---

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



---



FORM 10-QSB



---



|x | QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------



FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005



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



FOR THE TRANSITION FROM  TO



Commission file number 000-27853



---



UNIVERSAL FOOD & BEVERAGE COMPANY

(Exact name of small business issuer as specified in its charter)



---



|                                               |  |                                     
|---------------------------------------------- |  | ------------------------------------
|Nevada                                         |  | 86-0913555                          
|(State or other jurisdiction of incorporation) |  | (I.R.S. Employer Identification No.)



|                                           |  |           
|------------------------------------------ |  | ----------
|3830 Commerce Drive, St. Charles, Illinois |  | 60174     
|(Address of principal executive offices)   |  | (Zip Code)



630-584-8670

(Issuers telephone number)



---



Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the prior 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 ̈



As of August 10, 2005, the issuer had issued and outstanding
30,864,186 shares of its common stock.



Transitional Small Business
Disclosure Format    YES ̈NO  x



---



---

Special Note on Forward-Looking Statements



The Company believes that certain statements contained in this report and in the future
filings by the Company with the Securities and Exchange Commission and in the Companys written and oral statements made by or with the approval of an authorized executive officer that are not historical facts constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby.



The words and phrases looking ahead, is confident,
should be, will, predicted, believe, plan, intend, estimates, likely, expect and anticipate and similar expressions identify
forward-looking statements.



These forward-looking statements reflect the
Companys current views with respect to future events and financial performance, but are subject to many uncertainties and factors relating to the Companys operations and business environment which may affect the accuracy of
forward-looking statements and cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements. As a result, in some future quarter the Companys operating
results may fall below the expectations of securities analysts and investors. In such an event, the trading price of the Companys common stock would likely be materially and adversely affected. Many of the factors that will determine results
of operations are beyond the Companys ability to control or predict.



Some of the factors that could cause or contribute to such differences include:



| |  | uncertainties relating to the Companys ability to complete the upgrade of its facilities in a timely and cost-effective manner in order to pursue its business strategy;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | uncertainties relating to the Companys liquidity, including its ability to generate positive cash flow from operations, or to otherwise obtain funds from borrowings or equity
sales, in order to fund its debt obligations and working capital and capital expenditure requirements;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | acceptance of the Companys products in the marketplace;
|- |  | --------------------------------------------------------



| |  | changes in the non-alcoholic beverages business environment, including actions of competitors and changes in consumer preferences;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  | uncertainties relating to the Companys ability to continue to compete effectively with other producers of non-alcoholic beverages and producers of alternative non-alcoholic
beverage products with greater financial and management resources;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | uncertainties relating to the Companys ability to develop and distribute new proprietary products to respond to market needs in a timely manner and the Companys ability
to continue to protect its proprietary product information and technology;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | uncertainties relating to the Companys ability to consummate its business strategy, including the unavailability of suitable acquisition candidates, or the Companys
inability to finance general operating activities or future acquisitions or successfully realize synergies and cost savings from the integration of acquired businesses;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | changes in the costs and availability of raw materials and the Companys ability to adjust selling prices to reflect those changes;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  | the Companys reliance on existing senior management and the impact of the loss of any of those persons or its inability to continue to identify, hire and retain qualified
management personnel;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | adverse weather conditions;
|- |  | ---------------------------



| |  | regulatory and legal changes;
|- |  | -----------------------------



| |  | the effectiveness of our advertising and marketing programs;
|- |  | ------------------------------------------------------------



| |  | dependence upon third-party vendors;
|- |  | ------------------------------------



2



---

| |  | our ability to achieve earnings forecasts;
|- |  | ------------------------------------------



| |  | ability to sustain and manage growth; and
|- |  | -----------------------------------------



| |  | changes in economic and political conditions.
|- |  | ---------------------------------------------



The risks included here are not exhaustive. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not
possible for us to predict all such risk factors, nor can we assess the impacts of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained
in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We have no obligation to revise or update these forward-looking
statements to reflect events or circumstances that arise after August 10, 2005 or to reflect the occurrence of anticipated events.



Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them any material
non-public information or other confidential commercial information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Thus, to the
extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.



3



---

Part I  Financial Information



Introductory Note



Unless the context requires otherwise, all references to we, our, or us or the Company are to Universal
Food & Beverage Company, a Nevada corporation, formerly known as Cardinal Minerals, Inc.



On March 2, 2005, we completed the transactions contemplated by the Share Purchase Agreement and Plan of Reorganization (Reorganization Agreement) with Universal Food & Beverage Company, a Delaware
corporation (UFBC), pursuant to which we acquired all the outstanding common stock and other equity based securities of UFBC in exchange for shares of our common stock, $.01 par value.



As a result of the share exchange and other transactions contemplated by the
Reorganization Agreement and accounting for the reverse acquisition:



| |  | UFBC became a wholly owned subsidiary of the Company;
|- |  | -----------------------------------------------------



| |  | the historical financial statements of UFBC are now the historical financial statements of the Company;
|- |  | -------------------------------------------------------------------------------------------------------



| |  | the Company changed its name to Universal Food & Beverage Company;
|- |  | ------------------------------------------------------------------



| |  | the former UFBC shareholders collectively were issued 24,634,345 shares of our common stock representing approximately 90.19% of our 27,313,554 issued and outstanding shares after
the share exchange; and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the outstanding rights, warrants and options to acquire UFBC common stock became rights, warrants and options to acquire shares of our common stock on a one-for-one basis on the
same economic terms.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The reverse acquisition was
treated for financial accounting purposes as a recapitalization of UFBC and therefore the accompanying financial statements are those of UFBC rather than the historical financial statements of the Company. As UFBC was formed July 19, 2004, there are
no prior year comparative financial statements for the quarter or six months ended June 30, 2005.



4



---

Item 1. Financial Statements





UNIVERSAL FOOD & BEVERAGE COMPANY AND
SUBSIDIARIES



UNAUDITED CONSOLIDATED BALANCE SHEETS



JUNE 30, 2005 and DECEMBER 31, 2004



|                                           |  |             |            |   |            |   |            |  
|------------------------------------------ |  | ----------- | ---------- | - | ---------- | - | ---------- | -
|                                           |  | 6/30/2005   |            |   | 12/31/2004 |  
|                                           |  | (Unaudited) |            |   |            |  
|ASSETS                                     |  |             |            |   |            |   |            |  
|CURRENT ASSETS                             |  |             |            |   |            |   |            |  
|Cash                                       |  | $           | 416,062    |   |            | $ | 243,161    |  
|Trade and other receivables, net           |  |             | 90,194     |   |            |   | 4,093      |  
|Inventories                                |  |             | 208,676    |   |            |   | 161,294    |  
|Prepaid expenses                           |  |             | 118,759    |   |            |   | 7,821      |  
|                                           |  |             |            |   |            |   |            |  
|Total Current Assets                       |  |             | 833,691    |   |            |   | 416,369    |  
|PROPERTY, PLANT AND EQUIPMENT - NET        |  |             | 7,673,117  |   |            |   | 1,274,470  |  
|OTHER ASSETS                               |  |             |            |   |            |   |            |  
|Deposits, note receivable and sundry       |  |             | 326,054    |   |            |   | 476,336    |  
|Intangibles and water rights               |  |             | 1,929,137  |   |            |   |           |  
|                                           |  |             |            |   |            |   |            |  
|Total Other Assets                         |  |             | 2,255,191  |   |            |   | 476,336    |  
|                                           |  |             |            |   |            |   |            |  
|Total Assets                               |  | $           | 10,761,999 |   |            | $ | 2,167,175  |  
|                                           |  |             |            |   |            |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |             |            |   |            |   |            |  
|CURRENT LIABILITIES                        |  |             |            |   |            |   |            |  
|Short-term debt                            |  | $           | 1,487,773  |   |            | $ | 62,769     |  
|Current portion of long-term debt          |  |             | 61,300     |   |            |   |           |  
|Accounts payable                           |  |             | 1,249,246  |   |            |   | 109,426    |  
|Accrued expenses                           |  |             | 816,536    |   |            |   | 551,309    |  
|                                           |  |             |            |   |            |   |            |  
|Total Current Liabilities                  |  |             | 3,614,855  |   |            |   | 723,504    |  
|LONG TERM LIABILITIES                      |  |             |            |   |            |   |            |  
|Long-term debt, less current portion       |  |             | 2,424,368  |   |            |   |           |  
|Other long-term liabilities                |  |             | 375,000    |   |            |   |           |  
|                                           |  |             |            |   |            |   |            |  
|Total Long-Term Liabilities                |  |             | 2,799,368  |   |            |   |           |  
|                                           |  |             |            |   |            |   |            |  
|Total Liabilities                          |  |             | 6,414,223  |   |            |   | 723,504    |  
|STOCKHOLDERS EQUITY                       |  |             |            |   |            |   |            |  
|Common stock                               |  |             | 308,542    |   |            |   | 23,138     |  
|Paid in Capital                            |  |             | 8,688,324  |   |            |   | 4,860,458  |  
|Paid in Capital- Warrants                  |  |             | 803,280    |   |            |   |           |  
|Accumulated Deficit                        |  |             | (5,392,370 | ) |            |   | (3,379,925 | )
|Note receivable- Stockholder               |  |             | (60,000    | ) |            |   | (60,000    | )
|                                           |  |             |            |   |            |   |            |  
|Total Stockholders Equity                 |  |             | 4,347,776  |   |            |   | 1,443,671  |  
|                                           |  |             |            |   |            |   |            |  
|Total Liabilities and Stockholders Equity |  | $           | 10,761,999 |   |            | $ | 2,167,175  |  
|                                           |  |             |            |   |            |   |            |  



The accompanying notes
are an integral part of the financial statements.



5



---



UNIVERSAL FOOD & BEVERAGE
COMPANY AND SUBSIDIARIES



UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS



FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2005



|                                            |  |                                |            |   |                              |   |            |  
|------------------------------------------- |  | ------------------------------ | ---------- | - | ---------------------------- | - | ---------- | -
|                                            |  | Three monthsendedJune 30, 2005 |            |   | Six monthsendedJune 30, 2005 |  
|Net Sales                                   |  | $                              | 296,617    |   |                              | $ | 372,987    |  
|Cost of Goods Sold                          |  |                                | 706,770    |   |                              |   | 884,768    |  
|                                            |  |                                |            |   |                              |   |            |  
|Gross Margin                                |  |                                | (410,153   | ) |                              |   | (511,781   | )
|                                            |  |                                |            |   |                              |   |            |  
|Operating Expenses                          |  |                                |            |   |                              |   |            |  
|Selling expenses                            |  |                                | 54,130     |   |                              |   | 85,167     |  
|Office and administrative expenses          |  |                                | 844,333    |   |                              |   | 1,345,820  |  
|                                            |  |                                |            |   |                              |   |            |  
|Total Operating Expenses                    |  |                                | 898,463    |   |                              |   | 1,430,987  |  
|                                            |  |                                |            |   |                              |   |            |  
|Loss from Operations                        |  |                                | (1,308,616 | ) |                              |   | (1,942,768 | )
|                                            |  |                                |            |   |                              |   |            |  
|Other Expense                               |  |                                |            |   |                              |   |            |  
|Interest expense                            |  |                                | 65,646     |   |                              |   | 66,539     |  
|Other expense                               |  |                                | 1,595      |   |                              |   | 3,138      |  
|                                            |  |                                |            |   |                              |   |            |  
|Total Other Expense                         |  |                                | 67,241     |   |                              |   | 69,677     |  
|                                            |  |                                |            |   |                              |   |            |  
|Loss Before Income Taxes                    |  |                                | (1,375,857 | ) |                              |   | (2,012,445 | )
|                                            |  |                                |            |   |                              |   |            |  
|Provision for Income Taxes                  |  |                                |           |   |                              |   |           |  
|                                            |  |                                |            |   |                              |   |            |  
|Net Loss                                    |  | $                              | (1,375,857 | ) |                              | $ | (2,012,445 | )
|                                            |  |                                |            |   |                              |   |            |  
|Basic and Diluted Net Loss per Common Share |  | $                              | (0.05      | ) |                              | $ | (0.07      | )
|                                            |  |                                |            |   |                              |   |            |  
|Weighted Average Common Shares Outstanding  |  |                                | 30,420,258 |   |                              |   | 27,567,215 |  
|                                            |  |                                |            |   |                              |   |            |  



The accompanying notes
are an integral part of the financial statements.



6



---



UNIVERSAL FOOD & BEVERAGE
COMPANY AND SUBSIDIARIES



UNAUDITED CONSOLIDATED STATEMENT OF
STOCKHOLDERS EQUITY



SIX MONTHS ENDED

JUNE 30, 2005



|                                                                              |  |                                                                                         |  |        |         |                |   |           |                         |  |                    |         |  |                            |            |   |       |   |         |   |  |   |            |  
|----------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | ------ | ------- | -------------- | - | --------- | ----------------------- |  | ------------------ | ------- |  | -------------------------- | ---------- | - | ----- | - | ------- | - |  | - | ---------- | -
|                                                                              |  | Common stock                                                                            |  |        |         |                |   |           |                         |  |                    |         |  |                            |            |  
|                                                                              |  | Par value -$.01 ($.001 prior toreverse acquisition 3/2/05)100,000,000 shares authorized |  |        |         |                |   |           |                         |  |                    |         |  |                            |            |  
|                                                                              |  | Shares                                                                                  |  | Amount |         | Paid inCapital |   |           | Paid incapital-Warrants |  | Accumulateddeficit |         |  | NoteReceivable-Stockholder |            |   | Total |  
|Balance at January 1, 2005                                                    |  | 23,137,677                                                                              |  | $      | 23,138  |                | $ | 4,860,458 |                         |  | $                  |        |  | $                          | (3,379,925 | ) |       | $ | (60,000 | ) |  | $ | 1,443,671  |  
|Issuance of shares and warrants through private placement offering            |  | 1,496,670                                                                               |  |        | 14,967  |                |   | 1,107,533 |                         |  |                    |        |  |                            |           |   |       |   |        |   |  |   | 1,122,500  |  
|Issuance of stock and recapitalization in connection with reverse acquisition |  | 2,679,239                                                                               |  |        | 235,031 |                |   | (315,031  | )                       |  |                    |        |  |                            |           |   |       |   |        |   |  |   | (80,000    | )
|Issuance of shares and warrants in connection with acquisition agreement      |  | 3,000,000                                                                               |  |        | 30,000  |                |   | 2,220,000 |                         |  |                    | 660,000 |  |                            |           |   |       |   |        |   |  |   | 2,910,000  |  
|Exercise of stock warrants                                                    |  | 72,000                                                                                  |  |        | 720     |                |   |          |                         |  |                    | 143,280 |  |                            |           |   |       |   |        |   |  |   | 144,000    |  
|Issuance of shares through private placement offerings                        |  | 468,600                                                                                 |  |        | 4,686   |                |   | 815,364   |                         |  |                    |        |  |                            |           |   |       |   |        |   |  |   | 820,050    |  
|Net loss for period                                                           |  |                                                                                        |  |        |        |                |   |          |                         |  |                    |        |  |                            | (2,012,445 | ) |       |   |        |   |  |   | (2,012,445 | )
|                                                                              |  |                                                                                         |  |        |         |                |   |           |                         |  |                    |         |  |                            |            |   |       |   |         |   |  |   |            |  
|Balance at June 30, 2005                                                      |  | 30,854,186                                                                              |  | $      | 308,542 |                | $ | 8,688,324 |                         |  | $                  | 803,280 |  | $                          | (5,392,370 | ) |       | $ | (60,000 | ) |  | $ | 4,347,776  |  
|                                                                              |  |                                                                                         |  |        |         |                |   |           |                         |  |                    |         |  |                            |            |   |       |   |         |   |  |   |            |  



The accompanying notes
are an integral part of the financial statements.



7



---



UNIVERSAL FOOD & BEVERAGE
COMPANY AND SUBSIDIARIES



UNAUDITED CONSOLIDATED STATEMENT OF
CASH FLOWS



FOR THE SIX MONTHS ENDED

JUNE 30, 2005



|                                                                             |  |   |            |  
|---------------------------------------------------------------------------- |  | - | ---------- | -
|CASH FLOWS FROM OPERATING ACTIVITIES                                         |  |   |            |  
|Net loss                                                                     |  | $ | (2,012,445 | )
|Adjustments to reconcile net loss to net cash used in operating activities - |  |   |            |  
|Depreciation and amortization                                                |  |   | 50,426     |  
|Allowance for doubtful accounts                                              |  |   | 134,680    |  
|Changes in operating assets and liabilities -                                |  |   |            |  
|Trade receivables                                                            |  |   | (92,033    | )
|Inventories                                                                  |  |   | (47,382    | )
|Prepaid expenses and other assets                                            |  |   | (71,404    | )
|Accounts payable                                                             |  |   | 992,250    |  
|Accrued expenses                                                             |  |   | 265,227    |  
|                                                                             |  |   |            |  
|Net Cash Used In Operating Activities                                        |  |   | (780,681   | )
|                                                                             |  |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                         |  |   |            |  
|Increase in deposits and note receivable                                     |  |   | (168,000   | )
|Acquisition of Cardinal Minerals, Inc.                                       |  |   | (80,000    | )
|Business Acquisition                                                         |  |   | (3,175,074 | )
|Capital expenditures                                                         |  |   | (1,145,566 | )
|                                                                             |  |   |            |  
|Net Cash Used In Investing Activities                                        |  |   | (4,568,640 | )
|                                                                             |  |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                         |  |   |            |  
|Proceeds from government grants                                              |  |   | 375,000    |  
|Proceeds from short-term debt                                                |  |   | 600,000    |  
|Proceeds from long-term debt                                                 |  |   | 2,500,000  |  
|Payments on long-term debt                                                   |  |   | (39,328    | )
|Capital contributions                                                        |  |   | 2,086,550  |  
|                                                                             |  |   |            |  
|Net Cash Provided By Financing Activities                                    |  |   | 5,522,222  |  
|                                                                             |  |   |            |  
|NET INCREASE IN CASH                                                         |  |   | 172,901    |  
|CASH -                                                                       |  |   |            |  
|Beginning of period                                                          |  |   | 243,161    |  
|                                                                             |  |   |            |  
|End of period                                                                |  | $ | 416,062    |  
|                                                                             |  |   |            |  
|Supplemental disclosures of cash flow information                            |  |   |            |  
|Cash paid during the period for:                                             |  |   |            |  
|Income taxes                                                                 |  | $ |           |  
|                                                                             |  |   |            |  
|Interest                                                                     |  | $ | 30,702     |  
|                                                                             |  |   |            |  
|Supplemental schedule of non-cash investing and financing activities         |  |   |            |  



In connection with
the business acquisition (see note 16), a portion of the purchase price was funded by stock and warrants valued at $2,910,000 and seller financing of $850,000.



The accompanying notes are an integral part of the financial statements.



8



---



UNIVERSAL FOOD & BEVERAGE
COMPANY AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS



JUNE 30, 2005



|1. | BASIS OF PRESENTATION
|-- | ---------------------



The accompanying consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair
presentation of the financial position and the results of operations for the interim periods presented.



On March 2, 2005, the registrant, f/k/a Cardinal Minerals, Inc. (Company) completed the share exchange with Universal Food
& Beverage Company (UFBC) shareholders contemplated by a Share Purchase Agreement and Plan of Reorganization (Reorganization Agreement) dated September 28, 2004. The Company acquired all of the outstanding shares and
other rights with respect to UFBC common stock for shares of common stock, $.01 par value, of the Company. Immediately prior to the share exchange, the Company effected a one (1)-for ten (10) reverse stock split for its shares of common stock then
outstanding.



As a result of the share
exchange and other transactions contemplated by the Reorganization Agreement and accounting for the reverse acquisition:



| |  |  | UFBC became a wholly owned subsidiary of the Company.
| | - |  | -----------------------------------------------------



| |  |  | The historical financial statements of UFBC are presented as the historical financial statements of the registrant (Company).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company changed its name to Universal Food & Beverage Company
| | - |  | ------------------------------------------------------------------



| |  |  | the former UFBC shareholders collectively were issued 24,634,345 shares of the Companys common stock representing approximately 90.19% of the 27,313,554 issued and outstanding
shares immediately following the share exchange.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the outstanding rights, warrants and options of UFBC common stock became rights, warrants and options to acquire shares of the registrants common stock on a one-for-one basis
on the same economic terms.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the one year term for all existing warrants was amended to begin as of March 2, 2005.
| | - |  | -------------------------------------------------------------------------------------



The reverse acquisition was treated for financial accounting purposes as a recapitalization of UFBC and
therefore the accompanying financial statements are those of UFBC rather than the historical financial statements of the Company. Since UFBC was formed on July 19, 2004, there are no prior year comparative financials for the three or six months
ended June 30, 2005. At the closing, $80,000 of the former Cardinal liabilities were assumed and then paid as a result of the reverse acquisition.



|2. | GOING CONCERN
|-- | -------------



The accompanying consolidated financial statements have been prepared on a going-concern basis, which presumes that the Company will be
able to continue to meet its obligations and realize its assets in the normal course of business.



As shown on the accompanying consolidated financial statements, the Company has incurred operating losses since its inception.
Management believes that the Company will continue to incur operating losses until Company revenues can sustain the business. As of June 30, 2005, the Company has a working capital deficit of approximately $2.8 million, and positive
stockholders equity of approximately $4.3 million. The Company is dependent upon continuing cash infusions to fund on-going start-up operations. The Company is approaching various banks about obtaining a working capital line to help fund the
growth of working capital as revenues increase and inventory and receivables levels rise. These discussions are on-going. While the Company believes that existing and prospective shareholders will provide the required funding, there can be no
assurance that the equity and debt funding required can be obtained.



The inability to obtain required equity funding would materially affect the Companys ability to continue and would adversely impact the current equity value of the Company. The accompanying financial statements
do not include any adjustments that might result from the outcome of these uncertainties.



9



---

UNIVERSAL FOOD & BEVERAGE COMPANY AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



JUNE 30, 2005



|3. | MANAGEMENT AGREEMENT
|-- | --------------------



On September 1, 2004, UFBC entered into a Management Agreement with Independence Water Group, LLC (IWG), whereby UFBC was to
manage the water bottling business of IWG. UFBC was responsible for sales and all costs of the facility, including normal debt payments of IWG, maintenance of the plant and equipment, insurance, taxes, etc. during the term of the agreement. The
original expiration of the agreement was December 1, 2004, but the agreement was informally extended through March 31, 2005. The intention of the parties was to allow UFBC to manage the business until such time that UFBC could acquire the business
in accordance with its strategic plan. As described in note 16, IWGs net assets were purchased on March 31, 2005.



In connection with the Management Agreement, UFBC issued IWG an option to receive 1,000,000 units, each unit consisting of one share of
common stock and one warrant to purchase an additional share of stock. The option was exercisable with no consideration after the consummation of an acquisition agreement. The warrants were to be priced at $2.00 for 90 days and $2.50 for the next
275 days. The warrant pricing was modified in the final acquisition agreements to be exercisable over three years for $1.00. The fair value of the shares and warrants are included in the purchase price of IWG (see note 16).



|4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



Nature of Business - The Company is a Nevada corporation and a manufacturer and marketer of food and beverage products.



Basis of Financial Statement
Presentation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated.



Inventories - Inventories are valued at the lower of cost or market
using the first-in, first-out, (FIFO) method of valuation.



Property, Plant and Equipment - Property and equipment are recorded at cost. Depreciation is computed using the straight line method over the estimated useful lives (5-7 years for equipment; 25 years for
buildings) of the assets. Depreciation expense was $6,201 and $50,426 for the three and six months ended June 30, 2005, respectively.



Long Lived Assets - The Company reviews the carrying value of its long-lived and identifiable intangible assets for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. To date, the Company has not recognized any assets which are impaired.



Intangibles/Water Rights - The Company acquired certain intangibles and water rights from IWG (see note 16).
The Company believes that these rights have indefinite lives and are therefore not being amortized. These rights are reviewed for impairment annually.



Revenue Recognition - Revenue is recognized when merchandise is shipped to the customer.



Shipping and Handling Fees and
Costs - The Company classifies shipping and handling costs billed to customers as net sales; costs related to shipping are classified as cost of goods sold.



Income Taxes - The Company and its wholey owned subsidiaries file consolidated federal and state income tax
returns.



The Company accounts for income taxes under
the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Deferred tax assets and liabilities are provided for temporary differences between financial reporting basis
and the tax basis of the Companys assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled, subject to a valuation allowance when it is more likely than not that some or all of the deferred
tax asset will not be realized.



10



---

UNIVERSAL FOOD & BEVERAGE COMPANY AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



JUNE 30, 2005



|4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- CONTINUED
|-- | -----------------------------------------------------



Stock Based Compensation - The Company accounts for stock based compensation in accordance with FASB No. 123R, Share-Based
Payment,which requires the fair value method of recording such items. There are currently no options outstanding.



Research and Development Costs - Research and development costs are expensed as incurred.



Loss per Share - Basic loss per share is computed by
dividing the net loss applicable to common stockholders by the weighted average common shares outstanding during the period. Diluted loss attributable to common stockholders adjusts basic loss per share for the effects of stock options, warrants and
other potentially dilutive financial instruments, only in such periods in which such effect is dilutive.



Since the Company is in a net loss position, basic and dilutive net loss per share are the same since the inclusion of other common stock equivalents
would be anti-dilutive.



Accounts and
Notes Receivable - The Company makes judgments as to the collectibility of accounts and notes receivable based on historic trends and future expectations. Management estimates an allowance for doubtful receivables, which reflects its
current assessment of the collectibility of the receivables. Management believes that the current specific and general receivable reserves aggregating $149,280 is adequate as of June 30, 2005. The reserve was $14,600 at December 31, 2004.



Use of Accounting Estimates - The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



|5. | INVENTORIES
|-- | -----------



Inventories, consist of the following:



|               |  |           |         |            |   |        
|-------------- |  | --------- | ------- | ---------- | - | -------
|               |  | 6/30/2005 |         | 12/31/2004
|Raw materials  |  | $         | 148,444 |            | $ | 78,180 
|Finished goods |  |           | 60,232  |            |   | 83,114 
|               |  |           |         |            |   |        
|               |  | $         | 208,676 |            | $ | 161,294
|               |  |           |         |            |   |        



|6. | PROPERTY, PLANT AND EQUIPMENT
|-- | -----------------------------



Property, plant and equipment consist of the following:



|                                                |  |           |           |            |   |          
|----------------------------------------------- |  | --------- | --------- | ---------- | - | ---------
|                                                |  | 6/30/2005 |           | 12/31/2004
|Leasehold improvements                          |  | $         | 114,629   |            | $ | 195,361  
|Furniture and office equipment                  |  |           | 51,534    |            |   | 51,534   
|Equipment and improvements in progress          |  |           | 2,831,777 |            |   | 1,033,162
|Buildings                                       |  |           | 999,190   |            |   |         
|Land                                            |  |           | 3,732,000 |            |   |         
|                                                |  |           |           |            |   |          
|                                                |  |           | 7,729,130 |            |   | 1,280,057
|Less: accumulated depreciation and amortization |  |           | 56,013    |            |   | 5,587    
|                                                |  |           |           |            |   |          
|                                                |  | $         | 7,673,117 |            | $ | 1,274,470
|                                                |  |           |           |            |   |          



|7. | NOTE RECEIVABLE
|-- | ---------------



The note receivable consists of advances of $400,067 to a business partner. The notes bear interest at 5% with scheduled interest and principal payments
beginning April 1, 2005 and payable over a 12 month period. The managements of both companies are negotiating a business arrangement whereby interest and principal payments may be made through a profit sharing arrangement of shared business
opportunities. As these negotiations are continuing, no payments have been received as of August 10, 2005.



11



---

UNIVERSAL FOOD & BEVERAGE COMPANY AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



JUNE 30, 2005



|8. | SHORT-TERM DEBT
|-- | ---------------



Short-term debt consists of the following:



| |  |  | An equipment loan in the amount of $500,000 with a commercial bank obtained in connection with acquisition of IWG (see note 16). The note is due on December 31, 2005, with monthly
interest only payments at prime plus one percent (effectively 7.25% at June 30, 2005) and is collateralized by certain equipment in the Virginia facility.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An equipment loan in the amount of $850,000 with the sellers of the business acquisition (see note 16). The loan is due on March 31, 2006, with interest only payments at six percent
for six months then converting to twelve percent until maturity and is secured by a second position on certain equipment and real estate in Virginia. The Company has received a waiver from this lender to postpone interest payments until further
notified by the lender.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Installment note payable for equipment, with twelve monthly payments of $6,472, including interest at 8%, through October 2005.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | Two short term promissory notes provided by shareholders totaling $100,000 with interest accruing at 6%. The total principal and interest is due on November 22, 2005. Interest
expense was $500 for the six months ended June 30, 2005.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9. | LONG-TERM DEBT
|-- | --------------



Effective March 31, 2005, in conjunction with the Asset Purchase Agreement (see note 16), the Company borrowed $2,500,000 in mortgage
financing secured by the real estate of the Companys Virginia subsidiary. The mortgage maturity date is March 31, 2025 and requires amortizing principle and interest payments over 20 years with interest at prime plus one percent (effectively
7.25% at June 30, 2005). The annual principal payments will vary based upon changing interest rates over time.



|10. | ACCRUED EXPENSES
|--- | ----------------



Included in accrued expenses are deferred salaries of executive officers of approximately $425,000 and $142,000 as of June 30, 2005 and
December 31, 2004, respectively. The officers agreed to defer 50% of their compensation until the operations of the bottling facility reaches an annual revenue rate of $4,000,000.



|11. | INCOME TAXES
|--- | ------------



Due to the operating losses incurred, the Company has no current income tax provision. The tax effect of the existing net operating losses
give rise to significant portions of the deferred tax asset as follows as of June 30:



|                                 |  |           |            |   |            |   |            |  
|-------------------------------- |  | --------- | ---------- | - | ---------- | - | ---------- | -
|                                 |  | 6/30/2005 |            |   | 12/31/2004 |  
|Deferred tax assets              |  |           |            |   |            |   |            |  
|Net operating loss carry forward |  | $         | 2,049,000  |   |            | $ | 1,284,000  |  
|                                 |  |           |            |   |            |   |            |  
|Total deferred tax assets        |  |           | 2,049,000  |   |            |   | 1,284,000  |  
|                                 |  |           |            |   |            |   |            |  
|Valuation allowance              |  |           | (2,049,000 | ) |            |   | (1,284,000 | )
|                                 |  |           |            |   |            |   |            |  
|Net deferred tax asset           |  | $         |           |   |            | $ |           |  
|                                 |  |           |            |   |            |   |            |  



At
June 30, 2005 and December 31, 2004, the Company has net operating loss carry forwards for Federal and state income tax purposes totaling approximately $5,392,000 and $3,380,000, respectively, available to offset future taxable income. These loss
carry forwards expire in years beginning in 2024, unless utilized sooner. The registrant, prior to the exchange had net loss carry forwards of as much as $2,000,000. Due to IRS regulations with respect to changes of control, the amount available to
be utilized on an annual basis will be limited (and is therefore not included in the table above). In addition, the ability to use the registrants prior carry forwards before they expire is uncertain, so a valuation allowance for the entire
benefit has been provided.



12



---

UNIVERSAL FOOD & BEVERAGE COMPANY AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



JUNE 30, 2005



|12. | OTHER LONG-TERM LIABILITIES
|--- | ---------------------------



Other long-term liabilities consists of two grants from the State of Virginia in the amount of $375,000, which were provided to the
Company for the purpose of constructing a new bottling plant and increasing local employment. Due to the uncertainty of meeting the specific terms of the agreements, the Company has classified these grants as liabilities.



|13. | PRIVATE PLACEMENT OFFERINGS
|--- | ---------------------------



The Company (as UFBC) conducted a private placement offering, which began in September, 2004 and was terminated March 1, 2005, the day
prior to the reverse acquisition described in note 1. The offering was for a maximum of $7,500,000, consisting of 10,000,000 units priced at $.75. Each unit consisted of one share of common stock and one warrant. The exercise price of the warrants
was $2.00 for the first 90 days after subscription and $2.50 for the balance of a one year period. For the period from January 1, 2005 through March 1, 2005, the Company issued 1,496,670 units or $1,122,500. In total, the Company issued 4,962,345
units for $3,721,744 under this agreement.



The terms of the Reorganization Agreement called for the conversion of the former existing warrants to warrants of the new merged company. In addition, the Company modified the warrants to restart the 365 day term of the warrant agreement
effective the date of the merger. There was no financial statement effect based on this modification.



During the quarter ended June 30, 2005, the Company sold 468,600 shares of common stock for $820,050 through a private placement offering.
The Company is continuing its efforts to raise funds through private placements.



|14. | WARRANTS
|--- | --------



During the six months ended June 30, 2005, the Company had the following activity related to stock warrants:



|                           |  |                   |   |  |                         |            
|-------------------------- |  | ----------------- | - |  | ----------------------- | -----------
|                           |  | Number ofWarrants |   |  | Range ofExercise Prices
|Balance at January 1, 2005 |  | 4,487,677         |   |  | $                       | 2.00-$2.50 
|Issued                     |  | 4,496,668         |   |  | $                       | 1.00 -$2.50
|Exercised                  |  | (72,000           | ) |  | $                       | 2.00       
|Forfeited                  |  |                  |   |  |                         |            
|                           |  |                   |   |  |                         |            
|Balance at June 30, 2005   |  | 8,912,345         |   |  | $                       | 1.00 -$2.50
|                           |  |                   |   |  |                         |            



All
warrants are fully exercisable at June 30, 2005.



|15. | LEASES
|--- | ------



In December, 2004, the Company entered into a five year lease for its executive offices. The lease requires minimum monthly payments
ranging from $6,199 to $7,059 during the term of the lease. The lease also provides for two three year extensions.



In October, 2004, the Company entered into a one year lease for a warehouse. The lease requires minimum monthly payments ranging from
$3,000 to $6,000 per month. The lease also provides for a six month or five year renewal at $7,500 per month.



The Company also leases various equipment on operating leases. Total rent expense for the six months ended June 30, 2005 was approximately
$112,000. Minimum annual rental payments under operating leases are as follows for the years ended June 30,



|     |  |   |        
|---- |  | - | -------
|2006 |  | $ | 94,099 
|2007 |  |   | 78,224 
|2008 |  |   | 80,451 
|2009 |  |   | 83,487 
|2010 |  |   | 42,680 
|     |  |   |        
|     |  | $ | 378,941
|     |  |   |        



13



---

UNIVERSAL FOOD & BEVERAGE COMPANY AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



JUNE 30, 2005



|16. | BUSINESS ACQUISITION
|--- | --------------------



On March 31, 2005, the Companys wholly-owned Virginia subsidiary, Universal Food & Beverage Company of Virginia, completed the
purchase from Independence Water Group, LLC (IWG), of the assets of IWGs water bottling business pursuant to the terms of an asset purchase agreement and real estate purchase agreement (Asset Purchase Agreement) with
IWG. The assets consisted of approximately 620 acres of forestland, certain water rights, a fully equipped and operational water bottling facility, a distribution warehouse and a home.



The purchase price consisted of the following:



| |  |  | $650,000 in cash, including a $150,000 deposit previously provided
| | - |  | ------------------------------------------------------------------



| |  |  | 3,000,000 unregistered shares of Company stock, including 1,000,000 option shares in connection with the management agreement (see note 3)
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 3,000,000 unregistered warrants of Company stock, including 1,000,000 warrants in connection with the management agreement (see note 3), which are exercisable over three years at a
price of $1.00 per share
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Proceeds from a 20 year mortgage note from a local bank in the amount of $2,500,000.
| | - |  | ------------------------------------------------------------------------------------



| |  |  | Note payable to IWG in the amount of $850,000, which bears interest at a rate of 6 % annually for the first six months and 12% thereafter, and is payable in full on March 31, 2006.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The fair value of the 3,000,000 shares of stock
issued was calculated at $.75/share or $2,250,000 based upon a third party valuation approved by the Companys Board of Directors. The fair value of the 3,000,000 warrants was calculated as $660,000 using the Black Scholes option pricing model
with the following weighted average assumptions: expected dividend yield 0%; risk-free interest rate of 3.96%; expected volatility of 55%, and an expected life of 3 years.



The aggregate consideration paid for the acquisition was as follows:



|                                  |  |   |          
|--------------------------------- |  | - | ---------
|Fair value of common stock issued |  | $ | 2,250,000
|Fair value of warrants issued     |  |   | 660,000  
|Cash consideration                |  |   | 650,000  
|Transaction costs                 |  |   | 175,074  
|Payables assumed                  |  |   | 147,570  
|Payment of seller mortgage        |  |   | 2,500,000
|Note due to seller                |  |   | 850,000  
|                                  |  |   |          
|                                  |  | $ | 7,232,644
|                                  |  |   |          



The cash portion of
the acquisition was in part funded through the proceeds from a $2,500,000 long-term note and a $500,000 short-term note.



The acquisition has been accounted for as a purchase and the purchase price, including the direct costs of acquisition, have been allocated as follows:



|                             |  |   |          
|---------------------------- |  | - | ---------
|Land                         |  | $ | 3,732,000
|Buildings                    |  |   | 905,900  
|Equipment                    |  |   | 665,400  
|Intangibles and water rights |  |   | 1,929,344
|                             |  |   |          
|                             |  | $ | 7,232,644
|                             |  |   |          



The excess of the
purchase price over the estimated fair values of the tangible assets acquired and liabilities assumed has been allocated to intangibles/water rights. These allocations are subject to revision when the Company receives final information, including
appraisals and other analyses.



Since the business was
acquired on March 31, 2005, the Companys results of operations does not include the results of IWG from January 1 through March 31, 2005. If the acquisition had occurred at the beginning of the period presented, the loss before income taxes
and net loss for the six months ended June 30, 2005 would have been higher by approximately $33,000. This additional loss would not change the loss per share amounts.



14



---

Item 2. Managements Discussion and Analysis or Plan of Operation



Overview



Our strategy is to become a leading manufacturer and marketer of healthy and value-added food and beverage
products. Our primary goal is to develop innovative products and packaging for direct and private label sale and to distribute products both domestically and internationally. We will also develop, test and perfect processing and packaging systems to
provide manufacturing services, as well as develop new products and improve product quality.



In line with this strategy, on March 31, 2005 we acquired the assets of a water bottling plant and related properties (referred to as the Independence Water Group or IWG) in Independence, Virginia. Prior
to this acquisition, we managed these assets under a management agreement since September, 2004. We have begun the process of upgrading the facility to produce a broad line of value added beverages which we expect to substantially complete during
the third quarter of 2005. Regular production of products at the facility was just beginning at the end of the second quarter.



We additionally intend to identify and pursue additional acquisitions of other water bottling businesses and other package food product lines in the
United States and Canada in order to implement our strategy of expanding capacity, sales and product offerings in the healthy foods segment.



Our principal executive offices are at 3830 Commerce Drive, St. Charles, Illinois 60174. Our telephone number is (630) 584-8670.



Results of Operations



Since UFBC was formed on July 19, 2004, there are no prior year comparable financials for the three or six months ended June 30, 2005. For
analysis purposes, this discussion will compare the quarter ended June 30, 2005 to that of the prior quarter ended March 31, 2005.



|                                            |  |                                 |            |   |                                  |   |            |        |  |   |          |  
|------------------------------------------- |  | ------------------------------- | ---------- | - | -------------------------------- | - | ---------- | ------ |  | - | -------- | -
|                                            |  | Three monthsended June 30, 2005 |            |   | Three Monthsended March 31, 2005 |   |            | Change | 
|Net Sales                                   |  | $                               | 296,617    |   |                                  | $ | 76,370     |        |  | $ | 220,247  |  
|Cost of Goods Sold                          |  |                                 | 706,770    |   |                                  |   | 177,998    |        |  |   | 528,772  |  
|                                            |  |                                 |            |   |                                  |   |            |        |  |   |          |  
|Gross Margin                                |  |                                 | (410,153   | ) |                                  |   | (101,628   | )      |  |   | (308,525 | )
|Selling, Office & Administrative Expense    |  |                                 | 898,463    |   |                                  |   | 532,524    |        |  |   | 365,939  |  
|                                            |  |                                 |            |   |                                  |   |            |        |  |   |          |  
|Loss from Operations                        |  |                                 | (1,308,616 | ) |                                  |   | (634,152   | )      |  |   | (674,464 | )
|Other Expense                               |  |                                 | 67,241     |   |                                  |   | 2,436      |        |  |   | 64,805   |  
|                                            |  |                                 |            |   |                                  |   |            |        |  |   |          |  
|Loss Before Income Taxes                    |  |                                 | (1,375,857 | ) |                                  |   | (636,588   | )      |  |   | (739,269 | )
|Provision for Income Taxes                  |  |                                 | 0          |   |                                  |   | 0          |        |  | $ | 0        |  
|                                            |  |                                 |            |   |                                  |   |            |        |  |   |          |  
|Net Loss                                    |  | $                               | (1,375,857 | ) |                                  | $ | (636,588   | )      |  | $ | (739,269 | )
|                                            |  |                                 |           
|Basic and Diluted Net Loss per Common Share |  | $                               | (0.05      | ) |                                  | $ | (0.03      | )      |  |   |          |  
|                                            |  |                                 |           
|Weighted Average Common Shares Outstanding  |  |                                 | 30,420,258 |   |                                  |   | 24,682,471 |        |  |   |          |  



15



---

Sales



Sales for the quarter of $296,617 improved $220,247 over first quarter sales as the Company began shipping product to new customers. Sales year to date of
$372,987 consist primarily of sales of sourced product sold to one time customers as the manufacturing facilities are being started up, initial products are being produced and the process start-up issues are resolved. Regular production was just
beginning as of the end of the second quarter.



Cost of Goods Sold



Cost of Goods Sold of $706,770 for the quarter consist
primarily of the costs of sourced product and freight as well as under absorbed manufacturing overhead costs and other start-up operating expenses as the plant is being readied for production. The increase in cost of goods sold of $528,772 over the
first quarter total of $177,998 is primarily due to the staffing of production labor and trial operation of the facilities. Year to date cost of goods sold was $884,768.



Gross Margin



The loss of $410,153 and $101,628 for the second and first quarters, respectively, results from the above mentioned sales being inadequate to absorb
related operating and trial production run expenses, as well as unfavorable freight expenses on initial sales which were from sourced products. Year to date margin was a negative $511,781.



Selling, Office and Administrative Expenses



Selling, office and administrative expenses for the current quarter of
$898,463 consist primarily of initial administrative and marketing development, legal, accounting and research & development expenses of preparing the Company for business and the expense of developing product images, packaging and meeting with
potential customers. The increase in office and administrative expenses of $365,939 over the first quarter amount of $532,524 is primarily due to allowances made for certain trade and notes receivable and increased professional fees.



Other Expense



Interest expense for the quarter of $65,646 relates to long and short term debt incurred to finance the purchase of IWG
assets on March 31, 2005. Other expense of $1,595 and $1,543 consists primarily of bank fees and charges for the current and prior quarters, respectively. Interest expense was $893 for the first quarter.



Loss Before Income Taxes



Pre-tax loss of $1,375,857 and $636,588 for the second and first quarters,
respectively, results from the above mentioned gross margin loss and the selling, office and administrative expense and other expense.



Tax



The Company is in a net operating loss position and cannot with assurance predict future tax liabilities against which to offset current tax benefits, so no tax benefits have been recorded.



Net Loss



A net loss of $1,375,857 or $.05 per weighted average common share outstanding and a net loss of $636,588 or $.03 for the
second and first quarters respectively results from the above mentioned loss



16



---

before income taxes with no benefiting tax offset. Year to date net loss was $2,012,445 or $.07 per common share results from the above mentioned operating
results and the cumulative year to date average common shares outstanding.



Liquidity and Capital Resources



As of June 30, 2005, the
Company had negative working capital of $2,781,164. During the six months ended June 30, 2005 the Company generated a deficit in cash flow from operations of $780,681. The deficit in cash flow from operating activities is primarily attributable to
the Companys net loss from operations of $2,012,445, in addition to increases in receivables, inventories and prepaid expenses and other assets of $210,819, which was partially offset by an increase in accounts payable of $992,250 and accrued
expenses of $ 265,227.



Cash flow used in investing activities for the six
month period ended June 30, 2005 was $4,568,640, which is primarily attributable to the purchase of IWG and capital expenditures for the Virginia facilities.



The Company met its cash requirements through the borrowings of $3,100,000 (which was used to acquire the IWG assets, in part), government grants of $375,000 and the
proceeds from the sale of stock and warrants through private offerings of $2,086,550. Subsequent to June 30, 2005, the Company has received equity proceeds of $17,500 from the sale of common stock.



While we have raised capital to meet our working capital and financing needs in the past,
additional financing is required immediately in order to meet our current and projected cash flow deficits from operations and development. We estimate that we will need approximately $7,300,000 over the next 12 months to fund working capital needs
and $1,400,000 to complete product line expansions needed to grow the business. Debt service over the following 12 months are projected to approximate $2,200,000 in principal and interest payments. In addition to seeking bank working capital
financing, we are seeking financing in the form of equity in order to provide the necessary working capital.



While management believes that required capital and bank financing will be received, there can be no assurance that additional private or public financing, including debt or equity financing, will be available as
needed, or, if available, on terms favorable to the Company. Any additional equity financing may be dilutive to shareholders and such additional equity securities may have rights, preferences or privileges that are senior to those of the
Companys existing common stock. Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on the operating flexibility of the Company. However, if we are not
successful in generating sufficient liquidity from operations or in raising sufficient capital resources on terms acceptable to us, this will have a material adverse effect on our business, results of operations, liquidity and financial condition,
and we will have to limit our planned operations and business development.



The
Companys operations are located in North America and our primary market is anticipated to be in North America. There are seasonal aspects that would have an effect on the working capital requirements but which are not anticipated to have a
material effect on the Companys financial condition or results of operations.



Item 3. Controls and Procedures



The Company maintains
disclosure controls and procedures that are designed to provide reasonable assurances that information required to be disclosed in reports filed with the SEC pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow
timely decisions regarding required disclosures. Under the supervision and with the participation of



17



---

the Companys management, including the CEO and CFO, the Company conducted an evaluation of the overall effectiveness of the Companys disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on their evaluation, our principal executive officer
and principal financial officer have concluded that the Companys controls and procedures were effective as of June 30, 2005. There were no significant changes in our internal controls or in other factors that could significantly affect these
controls in the second quarter of 2005.



The evaluation of the Companys
disclosure controls and procedures by the CEO and the CFO included a review of the controls objectives and design, the operation of the controls, and the effect of the controls on the information presented in this Quarterly Report. The
Companys management, including the CEO and CFO, does not expect that disclosure controls and procedures can or will prevent or detect all errors and all fraud, if any, because there are inherent limitations to the effectiveness of any system
of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. As a result, a control system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of the disclosure controls and procedures to future periods are subject to the risk that the disclosure controls and procedures may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



18



---

Part II  Other Information



Item 2. Unregistered sales of Securities and Use of Proceeds



During the second quarter of 2005, we sold a total of 468,600 shares of our common stock to accredited investors for $1.75 in cash each for
an aggregate purchse price of $820,050. No commissions or discounts were paid with respect to these sales. Each of these shares of our common stock was offered and sold under an expemption from registration under Regulation D or Section 4(2) of the
Securities Act, and therefore are restricted shares, and the holder thereof may not sell, transfer or otherwise dispose of such shares without registration under the Securities Act or an exemption.



During the second quarter of 2005, we issued 72,000 shares of our common stock in connection
with the exercise of outstanding warrants in exchange for an aggregate exercise price of $144,000.



Item 6. Exhibits and Reports on Form 8-K



| | (a) | Exhibits
| | --- | --------



|     |  |                                                                                                                                             
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Promissory Note dated May 23, 2005 in the original principal amount of $60,000 payable to Sterling Trust Company, fbo Dalton L Lott Roth IRA
|     | 
|10.2 |  | Promissory Note dated May 23, 2005 in the original amount of $40,000 payable to Sterling Trust Company, fbo Kenneth W Bain Roth IRA.        
|     | 
|31.1 |  | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                             
|     | 
|31.2 |  | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                             
|     | 
|32.1 |  | Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                             
|     | 
|32.2 |  | Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                             



| | (b) | Reports on Form 8-K
| | --- | -------------------



During the fiscal second quarter of 2005 and through the date of this filing, the Company filed:



(i) a Report on Form 8-K/A dated July 7, 2005 and filed July 7, 2005,
reporting on Item 9.01 (Financial Statements and Exhibits).



19



---

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on August 10, 2005.



UNIVERSAL FOOD & BEVERAGE COMPANY/s/ Ralph M. PassinoRalph M. PassinoVice President, Chief Financial Officer and Secretary(Principal Financial Officer)




20