      Ended December 31, 2005 and 2004**




**Note
      3 - Location Sales (continued)**




Location
      sales receivable amounts are payable to the Company as follows:




Due
      during the year ended December 31,


2006
              
              $
              1,688,6602007
              
              
              1,434,1002008
              
              
              717,050Total
                  Location sales receivable
              
              $
              3,839,810




The
      Company has accounted for the location sales in accordance with EITF 88-18, *“Sales
      of Future Revenues,”* which
      requires the total Location sales price stated in the Agreements to be
      recognized not as revenue, but rather as debt that is amortized using the
      effective interest method. Since none of the Locations commenced operations
      prior the December 31, 2005, no amortization has been recorded and the entire
      debt amount has been reported as long-term debt.




During
      2005, the Company incurred expenses associated with the location sales of
      $1,030,505, which consist of $541,572 in Location set-up fees, $387,170 in
      commissions, and $101,763 in freight. No such fees were incurred during 2004.
      These costs were expensed, rather than capitalized, due to the uncertainty
      of
      their recoverability.




In
      June
      2006, the Company transferred and assigned all of its rights and interests
      in
      the Location Agreements to an unaffiliated party (Note 7). The Master Licensee
      will now be responsible for the operation of the locations, including set-up,
      marketing, tour operations, revenue collection and payment of all expenses
      associated with the operations. The company will receive initial licensing
      fees,
      monthly boat rental fees and monthly licensing fees.




**Note
      4 - Stockholders’ Equity**




The
      Company is authorized to issue 50,000,000 shares of its preferred stock and
      100,000,000 shares of its common stock, both with a $.001 USD par value. The
      Company has not issued any preferred stock, and has 19,995,161 and 16,937,228
      shares of common stock issued and outstanding at December 31, 2005 and 2004,
      respectively, which includes 8,330,000 shares of the Parent’s stock issued and
      outstanding at the date of the reverse merger. The common stock transactions
      since inception are as follows:




·
            Upon
                incorporation on February 19, 2003, the Company issued 1,500,000
                founding
                shares of its par value common stock to one of its directors.




·
            In
                accordance with terms set forth in a February 2003 private offering
                memorandum, the Company issued 30,000 shares of its common stock
                at $.064
                USD for total cash of $1,934 USD. In connection with this stock issuance,
                the Company granted 30,000 warrants (see “Warrants”
                below).




·
            In
                accordance with terms set forth in a March 2003 private offering
                memorandum, the Company issued 1,500,000 shares of its common stock
                at
                $.193 USD for total cash of $290,181 USD. In connection with this
                stock
                issuance, the Company granted 1,500,000 warrants (see ”Warrants”
                below).




F-12


**SEA
        SUN CAPITAL CORPORATION**
 **Notes
        to Consolidated Financial Statements**
 **Years
        Ended December 31, 2005 and 2004**


**Note
      4 - Stockholders’ Equity (continued)**




·
            In
                accordance with terms set forth in a June 2003 private offering
                memorandum, the Company issued 185,228 shares of its common stock
                at $.271
                USD for total cash of $50,166 USD. In connection with this stock
                issuance,
                the Company granted 185,228 warrants (see ”Warrants”
                below).




·
            In
                September, November, and December 2003, the Company issued 4,500,000
                shares of its common stock in exchange for consulting services. The
                shares
                were valued at an estimated $.193 USD for total expense of $870,541.




·
            In
                April 2004, the Company issued 30,000 shares of its common stock
                at $.415
                USD for total cash of $12,465 USD.




·
            In
                May 2004, the Company issued 300,000 shares of its common stock at
                $.249
                USD in exchange for fixed assets with a total value of $74,788
                USD.




·
            In
                May and July 2004, the Company issued 562,000 shares of its common
                stock
                in exchange for consulting services. The shares were valued at an
                estimated $.282 USD for total value of $158,783 USD.




·
            In
                accordance with terms set forth in a January 2005 private offering
                memorandum, the Company received cash consideration of $306,208 USD
                in
                2004 and $500 USD in 2005 for subscriptions to issue 1,246,833 shares
                of
                common stock. The shares were subsequently issued in April
                2005.




·
            In
                June and July 2005, the Company issued 200,000 of its common stock
                in
                exchange for consulting services. The shares were valued at $.50
                USD for
                total expense of $100,000 USD.




·
            In
                accordance with the terms set forth in a June 2005 private offering
                memorandum, the Company issued 929,000 shares of its common stock
                at $.50
                USD for total cash of $464,500.




·
            In
                accordance with the terms set forth in a November 2005 private offering
                memorandum, the Company issued 104,600 shares of its common stock
                at $1.00
                USD for total cash of $104,600.




F-13




**SEA
      SUN CAPITAL CORPORATION**


**Notes
      to Consolidated Financial Statements**


**Years
      Ended December 31, 2005 and 2004**




**Note
      4 - Stockholders’ Equity (continued)**




Warrants - In
        connection with the February, March, and June 2003 private offerings that
        resulted in the sale of 1,715,228 shares of common stock, the Company issued
        warrants to those shareholders to purchase an additional 1,715,228 shares
        of
        common stock. Warrants to purchase 843,800 shares were exercised during 2005.
        In
        connection therewith, 577,500 shares were issued in 2005, and 266,300 shares
        were issued in 2006. All unexercised warrants expired in 2005. The warrant
        activity is summarized as follows:




Warrants
                Exercised
            
            Cash
                Advances for ExerciseExercise
            
            Cash
                Rcvd -
            
            
            
            Date
            
            Cash
                Rcvd -
            
            
            
            DatePrivate
            
            Warrants
            
            Expiration
            
            Price
            
            2005
            
            No.
                of
            
            Stock
            
            2005
            
            No.
                of
            
            Stock
            
            WarrantsOffering
            
            Issued
            
            Date
            
            (CND
                $)
            
            (US
                $)
            
            Shares
            
            Issued
            
            (US
                $)
            
            Shares
            
            Issued
            
            ExpiredFeb.
                2003
            
            
            30,000
            
            Mar.
                19, 2005
            
            $
            .40
            
            $
            -
            
            
            -
            
            
            
            
            $
            -
            
            
            -
            
            
            
            
            30,000Mar.
                2003
            
            
            1,500,000
            
            Apr.
                30, 2005
            
            $
            .40
            
            
            188,480
            
            
            577,500
            
            
            Jul.
                2005
            
            
            54,829
            
            
            162,500
            
            Feb.
                2006
            
            
            760,000Jun.
                2003
            
            
            185,228
            
            Sept.
                4, 2005
            
            $
            .60
            
            
            -
            
            
            -
            
            
            
            
            
            52,767
            
            
            103,800
            
            Feb.
                2006
            
            
            81,4281,715,228
            
            
            
            
            
            
            $
            188,480
            
            
            577,500
            
            
            
            
            $
            107,596
            
            
            266,300
            
            
            
            
            871,428




The
      issuance of these warrants was considered an offering cost in connection with
      their associated private offerings and have been netted with additional paid-in
      capital




**Note
      5 - Intangible Asset**




In
      December 2003, the Company acquired watercrafts and accessories with a fair
      market value of $196,490 CND from an entity with which the Company’s director is
      affiliated. The Company paid the entity $350,000 CND, which resulted in an
      intangible asset of $153,510 CND. The intangible asset consists of marketing
      and
      other efforts made by the entity to establish brand recognition of the Company’s
      product. Using the exchange rate at December 31, 2005, the intangible asset
      had
      a value of $131,700 USD. Minimal (if any) impairment in accordance with SFAS
      No.
      142, ‘ *Goodwill
      and Other Intangible Assets* ,’
was
      noted, and therefore, not recorded.




**Note
      6 - Accounts Payable - Related Parties**




Since
      the
      Company’s inception in February 2003, an entity affiliated with one of the
      Company’s directors has paid for several of the Company’s expenses. During 2005,
      the affiliated entity paid for $114,426 USD on behalf of the Company, and
      received $124,415 USD in reimbursements from the Company, using the 2005
      weighted average exchange rate. At December 31, 2005, the Company owed the
      affiliate $117,280 USD, based on the year-end exchange rate.




**Note
      7 - Subsequent Events**




Location
      Sales (Note 3) - As of
      June 29, 2006, the Company had entered into 57 Location Agreements, representing
      76 Locations, resulting in total debt of $8,933,400, of which $3,886,910 was
      still receivable from the Location Investors. The aggregate amount receivable
      represented the balance of the purchase prices payable for the Locations to
      the
      Company by SSEI as follows: the sum of $432,865.is due by August 31, 2006;
      the
      sum of $109,845 is due September 30, 2006; and the balance of $3,344,200 shall
      be paid in 24 equal monthly payments of $148,106 (including interest of 6%
      per
      annum accrued monthly) commencing January 1, 2007. On June 29, 2006, the Company
      sold for a total consideration of $10,000 all of the outstanding shares of
      the
      capital stock of Sea Sun Enterprises, Inc. (“SSEI”), a wholly owned
      non-operating subsidiary organized under the laws of Barbados to two
      unaffiliated persons.


F-14
  **SEA
        SUN CAPITAL CORPORATION**
 **Notes
        to Consolidated Financial Statements**
 **Years
        Ended December 31, 2005 and 2004**


**Note
      7 - Subsequent Events (continued)**




Also
      on
      June 29, 2006, the Company entered into the following agreements:




·
            Master
                Licensing Agreement (“MLA”) with SSEI, pursuant to which SSEI assumed the
                Company’s obligations for establishing, marketing, and operating the
                Locations, via the utilization of the Company’s assets. The MLA specifies
                two types of financed Locations: 1). Company Financed Locations -
                as to
                which the Company provides all watercraft to be employed at the Location
                and pays SSEI a fee for the initial set-up of the Locations, and
                SSEI pays
                the Company monthly rental and licensing fees, and 2). SSEI Financed
                Locations - as to which the Company provides all watercraft to be
                employed
                at the Location, SSEI undertakes all obligations with regard to the
                set-up
                of a Location and pays the Company an initial licensing fee, along
                with
                monthly boat rental fees. The MLA has a term of ten years, unless
                otherwise terminated pursuant to the terms specified
                therein.




·
            Transfer
                and assignment agreement, pursuant to
                which:




·
            the
                Company transferred and assigned all of its rights, title, and interest
                in
                the Location Agreements to SSEI, including, without limitation, the
                Company’s rights in all contracts in connection with the Location
                Agreements, all accounts receivable owed to the Company with regard
                to
                those Location Agreements, and the debt associated with the Location
                Agreements; and




·
            SSEI
                assumed all of the Company’s obligations arising under the Location
                Agreements.




Stock
      Issuances - During
      February 2006, the Company issued 266,300 shares of its common stock in
      connection with the exercise of warrants in 2005 (Note 4).




**Note
      8 - Stock Options**




In
      December 2005, options to purchase 1,000,000 shares of common stock were granted
      to various consultants under the Company’s Stock Option and Stock Appreciation
      Rights Plan (the “2005 Plan”). The 2005 Plan provides for the granting to
      officers, directors, employees and consultants of incentive and non-incentive
      stock options to purchase not more than 2,000,000 shares of common stock and
      stock appreciation rights. The Board of Directors administers the Plan and
      has
      authority to determine the persons to whom awards will be made, the terms of
      vesting and forfeiture, the amount of the awards, and other terms. At December
      31, 2005, options to purchase a total of 1,000,000 shares had been granted
      under
      the 2005 Plan.




Also
      in
      December 2005, options to purchase an aggregate of 1,000,000 shares of common
      stock were granted to three executives pursuant to the terms of their respective
      employment agreements. These options are not administered under the 2005
      Plan.




F-15


**SEA
      SUN CAPITAL CORPORATION**


**Notes
      to Consolidated Financial Statements**


**Years
      Ended December 31, 2005 and 2004**




**Note
      8 - Stock Options (continued)**




The
      Company has adopted the fair value recognition provisions of SFAS No. 123(R),
      under which compensation expense is recorded based on the estimated fair value
      of the options on the grant date. The Company uses the Black-Scholes
      option-pricing model to compute compensation expense associated with the
      options. The risk-free interest rate is based on the U.S. Treasury rates at
      the
      date of grant. The forfeiture rate is based on past turnover experience of
      the
      Company. Expected volatility is based on the historical volatility of the
      Company’s stock. The options granted were valued assuming a risk-free interest
      rate between 4% and 5% per annum, volatility between 95% and 100%, zero dividend
      yield and forfeiture rate, and expected lives of ten years. The total grant
      date
      fair value price of the options was $1,839,926. The Company records stock
      compensation expense over the vesting period, which is generally two years.
      Since the options were granted near the end of 2005, no compensation expense
      was
      recorded during 2005 due to the immaterial impact on the Company’s financial
      results. There were no vested options outstanding at December 31,
      2005.




The
      options’ activity is summarized as follows:




**Shares
                to be Purchased**
            
            **Weighted
                Average Exercise Price**Equity
                awards outstanding at December 31, 2003
            
            
            -
            
            
            N/AGranted
            
            
            -
            
            
            N/AExercised
            
            
            -
            
            
            N/ACanceled
                or expired
            
            
            -
            
            
            N/AEquity
                awards outstanding at December 31, 2004
            
            
            -
            
            
            N/AGranted
            
            
            2,000,000
            
            $
            .75Exercised
            
            
            -
            
            
            N/ACanceled
                or expired
            
            
            -
            
            
            N/AEquity
                awards outstanding December 31, 2005
            
            
            2,000,000
            
            $
            .75Equity
                awards exercisable at December 31, 2005
            
            
            -
            
            
            N/AAverage
                remaining life at December 31, 2005
            
            10
                yearsAverage
                vesting period at December 31, 2005
            
            2
                years




F-16
 
 **SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, Sea Sun Capital Corporation has duly caused this Report to be signed
      on
      its behalf by the undersigned, thereunto duly authorized on the 29th day of
      November, 2006.


**SEA
                SUN CAPITAL CORPORATION**By:
            /s/
                Graham MillingtonGraham
                Millington, Chief Executive Officer




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this Report has
      been
      signed below by the following persons in the capacities and on the dates
      indicated.


Signature
              
              Title
              
              Date/s/
                  Graham Millington
              
              President
                    and Chief (Principal)
              
              November
                  29, 2006Graham
                  Millington
              
              Executive
                  Officer, Director/s/
                  Gregory N. Heller
              
              Vice
                    President and Chief
              
              November
                  29, 2006Gregory
                  N. Heller
              
              (Principal)
                  Financial Officer/s/
                  Rodney Koch
              
              Chairman
                  of the Board
              
              November
                  29, 2006Rodney
                  Koch/s/
                  Wayne Izumi
              
              Director
              
              November
                  29, 2006Wayne
                  Izumi




38


**Exhibit
      Index**





Number
            
            Description3.1
            
            Our
                Certificate of Incorporation (incorporated by reference to Exhibit
                3.1 to
                our Registration Statement on Form 10-SB filed with the SEC on February
                7,
                2001 under Commission File No. 0003207).3.2
            
            Certificate
                of Amendment of our Certificate of Incorporation3.3
            
            Our
                By-Laws4.1
            
            Specimen
                of the certificate representing our common stock, $.001 per
                value4.2
            
            Our
                stock option and stock appreciation plan.10.1
            
            Transfer
                and Assignment Agreement dated the 29th day of June 2006 between
                us and
                Sea Sun Enterprises, Inc.10.2
            
            Amended
                and Restated Master License Agreement between us and Sea Sun Enterprises,
                Inc.10.3
            
            Employment
                Agreement dated December 1, 2005 between us and Rodney
                Koch10.4
            
            Employment
                Agreement dated December 1, 2005 between us and Graham
                Millington10.5
            
            Employment
                Agreement dated December 1, 2005 between us and Gregory
                Heller14.1
            
            Code
                of Ethics for Senior Executive and Financial Officers14.2
            
            Code
                of Ethics and Business Conduct21.1
            
            List
                of our subsidiaries31.1
            
            Certification
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
            
            Certification
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002





39