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, 2004

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

           For the transition period from ____________ to ____________

                        Commission file number 001-11115

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

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

        4800 N.W. 15 Avenue, Bay A
         Fort Lauderdale, Florida                         33309
        --------------------------                        -----
(Address of principal executive offices)               (Zip Code)

Issuer's telephone number   954-598-7997
                            ------------

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

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

Securities registered under Section 12(g) of the Exchange Act: none


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         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 not 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. [ ]

         State issuer's revenues for its most recent fiscal year. $8,583,622 for
the 12 months ended December 31, 2004.

         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
of the registrant's common stock on April 1, 2005 is approximately $31,270,000.

         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 15, 2005 3,453,569
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]

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         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 "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 "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.

         All share and per share information contained herein gives proforma
effect to the 1:20 reverse stock split of our common stock effective July 19,
2004.

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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

OVERVIEW AND BUSINESS STRATEGY

         We develop, market, sell and distribute new age beverage category
natural sodas, fruit juices and energy drinks. Following our acquisition in
April 2003 of Total Beverage Network, our focus has been to build a network of
small to medium sized beverage distribution businesses, with an emphasis on the
East Coast of the United States. Our goal is to become a leading distributor of
beverage products through multiple distribution channels. Since our acquisition
of Total Beverage Network, we have acquired additional beverage distribution
companies together with a natural juice company and certain intellectual
property rights related to other beverage names.

         Our business strategy is to complete our network of small to medium
sized beverage distributors in major markets throughout the United States, as
well as expanding our base of proprietary value-added brands currently competing
in various aspects of the new age beverage industry. Our success is dependent on
our ability to make these additional acquisitions and then to effectively
integrate their operations into our company. We believe that we will generate
stronger than industry average margins by selling both our own proprietary
brands as well as third party brands that are dependent upon our multi-market
distribution network. Our belief, which is based upon the experience of our
management, is that as our distribution network grows, this expanded
distribution network may give us some leverage to obtain better pricing and
promotional deals from third party brand owners who may be willing to offer
reduced pricing in exchange for increased distribution capabilities.

         For fiscal 2004 and 2003 approximately 96% and 97%, respectively, of
our revenues were derived from distribution of third-party brands with the
remaining approximately 4% and 3% attributable to sales of our propriety
products.

OUR MARKET SEGMENT

         Our activities are focused in the new age and alternative beverage
segments of the beverage market. New Age or alternative beverages are
distinguishable from mainstream carbonated soft drinks in that 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.

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         The new age beverage category is the fastest growing segment of the
beverage marketplace according to Beverage Marketing Corporation
(www.beveragemarketing.com), a company founded in 1972 which is a supplier of
information, consulting and financial services specializing in meeting the needs
of the global beverage industry. According to the 2004 State of the Industry
report issued by the Beverage Marketing Corporation, sales in 2003 for the new
age beverage category of the market are estimated at approximately $14.1 billion
at wholesale, representing a growth rate of approximately 5.9% over the revised
estimated wholesale sales in 2002 of approximately $13.3 billion. Growth in the
category is attributed to consumer interest in more variety, healthier
alternatives to carbonated soft drinks, and more new product activity by the
major beverage manufacturers including Coca-Cola and Pepsi Cola.

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. The new age beverage category is attractive to us because it is
a growth segment of the beverage market and we believe that consumers will pay
more for these products than carbonated soft drinks.

         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
                         approximately 2% and 3%, respectively, of our total
                         revenues for the fiscal years ended December 31, 2004
                         and 2003.

MAUI JUICE COMPANY       The products include a line of natural juices and juice
                         blends that contain no artificial ingredients,
                         preservatives or added color. The product range is
                         currently only available in Hawaii and includes seven
                         flavor varieties, including Noni Lemonade, Ginger Blast
                         and Spirulina Smoothie, all of which are sold in 16
                         ounce and 32 ounce plastic bottles. Because these
                         products have a limited shelf life, the product is sold
                         exclusively through cold cabinet channels where natural
                         juices are found. Sales of Maui Juice Company products
                         represented approximately 2% of our total revenues for
                         the fiscal year ended December 31, 2004 following our
                         acquisition of this brand in March 2004

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. Sales of the
                         Squeeze line of products represented less than 1% of
                         our total revenues for the fiscal year ended December
                         31, 2004 following its launch in the fourth quarter of
                         fiscal 2004.

         The primary focus of our distribution effort is directed towards retail
outlets such as convenience stores, delicatessens, gas stations, bars,
restaurants and hotels. The effective display and promotion of beverage products
in refrigerated display cabinets (cold cabinets) is key to a successful business
in these outlets. We rely upon point of sale display and promotion to increase
customer awareness of our products. As our brands generate increased consumer
awareness and consumer demand, distribution to larger retailers, such as grocery


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stores and warehouse clubs, and wholesalers will become more critical to our
continued market penetration.

         Through our network, we also distribute a wide variety of beverages,
alternative and new age beverages, energy drinks, juices and non-carbonated
sodas, vitamin waters, specialty and nutrition drinks and non-alcoholic beer. We
actively seek to acquire distribution rights for products we believe show strong
growth potential. At December 31, 2004 we had approximately 22 beverage
suppliers. Third-party brand name products currently distributed by us include:

         AriZona ice teas                          Dannon
         FIJI mineral water                        Switch
         Glacier Lake water                        Vermont Pure
         Hansen's Natural beverages                Skae Beverages
         Martinelli's juices                       Good O
         IZZE sparking juices                      Days Beverage
         Vernor's soda                             Apple & Eve
         Clearly Canadian water                    Welch's
         Crush                                     Tazo teas
         Brick House                               Guinness non-alcoholic beer
         SoBe

         We are a party to distribution agreements with a number of beverage
manufacturers which set forth the terms and conditions of our distribution
rights of those products. These agreements grant us either exclusive or
non-exclusive distribution rights for certain territories and our ability to
distribute that company's products are limited to sales made in those specific
areas. In some instances we have the right to appoint sub-distributors within
our prescribed territory. We do not presently have any sub-distributors and have
no present plans to establish any sub-distributors. The terms of these
agreements are generally for one year with automatic annual renewals providing
we are meeting our minimum distribution levels of the brand in question.
Historically we have met the various minimum order requirements and anticipate
that we will continue to meet these terms in the future. We also distribute
Glacier Lake water on a non-exclusive basis in the Maryland, District of
Columbia and Northern Virginia areas under an oral agreement with the beverage
manufacturer. This distribution relationship, which represented approximately
4.5% of our revenues for each of the fiscal years ended December 31, 2004 and
2003, can be terminated at any time.

SEASONALITY

         Sales of ready-to-drink beverages are somewhat seasonal, with over 60%
of our sales expected to occur in the second and third calendar quarters.

PRODUCT MANUFACTURING

         We currently manufacture the Maui Juice Company products in our
facility in Hawaii. The plant is located in Kahalui on the island of Maui and is
equipped with essential blending and fruit processing equipment. The present
facility relies heavily on labor intensive manufacturing and bottling processes.
It is our desire to move our Hawaiian operations to a larger facility on Maui in
fiscal 2005 and to equip the facility with more automated processes which will
permit us to increase our production capacity as demand for these products
increase in future periods.

         We rely on third party manufacturers to produce both our Yohimbe and
Squeeze branded products. The third party manufacturers use our proprietary
formulations and flavor ingredients in the production of these 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.

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         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,
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 our
warehouses 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
several months. Not all new ideas make it through consumer research. To the
extent that we have sufficient capital, we intend to more actively pursue the
research, development manufacture and distribution of beverage products. During
fiscal 2004 we spent approximately $25,000 on research and development
activities. The acquisition of the Maui Juice Company brand has opened a
research and development project to formulate new flavors for the existing cold
cabinet range in Hawaii. Specifically in 2005, we have introduced a not from
concentrate, fresh squeezed orange juice. We are also working on a new line of
Maui Juice Company brand shelf stable products which we intend to introduce on
the U.S. mainland. This project includes the design and purchase of proprietary
bottle molds which will be available to us in April 2005. We are unable at this
time to predict our research and development expenses for fiscal 2005.

OUR GROWTH AND ACQUISITION STRATEGY

         We believe that the evolution and growth of virtual soft drink brands
or brands whose owners do not possess manufacturing or distribution assets,
coupled with a nationwide consolidation of distribution by the three major soft
drink companies, Coca Cola, Pepsi and Cadbury Schweppes, has created a unique
business opportunity in the area of beverage sales and distribution. Until
recently, most major metropolitan areas in the United States had at least one
strong, independent distributor of beverage product. Typically these operators
carried a national brand of beer, cola and a juice line, had extensive coverage
of their territory and controlled considerable brand assets such as vending
machines and coolers.

         The formation of Coca Cola Enterprises and then The Pepsi Bottling
Group began the demise of the independents whose fate was sealed when Cadbury
Schweppes began buying up strong, independent brands such as Snapple, Dr Pepper,
Seven Up and Mistic and running them through a few strong regional distribution
companies, such as S.E. Atlantic in the southeast U.S. The former strong
independents have consolidated and acquired many smaller competitors. Most of
the surviving small distributors are under-resourced, entrepreneurial operations
with no core brand business and inadequate infrastructures.

         It is within this group of companies, distributors with solid
management but without the means to grow, that we hope to identify potential
acquisition targets. Our business objective is to market a full range of


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proprietary new age brands. To achieve this goal, we are acquiring and
developing brands and products that we believe are appropriate and desirable for
target consumers, as well as acquiring a network of beverage distribution
companies. Our strategy is to complete our network of small to medium sized
beverage distributors in major markets throughout the United States. We believe
that we will generate stronger than industry average margins by selling
value-added proprietary brands and third party value-added brands that are
dependent upon our multi-market distribution network. We also believe that the
acquisition of beverage distribution companies will give us access to our target
customers as well as enabling us to earn revenues by distributing a portfolio of
third party brands.

         We believe that our acquisition strategy is key to our ability to grow
our company. We have identified over 1,000 beverage distribution companies
nationwide that meet our acquisition profile of annual sales revenues between
$2,500,000 and $5,000,000. These distributors are ideal for future growth
programs in the smaller metropolitan markets. For the larger markets such as
Washington D.C. and New York, we are seeking an acquisition target in the
revenue range of $5,000,000 to $10,000,000. An added benefit of a network of
operations is the added leverage that multiple market operations bring when
negotiating with the third party brand owners.

         Our ability to complete additional acquisitions, however, is limited to
available capital. Because of our relatively small size and the limited trading
in our common stock, we believe that the consideration to be paid in additional
acquisitions will be a combination of cash, equity and debt. As of the date
hereof, however, we are not a party to any agreement for any additional
acquisitions. We will be competing with many other companies in executing our
acquisition strategy and, as a result of our small size and present lack of
capital for use in acquisitions, we are at a disadvantage and we cannot assure
you that we will be effective in implementing this strategy.

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.

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         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 40,000 shares of our common stock plus an additional
$150,000 due in two installments. 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.

         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 of 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.

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         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 the 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.

COMPETITION

         We compete with a growing number of new age and traditional beverages
from the three global beverage companies and with brands owned by virtual brand
owners like Hansen's (makers of "Monster" Energy Drink). Carbonated soft drinks
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. In its New Age Beverage Market
Overview, Beverage Marketing Corporation shows the New Age category consumption
increasing from 7.6 gallons per capita in 1994 to 19.6 gallons per capita in
2003. In its report on the carbonated soft drink market for the same period,
Beverage Marketing Corporation shows an increase from 49.9 gallons per capita in
1999 to 53.8 gallons per capita in 2003. Effectively, carbonated soft drinks
grew 7.8% over the period when compared to 157.9% growth for New Age beverages.
We face significant competition from other companies, especially from Red Bull,
the leader in the energy drink field. Most of these companies are better
capitalized than us and can obtain financing on more favorable terms.

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GOVERNMENTAL REGULATION

         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. We are also subject to various state
and local statutes and regulations applicable to the production, transportation,
sale, safety, advertising, and labeling. Compliance with these provisions has
not had, and we do not expect such compliance to have, any material adverse
effect upon our capital expenditures, net income or competitive position.
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.

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 and we are in the process of reapplying. There is no
guarantee that our trademark application will mature into registration of the
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 60 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.

WE HAVE A HISTORY OF LOSSES AND A SUBSTANTIAL ACCUMULATED DEFICIT, AND WE CANNOT
ASSURE YOU THAT WE WILL OBTAIN PROFITABILITY IN THE FUTURE. AS A RESULT, YOU
COULD LOSE YOUR ENTIRE INVESTMENT IN OUR COMPANY.

         For the fiscal years ended December 31, 2004 and 2003, we had sales of
$8,583,622 and $2,028,265, respectively, and net losses available to common
stockholders of $9,776,656 and $6,436,607 respectively. In addition, at December
31, 2004, we had an accumulated deficit of $26,645,325. While approximately 41%
and 52% of net losses for the years ended December 31, 2004 and 2003 are
non-cash, stock-based expenses, the report of our independent registered public
accounting firm on our financial statements for the fiscal years ended December
31, 2004 and 2003 contained a qualification expressing substantial doubt as to
our ability to continue as a going concern. Our operating results for future
periods will include significant expenses, including product development
expenses, sales and marketing costs, programming and administrative expenses,
and will be subject to numerous uncertainties as described elsewhere in this
annual report. As a result, we are unable to predict whether we will achieve


                                       11
<PAGE>

profitability in the future. Our failure to achieve profitable operations in
future periods will adversely effect our available working capital which would
in turn limit our ability to grow our company and increase revenues. In this
event, you could lose all of your investment in our company.

OUR ASSETS SERVE AS COLLATERAL UNDER AN OUTSTANDING SECURED CONVERTIBLE TERM
NOTE. IF WE WERE TO DEFAULT ON OUR OBLIGATIONS UNDER THIS NOTE 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 May 2004 we also 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 $3,000,000. The note is collateralized by a blanket
security interest in our assets and a pledge of the stock of our subsidiaries.
If we should default under the repayment provisions of the secured convertible
term note, 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.

WE WILL NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON
ACCEPTABLE TERMS. IF WE CANNOT RAISE ADDITIONAL CAPITAL AS NEEDED, OUR ABILITY
TO EXECUTE OUR GROWTH STRATEGY AND FUND OUR ONGOING OPERATIONS WILL BE IN
JEOPARDY.

         Historically, our operations have been financed primarily through the
issuance of equity. Capital is typically needed not only for the acquisition of
additional companies, but also for the effective integration, operation and
expansion of these businesses. Capital is also necessary to fund our ongoing
operations and to pay our existing obligations. Our future capital requirements,
however, depend on a number of factors, including our ability to implement our
acquisition strategy, internally grow our revenues, manage our business and
control our expenses. At December 31, 2004 we had a working capital deficit of
$2,345,022. We need to raise additional capital to fund our ongoing operations,
pay our existing obligations and for future growth of our company. We cannot
assure you that additional working capital is available to us in the future upon
terms acceptable to us. If we do not raise funds as needed, our ability to
provide for current working capital needs, make additional acquisitions, grow
our company, and continue our existing business and operations is in jeopardy.

OUR MANAGEMENT MAY BE UNABLE TO EFFECTIVELY INTEGRATE OUR ACQUISITIONS AND TO
MANAGE OUR GROWTH AND WE MAY BE UNABLE TO FULLY REALIZE ANY ANTICIPATED BENEFITS
OF THESE ACQUISITIONS.

         Our business strategy includes growth through acquisition and internal
development. We are subject to various risks associated with our growth
strategy, including the risk that we will be unable to identify and recruit
suitable acquisition candidates in the future or to integrate and manage the
acquired companies.

         Since our acquisition of Total Beverage Network, between April 2003 and
July 2004 we have acquired four additional beverage distribution companies
together with a natural juice company and certain intellectual property rights
related to other new age beverages. Acquired companies' histories, geographical
locations, business models and business cultures can be different from ours in
many respects. Our directors and senior management face a significant challenge
in their efforts to integrate our businesses and the business of the acquired
companies or assets, and to effectively manage our continued growth. There can
be no assurance that our efforts to integrate the operations of any acquired
assets or companies acquired in the future will be successful, that we can
manage our growth or that the anticipated benefits of these proposed
acquisitions will be fully realized. The dedication of management resources to
these efforts may detract attention from our day-to-day business. There can be
no assurance that there will not be substantial costs associated with these


                                       12
<PAGE>

activities or of the success of our integration efforts, either of which could
have a material adverse effect on our operating results.

A MAJORITY OF OUR REVENUES ARE DERIVED FROM DISTRIBUTION OF THIRD PARTY BRANDS.
WE ARE DEPENDENT ON DISTRIBUTION AGREEMENT WITH THESE MANUFACTURERS, THE
MAJORITY OF WHICH ARE SHORT-TERM. IF WE SHOULD LOSE THE ABILITY TO DISTRIBUTE
THESE THIRD-PARTY BRANDS OUR FUTURE REVENUES WILL BE ADVERSELY AFFECTED.

         We are a party to distribution agreements with approximately 22 third
party beverage manufacturers, including brands such as Welch's juices, Glacier
Lake water, Hansen's Natural beverages and Fiji Mineral water among others.
Because approximately 96% of our revenues are derived from distribution of third
party brands, our business depends heavily on distribution of brands which are
manufactured by these third parties. In most instances, our right to distribute
these products are subject to the terms of distribution agreements, although in
one instance we are not a party to a written agreement but distribute the
products based upon an oral agreement. As described elsewhere in this annual
report under "Our Business - Our proprietary products and distribution
activities", this oral agreement can be terminated at any time without notice to
us. Revenues from distribution of third party brands under this oral agreement
represented approximately 4.5% of our total revenues for the year ended December
31, 2004. The terms of the written agreements vary, but generally provide that
they are either exclusive as long as we meet certain minimum order requirements
or are non-exclusive. Historically we have met the various minimum order
requirements and anticipate that we will continue to meet these terms in the
future. The terms of these written agreements are generally one year, with
renewal options. Because of the significant nature of the revenues from
distribution of third party brands to our results of operations, the termination
of any of these distribution agreements could have a material adverse effect on
our business operations and prospects.

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.

         A key element to our business model is the expansion of the
distribution of our propriety brands which presently account for approximately
4% of our revenues for the year ended December 31, 2004. Our margins are greater
on the sales of our propriety products than margins from the sales of third
party brands. We 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 will prevent us, in future periods, from both increasing our
revenues from sales attributable to those propriety products as well as
increasing our margins on our sales.

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
those that address board of directors' independence, audit committee oversight,


                                       13
<PAGE>

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 or Nasdaq, 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 SERIES A AND SERIES B CONVERTIBLE PREFERRED
STOCK WILL BE DILUTIVE TO OUR EXISTING STOCKHOLDERS.

         At March 15, 2005 we had :

         *        3,453,569 shares of common stock issued and outstanding,

         *        warrants to purchase a total of 5,183,401 shares of our common
                  stock with exercise prices ranging from $1.50 to $10.00 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,

         *        43.2 shares of our Series B Convertible Preferred Stock issued
                  and outstanding which is presently convertible into 1,439,998
                  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 $1.50 per share, and

         *        2,000,000 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
                  $3,000,000 which was issued to Laurus Master Fund, Ltd. in May
                  2004 based upon a conversion price of $1.50 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 4,118,776 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 1,064,625 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


                                       14
<PAGE>

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 43.2 shares
of Series B Convertible Preferred Stock are issued and outstanding as of March
15, 2005. 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.

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.

WE MAY BE EXPOSED TO POTENTIAL RISKS RELATING TO OUR INTERNAL CONTROLS OVER
FINANCIAL REPORTING AND OUR ABILITY TO HAVE THOSE CONTROLS ATTESTED TO BY OUR
INDEPENDENT AUDITORS.

            As directed by Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX
404"), the Securities and Exchange Commission adopted rules requiring public
companies to include a report of management on the company's internal controls
over financial reporting in their annual reports, including Form 10-KSB. In
addition, the independent registered public accounting firm auditing a company's
financial statements must also attest to and report on management's assessment
of the effectiveness of the company's internal controls over financial reporting
as well as the operating effectiveness of the company's internal controls. We
were not subject to these requirements for the fiscal year ended December 31,
2004. We are evaluating our internal control systems in order to allow our
management to report on, and our independent auditors attest to, our internal
controls, as a required part of our Annual Report on Form 10-KSB beginning with
our report for the fiscal year ended December 31, 2006.

                                       15
<PAGE>

            While we expect to expend significant resources in developing the
necessary documentation and testing procedures required by SOX 404, there is a
risk that we will not comply with all of the requirements imposed thereby. At
present, there is no precedent available with which to measure compliance
adequacy. Accordingly, there can be no positive assurance that we will receive a
positive attestation from our independent auditors. In the event we identify
significant deficiencies or material weaknesses in our internal controls that we
cannot remediate in a timely manner or we are unable to receive a positive
attestation from our independent auditors with respect to our internal controls,
investors and others may lose confidence in the reliability of our financial
statements and our ability to obtain equity or debt financing could suffer.

ITEM 2.  DESCRIPTION OF PROPERTY

         We lease approximately 7,200 square feet of office/warehouse space in
Fort Lauderdale, Florida, which also serves as our principal executive offices,
under one year lease expiring in December 2005. The lease provides for monthly
rental payments of approximately $4,800, together with a pro-rata share of
common area expenses.

         Beverage Network of Connecticut leases approximately 13,600 square feet
in Bristol, Connecticut under a lease expiring in October 2008. We pay $5,108
per month for the leased space. The space is primarily dedicated to a warehouse
area, but includes space for administrative and operational offices.

         Beverage Network of Massachusetts leases approximately 4,300 square
feet in Ayer, Massachusetts under a lease expiring in June 2004 with an annual
renewal option. We pay $1,425 per month for the leased space. The space is
primarily dedicated to a warehouse area, but includes space for a small
operational office.

         In March of 2004, BNHI entered into a month-to-month lease agreement
for management facilities with monthly rent of $4,200. The space is being
utilized as housing for marketing consultants and other individuals active in
expanding the brand and current distribution territory.

         Beverage Network of Hawaii rents approximately 3,000 square feet in
Wailuku, Hawaii on a month to month basis. We pay $1,103 per month rent. The
primary use of this space is for our Hawaiian manufacturing and warehousing
operations.

         Master Distributors, Inc. rents approximately 70,000 square feet of
commercial office and warehouse space in Jessup, Maryland under a lease expiring
in March 2008. We pay an aggregate of approximately $288,640 annually, which
amount escalates to approximately $297,300 annually beginning in April 2005. We
sub-lease a portion of this space to four unaffiliated companies who pay in the
aggregate approximately $179,400 annually in rent.

         All of the foregoing facilities are in good condition and with the
exception of Beverage Network of Hawaii, Inc. are adequate for currently
anticipated needs. We anticipate moving the operations of Beverage Network of
Hawaii to a more appropriate facility later in 2005. We believe that in the
event that the leases with respect to any of the aforementioned facilities
should not be renewed, alternative space will be available at comparable rates.

ITEM 3.  LEGAL PROCEEDINGS

         On March 21, 2005 we received a notice from Mirador Consulting, Inc.
that it intends to pursue an arbitration proceeding against us for breach of a
consulting agreement. We deny any breach of this agreement, have engaged counsel
to defend our position and intend to vigorously assert all available defenses
against any arbitration proceeding. The ultimate resolution of this matter
cannot be determined with any certainty. Until such time as we are served in
this proceeding, we are unable to provide further information.

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

         None.

                                       16
<PAGE>

                                     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 2003                                             ------          ------

First quarter ended March 31, 2003                      $53.00          $22.40
Second quarter ended June 30, 2003                      $31.00          $20.80
Third quarter ended September 30, 2003                  $24.00          $10.40
Fourth quarter ended December 31, 2003                  $10.40          $ 3.40

Fiscal 2004

First quarter ended March 31, 2004                      $10.60          $ 4.00
Second quarter ended June 30, 2004                      $ 7.80          $ 4.00
Third quarter ended September 30, 2004                  $ 4.60          $ 1.80
Fourth quarter ended December 31, 2004                  $ 2.50          $ 1.32

Fiscal 2005

First quarter ended March 31, 2005                      $ 1.85          $ 0.93

         On April 7, 2005 the last sale price of our common stock as reported on
the OTCBB was $1.25 As of March 15, 2005 there were approximately 621 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

         None.

         SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         We do not have any equity compensation plans.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The following discussion should be read together with the information
contained in the Consolidated Financial Statements and related Notes included in
the annual report.

                                       17
<PAGE>

OVERVIEW

         We develop, market, sell and distribute new age beverage category
natural sodas, fruit juices and energy drinks. We are also a wholesale
distributor of third party new age beverages, energy drinks, juices and
non-carbonated sodas, specialty and nutritional drinks, vitamin waters and
non-alcoholic beer. New Age or alternative beverages are distinguishable from
mainstream carbonated soft drinks in that 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, including 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. This beneficial perception by consumers allows the
soft drink industry to charge higher prices than those commanded by regular
carbonated soft drinks. For this reason, new age beverages are sometime referred
to as value added beverages.

         Our goal is to become a leading brand owner and distributor of beverage
products through multiple distribution channels. We believe that our acquisition
strategy is key to our ability to grow our company. Since our acquisition of
Total Beverage Network in April 2003 through December 31, 2004, we have acquired
additional beverage distribution companies together with a natural juice company
and certain intellectual property rights related to other new age beverage
names. The acquisitions included:

         *        April 2003 - Total Beverage Network.
         *        April 2003 - Universal Florida Beverage Distributors
         *        May 2003 - Finish-Line Distributors
         *        January 2004 - SQUEEZE trademark
         *        March 2004 - Pacific Rim Natural Juice Company
         *        March 2004 - Maui Juice Company trademark
         *        March 2004 - Ayer Beverages
         *        July 2004 - Master Distributors

         Our business strategy includes the acquisitions of additional
distribution companies and proprietary value-added brands currently engaged in
various aspects of the new age beverage industry. Our success is dependent on
our ability to make these additional acquisitions and then to effectively
integrate their operations into our company.

         The formation of Coca Cola Enterprises and then The Pepsi Bottling
Group began the demise of the independent beverage distributors, whose fate was
sealed when Cadbury Schweppes began buying up strong brands such as Snapple, Dr
Pepper, Seven Up and Mistic and running them through a few strong regional
distribution companies, such as S.E. Atlantic in the southeast U.S. The former
strong independents have consolidated and acquired many smaller competitors.
Most of the surviving small distributors are under- resourced, entrepreneurial
operations with weak core brand business and inadequate infrastructures.

         It is within this group of companies, distributors with solid
management but without the means to grow, that we have identified potential
acquisition targets. Our business objective is to market a full range of
proprietary new age brands. To achieve this goal, we are acquiring and
developing brands and products that we believe are appropriate and desirable for
target consumers, as well as acquiring a network of beverage distribution
companies. Our strategy is to complete our network of small to medium sized
beverage distributors in major markets throughout the United States. We believe
that we will generate stronger than industry average margins by selling
value-added proprietary brands and third party value-added brands that are
dependent upon our multi-market distribution network. We also believe that the
acquisition of beverage distribution companies will give us access to our target
customers as well as enabling us to earn revenues by distributing a portfolio of
third party brands.

                                       18
<PAGE>

         When used in this annual report, "fiscal 2004" means the fiscal year
ended December 31, 2004 and "fiscal 2003" means the fiscal year ended December
31, 2003.

RESULTS OF OPERATIONS

         Our sales for fiscal 2004 increased $6,555,357 to $8,583,622, or
approximately 323% over fiscal 2003 sales of $2,028,265. The increase in sales
is attributable to the implementation of our acquisition strategy which we
believe is the key driver to grow our company and to a lesser extent, sales
growth in our New England operations. Our sales for fiscal 2004 include revenues
attributable to our Total Beverage Network, Universal Florida Beverage
Distributors and Finish-Line Distributors for the entire period reported as
compared to sales reported for only a portion in fiscal 2003 as a result of the
timing of the acquisitions. In addition, sales for fiscal 2004 include revenues
attributable to Maui Juice/Pacific Rim, Ayer Beverages and Master Distributors
acquisitions which were made during that period.

         The cost of goods sold as a percentage of sales for fiscal 2004 was
approximately 74%, of sales as compared to approximately 72% for fiscal 2003.
The slight decline in our operating margins for fiscal 2004 is attributable to a
change in product mix sold as a result of the expansion of our business. During
the comparable period we generated sales from both our proprietary products as
well as the sale of third party beverage brands sold through our distributor
subsidiaries. Sales of proprietary products represented 4% and 3%, respectively,
of our sales for fiscal 2004 and fiscal 2003. While the third party products
have lower margins, we believe that the increased volume of sales attributable
to a broader product line will in time create better margins and contribute to
our overall profitability.

         Total operating expenses increased approximately 54% to $9,731,044 for
fiscal 2004 as compared to $6,322,098 for fiscal 2003. This increase, which is
attributable to the growth of our company during fiscal 2004, primarily
includes:

         *        an increase of $941,851, or approximately 638%, in marketing
                  and selling expense. Marketing expense includes marketing and
                  promotion of Yohimbe Energy Drink, the development costs of
                  new project work such as Chinese Rocket Fuel and Maui Juice
                  Company brand shelf stable products. The increase in direct
                  selling expenses is primarily attributable to sales force
                  allowances for the use of their automobiles. We expect our
                  direct selling expenses to increase in fiscal 2005 as a result
                  of the full year effect of certain acquisitions made during
                  fiscal 2004,

         *        an increase of $666,894, or approximately 631%, in warehouse
                  and delivery, which includes truck leasing in New England and
                  Maryland and truck repairs in New England. This increase is
                  primarily attributable to the addition of our Beverage Network
                  of Maryland operation in July 2004. We also expect our
                  warehouse and delivery expenses to increase in fiscal 2005 as
                  a result of the full year effect of certain acquisitions made
                  during fiscal 2004,

         *        an increase of $3,078,230, or approximately 256%, in
                  compensation expense. This increase is primarily attributable
                  to full year compensation expense for our Connecticut
                  operation following that acquisition in May 2003,
                  compensation expense related to our Massachusetts, Hawaiian
                  and Maryland operations following those acquisitions in March
                  and July 2004, and - non-cash compensation of $1,350,000
                  attributable to the one time issuance in February 2004 of
                  500,000 shares of our common stock to Messrs. Farnsworth,
                  Pearring and Willson,

         *        an increase of $147,621, or approximately 134%, in rent
                  expense which is attributable to the addition of physical
                  locations as a result of our various acquisitions during
                  fiscal 2004 We anticipate that rent expense will remain
                  relatively constant during the balance of fiscal 2005, subject
                  to increase if we acquire additional companies,

                                       19
<PAGE>
         *        a decrease of $707,330, or approximately 40%, in consulting
                  fees which is attributable to the termination of third party
                  services associated with the company in its developmental
                  stages and the internal expansion of personnel,

         *        an increase of $131,762, or approximately 49%, in professional
                  fees which is primarily attributable to legal and accounting
                  fees incurred for acquisitions closed during fiscal 2004, as
                  well as legal and accounting fees related to various financing
                  transactions we have undertaken and the filing of a
                  registration statement with the Securities and Exchange
                  Commission to register the shares of our common stock
                  underling the securities sold in those financing transactions.
                  We anticipate that professional fees will remain at these
                  levels during the balance of fiscal 2005,

         *        an increase of $456,127, or approximately 140%, in loan and
                  loan guarantee fees. This increase is primarily attributable
                  to the one-time guarantee fee related to our acquisition of
                  Beverage Network of Connecticut and our issuance of shares of
                  our common stock as substitution of collateral for a
                  commercial line of credit,

         *        an increase of $52,222, or approximately 133%, in bad debt
                  expense, which is directly related to our acquisition of
                  additional business during fiscal 2004,

         *        a decrease of $1,720,274, or 100%, in impairment loss which
                  represents one-time impairment of goodwill related to our
                  Florida and Connecticut operations,

         *        an increase of $361,843, or approximately 59%, in other
                  general and administrative expenses is primarily attributable
                  to a one-time, non-recurring consulting fee of approximately
                  $367,000.

         Our loss from operations for fiscal 2004 increased $1,753,556, or
approximately 30%, for fiscal 2004 as compared to fiscal 2003. Our loss from
operations as a percentage of sales was 87% for fiscal 2004 as compared to 284%
for fiscal 2003.

         Total other income/(expense) increased approximately 154% to
$(1,737,147) for fiscal 2004 as compared to $(684,576) for fiscal 2003. This
increase is primarily a result of $1,768,020 of interest expense related to the
$3,000,000 principal amount secured convertible note we issued in May 2004 to
Laurus Master Fund, Ltd. as well as the Series B Convertible Preferred Stock we
sold in August 2004, both in financing transactions to provide us with capital
to implement our acquisition strategy. We anticipate that we will continue to
incur interest expense during fiscal 2005 on the notes and preferred stock
unless either security is converted by the holders,

         We reported a net loss of $9,242,734 for fiscal 2004 as compared to a
net loss of $6,436,607 for fiscal 2003. Dividends payable on our Series B
Convertible Preferred Stock at December 31, 2004 were $54,910 and we recognized
an additional expense of $479,012 representing amortization of the discount to
the dividends payable on these securities. We did not have comparable
transactions in fiscal 2003. Accordingly, after recognition of the preferred
stock dividends of $533,922, we had a net loss available to common stockholders
for fiscal 2004 of $9,776,656 as compared to $6,436,607 for fiscal 2003.

LIQUIDITY AND CAPITAL RESOURCES

         We have a history of losses and at December 31, 2004 we had an
accumulated deficit of $26,645,325 and a working capital deficit of $2,345,022.

         Net cash used in operating activities for fiscal 2004 was $3,665,339 as
compared to $627,392 for fiscal 2003. The increase was primarily attributable
to:

                                       20
<PAGE>

         *        an increase of $2,806,127 in our net loss,

         *        an increase of $52,222 in bad debt expense,

         *        an increase of $1,332,383 in amortization of deferred
                  consulting expenses,

         *        an increase of $1,490,654 in amortization of debt discount to
                  interest expense,

         *        an increase of $182,612 in amortization of intangibles,

         *        an increase of $124,200 in amortization of redemption premium
                  on our Series B Convertible Preferred Stock,

         *        a decrease of $252,621 in contributed services,

         *        a decrease of $61,129 on loss on conversion of debt,

         *        an increase of $49,500 in non-cash stock based loan fee,

         *        a decrease of $156,670 in interest income on subscription
                  receivable,

         *        a decrease of $111,399 in stock based expenses,

         *        a decrease of $1,195,000 in stock based settlements,

         *        a decrease of $1,720,274 in goodwill impairment,

         *        a decrease of $67,020 in accounts receivable,

         *        an increase of $257,872 in inventory,

         *        a decrease of $62,957 in other current assets,

         *        a decrease of $368,369 in accounts payable,

         *        a decrease of $110,762 in accrued expenses,

         *        an increase of $54,910 in dividends payable, and

         *        a decrease of $16,883 in other current liabilities.

         Net cash used in investing activities for fiscal 2004 was $715,688 as
compared to $286,444 for fiscal 2003. The change is primarily attributable to
our acquisition of property and equipment as well as the value of securities
issued by us in acquisitions. Net cash provided by financing activities for
fiscal 2004 was $4,413,589 as compared to $919,302 for fiscal 2003. The increase
in fiscal 2004 is primarily attributable to proceeds from the sale of shares of
our Series B Convertible Preferred Stock and convertible secured note, net of
offering costs.

         The report from our independent registered public accounting firm on
our audited financial statements at December 31, 2004 contains an explanatory
paragraph regarding doubt as to our ability to continue as a going concern. We
do not presently have any commitments for capital expenditures. While
approximately 41% of our net loss for fiscal 2004 is non-cash, we will require
funds to satisfy our current obligations, increase our product inventory, move
our subsidiary to a new facility in Maui and equip that facility with additional


                                       21
<PAGE>

manufacturing equipment, and for receivable financing. We will also need funds
to satisfy the balance of the closing consideration due to Morris Stoddard of
$412,000 related to our acquisition of Master Distributors Mr. Stoddard has
agreed to defer this amount and approximately $112,500 in payments due under the
2004 salary agreement with him until April 14, 2005. We do not presently have
the funds available to pay Mr. Stoddard, nor do we have any commitments for
additional working capital and there are no assurances that such capital will be
available to us when needed or upon terms and conditions which are acceptable to
us. If we are able to secure additional working capital through the sale of
equity securities, the ownership interests of our current stockholders will be
diluted. If we raise additional working capital through the issuance of debt or
additional dividend paying securities our future interest and dividend expenses
will increase. If we are unable to secure additional working capital as needed,
our ability to grow our sales, meet our operating and financing obligations as
they become due and continue our business and operations could be in jeopardy.

ITEM 7.  FINANCIAL STATEMENTS

         Our financial statements are contained in pages F-2 through F-32,
which appear at the end of this annual report.

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

         On December 20, 2004 we dismissed Salberg & Company, P.A. as our
independent registered public accounting firm. Salberg & Company, P.A. had been
the independent registered public accounting firm for the Company and audited
our financial statements as of December 31, 2003 and for each of the two years
then ended. The reports of Salberg & Company, P.A. on our consolidated financial
statements for the past two fiscal years contained no adverse opinion or
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles, but did include an explanatory paragraph
relating to our ability to continue as a "going concern." The decision to change
accountants was approved unanimously by our Board of Directors.

         In connection with the audit for the two most recent fiscal years and
for the subsequent interim periods preceding dismissal on December 20, 2004,
there have been no disagreements between Xstream and Salberg & Company, P.A. on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of Salberg & Company, P.A., would have caused Salberg & Company,
P.A. to make reference thereto in their report on our financial statements for
these fiscal years. During the two most recent fiscal years and prior to the
date hereof, we had no reportable events (as defined in Item 304(a)(1) of
Regulation S-B).

         On December 22, 2004 we engaged Sherb & Co. LLP as our independent
registered public accounting firm. We had not consulted with Sherb & Co. LLP
regarding the application of accounting principles to any contemplated or
completed transactions nor the type of audit opinion that might be rendered on
our financial statements, and neither written nor oral advice was provided that
would be an important factor considered by us in reaching a decision as to an
accounting, auditing or financial reporting issues. There have been no
disagreements between Xstream and our former certifying accountant, Salberg
& Company, P.A., for which Sherb & Co. LLP was consulted.

ITEM 8A. CONTROLS AND PROCEDURES

         As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of December 31, 2004, the end of the period covered by this Annual Report,
our management concluded its 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 Annual Report, is recorded, processed,
summarized and reported within the time periods prescribed by SEC rules and


                                       22
<PAGE>

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, including our Chief Executive Officer, 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
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 the Chief Executive Officer, to allow timely decisions regarding
required disclosure.

         There have been no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
evaluation date.

ITEM 8B. OTHER INFORMATION

         None.

                                    PART III

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

EXECUTIVE OFFICERS AND DIRECTORS

      NAME                        AGE                        POSITION
      ----                        ---                        --------

Theodore Farnsworth                43               Chairman of the Board and
                                                    Chief Executive Officer and
                                                    principal financial officer
Jerry Pearring                     44               President and a director
Barry Willson                      57               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 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


                                       23
<PAGE>

in 1994, which became one of the premier entries into the burgeoning
pay-per-call industry and a parent for multiple interactive ventures.

         Jerry Pearring. Mr. Pearring has served as our President and a member
of our board of directors since April 2003 and he served as our Chief Executive
Officer from April 2003 until November 2004. From March 2003 until its
acquisition by us in April 2003 Mr. Pearring was Treasurer of Total Beverage
Network, Inc. From September 2001 until December 2002 Mr. Pearring was Senior
Vice President of Domestic Business for BEVsystems International, Inc. and from
February 1996 until August 2001 he was President and CEO of Total Quality
Beverage of New Hampshire. From 1994 to 1996 Mr. Pearring was General Manager of
Nantucket Nectars of Washington D.C. Prior to that, he was National Sales
Manager of Soho Beverages, Inc. and in Sales and Marketing with Anheuser- Busch
in Washington, DC and Boston.

         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.
The following individuals are members of the Advisory Board

         George C. Haas, Jr. Mr. Haas has been with Haas Financial Corporation,
a New York investment banking firm, for nearly 45 years. Prior to starting that
firm he held various executive positions with the Coca-Cola Company and PepsiCo.
As Vice President of U.S. Operations of PepsiCo, Mr. Haas was instrumental in
developing plans for bottler financing and for restructuring the U.S. franchise
network. The formation of Haas Financial Corporation allowed him to act as an
independent industry expert in organizing major financing for PepsiCo's
independent bottlers which lead to his association with Coca-Cola Enterprises as
an independent negotiator during a time when Coco-Cola Enterprises purchased the
former franchises and converted them into company-owned operations. Mr. Haas
graduated from Yale University.

         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


                                       24
<PAGE>

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.

         Morris Stoddard. From 1980 to 1997, Mr. Stoddard was General Manager
and partner of Central Distributing, Inc., a Maryland based Coors Beer
distributor. From 1997 to 1999 Mr. Stoddard was President and partner in DoMor,
Inc., a non-alcoholic beverage broker servicing the Mid-Atlantic states and from
1999 until 2004, he was General Manager and partner in Master Distributors,
Inc., a non-alcoholic beverage distributor based in Maryland servicing retail
accounts in Maryland, Washington, D.C. and Northern Virginia which we acquired
in 2004.

DIRECTOR INDEPENDENCE, AUDIT COMMITTEE OF THE BOARD OF DIRECTORS AND
AUDIT COMMITTEE FINANCIAL EXPERT

         None of the member of our Board of Directors are "independent" within
the meaning of definitions established by the Securities and Exchange
Commission. As a result of our limited operating history and minimal resources,
small companies such as ours generally have difficulty in attracting independent
directors. As we grow, in the future our Board of Directors intends to seek
additional members who are independent, have a variety of experiences and
backgrounds, who will represent the balanced, best interests of all of our
stockholders and at least one of which who is an "audit committee financial
expert" described below.

         Our Board of Directors has also not yet established an Audit Committee,
and the functions of the Audit Committee are currently performed by the entire
Board of Directors. At such time as we expand our Board of Directors to include
independent directors, we intend to establish an Audit Committee of our Board of
Directors. We are not currently subject to any law, rule or regulation, however,
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 of our Board of Directors.

         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 c 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.


                                       25
<PAGE>

Farnsworth, or that of acquired subsidiaries, as in the case of Messrs. Pearring
and Willson. As discussed earlier in this section, at such time as we are able
to expand our Board of Directors to include independent directors those
additional directors will include at least one "audit committee financial
expert."

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
be designated the compliance officer who is responsible for overseeing,
interpreting and monitoring compliance with our Code of Ethics and Business
Conduct.

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.


                                       26
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

         The following table summarizes all compensation recorded by us in each
of the last three fiscal years for our Chief Executive Officer and each other
executive officers serving as such (the "Named Executive Officers") whose annual
compensation exceeded $100,000.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                               ANNUAL COMPENSATION                          LONG-TERM COMPENSATION
                           ------------------------------                   ----------------------
                                                                    AWARDS                           PAYOUTS
                                                                    ------                           -------
NAME                                            OTHER                     SECURITIES                ALL OTHER
AND                                             ANNUAL        RESTRICTED  UNDERLYING        LTIP     COMPEN-
PRINCIPAL                  SALARY      BONUS    COMPEN-         STOCK      OPTIONS/        PAYOUTS   SATION
POSITION          YEAR      ($)         ($)    SATION ($)       AWARDS     SARS (#)          ($)       ($)
---------         ----     ------      -----   ----------     ----------  ----------       -------  ---------
<S>               <C>      <C>         <C>        <C>         <C>             <C>             <C>     <C>
Ted Farnsworth,   2004     $ 66,320    $ --       $ --        $675,000        --             -0-      --
Chairman of the   2003     $115,000    $ --       $ --        $375,000        --             -0-      --
Board (1)         2002     $ 50,000    $ --       $ --        $     --        --             -0-      --

Jerry Pearring,   2004     $119,946    $ --       $ --        $337,500        --             -0-      --
President and     2003     $ 63,750    $ --       $ --        $     --        --             -0-      --
CEO(2)

Barry Willson,    2004     $126,123    $ --       $ --        $337,500        --             -0-      --
Vice Chariman,    2003     $ 63,750    $ --       $ --        $     --        --             -0-      --
Chief Scientific
Officer (3)

Edward Arioli     2003     $     --    $ --       $ --        $200,000        --             -0-       --
President (4)     2002     $ 25,000    $ --       $ --        $200,000        --             -0-       --
Officer

Steve Haglund     2003     $      -    $ --       $ --        $325,000        --             -0-       --
CEO (5)           2002     $ 50,000    $ --       $ --        $     --        --             -0-       --
</TABLE>
----------
(1)  Mr. Farnsworth as served as our Chairman since September 2001 and our CEO
     since November 2004. In February 2004 we issued Mr. Farnsworth 250,000
     shares of our common stock, valued at $675,000, as a bonus.

(2)  Mr. Pearring served as our President and CEO from April 2003 until November
     2004. In February 2004 we issued Mr. Pearring 125,000 shares of our common
     stock, valued at $337,500, as a bonus.

(3)  Mr. Willson has served as our Vice Chairman, Chief Scientific Officer,
     Secretary and Treasurer since April 2003. In February 2004 we issued Mr.
     Willson 125,000 shares of our common stock, valued at $337,500, as a bonus.

(4)  Mr. Arioli served as our President from September 2001 until April 2003 and
     served as our Executive Vice President from April 2003 until June 2003.

(5)  Mr. Haglund served as our CEO from February 2002 to June 2003.

DIRECTORS' COMPENSATION

         We do not have an established policy to provide compensation to members
of our Board of Directors for their services in that capacity.

COMPENSATION OF THE ADVISORY BOARD

         Upon an individual joining our Advisory Board, we issue 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 monthly
payment for her services at the rate of $250 per hour, plus $120 per hour for


                                       27
<PAGE>

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 compensation for services rendered to us not exceeding $1,000 per day spent
in our service and reimburse for 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.

EMPLOYMENT AGREEMENTS

         Effective February 5, 2004 we entered into Revised Employment
Agreements with each of Messrs. Theodore Farnsworth, Jerry Pearring 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, Mr. Pearring is to serve as our President and CEO 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, Pearring 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.

                                       28
<PAGE>

         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,

         *        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.

         In February 2004 we issued Messrs. Farnsworth, Pearring and Willson an
aggregate of 500,000 shares of our common stock, valued at $1,350,000, as a
bonus. In this issuance, Mr. Farnsworth received 250,000 shares, Mr. Pearring
received 125,000 shares and Mr. Willson received 125,000 shares.

STOCK OPTION INFORMATION

         The following table sets forth certain information with respect to
stock options granted in fiscal 2004 to the Named Executive Officers.

                  OPTION GRANTS IN YEAR ENDED DECEMBER 31, 2004
                               (INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
                     NO. OF SECURITIES     % OF TOTAL OPTIONS/SARs
                    UNDERLYING OPTIONS      GRANTED TO EMPLOYEES          EXERCISE      EXPIRATION
     NAME              SARs GRANTED             IN FISCAL YEAR              PRICE          DATE
     ----           ------------------     -----------------------        --------      ----------
<S>                        <C>                      <C>                      <C>           <C>
Theodore Farnsworth        0                        n/a                      n/a           n/a

Jerry Pearring             0                        n/a                      n/a           n/a

Barry Willson              0                        n/a                      n/a           n/a
</TABLE>

         The following table sets forth certain information regarding stock
options held as of December 31, 2004 by the Named Executive Officers.


                                       29
<PAGE>

           AGGREGATE OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 2004
                           AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
                                               NO. OF SECURITIES
                                             UNDERLYING UNEXERCISED          VALUE OF UNEXERCISED
                      SHARES                       OPTIONS AT              IN-THE-MONEY OPTIONS AT
                     ACQUIRED     VALUE       DECEMBER 31, 2004 (5)           DECEMBER 31, 2004
                        ON      REALIZED   --------------------------    --------------------------
NAME                 EXERCISE       $      EXERCISABLE  UNEXERCISABLE    EXERCISABLE  UNEXERCISABLE
----                 --------   --------   -----------  -------------    -----------  -------------
<S>                      <C>       <C>          <C>           <C>             <C>          <C>
Theodore Farnsworth      0         n/a          0             0               n/a          n/a

Jerry Pearring           0         n/a          0             0               n/a          n/a

Barry Willson            0         n/a          0             0               n/a          n/a
</TABLE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         At March 15, 2005, there were 3,453,569 shares of our common stock,
200,000 shares of our Series A Cumulative Convertible Voting Preferred Stock and
43.2 shares of Series B Convertible Preferred Stock issued and outstanding. Our
common stock and Series A Cumulative Convertible Voting 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, and each share of Series A
Cumulative Convertible Voting Preferred Stock has five votes per share. The
following table sets forth, as of March 15, 2005, 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.

         Unless otherwise indicated, the business address of each person listed
is in care of 4800 N.W. 15 Avenue, Bay A, Fort Lauderdale, Florida 33309. 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 15, 2005 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 15, 2005 have
been exercised or converted.

COMMON STOCK
------------
<TABLE>
<CAPTION>
NAME OF                          AMOUNT AND NATURE OF         PERCENTAGE            PERCENT OF
BENEFICIAL OWNER                 BENEFICIAL OWNERSHIP          OF CLASS         VOTING CONTROL (1)
----------------                 --------------------         ----------        ------------------
<S>                                    <C>                       <C>                 <C>
Theodore Farnsworth (2)                312,773                    9.1%               29.5%
Jerry Pearring(13)                     117,500                    3.4%                2.6%
Barry Willson                          125,000                    3.6%                2.8%
All officers and directors
  as a group (three persons)(2)        552,273                  16.00%               34.9%
Laurus Master Fund, Ltd. (3)           172,333                   4.99%                3.7%
Morris Stoddard (4)                    749,524                  19.00%               15.2%
Alpha Capital AG (5)(13)               172,333                   4.99%                3.7%
Enable Growth Partners, LP (6)         172,333                   4.99%                3.7%
Greenwich Growth Fund, Ltd (7)         172,333                   4.99%                3.7%
SRG Capital, LLC (8)                   172,333                   4.99%                3.7%
Stonestreet Limited Partnership (9)    172,333                   4.99%                3.7%
Sunrise Equity Partners L.P. (10)      172,333                   4.99%                3.7%
Whalehaven Fund Limited (11)           172,333                   4.99%                3.7%
Whalehaven Fund Limited #2 AC (12)     172,333                   4.99%                3.7%
</TABLE>

                                       30
<PAGE>

SERIES A CUMULATIVE CONVERTIBLE VOTING PREFERRED STOCK
------------------------------------------------------

<TABLE>
<CAPTION>
NAME OF                          AMOUNT AND NATURE OF         PERCENTAGE            PERCENT OF
BENEFICIAL OWNER                 BENEFICIAL OWNERSHIP          OF CLASS         VOTING CONTROL (1)
----------------                 --------------------         ----------        ------------------
<S>                                    <C>                       <C>              <C>
Theodore Farnsworth(2)                 200,000                   100%             29.5%
Jerry Pearring                               0                    --               2.6%
Barry Willson                                0                    --               2.8%
All officers and directors as
   a group (three persons)(2)(14)      200,000                   100%             34.9%
</TABLE>
----------
 *   represents less than 1%

(1)  Percentage of Voting Control is based upon the number of issued and
     outstanding shares of our common stock and shares of our Series A
     Cumulative Convertible Voting Preferred Stock at March 15, 2005. At March
     15, 2005 the holders of our outstanding shares of common stock and Series A
     Cumulative Convertible Voting Preferred Stock were entitled to an aggregate
     of 4,453,569 votes at any meeting of our stockholders, which includes
     3,453,569 votes attributable to the outstanding shares of common stock and
     1,000,000 votes attributable to the outstanding shares of Series A
     Cumulative Convertible Voting Preferred Stock. Each share of Series A
     Cumulative Convertible Voting Preferred Stock entitles the holder to five
     votes at any meeting of our stockholders and such shares will vote together
     with our common stockholders.

(2)  Includes 12,773 shares of our common stock owned by Xstream Beverage, Inc.,
     a company of which Mr. Farnsworth is the owner, and 200,000 shares of
     Series A Cumulative Convertible Voting Preferred Stock.

(3)  Laurus Master Fund, Ltd. does not presently own any shares of our common
     stock. Laurus Master Fund, Ltd. holds:

     *    a $3,000,000 principal amount secured convertible term note which is
          convertible into 2,000,000 shares of our common stock at a conversion
          rate of $1.50 per share,

     *    225,000 shares of our common stock issuable upon the exercise of a
          common stock purchase warrant with an exercise price of $6.40 per
          share for the first 75,000 shares, $7.80 per share for the next 75,000
          shares and $9.00 per share for the remaining 75,000 shares,

     *    22,500 shares of our common stock issuable upon the exercise of a
          common stock purchase warrant with an exercise price of $ 5.20 per
          share,

     *    125,000 shares of our common stock issuable upon the exercise of a
          common stock purchase warrant with an exercise price of $3.00 per
          share, and

     *    634,000 shares of our common stock issuable upon the exercise of
          common stock purchase warrants with an exercise price of $2.00 per
          share.



                                       31
<PAGE>

Under the terms of the secured convertible term note and warrant purchased by
Laurus Master Fund, Ltd., these warrants are not exercisable and this note is
not convertible to the extent that (a) the number of shares of our common stock
held by Laurus Master Fund, Ltd. and (b) the number of shares of our common
stock issuable upon the exercise of the warrants and the conversion of the not
would result in the beneficial ownership by Laurus Master Fund, Ltd. of more
than 4.99% of our then outstanding common stock. Laurus Master Fund, Ltd. may
waive these provisions, or increase or decrease that percentage, with respect to
the warrants and/or the note on 75 day's prior notice to us, or without notice
if we are in default under the note. At March 15, 2005 Laurus Master Fund, Ltd.
beneficially owns 172,333 shares of our common stock underlying the note and
warrants which convertible or exercisable, as the case may be, within 60 days.
Laurus Capital Management, LLC is the entity that exercises voting and
investment power on behalf of Laurus Master Fund, Ltd. Mr. David Grin and Mr.
Eugene Grin are the natural persons who exercise voting power over Laurus
Capital Management, LLC.

(4)  Includes 123,000 shares of our common stock which we have agreed to issue
     Mr. Stoddard as consideration for his deferral of certain amounts due
     Master Distributors, Inc., 103,654 shares of our common stock held by
     Master Distributors, Inc. and 370,370 shares of our common stock issuable
     upon the conversion of a promissory note in the principal amount of
     $2,000,000 issued in July 2004 to Master Distributors, Inc. in connection
     with our acquisition of the assets of Atlantic Beverage. Mr. Morris
     Stoddard is the person who exercises voting and investment power on behalf
     of Master Distributors, Inc. Excludes shares of our common stock owned by
     Mr. Stoddard's children over which he disclaims beneficial ownership. See
     "Our Business - Our History" earlier in this annual report.

(5)  Alpha Capital AG holds shares or our Series Convertible Preferred Stock
     which are convertible into 233,333 shares of our common stock at a
     conversion price of $1.50, warrants to purchase 233,333 shares of our
     common stock at an exercise price of $2.00 per share and warrants to
     purchase 116,666 shares of our common stock at an exercise price of $4.00
     per share. Alpha Capital AG has contractually agreed to limit the
     conversion of the Series B Convertible Preferred and exercise of the
     warrants so that upon the conversion or exercise the holder's beneficial
     ownership would not exceed 4.99% of our common stock outstanding at the
     time of conversion or exercise, subject to a waiver of this limitation by
     the holder upon 61 days notice to us, as well as limiting the holder's
     beneficial ownership upon conversion or exercise to less than 9.9% of our
     then issued and outstanding common stock, including shares issuable upon
     the conversion of the Series B Convertible Preferred or the exercise of the
     warrant, also subject to waiver by the holder upon 61 days notice to us.
     Alpha Capital AG beneficially owns 172,333 shares of our common stock based
     upon shares of our Series B Convertible Preferred Stock and warrants which
     are convertible or exercisable, as the case may be, within 60 days. Mr.
     Konrad Ackerman is the control person of Alpha Capital AG.

(6)  Enable Growth Partners, LP owns shares of our Series B Convertible
     Preferred which are convertible into 266,666 shares of our common stock at
     a conversion price of $1.50, warrants to purchase 266,666 shares of our
     common stock at an exercise price of $2.00 per share and warrants to
     purchase 133,333 shares of our common stock at an exercise price of $4.00
     per share. Enable Growth Partners, LP has contractually agreed to limit the
     conversion of the Series B Convertible Preferred and exercise of the
     warrants so that upon the conversion or exercise the holder's beneficial
     ownership would not exceed 4.99% of our common stock outstanding at the
     time of conversion or exercise, subject to a waiver of this limitation by
     the holder upon 61 days notice to us, as well as limiting the holder's
     beneficial ownership upon conversion or exercise to less than 9.9% of our
     then issued and outstanding common stock, including shares issuable upon
     the conversion of the Series B Convertible Preferred or the exercise of the
     warrant, also subject to waiver by the holder upon 61 days notice to us.
     Enable Growth Partners, LP beneficially owns 172,333 shares of our common
     stock based upon shares of our Series B Convertible Preferred Stock and
     warrants which are convertible or exercisable, as the case may be, within
     60 days. Mr. Mitch Levine is the control person of Enable Growth Partners,
     LP.

                                       32
<PAGE>

(7)  Greenwich Growth Fund, Ltd. owns shares of our Series B Convertible
     Preferred which are convertible into 100,000 shares of our common stock at
     a conversion price of $1.50, warrants to purchase 100,000 shares of our
     common stock at an exercise price of $2.00 per share and warrants to
     purchase 50,000 shares of our common stock at an exercise price of $4.00
     per share. Greenwich Growth Fund, Ltd. has contractually agreed to limit
     the conversion of the Series B Convertible Preferred and exercise of the
     warrants so that upon the conversion or exercise the holder's beneficial
     ownership would not exceed 4.99% of our common stock outstanding at the
     time of conversion or exercise, subject to a waiver of this limitation by
     the holder upon 61 days notice to us, as well as limiting the holder's
     beneficial ownership upon conversion or exercise to less than 9.9% of our
     then issued and outstanding common stock, including shares issuable upon
     the conversion of the Series B Convertible Preferred or the exercise of the
     warrant, also subject to waiver by the holder upon 61 days notice to us.
     Greenwich Growth Fund, Ltd. beneficially owns 172,333 shares of our common
     stock based upon shares of our Series B Convertible Preferred Stock and
     warrants which are convertible or exercisable, as the case may be, within
     60 days. Messrs. Evan Schemenauer, Jonathan Walk and Don Dunstan are the
     controlling persons of Greenwich Growth Fund, Ltd.

(8)  SRG Capital, LLC owns shares of our Series B Convertible Preferred which
     are convertible into 133,333 shares of our common stock at a conversion
     price of $1.50, warrants to purchase 133,333 shares of our common stock at
     an exercise price of $2.00 per share and warrants to purchase 66,666 shares
     of our common stock issuable at an exercise price of $4.00 per share. SRG
     Capital, LLC has contractually agreed to limit the conversion of the Series
     B Convertible Preferred and exercise of the warrants so that upon the
     conversion or exercise the holder's beneficial ownership would not exceed
     4.99% of our common stock outstanding at the time of conversion or
     exercise, subject to a waiver of this limitation by the holder upon 61 days
     notice to us, as well as limiting the holder's beneficial ownership upon
     conversion or exercise to less than 9.9% of our then issued and outstanding
     common stock, including shares issuable upon the conversion of the Series B
     Convertible Preferred or the exercise of the warrant, also subject to
     waiver by the holder upon 61 days notice to us. SRG Capital, LLC
     beneficially owns 172,333 shares of our common stock based upon shares of
     our Series B Convertible Preferred Stock and warrants which are convertible
     or exercisable, as the case may be, within 60 days. Mr. Edwin Macabe and
     Ms. Tai May Lee are the controlling persons of SRG Capital LLC.

(9)  Stonestreet Limited Partnership owns shares of our Series B Convertible
     Preferred which are convertible into 300,000 shares of our common stock at
     a conversion price of $1.50, warrants to purchase 300,000 shares of our
     common stock at an exercise price of $2.00 per share and warrants to
     purchase 150,000 shares of our common stock at an exercise price of $4.00
     per share. Stonestreet Limited Partnership has contractually agreed to
     limit the conversion of the Series B Convertible Preferred and exercise of
     the warrants so that upon the conversion or exercise the holder's
     beneficial ownership would not exceed 4.99% of our common stock outstanding
     at the time of conversion or exercise, subject to a waiver of this
     limitation by the holder upon 61 days notice to us, as well as limiting the
     holder's beneficial ownership upon conversion or exercise to less than 9.9%
     of our then issued and outstanding common stock, including shares issuable
     upon the conversion of the Series B Convertible Preferred or the exercise
     of the warrant, also subject to waiver by the holder upon 61 days notice to
     us. Stonestreet Limited Partnership beneficially owns 172,333 shares of our
     common stock based upon shares of our Series B Convertible Preferred Stock
     and warrants which are convertible or exercisable, as the case may be,
     within 60 days. Ms. Elizabeth Leonard and Mr. Michael Finkelstein are the
     controlling persons of Stonestreet Limited Partnership.

(10) Sunrise Equity Partners L.P. owns shares of our Series B Convertible
     Preferred which are convertible into 200,000 shares of our common stock at
     a conversion price of $1.50, warrants to purchase 200,000 shares of our
     common stock at an exercise price of $2.00 per share and warrants to

                                       33
<PAGE>

     purchase 100,000 shares of our common stock at an exercise price of $4.00
     per share. Sunrise Equity Partners L.P. has contractually agreed to limit
     the conversion of the Series B Convertible Preferred and exercise of the
     warrants so that upon the conversion or exercise the holder's beneficial
     ownership would not exceed 4.99% of our common stock outstanding at the
     time of conversion or exercise, subject to a waiver of this limitation by
     the holder upon 61 days notice to us, as well as limiting the holder's
     beneficial ownership upon conversion or exercise to less than 9.9% of our
     then issued and outstanding common stock, including shares issuable upon
     the conversion of the Series B Convertible Preferred or the exercise of the
     warrant, also subject to waiver by the holder upon 61 days notice to us.
     Sunrise Equity Partners L.P. beneficially owns 172,333 shares of our common
     stock based upon shares of our Series B Convertible Preferred Stock and
     warrants which are convertible or exercisable, as the case may be, within
     60 days. Sunrise Equity Partners, L.P., is managed by Level Counter LLC.
     Nathan Low, Amnon Mandelbaum, Marilyn Adler and David I. Goodfriend, the
     member of Level Counter LLC, each may be deemed to be a controlling person
     of Sunrise Equity Partners, L.P.

(11) Whalehaven Fund Limited owns shares of our Series B Convertible Preferred
     which are convertible into 100,000 shares of our common stock at a
     conversion price of $1.50, warrants to purchase 100,000 shares of our
     common stock at an exercise price of $2.00 per share and warrants to
     purchase 50,000 shares of our common stock at an exercise price of $4.00
     per share. Whalehaven Fund Limited has contractually agreed to limit the
     conversion of the Series B Convertible Preferred and exercise of the
     warrants so that upon the conversion or exercise the holder's beneficial
     ownership would not exceed 4.99% of our common stock outstanding at the
     time of conversion or exercise, subject to a waiver of this limitation by
     the holder upon 61 days notice to us, as well as limiting the holder's
     beneficial ownership upon conversion or exercise to less than 9.9% of our
     then issued and outstanding common stock, including shares issuable upon
     the conversion of the Series B Convertible Preferred or the exercise of the
     warrant, also subject to waiver by the holder upon 61 days notice to us.
     Whalehaven Fund Limited beneficially owns 172,333 shares of our common
     stock based upon shares of our Series B Convertible Preferred Stock and
     warrants which are convertible or exercisable, as the case may be, within
     60 days. Messrs. Evan Schemenauer and Arthur Jones and Ms. Jennifer Kelly
     are the controlling persons of Whalehaven Fund Limited.

(12) Whalehaven Fund Limited #2 AC owns shares of our Series B Convertible
     Preferred which are convertible into 100,000 shares of our common stock at
     a conversion price of $1.50, warrants to purchase 100,000 shares of our
     common stock at an exercise price of $2.00 per share and warrants to
     purchase 50,000 shares of our common stock at an exercise price of $4.00
     per share. Whalehaven Fund Limited #2 AC has contractually agreed to limit
     the conversion of the Series B Convertible Preferred and exercise of the
     warrants so that upon the conversion or exercise the holder's beneficial
     ownership would not exceed 4.99% of our common stock outstanding at the
     time of conversion or exercise, subject to a waiver of this limitation by
     the holder upon 61 days notice to us, as well as limiting the holder's
     beneficial ownership upon conversion or exercise to less than 9.9% of our
     then issued and outstanding common stock, including shares issuable upon
     the conversion of the Series B Convertible Preferred or the exercise of the
     warrant, also subject to waiver by the holder upon 61 days notice to us.
     Whalehaven Fund Limited #2 AC beneficially owns 172,333 shares of our
     common stock based upon shares of our Series B Convertible Preferred Stock
     and warrants which are convertible or exercisable, as the case may be,
     within 60 days. Messrs. Evan Schemenauer and Arthur Jones and Ms. Jennifer
     Kelly are the controlling persons of Whalehaven Fund Limited #2.

(13) Includes 10,000 shares of our common stock held by Mr. Pearring's minor
     children.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         From time to time we have borrowed funds for working capital from
Xstream Beverage, Inc., a company which is owned by Mr. Theodore Farnsworth, our
Chairman and CEO. These loans are non-interest bearing, unsecured and due on
demand. At each of December 31, 2004 and 2003 we owed Xstream Beverage, Inc.

                                       34
<PAGE>

$50,355. We believe that the terms of these loans are at least as beneficial to
us as terms we could obtain from unaffiliated third parties.

         In October 2004 Mr. Morris Stoddard, a principal shareholder, General
Manager of our Mid-Atlantic States operations and member of the Advisory Board
to our Board of Directors, advanced us $137,000 under a demand note bearing
interest at 6% per annum. We used these fund for general working capital. We
believe that the term of this loan was at least as beneficial to us as terms we
could obtain from an unaffiliated third party.

         In July 2004 we purchased the assets of Master Distributors, Inc. from
Morris Stoddard. Mr. Stoddard has executed a five year contract with us to
oversee the management and growth of our Mid-Atlantic States business and to
serve as a member of the Advisory Board 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. $412,200 of the cash portion of the payment which
was due it 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 Mr. Stoddard and his assigns an
aggregate 390,000 shares of his common stock valued at $660,000.

         In March 2004 a principal shareholder of our company who is neither an
officer nor a director advanced us $25,000 as a non-interest bearing demand
loan. We used these funds for working capital. We believe that the term of this
loan was at least as beneficial to us as terms we could obtain from an
unaffiliated third party.

         On June 3, 2003 we entered into Consulting Agreements with each of
Messrs. Edward Arioli and Steve Haglund, former officers and directors of
Xstream. Under the terms of these one year agreements, each of these individuals
are providing us with advice regarding ongoing strategic corporate planning,
joint ventures, strategic alliances and advice regarding our product lines and
potential acquisition candidates. We agreed to pay each of Messrs. Arioli and
Haglund $40,000 for the one year agreement, and a monthly non-accountable
expense allowance of $550 per month and reimbursement of out-of-pocket expenses.
We believe that the terms of these agreements were at least as beneficial to us
as terms we could obtain from unaffiliated third parties.

         At December 31, 2002 we had accrued compensation due under employment
agreements with Messrs. Edward Arioli, Farnsworth and Steve Haglund. of
$252,621. On March 31, 2003, our board of directors, which consisted of these
three individuals, approved the forgiveness of this accrued compensation through
December 31, 2002. As a result of this transaction, we recognized contributed
capital of $252,621. We believe that the terms of these transactions are at
least as beneficial to us as terms we could obtain from unaffiliated third
parties.

         Effective April 9, 2003, we entered into amended three-year employment
agreements with Messrs. Edward Arioli and Steve Haglund to serve as our
President and CEO, respectively. These agreements each provided for annual base
compensation of $85,000, and granted each individual options to purchase 5,000
shares of our common stock at an exercise price of $28.00 per share, vesting
over the term of the agreement. On June 1, 2003, the board accepted the
resignations of Messrs. Arioli and Haglund, and concurrent with the resignation
of these individuals these options were cancelled. In exchange for cancellation
of outstanding options and forgiveness of $106,250 of accrued salaries, we


                                       35
<PAGE>

issued Messrs. Arioli and Haglund an aggregate of 52,500 shares of our common
stock and entered into one-year consulting agreements, which provided for
compensation of $40,000 each. We recorded a settlement loss of $418,750. We
believe that the terms of these transactions are at least as beneficial to us as
terms we could obtain from unaffiliated third parties.

         In May 2002 we borrowed $50,000 from an affiliate of our then
president, Mr. Arioli. We used these funds to settle a lawsuit. In connection
with this loan, we issued Mr. Arioli 5,000 shares of our common stock, valued
at $50,000, as a loan fee. We repaid this loan in fiscal 2002. We believe that
the term of this loan was at least as beneficial to us as terms we could obtain
from an unaffiliated third party.

         In October 2001 we entered into a three year consulting agreement
commencing April 1, 2002 with Xstream Beverage, Inc., a company owned by Mr.
Farnsworth, to provide us with management consulting services, including
independent consulting services by hiring skilled consultants in the beverage
industry and to the extent that there was any change in our business objectives,
Xstream Beverage, Inc. was to provide us with consultants who could assist us in
implementing our business goals and objectives. As compensation for its
services, in February 2002 we issued Xstream Beverage, Inc. 213,375 shares of
our common stock. For purposes of our results of operations, the value of
$10,668,750 attributed to these shares was to be a compensation expense
recognized over the period of the agreement. In July 2002, effective April 1,
2002, we rescinded this consulting agreement and entered into a subscription
agreement with Xstream Beverage, Inc. for the purchase of the 213,375 shares
of our common stock for an aggregate of $2,133,750, which reflected a decrease
in the then fair market value of our common stock. As consideration for the
purchase Xstream Beverage, Inc. tendered to us a promissory note in the
principal amount of $ 2,133,750, bearing interest at 8% per annum, and due on
August 13, 2003. As a result of the cancellation of the consulting agreement,
the $10,668,750 of deferred compensation and related $10,664,483 were reversed.
This promissory note was cancelled in February 2004 and the 213,375 shares of
our common stock were returned to our treasury with the status of authorized but
unissued securities.

                                     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)
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)
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)
10.1     2002 Stock Option Plan (3)

                                       36
<PAGE>

EXHIBIT NO.                                 DESCRIPTION
-----------                                 -----------

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)
14.1     Code of Ethics and Business Conduct *
16.1     Letter from Salberg & Company, P.A. dated December 23, 2004 to the
         Securities and Exchange Commission(10)
23.1     Consent of Salberg & Company, P.A.
31.1     Section 302 Certificate of Chief Executive Officer *
31.2     Section 302 Certificate of principal financial officer *
32.1     Section 906 Certificate of Chief Executive Officer and principal
         financial 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.

                                       37
<PAGE>

(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 Report on Form 8-K as filed
     with the SEC on December 23, 2004.
(11) Incorporated by reference to the registrant's registration statement on
     Form SB-2, SEC file number 333-119403, as amended.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         Salberg & Company, P.A. served as our independent registered public
accounting firm for fiscal 2003 and the first three quarters of fiscal 2004.
Sherb & Co., LLP was engaged on December 22, 2004 to serve as our independent
registered public accounting firm for fiscal 2004. The following table shows the
fees that we paid or accrued for the audit and other services provided by
Salberg & Company, P.A. and Sherb & Co., LLP for the 2004 and 2003 fiscal years,
respectively.

                                               FISCAL 2004     FISCAL 2003
                                               -----------     -----------

Audit Fees                                      $ 80,347        $ 50,000
Audit-Related Fees                                60,000          57,000
Tax Fees                                          57,125               0
All Other Fees                                    35,568               0
                                                --------        --------
         Total                                  $233,040        $107,000

         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.

         All Other Fees -- This category consists of fees for audits of
Finish-Line Distributors, Ayer Beverages and Master Distributors and for other
miscellaneous items.

                                       38
<PAGE>

         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 2004 were pre-approved by
the entire Board of Directors.


                                       39
<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.

                                     XSTREAM BEVERAGE GROUP, INC.

                                     By: /s/ Theodore Farnsworth
                                         -----------------------
                                     Theodore Farnsworth, Chairman of the Board,
                                     CEO, principal executive officer and
                                     principal financial 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 and CEO,                   April 11, 2005
-----------------------       principal executive officer
Theodore Farnsworth           and principal financial officer


/s/ Jerry Pearring            President and director              April 11, 2005
-----------------------
Jerry Pearring


/s/ Barry Willson             Vice Chairman and                   April 11, 2005
-----------------------       Chief Scientific Officer
Barry Willson


                                       40
<PAGE>



                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004




                          Xstream Beverage Group, Inc.
                                and Subsidiaries

                                    Contents

                                                                 Page
                                                                 ----

Report of Sherb & Co., LLP
  Independent Registered Public Accounting Firm                   F-2

Report of Salberg & Company, P.A.
  Independent Registered Public Accounting Firm                   F-3

Consolidated Balance Sheet                                        F-4

Consolidated Statements of Operations                             F-5

Consolidated Statements of Changes in Stockholders'
   Deficiency                                                     F-6

Consolidated Statements of Cash Flows                             F-7

Notes to Consolidated Financial Statements                        F-8 - F-33


                                       F-1

<PAGE>


                                                                805 Third Avenue
[LOGO OMITTED]                                                New York, NY 10022
                                                                            Tel.
                                                                    212-838-5100
                                                                            Fax.
                                                                    212-838-2676
                                                        e-mail:info@sherbcpa.com

                                                 Offices in New York and Florida
________________________________________________________________________________
Certified Public Accountants



             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, 2004, and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for the year ended December 31, 2004. 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 audit 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 audit provides 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, 2004, and the results of their
operations and their cash flows for the years ended December 31, 2004, 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 and cash used in
operations of $9,242,734 and $3,665,339 respectively, for the year ended
December 31, 2004. 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

New York, New York
March 25, 2005


                                      F-2

<PAGE>

            Report of Independent Registered Public Accounting Firm
            -------------------------------------------------------

To the Board of Directors of:
Xstream Beverage Network, Inc.


We have audited the accompanying consolidated statements of operations, changes
in stockholder's equity (deficiency) and cash flows of Xstream Beverage Network,
Inc. and Subsidiaries for the year ended December 31, 2003. 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 audit 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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts 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 consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the consolidated results of operations and cash
flows of Xstream Beverage Network, Inc. for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 18 to
the consolidated financial statements, the Company's net loss in 2003 of
$6,436,607, cash used in operations in 2003 of $627,392, and accumulated deficit
of $16,868,669, shareholders' deficiency of $1,310,369 and working capital
deficiency of $1,340,464 at December 31, 2003 raises substantial doubt about its
ability to continue as a going concern. Management's Plan in regards to these
matters is also described in Note 18. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.




SALBERG & COMPANY, P.A.
Boca Raton, Florida
March 27, 2004


                                      F-3
<PAGE>

                 XSTREAM BEVERAGE NETWORK INC. and SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET


                                                              December 31,
                                                                 2004
                                                             ------------
ASSETS
     Current Assets:
        Cash                                                 $     84,326
        Accounts Receivable, net of allowance for doubtful        668,960
        accounts of $130,544
        Inventory                                                 825,422
        Other Current Assets                                       50,304
                                                             ------------
           Total Current Assets                                 1,629,012
                                                             ------------

     Property and Equipment                                       361,154
     Less: Accumulated Depreciation                               (51,977)
                                                             ------------
     Property and Equipment, Net                                  309,177
                                                             ------------
     Other Assets:
        Cash - restricted                                         452,771
        Trademarks                                                303,017
        Customer Lists, net                                     1,932,251
        Goodwill                                                1,953,936
        Other Assets                                               34,396
                                                             ------------
           Total Other Assets                                   4,676,371
                                                             ------------
TOTAL ASSETS                                                 $  6,614,560
                                                             ============
LIABILITIES & STOCKHOLDERS' DEFICIENCY
     Liabilities:
        Current Liabilities:
           Accounts Payable                                  $  1,737,905
           Accrued Expenses                                       697,450
           Dividends Payable                                       54,910
           Bottle Deposits                                        106,953
           Loans and notes payable                                528,067
           Loans Payable - Related Party                          187,355
           Current Portion of Long Term Debt                      652,946
           Other Current Liabilities                                8,448
                                                             ------------
              Total Current Liabilities                         3,974,034
                                                             ------------

        Long Term Liabilities:
           Long Term Notes, net of discount                     3,066,672
           Other long term liabilities                             14,350
                                                             ------------
              Total Long Term Liabilities                       3,081,022

                                                             ------------
              Total Liabilities                                 7,055,056
                                                             ------------

        Preferred Series B, net of discount
           of $1,842,858: $0.001 par value,
           10,000,000 shares authorized,
           43 shares issued and outstanding                       317,142
                                                             ------------
     Stockholders' Deficiency
        Preferred Stock, $0.001 par value, 10,000,000
           shares authorized, Series A, 200,000 shares
           issued and outstanding                                     200
        Common Stock, $0.001 par value, 50,000,000 shares
           authorized, 2,797,692 issued and outstanding             2,798
        Common Stock Issuable, 180,734                                181
        Additional Paid in Capital                             29,198,726
        Accumulated Deficit                                   (26,645,325)
        Less: deferred consulting expense                        (628,194)
        Less: Deferred Fees                                    (2,686,024)
                                                             ------------
              Total Stockholders' Deficiency                     (757,638)
                                                             ------------
TOTAL LIABILITIES & STOCKHOLDERS'  DEFICIENCY                $  6,614,560
                                                             ============

        See accompanying notes to consolidated financial statements

                                      F-4

<PAGE>

                  XSTREAM BEVERAGE GROUP INC. and SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003


                                                2004           2003
                                            --------------------------

Sales                                       $ 8,583,622    $ 2,028,265

Cost of Goods Sold                            6,358,165      1,458,198
                                            --------------------------
Gross Profit                                  2,225,457        570,067
Expense
    Marketing & Selling                       1,089,561        147,710
    Warehouse & Delivery                        772,616        105,722
    Compensation                              4,279,046      1,200,816
    Rent                                        257,378        109,757
    Consulting Fees                           1,081,589      1,788,919
    Professional Fees                           402,494        270,732
    Loan and Loan Guarantee Fees                781,627        325,500
    Bad Debt Expense                             91,488         39,266
    Impairment Loss                                  --      1,720,274
    Other General & Administrative              975,245        613,402
                                            --------------------------
        Total Operating Expense               9,731,044      6,322,098
                                            --------------------------
Loss From Operations                         (7,505,587)    (5,752,031)
Other Income/(Expense)
    Other Income                                  5,599         10,799
    Settlement gain                              66,762             --
    Interest Income                              21,532        170,820
    Interest Expense                         (1,834,813)       (66,793)
    Settlement loss                              (3,025)      (696,800)
    Other expense                                 6,798       (102,602)
                                            --------------------------
        Total Other Income/(Expense)         (1,737,147)      (684,576)
                                            --------------------------
Net Loss                                     (9,242,734)    (6,436,607)

Preferred Stock Dividends                   $  (533,922)   $        --
                                            --------------------------

Net Loss Available to Common Stockholders   $(9,776,656)   $(6,436,607)
                                            ==========================


Net Loss per share - Basic and diluted      $     (4.40)   $     (8.68)
                                            ==========================

Weighted Average Shares Outstanding
  -Basic and diluted                          2,219,814        741,957
                                            ==========================

          See accompanying notes to consolidated financial statements.

                                      F-5

<PAGE>

                 XSTREAM BEVERAGE GROUP, INC. AND SUBSIDIARIES
                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                            PREFERRED STOCK   COMMON STOCK        COMMON STOCK
                                            ---------------   ------------        ------------     ADDITIONAL     ACCUMULATED
                                            SHARES AMOUNT    SHARES    AMOUNT   ISSUABLE   AMOUNT PAID-IN CAPITA   DEFICIT
                                            ----------------------------------------------------------------------------------
<S>                                         <C>      <C>      <C>        <C>       <C>        <C>  <C>
Balance, December 31, 2002                  200,000  $ 200    476,746    $ 477     13,422     $ 13 $ 12,722,163 $(10,432,062)

Stock issued for cash                            --     --     21,983       22     37,409       37     329,041            --
Stock issued as settlement                       --     --    114,750      115         --       --   1,194,885            --
Stock issued for services                        --     --    174,122      174         --       --   1,648,015            --
Stock issued for loans and loan
   guarantee fees                                --     --     70,050       70         --       --     700,430            --
Cancellation of subscription                     --     --     (2,200)      (2)        --       --     (43,998)           --
Cashless exercise of warrants                    --     --     10,000       10         --       --         (10)           --
Shares issued for debt                           --     --     15,750       16     28,130       28     455,912            --
Issuance of shares  previously issuable          --     --      8,314        8     (8,314)      (8)         --            --
Amortization of deferred fees                    --     --         --       --         --       --          --            --
Offering costs                                   --     --         --       --         --       --     (61,377)           --
Contributed accrued compensation                 --     --         --       --         --       --     252,621            --
Stock issued for acquisition                     --     --    124,300      124         --       --   1,242,876            --
Interest on prommisory note
   subscription receivable                       --     --         --       --         --       --          --            --
Net Loss, 2003                                   --     --         --       --         --       --          --    (6,436,607)
                                            ----------------------------------------------------------------------------------
Balance, December 31, 2003                  200,000    200  1,013,815    1,014     70,647       70  18,440,558    (16,868,669)

Common Stock issued for cash                     --     --    646,507      647    154,583      155   1,921,815             --
Preferred Stock issued for cash                  43     --         --       --         --       --   2,160,000             --
Offering Costs                                   --     --         --       --         --       --    (686,750)            --
Stock issued for settlement                      --     --     16,268       16         --       --      81,322             --
Stock issued for services                        --     --    309,000      309    162,778      163   1,664,518             --
Stock issued for compensation                    --     --    587,098      587         --       --   1,558,448             --
Stock issued for loan fee                        --     --         --       --         --       --   3,239,521             --
Interest on promissory note
   subscription receivable                       --     --         --       --         --       --          --             --
Cancellation of subscription                     --     --   (213,375)    (213)        --       --  (2,446,609)            --
Stock issued for acquisition                     --     --    169,904      170         --       --     407,599             --
Issuance of shares  previously issuable          --     --    207,158      207   (207,158)    (207)         --             --
Stock issued for debt                            --     --     61,250       61         --       --     146,940             --
Amortization of deferred fees                    --     --         --       --         --       --          --             --
Laurus Debt Discount                             --     --         --       --         --       --   2,114,113             --
Laurus Beneficial Conversion                     --     --         --       --         --       --     597,251             --
Dividends - Preferred Stock                      --     --         --       --         --       --          --       (533,922)
Net Loss, 2004                                   --     --         --       --         --       --          --     (9,242,734)
                                            ----------------------------------------------------------------------------------
Balance, December 31, 2004                  200,043  $ 200  2,797,625  $ 2,798    180,850    $ 181 $ 29,198,726$  (26,645,325)
                                            ==================================================================================

[RESTUB]

<CAPTION>
                                                                               SUBSCRIPTION
                                               DEFERRED   DEFERRED    DEFERRED PROMISSORY NOTE
                                              CONSULTING COMPENSATION   FEES     RECEIVABLE     TOTAL
                                            ----------------------------------------------------------
<S>                                           <C>                               <C>           <C>
Balance, December 31, 2002                   $(248,863)        --          --  $(2,306,092)   $ (264,164)

Stock issued for cash                               --         --          --           --       329,100
Stock issued as settlement                          --         --          --           --     1,195,000
Stock issued for services                     (281,842)   (37,500)         --           --     1,328,847
Stock issued for loans and loan
   guarantee fees                                   --         --    (375,000)          --       325,500
Cancellation of subscription                        --         --          --       44,000            --
Cashless exercise of warrants                       --         --          --           --            --
Shares issued for debt                              --         --          --           --       455,956
Issuance of shares  previously issuable             --         --          --           --            --
Amortization of deferred fees                  454,955     37,500          --           --       492,455
Offering costs                                      --         --          --           --       (61,377)
Contributed accrued compensation                    --         --          --           --       252,621
Stock issued for acquisition                        --         --          --           --     1,243,000
Interest on prommisory note
   subscription receivable                          --         --          --      (170,700)    (170,700)
Net Loss, 2003                                      --         --          --            --   (6,436,607)
                                            ------------------------------------------------------------
Balance, December 31, 2003                     (75,750)        --    (375,000)   (2,432,792)  (1,310,369)

Common Stock issued for cash                        --         --          --            --    1,922,617
Preferred Stock issued for cash                     --         --          --            --    2,160,000
Offering Costs                                      --         --          --            --     (686,750)
Stock issued for settlement                         --         --          --            --       81,338
Stock issued for services                   (1,083,701)        --          --            --      581,289
Stock issued for compensation                       --    (34,500)         --            --    1,524,535
Stock issued for loan fee                           --         --  (3,239,521)           --           --
Interest on promissory note
   subscription receivable                          --         --          --       (14,030)     (14,030)
Cancellation of subscription                        --         --          --     2,446,822           --
Stock issued for acquisition                                                                     407,769
Issuance of shares  previously issuable             --         --          --            --           --
Stock issued for debt                               --         --          --            --      147,001
Amortization of deferred fees                  531,257     34,500     928,497            --    1,494,254
Laurus Debt Discount                                --         --          --            --    2,114,113
Laurus Beneficial Conversion                        --         --          --            --      597,251
Dividends - Preferred Stock                         --         --          --            --     (533,922)
Net Loss, 2004                                      --         --          --            --   (9,242,734)
                                            -------------------------------------------------------------
Balance, December 31, 2004                  $ (628,194)        -- $(2,686,024)          --    $ (757,638)
                                            =============================================================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-6

<PAGE>

                 XSTREAM BEVERAGE NETWORK INC. and SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                        2004           2003
                                                                     ----------     ----------
<S>                                                                 <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss                                                            $(9,242,734)   $(6,436,607)

Adjustments to reconcile net cash and operations:
-------------------------------------------------
Bad debt                                                                 91,488         39,266
Depreciation                                                             43,537          8,067
Amortization of deferred consulting                                   1,332,383             --
Amortization of debt discount and fees to interest expense            1,490,654             --
Amortization of Intangibles                                             227,112         44,500
Amortization of redemption premium on Series B                          124,200             --
Contributed services                                                         --        252,621
Loss on conversion of debt                                               23,921         85,050
Stock based settlement gain/loss                                         (3,000)            --
Stock based loan fee                                                    375,000        325,500
Other interest                                                            1,101             --
Interest income on subscription receivable                              (14,030)      (170,700)
Stock based services                                                  1,709,904      1,821,303
Stock based settlement                                                       --      1,195,000
Goodwill impairment                                                          --      1,720,274

Changes in operating assets and liabilities:
--------------------------------------------
Accounts receivable                                                     (79,042)       (12,022)
Inventory                                                               206,139        (51,733)
Other current  assets                                                   (42,299)        20,658
Accounts payable                                                       (113,653)       254,716
Accrued expenses                                                        145,816        256,578
Dividends payable                                                        54,910             --
Other current and non-current liabilities                                 3,254         20,137
                                                                     -------------------------

Net cash used in operating activities                                (3,665,339)      (627,392)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment                                   (82,795)       (25,845)
Decrease  in other non-current assets                                    26,610             --
Payment for purchase of Ayer Beverage, net of cash acquired            (100,000)            --
Payment for purchase of Maui Juice Brand, net of cash acquired          (25,000)            --
Payment for purchase of Pacific Rim, net of cash acquired               (15,500)            --
Payment for purchase of Master Distributors, net of cash acquired      (519,003)            --
Cash acquired in recaptilization                                             --       (230,599)
Prepaid acquisition costs                                                    --        (30,000)
                                                                     -------------------------
Net cash used in investing activities                                  (715,688)      (286,444)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party loans                                        32,500        224,640
Repayments of related party loans                                      (206,960)            --
Repayments of non-related party loans                                (1,500,131)        (9,801)
Loan proceeds from non-related party                                  3,145,084        408,840
Restricted cash portion of loan proceeds                             (2,451,154)            --
Disbursement of restricted cash                                       1,998,383             --
Cash overdraft                                                               --         27,900
Proceeds from sales of common stock                                   1,922,617        329,100
Proceeds from sales of preferred stock                                2,160,000             --
Offering costs                                                         (686,750)       (61,377)
                                                                     -------------------------

Net cash provided by financing activities                             4,413,589        919,302
Net increase in cash                                                     32,562          5,466
Cash at beginning of year                                                51,764         46,298
                                                                    --------------------------
Cash at end of year                                                 $    84,326    $    51,764
                                                                    ==========================

Supplemental Disclosure of Cash Flow Information:


Cash paid during the period for:
     Interest paid                                                  $   117,602    $        --
     Taxes paid                                                     $        --    $        --


Supplemental Disclosure of Non-cash Investing and
Financing Activities:

Acquisition of customer list (note payable and stock)               $        --    $        --
Common stock issued for acquisitions                                    407,769      1,237,500
Common stock issued for convertible debenture and interest                   --         72,450
Common stock issued for debt conversion                                 147,001        298,454
Common stock issued for debt settlement                                  81,338             --
Cancellation of common stock for subscription                         2,446,822             --
       receivable
Common stock issued for deferred services                             1,297,884             --
Common stock issued for deferred compensation                            34,500             --
Dividends- preferred stock                                              533,922             --
Equity related debt discount                                          2,114,113             --
                                                                     -------------------------
                                                                    $ 7,063,349    $ 1,608,404
                                                                    ==========================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-7

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

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

         (A) ORGANIZATION AND NATURE OF BUSINESS
         ---------------------------------------

         Xstream Beverage Network, Inc. (the "Company" or "Xstream") was
         incorporated in Nevada on November 13, 1989. On September 14, 2001, the
         Company acquired Power Beverage Corp. in a transaction accounted for as
         a recapitalization of Power Beverage Corp. ("Power"). Power was
         incorporated in Florida on September 9, 2001. The Company was formed to
         acquire or merge with and operate specialty beverage companies.

         XStream has completed five acquisitions according to it's business
         strategy as follows, Beverage Network of South Florida, Inc. ("BNSF")on
         April 9, 2003; Beverage Network of Connecticut, Inc. ("BNCT") on May 1,
         2003; Beverage Network of Hawaii, Inc. ("BNHI") on March 1, 2004;
         Beverage Network of Massachusetts, Inc. ("BNMA") on March 15, 2004;
         Beverage Network of Maryland, Inc. ("BNMD")on July 1, 2004. These
         acquisitions were accounted for under the purchase method. (See Note 3
         for details.) XStream is now an operating brand development and
         distribution company.

         (B) 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.

         (C) 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
         and impairment allowances. Such estimates are reviewed on an on-going
         basis and actual results could differ from those estimates.

         (D) 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 for.

         (E) 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
         of 5 years. 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.

         (F) 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 will
         also be subject to periodic impairment tests. Acquired trademarks are
         considered to have an infinite life but

                                       F-8

<PAGE>
                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         will be 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
         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.

         (G) 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.

         (H) STOCK-BASED COMPENSATION
         ----------------------------

         The Company accounts for stock options issued to employees in
         accordance with the provisions of Accounting Principles Board ("APB")
         Opinion No. 25, "Accounting for Stock Issued to Employees," and related
         interpretations. As such, compensation cost is measured on the date of
         grant as the excess of the current market price of the underlying stock
         over the exercise price. Such comp- ensation amounts are amortized over
         the respective vesting periods of the option grant. The Company adopted
         the disclosure provisions of SFAS No. 123 "Accounting for Stock-Based
         Compensation," and SFAS No. 148 "Accounting for Stock Based
         Compensation - Transition and Disclosure," which permits entities to
         provide pro forma net income (loss) and pro forma earnings (loss) per
         share disclosures for employee stock option grants as if the
         fair-valued based method defined in SFAS No. 123 had been applied.

         The Company accounts for stock options or warrants issued to
         non-employees for goods or services in accordance with the fair value
         method of SFAS 123. Under this method, the Company records an expense
         equal to the fair value of the options or warrants issued. The fair
         value is computed using an options pricing model. In accordance with
         SFAS 123, for options issued to employees, the Company applies APB
         Opinion No. 25 and related interpretations in accounting for its plan
         and options granted to employees outside of the plan. Had compensation
         cost for options granted under the employment agreements been
         determined on the fair value at the grant dates for awards under that
         plan, consistent with Statement of Accounting Standards No 123.

         The fair market value of the stock options granted to the employees in
         2002 was etimated on the date of grant using the Black-Scholes Model in
         accordance with Statement No. 123 using the following assumptions:
         expected dividend yield 0%, risk-free interest rate of #.02%,
         volatility 144% and expected term of two years and in 2003 with
         expected dividend yield 0%, risk-free interest rate of 1%, volatility
         200% and expected term of three years.

<TABLE>
<CAPTION>
                                                                       2004           2003
                                                                   -----------    -----------
<S>                                                  <C>           <C>            <C>
         Net loss                                    As reported   $(9,242,734)   $(6,436,607)
         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     $(9,242,734)   $(6,436,607)
         Net loss per share - basic and diluted      As reported   $     (4.40)   $     (8.68)
                                                     Pro forma     $     (4.40)   $     (8.68)
</TABLE>

         (J REVENUE RECOGNITION
         ----------------------

         The Company follows the criteria of the United States 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

                                       F-9

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         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.

         (K) SHIPPING AND HANDLING COSTS
         -------------------------------

         The Company follows the guidance of EITF 00-10, "Accounting for
         Shipping and Handling Fee and Costs". The Company's shipping costs of
         $734,471 and $50,952 for the periods ending December 31, 2004 and 2003,
         respectively, and are included in warehouse and delivery expenses.

         (L) 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 in income in the
         period, which includes the enactment date.

         (M) 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, and loans approximate
         fair value due to the relatively short period to maturity for these
         instruments.

         (N) REVERSE STOCK SPLIT
         -----------------------

         On July 19, 2004, the Company affected a one-for-twenty reverse stock
         split. All references in the consolidated financial statements to
         shares, share prices and per share amounts have been adjusted
         retroactively for the one-for-twenty reverse stock split.

         (O) RESTRICTED CASH
         -------------------

         In conjunction with the sale in May 2004 to Laurus Master Fund, Ltd. of
         a $3,000,000 principal amount secured convertible term note, the
         Company we agreed to initially place $2,855,000 of the proceeds of the
         secured convertible term note into a restrictive account controlled by
         Laurus Master Fund, Ltd. The funds held in the restricted account are
         controlled by Laurus Master Fund, Ltd. until the Company consummates
         one or more acquisitions which will be subject to the approval of
         Laurus Master Fund, Ltd. or until all of the outstanding principal
         amount of the secured convertible term note is converted into shares of
         the Company's common stock. Of this amount, approximately $2,402,229
         has been released for working capital purposes and to close
         acquisitions.

         (P) GOING CONCERN
         -----------------

         As reflected in the accompanying consolidated financial statements, the
         Company, has a net loss in 2004 of $9,242,734, cash used in operations
         in 2004 of $3,665,339 and an accumulated deficit of $26,645,325 at
         December 31, 2004, stockholders' deficiency of $757,638 and a working
         capital deficit of $2,345,022 at December 31, 2004. 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

                                       F-10

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         revenues. The Company continues to raise capital and is continuing its
         acquisition plan. The Company believes that these actions provide it
         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.

         (Q) RECENT ACCOUNTING PRONOUNCEMENTS
         ------------------------------------

         In December 2004, the FASB issued SFAS 123 (revised 2004) "Share-Based
         Payment". This Statement requires that the cost resulting from all
         share-based transactions be recorded in the financial statements. The
         Statement establishes fair value as the measurement objective in
         accounting for share-based payment arrangements and requires all
         entities to apply a fair-value-based measurement in accounting for
         share- based payment transactions with employees. The Statement also
         establishes fair value as the measurement objective for transactions in
         which an entity acquires goods or services from non-employees in share-
         based payment transactions. The Statement replaces SFAS 123 "Accounting
         for Stock-Based Compensation" and supersedes APB Opinion No. 25
         "Accounting for Stock Issued to Employees". The provisions of this
         Statement will be effective for the Company beginning with its fiscal
         year ending 2005. The Company is currently evaluating the impact this
         new Standard will have on its financial position, results of operations
         or cash flows.

         (R) RECLASSIFICATION
         --------------------

         Certain amounts in the 2003 consolidated financial statements have been
         reclassified to conform to the 2004 presentation.

NOTE 2 - NET LOSS PER COMMON SHARE:
-----------------------------------

         Basic net income (loss) per common share (Basic EPS) excludes dilution
         and is computed by dividing net income (loss) available to common
         stockholder by the weighted-average number of common shares out-
         standing for the period. Diluted net income per share (Diluted EPS)
         reflects the potential dilution that could occur if stock options or
         other contracts to issue common stock were exercised or converted into
         common stock or resulted in the issuance of common stock that then
         shared in the earnings of XStream. For the twelve months ended December
         31, 2004 and 2003, the diluted loss per share is the same as basic loss
         per shares since the effect of all common stock equivalents was
         antidilutive due to the net loss. The total outstanding warrants which
         have been excluded from the calculation of loss per share, were
         4,030,904 and 17,125 at December 31, 2004 and 2003, respectively. In
         addition as of December 31, 2004 and 2003, the company has convertible
         preferred stock that could convert into 1,440,000 and -0- shares of
         common stock, respectively. The Company also has convertible notes that
         could convert into 846,247 and -0- shares of common stock at December
         31, 2004 and 2003, respectively. (See note 3- Acquisitions and note
         14-Laurus transaction) The potential dilutive effects of the
         convertible preferredstock and convertible notes have been excluded
         from the calculation of net loss per common share.

NOTE 3 - ACQUISITIONS:
----------------------

         On April 9, 2003 XStream, through Total Beverage Network, Inc.("BNSF"),
         a newly acquired subsidiary, purchased all of the assets and selected
         liabilities of Universal Florida Beverage Distributors, Inc. (UFBD).
         The results of BNSF operations have been included in the consolidated
         financial statements since acquisition. BNSF is a beverage distributor
         in the South Florida market, servicing independent retailers.

         The purchase price of UFBD was $275,000, based on 27,500 shares of
         XStream common stock valued at $10.00 per share. Simultaneously with
         the foregoing acquisition, XStream acquired 100% of the outstanding
         shares of Total Beverage Network, Inc. in a stock exchange transaction.

         The purchase price of BNSF was $500,000, based on 50,000 shares of
         XStream common stock valued at $10.00 per share. The value of the
         common shares was consistent with the offering price used in XStream's
         PPM, in circulation at the time.

         In consideration for the transfer of the BNSF shares, XStream issued
         50,000 shares of its restricted common stock to the shareholders of
         BNSF. BNSF shareholders, subsequent to its acquisition by XStream,
         entered into 36-month employment agreements with XStream to become its
         CEO and President. BNSF will

                                      F-11

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         continue the operations of UFBD as a wholly owned subsidiary of XStream
         and has entered into employment agreements with existing key
         management. The General Manager's employment agreement included the
         issuance of 6,250 shares of XStream's restricted common stock upon
         signing the 24-month employment agreement. The value of these shares,
         $62,500 based on the common stock valued at $10.00, is considered an
         additional part of the purchase price since the General Manager was the
         previous owner and the shares are fully vested and non-forfeitable.
         Thus, the purchase price was $337,500. As part of employment agreements
         with two other former UFBD officers, an additional 3,750 shares of
         XStream restricted stock was issued and held in escrow pending
         completion of one year vesting requirements. These shares are recorded
         as unearned compensation at $10.00 per share and amortized over the one
         year vesting period. In October 2003, the management of Total Beverage
         Network, Inc. d/b/a Beverage Network of South Florida (BNSF) terminated
         their employment. The termination included a cash settlement of $11,053
         of which $4,553 was due as of December 31, 2003. The agreement also
         included 250 shares of common stock valued at $10.00 per share, which
         was recognized as compensation. The remaining balance of $7,042
         considered unearned compensation was recognized as an expense as of
         December 31, 2003.

         The following table summarizes the combined estimated fair values of
         the assets acquired and liabilities assumed at the date of the
         simultaneous acquisitions of BNSF and UFBD.

                                                          April 9, 2003
                                                          -------------

         Purchase price of UFBF                            $   337,500
         Purchase price of BNSF                                500,000
                                                           -----------
         Aggregated purchase price                         $   837,500
                                                           ===========
         Current assets                                    $    68,178
         Fixed assets                                           13,145
         Customer list                                         200,000
         Goodwill                                              734,324
                                                           -----------
         Total assets acquired                               1,015,647
         Current liabilities assumed                          (178,147)
                                                           -----------
         Net assets acquired                               $   837,500
                                                           ===========

         Goodwill recognized is expected to be deducted over a 15 year period
         for tax purposes.

         On May 1 2003, XStream closed on its purchase of all the assets and
         selected liabilities of Finish Line Beverage Distributors, Inc. (FLBD)
         effective May 1, 2003. The acquisition was transacted through Total
         Beverage Network of Connecticut, Inc., a newly formed wholly owned
         subsidiary of XStream. The results of FLBD operations have been
         included in the consolidated financial statements since May 2, 2003.
         FLBD is a beverage distributor in the New England market, servicing
         independent retailers.

         The aggregate purchase price of FLBD was $702,593, based on $152,593 in
         cash and 40,000 shares of XStream common stock valued at $10.00 per
         share, due at closing plus an additional $150,000 due in two
         installments. The value of the common shares was consistent with the
         offering price used in XStream's PPM, in circulation at the time.

         The following table summarizes the estimated fair values of the assets
         acquired and liabilities assumed at the date of acquisition.

                                                          May 1, 2003
                                                          -----------

         Aggregated purchase price                        $   702,593
                                                          ===========
         Current assets                                   $   212,729
         Fixed assets                                          23,453
         Customer list                                        400,000
         Goodwill                                             412,261
                                                          -----------
         Total assets acquired                              1,048,443
                                                          -----------
         Current liabilities assumed                          (274,547)
         Long term debt                                        (71,303)
                                                           -----------
         Total liabilities assumed                            (345,850)
                                                           -----------
         Net assets acquired                               $   702,593
                                                           ===========

                                      F-12

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         Goodwill recognized is expected to be deducted over a 15 year period
         for tax purposes.

         The table below summarizes the unaudited pro forma information of the
         results of operations for the years ended December 31, 2003 and 2002 as
         though the business combinations had been completed as of the beginning
         of the period being reported on:

                                            2003          2002
                                        -----------   -----------
         Sales                          $ 2,862,936   $ 2,665,016
         Cost of Goods                    2,217,948     2,264,257
                                        -----------   -----------
         Gross Profit                       644,988       400,759
         Operating and Other Expenses     7,210,365     6,273,317
                                        -----------   -----------
         Net Loss                       $(6,565,377)  $(5,872,558)
                                        ===========   ===========
         Net Loss per Share             $     (0.44)  $     (0.85)
                                        ===========   ===========

         Squeeze Transaction - On January 14th, 2004, a wholly owned subsidiary,
         XStream Brands, Inc., a Florida Corporation, entered into an Assignment
         of Trademark with Squeeze Beverage, Inc., for the assignment of all of
         Xstream Brand's rights and interests in the Mark "SQUEEZE" for
         carbonated flavored soft drinks and seltzer water, including all
         variations thereof such as spelling, formatives, phonetic variations
         and stylized designs of the same and all goodwill associated therewith.
         The Company delivered 20,000 shares of its restricted common stock to
         Squeeze Beverages, Inc. in exchange for the assignment of the
         trademark. Based upon the contemporaneous private placement offering
         price of $2.40 per share the Company valued the acquisition at $48,000.

         Maui Juice Transaction - On March 1, 2004, a wholly owned subsidiary,
         XStream Brands, Inc., a Florida Corporation, ("XStream Brands"),
         entered into an Assignment of Trademark with The Maui Juice Company,
         Inc. ("Maui"), for the assignment of all of Maui's rights and interests
         in the Mark "Maui Juice Company", including all variations thereof such
         as spelling, formatives, phonetic variations and stylized designs of
         the same and all goodwill associated therewith. The purchase price for
         the assignment of the Mark was $255,017 in cash with $25,000 paid at
         the acquisition date and $230,017 to be paid under the terms of the
         agreement.

         Pacific Rim Transaction - On March 1, 2004, our wholly owned
         subsidiary, Beverage Network of Hawaii, Inc. a Florida corporation
         ("BNHI"), acquired substantially all of the assets and assumed certain
         liabilities of Pacific Rim Natural Juice Company, Inc., a Hawaii
         corporation ("Pacific Rim"). This acquisition was consummated pursuant
         to an Asset Purchase Agreement (the "Purchase Agreement") dated March
         1, 2004 by and among BNHI (the "Acquirer") and Pacific Rim. Under the
         terms of the Purchase Agreement, the Acquirer purchased substantially
         all of the assets of Pacific Rim and assumed certain Liabilities for
         12,500 shares of XStream's restricted common stock, which, based upon
         the contemporaneous private placement offering price of $2.40 per share
         had a value of $30,000. In addition, prior to the closing, the Company
         advanced Pacific Rim, $15,500 resulting in a total purchase price of
         $45,500.

         Simultaneously with the Asset Purchase agreement, Beverage Network of
         Hawaii, Inc. entered in to a one- year consulting agreement (with the
         option for annual renewals as agreed upon by both parties) with the
         owner of Pacific Rim. The consulting fee (to be paid quarterly) is a
         calculation based on 1% of adjusted gross profit with a minimum
         guaranteed payment of $1,250 per quarter.

         The following table summarizes the estimated fair values of the assets
         acquired and liabilities assumed at the date of acquisition of Pacific
         Rim. Subject to BNHI's performances, the allocation of purchases price
         is subject to refinement.

                                                        March 1, 2004
                                                        -------------

         Aggregate purchase price                          $ 45,500
                                                           ========
         Current assets                                    $ 10,911
         Fixed assets                                        17,650
         Customer list                                       38,350
         Goodwill                                            44,695
                                                           --------
                            Total assets acquired           111,606
                                                           --------
         Current liabilities assumed                        (66,106)
                                                           --------
                            Net assets acquired            $ 45,500
                                                           ========

         Goodwill recognized is expected to be deducted over a 15 year period
         for tax purposes.

                                      F-13
<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         The table below summarizes the pro forma information of the results of
         operations as though the business combination had been completed as of
         January 1, 2003:

                                              Twelve Months Ended
                                                  December 31,
                                         ---------------------------------
                                             2004                 2003
                                         -----------           -----------

         Sales                           $   223,502           $   200,654
         Cost of Goods                       130,587               115,372
                                         -----------           -----------

         Gross Profit                         92,915                85,252
         Operating Expenses                  395,639               312,058
                                         -----------           -----------

         Operating Loss                     (302,724)             (226,776)

         Other Income                         45,462                    --
                                         -----------           -----------

         Net Loss                        $ (257,262)          $   (226,776)
                                         ===========           ===========

         Net Loss per Share              $     (.12)           $      (.31)
                                         ===========           ===========

         Ayer Beverage Transaction - On March 15, 2004, our wholly owned
         subsidiary, Beverage Network of Massachusetts, Inc., a Florida
         Corporation ("BNMA") acquired substantially all of the assets and
         assumed certain liabilities of Ayer Beverages, Inc., a Massachusetts
         corporation ("Ayer Beverage"). This acquisition was consummated
         pursuant to an Asset Purchase agreement (the "Purchase Agreement")
         dated March 15, 2004, by and among BNMA (the "Acquirer") and Ayer
         Beverage. Under the terms of the purchase Agreement, the Acquirer
         purchased substantially all of the assets of Ayer Beverage and assumed
         certain of its liabilities for $100,000 cash, $100,000 in notes payable
         and 20,000 shares of XStream's restricted common stock which, based
         upon the contemporaneous private placement offering price of $2.40 per
         share had a value of $48,000 resulting in a total purchase price of
         $248,000. The terms of the non- interest bearing note payable are four
         quarterly payments of $25,000 each, not earlier than July 15, 2004.
         BNMA has also entered into an employment agreement with existing key
         management of Ayer Beverage. The employment agreement is for a period
         of thirty-six months, commencing March 15, 2004, at a base salary of
         $80,000 per year. The employee is also entitled to receive an issue of
         750 common shares of XStream Beverage Network, Inc. ("XSBG") restricted
         stock upon completion of each of the first and second anniversary of
         the agreement and 1,500 shares upon completion of the third anniversary
         of the agreement. The agreement also stipulates for an employee bonus
         to be calculated on the quarterly gross profit (from 2% - 3%) based
         upon performance as mandated by management's profit targets.

         The following table summarizes the estimated fair values of the assets
         acquired and liabilities assumed at the date of acquisition of Ayer
         Beverages subject to BNMA's performance, the allocation of purchases
         price is subject to refinement.

                                                      March 15, 2004
                                                      --------------

         Aggregate purchase price                        $248,000
                                                         ========

         Current assets                                  $ 39,041
         Fixed assets                                      44,450
         Customer list                                    147,773
         Goodwill                                         171,620
                                                         --------

                            Total assets acquired         402,884
                                                         --------
         Current liabilities assumed                     (154,884)
                                                         --------
                                   Net assets acquired   $248,000
                                                         ========

         Goodwill recognized is expected to be deducted over a 15 year period
         for tax purposes.

                                      F-14

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004


         The table below summarizes the pro forma information of the results of
         operations as though the business combinations had been completed as of
         January 1, 2003:

                                               Twelve Months Ended
                                                  December 31,
                                         ---------------------------------
                                            2004                  2003
                                         -----------           -----------
         Sales                           $ 1,637,847           $ 1,088,284
         Cost of Goods                     1,455,501               797,798
                                         -----------           -----------
         Gross Profit                        182,346               290,486
         Operating Expenses                  979,520               256,799
                                         -----------           -----------

         Operating Income,(Loss)            (797,174)               33,687

         Other Income,(Expense)                2,305                (4,526)
                                         -----------           -----------
         Net Income,(Loss)               $  (794,869)         $     29,161
                                         ===========           ===========

         Net Income,(Loss)per Share      $      (.36)          $       .04
                                         ===========           ===========

         Master Distributors Transaction - On July 9, 2004, the Company's wholly
         owned subsidiary, Beverage Network of Maryland, Inc., (a Florida
         Corporation) announced it has completed, effective July 1, 2004, the
         acquisition of substantially all of the assets and certain liabilities
         of Master Distributors Inc. (d/b/a Atlantic Beverage Company.), a
         Mid-Atlantic distributor of non-alcoholic beverages serving Washington,
         D.C., Virginia and Maryland. Atlantic Beverage Company, which operates
         under the corporate entity of Master Distributors, Inc., has a leased
         warehouse in Jessup, Maryland just outside of Baltimore. The
         consideration and terms of the acquisition were 96,154 shares of the
         Company's restricted common stock (valued at $2.40 for accounting
         purposes), $570,000 in cash, $554,648 in cash due within 60 days of the
         closing, a 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 commencing
         July 15, 2004 totaling $3,605,417. The holder of the convertible
         promissory note, 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 addition, Xstream issued
         21,250 common stock shares to various non-owner employees as an
         incentive to retain them. Beverage Network of Maryland, Inc, has also
         entered into an employment agreement with existing key management of
         Master Distributors, Inc. The initial term of the agreement is for a
         period of six months, commencing July 1, 2004, at a monthly salary of
         $18,750. The final term of the employment agreement, commencing
         December 31, 2004, for a period of eight months, provides for a
         per-diem rate of $1,000 for each day that XStream may request the
         services of the employee.

         The following table summarizes the estimated fair values of the assets
         acquired and liabilities assumed at the date of acquisition of Master
         Distributors, Inc. Subject to BNMD's performance, the allocation of
         purchase price is subject to refinement.

                                                 July 1, 2004
                                                 ------------
         Accounts Receivable                      $  554,648
         Inventory                                   841,519
         Fixed assets                                140,800
         Other assets                                 21,371
         Customer list                             1,973,240
         Goodwill                                  1,737,621
         Current liabilities                        (951,183)
         Loans and notes                            (700,249)
         Other liabilities                           (12,350)
                                                  ----------
             TOTAL PURCHASE PRICE                 $3,605,417
                                                  ==========

         Goodwill recognized is expected to be deducted over a 15 year period
         for tax purposes.

                                      F-15

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         The table below summarizes the pro forma information of the results of
         operations as though the business combinations had been completed as of
         January 1, 2003:

                                              Twelve Months Ended
                                                  December 31,
                                         ---------------------------------
                                            2004                  2003
                                         -----------           -----------
         Sales                           $ 8,223,130           $ 6,931,883
         Cost of Goods                     5,772,076             4,958,019
                                         -----------           -----------

         Gross Profit                      2,451,054             1,973,864
         Operating Expenses                2,767,818             1,200,140
                                         -----------           -----------
         Operating Income,(Loss)            (316,764)              773,724

         Other Income (Expense)               (2,797)             (122,653)
                                         -----------           -----------
         Net Income,(Loss)               $  (319,561)           $  651,071
                                         ===========           ===========

         Net Income,(Loss) per Share     $      (.14)           $      .88
                                         ===========           ===========

NOTE 4 - 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, 2004
                                                       -----------------
         Resalable products                               $   760,484
         Proprietary brand raw materials                       64,938
                                                           ----------
         Total:                                            $  825,422
                                                           ==========

NOTE 5 - OTHER CURRENT ASSETS:
-----------------------------

         The Other Current Assets balance of $50,304, as of December 31, 2004
         comprised primarily of prepaid expenses.

NOTE 6 - FIXED ASSETS:
----------------------

         Property and equipment, net of accumulated depreciation was $309,177 at
         December 31, 2004. Depreciation expense for the years ended December
         31, 2004, and December 31, 2003 was $43,537 and $8,067, respectively.

                                      F-16


<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         Property and equipment at December 31, 2004 is as follows:

                                                 December 31, 2004
                                                 -----------------

         Delivery Trucks                           $   110,198
         Warehouse Equipment                            35,433
         Coolers                                        72,777
         Office Equipment                               93,416
         Furniture & Fixtures                           14,945
         Leasehold Improvements                         34,385
                                                   ------------
                                                       361,154
         Less: Accumulated depreciation                 (51,977)
                                                   ------------
         Net                                       $    309,177
                                                   ============

NOTE 7 - TRADEMARKS:
-------------------

         Trademarks consist of the following:

                                                 December 31, 2004
                                                 -----------------
         Maui Juice                                 $   48,000
         Squeeze Soda                                  255,017
                                                    ----------
            Total:                                  $  303,017
                                                    ==========

         In March 2004 and January 2004, respectively, the Company acquired the
         trademarks Maui Juice Company and Squeeze. Management believes that
         these trademarks have indefinite life cycles based on the market life
         of the products. In accordance with SFAS No. 142, the Company has
         determined that the trademarks acquired for Maui Juice Company and
         Squeeze have indefinite lives, as supported by the Company's ability
         and intent to renew the trademarks as legally required and management's
         belief that these products have indefinite life cycles based on the
         market.

NOTE 8 - CUSTOMER LIST:
----------------------

         The table below summarizes the balance of customer lists as of December
         31, 2004:

                                                        December 31, 2004
                                                        ------------------
         Beverage Network of Hawaii, Inc.                  $   38,350
         Beverage Network of Massachusetts, Inc.              147,773
         Beverage Network of Maryland, Inc.                 1,973,240
                                                           ----------
                                                            2,159,363

         Accumulated Amortization:                           (227,112)
                                                           ----------
                  Total:                                   $1,932,251
                                                           ==========

         As a result of the acquisitions of the assets of Ayer Beverages,
         Pacific Rim Natural Juice Company and Master Distributors, Inc., the
         Company recorded an identifiable tangible asset classified as customer
         lists. The customer lists are being amortized over a five-year period.
         Management does not believe that there have been any events or
         circumstances that have resulted in the need for a revision to the
         remaining period of amortization as defined in of SFAS No. 142.
         Customer Lists are being amortized over five years. Due to an annual
         review of impairment of customer lists for BNSF and BNCT, management
         decided to record a 100% write down (the entire, remaining unamortized
         balance) of the acquired customer lists as an impairment loss.

                                      F-17

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         The impairment loss (allocated to customer lists) for the year ended
         December 31, 2003 was $573,001; amortization expense (allocated to
         customer lists)for the twelve months ending December 31, 2004 and
         December 31, 2003 is $119,144 and $44,500, respectively. (See Note 3 -
         Acquisitions)

NOTE 9 - GOODWILL:
-----------------

         Acquired goodwill is considered to have an indefinite life pursuant to
         SFAS 142 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. Due to an
         annual review of impairment of acquired goodwill for BNSF and BNCT,
         management decided to record a 100% write down (the entire, remaining
         unamortized balance) of the acquired goodwill as of December 31, 2003.
         Management believes this more accurately reflects the current goodwill
         valuation. The impairment loss (allocated to goodwill) recorded for the
         year ended December 31, 2003 of BNSF and BNCT was $1,147,273.

         The table below summarizes the balance of goodwill as of December 31,
         2004:

                                                     December 31, 2004
                                                     ------------------
         Beverage Network of Hawaii, Inc.              $    44,695
         Beverage Network of Massachusetts, Inc.           171,620
         Beverage Network of Maryland, Inc.              1,737,621
                                                       -----------
                  Total:                               $ 1,953,936
                                                       ===========

         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.
         Management believes that there has been no significant adverse change
         in the businesses of BNMA, BNHI or BNMD. Accordingly, management has
         deemed it not necessary to perform an impairment evaluation for the
         year ended December 31, 2004 since all entities have been operating for
         less than one year.

NOTE 10 - OTHER ASSETS:
----------------------

         The balance of other current assets in the amount of $34,396 as of
         December 31, 2004 was comprised of rental security deposits.

NOTE 11 - ACCRUED EXPENSE-SALARIES, ACCRUED EXPENSE-OTHER:
---------------------------------------------------------

         Accrued compensation pursuant to three employment agreements was
         $252,621 at December 31, 2002. On March 31, 2003, the Board, which
         consists of the three officers subject to such employment agreements,
         approved the officers' forgiveness of their compensation accrued
         through December 31, 2002. The Company recognized contributed capital
         of $252,621 in 2003 since this was a related party transaction.

         On June 1, 2003, the board accepted the resignations of the two prior
         officers. In exchange for cancellation of outstanding options and
         forgiveness of $106,250 of accrued salaries to date, the resigning
         officers received restricted stock totaling 1,050,000 shares and a
         one-year consulting agreement for $40,000 each. Based on the
         contemporaneous sale price of $0.50 per share, the Company recorded a
         settlement loss of $418,750 in 2003.

         Effective April 9, 2003, concurrent with closing its first acquisition,
         XStream entered into three-year employment agreements for President and
         CEO calling for annual base compensation of $85,000 each. These
         employment agreements also granted 100,000 options each at an exercise
         price of $28.00 per share, vesting over the term of the agreement.
         Based on the contemporaneous offering price of $10.00 per common share
         there was no compensation expense computed under the intrinsic value
         method of APB 25. On June 1, 2003, concurrent with the resignation of
         the previous officers, the options were cancelled under amended
         employment agreements with each officer.

                                      F-18

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004


         Accrued compensation, reflecting new hires and amounts forgiven totaled
         $423,146 in the total accrued expense balance of $508,775 at December
         31, 2003. The accrued consulting expense due to the former officers
         based on one-year consulting agreements for $40,000 totaled $50,508 in
         the total accrued expense balance of $508,775 at December 31, 2003.

         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
         reflecting officers, new hires, and acquisitions, for the period ending
         December 31, 2004 was as follows:

         Accrued Expense-Salaries: Officers/Directors      $  321,271
         Accrued Expense-Salaries: Other                      232,879
         Accrued Expense-Liquidated Damages                   124,200
         Accrued Expense-Other                                 19,100
                                                           -----------

                                Total Accrued Expenses:    $  697,450
                                                           ==========

         The company has accrued salaries of $321,271, in aggregate, due to the
         Chairman, President and Vice President. The remaining accrued salaries
         balance of $232,879 consists of $36,908 due to a former employee and
         $195,971 of current payroll paid in January, 2005.

NOTE 12 - 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 (A)- Preferred Stock). The dividends payable as of December 31,
         2004, were $54,910.

NOTE 13 - 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.
         XStream's loans from XBI are undocumented, non-interest bearing, and
         due on demand. The balance due was $50,355 at December 31, 2004.

         In November of 2003, the Company obtained a $125,000 loan with a term
         of twelve months. The loan bears an annual interest rate of 10% to be
         accrued quarterly on the outstanding balance. The lender received
         25,000 restricted shares of XSBG common stock as a loan fee in
         consideration of the note. The Company recognized a loan fee expense of
         $250,000 based on the contemporaneous share sale price of $10.00. In
         May 2004, a note payable of $125,000 was converted into 52,083 common
         shares valued at the then contemporaneous private placement offering
         price of $2.40 per share, resulting in no gain or loss.

         During 2003, XStream's principal broker also advanced money to the
         Company as non-interest bearing demand notes with no specified term. An
         agreement was made on December 30, 2003 to convert the remaining
         balance of $298,454 to equity. The conversion resulted in the company
         issuing 28,130 shares, which were issuable as of December 31, 2003.
         The shares were valued at their fair value based on contemporaneous
         sales resulting in no gain or loss on the transaction.

         In November of 2003, the Company entered into a non interest bearing
         arrangement with a six month term whereby a third party provided
         $109,000 of substituted collateral to secure a commercial line of
         credit for Beverage Network of Connecticut, Inc. in return for a
         consideration of 25,050 restricted shares of XStream Beverage Group,
         Inc. common stock. The Company computed a guarantee fee of $250,500
         based on the $10.00 per share contemporaneous common stock sales price
         and is recognizing that fee over the six-month term with $83,500 charge
         to operations in 2003 included in loan and loan guarantee fees and
         $167,000 reflected in the deferred fees component of stockholders'
         equity at December 31, 2003.

         In January 2004, an agreement was made to convert a $15,000 third
         party, non-interest bearing demand note to equity with the common
         shares valued at the contemporaneous private placement offering price
         of $2.40 per share. The transaction resulted in the Company recognizing
         a gain on conversion of $3,000.

                                      F-19

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         In March 2004, a principal shareholder advanced $25,000 to the Company
         as a non-interest bearing demand note with no specified term.

         In October 2004 a shareholder advanced $137,000 to the Company as an
         interest bearing demand note at 6% per annum with no specified term.
         Loans payable at December 31, 2004 were as follows:

         Loans Payable:

         Bank Line of Credit 6% per annum(1)                     $   11,200
         Automotive equipment loan       (1)                            923
         March 2004, $22,692 Plus 8%interest per year,
          due June 2004 (loan in default) (1)                         21,807
         March 2004, non-interest bearing, due April, 2005 (1)        75,435
         July 2004, interest bearing demand note 6%
          per annum, (3)                                             418,702
                                                                 -----------
           Total Loans Payable - Other                               528,067

           Loans Payable, Related Party                              187,355
                                                                  ----------
           Total Loans Payable                                    $  715,422
                                                                  ==========

         (1) Resulted from the acquisition of Beverage Network of Massachusetts,
         Inc.("BNMA")
         (2) Resulted from the acquisition of Maui Juice trademark
         (3) Resulted from the acquisition of Beverage Network of Maryland, Inc.
         ("BNMD") (See details at Note 3 - Acquisitions).

NOTE 14 TERM LOAN PAYABLE
-------------------------

         Terms loan payable consists of bank term loan, 6% interest per annum,
         due November 17, 2007. The balance was paid with proceeds received from
         the Laurus Funds. (See Note 16- Long Term Notes Payable & Debt
         Discount)

NOTE 15 - CURRENT PORTION, LONG TERM DEBT
-----------------------------------------

         The current portion of long term debt as of December 31, 2004 was as
         follows (See note 16 below):

         July 2004, secured convertible Note 6% interest per annum    $ 387,203
         May 2004, secured convertible Note prime +2% interest
          per annum                                                     229,412
         March 2004, demand note 6% interest per annum, due
          April 2012                                                     36,331
                                                                      ----------
                                    Total:                            $ 652,946
                                                                      =========
NOTE 16 - LONG TERM NOTES PAYABLE & DEBT DISCOUNT:
--------------------------------------------------

         The following table reflects long-term notes at December 31, 2004:

         Interest bearing demand note 6% per annum, due
          April 2012 (Maui Trademark)                             $     182,430
         Secured 6% convertible note ("BNMD")                         1,941,839
         Senior secured convertible note ("Laurus")                   2,947,058
         Debt discount on senior secured convertible note            (1,351,709)
                                                                  -------------
                                                                      3,719,618

         Current portion of 6% interest bearing demand note             (36,331)
         Current portion of secured 6% convertible note                (387,203)
         Current portion of Senior Secured convertible note            (229,412)
                                                                  -------------
                                                                  $   3,066,672
                                                                  =============

                                      F-20

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         On March 1, 2004, our wholly owned subsidiary, XStream Brands, Inc., a
         Florida Corporation, ("XStream Brands"), entered into an Assignment of
         Trademark with The Maui Juice Company. The purchase price for the
         assignment of the Mark was $255,017 in cash with $25,000 paid at the
         acquisition date and $230,017 to be paid under the terms of the
         agreement. (See Note 3-Acquisitions)

         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). The Note is convertible into shares of the Company's
         common stock, only upon effectiveness of a registration statement
         registering the underlying shares, at a fixed price of $4.60 per share
         for the first $50,000 with the remaining $2,950,000 convertible at a
         fixed price of $5.20 per share, a premium to the 22-day average closing
         share price as of May 14, 2004. The first conversion price was reduced
         to $1.50 per share as a result of the Series B financing transaction.
         (See Note 17 - Mezzanine Debt)

         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 (i)
         $822,000 for the valuation of the 225,000 warrants issued with the note
         (computed using a Black-Scholes model with an interest rate of 2.53%,
         volatility of 149%, zero dividends and expected term of three years);
         (ii) $597,251 for a beneficial conversion feature inherent in the note
         and (iii) $131,000 for debt issuance costs paid to affiliates of the
         lender, for a total discount of $1,550,251. The $822,000 and $131,000
         are being amortized over the term of the note. Since the conversion is
         contingent on the effectiveness of the registration statement, which
         date cannot be determined, the Company will begin amortizing the
         $597,251 over the remaining term of the debt once the registration
         statement is declared effective. Amortization of the debt discounts
         through December 31, 2004 was $198,542.

         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 it's 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, 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.

         The Secured Term Note Agreement stipulates the note to be repaid using
         cash payment along with an equity conversion option; the details of
         both methods for repayment are as follows: The cash repayments
         stipulate that beginning on September 1, 2004, or the first
         Amortization Date, the company shall make monthly payments to Laurus
         Funds on each Repayment Date until the Maturity Date, each in the
         amount of $1,470.59 (the "Tranche A Monthly Principal Amount"),
         together with any accrued and unpaid interest to date on such portion
         of the first Fifty Thousand Dollars ($50,000) aggregate principal
         amount of the Note ("Tranche A") and each in the amount of $16,176.47
         (the "Tranche B Monthly Principal Amount"), together with any accrued
         and unpaid interest to date on such portion of the next Two Million
         Nine Hundred Fifty Thousand Dollars ($2,950,000) aggregate principal
         amount of the Note ("Tranche B"). The conversion repayment states that
         each month by the fifth (5th) business day prior to each Amortization
         Date, the Laurus Funds shall deliver to the Company a written notice
         converting the Monthly Amount payable on the next Repayment Date in
         either cash or Common Stock, or a combination of both. If a Repayment
         Notice is not delivered by Laurus Funds on or before the applicable
         Notice Date for such Repayment Date, then the Company pays the Monthly
         Amount due in cash. Any portion of the Monthly Amount paid in cash
         shall be paid to Laurus Funds in an amount equal to 102% of the
         principal portion of the Monthly Amount due. If Laurus Funds converts
         all or a portion of the Monthly Amount in shares of Common Stock, the
         number of such shares to be issued by the Company will be the number
         determined by dividing the portion of the Monthly Amount to be paid in
         shares of Common Stock, by the applicable Fixed Conversion Price, as
         adjusted at $1.50.

         The allocation of proceeds was as follows: $131,000 was distributed for
         management, due diligence/documentation

                                      F-21

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         fees and escrow agent fees, $102,292 to payoff a term loan and line of
         credit at a commercial lending institution; $50,000 paid to Master
         Distributors, Inc., as a deposit, and $266,708 to the company as
         operating capital. The balance of $2,450,000 was deposited by Laurus
         Funds on behalf of the Company into an account, which is in the sole
         dominion and control of Laurus Funds. The purpose of the account is to
         ensure funds are readily accessible for the cash-financing portion of
         acquisitions or for any other purpose that Laurus Funds deemed
         appropriate for use of such funds. The balance with accumulated
         interest at December 31, 2004 was $452,771. (See Note 1 - Restricted
         Cash)

         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,
         and resubmitted on January 31, 2005. As per the stipulations of the
         agreement, there are $124,200 in accrued liquidated damages due as of
         December 31, 2004.

         On July 9, 2004, the company's wholly owned subsidiary, Beverage
         Network of Maryland, Inc. ("BNMD"), (a Florida Corporation) announced
         it has completed, the acquisition of substantially all of the assets
         and certain liabilities of Master Distributors Inc. Pursuant to the
         terms of the agreement, the company issued a convertible promissory
         note for $2,000,000 payable in 60 equal monthly payments and bearing 6%
         interest per annum. The company executed an amended agreement to defer
         all payment of the note until April 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 April 14th
         2005.

NOTE 17 - MEZZANINE 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 (stipulating the debt instrument is
         convertible or redeemable at the discretion of the holder at the end of
         the 42 month term), the transaction was classified as Mezzanine
         Financing and the balance of the $2,160,000 gross proceeds is reflected
         as of December 31, 2004 (See Note 19 (A) - Preferred Stock)

NOTE 18 - COMMITMENTS AND CONTINGENCIES:
---------------------------------------

         (A) FACILITY LEASES
         -------------------

         Effective December 1, 2003, XStream terminated its month-to-month lease
         at its corporate headquarters in Boca Raton and co-located with its
         subsidiary, BNSF. Effective June 1, 2003, BNSF entered into a 24-month
         lease for new distribution facilities. In November 2003, this lease was
         cancelled by the landlord and succeeded by another lease effective
         December 1, 2003 for a 12-month term ending November 30, 2004. The rent
         is $4,552 per month. Rent expense for the period ending December 31,
         2004 for corporate headquarters and BNSF was $44,949 while rent expense
         in 2003 was $73,406 for the same period.

         Effective November 1, 2003, BNCT entered into a 60-month lease for new
         distribution facilities. The rent is $5,108 per month for the 13,622
         square foot facility. Rent expense for the period ending December 31,
         2004, was $64,934, compared to $36,356 as of December 31, 2003.

         BNHI assumed the current lease as part of acquiring the assets of
         Pacific Rim. The terms are month-to- month with rent of $1,038 per
         month. In March of 2004, BNHI entered into a month-to-month lease
         agreement for management facilities with monthly rent of $4,200. The
         space is being utilized as housing for marketing consultants and other
         individuals active in expanding the brand and current distribution
         territory. Rent expense charged to operations for the period ending
         December, 2004 was $41,240.

         BNMA assumed the lease from Ayer Beverage, Inc., consisting of a 4,300
         square foot facility at a cost of $1,425 monthly. The current lease
         expires on June 30, 2005 with an annual renewal option. On June 1,
         2004, BNMA entered into a second lease agreement for 13,500 sq. ft. of
         space located in Lawrence, MA.

                                      F-22

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         The terms are month-to-month at a cost of $5,000 per month; the lease
         was terminated in November, 2004. The rent charged to operations was
         $48,345 as of December 31, 2004.

         BNMD assumed the lease from Master Distributors, Inc., consisting of a
         70,261 square foot facility at a cost of $24,053 monthly. The current
         lease expires on March 31, 2008. 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 yields $14,950 per month which
         is offset against rent expense. The total rent charged to operations,
         post acquisition, was $57,910 as of December 31, 2004.

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

                       Future Minimum     Sublease     Net Minimum
                       Lease Payments     Income       Lease Payments
                       --------------     --------     --------------

         2005             $  420,704      $(128,200)   $  292,504
         2006                378,909       (104,200)      274,709
         2007                389,164             --       389,164
         2008                146,961             --       146,961
         2009                     --             --            --
                          ----------      ---------    ----------
                          $1,335,738      $(232,400)   $1,103,338
                          ==========      =========    ==========

(B) EMPLOYMENT AGREEMENTS
-------------------------

         See Note 11 for details regarding accrued compensation.

NOTE 19 - STOCKHOLDER'S EQUITY AND RECAPITALIZATION:
---------------------------------------------------

         (A) 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. There were 200,000 preferred Series A shares
         outstanding at December 31, 2004.

         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
         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.
         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
         estimated fair value of the warrants and the beneficial conversion
         feature, in accordance with EITF 00-27, is $2,160,000, which is
         allocated to additional paid in capital and recorded as a dividend over
         the term of the Series B Preferred, 42 months. As of December 31, 2004,
         the Company recorded $317,142 of the discount to dividend. The
         commission on this financing is 10% of the gross proceeds. The
         commission results in a reduction of additional paid in capital of
         $416,000.

         The holders have the right to require XStream to redeem all or a
         portion of the shares 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).

                                      F-23

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         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 then current conversion price.

         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, (ii) 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.

         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. The dividends payable as of December 31,
         2004, were $54,910. 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 if Xstream
         chooses to pay the dividends in shares of Series B Preferred, those
         shares are valued at the liquidation preference of the stock.

         (B) COMMON STOCK
         ----------------

         In February 2002, the Company issued 213,375 of its common shares to
         its founder and principal Stockholder, XStream Beverage, Inc. ("XBI").
         XBI is controlled by an officer of the Company. For purposes of results
         of operations, the issuance was considered in substance, a compensation
         expense to be recognized during the service period pursuant to a verbal
         consulting agreement, which was effective April 1, 2002. Accordingly,
         the value of $10,668,750 had been recorded as a deferred compensation
         expense at March 31, 2002. In July 2002, effective April 1, 2002 the
         Company rescinded the consulting agreement and received a subscription
         for the 213,375 common shares, paid for in the form of a promissory
         note at the contemporaneous offering price of $10.00 per share
         resulting in a subscription promissory note receivable of $2,133,750.
         Under Delaware law, the promissory note is considered valid
         consideration for the issuance of capital stock. The note bears
         interest at 8% per annum and is due August 13, 2003. Due to the
         rescission of the consulting a agreement, the $10,668,750 deferred
         compensation and related $10,664,483 additional paid-in capital were
         reversed. Interest income for 2004 and 2003 was $14,030 and $170,700,
         respectively and accrued interest receivable is $299,042 and is
         deducted from equity as a subscription receivable at December 31, 2003.
         In January 2004, the Company forgave the subscription receivable
         promissory note for its parent and related accrued interest in exchange
         for the return of the 213,375 subscribed shares which were returned to
         treasury and cancelled.

         In January 2003, the Company issued 2,500 shares of restricted stock in
         consideration for consulting services rendered resulting in a
         consulting expense of $50,000 in January 2003 based on the
         contemporaneous offering price of $20.00 per share.

         In January 2003, the Company issued 7,000 shares as final settlement of
         a service agreement, 2,250 of which were reflected as issuable at
         December 31, 2002. The settlement loss was recognized at $95,000 based
         on the contemporaneous offering price of $20.00 per share.

         On January 15, 2003, the Company issued 17,500 shares pursuant to a
         twelve-month consulting agreement. The 17,500 shares were vested at the
         grant date resulting in a value of $350,000 based on the trading price
         on the grant date to be recognized over the twelve-month service
         period. During the twelve months ended

                                      F-24

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         December 31, 2003, $274,250 was recognized as consulting expense
         $75,750 as deferred. The deferred balance of $75,750 was recognized as
         consulting expense as of March 31, 2004.

         In March 2003, the Company issued 5,250 shares for legal services
         rendered and sold 750 shares to the legal services provider. The shares
         were vested at the grant date resulting in a value of $60,000 based on
         the contemporaneous offering price of $10.00 per share. The Company
         received proceeds in the amount of $7,500 and recognized a legal
         expense of $52,500.

         The Company issued 10,000 common shares under an exercise provision
         relating to 10,000 options exercisable at $0.01, from options allegedly
         granted to a consultant. The validity of these options was in dispute
         and thus the Company treated the stock issuance as a settlement. The
         Company received proceeds in the amount of $2,000 and recognized a
         settlement loss of $98,000 based on the contemporaneous offering price
         of $10.00 per share.

         In March 2003, the Company issued 10,000 common shares for consulting
         services rendered, resulting in a consulting expense of $200,000 based
         on the contemporaneous offering price of $20.00 per share.

         The Company issued to officers 10,000 common shares under a cashless
         exercise provision relating to 977,778 options exercisable at $35.00
         per share. The trading bid price was $44.00 on the exercise date of
         February 28, 2003. The exercise was recorded as a credit to common
         stock of $200.00 and a charge to additional paid in capital of $200.00
         with no net effect on operations.

         On April 7, 2003, XStream issued 83,750 common shares for the
         acquisition of Universal Florida Beverage Distributors. The shares were
         valued at the contemporaneous offering price of $10.00 per share, which
         resulted in the acquisition price of $837,500.

         On April 25, 2003, XStream issued 40,000 common shares for the
         acquisition of Finish Line. The shares were valued at the
         contemporaneous offering price of $10.00 per share, which resulted in
         the acquisition price of $400,000.

         In April 2003, XStream issued 15,750 common shares for a convertible
         debenture and accrued interest of $70,000 and $2,450, respectively. The
         issued shares were valued at the contemporaneous private placement
         offering of $10.00 per share resulting in a fair value of $157,500. The
         Company recognized a settlement loss of $85,050.

         In June 2003, XStream issued 52,500 common shares to two former
         officers; a settlement loss of $418,750 was recognized.

         In June 2003, the Company issued 1,000 common shares from the $20.00
         private placement and 3,000 common shares from the $10.00 private
         placement for a total $50,000.

         On June 5, 2003, XStream issued 9,000 common shares for legal services
         rendered. The issued shares were valued at the contemporaneous private
         placement offering of $10.00 per share resulting in a fair value of
         $90,000 on the date of grant that was recognized immediately for past
         services rendered.

         In June 2003, XStream issued 3,250 common shares for consulting
         services. The issued shares were valued at the contemporaneous private
         placement offering of $10.00 per share resulting in a fair value of
         $32,500 that was recognized immediately since the shares were
         immediately vested and the term of the agreement was not defined.

         In June 2003, XStream issued 3,750 common shares for services to be
         rendered to two former employees of Universal Florida Beverage
         Distributors. These shares are being held in escrow by Xstream pending
         one year vesting requirements. The shares were valued at $10.00 per
         share and recorded as unearned compensation of $37,500 to be recognized
         over the one year vesting period.

         In April, May and June 2003, XStream sold 15,590 common shares under
         the $10.00 per share Private Placement Memorandum for proceeds of
         $155,900.

         In July 2003, XStream issued 5,000 common shares for consulting and
         investor relation services. The issued shares were valued at the
         contemporaneous private placement offering of $10.00 per share
         resulting in a fair value of $50,000 that was recognized immediately
         since the shares were fully vested at the start of the agreement.

                                      F-25

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         The Company also issued 52,500 contingent shares to an investment
         banker. The Company charged a $475,000 consulting expense to operations
         for past services rendered.

         In July 2003, XStream issued 10,150 common shares to all of its
         employees as a bonus for services rendered. The issued shares were
         valued at the contemporaneous private placement offering of $10.00 per
         share resulting in a fair value of $101,500, which was recognized
         immediately since the shares were fully vested at issuance.

         In July 2003, XStream issued 750 common shares to two former
         consultants as compensation for past services. The issued shares were
         valued at the contemporaneous private placement offering of $10.00 per
         share resulting in a fair value of $7,500, which was recognized
         immediately since the shares were fully vested at issuance.

         In August 2003, XStream issued 10,000 common shares to two former
         employees as compensation for past services. The issued shares were
         valued at the contemporaneous private placement offering of $10.00 per
         share resulting in a fair value of $100,000, which was recognized
         immediately since the shares were fully vested at issuance.

         During the quarter ending September 30, 2003, the Company issued 1,000
         common shares under prior PPM's for $10,000.

         In August 2003, the Company issued 550 shares along with a $12,000 one
         year note to acquire the customer lists of American Natural Water
         Distributors. The shares were valued at $10.00 per shares and the
         resulting $5,500 was recorded as customer list.

         In October 2003, the Company issued 7,500 shares as a loan fee with a
         fair value of $75,000 based on the contemporaneous offering price of
         $10.00 per share to the Chairman of its board of directors in
         consideration of a $75,000 due on demand loan. Accordingly, the $75,000
         was recognized immediately as a loan fee.

         The Company also issued 4,039 common shares as part of a consulting
         agreement, resulted in a consulting expense of $40,390.

         In November 2003, the Company issued 12,500 shares as a loan fee in
         consideration of a non-interest bearing demand note from a consultant.
         The value of $125,000 based on the contemporaneous offering price of
         $10.00 per share was recognized immediately as a loan fee.

         In November 2003, the Company issued 25,000 shares as a loan fee in
         consideration of a one-year note. The value of $250,000 based on the
         contemporaneous offering price of $10.00 per share is recognized over
         the one year term with $42,000 expensed as of December 31, 2003. On May
         31, 2004, the principal balance of note $125,000 was converted into
         52,083 common shares based on the then contemporaneous offering price
         of $2.40. The remaining deferred component of $208,000 was recognized
         as an expense as of December 31, 2004.

         Xstream also issued 39,350 shares to employees as a bonus for services
         performed to date, and 250 shares as part of a termination agreement
         (see Note 1 (H)). The issued shares were valued at the contemporaneous
         private placement offering of $10.00 per share resulting in a fair
         value of $396,500, which was recognized immediately as compensation
         expense since the shares were fully vested at issuance.

         In November of 2003, the Company issued 25,050 shares of common stock
         in consideration of $109,000 of substituted collateral to secure a
         commercial line of credit for Beverage Network of Connecticut (BNCT). A
         guarantee fee computed as $250,500 based on the then contemporaneous
         private placement offering of $10.00 per share is recognized over the
         6-month term with $83,500 charged to loan and loan guarantee fees in
         2003 and $167,000 deferred as a component of equity at December 31,
         2003. On May 18, 2004, the Company paid the balance due on the line of
         credit from proceeds in the Laurus transaction, thereby releasing the
         substituted collateral. (See Note 16 - Long Term Notes Payable & Debt
         Discount) The Company recognized an expense of $167,000 as of December
         31, 2004.

         During the quarter ended December 31, 2003 the Company issued stock for
         the following services: 2,500 to a consultant for past services, valued
         at $25,000 based on the private placement offering price of $10.00 per

                                      F-26

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         share. 37,500 shares were issued to an investment banker for past
         services, which were shares valued at $2.40 per share, (based on
         Private Placement Memorandum dated November 13, 2003) with the $90,000
         fee recognized immediately.

         In December 2003, the Company issued 15,000 shares to a consultant for
         services under a 9-month contract. The resulting expense of $36,000
         based on the then contemporaneous offering price of $2.40 per shares
         will be recognized over the 9 month term beginning in 2004.

         XStream's principal broker agreed to convert the balance of its
         non-interest bearing demand notes totaling $298,454 to equity. The
         conversion resulted in the Company issuing 28,130 shares, which were
         issuable as of December 31, 2003. There was no gain or loss on this
         transaction.

         The current Private Placement memorandum effective November 13, 2003,
         offers 250,000 shares of common stock at $2.40 per share. In December
         2003, the Company received gross proceeds of $88,000 with issuable
         shares totaling 36,667.

         In January 2004, the Company issued 5,500 shares of restricted common
         stock for legal services provided to the Company. The shares were
         valued at the then contemporaneous private placement offering price of
         $2.40 per share with the expense of $13,200 recognized immediately.

         In the first quarter, an agreement was made to convert a $15,000 third
         party, non-interest bearing demand note to 5,000 common shares valued
         at the then contemporaneous private placement offering price of $2.40
         per share. The transaction resulted in the Company recognizing a gain
         on conversion of $3,000.

         In January 2004, the company issued 775 of restricted common stock to
         consultants for past services. The shares were valued at the then
         contemporaneous offering price of $2.40 per share with the expense of
         $1,860 recognized immediately.

         In January 2004, XStream Brands, Inc. entered into an Assignment of
         Trademark with Squeeze Beverage, Inc., for the assignment of all of its
         rights and interests in the Mark of "SQUEEZE" for carbonated flavored
         soft drinks and seltzer water, including all variations thereof such as
         spelling, formatives, phonetic variations and stylized designs of the
         same and all goodwill associated therewith. The Company issued 20,000
         restricted common shares valued based upon the then contemporaneous
         private placement offering price of $2.40 per share resulting in a
         valuation of $48,000. (See Note 3 - Acquisitions)

         The Company also issued 3,750 common shares to a consultant valued at
         the then contemporaneous private placement offering price of $2.40 per
         share. The services provided are for a period of six months, (January 1
         - June 30, 2004), with the entire $9,000 expensed as of June 30, 2004.

         In February 2004, the Company issued 500,000 shares in consideration of
         employment services provided to the Company: 300,000 shares were issued
         to Theodore Farnsworth, Chairman; 100,000 shares each to Jerome
         Pearring, President/CEO and Barry Willson, Vice President/Secretary.
         The Company retained the services of an independent accounting firm to
         perform a valuation analysis on this transaction; the results were as
         follows: The 300,000 shares were valued at $2.50 per share, while the
         two issuances of 100,000 each were valued at $3.00 per share. As the
         shares were issued for past services, the expense of $1,350,000 was
         recognized immediately.

         In February 2004, the Company entered into a Termination Agreement,
         Waiver and Release with two prior officers, terminating their
         consulting agreement of June 2003 by issuing 16,268 restricted common
         shares valued at the then contemporaneous offering price of $2.40 per
         share. A loss of $23,921 was recognized immediately as a result of the
         transaction.

         In March of 2004, the Company issued 5,208 shares of restricted common
         stock for legal services provided to the Company. The shares were
         valued at the then contemporaneous offering price of $2.40 per share
         with the expense of $12,500 recognized immediately. The Company also
         issued 147 shares to a consultant pursuant to the execution of a
         12-month agreement, which stipulates shares to be issued quarterly. Per
         the agreement, the shares were valued at $8.20 per share and an expense
         of $1,206 was recognized immediately.

         The Company issued 30,000 shares to a broker for past services. The
         shares were valued at the then contemporaneous offering price of $2.40,
         with the Company recognizing an expense of $72,000.

         In March 2004, Beverage Network of Hawaii, Inc. ("BNHI"), acquired all
         the assets and certain liabilities of a Hawaii beverage Company for
         12,500 shares of the Company's restricted common stock. The shares were
         valued

                                      F-27

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         at the then $2.40 contemporaneous private placement offering price
         resulting in a value of $30,000. (See Note 3 - Acquisitions)

         In March 2004, Beverage Network of Massachusetts, Inc. ("BNMA"),
         acquired substantially all the assets and certain liabilities of a
         Massachusetts beverage company for cash and 20,000 shares of the
         Company's restricted common stock valued at $48,000 based on the then
         contemporaneous private placement offering price of $2.40 per share.
         (See Note 3 - Acquisitions)

         As agreed in January 2004, the Company issued 16,268 common shares to
         two former officers in exchange for $57,418 of liabilities due to them.
         The shares were valued at the best-estimated fair value at that time
         which was the quoted trading price of $5.00 on the agreement date or a
         total $81,339 resulting in a loss on settlement of $23,921.

         During the first quarter, 2004, the Company issued 330,707 shares of
         restricted common stock in consideration of subscriptions for the then
         contemporaneous private placement memorandum at an offering price of
         $2.40 per share for gross proceeds of $793,696 and received an
         additional $137,000 pursuant to subscriptions for which 57,083 shares
         were recorded as issuable. Offering costs were $108,370.

         In April of 2004, the Company issued 32,500 shares of restricted common
         stock to employees for past services. The stock was valued at the then
         contemporaneous private placement offering price of $2.40 per share
         with the Company recognizing a compensation expense of $78,000.

         A six-month consulting agreement was executed on April 13, 2004. The
         agreement stipulated that the individual would be issued 5,000 shares
         of restricted common stock. The Company issued the shares recognizing
         an expense of $5,000 and a deferred expense of $7,000 as of June 30,
         2004. The remaining deferred balance was expensed as of December 31,
         2004

         On April 8, 2004, the Company executed a contract with a member of its
         advisory board. The term of the contract will continue until either the
         Advisor or the Company terminates the agreement or the Advisor's
         participation in the advisory board by sending written notice to the
         other party. The Company issued 2,500 restricted shares per the
         stipulations of the contract and recognized an expense of $6,000 based
         on the then contemporaneous offering price of $2.40 per share.

         The Company also issued 2,500 shares to a second member of its
         strategic advisory board for the execution of a consulting agreement.
         The term of the contract will continue until either the Advisor or the
         Company terminates the agreement or the Advisor's participation in the
         advisory board by sending written notice to the other party. The
         Company recognized an expense of $6,000 based on the then
         contemporaneous private placement offering price of $2.40 per share.

         In May 2004, the Company issued 30,000 shares to an investment banker
         for past services rendered. The company recognized an expense of
         $72,000 based on the then contemporaneous offering price of $2.40 per
         share. In May 2004, a note payable of $125,000 was converted into
         52,083 common shares valued at the then contemporaneous private
         placement offering price of $2.40 per share, resulting in no gain or
         loss.

         On July 9, Beverage Network of Maryland, Inc. ("BNMD"), executed an
         asset purchase agreement with Master Distributors, Inc. (See Note 3 -
         Acquisitions). A stipulation of the agreement was to issue shares of
         XBNI restricted common stock to current employees of Master
         Distributors, Inc. in consideration of services rendered as well as
         being an incentive to remain in their current positions to ensure a
         seamless transition for all parties involved. The Company issued 21,250
         shares of stock on June 8, 2004 with the contingency that the
         certificates were to be held by an escrow agent until after the six
         month anniversary date of the closing of the asset purchase agreement.
         As of July 1, 2004, these shares were reclassed as deferred expenses
         with the Company recognizing an expense of $25,500 for the quarters
         ending September 30 and December 31, 2004, respectively. The Company
         also issued 96,154 shares to the principal owner of Master
         Distributors, Inc. in advance of the purchase agreement and upcoming
         closing of the transaction. The shares, totaling 117,404, were valued
         at the then contemporaneous offering price of $2.40 with the Company
         recording a prepaid acquisition cost of $281,769 as of June 30, 2004.

         In April, May and June 2004, the company issued 69,861 shares,
         previously recorded as issuable as of March 31, 2004.

                                      F-28

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         During the quarter ended June 30, 2004, the Company issued 255,000
         shares of restricted common stock in consideration of subscriptions
         from the then current private placement memorandum at an offering price
         of $2.40 per share for gross proceeds of $612,000. Additionally, as of
         June 2004, 100,000 shares of common stock became issuable for $240,000
         proceeds received as of June 30, 2004. Offering costs were $138,590.

         In July, August and September 2004, the Company issued 67,500 shares,
         previously recorded as issuable, as of June 30, 2004.

         During the third quarter, 2004, the Company issued 48,300 shares of
         restricted common stock in consideration Of subscriptions for the then
         contemporaneous private placement memorandum at an offering price of
         $2.40 per share for gross proceeds of $115,920 and received an
         additional $24,000 pursuant to subscriptions for which 10,000 shares
         were recorded as issuable. Offering costs were $23,790.

         In July 2004, the Company entered into a ninety day contract with a
         firm to provide investor relations services. The contract stipulated
         that the consultants were to be issued 15,000 shares of restricted
         common stock; the stock was also valued at the current offering price
         of $2.40 and an expense of $36,000 was recognized as of September 30,
         2004.

         A six-month consulting agreement was executed on July 1, 2004; the
         agreement stipulated that the individual would be issued 2,500 shares
         of restricted common stock. The Company issued the shares recognizing
         an expense of $6,000 as of December 31, 2004.

         In August 2004, the Company issued 7,500 shares to an employee pursuant
         to the stipulations of the employee agreement which has a term of six
         month. The shares were valued at the private placement offering price
         of $2.40; an expense of $18,000 was recognized for the period ending
         December 31, 2004.

         During the same period, the Company issued 17,500 and 29,598 shares of
         restricted common stock to employees for past services. The stock was
         valued at the contemporaneous private placement offering price of $2.40
         per share with the Company recognizing a compensation expense of
         $113,035.

         The Company also issued 4,167 restricted shares on behalf of its
         subsidiary, Beverage Network of Hawaii, Inc., as a settlement for a
         note and for past services rendered. The shares were valued at $2.40
         which resulted in a settlement gain of $39,999.

         In September 2004, 3,600 shares were issued to a consultant according
         to the terms of an agreement. The shares were also valued at the
         contemporaneous offering price of $2.40 and the Company recognized an
         expense of $8,640 for the period ending December 31, 2004.

         The Company also issued 2,500 shares to a member of its strategic
         advisory board for the execution of a consulting agreement. The term of
         the contract will continue until either the Advisor or the Company
         terminates the agreement or the Advisor's participation in the advisory
         board by sending written notice to the other party. The Company
         recognized an expense of $6,000 for this period, based on the
         contemporaneous private placement offering price of $2.40 per share.

         The Company issued 43,750 shares of restricted common shares to an
         investment banking firm as pursuant to the agreements related to the
         August 2, 2004 Preferred Series B stock sale (See Preferred Stock
         above) According to the terms of the agreement, the investment banker
         was entitled to these shares for acting as the placement agent in the
         transaction. The shares were valued at the contemporaneous common stock
         offering price of $2.40; the Company recognized offering costs of
         $105,000 as of December 31, 2004.

         In September 2004, the Company issued 20,000 restricted shares
         according to the terms of an agreement entered into with a firm for
         investor relations. The agreement is to remain in effect until
         cancelled by either party. Upon valuing the shares at $2.40, the
         Company recognized an expense of $48,000 for the period ending December
         31, 2004.

         On October, 2004, the Company issued 12,500 shares of restricted common
         stock to a consultant for current services pursuant to the terms of the
         contract. The shares were valued at $1.80 which was the closing price
         of the stock on the grant date. An expense of $22,500 was recognized
         for the period ending December 31, 2004.

                                      F-29

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         The Company also issued 3,445 shares to an individual for accounting
         services provided to the Company. The shares were valued at $1.70, the
         fair market value on the date of issuance, resulting in an expense of
         $5,856.50.

         In November, 2004, the Company issued 19,824 restricted common shares
         for legal services. The shares were valued at $1.32 based on the
         closing price on the grant date. An expense of $26,167.68 was
         recognized for the period ending December 31, 2004.

         The Company also issued 2,500 shares to a second member of its
         strategic advisory board for the execution of a consulting agreement.
         The term of the contract will continue until either the Advisor or the
         Company terminates the agreement or the Advisor's participation in the
         advisory board by sending written notice to the other party. The
         Company recognized an expense of $3,300 based on the closing price of
         the stock on the date it was granted.

         There were 8,000 shares of restricted common stock issued to a firm for
         investor relations. The issuance was for the current period so an
         expense of $10,560 was recognized as of December 31, 2004, based on the
         closing price of the stock on the grant date.

         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; therefore, the
         entire value of the transaction, $420,000, was considered deferred as
         of December 31, 2004. Of the 240,000 shares stipulated in the
         agreement, 90,000 were issued and the remaining balance of 150,000
         shares were issuable as of December 31, 2004.

         During the period of October 1, 2004 through December 31, 2004, the
         Company issued 5,000 shares of common stock, previously recorded as
         issuable as of September 30, 2004

         (C) STOCK OPTIONS AND WARRANTS
         ------------------------------

         In February 2002, the Company established the 2002 Stock Option Plan
         (the "Plan") which is effective March 1, 2002. Officers, employees,
         consultants, and directors of the Company are awarded options
         periodically for the purchase of common stock of the Company under the
         Plan. Employees may be awarded incentive stock options and all other
         options issued under the plan shall be non-qualified stock options.
         Principal stockholders may be granted options under the plan only if
         the exercise price is at least 110% of the fair market value of the
         common stock on the grant date and such options cannot be exercised for
         5 years. All other options granted under the plan shall not have an
         exercise price less than 100% of the fair market value of the common
         stock on the date of grant. The options, which expire ten years from
         the grant date but may expire earlier as determined by the compensation
         committee of the Board of Directors, vest as determined by the
         compensation committee of the Board of Directors. Upon termination of
         employment, for any reason other than death, disability, or retirement,
         all rights to exercise options shall terminate 90 days after the date
         of employment termination. Upon termination for death, disability, or
         retirement, the options shall be exercisable for a period of one year
         from such date of termination. The aggregate numbers of shares subject
         to options granted under the plan shall be 25,000,000 common shares.
         There were no options issued under the plan as of December 31, 2002.

         Effective February 1, 2002, the Company granted options to purchase
         475,000 shares of common stock to three officers at an exercise price
         of $35.00 per share under their employment agreements. These options
         were cancelled in conjunction with the termination of the employees'
         employment agreements in 2003.

                                      F-30

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         In March, 2004, the Company signed an agreement with a company to act
         as placement agent to arrange the sale of debt, equity or equity-linked
         securities on behalf of the company. In accordance with the terms of
         the agreement, the Company granted the placement agent a retainer
         consisting 37,500 warrants exercisable at $0.20 for five years, 37,500
         warrants exercisable at $1.50 for five years, 37,500 warrants
         exercisable at $3.00 for five years. The warrants were valued at an
         aggregate $556,009 or $6.57, $6.51, $6.51 per option, respectively,
         recognized over the one year term of the agreement. This resulted in a
         consulting expense of $417,007 with a remaining deferred component of
         139,002 as of December 31, 2004. The fair market value of the stock
         warrants granted to the consultant was estimated on the date of grant
         using the Black-Scholes Model in accordance with Statement No. 123
         using the following assumptions: expected dividend yield 0%, risk-free
         interest rate of 1.58%, volatility 191% and expected term of five
         years.

         On May 14, 2004, the Company secured a financing arrangement with
         Laurus Master Funds, Ltd. ("Laurus Funds") (See note 14-Notes
         Payable-Long Term & Debt Discount, Secured Convertible Note) The
         financing consists of a $3 million Senior Secured Convertible Note that
         bears interest at the rate of prime plus two percent and has a term of
         three years (May 14, 2007). The Company then issued 426,250 options to
         the placement agent mentioned above, as they were directly engaged in
         securing the Laurus transaction. The warrants are exercisable at $1.50
         for five years; the Company valued the transaction at $1,879,809 as
         deferred loan fees and is being recognized over the 36 month term of
         the Laurus funding. The Company recorded a loan fee expense of $391,627
         as of December 31, 2004, with a remaining deferred component of
         $1,488,182 to be amortized through May, 2007. The transaction was
         valued using the Black-Scholes Model with the following assumptions
         expected dividend yield of 0% risk-free interest rate of 2.53%,
         volatility 124% and expected term of 5 years.

         In July, 2004, the Company issued Laurus warrants to purchase 22,500 of
         common stock with an exercise price Of $5.20 and a term of 10 years,
         for release of restricted cash in connection with the Master
         Distributors, Inc. acquisition.(See note 3-Acquisitions) The Company
         recognized interest expense in the amount of $78,217. The transaction
         was valued using the Black-Scholes Model with the following
         assumptions: expected dividend yield of 0%, risk-free interest rate of
         2.64%, volatility 96% and expected term of 10 years.

         On July 20, 2004, the Company issued Laurus warrants to purchase
         125,000 shares of the Company's common stock with an exercise price of
         $3.00 per share and a term of 10 years. The warrants were issued as
         compensation to Laurus for the release of $250,000 of the restricted
         cash. The Company recognized interest expense from this issuance of
         $492,980 during the twelve months ending December 31, 2004. The
         transaction was valued using the Black-Scholes Model with the following
         assumptions: expected dividend yield of 0%, risk-free interest rate of
         2.64%, volatility 96% and expected term of 10 years.

         On August 2, 2004 Xstream Beverage Group, Inc. sold 43.2 shares of our
         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 (stipulating the debt instrument is
         convertible or redeemable at the discretion of the holder at the end of
         the 42 month term), the transaction was classified as Mezzanine
         Financing and the balance of the $2,160,000 gross proceeds is reflected
         as of December 31, 2004 (See Note 17 - Preferred Stock) The company
         compensated a placement agent engaged in the transaction with warrants
         to purchase consisting of 160,941 warrants exercisable at $1.50 for
         five years, 118,588 warrants exercisable at $2.00 for five years,
         144,000 warrants exercisable at $4.00 for five years. The warrants were
         valued at an aggregate $1,359,712 or $3.25, $3.23, $3.15 per option,
         respectively, to be amortized over the term of the conversion period of
         42 months. The company recognized $161,870 as dividends related to this
         transaction as of December 31, 2004, with a remaining deferred
         component of $1,197,842. The transaction was valued using the
         Black-Scholes Model with the following assumptions: expected dividend
         yield of 0%, risk- free interest rate of 2.51%, volatility 161% and
         expected term of five years.

         On November 11, 2004, the Company issued Laurus warrants to purchase
         100,000 shares of the Company's common stock with an exercise price of
         $2.00 per share and a term of 10 years. The warrants were issued as
         compensation to Laurus for the release of $100,000 of the restricted
         cash. The Company recognized interest

                                      F-31

<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004

         expense from this issuance of $120,732, or $1.21 per share, during the
         twelve months ending December 31, 2004. The transaction was valued
         using the Black-Scholes Model with the following assumptions: expected
         dividend yield of 0%, risk-free interest rate of 2.85%, volatility 111%
         and expected term of 10 years.

         On December 14, 2004, the Company issued Laurus warrants to purchase
         369,000 shares of the Company's common stock with an exercise price of
         $2.00 per share and a term of 10 years. The warrants were issued as
         compensation to Laurus for the release of $369,000 of the restricted
         cash. The Company recognized interest expense from this issuance of
         $600,183, or $1.63 per share, during the twelve months ending December
         31, 2004. The transaction was valued using the Black-Scholes Model with
         the following assumptions: expected dividend yield of 0%, risk-free
         interest rate of 3.01%, volatility 111% and expected term of 10 years.

         In December, 2004, 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 as follows: $2.00 per share and the Company recorded a
         deferred consulting expense of $69,192, or $1.38 per share for the
         valuation of the 50,000 warrants. (computed using a Black-Scholes model
         with an interest rate of 3.01%, volatility of 96%, zero dividends and
         expected term of five years)

         A summary of the options and warrants issued as of December 31, 2004
         and 2003 and changes during the years is presented below:

<TABLE>
<CAPTION>
                                                       2004                        2003
                                             ----------------------------------------------------
                                                            Weighted                      Weighted
                                              Number of      Average      Number of        Average
                                             Options and    Exercise     Options and       Exercise
                                               Warrants      Price         Warrants         Price
                                              ---------     -------        ---------      ---------
<S>                                           <C>           <C>            <C>            <C>

         Stock Options
         Balance at beginning of year            17,125     $  4.54         502,125       $   21.80
         Granted                              4,013,779     $  2.72         100,000       $   28.00
         Exercised                                  -0-     $   -0-         (48,889)      $   35.00
         Forfeited                                  -0-     $   -0-        (536,111)      $   34.80
                                              ---------     -------        ---------     ----------
         Balance at end of year               4,030,904     $  3.02          17,125       $   74.60
                                              =========     =======        =========      =========
         Options exercisable end of year      4,030,904     $  3.02          17,125       $   74.60
                                              ---------     -------        ---------      ---------
          Weighted average fair value of
           options granted during the year                  $  2.72                       $   19.20
                                                            =======                       =========
</TABLE>

         The following table summarizes information about stock options and
         warrants outstanding at December 31, 2004:

<TABLE>
<CAPTION>
                   Options Outstanding                                              Options Exercisable
-----------------------------------------------------------------------------------------------------------------
                                                         Weighted         Weighted                       Weighted
            Range of                 Number               Average          Average          Number        Average
            Exercise              Outstanding at         Remaining        Exercise      Exercisable at   Exercise
             Price               December 31, 2004      Contractual        Price      December 31, 2004    Price
        --------------           -----------------      -----------       --------    -----------------  ---------
       <S>                          <C>                 <C>               <C>             <C>            <C>

       $   6.40 - 100.00               242,125          9.79 Years        $  12.46          242,125      $  12.46
       $   3.00 -   6.39             1,049,000          5.79 Years        $   4.59        1,049,000      $   4.59
       $   1.50 -   2.99             2,702,279          5.89 Years        $   1.88        2,702,279      $   1.88
                    0.20                37,500          5.07 Years        $   0.20           37,500      $   0.20
                                     ---------                            --------        ---------      --------
                                     4,030,904                            $   3.02        4,030,904      $   3.02
                                     =========                            ========        =========      ========
</TABLE>

NOTE 20 INCOME TAXES
--------------------

         For Federal income tax purposes, the Company has net operating loss
         carryforwards of approximately $8,400,000, which expire at various
         times through 2024. 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, 2004 and 2003, computed by applying the
         statutory Federal tax rate of 35% to loss before taxes, as follows:

                                      F-32

<PAGE>
                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 2004


                                                 2004              2003
                                            --------------     -------------

         Computed "expected" tax (benefit)  $  (3,235,000)     $  (2,188,446)
         State tax (benefit), net of
          Federal tax effect                     (462,000)                --
         Meals                                         --              4,002
         Stock issued for services              1,282,000            968,778
         Contributed services                          --             85,891
         Amortization of goodwill                 (27,000)                --
         Restatement of valuation allowance     2,442,000          1,129,775
                                            --------------     --------------
                                            $          --      $          --
                                            ==============     ==============

         The effects of temporary differences that gave rise to significant
         portions of deferred tax assets and liabilities at December 31, 2004
         are as follows:

         Deferred tax assets:
         Net operating loss carryforward            $  3,382,000
         Impairment of goodwill                          592,000
         Accrued expenses                                129,000
         Other                                           127,000
                                                    -------------
         Total gross deferred tax assets               4,230,000
         Less valuation allowance                     (4,230,000)
                                                    -------------
         Net deferred tax assets                    $         --
                                                    =============

NOTE 21 - SUBSEQUENT EVENTS:

         In January, 2005, the Company issued 150,000 shares of restricted
         common stock to the principal owner of Master Distributors, Inc. (See
         note 3-Acquisitions) as consideration for deferring all debt payments
         until April 14th 2005.

         We also issued 150,000 common shares to a consultant pursuant to the
         terms of a one-year agreement. The Company also granted warrants, with
         a term of five years, to purchase 200,000 shares of common stock.
         100,000 warrants exercisable at $4.00 and the remaining 100,000
         exercisable at $5.00.

         The Company issued 200,000 common shares to a consultant pursuant to
         the terms of a one-year agreement. The Company also granted warrants,
         with a term of five years, to purchase 300,000 shares of common stock.
         100,000 warrants exercisable at $2.00; 100,000 warrants exercisable at
         $2.50 and the remaining 100,000 exercisable at $3.00.

         There were 10,000 shares of restricted common stock issued to a
         consultant pursuant to the terms of a six-month agreement.

         There were 165,000 warrants issued to the Laurus Fund for the
         restricted cash proceeds. These are ten year warrants exercisable at
         $2.00.

         In February, the company issued 300,000 warrants in consideration of a
         short term note. These are five year warrants exercisable at $1.50.

         40,000 warrants issued to a consultant pursuant to the terms of a six
         month contract. These are five year warrants exercisable at $1.50.

                                      F-33