UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)

[x]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

                   For the fiscal year ended December 31, 2006

[ ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

               For the transition period from ________to ________

                        Commission file number 333-30158A

                         XStream Beverage Network, Inc.
                         ------------------------------
                 (Name of small business issuer in its charter)

                  Nevada                                      05-0547629
                  ------                                      ----------
      (State or other jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                      Identification No.)

       2 S. University Drive Suite 220
       Plantation, Florida                                       33324
       ------------------------------------                      -----
       (Address of principal executive offices)                (Zip Code)

Issuer's telephone number   954-473-0850

Securities registered under Section 12(b) of the Exchange Act:

       Title of each class           Name of each exchange on which registered
       -------------------           -----------------------------------------
               None                                 not applicable
        (Title of each class)

Securities registered under Section 12(g) of the Exchange Act:

                                      none
                                (Title of class)

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

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

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

      State issuer's revenues for its most recent fiscal year. $284,118 for the
12 months ended December 31, 2006.

      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 sold, or the average bid and asked prices of such common
equity, as of a specified date within the past 60 days. The aggregate market
value of the common equity held by non-affiliates computed at the closing price


<PAGE>

      State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date. As of March 31, 2007
56,511,900 shares of common stock are issued and outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

      If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) of the Securities Act of 1933 ("Securities Act"). Not Applicable.

      Transitional Small Business Disclosure Form (check one):  Yes [ ]  No [X]

       CERTAIN CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

       Certain statements in this annual report contain or may contain forward-
looking statements that are subject to known and unknown risks, uncertainties
and other factors which may cause actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These forward-looking
statements were based on various factors and were derived utilizing numerous
assumptions and other factors that could cause our actual results to differ
materially from those in the forward-looking statements. These factors include,
but are not limited to, our ability to implement our strategic initiatives,
economic, political and market conditions and fluctuations, government and
industry regulation, interest rate risk, U.S. and global competition, and other
factors. Most of these factors are difficult to predict accurately and are
generally beyond our control. You should consider the areas of risk described in
connection with any forward-looking statements that may be made herein. Readers
are cautioned not to place undue reliance on these forward-looking statements
and readers should carefully review this annual report in its entirety,
including the risks described in Part I - Item 1. Description of Business Risk
Factors." Except for our ongoing obligations to disclose material information
under the Federal securities laws, we undertake no obligation to release
publicly any revisions to any forward-looking statements, to report events or to
report the occurrence of unanticipated events. These forward-looking statements
speak only as of the date of this annual report, and you should not rely on
these statements without also considering the risks and uncertainties associated
with these statements and our business.

       When used in this annual report, the terms the "Company," "we", "our",
and "us" refers to the terms "XStream," " we," "our," and "us" refers to XStream
Beverage Network, Inc., a Nevada corporation, and our subsidiaries.

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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

OVERVIEW

         We develop, market, and sell new age beverage category natural sodas,
fruit juices and energy drinks. Following our acquisition in April 2003 of Total
Beverage Network, our focus was to build a network of small to medium sized
beverage distribution businesses in the Eastern United States, with the goal of
becoming a leading distributor of beverage products through multiple
distribution channels. Between April 2003 and July 2004, we acquired additional
beverage distribution companies together with a natural juice company and
certain intellectual property rights related to other beverage names.

         Our business strategy was predicated upon our ability to raise
sufficient working capital and acquisition funds concurrently with the expansion
of our business. While we raised capital from time to time, much of the capital
was in the form of debt and the amount of funding we received was not sufficient
for our working capital needs. During 2006, we were unable to meet our funding
requirements; consequently the Company was unable to execute its acquisition
plan successfully, nor did we have sufficient capital to fund our ongoing
operations and satisfy our debt obligations. In fiscal 2006, our distribution
operations in New England were non operational and our Hawaii operation recorded
some sales in the first quarter of fiscal year 2006 only, as we were unable to
manufacture products in Hawaii through lack of working capital. We also believe
that the increase in distribution costs, brought about by rising fuel prices,
has disadvantaged smaller beverage distributors like us, that deliver to a
larger number of smaller clients spread over relatively large sales territories.
Since our acquisition of the assets of Master Distributors in July 2004, we have
also lost some large third party beverages such as Hansen's Monster energy
drink. One Pepsi Cola distributor, covering essentially the same geographical
area as Master Distributors, was distributing the Rock Star brand energy drink.
According to their distribution agreement for Rock Star, they were prohibited
from distributing any competing brand of energy drinks. Subsequent to our
acquisition of Master Distributors, the Coca Cola Company acquired the Rock Star
brand and exercised their right to terminate the Rock Star distribution
agreement with the Pepsi-Cola distributor. Hansen's then terminated the Master
Distributor's agreement for the Monster brand of energy drinks to supply the
Pepsi distributor in anticipation of obtaining a wider distribution network
offered by Pepsi. Both of these events, which were beyond our control, adversely
impacted our revenues.

         As a result of the lack of sufficient capital to fund our ongoing
operations and following the sale of our Beverage Network of Maryland subsidiary
in January 2007 as discussed later in this section which historically
represented a significant portion of our revenues, we have adopted the sole
business strategy to remain as developers and marketers of new age beverage
category natural sodas, fruit juices and energy drinks. We will seek
distribution of our proprietary brands to our target markets, through
independent distributors and gain access to retail chains through direct
negotiation for sales of our products with each chain at a national or
semi-national level. However, as set forth elsewhere herein, we will need to
raise additional capital to continue our business operations.

OUR MARKET SEGMENT

         Our activities are focused in the new age and alternative beverage
segments of the beverage industry. New Age or alternative beverages are
distinguished from mainstream carbonated soft drinks by two key factors: they
tend to have less carbonation and are made from natural ingredients. As a
general rule, three criteria have been established for such a classification:

         *        relatively new introduction to the market-place;
         *        a perception by consumers that consumption is healthful when
                  compared to mainstream carbonated soft drinks; and
         *        the use of natural ingredients and flavors in the products.

         The new age beverage category includes non-carbonated ready-to-drink
iced teas, lemonades, juice cocktails, single serve juices, ready-to-drink iced
coffees, energy drinks, sports drinks, soy drinks and single-serve still water
(flavored and unflavored) with beverages, including sodas, that are considered
natural, as well as sparkling juices. Brand name products which are part of this
beverage category include natural juices and juice drinks such as Odwalla, Naked
Juice and Snapple, sports and energy drinks such as Gatorade and Red Bull,
bottled water and enhanced waters such as Evian and Vitamin Water, and ready-to-
drink teas such as Arizona Iced Tea.

OUR PROPRIETY PRODUCTS AND DISTRIBUTION ACTIVITIES

         Our proprietary brand portfolio is directed to consumers who prefer new
age beverage products to traditional carbonated soft drinks such as Coca-Cola,
Pepsi and 7-Up. Focusing in the New Age beverage category is an attractive
strategy to us because it is a high-growth segment of the beverage industry.
Industry research has proven that consumers will pay, and do pay, more for these
products, than carbonated soft drinks.

         During fiscal 2006 and 2005, sales of our proprietary brands
represented 24% and 25%, respectively, while third party brands represented 76%
and 75%, respectively, for the same fiscal periods.

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         Currently, our proprietary products include:

YOHIMBE ENERGY DRINK      Yohimbe Energy Drink is an energy drink similar in
                          taste and appearance to the market leader, Red Bull,
                          which is sold in 250ml cans.  The principal point of
                          difference is the addition of extract of "yohimbe", a
                          botanical believed to be associated with improved
                          blood supply to the muscles and a positive impact on
                          human libido.   Sales of Yohimbe Energy Drink
                          represented less than 1% and 1% of our total revenues
                          for the fiscal years ended December 31, 2006 and 2005,
                          respectively.

CHINESE ROCKET FUEL       Launched in the first quarter of 2005, Chinese Rocket
                          Fuel is also an energy drink that is similar in taste
                          and appearance to the market leader, Red Bull. The
                          principal point of difference is the addition of
                          extracts of Chinese herbs including Panax Ginseng and
                          Schizandra. Unlike Red Bull and Yohimbe, Chinese
                          Rocket Fuel is sold in 16 fl. oz. (476 mls) cans and
                          competes in this segment with energy drink brands such
                          as Hansen's Monster and Coca Cola's Rock Star. Sales
                          of Chinese Rocket Fuel represented less than 24% and
                          25% of our total revenues for the fiscal years ended
                          December 31, 2006 and 2005, respectively.

MAUI JUICE COMPANY        The products, which were launched in June 2005,
                          included a line of natural juices and juice blends
                          that contained no artificial ingredients,
                          preservatives or added color. The product range was
                          only available in Hawaii and included seven
                          traditional Maui Juice flavor varieties. There were no
                          sales of Maui Juice products represented in our
                          revenues for the fiscal years ended December 31, 2006
                          and 2005. With no product manufactured as of April
                          2006, we closed our Maui, Hawaii based plant for the
                          manufacture of the Maui Juice Company products because
                          we did not have sufficient working capital to purchase
                          raw materials or to make the monthly lease payments
                          for the facility. The nominal sales between January
                          and April, 2006 were recorded as a part of
                          discontinued operations. We will not seek to
                          re-introduce these products into the Hawaiian market
                          in the foreseeable future. Instead, we have
                          satisfactorily concluded the development of a shelf
                          stable range of Maui Juice Company branded juice
                          products for sale in the mainland United States.
                          Subject to the availability of sufficient working
                          capital, we intend to produce these products using
                          third party contract manufacturer facilities and
                          launch them sequentially in the major markets of the
                          mainland U.S. However, this will require additional
                          funds to execute this objective and at this time, we
                          do not have concrete plans to raise these necessary.

SQUEEZE                   Squeeze is a line of traditional carbonated soft
                          drinks, sometimes referred to as "Gourmet Sodas" that
                          are sweetened with cane sugar and have natural flavor
                          systems. This line of seven flavor varieties is sold
                          in "Old Fashioned" 12 ounce glass bottles. We did not
                          have sufficient working capital to produce and
                          distribute the Squeeze Soda brand products during
                          fiscal 2006 and 2005.

         The primary focus of our distribution effort will be through direct
sales to larger retailers, such as grocery stores and warehouse clubs (i.e.,
BJ's Wholesale or Costco), and wholesalers will become more critical to our
continued market penetration.

SEASONALITY

         Sales of ready-to-drink beverages are somewhat seasonal; however, we do
not expect this seasonality to have a material effect of our revenue stream
going forward, as, subject to the availability of sufficient working capital, we
intend to seek to build the distribution coverage of our brands and products and
enter new markets which we believe could alleviate seasonal variations in
revenue streams.

PRODUCT MANUFACTURING

         We rely on third party manufacturers to produce our Yohimbe, Chinese
Rocket Fuel and Squeeze branded products. The third party manufacturers use our
proprietary formulations and flavor ingredients in the production of our
products. At the time of production, one of our chemists observes the product
manufacture and production run, tests the finished beverage product and the
package integrity.

         In the case of unique flavor ingredients, we obtain the raw materials
for the manufacture of our products from several sources and arrange for the
direct delivery of these raw materials to the third-party manufacturer. For raw
materials commonly used in the manufacture of beverages similar to our products,


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such as sugar and citric acid, we obtain these directly from the third party
manufacturers to take advantage of cost savings available through bulk purchases
by the third party manufacturer. We normally pre-pay for the manufacture and for
the packaging materials. We own the finished inventory which is shipped to
distribution centers upon completion.

         We believe that there are several primary suppliers of raw materials
within the U.S. In addition, we believe that there are many manufacturers in the
U.S. that could manufacture any product we choose to produce. With the possible
exception of PET bottles for future Maui Juice Company products, we do not
anticipate having contracts with any entities or persons committing such
suppliers to provide the materials required for the production of our products.
We believe raw materials are plentiful worldwide.

NEW PRODUCT DEVELOPMENT PROGRAM AND RESEARCH AND DEVELOPMENT

         The New Age beverage category growth is largely sustained by the
constant addition of new products, brands and brand extensions. An integral part
of our strategy is to develop and introduce innovative products and packages.
The development time from the inception of the concept through product
development and testing to the manufacture and sale of the finished product, is
typically several months. Consumer research dictates what new product concepts
advance to the final stage of being produced for resale. To the extent that the
Company obtains sufficient capital, we intend to more actively pursue the
research and development, manufacture and distribution of our existing
proprietary brands along with new beverage products in fiscal 2007. During
fiscal 2006, we curtailed our research and development project to formulate new
Maui Juice brand shelf stable products which we intend to introduce on the U.S.
mainland in 2007. For the fiscal years ended December 31, 2006 and 2005 we spent
$24,185 and $51,541, respectively, on research and development activities. We
are unable to predict, at this time, what our research and development expenses
will be for fiscal 2007.

OUR HISTORY

         We were organized under the laws of the State of Nevada on February 1,
1989, under the name East End Investment, Inc. for the purpose of engaging in
the business of investing and all other lawful businesses. We have undertaken a
number of name changes during our history. In November 1989 our name was changed
to The Theme Factory, Inc., in March 2001 our name was then changed to the
Geyser Group, Ltd., in September 2001 we changed our name to Xstream Beverage
Group, Inc. and in October 2004 we change our name to Xstream Beverage Network,
Inc.

         Effective March 9, 2001, we executed agreements to acquire 100% of
AquaPure International, Inc., a Nevada corporation, and 100% of Water Star
Bottling, Inc., a Wyoming corporation, both in exchange for shares of our common
stock. AquaPure was organized in July, 1999 to acquire operating spring water
companies through financing and business combinations. Water Star bottled and
marketed spring water from a cold water geyser located in the Bridger/Teton
National Forest, Wyoming and it marketed fruit flavored spring water nationally.

         On September 14, 2001 the parties mutually agreed to rescind these
agreements and the shares of our common stock issued in these transactions were
returned to us and cancelled.

         In September 2001 we acquired 100% of the issued and outstanding
capital stock of Power Beverage Corp. from its stockholders. Power Beverage was
organized in Florida in September 2001 to acquire and operate specialty beverage
companies and it had no revenues at the time of the transaction.

         On April 30, 2002 we entered into an agreement to acquire 100% of
Buzzy's Beverages, Inc. in exchange for shares of our common stock. Buzzy's was
a ready to drink ice cold coffee manufacturer located in California. As a result
of Buzzy's inability to provide us with audited financial statements, we
rescinded the agreement prior to the issuance of any consideration.

         On August 26, 2002 we entered into a stock exchange agreement to
acquire 100% of Dark Dog Sale & Retail Vertriebe Gmbh, an Austrian company which
marketed an energy drink in Europe. The transaction was terminated prior to
closing.

         In 2002 we also signed a letter of intent to acquire 90% of Florida
Brewery, Inc. In anticipation of closing this transaction, we deposited shares
of our common stock which were to be issued as consideration with a third party
escrow agent pending closing of this transaction. Prior to closing, the seller
terminated the letter of intent and the shares previously deposited in escrow
were returned to our company and cancelled.

         On April 9, 2003, we closed on the acquisition of two companies. We
acquired all of the issued and outstanding shares of common stock of Total
Beverage Network, Inc., a Florida corporation, in exchange for 50,000 shares of
our common stock. Following the closing of this acquisition, its two
shareholders, Jerry Pearring and Barry Willson, become officers and directors of
Xstream. Also on April 9, 2003, Total Beverage Network, now our wholly owned
subsidiary, acquired substantially all of the assets of Universal Florida
Beverage Distributors, Inc., a Florida corporation, in exchange for the issuance
to Universal of 27,500 shares of our common stock. Universal is a distributor
with distribution routes in the South Florida area. This distribution operation
served to launch the Yohimbe brand and enabled our operations and marketing
management to gain first hand knowledge of the brands' introduction. We will use
our South Florida operation as a similar test market vehicle for future new
brand introductions.

         On May 1, 2003, our wholly owned subsidiary, Beverage Network of
Connecticut, Inc., acquired substantially all of the assets of Finish-Line
Distributors, LLC, a beverage distributor located in Bristol, Connecticut, in
exchange for $152,593 and 800,000 shares of our common stock. In addition, we
have paid Finish-Line Distributors an additional $50,000 in cash plus 5,000
shares of our common stock for meeting performance criteria set forth in the
acquisition agreement.

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<PAGE>

         In August 2003, we acquired the customer lists of American Natural
Water Distributors in exchange for 550 shares of our common stock and a note in
the principal amount of $12,000.

         On January 14, 2004, our wholly owned subsidiary, Xstream Brands,
entered into an Assignment of Trademark with Squeeze Beverage, Inc. for the
assignment of all of its rights and interests in the trademark "SQUEEZE" for
carbonated flavored soft drinks and seltzer water, including all variations
thereof such as any spelling, formatives, phonetic variations and stylized
designs of the same and all goodwill associated therewith. As consideration we
issued 20,000 shares of our common stock to Squeeze Beverages, Inc. We valued
the transaction at $48,000.

         On March 1, 2004 our wholly owned subsidiary, Beverage Network of
Hawaii, Inc., acquired substantially all of the assets and assumed certain
liabilities of Pacific Rim Natural Juice Company, Inc. Through this acquisition,
we acquired all of the production assets and personnel used in the manufacture
of Maui Juice Company products. We were also able to transfer the lease the
factory used in the manufacture. As consideration we issued the seller 12,500
shares of our common stock and advanced them $15,500. We valued the transactions
at $45,500.

         Also on March 1, 2004 our wholly owned subsidiary, Xstream Brands,
entered into an Assignment of Trademark with The Maui Juice Company, Inc. for
the assignment of all of its rights and interests in the trademark "Maui Juice
Company", including all variations thereof such as any spelling, formatives,
phonetic variations and stylized designs of the same and all goodwill associated
therewith. Maui Juice Company's products contain interesting blends of unusual
natural ingredients such as noni, spirulina and aloe. They also bring with them
a Hawaiian heritage which we believe is a valuable marketing asset for our
future business in the U.S. mainland with this brand. As consideration we agreed
to pay The Maui Juice Company, Inc. $300,000 to be paid under the terms of the
assignment agreement. On January 25, 2006, we received a Civil Action Summons
from the Mr. Lawrence Lassek for breach of contract, for our failure to pay
certain installment payments under the terms of the Purchase and Sale Agreement
with Maui Juice Company in the amount of $30,000. Although we agreed on a
settlement with Mr. Lassek's attorneys, we have not been able to abide by a
payment arrangement due to insufficient operating capital during fiscal 2006 and
2005. We do not know what action, if any, Mr. Lassek will take at this time

         On March 16, 2004 our wholly owned subsidiary, Beverage Network of
Massachusetts, acquired substantially all of the assets and assumed certain
liabilities of Ayer Beverages, Inc. The general manager of Ayer Beverages has
signed a three year agreement with us to act as vice president of our New
England operations. We believe that Ayer Beverages' business also provides us
with an important foothold in Massachusetts from which we have been able to open
a new warehouse and business in the Boston-metropolitan area. Under the terms of
the purchase agreement, as consideration we issued 20,000 shares of our common
stock valued at $48,000 and $200,000 in cash.

         Effective July 1, 2004, we purchased the assets of Master Distributors,
Inc., d/b/a Atlantic Beverage Co., which included inventory, accounts
receivable, office furniture, the rights to the products marketed by Atlantic
Beverage and all rights to the operational business of Atlantic Beverage. The
Atlantic Beverage business services the Washington DC, Northern Virginia and
Baltimore, Maryland areas with a wide range of beverage products including
Welch's and Hanson's products, products which we also distribute in our New
England operations. Mr. Morris Stoddard, the former General Manager of Master
Beverages, Inc., has signed a five year contract with us to oversee the
management and growth of our Mid-Atlantic states' business and to act as an
Advisory Director to our Board of Directors.

         As consideration for the purchase of the assets of Atlantic Beverage we
issued 96,154 shares of our common stock and $570,000 in cash which was
delivered at closing, with an additional $554,648 in cash due by September 9,
2004, together with a secured convertible promissory note for $2,000,000 payable
in 60 equal monthly payments and bearing 6% interest per annum and a separate
$250,000 payment to be made in 12 equal weekly installments pursuant to the
terms of the purchase agreement. The note is collateralized by the assets
acquired, subject to the first position interest of Laurus Master Fund, L.P. The
holder of the secured convertible promissory note may, at his option, elected to
receive shares of our common stock valued at $5.20 per share in lieu of cash
payments, with the minimum conversion amount being $25,000. As of March 15, 2005
we still owed Master Distributors, Inc. a portion of the cash payment which was
due on September 9, 2004, as well as certain amounts under the secured
convertible promissory note. In January 2005 Master Distributors, Inc. agreed to
defer those amounts, and Mr. Stoddard agreed to defer amounts due him under his
employment agreement, until April 14, 2005. As consideration for these
deferments, we issued or agreed to issue to Mr. Stoddard and his assigns an
aggregate of 390,000 shares of common stock valued at $660,000. September 2005
we received a notice form default from the principal shareholder of Master
Distributors, Inc. At December 31, 2006 the balance due to Master Distributors
is $2,069,706. As describe below, this obligation is being assumed by Global
Beverage in conjunction with our sale of Beverage Network of Maryland to that
entity.

DISCONTINUED OPERATIONS

         On February 23, 2007, the Company completed the sale of its wholly
owned subsidiary, Beverage Network of Maryland, Inc., to Global Beverage
Solutions, Inc. ("Global Beverage"). The operations of Beverage Network of
Maryland, Inc. were comprised of the Master Distributor assets we acquired in
July 2004 as described above. Under the terms of the Agreement and Plan of
Merger, as amended, Beverage Network of Maryland, Inc. was merged into a wholly
owned subsidiary of Global Beverage.

         As consideration, the Company received 60,500,000 shares of Global
Beverage's common stock and a $2 million principal amount secured promissory
note maturing on March 31, 2011. The note, as amended, bears interest at 6% per
annum and is collateralized by a blanket security interest in Global Beverage's
assets under the terms of a Master Security Agreement, guaranteed by the
Beverage Network of Maryland subsidiary (after consummation of the merger) and a
pledge to us of the stock of Global Merger Corp., the Global Beverage subsidiary
which was merged into Beverage Network of Maryland at closing, and the stock of


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Beverage Network of Maryland, both pursuant to a Stock Pledge Agreement. The
payment terms of the note, as amended, provide:

         o        we received $229,000 at the closing of the transaction as a
                  reduction in principal;
         o        we were entitled to receive 40% of any cash proceeds received
                  by Global Beverage from an offering it conducted which
                  resulted in an additional $463,796 principal reduction;
         o        we are to receive a minimum of $25,000 per month against the
                  outstanding principal and interest due under the note,
                  commencing September 1, 2007; and
         o        if Global Beverage raises any additional equity capital we are
                  entitled to receive payments towards the note in an amount
                  equal to 35% of the net proceeds received by Global Beverage
                  in such equity raise.

         The note also includes a provision whereby Global Beverage may prepay
the note in whole, or in part at any time, with accrued interest to the date of
prepayment. In the event of default (as defined in the note), the interest rate
increases to 10%.

         Global Beverage has agreed to file a registration statement with the
Securities and Exchange Commission to register for resale the 60,500,000 shares
of its common stock issued to us as partial consideration, which represented
approximately 49% of its outstanding common stock at the closing of the
transaction. In connection with the sale of Beverage Network of Maryland to
Global Beverage, Master Distributors, Inc. received from Global Beverage a
secured convertible promissory note in the amount of $2,000,000 and other
consideration as a novation for the initial promissory note in the same amount
issued by the Company on July 1, 2004 as part of the initial acquisition by the
Company of the asset of Master Distributors. The Company is in the process of
obtaining its original promissory note and formal confirmation of the novation
of that obligation.

         Under the terms of our loan agreements with Laurus Master Fund, Ltd.,
we have granted Laurus Master Fund a blanket security interest in all of our
assets and pledge the stock of our subsidiary corporations as collateral. The
stock and assets of our Beverage Network of Maryland subsidiary remain subject
to these terms. We have orally advised Laurus Master Fund of the closing of the
sale of Beverage Network of Maryland to Global Beverage and we will seek to
cause Laurus Master Fund to execute such releases as are necessary so that the
asset and stock of Beverage Network of Maryland is released from the collateral
position to the benefit of Laurus Master Fund.

         Following the closing, the agreement required Global Beverage to take
the necessary actions to provide that its board of directors was to be comprised
of four members, including Messrs. Farnsworth and Pearring, officers and
directors of our company as well as a third director to be designed by our
company. On February 23, 2007, Mr. Pearring was appointed to Global Beverage's
board of directors and simultaneous therewith he resigned as our President and
member of Board of Directors was became Chief Executive Officer of Global
Beverage. The terms of the agreement also provided that Mr. Farnsworth was to
enter into a consulting agreement with Global Beverage. As of the date of this
annual report Mr. Farnsworth has neither joined the Board of Directors of Global
Beverage nor has he entered into a consulting agreement with that company and he
has no plans to undertake either obligation at the present time.

         Since our acquisition of the Master Distributor assets in July 2004,
the operations of Beverage Network of Maryland have represented a significant
portion of our revenues. For fiscal 2006 it reported revenues of $9,758,679 and
a net loss of $148,526 as compared to revenues of $9,387,275 and a net loss of
$921,974 for fiscal 2005. These figures are a component of those described in
the financial statements appearing later in this annual report, and are included
in loss on discontinued operations.

         In the future we may seek to establish a distribution relationship with
Global Beverage, however, any further relationship between us and Global
Beverages, including the future distribution of our products by Global
Beverages, will be subject to the existing terms and conditions that we employ
with current customers/distributors.

COMPETITION

         We seek to compete in a market segment that continues to reflect strong
growth and is projected to sustain strong growth through at least 2010. There
are a growing number of new age and traditional beverages from the three global
beverage companies, along with brands owned by virtual brand owners like
Hansen's (makers of "Monster" Energy Drink). The carbonated soft drink category
remains the largest single category. However, consumers are increasingly turning
away from carbonated beverages and focusing on New Age drinks. This category of
beverage includes single-serve fruit beverages, sports beverages such as
Gatorade and Power Aide, energy drinks such as Red Bull, bottled water, premium
soda, nutrient enhanced drinks, ready to drink coffees and teas, packaged
juices, smoothies, and vegetable/fruit blends.

         According to a special report on functional and healthful beverages,
published by Beverage Industry Magazine in February 2007, consumers who have
tried new beverage products are most influenced by claims of "sugar free/no
sugar added" and "all natural". Important motivators affecting the decision to
purchase new beverages are claims for vitamin enrichment, diet, and
antioxidants. It is within this sub-segment that we will be focusing our
immediate plans for new products.

         Within the new age segment, "better for you" and functional beverage
categories are winning favor with consumers. According to a 2007 report by
Euromonitor International,(Chicago) sales of "better for you" and functional
beverages reached approximately $40 billion in 2005 with that number expected to
reach $46.3 billion in 2007 and more than $53.9 billion by 2010. The Euromonitor
report is further supported by a 2007 report published by Information Resources
Inc., (Chicago) entitled `2006 CPG Year in Review" in which it states that
beverage sales in 2006 were led by beverages offering health and welfare
benefits, including ready to drink teas, bottled water and sports drinks;
organic and functional foods and beverages also continue to increase in sales.

                                       7
<PAGE>

-----------------------------------------------------------------
Fortified and "Better-For-You" Beverage Sales (in millions)
-----------------------------------------------------------------
Category                        2005     Forecasted   Forecasted
                                            2007         2010
-----------------------------------------------------------------
Carbonates -
Fortified/functional          $    79.9   $   207.9     $   351.1
-----------------------------------------------------------------
Fruit/vegetable juice -
Fortified/functional          $ 2,413.3   $ 2,452.1     $ 2,460.7
-----------------------------------------------------------------
Sports drinks -
Fortified/functional          $ 6,657.2   $ 7,894       $ 9,507.7
-----------------------------------------------------------------
Energy drinks -
Fortified/functional          $ 2,281.8   $ 2,899.4     $ 3,043.4
-----------------------------------------------------------------
Elixirs -
Fortified/functional          $   615     $   665.6     $   730.6
-----------------------------------------------------------------
Bottled water -
Fortified/functional          $   760     $ 1,247.5     $ 1,639.2
-----------------------------------------------------------------
RTD tea -
Fortified/functional          $   264     $   341.4     $   420.1
-----------------------------------------------------------------
Soft drinks -
"Better for you"              $13,402.6   $15,323.2     $17,931.2
-----------------------------------------------------------------
Carbonates -
"Better for you"              $11,681.1   $13,158.5     $15,415.6
-----------------------------------------------------------------
Fruit/vegetable juice -
"Better for you"              $   166.4   $   189.3     $   212.8
-----------------------------------------------------------------
Bottled water -
"Better for you"              $   348.9   $   612.1     $   811.5
-----------------------------------------------------------------
Concentrates -
"Better for you"              $   315.8   $   321.2     $   315.6
-----------------------------------------------------------------
RTD tea - "Better for you"    $   872     $ 1,022.4     $ 1,155.6
-----------------------------------------------------------------
Source: Euromonitor International 2007
-----------------------------------------------------------------

         We will face significant competition from other companies. Most of
these companies have greater brand recognition, established distribution
channels, longer operating histories and are better capitalized than our
company. There are no assurances that we will ever effectively compete in our
target market segment.

GOVERNMENTAL REGULATION

         FDA

         The Food and Drug Administration ("FDA") issues rules and regulations
for the beverage industry including, but not limited to, the labeling and
formulary ingredients of beverage products. Beverage Manufacturers are also
subject to various state and local statutes and regulations applicable to the
production, transportation, sale, safety, advertising, and labeling. We utilize
the services of a contract manufacturer to product our products. We have been
advised by our contract manufacturer that it is in material compliance with all
applicable federal and state rules and regulations, and our contract
manufacturer's facility has been approved by the FDA. Our labeling and the
formulation of our products is also in material compliance with all applicable
rules and regulations. Regulatory guidelines, however, are constantly changing
and there can be no assurance that either our product or our third party
manufacturers will be able to comply with ongoing government regulations.

         While we do not have direct control over the operations of the contract
manufacturers that we may use to produce our products, our contract manufacturer
makes available to us all material information and requirements resulting from
inspections of the facility by various regulatory agencies.

         Investment Company Act of 1940

         U.S. companies that have more than 100 shareholders or are publicly
traded in the U.S. and are, or hold themselves out as being, engaged primarily
in the business of investing, reinvesting or trading in securities are subject
to regulation under the Investment Company Act of 1940. While we do not believe
our company is an "investment company" within the scope of the Investment
Company Act of 1940, by virtue of the percentage of the value of Global Business
Solutions' securities that we hold following the sale of our Beverage Network of
Maryland subsidiary under certain circumstances we could be subject to the
provisions of the Investment Company Act of 1940.

         Because Investment Company Act regulation is, for the most part,
inconsistent with our core business of marketing and selling proprietary brands
of new age beverages, we cannot feasibly operate our business as a registered
investment company. Our board of directors has adopted a resolution stating that
it is not our intent to become subject to the Investment Company Act of 1940 and
authorizing our officers to take such actions as are necessary, including the
periodic liquidation of any marketable equity securities we may own to reduce
those holdings below the threshold level as prescribed by the Investment Company
Act of 1940. If we are deemed to be, and are required to register as, an
investment company, we will be forced to comply with substantive requirements
under the Investment Company Act of 1940, including:

         o        limitations on our ability to borrow;
         o        limitations on our capital structure;


                                       8
<PAGE>

         o        restrictions on acquisitions of interests in associated
                  companies;
         o        prohibitions on transactions with affiliates;
         o        restrictions on specific investments; and
         o        compliance with reporting, record keeping, voting, proxy
                  disclosure and other rules and regulations.

INTELLECTUAL PROPERTY

         We rely on common law rights to our trademarks "Maui Juice Company" and
"Squeeze." The common law rights protect the use of these marks used to identify
our products. Our earlier application for a trademark of the name "Yohimbe
Energy Drink" was cancelled because Yohimbe is the botanical name of an African
shrub and as such, cannot be subject to trademark. It is possible that our
competitors will adopt product or service names similar to ours, thereby
impeding our ability to build brand identity and possibly leading to customer
confusion. Our inability to protect our trade names will have a material adverse
effect on our business, results of operations and financial condition. We also
rely on trade secrets and proprietary know how, and employ various methods, to
protect our concepts. However, such methods may not afford complete protection,
and there can be no assurance that others will not independently develop similar
"know how", or obtain access to our "know how" and concepts. There can be no
assurance that we will be able to adequately protect our trade secrets. Third
parties may assert infringement claims against us or against third parties upon
whom we rely and, in the event of an unfavorable ruling on any claim, we may be
unable to obtain a license or similar agreement to use technology that we rely
upon to conduct our business.

EMPLOYEES

         We currently have approximately four employees. None of our employees
are covered by a collective bargaining agreement nor are they represented by a
labor union. We consider our employee relations to be good.

RISK FACTORS

         Before you invest in our securities, you should be aware that there are
various risks. You should consider carefully these risk factors, together with
all of the other information included in this annual report before you decide to
purchase our securities. If any of the following risks and uncertainties develop
into actual events, our business, financial condition or results of operations
could be materially adversely affected and you could lose all of your investment
in our company.

THE RECENT SALE OF OUR BEVERAGE NETWORK OF MARYLAND SUBSIDIARY HAS HAD A
MATERIAL ADVERSE IMPACT ON OUR FINANCIAL STATEMENTS.

         As described elsewhere herein, subsequent to December 31, 2006 we
closed the sale of our Beverage Network of Maryland subsidiary to Global
Beverage Solutions, Inc. Under generally accepted accounting principles our
financial statements for fiscal 2006 and fiscal 2005 which are included
elsewhere in this annual report give effect to such sale. See Note 22 -
Discontinued Operations of the Notes to Consolidated Financial Statements
appearing later in this annual report. Revenues from Beverage Network of
Maryland represented approximately 97% and approximately 91% of our total sales
for fiscal 2006 and fiscal 2005, respectively, before the effects of these
discontinued operations were applied to our financial statements, while
operating expenses related to this subsidiary represented approximately 25% and
approximately 27%, respectively, of our total operating expenses for fiscal 2006
and fiscal 2005. Included in the total operating expenses for fiscal 2005
related to this subsidiary was a one-time impairment expense of $890,000 which
represented approximately 31% of the total operating expenses related to
Beverage Network of Maryland's operations. While the sale of our Beverage
Network of Maryland subsidiary has had the affect of substantially decreasing
our sales, the resulting decrease in our operating expenses was not
proportionate to the loss of revenues and it is not likely that the sale of this
subsidiary will improve our ability to reduce our loss from operations absent a
significant increase in sales of our propriety brands. As we do not have
sufficient capital to fund a marketing campaign in an effort to increase
consumer demand for our propriety products, we do not anticipate any significant
increase in sales of our propriety products in the foreseeable future.
Accordingly, we may be forced to cease operations.

WE HAVE A HISTORY OF LOSSES AND A SUBSTANTIAL ACCUMULATED DEFICIT, AND WE CANNOT
ASSURE YOU THAT WE WILL BE ABLE TO CONTINUE AS A GOING CONCERN. AS A RESULT, YOU
COULD LOSE YOUR ENTIRE INVESTMENT IN OUR COMPANY.

         For the fiscal year ended December 31, 2006 we reported a net loss from
continuing operations of $25,659,423 as compared to a net income from continuing
operations of $310,408 for the fiscal year ended December 31, 2005. Our cash
used in continuing operating activities was $2,569,317 and $2,520,917 for fiscal
2006 and fiscal 2005, respectively. At December 31, 2006 we had cash on hand of
approximately $1,300 and a working capital deficit of $14,615,352. Our revenue
is not sufficient to sustain our operations and we are in default under a number
of obligations. The independent auditor's report for the fiscal year ended
December 31, 2006 on our financial statements includes an explanatory paragraph
to their audit opinion stating that our net losses, accumulated deficit and
working capital deficit raise substantial doubt about our ability to continue as
a going concern. Our financial statements do not include any adjustments that
might result from the outcome of this uncertainty. We need to raise additional
working capital in order to continue our operations and satisfy our current and
future obligations. Although we have access up to a maximum of $4 million
dollars from our line of credit with Laurus Master Fund, of which approximately
$1,030,000 was outstanding at December 31, 2006, we are unable to draw funds at
this time. The borrowing availability is based on a formula derived from our
accounts receivable and inventory; we do not have an adequate borrowing base at
this time. If we are not successful in securing additional working capital or
restructuring current debt instruments, we may be required to cease operations.

                                       9
<PAGE>

WE WILL NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON
ACCEPTABLE TERMS. IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL AS NEEDED, OUR
CONTINUED OPERATIONS WILL BE ADVERSELY AFFECTED AND OUR ABILITY TO CONTINUED OUR
BUSINESS AND OPERATIONS WILL BE ADVERSELY AFFECTED.

         Historically, our operations have been financed primarily through the
issuance of equity and debt. Because we have a history of losses and our
operations are not sufficient to pay our operating expenses, we are dependent on
our continued ability to raise working capital through the issuance of equity or
debt to fund our present operations. We do not presently have any commitments to
provide capital to our company. Because we are past due in a number of
obligations, we recently sold our principal subsidiary and our remaining assets
serve as collateral under existing obligations, we do not know if we will be
able to raise additional capital as needed. There can be no assurance that
acceptable financing can be obtained on suitable terms, if at all. If we are
unable to raise additional working capital as needed, our ability to continue
our current business will be adversely affected and may be forced to cease
operations.

WE ARE SUBJECT TO A NUMBER OF PAST DUE OBLIGATIONS AND JUDGMENTS, AS WELL AS
UNPAID PAYROLL TAXES. OUR CONTINUING INABILITY TO SATISFY THESE OBLIGATIONS
COULD RESULT IN SIGNIFICANT ADDITIONAL DAMAGES AND LEGAL FEES AND MAY PREVENT US
FROM CONTINUING AS A GOING CONCERN.

         At December 31, 2006 our current liabilities totaled $17.7 million,
which includes certain non-cash expenses related to our financings or
liabilities which have been restructured subsequent to December 31, 2005.
Included in the current liabilities at December 31, 2006, however, is
approximately $12.4 million of liabilities which are past due. Included in this
amount are litigation judgments against our company representing approximately
$981,000 due for payroll taxes and amounts related to notes we have issued for
acquisitions or financing transactions. We do not presently have sufficient
capital to satisfy these obligations including obligations to the IRS for
payroll taxes we paid but which were not remitted by a payroll service provider.
Although we were granted a judgment against the payroll service provider in the
amount of $679,466, we have remaining balance due the I.R.S. of $350,986
regarding the payment of these taxes. If we are unable to make satisfactory
arrangements with the I.R.S. related to these taxes, we could be subject to
liens on our assets as well as significant penalties. While the other portions
of these obligations are unsecured, other than a pledge of certain shares of our
common stock, we may be required to use any working capital we might be able to
raise to litigate these matters which will reduce the amount of capital we have
available to fund our ongoing operations.

AS A RESULT OF THE SALE OF BEVERAGE NETWORK OF MARYLAND WE NOW OWN APPROXIMATELY
49% OF THE OUTSTANDING COMMON STOCK OF GLOBAL BEVERAGE SOLUTIONS. OUR HOLDINGS
IN THAT COMPANY COULD MAKE US SUBJECT TO THE INVESTMENT COMPANY ACT OF 1940 IF
WE ARE NOT ABLE TO LIQUIDATE SUCH SECURITIES ON A TIMELY BASIS.

         Following the sale of our Beverage Network of Maryland subsidiary to
Global Beverage Solutions a significant portion of our assets are securities of
Global Beverage Solutions. In order not to be subject to the Investment Company
Act we will need to significantly reduce our holdings in Global Beverage
Solutions during the 12 months following the closing of the transaction to a
level which is permissible under the Investment Company Act. The shares of
common stock we received as partial consideration are "restricted" securities
and not freely saleable absent an effective registration statement under the
Securities Act of 1933. While one of the terms of the Agreement and Plan of
Merger is the requirement that Global Beverage Solutions file a registration
statement with the SEC and cause it to become effective within six months from
the closing date, there are no assurances that such a registration statement, if
filed, will ever be declared effective by the SEC. Even if the shares of common
stock we received as partial consideration are covered by an effective
registration statement in the future, there are no assurances we will be able to
sell a sufficient number of shares of Global Beverage Solutions' common stock to
reduce our holdings to below the permissible level so as not to be considered an
"investment company." Global Beverage Solutions' stock is quoted in the over the
counter market on the OTCBB and is not listed on an exchange. Notwithstanding
that there has historically been some liquidity in its market, it is likely that
our significant ownership position in that company will adversely impact the
market for Global Beverage Solutions' common stock at such time as we are able
to begin to liquidate our position. If we are unable to reduce our holdings to a
permissible level within the 12 months following the closing of the transaction,
our ability to continue our operations as they are presently conducted could be
in jeopardy.

OUR HOLDINGS IN GLOBAL BEVERAGE SOLUTIONS WILL MATERIALLY IMPACT OUR RESULTS OF
OPERATIONS IN FUTURE PERIODS. WE CANNOT PREDICT THE AMOUNT OF FUNDS WE WILL
RECEIVE FROM THESE SECURITIES IN THE FUTURE.

         On the closing date the sale of Global Beverage Solutions we received
60,500,000 shares as partial consideration for the sale of our Beverage Network
of Maryland subsidiary. The shares were valued at approximately $0.32 based upon
the then fair market value of the shares. Under generally accepted accounting
principles we will be required to "mark to market" the value of these securities
on a quarterly basis. Any fluctuation in the value of these securities will
result in non-cash gains or losses, until such time as we sell the securities,
which could materially impact our results of operations in future periods. At
such time as we are able to sell a portion of these securities, we will also
recognize a gain or loss on the sale, depending upon the carrying value of the
securities at the time of sale. It is possible that these gains or losses could
also materially impact our results of operations in future periods. Finally, we
cannot predict the ultimate proceeds we will receive from the sale of all or any
portion of these securities and there are no assurances such proceeds will equal
or exceed our carrying value.

OUR ASSETS SERVE AS COLLATERAL UNDER THREE OUTSTANDING SECURED TERM NOTES. IF WE
WERE TO DEFAULT ON OUR OBLIGATIONS UNDER THESE NOTES LAURUS MASTER FUND, L.P.
COULD FORECLOSE ON OUR ASSETS WHICH WOULD PREVENT US FROM CONDUCTING OUR
BUSINESS IN THE FUTURE AND WOULD CAUSE US TO CEASE OPERATIONS.

         In April 2006 we entered into a financing agreement with Laurus Master
Fund, Ltd. pursuant to the terms of a secured convertible term note in the
principal amount of $2,000,000, and two, non convertible three year term notes


                                       10
<PAGE>

each in the principal amount of $4,000,000. The notes are collateralized by a
blanket security interest in our assets and a pledge of the stock of our
subsidiaries. While as a condition of the restructure of our obligations to
Laurus Master Fund, L.P. in April 2006 the existing past due obligations will
not constitute future events of default, if we should default under the
repayment provisions of the secured convertible term note, or otherwise permit
an event of default to occur under the note agreement, the note holder could
seek to foreclose on our primary assets in an effort to seek repayment under the
note. If the note holder was successful, we would be unable to conduct our
business as it is presently conducted and our ability to generate revenues and
fund our ongoing operations would be materially adversely affected.

CERTAIN OF THE FINANCING TRANSACTIONS WE HAVE ENTERED INTO PROVIDE FOR THE
PAYMENT OF LIQUIDATED DAMAGES IF WE DO NOT REGISTER THE UNDERLYING SHARES OF
COMMON STOCK ON A TIMELY BASIS.

         At December 31, 2006 we have recorded liabilities of approximately
$294,000 related to penalties for failure to timely register shares of our
common stock which are underlying various financing transactions we entered into
in fiscal 2004 and fiscal 2005. These liquidated damages will continue to accrue
until such time as we satisfy the registration obligation. We do not currently
have a registration statement pending covering any of these securities and we
are unable to predict at this time when, or if, we will satisfy these
registration obligations. As a result, we are unable estimate the amount of
additional liquidation damages for which we will be obligated; this amount may
be significant.

WE MAY RECEIVE NO ECONOMIC BENEFIT FROM THE SWAP TRANSACTION WITH COGENT CAPITAL
CORP. AND THE INSTITUTIONAL INVESTORS WHICH INCREASED OUR ISSUED AND OUTSTANDING
COMMON STOCK BY APPROXIMATELY 75%.

         Under the terms of the swap transaction we entered into in June 2005,
we issued 19,736,848 shares of our common stock in exchange for $15 million of
U.S. government bonds which represented a 20% discount to the fair market value
of our common stock at the time we issued the shares. These shares represented
approximately 75% of our issued and outstanding common stock at that time. The
bonds and a portion of the shares were placed in escrow pending the satisfaction
of certain conditions. While we did not receive any immediate economic benefit
from the transaction, the amount of funds we may ultimately receive from this
swap transaction is, unknown and it is possible that we will not receive any
proceeds from these bonds. In addition, there is no provision for the return of
any of the shares of our common stock we issued at the time of the transaction
if we do not receive the $15 million represented by the face amount of the bonds
or reacquire the shares through exercise of an option. Finally, while the bonds
remain in escrow we are required to pay interest on the $15,000,000 which
adversely affects our cash flow.

CERTAIN OF OUR OUTSTANDING SECURITIES ARE CONSIDERED DERIVATIVE LIABILITIES. WE
HAVE RECOGNIZED NON-CASH INCOME AND LOSSES IN FISCAL 2006 AND FISCAL 2005 WHICH
HAVE HAD A MATERIAL EFFECT ON OUR FINANCIAL STATEMENTS.

         The terms of various financings we have entered into in fiscal 2004 and
2005 contains terms which are considered embedded conversion features pursuant
to EITF Issue No. 00-19. Additionally, because there is no explicit number of
shares that are to be delivered under the terms of certain of these financings,
at December 31, 2006 we were unable to assert that we had sufficient authorized
and unissued shares to settle such features. Accordingly, all of our previously
issued and outstanding instruments, such as warrants and options issued to
non-employees pursuant to rendered services as well as those issued in the
future, would be classified as liabilities, effective with the granting of the
subsequent financing conversion reset feature. As described in Note 18 to the
financial statements for the years ended December 31, 2006 and 2005 which are
included elsewhere in this annual report, the application of EITF Issue No.
00-19 on our financial statements for fiscal 2006 and 2005, resulted in other
income in the amount of $5,384,125 and $16,383,621, respectively. While this
income is a result of non-cash transactions, in each of the years the
application of the accounting standard had a significant impact on our net loss,
through a reduction in our net loss, of $5,384,125 and $16,383,621 for fiscal
year 2006 and 2005, respectively. In addition, at December 31, 2006 our balance
sheet reflects a current liability of $2,426,278 related to the derivative
liability. This derivative liability has materially adversely impacted our
working capital. While we cannot predict the impact of this accounting standard
on our financial statement in future periods as the income/expense calculation
is based upon a current market value of our common stock, it is likely that it
will have similar impacts on our financial statement in future periods.

THERE ARE NO ASSURANCES WE WILL EVER BE SUCCESSFUL IN ESTABLISHING A MARKET FOR
OUR PROPRIETARY BRANDS. THE LACK OF ANY SIGNIFICANT MARKET IN FUTURE PERIODS
WILL ADVERSELY EFFECT OUR ABILITY TO INCREASE OUR REVENUES AND OUR MARGINS.

         The main element of our business model is the expansion of the
distribution of our propriety brands. However, we may not be able to find
suitable distributors in all of the markets in which we have projected sales and
distribution. We also face significant competition from other new age beverage
companies, the majority of which have greater brand recognition, a longer
operating history and greater financial resources than we do. We cannot assure
you that we will ever be successful in developing a meaningful market for our
propriety brands. Our inability to create demand in the marketplace for our
propriety products may prevent us, in future periods, from increasing our
revenues from sales attributable to those propriety products.

WE HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN
THE ABSENCE OF WHICH, SHAREHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.

         Recent Federal legislation, including the Sarbanes-Oxley Act of 2002,
has resulted in the adoption of various corporate governance measures designed
to promote the integrity of the corporate management and the securities markets.
Some of these measures have been adopted in response to legal requirements.
Others have been adopted by companies in response to the requirements of
national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on
which their securities are listed. Among the corporate governance measures that
are required under the rules of national securities exchanges and Nasdaq are


                                       11
<PAGE>

those that address board of directors' independence, audit committee oversight,
and the adoption of a code of ethics. While our board of directors has adopted a
Code of Ethics and Business Conduct, we have not yet adopted any of these
corporate governance measures and, since our securities are not yet listed on a
national securities exchange, we are not required to do so. It is possible that
if we were to adopt some or all of these corporate governance measures,
shareholders would benefit from somewhat greater assurances that internal
corporate decisions were being made by disinterested directors and that policies
had been implemented to define responsible conduct. For example, in the absence
of audit, nominating and compensation committees comprised of at least a
majority of independent directors, decisions concerning matters such as
compensation packages to our senior officers and recommendations for director
nominees may be made by a majority of directors who have an interest in the
outcome of the matters being decided. Prospective investors should bear in mind
our current lack of corporate governance measures in formulating their
investment decisions.

THE CONVERSION OF THE SECURED CONVERTIBLE TERM NOTE, EXERCISE OF WARRANTS AND
THE CONVERSION OF SHARES OF OUR PREFERRED STOCK WILL BE DILUTIVE TO OUR EXISTING
STOCKHOLDERS.

         At March 31, 2007 we had:

         *        52,170,800 shares of common stock issued and outstanding,

         *        warrants to purchase a total of 9,955,423 shares of our common
                  stock with exercise prices ranging from $0.20 to $100.00 per
                  share,

         *        200,000 shares of Series A Cumulative Convertible Voting
                  Preferred Stock issued and outstanding which is convertible
                  into 200,000 shares of our common stock,

         *        40 shares of our Series B Convertible Preferred Stock issued
                  and outstanding which is presently convertible into
                  $31,250,000 shares of our common stock, based upon a
                  conversion price equal to the liquidation preference ($50,000
                  per share) divided by the conversion price of $0.45 per share,

         *        1,100,000 shares of our series D Convertible Preferred Stock
                  issued and outstanding which is presently convertible into
                  1,100,000 shares of our common stock, based upon a conversion
                  price of one share of Series D to one share of common stock,
                  and

         *        4,851,111 shares of our common stock issuable upon the
                  conversion of the outstanding principal balance due on a
                  secured convertible term note in the principal amount of
                  $2,000,000 which was issued to Laurus Master Fund, Ltd. in
                  April 2006 based upon a conversion price of $0.45 share.

         Both the conversion prices of the Series B Convertible Preferred Stock
and the secured convertible term note as well as the common stock purchase
warrants to purchase an aggregate of 2,160,000 shares of our common stock issued
or sold in connection with those transactions are all subject to adjustment in
the event of stock splits and combinations, dividends or distributions,
reclassifications or reorganizations, or in the event we issue or sell any
additional shares of common stock or other securities which are convertible into
common stock or common stock equivalents at a price less than the then current
conversion price. In addition, remaining common stock purchase warrants
currently outstanding to purchase an aggregate of 5,179,500 shares of our common
stock are also subject to adjustment in the event of stock splits and
combinations, dividends or distributions, reclassifications or reorganizations.
As a result, the number of shares of our common stock into which the Series B
Convertible Preferred Stock, the secured convertible term note, or the
outstanding warrants are convertible may substantially increase based upon
future events. We cannot predict with any certainty at this time, however, if
any of these anti-dilution provisions will ever apply in the future to any of
these securities and therefore we are unable to estimate the ultimate number of
shares of our common stock which may be issuable upon the conversion of either
the Series B Convertible Preferred Stock or the secured convertible term note or
the warrants.

         The conversion of the secured convertible term note or the Series A or
Series B Convertible Preferred Stock and the exercise of outstanding warrants
may materially adversely affect the market price of our common stock and will
have a dilutive effect on our existing stockholders.

PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS MAY DELAY OR PREVENT A
TAKE-OVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR STOCKHOLDERS.

         Provisions of our articles of incorporation and bylaws may be deemed to
have anti-takeover effects, which include when and by whom special meetings of
our stockholders may be called, and may delay, defer or prevent a takeover
attempt. In addition, certain provisions of the Nevada Revised Statutes also may
be deemed to have certain anti-takeover effects which include that control of
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless these voting rights are approved by a majority of a
corporation's disinterested stockholders.

         In addition, our articles of incorporation authorize the issuance of up
to 10,000,000 shares of preferred stock with such rights and preferences as may
be determined from time to time by our board of directors, of which 200,000
shares of Series A Cumulative Convertible Voting Preferred Stock and 50 shares
of Series B Convertible Preferred Stock and 1,100,000 shares of our Series D
Convertible Preferred Stock are issued and outstanding as of March 31, 2007. Our
board of directors may, without stockholder approval, issue preferred stock with
dividends, liquidation, conversion, voting or other rights that could adversely
affect the voting power or other rights of the holders of our common stock. In
addition, by virtue of his ownership of our securities, including the shares of
our Series D Convertible Preferred Stock which carry super majority voting
rights, Mr. Farnsworth, our CEO and Chairman, controls approximately 85% of our


                                       12
<PAGE>

voting securities and can approve any transaction which requires the consent of
our stockholders without the vote of any other stockholder.

OUR COMMON STOCK IS CURRENTLY QUOTED ON THE OTCBB, BUT TRADING IN OUR STOCK IS
LIMITED. BECAUSE OUR STOCK CURRENTLY TRADES BELOW $5.00 PER SHARE, AND IS QUOTED
ON THE OTC BULLETIN BOARD, OUR STOCK IS CONSIDERED A "PENNY STOCK" WHICH CAN
ADVERSELY EFFECT ITS LIQUIDITY.

         The market for our common stock is extremely limited and there are no
assurances an active market for our common stock will ever develop. Accordingly,
purchasers of our common stock cannot be assured any liquidity in their
investment. In addition, the trading price of our common stock is currently
below $5.00 per share and we do not anticipate that it will be above $5.00 per
share in the foreseeable future. Because the trading price of our common stock
is less than $5.00 per share, our common stock is considered a "penny stock,"
and trading in our common stock is subject to the requirements of Rule 15g-9
under the Securities Exchange Act of 1934. Under this rule, broker/dealers who
recommend low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements. SEC
regulations also require additional disclosure in connection with any trades
involving a "penny stock," including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and its
associated risks. These requirements severely limit the liquidity of our
securities in the secondary market because few broker or dealers are likely to
undertake these compliance activities.

ITEM 2.  DESCRIPTION OF PROPERTY

         We lease approximately square feet of office space in Plantation,
Florida, which also serves as our principal executive offices, under a sub-lease
expiring in March 2011. The lease provides for monthly rental payments of
approximately $3,800, together with a pro-rata share of common area expenses.

         The foregoing facility is in good condition and is adequate for
currently anticipated needs.

ITEM 3.  LEGAL PROCEEDINGS

         Our subsidiary, Beverage Network of Massachusetts, Inc. was named as a
party in a legal proceeding filed by Kraft Foods, Inc. in the Superior Court of
the County of Middlesex, Commonwealth of Massachusetts with respect to Civil
Docket Number MICV2005-02503. For financial reasons we were unable to contest
the plaintiff's claims and on August 26, 2005 a default order was entered in
favor of Kraft Foods, Inc. against Beverage Network of Massachusetts, Inc. On
October 4, 2005 Beverage Network of Massachusetts, Inc. was served with an
execution order in the amount of $91,902, which includes costs. We have agreed
the terms of a payment plan with the plaintiffs attorney. Whereby we have agreed
to remit monthly payments of $14,172 until the entire balance is paid. Due to a
lack of operating capital during fiscal 2006, we have not been able to maintain
the remittance of monthly payments. The balance due as of April 1, 2007 was
$58,559. We do not know at this time what action, if any, the vendor may take.

         Under the terms of the Secured Convertible Term Note issued by us to
Laurus Master Fund, L.P. in May 2004, this judgment constituted an event of
default. As security for this note we had granted a security interest to Laurus
Master Fund, Ltd. in all of our assets, the obligations under the secured
convertible term note have been guaranteed by our subsidiaries, and we have
pledged the stock of all of our current and any future subsidiaries acquired by
us during the term of the secured convertible term note. At December 31, 2005,
the outstanding principal balance due under this Secured Convertible Term Note
was $2,771,355. As a result of this default, Laurus Master Fund, Ltd. was
entitled to immediately accelerate the due date of the note, and we would have
owed Laurus Master Fund, Ltd. 125% of the outstanding principal amount of the
note plus accrued and unpaid interest and fees. Demand was not made by Laurus
Master Fund, Ltd. and in March 2006, we redeemed the note with part of the
proceeds of a new, non-convertible term note sold to Laurus Master Fund Ltd. The
event of default under the Secured Convertible Term Note has triggered an event
of default under unsecured promissory notes in the aggregate principal amount of
$3,019,500 which we issued to an aggregate of 39 purchasers in a private
placement of our securities between June and December, 2005. At the option of
the holders of greater than 50% of the face amount of these outstanding notes,
the notes will become immediately due and payable. We advised these note holders
in writing of the occurrence of the event of default. We do not know at this
time what action, if any, the note holders may take.

         On September 12, 2005 we received a notice of default under the terms
of two secured promissory notes issued by us to investors in the aggregate
principal amount of $300,000. These notes were due and payable by us on
September 1, 2005. As collateral for these notes we pledged 100,000 shares of
our common stock and Theodore Farnsworth, our CEO, pledged 100,000 shares of our
common stock owned by him. The note holders are demanding payment of
$328,813.50. As we have been unable to pay these amounts, the note holders are
entitled to foreclose on the collateral at any time. On March 16, 2006, we
reached agreement with the two note holders whereby we would redeem the notes
and make all payments due to the note holders thereto, on or before March 31,
2006 in exchange for which agreement, we granted each note holder 750,000 shares
of our common stock. We also issued in escrow, 500,000 shares of our common
stock to each note holder which would be subject to release from escrow on March
31, 2006 should the notes not be redeemed by that date. We failed to redeem the
notes and consequently, the shares in escrow have been released by the escrow
agent to the note holders. On July 10, 2006 the Company received a notice of
final judgment by default from the note holders in the amount of $270,106. The
Company was unable to satisfy the entire balance due and the bank account was
garnished for $98,829 by the note holders; $45,403 was remitted to the note
holders and while $53,426 was returned to the Company as it was secured through
a deposit control agreement between Wachovia Bank and Laurus Master Fund, LTD,
our senior secured lender. As of March 2007, the Company has paid and additional
$200,000 from the proceeds received from payments against the $2,000,000 note
due from Global Beverage Solutions, Inc. transaction referenced elsewhere in
this report. The balance due is $59,600 as of March 31, 2007.

         The default under these notes created another event of default under
the Secured Convertible Term Note due Laurus Master Fund, Ltd. as well as under
the unsecured promissory notes in the principal amount of $3,019,500.

                                       13
<PAGE>

         On September 29, 2005 we received a notice of default from Morris
Stodard and Master Distributors, Inc. under the terms of an unsecured promissory
note issued in connection with our purchase of Master Distributors, Inc. as well
as under an employment agreement with Mr. Stodard. The note holder is demanding
payment of $517,735 which he asserts is the amount of outstanding principal and
interest due under the note, as well as amounts due under the employment
agreement. We continue to make payments to Mr. Stodard and Master Distributors
based on the balances that were reflected at the time of the Master Distributors
acquisition. The amounts due to Mr. Stodard and Master Distributors were assumed
by Global Beverage Solutions, Inc. through it's acquisition of our wholly
subsidiary, Beverage Network of Maryland, Inc. ("BNMD") on February 23, 2007.
This transaction is referenced elsewhere in this report. The balance due to
Master Distributors was $2,069,706 as of December 31, 2006.

         In October 2005, American Beverages Inc filed a demand against Beverage
Network of Connecticut, Inc. ("BNCT") and Beverage Network of Massachusetts,
Inc. ("BNMA") in the amount of $69,452. We obtained an agreement for a
settlement plan with their attorneys but have not been able to abide by the
terms due to insufficient operating capital during fiscal 2006 and 2005. We do
not know what action, if any, the vendor will take at this time.

         In October 2005, Good-O Beverages was awarded a judgment on the amount
of $28,500 against Beverage Network of Connecticut, Inc. ("BNCT") for inventory
ordered in fiscal 2004. We have made regular payments in settlement of this
amount and there is a balance of $1,904 as of March 31 2007.

         In November 2005, Beverage Network of Connecticut, Inc. ("BNCT")
received a demand letter from the attorneys representing Food Collage, Inc for
payment of $17,068 for inventory ordered in 2004. "). Although we agreed on a
settlement with their attorneys, we have not been able to abide by a payment
arrangement due to insufficient operating capital during fiscal 2006 and 2005.
We do not know what action, if any, the vendor will take at this time.

         In December 2005 Hobarama,Inc. obtained a judgment in the amount of
$16,740 against Beverage Network of Connecticut, Inc. ("BNCT"). Although we
agreed on a settlement with their attorneys, we have not been able to abide by a
payment arrangement due to insufficient operating capital during fiscal 2006 and
2005. We do not know what action, if any, the vendor will take at this time.

         On January 15, 2006 Export Development Canada obtained a judgment
against Total Beverage Network, Inc. ("BNSF") in the amount of $22,357 for
inventory ordered in 2004. We have not yet reached an agreement with the
plaintiff and we do not know what action, if any, the vendor will take at this
time.

         On January 25, 2006, we received a Civil Action Summons from the
attorney for the Maui Juice Company and Lawrence Lassek for breach of contract,
for our failure to pay certain installment payments under the terms of the
Purchase and Sale Agreement with Maui Juice Company in the amount of $30,000.
Although we agreed on a settlement with Mr. Lassek's attorneys, we have not been
able to abide by a payment arrangement due to insufficient operating capital
during fiscal 2006 and 2005. We do not know what action, if any, the vendor will
take at this time.

         In February, 2006 we received a demand letter from Ayer Beverage, Inc.
in the amount of $72,934 for payments due under the Purchase and Sale Agreement
between Ayer Beverage and Beverage Network of Massachusetts. Under the same
agreement, we are also required to make payments under obligations that we
assumed for $7,889 plus costs and interest to Citizen's Bank and $30,000 to Mr.
Tom MacIntire. We have reached agreement with Mr. Lehan and Ayer Beverage, Inc.
to pay the obligations due to Mr. MacIntire. The Citizen's Bank obligation was
satisfied in April 2006; the balance due to Mr. MacIntire is $12,600 as of March
31, 2007. Although we agreed to pay Ayer Beverage, Inc. $36,467 followed by
three monthly payments thereafter of $9,467, we have not been able to abide by
the terms of this agreement due to insufficient operating capital during 2006.
We do not know what action, if any, the Mr. Lehan will take at this time.

         In February 2006, Total Beverage Network, Inc. ("BNSF") received a
demand from Le Natures, Inc in the amount of $17,057 for inventory that was
ordered in 2004. We have not yet reached an agreement with the plaintiff and we
do not know what action, if any, the vendor will take at this time.

         On June 23, 2005 Hansen Beverage Company, one of the third party brand
beverage suppliers to our subsidiary Beverage Network of Maryland, Inc. ("BNMD")
provided written notice of its intention not to renew the distribution agreement
between Hansen and Beverage Network of Maryland for the Monster brand of energy
drinks. As settlement, on September 15, 2005 Hansen agreed to pay Beverage
Network of Maryland approximately $113,211 and awarded Beverage Network of
Maryland with a distribution license agreement for the following products, all
under the Hansen trademark:

                       *  Hansen Energy, Original Formula
                       *  Energy Pro
                       *  Energy Water
                       *  Signature Sodas
                       *  Gold Standard Teas
                       *  Hansen Smoothies

         The license agreement has an initial term ending on December 31, 2005
and renews automatically for further renewal periods of one calendar year unless
Beverage Network of Maryland is in breach of certain specified defaults that are
normal in such agreements. Hansen offset certain receivables from Beverage
Network of Maryland against the settlement amount which result in a net payment
to Beverage Network of Maryland from Hansen of approximately $36,000.

         In March of 2004, the Company contracted with Florida Employer
Solutions, Inc. "FES" to process the Company payroll and certain other employee


                                       14
<PAGE>

benefits such as health insurance. The collection and payment of payroll taxes
was an integral part of this service. In June 2005, the Company was informed by
the Internal Revenue Service and other tax agencies that payroll tax payments
had not been remitted on our behalf. The Company had remitted all required taxes
to "FES" for payment of payroll taxes. The principals of "FES" admitted to the
Company and to the IRS that they had not made the mandatory payments when due.
In September 2005 the Company filed a complaint in the 17th Judicial Circuit in
and for Broward County, Florida against "FES" along with Luis Ferrer and Maria
G. Legarda, officers of "FES". The complaint alleges breach of contract, fraud,
conversion, violation of the Florida Unfair and Deceptive Trade Practices Act
and unjust enrichment and seeks judgment against "FES" for all damages,
interests and costs. In a September 2006 mediation hearing, the Company was
awarded a judgment in the amount of $679,466 against "FES". This represented the
amount of principal tax along with damages in the form of estimated penalties,
interest and legal expenses. The IRS negotiated a voluntary payment arrangement
whereby the Xstream Beverage Network, Inc. ("XBNI") would remit payments of
$20,000 per month until balance is paid. The final payment for XBNI was remitted
in February 2007 with the balance due for BNSF, BNHI and BNMA of $350,986 as of
March 31, 2007.

         Our subsidiary, Beverage Network of Massachusetts, Inc. was named as a
party in a legal proceeding filed by Fuze Beverage, LLC in the Superior Court
for the County of Middlesex, Commonwealth of Massachusetts with respect to Civil
Docket Number MICV2005-01392. For financial reasons we were unable to contest
the plaintiff's claims and on May 27, 2005 a default order was entered in favor
of Fuze Beverage, LLC against Beverage Network of Massachusetts, Inc. The court
has entered a judgment against the Company in the amount of $36,873.

         In June 2006, a former employee of Xstream Beverage Network, Inc. filed
a lawsuit in Miami-Dade County, Florida, for overdue severance related payments
in the amount of $17,000. The Company entered into a payment arrangement and
paid the entire balance as of February 28, 2007.

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

         None.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our common stock is quoted on the OTCBB under the symbol XSBV. The
reported high and low sales prices for the common stock as reported on the OTCBB
are shown below for the periods indicated. The quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission, and may not represent
actual transactions. All information contained in the following table gives
proforma effect to the 1:20 reverse stock split of our common stock effective
July 19, 2004.

                                                 High         Low
                                                 ----         ---
Fiscal 2005

First quarter ended March 31, 2005            $   1.85     $   0.93
Second quarter ended June 30, 2005            $   1.70     $   0.81
Third quarter ended September 30, 2005        $   1.30     $   0.45
Fourth quarter ended December 31, 2005        $   0.85     $   0.18

Fiscal 2006

First quarter ended March 31, 2006            $   0.70     $   0.18
Second quarter ended June 30, 2006            $   0.40     $   0.17
Third quarter ended September 30, 2006        $   0.35     $   0.08
Fourth quarter ended December 31, 2006        $   0.18     $   0.07

Fiscal 2007

First quarter ended March 31, 2007            $   0.06     $   0.06

         On April 14, 2007 the last sale price of our common stock as reported
on the OTCBB was $0.05. As of March 31, 2007 there was approximately 696 record
owners of our common stock.

DIVIDEND POLICY

         We have never declared or paid any cash dividends on our common stock.
We currently expect to retain future earnings, if any, to finance the growth and
development of our business.

RECENT SALES OF UNREGISTERED SECURITIES

         During the year ended December 31, 2006, the Company issued a total of
24,235,523 shares of restricted common stock for services, compensation and loan
fees are valued at the closing price of the stock on the grant date and
recognized over the term of the corresponding contract and/or agreements; shares
issued as a pledge of collateral are considered issued but not outstanding;
shares issued from the conversion of Preferred Series B stocks related to Series
B preferred liabilities are valued at the converted amount of liability and a
reclass to paid in capital (See note 19); shares issued from the conversion of
Preferred Series B stock not related to the Series B preferred liabilities are
valued at par with no effect on operations.

                                       15
<PAGE>

Pursuant to the terms of certain debt instruments issued to the Company,
the Company issued 1,625,000 shares of common stock as a pledge for collateral.
All shares were originally issued in the Company's own name after which
1,500,000 shares were assigned to the holders of various debt instruments. The
Company recognized an aggregate value of $149,227. The remaining 125,000 shares
were valued at par value as they are considered issued but not outstanding as of
December 31, 2006. The securities were issued in transactions exempt from
registration under the Securities Act of 1933 in reliance on the exemption
provided by Section 4(2) of that act.

       During the year ended December 31, 2006, the Company executed consulting
agreements for advisory services in consideration of 7,672,000 shares of common
stock, valued at $0.08-$0.42. The Company recognized an aggregate value of
$1,520,440 to be recognized over the term of the agreements. Each recipient is
an accredited or sophisticated investor who had such knowledge and experience in
business matters that they were capable of evaluating the merits and risks of
the prospective investment in our securities. The securities were issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance on the exemption provided by Section 4(2) of that act.

       During the year ended December 31, 2006, the Company issued 6,772,500
shares of common stock as fees payable to certain holders of the Company's
promissory notes. The securities are valued at $0.08-$0.43. The Company
recognized an aggregate value of $1,897,026. Each recipient is an accredited or
sophisticated investor who has such knowledge and experience in business matters
that they are capable of evaluating the merits and risks of the prospective
investment in our securities. The securities were issued in transactions exempt
from registration under the Securities Act of 1933 in reliance on the exemption
provided by Section 4(2) of that act.

       During the year ended December 31, 2006, the Company issued 6,895,000
shares of common stock as compensation to its directors and to certain of its
employees. The securities are valued at $0.11-$0.27. The Company recognized an
aggregate value of $1,530,650. Each recipient is an accredited or sophisticated
investor who has such knowledge and experience in business matters that they are
capable of evaluating the merits and risks of the prospective investment in our
securities. The securities were issued in transactions exempt from registration
under the Securities Act of 1933 in reliance on the exemption provided by
Section 4(2) of that act.

        During the year ended December 31, 2006, the Company issued 1,271,023
shares of common stock in accordance with the conversion rights and preferences
of the holders of our Series B convertible, preferred stock. The shares had an
aggregate value of $652,000 at December 31, 2006. Each recipient is an
accredited investor who has such knowledge and experience in business matters
that they are capable of evaluating the merits and risks of the prospective
investment in our securities. The securities were issued in transactions exempt
from registration under the Securities Act of 1933 in reliance on the exemption
provided by Section 4(2) of that act.

         The table below represents the activity of shares issued as of December
31, 2006:

<TABLE>
<CAPTION>
                                                               Aggregate       Deferred           Expense
Consideration                No. Shares      Price Range         Value          Balance         Recognized
-------------                ----------     -------------     -----------     -----------      -----------
<S>                           <C>           <C>               <C>             <C>              <C>
Services                      7,672,000     $0.08 - $0.42     $ 1,520,440     $(1,253,443)     $   266,997

Loan Fees                     8,272,500      0.08 -  0.43       2,046,253      (1,210,360)         844,166

Compensation                  6,895,000      0.11 -  0.27     $ 1,530,650             -0-        1,530,666

Pledge of Collateral            125,000               -0-             -0-             -0-              -0-

Conversion of Preferred
Series B                      1,271,023               -0-     $   652,000             -0-              -0-
                            -----------     -------------     -----------     -----------      -----------
TOTAL:                       24,235,523               N/A     $ 5,749,343     $(2,463,803)     $ 2,641,829
                            -----------     -------------     -----------     -----------      -----------
</TABLE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with our financial statements and the accompanying notes appearing elsewhere in
this Annual Report.

OVERVIEW

         We develop, market, and sell new age beverage category natural sodas,
fruit juices and energy drinks. Following our acquisition in April 2003 of Total
Beverage Network, our focus was to build a network of small to medium sized
beverage distribution businesses in the Eastern United States, with the goal of
becoming a leading distributor of beverage products through multiple
distribution channels. Between April 2003 and July 2004, we acquired additional
beverage distribution companies together with a natural juice company and
certain intellectual property rights related to other beverage names.

         Our business strategy was predicated upon our ability to raise
sufficient working capital and acquisition funds concurrently with the expansion
of our business. While we raised capital from time to time, much of the capital
was in the form of debt and the amount of funding we received was not sufficient
for our working capital needs. During 2006, we were unable to meet our funding


                                       16
<PAGE>

requirements. As a result we were unable to execute our acquisition plan
successfully, nor did we have sufficient capital to fund our ongoing operations
and satisfy our debt obligations. In fiscal 2006, our distribution operations in
New England were non operational and our Hawaii operation recorded some sales in
the first quarter of fiscal year 2006, but without sufficient working capital we
were unable to manufacture products in Hawaii and in November 2006 we closed
those operations. We also believe that the increase in distribution costs,
brought about by rising fuel prices, has disadvantaged smaller beverage
distributors like us that deliver to a larger number of smaller clients spread
over relatively large sales territories.

         As a result of the lack of sufficient capital to fund our ongoing
operations and following the sale of our Beverage Network of Maryland subsidiary
in January 2007 as discussed later in this section which historically
represented a significant portion of our revenues, we have adopted the sole
business strategy to remain as developers and marketers of new age beverage
category natural sodas, fruit juices and energy drinks. We will seek
distribution of our proprietary brands to our target markets, through
independent distributors and gain access to retail chains through direct
negotiation for sales of our products with each chain at a national or
semi-national level

         As previously reported and as included in this report, we are in
default under various loan covenants and agreements which could be accelerated
by the parties involved. We do not currently have sufficient assets or resources
to satisfy these obligations at the present time and do not have immediate
prospects of obtaining such financing at this juncture. Laurus Master Fund has a
security interest in substantially all of our assets, and it is unlikely that
any of the other parties who have obligations owing to them by us would be in a
position to receive any recovery in the event that Laurus Master Fund were to
exercise dominion over our assets should it seek to exercise its remedies on the
default. We are in discussions with all of the affected parties, and while we
believe we have a reasonable relationship with all of these parties, there can
be no assurances that any of these parties might proceed to undertake legal
action against our Company or pursue other measures to enforce any remedies to
which they would be entitled.

         On December 15, 2006, we signed a Letter of Intent to sell our
distribution subsidiary, Beverage Network of Maryland, Inc. ("BNMD"), to Global
Beverage Solutions, Inc. ("Global Beverage"). The Company and Global Beverage
signed an Agreement and Plan of Merger ("Merger Agreement") dated January 31,
2007, as amended on February 23, 2007, whereby we will sell our distribution
subsidiary, Beverage Network of Maryland, Inc. ("BNMD"), to Global Beverage. We
closed on this transaction on February 23, 2007.

         On December 15, 2006, we decided to discontinue the operations of BNSF,
BNCT, BNHI, and BNMA because of (a) the disappointing performance of the
subsidiaries including continuing operating losses; and (b) the Company's lack
of ability to obtain working capital loans to finance the purchase of inventory
and to finance accounts receivable.

         Accordingly, BNMD, BNSF, BNCT, BNHI, and BNMA are reported as
discontinued operations, and prior periods have been restated in the Company's
financial statements and related footnotes to conform to this presentation.

         When used in this annual report, "fiscal 2006" means the fiscal year
ended December 31, 2006 and "fiscal 2005" means the fiscal year ended December
31, 2005.

Results of Operations

                     Xstream Beverage Network & Subsidiaries
                             Statement of Operations
                        For the Year Ending December 31,

<TABLE>
<CAPTION>
                                                                   Increase        Increase
                                                                  (Decrease)      (Decrease)
                                                                 2006 vs. 2005   2006 vs. 2005
                                 2006               2005                $             %
                             ------------      ------------      -------------   -------------
<S>                          <C>               <C>               <C>                <C>
Sales                        $    284,118      $    247,578      $     36,540           15%
Cost of Goods Sold                273,218           215,297            57,921           27%
                             ------------      ------------      ------------       ------
Gross Profit                       10,900            32,281           (21,381)         -66%

Expenses
Selling, General &
 Administrative                 5,539,782         5,876,753          (336,971)          -6%
                             ------------      ------------      ------------       ------
Total Operating Expenses        5,539,782         5,876,753          (336,971)          -6%

Loss from continuing
 operations                    (5,528,882)       (5,844,472)          315,590           -5%

Other Income/(Expense):
Other Income                       11,132                --            11,132           NM
Interest Income                        --             1,528            (1,528)          NM
Interest Expense              (11,275,405)       (8,007,135)       (3,268,270)          41%
Derivative Liability
 Expense                         (765,528)       (2,223,134)        1,457,606          -66%
Change in Fair Value of
 Derivative                     5,384,125        16,383,621       (10,999,496)         -67%
Other Expense                    (928,968)               --          (928,968)          NM
Realized loss-transfer        (12,555,897)               --       (12,555,897)          NM
                             ------------      ------------      ------------       ------
Total Other Income/
 (Expense)                    (20,130,541)        6,154,880       (26,285,421)        -427%
                             ------------      ------------      ------------       ------
Income(Loss) from
 continuing operations        (25,659,423)          310,408       (25,969,831)       -8366%
                             ------------      ------------      ------------       ------
Loss from discontinued
  operations                     (853,355)       (2,264,102)        1,410,747          -62%
                             ------------      ------------      ------------       ------

Net Loss                     $(26,512,778)     $ (1,953,694)     $(24,559,084)      -1,257%
                             ============      ============      ============       ======
</TABLE>
NM: Not Meaningful

                                       17
<PAGE>

Sales

         Our sales comprise revenues related to the sale of beverage products.
Our sales increased by approximately 15% representing a result from increases in
sales of proprietary brands to third party customers, by our parent Company
"XBNI", by approximately $37,000. During the year ended December 31, 2006,
distribution of third party brands represented approximately 76% of our sales
and sales of our proprietary products represented approximately 24% of our
sales. For the year ended December 31, 2005 sales of third party brands and
sales of our proprietary products represented approximately 75% and
approximately 25%, respectively, of our sales. Although we recognized higher
sales during the year ended December 31, 2006, there could be no assurances that
we will continue to recognize similar revenues in the future.

Cost of Goods Sold

         Our cost of goods sold includes the cost of buying third-party beverage
products as well the manufacturing costs of our proprietary brands and along
with warehouse and distribution costs for all products sold. The cost of goods
sold as a percentage of sales was approximately 96% and 87%, respectively, for
the year ended December 31, 2006 and 2005. During fiscal year 2006, our cost of
sales as a percentage of net sales increased due to an increase in warehouse
related expenses of approximately $38,000 as compared to fiscal year 2005. We
anticipate that our cost of goods sold and related gross profit margins will
remain relatively constant until such time, if ever, we are successful in
increasing sales of our proprietary products, which carry higher gross profit
margins.

Sales, General, and Administrative Expenses

         Sales, general, and administrative expenses are comprised primarily of
consulting fees, salaries and benefits of our sales and administrative staff,
marketing programs and related sales expenses. The modest decrease in selling,
general and administrative expenses during the year ended December 31, 2006 when
compared to the same period during 2005, is primarily attributable to:

         *        an increase of approximately $16,060 in marketing and selling
                  expenses of our parent Company "XBNI". The increase in fiscal
                  year 2006 is primarily due to an increase in shipping and
                  freight out expenses as compared to fiscal year 2005. These
                  expenses include promotional spending at point of sale along
                  with salaries and commissions of sales personnel. We
                  anticipate that our marketing expenses will continue to
                  decrease for the following year, subject to our ability to
                  generate working capital. We will also continue to implement
                  our strategy of developing and growing corporate owned brands.

         *        a one-time, stock based expense in compensation attributable
                  to shares issued to employees resulted in an increase of
                  approximately $1,505,000. This was offset by a decrease of
                  approximately $235,000 in compensation expense. The number of
                  employees was reduced during 2006 due to insufficient working
                  capital and in our efforts to maximize the utilization of
                  financial resources. We do not anticipate issuing additional
                  shares to employees. We anticipate that the cash component of
                  our compensation expense will decrease during fiscal 2007.

         *        an increase of $33,797, or approximately 191%, in rent
                  expenses of our parent Company "XBNI". In February 2006, XBNI
                  executed a 5 year sublease beginning in March 2006. The space
                  is approximately 3,564 square feet at a rate of $12.50 per sq.
                  ft. with nominal annual increases. We anticipate that our rent
                  expense will continue to increase, for the following year,
                  subject to the terms of the lease.

         *        a decrease of approximately $1,683,000 for consulting,
                  financial advisory and public relations firms. The decrease in
                  such expenses is primarily due to the decline in executed
                  agreements utilizing stock based compensation as compared to
                  the same period in 2005. We anticipate that consulting fees
                  will remain relatively constant for the fiscal 2007.

         *        a decrease of $34,205, or approximately 9%, in professional
                  fees. This item represents both accounting and legal fees. We
                  project that professional fees will remain at such levels for
                  the following year, unless we engage in capital funding and
                  incur fees attributable to these efforts, and subject to
                  increased costs associated with compliance with Section 404 of
                  the Sarbanes-Oxley Act which will apply to us for our fiscal
                  year ending December 31, 2007. We are unable at this time to
                  estimate those costs;

                                       18
<PAGE>

         *        a decrease of $187,639, or approximately 81%, in bad debt
                  expense. The primary cause of this decrease relates to a one
                  time write down of approximately $182,000 of payroll tax
                  payments made by us to Florida Employer Solutions, Inc. the
                  company that we had engaged to provide payroll services and
                  file quarterly payroll tax returns during fiscal year 2005.
                  Florida Employer Solutions did not make the corresponding
                  payments to the IRS. We anticipate that bad debt expense will
                  decrease for the following year; and

         *        a decrease of approximately $54,688 in general overhead due to
                  eliminating expenses as a result of insufficient working
                  capital.

         These decreases were offset by:

         *        an increase of approximately $16,060 in marketing and selling
                  expenses of our parent company "XBNI". The increase in fiscal
                  year 2006 is primarily due to an increase in shipping and
                  freight out expenses as compared to fiscal year 2005. These
                  expenses include promotional spending at point of sale along
                  with salaries and commissions of sales personnel. We
                  anticipate that our marketing expenses will continue to
                  decrease for the following year, subject to our ability to
                  generate working capital. We will also continue to implement
                  our strategy of developing and growing corporate owned brands;

         *        a one-time, stock based expense in compensation attributable
                  to shares issued to employees resulted in an increase of
                  approximately $1,505,000. This was offset by a decrease of
                  approximately $235,000 in compensation expense. The number of
                  employees was reduced during 2006 due to insufficient working
                  capital and in our efforts to maximize the utilization of
                  financial resources. We do not anticipate issuing additional
                  shares to employees. We anticipate that the cash component of
                  our compensation expense will decrease during fiscal 2007;

         *        an increase of $33,797, or approximately 191%, in rent
                  expenses of our parent Company "XBNI". We anticipate that our
                  rent expense will continue to increase, for the following
                  year, subject to the terms of the lease; and

         *        a one-time expense of $303,017 from impairment of our
                  trademarks in Maui Juice and Squeeze soda during fiscal year
                  2006 which we deemed impaired.

Other income/expenses

Interest Expense

         Interest expense consists primarily of amortization of debt discount
resulting from the issuance of both common stock and common stock purchase
warrants as provisions contained within various debt instruments issued by us.
The increase in interest expense during the year ended December 31, 2006 as
compared to the comparable period in 2005 is attributable to the amortization of
capital funding costs, debt issue costs and debt discount. The increase is also
attributable to issuance of shares of common stock for payment deferral and non
payment of the principal and accrued interest of notes payable after its
maturity date. We anticipate that our interest expense may increase
significantly during the fiscal year 2007 as the Company refinanced its
outstanding $3 million senior secured convertible note with the Laurus Master
Fund on March 31, 2006. The Company refinancing transaction resulted in the
issuance of a $4 million revolving line of credit, a secured convertible
promissory note for $2 million, and a $4 million secured non-convertible note.
The notes mature March 31, 2009, bear interest subject to the current prime
rate, and never less than nine percent per annum.

Change in Fair Value of Derivatives

         The decrease in other income-derivative liabilities during the year
ended December 31, 2006 when compared to the comparable period in 2005 is
attributable to a decrease in fair value of derivatives liabilities between
measurement dates.

Derivative Liability Expense

         The decrease in derivative liability expenses was primarily
attributable to a decrease of approximately $1,460,000 for original issuance of
derivative liabilities associated with convertible notes payable. We recognized
the excess of the fair value of the derivative liabilities over the debt
discount as derivative liability expense.

Other Expense

         The increase in other expenses was primarily attributable to one-time
expenses of approximately $236,000 for costs associated with potential
acquisitions and a default premium paid to Laurus Master Fund for the repayment
of the senior secured convertible loan on March 31, 2006 in the amount of
approximately $692,000 during fiscal year 2006.

Realized Loss on Subscription Receivable

         The realized loss on subscription receivable consists of losses on our
investment from Cogent Capital for approximately $12.5 million during the year
ended December 31, 2006; there was no comparable amount for the year ended
December 31, 2005. The loss resulted from a decline in value of our stock in
2005 and 2006, which was previously recorded as a separate element of
comprehensive income which was a loss of $8,242,104 for fiscal 2005.

                                       19
<PAGE>

Income (loss) from continuing operations

         We reported a loss before discontinued operations of $25,659,423 for
fiscal year 2006 as compared to an income before discontinued operations of
$310,408 for the fiscal year 2005.

Loss from discontinued operations

         For the year ended December 31, 2006, we recorded a loss from
discontinued operations of $853,355 associated with the discontinuation of our
subsidiaries, BNMD, BNHI, BNSF, BNMA, and BNCT as compared to a loss from
discontinued operations of $2,264,102 for the year ended December 31, 2005. The
decrease is primarily attributable to a decrease in operating and non operating
expenses due to a decline in operating activity in our S. Florida,
Massachusetts, Connecticut and Hawaii distributors, as a result of insufficient
working capital.

         The following table sets forth, for the fiscal years indicated,
selected financial data of the Company's discontinued operations.

                                                   2006             2005
                                               -----------      -----------
Revenues                                       $ 9,782,382      $ 9,978,657
Cost of sales                                    8,138,985        8,229,171
                                               -----------      -----------
Gross profit                                     1,643,397        1,749,486
Operating and other non-operating expenses       2,496,752        4,013,588
                                               -----------      -----------

Loss from discontinued operations              $  (853,355)     $(2,264,102)
                                               ===========      ===========

Net Loss

         We reported a net loss of $26,512,778 for fiscal year 2006 as compared
to a net loss of $1,953,694 for the fiscal year 2005.

Unrealized Loss on Subscription Receivable

         We reported an unrealized loss of $0 and $8,242,104 against the
$15,000,000 subscription receivable resulting from the Cogent transaction.

Preferred Stock Dividends

         We recorded preferred stock dividends in fiscal year 2006 and 2005 of
$105,060 and $137,718, respectively, payable to our Series B Convertible
Preferred Stock sold to the Stockholders in August 2004. In accordance with the
designations, rights and preferences of the Series B Convertible Preferred
Stock, we expect to record preferred stock dividends during the following year.

Net Loss Available to Common Stockholders

         We reported a net loss available to common stockholders of $26,617,838
for fiscal year 2006 as compared to a net loss available to common stockholders
of $2,091,412 for fiscal year 2005. This translates to an overall per-share loss
available to shareholders of $.65 for the year ended December 31, 2006 compared
to per-share loss of $.13 for the year ended December 31, 2005.

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2006 we had cash on hand of approximately $1,300 and a
working capital deficit of approximately $14.6 million. In addition to the
foregoing, we have past due obligations and judgments of approximately $896,000.
We restructured our secured promissory note to Laurus Master Fund, L.P. in March
2006, but this restructure only resulted in additional available working capital
to us of approximately $259,000. In order to sustain our operations, pay our
obligations as they become due and continue the growth of our Company, we will
be required to raise significant additional capital. We do not presently have
any firm commitments for any additional capital and our financial condition may
make our ability to secure this capital difficult. There are no assurances that
we will be able to continue our business and we may be forced to cease
operations if we do not raise significant additional working capital in which
event investors could lose their entire investment in our Company.

         Net cash used in operating activities for the year ended December 31,
2006 was $(2,068,459) as compared to $(2,930,655) for the year ended December
31, 2005 and includes the following:

         *        A net increase of $24,559,084 in our net loss (increase
                  $25,969,831 from continuing operations and a decrease of
                  $1,410,747 from discontinued operations),

         *        A decrease of $244,760 ($187,639 from continuing operations
                  and $57,121 from discontinued operations) in bad debt expense,
                  which is primarily attributable to a one time write-off of
                  receivable of $181,517 from payroll tax payment made by us to
                  Florida Employer Solutions, Inc. the company that we had
                  engaged to provide payroll services and file quarterly payroll
                  tax returns for part of fiscal year 2005 and a decrease in
                  write off of our accounts receivable associated with
                  discontinued operations due to decreased sales of BNHI, BNCT,
                  BNSF and BNMA.

                                       20
<PAGE>

         *        A net decrease of $8,000 in depreciation due to disposal of
                  certain fixed asset during 2006,

         *        An increase of $1,119,147 in amortization of deferred fees and
                  consulting that relates to a stock based expenses attributable
                  to payment deferral of our notes payable and consulting
                  agreements entered into in both prior periods and during the
                  year ended December 31, 2006. These agreements provide for the
                  issuance of shares of our common stock as consideration for
                  payment deferral of our notes payable and services,

         *        A decrease of $1,457,606 in derivative liability expenses.
                  During 2006, we issued only one convertible debt related to
                  the Laurus Master Fund refinance that occurred on March 31,
                  2006 which we have accounted for as a derivative due to its
                  conversion feature,

         *        An increase of $849,879 in amortization of debt discount and
                  fees to interest expense relating to our outstanding debt
                  instruments with the Laurus Master Fund including a $4,000,000
                  secured non-convertible note and a $2,000,000 secured
                  convertible note; it also includes our Series B Convertible
                  Preferred Stock and convertible term loans. In March 2006, the
                  Company also retired the secured convertible note with the
                  Laurus Master Fund and amortized the remaining balance of
                  $1,375,000 in debt discount,

         *        A decrease of $26,642 in amortization of intangibles
                  associated with discontinued operations, which are related to
                  our acquired customer lists. The decrease was due to the
                  impairment loss recognized during 2006 and 2005 which reduced
                  the monthly amortization basis,

         *        An increase of $561,709 in amortization of capital funding
                  costs attributable to the Laurus Master Fund $4,000,000
                  secured non-convertible note, $2,000,000 secured convertible
                  note, the Series B Convertible Preferred Stock, and
                  convertible term loans,

         *        A decrease of $930,403 in liquidated damages for the failure
                  of the Company's Form SB-2 to be declared effective on a
                  timely basis. The decrease was primarily attributable to the
                  refinancing of our outstanding $3 million senior secured
                  convertible note with the Laurus Master Fund on March 31,
                  2006. We paid liquidated damages of $1,170,000 with the
                  issuance of $2 million secured convertible loan on March 31,
                  2006. We anticipate recognizing liquidated damages payable to
                  our Series B preferred shareholders and will continue through
                  fiscal 2007,

         *        A decrease of $166,281 in the default premium related to the
                  Laurus Master Fund for the $3,000,000 secured convertible note
                  that was refinanced on March 31, 2006,

         *        An increase of stock based loan fees of $646,768 attributable
                  to the issuance of shares of common stock according to
                  provisions in certain debt instruments and to defer payments
                  on certain debt instruments,

         *        A decrease in stock based expenses of $349,162 during fiscal
                  year 2006, which is primarily attributable to a decrease in
                  issuance of stock warrants for service agreements as compared
                  to fiscal year 2005,

         *        An increase of $10,999,496 in the change of the fair value of
                  the derivative liability. This results from the issuance of
                  warrants for services under contract agreements and warrants
                  issued as a provision on certain convertible debt instruments
                  as well as the convertible loans and liability in connection
                  with the Series B preferred shares. The increase is
                  attributable to a decrease in fair value of derivatives
                  liabilities between measurement dates,

         *        An increase of $40,175 associated with discontinued operations
                  as a loss on the disposition of fixed assets,

         *        An increase of $12,555,897 from the transfer of the unrealized
                  loss on the subscription receivable associated with the Cogent
                  transaction,

         *        An increase of $303,017 from impairment of our trademarks in
                  Maui Juice and Squeeze soda during fiscal year 2006,

         *        A decrease of $1,098,041 associated with discontinued
                  operations from impairment expense of our customer lists and
                  goodwill for acquired intangibles, which was primarily due to
                  a one-time write down of acquired goodwill for Beverage
                  Network of Maryland in 2005,

                                       21
<PAGE>

         *        An increase of $30,502 primarily attributable to net book
                  values of assets of discontinued operations which were written
                  off during fiscal year 2006,

         *        An increase of $20,965 in accounts receivable due to an
                  increase in sales in XBNI operations,

         *        An increase of $129,946 in inventory,

         *        a decrease of $19,067 in other current and non-current assets,
                  primarily due to prepaid expenses and rental security
                  deposits,

         *        An increase of $459,589 in accounts payable,

         *        An increase of $1,955,166 in accrued expenses and accrued
                  interest,

         *        A decrease of $298,327 in net assets from discontinued
                  operations,

         *        An increase of $424,565 in net liabilities from discontinued
                  operations,

         Net cash used in investing activities for the year ended December 31,
2006 was $34,849 as compared to $19,009 for the year ended December 31, 2005
includes the following:

         *        An increase of $26,260 ($1,772 from continuing operations and
                  $24,488 from discontinued operations) for the acquisition of
                  equipment,

         *        An increase of $10,420 from the proceeds included in the
                  disposition of fixed assets related to discontinued
                  operations.

         Net cash provided by financing activities for the year ended December
31, 2006 was $2,012,152 as compared to $2,957,794 for the year ended December
31, 2005 and includes the following:

         *        An increase of $855,500 from the proceeds of non-related party
                  loans, primarily from the Laurus Master Fund and the
                  convertible term loans,

         *        A net increase of $2,790,115 resulting from the repayment of
                  non-related party loans, primarily to the Laurus Master Fund
                  and convertible term loan holders,

         *        An increase in proceeds received and repayments on the
                  revolving line of credit of $4,617,800 and $3,796,031,
                  respectively in connection with the issuance of the $4 million
                  line of credit with Laurus Master fund in March 2006.


         *        A decrease of $442,734 in capitalized funding costs. During
                  2006, we paid $254,500 in connection with the Laurus Master
                  Fund $4,000,000 secured non-convertible note and the
                  $2,000,000 secured convertible note issued in March 2006 and
                  $40,000 in connection with the issuance of a $250,000 note
                  payable in April 2006. During 2005, we paid $737,234 in
                  connection with the issuance of convertible term loans and an
                  agreement entered with Cogent Capital Corp.

         *        An increase of $16,639 in the cash overdraft liability,

         *        An increase of $50,100 from the proceeds of related party
                  loans,

         *        A net decrease of $86,000 resulting from the repayment of
                  related party loans,

         *        A decrease of $452,771 in disbursement of restricted cash from
                  the Laurus Master Fund.

         On September 12, 2005 we received a notice of default under the terms
of two secured promissory notes issued by us to investors in the aggregate
principal amount of $300,000. These notes were due and payable by us on
September 1, 2005. As collateral for these notes Theodore Farnsworth, our CEO,
pledged 100,000 shares of our common stock owned by him. The note holders are
demanding payment of $233,279. In February 2006, we executed an agreement in
consideration for 2,500,000 shares of restricted common stock, to defer payments
of these note holders until May 10, 2006. In August 2006 we received a notice of
final default judgment from these note holders demanding $270,106 of principal
and accrued interest. As we have been unable to pay these amounts, the note
holders are entitled to foreclose on the collateral at any time. We were unable
to satisfy the entire balance due and the bank account was garnished for The
Company was not able to satisfy the judgment and the note holders garnished the
bank account in the amount of $45,393. As of March 2007, the Company has paid
$200,000 from the proceeds of the note due from Global Beverage Solutions, Inc.


                                       22
<PAGE>

transaction referenced elsewhere in this report. The balance due is $59,600 as
of March 31, 2007. The default under this note has created another event of
default under the Secured Convertible Term Note due Laurus Master Fund, Ltd. as
well as under the unsecured promissory notes in the principal amount of
$3,019,500. On September 29, 2005 we received a notice of default from Morris
Stodard and Master Distributors, Inc. under the terms of an unsecured promissory
note issued in connection with our purchase of Master Distributors, Inc. as well
as under an employment agreement with Mr. Stodard. The note holder is demanding
payment of $517,735 which he asserts is the amount of outstanding principal and
interest due under the note, as well as amounts due under the employment
agreement. As described elsewhere herein, in connection with the sale of
Beverage Network of Maryland to Global Beverage, Master Distributors, Inc.
received from Global Beverage a secured convertible promissory note in the
amount of $2,000,000 and other consideration as a novation for the initial
promissory note in the same amount issued by the Company on July 1, 2004 as part
of the initial acquisition by the Company of the asset of Master Distributors.
The Company is in the process of obtaining its original promissory note and
formal confirmation of the novation of that obligation.

         The default under the Morris Stodard/Master Distributors note created
another event of default under the Secured Convertible Term Note due Laurus
Master Fund, Ltd. as well as under the unsecured promissory notes in the
principal amount of $3,019,500. On June 28, 2006, we received a notice of final
default judgment from the principal owner of the Maui Juice Company for failure
to pay principal payments under the terms of the Purchase and Sale Agreement for
the Maui Juice trademark. The amount in arrears is approximately $73,750 and the
Company's attorney is negotiating with the plaintiffs for an alternative payment
schedule. The default under this note has created another event of default under
the Secured Convertible Term Note due Laurus Master Fund, Ltd. as well as under
the unsecured promissory notes in the principal amount of $3,019,500. The
defaults were waived by Laurus Master Fund, L.P. in connection with the
restructure of our obligations to them in March 2006.

Swap transaction

         In June 2005, we entered into a series of related agreements with
Cogent Capital Corp. and 16 institutional accredited investors pursuant to which
we issued 19,736,848 common shares at a purchase price of $0.76 per share in
exchange for a total of $15,000,000 in U.S. government bonds. The price per
common share was based on a discount of 20% from the closing price of the common
stock in June 2005. The U.S. government bonds were issued at current market
value. In conjunction with this transaction, our company and Cogent Capital
Corp. entered into an escrow agreement with the investors pursuant to which an
aggregate of 15,789,472 shares of our common stock, as well as the $15,000,000
of U.S. government bonds, were deposited in escrow. The common shares provided
to the investors in exchange for the bonds were issued pursuant to an exemption
from registration under the Securities Act of 1933 by virtue of Section 4(2) of
that Act.

         In conjunction with this investment, we entered into an escrow
agreement with Cogent Capital and the investors under which the 15,789,472
shares, as well as the bonds, were deposited with the designated escrow agent.
In addition, we entered into the following agreements with Cogent Capital:

         o        2002 Master Agreement conforming to the form of the
                  International Swaps and Derivatives Association, Inc.;

         o        Credit Support Annex to the Master Agreement consistent with
                  the ISDA form;

         o        Equity swap transaction letter of agreement; and

         o        Equity option transaction letter of agreement.

         Under the terms of the equity swap, the 15,789,472 common shares and
the bonds are maintained in escrow until the earlier of 42 months from June 2005
or such time as all of these shares are covered by an effective registration
statement filed with the SEC. We, however, are not obligated to register the
common shares. In addition, we can unilaterally terminate the agreement by
exercising the call option for the common shares in escrow.

         At such time as we complete a registration statement covering the
19,736,848 shares of our common stock or the common shares have satisfied the
holding period under Rule 144(k) at June 10, 2007, whichever date occurs first,
we will have the right on a quarterly basis to have $2,500,000 in value of bonds
released from the escrow account. To the extent that the closing price of the
common shares averaged over the last 10 trading days of each quarter annual
period does not equal or exceed $0.95 per share, we will be required to transfer
to Cogent Capital Group an amount equal to 1/6 of the sum represented by
15,789,472 multiplied by $0.95 less the price of the common shares averaged over
the last 10 days of each quarter annual period. Any amount exceeding $0.95 per
share would be paid directly to us using the formula 1/6 of the price of the
common shares averaged over the last 10 days of each quarter annual period less
$0.95 multiplied by 15,789,472. We also have the right pursuant to a call option
to acquire our common shares in escrow on June 10, 2007 at a price equal to
their fair market value at exercise of the option. Cogent Capital Corp. would
remain collateralized on the equity swap by the bonds up to $15,000,000. During
the period of the escrow, Cogent Capital Corp. will also receive interest on the
amount of $15,000,000 at a rate equal to LIBOR +125 basis points, payable
monthly. As the escrowed bonds are released to us, the amount upon which that we
are paying interest reduces by a commensurate amount.

         As an initial entrance amount in the equity swap transaction, Cogent
Capital Corp. has received a payment of $300,000 and 1,381,579 shares of our
common stock, which are subject to certain demand and piggyback registration
rights, subject to deferral under certain conditions. As a result of the
issuance of the above securities, we were required to make adjustments in the
conversion and exercise prices of common shares underlying various securities
issued to investors in previous transactions based upon an adjusted price of
$0.76 per share. While this transaction has not generated any cash proceeds to
us at this time, and unless our stock price increases significantly, of which
there are no assurances, it is unlikey that we will ever receive any benefit
from the Cogent Transaction.

                                       23
<PAGE>

Capital Raising Transactions

         From December 2005 to March 2006, we sold a secured term note to
Broadlawn Master Fund Ltd. and T2 Capital Management, LLC, that resulted to
total proceeds of $550,000 to the Company. The notes contain maturity dates
ranging from February 23, 2006 to May 1, 2006 and contain provisions for fixed
interest that amounts to $65,000 if repaid according to terms. The notes accrue
5% interest per month if in arrears along with a provision whereby the note
holder is entitled to an interest penalty in the amount of $50,000 per month if
the notes are not repaid by August 31, 2006. We recognized Interest expense of
$606,341 for the year ended December 31, 2006. These notes also include a
provision whereby the holders received, in aggregate, 532,500 shares of
restricted common stock upon issuance of these notes. We also issued 1,875,000
share of its common stock as a pledge of collateral for the notes. In December
2006, we assigned 1,750,000 shares of these collateral shares to a note holder
for non payment of the principal and accrued interest in August 2006. In April
2006, we paid off $50,000 of these notes. On December 15, 2006, in connection
with these notes, we issued 1,500,000 shares of its common stock for non payment
of the principal and accrued interest in August 2006 and recognized interest
expense of $120,000 during the year ended December 31, 2006. The total balance
of the principal notes and accrued interest as of December 31, 2006 was
$1,106,341.

         On April 7, 2006, we sold a secured term note to an accredited investor
in the amount of $250,000. The note had a maturity date of August 5, 2006 on
which date the principal and an interest payment of $25,000 become due; it has
not been paid. The note was unsecured and ranked pari pasu with all of our
existing, unsecured obligations. We also issued a grant of 250,000 shares of
common stock as an additional consideration to the payee.

         On April 7, 2006, the Company completed a Securities Purchase Agreement
with Laurus Master Fund, Ltd., a Cayman Islands investment fund , dated as of
March 31, 2006, to refinance certain existing obligations with Laurus and to
provide the Company with additional financing. The financing was structured
through the sale of three promissory notes by the Company; i.e., a secured
non-convertible revolving note (the "Revolving Note") in the principal amount of
$4,000,000, a secured convertible term note ("Term Note 1") in the principal
amount of $2,000,000, and a secured non-convertible term note ("Term Note 2") in
the principal amount of $4,000,000. The aggregate principal amount of the Notes
is $10,000,000.

         The Revolving Note bears interest at the rate of prime plus 2% but the
rate shall not at any time be less than nine percent (9%) and has a term of
three years. Funds up to $4,000,000 from this transaction will be made available
to the Company in accordance with a formula rate equal to 90% of the Company's
eligible accounts receivable and a further amount equivalent to 50% of the
Company's eligible inventory, which amounts are subject to periodic adjustment
by Laurus during the term of the Revolving Note in accordance with its terms.

         Term Note 1 bears interest at the rate of prime plus 1% but the rate
shall not at any time be less than nine percent (9%), has a term of three years
and is convertible into shares of the Company's common stock at a fixed
conversion price of $0.45 per share. Interest is payable at maturity. The $2
million note was issued for payment of liquidated damages of $1,170,000 and
default interest of $332,563. Accordingly, the remaining balance was recognized
as debt discount in connection with the 2 million and 4 million secured note
which amounted to $165,812 and $331,625, respectively.

         Term Note 2 bears interest at the rate of prime plus 2% but the rate
shall not at any time be less than nine percent (9%) and has a term of three
years. The first interest payment is due on May 1, 2006. Amortization of the
principal amount will commence on December 1, 2006 with payments of $75,000 due
on the first day of each month thereafter until November 1, 2007. From December
1, 2007 through November 1, 2008, monthly principal payments will increase to
$137,500 and then to $187,500 from December 1, 2008 until the maturity date, at
which time all outstanding balances under Term Note 2 become due and payable.

         The proceeds from Term Note 2 were disbursed as follows:

         1.       $3,486,192 to Laurus in satisfaction of all amounts due and
                  payable including principal, interest and penalties, under the
                  terms of a secured convertible term note dated May 14, 2006
                  issued to Laurus by the Company;
         2.       $227,500 as fees to Laurus;
         3.       $27,000 to Laurus for expenses;
         4.       $259,308 to the Company for working capital.

         We have pledged all of our assets and common stock of our subsidiaries
as security for our obligation to Laurus, which continues from the prior term
note issued to Laurus. As described elsewhere herein, we have sold a substantial
portion of the assets pledged to Laurus as well as the stock of our Beverage
Network of Maryland subsidiary to Global Beverage. We have orally advised Laurus
of the closing of the transaction and will seek to obtain the written releases
of those assets. In connection with this financing, we have also agreed to file
a Registration Statement with the Securities and Exchange Commission covering
the resale of the shares of common stock issuable upon the conversion of the
principal, interest and fees related to Term Note 1 within 45 days of the
agreement and obtain effectiveness within 90 days thereafter.

         As a result of the issuance of the above securities, we were required
to make adjustments in the conversion and exercise prices of common shares
underlying various securities issued to investors in previous transactions based
upon an adjusted price of $0.45 per share.

                                       24
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

         In February 2006, the FASB issued SFAS 155, which applies to certain
"hybrid financial instruments," which are instruments that contain embedded
derivatives. The new standard establishes a requirement to evaluate beneficial
interests in securitized financial assets to determine if the interests
represent freestanding derivatives or are hybrid financial instruments
containing embedded derivatives requiring bifurcation. This new standard also
permits an election for fair value remeasurement of any hybrid financial
instrument containing an embedded derivative that otherwise would require
bifurcation under SFAS 133. The fair value election can be applied on an
instrument-by-instrument basis to existing instruments at the date of adoption
and can be applied to new instruments on a prospective basis. The adoption of
SFAS No.155 did not have a material impact on the Company's financial position
and results of operations.

         In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
of Financial Assets, an amendment of FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
This statement requires all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable, and permits for
subsequent measurement using either fair value measurement with changes in fair
value reflected in earnings or the amortization and impairment requirements of
Statement No. 140. The subsequent measurement of separately recognized servicing
assets and servicing liabilities at fair value eliminates the necessity for
entities that manage the risks inherent in servicing assets and servicing
liabilities with derivatives to qualify for hedge accounting treatment and
eliminates the characterization of declines in fair value as impairments or
direct write-downs. SFAS No. 156 is effective for an entity's first fiscal year
beginning after September 15, 2006. The adoption of this statement is not
expected to have a significant effect on the Company's future reported financial
position or results of operations.

         In July 2006, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation (FIN) No. 48, "Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109." This interpretation provides guidance
for recognizing and measuring uncertain tax positions, as defined in SFAS No.
109, "Accounting for Income Taxes." FIN No. 48 prescribes a threshold condition
that a tax position must meet for any of the benefit of an uncertain tax
position to be recognized in the financial statements. Guidance is also provided
regarding de-recognition, classification, and disclosure of uncertain tax
positions. FIN No. 48 is effective for fiscal years beginning after December 15,
2006. The Company does not expect that this interpretation will have a material
impact on its financial position, results of operations, or cash flows.

         In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This Statement defines
fair value as used in numerous accounting pronouncements, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosure related to the use of fair value measures in financial
statements. The Statement is to be effective for the Company's financial
statements issued in 2008; however, earlier application is encouraged. The
Company is currently evaluating the timing of adoption and the impact that
adoption might have on its financial position or results of operations.

         In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when quantifying
Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108 requires
companies to evaluate the materiality of identified unadjusted errors on each
financial statement and related financial statement disclosure using both the
rollover approach and the iron curtain approach, as those terms are defined in
SAB 108. The rollover approach quantifies misstatements based on the amount of
the error in the current year financial statement, whereas the iron curtain
approach quantifies misstatements based on the effects of correcting the
misstatement existing in the balance sheet at the end of the current year,
irrespective of the misstatement's year(s) of origin. Financial statements would
require adjustment when either approach results in quantifying a misstatement
that is material. Correcting prior year financial statements for immaterial
errors would not require previously filed reports to be amended. If a Company
determines that an adjustment to prior year financial statements is required
upon adoption of SAB 108 and does not elect to restate its previous financial
statements, then it must recognize the cumulative effect of applying SAB 108 in
fiscal 2006 beginning balances of the affected assets and liabilities with a
corresponding adjustment to the fiscal 2006 opening balance in retained
earnings. SAB 108 is effective for interim periods of the first fiscal year
ending after November 15, 2006. The adoption of SAB 108 did not have an impact
on the Company's consolidated financial statements.

         Other accounting standards that have been issued or proposed by the
FASB or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the consolidated
financial statements upon adoption.

CRITICAL ACCOUNTING POLICIES

         Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 to our consolidated financial statements includes a
summary of the significant accounting policies and methods used in the
preparation of our consolidated financial statements. The following is a brief
discussion of the more significant accounting policies and methods used by us.

ESTIMATES

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Estimates are used when accounting for allowances for
doubtful accounts, inventory reserves, depreciation and amortization, taxes,
contingencies, and impairment allowances, and valuation of debt discounts and
derivative liabilities. Such estimates are reviewed on an on-going basis and
actual results could differ from those estimates.

                                       25
<PAGE>

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of the
Company and its wholly owned Subsidiaries. All material inter-company
transactions have been eliminated.

INVENTORY

         Inventory is stated at the lower of cost or market determined in a
"first-in, first-out" basis consisting of raw materials and finished goods.

REVENUE RECOGNITION

         The Company follows the criteria of the Securities and Exchange
Commission Staff Accounting Bulletin 104 for revenue recognition. The Company
recognizes revenue when persuasive evidence of an arrangement exists, delivery
of product has occurred, the sales price is fixed or determinable, and
collectibility is reasonably assured. The Company recognizes revenue upon
acceptance of delivery of its product by its customers at agreed prices. Based
on market conditions, the Company or its suppliers may choose to promote certain
brands by offering free product or case volume discounts. The cost of any
supplier-sponsored promotion is recoverable in whole or in part from the
supplier. The Company follows the guidance of Emerging Issues Task Force (EITF)
Issue 01-9 "Accounting for Consideration Given by a Vendor to a Customer" and
(EITF) Issue 02-16 "Accounting By a Customer (Including a Reseller) for Certain
Considerations Received from Vendors." Accordingly, the Company does not
recognize revenue on free promotional products, discounts or rebates received.
These incentives are recognized as a reduction of the cost of products.
Promotional products given to customers are recognized as a cost of sales, net
of any charge-backs received from vendors. Cash incentives provided to customers
are recognized as a reduction of the related sale price, and, therefore, are a
reduction in sales. Promotional products given to customers are recognized as a
cost of sales, net of any charge-backs received from vendors. Cash incentives
provided to customers are recognized as a reduction of the related sale price,
and, therefore, are a reduction in sales.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosures of information about
the fair value of certain financial instruments for which it is practicable to
estimate that value. For purposes of this disclosure, the fair value of a
financial instrument is the amount at which the instrument could be exchanged in
a current transaction between willing parties, other than in a forced sale or
liquidation. The carrying amounts of the Company's short-term financial
instruments, including accounts receivable, accounts payable, accrued expenses,
and other current assets and liabilities approximate fair value due to the
relatively short period to maturity for these instruments.

ITEM 7.  FINANCIAL STATEMENTS

         Our financial statements are contained in pages F-1 through F-40, which
appear at the end of this annual report.

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

         None.

ITEM 8A. CONTROLS AND PROCEDURES

         As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of December 31, 2006, the end of the period covered by this report, our Chief
Executive Officer who also serves as our principal financial and accounting
officer concluded his evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures. Disclosure controls and
procedures are controls and procedures designed to reasonably assure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, such as this report, is recorded, processed, summarized
and reported within the time periods prescribed by SEC rules and regulations,
and to reasonably assure that such information is accumulated and communicated
to our management, including our Chief Executive Officer, to allow timely
decisions regarding required disclosure.

         Our management does not expect that our disclosure controls and
procedures will prevent all error and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance
that the control system's objectives will be met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. The design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.

         As of the evaluation date, our Chief Executive Officer concluded that
we maintain disclosure controls and procedures that are effective in providing
reasonable assurance that information required to be disclosed in our reports


                                       26
<PAGE>

under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods prescribed by SEC rules and regulations, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer, to allow timely decisions regarding
required disclosure.

         There have been no changes in our internal control over financial
reporting during our fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 8B. OTHER INFORMATION

         None.

                                    PART III

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

EXECUTIVE OFFICERS AND DIRECTORS

       Name                  Age                 Position
       ----                  ---                 --------

Theodore Farnsworth           45          Chairman of the Board, President
                                          And Chief Executive Officer and
                                          principal financial officer

Barry Willson                 59          Vice Chairman of the Board,
                                          Chief Scientific Officer,
                                          Secretary and Treasurer

         Theodore Farnsworth. Mr. Farnsworth has served as Chairman since
September 2001 and our Chief Executive Officer since November 2004. Mr.
Farnsworth also serves as our president and principal financial officer.
Previous thereto, he served as Chairman and Founder of Farmbid.com, an
agricultural Internet portal site. Previously, he was President of Fontal
Restaurant Group, Inc., parent of Burrito Grill restaurants and founder of the
Psychic Discovery Network. Prior thereto, he was president of Cannon Marketing
Group, Inc., a company he founded in 1994, which became one of the premier
entries into the burgeoning pay-per-call industry and a parent for multiple
interactive ventures.

         Barry Willson. Mr. Willson has served as our Vice Chairman, Chief
Scientific Officer, Secretary and Treasurer since April 2003. From March 2003
until its acquisition by us in April 2003 Mr. Willson was President of Total
Beverage Network, Inc. From 2002 until the formation of Total Beverage Network,
Inc. Mr. Willson served as Technical Operations Manager of BEVsystems,
International, Inc., a company engaged in the manufacture of super-oxygenated
water. From 1994 through 2002, Mr. Willson directed various projects at Drinks
International Management, a consulting company for operators in the
international beverage industry, where his clients included Cadbury Schweppes,
Royal Crown, Snapple and Sunkist. From 1986 through 1994, Mr. Willson served as
the Managing Director of Cadbury Schweppes Latin American Operations, including
the Mexican company-owned plants and distribution companies, where his
responsibilities included overseeing production, sales, marketing and
distribution of Crush, Schweppes, Sunkist, Canada Dry, Mott's and Hawaiian Punch
brands.

ADVISORY BOARD TO THE BOARD OF DIRECTORS

         In December 2003 our board of directors formed an Advisory Board whose
members are asked to make recommendations to our board of directors in their
particular area of expertise with respect to the practices, policies and
procedures of our company. We issued each member of the Advisory Board 50,000
shares of our common stock as compensation for their services to us, and each
member is paid on a project basis in accordance with their normal fee schedule.
We do not convene meetings of the advisory board but use the professional advice
and services of its members on as needed. The following individuals are members
of the Advisory Board.

         Foster Devereux. Mr. Devereux's career spans the world of investment
banking and the soft drink industry. For 25 years he served as an officer and
director of Allen Company, a New York-based investment banking firm, which was a
major participant in global soft drink company financing. For 10 years Mr.
Devereux owned and operated the "Squeeze" carbonated soft drink brand. A
graduate of Williams College, Mr. Devereux was appointed by the Governor of
Massachusetts to be a Trustee of the Massachusetts College of Liberal Arts.

         Elizabeth Dunn, C.P.A. Ms. Dunn specializes in corporate, LLC,
partnership and individual taxes for many closely-held regional, national and
international businesses. Ms. Dunn served in both the audit and specialized tax
divisions of Ernst & Whinney and Arthur Young & Co. At Merrill Lynch she was
responsible for extensive corporate finance department functions, including
evaluating and providing current and prospective financial data for top
executives. Ms. Dunn earned a BBC from Pace University, Lubin School of
Business. She is a member of the American and Florida Institutes of Certified
Public Accountants.

         Richard Q. Armstrong. Mr. Armstrong has had a long and distinguished
career as a manager and senior executive in a variety of consumer product
businesses with particular emphasis in the beverage industry that culminated
with positions as President of Canada Dry International, Canada Dry Worldwide
and the combined companies of Canada Dry and Dr. Pepper. His storied career
began in consumer, packaged goods marketing at LifeSavers International and
several major advertising agencies in New York. Active in the wine and spirits
industry, he was managing director of LVMH US. Corporation, the U.S. subsidiary
of the French luxury good conglomerate. After successfully restructuring
regional Adirondack Beverages he returned to RQA Enterprises, his own investment
and consulting firm. An honors graduate of Bowdoin College, he presently sits on
the board of UBS Paine Webber Mutual Funds Group. He is a former Director of the
Board of the Fuqua School of Business Administration at Duke University.

                                       27
<PAGE>

COMPENSATION OF DIRECTORS

         Our Board of Directors is presently comprised of our executive officers
who do not receive compensation for their services as directors. At such time as
we expand our Board of Directors to include independent members we will
establish a policy for the compensation of those members.

COMPENSATION OF THE ADVISORY BOARD

         Upon an individual joining our Advisory Board, we issued that
individual 2,500 shares of our common stock. We have also agreed to pay the
Advisory Board members for their time spent on our behalf. Ms. Elizabeth Dunn is
paid periodically for professional services at the rate of $250 per hour, plus
$120 per hour for her associate and $75 per hour for her bookkeeper who may
provide support services to her. In addition, we reimburse Ms. Dunn for all
reasonable out-of- pocket expenses incurred by her relating to her services to
use, including attending Advisory Board meetings. All other Advisory Board
members are compensated for services rendered, not to exceed $1,000 per day in
combination of service and reasonable out of pocket expenses. We may also
provide additional compensation to Advisory Board members in amounts to be
agreed upon for performance of extraordinary services on our behalf.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         We have no equity securities registered under Section 12(g) of the
Securities Exchange Act of 1934, and accordingly, our officers, directors and
principal stockholders are not required to file reports under Section 16(a) of
the Exchange Act.

CODE OF ETHICS

         We have adopted a Code of Ethics and Business Conduct to provide
guiding principles to our principal executive officer, principal financial
officer, and principal accounting officer or controller of our company in the
performance of their duties. Our Code of Ethics and Business Conduct also
strongly recommends that all directors and employees of our company comply with
the code in the performance of their duties. Our Code of Ethics and Business
Conduct provides that the basic principle that governs all of our officers,
directors and employees is that our business should be carried on with loyalty
to the interest of our note holders, stockholders, customers, suppliers, fellow
employees, strategic partners and other business associates. We believe that the
philosophy and operating style of our management are essential to the
establishment of a proper corporate environment for the conduct of our business.
A copy of our Code of Ethics and Business Conduct is included as Exhibit 14.1 to
this Annual Report.

         We are committed to a high standard of business conduct. This means
conducting business in accordance with the spirit and letter of applicable laws
and regulations and in accordance with ethical business practices. In
furtherance of the foregoing, our Code of Ethics and Business Conduct provides
that no principal executive officer, principal financial officer, or principal
accounting officer or controller, or persons performing similar functions shall
employ any device, scheme or artifice to defraud our company or any business
associate or engage in any act, practice or course of conduct that operates or
would operate as a fraud or deceit upon our company or any business associate.
Our Code of Ethics and Business Conduct, which also applies to all insiders and
their family members, is intended to help in this endeavor by providing a
statement of the fundamental principles that govern the conduct of our business.

         Generally, our Code of Ethics and Business Conduct provides guidelines
regarding:

         *        transactions with business associates,
         *        non-disclosure of information,
         *        preferential treatment and gifts,
         *        conflicts of interest,
         *        personal securities transactions,
         *        guarding corporate assets,
         *        corporate books and records,
         *        compliance with laws,
         *        document retention, and
         *        compliance with internal controls and disclosure controls.

         Mr. Barry Willson, our Vice Chairman and Chief Scientific Officer, has
been designated the compliance officer who is responsible for overseeing,
interpreting and monitoring compliance with our Code of Ethics and Business
Conduct.

         A copy of our Code of Ethics and Business Conduct has been filed with
the Securities and Exchange Commission as an exhibit to this report. We will
provide a copy, without charge, to any person desiring a copy of the Code of
Ethics and Business Conduct by written request to 2 S. University Drive, Suite
220, Plantation, Florida 33324, Attention: Corporate Secretary.

COMMITTEES OF THE BOARD OF DIRECTORS

         Our Board of Directors has not established any committees, including an
Audit Committee, a Compensation Committee or a Nominating Committee, any
committee performing a similar function. The functions of those committees are
being undertaken by the entire board as a whole. Because we do not have any
independent directors, our Board of Directors believes that the establishment of


                                       28
<PAGE>

committees of the Board would not provide any benefits to our company and could
be considered more form than substance.

         We do not have a policy regarding the consideration of any director
candidates which may be recommended by our stockholders, including the minimum
qualifications for director candidates, nor has our Board of Directors
established a process for identifying and evaluating director nominees. We have
not adopted a policy regarding the handling of any potential recommendation of
director candidates by our stockholders, including the procedures to be
followed. Our Board has not considered or adopted any of these policies as we
have never received a recommendation from any stockholder for any candidate to
serve on our Board of Directors. Given our relative size and lack of directors
and officers insurance coverage, we do not anticipate that any of our
stockholders will make such a recommendation in the near future. While there
have been no nominations of additional directors proposed, in the event such a
proposal is made, all members of our Board will participate in the consideration
of director nominees.

         None of our directors is an "audit committee financial expert" within
the meaning of Item 401(e) of Regulation S-B. In general, an "audit committee
financial expert" is an individual member of the audit committee or Board of
Directors who:

         *        understands generally accepted accounting principles and
                  financial statements,

         *        is able to assess the general application of such principles
                  in connection with accounting for estimates, accruals and
                  reserves,

         *        has experience preparing, auditing, analyzing or evaluating
                  financial statements comparable to the breadth and complexity
                  to our financial statements,

         *        understands internal controls over financial reporting, and

         *        understands audit committee functions.

         Our Board of Directors are presently comprised of individuals who were
integral in either the start-up of our company, as in the case of Mr.
Farnsworth, or that of acquired subsidiaries, as in the case of Mr. and Willson.
While we would prefer that one or more of our directors be an audit committee
financial expert, none of these individuals who have been key to our development
have professional backgrounds in finance or accounting. When we are able to
expand our Board of Directors to include one or more independent directors, we
intend to establish an Audit Committee of our Board of Directors. It is our
intention that one or more of these independent directors will also qualify as
an audit committee financial expert. Our securities are not quoted on an
exchange that has requirements that a majority of our Board members be
independent and we are not currently otherwise subject to any law, rule or
regulation requiring that all or any portion of our Board of Directors include
"independent" directors, nor are we required to establish or maintain an Audit
Committee or other committee of our Board of Directors.

ITEM 10. EXECUTIVE COMPENSATION

         The following table summarizes all compensation recorded by us in each
of the last two completed fiscal years for our principal executive officer, each
other executive officer serving as such whose annual compensation exceeded
$100,000 and up to two additional individuals for whom disclosure would have
been made in this table but for the fact that the individual was not serving as
an executive officer of our company at December 31, 2006.

<TABLE>
<CAPTION>
                                                   SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------------------------------------------------
                                                                                          Non-qualified
                                                                              Non-Equity  Deferred
                                                                              Incentive   Compen-satioAll
                                                                              Plan        Earnings    Other
                                                      Stock      Option       Compen-satio($)         Compen-sation
Name and principal        Year   Salary     Bonus     Awards     Awards       ($)         (h)         ($)           Total
position                         ($)        ($)       ($)        ($)          (g)                     (i)           ($)
(a)                       (b)    (c)        (d)       (e)        (f)                                                (j)
------------------------- ------ ---------- --------- ---------- ------------ ----------- ----------- ------------- -------------
<S>                       <C>      <C>             <C>  <C>                <C>         <C>         <C>       <C>         <C>
Theodore Farnsworth(1)    2006     135,369         0    491,000            0           0           0         6,791       633,160
------------------------- ------ ---------- --------- ---------- ------------ ----------- ----------- ------------- -------------
                          2005     120,000         0          0            0           0           0             0       120,000
------------------------- ------ ---------- --------- ---------- ------------ ----------- ----------- ------------- -------------
Jerry Pearring(2)         2006      77,512         0    480,000            0           0           0         2,400       559,912
------------------------- ------ ---------- --------- ---------- ------------ ----------- ----------- ------------- -------------
                          2005     118,000         0          0            0           0           0             0       118,000
------------------------- ------ ---------- --------- ---------- ------------ ----------- ----------- ------------- -------------
Barry Willison(3)         2006      63,999         0    480,000            0           0           0        13,553       557,552
------------------------- ------ ---------- --------- ---------- ------------ ----------- ----------- ------------- -------------
                          2005     118,000         0          0            0           0           0             0       118,000
------------------------- ------ ---------- --------- ---------- ------------ ----------- ----------- ------------- -------------
</TABLE>
----------
(1) Mr. Farnsworth as served as our Chairman since September 2001 and our CEO
    since November 2004. In 2006 we issued Mr. Farnsworth 1,000,000 shares of
    common stock and 1,100,00 shares of Preferred Series D Convertible Preferred


                                       29
<PAGE>

    Stock valued, in aggregate, at $491,000 as a bonus. As described in the
    financial statement included elsewhere in this annual report, at December
    31, 2006 we owe Mr. Farnsworth $265,797 in accrued but unpaid compensation.

(2) Mr. Pearring served as our President April 2003 until February 23, 2007. In
    2006, we issued Mr. Pearring 2,000,000 shares of our common stock, valued at
    $480,000, as a bonus. As described in the financial statement included
    elsewhere in this annual report, at December 31, 2006 we owe Mr. Pearring
    $164,502 in accrued but unpaid compensation.

(3) Mr. Willson has served as our Vice Chairman, Chief Scientific Officer,
    Secretary and Treasurer since April 2003. In 2006, we issued Mr. Willson
    2,000,000 shares of our common stock, valued at $480,000, as a bonus. As
    described in the financial statement included elsewhere in this annual
    report, at December 31, 2006 we owe Mr. Willson $165,724 in accrued but
    unpaid compensation.

EMPLOYMENT AGREEMENTS

         Effective February 5, 2004, we entered into Revised Employment
Agreements with each of Messrs. Theodore Farnsworth and Barry Willson, our
executive officers and members of our Board of Directors. Under the terms of
these Revised Employment Agreements, Mr. Farnsworth is to serve as our Chairman
of the Board and Mr. Willson is to serve as our Vice-Chairman of the Board,
Secretary and Treasurer. All other terms and conditions of the Revised
Employment Agreements between our company and each of Messrs. Farnsworth and
Willson are identical and include the following:

         *        the term of the agreement is from February 5, 2004 until
                  December 31, 2007, subject to earlier termination as described
                  below. The agreement renews automatically on a continuing
                  annual basis, subject to 30 day notice by either party of its
                  election not to renew. If either Xstream or the executive
                  wishes to modify the terms of the agreement in conjunction
                  with an annual renewal after the expiration of the initial
                  term, the agreement provides for a procedure and time frame to
                  initiate and conclude negotiations. If the negotiations are
                  not acceptable to both parties, or if the non-initiating party
                  determinates not to enter the negotiations to modify the terms
                  of the agreement, then the agreement expires at the end of the
                  then current annual term, subject to earlier termination as
                  described below;

         *        each executive is paid an annual base salary of $130,000
                  during the first year of the agreement, together with bonuses
                  as may be determined by XStream during the term of the
                  agreement. The agreements provide that the executive is
                  entitled to participate in any benefits generally made
                  available to all other employees of our company, including
                  medical, disability and life insurance plans. The agreements
                  also provide that the executive is entitled to four weeks paid
                  vacation, an $800 per month automobile allowance and
                  reimbursement for certain expenses;

         *        we can terminate the agreement:

         *        for cause, which is defined in the agreement to mean:

         *        the inability of the employee, through sickness or other
                  incapacity, to discharge his duties under the agreement for 90
                  or more consecutive days or 180 or more days out of a period
                  of 270 days;

         *        the failure of the employee to abide by the directions of our
                  board of directors;

         *        dishonesty; theft; insubordination or conviction of a crime;
                  or

         *        a material default in the performance of the employee's
                  obligations, services or duties required under the agreement
                  (other than due to illness) or material breach of any
                  provision of the agreement, which has not been completely
                  remedied within five days after written notice of the default
                  or breach.

         *        upon the death of the executive, or

         *        if we discontinue operating our business.

       In the event of a termination of the agreement for the executive's
failure to abide by the directions of the board of directors or the executive's
dishonesty, theft, insubordination or conviction of a crime, we are not
obligated to pay the executive any severance upon termination. In the event the
agreement is terminated for any other reason, including the executive's
inability to discharge his duties or a material default by the executive in the
performance of obligations under the agreement or a material breach of any term
of the agreement, upon termination we are obligated to pay the executive an
amount equal to the greater of 200% of his then current base salary and provide
him with continued participation in any medical, life and disability programs in
which he was participating at the time of termination for an additional year,

                                       30
<PAGE>

         *        in the event of a change of control of Xstream, which is
                  defined in the agreement as the occurrence of any event
                  resulting in the current control stockholders individually or
                  collectively beneficially owning less than 50% of the then
                  outstanding common stock, the executive has the option at any
                  time after the change of control to terminate the agreement
                  and receive compensation equal to 2.99 times his then current
                  base salary, less any salary paid from the date of the change
                  of control through the termination date. At the executive's
                  option, this severance payment can be made in installments or
                  in a single, lump sum payment, and

         *        the agreements contain customary non-disclosure, exclusivity,
                  non- circumvent and non-compete provisions.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

         The following table provides information concerning unexercised
options, stock that has not vested and equity incentive plan awards for each
named executive officer outstanding as of December 31, 2006:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                     OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
------------------------------------------------------------------------------------------------------------------------
                                OPTION AWARDS                                                STOCK AWARDS
-------------- ------------- -------------- ------------- --------- ----------- -------- -------- ----------- ----------
                                                                                                              Equity
                                                                                                  Equity      Incentive
                                                                                                  Incentive   Plan
                                                                                         Market   Plan        Awards:
                                                                                         Value    Awards:     Market
                                            Equity                              Number   of       Number of   or
                                            Incentive                           of       Shares   Unearned    Payout
                                            Plan                                Shares   or       Shares,     Value of
                                            Awards:                             or       Units    Units or    Unearned
               Number of     Number of      Number of                           Units    of       Other       Shares,
               Securities    Securities     Securities                          of       Stock    Rights      Units or
               Underlying    Underlying     Underlying                          Stock    That     that Have   Other
               Unexercised   Unexercised    Unexercised   Option                That     Have     Not         Rights
               Options       Options        Unearned      Exercise  Option      Have     Not      Vested (#)  That
Name           (#)           (#)            Options       Price     Expiration  Not      Vested   (i)         Have Not
               Exercisable   Unexercisable  (#)           ($)       Date        Vested   ($)                  Vested
(a)            (b)           (c)            (d)           (e)       (f)         (#)(g)   (h)                  (#)(j)
-------------- ------------- -------------- ------------- --------- ----------- -------- -------- ----------- ----------
<S>                       <C>            <C>           <C>     <C>         <C>        <C>    <C>           <C>        <C>
Theodore
Farnsworth                0              0             0       n/a         n/a        0      n/a           0          0
-------------- ------------- -------------- ------------- --------- ----------- -------- -------- ----------- ----------
Jerry
Pearring                  0              0             0       n/a         n/a        0      n/a           0          0
-------------- ------------- -------------- ------------- --------- ----------- -------- -------- ----------- ----------
Barry
Willison                  0              0             0       n/a         n/a        0      n/a           0          0
-------------- ------------- -------------- ------------- --------- ----------- -------- -------- ----------- ----------
</TABLE>

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

         At March 31, 2007, there were 56,511,900 shares of our common stock,
200,000 and 1,100,000 shares, respectively, of our Series A and Series D
Convertible Preferred Stock and 50 shares of Series B Convertible Preferred
Stock issued and outstanding. Our common stock and Series A and Series D
Convertible Preferred Stock are our only classes of our voting securities; the
holders of Series B Convertible Preferred Stock have no voting rights except in
limited instances in which their rights pursuant to the designations, rights and
preferences of the Series B Convertible Preferred Stock could be changed or
materially adversely affected. Each share of common stock has one vote per
share; each share of Series A has five votes per share and Series D Convertible
Preferred Stock has two hundred votes per share. The 15,789,472 shares of common
stock that are being held in escrow relating to the Cogent Capital Equity Swap
do not have common stock voting rights so long as they remain in escrow.

         The following table sets forth, as of March 31, 2007, information known
to us relating to the beneficial ownership of these shares by:

         -        each person who is the beneficial owner of more than 5% of the
                  outstanding shares of the class of stock;
         -        each director;
         -        each executive officer; and
         -        all executive officers and directors as a group.

         Percentage of Voting Control in the following table is based upon the
number of issued and outstanding shares of our common stock, shares of our


                                       31
<PAGE>

Series D Convertible Preferred Stock and shares of our Series A Cumulative
Convertible Voting Preferred Stock at March 31, 2007. At March 31, 2007 the
holders of our outstanding shares of voting securities were entitled to an
aggregate of 261,722,428 votes at any meeting of our stockholders, which
includes 40,722,428 votes attributable to the outstanding shares of common stock
(net of the 15,789,472 shares held in escrow which do not have voting rights),
1,000,000 votes attributable to the outstanding shares of Series A Cumulative
Convertible Voting Preferred Stock and 220,000,000 votes attributable to the
outstanding shares of Series D Convertible Preferred Stock.

         Unless otherwise indicated, the business address of each person listed
is in care of 2 South University Drive, Suite 220, Plantation, FL 33324. We
believe that all persons named in the table have sole voting and investment
power with respect to all shares beneficially owned by them. Under securities
laws, a person is considered to be the beneficial owner of securities he owns
and that can be acquired by him within 60 days from March 31, 2007 upon the
exercise of options, warrants, convertible securities or other understandings.
We determine a beneficial owner's percentage ownership by assuming that options,
warrants or convertible securities that are held by him, but not those held by
any other person and which are exercisable within 60 days of March 31, 2007 have
been exercised or converted.

<TABLE>
<CAPTION>
--------------------------------------- ------------------------------------------------------------------------------ -------------
                                                          Amount and Nature of Beneficial Ownership
--------------------------------------- ------------------------- --------------------------- ------------------------ -------------
                                                                     Series A Cumulative              Series D         Percentage of
                                                                      Convertible Voting             Convertible         of Voting
                                              Common Stock             Preferred Stock            Preferred Stock         Control
--------------------------------------- ------------ ------------ ------------- ------------- ------------ ----------- -------------
                                            # of           % of         # of            % of      # of           % of
                                           Shares         Class        Shares          Class     Shares         Class
--------------------------------------- ------------ ------------ ------------- ------------- ------------ ----------- -------------
<S>                                       <C>              <C>         <C>              <C>     <C>              <C>           <C>
Theodore Farnsworth(1)                    1,312,773         3.2%       200,000          100%    1,100,000        100%          84.9%
--------------------------------------- ------------ ------------ ------------- ------------- ------------ ----------- -------------
Barry Willson                             2,125,000         5.2%             0           n/a            0         n/a              *
--------------------------------------- ------------ ------------ ------------- ------------- ------------ ----------- -------------
All officers and directors as a group
(two persons)(1)                          3,437,773         8.4%       200,000          100%    1,100,000        100%          85.8%
--------------------------------------- ------------ ------------ ------------- ------------- ------------ ----------- -------------
Broadlawn Master Fund(2)                  5,150,000        12.6%             0           n/a            0         n/a           2.0%
--------------------------------------- ------------ ------------ ------------- ------------- ------------ ----------- -------------
</TABLE>
----------
*   represents less than 1%

(1) Includes 12,773 shares of our common stock owned by Xstream Beverage, Inc.,
    a company of which Mr. Farnsworth is the owner.

(2) Broadlawn Master Fund's address is 40 Cuttermill Road, Suite 402,Great Neck,
    NY 11021.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The following table sets forth securities authorized for issuance under
equity compensation plans, including individual compensation arrangements, by us
which have been approved by our stockholders and any compensation plans not
previously approved by our stockholders as of December 31, 2006.

<TABLE>
<CAPTION>
------------------------------------------------------------- ----------------- ------------------ -------------------
                                                              Number of         Weighted average   Number of
                                                              securities to     exercise price     securities
                                                              be issued upon    of outstanding     remaining
                                                              exercise of       options,           available for
                                                              outstanding       warrants and       future issuance
                                                              options,          rights (b)         under equity
                                                              warrants and                         compensation
                                                              rights (a)                           plans (excluding
                                                                                                   securities
                                                                                                   reflected in
                                                                                                   column (a)) (c)
------------------------------------------------------------- ----------------- ------------------ -------------------
<S>                                                                          <C>       <C>                          <C>
Plan category
------------------------------------------------------------- ----------------- ------------------ -------------------
Plans approved by our stockholders:                                          0         n/a                          0
------------------------------------------------------------- ----------------- ------------------ -------------------
Plans not approved by our stockholders                                       0         n/a                          0
------------------------------------------------------------- ----------------- ------------------ -------------------
</TABLE>

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

         None

DIRECTOR INDEPENDENCE

         None of the members of our Board of Directors are "independent" within
the meaning of Marketplace Rule 4200 of the National Association of Securities
Dealers, Inc.

                                       32
<PAGE>

                                    PART IV

ITEM 13. EXHIBITS

       The following documents are filed as a part of this report or are
incorporated by reference to previous filings, if so indicated:

Exhibit No.                      Description
-----------                      -----------

2.1    Definitive Agreement and Plan of Reverse Acquisition between Geyser
       Group, Ltd. and Power Beverage Corp. (1)
2.2    Agreement and Plan of Merger by and between Beverage Network of Maryland,
       Inc., Xstream Beverage Network, Inc., Global Merger Corp. and Global
       Beverage Solutions, Inc. dated as of January 31, 2007 (18)
2.3    Amendment No. 1 to the Agreement and Plan of Merger by and between
       Beverage Network of Maryland, Inc., Xstream Beverage Network, Inc.,
       Global Merger Corp. and Global Beverage Solutions, Inc. dated as of
       February 23, 2007 (19)
3.1    Articles of Incorporation (2)
3.2    Certificate of Amendment to the Articles of Incorporation (2
3.3    Certificate of Amendment to the Articles of Incorporation (2)
3.4    Certificate of Amendment to the Articles of Incorporation (1)
3.5    Certificate of Amendment to the Articles of Incorporation (11)
3.6    Certificate of Amendment to the Articles of Incorporation (11)
3.7    Certificate of Amendment to the Articles of Incorporation (9)
3.8    Certificate of Amendment to the Articles of Incorporation regarding an
       increase in the number of authorized shares of common stock (13)
3.9    Certificate of Designation of Series D Convertible Preferred Stock (17)
4.1    $3,000,000 principal amount secured convertible term note (8)
4.2    Common Stock Purchase Warrant (8)
4.3    Form of Series A Warrant (9)
4.4    Form of Series B Warrant (9)
4.5    Form of $0.76 common stock purchase warrant (11)
4.6    Form of unsecured subordinated 12% convertible promissory note (11)
4.7    Form of bridge loan promissory note (14)
4.8    Form of cashless warrant (14)
4.9    $2,000,000 principal amount secured convertible term note (16)
4.10   $4,000,000 principal amount secured non-convertible term note (16)
4.11   $4,000,000 principal amount secured revolving non-convertible term
       note (16)
10.1   2002 Stock Option Plan (3)
10.2   Employment Agreement between the Company and Theodore Farnsworth dated as
       of February 1, 2002 (3)
10.3   Promissory Note with EDA Family Limited Partnership (3)
10.4   Stock Exchange Agreement between Xstream Beverage Group, Inc. and the
       shareholders of Total Beverage Network, Inc. (4)
10.5   Purchase and Sale Agreement between Total Beverage Network, Inc. and
       Universal Florida Beverage Distributors, Inc. (4)
10.6   Asset Purchase and Sale Agreement between Beverage Network of Connecticut
       and Finish-Line Distributors, Inc. (5)
10.7   Consulting Agreement between Steve Haglund and Xstream Beverage Group,
       Inc. (5)
10.8   Consulting Agreement between Edward Arioli and Xstream Beverage Group,
       Inc. (5)
10.9   Asset Purchase Agreement dated March 1, 2004, by and among Beverage
       Network of Hawaii and Pacific Rim Natural Juice Company, Inc.(6)
10.10  Assignment of Trademark entered into between Xstream Brands, Inc. and The
       Maui Juice Company Inc. (6)
10.11  Business Consulting Agreement between Beverage Network of Hawaii, Inc.
       and Larry Lassek (6)
10.12  Assignment of Trademark entered into Between Xstream Brands, Inc. and
       Squeeze Beverage, Inc. (6)
10.13  Employment Agreement entered into between Xstream Beverage Group, Inc.
       and Theodore Farnsworth dated February 5, 2004 (6)
10.14  Employment Agreement entered into between Xstream Beverage Group, Inc.
       and Barry Willson dated February 5, 2004 (6)
10.15  Employment Agreement entered into between Xstream Beverage Group, Inc.
       and Jerry Pearring dated February 5, 2004 (6)
10.16  Asset Purchase Agreement dated March 15, 2004, by and among Beverage
       Network of Massachusetts, Inc. and Ayer Beverages, Inc. (7)
10.17  Securities Purchase Agreement dated May 14, 2004 between Xstream Beverage
       Group, Inc. and Laurus Master Fund, Ltd. (8)
10.18  Master Security Agreement (8)
10.19  Registration Rights Agreement (8)
10.20  Subsidiary Guaranty (8)
10.21  Grant of Security Interest in Patents and Trademarks (8)
10.22  Stock Pledge Agreement (8)
10.23  Funds Escrow Agreement (8)
10.24  Restricted Account Side Letter (8)
10.25  Restricted Account Agreement (8)
10.26  Lease for principal executive offices (11)
10.27  Letter agreement dated January 8, 2005 with Master Distributors, Inc.(11)
10.28  Distributorship Agreement between Master Distributors, Inc. and Welch
       Foods, Inc.(11)
10.29  Distribution Agreement between Master Distributors, Inc. and Tazo Tea
       Company (11)
10.30  Distribution Agreement between Master Distributors, Inc. and Hansen
       Beverage Company dated August 16, 2004 (11)

                                       33
<PAGE>

10.31  Form of Amended and Restated Escrow Agreement (12)
10.32  Form of ISDA 2002 Master Agreement (12)
10.33  Form of ISDA Credit Support Annex (11)
10.34  Form of letter agreement with Cogent Capital regarding equity option
       transaction (11)
10.35  Form of letter agreement with Cogent Capital regarding equity swap
       transaction (11)
10.36  Form of Escrow Agreement with Cogent Capital and Investors Bank & Trust
       Company (11)
10.37  Form of Registration Rights Agreement with Cogent Capital (11)
10.38  Form of Placement Agency Agreement with Maxim Group (10)**
10.39  Beverage Network of Hawaii lease agreement (14)
10.40  Form of Financial Advisory Agreement with Maxim Group (14)
10.41  Form of Amendment No. 1 to the Financial Advisory Agreement with Maxim
       Group
10.42  Form of Amendment No. 2 to the Financial Advisory Agreement with Maxim
       Group
10.43  Security and Purchase Agreement (16)
10.44  Registration Rights Agreement
10.45  Stock Pledge Agreement (16)
10.46  Grant of Security Interest in Patents and Trademarks (16)
10.47  Reaffirmation and Ratification Agreement and Amendment (16)
10.48  Secured Promissory Note in the principal amount of $2,000,000 dated
       January 31, 2007 from Global Beverage Solutions, Inc. *
10.49  Amendment No. 1 to the $2,000,000 Secured Promissory Note *
10.50  Global Beverage Solutions, Inc. and Certain of its Subsidiaries Master
       Security Agreement dated January 31, 2007 *
10.51  Stock Pledge Agreement dated January 31, 2007 by and between Xstream
       Beverage Network, Inc. and Global Beverage Solutions, Inc. *
10.52  Subsidiary Guaranty dated January 31, 2007 *
14.1   Code of Ethics and Business Conduct(20)
21     Subsidiaries of the registrant (10)
31.1   Section 302 Certificate of Chief Executive Officer *
31.2   Section 302 Certificate of principal financial and accounting officer *
32.1   Section 906 Certificate of Chief Executive Officer and principal
       financial and accounting officer*

----------
 *     filed herewith

(1)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on October 17, 2001.
(2)    Incorporated by reference to the registrant's Annual Report on Form 10-
       KSB as filed with the SEC on October 27, 1999.
(3)    Incorporated by reference to the registrant's Annual Report on Form 10-
       KSB as filed with the SEC on May 15, 2002.
(4)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on May 6, 2003.
(5)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on June 16, 2003.
(6)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on March 10, 2004.
(7)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on March 30, 2004.
(8)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on May 25, 2004.
(9)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on August 5, 2004.
(10)   Incorporated by reference to the registrant's registration statement on
       Form SB-2 SEC file number 333-119403, as amended.
(11)   Incorporated by reference to the registrant's registration statement on
       Form SB-2, SEC file number 333-119403, as amended.
(12)   Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on July 7, 2005.
(13)   Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on July 8, 2005.
(14)   Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on October 3, 2005.
(15)   Incorporated by reference to the registrant's Quarterly Report on Form
       10-QSB for the period ended March 31, 2005.
(16)   Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on April 14, 2006.
(17)   Incorporated by reference to the registrant's Report on Form 8-K as filed
       on December 22, 2006.
(18)   Incorporated by reference to the registrant's Report on Form 8-K as filed
       on February 7, 2007.
(19)   Incorporated by reference to the registrant's Report on Form 8-K as filed
       on March 2, 2007.
(20)   Incorporated by reference to the registrant's Annual Report on Form
       10-KSB for the year ended December 31, 2005.

                                       34
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         Sherb & Co., LLP was engaged on December 22, 2004 to serve as our
independent registered public accounting firm for fiscal 2005 and fiscal 2006.
The following table shows the fees that we paid or accrued for the audit and
other services provided by Sherb & Co., LLP for the 2006 and 2005 fiscal years,
respectively.

                                       Fiscal 2006        Fiscal 2005
                                       -----------        -----------

Audit Fees                              $ 75,000            $ 62,000
Audit-Related Fees                      $  1,500            $ 22,500
Tax Fees                                $      0            $ 16,442
                                        --------            --------
       Total                            $ 76,500            $100,942
                                        ========            ========

         Audit Fees - This category includes the audit of our annual financial
statements, review of financial statements included in our Form 10-QSB Quarterly
Reports and services that are normally provided by the independent auditors in
connection with engagements for those fiscal years. This category also includes
advice on audit and accounting matters that arose during, or as a result of, the
audit or the review of interim financial statements.

         Audit-Related Fees - This category consists of assurance and related
services by the independent auditors that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported above under "Audit Fees." The services for the fees disclosed under
this category include consultation regarding our correspondence with the SEC and
other accounting consulting.

         Tax Fees - This category consists of professional services rendered by
our independent auditors for tax compliance and tax advice. The services for the
fees disclosed under this category include tax return preparation and technical
tax advice.

         Our Board of Directors has adopted a procedure for pre-approval of all
fees charged by the our independent auditors. Under the procedure, the Board
approves the engagement letter with respect to audit, tax and review services.
Other fees are subject to pre-approval by the Board, or, in the period between
meetings, by a designated member of Board. Any such approval by the designated
member is disclosed to the entire Board at the next meeting. The audit and tax
fees paid to the auditors with respect to fiscal year 2006 were pre-approved by
the entire Board of Directors.

                                       35
<PAGE>
                                   SIGNATURES

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

Dated: April 17, 2007                         XSTREAM BEVERAGE GROUP, INC.

                                              By:   /s/ Theodore Farnsworth
                                                    -----------------------
                                              Theodore Farnsworth, Chairman of
                                              the Board, President, CEO,
                                              principal executive officer and
                                              principal financial and 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.

       Signature                    Title                           Date
       ---------                    -----                           ----

/s/ Theodore Farnsworth       Chairman, President and CEO       April 17, 2007
------------------------      principal executive officer
Theodore Farnsworth           and principal financial and accounting officer


/s/ Barry Willson             Vice Chairman and                 April 17, 2007
------------------------      Chief Scientific Officer
Barry Willson

                                       36
<PAGE>

                          Xstream Beverage Network, Inc.
                                and Subsidiaries

                                    Contents

                                                                     Page

                                                                     ----

Report of Sherb & Co., LLP

Independent Registered Public Accounting Firm                         F-2

Consolidated Balance Sheet                                            F-3

Consolidated Statements of Operations                                 F-4

Consolidated Statements of Changes in Stockholders'

   Deficiency                                                         F-5

Consolidated Statements of Cash Flows                                 F-6

Notes to Consolidated Financial Statements                        F-7 to F-52






                                       F-1




<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
Xstream Beverage Network, Inc.

We have audited the accompanying consolidated balance sheet of Xstream Beverage
Network, Inc. and Subsidiaries as of December 31, 2006, and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for the years ended December 31, 2006 and 2005. 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 audit.

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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amount and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our 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 Xstream Beverage
Network, Inc. and Subsidiaries as of December 31, 2006, and the results of their
operations and their cash flows for the years ended December 31, 2006 and 2005,
in conformity with accounting principles generally accepted in the United States
of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company had net losses, accumulated
deficit and working capital deficit of $26,512,778, $60,463,681 and $14,615,352
respectively, for the year ended December 31, 2006. This raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

                                                    /s/Sherb & Co., LLP
                                                    Certified Public Accountants

Boca Raton, Florida
April 13, 2007

                                      F-2
<PAGE>
                 XSTREAM BEVERAGE NETWORK INC. and SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>

                                                                                    December 31, 2006
                                                                                    -----------------
<S>                                                                                      <C>
ASSETS
      Current Assets:
          Cash                                                                           $      1,300
          Accounts receivable                                                                  12,227
          Other receivables                                                                    53,436
          Inventory                                                                           208,018
          Assets of discontinued operations                                                 2,834,686
                                                                                         ------------
              Total current assets                                                          3,109,667
                                                                                         ------------

      Property and equipment, net of accumulated depreciation of $14,428                       16,137
                                                                                         ------------
      Other Assets:
          Capitalized funding costs,net                                                       933,584
          Other assets                                                                         17,118
                                                                                         ------------
              Total other assets                                                              950,702
                                                                                         ------------
Total Assets                                                                             $  4,076,506
                                                                                         ============
LIABILITIES & STOCKHOLDERS' DEFICIENCY
      Liabilities:
          Current Liabilities:
              Loans payable                                                              $  1,402,156
              Loans payable - related party                                                    50,455
              Revolving line of credit                                                      1,028,273
              Convertible notes payable                                                     4,363,900
              Current portion of long term debt, net of discount of $110,542                3,116,908
              Accounts payable                                                                813,125
              Overdraft liability                                                              16,639
              Accrued expenses                                                              2,280,182
              Dividends payable                                                               126,066
              Derivative liabilities                                                        2,426,278
              Liabilities of discontinued operations                                        2,101,037
                                                                                         ------------
                  Total current liabilities                                                17,725,019
                                                                                         ------------

          Long Term Liabilities:
              Notes payable, net of discount of $138,173                                    2,858,970
              Convertible notes payable, net of discount of $1,500,000                        636,750
              Preferred Series B ($0.001 par value, 40 Shares issued and outstanding),
              net of discount of $246,366                                                   1,284,193
                                                                                         ------------
                  Total long term liabilities                                               4,779,913
                                                                                         ------------
                  Total Liabilities                                                        22,504,932
                                                                                         ------------
      Stockholders' Deficiency
          Preferred Stock, $0.001 par value,
              Series A, 200,000 shares issued and outstanding                                     200
          Preferred Stock, $0.001 par value, 4,000,000 shares authorized
              Series D, 1,100,000 shares issued and outstanding                                 1,100
          Common Stock, $0.001 par value, 250,000,000 shares authorized,
          52,717,580 issued and outstanding                                                    52,717
          Additional paid in capital                                                       44,076,801
          Accumulated deficit                                                             (60,463,681)
          Subscription receivable                                                          (1,654,135)
          Deferred consulting                                                                (398,803)
          Deferred costs                                                                      (42,625)
                                                                                         ------------
                  Total Stockholders' Deficiency                                          (18,428,426)
                                                                                         ------------
TOTAL LIABILITIES & STOCKHOLDERS'  DEFICIENCY                                            $  4,076,506
                                                                                         ============
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       F-3
<PAGE>

                 XSTREAM BEVERAGE NETWORK INC. and SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                        For the Years Ended December 31,
                                                              2006            2005
                                                         ------------    ------------

<S>                                                      <C>             <C>
Sales                                                    $    284,118    $    247,578

Cost of goods sold                                            273,218         215,297
                                                         ------------    ------------
Gross profit                                                   10,900          32,281
Expense
    Marketing & selling                                        99,907          83,847
    Compensation                                            2,363,015       1,093,313
    Rent                                                       51,491          17,694
    Consulting fees                                         2,052,867       3,735,882
    Professional fees                                         328,412         362,617
    Bad debt expense                                           42,827         230,466
    Other general & administrative                            298,246         352,934
    Impairment expense                                        303,017            --
                                                         ------------    ------------
        Total operating expense                             5,539,782       5,876,753
                                                         ------------    ------------
Loss from continuing operations                            (5,528,882)     (5,844,472)
Other Income/(Expense)
    Other income                                               11,132            --
    Interest income                                              --             1,528
    Interest expense                                      (11,275,405)     (8,007,135)
    Derivative liability expense                             (765,528)     (2,223,134)
    Change in fair value of derivatives                     5,384,125      16,383,621
    Other expenses                                           (928,968)           --
    Realized loss- subcription receivable                 (12,555,897)           --
                                                         ------------    ------------
        Total other income/(expense)                      (20,130,541)      6,154,880
                                                         ------------    ------------
Income (Loss) from continuing operations                  (25,659,423)        310,408
                                                         ------------    ------------

Loss from discontinued operations                            (853,355)     (2,264,102)
                                                         ------------    ------------

Net loss                                                  (26,512,778)     (1,953,694)
                                                         ------------    ------------

Unrealized loss on subscription receivable               $       --      $ (8,242,104)
                                                         ------------    ------------
Comprehensive loss                                        (26,512,778)    (10,195,798)
                                                         ------------    ------------
Preferred stock dividends                                    (105,060)       (137,718)
                                                         ------------    ------------

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS                $(26,617,838)   $ (2,091,412)
                                                         ============    ============

Net Loss per share - Basic and diluted                   $      (0.65)   $      (0.13)
                                                         ============    ============

Weighted Average Shares Outstanding -Basic and diluted     40,883,419      16,674,358
                                                         ============    ============
</TABLE>


          See accompanying notes to consolidated financial statements.



                                      F-4
<PAGE>




                 Xstream Beverage Network, Inc. and Subsidiaries
                Statement of Changes in Stockholders' Deficiency
                 For the Years Ended December 31, 2006 and 2005

<TABLE>
<CAPTION>

                                          Preferred Stock                 Common Stock                    Common Stock
                                   ----------------------------   ----------------------------    ----------------------------
                                      Shares          Amount         Shares          Amount         Issuable         Amount
                                   ------------    ------------   ------------    ------------    ------------    ------------
<S>                                     <C>                 <C>      <C>                 <C>           <C>                 <C>
Balance, December 31, 2004              200,043             200      2,797,625           2,798         180,850             181

Stock issued for services                    10            --        4,269,057           4,269            --              --

Stock issued for loan fee                  --              --          541,950             542            --              --

Stock issued as pledge of
  collateral                               --              --          350,000             350            --              --

Issuance of shares  previously
  issuable                                 --              --          180,850             181        (180,850)           (181)

Stock issued for Preferred
  Series B Conversion                        (5)           --          343,421             343            --              --

Stock issued for Dividends &
  Liquidated Damages                         11            --             --              --              --              --

Stock cancelled & returned
  to Treasury                              --              --           (1,000)             (1)           --              --

Stock issued for Cogent
  Equity Swap                              --              --       19,736,848          19,737            --              --

Stock issued for exercise
  of warrants                              --              --          263,306             263            --              --

Discount on Cogent
  Equity Swap                              --              --             --              --              --              --

Expenses on Cogent Transaction             --              --             --              --              --              --

Amortization of deferred
  consulting and fees                      --              --             --              --              --              --

Dividends-Preferred Stock                  --              --             --              --              --              --

Accumulated other
  comprehensive loss                       --              --             --              --              --              --

Net loss for the year                      --              --             --              --              --              --
                                   ------------    ------------   ------------    ------------    ------------    ------------

 Balance, December 31, 2005             200,059             200     28,482,057          28,482            --              --

Stock issued for services             1,100,000           1,100     14,567,000          14,567            --              --

Stock issued in connection
  with notes payable                       --              --        8,272,500           8,273            --              --

Stock issued as pledge of
  collateral                               --              --          125,000             125            --              --

Stock issued for Preferred
  Series B Conversions                      (19)           --        1,271,023           1,270            --              --

Discount on Cogent Equity Swap             --              --             --              --              --              --

Derivative liabilty reclassified
  to equity                                --              --             --              --              --              --

Amortization of deferred
  consulting and fees                      --              --             --              --              --              --

Dividends-Preferred Stock                  --              --             --              --              --              --

Accumulated other
  comprehensive loss                       --              --             --              --              --              --

Transfer of unrealized loss
  on Subscription
   Receivable                              --              --             --              --              --              --

Net loss for the year                      --              --             --              --              --              --
                                   ------------    ------------   ------------    ------------    ------------    ------------

 Balance, December 31, 2006           1,300,040    $      1,300     52,717,580    $     52,717    $       --      $       --
                                   ============    ============   ============    ============    ============    ============


[restubbed table]

<CAPTION>

                                    Additional
                                     Paid-in        Accumulated   Comprehensive      Deferred        Deferred
                                     Capital          Deficit          Loss         Consulting         Fees
                                   ------------    ------------    ------------    ------------    ------------
<S>                                  <C>            <C>                                <C>
Balance, December 31, 2004           20,775,712     (31,754,431)           --          (420,000)           --

Stock issued for services             3,084,341            --              --        (1,973,707)           --

Stock issued for loan fee               539,929            --              --              --          (343,073)

Stock issued as pledge of
  collateral                               (350)           --              --              --              --

Issuance of shares  previously
  issuable                                 --              --              --              --              --

Stock issued for Preferred
  Series B Conversion                      (343)           --              --              --              --

Stock issued for Dividends &
  Liquidated Damages                    528,845            --              --              --              --

Stock cancelled & returned
  to Treasury                                 1            --              --              --              --

Stock issued for Cogent
  Equity Swap                        14,980,263            --              --              --              --

Stock issued for exercise
  of warrants                              (263)           --              --              --              --

Discount on Cogent
  Equity Swap                          (468,174)           --              --              --              --

Expenses on Cogent Transaction       (1,178,520)           --              --              --              --

Amortization of deferred
  consulting and fees                      --              --         1,631,167         188,837            --

Dividends-Preferred Stock                  --          (137,718)           --              --              --

Accumulated other
  comprehensive loss                       --              --        (8,242,104)           --              --

Net loss for the year                      --        (1,953,694)           --              --              --
                                   ------------    ------------    ------------    ------------    ------------

 Balance, December 31, 2005          38,261,441     (33,845,843)     (8,242,104)       (762,540)       (154,236)

Stock issued for services             3,035,439            --              --        (1,253,443)           --

Stock issued in connection
  with notes payable                  2,046,253            --              --              --        (1,210,360)

Stock issued as pledge of
  collateral                               (125)           --              --              --              --

Stock issued for Preferred
  Series B Conversions                  650,730            --              --              --              --

Discount on Cogent Equity Swap         (321,794)           --              --              --              --

Derivative liabilty reclassified
  to equity                             404,857            --              --              --              --

Amortization of deferred
  consulting and fees                      --              --              --         1,617,180       1,321,971

Dividends-Preferred Stock                  --          (105,060)           --              --              --

Accumulated other
  comprehensive loss                       --              --        (4,313,793)           --              --

Transfer of unrealized loss
  on Subscription
   Receivable                              --              --        12,555,897            --              --

Net loss for the year                      --       (26,512,778)           --              --              --
                                   ------------    ------------    ------------    ------------    ------------

 Balance, December 31, 2006        $ 44,076,801    $(60,463,681)   $       --      $   (398,803)   $    (42,625)
                                   ============    ============    ============    ============    ============

[restubbed table]
<CAPTION>

                                     Subscription
                                   Promissory Note
                                      Receivable        Total
                                     ------------    ------------
<S>                                                   <C>
Balance, December 31, 2004                   --       (11,395,540)

Stock issued for services                    --         1,114,903

Stock issued for loan fee                    --           197,398

Stock issued as pledge of
  collateral                                 --              --

Issuance of shares  previously
  issuable                                   --              --

Stock issued for Preferred
  Series B Conversion                        --              --

Stock issued for Dividends &
  Liquidated Damages                         --           528,845

Stock cancelled & returned
  to Treasury                                --              --

Stock issued for Cogent
  Equity Swap                         (15,000,000)           --

Stock issued for exercise
  of warrants                                --              --

Discount on Cogent
  Equity Swap                             468,174            --

Expenses on Cogent Transaction               --        (1,178,520)

Amortization of deferred
  consulting and fees                        --         1,820,004

Dividends-Preferred Stock                    --          (137,718)

Accumulated other
  comprehensive loss                    8,242,104            --

Net loss for the year                        --        (1,953,694)
                                     ------------    ------------

 Balance, December 31, 2005            (6,289,722)    (11,004,322)

Stock issued for services                    --         1,797,663

Stock issued in connection
  with notes payable                         --           844,166

Stock issued as pledge of
  collateral                                 --              --

Stock issued for Preferred
  Series B Conversions                       --           652,000

Discount on Cogent Equity Swap            321,794            --

Derivative liabilty reclassified
  to equity                                  --           404,857

Amortization of deferred
  consulting and fees                        --         2,939,151

Dividends-Preferred Stock                    --          (105,060)

Accumulated other
  comprehensive loss                    4,313,793            --

Transfer of unrealized loss
  on Subscription
   Receivable                                --        12,555,897

Net loss for the year                        --       (26,512,778)
                                     ------------    ------------

 Balance, December 31, 2006          $ (1,654,135)   $(18,428,426)
                                     ============    ============

</TABLE>

     See accompanying notes to consolidated financial statements.



                                      F-5
<PAGE>

                 XSTREAM BEVERAGE NETWORK INC. and SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>

                                                                              2006             2005
                                                                          ------------    ------------
<S>                                                                       <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations                                           $(25,659,423)        310,408

Adjustments to reconcile loss from continuing operations to net cash
used in continuing operating activities:

Bad debts                                                                       42,827         230,466
Depreciation                                                                     5,473           4,814
Amortization of deferred fees and consulting                                 2,939,151       1,820,004
Amortization of debt discount to interest expense                            4,516,422       3,666,543
Liquidated damages for failure to timely file registration statement           383,597       1,314,000
Amortization of capitalized funding Costs                                    2,037,579       1,475,870
Default premium - Laurus Master Fund                                              --           166,821
Stock based loan fee                                                           844,166         197,398
Stock based services                                                         1,797,663       2,146,825
Derivative liability expense                                                   765,528       2,223,134
Change in fair value of derivative liabilities                              (5,384,125)    (16,383,621)
Realized loss-transfer of subscription receivable                           12,555,897            --
Impairment of intangibles                                                      303,017            --

Changes in operating assets and liabilities:
Accounts receivable                                                            (20,965)        (34,089)
Inventory                                                                     (129,946)         (7,576)
Other current and non-current assets                                            19,067         (89,621)
Accounts payable                                                               459,589         (50,786)
Accrued expenses                                                               307,423         203,158
Accrued interest included in notes payable and revolving line of credit      1,647,743         285,335
                                                                          ------------    ------------

Net cash used in continuing operating activities                            (2,569,317)     (2,520,917)
                                                                          ------------    ------------

Loss from discontinued operations                                             (853,355)     (2,264,102)

Adjustments to reconcile loss from discontinued operations to net cash
provided by (used in) discontinued operating activities:

Loss on disposal of fixed assets                                                40,175            --
Net book values of assets written off                                           30,502            --
Depreciation                                                                    79,004          87,663
Bad debt                                                                        18,008          75,129
Impairment of intangibles                                                       65,789       1,163,830
Amortization of intangibles                                                    397,843         424,485
Decrease in net assets from discontinued operations                            298,327         279,317
Increase (Decrease) in net liabilities from discontinued operations            424,565        (176,060)
                                                                          ------------    ------------

Net cash provided by (used in) discontinued operations                         500,858        (409,738)
                                                                          ------------    ------------

Net cash used in operating activities                                       (2,068,459)     (2,930,655)
                                                                          ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment                                           (4,789)         (3,017)
Acquisition of property and equipment - discontinued operations                (40,480)        (15,992)
Proceeds from disposition of fixed assets - discontinued operations             10,420            --
                                                                          ------------    ------------

Net cash used in investing activities                                          (34,849)        (19,009)
                                                                          ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party loans                                               50,100            --
Repayments of related party loans                                              (50,000)           --
Repayments of related party loans - discontinued operations                       --          (136,000)
Proceeds from non-related party loans                                        4,700,000       3,844,500
Repayments of non-related party loans                                       (3,231,856)       (441,741)
Repayments of non-related party loans - discontinued operations                   --           (24,502)
Capitalized funding costs                                                     (294,500)       (737,234)
Disbursement of restricted cash                                                   --           452,771
Cash overdraft                                                                  16,639            --
Proceeds received from revolving line of credit                              4,617,800            --
Payments on revolving line of credit                                        (3,796,031)           --
                                                                          ------------    ------------

Net cash provided by financing activities                                    2,012,152       2,957,794
                                                                          ------------    ------------

Net cash increase (decrease)                                                   (91,156)          8,130
Cash at beginning of year                                                       92,456          84,326
                                                                          ------------    ------------
Cash at end of year                                                       $      1,300    $     92,456
                                                                          ============    ============

Supplemental Disclosure of Cash Flow Information:


Cash paid during the period for:
     Interest paid                                                        $  1,362,986    $    355,438
     Taxes paid                                                           $       --      $       --

Supplemental Disclosure of Non-cash Investing and
Financing Activities:

Reclassification of preferred Series B to equity                          $    652,000    $       --
Reclassification of derivative liability to equity                        $    404,857    $       --
Common stock issued for deferred consulting                               $  1,253,443    $  1,973,707
Common stock issued for deferred fees                                     $  1,210,360    $    343,073
Fair value of common stock issued related to Cogent tansaction            $       --      $ 15,000,000
Accrual for deferred financing fees related to Cogent transaction         $       --      $  1,178,520
Fair value of derivative liabilities associated with debt discount        $  1,834,188    $  3,606,146
Fair value of derivatives associated with deferred financing fees         $       --      $    625,568
Preferred stock issued for payment of dividends and liquidated damages    $       --      $    528,845
Dividends - preferred stock                                               $    105,060    $    137,718
Issuance of convertible note for payment of liquidated damages, default
  interest and debt discount                                              $  2,000,000    $       --
</TABLE>

          See accompanying notes to consolidated financial statements.



                                      F-6
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         ORGANIZATION AND NATURE OF BUSINESS

         Xstream Beverage Network, Inc. ("XStream") is an operating brand
         development and distribution company and completed the first five
         acquisitions anticipated in its business strategy as follows:

         Beverage Network of South Florida, ("BNSF")          April 9, 2003
         Beverage Network of Connecticut, Inc. ("BNCT")         May 1, 2003
         Beverage Network of Hawaii ("BNHI")                  March 1, 2004
         Beverage Network of Massachusetts ("BNMA")          March 15, 2004
         Beverage Network of Maryland, Inc. ("BNMD")           July 1, 2004

         These acquisitions were accounted for under the purchase method.

         DISCONTINUED OPERATIONS

         On December 15, 2006, the Company signed a Letter of Intent to sell its
         distribution subsidiary, Beverage Network of Maryland, Inc. ("BNMD"),
         to Global Beverage Solutions, Inc. ("Global Beverage"). The Company and
         Global Beverage signed an Agreement and Plan of Merger ("Merger
         Agreement") dated January 31, 2007, as amended on February 23, 2007,
         whereby the Company will sell its distribution subsidiary, Beverage
         Network of Maryland, Inc. ("BNMD"), to Global Beverage. The Company
         closed on this transaction on February 23, 2007 (See Note 22 -
         Subsequent events).

         On December 15, 2006, the Company decided to discontinue the operations
         of BNSF, BNCT, BNHI, and BNMA because of (a) the disappointing
         performance of the subsidiaries including continuing operating losses;
         and (b) the Company's lack of ability to obtain working capital loans
         to finance the purchase of inventory and to finance accounts
         receivable.

         Accordingly, BNMD, BNSF, BNCT, BNHI, and BNMA are reported as
         discontinued operations, and prior periods have been restated in the
         Company's financial statements and related footnotes to conform to this
         presentation (See Note 21 - Discontinued Operations).

         PRINCIPLES OF CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
         of XStream and its subsidiaries. All material intercompany balances and
         transactions have been eliminated in consolidation.

         USE OF ESTIMATES

         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States requires management
         to make estimates and assumptions that affect the reported amounts of
         assets and liabilities and disclosure of contingent assets and
         liabilities at the date of the financial statements and the reported
         amounts of revenue and expenses during the reporting period. Estimates
         are used when accounting for allowances for doubtful accounts,
         inventory reserves, depreciation and amortization, taxes,
         contingencies, impairment allowances, and valuation of debt discounts
         and derivative liabilities. Such estimates are reviewed on an on-going
         basis and actual results could differ from those estimates.

                                      F-7
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         Cash and cash equivalents

         For purposes of the consolidated statements of cash flows, the Company
         considers all highly liquid instruments purchased with a maturity of
         three months or less and money market accounts to be cash equivalents.

         ACCOUNTS RECEIVABLE

         Accounts receivable result from the sale of the Company's products and
         is reported at anticipated realizable value. The Company estimates its
         allowance for doubtful accounts based on a specific identification
         basis and additional allowances as needed based upon historical
         collections experience. Accounts receivable is considered past due if
         payment has not been received from the customer within thirty days and
         management reviews the customer accounts on a routine basis to
         determine if an account should be reserved.

         RISKS AND UNCERTAINTIES

         The Company maintains its cash and cash equivalent accounts in
         financial institutions. Accounts at these institutions are insured by
         the Federal Deposit Insurance Corporation ("FDIC") up to $100,000.
         During 2006, the Company has not reached bank balances exceeding the
         FDIC insurance limit. To reduce its risk associated with the failure of
         such financial institutions, the Company evaluates at least annually
         the rating of the financial institutions in which it holds deposits.

         PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost, and depreciation is computed
         using the straight line method over the estimated economic useful life.
         Leasehold improvements are amortized using the straight-line method
         over the lease term. Maintenance and repairs are charged to expense as
         incurred. Major improvements are capitalized.

         GOODWILL, TRADEMARKS AND OTHER INTANGIBLES

         Acquired goodwill is considered to have an indefinite life pursuant to
         Statement of Financial Accounting Standards No. SFAS 142, "Goodwill and
         Other Intangible Assets," and accordingly is not amortized but subject
         to periodic impairment tests. Acquired customer lists are considered to
         have a finite life, pursuant to SFAS 142, to be amortized over the
         period the asset is expected to contribute to the future cash flows.
         XStream expects the period to be five years. The customer lists are
         also subject to periodic impairment tests. Acquired trademarks are
         considered to have an infinite life but are subject to impairment
         analysis on an annual basis. In accordance with SFAS No. 142, the
         Company is required to evaluate the carrying value of its intangible
         assets (goodwill, trademarks and customer lists) subsequent to their
         acquisition. Between April 2003 and through December 31, 2004, the
         Company acquired five beverage distribution companies together with a
         natural juice company and certain intellectual property rights related
         to other new age beverage names. The Company's intangible assets,
         including goodwill, trademarks and customers lists, were acquired in
         these acquisitions.

                                      F-8
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

         We account for the impairment of long-lived assets in accordance with
         Financial Accounting Standards, SFAS No. 144, Accounting for the
         Impairment or Disposal of Long-Lived Assets, which requires that
         long-lived assets be reviewed for impairment whenever events or changes
         in circumstances indicate that the book value of the asset may not be
         recoverable. Recoverability of the asset is measured by comparison of
         its carrying amount to the undiscounted cash flow that the asset or
         asset group is expected to generate. If such assets or asset groups are
         considered to be impaired, the loss recognized is the amount by which
         the carrying amount of the property if any exceeds its fair market
         value. Management determined that the balance of $303,017 of the
         trademarks for Maui Juice and Squeeze soda was deemed impaired. The
         Company recognized impairment expense attributable to trademarks in the
         amount of $303,017 for the year ended December 31, 2006. The Company
         recognized impairment expense attributable to goodwill and customer
         list in the amount of $65,789 and $1,163,830 for the year ended
         December 31, 2006 and 2005, respectively, and was included in loss from
         discontinued operations (See Note 7 - Customer list and Note 8 -
         Goodwill).

         STOCK-BASED COMPENSATION

         Effective January 1, 2006, the Company adopted Statement of Financial
         Accounting Standards No. 123 (revised 2004), Share Based Payment ("SFAS
         No. 123R"). SFAS No. 123R establishes the financial accounting and
         reporting standards for stock-based compensation plans. As required by
         SFAS No. 123R, the Company recognized the cost resulting from all
         stock- based payment transactions including shares issued under its
         stock option plans in the financial statements.

         Prior to January 1, 2006, the Company accounted for stock-based
         employee compensation plans (including shares issued under its stock
         option plans) in accordance with APB Opinion No. 25 and followed the
         pro forma net income, pro forma income per share, and stock-based
         compensation plan disclosure requirements set forth in the Statement of
         Financial Accounting Standards No. 123, Accounting for Stock-Based
         Compensation ("SFAS No. 123"). For the period ended December 31, 2006
         and 2005, the Company did not grant any stock options.

         The following table sets forth the computation of basic and diluted
         income per share for the year ended December 31, 2005 and illustrates
         the effect on net loss and loss per share as if the Company had applied
         the fair value recognition provisions of SFAS No. 123 to stock-based
         employee compensation:

<TABLE>
<CAPTION>

                                                                          2005
                                                                          ----

<S>                                                      <C>           <C>
         Net loss                                        As reported   $(1,953,694)
         Add: Stock-based employee compensation
         expense included in reported
         net loss, net of related tax effects                          $        --
         Deduct: Total stock based employee
         compensation expense determined under fair
         value based method for all awards, (5) 1 net
         of related tax effects                                        $        --
                                                         Pro forma     $(1,953,694)

         Net loss per share - basic and diluted          As reported   $      (.13)
                                                         Pro forma     $      (.13)
</TABLE>


                                      F-9
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         REVENUE RECOGNITION

         The Company follows the criteria of the Securities and Exchange
         Commission Staff Accounting Bulletin 104 for revenue recognition. The
         Company recognizes revenue when persuasive evidence of an arrangement
         exists, delivery of product has occurred, the sales price is fixed or
         determinable, and collectibility is reasonably assured. The Company
         recognizes revenue upon acceptance of delivery of its product by its
         customers at agreed prices. Based on market conditions, the Company or
         its suppliers may choose to promote certain brands by offering free
         product or case volume discounts. The cost of any supplier-sponsored
         promotion is recoverable in whole or in part from the supplier. The
         Company follows the guidance of Emerging Issues Task Force (EITF) Issue
         01-9 "Accounting for Consideration Given by a Vendor to a Customer" and
         (EITF) Issue 02-16 "Accounting By a Customer (Including a Reseller) for
         Certain Considerations Received from Vendors." Accordingly, the Company
         does not recognize revenue on free promotional products, discounts or
         rebates received. These incentives are recognized as a reduction of the
         cost of products. Promotional products given to customers are
         recognized as a cost of sales, net of any charge-backs received from
         vendors. Cash incentives provided to customers are recognized as a
         reduction of the related sale price, and, therefore, are a reduction in
         sales.

         INCOME TAXES

         The Company accounts for income taxes under the Financial Accounting
         Standards Board Statement of Financial Accounting Standards No. 109
         "Accounting for Income Taxes" ("Statement 109"). Under Statement 109,
         deferred tax assets and liabilities are recognized for the future tax
         consequences attributable to differences between the financial
         statement carrying amounts of existing assets and liabilities and their
         respective tax bases. Deferred tax assets and liabilities are measured
         using enacted tax rates expected to apply to taxable income in the
         years in which those temporary differences are expected to be recovered
         or settled. Under Statement 109, the effect on deferred tax assets and
         liabilities of a change in tax rates is recognized as income in the
         period, which includes the enactment date.

         FAIR VALUE OF FINANCIAL INSTRUMENTS

         Statement of Financial Accounting Standards No. 107, "Disclosures about
         Fair Value of Financial Instruments," requires disclosures of
         information about the fair value of certain financial instruments for
         which it is practicable to estimate that value. For purposes of this
         disclosure, the fair value of a financial instrument is the amount at
         which the instrument could be exchanged in a current transaction
         between willing parties, other than in a forced sale or liquidation.
         The carrying amounts of the Company's short-term financial instruments,
         including accounts receivable, accounts payable, accrued expenses, and
         other current asset and liabilities approximate fair value due to the
         relatively short period to maturity for these instruments.

                                      F-10
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         SHIPPING AND HANDLING COSTS

         The Company follows the guidance of EITF 00-10, "Accounting for
         Shipping and Handling Fees and Costs". The Company's shipping costs of
         $38,209 and $621 for the years ending December 31, 2006 and
         2005, respectively, are included in costs of goods sold.

         DERIVATIVE INSTRUMENTS

         The Company accounts for its liquidated damages pursuant to Emerging
         Issue Task Force ("EITF ")05-04, View C, "The Effect of a Liquidated
         Damages Clause on a Freestanding Financial Instrument Subject to EITF
         Issue No. 00-19, "Accounting for Derivative Financial Instruments
         Indexed to, and Potentially Settled in, a Company's Own Stock".
         Pursuant to EITF 05-04, View C, the liquidated damages paid in cash or
         stock are accounted for as a separate derivative, which requires a
         periodical valuation of its fair value and a corresponding recognition
         of liabilities associated with such derivative. The Company accounts
         for its embedded conversion features and freestanding warrants pursuant
         to SFAS No. 133, "Accounting for Derivative Instruments and Hedging
         Activities", which requires a periodic valuation of their fair value
         and a corresponding recognition of liabilities associated with such
         derivatives. The recognition of derivative liabilities related to the
         issuance of shares of common stock is applied first to the proceeds of
         such issuance, at the date of issuance, and the excess of derivative
         liabilities over the proceeds is recognized as other expense in the
         accompanying consolidated financial statements. The recognition of
         derivative liabilities related to the issuance of convertible debt is
         applied first to the proceeds of such issuance as a debt discount, at
         the date of issuance, and the excess of derivative liabilities over the
         proceeds is recognized as other expense in the accompanying
         consolidated financial statements. Any subsequent increase or decrease
         in the fair value of the derivative liabilities is recognized as other
         expense or other income, respectively. In December 2006, FASB Staff
         Position No. EITF 00-19-2, "Accounting for Registration Payment
         Arrangements," was issued. The FSP specifies that the contingent
         obligation to make future payments or otherwise transfer consideration
         under a registration payment arrangement, whether issued as a separate
         agreement or included as a provision of a financial instrument or other
         agreement, should be separately recognized and measured in accordance
         with SFAS No. 5, "Accounting for Contingencies." The Company believes
         that its current accounting is consistent with the FSP. Accordingly,
         adoption of the FSP had no effect on its consolidated financial
         statements.

         RECLASSIFICATION

         Certain amounts in the 2005 consolidated financial statements have been
         reclassified to conform to the 2006 presentation. Such
         reclassifications had no effect on the reported net loss.

                                      F-11
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         GOING CONCERN

         As reflected in the accompanying consolidated financial statements, the
         Company, has a net loss in 2006 of $26,512,778, cash used in operations
         in 2006 of $2,068,459 and an accumulated deficit of $60,463,681 at
         December 31, 2006, stockholders' deficiency of $18,428,426 and a
         working capital deficit of $14,615,352 at December 31, 2006. The
         ability of the Company to continue as a going concern is dependent on
         the Company's ability to further implement its business plan, raise
         capital, and generate revenues. The Company continues to raise capital
         to implement its business plan. The Company believes that these actions
         provide the ability to continue as a going concern. The consolidated
         financial statements do not include any adjustments that might be
         necessary if the Company is unable to continue as a going concern.

         RECENT ACCOUNTING PRONOUNCEMENTS

         In February 2006, the FASB issued SFAS 155, which applies to certain
         "hybrid financial instruments," which are instruments that contain
         embedded derivatives. The new standard establishes a requirement to
         evaluate beneficial interests in securitized financial assets to
         determine if the interests represent freestanding derivatives or are
         hybrid financial instruments containing embedded derivatives requiring
         bifurcation. This new standard also permits an election for fair value
         remeasurement of any hybrid financial instrument containing an embedded
         derivative that otherwise would require bifurcation under SFAS 133. The
         fair value election can be applied on an instrument-by-instrument basis
         to existing instruments at the date of adoption and can be applied to
         new instruments on a prospective basis. The adoption of SFAS No.155 did
         not have a material impact on the Company's financial position and
         results of operations.

         In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
         of Financial Assets, an amendment of FASB Statement No. 140, Accounting
         for Transfers and Servicing of Financial Assets and Extinguishments of
         Liabilities". This statement requires all separately recognized
         servicing assets and servicing liabilities be initially measured at
         fair value, if practicable, and permits for subsequent measurement
         using either fair value measurement with changes in fair value
         reflected in earnings or the amortization and impairment requirements
         of Statement No. 140. The subsequent measurement of separately
         recognized servicing assets and servicing liabilities at fair value
         eliminates the necessity for entities that manage the risks inherent in
         servicing assets and servicing liabilities with derivatives to qualify
         for hedge accounting treatment and eliminates the characterization of
         declines in fair value as impairments or direct write-downs. SFAS No.
         156 is effective for an entity's first fiscal year beginning after
         September 15, 2006. The adoption of this statement is not expected to
         have a significant effect on the Company's future reported financial
         position or results of operations.

         In July 2006, the Financial Accounting Standards Board (FASB) issued
         FASB Interpretation (FIN) No. 48, "Accounting for Uncertainty in Income
         Taxes-an interpretation of FASB Statement No. 109." This interpretation
         provides guidance for recognizing and measuring uncertain tax
         positions, as defined in SFAS No. 109, "Accounting for Income Taxes."
         FIN No. 48 prescribes a threshold condition that a tax position must
         meet for any of the benefit of an uncertain tax position to be
         recognized in the financial statements. Guidance is also provided
         regarding de-recognition, classification, and disclosure of uncertain
         tax

                                      F-12
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         RECENT ACCOUNTING PRONOUNCEMENTS (continued)

         positions. FIN No. 48 is effective for fiscal years beginning after
         December 15, 2006. The Company does not expect that this interpretation
         will have a material impact on its financial position, results of
         operations, or cash flows.

         In September 2006, the FASB issued Statement of Financial Accounting
         Standards No. 157, "Fair Value Measurements" ("FAS 157"). This
         Statement defines fair value as used in numerous accounting
         pronouncements, establishes a framework for measuring fair value in
         generally accepted accounting principles and expands disclosure related
         to the use of fair value measures in financial statements. The
         Statement is to be effective for the Company's financial statements
         issued in 2008; however, earlier application is encouraged. The Company
         is currently evaluating the timing of adoption and the impact that
         adoption might have on its financial position or results of operations.

         In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
         Considering the Effects of Prior Year Misstatements when quantifying
         Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108
         requires companies to evaluate the materiality of identified unadjusted
         errors on each financial statement and related financial statement
         disclosure using both the rollover approach and the iron curtain
         approach, as those terms are defined in SAB 108. The rollover approach
         quantifies misstatements based on the amount of the error in the
         current year financial statement, whereas the iron curtain approach
         quantifies misstatements based on the effects of correcting the
         misstatement existing in the balance sheet at the end of the current
         year, irrespective of the misstatement's year(s) of origin. Financial
         statements would require adjustment when either approach results in
         quantifying a misstatement that is material. Correcting prior year
         financial statements for immaterial errors would not require previously
         filed reports to be amended. If a Company determines that an adjustment
         to prior year financial statements is required upon adoption of SAB 108
         and does not elect to restate its previous financial statements, then
         it must recognize the cumulative effect of applying SAB 108 in fiscal
         2006 beginning balances of the affected assets and liabilities with a
         corresponding adjustment to the fiscal 2006 opening balance in retained
         earnings. SAB 108 is effective for interim periods of the first fiscal
         year ending after November 15, 2006. The adoption of SAB 108 did not
         have an impact on the Company's consolidated financial statements.

         Other accounting standards that have been issued or proposed by the
         FASB or other standards-setting bodies that do not require adoption
         until a future date are not expected to have a material impact on the
         consolidated financial statements upon adoption.

NOTE 2 - NET LOSS PER COMMON SHARE

         In accordance with SFAS No. 128 "Earnings Per Share," Basic earnings
         per share is computed by dividing net income by the weighted average
         number of shares of common stock outstanding during the period. Diluted
         earnings per share is computed by dividing net income by the weighted
         average number of shares of common stock, common stock equivalents and
         potentially dilutive securities outstanding during each period. Diluted
         loss per common share is not presented because it is anti-dilutive.


                                      F-13
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 2 - NET LOSS PER COMMON SHARE (continued)

         The Company's common stock equivalents at December 31, 2006 include the
         following:

         Series A Cumulative Convertible Preferred Stock       200,000
         Series B Convertible Preferred Stock                5,311,414
         Series D Convertible Preferred Stock                1,100,000
         Warrants                                            9,955,423
         Convertible notes                                  13,090,881
                                                        --------------
                                                            29,657,718
                                                        ==============

NOTE 3 - INVENTORY

         Inventories are stated at the lower of cost or market determined in a
         "first-in, first-out" basis. The Inventory balance consisted of the
         following:
                                                       December 31, 2006
                                                       -----------------

         Resalable products                                $  164,698
         Proprietary brand raw materials                       43,320
                                                           ----------
         Total:                                            $  208,018
                                                           ==========
NOTE 4 - OTHER RECEIVABLES

         The balance of other receivables as of December 31, 2006 consisted of a
         release of writ from a note holder in December 2006 amounting to
         $53,436. The note holder garnished the bank account of the Company
         during 2006 and the total amount of $53,436 was refunded back to the
         Company in January 2007.

NOTE 5 - FIXED ASSETS

         Property and equipment at December 31, 2006 is as follows:

                                  Useful life       December 31, 2006
                                  -----------       -----------------

         Office Equipment            5 years           $   29,565
         Furniture & Fixtures        7 years                1,000
                                                       ----------
                                                           30,565

         Less: Accumulated depreciation                   (14,428)
                                                       ----------
         Net                                           $   16,137
                                                       ==========

                                      F-14
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 5 - FIXED ASSETS (continued)

         Depreciation expense for the fiscals years ended is as follows:

                                                             2006        2005
                                                           --------    --------
         Depreciation expense                              $  5,473    $  4,814
         Depreciation expense - discontinued operations      79,004      87,663
                                                           --------    --------
         Total Depreciation expense                        $ 84,477    $ 92,477
                                                           ========    ========

         During 2006, the Company disposed of certain fixed assets of BNSF, BNCT
         and BNMA with net book values of $50,595 that were sold for $10,420 and
         recorded a loss on disposal of assets of $40,175 which was included in
         the loss from discontinued operations in the accompanying consolidated
         statements of operations (See Note 21 - Discontinued Operations).

NOTE 6 - CAPITALIZED FUNDING COSTS, NET

         The table below summarizes the balance of capitalized funding costs as
         of December 31, 2006:

                                                          December 31, 2006
                                                          ------------------
         Capitalized Funding Costs                            $5,027,822

         Accumulated Amortization:                            (4,094,238)
                                                              ----------
                  Net:                                        $  933,584
                                                              ==========

         In March 2004, the Company entered into a placement agent agreement to
         assist with capital raising activities. The Company closed on the first
         of two financing transactions on May 14, 2004 (See Note 14 - Current
         Portion, Long Term Debt) upon which a placement agent fee was paid
         according to the terms of the agreement. The Company issued 426,250
         common stock purchase warrants, at a fair market value of $1,879,809
         (valued using the Black-Scholes model) resulting in capitalized funding
         costs of $1,879,809 to be amortized over the 36 month term of the
         financing agreement (See Note 18 - Stockholders' Deficiency). The debt
         instrument attributed to these warrants was refinanced on March 31,
         2006; the Company amortized the remaining balance of capitalized
         funding costs in the amount of $861,579 for the year ended December 31,
         2006. Amortization for the year ended December 31, 2005 was $626,603.
         In connection with the same financing, the Company paid from net
         proceeds $131,000 in legal and closing costs. Due to the debt
         refinancing, the Company amortized the remaining balance of capitalized
         funding costs of $60,042 for the year ended December 31, 2006 (See Note
         16 - Long Term Notes Payable). Amortization for the year ended December
         31, 2005 was $32,750.

         On March 31, 2006, the Company refinanced the Secured Convertible Loan
         with the Laurus Master Fund. The Company paid from net proceeds
         $254,500 in legal and closing costs to be amortized over the 36 month
         term of the notes. Amortized funding costs were $63,625 for the year
         ended December 31, 2006 with a remaining balance of $190,875.

                                      F-15
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 6 - CAPITALIZED FUNDING COSTS, NET (continued)

         The Company closed a second financing transaction on July 30, 2004 (See
         Note 19 - Long Term Notes Payable). The Company issued 423,529 common
         stock purchase warrants, realizing a fair value of $1,359,712 recorded
         to capitalized funding costs (valued using the Black-Scholes model);
         the value is being amortized over the 42 month term of the financing
         agreement (See Note 18 - Stockholders' Deficiency ). The Company
         recognized amortized funding costs of $388,489 and $388,489 for the
         year ended December 31, 2006 and 2005, respectively. The remaining
         balance of unamortized funding costs attributable to this transaction
         is $420,862.

         In June 2005, the Company entered into a series of related agreements
         with Cogent Capital Corp. and 16 institutional accredited investors
         pursuant to which the Company has issued 19,736,848 common shares at a
         purchase price of $0.76 per share in exchange for a total of
         $15,000,000 in U.S. government bonds. To execute the agreement, Cogent
         was to receive $300,000 as an initiation fee along with $28,500 for
         legal fees. These costs are being amortized over the 42 month term of
         the agreement; the Company recognized an expense of $95,616 and $46,891
         for the year ended December 31, 2006 and 2005 respectively. The
         remaining balance as of December 31, 2006 is $185,993. Additionally, in
         connection with this agreement, the Company also issued 394,729
         warrants to an investment banker as a placement agent fee. The warrants
         had a term of five years at an exercise price of $0.76 and recorded a
         fair value of $240,902 (valued using a Black-Scholes Model); an expense
         of $69,840 and $35,208 was recognized for the year ended December 31,
         2006 and 2005, with a remaining balance of $135,854 as of December 31,
         2006.

         Pursuant to the terms of the Financial Advisory and Investment Banking
         Agreement executed in April 25, 2005, the Company paid a placement
         agent fee of $301,950, or 10% of the gross units sold in the debt
         financing placement along with legal fees and administrative expenses
         of $106,804. The fees are being amortized over the term of the notes
         which have maturity dates ranging from July 6, 2006 through November 8,
         2006. The Company recognized an expense of $243,586 and $165,168(see
         Note 13 - Convertible Notes Payable). The agreement also contains a
         provision whereby the Placement agent will be granted warrants to
         purchase restricted common shares in consideration of placement agent
         fees for the same debt financing placement. In connection with this
         agreement, the Company issued 699,253 warrants with an exercise price
         of $0.76, a term of five years and a fair value of $384,666 (valued
         using the Black-Scholes model). The Company recognized an expense of
         $218,601 and $166,065 for the years ended December 31, 2006 and 2005.

         In April 2006 the Company executed a 120 day demand note due August 5,
         2006. The Company paid a placement agent fee, from the proceeds, in the
         amount of $40,000 which was being amortized over the term of the note.
         The Company recognized an expense of $40,000 for the year ended
         December 31, 2006.

                                      F-16
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 7 - CUSTOMER LIST

         The table below summarizes the balance of customer lists included in
         assets of discontinued operations as of December 31, 2006 (See Note 21
         - Discontinued Operations):

                                                          December 31, 2006
                                                          -----------------

         Beverage Network of Maryland, Inc. ("BNMD")         $1,973,240

         Accumulated Amortization:                             (986,620)
                                                             ----------
                  Net:                                       $  986,620
                                                             ==========

         As a result of the acquisitions of the assets of Pacific Rim Natural
         Juice Company ("BNHI") and Master Distributors, Inc. ("BNMD"), the
         Company recorded an identifiable intangible asset classified as
         customer lists. Acquired customer lists are considered to have a finite
         life pursuant to SFAS No. 142 to be amortized over the period the asset
         is expected to contribute to the future cash flows. The customer lists
         are being amortized over a five-year period. In 2005, management
         determined that the remaining balance of $102,210 of the customer list
         for BNMA was written-off as it was deemed impaired and was included in
         loss from discontinued operations. During 2006, upon completion of a
         periodic review of the valuation criteria, management determined that
         the $21,094 balance of the customer list for BNHI was written off as it
         was considered impaired and was included in loss from discontinued
         operations. This was due to a working capital deficiency preventing
         this entity from purchasing inventory and generating sales.

         A review of the valuation criteria for the balance of the customer list
         for BNMD determined that there have not been any events or
         circumstances that have resulted in the need for a revision to the
         remaining period of amortization as defined in SFAS No. 142. The
         impairment loss allocated to customer lists for the year ended December
         31, 2006 and 2005 is $21,094 and $102,210, respectively and was
         included in loss from discontinued operations ; amortization expense
         for the twelve months ending December 31, 2006 and 2005 is $397,843 and
         $424,485 respectively and was included in loss from discontinued
         operations.

NOTE 8 - GOODWILL

         Acquired goodwill is considered to have an indefinite life pursuant to
         SFAS No. 142 and accordingly is not amortized but subject to periodic
         impairment tests. Pursuant to SFAS No. 142, goodwill of a reporting
         unit is required to be tested for impairment on an annual basis and
         between annual tests in certain circumstances. Testing for impairment,
         beyond an annual basis, is required if there is a significant adverse
         change in the entity carrying the goodwill. The Company evaluates the
         carrying value of intangible assets as of the fiscal year end for all
         entities. The Company recognized impairment expense attributable to the
         goodwill of BNMD and BNMA in the amount of $890,000 and $171,620
         respectively for the twelve months ending December 31, 2005 and was
         included in loss from discontinued operations. During 2006, upon
         completion of a periodic review of the valuation criteria, management
         determined that the $44,695 balance of goodwill for BNHI should be
         written off as it was considered impaired. A review of the valuation
         criteria for the remaining balance of the BNMD goodwill in the amount
         of $847,620, determined that there has not been any events or
         circumstances that have resulted in the need for a revision to the
         remaining period of amortization as defined in SFAS No. 142. The
         remaining balance of

                                      F-17
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 8 - GOODWILL (continued)

        goodwill was included in the assets of discontinued operations (See Note
        21 - Discontinued Operations). The impairment loss allocated to goodwill
        for the year ended December 31, 2006 and 2005 is $44,695 and $1,061,620,
        respectively and was included in loss from discontinued operations in
        the accompanying consolidated statements of operations.

NOTE 9 - ACCRUED EXPENSES

         Effective February 5, 2004, the Company executed revised employment
         agreements for its Chairman, President, and Vice President stipulating
         an annual base compensation of $130,000 each. Accrued compensation
         and other expenses at December 31, 2006 were as follows:

         Accrued Expense-Salaries: Officers/Directors     $  629,887
         Accrued Expense-Salaries: Other                     167,007
         Accrued Expense-Liquidated Damages                  294,573
         Accrued Expense-Cogent                            1,150,470
         Accrued Expense-Taxes                                29,341
         Accrued Expense-Other                                 8,904
                                                          ----------
                                Total Accrued Expenses:   $2,280,182
                                                          ==========

         The Company has accrued salaries of $629,887, in aggregate, due to the
         Chairman, President and Vice President. The remaining accrued salaries
         balance of $316,123 is attributable to current payroll due to former
         employee and non-officers/directors whereby $167,007 of this amount is
         related to continuing operations and the remaining amount of $149,116
         was related to discontinued operations which was included in
         liabilities of discontinued operations in the accompanying consolidated
         balance sheet (See Note 21 - Discontinued Operations).

         The Series B preferred shareholders have a provisions contained within
         the registration rights agreement that stipulate they are entitled to
         liquidated damages if the SB-2 registration statement is not effective
         by a specified date. The Series B preferred offering resulted in gross
         proceeds of $2,160,000 with liquidated damages accruing at 2% for month
         1 (September 2004) and at 1.25% for each month thereafter (October 2004
         - September 2006) until the registration is effective. The Company has
         the option to remit payment of the liquidated damages by issuing more
         Series B preferred stock. During 2005, the Company issued 7.14 shares
         of preferred Series B shares which converted to a total payment of
         $357,223 of accrued liquidated damages. Additionally, during 2006 and
         2005, three Series B preferred shareholders converted 15.61 Series B
         shares into 1,114,444 shares of common stock. Accordingly, the Company
         has reclassified $652,000 of Series B preferred liabilities to paid in
         capital in connection with this conversion (See Note 16 - Long Term
         Notes Payable). The balance of accrued Series B preferred liquidated
         damages is $294,573 as of December 31, 2006. The Company recognized
         liquidated damages of $203,597 and $324,000 which were included in
         interest expense as of December 31, 2006 and 2005, respectively.

                                      F-18
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 9 - ACCRUED EXPENSES (continued)

         The Laurus Master Fund, Ltd. registration rights agreement executed in
         May 2004 also contained a provision for liquidated damages; this
         transaction resulted in gross proceeds of $3,000,000 with liquidated
         damages accruing at 2% per month for not having the SB-2 effective
         (commencing August 14, 2004). On March 31, 2006 the secured convertible
         loan associated with the registration rights agreement was refinanced
         and the balance of $1,170,000 of accrued liquidated damages was paid
         with the issuance of the $2 million secured convertible note on March
         31, 2006. (See Note 16- Long Term Notes Payable)

         In June 2005, the Company entered into a series of related
         agreements with Cogent Capital Corp. and 16 institutional accredited
         investors pursuant to which the Company issued 19,736,848 common
         shares at a purchase price of $0.76 per share in exchange for a total
         of $15,000,000 in U.S. government bonds. Under the terms of the equity
         swap, the 15,789,472 common shares and the bonds are maintained in
         escrow until the earlier of 42 months or such time as all of these
         shares are covered by an effective registration statement filed with
         the SEC. During the period of the escrow, Cogent Capital Corp. will
         also receive from the swap agreement, interest earned on the
         $15,000,000 at a rate equal to LIBOR +125 basis points, payable
         monthly. The balance of accrued expenses and interest due to Cogent as
         of December 31, 2006 is $1,150,470 (See Note 19 - Subscription
         Receivable).

         Under the terms of the Secured Convertible Term Note issued by us to
         the Laurus Master Fund, Ltd. in May 2004, this judgment constituted an
         event of default. As security for this note we have granted a security
         interest to the Laurus Master Fund, Ltd. in all of our assets, the
         obligations under the secured convertible term note have been
         guaranteed by our subsidiaries, and we have pledged the stock of all of
         our current and any future subsidiaries acquired by us during the term
         of the secured convertible term note. As a result of this default, the
         Laurus Master Fund, Ltd. is entitled to 2% default premium in addition
         to the stated interest rate currently accrued on the remaining balance
         of the note per month. On March 31, 2006 the secured convertible note
         was refinanced and the balance was paid off. The balance of accrued
         interest associated with the default premium in the amount of $332,563
         was also paid.

         The Company legally pursued a former payroll processor, Florida
         Employer Solutions, Inc. (FES), for restitution in the form of
         reimbursement of payroll tax monies that the payroll processor failed
         to pay on behalf of the Company. The balance due of the taxes is
         $350,986 as of December 31, 2006 whereby $29,341 of this amount is
         related to continuing operations and the remaining amount of $321,645
         is related to discontinued operations which was included in liabilities
         of discontinued operations in the accompanying consolidated balance
         sheet (See Note 21 - Discontinued Operations).

                                      F-19
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 10 - DIVIDENDS PAYABLE

         The Series B Preferred pays cumulative semi-annual dividends of 6% per
         annum, payable at the Company's option in cash, registered shares of
         its common stock or additional shares of its Series B Preferred (See
         Note 19 - Stockholders' Deficiency).

         In 2005, the Company issued 3.43 shares of preferred series B shares
         which converted to the payment of $171,622 of accrued dividends. The
         dividends payable as of December 31, 2006 was $126,066.

NOTE 11 - LOANS PAYABLE AND LOANS PAYABLE-RELATED PARTY

         XStream Beverage, Inc. ("XBI"), a principal stockholder of the Company
         owned by XStream's Chairman, periodically loans money to XStream. In
         March 2004, the principal shareholder advanced $25,000 to the Company;
         XStream's loans from XBI are non-interest bearing demand notes with no
         specified term. The balance due was $50,455 at December 31, 2006.

         In March 2006, a shareholder advanced $50,000 to the Company as an
         interest bearing demand note at 6% per annum with no specified term.
         The Company repaid the loan in May 2006.

         Loans payable at December 31, 2006 were as follows:

          December 2005 - May 2006, 60 day demand notes,
          5% per month                                           $1,106,341

          April 2006, 120 day demand note,
          fixed interest of $25,000                                 295,815
                                                                 ----------
           Total Loans Payable - Other                            1,402,156

           Loans Payable, Related Party                              50,455
                                                                 ----------
           Total Loans Payable                                   $1,452,611
                                                                 ==========

         From December 2005 to March 2006, the Company executed sixty day demand
         notes to investors that resulted in $550,000 of proceeds to the
         Company. The notes contain maturity dates ranging from February 23,
         2006 to May 1, 2006 and contain provisions for fixed interest that
         amounts to $65,000 if repaid according to terms. The notes accrue 5%
         interest per month if in arrears along with a provision whereby the
         note holder is entitled to an interest penalty in the amount of $50,000
         per month if the notes are not repaid by August 31, 2006. Interest
         expense of $606,341 was recognized for the year ended December 31,
         2006. They also include a provision whereby the holders received, in
         aggregate, 532,500 shares of restricted common stock which the Company
         valued as deferred fees at $183,725 and recognized over the term of the
         notes. The Company also issued 1,875,000 share of its common stock as a
         pledge of collateral for the notes (See Note 18- Stockholders'
         Deficiency). In April 2006, the Company paid off $50,000 of these
         notes. In December 2006, the Company assigned 1,750,000 shares of these
         collateral shares to a note holder for non payment of the principal and
         accrued interest in August 2006 and recognized interest expense of
         $157,500 during the year ended December 31, 2006. Additionally, on
         December 15, 2006, in connection with these notes, the Company issued
         1,500,000 shares of its common stock for

                                      F-20
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 11 - LOANS PAYABLE AND LOANS PAYABLE-RELATED PARTY (continued)

         non payment of the principal and accrued interest in August 2006 and
         recognized interest expense of $120,000 during the year ended December
         31, 2006. The total balance of the principal notes and accrued interest
         as of December 31, 2006 was $1,106,341.

         In April 2006, the Company executed a $250,000, 120 day demand note,
         fixed interest of $25,000 due August 5, 2006. The note accrues 1.5%
         interest per month after due date. The proceeds to the Company were
         $210,000 after paying a placement fee of $40,000. The note contained a
         provision whereby the holder received 250,000 restricted common shares,
         valued at $92,500, which the Company recognized as interest expense for
         the year ended December 31, 2006. Additionally, the Company recorded
         interest expense of $45,815 for the year ended December 31, 2006. The
         total balance of the principal notes and accrued interest as of
         December 31, 2006 was $295,815.

NOTE 12 - LAURUS MASTER FUND REVOLVING LINE OF CREDIT

         On March 31, 2006, the Company was issued a $4 million line of credit
         with the Laurus Master Fund. ("Laurus Debt"). The line of credit bears
         interest at the higher of 9% or prime plus 2% and matures in March 2009
         and interest is payable monthly. The balance with accrued interest was
         $1,028,273 as of December 31, 2006.

NOTE 13 - CONVERTIBLE NOTES PAYABLE

         The balance of the convertible term notes, accrued interest and related
         debt discount at December 31, 2006 is as follows:

                   Term note 18% per annum                       $  579,607
                   Term note 12% per annum                        3,019,500
                   Accrued interest                                 764,793
                                                                 ----------
                                                                 $4,363,900
                                                                 ==========

         The Company secured $725,000 from investors resulting from a debt
         placement offering originating in February 2005. The debt instruments
         were convertible term notes at 18% per annum, with maturity dates
         ranging from September 1 to November 15, 2005. The net proceeds
         received by the Company was $725,000 to be used as general working
         capital. As collateral for these notes the Company pledged 100,000
         shares of common stock and Theodore Farnsworth, our CEO, pledged
         100,000 shares of common stock personally owned by him. Attached to the
         notes was a provision whereby the purchasers were issued common stock
         warrants, with a five year term and exercisable at $1.50, in an amount
         equivalent to the face value of each note. Should the Company default,
         the exercise price of the warrants is automatically reduce by 5% for
         each 30 day period in which the Company remains in default. The notes
         also contain, at the discretion of the holder, a conversion option
         contingent upon a future secondary offering prior to maturity date. The
         725,000 warrants issued to the debt holders were valued at $635,511 and
         recorded as a derivative liability (See Note 18 - Stockholders'
         Deficiency). As of December 31, 2006, the Company reflected a balance
         of principal and accrued interest of $579,607 and $229,324,
         respectively.

                                      F-21
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 13 - CONVERTIBLE NOTES PAYABLE (continued)

         In September 2005, we received a notice of default in connection with
         the 18% secured promissory notes issued above by the Company from two
         note holders in the aggregate principal amount of $300,000. These notes
         were due and payable on September 1, 2005. The Company has repaid
         $100,000 of the principal balance, however, the note holders are
         demanding payment of $233,279. In February 2006, the Company executed
         an agreement in consideration for 2,500,000 shares of restricted common
         stock, to defer payments of these note holders until May 10, 2006. The
         shares were valued at $1,050,000, which the Company recognized as
         interest expense for the year ended December 31, 2006 (See Note 18-
         Stockholders' Deficiency). In August 2006 the Company received a
         notice of final default judgment from the note holders demanding
         $270,106 of principal and accrued interest. The Company was unable to
         satisfy the entire balance due and the bank account was garnished for
         $98,829 by the note holders; $45,403 was remitted to the note holders
         and while $53,426 was returned to the Company as it was secured through
         a deposit control agreement between Wachovia Bank and Laurus Master
         Fund, LTD, our senior secured lender. The remaining balance due to
         these note holders was $243,691 as of December 31, 2006.

         In January 2006, the Company executed an agreement with the remaining
         note holders of 18% secured promissory notes to defer all payments
         until March 31, 2006. In consideration, the Company issued an aggregate
         of 550,000 restricted shares valued at $148,500 and recognized the
         entire amount as interest expense for the year ended December 31, 2006.
         In June 2006, the Company issued an additional 190,000 restricted
         shares to defer payments until September 15, 2006; the Company
         recognized interest expense of $51,300 for the year ended December 31,
         2006. In November 2006, the Company issued an additional 800,000 to a
         note holder to defer payments until January 31, 2007 and recognized
         interest expense of $45,375 and deferred fees of $42,625 for the year
         ended December 31, 2006. (See Note 18 - Stockholders' Deficiency).

         As of November 8, 2005, the Company had completed the sale of
         $3,019,500 units of its securities to 44 institutional and/or
         accredited investors. The units consisted of $100,000 principal amount
         of convertible notes, warrants to purchase 100,000 shares of common
         stock at an exercise price of $0.76 per share with a term of five years
         and 10,000 shares of common stock. The maturity date of the notes range
         from July 6 through November 8, 2006 and bear interest at the rate of
         12% per annum payable at the maturity date or upon conversion of the
         notes if prior to the maturity date. The holders of the notes have the
         option to convert the notes into common shares of the Company at a
         price equal to the public offering price of common shares of the
         Company in any underwritten registered public offering involving common
         stock of the Company less a discount of 20%. If the Company does not
         complete a public offering prior to maturity, the holders may, at their
         option, convert their notes at maturity into common shares at a price
         of $0.76 per share, subject to adjustment in the event of any dilution
         events. The issuance of the Laurus Master Fund convertible loan on
         March 31, 2006 triggered an adjustment in the conversion price from
         $0.76 to $0.45 (See Note 16 - Long Term Notes Payable). As of December
         31, 2006, the Company reflected a balance of principal and accrued
         interest due amounting to $3,019,500 and $535,469, respectively.

                                      F-22
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 13 - CONVERTIBLE NOTES PAYABLE (continued)

         In connection with the 12% convertible notes, 301,950 shares of common
         stock were issued to the debt holders, and were valued at $236,471 and
         are being amortized over the term of the notes. The Company recognized
         an expense of $134,862 and $101,609 as of December 31, 2006 and 2005
         respectively. (See Note 18 - Stockholders' Deficiency ).

         Notice of Default:

         The event of default under the Laurus Secured Convertible Term Note
         (See Note 16 - Long Term Notes Payable), prior to being paid as of
         March 31, 2006, has triggered an event of default under the 12%
         unsecured promissory notes in the aggregate principal amount of
         $3,019,500 which the Company issued to an aggregate of 44 purchasers in
         a private placement of our securities between June and November, 2005.
         At the option of the holders of greater than 50% of the face amount of
         these outstanding notes, the notes will become immediately due and
         payable. The Company does not know at this time what action, if any,
         the note holders may take.

NOTE 14 - CURRENT PORTION, LONG TERM DEBT

         The current portion of long term debt and debt discount as of December
         31, 2006 is as follows:

         Interest bearing demand note 6% per annum, due
         April 2012 (Maui Trademark)                         $  195,244
         Secured 6% convertible note ("BNMD")                 2,069,706
         Senior secured note ("Laurus")*                        962,500
         Debt discount on Senior secured note ("Laurus")*     (110,542)
                                                             ----------
          * (See Note 16 - Long Term Notes Payable)           3,116,908
                                                             ==========

         On June 28, 2006, the Company received a notice of final default
         judgment from the principal owner of the Maui Juice Company for failure
         to pay principal payments under the terms of the Purchase and Sale
         Agreement for the Maui Juice trademark. The amount in arrears is
         approximately $73,750 and the Company's attorney is negotiating with
         the plaintiffs for an alternative payment schedule. The balance
         due as of December 31, 2006 is $195,244.

         The Company issued a convertible promissory note for $2,000,000 payable
         in 60 equal monthly payments and bearing 6% interest per annum in
         connection with the acquisition of BNMD in July 2004. The Company
         executed an amended agreement to defer all payment of the note until
         June 15, 2005. The holder, at his discretion, may elect to receive
         XStream stock in lieu of a cash payment. The minimum conversion is
         $25,000 at a predetermined value of $5.20 per share. In January 2005,
         the Company issued 150,000 shares of restricted common stock to the
         principal owner of Master Distributors, Inc. as consideration for
         deferring all debt payments until June 15, 2005. In September 2005, the
         Company received a notice of default from the principal owner of Master
         Distributors. The Company does not know at this time what action, if
         any, Master Distributors, Inc. may take. The balance due as of December
         31, 2006 is $2,069,706. In connection with the sale of Beverage Network
         of Maryland to Global, Master Distributors, Inc. received from Global a
         secured convertible promissory note in the amount of $2,000,000 and
         other consideration as a novation for the initial promissory note in
         the same

                                      F-23
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 14 - CURRENT PORTION, LONG TERM DEBT (continued)

         amount issued by the Company on July 1, 2004 as part of the initial
         acquisition by the Company of Beverage Network of Maryland. The Company
         is in the process of obtaining its original promissory note and formal
         confirmation of the novation of that obligation.

         On March 31, 2006, the Company issued a $4 million non convertible
         secured note ("Laurus Debt"). The Laurus Debt bears interest at the
         highest of 9% or prime plus 2% and matures in March 2009. Interest on
         the $4 million secured note is payable monthly. Principal on the $4
         million secured note is payable monthly as follows:$75,000 a month
         between December 2006 and November 2007, $137,500 a month between
         December 2007 and November 2008, $187,500 a month between December 2008
         and March 2009, with the remaining balance due in March 2009.
         Accordingly, the Company recorded $962,500 of this secured note as
         current portion as well as the related debt discount of $110,542 (See
         Note 16 - Long Term Notes Payable).

NOTE 15 - DERIVATIVE LIABILITY

         The Company recognized liabilities for the following derivatives at the
         date of their issuance during 2006 and 2005, respectively:
<TABLE>
<CAPTION>

                                                    At issuance-2006      At issuance-2005
                                                    ----------------      ----------------

<S>                                                      <C>                  <C>
         Embedded conversion
         features and liquidated damages
         and freestanding warrants issued to investors-
         $2,000,000 senior convertible note              $ 2,599,716          $        --
         Convertible notes                                        --            4,429,280
         Freestanding warrants issued to
         placement agents for:
         Convertible notes                                        --              645,390
         Other warrants                                           --            1,031,922
                                                         -----------          -----------
                                                         $ 2,599,716          $ 6,106,592
                                                         ===========          ===========
</TABLE>

         The fair value of the derivative liabilities at December 31, 2006 and
2005 are as follows:

         Embedded conversion
         features and liquidated damages
         and freestanding warrants issued to investors-
         $3,000,000 convertible note                     $    90,443
         $2,000,000 convertible note                         717,664
         Series B preferred shares                           767,694
         Convertible notes                                   532,531
         Freestanding warrants issued to
         placement agents:
         $3,000,000 convertible note                          38,087
         Series B preferred shares                            38,117
         Convertible notes                                   109,464
         Other warrants                                      132,278
                                                         -----------
                                                         $ 2,426,278
                                                         ===========


                                      F-24
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 15 - DERIVATIVE LIABILITY (continued)

         The Company used the following assumptions to measure the identified
         derivatives as follows:

         Embedded conversion feature and liquidated damages
<TABLE>
<CAPTION>

                                            At December 31, 2006      At December 31, 2005
                                          -------------------------   --------------------
<S>                                              <C>                     <C>
         Market price:                           $0.12                   $ 0.22
         Conversion price:                       $0.45-1.50              $ 0.76-1.50
         Term:                                   1.8-3.25 years            2.5-4.27 years
         Volatility:                             181%                      157%
         Risk-free interest rate:                4.67%                     4.40%
         Maximum liability:
         $3,000,000 convertible note            $        -               $ 6,290,313
         $2,000,000 convertible note             3,844,629                         -
         Series B preferred shares               4,544,262                 5,817,159
         Convertible notes                       6,306,258                 3,544,738

</TABLE>

         Freestanding warrants
<TABLE>
<CAPTION>

                                           At December 31, 2006        At December 31, 2005
                                           --------------------        --------------------
<S>                                            <C>                       <C>
         Market price:                         $ 0.12                    $  0.22
         Exercise price:                       $ 0.20-100                $  0.20-100
         Term:                                  2-3.5 years                3-4.5 years
         Volatility:                            181%                       157%
         Risk-free interest rate:               4.67%                      4.40%
         Outstanding other
         options and warrants                  9,955,423                  9,957,548

</TABLE>

         The embedded conversion features are as follows:

         Reset Feature Following Subsequent Financing-: 50% for all debt
         financing, which is the effective discount to market value the Company
         would offer in the event we provide for a subsequent private placement
         financing

         Liquidated Damage Clause: 46% and 48.75% for the convertible note and
         the preferred Series B shares, respectively, which is the difference,
         in months between the time the underlying shares are free-trading and
         the grace period to obtain a registration statement, multiplied by the
         liquidated damage rate ranging between 1.25% to 2% per month.

         Prepayment Penalty: 25% for the convertible note, which is the stated
         penalty rate in the event of prepayment.

         Default Premium: 25% and 23% for the convertible notes and the
         Preferred Series B shares, respectively, which is the stated premium in
         event of default.

         Incremental Default Interest Rate: 54% for the convertible notes, which
         is the difference between the default rate and the stated rate,
         multiplied by the term of the loan.

         During 2005, the Company allocated $1,031,922 of the fair value of the
         derivatives issued in connection with services performed by consultants
         to consulting expenses.

                                      F-25
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 15 - DERIVATIVE LIABILITY (continued)

         During 2006 and 2005, the Company allocated $1,834,188 and $$3,606,146,
         respectively, of the fair value of the derivatives issued in connection
         with the debt, at their date of issuance, to debt discount. The excess
         of the fair value of the derivative liabilities over the debt discount
         has been recognized as derivative liability expense, which amounts to
         $765,528 and $2,223,134 during 2006 and 2005, respectively.

         During 2005, the Company allocated $645,390, of the fair value of the
         derivatives issued in connection with the compensation of debt
         placement agents to deferred financing fees and to Laurus Master Fund
         for the release of restricted cash.

         The variation in fair value of the derivative liabilities between
         measurement dates amounted to a decrease of approximately $5.4 million
         and $14.2 million during the year ended December 31, 2006 and 2005,
         respectively. The decrease in fair value of the derivative liabilities
         has been recognized as other income. The Company has reclassified
         $404,857 of derivative liabilities to paid in capital related to the
         conversion of Series B preferred liabilities into common stock (See
         Note 18 - Stockholders' Deficiency).

NOTE 16 - LONG TERM - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

         The following table reflects the principal amounts plus accrued
         interest and debt discount as of December 31, 2006:

         Series B Convertible Preferred Stock                         1,508,000
         Senior Secured convertible note ("Laurus")                   2,136,750
         Senior secured note ("Laurus")                               3,959,643
         Less: Debt discount Convertible Preferred Stock               (223,807)
         Less: Debt discount Secured convertible note ("Laurus")     (1,500,000)
         Less: Debt discount on senior secured note   ("Laurus")       (138,173)
         Less: Current portion of senior secured note *                (962,500)
                                                                   ------------
                                                                    $ 4,779,913
                                                                   ============
         ---------
         * (see Note 14 - Current Portion, Long Term Debt)

         On August 2, 2004 Xstream Beverage Group, Inc. sold 43.2 shares of its
         Series B Convertible Preferred Stock to nine accredited investors and
         issued the purchasers Series A Common Stock Purchase Warrants and
         Series B Common Stock Purchase Warrants in a private transaction exempt
         from registration under the Securities Act of 1933 in reliance on
         Section 4(2) of that act and Rule 506 of Regulation D. Pursuant to the
         terms of the placement documents the debt instrument is convertible or
         redeemable at the discretion of the holder at the end of the 42 month
         term (See Note 18 - Stockholders' Deficiency ). The Company recognized
         interest expense of $857,908 and $761,142 from amortization of debt
         discount for the year ended December 31, 2006 and 2005, respectively.
         During 2006 and 2005, three of this Series B preferred share holders
         converted 15.61 Series B shares into 1,114,444 shares of common stock.
         Accordingly, the Company has reclassified $652,000 of series B
         preferred liabilities to paid in capital in connection with this
         conversion. The balance of the Series B Convertible preferred stock
         liabilities net of debt discount of $223,807 was $1,284,193 as of
         December 31, 2006.

                                      F-26
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 16 - LONG TERM - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE (continued)

         On May 14, 2004, the Company secured a financing arrangement with
         Laurus Master Funds, Ltd. ("Laurus Funds"). The financing consists of a
         $3 million Senior Secured Convertible Note that bears interest at the
         rate per annum of prime plus two percent and has a term of three years
         (May 14, 2007). In connection with the financing, Laurus Funds was also
         issued a Warrant (the "Warrant") to purchase up to 225,000 shares of
         the Company's common stock. The warrants are exercisable as follows:
         75,000 shares at $6.40 per share; 75,000 shares at $7.80 per share and
         the balance at $9.00 per share. The Company recorded a debt discount of
         $3 million to be amortized over the term of the note. On March 31,
         2006, the debt was repaid as a result of issuing the $4 million
         secured, non-convertible note. The remaining balance of debt discount,
         $1,375,000, was amortized to interest expense during the year ended
         December 31, 2006.

         In connection with the financing in March 2004, a registration rights
         agreement was executed to register the shares underlying the note and
         warrants. Certain liquidated damages of 2% of the note balance, per
         month, accrue if stipulated deadlines are not met. The SB-2
         registration was originally submitted on September 30, 2004,
         resubmitted on October 14, 2005 and subsequently cancelled in April
         2006. The Company recorded liquidated damages attributable to the
         registration statement in the amount of $180,000 and $990,000 as of
         December 31, 2006 and 2005, respectively, which were paid with the
         issuance of the $2 million secured convertible notes payable during
         March 31, 2006.

         On March 31, 2006, the Company issued a $4 million secured note, a $2
         million senior secured convertible note and a $4 million line of credit
         ("Laurus Debt"). The Laurus Debt bears interest at the highest of 9% or
         prime plus 2% and matures in March 2009. Interest on the $2 million
         senior secured convertible note is due at maturity, while interest on
         the $4 million secured note and $4 million line of credit is payable
         monthly (See Note 12- Laurus Master Fund revolving Line of Credit). The
         $2 million senior convertible note is convertible at a fixed rate of
         $0.45 per share.

         Principal on the $4 million secured note is payable monthly as follows:
         $75,000 a month between December 2006 and November 2007, $137,500 a
         month between December 2007 and November 2008, $187,500 a month between
         December 2008 and March 2009, with the remaining balance due in March
         2009. In December 2006, the Company paid $75,000 towards the principal
         balance of the $4 million secured note.

         Additionally, if the Company's cash flows from operating activities
         adjusted for the aforementioned principal repayments ("Excess Cash
         flows") exceeds the fixed principal repayments, the Company shall make
         additional principal repayments of 50% of the Excess Cash Flows. In the
         event of default, the Laurus Debt bears additional interest of 2% per
         month, a default payment amounting to 130% of the outstanding principal
         at the time of default.

         The proceeds from the $4 million secured note were disbursed as
         follows:

         1.       $3,486,192 to Laurus in satisfaction of all amounts due and
                  payable including principal, interest and penalties, under the
                  terms of a secured convertible term note dated May 14, 2006
                  issued to Laurus by the Company;

         2.       $254,500 as placement fees and recognized as capitalized
                  funding cost;

         3.       $259,308 to the Company for working capital.

                                      F-27
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 16 - LONG TERM - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE (continued)

         The $2 million note was issued for payment of liquidated damages of
         $1,170,000 and default interest of $332,563. Accordingly, the remaining
         balance was recognized as debt discount in connection with the $2
         million and $4 million secured note which amounted to $165,812 and
         $331,625, respectively, and is being amortized to interest expense over
         the term of the notes.

         Additionally, the $2 million convertible note was stripped of its
         conversion feature due to the accounting for the conversion feature as
         a derivative, which was recorded using the residual proceeds method.
         The conversion feature (an embedded derivative) included in this note
         resulted in an additional debt discount of $1,834,188 (See Note 15
         -Derivative Liability). In accordance with EITF No. 00-19, EITF No. 00-
         27, Application of Issue No. 98-5 to Certain Convertible Instruments,
         the values assigned to both the note, and conversion feature were
         allocated based on their fair values. The amount allocated as a
         discount on the note for the value of the conversion option is being
         amortized to interest expense, using the effective interest method,
         over the term of the note.

         Amortization of debt discount in connection with the $2 million and $4
         million secured note during the year ended December 31, 2006 amounted
         to $500,000 and $82,910, respectively.

         The balance of principal and accrued interest on the $2 million secured
         convertible note was $2,136,750 as of December 31, 2006.

         The balance of principal and accrued interest on the $4 million note
         was $3,959,643 as of December 31, 2006. The Company recorded $962,500
         of this secured note as current portion as well as the related debt
         discount of $110,542 (See Note 14- Current portion of long term debt).

         Principal maturities of long term notes payable over the next five
         years are as follows:

                  2007          $     962,500
                  2008              3,208,000
                  2009              3,433,893
                  2010                     --
                  2011                     --
                                -------------
                 Total          $   7,604,393
                                =============


         To secure the payment of all obligations, Xstream Beverage Network,
         Inc. "XBNI" and its subsidiaries entered into a Master Security
         Agreement which assigns and grants to Laurus Funds a continuing
         security interest in all of the following property now owned or at any
         time upon execution of the agreement, acquired by XBNI or its
         subsidiaries, or in which any Assignor now has or at any time in the
         future may acquire any right, title or interest (the "Collateral"): all
         cash, cash equivalents, accounts, deposit accounts, inventory,
         equipment, goods, documents, instruments (including, without
         limitation, promissory notes), contract rights, general tangibles,
         chattel paper, supporting obligations, investment property,
         letter-of-credit rights, trademarks, trademark applications, patents,

                                      F-28
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 16 - LONG TERM - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE (continued)

         patent applications, copyrights, copyright applications, tradestyles
         and any other intellectual property, in each case, in which any
         Assignor now has or may acquire any right, title or interest, all
         proceeds and products thereof, (including, without limitation, proceeds
         of insurance), and all additions, accessions and substitutions. In the
         event any Assignor wishes to finance an acquisition in the ordinary
         course of business of any hereafter-acquired equipment and has obtained
         a commitment from a financing source to finance such equipment from an
         unrelated third party, Laurus Funds agrees to release its security
         interest on such hereafter-acquired equipment so financed by such third
         party financing source.

NOTE 17 - COMMITMENTS AND CONTINGENCIES

         FACILITY LEASES

         In February 2006, Xstream executed a 5 year sublease beginning in March
         2006. The space is approximately 3,564 square feet at a rate of $12.50
         per sq. ft.

         In 2005, BNSF moved its inventory to a warehouse facility on a month-
         to-month basis.

         BNCT leases a 13,622 square foot facility in Bristol, CT. The rent is
         $5,676 per month and the lease expires in October 2008. The lease was
         terminated in January 2006.

         In April 2005, Xstream entered into a three year lease agreement for
         the benefit of BNHI. The lease provides for 2,750 square feet of
         retail, office, and warehouse space at a cost of $2,750 per month plus
         real estate taxes and escalation. In December 2006, the Company was
         issued a writ of possession by the landlord; the Company removed all
         contents and vacated the premises.

         BNMA renewed the assumed lease from Ayer Beverage, Inc. in June 2005 at
         a monthly rate of $1,688. In April 2006, the lease was terminated and
         BNMA moved its inventory to a warehouse facility on a month-to-month
         basis with no lease agreement at a cost of approximately $250 per
         month.

         BNMD assumed the lease from Master Distributors, Inc., consisting of a
         70,261 square foot facility at a current cost of $24,775 monthly. The
         current lease expires on March 31, 2008, and the Company is provided
         with an annual credit each March, equivalent to one months' rent. BNMD
         also subleases to four tenants 12,250 sq. ft. of warehouse space along
         with parking spaces adjacent to the building. The total space subleased
         yielded $12,550 per month. The sublease rent is offset against rent
         expense.

         The total rent charged to operations for the period ending December 31,
         2006 and 2005 was $233,615 and 321,670 respectively.

         On February 23 2007, the Company sold its wholly owned subsidiary, BNMD
         to Global Beverage Solutions, Inc. (See Note 22 - Subsequent Events).
         Accordingly, the minimum lease payments below include 2 months of lease
         payments and sublease income related to the BNMD lease.

                                      F-29
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 17 - COMMITMENTS AND CONTINGENCIES (continued)

         FACILITY LEASES (continued)

         Minimum lease payments over the next five years are as follows:

                       Future Minimum     Sublease     Net Minimum
                       Lease Payments     Income       Lease Payments

        2007          $     100,784     $  (4,000)       $  96,784
        2008                 58,658            --           58,568
        2009                 62,370            --           62,370
        2010                 71,280            --           71,280
        2011                 29,700            --           29,700
                      -------------     ---------       ----------
                      $     322,792     $  (4,000)      $  318,792
                      =============     =========       ==========

         EMPLOYMENT AGREEMENTS

         See Note 9 for details regarding accrued compensation.

         LITIGATIONS

         Our subsidiary, Beverage Network of Massachusetts, Inc. was named as a
         party in a legal proceeding filed by Kraft Foods, Inc. in the Superior
         Court of the County of Middlesex, Commonwealth of Massachusetts with
         respect to Civil Docket Number MICV2005-02503. For financial reasons
         the Company was unable to contest the plaintiff's claims and on August
         26, 2005 a default order was entered in favor of Kraft Foods, Inc.
         against Beverage Network of Massachusetts, Inc. On October 4, 2005
         Beverage Network of Massachusetts, Inc. was served with an execution
         order in the amount of $91,902, which includes costs. The Company
         agreed the terms of a payment plan with the plaintiff's attorney to
         remit monthly payments of $14,172 until the entire balance is paid.

         On September 12, 2005 the Company received a notice of default under
         the terms of two secured promissory notes issued by us to investors in
         the aggregate principal amount of $300,000. The notes were due and
         payable on September 1, 2005. As collateral for these notes the Company
         pledged 100,000 shares of restricted common stock and Theodore
         Farnsworth, our CEO, pledged 100,000 shares of common stock personally
         held by him. The note holders are demanding payment of $328,814. As we
         have been unable to pay these amounts, the note holders are entitled to
         foreclose on the collateral at any time. On March 16, 2006, an
         agreement was made with the two note holders whereby the Company would
         redeem the notes and make all payments due to the note holders, on or
         before March 31, 2006. As consideration, the Company granted each note
         holder 750,000 shares restricted common stock along with 500,000 shares
         of restricted common stock to each note holder which would be subject
         to release from escrow on March 31, 2006 should the notes not be
         redeemed by that date. The Company failed to redeem the notes and
         consequently, the shares in escrow have been released by the escrow
         agent to the note holders. On July 10, 2006 the Company received a
         notice of final judgment by default from the note holders in the amount
         of $270,106. The Company was unable to satisfy the entire balance due
         and the bank account was garnished for $98,829 by the note holders;
         $45,403 was remitted to the note holders and while $53,426 was returned
         to the Company as it

                                      F-30
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 17 - COMMITMENTS AND CONTINGENCIES (continued)

         LITIGATIONS (continued)

         was secured through a deposit control agreement between Wachovia Bank
         and Laurus Master Fund, LTD, our senior secured lender. The remaining
         balance due to these note holders was $243,691 as of December 31, 2006.
         The default under these notes created another event of default under
         the unsecured convertible term notes in the principal amount of
         $3,019,500.

         On September 29, 2005 the Company received a notice of default from
         Morris Stodard and Master Distributors, Inc. under the terms of an
         unsecured promissory note issued in connection with our purchase of
         Master Distributors, Inc., as well as under an employment agreement
         with Mr. Stodard. The note holder is demanding payment of $517,735
         which he asserts is the amount of outstanding principal and interest
         due under the note, as well as amounts due under the employment
         agreement. We continue to make payments to Mr. Stodard and Master
         Distributors based on the balances that were reflected at the time of
         the Master Distributors acquisition. The balance due to Mr. Stodard and
         Master Distributors is 2,069,706 as of December 31, 2006. The default
         under this note has created another event of default under the
         unsecured convertible term notes in the principal amount of $3,019,500.
         The note to Mr. Stodard and Master Distributors was assumed by Global
         Beverage Solutions in the February 23, 2007 sale of Beverage Network of
         Maryland, Inc.

         In October 2005, American Beverage, Inc. filed a demand against
         Beverage Network of Connecticut and Beverage Network of Massachusetts
         in the amount of $69,452. We obtained an agreement for a settlement
         plan with their attorneys but have not been able to abide by the terms
         due to insufficient operating capital during fiscal 2006 and 2005. We
         do not know what action, if any, the vendor will take at this time.

         In October 2005, Good-O Beverages was awarded a judgment on the amount
         of $28,500 against Beverage Network of Connecticut for product ordered
         by the Company in fiscal 2004. We have made regular payments in
         settlement of this amount and there is a balance of $1,904 as of
         December 31, 2006.

         On November 16, 2005 Beverage Network of Connecticut received a demand
         letter from the attorneys representing Food Collage, Inc. for payment
         of $17,068 on products ordered by the Company in 2004. Although we
         agreed on a settlement with their attorneys, we have not been able to
         abide by a payment arrangement due to insufficient operating capital
         during fiscal 2006 and 2005. We do not know what action, if any, the
         vendor will take at this time.

         On December 5, 2005 Hobarama, Inc. obtained a judgment in the amount of
         $16,740 against Beverage Network of Connecticut. Although we agreed on
         a settlement with their attorneys, we have not been able to abide by a
         payment arrangement due to insufficient operating capital during fiscal
         2006 and 2005. We do not know what action, if any, the vendor will take
         at this time.

         On January 15, 2006 Export Development Canada obtained a judgment
         against Total Beverage Network, Inc.,("BNSF") in the amount of $22,357.
         We have not yet reached an agreement with the plaintiff and we do not
         know what action, if any, the vendor will take at this time.

                                      F-31
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 17 - COMMITMENTS AND CONTINGENCIES (continued)

         LITIGATIONS (continued)

         On January 25, 2006, the Company received a Civil Action Summons from
         the attorney for the Maui Juice Company and Lawrence Lassek for breach
         of contract, for failure to pay certain installment payments under the
         terms of the Purchase and Sale Agreement with Maui Juice Company in the
         amount of $55,000. Although we agreed on a settlement with Mr. Lassek's
         attorneys, we have not been able to abide by a payment arrangement due
         to insufficient operating capital during fiscal 2006 and 2005. We do
         not know what action, if any, Mr. Lassek will take at this time.

         In February, 2006 the Company received a demand letter from Ayer
         Beverage, Inc. in the amount of $72,934 for payments due under the
         Purchase and Sale Agreement between Ayer Beverage and Beverage Network
         of Massachusetts. Under the same agreement, the Company is also
         required to make payments under obligations that was assumed for $7,889
         plus costs and interest to Citizen's Bank and $30,000 to Mr. Tom
         MacIntire. We have reached agreement with Mr. Lehan and Ayer Beverage,
         Inc. to pay the obligations due to Mr. MacIntire. The Citizen's Bank
         obligation was satisfied in April 2006; the balance due to Mr.
         MacIntire is $12,600 as of March 31, 2007. Although we agreed to pay
         Ayer Beverage, Inc. $36,467 followed by three monthly payments
         thereafter of $9,467, we have not been able to abide by the terms of
         this agreement due to insufficient operating capital during 2006. We do
         not know what action, if any, the Mr. Lehan will take at this time.

         In February 2006, Total Beverage Network ("BNSF") received a demand
         from Le Natures, Inc. in the amount of $17,057 for product that was
         ordered in 2004 but not paid in full. We have not yet reached an
         agreement with the plaintiff and we do not know what action, if any,
         the vendor will take at this time.

         In March of 2004, the Company contracted with Florida Employer
         Solutions, Inc. "FES" to process the Company payroll and certain other
         employee benefits such as health insurance. The collection and payment
         of payroll taxes was an integral part of this service. In June 2005,
         the Company was informed by the Internal Revenue Service and other
         state tax agencies that payroll tax payments had not been remitted on
         our behalf. The Company had remitted all required taxes to "FES" for
         payment of payroll taxes. The principals of "FES" admitted to the
         Company and to the IRS that they had not made the mandatory payments
         when due. The IRS has agreed to waive certain penalties upon receiving
         the principal balance due. In September 2005 the Company filed a
         complaint in the 17th Judicial Circuit in and for Broward County,
         Florida against "FES" along with Luis Ferrer and Maria G. Legarda,
         officers of "FES". The complaint alleges breach of contract, fraud,
         conversion, violation of the Florida Unfair and Deceptive Trade
         Practices Act and unjust enrichment and seeks judgment against "FES"
         for all damages, interests and costs. In September 2006 mediation
         hearing, the Company was awarded a judgment in the amount of $679,466
         against "FES". This represented the amount of principal tax along with
         damages in the form of estimated penalties, interest and legal
         expenses. The IRS negotiated a voluntary payment arrangement whereby
         Xstream Beverage Network, Inc. ("XBNI") would remit payments of $20,000
         per month until the entire balance is paid. The balance due as of
         December 31, 2006 is $350,986 whereby $29,341 of this amount is related
         to continuing operations and the remaining amount of $321,645 is
         related to discontinued operations which was included in liabilities of
         discontinued operations in the accompanying consolidated balance sheet
         (See Note 9 - Accrued Expenses).

                                      F-32
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 17 - COMMITMENTS AND CONTINGENCIES (continued)

         LITIGATIONS (continued)

         Our subsidiary, Beverage Network of Massachusetts, Inc. was named as a
         party in a legal proceeding filed by Fuze Beverage, LLC in the Superior
         Court for the County of Middlesex, Commonwealth of Massachusetts with
         respect to Civil Docket Number MICV2005-01392. For financial reasons
         the Company was unable to contest the plaintiff's claims and on May 27,
         2005 a default order was entered in favor of Fuze Beverage, LLC against
         Beverage Network of Massachusetts, Inc. The court has entered a
         judgment in the amount of $36,873 and was included in liabilities of
         discontinued operations in the accompanying consolidated balance sheet.

         In June 2006, a former employee of XStream Beverage Network, Inc. filed
         a lawsuit in Miami-Dade County, Florida, for overdue severance related
         payments in the amount of $17,000 and was included in accrued expenses
         as of December 31, 2006. The Company has reached an agreement with the
         plaintiff's attorney to pay the balance in full.

NOTE 18 - STOCKHOLDERS' DEFICIENCY

         PREFERRED STOCK

         The Company has authorized 10,000,000 shares of preferred stock at
         $0.001 par value. The Board of Directors is authorized to issue two
         series of preferred stock and to fix the designation, powers,
         preferences, and rights of the shares of each series. In addition, the
         Company may pay dividends of common stock to preferred stockholders. In
         October 2001, the Board of Directors authorized Series A preferred
         stock, which is cumulative voting and convertible and does not have
         dividend rights. Each share of preferred stock is convertible to one
         share of common stock and each share of preferred stock is entitled to
         5 votes on each matter submitted to a vote of the total capital stock
         of the Company. In September 2006, the Company issued 1,100,000 shares
         of preferred Series A shares to our Chairman/CEO as compensation. The
         shares are convertible to 1,100,000 shares of common stock and were
         valued at $0.11, the closing price of our common stock on the grant
         date. The Company recognized compensation expense in the amount of
         $121,000 for the year ended December 31, 2006. On December 15, 2006,
         the issuance of 1,100,000 shares of preferred Series A were cancelled
         and replaced by an issuance of 1,100,000 shares of Series D convertible
         preferred stock.

         There were 200,000 preferred Series A shares outstanding at December
         31, 2006.

         On August 2, 2004 XStream sold 43.2 shares of Series B Convertible
         Preferred Stock to nine accredited investors and issued the purchasers
         Series A Common Stock Purchase Warrants and Series B Common Stock
         Purchase Warrants in a private transaction exempt from registration
         under the Securities Act of 1933 in reliance on Section 4(2) of that
         act and Rule 506 of Regulation D. XStream received gross proceeds of
         $2,160,000. The designations, rights, and preferences of the Series B
         Preferred provide that the Series B shares (i) have a liquidation
         preference of $50,000 per share; (ii) are convertible into shares of
         XStream common stock equal to the liquidation preference divided by the
         conversion price of $1.50 per share. The conversion price is subject to

                                      F-33
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         PREFERRED STOCK (continued)

         adjustment in the event of stock splits and combinations, dividends or
         distributions, reclassifications or reorganizations, or in the event,
         Xstream issues or sells any additional shares of common stock or other
         securities, which are convertible into common stock or common stock
         equivalents at a price less than the then current conversion price. The
         issuance of the 12% convertible notes payable originating on June 30,
         2005 triggered an adjustment in the conversion price from $1.50 to
         $0.76. The issuance of the Laurus Master Fund convertible loan on March
         31, 2006 triggered an adjustment in the conversion price from $0.76 to
         $0.45. Holders are restricted in their ability to convert the Series B
         Preferred into common stock if at the time of conversion the number of
         shares of common stock to be issued, together with all other shares of
         common stock owned by the holder, would result in the holder owning in
         excess of either 4.9% or 9.9% of the then issued and outstanding shares
         of Company's common stock, subject to a waiver by the holder of these
         limitations upon 61 days notice to the Company. Gross proceeds of
         $2,160,000 from the issuance of 43.2 shares of Series B Preferred, five
         year Series A detachable common stock purchase warrants to purchase
         1,440,000 shares of the Company's common stock with an exercise price
         of $2.00 per share and five year Series B detachable common stock
         warrants to purchase 720,000 shares of the Company's common stock with
         an exercise price of $4.00 per share. The Series B Preferred, which has
         a liquidation preference of $50,000 per share, is convertible into
         shares of the Company's common stock equal to the liquidation
         preference divided by the conversion price of $1.50 per share. The
         issuance of the 12% convertible notes payable originating on June 30,
         2005 triggered an adjustment in the exercise price from $1.50 to $0.76.
         The issuance of the Laurus Master Fund convertible loan on March 31,
         2006 triggered an adjustment in the exercise price from $0.76 to $0.45.
         The Company recognized debt discount of $2,160,000 along with a
         mandatory redemption premium of $504,000, to be amortized over the 42
         month term of this agreement (See Note 16 - Long Term Notes Payable).

         The holders have the right to require Xstream to redeem all, or a
         portion of the shares of the Series B Preferred under certain
         circumstances, including (i) upon the occurrence of a Major Transaction
         (as that term is defined in the designations of the Series B
         Preferred). In this event, the redemption price would be equal to 100%
         of the liquidation preference plus all accrued but unpaid dividends,
         and (ii) upon the occurrence of a Triggering Event, (as that term is
         defined in the designations of the Series B Preferred). A major
         transaction occurred in February 2007 as the Company sold its wholly
         owned subsidiary, Beverage Network of Maryland, Inc. to Global Beverage
         Solutions, Inc. (See Note 22 - Subsequent Events). The Company does not
         know at this time what action, if any, the holders may take.

         In this event, the redemption price would be equal to 120% of the
         amount of the liquidation preference plus all accrued but unpaid
         dividends. Upon either occurrence, at the Company's discretion XStream
         can pay the redemption price in cash or shares of common stock based
         upon the current conversion price of $0.45.

                                      F-34
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY  (continued)

         PREFERRED STOCK (continued)

         On the date which is 42 months from the date of issuance of the Series
         B Preferred (the "redemption date"), at the option of the holder,
         Xstream is required to redeem the outstanding shares of Series B
         Preferred into such number of shares of its common stock equal to the
         liquidation preference plus all accrued but unpaid dividends divided by
         the conversion price then in effect, or for cash at a price equal to
         the number of shares of common stock each holder would be entitled to
         receive at the conversion price then in effect multiplied by $1.85.

         So long as the Series B Preferred is outstanding, without the consent
         of the holders of at least 3/4 of the outstanding shares of Series B
         Preferred the Company cannot; (i) amend the provisions of the Series B
         Preferred, (ii) repurchase, redeem or pay any dividends on its common
         stock or any other securities which rank junior to the Series B
         Preferred, (iii) amend the Articles of Incorporation or By-laws in a
         manner which would materially and adversely affect any right of the
         Series B Preferred, (iv) make any distribution with respect to any
         junior security, (v) voluntarily file for bankruptcy, liquidate its
         assets or make an assignment for the benefit of its creditors (vi)
         change the nature of its business, or, (vii) so long as at least
         $1,500,000 of the Series B Preferred is outstanding, (which represents
         30 shares), authorize or create any class of securities which ranks
         senior to our pari passu with the Series B Preferred.

         A registration rights agreement was executed to register the shares
         underlying the note and warrants. Certain liquidated damages of 1.25%
         of the note balance, per month, accrue if stipulated deadlines are not
         met. The SB-2 registration was originally submitted on September 30,
         2004, resubmitted on October 14, 2005 and subsequently cancelled. In
         December 2005, the Company issued 7.14 shares of Series B Preferred
         stock in lieu of payment for $357,223 of liquidated damages. The
         balance of accrued liquidated damages is $294,573 as of December 31,
         2006. (See Note 9 - Accrued Expenses)

         The Series B Preferred has no voting rights, it ranks senior to
         Xstream's common stock and to all other classes of its securities which
         do not specifically provide that they are senior to the Series B, but
         subordinate to all of the Company's indebtness, and it pays cumulative
         semi-annual dividends of 6% per annum, payable at the Company's option
         in cash, registered shares of common stock or additional shares of the
         Company's Series B Preferred. If Xstream chooses to pay the dividends
         in registered shares of the Company's common stock, the shares are
         valued at the then conversion price of the Series B Preferred and
         Xstream chooses to pay the dividends in shares of Series B Preferred,
         those shares are valued at the liquidation preference of the stock. In
         December 2005, the Company issued 3.43 shares of Series B Preferred
         shares as payment of $171,622 for accrued dividends. The dividends
         payable as of December 31, 2006 was $126,066 (See Note 10 - Dividends
         Payable).

                                      F-35
<PAGE>
                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         PREFERRED STOCK (continued)

         During 2005 and 2006, Series B Preferred stock holders converted 15.61
         shares of Series B to 1,114,444 shares of restricted common stock at
         the request of the holders. Accordingly, the Company has reclassified
         $652,000 of series B preferred liabilities to paid in capital in
         connection with this conversion (See Note 16 - Long Term Notes
         Payable).

         On July 1, 2005, the Company issued 10 shares of Series B Preferred
         stock (convertible to 500,000 shares of restricted common stock) to a
         consultant pursuant to the terms of a service agreement. The shares
         were valued at $1.10, the closing price of the Company's common stock
         as of the grant date. The $550,000 value of the transaction was
         amortized over the term of the agreement. During 2005 and 2006, 8.76
         shares of these Series B preferred stock was converted to 500,000
         shares of restricted common stock at the request of the holder and are
         valued at par with no effect on operations.

         There are 40 shares of Series B Preferred Stock issued and outstanding
         as of December 31, 2006.

         On December 7, 2006, the Company filed with the Secretary of State for
         the state of Nevada a Certificate of Designation of the Relative Rights
         and Preferences of the Series D Convertible Preferred Stock. The
         certificate of designation of the Series D Convertible Preferred Stock,
         among other rights and obligations, provides for: Designation and Rank.
         The Series D Convertible Preferred Stock, has a par value $.001 per
         share (the "Series D Preferred Stock"). The maximum authorized number
         of shares of Series D Preferred Stock shall be 4,000,000 shares. Except
         for the Series A Convertible Preferred Stock and Series B Convertible
         Preferred Stock of the Company, the Series D Preferred Stock shall rank
         senior to the common stock, par value $.001 per share (the "Common
         Stock"), and to all other classes and series of equity securities of
         the Company which by their terms do not rank senior to the Series D
         Preferred Stock ("Junior Stock").

         Dividends. The holders of the Series D Preferred Stock will not be
         entitled to receive cash dividends.

         Voting Rights. The holders of Series D Preferred Stock shall vote with
         the shares of Common Stock of the Company on an as converted basis from
         time to time, and not as a separate class, at any annual or special
         meeting of stockholders of the Company, and may act by written consent
         in the same manner as holders of Common Stock, in either case upon the
         following basis: each holder of shares of Series D Preferred Stock
         shall be entitled to such number of votes as shall be equal to two
         hundred (200) times the whole number of shares of Common Stock into
         which such holder's aggregate number of shares of Series D Preferred
         Stock are convertible. While any of the shares of the Series D
         Preferred Stock are outstanding, the approval of the holders of a
         majority of the outstanding shares of Series D Preferred Stock will be
         required in order to amend the Company's Certificate of Incorporation
         to affect materially and adversely the rights, preferences or voting
         power of the holders of the shares of Series D Preferred Stock or to
         authorize, create, or increase the authorized amount of, any class of
         stock having rights prior or senior to, or in parity with, the shares
         of Series D Preferred Stock.

                                      F-36
<PAGE>
                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         PREFERRED STOCK (continued)

         Conversion. The holder of Series D Preferred Stock shall have the
         right, exercisable at any time, to convert the Series D Preferred Stock
         into shares of the Company's Common Stock at a conversion rate of one
         share of common stock for each share of Series D Preferred Stock
         converted.

         Liquidation Preference. In the event of any liquidation, dissolution or
         winding up of the Company, the holders of the Series D Preferred Stock
         then outstanding will be entitled to receive, in preference to the
         holders of Common Stock, but subordinate to the holders of the Series A
         Convertible Preferred Stock and Series B Convertible Preferred Stock,
         an amount of shares of common stock equal to the number of shares of
         the Series D Preferred Stock in the holder's possession upon the
         occurrence of any liquidation, dissolution or winding up of the
         Company, such holders of shares of Series D Preferred Stock will not be
         entitled to any further participation as such in any distribution of
         the assets of the Company.

         On December 15, 2006, the Company issued 1,100,000 shares of its Series
         D Convertible Preferred Stock to its Chairman and CEO as compensation
         for services rendered to the Company in 2006. On this same date, the
         Company's Board of Directors resolved to rescind its grant of 1,100,000
         shares of the Company's Series A stock granted to the Chairman and CEO
         in September 2006.

         There are 1,100,000 of Series D Preferred Stock issued and outstanding
         as of December 31, 2006.

         COMMON STOCK

         The Company entered into a one year consulting agreement with a former
         key member of management of Beverage Network of Maryland, Inc.
         ("BNMD"). The agreement stipulated that the individual was to receive
         240,000 shares of restricted common stock for the term of the
         agreement. The closing price of the stock on the grant date was $1.75;
         the term of the agreement is for calendar year, 2005. The Company has
         recognized consulting expense of $420,000 as of December 31, 2005.

         On January 3, 2005, the Company entered into a one year agreement for
         consulting services. As consideration for these services, the
         consultant was issued 150,000 restricted shares of the Company's common
         stock valued at $1.70, the closing price of the stock on the grant
         date. The Company recognized consulting expense of $255,000 for the
         twelve months ending December 31, 2005.

         In January 2005, the Company entered into a second, one year agreement
         for consulting services. As consideration for these services, the
         consultant was issued 200,000 restricted shares of the Company's common
         stock valued at $1.67, the closing price of the stock on the grant
         date. The Company recognized consulting expense of $334,000 for the
         twelve months ended December 31, 2005.

                                      F-37
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         COMMON STOCK (continued)

         On February 8, 2005, the Company issued 10,000 shares of its restricted
         common stock in consideration of a debt holder for deferring cash
         payments that were due on October 15, 2004 and January 15, 2005,
         respectively. The shares were valued at $1.40, the closing price on the
         date of grant. Interest expense in the amount of $14,000 was recognized
         for the twelve months ending December 31, 2005.

         The Company also issued 150,000 shares of its restricted common stock
         to the principal owner of Master Distributors, in consideration for
         deferring all cash payments until June 15, 2005. The stock was valued
         at $1.62, the closing price on the date of grant. The Company
         recognized interest expense of $243,000 for the twelve months ended
         December 31, 2005.

         The Company issued 4,472 shares of restricted common stock for legal
         services rendered. The shares were valued at $1.50, the closing price
         on the date of grant, with an expense of $6,708 being recognized as of
         December 31, 2005.

         The Company entered into a consulting agreement for a term of six
         months. As consideration for services, the consultants were granted
         15,000 shares of restricted common stock valued at $1.20. This was the
         closing price of stock on the date of grant resulting in an expense of
         $18,000 as of December 31, 2005.

         Pursuant to the terms of a consulting agreement commencing in October
         2004, the Company issued 8,000 shares of restricted common stock for
         services rendered. The shares were valued at $1.20 and the Company
         recognized a consulting expense of $9,600.

         According to the terms of the convertible notes payable, (See Note 13 -
         Convertible Notes Payable), the Company issued 100,000 shares of
         restricted common stock as a pledge for collateral. The shares were
         valued at par value as they are considered issued but not outstanding
         as of December 31, 2005.

         In March 2005, the Company issued 4,546 shares of restricted common
         stock to a consultant for services rendered. An expense of $5,683 was
         recognized with the shares being valued at the grant date price of
         $1.25.

         The Company also issued 7,000 shares, previously recorded as issuable,
         as of December 31, 2004.

         In April 2005, the Company executed a six month consulting agreement.
         The consideration for services was 200,000 shares of restricted common
         stock which were valued at $1.15, the closing price on the date of
         grant. For the twelve months ended December 31, 2005, the Company
         recognized consulting expense of $230,000.

         There were also 20,000 shares issued, previously recorded as issuable,
         as of December 31, 2004.

                                      F-38
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         COMMON STOCK (continued)

         In May 2005, the Company also issued 5,035 shares of restricted common
         stock to a consultant for services rendered. An expense of $5,035 was
         recognized with the shares being valued at the grant date price of
         $1.00.

         The Company also executed a six month consulting agreement for
         consideration consisting of 50,000 shares of restricted common stock.
         The closing price on the date of grant was $1.00; the expense
         recognized as of December 31, 2005 was $50,0000.

         In June 2005, the Company issued 5,000 shares to the holder of a note
         assumed with the acquisition of Beverage Network of Massachusetts,
         Inc., "BNMA", for deferring payments through June 15, 2005.
         The shares were valued at $1.00, the closing price on
         the date of grant with an expense of $5,000 being recognized for the
         period ended December 31, 2005.

         In June 2005, 265,053 warrants were exercised under a cashless exercise
         provision resulting in the issuance of 263,306 shares of common stock.

         In June 2005, the Company also executed a six month consulting
         agreement for consideration consisting of 500,000 shares of restricted
         common stock. The shares were valued at $1.00; the closing price on the
         date of grant. The Company recognized a consulting expense of $500,000
         for the fiscal year ended December 31, 2005.

         In June 2005, a second consulting agreement with a term of twelve
         months was also executed with consideration for services consisting of
         25,000 shares of restricted common stock. The shares were valued at
         $1.00; the closing price on the date of grant. The Company recognized
         consulting expenses of $14,629 with a remaining deferred component of
         $10,371 as of December 31, 2005.

         In June 2005, the Company has also entered into a series of related
         agreements with Cogent Capital Corp. and 16 institutional accredited
         investors pursuant to which the Company has issued 19,736,848 Common
         shares at a purchase price of $0.76 per share in exchange for a total
         of $15,000,000 in U.S. government bonds. The price per common share was
         based on a discount of 20% from the closing price of the common stock
         on May 26, 2005. The U.S. government bonds were issued at current
         market value. The transaction resulted in the Company recording a
         subscription receivable in the amount of $15,000,000 (See Note 19 -
         Subscription Receivable).

         During 2005, pursuant to the terms of the executed Cogent Agreement,
         the Company issued 1,381,579 restricted common shares as an entry fee.
         The shares were valued at par value and recorded to additional paid-in
         capital.

         In July 2005, the Company issued 14,118 shares of restricted common
         stock for services rendered, pursuant to the terms of a consulting
         agreement commencing in October 2004. The shares were valued at $1.10
         and the Company recognized a consulting expense of $15,530.

                                      F-39
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         COMMON STOCK (continued)

         In July 2005, the Company also issued 7,662 shares of restricted common
         stock as consideration for accounting services. The shares were valued
         at $1.10, the closing price on the grant date, resulting in an expense
         of $8,428.

         In July 2005, the Company executed a twelve month consulting agreement
         on July 1, 2005. The consultant was granted 500,000 restricted common
         shares and 10 Series B Preferred shares which can convert into 500,000
         restricted shares (See Note 18-Preferred Stock). The shares were valued
         at $1.10, the closing price of the stock on the agreement date. The
         Company recognized an expense of $546,978 and $553,022 as of December
         31, 2006 and 2005 respectively.

         The Company executed a second consulting agreement for a six month term
         commencing on July 12, 2005. The consultant was granted 10,000
         restricted common shares valued at $0.95; the closing price of the
         stock on the grant date. The Company recognized and expense of $620 and
         $8,880 as of December 31,2006 and 2005 respectively.

         The Company issued 10,000 restricted common shares to a consultant for
         services rendered. The shares were valued at $1.05; the closing price
         of the stock on the contract execution date resulting in an expense of
         $10,500.

         In August 2005, one-half of one share of Series B Preferred was
         converted to 32,895 shares of restricted common stock at the request of
         the holder. The shares were valued at par and recorded to additional
         paid-in capital, with no effect on operations.

         In August 2005, 750 restricted common shares were issued to an employee
         pursuant to the terms of an agreement executed with the acquisition of
         Ayer Beverage, Inc. ("BNMA"). The shares were valued at $0.80, the
         closing price on the date of grant, resulting in an expense of $600 as
         of December 31, 2005.

         In August 2005, the Company also issued 25,000 shares of restricted
         common stock to Ayer Beverage, Inc., ("BNMA") in consideration for
         deferring all payments on the March 2004, non-interest bearing
         promissory note (see Note 11 - Loans Payable) through December 31,
         2005. The share value of $0.80 was based on the closing price of the
         stock as to the grant date. The Company recognized an expense of
         $20,000 as of the fiscal year ending December 31, 2005.

         In August 2005, the Company also issued 7,895 shares of restricted
         common stock for services rendered, pursuant to the terms of a
         consulting agreement commencing in October 2004. The shares were valued
         at $0.70 and the Company recognized a consulting expense of $5,527.

         The Company extended a consulting agreement, originally executed in
         February 2005, for an additional eight months through March 15, 2006.
         In consideration, the consultant was granted 100,000 restricted common
         shares valued at $0.70, the closing price of the stock on the date the
         agreement was extended. The Company recognized consulting expense of
         $28,619 and $41,381 as of December 31, 2006 and 2005 respectively.

                                      F-40
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         COMMON STOCK (continued)

         In September 2005, the Company executed an addendum to a Financial
         Advisory and Investment Banking Agreement, originating in April 2005.
         In consideration for the continued services, the Company issued 300,000
         shares of restricted common stock. The stock was valued at $0.55, the
         closing price on the grant date with the Company recognizing an expense
         of $165,000 as the agreement can be cancelled by either party within 30
         days notice.

         In November 2005, 2.82 shares of Series B preferred stock was converted
         to 185,526 shares of restricted common stock at the request of the
         holders. The shares were valued at par and recorded to additional
         paid-in capital, with no effect on operations.

         During 2005, the Company issued 301,950 shares of restricted common
         stock to subscribers as a result of purchasing 3,019,500 units in the
         debt placement financing (See Note 13 - Convertible Notes payable). The
         shares values ranged from $0.43-$1.05, the closing price of the stock
         on the date subscriptions were executed. The total value was $236,471
         and is being recognized of the term of the notes which contain due
         dates ranging from June 30, 2006 to November 8, 2006. The Company
         recognized interest expense of $134,862 and $101,609 for the twelve
         months ending December 31, 2006 and 2005 respectively.

         The Company executed a twelve month consulting agreement, commencing
         November 11, 2005, in consideration of 200,000 shares of restricted
         common stock. The shares were valued at $0.40; the closing price on the
         date of grant. The Company recognized consulting expense of $69,041 and
         $10,959 as of December 31, 2006 and 2005 respectively.

         During 2005, the Company executed a consulting agreement in
         consideration of 75,000 shares of restricted common stock valued at
         $0.22; the closing price of the stock on the grant date. The agreement
         may be terminated at any time when notice is received by either party.
         The Company recognized an expense of $16,500 for twelve months ending
         December 31, 2005.

         The Company executed a consulting agreement for a term of twelve
         months, commencing November 30, 2005. In consideration for services,
         the consultant received 300,000 shares of restricted common stock
         valued at $.22; the closing price on the grant date. For the period
         ending December 31, 2006 and 2005, the Company recognized an expense of
         $60,395 and $5,605 respectively.

         In December 2005, 1.9 shares of Series B preferred stock was converted
         to 125,000 shares of restricted common stock at the request of the
         holders. The shares were valued at par and recorded to additional
         paid-in capital, with no effect on operations.

         The Company issued 100,000 shares of restricted common stock pursuant
         to the terms of an employee termination agreement. The shares were
         valued at $0.51; the closing price of the stock on the grant date. The
         Company recognized compensation expense of $51,000 for the twelve
         months ending December 31, 2005.

                                      F-41
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         COMMON STOCK (continued)

         On December 23, 2005, the Company executed a 60 day promissory note,
         resulting in gross proceeds of $100,000. Attached to the note was a
         provision for the Company to issue 50,000 shares of restricted common
         stock to the holder. The shares were valued at $0.44; the closing price
         on the date of grant. The Company recognized an expense of $19,373 and
         $2,627 for the year ended December 31, 2006 and 2005 respectively.

         Pursuant to the terms of the December 23, 2005 promissory note the
         Company was to issue, in its own name, 250,000 shares of restricted
         common stock as a pledge for collateral on the $100,000 note. The
         shares were valued at par value as they are considered issued but not
         outstanding as of December 31, 2005.

         On December 15, 2005, the Company executed a six month consulting
         agreement in consideration of 100,000 shares of restricted common
         stock, valued at $0.51. The Company recognized and expense of $46,516
         and $4,484 at December 31, 2006 and 2005 respectively.

         During 2005, the Company obtained through a vote of majority of its
         shareholders the approval to increase the authorized common shares from
         50,000,000 to 250,000,000 shares of common stock at $0.001 par value.

         During the year ended December 31, 2006, the Company issued a total of
         24,235,523 shares of restricted common stock. Shares issued for
         services, compensation and loan fees are valued at the closing price of
         the stock on the grant date and recognized over the term of the
         corresponding contract and/or agreements; shares issued as a pledge of
         collateral are considered issued but not outstanding; shares issued
         from the conversion of Preferred Series B stocks related to Series B
         preferred liabilities are valued at the converted amount of liability
         and a reclass to paid in capital (See Note 16 - Long Term Notes
         Payable); shares issued from the conversion of Preferred Series B stock
         not related to the Series B preferred liabilities are valued at par
         with no effect on operations (See note 18- Preferred stock).

         The table below represents the activity of shares issued as of December
         31, 2006:
<TABLE>
<CAPTION>
                                                                       Aggregate      Deferred       Expense
                 Consideration        No. Shares      Price Range        Value        Balance      Recognized
           ------------------------    ----------     -------------    -----------   -----------   -----------

<S>                                    <C>           <C>              <C>           <C>             <C>
           Services                    7,672,000     $0.08 - $0.42    $ 1,520,440   $(1,253,443)    $   266,997

           Loan Fees                   8,272,500      0.08 -  0.43      2,046,253    (1,210,360)        844,166

           Compensation                6,895,000      0.11 -  0.27      1,530,650            -0-      1,530,666

           Pledge of Collateral          125,000               -0-            -0-            -0-           -0-

           Conversion of Preferred

           Series B                    1,271,023               -0-        652,000            -0-           -0-
                                      ----------     -------------    -----------    ------------   -----------
           TOTAL:                     24,235,523               N/A    $ 5,749,343    $(2,463,803)   $ 2,641,829
                                      ----------     -------------    -----------    ------------   -----------
</TABLE>



                                      F-42
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         STOCK WARRANTS

         In January 2005, the Company entered into a one year agreement for
         consulting services. The agreement stipulated that a warrant to
         purchase 50,000 shares of common stock be issued. The warrants are
         exercisable at $2.00 per share. The issuance of the 12% convertible
         notes payable originating on June 30, 2005 triggered an adjustment in
         the exercise price of the warrants; the exercise price of the warrants
         decreased from $2.00 to $0.76. The issuance of the Laurus secured
         convertible notes payable on March 31, 2006, triggered an adjustment in
         the purchase price of the warrants from $0.76 to $0.45. The fair value
         of such warrants were recorded as a derivative liability amounting to
         $69,162 at the date of issuance. (The transaction was valued using the
         Black-Scholes model with an interest rate of 3.01%, volatility of 96%,
         zero dividends and expected term of five years).

         On January 3, 2005, the Company entered into a one year agreement for
         consulting services. The agreement stipulated as consideration of
         services, the Company grant warrants for the purchase 200,000 shares of
         common stock to be issued, as follows: 100,000 at $4.00 per share and
         100,000 at $5.00 per share. The fair value of the warrants, $220,017,
         were recorded as a derivative liability at the date of issuance. The
         issuance of the 12% convertible notes payable originating on June 30,
         2005 triggered an adjustment in the exercise price of the warrants
         ranging from $4.00-$5.00 to $0.76. The issuance of the Laurus secured
         convertible notes payable on March 31, 2006, triggered an adjustment in
         the purchase price of the warrants from $0.76 to $0.45 (computed using
         a Black-Scholes model with an interest rate of 3.22%, volatility of
         104.25%, zero dividends and expected term of five years).

         In January 2005, the Company entered into another one year agreement
         for consulting services. The agreement stipulated as consideration of
         services, the Company grant warrants for the purchase of 300,000 shares
         of common stock issued as follows: 100,000 warrants at $2.00 per share,
         100,000 warrants at $2.50 per share, 100,000 warrants at $3.00 per
         share. The fair value of the warrants, $371,825, were recorded as a
         derivative liability at the date of issuance. The issuance of the 12%
         convertible notes payable originating on June 30, 2005 triggered an
         adjustment in the exercise price of the warrants ranging from
         $2.00-$3.00, to $0.76. The issuance of the Laurus secured convertible
         notes payable on March 31, 2006, triggered an adjustment in the
         purchase price of the warrants from $0.76 to $0.45 (computed using a
         Black-Scholes model with an interest rate of 3.22%, volatility of
         104.25%, zero dividends and expected term of five years).

         On January 15, 2005, the Company issued Laurus warrants to purchase
         165,000 shares of the Company's common stock with an exercise price of
         $2.00 per share which expire July 20, 2014. The warrants were issued as
         interest in consideration for the release of $398,595 of the restricted
         cash. The fair value of such warrants were recorded as a derivative
         liability in the amount of $216,215 at the date of issuance (The
         transaction was valued using the Black-Scholes Model with the following
         assumptions: expected dividend yield of 0.0%, risk-free interest rate
         of 3.22%, volatility of 88.93% and expected term of 10 years).

                                      F-43
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         STOCK WARRANTS (continued)

         On February 25, 2005, the Company issued warrants to purchase 300,000
         shares of common stock exercisable at $1.50 in accordance with the
         terms of the convertible notes payable. (See Note 13 - Convertible
         Notes payable) The fair value note and warrants were recorded as a
         derivative liability in the amount of $269,488 at the date of issuance
         (computed using the Black-Scholes model with an interest rate of 3.38%,
         volatility of 87.86%, zero dividends and expected term of five years).

         On February 25, 2005, the Company entered into a six-month agreement
         for financial consulting services. The Company agreed to issue warrants
         to purchase 40,000 shares of restricted common stock at $1.50. The
         Company recorded a derivative liability in the amount of $35,932 for
         the fair value of the warrants at the date of issuance (computed using
         the Black-Scholes model with an interest rate of 3.38%, volatility of
         87.86%, zero dividends and expected term of five years).

         In April 2005, the Company issued warrants to purchase 290,000 shares
         of common stock exercisable at $1.50 in accordance with the terms of
         the convertible notes payable (See Note 13 - Convertible Notes
         payable). The Company recorded a derivative liability in the amount of
         $240,746 for the fair value of the warrants at the date of issuance
         (computed using the Black-Scholes model with an interest rate of 3.65%,
         volatility of 90.46%, zero dividends and expected term of five years).

         On April 4, 2005, the Company executed a sixty-month consulting
         agreement in consideration of granting warrants to purchase 127,059
         shares at $1.50 and 169,412 shares at $2.00. The Company recorded a
         derivative liability in the amount of $171,527 for the fair value of
         the warrants at the date of issuance (computed using the Black-Scholes
         model with an interest rate of 3.65%, volatility of 73.35%, zero
         dividends and expected term of five years). The issuance of the 12%
         convertible notes payable originating on June 30, 2005, triggered an
         adjustment in the exercise price of the warrants ranging from
         $1.50-$2.00 to $0.76. The issuance of the Laurus secured convertible
         notes payable on March 31, 2006, triggered an adjustment in the
         purchase price of the warrants from $0.76 to $0.45.

         On April 7, 2005, the Company executed a twelve-month consulting
         agreement in consideration of granting warrants to purchase 150,000
         shares of common stock at $1.50; The Company recorded consulting
         expense and a derivative liability in the amount of $121,283 for the
         fair value of the warrants at the date of issuance (computed using the
         Black-Scholes model with an interest rate of 3.65%, volatility of
         83.09%, zero dividends and expected term of five years). The issuance
         of the 12% convertible notes payable originating on June 30, 2005
         triggered an adjustment in the exercise price of the warrants from
         $1.50 to $0.76. The issuance of the Laurus secured convertible term
         loan on March 31, 2006, triggered an adjustment in the purchase price
         of the warrants from $0.76 to $0.45.

                                      F-44
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         STOCK WARRANTS (continued)

         In May 2005, the Company issued warrants to purchase 135,000 shares of
         common stock exercisable at $1.50 in accordance with the terms of the
         convertible notes payable, (See Note 13 - Convertible Notes payable)
         The Company recorded a derivative liability in the amount of $117,860
         at the date of issuance. (computed using the Black-Scholes model with
         an interest rate of 3.64%, volatility of 94.78%, zero dividends and
         expected term of five years).

         In June 2005, the Company executed a twelve-month consulting agreement
         in consideration of granting warrants to purchase 150,000 shares of
         common stock at $1.50. The Company recorded consulting expense and a
         derivative liability in the amount of $91,515 for the fair value of the
         warrants at the date of issuance (computed using the Black-Scholes
         model with an interest rate of 3.64%, volatility of 83.65%, zero
         dividends and expected term of five years).

         On June 30, 2005 the Company issued 394,729 warrants to purchase common
         stock at $0.76 as placement agent fees attributed to the Cogent Capital
         transaction. The Company recorded a derivative liability in the amount
         of $240,902 for the fair value of the warrants at the date of issuance.
         The issuance of the Laurus secured convertible notes payable on March
         31, 2006, triggered an adjustment in the purchase price of the warrants
         from $0.76 to $0.45. Computed using the Black-Scholes model with an
         interest rate of 3.64%, volatility of 77.36%, zero dividends and
         expected term of five years.

         In July 2005, the Company issued warrants to purchase 1,400,000 shares
         of restricted common stock exercisable at $0.76 in accordance with the
         terms of the convertible notes payable, (See Note 13 - Convertible Term
         Loan). The Company recorded a derivative liability in the amount of
         $1,281,624 for the fair value of the warrants at the date of issuance.
         The issuance of the Laurus secured convertible notes payable on March
         31, 2006, triggered an adjustment in the purchase price of the warrants
         from $0.76 to $0.45 (computed using the Black-Scholes model with an
         interest rate of 3.64%, volatility of 77.36%, zero dividends and
         expected term of five years).

         The Company issued warrants to purchase 215,000 shares of restricted
         common stock exercisable at $0.76 in accordance with the terms of the
         convertible notes payable, (See Note 13 - Convertible Notes payable).
         The Company recorded a derivative liability in the amount of $245,850
         for the fair value of the warrants at the date of issuance. The
         issuance of the Laurus secured convertible notes payable on March 31,
         2006, triggered an adjustment in the purchase price of the warrants
         from $0.76 to $0.45 (computed using the Black-Scholes model with an
         interest rate of 3.87%, volatility of 81.62%, zero dividends and
         expected term of five years).

                                      F-45
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         STOCK WARRANTS (continued)

         In August 2005, the Company issued warrants to purchase 475,000 shares
         of restricted common stock exercisable at $0.76 in accordance with the
         terms of the convertible notes payable, (See Note 13 - Convertible Term
         Loan). The Company recorded a derivative liability in the amount of
         $415,850 for the fair value of the warrants at the date of issuance.
         The issuance of the Laurus secured convertible notes payable on March
         31, 2006, triggered an adjustment in the purchase price of the warrants
         from $0.76 to $0.45 (computed using the Black-Scholes model with an
         interest rate of 4.04%, volatility of 93.60%, zero dividends and
         expected term of five years).

         In September 2005, the Company issued warrants to purchase 357,500
         shares of restricted common stock exercisable at $0.76 in accordance
         with the terms of the convertible notes payable, (See Note 13 -
         Convertible Notes payable). The Company recorded a derivative liability
         in the amount of $282,456 for the fair value of the warrants at the
         date of issuance. The issuance of the Laurus secured convertible notes
         payable on March 31, 2006, triggered an adjustment in the purchase
         price of the warrants from $0.76 to $0.45 (computed using the
         Black-Scholes model with an interest rate of 3.95%, volatility of
         100.29%, zero dividends and expected term of five years).

         The Company issued warrants to purchase 375,000 shares of restricted
         common stock exercisable at $0.76 in accordance with the terms of the
         convertible notes payable, (See Note 13 - Convertible Notes payable).
         The Company recorded a derivative liability in the amount of $170,890
         for the fair value of the warrants at the date of issuance. The
         issuance of the Laurus secured convertible notes payable on March 31,
         2006, triggered an adjustment in the purchase price of the warrants
         from $0.76 to $0.45 (computed using the Black-Scholes model with an
         interest rate of 3.95%, volatility of 97.15%, zero dividends and
         expected term of five years).

         The Company extended a consulting agreement, originally executed in
         February 2005 for an additional eight months through March 15, 2006. In
         consideration, the consultant was granted warrants to purchase 50,000
         restricted common shares at $0.76. The Company recorded a derivative
         liability in the amount of $19,822 for the fair value of the warrants
         at the date of issuance (computed using the Black-Scholes model with an
         interest rate of 4.0%, volatility of 100.29%, zero dividends and
         expected term of five years).

         In November 2005, the Company issued warrants to purchase 197,000
         shares of restricted common stock exercisable at $0.76 in accordance
         with the terms of the convertible notes payable, (See Note 13 -
         Convertible Notes payable). The Company recorded a derivative liability
         in the amount of $102,898 for the fair value of the warrants at the
         date of issuance. The issuance of the Laurus secured convertible notes
         payable on March 31, 2006, triggered an adjustment in the purchase
         price of the warrants from $0.76 to $0.45 (computed using the
         Black-Scholes model with an interest rate of 4.42%, volatility of
         125.56%, zero dividends and expected term of five years).

                                      F-46
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 18 - STOCKHOLDERS' DEFICIENCY (continued)

         STOCK WARRANTS (continued)

         During 2005, pursuant to the terms of a Financial Advisory and
         Investment Banking agreement, the Company issued in total 699,253
         warrants to purchase restricted common stock at $0.76 in consideration
         as placement agent fees for subscribers purchasing a total of 3,019,500
         units of the debt placement financing (See Note 13 - Convertible Notes
         payable). The Company recorded a derivative liability in the total
         amount of $384,667 for the fair value of the warrants at the date of
         issuance. The issuance of the Laurus secured convertible notes payable
         on March 31, 2006, triggered an adjustment in the purchase price of the
         warrants from $0.76 to $0.45 (computed using the Black-Scholes model
         with an interest rate of 3.64%-4.42%, volatility of 77.36%-125.56%,
         zero dividends and expected term of five years).

         A summary of the options and warrants issued as of December 31, 2006
         and 2005 and changes during the years is presented below:
<TABLE>
<CAPTION>

                                                        2006                        2005
                                              ----------------------------------------------------
                                                            Weighted                      Weighted
                                                             Average                        Average
                                              Number of     Exercise       Number of       Exercise
                                               Warrants      Price         Warrants         Price
                                              ---------     -------        ---------       ---------
<S>                                           <C>           <C>            <C>             <C>
         Balance at beginning of year         9,957,548     $  0.98        4,030,904       $    3.02
         Granted                                      -           -        6,189,953            0.88
         Exercised                                    -           -        (263,309)            0.70
         Forfeited                              (2,125)       36.00                -              -
                                              ---------     -------        ---------      ----------
         Balance at end of year               9,955,423     $  0.98        9,957,548       $    1.22
                                              =========     =======        =========      ==========
         Options exercisable end of year      9,955,423     $  0.98        9,957,548       $    1.22
                                              ---------     -------        ---------       ---------
          Weighted average fair value of
           options granted during the year                  $    -                         $    .88
                                                            =======                        =========
</TABLE>

         The following table summarizes information about stock warrants
         outstanding at December 31, 2006:
<TABLE>
<CAPTION>

                  Warrants Outstanding                                              Options Exercisable
          ---------------------------------------------------------------------------------------------------
                                                     Weighted         Weighted                       Weighted
           Range of               Number              Average          Average          Number        Average
           Exercise            Outstanding at        Remaining        Exercise      Exercisable at   Exercise
            Price           December 31, 2006      Contractual         Price     December 31, 2006   Price
          -----------         -----------------    -----------       --------    -----------------  ---------

<S>      <C>                       <C>             <C>               <C>               <C>          <C>
         $ 6.40 - 100.00           240,000         6.90 Years        $  12.25          240,000      $  12.25
           3.00 -   6.39           147,500         7.56 Years            3.34          147,500          3.34
            .76 -   2.99         1,599,000         5.00 Years            1.68        1,599,000          1.68
                    0.45         7,959,459         3.08 Years            0.45        7,959,459          0.45
                    0.20             9,464         2.25 Years            0.20            9,464          0.20
                                 ---------                           --------        ---------      --------
                                 9,955,423                           $   0.98        9,955,423      $   0.98
                                 =========                           ========        =========      ========
</TABLE>



                                      F-47
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006


NOTE 19 - SUBSCRIPTION RECEIVABLE

         The Company has entered into a series of related agreements with a
         placement agent and certain investors pursuant to which the Company has
         issued 19,736,848 common shares at a purchase price of $0.76 per share.
         The fair value of such shares at the date of issuance amounted to
         $15,000,000. The price per common share was based on a discount of 20%
         from the closing price of the common stock in June 2005. In connection
         with the issuance of shares, the investors deposited $15,000,000 in US
         government bonds, which are held by the placement agent for the
         potential future benefit of the Company.

         In conjunction with this investment, the Company and the placement
         agent entered into an escrow agreement with the investors as well as
         Cogent pursuant to which the 15,789,472 shares, as well as the bonds,
         were deposited with the designated escrow agent.

         In addition, the Company and the placement agent entered into the
         following agreements:

         1.   2002 Master Agreement conforming to the form of the International
              Swaps and Derivatives Association, Inc.;

         2.   Credit Support Annex to the Master Agreement consistent with the
              ISDA form;

         3.   Equity swap transaction letter of agreement; and

         4.   Equity option transaction letter of agreement.

         Under the terms of the equity swap, the 15,789,472 common shares and
         the bonds are maintained in escrow until the earlier of 42 months from
         June 2005 or such time as all of these shares are covered by an
         effective registration statement filed with the SEC. The Company,
         however, is not obligated to register the common shares.

         Pursuant to the series of arrangements with the placement agent, the
         consideration that the Company will receive in connection with the
         issuance of the shares to the investors will vary based on the
         Company's stock price at predetermined periods ("Subscription
         Receivable"). In addition, the Company unilaterally can terminate the
         agreement by exercising the call option for the common shares in
         escrow. The Company does not intend to exercise its call option.

         The Subscription Receivable is computed as follows: at the earliest of
         the Company's completion of a registration statement covering the
         19,736,848 common shares of the Company or the common shares have
         satisfied the holding period under Rule 144-K at June 10, 2007, the
         Company will be entitled to receive a quarterly amount equal to
         2,631,578 shares times the Company's price per share of common stock
         for the last ten days of the preceding quarter. At that time, the
         shares and the corresponding value of the funds are released from
         escrow to the appropriate party.

                                      F-48
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 19 - SUBSCRIPTION RECEIVABLE (continued)

         As additional consideration, the Company has agreed to compensate the
         private placement agent with a monthly payment amounting to LIBOR +
         1.25% times $15,000,000, less the interest earned on the US Government
         bonds. This amount is payable until the funds and the shares are
         released from escrow. The Company estimates the aggregate payments
         under this arrangement to amount to $1,178,250 over the terms of the
         agreement. The Company has recorded a corresponding amount as accrual
         for placement agent fees at the date of issuance of shares, which was
         offset against additional paid-in capital. The balance of accrued
         expenses related to this transaction were $1,150,470 as of December 31,
         2006 (See Note 9 - Accrued Expenses).

         The Company adjusts quarterly the amount of the Subscription Receivable
         to reflect the variations in its stock price. Additionally, the Company
         discounts the Subscription Receivable to reflect the time value of
         money until it is entitled to receive the Subscription Receivable.

         At the date of issuance of the shares, the Company recorded a
         Subscription Receivable of $12,718,150, adjusted for a discount of
         $1,082,211. The Company used a discount rate of 3.66% at the date of
         issuance and a stock price of $0.92. At December 31, 2006, the
         Subscription Receivable amounted to $1,654,135, adjusted for a discount
         of $789,968. The Subscription Receivable at December 31, 2006 is based
         on a discount rate of 5% and a stock price of $0.11. The decrease in
         subscription receivable between the date of issuance and December 31,
         2006, was originally recorded as an element of comprehensive
         income/(loss). This balance in the amount of $12,555,897 was recorded
         as realized loss in the accompanying consolidated statements of
         operations. As an initial entrance amount in the equity swap
         transaction, Cogent Capital Corp. has received 1,381,579 common shares
         of the Company (See Note 18- Stockholders' Deficiency).

NOTE 20 - INCOME TAXES

         For Federal income tax purposes, the Company has net operating loss
         carryforwards of approximately $15,740,000, which expire at various
         times through 2026. Annual utilization of the net operating loss
         carryforwards may be limited due to ownership changes as defined under
         section 382 of the Internal Revenue Code.

         The Company's tax expense differs from the "expected" tax (benefit) for
         the years ended December 31, 2006 and 2005, computed by applying the
         statutory Federal tax rate of 35% to loss before taxes, as follows:

                                                 2006           2005
                                             -----------    ------------
         Computed "expected" tax (benefit)   $(9,280,000)   $   (684,000)
         State tax (benefit), net of
           Federal tax effect                 (1,326,000)        (98,000)
         Permanent Differences                 5,146,000      (3,260,000)

         Change in valuation allowance         5,460,000       4,042,000
                                             -----------     -----------
                                             $        --     $        --
                                             ===========     ===========

                                      F-49
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 20 - INCOME TAXES (continued)

         The effects of temporary differences that gave rise to significant
         portions of deferred tax assets and liabilities at December 31, 2006
         are as follows:

         Deferred tax assets:
         Net operating loss carryforward                 $6,296,000
         Impairment of intangibles                        1,322,000
         Accrued expenses                                    99,000
         Stocks and warrants for services and loans       2,524,000
         Capitalized funding costs-warrants               1,021,000
         Other                                              352,000
                                                         ----------
         Total gross deferred tax assets                 11,614,000
         Less valuation allowance                       (11,614,000)
                                                         ----------
         Net deferred tax assets                         $       --
                                                         ==========

         SFAS No. 109 requires a valuation allowance to reduce the deferred tax
         assets reported, if any, based on the weight of evidence, it is more
         likely than not that some portion or all of the deferred tax assets
         will not be realized. Management has determined that a valuation
         allowance of approximately $11 million at December 31, 2006 is
         necessary to reduce the deferred tax assets to the amount that will
         more likely than not be realized. The change in valuation allowance
         during 2006 and 2005 was an increase of $5,460,000 and $4,042,000,
         respectively.

NOTE 21 - DISCONTINUED OPERATIONS

         As described in Note 1, on December 15, 2006, the Company decided to
         discontinue the operations of BNMD, BNHI, BNSF, BNMA and BNCT. These
         subsidiaries are reported as a discontinued operation and prior periods
         have been restated in the Company's financial statements and related
         footnotes to conform to this presentation.

         On December 15, 2006, the Company signed a Letter of Intent to sell its
         distribution subsidiary, Beverage Network of Maryland, Inc. ("BNMD"),
         to Global Beverage Solutions, Inc. ("Global Beverage"). The Company and
         Global Beverage signed an Agreement and Plan of Merger ("Merger
         Agreement") dated January 31, 2007, as amended on February 23, 2007,
         whereby the Company will sell its distribution subsidiary, Beverage
         Network of Maryland, Inc. ("BNMD"), to Global Beverage. The Company
         closed on this transaction on February 23, 2007 (See Note 22 -
         Subsequent events).

         According to the terms of the Merger Agreement, the Company will
         receive 60,500,000 in Global Beverage common stock. In addition, Global
         Beverage will issue a $2 million note payable to the Company of which
         $229,000 shall be paid at closing and the remainder of the balance will
         be paid in minimum installments of $25,000 per month commencing on
         September 1, 2007 (See Note 22 - Subsequent events).

                                      F-50
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 21 - DISCONTINUED OPERATIONS (continued)

         The remaining assets and liabilities of discontinued operations are
         presented in the balance sheet under the caption "Assets of
         discontinued operation" and "Liabilities of discontinued operation".
         The carrying amounts of the major classes of these liabilities as of
         December 31, 2006 are summarized as follows:

         Assets:

         Cash                                           $    40,881
         Accounts receivable, net                           332,943
         Other receivable                                    29,467
         Inventories                                        393,345
         Prepaid expenses                                    54,681
         Property and equipment, net                        102,758
         Customer list, net (See Note 7)                    986,620
         Goodwill (See Note 8)                              847,620
         Other current assets                                46,371
                                                        -----------
         Assets of discontinued operation               $ 2,834,686
                                                        ===========
         Liabilities:

         Notes payable (1)                              $    85,132
         Accounts payable and accrued expenses            2,005,055
         Other current liabilities                           10,850
                                                        -----------
         Liabilities of discontinued operation          $ 2,101,037
                                                        ===========

         (1) Resulted from the acquisition of Beverage Network of Massachusetts
         Inc. ("BNMA")

         The following table sets forth for the fiscal years indicated selected
         financial data of the Company's discontinued operations.

                                                    2006             2005
                                              -------------------------------
Revenues                                      $    9,782,382   $    9,978,657
Cost of sales                                      8,138,985        8,229,171
                                              -------------------------------
Gross profit                                       1,643,397        1,749,486
Operating and other non-operating expenses         2,496,752        4,013,588
                                              -------------------------------

Loss from discontinued operations             $     (853,355)  $   (2,264,102)
                                              ===============================

NOTE 22 - SUBSEQUENT EVENTS

         On January 19, 2007, the Company issued 2,500,000 shares of common
         stock for services rendered. The Company valued these common shares at
         the fair market value on the date of grant at $.10 per share or
         $250,000. In connection with the issuance of these shares, the Company
         recorded consulting fees of $250,000 for business development services
         performed.

         On January 18, 2007, the Company issued 7.83 shares of preferred series
         B shares which converted to the payment of $390,574 of accrued
         liquidated damages and accrued dividends.

                                      F-51
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2006

NOTE 22 - SUBSEQUENT EVENTS (continued)

         On January 29, 2007, the Company issued 390,625 shares issued upon the
         conversion of $25,000 convertible notes payable including accrued
         interest to a note holder.

         The Company and Global Beverage Solutions, Inc. ("Global Beverage")
         signed an Agreement and Plan of Merger ("Merger Agreement") dated
         January 31, 2007, as amended on February 23, 2007, whereby the Company
         will sell its distribution subsidiary, Beverage Network of Maryland,
         Inc. ("BNMD"), to Global Beverage. The transaction will be structured
         as a merger of BNMD into a wholly-owned subsidiary of Global Beverage.

         According to the terms of the Merger Agreement, the Company will
         receive 60,500,000 in Global Beverage common stock. In addition, Global
         Beverage will issue a $2 million note payable to the Company of which
         $229,000 shall be paid at closing and the remainder of the balance will
         be paid in minimum installments of $25,000 per month commencing on
         September 1, 2007. In the event Global Beverage raises any equity
         capital while the note is outstanding, Global Beverage shall pay down
         the note in an amount equal to 35% of the net proceeds received in such
         equity raise. Global Beverage will also assume the balance of a
         promissory note held by Master Distributors, Inc. Upon closing, the
         Company will have the right to appoint three directors to Global
         Beverage's board of directors. Additionally, upon closing, a duly
         executed employment agreement will be entered between the Company's
         President and Global Beverage.

         On February 23, 2007, the Company completed the sale of its wholly
         owned subsidiary, Beverage Network of Maryland, Inc., to Global
         Beverage Solutions, Inc. ("Global Beverage"). As part of the
         transaction, the Company received 60,500,000 shares in Global Beverage
         common stock. In addition, Global Beverage issued a $2 million note
         payable to the Company of which $229,000 was paid at closing. As part
         of the transaction, the Company's President and member of the Company's
         Board of Directors resigned from his positions and became a member of
         the Board of Directors and Chief Executive Officer of Global Beverage,
         both effective February 23, 2007.

         On March 13, 2007, the Company issued 900,000 shares of common stock
         for failure to pay the balance of the principal and accrued interest to
         a certain note holder after its maturity date. The Company valued these
         common shares at the fair market value on the date of grant at $.05 per
         share or $45,000. In connection with the issuance of these shares, the
         Company recorded an interest expense of $45,000.

         On March 13, 2007, the Company issued 214,870 shares issued upon the
         conversion of $10,000 convertible notes payable including accrued
         interest to a note holder.

         On March 29, 2007, the Company issued 2,250 shares of common stock for
         services rendered. The Company valued these common shares at the fair
         market value on the date of grant at $.05 per share or $112. In
         connection with the issuance of these shares, the Company recorded
         stock based compensation of $112.

                                      F-52