UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      DC 20549





FORM
      10-KSB/A


Amendment
        No. 2




(Mark
      One)





x
            Annual
                report under Section 13 or 15(d) of the Securities Exchange Act of
                1934for
                the fiscal year ended December 31,
                2007





o
            Transition
                report under Section 13 or 15(d) of the Securities Exchange Act of
                1934for
                the transition period from ______ to
                ______





Commission
      file number 0-16206





NEW
      WORLD BRANDS, INC.


(Name
      of
      small business issuer in its charter)





Delaware
            
            02-0401674State or other jurisdiction of
              incorporation or organization
            
            (I.R.S. Employer
              Identification No.)





340 W. 5thAvenue,
                Eugene, OR 97401(Address, including zip code, of principal executive offices)




(541)
        868-2900
 (Issuer’s
        telephone number)





Securities registered
      under Section 12(b) of the Exchange Act: None.





Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, par value
      $0.01 per share.





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.


Yes
o
      No x





Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.


Yes x No
o








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


Yes
o No
x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o
      No x




Issuer’s
      revenues for its most recent fiscal year: $17,101,203.





The
      aggregate market value of the voting and non-voting Common Stock held by
      non-affiliates (42,450,484 shares as of March 26, 2008) computed by reference
      to
      the closing price of the Common Stock as of March 26, 2008 ($0.07): $2,971,534.





The
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the last practicable date: 414,979,673 shares of Common Stock, $0.01
      par
      value per share, as of March 26, 2008.





**DOCUMENTS
      INCORPORATED BY REFERENCE**


None.





Transitional
      Small Business Disclosure Format (Check one): Yes o No x









**EXPLANATORY
        NOTE**
 
 New
          World
          Brands, Inc. (the “Company”) is filing this Amendment No. 2 on Form 10-KSB/A
          (the “Amendment No. 2”) to its Annual Report on Form 10-KSB for the fiscal year
          ended December 31, 2007, originally filed with the Securities and Exchange
          Commission on April 16, 2008 (the “Original Report”) and amended on May 13, 2008
          (the “Amendment No. 1”), to amend Item 8A regarding the Company’s controls and
          procedures.
 
 The
          Amendment No. 2 does not otherwise amend, update, or change any other items
          or
          disclosures contained in the Original Report or the Amendment No.
          1.





**TABLE
      OF CONTENTS**




**Part
                  I**Item
                  1. Description of Business
              6Item
                  2. Description of Property
              30Item
                  3. Legal Proceedings
              30Item
                  4. Submission of Matters to a Vote of Security Holders
              31**Part
                  II**Item
                  5. Market for Common Equity and Related Stockholder Matters and
                  Small
                  Business Issuer Purchases of Equity Securities
              32Item
                  6. Management’s Discussion and Analysis or Plan of Operation
              35Item
                  7. Financial Statements
              49Item
                  8. Changes in and Disagreements With Accountants on Accounting
                  and Financial Disclosure
              49Item
                  8A(T). Controls and Procedures
              49Item
                  8B. Other Information
              50**Part
                  III**Item
                  9. Directors, Executive Officers, Promoters, Control Persons and
                  Corporate Governance; Compliance with Section 16(a) of the Exchange
                  Act
              51Item
                  10. Executive Compensation
              54Item
                  11. Security Ownership of Certain Beneficial Owners and Management
                  and
                  Related Stockholder Matters
              57Item
                  12. Certain Relationships and Related Transactions, and Director
                  Independence
              60Item
                  13. Exhibits
              61Item
                  14. Principal Accountant Fees and Services
              61Signatures
              63







**PART
      I**





**General**





References
      in this Annual Report on Form 10-KSB/A (the “ ***Report*** ”)
      to the
“ ***Company*** ,”
“we,”
      “us,” “our” and similar words are to New World Brands, Inc., commencing with the
      acquisition of Qualmax, Inc., a Delaware corporation (“ ***Qualmax*** ”),
      and, with
      respect to prior historical financial information, to Qualmax. The
      results of operations of the company’s former subsidiary, IP Gear, Ltd.
      (“ ***IP
      Gear, Ltd*** .”)
      are
      reported as discontinued operations, as a result of our sale of IP Gear, Ltd.
      effective July 1, 2007.





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





We
      entered into a transaction with Qualmax on September 15, 2006, discussed in
      more
      detail below, that constituted a substantial change in our business, from wine
      and spirits distribution to telecommunications technology development, sales
      and
      services. We therefore recommend that you review with particular attention
      our
      filings with the Securities Exchange Commission from June 2006 forward, to
      the
      extent they describe the change in our business and related recent
      activities.





**Disclosure
      Regarding Forward-Looking Statements**





We
      caution readers that this Report contains “forward-looking statements” within
      the meaning of the Private Securities Litigation Reform Act of 1995.
      Forward-looking statements, written, oral or otherwise, are based on the
      Company’s current expectations or beliefs rather than historical facts
      concerning future events, and they are indicated 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,” or
“will” and similar words or phrases or comparable terminology. Forward-looking
      statements involve risks and uncertainties. The Company cautions that these
      statements are further qualified by important economic, competitive,
      governmental and technological factors that could cause the Company’s business,
      strategy, or actual results or events to differ 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 assurance that any forward-looking statement
      contained herein, or otherwise made by the Company, will prove to be accurate.
      The Company assumes no obligation to update the forward-looking statements.





The
      Company has a short operating history and is operating in a rapidly changing
      industry environment, and its ability to predict results or the actual effect
      of
      future plans or strategies, based on historical results or trends or otherwise,
      is inherently uncertain. While
      we
      believe that these forward-looking statements are reasonable, they are merely
      predictions or illustrations of potential outcomes, and they involve known
      and
      unknown risks and uncertainties, many beyond our control, that are likely to
      cause actual results, performance, or achievements to be materially different
      from those expressed or implied by such forward-looking statements. Factors
      that could have a material adverse affect on the operations and future prospects
      of the Company on a condensed basis include
      those factors discussed under Item 1, “ Description
      of Business—Certain Risk Factors ”
and
      Item 6, “Management’s Discussion and Analysis or Plan of Operation” in this
      report ,
      and
      include, but are not limited to ,
      the
      following:


5





·
            A
                downturn in 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 sales, 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;




·
            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, in the United States
                and
                internationally, may increase our costs or may prohibit continued
                operations or entry into some areas of
                business.





You
      are
      cautioned not to rely on these forward-looking statements as facts or as events
      likely to occur. Forward-looking statements are made and are valid only as
      of
      the date they were made. Actual
      results may differ materially from those included in the forward-looking
      statements. We
      undertake no obligation to update or revise any forward looking statements
      to
      reflect new information or the occurrence of unanticipated events or
      otherwise.





**ITEM
      1.**  **DESCRIPTION
      OF BUSINESS**




**Overview
      of Business**





We
      are a
      telecommunications sales and service company, focusing on products and services
      utilizing Voice over Internet Protocol (“ ***VoIP*** ”)
      technology. As a result of the sale of our former subsidiary, IP Gear, Ltd.,
      we
      are no longer in the VoIP equipment research and development (“ ***R&D*** ”)
      and
      manufacturing business, and instead currently focus on two principal lines
      of
      business: (i) resale and distribution of VoIP and other telephony equipment,
      and
      related professional services, particularly as the exclusive North American
      distributor of products manufactured by TELES AG Informationstechnologien
      (“ ***TELES*** ”)
      and IP
      Gear, Ltd.; and (ii) telephony service resale, direct call routing and carrier
      support. Our VoIP-related telecommunications equipment distribution and resale
      business, formerly operated under the divisional name “IP Gear,” is now operated
      under the divisional name “ ***NWB
      Networks*** .”
Our
      wholesale international VoIP service business, formerly operated under the
      name
“ IP
      Gear
      Connect, ”
is
      now
      operated under the name “ ***NWB
      Telecom*** .”
Both
      NWB Networks and NWB Telecom are based in Eugene, Oregon.


6





The
      following are certain key industry or technical terms used throughout this
      Report in describing the Company’s current business and in discussing its
      prospects in the VoIP equipment and services market:





“ ***VoIP*** ,”
or
      Voice over Internet Protocol, also called IP Telephony, Internet telephony,
      Broadband telephony, Broadband Phone, Voice over Broadband or voice over packet
      networks, is the routing of voice conversations over the Internet or
      through any other internet protocol (“ ***IP*** ”)
      based
      network. “ ***GSM*** ”
is
      short for Global System for Mobile Communications, a leading digital cellular  system using
      narrowband TDMA (time
      division multiple access) that has become a cellular standard in Europe and
      Asia.





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





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


7





*Overview
      of the NWB Networks division (TELES product sales, VoIP equipment resale,
      refurbishing and distribution).*





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





The
      Company is the exclusive distributor of TELES products in certain north American
      markets (the United States, Canada, Mexico, all Caribbean nations, Guatemala,
      and Honduras), and currently promotes and distributes TELES products in those
      markets, sells directly to large end-user customers, and provides support and
      training services, under the assumed business name “ ***TELES
      USA*** .”
The
      distribution agreement includes those products previously manufactured by the
      Company under the IP Gear name (including the Claro and Quasar brands). TELES
      USA is part of the NWB Networks division, but because TELES sales represent
      a
      substantial and growing part of our equipment reseller business we report TELES
      revenues and gross profits separate from resale of other products below in
      Item
      6, “Management’s Discussion and Analysis or Plan of Operation—Results of
      Operations.”





*Overview
      of the NWB Telecom division (VoIP Telephony service provider).*





The
      NWB
      Telecom division is a wholesale provider of VoIP termination service, connecting
      carrier-level buyers and sellers of VoIP service, currently focused on
      international call routing. We receive VoIP traffic from customers (originating
      carriers) who are interconnected to our network, and we route the VoIP traffic
      via IP networks to local service providers and terminating carriers in the
      destination countries from whom we purchase completion or termination services.
      (Our vendors provide the communications service to complete the calls within
      the
      destination country.) We offer this service on a wholesale basis to carriers,
      VoIP companies, and telephony resellers, and other telecommunication service
      providers. We are party to a number of reciprocal carrier agreements, through
      which we both buy from and sell to a carrier, and set-off, or net out, the
      parties’ respective fees for termination services. To the extent we sell VoIP
      equipment (under the NWB Networks division or its subdivision, TELES USA) to
      our
      VoIP termination service providers, we may set-off accounts receivable for
      equipment against accounts payable for communication services. We have call
      termination agreements with local lower-tier service providers in Latin America,
      Europe, Asia, and Africa.





In
      addition, although the Company’s VoIP service business is currently entirely
      wholesale, management is identifying and evaluating “bundled” VoIP service
      opportunities (“bundled” meaning the offering of both VoIP equipment and VoIP
      connectivity service as a turnkey VoIP solution for small to medium size
      business entities (“ ***SMEs*** ”)).
      The
      Company also evaluates a variety of other opportunities in the VoIP industry,
      and in the past has evaluated opportunities in call shop and calling card
      businesses, and the VoIP network technical support business, but to date has
      remained focused on its existing core businesses. As of the date of filing
      this
      Report, we consider all such opportunities to be in the evaluation stage, and
      their potential effect upon our revenues and gross and net profits is too
      speculative to quantify.


8





**Company
      History**





*Company
      history prior to 2006 acquisition of Qualmax, Inc.*





New
      World
      Brands, Inc. was incorporated in Delaware in May 1986 under the name Oak Tree
      Construction Computers, Inc.  From 1986 through 1990, we were engaged
      in the sale of computer systems for the construction industry.  For a
      number of years 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 centers and related medical practices.  In
      October 2001, the Company and its subsidiary, Oak Tree Spirits, Inc., entered
      into a merger agreement with International Importers, Inc. (“ ***Importers*** ”)
      and
      its stockholders whereby Importers merged with and into the Company, and the
      Company’s business changed direction to wine and spirits
      distribution.  In conjunction with this change in business direction,
      in December 2001, we changed our name 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
      the liabilities of Qualmax (the “ ***Reverse
      Acquisition*** ”).  The
      Reverse Acquisition marked a change in direction for our business, away from
      wine and spirits distribution, to the VoIP technology industry.  The
      Reverse Acquisition was accounted for as a reverse acquisition, with Qualmax
      being the acquiring party for accounting purposes.  The accounting
      rules for reverse 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 be recapitalized to
      reflect the net equity of New World Brands, Inc.  Our historical
      operating results will be the operating results of Qualmax. In conjunction
      with
      the Reverse Acquisition, in September 2006, we moved our headquarters from
      Florida to Eugene, Oregon, which were previously the headquarters of
      Qualmax.





*Qualmax,
      Inc. history.*





As
      Qualmax, we were founded in 2002 as a reseller of VoIP-related
      telecommunications equipment from companies such as Cisco Systems, Quintum,
      and
      Adtran, and as a reseller of VoIP telephony service, primarily selling wholesale
      international service to telecom service providers.  In December,
      2005, we expanded beyond our reseller business by acquiring a VoIP technology
      research and development division based in Israel, which we reorganized as
      a
      wholly-owned subsidiary and rebranded under the name IP Gear, Ltd. From December
      31, 2005 through July 1, 2007 we developed, manufactured, and sold our own
      line
      of VoIP technology products via our Israel-based IP Gear, Ltd. subsidiary,
      while
      continuing to resell additional VoIP products of a variety of other
      manufacturers via our U.S.-based IP Gear VAR division.


9





*2007
      sale of IP Gear, Ltd. subsidiary.*





Effective
      July 1, 2007, we sold our wholly-owned subsidiary, IP Gear, Ltd., an Israeli
      limited liability company based in Yokneam, Israel, to TELES, as reported in
      more detail in the Company’s Current Reports on Form 8-K filed with the
      Securities and Exchange Commission (the “SEC”) on July 20, August 1, and August
      9, 2007, and as discussed in more detail below under “Recent Developments.” Sale
      of our IP Gear, Ltd. subsidiary represented a refocusing of our business plan
      away from research and development and direct manufacturing, and toward our
      historical core strengths in sales and service. As a result of the sale, we
      currently base all our operations at our headquarters in Eugene,
      Oregon.





By
      the
      sale of IP Gear, Ltd. to TELES, we divested ourselves of our manufacturing,
      research and development activities, and have now 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 for both TELES products and IP Gear, Ltd. products in
      North America and have therefore focused our telecommunications equipment sales
      and distribution plan on TELES and IP Gear, Ltd. products.





**Recent
      Developments**





The
      following important Company developments occurring in 2007, and 2008 to date,
      are described below.





*Authorization
      of additional shares, conversion of Preferred Stock to Common
      Stock.*





Pursuant
      to a written consent, dated January 31, 2007, of the Company’s board of
      directors (the “ ***Board*** ”),
      and a
      written consent, dated January 31, 2007, of a requisite number of the Company’s
      outstanding shares, the Company’s Amended and Restated Certificate of
      Incorporation was filed with the Delaware Secretary of State on April 24, 2007,
      at which time it became effective. The Amended and Restated Certificate of
      Incorporation (i) increased the Company’s authorized number of shares of
      common stock (the “ ***Common
      Stock*** ”)
      of the
      Company by 550,000,000 shares, $0.01 par value per share; (ii) created
      1,000 shares, $0.01 par value per share, of Series A Convertible Preferred
      Stock
      (the “ ***Preferred
      Stock*** ”)
      of the
      Company; (iii) implemented a staggered Board with three classes, each
      serving three years; and (iv) made such other changes to the certificate of
      incorporation as were necessary and incidental to the foregoing.




As
      a
      result of the approval of our Amended and Restated Certificate of Incorporation,
      effective April 24, 2007, all outstanding shares of Preferred Stock were
      converted to shares of Common Stock, at a ratio of 2,986,736 shares of Common
      Stock for each share of Preferred Stock (meaning approximately 116.67 shares
      of
      Preferred Stock, constituting all of the Company’s outstanding Preferred Stock,
      were converted into approximately 348.4 million shares of Common Stock).





For
      additional information regarding the authorization of additional shares and
      the
      conversion of Preferred Stock, reference is made to our Current Report on Form
      8-K, filed with the SEC on April 30, 2007, and the Company’s Definitive Schedule
      14C, filed with the SEC on March 20, 2007.


10





*Repayment
      of Bank of America loan.*





Qualmax
      entered into a loan agreement with Bank of America, N.A. (“ ***BoA*** ”)
      on
      April 20, 2005 in the original principal amount of $2,000,000 (the “ ***BoA
      Loan*** ”).  Effective
      September 15, 2006, the BoA Loan agreement was modified for an adjusted
      principal amount of $984,323 and an extended maturity date of March 31, 2007,
      with interest on the principal amount at 3% over BoA’s Prime
      Rate.  The BoA Loan was in the name of Qualmax, guaranteed by the
      Company and personally by M. David Kamrat, and was secured by a pledge of all
      the Company’s stock owned by Qualmax.  BoA declined to extend the BoA
      Loan maturity date beyond March 31, 2007, and therefore, the Company secured
      substitute financing in the form of the P&S Term Loan Agreement (defined and
      discussed below under “P&S Spirit Term Loan”) and on March 30, 2007 repaid
      all outstanding BoA Loan principal, interest, and fees.  Reference is
      made to the Company’s Current Report on Form 8-K, filed with the SEC on April 5,
      2007, for additional information and documentation concerning repayment of
      the
      BoA Loan and the transactions entered into in connection therewith.





*P&S
      Spirit term loan.*





On
      and
      effective March 30, 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*** ”).
      The
      principal amount of the P&S Term Loan was $1,000,000; the interest rate was
      2% over the Prime Rate (as reported in The Wall Street Journal); consecutive
      monthly payments of interest only (payable in arrears) were required commencing
      May 1, 2007; and all unpaid principal, interest and charges was due upon the
      maturity date of January 2, 2009. The
      P&S Term Loan Agreement granted P&S Spirit a first position security
      interest with respect to all of the Company’s assets, and was also backed by a
      corporate Guaranty by Qualmax (which, pending completion of the contemplated
      merger of Qualmax into the Company, holds a controlling interest in the
      Company), a security interest in the assets of Qualmax (consisting solely
      298,673,634 shares of the Company’s Common Stock, par value $0.01 per share),
      and by the personal guaranty of M. David Kamrat, who is Chairman of the Board
      of
      Directors and President and Chief Executive Officer of the Company as well
      as a
      director and executive officer of Qualmax. M. David Kamrat’s personal Guaranty
      was limited to the sum of $1,000,000, although the guaranteed obligations
      include indemnification for certain claims against P&S Spirit relating to
      the P&S Term Loan Agreement.




The
      P&S Term Loan proceeds were used by the Company to repay all outstanding
      principal, interest, and fees payable to BoA under the BoA Loan, and to pay
      certain professional fees associated with preparation and negotiation of the
      P&S Term Loan Agreement.





As
      discussed below under “Repayment of P&S Term Loan,” the P&S Term 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.


11





The
      principals of P&S Spirit include Dr. Selvin Passen, who is a director of the
      Company as well as a shareholder of the Company and its former Chief Executive
      Officer, and Dr. Jacob Schorr, who is a director of the Company.




*P&S
      Spirit credit line.*





As
      previously reported on the 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 Credit Line and Security Agreement (the “ ***P&S*** ***Credit
      Line Agreement*** ”
and
      the
      debt obligation pursuant thereto, the “ ***P&S*** ***Credit
      Line*** ”)
      with
      P&S Spirit.  The maximum principal available under the Credit Line
      is $1,050,000; the interest rate is 2% over the Prime Rate (as reported in
      The
      Wall Street Journal), payable in relation to the then-outstanding principal;
      consecutive monthly payments of interest only (payable in arrears) are required
      commencing July 1, 2007; and all unpaid principal, interest, and charges are
      due
      upon the maturity date of June 1, 2011.  Upon default, the entire
      P&S Credit Line amount (including accrued unpaid interest and any fees) will
      be accelerated, and the Company would be required to pay any costs of
      collection.  The P&S Credit Line Agreement includes certain
      affirmative covenants, including, without limitation, a financial reporting
      requirement (quarterly - 45 days after the close of a calendar quarter), and
      a
      requirement that the Company maintain a ratio of current assets to current
      liabilities of at least 1.2:1.0 and a total liabilities to tangible net worth
      ratio not exceeding 2.5:1.0.




The
      P&S Credit Line Agreement grants P&S Spirit a security interest with
      respect to all of the Company’s assets, but was subordinated to the P&S Term
      Loan.  The P&S Credit Line Agreement is also backed by a corporate
      Guaranty by Qualmax (which, pending completion of the contemplated merger of
      Qualmax into the Company, holds a controlling interest in the Company), and
      a
      security interest in the assets 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, Guaranty of Qualmax, Collateral Pledge Agreement by Qualmax,
      and the Collateral Pledge Agreement by the Company, were included as Exhibits
      10.1, 10.2, 10.3, 10.4, and 10.5, respectively, to the Company’s Current Report
      on Form 8-K, filed with the SEC on June 6, 2007.





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




*P&S
      Spirit stock purchase.*





As
      previously reported on the Company’s Current Report on Form 8-K, filed with the
      SEC on January 8, 2007, effective December 29, 2006, the Company entered into
      an
      Amended and Restated Stock Subscription and Share Transfer Agreement (the
“ ***P&S***  ***Subscription
      Agreement*** ”)
      with
      P&S Spirit and with M. David Kamrat and Noah Kamrat (together, the
“ ***Kamrats*** ”).
      On
      and effective May 31, 2007, the parties to the P&S Subscription Agreement
      entered into a First Amendment to Amended and Restated Stock Subscription and
      Share Transfer Agreement (the “ ***Amended
      P&S Subscription Agreement*** ”),
      amending the P&S Subscription Agreement as described herein.




12





Pursuant
      to the Subscription Agreement, the Company agreed to sell to P&S Spirit, and
      P&S Spirit agreed to purchase: (i) on the date of closing: (A) 11.160454
      shares of Preferred Stock of the Company, par value $0.01 per share, which
      shares of Preferred Stock are convertible into 33,333,333 shares of the
      Company’s Common Stock, par value $0.01 per share, at a price of $268,806.27 per
      share of Preferred Stock (equivalent to $0.09 per share of Common Stock), for
      an
      aggregate purchase price of $3,000,000; and (B) a warrant (the “ ***Warrants*** ”)
      to
      purchase an additional 9.300378 shares of Preferred Stock at an exercise price
      of $268.806.27 per share (equivalent to $0.09 per share of Common Stock); (ii)
      upon the satisfaction of certain conditions set forth in the Subscription
      Agreement, an additional 3.720151 shares of Preferred Stock, convertible into
      11,111,111 shares of Common Stock (the “ ***Tranche
      B-1 Shares*** ”),
      at a
      price of $268,806.27 per share of Preferred Stock (equivalent to $0.09 per
      share
      of Common Stock), for an aggregate purchase price of $1,000,000; and (iii)
      upon
      the satisfaction of certain conditions set forth in the Subscription Agreement,
      an additional 3.720151 shares of Preferred Stock, convertible into 11,111,111
      shares of Common Stock (the “ ***Tranche
      B-2 Shares*** ”),
      at a
      price of $268,806.27 per share of Preferred Stock (equivalent to $0.09 per
      share
      of Common Stock), or an aggregate purchase price of $1,000,000. As part of
      the Amended
      P&S Subscription Agreement the Kamrats transferred certain shares of the
      common stock of Qualmax to P&S Spirit, and the Kamrats were issued a warrant to
      purchase 9.300378 shares of Preferred Stock at an exercise price of $268.806.27
      per share (equivalent to $0.09 per share of Common Stock).





As
      discussed above, on April 24, 2007, when the Company filed its Amended and
      Restated Certificate of Incorporation with the Delaware Secretary of State,
      all
      outstanding shares of Preferred Stock were automatically converted to shares
      of
      Common Stock at a ratio of 2,986,736 shares of Common Stock for each share
      of
      Preferred Stock.  As a result, the Tranche B-1 Shares and Tranche B-2
      Shares were each converted into 11,111,111 shares of Common Stock.




Pursuant
      to the Amended P&S Subscription Agreement, P&S Spirit agreed to buy, and
      the Company agreed to sell, all of the Tranche B-1 Shares and Tranche B-2
      Shares, as converted into a total of 22,222,222 shares of Common Stock, for
      an
      aggregate purchase price of $1,000,000, and P&S Spirit agreed to waive
      certain of the conditions precedent to the purchase of the Tranche B-1 Shares
      and Tranche B-2 Shares as set forth in the P&S Subscription
      Agreement.  The provisions of the Warrants have not been
      amended.  Such shares of Common Stock are, or will be, issued without
      registration under the Securities Act of 1933, as amended (the “ ***Securities
      Act*** ”),
      in
      reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D
      promulgated thereunder.  A copy of the Amended P&S Subscription
      Agreement was included as Exhibit 10.6 to the Company’s Current Report on Form
      8-K, filed with the SEC on June 6, 2007.





In
      connection with the transactions contemplated by the Amended P&S
      Subscription Agreement, the Company, Qualmax, the Kamrats, P&S Spirit and
      certain affiliates of the Kamrats and P&S Spirit entered into a First
      Amendment to Amended and Restated Lock-Up Agreement, a copy of which was filed
      with the SEC on June 6, 2007 as Exhibit 10.7 to the Company’s Current Report on
      Form 8-K.




13





Also
      in
      connection with the transaction contemplated by the Amended P&S Subscription
      Agreement, the Company, Qualmax, the Kamrats, P&S Spirit and certain
      affiliates of the Kamrats and P&S Spirit entered into a First Amendment to
      Amended and Restated Voting Agreement, a copy of which was filed with the SEC
      on
      June 6, 2007 as Exhibit 10.8 to the Company’s Current Report on Form
      8-K.





*Sale
      of IP Gear, Ltd. subsidiary.*





As
      previously reported on the Company’s Current Reports on Form 8-K filed with the
      SEC on July 20 and August 9, 2007, effective July 1, 2007 the Company sold
      its
      IP Gear, Ltd. subsidiary to TELES pursuant to a Share Sale and Purchase
      Agreement (the “ ***Final
      Agreement*** ”),
      following the execution of a preliminary share sale and purchase agreement
      (the
“ ***Preliminary
      Agreement*** ”),
      both
      of which agreements are governed by the laws of Germany.  The
      Preliminary Agreement was executed on July 18, 2007, and the Final Agreement
      was
      approved by the Board and by TELES’ supervisory board on July 25,
      2007.  The closing of the purchase and sale took place on July 26,
      2007, immediately upon the execution of the Final Agreement.  The
      share sale and purchase has an effective date, for accounting purposes, of
      July
      1, 2007.




Pursuant
      to the Final Agreement, the Company agreed to sell all of the outstanding
      capital stock of its wholly-owned subsidiary, IP Gear, Ltd., to TELES for a
      purchase price consisting of: (i) a payment at closing of $1.5 million, and
      (ii) an earn out equal to 10% of TELES’ worldwide revenues (including
      revenues of TELES’ affiliates) within TELES’ CPE Product Line (as defined in the
      Final Agreement) for a period of four years after closing.  The total
      earn out payments shall not be less than $750,000 (the “ ***Minimum
      Earn Out*** ”),
      and
      shall not be subject to a cap.  The Minimum Earn Out shall be paid in
      quarterly amounts of $46,875, each quarterly payment due within 90 days of
      the
      close of the quarter, commencing with the quarter ended September 30,
      2007.  In the event the Minimum Earn Out is exceeded, the differential
      amount is due within 90 days after June 30, 2008, 2009, 2010, and 2011. For
      the
      six months ended December 31, 2007, the Minimum Earn Out was exceeded by
      $28,681.




With
      certain exceptions, commencing on the date of the closing and for a certain
      period of time (as specified in the Final Agreement), the Company agreed not
      to,
      or cause any of its affiliates to, engage in any research and development or
      manufacturing activities competitive with those conducted by IP Gear, Ltd.,
      and
      not to, or cause any of its affiliates to, engage in the sale,
      distribution, marketing, and services of products that may compete with certain
      products of TELES.  In addition, with certain exceptions, commencing
      one year after the date of closing, and effective for a period of time and
      within certain geographic regions relative to the grant of exclusive
      distribution and sale rights to the Company pursuant to the partner contract
      described below, the Company agreed not 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.


14





*TELES
      distributorship.*





In
      accordance with the Final Agreement, the Company and TELES entered into a
      partner contract (the “ ***Partner
      Contract*** ”),
      relating to the promotion, marketing, sale, and support of certain products
      of
      TELES and IP Gear, Ltd., pursuant to which the Company became the exclusive
      distributor of products of TELES and IP Gear, Ltd. in North America (including
      the United States, Canada, Mexico, all Caribbean nations, Guatemala, and
      Honduras).  In connection therewith, TELES granted the Company a
      marketing subsidy in the amount of $200,000 per year for a period of two years
      (and for a third year, based on revenues, if agreed by the parties), and TELES
      granted the Company an inventory credit line in the amount of $200,000 (the
      “ ***Inventory
      Credit Line*** ”),
      which
      has been increased based upon subsequent sales performance by the Company. 
As of March 17, 2008, the Company had received $100,000 as a marketing subsidy
      from TELES, in the form of a credit memo offset against accounts payable to
      TELES for inventory purchases.





In
      addition, TELES agreed to grant the Company a line of credit in the amount
      of
      $1,000,000 pursuant to a separate loan agreement to be finalized by the parties.
      For more details regarding the TELES loan, see “ TELES loan
      agreement” below.





The
      Preliminary Agreement was 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 Partner Contract 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 the SEC on August 1, 2007.





*TELES
      loan 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*** ”)
      pursuant to which, from
      time
      to time prior to February 1, 2009 or the earlier termination in full of the
      Commitment, the Company may obtain advances from TELES up to the amount of
      the
      outstanding Commitment. Amounts borrowed may not be reborrowed, notwithstanding
      any payments thereunder. The outstanding balance of the TELES Loan will be
      due
      and payable on or before February 1, 2012. The
      outstanding principal amount of the TELES Loan will be payable in 12
      approximately equal quarterly installments commencing May 1, 2009.   Interest
      on the outstanding principal amount of the TELES Loan shall be paid quarterly
      commencing May 1, 2008, at an interest rate equal to 7%
      per
      annum, compounded quarterly (subject
      to certain adjustments provided therein) . The
      description of the TELES Loan Agreement herein is qualified in its entirety
      by
      reference to the full text of such agreement, which is attached as Exhibit
      10.1
      to the Company’s Current Report on Form 8-K filed with the SEC on February 27,
      2008.




Without
      the prior written consent of TELES, the TELES Loan may not be used, in whole
      or
      in part, to make any payment to P&S Spirit with respect to any obligations
      of the Company owed to P&S Spirit pursuant to the P&S Credit Line
      Agreement.




The
      obligation of TELES to make advances to the Company pursuant to the TELES Loan
      Agreement is subject to the satisfaction of certain conditions, including
      without limitation, the following:




15




·
            The
                merger of Qualmax with and into the Company shall have been consummated
                in
                all respects;




·
            On
                the closing date and on the date of each advance, no default or event
                of
                default under the P&S Credit Line Agreement and all related documents
                thereto shall have occurred and remain outstanding or uncured;
                and




·
            All
                obligations of the Company owed to P&S Spirit under the P&S Term
                Loan Agreement shall have been irrevocably repaid in full, and the
                obligations under any related guarantees, stock pledges, and other
                loan
                documents securing the obligations of the Company under the P&S Term
                Loan Agreement shall have been released (on February 21, 2008, effective
                February 15, 2008, the Company repaid all outstanding obligations
                under
                the P&S Term Loan Agreement, in the amount of
                $500,000).




Pursuant
      to the TELES Loan Agreement, the Company agreed to comply with certain
      affirmative covenants, including without limitation, the following:




·
            maintaining
                on a consolidated basis a ratio of current assets to current liabilities
                of not less than 1.2:1; and




·
            maintaining
                on a consolidated basis a ratio of total indebtedness (with certain
                exclusions) to tangible net worth of not greater than
                2.5:1.




Pursuant
      to the TELES Loan Agreement, the Company also agreed to comply with certain
      negative covenants, including without limitation, the following:




·
            issuing
                or distributing any capital stock or other securities of the Company
                without giving TELES at least 15 days prior written notice;
                and




·
            amending,
                modifying or waiving any provisions of the P&S Credit Line
                Agreement.




The
      TELES
      Loan Agreement grants TELES a security interest with respect to all of the
      Company’s assets, subject to the terms of the Intercreditor Agreement (as
      defined below).




On
      February 21, 2008, the Company drew $500,000 in principal on the P&S Credit
      Line in order to repay in full its obligations under the P&S Term Loan
      Agreement.




*TELES –
      P&S Spirit intercreditor agreement.*




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




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




16




*Repayment
      of 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 the Company’s
      Current Report on Form 8-K.  Pursuant to the P&S Term Loan
      Agreement 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’s
      shares of IP Gear, Ltd., and, the sale of the Company’s IP Gear, Ltd. shares
      without P&S Spirit’s consent would have triggered a repayment by the Company
      of all outstanding principal under the P&S Loans.




In
      accordance with the Lender Consent, the Company agreed to pay to P&S Spirit
      from the proceeds of the closing, as a partial repayment of principal of the
      P&S Term Loan, the sum of $500,000.  In addition, the Company
      agreed to pay P&S Spirit the additional sum of $500,000, as a repayment of
      principal of the P&S Term Loan, which amount is to be provided by P&S
      Spirit to the Company as a credit line advance to be used by the Company solely
      to repay the outstanding principal under the P&S Term Loan upon execution of
      the TELES Loan Agreement.  In the Lender Consent, subject to certain
      terms and conditions, P&S Spirit consented to the sale of IP Gear, Ltd. to
      TELES in accordance with the Final Agreement, released and terminated P&S
      Spirit’s security interest in the IP Gear, Ltd. shares, and agreed that the
      consummation of the sale of IP Gear, Ltd. to TELES shall not be deemed or give
      rise to an event of default, penalty, or increase under, or termination of,
      the
      Loan Agreements and shall not, except as otherwise provided in the Lender
      Consent, accelerate any amounts owing under the Loan Agreements or trigger
      any
      prepayment or give rise to any payment not otherwise required under the Loan
      Agreements; and shall not require the Company to provide any additional
      security, collateral, reserve, or payment under the Loan
      Agreements.





*Execution
      of merger agreement.*





On
      February 18, 2008, the Company and Qualmax entered into an agreement by which
      Qualmax will be merged with and into the Company (the “ ***Merger
      Agreement*** ”
and
      the
      merger contemplated thereby, the “ ***Merger*** ”).
      As of
      the date of this filing, the Merger had not been completed. Reference is made
      to
      the Company’s Current Report on Form 8-K, filed with the SEC on February 22,
      2008, for additional information and documentation concerning the Merger and
      the
      Merger Agreement entered into in connection therewith.





*Management
      and Board changes.*





A
      number
      of changes were made to the Company’s Board and officers from January 1, 2007 to
      the date of this Annual Report, as described below under Item 9, “Directors,
      Executive Officers, Promoters, Control Persons and Corporate Governance;
      Compliance with Section 16(A) of the Exchange Act.”


17





**Employees**





As
      of
      March 17, 2008, we had 35 full-time employees and 2 part-time employees, all
      based in our Eugene, Oregon headquarters (including 1 outside sales and 2 remote
      technical support staff reporting to management in Eugene). We consider our
      employee relationships to be good.  None of our employees are members
      of a labor union, and we have never experienced a work stoppage.





**Competition**





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





*Competition
      among resellers* .





Our
      NWB
      Networks distribution and sales business competes not only with small boutique
      IT firms that have entered the market due to reduced costs of entry resulting
      from various technological advances, but also with large, global companies,
      including manufacturers who now compete against us to sell directly to end
      users. Although we offer our clients a range of services and support in
      conjunction with a select product line at competitive prices, increased
      competition may require us to further reduce prices, potentially reducing profit
      margins. We believe the current market trend favors larger, well-capitalized
      specialty distributors and resellers who can afford to take advantage of cost
      savings in bulk purchases, foreclosure sales, and other large opportunities,
      who
      can afford to warehouse substantial amounts of inventory until profitable
      opportunities arise, and who can afford large and skilled product service and
      support staffs. Nonetheless, new opportunities continue to arise in this
      business, and we believe that our ability to quickly identify currently popular
      products to sell, and our experience with a diverse market of equipment buyers
      and sellers, including resellers and end users, gives us a continued competitive
      edge over new competitors in the market.





We
      believe that our new exclusive distribution relationship with TELES may also
      give us a competitive edge over other distributors and resellers. We believe
      that TELES has well developed R&D and manufacturing capabilities, and we
      believe that TELES has demonstrated its willingness and ability to adapt its
      products to changing market needs and specific opportunities, particularly
      in
      emerging VoIP markets in the Americas. We hope that, as our sales and support
      teams continue to work closely with TELES product development teams, we will
      be
      able to provide products meeting the niche opportunities and new technology
      opportunities that our 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 TELES a well capitalized and well managed
      technology company, TELES remains a relatively small player in the industry
      compared to organizations such as Cisco and Siemens. In addition, larger telecom
      service providers, particularly “tier 1” providers and government-sponsored
      foreign providers, continue to develop their own internal products, potentially
      competing with products they would otherwise buy from companies like TELES,
      thus
      competing with sales opportunities for products such as those manufactured
      by
      TELES.


18





*Competition
      among wholesale telecom service providers* .





Competition
      in the wholesale 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
      business with very large entities, including foreign tier 1 incumbent
      providers, as well as a number of small niche providers in certain foreign
      markets. As a result of deregulation, growth of the Internet and IP network
      infrastructure generally, and development of more powerful, lower cost VoIP
      equipment, the price of entry into the VoIP service business has dramatically
      decreased. Lower cost of entry has drawn a growing number of entrepreneurs
      to
      the industry and has driven down the cost of telecom services at both the
      wholesale and retail levels. As a result, both supply and demand have
      skyrocketed, and although we see a growing number of customer and vendor
      opportunities, we also see a growing number of aggressive competitors, declining
      prices, and declining technological barriers to entry.





NWB
      Telecom competes principally on price and quality of service. The communications
      industry, including VoIP, is highly competitive, rapidly evolving, and subject
      to constant technological change and intense marketing by providers with similar
      products and services. We expect that new competitors, including the growth
      of
“gray market” operators (potentially including operators who arrange call
      termination in a manner that bypasses the local telephone company), are likely
      to enter the communications industry, including the market for VoIP, Internet,
      and data services. Also, a number of large VoIP service providers appear to
      be
      aggressively seeking market share via acquisitions and competitive pricing.
      We
      believe the trend in this area is for increased competition to continue to
      drive
      down market prices and profit margins. Our ability to continue to compete in
      this market will depend upon our ability to secure more stable vendor
      relationships, to implement a more stable network infrastructure capable of
      handling higher call volume and to continue to build long-term customer
      relationships.





**CERTAIN
      RISK FACTORS**





There
      are
      a number of important factors that could cause our business, financial
      condition, cash flows, and results of operations to differ materially from
      historical results or those indicated by any forward-looking statements,
      including the risk factors identified below and other factors about which we
      may
      or may not yet be aware. Prospective
      and existing investors are strongly urged to carefully consider the various
      cautionary statements and risks set forth in this Report and our other public
      filings.


19





**Risks
      Associated with the Business in General**





*Our
      results of operations may fluctuate.* ****





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





*We
      finished fiscal year 2007 with a net loss, and are likely to incur losses during
      the 2008 fiscal year, and our future sales levels and ability to achieve
      profitability are unpredictable.*





For
      the
      one year period ending December 31, 2007, we experienced a net loss before
      income taxes of $6,220,155. We may experience a net operating loss for fiscal
      year 2008. Our operating history is limited, our business has changed rapidly
      over the past three years, and we are competing in an emerging technology
      industry. W e
      cannot
      be assured that profitability will be achieved, or if it is achieved that it
      will continue, in upcoming quarters or years, nor can we be assured that we
      will
      be able to improve operating margins or increase revenues, or adequately control
      our operating expenses.





*We
      may need additional near-term capital.*




We
      may
      need additional capital to continue to pursue our current business model, and
      there can be no assurance that adequate capital will be available to us on
      acceptable terms as needed. Our business plan calls for the expansion of sales
      and support of the IP telephony products and services we sell, including
      expansion through acquisitions, to enterprises in geographical markets where
      we
      currently do not operate. If we are not able to secure adequate capital, we
      may
      have to delay the implementation of our business plan, and potentially
      discontinue non-profitable business operations. Our ability to obtain additional
      financing is subject to a number of factors, including general market
      conditions, our operating performance, our financial condition, and investor
      acceptance of our business plan. We can provide no assurance that we will be
      able to obtain necessary financing, or if financing is available that the terms
      will be favorable to existing stockholders or acceptable to our Board. If future
      capital investment is made available, existing shareholders will experience
      dilution of their stock ownership positions in order for us to secure that
      additional investment.


20





*We
      face changing market conditions for products and services.*





The
      market for VoIP service is still in the relatively early stages of development
      and market acceptance, and is characterized by rapid technological change,
      evolving industry standards and strong customer demand for new products,
      applications, and services. As is typical of a new and rapidly evolving
      industry, the demand for, and market acceptance of, recently introduced
      IP telephony products and services are highly uncertain. We cannot be sure
      that the delivery of telephone and other communications services over IP
      networks rather than over traditional telephone networks will expand. We cannot
      be sure that packet-based voice networks will become widespread or that
      connections between packet networks and telephone networks will become
      commonplace. The inability to deliver traffic over the Internet with significant
      cost advantages could slow or stop the growth of VoIP technology. The adaptation
      process of connecting packet 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 a power outage and difficulty in accessing
      911
      services, could adversely affect the market for VoIP services. If this market
      does not develop, or develops more slowly than we expect, we may not be able
      to
      sell our products or offer our services in sufficient volume to meet our
      financial goals.





*Changes
      in governmental regulations could slow the growth of the VoIP
      market.*





In
      the
      United States, changes in governmental regulation are being considered that
      may
      negatively impact the VoIP telephony market. The Federal Communications
      Commission (the “ ***FCC*** ”)
      is
      examining the enactment of new regulations governing Internet telephony and
      the
      question of whether certain forms of telephone services over the Internet should
      be subject to the same FCC regulations as telecommunications services. VoIP
      equipment can be used as a way to provide telecommunication services while
      bypassing the local service operator, in what is sometimes referred to as “toll
      bypass,” whereby telecommunications traffic is diverted from traditional phone
      lines to the Internet, avoiding long distance call charges. Phone companies
      in
      the U.S. and abroad are seeking the adoption of regulations to require VoIP
      providers or users to pay a charge to local service providers. The cost of
      providing Internet phone service could increase as a result of these actions
      or
      more aggressive regulation or taxation of VoIP services by the FCC or foreign
      governments, which could result in slower growth and decreased profitability
      for
      the industry and potentially for the Company.




*We
      may be unable to manage our growth and multiple business lines effectively.*




We
      have actively expanded our operations in the past and seek to continue to expand
      them in the future. In
      2006
      and 2007, we undertook a series of restructurings of our operations involving,
      among other things, the expansion of our workforce and corporate headquarters,
      the consolidation of our equipment reseller operations and change of focus
      to
      TELES products, and the sale of our Israel-based manufacturing subsidiary,
      IP
      Gear, Ltd. The implementation of these restructurings in 2006 and 2007 has
      placed, and in 2008 will continue to place, a significant strain on our
      management systems and financial resources. In addition, our
      business requires us to focus on multiple business lines simultaneously. We
      are
      a young company with a limited operating history, and our management team
      regularly faces new challenges. None of our senior executives has operated
      a
      public reporting company before. T o
      continue to compete in the highly
      competitive and rapidly developing IP communications industry we will be forced
      to quickly adapt to changing market conditions in multiple areas, such as shifts
      in capital needs, in fundamental communications technologies, and in product
      lines and supply sources, and there can be no assurance management can meet
      these challenges.


21







*Business
      acquisitions, dispositions, joint ventures, or private equity transactions
      entail risks and may disrupt our business, dilute stockholder value or distract
      management attention.*




We
      have
      grown in part through the acquisition of companies, products, or technologies.
      We expect to continue to review opportunities to acquire other businesses or
      technologies that 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 our previous or future acquisitions will be successful or that they will
      not materially and adversely affect our business, operating results, or
      financial condition. If we make any further acquisitions, we may issue stock
      that would dilute our existing shareholders’ percentage ownership, and we may
      incur substantial debt, and/or assume contingent or unknown liabilities. In
      the
      event of any equity-based financing transaction, we will need to secure
      additional capital. S uch
      equity may have rights and preferences superior to the Company’s outstanding
      Common Stock, and the issuance of such equity by the Company will dilute the
      ownership percentage of the Company’s existing shareholders.





*We
      rely upon key personnel, and* *must
      attract and retain additional qualified personnel.*




We
      are
      dependent on the continued efforts of our senior management team, including
      our
      Chairman, President, and Chief Executive Officer, M. David Kamrat, our Chief
      Technology Officer, Noah Kamrat, and our Chief Financial and Operations Officer,
      Secretary, and Treasurer, Shehryar Wahid. If these or other key personnel do
      not
      continue to be active in management, our business, financial condition, or
      results of operations could be adversely affected. We cannot be certain that
      we
      will be able to continue to retain our senior executives or other personnel
      necessary for the development of our business. In addition, a t
      present
      there is a shortage of qualified management, sales, and technical personnel
      in
      our industry and we are in direct recruiting competition for these applicants
      with larger businesses that are able in some cases to offer more competitive
      compensation. We are also limited in our recruiting efforts by our primary
      location in the relatively small Eugene, Oregon market and Pacific Northwest
      region. We plan
      to use stock options and other forms of equity compensation as key components
      of
      our employee compensation program in order to align employees’ interests with
      the interests of our stockholders, to encourage employee retention, and to
      provide competitive compensation. The changing regulatory landscape could make
      it more difficult and expensive for us to grant stock options to employees
      in
      the future. In addition, the use of alternative equity incentives may increase
      our compensation expense and reduce our earnings, and may dilute other
      shareholders.





*We
      extend credit to customers for product purchases, creating bad debt
      risk.*





A
      substantial portion of our receivables result from credit extended to customers
      for purchases of our products and services. We cannot be sure that we will
      be
      able to collect all of these accounts receivable. Although we have internal
      credit risk policies to identify companies with poor credit histories, we may
      not effectively manage these policies and may provide services to companies
      that
      refuse to pay. The risk is even greater in foreign countries, where the legal
      and collection systems available may not be adequate for us to enforce the
      payment provisions of our contracts. Our cash reserves will be reduced and
      our
      results of operations will be materially adversely affected if we are unable
      to
      collect amounts from our customers. Although
      past such losses have not been significant, future losses, if incurred, could
      harm our business and have a material adverse effect on our results and
      financial condition.




22




*Litigation
      may harm our operating results or financial condition.*





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





*Our
      international operations subject us to additional risks and increased costs.*




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





·
            unexpected
                  changes in foreign regulatory requirements, telecommunications
                  standards,
                  and regulatory and contract enforcement and
                  interpretation;





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





·
            difficulty
                in collecting receivables;





·
            difficulty
                in staffing and managing foreign
                operations;





·
            the
                need to customize marketing and product features to meet foreign
                requirements;





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





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




We
      may
      not be able to overcome some of these barriers and may incur significant costs
      in addressing others. In addition, f oreign
      currency fluctuations may affect the prices of our products. Our prices for
      TELES products are denominated in Euros, but otherwise our sales prices are
      primarily denominated in U.S. dollars. Our revenues are therefore affected
      by
      fluctuations in the Euro/dollar exchange rate. To the extent that the dollar
      continues to lose value relative to the Euro, our pricing strength and gross
      margins will be negatively affected: the currency of most of our customers
      and
      our fixed costs (dollars) would become less valuable relative to the currency
      of
      our primary equipment vendor, TELES (Euros).




23




*We
      face state tax uncertainties.*





Various
      states have sought to require the collection of state and local sales taxes
      on
      products shipped to the taxing jurisdiction’s residents. We cannot predict the
      level of contact, including electronic commerce, shipping, and Internet or
      IP
      communications activity that might give rise to future or past tax collection
      obligations based on existing law. Many states aggressively pursue out-of-state businesses, and legislation that would expand the ability of states to impose
      sales tax collection obligations on out-of-state businesses has been introduced
      in Congress on many occasions. A change in the law could require us to collect
      sales taxes or similar taxes on sales in states in which we have no presence
      and
      could potentially subject us to a liability for prior year sales, either of
      which could have a material adverse effect on our business, financial condition,
      and results of operations.





*Our
      business could be disrupted by systems failure* .





Our
      operations are dependent on the reliability of information, telecommunication
      and other systems that are used for sales, distribution, marketing, purchasing,
      inventory management, order processing, customer service, and general accounting
      functions. Interruption of our information systems, Internet, or
      telecommunication systems could have a material adverse effect on our business,
      financial condition, cash flows, and results of operations.





*We
      face increased expenses as a result of being a public company* .





The
      costs
      of being a public company have increased significantly since the enactment
      of
      the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). W e
      expect
      that our general and administrative expenses, in particular legal, accounting,
      and IT systems expenses, will increase as a result of our efforts to comply
      with
      applicable securities laws, in particular with the Sarbanes-Oxley Act. In
      addition, we may be required to comply with the internal control evaluation
      and
      certification requirements of Section 404 of the Sarbanes-Oxley Act as soon
      as
      the end of our 2008 fiscal year. We are in the process of determining whether
      our existing internal controls over financial reporting systems are compliant
      with Section 404. This process will divert internal resources, and may force
      us
      to implement new internal controls and reevaluate our financial reporting,
      or
      hire additional personnel, in order for us to comply with Section 404. If we
      are
      unable to effectively implement these changes, it could harm our operations
      and
      financial results, and could result in our being unable to obtain an unqualified
      report on internal controls from our independent auditors.





*We
      may undertake new business ventures and enter into new lines of
      business.*





Management
      is constantly evaluating new opportunities in the VoIP service and equipment
      industry, including strategic partnerships, joint ventures and acquisitions,
      or
      combinations of these entities. Further, there can be no assurances that such
      opportunities, particularly those involving acquisitions, will be successful.
      The Company may finance these new business opportunities through a combination
      of equity and/or debt. If the Company determines to finance these opportunities
      by issuing additional equity, then such equity may have rights and preferences
      superior to the Company’s outstanding Common Stock, and the issuance of such
      equity will dilute the ownership percentage of the Company’s existing
      shareholders. If the Company determines to finance these opportunities by
      incurring debt, then such debt may not be available to the Company on favorable
      terms, if at all. As of the date of the filing of this Report, we consider
      all
      such opportunities to be in the evaluation stage, and their potential effect
      upon our gross and net profits is too speculative to quantify.




24




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





The
      following are certain risks 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 described herein (including those specific to other
      divisions).





*Rapid
      technological change and inventory obsolescence* .





The
      computer industry is characterized by rapid technological change and frequent
      introductions of new or enhanced products. To timely meet demand and obtain
      better purchase pricing, we may be required to carry significant inventory
      levels of certain products, which subject us to increased risk of inventory
      obsolescence. We participate in first-to-market and end-of-life purchase
      opportunities, both of which carry the risk of inventory obsolescence. Special
      purchase products are sometimes acquired without return privileges, and there
      can be no assurance that we will be able to avoid losses related to such
      products if the related purchase contract is not completed. In addition, as
      illustrated below in Item 6, “Management’s Discussion and Analysis or Plan of
      Operation,” we currently sell used or refurbished products. Manufacturers with
      large market share, particularly Cisco, may release new generations of products
      that make used or refurbished products obsolete or unattractive. The risk of
      rapid technological change is tied to the risk of customer and vendor
      concentrations: If, as a result of technological or other change, the demands
      of
      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, new suppliers
      or both.





*Concentrated
      customer risk* .





We
      derive
      a significant amount of our revenue from a relatively small number of clients.
      If we were to lose one or more of these customers, and the business were not
      replaced, it could have an adverse impact on our results of operations and
      financial condition. While no customer accounted for 10% or more of NWB Networks
      revenues during the year ending December 31, 2007, our top ten customers
      accounted for a significant amount of our business. Although we to continue
      to
      do business with these clients, and have no reason to believe we will cease
      doing business with any of them in the foreseeable future, the loss of any
      large
      client could adversely impact our results of operations if the revenue stream
      were not replaced by other sales.





*Concentrated
      vendor/product risk.*





Since
      the
      sale of our IP Gear, Ltd. subsidiary and entry into an exclusive distribution
      agreement with TELES, we have been relying to an increasing degree upon TELES
      for supply of the VoIP equipment that we distribute and sell. In fact, nearly
      all of our profitable equipment sales since the sale of our IP Gear, Ltd.
      subsidiary have been of TELES equipment. If TELES is unable to continue to
      supply high-demand equipment at attractive prices, our revenues, and/or gross
      profits will decline. In addition, we are subject to a risk of supply
      interruption if TELES’ business suffers or if our relationship with TELES
      suffers. We
      derive a substantial portion of our revenues from sales of the TELES iGate
      and
      vGate product lines, and we expect that these products will continue to account
      for a significant portion of our revenues for the foreseeable future. As a
      result, factors adversely affecting the pricing of or demand for these products,
      such as competition, technological change or a slower than anticipated rate
      of
      development or deployment of new products, features and technologies, could
      cause a significant decrease in our revenues and profitability.




25




*Reliance
      on market purchase and sale opportunities* .





We
      acquire a significant portion of our non-TELES inventory on secondary markets
      as
      used or refurbished product, and we rely upon purchasing opportunities on the
      open market. We do not currently rely upon purchases direct from manufacturers,
      nor do we purchase primarily from “top tier” distributors of new products (top
      tier meaning those distributors who purchase directly from major manufacturers
      such as Cisco). We do not have long-term supply or sale contracts for inventory,
      and we do not participate in large buying opportunities, which may offer larger
      discounts. Termination, interruption, or contraction of our relationships with
      our vendors, or unavailability on the open market of our core products, could
      have a material adverse effect on our business, financial condition, cash flows,
      or results of operations.




*Historical
      dependence on a small number of customers, the loss of, or reduction in,
      purchases by any of which could have a material adverse effect on our revenue.*




Historically,
      a substantial portion of our revenue has been derived from large purchases
      by a
      small number of network equipment providers, systems integrators, and
      distributors. We do not enter into long-term sales agreements in which the
      customer is obligated 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 a large customer and fail to add new customers there could be a
      material adverse effect on our results of operations.




**Risks
      most specific to our NWB Telecom division (wholesale VoIP service provider).**





The
      following are certain risks 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 described herein (including those specific to other
      divisions).




*Potential
      for key supplier interruptions.*





We
      do not
      rely upon or maintain any long term supply or termination service contracts,
      and
      all of our vendor agreements are terminable at will by either party without
      notice. In addition, our suppliers rely upon short term contracts or
      arrangements with other local service providers, including tier 1 service
      providers, to supply termination routes; these contracts or arrangements may
      also be terminated upon short notice. Therefore, our VoIP service business
      is
      subject to supply disruptions that are not within our control and that could
      have a material adverse effect upon the NWB Telecom division’s financial
      results. Critical issues concerning the commercial use of the Internet,
      including security, cost, ease of use and access, intellectual property
      ownership, and other legal liability issues, remain unresolved and could
      materially and adversely affect both the growth of Internet usage generally
      and
      our business in particular. Finally, we will not be able to increase our VoIP
      service traffic if Internet infrastructure does not continue to expand to more
      locations worldwide, particularly into emerging markets and developing nations.
      The risk of negative impact on our gross profit due to supply interruptions
      is
      increased by our recent reliance on a small number of vendors offering
      relatively high-margin VoIP termination services in foreign
      countries.




26




*We
      rely on third-party providers of phone and data lines and other
      telecommunications services and local communications service
      providers.*




Our
      business model depends on the availability of the Internet and traditional
      telephone networks to transmit voice and fax calls. Third parties maintain
      and
      own these networks, other components that comprise the Internet, and business
      relationships that allow telephone calls to be terminated over the public
      switched telephone network. Some of these third parties are telephone companies.
      They may increase their charges for using these lines at any time and thereby
      increase our expenses. They may also fail to maintain their lines properly,
      fail
      to maintain the ability to terminate calls, or otherwise disrupt our ability
      to
      provide service to our customers. Any such failure that leads to a material
      disruption of our ability to complete calls or provide other services could
      discourage our customers from using our network. We maintain relationships
      with
      local communications service providers in foreign countries, some of whom own
      the equipment that translates calls from traditional voice networks to the
      Internet, and vice versa. We rely upon these third parties both to 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 these parties rely upon
      their relationships with local phone companies and the use of local PSTN to
      complete calls at the termination location. There is a risk that these third
      parties may be slow, or may fail, to provide lines, which would affect our
      ability to complete calls to certain destinations. Because we rely upon entering
      into relationships with local service providers to expand into additional
      countries, we may not be able to increase the number of countries to which
      we
      provide service. Finally, any technical difficulties that these providers
      suffer, or difficulties in their relationships with companies that manage the
      public switched telephone network, could affect our ability to transmit calls
      to
      the countries that those providers help serve, significantly reducing our
      revenue and cash flows, as well as hurting our reputation.




*Single
      points of failure on our network, or computer vandalism, may make our business
      vulnerable.* ****





We
      currently operate two principal network operations centers, one in our Eugene,
      Oregon facility and one in a leased collocation facility in New York, New York.
      In some cases, we have designed redundant systems, provided for excess capacity,
      and taken other precautions against platform and network failures, as well
      as
      facility failures relating to power, air conditioning, destruction, or theft.
      Nonetheless, some of our infrastructure and functionality, including that
      associated with certain components of our wholesale business, such as switching
      or routing equipment, operate as a single point of failure, meaning, failures
      of
      the type described may prohibit us from offering services. If the overall
      performance of the Internet is seriously downgraded by website attacks, failure
      of service attacks, or other acts of computer vandalism or virus infection,
      our
      ability to deliver our communication
      services over the Internet could be adversely impacted, which could cause us
      to
      have to increase the amount of traffic we must carry over alternative networks,
      including the more costly public switched telephone network. In addition, our
      business interruption insurance may not cover losses we could incur because
      of
      any such disruption of the Internet.




27




*International
      governmental regulation and legal uncertainties could limit our ability to
      provide current services or increase costs, or subject us to legal
      liability.* ****





Regulatory
      treatment of Internet telephony outside the United States varies from country
      to
      country. In many countries in which we purchase termination services, the status
      of the laws or contracts that may relate to our services, including their
      interpretation and enforcement, is unclear. We cannot be certain that our
      customers, local service providers, or other affiliates are currently in
      compliance with regulatory or other legal requirements in their respective
      countries, or that they or we will be able to comply with existing or future
      requirements. We provide our services in reliance on local service providers
      that may be subject to telecommunications regulations in their home countries.
      In some of those countries, licensed telephony carriers, as well as government
      regulators and law enforcement authorities may question the legal authority
      of
      our local service providers and/or our legal authority. Because of our
      relationships with resellers, some countries or local service providers may
      assert that we are required to register as a telecommunications carrier in
      that
      country. In such case, our failure to do so could subject us to regulatory
      action such as fines or penalties, including asset forfeitures. In addition,
      some countries are considering subjecting VoIP services to the regulations
      applied to traditional telephone companies. If foreign governments or other
      bodies begin to impose related restrictions on VoIP or our other services or
      otherwise enforce laws or regulations against us, our affiliates, or our
      vendors, such actions could have a material adverse effect on our operations.
      In
      addition, deregulation of the communications markets in developing foreign
      countries may not continue, and incumbent providers, trade unions, and others
      may resist legislation directed toward deregulation and may resist allowing
      us
      to interconnect to their network switches. Governments and regulations may
      change, resulting in availability of licenses and/or cancellations or
      suspensions of licenses, confiscation of equipment, and/or rate increases;
      the
      instability of the regulations applicable to our businesses and their
      interpretation and enforcement in these markets could materially and adversely
      affect our business.





*Domestic
      regulatory changes may subject us to additional fees, taxes, or tariffs, or
      service restrictions.*





We
      are
      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 state
      regulatory commission. While the FCC has traditionally maintained an informal
      policy that information service providers, including VoIP providers, are not
      telecommunications carriers for regulatory purposes, various entities have
      challenged this idea before the FCC and at various state government agencies.
      Local exchange carriers are lobbying the FCC and the states to regulate VoIP
      on
      the same basis as traditional telephone services. Aspects of our operations
      may
      currently be, or may become, subject to state or federal regulations governing
      licensing, universal service funding, access charges, advertising, disclosure
      of
      confidential communications or other information, excise taxes, U.S. embargos,
      and other reporting or compliance requirements.




28




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





*Relative
      illiquidity of stock; share price fluctuations* .





There
      is
      relatively limited trading of our stock in the public markets, and this imposes
      significant practical limitations on any shareholder’s ability to achieve
      liquidity at any particular quoted price. Efforts to sell significant amounts
      of
      our stock on the open market may precipitate significant declines in the prices
      quoted by market makers. The market price for our ordinary shares and the prices
      of shares of other technology companies have been volatile. Our
      quarterly and annual operating results are difficult to predict and may
      fluctuate significantly. It is possible that we will fail to achieve revenue
      or
      profit expectations in the future. The
      following factors, many of which are beyond our control, may cause significant
      fluctuations in the market price of our shares:




·
            fluctuations
                in our quarterly revenues and earnings or those of our
                competitors;





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





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





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





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





Our
      common shares are sporadically and thinly-traded on the over-the-counter
      market on the OTC Bulletin Board (the
“OTCBB”), meaning that the number of persons interested in purchasing our Common
      Stock at or 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 that we are a small company that is relatively unknown to stock
      analysts, stock brokers, institutional investors, and others in the investment
      community that generate or influence sales volume, and the fact that even if
      we
      came to the attention of such persons, they tend to be risk-averse and would
      be
      reluctant to follow a company with an operating history as limited as ours
      or
      purchase or recommend the purchase of our shares until such time as we became
      more seasoned and viable. As a consequence, there may be periods of several
      days
      or more when trading activity in our shares is minimal or non-existent, as
      compared to a seasoned issuer, which has a large and steady volume of trading
      activity that will generally support continuous sales without an adverse effect
      on share price. We cannot give you any assurance that a broader or more active
      public trading market for our common shares will develop or be sustained, or
      that current trading levels will be sustained.




29




*Substantial
      shareholders may sell all or a substantial portion of the shares they own or
      acquire at any time in the future, which could cause the market price of our
      Common Stock to decline.*





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





*We
      do
      not anticipate declaring any cash dividends on our ordinary shares.*





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





*Voting
      control by principal stockholders.*





As
      of
      March 17, 2008, Qualmax owned preferred stock convertible into approximately
      72%
      of our Common Stock, with commensurate current voting and economic rights.
      M.
      David Kamrat and Noah Kamrat, father and son, together with their spouses
      (collectively, the “ ***Kamrat
      Family*** ”),
      beneficially control approximately 37% of our Common Stock, via their ownership
      of Qualmax common stock; P&S Spirit, an entity controlled by Dr. Selvin
      Passen and Jacob Schorr, Ph.D., together with Dr. Selvin Passen separately,
      beneficially controls approximately 37% of our Common Stock. Therefore, the
      members of Kamrat Family, P&S Spirit, and Dr. Passen collectively are able,
      indirectly via their influence on matters requiring Qualmax shareholder vote,
      to
      significantly influence the vote on matters requiring our stockholders’
approval, including the election of directors. For more information regarding
      stock ownership of principal shareholders see Item 11, “Security Ownership of
      Certain Beneficial Owners and Management and Related Stockholder
      Matters.”





**ITEM
              2.**
            **DESCRIPTION
                OF PROPERTY**





Our
      U.S.
      operations are headquartered in Eugene, Oregon, in leased commercial premises
      in
      two buildings, located at 340 W. 5 th Avenue
      and at 488 Lincoln Street. The condition of these leased premises is good,
      and
      we have recently made substantial tenant improvements to both premises. The
      principal terms and lease payment obligations are discussed in more detail
      under
      Item 7, “Financial Statements – Note K.”





**ITEM
              3.**
            **LEGAL
                PROCEEDINGS**





**Former
      Employee Litigation**





The
      lawsuit brought by a former employee of the Company, Fred Singer, relating
      to
      stock options and prior compensation, was settled on April 10, 2007, the Company
      agreeing that the plaintiff, Mr. Singer, is the holder of options to purchase
      70,000 shares of the Company’s Common Stock.




30




**MPI
      Litigation**





As
      a
      result of the Reverse Acquisition, the Company assumed the liabilities of
      Qualmax.  Qualmax was named as a defendant in certain litigation filed
      in France before the Trade Tribunal of Nanterre against B.O.S.
      Better Online Solutions Ltd. (“ ***BOS*** ”) by
      Media
      Partners International (“ ***MPI*** ,”
and
      the litigation thereto, the “ ***MPI
      Litigation*** ”),
      a
      former distributor of BOS, whose contract with BOS allegedly related to certain
      distribution rights for the product division Qualmax purchased from BOS on
      December 31, 2005.  Pursuant to the asset purchase agreement between
      Qualmax and BOS, BOS agreed to indemnify and hold Qualmax harmless from
      liability, without limitation, arising from the claims raised in the MPI
      Litigation, and BOS has undertaken defense of Qualmax at BOS’s
      expense.  The litigation remains in its early stages.





Initial
      hearings on a motion for change of venue were concluded in February 2007.
      Additional hearings were conducted in late April 2007. The Company has been
      preliminarily informed that a decision from the French court to maintain venue
      in France was made in September 2007, and that defendants have filed an appeal
      of that decision, but that no ruling has been made on the appeal as of the
      date
      of this filing. At present, based upon the limited progress of the matter and
      without the benefit of the completion of factual discovery, management believes
      this litigation does not pose a significant financial risk to the
      Company.





**The
      Blackstone Litigation**





On
      April
      1, 2008, effective as of March 31, 2008, the Company entered into a settlement
      agreement in relation to a
      lawsuit
      entitled *Capital
      Securities, LLC and Blackstone Communications Company v. Carlos Bertonnatti,
      Worldwide PIN Payment Corp. and Qualmax, Inc.* ,
      Case
      No. 2006-15824-CA-01, filed August 10, 2006 in the Circuit Court of the
      11 th Judicial
      Circuit in and for Miami-Dade County, Florida (the “ ***Blackstone
      Litigation*** ”).
      As
      disclosed in the Company’s Quarterly Reports on Form 10-QSB filed with the SEC
      on November 19, August 20, and May 21, 2007, and the Company’s Annual Report on
      Form 10-KSB filed with the SEC on April 17, 2007, the facts underlying the
      Blackstone Litigation relate to a contract between defendant Worldwide PIN
      Payment Corp. and plaintiffs, and a third party, to plaintiffs’ allegations of
      misappropriation of trade secrets and corporate opportunity, and to claims
      that
      defendants, or some of them, tortiously interfered with plaintiffs’ contract
      with a third party.




Pursuant
      to the settlement agreement, the Company has agreed to pay plaintiffs the sum
      of
      $50,000 toward plaintiffs’ costs of litigation, and in exchange, plaintiffs have
      released the Company from all claims asserted by plaintiffs or otherwise arising
      against the Company; all claims against the Company were dismissed with
      prejudice.





**Additional
      Disputes**





In
      addition to the matters discussed above, the Company is involved in various
      disputes or litigation matters that arise in the ordinary course of
      business.





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





None.




31




**PART
      II**





**ITEM 5.**
            **MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
                ISSUER PURCHASES OF EQUITY
                SECURITIES**





**Market
      for Common Stock**





Our
      Common Stock is currently traded on the OTCBB under the symbol “NWBD.OB.” The
      following table sets forth, for the fiscal quarters indicated, high and low
      closing bid prices for the Common Stock in the over-the-counter market as
      reported by the National Association 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 actual
      transactions.





Low
                Bid
            
            High
                BidFiscal
                Year Ended December 31, 2007First
                Quarter
            
            $
            0.085
            
            $
            0.085Second
                Quarter
            
            
            0.170
            
            
            0.200Third
                Quarter
            
            
            0.050
            
            
            0.080Fourth
                Quarter
            
            
            0.040
            
            
            0.050Fiscal
                Year Ended December 31, 2006First
                Quarter
            
            $
            0.180
            
            $
            0.180Second
                Quarter
            
            
            0.330
            
            
            0.330Third
                Quarter
            
            
            0.180
            
            
            0.210Fourth
                Quarter
            
            
            0.090
            
            
            0.110





**Stockholders**





As
      of
      March 26, 2008, there were approximately 160 holders of record of our Common
      Stock. The closing bid and asked prices for our Common Stock on March 26, 2008,
      were $0.07.





**Dividends**





Due
      to
      negative cash flow, we have not paid any cash dividends on our Common Stock
      to
      date, and we do not contemplate the payment of cash dividends in the foreseeable
      future. The future dividend policy will depend on our earnings, capital
      requirements, financial condition, and other factors considered relevant to
      our
      ability to pay dividends.




32




**Stock
      Option Grants**





For
      the
      twelve months ended December 31, 2007, we granted no stock options.





**Equity
      Compensation Plan Information**





The
      following table provides information, as of December 31, 2007, with respect
      to
      all of our compensation 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 approved by stockholders
            
            
            –
            
            
            –
            
            
            –Equity
                compensation plans not approved by stockholders
            
            
            3,245,000
            
            $
            0.20
            
            
            1,755,000





**Recent
      Sales of Unregistered Securities**





*P&S
      Spirit share purchase* .





As
      previously reported on the Company’s Current Report on Form 8-K, filed with the
      SEC on January 8, 2007, effective December 29, 2006, the Company entered into
      the Subscription
      Agreement with
      P&S Spirit and with the Kamrats. On and effective May 31, 2007, the parties
      to the Subscription Agreement entered into the Amended
      Subscription Agreement ,
      amending the Subscription Agreement as described herein.




Pursuant
      to the Subscription Agreement, the Company agreed to sell to P&S Spirit, and
      P&S Spirit agreed to purchase: (i) on the date of closing: (A) 11.160454
      shares of Preferred Stock of the Company, par value $0.01 per share, which
      shares of Preferred Stock are convertible into 33,333,333 shares of the
      Company’s Common Stock, par value $0.01 per share, at a price of $268,806.27 per
      share of Preferred Stock (equivalent to $0.09 per share of Common Stock), for
      an
      aggregate purchase price of $3,000,000; and (B) a Warrant to purchase an
      additional 9.300378 shares of Preferred Stock at an exercise price of
      $268.806.27 per share (equivalent to $0.09 per share of Common Stock); (ii)
      upon
      the satisfaction of certain conditions set forth in the Subscription Agreement,
      Tranche B-1 Shares (i.e., an additional 3.720151 shares of Preferred Stock,
      convertible into 11,111,111 shares of Common Stock), at a price of $268,806.27
      per share of Preferred Stock (equivalent to $0.09 per share of Common Stock),
      for an aggregate purchase price of $1,000,000; and (iii) upon the satisfaction
      of certain conditions set forth in the Subscription Agreement, the Tranche
      B-2
      Shares (i.e., an additional 3.720151 shares of Preferred Stock, convertible
      into
      11,111,111 shares of Common Stock), at a price of $268,806.27 per share of
      Preferred Stock (equivalent to $0.09 per share of Common Stock), or an aggregate
      purchase price of $1,000,000. In addition, as part of the transaction, the
      Kamrats agreed to transfer a total of 3,827,655 shares of common stock, par
      value $0.01 per share, of Qualmax to P&S Spirit, and in consideration of the
      Kamrats’ agreement the Company agreed to issue warrants to the Kamrats
      representing, in the aggregate, the right to purchase 9.300378 shares of
      Preferred Stock (convertible into 27,777,778 shares of Common Stock), at an
      exercise price $268.806.27 per share (equivalent to $0.09 per share of Common
      Stock on an as-converted basis); the warrants issued to the Kamrats have the
      same terms as the warrants issued to P&S Spirit.







33




As
      discussed above, on April 24, 2007, when the Company filed its Amended and
      Restated Certificate of Incorporation with the Delaware Secretary of State,
      all
      outstanding shares of the Company’s Preferred Stock were automatically converted
      to shares of Common Stock at a ratio of 2,986,736 shares of Common Stock for
      each share of Preferred Stock.  As a result, the Tranche B-1 Shares
      and Tranche B-2 Shares were each converted into 11,111,111 shares of Common
      Stock.




Pursuant
      to the Amended P&S Subscription Agreement, P&S Spirit agreed to buy, and
      the Company agreed to sell, all of the Tranche B-1 Shares and Tranche B-2
      Shares, as converted into a total of 22,222,222 shares of Common Stock, for
      an
      aggregate purchase price of $1,000,000, and P&S Spirit agreed to waive
      certain of the conditions precedent to the purchase of the Tranche B-1 Shares
      and Tranche B-2 Shares as set forth in the Subscription
      Agreement.  The provisions of the Warrants have not been
      amended.  Such shares of Common Stock are, or will be, issued without
      registration under the Securities Act, in reliance on Section 4(2) of the
      Securities Act and Rule 506 of Regulation D promulgated thereunder.  A
      copy of the Amended P&S Subscription Agreement was included as Exhibit 10.6
      to the Company’s Current Report on Form 8-K, filed with the SEC on June 6,
      2007.





In
      connection with the transactions contemplated by the Amended P&S
      Subscription Agreement, the Company, Qualmax, the Kamrats, P&S Spirit and
      certain affiliates of the Kamrats and P&S Spirit entered into a First
      Amendment to Amended and Restated Lock-Up Agreement, a copy of which was filed
      with the SEC on June 6, 2007 as Exhibit 10.7 to the Company’s Current Report on
      Form 8-K.




Also
      in
      connection with the transaction contemplated by the Amended P&S Subscription
      Agreement, the Company, Qualmax, the Kamrats, P&S Spirit and certain
      affiliates of the Kamrats and P&S Spirit entered into a First Amendment to
      Amended and Restated Voting Agreement, a copy of which was filed with the SEC
      on
      June 6, 2007 as Exhibit 10.8 to the Company’s Current Report on Form
      8-K.





*BOS
      debt conversion* .





On
      January 9, 2007, the Company, Qualmax, IP Gear, Ltd., P&S Spirit, and BOS
      entered into an agreement, effective as of December 31, 2006, pursuant to which,
      among other things, the parties agreed to convert approximately $1.48 million,
      in the aggregate, of amounts due and payable to BOS under certain loan, royalty,
      and outsourcing agreements, into 5.50652 shares of Preferred Stock, par value
      $0.01 per share, of the Company; this Preferred Stock is convertible into
      16,446,544 shares of Common Stock, par value $0.01 per share, of the Company.
      The price of the Preferred Stock issued to BOS was $268.806.27 per share
      (equivalent to $0.09 per share of Common Stock on an as-converted
      basis).




34




The
      shares of Preferred Stock issued to BOS are issued without registration under
      the Securities Act, in reliance on Section 4(2) of the Securities Act and
      Rule 506 of Regulation D promulgated thereunder.





As
      discussed above, on April 24, 2007, when the Company filed its Amended and
      Restated Certificate of Incorporation with the Delaware Secretary of State,
      all
      outstanding shares of the Company’s Preferred Stock were automatically converted
      to shares of Common Stock at a ratio of 2,986,736 shares of Common Stock for
      each share of Preferred Stock.  As a result, the shares of Preferred
      Stock issued to BOS were each converted into 16,446,544 shares of Common Stock,
      par value $0.01 per share, of the Company.





*Lock-Up
      Agreement.*





In
      connection with the transactions contemplated by the P&S Spirit Subscription
      Agreement, the Company, the Kamrats, P&S Spirit, certain affiliates of the
      Kamrats and P&S Spirit, and BOS entered into a Lock-Up Agreement, as herein
      described in more detail in Item 11, “Security Ownership of Certain Beneficial
      Owners and Management and Related Stockholder Matters – Lock-Up Agreement
      Among Principal Shareholders.”





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





**General**





The
      following discussion and analysis provides information which management believes
      is relevant to an assessment and understanding of our results of operations
      and
      financial operations and financial conditions. This discussion should be read
      in
      conjunction with the consolidated financial statements and notes thereto
      appearing elsewhere herein, and in conjunction with Part I, “Disclosure
      Regarding Forward-Looking Statements,” and Item 1, “Description of
      Business—Certain Risk Factors.”





**Results
      of Operations**




*Company-wide
      revenue and gross profit.*





Company-wide
      (referring to the Company’s two principal lines of business, on a consolidated
      basis) revenue, gross profit and gross profit margin for the three month and
      twelve month periods ended December 31, 2006 and December 31, 2007 were as
      follows:




35




**Company-wide**
            
            **3 Months Ended**
              **December 31, 2006**
            
            **3 Months Ended**
              **December 31, 2007**
            
            **Change**Revenue
            
            $4,503,226
            
            
            $5,263,256
            
            
            16.88%Gross
                Margin
            
            6.28%
            
            
            15.09%Gross
                Profit
            
            $282,669
            
            
            $794,235
            
            
            180.98%





**Company-wide**
            
            **12 Months Ended**
              **December 31, 2006**
            
            **12 Months Ended**
              **December 31, 2007**
            
            **Change**Revenue
            
            $17,537,928
            
            
            $17,101,203
            
            
            (2.49%
            )Gross
                Margin
            
            10.48%
            
            
            13.43%Gross
                Profit
            
            $1,837,350
            
            
            $2,296,550
            
            
            24.99%





Company-wide
      revenue and gross profit reflect the results of the Company’s initiatives in
      both equipment and service divisions to improve gross margins and quality of
      accounts receivable, and to reduce slow moving inventory. As illustrated in
      more
      detail below, the revenue and gross margin increase is primarily due to TELES
      sales, in our NWB Networks division, and certain niche VoIP service termination
      routes in our NWB Telecom division. Revenue for 2007 is slightly lower than
      revenue for 2006, reflecting declining revenues in the first three quarters
      of
      2007.





We
      note
      that the following percentages are based upon pro forma restated unaudited
      financial statements for the period ended December 31, 2007, showing our former
      subsidiary, IP Gear, Ltd. (an Israeli company) listed as discontinued
      operations; furthermore, the following percentages are based only upon the
      operations of the Company’s continuing businesses in equipment distribution and
      resale, and telephony service:





**3 Months Ended**
              **December 31, 2007**
            
            **NWB Networks**
            
            **NWB Telecom**Portion
                of Company-Wide Revenue
            
            
            36.06%
            
            
            63.94%Portion
                of Company-Wide Gross Profit
            
            
            36.56%
            
            
            63.44%








**12 Months Ended**
              **December 31, 2007**
            
            **NWB Networks**
            
            **NWB Telecom**Portion
                of Company-Wide Revenue
            
            
            33.08%
            
            
            66.92%Portion
                of Company-Wide Gross Profit
            
            
            30.62%
            
            
            69.38%





The
      following discussion of gross profit on a per-business line or divisional basis
      provides additional information regarding each line’s performance.




36




*Sale
      of IP Gear, Ltd. Subsidiary.*





As
      described above in Item 1, “Description of Business—Recent Developments—Sale of
      IP Gear, Ltd. Subsidiary,” effective July 1, 2007, the Company sold its IP Gear,
      Ltd. subsidiary to TELES, a VoIP equipment developer and manufacturer based
      in
      Berlin, Germany.





We
      believe that IP Gear, Ltd.’s losses through the second quarter of 2007 reflect a
      long-term trend in declining VoIP technology prices, and that to maintain a
      research and development and manufacturing business and regain profitability
      would require a lengthy and sustained cost-cutting effort and substantial
      interim financing. We did not know how long that process would take or whether
      we would ultimately be able to adequately adjust our costs in relation to our
      competitors. Further, during the entire period of our ownership of IP Gear,
      Ltd., even during periods of higher gross margin, IP Gear, Ltd. experienced
      substantial operating losses and negative cash flow. Our ability to secure
      sources of funding for IP Gear, Ltd.’s operating losses was tenuous, and we were
      not able to identify a source of adequate additional capital on acceptable
      terms, in the form of equity or debt, within the time needed for operations.
      Faced with a rapidly deteriorating cash position, and limited prospects for
      securing necessary capital on acceptable terms within the necessary timeframe,
      we determined that the Company’s interests would be best served by a sale of our
      IP Gear, Ltd. subsidiary.





We
      further believe that the sale of IP Gear, Ltd. to TELES provides the Company
      an
      opportunity for growth and restructuring beyond the sale itself, in the form
      of
      the Partner Contract granting the Company exclusive rights (subject to certain
      limitations) to distribute both TELES and IP Gear, Ltd. products in North
      America. We recognize that by selling IP Gear, Ltd., we have given up the
      opportunity to build upon a potentially valuable technology asset. However,
      we
      believe that the short-term cash flow and operational benefit to the Company,
      and the potential long-term value represented by our new Partner Contract with
      TELES, make the transaction favorable to the Company.





*NWB
      Networks division revenue and gross profit.*





Our
      VoIP
      and other telephony product distribution and resale business, which formerly
      operated under the name “IP Gear,” has been renamed “ ***NWB
      Networks*** .”
NWB
      Networks focuses on the distribution, resale and support of TELES and IP Gear,
      Ltd. products, and, on a more limited basis, continues to act as a niche
      reseller of certain additional manufacturers’ products.





Revenue,
      gross profit and gross profit margin for the NWB Networks division for the
      three
      month and twelve month periods ended December 31, 2006 and December 31, 2007
      were as follows:




37




**NWB Networks**
            
            **3 Months Ended**
              **December 31, 2006**
            
            **3 Months Ended**
              **December 31, 2007**
            
            **Change**Revenue
            
            $1,226,531
            
            
            $1,898,148
            
            
            54.76%Gross
                Margin
            
            15.29%
            
            
            15.30%Gross
                Profit
            
            $187,583
            
            
            $290,340
            
            
            54.78%





**NWB Networks**
            
            **12 Months Ended**
              **December 31, 2006**
            
            **12 Months Ended**
              **December 31, 2007**
            
            **Change**Revenue
            
            $6,307,644
            
            
            $5,657,689
            
            
            (10.30)%Gross
                Margin
            
            15.69%
            
            
            12.43%Gross
                Profit
            
            $989,792
            
            
            $703,308
            
            
            (28.94)%





Sales
      of
      our legacy VoIP equipment resale business (VoIP access servers and related
      equipment, other than TELES and IP Gear, Ltd. products) have stabilized, albeit
      at levels much lower than we experienced in the first half of 2006, and we
      continue to struggle to maintain acceptable gross margins. As illustrated below,
      our legacy equipment business experienced a gross loss in the fourth quarter
      of
      2007, and slim margins for the year, reflecting both declining prices in the
      market for that product line and an effort to reduce or eliminate slow moving
      legacy inventory.





We
      believe that our margins are not likely to improve in these product lines in
      the
      near term. Our search for higher margin product lines has resulted in our
      exclusive distributor status in relation to TELES and IP Gear, Ltd.
      products.





We
      believe that the consummation of the Partner Contract with TELES will play
      a key
      role in our initiative to improve revenues and margins in our NWB Networks
      division. In particular, by acquiring IP Gear, Ltd., TELES now offers a more
      comprehensive product line, and TELES products greatly expand the scope of
      IP
      Gear, Ltd.’s product line. Our relationship with TELES as an exclusive
      distributor in North America provides an opportunity for the Company to sell
      these products at an attractive margin, and to build a support and service
      network for end-users and VARs. In light of the Partner Contract, we plan to
      focus sales and distribution growth on North American sales of TELES and IP
      Gear, Ltd. products and certain other complementary products, for as long as
      we
      maintain our distributor relationship with TELES, and to continue to pursue
      other product sales opportunities on a more opportunistic basis, particularly
      where complementary to sales of our core TELES and IP Gear, Ltd. product line.
      We are currently pursuing a sales and marketing campaign in North America,
      in
      concert with TELES, under the name “TELES USA.”





We
      note
      that the Company has been selling TELES equipment as an exclusive distributor
      only since July, 2007, and therefore, has very limited experience and only
      preliminary results on which to evaluate future potential. We therefore believe
      that comparisons to revenues and gross profits in fiscal 2006 are not
      meaningful.




38


The
      table
      below shows the portion of NWB Networks divisional revenue, gross profit and
      gross profit margin attributable to sales of TELES and IP Gear products, in
      comparison to sales of all other products in the NWB Networks division, during
      2007 on a quarterly and year end basis. We note that the following figures
      are
      based upon financial statements for the year ended December 31, 2007, showing
      our former subsidiary, IP Gear, Ltd. (an Israeli company) listed as discontinued
      operations; the following figures are based only upon the operations of the
      Company’s NWB Networks division continuing businesses in equipment distribution
      and resale for the following periods in 2007:





**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 onlyQ1
            
            $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
            
            
            $42,650
            
            
            $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%





The
      majority of our TELES product sales during 2007 have been of TELES’s mobile
      fixed wireless application gateways, marketed under the iGate and vGate brands.
      TELES mobile gateways provide a consolidated mobile, public switched telephone
      network (PSTN) and VoIP gateway solution to carriers and corporate network
      customers seeking to connect their private branch exchange (PBX) to mobile
      and
      VoIP services, and can be added to integrated services digital network (ISDN)
      and internet protocol (IP) environments for least cost routing and other
      advanced call routing and rerouting applications. While this has been a strong
      market for us in the third and fourth quarters of 2007, it is possible that
      market demand will slow in 2008, depending on whether VoIP networks in our
      key
      markets continue to expand using iGate and vGate technology.





Our
      exclusive distribution rights for TELES equipment are contingent upon reaching
      certain minimum purchase thresholds (meaning, the amount of TELES equipment
      we
      purchase from TELES). For the fifteen month period ending September 30, 2008,
      our purchase threshold is $1,000,000. For the six month period from July 1
      to
      December 31, 2007, our TELES purchases (for inventory received from TELES)
      totaled $1,798,162.





Initially,
      our TELES sales orders outpaced TELES’s ability to supply certain products,
      particularly fixed wireless gateways, potentially constraining sales growth
      and
      negatively impacting customer relations and brand acceptance. However, in the
      fourth quarter TELES was able to increase production and enable us to fill
      a
      number of pending orders. We believe time-to-market is a critical component
      of
      success for technology product sales, both in terms of product deliver and
      product innovation. We remain confident in TELES’s ability to meet product
      demand and continue product innovation in key product lines, such as fixed
      wireless gateways and customer premise VoIP equipment. However, we do not
      control production of any of the products we distribute and sell.




39




All
      products purchased from TELES are per contract quoted in the base currency
      used
      by TELES, the Euro. New World Brands sells all goods to its customers in U.S.
      dollars. As a result, we have a certain exposure to currency risk to the extent
      the relative value of the U.S. dollar drops compared to the Euro. During 2007,
      the Euro has increased substantially relative to the U.S. dollar, and it appears
      likely that the Euro may increase further. Currently our exposure to dollar
      devaluation relative to the Euro is limited, because our purchase volume from
      TELES and other Euro-based manufacturers has been limited compared to our total
      revenue, because we do not maintain a substantial amount of Euro-based
      inventory, and because we have been able adjust product pricing and limit the
      time between Euro-based product purchase and dollar-based product sale. However,
      if we are successful in our efforts to increase TELES sales, and as we increase
      our Euro-based inventory, our exposure to currency risk will
      increase.





*NWB
      Telecom division revenue, gross profit and gross profit
      margin.*





Our
      wholesale VoIP services business, which formerly operated under the name “IP
      Gear Connect,” has been renamed “ ***NWB
      Telecom*** .”





Revenue
      and cost of goods for the IP Gear Connect division (wholesale VoIP services)
      for
      the three month and twelve month periods ended December 31, 2006 and December
      31, 2007 were as follows:





**NWB Telecom**
            
            **3 Months Ended**
              **December 31, 2006**
            
            **3 Months Ended**
              **December 31, 2007**
            
            **Change**Revenue
            
            $3,237,776
            
            
            $3,365,108
            
            
            3.93%Gross
                Margin
            
            1.88%
            
            
            14.97%Gross
                Profit
            
            $60,982
            
            
            $503,895
            
            
            726.30%








**NWB Telecom**
            
            **12 Months Ended**
              **December 31, 2006**
            
            **12 Months Ended**
              **December 31, 2007**
            
            **Change**Revenue
            
            $11,230,284
            
            
            $11,443,514
            
            
            1.90%Gross
                Margin
            
            7.55%
            
            
            13.92%Gross
                Profit
            
            $847,558
            
            
            $1,593,242
            
            
            87.98%





We
      completed the initial implementation of our upgraded switching equipment as
      of
      September 30, 2007, thereby expanding the potential volume of our wholesale
      telephony service offering, and our switching monitoring, support and service
      capacity in order to adequately support expanding service volume. During 2007,
      we have ramped-up sales and marketing efforts, and as illustrated below have
      managed to increase revenue during 2007 while maintaining gross margins. The
      comparative fourth quarter periods reflect unusually low gross margins in the
      fourth quarter of 2006.




40




The
      comparative periods’ increase in gross profit resulted primarily from our
      continued focus on higher margin niche markets and longer-term vendor
      relationships. Our increased selectivity in this area has also slowed revenue
      growth to some degree. The focus on niche markets increases our reliance on
      a
      limited number of small telecom carriers operating in foreign countries, whose
      service may be prone to interruption, and may only be replaced at substantially
      higher prices or lower quality. Our near-term plan for the NWB Telecom division
      is to continue to pursue higher gross margin VoIP termination routes from a
      more
      diversified group of vendors at a revenue growth rate we are able to maintain
      and finance. Our longer term plan includes expansion of our carrier and customer
      service capabilities, by building on the network infrastructure and expertise
      that we have developed by reselling termination routes.





During
      2007, NWB Telecom has substantially expanded its purchases of foreign
      termination service from a particular affiliated group of vendors. The following
      table illustrates, for 2007, the revenue generated from resale of services
      purchased from these vendors, and the related gross profit, in comparison to
      the
      costs and associated revenue of all other NWB Telecom vendors, and all other
      Company vendors, during the period:





**12 Months Ended**
              **December 31, 2007**
            
            **Significant Vendor**
            
            **All Other NWB**
              **Telecom Vendors**
            
            **All Other Company-Wide**
              **(including all other NWB**
              **Telecom vendors)**Revenue
                (generated from resale of service purchased from vendor)
            
            $4,067,559
            
            
            $7,375,955
            
            
            $13,033,644Gross
                Profit (earned from resale of service purchased from
                vendor)
            
            $1,075,824
            
            
            $517,417
            
            
            $1,220,726





Resale
      of
      termination routes purchased from the affiliated vendors represented 36.54%
      of
      revenue for the NWB Telecom division, 23.79% of the revenue for the entire
      Company, and generated 67.52% of the gross profit of the NWB Telecom division
      and 46.85% of the gross profit of the entire Company.





These
      vendors are under no enforceable obligation to sell us service of any kind,
      and
      we are under no obligation to buy, other than on a week-by-week basis, and
      we
      are at risk of losing some or all of the services supplied by this vendor with
      little or no notice. Furthermore, we can have no assurance that these vendors
      will continue to 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 currently purchase, would result in an attendant loss of associated
      gross profits, without a corresponding immediate decrease in related sales,
      general and administrative costs, therefore negatively impacting our overall
      profitability in the near term.





The
      table
      below shows the portion of NWB Telecom divisional revenue, gross profit and
      gross profit margin, and NWB Telecom gross profit as a percentage of
      Company-wide gross profit, during 2007 on a quarterly and year end basis. We
      note that the following figures are based upon financial statements for the
      year
      ended December 31, 2007, showing our former subsidiary, IP Gear, Ltd. (an
      Israeli company) listed as discontinued operations:




41





**2007**
            
            **Revenue**
              NWB
              Telecom
            
            **Gross**
              **Profit**
              NWB
              Telecom
            
            **Gross**
              **Profit**
              **Margin**
              NWB
              Telecom
            
            NWB
              Telecom
              Gross
              Profit as
              % of
              Company-
              wide
              Gross ProfitQ1
            
            $2,870,997
            
            
            $461,535
            
            
            16.08%
            
            
            80.89%Q2
            
            $2,589,778
            
            
            $309,911
            
            
            11.97%
            
            
            73.39%Q3
            
            $2,617,632
            
            
            $317,900
            
            
            12.14%
            
            
            62.40%Q4
            
            $3,365,108
            
            
            $503,896
            
            
            14.97%
            
            
            63.44%Year
            
            $11,443,514
            
            
            $1,593,242
            
            
            13.92%
            
            
            69.38%





*Summary:
      company-wide and divisional revenue, gross profit and gross profit margin,
      on a
      quarterly and year-end basis, for 2007.*




It
      is the
      goal of management to present the Company’s financial performance in as
      comprehensive, accurate, and illustrative a manner as possible. To that end,
      management continually seeks to improve the presentation of results of the
      Company’s operations in this Item 6, “Management’s Discussion and Analysis or
      Plan of Operation.” The following tables duplicate information presented
      elsewhere in this Item 6, but we believe that the following presentation of
      that
      information may be helpful to shareholders and potential investors. As the
      Company continues to develop its internal controls and financial records
      keeping, we hope to be able to present this sort of consolidated and
      comprehensive information for current periods in comparison to prior periods.
      The following presentation is not intended to substitute for any other portion
      of this Item 6.





**2007**
            
            **Revenue**
              Company
              Wide
            
            **Revenue**
              NWB
              Telecom
            
            *%
                of Company-Wide*
              *Revenue*
            
            **Revenue**
              NWB
                Networks (non-
              TELES)
            
            *%
                of Company-*
              *Wide*
              *Revenue*
            
            **Revenue**
              TELES
              Products
              only
            
            *%
                of Company-Wide*
              *Revenue*Q1
            
            $4,099,021
            
            
            $2,870,997
            
            
            70.04%
            
            
            $1,127,874
            
            
            27.52%
            
            
            $100,150
            
            
            2.44%Q2
            
            $3,556,768
            
            
            $2,589,778
            
            
            72.81%
            
            
            $833,349
            
            
            23.43%
            
            
            $133,642
            
            
            3.76%Q3
            
            $4,182,157
            
            
            $2,617,632
            
            
            62.59%
            
            
            $1,018,220
            
            
            24.35%
            
            
            $546,306
            
            
            13.06%Q4
            
            $5,263,257
            
            
            $3,365,108
            
            
            63.94%
            
            
            $557,059
            
            
            10.58%
            
            
            $1,341,089
            
            
            25.48%Year
            
            $17,101,203
            
            
            $11,443,514
            
            
            66.92%
            
            
            $3,536,502
            
            
            20.68%
            
            
            $2,121,187
            
            
            12.40%**2007**
            
            **Gross
                Profit**Company Wide
            
            **Gross
                Profit**
              NWBTelecom
            
            *%
                of Company-Wide**Gross**Profit*
            
            **Gross
                Profit**
              NWB
                Networks (non-TELES)
            
            *%
                of Company-Wide Gross Profit*
            
            **Gross
                Profit**
              TELESProductsonly
            
            *%
                of Company-Wide**Gross**Profit*Q1
            
            $570,550
            
            
            $461,535
            
            
            80.89%
            
            
            $89,112
            
            
            15.62%
            
            
            $19,903
            
            
            3.49%Q2
            
            $422,304
            
            
            $309,911
            
            
            73.39%
            
            
            $45,742
            
            
            10.83%
            
            
            $66,651
            
            
            15.78%Q3
            
            $509,455
            
            
            $317,900
            
            
            62.40%
            
            
            $42,517
            
            
            8.35%
            
            
            $149,038
            
            
            29.25%Q4
            
            $794,240
            
            
            $503,896
            
            
            63.44%
            
            
            $(106,989
            )
            
            (13.47)%
            
            
            $397,333
            
            
            50.03%Year
            
            $2,296,550
            
            
            $1,593,242
            
            
            69.38%
            
            
            $70,383
            
            
            3.06%
            
            
            $632,925
            
            
            27.56%


42





**2007**
            
            **Gross**
              **Profit**
              **Margin**
              Company
              Wide
            
            **Gross**
              **Profit**
              **Margin**
              NWB
              Telecom
            
            **Gross
                Profit**
              **Margin**NWB
              Networks
              (non-TELES)
            
            **Gross**
              **Profit**
              **Margin**
              (TELES
              only)Q1
            
            13.92%
            
            
            16.08%
            
            
            7.90%
            
            
            19.87%Q2
            
            11.87%
            
            
            11.97%
            
            
            5.49%
            
            
            49.87%Q3
            
            12.18%
            
            
            12.14%
            
            
            4.18%
            
            
            27.28%Q4
            
            15.09%
            
            
            14.97%
            
            
            (19.21)%
            
            
            29.63%Year
            
            13.43%
            
            
            13.92%
            
            
            1.99%
            
            
            29.84%





*Total
      Company expenses.*





Total
      Company expenses (sales, marketing, general, and administrative) for the three
      and twelve month periods ended December 31, 2006 and 2007 were as
      follows:





**3 Months Ended**
              **December 31, 2006**
            
            **3 Months Ended**
              **December 31, 2007**
            
            **Change**Total Expenses
            
            
            $1,811,074
            
            
            $1,269,545
            
            
            (29.92)%





**12 Months Ended**
              **December 31, 2006**
            
            **12 Months Ended**
              **December 31, 2007**
            
            **Change**Total Expenses
            
            
            $4,065,361
            
            
            $4,214,422
            
            
            3.66%





The
      substantial decrease in total expenses for the comparative three month period
      is
      due primarily to decreases in legal, accounting, and other professional fees,
      related to 2006 restructurings and debt and equity offerings, litigation, and
      accounting services. However,
      total expenses increased slightly for the twelve month period ending December
      31, 2007 as compared to that ending December 31, 2006, reflecting: (i) higher
      legal, accounting, and professional fees during the nine month period ending
      September 30, 2007, as compared to the nine month period ending September 30,
      2006; (ii) increased sales and marketing costs (including sales staff) during
      the twelve month period ending December 31, 2007, as compared to the twelve
      month period ending December 31, 2006; and (iii) migration during the third
      and
      fourth quarters of 2007 of the Company's core telecom service switching and
      routing operations to an outsource provider, utilizing the outsource provider's
      equipment rather than our own, resulting in an increase in related expenses
      and
      a decrease in related capitalized expenditures.We note that the above
      figures are based upon financial statements for the periods ended December
      31,
      2007 and 2006, showing our former subsidiary, IP Gear, Ltd. (an Israeli
      company), listed as discontinued operations; the above figures are based only
      upon the operations of the Company’s continuing businesses in equipment
      distribution and resale, and telephony service.





*Interest.*





**Continuing
                Operations Only**
            
            **3 Months Ended**
              **December 31, 2006**
            
            **3 Months Ended**
              **December 31, 2007**Interest
            
            
            $32,073
            
            
            $19,859**12 Months Ended**
              **December 31, 2006**
            
            
            **12 Months Ended**
              **December 31, 2007**Interest
            
            
            $178,967
            
            
            $129,346




43




The
      change over both periods is due primarily to fluctuations in the principal
      amount of the P&S Term Loan and the BoA Loan, and differences in interest
      rates between the two loans. (The P&S Term Loan has been a smaller principal
      amount at a lower interest rate than the BoA Loan.)





*Amortization
      and depreciation.*





**12 Months Ended**
              **December 31, 2006**
            
            **12 Months Ended**
              **December 31, 2007**
            
            **Change**Continuing
                Operations Only
            
            
            $296,110
            
            
            $416,441
            
            
            40.64%





Amortization
      and depreciation for the Company for continuing operations increased in 2007
      due
      to increased depreciation reflecting increased capital investment during prior
      periods in switching, routing, and tracking equipment and technology utilized
      in
      relation to our NWB Telecom VoIP service business. Our U.S.-based operations
      have a very limited amount invested in software technology, and as a result,
      our
      current amortization is negligible and not expected to increase in the near
      term.





*Net
      loss* .





The
      above
      factors contributed to a net loss for the Company for both the three and nine
      month periods ended December 31, 2007. As a result of the sale of our IP Gear,
      Ltd. subsidiary to TELES, we are required to restate financials on a pro forma
      basis for years 2007 and 2006, showing our former subsidiary, IP Gear, Ltd.,
      listed as discontinued operations, and separately reporting the results of
      operations of the Company’s continuing businesses in equipment distribution and
      resale, and telephony service. However, we believe that for a better
      understanding of the impact of the IP Gear, Ltd. sale on our net losses, it
      is
      important to also consider the Company’s net losses reported to include the
      losses generated by discontinued operations (meaning, including losses from
      IP
      Gear, Ltd.) in net losses generated by continuing operations. The Company’s net
      losses for the three and twelve month periods ended December 31, 2007 and 2006,
      shown both excluding and including discontinued operations, are as
      follows:





**3 Months Ended**
              **December 31, 2006**
            
            **3 Months Ended**
              **December 31, 2007**Net
                Loss From Continuing Operations Only
            
            
            $(1,073,525)
            
            
            $(581,883)**12 Months Ended**
              **December 31, 2006**
            
            
            **12 Months Ended**
              **December 31, 2007**Net
                Loss From Continuing Operations Only
            
            
            $(2,278,660)
            
            
            $(2,758,497)





**3 Months Ended**
              **December 31, 2006**
            
            **3 Months Ended**
              **December 31, 2007**Net
                Loss From Continuing*and*Discontinued Operations
            
            
            $(2,163,109)
            
            
            $(910,157)




44




**12 Months Ended**
              **December 31, 2006**
            
            **12 Months Ended**
              **December 31, 2007**Net
                Loss From Continuing*and*Discontinued Operations
            
            
            $(5,425,674)
            
            
            $(6,703,186)





The
      difference between net loss from continuing operations only, as compared to
      the
      net loss for continuing and discontinued (meaning, IP Gear, Ltd.), illustrates
      the impact of the Company’s former subsidiary, IP Gear, Ltd., on the Company’s
      financial performance.





Following
      is a summary of total company expenses, interest, amortization and depreciation,
      and resultant net profit/loss, allocated among our two operating divisions,
      NWB
      Telecom and NWB Networks, and showing NWB Networks results for non-TELES
      products and TELES products only. We note that the following figures are based
      upon financial statements for the periods ended December 31, 2007 and 2006,
      showing our former subsidiary, IP Gear, Ltd. (an Israeli company), listed as
      discontinued operations.





**2006
                Continuing Operations**(1)
            
            **Company-Wide**
            
            **Corporate**
              **Expenses**
            
            **NWB**
              **Telecom**
            
            **NWB**
              **Networks**
              **(non-TELES)**
            
            **NWB**
              **Networks**
              **(TELES**
              **only)**Gross
                Profit
            
            $1,837,350
            
            
            N/A
            
            
            $847,558
            
            
            $989,792
            
            
            $0SG&A
                Expense(2)
            
            $(4,138,286
            )
            
            $(1,664,031
            )(3)
            
            $(1,451,158
            )
            
            $(1,023,097
            )
            
            $0Interest
            
            $(178,967
            )
            
            $(175,229
            )
            
            $(3,697
            )
            
            $(40
            )
            
            $0Depreciation/Amortization
            
            $(296,110
            )
            
            $(125,198
            )
            
            $(136,736
            )
            
            $(34,175
            )
            
            $0Other
                Income (Expense)
            
            $24,448
            
            
            $87,406
            
            
            $0
            
            
            $(62,958
            )
            
            $02006
                Net Profit (Loss) from Continuing Operations Only
            
            $(2,751,565
            )
            
            $(1,877,052
            )
            
            $(744,034
            )
            
            $(130,478
            )
            
            $0**2006
                Continuing and Discontinued Operations**(1)Profit
                (Loss) on Write Down of Discontinued Operations
            
            $(3,147,014
            )Gain
                (Loss) on Disposition of Discontinued Operations
            
            $0Tax
                Provision
            
            $472,9052006
                Net Profit (Loss) from Continuing and Discontinued
                Operations
            
            $(5,425,674
            )


45





**2007
                Continuing Operations**
            
            **Company-Wide**
            
            **Corporate**
              **Expenses**
            
            **NWB**
              **Telecom**
            
            **NWB**
              **Networks**
              **(non-TELES)**
            
            **NWB**
              **Networks**
              **(TELES
                only)**Gross
                Profit
            
            
            $2,296,550
            
            
            $0
            
            
            $1,593,242
            
            
            $70,383
            
            
            $632,925SG&A
                Expense(2)
            
            
            $(4,214,422
            )
            
            $(1,942,020
            )(3)
            
            $(1,259,716
            )
            
            $(620,720
            )
            
            $(391,966
            )Interest
            
            
            $(129,346
            )
            
            $(119,347
            )
            
            $(9,409
            )
            
            $(456
            )
            
            $(134
            )Depreciation/Amortization
            
            
            $(416,441
            )
            
            $(177,504
            )
            
            $(236,519
            )
            
            $(2,344
            )
            
            $(73
            )Other
                Income (Expense)
            
            
            $109,157
            
            
            94,291
            
            
            $21,247
            
            
            $(6,381
            )
            
            $02007
                Net Profit (Loss) from Continuing Operations Only
            
            
            $(2,354,502
            )
            
            $(2,144,280
            )
            
            $108,845
            
            
            $(559,518
            )
            
            $240,752**2007
                Continuing and Discontinued Operations**Profit
                (Loss) on write down of discontinued operations
            
            
            $(3,949,395
            )Gain
                (Loss) on disposition of discontinued operations
            
            
            $4,706Tax
                Provision
            
            
            $(403,995
            )2007
                Net Profit (Loss) from Continuing and Discontinued
                Operations
            
            
            $(6,703,186
            )


(1)
              2006
                  is presented in a manner consistent with 2007 for comparison purposes,
                  showing the operations of our former subsidiary, IP Gear, Ltd.,
                  as
                  discontinued, even though the subsidiary’s operations were not
                  discontinued until 2007.
 
 (2)
              Includes
                  management’s determination of sales, general, and administrative expenses
                  directly allocable to each division or line of
                  business.
 
 (3)
              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
      and Capital Resources**





The
      Company’s year-end cash balance and ratio of current assets to current
      liabilities for the twelve month periods ending December 31, 2007 and 2006
      are
      indicated below:


46





**2007**
            
            **2006**Cash
            
            $2,038,635
            
            
            $3,396,617Current
                Assets
            
            $4,562,198
            
            
            $7,511,470Current
                Liabilities
            
            $2,274,814
            
            
            $3,702,112Current
                Ratio (current assets to current liabilities)
            
            2.17:1
            
            
            2.03:1Quick
                Ratio (cash to current liabilities)
            
            0.90:1
            
            
            0.92:1





The
      Company’s cash utilization rates (meaning, amount of cash used in operations)
      for both Continuing Operations and Discontinued Operations for the twelve months
      ended December 31, 2007 and 2006 were, respectively, $6,220,155 and $5,425,674.
      However, the Company’s cash utilization rate for Continuing Operations only for
      the twelve months ending December 31, 2007 was $2,242,296. Because no
      Discontinued Operations will occur in fiscal year 2008, as a result of the
      sale
      of our IP Gear, Ltd. subsidiary, we believe that our cash utilization rate
      for
      Continuing Operations is the relevant starting point for anticipating cash
      utilization rates in fiscal year 2008.





Our
      capital raised from loan financing remained unchanged in 2007, at $1,000,000.
      As
      a result of the partial loan repayment relating to the TELES Loan transaction
      in
      March, 2008, our loan financing proceeds have decreased in 2008 as of the date
      of this filing by $500,000. Capital raised from equity financing totaled
      $1,000,000 in 2007 as compared to over $6,000,000 in 2006. We currently have
      available to us $500,000 in additional debt financing from the P&S Credit
      Line, and, contingent upon completion of the merger of Qualmax with and into
      the
      Company (among other contingencies), $1,000,000 in additional debt financing
      from the TELES Loan.





*Capital
      expenditures.*





The
      Company’s primary investment in capital had been focused on funding the R&D
      efforts of our IP Gear, Ltd. subsidiary. In the first six months of 2007, the
      Company made investments in this subsidiary, until it was sold on July 1, 2007.
      These capital expenditures are referred to as “Discontinued Operations” in our
      current financial statements. Capital expenditures by the Company for equipment
      providing the infrastructure of our telecom services division, NWB Telecom
      are
      referred to as “Continuing Operations” in our current financial statements.
      Capital expenditures of Continuing Operations for 2006 and 2007 also include
      certain expenditures associated with equity-based financing activities. The
      following chart provides a comparative representation of the capital
      expenditures for Continuing Operations and Discontinued Operations during 2007
      and 2006:





**2007**
            
            **2006**Capital
                Expenditures, Continuing Operations
            
            $284,044
            
            
            $648,074Capital
                Expenditures, Discontinued Operations
            
            $748,858
            
            
            $5,972,978Depreciation
                and Amortization, Continuing Operations
            
            $406,152
            
            
            $296,110Depreciation
                and Amortization, Discontinued Operations
            
            $1,157,308
            
            
            $1,868,492





Reasons
      for reduced capital expenditures in 2007 as compared with 2006 primarily include
      the following:


47


·
            As
                a result of the sale of our IP Gear, Ltd. subsidiary, the Company
                engaged
                in no meaningful research and development activities during the third
                and
                fourth quarters of 2007; and





·
            The
                Company had no equity-based financing activities during the third
                and
                fourth quarters of 2007.





The
      reduction in capital expenditures for Continuing Operations also reflects a
      larger investment during 2006 in telecommunications equipment used to operate
      our NWB Telecom division. In the beginning of the third quarter of 2007, we
      began the process of migrating our core telecom service switching and routing
      operations to an outsource service provider, utilizing the service provider’s
      equipment rather than purchasing our own. As a result, our costs related to
      the
      service provider are treated as a current expense, while the costs related
      to
      investment in our in-house switching and routing equipment have been largely
      capitalized.





*Future
      capital needs.*





We
      believe that as a result of the sale of IP Gear, Ltd., our negative cash flow
      and operating losses should decrease substantially over the course of the fiscal
      year, and we believe the Company is now better positioned to achieve positive
      cash flow. As a result, management expects that in 2008 it will be able to
      focus
      its efforts on restructuring operations and cultivating high margin sales
      opportunities, rather than on raising capital and restructuring to fund or
      reduce operational losses.





Current
      capital expenditures are primarily related to investments made in the switching
      equipment used to operate the NWB Telecom division. We may also increase capital
      expenditures in relation to expansion of our customer and vendor support and
      training services provided in relation to sales and distribution of TELES
      products. However, the Company’s ability to pursue its current business plan
      without seeking additional debt- or equity-based capital is entirely dependent
      on management’s ability to increase revenues at current or higher gross margins,
      while decreasing overall Company costs relative to gross profits, and there
      can
      be no assurance that current market conditions will continue or that management
      will achieve its goals. In addition, management may recommend seeking additional
      debt- or equity-based capital to grow or maintain current operations, including
      without limitation additional build-out of our VoIP services network and
      infrastructure, or to pursue new lines of business or ventures, if market
      conditions appear to support additional investment.





**Technology**





As
      of
      December 31, 2006, our balance sheet reflected a value for our IP Gear, Ltd.
      subsidiary’s proprietary Claro technology.  As discussed in “Note
      B—Sale of Discontinued Operations—IP Gear, Ltd.” to the Company’s financial
      statements appearing in Item 7 of this Form 10-KSB), as a result of the sale
      of
      our IP Gear, Ltd. subsidiary, as of June 30, 2007, we began accounting for
      this
      asset as sold.


48





Since
      selling our IP Gear, Ltd. subsidiary, we have focused our investment in
      technology on our NWB Telecom VoIP service business, through the purchase or
      lease of switching and routing equipment, and the expansion of our technical
      staff and support contractors. We expect to continue to invest in the expansion
      of our NWB Telecom business, including potentially the implementation of new
      or
      enhanced billing and tracking software, and additional technical support and
      service staff. In addition, we expect to expand the customer support services
      offered by our NWB Networks division, by investing in additional staff and
      equipment. However, at this time, our investment in technology does not include
      the development of significant proprietary intellectual property.





**Management
      Changes**





Noah
      Kamrat, formerly our President and Chief Operations Officer, resigned from
      those
      positions effective January 24, 2008, in order to assume the position of Chief
      Technology Officer. M. David Kamrat, who also serves as Chief Executive Officer
      and a director, assumed the duties of President, and Shehryar Wahid, who also
      serves as Chief Financial Officer, Secretary, Treasurer, and a director, assumed
      the duties of Chief Operations Officer. These changes to key management
      positions are intended to address a potential void in our management team
      resulting from the sale of our IP Gear, Ltd. subsidiary. Upon the sale of our
      IP
      Gear, Ltd. subsidiary, we divested ourselves of our R&D and manufacturing
      business, and as a result lost the core of our in-house technology expertise
      in
      the VoIP industry, particularly with respect to new products and emerging trends
      in VoIP network equipment and its deployment. Noah Kamrat is particularly well
      suited to assuming the role of Chief Technology Officer due to his depth and
      breadth of experience selling and operating VoIP service networks, and selling,
      developing, and deploying VoIP technology equipment. We believe that, in the
      role of Chief Technology Officer, Mr. Kamrat will be able to better position
      the
      Company to take advantage of emerging product and service trends, and enable
      the
      Company to work closely with TELES to identify and serve emerging markets and
      uses for TELES and IP Gear, Ltd. products.





**ITEM
      7.**  **FINANCIAL
      STATEMENTS**





New
      World
      Brands’ financial statements for the fiscal year ended December 31, 2007 begin
      on page F-1.




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





None.




**Item
          8A(T). CONTROLS AND PROCEDURES**
 
 **Disclosure
          Controls and Procedures**
 
 Our
          management, with the participation of our chief executive officer and chief
          financial officer, conducted an evaluation of the effectiveness of our
          disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
          promulgated under the Securities Exchange Act of 1934, as amended (the
“Exchange
          Act”)) as of December 31, 2007, the end of the period covered by this Annual
          Report on Form 10-KSB/A2. Our disclosure controls and procedures are intended
          to
          ensure that the information we are required to disclose in the reports
          that we
          file or submit under the Exchange Act is (i) recorded, processed, summarized
          and
          reported within the time periods specified in the SEC’s rules and forms and (ii)
          accumulated and communicated to our management, including our chief executive
          officer and chief financial officer (as the Company’s principal executive
          officer and principal financial officer, respectively) to allow timely
          decisions
          regarding required disclosures.
  49
 Based
          on
          that evaluation, our chief executive officer and chief financial officer
          concluded that, as of the end of the period covered by this Annual Report,
          our
          disclosure controls and procedures were not effective due to our failure
          to
          adequately report such officers’ conclusion with respect to internal control
          over financial reporting.
  Our
          management has concluded that the financial statements included in this
          Annual
          Report present fairly, in all material respects, our financial position,
          results
          of operations and cash flows for the periods presented in conformity with
          accounting principles generally accepted in the United States of
          America.
  It
          should
          be noted that any system of controls, however well designed and operated,
          can
          provide only reasonable, and not absolute, assurance that the objectives
          of the
          system will be met. In addition, the design of any control system is based
          in
          part upon certain assumptions about the likelihood of future
          events.
  **Management’s
          Report on Internal Control over Financial Reporting**
 
 Management
          is responsible for establishing and maintaining adequate internal control
          over
          our financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of
          the
          Exchange Act). Internal control over financial reporting is a process designed
          to provide reasonable assurance regarding the reliability of financial
          reporting
          and the preparation of financial statements for external purposes in accordance
          with accounting principles generally accepted in the United States of
          America.
  Our
          internal control over financial reporting includes those policies and procedures
          that (i) pertain to the maintenance of records that, in reasonable detail,
          accurately and fairly reflect the transactions and dispositions of our
          assets;
          (ii) provide reasonable assurance that transactions are recorded as necessary
          to
          permit preparation of financial statements in accordance with accounting
          principles generally accepted in the United States of America, and that
          our
          receipts and expenditures are being made only in accordance with authorizations
          of our management and directors; and (iii) provide reasonable assurance
          regarding prevention or timely detection of unauthorized acquisition, use
          or
          disposition of our assets that could have a material effect on the financial
          statements.
  Because
          of its inherent limitations, internal control over financial reporting
          may not
          prevent or detect misstatements. Also, projections of any evaluation of
          effectiveness to future periods are subject to the risk that controls may
          become
          inadequate because of changes in conditions, or that the degree of compliance
          with the policies or procedures may deteriorate. Our management, with the
          participation of our chief executive officer and chief financial officer,
          conducted an evaluation of the effectiveness of our internal control over
          financial reporting based on the framework in *Internal
          Control — Integrated Framework* issued
          by the Committee of Sponsoring Organizations of the Treadway Commission
          (COSO).
          Based on this evaluation, our chief executive officer and chief financial
          officer concluded that, as of the end of the period covered by this Annual
          Report, our internal control over financial reporting was
          effective.
  This
          Annual Report does not include an attestation report of our independent
          registered public accounting firm regarding internal control over financial
          reporting. Management’s report was not subject to attestation by our registered
          public accounting firm pursuant to temporary rules of the SEC that permit
          us to
          provide only management’s report in this Annual Report.
  **Changes
          in Internal Control over Financial Reporting**
 
 During
          the fourth quarter of 2007, there have been no changes in our internal
          control
          over financial reporting (as such term is defined in Rules 13a-15(f) and
          15d-15(f) under the Exchange Act) that have materially affected, or are
          reasonably likely to materially affect, our internal control over financial
          reporting.


**ITEM
      8B.**  **OTHER
      INFORMATION**





None.


50


**PART
      III**





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





**Directors
      and Officers**





As
      a
      result of the approval of our Amended and Restated Certificate of Incorporation,
      effective April 24, 2007, a staggered Board, divided into three classes, was
      created: (i) the initial term for Class I directors will expire at the 2007
      annual meeting of stockholders; (ii) the initial term for Class II
      directors will expire at the 2008 annual meeting of stockholders; and
      (iii) the initial term for Class III directors will expire at the 2009
      annual meeting of stockholders. Existing directors were assigned to the
      following classes: Noah R. Kamrat, Class II; M. David Kamrat, Class III; and
      Jacob Schorr, Ph.D., Class III.





For
      additional information regarding the authorization of additional shares, the
      conversion of Preferred Stock, and the staggered Board, reference is made to
      our
      Current Report on Form 8-K, filed with the SEC on April 30, 2007, and the
      Company’s Schedule 14C, filed with the SEC on March 20, 2007.





Effective
      January 31, 2007, Ian Richardson resigned as Chief Financial Officer of the
      Company, and Shehryar Wahid was appointed Chief Financial Officer of the
      Company. Ian Richardson continued to serve as Vice President and General
      Counsel.





Effective
      August 1, 2007, Ian Richardson resigned as Vice President and General Counsel
      of
      the Company and his employment with the Company terminated. Since August 1,
      2007, Mr. Richardson has served the Company as outside counsel in private
      practice. Also effective August 1, 2007, Duy Tran resigned as Vice President
      and
      Secretary of the Company, M. David Kamrat, then the Company’s Chief Executive
      Officer, assumed the duties of Secretary on an interim basis.





Effective
      August 20, 2007, Noah Kamrat resigned as a member of the Board, and continued
      to
      serve as President and Chief Operating Officer of the Company. Also effective
      August 20, 2007, Dr. Selvin Passen joined the Board as a Class II
      member.





Effective
      January 24, 2008, Noah Kamrat resigned as President and Chief Operations Officer
      of the Company and was appointed by the Board to serve as the Company’s Chief
      Technology Officer and Vice President of Operations. Effective January 24,
      2008,
      the Board appointed M. David Kamrat, who at that time served as the Chief
      Executive Officer of the Company and as the Chairman of the Board, to also
      serve
      as President of the Company. Also effective January 24, 2008, the Board
      appointed Shehryar Wahid, who currently serves as the Company’s Chief Financial
      Officer and Secretary and is a member of the Board to also serve as Chief
      Operations Officer and Treasurer of the Company. Also effective January 24,
      2008, the Board appointed Abe Narkunski to serve as Senior Vice
      President.


51


As
      a
      result of the foregoing changes to the Company’s officers and directors, the
      officers and directors of the Company as of March 31, 2008 are as
      follows:





**Name**
            
            **Age**
            
            **Position(s)**M.
                David Kamrat
            
            55
            
            Chief
                Executive Officer, President and Chairman of the BoardNoah
                R. Kamrat
            
            37
            
            Chief
                Technology Officer and Vice President of OperationsShehryar
                Wahid
            
            43
            
            Chief
                Financial Officer, Chief Operations Officer, Secretary, Treasurer
                and
                DirectorSelvin
                Passen, M.D.
            
            73
            
            DirectorJacob
                M. Schorr, Ph.D.
            
            63
            
            DirectorAbe
                Narkunski
            
            61
            
            Senior
                Vice President





**M.
      David Kamrat** has
      served as the Company’s Chief Executive Officer and Chairman of the Board since
      September 15, 2006, the date on which the Company acquired the Qualmax business.
      On January 24, 2008, Mr. Kamrat was appointed President of the Company. Prior
      to
      that, Mr. Kamrat served as Chief Executive Officer and Chairman of the Board
      of
      Directors of Qualmax; he has held both positions since he founded Qualmax in
      2001. From 1999 - 2004, Mr. Kamrat operated Mind Opening Corporation, a
      telecommunications consulting business. Prior to that, Mr. Kamrat worked as
      a
      sales executive with MCI, Inc. (“ ***MCI*** ”).
      Prior
      to working with MCI, Mr. Kamrat had a successful career in construction and
      land
      development. Mr. Kamrat also serves as Chief Executive Officer and Chairman
      of
      the Board of Qualmax.




**Noah
      Kamrat** served
      as the Company’s President and as a director since September 15, 2006, the date
      on which the Company acquired the Qualmax business. On August 20, 2007 Mr.
      Kamrat resigned as a director. On January 24, 2008, Mr. Kamrat resigned as
      President and Chief Operations Officer and was appointed Chief Technology
      Officer and Vice President of Operations. Prior to that, Mr. Kamrat served
      as
      President, Chief Operating Officer, and as a director of Qualmax, which
      positions he has held since 2002. From 1998 to 2002, Mr. Kamrat served as
      President of Synergyx Communications Group, an IP consulting and technology
      company. In 1998, Mr. Kamrat served as a director of National Accounts for
      Frontier Communications (Global) located in Miami, Florida. Mr. Kamrat was
      a
      sales consultant specializing in long distance and Internet services for MCI
      from 1994 to 1997. Mr. Kamrat also serves as President and a director of
      Qualmax.




52


**Shehryar
      Wahid** has
      served as the Company’s Chief Financial Officer since February 1, 2007, and as
      Chief Operations Officer, 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. Wahid acted as a
      consultant to the Company. Mr. Wahid has over the last 16 years held various
      executive level positions in finance and operations in the telecommunications
      and logistics industries, and has worked both as an auditor, for the Financial
      Services Group at Ernst & Young, and as a controller and chief financial
      officer for a number of telecommunications companies. Mr. Wahid holds a
      Chartered Accountancy Designation from Canada and has substantial knowledge
      of
      U.S.-based GAAP reporting requirements. Mr. Wahid received a B.S. in
      Biochemistry from the University of Toronto and a Business Degree from the
      University of Western Ontario’s Ivey School of Business.




**Selvin
      Passen, M.D.** has
      served as a director of the Company since August 20, 2007. Prior to that, Dr.
      Passen served as the Company’s Chairman of the Board from May 22, 2004 to
      September 15, 2006. Dr. Passen is a retired pathologist who was the Medical
      Director of Maryland Medical Laboratory, Inc., a subsidiary of Corning, Inc.,
      until 1994. Since then, Dr. Passen has been involved in real estate
      development and is the principal holder in Baltimore Marine Center in Baltimore,
      Maryland, and Lauderdale Marine Center in Fort Lauderdale, Florida.




**Jacob
      M. Schorr, Ph.D.** has
      served as a director of the Company since September 15, 2006, the date on which
      the Company acquired the Qualmax business. From April 2000 to July 2006, Dr.
      Schorr served as Chief Executive Officer and a director of Spirit Airlines,
      Inc., and as Chairman of the Board of Spirit Airlines, Inc. from February 2004
      to July 2006. From 1997 until 2000, Dr. Schorr served as Spirit Airline’s Chief
      Information Officer. From 1977 until 1994, Dr. Schorr served in various
      management capacities at Maryland Medical Laboratory, and he served as Vice
      President of Corning Clinical Laboratories from 1994 to 1996.




**Abram
      Narkunski** was
      appointed to serve as Senior Vice President effective January 24,
      2008.  Mr. Narkunski was founder and Vice President of Public
      Communications of America from 1986 – 1989, pioneering in the private pay
      phones, operator services and inmate services businesses.  He founded
      and served as Vice President of Public Phone, which later became Cominex, from
      1989 - 1999, where he automated inmate services and was instrumental in
      introducing prepaid telephone cards into the U.S.
      marketplace.  Subsequently, Mr. Narkunski held executive positions for
      calling card companies and a leading point-of-sale (POS) provider prior to
      becoming Vice President of Sales and Marketing for Omega Enhanced
      Services.  Mr. Narkunski also acted as a consultant to numerous
      leading telecommunications companies prior to joining the Company on May 1,
      2007 as telecom sales and operations manager.




**Family
      Relationships**




M.
      David
      Kamrat is the father of Noah Kamrat.




53





**Section
      16(a) Beneficial Ownership Reporting Compliance**





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





To
      our
      knowledge, based solely upon a review of the copies of such reports furnished
      to
      us and written representations that no other reports were required during fiscal
      2007, the Company’s directors, executive officers and 10% stockholders
      have complied with all Section 16(a) filing requirements, as
      applicable.





**Code
      of Ethics**




The
      Company has adopted a Code of Ethics that applies to its principal executive
      officer, principal financial officer, principal accounting officer or controller
      and all other employees and directors of the Company and its subsidiaries.
      The
      Company has posted its Code of Ethics on its website ( www.nwbtechnologies.com ),
      and it
      is available in print to any stockholder upon request. The Company will post
      any
      amendments to, or any waivers from, a provision of its Code of
      Ethics.




**Audit
      Committee**





The
      Company’s entire Board acts as our audit committee. Selvin Passen serves as our
      audit committee chairman, and Jacob Schorr is the committee’s financial expert.
      No member of our audit committee is independent.





**Compensation
      Committee**





The
      Company’s entire board acts as our compensation committee. Selvin Passen serves
      as our compensation committee chairman. No member of our compensation committee
      is independent.





**ITEM
      10.**  **EXECUTIVE
      COMPENSATION**





The
      following table sets forth compensation earned, whether paid or deferred, by
      our
      Chief Executive Officer, Chief Financial Officer, President, General Counsel,
      and Secretary, our most highly compensated executive officer who earned over
      $100,000 during the 2007 fiscal year (collectively, the “ ***Named
      Executive Officers*** ”),
      for
      services rendered in all capacities to us during fiscal years ended December
      31,
      2007 and 2006.


54


**Summary
      Compensation Table**





The
      following table sets forth the compensation of the named executive officers
      of
      the Company for the Company’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**
              **($)**M.
                David Kamrat(1)
              CEO
                , President, & Chairman
            
            
            2007
              2006
            
            $150,000
                $120,000
            
            
            $        
                    0
                  $        
                    0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $150,000
                $120,000Noah
                Kamrat(2)
              President
                & Director
            
            
            2007
              2006
            
            $140,000
                $120,000
            
            
            $        
                  0
                $        
                  0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                $0
            
            
            $140,000
                $120,000Ian
                R. Richardson(3)
              Vice
                President, GeneralCounsel
            
            
            2007
              2006
            
            $120,000
                $120,000
            
            
            $20,000
                $        
                  0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $140,000
                $120,000Duy
                Tran(4)
              Vice
                President, Secretary
            
            
            2007
              2006
            
            $120,000
                $120,000
            
            
            $        
                    0
                  $        
                    0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $120,000
                $120,000Shehryar
                Wahid(5)
              Chief
                Financial Officer
            
            
            2007
              2006
            
            $110,000
                $          
                  0
            
            
            $        
                    0
                  $        
                    0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $110,000
                $          
                  0David
                Rudden(6)
              Former
                Chief ExecutiveOfficer
            
            
            2007
              2006
            
            $          
                  0
                $111,700
            
            
            $        
                    0
                  $        
                    0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $0
                  $0
            
            
            $          
                  0
                $111,700




(1)
            The
                executive officer has 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.”).




(2)
            Mr.
                Kamrat served as the Company’s President, Chief Operating Officer from
                September 15, 2000 until January 24, 2007, and since January 24,
                2007 has
                served as the Company’s Chief Technology Officer and Vice President of
                Operations.




(3)
            Mr.
                Richardson served as Chief Financial Officer of the Company from
                September
                15, 2006 to January 31, 2007, and from September 15, 2006 until August
                1,
                2007, served as General Counsel and Vice
                President.




(4)
            Mr.
                Tran served as the Company’s Vice President and Secretary from September
                15, 2006 until August 1, 2007.




(5)
            Mr.
                Wahid did not become an officer until February 1, 2007, and therefore
                did
                not receive any compensation as an officer during fiscal year 2006.




(6)
            Mr.
                Rudden served as Chief Executive Officer from November 10, 2005 until
                his
                resignation on September 14, 2006.




55


**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
              (#)M.
                David Kamrat
            
            
            0
            
            
            0
            
            
            0
            
            
            $0
            
            
            n/a
            
            
            0
            
            
            $0
            
            
            0
            
            
            0Noah
                Kamrat
            
            
            0
            
            
            0
            
            
            0
            
            
            $0
            
            
            n/a
            
            
            0
            
            
            $0
            
            
            0
            
            
            0Ian
                Richardson
            
            
            0
            
            
            0
            
            
            0
            
            
            $0
            
            
            n/a
            
            
            0
            
            
            $0
            
            
            0
            
            
            0Duy
                Tran
            
            
            0
            
            
            0
            
            
            0
            
            
            $0
            
            
            n/a
            
            
            0
            
            
            $0
            
            
            0
            
            
            0Shehryar
                Wahid
            
            
            0
            
            
            0
            
            
            0
            
            
            $0
            
            
            n/a
            
            
            0
            
            
            $0
            
            
            0
            
            
            0




**Director
      Compensation**




**DIRECTOR
                COMPENSATION**Name
            
            Fees
              Earned or
              Paid
                in
              Cash
              ($)
            
            Stock
              Awards
              ($)
            
            Option
                Awards
              ($)
            
            Non-Equity
                Incentive
              Plan
                Compensation
              ($)
            
            Non-Qualified
                Deferred Compensation
              Earnings
              ($)
            
            All
              Other
                Compensation ($)
            
            Total
              ($)M.
                David Kamrat
            
            $0
            
            $0
            
            $0
            
            $0
            
            $0
            
            $0
            
            $0Noah
                Kamrat(1)
            
            $0
            
            $0
            
            $0
            
            $0
            
            $0
            
            $0
            
            $0Jacob
                Schorr, Ph.D.
            
            $0
            
            $0
            
            $0
            
            $0
            
            $0
            
            $0
            
            $0




(1)
            Mr.
                Kamrat resigned from the Board effective August 20, 2007.




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





The
      following table reflects option grants to our executive officers during fiscal
      year 2007:





**% Total Options/****# of Securities**
            
            **SARs Granted to**
            
            **Exercise or****Underlying Options/**
            
            **Employees in Fiscal**
            
            **Base**
            
            **Expiration****Name**
            
            **SARs Granted**
            
            **Year**
            
            **Price ($/Share)**
            
            **Date**M. David Kamrat
            
            
            0
            
            
            0
            
            
            0
            
            
            0Noah
                Kamrat
            
            
            0
            
            
            0
            
            
            0
            
            
            0Duy
                Tran
            
            
            0
            
            
            0
            
            
            0
            
            
            0Ian
                Richardson
            
            
            0
            
            
            0
            
            
            0
            
            
            0Shehryar
                Wahid
            
            
            0
            
            
            0
            
            
            0
            
            
            0


56


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





The
      following table sets forth certain information relating to the exercise of
      stock
      options during the 2007 fiscal year for each of our executive officers and
      provides the fiscal year-end value of the unexercised options held by our
      executive officers:





**Value
                of Unexercised****Shares**
            
            
            
            **# of Unexercised Options**
            
            **In-The-Money Options****Acquired**
            
            **Value**
            
            **At Fiscal Year End**
            
            **At Fiscal Year End****Name**
            
            **On Exercise**
            
            **Realized**
            
            **Exercisable**
            
            **Unexercisable**
            
            **Exercisable****(1)**
            
            **Unexercisable**M. David
                Kamrat
            
            
            0
            
            
            $0
            
            
            0
            
            
            0
            
            
            $0
            
            
            $0Noah
                Kamrat
            
            
            0
            
            
            $0
            
            
            0
            
            
            0
            
            
            $0
            
            
            $0Duy
                Tran
            
            
            0
            
            
            $0
            
            
            0
            
            
            0
            
            
            $0
            
            
            $0Ian
                Richardson
            
            
            0
            
            
            $0
            
            
            0
            
            
            0
            
            
            $0
            
            
            $0Shehryar
                Wahid
            
            
            0
            
            
            $0
            
            
            0
            
            
            0
            
            
            $0
            
            
            $0





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





The
      following table sets forth certain information as of March 26, 2008, with
      respect to (i) those persons known to us to beneficially own more than 5% of
      our
      voting securities, (ii) each of our directors, (iii) each of our executive
      officers, and (iv) all directors and executive officers as a group. The
      information is determined in accordance with Rule 13d-3 promulgated under the
      Exchange Act. Except as indicated below, the beneficial owners have sole voting
      and dispositive power with respect to the shares beneficially
      owned.


Beneficial
                  OwnershipPercentage
                  ofTitle
                  of Class
              
              Name
                  and Address of Beneficial Owner(1)
              
              Number
                of
                  Shares
              
              Class
              
              Total
                OutstandingCommon
                  Stock
              
              
              Qualmax,
                  Inc.
              
              
              298,673,634
              
              
              71.97%
              
              
              71.97%M.
                  David Kamrat(2)
              
              
              166,176,267
              (3)
              
              37.53%
              
              
              37.53%Noah
                  Kamrat(4)
              
              
              166,176,267
              (5)
              
              37.53%
              
              
              37.53%P&S
                  Spirit LLC(6)
                c/o
                  Oregon Spirit LLC
                2019
                  SW 20thStreet, Suite 108
                Fort
                  Lauderdale, FL 33315
              
              
              136,198,022
              (7)
              
              30.76%
              
              
              30.76%Dr.
                  Selvin Passen(8)
                2019
                  SW 20thStreet, Suite 108
                Fort
                  Lauderdale, FL 33315
              
              
              100,221,768
              (9)
              
              23.27%
              
              
              23.27%Jacob
                  Schorr, Ph.D.(10)
              
              
              68,099,011
              (11)
              
              15.88%
              
              
              15.88%Ian
                  T. Richardson(12)
              
              
              0
              
              
              0%
              
              
              0%Duy
                  Tran(13)
              
              
              18,913,655
              (14)
              
              4.56%
              
              
              4.56%B.O.S.
                  Better Online Solutions Ltd.
                Beit
                  Rabin, Teradyon Industrial Park
                Misgav
                  20170
                Israel
              
              
              71,040,519
              (15)
              
              17.12%
              
              
              17.12%Total
                  directors and executive officers as a group
              
              
              334,497,045
              
              
              70.83%
              
              
              70.83%


57





(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 President and Chief Executive Officer,
                and our
                Chairman of the Board. Mr. Kamrat is also a director and a principal
                stockholder of Qualmax.




(3)
            Represents:
                (a) 59,488,149 shares of Common Stock beneficially owned as a result
                of
                Mr. Kamrat’s direct ownership interest in Qualmax; (b) indirect beneficial
                ownership of 78,910,340 shares of Common Stock based on Mr. Kamrat’s wife,
                son and daughter-in-law’s 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.




(4)
            Noah
                Kamrat serves as our Chief Technology Officer, and until August 20,
                2007,
                served as a director. Mr. Kamrat is also a director and a principal
                stockholder of Qualmax.




(5)
            Represents:
                (a) 60,967,347 shares of Common Stock beneficially owned as a result
                of
                Mr. Kamrat’s direct ownership interest in Qualmax; (b) indirect beneficial
                ownership of 77,431,142 shares of Common Stock based on Mr. Kamrat’s wife,
                father and mother’s 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 father’s direct ownership of a warrant to purchase shares of
                Common Stock.




(6)
            P&S
                Spirit is owned equally by Dr. Selvin Passen and Jacob Schorr, Ph.D.,
                both
                of whom are directors of the
                Company.




(7)
            Represents:
                (a) 55,555,555 shares of Common Stock owned directly by P&S Spirit;
                (b) a warrant, owned directly by P&S Spirit, to purchase 27,777,778
                shares of Common Stock exercisable within the next 60 days; and (c)
                indirect beneficial ownership of 52,864,689 shares of Common Stock
                based
                upon P&S Spirit’s direct ownership interest in
                Qualmax.





(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) 4,829,103 shares
                of Common Stock indirectly beneficially owned by Dr. Passen based
                on his
                direct ownership interest in Qualmax; (e) 7,243,654 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
                direct ownership interest in Qualmax; (f) 27,777,778 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 26,432,344 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 direct ownership interest in
                Qualmax.


58





(10)
            Dr.
                Schorr serves as a director of the Company.




(11)
            Represents:
                (a) 27,777,778 shares of Common Stock indirectly beneficially owned
                by Dr.
                Passen 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 26,432,344
                shares of Common Stock based upon Dr. Schorr’s direct one-half ownership
                interest in P&S Spirit, as a result of P&S Spirit’s direct
                ownership interest in Qualmax.




(12)
            Mr.
                Richardson served as Vice President and interim Chief Financial Officer
                from September 15, 2006 until January 31, 2007 and from September
                15, 2006
                to July 31, 2007 served as Vice President and General Counsel to
                the
                Company.




(13)
            Mr.
                Tran served as Vice President & Secretary of the Company from
                September 15, 2006 to July 31, 2007, and from September 15, 2006
                until
                January 31, 2007 served as a director of the
                Company.




(14)
            Represents:
                (a) indirect beneficial ownership of 8,564,341 shares of Common Stock
                based on the direct ownership interest in Qualmax by Microstar
                Communications Corp, an entity controlled by Mr. Tran; and (b) indirect
                beneficial ownership of 10,349,314 shares of Common Stock based on
                Mr.
                Tran’s direct ownership of options to purchase shares of common stock
                of
                Qualmax exercisable within the next 60
                days.




(15)
            Represents:
                (a) direct ownership of 16,446,544 shares of Common Stock; (b) indirect
                beneficial ownership of 53,384,683 shares of Common Stock based on
                BOS’s
                direct ownership interest in Qualmax; and (c) indirect beneficial
                ownership of 1,209,282 shares of Common Stock based on BOS’s ownership of
                options to purchase shares of common stock of Qualmax exercisable
                within
                the next 60 days.





**Lock-Up
      Agreement Among Principal Shareholders**





In
      connection with the transactions contemplated by the Subscription Agreement,
      the
      Company, the Kamrats, P&S Spirit and certain affiliates of the Kamrats and
      P&S Spirit entered into the Lock-Up Agreement, pursuant to which each such
      party agreed to certain restrictions on transfer on certain shares of capital
      stock (and securities convertible into share of capital stock) of the Company
      on
      the terms set forth therein. A copy of the Amended and Restated Lock-Up
      Agreement is filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K
      filed with the SEC on January 8, 2007. In particular, the parties agreed to
      restrict their ability to transfer shares of capital stock in the Company for
      up
      to two years without the prior approval of the other stockholders party thereto
      (meaning, both the Kamrats and P&S Spirit must seek the consent of the other
      to sell subject shares during the term of the Lock-Up Agreement). Also, in
      connection with the transactions contemplated by the BOS Agreement: (i) BOS
      agreed to be subject to the Lock-Up Agreement, restricting the ability of BOS
      to
      transfer shares of capital stock in the Company and Qualmax for up to two years
      without the prior approval of the other stockholders party thereto; and (ii)
      BOS
      granted the Company a three-year option, contingent upon certain conditions,
      to
      purchase up to 30% of the shares of Preferred Stock (or shares of Common Stock)
      held by BOS, at a price per share ranging from $0.12 to $0.24 per share (on
      a
      common-equivalent basis).


59


**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





**Relationship
      with Selvin Passen**





To
      fund
      operations in the past, we have had to rely on loans from Dr. Selvin Passen,
      a
      director and our former Chairman and a substantial stockholder (directly and
      beneficially, as disclosed in the above table in Item 11, “Security Ownership of
      Certain Beneficial Owners and Management and Related Stockholder Matters”). As
      of September 15, 2006, none of those loans remained. Dr. Passen has invested
      substantially in the Company since September 15, 2006, investing $1,500,000
      on
      September 14, 2006, in relation to the Reverse Acquisition, and via P&S
      Spirit investing between $1,500,000 and $2,500,000 (based upon Dr. Passen’s 50%
      ownership in P&S Spirit) pursuant to the P&S Subscription Agreement
      described in more detail in this Report in Item 5, “Market for Common Equity and
      Related Stockholder Matters and Small Business Issuer Purchases of Equity
      Securities—Recent Sales of Unregistered Securities.”





**Relationship
      with Jacob Schorr**





Jacob
      Schorr, Ph.D., serves on our Board and is a substantial stockholder
      (beneficially, as disclosed in the above table in Item 11, “Security Ownership
      of Certain Beneficial Owners and Management and Related Stockholder Matters”),
      investing via P&S Spirit between $1,500,000 and $2,500,000 (based upon Dr.
      Schorr’s 50% ownership in P&S Spirit) pursuant to the Subscription Agreement
      herein described in more detail in Item 5, “Market for Common Equity and Related
      Stockholder Matters and Small Business Issuer Purchases of Equity
      Securities—Recent Sales of Unregistered Securities.”





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




Since
      January 1, 2006, the Company has entered into various transactions with Dr.
      Selvin Passen, a principal stockholder of the Company, and his affiliates,
      as
      well as with Jacob Schorr, Ph.D., a director of the Company, M. David Kamrat,
      the Company’s President and Chief Executive Officer and Chairman of the Board,
      and Noah R. Kamrat, the Company’s Chief Technology Officer and a former
      director. Reference is made to the description of each these related party
      transactions earlier in Item 1, “Description of Business—Recent
      Developments —P&S
      Spirit Subscription Agreement,” and in Item 5, “Market for Common Equity and
      Related Stockholder Matters and Small Business Issuer Purchases of Equity
      Securities—Recent Sales of Unregistered Securities.”


60




**Relationship
      and Transactions with BOS**





As
      a
      result of our acquisition on December 31, 2005 of certain assets of BOS, BOS
      became a principal stockholder of the Company. Reference is made to the
      description of related party transactions with BOS in Item 5, “Market for Common
      Equity and Related Stockholder Matters and Small Business Issuer Purchases
      of
      Equity Securities—Recent Sales of Unregistered Securities.”





**Corporate
      Governance**





Based
      on
      our adoption of the NASDAQ definition of independence, as of December 31, 2007,
      two of our directors, M. David Kamrat and Shehryar Wahid, were not considered
      independent as a result of their status as employees and officers of the
      Company, and our other two directors, Jacob Schorr and Selvin Passen, are not
      considered an independent director as a result of their respective ownership
      interests in P&S Spirit.





**ITEM
      13.**  **EXHIBITS**





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




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





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





The
      following table sets forth, for each of the years indicated, the aggregate
      fees
      paid to our independent registered public accounting firms and the percentage
      of
      each of the fees out of the total amount paid to the accountants:


****  ****


**12 Months Ended****December 31, 2006**
            
            **December 31, 2007****Services Rendered**
            
            **Fees**
            
            **Percentages**
            
            **Fees**
            
            **Percentages**Audit(1)
            
            
            $49,934
            
            
            100%
            
            
            $203,344
            
            
            94%Audit-Related
                Fees(2)
            
            
            -
            
            
            -
            
            
            -
            
            
            -Tax
                Fees(3)
            
            
            -
            
            
            -
            
            
            12,100
            
            
            6%All
                Other Fees
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            
            $49,934
            
            
            100%
            
            
            $215,444
            
            
            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.


61





(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 a policy and procedures for the pre-approval of audit and non-audit
      services rendered by our independent public accountants, Berenfeld, Spritzer,
      Shechter & Sheer. The policy generally pre-approves certain specific
      services in the categories of audit services, audit-related services, and tax
      services up to specified amounts, and sets requirements for specific
      case-by-case pre-approval of discrete projects, those which may have a material
      effect on our operations or services over certain amounts. Pre-approval may
      be
      given as part of the Board’s approval of the scope of the engagement of our
      independent auditor or on an individual basis. The pre-approval of services
      may
      be delegated to one or more of the Board members, but the decision must be
      presented to the full Board at its next scheduled meeting. The policy prohibits
      retention of the independent public accountants to perform the prohibited
      non-audit functions defined in Section 201 of the Sarbanes-Oxley Act or the
      rules of the SEC, and also considers whether proposed services are compatible
      with the independence of the public accountants.


62


**SIGNATURES**





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





NEW
                WORLD BRANDS, INC.Date:
                  September 24, 2008
              By:
              /s/
                  M. David
                  KamratM.
                  David Kamrat, Chief Executive
                  Officer





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





SIGNATURE
              
              TITLE
              
              DATE/s/ M. David Kamrat
              
              Chief
                  Executive Officer,
              
              September
                  24, 2008M.
                  David Kamrat
              
              President,
                  and Chairman of the Board/s/
                  Shehryar Wahid
              
              Chief
                  Financial Officer,
              
              September
                    24, 2008Shehryar
                  Wahid
              
              Secretary,
                  Treasurer,Chief
                  Operations Officer and Director/s/
                Selvin Passen, M.D.
              
              Director
              
              September
                    24, 2008Selvin Passen,
                M.D.


63
  **EXHIBIT
          INDEX**
 Exhibit
                    Number
                  
                  Document3.1
                  
                  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)4.3
                  
                  Certificate
                      of Amendment to Certificate of Designation, Preferences and
                      Rights of
                      Series A Convertible Preferred Stock (3)4.4
                  
                  Amended
                      and Restated Stock Subscription and Share Transfer Agreement,
                      dated as of
                      December 29, 2006, by and among New World Brands, Inc., P&S Spirit,
                      LLC, M. David Kamrat and Noah Kamrat(3)4.5
                  
                  Amended
                      and Restated Escrow Agreement dated as of December 29, 2006
                      by and among
                      New World Brands, Inc., P&S Spirit, LLC and the Escrow Agent (as
                      defined therein)(3)4.6
                  
                  Amended
                      and Restated Lock-Up Agreement dated as of December 29, 2006
                      by and among
                      New World Brands, Inc., P&S Spirit, LLC, M. David Kamrat, Noah Kamrat
                      and certain other stockholders party thereto(3)4.7
                  
                  Amended
                      and Restated Voting Agreement dated as of December 29, 2006
                      by and among
                      New World Brands, Inc., P&S Spirit, LLC, M. David Kamrat, Noah Kamrat
                      and certain other stockholders party thereto(3)4.8
                  
                  Form
                      of Warrant Agreement dated as of December 29,
                      2006 (3)10.1
                  
                  Letter
                      agreement among New World Brands, Inc., Qualmax, Inc., IP Gear,
                      Ltd.,
                      P&S Spirit, LLC and B.O.S. Better Online Solutions Ltd., dated
                      December 31, 2006 (4)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)10.4
                  
                  Guaranty
                      by Qualmax, Inc. dated as of March 30, 2007 (5)10.5
                  
                  Limited
                      Guaranty by M. David Kamrat dated as of March 30, 2007
                      (5)10.6
                  
                  Collateral
                      Pledge Agreement made by Qualmax, Inc. dated as of 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)
  64
  10.8
                  
                  Credit
                      Line Note, dated as of May 31, 2007, of New World Brands, Inc.
                      (6)10.9
                  
                  Guaranty
                      of Qualmax, Inc., dated as of May 31, 2007 (6)10.10
                  
                  Collateral
                      Pledge Agreement, dated as of May 31, 2007, by Qualmax, Inc.
                      in favor of
                      P&S Spirit, LLC (6)10.11
                  
                  Collateral
                      Pledge Agreement, dated as of May 31, 2007, by New World Brands,
                      Inc., in
                      favor of P&S Spirit, LLC (6)10.12
                  
                  First
                      Amendment to Amended and Restated Stock Subscription and Share
                      Transfer
                      Agreement, dated as of May 31, 2007, by and between New World
                      Brands, Inc.
                      and P&S Spirit, LLC, and acknowledged and agreed by M. David Kamrat
                      and Noah Kamrat (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)10.14
                  
                  First
                      Amendment to Amended and Restated Voting Agreement, dated as
                      of May 31,
                      2007, by and among New World Brands, Inc., Qualmax, Inc., P&S Spirit,
                      LLC, Dr. Selvin Passen, Oregon Spirit, LLC, and solely for
                      the purposes of
                      Section 21 of the Restated Original Voting Agreement, M. David
                      Kamrat,
                      Jane Kamrat, Noah Kamrat, and Tracy Habecker (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)10.17
                  
                  Consent
                      of Lender to Sale of Asset, dated July 26, 2007, by P&S Spirit, LLC
                      (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)
  65
  10.21
                  
                  Settlement
                      Agreement, effective March 31, 2008, by and between Capital
                      Securities,
                      LLC, Blackstone Communications Company, Carlos Bertonatti,
                      Worldwide PIN
                      Payment Corp., Qualmax, Inc./New World Brands, Inc. and others
                      (as listed
                      therein) (11)16.1
                  
                  Letter
                      from Salberg & Company, P.A., dated March 13, 2007 regarding
                      change in certifying accountant (12)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(*)
  
 
 (*)
                  
                  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.
 
 66


**NEW
        WORLD BRANDS, INC. AND SUBSIDIARY**
 **TABLE
        OF CONTENTS**
 **DECEMBER
        31, 2007**
  PageReport
                  of independent registered public accounting firm
              F-2Financial
                  statements:Consolidated
                  balance sheet
              F-3
                  - F-4Consolidated
                  statements of comprehensive loss
              F-5Consolidated
                  statements of changes in stockholders’ equity
              F-6Consolidated
                  statements of cash flows
              F-7
                  - F-8Notes
                  to consolidated financial statements
              F-9
                  - F-23
 
 F-1
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To
        the
        Audit Committee and Stockholders
 New
        World
        Brands, Inc. and Subsidiary
 Eugene,
        Oregon
  We
        have
        audited the accompanying consolidated balance sheet of New World Brands,
        Inc.
        and Subsidiary as of December 31, 2007 and the related consolidated statements
        of comprehensive loss, changes in stockholders’ equity and cash flows for the
        years ended December 31, 2007 and 2006. These consolidated financial statements
        are the responsibility of the Company's management. Our responsibility is
        to
        express an opinion on the consolidated financial statements based on our
        audit.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. Our audit included consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of the company’s internal control over financial
        reporting. Accordingly, we express no such opinion. An audit also includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements, assessing the accounting principles used and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of New World
        Brands, Inc. and Subsidiary as of December 31, 2007, and the consolidated
        results of its operations and its cash flows for the years ended December
        31,
        2007 and 2006 in conformity with accounting principles generally accepted
        in the
        United States of America.
  **BERENFELD,
        SPRITZER, SHECHTER & SHEER, LLP**
 Coral
        Gables, Florida
 April
        15,
        2008
  F-2
 **NEW
        WORLD BRANDS, INC. AND SUBSIDIARY**
 **CONSOLIDATED
        BALANCE SHEET**
 **DECEMBER
        31, 2007**
 
 **ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              2,038,635Accounts
                  receivable, net
              
              
              1,027,739Inventories,
                  net
              
              
              744,654Prepaid
                  expenses
              
              
              244,157Other
                  current assets
              
              
              507,012Total
                  Current Assets
              
              
              4,562,197**Property
                  and Equipment, net**
              
              
              1,421,806**Other
                  Assets:**Deposits
                  and other assets
              
              
              668,750**Total
                  Assets**
              
              $
              6,652,753
  The
        accompanying notes are an integral part of these consolidated financial
        statements.




F-3


**NEW
      WORLD BRANDS, INC. AND SUBSIDIARY**


**CONSOLIDATED
        BALANCE SHEET**
 **DECEMBER
        31, 2007**
  **LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  Liabilities:**Accounts
                  payable
              
              $
              1,564,299Accrued
                  expenses
              
              
              406,910Customer
                  deposits
              
              
              121,874Capital
                  leases, current portion
              
              
              181,731Total
                  Current Liabilities
              
              
              2,274,814**Long-Term
                  Liabilities:**Capital
                  lease obligations, net of current portion
              
              
              31,317Note
                  payable
              
              
              500,000Total
                  Long-Term Liabilities
              
              
              531,317**Total
                  Liabilities**
              
              
              2,806,131**Stockholders’
                  Equity:**Preferred
                  stock, $.01 par value, 1,000 shares authorized, 200 shares designated
                  as Series A preferred stockSeries
                  A preferred stock, $.01 par value, no shares issued.
              
              
              -Common
                  stock, $.01 par value, 600,000,000 shares authorized,414,979,673shares issued and outstanding
              
              
              4,149,797Additional
                  paid-in capital
              
              
              33,641,557Accumulated
                  deficit
              
              
              (33,944,732
              )Total
                  Stockholders’ Equity
              
              
              3,846,622**Total
                  Liabilities and Stockholders’ Equity**
              
              $
              6,652,753
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-4
 **NEW
            WORLD BRANDS INC. AND SUBSIDIARY**
 **CONSOLIDATED
            STATEMENTS OF COMPREHENSIVE LOSS**
 **FOR
            THE TWELVE MONTHS ENDED DECEMBER 31, 2007 AND
            2006**
 
 **2007**
              
              **2006**Net
                  SalesHardware
              
              $
              5,657,689
              
              $
              6,307,644Carrier
                  Services
              
              
              11,443,514
              
              
              11,230,28417,101,203
              
              
              17,537,928Cost
                  of SalesHardware
              
              
              (4,954,381
              )
              
              (5,317,852
              )Carrier
                  Services
              
              
              (9,850,272
              )
              
              (10,382,726
              )(14,804,653
              )
              
              (15,700,578
              )Gross
                  Profit
              
              
              2,296,550
              
              
              1,837,350Sales,
                  General and Administrative Expenses
              
              
              (4,630,863
              )
              
              (4,434,396
              )Loss
                  from Continuing Operations Before Other Income
              
              
              (2,334,313
              )
              
              (2,597,046
              )Other
                  IncomeInterest
                  and Bank Charges
              
              
              (129,346
              )
              
              (178,967
              )Other
                  Income
              
              
              109,157
              
              
              24,448(20,189
              )
              
              (154,519
              )Loss
                  From Continuing Operations Before Income Taxes
              
              
              (2,354,502
              )
              
              (2,751,565
              )(Provision)
                  Benefit for Income Taxes
              
              
              (403,995
              )
              
              472,905Net
                  Loss From Continuing Operations
              
              
              (2,758,497
              )
              
              (2,278,660
              )Loss
                  From Discontinued Operations
              
              
              (3,949,395
              )
              
              (3,147,014
              )Gain
                  from Sale of Discontinued Operations
              
              
              4,706
              
              
              -(3,944,689
              )
              
              (3,147,014
              )Net
                  Loss
              
              $
              (6,703,186
              )
              $
              (5,425,674
              )Net
                  Loss Per Share From Continuing Operations (Basic)
              
              $
              (0.01
              )
              $
              (0.02
              )Net
                  Loss Per Share From Continuing Operations (Diluted)
              
              $
              (0.01
              )
              $
              (0.02
              )Net
                  Loss Per Share from Discontinued Operations (Basic)
              
              $
              (0.01
              )
              $
              (0.03
              )Net
                  Loss Per Share from Discontinued Operations (Diluted)
              
              $
              (0.01
              )
              $
              (0.03
              )Net
                  loss per Share (Basic)
              
              $
              (0.02
              )
              $
              (0.04
              )Net
                  Loss per Share (Diluted)
              
              $
              (0.02
              )
              $
              (0.04
              )Weighted
                  Average Number of Shares Outstanding During the YearBasic
              
              
              433,592,000
              
              
              125,192,000Diluted
              
              
              433,592,000
              
              
              125,192,000Comprehensive
                Loss:
              
              
              (6,703,186
              )
              
              (5,425,674
              )Net
                  LossGain
                  (Loss) on Foreign Currency Translation, Net of Income Tax
                  Benefit
              
              
              40,556
              
              
              (49,295
              )Comprehensive
                  Loss
              
              $
              (6,662,630
              )
              $
              (5,474,969
              )
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-5
 **NEW
            WORLD BRANDS INC. AND SUBSIDIARY**
 **CONSOLIDATED
            STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**
 **FOR
            THE TWELVE MONTHS ENDED DECEMBER 31, 2007 AND 2006**
 **Preferred
                  Stock**
              
              **Common
                  Stock**
              
              **Additional**
                  **Paid-in**
              
              **Accumulated****Other****Comprehensive**
              
              **Retained****Earnings**(Accumulated****
              
              **Total**
                  **Stockholders’****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Loss**
              
              **Deficit)**
              
              **Equity****Balances
                  at January 1, 2006**
              
              
              -
              
              $
              -
              
              
              271,431,841
              
              $
              2,714,317
              
              $
              2,332,791
              
              $
              -
              
              $
              1,064,647
              
              $
              6,111,755Issuances
                  of stock - 2006Additional
                  common stock issued in consideration of asset
                  acquisition
              
              
              -
              
              
              -
              
              
              5,806,633
              
              
              58,066
              
              
              594,321
              
              
              -
              
              
              -
              
              
              652,387Issuance
                  of common stock for cash
              
              
              -
              
              
              -
              
              
              13,315,856
              
              
              133,159
              
              
              1,206,841
              
              
              -
              
              
              -
              
              
              1,340,000Issuance
                  of common stock in exchange for partial  repayments of principal
                  on note payable
              
              
              -
              
              
              -
              
              
              5,981,070
              
              
              59,811
              
              
              540,189
              
              
              -
              
              
              -
              
              
              600,000Issuance
                  of stock for equipment
              
              
              -
              
              
              -
              
              
              2,138,235
              
              
              21,382
              
              
              193,118
              
              
              -
              
              
              -
              
              
              214,500Recapitalization
                  of Qualmax common stock as a result  of the reverse
                  acquisition
              
              
              -
              
              
              -
              
              
              (298,673,635
              )
              
              (2,986,735
              )
              
              2,986,735
              
              
              -
              
              
              -
              
              
              -Recapitalization
                  of New World Brands as a result of  the reverse
                  acquisition
              
              
              -
              
              
              -
              
              
              44,303,939
              
              
              443,040
              
              
              24,278,035
              
              
              -
              
              
              (22,921,075
              )
              
              1,800,000Issuance
                  of Series A preferred stock as a result of  the reverse
                  acquisition
              
              
              100
              
              
              1
              
              
              -
              
              
              -
              
              
              (1
              )
              
              -
              
              
              -
              
              
              -Issuance
                  of Series A preferred stock for cash
              
              
              11.160454
              
              
              -
              
              
              -
              
              
              -
              
              
              3,000,000
              
              
              -
              
              
              -
              
              
              3,000,000Cost
                  of raising capital
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (150,000
              )
              
              -
              
              
              -
              
              
              (150,000
              )Issuance
                  of Series A preferred stock in exchange for  partial repayment
                  of note payable, accrued royalties  and outsourcing expenses,
                  and release of obligations  from operating
                  agreements
              
              
              5.50652
              
              
              -
              
              
              -
              
              
              -
              
              
              1,480,189
              
              
              -
              
              
              -
              
              
              1,480,189Net
                  loss - 2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (5,425,674
              )
              
              (5,425,674
              )Loss
                  on foreign currency translation, net of tax benefit
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (49,295
              )
              
              -
              
              
              (49,295
              )**Balances
                  at December 31, 2006**
              
              
              116.666974
              
              $
              1
              
              
              44,303,939
              
              $
              443,040
              
              $
              36,462,218
              
              $
              (49,295
              )
              $
              (27,282,102
              )
              $
              9,573,862Conversion
                  of series A preferred stock to common stock April 24, 2007
              
              
              (116.6666974
              )
              
              (1
              )
              
              348,453,512
              
              
              3,484,535
              
              
              (3,484,534
              )
              
              -
              
              
              -
              
              
              -Issuance
                  of common stock
              
              
              -
              
              
              -
              
              
              22,222,222
              
              
              222,222
              
              
              663,873
              
              
              -
              
              
              -
              
              
              886,095Sale
                  of subsidiary
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,706
              
              
              4,706Loss
                  on discontinued operations
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              49,295
              
              
              (3,949,395
              )
              
              (3,900,100
              )Gain
                  on foreign currency translation, net of tax benefit
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              40,556
              
              
              40,556Net
                  Loss from continuing operations for the twelve months ended December
                  31,
                  2007
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,758,497
              )
              
              (2,758,497
              )**Balances
                  at December 31, 2007**
              
              
              -
              
              $
              -
              
              
              414,979,673
              
              $
              4,149,797
              
              $
              33,641,557
              
              $
              -
              
              $
              (33,944,732
              )
              $
              3,846,622
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-6
 **NEW
          WORLD BRANDS, INC. AND SUBSIDIARY**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **2007**
              
              **2006****Cash
                  flows from operating activities:**Net
                  loss from continuing operations
              
              $
              (2,758,497
              )
              
              (2,278,660
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Depreciation
                  and amortization
              
              
              406,152
              
              
              296,110Issuance
                  of stock for royalties and outsourcing expenses
              
              
              -
              
              
              356,817Changes
                  in operating assets and liabilities:-
                  Accounts receivable
              
              
              76,118
              
              
              410,648-
                  Change in allowance for doubtful accounts
              
              
              (15,046
              )
              
              129,046-
                  Inventories
              
              
              141,098
              
              
              795,743-
                  Prepaid expenses
              
              
              (121,362
              )
              
              112,919-
                  Income tax refund receivable
              
              
              403,995
              
              
              (403,995
              )-
                  Deferred tax asset
              
              
              -
              
              
              45,467-
                  Other current assets
              
              
              (368,139
              )
              
              (134,934
              )-
                  Deposits and other assets
              
              
              (568,750
              )
              
              253,142-
                  Accounts payable
              
              
              1,122,665
              
              
              (383,701
              )-
                  Accrued expenses
              
              
              (678,032
              )
              
              299,346-
                  Customer deposits
              
              
              62,249
              
              
              (23,712
              )-
                  Deferred income taxes
              
              
              -
              
              
              (111,540
              )-
                  Other liabilities
              
              
              -
              
              
              (1,746,040
              )**Net
                  cash used in operating activities**
              
              
              (2,297,549
              )
              
              (2,384,342
              )**Cash
                  flows from investing activities:**Acquisition
                  of property and equipment
              
              
              (284,044
              )
              
              1,186,902Net
                  cash acquired from the reverse acquisition
              
              
              -
              
              
              1,800,000**Net
                  cash provided by (used in) investing activities**
              
              
              (284,044
              )
              
              2,986,902**Cash
                  flows from financing activities:**Proceeds
                  from notes payable
              
              
              1,000,000
              
              
              -Payments
                  of principal on notes payable
              
              
              (1,484,323
              )
              
              (460,000
              )Payments
                  of principal on capital lease obligations
              
              
              (131,301
              )
              
              (141,153
              )Net
                  repayment of advances from shareholders
              
              
              (53,479
              )
              
              (75,245
              )Sales
                  of common and preferred stock
              
              
              886,095
              
              
              2,136,459Foreign
                currency translation
              
              
              (29,740
              )
              
              29,740**Net
                  cash provided by financing activities**
              
              
              187,252
              
              
              1,489,801**Net
                  cash flow from continuing operations**
              
              
              (2,394,341
              )
              
              2,092,362**Cash
                  flows from discontinued operations:****Total
                  cash flows from discontinued operations**
              
              
              (1,160,828
              )
              
              (274,529
              )**Net
                  investing activities from discontinued operations**
              
              
              2,197,187
              
              
              (410,689
              )**Net
                  cash flow from discontinued operations**
              
              
              1,036,358
              
              
              (685,218
              )**Net
                  (decrease) increase in cash and cash
                  equivalents**
              
              
              (1,357,983
              )
              
              1,407,144**Cash
                  and cash equivalents, beginning of year**
              
              
              3,396,617
              
              
              1,989,473**Cash
                  and cash equivalents, end of year**
              
              $
              2,038,634
              
              $
              3,396,617
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-7
 **NEW
          WORLD BRANDS, INC. AND SUBSIDIARY**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **Supplemental
                Disclosures of Cash Flow Information:**
              
              **2007**
              ****
              **2006****Cash
                  paid during the year for:**-
                  Income taxes
              
              $
              -
              
              $
              --
                  Interest
              
              $
              129,346
              
              $
              178,168**Non-cash
                  investing and financing activities:**Issuance
                  of common stock for asset acquisition-
                  Inventories
              
              $
              -
              
              $
              79,179-
                  Property and equipment
              
              
              -
              
              
              573,208-
                  Additional paid-in capital
              
              $
              -
              
              $
              (652,387
              )Issuance
                  of stock for payment of note payable-
                  Note payable
              
              $
              -
              
              $
              600,000-
                  Additional paid-in capital
              
              $
              -
              
              $
              (600,000
              )$
              -
              
              $
              -Issuance
                  of common stock for property and equipment-
                  Fair value of property and equipment acquired
              
              $
              -
              
              $
              214,500-
                  Additional paid-in capital
              
              
              -
              
              
              (214,500
              )$
              -
              
              $
              -Issuance
                  of preferred stock for partial repayment of note payable,accrued
                  royalties and outsourcing expenses, and releaseof obligations from
                  operating agreements-
                  Note payable
              
              $
              -
              
              $
              400,000-
                  Royalties and outsourcing expenses
              
              
              -
              
              
              356,817-
                  Property and equipment
              
              
              -
              
              
              723,372-
                  Additional paid-in capital
              
              
              -
              
              
              (1,480,189
              )$
              -
              
              $
              -Acquisition
                  of property and equipment through capital lease
                  obligations-
                  Fair value of property and equipment acquired
              
              $
              -
              
              $
              387,384-
                  Capital lease obligations incurred
              
              $
              -
              
              $
              (387,384
              )$
              -
              
              $
              -Issuance
                  of Common Stock for Preferred Stock-
                  Common Stock
              
              $
              3,706,757
              
              $
              -- Preferred
                  Stock
              
              
              (1
              )
              
              -- Paid
                  in Capital
              
              
              (3,706,756
              )
              
              -$
              -
              
              $
              -
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-8
 **NEW
        WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2007 AND 2006**
   **NOTE
                  A**
                ****ORGANIZATION,
                    CAPITALIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
                    POLICIES****
  **Organization
        and Basis of Presentation**
 
 New
        World
        Brands, Inc. (“ ***New
        World Brands*** ”,
        the
“ ***Company*** ”,
        “ ***we*** ”,
        “ ***us*** ”
or
        “ ***our*** ”)
        is a
        Delaware corporation that until September 15, 2006 was an importer of wine
        and
        spirits beverages for sale and distribution throughout the United
        States.  On September 15, 2006, we sold our wine and spirits business,
        and, by way of a reverse acquisition, acquired all of the assets and assumed
        all
        of the liabilities of Qualmax, Inc., a Delaware corporation (“ ***Qualmax*** ”
and
        the
        reverse acquisition the “ ***Reverse
        Acquisition*** ”).
 
 As
        a
        result of the Reverse Acquisition we are no longer in the wine and spirits
        business, and instead we are now a telecommunications, sales, and service
        company, focusing on products and services utilizing voice over internet
        protocol (“ ***VoIP*** ”)
        technology.  We provide wholesale long distance carrier termination
        services. We are also a reseller of VoIP related telecommunications
        equipment, and a reseller of wholesale VoIP telephony service.
 
 Our
        acquisition of Qualmax and its wholly owned subsidiary IP Gear, Ltd. was
        accounted for as a reverse acquisition.  Although New World Brands was
        the company that made the acquisition, Qualmax was treated as the surviving
        company for accounting purposes.  As a result, the accompanying
        financial statements reflect the results of operations and cash flows of
        Qualmax
        and IP Gear, Ltd. prior to September 15, 2006, and the financial position,
        results of operations, and cash flows of New World Brands, Qualmax, and IP
        Gear,
        Ltd. from and after September 15, 2006.
 
 All
        inter-company accounts and transactions have been eliminated in
        consolidation.
 
 On
        September 15, 2006 the Company changed its fiscal year end from May 31 to
        December 31, which is Qualmax’s fiscal year end.  The change in fiscal
        year results from the acquisition of Qualmax and IP Gear, Ltd., which was
        accounted for as a reverse acquisition.
 
 On
        July
        1, 2007 we sold the IP Gear Ltd subsidiary in a transaction that is explained
        in
        full detail in “Note B—Sale of Discontinued Operations—IP Gear,
        Ltd.” This
        subsidiary was sold for cash and other consideration. The impact of the sale
        on
        the presentation of the financial statements and other financial information
        is
        to have all 2007 and comparative 2006 information(where applicable) restated
        to
        be presented in a format where all discontinued operations are moved from
        continuing operations and listed separately. Comparative prior year information
        is also restated to remove the discontinued operations from the ongoing
        business.
 
 **Reverse
        Acquisition Accounting**
 
 In
        June
        2006, the Company decided to change its business plan by selling its wine
        and
        spirits business for the sum of $500,000 (the “ ***Sale
        Transaction*** ”),
        selling 7,500,000 shares of its common stock (the “ ***Common
        Stock*** ”)
        for
        $1,500,000 (the “ ***Private
        Equity Investment*** ”),
        and
        acquiring substantially all of the assets of Qualmax, Inc. (“ ***Qualmax*** ”)
        in
        exchange for shares of the Company’s Series A Convertible, par value $0.01 per
        share (the “ ***Preferred
        Stock*** ”
and
        the
        transaction, the “ ***Reverse
        Acquisition*** ”).
        The
        Private Equity Investment was consummated on September 14, 2006, and the
        Sale
        Transaction and Reverse Acquisition were consummated on September 14 and
        15,
        2006, respectively. As a result of the Sale Transaction and Reverse Acquisition,
        the Company is no longer in the wine and spirits business, and the business
        formerly operated by Qualmax is now operated by the Company, meaning that
        New
        World Brands, Inc. is now a specialized internet protocol (IP) communications
        solutions provider, equipment reseller, and Voice over Internet Protocol
        (“ ***VoIP*** ”)
        service provider, focused on the deployment of best of breed VoIP networks,
        virtual private networks, turnkey network design, wireless connectivity and
        direct call traffic routing.
  In
        furtherance of treating the Sale Transaction and Acquisition as a reverse
        acquisition for accounting purposes, the board of directors of the Company
        (the “ ***Board*** ”)
        and
        the board of directors of Qualmax (collectively, the “ ***Boards*** ”)
        have
        agreed that for accounting purposes they have treated the transactions as
        a
        reverse acquisition of Qualmax by the Company, and have since the time of
        the
        consummation, intended the transaction to ultimately result in a downstream
        merger of the Company and Qualmax, and, in furtherance thereof, the Boards
        have
        each determined that Qualmax will merge with and into the Company (the
“ ***Merger*** ”),
        and
        in connection with the Merger, the separate corporate existence of Qualmax
        will
        cease.
 
 The
        Boards agreed that certain events (the “ ***Merger
        Events*** ”)
        were
        required to occur in order to effectively consummate the transactions
        contemplated, including, without limitation, certain amendments to the
        Certificate of Incorporation of the Company to, among other things, increase
        the
        authorized number of shares of Common Stock of the Company, the resultant
        conversion of the Preferred Stock into shares of the Company’s Common Stock,
        make any filings necessary to complete the Merger, and receive approval by
        the stockholders of the Company and Qualmax. During 2007, the number of
        authorized shares was increased from 50 million shares to 600 million shares
        to
        allow for a sufficient number of authorized shares to convert the existing
        Preferred shares to common. All preferred shares were then converted to common
        stock as a further step towards the completion of the merger.
 F-9
 **NEW
          WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
          31, 2007 AND 2006**
   **NOTE
                    A**
                  ****ORGANIZATION,
                      CAPITALIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                      (CONTINUED)****
  Under
        generally accepted accounting principles in the United States of America
        (“ ***GAAP*** ”),
        the
        acquisition of Qualmax has been accounted for as a reverse acquisition and
        Qualmax has been treated as the acquiring entity for accounting and financial
        reporting purposes.  As such, the Company’s consolidated financial
        statements have been and will be presented as a continuation of the operations
        of Qualmax and not New World Brands, Inc.  Effective on the
        acquisition date of September 15, 2006, New World Brands’ consolidated balance
        sheet included the assets and liabilities of Qualmax and its wholly owned
        subsidiary IP Gear, Ltd. and its consolidated equity accounts were recapitalized
        to reflect the combined equity of New World Brands, Qualmax and IP Gear,
        Ltd.
        Also, as a result of the Reverse Acquisition, the Company’s fiscal year changed
        from May 31 to December 31.
 
 Accordingly,
        the accompanying financial statements consist of the balance sheet of both
        the
        Company and Qualmax as of December 31, 2007, and the results of operations
        and
        cash flows of Qualmax for the years ended December 31, 2007 and 2006, and
        the
        Company for the year ended December 31, 2007 and for the period from September
        16, 2006 to December 31, 2006.
 
 **Basis
        of Accounting and Revenue Recognition**
 
 The
        accompanying consolidated financial statements have been prepared using the
        accrual method of accounting.  Revenues from our VoIP telephony
        services division have been recognized as services are
        rendered.  Revenue from the sale of products from our exclusive
        distributorship of VoIP equipment or reseller equipment is recognized as
        our
        customers take delivery of our products.  Any amounts received from
        our customers in advance are recorded as customer deposits and classified
        as
        other current liabilities.
 
 **Use
        of Estimates**
 
 The
        preparation of consolidated financial statements in conformity with accounting
        principles generally accepted in the United States of America requires
        management to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities and disclosure of contingent assets and liabilities
        at
        the date of the consolidated financial statements and the reported amounts
        of
        revenues and expenses during the reporting period.  Accordingly,
        actual results could differ from those estimates.
 
 **Cash
        and Cash Equivalents**
 
 The
        Company considers all highly liquid investments in debt instruments purchased
        with original maturities of three months or less to be cash
        equivalents.
 
 **Accounts
        Receivable**
 
 Accounts
        receivable are presented at net realizable value, which is comprised of total
        accounts receivable less any allowances for uncollectible
        accounts.  The Company provides an allowance for potentially
        uncollectible accounts based upon a periodic review and analysis of outstanding
        accounts receivable balances.  The resulting estimate of uncollectible
        receivables is charged to an allowance for doubtful
        accounts.  Recoveries of accounts previously written off are used to
        offset the allowance account in the periods in which the recoveries are
        made.  Accordingly, accounts receivable has been written down to its
        estimated net realizable value. The results of operations for the years ended
        December 31, 2007 and 2006 include charges of approximately $323,000 and
        $437,000, respectively.  The allowance for doubtful accounts as of December
        31, 2007 was approximately $114,000.
 
 **Inventories**
 
 Inventories
        are valued at the lower of cost or market. Cost is determined on a
        first-in, first-out basis.  Market represents the lower of replacement
        cost or net realizable value on inventories as a whole.  Inventories
        are made up primarily of high technology telephone switching and VoIP routing
        equipment and their parts.   All year ending inventories
        consisted of finished goods for resale that were purchased from other
        manufacturers.  Due to rapid technological advancements in the
        industry, inventories may, from time to time, be subject to impairment and
        obsolescence.  We record an allowance for slow-moving and obsolete
        inventories based upon a periodic review and analysis of inventories on
        hand.  We perform a periodic comparison of this slow moving and
        obsolete inventory to determine if its value is below its cost in our records
        and reduce the value on our records if the cost is above the current
        value.  Accordingly, the allowance for obsolete inventories as of
        December 31, 2007 was approximately $75,000.
 
 **Concentration
        of Deposit Risk**
 
 From
        time
        to time, the Company has cash in financial institutions in excess of federally
        insured limits.  However, the Company has not experienced any losses
        in such accounts and believes it is not exposed to any significant credit
        risk
        on its cash balances.  Cash exceeding federally insured limits
        amounted to approximately $1,762,000 as of December 31, 2007.
 F-10
 **NEW
            WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
            31, 2007 AND 2006**
   **NOTE
                      A**
                    ****ORGANIZATION,
                        CAPITALIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                        (CONTINUED)****
 **Business
        Concentrations**
 
 We
        had
        one supplier during the year ended December 31, 2007 that exceeded 10% of
        our
        total cost of sales. They accounted for 17% of the total purchases made by
        New
        World Brands during 2007. The top three vendors collectively represent 31%
        of
        purchases. We did not have any single supplier that represented more than
        ten
        percent of purchases or any single customer that represented more than ten
        percent of sales during the year ended December 31,
        2006.
 
 We
        had no
        customers in 2007 that made up a sufficiently large amount of our sales to
        be
        considered a concentration risk on the revenue side of our
        business.
 
 **Impairment
        of Long-Lived Assets and Long-Lived Assets Subject to
        Disposal**
 
 We
        review
        our long-lived assets for impairment whenever events or changes in circumstances
        indicate that the carrying amount of an asset may not be recoverable, in
        accordance with Statement of Financial Accounting Standards (“ ***SFAS*** ”)
        No.
        144.  Recoverability of assets to be held and used is measured by a
        comparison of the carrying amount of an asset to future undiscounted cash
        flows
        expected to be generated by the asset.  If such assets are considered
        to be impaired, the impairment to be recognized is measured by the amount
        by
        which the carrying an amount of the assets exceeds its fair
        value.  Assets subject to disposal are reported at the lower of the
        carrying amount or fair value less costs to sell.  We did have an
        impairment of a long lived asset during the year that was written down and
        subsequently sold in 2007. See “Note B—Sale of Discontinued Operations—IP Gear,
        Ltd.” We had no impairment in 2006.
 
 **Property
        and Equipment**
 
 Property
        and equipment are recorded at cost.  For financial statement purposes,
        depreciation of software, furniture and equipment is computed using the
        straight-line method over their estimated useful lives of the assets while
        leasehold improvements are amortized over the shorter of their estimated
        useful
        lives or the terms of their respective leases.  Expenditures for
        replacements, maintenance and repairs that do not extend the lives of the
        assets
        are charged to operations as the expenses are incurred.  When assets
        are retired, sold or otherwise disposed of, their costs and related accumulated
        depreciation are removed from the accounts and resulting gains or losses
        are
        reflected in the year of disposal.
 
 **Stock
        Options**
 
 Effective
        January 1, 2006, we adopted the fair value method of accounting for awards
        of
        employee stock and options in accordance with SFAS No. 123, “Accounting for
        Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for
        Stock-Based Compensation, Transition and Disclosure,” and SFAS No. 123R,
“Share-Based Payment.” These standards require the cost associated with employee
        services in exchange for equity instruments based on the grant date fair
        value
        of the award, be recognized over the period during which the employee is
        required to provide services in exchange for the award. No compensation cost
        is
        recognized for awards for which employees do not render the requisite service.
        Because the Company changed its method of accounting from the intrinsic method
        as per APB Opinion No. 25, upon adoption, the grant date fair value of employee
        share options was estimated using the Black-Scholes model. Compensation cost
        for
        the unvested portion of equity awards granted prior to January 1, 2006, will
        be
        recognized over the remaining vesting periods. Due to the prospective adoption
        of SFAS No. 123R, results of operations for prior periods have not been
        restated.See “Note G—Stock Option Plans.”
 
 **Software
        Costs**
 
 Certain
        computer software development costs are capitalized in the accompanying
        consolidated balance sheet in accordance with SFAS No. 86, ** “Accounting
        for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.”
Capitalization of computer software development costs begins upon the
        establishment of technological feasibility. Capitalization ceases and
        amortization of capitalized costs begins when the software product is
        commercially available for general release to customers. Amortization of
        capitalized computer software development costs is included in general and
        administrative expenses and is provided using the straight-line method over
        the
        remaining estimated economic life of the product, not to exceed three
        years.  Much of the software that we had in past years was related to the
        development of equipment in our IP Gear Ltd subsidiary that is not considered
        as
        part our “continuing operations.” Net unamortized software costs as of December
        31, 2007 amounted to approximately $ 1,000.  Amortization of software
        costs for the years ended December 31, 2007 and 2006 was approximately $20,000
        and $ 18,000, respectively.
 
 **Segment
        Information**
 
 Our
        business consisted of three operating segments: (i) proprietary hardware,
        which
        is our VoIP technology development and equipment manufacturing subsidiary
        that
        is located in Israel, IP Gear, Ltd.; (ii) resale hardware, which is the sale
        and
        distribution of VoIP and other telephony equipment and related professional
        services via our U.S.-based business operated under the name “IP Gear”; and
        (iii) wholesale carrier services, which is telephony service resale and direct
        call routing via our U.S.-based VoIP service business operated under the
        name
“IP Gear Connect.”  The proprietary hardware segment, IP Gear Ltd. was
        discontinued as at June 30, 2007 and subsequently sold on July 1 2007. See
“Note
        B—Sale of Discontinued Operations—IP Gear, Ltd.” for further information
        regarding this transaction. Our continuing business was subsequently organized
        into two segments, the resale hardware operating under the name “NWB Networks”
and the carrier segment operating under the name “NWB Telecom.” Please see “Note
        N—Business Segment Reporting.”
 F-11
 **NEW
            WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
            31, 2007 AND 2006**
   **NOTE
                      A**
                    ****ORGANIZATION,
                        CAPITALIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                        (CONTINUED)****
  **Reclassification**
  Certain
        reclassifications of amounts previously reported have been made to the
        accompanying consolidated financial statements in order to maintain consistency
        and comparability between periods presented.
  In
        June
        2007, the Company sold IP Gear, Ltd. ( See
“Note
        B—Sale of Discontinued Operations—IP Gear, Ltd.” )
        For
        purposes of comparability, the results of these operations have been
        reclassified from continuing operations to discontinued operations for all
        years
        presented in the accompanying consolidated statements of
        operations.
  **Fair
        Value of Financial Instruments**
 
 Our
        financial instruments consist primarily of cash, certificates of deposit,
        accounts receivable, accounts payable, accrued liabilities and notes
        payable.  The carrying amounts of such financial instruments
        approximate their respective estimated fair values due to the short-term
        maturities and approximate market interest rates of these
        instruments.  The estimated fair values are not necessarily indicative
        of the amounts we would realize in a current market exchange or from future
        earnings or cash flows.
 
 **Earnings
        per Share**
 
 Net
        income per share is computed in accordance with SFAS No. 128, “Earnings per
        Share.” Basic net income per share is based upon the weighted average number of
        common shares outstanding during the period. Diluted net income per share
        is
        based upon the weighted average number of common shares outstanding and dilutive
        common stock equivalents outstanding during the period. Common stock equivalents
        are options and warrants granted by the Company and are calculated under
        the
        treasury stock method. Common equivalent shares from unexercised stock options
        and warrants are excluded from the computation when there is a loss as their
        effect is antidilutive, or if the exercise price of such options and warrants
        is
        greater than the average market price of the stock for the
        period.  See “Note G—Stockholders’ Equity” for the computation of
        basic and diluted share data.
 
 **Income
        Taxes**
 
 We
        account for income taxes in accordance with SFAS No. 109, ** “Accounting
        for Income Taxes,” ** which
        requires recognition of deferred tax assets and liabilities for expected
        future
        tax consequences of events that have been included in the consolidated financial
        statements or tax returns.  Under this method, deferred tax assets and
        liabilities are determined based on the difference between the financial
        statement and tax bases of assets and liabilities using enacted tax rates
        in
        effect for the year in which the differences are expected to
        reverse.  Valuation allowances are established when necessary to
        reduce deferred tax assets amounts expected to be
        realized.    U.S. income taxes are not provided on
        undistributed earnings, which are expected to be permanently reinvested by
        the
        foreign subsidiary, unless the earnings can be repatriated in a tax-free
        or
        cash-flow neutral manner.
  Effective
        January 1, 2007, the Company adopted Financial Accounting Standards Board
        (the “FASB”) Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in
        Income Taxes” and FSP FIN 48-1, which amended certain provisions of FIN 48. FIN
        48 clarifies the accounting for uncertainty in income taxes recognized in
        financial statements in accordance with SFAS No. 109, “Accounting for
        Income Taxes.” FIN 48 prescribes a recognition threshold and measurement
        attribute for the financial statement recognition and measurement of a tax
        position taken or expected to be taken in a tax return. FIN 48 requires that
        the
        Company determine whether the benefits of the Company’s tax positions are more
        likely than not of being sustained upon audit based on the technical merits
        of
        the tax position. The provisions of FIN 48 also provide guidance on
        de-recognition, classification, interest and penalties, accounting in interim
        periods and disclosure. ** In
        connection with our adoption of FIN No. 48, we analyzed the filing
        positions in all of the federal and state jurisdictions where we are required
        to
        file income tax returns, as well as all open tax years in these jurisdictions.
        There was no impact on our condensed consolidated financial statements upon
        adoption of FIN No. 48 on January 1, 2007. The Company did not have
        any unrecognized tax benefits and there was no effect on the financial condition
        or results of operations for the year ended December 31, 2007 as a result
        of
        implementing FIN 48, or FIN 48-1. In accordance with FIN48, the Company adopted
        the policy of recognizing interest and penalties, if any, related to
        unrecognized tax positions as income tax expense. The tax years 2004 - 2007
        remain subject to examination by major tax jurisdictions.
 F-12
 **NEW
            WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
            31, 2007 AND 2006**
  **NOTE
                      A**
                    ****ORGANIZATION,
                        CAPITALIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                        (CONTINUED)****
 
 **Advertising
        and Promotional Costs**
 
 We
        expense advertising and promotional costs as incurred.  Advertising
        and promotional expenses amounted to approximately $45,000 and $107,000 for
        the
        years ended December 31, 2007 and 2006, respectively.
 
 **Leases**
 
 We
        account for leases in accordance with SFAS No.13, ** “Accounting
        for Leases,” under which we perform a review of each newly acquired lease to
        determine whether it should be treated either as a capital or an operating
        lease.  A capital lease asset is capitalized and depreciated over the
        term of the initial lease.  A liability equal to the present value of
        the aggregated lease payments is recorded utilizing the stated lease interest
        rate.  If an interest rate is not stated, we will determine our
        estimated incremental borrowing rate.
 
 **Foreign
        Currency Translation**
 
 As
        of the
        year end at December 31, 2007, New World Brands did not have any balances
        or
        transactions in a foreign currency. All amounts on the consolidated balance
        sheets are reported in their native currency, the US dollar.
 
 **Recent
        Accounting Pronouncements**
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,”
which establishes a framework for measuring fair value in GAAP terms and
        expands
        disclosures about fair value measurements. While SFAS 157 does not require
        any new fair value measurements, it may change the application of fair value
        measurements embodied in other accounting standards. SFAS 157 will be
        effective at the beginning of the Company’s 2008 fiscal year. The Company is
        currently assessing the effect of this pronouncement on its consolidated
        financial statements.
  In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities—including an Amendment of FASB
        Statement No. 115”, which is effective for fiscal years beginning after
        November 15, 2007. SFAS 159 permits an entity to choose to measure many
        financial instruments and certain other items at fair value at specified
        election dates. Subsequent unrealized gains and losses on items for which
        the
        fair value option has been elected will be reported in earnings. The Company
        is
        currently evaluating the potential impact, if any, that SFAS 159 will have
        on
        its consolidated financial statements.
 
 In
        December 2007, the FASB issued SFAS No. 141 (revised 2007) “Business
        Combinations” ( ***“SFAS
        141(R)”*** ).
        SFAS
        141(R) retains the fundamental requirements of the original pronouncement
        requiring that the purchase method be used for all business combinations.
        SFAS
        141(R) defines the acquirer as the entity that obtains control of one or
        more
        businesses in the business combination, establishes the acquisition date
        as the
        date that the acquirer achieves control and requires the acquirer to recognize
        the assets acquired, liabilities assumed and any non-controlling interest
        at
        their fair values as of the acquisition date. SFAS 141(R) also requires that
        acquisition-related costs be recognized separately from the acquisition.
        SFAS
        141(R) is effective for the Company in 2009. The Company is currently evaluating
        the potential impact, if any, that SFAS 141(R) will have on its consolidated
        financial statements.
 
 In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements, an Amendment of ARB No. 51.”
SFAS 160 establishes accounting and reporting standards pertaining to
        ownership interests in subsidiaries held by parties other than the parent;
        the
        amount of net income attributable to the parent and to the noncontrolling
        interest; changes in a parent’s ownership interest; and the valuation of any
        retained noncontrolling equity investment when a subsidiary is deconsolidated.
        SFAS 160 also establishes disclosure requirements that clearly identify and
        distinguish between the interests of the parent and the interests of the
        noncontrolling owners. SFAS 160 is required to be adopted prospectively for
        the first annual reporting period after December 15, 2008. The Company is
        currently reviewing this statement and has not yet determined the impact,
        if
        any, on its consolidated financial statements.
  **NOTE
                  B**
                ****SALE
                    OF DISCONTINUED OPERATIONS - IP GEAR,
                    LTD.****
  New
        World
        Brands completed the sale of its Israeli subsidiary IP Gear, Ltd. as of an
        effective date of July 1, 2007 for accounting purposes. The company agreed
        to
        sell all the outstanding shares of the Company’s subsidiary, IP Gear Ltd., to
        TELES A.G. of Germany in exchange for cash on closing and further payments
        over
        a period of time. New World Brands’ consideration, as determined by the final
        agreement, calls for four elements: a fixed price of $1,500,000 as part of
        closing; an earn out over four years paid quarterly of not less than $750,000
        over the four years; a minimum of $400,000 over two years defined as marketing
        support; and an interest bearing loan credit facility up to $1,000,000 repayable
        over four years. (See “Note O—Subsequent Events and Other Matters” for further
        details). The Earn Outs are to be paid at the greater of $46,875 or 10% of
        the
“CPE” product line revenue for the quarter to be paid within 90 days of the end
        of the quarter. The Company also received a return of working capital invested
        during the transition period.
 
 With
        certain exceptions, commencing on the date of the closing and for a certain
        period of time (as specified in the Final Agreement), the Company agreed
        not to,
        or cause any of its affiliates to, engage in any research and development
        or
        manufacturing activities competitive with those conducted by IP Gear, Ltd.,
        and
        not to, or cause any of its affiliates to, engage in the sale,
        distribution, marketing, and services of products that may compete with certain
        products of TELES.  In addition, with certain exceptions, commencing
        one year after the date of closing, and effective for a period of time and
        within certain geographic regions relative to the grant of exclusive
        distribution and sale rights to the Company pursuant to the partner contract
        described below, the Company agreed not 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.
 F-13
 **NEW
          WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
          31, 2007 AND 2006**
   **NOTE
                    B**
                  ****SALE
                      OF DISCONTINUED OPERATIONS - IP GEAR, LTD.
                      (CONTINUED)****
 In
        accordance with the Final Agreement, the Company and TELES entered into a
        partner contract relating to the promotion, marketing, sale, and support
        of
        certain products of TELES and IP Gear, Ltd., pursuant to which the Company
        became the exclusive distributor of products of TELES and IP Gear, Ltd. in
        North
        America (including the United States, Canada, Mexico, all Caribbean nations,
        Guatemala, and Honduras) and non-exclusive distributor in other
        markets.
 
 TELES
        assumed responsibility for all the liabilities and obligations of IP Gear,
        Ltd.
        except those specifically outlined in the agreement. The two items excluded
        are
        any past potential liability that IP Gear, Ltd. may have to the Office of
        the
        Chief Scientist of Israel and under a contract with one of IP Gear, Ltd.’s
        vendors, Piecom Tech. (See “Note O—Subsequent Events and Other
        Matters.”)
 
 New
        World
        Brands’ management was authorized by the board to complete the sale to TELES of
        its IP Gear, Ltd. (Israel) subsidiary. A preliminary agreement was reached
        July
        18 2007 and the closing occurred on July 26, 2007. The final agreement for
        the
        sale of the subsidiary was approved by our Board’s consent and by Teles’
Supervisory board on July 25, 2007
 
 The
        condensed statement of operations for the 12 months ended December 31, 2007
        below represent the reclassified discontinued operations of New World Brands
        as
        a result of the sale of IP Gear Ltd. It also shows the loss recorded at the
        end
        of the second quarter due to the revaluation of our investment in IP Gear
        Ltd
        down to its net realizable value as defined by the then pending transaction
        to
        sell IP Gear Ltd.
  Selected
                  Statements of Operations
                Datafor
                  the Company’s
                Discontinued
                  Operationsfor
                12
                  Months Ended December 312007
              
              2006Total
                  Revenue
              
              $
              998,981
              
              $
              2,592,543Pre
                  Tax Loss from Discontinued Operations
              
              
              (1,407,911
              )
              
              (3,147,014
              )Income
                  Tax Provision
              
              
              -
              
              
              -Loss
                  from Discontinued Operations
              
              
              (1,407,911
              )
              
              (3,147,014
              )Pre-Tax
                  Impairment Loss
              
              
              (2,462,448
              )
              
              -Gain
                from Sale of Discontinued Operations
              
              
              4,706
              
              
              -Income
                  Tax Provision
              
              
              -
              
              
              -Loss
                  from Discontinued Operations, net of Tax
              
              $
              (3,944,689
              )
              $
              (3,147,014
              )
 
 As
        a
        result of the impairment, the Company reported a loss of $3,949,394 at the
        end
        of the second quarter in accordance with FASB No. 144, “Accounting for
        Impairment of and Disposal of Long-Lived Assets,” and recorded a gain on
        disposal of $4,706 by the end of the year due to gains from the Earn Out
        portion
        of the sale in excess of the minimums by an amount of $28,681. These losses
        and
        gains are recorded on the Company’s financial statements in the income
        statements for the years ended 2007 and 2006, in the line items “Loss from
        Discontinued Operations” and “Gain From Sale of Discontinued Operations,”
respectively.
 F-14
 **NEW
          WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                  C**
                ****INVENTORIES****
  Inventories
        as of December 31,  2007
        consisted of the following:
 
 Resale
                  HardwareTotal
                  Inventories
              
              $
              819,654Less
                  allowance for obsolete inventories
              
              
              (75,000
              )Inventories,
                  net
              
              $
              744,654
 **NOTE
                  D**
                ****PROPERTY
                    AND
                    EQUIPMENT****
  As
          of
          December 31,  2007,
          our
          property and equipment consisted of the following:
 
 Useful
                  Lives(In Years)Operating
                  Equipment
              
              $
              1,804,175
              
              5Rental
                  Equipment
              
              
              44,928
              
              5Leasehold
                  improvements
              
              
              227,922
              
              15Computer
                  software
              
              
              189,256
              
              3
                  - 5Furniture
                  and fixtures
              
              
              30,419
              
              3
                  - 5Other
              
              
              4,100
              
              5Total
                  property and equipment
              
              
              2,300,800Less
                  accumulated depreciation and amortization
              
              
              878,994Property
                  and equipment, net
              
              $
              1,421,806Operating
                  equipment acquired under capital leases
              
              $
              456,197Less
                  accumulated amortization
              
              
              167,181$
              289,016
 
 Depreciation
        and amortization expense of continuing operations amounted to approximately
        $406,000 and $296,000 for the years ended December 31, 2007 and 2006,
        respectively.  Amortization of leased equipment, which has been
        included in depreciation expense on the accompanying financial statements,
        was
        approximately $ 90,000 and $ 77,000 for the years ended December 31, 2007
        and
        2006, respectively.
 
 **NOTE
                E**
              ****NOTES
                  PAYABLE****




**Bank
        of America and P & S Spirit.**
 
 At
        the
        start of 2007, New World Brands maintained a loan outstanding to the Bank
        of
        America in the amount of approximately $98,000. This term loan was due by
        March
        31, 2007. New World Brands repaid this loan with the proceeds of a new term
        loan
        it obtained from P & S Spirit on March 30, 2007. On and effective March 30,
        2007, we entered into a term loan and security agreement with P&S Spirit
        (the “ ***P&S
        Term Loan*** ”).  The
        principal amount of the P&S Loan is $1,000,000.  Monthly payments
        of interest only at two percent over the Wall Street Journal Prime Rate payable
        in arrears are due commencing on May 1, 2007.  The interest rate on
        this loan at December 31, 2007 was 9.25%. The principal balance of the P&S
        Loan and any unpaid accrued interest up to that date becomes due in full
        on
        January 2, 2009.  The P&S Loan includes certain covenants,
        including a financial reporting requirement which is due forty-five days
        after
        the close of a calendar quarter, and requirements that we maintain a ratio
        of
        current assets to current liabilities of at least 1.2 to 1 and a total
        liabilities to tangible net worth ratio not exceeding 2.5 to 1. The company
        was
        in compliance with both of these ratios as at December 31, 2007.
 
 The
        P&S Loan also grants P&S Spirit a first position security interest with
        respect to all of the Company’s assets.  The P&S Loan is also
        backed by a guaranty by Qualmax (which, pending completion of the contemplated
        merger of Qualmax into the Company, holds a controlling interest in the
        Company), a security interest in the assets of Qualmax (consisting solely
        of 100
        shares of series A convertible preferred stock of the Company, par value
        $0.01
        per share, which stock is convertible into 298,673,634 shares of the Company’s
        common stock, par value $0.01 per share), and by the personal guaranty of
        M.
        David Kamrat, Chairman of the Board of Directors and Chief Executive Officer
        of
        the Company, and a director and executive officer of Qualmax.  M.
        David Kamrat’s personal Guaranty is limited to the sum of $1,000,000, although
        the guaranteed obligations include indemnification for certain claims against
        P&S Spirit relating to the P&S Term Loan.
 F-15
 **NEW
          WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
          31, 2007 AND 2006**
  
 **NOTE
                  E**
                ****NOTES
                    PAYABLE
                    (CONTINUED)****
 The
        Loan
        proceeds were used by the Company to repay all outstanding principal, interest
        and fees due on our note payable with B of A, and to pay certain professional
        fees associated with preparation and negotiation of the P&S Term
        Loan.
 
 On
        August
        10, 2007, $500,000 of the principal balance of the P & S Term Loan was
        repaid by the company. The balance at December 31, 2007 was $500,000. This
        remaining balance of $500,000 was paid off in February 2008 closing out the
        P
& S Spirit Term Loan. Please see “Note O—Subsequent Events and Other
        Matters” for further activity associated with these loans.
 
 On
        May
        31, 2007, the company entered into another agreement with P & S Spirit, a
        Credit line and Security Agreement( P & S Credit Line), for a line of credit
        facility in the amount of $1,050,000. The terms of the loan facility are
        an
        interest rate of Prime plus 2% (as reported in the Wall Street Journal),
        payments are to be interest only in arrears commencing July 1, 2007. The
        P &
S Credit Line is secured by a corporate guaranty by Qualmax(which pending
        completion of the merger of Qualmax into the company, holds a controlling
        interest in the company) and a security interest in the assets of
        Qualmax(consisting solely of 298,673,634 shares of common stock of the company).
        The company must meet covenants of a ratio of current assets to current
        liabilities of at least 1.2 :1.0 and a total liabilities to net worth ratio
        not
        exceeding 2.5:1.0. The maturity date of the loan is June 1, 2011 when all
        principal and any outstanding interest payments are due. As of December 31,
        2007, we had not drawn any funds from this loan facility. The Company was
        in
        compliance with the convenants as of December 31, 2007.
 
 The
        principals of P&S Spirit include Dr. Selvin Passen, who is a director and
        shareholder of the Company, as well as its former Chief Executive Officer,
        and
        Dr. Jacob Schorr, who is a director of the Company
 
 Total
        maturities of notes payable as of December 31, 2007 were as
        follows:
  Total
                  notes payable as at Dec 31, 2007
              
              $
              500,000Notes
                  payable, current portion
              
              
              0Notes
                  payable, net of current portion
              
              $
              500,000
 
 Interest
        expense on the notes payable was approximately $119,000 and $142,000 for
        the
        years ended December 31, 2007 and 2006, respectively.
  **NOTE
                  F**
                ****CAPITAL
                    LEASE
                    OBLIGATIONS****
  We
        currently lease equipment pursuant to four capital lease agreements. In
        conjunction therewith, the Company has capitalized the cost of the equipment
        in
        the amount of $87,683, which is the present value of the lease payments.
        Interest expense on the capital lease obligations amounted to approximately
        $10,000 and $36,000 for the years ended December 31, 2007 and 2006,
        respectively. Future minimum lease payments required under the capital leases
        as
        of December 31, 2007 were as follows:
 
 2008
              
              $
              181,7312009
              
              
              19,9292010
              
              
              11,3882011
              
              
              6,0242012
              
              
              3,012Total
              
              
              222,084Less:
                  amounts representing interest
              
              
              9,036Present
                  value of net minimum lease payments
              
              
              213,048Capital
                  lease obligations, current portion
              
              
              181,731Capital
                  lease obligations, net of current portion
              
              $
              31,317
 F-16
 **NEW
          WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
          31, 2007 AND 2006**
 
 
 **NOTE
                  G**
                ****STOCKHOLDERS’
                    EQUITY****
  **Capitalization**
 
 The
        Company’s authorized capital stock consists of 600,000,000 shares of common
        stock, $.01 par value per share, and 1,000 shares of preferred stock, $.01
        par
        value.  There were 414,979,673 shares of common stock and no shares of
        Series A Convertible Preferred Stock issued and outstanding as of December
        31, 2007.
 
 The
        board
        of directors has the authority, without action by the Company’s stockholders, to
        provide for the issuance of preferred stock in one or more classes or series
        and
        to designate the rights, preferences and privileges of each class or series,
        which may 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 50 million 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 600 million shares. The additional common
        stock was created to allow for the conversion of all outstanding preferred
        shares to common stock. This conversion was authorized by board consent on
        January 31, 2007 and become effective on April 24, 2007 resulting in the
        conversion of all Series A Convertible Preferred Shares to common shares
        at a
        ratio of 2,986,736 common shares for every one preferred share. Approximately
        116.67 Series A Preferred Shares were converted into approximately 348 million
        common shares. This transaction was another step in the planned sequence
        of
        transactions that will conclude in the completion of the merger of New World
        Brands Inc. with Qualmax Inc.
 
 On
        May
        31, 2007, the company issued as converted 22,222,222 shares of common stock
        to
        P & S Spirit, in exchange for an investment of $886,093 (net of
        all costs) in the company. The gross amount of the purchase price prior to
        any
        costs was $1,000,000. These shares of common stock will be issued without
        registration under the Securities Act of 1933, as amended, and are subject
        to
        the lock out agreement signed by Qualmax, the Kamrats, P & S
        Spirit and certain affiliates of the Kamrats and P & S Spirit
        filed with the SEC on June 6, 2007.
 
 Stockholders’
        equity transactions prior to the New World Brands/Qualmax, Inc. merger date
        have
        been retroactively restated for the equivalent number of shares received
        in the
        merger after giving effect to any difference in par value of the issuer’s and
        acquirer’s stock with an offset to paid-in capital.
 
 **Preferred
        Stock**
 
 As
        of
        December 31, 2007, we had 1,000 shares of authorized preferred stock, $.01
        par
        value.  There was no issued or outstanding preferred stock at December
        31, 2007.
 
 **Common
        Stock Warrants**
 
 Warrants
        for the purchase of our common stock were granted during the 12 months ending
        December 31, 2007. Common stock warrants were issued in exchange for all
        outstanding preferred stock warrants concurrent with the conversion of all
        preferred stock to common as mentioned in the common stock segment of the
        notes
        to the financial statements at the same ratio as the common stock conversion
        or
        2,986,736 common stock warrants in exchange for each preferred stock warrant.
        A
        total of 18.600756 preferred stock warrants were converted into 55,555,548
        common stock warrants at this time with a strike price of $0.09. The warrants
        expire on December 31, 2011.
 
 Common
        stock warrant activity for the year was as follows:
  Warrants
              
              Weighted
                Average
                Exercise
                  PriceBalance
                  granted at December 31, 2006
              
              
              2,320,000
              
              $
              0.49Granted
                  in 2007
              
              
              55,555,548
              
              $
              0.09Exercised
                  in 2007
              
              
              -
              
              $
              -Balance
                  granted at December 31, 2007
              
              
              57,875,548
              
              $
              0.12
 F-17
 **NEW
            WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
            31, 2007 AND 2006**
  **NOTE
                    G**
                  ****STOCKHOLDERS’
                      EQUITY
                      (CONTINUED)****
 **Preferred
        Stock Warrants**
 
 All
        preferred stock warrants that had been outstanding at the start of 2007 were
        cancelled during the year. There were no preferred stock warrants outstanding
        at
        December 31, 2007.
 
 Preferred
        stock warrant activity for the year was as follows:
 
 Warrants
              
              Weighted
                Average
                Exercise
                  PriceBalance
                  granted at December 31, 2006
              
              
              18,600758
              
              $
              -(As
                  converted to common stock)
              
              
              55,555,548
              
              $
              0.09Cancelled
                  during 2007
              
              
              18.600758Balance
                  granted at December 31, 2007
              
              
              0
 
 **Computation
        of Basic and Diluted Share Data**
 
 The
        following tables set forth the computation of basic and diluted share data
        for
        2007 and 2006 (rounded to the nearest thousand):
 
 Weighted
                  average number of shares outstanding during 2006:Basic
                  (common)
              
              
              39,044,000Preferred
                  (as converted to common)
              
              
              86,148,000Total
              
              
              125,192,000Effect
                  of dilutive securitiesCommon
                  - options and warrants
              
              
              -Preferred
                  - options and warrants
              
              
              -Total
              
              
              -Weighted
                  average number of shares outstanding - diluted
              
              
              125,192,000Weighted
                  average of options and warrants not included
                  above  (anti-diluted):Basic
                  (common)
              
              
              4,478,000Preferred
                  (as converted to common)
              
              
              55,556,000Total
              
              
              60,034,000
 
 Weighted
                  average number of shares outstanding during 2007:Basic
                  (common)
              
              
              433,592,000Effect
                  of dilutive securitiesCommon
                  - options and warrants
              
              
              -Weighted
                  average number of shares outstanding - diluted
              
              
              433,592,000Weighted
                  average of options and warrants not included
                  above  (anti-dilutive)
              
              
              43,851,000
 
 **Lock-Up
        Agreement**
 
 In
        connection with the transactions contemplated by the Subscription Agreement,
        the
        Company, the Kamrats, P&S Spirit and certain affiliates of the Kamrats and
        P&S Spirit entered into an Amended and Restated Lock-Up Agreement (the
“ ***Lock-Up
        Agreement*** ”),
        pursuant to which each such party agreed to certain restrictions on transfer
        on
        certain shares of capital stock (and securities convertible into share of
        capital stock) of the Company on the terms set forth therein. A copy of the
        Amended and Restated Lock-Up Agreement is filed as Exhibit 10.3 to the Company’s
        Current Report on Form 8-K filed with the SEC on January 8, 2007.  In
        particular, the parties agreed to restrict their ability to transfer shares
        of
        capital stock in the Company for up to two years without the prior approval
        of
        the other stockholders party thereto (meaning, both the Kamrats and P&S
        Spirit must seek the consent of the other to sell subject shares during the
        term
        of the Lock-Up Agreement).  Also, in connection with the transactions
        contemplated by the BOS Agreement BOS agreed to be subject to the Lock-Up
        Agreement, restricting the ability of BOS to transfer shares of capital stock
        in
        the Company and Qualmax for up to two years without the prior approval of
        the
        other stockholders party thereto.
 
 **NOTE
                H**
              ****STOCK
                  OPTION
                  PLANS****




**Performance
        Equity Plan**
 
 We
        have a
        Performance Equity Plan (the “ ***Performance
        Equity Plan*** ”)
        under
        which we may grant incentive and nonqualified stock options, stock appreciation
        rights, restricted stock awards, deferred stock, stock reload options, and
        other
        stock-based awards to purchase up to 600,000 shares of Common Stock to officers,
        directors, key employees, and consultants. The Company may not grant any
        options
        with a purchase price less than fair market value of Common Stock as of the
        date
        of grant.  No options or other stock-based rights were issued under
        the Performance Equity Plan during 2007 and 2006, and none were exercised
        or exercisable during 2007 and 2006.
 F-18
 **NEW
            WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
            31, 2007 AND 2006**
  **NOTE
                    H**
                  ****STOCK
                      OPTION PLANS
                      (CONTINUED)****
  **Stock
          Option Plan**
 
 In
        October 2001, we adopted a stock option plan (the “ ***2001
        Option Plan*** ”)
        whereby we have reserved 5,000,000 shares of its Common Stock for purposes
        of
        granting options to purchase such shares pursuant to the 2001 Stock Option
        Plan.  Options are granted to officers and employees of the Company by
        the Board of Directors and to members of the Board on a non-discretionary
        basis,
        provided that the exercise price of the options is equal or greater than
        the
        fair market price of our Common Stock on the date the option is granted.
        The
        2001 Stock Option Plan terminates 10 years from its effective date.  A
        total of 2,945,000 of options (“the New World Brands options”), granted under
        the 2001 Option Plan to purchase our Common Stock in exchange for services
        rendered, were vested and exercisable as of December 31, 2007. There were
        no
        issuances, exercises or forfeitures in 2007 or 2006..  The employees
        and consultant performed services related to product promotion, general
        business, financing, and public/investor relations.   These
        options were granted prior to September 15, 2006.
  Employee
        compensation expense for the New World Brands stock options was not recognized
        in 2006 in the accompanying consolidated statements of income as the options
        were granted and fully exercisable on September 14, 2006, prior to the merger
        date. The consolidated statements of income include the results of operations
        of
        New World Brands from the date of the merger, September 15, 2006, to December
        31, 2006.  As of December 31, 2006, there was approximately $41,610 of
        total unrecognized compensation cost related to unvested stock options granted
        under our stock option plan. That cost is expected to be recognized over
        a
        weighted average of 4 years. There are 1,755,000 shares of common stock
        available for future issuance, as of December 31, 2007.  The following
        table summarizes stock option plan as of December 31, 2007:
  Exercise
                Price
              
              Options
                Outstanding
              
              Weighted
                  Average
                Remaining
                  Contractual
                Life
                  (in Years)
              
              Options
                Exercisable****$               0.18
              
              
              1,000,000
              
              4.9
              
              
              1,000,000$               0.18
              
              
              1,000,000
              
              4.9
              
              
              1,000,000$               0.18
              
              
              250,000
              
              4.9
              
              
              250,000$               0.18
              
              
              100,000
              
              4.9
              
              
              100,000$               0.18
              
              
              100,000
              
              4.9
              
              
              100,000$               0.18
              
              
              100,000
              
              4.9
              
              
              100,000$               0.50
              
              
              300,000
              
              3.5
              
              
              -$               0.25
              
              
              325,000
              
              1.75
              
              
              325,000$               0.10
              
              
              70,000
              
              5.5
              
              
              70,0003,245,000
              
              
              
              
              2,945,000
 
 **NOTE
                  I**
                ****INCOME
                    TAXES****
  Income
        tax consisted of the following for the years ended December 31, 2007 and
        2006:
  2007
              
              2006Federal:Current
              
              $
              (403,995
              )
              $
              403,995Deferred
              
              
              -
              
              
              579,475State:Current
              
              
              -
              
              
              -Deferred
              
              
              -
              
              
              51,130Subtotal
              
              
              (403,995
              )
              
              1,034,600Change
                  in valuation allowance
              
              
              -
              
              
              (561,695
              )Benefit
                  (provision) for income taxes
              
              $
              (403,995
              )
              $
              472,905
  The
        effective tax rate varies from the federal statutory maximum rate for the
        year
        ended December 31, 2007 and 2006 principally due to the following:
 2007
                
                2006Federal
                      tax rate
                
                34%
                
                34%Loss
                      from foreign subsidiary
                
                (8)%
                
                (19)%Benefit
                      of net operating loss carryback
                
                0%
                
                (7)%State
                      tax rate, net of federal tax benefit
                
                6%
                
                1%Book
                    vs tax loss on sale of subsidiary
                
                11%
                
                -Other
                
                2%
                
                -Total
                
                (6)%
                
                8%
 F-19
 **NEW
            WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
            31, 2007 AND 2006**
 **NOTE
                      I**
                    ****INCOME
                        TAXES
                        (CONTINUED)****
 Significant
        portions of the deferred tax assets and liabilities results from the tax
        effects
        of temporary differences, which of December 31, 2007, were as
        follows:
  Deferred
                tax assets
                (short-term):Net
                  operating loss carry forwards
              
              $
              1,829,437Capital
                    loss from sale of subsidiary
              
              
              1,772,929Allowance
                  for doubtful accounts receivable
              
              
              43,726Allowance
                  for inventory obsolescence
              
              
              28,767Depreciation
                  & amortization
              
              
              21,607Allowance
                  for disputes
              
              
              4,219Accruals
              
              
              3,836Deferred
                tax assets
                (long-term):Charitable
                  contributions carry forward
              
              
              775Net
                  deferred tax assets before valuation allowance
              
              
              3,705,296Valuation
                  allowance
              
              
              (3,705,296
              )Net
                  deferred tax asset after valuation
              
              $
              -
  As
          of
          December 31, 2007, the Company had net operating losses of approximately
          $4.8
          million that can be carried forward for up to twenty years and deducted
          against
          future taxable income. The net operating loss carry forwards expire in
          2026 and
          2027. The company also has a capital loss carry forward of approximately
          $4.6
          million that can be carried forward for five years and deducted against
          future
          capital gain income. The capital loss carry forward expires in
          2012.
 
 **NOTE
                  J**
                ****RELATED
                    PARTY
                    TRANSACTIONS****
  **Loans
        from Shareholders**
 
 The
        Company received $1,000,000 in a term loan from P & S Spirit, a stockholder
        of the company and a company controlled by two stockholders and members of
        the
        Board of Directors of New World Brands. The terms of this loan are listed
        in
        detail in note E - Notes Payable.
 
 **NOTE
                K**
              ****COMMITMENTS
                  AND
                  CONTINGENCIES****
  **Operating
        Leases**
 
 We
        have
        entered into various operating leases for our facilities and
        equipment.  The future minimum annual rental payments due on these
        operating leases as of December 31, 2007 for each of the next 5 years are
        as
        follows:
 
 Year
                  ending December 31:2008
              
              $
              291,3712009
              
              
              68,2602010
              
              
              50,2302011
              
              
              49,7802012
              
              
              14,880$
              477,121
 F-20
 **NEW
              WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
              31, 2007 AND 2006**
 **NOTE
                        K**
                      **COMMITMENTS
                            AND CONTINGENCIES(CONTINUED)**
  Our
              U.S.
              operations are headquartered in Eugene, Oregon in leased commercial
              premises in
              two buildings, and the total rental expense for the years ended December
              31,
              2007 and 2006 was approximately $68,000 and $77,000, respectively. We have made substantial leasehold improvements to our rental
              premises.
 
 **The
        MPI Litigation**
 
 As
        a
        result of the Reverse Acquisition the Company assumed the liabilities of
        Qualmax.  Qualmax was named as a defendant in certain litigation filed
        in France before the Trade Tribunal of Nanterre against BOS by Media Partners
        International (“ ***MPI*** ,”
and
        the “ ***MPI
        Litigation*** ”),
        a
        former distributor of BOS, whose contract with BOS allegedly related to certain
        distribution rights for the product division Qualmax purchased from BOS on
        December 31, 2005.  Pursuant to the asset purchase agreement between
        Qualmax and BOS, BOS agreed to indemnify and hold Qualmax harmless from
        liability, without limitation, arising from the claims raised in the MPI
        Litigation, and BOS has undertaken defense of Qualmax at BOS’s
        expense.  The litigation remains in its early stages, and at last
        report from counsel the French court had not yet made definitive rulings
        on
        defendant’s motion to change venue and jurisdiction from France to
        Israel.
 
 Initial
        hearings on a motion for change of venue were concluded in February 2007.
        Additional hearings were conducted in late April 2007. The Company has been
        preliminarily informed that a decision from the French court to maintain
        venue
        in France was made in September 2007, and that defendants have filed an appeal
        of that decision, but that no ruling has been made on the appeal as of the
        date
        of this filing. At present, based upon the limited progress of the matter
        and
        without the benefit of the completion of factual discovery, management believes
        this litigation does not pose a significant financial risk to the
        Company.
 **Former
          Employee Litigation**
 
 The
          lawsuit brought by a former employee of the company, Fred Singer, relating
          to
          stock options and prior compensation, was settled on April 10, 2007, the
          company
          agreeing that the plaintiff, Mr. Singer, is the holder of options to purchase
          70,000 shares of the company’s common stock.
 **The
        Blackstone Litigation**
 
 Qualmax
        was named as a defendant in a lawsuit entitled Capital Securities, LLC and
        Blackstone Communications Company v. Carlos Bertonnatti, Worldwide PIN Payment
        Corp. and Qualmax, Inc., Case No. 2006-15824-CA-01, in the Circuit Court
        of the
        11th Judicial Circuit in and for Miami-Dade County, Florida, filed August
        10,
        2006.  The facts underlying the proceeding relate to a contract
        between defendant Worldwide PIN Payment Corp. and plaintiffs, and a third
        party,
        to plaintiff’s allegations of misappropriation of trade secrets and corporate
        opportunity, and to claims that defendants, or some of them, tortiously
        interfered with plaintiffs’ contract with a third party.  Plaintiffs’
seek monetary damages.  Management believes it is not entirely clear
        from the pleadings filed to date whether plaintiffs claim that Qualmax
        misappropriated trade secrets, or tortiously interfered with a third party
        contract, or is liable under some other theory.
 
 This
        litigation was settled on April 1, 2008 between New World Brands and Blackstone.
        The details are provided in the subsequent events section of the notes -
        Note
        M
 
 **Credit
        Facility with Pacific Continental Bank**
 
 The
        company entered into an agreement for the use of various credit services
        with
        Pacific Continental Bank in February 2007.  The conditions of this
        agreement require the deposit of $250,000 with the bank as security for the
        services. The terms and balance remain unchanged at December 31, 2007. The
        deposit is in the company’s money market account with the bank and is reported
        on the balance sheet as part of cash and cash equivalents.
 
 **Piecom
        Tech**
 
 As
        part
        of the agreement to sell our IP Gear Ltd. subsidiary to Teles A.G. (see “Note
        B— Sale
        of
        Discontinued Operations—IP Gear, Ltd.” ),
        we
        have accepted any liabilities and or any amounts recovered as a result of
        any
        claims from/against Piecom to/from IP Gear Ltd. in the future, beyond the
        date
        of closing the sale of our subsidiary. Piecom Tech had been a vendor to IP
        Gear
        Ltd and was contracted to provide outsourced contract manufacturing services.
        There is currently a deposit held by Piecom of $214,000 towards the production
        of equipment not yet delivered and an amount in escrow of $32,000 pending
        resolution of this matter. There is currently no expectation of any liability
        arising from this commitment to the company.
 
 **NOTE
                  L**
                ****REGULATORY
                    MATTERS****
  The
        telecommunications industry is subject to federal, state and local
        regulation.  Any changes in the regulations or enforcement could
        impact the Company’s ability to continue its current operations.
 
 **NOTE
                  M**
                ****DEFINED
                    CONTRIBUTION
                    PLAN****
  In
        May
        2005, we adopted a Savings Incentive Match Plan for Employees (SIMPLE) (the
        “Plan”) for the benefit of our employees who are reasonably expected to receive
        at least $5,000 in compensation during a calendar year.  We have
        elected to contribute to each eligible employee’s simple individual retirement
        account a matching contribution equal to the employee’s elective salary
        reduction contributions, up to a limit of three percent of the employee’s
        compensation for the calendar year.  Total expense for the years ended
        December 31, 2007 and 2006 was approximately $ 23,000 and $11,000
        respectively.
 F-21
 **NEW
              WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
              31, 2007 AND 2006**
 **NOTE
                    N**
                ****BUSINESS
                    SEGMENT
                    REPORTING****
  The
        following presents our segmented financial information by business line for
        the
        years ended December 31, 2007 and 2006.  We are currently focused on
        two principal lines of businesses: (i) new and resale hardware, which is
        the
        sale and distribution of VoIP and other telephony equipment and related
        professional services via our U.S.-based business operated under the names
        “Teles USA” and “Qualmax”); and (ii) wholesale carrier services, which is
        telephony service resale and direct call routing via our U.S.-based VoIP
        service
        business operated under the name “NWB Telecom.”
  **Segmented
          Financial Information by Business Line For New World Brands
          Inc.:**
 2007
              
              2006Net
                  Sales:Wholesale
                  Carrier Services
              
              $
              11,443,514
              
              $
              11,230,284Resale
                  Hardware
              
              
              5,657,689
              
              
              6,307,644Total
              
              
              17,101,203
              
              
              17,537,928Cost
                  of Sales:Wholesale
                  Carrier Services
              
              
              9,850,272
              
              
              10,382,726Resale
                  Hardware
              
              
              4,954,381
              
              
              5,317,852Total
              
              
              14,804,653
              
              
              15,700,578Gross
                  Profit:Wholesale
                  Carrier Services
              
              
              1,593,242
              
              
              847,558Resale
                  Hardware
              
              
              703,308
              
              
              989,792Total
              
              
              2,296,550
              
              
              1,837,350Depreciation
                  and Amortization:Wholesale
                  Carrier Services
              
              
              236,519
              
              
              199,335Resale
                  Hardware
              
              
              2,417
              
              
              90,514Corporate
              
              
              177,504
              
              
              6,260Total
              
              
              416,440
              
              
              296,109Selling,
                  General and Administrative Expenses:Wholesale
                  Carrier Services
              
              
              1,259,716
              
              
              1,451,158Resale
                  Hardware
              
              
              1,012,687
              
              
              1,023,097Corporate
              
              
              1,942,020
              
              
              1,664,032Total
              
              
              4,214,423
              
              
              4,138,287Loss
                  from Contining Operations Before Income Taxes:Wholesale
                  Carrier Services
              
              
              97,007
              
              
              (802,935
              )Resale
                  Hardware
              
              
              (311,797
              )
              
              (123,819
              )Corporate
              
              
              (2,119,524
              )
              
              (1,470,292
              )Total
              
              $
              (2,334,313
              )
              $
              (2,397,046
              )
 F-22
 **NEW
                WORLD BRANDS, INC. AND SUBSIDIARY**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
                31, 2007 AND 2006**
 **NOTE
                      O**
                  **SUBSEQUENT
                        EVENTS AND OTHER
                        MATTERS**
 **Term
        Loan and Repayment of Note Payable with P & S
        Spirit**
 
 On
        February 21, 2008, effective February 15, 2008, the Company repaid all
        outstanding obligations under the P&S Term Loan Agreement, in the amount of
        $500,000. We made a draw of $500,000 against the P & S credit line facility
        to obtain the fund to pay the P & S term loan.
 
 **Teles
        AG Loan Agreement**
 
 On
        February 21, 2008, New World Brands, Inc., and TELES AG Informationstechnologien
        (“ *TELES* ”),
        entered into a Term Loan and Security Agreement, effective February 15, 2008,
        pursuant to which, from time to time prior to February 1, 2009 or the earlier
        termination in full of the, the Company may obtain advances from TELES up
        to the
        amount of the outstanding Commitment.  Amounts borrowed may not be
        reborrowed, notwithstanding any payments thereunder.  The outstanding
        balance of the TELES Loan will be due and payable on or before February 1,
        2012.  The outstanding principal amount of the TELES Loan will be
        payable in 12 quarterly installments commencing May 1, 2009.  Interest
        on the outstanding principal amount of the TELES Loan shall be
        paid quarterly commencing May 1, 2008, at the per annum interest rate of
        7%, compounded quarterly
 
 **Blackstone

        Litigation**
 
 On
        April
        1, 2008, effective as of March 31, 2008, the Company entered into a settlement
        agreement in relation to a
        lawsuit
        entitled *Capital
        Securities, LLC and Blackstone Communications Company v. Carlos Bertonnatti,
        Worldwide PIN Payment Corp. and Qualmax, Inc.* ,
        Case
        No. 2006-15824-CA-01, filed August 10, 2006 in the Circuit Court of the
        11 th Judicial
        Circuit in and for Miami-Dade County, Florida (the “ *Blackstone
        Litigation* ”).
        As
        disclosed in the Company’s Quarterly Reports on Form 10-QSB filed with the SEC
        on November 19, August 20, and May 21, 2007, and the Company’s Annual Report on
        Form 10-KSB filed with the SEC on April 17, 2007, the facts underlying the
        Blackstone Litigation relate to a contract between defendant Worldwide PIN
        Payment Corp. and plaintiffs, and a third party, to plaintiffs’ allegations of
        misappropriation of trade secrets and corporate opportunity, and to claims
        that
        defendants, or some of them, tortiously interfered with plaintiffs’ contract
        with a third party.
  Pursuant
        to the settlement agreement, the Company has agreed to pay plaintiffs the
        sum of
        $50,000 toward plaintiffs’ costs of litigation, and in exchange, plaintiffs have
        released the Company from all claims asserted by plaintiffs or otherwise
        arising
        against the Company; all claims against the Company were dismissed with
        prejudice.
 
 F-23