Execute Sports (EXCS) 10QSB 2006 Q3 Quarterly report (small business)

Securities And Exchange Commission

Washington, D.C. 20549

FORM 10-QSB

(x) Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934

For The Quarterly Period Ended September 30, 2006.

( ) Transition Report Under Section 13 Or 15(d) Of The Securities Exchange Act Of 1934

For The Transition Period From ______________To_________________

Commission File Number 333-125868

Execute Sports, Inc.

(Exact Name Of Registrant As Specified In Its Charter)

Nevada	30-0038070
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

 1284 Puerta Del Sol, Suite 150

San Clemente, CA 92673

(858) 518-1387

(Address, Including Zip Code, And Telephone Number, Including

Area Code, Of Registrant's mailing address in California)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes (x) No ( )

The number of outstanding shares of the issuer's common stock, $0.001 par value, as of November 10, 2006 was 24,377,822.

-1-

TABLE OF CONTENTS

	Page
Part I
Item 1. Financial Statements	3
Consolidated Balance Sheet as of September 30, 2006 (Unaudited)	3
Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005(unaudited)	4
Consolidated Statements of Stockholders Equity for the nine months Ended September 30, 2006 (unaudited)	5
Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2006 and 2005 (unaudited)	6
Notes To Financial Statements (Unaudited)	7
Item 2. Management's Discussion and Analysis	25
Item 3. Controls and Procedures	37
Part II - Other Information
Item 1. Legal Proceedings	38
Item 2. Unregistered Sales of Equity Securities and use of Proceeds	38
Item 3. Defaults Upon Senior Notes	38
Item 4. Submission of Matters to a Vote of SecurityHolders	38
Item 5. Other Information	38
Item 6. Exhibits	38
Signatures	39

-2-

EXECUTE SPORTS, INC.
Consolidated Balance Sheet (Unaudited)
September 30, 2006
	September 30,
	2006
ASSETS
CURRENT ASSETS
Cash	$	67,306		2	%
Accounts receivable, net (Note B)		613,432		21	%
Inventory (Note C)		494,932		17	%
Prepaid expenses		64,049		2	%
Deferred financing costs (Note H)		139,301		5	%
Loan receivable and accrued interest, net of reserve (Note D)		142,272		5	%
Employee advance		12,955		0	%
				0	%
TOTAL CURRENT ASSETS		1,534,247		53	%
Fixed assets (Note E)
Cost		118,174		4	%
Accumulated Depreciation		(39,120	)	-1	%
Net		79,054
Goodwill (Note F)		1,288,577		44	%
Deposits		7,618		0	%
		1,296,195
TOTAL ASSETS	$	2,909,496		100	%
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note G)		728,015		25	%
Secured borrowings (Note B)		157,128		5	%
Convertible debenture, net (Note H)		347,304		12	%
Notes Payable (Note I)		236,391		8	%
Related party notes payable (Note I)		201,718		7	%
TOTAL CURRENT LIABILITIES		1,670,556
COMMITMENT		-
STOCKHOLDERS' EQUITY (Note J)
Common stock, par value $.001, 75,000,000 shares authorized
authorized; issued and outstanding 23,776,166 at September 30, 2006		23,771
Additional paid-in capital		8,688,704
Retained earnings <Deficit>		(7,473,535	)
TOTAL STOCKHOLDERS' EQUITY		1,238,940
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	2,909,496
SEE NOTES TO FINANCIAL STATEMENTS

-3-

EXECUTE SPORTS, INC.
Consolidated Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2006 and 2005
	Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2006			2005			2006			2005
REVENUES
Sales	$	531,932		$	96,211		$	1,634,456		$	1,355,104
Cost of sales		268,375			44,819			1,100,409			925,049
Gross profit		263,557			51,392			534,047			430,055
EXPENSES
General and administrative expenses		518,452			344,760			2,218,952			3,074,481
Selling and advertising		163,595			39,531			429,187			148,803
Depreciation expense		1,138			1,488			3,414			4,465
Total expense		683,185			385,779			2,651,553			3,227,749
Income (loss) from operations		(419,628	)		(334,387	)		(2,117,506	)		(2,797,694	)
OTHER INCOME AND EXPENSES
Interest income		-			-			6,739			-
Other income		48			-			2,851			-
Interest expense		(87,078	)		(5,620	)		(138,171	)		(61,296	)
Loss due to loan reserve		(250,000	)		-			(250,000	)		-
Loss due to discount on conversion to stock		(32,356	)		-			(32,356	)		-
Amortization of beneficial conversion feature
of convertible debenture		(160,719	)		-			(227,151	)		-
Amortization of warrant discount related to
convertible debenture		(81,138	)		-			(120,153	)		-
Amortization of deferred financing costs		(34,631	)		-			(51,699	)		-
Total other income and expenses		(645,874	)		(5,620	)		(809,940	)		(61,296	)
NET INCOME (LOSS)	$	(1,065,502	)	$	(340,007	)	$	(2,927,446	)	$	(2,858,990	)
Weighted average shares outstanding		23,321,088			15,644,931			21,376,749			10,347,308
Earnings per share	$	(0.046	)	$	(0.022	)	$	(0.137	)	$	(0.276	)
The average shares listed below were not included in the computation
of diluted losses per share because to do so would have been
antidilutive for the periods presented:
Stock options		900,000			-			900,000			-
Warrants		3,486,627			-			1,769,632			-
Debt collateralized with common stock		13,442,627			-			6,339,565			-
SEE NOTES TO FINANCIAL STATEMENTS

-4-

EXECUTE SPORTS, INC.
Consolidated Statement of Stockholder's Equity (Unaudited)
As of September 30, 2006
	Common Stock									Additional			Retained			Total
	Number of						Payable/			Paid-in			Earnings			Stockholder's
	Shares			Amount			Subscribed			Capital			<Deficit>			Equity
December 31, 2004		-		$	-		$	169,500		$	-		$	(979,509	)	$	(810,009	)
Share subscriptions receivable											(5,130	)					(5,130	)
Shares subscribed for cash		2,918,000			2,918			(69,500	)		726,582						660,000
Shares issued in connection with SB-2		3,061,570			3,057			105,000			1,068,494						1,176,551
Shares payable for services		12,310,000			12,310			(100,000	)		3,065,190						2,977,500
Shares payable for accrued interest		416,931			417						103,815						104,232
Shares issued for acquisition								676,400									676,400
Shares to be issued for
director compensation								7,500									7,500
Net Loss														(3,566,580	)		(3,566,580	)
December 31, 2005		18,706,501		$	18,702		$	788,900		$	4,958,951		$	(4,546,089	)	$	1,220,464
Shares subscriptions received											5,130						5,130
Shares issued for acquisition		1,932,569			1,933			(676,400	)		674,467						-
Shares issued for director compensation		73,808			74			(7,500	)		17,533						10,107
Shares issued for cash in connection with
the SB-2 filed 6/16/05		300,000			300			(105,000	)		104,700						-
Founders shares voluntarily canceled		(1,000,000	)		(1,000	)					1,000						-
Stock options granted											85,313						85,313
Shares issued for cash		1,597,345			1,597						321,491						323,088
Shares issued for services		529,785			529						194,803						195,332
Shares issued for debt retirement		1,636,158			1,636						425,316						426,952
Beneficial conversion feature of
convertible debenture											1,425,000						1,425,000
Warrant discount to convertible debenture											475,000						475,000
Net loss														(2,927,446	)		(2,927,446	)
September 30, 2006		23,776,166			23,771			-			8,688,704			(7,473,535	)		1,238,940
SEE NOTES TO FINANCIAL STATEMENTS

-5-

EXECUTE SPORTS, INC.
Consolidated Statements of Cash Flows (Unaudited)
Three and Nine Months Ended September 30, 2006 and 2005
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
		2006			2005			2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(1,065,502	)	$	(340,007	)	$	(2,927,446	)	$	(2,858,990	)
Adjustments to reconcile net loss
tonet cash used by operating activities:
Depreciation		1,138			1,488			3,414			4,465
Common stock payable for services		6,250			164,116			220,753			3,141,616
Compensation expense on options granted		-			-			85,313			-
Common stock payable for accrued interest		-			-			-			104,232
Loss on the conversion of convertible debt		43,906			-			43,906			-
Amortization of beneficial conversion feature		160,719			-			227,151			-
Amortization of warrant discount related to convertible debenture		81,138			-			120,153			-
Increase in loan receivable loss reserve		250,000			-			250,000			-
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in assets:
Accounts receivable		(300,245	)		319,960			(470,094	)		(36,986	)
Inventory		29,895			(24,788	)		(243,144	)		(86,760	)
Prepaid expenses		81,299			(11,500	)		300,680			(574,439	)
Deferred financing costs		3,448			-			(139,301	)		-
Employee advance		14,258			-			(12,955	)		-
Other assets		31,183			-			-			-
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses		(291,787	)		67,232			100,935			(30,482	)
Customer deposits		-			-			(25,262	)		-
NET CASH USED FOR OPERATING ACTIVITIES		(954,300	)		176,501			(2,465,897	)		(337,344	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan proceeds to unaffiliated company		-			(76,940	)		(155,019	)		(199,478	)
Acquisition of furniture and equipment		(31,938	)		-			(70,175	)		-
NET CASH USED FOR INVESTING ACTIVITIES		(31,938	)		(76,940	)		(225,194	)		(199,478	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits		-			-			(1,858	)		-
Common stock subscribed		-			(670,929	)		-			(109,499	)
Issuance of common stock		109,182			719,370			341,551			719,370
Proceeds from convertible debenture		-			-			1,900,000			-
Proceeds from notes payable		-			-			515,000			16,000
Repayment of notes payable		(53,001	)		-			(116,010	)		(52,542	)
Repayment of related party notes payable		(31,306	)		(11,500	)		(182,179	)		(28,008	)
Proceeds from related party notes payable		-			11,000			58,431			11,000
Secured borrowings		71,379			(206,164	)		(127,673	)		(31,254	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		96,254			(158,223	)		2,387,262			525,067
NET INCREASE <DECREASE> IN CASH		(889,984	)		(58,662	)		(303,829	)		(11,755	)
CASH, beginning of period		957,290			52,060			371,135			5,153
CASH, end of period	$	67,306		$	(6,602	)	$	67,306		$	(6,602	)
SUPPLEMENTAL DISCLOSURE:
Taxes paid	$	-		$	1,050		$	13,268		$	1,050
Interest paid	$	-		$	1,096		$	24,829		$	21,543
Other non-cash investing and financing activities:
Shares issued for services	$	6,250		$	164,116		$	201,582		$	2,645,019
Shares issued for debt retirement	$	-		$	-		$	426,952		$	104,232
SEE NOTES TO FINANCIAL STATEMENTS

-6-

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Execute Sports, Inc. (the "Company") was founded in 2002 as Padova International USA, Inc. to produce graphics kits and ancillary soft goods for the motocross, enduro and ATV markets.

In 2003, the Company launched its water sports division under the "Execute Sports" brand to provide wetsuits, vests, rash guards and ancillary products to the wake board and ski markets.

On March 3, 2005 the Company changed its name from Padova International U.S.A., Inc. (DBA Execute Sports) to Execute Sports, Inc.

In late 2005, the Company expanded its product mix by entering into a letter of intent to acquire Pacific Sports Group, Inc., ("PSG") which owns and operates Academy Snowboards, Kampus Wakesk8s and Kampus Wake Shoes and Collective Development Bags and Bindings.

In January, 2006, the Company consummated the PSG acquisition.

The Company has headquarters in San Clemente, California with offices in Oceanside, California.

The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and item 301(b) of Regulation S-B. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.

The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements for the Company as of December 31, 2005 and for the two years then ended, including notes thereto.

Summary of Significant Accounting Principles

Basis of Presentation

The financial statements include the accounts of Execute Sports, Inc. and its wholly owned subsidiary PSG under the accrual basis of accounting.

Accounting estimates

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

-7-

Principles of consolidation

The consolidated financial statements include the accounts of Execute Sports, Inc. and its subsidiary, which is 100% consolidated in the financial statements. All material inter-company accounts and transactions have been eliminated.

Cash and cash equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Accounts receivable

Accounts receivable are reported at the customers' outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable. The Company evaluates receivables on a regular basis for potential reserve. During the three and nine months ended September 30, 2006, the allowance for doubtful accounts did not increase from $4,000 at December 31, 2005.

The Company has entered into a factoring agreement with JD Factors. In the agreement JD Factors will provide account receivable financing and factoring to the Company. JD Factors will purchase from the Company the accounts receivable and may pay a portion of the purchase price, or lend money to the Company based upon accounts receivable of the Company.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined using the average costing method. Management performs periodic assessments to determine the existence of obsolete, slow moving and non-salable inventories, and records necessary provisions to reduce such inventories to net realizable value.

Property and equipment

Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.

Depreciation is provided using the 200% declining balance method. It is calculated over recovery periods as prescribed by management that range from 5 years for equipment to 7 years for furniture.

-8-

Goodwill

The Company accounts for goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. This statement requires that goodwill arising from an acquisition of a business be periodically assessed for impairment rather than amortized on a straight-line basis. Accordingly, the Company annually reviews the carrying value of this goodwill to determine whether impairment, as measured by fair market value, may exist. SFAS No. 142 requires that goodwill assets be assessed for impairment using fair value measurement techniques. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

Long-lived assets

The Company has adopted Statement of Financial Accounting Standards No. 144 (SFAS 144). The Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value.

Revenue recognition policy

Revenue from the sale of water sports clothing, snowboards and apparel are recognized when the earning process is complete and the risk and rewards of ownership have transferred to the customer, which is generally considered to have occurred upon the shipment to the customer.

Shipping and handling costs

The Company's policy is to classify shipping and handling costs as selling, general and administrative expenses.

Advertising

The Company expenses all advertising costs as incurred. For the three and nine months ended September 30, 2006 and 2005 the Company incurred approximately $28,270 and $80,449 and $10,431 and $57,381 in advertising expenses, respectively.

-9-

Loss per common share

The Company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted earnings (loss) per share. Basic loss per share is calculated using the weighted average number of common shares outstanding in the period. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using the “treasury stock” method and convertible securities using the "if-converted" method. There were no adjustments required to net loss for the period presented in the computation of diluted earnings per share.

Issuance of common stock

The issuance of common stock for other than cash is recorded by the Company at management’s estimate of the fair value of the assets acquired or services rendered.

Comprehensive loss

The Company adopted Financial Accounting Standards Board Statement of Financial Standards No. 130, “Reporting Comprehensive Income”, which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the periods covered in the financial statements.

Income taxes

On November 1, 2004, the Company legally amended its Articles of Incorporation to make the transition from an S-Corporation to a C-Corporation. Prior to that the S Corporation was not a tax paying entity for federal or state income tax purposes and thus no provision for income taxes was recognized. Subsequent to the change the Company began recognizing the full valuation for deferred tax assets (See Note N).

Impact of accounting standards

In November 2004, the FASB issued SFAS 151, Inventory Costs—an amendment of ARB No. 43, Chapter 4. The Statement amends the guidance of ARB No. 43, Chapter 4, Inventory Pricing, by clarifying that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The adoption of SFAS 151 did not have any impact on the Company’s financial condition or results of operations.

In December 2004, the FASB issued a revision to SFAS 123 (revised 2004), Share-Based Payment. The revision requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments granted to employees. The statement eliminates the alternative method of accounting for employee share- based payments previously available under APB 25. The provisions of SFAS 123R are effective as of the first interim period that begins after June 15, 2005. The Company has adopted this accounting pronouncement which will have a material impact on their financial position and results of operations.

-10-

In December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary Assets-amendment of APB Opinion No. 29". Statement 153 eliminates the exception to fair value for exchanges of similar productive assets and replaces it with a general exception for exchange transaction that do not have commercial substance, defined as transaction that are not expected to result in significant changes in the cash flows of the reporting entity. This statement is effective for exchanges of nonmonetary assets occurring after June 15, 2005. The Company does not believe that this recent accounting pronouncement will have a material impact on their financial position or results of operations.

In May 2005,  the FASB issued FASB Statement No. 154,  "Accounting  Changes

and Error  Corrections" ("SFAS  154") which  replaces  APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial  Statements".  Among other changes,  SFAS 154 requires that voluntary change in accounting principle or a change required by a new accounting   pronouncement  that  does  not  include  specific   transition provisions  be  applied  retrospectively  with all prior  period  financial

statements  presented  on  the  new  accounting  principle,  unless  it  is impracticable  to do so. SFAS 154 also provides that (1) a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate  (prospectively)  that was effected by a change in accounting principle,  and (2) correction of errors in previously issued financial  statements  should  be  termed  a  "restatement."  SF AS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after June 15, 2005.  Accordingly, the Company is required to adopt the provisions of SF AS 154 in the first quarter of fiscal 2006, beginning on January 1, 2006.  The Company does not believe that this recent accounting pronouncement will have a material impact on their financial position or results of operations.

In February 2006, the FASB issued SFAS 155 "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and in February 2006, the FASB issued SFAS 155 "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140". This Statement amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of statement 133 to Beneficial Interests in Securitized Financial Assets. This Statement:

a. Permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation;

b. Clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133;

c. Establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation;

d. Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and

e. Amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.

-11-

This Statement is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The fair value election provided for in paragraph 4 of this Statement may also be applied upon adoption of this Statement for hybrid financial instruments that had been bifurcated under paragraph 12 of Statement 133 prior to the adoption of this Statement. Earlier adoption is permitted as of the beginning of an entity's fiscal year, provided the entity has not yet issued financial statements, including financial statements for any interim period for that fiscal year. Provisions of this Statement may be applied to instruments that an entity holds at the date of adoption on an instrument-by-instrument basis. The Company is currently evaluating the impact of SFAS 155.

In March 2006, the FASB issued SFAS No. 156 ("FAS 156"), "Accounting for Servicing of Financial Assets--An Amendment of FASB Statement No. 140." Among other requirements, FAS 156 requires a company to recognize a servicing asset or servicing liability when it undertakes an obligation to service a financial asset by entering into a servicing contract under certain situations. Under FAS 156 an election can also be made for subsequent fair value measurement of servicing assets and servicing liabilities by class, thus simplifying the accounting and provide for income statement recognition of potential offsetting changes in the fair value of servicing assets, servicing liabilities and related derivative instruments. The Statement will be effect beginning the first fiscal year that begins after September 15, 2006. The Company is currently evaluating the impact of SFAS 155.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements.” The standard provides guidance for using fair value to measure assets and liabilities. Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, the standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The Statement is effective for financial statements issued for fiscal years beginning after November15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the Statement to determine what impact, if any, it will have on the Company.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”). This statement requires balance sheet recognition of the funded status, which is the difference between the fair value of plan assets and the benefit obligation, of pension and postretirement benefit plans as a net asset or liability, with an offsetting adjustment to accumulated other comprehensive income in shareholders’ equity. In addition, the measurement date, the date at which plan assets and the benefit obligation are measured, is required to be the company’s fiscal year end. The Company currently Company is currently evaluating the Statement to determine what impact, if any, it will have on the Company.

-12-

Concentrations of credit risk

The Company performs ongoing credit evaluations of its customers. As of September 30, 2006, the Company's two largest customers accounted for 47% (31% and 16%) of accounts receivable. As of September 30, 2005, the Company's three largest customers accounted for 68% (41%, 16% and 11%) of accounts receivable.

For the three months ended September 30, 2006, one customer accounted for approximately 36% of sales. For the nine months ended September 30, 2006, three customers accounted for approximately 63% (39%, 13% and 11%) of sales. For the three and nine months ended September 30, 2005, the Company's two largest customers accounted for 29% (17% and 12%), and 66% (52% and 14%) of sales, respectively.

For the three months ended September 30, 2006 and 2005, approximately 43% and 0%, respectively, of the Company’s net sales were made to customers outside the United States. For the nine months ended September 30, 2006 and 2005, approximately 17% and 10%, respectively, of the Company’s net sales were made to customers outside the United States.

The Company is dependent of third-party manufacturers and distributors for all of its supply of inventory. For the three and nine months ended September 30, 2006, the Company's two and three largest suppliers individually accounted for approximately 87% (55% and 32%) and 76% (35%, 21% and 20%) of product purchases, respectively. For the three and nine months ended September 30, 2005, the Company's two and one largest suppliers accounted for 100% and 79% of product purchases, respectively. The Company is dependent on the ability of its suppliers to provide products and services on a timely basis and on favorable pricing terms. The loss of certain principal suppliers or a significant reduction in product availability from principal suppliers could have a material adverse effect on the Company.

Disclosure about Fair Value of Financial Instruments

The Company estimates that the fair value of all financial instruments at September 30, 2006, as defined in FASB 107, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheet. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

NOTE B - ACCOUNTS RECEIVABLE

On September 12, 2005, the Company entered into a factoring agreement with JD Factor (“Factor”) subsequent to terminating the factoring agreement with Benefactor Funding Corp. in August 2005. The Factor purchases certain customer accounts receivable on a non-recourse basis with certain broad exceptions. The Factor initially advances 80% of the amount of the invoice with the remainder, less fees, paid to the company once the customer pays the invoice. The Company performs substantially all collection efforts. Under certain circumstances the Factor has the right to charge back to the company for specific invoices. The interest rate charged to the Company varies depending on the age of the receivable upon customer payment. The factoring agreement is collateralized by substantially all Company assets.

-13-

The Company is reporting the factoring agreement as a secured borrowing in accordance with FAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. As of September 30, 2006, the balance due to the Factor was $157,128 collateralized by factored receivables of $196,410.

The accounts receivable balance as of September 30, 2006 is reported net of an allowance for doubtful accounts of $4,000.

NOTE C - INVENTORY

Inventories are comprised of finished goods ready for resale and are stated at the lower of cost or market, as determined using the average costing method. The following table represents the major components of inventory at September 30, 2006.

	2006
Finished goods	$494,932

NOTE D - LOANS RECEIVABLE

During the nine months ended September 30, 2006, the Company made strategic loans totaling $155,019 for potential future association to an unaffiliated company that accrues interest at 2% per year and due 12 months from the date of draw. The loans outstanding, including interest receivable, total $392,272.

As of September 30, 2006, $199,000 of the outstanding loans were in default. The company has created a reserve in the amount of $250,000 against the loans.

NOTE E - PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2006 consist of the following:

	2006
Computer and office equipment	$	104,631
Furniture and fixtures		2,281
Machinery and equipment		11,262
	$	118,174
Less: Accumulated Depreciation		(39,120	)
	$	79,054

Depreciation expense for the three months ended September 30, 2006 and 2005 was $1,138 and $1,488, respectively. Depreciation expense for the nine months ended September 30, 2006 and 2005 was $3,414 and $4,465, respectively.

-14-

NOTE F - GOODWILL

On December 28, 2005, the Company and the stockholders of PSG entered into a binding letter of intent providing for the acquisition of PSG by the Company in a step transaction.

Under the terms of the purchase agreement, as filed on January 3, 2006, the Company agreed to purchase 100% of the issued and outstanding stock of PSG as of March 31, 2006. Pursuant to the terms of the agreement, PSG received $150,000 and 1,932,569 shares of the Company’s stock in exchange for their issued and outstanding stock of PSG.

The goodwill balance of $1,288,577 is calculated as the total consideration of $826,400 ($150,000 in cash and 1,932,569 shares valued at $0.35, or $676,400) plus assumed liabilities and debt of $623,399 less assets acquired of $161,222.

NOTE G - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at September 30, 2006 consist of the following:

	2006
Payables to vendors	$	255,912
Payables for inventory		315,058
Payables for professional services		60,150
Related party payable for professional services		20,654
Accrued payroll		44,751
Accrued interest		27,683
Accrued taxes		3,807
	$	728,015

NOTE H - CONVERTIBLE DEBENTURE

On May 15, 2006, the Company completed a private placement of convertible debentures generating gross proceeds of $1.9 million and the issuance of warrants to purchase $475,000 worth of the Company’s common stock. Third party fees totaled $191,000, which were paid in cash.

The terms of the warrants and debentures are substantially the same. The exercise price of the warrants is calculated the same as for the conversion price of the convertible debentures. The warrants and debentures are immediately exercisable. The debentures bear interest at 12% per annum, interest payable monthly at the option of the Holder in cash or stock. The debenture agreement payment schedule provides for full repayment by September 15, 2007, or sixteen (16) months from the closing date. On September 30, 2011, the maturity date of this debenture, any remaining principle balance automatically converts to the Company’s common stock.

-15-

Prior to maturity, the debentures and warrants are convertible into the Company's common stock at a fixed conversion price equal to the lowest closing bid price of the Common Stock between the issuance date and the date of the filing the registration statement covering resale of the shares underlying the Debenture, or at a conversion price of fifteen cents ($.15). Since the Company’s stock price did not decline below $0.15 prior to the filing of the registration statement, $0.15 is the fixed conversion price for this debenture and associated warrants.

The debentures provide that the holders may only convert the debenture if the number of shares held by the lender or its affiliates after conversion would not exceed 4.99% of the outstanding shares of the Company's common stock following such conversion.

In connection with the transaction, we entered into a registration rights agreement. Pursuant to the terms of the Registration Rights Agreement, within twenty-one calendar days following the initial closing date, or June 5, 2006, the Company was required to file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, covering the resale of all of the common stock the convertible debenture and warrants would be converted into based on a conversion price of $0.15 per share and the common stock underlying the warrants.

The Registration Rights Agreement further provides that if a registration statement is not filed within 21 days from the initial closing date, then in addition to any other rights the holder may have, and until the registration statement is filed, the Company would be required to pay the holder an amount in cash, as liquidated damages, equal to an aggregate two percent (2%) of the purchase price of the debentures. In addition, the conversion price will decrease by 10% of the fixed conversion price for each fifteen (15) day calendar period that a registration statement is not filed. The Registration Rights Agreement further provides that if a registration statement is not declared effective within 80 days from the initial closing date, then the Company would be required to pay the holder an amount in cash, as liquidated damages, equal to an aggregate two percent (2%) of the purchase price of the debentures until the registration statement becomes effective. The Company initially filed the registration statement on May 24, 2006 and it was declared effective on June 15, 2006, or 30 days from the initial close date.

The issuance costs related to the convertible debentures of approximately $191,000 in cash were capitalized and are being amortized over the term of the repayment schedule and calculated based upon the effective interest method. For the three and nine months ended September 30, 2006, the Company recognized $34,631 and $51,699, respectively as other expense related to the amortization of the issuance costs.

Pursuant to Paragraph 9-32 of EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, the warrants issued in connection with the convertible debentures meet the requirements of and are accounted for as permanent equity since the filing of an effective registration statement within the allotted time frames negated any liquidated damages, settlement is by delivery of shares only and the exercise price is fixed. The initial value of the warrants was treated as a discount to the debenture and recorded as additional paid in capital. The Company calculated the initial value of the warrants on the closing date of the transaction as being $633,333 as determined using a Black-Scholes option pricing model with the following assumptions: expected term 5 years, exercise price $0.15, volatility 7.6%, risk free rate 5.15%, and zero dividend yield. The total value of the

warrants and the debenture was $2.53 million of which the warrants represented 25%. Thus, the relative value of the warrants to the total value, or 25% was applied to the debenture value of $1.90 million yielding a warrant discount of $475,000. The discount to the debenture will be amortized over the term of the repayment schedule, or sixteen (16) months and calculated based upon the effective interest method. During the three and nine months ended September 30, 2006, the Company recognized $81,138 and $120,153, respectively in non-cash interest expense related to the warrant discount.

-16-

The Company determined that the $1.90 million debenture was issued with a beneficial conversion feature (“BCF”) due to the conversion price ($0.15) being less than the closing stock price ($.32) on the date of issuance, and the conversion feature being in-the-money. Thus, pursuant to EITF 00-27, 27, Application of Issue No. 98-5 to Certain Convertible Instruments, the BCF has been determined based on the gross debenture amount less the portion attributable to the warrants described above, and recorded as a discount to reduce the carry value of the debenture and increase additional-paid-in-capital. The Company calculated the initial BCF on the closing date of the transaction to be $1,615,000 using the intrinsic value method. Since this amount is greater than the $1,425,000 remaining value of the debenture after deducting for the warrant discount described above, the Company reduced the initial carry value of the debenture to zero effectively recording a BCF of $1,425,000 as additional-paid-in-capital. The BCF discount will be amortized over the debenture repayment term and calculated based upon the effective interest method. During the three and nine months ended September 30, 2006, the Company recognized $160,719 and 227,151, respectively in non-cash expense attributable to the amortization of the beneficial conversion feature discount.

In connection with the debenture, the Company entered into a separate Investment Agreement also on May 15, 2006 with Dutchess Private Equities Fund, L.P. ("Dutchess") providing for the sale and issuance from time to time of up to $10,000,000 in shares of Common Stock for a period of up to 36 months from the date the Registration Statement is declared effective. The maximum number of shares that the Company may put to Dutchess at any one time shall be equal to, at the Company's election, either (a) 200% of the average daily volume in the U.S. market of the Common Stock for the ten trading days prior to the date the Company notifies Dutchess of its intent to sell shares to Dutchess multiplied by the average of the three daily closing bid prices immediately preceding the date a Put Notice is delivered, or (b) a number of shares having a value of $100,000. The Company may not submit a Put Notice until after the completion of a previous sale under the Investment Agreement. The purchase price for the Common Stock to be sold shall be equal to 93% of the lowest closing best bid price of the Common Stock during the five-day period following the date the Company delivers a Put Notice. Since the price of the shares put to the investor is expected to be below market price at 93% of the market price, there is no added benefit to the company. Thus, the Company has not recorded an asset related to this agreement. Upon the delivery of shares and receipt of cash related to this Investment Agreement, the Company will record the increase in cash, common stock and additional paid in capital. During the three months ended September 30, 2006, the Company placed puts with Dutchess totaling $88,665 resulting in the issuance of 742,345 shares of common stock.

During the three months ended September, 30, 2006, the Company recognized $32,356 as a non-cash loss due to the conversion discount applied upon the conversion of interest and principle into common stock of the Company pursuant to the Investment Agreement and Debenture Agreement.

-17-

During the three and nine months ended September, 30, 2006, the Company recognized $66,930 and $85,759 in interest expense related to the debentures.

The actual dollar amount due to the holders of the Company’s debentures as of September 30, 2006 was $1,895,998.

NOTE I - NOTES PAYABLE

Notes payable at September 30, 2006 is as follows:

Unsecured demand note payable to Ron and Dori Arko, bearing interest at 2% per year.	$	8,206
Unsecured demand note payable to John Helms, bearing interest at 2% per year.		155,905
Unsecured demand note payable to New Heart Ministries, bearing interest at 2% per year.		1,905
Unsecured demand note payable to Pacific Sports Investors LLC, bearing interest at 10% per year.		40,375
Secured demand note payable to Christian Beckas, bearing interest at 12% per year, matures July, 30, 2006 and is collateralized by 80,000 shares of common stock.		20,000
Secured demand note payable to Hector Peneda, bearing interest at 12% per year, matures on August 7, 2006 and is collateralized by 40,000 shares of common stock.		10,000
Total	$	236,391
Related party
		2006
Secured demand note payable to Craig Hudson, bearing interest at 12% per year and collateralized by 200,000 shares of common stock.		50,000
Secured demand note payable to Robert Bridges, bearing interest at 9% per year and collateralized by 240,000 shares of common stock.		60,000
Secured demand note payable to Tom Bridges, bearing interest at 9% per year and collateralized by 240,000 shares of common stock.		60,000
Unsecured note payable to Geno Apicella, Vice-President, non-interest bearing.		8,118
Unsecured demand note payable to Sheryl Gardner , bearing interest at 2% per year.		54,906
Total		233,024

Related party Notes payable at September 30, 2006 is as follows:

Secured demand note payable to Craig Hudson, bearing interest at 12% per year, matures February 1, 2007 and is collateralized by 200,000 shares of common stock.	29,000
Secured demand note payable to Robert Bridges, bearing interest at 9% per year, matures September 30, 2006 and is collateralized by 240,000 shares of common stock.	60,000
Secured demand note payable to Tom Bridges, bearing interest at 9% per year, matures September 30, 2006 and is collateralized by 240,000 shares of common stock.	60,000
Unsecured note payable to Geno Apicella, Vice-President, non-interest bearing.	6,812
Unsecured demand note payable to Sheryl Gardner, CFO, bearing interest at 4% per year.	45,906
Total	201,718

During the three and nine months ended September 30, 2006, the Company incurred $19,414 and $37,054 in interest expense related to the Notes above.

During the three and nine months ended September 30, 2006, the Company repaid $84,307 and $634,446 of related and non related party debt by paying cash of $280,047 and converting $354,399 into 1,430,270 shares of common stock.

The interest rate offered on the 2% loans above is below market rate. The Company has determined the difference between the stated interest rate and the rate available at the date of the loan(s) would be immaterial to these financial statements.

-18-

No interest was paid during the three months ended September 30, 2006 and 2005.

NOTE J - STOCKHOLDERS’ EQUITY

On August 18, 2004, the Company entered into a service contract valued at $100,000 in exchange for 400,000 shares of common stock, which represents the fair market value of the stock as of that date. The contract term is 24 months. For the three months ended September 30, 2006 and 2005, the company recognized $6,712 and $12,603, respectively, and for the nine months ended September 30, 2006 and 2005, the company recognized $31,507 and $37,397, respectively, of expense in connection with this contract which has been fully expensed as of September 30, 2006.

On March 1, 2005, the Company entered into a service contract valued at $62,500 in exchange for 250,000 shares of common stock, which represents the fair market value of the stock as of that date. The contract term is 24 months. For the three months ended September 30, 2006 and 2005, the company recognized $7,877 and $7,877, respectively, and for the nine months ended September 30, 2006 and 2005, the company recognized $23,373 and $18,236, respectively, of expense in connection with this contract with the remaining balance of $13,014 accounted for as prepaid expense.

On September 9, 2004, the Company commenced a limited Private Placement Memorandum (PPM) to raise up to $1,750,000 through the sale of the Company’s common stock at a price of $0.25 per share. During the year ended December 31, 2004, the Company received $69,500 in exchange for 278,000 shares of common stock. Also in connection with the PPM, during the year ended December 31, 2005, the Company received $660,000 in cash in exchange for 2,640,000 shares of common stock. In total, the PPM resulted in the issuance of 2,918,000 shares of common stock.

On January 2, 2005, the Company paid 100,000 shares of common stock for legal services valued at $25,000 which represents the fair market value of the stock as of that date for services rendered during the quarter ended March 31, 2005. We expensed the full value of the common stock during the quarter ended March 31, 2005.

As of February 28, 2005, all of the notes payable outstanding at December 31, 2004, totaling $614,800, were cancelled and new notes payable were issued accruing interest at 2% per annum until February 28, 2006. At that time, the remaining outstanding principal balance and all interest accrued but unpaid can be paid with the Company’s common stock at a conversion price of $0.25 per share for every dollar of interest owed to the note holder. All interest accrued but unpaid as of February 28, 2005 was converted to the Company’s common stock at the conversion price of $0.25 per share for every dollar of interest owed to the note holder representing an addition to stockholders’ equity of approximately $104,232 and 416,931 shares of common stock.

In April 2005 the Company agreed to issue 8,500,000 shares of its common stock to its founding members and key employees for value received of $2,125,000, or $0.25 per share.

-19-

During the three months ended June 30, 2005, the company issued 3,060,000 shares of its common stock in consideration for professional and consulting services to be rendered valued at $765,000, or $0.25 per share. For the three months ended September 30, 2006 and 2005, the company recognized $56,376, and $143,637, respectively, and for the nine months ended September 30, 2006 and 2005, the company recognized $244,345 and $391,783 respectively, of expense in connection with these contracts with the remaining balance of $25,235 accounted for as prepaid expense.

The Company did not issue any stock during the years ending December 31, 2003, 2004 or the six month period ending June 30, 2005. From July 22, 2005 through August 9, 2005, the Company issued 15,644,931 shares of common stock related to the items above. Our earnings per share calculation in the Statement of Operations is on an “if-issued” basis and reflects the weighted average common stock that would have been outstanding had all shares that were purchased for cash and all shares that would be issued for services had been issued on the date of purchase or contract date for services.

During the three months ended December 31, 2005, the Company received net proceeds of $1,176,550 and issued 3,061,570 shares of common stock with $105,000, or 300,000 shares unissued and included in common stock payable as of December 31, 2005. On January 8, 2006, the Company issued the 300,000 shares. On January 3, 2006, the company issued 200,000 shares in exchange for $70,000. These shares were issued pursuant to the company’s SB-2 registration statement originally filed with the Securities and Exchange Commission on June 16, 2005 with final approval occurring on September 27, 2005, our final amended SB-2/A filing. In total the company issued 3,561,570 shares of common stock in exchange for $1,246,550.

On December 31, 2005, the Company’s board of directors approved the issuance of 21,428 shares of common stock payable to a member of the Board of Directors for services rendered during fiscal year 2005. The shares were valued at fair market value, or $0.35 resulting in compensation expense of $7,500. The shares were issued on March 6, 2006

On December 28, 2005, the Company and the stockholders of PSG entered into a binding letter of intent providing for the acquisition of PSG by the Company. On March 10, 2006, the company issued the PSG shareholder’s 1,932,569 shares of common stock valued at $0.35, or $676,400 (See NOTE F).

During the quarter ended March 31, 2006, 1,000,000 shares of common stock previously issued to the founders and president (300,000 Don Dallape, 300,000 Scott Swedener, 300,000 Geno Apicella and 100,000 Todd Pitcher) were retired and canceled by each shareholder in an effort to improve the Company’s capital structure (See NOTE O).

On March 8, 2006, the Company entered into a line of credit with a primary softgoods supplier whereby the company will issue up to 1,142,857 shares of common stock in exchange for $400,000 of inventory. On March 10, 2006, the Company issued 174,031 shares of common stock pursuant to the line of credit in exchange for a reduction in accounts payable for inventory valued at $60,911. Pursuant to this agreement, the supplier was granted two warrants to purchase the Company’s common stock. The supplier exercised one warrant in full and received 400,000 shares of common stock in exchange for $100,000. The remaining warrant gives the supplier the right to purchase 500,000 shares of common stock for $0.35 per share (see NOTE K).

-20-

During March 2006, the Company issued 117,357 shares of common stock in exchange for services and debt retirement.

During the quarter ended June 30, 2006, the Company converted $354,399 of related party and non related party debt into 1,430,270 shares of common stock. In addition, the Company issued 454,999 shares for services valued at $162,135, which represents the fair market value of the Company’s common stock on the date of issuance.

During the quarter ended September 30, 2006, the Company issued 41,666 shares of common stock valued at the closing price of the stock on the date of issuance, or $6,250 to two if its directors as payment in lieu of cash.

During the quarter ended September 30, 2006, 255,000 “Debenture” Warrants were exercised at a strike price of $.15 resulting in proceeds of $38,250 to the Company and a loss due to the conversion discount of $11,550.

During the quarter ended September 30, 2006, the company placed 742,345 shares to Dutchess pursuant to the Investment Agreement (See Note H). The total value of the shares on the dates of issuance was $103,288. Of this amount $70,932 was applied as a reduction to accrued interest on the Company’s debenture and $32,356 was recognized as a loss due to a conversion discount.

NOTE K - WARRANTS

At September 30, 2006 the Company had 3,440,238 Warrants outstanding entitling the holder thereof the right to purchase one common share for each warrant held as follows:

		Exercise
Warrant	Number of	Price Per	Issue	Expiration
Class	Warrants	Warrant	Date	Date
A	500,000	$ 0.35	3/3/2006	TBD
A	28,571	$ 0.35	3/29/2006	9/30/07
Debenture	2,911,667	$ 0.15	5/15/2006	5/15/11
Total	3,440,238

During the three months ended March 31, 2006, three “A” Warrants were granted. A single 400,000 “A” Warrant was exercised resulting in $100,000 to the Company and the issuance of 400,000 shares of Common Stock (See NOTE J).

During the three months ended June 30, 2006, the company issued a warrant to purchase 3,166,667 shares of Common Stock in connection with a convertible debenture (See NOTE H).

During the three months ended September 30, 2006, 255,000 Debenture warrants were exercised (See Note J).

-21-

Stock Warrants Issued to Third Parties

The Company accounts for stock-based compensation issued to non-employees in accordance with the provisions of SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services".

In addition, the Company evaluates each derivative issued to determine whether treatment as either equity or a liability is warranted pursuant to EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company's Own Stock of that derivative.

During the nine months ended March 31, 2006, three warrants were issued; a 500,000 “A” Warrant; a 28,571 “A” Warrant and 3,166,667 Debenture warrants. The debenture warrants are discussed in detail above (See Note H). The terms of each “A” warrant are substantially the same. No additional services are required beyond the issue date, each warrant has registration rights, but no liquidated damage clause and net-share settlement is required. Thus, pursuant to EITF 00-19, the Company has included the fair market value of these warrants in stockholders equity. The Company calculated the value of the 500,000 “A” warrants on the closing date of the transactions as being $ 45,000 as determined using a Black-Scholes option pricing model with the following assumptions: expected term 2.5 years, exercise price $.35, volatility 1.6%, risk free rate 4.86%, and zero dividend yield. The Company calculated the value of the 28,571 “A” warrants on the closing date of the transactions as being $ 4,571 as determined using a Black-Scholes option pricing model with the following assumptions: expected term 1.5 years, exercise price $.35, volatility 5.2%, risk free rate 4.86%, and zero dividend yield. Both warrants were unexercised as of September 30, 2006.

NOTE L - STOCK INCENTIVE PLAN

On December 31, 2005, the Board of Directors of the Company adopted the 2006 Execute Sports, Inc. Stock Incentive Plan (the “Plan”). The Plan is to advance the interests of Execute Sports, Inc. through the attraction, motivation and retention of key Employees (including officers and employee directors) and Consultants of the Company, its Affiliates and its stockholders by providing those persons who have substantial responsibility for the management and growth of the Company and its Affiliates with additional incentives and an opportunity to obtain or increase their proprietary interest in the Company, thereby encouraging them to continue in the employ of the Company or any of its Affiliates.

The total number of shares of stock set aside for awards may be granted under the Plan shall be 1,500,000 shares. The Company may issue each of the following under this Plan: Incentive Option, Nonqualified Option, Restricted Stock and/or Deferred Stock. No Incentive Option, Nonqualified Option, Restricted Stock and/or Deferred Stock shall be granted pursuant to the Plan ten years after the Effective Date. The Plan was effective January 1, 2006 (the "Effective Date").

On December 13, 2005, pursuant to an Employment Agreement and in anticipation of approval of the Stock Incentive Plan, the Company awarded its Product Manager, Duane Pacha a non qualified stock option to purchase 300,000 shares of common stock of the Company at an exercise price of $.35 per share with an expiration date of December 12, 2015. The options vest and become exercisable at a rate of 12,500 per month over a twenty-four month period.

-22-

On December 13, 2005, pursuant to an Employment Agreement and in anticipation of approval of the Stock Incentive Plan, the Company awarded its Marketing Director, Jeff Baughn a non-qualified stock option to purchase 300,000 shares of common stock of the Company at an exercise price of $.35 per share with an expiration date of December 12, 2015. The options vest and become exercisable at a rate of 12,500 per month over a twenty-four month period.

On December 15, 2005, pursuant to an Employment Agreement and in anticipation of approval of the Stock Incentive Plan, the Company awarded its President, Todd Pitcher a non-qualified stock option to purchase 300,000 shares of common stock of the Company at an exercise price of $.35 per share with an expiration date of December 14, 2015. The options vest and become exercisable at a rate of 12,500 per month over a twenty-four month period.

The Stock Incentive Plan shall have a duration of ten years commencing on January 1, 2006. Stock Options are non-qualified right-to-buy Options for the purchase of Common Stock of the Company. The term of each option shall be ten years from the Date of Grant. The option price shall be the fair market value of Execute Sports, Inc. Common Stock on the date the option is granted. Under no circumstances shall any option vest in less than one year from the date of grant. Shares purchased upon exercise of an Option must be paid for in cash and in full at the time of exercise. Neither the Committee on Directors and Governance nor the Board of Directors may reprice any Option that is "underwater." Restricted Stock is Common Stock of the Company restricted as to sale in such fashion as the Committee on Directors and Governance shall determine. Prior to the lifting of the restrictions, the Awardee will be entitled to receive dividends from and to vote the shares of Restricted Stock.

The following table summarizes the Company's stock option activity for the three months ended September 30, 2006:

	2006
		Weighted Average
	Shares	Exercise Price
Outstanding at beginning of period	900,000	$ 0.35
Granted	-
Forfeited	-
Exercised	-
Outstanding at end of period	900,000	$ 0.35
Options exerciseable at end of period	337,500

-23-

The following table summarizes information about the Company's stock options outstanding at September 30, 2006:

	Options Outstanding			Options Exercisable
	Number	Weighted	Weighted		Weighted
Range of	Outstanding	Average	Average		Average
Exercise	At September 30,	Contractural	Exercise	Number	Exercise
Prices	2006	Life (years)	Price	Outstanding	Price
$ 0.35	900,000	1.20	$ 0.35	337,500	$ 0.35
Total	900,000	1.20	$ 0.35	337,500	$ 0.35

The Company accounts for stock options pursuant to Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment. The Company values each option grant utilizing the grant date fair value for fixed awards. Compensation cost is amortized over the vesting period. The current options were granted prior to the Company’s common stock trading in the secondary markets. Thus, fair value was determined to be $0.35 per share using the Company’s SB-2 (originally filed on June 16, 2005) as a proxy. Given that the Company is currently trading on the secondary markets and relevant fair market value data is available, the Company intends to value all future stock option grants using the Black-Scholes Option Pricing Model. During the three months ended September 30, 2006, the Company recognized compensation expense of $39,375 and an offsetting allowance for the same amount due to the unlikelihood that these options will ever be exercised. For the nine months ended September 30, 2006 and since the grant date, the Company has recognized compensation expense in the amount of $85,313.

NOTE M - NET OPERATING LOSS CARRY FORWARD

In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. At December 31, 2005 a valuation allowance for the full amount of the net deferred tax asset was recorded because of uncertainties as to the amount of taxable income that would be generated in future years.

United States Corporation Income Taxes

Period of Loss	Amount	Expiration Date
December 31, 2005	$3,566,580	December 31, 2025
December 31, 2004	$420,935	December 31, 2024

Prior to November 2004 the Company was organized as an S-Corporation and all losses were distributed and recognized through the tax returns of the owners.

The loss for the fiscal year ended December 31, 2005 was $3,566,580. As of December 31, 2005 a valuation allowance for the full amount of the net deferred tax asset has been recognized over the periods for $1,426,632, based on an anticipated tax rate of 40%.

-24-

NOTE N - GOING CONCERN AND MANAGEMENT’S PLANS

The Company has suffered recurring losses from operations since inception. In addition, the Company has yet to generate an internal cash flow from its business operations. These factors raise substantial doubt about its ability to continue as a going concern.

Management’s plans with regard to these matters encompass the following actions: 1) obtain funding from new investors to alleviate the Company’s working capital deficiency, and 2) implement a plan to generate additional sales. The Company’s continued existence is dependent upon its ability to resolve its liquidity problems and increase profitability in its current business operations. However, the outcome of management’s plans cannot be ascertained with any degree of certainty. The accompanying financial statements do not include any adjustments that might result from the outcome of these risks and uncertainty.

NOTE O - RELATED PARTY TRANSACTIONS

During the nine months ended September 30, 2006, 1,000,000 shares of common stock previously issued to the founders and president (300,000 Don Dallape, 300,000 Scott Swedener, 300,000 Geno Apicella and 100,000 Todd Pitcher) were voluntarily returned to the Company and cancelled by each shareholder in an effort to improve the Company’s capital structure. The shares were originally expensed as stock compensation expense for $0.25 per share, or $250,000 on April 1, 2005. The Company reclassified the par value, or $1,000 out of Common Stock and increased Additional-Paid-in-Capital in order to reflect the reduction in the legal value of the canceled shares.

During the three and nine months ended September 30, 2006, the Company incurred $7,857 and $26,749 of expenses paid on its behalf by Comprehensive Communications LLC, a company wholly owned by the Company’s President, Todd Pitcher.

NOTE P - SUBSEQUENT EVENTS

In October 2006, the Company issued 601,656 shares pursuant to the Investment Agreement (See Note H).

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

Critical Accounting Policies

The Company's discussion and analysis of its results of operations, financial condition and liquidity are based upon the Company's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.  The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances.  Actual results may materially differ from these estimates under different assumptions or conditions.  On an on-going basis, the Company reviews its estimates to ensure that the estimates appropriately reflect changes in its business.

Inventories

Inventories are valued at the lower of cost or market and primarily consist of wetsuits, sticker kits and related accessories.  Cost is determined using the average cost method.  The inventory balance reflects management’s estimate of net realizable value. Management performs periodic assessments based on our understanding of market conditions and forecasts of future product demand to determine the existence of obsolete, slow moving and non-salable inventories, and records the necessary adjustment at the time of assessment directly to the statement of operations to reduce such inventories to their net realizable value. If the actual amount of obsolete inventory significantly exceeds the inventory balance, the Company's costs of goods sold and gross profit and resulting net income or loss would be significantly adversely affected.

Revenue recognition

The Company recognizes revenue when the product is shipped.  At that time, the title and risk of loss transfer to the customer, and collectability is reasonably assured.  Collectability is evaluated on an individual customer basis taking into consideration historical payment trends, current financial position, results of independent credit evaluations and payment terms. Additionally, an estimate of product returns are recorded when revenue is recognized.  Estimates are based on historical trends taking into consideration current market conditions, customer demands and product sell through.  If actual sales returns significantly exceed the recorded estimated expense, the Company's sales would be adversely affected.

Allowance for doubtful accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.  An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances and aging, the customer's financial condition and current economic conditions.  If a significant number of customers with significant receivable balances in excess of the allowance fail to make required payments, the Company's operating results would be significantly adversely affected.  Based on management's assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to the valuation allowance.  Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.  The Company generally does not require collateral.

-25-

Product Warranty

The Company's Watersports products, which carry a ninety-day warranty. Warranty costs are charged against sales in the period products are sold as a reduction in the selling price.  Historically, warranty costs have been less than 1% of sales. In estimating its warranty obligations, the Company considers various relevant factors, including the Company's stated warranty policies, the historical frequency of claims, and the cost to replace or repair the product.  If the actual amount of warranty claims significantly exceeds the estimated expense, the Company's costs of goods sold and gross profit and resulting net income or loss would be significantly adversely affected.

Income taxes

On November 1, 2004, the Company legally amended its Articles of Incorporation to make the transition from an S-Corporation to a C-Corporation. Prior to that the S Corporation was not a tax paying entity for federal or state income tax purposes and thus no provision for income taxes was recognized. The Company accounts for income taxes using the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted rates recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  In assessing the realizability of deferred income tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred income tax assets will be realized.  The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  SFAS No. 109 requires a valuation allowance to be recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has recorded a valuation allowance for the full amount of the net deferred tax asset because of uncertainties as to the amount of taxable income that would be generated in future years. 

-26-

Overview

Results of Operations

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

Net Sales for the three months ended September 30, 2006 and 2005 were $531,932 and $96,211, respectively, representing a $435,721, or 452% increase. The three month year-over-year increase is due primarily to sale of snowboards, which were not included in the previous period’s sales, and online sales of water sports products.

Net Sales for the nine months ended September 30, 2006 and 2005 were $1,634,456 and $1,355,104, respectively, representing a $279,352, or 20.6% increase. The nine month year-over-year increase is primarily due to sale of snowboards, which were not included in the previous period’s sales and increases in overall sales of water sports products.

Gross margin for the three months ended September 30, 2006 and 2005 was $263,557, or 49.5% and $51,392, or 53.4%, respectively. The 3.9% year-over-year decrease in our gross margin was primarily due to the increase in costs of goods for snowboard and water sports products, as well as increases in payments for freight and duty charges for snowboard products.

Gross margin for the nine months ended September 30, 2006 and 2005 was $534,047, or 32.7% and $430,055, or 31.7%, respectively. The 1% year-over-year increase in our gross margin was primarily due to reduction in operational and shipping costs for our moto line, a reduction in freight and duty for the water sports products.

Selling, General and Administrative expenses for the three months ended September 30, 2006 and 2005 was $683,185 and $385,779, respectively, representing a $297,406 increase. Selling, General and Administrative expenses for the nine months ended September 30, 2006 and 2005 was $2,651,553 and $3,227,749, respectively, representing a $576,196 decrease. The three month year-over-year increase was due to higher personnel, marketing and advertising related costs whereas the nine month year-over-year decrease was primarily the result of reductions in professional services fees and stock compensation expenses.

Net loss for the three months ended September 30, 2006 and 2005 was $1,065,502 and $340,007, respectively, representing an increase in net loss of $725,495. The three month year-over-year net loss increased primarily due to non cash costs related to the amortization of our debenture warrants, beneficial conversion feature, loss due to conversions of the debenture, loan interest, the reserve created for strategic loans made to an unaffiliated company and increases in selling and advertising expenses. Net loss for the nine months ended September 30, 2006 and 2005 was $2,927,446 and $2,858,990, respectively, representing a increase in net loss of $68,456. The nine month year-over-year net loss increased due primarily to an increase in debenture related costs and the loan reserve offset by lower stock based compensation for professional services and key employees.

-27-

Financial Condition

From inception to September 30, 2006, we incurred an accumulated deficit of $7,473,535, and we expect to incur additional losses through the year ending December 31, 2006 and for the foreseeable future. This loss has been incurred through a combination of selling and operating expenses related to expensing of stock, as well as in support of our plans to expand sales and distribution channels, as well as to develop new products.

We have financed our operations since inception primarily through debt and equity financing. During the three months ended September 30, 2006, we had a net decrease in cash of $889,984. Total cash resources as of September 30, 2006 was $67,306 compared with $957,290 at June 30, 2006 and $371,135 at December 31, 2005.

Our available working capital and capital requirements will depend on numerous factors, including progress in our distribution and sales of our products, the timing and cost of expanding into new markets, the cost of developing new products, changes in our existing collaborative and licensing relationships, the resources that we devote to developing new products and commercializing capabilities, the status of our competitors, our ability to establish collaborative arrangements with other organizations, our ability to attract and retain key employees, our management of inventory and our need to purchase additional capital equipment.

The Company’s Liquidity Plan

Recent operating results give rise to concerns about the Company’s ability to generate cash flow from operations sufficient to sustain ongoing viability. During the first nine months of 2006 and the latter half of 2005, the Company’s cost control strategies focused on managing general and administrative expenses through keeping headcount to a minimum, amongst other things, and maintaining a focused marketing and sales strategy that leverages existing channel partnerships

The Company’s need to raise additional equity or debt financing and the Company’s ability to generate cash flow from operations will depend on its future performance and the Company’s ability to successfully implement business and growth strategies. The Company’s performance will also be affected by prevailing economic conditions. Many of these factors are beyond the Company’s control. If future cash flows and capital resources are insufficient to meet the Company’s commitments, the Company may be forced to reduce or delay activities and capital expenditures or obtain additional equity capital. In the event that the Company is unable to do so, the Company may be left without sufficient liquidity.

In May, 2006 we commenced a private placement to sell up to $1,900,000 of convertible debentures with a $10,000,000 equity line of credit (the “Investment Agreement”) following an effective registration statement. The Company closed the private placement by issuing a convertible debenture for $1,900,000 and subsequently filing an SB-2 registration statement, which became effective on June 15, 2006. The Company now has access to funds under the Investment Agreement.

-28-

Risk Factors

Risks Related To Our Business:

We have historically incurred losses and may continue to incur losses in the future, which may impact our ability to implement our business strategy and adversely affect our financial condition.

In the audit of our financial statements, our auditors, Bedinger & Company, have questioned our ability to continue as a going concern. This is based on our Company’s history of reported losses. We have a history of losses. We had a net loss of $3,566,580 for the fiscal year ended December 31, 2005 and a net loss of $540,490 for the fiscal year ended December 31, 2004.

The majority of net loss for the year ended December 31, 2005 was incurred due to the non-cash expensing of $2,125,000 in stock issued to founders and $596,533 issued for services.

We expect to significantly increase our operating expenses by expanding our marketing operations and increasing our level of capital expenditures in order to grow our business and further develop and maintain our services. Such increases in operating expense levels and capital expenditures may adversely affect our operating results if we are unable to immediately realize benefits from such expenditures. In addition, if we are unable to manage a significant increase in operating expenses, our liquidity will likely decrease and negatively impact our cash flow and ability to sustain operations. In turn, this would have a negative impact on our financial condition and share price.

We cannot assure you that we will be profitable or generate sufficient profits from operations in the future. If our revenue growth does not continue, we may experience a loss in one or more future periods. We may not be able to reduce or maintain our expenses in response to any decrease in our revenue, which may impact our ability to implement our business strategy and adversely affect our financial condition. This would also have a negative impact on our share price.

Our business is subject to “seasonal” or “cyclical” factors.

Watersports

There is a cyclical component of our waters sports business wherein we receive a relatively larger portion of revenue because our water sports customers submit the majority of their purchase orders for product in the months of September through November for the coming sales year and are shipped in January through May. Currently, the majority of our water sports business is driven by the wakeboarding/waterski industry, which historically is the most active in the spring and summer months. We anticipate this cyclical aspect of our water sports business to continue for the foreseeable future but can make no assurances that will be the case.

-29-

Academy Snowboard Company

Academy Snowboard customers typically issue purchase orders from October through March for the coming sales year and are shipped in July through September. We anticipate this cyclical aspect of our snow business to continue for the foreseeable future but can make no assurances that will be the case.

Our industry is highly competitive and we may not be able to compete effectively, which could reduce demand for our services.

The markets in which we cater to are intensely competitive. Our primary competitors for wetsuits include Jet Pilot, Body Glove, O’neil, Rip Curl and Quicksilver, and our primary competitors in the snow sports markets include Burton, Ride, Forum, K2 and Rome The market for the Company’s products is characterized by competing businesses introducing products similar to those offered by the Company. There are relatively low barriers to entry into the business. Many of the Company’s competitors or potential competitors have longer operating histories, longer customer relationships and significantly greater financial, managerial, sale and marketing and other resources than does the Company. The Company is vulnerable to a competitor making a late, but well-funded, run at the Company if it is not aggressive in quickly attaining a consumer base sufficient for the Company to rely on for sustainable cash flow, and strategic partners as well as establishing a strong brand identity.

Our Success is Tied to Dependence on Key Personnel.

The Company’s success depends to a significant extent upon efforts and abilities of its key personnel, as well as other key creative and strategic marketing personnel. Competition for highly qualified personnel is intense. The loss of any executive officer, manager or other key employee could have a material adverse effect upon the Company’s business, operating results and financial condition. If the Company is not able to efficiently replace its key personnel with qualified individuals, its business and operational activities could suffer. In turn, if the Company’s operational activities decline, its financial performance and overall financial condition will also suffer. This would have an adverse affect on our share price. No assurances can be given that a replacement for any of our key personnel could be located if their services were no longer available. At present, we do not have key man insurance.

We Are a High Risk Early Stage Company.

The Company is a high-risk early stage company with limited operating history in a competitive industry. In addition, the Company’s limited operating history provides a limited basis on which to base an evaluation of its business and prospects. In addition, the Company’s revenue model relies substantially on the assumption that the Company will be able to successfully expand its sales and distribution channels in key markets. The Company’s prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in the earliest stages of development. To be successful in this market, the Company must, among other things:

· Continue to expand distribution and sales channels for its products;

· Attract and maintain customer loyalty;

· Continue to establish and increase awareness of the Company’s brand and develop customer loyalty;

· Provide desirable products to customers at attractive prices;

· Establish and maintain strategic relationships with strategic partners and affiliates;

· Rapidly respond to competitive developments;

· Build an operations and customer service structure to support the Company’s business; and

· Attract, retain and motivate qualified personnel.

-30-

The Company cannot guarantee that it will be able to achieve these goals, and its failure to do so could have a material adverse effect on the Company’s business. If the Company’s business suffers as a result of failing to meet any one or all of the above listed goals, its financial performance and financial condition will suffer. This will also have an adverse affect on the price of the Company’s shares.

Moreover, there can be no assurance that the Company’s financial resources will be sufficient to enable it to operate for the length of time that management expects, or that the Company will be able to obtain additional funding when the Company’s current financial resources are exhausted. The Company expects that its revenues and operating results will fluctuate significantly in the future.

There can be no assurance that any or all of the Company’s efforts will be successful or that the Company will ever be profitable. If the Company’s efforts are unsuccessful or other unexpected events occur, purchasers of the Shares offered hereby could lose their entire investment.

We may need additional financing to support business growth, and this capital might not be available on acceptable terms, or at all, which could adversely affect our financial condition.

The Company’s financial resources are limited and the amount of funding that it will require to develop and commercialize its products is highly uncertain. Adequate funds may not be available when needed or on terms satisfactory to the Company. Lack of funds may cause the Company to delay, reduce and/or abandon certain of all aspects of its product development programs.

There are a number of factors that we cannot control that could require us to seek additional financing to support further demand for those products in the market both through existing distribution channels and potentially through new ones, and to finance the development, production and distribution of new products, as well as the development of new distribution channels and new markets.

The Company plans to seek additional financing which may include the issuance of equity securities. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of the stockholders of the Company will be reduced, stockholders may experience additional dilution and such securities may have rights, preferences and privileges senior to those of the Company’s Common Stock. There can be no assurance that additional financing will be available on terms favorable to the Company or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to fund its expansion, take advantage of unanticipated acquisition opportunities, develop or enhance products or respond to competitive pressures. Such inability could have a material adverse effect on the Company’s business, and ability finance its operations. If the Company cannot finance its operations, the affect on our stock price will be adverse.

-31-

Our quarterly operating results may fluctuate in future periods and, as a result, we may fail to meet investor expectations, which could cause the price of our common stock to decline.

As a result of our history of incurring net losses, the relatively short-term nature of our licensing, distribution and partner agreements, we may not be able to accurately predict our operating results on a quarterly basis, if at all. We expect to experience significant fluctuations in our future quarterly operating results due to a variety of factors, many of which are outside of our control, including:

· the Company’s ability to establish and strengthen brand awareness;

· the Company’s success, and the success of its strategic partners, in promoting the Company’s products;

· the overall market demand for snow sports and water sports products of the type offered by the Company and in general;

· pricing changes for our products as a result of competition or otherwise;

· the amount and timing of the costs relating to the Company’s marketing efforts or other initiatives;

· the timing of contracts with strategic partners and other parties;

· fees the Company may pay for distribution and promotional arrangements or other costs it incurs as it expands its operations;

· the Company’s ability to compete in a highly competitive market, and the introduction of new products by the Company; and

· economic conditions specific to the motorcycle and water sports industries and general economic conditions.

We believe period-to-period comparisons of our operating results are not necessarily meaningful, and you should not rely upon them as indicators of future performance. It is also possible that in the future, our operating results will be below the expectations of public market analysts and investors due to quarterly fluctuations rather than our overall performance. In that event, the trading price of our common stock may decline.

Our Watersports Business Relies Heavily on Four Major Customers for Revenue

Historically, four primary customers have accounted for more than 90% of our business. The three primary customers account for more than 80% of our water sports revenue. If any of these customers decides to exit the water sports market, or to select one of our competitor’s products over our own, our business would be materially adversely impacted. Other larger, better capitalized competitors could offer these customers preferable price points or other incentives that we might not be able to compete with. If we were to lose any one of these customers our business and financial condition would likely be negatively impacted. In turn our financial results would decline and our share price would also likely decline.

-32-

We Rely on Three Major Manufacturers of our Wetsuit and Vest Products

All manufacturing is based in mainland China. If these facilities were inaccessible to us for political reasons or in the event of a natural disaster, our business would be materially adversely affected. We might not be able to transition our manufacturing business to another manufacturer in a timely manner and the costs of changing facilities as well as the costs of manufacturing elsewhere could be prohibitively high. In addition, each of these manufacturers are “contract” manufacturers and consequently are not solely obligated to service our account. In which case, other larger customers might demand more of these manufacturers’ resources, which in turn, could cause delays in their ability to provide us with timely delivery of product. If , for any of the reasons stated above, we are not able to timely respond to purchase orders through our existing contract manufacturing partners, we would likely see a negative impact in our business and operations. In turn, this would have a material adverse impact on our financial results and our share price would likely decline.

We Could Have Difficulty in the Management of Potential Growth.

The Company anticipates that a period of significant expansion will be required to address potential growth in its customer base, market opportunities and personnel. This expansion will place a significant strain on the Company’s management, operational and financial resources. To manage the expected growth of its operations and personnel, the Company will be required to implement new operational and financial systems, procedures and controls, and to expand, train and manage its growing employee base. The Company also will be required to expand its finance, administrative and operations staff. Further, the Company anticipates entering into relationships with various strategic partners and third parties necessary to the Company’s business. There can be no assurance that the Company’s current and planned personnel, systems, procedures and controls will be adequate to support the Company’s future operations, that management will be able to hire, train, retain, motivate and manage required personnel for planned operations, or that Company management will be able to identify, manage and exploit existing and potential strategic relationship and market opportunities. The failure of the Company to manage growth effectively could have a material adverse effect on the Company’s business because it might be unable to meet purchase order demands from its customers, or maintain a level of inventory sufficient to support demand. This could cause the Company to lose customer and distribution relationship that would , in turn have an adverse affect on the Company’s results of operations and financial condition. In which case, the Company’s share price would be adversely affected.

If we chose to acquire new or complementary businesses, services or technologies, we may not be able to complete those acquisitions or successfully integrate them.

In addition to organic growth to expand our operations and market presence, we intend to pursue a growth strategy driven by acquisitions and business combinations of complementary business, services or technologies or engage in other strategic alliances with third parties. Any such transactions would be accompanied by the risks commonly encountered in such transactions, including, among others, the difficulty of assimilating operations, technology and personnel of the combined companies, the potential disruption of our ongoing business, the inability to retain key technical and managerial personnel, the inability of management to maximize our financial and strategic position through the successful integration of acquired businesses, additional expenses associated with amortization of acquired intangible assets, the maintenance of uniform standards, controls and policies and the impairment of relationships with existing employees and customers. We may not be successful in overcoming these risks or any other potential problems. Any acquisition may have a material adverse effect on our business if it any of the risks stated above materialize, and each of the risks stated above could bring about adverse operating results, which in turn, would negatively impact the Company’s financial condition. In turn, the price of our stock would be negatively affected.

-33-

We will incur increased costs as a result of being a public company and this may adversely affect our operating results.

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. We also anticipate that we will incur costs associated with recently adopted corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the SEC and the OTCBB. We expect these rules and regulations will increase our legal and financial compliance costs and make some activities more time consuming and costly. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

New rules, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our business and our ability to obtain or retain the trading status of our common stock on the Over the Counter Bulletin Board Market.

We may be unable to attract and retain qualified officers, directors and members of board committees required for our effective management as a result of the recent and currently proposed changes in the rules and regulations which govern publicly-held companies, including, but not limited to, certifications from executive officers and requirements regarding audit committee financial experts. The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting these roles. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in the issuance of a series of new rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by OTCBB. Furthermore, certain aspects of these recent and proposed changes heighten the requirements for board and committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, we may be unable to maintain the trading status of our common stock on the OTCBB Market.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

-34-

Risks Relating To Our Common Stock:

The market price of our common stock is likely to be highly volatile, which could cause investment losses for our stockholders and result in stockholder litigation with substantial costs, economic loss and diversion of our resources.

The trading price of our common stock is highly volatile and could be subject to wide fluctuations as a result of various factors, many of which are beyond our control, including:

· developments concerning licenses and trademarks by us or a competitor;

· announcements by us or our competitors of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments;

· actual or anticipated fluctuations in our operating results;

· introductions of new products by us or our competitors;

· changes in the number of our distribution partners;

· loss of key employees;

· changes in the market valuations of similar companies; and

· changes in our industry and the overall economic environment.

In addition, the stock market in general, and the OTCBB have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the listed companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market, securities class action litigation has often been instituted against these companies. Litigation against us, whether or not a judgment is entered against us, could result in substantial costs, and potentially, economic loss, and a diversion of our management’s attention and resources.

We plan to continue to pay for consulting and professional services fees with our stock and this would be dilutive to investors.

In the past we have issued shares to consultants and professional services providers as a means of paying certain professional service fees and consulting agreements. We plan to continue to use our stock in the future as a means of paying for these kind of services, and believe that doing so will enable us to retain a greater percentage of our operating capital to pay for operations, product development and purchase of additional inventory.

Price and volume fluctuations in our stock might negatively impact our ability to effectively use our stock to pay for services, or it could cause us to offer stock as compensation for services on terms that are not favorable to the Company and its shareholders. If we did resort to granting stock in lieu of cash for consulting and professional services fees under unfavorable circumstances, it would result in increased dilution to investors.

-35-

Management has broad discretion to use the proceeds from financing activities for business activities that may not be successful, which could affect the trading price of our common stock.

We intend to use the net proceeds from financing activities to pay certain outstanding obligations, increase working capital, fund capital expenditures, finance our international expansion and fund marketing activities. Accordingly, management will have significant flexibility in applying the net proceeds of this offering. The failure of management to apply such funds effectively could have a material adverse effect on our business, results of operations and financial condition.

There is a limited market for our common stock.

Our common stock is traded in the Over-the-Counter Bulletin Board market. This may cause delays in the timing of transactions, reductions in the number and quality of securities analysts' reporting on us, and the extent of our coverage in the media. Trading in our common stock has been sporadic, and at present, there is a limited market for it. There can be no assurance that a stronger market will develop. Even if such a market does develop, it may not be sustained.

Future sales of our common stock by existing shareholders under Rule 144 could decrease the trading price of our common stock.

As of September 30, 2006, a total of 12,671,610 shares of our outstanding common stock were "restricted securities" and could be sold in the public markets only in compliance with Rule 144 adopted under the Securities Act of 1933 or other applicable exemptions from registration. Rule 144 provides that a person holding restricted securities for a period of one year may thereafter sell, in brokerage transactions, an amount not exceeding in any three-month period the greater of either (i) 1% of the issuer's outstanding common stock or (ii) the average weekly trading volume in the securities during a period of four calendar weeks immediately preceding the sale. Persons who are not affiliated with the issuer and who have held their restricted securities for at least two years are not subject to the volume limitation. Possible or actual sales of our common stock by present shareholders under Rule 144 could have a depressive effect on the price of our common stock.

Our common stock is subject to "penny stock" rules.

Our common stock is classified as a penny stock by the Securities and Exchange Commission. This classification severely and adversely affects the market liquidity for our common stock. The Commission has adopted Rule 15g-9, which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, sets forth (i) the basis on which the broker or dealer made the suitability determination and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of investing in penny stocks in public offerings and secondary trading and about the commissions payable to the broker-dealer and registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

-36-

ITEM 3. CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we conducted an evaluation, under the supervision and participation of our management, including the Company’s President and Chief Financial Officer (who is the principal accounting officer) to evaluate the effectiveness of the Company’s disclosure controls and procedures and manage the Company’s operations as of the end of the period covered by this report.

Based on the evaluation, which disclosed no deficiencies or material weaknesses, the Company’s President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.

(b) Changes in Internal Controls Over Financial Reporting

In accordance with Item 308 (c) of Regulation S-B, as of September 30, 2006 there were no changes in the Company’s internal control reporting in connection with the Company’s evaluation of its internal controls that occurred during the most recent fiscal quarter covered by this Form 10-QSB.

-37-

Part II - Other Information

Item 1. Legal Proceedings

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which, in the aggregate, involved amounts which are believed to be immaterial to the consolidated financial condition and operations of the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities during the period ended September 30, 2006.

Item 3. Defaults Upon Senior Notes.

The Company is currently in default on the following Notes:

Unsecured demand note payable to Ron and Dori Arko, bearing interest at 2% per year.	$	8,206
Unsecured demand note payable to John Helms, bearing interest at 2% per year.		155,905
Unsecured demand note payable to New Heart Ministries, bearing interest at 2% per year.		1,905
Unsecured demand note payable to Pacific Sports Investors LLC, bearing interest at 10% per year.		40,375
Secured demand note payable to Christian Beckas, bearing interest at 12% per year, matures July, 30, 2006 and is collateralized by 80,000 shares of common stock.		20,000
Secured demand note payable to Hector Peneda, bearing interest at 12% per year, matures on August 7, 2006 and is collateralized by 40,000 shares of common stock.		10,000
Unsecured demand note payable to Sheryl Gardner, CFO, bearing interest at 4% per year.		45,906
Total	$	282,297
Related party
		2006
Secured demand note payable to Craig Hudson, bearing interest at 12% per year and collateralized by 200,000 shares of common stock.		50,000
Secured demand note payable to Robert Bridges, bearing interest at 9% per year and collateralized by 240,000 shares of common stock.		60,000
Secured demand note payable to Tom Bridges, bearing interest at 9% per year and collateralized by 240,000 shares of common stock.		60,000
Unsecured note payable to Geno Apicella, Vice-President, non-interest bearing.		8,118
Unsecured demand note payable to Sheryl Gardner , bearing interest at 2% per year.		54,906
Total		233,024

Total interest due on the above Notes is $16,653 bringing the total amount in default to $298,950.

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

None.

Item 5. Other Information.

None.

ITEM 6. Exhibits And Reports On Form 10-QSB September 30, 2006

Exhibit Number	Description	By Reference from Document
31.1	Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934	*
31.2	Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934	*
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

* Filed herewith

-38-

EXECUTE SPORTS

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

/s/ Todd Hahn	/s/ Sheryl Gardner
Todd Hahn Chief Executive Officer November 15, 2006	Sheryl Gardner Chief Financial Officer November 15, 2006

Exhibit Number	Description	By Reference from Document
31.1	Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934	*
31.2	Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934	*
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

* Filed herewith

-39-