Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

 

**FORM 10-K**

 

**(MarkOne)**

 

**x****      Annualreport under Section 13 or 15(d) of the Securities Exchange Act of1934**

 

**for the fiscal year ended December 31, 2009**

 

**OR**

 

**o****         Transition reportpursuant to Section 13 or 15(d) of the Securities Exchange Act of1934**

 

**For the transition period from to**

 

**Commission file number 033-91432**

 

**NEW WORLD BRANDS, INC.**

(Exact Name of Registrant as Specified in Its Charter)

 
| **Delaware**                              | ** ** | **02-0401674**       |
|-------------------------------------------|------------|----------------------|
| (State or Other  Jurisdiction of          |       | (I.R.S. Employer     |
| Incorporation or  Organization)           |       | Identification  No.) |
|                                      |       |                 |
| **10015  Aeronca Lane, McKinney, Texas**  | ** ** | **75071**            |
| (Address of  Principal Executive Offices) |       | (Zip Code)           |

 

**(972)-346-9117**(Registrant’sTelephone Number, Including Area Code)

 

**Not applicable**(Former Name,Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.  Yes o No x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthis Act.  Yes o  No x

 

Note — Checking the boxabove will not relieve any registrant required to file reports pursuant to Section 13or 15(d) of the Exchange Act from their obligations under those Sections.

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x     No  o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T during the preceding 12 months (or for such shorter periodthat the registrant was required to submit and post such files).  Yes o     No  o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.Yes x     No  o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 
| Large  accelerated filero                       |   | Accelerated  filero         |
|-------------------------------------------------|--------|-----------------------------|
|                                            |   |                        |
| Non-accelerated  filero                         |   | Smaller  reporting companyx |
| (Do not check if  a smaller reporting company.) |   |                        |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o     No  x

 

Basedon the closing price of $0.0056 per share on June 30, 2009, as reportedfor such date on the Over the Counter Bulletin Board, the aggregate marketvalue of our voting and non-voting common stock held by non-affiliates was$2,306,526.

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the last practicable date: As of April 15, 2010, there were500,517,245 shares of the issuer’s common stock, $0.01 par value per share,outstanding.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

None.

 

 

 

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**TABLE OF CONTENTS**

 
| **Part I**                                                                                           |
|-----------------------------------------------------------------------------------------------------------|
|                                                                                                      |   |
| Item 1.  Description of Business                                                                          | 4 |
| Item 1A. Risk  Factors                                                                                    | 13 |
| Item 2. Properties                                                                                        | 25 |
| Item  3. Legal Proceedings                                                                                | 25 |
| Item 4.  Reserved                                                                                         | 26 |
|                                                                                                      |   |
| **Part II**                                                                                          |
|                                                                                                      |   |
| Item 5. Market for Common Equity, Related Stockholder  Matters, and Issuer Purchases of Equity Securities | 27 |
| Item 6. Selected Financial Data                                                                           | 28 |
| Item 7. Management’s Discussion and Analysis of  Financial Conditions and Results of Operations      | 29 |
| Item 8. Financial Statements and Supplementary Data                                                       | 44 |
| Item 9. Changes in and Disagreements With Accountants  on Accounting and Financial Disclosure        | 44 |
| Item 9A(T). Controls and Procedures                                                                       | 44 |
| Item  9B. Other Information                                                                               | 45 |
|                                                                                                      |   |
| **Part III**                                                                                         |
|                                                                                                      |   |
| Item 10. Directors, Executive Officers, and Corporate  Governance                                         | 46 |
| Item 11. Executive Compensation                                                                           | 48 |
| Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related  Stockholder Matters | 51 |
| Item 13.  Certain Relationships and Related Transactions, and Director Independence                       | 53 |
| Item 14.  Principal Accountant Fees and Services                                                          | 54 |
|                                                                                                      |   |
| **PART IV**                                                                                          |
|                                                                                                      |   |
| Item 15.  Exhibits and Financial Statement Schedules                                                      |   |
| Signatures                                                                                                | 55 |

 

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**PART I**

 

**General**

 

References in thisAnnual Report on Form 10-K (the “***Report***”) to the “***Company***,” “***we***,” “***us***,”“***our***,” and similar words are to NewWorld Brands, Inc.

 

The followingdiscussion and analysis provides information that management believes isrelevant to an assessment and understanding of our results of operations andfinancial operations. This discussion should be read in conjunction with theconsolidated financial statements and notes thereto appearing elsewhere herein,and with our prior filings with the Securities Exchange Commission (the “***SEC***”).

 

**DisclosureRegarding Forward-Looking Statements - Cautionary Statement**

 

We caution readers thatthis Report contains “forward-looking statements” within the meaning of thePrivate Securities Litigation Reform Act of 1995. Forward-looking statements,written, oral or otherwise, are based on the Company’s current expectations orbeliefs rather than historical facts concerning future events, and they areindicated by words or phrases such as (but not limited to) “anticipate,”“could,” “may,” “might,” “potential,” “predict,” “should,” “estimate,”“expect,” “project,” “believe,” “think,” “intend,” “plan,” “envision,” “continue,”“intend,” “target,” “contemplate,” “budgeted”, or “will” and similar words orphrases or comparable terminology. Forward-looking statements involve risks anduncertainties. The Company cautions that these statements are further qualifiedby important economic, competitive, governmental and technological factors thatcould cause the Company’s business, strategy, or actual results or events todiffer materially, or otherwise, from those in the forward-looking statements.We have based such forward-looking statements on our current expectations,assumptions, estimates and projections, and therefore there can be no assurancethat any forward-looking statement contained herein, or otherwise made by theCompany, will prove to be accurate. The Company assumes no obligation to updatethe forward-looking statements.

 

The Company has been inthe telecom hardware and carrier business for over three years which is arelatively limited operating history compared to others in the same businessand operates in a rapidly changing industry environment. Its ability to predictresults or the actual effects of future plans or strategies, based onhistorical results or trends or otherwise, is inherently uncertain. While webelieve that these forward-looking statements are reasonable, they are merelypredictions or illustrations of potential outcomes, and they involve known andunknown risks and uncertainties, many beyond our control, that are likely tocause actual results, performance, or achievements to be materially differentfrom those expressed or implied by such forward-looking statements. Factorsthat could have a material adverse effect on the operations and futureprospects of the Company on a condensed basis include those factors discussedunder Item 1A “Risk Factors” and Item 7, “Management’s Discussion and Analysisof Financial Conditions and Results of Operations.” These factors that couldhave a material adverse effect on the Company include, but are not limited to,the following:

 
| · |   | The continuation of the  downturn in the economy and therefore the market for, or supply of, our core  products and services, could reduce our revenue and gross profit margin by  placing downward pressure on prices and sales volume, and we may not  accurately anticipate changing supply and demand conditions;                                                                                    |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                     |
| · |   | We have a limited  backlog, or “pipeline,” of product and services orders, and we do not control  the manufacturing of the core products we distribute and sell, exposing our  future revenues and profits to fluctuations and risks of supply interruptions  or rapid declines in demand;                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                     |
| · |   | We have recurring  quarterly and annual losses and continuing negative cash flow, which may  continue, potentially requiring us to either raise additional capital or  reduce costs relative to gross margins;

                                                                                                                                                                                    |
| · |   | The company is  dependent upon the sale of technology equipment, the TALKBox®, to governmental agencies for some of its revenue,  and this source of revenue is subject to actions associated with public  policy decisions that lie outside of our control and ability to project  including certain factors such as the budgetary approval process and sudden  changes in governmental priorities |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                     |
| · |   | We may not be able to  raise necessary additional capital, and may not be able to reduce costs  sufficiently to reverse our negative cash flow, absent additional capital;                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                     |
| · |   | If we are successful in  raising additional capital, it will likely dilute current shareholders’  ownership;                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                     |
| · |   | We may not be able to effectively contain corporate  overhead and other costs, including the costs of operating a public company,  relative to our profits and cash; and                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                     |
| · |   | Changes in laws or regulations, or regulatory  practices, and the costs of complying with them, in the United States and  internationally, may increase our costs or may prohibit continued operations  or entry into some areas of business.                                                                                                                                                            |

 

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**ITEM 1.  DESCRIPTIONOF BUSINESS**

 

**Overview of Business**

 

We area telecommunications sales and service company, focusing on products andservices utilizing Voice over Internet Protocol (“***VoIP***”) technology, with an emphasis onthree principal lines of business: (i) resale and distribution of VoIP andother telephony equipment, and related professional services, particularly asthe exclusive distributor of products manufactured by TELES AGInformationstechnologien (“***TELES***”)in the United States, Canada, Mexico, all Caribbean nations, Guatemala andHonduras; with non-exclusive rights in other countries and, (ii) telephonyservice resale, direct call routing and carrier support services; and (iii) administrationand distribution of long-distance and international calling cards intended fordistribution through retail outlets. Our VoIP-related telecommunicationsequipment distribution and resale business is operated under the divisionalname “***NWB Networks***.”Our wholesale international VoIP service business is operated under thedivisional name “***NWBTelecom***.” Our calling card business is operated under thedivisional name “***NWB Retail***.” Both NWBNetworks and NWB Telecom were based in Eugene, Oregon in 2009, and have alreadybegun a transition to Dallas, Texas, which is expected to be completed over thecourse of the first half of 2010.

 

Thefollowing are certain key industry or technical terms used throughout thisReport in describing the Company’s current business and in discussing itsprospects in the VoIP equipment and services market:

 

“***VoIP***,” or Voice overInternet Protocol, also called IP Telephony, Internet Telephony, BroadbandTelephony, Broadband Phone, Voice over Broadband or Voice over Packet Networks,is the routing of voice conversations over the Internet or through any otherinternet protocol (“***IP***”)based network. “***GSM***”is an acronym for Global System for Mobile Communications, a leading digitalcellular system using narrowband TDMA (time division multiple access) that hasbecome a cellular standard in Europe and Asia.

 

***“IP networks”*** are telecommunication systems(consisting of transmission lines or devices, and components includinggateways, routers, switches, and servers) by which a number of computers areconnected together for the purpose of communicating and sharing data and/orsoftware applications. The fundamental equipment components of IP networks, andthe products we sell, include: ***gateways***, enabling access to IP networks as atranslation unit between disparate telecommunications networks; ***routers****and****switches***, to direct data traffic on, to andfrom IP networks; and ***servers***,computers that operate IP communications software applications, process andstore data traversing IP networks, and provide computing functions to othercomputers.

 

“***IP telephony***” uses anIP network to perform voice communications that have traditionally beenconducted by conventional private branch exchange ( “***PBX****”*) telephonesystems, or “key systems” primarily used in smaller telephone systems, used byenterprises and by the public switched telephone network (“***PSTN***”).IP telephony uses IP network infrastructure, such as a local area network (“***LAN***”) or a wide area network (“***WAN***”), to replace the telephonyfunctions performed by an organization’s PBX telephone system. “***IP communications***” isa term generally used to describe data, voice, and video communications usingan IP network. “***Convergence***”is a term generally used to describe the manner in which voice and videocommunications technology is converging with data communications technologyonto the IP network.

 

*Overviewof the NWB Networks Division (TELES product sales, VoIP equipment resale,refurbishing and distribution)*.

 

TheCompany’s NWB Networks division was historically operated under the names“Qualmax” and “Qualmax Professional Services,” as well as “IP Gear,” as adistributor and value added reseller (“***VAR***”) of new, used, and refurbished IPcommunications equipment made by manufacturers such as Cisco, Quintum, Adtranand other telephony industry leaders. Resale of third-party IP communicationsequipment was Qualmax’s core legacy business, and the Company’s VAR businesscontinues to be a core revenue component. However, we have refocused our distribution,sales and support efforts on equipment manufactured by TELES. We continue tosell other manufacturers’ equipment, but primarily in support of orcomplimentary to the sale of TELES equipment.

 

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Since July 1,2007, the Company has been the exclusive distributor of TELES products in NorthAmerica and certain Central American markets (the United States, Canada,Mexico, all Caribbean nations, Guatemala and Honduras) pursuant to an exclusivedistribution agreement. The Company currently promotes and distributes TELESproducts in those markets, sells directly to large end-user customers andprovides support and training services under the assumed business name “***TELES USA***.” Thedistribution rights include those products previously manufactured by theCompany under the IP Gear name (including the Claro and Quasar brands). TELESUSA is part of the NWB Networks division, but because TELES sales represent asubstantial and growing part of our equipment reseller business we report TELESrevenues and gross profits separate from the sale of other products below underItem 7 “Management’s Discussion and Analysis of Financial Conditions andResults of Operations.”  The division’soperations primarily revolve around the sales and support of the TELES brand inthe Americas. Since late 2008, the company has added a government services unitto focus on the delivery of products and solutions to the emergency responsetelecommunications needs of federal, state, and local agencies.

 

*Overviewof the NWB Telecom Division (VoIP Telephony service provider)*.

 

TheCompany’s NWB Telecom division is a wholesale provider of VoIP termination service,connecting carrier-level buyers and sellers of VoIP service, currently focusedon international call routing. We receive VoIP traffic from customers(originating carriers) who are interconnected to our network, and we route theVoIP traffic via IP networks to local service providers and terminatingcarriers, in the destination countries, from whom we purchase completion ortermination services. (Our vendors provide the communications service tocomplete the calls within the destination country.) We offer this service on awholesale basis to carriers, VoIP companies, telephony resellers, and othertelecommunication service providers. We are party to a number of reciprocalcarrier agreements, through which we both buy from and sell to a carrier and offsetthe parties’ respective fees for termination services. To the extent we sellVoIP equipment (through the NWB Networks division or its subdivision, TELESUSA) to our VoIP termination service providers, we may offset accountsreceivable for equipment against accounts payable for communication services.We have call termination agreements with local lower-tier service providers inLatin America, Europe, Asia and Africa.

 

Inaddition, although the Company’s VoIP service business is currently entirelywholesale, management is identifying and evaluating “bundled” VoIP serviceopportunities (“***bundled***” meaning the offeringof both VoIP equipment and VoIP connectivity service as a turnkey VoIP solutionfor small to medium size business entities (“***SMEs***”)). The Company also evaluates avariety of other opportunities in the VoIP service and support industry, but todate has remained focused on its existing core businesses. These programs arestill in the testing stage of development and not yet incorporated into the company’sstandard product and service offering.

 

**Company History**

 

*Company History Prior to the 2006 Acquisition of Qualmax, Inc.*

 

New World Brands, Inc.was incorporated in Delaware in May 1986 under the name Oak TreeConstruction Computers, Inc.  From1986 through 1990, we were engaged in the sale of computer systems for theconstruction industry.  For a number ofyears thereafter, we were inactive.  In August 1994,the Company changed its name to Oak Tree Medical Systems, Inc.  From January 1995 through May 2000,we were engaged in the business of operating and managing physical care centersand related medical practices.  In October 2001,the Company and its subsidiary, Oak Tree Spirits, Inc., entered into amerger agreement with International Importers, Inc. (“***Importers***”) and its stockholders whereby Importers merged withand into the Company, and the Company’s business changed direction to wine andspirits distribution.  In conjunctionwith this change in business direction, in December 2001, we changed ourname to New World Brands, Inc.

 

*2006 Reverse Acquisition of Qualmax, Inc.*

 

On September 15,2006, we sold our subsidiary, International Importers, Inc., and acquired,by way of reverse acquisition, all of the assets and assumed all of theliabilities of Qualmax, Inc. (the “***Reverse Acquisition***”).  The ReverseAcquisition marked a change in direction for our business, away from wine andspirits distribution, to the VoIP technology industry.  The Reverse Acquisition was accounted for asa reverse acquisition, with Qualmax being the acquiring party for accountingpurposes.  The accounting rules forreverse acquisitions require that beginning with the date of the transaction, September 15,2006, our balance sheet had to include the assets and liabilities of  Qualmax, and our equity accounts had to berecapitalized to reflect the net equity of New World Brands, Inc.  Our historical operating results will be theoperating results of Qualmax. In conjunction with the Reverse Acquisition, in September 2006,we moved our headquarters from Florida to Eugene, Oregon, which was previouslythe headquarters of Qualmax.

 

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*Qualmax, Inc. History.*

 

As Qualmax, we werefounded in 2002 as a reseller of VoIP-related telecommunications equipment fromcompanies such as Cisco Systems, Quintum, and Adtran, and as a reseller of VoIPtelephony service, primarily selling wholesale international service to telecomservice providers.  In December, 2005, weexpanded beyond our reseller business by acquiring a VoIP technology researchand development division based in Israel, which we reorganized as a wholly-ownedsubsidiary and rebranded under the name IP Gear, Ltd. From December 31,2005 through July 1, 2007 we developed, manufactured, and sold our ownline of VoIP technology products via our Israel-based IP Gear, Ltd. subsidiary,while continuing to resell additional VoIP products of a variety of othermanufacturers via our U.S.-based IP Gear VAR division.

 

*2007 Sale of IP Gear, Ltd. Subsidiary.*

 

Effective July 1,2007, we sold our wholly-owned subsidiary, IP Gear, Ltd., an Israeli limitedliability company based in Yokneam, Israel, to TELES, as reported in moredetail in the Company’s Current Reports on Form 8-K filed with theSecurities and Exchange Commission (the “***SEC***”) on July 20,August 1, and August 9, 2007, and as discussed in more detail belowunder “Recent Developments.” Sale of our IP Gear, Ltd. subsidiary represented arefocusing of our business plan away from research and development and directmanufacturing, and toward our historical core strengths in sales and service.As a result of the sale, we subsequently based all our operations at ourheadquarters in Eugene, Oregon.

 

By the sale of IP Gear,Ltd. to TELES, we divested ourselves of our manufacturing, research anddevelopment activities, and rededicated our efforts on distribution, sale,service and support of VoIP-related telecommunications equipment and service.As a part of the sale of IP Gear, Ltd., we became the exclusive distributor forboth TELES products and IP Gear, Ltd. products in the United States, Canada,Mexico, all Caribbean nations, Guatemala and Honduras, and have thereforefocused our telecommunications equipment sales and distribution plan on TELESand IP Gear, Ltd. products.

 

**Recent Developments**

 

The following describesimportant Company developments which have occurred from 2008 to date.

 

*P&SSpirit Term Loan*.

 

As previously reported onthe Company’s Current Report on Form 8-K, filed with the SEC on April 5,2007, the Company entered into a Term Loan and Security Agreement (the “***P&S Term Loan Agreement***”and the debt obligation pursuant thereto, the “***P&S Term Loan***”) with P&S Spirit,LLC, a Nevada limited liability company (“***P&S Spirit***”) in the principal amount of$1,000,000. The P&S Term Loan proceeds were used by the Company to repayall outstanding principal, interest and fees payable to Bank of America, N.A.(“***BoA***”) underthe BoA Loan, and to pay certain professional fees associated with preparationand negotiation of the P&S Term Loan Agreement.

 

As discussed below underItem 1 “Description of Business — Repayment of P&S Term Loan,” the P&STerm Loan was repaid in two payments, the first in the amount of $500,000 in August 2007,and the second in the amount of $500,000 in February 2008.

 

The principals of P&SSpirit include Dr. Selvin Passen, who is a director of the Company as wellas a shareholder of the Company and its former Chief Executive Officer, and Dr. JacobSchorr, who is a former director of the Company.

 

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*P&SSpirit Credit Line*.

 

As previously reported onthe Company’s Current Report on Form 8-K, filed with the SEC on June 6,2007, on and effective May 31, 2007, the Company entered into a CreditLine and Security Agreement (the “***P&S Credit Line Agreement***” and the debtobligation pursuant thereto, the “***P&S Credit Line***”) with P&S Spirit.The maximum principal available under the Credit Line is $1,050,000; theinterest rate is 2% over the Prime Rate (as reported in The Wall StreetJournal), payable in relation to the then-outstanding principal; consecutivemonthly payments of interest only (payable in arrears) are required commencing July 1,2007; and all unpaid principal, interest and charges are due upon the maturitydate of June 1, 2011. Upon default, the entire P&S Credit Line amount(including accrued unpaid interest and any fees) will be accelerated, and theCompany would be required to pay any costs of collection. The P&S CreditLine Agreement included certain affirmative covenants, including, withoutlimitation, a financial reporting requirement (quarterly — 45 days after theclose of a calendar quarter), and a requirement that the Company maintain aratio of current assets to current liabilities of at least 1.2:1.0 and a totalliabilities to tangible net worth ratio not exceeding 2.5:1.0. Both of thesecovenants had been waived as of December 31, 2009 and continue to bewaived as of the date of filing this Form 10-K.

 

The P&S Credit LineAgreement grants P&S Spirit a security interest with respect to all of theCompany’s assets, but was subordinated to the P&S Term Loan. The P&SCredit Line Agreement is also guaranteed by a corporate Guaranty issued byQualmax (which, prior to completion of the merger of Qualmax into the Company,held a controlling interest in the Company), and a security interest in theassets of Qualmax (consisting solely of 298,673,634 shares of Common Stock).Copies of the P&S Credit Line Agreement, P&S Credit Line Note, Guarantyof Qualmax, Collateral Pledge Agreement by Qualmax, and the Collateral PledgeAgreement by the Company, were included as Exhibits 10.1, 10.2, 10.3, 10.4, and10.5, respectively, to the Company’s Current Report on Form 8-K, filedwith the SEC on June 6, 2007.

 

On February 21,2008, the Company drew $500,000 in principal on the P&S Credit Line inorder to satisfy in full its obligations under the P&S Term Loan Agreement,as discussed in more detail below under “Repayment of P&S Term Loan.”

 

OnMay 22, 2008 the Company drew $225,000, and on May 23, 2008, theCompany drew an additional $225,000; adding up to a total of $550,000 inprincipal drawn on those dates on the P&S Credit Line, and leaving nofurther amounts available for borrowing by the Company under the P&S CreditLine.

 

*Sale ofIP Gear, Ltd. Subsidiary*.

 

As previously reported onthe Company’s Current Reports on Form 8-K filed with the SEC on July 20,2007 and August 9, 2007, effective July 1, 2007 the Company sold itsIP Gear, Ltd. subsidiary to TELES pursuant to a Share Sale and PurchaseAgreement (the “***FinalAgreement***”).

 

Pursuant to the FinalAgreement, the Company agreed, among other things,  to pay TELES an earn out equal to 10% ofTELES’s worldwide revenues (including revenues of TELES’ affiliates) withinTELES’s CPE Product Line (as defined in the Final Agreement) for a period offour years after closing. The total earn out payments shall not be less than$750,000 (the “***MinimumEarn Out***”), and shall not be subject to a cap. The Minimum EarnOut shall be paid in quarterly amounts of $46,875, each quarterly payment duewithin 90 days of the close of the quarter, commencingwith the quarter ended September 30,2007. In the event the Minimum Earn Out is exceeded, the differential amount isdue within 90 days after June 30 on each of 2008, 2009, 2010 and 2011.

 

With certain exceptions,commencing on the date of the closing and for a certain period of time (asspecified in the Final Agreement), the Company agreed not to, or cause any ofits affiliates to, engage in any research and development or manufacturingactivities competitive with those conducted by IP Gear, Ltd., and not to, orcause any of its affiliates to, engage in the sale, distribution, marketing,and services of products that may compete with certain products of TELES. Inaddition, with certain exceptions, commencing one year after the date ofclosing, and effective for a period of time and within certain geographicregions relative to the grant of exclusive distribution and sale rights to theCompany pursuant to the partner contract described below, the Company agreednot to, or cause any of its affiliates to, engage in the sale, distribution,marketing and services of products that may compete with products of IP Gear,Ltd.

 

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*TELESDistributorship*.

 

In accordance with theFinal Agreement, the Company and TELES entered into a contract (the “***Partner Contract***”)relating to the promotion, marketing, sale and support of certain products ofTELES and IP Gear, Ltd., pursuant to which the Company became the exclusivedistributor of TELES and IP Gear, Ltd. products in the United States, Canada,Mexico, all Caribbean nations, Guatemala and Honduras, and a non-exclusivedistributor in other markets.

 

In addition, TELES agreedto grant the Company a loan in the amount of $1,000,000 pursuant to a separateloan agreement to be finalized by the parties. For more details regarding theTELES loan, see “TELES Loan Agreement” below.

 

The Preliminary Agreementwas included as Exhibit 10.1 to the Company’s Current Report on Form 8-K,filed with the SEC on July 20, 2007. The Final Agreement and the PartnerContract were included as Exhibit 10.1 and Annex 2 to Exhibit 10.1,respectively, to the Company’s Current Report on Form 8-K, filed with theSEC on August 1, 2007.

 

*TELESLoan Agreement*.

 

On February 21,2008, the Company and TELES entered into a Term Loan and Security Agreement,effective February 15, 2008 (the “***TELES Loan Agreement***,” and the loanthereunder, the “***TELESLoan***”), providing the Company a loan of up to the principalamount of $1,000,000 (the “***Commitment***”).

 

*TELES —P&S Spirit Inter-Creditor Agreement*.

 

Also on February 21,2008, as contemplated by the TELES Loan Agreement, the Company, TELES andP&S Spirit entered into an Inter-creditor Agreement (the “***Inter-Creditor Agreement***”),relating to the P&S Spirit Credit Line effective February 15, 2008.The description of the Inter-Creditor Agreement herein is qualified in itsentirety by reference to the full text of the agreement, which is set forth inthe Company’s Current Report on Form 8-K filed with the SEC on February 27,2008.

 

Pursuant to theInter-Creditor Agreement, P&S Spirit and TELES have agreed to hold equalrights in and to substantially all of the Company’s assets, with the exceptionof inventory consisting of TELES products purchased by the Company from TELES(during the time that obligations are owed to TELES for such purchases underthe Inventory Credit Line).

 

*Repaymentof P&S Spirit Term Loan*.

 

On July 26, 2007,P&S Spirit executed a consent to the sale of IP Gear, Ltd. by the Company(the “***Lender Consent***”),which was filed with the SEC on August 1, 2007 as Exhibit 10.2 to theCompany’s Current Report on Form 8-K. Pursuant to the P&S Term LoanAgreement and the P&S Credit Line Agreement (together, the “***P&S Loans***” or “***P&S Loan Agreements***,”as applicable) P&S Spirit had a security interest in all of the Company’sshares of IP Gear, Ltd., and, the sale of the Company’s IP Gear, Ltd. shareswithout P&S Spirit’s consent would have triggered a repayment by theCompany of all outstanding principal under the P&S Loans.

 

In accordance with theLender Consent, the Company agreed to pay to P&S Spirit from the proceedsof the closing, as a partial repayment of principal of the P&S Term Loan,the sum of $500,000. In addition, the Companyagreed to pay P&S Spirit the additional sum of$500,000, as a repayment of principal of the P&S Term Loan, which amount isto be provided by P&S Spirit to the Company as a credit line advance to beused by the Company solely to repay the outstanding principal under the P&STerm Loan upon execution of the TELES Loan Agreement. By the Lender Consent,subject to certain terms and conditions, P&S Spirit consented to the saleof IP Gear, Ltd. to TELES in accordance with the Final Agreement, released andterminated P&S Spirit’s security interest in the IP Gear, Ltd. shares, andagreed that the consummation of the sale of IP Gear, Ltd. to TELES shall not bedeemed or give rise to an event of default, penalty, or increase under, ortermination of, the Loan Agreements and shall not, except as otherwise providedin the Lender Consent, accelerate any amounts owing under the Loan Agreementsor trigger any prepayment or give rise to any payment not otherwise requiredunder the Loan Agreements, and shall not require the Company to provide anyadditional security, collateral, reserve, or payment under the Loan Agreements.

 

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On February 21,2008, the Company drew $500,000 on the P&S Credit Line for the purpose ofrepayment in full of the Company’s obligations under the P&S Term LoanAgreement.

 

On May 22, 2008 theCompany drew $225,000, and on May 23, 2008, the Company drew an additional$225,000; adding up to a total of $550,000 in principal drawn on those dates onthe P&S Credit Line, and leaving no further amounts available for borrowingby the Company under the P&S Credit Line.

 

*Redemption of Shares of Company Stock from B.O.S.*

 

On September 30,2008 the Company purchased 5,000,000 shares from BOS, and in total purchased6,600,000 BOSPurchase Shares from BOS for a total purchase price of $165,000 in2008.  Effective February 25, 2010,BOS entered into a transaction contemplating the sale of all of its shares andwarrants to P&S Spirit LLC, in a private sale to which the company was nota Party. That sale remains subject to forfeiture and the return to BOS in theevent P&S fails to complete payment within 2 years, as agreed between them.

 

*Executionof Qualmax Merger Agreement*.

 

On February 18,2008, the Company and Qualmax entered into an agreement by which Qualmax agreedto be merged with and into the Company (the “***Merger Agreement***” and the mergercontemplated thereby, the “***Merger***”).Reference is made to the Company’s Current Report on Form 8-K, filed withthe SEC on February 22, 2008, and the Company’s Information Statement onSchedule 14C, filed with the SEC on November 6, 2008, for additionalinformation and documentation concerning the Merger and the Merger Agreement.

 

The Qualmax mergerwas incomplete as of December 31, 2008. After the end of the filingperiod, on January 23, 2009, the Company completed the merger, as reportedon the Company’s Current Report on Form 8-K, filed with the SEC on January 30,2009, which is incorporated herein by reference. Pursuant to a fairness hearingconducted in the State of Oregon on January 23, 2009 (the “***Fairness Hearing***”), the Director ofthe State of Oregon Department of Consumer and Business Services, Division ofFinance and Corporate Securities (the “***Director***”),found that the Merger was fair, just and equitable, and free from fraud. As aresult of the Fairness Hearing, the Company obtained a valid exemption fromregistration under Section 3(a)(10) of the Securities Act of theshares of common stock of the Company issuable to the stockholders of Qualmaxin connection with the Merger. At a special meeting of the stockholders ofQualmax immediately following the Fairness Hearing the stockholders of Qualmaxapproved the Merger Agreement and the transactions contemplated thereunder.

 

In accordance withthe Merger Agreement, all conditions and prerequisites to the Merger have beenmet and completed, and the Merger Agreement has been consummated effective January 23,2009.There havebeen no amendments, material or otherwise, to the Merger Agreement as effectiveFebruary 18, 2008 and previously disclosed in the Company’s Current Reporton Form 8-K, filed with the SEC on February 22, 2008. Qualmax shares wereconverted into shares of the Company, at the conversion rate of 13.348308Company shares for each share of Qualmax stock.

 

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*Acquisitionof Certain Aeropointe Assets.*

 

New World Brands Inc.purchased most of the assets of Aeropointe Partners, Inc. (“***Aeropointe***”), a Texas Corporation,during the third quarter of 2009. The company had been doing business withAeropointe since the end of 2008 in the building of long distance carrierroutes for the Company’s NWB Telecom division. The transaction’s effective datewas September 1, 2009 and all elements of the transaction were completedon or before January 15, 2010. The details of thistransaction were reported in an 8-K filing to the SEC on October 9, 2009.Pursuant to SEC regulation S-X, financial statements are not required to bepresented in connection with this acquisition. A summary description of thetransaction is discussed below.

 

The company acquired theAeropointe’s rights to a contract that New World Brands was the other party toas well as the right to assume the staff and the location of Aeropointeoperations. The company also received $100,000 in cash. The considerationreceived by Aeropointe was New World Brand’s common stock.  The total amount of stock received was47,658,374 shares. NWB shares were valued for this transaction basedupon the average price of NWB stock in the prior period, which was $0.006333per share.

 

The total purchase pricewas $301,820, of which consideration valued at $55,868 was payable on January 15,2010, in the form of 8,821,791 shares of common stock.  The net purchase price amount of $229,617 waspaid in the form of 38,836,584 shares of common stock issued effective September 1,2009.  The seller contributed capital asconsideration for issuance of the common stock, in the amount of $100,000,which was paid in October 2009. The consideration has been reported aspart of accounts receivable. The company acquired intangible assets valued at$38,405 at the date of acquisition, and satisfied accounts payable to theseller of $163,416.  The New World Brandscommon stock issued to the seller was valued based upon the average price ofNWB stock for the ninety day period prior to the effective date of theacquisition at a price of $0.006333 per share. The difference between the issueprice in the acquisition and the par value of the shares issued, $158,749, wasrecorded as a reduction in additional paid in capital in the 3rd quarter of2009.

 

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**Employees**

 

As of December 31,2009, we had 40 full-time employees, with about 14 based in our Eugene, Oregonheadquarters (including outside sales and remote technical support staffreporting to management in Eugene), 5 at our Dallas Texas, office, and 21 basedin Guanajuato, Mexico. None of our employees is a member of a labor union, andwe have never experienced a work stoppage.

 

**Competition**

 

The markets for IPtelephony products and services are extremely competitive and subject to rapidchange. We are a small company in an industry dominated by very large companiesthat are better capitalized and, in comparison to us, have greater sales,marketing, customer support, and technical resources, have access to moreexperienced management, can take advantage of larger economies of scale, andhave much greater name recognition and reputation. We have been able to competein this market due to our adaptability, the depth of industry experience amongour key managers, and the relatively low barriers to entry in the VAR and VoIPservice provider businesses. We expect that the conditions that havefacilitated our entry into the VoIP industry will allow additional competitors,including large companies as well as niche operators, to enter the market. Thefundamental technology and computer hardware component of the IP telephonyservice solution is readily available. Accordingly, relatively few barriers toentry exist in our business for companies with computer and network sales, anddistribution and service provider experience. An increase in the number or sizeof our competitors could negatively affect the amount of business that weobtain and the prices that we can charge.

 

*Competition among Resellers*.

 

Our NWB Networksdistribution and sales business competes not only with small boutique IT firmsthat have entered the market due to reduced costs of entry resulting fromvarious technological advances, but also with large, global companies,including manufacturers who now compete against us to sell directly to resellercustomers. Although we offer our clients a range of services and support inconjunction with a select product line at competitive prices, increasedcompetition may require us to further reduce prices, potentially reducingprofit margins. We believe the current market trend favors larger,well-capitalized specialty distributors and resellers who can afford to takeadvantage of cost savings in bulk purchases, foreclosure sales, and other largeopportunities, who can afford to warehouse substantial amounts of inventoryuntil profitable opportunities arise, and who can afford large and skilledproduct service and support staffs. Nonetheless, new opportunities continue toarise in this business, and we believe that our ability to quickly identifycurrently popular products to sell, and our experience with a diverse market ofequipment buyers and sellers, including resellers and end users, gives us acontinued competitive edge over new entrants into the market.

 

We believe that ourexclusive distribution relationship with TELES may also give us a competitiveedge over other distributors and resellers. We believe that TELES has welldeveloped R&D and manufacturing capabilities, and we believe that TELES hasdemonstrated its willingness and ability to adapt its products to changingmarket needs and specific opportunities, particularly in emerging VoIP marketsin the Americas. We hope that, as our sales and support teams continue to workclosely with TELES product development teams, we will be able to provideproducts meeting the niche opportunities and new technology opportunities thatour sales staff and management team identify in emerging markets. However,TELES products face stiff competition from a variety of other manufacturers,and while we consider the TELES relationship to be a valuable resource,  TELES remains a relatively small player inthe industry compared to organizations such as Cisco and Siemens. In addition,larger telecom service providers, particularly “tier 1” providers andgovernment-sponsored foreign providers, continue to develop their own internalproducts, potentially competing with products they would otherwise buy fromcompanies like TELES, thus competing with sales opportunities for products suchas those manufactured by TELES.

 

With the reality of globalization in procurementand the geographically dispersed nature of many of our clients, there existsthe ability of potential customers of lines of equipment sold by NWB Networksto price shop on a global basis and to purchase equipment manufactured by thesame suppliers outside our zone of exclusivity at prices that create pressureon our profit margins. The Company is actively working to address the issue oflost sales due to this mobility of customers in the market.

 

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*Competition among Wholesale Telecom Service Providers*.

 

Competition in thewholesale VoIP service industry is intense and diverse, including “tier 1”telecom companies in the U.S. and abroad, as well as smaller “tier 2” carriers,and very small niche service providers. The NWB Telecom division does businesswith very large entities, including foreign tier 1 incumbent providers, aswell as a number of small niche providers in certain foreign markets. As aresult of deregulation, growth of the Internet and IP network infrastructuregenerally, and development of more powerful, lower cost VoIP equipment, theprice of entry into the VoIP service business has dramatically decreased. Lowercost of entry has drawn a growing number of entrepreneurs to the industry andhas driven down the cost of telecom services at both the wholesale and retaillevels. As a result, both supply and demand have skyrocketed, and although wesee a growing number of customer and vendor opportunities, we also see agrowing number of aggressive competitors, declining prices, and decliningtechnological barriers to entry.

 

NWB Telecom competesprincipally on price and quality of service. The communications industry,including VoIP, is highly competitive, rapidly evolving, and subject toconstant technological change and intense marketing by providers with similarproducts and services. We expect that new competitors, including the growth of“gray market” operators (potentially including operators who arrange calltermination in a manner that bypasses the local telephone company), are likelyto enter the communications industry, including the market for VoIP, Internet,and data services. Also, a number of large VoIP service providers appear to beaggressively seeking market share via acquisitions and competitive pricing. Webelieve the trend in this area is for increased competition to continue todrive down market prices and profit margins. Our ability to continue to competein this market will depend upon our ability to secure more stable vendorrelationships, to implement a more stable network infrastructure capable ofhandling higher call volume and to continue building long-term customerrelationships.

 

*Competition among Retail CallingCard Service Providers.*

 

We believe success inproviding our calling card services is dependent on our ability to provide lowrates and reliable service to our customers.

 

We compete with otherproviders of calling card services, as well as established carriers andnumerous small or regional operators, and with providers of alternativetelecommunications services. Many of the largest telecommunications providers,including AT&T, Verizon, iBasis and STI Prepaid, currently market prepaidcalling card services, which in certain cases may compete with our cardservices. We believe that our interconnect and termination agreements, networkinfrastructure and least-cost-routing system provide us with the ability tooffer low-cost, high quality services, while our distribution network providesus with access to customers, and that these factors represent competitiveadvantages. However, some of our competitors are substantially larger and havesignificantly greater financial, technical, engineering, personnel andmarketing resources, longer operating histories, greater name recognition andlarger customer bases than we do. The use by these competitors of theirresources in the prepaid calling card service market could significantly impactour ability to compete against them successfully. As these competitors may becapable of providing comparable call quality and service levels, our ability tomaintain and/or to capture additional market share will remain dependent uponour ability to continue to provide competitively priced services.

 

The continuedgrowth of the use of wireless services, largely due to lower pricing of suchservices, has adversely affected the sales of prepaid calling card services ascustomers migrate from using prepaid calling cards to wireless services. Weexpect pricing of wireless services to continue to decrease, resulting inincreased substitution of prepaid calling cards by wireless services andincreased pricing pressure on providers of prepaid calling card services.

 

If our competitors beginto utilize their greater resources or operate at lower levels of profitabilityin order to more aggressively market their products and services,  this portion of our business could findgrowth difficult.

 

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**ITEM 1A.*              *****RISK FACTORS**

 

There are a number ofimportant factors that could cause our business, financial condition, cashflows, and results of operations to differ materially from historical resultsor those indicated by any forward-looking statements, including the riskfactors identified below and other factors about which we may or may not yet beaware. Prospective and existing investors are strongly urged to carefullyconsider the various cautionary statements and risks set forth in this Reportand our other public filings. **IF ANY OF THE FOLLOWINGOCCUR, OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATION COULD ALLSUFFER.**

 

**Risks Associated with the Business in General**

 

*Our Results of Operations May Fluctuate.*

 

Our revenue and resultsof operations have fluctuated and may continue to fluctuate significantly fromquarter to quarter in the future due to a number of factors, including but notlimited to, those discussed below, some of which are not in our control.Because of these factors and others, we cannot rely on quarter-to-quarter oryear-to-year comparisons of our results of operations as an indication of ourfuture performance. It is possible that, in future periods, our results ofoperations will be significantly lower than the estimates of public marketanalysts, investors, or our own estimates. Such a discrepancy could cause theprice of our Common Stock to decline significantly and adversely affectprofitability.

 

*We Finished Fiscal Year 2009 with a Net Loss, and are Likelyto Incur Losses During the 2010 Fiscal Year, and Our Future Sales Levels andAbility to Achieve Profitability are Unpredictable.*

 

For the one year periodending December 31, 2009, we experienced a net loss before income taxes ofapproximately $4,000,000. We may experience a net operating loss for fiscalyear 2010. Our operating history is limited, our business has changed rapidlyover the past four years, and we are competing in an emerging technologyindustry. We cannot be assured that profitability will be achieved, or if it isachieved that it will continue, in upcoming quarters or years, nor can we beassured that we will be able to improve operating margins or increase revenues,or adequately control our operating expenses.

 

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Generally, the globaleconomic slowdown, combined with unprecedented currency volatility, resulted ina sharp pull back in global telecommunications infrastructure spending in thesecond half of 2008 and throughout 2009. During this period of 2008 and 2009,NWB’s net sales and profitability were negatively impacted by these factorsprimarily as a result of reduced demand for the telecommunications equipmentsold and distributed by the Company’s NWB Networks division.

 

*We May Need Additional Near-Term Capital.*

 

We may need additionalcapital to continue to pursue our current business model, and there can be noassurance that adequate capital will be available to us on acceptable terms asneeded. If we are not able to secure adequate capital, we may have to delay theimplementation of our business plan, and potentially discontinue non-profitablebusiness operations. Our ability to obtain additional financing is subject to anumber of factors, including general market conditions, our operatingperformance, our financial condition, and investor acceptance of our businessplan. The economic downturn and the current challenges facing the financialmarkets may make it difficult for us to raise capital, or to raise capital onterms acceptable to the Company. We can provide no assurance that we will beable to obtain necessary financing, or if financing is available that the termswill be favorable to existing stockholders or acceptable to our Board. Iffuture capital investment is made available, existing shareholders mayexperience dilution of their stock ownership positions in order for us tosecure that additional investment.

 

*We Face Changing Market Conditions for Products andServices.*

 

The market for VoIPservice is still in the relatively early stages of development and marketacceptance, and is characterized by rapid technological change, evolvingindustry standards and strong customer demand for new products, applications,and services. As is typical of a new and rapidly evolving industry, the demandfor, and market acceptance of, recently introduced IP telephony productsand services are highly uncertain. We cannot be sure that the delivery oftelephone and other communications services over IP networks rather than overtraditional telephone networks will expand. We cannot be sure that packet-basedvoice networks will become widespread or that connections between packetnetworks and telephone networks will become commonplace. The inability todeliver traffic over the Internet with significant cost advantages could slowor stop the growth of VoIP technology. The adaptation process of connectingpacket networks and telephone networks can be time consuming and costly. In addition,limitations of VoIP technology, such as the inability to make a call during apower outage and difficulty in accessing 911 services, could adversely affectthe market for VoIP services. If this market does not develop, or develops moreslowly than we expect, we may not be able to sell our products or offer ourservices in sufficient volume to meet our financial goals. If the regulatoryenvironment in the United States becomes more difficult for VoIP providers itcould also significantly impact our business.

 

*InternationalGovernmental Regulation and Legal Uncertainties Could Limit Our Ability toProvide Current Services or Could Increase Our Costs, or Subject Us to LegalLiability.*

 

Regulatorytreatment of Internet telephony outside the United States varies from countryto country. In many countries in which we purchase termination services, thestatus of the laws or contracts that may relate to our services, includingtheir interpretation and enforcement, is unclear or evolving. We cannot becertain that our customers, local service providers, or other affiliates arecurrently in compliance with regulatory or other legal requirements in theirrespective countries, or that they or we will be able to comply with existingor future requirements. We provide our services in reliance on local serviceproviders that may be subject to telecommunications regulations in their homecountries. In some of those countries, licensed telephony carriers, as well asgovernment regulators and law enforcement authorities may question the legalauthority of our local service providers and/or our legal authority. Because ofour relationships with resellers, some countries or local service providers mayassert that we are required to register as a telecommunications carrier in thatcountry. In such case, our failure to do so could subject us to regulatoryaction such as fines or penalties, including asset forfeitures. In addition,some countries are considering subjecting VoIP services to the regulationsapplied to traditional telephone companies. If foreign governments or otherbodies begin to impose related restrictions on VoIP or our other services orotherwise enforce laws or regulations against us, our affiliates, or ourvendors, such actions could have a material adverse effect on our operations.In addition, deregulation of the communications markets in developing foreigncountries may not continue, and incumbent providers, trade unions, and othersmay resist legislation directed toward deregulation and may resist allowing usto interconnect to their network switches. Governments and regulations maychange, resulting in reduced availability of licenses and/or cancellations orsuspensions of licenses, confiscation of equipment, and/or rate increases; theinstability of the regulations applicable to our businesses and theirinterpretation and enforcement in these markets could materially and adverselyaffect our business.

 

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*DomesticRegulatory Changes May Subject Us to Additional Fees, Taxes, or Tariffs,or Service Restrictions.*

 

Weare not licensed to offer traditional telecommunications services in any U.S.state and we have not filed tariffs for any service at the FCC or at any stateregulatory commission. While the FCC has traditionally maintained an informalpolicy that information service providers, including VoIP providers, are nottelecommunications carriers for regulatory purposes, various entities havechallenged this idea before the FCC and at various state government agencies.Local exchange carriers are lobbying the FCC and the states to regulate VoIP onthe same basis as traditional telephone services. Aspects of our operationsare, and may become, subject to state or federal regulations governinglicensing, universal service funding, access charges, advertising, disclosureof confidential communications or other information, excise taxes, U.S.embargos, and other reporting or compliance requirements.

 

*Dependenceon Vendors*

 

Ourdistribution of TELES products, through our exclusive distributorship agreementwith TELES for North America, the Caribbean, and parts of Central America, withrights to sell elsewhere, forms a significant part of our business, and themajority of telecommunications equipment that we sell is manufactured by TELES.In the event that TELES would be unable or unwilling to supplytelecommunications equipment to the Company, we would be materially impacted.

 

*Dependenceon Customers*

 

Historically,a substantial portion of our revenue for the NWB Networks division has beenderived from large purchases by a small number of network equipment providers,systems integrators, and distributors. We do not enter into long-term salesagreements in which the customer is obligated to purchase a set quantity ofproduct. Based on our experience, we expect that our customer base may changefrom period to period. If we lose a large customer and fail to add newcustomers, there could be a material adverse effect on our results ofoperations.  Two customers accounted formore than 10% of NWB Networks revenues during the year ending December 31,2009 and our top ten customers accounted for the majority of the businessconducted by the division. Although we continue to do business with theseclients, and have no reason to believe we will cease doing business with any ofthem in the foreseeable future, the loss of any large client could adverselyimpact our results of operations if the revenue stream were not replaced byother sales.

 

TheNWB Telecom division derives a significant amount of revenue from a relativelysmall number of clients. If we were to lose one or more of these customers, andthe business were not replaced, it could have an adverse impact on our resultsof operations and financial condition. Three customers accounted for 10% ormore of NWB Telecom revenues during the year ending December 31, 2009,with one accounting for more than 10% of total Company revenues, and our topten customers accounted for a firm majority of the division’s business.Although we to continue to do business with these clients, and have no reasonto believe we will cease doing business with any of them in the foreseeablefuture, the loss of any large client could adversely impact our results ofoperations if the revenue stream were not replaced by other sales.

 

*Changes in Governmental Regulations Could Slow the Growth ofthe VoIP Market.*

 

In the United States,changes in governmental regulation are being considered that may negativelyimpact the VoIP telephony market. The Federal Communications Commission (the “***FCC***”) is examining the enactment of new regulationsgoverning Internet telephony and the question of whether certain forms oftelephone services over the Internet should be subject to the same FCCregulations as telecommunications services. Phone companies in the U.S. and abroad are seeking the adoption ofregulations to require VoIP providers or users to pay a charge to local serviceproviders. The cost of providing Internet phone service could increase as aresult of these actions or more aggressive regulation or taxation of VoIPservices by the FCC or foreign governments, which could result in slower growthand decreased profitability for the industry and potentially for the Company.

 

*We May Be Unable to Manage Our Growth and MultipleBusiness Lines Effectively.*

 

Due to both thedifficulties faced throughout much of 2008 and 2009, as well as opportunitiesthat have arisen, we have enacted several changes in the daily operations ofthe Company as well as in its strategic orientation. The asset purchaseagreement between Aeropointe and the Company as well as the introduction ofpackaging long-distance and international telephony services for a retailmarket represent some of the company’s efforts to adapt to a novel situation.At present, the company must currently focus on multiple business linessimultaneously. We are a young company with a limited operating history, andour management team regularly faces new challenges. None of our seniorexecutives has operated a public reporting company before. To continue tocompete in the highly competitive and rapidly developing IP communicationsindustry we will be forced to quickly adapt to changing market conditions inmultiple areas, such as shifts in capital needs, in fundamental communicationstechnologies, and in product lines and supply sources, and there can be noassurance management can meet these challenges.

 

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*Business Acquisitions, Dispositions, Joint Ventures, orPrivate Equity Transactions Entail Risks and May Disrupt our Business,Dilute Stockholder Value or Distract Management Attention.*

 

We have grown in partthrough the acquisition of companies, products, or technologies. We expect tocontinue to review opportunities to acquire other businesses or technologiesthat would complement our current products, expand the breadth of our markets,enhance our technical capabilities or otherwise offer growth opportunities.Acquisitions are inherently risky, and no assurance can be given that ourprevious or future acquisitions will be successful or that they will notmaterially and adversely affect our business, operating results, or financialcondition. If we make any further acquisitions, we may issue stock that woulddilute our existing shareholders’ percentage of ownership, and we may incursubstantial debt, and/or assume contingent or unknown liabilities. In the eventof any equity-based financing transaction, we will need to secure additionalcapital. Such equity may have rights and preferences superior to the Company’soutstanding Common Stock, and the issuance of such equity by the Company willdilute the ownership percentage of the Company’s existing shareholders.

 

*We Rely Upon Key Personnel, and Must Attract and RetainAdditional Qualified Personnel.*

 

We are dependent on thecontinued efforts of our senior management team, including our Chairman, M.David Kamrat; our President, and Chief Executive Officer, R. Steven Bell; ourChief Operations Officer, Shawn Lane; and our Chief Financial Officer,Secretary, and Treasurer, Shehryar Wahid. If these or other key personnel donot continue to be active in management, our business, financial condition, orresults of operations could be adversely affected. We cannot be certain that wewill be able to continue to retain our senior executives or other personnelnecessary for the development of our business. In addition, at present there isa shortage of qualified management, sales, and technical personnel in ourindustry and we are in direct recruiting competition for these applicants withlarger businesses that are able in some cases to offer more competitivecompensation. We plan to use stock warrants and other forms of equitycompensation as key components of our employee compensation program in order toalign employees’ interests with the interests of our stockholders, to encourageemployee retention, and to provide competitive compensation. The changingregulatory landscape could make it more difficult and expensive for us to grantstock benefits to employees in the future. In addition, the use of alternativeequity incentives may increase our compensation expense and reduce ourearnings, and may dilute other shareholders.

 

*We Extend Credit to Customers for Product Purchases,Creating Bad Debt Risk.*

 

A substantial portion ofour receivables results from credit extended to customers for purchases of ourproducts and services. We cannot be sure that we will be able to collect all ofthese accounts receivable. Although we have internal credit risk policies toidentify companies with poor credit histories, we may not effectively managethese policies and may provide services to companies that refuse or are unableto pay. The risk is even greater in foreign countries, where the legal andcollection systems available may not be adequate for us to enforce the paymentprovisions of our contracts. Our cash reserves will be reduced and our resultsof operations will be materially adversely affected if we are unable to collectamounts from our customers. Such future losses, if incurred, could harm ourbusiness and have a material adverse effect on our results and financialcondition.

 

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*Litigation May Harm Our Operating Results or FinancialCondition.*

 

We are a party tolawsuits in the normal course of our business. Litigation can be expensive,lengthy, consumptive of management’s time and disruptive to normal businessoperations. The results of complex legal proceedings are difficult to predict,and expensive to defend or pursue. An unfavorable resolution of a particularlawsuit could have a material adverse effect on our business, operatingresults, or financial condition. For additional information regarding certainof the lawsuits in which we are involved, see Item 3, “Legal Proceedings.”

 

*Our International Operations Subject Us to Additional Risksand Increased Costs.*

 

We intend to continue topursue international opportunities, both in VoIP service and VoIP equipmentsales. International operations are subject to a number of risks and barriers,including:

 

·                  unexpected changes in foreign regulatoryrequirements, telecommunications standards, and regulatory and contractenforcement and interpretation;

 

·                  tariffs and other trade barriers,exchange controls, or other currency restrictions;

 

·                  difficulty in collecting receivables andrecovering equipment;

 

·                  difficulty in adapting to changes inforeign technological environments;

 

·                  the need to customize marketing andproduct features to meet foreign requirements;

 

·                  inadequate protection of intellectualproperty in countries outside the United States; and

 

·                  foreign political and economicinstability, particularly in emerging markets where VoIP growth is robust.

 

We may not be able toovercome some of these barriers and may incur significant costs in addressingothers. In addition, foreign currency fluctuations may affect the prices of ourproducts. Our prices for TELES products are denominated in Euros, but otherwiseour sales prices are primarily denominated in U.S. Dollars. Our revenues aretherefore affected by fluctuations in the Euro/Dollar exchange rate. To theextent that the Dollar loses value relative to the Euro, our pricing strengthand gross margins will be negatively affected: the currency of most of ourcustomers and our fixed costs (Dollars) would become less valuable relative tothe currency of our primary equipment vendor, TELES (Euros). In addition, someof our expenses are denominated in Mexican Pesos. To the extent that the Dollarloses value relative to the Peso, our margins could be negatively affected.

 

*We Face State Tax Uncertainties.*

 

Various states havesought to require the collection of state and local sales taxes on productsshipped to the taxing jurisdiction’s residents. We cannot predict the level ofcontact, including electronic commerce, shipping, and Internet or IPcommunications activity that might give rise to future or past tax collectionobligations based on existing law. Many states aggressively pursue out-of-statebusinesses, and legislation that would expand the ability of states to imposesales tax collection obligations on out-of-state businesses has been introducedin Congress on many occasions. A change in the law could require us to collect salestaxes or similar taxes on sales in states in which we have no presence andcould potentially subject us to a liability for prior year sales, either ofwhich could have a material adverse effect on our business, financialcondition, and results of operations.

 

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*Our Business Could be Disrupted by Systems Failure*.

 

Our operations aredependent on the reliability of information, telecommunication, and othersystems that are used for sales, distribution, marketing, purchasing, inventorymanagement, order processing, customer service, and general accountingfunctions. Interruption of our information systems, collocation networks,Internet, or telecommunication systems could have a material adverse effect onour business, financial condition, cash flows, and results of operations.

 

*We Face Increased Expenses as a Result of Being a PublicCompany*.

 

The costs of being a publiccompany have increased significantly since the enactment of the Sarbanes-OxleyAct of 2002 (the “***Sarbanes-Oxley Act***”). Weexpect that our general and administrative expenses, in particular legal,accounting, and IT systems expenses, will increase as a result of our effortsto comply with applicable securities laws, in particular with theSarbanes-Oxley Act. This process will divert internal resources, and may forceus to implement new internal controls and reevaluate our financial reporting,or hire additional personnel, in order for us to maintain our compliance with Section 404of the Sarbanes-Oxley Act. If we are unable to effectively implement thesechanges, it could harm our operations and financial results, and could resultin our being unable to obtain an unqualified report on internal controls fromour independent auditors.

 

*We May Undertake New Business Ventures and Enter intoNew Lines of Business.*

 

Management is constantlyevaluating new opportunities in the VoIP service and equipment industry,including strategic partnerships, joint ventures and acquisitions, orcombinations of these entities. Further, there can be no assurances that suchopportunities, particularly those involving acquisitions, will be successful.The Company may finance these new business opportunities through a combinationof equity and/or debt. If the Company determines to finance these opportunitiesby issuing additional equity, then such equity may have rights and preferencessuperior to the Company’s outstanding Common Stock, and the issuance of suchequity will dilute the ownership percentage of the Company’s existingshareholders. If the Company determines to finance these opportunities byincurring debt, then such debt may not be available to the Company on favorableterms, if at all. As of the date of the filing of this Report, we consider allsuch opportunities to be in the evaluation stage, and their potential effectupon our gross and net profits too speculative to quantify.

 

**Risks Most Specific to our NWB Networks Division (IPCommunications Equipment Resale).**

 

The following are certainrisks we consider most important to the NWB Networks division of our business,but these risks should be read in connection with all the other risks describedherein (including those specific to other divisions).

 

*Rapid Technological Change and Inventory Obsolescence*.

 

The VoIPtelecommunication industry is characterized by rapid technological change andfrequent introductions of new or enhanced products. To timely meet demand andobtain better purchase pricing, we may be required to carry significantinventory levels of certain products, which subject us to increased risk ofinventory obsolescence. We participate in first-to-market and end-of-lifepurchase opportunities, both of which carry the risk of inventory obsolescence.Special purchase products are sometimes acquired without return privileges, andthere can be no assurance that we will be able to avoid losses related to suchproducts if the related purchase contract is not completed. In addition, asillustrated below in Item 7, “Management’s Discussion and Analysis of FinancialConditions and Results of Operations,” we currently sell used or refurbishedproducts, as well as new products. Manufacturers with large market share, particularlyCisco, may release new generations of products that make used or refurbishedproducts obsolete or unattractive, and Cisco and other manufacturers mayrelease new generations or types of products that make the new products we holdin inventory or otherwise sell or distribute obsolete or unattractive. The riskof rapid technological change is tied to the risk of customer and vendorconcentrations: If, as a result of technological or other change, the demandsof our key customers or the supplies of our key vendors no longer correspond,our revenues may suffer, or we could be forced to seek new customers, newsuppliers or both.

 

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*Concentrated Vendor/Product Risk.*

 

Since the sale of our IPGear, Ltd. subsidiary and entry into an exclusive distribution agreement withTELES, we have been relying to an increasing degree upon TELES for supply ofthe VoIP equipment that we distribute and sell. In fact, nearly all of ourprofitable equipment sales since the sale of our IP Gear, Ltd. subsidiary havebeen of TELES equipment. If TELES is unable to continue to supply high-demandequipment at attractive prices, our revenues, and/or gross profits willdecline. In addition, we are subject to a risk of supply interruption ifTELES’s business suffers or if our relationship with TELES suffers. We derive asubstantial portion of our revenues from sales of the TELES iGate and vGate productlines, and we expect that these products will continue to account for asignificant portion of our revenues for the foreseeable future. As a result,factors adversely affecting the pricing of or demand for these products, suchas competition, technological change or a slower than anticipated rate ofdevelopment or deployment of new products, features, and technologies couldcause a significant decrease in our revenues and profitability. No other vendoraside from TELES accounts for more than 10% of NWB Networks’ costs paid tovendors.

 

*Reliance on Market Purchase and Sale Opportunities*.

 

We acquire a significantportion of our non-TELES inventory on secondary markets as used or refurbishedproduct, and we rely upon purchasing opportunities on the open market. We donot currently rely upon purchases direct from manufacturers, nor do we purchaseprimarily from “top tier” distributors of new products (top tier meaning thosedistributors who purchase directly from major manufacturers such as Cisco). We donot have long-term supply or sale contracts for inventory, and we do notparticipate in large buying opportunities, which may offer larger discounts.Termination, interruption, or contraction of our relationships with ourvendors, or unavailability on the open market of our core products, could havea material adverse effect on our business, financial condition, cash flows, orresults of operations.

 

*Historical Dependence on a Small Number of Customers(Concentrated Customer Risk), the Loss of, or Reduction in, Purchases by any ofwhich Could Have a Material Adverse Effect on our Revenue.*

 

Historically, asubstantial portion of our revenue has been derived from large purchases by asmall number of network equipment providers, systems integrators, and distributors.We do not enter into long-term sales agreements in which the customer isobligated to purchase a set quantity of our products. Based on our experience,we expect that our customer base may change from period to period. If we lose alarge customer and fail to add new customers there could be a material adverseeffect on our results of operations.  Twocustomers represented more than 10% of NWB Networks’ revenues during the yearending December 31, 2009, and our top ten customers accounted for the majorityof our business in the division. Although we continue to do business with theseclients, and have no reason to believe we will cease doing business with any ofthem in the foreseeable future, the loss of any large client could adverselyimpact our results of operations if the revenue stream were not replaced byother sales.

 

The continuing weaknessin credit markets has affected the world economy and has severely restrictedaccess to capital, and has materially impacted the Company’s ability to sell telecommunicationshardware. Our customers are, and may continue to be, less willing and able tomake capital investments than in the past.

 

With carrier andservice-provider customers, this has translated into the cancellation and delayof many projects, including major infrastructure projects, of which ourswitching and gateway products are often a major component.

 

Small business andenterprise customers could benefit from the cost savings generated by theinstallation of TELES equipment. Even so, many are reluctant to make theinvestments necessary, or unable to access the credit needed, to move suchprojects forward. To overcome such reluctance, we have increased our marketingefforts and worked diligently with our distributors and resellers; encouragingthem to provide trade credit, and equipment trials to demonstrate the savingsfeatures of our products. Additionally, we have continued to develop ourchannel sales initiatives to broaden our distribution, create greater marketawareness of our offerings, and access new markets.

 

Chief among these marketsare the small business space and the government space. These efforts are highlydependent on the willingness and ability of our distributors and resellers toinvest in the technical and marketing skills and methods needed to bring newproducts to their product lines. Such investment has been noticeably reduced ontheir part, and that reduction presents an additional risk to NWB goingforward. We continue to see interest in our products and our channel salesprogram, but the velocity of adoption has been slower than expected. Thepossibility that the velocity of program adoption will continue to lag behindprojections represents another risk to the Company.

 

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**Risks Most Specific to Our NWB Telecom Division (WholesaleVoIP Service Provider).**

 

The following are certainrisks we consider most important to the NWB Telecom division of our business,but these risks should be read in connection with all the other risks describedherein (including those specific to other divisions).

 

*Concentrated Customer Risk.*

 

We derive a significantamount of our revenue from a relatively small number of clients. If we were tolose one or more of these customers, and the business were not replaced, itcould have an adverse impact on our results of operations and financialcondition. Each of three customers accounted for 10% or more of NWB Telecomrevenues during the year ending December 31, 2009, with one customergenerating more than 10% of revenues for the Company as a whole, and our topten customers accounted for a firm majority of NWB Telecom revenues during theyear ending December 31, 2009. Although we continue to do business withthese clients, and have no reason to believe we will cease doing business withany of them in the foreseeable future, the loss of any large client couldadversely impact our results of operations if the revenue stream were notreplaced by other sales.

 

*Potential for Key Supplier Interruptions.*

 

We had two vendors fromwhom we purchased over 10% of NWB Telecom traffic for resale, as measured bycost. Furthermore, we do not rely upon or maintain any long term supply ortermination service contracts, and all of our vendor agreements are terminableat will by either party without notice. In addition, our suppliers rely uponshort term contracts or arrangements with other local service providers,including tier 1 service providers, to supply termination routes; thesecontracts or arrangements may also be terminated upon short notice. Therefore,our VoIP service business is subject to supply disruptions that are not withinour control and that could have a material adverse effect upon the NWB Telecomdivision’s financial results.  In fact,our NWB Telecom division has experienced loss or interruption of key suppliers,including suppliers who each accounted for over 10% of NWB Telecom revenueduring 2009, and the loss or interruption substantially negatively impacted NWBTelecom’s revenue and gross profit.

 

In addition, criticalissues concerning the commercial use of the Internet, including security, cost,ease of use and access, intellectual property ownership, and other legalliability issues, remain unresolved and could materially and adversely affectboth the growth of Internet usage generally and our business in particular.Finally, we will not be able to increase our VoIP service traffic if Internetinfrastructure does not continue to expand to more locations worldwide,particularly into emerging markets and developing nations. The risk of negativeimpact on our gross profit due to supply interruptions is increased by ourrecent reliance on a small number of vendors offering relatively high-marginVoIP termination services in foreign countries.

 

 

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*We Rely on Third-Party Providers of Phone and Data Lines andOther Telecommunications Services and Local Communications Service Providers.*

 

Our business model depends on the availability of the Internet andtraditional telephone networks to transmit voice and fax calls. Third parties maintainand own these networks, other components that comprise the Internet, andbusiness relationships that allow telephone calls to be terminated over thepublic switched telephone network. Some of these third parties are telephonecompanies. They may increase their charges for using these lines at any timeand thereby increase our expenses. They may also fail to maintain their linesproperly, fail to maintain the ability to terminate calls, or otherwise disruptour ability to provide service to our customers. Any such failure that leads toa material disruption of our ability to complete calls or provide otherservices could discourage our customers from using our network. We maintainrelationships with local communications service providers in foreign countries,some of whom own the equipment that translates calls from traditional voicenetworks to the Internet, and vice versa. We rely upon these third parties bothto provide lines over which we complete calls and to increase their capacity,when necessary, as the volume of our traffic increases. In turn, many of theseparties rely upon their relationships with local phone companies and the use oflocal PSTN to complete calls at the termination location. There is a risk thatthese third parties may be slow, or may fail, to provide lines, which wouldaffect our ability to complete calls to certain destinations. Because we relyupon entering into relationships with local service providers to expand intoadditional countries, we may not be able to increase the number of countries towhich we provide service. Finally, any technical difficulties that theseproviders suffer, or difficulties in their relationships with companies thatmanage the public switched telephone network, could affect our ability to transmitcalls to the countries that those providers help serve, significantly reducingour revenue and cash flows, as well as hurting our reputation.

 

*Single Points of Failure on Our Network, or ComputerVandalism, May Make our Business Vulnerable.*

 

We currently operate twoprincipal network operations centers, one in Eugene, Oregon, and one inGuanajuato, Mexico.  In some cases, wehave designed redundant systems, provided for excess capacity, and taken otherprecautions against platform and network failures, as well as facility failuresrelating to power, air conditioning, destruction, or theft. Nonetheless, someof our infrastructure and functionality, including that associated with certaincomponents of our wholesale business, such as switching or routing equipment,operate as a single point of failure, meaning failures of the type describedmay prohibit us from offering services. If the overall performance of theInternet is seriously downgraded by website attacks, failure of serviceattacks, or other acts of computer vandalism or virus infection, our ability todeliver our communication services over the Internet could be adverselyimpacted, which could cause us to have to increase the amount of traffic wemust carry over alternative networks, including the more costly public switchedtelephone network. In addition, our business interruption insurance may notcover losses we could incur because of any such disruption of the Internet.

 

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**Risks Attendant to Entering the Prepaid Calling CardBusiness.**

 

*We maynot be able to obtain sufficient or cost-effective termination capacity toparticular destinations.*

 

Most of our telecommunicationstraffic is terminated through third-party providers. In order to support ourminutes-of-use demands and geographic expansion, we may need to obtainadditional termination capacity or destinations. We may not be able to obtainsufficient termination capacity from high-quality carriers to particulardestinations or may have to pay significant amounts to obtain such capacity.This could result in our not being able to support our minutes-of-use demandsor in a higher cost-per-minute to particular destinations, which couldadversely affect our revenues and margins.

 

*Thetermination of our carrier agreements with foreign partners or our inability toenter into carrier agreements in the future could materially and adverselyaffect our ability to compete, which could reduce our revenues and profits.*

 

We rely upon our carrieragreements with foreign partners in order to provide our telecommunicationsservices to our customers. These carrier agreements are for finite terms and,therefore, there can be no guarantee that these agreements will be renewed atall or on favorable terms to us. Our ability to compete would be adverselyaffected if our carrier agreements were to be terminated, our supplierscapacity were to be diminished, or we were unable to enter into carrieragreements in the future to provide our telecommunications services to ourcustomers, which could result in a reduction of our revenues and profits.

 

*Ourcustomers, particularly our wholesale carrier customers, could experiencefinancial difficulties, which could adversely affect our revenues andprofitability if we experience difficulties in collecting our receivables.*

 

As a provider ofinternational long distance services, we depend upon sales of transmission andtermination of traffic to other long distance providers and the collection ofreceivables from these customers. The wholesale market continues to featuremany smaller, less financially stable companies. If continued weakness in thetelecommunications industry reduces our ability to collect our accountsreceivable from our major customers, particularly our wholesale carriercustomers, this may substantially affect our operations. Moreover, theafter-effects of the collapse of the mortgage-backed credit markets may affectour customers’ access to liquidity and impair our ability to collect onreceivables.

 

*Ourrevenues could suffer if we, or our distributors and sales representatives failto effectively market and distribute our prepaid calling card  services.*

 

We currently rely on ourdistributors and representatives for marketing and distribution of our prepaidcalling card services. In foreign countries, we are dependent upon ourdistributors and independent sales representatives, many of whom also sellservices or products of other companies. As a result, we cannot control whetherthese foreign distributors and sales representatives will devote sufficientefforts to selling our services. In addition, we may not succeed in findingcapable retailers and sales representatives in new markets that we may enter.If our distributors or sales representatives fail to effectively market ordistribute our prepaid calling card services, our ability to generate revenues and grow our customer basecould be substantially impaired

 

*Concentrated Vendor and CustomerRisk*

 

NWB Retail is the Company’snewest division, beginning operations in the fourth quarter of 2009. In thatquarter, the division was primarily dependent on a single vendor, while threecustomers each accounting for more than 10% of revenue comprised all of oursales. The Company has since taken over much of the operations for which thevendor was responsible and expects to diversify NWB Retail’s customer base asthe division establishes itself.

 

*Regulationof Telecom in the United States*

 

Telecommunicationsservices are subject to government regulation at both the federal and statelevels in the United States. Any violations of the regulations may subject usto enforcement actions, including interest and penalties. The FCC hasjurisdiction over all telecommunications common carriers to the extent theyprovide interstate or international communications services. Each stateregulatory commission has jurisdiction over the same carriers with respect totheir provision of local and intrastate communications services. Localgovernments often indirectly regulate aspects of our communications business byimposing zoning requirements, taxes, permit or right-of-way procedures orfranchise fees. Significant changes to the applicable laws or regulationsimposed by any of these regulators could have a material adverse effect on ourbusiness, operating results and financial condition.

 

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**Risks Associated with the Company’s Stock.**

 

*Relative Illiquidity of Stock; Share Price Fluctuations*.

 

There is relativelylimited trading of our stock in the public markets, and this imposessignificant practical limitations on any shareholder’s ability to achieveliquidity at any particular quoted price. Efforts to sell significant amountsof our stock on the open market may precipitate significant declines in theprices quoted by market makers. The market price for our ordinary shares andthe prices of shares of other technology companies have been volatile. Ourquarterly and annual operating results are difficult to predict and mayfluctuate significantly. It is possible that we will fail to achieve revenue orprofit expectations in the future. The following factors, many of which arebeyond our control, may cause significant fluctuations in the market price ofour shares:

 

·                  fluctuations in our quarterly revenuesand earnings or those of our competitors;

 

·                  shortfalls in our operating resultscompared to levels forecast by securities analysts;

 

·                  announcements concerning us, ourcompetitors, or IP telephony, including technological innovations;

 

·                  the introduction of new products, changesin product lines, or changes in business models; and

 

·                  market conditions in the industry, and inthe telecommunications and technology securities markets.

 

Our common shares aresporadically and thinly-traded on the over-the-counter market on the OTCBulletin Board (the “***OTCBB***”),meaning that the number of persons interested in purchasing our Common Stock ator near ask prices at any given time may be relatively small or non-existent.This situation is attributable to a number of factors, including the fact thatwe are a small company that is relatively unknown to stock analysts, stockbrokers, institutional investors, and others in the investment community thatgenerate or influence sales volume, and the fact that even if we came to theattention of such persons, they tend to be risk-averse and would be reluctantto follow a company with an operating history as limited and burdened with pastlosses as ours or purchase or recommend the purchase of our shares until suchtime as we became more seasoned and viable. As a consequence, there may beperiods of several days or more when trading activity in our shares is minimalor non-existent, as compared to a seasoned issuer, which has a large and steadyvolume of trading activity that will generally support continuous sales withoutan adverse effect on share price. We cannot provide any assurance that abroader or more active public trading market for our common shares will developor be sustained, or that current trading levels will be sustained.

 

*Substantial Shareholders May Sell All or a SubstantialPortion of the Shares They Own or Acquire at any Time in the Future, whichCould Cause the Market Price of our Common Stock to Decline.*

 

The sale, or thepossibility of a sale, by any substantial holder of our Common Stock couldcause the market price of our stock to decline. The sale of a substantialnumber of shares or the possibility of such a sale also could make it moredifficult for us to sell new Common Stock or other new equity securities in thefuture at a time and at a price best for the Company.

 

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*We Do Not Anticipate Declaring any Cash Dividends on OurOrdinary Shares.*

 

We have not paid cashdividends in the past and do not plan to pay any cash dividends in the nearfuture.

 

*Voting Control by Principal Stockholders.*

 

As of March 6, 2009,M. David Kamrat and Noah Kamrat, father and son, together with their spouses(collectively, the “***KamratFamily***”),beneficially control approximately 35.2% of our Common Stock, largely due totheir prior ownership of Qualmax common stock; P&S Spirit, an entitycontrolled by Dr. Selvin Passen and Jacob Schorr, Ph.D., together with Dr. SelvinPassen separately, also beneficially controls approximately 29.6% of our CommonStock. Therefore, the members of Kamrat Family, P&S Spirit, and Dr. Passencollectively are able, indirectly as a result of their influence on mattersrequiring Company shareholder vote, to significantly influence the vote onmatters requiring our stockholders’ approval, including the election ofdirectors. For more information regarding stock ownership of principalshareholders see Item 12, “Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters.”  As a result, our directors and executive officers beneficially own asubstantial portion of our outstanding common stock.  These holders, if they were to act together,would likely be able to direct the outcome of matters requiring approval of thestockholders including the election of new directors and other corporateactions.  These decisions may conflictwith the interests of our other stockholders.

 

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**ITEM 2.**        **PROPERTIES**

 

Our U.S. operations areheadquartered in Dallas, Texas, in leased commercial premises in one building,at the addresses 10015 and 10045 Aeronca Lane, McKinney, Texas, and in Eugene,Oregon, at 340 W. 5th Avenue in leasedcommercial premises in one building. Our Mexico operations are headquartered inthe city of Guanajuato, in the state of Guanajuato, Mexico, in leasedcommercial premises. The principal terms and lease payment obligations arediscussed in more detail under Item 8, “Financial Statements and SupplementaryData — Note K.”

 

**ITEM 3.**        **LEGALPROCEEDINGS**

 

**MPILitigation**

 

On September 15,2006, we sold our subsidiary, International Importers, Inc., and acquired,by way of reverse acquisition, all of the assets and assumed all of theliabilities of Qualmax (the “***Reverse Acquisition***”).

 

As a result of theReverse Acquisition, the Company assumed the liabilities of Qualmax.  Pursuant to the asset purchase agreementbetween Qualmax and BOS, BOS agreed to indemnify and hold Qualmax harmless fromliability, without limitation, arising from the claims raised in the MPILitigation, and BOS has undertaken defense of Qualmax at BOS’s expense.  As a part of the Company’s assumption of liabilitiesand indemnification, it assumed the Qualmax litigation styled as S.A.R.L.Bosanova v. S.A.R.L. Media Partners International MPI, Societe BOS BetterOnline Solutions Limited, and Qualmax Inc. Case No. R.G. N 07-08379 inwhich Qualmax was a defendant in such litigation which was filed in 2007 beforethe Trade Tribunal of Nanterre, France.

 

On or about September 18,2008, the French Tribunal at Versailles overruled a lower Court ruling in thematter; declared the case to be beyond the scope of French jurisdiction; andordered the plaintiffs to pay a nominal sum of 2,000 Euros to BOS. As of April 15,2010, there have been no changes in the status of the subject matter.  At present, management does not believe thatthis matter poses any significant financial risk to the Company.

 

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**PiecomTech Litigation**

 

Effective July 1,2007 we sold our subsidiary, IP Gear Ltd., to TELES (“***TELES Agreement***”).  Amaterial aspect of the TELES Agreement included a commitment of the Company toindemnify, hold harmless and defend TELES and IP Gear, Ltd. against anyliabilities arising from the Piecom Tech litigation (herein).  As a partof the consideration for such an obligation, the Company is entitled to theproceeds, if any, of the Piecom Tech litigation.

 

IP Gear was namedas a defendant in a lawsuit styled Piecom Tech. Israel Ltd. v. IP Gear Ltd.,Case No, 26-05166-07-5, in the Herzliyah, Israel Regional Court. Piecom Tech.had been a vendor to IP Gear, Ltd and was contracted to provide outsourcedcontract manufacturing services. There is currently a deposit held by Piecom of$214,000 towards the production of equipment not yet delivered and an amount inescrow of $32,000 pending resolution of this matter. Release of the escrowfunds of $32,000 depends upon the outcome of pending litigation between Piecomand IP Gear, Ltd. Neither of these amounts is represented on the balance sheetof the Company. On preliminary motions, argued in May of 2008, the Courtruled in favor of IP Gear, Ltd. A mediation hearing occurred in August of2008 but the matter was not resolved. The next mediation hearing was scheduledfor December, 2009 but the plaintiff did not appear. The matter has now beenreferred back from the Mediator to the Court. At present, management does notbelieve this matter poses any significant financial risk to the Company.

 

**CRG West**

 

CRGWest, a Los Angeles-based company from which NWB had been leasing space forequipment, has claimed $24,000.00 from NWB in allegedly overdue rent paymentsand holdover fees. The claims were first made by email in May 2009, for asmaller amount, and then progressed to a collection agency. NWB has retained anLA based attorney, Gerard Casale, to defend its interests and argue what NWBbelieves is a valid defense in this matter, which is currently in settlementnegotiations. CRG and their agency have not filed suit on this matter in acourt of law.

 

**Roberts Kaplan**

 

Alaw firm that performed services in connection with the NWB-Qualmax mergerfiled suit against NWB for about $7,000 in the county court for PortlandOregon, on or about January 24, 2010. The matter was settled on thepayment of $5,000 to the Plaintiff, in return for a full release and dismissal,and management does not believe this matter will have any other material effecton the Company.

 

**BOS**

 

Then-shareholderBOS sent a certified letter to NWB during the fourth Quarter of 2009 demanding$500,000 in money damages and a change in the NWB Board. This matter wasamicably resolved without any lawsuit being filed, and BOS has executed awritten waiver and release of all of the demands set forth in the above-referencedcertified letter or otherwise against the Company. Effective February 25,2010, BOS entered into a transaction to sell all of its NWB shares and warrantsto P&S Spirit LLC, in a private sale to which the company was not a Party.That sale remains subject to forfeiture and the return to BOS in the eventP&S fails to complete payment within 2 years, as agreed between them.  Management does not believe this matter willhave any material effect on the Company.

 

**AdditionalDisputes**

 

In addition to thematters discussed above, the Company is involved in various disputes that arisein the ordinary course of business.

 

**ITEM 4.        RESERVED.**

 

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**PART II**

 

**ITEM 5.****                       ****MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUERPURCHASES OF EQUITY SECURITIES**

 

**Market for Common Stock**

 

Our Common Stock iscurrently traded on the OTCBB under the symbol “NWBD.OB.” The following tablesets forth, for the fiscal quarters indicated, high and low sale prices for theCommon Stock on the over-the-counter market, as reported by the NationalAssociation of Securities Dealers, Inc. (“***NASD***”).The information below reflects inter-dealer prices, without retail mark-up,mark-down or commissions, and may not necessarily represent actualtransactions.   There was little tradingin our common stock during the period reflected.

 
| ** **                               | ** ** | **Low Sale** | ** ** | **High Sale** | ** ** |
|------------------------------------------|------------|-------------------|------------|--------------------|------------|
| Fiscal Year Ended December 31, 2009 |       |              |       |               |       |
| First Quarter                            |       | $                 | 0.005      |               | $          | 0.025 |   |
| Second Quarter                           |       | 0.003             |       | 0.030              |       |
| Third Quarter                            |       | 0.004             |       | 0.010              |       |
| Fourth Quarter                           |       | 0.003             |       | 0.015              |       |
|                                     |       |              |       |               |       |
| Fiscal Year Ended December 31, 2008 |       |              |       |               |       |
| First Quarter                            |       | $                 | 0.030      |               | $          | 0.100 |   |
| Second Quarter                           |       | 0.010             |       | 0.060              |       |
| Third Quarter                            |       | 0.020             |       | 0.050              |       |
| Fourth Quarter                           |       | 0.010             |       | 0.040              |       |

 

**Stockholders**

 

As of April 1, 2010,there were approximately 1,000 holders of record of our Common Stock.

 

**Dividends**

 

To date, we have not paidany cash dividends on our Common Stock and we do not contemplate the payment ofcash dividends in the foreseeable future. Our future dividend policy willdepend on our earnings, capital requirements, financial condition, and otherfactors considered relevant to our ability to pay dividends.

 

**Stock Warrant Grants**

 

For the twelve monthsended December 31, 2009, we granted 648,385 new stock warrants. See NoteG, below.

 

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**Equity Compensation Plan Information**

 

The following tableprovides information, as of December 31, 2009, with respect to all of ourcompensation plans under which equity securities are authorized for issuance:

 
| ** **                | ** ** | ** **                           | ** ** | ** **                        | ** ** | **Number of securities**          | ** **       |
|---------------------------|------------|--------------------------------------|------------|-----------------------------------|------------|---------------------------------------------|------------------|
| ** **                | ** ** | ** **                           | ** ** | ** **                        | ** ** | **remaining available**                | ** **       |
| ** **                | ** ** | **Number of securities**   | ** ** | ** **                        | ** ** | **for future issuance**           | ** **       |
| ** **                | ** ** | **to be issued upon** | ** ** | **Weighted-average**              | ** ** | **under equity**                       | ** **       |
| ** **                | ** ** | **exercise of**                 | ** ** | **exercise price of**   | ** ** | **compensation plans**                 | ** **       |
| ** **                | ** ** | **outstanding options,**        | ** ** | **outstanding options,**     | ** ** | **(excluding securities**              | ** **       |
| **Plan category**    | ** ** | **warrants and rights**    | ** ** | **warrants and rights** | ** ** | **reflected in column (a))** | ** **       |
| ** **                | ** ** | **(a)**                              | ** ** | **(b)**                           | ** ** | **(c)**                                     | ** **       |
|                      |       |                                 |       |                              |       |                                        |             |
| Equity compensation plans |       | 2009: 648,385                        |       |                              | 0.01       |                                        |             |   |
|                      |       | 2001: 2,920,000                      |       | $                                 | 0.20       |                                        | 2009: 41,500,000 |   |

 

**Recent Sales of Unregistered Securities**

 

*Redemption of Shares of Company Stock from B.O.S.*

 

The Companypurchased a total of 6,600,000 Company shares from BOS at a total cost of$165,000, in 2008.

 

As of December 31,2009, BOS was the holder of   61,441,827 shares of the Company’s Common Stock pluswarrants to acquire another 1,430,178 shares until December 31, 2010 (Forcurrent BOS shareholdings, see Item 12, note 16 of this Annual Report on Form 10-K).

 

*Qualmax Merger Completion*

 

On January 23,2009, the Company completed its merger with Qualmax, as reported on theCompany’s Current Report on Form 8-K, filed with the SEC on January 30,2009, and which is incorporated herein by reference. Pursuant to a fairnesshearing conducted in the State of Oregon on January 23, 2009 (the “***Fairness Hearing***”), the Director ofthe State of Oregon Department of Consumer and Business Services, Division ofFinance and Corporate Securities (the “***Director***”),found that the Merger was fair, just and equitable, and free from fraud. As aresult of the Fairness Hearing, the Company obtained a valid exemption fromregistration under Section 3(a)(10) of the Securities Act of theshares of common stock of the Company issuable to the stockholders of Qualmaxin connection with the Merger. At a special meeting of the stockholders of Qualmaximmediately following the Fairness Hearing the stockholders of Qualmax approvedthe Merger Agreement and the transactions contemplated thereunder. Inaccordance with the Merger Agreement, all conditions and prerequisites to theMerger were met and completed, and the Merger Agreement was consummatedeffective January 23, 2009.There have been no amendments, material or otherwise,to the Merger Agreement. Qualmax shares were converted into shares of theCompany at the conversion rate of 13.348308 Company shares for each share ofQualmax stock.

 

**ITEM 6.**        **SELECTEDFINANCIAL DATA**

 

This section is notapplicable to the Company.

 

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**ITEM 7.****                       ****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

 

**Forward-Looking Statements- Cautionary Statement**

 

The following discussioncontains “forward-looking statements” within the meaning of the Private SecuritiesLitigation Reform Act of 1995. Forward-looking statements, written, oral orotherwise, are based on the Company’s current expectations or beliefs ratherthan historical facts concerning future events, and they are indicated by wordsor phrases such as (but not limited to) “anticipate,” “could,” “may,” “might,”“potential,” “predict,” “should,” “estimate,” “expect,” “project,” “believe,”“think,” “intend,” “plan,” “envision,” “continue,” “intend,” “target,”“contemplate,” “budgeted”, or “will” and similar words or phrases or comparableterminology. Forward-looking statements involve risks and uncertainties. TheCompany cautions that these statements are further qualified by importanteconomic, competitive, governmental, and technological factors that could causethe Company’s business, strategy, or actual results or events to differmaterially, or otherwise, from those in the forward-looking statements. We havebased such forward-looking statements on our current expectations, assumptions,estimates and projections, and therefore there can be no assurance that anyforward-looking statement contained herein, or otherwise made by the Company,will prove to be accurate. The Company assumes no obligation to update theforward-looking statements.

 

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**Overview**

 

*Acquisition of Certain AeropointeAssets.*

 

The Company initiated thepurchase of most of the assets of Aeropointe Partners Inc. (“***Aeropointe***”), a Texas Corporation,during the third quarter of 2009. The company had been doing business withAeropointe since the end of 2008 in the building of long distance carrierroutes for the company’s NWB Telecom division. The transaction’s effective date was September 1, 2009 and allelements of the transaction were completed by or before January 15, 2010. The details ofthis transaction were reported in an 8-K filing to the SEC on October 9,2009. Pursuant to SEC regulation S-X, financial statements are not required tobe presented in connection with this acquisition. A summary description of thetransaction is discussed below.

 

The Company acquiredAeropointe’s rights to a contract that the Company was the other party to as wellas the right to assume the staff and the location of Aeropointe operations. Thecompany also received $100,000 in cash. The consideration received byAeropointe was Company common stock.  Thetotal amount of stock received was 47,658,374 shares. A portion of this totalnumber of shares, 8,821,790, was issued in the first quarter of 2010 peragreement. . NWB shares were valued for this transaction basedupon the average price of NWB stock in the prior period. That amount was$0.006333 per share.

 

The total purchase pricewas $301,820, of which consideration valued at $55,868 was payable on January 15,2010, in the form of 8,821,791 shares of common stock.  The net purchase price amount of $229,617 waspaid in the form of 38,836,584 shares of common stock issued effective November 9,2009.  The seller contributed capital asconsideration for issuance of the common stock, in the amount of $100,000,which was paid in October 2009.  Theconsideration has been reported as part of accounts receivable. The companyacquired intangible assets valued at $38,405 at the date of acquisition, andsatisfied accounts payable to the seller of $163,416.  The New World Brands common stock issued tothe seller was valued based upon the average price of NWB stock for the ninety dayperiod prior to the effective date of the acquisition at a price of $0.006333per share. The difference between the issue price in the acquisition and thepar value of the shares issued, $158,748, was recorded as a reduction inadditional paid in capital in the 3rd quarter 2009.

 

As part of the ongoingintegration of Aeropointe’s and the Company’s assets, the Company has leasedspace in the Dallas, Texas area, at the location previously utilized byAeropointe, at 10015 Aeronca, Lane, McKinney Texas. The company has also leasedmore space at 10045 Aeronca Lane, from a company controlled by Messrs. Belland Lane, in a related party transaction that had been fully disclosed to, andapproved by, all non-interested Directors.

 

*Guanajuato Network Operations Center – Mexico Subsidiaries*

 

During 2009, in an effortto be able to more closely support its Mexican and Central American business,the company established a network operations center in Guanajuato, Mexico,where it currently employs a full-time staff of 21. The staff support theactivities of the carrier and hardware divisions of New World Brands. TheCompany intends to maintain its technical staff primarily in this location andwill add business development resources in the future to capitalize on Latin Americanopportunities.

 

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**General**

 

The following discussionand analysis provides information which management believes is relevant to anassessment and understanding of our results of operations and financialoperations and financial conditions. This discussion should be read inconjunction with the consolidated financial statements and notes theretoappearing elsewhere herein, and in conjunction with Part I, “DisclosureRegarding Forward-Looking Statements,” and Item 1A, “Risk Factors.”

 

**Results of Operations**

 

*Company-Wide Revenue and Gross Profit.*

 

Company-wide (referringto the Company’s two principal lines of business, on a consolidated basis)revenue, gross profit and gross profit margin for the three month and twelvemonth periods ended December 31, 2009 and December 31, 2008 were asfollows:

 
| **Revenue**                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|---------------|------------|
| **Company-Wide**                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | $          | 2,013,839  |       | $          | 5,080,949  |       | $             | 4,099,021  |          | -60.36     | % | 23.96 | % |
| June 30                                                      |       | $          | 1,977,791  |       | $          | 6,603,386  |       | $             | 3,556,769  |          | -70.05     | % | 85.66 | % |
| September 30                                                 |       | $          | 3,717,316  |       | $          | 5,818,906  |       | $             | 4,182,157  |          | -36.12     | % | 39.14 | % |
| December 31                                                  |       | $          | 4,243,035  |       | $          | 2,776,933  |       | $             | 5,263,256  |          | 52.80      | % | -47.24 | % |
| Year-to-Date December 31                                     |       | $          | 11,951,981 |       | $          | 20,280,174 |       | $             | 17,101,203 |          | 41.07      | % | 18.59 | % |
| ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
| **Gross Profit**                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
| **Company-Wide**                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | $          | (124,176   | )          | $          | 704,391    |       | $             | 570,550    |          | -117.63    | % | 23.46 | % |
| June 30                                                      |       | $          | 233,041    |       | $          | 1,324,944  |       | $             | 422,310    |          | -82.41     | % | 213.74 | % |
| September 30                                                 |       | $          | 652,692    |       | $          | 1,994,009  |       | $             | 509,456    |          | -67.27     | % | 291.40 | % |
| December 31                                                  |       | $          | 330,537    |       | $          | 226,092    |       | $             | 794,234    |          | 46.20      | % | -71.53 | % |
| Year-to-Date December 31                                     |       | $          | 1,092,094  |       | $          | 4,249,436  |       | $             | 2,296,550  |          | -74.30     | % | 75.19 | % |
| ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
| **Gross Profit Margin**                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
| **Company-Wide**                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | -6.17      | %          | 13.86      | %          | 13.92      | %          | -144.52       | %          | -0.43         | %          |
| June 30                                                      |       | 11.78      | %          | 20.06      | %          | 11.87      | %          | -41.28        | %          | 69.00         | %          |
| September 30                                                 |       | 17.56      | %          | 34.27      | %          | 12.18      | %          | -48.76        | %          | 181.36        | %          |
| December 31                                                  |       | 7.79       | %          | 8.14       | %          | 15.09      | %          | -4.30         | %          | -46.05        | %          |
| Year-to-Date December 31                                     |       | 9.14       | %          | 19.84      | %          | 13.43      | %          | -53.94        | %          | 47.73         | %          |

 

Company-wide revenue for2009 shows an improvement due in part to an easing of economic conditions andin part to strategies adopted by the Company in response to challenging marketconditions. The gross profit declined significantly in the fourth quarter of2009 as compared the previous quarter. This is due to narrower profit marginsfor hardware sold by NWB Networks, challenges affecting the wholesale telephonytraffic of NWB Telecom, and the costs associated with initiating the operationsof NWB Retail.

 

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The discussion below ofgross profit on a per-business line or divisional basis provides additionalinformation regarding each line’s performance.

 

*NWB Networks Division Revenue and Gross Profit.*

 

Our VoIP and othertelephony product distribution and resale business, NWB Networks, focuses onthe distribution, resale and support of TELES products, and, on a more limitedbasis, continues to act as a niche reseller of certain additionalmanufacturers’ products.

 

Revenue,gross profit and gross profit margin for the NWB Networks division for thethree month and twelve month periods ended December 31, 2009, 2008 and2007 were as follows:

 
| **Revenue**                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|---------------|------------|
| **NWB Networks**                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | $          | 692,332    |       | $          | 2,042,400  |       | $             | 1,228,024  |          | -66.10     | % | 66.32 | % |
| June 30                                                      |       | $          | 866,816    |       | $          | 2,653,742  |       | $             | 966,991    |          | -67.34     | % | 174.43 | % |
| September 30                                                 |       | $          | 1,925,096  |       | $          | 1,535,641  |       | $             | 1,564,525  |          | 25.36      | % | -0.18 | % |
| December 31                                                  |       | $          | 713,873    |       | $          | 929,243    |       | $             | 1,898,149  |          | -23.18     | % | -51.04 | % |
| Year-to-Date December 31                                     |       | $          | 4,198,117  |       | $          | 7,161,026  |       | $             | 5,657,689  |          | -41.38     | % | 26.57 | % |

 
| **Gross Profit**                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|---------------|------------|
| **NWB Networks**                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | $          | 242,797    |       | $          | 374,174    |       | $             | 109,015    |          | -35.11     | % | 243.27 | % |
| June 30                                                      |       | $          | 312,906    |       | $          | 757,605    |       | $             | 112,398    |          | -58.70     | % | 574.04 | % |
| September 30                                                 |       | $          | 400,404    |       | $          | 603,915    |       | $             | 191,555    |          | -33.70     | % | 215.27 | % |
| December 31                                                  |       | $          | 192,117    |       | $          | 384,751    |       | $             | 290,340    |          | -50.07     | % | 32.52 | % |
| Year-to-Date December 31                                     |       | $          | 1,148,224  |       | $          | 2,120,445  |       | $             | 703,308    |          | -45.85     | % | 201.50 | % |

 
| **Gross Profit Margin**                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|---------------|------------|
| **NWB Networks**                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | 35.07      | %          | 18.32      | %          | 8.88       | %          | 91.43         | %          | 106.31        | %          |
| June 30                                                      |       | 36.10      | %          | 28.55      | %          | 11.62      | %          | 26.44         | %          | 145.70        | %          |
| September 30                                                 |       | 20.80      | %          | 39.33      | %          | 12.24      | %          | -47.11        | %          | 221.06        | %          |
| December 31                                                  |       | 26.91      | %          | 41.40      | %          | 15.29      | %          | -35.00        | %          | 170.80        | %          |
| Year-to-Date December 31                                     |       | 27.35      | %          | 29.61      | %          | 12.43      | %          | -7.63         | %          | 138.21        | %          |

 

The increase in revenueand decrease in margin are the result of a shift in strategy necessary tocompete effectively in a more competitive marketplace.  The lowering of prices has boosted the salesof TELES equipment, but for only the second time in the past three years themargin on TELES equipment was lower than that for other brands in the finalquarter of 2009.

 

Our relationship withTELES AG, including our geographic exclusivity, has provided an opportunity forthe Company to sell these products at an attractive margin and to build asupport and service network for end-users. As our relationship with TELES hasmatured, other advantageous developments have included greater input by NWBinto TELES product development. The Company, while maintaining its owngeographic exclusivity for the distribution of TELES equipment, may sell TELESequipment anywhere in the world without restriction.

 

The Company has beenselling TELES equipment as an exclusive distributor since July, 2007, with theTELES line now our dominant hardware product line. The table below shows the portionof NWB Networks divisional revenue, gross profit and gross profit marginattributable to sales of TELES and IP Gear products, in comparison to sales ofall other products in the NWB Networks division, during the years of 2007, 2008and 2009 on a quarterly and year-end basis.

 

The method of accountingfor shipping in the cost of goods sold (“***COGS***”) forthe NWB Networks division has changed in Fiscal Year 2009. Previously, TELESand non-TELES sales were accounted for as separate divisions within the company,with all costs for NWB Networks specifically allocated to one product line orthe other. The two product lines of the NWB Networks division have beencombined for accounting purposes, with all costs, including the shipping costs,a part of COGS, accounted for in aggregate. For all 2009 numbers in the tablesbelow, the shipping cost portion of COGS is divided between TELES and non-TELESproducts proportionately to the revenue derived from each product line. Thevalues for 2008 and 2007 are accounted using the method in use at that time,with shipping costs allocated specifically to the cost of goods sold for eitherTELES or non-TELES products.

 

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| **2007** | ** ** | **Revenue****NWB  Networks  (non-TELES)** | ** ** | **Revenue****TELES  Products  only** | ** ** | **Gross  Profit****NWB  Networks  (non-TELES)** | ** ** | **Gross********Profit****TELES  Products  only** | ** ** | **Gross Profit********Margin****NWB  Networks  (non-TELES)** | ** ** | **Gross Profit********Margin****TELES  Products only** | ** ** |
|----------|------------|-------------------------------------------|------------|--------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
|     |       |                                      |       |                                 |       |                                            |       |                                             |       |                                                              |       |                                                             |       |
| Q1       |       | $                                         | 1,127,874  |                                 | $          | 100,150                                         |       | $                                                | 89,100     |                                                              | $          | 19,903                                                           |       | 7.90 | % | 19.87 | % |
| Q2       |       | $                                         | 833,349    |                                 | $          | 133,642                                         |       | $                                                | 45,743     |                                                              | $          | 66,651                                                           |       | 5.49 | % | 49.87 | % |
| Q3       |       | $                                         | 1,018,220  |                                 | $          | 546,306                                         |       | $                                                | 42,560     |                                                              | $          | 149,038                                                          |       | 4.18 | % | 27.28 | % |
| Q4       |       | $                                         | 557,059    |                                 | $          | 1,341,089                                       |       | $                                                | (107,020   | )                                                                 | $          | 397,333                                                          |       | -19.21 | % | 29.63 | % |
|     |       |                                      |       |                                 |       |                                            |       |                                             |       |                                                              |       |                                                             |       |
| Year     |       | $                                         | 3,536,502  |                                 | $          | 2,121,187                                       |       | $                                                | 70,383     |                                                              | $          | 632,925                                                          |       | 1.99 | % | 29.84 | % |

 
| **2008** | ** ** | **Revenue****NWB  Networks  (non-TELES)** | ** ** | **Revenue****TELES  Products  only** | ** ** | **Gross Profit****NWB  Networks  (non-TELES)** | ** ** | **Gross********Profit****TELES  Products  only** | ** ** | **Gross Profit********Margin****NWB  Networks  (non-TELES)** | ** ** | **Gross Profit********Margin****TELES  Products only** | ** ** |
|----------|------------|-------------------------------------------|------------|--------------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
|     |       |                                      |       |                                 |       |                                                |       |                                             |       |                                                              |       |                                                             |       |
| Q1       |       | $                                         | 748,150    |                                 | $          | 1,294,250                                           |       | $                                                | 15,342     |                                                              | $          | 358,832                                                          |       | 2.05 | % | 27.73 | % |
| Q2       |       | $                                         | 340,896    |                                 | $          | 2,312,847                                           |       | $                                                | 26,962     |                                                              | $          | 730,643                                                          |       | 7.91 | % | 31.59 | % |
| Q3       |       | $                                         | 275,215    |                                 | $          | 1,260,425                                           |       | $                                                | 28,574     |                                                              | $          | 575,340                                                          |       | 10.38 | % | 45.65 | % |
| Q4       |       | $                                         | 338,072    |                                 | $          | 591,169                                             |       | $                                                | 116,139    |                                                              | $          | 268,611                                                          |       | 34.35 | % | 45.44 | % |
|     |       |                                      |       |                                 |       |                                                |       |                                             |       |                                                              |       |                                                             |       |
| Year     |       | $                                         | 1,702,333  |                                 | $          | 5,458,691                                           |       | $                                                | 187,017    |                                                              | $          | 1,933,426                                                        |       | 10.99 | % | 35.42 | % |

 
| **2009** | ** ** | **Revenue****NWB  Networks  (non-TELES)** | ** ** | **Revenue****TELES  Products  only** | ** ** | **Gross  Profit****NWB  Networks  (non-TELES)** | ** ** | **Gross********Profit****TELES  Products  only** | ** ** | **Gross Profit********Margin****NWB  Networks  (non-TELES)** | ** ** | **Gross Profit********Margin****TELES  Products only** | ** ** |
|----------|------------|-------------------------------------------|------------|--------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
|     |       |                                      |       |                                 |       |                                            |       |                                             |       |                                                              |       |                                                             |       |
| Q1       |       | $                                         | 70,647     |                                 | $          | 621,686                                         |       | $                                                | 10,653     |                                                              | $          | 232,144                                                          |       | 15.08 | % | 37.34 | % |
| Q2       |       | $                                         | 45,869     |                                 | $          | 820,946                                         |       | $                                                | 33,947     |                                                              | $          | 278,959                                                          |       | 74.01 | % | 33.98 | % |
| Q3       |       | $                                         | 76,268     |                                 | $          | 1,848,828                                       |       | $                                                | 6,354      |                                                              | $          | 394,050                                                          |       | 8.33 | % | 21.31 | % |
| Q4       |       | $                                         | 174,842    |                                 | $          | 539,031                                         |       | $                                                | 48,146     |                                                              | $          | 143,971                                                          |       | 27.54 | % | 26.71 | % |
|     |       |                                      |       |                                 |       |                                            |       |                                             |       |                                                              |       |                                                             |       |
| Year     |       | $                                         | 367,626    |                                 | $          | 3,830,491                                       |       | $                                                | 99,100     |                                                              | $          | 1,049,124                                                        |       | 26.96 | % | 27.39 | % |

 

The majority of our TELESequipment sales during 2009 have been of TELES’s mobile fixed wireless applicationgateways, marketed under the iGate and vGate brands. TELES mobile gatewaysprovide a consolidated mobile, public switched telephone network (PSTN) andVoIP gateway solution to carriers and corporate network customers seeking toconnect their private branch exchange (PBX) to mobile and VoIP services, andcan be added to integrated services digital network (ISDN) and internetprotocol (IP) environments for least cost routing and other advanced callrouting and rerouting applications. Demand for the iGate and vGate brands didslow along with the demand for TELES equipment in general in the last twoquarters of 2008 and remained low during 2009 due in part to the broad declinein economic conditions.

 

Our exclusivedistribution rights for TELES equipment are contingent upon reaching certainminimum purchase thresholds (meaning, the amount of TELES equipment we purchasefrom TELES). For the two-year ending September 30, 2010, our purchasethreshold was $3,000,000. That threshold was surpassed when our TELES purchases(for inventory received from TELES) in 2009 alone totaled $4,317,168.

 

We believe time-to-marketis a critical component of success for technology product sales, both in termsof product delivery and product innovation. We remain confident in TELES’sability to meet product demand and continue product innovation in key productlines, such as fixed wireless gateways and customer premise VoIP equipment.However, we do not control production of any of the TELES products wedistribute and sell.

 

All products purchasedfrom TELES are per contract quoted in the base currency used by TELES, theEuro. New World Brands sells all goods to its customers in U.S. Dollars. As aresult, we have a certain exposure to currency risk to the extent the relative valueof the U.S. Dollar drops compared to the Euro. Despite some exchange ratemovement between the Euro and the U.S. Dollar throughout 2009, the exchangerate ended the year not far below where it started. On January 2, the ratewas $1.39 Dollars to the Euro as compared to $1.43 Dollars to the Euro on December 31.Increases in our exposure to currency risk due to the growth of ourEuro-denominated inventory has been partially offset by payment agreementsbetween NWB and TELES designed to mitigate risk. However, if we are successfulin our efforts to increase TELES sales, and as we increase our Euro-basedinventory, our exposure to currency risk will increase.

 

Other than TELES AG,there are no significant vendors comprising 10% or more of the goods purchasedby the division for resale in 2009, and none accounting for 10% or more oftotal company costs.

 

We derive a significantamount of revenue from a relatively small number of customers. If we were tolose one or more of these customers, and the business were not replaced, itcould have an adverse impact on our results of operations and financialcondition. For the whole of 2009, no NWB Networks customers generated 10% ormore of Company revenue, while 2 customers accounted for 20.49% and 19.52% ofrevenue generated for the division. Our top ten customers accounted for themajority of revenues for sales for the year.

 

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*NWB Telecom Division Revenue, Gross Profit and Gross ProfitMargin.*

 

Revenue and cost of goodsfor the NWB Telecom division (wholesale VoIP services) for the three month andtwelve month periods ended December 31, 2009 and December 31, 2008were as follows:

 
| **Revenue**                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|---------------|------------|
| **NWB Telecom**                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | $          | 1,321,507  |       | $          | 3,038,549  |       | $             | 2,870,997  |          | -56.51     | % | 5.84 | % |
| June 30                                                      |       | $          | 1,110,975  |       | $          | 3,949,644  |       | $             | 2,589,778  |          | -71.87     | % | 52.51 | % |
| September 30                                                 |       | $          | 1,792,220  |       | $          | 4,283,265  |       | $             | 2,617,632  |          | -58.16     | % | 63.63 | % |
| December 31                                                  |       | $          | 2,848,185  |       | $          | 1,847,690  |       | $             | 3,365,107  |          | 54.15      | % | -45.09 | % |
| Year-to-Date December 31                                     |       | $          | 7,072,887  |       | $          | 13,119,148 |       | $             | 11,443,514 |          | -46.09     | % | 14.64 | % |

 
| **Gross Profit**                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|---------------|------------|
| **NWB Telecom**                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | $          | (366,972   | )          | $          | 330,217    |       | $             | 461,535    |          | -211.13    | % | -28.45 | % |
| June 30                                                      |       | $          | (79,866    | )          | $          | 567,339    |       | $             | 309,912    |          | -114.08    | % | 83.07 | % |
| September 30                                                 |       | $          | 252,288    |       | $          | 1,390,094  |       | $             | 317,901    |          | -81.85     | % | 337.27 | % |
| December 31                                                  |       | $          | 153,216    |       | $          | (158,659   | )          | $             | 503,894    |          | -15.24     | % | 196,57 | % |
| Year-to-Date December 31                                     |       | $          | (41,334    | )          | $          | 2,128,991  |       | $             | 1,593,242  |          | -117.73    | % | -101.94 | % |

 
| **Gross Profit Margin**                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|---------------|------------|
| **NWB Telecom**                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | -27.77     | %          | 10.87      | %          | 16.08      | %          | -355.47       | %          | -32.40        | %          |
| June 30                                                      |       | -7.19      | %          | 14.36      | %          | 11.97      | %          | -150.06       | %          | 19.97         | %          |
| September 30                                                 |       | 14.08      | %          | 32.45      | %          | 12.14      | %          | -56.61        | %          | 167.30        | %          |
| December 31                                                  |       | 5.38       | %          | -8.59      | %          | 14.97      | %          | -25.26        | %          | -162.62       | %          |
| Year-to-Date December 31                                     |       | -0.58      | %          | 16.23      | %          | 13.92      | %          | -132.88       | %          | -103.60       | %          |

 

NWB Telecom’s business model includes a portion ofcost that is fixed cost and a portion of cost that is variable with the amountof traffic we terminate. When we are able to terminate a large volume oftraffic, the increase in gross margin results from the portion of cost that isfixed regardless of volume, and we benefit as in the third quarter of 2008.When the volume drops, the variable profit declines but the fixed costs remainand we suffer a significant reduction in gross profit, as is seen in the lastquarter of 2008 and the first quarter of 2009. In the third quarter of 2009 thefinancial performance of NWB Telecom improved significantly from the previousquarter before returning to a negative margin in the fourth quarter.

 

TheCompany faces challenges in successfully establishing international routes.These include technical difficulties with the sophistication of the solution weintend to implement, the increased reliance on a limited number of vendors andcustomers, and a decrease in revenue and gross margin following a period ofsubstantial time and investment dedicated to new routes. Management isaddressing these issues by reselling more routes developed by othertelecommunications firms alongside those routes that we develop ourselves andthrough a concerted effort to broaden our customer base.

 

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During 2009, NWB Telecomhad one significant vendor accounting for 14.28% of total vendor expenses forthe Company and 27.04% of the total vendor expenses for the division, illustratedin the table below.

 
| **Year Ended**                                                 | ** ** | ** **                  | ** **      |
|---------------------------------------------------------------------|------------|-----------------------------|-----------------|
| **December 31, 2009**                                     | ** ** | **Significant Vendor** | ** **      |
| Revenue (generated from resale of service  purchased from vendor)   |       | $                           |  2,528,496 |   |
| Gross Profit (earned from resale of service  purchased from vendor) |       | $                           | 513,894         |   |
| Revenue as Portion of NWB Telecom Division Revenue                  |       | 35.75                       | %               |
| Revenue as Portion of Company-Wide Revenue                          |       | 20.33                       | %               |
| Gross Profit as Portion of NWB Telecom Division  Profit             |       | -136.17                     | %               |
| Gross Profit as Portion of Company-Wide Profit                      |       | 57.87                       | %               |

 

There was one vendor comprising13.26% of the vendor expenses the division but that was not a significantvendor for the company as a whole. The revenue generated from the resale ofminutes from this vendor accounted for 12.09% of revenue for NWB Telecom and6.87% of revenue for the Company as a whole.

 

These vendors are underno enforceable obligation to sell us service of any kind, and we are under noobligation to buy, other than on a week-by-week basis, and we are at risk oflosing some or all of the services supplied by these vendors with little or nonotice. Furthermore, we can have no assurance that these vendors will continueto be able to offer services for sale at the gross margins currently earned.Loss of this significant vendor, or of the high-margin services we currentlypurchase, would result in an attendant loss of associated gross profits,without a corresponding immediate decrease in related sales, general andadministrative costs, therefore negatively impacting our overall profitabilityin the near term.

 

We derive a significantamount of revenue from a relatively small number of customers. If we were tolose one or more of these customers, and the business were not replaced, itcould have an adverse impact on our results of operations and financialcondition. For the whole of 2009, one NWB Telecom customer accounted for 29.29%of total revenue for the Company and 49.90% of revenue for the division. Afurther two customers accounted for 16.37% and 12.93% of NWB Telecom revenue,but did not reach 10% of total company revenue. Our top ten customers accountedfor the vast majority of revenues for sales for the year.

 

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*NWB Retail Division Revenue, Gross Profit and Gross ProfitMargin.*

 

On September 30,2009, the company created a new division, NWB Retail, to offer products andservices directly to the consumer. This division was primarily operated in astart up mode in the fourth quarter of 2009.

 
| **Revenue**                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|---------------|------------|
| **NWB Retail**                                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | $          | n/a        |       | $          | n/a        |       | $             | n/a        |          | n/a        | % | n/a | % |
| June 30                                                      |       | $          | n/a        |       | $          | n/a        |       | $             | n/a        |          | n/a        | % | n/a | % |
| September 30                                                 |       | $          | —     |       | $          | n/a        |       | $             | n/a        |          | n/a        | % | n/a | % |
| December 31                                                  |       | $          | 680,977    |       | $          | n/a        |       | $             | n/a        |          | n/a        | % | n/a | % |
| Year-to-Date December 31                                     |       | $          | 680,977    |       | $          | n/a        |       | $             | n/a        |          | n/a        | % | n/a | % |

 
| **Gross Profit**                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|---------------|------------|
| **NWB Retail**                                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | $          | n/a        |       | $          | n/a        |       | $             | n/a        |          | n/a        | % | n/a | % |
| June 30                                                      |       | $          | n/a        |       | $          | n/a        |       | $             | n/a        |          | n/a        | % | n/a | % |
| September 30                                                 |       | $          | —     |       | $          | n/a        |       | $             | n/a        |          | n/a        | % | n/a | % |
| December 31                                                  |       | $          | (14,796    | )          | $          | n/a        |       | $             | n/a        |          | n/a        | % | n/a | % |
| Year-to-Date December 31                                     |       | $          | (14,796    | )          | $          | n/a        |       | $             | n/a        |          | n/a        | % | n/a | % |

 
| **Gross Profit Margin**                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|---------------|------------|
| **NWB Retail**                                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | n/a        | %          | n/a        | %          | n/a        | %          | n/a           | %          | n/a           | %          |
| June 30                                                      |       | n/a        | %          | n/a        | %          | n/a        | %          | n/a           | %          | n/a           | %          |
| September 30                                                 |       | 0.00       | %          | n/a        | %          | n/a        | %          | n/a           | %          | n/a           | %          |
| December 31                                                  |       | -2.17      | %          | n/a        | %          | n/a        | %          | n/a           | %          | n/a           | %          |
| Year-to-Date December 31                                     |       | -2.17      | %          | n/a        | %          | n/a        | %          | n/a           | %          | n/a           | %          |

 

The NWB Retail division became active in theinternational long distance telephone card market in the fourth quarter of2009. An initial project was unable to generate returns to offset the costs ofstarting it up. Management believes that it has identified all issuespreventing this project from being economically feasible. Several new telephonecards have been launched and are operating successfully as of the date of thisfiling. The purpose of the calling cards is to provide our own “captive” retailtraffic from consumers that we could supply to our NWB Telecom division inorder to maintain a portion of its revenue coming from a stable and reliablesource.

 

The NWB Retail business had no significant customerand a vendor comprising 10% or more of Company revenue or payments. One vendorreceived 91.38% of payments made for the division in 2009, and three customersaccounted for 38.46%, 20.87%, and 18.80% of NWB Retail revenue. Management hasaddressed the reliance on a single vendor by bringing traffic “in house” to theNWB Telecom division. In recognition of the potential challenges to theprofitability of the division if one or more NWB Retail customers were unableor unwilling to continue a business relationship with the Company, an emphasisis being placed on diversifying our customer base.

 

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*Summary: Company-Wide and Divisional Revenue, Gross Profitand Gross Profit Margin, on a Quarterly and Year-End Basis, for 2009.*

 

It is the goal ofmanagement to present the Company’s financial performance in as comprehensive,accurate, and illustrative a manner as possible. To that end, managementcontinually seeks to improve the presentation of results of the Company’soperations in this Item 7, “Management’s Discussion and Analysis of FinancialConditions and Results of Operations.” The following tables duplicateinformation presented elsewhere in this Item 7, but we believe that thefollowing presentation of that information may be helpful to shareholders andpotential investors. The following presentation is not intended to substitutefor any other portion of this Item 7.

 
| **2009** | ** ** | **Revenue  Company  Wide** | ** ** | **Revenue  NWB  Telecom** | ** ** | **% of  Company-  Wide  Revenue** | ** ** | **Revenue  NWB  Networks  (non-TELES)** | ** ** | **% of  Company-  Wide  Revenue** | ** ** | **Revenue  NWB  Networks  (TELES  only)** | ** ** | **% of  Company-  Wide  Revenue** | ** ** | **Revenue  NWB  Retail** | ** ** | **% of  Company-  Wide  Revenue** | ** ** |
|----------|------------|----------------------------|------------|---------------------------|------------|----------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|-------------------------------------------|------------|----------------------------------------|------------|--------------------------|------------|----------------------------------------|------------|
|     |       |                       |       |                      |       |                                   |       |                                    |       |                                   |       |                                      |       |                                   |       |                     |       |                                   |       |
| Q1       |       | $                          | 2,013,839  |                      | $          | 1,321,507                              |       | 65.62                                   | %          | $                                      | 70,647     |                                      | 3.51       | %                                      | $          | 621,686                  |       | 30.87                                  | %          | $ | n/a |   | n/a |   |
| Q2       |       | 1,977,791                  |       | 1,110,975                 |       | 56.17                                  | %          | 45,869                                  |       | 2.32                                   | %          | 820,946                                   |       | 41.51                                  | %          | n/a                      |       | n/a                                    |       |
| Q3       |       | 3,717,316                  |       | 1,792,220                 |       | 48.21                                  | %          | 76,268                                  |       | 2.05                                   | %          | 1,848,828                                 |       | 49.74                                  | %          | —                   |       | 0.00                                   | %          |
| Q4       |       | 4,243,035                  |       | 2,848,184                 |       | 67.13                                  | %          | 174,842                                 |       | 4.12                                   | %          | 539,031                                   |       | 12.70                                  | %          | 680,977                  |       | 16.05                                  | %          |
|     |       |                       |       |                      |       |                                   |       |                                    |       |                                   |       |                                      |       |                                   |       |                     |       |                                   |       |
| Year     |       | $                          | 11,951,981 |                      | $          | 7,072,886                              |       | 59.18                                   | %          | $                                      | 367,626    |                                      | 3.08       | %                                      | $          | 3,830,491                |       | 32.05                                  | %          | $ | 680,977 |   | 5.70 | % |

 
| **2009** | ** ** | **Gross  Profit  Company  Wide** | ** ** | **Gross  Profit  NWB  Telecom** | ** ** | **% of  Company-  Wide  Gross  Profit** | ** ** | **Gross  Profit NWB  Networks  (non-TELES)** | ** ** | **% of  Company-  Wide  Gross  Profit** | ** ** | **Gross  Profit NWB  Networks  (TELES  only)** | ** ** | **% of  Company-  Wide  Gross  Profit** | ** ** | **Gross  Profit  NWB  Retail** | ** ** | **% of  Company-  Wide  Gross  Profit** | ** ** |
|----------|------------|----------------------------------|------------|---------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------|------------|----------------------------------------------|------------|
|     |       |                             |       |                            |       |                                         |       |                                              |       |                                         |       |                                                |       |                                         |       |                           |       |                                         |       |
| Q1       |       | $                                | (124,176   | )                               | $          | (366,972                                     | )          | -295.53                                           | %          | $                                            | 10,653     |                                                | -8.58      | %                                            | $          | 232,144                        |       | -186.95                                      | %          | $ | n/a |   | n/a |   |
| Q2       |       | 233,041                          |       | (79,865                         | )          | -34.27                                       | %          | 33,947                                            |       | 14.57                                        | %          | 278,959                                             |       | 119.70                                       | %          | n/a                            |       | n/a                                          |       |
| Q3       |       | 652,692                          |       | 252,288                         |       | 38.65                                        | %          | 6,354                                             |       | 0.97                                         | %          | 394,050                                             |       | 60.37                                        | %          | 0                              |       | 0.00                                         | %          |
| Q4       |       | 330,537                          |       | 153,216                         |       | 46.35                                        | %          | 48,146                                            |       | 14.57                                        | %          | 143,971                                             |       | 43.56                                        | %          | (14,796                        | )          | -4.48                                        | %          |
|     |       |                             |       |                            |       |                                         |       |                                              |       |                                         |       |                                                |       |                                         |       |                           |       |                                         |       |
| Year     |       | $                                | 1,092,094  |                            | $          | (41,333                                      | )          | -3.78                                             | %          | $                                            | 99,100     |                                                | 9.07       | %                                            | $          | 1,049,124                      |       | 96.07                                        | %          | $ | (14,796 | ) | -1.35 | % |

 

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| **2009** | ** ** | **Gross Profit Margin  Company Wide** | ** ** | **Gross Profit Margin  NWB Telecom** | ** ** | **Gross Profit Margin  NWB Networks  (non-TELES)** | ** ** | **Gross Profit Margin  (TELES only)** | ** ** | **Gross Profit Margin  NWB Telecom** | ** ** |
|----------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
|     |       |                                                 |       |                                                |       |                                                              |       |                                                 |       |                                                |       |
| Q1       |       | -6.17                                                | %          | -27.77                                              | %          | 15.08                                                             | %          | 37.34                                                | %          | n/a                                                 |       |
| Q2       |       | 11.78                                                | %          | -7.19                                               | %          | 74.01                                                             | %          | 33.98                                                | %          | n/a                                                 |       |
| Q3       |       | 17.56                                                | %          | 19.09                                               | %          | 8.33                                                              | %          | 21.31                                                | %          | 0.00                                                | %          |
| Q4       |       | 7.79                                                 | %          | 5.38                                                | %          | 27.54                                                             | %          | 26.71                                                | %          | -2.17                                               | %          |
|     |       |                                                 |       |                                                |       |                                                              |       |                                                 |       |                                                |       |
| Year     |       | 9.14                                                 | %          | 0.58                                                | %          | 26.96                                                             | %          | 27.39                                                | %          | -2.17                                               | %          |

 

*Total Company Expenses.*

 

Total Company expenses(sales, marketing, general, and administrative) for the three and twelve monthperiods ended December 31, 2009 and 2008 were as follows:

 
| **Total Company Expenses**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | $          | 1,073,399  |       | $          | 1,550,777  |       | $             | 1,129,526  |   | -30.78 | % | 37.29 | % |
| June 30                                                      |       | $          | 1,020,626  |       | $          | 1,529,051  |       | $             | 1,095,310  |   | -33.25 | % | 39.60 | % |
| September 30                                                 |       | $          | 1,727,894  |       | $          | 1,559,215  |       | $             | 1,139,396  |   | 10.82 | % | 36.85 | % |
| December 31                                                  |       | $          | 1,007,918  |       | $          | 1,203,874  |       | $             | 1,266,631  |   | -16.28 | % | 4.95 | % |
| Year-to-Date December 31                                     |       | $          | 4,829,837  |       | $          | 5,842,917  |       | $             | 4,630,863  |   | -17.34 | % | 26.17 | % |

 

Thesubstantial decrease in total expenses for the comparative periods is dueprimarily to decreases in labor costs and legal, accounting, and otherprofessional fees. During 2009, the Company made a concerted effort reduce thecosts of its outside consultants and eliminate all non-essential expensesrelated to these charges. We also reduced our technical staff in the UnitedStates and hired staff in Mexico in order to bring the costs of running ourcarrier business (primarily) down to match the expectations of the gross profitthe business will generate in the future. These cost savings started to berealized in the third quarter of 2009. We also intended and succeeding inbringing on staff more technicians and engineers to help support and improvethe quality of our service while reducing the cost of providing service. Ourintention, in general, in the cost reductions was to eliminate costs that werenot commensurate with the value that those costs were bringing to the companyand its ultimate performance. We expect to see further changes into 2010 of asimilar nature. We note that the above figures are based upon financialstatements for the periods ended December 31, 2009, 2008 and 2007, and theabove figures are based only upon the operations of the Company’s continuingbusinesses in equipment distribution and resale, and telephony service.

 

*Interest.*

 
| **Interest (Company-Wide)**                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | $          | 22,249     |       | $          | 17,515     |       | $             | 51,082     |   | 27.03 | % | -65.71 | % |
| June 30                                                      |       | $          | 25,410     |       | $          | 18,130     |       | $             | 32,026     |   | 40.15 | % | -43.39 | % |
| September 30                                                 |       | $          | 34,519     |       | $          | 30,443     |       | $             | 26,379     |   | 13.39 | % | 15.41 | % |
| December 31                                                  |       | $          | 30,625     |       | $          | 32,988     |       | $             | 19,859     |   | -7.16 | % | 66.11 | % |
| Year-to-Date December 31                                     |       | $          | 112,803    |       | $          | 99,076     |       | $             | 129,346    |   | 13.86 | % | -23.40 | % |

 

38

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Theincrease in interest expense is due to an increase in the principal amountsborrowed during 2009 as compared to 2008. Our weighted average cost ofborrowing increased over 2008.

 

*Amortization and Depreciation.*

* *
| **Depreciation and Amortization (Company-Wide)**   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | $          | 154,102    |       | $          | 116,280    |       | $             | 108,547    |   | 32.53 | % | 7.12 | % |
| June 30                                                      |       | $          | 213,299    |       | $          | 142,165    |       | $             | 107,613    |   | 50.04 | % | 32.11 | % |
| September 30                                                 |       | $          | 102,976    |       | $          | 142,941    |       | $             | 83,419     |   | -27.96 | % | 71.35 | % |
| December 31                                                  |       | $          | 161,924    |       | $          | 113,927    |       | $             | 106,573    |   | 42.13 | % | 6.90 | % |
| Year-to-Date December 31                                     |       | $          | 632,300    |       | $          | 515,313    |       | $             | 406,152    |   | 22.70 | % | 26.88 | % |

* *

Amortization anddepreciation for the Company for continuing operations increased in 2009reflecting increased capital investment during prior periods in switching,routing, and tracking equipment and technology utilized in relation to our NWBTelecom VoIP service business. Our U.S.-based operations have a very limitedamount invested in software technology, and as a result, our currentamortization is negligible and not expected to increase in the near term.

 

*Net Loss*

 

The above factorscontributed to a net loss for the Company for both the three and twelve monthperiods ended December 31, 2009. The key factors in our losses and theamount of losses in 2009 can be attributed to a great degree to a significantloss of revenue over the prior period coupled with a reduction in gross marginon the revenue that was earned in 2009 compared to 2008. While we made goodprogress in reducing our costs of running the business, it was not enough to offsetthe declines stated above and the end result is an increase in our loss in 2009compared to 2008.

 
| **Net Profit (Loss) (Company-Wide)**               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**    | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|
| **for 3 Months Ending and Year-to-Date** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008-2009** | ** ** | **2007-2008** | ** ** |
| March 31                                                     |       | $          | (1,176,605 | )          | $          | (833,121   | )          | $             | (530,517   | ) | -41.23 | % | -57.04 | % |
| June 30                                                      |       | $          | (812,780   | )          | $          | (141,900   | )          | $             | (661,074   | ) | -472.78 | % | 78.54 | % |
| September 30                                                 |       | $          | (1,132,969 | )          | $          | 436,882    |       | $             | (623,279   | ) | -359.33 | % | 170.06 | % |
| December 31                                                  |       | $          | (1,063,478 | )          | $          | (1,091,414 | )          | $             | (943,627   | ) | 2.56 | % | -15.66 | % |
| Year-to-Date December 31                                     |       | $          | (4,185,832 | )     | $          | (1,629,553 | )          | $             | (2,758,497 | ) | -156.87 | % | 40.93 | % |

 

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Following is a summary oftotal company expenses, interest, amortization and depreciation, and resultantnet profit/loss, allocated among our two operating divisions, NWB Telecom andNWB Networks, breaking down NWB Networks results into categories of non-TELESproducts and TELES products only. NWB Retail is included in the 2009 summaryalongside the other 2 divisions. We note that the following figures are basedupon financial statements for the periods ended December 31, 2008 and2009.

 
| ** **                                              | ** ** | ** **   | ** ** | ** **    | ** ** | ** **  | ** ** | **NWB**      | ** ** | **NWB**      | ** ** |
|---------------------------------------------------------|------------|--------------|------------|---------------|------------|-------------|------------|--------------|------------|--------------|------------|
| ** **                                              | ** ** | ** **   | ** ** | ** **    | ** ** | ** **  | ** ** | **Networks** | ** ** | **Networks** | ** ** |
| **2008 Continuing**                                | ** ** | **Company-** | ** ** | **Corporate** | ** ** | **NWB**     | ** ** | **(non-**    | ** ** | **(TELES**   | ** ** |
| **Operations**                                          | ** ** | **Wide**     | ** ** | **Expenses**  | ** ** | **Telecom** | ** ** | **TELES)**   | ** ** | **only)**    | ** ** |
|                                                    |       |         |       |          |       |        |       |         |       |         |       |
| Gross Profit                                            |       | $            | 4,249,436  |          | N/A        |        | $          | 2,128,992    |       | $            | 152,270    |   | $ | 1,968,174 |   |
|                                                    |       |         |       |          |       |        |       |         |       |         |       |
| SG&A Expense(1)                                     |       | $            | (5,299,722 | )             | $          | (2,586,000  | )(2)       | $            | (1,487,343 | )            | $          | (559,827 | ) | $ | (666,551 | ) |
|                                                    |       |         |       |          |       |        |       |         |       |         |       |
| Interest                                                |       | $            | (99,076    | )             | $          | (84,211     | )          | $            | (14,794    | )            | $          | — |   | $ | (71 | ) |
| Depreciation/Amortization                               |       | $            | (543,195   | )             | $          | (178,262    | )          | $            | (360,918   | )            | $          | (938 | ) | $ | (3,078 | ) |
| Other Income (Expense)                                  |       | $            | 63,005     |          | $          | 48,208      |       | $            | 14,774     |         | $          | 23 |   | $ | — |   |
|                                                    |       |         |       |          |       |        |       |         |       |         |       |
| 2008 Net Profit (Loss) from Continuing Operations  Only |       | $            | (1,692,552 | )             | $          | (2,800,265  | )          | $            | 280,711    |         | $          | (408,472 | ) | $ | 1,298,474 |   |

 

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| **2009 Operations**                                | ** ** | **Company-  Wide** | ** ** | **Corporate  Expenses** | ** ** | **NWB  Telecom** | ** ** | **NWB  Networks  (non-  TELES)** | ** ** | **NWB  Networks  (TELES  only)** | ** ** | **NWB  Retail** | ** ** |
|---------------------------------------------------------|------------|--------------------|------------|-------------------------|------------|------------------|------------|----------------------------------|------------|----------------------------------|------------|-----------------|------------|
|                                                    |       |               |       |                    |       |             |       |                             |       |                             |       |            |       |
| Gross Profit                                            |       | $                  | 1,092,094  |                    | N/A        |             | $          | (41,334                          | )          | $                                | 99,100     |            | $          | 1,049,127 |   | $ | (14,796 | ) |
|                                                    |       |               |       |                    |       |             |       |                             |       |                             |       |            |       |
| SG&A Expense(1)                                     |       | $                  | (4,197,537 | )                       | $          | (1,582,698       | )(2)       | $                                | (1,273,201 | )                                | $          | (109,847        | )          | $ | (1,162,895 | ) | $ | (68,896 | ) |
|                                                    |       |               |       |                    |       |             |       |                             |       |                             |       |            |       |
| Interest                                                |       | $                  | (112,803   | )                       | $          | (71,954          | )          | $                                | (40,677    | )                                | $          | (15             | )          | $ | (157 | ) | $ | — |   |
| Depreciation/Amortization                               |       | $                  | (632,300   | )                       | $          | (159,290         | )          | $                                | (461,732   | )                                | $          | (973            | )          | $ | (10,305 | ) | $ | — |   |
| Other Income (Expense)                                  |       | $                  | 18,990     |                    | $          | (3,402           | )          | $                                | 22,392     |                             | $          | —          |       | $ | — |   | $ | — |   |
| Provision for Income Taxes                              |       | $                  | (18,214    | )                       | $          | (18,214          | )          | $                                | —     |                             | $          | —          |       | $ | — |   | $ | — |   |
| Unusual Loss                                            |       | $                  | (336,062   | )                       | $          | —           |       | $                                | (336,062   | )                                | $          | —          |       | $ | — |   | $ | — |   |
| 2009 Net Profit (Loss) from Continuing Operations  Only |       | $                  | (4,185,832 | )                       | $          | (1,835,558       | )          | $                                | (2,130,614 | )                                | $          | (11,735         | )          | $ | (124,233 | ) | $ | (83,692 | ) |

 

----

| (1)    |   | Includes management’s  determination of sales, general, and administrative expenses directly  allocable to each division or line of business.                                                                                         |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                       |
| (2)    |   | Includes indirectly  allocable expenses, which include, for example, legal, and accounting fees,  costs of SEC compliance, costs of leasing and operating our facilities in  Eugene, Oregon, and certain executive-level management costs. |

 

**Liquidity**

 

NewWorld Brands Inc. has been experiencing a decline in its liquidity over thelast three years. This is primarily the result of funding losses over the lastyears. It has eroded our cash position to its lowest levels in three years anddecreased our ratio of current assets to current liabilities to the point wherewe have more current debt than we have current assets. Both of these areimportant measures of our continue operations. The table below illustrates thechanging position of cash, current assets and our liquidity ratios:

 
| ** **                                                         | ** ** | **2009** | ** ** | **2008** | ** ** | **2007**  | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
| Cash                                                               |       | $        | 317,061    |     | $          | 541,116   |       | $ | 2,038,635 |   |
| Current Assets                                                     |       | $        | 5,079,446  |     | $          | 4,311,544 |       | $ | 4,562,197 |   |
| Current Liabilities                                                |       | $        | 6,387,712  |     | $          | 2,451,979 |       | $ | 2,274,814 |   |
| Current Ratio (current  assets to current liabilities)             |       | 0.80:1   |       | 1.76:1   |       | 2.01:1    |       |
| Quick Ratio (cash and  accounts receivable to current liabilities) |       | 0.28:1   |       | 0.62:1   |       | 1.35:1    |       |

 

Weare certainly aware of the need to have sufficient cash to meet our short termobligations and our operating expenses. This is why we had started on aspecific program to address this in two areas. One is that of bringing ouroperating costs below our operating income as soon as possible. The other wasto renegotiate terms with the holders of our debt and the bulk of our tradepayables to adjust them to a level that is sustainable.

 

Thecompany had embarked on a cost reduction program to cut sales, general andadministrative (SG&A) expenses. The intent was to reduce the breakevengross margin requirements and by extension a reduced level of sales to coverall expenses of the company and still be profitable. However, in 2009 weexperienced a significant decline in revenues beyond the level that we hadanticipated in both of our primary operating divisions, due to the poor economyand continuing recession from the fourth quarter of 2008 through all of 2009.Sales in the carrier division were down 41% and in the hardware division weredown 30%. Gross profits were also severely reduced in the carrier division dueto the termination of a number of routes and the closing costs of these routesas well as the loss of their higher contribution margins which were ultimatelyreplaced by more traditional lower margin routes.  The reduced sales levels coupled withdeclining gross margins left us well behind our targets for gross profit. Whilewe have had success in eliminating a number of SG &A costs, we werenot able to reduce them below the point of our diminished gross profit during2009. The end result was an increase in trade debt and a decrease in cash ornear cash to pay our timely obligations.

 

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| **Contractual**              | ** ** | ** ** | ** ** | ** **          | ** ** | ** **         | ** ** | ** **         | ** ** | ** **           | ** ** |
|------------------------------|------------|------------|------------|---------------------|------------|--------------------|------------|--------------------|------------|----------------------|------------|
| **Payment Obligations** | ** ** | **Total**  | ** ** | **<1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **>5 Years** | ** ** |
|                         |       |       |       |                |       |               |       |               |       |                 |       |
| Long  Term Debt              |       | $          | 2,302,639  |                | $          | 250,833            |       | $                  | 1,806      |                 | $          | 2,050,000 |   | — |   |
|                         |       |       |       |                |       |               |       |               |       |                 |       |
| Capital  Leases              |       | $          | 109,064    |                | $          | 63,333             |       | $                  | 39,368     |                 | $          | 6,363 |   | — |   |
|                         |       |       |       |                |       |               |       |               |       |                 |       |
| Operating  Leases            |       | $          | 202,514    |                | $          | 50,230             |       | $                  | 79,540     |                 | $          | 27,816 |   | 44,928 |   |
|                         |       |       |       |                |       |               |       |               |       |                 |       |
| Purchase  Obligations        |       | —     |       | —              |       | —             |       | —             |       | —               |       |
|                         |       |       |       |                |       |               |       |               |       |                 |       |
| Other  Long Term Ob.         |       | —     |       | —              |       | —             |       | —             |       | —               |       |
|                         |       |       |       |                |       |               |       |               |       |                 |       |
| Total                        |       | $          | 2,614,217  |                | $          | 364,396            |       | $                  | 120,714    |                 | $          | 2,084,179 |   | 44,928 |   |

 

Wehave no remaining borrowing capacity on our available lines of credit as of theend of 2009 and have not secured any new credit facilities nor any additionalsources of equity investment. The company has not entered into new leaseobligations during the past year and our total non-debt obligations havedecreased as they are terminating or being paid off faster than new ones arebeing entered into.

 

Wehave instead focused on a simple plan of further cost reductions whilemaintaining or even improving our capacity to increase sales. This has comefrom the shift of many of our technical staff to Mexico, a lower labor costcountry, which has allowed a significant reduction in payroll in the fourthquarter of 2009 while improving the capacity of our network operations centerto manage a greater volume of long distance telecommunications.  We are also working on more partnershiparrangements with resellers to increase our sales capacity in the hardwaredivision at variable cost so as not to obligate ourselves to expenses unlessthere are results.  We have reduced ourUS staff and our total payroll expenses from the fourth quarter of 2009 to thefirst quarter of 2010 by over 35%. We have made significant reductions in somediscretionary spending areas such as travel and purchasing of office suppliesand equipment, and anticipate continuing cost reductions in other areas.  The company is better positioned at this timethan it was at the start of 2009 to reach breakeven with less revenue than inthe past.  Our target is that our cashinflows from operating activities will be equal to or greater than our cashoutflows for operating expenses during the second or third quarter of 2010.

 

Weare also in the position that much of our short term and long term liabilitiesare with either a key shareholder or our key vendor who have previously shown awillingness to work with the company on addressing financial obligations.  We believe we are close to the completion ofnegotiations with one of our key vendors to restructure a trade payablesbalance of over $2,000,000 to a long term note payable which will be payable invarying amounts from 2011 to 2014 to reduce the dollar amount of obligationswithin the next year. This would also have a positive impact on half of ourexisting long-term debt. We also anticipate that the volume of inventory onhand will be sufficient to match the volume of equipment that we shipped in2009 without much of a need for new purchases of inventory in 2010. Our totalcost of sales of inventory in 2009 was about $3 million and we currently haveon hand about $2.5 million in inventory.

 

Oneof our major investors and debt holders has continued to show support of thecompany by entering into a transaction to purchase a large holding of theCompany’s stock from another shareholder in the first quarter of 2010 andincreasing their investment in the company.

 

Thecombination of pushing out and restructuring a good portion of our trade debtover the next four years and the consolidation of some of the larger tranchesof stock will allow us some additional flexibility to pursue otheropportunities to raise funds in the future should the circumstances allow.

 

Webelieve that our plans as outlined above will improve the Company’s financialposition and results of operations, and liquidity position in the followingmanners:

 

1.     Improve the Company’s cash positions throughout the year;

 

2.     Reduce debt and trade payable balances that are due in the nexttwelve months;

 

3.     Improve the Company’s working capital available to meetoperations in 2010; and

 

4.     Improve the Company’s ability to meet its current obligations in2010.

 

*CapitalExpenditures*

 

Thecarrier division had invested significantly in new equipment and capacity in2008 and the first part of 2009. As a result, we expect that there will beminimal capital expenditures in 2010.

 

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**Capital Expenditures of ContinuingOperations of New World Brands**

 

**Additionsand Disposals over the Last Eight Quarters**

 
| ** ** | ** ** | ** ** | ** ** | **Additions** | ** ** | **Dispositions** | ** ** | **Net Additions** | ** ** |
|------------|------------|------------|------------|---------------|------------|------------------|------------|------------------------|------------|
|       |       |       |       |          |       |             |       |                   |       |
| Q1         |       | 2008       |       | 147,746       |       | (60,928          | )          | 86,818                 |       |
|       |       |       |       |          |       |             |       |                   |       |
| Q2         |       | 2008       |       | 272,400       |       | (1,606           | )          | 270,794                |       |
|       |       |       |       |          |       |             |       |                   |       |
| Q3         |       | 2008       |       | 26,534        |       | (30,432          | )          | (3,898                 | )          |
|       |       |       |       |          |       |             |       |                   |       |
| Q4         |       | 2008       |       | 104,656       |       | (54,089          | )          | 50,567                 |       |
|       |       |       |       |          |       |             |       |                   |       |
| Q1         |       | 2009       |       | 177,755       |       | —           |       | 171,636                |       |
|       |       |       |       |          |       |             |       |                   |       |
| Q2         |       | 2009       |       | 8,453         |       | (30,225          | )          | 691,119                |       |
|       |       |       |       |          |       |             |       |                   |       |
| Q3         |       | 2009       |       | 122,463       |       | —           |       | (628,832               | )          |
|       |       |       |       |          |       |             |       |                   |       |
| Q4         |       | 2009       |       | 19,337        |       | (9,500           | )          | 9,837                  |       |

 

**ComparativeTwelve Month Ending December 31**

 
|   |   | 2008       |   | 551,336 |   | (147,055 | )      | 404,281 |   |
|--------|--------|------------|--------|---------|--------|----------|--------|---------|--------|
|   |   |       |   |    |   |     |   |    |   |
|   |   | 2009       |   | 328,008 |   | (39,725  | )      | 288,283 |   |
|   |   |       |   |    |   |     |   |    |   |
|   |   | Change (%) |   |    |   |     |   | -28.69  | %      |

 

*FutureCapital Needs*

 

Thehardware division is primarily in the business of reselling TELES equipment,however we have embarked on the development of a product for the emergencyresponse market for governmental agencies and private organizations to supporttheir communications in the event of a disaster. This product has beendeveloped at a relatively low cost and began preliminary sales in the fourthquarter of 2009. The amount of capital outlay to support the continueddevelopment of this product known as the TALKBox® is small compared to thecarrier division’s investments in the past years but may require more than wehad invested in 2008 and 2009 going forward.

 

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**Critical Accounting Policies**

 

The Securities andExchange Commission recently issued “Financial Reporting Release No. 60 CautionaryAdvice Regarding Disclosure about Critical Accounting Policies” (“***FRR 60***”), suggesting companiesprovide additional disclosures, discussion and commentary on those accountingpolicies considered most critical to its business and financial reportingrequirements. FRR 60 considers an accounting policy to be critical if it isimportant to the Company’s financial condition and results of operations, andrequires significant judgment and estimates on the part of management in theapplication of the policy. For a summary of the Company’s significantaccounting policies, including the critical accounting policies discussedbelow, please refer to the accompanying notes to the financial statements.

 

The Company assessespotential impairment of its long-lived assets, which include its property andequipment, investments, and its identifiable intangibles such as deferredcharges under the guidance of ASC Topic 360 “Accounting for the Impairment orDisposal of Long-Lived Assets”. The Company must continually determine if apermanent impairment of its long-lived assets has occurred, and write down theassets to their fair values and charge current operations for the measuredimpairment.

 

The Company assesses itspotential liability for federal and state taxes under ASC Topic 740, and mustensure that the material tax positions taken by NWB on its tax returns wouldbe, if subjected to audit, more likely than not sustained on their technicalmerits for the amounts reported on NWB’s tax returns.

 

**ITEM 7A.****                                           ****QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Thissection is not applicable to the Company.

 

**ITEM 8.**                                                     **FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

The Company’s financialstatements for the fiscal year ended December 31, 2009 are included inthis annual report, beginning on page F-1.

 

**ITEM 9.                CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**ITEM 9A(T).**         **CONTROLS AND PROCEDURES**

 

**DisclosureControls and Procedures**

 

As of the end of theperiod covered by this report, the Company has carried out an evaluation underthe supervision and with the participation of its management, including itsChief Executive Officer and its Chief Financial Officer of the effectiveness ofthe design and operation of its disclosure controls and procedures as definedin Rules 13a-15(e) and 15d- 15(e) under the Securities ExchangeAct of 1934. Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that, at December 31, 2009, the Company’sdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934) were effective inensuring that information required to be disclosed in the reports the Companyfiles and submits under the Exchange Act are recorded, processed, summarizedand reported as and when required.

 

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**Management’sReport on Internal Control over Financial Reporting**

 

Our management isresponsible for establishing and maintaining adequate internal control overfinancial reporting, as defined in Rule 13a-15(f) and Rule 15d-15(f) underthe Exchange Act. Management must evaluate its internal controls over financialreporting, as required by the Sarbanes-Oxley Act. The Company’s internalcontroloverfinancial reporting is a process designed under the supervision of theCompany’s management to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of the Company’s financialstatements for external purposes in accordance with U.S. generally acceptedaccounting principles (“***GAAP***”). Ourmanagement conducted an evaluation of the effectiveness of our internal controlover financial reporting based on the criteria for effective internal controlover financial reporting established in the Internal Control-IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (“***COSO***”) and SEC guidance onconducting such assessments. Based on this evaluation, our management concludedthat our internal control over financial reporting was effective as of December 31,2009.

 

This Annual Report on Form 10-Kdoes not include an attestation report of our independent registered publicaccounting firm regarding internal control over financial reporting.Management’s report was not subject to attestation by our independentregistered public accounting firm pursuant to the temporary rules of theSecurities and Exchange Commission that permit us to provide only management’sreport in this Annual Report on Form 10-K.

 

**Changesin Internal Controls over Financial Reporting**

 

There has been no changein our internal controls over financial reporting during the three month periodended December 31, 2009 that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

 

**ITEM 9B.**               **OTHER INFORMATION**

 

None.

 

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**PART III**

 

**ITEM 10.**                                              **DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE;**

 

**Directors and Officers**

 

EffectiveOctober 5, 2009, Jacob Shorr’s term as NWB Director expired and was notrenewed.

 

EffectiveOctober 5, 2009, M. David Kamrat resigned as NWB’s President, whichposition was filled by R. Steven Bell. R. Steven Bell also became aDirector of the Company at the same time.

 

EffectiveOctober 5, 2009, Shawn K. Lane became NWB’s Chief Operations Officer(COO).

 

EffectiveJanuary 11, 2010, M. David Kamrat resigned as NWB’s CEO and R. Steven Bellbecame NWB’s CEO. Mr. Kamrat remains Chairman of NWB’s Board of Directors.

 

Asof March 19, 2010, the Company eliminated Noah Kamrat’s position as NWB’sChief Technology Officer (CTO) and his employment with the company ended.

 

As a result of theforegoing changes, the executive officers and directors of the Company as of March 31,2010 are as follows:

 
| **Name**            | ** ** | **Age** | ** ** | **Position(s)**                                             |
|---------------------|------------|---------|------------|-------------------------------------------------------------|
| R.  Steven Bell     |       | 67      |       | Chief  Executive Officer, President and Director            |
| M. David Kamrat     |       | 56      |       | Chairman of the Board  of Directors                         |
| Shehryar Wahid      |       | 44      |       | Chief Financial  Officer, Secretary, Treasurer and Director |
| Selvin Passen, M.D. |       | 74      |       | Director                                                    |
| Shawn K. Lane       |       | 45      |       | Chief Operations  Officer                                   |

 

**R. StevenBell**has served as a President and Director of the Company since October 5,2009, and as Chief Executive Officer since January 15, 2010. He has heldvarious executive level management positions in the telecommunications industryover the last 30 years: from 1976 to 1985, as Senior Vice President ofTelecommunication Services, Inc. a national interconnect company; from1985 to 1988, as Senior Vice President, Bell South Communications, Inc., anational interconnect provider; and from 1988 to 1991, as President/CEO ofAltus Technologies, Inc., a store and forward information company. Thatcompany was sold to Intellicall, Inc., a NYSE company, in 1991specializing in smartphone technology where Mr. Bell was Senior Vice Presidentunder a two year management agreement. From 1993 to 1999, as Chairman /CEO ofSolutioneering, Inc. a provider of prepaid calling cards and vendingmachines. From 1999 to 2009, as Chairman and CEO of Altus Investments, Inc.,a prepaid phone card sales and distribution company. Mr. Bell’ssuccessful experience working with both large publicly tradedtelecommunications companies and smaller niche telecommunications companies ,and his practical knowledge of the industry, led the Board to conclude that Mr. Bellwould serve the Company well  as CEO,President, and Director.

 

**M. David Kamrat** has served as the Company’s Chairman of the Boardsince September 15, 2006. From January 24, 2008 until January 11,2010, Mr. Kamrat served as Chief Executive Officer of the Company, andfrom January 24, 2008 until October 2009 as its President. Prior tothat, Mr. Kamrat served as Chief Executive Officer and Chairman of theBoard of Directors of Qualmax; he held both positions since he founded Qualmaxin 2001. From 1999 - 2004, Mr. Kamrat operated Mind Opening Corporation, atelecommunications consulting business. Prior to that, Mr. Kamrat workedas a sales executive with MCI, Inc. (“***MCI***”).  Because of Mr. Kamrat’s extensive backgroundin the telecommunications industry, including serving as the CEO of 2 telecomsolutions providers, the conclusion was made that he should serve as adirector.

 

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**Shehryar Wahid** has served as the Company’s Chief Financial Officersince February 1, 2007, and as Secretary and Treasurer since January 24,2008. Mr. Wahid has served as a director of the Company since August 20,2007. From approximately September 2006 through January 2007, Mr. Wahidacted as a consultant to the Company. Mr. Wahid has over the last 16 yearsheld various executive level positions in finance and operations in thetelecommunications and logistics industries, and has worked both as an auditor,for the Financial Services Group at Ernst & Young, and as a controllerand chief financial officer for a number of telecommunications companies. Mr. Wahidholds a Chartered Accountancy Designation from Canada and has substantialknowledge of U.S.-based GAAP reporting requirements. Mr. Wahid received aB.S. in Biochemistry from the University of Toronto and a Business Degree fromthe University of Western Ontario’s Ivey School of Business.  Mr. Wahid’s experience and background in thefields of corporate finance and audits, as well as telecommunications, led theBoard to conclude that he should serve as a Director.

 

Dr. Passen’s experiencewith the company and his extensive business history led the Board to concludethat he should serve as a Director.

 

**Shawn K. Lane**has served as Chief Operating Officer for theCompany since October 5, 2010, and as its Chief Technical Officer since March 15,2010.  Mr. Lane is Mr. Bell’sson-in-law. Over the last 18 years, Mr. Lane has held various executivelevel operations positions in the telecommunications industry.  From 1999to 2009, as President of Altus Investments, Inc., a prepaid phone cardsales and distribution company.  Concurrently, Mr. Lane also held theposition as President of United Prepaid Network, Inc., a prepaid phonecard platform and application service provider.  In addition, Mr. Lanehas held the position of President of Aeropointe Partners, Inc. from 2007to the present.

 

**Family Relationships**

 

M. David Kamrat is thefather of Noah Kamrat.

 

ShawnK. Lane is R. Steven Bell’s son-in-law.

 

**Section 16(a) Beneficial Ownership ReportingCompliance**

 

Section 16(a) ofthe Exchange Act requires our officers, directors, and persons who beneficiallyown more than 10% of a registered class of our equity securities (“10%stockholders”) to file reports of ownership and changes in ownership with theSEC. Officers, directors, and 10% stockholders also are required to furnish uswith copies of all Section 16(a) forms they file.

 

To our knowledge, basedsolely upon a review of the copies of such reports furnished to us and writtenrepresentations that no other reports were required during fiscal2009, the Company’s directors, executive officers and10% stockholders have complied with all Section 16(a) filingrequirements, as applicable except for Shawn K. Lane, for whom a Form 4with respect to 300,000 NWB common shares purchased on various dates prior to December 15,2009, was filed on March 16, 2010.

 

**Code of Ethics**

 

The Company has adopted aCode of Ethics that applies to its principal executive officer, principalfinancial officer, principal accounting officer or controller and all otheremployees and directors of the Company and its subsidiaries. The Company hasposted its Code of Ethics on its website (www.nwbtechnologies.com), which isavailable in print at the request of any stockholder who calls the Company’soffices at 972-346-9117****and requests same.

 

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**Committees of the Board ofDirectors**

 

Pursuant to our Bylaws,our Board of Directors (“***Board***”) mayestablish committees of one or more directors from time to time, as it deemsappropriate. Our common stock is currently quoted on the OTC Bulletin Boardelectronic trading platform, which does not maintain any standards requiring usto establish or maintain an Audit, Nominating, or Compensation committee. As ofDecember 31, 2009, our Board of Directors maintains an Audit Committee andCompensation Committee.

 

Additionally, the OTCBulletin Board electronic trading platform does not maintain any standardsregarding the “independence” of the directors on our Company’s Board, and weare not otherwise subject to the requirements of any national securitiesexchange or an inter-dealer quotation system with respect to the need to have amajority of our directors be independent. In the absence of such requirements,we have elected to use the definition for “director independence” under theNASDAQ stock market’s listing standards, which defines an “independentdirector” as “a person other than an officer or employee of us or itssubsidiaries or any other individual having a relationship, which in theopinion of our Board, would interfere with the exercise of independent judgmentin carrying out the responsibilities of a director.” The definition furtherprovides that, among others, employment of a director by us (or any parent orsubsidiary of ours) at any time during the past three years is considered a barto independence regardless of the determination of our Board.

 

***Audit Committee***

 

The Company’s entireBoard acts as our audit committee. Selvin Passen serves as our audit committeechairman, and Shehryar Wahid and John Abitante are the committee’s financialexperts. No member of our audit committee is “independent” under NASDAQ’slisting standards. However, due to their combined business and financialexperience and because our common stock is not currently listed on any of theNASDAQ stock markets, we believe that our employee-directors can competentlyperform the functions required of them as members of our Audit Committee.

 

***Compensation Committee***

 

The Company’s entireboard acts as our compensation committee. Selvin Passen serves as ourcompensation committee chairman. No member of our compensation committee isindependent; however, due to their combined business and financial experienceand because our common stock is not currently listed on any of the NASDAQ stockmarkets, we believe that our employee-directors can competently perform thefunctions required of them as members of our Compensation Committee.

 

**ITEM 11.               EXECUTIVECOMPENSATION**

 

The following table setsforth compensation earned, whether paid or deferred, by our Chief ExecutiveOfficer, Chief Financial Officer, President, General Counsel, and Secretary,our most highly compensated executive officers who earned over $100,000 duringthe 2009 fiscal year (collectively, the “***Named Executive Officers***”), for services rendered in all capacities to usduring fiscal years ended December 31, 2009 and 2008.

 

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**Summary Compensation Table**

 

The following table setsforth the compensation of the Named Executive Officers of the Company for theCompany’s last two completed fiscal years:

 
| **Name and  Principal Position** | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **Nonqualified  Deferred  Compensation  ($)** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|--------------------------------------------|------------|----------|------------|-----------------|------------|----------------|------------|------------------------|------------|-------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------|------------|----------------|------------|
| R. Steven Bell (1)                         |       | 2008     |       | $               | 0          |           | $          | 0                      |       | $                       | 0          |                                                   | $          | 0                                             |       | $                                     | 0          |           | $          | 0 |   | $ | 0 |   | $ | 0 |   |
| CEO                                        |       | 2009     |       | $               | 31,250     |           | $          | 0                      |       | $                       | 0          |                                                   | $          | 0                                             |       | $                                     | 0          |           | $          | 0 |   | $ | 0 |   | $ | 31,250 |   |
|                                       |       |     |       |            |       |           |       |                   |       |                    |       |                                                   |       |                                          |       |                                  |       |           |       |
| Shawn Lane (2)                             |       | 2008     |       | $               | 0          |           | $          | 0                      |       | $                       | 0          |                                                   | $          | 0                                             |       | $                                     | 0          |           | $          | 0 |   | $ | 0 |   | $ | 0 |   |
| COO                                        |       | 2009     |       | $               | 25,000     |           | $          | 0                      |       | $                       | 0          |                                                   | $          | 0                                             |       | $                                     | 0          |           | $          | 0 |   | $ | 0 |   | $ | 25,000 |   |
|                                       |       |     |       |            |       |           |       |                   |       |                    |       |                                                   |       |                                          |       |                                  |       |           |       |
| M. David Kamrat (3)                        |       | 2008     |       | $               | 267,962    |           | $          | 0                      |       | $                       | 0          |                                                   | $          | 0                                             |       | $                                     | 0          |           | $          | 0 |   | $ | 0 |   | $ | 267,962 |   |
| Chairman, Former CEO                       |       | 2009     |       | $               | 161,513    |           | $          | 0                      |       | $                       | 0          |                                                   | $          | 0                                             |       | $                                     | 0          |           | $          | 0 |   | $ | 0 |   | $ | 161,513 |   |
|                                       |       |     |       |            |       |           |       |                   |       |                    |       |                                                   |       |                                          |       |                                  |       |           |       |
| Noah Kamrat (4)                            |       | 2008     |       | $               | 217,396    |           | $          | 0                      |       | $                       | 0          |                                                   | $          | 0                                             |       | $                                     | 0          |           | $          | 0 |   | $ | 0 |   | $ | 217,396 |   |
| Former President and  Former COO           |       | 2009     |       | $               | 132,825    |           | $          | 0                      |       | $                       | 0          |                                                   | $          | 0                                             |       | $                                     | 0          |           | $          | 0 |   | $ | 0 |   | $ | 132,825 |   |
|                                       |       |     |       |            |       |           |       |                   |       |                    |       |                                                   |       |                                          |       |                                  |       |           |       |
| Shehryar Wahid (5)                         |       | 2008     |       | $               | 200,234    |           | $          | 0                      |       | $                       | 0          |                                                   | $          | 0                                             |       | $                                     | 0          |           | $          | 0 |   | $ | 0 |   | $ | 200,234 |   |
| Chief Financial Officer                    |       | 2009     |       | $               | 125,947    |           | $          | 0                      |       | $                       | 0          |                                                   | $          | 0                                             |       | $                                     | 0          |           | $          | 0 |   | $ | 0 |   | $ | 125,947 |   |

 

----

| (1)    | Mr. Bell  began his employment with the Company on October 5, 2009.                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (2)    | Mr. Lane  began his employment with the Company on October 5, 2009.                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (3)    | Mr. M. David  Kamrat had served in such capacity since September 15, 2006, the date on  which the Company consummated the acquisition of the Qualmax business (as  further discussed above under Item 1, “Description of Business—Company  History—2006 reverse acquisition of Qualmax, Inc.”). Effective January  11, 2010, Mr. Kamrat resigned as NWB’s CEO. He remains chairman of NWB’s  Board of Directors. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (4)    | Mr. Noah Kamrat  served as the Company’s President, Chief Operating Officer from September 15,  2000 until January 24, 2007, and since January 24, 2007 served as  the Company’s Chief Technology Officer and Vice President of Operations. As  of March 19, 2010, Mr. Kamrat’s position as NWB’s CTO was eliminated by the  Company and his employment with NWB ended.                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (5)    | Mr. Wahid has  served as the Company’s Chief Financial Officer since February 1, 2007.                                                                                                                                                                                                                                                                                                                                                         |

 

**Employment Agreements**

 

Messrs. Kamrat,Bell, Wahid, and Lane are employed by the company pursuant to employmentagreements that include severance payments following termination. Theseemployment agreements were pre-approved by the Board’s compensation committee.

 

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**Outstanding Equity Awards at Fiscal Year-End**

 
| ** **      | ** ** | **OPTION AWARDS**                                                             | ** ** | **STOCK AWARDS**                                                                | ** ** |
|-----------------|------------|------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| **Name**        | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#)  Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#)  Unexercisable** | ** ** | **Equity  Incentive****Plan  Awards:  Number of  Securities  Underlying  Unexercised  Unearned  Options  (#)** | ** ** | **Option  Exercise  Price  ($)** | ** ** | **Option  Expiration  Date** | ** ** | **Number of  Shares or  Units of  Stock That  Have Not  Vested  (#)** | ** ** | **Market  Value of  Shares or  Units of  Stock That  Have Not  Vested  ($)** | ** ** | **Equity  Incentive  Plan Awards:  Number of  Unearned  Shares, Units  or Other  Rights That  Have Not  Vested  (#)** | ** ** | **Equity  Incentive Plan  Awards:  Market or  Payout Value  of Unearned  Shares, Units  or Other  Rights That  Have Not  Vested  (#)** | ** ** |
| R. Steven Bell  |       | 0                                                                                  |       | 0                                                                                    |       | 0 |   | $ | 0 |   | n/a |   | 0 |   | $ | 0 |   | 0 |   | 0 |   |
| Shawn Lane      |       | 0                                                                                  |       | 0                                                                                    |       | 0 |   | $ | 0 |   | n/a |   | 0 |   | $ | 0 |   | 0 |   | 0 |   |
| M. David Kamrat |       | 0                                                                                  |       | 0                                                                                    |       | 0 |   | $ | 0 |   | n/a |   | 0 |   | $ | 0 |   | 0 |   | 0 |   |
| Noah Kamrat     |       | 0                                                                                  |       | 0                                                                                    |       | 0 |   | $ | 0 |   | n/a |   | 0 |   | $ | 0 |   | 0 |   | 0 |   |
| Shehryar Wahid  |       | 10,000,000                                                                         |       | 0                                                                                    |       | 0 |   | $ | 0.10 |   | 3/21/2013 |   | 0 |   | $ | 0 |   | 0 |   | 0 |   |

 

**Director Compensation**

 

None of the directors onour Board receives compensation solely for their services as directors.Directors, however, are entitled to receive compensation for services unrelatedto their service as a director to the extent that they provide such unrelatedservices to the Company. See Item 13 “Certain Relationships and RelatedTransactions” below.

 

**Option/SAR Grants in the Last Fiscal Year**

 

The following tablereflects option grants to our executive officers during fiscal year 2009:

 
| **Name**                  | ** ** | **# of Securities  Underlying Options/  SARs Granted** | ** ** | **% Total Options/  SARs Granted to  Employees in Fiscal  Year** | ** ** | **Exercise or  Base  Price ($/Share)** | ** ** | **Expiration  Date** | ** ** |
|---------------------------|------------|----------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------|------------|
| R.  Steven Bell           |       | 0                                                                          |       | 0                                                                                              |       | 0                                                |       | 0                    |       |
| Shawn  Lane               |       | 0                                                                          |       | 0                                                                                              |       | 0                                                |       | 0                    |       |
| M. David Kamrat |       | 0                                                                          |       | 0                                                                                              |       | 0                                                |       | 0                    |       |
| Noah  Kamrat              |       | 0                                                                          |       | 0                                                                                              |       | 0                                                |       | 0                    |       |
| Shehryar  Wahid           |       | 0                                                                          |       | 0                                                                                              |       | 0                                                |       | 0                    |       |

 

**Aggregate Option Exercises and Fiscal Year-End Option Values**

 

The following table setsforth certain information relating to the exercise of stock options during the2009 fiscal year for each of our executive officers and provides the fiscalyear-end value of the unexercised options held by our executive officers:

 
| ** **                | ** ** | **Shares  Acquired** | ** ** | **Value**    | ** ** | **# of Unexercised Options  At Fiscal Year End** | ** ** | **Value of Unexercised  In-The-Money Options  At Fiscal Year End** | ** ** |
|---------------------------|------------|----------------------|------------|--------------|------------|--------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|
| **Name**                  | ** ** | **On Exercise** | ** ** | **Realized** | ** ** | **Exercisable**                                                                | ** ** | **Unexercisable**                                                                                | ** ** | **Exercisable(1)** | ** ** | **Unexercisable** | ** ** |
| R.  Steven Bell           |       | 0                    |       | $            | 0          |                                                                           | 0          |                                                                                             | 0          |   | $ | 0 |   | $ | 0 |   |
| Shawn  Lane               |       | 0                    |       | $            | 0          |                                                                           | 0          |                                                                                             | 0          |   | $ | 0 |   | $ | 0 |   |
| M. David Kamrat |       | 0                    |       | $            | 0          |                                                                           | 0          |                                                                                             | 0          |   | $ | 0 |   | $ | 0 |   |
| Noah  Kamrat              |       | 0                    |       | $            | 0          |                                                                           | 0          |                                                                                             | 0          |   | $ | 0 |   | $ | 0 |   |
| Shehryar  Wahid           |       | 0                    |       | $            | 0          |                                                                           | 0          |                                                                                             | 0          |   | $ | 0 |   | $ | 0 |   |

 

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**ITEM 12.****                                             ****SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

The following table setsforth certain information as of April 15, 2010, with respect to (i) thosepersons known to us to beneficially own more than 5% of our voting securities, (ii) eachof our directors, (iii) each of our executive officers, and (iv) alldirectors and executive officers as a group. The information is determined inaccordance with Rule 13d-3 promulgated under the Exchange Act. Except asindicated below, the beneficial owners have sole voting and dispositive powerwith respect to the shares beneficially owned.

 
| ** **                   | ** ** | ** **                                                                                                         | ** ** | **Beneficial Ownership** | ** ** |
|------------------------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                   | ** ** | ** **                                                                                                         | ** ** | ** **                    | ** ** | **Percentage of** | ** ** |
| **Title of Class** | ** ** | **Name and Address of Beneficial  Owner(1)**                                                   | ** ** | **Number  of Shares**    | ** ** | **Class** | ** ** | **Total  Outstanding** | ** ** |
|                         |       |                                                                                                               |       |                          |       |   |   |   |   |
| Common  Stock                |       |                                                                                                               |       |                          |       |   |   |   |   |
|                         |       |                                                                                                               |       |                          |       |   |   |   |   |
|                         |       | M.  David Kamrat(2)                                                                                                |       | 157,754,718                   | (3)        | 35.2 | % | 35.2 | % |
|                         |       |                                                                                                               |       |                          |       |   |   |   |   |
|                         |       | Noah  Kamrat(4)                                                                                                    |       | 157,754,718                   | (5)        | 35.2 | % | 35.2 | % |
|                         |       |                                                                                                               |       |                          |       |   |   |   |   |
|                         |       | P&S  Spirit LLC(6)  c/o Oregon Spirit LLC  2019 SW 20th Street, Suite 108  Fort Lauderdale, FL 33315 |       | 138,272,628                   | (7)        | 30.8 | % | 30.8 | % |
|                         |       |                                                                                                               |       |                          |       |   |   |   |   |
|                         |       | Dr. Selvin  Passen(8)  2019 SW 20th Street, Suite 108  Fort Lauderdale, FL 33315                    |       | 100,854,402                   | (9)        | 22.5 | % | 22.5 | % |
|                         |       |                                                                                                               |       |                          |       |   |   |   |   |
|                         |       | Jacob  Schorr, Ph.D.(10)  925 Clintwood Drive  Silver Spring, MD 20902                                             |       | 69,136,314                    | (11)       | 15.4 | % | 15.4 | % |
|                         |       |                                                                                                               |       |                          |       |   |   |   |   |
|                         |       | Shehryar  Wahid(12)                                                                                                |       | 10,025,000                    | (13)       | 2.2 | % | 2.2 | % |
|                         |       |                                                                                                               |       |                          |       |   |   |   |   |
|                         |       | Aeropointe  Partners, Inc.  c/o R. Steven Bell 

10015  Aeronca Lane

McKinney,  Texas, 75071                 |       | 69,092,622                    |       | 15.4 | % | 15.4 | % |
|                         |       |                                                                                                               |       |                          |       |   |   |   |   |
|                         |       | R.  Steven Bell

10015  Aeronca Lane

McKinney,  Texas, 75071                                                      |       |  

69,392,622            | (14)       | 15.5 | % | 15.5 | % |
|                         |       |                                                                                                               |       |                          |       |   |   |   |   |
|                         |       | Shawn  K. Lane

10015  Aeronca Lane

McKinney,  Texas, 75071                                                       |       |  

69,392,622            | (15)       | 15.5 | % | 15.5 | % |
|                         |       |                                                                                                               |       |                          |       |   |   |   |   |
|                         |       | BOS  Better Online Solutions, Ltd.

20  Freiman Street

Rishon  LeZion 

Israel                                    |       | 62,872,005                    | (16)       | 14.0 | % | 14.0 | % |
|                         |       |                                                                                                               |       |                          |       |   |   |   |   |
|                         |       | Total  directors and executive officers as a group                                                                 |       | 338,026,742                   |       | 75.4 | % | 75.4 | % |

 

----

| (1)    |   | Except as otherwise  indicated, the address of each beneficial owner is 340 West Fifth Avenue,  Eugene, Oregon 97401.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (2)    |   | M. David Kamrat serves  as our Chairman of the Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (3)    |   | Represents:  (a) 55,570,887 shares of Common Stock directly owned as a result of  Mr. Kamrat’s prior direct ownership interest in Qualmax; and  (b) indirect beneficial ownership of 74,342,053 shares of Common Stock  based on Mr. Kamrat’s wife, son and daughter-in-law’s prior direct  ownership interests in Qualmax; (c) direct ownership of a warrant to  purchase 13,888,889 shares of Common Stock exercisable within the next 60  days; and (d) indirect beneficial ownership of a warrant to purchase  13,888,889 shares of Common Stock based upon Mr. Kamrat’s son’s direct  ownership of a warrant to purchase shares of Common Stock; and  (e) direct ownership of 64,000 shares purchased during Q4 2008 on the  open market. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (4)    |   | Noah Kamrat served as  our Chief Technology Officer until March 2010, and until August 20,  2007 served as a Director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 

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| (5)    |   | Represents:  (a) 57,000,491 shares of Common Stock directly owned as a result of  Mr. Kamrat’s prior direct ownership interest in Qualmax; and  (b) indirect beneficial ownership of 72,912,449 shares of Common Stock  based on Mr. Kamrat’s wife, father and mother’s prior direct ownership  interests in Qualmax; (c) direct ownership of a warrant to purchase  13,888,889 shares of Common Stock exercisable within the next 60 days;  (d) indirect beneficial ownership of a warrant to purchase 13,888,889  shares of Common Stock based upon Mr. Kamrat’s father’s direct ownership  of a warrant to purchase shares of Common Stock.; and (e) indirect  beneficial ownership of 64,000 shares purchased by his father during Q4 on  the open market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (6)    |   | P&S Spirit is owned  equally by Dr. Selvin Passen, a Director of the Company, and Jacob  Schorr, Ph.D., who was a director of the Company until October, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (7)    |   | Represents:  (a) 110,494,850 shares of Common Stock owned directly by P&S Spirit;  and (b) warrants owned directly by P&S Spirit to purchase 27,777,798  shares of Common Stock exercisable within the next 60 days;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (8)    |   | Dr. Passen serves  as a director of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (9)    |   | Represents:  (a) 10,000,000 shares of Common Stock directly owned by Dr. Passen;  (b) 800,000 shares of Common Stock indirectly beneficially owned by  Dr. Passen based upon certain of his children’s direct ownership of  Common Stock; (c) 7,500,000 shares of Common Stock indirectly  beneficially owned based upon Dr. Passen’s ownership of Oregon Spirit  LLC, as a result of Oregon Spirit’s direct ownership of shares of Common  Stock; (d) another 4,667,235 shares of Common Stock directly  beneficially owned by Dr. Passen based on his prior direct ownership  interest in Qualmax; (e) 7,000,853 shares of Common Stock indirectly  beneficially owned by owned by Dr. Passen based on his ownership  interest in Oregon Spirit LLC, as a result of Oregon Spirit’s prior direct  ownership interest in Qualmax; (f) 29,701,065 shares of Common Stock  indirectly beneficially owned by Dr. Passen based on his direct one-half  ownership interest in P&S Spirit LLC; (g) direct ownership of  warrants and options to purchase 1,750,000 shares of Common Stock exercisable  within the next 60 days; (h) indirect beneficial ownership of a warrant  to purchase 13,888,889 shares of Common Stock, exercisable within the next 60  days, based upon Dr. Passen’s direct one-half ownership interest in  P&S Spirit, as a result of P&S Spirit’s direct ownership of warrants  to purchase shares of Common Stock; and (i) indirect beneficial  ownership of 25,546,360 shares of Common Stock based upon Dr. Passen’s  direct one-half ownership interest in P&S Spirit as a result of P&S  Spirit’s prior direct ownership interest in Qualmax. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (10)   |   | Dr. Schorr served  from 2006 to 2009 as a director of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (11)   |   | Represents:  (a) 29,701,065 shares of Common Stock indirectly beneficially owned by  Mr. Schorr based on his direct one-half ownership interest in P&S  Spirit LLC; (b) indirect beneficial ownership of a warrant to purchase  13,888,889 shares of Common Stock, exercisable within the next 60 days, based  upon Dr. Schorr’s direct one-half ownership interest in P&S Spirit,  as a result of P&S Spirit’s direct ownership of warrants to purchase  shares of Common Stock; and (c) indirect beneficial ownership of  25,546,360 shares of Common Stock based upon Mr. Schorr’s direct  one-half ownership interest in P&S Spirit as a result of P&S Spirit’s  prior direct ownership interest in Qualmax.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (12)   |   | Mr. Wahid serves  as Chief Financial Officer of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (13)   |   | Represents 25,000  shares purchased in 2008 on the open market and 10,000,000 shares which were  granted to Mr. Wahid in 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (14)   |   | Represents half of the 47,658,374shares owned by Aeropointe, of which  Mr. Bell owns %50, plus the other halves which are owned by  Mr. Lane and which may be deemed beneficially attributable to  Mr. Bell, plus 10,717,124 shares held directly by Mr. Bell, plus  another 10,717,124 held directly by Mr. Lane..  Mr. Bell holds a total of 34,546,311 shares directly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (15)   |   | Represents half of the 47,658,374 shares owned by Aeropointe of which  Mr. Lane owns %50, plus the other half which are owned by Mr. Bell  and which may be deemed beneficially attributable to Mr. Lane, plus  10,717,124 shares held directly by Mr. Lane, and another 10,717,124 held  directly by Mr. Bell; plus 300,000 shares purchased by Mr. Lane on  the open market. Mr. Lane holds a total of 34,846,311 shares  directly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (16)   |   | Represents:  (a) direct ownership of 61,441,827 shares of Common Stock, plus warrants  to purchase 1,430,178 shares at anytime before December 31, 2010, at  $0.2097644 per share. These shares are currently being held in escrow pending  completion of the P&S-BOS transaction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

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**ITEM 13.****                                             ****CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

**Relationship with Selvin Passen**

 

Historically in an effortto maintain smooth business operations, we have from time to time relied onloans from Dr. Selvin Passen, a director and our former Chairman and asubstantial stockholder (directly and beneficially, as disclosed in the abovetable in Item 12, “Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters”). “As of December 31, 2009,the Company had outstanding loans in the amount of $1,050,000 with P&SSpirit, a company jointly owned by Dr. Selvin Passen and Dr. JacobSchorr.”

 

**Transactions with Dr. Selvin Passen, M. David Kamrat,and Noah Kamrat**

 

Since January 1,2006, the Company has entered into various transactions with Dr. SelvinPassen, a principal stockholder of the Company, and his affiliates, M. DavidKamrat, the Company’s former President and Chief Executive Officer and currentChairman of the Board, and Noah R. Kamrat, the Company’s former ChiefTechnology Officer and a former director. Reference is made to the descriptionof each these related party transactions earlier in Item 1, “Description ofBusiness—Recent Developments—P&S Spirit Subscription Agreement.”

 

53

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**Relationship and Transactions with BOS**

 

As a result of ouracquisition on December 31, 2005 of certain assets of BOS, BOS became aprincipal stockholder of the Company. BOS’s current ownership position is more fully detailed in Item 12 andNote 14. The company entered into an agreement to repurchase shares from BOS asreported on Form 8K filed with the SEC on August 22, 2008, and morefully disclosed in Item 1. On September 30, 2008 the Company completed itspurchase of the initial installment of 5,000,000 shares from BOS, and has todate purchased 6,600,000 New World Brands Shares from BOS under the BOS-NWBAgreement for a total purchase price of $165,000.

 

On or about February 25,2010, BOS entered into an agreement with P&S Spirit, pursuant to whichBOS’s shares were transferred to P&S to hold in escrow, subject toforfeiture and return of the shares in the event a certain future payment isnot made. On March 3, 2010, BOS filed a Form 3 announcing thedisposal of all of its NWB shares and warrants. Following the completion ofthat transaction, BOS would no longer be a shareholder of the Company at all.

 

**Corporate Governance**

 

Our common stock isquoted on the OTC Bulletin Board electronic trading platform, which does notmaintain any standards regarding the “independence” of the directors on ourCompany’s Board, and we are not otherwise subject to the requirements of anynational securities exchange or an inter-dealer quotation system with respectto the need to have a majority of our directors be independent. In the absenceof such requirements, we have elected to use the definition for “directorindependence” under the NASDAQ stock market’s listing standards, which definesan “independent director” as “a person other than an officer or employee of usor its subsidiaries or any other individual having a relationship, which in theopinion of our Board, would interfere with the exercise of independent judgmentin carrying out the responsibilities of a director.” The definition furtherprovides that, among others, employment of a director by us (or any parent orsubsidiary of ours) at any time during the past three years is considered a barto independence regardless of the determination of our Board.

 

Based on our adoption ofthe NASDAQ definition of independence, as of December 31, 2009, three ofour directors, M. David Kamrat, R. Steven Bell, and Shehryar Wahid, were not consideredindependent as a result of their status as employees and officers of theCompany, and our director, Selvin Passen, is not considered an independentdirector as a result of his respective ownership interests in P&S Spirit.

 

**ITEM 14.               PRINCIPAL ACCOUNTANT FEES AND SERVICES**

 

**Fees Paid to Independent Registered Public Accounting Firms**

 

The following table setsforth, for each of the years indicated, the aggregate fees paid to ourindependent registered public accounting firms and the percentage of each ofthe fees out of the total amount paid to the accountants:

** **
| ** **                 | ** ** | **12 Months Ended**   | ** ** |
|----------------------------|------------|---------------------------------|------------|
| ** **                 | ** ** | **December 31, 2009** | ** ** | **December 31, 2008** | ** ** |
| **Services Rendered** | ** ** | **Fees**                        | ** ** | **Percentages** | ** ** | **Fees** | ** ** | **Percentages** | ** ** |
|                       |       |                            |       |   |   |   |   |   |   |
| Audit  (1)                 |       | $                               | 162,007    |   | 95 | % | $ | 215,298 |   | 93 | % |
| Audit-Related  Fees (2)    |       | —                          |       | — |   | — |   | — |   |
| Tax  Fees (3)              |       |                            | 8,750      |   | 5 | % | 16,078 |   | 7 | % |
| All  Other Fees            |       | —                          |       | — |   | — |   | — |   |
|                       |       |                            |       |   |   |   |   |   |   |
| Total                      |       | $                               | 170,757    |   | 100 | % | $ | 231,376 |   | 100 | % |

 

----

| (1)    |   | Audit fees consist of  services that would normally be provided in connection with statutory and  regulatory filings or engagements, including services that generally only the  independent accountant can reasonably provide.                                                                                                                                                                                        |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (2)    |   | Audit-related fees  relate to assurance and associated services that traditionally are performed  by the independent accountant, including: attest services that are not  required by statute or regulation; accounting consultation and audits in  connection with mergers, acquisitions and divestitures; employee benefit  plans audits; and consultation concerning financial accounting and reporting  standards. |

 

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| (3) |   | Tax fees relate to  services performed by the tax division for tax compliance, planning, and  advice. |
|-----|--------|-------------------------------------------------------------------------------------------------------|

 

**Pre-Approval Policies and Procedures**

 

Our Board has adopted apolicy and procedures for the pre-approval of audit and non-audit servicesrendered by our independent public accountants, Berenfeld, Spritzer, Shechter &Sheer, LLP. The policy generally pre-approves certain specific services in thecategories of audit services, audit-related services, and tax services up tospecified amounts, and sets requirements for specific case-by-case pre-approvalof discrete projects, those which may have a material effect on our operationsor services over certain amounts. Pre-approval may be given as part of theBoard’s approval of the scope of the engagement of our independent auditor oron an individual basis. The pre-approval of services may be delegated to one ormore of the Board members, but the decision must be approved by the full Board.The policy prohibits retention of the independent public accountants to performthe prohibited non-audit functions defined in Section 201 of the Sarbanes-OxleyAct or the rules of the SEC, and also considers whether proposed servicesare compatible with the independence of the public accountants.

 

**ITEM 15.**               **EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

 

Exhibits required to beattached by Item 601 of Regulation S-B are listed in this Form 10-K’s Exhibit Index,which is incorporated herein by reference.

 

**SIGNATURES**

 

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

 
|                 | NEW WORLD BRANDS, INC. |
|----------------------|------------------------|
|                 |                   |
| Date: April 15, 2010 | By:                    | /s/ R. Steven Bell |
|                 |                   | R. Steven Bell, Chief  Executive Officer |

 

In accordance with theExchange Act, this report has been signed below by the following persons onbehalf of the Company and in the capacities and on the dates indicated.

 
| **SIGNATURE**           | ** ** | **TITLE**                                                    | ** ** | **DATE**       |
|-------------------------|------------|--------------------------------------------------------------|------------|----------------|
|                    |       |                                                         |       |           |
| /s/ R. Steven Bell |       | Chief Executive  Officer,                                    |       | April 15, 2010 |
| R. Steven Bell          |       |                                                         |       |           |
|                    |       |                                                         |       |           |
| /s/ Shehryar Wahid      |       | Chief Financial  Officer,                                    |       | April 15, 2010 |
| Shehryar Wahid          |       | Secretary, Treasurer,  Chief Operations Officer and Director |       |           |
|                    |       |                                                         |       |           |
| /s/ Selvin Passen, M.D. |       | Director                                                     |       | April 15, 2010 |
| Selvin Passen, M.D.     |       |                                                         |       |           |

 

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Table of Contents

 

**TABLE OF CONTENTS:**

 
| ** **                                                                     | **Page**   |
|--------------------------------------------------------------------------------|------------|
|                                                                           |       |
| Report  of independent registered public accounting firm                       | F-2        |
|                                                                           |       |
| Financial statements:                                                          |       |
| Consolidated  balance sheets                                                   | F-3 - F-4  |
| Consolidated statements of operations                                          | F-5        |
| Consolidated  statements of stockholders’ equity and comprehensive income | F-6        |
| Consolidated  statements of cash flows                                         | F-7        |
| Supplemental disclosure of cash flows                                          | F-8        |
| Notes to  consolidated financial statements                                    | F-9 - F-28 |

 

F-1

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Table ofContents

 

**REPORT OFINDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

 

To the Audit Committeeand Stockholders

New World Brands, Inc.and Subsidiary

Eugene, Oregon

 

We have audited theaccompanying consolidated balance sheets of New World Brands, Inc. andSubsidiary as of December 31, 2009 and 2008, and the related consolidatedstatements of operations, stockholders’ equity and comprehensive income, andcash flows for each of the years in the two year period ended December 31,2009. New World Brands, Inc. and Subsidiary’s management is responsiblefor these consolidated financial statements. Our responsibility is to expressan opinion on these consolidated financial statements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the consolidated financialstatements are free of material misstatement. The company is not required tohave, nor were we engaged to perform, an audit of its internal control overfinancial reporting. Our audits included consideration of internal control overfinancial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe consolidated financial statements, assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of New World Brands, Inc.and Subsidiary as of December 31, 2009 and 2008, and the consolidatedresults of its operations and its cash flows for each of the years in the twoyear period ended December 31, 2009 in conformity with accountingprinciples generally accepted in the United States of America.

 

Berenfeld SpritzerShechter & Sheer, LLP

Certified PublicAccountants

Fort Lauderdale, Florida

April 15, 2010

 

F-2

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Table of Contents

 

**New World Brands, Inc. and Subsidiary**

**Consolidated Balance Sheets**

**as of December 31, 2009 and 2008**

 
| ** **                  | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|-----------------------------|------------|------------|------------|------------|------------|
| ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **ASSETS**                  |       |       |       |       |       |
| Current Assets              |       |       |       |       |       |
| Cash and cash equivalents   |       | $          | 317,061    |       | $          | 541,116 |   |
| Accounts receivable, net    |       | 1,272,408  |       | 988,371    |       |
| Inventories, net            |       | 2,437,904  |       | 1,827,211  |       |
| Prepaid expenses            |       | 100,549    |       | 638,801    |       |
| Other current assets        |       | 783,966    |       | 316,045    |       |
|                        |       |       |       |       |       |
| Total Current Assets        |       | 4,911,888  |       | 4,311,544  |       |
|                        |       |       |       |       |       |
| Property and equipment, net |       | 1,105,498  |       | 1,446,557  |       |
|                        |       |       |       |       |       |
| Other Assets:               |       |       |       |       |       |
| Deposits and other assets   |       | 526,841    |       | 503,856    |       |
|                        |       |       |       |       |       |
| Total Long-Term Assets      |       | 1,632,339  |       | 1,950,413  |       |
|                        |       |       |       |       |       |
| Total Assets                |       | $          | 6,544,227  |       | $          | 6,261,957 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

F-3

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Table of Contents

 

**New World Brands, Inc. and Subsidiary**

**Consolidated Balance Sheets**

**as of December 31, 2009 and 2008**

 
| ** **                                                                                                                              | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| ** **                                                                                                                              |       |        |       |        |       |
| **LIABILITIES & STOCKHOLDERS’ EQUITY**                                                                          |       |        |       |        |       |
| Liabilities                                                                                                                             |       |        |       |        |       |
| Current Liabilities                                                                                                                     |       |        |       |        |       |
| Accounts payable                                                                                                                        |       | $           | 5,318,128  |        | $          | 1,917,899 |   |
| Accrued expenses                                                                                                                        |       | 457,878     |       | 447,491     |       |
| Customer deposits                                                                                                                       |       | 27,615      |       | 4,365       |       |
| Capital leases, current portion                                                                                                         |       | 51,720      |       | 67,531      |       |
| Notes payable, current portion                                                                                                          |       | 250,833     |       | 14,693      |       |
| Other current liabilities                                                                                                               |       | 281,538     |       | —      |       |
| Total Current Liabilities                                                                                                               |       | 6,387,712   |       | 2,451,979   |       |
|                                                                                                                                    |       |        |       |        |       |
| Long-Term Liabilities                                                                                                                   |       |        |       |        |       |
| Notes payable, net of current portion                                                                                                   |       | 2,051,806   |       | 1,665,995   |       |
| Capital leases, net of current portion                                                                                                  |       | 41,262      |       | 91,913      |       |
| Total Long-Term Liabilities                                                                                                             |       | 2,093,068   |       | 1,757,908   |       |
|                                                                                                                                    |       |        |       |        |       |
| Total Liabilities                                                                                                                       |       | 8,480,780   |       | 4,209,887   |       |
|                                                                                                                                    |       |        |       |        |       |
| Commitments and Contingencies                                                                                                           |       | —      |       | —      |       |
|                                                                                                                                    |       |        |       |        |       |
| Stockholders’ Equity                                                                                                               |       |        |       |        |       |
| Preferred stock, $0.01 par value, 1,000 shares  authorized, 200 shares designated as Series A preferred stock, none  issued        |       | —      |       | —      |       |
| Common stock, $0.01 par value, 600,000,000 shares  authorized, 454,489,298 and 418,479,673 shares issued in 2009 and 2008  respectively |       | 4,544,892   |       | 4,184,797   |       |
| Additional paid-in capital                                                                                                              |       | 10,555,003  |       | 10,685,482  |       |
| Accumulated other comprehensive income                                                                                                  |       | 2,592       |       | —      |       |
| Accumulated deficit                                                                                                                     |       | (16,839,040 | )          | (12,653,209 | )          |
|                                                                                                                                    |       | (1,736,553  | )          | 2,217,070   |       |
|                                                                                                                                    |       |        |       |        |       |
| Less: Treasury shares (common 6,884,386 and  6,600,000 shares as of December 31, 2009 and December 31, 2008) at  cost         |       | (200,000    | )          | (165,000    | )          |
|                                                                                                                                    |       |        |       |        |       |
| Total Stockholders’ Equity                                                                                                         |       | (1,936,553  | )          | 2,052,070   |       |
|                                                                                                                                    |       |        |       |        |       |
| Total Liabilities and Stockholders’ Equity                                                                                         |       | $           | 6,544,227  |        | $          | 6,261,957 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

F-4

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Table of Contents

 

**New World Brands, Inc. and Subsidiary**

**Consolidated Statements of Operations**

**for the Years Ended December 31, 2009 and2008**

 
| ** **                                                     | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|----------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| Net Sales                                                      | ** ** | ** **  | ** ** | ** **  | ** ** |
| NWB Network - Hardware                                         |       | $           | 4,198,117  |        | $          | 7,161,026 |   |
| NWB Telecom - Carrier Services                                 |       | 7,072,887   |       | 13,119,148  |       |
| NWB Retail - Direct Calling                                    |       | 680,977     |       | —      |       |
|                                                           |       | 11,951,981  |       | 20,280,174  |       |
| Cost of Sales                                                  |       |        |       |        |       |
| NWB Network - Hardware                                         |       | (3,049,893  | )          | (5,040,581  | )          |
| NWB Telecom - Carrier Services                                 |       | (7,114,220  | )          | (10,990,157 | )          |
| NWB Retail - Direct Calling                                    |       | (695,774    | )          | —      |       |
|                                                           |       | (10,859,887 | )          | (16,030,738 | )          |
|                                                           |       |        |       |        |       |
| Gross Profit                                                   |       | 1,092,094   |       | 4,249,436   |       |
|                                                           |       |        |       |        |       |
| Sales, General and Administrative Expenses                     |       | (4,807,527  | )          | (5,842,917  | )          |
| Loss Before Other Income                                       |       | (3,715,433  | )          | (1,593,481  | )          |
|                                                           |       |        |       |        |       |
| Other Income                                                   |       |        |       |        |       |
| Interest Expense                                               |       | (112,803    | )          | (99,076     | )          |
| Other Income                                                   |       | 18,990      |       | 63,005      |       |
| Loss Due To Termination of International Routes                |       | (336,062    | )          |        |       |
|                                                           |       | (429,875    | )          | (36,071     | )          |
| Operational Loss                                               |       | (4,073,805  | )          | (1,629,552  | )          |
|                                                           |       |        |       |        |       |
| **Loss Before Income Taxes**                                   |       | (4,145,308  | )          | (1,629,552  | )          |
|                                                           |       |        |       |        |       |
| Provision for Income Taxes                                     |       | (40,524     | )          | —      |       |
| ** **                                                     |       |        |       |        |       |
| **Net Loss**                                                   |       | $           | (4,185,832 | )           | $          | (1,629,552 | ) |
|                                                           |       |        |       |        |       |
| Net Loss per Share (basic)                                     |       | $           | (0.01      | )           | $          | (0.00 | ) |
|                                                           |       |        |       |        |       |
| Net Loss per Share (diluted)                                   |       | $           | (0.01      | )           | $          | (0.00 | ) |
|                                                           |       |        |       |        |       |
| Weighted average number of shares outstanding  during the year |       |        |       |        |       |
|                                                           |       |        |       |        |       |
| Basic                                                          |       | 415,078,095 |       | 415,384,878 |       |
|                                                           |       |        |       |        |       |
| Diluted                                                        |       | 415,078,095 |       | 415,384,878 |       |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

F-5

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Table of Contents

 

**New World Brands, Inc. and Subsidiary**

**Consolidated Statement of Stockholders’ Equity andComprehensive Income**

**for the Years Ended December 31, 2009 and2008**

 
| ** **                                                                                          | ** ** | ** **            | ** ** | ** **           | ** ** | ** **    | ** ** | ** **        | ** ** | ** **      | ** ** | **Accumulated**        | ** ** | **Retained**    | ** ** | ** **     | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------------|------------|---------------|------------|-------------------|------------|-----------------|------------|------------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                                                          | ** ** | ** **            | ** ** | ** **           | ** ** | ** **    | ** ** | ** **        | ** ** | **Additional**  | ** ** | **Other**              | ** ** | **Earnings**    | ** ** | **Total**      | ** ** |
| **Date and description of**                                                                         | ** ** | **Common Stock** | ** ** | **Treasury  Shares** | ** ** | **Paid In**   | ** ** | **Comprehensive** | ** ** | **Accumulated** | ** ** | **Stockholders’** | ** ** |
| **Activity or Transaction**                                                                         | ** ** | **Shares**            | ** ** | **Amount**           | ** ** | **Shares**    | ** ** | **Amount**        | ** ** | **Capital**     | ** ** | **Income**             | ** ** | **Deficit**     | ** ** | **Equity**     | ** ** |
| **Balance at January 1, 2008**                                                                 | ** ** | **414,979,673**       | ** ** | **4,149,797**        | ** ** | **—**    | ** ** | **—**        | ** ** | **10,720,482**  | ** ** | **—**             | ** ** | **(11,023,657** | **)**      | **3,846,622**  | ** ** |
|                                                                                                |       |                  |       |                 |       |          |       |              |       |            |       |                   |       |            |       |           |       |
| Issuance  of Common Stock to Crystal Blue Consulting May 5, 2008                               |       | 3,500,000             |       | 35,000               |       |          |       |              |       | (35,000         | )          |                   |       |            |       | —         |       |
| Repurchase  of Common Stock from B.O.S. retained as Treasury Stock September 2, 2008           |       |                  |       |                 |       | 5,000,000     |       | (125,000          | )          |            |       |                   |       |            |       | (125,000       | )          |
| Repurchase  of Common Stock from B.O.S. retained as Treasury Stock October 21, 2008            |       |                  |       |                 |       | 1,000,000     |       | (25,000           | )          |            |       |                   |       |            |       | (25,000        | )          |
| Repurchase  of Common Stock from B.O.S. retained as Treasury Stock November 13, 2008           |       |                  |       |                 |       | 600,000       |       | (15,000           | )          |            |       |                   |       |            |       | (15,000        | )          |
| Net  Loss from Continuing Operations for the Twelve Months Ending  December 31, 2008           |       |                  |       |                 |       |          |       |              |       |            |       |                   |       | (1,629,552      | )          | (1,629,552     | )          |
|                                                                                                |       |                  |       |                 |       |          |       |              |       |            |       |                   |       |            |       |           |       |
| **Balance at December 31, 2008**                                                               | ** ** | **418,479,673**       | ** ** | **4,184,797**        | ** ** | **6,600,000** | ** ** | **(165,000**      | **)**      | **10,685,482**  | ** ** | **—**             | ** ** | **(12,653,209** | **)**      | **2,052,070**  | ** ** |
|                                                                                                |       |                  |       |                 |       |          |       |              |       |            |       |                   |       |            |       |           |       |
| Issuance  of Common Stock to G. Casale on January 28, 2009                                     |       | 510,000               |       | 5,100                |       |          |       |              |       | (5,100          | )          |                   |       |            |       | —         |       |
| Cancellation  of shares not exercised on conversion from Qualmax distribution on February  19, 2009 |       | (3,336,959            | )          | (33,370              | )          |          |       |              |       | 33,370          |       |                   |       |            |       | —         |       |
| Issuance  of Common Stock to Aeropointe Partners Inc. on Nov 9, 2009                                |       | 38,836,584            |       | 388,366              |       |          |       |              |       | (158,749        | )          |                   |       |            |       | 229,617        |       |
| Repurchase  of Common Stock from B. Mofsky retained as Treasury Stock Dec 1, 2009                   |       |                  |       |                 |       | 284,386       |       | (35,000           | )          |            |       |                   |       |            |       | (35,000        | )          |
| Net  Loss for the Twelve Months Ending December 31, 2009                                       |       |                  |       |                 |       |          |       |              |       |            |       | 2,592                  |       | (4,185,832      | )          | (4,015,682     | )          |
|                                                                                                |       |                  |       |                 |       |          |       |              |       |            |       |                   |       |            |       |           |       |
| **Balance at December 31, 2009**                                                               | ** ** | **454,489,298**       | ** ** | **4,544,893**        | ** ** | **6,884,386** | ** ** | **(200,000**      | **)**      | **10,555,003**  | ** ** | **2,592**              | ** ** | **(16,839,041** | **)**      | **(1,936,553** | **)**      |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

F-6

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Table of Contents

 

**New World Brands, Inc. and Subsidiary**

**Consolidated Statements of Cash Flows**

**for the Years Ended December 31, 2009 and2008**

 
| ** **                                                                            | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|---------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash Flows from Operating  Activities**                                             |       |       |       |       |       |
| Net loss from continuing operations                                                   |       | $          | (4,185,832 | )          | $          | (1,629,552 | ) |
| Adjustments to reconcile net income (loss) to net  cash used in operating activities: |       |       |       |       |       |
|                                                                                  |       |       |       |       |       |
| Depreciation and amortization                                                         |       | 632,300    |       | 515,313    |       |
| Gain on disposition of assets                                                         |       | (2,958     | )          | —     |       |
| Allowance for doubtful accounts                                                       |       | 95,638     |       | (105,001   | )          |
| Changes in operating assets and liabilities                                           |       |       |       |       |       |
| Accounts receivable                                                                   |       | (370,755   | )          | 144,557    |       |
| Inventory                                                                             |       | (610,693   | )          | (1,082,557 | )          |
| Prepaid expenses                                                                      |       | 548,252    |       | (394,644   | )          |
| Income tax refund receivable                                                          |       | (35,030    | )          | —     |       |
| Other current assets                                                                  |       | (387,312   | )          | 190,967    |       |
| Deposits and other assets                                                             |       | 187,500    |       | 164,894    |       |
| Accounts payable                                                                      |       | 3,403,730  |       | 353,600    |       |
| Accrued expenses and other liabilities                                                |       | 288,424    |       | 40,581     |       |
| Customer deposits                                                                     |       | 23,249     |       | (117,509   | )          |
| Total adjustments                                                                     |       | 3,772,345  |       | (289,799   | )          |
| Net cash used in operating activities                                                 |       | (413,487   | )          | (1,919,351 | )          |
|                                                                                  |       |       |       |       |       |
| **Cash flows from Investing  Activities**                                             |       |       |       |       |       |
| Purchases of property and equipment                                                   |       | (239,579   | )          | (404,281   | )          |
| Purchase of Intangible Assets                                                         |       | (38,405    | )          | —     |       |
| Increase in Notes receivable                                                          |       | (274,983   | )          | —     |       |
| Net cash used in investing activities                                                 |       | (552,967   | )          | (404,281   | )          |
|                                                                                  |       |       |       |       |       |
| **Cash Flows from Financing Activities**                                              |       |       |       |       |       |
| Proceeds from notes payable                                                           |       | 640,000    |       | 1,192,185  |       |
| Payments of notes payable                                                             |       | (18,049    | )          | (11,497    | )          |
| Payments of principal on capital lease obligations                                    |       | (76,761    | )          | (189,387   | )          |
| Proceeds from sale of common and preferred stock                                      |       | 229,617    |       | —     |       |
| Purchase of treasury stock                                                            |       | (35,000    | )          | (165,000   | )          |
|                                                                                  |       |       |       | —     |       |
| Net repayment of advances from shareholders                                           |       | —     |       | (188       | )          |
| Net cash provided by financing activities                                             |       | 742,399    |       | 826,113    |       |
| Effect of Foreign Currency Exchange                                                   |       | 2,592      |       |       |       |
| Net Change in Cash and Cash Equivalents                                               |       | (224,055   | )          | (1,497,519 | )          |
|                                                                                  |       |       |       |       |       |
| **Cash and Cash Equivalents at  Beginning of Year**                                   |       | 541,116    |       | 2,038,635  |       |
| ** **                                                                            |       |       |       |       |       |
| **Cash and Cash Equivalents at  End of Year**                                         |       | $          | 317,061    |       | $          | 541,116 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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**New WorldBrands, Inc. and Subsidiary**

**Consolidated Statement of Supplemental Disclosure of Cash Flows**

**for theYears Ended December 31, 2009 and 2008**

 
| ** **                                                               | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Cash paid during the year for:**                                       |       |     |       |     |       |
| - Income taxes                                                           |       | —   |       | —   |       |
| - Interest                                                               |       | $        | 84,524     |     | $          | 84,524 |   |
|                                                                     |       |     |       |     |       |
| **Non-cash investing and  financing activities:**                        |       |     |       |     |       |
|                                                                     |       |     |       |     |       |
| Acquisition of property and equipment through  capital lease obligations |       |     |       |     |       |
| - Fair value of property and equipment acquired                          |       | $        | 10,374     |     | $          | 135,783 |   |
| - Capital lease obligations incurred                                     |       | (10,374  | )          | (135,783 | )          |
|                                                                     |       | —   |       | —   |       |
|                                                                     |       |     |       |     |       |
| Issuance of Common Stock                                                 |       |     |       |     |       |
| - Common Stock                                                           |       | (28,270  | )          | —   |       |
| - Paid in Capital                                                   |       | 28,270   |       | —   |       |
|                                                                     |       | —   |       | —   |       |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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**NOTE A**                                              **ORGANIZATION, CAPITALIZATION ANDSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**Organization and Basis of Presentation**

 

NewWorld Brands, Inc. (*“**New WorldBrands**”, **“the Company**”,“**NWB**”, “**we**”,“**us**” or “**our**”*)is a Delaware corporation that is engaged in the telecommunications businessthrough its three operating divisions. One is NWB Networks, which includesTELES USA. This division is focused on the telecommunications hardware businessand delivers voice over internet equipment, support, and solutions as theexclusive reseller of the TELES AG line of products in North America. The otherdivision is NWB Telecom, which acts as a long distance wholesale terminationprovider. It primarily offers international routes to domestic carriers for thetermination of voice over internet phone service. A third operating divisionwas organized at the end of the third quarter of 2009 and has been named NWBRetail. This division has just started operations and has few costs or revenuesin the current reporting period. Revenues are anticipated in future periods andNWB Retail is separated out as a unique segment in the segmented reporting ofNew World Brands Inc.

 

On September 15,2006 New World Brands was an importer of wine and spirits beverages for saleand distribution throughout the United States.  On September 15,2006, we sold our wine and spirits business, and, by way of a reverseacquisition, acquired all of the assets and assumed all of the liabilities ofQualmax, Inc., a Delaware corporation (“***Qualmax***”and the reverse acquisition the “***Reverse Acquisition***”).

 

Our acquisition ofQualmax and its wholly owned subsidiary IP Gear, Ltd. was accounted for as areverse acquisition.  Although New WorldBrands was the company that made the acquisition, Qualmax was treated as the survivingcompany for accounting purposes. The final step in this transactionoccurred in January of 2009 when Qualmax was dissolved and its holdings ofshares of New World Brands, Inc. were distributed to itsshareholders.  On September 15, 2006 the Company changed its fiscalyear end from May 31 to December 31, which was Qualmax’s fiscal yearend and operated using the assets of the former Qualmax in thetelecommunications business.

 

On July 1, 2007 wesold the IP Gear Ltd subsidiary for cash and other consideration to TELES AGThe primary non-cash consideration was the acquisition of the rights to becomethe exclusive distributor of the TELES AG, product line of telecommunicationsequipment in much of North America. This business activity serves as the basisof the NWB Networks division today.

 

**Reverse Acquisition Accounting**

 

In furtherance oftreating the Sale Transaction and Acquisition as a reverse acquisition foraccounting purposes, the board of directors of the Company (the “***Board***”) and the board of directors of Qualmax(collectively, the “***Boards***”) have agreed that for accountingpurposes they have treated the transactions as a reverse acquisition of Qualmaxby the Company, and have since the time of the consummation, intended thetransaction to ultimately result in a downstream merger of the Company andQualmax, and, in furtherance thereof, the Boards have each determined thatQualmax will merge with and into the Company (the “***Merger***”), and in connection with the Merger, the separatecorporate existence of Qualmax will cease. The final step in the merger wascompleted and Qualmax ceased to exist as a separate legal entity in January of2009.

 

The Boards agreed thatcertain events (the “***MergerEvents***”) wererequired to occur in order to effectively consummate the transactionscontemplated, including, without limitation, certain amendments to theCertificate of Incorporation of the Company to, among other things, increasethe authorized number of shares of Common Stock of the Company, the resultantconversion of the Preferred Stock into shares of the Company’s Common Stock,make any filings necessary to complete the Merger, and receive approval bythe stockholders of the Company and Qualmax. During 2007, the number ofauthorized shares was increased from 50 million shares to 600 million shares toallow for a sufficient number of authorized shares to convert the existingPreferred shares to common. All preferred shares were then converted to commonstock as a further step towards the completion of the merger.

 

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Under generally acceptedaccounting principles in the United States of America (“***GAAP***”), the acquisition of Qualmax has been accounted foras a reverse acquisition and Qualmax has been treated as the acquiring entityfor accounting and financial reporting purposes.  As such, the Company’sconsolidated financial statements have been and will be presented as acontinuation of the operations of Qualmax and not New World Brands, Inc.  Effectiveon the acquisition date of September 15, 2006, New World Brands’consolidated balance sheet included the assets and liabilities of Qualmax andits wholly owned subsidiary IP Gear, Ltd. and its consolidated equity accountswere recapitalized to reflect the combined equity of New World Brands, Qualmaxand IP Gear, Ltd. Also, as a result of the Reverse Acquisition, the Company’sfiscal year changed from May 31 to December 31.

 

On February 18, 2008,the Company and Qualmax entered into an agreement by which Qualmax will bemerged with and into the Company (the “***Merger Agreement***”).As of the date of the filing of this Report, the Merger has now been completedas outlined in the filing Form 8-K on January 26, 2009. Reference ismade to the Company’s Final Schedule 14C Information Statement, filed with theSEC on November 6, 2008, for additional information and documentationconcerning the Merger and the Merger Agreement.

 

**Principlesof Consolidation**

 

Theconsolidated financial statements include the accounts of the Company and itssubsidiaries, including two operating subsidiaries in Mexico that were formedin 2009.

 

Intercompany balances andtransactions have been eliminated in consolidation.

 

**Basis of Accounting and Revenue Recognition**

 

The accompanyingconsolidated financial statements have been prepared using the accrual methodof accounting.  Revenues from our VoIP telephony services divisionhave been recognized as services are rendered.  Revenue from the saleof products from our exclusive distributorship of VoIP equipment or resellerequipment is recognized as our customers take delivery of our products.  Revenue from support services contracts isrecognized over the term of the service contracts. Revenue from installation ofequipment is recognized when installation has been completed and customeracceptance is received.  Any amounts received from our customers inadvance are recorded as customer deposits and classified as other currentliabilities.

 

**Use of Estimates**

 

The preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe consolidated financial statements and the reported amounts of revenues andexpenses during the reporting period.  Accordingly, actual resultscould differ from those estimates.

 

**Cash and Cash Equivalents**

 

The Company considers allhighly liquid investments in debt instruments purchased with originalmaturities of three months or less to be cash equivalents.

 

**Accounts Receivable**

 

Accounts receivable arepresented at net realizable value, which is comprised of total accountsreceivable less any allowances for uncollectible accounts.  TheCompany provides an allowance for potentially uncollectible accounts based upona periodic review and analysis of outstanding accounts receivablebalances.  The resulting estimate of uncollectible receivables ischarged to an allowance for doubtful accounts.  Recoveries ofaccounts previously written off are used to offset the allowance account in theperiods in which the recoveries are made.  Accordingly, accountsreceivable has been written down to its estimated net realizable value. Theresults of operations for the years ended December 31, 2009 and2008 include charges of approximately $719,000 and $120,000respectively.  The allowance for doubtful accounts as of December 31,2009 and 2008 was approximately $145,000 and $48,000 respectively.

 

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**Inventories**

 

Inventories are valued atthe lower of cost or market. Cost is determined on a first-in, first-outbasis.  Market represents the lower of replacement cost or netrealizable value on inventories as a whole.  Inventories are made upprimarily of high technology telephone switching and VoIP routing equipment andtheir parts.   All year ending inventories consisted of finishedgoods for resale that were purchased from other manufacturers.  Dueto rapid technological advancements in the industry, inventories may, from timeto time, be subject to impairment and obsolescence.  We record an allowance forslow-moving and obsolete inventories based upon a periodic review and analysisof inventories on hand.  We perform a periodic comparison of this slowmoving and obsolete inventory to determine if its value is below its cost inour records and reduce the value on our records if the cost is above thecurrent value.  Accordingly, the allowance for obsolete inventoriesas of December 31, 2009 and 2008 was approximately $89,000 and 66,000respectively.

 

**Concentration of Deposit Risk**

 

From time to time, theCompany has cash in financial institutions in excess of federally insuredlimits.  However, the Company has not experienced any losses in suchaccounts and believes it is not exposed to any significant credit risk on itscash balances.  There was no Company cash exceeding federally insuredlimits as of December 31, 2009.

 

**Business Concentrations**

 

We had one vendor, asidefrom TELES, during the year ended December 31, 2009 who accounted for morethan 10% of our payments to vendors. This was a vendor of NWB Telecom, accountingfor 14.28% of the total payments to vendors made by New World Brands during2009. Excluding TELES, the top three vendors of NWB overall, including NWBTelecom, NWB Networks, and NWB Retail collectively represent 26.74% ofpurchases. The top three vendors collectively represented 36.35% of purchasesin 2008.

 

There was one customer in2009 that accounted for 29.29% of Company revenue. In 2008 we had one customerthat was considered a concentration risk, accounting for 25.30% of Company revenue.

 

**Impairment of Long-Lived Assets and Long-Lived Assets Subjectto Disposal**

 

We review our long-livedassets for impairment whenever events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable. Recoverability ofassets to be held and used is measured by a comparison of the carrying amountof an asset to future undiscounted cash flows expected to be generated by theasset.  If such assets are considered to be impaired, the impairmentto be recognized is measured by the amount by which the carrying an amount ofthe assets exceeds its fair value.  Assets subject to disposal arereported at the lower of the carrying amount or fair value less costs to sell.

 

**Property and Equipment**

 

Property and equipmentare recorded at cost.  For financial statement purposes, depreciationof software, furniture and equipment is computed using the straight-line methodover their estimated useful lives of the assets while leasehold improvementsare amortized over the shorter of their estimated useful lives or the terms oftheir respective leases.  Expenditures for replacements, maintenanceand repairs that do not extend the lives of the assets are charged tooperations as the expenses are incurred.  When assets are retired,sold or otherwise disposed of, their costs and related accumulated depreciationare removed from the accounts and resulting gains or losses are reflected inthe year of disposal. The policy on the depreciation of newly acquired computerequipment has been changed from 3 years to 5 years to better reflect the usefullife of this class of assets for the company.

 

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**Stock Options**

 

The company accounts forstock options in accordance with ASC Topic 718 “Accounting for Stock-BasedCompensation.” This standard requires the cost associated with employeeservices in exchange for equity instruments based on the grant date fair valueof the award, be recognized over the period during which the employee isrequired to provide services in exchange for the award. No compensation cost isrecognized for awards for which employees do not render the requisite service.Compensation cost for the unvested portion of equity awards granted prior to January 1,2006, will be recognized over the remaining vesting periods. See “Note H—StockOption Plans.”

 

**Software Costs**

 

Certain computer softwaredevelopment costs are capitalized in the accompanying consolidated balancesheet. Capitalization of computer software development costs begins upon theestablishment of technological feasibility. Capitalization ceases andamortization of capitalized costs begins when the software product iscommercially available for general release to customers. Amortization ofcapitalized computer software development costs is included in general andadministrative expenses and is provided using the straight-line method over theremaining estimated economic life of the product, not to exceed threeyears.  Net unamortized software costs as of December 31, 2009amounted to approximately $70,000.  Amortization of software costsfor the years ended December 31, 2009 and 2008 was approximately $19,000and $46,000, respectively.

 

**Segment Information**

 

Our business consists ofthree operating segments: (i) NWB Networks (resale hardware), which is thesale and distribution of VoIP and other telephony equipment and relatedprofessional services via our U.S.-based business operated under the name“TELES USA”; (ii) NWB Telecom (wholesale carrier services), which istelephony service resale and direct call routing via our U.S.-based VoIP servicebusiness; and (iii) NWB Retail (retail carrier services), which providesinternational telephony services intended to be used directly by the end user.

 

**Reclassification**

 

Certain reclassificationsof amounts previously reported have been made to the accompanying consolidatedfinancial statements in order to maintain consistency and comparability betweenperiods presented.

 

**Fair Value of Financial Instruments**

 

Our financial instrumentsconsist primarily of cash, certificates of deposit, accounts receivable,accounts payable, accrued liabilities and notes payable.  Thecarrying amounts of such financial instruments approximate their respectiveestimated fair values due to the short-term maturities and approximate marketinterest rates of these instruments.  The estimated fair values arenot necessarily indicative of the amounts we would realize in a current marketexchange or from future earnings or cash flows.

 

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**Earnings per Share**

 

Net income per share iscomputed in accordance with ASC Topic 240, “Earnings per Share.” Basic netincome per share is based upon the weighted average number of common sharesoutstanding during the period. Diluted net income per share is based upon theweighted average number of common shares outstanding and dilutive common stockequivalents outstanding during the period. Common stock equivalents are optionsand warrants granted by the Company and are calculated under the treasury stockmethod. Common equivalent shares from unexercised stock options and warrantsare excluded from the computation when there is a loss as their effect isantidilutive, or if the exercise price of such options and warrants is greaterthan the average market price of the stock for the period.  See“Note G—Stockholders’ Equity” for the computation of basic and dilutedshare data.

 

**Income Taxes**

 

We account for incometaxes in accordance with ASC Topic 740,* “*Accounting for Income Taxes,”* *which requires recognition of deferredtax assets and liabilities for expected future tax consequences of events thathave been included in the consolidated financial statements or taxreturns.  Under this method, deferred tax assets and liabilities aredetermined based on the difference between the financial statement and taxbases of assets and liabilities using enacted tax rates in effect for the yearin which the differences are expected to reverse.  Valuation allowancesare established when necessary to reduce deferred tax assets amounts expectedto be realized.    U.S. income taxes are not provided onundistributed earnings, which are expected to be permanently reinvested by theforeign subsidiary, unless the earnings can be repatriated in a tax-free orcash-flow neutral manner.

 

The Company adopted thepolicy of recognizing interest and penalties, if any, related to unrecognizedtax positions as income tax expense. Tax years 2006-2008 remain subject toexamination by major tax jurisdictions.

 

**Advertising and Promotional Costs**

 

We expense advertisingand promotional costs as incurred.  Advertising and promotionalexpenses amounted to approximately $69,000 and $23,000 for the years ended December 31,2009 and 2008, respectively. A marketing credit from TELES AG in the amount of$300,000 was applied to the Company’s advertising and promotional costs, aswell as other related expenses. This credit completely covered the $69,000 ofexpenditures from 2009, bringing them to zero in our general ledger.

 

**Leases**

 

We account for leases inaccordance with SFAS No.13,* “*Accounting for Leases,” under which weperform a review of each newly acquired lease to determine as whether it shouldbe treated either as a capital or an operating lease.  A capitallease asset is capitalized and depreciated over the term of the initiallease.  A liability equal to the present value of the aggregatedlease payments is recorded utilizing the stated lease interestrate.  If an interest rate is not stated, we will determine ourestimated incremental borrowing rate.

 

**Foreign Currency Translation**

 

The Company hadtransactions in 2009 in foreign currencies. The Company reports foreigncurrency translations adjustments in accordance with ASC Topic 830.

 

**UnusualItems**

 

NewWorld Brands’ reporting of unusual or infrequent items is as per FASB ASC225-20-45-16 and where applicable such items will be presented as separateelements in the income statement.

 

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**Recent Accounting Pronouncements**

 

In September 2009, Accounting StandardsCodification (“***ASC***”) became the source ofauthoritative U.S. GAAP recognized by the Financial Accounting Standards Board(“***FASB***”) for nongovernmental entities,except for certain FASB Statements not yet incorporated into ASC. Rules andinterpretive releases of the SEC under federal securities laws are also sourcesof authoritative U.S. GAAP for registrants. The discussion below includes theapplicable ASC reference.

 

TheCompany adopted ASC Topic 810-10 *Consolidation*(formerly SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements — an amendment of ARB No. 51*)effective January 2, 2009. Topic 810-10 changes the manner ofpresentation and related disclosures for the noncontrolling interest in asubsidiary (formerly referred to as a minority interest) and for thedeconsolidation of a subsidiary. The presentation changes are reflectedretrospectively in the Company’s unaudited condensed consolidated financialstatements.

 

TheCompany adopted ASC Topic 825-10 *FinancialInstruments* (formerly, FASB Staff Position No. SFAS 107-1 andAPB No. 28-1, *Disclosures about theFair Value of Financial Instruments*), which requires quarterlydisclosure of information about the fair value of financial instruments withinthe scope of Topic 825-10. The Company adopted this pronouncement effective April 1,2009.

 

In April 2009,the Company adopted ASC Topic 820-10-65 *FairValue Measurements and Disclosures* (formerly FASB Staff Position No. SFAS157-4, *Determining Fair Value When theVolume and Level of Activity for the Asset or Liability Have SignificantlyDecreased and Identifying Transactions That Are Not Orderly*).**The standard provides additional guidancefor estimating fair value in accordance with Topic 820-10-65 when the volumeand level of activity for the asset or liability have significantly decreasedand includes guidance on identifying circumstances that indicate if atransaction is not orderly. The Company adopted this pronouncement effective April 1,2009 with no impact on its consolidated financial statements.

 

TheCompany adopted, ASC Topic 855-10 *SubsequentEvents*(formerly SFAS 165, *SubsequentEvents*) effective April 1, 2009. This pronouncement changes thegeneral standards of accounting for and disclosure of events that occur afterthe balance sheet date but before financial statements are issued or areavailable to be issued.

 

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In July 2009,the FASB issued SFAS No. 168, *TheHierarchy of Generally Accepted Accounting Principles*. SFAS 168codified all previously issued accounting pronouncements, eliminating the priorhierarchy of accounting literature, in a single source for authoritative U.S.GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS168, now ASC Topic 105-10 *Generally AcceptedAccounting Principles*, is effective for financial statements issuedfor interim and annual periods ending after September 15, 2009. Theadoption of this pronouncement did not have an effect on the consolidatedfinancial statements.

 

In August 2009, the FASB issued AccountingStandards Update (“***ASU***”) No. 2009-05,Measuring Liabilities at Fair Value, which clarifies, among other things, thatwhen a quoted price in an active market for the identical liability is notavailable, an entity must measure fair value using one or more specifiedtechniques. The Company adopted the pronouncement effective July 1, 2009with no impact on its consolidated financial statements.

 

In October 2009,the FASB issued ASU No. 2009-13, *Multiple-DeliverableRevenue Arrangements,* which revises the existing multiple-elementrevenue arrangements guidance and changes the determination of when theindividual deliverables included in a multiple-element revenue arrangement maybe treated as separate units of accounting, modifies the manner in which thetransaction consideration is allocated across the separately identifieddeliverables and expands the disclosures required for multiple-element revenuearrangements. The pronouncement is effective for financial statements issuedafter December 31, 2010. The Company does not expect the pronouncement tohave a material effect on its consolidated financial statements.

 
| **NOTE B** | **AEROPOINTE ACQUISITION** |
|------------|----------------------------|

 

The Company initiated thepurchase of most of the assets of Aeropointe Partners, Inc., (“Aeropointe”), aTexas Corporation, during the third quarter of 2009. The Company had been doingbusiness with Aeropointe since the end of 2008. The transaction’s effectivedate was September 1, 2009 and all elements of the transaction werecompleted by or before January 15, 2010. The details of this transaction werereported in an 8-K filing to the SEC on October 9, 2009. Pursuant to SEC regulationS-X, financial statements are not required to be presented in connection withthis acquisition.

 

The Company acquiredAeropointe’s rights to a contract that the company was the other party to aswell as the right to assume the staff and location of Aeropointe’s operations.The company also received $100,000 in cash. The consideration received byAeropointe was company common stock. The total amount of stock received was47,658,584 shares. A portion of that total 8,921,798, was issued in the firstquarter of 2010. The balance, 38,836,584, was issued Nov 9, 2009. For thistransaction, the company’s shares were valued based upon the average price ofNWB stock in the prior period, that being $0.00633 per share.

 

The total purchase price was$301,820, of which consideration valued at $55,868 was payable onJanuary 15, 2010, in the form of 8,821,791 shares of common stock. The netpurchase price amount of $229,617 was paid in the form of 38,836,584 shares ofcommon stock issued effective November 9, 2009. The seller contributedcapital as consideration for issuance of the common stock,  in the amount of $100,000, which was paid inOctober 2009. The consideration has been reported as part of accountsreceivable. The company acquired intangible assets valued at $38,405 at thedate of acquisition, and satisfied accounts payable to the seller of $163,416.The New World Brands common stock issued to the seller was valued based uponthe average price NWB stock for the ninety day period prior to the effective date of the acquisition at aprice of $0.0006333 per share. The difference between the issue price in theacquisition and the par value of the shares issued, $158,748, was recorded as areduction in additional paid in capital in the 3rd quarter 2009.

 

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| **NOTE C** | **INVENTORIES** |
|------------|-----------------|

 

Inventories as of December 31, 2009 and 2008 consisted of the following:

 
| **Resale Hardware**                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
|                                     |       |     |       |     |       |
| Finished  Goods inventories              |       | $        | 2,526,804  |     | $          | 1,893,411 |   |
| Less  allowance for obsolete inventories |       | (88,900  | )          | (66,200  | )          |
|                                     |       |     |       |     |       |
| Inventories,  net                        |       | $        | 2,437,904  |     | $          | 1,827,211 |   |

 
| **NOTE D** | **PROPERTY AND EQUIPMENT** |
|------------|----------------------------|

 

As of December 31, 2009 and 2008, our property and equipment consisted ofthe following:

 
| ** **                                         | ** ** | **2009** | ** **  | **2008** | ** ** | **Useful Lives  (In Years)** | ** ** |
|----------------------------------------------------|------------|----------|-------------|----------|------------|-----------------------------------|------------|
| Equipment                                          |       | $        | 2,489,475   |     | $          | 2,248,989                         |       | 5 |   |
| Vehicles                                           |       | $        | 44,718      |     | 46,100     |                              | 5          |   |
| Leasehold improvements                             |       | $        | 234,770     |     | 234,770    |                              | 15         |   |
| Evaluation Assets                                  |       | $        | 10,775      |     | —     |                              | 2          |   |
| Goodwill                                           |       | $        | 38,405      |     | —     |                              |       |   |
| Computer software                                  |       | $        | 277,730     |     | 277,730    |                              | 3 - 5      |   |
| Furniture and fixtures                             |       | $        | 33,275      |     | 33,275     |                              | 3 - 5      |   |
| Total  property and equipment                      |       | $        | 3,129,148   |     | 2,840,864  |                              |       |   |
|                                               |       |     |        |     |       |                              |       |
| Less  accumulated depreciation and amortization    |       | $        | ($2,023,650 | )        | (1,394,307 | )                                 |       |   |
| Property  and equipment, net                       |       | $        | 1,105,498   |     | $          | 1,446,557                         |       |   |   |
|                                               |       |     |        |     |       |                              |       |
| Operating  equipment acquired under capital leases |       | $        | 196,010     |     | $          | 135,710                           |       |   |   |
| Less  accumulated amortization                     |       | $        | (113,381    | )        | (21,345    | )                                 |       |   |
|                                               |       | $        | 82,629      |     | $          | 114,365                           |       |   |   |

 

Depreciation andamortization expense of continuing operations amounted to approximately $629,000and $515,000 for the years ended December 31, 2009 and 2008,respectively.  Amortization of leased equipment, which has beenincluded in depreciation expense on the accompanying financial statements, wasapproximately $53,000 and $113,000 for the years ended December 31, 2009and 2008, respectively.

 
| **NOTE E** | **NOTES PAYABLE** |
|------------|-------------------|

 

**P&Scredit line**

 

Thecurrent balance outstanding has been maintained at $1,050,000.  This balance is unchanged from the previousquarter. The company is in compliance with the terms of the loan agreement asper the most recent loan documents and amendments to such. The most recentinterest rate paid on this loan was 5.25% per the December 2009 interestcharge. This loan is paid interest only during its term with the entire balancedue upon maturity in May of 2012.

 

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Theprincipals of P&S Spirit LLC include Dr. Selvin Passen, who is adirector and shareholder of the Company, as well as its former Chief ExecutiveOfficer.

 

**TELESloan agreement**

 

On February 21,2008, the Company and TELES entered into a Term Loan and Security Agreement,effective February 15, 2008 (the “***TELES Loan Agreement***,” and the loan thereunder,the “***TELES Loan***”),providing the Company a loan of up to the principal amount of $1,000,000 (the “***Commitment***”) pursuantto which, from time to time prior to February 1, 2009 or the earliertermination in full of the Commitment, the Company could obtain advances fromTELES up to the amount of the outstanding Commitment. Amounts borrowed may notbe reborrowed, notwithstanding any payments thereunder. The outstanding balanceof the TELES Loan will be due and payable on or before February 1, 2012.The outstanding principal amount of the TELES Loan is payable in 12approximately equal quarterly installments commencing May 1, 2009. Thedescription of the TELES Loan Agreement herein is qualified in its entirety byreference to the full text of such agreement, which is attached as Exhibit 10.1to the Company’s Current Report on Form 8-K filed with the SEC on February 27,2008. TELES AG agreed to forgo enforcement of the Loan Agreement elementrequiring the completion of the Merger Agreement between Qualmax and theCompany in December of 2008. The Company then executed on a portion ofthis agreement in December of 2008 by offsetting $600,000 of tradepayables due to TELES towards the loan facility. On January 19, 2009the company drew an amount of $400,000 paid in cash by TELES AG within thecontext of the “TELES Loan Agreement” bringing the total draw to the maximumamount of $1,000,000 as per the loan agreement. TELES AG and New World Brandsalso agreed at that time to a reduction in the interest rate of the loan from7% as per the original agreement to a rate of 5% commencing on the draw of thefirst funds pursuant to this loan agreement.

 

The companymaintains its balance on the TELES loan unchanged from the prior quarter andwithin the terms of the most recent amended loan agreement documents. Theinterest rate on this loan is a fixed 5%.

 

**SSB andP&S loans**

 

EffectiveJune 19, 2009, New World Brands, Inc. entered into a Loan Agreementwith Sigram Schindler Beteiligungsgesellschaft mbH (“***SSB***”),pursuant to which SSB agreed to loan the Company up to $250,000 at an interestrate of 18% per annum with a maturity date of December 31, 2009 (“***SSB Loan***”). The Company received$125,000 under the SSB Loan from SSB on June 19, 2009.

 

Effective June 19,2009, the Company entered in to a Loan Agreement with P&S SpiritInvestments, a general partnership (“***P&S***”)of which Dr. Selvin Passen, MD, is Manager (“***P&SLoan***”). The P&S Loan contemplates a loan to the Company byP&S of up to $250,000 with an initial maturity date of December 31,2009 and payable with interest at 18% per annum. We received $125,000 of theP&S Loan on June 19, 2009. The P&S general partnership may includeindividuals and/or investments by individuals who are both related parties tothe Company and/or officers and/or directors or employees of the Company and/orrelatives thereof. In addition to being a Director of P&S, Dr. Passenis also a Director of the Company.

 

Thiswas reported in the Company’s Current Report on Form 8-K filed with theSEC on June 24, 2009. Please note that these loans are current liabilitiesand are not reflected in the maturities as part of “notes payable, currentportion”

 

**Amendmentsto loan covenants**

 

Amendmentsto both the P&S credit line and the TELES Loan were agreed to by allparties effective June 29, 2009 that temporarily waived the covenantsrelating to certain financial ratios in these agreements until March 31,2010.  Agreement has been reached toextend the waiver one additional year to Mar 31, 2011.

 

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**Otherloans**

 

We have a total ofapproximately $13,000 of principal remaining in a loan on one company-ownedvehicle. The balance is for a truck that carries a term of 3 years and aninterest rate of 0%. It is due to expire in 2011.

 

Total maturities of allnotes payable as of December 31, 2009 were as follows:

 
| 2010                                  |   | $         | 250,833   |   |
|---------------------------------------|--------|-----------|-----------|--------|
| 2011                                  |   | 1,806     |      |
| 2012                                  |   | 2,050,000 |      |
| 2013                                  |   | —    |      |
|                                  |   |      |      |
| Total notes payable                   |   | 2,302,639 |      |
|                                  |   |      |      |
| Notes payable, current portion        |   | (250,833  | )         |
|                                  |   |      |      |
| Notes payable, net of current portion |   | $         | 2,051,806 |   |
|                                       |        |           |           |        |  |

 

Interest expense incurredon the above notes payable was approximately $96,000 and $56,000 for the yearsended December 31, 2009 and 2008, respectively.

 
| **NOTE F** | **CAPITAL LEASE OBLIGATIONS** |
|------------|-------------------------------|

 

**Descriptionof Leasing Arrangements and Depreciation**

 

The company is the lesseeof equipment under capital leases expiring in various years through 2012. The assets and liabilities under capital leases are recorded at the lower ofthe present value of the minimum lease payments or their fair value of theasset.  The assets are depreciated over the lower of their related leaseterms or their estimated productive lives.  Depreciation of assets undercapital leases is included in depreciation expense for 2009 and 2008.  Interest expense incurred on capital leaseobligations was approximately $19,000 and $27,000 for the years ended December 31,2009 and 2008 respectively.

 

**Minimum Future Lease Payments**

 

Minimum future leasepayments under the capital leases as of December 31, 2009 for each of thenext five years and in the aggregate are:

 
| 2010                                       |   | $       | 63,333 |   |
|--------------------------------------------|--------|---------|--------|--------|
| 2011                                       |   | 39,368  |   |
| 2012                                       |   | 6,363   |   |
| 2013                                       |   | —  |   |
| Subsequent to 2013                         |   | —  |   |
|                                       |   | 109,064 |   |
|                                       |   |    |   |
| Less: Amount representing interest         |   | (16,082 | )      |
| Present value of net minimum lease payment |   | $       | 92,982 |   |
| Less: Current Portion                      |   | (51,720 | )      |
| Long-Term Portion of Capital Leases        |   | $       | 41,262 |   |
|                                            |        |         |        |        |  |

 

F-18

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Table of Contents

 
| **NOTE G** | **STOCKHOLDERS’ EQUITY** |
|------------|-------------------------------|

 

**Capitalization**

 

The Company’s authorizedcapital stock consists of 600,000,000 shares of common stock, $.01 par valueper share, and 1,000 shares of preferred stock, $.01 parvalue.  There were 454,489,298 shares of common stock and no sharesof Series A Convertible Preferred Stock issued and outstanding as of December 31,2009.

 

The board of directorshas the authority, without action by the Company’s stockholders, to provide forthe issuance of preferred stock in one or more classes or series and todesignate the rights, preferences and privileges of each class or series, whichmay be greater than the rights of the common stock.

 

**Common Stock**

 

As of December 31,2006, our total number of authorized common stock, $.01 par value, was 50million shares, with 44,303,909 shares issued and outstanding.  On February 1,2007 our board acted to increase the number of authorized common stock to 600million shares. The additional common stock was created to allow for theconversion of all outstanding preferred shares to common stock. This conversionwas authorized by board consent on January 31, 2007 and become effectiveon April 24, 2007 resulting in the conversion of all Series AConvertible Preferred Shares to common shares at a ratio of 2,986,736 commonshares for every one preferred share. Approximately 116.67 Series APreferred Shares were converted into approximately 348 million common shares.This transaction was another step in the planned sequence of transactions thatwill conclude in the completion of the merger of New World Brands Inc. withQualmax Inc.

 

On May 31, 2007, thecompany issued as converted 22,222,222 shares of common stock to P & SSpirit, in exchange for an investment of $886,093(net of all costs) in thecompany. The gross amount of the purchase price prior to any costs was$1,000,000. These shares of common stock will be issued without registrationunder the Securities Act (1933) (as amended) and are subject to the lock outagreement signed by Qualmax, the Kamrats, P & S Spirit and certainaffiliates of the Kamrats and P & S Spirit filed with the SEC on June 6,2007.  As per the terms of the agreementrelated to the raising of funds associated with the P & S stockpurchases, a fee of 3.5 million shares of the company were issued as acommission to the broker in May of 2008.

 

During the final quarterof 2008, the company engaged in series of transactions with one of its principalshareholders, BOS Corporation, to repurchase a number of shares. The totalnumber of shares repurchased was 6.6 million at a total cost of $165,000.  These shares are listed in the equity sectionof the financial statements as Treasury Shares. In 2009, the Company finalizedthe repurchase of 284,386 shares of Company stock, that had been initiated in2008, from then shareholder Barbara Mofsky for $35,000.

 

Stockholders’ equitytransactions prior to the New World Brands/Qualmax, Inc. merger date havebeen retroactively restated for the equivalent number of shares received in themerger after giving effect to any difference in par value of the issuer’s andacquirer’s stock with an offset to paid-in capital.

 

The Company issued510,000 shares of common stock to G. Casele in exchange for services rendered.The issuance was for no receipt of cash payment and the result was a reductionin paid-in capital to adjust for the par value of shares issued.

 

New World Brands cancelled3,336,959 shares as part of the conversion of Qualmax shares pending theirre-issuance to a shareholder who had not net received his Qualmax Certificate.  These were re-issued in the first quarter of2010 to those shareholders.

 

The Company issued38,836,584 to Aeropointe Partners, Inc. in connection with the acquisition ofcertain assets as outlined in Note B above.

 

**Paid-In Capital Restatement ofFinancial Statements**

 

This restatement of the 2008condensed consolidated balance sheet was the result of a correction of an errorin accounting for the merger of New World Brands and Qualmax. Managementdiscovered this error in 2009. The effect of this error was to reduceadditional paid-in capital by $22,921,075 resulting from the recapitalizationof the NWB stockholders’ equity, and to reduce the accumulated deficit by$22,921,075 to properly reflect the historical accumulated deficit of themerged entity at the date of the merger. The restatement had no effect on netloss or loss per share in 2008.

 

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**Preferred Stock**

 

As of December 31,2009, we had 1,000 shares of authorized preferred stock, $.01 parvalue.  There was no issued or outstanding preferred stock at December 31,2009.

 

**Stock Warrant Grants**

 

For the twelve monthsended December 31, 2009, we granted 648,385 new stock warrants, pursuantto the Company Board Resolution dated July 21, 2009, attached here as Exhibit10.21, which warrants were issued in March, 2010. The Company also finalizedthe sequence of transactions relating to the Qualmax merger, includingfinalizing the conversion of Qualmax warrants, previously disclosed, into56,985,733 Company warrants.

 

Common stock warrantactivity for the year was as follows:

 
| ** **                                                        | ** ** | **Warrants** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|-------------------------------------------------------------------|------------|--------------|------------|--------------------------------------------|------------|
| Balance granted at December 31, 2008 from  stock option plan |       | 2,920,000    |       | $                                          | 0.49       |   |
|                                                              |       |         |       |                                       |       |
| Balance sheets at December 31, 2008 form  Qualmax            |       | 59,905,733   |       | 0.10                                       |       |
|                                                              |       |         |       |                                       |       |
| Granted in 2009 from stock option plan                            |       | 648,385      |       | 0.01                                       |       |
|                                                              |       |         |       |                                       |       |
| Total warrants at Dec 31, 2009                                    |       | 60,554,118   |       | 0.12                                       |       |
|                                                                   |            |              |            |                                            |            |  |

 

**Preferred Stock Warrants**

 

There were no preferredstock warrants outstanding at December 31, 2009, and no activity during2009.

 

**Computation of Basic and Diluted Share Data**

 

The following tables setforth the computation of basic and diluted share data for 2009 and 2008(rounded to the nearest thousand):

 

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| Weighted  average number of shares outstanding during 2008:                             |   |        |   |
|-----------------------------------------------------------------------------------------|--------|-------------|--------|
| Basic  (common)                                                                         |   | 415,384,878 |   |
| Effect  of dilutive securities                                                          |   |        |   |
| Common  - options and warrants                                                          |   | —      |   |
| Weighted  average number of shares outstanding - diluted                                |   | 415,384,878 |   |
| Weighted  average of options and warrants not included above  (anti-dilutive) |   | 61,050,556  |   |

 
| Weighted average number of shares outstanding  during 2009:                             |   |        |   |
|-----------------------------------------------------------------------------------------|--------|-------------|--------|
| Basic (common)                                                                          |   | 415,078,095 |   |
| Effect of dilutive securities                                                           |   |        |   |
| Common - options and warrants                                                           |   | —      |   |
| Weighted average number of shares outstanding -  diluted                                |   | 415,078,095 |   |
| Weighted average of options and warrants not  included above  (anti-dilutive) |   | 60,197,062  |   |

 
| **NOTE H** | **STOCK OPTION PLANS** |
|------------|------------------------|

 

**Performance Equity Plan**

 

We have a PerformanceEquity Plan (the “***PerformanceEquity Plan***”)under which we may grant incentive and nonqualified stock options, stockappreciation rights, restricted stock awards, deferred stock, stock reloadoptions, and other stock-based awards to purchase up to 600,000 shares ofCommon Stock to officers, directors, key employees, and consultants. TheCompany may not grant any options with a purchase price less than fair marketvalue of Common Stock as of the date of grant.  No options or otherstock-based rights were issued under the Performance Equity Plan during 2009and 2008, and none were exercised or exercisable during 2009 and 2008.

 

**Stock Option Plan**

 

In October 2001, weadopted a stock option plan (the “***2001 Option Plan***”) whereby we have reserved 5,000,000 shares of itsCommon Stock for purposes of granting options to purchase such shares pursuantto the 2001 Stock Option Plan.  Options are granted to officers andemployees of the Company by the Board of Directors and to members of the Boardon a non-discretionary basis, provided that the exercise price of the optionsis equal or greater than the fair market price of our Common Stock on the datethe option is granted. The 2001 Stock Option Plan terminates 10 years from itseffective date.  A total of 2,920,000 of options (“***the New World Brands options***”),granted under the 2001 Option Plan to purchase our Common Stock in exchange forservices rendered, were vested and exercisable as of December 31, 2008.There were no issuances, exercises or forfeitures in 2008 or2007.  The employees and consultant performed services related toproduct promotion, general business, financing, and public/investorrelations.   These options were granted prior to September 15,2006.

 

Employee compensationexpense for the New World Brands stock options issued in 2006 are listedbelow.  As of December 31, 2009,there was approximately $2,000 of total unrecognized compensation cost relatedto unvested stock options granted under our stock option plan. There were 145,510,702shares of common stock available for future issuance, as of December 31,2009.

 

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As reported in theCompany’s Final Schedule 14C InformationStatement, filed with the SEC on November 6, 2008, the Board approved theadoption of the “2008 Stock Option Plan,” pursuant to which up to 41,500,000shares of Company stock shall be available from which to grant options when thegrant is approved by stockholders. Such grants shall be exercisable at anexercise price which shall be at least 100% of the fair market value of a shareof Common Stock on the grant date, at terms and conditions, and on such a date(not to exceed 10 years from the grant date), as set by the Company in itsdiscretion.  The following tablesummarized the Company’s stock option plans as of December 31, 2008.Additions for 2009 are set forth above in Note G.

 

**2001Option Plan**

 

| **Exercise  Price** | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Remaining  Contractual  Life (in  Years)** | ** ** | **Options  Exercisable** | ** ** |
|---------------------|------------|--------------------------|------------|----------------------------------------------------------------------|------------|--------------------------|------------|
| $                   | 0.18       |                     | 1,000,000  |                                                                 | 1.5        |                     | 1,000,000  |   |
| $                   | 0.18       |                     | 1,000,000  |                                                                 | 1.5        |                     | 1,000,000  |   |
| $                   | 0.18       |                     | 250,000    |                                                                 | 1.5        |                     | 250,000    |   |
| $                   | 0.18       |                     | 100,000    |                                                                 | 1.5        |                     | 100,000    |   |
| $                   | 0.18       |                     | 100,000    |                                                                 | 1.5        |                     | 100,000    |   |
| $                   | 0.18       |                     | 100,000    |                                                                 | 1.5        |                     | 100,000    |   |
| $                   | 0.50       |                     | 300,000    |                                                                 | 0.1        |                     | 300,000    |   |
| $                   | 0.10       |                     | 70,000     |                                                                 | 1.5        |                     | 70,000     |   |
|                |       | 2,920,000                |       |                                                                 |       | 2,920,000                |       |

 
| **NOTE I** | **INCOME TAXES** |
|------------|------------------|

 

31st, 2009.

 

**OrganizationalStructure**

 

NWB,a Delaware corporation, was originally incorporated in May, 1986 under the nameof Oak Tree Construction Company, Inc., but subsequently underwent severalname changes and, in December, 2001, changed its name to NWB.  NWB (under its former names) was engaged invarious other types of businesses and owned several different subsidiaries upuntil September, 2006.  On September 15th, 2006, NWB acquired all ofthe assets and liabilities of Qualmax. For financial accounting purposes, the acquisition was accounted for asa reverse acquisition.  On February 18th, 2008, NWB and Qualmaxentered into a merger agreement whereby Qualmax was to be merged into NWB andcease to exist as a separate legal entity. The merger was consummated on January 23rd, 2009.

 

**FederalIncome Tax Liabilities**

 

Forthe year ended December 31st, 2009, NWB did not incur a federal income taxprovision since it generated a net operating loss for the period.  For purposes of the deferred income taxcalculation, NWB had a 100 percent valuation allowance against its net deferredtax assets and thus did not record a deferred tax benefit for the year ended December 31st, 2009.

 

Thefederal and state corporate income tax returns for Qualmax and NWB for theperiods ended December 31st, 2006, 2007, and 2008 are still pending to befiled.  Qualmax did file a federal incometax return for its 2005 tax year.  Forpurposes of its 2006 corporate income tax returns, Qualmax will have tobreak-out its calendar year 2006 financial results between the pre-merger andpost-merger time periods and file short period corporate income tax returns forthe different time periods.  As part ofthe reverse acquisition, NWB changed its fiscal year end from May 31st to December 31st, which will also impact the filing of the 2006short period corporate income tax returns.

 

SinceQualmax and NWB incurred taxable losses during those years, it is expected thatno federal corporate income taxes will be due with the returns.  Some of the state income tax returns couldrequire the payment of minimum taxes and these amounts have been recorded aspart of the 2009 income tax provision. Also, the potential penalties and/or interest that may be assessed bythe taxing authorities for the late filing and payment of the state minimumtaxes have been recorded as part of the 2009 income tax provision.

 

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Duringthe years ended December 31st, 2006 and 2007, NWB owned 100 percent of the sharesof an Israeli company, IP Gear, Ltd.  Thesubsidiary was sold on July 1st, 2007. During the time that the subsidiary was owned by NWB, it met thedefinition of a controlled foreign corporation, as defined by IRC section957.  A U.S. corporation which owns acontrolled foreign corporation is required to file IRS form 5471, InformationReturn of U.S. Persons with Respect to Certain Foreign Corporations, everyyear.  The Internal Revenue Service (“***IRS***”) imposes a $ 10,000 penalty forthe late filing of this form.  Since NWBhas not yet filed its 2006 and 2007 federal corporate income tax returns, thepotential late filing penalty of $ 20,000 was recorded as part of the 2009income tax provision.

 

NWB’stimely filed applications for extension of time to file its 2009 federal andstate tax returns and paid in the state minimum taxes due as calculated by BSSSwith its extension requests.

 

**StateIncome Tax Liabilities**

 

Duringits years of operations, Qualmax/NWB has had sales to many states other thanthe State of Oregon.  Some of thesestates have in the past tried to aggressively pursue out of state businessesfor the imposition and collection of sales taxes on sales to residents of theirstates.  Although NWB’s management is notaware of any specific issues or contingencies directly related to NWB at thistime, there is a potential exposure for all multi-state businesses of a changein state sales tax laws and the requirement to collect sales taxes on sales tothe states.

 

**MexicanOperations**

 

During2009, NWB incorporated two subsidiaries in Mexico.  In July, 2009, NWB’s Mexican subsidiariesreceived the necessary approvals from the Mexican government to start theirbusiness operations.  Wahid is thesubsidiary which employs all of the Mexican workers.  For 2009, NWB Mexico was performingengineering and operational functions as a cost center of NWB.  The subsidiary is not engaged in salesactivities and did not prepare any billings. During the six months ended June 30th, 2009, the Mexican subsidiaries did not have anybusiness operations.

 

ForU.S. tax purposes, both subsidiaries will be treated for the year ended December 31st, 2009 as controlled foreigncorporations and will have to file IRS forms 5471.

 

Thenet income or loss from the Mexican operations will be reported separately oneach IRS form 5471 and will not be consolidated with NWB’s U.S. operations forpurposes of NWB’s federal and state corporate income tax returns.  The Mexican subsidiaries will also fileMexican tax returns.  Mexican tax lawsprovide for a ten year carryforward of current year tax losses that can be usedto offset future taxable income.

 

**OtherTax Matters**

 

Theattached schedule provides an analysis of the material tax positions that NWBtook on its consolidated income tax provision for the year ended December 31st, 2009.

 
| ** **                            | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
| Federal:                              |       |     |       |     |       |
| Current                               |       | $        | —     |     | $          | — |   |
| Deferred                              |       | —   |       | —   |       |
| State:                                |       |     |       |     |       |
| Current                               |       | 18,214   |       | —   |       |
| Deferred                              |       | —   |       | —   |       |
| Interest  and penalties               |       | 22,310   |       | —   |       |
| Subtotal                              |       | 40,524   |       | —   |       |
| Change  in valuation allowance        |       | —   |       | —   |       |
| Benefit  (provision) for income taxes |       | $        | 40,524     |     | $          | — |   |

 

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| ** **                                  | ** ** | **Amount** | ** ** | **Rate** | ** ** |
|---------------------------------------------|------------|------------|------------|----------|------------|
| Computed income tax (benefit)               |       | $          | (1,434,007 | )        | 34.0000    | % |
| State tax (benefit), net of federal benefit |       | (159,637   | )          | 3.7850   | %          |
| Prior year adjustments                      |       | 15,952     |       | -0.3782  | %          |
| Change in valuation allowance               |       | 1,585,946  |       | -37.6024 | %          |
| Nondeductible expenses                      |       | 9,960      |       | -0.2362  | %          |
| Total income tax expense (benefit)          |       | $          | 18,214     |     | -0.4318    | % |

 
| ** **                                       | ** ** | **2009** | ** ** |
|--------------------------------------------------|------------|----------|------------|
| Deferred tax assets (short-term): |       |     |       |
| Allowance  for doubtful accounts receivable      |       | $        | 30,915     |   |
| Allowance  for inventory obsolescence            |       | 34,098   |       |
| Allowance  for disputes                          |       | 1,112    |       |
| Currency  exchange loss                          |       | 87,499   |       |
| Deferred  Tax Assets - Current                   |       | 153,625  |       |
|                                             |       |     |       |
| Valuation  allowance                             |       | (153,625 | )          |
| Net  deferred tax assets-current                 |       | —   |       |
|                                                  |            |          |            |  |

 
| ** **                                         | ** ** | **2009**   | ** ** |
|----------------------------------------------------|------------|------------|------------|
| Deferred  tax assets (non-current):                |       |       |       |
| Net  operating loss carryforwards                  |       | $          | 3,775,637  |   |
| Capital  loss from sale of subsidiary              |       | 1,772,929  |       |
| Depreciable &  amortization               |       | 114,637    |       |
| Deferred  revenue                                  |       | 82,083     |       |
| Charitable  contribution carryforwards             |       | 8,893      |       |
| Deferred  tax assets-non-current:                  |       | 5,754,178  |       |
|                                               |       |       |       |
| Valuation  allowance                               |       | (5,754,178 | )          |
| Net  deferred tax assets-non-current               |       | —     |       |
| Net  deferred tax assets after valuation allowance |       | —     |       |
|                                               |       |       |       |
| Deferred  tax liability:                           |       |       |       |
| Depreciation                                       |       | —     |       |
| Total  gross deferred tax liability                |       | —     |       |
| Net  deferred tax assets after valuation           |       | $          | —     |   |

 

As of December 31,2009, the Company had U.S. net operating losses of approximately $ 9.6 millionthat can be carried forward for up to twenty years and deducted against futuretaxable income.  The net operating losscarryforwards expire in various years through 2029.  The company also has a U.S. capital losscarryforward of approximately $ 4.6 million that can be carried forward forfive years and deducted against future capital gain income.  The capital loss carryforward expires in2012.

 

As of December 31,2009, the Company also had Mexican net operating losses of approximately $266,000 that can be carried forward for up to ten years and deducted againstfuture taxable income.

 

In assessing the abilityto realize a portion of the deferred tax assets, management considers whetherit is more likely than not that some portion or all of the deferred tax assetswill not be realized.  The ultimaterealization of the deferred tax assets is dependent upon the generation offuture taxable income during the periods in which those temporary differencesbecome deductible.  Management considersthe scheduled reversal of deferred tax liabilities and projected future taxableincome in making the assessment. The valuation allowance for deferred taxassets as of December 31, 2009 was $ 5.9 million.  The increase in the valuation allowance wasapproximately $ 1.6 million for the year ended December 31, 2009,primarily due to operational losses for the year.

 

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| **NOTE J** | **RELATED PARTY TRANSACTIONS** |
|------------|--------------------------------|

 

**Loans from Shareholders**

 

The Company received$1,050,000 in the exercise of loans from P & S Spirit during 2008, astockholder of the company and a company controlled by two stockholders andmembers of the Board of Directors of New World Brands. The terms of this loanare listed in detail in Note E - Notes Payable. The company paid a total of $55,125 in interest payments to P & SSpirit during 2009.

 
| **NOTE K** | **COMMITMENTS AND CONTINGENCIES** |
|------------|-----------------------------------|

 

**Operating Leases**

 

We have entered intovarious operating leases for our facilities and equipment.  Thefuture minimum annual rental payments due on these operating leases as of December 31,2009 for each of the next 5 years are as follows:

 
| **Year ending December 31:** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2010                                        |       | $          | 50,230     |   |
| 2011                                        |       | 49,780     |       |
| 2012                                        |       | 14,880     |       |
| 2013                                        |       | 14,880     |       |
| 2014                                        |       | 13,704     |       |
| 2015 +                                      |       | 59,040     |       |
|                                        |       |       |       |
|                                        |       | $          | 202,514    |   |

 

Our U.S. operations wereheadquartered in Eugene, Oregon in leased commercial premises in two buildings,but beginning in the fourth quarter of 2009 NWB began leasing commercialpremises in one building in McKinney, Texas, to which our headquarters weremoved in the first quarter of 2010. Further, NWB leases one building forcommercial purposes and one residential building in Guanajuato, Mexico throughits Mexican subsidiary. The total rental expense for the years ended December31, 2009 and 2008 was approximately $137,000 and $107,000, respectively. Wehave made substantial leasehold improvements that are listed as part of ourlong term assets and are being amortized over the lives of the leases.

 

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**CreditFacility with Pacific Continental Bank**

 

TheCompany entered into an agreement for the use of various credit services withPacific Continental Bank in February 2007. The conditions of thisagreement require the deposit of $60,000 with the bank as security for theservices as of December 31, 2009. The deposit is in the company’s moneymarket account with the bank and is reported on the balance sheet as part ofcash and cash equivalents.

 

**MPILitigation**

 

On September 15,2006, we sold our subsidiary, International Importers, Inc., and acquired,by way of Reverse Acquisition, all of the assets and assumed all of theliabilities of Qualmax (the “***Reverse Acquisition***”) As a result of the ReverseAcquisition, the Company assumed the liabilities of Qualmax.  Pursuant tothe asset purchase agreement between Qualmax and BOS, BOS agreed to indemnifyand hold Qualmax harmless from liability, without limitation, arising from theclaims raised in the MPI Litigation, and BOS has undertaken defense of Qualmax(now NWB) at BOS’s expense.  As a part of the Company’s assumption ofliabilities and indemnification, it assumed the Qualmax litigation styled asS.A.R.L. Bosanova v. S.A.R.L. Media Partners International MPI, SocieteBOS Better Online Solutions Limited, and Qualmax Inc. Case No. R.G. N07-08379 in which Qualmax was a defendant in such litigation which was filed in2007 before the Trade Tribunal of Nanterre, France.

 

On or about September 18,2008, the French Tribunal at Versailles overruled a lower Court ruling in thematter; declared the case to be beyond the scope of French jurisdiction; andordered the plaintiffs to pay a nominal sum of 2,000 Euros to BOS. As of May 14,2009, there have been no changes in the status of the subject matter.  Atpresent, management does not believe that this matter poses any significantfinancial risk to the Company.

 

**PiecomTech Litigation**

 

Effective July 1,2007 we sold our subsidiary, IP Gear Ltd., to TELES (“***TELES Agreement***”).  Amaterial aspect of the TELES Agreement included a commitment of the Company toindemnify, hold harmless and defend TELES and IP Gear, Ltd. against anyliabilities arising from the Piecom Tech litigation (herein).  As a partof the consideration for such an obligation, the Company is entitled to theproceeds, if any, of the Piecom Tech litigation.

 

IP Gear was namedas a defendant in a lawsuit styled Piecom Tech. Israel Ltd. v. IP Gear Ltd.,Case No, 26-05166-07-5, in the Herzliyah, Israel Regional Court. Piecom Tech.had been a vendor to IP Gear, Ltd and was contracted to provide outsourcedcontract manufacturing services. There is currently a deposit held by Piecom of$214,000 towards the production of equipment not yet delivered and an amount inescrow of $32,000 pending resolution of this matter. Release of the escrowfunds of $32,000 depends upon the outcome of pending litigation between Piecomand IP Gear, Ltd. Neither of these amounts is represented on the balance sheetof the Company. On preliminary motions, argued in May of 2008, the Courtruled in favor of IP Gear, Ltd. A mediation hearing occurred in August of2008 but the matter was not resolved. The next mediation hearing was scheduledfor December, 2009 but the plaintiff did not appear. The matter has now beenreferred back from the Mediator to the Court. At present, management does notbelieve this matter poses any significant financial risk to the Company.

 

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**CRG West**

 

CRGWest, a Los Angeles-based company from which NWB had been leasing space forequipment, has claimed $24,000.00 from NWB in allegedly overdue rent paymentsand holdover fees. The claims were first made by email in May 2009, for asmaller amount, and then progressed to a collection agency. NWB has retained anLA based attorney, Gerard Casale, to defend its interests and argue what NWBbelieves is a valid defense in this matter, which is currently in settlementnegotiations. CRG and their agency have not filed suit on this matter in acourt of law.

 

**Roberts Kaplan**

 

Alaw firm that performed services in connection with the NWB-Qualmax mergerfiled suit against NWB for about $7,000.00, which suit filed on or about January 24,2010.   The matter was settled on thepayment of $5,000 to the Plaintiff, in return for a full release and dismissal,and management does not believe this matter will have any other material effecton the Company.

 

**BOS**

 

Then-shareholderBOS sent a certified letter to NWB during the fourth Quarter of 2009 demanding$500,000 in money damages and a change in the NWB Board. This matter wasamicably resolved without any lawsuit being filed, and BOS has executed awritten waiver and release of all of the demands set forth in theabove-referenced certified letter or otherwise against the Company. Effective February 25,2010, BOS entered into a transaction to sell all of its shares and warrants toP&S Spirit LLC, in a private sale to which the company was not a Party.That sale remains subject to forfeiture and the return to BOS in the eventP&S fails to complete payment within 2 years, as agreed between them.  Management does not believe this matter willhave any material effect on the Company.

 

**AdditionalDisputes**

 

In addition to thematters discussed above, the Company is involved in various disputes that arisein the ordinary course of business.

 
| **NOTE L** | **REGULATORY MATTERS** |
|------------|------------------------|

 

The telecommunicationsindustry is subject to federal, state and local regulation.  Anychanges in the regulations or enforcement could impact the Company’s ability tocontinue its current operations.

 
| **NOTE M** | **DEFINED CONTRIBUTION PLAN** |
|------------|-------------------------------|

 

In May 2005, weadopted a Savings Incentive Match Plan for Employees (SIMPLE) (the “***Plan***”) for the benefit of ouremployees who are reasonably expected to receive at least $5,000 incompensation during a calendar year.  We have elected to contributeto each eligible employee’s simple individual retirement account a matchingcontribution equal to the employee’s elective salary reduction contributions,up to a limit of three percent of the employee’s compensation for the calendaryear.  Total expense for the years ended December 31, 2009 and2008 was approximately $17,000 and $34,000 respectively.

 
| **NOTE N** | **BUSINESS SEGMENT REPORTING** |
|------------|--------------------------------|

 

The following presentsour segmented financial information by business line for the years ended December 31,2009 and 2008.  We are currently focused on three principal lines ofbusiness: (i) resale and distribution of VoIP and other telephonyequipment, and related professional services, particularly as the exclusiveNorth American distributor of products manufactured by TELES AGInformationstechnologien (“***TELES***”);(ii) telephony service resale, direct call routing and carrier supportservices; and (iii) administration and distribution of long-distance andinternational calling cards intended for distribution through retail outlets.Our VoIP-related telecommunications equipment distribution and resale businessis operated under the divisional name “***NWB Networks***.” Our wholesale internationalVoIP service business is operated under the divisional name “***NWB Telecom***.” Ourcalling card business is operated under the divisional name “***NWB Retail***.”

 

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| ** **         | ** ** | **2009**   | ** ** | **2008**    | ** ** |
|--------------------|------------|------------|------------|-------------|------------|
| **Net sales:**     |       |       |       |        |       |
|               |       |       |       |        |       |
| NWB Telecom        |       | $          | 7,072,887  |        | $          | 13,119,148 |   |
|               |       |       |       |        |       |
| NWB Networks       |       | 4,198,117  |       | 7,161,026   |       |
|               |       |       |       |        |       |
| NWB Retail         |       | 680,977    |       | n/a         |       |
|               |       |       |       |        |       |
|               |       | 11,951,981 |       | 20,280,174  |       |
|               |       |       |       |        |       |
| **Cost of sales:** |       |       |       |        |       |
|               |       |       |       |        |       |
| NWB Telecom        |       | (7,114,220 | )          | (10,990,157 | )          |
|               |       |       |       |        |       |
| NWB Networks       |       | (3,049,893 | )          | (5,040,581  | )          |
|               |       |       |       |        |       |
| NWB Retail         |       | (695,774   | )          | n/a         |       |
|               |       |       |       |        |       |
|               |       | (10,859,88 | )          | (16,030,738 | )          |
|               |       |       |       |        |       |
| **Gross profit:**  |       |       |       |        |       |
|               |       |       |       |        |       |
| NWB Telecom        |       | (41,333    | )          | 1,593,242   |       |
|               |       |       |       |        |       |
| NWB Networks       |       | 1,148,224  |       | 703,308     |       |
|               |       |       |       |        |       |
| NWB Retail         |       | (14,797    | )          | n/a         |       |
|               |       |       |       |        |       |
|               |       | $          | 1,092,094  |        | $          | 2,296,550 |   |

 

**Note O— Liquidity**

 

NewWorld Brands Inc. has been experiencing a decline it its liquidity during 2009.It has eroded our cash position to its lowest levels in three years anddecreased our ratio of current assets to current liabilities to the point wherewe have more current debt than we have current assets. Both of these areimportant measures of our ability to pay our obligations. We have a currentratio of less than one to one and a quick ratio of about one to four. Both ofthese are indicators of a poor liquidity position.

 

Thecompany’s intention to address this very serious concern to continue theprocess of reducing our breakeven costs by shifting more staff to mexico as wehad done in 2009 thus reducing our biggest operating expense, salaries, whileat the same time increasing our capacity on the carrier division to handle moretelecommunications traffic and in the hardware division to support a largercustomer base. We have also taken steps to broaden our sales opportunitiesthrough independent and variable cost agents to generate more leads at variablecost. We are also in the last stages of the completion of renegotiating themajority of our current trade payables into a long-term liability to be paidover four years.

 

Allof these are elements in approach to reach breakeven cashflow at the lowestrevenue levels and be positioned for growth with little increase in costs asthe economy improves.

 
| **NOTE P** | **SUBSEQUENT EVENTS AND OTHER MATTERS** |
|------------|-----------------------------------------|

 

The Company issued the648,385 warrants it had granted in July 2009, in March of 2010.

 

New World Brands reissued3,336,959 shares in the first quarter of 2010 to shareholders of Qualmax thathad been cancelled in the first quarter of 2009 pending the presentation ofshare certificates for conversion. Shares were also issued to Aeropointe Partnersand its principals per agreement in March of 2010.

 

The Company entered into negotiationswith TELES AG on a revision and renewal of its existing agreements in the firstquarter of 2010.

 

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**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Document**                                                                                                                              |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                      |
| 3.1                 |       | Amended and Restated  Certificate of Incorporation of New World Brands, Inc. (1)                                                     |
|                |       |                                                                                                                                      |
| 4.2                 |       | Certificate of Designation,  Preferences and Rights of Series A Convertible Preferred Stock (2)                                      |
|                |       |                                                                                                                                      |
| 10.2                |       | Term Loan and Security  Agreement by and between New World Brands, Inc. and P&S Spirit, LLC  dated as March 30, 2007 (5)    |
|                |       |                                                                                                                                      |
| 10.3                |       | Term Note by and  between New World Brands, Inc. and P&S Spirit, LLC dated as March 30,  2007 (5)                           |
|                |       |                                                                                                                                      |
| 10.7                |       | Credit Line and  Security Agreement, dated as of May 31, 2007, between New World Brands, Inc.  and P&S Spirit, LLC (6) |
|                |       |                                                                                                                                      |
| 10.8                |       | Credit Line Note, dated  as of May 31, 2007, of New World Brands, Inc. (6)                                                      |
|                |       |                                                                                                                                      |
| 10.11               |       | Collateral Pledge  Agreement, dated as of May 31, 2007, by New World Brands, Inc., in  favor of P&S                         |

 

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|   |   | Spirit, LLC (6)                                                                                                                                                                                                                                                                                |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.13  |   | First Amendment to  Amended and Restated Lock-Up Agreement, dated as of May 31, 2007, by and  among New World Brands, Inc., Qualmax, Inc., M. David Kamrat, Jane  Kamrat, Noah Kamrat, Tracy Habecker, Dr. Selvin Passen, Oregon Spirit,  LLC, and P&S Spirit, LLC (6) |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.15  |   | Preliminary Agreement,  dated July 18, 2007, between New World Brands, Inc. and TELES AG  Informationstechnologien (7)                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.16  |   | Share Sale and Purchase  Agreement, dated July 26, 2007, by and between New World Brands, Inc.  and TELES AG Informationstechnologien (including the Partner Contract as  Annex 2) (8)                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.18  |   | Agreement and Plan of  Merger, dated February 18, 2008, by and between New World Brands, Inc.  and Qualmax, Inc. (9)                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.19  |   | Term Loan and Security  Agreement, effective February 15, 2008, by and between New World Brands, Inc.  as Borrower and TELES AG Informationstechnologien as Lender (10)                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.20  |   | Intercreditor  Agreement, effective February 15, 2008, by and among New World Brands, Inc.,  P&S Spirit, LLC and TELES AG Informationstechnologien (10)                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.21  |   | Amended Employee Stock  Option Plan,” adopted July 21, 2009   (*)                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                           |
| 31.1   |   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of  2002 (*)                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                           |
| 31.2   |   | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes- Oxley Act of  2002 (*)                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                           |
| 32.1   |   | Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (*)                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                           |
| 32.2   |   | Certification of Chief  Financial Officer pursuant to 18 U.S.C., Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(*)                                                                                                                              |

 

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| (*)  | Filed herewith.                                                                                                                       |
|------|---------------------------------------------------------------------------------------------------------------------------------------|
| (1)  | Previously filed as an  exhibit to New World Brands, Inc.’s Form 8-K, filed with the SEC on  April 30, 2007.      |
| (2)  | Previously filed as an  exhibit to New World Brands, Inc.’s Form 10-QSB, filed with the SEC  on October 16, 2006. |
| (3)  | Previously filed as an  exhibit to New World Brands, Inc.’s Form 8-K, filed with the SEC on  January 8, 2007.     |
| (4)  | Previously filed as an  exhibit to New World Brands, Inc.’s Form 8-K, filed with the SEC on  January 10, 2007.    |
| (5)  | Previously filed as an  exhibit to New World Brands, Inc.’s Form 8-K, filed with the SEC on  April 5, 2007.       |
| (6)  | Previously filed as an  exhibit to New World Brands, Inc.’s Form 8-K, filed with the SEC on  June 6, 2007.        |
| (7)  | Previously filed as an  exhibit to New World Brands, Inc.’s Form 8-K, filed with the SEC on  July 20, 2007.       |
| (8)  | Previously filed as an  exhibit to New World Brands, Inc.’s Form 8-K, filed with the SEC on  August 1, 2007.      |
| (9)  | Previously filed as an  exhibit to New World Brands, Inc.’s Form 8-K, filed with the SEC on  February 22, 2008.   |
| (10) | Previously filed as an  exhibit to New World Brands, Inc.’s Form 8-K, filed with the SEC on  February 27, 2008.   |
| (11) | Previously filed as an  exhibit to New World Brands, Inc.’s Form 8-K, filed with the SEC on  April 7, 2008.       |
| (12) | Previously filed as an  exhibit to New World Brands, Inc.’s Form 8-K, filed with the SEC on  March 14, 2007.      |

 

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