Execute Sports - Ready For A Run?

Execute Sports, Inc. progress has been very impressive this quarter. They've turned a 'product test order' with Kawasaki (the world leader in water sports) into 2nd, 3rd and 4th orders, which (fingers crossed) could turn into orders from Yamaha, SeaDoo and others. They have managed to get the core line, Execute Sports gear on celebrities and guest celebrities featured on HBO, ESPN, MTV and other popular networks, and to top it off, acquired the multi-million dollar power boat franchise, Sugar Sands
.

2008 revenues are expected to top $10 Million dollars! (2006 were just over 2 Million).

A quick look at the stock chart above shows that a lessor EXCS has been to higher hieghts.

A little of the longer term 'speculative' portfolio may play a bigger part in your overall returns than you think:

1 - Company New is better than ever.

2 - EXCS is on track to more than quadrupple 2006 revenues.

3 - The effects the Sugar Sand acqusition will ultimatley play.

4 - EXCS is coming into their HOT season (look at 2006).

As many know, one of the largest costs associated with running a business is advertising. A company has to constantly ask itself "How do we successfully get our product in front of a wider audience?" Well, there are traditional routes in advertising which are costly and successful or there are shortcuts. For instance, TV Shows!

How about this for advertising?

Execute Sports Inc. (OTCBB: EXCS) announced today that their products will be featured on television shows broadcasted by a number of popular networks including: HBO, Showtime, MTV, ESPN and the E channel.

This is being achieved via an agreement with Iconic Productions, under which Iconic becomes the exclusive supplier of Execute branded products for all television shows that the company produces on the above-mentioned media outlets.

Since ESPN recently attracted 11.1 million viewers during its Sept. 10 Monday Night Football double header and male ESPN viewers 18-34 watch the network on average of 49 minutes per day, inroads into T.V. advertising here alone would have been a major announcement. In addition, Showtime holds claim to about 14 million subscribers, close to half of HBO while MTV logged an average of 688,000 viewers during Q2 according to Nielson. While there is no relevant data currently accessible to us pertaining to E-Channel's viewer base, it's just icing on the cake.

An Automatic "IN" with the Target Market

Essentially, this agreement puts Execute branded products directly in front of millions more of its key target consumer population. Commenting on the alliance, Robert Lowery, co-founder and product placement coordinator of Iconic Productions stated, "The choice to use Execute products in all of our shows is because they are the newest and hottest brand in the wake and ski industry". Mr. Lowery also stated "We chose to use Execute products over many other brands because Execute has the image and quality of products that our viewers want to see".

For a company that feeds off of brand recognition, collaboration with Iconic and exposure on widely viewed television networks should fuel a measurable sales increase.

First the Sugar Sand acquisition, then the re-order from Kawasaki, and now this, times have never been better at EXCS, from a business perspective.

Kawasaki Orders Again

Execute Sports has an agreement in place with Kawasaki Motors Corp., under which the company is developing and producing a 2007 test line of Jet Ski® products. From where I stand, re-orders from Kawasaki and recent comments made by EXCS management indicate that the deal has been a smashing success and also that future collaboration between the two parties is likely to continue, possibly on a larger scale.

With management recently indicating that 2008 sales are on target to hit $10 million, Execute Sports now benefits from a more amplified sales presence than ever before. Even prior to the recent Sugar Sands purchase, EXCS was experiencing record sales growth. Online and brick & mortar sales continued to skyrocket as OEM sales thrived - which is always good to see.

Now, with the addition of the Sugar Sands sales network, the Kawasaki seal of approval, and exposure on major television channels, Celeste Berouty, Execute's President, who was recently snatched up from one of the company's biggest competitors (she was Director of Sales, Wetsuit Division at Body Glove Wetsuit Co.) is ready to take this company to the next level.

If companies such as Kawasaki, ESPN, HBO and MTV (who likely have a lot more business sense than most of us do!) are aligning themselves with Execute; that is reason enough for me!

Sugar Sand Acquistion Fully Executed

Execute Sports Inc. (OTCBB: EXCS) issued a press release today designed to update investors on the positive implications of its recent Sugar Sand Boats acquisition. The deal is obviously a winner for a number of reasons. In this edition, we'll explore why the pick-up should drive substantial growth for EXCS going forward.

Deal Makes Dollars. . . and Sense

For starters, I'd spend 5 to make 7 or 8 any day. That's exactly what's happening here. EXCS, which logged just over $2M in revenues during 2006 and is on pace for roughly $3M this year, pays $5M for a company that brings 2007 revenues to nearly $10M. Sold!

Execute Sports Inc. may just be scratching the surface however with a 400% year-over-year revenue increase. In addition to the near real-time revenue spike brought on by collaboration with Sugar Sand, increased cash flow opens the door for future acquisition and/or paying down debt to become cash flow positive.

Plain and simple, this is how companies grow. Build a successful business, seek funding, and acquire a synergistic organization. When the new and improved business comes to fruition, it's time to acquire another complementary entity. And so on, and so on. I'll take a potential multi-million dollar water sports conglomerate over a $2M one-trick pony, albeit a good one, any day.

Match Made in Heaven

The two highly synergistic entities complement one another perfectly and combine to form an increasingly diversified play in the $12B and growing action sports industry. Since both feed off one another, assuming water sport market conditions remain constant, consistent improvement should be seen over the next few years, both at the top and bottom line. In addition, the marriage of two burgeoning dealer/distributor networks and sales teams is a match made in heaven.

The recent growth of Execute's rapidly expanding network has been facilitated by the hire of Celeste Berouty, former Director of Sales, Wetsuit Division at Body Glove Wetsuit Co. With overall sales, Internet sales, and exposure in major media outlets reaching unprecedented highs, what a great idea it was to join forces with a company capable of helping sustain and improve on current growth. This is very positive to see management having the insight to identify, pursue, and purchase businesses with the proven ability to drive growth, even with the company performing at its peak.

Sugar Sand's sales/distribution network, which helped the company churn out 381 jet boats in 2006, benefits from an elite market image born from stellar third-party reviews, in addition to exposure and award winning displays in major international events. By aligning with Sugar Sand, EXCS will have access to a completely new group of consumers for which it can cross sell its rubber products.

Since federal and state laws mandate that all recreational boats carry one wearable PFD (Personal Flotation Device) for each passenger aboard and state laws across the country generally require that all kids under 12 wear one at all times, a distinct synergy is present between the two business segments.

I expect the synergy to drive more growth through building increased exposure for Execute branded products than through directly correlated sales. Think about it: even if Sugar Sand sells 400 boats and $200 worth of EXCS gear per boat, that's only $80,000 in sales for Execute. The idea here is that, hypothetically, if each new Sugar Sand boat comes equipped with 5 or so Execute Sports branded PFDs, that's 2,000 more boating enthusiasts using their gear. Furthermore, cross-branding at big time boating exhibitions in areas like Minnesota and Stockholm, puts a whole new world of eyes on the Execute brand.

Boating Market not Dead in the Water

E-Composites predicts that the global demand for recreational boats will reach approximately $33 billion in annual sales by 2010, representing an annual growth rate of 7%, or compound 5 year growth of 39.24%. When it comes to boating, what many Americans, particularly those located on the coast, fail to realize is that just because you don't see it, that doesn't mean it's not happening.

While many enjoy water sports along the country's coastlines, the majority of action takes place in the Lakes, Ponds, and sometimes even rivers of the U.S. Going forward, Execute will aggressively target the vast market of water sports participants not equipped with the luxury of living near the ocean. A few facts regarding the country's lakes include:

(1) There are 41 million acres of lakes and reservoirs in the U.S.;

(2) there are approximately 100,000 lakes larger than 100 acres in the U.S. excluding Alaska, which has several million;

(3) Beaches, rivers and lakes are the number one vacation choice for Americans, helping to support a flourishing recreation and tourism industry.

(4) Each year, Americans take over 1.8 billion trips to go fishing, swimming, boating, or to just relax around favorite water destinations;

(5) On average, the value of real estate along desirable water areas is nearly 30 percent greater than similar properties located inland.


Source: www.nalms.org/LakesAppreciationMonth/lakefacts.aspx

So there you have it, potential for 400% growth near-term, a world of new possibilities for the long haul, and it doesn't seem like the market has priced in, or even considered the implications of the recent deal. We'll provide more commentary on the perceived benefits of the Sugar Sand buyout as information becomes available. At a price of nearly two pennies, EXCS offers a great entry opportunity with a minimal investment.

Big Move By Execute Sports!

Well, summer vacation is officially over. Time to dust the sand off of your sandals, send the kids back to school and resume your position at your desk with coffee cup in hand. True to form, market activity is also here to make up for lost time. This week looks to be a busy one for those of returning and those of us sitting on the buy trigger button.

Start your engines!

In a blockbuster deal expected to bring annual revenues into the $12-$18 million range and facilitate future growth through acquisition, Execute Sports Inc. (OTCBB: EXCS) announced today that it has purchased the Sugar Sand jet boat line from Challenger Powerboats (OTCBB: CPWB).

Shares trended upwards roughly 15% in today’s trading in what I see as somewhat of a letdown, particularly as we didn’t even see a close of $.04, despite the potential $5 million inflow from the deal or more than $.07 per outstanding share.

Test Run Has Begun

The way I understand it, Execute has purchased Sugar Sand – a business that generated $7.7 million in revenue on net sales of 381 boats in 2006 -through a $5 million convertible debenture that does not mature until 2012.

The terms of the agreement states that Challenger will maintain responsibility for the manufacturing, sales, and marketing of Sugar Sand boats. CPWB also holds the option to buy back the brand in the future for a premium if deemed beneficial. Essentially, the deal is somewhat of a "test run" that will be utilized in order to derive the true value of Sugar Sand, which EXCS management estimates to be in the ballpark of $8 million annually.

If Sugar Sand does indeed prove to be worth its keep and does generate annual revenues in the $4-$8 million range, paying back the $5 million debenture and even becoming debt-free in the not-so-distant future becomes a distinct possibility for Execute.

For boat enthusiasts and investment speculators alike, Sugar Sand stands to be an impressive venture. Their line of boats includes, but is not limited to: The Sting (14 ft), the Tango Xtreme and Super Sport (16.5 ft); the Mirage and Mirage Fun and Fish (18 ft); the Calais (19.5 ft); and the Oasis (23 feet).

The Deal and its Impact

But what appeals to us most about this deal is it win-win situation. While EXCS acquires a synergistic brand that provides a powerful financial boost, CPWB becomes debt-free. Remember, U.S. law stipulates that all recreational boats must carry one wearable PFD for each person aboard and that each passenger under 12 years of age must wear a flotation device at all times.

Essentially, for every Sugar Sand jet boat that is sold, the company has the opportunity to sell a few additional PFDs - tack this on to the all-time record sales currently being recognized and we could be on to something huge here. Quite frankly, the deal is a no-brainer and a perfect compliment to Execute's current operations.

Commenting on the deal, Geno Apicella, CEO of Execute Sports, stated, "We have been exploring growth through synergistic acquisitions over the last several months. The Sugar Sand purchase will expand our product offering without the added responsibilities of managing a manufacturing process or marketing effort. The supply and marketing agreements will enable us to benefit from Challenger's operational expertise and existing sales network. This acquisition puts us on pace to approach approximately $10 million in sales for 2008. We will continue to search for other acquisition opportunities that are accretive to our P&L."

Remember how we mentioned that sustaining recent 44% quarterly growth would bring annual revenues to nearly $4 million? Factor in the Sugar Sand deal and we could be looking at year-over-year revenue increases of more like 500% versus 100%. Not too bad, especially since costs will be under control with CPWB doing the selling and building. How about that for increasing shareholder value?

Now we know EXCS has, as many other stocks have, floundered a bit over the summer. But with such well-planned, strategic business moves, we are looking at a diamond in the rough. As the market picks up and people take notice of the beginning of what proves to be a global watersports powerhouse, we think Execute is going to see at least a stock price double in the near term.