NWBD New World Brands Inc (CE)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

x       Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended December 31, 2009

OR

o          Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 033-91432

NEW WORLD BRANDS, INC.

(Exact Name of Registrant as Specified in Its Charter)

(972)-346-9117
(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: As of April 15, 2010, there were 500,517,245 shares of the issuer’s common stock, $0.01 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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TABLE OF CONTE NTS

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PART I

General

References in this Annual Report on Form 10-K (the “ Report ”) to the “ Company ,” “ we ,” “ us ,” “ our ,” and similar words are to New World Brands, Inc.

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 consolidated financial statements and notes thereto appearing elsewhere herein, and with our prior filings with the Securities Exchange Commission (the “ SEC ”).

Disclosure Regarding Forward-Looking Statements - Cautionary Statement

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,” “budgeted”, 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 been in the telecom hardware and carrier business for over three years which is a relatively limited operating history compared to others in the same business and operates in a rapidly changing industry environment. Its ability to predict results or the actual effects 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 effect on the operations and future prospects of the Company on a condensed basis include those factors discussed under Item 1A “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.” These factors that could have a material adverse effect on the Company include, but are not limited to, the following:

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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, with an emphasis on three principal lines of business: (i) resale and distribution of VoIP and other telephony equipment, and related professional services, particularly as the exclusive distributor of products manufactured by TELES AG Informationstechnologien (“ TELES ”) in the United States, Canada, Mexico, all Caribbean nations, Guatemala and Honduras; with non-exclusive rights in other countries and, (ii) telephony service resale, direct call routing and carrier support services; and (iii) administration and distribution of long-distance and international calling cards intended for distribution through retail outlets. Our VoIP-related telecommunications equipment distribution and resale business is operated under the divisional name “ NWB Networks .” Our wholesale international VoIP service business is operated under the divisional name “ NWB Telecom .” Our calling card business is operated under the divisional name “ NWB Retail .” Both NWB Networks and NWB Telecom were based in Eugene, Oregon in 2009, and have already begun a transition to Dallas, Texas, which is expected to be completed over the course of the first half of 2010.

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 an acronym 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 (“ 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.

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, sales and support efforts on equipment manufactured by TELES. We continue to sell other manufacturers’ equipment, but primarily in support of or complimentary to the sale of TELES equipment.

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Since July 1, 2007, the Company has been the exclusive distributor of TELES products in North America and certain Central American markets (the United States, Canada, Mexico, all Caribbean nations, Guatemala and Honduras) pursuant to an exclusive distribution agreement. The Company 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 rights include 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 the sale of other products below under Item 7 “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”  The division’s operations primarily revolve around the sales and support of the TELES brand in the Americas. Since late 2008, the company has added a government services unit to focus on the delivery of products and solutions to the emergency response telecommunications needs of federal, state, and local agencies.

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

The Company’s 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, 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 offset the parties’ respective fees for termination services. To the extent we sell VoIP equipment (through the NWB Networks division or its subdivision, TELES USA) to our VoIP termination service providers, we may offset 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 service and support industry, but to date has remained focused on its existing core businesses. These programs are still in the testing stage of development and not yet incorporated into the company’s standard product and service offering.

Company History

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

New World Brands, Inc. was incorporated in Delaware in May 1986 under the name Oak 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, Inc. (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 was previously the headquarters of Qualmax.

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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.

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 subsequently based 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 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 the United States, Canada, Mexico, all Caribbean nations, Guatemala and Honduras, and have therefore focused our telecommunications equipment sales and distribution plan on TELES and IP Gear, Ltd. products.

Recent Developments

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

P&S Spirit Term Loan .

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

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 former director of the Company.

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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 included 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. Both of these covenants had been waived as of December 31, 2009 and continue to be waived as of the date of filing this Form 10-K.

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 guaranteed by a corporate Guaranty issued by Qualmax (which, prior to completion of the merger of Qualmax into the Company, held 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 satisfy in full its obligations under the P&S Term Loan Agreement, as discussed in more detail below under “Repayment of P&S Term Loan.”

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

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, 2007 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 ”).

Pursuant to the Final Agreement, the Company agreed, among other things,  to pay TELES an earn out equal to 10% of TELES’s worldwide revenues (including revenues of TELES’ affiliates) within TELES’s 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 on each of 2008, 2009, 2010 and 2011.

With certain exceptions, commencing on the date of the closing and for a certain period of time (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.

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TELES Distributorship .

In accordance with the Final Agreement, the Company and TELES entered into a 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 TELES and IP Gear, Ltd. products in the United States, Canada, Mexico, all Caribbean nations, Guatemala and Honduras, and a non-exclusive distributor in other markets.

In addition, TELES agreed to grant the Company a loan 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 ”).

TELES — P&S Spirit Inter-Creditor Agreement .

Also on February 21, 2008, as contemplated by the TELES Loan Agreement, the Company, TELES and P&S Spirit entered into an Inter-creditor Agreement (the “ Inter-Creditor Agreement ”), relating to the P&S Spirit Credit Line effective February 15, 2008. The description of the Inter-Creditor Agreement herein is qualified in 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 Inter-Creditor 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).

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. By 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.

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

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

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

On September 30, 2008 the Company purchased 5,000,000 shares from BOS, and in total purchased 6,600,000 BOS Purchase Shares from BOS for a total purchase price of $165,000 in 2008.  Effective February 25, 2010, BOS entered into a transaction contemplating the sale of all of its shares and warrants to P&S Spirit LLC, in a private sale to which the company was not a Party. That sale remains subject to forfeiture and the return to BOS in the event P&S fails to complete payment within 2 years, as agreed between them.

Execution of Qualmax Merger Agreement .

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

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

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

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Acquisition of Certain Aeropointe Assets.

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

The company acquired the Aeropointe’s rights to a contract that New World Brands was the other party to as well as the right to assume the staff and the location of Aeropointe operations. The company also received $100,000 in cash. The consideration received by Aeropointe was New World Brand’s common stock.  The total amount of stock received was 47,658,374 shares. NWB shares were valued for this transaction based upon the average price of NWB stock in the prior period, which was $0.006333 per share.

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

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Employees

As of December 31, 2009, we had 40 full-time employees, with about 14 based in our Eugene, Oregon headquarters (including outside sales and remote technical support staff reporting to management in Eugene), 5 at our Dallas Texas, office, and 21 based in Guanajuato, Mexico. None of our employees is a member 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 reseller customers. 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 entrants into the market.

We believe that our 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 the TELES relationship to be a valuable resource,  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.

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

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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 building long-term customer relationships.

Competition among Retail Calling Card Service Providers.

We believe success in providing our calling card services is dependent on our ability to provide low rates and reliable service to our customers.

We compete with other providers of calling card services, as well as established carriers and numerous small or regional operators, and with providers of alternative telecommunications services. Many of the largest telecommunications providers, including AT&T, Verizon, iBasis and STI Prepaid, currently market prepaid calling card services, which in certain cases may compete with our card services. We believe that our interconnect and termination agreements, network infrastructure and least-cost-routing system provide us with the ability to offer low-cost, high quality services, while our distribution network provides us with access to customers, and that these factors represent competitive advantages. However, some of our competitors are substantially larger and have significantly greater financial, technical, engineering, personnel and marketing resources, longer operating histories, greater name recognition and larger customer bases than we do. The use by these competitors of their resources in the prepaid calling card service market could significantly impact our ability to compete against them successfully. As these competitors may be capable of providing comparable call quality and service levels, our ability to maintain and/or to capture additional market share will remain dependent upon our ability to continue to provide competitively priced services.

The continued growth of the use of wireless services, largely due to lower pricing of such services, has adversely affected the sales of prepaid calling card services as customers migrate from using prepaid calling cards to wireless services. We expect pricing of wireless services to continue to decrease, resulting in increased substitution of prepaid calling cards by wireless services and increased pricing pressure on providers of prepaid calling card services.

If our competitors begin to utilize their greater resources or operate at lower levels of profitability in order to more aggressively market their products and services,  this portion of our business could find growth difficult.

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ITEM 1A.                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. IF ANY OF THE FOLLOWING OCCUR, OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATION COULD ALL SUFFER.

Risks Associated with the Business in General

Our Results of Operations May Fluctuate.

Our revenue and results of operations have fluctuated and may 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 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 2009 with a Net Loss, and are Likely to Incur Losses During the 2010 Fiscal Year, and Our Future Sales Levels and Ability to Achieve Profitability are Unpredictable.

For the one year period ending December 31, 2009, we experienced a net loss before income taxes of approximately $4,000,000. We may experience a net operating loss for fiscal year 2010. Our operating history is limited, our business has changed rapidly over the past four years, and we are competing in an emerging technology industry. We 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.

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

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. 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. The economic downturn and the current challenges facing the financial markets may make it difficult for us to raise capital, or to raise capital on terms acceptable to the Company. 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 may experience dilution of their stock ownership positions in order for us to secure that additional investment.

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. If the regulatory environment in the United States becomes more difficult for VoIP providers it could also significantly impact our business.

International Governmental Regulation and Legal Uncertainties Could Limit Our Ability to Provide Current Services or Could Increase Our 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 or evolving. 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 reduced 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.

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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 are, and 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.

Dependence on Vendors

Our distribution of TELES products, through our exclusive distributorship agreement with TELES for North America, the Caribbean, and parts of Central America, with rights to sell elsewhere, forms a significant part of our business, and the majority of telecommunications equipment that we sell is manufactured by TELES. In the event that TELES would be unable or unwilling to supply telecommunications equipment to the Company, we would be materially impacted.

Dependence on Customers

Historically, a substantial portion of our revenue for the NWB Networks division 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 product. 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.  Two customers accounted for more than 10% of NWB Networks revenues during the year ending December 31, 2009 and our top ten customers accounted for the majority of the business conducted by the division. Although we 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.

The NWB Telecom division derives a significant amount of 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. Three customers accounted for 10% or more of NWB Telecom revenues during the year ending December 31, 2009, with one accounting for more than 10% of total Company revenues, and our top ten customers accounted for a firm majority of the division’s 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.

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.  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.

Due to both the difficulties faced throughout much of 2008 and 2009, as well as opportunities that have arisen, we have enacted several changes in the daily operations of the Company as well as in its strategic orientation. The asset purchase agreement between Aeropointe and the Company as well as the introduction of packaging long-distance and international telephony services for a retail market represent some of the company’s efforts to adapt to a novel situation. At present, the company must currently 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. To 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.

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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 of 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. Such 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, M. David Kamrat; our President, and Chief Executive Officer, R. Steven Bell; our Chief Operations Officer, Shawn Lane; and our Chief Financial 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, at 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 plan to use stock warrants 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 benefits 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 results 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 or are unable 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. Such future losses, if incurred, could harm our business and have a material adverse effect on our results and financial condition.

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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 and recovering equipment;

·                   difficulty in adapting to changes in foreign technological environments;

·                   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, foreign 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 loses 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). In addition, some of our expenses are denominated in Mexican Pesos. To the extent that the Dollar loses value relative to the Peso, our margins could be negatively affected.

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.

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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, collocation networks, 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 ”). We 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. 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 maintain our compliance with Section 404 of the Sarbanes-Oxley Act. 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 too speculative to quantify.

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 VoIP telecommunication 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 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” we currently sell used or refurbished products, as well as new products. Manufacturers with large market share, particularly Cisco, may release new generations of products that make used or refurbished products obsolete or unattractive, and Cisco and other manufacturers may release new generations or types of products that make the new products we hold in inventory or otherwise sell or distribute 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.

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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’s 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. No other vendor aside from TELES accounts for more than 10% of NWB Networks’ costs paid to vendors.

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 (Concentrated Customer Risk), 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.  Two customers represented more than 10% of NWB Networks’ revenues during the year ending December 31, 2009, and our top ten customers accounted for the majority of our business in the division. Although we 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.

The continuing weakness in credit markets has affected the world economy and has severely restricted access to capital, and has materially impacted the Company’s ability to sell telecommunications hardware. Our customers are, and may continue to be, less willing and able to make capital investments than in the past.

With carrier and service-provider customers, this has translated into the cancellation and delay of many projects, including major infrastructure projects, of which our switching and gateway products are often a major component.

Small business and enterprise customers could benefit from the cost savings generated by the installation of TELES equipment. Even so, many are reluctant to make the investments necessary, or unable to access the credit needed, to move such projects forward. To overcome such reluctance, we have increased our marketing efforts and worked diligently with our distributors and resellers; encouraging them to provide trade credit, and equipment trials to demonstrate the savings features of our products. Additionally, we have continued to develop our channel sales initiatives to broaden our distribution, create greater market awareness of our offerings, and access new markets.

Chief among these markets are the small business space and the government space. These efforts are highly dependent on the willingness and ability of our distributors and resellers to invest in the technical and marketing skills and methods needed to bring new products to their product lines. Such investment has been noticeably reduced on their part, and that reduction presents an additional risk to NWB going forward. We continue to see interest in our products and our channel sales program, but the velocity of adoption has been slower than expected. The possibility that the velocity of program adoption will continue to lag behind projections represents another risk to the Company.

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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).

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. Each of three customers accounted for 10% or more of NWB Telecom revenues during the year ending December 31, 2009, with one customer generating more than 10% of revenues for the Company as a whole, and our top ten customers accounted for a firm majority of NWB Telecom revenues during the year ending December 31, 2009. Although we 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.

Potential for Key Supplier Interruptions.

We had two vendors from whom we purchased over 10% of NWB Telecom traffic for resale, as measured by cost. Furthermore, 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.  In fact, our NWB Telecom division has experienced loss or interruption of key suppliers, including suppliers who each accounted for over 10% of NWB Telecom revenue during 2009, and the loss or interruption substantially negatively impacted NWB Telecom’s revenue and gross profit.

In addition, 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.

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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 Eugene, Oregon, and one in Guanajuato, Mexico.  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.

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Risks Attendant to Entering the Prepaid Calling Card Business.

We may not be able to obtain sufficient or cost-effective termination capacity to particular destinations.

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

The termination of our carrier agreements with foreign partners or our inability to enter into carrier agreements in the future could materially and adversely affect our ability to compete, which could reduce our revenues and profits.

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

Our customers, particularly our wholesale carrier customers, could experience financial difficulties, which could adversely affect our revenues and profitability if we experience difficulties in collecting our receivables.

As a provider of international long distance services, we depend upon sales of transmission and termination of traffic to other long distance providers and the collection of receivables from these customers. The wholesale market continues to feature many smaller, less financially stable companies. If continued weakness in the telecommunications industry reduces our ability to collect our accounts receivable from our major customers, particularly our wholesale carrier customers, this may substantially affect our operations. Moreover, the after-effects of the collapse of the mortgage-backed credit markets may affect our customers’ access to liquidity and impair our ability to collect on receivables.

Our revenues could suffer if we, or our distributors and sales representatives fail to effectively market and distribute our prepaid calling card  services.

We currently rely on our distributors and representatives for marketing and distribution of our prepaid calling card services. In foreign countries, we are dependent upon our distributors and independent sales representatives, many of whom also sell services or products of other companies. As a result, we cannot control whether these foreign distributors and sales representatives will devote sufficient efforts to selling our services. In addition, we may not succeed in finding capable retailers and sales representatives in new markets that we may enter. If our distributors or sales representatives fail to effectively market or distribute our prepaid calling card  services, our ability to generate revenues and grow our customer base could be substantially impaired

Concentrated Vendor and Customer Risk

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

Regulation of Telecom in the United States

Telecommunications services are subject to government regulation at both the federal and state levels in the United States. Any violations of the regulations may subject us to enforcement actions, including interest and penalties. The FCC has jurisdiction over all telecommunications common carriers to the extent they provide interstate or international communications services. Each state regulatory commission has jurisdiction over the same carriers with respect to their provision of local and intrastate communications services. Local governments often indirectly regulate aspects of our communications business by imposing zoning requirements, taxes, permit or right-of-way procedures or franchise fees. Significant changes to the applicable laws or regulations imposed by any of these regulators could have a material adverse effect on our business, operating results and financial condition.

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Risks Associated with the Company’s Stock.

Relative Illiquidity of Stock; Share Price Fluctuations .

There is 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 the telecommunications and 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 and burdened with past losses 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 provide 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.

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.

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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 6, 2009, M. David Kamrat and Noah Kamrat, father and son, together with their spouses (collectively, the “ Kamrat Family ”), beneficially control approximately 35.2% of our Common Stock, largely due to their prior 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, also beneficially controls approximately 29.6% of our Common Stock. Therefore, the members of Kamrat Family, P&S Spirit, and Dr. Passen collectively are able, indirectly as a result of their influence on matters requiring Company 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 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”   As a result, our directors and executive officers beneficially own a substantial portion of our outstanding common stock.  These holders, if they were to act together, would likely be able to direct the outcome of matters requiring approval of the stockholders including the election of new directors and other corporate actions.  These decisions may conflict with the interests of our other stockholders.

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ITEM 2.         PROPERTIES

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

ITEM 3.         LEGAL PROCEEDINGS

MPI Litigation

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 ”).

As a result of the Reverse Acquisition, the Company assumed the liabilities of Qualmax.  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.   As a part of the Company’s assumption of liabilities and indemnification, it assumed the Qualmax litigation styled as S.A.R.L. Bosanova v. S.A.R.L. Media Partners International MPI, Societe BOS Better Online Solutions Limited, and Qualmax Inc. Case No. R.G. N 07-08379 in which Qualmax was a defendant in such litigation which was filed in 2007 before the Trade Tribunal of Nanterre, France.

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

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Piecom Tech Litigation

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

IP Gear was named as a defendant in a lawsuit styled Piecom Tech. Israel Ltd. v. IP Gear Ltd., Case No, 26-05166-07-5, in the Herzliyah, Israel Regional Court. Piecom Tech. had been a vendor to IP Gear, Ltd and was contracted to provide 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. Release of the escrow funds of $32,000 depends upon the outcome of pending litigation between Piecom and IP Gear, Ltd. Neither of these amounts is represented on the balance sheet of the Company. On preliminary motions, argued in May of 2008, the Court ruled in favor of IP Gear, Ltd. A mediation hearing occurred in August of 2008 but the matter was not resolved. The next mediation hearing was scheduled for December, 2009 but the plaintiff did not appear. The matter has now been referred back from the Mediator to the Court. At present, management does not believe this matter poses any significant financial risk to the Company.

CRG West

CRG West, a Los Angeles-based company from which NWB had been leasing space for equipment, has claimed $24,000.00 from NWB in allegedly overdue rent payments and holdover fees. The claims were first made by email in May 2009, for a smaller amount, and then progressed to a collection agency. NWB has retained an LA based attorney, Gerard Casale, to defend its interests and argue what NWB believes is a valid defense in this matter, which is currently in settlement negotiations. CRG and their agency have not filed suit on this matter in a court of law.

Roberts Kaplan

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

BOS

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

Additional Disputes

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

ITEM 4.        RESERVED.

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PART II

ITEM 5.                         MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND 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 sale prices for the Common Stock on 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.   There was little trading in our common stock during the period reflected.

Stockholders

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

Dividends

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

Stock Warrant Grants

For the twelve months ended December 31, 2009, we granted 648,385 new stock warrants. See Note G, below.

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Equity Compensation Plan Information

The following table provides information, as of December 31, 2009, with respect to all of our compensation plans under which equity securities are authorized for issuance:

Recent Sales of Unregistered Securities

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

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

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

Qualmax Merger Completion

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

ITEM 6.         SELECTED FINANCIAL DATA

This section is not applicable to the Company.

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

Forward-Looking Statements- Cautionary Statement

The following discussion 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,” “budgeted”, 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.

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Overview

Acquisition of Certain Aeropointe Assets.

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

The Company acquired Aeropointe’s rights to a contract that the Company was the other party to as well as the right to assume the staff and the location of Aeropointe operations. The company also received $100,000 in cash. The consideration received by Aeropointe was Company common stock.  The total amount of stock received was 47,658,374 shares. A portion of this total number of shares, 8,821,790, was issued in the first quarter of 2010 per agreement. . NWB shares were valued for this transaction based upon the average price of NWB stock in the prior period. That amount was $0.006333 per share.

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

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

Guanajuato Network Operations Center – Mexico Subsidiaries

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

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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 1A, “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, 2009 and December 31, 2008 were as follows:

Company-wide revenue for 2009 shows an improvement due in part to an easing of economic conditions and in part to strategies adopted by the Company in response to challenging market conditions. The gross profit declined significantly in the fourth quarter of 2009 as compared the previous quarter. This is due to narrower profit margins for hardware sold by NWB Networks, challenges affecting the wholesale telephony traffic of NWB Telecom, and the costs associated with initiating the operations of NWB Retail.

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

NWB Networks Division Revenue and Gross Profit.

Our VoIP and other telephony product distribution and resale business, NWB Networks, focuses on the distribution, resale and support of TELES 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, 2009, 2008 and 2007 were as follows:

The increase in revenue and decrease in margin are the result of a shift in strategy necessary to compete effectively in a more competitive marketplace.  The lowering of prices has boosted the sales of TELES equipment, but for only the second time in the past three years the margin on TELES equipment was lower than that for other brands in the final quarter of 2009.

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

The Company has been selling TELES equipment as an exclusive distributor since July, 2007, with the TELES line now our dominant hardware product line. 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 the years of 2007, 2008 and 2009 on a quarterly and year-end basis.

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

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The majority of our TELES equipment sales during 2009 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. Demand for the iGate and vGate brands did slow along with the demand for TELES equipment in general in the last two quarters of 2008 and remained low during 2009 due in part to the broad decline in economic conditions.

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 two-year ending September 30, 2010, our purchase threshold was $3,000,000. That threshold was surpassed when our TELES purchases (for inventory received from TELES) in 2009 alone totaled $4,317,168.

We believe time-to-market is a critical component of success for technology product sales, both in terms of product delivery 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 TELES products we distribute and sell.

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. Despite some exchange rate movement between the Euro and the U.S. Dollar throughout 2009, the exchange rate ended the year not far below where it started. On January 2, the rate was $1.39 Dollars to the Euro as compared to $1.43 Dollars to the Euro on December 31. Increases in our exposure to currency risk due to the growth of our Euro-denominated inventory has been partially offset by payment agreements between NWB and TELES designed to mitigate risk. 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.

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

We derive a significant amount of revenue from a relatively small number of customers. 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. For the whole of 2009, no NWB Networks customers generated 10% or more of Company revenue, while 2 customers accounted for 20.49% and 19.52% of revenue generated for the division. Our top ten customers accounted for the majority of revenues for sales for the year.

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NWB Telecom Division Revenue, Gross Profit and Gross Profit Margin.

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