Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-K**

 

**x****ANNUAL REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year endedDecember 31, 2008**

 

**or**

 

**o****TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**Forthe transition period from                              to                              **

 

**Commission file number: 0-33519**

 

**WHO’S YOUR DADDY, INC.**

(Exact name of registrant as specified in itsCharter)

 

| **Nevada**                       |   | **98-0360989**      |
|----------------------------------|--------|---------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer    |
| incorporation or  organization)  |   | Identification No.) |

 

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

(Address of principal executive offices)

 

Registrant’s telephone number, including areacode: **(760) 438-5470**

 

Securities registered pursuant to Section 12(b) ofthe Act: **None**

 

Securities registered pursuant to Section 12(g) ofthe Act:

 

**Common Stock, $0.001 par value**

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act. o Yes x No

 

Indicate by check mark if the registrant is not required to file reportspursuant to Section 13 or 15(d) of the Act. o Yes x No

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be containedherein, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-kor any amendment to this Form 10-k. o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

| Large  accelerated filer | o | Accelerated  filer         | o |
|--------------------------|---|----------------------------|---|
| Non-accelerated  filer   | o | Smaller  reporting company | x |

 

Indicate by check mark whether the registrantis a shell company. o Yes x No

 

Theaggregate market value of the voting and non-voting common equity held bynon-affiliates of the registrant on April 13, 2009 was approximately$888,270.42.

 

Theregistrant had 20,903,883 shares of common stock and 333,334 shares ofpreferred stock outstanding as of April 9, 2009.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

The following documents are incorporated herein byreference in Part III, Item 15: (i) Current Report on Form 8-K,filed on April 7, 2005, (ii) Registration Statement on Form 10SB,filed on January 18, 2002, (iii) Current Report on Form 8-K,filed on May 14, 2007, (iv) Current Report on Form 8-K, filed onJune 28, 2007, (v) Definitive Schedule 14A, filed on June 22,2007, (vi) AnnualReport on Form 10-K, filed on May 12, 2008, (vii) Current Report on Form 8-K, filed onJuly 23, 2008, (viii) Current Report on Form 8-K, filed on October 16,2008, (ix) Current Report on Form 8-K, filed on January 29,2009, and (x) AnnualReport on Form 10-K, filed on April 16, 2007.

 

 

 

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**TABLE OFCONTENTS**

 
| ** **        | ** **                                                                                       | **Page** |
|-------------------|--------------------------------------------------------------------------------------------------|----------|
|              |                                                                                             |     |
| **PART I**   |                                                                                             |     |
|              |                                                                                             |     |
| ITEM 1            | BUSINESS                                                                                         | 1        |
|              |                                                                                             |     |
| ITEM 1A           | RISK FACTORS                                                                                     | 5        |
|              |                                                                                             |     |
| ITEM 1B           | UNRESOLVED  STAFF COMMENTS                                                                       | 5        |
|              |                                                                                             |     |
| ITEM 2            | PROPERTIES                                                                                       | 5        |
|              |                                                                                             |     |
| ITEM 3            | LEGAL PROCEEDINGS                                                                                | 5        |
|              |                                                                                             |     |
| ITEM 4            | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                             | 7        |
|              |                                                                                             |     |
| **PART II**  |                                                                                             |     |
|              |                                                                                             |     |
| ITEM 5            | MARKET  FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 7        |
|              |                                                                                             |     |
| ITEM 6            | SELECTED FINANCIAL  DATA                                                                         | 9        |
|              |                                                                                             |     |
| ITEM 7            | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      | 9        |
|              |                                                                                             |     |
| ITEM 7A           | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                      | 17       |
|              |                                                                                             |     |
| ITEM 8            | FINANCIAL STATEMENTS  AND SUPPLEMENTARY DATA                                                     | 18       |
|              |                                                                                             |     |
| ITEM 9            | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE            | 43       |
|              |                                                                                             |     |
| ITEM 9A           | CONTROLS AND PROCEDURES                                                                          | 43       |
|              |                                                                                             |     |
| ITEM 9A(T)   | CONTROLS AND  PROCEDURES                                                                         | 45       |
|              |                                                                                             |     |
| ITEM 9B           | OTHER INFORMATION                                                                                | 45       |
|              |                                                                                             |     |
| **PART III** |                                                                                             |     |
|              |                                                                                             |     |
| ITEM 10           | DIRECTORS,  EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE                                         | 46       |
|              |                                                                                             |     |
| ITEM 11           | EXECUTIVE  COMPENSATION                                                                          | 47       |
|              |                                                                                             |     |
| ITEM 12           | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND RELATED STOCKHOLDER MATTERS  | 48       |
|              |                                                                                             |     |
| ITEM 13           | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                       | 49       |
|              |                                                                                             |     |
| ITEM 14           | PRINCIPAL  ACCOUNTING FEES AND SERVICES                                                          | 49       |
|              |                                                                                             |     |
| PART IV      |                                                                                             |     |
|              |                                                                                             |     |
| ITEM 15           | EXHIBITS,  FINANCIAL STATEMENT SCHEDULES                                                         | 50       |
|              |                                                                                             |     |
| SIGNATURES        | 52                                                                                               |

 

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**PART I**

 

**ITEM 1.          BUSINESS**

 

**BusinessDevelopment**

 

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

 

Thetransaction was accounted for by our auditors as a reverse-acquisition becausecontrol of Snocone Systems, Inc. passed to WYD’s shareholders, and WYD wasconsidered as the accounting acquirer and therefore its accounting history wascarried forward as our history.  On April 13,2005, the shareholders of Snocone Systems, Inc. voted to change our nameto Who’s Your Daddy, Inc.

 

Afterdeveloping an energy drink, we changed our primary business to the manufacture,sale and distribution of ready-to-drink The King of Energy® beverages centeredon our trademark-protected brand, Who’s Your Daddy®.  Although our primary focus is to expand uponsales of our energy drinks, we are exploring opportunities for the licensing ofour proprietary name Who’s Your Daddy® for products that can take advantage ofthis distinctive name, including related products such as energy bars andconcentrated energy “shots.”  Wecurrently hold various trademark rights under the Who’s Your Daddy® name in theUnited States and Europe.

 

**Descriptionof Business**

 

***Who’s Your Daddy® The King of Energy***®***Products***

 

Thebusiness strategy behind our The King of Energy® energy drinks focuses onmaintaining the edge, energy and humor behind our brand, while continuing tobuild brand awareness and recognition. Our target market includes young adults who seek alternatives to bad tastingenergy drinks, coffee, and other stimulants. As part of our strategy, we have developed products and events thatappeal to this group, and we continue to assess opportunities to expand ourproduct lines and distribution worldwide. Our The King of Energy® energy drinks are designed to be positionedwithin mass-market retail outlets, offering high-quality, cutting-edge productswith eye-catching packaging.

 

Oneof our most exciting products is the “energy shot,” which is a concentrated twoounce energy drink, designed to provide a zero calorie, sugar free, rapid andlasting energy boost which enhances muscle strength and endurance.  One of the important ingredients in theenergy shot is L-Arginine.   Argininein an amino acid and is essential for optimum growth and in the regulation ofprotein metabolism.  It is wellestablished that Arginine facilitates the release of growth hormone (HGH),stimulates the pancreas for insulin production, and is a component in thehormone vasopressin produced by the pituitary gland. HGH-release by means ofArginine may offer benefits in the treatment of injuries, as well asstrengthening the immune system, building lean muscle, burningfat.  Arginine is also required by the body to carry out thesynthesis of nitric oxide, a compound that, working through cGMP, relaxes bloodvessels and allows more blood to flow 

 

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througharteries.  It has been hypothesized thattaking extra Arginine will increase nitric oxide levels and increase bloodflow.  The energy shot was made available to the retail and wholesalemarket in mid-November 2008.

 

OurThe King of Energy® energy drinks come in two flavors and four distinctformulas.  We have regular and sugar-freeversions of our unique cranberry-pineapple flavor, which we started shipping inthe third quarter of 2005, as well as regular and sugar-free versions of ourgreen tea flavor.  We introduced ourregular green tea beverage in July 2006. In February 2007, we began shipping our sugar-free green teaflavored beverage.  For this product, weare targeting women and the more mature generation who are interested in theanti-oxidants, cleansing, and weight loss features of green tea.  This expands the scope of retailers who cancarry our products, since many green tea retailers do not carry energy drinks.

 

Aftertesting and experimenting with flavors and taking approximately 50 differentformulas through “blind” taste tests, we selected the cranberry-pineappleflavor for our flagship product.  By far,this formulation was found to enjoy the broadest consumer appeal with thetarget 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 four flavors of ourThe King of Energy® energy drinks – cranberry-pineapple in regular andsugar-free and green tea in regular and sugar-free.  Unlike many of the other energy drinks on themarket, our The King of Energy® energy drinks taste good and are similar todrinking a soda or fruit punch. Formulated with taurine and caffeine, our energy drinks are designed toenergize and improve mental performance while increasing concentration,alertness and physical endurance.

 

**Business Plan**

 

OnMay 28, 2008, we instituted management changes in an attempt to attractadditional investment capital and revise our marketingstrategy.  Michael R. Dunn assumed the positions of Chairman of theBoard of Directors and Chief Executive Officer. We intend to use any new capital to initiate the strategy below, in anattempt to increase sales and enhance profit margins while securing brandrecognition in the energy drink market.

 

Ourstrategy during the second quarter of 2008 was to market the product linethrough affiliations with recognizable sports athletes in specific targetedgeographic areas.  In the second quarterof 2008, we initiated a program with Andre Reed, a former professional footballplayer with the Buffalo Bills and with Top’s Friendly Markets, which has 72stores in Buffalo and the surrounding areas. We believe that, in order to sell our energy drink products, we need tosupport the product by extensive media advertising and in-store tastings.  Inour initial order with Top’s Markets, we shipped 4,560 cases to kick offCampaign 83, which was affiliated with Women’s and Children’s Hospital ofBuffalo as the charity.  The project donated $10,000 to charity, butwas discontinued during the middle of September due to the downturn in theeconomy.  We will focus the majority of our efforts in marketing thenew Who’s Your Daddy Sport Energy Shot while working on international sales forour drink line during the fourth quarter of 2008.

 

Oneof our most exciting products is the “energy shot,” which is a concentrated twoounce energy drink, designed to provide a rapid and lasting energy boost.  The energy shot contains antioxidants,L-Argenine, pomegranate extract, caffeine, taurine, guarana, ginseng and avitamin B complex.  This product istypically sold at point of purchase in convenience and grocery stores.  By introducing the product, we believe wewill be able to attract a new category of distributors who service the candy,tobacco and other ancillary items in convenience stores across thecountry.  We expect to be able to selldirectly to large regional and national retail chains in areas where we do nothave distributors.  Some of the majorbenefits of the product include reduced shipping fees, 

 

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warehousefees, and increased product longevity. The profit margin on the energy shot is substantial and offers the retailerthree to four times the profit than sales from candy.  We believe the product can also openadditional distributing opportunities if we achieve sales levels that meet theexpectation of the retailer.  The abilityto sell the energy shot at the cash register will significantly enhance thepotential for sale of our product line in the energy drink section of thestore.

 

On November 21, 2008, we entered into a Master DistributorAgreement (the “Distributor Agreement”) with Beryt Promotion, LLC, a Nevada limitedliability company (the “Distributor”). The Distributor Agreement, which has a term of one year, provides that,in exchange for the Distributor acting as the exclusive distributor of ourproducts, with the right to sub-distribute, we shall: (1) sell ourproducts to the Distributor at a discount to the retail price; and (2) issueto the Distributor 100,000 shares of our common stock.  Subsequently, we issued an additional1,000,000 shares of common stock to Ramon DeSage for marketing and promotionalexpenses in December 2008 and another 1,000,000 shares of common stock in February 2009.  The Who’s Your Daddy® Sport Energy shot iscurrently in Caesars Palace, Flamingo Hotel, Paris Las Vegas, Bally’s Hotel,Rio Hotel, Harrah’s Hotel, Imperial Palace, Bill’s Gambling Hall, Luxor,Excalibur, Circus Circus, Monte Carlo, Mandalay Bay, New York New York,Stratosphere, Planet Hollywood Venetian Hotel, LAX Night Club, Dick’s LastResort, Coyote Ugly, Pure Night Club and Prive Night Club.  Additionally, Mr. DeSage has been ableto market the product to almost every gift shop and hotel in Las Vegas whilepaying almost all of the marketing costs, due to our limited cash resources.

 

Through one of his companies,Cadeau Express, Mr. DeSage caters to hotels and casinos which roll out thered carpet for selective guests and high-end gamblers.  Cadeau Express stocks over 14,000 differentitems including a full line of jewelry, crystal, watches, writing instruments,fragrances, electronics, promotional items, leather goods, and fashionaccessories.  Mr. DeSage has theexpertise to provide guidance for effective ways to promote special events ordevelop an incentive or premium give-away program to enhance our businessgoals.

 

OnJanuary 26, 2009, we entered into a Marketing & RepresentationAgreement with Leigh Steinberg Sports & Entertainment LLC, a Nevadalimited liability company (“LSSE”).  Theagreement with LSSE includes marketing, public relations, and merchandisingservices, including introductions, negotiations, and support for ourproducts.  For over 35 years, LeighSteinberg has pioneered the sports management industry, setting the standardfor excellence in athlete representation. He has represented the first pick of the first round of the NFL draft arecord-breaking eight times and 60 overall first round NFL picks.  Leigh’s unrivaled history of negotiatingrecord-setting contracts and tireless dedication to charitable activities arethe cornerstones of his business.  Amongmany others, Leigh has represented Hall of Famers, Steve Young, Troy Aikman andThurman Thomas, heavyweight champion Lenox Lewis and Major League Baseballstars such as Will Clark, Shawn Green and Orlando “El Duque” Hernandez, all ofwho have worked with Leigh as a part of their contracts to donate a combinedamount of more than $250 million for various charitable causes.  On April 06, 2009 LSSE and Who’s YourDaddy, Inc. announced an endorsement deal with undefeated heavyweightboxing contender, Chris Arreola.  Ourannouncement was days before Arreola’s April 11, 2009 boxing match againstheavyweight veteran, Jameel McCline, at the Mandalay Bay Hotel &Casino in Las Vegas.  Under the terms ofthe agreement, Arreola wore our brand logo on his trunks during the fight andwould also promote our products through the use of his likeness on our website.

 

Arreola,whose nickname is “The Nightmare,” and who is of Hispanic American descent,exemplifies the type of athlete we want to associate with.  As a Mexican Heavyweight, he has a 

 

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chanceto make history and we want to be associated with him as he continues his questto become the first Mexican Heavyweight Champion of the world.  The endorsement of Arreola (26-0, 23knockouts) represents an aggressive and strategic move into the sport of boxingby the company.

 

**The Industry**

 

Energydrinks are beverages with legal stimulants, vitamins, and minerals that giveusers a lift of energy.  Common ingredients are caffeine, taurine,ginseng, sugars, and various amounts of vitamins and minerals.  Theproduct is consumed by individuals who are explicitly looking for the extraboost in energy – college students, the “on-the-go” average person, and thoseseeking an alternative to coffee.  Overthe last few years, the United States energy drink sector has witnessed stronggrowth.  In 2006, the sector experienced growth of over 40% to reach$5 billion in the United States.  According to Beverage Digest, theenergy drink sector is projected to reach $8 billion by 2009.

 

**Marketing and Distribution**

 

Weproduce our The King of Energy® energy drinks at facilities utilized by knownnational brands such as 7-UP®, RC Cola® and Pepsi®.  We also utilizepremier American canners –*Ball Corporation*on the west coast and*Rexam Beverage CanCompany* on the east coast.

 

Wehave established distribution agreements with some of the largest and mostrespected beer and beverage distributors in the United States.  Our energy drinks have received greatreviews, from media to end users, which has supported our signing on newdistributors and retailers.  Existing andnew strategic relationships play a large role in our expansion, and we arestrategically selective in building our distribution network.  Our business strategy is to concentrate on atargeted geographic area focusing on California, Arizona, Nevada, Florida,Texas and the northeast United States.

 

Beveragecompanies much larger than our organization dictate the standards of productionat our manufacturing facilities.  Thisallows us to utilize the existing established high standards without theexpenditure of funds on developing standards. Selection of bottlers is primarily governed by their capability tohandle 16 ounce and 8.4 ounce cans, their proximity to our geographical marketsof activity and available plant capacity, pricing, terms and storage facilitiesat the plant.

 

Acompetitive environment exists in selecting and targeting distributors. Factorsaffecting the selection decision include existing distribution andinfrastructure of trucks and warehousing facilities, marketing efforts andeffectiveness, existing complementary and/or competing product lines,reputation in the marketplace and the ability to fulfill their volumeagreements.  Our choices are gearedtoward developing a long-term relationship with distributors, as their effortsdirectly affect our revenues and profitability.

 

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

 

**Competition**

 

Thebeverage industry is intensely competitive and significantly affected by newproducts introductions and other market activities of industry participants.  The principal areas of competition arepricing, packaging, development of new products and flavors and marketingcampaigns.  Our products compete with awide range of drinks produced by a relatively large number of manufacturers,most of which have substantially greater financial, marketing and 

 

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distributionresources than we do.  Our The King ofEnergy® energy drinks are subject to extensive competition by numerous domesticand foreign companies.  Such competitorsinclude Red Bull®, Rockstar®, Monster Energy® and Full Throttle® drinks, whichare the industry leaders in sales, among many others.

 

**Intellectual Property**

 

Wemanufacture, promote and sell our The King of Energy® energy drinks under ourtrademark-protected brand, Who’s Your Daddy®.  Depending upon thejurisdiction, trademarks are valid as long as they are in use and/or theirregistrations are properly maintained and they have not been found to havebecome generic.  Registrations of trademarks can generally be renewedas long as the trademarks are in use.  We have developed and own theformula to all of The King of Energy® flavors and our pomegranate energy “shot.”

 

**Employees**

 

Asof the date of this Report, we employed three persons, all of whom arefull-time.  We retain independentcontractors as needed.  None of ouremployees are represented by labor unions and we believe that our employeerelations are satisfactory.

 

**ITEM 1A.       ****RISK FACTORS**

 

Weare a smaller reporting company as defined by Rule 12b-2 of the SecuritiesExchange Act of 1934 and are not required to provide the information under thisitem.

 

**ITEM 1B.       ****UNRESOLVED STAFF COMMENTS**

 

Weare a smaller reporting company as defined by Rule 12b-2 of the SecuritiesExchange Act of 1934 and are not required to provide the information under thisitem.

 

**ITEM 2.          PROPERTIES**

 

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

 

**ITEM 3.          ****LEGAL PROCEEDINGS**

 

OnJuly 19, 2006, we received a Demand for Arbitration filed with theAmerican Arbitration Association from Sacks Motorsports Inc. seeking damagesarising out of a sponsorship contract. On February 13, 2007, the Arbitrator awarded Sacks Motorsports Inc.$1,790,000.  This amount was taken as anexpense in the quarter ending December 31, 2006 and is fully reserved onthe balance sheet.  On August 6,2007, we filed a petition in U.S. District Court asking the judge to either: (1) orderthe arbitrator to reopen the arbitration and allow for discovery regarding whatwe believe to be significant new evidence to have the award vacated; or (2) toallow us to conduct such discovery in the U.S. District Court proceedingregarding what we believe to be significant new evidence to have the awardvacated.  On May 27, 2008, the Courtdenied our petition and entered judgment in favor of Sacks for the principalsum of $1,790,000 together with post-award interest from February 13,2007.  On July 16, 2008, we enteredinto an Assignment of Claims Agreement 

 

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(“AssignmentAgreement”) with Anga M’Hak Publishing and Edward Raabe, for the considerationof 150,000 shares of common stock and $100,000 in cash out of the proceeds ofour proposed private placement.  Webelieve Anga M’Hak has a claim to offset the judgment of approximately$1,500,000 against Sacks Motorsports.  Aspart of the Assignment Agreement, Anga and Raabe agreed to execute affidavitsdetailing their entitlement to the above-referenced claims and monies.  In addition, they agreed to appear fordepositions and as witnesses in court and to otherwise fully cooperate in ourpursuit of these claims.  We believetheir affidavits will indicate that Sacks Motorsports, Inc. perpetratedfraud by not having the authority to enter into the contract, which wrongfullycreated the judgment in favor of Sacks Motorsports, Inc.  We expect to file a motion with theappropriate California court to validate this assignment and offset anyremaining obligation.

 

OnMay 8, 2007, we were served with a summons and complaint in a lawsuitfiled in the San Diego Superior Court by Christopher Wicks and Defiance U.S.A., Inc.seeking judgment against us, Edon Moyal and Dan Fleyshman under a contractallegedly calling for the payment of $288,000 in cash plus stock in oursubsidiary, Who’s Your Daddy, Inc., a California corporation, and acertain percentage of the revenues of that subsidiary.  On February 1, 2008, we entered into aSettlement Agreement and Mutual Release with the plaintiffs pursuant to whichwe agreed to pay to the plaintiffs the sum of $252,000 under a payment scheduledetailed therein.  As security for thesettlement payment, defendants Fleyshman and Moyal together pledged 319,294shares of common stock in the Company owned and held by them.  We are currently in default of the SettlementAgreement.

 

OnMarch 19, 2008, a complaint was filed against us by Get Logistics, LLC(formerly known as GE Transport) seeking damages of $30,278.72 for unpaidshipping charges.  We are attempting tosettle this matter.

 

OnApril 1, 2005, we received a complaint filed by Who’s Ya Daddy, Inc.,a Florida corporation (“Daddy”), alleging that we were infringing on Daddy’strademark, Who’s Ya Daddy®, with respect to clothing.  On April 7, 2006, we entered into asettlement agreement with Daddy pursuant to which we were granted an exclusivelicense to use our marks on clothing in exchange for a royalty payment of 6% ofgross sales for clothing products in the United States, excludingfootwear.  As part of the settlement, wealso agreed to remit to Daddy 12% of the licensing revenues received from thirdparties who we granted sublicense to for use of the marks on clothing.  We have not made any of the required paymentsunder the settlement agreement.  On March 26,2008, we, Dan Fleyshman and Edon Moyal each received a Notice of Levy from theUnited States District Court for the Southern District of California in theamount of $143,561 allegedly pursuant to the terms of the settlement agreementwith Daddy.  We settled the debt on March 4,2009 for $125,000 of which $25,000 was paid through a loan by an officer.  The next payment of $10,000 is due April 30,2009 and $10,000 is due every 60 days thereafter until the full amount is paid.

 

Onor about May 16, 2008, Fish & Richardson, P.C. (“Fish”) filed anaction against us in the Superior Court of California, County of San Diego,asserting claims for breach of a settlement agreement purportedly entered intoin connection with fees allegedly owed by us to Fish for Fish’s provision oflegal services on our behalf in the approximate amount of $255,000.  We asserted that the settlement agreement isvoid and that Fish failed to act as reasonably careful attorneys in connectionwith their representation of us.  Fishhas a motion for summary judgment scheduled to be heard on April 17, 2009.

 

OnJuly 30, 2008, we entered into a Compromise and Settlement Agreement andMutual Release with Straub Distributing, L.L.C., a California Limited LiabilityCorporation.  We paid $7,500 on July 30,2008 and were required to make three payments of $7,250 every sixty daysthereafter until 

 

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Straubreceived a total sum of $22,000.  As partof the Settlement Agreement if any of the payments were late by more thanfifteen days, then Straub Distributing Company would file a judgment in theamount of $40,000 against us plus attorney fees, costs and expenses to enforcethe judgment.  As part of the SettlementAgreement, the judgment would be reduced by the amount payments received.  We made one additional payment of $7,200,then went into default on the Settlement Agreement.  The judgment was filed against us on January 2,2009 in the principal sum of $25,300.

 

OnMarch 3, 2009, a judgment was entered against us in favor of WorldWideExpress.  We were paying $1,200 per monthagainst an original amount owed of $18,781.42. We had paid $10,948.90 and the remaining amount owed is $9,085.75.

 

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

 

During the 2008 fiscal year, no matters were submitted to a vote of theCompany’s shareholders.

 

**PART II**

 

**ITEM 5.          ****MARKET FOR COMMON EQUITY, RELATEDSTOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

 

**Market Information**

 

Ourcommon stock is currently quoted under the symbol “WYDI” on theover-the-counter (“OTC”) Bulletin Board quotation system.  The following table reflects on a per sharebasis the reported high and low bid prices of our Common Stock for each quarterfor the period indicated as reported by the OTC Bulletin Board.  Such prices are inter-dealer prices withoutretail mark-up, mark-down, or commission and may not represent actualtransactions.  The information providedin the table below reflects the per share price after taking into considerationthe 6-for-1 reverse stock split of all of our outstanding common stockeffective October 30, 2007.

 

**YEAR ENDEDDECEMBER 31, 2007**

 

| **QUARTER ENDED**   | ** ** | **HIGH** | ** ** | **LOW** | ** ** |
|--------------------------|------------|----------|------------|---------|------------|
| March 31,  2007     |       | $        | 6.48       |    | $          | 3.21 |   |
| June 30,  2007      |       | $        | 7.74       |    | $          | 3.72 |   |
| September 30,  2007 |       | $        | 4.92       |    | $          | 1.62 |   |
| December 31,  2007  |       | $        | 2.43       |    | $          | 0.18 |   |

 

**YEAR ENDEDDECEMBER 31, 2008**

 

| **QUARTER ENDED**   | ** ** | **HIGH** | ** ** | **LOW** | ** ** |
|--------------------------|------------|----------|------------|---------|------------|
| March 31,  2008     |       | $        | 0.26       |    | $          | 0.13 |   |
| June 30,  2008      |       | $        | 0.45       |    | $          | 0.16 |   |
| September 30,  2008 |       | $        | 0.32       |    | $          | 0.04 |   |
| December 31,  2008  |       | $        | 0.12       |    | $          | 0.02 |   |

 

OnApril 13, 2009, the closing price for our common stock was $0.06.

 

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**Holders of Common Stock**

** **

Accordingto the records of our transfer agent, Holladay Stock Transfer, as of April 9,2009, we had approximately 162 holders of record of our common stock.

 

**Dividends**

** **

Wehave never paid dividends on our stock and have no plans to pay dividends inthe near future.  We intend to reinvestearnings in the continued development and operation of our business.

 

**Equity Compensation Plan Information**

** **

Thefollowing table gives information about our common stock that may be issuedupon the exercise of options under all of our equity compensation plans as of December 31,2008.

 
| **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))** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **(a)**                                                                                                                                          | ** ** | **(b)**                                                                                                     | ** ** | **(c)**                                                                                                                                                                                                  | ** ** |
| ** **                                                  | ** ** | ** **                                                                                                                                       | ** ** | ** **                                                                                                  | ** ** | ** **                                                                                                                                                                                               | ** ** |
| Equity  compensation plans approved by security holders     |       | 0                                                                                                                                                |       | 0                                                                                                           |       | 833,334                                                                                                                                                                                                  |       |
|                                                        |       |                                                                                                                                             |       |                                                                                                        |       |                                                                                                                                                                                                     |       |
| Equity  compensation plans not approved by security holders |       | 2,184,177                                                                                                                                        |       | $                                                                                                           | 7.16       |                                                                                                                                                                                                     | N/A        |   |
| **TOTAL**                                                   |       | 2,184,177                                                                                                                                        | (1)        | $                                                                                                           | 7.16       |                                                                                                                                                                                                     | 833,334    |   |

 

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(1) Consistsof (a) options to purchase 1,167,167 shares of stock by employees at aweighted average stock price of $9.19, with strike prices ranging from $6.00 to$12.00 per share, with an average weighted life of 1.44 years, and (b) warrantsto purchase 1,023,010 shares at a weighted average stock price of $7.16, withstrike prices ranging from $0.75 to $12.00, with an average weighted life of3.5 years.

 

**Sales of Unregistered Securities**

** **

OnDecember 4, 2008, we issued 1,000,000 shares of common stock to oneindividual in exchange for services.  Werelied on the exemption from registration relating to offerings that do notinvolve any public offering pursuant to Section 4(2) under the Actand/or Rule 506 of Regulation D promulgated pursuant thereto.  We believe that the investor is an “accreditedinvestor” under Rule 501 under Regulation D of the Act and had adequateaccess to information about us.

 

On February 5, 2009, we issued 1,000,000 shares of common stock to one individual inexchange for services.  Werelied on the exemption from registration relating to offerings that do notinvolve any public offering pursuant to Section 4(2) under the Act and/or Rule506 of Regulation D promulgated pursuant thereto.  We believe that the investor is an “accreditedinvestor” under Rule 501 under Regulation D of the Act and had adequate accessto information about us.

 

On March 10,2009, we issued 50,000 shares of common stock to one entity in exchange forservices.  We relied on theexemption from registration relating to offerings that do not involve anypublic offering pursuant to Section 4(2) under the Act and/or Rule 506 ofRegulation D promulgated pursuant thereto. We believe that the investor is an “accredited investor” under Rule 501under Regulation D of the Act and had adequate access to information about us.

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**ITEM 6.****                            ****SELECTED FINANCIAL DATA**

 

Weare a smaller reporting company as defined by Rule 12b-2 of the SecuritiesExchange Act of 1934 and are not required to provide the information under thisitem.

 

**ITEM 7****                                ****MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION**

** **

**ForwardLooking Statements**

** **

OurManagement’s Discussion and Analysis contains not only statements that arehistorical facts, but also statements that are forward-looking (within themeaning of Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain andrisky.  These risks and uncertaintiesinclude international, national and local general economic and marketconditions; demographic changes; our ability to sustain, manage, or forecastgrowth; our ability to successfully make and integrate acquisitions; rawmaterial costs and availability; new product development and introduction;existing government regulations and changes in, or the failure to comply with,government regulations; adverse publicity; competition; the loss of significantcustomers or suppliers; fluctuations and difficulty in forecasting operatingresults; changes in business strategy or development plans; businessdisruptions; the ability to attract and retain qualified personnel; the abilityto protect technology; and other risks that might be detailed from time to timein our filings with the Securities and Exchange Commission.

 

Althoughthe forward-looking statements in this report reflect the good faith judgmentof our management, such statements can only be based on facts and factorscurrently known by them.  Consequently, and because forward-lookingstatements are inherently subject to risks and uncertainties, the actualresults and outcomes may differ materially from the results and outcomesdiscussed in the forward-looking statements.  You are urged to carefullyreview and consider the various disclosures made by us in this report and inour other reports as we attempt to advise interested parties of the risks andfactors that may affect our business, financial condition, and results ofoperations and prospects.

 

**Summaryof Business**

** **

Wemanufacture (on an outsource basis), market, sell, and distribute our The Kingof Energy® energy drinks and are involved in the licensing of our proprietaryname, Who’s Your Daddy®.

 

**Critical Accounting Policies**

** **

Ourfinancial statements are prepared in accordance with accounting principlesgenerally accepted in the United States., which require us to make estimatesand assumptions in certain circumstances that affect amounts reported.  In preparing these financial statements,management has made its best estimates and judgments of certain amounts, givingdue consideration to materiality.  Webelieve that of our significant accounting policies (more fully described innotes to the financial statements), the following are particularly important tothe portrayal of our results of operations and financial position and mayrequire the application of a higher level of judgment by our management, and asa result are subject to an inherent degree of uncertainty.

 

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***Estimates***

*** ***

Ourdiscussion and analysis of our financial condition and results of operationsare based on our financial statements, which have been prepared in accordancewith accounting principles generally accepted in the United States.  The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  By their nature, these estimates andjudgments 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 doubtfulaccounts, inventories and related reserves, long-lived assets, income taxes,litigation and stock-based compensation. We base our estimates on our historical experience, knowledge of currentconditions and our beliefs of what could occur in the future consideringavailable information.  Actual resultsmay differ from these estimates, and material effects on our operating resultsand financial position may result.  Webelieve the following critical accounting policies involve our more significantjudgments and estimates used in the preparation of our financial statements.

 

***Revenue Recognition***

*** ***

Revenueis recognized when products are delivered to the customer which occurs whengoods are shipped and title and risk of loss transfer to the customer, inaccordance with the terms specified in the arrangement with the customer.  Revenue recognition is deferred in allinstances where the earnings process is incomplete based on the criteria listedabove.  As of December 31, 2008 and2007, we did not have any revenues that were required to be deferred.  Management provides for sales returns andallowances in the same period as the related revenues are recognized.  Management bases their estimates onhistorical experience or the specific identification of an event necessitatinga reserve.

 

Inaccordance with Emerging Issue Task Force (“EITF”) No. 01-9, “Accountingfor Consideration Given by a Vendor to a Customer,” slotting fees, buy downs,cooperative advertising and other reductions and incentives given by us to ourcustomers are included as a reduction of revenue, rather than as a cost ofgoods sold.

 

Slottingfees paid to a customer are generally amortized over the life of the slottingagreement which is typically one year and included as reduction of revenues.

 

***Stock-Based Compensation***

*** ***

Weaccount for stock-based compensation in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 123R, “Share-Based Payment.”  SFAS 123R requires that we account for allstock-based compensation transactions using a fair-value method and recognizethe fair value of each award as an expense, generally over the serviceperiod.  The fair value of stock optionsis based upon the market price of our common stock at the grant date.  We estimate the fair value of stock optionawards, as of the grant date, using the Black-Scholes option-pricingmodel.  The use of the Black-Scholesmodel requires that we make a number of estimates, including the expectedoption term, the expected volatility in the price of our common stock, therisk-free rate of interest and the dividend yield on our common stock.  If our expected option term and stock-pricevolatility assumptions were different, the resulting determination of the fairvalue of stock option awards could be materially different and our results ofoperations could be materially impacted.

 

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***Accounting for Non-Employee Stock-Based Compensation***

*** ***

Wemeasure compensation expense for non-employee stock-based compensation inaccordance with EITF No. 96-18, “Accountingfor 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 orexpected to be issued is used to measure the transaction, as this is morereliable than the fair value of the services received.  The fair value is measured at the value ofour common stock on the date that the commitment for performance by thecounterparty has been reached or the counterparty’s performance iscomplete.  In the case of the issuance ofstock options, we determine the fair value using the Black-Scholes optionpricing model.  The fair value of theequity instrument is charged directly to stock-based compensation expense andcredited to additional paid-in capital.

 

***Modifications to Convertible Debt***

*** ***

Weaccount for modifications of embedded conversion features (“ECF”) in accordancewith EITF 06-6 “Debtors Accounting for a Modification (or exchange) ofConvertible Debt Instruments.”  EITF 06-6requires the modification of a convertible debt instrument that changes thefair value of an ECF be recorded as a debt discount and amortized to interestexpense over the remaining life of the debt. If modification is considered a substantial (i.e., greater than 10% ofthe carrying value of the debt), an extinguishment of the debt is deemed tohave occurred, resulting in the recognition of an extinguishment gain or loss.

 

***Derivative Financial Instruments***

*** ***

Derivativefinancial instruments, as defined in SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities,” consist of financialinstruments or other contracts that contain a notional amount and one or moreunderlying (e.g., interest rate, security price or other variable), thatrequire no initial net investment and permit net settlement.  Derivative financial instruments may befree-standing or embedded in other financial instruments.  Further, derivative financial instruments areinitially, and subsequently, measured at fair value and recorded as liabilitiesor, in rare instances, assets.

 

Wedo not use derivative financial instruments to hedge exposures to cash-flow,market or foreign-currency risks. However, we have convertible debt with features that are either (i) notafforded equity classification, (ii) embody risks not clearly and closelyrelated to host contracts, or (iii) may be net-cash settled by thecounterparty.  As required by SFAS 133,in certain instances, these instruments are required to be carried asderivative liabilities, at fair value, in its financial statements.

 

Weestimate the fair values of our derivative financial instruments using theBlack-Scholes option valuation model because it embodies all of the requisiteassumptions (including trading volatility, estimated terms and risk free rates)necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires thedevelopment of significant and subjective estimates that may, and are likelyto, change over the duration of the instrument with related changes in internaland external market factors.  In addition,option-based techniques are highly volatile and sensitive to changes in thetrading market price of our common stock, which has a high-historicalvolatility.  Since derivative financialinstruments are initially and subsequently carried at fair values, ouroperating results will reflect the volatility in these estimate and assumptionchanges.

 

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***Equity Instruments Issued with Registration Rights Agreement***

*** ***

Weaccount for these penalties as contingent liabilities, applying the accountingguidance of SFAS No. 5, “Accounting for Contingencies” as required by FASBStaff Positions FSP EITF 00-19-2 “Accounting for Registration PaymentArrangements,” which was issued December 21, 2006.  Accordingly, we recognize the damages when itbecomes probable that they will be incurred and amounts are reasonablyestimable.

 

***Recent Accounting Pronouncements***

*** ***

InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Optionfor Financial Assets and Financial Liabilities — Including an amendment of FASBStatement No. 115,” (“SFAS No. 159”). This standard permits, but doesnot require, all entities to choose to measure eligible items at fair value atspecified election dates.  For items forwhich the fair value option has been elected, an entity would report unrealizedgains and losses in earnings at each subsequent reporting date. SFAS No. 159is effective as of the beginning of an entity’s first fiscal year beginningafter November 15, 2007.  We adoptedthe standard as of January 1, 2008 but did not have any of its eligiblefinancial assets and liabilities under the guidance of this standard.

 

InDecember 2007, the FASB issued SFAS No. 141 (revised 2007), “BusinessCombinations,” or (“SFAS No. 141(R)”). SFAS 141(R) expands thedefinitions of a business and a business combination and requires that: thepurchase price of an acquisition, including the issuance of equity securitiesto be determined on the acquisition date, be recorded at fair value at theacquisition date; all assets, liabilities, contingent consideration,contingencies and in-process research and development costs of an acquiredbusiness be recorded at fair value at the acquisition date; acquisition costs generallybe expensed as incurred; restructuring costs generally be expensed in periodssubsequent to the acquisition date; and changes be made in accounting fordeferred tax asset valuation allowances and acquired income tax uncertaintiesafter the measurement period to impact income tax expense.  Upon the Company’s adoption of SFAS 141(R),any subsequent changes to the Company’s acquired uncertain tax positions andvaluation allowances associated with acquired deferred tax assets will nolonger be applied to goodwill, regardless of acquisition date of the associatedbusiness combination.  Rather, thosechanges will typically be recognized as an adjustment to income tax expense.SFAS No. 141(R) applies prospectively to business combinations forwhich the acquisition date is on or after the beginning of the first annualreporting period beginning on or after December 15, 2008.  The adoption of this statement to have asignificant impact on its current financial statements, although it is likelyto have a significant effect on reporting of any acquisitions completed after January 1,2009.

 

InDecember 2007, the FASB issued SFAS No. 160, “NoncontrollingInterests in Consolidated Financial Statements - an amendment of ARB No. 51,”(“SFAS No. 160”).  SFAS No. 160amends ARB No. 51 to establish accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary.  An ownership interest insubsidiaries held by parties other than the parent should be presented in theconsolidated statement of financial position within equity, but separate fromthe parent’s equity.  SFAS No. 160requires that changes in a parent’s ownership interest while the parent retainsits controlling financial interest in its subsidiary should be accounted forsimilarly to equity transactions.  When asubsidiary is deconsolidated, any retained noncontrolling equity investmentshould be initially measured at fair value, with any gain or loss recognized inearnings.  SFAS No. 160 requiresconsolidated net income to include the amounts attributable to both the parentand the noncontrolling interest.  It alsorequires disclosure, on the face of the consolidated statement of income, ofthe amounts of consolidated net income attributable to the parent and to thenoncontrolling interests.  SFAS No. 160is effective for fiscal years beginning on or after December 15, 2008,including interim periods within those fiscal years.  We do not expect SFAS No. 160 will havea material impact on our financial statements.

 

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InMarch 2008, the FASB issued SFAS No. 161, “Disclosures aboutDerivative Instruments and Hedging Activities, an amendment of SFAS No. 133”.SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133for derivative instruments and hedging activities.  SFAS No. 161 requires qualitativedisclosure about objectives and strategies for using derivative and hedginginstruments, quantitative disclosures about fair value amounts of theinstruments and gains and losses on such instruments, as well as disclosuresabout credit-risk features in derivative agreements.  We do not expect the adoption of SFAS No. 161to have a significant impact on our consolidated financial statements.

 

InApril 2008, the FASB issued FASB Staff Position FSP No. 142-3, “Determinationof the Useful Life of Intangible Assets” (“FSP 142-3”).  FSP 142-3 amends the factors that should beconsidered in developing renewal or extension assumptions used to determine theuseful life of a recognized intangible asset under SFAS No. 142. FSP 142-3is effective for us in the fiscal year beginning September 30, 2009.  We do not expect the impact of the adoptionof FSP 142-3 to impact on our consolidated financial statements.

 

InMay 2008, the FASB issued SFAS No. 162, “The Hierarchy of GenerallyAccepted Accounting Principles.”  SFAS No. 162identifies the sources of accounting principles and the framework for selectingthe principles to be used in the preparation of financial statements ofnongovernmental entities that are presented in conformity with generallyaccepted accounting principles (the GAAP hierarchy).  SFAS will become effective 60 days followingthe Securities and Exchange Commission’s approval of the Public CompanyAccounting Oversight Board amendments to AU Section 411, “The Meaning ofPresent Fairly in Conformity with Generally Accepted Accounting Principles.”  We do not expect the adoption of SFAS No. 162to have a significant impact on our consolidated financial statements.

 

**Results of Operations for the Fiscal Year Ended December 31,2008 and 2007**

 

***Sales***

*** ***

Oursales consist of energy drink and energy shot products sold to distributors andretail stores.  Our sales are recorded atthe selling price, less promotional allowances, discounts and fees paid toobtain retail shelf space (referred to as “shelving” or “slotting” fees).

 

Salesdecreased to $745,050 during 2008 from $981,919 in the same period in2007.  The change resulted from severe cash constraints during the2008 period that limited our sales and promotional efforts and a higherproportion of sales to distributors and a close out store which resulted inlower average selling prices per case.

 

***Gross Profit (Loss)***

*** ***

Grossprofit (loss) represents revenues less the cost of goods sold.  Our cost of goods sold consists of the costsof raw materials utilized in the manufacturing of products, packaging fees,repacking fees, in-bound freight charges, and internal and external warehouseexpenses.  Raw materials account for thelargest portion of the cost of sales. Raw materials include costs for cans, bottles, ingredients and packagingmaterials.

 

Grossloss was $33,536 during the 2008 period, compared to a gross profit of $356,886in the same period in 2007.  Our gross margin (loss) for the 2008period was (5)%, compared to 36% for the 2007 period.  The change wasprimarily attributable to lower average per case net selling prices andinventory reserves for expiring/expired products.  In the 2008 period, gross margin wasnegatively 

 

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impactedby lower net selling prices were attributable to sales to a membershipwarehouse retailer and distributors and $125,000 in inventory reservesresulting from expiring product.  Duringthe 2007 period, a higher portion of sales were to retailers.

 

***Selling and Marketing Expenses***

*** ***

Sellingand marketing expenses include personnel costs for sales and marketingfunctions, advertising, product marketing, promotion, events, promotionalmaterials, professional fees and non-cash, stock-based compensation.

 

Sellingand marketing expenses decreased to $482,634 during the 2008 period from$2,348,146 in same period in 2007.  Thechange was attributable to reductions in personnel costs, significantreductions in promotional materials, promotional events and travel.

 

***General and Administrative Expenses***

*** ***

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

 

Generaland administrative expenses decreased to $2,168,111 during the 2008 period from$5,002,858 in same period in 2007.  Thechange from the 2007 period was attributable to lower stock-based compensation,headcount and professional fees in the 2008 period.

 

***Interest Expense***

*** ***

Interestexpense decreased to $313,325 during the 2008 period from $604,524 for thecomparable fiscal 2007.  The change isattributable the retirement of our previously outstanding Convertible Notes in May 2007,partially offset interest on our promissory notes issued in 2008 and intereston advances from Edon Moyal.

 

***Change in Fair Value of Derivative Liabilities***

*** ***

During2007, we recognized a net non-cash gain of $2,563,074 for the change in thefair value of the derivative liabilities. The underlying securities were extinguished in May 2007.

 

***Gain on the Extinguishment of Debt and Creditor Obligations***

*** ***

Duringthe 2008 period, we settled outstanding accounts payable, accrued liabilities,registration rights penalties and accrued salaries to certain executiveofficers through the issuance of shares of our common stock and/or cash.  As a result of the settlements, we recognizeda net gain of $353,834 from these settlements.

 

Duringthe 2007 period, we recognized a non-cash gain on the extinguishment of ourconvertible notes of $3,092,266.  This non-cash gain from theextinguishment of our convertible notes represented the difference in the fairvalue of the derivative liabilities, carrying value of the notes, and accruedinterest, less the fair value of the common stock and warrants issued to newinvestors.

 

**Liquidity and Capital Resources**

 

Weare and have been since the first quarter of 2008, in the process of raisingadditional capital to fund our operations. During the third quarter of 2008, we collectively issued $380,000 facevalue, 10% convertible promissory notes (“Promissory Note(s)”) due 18 monthsafter the respective date 

 

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ofissuance.  Each Promissory Note consistedof a convertible promissory note bearing interest at a rate of 10% per annumand two shares of our restricted common stock equal to the outstandingprincipal balance.  Upon the closing of adebt or equity offering of $1,750,000 prior to the due date, we will berequired to repay any amounts due under the Promissory Notes.

 

ThePromissory Notes and any accrued interest thereon are convertible at the optionof the holder into shares of our common stock at a conversion price equal to80% of the volume weighted average price (“VWAP”) for 30 trading days precedingthe earlier of (i) closing of at least $3 million in gross proceeds of theProposed Private Placement, or (ii) 12 months from the date ofissuance.  The conversion price issubject to a floor of $0.50 per share and a ceiling of $0.75 per share.  If we do not complete the Proposed PrivatePlacement by January 15, 2010, we will be required to make equal monthlypayments of principal and interest over a 60 month period.

 

Wecurrently do not have adequate capital to meet our obligations as they comedue.  As a result, during 2008, we wereadvanced money from a company owned by Edon Moyal and from the father of Mr. Moyalto fund certain operating expenses.  Dueto our lack of capital, we are in default of certain note agreements and havepast due obligations with several vendors and a levy on one of our bankaccounts.

 

Weneed to raise capital to fund our operations. If we do not raise additionalcapital, we may not be able to meet our financial obligations when they becomedue which can have a material adverse impact on our business.

 

Wehave been, and are, actively seeking to raise additional capital.  Any proceeds raised are expected to be usedfor to fund operational expenses, new product development, procurement ofinventory and selling expenses.  Due tothe highly competitive nature of the beverage industry, our expected operatinglosses in the foreseeable future, and the credit constraints in the capitalmarkets, we cannot assure you that such financing will be available to us onfavorable terms, or at all.  If we cannotobtain such financing, we will be forced to curtail our operations or may notbe able to continue as a going concern. In such an event, we will need to enter into discussions with ourcreditors to settle, or otherwise seek relief from our obligations.

 

AtDecember 31, 2008, our principal sources of liquidity consist of cash andcash equivalents, cash generated from product sales, advances of funds fromofficers and the issuance of debt and equity securities.  In addition to funding operations, ourprincipal short-term and long-term liquidity needs have been, and are expectedto be, the pay down of past due accounts payable, servicing debt, the fundingof operating losses until we achieve profitability, and general corporatepurposes. In addition, commensurate with our level of sales, we require workingcapital for purchases of inventories and sales and marketing costs to increasethe promotion and distribution of our products.

 

AtDecember 31, 2008, our cash and cash equivalents were $0, and we hadnegative working capital of $4,665,958. During the year ended December 31, 2008, in efforts to improve ourliquidity, we have issued 4.8 million shares of common stock to settle accountspayable, accrued expenses, registration rights liabilities and accruedcompensation totaling $751,193.  At December 31,2008, we had $987,000 in debt obligations of which $374,854 are in default fornon-payment.

 

Thereport of our independent registered public accounting firm on the financialstatements for the year ended December 31, 2008 contains an explanatoryparagraph expressing substantial doubt about our ability to continue as a goingconcern as a result of recurring losses, a working capital deficiency, andnegative cash flows.  The financialstatements do not include any adjustments relating to the recoverability andclassification of recorded asset amounts or the amounts and classification ofliabilities that would be necessary if we are unable to continue as a goingconcern.

 

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** **

**Cash Flows**

 

Thefollowing table sets forth our cash flows for the year ended December 31:

 
| ** **            | ** ** | **2008** | ** ** | **2007**  | ** ** | **Change** | ** ** |
|-----------------------|------------|----------|------------|-----------|------------|------------|------------|
|                  |       |     |       |      |       |       |       |
| Operating  activities |       | $        | (364,961   | )         | $          | (3,339,916 | )          | $ | 2,974,955 |   |
|                  |       |     |       |      |       |       |       |
| Investing  activities |       | (10,684  | )          | (112,904  | )          | 102,220    |       |
|                  |       |     |       |      |       |       |       |
| Financing  activities |       | 375,500  |       | 3,447,506 |       | (3,072,006 | )          |
|                  |       |     |       |      |       |       |       |
| Change                |       | $        | (145       | )         | $          | (5,314     | )          | $ | 5,169 |   |

* *

***Operating Activities***

*** ***

Operatingcash flows for the 2008 period reflects our net loss of $2,644,172, offset bychanges in working capital of $1,256,803 and non-cash items (primarilyconsisting of stock-based compensation, accretion of debt discounts andcreditor settlements) of $1,022,408.  Thechange in working capital is primarily related to decreases in inventory,offset by increases in accounts payable, accrued expenses and customerdeposits.  The increase in accountspayable and accrued expenses are due to the lack of operating capital to payvendors and the deferral of payment of a significant percentage of wages to ourexecutive officers.  Non-cash expensesresulted from the issuance of shares of our common stock for services due toour lack of capital.

 

Operatingcash flows during 2007 reflect our net loss of $1,934,947, offset by changes inworking capital of $1,772,554 and non-cash expenses (depreciation, amortizationof 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 isprimarily related to an increase of $851,317 in accounts payable and a$1,082,771 increase in accrued expenses.  The change in non-cashexpenses is primarily related to gains on extinguishment of debt and creditorsettlements of $3,092,266 and a change in fair value of derivative liabilitiesof $2,563,074, offset by common stock issued for services rendered of$1,011,965.

 

***Investing Activitie****s*

* *

Cashexpended for the 2008 period consisted of $10,684 fortrademarks.  During the same period in 2007, we spent $42,079 forcapital expenditures and $70,825 for trademarks.

 

***Financing Activities***

*** ***

Duringthe 2008 period, net proceeds of $95,000 were received from the collection ofan outstanding stock subscription agreement entered into in 2007.  Wealso issued Promissory Notes for net proceeds of $323,000 and madepayments on notes totaling $42,500.

 

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

 

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** **

**Off Balance Sheet Arrangements**

 

We have no off balance sheetarrangements.

 

**ITEM 7A****                      ****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

** **

Weare a smaller reporting company as defined by Rule 12b-2 of the SecuritiesExchange Act of 1934 and are not required to provide the information under thisitem.

 

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**ITEM 8.  FINANCIAL STATEMENTS**

 
| ** **                                                                                    | ** ** | **Page No.** |
|-----------------------------------------------------------------------------------------------|------------|-------------------|
| Audited  Financial Statements for Who’s Your Daddy, Inc.                            |       |              |
|                                                                                          |       |              |
| Report of Independent  Registered Public Accounting Firm                                      |       | 19                |
|                                                                                          |       |              |
| Balance Sheets as of December 31, 2008  and 2007                                    |       | 20                |
|                                                                                          |       |              |
| Statements of Operations for the Years  Ended December 31, 2008 and 2007                 |       | 21                |
|                                                                                          |       |              |
| Statements of Shareholders’  Deficit for the Years Ended December 31, 2008 and 2007 |       | 22                |
|                                                                                          |       |              |
| Statements of Cash Flows for the Years  Ended December 31, 2008 and 2007                 |       | 23                |
|                                                                                          |       |              |
| Notes to Financial Statements                                                                 |       | 24                |

 

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**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

TheBoard of Directors and Stockholders

Who’sYour Daddy, Inc.

 

Wehave audited the accompanying balance sheets of Who’s Your Daddy, Inc.(the “Company”) as of December 31, 2008 and 2007, and the relatedstatements of operations, shareholders’ deficit, and cash flows for the yearsthen ended.  These financial statementsare the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audit.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  The Company wasnot required to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting as of December 31, 2008 and 2007.  Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express nosuch opinion.  An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, inall material respects, the financial position of Who’s Your Daddy, Inc.as of December 31, 2008 and 2007, and the results of operations and cashflows for the years then ended, in conformity with accounting principlesgenerally accepted in the United States of America.

 

Theaccompanying financial statements have been prepared assuming that theCompany will continue as a going concern. As discussed in Note 1 to the financial statements, the Company sufferedlosses from operations and has a working capital deficiency, which raisessubstantial doubt about its ability to continue as a going concern.  Management’s plans regarding those mattersalso are described in Note 1.  Thefinancial statements do not include any adjustments that might result from theoutcome of this uncertainty.

 

 
| /s/ McKennon, Wilson  & Morgan, LLP |   |
|-----------------------------------------|--------|
| Irvine,  California                     |   |
| April 15,  2009                    |   |

 

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**WHO’S YOUR DADDY, INC.**

**BALANCE SHEETS**

 
| ** **                                                                                                                                                                 | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                 | ** ** | **2008**              | ** ** | **2007** | ** ** |
|                                                                                                                                                                       |       |                  |       |   |   |
| **Assets**                                                                                                                                                                 |       |                  |       |   |   |
| Current assets:                                                                                                                                                            |       |                  |       |   |   |
| Cash and cash  equivalents                                                                                                                                                 |       | $                     | —     |   | $ | 145 |   |
| Accounts  receivable, net of allowance of $60,468 and $33,243 at December 31, 2008  and 2007, respectively.                                                           |       | 33,496                |       | 29,633 |   |
| Inventories                                                                                                                                                                |       | —                |       | 454,792 |   |
| Prepaid and  other                                                                                                                                                         |       | 37,691                |       | 30,170 |   |
| Total current  assets                                                                                                                                                      |       | 71,187                |       | 514,740 |   |
| Property and  equipment, net                                                                                                                                               |       | 45,708                |       | 70,514 |   |
| Tradename, net                                                                                                                                                             |       | 143,711               |       | 130,976 |   |
| Deposits                                                                                                                                                                   |       | 36,335                |       | 36,335 |   |
| Total assets                                                                                                                                                               |       | $                     | 296,941    |   | $ | 752,565 |   |
|                                                                                                                                                                       |       |                  |       |   |   |
| **Liabilities  and Shareholders’ Deficit**                                                                                                                            |       |                  |       |   |   |
| Current  liabilities:                                                                                                                                                      |       |                  |       |   |   |
| Accounts payable                                                                                                                                                           |       | $                     | 833,364    |   | $ | 656,564 |   |
| Accrued expenses                                                                                                                                                           |       | 366,306               |       | 926,152 |   |
| Accrued compensation  - officers                                                                                                                                           |       | 803,281               |       | 559,701 |   |
| Customer  deposits                                                                                                                                                         |       | 115,576               |       | — |   |
| Accrued  litigation                                                                                                                                                        |       | 1,790,000             |       | 1,952,000 |   |
| Notes payable                                                                                                                                                              |       | 607,000               |       | 412,500 |   |
| Advances from  officers                                                                                                                                                    |       | 221,618               |       | 210,525 |   |
| Total current  liabilities                                                                                                                                                 |       | 4,737,145             |       | 4,717,442 |   |
| Notes payable                                                                                                                                                              |       | 232,146               |       |   |   |
| Total  liabilities                                                                                                                                                         |       | 4,969,291             |       | 4,717,442 |   |
|                                                                                                                                                                       |       |                  |       |   |   |
| **Shareholders’  deficit**                                                                                                                                            |       |                  |       |   |   |
| Preferred  stock, $0.001 par value: 20,000,000 shares authorized, 333,333 shares issued  and outstanding at December 31, 2008 and 2007, respectively.                 |       | 333                   |       | 333 |   |
| Common stock,  $0.001 par value: 100,000,000 shares authorized, 19,870,781 and 7,991,986  shares issued and outstanding at December 31, 2008 and 2007,  respectively. |       | 19,871                |       | 7,992 |   |
| Stock  subscription receivable                                                                                                                                             |       | —                |       | (95,000 | ) |
| Additional paid-in  capital                                                                                                                                                |       | 24,436,127            |       | 22,606,307 |   |
| Accumulated  deficit                                                                                                                                                       |       | (29,128,681           | )          | (26,484,509 | ) |
| Total  shareholders’ deficit                                                                                                                                          |       | (4,672,350            | )          | (3,964,877 | ) |
| Total  liabilities and shareholders’ deficit                                                                                                                          |       | $                     | 296,941    |   | $ | 752,565 |   |

 

See accompanying Notes to Financial Statements.

 

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**WHO’S YOUR DADDY, INC.**

**STATEMENTS OF OPERATIONS**

 
| ** **                                                                                  | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2008**                                   | ** ** | **2007** | ** ** |
|                                                                                        |       |                                       |       |   |   |
| Sales                                                                                       |       | $                                          | 745,050    |   | $ | 981,919 |   |
| Cost of sales                                                                               |       | 778,586                                    |       | 625,033 |   |
| Gross profit  (loss)                                                                        |       | (33,536                                    | )          | 356,886 |   |
|                                                                                        |       |                                       |       |   |   |
| Operating  expenses:                                                                        |       |                                       |       |   |   |
| Selling and  marketing                                                                      |       | 482,634                                    |       | 2,348,146 |   |
| General and  administrative                                                                 |       | 2,168,111                                  |       | 5,002,258 |   |
| Total operating  expenses                                                                   |       | 2,650,745                                  |       | 7,351,004 |   |
| Operating loss                                                                              |       | (2,684,281                                 | )          | (6,994,118 | ) |
|                                                                                        |       |                                       |       |   |   |
| Interest expense                                                                            |       | 313,325                                    |       | 604,524 |   |
| Change in fair  value of derivative liabilities                                             |       | —                                     |       | (2,563,074 | ) |
| Gain on Extinguishment  of debt and creditor obligations                                    |       | (353,834                                   | )          | (3,092,266 | ) |
| Other, net                                                                                  |       | (400                                       | )          | (10,755 | ) |
| Loss before  income taxes                                                                   |       | (2,643,372                                 | )          | (1,932,547 | ) |
| Income taxes                                                                                |       | (800                                       | )          | (2,400 | ) |
| Net loss                                                                                    |       | $                                          | (2,644,172 | ) | $ | (1,934,947 | ) |
|                                                                                        |       |                                       |       |   |   |
| Basic and  diluted net loss per share:                                                      |       | $                                          | (0.18      | ) | $ | (0.39 | ) |
|                                                                                        |       |                                       |       |   |   |
| Weighted average  number of common shares used in basic and diluted per share calculations: |       | 14,500,331                                 |       | 4,907,589 |   |

 

See accompanying Notes to FinancialStatements.

 

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**WHO’S YOURDADDY, INC.**

**STATEMENTS OFSHAREHOLDERS’ DEFICIT**

 
| ** **                                                                    | ** ** | **Preferred Stock** | ** ** | **Common Stock** | ** ** | **Stock  Subscription** | ** ** | **Common Stock to  be** | ** ** | **Aditional Paid-in** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------|------------|-------------------------|------------|-----------------------------------|------------|----------------------------|------------|-----------------|------------|-------------|------------|
| ** **                                                                    | ** ** | **Shares**               | ** ** | **Amount**            | ** ** | **Shares**              | ** ** | **Amount**                        | ** ** | **Receivable**             | ** ** | **Issued**      | ** ** | **Capital** | ** ** | **Deficit** | ** ** | **Total** | ** ** |
|                                                                          |       |                     |       |                  |       |                    |       |                              |       |                       |       |            |       |        |       |   |   |   |   |
| Balance at  December 31, 2006                                            |       | $                        | 333,333    |                  | $          | 333                     |       | $                                 | 3,505,471  |                       | $          | 3,505           |       | $           | —     |   | $ | — |   | $ | 11,946,557 |   | $ | (24,549,562 | ) | $ | (12,599,167 | ) |
| Issuance of  common stock                                                     |       | —                   |       | —                |       | 2,220,922               |       | 2,221                             |       | (95,000                    | )          | —          |       | 3,572,785   |       | — |   | 3,480,006 |   |
| Issuance of  common stock for services and operating expenses                 |       | —                   |       | —                |       | 178,852                 |       | 179                               |       | —                     |       | —          |       | 934,730     |       | — |   | 934,909 |   |
| Stock  compensation expense - employees                                       |       | —                   |       | —                |       | —                  |       | —                            |       | —                     |       | —          |       | 1,301,500   |       | — |   | 1,301,500 |   |
| Stock  compensation expense - consultants                                     |       | —                   |       | —                |       | —                  |       | —                            |       | —                     |       | —          |       | 77,055      |       | — |   | 77,055 |   |
| Conversion of  accounts payable and loans into common stock                   |       | —                   |       | —                |       | 893,236                 |       | 893                               |       | —                     |       | —          |       | 650,775     |       | — |   | 651,668 |   |
| Common stock and  warrants issued to extinguish Convertible Notes             |       | —                   |       | —                |       | 750,000                 |       | 750                               |       | —                     |       | —          |       | 3,990,905   |       | — |   | 3,991,655 |   |
| Issuance of  common stock to repurchase inventory                             |       | —                   |       | —                |       | 443,505                 |       | 444                               |       | —                     |       | —          |       | 132,000     |       | — |   | 132,444 |   |
| Net 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 | ) |
| Stock  compensation expense - employees                                       |       | —                   |       | —                |       | 2,745,091               |       | 2,745                             |       | —                     |       | —          |       | 620,904     |       | — |   | 623,649 |   |
| Stock issued to  settle accrued employee and officer compensation             |       | —                   |       | —                |       | 2,479,699               |       | 2,480                             |       | —                     |       | —          |       | 419,070     |       | — |   | 421,550 |   |
| Stock issued for  services and operating expenses                             |       | —                   |       | —                |       | 1,569,194               |       | 1,569                             |       | —                     |       | —          |       | 241,136     |       | — |   | 242,705 |   |
| Stock issued for  settlement of accrued registration rights penalties         |       | —                   |       | —                |       | 1,602,989               |       | 1,603                             |       | —                     |       | —          |       | 238,845     |       | — |   | 240,448 |   |
| Stock issued for  creditor settlements                                        |       | —                   |       | —                |       | 750,155                 |       | 750                               |       | —                     |       | —          |       | 88,445      |       | — |   | 89,195 |   |
| Stock  subscription receivable                                                |       | —                   |       | —                |       | —                  |       | —                            |       | 95,000                     |       | —          |       | —      |       | — |   | 95,000 |   |
| Stock issued  under an investment banking agreement                           |       | —                   |       | —                |       | 380,000                 |       | 380                               |       | —                     |       | —          |       | 48,534      |       | — |   | 48,914 |   |
| Stock issued for  antidilution provision                                      |       | —                   |       | —                |       | 416,667                 |       | 417                               |       | —                     |       | —          |       | (417        | )          | — |   | — |   |
| Stock issued for  shares previously cancelled                                 |       | —                   |       | —                |       | 75,000                  |       | 75                                |       | —                     |       | —          |       | (75         | )          | — |   | — |   |
| Stock and  warrants issued to distributors                                    |       | —                   |       | —                |       | 1,100,000               |       | 1,100                             |       | —                     |       | —          |       | 68,547      |       | — |   | 69,647 |   |
| Stock issued in  connection with the issuance of convertible promissory notes |       | —                   |       | —                |       | 760,000                 |       | 760                               |       | —                     |       | —          |       | 104,831     |       | — |   | 105,591 |   |
| Net loss                                                                      |       | —                   |       | —                |       | —                  |       | —                            |       | —                     |       | —          |       | —      |       | (2,644,172 | ) | (2,644,172 | ) |
| Balance at  December 31, 2008                                            |       | 333,333                  |       | $                     | 333        |                    | 19,870,781 |                              | $          | 19,871                     |       | $               | —     |        | $          | — |   | $ | 24,436,127 |   | $ | (29,128,681 | ) | $ | (4,672,350 | ) |
|                                                                               |            |                          |            |                       |            |                         |            |                                   |            |                            |            |                 |            |             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

See accompanying Notes to FinancialStatements.

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**WHO’S YOUR DADDY, INC.**

**STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                      | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                      | ** ** | **2008**                                   | ** ** | **2007** | ** ** |
| ** **                                                                                      | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Cash flows from  operating activities:                                                          |       |                                       |       |   |   |
| Net loss                                                                                        |       | $                                          | (2,644,172 | ) | $ | (1,934,947 | ) |
|                                                                                            |       |                                       |       |   |   |
| Adjustments to  reconcile net loss to net cash used in operating activities:                    |       |                                       |       |   |   |
| Gain on  extinguishment creditor settlements                                                    |       | —                                     |       | (3,092,266 | ) |
| Change in fair  value of derivative liabilities                                                 |       | —                                     |       | (2,563,074 | ) |
| Stock  compensation expense                                                                     |       | 623,649                                    |       | 1,301,500 |   |
| Common stock  issued for services rendered                                                      |       | 312,352                                    |       | 1,011,965 |   |
| Depreciation                                                                                    |       | 22,755                                     |       | 18,554 |   |
| Amortization of  intangible assets                                                              |       | —                                     |       | 26,250 |   |
| Amortization of  debt discount                                                                  |       | 63,652                                     |       | 97,195 |   |
| Changes in  operating assets and liabilities:                                                   |       |                                       |       |   |   |
| Accounts  receivable                                                                            |       | (3,863                                     | )          | (4,092 | ) |
| Inventories                                                                                     |       | 454,792                                    |       | 88,456 |   |
| Prepaid expenses  and other assets                                                              |       | (7,521                                     | )          | 121,958 |   |
| Accounts payable                                                                                |       | 265,995                                    |       | 851,317 |   |
| Accrued expenses                                                                                |       | 21,181                                     |       | 1,082,872 |   |
| Customer  deposits                                                                              |       | 115,576                                    |       | — |   |
| Accrued  litigation                                                                             |       | (22,000                                    | )          | — |   |
| Due to officers                                                                                 |       | 432,643                                    |       | (345,604 | ) |
| Net cash used in  operating activities                                                          |       | (364,961                                   | )          | (3,339,916 | ) |
|                                                                                            |       |                                       |       |   |   |
| Cash flows from  investing activities:                                                          |       |                                       |       |   |   |
| Capital  expenditures                                                                           |       | —                                     |       | (42,079 | ) |
| Tradename                                                                                       |       | (10,684                                    | )          | (70,825 | ) |
| Net cash used in  investing activities                                                          |       | (10,684                                    | )          | (112,904 | ) |
|                                                                                            |       |                                       |       |   |   |
| Cash flows from  financing activities:                                                          |       |                                       |       |   |   |
| Proceeds from  issuance of notes payable, net of fees                                           |       | 323,000                                    |       | — |   |
| Payments on  notes payable                                                                      |       | (42,500                                    | )          | (32,500 | ) |
| Proceeds from  the sale of common stock                                                         |       | 95,000                                     |       | 3,480,006 |   |
| Net cash  provided by financing activities                                                      |       | 375,500                                    |       | 3,447,506 |   |
|                                                                                            |       |                                       |       |   |   |
| Net decrease in  cash and cash equivalents                                                      |       | (145                                       | )          | (5,314 | ) |
|                                                                                            |       |                                       |       |   |   |
| Cash and cash  equivalents at beginning of year                                                 |       | 145                                        |       | 5,459 |   |
| Cash and cash  equivalents at end of year                                                       |       | $                                          | —     |   | $ | 145 |   |
|                                                                                            |       |                                       |       |   |   |
| Supplemental  disclosure of cash flow information:                                              |       |                                       |       |   |   |
| Cash paid for  interest                                                                         |       | $                                          | 164,151    |   | $ | 337,153 |   |
| Cash paid for  income taxes                                                                     |       | $                                          | —     |   | $ | — |   |
| Supplemental  disclosure of non-cash investing and financing activities:                        |       |                                       |       |   |   |
| Issuance of  common stock to settle creditor obligations                                        |       | $                                          | 329,643    |   | $ | 651,688 |   |
| Issuance of  common stock for accrued salaries                                                  |       | $                                          | 421,550    |   | $ | — |   |
| Issuance of  common stock and warrants to extinguish convertible notes and warrant  liabilities |       | $                                          | —     |   | $ | 3,994,655 |   |
| Issuance of  common stock for stock subscription receivable                                     |       | $                                          | —     |   | $ | 95,000 |   |
| Issuance of  common stock to repurchase inventory                                               |       | $                                          | —     |   | $ | 133,052 |   |

 

See accompanying Notes to FinancialStatements.

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**Who’s Your Daddy, Inc.**

**Notes to Financial Statement**

 

**1.****             ****Business and Management’sPlan of Operation**

 

*Business*

Who’s Your Daddy, Inc. (the “Company”)manufactures (on an outsource basis), markets, sells and distributes its TheKing of Energy® energy drinks and energy shots centered on itstrademark-protected brand, Who’s Your Daddy®.

 

The Company’s primary focus is to expand uponsales of its energy drinks, and is exploring opportunities for the licensing ofits proprietary name, Who’s Your Daddy®, for products that can take advantageof this distinctive name, including related products such as energy bars andconcentrated energy “shots.”

 

*Management’sPlan of Operations*

For the years ended December 31, 2008and 2007, revenues declined to $745,050 from $981,919, respectively, primarilydue to the lack of operating capital, resulting in reduced sales and marketingefforts including payments for slotting fees for shelf space at retailoutlets.  The Company has also incurrednet losses of $2,644,172 and $1,934,947 for the years ended December 31,2008 and 2007, respectively.  As of December 31,2008, negative working capital which includes $1,790,000 of an accrued arbitrationaward for a lawsuit against the Company.

 

The Company’s cash requirements have been andwill continue to be significant.  TheCompany’s operations will require cash in 2009 to fund: 1) marketing; 2) newproduct development, 3) expansion of its distribution network, 4) purchasinginventory; 5) 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 acombination of insufficient revenues generated to support its sales andmarketing efforts, new product development and administrative time and expenseof being a small publicly-traded company.

 

Management continues to actively seek capitalthrough various sources.  During thethird quarter of 2008, the Company raised $380,000 through the issuance ofconvertible promissory notes.  Due to thecurrent economic environment and the Company’s current financial condition,management cannot be assured there will be adequate capital available whenneeded and on acceptable terms.  Thefactors described above raise substantial doubt about the Company’s ability tocontinue as a going concern.  Thefinancial statements have been prepared on a going concern basis whichcontemplates the realization of assets and the settlement of liabilities in thenormal course of business.  The financialstatements do not include any adjustments to reflect the possible futureeffects on the recoverability and classification of assets and liabilities thatmight result from the outcome of this uncertainty.

 

**2.****             ****Basis of Presentation andSignificant Accounting Policies**

 

The Company has identified certainsignificant accounting policies that it considers particularly important to theportrayal of the Company’s results of operations and financial position which mayrequire the application of a higher level of judgment by the Company’smanagement and, as a result, are subject to an inherent level of uncertainty.

 

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*Use ofEstimates*

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities and the reported amounts of revenues and expenses during thereporting period.  Our significantestimates relate to the assessment of inventory reserves, long-lived assets andthe valuation of stock options and warrants to purchase common stock.

 

*StockSplit*

On October 16, 2007, the Board ofDirectors of the Company approved a one for six reverse stock split of theCompany’s common and preferred stock. The effective date of the stock split was October 30, 2007.  All share and per share information have beenadjusted to give effect to the stock split for all periods presented, includingall references throughout the financial statements and accompanying notes.

 

*Concentrationsof Credit Risks*

Financial instruments that potentiallysubject the Company to concentration of credit risk consist principally of cashand cash equivalents and trade accounts receivable.  The Company invests its cash balances throughhigh-credit quality financial institutions. From time to time, the Company may maintain bank account levels inexcess of FDIC insurance limits.  If thefinancial institution in which the Company has its accounts has financialdifficulties, any cash balances in excess of the FDIC limits could be at risk.

 

Accounts receivable from individual customersrepresenting 10% or more of the net accounts receivable balance consists of thefollowing as of December 31:

 
| ** **                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Percent of  accounts receivable |       | 100      | %          | 77       | %          |
| Number of  customers            |       | 1        |       | 2        |       |

 

Sales from individual customers representing10% or more of sales consist of the following customers for the years ended December 31:

 
| ** **           | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------|------------|----------|------------|----------|------------|
| Percent of sales     |       | 57       | %          | 36       | %          |
| Number of  customers |       | 2        |       | 2        |       |

 

As a result of the Company’s concentration ofits customer base, the loss or cancellation of business from, or significantchanges in scheduled deliveries of product sold to the above customers or achange in their financial  position couldmaterially  and  adversely affect the Company’s consolidated financial position, results of operations and cash flows.

 

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*Cash andCash Equivalents*

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

 

*AccountsReceivable*

The Company utilizes the allowance method toprovide a reserve for uncollectible accounts. The Company determines any required allowance by considering a number offactors including length of time trade accounts receivable are past due and theCompany’s previous loss history.  TheCompany records a reserve account for accounts receivable when they becomeuncollectible, and payments subsequently received on such receivables arecredited to the allowance for doubtful accounts.

 

The Company performs ongoing creditevaluations and continually monitors its collection of amounts due from itscustomers.  The Company adjusts creditlimits and payment terms granted to its customers based upon payment historyand the customer’s current creditworthiness. The Company does not require collateral from its customers to secureamounts due.  Reserves for uncollectibleamounts are provided based on past experience and a specific analysis of itsindividual customers’ accounts.

 

*Inventories*

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

 

*Propertyand Equipment*

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

 

*Long-LivedAssets*

The Company reviews its fixed assets andidentifiable intangibles for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and usedis measured by a comparison of the carrying amount of an asset to the futureundiscounted 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 carryingamount of the asset exceeds the fair value of the asset or discounted cashflows.  Long-lived assets to be disposedof are reported at the lower of carrying amount or fair value, less costs tosell.

 

*Fair Valueof Financial Instruments*

Financial instruments are recorded on thebalance sheet.  The carrying amount forcash and cash equivalents, accounts receivable, accounts payable, accruedexpenses approximates fair value due to the immediate or short-term maturity ofthese financial instruments.  The fairvalue of long-term debt approximates the carrying amounts based upon ourexpected borrowing rate for debt with similar remaining maturities andcomparable risk.

 

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*DebtIssued with Common Stock*

Debt issued with common stock is accountedfor under the guidelines established by Accounting Principles Board (“APB”)Opinion No. 14 “Accounting for Convertible Debt and Debt issued with StockPurchase Warrants” under the direction of EITF 98-5, “Accounting forConvertible Securities with Beneficial Conversion Features or ContingentlyAdjustable Conversion Ratios,” EITF 00-27 “Application of Issue No 98-5 toCertain Convertible Instruments,” and Emerging Issues Task Force EITF 05-8 “IncomeTax Consequences of Issuing Convertible Debt with Beneficial ConversionFeatures”.  The Company records therelative fair value of common stock related to the issuance of convertible debtas a debt discount or premium.  Thediscount or premium is subsequently amortized using the effective interest method,over the expected term of the convertible debt to interest expense.

 

*Modificationsto Convertible Debt*

The Company accounts for modifications ofembedded conversion features (“ECFs”) in accordance with EITF 06-6 “DebtorsAccounting for a Modification (or exchange) of Convertible Debt Instruments.”  EITF 06-6 requires the modification of aconvertible debt instrument that changes the fair value of an ECF be recordedas a debt discount and amortized to interest expense over the remaining life ofthe debt.  If modification is consideredsubstantial (i.e., greater than 10% of the carrying value of the debt), anextinguishment of the debt is deemed to have occurred, resulting in therecognition of an extinguishment gain or loss.

 

*DerivativeFinancial Instruments*

Derivative financial instruments, as definedin Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accountingfor Derivative Instruments and Hedging Activities,” consist of financialinstruments or other contracts that contain a notional amount and one or moreunderlying (e.g., interest rate, security price or other variable), thatrequire no initial net investment and permit net settlement.  Derivative financial instruments may befree-standing or embedded in other financial instruments.  Further, derivative financial instruments areinitially, and subsequently, measured at fair value and recorded as liabilitiesor, in rare instances, assets.

 

The Company does not use derivative financialinstruments to hedge exposures to cash-flow, market or foreign-currencyrisks.  However, the Company hasconvertible debt with features that are either (i) not afforded equityclassification, (ii) embody risks not clearly and closely related to hostcontracts, or (iii) may be net-cash settled by the counterparty.  As required by SFAS 133, in certaininstances, these instruments are required to be carried as derivativeliabilities, at fair value, in its financial statements.

 

The Company estimates the fair values of itsderivative financial instruments using the Black-Scholes option valuation modelbecause it embodies all of the requisite assumptions (including tradingvolatility, estimated terms and risk free rates) necessary to fair value theseinstruments.  Estimating fair values ofderivative financial instruments requires the development of significant andsubjective estimates that may, and are likely to, change over the duration ofthe instrument with related changes in internal and external marketfactors.  In addition, option-basedtechniques are highly volatile and sensitive to changes in the trading marketprice of the Company’s common stock, which has a high-historicalvolatility.  Since derivative financial instrumentsare initially and subsequently carried at fair values, the Company’s operatingresults will reflect the volatility in these estimate and assumption changes.

 

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*IncomeTaxes*

Deferred tax assets and liabilities arerecognized for the future tax consequences attributable to differences betweenthe financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases.  Deferred taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to be recovered or settled.  Theeffect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date.  Due to historical net losses, a valuationallowance has been established to offset the deferred tax assets.

 

In July 2006, the FASB issued FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes— aninterpretation of FASB Statement No. 109 (“FIN 48”).”  FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with SFAS No. 109, “Accounting for Income Taxes”.  FIN 48 describes a recognition threshold andmeasurement attribute for the recognition and measurement of tax positionstaken or expected to be taken in a tax return and also provides guidance onderecognition, classification, interest and penalties, accounting in interim periods,disclosure and transition.  FIN 48 iseffective for fiscal years beginning after December 15, 2006.  The cumulative effect of adopting FIN 48 isrequired to be reported as an adjustment to the opening balance of retainedearnings (or other appropriate components of equity) for that fiscal year,presented separately.  The adoption ofFIN 48 did not have a material impact to the Company’s financial statements.

 

*RevenueRecognition*

Revenue is recognized when there is pervasiveevidence that an arrangement exists, products are delivered to the customerwhich occurs when goods are shipped and title and risk of loss transfer to thecustomer, in accordance with the terms specified in the arrangement with thecustomer.  Revenue recognition isdeferred in all instances where the earnings process is incomplete based on thecriteria listed above.  As of December 31,2008 and 2007, the Company did not have any revenues that were required to bedeferred.  Management provides for salesreturns and allowances in the same period as the related revenues arerecognized.  Management bases theirestimates on historical experience or the specific identification of an eventnecessitating a reserve.

 

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

 

During 2008, the Company issued warrants topurchase common stock and shares of common stock to distributors andcustomers.  The values ascribed to theseinstruments were measured at fair value and were recorded as a reduction torevenues.

 

*FreightCosts*

For the years ended December 31, 2008 and2007, freight-out costs totaled $155,677 and $170,643, respectively, and havebeen included in cost of goods sold in the accompanying statements ofoperations.  Shipping terms are generallyFOB destination and the Company does not pass freight costs to the customer.

 

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*AdvertisingExpenses*

The Company accounts for advertising costs byexpensing such amounts the first time the related advertising takes place.  Advertising expenses amounted to $111,543 and$739,355 for the years ended December 31, 2008 and 2007, respectively.

 

*Net Lossper Share*

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

 

*Stock-BasedCompensation*

The Company accounts for its stock-basedcompensation in accordance with SFAS No. 123R (revised 2004), “Share-BasedPayment.”  SFAS No. 123R requiresthat the Company account for all stock-based compensation using a fair-valuemethod and recognize the fair value of each award as an expense over theservice period.

 

*Accountingfor Equity Instruments Issued to Consultants*

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

 

*EquityInstruments Issued with Registration Rights Agreement*

The Company accounts for registration rightsagreement penalties as contingent liabilities, applying the accounting guidanceof SFAS No. 5.  This accounting isconsistent with FASB Staff Positions FSP EITF 00-19-2 “Accounting forRegistration Payment Arrangements,” which was issued December 21,2006.  Accordingly, the Company recognizesthe damages when it becomes probable that they will be incurred and amounts arereasonably estimable.   Inconnection with registration rights granted with stock issued on May 7,2007 to retire the Company’s convertible debt and with registration rightsgranted to an investor in November 2005, the Company accrued $0 and$286,427 of registration rights penalties for the years ended December 31,2008 and 2007, respectively.  In February 2008,the Company received notice from an investor in a November 2005 financingthat it was exercising the registration rights penalties contained in thedocumentation related to that financing and that it was owed $480,897.  The Company and the investor entered into asettlement agreement that required the Company to issue 1,602,989 shares ofunregistered common stock to this investor to settle this registration rightsclaim in full which resulted in a gain on the settlement of $240,448.  There are no liabilities for registrationrights as of December 31, 2008.

 

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*RecentAccounting Pronouncements*

 

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities —Including an amendment of FASB Statement No. 115,” (“SFAS No. 159”).  This standard permits, but does not require,all entities to choose to measure eligible items at fair value at specifiedelection dates.  For items for which thefair value option has been elected, an entity would report unrealized gains andlosses in earnings at each subsequent reporting date.  SFAS No. 159 is effective as of thebeginning of an entity’s first fiscal year beginning after November 15,2007.  The Company adopted the standardas of January 1, 2008, however does not have eligible financial assets andliabilities under the guidance of this standard.

 

In December 2007, the FASB issued SFAS No. 141(revised 2007), “Business Combinations,” (“SFAS No. 141(R)”).  SFAS No. 141(R) expands thedefinitions of a business and a business combination and requires that: thepurchase price of an acquisition, including the issuance of equity securitiesto be determined on the acquisition date, be recorded at fair value at theacquisition date; all assets, liabilities, contingent consideration,contingencies and in-process research and development costs of an acquiredbusiness be recorded at fair value at the acquisition date; acquisition costsgenerally be expensed as incurred; restructuring costs generally be expensed inperiods subsequent to the acquisition date; and changes be made in accountingfor deferred tax asset valuation allowances and acquired income taxuncertainties after the measurement period to impact income tax expense.  Upon the Company’s adoption of SFAS 141(R),any subsequent changes to the Company’s acquired uncertain tax positions andvaluation allowances associated with acquired deferred tax assets will nolonger be applied to goodwill, regardless of acquisition date of the associatedbusiness combination.  Rather, thosechanges will typically be recognized as an adjustment to income taxexpense.  SFAS No. 141(R) appliesprospectively to business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15,2008.  The Company does not expect theadoption of this statement to have a significant impact on its currentfinancial statements, although it is likely to have a significant effect onreporting of any acquisitions completed after January 1, 2009.

 

In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements - an amendmentof ARB No. 51,” (“SFAS No. 160”). SFAS No. 160 amends ARB No. 51 to establish accounting andreporting standards for the noncontrolling interest in a subsidiary and for thedeconsolidation of a subsidiary.  Anownership interest in subsidiaries held by parties other than the parent shouldbe presented in the consolidated statement of financial position within equity,but separate from the parent’s equity. SFAS No. 160 requires that changes in a parent’s ownership interestwhile the parent retains its controlling financial interest in its subsidiaryshould be accounted for similarly to equity transactions.  When a subsidiary is deconsolidated, anyretained noncontrolling equity investment should be initially measured at fairvalue, with any gain or loss recognized in earnings.  SFAS No. 160 requires consolidated netincome to include the amounts attributable to both the parent and thenoncontrolling interest.  It alsorequires disclosure, on the face of the consolidated statement of

 

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income, of the amounts of consolidated netincome attributable to the parent and to the noncontrolling interests.  SFAS No. 160 is effective for fiscalyears beginning on or after December 15, 2008, including interim periodswithin those fiscal years.  The Companydoes not expect SFAS No. 160 will have a material impact on its financialstatements.

 

In March 2008, the FASB, affirmed theconsensus of FASB Staff Position (FSP) APB No. 14-1 (APB 14-1), “Accountingfor Convertible Debt Instruments That May Be Settled in Cash uponConversion (Including Partial Cash Settlement),” which applies to allconvertible debt instruments that have a*netsettlement feature*; which means that such convertible debtinstruments, by their terms, may be settled either wholly or partially in cashupon conversion.  FSP APB 14-1 requiresissuers of convertible debt instruments that may be settled wholly or partiallyin cash upon conversion to separately account for the liability and equitycomponents in a manner reflective of the issuer’s nonconvertible debt borrowingrate.  Previous guidance provided foraccounting for this type of convertible debt instrument entirely as debt.  FSP APB 14-1 is effective for financialstatements issued for fiscal years beginning after December 15, 2008 andinterim periods within those fiscal years.

 

In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities, an amendmentof SFAS No. 133.”  SFAS No. 161amends and expands the disclosure requirements of SFAS No. 133 forderivative instruments and hedging activities. SFAS No. 161 requires qualitative disclosure about objectives andstrategies for using derivative and hedging instruments, quantitativedisclosures about fair value amounts of the instruments and gains and losses onsuch instruments, as well as disclosures about credit-risk features inderivative agreements.  The Company doesnot expect the adoption of SFAS No. 161 to have a significant impact onour financial statements.

 

In April 2008, the FASB issued FASBStaff Position FSP No. 142-3, “Determination of the Useful Life ofIntangible Assets” (“FSP 142-3”).  FSP142-3 amends the factors that should be considered in developing renewal orextension assumptions used to determine the useful life of a recognizedintangible asset under SFAS No. 142. FSP 142-3 is effective for us in the fiscal year beginning January 1,2009.  The Company is currentlyevaluating the impact of the adoption of FSP 142-3 on our consolidatedfinancial statements.

 

In May 2008, the FASB issued SFAS No. 162,“The Hierarchy of Generally Accepted Accounting Principles.”  SFAS No. 162 identifies the sources ofaccounting principles and the framework for selecting the principles to be usedin the preparation of financial statements of nongovernmental entities that arepresented in conformity with generally accepted accounting principles (the GAAPhierarchy).  SFAS will become effective60 days following the Security and Exchange Commission’s approval of the PublicCompany Accounting Oversight Board amendments to AU Section 411, “TheMeaning of Present Fairly in Conformity with Generally Accepted AccountingPrinciples.”  The Company does not expectthe adoption of SFAS No. 162 to have a significant impact on our financialstatements.

 

**3.****             ****Inventories**

 

Inventories consist of the energy products asof December 31, 2008 and 2007.  At December 31,2008, the Company inventory was fully reserved as the product was expired ornear the expiration date or deemed not saleable.

 

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**4.****             ****Property and Equipment**

 

Property and equipment consist of thefollowing at December 31:

 
| ** **                     | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Furniture &  fixtures |       | $        | 36,308     |     | $          | 36,308 |   |
| Computers                      |       | 48,359   |       | 50,410   |       |
| Software                       |       | 5,235    |       | 5,235    |       |
| Leasehold  improvements        |       | 18,455   |       | 22,455   |       |
|                           |       | 108,357  |       | 114,408  |       |
| Less accumulated  depreciation |       | (62,649  | )          | (43,894  | )          |
|                           |       | $        | 45,708     |     | $          | 70,514 |   |

 

Depreciation expense for the years ended December31, 2008 and 2007 was $22,755 and $18,554, respectively.

 

**5.****             ****Tradename, net**

 

Intangible assets consist of the Who’s YourDaddy® trade name with a life that is assumed to be perpetual, but is reviewedannually for impairment or a lessening of the estimated useful life.  At December 31, 2008, managementassessed the carrying value of the trade name and believes the fair value is inexcess of its carrying amount.

 

**6.****             ****Accrued Liabilities**

 

Accrued liabilities consist of the followingat December 31:

 
| ** **           | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------|------------|----------|------------|----------|------------|
| Registration  rights |       | —   |       | 410,977  |       |
| Professional  fees   |       | 72,914   |       | 140,159  |       |
| Interest             |       | 115,746  |       | 86,198   |       |
| Other                |       | 177,646  |       | 288,818  |       |
|                 |       | $        | 366,306    |     | $          | 926,152 |   |
|                      |            |          |            |          |            |  |  |

 

**7.****             ****Advances from Officers**

 

During 2008 and2007, certain officers funded operating expenses of the Company.  The amounts outstanding are due upon demand.

 

**8.****             ****Convertible Promissory Notes**

 

During 2008, the Company issued $380,000 facevalue, 10% convertible promissory notes (“Promissory Notes”) together with760,000 shares of common stock.  Thesenotes together with accrued interest are due upon the completion an offering ofcommon stock or convertible securities of at least $1,750,000 (“QualifiedOffering”) within 18 months from the date of issuance of the respectivePromissory Notes (July and August 2008).  In the event the Company does not completethe Qualified Offering by January 15, 2010, the outstanding principal andaccrued interest will be repaid over a 60 month period.

 

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The outstanding principal and interest areconvertible into shares of unregistered common stock at a conversion priceequal to 80% of the volume weighted average price for the last 30 trading dayspreceding the earlier of (i) closing of at least $3,000,000 in grossproceeds, or (ii) twelve months from the initial closing date of theoffering.  The conversion price may notbe less than $0.50 per share or greater than $0.75 per share.  The market price of the common stock on thedate of issuance of the Promissory Notes was less than the conversion price.

 

The Company paid a placement agent fee of$57,000 and issued 380,000 shares of common stock.  The Company allocated the proceeds betweenthe Promissory Notes, the common stock issued to the holders and the offeringcosts based on their relative fair values which resulted in a debt discount onthe date of issuance of $211,758.  TheCompany is amortizing the discount over the contractual term of the PromissoryNotes.  The aggregate unamortizeddiscount was $148,106 at December 31, 2008.

 

The Company is using the proceeds to fund itsongoing operations, further its product development and to further market anddistribute products.

 

**9.****             ****Line of Credit**

 

On August 31, 2006, the Company enteredinto a revolving line of credit for $250,000 for the production of its “TheKing of Energy®” drinks with an entity affiliated with its largestdistributor.  During 2007, both partiesagreed to increase the line of credit to $314,392.  On December 7, 2007, the Company repaidthe amount outstanding of $314,392 through the issuance of 345,486 shares ofcommon stock.  The closing price of theCompany common stock on this date was $0.30. As a result of the issuance of common stock to pay off the line ofcredit, the Company recognized a gain on the extinguishment of $210,746 for theyear ended December 31, 2007.

 

**10.****      ****Debt**

 

*VendorNote Payable*

On September 27, 2006, the Company’sentered into an agreement with a legal firm to convert $395,405 of outstandingaccounts payable into a promissory note. The Company granted a first priority security interest in all of itstrademarks and associated goodwill.  Theagreement required the Company to pay $100,000 on or before September 30,2007 with monthly payment of (i) $2,500 commencing November 1, 2006through 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.  Inaddition, $200,000 shall be paid at the closing of any financing of at least$3,500,000.  As of December 31, 2008and 2007, the balance outstanding was $255,000. As of December 31, 2008 and 2007, the Company was in default fornon-payment.  The outstanding balance hasbeen classified as a current liability in the accompanying balance sheet.  While the agreement does not call forinterest on unpaid amounts, the Company has accrued interest expense on thisnote at 10% per annum.  See Note 12.  Litigation.

 

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*ExchangeAgreement*

On May 7, 2007, the Company entered intoan agreement (“Exchange Agreement) with Aroundthe Clock Partners, LP, Cohiba Partners Inc.(collectively “New Investors”) and the holders of $1,750,000 of the Company’sCallable Secured Convertible Notes (“Convertible Notes”), whereby the Companyassigned, and the New Investors assumed, the Company’s rights and obligationsunder the Convertible Notes. Concurrently, the New Investors exercised their rights and purchased theConvertible Notes together with 146,028 warrants to purchase common stock fromthe holders in exchange for payment of $1,000,000 and the transfer of 333,333shares of the Company’s common stock held by the New Investors.  The New Investors concurrently exchanged theConvertible Notes and warrants with the Company for 750,000 shares of theCompany’s common stock and a call option to purchase up to 333,333 shares ofthe Company’s common stock at a purchase price of $3.00 per share, exercisablefor sixty days after the closing of the financing.  The New Investors exercised 83,333 of thesewarrants resulting in proceeds to the Company of $250,000.

 

The Company accounted for the extinguishmentof the Convertible Notes and warrants in accordance with APB 26.  In accordance with these provisions, theCompany recorded a non-cash loss on the extinguishment of the ConvertibleNotes, based on the difference between (a) the fair value of the commonstock and the call options issued and (b) the difference between thecarrying value and stated value of the convertible debt and fair value of thederivative liabilities immediately prior to the extinguishment.  The fair value of these instruments wasdetermined based on the closing stock price on the date of theextinguishment.  The following table setsforth the fair value of the securities exchanged during 2007.

 
| Extinguishment  of derivative liabilities                |   | $          | 4,891,240 |   |
|----------------------------------------------------------|--------|------------|-----------|--------|
| Cancellation of  Convertible Notes and accrued interest  |   | 2,014,000  |      |
| Accretion 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 |   |

 

The fair value of the ECF and warrants weredetermined using the Black-Scholes option pricing model with the followingassumptions at the date of extinguishment.

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

 

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**11.****      ****Commitments and Contingencies**

 

*Facility*

TheCompany leases its office space and certain office equipment undernon-cancellable operating leases.  Rentexpense under these operating leases was $114,664 and $109,555, respectively,for the years ended December 31, 2008 and 2007, respectively.

 

Futureannual minimum lease payments under non-cancellable operating leases are asfollows at December 31:

 
| 2009       |   | $       | 113,114 |   |
|------------|--------|---------|---------|--------|
| 2010       |   | 117,073 |    |
| 2011       |   | 121,170 |    |
| 2012       |   | 20,310  |    |
| Thereafter |   | —  |    |
|       |   | $       | 371,667 |   |

 

**12.****      ****Litigation**

 

OnJuly 19, 2006, the Company received a Demand for Arbitration filed withthe American Arbitration Association from Sacks Motorsports Inc. seeking damagesarising out of a sponsorship contract. On February 13, 2007, the Arbitrator awarded Sacks Motorsports Inc.$1,790,000.  This amount was taken as anexpense in the quarter ending December 31, 2006 and is fully reserved onthe balance sheet.  On August 6,2007, the Company filed a petition in U.S. District Court asking the judge to either: (1) order the arbitratorto reopen the arbitration and allow for discovery regarding what the Companybelieved to be significant new evidence to have the award vacated; or (2) toallow the Company to conduct such discovery in the U.S.  District Court proceeding regarding what theCompany believed to be significant new evidence to have the award vacated.  On May 27, 2008, the Court denied theCompany’s petition and entered judgment in favor of Sacks for the principal sumof $1,790,000 together with post-award interest from February 13,2007.  On July 16, 2008, the Companyentered into an Assignment of Claims Agreement (“Assignment Agreement”) withAnga M’Hak Publishing and Edward Raabe, for the consideration of 150,000 sharesof common stock and $100,000 in cash out of the proceeds of the Company’sproposed private placement.  The Companybelieves Anga M’Hak has a claim to offset the judgment of approximately$1,500,000 against Sacks Motorsports.  Aspart of the Assignment Agreement, Anga and Raabe agreed to execute affidavitsdetailing their entitlement to the above-referenced claims and monies.  In addition, they agreed to appear fordepositions and as witnesses in court and to otherwise fully cooperate in theCompany’s pursuit of these claims.  TheCompany believes their affidavits will indicate that Sacks Motorsports, Inc.perpetrated fraud by not having the authority to enter into the contract, whichwrongfully created the judgment in favor of Sacks Motorsports, Inc.  The Company expects to file a motion with theappropriate California court to validate this assignment and offset anyremaining obligation.

 

OnMay 8, 2007, the Company was served with a summons and complaint in alawsuit filed in the San Diego Superior Court by Christopher Wicks and DefianceU.S.A., Inc. seeking judgment against the Company, Edon Moyal and DanFleyshman under a contract allegedly calling for the payment of $288,000 incash plus stock in the Company’s subsidiary, Who’s Your Daddy, Inc., aCalifornia corporation, and a certain percentage of the revenues of thatsubsidiary.  On February 1, 2008,the Company

 

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enteredinto a Settlement Agreement and Mutual Release with the plaintiffs pursuant towhich the Company agreed to pay to the plaintiffs the sum of $252,000 under apayment schedule detailed therein.  Assecurity for the settlement payment, defendants Fleyshman and Moyal togetherpledged 319,294 shares of common stock in the Company owned and held bythem.  The Company is currently indefault on its Settlement Agreement.

 

OnMarch 19, 2008, a complaint was filed against the Company by GetLogistics, LLC (formerly known as GE Transport) seeking damages of $30,278.72for unpaid shipping charges.  The Companyis currently attempting to settle this matter.

 

OnApril 1, 2005, the Company received a complaint filed by Who’s Ya Daddy, Inc.,a Florida corporation (“Daddy”), alleging that the Company was infringing onDaddy’s trademark, Who’s Ya Daddy®, with respect to clothing.  On April 7, 2006, the Company enteredinto a settlement agreement with Daddy pursuant to which the Company wasgranted an exclusive license to use its marks on clothing in exchange for aroyalty payment of 6% of gross sales for clothing products in the UnitedStates, excluding footwear.  As part ofthe settlement, the Company also agreed to remit to Daddy 12% of the licensingrevenues received from third parties who the Company granted sublicense to foruse of the marks on clothing.  TheCompany has not made any of the required payments under the settlementagreement.  On March 26, 2008, theCompany, Dan Fleyshman and Edon Moyal each received a Notice of Levy from theUnited States District Court for the Southern District of California in theamount of $143,561 allegedly pursuant to the terms of the settlement agreementwith Daddy.  The Company settled the debton March 4, 2009 for $125,000 of which $25,000 was paid through a loan byan officer.  The first payment of $10,000dollars is due April 30, 2009 and $10,000 is due every 60 days until theyreceive and additional $100,000.

 

OnJuly 30, 2008 the Company entered into a Compromise and SettlementAgreement and Mutual Release with Straub Distributing, L.L.C., a CaliforniaLimited Liability Corporation.  TheCompany paid $7,500 on July 30, 2008 and was required to make threepayments of $7,250 every sixty days until Straub received a total sum of$22,000.  As part of the SettlementAgreement if any of the payments were late by more than fifteen days, thenStraub Distributing Company would file a judgment in the amount of $40,000against the Company plus attorney fees, costs and expenses to enforce thejudgment.  As part of the SettlementAgreement, the judgment would be reduced by the amount payments received.  The Company made the initial payment of  $7,500 plus one payment of $7,200.  The judgment was filed on January 2,2009.

 

OnMarch 3, 2009 the Company received a judgment from WorldWide Express.  The Company was paying $1,200 per monthagainst the original judgment of $18,781.42. The Company had paid 10,948.90 and the remaining amount owed is$9,085.75.

 

**13.****      ****IncomeTaxes**

 

Reconciliationsof the U.S. federal statutory rate to the actual tax rate are as follows forthe years ended December 31:

 

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| ** **                                  | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
|                                        |       |     |       |     |       |
| Pretax loss                                 |       |     |       |     |       |
| Federal 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    | %          |
| Extinguishment  of debt                     |       | —   |       | 84.4     | %          |
| Derivative  liabilities                     |       | —   |       | -40.1    | %          |
| Registration  rights penalties              |       | —   |       | -5.1     | %          |
| Amortization of  debt discount              |       | -1.0     | %          | -1.8     | %          |
| Non-deductible  entertainment               |       | -0.1     | %          | -0.3     | %          |
| Temporary  differences:                     |       |     |       |     |       |
| Change in  valuation allowance              |       | -38.8    | %          | -62.5    | %          |
| Total provision                             |       | 0.0      | %          | 0.0      | %          |

 

Themajor components of the deferred taxes are as follows at December 31:

 
| ** **              | ** ** | **Asset (Liability)** | ** ** |
|-------------------------|------------|----------------------------|------------|
| ** **              | ** ** | **2008**                   | ** ** | **2007** | ** ** |
| Current:                |       |                       |       |   |   |
| Reserves and  accruals  |       | $                          | 1,057,296  |   | $ | 1,160,433 |   |
| Noncurrent:             |       |                       |       |   |   |
| Net operating  losses   |       | 7,020,355                  |       | 6,021,648 |   |
| Stock  compensation     |       | 498,662                    |       | 377,921 |   |
| Valuation  allowance    |       | (8,576,313                 | )          | (7,560,002 | ) |
| Net deferred tax  asset |       | $                          | —     |   | $ | — |   |

 

AtDecember 31, 2008, the Company had available $13,384,260 in U.S. tax netoperating loss carryforwards, pursuant to the Tax Reform Act of 1986, whichassesses the utilization of a Company’s net operating loss carry forwardsresulting from retaining continuity of its business operations and changeswithin its ownership structure.  Netoperating loss carryforwards expire in 20 years for federal income taxreporting purposes.  For Federal incometax purposes, the net operating losses begin to expire in 2027.  The Company has relied on the issuance ofcommon stock to fund certain operating expenses.  The Company may have experienced a change inownership as defined in Section 382 of the Internal Revenue Code.  In the event the Company experienced a changein ownership, net operating loss carryforwards for federal income tax reportingwill be limited based on the fair value of the Company on the date of change inownership.  Such change is expected toprovide benefit to the Company only upon the attainment of profitability.

 

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Duringthe years ended December 31, 2008 and 2007, the Company’s valuationallowance increased by approximately $1,016,311and $3,600,000, respectively.

 

**14.****      ****Preferred Stock**

 

TheCompany has authorized 20,000,000 shares of preferred stock of which 333,333shares are issued and outstanding at December 31, 2008 and 2007.  These shares are owned by Edon Moyal and DanFleyshman, officers of the Company.  Theshares 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 tothese shares has not been filed with the State of Nevada and these preferredshares will not have voting power until this filing is accomplished.

 

**15.****      ****Common Stock**

 

*Sales of Common Stock*

During2007, the Company sold 2,220,922 shares of common stock for cash proceeds andadvances made on behalf of the Company of $3,572,785.  Included in this amount are 120,259 shares ofcommon stock issued in exchange for $95,000 which was received subsequent to December 31,2007.  The proceeds were received duringthe year ended December 31, 2008.

 

*Issuanceof Common Stock to Officers and Employees*

During2008, the Company issued 2,479,699 shares of common stock to certain executiveofficers and employees for settlement of salaries accrued during 2007 through May 2008totaling $348,719.  The fair market valueof the common stock issued was $404,549, based on the closing stock price onthe date of settlement which resulted in additional stock-based compensation of$72,830.

 

*Issuance of Common Stock to Consultants and Advisors*

During2008 and 2007, the Company issued 1,569,194 and 178,852 shares of common stockto consultants with aggregate fair values of $242,705 and $934,909,respectively.  The fair value of theshares was determined based on the closing stock price at each reportingperiod.  The shares were earned on theirrespective vesting dates.  Such amountswere included in General and Administrative expenses in the accompanyingstatements of operations.

 

*Issuance of Common Stock for Settlement of Obligations*

During2008 and 2007, the Company issued 750,155 and 893,236 shares of common stock,respectively to settle creditor obligations including accounts payable, accruedexpense and registration rights obligations. For the year ended December 31, 2008 and 2007, the aggregate fairvalue of the common stock for the settlement of accounts payable, accruedexpense and registration rights obligations was $329,643 and $1,095,309,respectively.  The fair value of theshares for each period was based on the closing stock price on the date ofissuance.

 

*Issuance of Common Stock Warrants to Consultants*

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

 

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| ** **                                    | ** ** | **Warrants   Outstanding** | ** ** | **Weighted-Average  Exercise Price** | ** ** |
|-----------------------------------------------|------------|---------------------------------|------------|-------------------------------------------|------------|
| Warrants  outstanding, December 31, 2006 |       | 738,843                         |       | $                                         | 9.35       |   |
| Granted                                       |       | 284,167                         |       | 1.48                                      |       |
| Exercised                                     |       | —                          |       | —                                    |       |
| Cancelled                                     |       | —                          |       | —                                    |       |
| Warrants  outstanding, December 31, 2007 |       | 1,023,010                       |       | $                                         | 7.16       |   |
| Granted                                       |       | —                          |       | —                                    |       |
| Exercised                                     |       | —                          |       | —                                    |       |
| Cancelled                                     |       | —                          |       | —                                    |       |
| Warrants  outstanding, December 31, 2008 |       | 1,023,010                       |       | $                                         | 7.16       |   |

 

Theassumptions used to value warrants granted are as follows for the years ended December 31:

 
| ** **           | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------|------------|----------|------------|----------|------------|
| Weighted  Average:   |       |     |       |     |       |
| Fair value           |       | $        | —     |     | $          | 0.08 |   |
| Exercise price       |       | $        | —     |     | $          | 7.16 |   |
| Risk-free rate       |       | —   |       | 3.5      | %          |
| Life (in years)      |       | —   |       | 3.1      |       |
| Expected  volatility |       | —   |       | 142      | %          |
| Dividend yield       |       | —   |       | 0        | %          |

 
| ** **                                      | ** ** | ** **                    | ** ** | **Warrants Outstanding**                     | ** ** | **Warrants Exercisable**                          | ** ** |
|-------------------------------------------------|------------|-------------------------------|------------|---------------------------------------------------|------------|--------------------------------------------------------|------------|
| **Range 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                       |       | 3.94                                              |       | $                                                      | 0.75       |   | 250,000 |   | $ | 0.75 |   |
| $6.00 - $12.00                                  |       | 773,010                       |       | 2.06                                              |       | 9.24                                                   |       | 773,010 |   | 9.24 |   |
|                                            |       | 1,023,010                     |       |                                              |       |                                                   |       | 1,023,010 |   |   |   |
|                                                 |            |                               |            |                                                   |            |                                                        |            |  |  |  |  |  |  |

 

Forthe years ended December 31, 2008 and 2007, the Company recorded $87,011and $77,055, respectively in stock-based compensation for these stockwarrants.  As of December 31, 2008,there is no future stock-based compensation expense to be recorded for theseoutstanding warrants to purchase common stock.

 

*Issuance of Common Stock Options to Employees*

Sincethe Company’s inception, it has issued options to purchase common stock tocertain employees and officers.  Thefollowing is a summary of the stock option activity.

 

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| ** **                                   | ** ** | **Options   Outstanding** | ** ** | **Weighted-Average   Exercise Price** | ** ** |
|----------------------------------------------|------------|--------------------------------|------------|-------------------------------------------------|------------|
| Options  outstanding, December 31, 2006 |       | 1,215,333                      |       | $                                               | 9.10       |   |
| Granted                                      |       | 283,333                        |       | 9.00                                            |       |
| Exercised                                    |       | —                         |       | —                                          |       |
| Cancelled                                    |       | (87,500                        | )          | 9.00                                            |       |
| Options  outstanding, December 31, 2007 |       | 1,411,167                      |       | $                                               | 9.09       |   |
| Granted                                      |       | —                         |       | —                                          |       |
| Exercised                                    |       | —                         |       | —                                          |       |
| Cancelled                                    |       | (250,000                       | )          | 9.60                                            |       |
| Options  outstanding, December 31, 2008 |       | 1,161,167                      |       | $                                               | 9.00       |   |

 

Theassumptions used to value stock options granted are as follows for the yearsended December 31:

 
| ** **           | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------|------------|----------|------------|----------|------------|
| Weighted  Average:   |       |     |       |     |       |
| Fair value           |       | $        | —     |     | $          | 3.38 |   |
| Exercise price       |       | $        | —     |     | $          | 9.00 |   |
| Risk-free rate       |       | —   |       | 4.50     | %          |
| Life (in years)      |       | —   |       | 4.0      |       |
| Expected  volatility |       | —   |       | 113      | %          |
| Dividend yield       |       | —   |       | 0        | %          |

 
| ** **                                      | ** ** | ** **                    | ** ** | **Options Outstanding**                                  | ** ** | **Options Exercisable**                           | ** ** |
|-------------------------------------------------|------------|-------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **Range 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                                  |       | 1,161,167                     |       | 1.44                                                          |       | 9.00                                                   |       | 1,098,667 |   | 9.19 |   |

 

Forthe years ended December 31, 2008 and 2007, the Company recorded $221,507and $1,301,500, respectively in stock-based compensation for these stockoptions.  As of December 31, 2008,there is no future stock-based compensation expense to be recorded for theseoutstanding stock options.

 

OnJune 29, 2007, the Company’s board of directors adopted the 2007 EquityIncentive Plan (the “2007 Plan”).  The2007 Plan provides for the grant of equity awards to directors, officers, otheremployees, consultants, independent contractors and agents of the Company andits subsidiaries, including stock options to purchase shares of the Company’scommon stock, stock appreciation rights (“SARs”), restricted stock, restrictedstock units, bonus stock and performance shares.  Up to 833,333 shares of the Company’s commonstock, subject to adjustment in the event of stock splits and other similarevents, may be issued pursuant to awards granted under the 2007 Plan.  The 2007 Plan is administered by the Board ofDirectors, and expires ten years after adoption, unless terminated earlier bythe Board.  As of December 31, 2008,no stock option grants have been made under the 2007 Plan.

 

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**16.****      ****Related Party Transactions**

 

During2006, the Company entered into consulting agreements with two family members ofan officer of the Company, to provide accounting, financial and systems designservices.  Under the terms of theseagreements, the Company was committed to pay an aggregate of $11,000 monthly tothese parties.  The Company believes thelevel of compensation is comparable to those of unrelated third parties.  These agreements were terminated in2007.  The amounts earned by theseparties were $0 and $9,000 for the years ended December 31, 2008 and 2007,respectively.

 

During2008, an officer loaned the Company $245,000 in various tranches which wasneeded to pay certain operating expenses. During 2008, the Company repaid $263,396 together with interest of$50,500.  As of December 31, 2008,the balance due to the officer was $32,604 which has been classified as “Advancesfrom Officers” in the accompanying balance sheet.

 

During2008, the Company borrowed $30,000 from the father of Edon Moyal which wasneeded to pay certain operating expenses. This amount together with interest of $5,000 was repaid during 2008.

 

**17.****      ****Segment Information**

 

SFASNo. 131, “Disclosures aboutSegments of an Enterprise and Related Information,” requires thedetermination of reportable business segments (i.e., the managementapproach).  This approach requires thatbusiness segment information used by the chief operating decision maker toassess performance and manage company resources be the source for segmentinformation disclosure.  The Companyoperates in one business segment: the sale of energy drinks.

 

Revenuesare derived from customers located within the United States.  These customers may distribute the Company’sproducts to their customers located outside of the United States.

 

Long-livedassets consist of property and equipment and intangible assets located withinthe United States.

 

**18.****      ****Subsequent Events**

 

OnMarch 10, 2009, the Company issued 50,000 shares of common stock for aninvestor relation campaign.

 

OnFebruary 26, 2009, the Company and Edon Moyal entered into a conditionalsettlement and satisfaction of judgment with Who’s Ya Daddy, Inc. of$148,000 plus interest and collection costs whereby both the Company and Mr. Moyalagreed to pay a total of $125,000.  TheCompany and Mr. Moyal are required to repay $75,000 in 2009 and $25,000 in2010.  In March 2009, the Companymade a payment of $25,000 pursuant to a payment schedule.  Who’s Ya Daddy also received a levy on one ofthe Company’s bank accounts.

 

OnFebruary 5, 2009, the Company issued 1,000,000 shares of common stock, inlieu of cash to Ramon DeSage for marketing service of the Company’s energy shotto certain gaming properties.  Themarketing services to be performed are expected to include a televisioncommercial and into certain geographic territories.  The shares were fully earned on the date of issuancewithout any recourse for marketing bench marks.

 

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OnJanuary 26, 2009, the Company agreed to issue 1,000,000 shares of commonstock to Leigh Steinberg Sports & Entertainment LLC forrepresentation, marketing, branding and licensing services.  The shares vest ratably over a twelve monthperiod.  In addition, the Company willpay a monthly fee of $7,500 for these services.

 

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**ITEM 9****                           ****CHANGES IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

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

 

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

 

Thereport of Baum with respect to our financial statements for the years ended December 31,2006 and 2005, contained no adverse opinion or disclaimer of opinion and werenot qualified or modified as to uncertainty, audit scope, or accountingprinciples except for an explanatory paragraph relative to substantial doubtabout our ability to continue as a going concern.  Since appointment as our independent auditorsthrough the date of this report, there were no disagreements between us Baum onany matter of accounting principles or practices, financial statementdisclosure, or auditing scope or procedure, which disagreements, if notresolved to the satisfaction of Baum would have caused Baum to make referenceto the subject matter of the disagreements in connection with its report on ourfinancial statements for such years through the date of this letter.

 

**ITEM 9A****                  ****CONTROLS AND PROCEDURES**

 

**Evaluationof Disclosure Controls and Procedures**

 

Our President and Chief Financial Officer (the “CertifyingOfficer”) has evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) of theSecurities Exchange Act of 1934) as of the end of period covered by thisreport.  Based upon such evaluation, theCertifying Officer concluded that our disclosure controls and procedures werenot effective to ensure that the information required to be disclosed by us inthe reports that we file or submit under the Securities Exchange Act of 1934 isrecorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms, and isaccumulated and communicated to our management, including the CertifyingOfficer, as appropriate to allow timely decisions regarding requireddisclosure, due to the material weaknesses described below.

 

**Management’s Report on Internal Control over FinancialReporting**

 

Ourmanagement, including the CertifyingOfficer, is responsible for establishing and maintaining adequateinternal control over financial reporting, as defined in Rule 13a-15(f) and

 

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15d-15(f) underthe Securities Exchange Act of 1934.  Our internal control overfinancial reporting is a process designed to provide reasonable assuranceregarding the reliability of our financial reporting and the preparation of ourfinancial statements for external purposes in accordance with generallyaccepted accounting principles.  Ourinternal control over financial reporting includes those policies andprocedures that: (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of our assets, (ii) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with accounting principles generally accepted in theUnited States of America, and that our receipt and expenditures are being madeonly in accordance with authorizations of management and our Board ofDirectors; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use or disposition of our assetsthat could have a material effect on the financial statements.

 

Allinternal control systems, no matter how well designed, have inherentlimitations.  A system of internal control may become inadequate overtime because of changes in conditions or deterioration in the degree ofcompliance with the policies or procedures.  Therefore, even thosesystems determined to be effective can provide only reasonable assurancewith respect to financial statement preparation and presentation.

 

Ourmanagement assessed the effectiveness of our internal control over financialreporting as December 31, 2008 using the criteria set forth by theCommission of Sponsoring Organizations of the Treadway Commission (COSO) in*Internal Control-Integrated Framework*.  Basedon this assessment, our management concluded that, as of December 31,2008, our internal control over financial reporting disclosure controls and procedures were not effective to ensure that theinformation required to be disclosed by us in the reports that we file orsubmit under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified in the Securities andExchange Commission’s rules and forms, and is accumulated and communicatedto our management, including the Certifying Officer, as appropriate to allowtimely decisions regarding required disclosure, due to the material weaknessesdescribed below.

 

Inlight of the material weaknesses described below, our management, including the Certifying Officer, performedadditional analysis and other post-closing procedures to ensure our financialstatements were prepared in accordance with generally accepted accountingprinciples.  Accordingly, we believe that the financial statementsincluded in this report fairly present, in all material respects, our financialcondition, results of operations and cash flows for the periods presented.

 

Amaterial weakness is a control deficiency (within the meaning of the PublicCompany Accounting Oversight Board (“PCAOB”) Auditing Standard No. 2) orcombination of control deficiencies, which result in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected.  The management hasidentified the following five material weaknesses which have caused themanagement to conclude that our disclosure controls and procedures were noteffective at the reasonable assurance level:

 

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1.             We have not documented our internal controls.  We were required to provide writtendocumentation of key internal controls and assess the effectiveness of ourinternal controls over financial reporting beginning with our fiscal yearending December 31, 2008. Management evaluated the impact of our failure to have writtendocumentation of our internal controls and procedures on our assessment of ourdisclosure controls and procedures and has concluded that the controldeficiency that resulted represented a material weakness.

 

2.             We did not have adequate internal controls with respectto recording and reconciling salary accruals and advances to/from relatedparties.  It was determined that certainadvances were not properly recorded. Management will implement a process to record and reconcile such amountsin connection with the preparation of its financial statements.

 

To address these materialweaknesses, our management performed additional analyses and other proceduresto ensure that the financial statements included herein fairly present, in allmaterial respects, our financial position, results of operations and cash flowsfor the periods presented.  Accordingly,we believe that the financial statements included in this report fairlypresent, in all material respects, our financial condition, results ofoperations and cash flows for the periods presented.

 

**Remediationof Material Weaknesses**

 

To remediate the materialweaknesses in our documentation, evaluation and testing of internal controls,we plan to engage a third-party firm to assist us in remedying these materialweaknesses.

 

To further remediate thematerial weaknesses, we now require written documentation for all related-partytransactions and a review by all personnel responsible for financial reporting,prior to filing our periodic reports under the Securities Exchange Act of 1934.

 

**ITEM 9A(T)****  ****CONTROLS AND PROCEDURES**

 

This Item is not applicable to us.

 

**ITEM 9B****                  ****OTHER INFORMATION**

 

OnApril 13, 2009, Edon Moyal resigned from all positions as an officer anddirector with us, but continues to be an employee.  Michael R. Dunn, our Chief Executive Officerand Chief Financial Officer, filled the vacancy of Corporate Secretary createdby the resignation of Mr. Moyal.

 

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**PART III**

 

**ITEM 10****                    ****DIRECTORS, EXECUTIVEOFFICERS, AND CORPORATE GOVERNANCE**

 
| **Name**        | ** ** | **Age** | ** ** | **Position(s) and Office(s)**                               |
|-----------------|------------|---------|------------|-----------------------------------------------------------------------|
| Michael R. Dunn |       | 57      |       | Chief Executive Officer, Chief Financial Officer, Secretary, Director |
| Derek Jones     |       | 71      |       | Director                                                              |

 

**Michael R. Dunn**,our Chief Executive Officer, Chief Financial Officer, and member of our Boardof Directors, joined us on May 28, 2008. From December 1995 and continuing through the present, Mr. Dunnis the Chief Executive Officer of Bankers Integration Group, Inc., ane-commerce company serving the automotive finance and insurance industry.  Bankers Integration Group, Inc. filedfor Chapter 11 bankruptcy protection in 2008 and the assets of this companywere sold as part of that proceeding.  Mr. Dunnspends two to three hours a week working for Bankers Integration Group, Inc.in connection with the sale of its assets. Mr. Dunn also served as Chairman and Chief Executive Officer ofMountaineer Gaming, a Russell 2000 gaming and entertainment company, as well asbeing the owner, manager, or director of various businesses, both large andsmall.  Mr. Dunn attended La CrosseState University, Wisconsin, in business and has extensive training in businessmanagement and leadership.

 

**DerekJones** was appointedto our Board of Directors on April 26, 2005.  Mr. Jones is a consultant andtelecommunications analyst.  Since 2003,he has served as a Director of Native American Studies and Fund RaisingDivision of the Rio Grande Foundation, a New Mexico free market research andeducational organization dedicated to the study of public policy.  Along with his background in BusinessAdministration, Mr. Jones brings to us his knowledge and 35 yearsexperience in the area of corporate development and finance as well as hisbackground in the areas of International Finance and business affairs.

 

**Compliancewith Section 16(a)of the Exchange Act**

 

Section 16(a) ofthe Securities Exchange Act of 1934 requires our directors, officers and personswho own more than 10% of a registered class of our equity securities to filewith the SEC initial reports of ownership and reports of changes in ownershipof common stock and other equity securities.  Officers, directors andgreater than 10% shareholders are required by SEC regulations to furnish uswith copies of all Section 16(a) forms they file.

 

Tothe best of our knowledge, since December 31, 2007, the followingdelinquencies occurred:

** **
| **Name and Affiliation**                                                        | ** ** | **No. of Late********Reports** | ** ** | **No. of Transactions  Not Filed on Timely  Basis** | ** ** | **Known Failures to********File** |
|-------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------------------------------------------|------------|---------------------------------------------|
| Edon  Moyal, former Secretary, Vice President of Marketing & Branding,  Director |       | 0                                        |       | 2                                                                            |       | Form 4, Form 5                    |
| Derek  Jones, Director                                                                    |       | 0                                        |       | 3                                                                            |       | Form 4, Form 5                    |
| Dan  Fleyshman, 10% Shareholder                                                           |       | 0                                        |       | 1                                                                            |       | Form 4, Form 5                    |
| Ramon  Desage, 10% Shareholder                                                            |       | 1                                        |       | 1                                                                            |       | -0-                                         |

 

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**Code ofEthics**

 

We have adopted a Code ofEthics that applies to our principal executive officer, principal financialofficer, and principal accounting officer. Our Code of Ethics was an exhibit to our Annual Report on Form 10-kfor the fiscal year ended December 31, 2006 and filed with the SEC on April 16,2007.

 

**ITEM 11.****                 ****EXECUTIVE COMPENSATION**

 

**Summary Compensation Table**

 

Set forth below is a summary of compensation for our principal executive officer and our two most highly compensated officers other than our principal executive officer (collectively, the “named executive officers”) for our last two fiscal years.  There have been no annuity, pension or retirement benefits ever paid to our officers, directors or employees.

 

With the exception of reimbursement of expenses incurred by our named executive officers during the scope of their employment and unless expressly stated otherwise in a footnote below, none of the named executive officers received other compensation, perquisites and/or personal benefits in excess of $10,000.

 
| **Name and   Principal   Position** | ** ** | **Year** | ** ** | **Salary ($)** | ** ** | **Bonus   ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-equity  Incentive Plan  Compensation  ($)** | ** ** | **All Other  Compensation   ($)** | ** ** | **Total ($)** | ** ** |
|----------------------------------------------------|------------|----------|------------|---------------------|------------|----------------------|------------|------------------------|------------|-------------------------|------------|--------------------------------------------------------|------------|---------------------------------------------|------------|--------------------|------------|
| Michael R. Dunn,  CEO, CFO                         |       | 2008     | (1)        | $                   | 105,000    |                 | $          | -0-                    |       | $                       | -0-        |                                                   | $          | -0-                                         |       | $                  | -0-        |   | $ | -0- |   | $ | 105,000 |   |
| Edon Moyal,  Secretary, Exec. V.P.                 |       | 2008     | (2)        | $                   | 177,500    |                 | $          | -0-                    |       | $                       | -0-        |                                                   | $          | -0-                                         |       | $                  | -0-        |   | $ | -0- |   | $ | 177,500 |   |
|                                               |       | 2007     |       | $                   | 216,000    |                 | $          | -0-                    |       | $                       | -0-        |                                                   | $          | -0-                                         |       | $                  | -0-        |   | $ | -0- |   | $ | 216,000 |   |
| Dan Fleyshman,  President                          |       | 2008     | (3)        | $                   | 90,000     |                 | $          | -0-                    |       | $                       | -0-        |                                                   | $          | -0-                                         |       | $                  | -0-        |   | $ | -0- |   | $ | 90,000 |   |
|                                               |       | 2007     |       | $                   | 216,000    |                 | $          | -0-                    |       | $                       | -0-        |                                                   | $          | -0-                                         |       | $                  | -0-        |   | $ | -0- |   | $ | -0- |   |
| John F. Moynahan,  CFO                             |       | 2008     | (4)        | $                   | 66,226     |                 | $          | -0-                    |       | $                       | -0-        |                                                   | $          | -0-                                         |       | $                  | -0-        |   | $ | -0- |   | $ | 66,226 |   |
|                                               |       | 2007     |       | $                   | 133,000    |                 | $          | -0-                    |       | $                       | -0-        |                                                   | $          | 250,000                                     |       | $                  | -0-        |   | $ | -0- |   | $ | 383,000 |   |

 

----

(1)  Joined us May 28,2008.

(2)  Resigned as anofficer and director on April 13, 2009, but continues to be an employee.

(3)  Resigned May 28,2008.

(4)  Resigned November 21,2008.

 

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**EmploymentAgreements**

 

Inconnection with Mr. Dunn’s appointment as Chief Executive Officer, weentered into an employment agreement with Mr. Dunn.  The employment agreement is effective May 28,2008 for a term of two years (the “Initial Term”). Unless sooner terminatedpursuant to the terms thereof, Mr. Dunn’s employment will automaticallyrenew for additional one year terms (each, a “Renewal Term”).  Mr. Dunn will receive an annual salaryof $180,000 per year, which shall be increased by 5% on January 1st ofeach year.  The agreement contains a provisionthat if we fail to make any regularly scheduled payment of salary to Mr. Dunnwithin 15 days of its due date, we shall issue, in lieu of such payment andsubject to applicable securities laws, shares of our common stock with a valueof 150% of the salary owing to Mr. Dunn, such shares valued at the priceper share in the last reported trade of our common stock.  Mr. Dunn has indicated that he will waivethis provision.  Mr. Dunn also wasgranted 2,000,000 shares of common stock, vesting immediately and subject to alock-up provision that prohibits Mr. Dunn from selling, transferring orotherwise encumbering the shares until the earlier of 12 months or an aggregatecapital raise of at least $3,000,000 on a pro rata basis.  Mr. Dunn also is entitled to additionalbenefits commensurate with the position of Chief Executive Officer, includingpaid vacation, a car allowance, reimbursement of reasonable and necessarybusiness expenses incurred in the performance of his duties and eligibility toparticipate in employee benefit plans.

 

Ifwe terminate Mr. Dunn’s employment for any reason other than just cause, Mr. Dunnwill be entitled to payment of his annual salary, as in effect on the date ofhis termination, through the Initial Term or any applicable Renewal Term.  The employment agreement also containscustomary non-disclosure/non-solicitation and non-competition provisions.

 

**DirectorCompensation**

 

Ingeneral, our directors are not compensated for their services, but are entitledfor reimbursement of expenses incurred in attending board of directorsmeetings.

 

During 2008, Derek Joneswas issued 37,500 shares of common stock. The fair value of these shares was$4,501.

 

**Grants of Plan BasedAwards**

 

Therewere no grants of plan-based awards during our last fiscal year.

 

**ITEM 12****                    ****SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

Thefollowing table sets forth certain information concerning the stock ownershipas of the date of this Report, with respect to: (i) each person who isknown to the Company to beneficially own more than 5% of the Company’s commonstock; (ii) each officer and director; and (iii) all directors andofficers as a group; based upon 20,903,883 shares of common stock outstanding.

 

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| ** **                                                        | ** ** | **Common Stock**                                      | ** ** | **Preferred Stock**                 | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------|------------|
| **Name and Address of  Beneficial Owners(1)** | ** ** | **Amount and  Nature of  Beneficial  Ownership** | ** ** | **Percent  Ownership  of Class(2)** | ** ** | **Amount and  Nature of  Beneficial  Ownership** | ** ** | **Percent  Ownership  of Class** | ** ** |
| Michael R. Dunn,  CEO, CFO, Secretary, and Director               |       | 2,000,000                                                  |       | 9.6                                      | %          | -0- |   | 0 | % |
| Derek Jones,  Director                                            |       | 22,500                                                     |       | *                                        |       | -0- |   | 0 | % |
| All executive  officers and directors as a group (two persons)    |       | 3,999,376                                                  |       | 19.2                                     | %          | 166,667 | (4) | 50.0 | % |
| Edon Moyal                                                        |       | 2,165,210                                                  | (3)        | 10.3                                     | %          | 166,667 | (4) | 50.0 |   |
| Ramon Desage   3494 E. Sunset Road   Las Vegas, NV 89120          |       | 2,100,000                                                  |       | 10.0                                     | %          | -0- |   | 0 | % |
| Dan Fleyshman   1683 Coolidge Street, Unit C  San Diego, CA 92111 | ** ** | 1,329,793                                                  | (3)        | 6.3                                      | %          | 166,667 |   | 50.0 | % |

 

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*Lessthan 1%.

 

**ITEM 13****                    ****CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

None.

 

**ITEM 14****                    ****PRINCIPAL ACCOUNTING FEESAND SERVICES**

 

McKennon,Wilson & Morgan LLP and Baum & Company, PA ****(t****he“Independent Auditors”) were our independent auditors and examined ourfinancial statements for the years ended December 31, 2008 and 2007, respectively.  The Independent Auditors performed theservices listed below and were as paid the aggregate fees listed below for theyears ended December 31, 2008 and 2007.

 

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(1) C/o our address, 5840 El Camino Real, Suite 108, Carlsbad, CA  92008, unless otherwise noted.

(2)   Except as otherwise indicated, we believethat the beneficial owners of common stock listed above, based on informationfurnished by such owners, have sole investment and voting power with respect tosuch shares, subject to community property laws where applicable.  Beneficial ownership is determined inaccordance with the rules of the Securities and Exchange Commission andgenerally includes voting or investment power with respect to securities.  Shares of common stock subject to options orwarrants currently exercisable, or exercisable within 60 days, are deemedoutstanding for purposes of computing the percentage of the person holding suchoptions or warrants, but are not deemed outstanding for purposes of computingthe percentage of any other person.

(3) Includes 166,667 options to purchase shares of common stock at $1.00 per shareexpiring March 31, 2010; 5,000 options to purchase shares of common stockat $2.00 per share expiring December 28, 2011; and 16,667 options topurchase shares of common stock at $9.00 expiring April 30, 2012.

(4) These preferred shares are not convertible into common stock and have nopreference rights, however, each share of preferred stock is entitled to fourvotes on a common stock basis.

 

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**Audit Fees**

 

The Independent Auditorswere paid aggregate fees of approximately $81,141 for the fiscal year ended December 31,2008 and approximately $56,000 for the fiscal year ended December 31, 2007for professional services rendered for the audit of our annual financialstatements and for the reviews of the financial statements included in ourquarterly reports on Form 10-QSB during these periods.

 

**Audit Related Fees**

 

The Independent Auditorswere not paid additional fees for either the year ended December 31, 2008or the fiscal year ended December 31, 2007 for assurance and relatedservices reasonably related to the performance of the audit or review of ourfinancial statements.

 

**Tax Fees**

 

TheIndependent Auditors were not paid fees for the year ended December 31,2008 or the fiscal year ended December 31,2007 for professional services rendered for tax compliance, tax adviceand tax planning during this fiscal year period.

 

**All Other Fees**

 

The Independent Auditors were not paidany other fees for professional services during the year ended December 31,2008 or the fiscal year ended December 31, 2007.

 

**ITEM 15****                    ****EXHIBITS, FINANCIALSTATEMENT SCHEDULES**

 
| 2.1  |   | Agreement  and Plan of Merger by and among Snocone Systems Inc., WYD Acquisition Corp.  and Who’s Your Daddy, Inc., dated April 1, 2005(1)                                 |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1  |   | Amended  and Restated Articles of Incorporation, dated December 4, 2001(2)                                                                                                           |
| 3.2  |   | Amended  and Restated Bylaws, dated December 4, 2001(2)                                                                                                                              |
| 10.1 |   | Registration  Rights Agreement, dated May 7, 2007(3)                                                                                                                                 |
| 10.2 |   | Securities  Purchase Agreement, dated May 7, 2007(3)                                                                                                                                 |
| 10.3 |   | Amendment  to Registration Rights Agreement, dated June 22, 2007(4)                                                                                                                  |
| 10.4 |   | Amendment  to Securities Purchase Agreement, dated May 7, 2007(4)                                                                                                                    |
| 10.5 |   | 2007  Equity Incentive Plan, dated June 7, 2007(5)                                                                                                                                   |
| 10.6 |   | Settlement  Agreement with Shearson Foundation,  European American Investments, October Funds, Cohiba Partners, Strong  Partners, and Rancho Malibu, dated November 13, 2007(6) |
| 10.7 |   | Settlement  Agreement with King of Energy West, dated December 7, 2007(6)                                                                                                            |
| 10.8 |   | Settlement  Agreement with Fuskandrakis LLC, dated December 7, 2007(6)                                                                                                               |
| 10.9 |   | Assignment of Rights Agreement with Anga M’Hak Publishing  and Edward                                                                                                                |

 

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(1)  Incorporated by reference from our CurrentReport on Form 8-K filed with the Commission on April 7, 2005.

(2)  Incorporated by reference from ourRegistration Statement on Form 10SB filed with the Commission on January 18,2002.

(3) Incorporated by reference from our Current Report on Form 8-K filedwith the Commission on May 14, 2007.

(4) Incorporated by reference from our Current Report on Form 8-K filedwith the Commission on June 28, 2007.

(5) Incorporated by reference from our Definitive Schedule 14A filed withthe Commission on June 22, 2007.

(6) Incorporated by reference from our Annual Report on Form 10-K filedwith the Commission on May 12, 2008.

 

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|   |   | Raabe, dated July 16, 2008(7)                                                                                                                                                                              |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.10  |   | Consulting Agreement with BSW & Associates, dated September 16, 2008(8)                                                                                                                           |
| 10.11  |   | Consulting  Agreement with Net Vertex New York Inc., dated October 23, 2008                                                                                                                                |
| 10.12  |   | Separation  Agreement and General Release with John F. Moynahan, dated November 21,  2008                                                                                                                  |
| 10.13  |   | Master  Distributor Agreement with Beryt Promotion, LLC, dated November 21, 2008                                                                                                                           |
| 10.14  |   | Marketing &  Representation Agreement with Leigh Steinberg Sports & Entertainment  LLC, dated January 26, 2009(9)                                                                        |
| 14.1   |   | Code  of Ethics(10)                                                                                                                                                                                             |
| 31.1   |   | Certification  of Chief Executive Officer Pursuant to the Securities Exchange Act of 1934,  Rule 13a-14(a) and 15d-14(a), as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002  |
| 31.2   |   | Certification  of Chief Financial Officer Pursuant to the Securities Exchange Act of 1934,  Rules 13a-14(a) and 15d-14(a), as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32     |   | Certifications  Pursuant to 18 U.S.C., Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                                                                            |

 

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(7)  Incorporated by reference from our CurrentReport on Form 8-K filed with the Commission on July 23, 2008.

(8)  Incorporated by referencefrom our Current Report on Form 8-K filed with the Commission on October 16,2008.

(9) Incorporated by reference from our Current Report on Form 8-K filedwith the Commission on January 29, 2009.

(10)  Incorporated by referencefrom our Annual Report on Form 10-K filed with the Commission on April 16,2007.

 

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**SIGNATURES**

 

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

 
|                       | WHO’S  YOUR DADDY, INC.                                                                 |
|----------------------------|----------------------------------------------------------------------------------------------|
|                       |                                                                                         |
|                       |                                                                                         |
| DATED: April 15, 2009 | /s/ Michael R. Dunn                                                                          |
|                       | By: Michael R. Dunn                                                                          |
|                       | Its: Chief Executive Officer and Chief  Financial Officer                                    |
|                       | (Principal Executive Officer, Principal Financial  Officer and Principal Accounting Officer) |

 

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