UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C.  20549





Form
10-KSB





[X]
Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934





For the
fiscal year ended December 31, 2007





[  ]  Transition
report under section 13 or 15(d) of the Securities Exchange Act of
1934





for the
transition period from  __________ to __________.





Commission
file number: 0-33519








WHO’S
YOUR DADDY, INC.





(Name of
small business issuer as specified in its charter)





Nevada
            #98-0360989(State
      of Incorporation)
            (I.R.S.
      Employer Identification No.)





5840 El Camino Real, Suite
108, Carlsbad, CA 92008


(Address
of principal executive offices)





(760)
438-5470


(Issuer's
telephone number)





Securities
registered under Section 12(b) of the Act:  None





Securities
registered under Section 12(g) of the Act: Common Stock, par value
$0.001 per share





Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act: [    ]





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





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. [ X ]





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





State
issuer’s revenues for its most recent fiscal year: $981,919





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such common
equity, as of April 15, 2008, was $2,496,309.




As of
April 15, 2008, there were outstanding an aggregate of 10,028,233 shares of
common stock, $0.001 par value per share. As of April 15, 2008, the registrant
had 333,333 shares of preferred stock, $0.001 par value per share, issued and
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





None.





Transitional
Small Business Disclosure Format:  Yes
[  ]   No [X]





WHO’S
YOUR DADDY, INC.


Index
to Annual Report on Form 10-KSB


For
the Year Ended December 31, 2007





PagePart
      IItem
      1
            
            Description
      of Business
            1Item
      2
            
            Description
      of Property
            4Item
      3
            
            Legal
      Proceedings
            4Item
      4
            
            Submission
      of Matters to a Vote of Security Holders
            5Part
      IIItem
      5
            
            Market
      for Common Equity and Related Stockholder Matters
            5Item
      6
            
            Management's
      Discussion and Analysis or Plan of Operation
            7Item
      7
            
            Financial
      Statements
            23Item
      8
            
            Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure
            24Item
      8A(T)
            
            Controls
      & Procedures
            24Part
      IIIItem
      9
            
            Directors,
      Executive Officers, Promoters and Control Persons; Compliance With Section
      16(a) of the Exchange Act
            26Item
      10
            
            Executive
      Compensation
            28Item
      11
            
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            29Item
      12
            
            Certain
      Relationships and Related Transactions
            29Item
      13
            
            Exhibits
      and Reports on Form 8-K
            30Item
      14
            
            Principal
      Accountant Fees and Services
            31Exhibits
            
            
            30Signatures
            
            
            32Certifications








FORWARD-LOOKING
STATEMENTS





This
Report includes forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934 (the “ Exchange Act ”). All statements other
than statements of historical facts contained in this Report, including
statements regarding our anticipated future clinical and regulatory milestone
events, future financial position, business strategy and plans and objectives of
management for future operations, are forward-looking statements. The words
“believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,”
“expect” and similar expressions, as they relate to us, are intended to identify
forward-looking statements. We have based these forward-looking statements
largely on our current expectations and projections about future events and
consumer trends that we believe may affect our financial condition, results of
operations, business strategy and financial needs. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions
described in “Management’s Discussion and Analysis or Plan of Operation” and
elsewhere in this Report. These risks are not exhaustive. Other sections of this
Report include additional factors which could adversely impact our business and
financial performance. Moreover, we operate in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not
possible for our management to predict all risk factors, nor can we assess the
impact of all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Factors that might cause or
contribute to such differences include, among others: competitive pressures,
changes in economic conditions, legislative/regulatory changes, availability of
capital, interest rates, generally accepted accounting principles, constantly
changing technology and market acceptance of the Company's products and
services. You should not rely upon forward-looking statements as predictions of
future events. We cannot assure you that the events and circumstances reflected
in the forward-looking statements will be achieved or occur and actual results
could differ materially from those projected in the forward-looking statements.
We assume no obligation to update or supplement forward-looking
statements.




PART
I





ITEM
      1.
            DESCRIPTION
      OF BUSINESS





The
Company





Who’s
Your Daddy, Inc. (the “Company”) develops, produces, markets and distributes its
King of EnergyTM energy drinks under its proprietary, trademark-protected name,
Who’s Your Daddy®.





Description
of Business





Who’s
Your Daddy® King of EnergyTM Energy Drinks





The
business strategy behind our King of EnergyTM energy drinks focuses on
maintaining the edge, energy and humor behind our brand, while continuing to
build brand awareness and recognition. Our target market includes young adults
who seek alternatives to bad tasting energy drinks, coffee and other stimulants.
As part of our strategy, we have developed products and events that appeal to
this group, and we continue to assess opportunities to expand our product lines
and distribution worldwide. Our King of EnergyTM energy drinks are designed to be
positioned within mass-market retail outlets, offering high-quality,
cutting-edge products with eye-catching packaging.





Our King
of EnergyTM energy drinks come in two flavors and four distinct formulas. We have
Regular and Sugar-Free versions of our unique cranberry-pineapple flavor, which
we started shipping in the third quarter of 2005, and Regular and Sugar-Free
versions of our Green Tea flavor. We introduced our Regular Green Tea beverage
in July, 2006, and ours is one of the first Green Tea beverages for the energy
drink market. In February, 2007, we began shipping our Sugar-Free Green Tea
flavored beverage. For this product, we are targeting women and the more mature
generation who are interested in the anti-oxidants, cleansing and weight loss
features of Green Tea. This expands the scope of retailers who can carry our
products, since many Green Tea retailers do not carry energy
drinks.





After
testing and experimenting with flavors and taking approximately 50 different
formulas through “blind” taste tests, we selected the Cranberry-Pineapple flavor
for our flagship product. By far, this formulation was found to enjoy the
broadest consumer appeal with the target demographic group due to its appealing
taste, the lack of typical “after-taste,” and by providing a solid “hook” for
the consumer and retailer. In 2007, we distributed 4 flavors of our King of
EnergyTM energy drinks – Cranberry-Pineapple in Regular and Sugar-Free and Green
Tea in Regular and Sugar-Free. Unlike many of the other energy drinks on the
market, our King of EnergyTM energy drinks taste good and are similar to drinking
a soda or fruit punch. Formulated with taurine and caffeine, our energy drinks
are designed to energize and improve mental performance while increasing
concentration, alertness and physical endurance.





1


In
February 2008, we expanded our sales programs to include the United States
military, with the objective of supplying our King of EnergyTM energy drinks to
at least 20 military bases by the end of 2008.  In this effort, we
intend to produce a commemorative can acknowledging the Army, Navy, Air Force,
Marine Corps and Coast Guard. A portion of the proceeds from our commemorative
cans will be donated to Fisher House, a non-profit organization providing
housing to families of injured soldiers requiring specialized, extended away
care, and the Wounded Warriors Project, a non-profit organization helping
severely injured service members to aid and assist each other through unique
programs and services meeting special needs.





We are
actively developing new flavors of our King of EnergyTM energy drinks. In
November 2007, we announced the development of our concentrated 2 ounce,
sugar-free energy “shot” with antioxidants, pomegranate extract, caffeine,
taurine, guarana, ginseng and a vitamin B complex. In addition, we are currently
developing a pomegranate-acai juice product. We will introduce new products
gradually as we gain control of more shelf space and geographic distribution,
capitalizing on economies of scale.





Marketing
and Distribution





We
produce our King of EnergyTM energy drinks at facilities utilized by known
national brands such as 7-UP®, RC Cola® and Pepsi®.  We also utilize
premier American canners – Ball Corporation on the west
coast and Rexam Beverage Can
Companyon the east coast.





We have
established distribution agreements with some of the largest and most respected
beer and beverage distributors in the United States. Our energy drinks have
received great reviews, from media to end users, which has supported our signing
on new distributors and retailers. Existing and new strategic relationships play
a large role in our expansion, and we are strategically selective in building
our distribution network. Our business strategy is to concentrate on a targeted
geographic area focusing on California, Arizona, Nevada, Florida, Texas and the
northeast United States.





Beverage
companies much larger than our organization dictate the standards of production
at our manufacturing facilities. This allows us to utilize the existing
established high standards without the expenditure of funds on developing
standards. Selection of bottlers is primarily governed by their capability to
handle 16 ounce and 8.4 ounce cans, their proximity to our geographical markets
of activity and available plant capacity, pricing, terms and storage facilities
at the plant.




A
competitive environment exists in selecting and targeting distributors. Factors
affecting the selection decision include existing distribution and
infrastructure of trucks and warehousing facilities, marketing efforts and
effectiveness, existing complementary and/or competing product lines, reputation
in the marketplace and the ability to fulfill their volume agreements. Our
choices are geared toward developing a long-term relationship with distributors,
as their efforts directly affect our revenues and profitability.





Some of
our distributors have larger territories than others, giving them the ability to
generate more revenue to the Company. Most distributors’ territory includes a
portion of a state, which is where they regularly distribute their other
products. A few distributors cover an entire state. However, we are not
dependent on any one specific distributor as there are alternate sources in most
areas.





Competition





The
beverage industry is intensely competitive and significantly affected by new
products introductions and other market activities of industry participants. The
principal areas of competition are pricing, packaging, development of new
products and flavors and marketing campaigns. Our products compete with a wide
range of drinks produced by a relatively large number of manufacturers, most of
which have substantially greater financial, marketing and distribution resources
than we do. Our King of EnergyTM energy drinks are subject to extensive
competition by numerous domestic and foreign companies. Such competitors include
Red Bull®, Rockstar®, Monster Energy® and Full Throttle® drinks, which are the industry
leaders in sales, among many others.





2


Intellectual
Property





We
manufacture, promote and sell our King of EnergyTM energy drinks under our
trademark-protected brand, Who’s Your Daddy®.  Depending upon the
jurisdiction, trademarks are valid as long as they are in use and/or their
registrations are properly maintained and they have not been found to have
become generic.  Registrations of trademarks can generally be renewed
as long as the trademarks are in use.  We have developed and own the
formula to all of the King of EnergyTM flavors and our pomegranate energy
“shot.”





Offices
and Key Personnel





Our
principal office is located at 5840 El Camino Real, Suite 108, Carlsbad,
California 92008.  Our phone number is (760) 438-5470.  Dan
Fleyshman is our President, Edon Moyal is our Chief Executive Officer and John
Moynahan is our Chief Financial Officer.





Employees





As of
March 31, 2008, we employed 7 persons, all of which were full-time. We utilize
an outside workforce of brokers, consultants and independent sales
representatives to assist us in penetrating the military, retail, vendor,
warehouse and distributor networks. None of our employees are represented by
labor unions and we believe that our employee relations are satisfactory.
Competition for qualified personnel in the industry in which we compete is
intense, particularly with respect to sales and marketing personnel, and we
expect that such competition will continue for the foreseeable future. In 2007,
we implemented an Equity Incentive Plan which is used for granting stock options
to employees as a means of attracting and keeping key individuals. We believe
that our future success will depend, in large measure, on our ability to
continue to attract, hire and retain qualified employees.





Corporate
History





We were
incorporated in the State of Nevada on October 12, 2000 under the name Cogen
Systems, Inc. We changed our name to Snocone Systems, Inc. on December 6, 2001.
On April 1, 2005, Snocone Systems, Inc. and its wholly-owned subsidiary, WYD
Acquisition Corp., a California corporation (the “Merger Sub”), completed and
closed an Agreement and Plan of Merger with Who’s Your Daddy, Inc. (“WYD”), an
unrelated, privately held California corporation, whereby the Merger Sub merged
with and into WYD. After the merger, the separate existence of the Merger Sub
ceased and, as such, WYD continued its corporate existence as a direct,
wholly-owned subsidiary of Snocone Systems, Inc. under the laws of the State of
California.





The
transaction was accounted for by our auditors as a reverse-acquisition because
control of Snocone Systems, Inc. passed to WYD’s shareholders, and WYD was
considered as the accounting acquirer and therefore its accounting history was
carried forward as our history. On April 13, 2005, the shareholders of Snocone
Systems, Inc. voted to change our name to Who’s Your Daddy, Inc.





After
developing an energy drink, we changed our primary business to the manufacture,
sale and distribution of ready-to-drink King of EnergyTM beverages centered on
our trademark-protected brand, Who’s Your Daddy®. Although our primary focus is
to expand upon sales of our energy drinks, we are exploring opportunities for
the licensing of our proprietary name Who’s Your Daddy® for products that can
take advantage of this distinctive name, including related products such as
energy bars and concentrated energy “shots.” We currently hold various trademark
rights under the Who’s Your Daddy® name in the United States and
Europe.





Research
and Development





We did
not incur any material research and development expenditures for the year ended
December 31, 2007.





3


Government
Regulation





The
production, distribution and sale in the United States of many of our products
is subject to the Federal Food, Drug and Cosmetic Act; the Dietary Supplement
Health and Education Act of 1994; the Occupational Safety and Health Act;
various environmental statutes; and various other federal, state and local
statutes and regulations applicable to the production, transportation, sale,
safety, advertising, labelling and ingredients of such products. California law
requires that a specific warning appear on any product that contains a component
listed by the State of California as having been found to cause cancer or birth
defects. The law exposes all food and beverage producers to the possibility of
having to provide warnings on their products because the law recognizes no
generally applicable quantitative thresholds below which a warning is not
required. Consequently, even trace amounts of listed components can expose
affected products to the prospect of warning labels. Products containing listed
substances that occur naturally in the product or that are contributed to the
product solely by a municipal water supply are generally exempt from the warning
requirement. While none of our products are required to display warnings under
this law, we cannot predict whether an important component of any of our
products might be added to the California list in the future. We also are unable
to predict whether, or to what extent, a warning under this law would have an
impact on costs or sales of our products.





Available
Information





Our
Internet addresses are www.whosyourdaddyinc.comand www.kingofenergy.com .   Information contained on our
website is not part of this annual report filed on Form 10-KSB.  Our
www.whosyourdaddyinc.com  website contains a link to the Commission
website which lists our Commission filings. Our annual report on Form 10-KSB and
quarterly reports on Form 10-QSB are available free of charge through this link
as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the Commission.




ITEM
      2.
            DESCRIPTION
      OF PROPERTY




We do not
own any real property. Our principal executive offices are located at a leased
premise at 5840 El Camino Real, Suite 108, Carlsbad, CA 92008. We are leasing
approximately 6,000 square feet under an agreement that commenced in March 2007
and expires in March 2012. Monthly payments under the lease are currently
approximately $9,500, gradually increasing to approximately $10,100 over the
next four years. Our leased space includes both offices and a warehouse and we
consider it adequate for the operations of our business.




ITEM
      3.
            LEGAL
      PROCEEDINGS




On July
19, 2006, the Company received a Demand for Arbitration filed with the American
Arbitration Association from Greg Sacks seeking damages arising out of a
sponsorship contract between the parties. On February 13, 2007, the Arbitrator
awarded Sacks Motorsports Inc. $1,790,000. This amount was taken as an expense
in the quarter ending December 31, 2006 and is fully reserved on the balance
sheet. On August 6, 2007, the Company filed a petition in U.S. District Court
asking the judge to either: (1) order the arbitrator to reopen the arbitration
and allow for discovery regarding what we believe to be significant new evidence
to have the award vacated; or (2) to allow us to conduct such discovery in the
U.S. District Court proceeding regarding what we believe to be significant new
evidence to have the award vacated.  Subsequently, the arbitrator
refused to reopen the matter and the judge granted a motion for us to file an
amended petition to allow for discovery in the U.S. District Court. This motion
was filed on December 3, 2007. The Company currently is engaged in the discovery
process and believes that it has solid grounds to contest this arbitration award
for fraudulent conveyance, but there can be no assurance that the Company’s
belief will be supported from a legal standpoint.





On May 8,
2007, we were served with a summons and complaint in a lawsuit filed in the San
Diego Superior Court by Christopher Wicks and Defiance U.S.A., Inc. seeking
judgment against the Company, Edon Moyal and Dan Fleyshman under a contract
allegedly calling for the payment by the Company of $288,000, stock in the
Company’s wholly-owned subsidiary, Who’s Your Daddy, Inc., a California
corporation, plus a certain percentage of the revenues of that subsidiary. On
February 1, 2008, we entered into a Settlement Agreement and Mutual Release with
the plaintiffs pursuant to which the Company agreed to pay to the plaintiffs the
sum of $252,000 under a payment schedule detailed therein. As security for the
settlement payment, defendants Fleyshman and Moyal together pledged 319,294
shares of common stock in the Company owned and held by them.





4





On March
19, 2008, a complaint was filed against the Company by Get Logistics, LLC
(formerly known as GE Transport) seeking damages of $30,278.72 for unpaid
shipping charges. The Company currently is assessing its options and possible
defenses, and plans to timely file a response to the action.





On April
1, 2005, we received a complaint filed by Who’s Ya Daddy, Inc., a Florida
corporation (“Daddy”), alleging that we were infringing on Daddy’s trademark,
Who’s Ya Daddy®, with
respect to clothing. On April 7, 2006, we entered into a settlement agreement
with Daddy pursuant to which we were granted an exclusive license to use our
marks on clothing in exchange for a royalty payment of 6% of gross sales for
clothing products in the United States, excluding footwear. As part of the
settlement, we also agreed to remit to Daddy 12% of the licensing revenues
received from third parties who we granted sublicense to for use of the marks on
clothing. We have not made any of the required payments under the settlement
agreement.  On March 26, 2008, the each of the Company, Dan Fleyshman
and Edon Moyal received a Notice of Levy from the United States District Court
for the Southern District of California in the amount of $143,561 allegedly
pursuant to the terms of the settlement agreement with Daddy. We are currently
negotiating with Daddy to determine the amounts actually and properly owed by
the Company under the settlement agreement.





Our agent
for service of process is Joy Metzger, 5840 El Camino Real, Suite 108, Carlsbad,
California 92008.





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





On
October 1, 2007, the Company’s Board of Directors approved a six to one reverse
split of the Company’s stock, which was approved on October 12, 2007, by the
direct consent of a majority of shares eligible to vote as of September 30,
2007.  The reverse split became effective on October 30,
2007.





PART
II





ITEM
      5.
            MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER
  MATTERS





Market
Information





Our
common stock is currently quoted under the symbol “WYDI.OB” on the OTC Bulletin
Board, which is a network of securities dealers who buy and sell
stock.  The dealers are connected by a computer network that provides
information on current “bids” and “asks,” as well as volume
information.





The
following table reflects on a per share basis the reported high and low bid
prices of our Common Stock for each quarter for the period indicated as reported
by the OTC Bulletin Board. Such prices are inter-dealer prices without retail
mark-up, mark-down, or commission and may not represent actual
transactions.  The information provided in the table below reflects
the per share price after taking into consideration the 6-for-1 reverse stock
split of all of our outstanding common stock effective October 30,
2007.





5





YEAR ENDED DECEMBER
      31, 2006QUARTER
      ENDED
            
            HIGH
            
            
            LOWMarch
      31, 2006
            
            $
            7.62
            
            
            $
            4.08June
      30, 2006
            
            $
            6.24
            
            
            $
            2.10September
      30, 2006
            
            $
            6.42
            
            
            $
            2.28December
      31, 2006
            
            $
            8.22
            
            
            $
            4.20YEAR ENDED DECEMBER
      31, 2007QUARTER
      ENDED
            
            HIGH
            
            
            LOWMarch
      31, 2007
            
            $
            6.48
            
            
            $
            3.21June
      30, 2007
            
            $
            7.74
            
            
            $
            3.72September
      30, 2007
            
            $
            4.92
            
            
            $
            1.62December
      31, 2007
            
            $
            2.43
            
            
            $
            0.18





Holders
of Common Stock





According
to the records of our transfer agent, Holladay Stock Transfer, and based on past
results of proxy solicitations, the Company believes that as of April 15, 2008
there were approximately 1,200 holders of record of our common
stock.





Dividends





There are
no restrictions in our articles of incorporation or bylaws that prevent us from
declaring dividends. We have not paid dividends in prior years and have no plans
to pay dividends in the near future. We intend to reinvest earnings in the
continued development and operation of its business. Any payment of dividends
would depend upon our growth, profitability, financial condition and such other
factors as the board of directors (the “Board”) may deem relevant.





Reverse
Stock Split




On
October 1, 2007, the Board approved a 6-for-1 reverse stock split of all of our
outstanding common and preferred stock. As a result of the reverse stock split,
effective October 30, 2007, the number of outstanding common shares was reduced
from 30,901,127 to 5,150,188, as of October 30, 2007, and the number of our
outstanding preferred stock was reduced from 2,000,000 to 333,333. Upon the
effectiveness of the reverse stock split, our trading symbol changed from “WYDY”
to “WYDI”. All references to our common stock in the balance of this Report have
been restated to reflect the reverse stock split.





Sales
of Unregistered Securities





During
the year ended December 31, 2007, we issued: (1) 2,220,922 restricted shares to
various investors for cash under the general exemption provided by section 4(2)
of the Securities Act; (2) 178,852 restricted shares for services and operating
expenses; (3) 750,000 restricted shares together with 333,333 options at $3.00
per share for extinguishment of debt; (4) 893,236 restricted shares for
conversion of accounts payable and loans into common stock, and (5) 443,505
restricted shares to repurchase inventory from a distributor.


6


Equity
Compensation Plan Information





The
following table gives information about our common stock that may be issued upon
the exercise of options under all of the Company’s equity compensation plans as
of December 31, 2007. The table includes the 2007 Equity Incentive
Plan.





Plan
      Category
            
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
            
            
            Weighted-average
      exercise price of outstanding options, warrants and rights
            
            
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in
    column(a)
            
            
            (b)
            
            
            (a))(c)Equity
      compensation plans approved by security holders
            
            
            0
            
            
            
            0
            
            
            
            833,334Equity
      compensation plans not approved by security holders
            
            
            2,434,177
            
            
            $
            8.28
            
            
            
            N/ATOTAL
            
            
            2,434,177
            (1)
            
            $
            8.28
            
            
            
            833,334





(1)
Consists of (a) options to purchase 1,411,167shares of stock by employees at a
weighted average stock price of $9.09, with strike prices ranging from $6.00 to
$12.00 per share, with an average weighted life of 3.2 years, and (b) warrants
to purchase 1,023,010 shares at a weighted average stock price of $7.16, with
strike prices ranging from $0.75 to $12.00, with an average weighted life of 3.5
years.





ITEM
      6.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS





Forward-Looking
Statements





The
following discussion should be read in conjunction with our audited financial
statements and notes thereto for the fiscal year ended December 31, 2007,
included elsewhere in this Report. The following Management’s Discussion and
Analysis or Plan of Operations contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act, and Section 21E of the Exchange
Act. We intend that these forward-looking statements be subject to the safe
harbors created by those provisions. Forward-looking statements, which are based
on certain assumptions and describe future plans, strategies and expectations of
the Company, are generally identifiable by use of the words “expects,”
“anticipates,”  “intends,”  “plans,”  “believes,”  “seeks,”  “estimates,”
“projects” or similar variations of these words and
expressions.  Actual results may materially differ from any
forward-looking statements. Factors that might cause or contribute to such
differences include, among others: competitive pressures, changes in economic
conditions, legislative/regulatory changes, availability of capital, interest
rates, generally accepted accounting principles, constantly changing technology
and market acceptance of the Company’s products and services.  These
risks and uncertainties should be considered in evaluating forward-looking
statements, and the Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements, which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Readers are expressly advised to review and
consider those Risk Factors set forth below in this Item 6.





The
Company





The
business strategy behind our King of EnergyTM energy drinks focuses on
maintaining the edge, energy and humor behind our brand, while continuing to
build brand awareness and recognition. Our target market includes young adults
who seek alternatives to bad tasting energy drinks, coffee and other stimulants.
As part of our strategy, we have developed products and events that appeal to
this group, and we continue to assess opportunities to expand our product lines
and distribution worldwide.





Our King
of EnergyTM energy drinks come in two flavors and four distinct formulas. We have
Regular and Sugar-Free versions of our unique cranberry-pineapple flavor, and
Regular and Sugar-Free versions of our Green Tea flavor. We introduced our
Regular Green Tea beverage in July 2006, and ours is one of the first Green Tea
beverages for the energy drink market. In February 2007, we began shipping our
Sugar-Free Green Tea flavored beverage. For this product, we are targeting women
and the more mature generation who are interested in the anti-oxidants,
cleansing and weight loss features of Green Tea. This expands the scope of
retailers who can carry our products, since many Green Tea retailers do not
carry energy drinks.





7


After
testing and experimenting with flavors and taking approximately 50 different
formulas through “blind” taste tests, we selected the Cranberry-Pineapple flavor
for our flagship product. By far, this formulation was found to enjoy the
broadest consumer appeal with the target demographic group due to its appealing
taste, the lack of typical “after-taste,” and by providing a solid “hook” for
the consumer and retailer. In 2007, we distributed 4 flavors of our King of
EnergyTM energy drinks – Cranberry-Pineapple in Regular and Sugar-Free and Green
Tea in Regular and Sugar-Free. Unlike many of the other energy drinks on the
market, our King of EnergyTM energy drinks taste good and are similar to drinking
a soda or fruit punch. Formulated with taurine and caffeine, our energy drinks
are designed to energize and improve mental performance while increasing
concentration, alertness and physical endurance.





In
February 2008, we expanded our sales programs to include the United States
military, with the objective of supplying our King of EnergyTM energy drinks to
at least 20 military bases by the end of 2008.  In this effort, we
intend to produce a commemorative can acknowledging the Army, Navy, Air Force,
Marine Corps and Coast Guard. A portion of the proceeds from our commemorative
cans will be donated to Fisher House, a non-profit organization providing
housing to families of injured soldiers requiring specialized, extended away
care, and the Wounded Warriors Project, a non-profit organization helping
severely injured service members to aid and assist each other through unique
programs and services meeting special needs.





We are
actively developing new flavors of our King of EnergyTM energy drinks and
November 2007 announced the development of our concentrated 2 ounce, sugar-free
energy “shot” with antioxidants, pomegranate extract, caffeine, taurine,
guarana, ginseng and a vitamin B complex. Depending on our ability to raise
capital, we anticipate marketing and selling our pomegranate “shot” sometime in
mid-2008. In addition, we are currently developing a pomegranate-acai juice
product. We will introduce new products gradually as we gain control of more
shelf space and geographic distribution, capitalizing on economies of
scale.





The
Industry





Energy
drinks are beverages with legal stimulants, vitamins, and minerals that give
users a lift of energy.  Common ingredients are caffeine, taurine,
ginseng, sugars, and various amounts of vitamins and minerals.  The
product is consumed by individuals who are explicitly looking for the extra
boost in energy – college students, the on-the-go average person, and those
seeking an alternative to coffee. Over the last few years, the United States
energy drink sector has witnessed strong growth of over 40% in 2006 to $5
billion dollars in the United States, and is projected to reach $8 billion by
2009, according to Beverage Digest.





Results
of Operations





As set
forth in the Report on Form 8-K filed on November 19, 2007, we concluded on
November 14, 2007 that our accounting for the following items required changes
to conform to applicable accounting guidelines and that these changes required
the restatement of its financial statements for the applicable
periods.





1.
Callable Secured Convertible Notes issued on April 27, 2005 and on October 11,
2005 ("Convertible Notes") aggregating $1,750,000, with non-conventional
conversion features and related warrants;





2.
Amendment of the conversion price on our Convertible Notes on December 5,
2006;





3.
Changes in fair value of derivatives at each reporting date;





4.
Valuation of issuances of common stock and stock options to employees and
consultants; and





5.
Extinguishment of the Convertible Notes on May 7, 2007.





8


Our
critical accounting policies are described below.  The accounting
policies regarding equity compensation, free-standing or embedded derivative
instruments, registration rights arrangements and the extinguishment of its
Convertible Notes were incorrectly applied by prior management responsible for
financial reporting.  We retained a financial expert to assist us in
the application of our critical accounting policies.




We have
completed our analysis of the impact of the above non-cash adjustments to our
financial statements and we restated our financial statements as of December 31,
2005 and for the year ended December 31, 2006.  A summary of the
effects are as follows:
  On
December 5, 2006, we amended the conversion price per share on the Convertible
Notes from $2.52 to $2.21.  Subsequently, we determined the amendment
resulted in a material modification which required the application of
extinguishment accounting. This extinguishment resulted in a charge to the
statement of operations of $452,876 in 2006.





During
the year ended December 31, 2006, through the date of extinguishment on May 7,
2007, the Company was required to record its derivatives at fair value at each
reporting period; however, management did not account for such items
correctly.  The Company recorded a charge to operations for the change
in the fair value of the ECF and warrants totalling a $1,356,655 loss during the
year ended December 31, 2006, and a gain of $2,563,074 in 2007 through the date
of extinguishment on May 7, 2007.





The
Company issued stock options and warrants issued to employees and consultants
which were not valued correctly and expensed in accordance with SFAS No. 123R
and  Emerging Issues Task Force (“EITF”) No. 96-18 as discussed
below.  Options granted to consultants during 2005 and 2006 were not
accounted for correctly.   Non-cash expenses for options granted
to employees during 2005 and remaining unvested at December 31, 2005, were not
accounted for correctly under SFAS 123R, and the cost was not recognized over
the remaining service period starting January 1, 2006.





On May 7,
2007, we entered into an agreement (“Exchange Agreement) with Around the Clock
Partners, LP, Cohiba Partners Inc. (collectively “New Investors”) and the
holders of $1,750,000 of our previously outstanding Convertible Notes, whereby
we assigned, and the New Investors assumed our rights and obligations under the
Convertible Notes.  Concurrently, the New Investors exercised their
rights and purchased the Convertible Notes together with 146,028 warrants to
purchase common stock from the holders in exchange for payment of $1,000,000 and
the transfer of 333,333 shares of the Company’s common stock held by the New
Investors.  The New Investors concurrently exchanged the Convertible
Notes and warrants with us for 750,000 shares of our common stock and a call
option to purchase up to 333,333 shares of our common stock at a purchase price
of $3.00 per share, exercisable for sixty days after the closing of the
financing.  In November 2007, the New Investors exercised 83,333 of
these warrants resulting in proceeds to us of $250,000. The extinguishment
resulted in an extinguishment gain to the statement of operations of
$2,624,784.  See Note 14 to the Financial Statements. Our original
accounting for the three and six months ended June 30, 2007 did not consider the
extinguishment of the underlying derivative liabilities.





Critical
Accounting Policies





Our
financial statements are prepared in accordance with accounting principles
generally accepted in the U.S., which requires us to make estimates and
assumptions in certain circumstances that affect amounts reported. In preparing
these financial statements, management has made its best estimates and judgments
of certain amounts, giving due consideration to materiality. We believe that of
our significant accounting policies (more fully described in notes to the
financial statements), the following are particularly important to the portrayal
of our results of operations and financial position and may require the
application of a higher level of judgment by our management, and as a result are
subject to an inherent degree of uncertainty.





9


Estimates


Our
discussion and analysis of our financial condition and results of operations are
based on our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States 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. By their nature, these estimates and judgments are subject to
an inherent degree of uncertainty. We review our estimates on an on-going basis,
including those related to sales allowances, the allowance for doubtful
accounts, inventories and related reserves, long-lived assets, income taxes,
litigation and stock-based compensation. We base our estimates on our historical
experience, knowledge of current conditions and our beliefs of what could occur
in the future considering available information. Actual results may differ from
these estimates, and material effects on our operating results and financial
position may result. We believe the following critical accounting policies
involve our more significant judgments and estimates used in the preparation of
our financial statements.





Revenue
Recognition


Revenue
is recognized when products are delivered to the customer which occurs when
goods are shipped and title and risk of loss transfer to the customer, in
accordance with the terms specified in the arrangement with the customer.
Revenue recognition is deferred in all instances where the earnings process is
incomplete based on the criteria listed above. As of December 31, 2007 and 2006,
we did not have any revenues that were required to be deferred. Management
provides for sales returns and allowances in the same period as the related
revenues are recognized. Management bases their estimates on historical
experience or the specific identification of an event necessitating a
reserve.





In
accordance with EITF 01-9, “Accounting for Consideration Given by a Vendor to a
Customer,” slotting fees, buydowns, cooperative advertising and other reductions
and incentives given by the Company to its customers are included as a reduction
of revenue, rather than as a cost of goods sold.





Slotting
fees paid to a customer are generally amortized over the life of the slotting
agreement which is typically one year and included as reduction of
revenues.





Stock-Based
Compensation


We
account for stock-based compensation in accordance with SFAS No. 123R,
“Share-Based Payment.” SFAS 123R requires that we account for all stock-based
compensation transactions using a fair-value method and recognize the fair value
of each award as an expense, generally over the service period. The fair value
of stock options is based upon the market price of our common stock at the grant
date. We estimate the fair value of stock option awards, as of the grant date,
using the Black-Scholes option-pricing model. The use of the Black-Scholes model
requires that we make a number of estimates, including the expected option term,
the expected volatility in the price of our common stock, the risk-free rate of
interest and the dividend yield on our common stock. If our expected option term
and stock-price volatility assumptions were different, the resulting
determination of the fair value of stock option awards could be materially
different and our results of operations could be materially
impacted.





Accounting
for Non-Employee Stock-Based Compensation


We
measure compensation expense for non-employee stock-based compensation under the
Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF)
Issue No. 96-18, “Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services”. The fair value of the
option issued or expected to be issued is used to measure the transaction, as
this is more reliable than the fair value of the services received. The fair
value is measured at the value of our common stock on the date that the
commitment for performance by the counterparty has been reached or the
counterparty's performance is complete. In the case of the issuance of stock
options, we determine the fair value using the Black-Scholes option pricing
model. The fair value of the equity instrument is charged directly to
stock-based compensation expense and credited to additional paid-in
capital.





10


Modifications
to Convertible Debt


The
Company accounts for modifications of ECFs in accordance with EITF 06-6 “Debtors
Accounting for a Modification (or exchange) of Convertible Debt
Instruments”.  EITF 06-6 requires the modification of a convertible
debt instrument that changes the fair value of an ECF be recorded as a debt
discount and amortized to interest expense over the remaining life of the
debt.  If modification is considered a substantial (i.e. greater than
10% of the carrying value of the debt), an extinguishment of the debt is deemed
to have occurred, resulting in the recognition of an extinguishment gain or
loss.





Derivative
Financial Instruments


Derivative
financial instruments, as defined in SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities,”, consist of financial instruments or other
contracts that contain a notional amount and one or more underlying (e.g.
interest rate, security price or other variable), that require no initial net
investment and permit net settlement.  Derivative financial
instruments may be free-standing or embedded in other financial instruments.
Further, derivative financial instruments are initially, and subsequently,
measured at fair value and recorded as liabilities or, in rare instances,
assets.





The
Company does not use derivative financial instruments to hedge exposures to
cash-flow, market or foreign-currency risks.  However, the Company has
convertible debt with features that are either (i) not afforded equity
classification, (ii) embody risks not clearly and closely related to host
contracts, or (iii) may be net-cash settled by the counterparty.  As
required by SFAS 133, in certain instances, these instruments are required to be
carried as derivative liabilities, at fair value, in its financial
statements.





The
Company estimates the fair values of its derivative financial instruments using
the Black-Scholes option valuation model because it embodies all of the
requisite assumptions (including trading volatility, estimated terms and risk
free rates) necessary to fair value these instruments.  Estimating
fair values of derivative financial instruments requires the development of
significant and subjective estimates that may, and are likely to, change over
the duration of the instrument with related changes in internal and external
market factors.  In addition, option-based techniques are highly
volatile and sensitive to changes in the trading market price of the Company’s
common stock, which has a high-historical volatility.  Since
derivative financial instruments are initially and subsequently carried at fair
values, the Company's operating results will reflect the volatility in these
estimate and assumption changes.




Equity
Instruments Issued with Registration Rights Agreement
 We
account for these penalties as contingent liabilities, applying the accounting
guidance of SFAS No. 5, “Accounting for Contingencies” as required by FASB Staff
Positions FSP EITF 00-19-2 “Accounting for Registration Payment Arrangements”,
which was issued December 21, 2006. Accordingly, we recognize the damages when
it becomes probable that they will be incurred and amounts are reasonably
estimable.





Results
of Operation





Results
of Operations for the Years Ended December 31, 2007 and 2006
(restated)





Sales


Our sales
consist of energy drinks products sold to distributors and retail
stores.  Our sales are recorded at the selling price, less promotional
allowances, discounts and fees paid to obtain retail shelf space (referred to as
“shelving” or “slotting” fees).





During
2007, we generated $981,919 in revenue from sales of our energy drink, compared
to $1,189,057 in 2006, a decrease of $207,138, or 17%.  The change
resulted from our repurchase of $402,358 of previously sold products to a
distributor that ceased operations in 2007.





Gross
Profit


Our gross
profit represents revenues less the cost of goods sold. Our cost of goods sold
consists of the costs of raw materials utilized in the manufacturing of
products, packaging fees, repacking fees, in-bound freight charges, and internal
and external warehouse expenses. Raw materials account for the largest portion
of the cost of sales. Raw materials include costs for cans, ingredients and
packaging materials.





11


Our gross
profit during 2007 was $356,886, compared to $503,141 in 2006, a change of
$146,255, or 29%.  Our gross margin was 36%, compared to 42% in
2006.  The change in our gross margin in 2007 from 2006 resulted from
the reversal of approximately $60,000 of revenues from a distributor who did not
pay the company in full for its purchases and from whom the Company has not be
able to reclaim product, resulting in the revenues not being recognized but the
cost of sales being recognized in full.





Selling
and Marketing Expenses


Our
selling and marketing expenses include personnel costs for sales and marketing
functions, advertising, product marketing, promotion, events, promotional
materials, professional fees and non-cash, stock-based
compensation.





Sales and
marketing expenses for fiscal 2007 were $2,348,146, compared to $1,016,183 in
2006, a change of $1,331,963, or 131%.  The change was attributable to
the additional personnel, travel and promotional events.





General
and Administrative Expenses


Our
general and administrative expenses include personnel costs for management,
operations and finance functions, along with legal and accounting costs, bad
debt expense, insurance and non-cash, stock-based compensation.





General
and administrative expenses for 2007 were $5,002,858, compared to $5,560,548 in
2006, a reduction of $557,690.  The change was primarily attributable
to a decrease in non-cash, stock-based compensation, offset by increases in
professional fees and personnel costs.  The change in stock-based
compensation was attributable to granting stock options to certain executives
that vested immediately in 2006.  Non-cash, stock-based compensation
employees was $1,301,500 in 2007, a decrease of $713,162, from $2,014,662 in
fiscal 2006, as a number of options were granted in 2006 with immediate vesting,
resulting in all the expense taken in that year rather than over a multi-year
vesting period.  In 2006, the Company incurred a $428,800 penalty for
termination of an investment banking agreement with no comparable expense in
2007.  Professional fees increased by $290,926 in 2007 related to
higher legal fees for the legal actions described in Footnote 10 and higher
audit fees for restatement of prior work and startup costs associated with the
hiring of new auditors, officer’s salaries increased by $236,819 related to
higher salary levels, and registration penalties increased by $161,877 related
to the accrual of registration rights penalties for financings done in 2005 and
2007.





Arbitration
Accrual


During
2006, we received a Demand for Arbitration filed with the American Arbitration
Association from Greg Sacks seeking damages arising out of a sponsorship
contract between the parties and recorded a reserve for such amounts. There was
no comparable expense in 2007.





Interest
Expense


Our
interest expense includes amounts related to debt instrument, cash-based
interest, registration rights penalties and non-cash based
interest.  Non-cash based is attributable to the accretion of debt
discounts for our previously outstanding Convertible Notes.





During
2007, interest expense was $604,524, compared to $1,358,584 in 2006, a decrease
of $754,060, or 56%.  Interest expense during 2007 and 2006, included
non-cash interest expense for the accretion of the debt discounts on our
Convertible Notes of $97,195 and $1,037,497, respectively. We also incurred
registration right penalties of $286,427 and $124,550 in 2007 and 2006,
respectively. The remaining interest expense was attributable to cash-based
interest on the Convertible Notes and other debt, while
outstanding.





Change
in Fair Value of Derivative Liabilities


During
2005, we issued Convertible Notes which contained embedded conversion features
and warrants which were deemed to be derivative instruments, requiring
bifurcation from the respective host instrument. The changes in the fair value
have been recorded in each reporting period while these instruments were
outstanding.  These instruments were cancelled during
2007.





12


During
2007, we recognized a non-cash gain of $2,624,784 for the change in the fair
value of the derivative liabilities, from January 1, 2007 to May 7, 2007 (for
the period immediately prior to extinguishment).  The change resulted
from a decrease in our stock price from December 31, 2006.  During
2006, we recognized non-cash losses of $1,356,655 due to a net increase in our
stock price from December 31, 2005.





Gain
on the Extinguishment of Debt


During
2007, we recognized a non-cash gain on the extinguishment of our Convertible
Notes in connection with the Exchange Agreement of $2,624,784. The non-cash gain
of from the extinguishment of our Convertible Notes represented the difference
in the fair value of the derivative liabilities, carrying value of the notes,
and accrued interest, less the fair value of the common stock and warrants
issued to the New Investors.





We also
entered into settlement agreements with certain vendors to pay the outstanding
balances through the issuance of common stock.  As a result of the
settlements, we recognized a net loss of $95,189 which resulted from the
difference in the carrying value of the payables and the fair market value of
our common stock on the date of issuance. We realized  non-cash gains
of $165,655 and $186,270 by using stock to repurchase inventory and settle
payables with a distributor.  We also realized a non-cash gain of
$210,746 through the issuance of common stock to settle a line of credit with
the same distributor.


Other
Expenses, Net


Other
expenses during 2007 totalled $10,755, compared to $0 in 2006.





Income
Tax Benefit


The
benefit from income taxes for the year ended December 31, 2007 and 2006 resulted
from operating losses incurred. Such losses were recognized to the extent of our
deferred income tax liabilities. The amount of our deferred tax assets in excess
of our liabilities have been recorded as deferred tax assets, which have been
provided a valuation allowance of approximately $7,560,002. As a result of
our operating losses and our expectation of future operating results, we
determined that it is more likely than not that the U.S. federal and state
income tax benefits (principally net operating losses we can carry forward to
future years) which arose during the years ended December 31, 2007 and 2006 will
not be realized. We do not expect to recognize any income tax benefits relating
to future operating losses until we believe that such tax benefits are more
likely than not to be realized.





Liquidity
and Capital Resources





The
report of our independent registered public accounting firm on the financial
statements for the year ended December 31, 2007 contains an explanatory
paragraph expressing substantial doubt about our ability to continue as a going
concern as a result of recurring losses, a working capital deficiency, and
negative cash flows. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that would be necessary if we are
unable to continue as a going concern.





Our
principal sources of liquidity consist of cash and cash equivalents, cash
generated from product sales and the issuance of debt and equity
securities.  In addition to funding operations, our principal
short-term and long-term liquidity needs have been, and are expected to be, the
service of debt, capital expenditures, the funding of operating losses until we
achieve profitability, and general corporate purposes. In addition, commensurate
with our level of sales, we require working capital for purchases of inventories
and sales and marketing costs to increase the distribution of our products. At
December 31, 2007, our cash and cash equivalents were $145, and we had negative
working capital of $4,202,702. Included as a reduction to our working capital is
$1,790,000 of accrued litigation judgments which we are appealing, however
cannot provide assurances as to whether our efforts will be
successful.  At December 31, 2007, we had $412,500 in debt
obligation of which $150,000 is due upon demand and $262,500 is in
default.





During
2005, we issued Convertible Notes for gross proceeds $1,250,000 ($1,130,000 net
of costs).  On May 7, 2007, we entered into an agreement (“Exchange
Agreement”) with Around the Clock Partners, LP, Cohiba Partners Inc.
(collectively “New Investors”) and the holders of $1,750,000 of our previously
outstanding Convertible Notes, whereby we assigned, and the New Investors
assumed our rights and obligations under the Convertible
Notes.  Concurrently, the New Investors exercised their rights and
purchased the Convertible Notes together with 146,028 warrants to purchase
common stock from the holders in exchange for payment of $1,000,000 and the
transfer of 333,333 shares of the Company’s common stock held by the New
Investors.  The New Investors concurrently exchanged the Convertible
Notes and warrants with us for 750,000 shares of our common stock and a call
option to purchase up to 333,333 shares of our common stock at a purchase price
of $3.00 per share, exercisable for sixty days after the closing of the
financing.  In November 2007, the New Investors exercised 83,333 of
these warrants resulting in proceeds to us of $250,000.





13


On August
31, 2006, we entered into a revolving line of credit for $250,000 with an entity
affiliated with our largest distributor. During 2007, both parties agreed to
increase the line of credit to $314,392.  On December 7, 2007, we
repaid the amount outstanding of $314,392 through the issuance of 345,486 shares
of common stock.





On
December 7, 2007, the Company reached an agreement with its largest distributor
to purchase $402,358 of the Company’s finished products that had been purchased
by this distributor in exchange for 443,505 shares of common stock, equivalent
to $0.91 per share. The Company also agreed to settle a total of $408,000 owed
to this distributor for sales and marketing expense paid by this distributor,
through the issuance of 449,725 shares of common stock, equivalent to $0.91 per
share.





During
2007, we sold 2,220,922 shares of common stock for aggregate proceeds of
$3,572,785.





On
September 27, 2006, we entered into an agreement with our former legal counsel
to convert $395,405 of outstanding accounts payable into a promissory
note.  We granted a first priority security interest in all of our
trademarks and associated goodwill.  The agreement required us to pay
$100,000 on or before September 30, 2007 with monthly payments of (i) $2,500
commencing November 1, 2006 through January 1, 2007; (ii) $5,000 per month
commencing February 1, 2007 through April 1, 2007, (iii) $7,500 per month on May
1, 2007 through July 1, 2007; and (iv) $10,000 per month on August 1, 2007 until
September 30, 2007. In addition, $200,000 shall be paid at the closing of any
financing of at least $3,500,000.  As of December 31, 2007 and 2006,
the balance outstanding was $262,500 and $295,000, respectively.  As
of December 31, 2007 and through the date of this report, we are in default for
non-payment as required.  There have been no actions taken by this
vendor to exercise its rights under the agreement.





We
believe that our existing sources of liquidity will be sufficient to fund our
operations into the second quarter of 2008. We are currently seeking additional
financing to fund our business.  Management is currently seeking to
raise additional capital through our investment banker and other sources. In the
near future, we anticipate we will be able to raise a minimum of $5,000,000,
which will be used for operational expenses, production and selling
expenses.  Due to the highly competitive nature of the beverage
industry, our expected operating losses in the foreseeable future and the credit
constraints in the capital markets, we cannot assure you that such financing
will be available to us on favorable terms, or at all.  If we cannot
obtain such financing, we will be forced to curtail our operations or may not be
able to continue as a going concern, and we may become unable to satisfy our
obligations to our creditors. In such an event we will need to enter into
discussions with our creditors to settle, or otherwise seek relief from, our
obligations.





Cash
Flows





The
following table sets forth our cash flows for the years ended December
31,:




Year
      Ended December 31,2007
              
              
              2006
              
              
              ChangeProvided
      by (used in)Operating
      activities
              
              $
              (3,339,916
              )
              
              $
              (1,530,208
              )
              
              $
              (1,809,708
              )Investing
      activities
              
              
              (112,904
              )
              
              
              (26,683
              )
              
              
              (86,221
              )Financing
      activities
              
              
              3,447,506
              
              
              
              1,559,373
              
              
              
              1,888,133$
              (5,314
              )
              
              $
              2,482
              
              
              $
              (7,796
              )


Operating
Activities


Operating
cash flows during 2007 reflect our net loss of $1,934,947, offset by changes in
working capital of $1,772,554 and non-cash expenses (depreciation, amortization
of intangible assets, extinguishment of debt, change in derivative liabilities,
accretion of debt discounts and stock-based compensation) of $3,177,523. The
change in working capital requirements is primarily related to an
increase of $851,317 in accounts payable and a $1,082,771 increase in
accrued expenses.  The change in non-cash expenses is primarily
related to gains on extinguishment of debt and creditor settlements of
$3,092,266 and a change in fair value of derivative liabilities of $2,563,074,
offset by common stock issued for services rendered of $1,011,965.





Operating
cash flows during 2006 reflect our net loss of $10,579,629 and changes in
working capital requirements, substantially offset by non-cash charges
(depreciation, amortization, stock-based compensation, accretion of debt
discounts, change in derivative liabilities and stock-based compensation) of
$6,431,343.  We also had changes in working capital of $2,618,078,
primarily attributable to a $1,790,000 accrual for an arbitration award against
us and an increase in accounts payable.





14


Investing
Activities


Cash used
in investing activities during 2007 was $112,904, which consisted primarily of
the cost of trademarks.  During 2006, cash used was $42,079 for
capital expenditures and trademarks.





Financing
Activities


During
2007, cash provided by financing activities was $3,447,506.  The
increase was attributable to the sale of sale of common stock resulting in
proceeds of $3,480,006, partially offset by the repayment of $32,500 in notes
payable.





During
2006, cash provided by financing activities was $1,559,373, which resulted from
proceeds from the sale of common stock of $1,190,456 and net loan proceeds of
$368,917.





Disclosure
of Contractual Obligations





The
following table summarizes our commitments to settle contractual obligations in
cash as of:




Year
      ending December 31,2008
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              TotalDebt
      obligations
              
              
              $
              412,500
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              412,500Litigation
      settlements
              
              
              
              65,000
              
              
              
              60,000
              
              
              
              45,000
              
              
              
              75,000
              
              
              
              7,000
              
              
              
              252,000Operating
      leases
              
              
              
              115,150
              
              
              
              113,114
              
              
              
              117,073
              
              
              
              121,170
              
              
              
              20,310
              
              
              
              486,817$
              592,650
              
              
              $
              173,114
              
              
              $
              162,073
              
              
              $
              196,170
              
              
              $
              27,310
              
              
              $
              1,151,317


The
above does not include the arbitration award of $1,790,000 noted in the legal
footnote.  The Company is vigorously contesting this
award.




Off
Balance Sheet Arrangements





We have
no off balance sheet arrangements.





Risk
Factors





Our
business and prospects are subject to the following material risks described
below. The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us, or that we
currently believe to be immaterial, may also adversely affect our
business.




Risks
Relating to Our Business




Our
auditor has raised substantial doubt about our ability to continue our
business.  We need to obtain sufficient liquidity to continue as a
going concern if our business is to achieve profitability.




In the
Report of Independent Registered Public Accounting Firm, dated April 12, 2007,
issued in connection with the audit of fiscal year 2006, our auditors noted that
the financial statements in the 2006 Annual Report on Form 10-KSB have been
prepared assuming that the Company will continue as a going concern. The Company
has not attained profitable operations and is dependent upon obtaining adequate
financing to fulfill its development activities. By issuing this opinion, our
auditors have indicated that they are uncertain as to whether we have the
liquidity and capability to continue our operations.  If we are unable
to generate significant revenue and/or raise additional financing, we will not
have sufficient funds to continue our business.




If
we do not obtain additional financing, our business will fail.




We have
experienced significant operating losses since our inception in October
2005.  The Company has incurred losses of $10,579,629 for the year
ended December 31, 2006; $1,934,947 in losses for the year ended December 31,
2007; $26,484,509 in cumulative losses since inception and has a working capital
deficit of $4,202,702 as of December 31, 2007. We will continue to have a high
level of operating expenses and will require additional funds to implement our
current business strategy until we can generate revenues sufficient to fund our
operations. If we cannot obtain these funds, we will not be able to
complete our business plan or achieve or sustain profitability. We do not
currently have any arrangements for financing, and we can provide no assurance
to investors that we will be able to find such required financing on
advantageous terms, or at all.




15




Terms
of subsequent financings may affect our stock price and affect stockholders’
liquidity.




Our
stockholders’ rights and the value of our stock could be reduced by the terms of
any subsequent financing. For example, if we have to issue secured debt
securities, the holders of the debt would have a claim to our assets that would
be prior to the rights of stockholders until the debt is paid. Interest on these
debt securities would increase costs and negatively impact operating results.
Preferred stock could be issued in series from time to time with such
designations, rights, preferences, and limitations as needed to raise capital.
The terms of preferred stock could be more advantageous to those investors than
to the holders of common stock. In addition, if we need to raise more equity
capital from sale of common stock, institutional or other investors may
negotiate terms that negatively impact our current stockholders.




If
we are not able to retain the full-time services of senior management, it may
have an adverse effect on our operations and/or our operating performance until
we find suitable replacements.




Our
business is dependent, to a large extent, upon the services of our senior
management. We do not maintain key person life insurance for any members of our
senior management. We currently have employment agreements with Messrs. Moyal
and Fleyshman which end on December 31, 2010 and an employment agreement with
Mr. Moynahan that ends on May 9, 2010. Messrs. Moyal and Fleyshman deferred
significant portions of their respective salaries in 2007 and continue to do so
thus far in 2008. Mr. Moynahan is deferring a significant portion of his salary
until the Company achieves certain revenue and funding targets.  The
loss of services of either of these persons or any other key members of our
senior management could adversely affect our business until suitable
replacements can be found. There may be a limited number of personnel with the
requisite skills to serve in these positions and we may be unable to locate or
employ such qualified personnel on acceptable terms.




If
we fail to adequately manage our growth, we may not be successful in growing our
business and becoming profitable.




We expect
our business and number of employees to grow over the next year. We expect that
our growth will place significant stress on our operation, management, employee
base and ability to meet capital requirements sufficient to support our growth
over the next 12 months. Any failure to address the needs of our growing
business successfully could have a negative impact on our chance of success and
our ability to survive as a going concern.




Provisions
in our organizational documents and control by insiders may prevent changes in
control even if such changes would be beneficial to other
stockholders.




Our
organizational documents may limit changes in control.  Furthermore,
at March 31, 2008, members of the Board together control votes equivalent to
more than 20% of the common stock, assuming exercise of vested
options.  With the additional votes in the preferred stock owned by
the Chief Executive Officer and President, once the Certificate of Designation
is filed with the State of Nevada, the board would control 32% of the total
vote.  Consequently, management and the Board could exercise
significant control on matters submitted to a vote of our stockholders,
including electing directors, amending organizational documents and approving
extraordinary transactions such as a takeover attempt, even though such actions
may not be favorable to the other common stockholders.




It
is likely that additional shares of our stock will be issued in the normal
course of our business development and operations, which will result in a
dilutive effect on our existing stockholders.




We have
historically issued our common stock, warrants to purchase our common stock and
convertible debt to pay for services and to settle outstanding debts. We have
also issued our securities to raise capital, and will continue to issue
additional stock and derivative securities as required to raise additional
capital. Because these securities are restricted, they are often sold at a
discount to market prices, and the exercise price of warrants sometimes (and/or
the conversion price for convertible debt) is at or even lower than market
prices. As a result, such issuances have a dilutive effect on our common stock
which could adversely affect the liquidity of the shares held by our
stockholders. In addition, from time to time, we issue options to employees and
third parties as incentives, with exercise prices equal to market. Exercise of
in-the-money options will result in dilution to existing shareholders. Public
resale (pursuant to registration statements) of such restricted stock, and of
stock issued in conversion of debt, may further depress our price.




16




Concentration
risk.




Revenues
to one distributor accounted for approximately 23% of our revenues for the year
ended December 31, 2007. This distributor has ceased business operations and the
Company is now transacting business with its subdistributors.  The
inability to obtain or maintain distributorship contracts could negatively
affect our ability to continue our business.




Our
lack of product diversification means that any decline in price or demand for
its products would seriously harm our business.




The sale
of our King of EnergyTM energy drinks have accounted for substantially all of our
revenue and this situation is expected to continue for the foreseeable future.
Consequently, a decline in the price of, or demand for, our King of EnergyTM
energy drinks, or their failure to achieve broad market acceptance, would
seriously harm our business.




If
third parties claim that we infringe on their patents, trademarks, or other
intellectual property rights, it may result in costly litigation or require us
to make royalty payments.




We are
not aware that any of our products infringe the proprietary rights of third
parties. There can be no assurance, however, that third parties will not claim
infringement with respect to our current or future products.  Any such
claims, with or without merit, would be time-consuming, result in costly
litigation, cause product shipment delays, consume significant management time
and/or require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable or
at all, which could have a material adverse effect on our business, results of
operations and financial condition.




Litigation
or legal proceedings could expose us to significant liabilities and thus
negatively affect our financial results.




We are a
party, from time to time, to various litigation claims and legal proceedings,
which have historically adversely affected our financial results and could
continue to do so.





On July
19, 2006, the Company received a Demand for Arbitration filed with the American
Arbitration Association from Greg Sacks seeking damages arising out of a
sponsorship contract between the parties. On February 13, 2007, the Arbitrator
awarded Sacks Motorsports Inc. $1,790,000. This amount was taken as an expense
in the quarter ending December 31, 2006 and is fully reserved on the balance
sheet. On August 6, 2007, the Company filed a petition in U.S. District Court
asking the judge to either: (1) order the arbitrator to reopen the arbitration
and allow for discovery regarding what we believe to be significant new evidence
to have the award vacated; or (2) to allow us to conduct such discovery in the
U.S. District Court proceeding regarding what we believe to be significant new
evidence to have the award vacated.  Subsequently, the arbitrator
refused to reopen the matter and the judge granted a motion for us to file an
amended petition to allow for discovery in the U.S. District Court. This motion
was filed on December 3, 2007. The Company currently is engaged in the discovery
process and believes that it has solid grounds to contest this arbitration award
for fraudulent conveyance, but there can be no assurance that the Company’s
belief will be supported from a legal standpoint.





On May 8,
2007, we were served with a summons and complaint in a lawsuit filed in the San
Diego Superior Court by Christopher Wicks and Defiance U.S.A., Inc. seeking
judgment against the Company, Edon Moyal and Dan Fleyshman under a contract
allegedly calling for the payment by the Company of $288,000, stock in the
Company’s wholly-owned subsidiary, Who’s Your Daddy, Inc., a California
corporation, plus a certain percentage of the revenues of that subsidiary. On
February 1, 2008, we entered into a Settlement Agreement and Mutual Release with
the plaintiffs pursuant to which the Company agreed to pay to the plaintiffs the
sum of $252,000 under a payment schedule detailed therein. As security for the
settlement payment, defendants Fleyshman and Moyal together pledged 319,294
shares of common stock in the Company owned and held by them.





17





On March
19, 2008, a complaint was filed against the Company by Get Logistics, LLC
(formerly known as GE Transport) seeking damages of $30,278.72 for unpaid
shipping charges. The Company currently is assessing its options and possible
defenses, and plans to timely file a response to the action.





On April
1, 2005, we received a complaint filed by Who’s Ya Daddy, Inc., a Florida
corporation (“Daddy”), alleging that we were infringing on Daddy’s trademark,
Who’s Ya Daddy®, with
respect to clothing. On April 7, 2006, we entered into a settlement agreement
with Daddy pursuant to which we were granted an exclusive license to use our
marks on clothing in exchange for a royalty payment of 6% of gross sales for
clothing products in the United States, excluding footwear. As part of the
settlement, we also agreed to remit to Daddy 12% of the licensing revenues
received from third parties who we granted sublicense to for use of the marks on
clothing. We have not made any of the required payments under the settlement
agreement.  On March 26, 2008, the each of the Company, Dan Fleyshman
and Edon Moyal received a Notice of Levy from the United States District Court
for the Southern District of California in the amount of $143,561 allegedly
pursuant to the terms of the settlement agreement with Daddy. We are currently
negotiating with Daddy to determine the amounts actually and properly owed by
the Company under the settlement agreement and arrange for payment.




Risks
Relating to Our Industry




Competitive
pressure in the “energy drink” market could adversely affect our operating
results.




The
beverage industry is highly competitive. The principal areas of competition are
pricing, packaging, development of new products and flavors and marketing
campaigns. Our products compete with a wide range of drinks produced by a
relatively large number of manufacturers, all of which have substantially
greater financial, marketing and distribution resources than we do. Our energy
drinks compete directly with Red Bull®,
Monster®,
Rockstar® and many
other brands.  There can be no assurance that we will be able to
capture sufficient market share to sustain our business.




We
rely on canners and other contract packers to manufacture our
products.  If we are unable to maintain good relationships with our
canners and contract packers and/or their ability to manufacture our products
becomes constrained or unavailable to us, our business could
suffer.




We do not
directly manufacture our products, but instead outsource such manufacturing to
contract canners. Although our production arrangements are generally of short
duration or are terminable upon request, in the event of a disruption or delay,
we may be unable to procure alternative canning facilities at acceptable
quality, commercially reasonable rates and/or within a reasonably short time
period. In addition, there are limited canning facilities in the United States
with adequate capacity and/or suitable equipment for our energy drinks in 16 and
8.4-ounce/200 ml cans, and our “Bag in the Box” method of
distribution.  A disruption or delay in production of any of such
products could significantly affect our revenues and adequate capacity may not
be available for such products either at commercially reasonable rates, and/or
within a reasonably short time period, if at all. Consequently, a disruption in
production of such products could adversely affect our revenues.




18




If
we are unable to maintain brand image or product quality, or if we encounter
product recalls, our business may suffer.




Our
success depends on our ability to maintain and build brand image for our
existing products, new products and brand extensions. We have no assurance that
our advertising, marketing and promotional programs will have the desired impact
on our product’s brand image and on consumer preferences. Product quality
issues, real or imagined, or allegations of product contamination, even if fake
or unfounded, could tarnish our image and may cause consumers to choose other
products. We may be required from time to time to recall products entirely or
from specific canners, markets or batches. Product recalls could adversely
affect our profitability and our brand image. We do not maintain recall
insurance.




Our
customers are material to our success. If we are unable to maintain good
relationships with our existing customers, our business could
suffer.




Unilateral
decisions could be taken by our distributors, and/or convenience chains, grocery
chains, specialty chain stores, club stores and other customers to discontinue
carrying all or any of the our products that they are carrying at any time,
which could cause our business to suffer.




We
may not correctly estimate demand for our products.




Our
ability to estimate demand for our products is imprecise, particularly with new
products, and may be less precise during periods of rapid growth, particularly
in new markets. If we materially underestimate demand for our products or are
unable to secure sufficient ingredients or raw materials we might not be able to
satisfy demand on a short-term basis.




Our
intellectual property rights are critical to our success and the loss of such
rights could materially adversely affect our business.




We own
numerous trademarks that are very important to our business. We also own the
copyright in and to a portion of the content on the packaging of our products.
We regard our trademarks, copyrights, and similar intellectual property as
critical to our success and attempt to protect such property with registered and
common law trademarks and copyrights, restrictions on disclosure and other
actions to prevent infringement. Product packages and artwork are important to
our success and we take action to protect against imitation of our packaging and
trade dress and to protect our trademarks and copyrights as
necessary.  However, there can be no assurance that other third
parties will not infringe or misappropriate our trademarks and similar
proprietary rights. If we lose some or all of our intellectual property rights,
our business may be materially adversely affected.




Risks
Relating to our Common Stock and Its Market




Our
stock price may be volatile, and our stockholders’ investment could decline in
value.




The
market prices for our common stock has been highly volatile and may continue to
be highly volatile in the future. In addition to the other Risk Factors in this
Report, the following factors may have a significant impact on the market price
of our common stock.




-
            the
      receipt of, or the failure to receive, additional funding necessary for
      the conduct of our business;




-
            our
      progress in expanding our distributorship relationships and managing those
      relationships effectively;




-
            selling
      by existing stockholders and
short-sellers;




-
            litigation;




-
            period-to-period
      fluctuations in financial results;




19




The
Reverse Stock Split may have an effect on the trading market for our
shares.




The
reduction in the number of issued and outstanding shares occasioned by the
Reverse Stock Split initially resulted in an increase in the market price of our
common stock, although such price increase is not necessarily in proportion to
the ratio of the Reverse Stock Split. The trading price of our common stock
depends on many factors, including many which are beyond our control. A higher
stock price may increase investor interest. On the other hand, to the extent
that negative investor sentiment regarding our common stock is not based on our
underlying business fundamentals, the Reverse Stock Split may not overcome such
sentiment enough to increase our stock price. This has in fact been the case
since October 30, 2007 when the Reverse Stock Split became effective. In
addition, the liquidity of our common stock may be adversely affected by the
reduced number of shares outstanding after the Reverse Stock Split, and the
Reverse Stock Split will increase the number of stockholders who own “odd lots,”
which consist of blocks of fewer than 100 shares. Stockholders who hold odd lots
may be required to pay higher brokerage commissions when they sell their shares
and may have greater difficulty in making sales.




In
2007 and 2008 the NASD appended an “E” to our trading symbol due to our failure
to remain current in our reporting obligations under the OTC Bulletin Board
listing standards.  If we fail to remain current, our quotation on the
OTC Bulletin Board will again be in jeopardy and our common stock may trade on
the Pink Sheets.




Upon our
failure to timely file our Form 10-QSB for the quarter ended September 30, 2007,
the National Association of Securities Dealers, Inc. (NASD) notified us that it
had appended the fifth character, “E”, to our trading symbol to reflect that we
were no longer in compliance with OTC Bulletin Board listing standards and were
in jeopardy of having our securities no longer quoted on the OTC Bulletin Board,
pending our filing of the delinquent Report. Upon our filing of the delinquent
report, the NASD removed the “E” symbol and we are now current in our public
reporting obligations pursuant to the OTC Bulletin Board listing standards. On
April 18, 2008, we failed to timely file our Annual Report on Form
10-KSB.  The NASD appended the “E” to our trading
symbol.  If we are delinquent with any SEC filing for the next 24
months, we will be delisted from the OTC Bulletin Board and we will be delisted
to the “Pink Sheets.”  There can be no assurance that we will be able
to remain current in our reporting obligations, and if our stock were delisted,
the delisting could potentially have an adverse affect on the price of our
common stock and could adversely affect the liquidity of the shares held by our
stockholders.




We
have not, and currently do not anticipate paying dividends on our common
stock.




We have
not paid any dividends on our common stock in the past, and do not anticipate
that we will declare or pay any dividends in the foreseeable future.
Consequently, you will only realize an economic gain on your investment in our
common stock if the price appreciates. You should not purchase our common stock
expecting to receive cash dividends. Therefore, our failure to pay dividends may
cause you to not see any return on your investment even if we are successful in
our business operations. In addition, because we do not pay dividends we may
have trouble raising additional funds which could affect our ability to expand
business operations and our ability to survive as a going concern.




Because
there is a limited market for our common stock, it is difficult for investors to
engage in transactions in our securities which negatively impacts our ability to
raise capital.




Our
common stock is currently quoted on the OTC Bulletin Board under the symbol
“WYDI.” If public trading of our common stock does not increase, a liquid market
will not develop for our common stock. The potential effects of this include
difficulties for the holders of our common shares to sell our common stock at
prices they find attractive. If liquidity in the market for our common stock
does not increase, investors in may never be able to sell their shares and
realize a profit on their investment and we will continue to experience
difficulty in raising capital on favorable terms.




20




Our
stock is thinly traded, which can lead to price volatility and difficulty
liquidating your investment.




The
trading volume of our stock has been relatively low, which can cause the trading
price of our stock to change substantially in response to relatively small buy
or sell orders. Both volume and price could also be subject to wide fluctuations
in response to various factors, many of which are beyond our control, including
actual or anticipated variations in quarterly and annual operating results and
general market perception. An absence of an active trading market could
adversely affect our stockholders’ ability to sell to sell our common stock in
short time periods, or possibly at all. In addition, we believe that factors
such as changes in the overall economy or the condition of the financial
markets, particularly with regard to smaller capitalization stocks such as ours,
could cause the price of our common stock to fluctuate substantially. These
fluctuations may also cause short sellers to enter the market from time to time
in the belief that we will have poor results in the future which would increase
selling pressure on our stock and would likely cause reductions in the price of
our stock. We cannot predict the actions of market participants and, therefore,
can offer no assurances that the market for our stock will be stable or
appreciate over time, or be able to accommodate the sale of your shares without
a substantial reduction in the price of the stock.




A
sale of a substantial number of shares of our common stock may cause the price
of our common stock to decline.




If our
stockholders sell substantial amounts of our common stock in the public market,
including shares issued upon the exercise of outstanding options or warrants,
the market price of our common stock could fall. These sales also may make it
more difficult for us to sell equity or equity-related securities in the future
at a time and price that we deem reasonable or appropriate.




Our
common stock is deemed to be “penny stock”, which may make it more difficult for
investors to sell their shares due to suitability requirements.




Our
common stock is deemed to be “penny stock” as that term is defined in Rule
3a51-1 promulgated under the Exchange Act. The requirements imposed by such
designation may reduce the potential market for our common stock by reducing the
number of potential investors. This may make it more difficult for investors in
our common stock to sell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline. Penny stocks as defined in
Rule 3a51-1 are stocks:




-
            With
      a price of less than $5.00 per
share;




-
            That
      are not traded on a “recognized” national exchange (we are currently
      traded on the Bulletin Board exchange, which is not considered to be a
      “recognized” national exchange);




-
            Whose
      prices are not quoted on the NASDAQ automated quotation system (NASDAQ
      listed stock must still have a price of not less than $5.00 per share);
      or




-
            From
      issuers with net tangible assets less than $2.0 million (if the issuer has
      been in continuous operation for at least three years) or $10.0 million
      (if in continuous operation for less than three years), or with average
      revenues of less than $6.0 million for the last three
    years.




Broker/dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks. Moreover, broker/dealers are
required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor. Many brokers have decided not to trade
“penny stocks” because of the requirements of the penny stock rules and, as a
result, the number of broker-dealers willing to act as market makers in such
securities is limited. In the event that we remain subject to the “penny stock
rules” for any significant period, there may develop an adverse impact on the
market, if any, for our securities. Because our securities are subject to the
“penny stock rules,” investors will find it more difficult to dispose of our
securities. Selling Stockholders may impact our stock value through the
execution of short sales which may decrease the value of our common
stock.




21


Short
sales are transactions in which a selling stockholder sells a security it does
not own. To complete the transaction, a selling stockholder must borrow the
security to make delivery to the buyer. The selling stockholder is then
obligated to replace the security borrowed by purchasing the security at the
market price at the time of replacement. The price at such time may be higher or
lower than the price at which the security was sold by the selling
stockholder.  If the underlying security goes down in price between
the time the selling stockholder sells our security and buys it back, the
selling stockholder will realize a gain on the transaction. Conversely, if the
underlying security goes up in price during the period, the selling stockholder
will realize a loss on the transaction. The risk of such price increases is the
principal risk of engaging in short sales. The selling stockholders in this
registration statement could short the stock by borrowing and then selling our
securities in the market, and then converting the stock through either the
warrants at a discount to replace the security borrowed. Because the selling
shareholders control a large portion of our common stock, the selling
shareholders could have a large impact on the value of our stock if they were to
engage in short selling of our stock. Such short selling could impact the value
of our stock in an extreme and volatile manner to the detriment of other
shareholders.




Shares
eligible for public sale in the future could decrease the price of our shares of
common stock and reduce our future ability to raise capital.




Sales of
substantial amounts of shares of our common stock in the public market could
decrease the prevailing market price of our common stock.  If this is
the case, investors in our shares of common stock may be forced to sell such
shares at prices below the price they paid for their shares.  In
addition, a decreased market price may result in potential future investors
losing confidence in us and failing to provide needed funding. This will have a
negative effect on our ability to raise equity capital in the
future.


22


ITEM
      7.
            FINANCIAL
      STATEMENTS






Audited
      Financial Statements for Who’s Your Daddy, Inc.
            Page
      No.Report
      of Independent Registered Public Accounting Firm
            F-1Report
      of Prior Independent Registered Public Accounting Firm
            F-2Balance
      Sheet as of December 31, 2007
            F-3Statements
      of Operations for the Years Ended December 31, 2007 and
    2006
            F-4Statements
      of Shareholders' Deficit for the Years Ended December 31, 2007 and
      2006
            F-5Statements
      of Cash Flows for the Years Ended December 31, 2007 and
    2006
            F-6Notes
      to Financial Statements
            F-7














23


REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




The Board
of Directors and Stockholders


Who’s
Your Daddy, Inc.




We have
audited the accompanying balance sheet of Who’s Your Daddy, Inc. (the “Company”)
as of December 31, 2007, and the related statements of operations, shareholders’
deficit, and cash flows for the year then ended. 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 audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company was not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting as of December 31, 2007. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Who’s Your Daddy, Inc. as of
December 31, 2007, and the results of operations and cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United States of America.




The
accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company suffered losses from operations and has a
working capital deficiency, which raises substantial doubt about its ability to
continue as a going concern. Management’s plans regarding those matters also are
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.






/s/
McKennon Wilson & Morgan LLP




Irvine,
California


May 12,
2008





F-1


BAUM
& COMPANY, P.A.
 Certified
Public Accountants
 1515
University Drive, Suite 226
 Coral
Springs, Florida 33071
 
 
  REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Stockholders and Board of Directors
 Who’s
Your Daddy, Inc.
 
 We have
audited the accompanying balance sheet of Who’s Your Daddy, Inc. as of December
31, 2006, and the related  statements of operations, change in
stockholders’ deficit and cash flows for the year then ended.  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 audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides 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 Who’s Your Daddy, Inc. as of
December 31, 2006, and the results of their operations and their cash flows for
the year ended December 31, 2006 in conformity with accounting principles
generally accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company suffered losses from operations and has a
working capital deficiency, which raises substantial doubt about its ability to
continue as a going concern.  Management’s plans regarding those
matters also are described in Note 1.  The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
 
 
 
 /s/ Baum
& Company, P.A.
 
 
 Coral
Springs, Florida
 April 12,
2007 except for Note 1 as of May 8, 2008






































F-2


WHO’S
YOUR DADDY, INC.


BALANCE
SHEET


DECEMBER
31, 2007




December
      31, 2007AssetsCurrent
      assets:Cash
      and cash equivalents
            
            $
            145Accounts
      receivable, net of allowance of $33,243
            
            
            29,633Loans
      receivable
            
            
            -Inventories
            
            
            454,792Prepaid
      and other
            
            
            30,170Total
      current assets
            
            
            514,740Property
      and equipment, net
            
            
            70,514Intangible
      assets, net
            
            
            130,976Deposits
      and other
            
            
            36,335Total
      assets
            
            $
            752,565Liabilities
      and Shareholders’ DeficitCurrent
      liabilities:Accounts
      payable
            
            $
            656,564Accrued
      expenses
            
            
            1,485,853Accrued
      litigation
            
            
            1,952,000Notes
      payable
            
            
            412,500Due
      to officers
            
            
            210,525Derivative
      liabilities
            
            
            -Total
      current liabilities
            
            
            4,717,442Commitments
      and Contingencies (Note 9)Shareholders’
      deficitPreferred
      stock, $0.001 par value: 20,000,000 shares authorized,333,333
      shares issued and outstanding
            
            
            333Common
      stock, $0.001 par value: 100,000,000 shares authorized,7,991,986
      shares issued and outstanding
            
            
            7,992Stock
      subscription receivable
            
            
            (95,000
            )Additional
      paid-in capital
            
            
            22,606,307Accumulated
      deficit
            
            
            (26,484,509
            )Total
      shareholders’ deficit
            
            
            (3,964,877
            )Total
      liabilities and shareholders' deficit
            
            $
            752,565






See
accompanying notes to these financial statements.


F-3




WHO’S
YOUR DADDY, INC.


STATEMENTS
OF OPERATIONS




Year
      Ended December 31,2007
            
            
            2006(Restated)Sales
            
            $
            981,919
            
            
            $
            1,189,057Cost
      of sales
            
            
            625,033
            
            
            
            685,916Gross
      profit
            
            
            356,886
            
            
            
            503,141Operating
      expenses:Selling
      and marketing
            
            
            2,348,146
            
            
            
            1,016,183General
      and administrative
            
            
            5,002,858
            
            
            
            5,560,548Arbitration
      settlement
            
            
            -
            
            
            
            1,790,000Total
      operating expenses
            
            
            7,351,004
            
            
            
            8,366,731Operating
      loss
            
            
            (6,994,118
            )
            
            
            (7,863,590
            )Interest
      expense
            
            
            604,524
            
            
            
            1,358,584Change
      in fair value of derivative liabilities
            
            
            (2,563,074
            )
            
            
            1,356,655Gain
      on extinguishment of debt and accounts payable
            
            
            (3,092,266
            )
            
            
            -Other,
      net
            
            
            (10,755
            )
            
            
            -Loss
      before provision for income taxes
            
            
            (1,932,547
            )
            
            
            (10,578,829
            )Provision
      for income taxes
            
            
            (2,400
            )
            
            
            (800
            )Net
      loss
            
            $
            (1,934,947
            )
            
            $
            (10,579,629
            )Basic
      and diluted net loss per share:
            
            $
            (0.39
            )
            
            $
            (3.87
            )Weighted
      average number of common shares
            
            
            4,907,589
            
            
            
            2,733,165







See
accompanying notes to these financial statements.




F-4


WHO’S
YOUR DADDY, INC.


STATEMENTS
OF SHAREHOLDERS’ DEFICIT




Preferred
      Stock
              
              
              Common
      Stock
              
              
              Stock
      Subscription
              
              
              Aditional
      Paid-in
              
              
              AccumulatedShares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Receivable
              
              
              Capital
              
              
              Deficit
              
              
              TotalBalance
      at December 31, 2005, as restated
              
              
              333,333
              
              
              $
              333
              
              
              
              2,298,573
              
              
              $
              2,299
              
              
              $
              -
              
              
              $
              5,842,957
              
              
              $
              (13,969,933
              )
              
              $
              (8,124,344
              )Issuance
      of common stock for cash
              
              
              -
              
              
              
              -
              
              
              
              391,486
              
              
              
              391
              
              
              
              -
              
              
              
              1,190,064
              
              
              
              -
              
              
              
              1,190,455Issuance
      of common stock for services and  operating
    expenses
              
              
              -
              
              
              
              -
              
              
              
              411,141
              
              
              
              411
              
              
              
              -
              
              
              
              719,158
              
              
              
              -
              
              
              
              719,569Stock
      compensation expense - employees
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,014,662
              
              
              
              -
              
              
              
              2,014,662Stock
      compensation expense - consultants
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              683,983
              
              
              
              
              
              
              
              683,983Issuance
      of common stock for interest expenses
              
              
              -
              
              
              
              -
              
              
              
              14,145
              
              
              
              14
              
              
              
              -
              
              
              
              43,554
              
              
              
              -
              
              
              
              43,568Conversion
      of loans into common stock
              
              
              -
              
              
              
              -
              
              
              
              390,126
              
              
              
              390
              
              
              
              -
              
              
              
              1,452,179
              
              
              
              -
              
              
              
              1,452,569Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (10,579,629
              )
              
              
              (10,579,629
              )Balance
      at December 31, 2006, as restated
              
              
              333,333
              
              
              
              333
              
              
              
              3,505,471
              
              
              
              3,505
              
              
              
              -
              
              
              
              11,946,557
              
              
              
              (24,549,562
              )
              
              
              (12,599,167
              )Issuance
      of common stock for cash
              
              
              -
              
              
              
              -
              
              
              
              2,220,922
              
              
              
              2,221
              
              
              
              (95,000
              )
              
              
              3,572,785
              
              
              
              -
              
              
              
              3,480,006Issuance
      of common stock for services and operating expenses
              
              
              -
              
              
              
              -
              
              
              
              178,852
              
              
              
              179
              
              
              
              -
              
              
              
              934,730
              
              
              
              -
              
              
              
              934,909Stock
      compensation expense - employees
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,301,500
              
              
              
              -
              
              
              
              1,301,500Stock
      compensation expense - consultants
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              77,055
              
              
              
              -
              
              
              
              77,055Conversion
      of accounts payable and loans into common stock
              
              
              -
              
              
              
              -
              
              
              
              893,236
              
              
              
              893
              
              
              
              -
              
              
              
              650,775
              
              
              
              -
              
              
              
              651,668Common
      stock and warrant issued to extinguish convertible notes
              
              
              -
              
              
              
              -
              
              
              
              750,000
              
              
              
              750
              
              
              
              -
              
              
              
              3,990,905
              
              
              
              -
              
              
              
              3,991,655Issuance
      of common stock to repurchase inventory
              
              
              -
              
              
              
              -
              
              
              
              443,505
              
              
              
              444
              
              
              
              -
              
              
              
              132,000
              
              
              
              -
              
              
              
              132,444Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,934,947
              )
              
              
              (1,934,947
              )Balance
      at December 31, 2007
              
              
              333,333
              
              
              $
              333
              
              
              
              7,991,986
              
              
              $
              7,992
              
              
              $
              (95,000
              )
              
              $
              22,606,307
              
              
              $
              (26,484,509
              )
              
              $
              (3,964,877
              )




See
accompanying notes to these financial statements.


F-5




WHO’S
YOUR DADDY, INC.


STATEMENTS
OF CASH FLOWS




Year
      Ended December 31,2007
              
              
              2006(Restated)Cash
      flows from operating activities:Net
      loss
              
              $
              (1,934,947
              )
              
              $
              (10,579,629
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Gain
      on extinguishment of debt and creditor settlements
              
              
              (3,092,266
              )
              
              
              -Change
      in fair value of derivative liabilities
              
              
              (2,563,074
              )
              
              
              1,356,656Stock
      compensation expense
              
              
              1,301,500
              
              
              
              2,698,645Common
      stock issued for services rendered
              
              
              1,011,965
              
              
              
              1,040,877Common
      stock issued for payment of interest
              
              
              -
              
              
              
              43,554Conversion
      of interest to loan
              
              
              -
              
              
              
              522,760Accretion
      of convertible debt
              
              
              -
              
              
              
              742,451Depreciation
              
              
              18,554
              
              
              
              11,736Amortization
      of intangible assets
              
              
              26,250
              
              
              
              14,664Accretion
      of debt discount
              
              
              97,195
              
              
              
              -Allowance
      for doubtful accounts
              
              
              22,353
              
              
              
              -Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (26,344
              )
              
              
              (8,362
              )Inventories
              
              
              88,456
              
              
              
              (161,255
              )Prepaid
      expenses and other assets
              
              
              121,958
              
              
              
              (75,285
              )Accounts
      payable
              
              
              851,317
              
              
              
              269,634Accrued
      expenses
              
              
              1,082,771
              
              
              
              2,188,998Due
      to/from officers and related parties
              
              
              (345,604
              )
              
              
              404,348Net
      cash used in operating activities
              
              
              (3,339,916
              )
              
              
              (1,530,208
              )Cash
      flows from investing activities:Capital
      expenditures
              
              
              (42,079
              )
              
              
              (1,807
              )Intangible
      assets
              
              
              (70,825
              )
              
              
              (24,876
              )Net
      cash used in investing activities
              
              
              (112,904
              )
              
              
              (26,683
              )Cash
      flows from financing activities:Proceeds
      from issuance of notes payable
              
              
              -
              
              
              
              575,899Payments
      on notes payable
              
              
              (32,500
              )
              
              
              (206,982
              )Proceeds
      from the sale of common stock
              
              
              3,480,006
              
              
              
              1,190,456Net
      cash provided by financing activities
              
              
              3,447,506
              
              
              
              1,559,373Net
      increase (decrease) in cash and cash equivalents
              
              
              (5,314
              )
              
              
              2,482Cash
      and cash equivalents at beginning of year
              
              
              5,459
              
              
              
              2,977Cash
      and cash equivalents at end of year
              
              $
              145
              
              
              $
              5,459Supplemental
      disclosure of cash flow information:Cash
      paid during the year for interest
              
              $
              337,153
              
              
              $
              439,571Cash
      paid during the year for income taxes
              
              $
              -
              
              
              $
              -Supplemental
      disclosure of non-cash investing and financing activities:Issuance
      of common stock for subscription receivable
              
              $
              95,000
              
              
              $
              192,617Conversion
      of accounts payable into common stock
              
              $
              651,668
              
              
              $
              -Issuance
      of common stock to repurchase inventory
              
              $
              133,052
              
              
              $
              -Issuance
      of common stock and warrants to extinguish convertible noteand
      warrant liabilities (See Note 14)
              
              $
              3,994,655
              
              
              $
              -


See
accompanying notes to these financial statements.


F-6


Who’s Your Daddy,
Inc.


Notes
to Financial Statement




1.
            Organization
      and Business




Organization


We were
incorporated in the State of Nevada on October 12, 2000 under the name Cogen
Systems, Inc. We changed our name to Snocone Systems, Inc. on December 6, 2001.
On April 1, 2005, Snocone Systems, Inc. and its wholly-owned subsidiary, WYD
Acquisition Corp., a California corporation (the “Merger Sub”), completed and
closed an Agreement and Plan of Merger with Who’s Your Daddy, Inc. (“WYD”), an
unrelated, privately held California corporation, whereby the Merger Sub merged
with and into WYD. After the merger, the separate existence of the Merger Sub
ceased and, as such, WYD continued its corporate existence as a direct,
wholly-owned subsidiary of Snocone Systems, Inc. under the laws of the State of
California.




Business


Who’s
Your Daddy, Inc. (the “Company”) manufactures, markets, sells and distributes
its King of EnergyTM energy drinks and is involved in the licensing of its
proprietary name, Who’s Your Daddy®.




Management’s
Plan of Operations


The
Company has incurred net losses of $1,934,947and $10,579,629 for the years ended
December 31, 2007 and 2006, respectively, and losses are expected for the
foreseeable future. In addition, revenues declined to $981,919 from $1,189,057
for the years ended December 31, 2007 and 2006, respectively, primarily due
to the lack of operating capital to maintain a field sales force and to pay
upfront fees for shelf space at retail outlets. The Company also had negative
operating cash flow for the years ended December 31, 2007 and 2006 of $3,339,916
and $1,530,208, respectively. As of December 31, 2007 negative working capital
was $4,202,702, which includes $1,952,000 of accrued arbitration award for a
lawsuit.  See Note 10.These
factors raise susbstantial doubt about the Company’s ability to continue as a
going concern.




The
Company’s cash requirements have been and will continue to be significant. The
Company’s  operations will  require cash in 2008 to fund 1)
marketing; 2) new product development, 3) expand its distribution network, 4)
purchase inventory; 5) fund administrative costs 6) payment of past due accounts
payable and 7) other working capital needs.  Management believes the
Company’s operating losses have resulted from a combination of insufficient
revenues generated to support its sales and marketing efforts, new product
development and administrative time and expense of being a small publicly-traded
company.




Management
is now actively seeking capital through various sources and we are currently
funding our losses though capital from existing shareholders and officers.
Management cannot assure you that such financing will be available to the
Company on favorable terms, or at all. Unless additional financing is obtained,
the Company may not be able to continue as a going concern. The financial
statements have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities in the normal course of
business.  The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets and liabilities that might result from the outcome of this
uncertainty.




2.
            Restatement




On
November 14, 2007, the Company concluded its accounting for the following items
required changes to conform to applicable accounting guidelines and such changes
required the restatement of its financial statements.




·
            Convertible
      notes issued on April 27, 2005 and issued on October 11, 2005
      ("Convertible Notes");


·
            Amendment
      of the conversion price on its convertible notes on December 5,
      2006;


·
            Changes
      in fair value of derivatives at each reporting
  date;


·
            Issuance
      of common stock and stock options to employees and consultants;
      and


·
            Retirement
      on May 7, 2007 of the Convertible
Notes.




F-7


For the
Convertible Notes issued on April 25, 2005, the Company was required to record
the fair value of the embedded conversion feature (“ECF”) and warrants issued in
connection with the Convertible Notes of $1,250,000 in accordance with Statement
of Financial Accounting Standards No. 133 as discussed in Note
3.  This comprised of (i) $5,542,739 for the fair value of the warrant
and (ii) $5,355,437 for the fair value of the ECF (see Note 14 for the
accounting).  The recording of the ECF and warrants also resulted in
charge to the statement of operations of $9,768,176 in 2005.




For the
Convertible Notes issued on October 11, 2005, the Company was required to record
discounts on the date of issuance for the Convertible Notes of
$500,000.  This comprised of (i) $669,945 for the fair value of the
warrant and (ii) $717,785 for the fair value of the ECF.  The
recording of the ECF and warrants also resulted in charge to the statement of
operations of $787,730 in 2005.




On
December 5, 2006, the Company amended the conversion price per share on the
Convertible Notes from $2.52 to $2.21. Subsequently, the Company determined the
amendment resulted in a material modification which required the application of
extinguishment accounting.  This extinguishment resulted in a charge
to the statement of operations of $452,876 in 2006.




During
the year ended December 31, 2006, through the date of extinguishment on May 7,
2007, the Company was required to record its derivatives at fair value at each
reporting period; however, management did not account for such items
correctly.  The Company recorded a charge to operations for the change
in the fair value of the ECF and warrants totalling a $1,356,656 loss during the
year ended December 31, 2006, and a gain of $2,624,774 in 2007 through the date
of extinguishment on May 7, 2007.




During
the years ended December 31, 2006 and 2007, the Company issued stock options and
warrants issued to employees and consultants which were not valued correctly and
expensed in accordance with SFAS No. 123R and  Emerging Issues Task
Force (“EITF”) No. 96-18 as discussed in Note 3.




On May 7,
2007, the Company retired its outstanding Convertible Notes.  The
Company’s original accounting during the second quarter of 2007 did not consider
the extinguishment of the underlying derivative liabilities and unamortized
discounts on the Convertible Notes.  The extinguishment resulted in an
extinguishment gain to the statement of operations of $2,624,784.




The
impact of the items above required amendments to the Company’s financial
statements for the year ended December 31, 2006.  The following table
reflects the effect of the restatement on each of the financial statement line
items for the year ended December 31, 2006.




As
      Filed
            
            
            Adjustment
            
            
            As
      RestatedAccounts
      payable
            
            $
            552,832
            
            
            $
            133,808
            
            
            $
            686,640Derivative
      Liabilities
            
            
            -
            
            
            
            7,454,315
            
            
            
            7,454,315Long
      term debt, net
            
            
            2,080,143
            
            
            
            (713,136
            )
            
            
            1,367,007Common
      stock
            
            
            21,033
            
            
            
            (17,528
            )
            
            
            3,505Additional
      paid in capital
            
            
            5,544,056
            
            
            
            6,400,225
            
            
            
            11,944,281Accumulated
      deficit
            
            
            (11,291,878
            )
            
            
            (13,257,684
            )
            
            
            (24,549,562
            )Total
      shareholder's deficit
            
            
            (5,724,789
            )
            
            
            (6,874,987
            )
            
            
            (12,599,776
            )Sales
      and marketing expense
            
            
            2,806,183
            
            
            $
            (1,790,000
            )
            
            
            1,016,183General
      and administrative expense
            
            
            2,861,102
            
            
            $
            2,698,645
            
            
            
            5,559,747Accrued
      arbitration award
            
            
            
            
            
            $
            1,790,000
            
            
            
            1,790,000Interest
      expense
            
            
            483,125
            
            
            $
            875,459
            
            
            
            1,358,584Change
      in value of derivative liabilities
            
            
            
            
            
            $
            1,356,656
            
            
            
            1,356,656Net
      loss
            
            $
            (5,648,069
            )
            
            $
            (4,930,760
            )
            
            $
            (10,578,829
            )Basic
      and diluted net loss per share
            
            $
            (2.07
            )
            
            
            
            
            
            $
            (3.87
            )






F-8


The
following are the restated capital accounts for 2005:




As
      Filed
            
            
            Adjustment
            
            
            As
      RestatedCommon
      stock
            
            
            13,792
            
            
            
            (11,493
            )
            
            
            2,299Additional
      paid-in capital
            
            
            2,145,150
            
            
            
            3,695,545
            
            
            
            5,840,695Accumulated
      deficit
            
            
            (5,643,808
            )
            
            
            (8,326,125
            )
            
            
            (13,969,933
            )Total
      shareholder's deficit
            
            
            (3,484,866
            )
            
            
            (4,642,073
            )
            
            
            (8,126,939
            )






3.
            Basis
      of Presentation and Significant Accounting
  Policies






The
Company has identified certain significant accounting policies that it considers
particularly important to the portrayal of the Company's results of operations
and financial position which may require the application of a higher level of
judgment by the Company's management and, as a result, are subject to an
inherent level of uncertainty.




Use
of Estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses during the reporting period. Our significant estimates
relate to the assessment of long-lived assets, valuation of stock options and
warrants, the valuation of derivative liabilities and warrants to purchase
common stock.




Stock
Split


On
October 16, 2007, the Board of Directors of the Company approved a one (1) for
six (6) reverse stock split of the Company's common and preferred stock . The
effective date of the stock split was October 30, 2007. All share and per share
information have been adjusted to give effect to the stock split for all periods
presented, including all references throughout the financial statements and
accompanying notes.




Revenue
Recognition


Revenue
is recognized when there is pervasive evidence that an arrangement exists,
products are delivered to the customer which occurs when goods are shipped and
title and risk of loss transfer to the customer, in accordance with the terms
specified in the arrangement with the customer.  Revenue recognition
is deferred in all instances where the earnings process is incomplete based on
the criteria listed above.  As of December 31, 2007, the Company did
not have any revenues that were required to be deferred.  Management
provides for sales returns and allowances in the same period as the related
revenues are recognized. Management bases their estimates on historical
experience or the specific identification of an event necessitating a
reserve.




In
accordance with EITF 01-9, “Accounting for Consideration Given by a Vendor to a
Customer,” slotting fees, buydowns, cooperative advertising and other reductions
and incentives given by the Company to its customers are included as a reduction
of revenue, rather than as a cost of goods sold.




Slotting
fees paid to a customer are generally amortized over the life of the slotting
agreement which is typically one year.




F-9


Concentrations
of Credit Risks


Financial
instruments that potentially subject the Company to concentration of credit risk
consist principally of cash and cash equivalents and trade accounts receivable.
The Company invests its cash balances through high-credit quality financial
institutions.  From time to time, the Company maintains bank account
levels in excess of FDIC insurance limits.  If the financial
institution in which the Company has its accounts has financial difficulties,
the Company’s cash balances could be at risk.




Accounts
receivable at December 31, 2007 from two customers represented 77% (52% and 25%,
respectively) of the accounts receivable balance.




Sales
from two customers represented 36% (13% and 23%, respectively) and 48% (11% and
37%, respectively) of revenues for the years ended December 31, 2007 and 2006,
respectively.  As of December 31, 2007, the accounts receivable
balance from these customers is $0.




As a
result of the Company's concentration of its customer base, loss or cancellation
of business from, or significant changes in scheduled deliveries of product sold
to either of these customers or a change in their financial position could
materially and adversely affect the Company's financial position, results of
operations and cash flows.




Cash
and Cash Equivalents


The
Company considers all highly liquid investments with insignificant interest rate
risk and original maturities of three months or less from the date of purchase
to be cash equivalents. The carrying amounts of cash and cash equivalents
approximate their fair values.




Accounts
Receivable


The
Company utilizes the allowance method to provide a reserve for uncollectible
accounts.  The Company determines any required allowance by
considering a number of factors including length of time trade accounts
receivable are past due and the Company's previous loss history.  The
Company records a reserve account for accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.




The
Company performs ongoing credit evaluations and continually monitors its
collection of amounts due from its customers.  The Company adjusts
credit limits and payment terms granted to its customers based upon payment
history and the customer's current creditworthiness.  The Company does
not require collateral from its customers to secure amounts
due.  Historically, the Company has not experienced collection
issues.  Reserves for uncollectible amounts are provided based on past
experience and a specific analysis of its customers’ accounts.




Inventories


Inventories
are stated at the lower of cost, determined on an average cost basis, or market
and include shipping and handling costs.




Property
and Equipment


Property
and equipment are stated at cost, less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives of five
years. Significant renewals and betterments are capitalized while maintenance
and repairs are charged to expense as incurred. Leasehold improvements are
amortized on the straight-line basis over the lesser of their estimated useful
lives or the term of the related lease.




Long-Lived
Assets


The
Company reviews its fixed assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the future undiscounted operating cash flow expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the asset
exceeds the fair value of the asset or discounted cash flows. Long-lived assets
to be disposed of are reported at the lower of carrying amount or fair value
less costs to sell.




F-10


Income
Taxes


Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.  Due to historical net losses, a valuation allowance
has been established to offset the deferred tax assets.




In July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes— an interpretation of FASB Statement No. 109 ("FIN
48")”.  FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with SFAS
No. 109, “Accounting for Income Taxes”.  FIN 48 describes a
recognition threshold and measurement attribute for the recognition and
measurement of tax positions taken or expected to be taken in a tax return and
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006.  The cumulative
effect of adopting FIN 48 is required to be reported as an adjustment to the
opening balance of retained earnings (or other appropriate components of equity)
for that fiscal year, presented separately. The adoption of FIN 48 did not have
a material impact to the Company’s financial statements.




Net
Loss per Share


Basic
loss per share is calculated by dividing net loss by the weighted average common
shares outstanding during the period. Diluted net loss per share reflects the
potential dilution to basic earnings per share that could occur upon conversion
or exercise of securities, options or other such items to common shares using
the treasury stock method, based upon the weighted average fair value of our
common shares during the period. For each period presented, basic and diluted
loss per share amounts are identical as the effect of potential common shares is
antidilutive.




Stock-Based
Compensation


Effective
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
Payment” (“SFAS 123R”). SFAS 123R requires that the Company account for all
stock-based compensation using a fair-value method and recognize the fair value
of each award as an expense over the service period.




Accounting for Stock Options Issued to
Consultants


The
Company measures compensation expense for its non-employee stock-based
compensation under EITF No. 96-18 “Accounting for Equity Instruments that are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services”.  The fair value of the option issued or committed
to be issued is used to measure the transaction, as this is more reliable than
the fair value of the services received. The fair value is measured at the value
of the Company’s common stock on the date the commitment for performance by the
counterparty has been reached or the counterparty’s performance is complete. The
fair value of the equity instrument is charged directly to the statement of
operations and credited to additional paid-in capital.




Fair
Value of Financial Instruments


Financial
instruments are recorded on the balance sheet. The carrying amount for cash and
cash equivalents, accounts receivable, accounts payable, accrued expenses
approximates fair value due to the immediate or short-term maturity of these
financial instruments. The fair value of long-term debt approximates the
carrying amounts based upon our expected borrowing rate for debt with similar
remaining maturities and comparable risk.




Modifications
to Convertible Debt


The
Company accounts for modifications of ECFs in accordance with EITF 06-6 “Debtors
Accounting for a Modification (or exchange) of Convertible Debt
Instruments”.  EITF 06-6 requires the modification of a convertible
debt instrument that changes the fair value of an ECF be recorded as a debt
discount and amortized to interest expense over the remaining life of the
debt.  If modification is considered a substantial (i.e. greater than
10% of the carrying value of the debt), an extinguishment of the debt is deemed
to have occurred, resulting in the recognition of an extinguishment gain or
loss.




Derivative
Financial Instruments


Derivative
financial instruments, as defined in SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities,”, consist of financial instruments or other
contracts that contain a notional amount and one or more underlying (e.g.
interest rate, security price or other variable), that require no initial net
investment and permit net settlement.  Derivative financial
instruments may be free-standing or embedded in other financial instruments.
Further, derivative financial instruments are initially, and subsequently,
measured at fair value and recorded as liabilities or, in rare instances,
assets.




F-11


The
Company does not use derivative financial instruments to hedge exposures to
cash-flow, market or foreign-currency risks.  However, the Company has
convertible debt with features that are either (i) not afforded equity
classification, (ii) embody risks not clearly and closely related to host
contracts, or (iii) may be net-cash settled by the counterparty.  As
required by SFAS 133, in certain instances, these instruments are required to be
carried as derivative liabilities, at fair value, in its financial
statements.




The
Company estimates the fair values of its derivative financial instruments using
the Black-Scholes option valuation model because it embodies all of the
requisite assumptions (including trading volatility, estimated terms and risk
free rates) necessary to fair value these instruments.  Estimating
fair values of derivative financial instruments requires the development of
significant and subjective estimates that may, and are likely to, change over
the duration of the instrument with related changes in internal and external
market factors.  In addition, option-based techniques are highly
volatile and sensitive to changes in the trading market price of the Company’s
common stock, which has a high-historical volatility.  Since
derivative financial instruments are initially and subsequently carried at fair
values, the Company's operating results will reflect the volatility in these
estimate and assumption changes.




Equity
Instruments Issued with Registration Rights Agreement


The
Company accounts for registration rights agreement penalties as contingent
liabilities, applying the accounting guidance of SFAS 5. This accounting is
consistent FASB Staff Positions FSP EITF 00-19-2 “Accounting for Registration
Payment Arrangements”, which was issued December 21, 2006. Accordingly, the
Company recognizes the damages when it becomes probable that they will be
incurred and amounts are reasonably estimable.   In connection
with registration rights granted with stock issued on May 7, 2007 to retire the
Company’s convertible debt and with registration rights granted to an investor
in November 2005, the Company accrued $286,427 and $124,550 of registration
rights penalties for the years ended December 31, 2007 and 2006,
respectively.




Freight
Costs


For the
years ended December 31, 2007 and 2006, freight-out costs amounted to $170,643
and $109,967, respectively, and have been recorded in cost of goods sold in the
accompanying statements of operations.  Shipping terms are generally
FOB destination and the Company does not pass freight costs to the
customer.




Advertising
Expenses


The
Company accounts for advertising costs by expensing such amounts the first time
the related advertising takes place. Advertising expenses amounted to $739,355
and $580,431 for the years ended December 31, 2007 and 2006,
respectively.




Recent
Accounting Pronouncements


In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS
157"). SFAS No. 157 provides a common definition of fair value and establishes a
framework to make the measurement of fair value in generally accepted accounting
principles more consistent and comparable. SFAS 157 also requires expanded
disclosures to provide information about the extent to which fair value is used
to measure assets and liabilities, the methods and assumptions used to measure
fair value, and the effect of fair value measures on earnings. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, although early
adoption is permitted. The Company is currently assessing the potential effect,
if any, of SFAS 157 on its financial statements.




In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities including an amendment of FASB
Statement No. 115" ("SFAS 159"). SFAS 159 permits an entity to elect fair value
as the initial and subsequent measurement attribute for many financial assets
and liabilities. Entities electing the fair value option would be required to
recognize changes in fair value in earnings. Entities electing the fair value
option are required to distinguish, on the face of the statement of financial
position, the fair value of assets and liabilities for which the fair value
option has been elected and similar assets and liabilities measured using
another measurement attribute. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. The adjustment to reflect the difference between the
fair value and the carrying amount would be accounted for as a cumulative-effect
adjustment to retained earnings as of the date of initial adoption. We are
currently evaluating the impact, if any, of SFAS 159 on the Company’s financial
statements.




F-12


In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS
141(R)"), which replaces FAS 141. SFAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. FAS 141(R) is to be applied prospectively to business
combinations.




4.
            Product
      Return and Inventory Repurchase




During
2007, the Company shipped $715,426 of product to a certain distributor, before
promotional allowances of $177,273.  On December 7, 2007, the Company
agreed to repurchase $402,358 of inventory previously shipped for 443,505 shares
of its common stock or $132,444, based on the market price of the common stock
on the date of the transaction.  The Company also recorded a reduction
to net revenues totalling $298,707, equal to the previously recorded amounts for
these sales.  The sales originally recorded for these repurchased
products totalled $402,358, less promotional allowance of $103,652.




5.
            Inventories




Inventories consist of
finished goods at December 31,2007.




6.
            Property
      and Equipment




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




Estimated
      Useful Life (in years)Furniture
      and fixtures
            
            
            5
            
            
            $
            36,308Computers
            
            
            5
            
            
            
            50,410Software
            
            
            5
            
            
            
            5,235Leasehold
      improvements
            
            
            5
            
            
            
            22,455Less:
      accumulated depreciation
            
            
            
            
            
            
            (43,894
            )$
            70,514




7.
            Intangible
      Assets, net




Intangible
assets consist of trademarks with a life that is assumed to be perpetual, but
which is reviewed annually for impairment or a lessening of the estimated useful
life.




8.
            Accrued
      Liabilities




Accrued liabilities
consist of the following at December 31, 2007:




Compensation
      and related benefits
            
            $
            559,701Registration
      rights
            
            
            410,977Professional
      fees
            
            
            140,159Interest
            
            
            86,198Other
            
            
            288,818$
            1,485,853




The
compensation and related benefits includes $367,554 of accrued salaries to the
Company’s executive officers.




F-13


9.
            Commitments
      and Contingencies




The
Company leases its office space and certain office equipment under
non-cancellable operating leases. Total rent expense under these operating
leases was $109,555 and $79,207, respectively, for the years ended December 31,
2007 and 2006, respectively.




Future annual minimum
lease payments under non-cancellable operating leases at December 31, 2007 are
as follows:




2008
            
            $
            115,1502009
            
            
            113,1142010
            
            
            117,0732011
            
            
            121,1702012
            
            
            20,310Total
            
            $
            486,817




Employment
Contracts


Effective
April 1, 2005, the Company entered into employment agreements with Edon Moyal,
its CEO, and Dan Fleyshman, its President. The agreements are for a period of
five years. Each executive is to receive annual cash compensation of $144,000
and 2.0% of the annual gross revenue of the Company, beginning January 1, 2005.
Additionally, each employment agreement provides for the issuance of three
warrants, exercisable from months 13 to 60 of the employment agreement, with
immediate vesting, as follows: one to purchase 166,667 shares of common stock at
a price of $6.00, one to purchase 166,667 shares of common stock at a price of
$9.00, and one to purchase 166,667 shares of common stock at a price of
$12.00.  Additionally, each employment agreement provides for the
issuance of 166,667 shares of voting preferred stock that cannot be converted to
common shares in the Company with supermajority voting rights of four votes per
share of such preferred stock.  This supermajority provision is not
currently effective and will not be effective until the Company files the
appropriate Certificate of Designation with the state of Nevada, which the
Company intends to do.




Effective
October 1, 2006, the Board of Directors voted to increase the annual salaries of
Messrs. Moyal and Fleyshman to $216,000 each. In May 2007, the cashless exercise
provision of the above warrants was removed, the expiration date of the warrants
was extended to April 30, 2012, the gross revenue payments of 2% were removed
and additional warrants were to be earned by them in lieu of the payments based
on a percentage of gross revenues once the Company attains certain sales levels,
which were not attained.  The company recorded $787,107 of additional
compensation expense as a result of the modification to extend the term of the
options.  The 16,667 options granted to each of Messrs Moyal and
Fleyshman have a strike price of $9.00 per share, with immediate vesting and a
five year term.  These options were valued at approximately $112,000 using
the Black Scholes model and is included the statement of
operations.




On June
23, 2006, the Company entered into a three-year employment agreement with Joseph
Conte to become a Vice President of the Company. The agreement was effective May
1, 2006, the starting date of his employment with the Company. His annual
compensation started at $48,000, increased to $96,000 on October 1, 2006 and
increased to $144,000 on May 1, 2007. In addition, he receives $0.10 per case of
our energy drink produced, based on his prior employment with the company that
developed the formula for the energy drink, with that company’s fee being
reduced accordingly. He will receive one five-year option to purchase 4,167
shares of the Company’s common stock, with an exercise price of $2.00 and
immediate vesting, exercisable from months 13 to 60, when the Company’s
cumulative net revenues reach $5,000,000 and another warrant for the purchase of
an additional 4,167 shares at a strike price of $12.00 when the Company’s
cumulative net revenues reach $10,000,000. Thereafter, he will receive warrants
for the purchase of an additional 4,167 shares of the Company’s common stock for
each additional $10,000,000 of Company cumulative net revenues.




F-14


On May 9,
2007, the Company entered into a three-year employment agreement with John
Moynahan as Senior Vice President and Chief Financial Officer. The agreement
provides for an annualized salary of $100,000 until the Company raises an
additional $4 million of equity capital or attains a revenue level of $1 million
in a quarter (either being a “Trigger Event”), whichever comes first, and a
salary of $199,500 thereafter, with the difference accruing and payable upon
such Trigger Event. Mr. Moynahan was granted options to purchase: 41,667 shares
vesting May 9, 2007 with a strike price of $6.00 per share; 41,667 shares
vesting May 1, 2008 at a strike price of $6.00; 83,333 shares vesting May 1,
2009 at a strike price of $9.00 per share; and 83,333 shares vesting May 1, 2010
at a strike price of $12.00. All options vest upon a change in control of the
Company and the Company has agreed to use its best efforts to register the
shares for such options. The options granted to Mr. Moynahan were valued at
$846,511 based on the Black-Scholes option pricing model on the date of
grant.




10.
            Litigation




On July
19, 2006, the Company received a Demand for Arbitration filed with the American
Arbitration Association from Greg Sacks seeking damages arising out of a
sponsorship contract between the parties. On February 13, 2007, the Arbitrator
awarded Sacks Motorsports Inc. $1,790,000. This amount was expensed 2006 and is
included under the caption of “Accrued Litigation” in the accompanying balance
sheet.   The amount has not been paid as of December 31,
2007.




On August
6, 2007, the Company filed a petition in U.S. District Court asking the judge to
either: (1) order the arbitrator to reopen the arbitration and allow for
discovery regarding what management believes to be significant new evidence to
have the award vacated or (2) to allow us to conduct such discovery in the U.S.
District Court regarding what management believes to be significant new evidence
to have the award vacated.  Subsequently, the arbitrator refused to
reopen the matter and the judge granted a motion for us to file an amended
petition to allow for discovery in the U.S. District Court.  This
motion was filed on December 3, 2007.  The Company believes that it
has solid grounds to contest this arbitration award for fraudulent conveyance,
but until it can complete discovery and find support for these grounds, there
can be no assurance that the Company’s belief will be supported from a legal
standpoint.




On May 8,
2007, the Company served with a summons and complaint in a lawsuit filed in the
San Diego Superior Court by Christopher Wicks and Defiance U.S.A., Inc. seeking
judgment against the Company, Edon Moyal and Dan Fleyshman under a contract
allegedly calling for the payment by the Company of $288,000, stock, plus a
certain percentage of the revenues of that subsidiary. On February 1, 2008, the
Company entered into a Settlement Agreement and Mutual Release with the
plaintiffs pursuant to which the Company agreed to pay to the plaintiffs the sum
of $252,000 under a payment schedule.  Under the payment schedule, the
Company paid $20,000 by March 18, 2008, and is required to pay $15,000 by June
18, 2008 and every ninety days thereafter until such amounts are
repaid.  As security for the settlement payment, defendants Fleyshman
and Moyal together pledged 319,294 shares of common stock in the Company owned
and held by them.  The Company also agreed to issue 75,000 shares of
common stock.  As of December 31, 2007, $252,000 has been accrued in
the accompanying balance sheet. The Company recorded the fair value of the
common stock issued as a charge to the statement of operations on the date of
issuance.




F-15


On April
1, 2005, the Company received a complaint filed by Who’s Ya Daddy, Inc., a
Florida corporation (“Daddy”), alleging the Company was infringing on Daddy’s
trademark, Who’s Ya Daddy®,
with respect to clothing. On April 7, 2006, the Company entered into a
settlement agreement with Daddy pursuant to which we were granted an exclusive
license to use our marks on clothing in exchange for a royalty payment of 6% of
gross sales for clothing products in the United States, excluding footwear. As
part of the settlement, the Company also agreed to remit to Daddy 12% of the
licensing revenues received from third parties who we granted sublicense to for
use of the marks on clothing. We have not made any of the required payments
under the settlement agreement.  On March 26, 2008, Dan Fleyshman and
Edon Moyal received a Notice of Levy from the United States District Court for
the Southern District of California in the amount of $143,561 allegedly pursuant
to the terms of the settlement agreement with Daddy. The Company is currently
negotiating with Daddy to determine the amounts actually and properly owed by
the Company under the settlement agreement.




11.
            Income
      Taxes




Reconciliations of the
U.S. federal statutory rate to the actual tax rate follows for the years ended
December 31, 2007 and 2006 are as follows:




2007
              
              
              2006Pretax
      lossFederal
      tax at statutory rate
              
              
              34.0
              %
              
              
              34.0
              %Permanent
      differences:State
      income taxes, net of federal benefit
              
              
              5.8
              %
              
              
              5.8
              %Modification
      of stock options
              
              
              -14.4
              %
              
              
              -16.2
              %Extinguishment
      of debt
              
              
              84.4
              %
              
              
              -Derivative
      liabilities
              
              
              -40.1
              %
              
              
              -8.2
              %Registration
      rights penalties
              
              
              -5.1
              %
              
              
              -0.8
              %Amortization
      of debt discount
              
              
              -1.8
              %
              
              
              -4.3
              %Non-deductible
      entertainment
              
              
              -0.3
              %
              
              
              -Temporary
      differences:Change
      in valuation allowance
              
              
              -62.5
              %
              
              
              -10.3
              %Total
      provision
              
              
              0.0
              %
              
              
              0.0
              %




The major
components of the deferred taxes are as follows at December 31,
2007:






AssetCurrent:Reserves
      and accruals
            
            $
            1,160,433Noncurrent:Net
      operating losses
            
            
            6,021,648Stock
      compensation
            
            
            377,921Valuation
      allowance
            
            
            (7,560,002
            )Net
      deferred tax asset
            
            $
            -




At
December 31, 2007, the Company had available $15,295,222 U.S. tax net operating
loss carryforwards, pursuant to the Tax Reform Act of 1986, which assesses the
utilization of a Company's net operating loss carry forwards resulting from
retaining continuity of its business operations and changes within its ownership
structure. Net operating loss carryforwards expire in 20 years for federal
income tax reporting purposes. For Federal income tax purposes, the net
operating losses begin to expire in 2027.  The Company has relied on the
issuance of common stock to fund losses.  The Company may have
experienced a change in ownership as defined in Section 382 of the Internal
Revenue Code.   In the event the Company experienced a change in
ownership, net operating loss carryforwards for federal income tax reporting
will be limited based on the fair value of the Company on the date of change in
ownership.




During
the years ended December 31, 2007 and 2006, the Company’s valuation allowance
increased by approximately $3,600,000 and $2,937,000, respectively.




F-16


12.
            Line
      of Credit




On August
31, 2006, the Company entered into a revolving line of credit for $250,000 for
the production of its “King of EnergyTM” drinks with an entity affiliated with
its largest distributor. During 2007, both parties agreed to increase the line
of credit to $314,392.  On December 7, 2007, the Company repaid the
amount outstanding of $314,392 through the issuance of 345,486 shares of common
stock. The closing price of the Company common stock on this date was
$0.30.  As a result of the issuance of common stock to pay off the
line of credit, the Company recognized a gain on the extinguishment of
$210,746.




13.
            Due
      to Officers




As of
December 31, 2007, a total of $210,525 was owed to officers for unreimbursed
expenses and loans made to the Company, along with $367,554 in accrued
salaries.




14.
            Debt
      (Restated)




Demand
Notes


From 2004
through 2006, the Company issued demand notes to two unrelated parties for
aggregate proceeds of $150,000.  The notes are due upon demand, have a
interest rates ranging from 5% to 10% per annum, and have been classified as
current liabilities in the accompanying financial statements.




Vendor
Note Payable


On
September 27, 2006, the Company’s entered into an agreement with a legal firm to
convert $395,405 of outstanding accounts payable into a promissory
note.  The Company granted a first priority security interest in all
of its trademarks and associated goodwill.  The agreement required the
Company to pay $100,000 on or before September 30, 2007 with monthly payment of
(i) $2,500 commencing November 1, 2006 through January 1, 2007, (ii) $5,000 per
month commencing February 1, 2007 through April 1, 2007; (iii) $7,500 per month
on May 1, 2007 through July 1, 2007; and (iv) $10,000 per month on August 1,
2007 until September 30, 2007. In addition, $200,000 shall be paid at the
closing of any financing of at least $3,500,000.  As of December 31,
2007, the balance outstanding was $262,500.  As of December 31, 2007,
the Company was in default for non-payment.  There have been no
actions taken by this vendor to exercise its rights under the
agreement.  The outstanding balance has been classified as a current
liability in the accompanying balance sheet.  While the agreement does
not call for interest on unpaid amounts, the Company has accrued interest
expense on this note at 10% per annum.




Exchange
Agreement


On May 7,
2007, the Company entered into an agreement (“Exchange Agreement) with Around
the Clock Partners, LP, Cohiba Partners Inc. (collectively “New Investors”) and
the holders of $1,750,000 of the Company’s Callable Secured Convertible Notes
(“Convertible Notes”), whereby the Company assigned, and the New Investors
assumed, the Company’s rights and obligations under the Convertible
Notes.  Concurrently, the New Investors exercised their rights and
purchased the Convertible Notes together with 146,028 warrants to purchase
common stock from the holders in exchange for payment of $1,000,000 and the
transfer of 333,333 shares of the Company’s common stock held by the New
Investors.  The New Investors concurrently exchanged the Convertible
Notes and warrants with the Company for 750,000 shares of the Company's common
stock and a call option to purchase up to 333,333 shares of the Company's common
stock at a purchase price of $3.00 per share, exercisable for sixty days after
the closing of the financing.  The New Investors exercised 83,333 of
these warrants resulting in proceeds to the Company of $250,000.




The
Company accounted for the extinguishment of the Convertible Notes and warrants
in accordance with APB 26.  In accordance with these provisions, the
Company recorded a non-cash loss on the extinguishment of the Convertible Notes,
based on the difference between (a) the fair value of the common stock and the
call options issued and (b) the difference between the carrying value and stated
value of the convertible debt and fair value of the derivative liabilities
immediately prior to the extinguishment.  The fair value of these
instruments was determined based on the closing stock price on the date of the
extinguishment.  The following table sets forth the fair value of the
securities exchanged during 2007.




Extinguishment
      of derivative liabilities
            
            $
            4,891,240Cancellation
      of Convertible Notes and accrued interest
            
            
            2,014,000Accretion
      of unamortized discounts on Convertible Notes
            
            
            (285,797
            )Issuance
      of common stock
            
            
            (3,415,500
            )Fair
      value of common stock warrant
            
            
            (579,155
            )$
            2,624,788




F-17


The fair
value of the ECF and warrants were determined using the Black-Scholes option
pricing model with the following assumptions at the date of
extinguishment.




Estimated
      fair value of underlying common stock
              
              $
              4.55Remaining
      life (in years)
              
              0.98
      to 2.97Risk-free
      interest rate
              
              
              4.68
              %Expected
      volatility
              
              
              114.1
              %Dividend
      yield
              
              
              -
  Callable
Secured Convertible Notes


On April
25, 2005, the Company entered into a Securities Purchase Agreement with New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and AJW Partners, LLC (collectively, the “Investors”) for the sale of up to
(i) $3,750,000 in Convertible Notes and (ii) issuance of stock purchase warrants
to buy 438,084 shares of common stock. Pursuant to the Securities Purchase
Agreement, the Company also agreed to covenants regarding its business and the
use of proceeds.




The
Company issued Convertible Notes for gross proceeds $1,250,000 ($1,130,000 net
of costs) together with warrants to purchase 146,028 shares of the Company's
common stock at an exercise price of $9.00 per share. The Convertible Notes
while outstanding had a stated interest at 8% per annum, and provided that no
interest was due or payable for any month in which the Company’s stock price was
greater than $8.03 for each intraday trading price for each trading day of the
month. Any amount of principal or interest which was not paid when due had a
default interest of 15% per annum from the due date. The Notes had a stated
maturity date of three years from the date of issuance (April 25,
2008).




Effective
as of October 5, 2005, the Company issued Convertible Notes for gross proceeds
of $500,000 to the Investors together with warrants to purchase 8,333 shares of
the Company’s common stock at an exercise price of $9.00 per
share.  Both parties also agreed to amend the Securities Purchase
Agreement which provided for the Company to limit the investment by the AJW
Entities to $1,750,000 from the original $3,750,000.




The
Company had the option to prepay all or a portion of the principal outstanding
under the Convertible Notes if no event of default existed, there were a
sufficient number of shares available for conversion of the Convertible Notes
and the market price was at or below $6.60 per share. In the event the market
price was above $6.60, the Company had the right to prepay all or a portion of
the principal outstanding under the Convertible Notes if it made an additional
payment equal to the difference between the market price and $6.60 per share for
the number of shares into which the Convertible Notes would
convert.




If the
Company elected to prepay the Convertible Notes, the Company would have been
required to pay an amount in excess of the outstanding principal under the Notes
based on the number of days after issuance of the Convertible Notes the Company
prepays the Convertible Notes. The full principal amount of the Convertible
Notes and an additional penalty amount would have been due upon default under
the terms of Convertible Notes. The Company also granted the Investors a
security interest in substantially all of its assets and intellectual property
pursuant to a Security Agreement and an Intellectual Property Security
Agreement.




The
Convertible Notes were convertible into common stock, at the Investors’ option,
at a conversion price equal to the lower of (i) $6.00 or (ii) 60% of the average
of the three lowest intraday trading prices for the common stock during the 20
trading days before, but not including, the conversion date.  There
was no floor related to the conversion price.  The Company evaluated
the ECF in accordance with the guidance in paragraph 12 of SFAS 133, “Accounting
for Derivative Instruments and Hedging Activities,” and determined it was
necessary to evaluate bifurcation of the conversion option from the debt host
and account for it separately as a derivative if the conversion option met
certain criteria. The ECF met all three criteria of paragraph 12: (1) the
conversion feature is not clearly and closely related to the host component, (2)
the convertible instrument is not accounted for at fair value, and (3) the
embedded conversion option meets the definition of a derivative in paragraph 6
of SFAS No. 133.




F-18


To assess
whether or not the ECF would be classified as stockholders' equity if it were
freestanding, management considered the guidance in EITF 00-19 “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock.” In assessing whether or not the conversion option would be
classified as equity or a liability if it were freestanding, management
determined whether or not the Convertible Notes were considered “conventional.”
EITF 00-19 and EITF 05-2, “The Meaning of Conventional Convertible Debt
Instruments in issue No. 00-19,” defines conventional convertible debt as debt
whereby the holder will, at the issuer's option, receive a fixed amount of
shares or the equivalent amount of cash as proceeds when the exercises the
conversion option. As a result of the ECF not being convertible into a fixed
number of shares of stock and that the Company not ultimately knowing the number
of common shares that could be issued upon exercise (no floor on the ECF)
management determined the Convertible Notes were not
“conventional”.




This
caused the ECF for the Convertible Notes to be classified as derivative
liabilities in the accompanying financial statements while outstanding. In
addition, the warrants to purchase common stock issued with the Convertible
Notes were also deemed to be classified as derivative instruments under SFAS 133
as a result of certain non-customary anti-dilution provisions within the warrant
agreement.  The accounting treatment for these financial instruments
required the Company record the ECF and warrants as derivative liabilities on
the balance sheet at their fair values as of each reporting date. Any change in
fair value of the Company’s common stock resulted in a change in the derivative
liability and is recorded as non-operating, non-cash income or expense at each
reporting date.  The derivatives were valued using the Black-Scholes
option pricing model and were classified in the balance sheets based on the
classification of the host instrument.




On the
date of issuance of the April 25, 2005 Convertible Notes, the estimated fair
market value of the ECF and the warrants was $5,355,437 and $5,542,739,
respectively. On the date of issuance of the October 5, 2005 Convertible Notes,
the estimated fair market value of the ECF and the warrants was $617,785 and
$169,945, respectively.




The
recording of the fair value of the ECF and warrants reduced the carrying value
of the April 25, 2005 and October 5, 2005 Convertible Notes to $0 and $0,
respectively.  The excess value of the fair values of the ECF and
warrants over the proceeds received from the April 25, 2005 and October 5, 2005
Convertible Notes of $9,768,176 and $787,730, respectively and were charged to
interest expense in the statement of operations on the date of
issuance.  Since the carrying amount for each of the Convertible Notes
was reduced to $0, the Company recorded a discount on each tranche of
Convertible Notes.  The accretion of the discount was being charged to
interest expense over the term of the Convertible Notes, prior to
extinguishment. The fair value of the ECF and warrants were determined using the
Black-Scholes option pricing model with the following assumptions at December
31, 2006.




Estimated
      fair value of underlying common stock
              
              $
              6.36Remaining
      life (in years)
              
              
              3.32Risk-free
      interest rate
              
              
              4.82
              %Expected
      volatility
              
              
              116.5
              %Dividend
      yield
              
              
              -




The fair
value of the ECF and warrants were $3,415,559 and $4,038,755, respectively
at December 31, 2006.




On
December 5, 2006, the Company entered into an agreement with the AJW entities
which amended the ECF of the Convertible Notes equal to the lower of (i) $6.00
or (ii) 52.5% (from 60%) of the average of the three lowest intraday trading
prices for the common stock during the 20 trading days before, but not
including, the conversion date.  The Company evaluated the amendment
in accordance with EITF 06-6.  The difference between the fair value
of the conversion price immediately before compared to immediately after the
modification was greater than 10% of the carrying amount of the Convertible
Notes.  As a result, the Company recorded an extinguishment loss of
$452,876 in 2006.




15.
            Preferred
      Stock




The
Company has authorized 20,000,000 shares of preferred stock of which 333,333
shares are issued and outstanding at December 31, 2007.  These shares
are owned by Edon Moyal and Dan Fleyshman.  These shares are not
convertible into common stock and have no preference rights, however, each share
is entitled to four votes on a common stock basis.  The Certificate of
Designation related to these shares has not been filed with the State of Nevada
and these preferred shares will not have voting power until this filing is
accomplished, which the Company expects will occur in the near
term.




F-19


16.
            Common
      Stock




Sales
of Common Stock


During
2007, the Company sold 2,220,922 shares of common stock for cash proceeds and
advances made on behalf of the Company of $3,572,785.  Included in
this amount are 120,259 shares of common stock to Cohiba, in exchange for
$95,000.  As of December 31, 2007, the Company has not received the
funds and has recorded the amounts due under the caption “Stock Subscription
Receivable” in the accompanying balance sheet.  In the event of
non-payment, Cohiba agrees to return the underlying shares to the
Company.




During
the year ended December 31, 2006, the Company issued 391,486 restricted shares
to various investors for $1,190,064 in cash.
 
 Issuance
of Common Stock to Consultants and Advisors
 During
2007, the Company issued 178,852 shares of common stock to consultants with an
aggregate fair value of $934,909.  The fair value of the shares was
determined based on the closing stock price at each reporting period such shares
were earned which was equal to the respective vesting date.
 
 During
2006, the Company issued 411,141 shares of common stock to consultants with an
aggregate fair value of $719,158.  The fair value of the shares was
determined based on the closing stock price at each reporting period such shares
were earned which was equal to the respective vesting date.


Issuance
of Common Stock for Settlement of Accounts Payable and Loans


During
2007, the Company issued 893,236 shares of common stock.  The
aggregate fair value of the common stock was $651,668 for the settlement of
$1,095,309 of accounts payable, resulting in a gain on extinguishment of
$443,641.  The fair value of the shares was based on the closing stock
price on the date of issuance.




During
2006, the Company issued 236,950 shares of common stock for the settlement of
accounts payable and loans.  The aggregate fair value of the common
stock was $1,084,441 for the settlement of $1,084,441 of accounts payable,
resulting in a gain on extinguishment of $443,641.  The fair value of
the shares was based on the closing stock price on the date of
issuance.




Issuance
of Common Stock Warrants to Consultants


Since the
Company’s inception, it has issued warrants to purchase common stock to certain
consultants, service providers and distributors.  The following is a
summary of the stock warrant activity.




Warrants
      Outstanding
            
            
            Weighted-Average
      Exercise PriceWarrants
      outstanding, December 31, 2005
            
            
            648,389
            
            
            $
            8.82Granted
            
            
            166,343
            
            
            
            10.00Exercised
            
            
            -
            
            
            
            -Cancelled
            
            
            (75,889
            )
            
            
            6.26Warrants
      outstanding, December 31, 2006
            
            
            738,843
            
            
            $
            9.35Granted
            
            
            284,167
            
            
            
            1.48Exercised
            
            
            -
            
            
            
            -Cancelled
            
            
            -
            
            
            
            -Warrants
      outstanding, December 31, 2007
            
            
            1,023,010
            
            
            $
            7.162007
            
            
            2006Weighted
      Average:Fair
      value
            
            $
            0.08
            
            
            $
            4.23Exercise
      price
            
            $
            7.16
            
            
            $
            9.35Risk-free
      rate
            
            
            3.5
            %
            
            
            4.6
            %Life
      (in years)
            
            
            3.1
            
            
            
            4.1Expected
      volatility
            
            
            142
            %
            
            
            137
            %Dividend
      yield
            
            
            0
            %
            
            
            0
            %






Warrants Outstanding
            
            
            Warrants
      ExerciseableRange
      of Exercise Prices
            
            
            Number
      Outstanding
            
            
            Average
      remaining life
              (in
      years)
            
            
            Weighted
      average exercise price
            
            
            Number
      of shares
            
            
            Weighted
      average exercise price$
            0.00
      - $6.00
            
            
            
            250,000
            
            
            
            4.94
            
            
            $
            0.75
            
            
            
            250,000
            
            
            $
            0.75$
            6.00
      - $12.00
            
            
            
            773,010
            
            
            
            3.06
            
            
            
            9.24
            
            
            
            773,010
            
            
            
            9.241,023,010
            
            
            
            
            
            
            
            
            
            
            
            1,023,010


For the
years ended December 31, 2007 and 2006, the Company recorded $77,055 and
$683,983, respectively in stock-based compensation for these stock
warrants.
 Issuance
of Common Stock Options to Employees
 Since the
Company’s inception, it has issued options to purchase common stock to certain
employees and officers.  The following is a summary of the stock
option activity.
 F-20
 Options
      Outstanding
                
                
                Weighted-Average
                  Exercise
      PriceOptions
      outstanding, December 31, 2005
                
                
                1,175,000
                
                
                $
                9.00Granted
                
                
                40,333
                
                
                
                12.00Exercised
                
                
                -
                
                
                
                -Cancelled
                
                
                -
                
                
                
                -Options
      outstanding, December 31, 2006
                
                
                1,215,333
                
                
                $
                9.10Granted
                
                
                283,333
                
                
                
                9.00Exercised
                
                
                -
                
                
                
                -Cancelled
                
                
                (87,500
                )
                
                
                9.00Options
      outstanding, December 31, 2007
                
                
                1,411,167
                
                
                $
                9.092007
                
                
                2006Weighted
      Average:Fair
      value
                
                $
                3.38
                
                
                $
                4.24Exercise
      price
                
                $
                9.00
                
                
                $
                12.00Risk-free
      rate
                
                
                4.50
                %
                
                
                4.65
                %Life
      (in years)
                
                
                4.0
                
                
                
                4.0Expected
      volatility
                
                
                113
                %
                
                
                137
                %Dividend
      yield
                
                
                0
                %
                
                
                0
                %
   Options
      Outstanding
                
                
                Options
      ExerciseableRange
      of Exercise Prices
                
                
                Number
      Outstanding
                
                
                Average
      remaining life (in years)
                
                
                Weighted
      average exercise price
                
                
                Number
      of shares
                
                
                Weighted
      average exercise price$
                6.00
      - $12.00
                
                
                
                1,411,167
                
                
                
                3.18
                
                
                
                9.09
                
                
                
                1,202,842
                
                
                
                9.00




For the
years ended December 31, 2007 and 2006, the Company recorded $1,301,500 and
$2,014,662, respectively in stock-based compensation for these stock
options.




On June
29, 2007, the Company's board of directors adopted the 2007 Equity Incentive
Plan (the “2007 Plan”). The 2007 Plan provides for the grant of equity awards to
directors, officers, other employees, consultants, independent contractors and
agents of the Company and its subsidiaries, including stock options to purchase
shares of the Company's common stock, stock appreciation rights (“SARs”),
restricted stock, restricted stock units, bonus stock and performance shares. Up
to 833,333 shares of the Company's common stock, subject to adjustment in the
event of stock splits and other similar events, may be issued pursuant to awards
granted under the 2007 Plan. The 2007 Plan is administered by the Board of
Directors, and expires 10 years after adoption, unless terminated earlier by the
Board.  As of December 31, 207, no stock option grants have been made
under the 2007 Plan.




17.
            Related
      Party Transactions




During
2006, the Company entered into consulting agreements with two family members of
an officer of the Company, to provide accounting, financial and systems design
services.  Under the terms of these agreements, the Company was
committed to pay an aggregate of $11,000 monthly to these
parties.  The Company believes the level of compensation is comparable
to those of unrelated third parties. These agreements were terminated in
2007.  The amounts earned by these parties totalled $9,000 and $73,000
for the years ended December 31, 2007 and 2006, respectively.




One of
the Company’s distributors is partly owned by the spouse of a member of the
Company’s board of directors.  The Company has placed approximately $23,000
of inventory, based on the Company’s cost, on consignment with this
distributor.  This distributor has made the decision to exit the
business and the Company has written off this inventory.  There were
no revenues recognized on shipments to this distributor in 2007 or
2006.




18.
            Segment
      Information




SFAS No.
131, “Disclosures
about Segments of an Enterprise and Related Information”, requires the
determination of reportable business segments (i.e., the management approach).
This approach requires that business segment information used by the chief
operating decision maker to assess performance and manage company resources be
the source for segment information disclosure. The Company operates in one
business segment: the sale of energy drinks.




Revenues
are derived from customers located within the United States.




Long-lived
assets consist of property and equipment and intangible assets located within
the United States.




19.
            Subsequent
      Events




In
February 2008, the Company received notice from an investor in a November 2005
financing that it was exercising the registration rights penalties contained in
the documentation related to that financing and that it was owed $480,897 as of
February 20, 2008.  The Company and the investor entered into a
settlement agreement that called for the Company to issue 1,602,989 shares of
unregistered common stock to this investor to settle this registration rights
claim in full.  In the financials contained herein, the Company had
accrued $133,808 in penalties related to this claim as of December 31, 2006 and
$430,417 as of December 31, 2007.


F-21




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




On
February 25, 2008, we accepted the resignation of Baum & Company, PA
(”Baum”) as our independent auditors.




On
February 25, 2008, we appointed and engaged the services of McKennon, Wilson
& Morgan LLP (“MWM”) as our independent auditors. MWM is a registered public
accounting firm with the Public Company Accounting Oversight Board and members
of the American Institute of Certified Public Accountants.  During the
two most recent fiscal years and the interim period preceding the engagement of
MWM, the Company has not consulted with MWM regarding either: (i) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements; or (ii) any matter that was either the subject of a
disagreement or event identified in paragraph (a)(1)(iv) of Item 304 of
Regulation S-K.  The decision to accept the appointment of MWM as
replacement auditors for Baum was approved by the Board on February 25,
2008.




The
report of Baum with respect to the Company's financial statements for the years
ended December 31, 2006 and 2005, contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles except for an explanatory paragraph relative to
substantial doubt about the Company’s ability to continue as a going concern.
Since appointment as the Company's independent auditors through the date of this
report, there were no disagreements between the Company and Baum on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Baum would have caused Baum to make reference to the subject
matter of the disagreements in connection with its report on the Company's
financial statements for such years through the date of this
letter.




ITEM
      8A(T).
            CONTROLS
      AND PROCEDURES




(a)
            Evaluation
      of disclosure controls and
procedures.




Our chief
executive and chief financial officers have evaluated our “disclosure controls
and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange
Act) as of December 31, 2007. These officers have concluded that our disclosure
controls and procedures werenot
effective as of December 31, 2007 to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act, is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission (“SEC”) rules and
forms.  The Company intends to design and install effective controls
in the second and third quarters of 2008.




(b)
            Changes
      in internal controls.




Subsequent
to the date of their evaluation, as described in the previous section, there
were no changes made in our internal controls over financial reporting that have
materially affected, or are reasonably likely to affect, our internal control
over financial reporting.




(c)
            Management’s
      Annual Report on Internal Control over Financial
  Reporting




Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Exchange Act Rules 13a-15(f) and
15d-15(f).  Internal control over financial reporting is defined to
mean a process designed by, or under the supervision of, the issuer’s principal
executive and principal financial officers, or persons performing similar
functions, and effected by the issuer’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.




All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.




24


Management
has not assessed, in accordance with the requirements of Exchange Act Rules
13a-15(c) and 15d-15(c), the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2007 because not all of the internal
control processes that management has identified have been fully documented and
tested due to the cost and time involved with completing the documentation and
testing. Management has, however, evaluated the effectiveness of the Company’s
internal control over financial reporting to the extent those internal controls
have been documented and tested, although not in accordance with the
requirements of Exchange Act Rules 13a-15(c) and 15d-15(c), and believes there
is non-compliance which affects the integrity and timeliness of the Company’s
financial statements and the Company has used extensive review following the
closing date for financial statements to compensate.




This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the SEC that permit the
Company to provide only management’s report in this annual report.




Pursuant
to Item 308T(a) of Regulation S-B under the Exchange Act, the information in
this Item 8A is being furnished and shall not be deemed filed for purposes of
Section 18 of the Exchange Act, or otherwise subject to the liabilities of that
section. Accordingly, the information in this Item 8A will not be incorporated
by reference into any filing by the Company under the Securities Act, or the
Exchange Act, unless specifically identified therein as being incorporated by
reference.




ITEM
      8B.
            OTHER
      INFORMATION




None.








25




PART
III




ITEM
      9.
            DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
      16(a) OF THE EXCHANGE ACT




The
following table sets forth the name, age and position of each of the members of
the Board, executive officers and promoters as of December 31,
2007:




Name
            Age
            PositionDan
      Fleyshman
            26
            President
      and DirectorEdon
      Moyal
            26
            Chief
      Executive Officer and DirectorWayne
      Anderson
            42
            DirectorJohn
      F. Moynahan
            50
            Senior
      Vice President and Chief Financial OfficerDerek
      Jones
            69
            Director




Messrs.
Fleyshman and Moyal have five-year employment agreements which commenced April
1, 2005. Mr. Moynahan has a three-year employment agreement which commenced May
9, 2007.




Information
concerning our executive officers and directors is set forth below.




Dan
Fleyshman – President and Director.




Dan
Fleyshman has been President and a Director of the Company since April 26, 2005.
Mr. Fleyshman will serve as director until the next annual meeting of
stockholders and until his successor has been duly elected and qualified. Since
2001, Mr. Fleyshman was the President of Who's Your Daddy, Inc., which was
acquired by the Company as a wholly owned subsidiary in April, 2005. Mr.
Fleyshman is primarily responsible for the strategic development of key
licensing relationships for the Company and for promotional
activities.




26


Edon
Moyal – Chief Executive Officer and Director (Chairman of the
Board).




Edon
Moyal has been Chief Executive Officer and a Director of the Company since April
26, 2005. Mr. Moyal will serve as director until the next annual meeting of
stockholders and until his successor has been duly elected and qualified. Since
2001, Mr. Moyal has been the Chief Executive Officer of Who's Your Daddy, Inc.,
which was acquired by the Company as a wholly owned subsidiary in April, 2005.
Mr. Moyal is primarily responsible for formulating the Company’s strategic plan,
developing marketing strategies and new product concepts, establishing
distribution channels, analyzing branding initiatives, developing new licensing
opportunities, recruiting and developing key executives for the organization and
sourcing capital to ensure the continued growth of the Company.


Wayne Anderson
- Director.




John
F. Moynahan – Senior Vice President and Chief Financial Officer.




From June
2006 to May 2007, Mr. Moynahan was President and Managing Director of NovaStar
Group, Inc., a private consulting company specializing in financing, strategic
planning, and business planning for emerging growth companies. From November
2005 until June 2006, and from April 1999 to February 2003, Mr. Moynahan was
Senior Vice President and Chief Financial Officer for Xybernaut Corporation, a
publicly-traded technology company. From May 2004 until October 2005, Mr.
Moynahan was Vice President Finance and Corporate Development for Innovative
Technology Applications, Inc., a private high-technology defense contractor to
the U.S. government. From February 2003 until May 2004, he was Senior Vice
President and Chief Financial Officer for CardSystems Solutions, Inc., a credit
card processing company. Mr. Moynahan is responsible for all filings with the
SEC, for the Company’s books and records and all aspects of its accounting
system.




Derek Jones – Director.




Derek
Jones was appointed as Director of the Company on April 26, 2005. Mr. Jones will
serve as director until the next annual meeting of stockholders and until his
successor has been duly elected and qualified. For more than the past nine
years, Mr. Jones has been a consultant and telecom analyst. Mr. Jones, since
2003, has served as a Director of Native American Studies and Fund Raising
Division of the Rio Grande Foundation, a New Mexico free market research and
educational organization dedicated to the study of public policy. Along with his
background in Business Administration, Mr. Jones brings to the Company his
knowledge and 35 years experience in the area of corporate development and
finance as well as his background in the areas of International Finance and
business affairs.




Significant
Employees




Joseph
Conte, 45, has served as our Executive Vice President of sales from June 2006 to
the present. From 1999 to 2002, Mr. Conte worked with one of the largest urban
closeout resellers in the United States. From 2002 to May 2006, Mr. Conte worked
with a company that developed and sold multiple products to retailers. One of
the products was energy and functional beverages.




Family
Relationships




There are
no family relationships between or among the directors, executive officers or
persons nominated or chosen by the Company to become directors or executive
officers.




Involvement
in Certain Legal Proceedings




To the
best of our knowledge and belief during the past five years, other than what has
been reported herein, none of the following occurred with respect to a present
or former director, executive officer, or employee of the Company: (1) any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time; (2) any conviction in a criminal proceeding
or being subject to a pending criminal proceeding (excluding traffic violations
and other minor offenses); (3) being subject to any order, judgment or decree,
not subsequently reversed, suspended or vacated, of any court of any competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities; and (4) being found by a court of competent jurisdiction (in
a civil action), the SEC or the Commodities Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment has
not been reversed, suspended or vacated.




27


Term
of Office




Our
directors are appointed for a one year term to hold office until the next annual
general meeting of our shareholders or until removed from office in accordance
with our bylaws. Our officers are appointed by our Board and hold office until
expiration of their employment contractors or until removed by the
Board.




Audit
Committee




We do not
have a separately-designated standing audit committee. The entire Board is
acting as our audit committee under the direction of one of our independent
auditors.




Section
16(a) Beneficial Ownership Reporting Compliance




Section
16(a) of the Exchange Act requires the Company’s Board and executive officers
and persons who beneficially own more than ten percent (10%) of a registered
class of the Company’s equity securities to file with the SEC initial reports of
ownership and reports of change in ownership of common stock and other equity
securities of the Company. Officers, directors and greater than ten percent
(10%) shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. To our knowledge, the following
persons have failed to file, on a timely basis, the identified reports required
by Section 16(a) of the Exchange Act during the most recent fiscal year:
none.




Code
of Ethics Disclosure Compliance




The
Company has a Code of Ethics that applies to the principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions, as described in sections 406 and 407 of
the Sarbanes-Oxley Act of 2002. The Code of Ethics was attached as an exhibit to
the 2006 Annual Report on Form 10-KSB and is attached hereto as Exhibit
9.1.




ITEM
      10.
            EXECUTIVE
      COMPENSATION




The
directors of the Company receive 1,250 restricted shares of the Company’s common
stock each quarter, starting in the first quarter of 2006, in their capacity as
a director. Our Chief Executive Officer and the registrant’s three most highly
compensated executive officers are compensated as employees, as per their
employment agreements, as detailed in Note 9 to the Financial Statements. There
are no other officers in the Company and there are no other employees who earn
over $100,000.




Exhibit
10.1 presents the Executive Compensation required to be disclosed by Item 402(b)
of Reg. S-B.




28


ITEM
      11.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS




The
following table sets forth certain information as of December 31, 2007,
regarding (i) each person known by us to be the beneficial owner of more than
five percent (5%) of the outstanding shares of our common stock, (ii) each
director and named executive officer of the Company, and (iii) all officers and
directors as a group. Each person named in the table has sole voting and
investment power with respect to all shares shown as beneficially owned by such
person.




Title
      of Class
            Name/Address
      of
            
            Amount
      and Nature
            
            
            PercentageBeneficial
      Owner*
            
            of
      Beneficial
            
            
            OfOwnership (1)
            
            
            Securities(2)Common
      Stock
            Derek
      Jones
            
            
            8,750
            
            
            
            0.1
            %Common
      Stock
            Edon
      Moyal
            
            
            679,230
            
            
            
            6.1
            %Common
      Stock
            Dan
      Fleyshman
            
            
            679,230
            
            
            
            6.1
            %Common
      Stock
            John
      F. Moynahan
            
            
            83,333
            
            
            
            0.7
            %Common
      Stock
            Wayne
      Anderson(3)
            
            
            788,698
            
            
            
            7.1
            %Common
      Stock
            All executive
      officers and
      directors as a group (5
      persons)
            
            
            2,248,011
            
            
            
            20.1
            %




* The
address of each of the indicated holders is c/o Who’s Your Daddy, Inc., 5840 El
Camino Real, Suite 108, Carlsbad, CA 92008.




(1)
Pursuant to SEC rules, a person is deemed to “beneficially own” shares of common
stock over which the person has or shares investment or voting power, or has the
right to acquire such power within 60 days.




(2) The
percentage of common stock owned is calculated based on the number of shares of
common stock outstanding, plus in the case of each person the number of shares
of common stock issuable only to such person upon the exercise of options or
warrants and the conversion of convertible debt securities.








Securities
Authorized for Issuance Under Equity Compensation Plans




We have
not issued any securities to our officers or directors under our 2007 Equity
Incentive Plan.








ITEM
      12.
            CERTAIN
      RELATIONSHIPS AND RELATED
TRANSACTIONS




None




29




ITEM
      13.
            EXHIBITSExhibit
      No.
            Exhibit
      Description2.1
            Agreement
      and Plan of Merger by and among Snocone Systems Inc., WYD Acquisition
      Corp. and Who’s Your Daddy, Inc. dated April 1, 2005 (incorporated by
      reference to Exhibit 2.1 of the Current Report on Form 8-K filed on April
      7, 2005).3.1
            Amended
      and Restated Articles of Incorporation dated December 4, 2001
      (incorporated by reference to Exhibit 3.1 of Form 10-SB filed on January
      1, 2002).3.2
            Amended
      and Restated Bylaws dated December 4, 2001 (incorporated by reference to
      Exhibit 3.2 of Form 10-SB filed on January 1, 2002).4.1
            Specimen
      Common Stock Certificate (1)9.1
            Who’s
      Your Daddy, Inc. Code of Ethics (incorporated by reference to Exhibit 9.1
      to the Annual Report on Form 10-KSB for the year ended December 31,
      2006).10.1
            Registration
      Rights Agreement (incorporated by reference to Exhibit 10.2 to the Current
      Report on Form 8-K filed by the Company on May 15,
  2007).10.1(a)
            Amendment
      to Registration Rights Agreement (incorporated by reference to Exhibit
      10.2 to the Current Report on Form 8-K filed by the Company on June 28,
      2007).10.2
            2007
      Equity Incentive Plan (incorporated by reference to Exhibit A to Schedule
      14A (Definitive Proxy Statement) filed by the Company on June 22,
      2007).10.3
            Form
      of November 13, 2007 Settlement Agreement with Cohiba et. al. regarding
      issuance of common stock to settle cash advances.10.4
            Form
      of December 7, 2007 Settlement Agreement with King of Energy West to issue
      common stock and a warrant to settle amounts owed to King of Energy West
      by the Company and for the Company to purchase its energy drink products
      previously sold to King of Energy West.10.5
            Form
      of December 7, 2007 Settlement Agreement with Fuskandrakis LLC to issue
      common stock to Fuskandrakis LLC to settle amounts owed by the
      Company.16
            Letter
      from Baum & Co., P.A. to the Securities and Exchange Commission
      (incorporated by reference to Exhibit 16.1 to the Current Report on Form
      8-K filed on March 3, 2008.24
            Power
      of attorney (contained on signature page)31.1
            Certification
      by the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) under
      the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.31.2
            Certification
      by the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) under
      the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.32.1
            Certification
      by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
            Certification
      by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.




30


ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES




Audit
      Services
            
            
            Audit
      Related Fees
            
            
            Tax
      Fees
            
            
            Other
      FeesBaum
      & Co.2006
            
            
            40,000
            
            
            
            0
            
            
            
            0
            
            
            
            02007
            
            
            35,000
            
            
            
            0
            
            
            
            0
            
            
            
            0McKennon,
      Wilson & Morgan LLP2007
            
            $
            56,000
            
            
            
            0
            
            
            
            0
            
            
            
            0










31


SIGNATURES




In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.




WHO’S
YOUR DADDY, INC.




By:/s/    Edon
      MoyalName:  Edon
      MoyalTitle:  Chief
      Executive OfficerDate:  May
      12, 2008




KNOW ALL
MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Who’s
Your Daddy, Inc., hereby severally constitute Edon Moyal our true and lawful
attorney with full power to him to sign for us and in our names in the
capacities indicated below, the Form 10-KSB filed herewith and any and all
amendments to said Form 10-KSB, and generally to do all such things in our names
and in our capacities as officers and directors to enable the Company to comply
with the provisions of the Securities Exchange Act of 1934, as amended, and all
requirements of the U.S. Securities and Exchange Commission, hereby ratifying
and confirming our signatures as they may be signed by our said attorneys, or
any of them, to said Form 10-KSB and any and all amendments
thereto.




This
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:




Name
            Title
            DateDan
      Fleyshman
            President
      (Principal Executive Officer) and Director
            May
      12, 2008Edon
      Moyal
            Chief
      Executive Officer (Principal Executive Officer) and
    Director
            May 12,
      2008John
      F. Moynahan
            Chief
      Financial Officer (Principal Accounting and Financial
    Officer)
            May 12,
      2008Derek
      Jones
            Director
            May
      12, 2008Wayne
      Anderson
            Director
            May
      12, 2008

























32