Edgar Filing: Healthsport, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

COMMISSION FILE NUMBER 0-23100

HEALTHSPORT, INC.
(Exact name of small business issuer in its charter)

DELAWARE 22-2649848
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)

7633 E 63RD PLACE, SUITE 220, TULSA, OK 74133
(Address of Principal Executive Office) (Zip Code)

ISSUER'S TELEPHONE NUMBER (716) 691-6763

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

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

COMMON STOCK, $0.0001 PAR VALUE
(TITLE OF EACH CLASS)

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

Indicate by check mark whether the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ ]; No [X].

Indicate by check mark if the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes? [X]; No [_]. Indicate by check mark if disclosure of delinquent
filers in response to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [_].

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

Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in
rule 12b-2 of the Exchange Act). Yes [ ]; No [X]. State the aggregate market
value of the voting and non-voting common equity held by non-affiliates computed
by reference to the price at which the common equity was last sold, or the
average bid and ask price of such common equity, as of the last business day of
the registrant's most recently completed second fiscal quarter. $41,252,289.

As of February 29, 2008, the registrant had outstanding 42,898,397 shares of its
common stock, par value of $0.0001, its only class of voting securities.

DOCUMENTS INCORPORATED BY REFERENCE

No documents are incorporated by reference into this Report except those
Exhibits so incorporated as set forth in the Exhibit index.

HEALTHSPORT, INC.

TABLE OF CONTENTS

FORM 10-K

Part I

Page
PART I
Item 1 Business 3
Item 1A Risk Factors 11
Item 2 Properties 11
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders 12

PART II
Item 5 Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 13
Item 6 Selected Financial Data 15
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operation 15
Item 7A Quantitative and Qualitative Disclosures about Market Risk 20
Item 8 Financial Statements and Supplementary Data 21
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 47
Item 9A(T) Controls and Procedures 47
Item 9B Other Information 48

PART III
Item 10 Directors, Executive Officers and Corporate Governance 49
Item 11 Executive Compensation 52
Item 12 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 56
Item 13 Certain Relationships and Related Transactions,
and Director Independence 58
Item 14 Principal Accountant Fees and Services 59

PART IV
Item 15 Exhibits and Financial Statement Schedules 60

From time to time, we may publish forward-looking statements relative to such
matters as anticipated financial results, business prospects, technological
developments and similar matters. The Private Securities Litigation Reform Act
of 1995 provides a safe harbor for forward-looking statements. The following
discussion and analysis should be read in conjunction with the report on the
Consolidated Financial Statements and the accompanying Notes to Consolidated
Financial Statements appearing later in this report. All statements other than
statements of historical fact included in this Annual Report on Form 10-K are,
or may be deemed to be, forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange
Act of 1934, as amended. Important factors that could cause actual results to
differ materially from those discussed in such forward-looking statements
include, but are not limited to, the following: our current liquidity needs, as
described in our periodic reports; changes in the economy; our inability to
raise additional capital; our involvement in potential litigation; volatility of
our stock price; the variability and timing of business opportunities; changes
in accounting policies and practices; the effect of internal organizational
changes; adverse state and federal regulation and legislation; and the
occurrence of extraordinary or catastrophic events and terrorist acts. These
factors and others involve certain risks and uncertainties that could cause
actual results or events to differ materially from management's views and
expectations. Inclusion of any information or statement in this report does not
necessarily imply that such information or statement is material. We do not
undertake any obligation to release publicly revised or updated forward-looking
information, and such information included in this report is based on
information currently available and may not be reliable after this date.

PART I

ITEM 1: BUSINESS

BUSINESS DEVELOPMENT

HealthSport, Inc. (together with its subsidiaries, hereinafter referred to as
the "Company", "HealthSport", "we" or "us"), is a holding company, originally
incorporated on July 25, 1985 in Delaware, and currently has the following
wholly owned subsidiaries:

o Enlyten, Inc. ("Enlyten"), a Nevada corporation organized on
November 28, 2006;
o Health Strip Solutions, LLC ("Health Strip"), a Nevada limited
liability corporation organized on February 13, 2006; acquired 80%
on March 29, 2006, 10% on December 21, 2006 and the remaining 10%
on December 27, 2006;
o Cooley Nutraceuticals, Inc. ("Nutraceuticals"), a Nevada
corporation organized on November 17, 2006; acquired on December
6, 2006;
o InnoZen, Inc. ("InnoZen"), a Nevada corporation organized on May
30, 2002; acquired on May 4, 2007;
o Maxx Motorsports, Inc. ("Maxx"), a Delaware corporation acquired
on May 15, 2001 and currently inactive;
o World Championship Poker, Inc. ("Poker"), a Nevada corporation
acquired on June 28, 2005 and currently inactive; and
o Strategic Gaming Consultants, LLC, ("Gaming"), a Nevada limited
liability corporation organized on November 8, 2004, and never
activated.

On April 24, 2006, we filed a Definitive Information Statement pursuant to
Section 14C which provided that effective May 15, 2006; 1) our name would be
changed to HealthSport, Inc.; 2) our issued and outstanding shares would be
reverse-split one share for each 200 shares; and 3) our Certificate of
Incorporation would be restated to reflect these amendments. These amendments
were approved by our Board of Directors and in writing by 52.33% of our
shareholders on March 31, 2006. Accordingly, effective May 15, 2006, our name
was changed to HealthSport, Inc., our shares were reverse-split one for 200 and
our Certificate of Incorporation was restated to reflect these amendments. We
have made the change in outstanding shares and all references to shares have
been retroactively restated for all periods included in this report on Form
10-K.

HealthSport, Inc. was originally incorporated in 1985 as Horizon Capital Corp.
We were known as Reconversion Technologies, Inc. until May 1, 2000, at which
time our name was changed to Logisoft Corp. On May 15, 2001, we changed our name
from Logisoft Corp. to Team Sports Entertainment, Inc., on November 8, 2004, we
changed our name to Idea Sports Entertainment Group, Inc. and on May 15, 2006,
we changed our name to HealthSport, Inc.

INNOZEN ACQUISITION

On May 4, 2007, the Company completed the acquisition of InnoZen through a
merger of InnoZen with InnoZen Acquisition Sub, Inc. ("Acquisition Sub"), the
Company's wholly owned subsidiary, all Delaware corporations, in exchange for
18,249,952 shares of the Company's common stock. In accordance with Delaware
General Corporate Law and pursuant to the terms and conditions of the Merger
Agreement, Acquisition Sub was merged with and into InnoZen, after which,
InnoZen became the Company's wholly owned subsidiary and continues as the
surviving corporation and the separate existence of Acquisition Sub ceased.

InnoZen is the preeminent formulator, developer and manufacturer of edible thin
film strips that deliver drug actives and was the first company to deliver a
drug active ingredient in a thin film strip when it completed the development of
Chloraseptic(R) Sore Throat Relief Strips in June 2003. With Chloraseptic Relief
Strips, InnoZen established a new process which prevented irritants and
incorporated additional compounds to make the strips more suitable for various
drug delivery needs. Relying on its expertise in the development of edible film
strips that deliver drug actives, InnoZen moved forward with its proprietary
technology to develop two new thin film strip products for cough. InnoZen
launched its two new film strip products under its own Suppress(R) brand
(http://www.suppress.com) in September 2004.

The acquisition was accounted for using the purchase method of accounting and,
accordingly, the consolidated statements of operations include the results of
InnoZen beginning May 4, 2007. The assets acquired and the liabilities assumed
were recorded at estimated fair values as determined by the Company's management
based on information currently available and on current assumptions as to future
operations.

BUSINESS OF THE COMPANY

HealthSport is publicly traded on the bulletin board market under the ticker
symbol HSPO.OB. HealthSport is focused exclusively on the development,
manufacturing, distribution and marketing of edible film strip products
containing nutritional supplements and over-the-counter drugs using certain
proprietary technology. This technology system provides rapid dissolution and
release of active ingredients when the strip comes in contact with saliva in the
mouth.

InnoZen was the first company to deliver a drug in an edible film strip and
maintains proprietary edible film strip technology pertaining to method of
manufacture, including administration of drug and nutritional supplements via
its unique bi-layer process. InnoZen has pending patents relating to use and
administration of Transmucosal delivery of nutritional supplements and the
Patent Cooperation Treaty suggests that we will maintain world-wide novelty of
all patents. InnoZen maintains additional trade secrets of product and flavor
formulation and manufacture of its film strip products.

Using InnoZen's in-house research, development and manufacturing capabilities,
HealthSport has the ability to rapidly formulate and develop new thin film
products and other products using various additional oral delivery systems such
as gels. As a result, HealthSport anticipates a steady stream of new products to
expand the Enlyten brand it is creating. The implementation of HealthSport's
sales and marketing models for each product line will play an integral role in
creating brand awareness through the application of traditional and
non-traditional sales techniques.

In 2008, InnoZen entered into a joint venture agreement with Migami, Inc. and is
52% owner of Pacific Manufacturing Group, LLC ("PMG"), which was formed to build
a world-wide regulatory compliant manufacturing facility with cutting edge
innovation and stringent quality control, which will be cGMP compliant. Current
manufacturing is completed at the InnoZen laboratory and pilot plant in Woodland
Hills, California. The new facility is located in Ventura, California and is
scheduled for completion in the summer of 2008.

Enlyten was formed to develop, brand, secure domestic and international
distribution, launch and market our various product lines through the execution
of targeted and strategic marketing plans.

HealthSport and InnoZen have already jointly developed three new products that
launched in 2007, including ENLYTEN(TM) SPORTSTRIPS, ENLYTEN(TM) PEDIASTRIPS and
FIX STRIPS.

From September 9, 2004 until it was sold to a former CEO of the Company in 2006,
the Company operated primarily through Idea Management Group, Inc., a concept
development company that internally created projects in the fields of
professional sports, motion pictures, publishing, licensed merchandise and other
entertainment products.

From May 15, 2001, until operations were discontinued on August 26, 2003, the
Company operated through its wholly owned subsidiary Maxx and its wholly owned
subsidiary TRAC with plans to develop, own, operate and sanction an automotive
racing league designed to provide content for television and tracks.

PRODUCT OVERVIEW

Our mission is to be a leader in developing and manufacturing pharmaceutical
products in unique and convenient oral delivery formats using science and
innovation to improve people's lives. The main method of achieving this is by
use of "medicine in a strip"(R) that can be orally ingested. Flavor is an
important part of the film strip development process and our team has extensive
experience in developing flavors in film strips and has great relationships with
numerous international flavor houses.

This goal can be achieved by creatively applying our unique, proprietary
knowledge and technology to create unique medicines in a strip that enable drug
developers to have an alternative and proprietary method of delivering their
existing products, as well as new products, and of extending and expanding their
respective market positions, brands, distribution networks and intellectual
property.

ENLYTEN(TM) SPORTSTRIPS
------- -----------

Over the past year and half, InnoZen has been applying its film strip technology
formulation and manufacturing expertise to develop film strips containing
electrolytes. Electrolytes are chemicals that form electrically-charged
particles (ions) in body fluids. These ions carry the electrical energy
necessary for many functions, including nerve impulse transmission and muscle
contractions.

Many normal body functions depend on electrolytes, and optimal athletic
performance requires a consistent and adequate supply of these important
nutrients. Electrolytes such as those found in ENLYTEN(TM) SPORTSTRIPS, along
with water, can be used in oral rehydration therapy to replenish the body's
electrolyte levels after dehydration caused by exercise, diarrhea or vomiting.
Drinking water alone is not the best way to restore fluid levels after extreme
athletic activity because it dilutes the salts inside the body's cells and
interferes with their chemical functions. This can lead to water intoxication.
(This and other side-effects can be a similar negative consequence of excess
ingestion of popular liquid electrolyte solutions.)

Our ENLYTEN(TM) SPORT STRIPS have been tested by Dr. David Berkoff of Duke
Sports Medicine's K-Lab and have so far provided positive results. With the
patented film strip technology developed by InnoZen and testing completed by Dr.
Berkoff, we began marketing ENLYTEN(TM) SPORTSTRIPS in the summer of 2007.

ENLYTEN(TM) PEDIASTRIPS
------- -----------

We have developed a new product customized to replenish electrolytes and aid in
faster and more efficient hydration for children with flue symptoms, vomiting or
diarrhea. ENLYTEN(TM) PEDIASTRIPS are a cutting edge technology that delivers
essential electrolytes To children without sugar or other non-essential
additives. We began marketing PediaStrips in the fourth quarter of 2007.

FIX STRIPS(TM)
----------

FIX STRIPS were developed to provide fast, effective and safe relief for those
individuals who incorporate social drinking into their lifestyle. FIX STRIPS are
a nutritional supplement that quickly and effectively provides caffeine,
electrolytes, antioxidants and other essential vitamins and minerals. We began
marketing FIX STRIPS in the fourth quarter of 2007.

ENLYTEN(TM) ENERGY FILM STRIPS
------- ------------------

We have developed a revolutionary new edible film strip. ENLYTEN(TM) ENERGY film
strips are a nutritional supplement that quickly and effectively provides
natural energy enhancers, caffeine, electrolytes, antioxidants, and other
essential vitamins and minerals. Our proprietary formulation is designed to
supply the body with a healthy boost in energy, while replenishing and
maintaining the essential vitamins and minerals lost during activity, after a
long flight, bad night of sleep or over indulgence of alcohol. We expect to
begin marketing ENLYTEN(TM) ENERGY film strips during the summer of 2008.

ENLYTEN(TM) SURVIVAL STRIPS
------- ---------------

We are currently working with the United States Military to evaluate and test
the effectiveness of ENLYTEN(TM) SURVIVAL STRIPS. ENLYTEN(TM) SURVIVAL STRIPS
are formulated with antioxidants, non-cavity causing sweeteners, vitamins,
herbal extracts, electrolytes, caffeine and other proven beneficial compounds.
ENLYTEN(TM) SURVIVAL STRIPS were designed specifically for military personnel as
a convenient, light weight, heat stable, effective remedy to fatigue,
drowsiness, dehydration and loss of performance during routine and special
operations. The strips are being examined in military populations to evaluate
their effectiveness in providing energy, increasing alertness, combating
dehydration and improving performance in extended operations.

SUPPRESS STRIPS(R)
------------------

InnoZen launched Suppress Cough Strips in 2004 to treat coughs, colds and sore
throats. Suppress Cough Strips are available in two formulations: one with
Dextromethorphan, and one in an herbal formulation. Both are available for
purchase in approximately 10,000 retail outlets in the U.S. The product is
carried in numerous leading chain stores such as Rite Aid, Winn Dixie,
Drugstore.com, Eckerd, Ralph's and Longs Drugs. InnoZen has also arranged for
international distribution of these products.

CHLORASEPTIC STRIPS
-------------------

Less than one year after incorporating, InnoZen completed formulation and
development of its first film strip product, a Benzocaine film strip, and
licensed it to Prestige Brands to launch under Prestige's Chloraseptic(R) brand
in 2003. The Chloraseptic Sore Throat Relief Strips developed by InnoZen were
the first thin film strip containing a drug active and are currently being
marketed in the U.S. InnoZen currently receives a royalty for Chloraseptic's use
of its licensed technology.

PRODUCTS UNDER DEVELOPMENT
--------------------------

We are currently working on a number of additional products which can be
delivered using our bi-layer strip delivery. These include pain relievers,
anti-diarrhea, weight-loss, sedatives, vitamin and anti-oxidant products, as
well as, animal vitamins and supplements.

INDUSTRY OVERVIEW

Oral film strips supplement and can replace traditional capsules and tablets due
to their ease of use, discreteness, portability, fast oral delivery, and ability
to control dosage (and thus minimize overdosing and/or contraindications of the
active ingredients). Film strips have soothing effects in the mouth and throat
because of their method of dissolution. The success of Listerine(R) Breath
Strips, which achieved more than $500 million in sales since its launch, has
demonstrated consumer acceptance and adoption of this new delivery system.
Edible film strips have become a popular alternative to lozenges and gum for
refreshing breath.

The film strip industry is in its early growth stage and we are currently one of
the premier strip manufacturers in the country and have current and prospective
substantial market presence and alliances in place. Additional products under
development provide us with further upside opportunity.

SALES & DISTRIBUTION

To handle all of the sales, marketing, and distribution needs of our various
products, we have formed Enlyten as a wholly owned subsidiary. Led by Dan Kelly,
Enlyten began marketing and distributing the film strips using all forms of
traditional outlets including grocery and drug stores, big box retailers and
sporting goods stores. We will also utilize non-traditional avenues such as
college bookstores, organizational events and nightclubs.

To further this effort, we have secured the services of a 28 year veteran in
sales, Gary Thomas, who will be guiding and directing the Sales Division. His
experience with Acosta, the largest food and medicine broker in the U.S., will
bring substantial expertise and experience in the sales and distribution of our
products. Under Mr. Thomas's supervision, Acosta's North Eastern United States
Division recorded $200+ million in annual sales revenue.

On March 11, 2008, we completed a five-year distribution deal with Unico
Holdings, Inc. ("Unico"). Unico markets its products through numerous sales
channels, including large retail merchandisers, drug store chains, grocery
stores and pharmaceutical distributors. Unico's customers include most of the
largest retailers and distributors in the U.S. in each of these sales channels.
The agreement calls for a minimum of $22 million of product purchases over the
five-year term in order for Unico to maintain its exclusive distribution right.

PRODUCT POSITIONING & MARKETING

CLINICAL EXPERTS: The research and development conducted by Dr. David Berkoff
and Anthony Seaber, medical doctors and experts in sports medicine at Duke
University, and by other clinical experts on the ENLYTEN products will be
communicated to other medical experts, coaches and trainers in each field along
with the benefits the products have to offer, not only to professional athletes
but to individuals as well. Their participation is important to reinforce the
scientific verification data by offering their assessments and results with
trainers, coaches, athletes, military personnel and the general public. The
clinical experts are incorporated into our marketing plans through public
relations and product testimonials in medical related materials circulated at
trade shows, in medical magazines and on talk shows.

TRADESHOWS / CONFERENCES / EVENTS: Various tradeshows, conferences and
opportunities exist where ENLYTEN(TM) SPORTSTRIPS, ENLYTEN(TM) PEDIASTRIPS, FIX
STRIPS, ENLYTEN(TM) ENERGY film strips and ENLYTEN(TM) SURVIVAL STRIPS, as well
as Suppress and our other products, can be introduced to the general public and
to health, fitness, and sports professionals. In fact, it will be important to
identify the events that will offer maximum exposure to achieve success and
results of the investment to participate in the event, tradeshow or conference.

The marketing department will determine the high visibility tradeshows or events
and oversee the logistics. The products will be sampled by direct placement in
the hands of attendees at the events, through public relations surrounding the
event and by using the endorsement of individuals at the events.

ADVERTISING: A multi-tiered program will be developed and executed to introduce
each product to the general public, sports professionals and military. Each
product will have a program and advertising schedule that will use new and
established avenues for product placement, targeted media outlets in print and
radio as well as using the Internet for education and direct sales.

Marketing and creative services will identify the target markets and
publications to promote our products through advertisements and product story
placements. High profile, nationally circulated newspapers, magazines and
product specific publications will be included in the print ad placement
schedule, such as (but not limited to) USA TODAY, NEWSWEEK, RUNNER'S WORLD and
other publications.

Direct mail will be sent out to conference participants, event sponsors and
tradeshow mailing lists. The marketing department will work with the Sports
Advisory Council and clinical experts to secure lists of contacts from them to
mail materials to individuals and businesses in their circle of influence.

Consumers and retail customers will be mailed information and products, based on
researched buying habits in specific markets and retail stores. The direct mail
program will support promotional programs, consumer rebate initiatives and other
opportunities coinciding with the retail-marketing plan for our brands.

Website advertising opportunities will be researched and developed to place
advertising on highly visible Internet sites to extend the branding of
HealthSport beyond print and direct mail.

Other developments will be specific to the needs of the product rollout, sales
department and direction as given by our corporate executives.

PUBLIC RELATIONS: An integrated public relations program will be developed to
launch us across the country as well as internationally. Working with a public
relations agency, the customary elements will be created such as press releases,
targeted pitch strategies and materials to be sent to the public.

At the conferences or tradeshows, members of the Sports Advisory Council may
participate as presenters or attend the conferences. Local media market
opportunities will be utilized for on and off-site interviews and related
opportunities that will capitalize on the visibility of the conferences or
tradeshows.

Additional product placement opportunities will be sought on content specific
television shows, both locally and nationally, to provide support to marketing
and sales related plans as determined by our corporate leadership.

MANUFACTURING

InnoZen maintains a drug research and development facility and a manufacturing
plant in Woodland Hills, California that meets FDA and California certification
requirements. This manufacturing facility provides new business opportunities
through customized product production and pilot scale runs of film strip
products, and the ability to then deliver final product quickly and at
reasonable cost. Internal manufacturing enables quicker and more responsive
development of new and custom formulations and provides the ability to then
promptly fill orders for the new products. The net result is our unique ability
to develop and deliver new film strip formulations and products to market faster
and more economically.

CUSTOM CUTTING AND PACKAGING: Our cutting and packaging facility can be
optimized to meet the specific requirements, and budgets, of our clients. Using
high-tech labeling equipment, we offer a range of labeling options, including a
tamper resistant seal and full wrap-around application. Technologically advanced
blister card machinery enables us to offer retail ready packaging, blister card
single and multi-packs and flow-wrap individual products. We also offer a number
of innovative packaging solutions, including space saving packaging designs.

CAPACITY AND INVENTORY MANAGEMENT: With its own on-site manufacturing strip
facility, InnoZen is in position to manufacture all of the initial requirements
for the ENLYTEN(TM) SPORTSTRIPS, ENLYTEN(TM) PEDIASTRIPS, FIX STRIPS,
ENLYTEN(TM) ENERGY film strips and ENLYTEN(TM) SURVIVAL STRIPS and both Suppress
Cough Strip products for itself and other third party distributors.

The PMG manufacturing facility is located in Ventura, California and is
scheduled for completion in the summer of 2008. PMG will produce all of our
product as well as 3rd party and private label film strip products. PMG's
manufacturing process was developed by InnoZen and will be customized to meet
the unique specifications of each client.

Using our own facilities, we can use a just-in-time inventory policy to
manufacture only the minimum number of film strips necessary to meet retailers'
orders. This reduces the sales and production cycle by several months and
reduces cash requirements for inventory.

INTELLECTUAL PROPERTY

Patents and pending patent applications seek to protect new technologies we have
developed in formulating, developing and manufacturing edible film strip
products containing drug actives. Other techniques are protected as trade
secrets. These new core technologies include novel methods of manufacturing film
strips to create additional stability and to increase the amount of drug actives
that can be delivered in a single film strip. We also seek to protect the
delivery of the specific drug active ingredients in our edible film strips.

We have filed U.S. and foreign trademark and patent applications to protect
product lines and general technology; they rely on a combination of intellectual
property laws, nondisclosure agreements and other measures to protect
proprietary rights. Currently, we have five United States patent applications
pending; and we expect to file several more as new products are developed. We
have also filed patent applications in several foreign countries and we also own
various trademarks, including ENLYTEN, SPORTSTRIPS, RESTORE, SURVIVAL STRIPS,
InnoZen, Suppress, and "Medicine in a Strip." Trademark registrations are
available upon request.

SEGMENT REPORTING

We operate in one reportable segment.

Substantially all of our sales are currently domestic. We anticipate substantial
international growth opportunities commencing in 2008.

CUSTOMERS

During 2007, we had one customer which accounted for 14% of consolidated sales.

BACKLOG

The Company currently maintains sufficient inventory to service orders within a
short period and does not have a substantial backlog.

RESEARCH AND DEVELOPMENT

We have an active and ongoing research effort to develop new products and to
make improvements to existing products. We also work with a number of customers
to develop strip delivery systems for their products, which is generally
reimbursed by the customer.

EMPLOYEES

At December 31, 2007, we had 42 full-time employees and we had four full-time
employees at December 31, 2006.

Our employees are not represented by a labor union. We have experienced no work
stoppage and believe that our employee relationships are good.

ITEM 1A: RISK FACTORS

Not applicable.

ITEM 2: PROPERTIES

The corporate offices are currently maintained in the office of the Company's
accountant at no cost to the Company.

Enlyten executed a three-year operating lease which commenced on February 1,
2007 for 2,182 square feet of office space for its staff in Amherst, New York.

InnoZen leases its facility in Woodland Hills, California pursuant to a lease
agreement which expires on January 1, 2010, at which time InnoZen has the option
to extend the term for an additional year.

The Company leases a facility in Ventura, California which will become the PMG
manufacturing facility. The lease commenced December 1, 2007 for seven years and
two months until January 31, 2015. The Company has no cost for the lease
obligation in January and February 2008 while they are installing the
manufacturing equipment and preparing the facility for use.

ITEM 3: LEGAL PROCEEDINGS

To our knowledge, no legal proceeding is threatened against us.

On October 30, 2007, our wholly-owned subsidiary, Enlyten, Inc., filed a lawsuit
against The Gatorade Company and PepsiCo, Inc. (collectively referred to as
Gatorade) in the State of New York Supreme Court, County of Erie. The Complaint
alleges that Gatorade has tortiously interfered with Enlyten's contractual
agreement with the Buffalo Bills and with Enlyten's business relationships with
various third parties including other NFL teams, in an attempt to wrongfully
restrain trade. Enlyten is represented by Michael B. Powers of the law firm of
Phillips Lytle, LLP in Buffalo, New York. The alleged interference has severely
limited our ability to market and sell the ENLYTEN(TM) SPORT STRIP. The case is
currently in the early discovery phase with a discover hearing scheduled fOR
June 3, 2008.

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

There were no matters submitted to a vote of security holders during the fourth
quarter of 2007.

PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

Our $0.0001 par value per share common stock is traded in the over-the-counter
market and is quoted on the National Association of Securities Dealers ("NASD")
Over-The Counter Bulletin Board ("OTCBB") under the symbol "HSPO.OB." Previously
we were quoted on the OTCBB under the symbols "ISPO.OB," "TSPT.OB," "LGST," and
"RTTK." The following table sets forth the quarterly high and low daily close
for our common stock as reported by the OTCBB for the two years ended December
31, 2007. The bids reflect inter-dealer prices without adjustments for retail
mark-ups, mark-downs or commissions and may not represent actual transactions.

HIGH LOW
---- ---
2007
----
Fourth quarter $ 1.55 $ 0.52
Third quarter $ 2.09 $ 0.95
Second quarter $ 2.45 $ 1.48
First quarter $ 2.99 $ 2.20

2006
----
Fourth quarter $ 2.50 $ 1.50
Third quarter $ 1.50 $ .75
Second quarter $ 4.00 $ 1.05
First quarter $ 8.00 $ 1.60

The OTCBB is a quotation service sponsored by the NASD that displays real-time
quotes and volume information in over-the-counter ("OTC") equity securities. The
OTCBB does not impose listing standards or requirements, does not provide
automatic trade executions and does not maintain relationships with quoted
issuers. A company traded on the OTCBB may face loss of market makers and lack
of readily available bid and ask prices for its stock and may experience a
greater spread between the bid and ask price of its stock and a general loss of
liquidity with its stock. In addition, certain investors have policies against
purchasing or holding OTC securities. Both trading volume and the market value
of our securities have been, and will continue to be, materially affected by the
trading on the OTCBB.

HOLDERS

At February 29, 2008, there were approximately 672 holders of record of our
common stock including 11,076,149 shares in the public float.

DIVIDENDS

We have never paid cash dividends on our common stock and intend to utilize
current and future resources to implement our plan of operations. It is not
anticipated that cash dividends will be paid on our common stock in the
foreseeable future.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table summarizes certain information as of December 31, 2007, with
respect to compensation plans (including individual compensation arrangements)
under which our common stock is authorized for issuance:

Number of securities to be
issued upon exercise of Weighted average exercise Number of securities
outstanding options, price of outstanding remaining available
Plan category warrants and rights options, warrants and rights for future issuance
------------- ------------------- ---------------------------- -------------------
Equity compensation plans
approved by security holders:
2000 Plan -- $ -- 15,000
2006 Plan 3,605,390 1.53 1,394,610
---------- ----------
3,605,390 $ -- 1,409,610
========== ==========

The Company has two Stock Option Plans; the Stock Option Plan dated in April
2000 and approved in April 2001 (the "2000 Plan") which authorizes the grant of
options to purchase an aggregate of 15,000 shares; and the Stock Option Plan
dated October 18, 2006 and approved in October 2006 (the "2006 Plan") which
authorizes the grant of options to purchase an aggregate of 5,000,000 shares. On
August 30, 2007, the Board of Directors authorized formation of a new plan with
4,000,000 shares. This plan has not been completed nor has it been approved by
the stockholders. (Collectively the "Plans")

The material features of the Plans, the data for which is summarized under the
equity compensation plans approved by security holders in the table above are
summarized in Note 10 to the consolidated financial statements that appear in
Item 8.

RECENT SALES OF UNREGISTERED SECURITIES

Sales during the first three quarters of the fiscal year were reported in Item 2
of Part II of the Form 10-QSB filed for each quarter.

During the fourth quarter:
o We sold 1,087,500 shares for net cash proceeds in the amount of
$1,033,125;
o We issued 5,000 shares for consulting fees valued at $7,500; and
o We issued 39,000 shares for accounts payable in the amount of
$39,000.

All of the shares issued were sold pursuant to an exemption from registration
under Section 4(2) promulgated under the Securities Act of 1933, as amended.

ITEM 6: SELECTED FINANCIAL DATA

Not applicable.

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

HealthSport is publicly traded on the bulletin board market under the ticker
symbol HSPO.OB. HealthSport is focused exclusively on the development,
manufacturing, distribution and marketing of edible film strip technology. This
technology system provides rapid dissolution and release of active ingredients
when the strip comes in contact with saliva in the mouth.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2007 and 2006, we had current assets of $2,411,410 and $967,636;
current liabilities of $2,066,125 and $57,848; and working capital of $345,285
and $909,788, respectively. We incurred a loss of $9,847,000 during 2007, which
included depreciation and amortization of $989,167; amortization of non-cash
stock compensation of $2,484,042; and acquired research and development expense
of $847,336.

On February 1, 2008 HealthSport and InnoZen executed a Limited Liability Company
Operating Agreement ("LLC Agreement") with Migami, Inc. ("Migami") for Pacific
Manufacturing Group, LLC ("PMG"). Among other things, the LLC Agreement calls
for Migami to contribute $3,000,000 in cash to PMG for its intended 48%
ownership and InnoZen licensed its technology to PMG for its 52% ownership. In
summary, the agreement provides that PMG will manufacture all strip and other
products for each member at cost plus 25%. As of April 8, 2008, $1,000,000 of
Migami's contribution has been received by PMG, and the remainder is expected to
be received on or before April 30, 2008.

We currently anticipate that our only capital equipment requirements will be in
PMG for which the $3 million capital to be contributed by Migami should be
adequate to fund PMG's requirements.

In 2007, the Company projected sales to be as high as $10 million, based on
forecasts for SPORTSTRIPS, PEDIASTRIPS and FIX STRIPS. The alleged tortuous
interference by Gatorade in our agreement with the Buffalo Bills, other NFL
teams and NFL players substantially hindered our ability to market and sell our
SPORTSTRIPS product, which was our first product to market. PEDIASTRIPS and FIX
STRIPS sales did not commence until the fourth quarter and were substantially
below initial forecasts from consultants. At the end of the fourth quarter of
2007 the Company changed its sales direction and reduced staff with the goal of
selling product through distributors rather than making all sales directly to
our customers.

On March 11, 2008, we completed a five-year distribution deal with Unico
Holdings, Inc. ("Unico"), wherein they will market our PEDIASTRIPS product as
well as negotiate for our electrolyte strips to be manufactured for private
label usage. Unico markets its products through numerous sales channels,
including large retail merchandisers, drug store chains, grocery stores and
pharmaceutical distributors. Unico's customers include most of the larger
retailers and distributors in the U.S. in each of these sales channels. The
agreement calls for a minimum of $22 million of product purchases over the
five-year term in order for Unico to maintain its exclusive distribution right.

The Unico distribution deal is initially for PEDIASTRIPS and should commence
during the third quarter of 2008. We are attempting to establish similar
arrangements for our SPORTSTRIPS and FIX STRIPS. In addition, we expect to begin
sales of our ENERGY FILM STRIPS and SURVIVAL STRIPS before the end of 2008. The
Company is also seeking opportunities to establish film strip products for a
number of products which are currently delivered in a different manner, such as
liquids and pills. The Company expects this to develop into a large part of its
business in the future.

The Company will continue to require substantial working capital until sales
develop to the level required to support operations. The current level of
overhead is approximately $325,000 per month, excluding the PMG manufacturing
operation. The Company is analyzing its current costs and is attempting to make
additional cost reductions where possible. Current sales will not be adequate to
support this level of operating costs. We estimate that sales will develop to
the level necessary to be at or near cash flow break-even by the end of the
third quarter of 2008. Based on this time-frame, the Company would need from $2
to $2.5 million to meet its minimum requirements, excluding PMG. The Company has
made private placements of its common stock and as of April 10, 2008 had
received $610,000 in net proceeds. The Company expects to continue to make
private placements of its common stock or to borrow additional funds as needed.

These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that may result from the outcome of these uncertainties.

RESULTS OF OPERATIONS

2007 COMPARED TO 2006

REVENUES
--------
In 2007 we had revenue from product sales of $305,461 and revenue from license
fees and royalties of $133,363 for a total of $438,824. In 2006 we had nominal
product sales of $1,137. The majority of 2007 was spent refining products and
developing the means to distribute them. The 5-year distribution deal with
Unico, discussed above, is the first major step and should result in substantial
revenue growth commencing in the last half of 2008.

COSTS AND EXPENSES
------------------
Cost of product sold amounted to 75% of net product sales. The gross profit
margin of 25% is lower than would be expected due to promotional discounts
offered to new customers. Sales are net of discounts of $160,422 (31% of gross
sales). This amount should decline substantially in the future as customers
begin to reorder without the higher level of promotions.

General and administrative expense ("G&A") amounted to $3,405,508 in 2007 as
compared to $590,603 in 2006. In 2007, HealthSport had $963,990 of G&A as
compared to $331,198 in 2006. The primary increases were payroll of $279,660;
legal, accounting and other professional fees of $173,987; travel and
entertainment of $73,946; shareholder communications of $52,949 and insurance of
$41,573. Enlyten and Health Strip had G&A costs of $66,426 in 2007 and $270,882
in 2006. The 2007 amount is amortization on Health Strip. The 2006 amount
includes $169,873 in consulting services; $34,448 in payroll; and $33,210 in
amortization. The ongoing start-up costs in 2006 were included in marketing and
selling expense in 2007. Nutraceuticals G&A amounted to $106,094 in 2007, its
first year of operation. This includes $53,328 for amortization and $30,501 for
payroll. InnoZen's G&A amounted to $2,269,298 for the eight months it was owned
in 2007. This amount includes $793,660 in amortization; $653,249 in payroll and
taxes; $369,964 in legal, accounting and other professional services; and
$164,065 in insurance. With the formation of PMG, the payroll and benefits will
be allocated between the two entities. In addition, the legal, accounting and
other professional fees should be substantially lower as it includes a two-year
audit for periods during which InnoZen had very limited accounting staff.

Marketing and selling expense ("M&S") amounted to $2,427,980 in 2007 and none
during the initial start-up in 2006. The more significant components of M&S
expenses are: professional fees of $554,213, which includes endorsement and
sponsorship fees of $455,990; payroll expenses of $573,325; advertising expense
of $654,852, including events and trade shows; and travel costs of $58,277.
Endorsements and sponsorship fees were substantially eliminated when we
redirected our marketing plan in another direction at the end of 2007. Payroll
costs will also be lower in 2008 as we have attempted to increase our product
sales through existing distributors rather than have substantial direct sales.

Non-cash compensation amounted to $2,484,042 in 2007 as compared to $119,625 in
2006. This includes $1,536,423 in amortization of the intrinsic value of common
stock options and $947,619 in amortization of common stock awards to employees,
which are being amortized over the expected period of service.

Manufacturing costs amounted to $617,665 in 2007 for the eight months we owned
InnoZen. This represents the manufacturing costs not absorbed in inventory and
should be substantially eliminated when the manufacturing volume increases.
These costs will be on PMG for most of 2008.

Research and development costs amounted to $1,175,450 in 2007 for the eight
months we owned InnoZen. This includes $847,336 in research and development cost
which was acquired in the acquisition of InnoZen. The remainder is primarily
testing services incurred in product development.

OTHER (INCOME) EXPENSE
----------------------
Interest expense declined substantially in 2007 and is primarily the interest on
capital leases on InnoZen. All notes in the Company in 2006 were converted into
common stock by the end of 2006.

The beneficial conversion feature related to a $500,000 loan in 2006 that was
immediately convertible into common stock. Accordingly, the beneficial
conversion feature was expensed when the note was funded.

Interest income increased to $72,481 from $8,137, primarily due to higher
average cash balances during the year.

NEW ACCOUNTING STANDARDS

There are several new accounting pronouncements issued by the Financial
Accounting Standards Board ("FASB") which are not yet effective. Each of these
pronouncements, as applicable, has been or will be adopted by the Company.
Management does not believe any of these accounting pronouncements has had or
will have a material impact on the Company's financial position or operating
results.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measures". This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, expands disclosures about fair
value measurements, and applies under other accounting pronouncements that
require or permit fair value measurements. SFAS No. 157 does not require any new
fair value measurements. However, the FASB anticipates that for some entities,
the application of SFAS No. 157 will change current practice. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007, which for us would
be our fiscal year beginning January 1, 2008. We are currently evaluating the
impact of SFAS No. 157 but do not expect that it will have a material impact on
our financial statements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." This statement permits entities to
choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. SFAS No. 159
is effective for fiscal years beginning after November 15, 2007, which for the
Company would be its fiscal year beginning January 1, 2008. The Company is
currently evaluating the impact of SFAS No. 159, but does not expect that it
will have a material impact on its financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS 160").
SFAS 160 establishes accounting and reporting standards for the noncontrolling
interests in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160
is effective on January 1, 2009 for us. We are currently evaluating the impact
of adopting SFAS 160.

CRITICAL ACCOUNTING POLICIES

The SEC issued Financial Reporting Release No. 60, "Cautionary Advice Regarding
Disclosure about Critical Accounting Policies" ("FRR 60"), suggesting companies
provide additional disclosure and commentary on their most critical accounting
policies. In FRR 60, the SEC defined the most critical accounting policies as
the ones that are most important to the portrayal of a company's financial
condition and operating results, and require management to make its most

difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this definition our
most critical accounting policies include the valuation of intangibles, which
affects their amortization and impairment calculations and stock-based
compensation. The methods, estimates and judgments we use in applying these most
critical accounting policies have a significant impact on the results we report
in our consolidated financial statements.

INTANGIBLE ASSET VALUATION - The determination of the fair value of certain
acquired assets and liabilities is subjective in nature and often involves the
use of significant estimates and assumptions. Determining the fair values and
useful lives of intangible assets requires the exercise of judgment. We may use
our common stock to acquire assets and may use the Black-Scholes valuation
method or another acceptable method to determine a valuation for the stock. The
Black-Scholes valuation method calculates a volatility factor for the stock
price and extrapolates a valuation using these criteria. This valuation method
has generally proven effective for companies with established markets for their
common stock; however, due to the lack of an established trading market for our
common stock, in the opinion of management, this may result in an unduly high
valuation for the stock.

STOCK-BASED COMPENSATION - We record the fair value of stock-based compensation
to outside consultants as an operating expense. Historically, we have not
recorded expenses relating to stock options granted to employees with an
exercise price greater than or equal to market price at the time of grant. We
have reported pro-forma net loss and loss per share in accordance with the
requirements of SFAS 123 and SFAS 148. This disclosure shows net loss and loss
per share as if we had accounted for our employee stock options under the fair
value method of those statements. Pro-forma information is calculated using the
Black-Scholes pricing method on the date of grant. This option valuation model
requires input of highly subjective assumptions. Because our employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing model may
not necessarily provide a reliable single measure of fair value of our employee
stock options. We did not have any stock-based compensation during 2005;
however, we did have stock-based compensation in 2006 and expect to have
stock-based compensation in the future.

In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based Payment"
(SFAS 123(R)). Among other things, SFAS 123(R) requires expensing the fair value
of stock options, previously optional accounting. For transition, upon adoption
on January 1, 2006, SFAS 123(R) required expensing any unvested options and also
required us to change the classification of certain tax benefits from option
deductions to financing rather than operating cash flows.

OFF-BALANCE SHEET ARRANGEMENTS

The Company maintains its corporate office in the office of its accountant at no
cost to the Company.

Enlyten has an operating lease for its office in Amherst, New York. The lease is
for a three-year term beginning on February 1, 2007, expiring January 31, 2010
and covers 2,182 square feet.

InnoZen leases its office and current manufacturing facility in Woodland Hills,
California. The lease expires on January 1, 2010 and has a one-year renewal
option.

The Company leases a new manufacturing facility in Ventura, California which
contains approximately 25,000 square feet. The lease term is from December 1,
2007 through January 31, 2015. No rent is due for January and February 2008
while the Company is working on equipment installation. This is the planned
facility to be occupied by PMG.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

Payments due by Period (000's)
--------------------------------------------------
Total Year 1 Year 2-3 Year 4-5 Over 5 years
------ ------ -------- -------- ----------
Operating lease obligations:
Enlyten office lease $ 61 $ 29 $ 32 $ -- $ --
InnoZen facility 303 144 159
PMG facility 1,401 157 389 408 447
------ ------ -------- -------- ----------
1,765 330 580 408 447
====== ====== ======== ======== ==========
Capital lease obligations:
InnoZen equipment 213 213 -- -- --
InnoZen software 107 23 47 37 --
------ ------ -------- -------- ----------
$ 320 $ 236 $ 47 $ 37 $ --
====== ====== ======== ======== ==========

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8: FINANCIAL STATEMENTS

The Consolidated Financial Statements of HealthSport, Inc. and Subsidiaries
together with the report thereon of Creason & Associates, P.L.L.C. for the years
ended December 31, 2007 and 2006, is set forth as follows:

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm 22
Consolidated Balance Sheets 23
Consolidated Statements of Operations 24
Consolidated Statements of Stockholders' Equity (Deficit) 25
Consolidated Statements of Cash Flows 26
Notes to Consolidated Financial Statements 28

CREASON & ASSOCIATES, P.L.L.C.
7170 S. Braden Ave., Suite 100
Tulsa, OK 74136-6333

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------

Board of Directors and Stockholders
HealthSport, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of HealthSport,
Inc. and Subsidiaries as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended December 31, 2007 and 2006. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HealthSport, Inc.
and Subsidiaries at December 31, 2007 and 2006, and the results of their
operations and their cash flows for the years ended December 31, 2007 and 2006,
in conformity with accounting principles generally accepted in the United States
of America.

The accompanying consolidated financial statements have been prepared assuming
that HealthSport, Inc. and Subsidiaries will continue as a going concern. As
discussed in Note 14 to the consolidated financial statements, HealthSport, Inc.
has established its business of manufacturing and sale of electrolyte strips.
However, there can be no assurance that the Company can obtain sufficient
revenues to fund its operations and commitments or will be able to obtain
sufficient funding to conduct its business plan. These conditions raise
substantial doubt about HealthSport, Inc.'s ability to continue as a going
concern. Management's plans regarding these matters are also described in Note
14. The consolidated financial statements do not include any adjustments that
may result from the outcome of these uncertainties.

/s/ Creason & Associates, P.L.L.C.

Tulsa, Oklahoma
April 11, 2008

HEALTHSPORT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2007 AND 2006
2007 2006
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 167,323 $ 318,144
Accounts receivable (less allowance of $2,000 in 2007) 107,312 --
Stock subscription receivable 22,500 250,000
Inventory 1,402,530 145,742
Prepaid expenses and other assets 711,745 3,750
Note receivable - InnoZen, Inc. -- 250,000
------------ ------------
Total current assets 2,411,410 967,636
------------ ------------
Property and equipment, net 636,370 --
Patent costs and other intangible costs, net 20,308,545 1,898,506
Goodwill, net 10,326,948 1,785,998
Deposits 21,524 --
------------ ------------
Total assets $ 33,704,797 $ 4,652,140
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,037,172 $ 47,189
Accrued expenses 114,903 10,659
Current portion of capital lease obligations 217,954 --
Deferred revenue 696,096 --
------------ ------------
Total current liabilities 2,066,125 57,848
------------ ------------
Capital lease obligations, less current portion 70,963 --
------------ ------------
Total liabilities 2,137,088 57,848
------------ ------------
Commitments and contingencies

Stockholders' equity:
Preferred stock: $2.75 par value; authorized
2,000,000 shares no shares issued and outstanding -- --
Common stock: $.0001 par value; authorized
500,000,000 shares; 42,898,397 and 19,331,945
shares issued and outstanding at December
31, 2007 and 2006, respectively 4,290 1,933
Additional paid-in capital 67,980,373 29,452,595
Intrinsic value of common stock options (2,860,229) (1,151,711)
Common stock warrants -- 1,200
Accumulated deficit (33,556,725) (23,709,725)
------------ ------------
Total stockholders' equity 31,567,709 4,594,292
------------ ------------
Total liabilities and stockholders' equity $ 33,704,797 $ 4,652,140
============ ============

See accompanying notes to consolidated financial statements.

HEALTHSPORT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2007 AND 2006

2007 2006
------------ ------------
REVENUE
Product sales $ 305,461 $ 1,137
License fees, royalties and services 133,363 --
------------ ------------
TOTAL REVENUES 438,824 1,137
------------ ------------

COSTS AND EXPENSES:
Cost of product sold 228,933 548
General and administrative expenses 3,405,808 590,603
Marketing and selling expense 2,427,980 --
Non-cash compensation 2,484,042 119,625
Manufacturing costs 617,665 --
Research and development cost 1,175,450 --
Asset impairments and abandonments -- 1,491
------------ ------------
TOTAL COSTS AND EXPENSES 10,339,878 712,267
------------ ------------
LOSS FROM OPERATIONS (9,901,054) (711,130)
OTHER (INCOME) EXPENSE:
Interest expense 18,427 424,802
Beneficial conversion feature of convertible debenture -- 400,000
Interest income (72,481) (8,137)
------------ ------------
Other (income) expense, net (54,054) 816,665
------------ ------------
NET LOSS BEFORE MINORITY INTEREST (9,847,000) (1,527,795)
------------ ------------
MINORITY INTEREST -- 89,748
------------ ------------
NET LOSS $ (9,847,000) $ (1,617,543)
============ ============

NET LOSS PER SHARE, BASIC AND DILUTED $ (0.28) $ (0.32)
============ ============

WEIGHTED AVERAGE SHARES OUTSTANDING,
BASIC AND DILUTED 34,594,588 4,989,225
============ ============

See accompanying notes to consolidated financial statements.

HEALTHSPORT, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 2007 and 2006
INTRINSIC
VALUE OF
ADDITIONAL COMMON COMMON
COMMON STOCK PAID-IN STOCK STOCK ACCUMULATED
SHARES PAR CAPITAL WARRANTS OPTIONS DEFICIT TOTAL
------------ ----------- ------------ --------- ----------- ------------ ------------
Balance, December 31, 2005 657,288 $ 66 $ 17,421,758 $ 1,200 $ -- $(22,271,678) $ (4,848,654)
Common stock issued for:
Acquisition of Health
Strip Solutions 1,425,000 143 2,771,107 -- -- -- 2,771,250
Acquisition of Cooley
Nutraceuticals 375,000 37 806,213 -- -- -- 806,250
Settlement and sale of
Idea Management Group 65,000 6 295,834 -- -- -- 295,840
Convertible debentures 14,879,574 1,488 5,521,867 -- -- -- 5,523,355
Acounts payable 741,000 74 151,385 -- -- -- 151,459
Services 389,083 39 781,675 -- (768,500) -- 13,214
Cash proceeds 550,000 55 549,945 -- -- -- 550,000
Stock subscription 250,000 25 249,975 -- -- -- 250,000
Beneficial conversion
feature of convertible
notes payable -- -- 400,000 -- -- -- 400,000
Common stock options -- -- 502,836 -- (502,836) -- --
Amortize intrinsic value of
common stock options -- -- -- -- 119,625 -- 119,625
Net loss -- -- -- -- -- (1,438,047) (1,438,047)
------------ ----------- ------------ --------- ----------- ------------ ------------
Balance, December 31, 2006 19,331,945 1,933 29,452,595 1,200 (1,151,711) (23,709,725) 4,594,292
Common stock issued for:
Acquisition of InnoZen, Inc. 18,249,952 1,825 27,373,103 -- -- -- 27,374,928
Cash proceeds 4,951,500 495 6,542,550 -- -- -- 6,543,045
Stock subscription 15,000 2 22,498 -- -- -- 22,500
Stock awards 115,000 11 316,989 -- -- -- 317,000
Roayalty agreements 136,000 14 203,986 -- -- -- 204,000
Fix website and tradename 50,000 5 73,995 -- -- -- 74,000
Accounts payable 49,000 5 53,995 -- -- -- 54,000
Common stock warrants --
expired -- -- 1,200 (1,200) -- -- --
Intrinsic value of common
stock options:
Granted -- -- 3,939,462 -- (3,939,462) -- --
Amortization -- -- -- -- 1,536,423 -- 1,536,423
Reclassify unamortized
stock awards -- -- -- -- 694,521 -- 694,521
Net loss -- -- -- -- -- (9,847,000) (9,847,000)
------------ ----------- ------------ --------- ----------- ------------ ------------
Balance, December 31, 2007 42,898,397 $ 4,290 $ 67,980,373 $ -- $(2,860,229) $(33,556,725) $ 31,567,709
============ =========== ============ ========= =========== ============ ============

See accompanying notes to consolidated financial statements.

HEALTHSPORT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2007 AND 2006

2007 2006
----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(9,847,000) $(1,617,543)
Adjustment to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 989,167 16,605
Amortization of non-cash stock compensation 2,484,042 119,625
Acquired research and development cost 847,336 --
Common stock issued for services -- 13,214
Beneficial conversion feature of convertible promissory note -- 400,000
Minority interest -- 89,748
Asset impairments -- 1,491
Change in assets and liabilities:
Accounts receivable (90,654) --
Inventory (955,436) (145,742)
Prepaid expenses and other assets (300,075) 12,389
Accounts payable 694,573 193,039
Accrued expenses 205,886 433,970
----------- -----------
Net cash used in operating activities (5,972,161) (483,204)
----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Loans to InnoZen, Inc. prior to acquisition (500,000) (250,000)
Cash received in excess of cash paid in acquisition of InnoZen, Inc. 16,832 --
Legal fees associated with acquisition of Cooley Neutracuticals, Inc. (15,811) --
Acquisition of property and equipment (325,585) --
----------- -----------
Net cash used in investing activities (824,564) (250,000)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds -- 500,000
Collect stock subscription receivable 250,000 --
Capital lease payments (38,856) --
Loan repayment- related party (108,285) --
Sale of common stock 6,543,045 550,000
----------- -----------
Net cash provided by financing activities 6,645,904 1,050,000
----------- -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (150,821) 316,796
CASH AND CASH EQUIVALENTS, beginning of year 318,144 1,348
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 167,323 $ 318,144
=========== ===========

See accompanying notes to consolidated financial statements.

HEALTHSPORT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED DECEMBER 31, 2007 AND 2006

2007 2006
------------ ----------

SUPPLEMENTAL CASH FLOW INFORMATION

CASH PAID FOR INTEREST AND INCOME TAXES:
Interest $ 18,427 $ --
Income taxes -- --

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for:
Prepaid royalty agreements $ 204,000 $ --
Fix website and tradename 74,000 --
Stock subscription 22,500 --
Investment in Health Strip Solutions, LLC -- 2,771,250
Investment in Cooley Nutraceuticals, Inc. -- 806,250
Convertible notes and accrued interest -- 5,523,355
Accounts payable 54,000 151,459
Accounts payable and Idea Management Group, Inc. -- 295,840
Value of common stock options granted -- 502,836
Cancellation of common stock warrants 1,200 --
Acquisition of InnoZen, Inc.
Current assets, excluding cash 584,993 --
Property and equipment 471,188 --
Goodwill and other intangible assets 27,643,918 --
Research and development 847,336 --
Other assets 10,583 --
------------
Total assets 29,558,018 --
Liabilities assumed (1,449,922) --
Liabilities to HealthSport, Inc. (750,000) --
------------
Purchase price (net assets acquired) 27,358,096 --
Common stock issued (27,374,928) --
------------
Cash acquired in excess of cash paid 16,832 --
============

See accompanying notes to consolidated financial statements.

HEALTHSPORT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
HealthSport, Inc. ("HealthSport") and its wholly owned subsidiaries,
Enlyten, Inc. ("Enlyten"), InnoZen, Inc. ("InnoZen"), Health Strip
Solutions, LLC ("Health Strip"), Cooley Nutraceuticals, Inc.
("Nutraceuticals"), World Championship Poker, Inc. ("Poker"), Strategic
Gaming Consultants, LLC ("Gaming") and Maxx Motorsports, Inc. ("Maxx")
and Maxx's wholly owned subsidiary, Team Racing Auto Circuit, LLC
("TRAC"), collectively referred to as "the Company," "we," "us," or
"the Companies". All significant inter-company balances and
transactions have been eliminated in consolidation. Development of the
Company's film strip product containing electrolytes represents the
principal continuing operations of the Company.

On April 24, 2006, the Company filed a Definitive Information Statement
pursuant to Section 14C which provided that effective May 15, 2006; 1)
the Company's name would be changed to HealthSport, Inc.; 2) the
Company's issued and outstanding shares would be reverse-split one
share for each 200 shares; and 3) the Company's Certificate of
Incorporation would be restated to reflect these amendments. These
amendments were approved by the Company's Board of Directors and in
writing by 52.33% of the Company's shareholders on March 31, 2006.
Accordingly, effective May 15, 2006, the Company's name was changed to
HealthSport, Inc., the Company's shares were reverse-split one for 200
and the Company's Certificate of Incorporation was restated to reflect
these amendments. The change in outstanding shares and all references
to shares have been retroactively restated for all periods included in
this financial statement.

On May 4, 2007, the Company completed the acquisition of InnoZen
through a merger of InnoZen with InnoZen Acquisition Sub, Inc.
("Acquisition Sub"), the Company's wholly owned subsidiary, all
Delaware corporations, in exchange for 18,249,952 shares of the
Company's common stock. In accordance with Delaware General Corporate
Law and pursuant to the terms and conditions of the Merger Agreement,
Acquisition Sub was merged with and into InnoZen, after which, InnoZen
became the Company's wholly owned subsidiary and continues as the
surviving corporation and the separate existence of Acquisition Sub
ceased.

InnoZen is the preeminent formulator, developer and manufacturer of
edible thin film strips that deliver drug actives and was the first
company to deliver a drug active ingredient in a thin film strip when
it completed the development of Chloraseptic(R) Sore Throat Relief
Strips in June 2003. With Chloraseptic Relief Strips, InnoZen
established a new process which prevented irritants and incorporated
additional compounds to make the strips more suitable for various drug
delivery needs. Relying on its expertise in the development of edible
film strips that deliver drug actives, InnoZen moved forward with its
proprietary technology to develop two new thin film strip products for
cough. InnoZen launched its two new film strip products under its own
Suppress(R) brand (http://www.suppress.com) in September 2004.

The acquisition was accounted for using the purchase method of
accounting and, accordingly, the consolidated statements of operations
include the results of InnoZen beginning May 4, 2007. The assets
acquired and the liabilities assumed were recorded at estimated fair
values as determined by the Company's management based on information
currently available and on current assumptions as to future operations.

ORGANIZATION
HealthSport was originally incorporated on July 25, 1985 in Delaware,
and currently has the following wholly owned subsidiaries:

o Enlyten, a Nevada corporation organized on November 28, 2006;
o Health Strip, a Nevada limited liability corporation
organized on February 13, 2006; acquired 80% on March 29,
2006, 10% on December 21, 2006 and the remaining 10% on
December 27, 2006;
o Nutraceuticals, a Nevada corporation organized on November
17, 2006; acquired on December 6, 2006;
o InnoZen, a Nevada corporation organized on May 30, 2002;
acquired on May 4, 2007;
o Maxx, a Delaware corporation acquired on May 15, 2001 and
currently inactive;
o Poker, a Nevada corporation acquired on June 28, 2005 and
currently inactive; and
o Gaming, a Nevada limited liability corporation organized on
November 8, 2004, and never activated.

NATURE OF BUSINESS
HealthSport is a holding company with six wholly owned subsidiaries.

Enlyten was formed to market and sell the Companies edible file strip
products.

Health Strip in conjunction with InnoZen holds the proprietary
technology for the formulation of a thin film electrolyte strip and has
filed a provisional patent for this process. Electrolytes such as those
found in Health Strip's ENLYTEN(TM) SPORTSTRIPS along with water, can
be used in oral rehydration therapy to replenish the body's electrolyte
levels after dehydration caused by exercise, diarrhea or vomiting.
Health Strip and InnoZen also hold the proprietary technology for
ENLYTEN(TM) SURVIVAL STRIPS which are formulated with antioxidants,
non-cavity causing sweeteners, vitamins, herbal extractS, electrolytes,
caffeine and other proven beneficial compounds.

Nutraceuticals holds the proprietary technology for the formulation of
a nutritional supplement that quickly and effectively provides natural
energy enhancers, caffeine, electrolytes, antioxidants and other
essential vitamins and minerals. In conjunction with InnoZen,
Nutraceuticals has designed our formulation to supply the body with a
healthy boost in energy, while replenishing and maintaining the
essential vitamins and minerals lost during activity, after a long
flight, bad night of sleep or over indulgence of alcohol.
Nutraceuticals has also designed a formulation which includes caffeine,
electrolytes, antioxidants and other essential vitamins and minerals
which is designed specifically for fast, effective and safe relief for
those individuals who incorporate social drinking in their lifestyle.

On June 28, 2005, the Company acquired Poker. The Company initiated
sales of a proprietary fantasy football format during September 2005
and believed it had completed the development stage on that date.
However, as a result of the late start in marketing the program, the
Company returned all fees collected and cancelled the season. The
Company then re-instituted the development stage for its businesses
from the original inception date of September 9, 2004. While the
Company may elect to operate the fantasy football program for the 2008
or later season, the principal focus of the Company will be on
development, marketing and distribution of the electrolyte strip
products. The Company impaired the goodwill associated with Poker to
the $50,000 amount which was determined to be the fair value of the
investment at December 31, 2005. No additional impairment was
considered necessary at December 31, 2007.

Gaming was assigned no value when acquired and is currently inactive.

Idea Management Group, Inc. ("IMGI") was a concept development company
that internally created projects in the fields of professional sports,
motion pictures, publishing, licensed merchandise and other
entertainment products for distribution into the global marketplace.
IMGI was sold to a former CEO during 2006.

Maxx, through its wholly owned subsidiary, TRAC, planned to develop,
own, operate, and sanction an automotive racing league designed to
provide content for television and tracks while expanding the existing
base of racing fans. This operation was discontinued on August 26,
2003.

On May 15, 2006, the Company changed its name to HealthSport, Inc. On
November 8, 2004, the Company changed its name to Idea Sports
Entertainment Group, Inc. On May 15, 2001, the Company changed its
name from Logisoft Corp. to Team Sports Entertainment, Inc.

CASH AND CASH EQUIVALENTS
The Company considers all cash on hand, cash in banks and all highly
liquid debt instruments purchased with a maturity of three months or
less to be cash and cash equivalents.

REVENUE RECOGNITION
Revenue from product sales is recognized when the related goods are
shipped and all significant obligations have been satisfied. Revenue
from services is recognized when the services are performed. At
December 31, 2007, the Companies had $512,500 in deferred license fee
revenue and $183,596 received on product orders which have not shipped.
The deferred license fee revenue will be recognized when earned and the
product revenue will be recognized when the product is shipped.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Trade accounts receivable are recorded at the invoiced amount and do
not bear interest. The allowance for doubtful accounts is the Company's
best estimate of the amount of probable credit losses in the Company's
existing accounts receivable. The Company determines the allowance
based on historical write-off experience and reviews its allowance for
doubtful accounts quarterly. Account balances are charged off against
the allowance when the Company believes it is probable the receivable
will not be recovered.

INVENTORY
Inventories consist of finished electrolyte strip products,
work-in-process and raw materials, and are stated at the lower of
average cost or market.

CONCENTRATION OF CREDIT RISK
Cash is maintained at financial institutions. The Federal Deposit
Insurance Corporation ("FDIC") insures accounts at each institution for
up to $100,000. At times, cash balances may exceed the FDIC insurance
limit of $100,000.

STOCK OPTION PLANS
Until December 31, 2005, the Company accounted for stock-based employee
compensation arrangements in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees" and complied with the disclosure provisions
of SFAS No.123, "Accounting for Stock-Based Compensation." Under APB
No. 25, employee compensation cost was recognized over the vesting
period based on the excess, if any, on the date of grant of the fair
value of the Company's shares over the employee's exercise price. When
the exercise price of the employee share options was less than the fair
value price of the underlying shares on the grant date, deferred stock
compensation was recognized and amortized to expense in accordance with
Financial Accounting Standards Board ("FASB") Interpretation No. 44
over the vesting period of the individual options. Accordingly, if the
exercise price of the Company's employee options equaled or exceeded
the market price of the underlying shares on the date of grant, no
compensation expense was recognized. Options or shares awards issued to
non-employees are valued using the fair value method and expensed over
the period services are provided.

In December 2004, the FASB issued SFAS 123(R), "Share-Based Payment,"
which requires that the compensation cost relating to share-based
payment transactions (including the cost of all employee stock options)
be recognized in the financial statements. That cost will be measured
based on the estimated fair value of the equity or liability
instruments issued. SFAS 123(R) covers a wide range of share-based
compensation arrangements including share options, restricted share
plans, performance-based awards, share appreciation rights, and
employee share purchase plans. SFAS 123(R) replaces SFAS 123,
"Accounting for Stock-Based Compensation," and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees." As originally
issued, SFAS 123 established as preferable a fair-value-based method of
accounting for share-based payment transactions with employees.
However, that pronouncement permitted entities to continue applying the
intrinsic-value model of APB Opinion 25, provided that the financial
statements disclosed the pro forma net income or loss based on the
preferable fair-value method. This statement is effective as of the
first reporting period that begins after December 15, 2005.
Accordingly, the Company adopted SFAS 123(R) in the 1st quarter of
2006. Thus, the Company's financial statements reflected an expense for
(a) all share-based compensation arrangements granted on or after
January 1, 2006 and for any such arrangements that are modified,
cancelled, or repurchased after that date, and (b) the portion of
previous share-based awards for which the requisite service had not
been rendered as of that date, based on the grant-date estimated fair
value. The Company had no unvested options outstanding on January 1,
2006, and the option and stock awards granted during 2006 were included
in the financial statements as required by SFAS 123(R).

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because HealthSport's options have
characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion the existing
models may not necessarily provide a reliable single measure of the
fair value of HealthSport's options.

DEFERRED INCOME TAXES
Deferred income taxes are provided for temporary differences between
financial and tax reporting in accordance with the liability method
under the provisions of SFAS No. 109, "Accounting for Income Taxes." A
valuation allowance is recorded to reduce the carrying amounts of
deferred tax assets unless management believes it is more likely than
not that such assets will be realized.

EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share are calculated under the provisions of
SFAS No. 128, "Earnings per Share" ("SFAS No. 128"), requires the
Company to report both basic earnings per share, which is based on the
weighted-average number of common shares outstanding, and diluted
earnings per share, which is based on the weighted-average number of
common shares outstanding plus all potentially dilutive shares
outstanding. At December 31, 2007 and 2006, all exercisable common
stock equivalents were antidilutive and are not included in the
earnings (loss) per share calculations. Accordingly, basic and diluted
earnings per share are the same for all periods presented.

ESTIMATES
The preparation of consolidated 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.

RECENT ACCOUNTING PRONOUNCEMENTS
There are several new accounting pronouncements issued by the Financial
Accounting Standards Board ("FASB") which are not yet effective. Each
of these pronouncements, as applicable, has been or will be adopted by
the Company. Management does not believe any of these accounting
pronouncements has had or will have a material impact on the Company's
financial position or operating results.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measures".
This Statement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles,
expands disclosures about fair value measurements, and applies under
other accounting pronouncements that require or permit fair value
measurements. SFAS No. 157 does not require any new fair value
measurements. However, the FASB anticipates that for some entities, the
application of SFAS No. 157 will change current practice. SFAS No. 157
is effective for fiscal years beginning after November 15, 2007, which
for us would be our fiscal year beginning January 1, 2008. The Company
is currently evaluating the impact of SFAS No. 157 but does not expect
that it will have a material impact on its financial statements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities." This statement permits
entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be
measured at fair value. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007, which for the Company would be its
fiscal year beginning January 1, 2008. The Company is currently
evaluating the impact of SFAS No. 159, but does not expect that it will
have a material impact on its financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No.
51" ("SFAS 160"). SFAS 160 establishes accounting and reporting
standards for the noncontrolling interests in a subsidiary and for the
deconsolidation of a subsidiary. SFAS 160 is effective on January 1,
2009 for the Company. The Company is currently evaluating the impact of
adopting SFAS 160.

PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is recorded using the straight-line method
over the estimated useful lives of the respective assets (generally
three to seven years). Maintenance and repairs are charged to
operations when incurred. Betterments and renewals are capitalized.
When property and equipment are sold or otherwise disposed of, the
asset account and related accumulated depreciation account are
relieved, and any gain or loss is included in operations.

FAIR VALUE DETERMINATION
Financial instruments consist of cash, marketable securities, accounts
and notes receivable, accounts payable, accrued expenses and short-term
borrowings. The carrying amount of these financial instruments
approximates fair value due to their short-term nature or the current
rates at which the Company could borrow funds with similar remaining
maturities.

GOODWILL, PATENT COSTS AND OTHER INTANGIBLE COSTS
The Company records goodwill and intangible assets arising from
business combinations in accordance with SFAS No. 141 "Business
Combinations" ("SFAS 141") which requires that the purchase method of
accounting be used for all business combinations initiated after June
30, 2001. SFAS 141 also specifies the criteria applicable to intangible
assets acquired in a purchase method business combination to be
recognized and reported apart from goodwill.

The Company accounts for goodwill and intangible assets in accordance
with SFAS 142. In accordance with SFAS 142, the Company no longer
amortizes goodwill. SFAS 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead
be tested at least annually for impairment. SFAS 142 also requires that
intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values,
and be reviewed for impairment.

SHIPPING AND HANDLING COSTS
Shipping and handling costs are reported in selling and marketing costs
in the accompanying consolidated statements of operations. These costs
amounted to $28,017 in 2007 and none in 2006.

ADVERTISING COSTS
The Company expenses advertising costs as incurred. The Company
recorded advertising costs of $740,985 and $26,721 for the years ended
December 31, 2007 and 2006, respectively.

RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
year presentation.

NOTE 2: ACQUISITIONS
------------

INNOZEN, INC.
-------------

Current assets, excluding cash and cash equivalents $ 584,993
Property and equipment 471,188
Other assets 10,583
Intangible assets 19,102,968
Goodwill 8,540,950
Research and development cost 847,336
------------
Total assets 29,558,018
Liabilities assumed (1,449,922)
Liabilities to HealthSport (750,000)
------------
Purchase price (net assets acquired) 27,358,096
Common stock issued (27,374,928)
------------
Cash acquired in excess of cash paid $ 16,832
============

Unaudited pro forma results of operations for the years ended December 31, 2007
and 2006, as if the Company and InnoZen had been combined as of the beginning of
the periods follows. The pro forma results include estimates and assumptions
which management believes are reasonable. However, pro forma results are not
necessarily indicative of the results that would have occurred if the business
combination had been in effect on the dates indicated, or which may result in
the future.

2007 2006
------------ ------------
Net revenues $ 849,119 $ 823,937
Net loss (10,400,865) (3,571,337)

Net loss per share, basic and diluted $ (0.26) $ (0.15)

The audited financial statements for InnoZen, Inc. for the two years ended
December 31, 2006 are included as an exhibit to Form 8-K/A dated May 4, 2007 and
filed on September 20, 2007.

HEALTH STRIP

On March 29, 2006, the Company entered into a Unit Purchase Agreement with the
majority of the unit holders of Health Strip to acquire 80% of Health Strip in
exchange for 500,000 shares of the Company's common stock. Health Strip, in
conjunction with InnoZen, holds certain proprietary technology and trade secrets
for the formulation of a film strip product containing electrolytes to replenish
the body while under physical stress (the "electrolyte strip"). Health Strip had
contracted with InnoZen to manufacture its electrolyte strip product prior to
its acquisition on May 4, 2007.

At the time it was acquired, Health Strip did not have any tangible assets or
liabilities, but it did have the trade secret for an electrolyte replenishment
system and the rights to file for a patent of this process. Accordingly, Health
Strip recorded $1,125,000 as an intangible asset for trade secret costs, 80% of
which is equal to the value of the Company's common stock issued on the date of
the transaction. The Company commenced amortization of its total trade secret
costs in July 2006 over seventeen years. The Company will periodically evaluate
the unamortized balance of the trade secret costs and record an impairment loss
if warranted.

During December 2006, the Company issued 925,000 shares of its common stock to
acquire the remaining 20% of Health Strip, which was valued at $1,871,250, based
upon the trading price of the Company's stock on the acquisition date. This
amount was reduced by the book value of the associated minority interest of
$135,252 and the resulting $1,735,998 was recorded as goodwill.

NUTRACEUTICALS

On December 6, 2006, the Company issued 375,000 shares of its common stock to
acquire 100% of Nutraceuticals. At the time it was acquired, Nutraceuticals had
a receivable for $3,750 and did not have any liabilities, but it did have
certain proprietary technology and trade secrets for the formulation of a
nutritional supplement that quickly and effectively provides natural energy
enhancers, caffeine, electrolytes, antioxidants and other essential vitamins and
minerals. In conjunction with InnoZen, Nutraceuticals has designed the Company's
formulation to supply the body with a healthy boost in energy, while
replenishing and maintaining the essential vitamins and minerals lost during
activity, after a long flight, bad night of sleep or over indulgence of alcohol.
This transaction was recorded based upon the trading price of the Company's
common stock on the date of the purchase and the resulting $806,250 was
allocated $3,750 to accounts receivable and $802,500 to an intangible asset for
trade secret costs. The Company commenced amortization of the trade secret costs
over seventeen years, the life in January 2007. The Company will periodically
evaluate the unamortized balance of the trade secret costs and record an
impairment loss if warranted.

In June 2007, the Company issued 50,000 shares of its common stock, valued at
$74,000, and a warrant to acquire 50,000 shares of its common stock at $2.25 per
share to acquire the trade name for HANGOVER FIX(R), FIX STRIPS(TM) and the
website and related domain names.

INACTIVE OPERATIONS

POKER
-----
On June 28, 2005, the Company issued 19,250 shares of its common stock, which
were valued at $295,544 using the Black-Scholes valuation model, to acquire
Poker, whose principal asset is the rights to a proprietary fantasy football
format, with the working title, Vegas Roll'em(TM) Fantasy Football ("Vegas
Roll'em"). Poker recorded the investment of $295,544 as goodwill. While the
CompaNY may still pursue the project for the 2008 season or later, its principal
focus is on the electrolyte strip products. The Company elected to impair its
investment in the goodwill associated with Poker to the $50,000 amount
determined to be the fair value of the investment at December 31, 2005. The
Company believes no additional impairment is required at December 31, 2007.

IMGI
----
On September 9, 2004, the Company acquired all of the issued and outstanding
common stock of IMGI in exchange for warrants to acquire 75,000 shares of its
common stock at an exercise price of $20 per share. IMGI is a South Carolina
corporation organized on July 28, 2004 and had no prior operations. This
transaction was valued at $1,200, which was the amount the sellers of IMGI paid
for IMGI's common stock. The warrants expired in 2007.

Effective August 29, 2006, the Company issued 65,000 shares of its common stock
to a former CEO of the Company and transferred the stock of IMGI, including
liabilities of $295,840 to the former CEO. The liabilities included $291,913
which the former CEO claimed was due to him and affiliates for costs advanced in
the original formation of IMGI.

GAMING
------
On October 27, 2004, the Company acquired all of the issued and outstanding
memberships of Gaming in exchange for warrants to acquire 3,750 shares of its
common stock at an exercise price of $20 per share. Gaming had no prior
operations and had no assets. Accordingly, the transaction was recorded with no
value. Gaming has never been activated. The warrants expired in 2007.

NOTE 3: INVENTORY
---------

Inventory at December 31, 2007 and 2006, consists of the following:

2007 2006
---------- ----------
Raw materials $ 395,239 $ --
Work in progress 169,016 --
Finished goods 838,275 145,742
---------- ----------

Total $1,402,530 $ 145,742
========== ==========

NOTE 4: NOTE RECEIVABLE - INNOZEN, INC.
-------------------------------

On December 26, 2006, the Company loaned InnoZen $250,000 pursuant to the letter
of intent to acquire InnoZen executed on December 20, 2006. The loan was
interest free for a term of 210 days. An additional $500,000 was loaned to
InnoZen by May 4, 2007 and upon completion of the acquisition on that date, the
loan became a part of the intercompany balance which eliminates in
consolidation.

NOTE 5: PROPERTY AND EQUIPMENT
----------------------

Property and equipment at December 31, 2007 consists of the following (none at
December 31, 2006):

SUBJECT TO
CAPITAL
TOTAL LEASE
------------ -----------
Office furniture and equipment $ 83,393 $ --
Computer software 101,150 99,172
Manufacturing equipment 487,578 416,695
Leasehold improvements 39,561 38,880
------------ -----------
711,682 554,747
Accumulated depreciation (75,312) (55,683)
------------ -----------
$ 636,370 $ 499,064
============ ===========

NOTE 6: INTANGIBLE ASSETS
-----------------

The Company accounts for goodwill and intangible assets in accordance with SFAS
142. Goodwill and other intangible assets are tested annually, at a minimum, for
impairment. Patent costs are amortized over their life of seventeen years from
the date the patent application is filed. Patent costs include the costs
allocated to the proprietary technology for the formulation of thin film
electrolyte strip products and associated legal costs. Trade secrets include
costs allocated to our formulations and are being amortized over seventeen
years. Trademarks represent the cost of acquired trademarks, which are not being
amortized. Client lists represents the cost of acquired client lists which are
being amortized over five years.

The Company's intangible assets consist of the following at December 31, 2007
and 2006:

2007 2006
------------ -----------
Patent costs and other intangible assets:
Patent and trade secret costs $ 19,155,124 $ 1,931,716
Trademarks 1,188,365 --
Client lists 846,000 --
Web site 65,675 --
------------ -----------
21,255,164 1,931,716
Accumulated amortization (946,619) (33,210)
------------ -----------
Net $ 20,308,545 $ 1,898,506
============ ===========

Goodwill $ 10,326,948 $ 1,785,998
============ ===========

At December 31, 2007, accumulated amortization includes $828,176 for patent and
trade secret costs, $112,800 for client lists and $5,643 for web site costs. At
December 31, 2006, all accumulated amortization is for patent and trade secret
costs.

NOTE 7: CAPITAL LEASES
--------------

During the year ended December 31, 2005, InnoZen entered into a sale-leaseback
agreement, under which it sold certain manufacturing equipment and leased it
back for a period of three years. The leaseback was accounted for as a capital
lease and no gain was recognized on the transaction. In 2007, the Company
entered into a five year lease agreement for manufacturing software. The
following is a schedule by years of future minimum lease payments under capital
leases together with the present value of the net minimum lease payments as of
December 31, 2007 (none at December 31, 2006).

Total minimum lease payments:
Year ended December 31, 2008 $ 236,772
Year ended December 31, 2009 23,352
Year ended December 31, 2010 23,352
Year ended December 31, 2011 23,352
Year ended December 31, 2012 13,622
---------
320,450
Amount representing interest (31,533)
---------
Present value of minimum lease payments 288,917
Less current obligations (217,954)
---------
Non-current obligations under capital lease $ 70,963
=========

The leases cover equipment and software with a cost of $554,747 and accumulated
depreciation of $55,683 at December 31, 2007.

NOTE 8: CONVERTIBLE PROMISSORY NOTES
----------------------------

Activity in convertible promissory notes for the year ended December 31, 2006 is
as follows (none at December 31, 2007):

Accrued
Principal Interest
----------- -----------
Balance, January 1, 2006 $ 4,530,309 $ 68,244
Loan proceeds 500,000 --
Accrued interest -- 424,802
Converted to common stock (5,030,309) (493,046)
----------- -----------
Balance, December 31, 2006 $ -- $ --
=========== ===========

In June 2006, the Company issued a 12%, one-year convertible promissory note
payable for $500,000 and received advances on this loan in the amount of
$448,600 in June 2006 and $51,400 in October 2006. The note is convertible into
restricted common shares at the rate of $1.00 per share. Management has
determined that this note qualifies as conventional convertible debt pursuant to
APB No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants" and EITF 98-5, "Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios" and
accordingly the embedded conversion option is not a derivative. The Company
computed a beneficial conversion value of $400,000 based on the quoted stock
price on the grant date of $1.80 per share. The $400,000 was credited to
additional paid-in capital and charged to interest expense when the agreement
was funded since the convertible promissory note could be converted upon
issuance.

At the end of September 2006, the Company issued 14,362,500 shares of its common
stock for convertible promissory notes in the principal amount of $4,530,309
plus accrued interest of $475,972. These convertible promissory notes included a
provision which reduced the conversion price per share to the lowest price the
Company received from the sale of its common stock while the notes were
outstanding. Prior to the notes being converted to common stock, the Company
sold common stock at a price below the price at which all of these notes were
converted. Accordingly, SFAS No. 84 "Induced Conversions of Convertible Debt,"
does not apply to the conversion of these notes. At the end of December 2006,
the Company issued 517,074 shares of its common stock for the remaining
convertible debenture of $500,000 principal and accrued interest of $17,074.

NOTE 9: INCOME TAXES
------------

HealthSport has not recorded a deferred tax benefit or expense for the years
ended December 31, 2007 and 2006, as all net deferred tax assets have a full
valuation allowance.

Actual income tax benefit applicable to net loss before income taxes is
reconciled with the "normally expected" federal income tax as follows:

2007 2006
------------ ------------
"Normally expected" income tax benefit $ 3,348,000 $ 549,900
Increase (decrease) in taxes resulting from:
State income taxes net of federal income
tax benefit 325,000 53,400
Nondeductible meals and entertainment (8,400) (200)
Valuation allowance (3,664,600) (603,100)
------------ ------------
Actual income tax expense $ -- $ --
============ ============

The net deferred taxes at December 31, 2007 and 2006 are comprised of the
following:

Net operating loss carryforward $ 14,321,900 $ 10,657,300
Start-up cost carryforward 827,600 827,600
------------ ------------
15,149,500 11,484,900
Valuation allowance (15,149,500) (11,484,900)
------------ ------------
Net deferred tax asset $ -- $ --
============ ============

HealthSport has available unused net operating loss carryforwards and
capitalized start-up costs of $40,456,000 which will expire in various periods
from 2008 to 2027, some of which may be limited as to the amount available on an
annual basis.

NOTE 10: COMMON STOCK OPTIONS AND WARRANTS
---------------------------------

In April 2000, HealthSport adopted its 2000 Stock Option Plan (the "2000 Plan")
and the Company's Board of Directors approved the same. HealthSport shareholders
approved the 2000 Plan in April 2001. The 2000 Plan was established to advance
the interests of HealthSport and its stockholders by attracting, retaining and
motivating key personnel. The Board of Directors, or a committee that it
appoints, is authorized to grant options to purchase the common stock of
HealthSport, not to exceed an aggregate of 15,000 shares. The Board of
Directors, or a committee that it appoints, is also authorized to establish the
exercise price and vesting terms of individual grants under the 2000 Plan. The
2000 Plan terminates in April 2010.

On October 18, 2006, HealthSport adopted its 2006 Stock Option Plan (the "2006
Plan") and the Company's Board of Directors and shareholders approved the 2006
Plan. The 2006 Plan was established to advance the interests of HealthSport and
its stockholders by attracting, retaining and motivating key personnel. The
Board of Directors, or a committee that it appoints, is authorized to grant
options to purchase the common stock of HealthSport, not to exceed an aggregate
of 5,000,000 shares. The Board of Directors, or a committee that it appoints, is
also authorized to establish the exercise price and vesting terms of individual
grants under the 2006 Plan. The 2006 Plan terminates on October 18, 2011.

Options granted under the 2000 Plan or the 2006 Plan (collectively the "Plans")
may be either "incentive stock options" intended to qualify as such under the
Internal Revenue Code, or "non-qualified stock options." HealthSport expects
that most options granted pursuant to the Plans will be subject to vesting over
a three or four-year period, such as 25% increments on each annual grant date
anniversary, during which the optionee must continue to be an employee of
HealthSport. The Board or the committee, if applicable, may choose to impose
different vesting requirements or none at all. Options outstanding under the
Plans have a maximum term of up to ten years.

The Plans also provide that all options that are not vested will become vested
upon a change in control, unless the options are either assumed or substituted
with equivalent options. In addition, unvested options become vested, after a
change in control, if an optionee is subject to involuntary termination other
than for cause during that optionee's remaining vesting period after a change in
control. The Plan further provides that all options will be forfeited 30 days
after employment terminates or six months in the case of death or disability.

A summary of stock option activity under the Plans during the years ended
December 31, 2007 and 2006 is as follows.

2007 2006
--------------------- ----------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
---------- -------- ---------- ----------
Outstanding, beginning of year 100,000 $ 2.25 7,500 $ 200.00

Granted 3,505,390 1.51 100,000 2.25
Exercised -- -- -- --
Forfeited/expired -- -- (7,500) 200.00

---------- ----------
Outstanding, end of year 3,605,390 $ 1.53 100,000 $ 2.25
========== ==========
Options exercisable at year end 3,585,390 $ 1.53 100,000 $ 2.25
Shares available for grant 1,409,610 4,915,000

In addition, as of December 31, 2007 and 2006, fully-vested options to acquire
510,000 shares and 325,000 shares of the Company's common stock were outstanding
at an average exercise price of $2.07 and $1.86, respectively. These options
were granted to consultants and are not issued pursuant to the Plans.

On September 9, 2004, the Company issued 75,000 warrants to acquire its common
stock at $20, to acquire IMGI. The warrants expired on August 31, 2007.

On November 15, 2004, the Company issued 3,750 warrants to acquire its common
stock at $20, to acquire Gaming. The warrants expired on November 15, 2007.

Data concerning stock options at December 31, 2007 and 2006 follows:

Options Outstanding
---------------------
Weighted-
Average Number
Number Remaining of
of Contractual Options
Exercise Price Options Life (years) Exercisable
-------------- ------- ------------ -----------

Year ended December 31, 2007
--------------------------------------------------------
$0-1.10 100,000 1.70 100,000
$1.36-1.50 2,980,390 2.37 2,980,390
$2.20-2.41 975,000 1.91 975,000
$2.50-2.70 60,000 3.33 40,000

Year ended December 31, 2006
------------------------------------------------------
$ 1.10 100,000 2.75 100,000
2.20 225,000 2.65 225,000
2.25 100,000 2.83 100,000

The fair value of each option on the date of grant is estimated using the Black
Scholes option valuation model. The following weighted-average assumptions were
used for options granted during the year ended December 31, 2007 and 2006:

2007 2006
---- ----

Expected term 1-5 years 2-3 years
Expected average volatility 103.77% 146.12%
Expected dividend yield 0% 0%
Risk-free interest rate 4.75% 4.75%
Expected annual forfeiture rate 0% 0%

NOTE 11: STOCKHOLDERS' EQUITY
--------------------

PREFERRED STOCK--The Company is authorized to issue up to 2,000,000 shares of
Series A non-voting, cumulative preferred stock with a par value of $2.75. At
December 31, 2007, no preferred stock was issued or outstanding.

A 6% cumulative dividend would be payable quarterly to stockholders of record on
the last day of the month prior to the dividend date. The Series A preferred
stock has a liquidation preference over HealthSport's common stock as well as
any other classes of stock established by HealthSport.

COMMON STOCK - The Company is authorized to issue up to 500,000,000 shares of
common stock with a par value of $.0001. At December 31, 2007, 42,898,397 shares
were issued and outstanding.

REVERSE-SPLIT OF COMMON STOCK - Effective May 15, 2006, pursuant to shareholder
approval the Company's shares were reverse-split one share for each 200 shares
outstanding.

INTRINSIC VALUE OF COMMON STOCK OPTIONS - Intrinsic value of common stock
options includes the computed fair value of the compensation element of common
stock options for employees, consultants and directors. This cost is being
amortized over the average expected exercise period.

COMMON STOCK TRANSACTIONS - 2007
--------------------------------

o 18,249,952 shares of common stock were issued to acquire 100% of
InnoZen, which was valued at $27,374,928;
o 4,951,500 shares of common stock were issued for net cash proceeds
of $6,543,045;
o 15,000 shares of common stock were issued for a stock subscription
receivable of $22,500 which was collected in January 2008;
o 115,000 shares of common stock were issued to employees and
consultants as stock awards valued at $317,000;
o 136,000 shares of common stock were issued for royalty agreements
valued at $204,000;
o 50,000 shares of common stock were issued for the Fix website and
tradenames, valued at $74,000;
o 49,000 shares of common stock were issued for accounts payable in
the amount of $54,000.

COMMON STOCK TRANSACTIONS - 2006
--------------------------------

o 1,425,000 shares of common stock were issued to acquire 100% of
Health Strip which was valued at $2,771,250;
o 375,000 shares of common stock were issued to acquire
Nutraceuticals which was valued at $806,250;
o 65,000 shares of common stock were issued to a former CEO and
director to settle a claim for reimbursement of $291,913 in costs
which were claimed to have been advanced in the formation of IMGI,
in addition, IMGI was also transferred to the former CEO with a
total valuation of $295,840;
o 14,879,574 shares of common stock issued for convertible notes
payable and accrued interest of $5,523,355;
o 741,000 shares of common stock issued for accounts payable of
$151,459;
o 389,083 shares of common stock issued for $13,214 in current
services and $768,500 in services to be performed over the next
two years;
o 550,000 shares of common stock issued for $550,000 in cash; and
o 250,000 shares of common stock issued for a stock subscription
receivable in the amount of $250,000, which was collected on
January 8, 2007.

NOTE 12: RELATED PARTY TRANSACTIONS
--------------------------

2007 TRANSACTIONS
-----------------

InnoZen repaid a loan to a principal shareholder and affiliate in the amount of
$108,285 after the acquisition of InnoZen was completed.

2006 TRANSACTIONS
-----------------

Effective August 20, 2006, the Company issued 65,000 shares of its common stock
to a former CEO of the Company and transferred the stock of IMGI, including
liabilities of $295,840 to the former CEO. The liabilities included $291,913
which the former CEO claimed was due to him and affiliates for costs advanced in
the original formation of IMGI.

During the year ended December 31, 2006, the Company had three different
part-time CEOs. In aggregate they were paid $16,000 during the year.

NOTE 13: COMMITMENTS AND CONTINGENCIES
-----------------------------

The Company maintains its corporate office in the office of its accountant at no
cost to the Company.

In January 2007, the Company executed a three-year lease agreement for 2,182
square feet of office space in Amherst, New York for the Enlyten office.

InnoZen leases its office and current manufacturing facility in Woodland Hills,
California. The lease expires on January 1, 2010 and has a one-year renewal
option.

The Company leased a new manufacturing facility in Ventura, California which
contains approximately 25,000 square feet. The lease term is from December 1,
2007 through January 31, 2015. No rent is due for January and February 2008
while the Company is working on equipment installation. This is the facility
which PMG will occupy and the rent should be paid by PMG.

Future minimum lease payments for operating leases are: 2008 - $330,000; 2009 -
$381,000; 2010 - $199,000; 2011 - $202,000; 2012 - $206,000; and thereafter -
$447,000.

The Company has the following royalty agreements:

1. Royalty agreement expiring October 31, 2008 of 0.5% of sales of
the ENLYTEN(TM) SPORTSTRIPS. Annual minimum royalty of $18,000 and
maximum of $75,000;
2. Royalty agreement expiring October 31, 2008 of 0.5% of sales of
the ENLYTEN(TM) SPORTSTRIPS. Annual minimum royalty of $15,000 and
maximum of $50,000;
3. Royalty agreement for an indefinite period of 0.5% of sales of the
ENLYTEN(TM) SPORTSTRIPS. Annual minimum royalty of $36,000 and
maximum of $100,000;
4. Royalty agreement for an indefinite period of 1.0% of the first
$100,000,000 in sales of the ENLYTEN(TM) SPORTSTRIPS and 0.5% of
the next $150,000,000 in sales of the ENLYTEN(TM) SPORTSTRIPS.
5. Royalty agreement for an indefinite period of 1.0% of the first
$20,000,000 in sales of the FIX STRIPS and ENLYTEN(TM) ENERGY
strips and 0.5% of the next $80,000,000 in sales of the FIX STRIPS
and ENLYTEN(TM) ENERGY strips.

The Company had agreements in place for racing car design and construction, team
sales brokerage and broadcasting which were not formally terminated when the
Company discontinued these operations. The Company does not expect any
additional liability from these agreements.

NOTE 14: GOING CONCERN
-------------

On February 1, 2008 HealthSport and InnoZen executed a Limited Liability Company
Operating Agreement ("LLC Agreement") with Migami, Inc. ("Migami") for Pacific
Manufacturing Group, LLC ("PMG"). Among other things, the LLC Agreement calls
for Migami to contribute $3,000,000 in cash to PMG for its intended 48%
ownership and InnoZen licensed its technology to PMG for its 52% ownership. In
summary, the agreement provides that PMG will manufacture all strip and other
products for each member at cost plus 25%. As of April 8, 2008, $1,000,000 of
Migami's contribution has been received by PMG and the remainder is expected to
be received on or before April 30, 2008.

We currently anticipate that our only capital equipment requirements will be in
PMG for which the $3 million capital to be contributed by Migami should be
adequate to fund PMG's requirements.

NOTE 15: SUBSEQUENT EVENTS
-----------------

On February 1, 2008 HealthSport and InnoZen executed a Limited Liability Company
Operating Agreement ("LLC Agreement") with Migami, Inc. ("Migami") for Pacific
Manufacturing Group, LLC ("PMG"). Among other things, the LLC Agreement calls
for Migami to contribute $3,000,000 in cash to PMG for its intended 48%
ownership and InnoZen licensed its technology to PMG for its 52% ownership. In
summary, the agreement provides that PMG will manufacture all strip and other
products for each member at cost plus 25%. As of April 8, 2008, $1,000,000 of
Migami's contribution has been received by PMG and the remainder is expected to
be received on or before April 30, 2008.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A(T): CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports that are filed or submitted under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in the
reports that are filed under the Exchange Act is accumulated and communicated to
management, including the principal executive officer, as appropriate to allow
timely decisions regarding required disclosure. Under the supervision of and
with the participation of management, including the principal executive officer
and principal financial officer, the Company has evaluated the effectiveness of
the design and operation of its disclosure controls and procedures as of
December 31, 2007, and, based on its evaluation, our principal executive officer
and our principal financial officer have concluded that these controls and
procedures are effective.

(b) Changes in Internal Controls

There have been no significant changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of the
evaluation described above, including any corrective actions with regard to
significant deficiencies and material weaknesses.

The management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting and for the assessment of the
effectiveness of internal control over financial reporting. As defined by the
SEC, internal control over financial reporting is defined in Rule 13a-15(f) or
15d-15(f) promulgated under the Exchange Act as a process designed by, or under
the supervision of, the Company's principal executive and principal financial
officers and effected by the Company's board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. The
Company's internal control over financial reporting is supported by written
policies and procedures that: (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company's assets; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of the Company's management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material effect on the financial statements.

The Company's internal control system was designed to provide reasonable
assurance to the Company's management and board of directors regarding the
preparation and fair presentation of published financial statements. All
internal control systems, no matter how well designed, have inherent limitations
which may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of the Company's
internal control over financial reporting as of December 31, 2007. In making
this assessment, management used the framework set forth in the report entitled
"Internal Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or COSO. The COSO framework summarizes
each of the components of a company's internal control system, including (i) the
control environment, (ii) risk assessment, (iii) control activities, (iv)
information and communication, and (v) monitoring. Based on this evaluation,
management concluded that the Company's internal control over financial
reporting was not effective as of December 31, 2007, due primarily to a lack of
segregation of duties.

This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permits us to provide only management's report in this annual
report.

ITEM 9B: OTHER INFORMATION

Pursuant to General Instruction B of Form 8-K, any reports previously or in the
future submitted under Item 2.02 (Results of Operations and Financial Condition)
are not deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 and the Company is not subject to the liabilities of that
section, unless the Company specifically states that the information is to be
considered "filed" under the Exchange Act or incorporates it by reference into a
filing under the Securities Act or Exchange Act. If a report on Form 8-K
contains disclosures under Item 2.02, whether or not the report contains
disclosures regarding other items, all exhibits to such report relating to Item
2.02 will be deemed furnished, and not filed, unless the registrant specifies,
under Item 9.01 (Financial Statements and Exhibits), which exhibits, or portions
of exhibits, are intended to be deemed filed rather than furnished pursuant to
this instruction. The Company is not incorporating, and will not incorporate, by
reference these reports into a filing under the Securities Act of 1933, as
amended, or the Exchange Act of 1934, as amended.

On December 11, 2007, Daniel J. Kelly resigned as Acting CEO and M.E. "Hank"
Durschlag assumed this position while the Company sought a new CEO. On March 1,
2008, Robert Kusher became CEO and Mr. Durschlag resigned his position as Acting
CEO. The biographies of each of the above is included in Item 10 herein.

PART III

ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

EXECUTIVE OFFICERS AND DIRECTORS

The following section sets forth the names, ages and current positions with the
Company held by the Directors, Executive Officers and Significant Employees;
together with the year such positions were assumed. There is no immediate family
relationship between or among any of the Directors, Executive Officers or
Significant Employees, and we are not aware of any arrangement or understanding
between any Director or Executive Officer and any other person pursuant to which
he was elected to his current position. Each Executive Officer will serve until
he or she resigns or is removed or otherwise disqualified to serve, or until his
or her successor is elected and qualified. We currently have three Directors.

NAME AGE POSITION AND TERM
---- --- -----------------

Robert Kusher 44 CEO starting March 1, 2008

Daniel J. Kelly 46 Acting CEO and President starting January 1, 2007;
became a Director on May 2, 2007; resigned
as Acting CEO on December 11, 2007

Hank Durschlag 44 Director since September 11, 2006; acting CEO
from December 11, 2007 until March 1, 2008;
Acting CFO since December 11, 2007

Robert S. Davidson 41 Director since May 4, 2007; CEO of InnoZen, Inc.

Matthew Burns 38 Director since May 4, 2007; COO of HealthSport
since May 4, 2007

Michael D. Pruitt 47 Director since May 2, 2007

Gary Thomas 48 Vice President Sales, Enlyten since January 1, 2007.

ROBERT KUSHER - Mr. Kusher founded Hollywood Healthcare Corp. in 1998 with the
purpose of distributing pharmaceuticals and diabetes products via mail order to
patients nationwide. Under his leadership, the company has grown to become one
of the country's premier providers of insulin infusion pumps, diabetes specialty
products, and mail order pharmaceuticals. In 2001, the company changed its name
to Logimedix.

Previously, Mr. Kusher founded Home Medical Supply, Inc., which was the first
diabetes supply provider accepting Medicare assignment nationwide. Over the
course of ten years, he successfully expanded the company's service offerings to
include a pharmacy, a lab supply company, a home health nursing company and a
group physician practice. The company was a recognized leader in the industry
generating over $25 million in revenues when Mr. Kusher sold the company to
MiniMed, Inc. in 1997. Mr. Kusher joined MiniMed as Vice President and
Operations Manager for the Florida facility and assisted in the transition
process until he founded Hollywood Healthcare Corp. in 1998.

Mr. Kusher is active in the healthcare industry and is a founding member of the
Assisted Living Pharmacy Association, a for profit group purchasing organization
representing a network of pharmacies across the country. His other healthcare
related business ventures include Star Medical Distributors, LLC, a wholesale
provider of consumable medical supplies with facilities in Florida and Georgia
and two full body CT scanning centers in the Mid-Atlantic area that operate
under the name Virtual Physical. Mr. Kusher holds a Bachelor of Business
Administration Degree with an emphasis on management and marketing from Florida
International University.

DANIEL J. KELLY - Became Acting CEO and President on January 1, 2007. Mr. Kelly
began his business career approximately 20 years ago managing and advising Jim
Kelly, his brother and Pro Football Hall of Fame Quarterback. Mr. Kelly also
owns and serves as the President of Jim Kelly Enterprises, Inc., a company
started over 15 years ago. In 1988 Mr. Kelly negotiated the most lucrative
player contract in NFL history (at that time) for Jim. Mr. Kelly has 20 years
experience in marketing, promotions and celebrity endorsements and continues to
work with such companies as Coors, Miller Lite, LA Weightloss and Ameriquest.
Mr. Kelly received his bachelor's degree from the University of Houston and was
a prominent member of the NFL Quarterback Club, serving on the Sponsorship and
Marketing Committees that negotiated comprehensive, multi-year deals with major
US companies such as McDonalds, VISA, Footlocker and MBNA Bank. He is the vice
chairman of the Kelly for Kids Foundation.

HANK DURSCHLAG - was appointed a Director of the Company on September 11, 2006.
Mr. Durschlag is the co-developer of the Enlyten electrolyte sports strips and
co-authored the patent, "Edible Film for Transmucosal Delivery of Nutritional
Supplements". Mr. Durschlag has extensive experience in the fields of healthcare
and sports medicine, with specific emphasis on novel drug delivery systems. In
addition, Mr. Durschlag is a partner in Greenville, South Carolina based
GlucoTec, Inc., a developer and manufacturer of an FDA Class II Medical Device
designed to regulate blood glucose levels in an acute care setting via both
intravenous and subcutaneous delivery of insulin and other fluids. Mr. Durschlag
has also co-authored patents in this area. Previously, Mr. Durschlag served as
Vice President of Sales and Marketing for Diabetes Management Services, Inc., a
durable medical equipment distributor with specific treatment modules in women's
health and pregnancy. Mr. Durschlag holds a bachelors degree from California
University of Pennsylvania and an MBA from Clemson University.

ROBERT STEVEN DAVIDSON - Mr. Davidson has been the Company's Chairman of the
Board since May 4, 2007. Since May 2002, Mr. Davidson has also served as the
President, Chief Executive Officer and a director of InnoZen. From January 2002
through July 2005, Mr. Davidson was President and Chief Executive Officer of
Zengen, Inc. Mr. Davidson has over eight years of experience in the
biopharmaceutical industry. From September 1998 to December 2001, Mr. Davidson
was the chief executive officer of Gel Tech, L.L.C., where he raised capital for
the market launch and distribution of the Zicam product line. He led the
marketing team that took Zicam from an unknown entity to one of the top
medications in its class. He also implemented and launched line extensions to
strengthen the brand name and increase company value. From October 1994 to
August 1998, Mr. Davidson was the chief executive officer of Biotem
Cytotechnologies, Inc., a biopharmaceutical research and development company.
Mr. Davidson received his B.S. degree with a concentration in Biological Life
Sciences from The University of the State of New York, (Excelsior College). He
has a Masters Certificate in Applied Project Management from Villanova
University and received his Masters of Public Health (Homeland Security) from
American Military University, Virginia. Mr. Davidson is a certified Performance
Enhancement Specialist through the National Academy of Sports Medicine.

MATTHEW BURNS - Mr. Burns has served as the Chief Operating Officer and a
Director of the Company since May 4, 2007. Mr. Burns has also been an officer
and director of InnoZen since April 2004. Prior to joining InnoZen and its
parent Zengen, from July 2001 to February 2002, Mr. Burns was an associate
attorney at Morgan Lewis & Bockius, LLP, where he worked in the firm's business
and finance practice group in the Los Angeles office. Prior to joining Morgan
Lewis, Mr. Burns worked as an associate attorney in the corporate finance group
at Morrison & Foerster's San Francisco office. Prior to joining Morrison &
Foerster, Mr. Burns worked as an associate attorney in the corporate practice at
Holland & Knight in Tampa, Florida. His law practice concentrated on mergers and
acquisitions and corporate finance for companies in a variety of industries,
including life sciences and technology. Mr. Burns has also provided counsel to
public and private companies on general corporate law, corporate governance and
securities matters. Mr. Burns received his J.D. from Stetson University of
College of Law in 1995 and his B.A. in Finance from the University of South
Florida in 1992.

MICHAEL D. PRUITT - Michael Pruitt, a long-time entrepreneur with a proven track
record, possesses the expertise to evaluate potential investments, form key
relationships and recognize a strong management team. Mr. Pruitt founded Avenel
Financial Group, a boutique financial services firm concentrating on emerging
technology company investments. The business succeeded immediately, and in order
to grow Avenel Financial Group to its full potential and better represent the
company's ongoing business model, he formed Avenel Ventures, an innovative
technology investment and business development company. In the late 1980s, Mr.
Pruitt owned Southern Cartridge, Inc., which he eventually sold to
MicroMagnetic, Inc., where he continued working as Executive Vice President and
a Board member until Southern Cartridge was sold to Carolina Ribbon in 1992.
From 1992 to 1996, Mr. Pruitt worked in a trucking firm where he was
instrumental in increasing revenues from $6 million to $30 million. The firm was
sold in 1996 to Priority Freight Systems. Between 1997 and 2000, Mr. Pruitt
assisted several public and private companies in raising capital, recruiting
management and preparing companies to go public or be sold. He was the CEO,
President and Chairman of the Board of Onetravel Holdings, Inc. (formerly RCG
Companies), a publicly traded holding company formerly listed on the AMEX. Mr.
Pruitt received a Bachelor of Arts degree from Coastal Carolina University in
Conway, South Carolina, where he sits on the Board of Visitors of the Wall
School of Business. He is also Managing Director of Cain Capital Advisors. Mr.
Pruitt is currently CEO and director of Chanticleer Holdings, Inc. (CEEH.OB) and
CEO and director of Syzygy Entertainment, Ltd. (SYZG.OB).

GARY THOMAS - Gary Thomas joined Enlyten as Vice President and Director of Sales
in January 2007. Mr. Thomas has had 28 years experience in the sales industry.
For the 10 years prior to joining Enlyten, Mr. Thomas was with Acosta, the
world's largest food broker. From 2000 through the end of 2006, Mr. Thomas held
the position of Director of HBC/GM Northeast Region. He has managed such
accounts as Wegman's, Tops, Kinney Drug and CVS, and handled sales of such
product lines as Energizer, L'Oreal, Neutrogena and KAO Brands. Under Mr.
Thomas' supervision, Acosta recorded $200+ million in annual sales revenue.

AUDIT COMMITTEE

The Board of Directors had determined that Michael D. Pruitt met the
requirements of a financial expert and served as Chairman of the Audit Committee
since he became a director on May 2, 2007. Mr. Pruitt is independent as
specified in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act and meets
the requirements of a financial expert.

The registrant has a separately designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act, which is made up
solely of Mr. Pruitt since May 2, 2007.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's executive officers, directors and persons who own more than ten
percent of the Company's common stock to file initial reports of ownership and
changes in ownership with the SEC. Additionally, SEC regulations require that
the Company identify any individuals for whom one of the referenced reports was
not filed on a timely basis during the most recent fiscal year or prior fiscal
years. To the Company's knowledge, based solely on a review of reports furnished
to it, the Directors were late filing their Form 3s in 2007 when they became
Directors.

CODE OF ETHICS

The Company has completed a number of acquisitions since September 2004, the
largest being InnoZen in May 2007, and expects to include the adoption of a code
of ethics on its agenda during 2008.

NOMINATING COMMITTEE
The Company does not currently have a standing nominating committee or committee
performing similar functions. The full Board of Directors participates in the
consideration of director nominees.

ITEM 11: EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors deliberates executive
compensation matters to the extent they are not delegated to the Chief Executive
Officer.

The following table shows the compensation of the Company's Chief Executive
Officer and each executive officer whose total cash compensation exceeded
$100,000 for the three years ended December 31, 2007.

SUMMARY COMPENSATION TABLE
-------------------------------------------------------------------------------------------------
Stock Option All other
Name and principal Salary awards awards compensation Total
position Year ($) ($) ($) ($) ($)
-------------------------------------------------------------------------------------------------

Robert Kusher (CEO since 2007 N/A N/A N/A N/A N/A
March 1, 2008) 2006 N/A N/A N/A N/A N/A
2005 N/A N/A N/A N/A N/A

M.E. "Hank" Durschlag (d) 2007 $100,000 $ -- $ -- $ 2,810 $ 102,810
(Interim CEO from 12/11/07 to 2006 72,000 -- -- -- 72,000
3/1/08; Acting CFO since 2005 N/A N/A N/A N/A N/A
12/11/07)

Daniel J. Kelly (Acting CEO 2007 $203,646 $ 27,500 $289,200 $ -- $ 520,346
from January 1, 2007 until 2006 N/A $ 5,500 $ 5,910 $ 32,500 $ 43,910
December 11, 2007)(a) 2005 N/A N/A N/A N/A N/A

Robert S. Davidson (CEO of 2007 $120,250 $ -- $110,650 $ -- $ 230,900
InnoZen from May 4, 2007) (b) 2006 N/A N/A N/A N/A N/A
2005 N/A N/A N/A N/A N/A

Matthew Burns (COO of 2007 $120,250 $ -- $110,650 $ -- $ 230,900
HealthSport from May 4 2006 N/A N/A N/A N/A N/A
2007) (b) 2005 N/A N/A N/A N/A N/A

Gary Thomas (Vice President 2007 $117,708 $ 11,748 $ 33,192 $ -- $ 162,648
Sales of Enlyten since 2006 N/A N/A N/A N/A N/A
Juanuary 1, 2007)(c) 2005 N/A N/A N/A N/A N/A

(a) In 2007 and 2006, the amount for the stock award represents the
amortization of Mr. Kelly's 10% share of the stock granted to Jim
Kelly for his appearance fees. The option award represents the
amortization of the option granted to Mr. Kelly. All other
compensation in 2006 represents the amount paid to Jim Kelly
Enterprises, Inc. Mr. Kelly is owner and President of Jim Kelly
Enterprises, Inc. and was acting as a consultant to the Company
during 2006. At December 31, 2007, Mr. Kelly had $8,854 in accrued
salary not included in the table above.
(b) The option award for Mr. Davidson and Mr. Burns represents the
eight month amortization of the stock option granted to them upon
the purchase of InnoZen by HealthSport. The total amortization
period is three years. At December 31, 2007, Mr. Davidson and Mr.
Burns each had $3,083 in accrued salary not included in the table
above.
(c) The stock grant amount represents the amortization of the assigned
value of the stock grant, which is being amortized over two years.
The option award amount represents the amortization of the
assigned value of the option grant, which is being amortized over
two years. At December 31, 2007, Mr. Thomas has $2,083 in accrued
salary not included in the table above.

(d) Mr. Durschlag earned $2,810 in royalties on sales of the Enlyten
products.

Columns for bonus, non-equity incentive plan compensation and nonqualified
deferred compensation earnings have been omitted from the table above as all
amounts are zero.

NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE

Compensation levels and amounts are determined by the board of directors based
on amounts paid to executives in similar sized companies with similar
responsibilities. Stock options are valued utilizing the Black-Scholes valuation
method.

Mr. Kusher became Chief Executive Officer of the Company on March 1, 2008. Mr.
Kusher's compensation will be $240,000 per year for two years with benefits to
include health insurance, four weeks vacation and reimbursement of all
reasonable out-of-pocket expenses. Mr. Kusher is to be awarded 500,000 shares of
our common stock that vests when we receive $750,000 in debt or equity into the
Company from his efforts. Mr. Kusher has also been granted an option to purchase
1,000,000 shares of our common stock at an exercise price of $1.00 per share
which is exercisable on March 1, 2009 and an option to purchase 1,000,000 shares
of our common stock at an exercise price of $1.50 per share which is exercisable
on March 1, 2010. The options expire three years from the vesting date.

Mr. Kelly became President and Acting Chief Executive Officer of the Company on
January 1, 2007. Mr. Kelly's compensation for 2007 was $212,500 and he received
$1,000 per month insurance reimbursement until health insurance was available
for employees. Mr. Kelly's compensation increased to $262,500 in 2008. In
addition, Mr. Kelly was granted a stock option for 400,000 shares exercisable at
$2.25 per share in January 2007, which expires in three years. Mr. Kelly will
also be reimbursed for all reasonable out of pocket expenses.

M.E. "Hank" Durschlag became Interim CEO and Acting CFO on December 11, 2007.
Mr. Durschlag's compensation of $100,000 per annum did not change when he
assumed the temporary positions, while he assisted the Company in finding a
full-time CEO.

GRANTS OF PLAN BASED AWARDS TABLE AS OF DECEMBER 31, 2007
-------------------------------------------------------------------------------------------------------------
All other stock awards: All other option awards: Exercise or Grant date fair
number of shares number of securities Base price of value of stock and
Name/Date of stock or units (#) underlying options (#) Option awards option awards
-------------------------------------------------------------------------------------------------------------

Daniel J. Kelly - 400,000 $ 2.25 $ 531,109
January 1, 2007
Robert S. Davidson - 495,000 $ 1.36 $ 497,923
May 4, 2007
Matthew Burns - 495,000 $ 1.36 $ 497,923
May 4, 2007
Gary Thomas - 50,000 $ 2.25 $ 66,389
January 1, 2007
January 1, 2007 10,000 - - $ 23,500

Other required columns: estimated future payouts under non-equity incentive plan
awards and estimated future payouts under equity incentive plan awards are
omitted from the table as they are all zero.

NARRATIVE DISCLOSURE TO GRANTS OF PLAN BASED AWARDS TABLE

The award to Mr. Kelly was pursuant to his employment as President and Acting
CEO. The awards to Mr. Davidson and Mr. Burns were replacements for options they
had with InnoZen when it was acquired by the Company. The award to Mr. Thomas
was granted to him upon initial employment.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
--------------------------------------------------------------------------------
NUMBER OF SECURITIES
underlying unexercised
options (#) Option Option
--------------------------- exercise expiration
Name Exercisable Unexercisable price ($) date
--------------------------------------------------------------------------------

Daniel J. Kelly 100,000 - $ 1.10 September 12, 2009
Daniel J. Kelly 400,000 - $ 2.25 January 1, 2010
Robert S. Davidson 495,000 - $ 1.36 May 4, 2010
Matthew Burns 495,000 - $ 1.36 May 4, 2010
Gary Thomas 50,000 - $ 2.25 January 1, 2010

The columns for option awards - equity incentive plan awards: number of
securities underlying unexercised unearned options and all four stock award
columns are omitted from the table as these amounts were zero.

ADDITIONAL NARRATIVE DISCLOSURE

Mr. Kelly's option for 100,000 shares was granted while he was a consultant and
before he became President and Acting CEO on January 1, 2007. Mr. Kelly's second
option for 400,000 shares was granted when he became President and Acting CEO.
Mr. Davidson and Mr. Burns received options on May 4, 2007 to replace options
they had at InnoZen. The option for Mr. Thomas was granted upon his initial
employment. Mr. Kusher and Mr. Durschlag did not have any options at December
31, 2007.

Options exercised and stock vested table, pension benefits table and
nonqualified deferred compensation table and all omitted as there would have
been no information to include.

COMPENSATION OF DIRECTORS TABLE - ADDITIONAL NARRATIVE DISCLOSURE

Directors did not receive any compensation for the meetings they attend in 2007.
It is anticipated that a formal plan for compensation of Directors will be
instituted during 2008 or 2009.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table indicates all persons who, as of February 29, 2008, the most
recent practicable date, are known by us to own beneficially more than 5% of any
class of our outstanding voting securities. As of February 29, 2008, there were
42,898,397 shares of our common stock outstanding. Except as otherwise indicated
below, to the best of our knowledge, each person named in the table has sole
voting and investment power with respect to the securities beneficially owned by
them as set forth opposite their name.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

NAME AND ADDRESS OF AMOUNT AND NATURE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER % OF CLASS
-------------- ---------------- ---------------- ----------

Common Zengen, Inc. 10,717,900 24.98%

Common Tri-Strip Associates, LLC 2,393,962 5.58%

SECURITY OWNERSHIP OF MANAGEMENT

The following table indicates the beneficial ownership of the Company's voting
securities of all Directors of the Company and all Executive Officers who are
not Directors of the Company, and all officers and directors as a group, as of
February 29, 2008, the most recent practicable date. As of February 29, 2008,
there were 42,898,397 shares of the Company's common stock outstanding. Except
as otherwise indicated below, to the best of the Company's knowledge, each
person named in the table has sole voting and investment power with respect to
the securities beneficially owned by them as set forth opposite their name. All
options are currently exercisable, unless otherwise indicated.

NAME AND ADDRESS OF AMOUNT AND NATURE OF % OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER CLASS
-------------- ---------------- ---------------- -----

Common Robert Kusher - 0%
15851 SW 41st Street, #700
Davie, FL 33331

Common Daniel J. Kelly a 623,800 1.44%
495 Commerce Drive, Suite 1
Amherst, New York

Common M.E. "Hank" Durschlag 575,000 1.34%
5403 McChesney Dr
Charlotte, NC 28269

Common Robert S. Davidson b,c 586,867 1.35%
6429 Independence Ave
Woodland Hills, CA 91367

Common Matthew Burns b,c 497,000 1.15%
6429 Independence Ave
Woodland Hills, CA 91367

Common Michael D. Pruitt d 125,000 **
4201 Congress Street, Suite 145
Charlotte, NC 28277

Common Gary Thomas e 71,100 **
495 Commerce Drive, Suite 1
Amherst, New York

Common All current officers and directors
as a Group (6 persons) 2,478,767 5.90%

** Less than 1%.

a. Includes option granted in September 2006 for 100,000 shares
exercisable at $1.10 per share and option granted January 1, 2007
for 400,000 shares exercisable at $2.25 per share.

b. Includes three-year option for 495,000 shares each exercisable at
$1.36 which was granted on May 4, 2007, as a part of the
acquisition of InnoZen.

c. Does not include Mr. Davidson's approximate 6.15% interest in
Zengen, Inc.'s 10,717,900 shares (approximately 659,000 shares);
does not include Mr. Burns approximate 4.2% interest in Zengen,
Inc.'s 10,717,900 shares (approximately 454,000 shares).

d. Includes 125,000 shares owned by Chanticleer Holdings, Inc. of
which Mr. Pruitt is CEO and a director.

e. Includes three-year option for 50,000 shares exercisable at $2.25
which was granted on January 1, 2007.

EQUITY COMPENSATION PLANS
-------------------------------------
Approved by Not approved by
Security Holders Security Holders Total
---------------- ---------------- -------------
Number of securities to be issued
upon exercise of outstanding
options, warrants and rights 3,605,390 -- 3,605,390
Weighted-average exercise price of
outstanding options, warrants and
rights $ 1.53 $ -- $ 1.53
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities above) 1,409,610 -- 1,409,610

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

2007 TRANSACTIONS
-----------------

InnoZen repaid a loan to a principal shareholder and affiliate in the amount of
$108,285 after it was acquired by HealthSport.

2006 TRANSACTIONS
-----------------

Effective August 20, 2006, we issued 65,000 shares of our common stock to a
former CEO and transferred the stock of IMGI, including liabilities of $295,840
to the former CEO. The liabilities included $291,913 which the former CEO
claimed was due to him and affiliates for costs advanced in the original
formation of IMGI.

During the year ended December 31, 2006, we had three different part-time CEOs.
In aggregate they were paid $16,000 during the year.

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees - The aggregate fees billed as of March 31, 2008 for professional
services rendered by the Company's accountant was $75,300 and $31,900 for the
audit of the Company's annual financial statements and quarterly reviews for the
fiscal years ended December 31, 2007 and 2006, respectively.

Audit-Related Fees - None.

Tax Fees - None for 2007 or 2006.

All Other Fees - Other than the services described above, no other fees were
billed for services rendered by the principal accountant during fiscal 2007 or
fiscal 2006.

Audit Committee Policies and Procedures - The audit committee pre-approves audit
and review services.

If greater than 50 percent, disclose the percentage of hours expended on the
principal accountant's engagement to audit the registrant's financial statements
for the most recent fiscal year that were attributed to work performed by
persons other than the principal accountant's full-time, permanent employees -
Not applicable.

PART IV

ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

1. Financial Statements - The following consolidated financial
statements of HealthSport, Inc. and Subsidiaries are contained in
Item 8 of this Form 10-K:
o Report of Independent Registered Public Accountant
o Consolidated Balance Sheets at December 31, 2007 and 2006
o Consolidated Statements of Operations - For the years ended
December 31, 2007 and 2006
o Consolidated Statements of Stockholders' Equity (Deficit) -
For the years ended December 31, 2007 and 2006
o Statements of Cash Flows - For the years ended December 31,
2007 and 2006
o Notes to the Financial Statements

2. Financial Statement Schedules were omitted, as they are not
required or are not applicable, or the required information is
included in the Financial Statements.

3. Exhibits - The following exhibits are filed with this report or
are incorporated herein by reference to a prior filing, in
accordance with Rule 12b-32 under the Securities Exchange Act of
1934.

Exhibit Description
------- -----------

31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934
31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934
32.1 Certification of the Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
32.2 Certification of the Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

SIGNATURES

In accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

HEALTHSPORT, INC.

April 14, 2008 /s/ Robert Kusher
---------------------------------------
Robert Kusher, CEO
(Principal executive officer)

April 14, 2008 /s/ M.E. "Hank" Durschlag
---------------------------------------
M.E. "Hank" Durschlag, Acting CFO
(Principal accounting officer)

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

April 14, 2008 /s/ Robert Kusher
---------------------------------------
Robert Kusher, CEO

April 14, 2008 /s/ Robert S. Davidson
---------------------------------------
Robert S. Davidson, Director

April 14, 2008 /s/ M.E. "Hank" Durschlag
---------------------------------------
M.E. "Hank" Durschlag, Director

April 14, 2008 /s/ Daniel J. Kelly
---------------------------------------
Daniel J. Kelly, President and Director

April 14, 2008 /s/ Matthew Burns
---------------------------------------
Matthew Burns, Director and COO

April 14, 2008 /s/ Michael D. Pruitt
---------------------------------------
Michael D. Pruitt, Director