NWBD New World Brands Inc (CE)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

x		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended June 30, 2008

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)

Delaware		02-0401674
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
340 West Fifth Street, Eugene, Oregon		97401
(Address of Principal Executive Offices)		(Zip Code)

(541) 868-2900
(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 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 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):

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o		Smaller reporting company x
(Do not check if a smaller reporting company.)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: As of August 7, 2008, there were 418,479,673 shares of the issuer’s common stock, $0.01 par value per share, outstanding.

		INDEX
				Page
PART I		FINANCIAL INFORMATION		3
Item 1.		Financial Statements		3
		Condensed Consolidated Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007		3
		Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2008 (unaudited) and 2007 (unaudited)		5
		Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2008 (unaudited) and 2007 (unaudited)		6
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2008 (unaudited) and 2007 (unaudited)		7
		Notes to Condensed Consolidated Financial Statements (unaudited)		9
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		34
Item 4T.		Controls and Procedures		34
PART II		OTHER INFORMATION		35
Item 1.		Legal Proceedings		35
Item 1A.		Risk Factors		36
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3.		Defaults Upon Senior Securities		36
Item 4.		Submission of Matters to a Vote of Security Holders		36
Item 5.		Other Information		36
Item 6.		Exhibits		37
SIGNATURES				38
2

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
New World Brands, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
as of June 30, 2008 (unaudited)
and December 31, 2007
		June 30,				December 31,
		2008				2007
		(unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	1,396,696			$	2,038,635
Accounts receivable: Trade and other receivables, net of allowance for uncollectible accounts of $74,800 in 2008 and $180,525 in 2007			1,402,892				1,027,739
Inventories, net			1,291,919				744,654
Prepaid expenses			478,123				244,157
Other current assets			382,158				507,012
Total Current Assets			4,951,788				4,562,197
Property and Equipment, net			1,520,973				1,421,806
Other Assets:
Deposits and other assets			583,345				668,750
Total Long-Term Assets			2,104,318				2,090,556
Total Assets		$	7,056,106			$	6,652,753
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

New World Brands, Inc. and Subsidiary

Condensed Consolidated Balance Sheets

as of June 30, 2008 (unaudited)

and December 31, 2007

		June 30,				December 31,
		2008				2007
		(unaudited)
LIABILITIES & STOCKHOLDERS’ EQUITY
Liabilities
Current Liabilities
Accounts payable		$	2,356,462			$	1,564,299
Accrued expenses			498,131				406,910
Customer deposits			7,095				121,874
Advances from stockholders			188				—
Capital leases, current portion			110,899				181,731
Notes payable, current portion			14,633				—
Total Current Liabilities			2,987,408				2,274,814
Long-Term Liabilities
Notes payable			1,073,330				500,000
Capital leases, net of current portion			123,767				31,317
Total Long-Term Liabilities			1,197,097				531,317
Total Liabilities			4,184,505				2,806,131
Commitments and contingencies			—				—
Stockholder’s Equity
Preferred stock, $0.01 par value, 1,000 shares
authorized, 200 shares designated as Series A preferred stock
Series A preferred stock $0.01 par value, no shares issued			—				—
Common stock, $0.01 par value, 600,000,000 shares
authorized, 418,479,673 and 414,979,673 shares issued and outstanding as of June 30, 2008 and December 31, 2007			4,184,796				4,149,797
Additional paid-in capital			33,606,557				33,641,557
Accumulated deficit			(34,919,752	)			(33,944,732	)
Total Stockholders’ Equity			2,871,601				3,846,622
Total Liabilities and Stockholders’ Equity		$	7,056,106			$	6,652,753
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

New World Brands, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
For the Three Months Ended
June 30, 2008 and 2007
		June 30,				June 30,
		2008				2007
		(unaudited)				(unaudited)
Net Sales
Hardware		$	2,653,742			$	966,991
Carrier Services			3,949,644				2,589,778
			6,603,386				3,556,769
Cost of Sales
Hardware			(1,896,137	)			(854,593	)
Carrier Services			(3,382,305	)			(2,279,866	)
			(5,278,442	)			(3,134,459	)
Gross Profit			1,324,944				422,310
Sales, General and Administrative Expenses			(1,529,053	)			(1,095,311	)
Loss from Continuing Operations Before Other Income			(204,109	)			(673,001	)
Other Income
Interest and Bank Charges			2,201				8,048
Other Income			60,005				3,880
			62,206				11,928
Loss from Continuing Operations Before Income Taxes			(141,903	)			(661,073	)
Provision for Income Taxes			—				—
Net Loss from Continuing Operations			(141,903	)			(661,073	)
Loss from Discontinued Operations			—				(3,351,659	)
Net Loss		$	(141,903	)		$	(4,012,732	)
Net Loss Per Share from Continuing Operations		$	—			$	—
Net Loss Per Share from Discontinued Operations		$	—			$	(0.01	)
Net Loss Per Share (basic)		$	—			$	(0.01	)
Net Loss Per Share (diluted)		$	—			$	(0.01	)
Weighted Average Number of Shares Outstanding During the Year
Basic			417,186,195				406,134,769
Diluted			417,186,195				406,134,769
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

New World Brands, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
For the Six Months Ended
June 30, 2008 and 2007
		June 30,				June 30,
		2008				2007
		(unaudited)				(unaudited)
Net Sales
Hardware		$	4,696,143			$	2,195,015
Carrier Services			6,988,193				5,460,774
			11,684,336				7,655,789
Cost of Sales
Hardware			(3,564,363	)			(1,973,602	)
Carrier Services			(6,090,638	)			(4,689,328	)
			(9,655,001	)			(6,662,930	)
Gross Profit			2,029,355				992,859
Sales, General and Administrative Expenses			(3,079,828	)			(2,224,836	)
Loss from Continuing Operations Before Other Income			(1,050,493	)			(1,231,977	)
Other Income
Interest and Bank Charges			5,395				21,339
Other Income			70,078				19,047
			75,473				40,386
Loss From Continuing Operations Before Income Taxes			(975,920	)			(1,191,591	)
Provision for Income Taxes			—				—
Net Loss From Continuing Operations			(975,020	)			(1,191,591	)
Loss from Discontinued Operations			—				(3,870,359	)
Net Loss		$	(975,020	)		$	(5,061,950	)
Net Loss Per Share from Continuing Operations		$	—			$	—
Net Loss Per Share from Discontinued Operations		$	—			$	(0.01	)
Net Loss Per Share (basic)		$	—			$	(0.01	)
Net Loss Per Share (diluted)		$	—			$	(0.01	)
Weighted average number of shares outstanding during the year
Basic			416,095,058				402,370,578
Diluted			416,095,058				402,370,578
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

New World Brands, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended

June 30, 2008 and 2007

		2008				2007
		(unaudited)				(unaudited)
Cash Flows from Operating Activities
Net loss from continuing operations		$	(975,020	)		$	(1,191,591	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			258,445				216,160
Allowance for doubtful accounts			(52,000	)			39,954
Changes in operating assets and liabilities
Accounts receivable			(331,497	)			(54,370	)
Inventory			(547,265	)			133,540
Prepaid expenses			(233,966	)			(16,847	)
Other current asset			124,853				(5,000	)
Other Long-Term Assets			93,750				—
Accounts payable			732,065				17,884
Accrued expenses and other liabilities			151,506				(408,543	)
Customer deposits			(114,779	)			36,895
Total net change in operating assets and liabilities			(177,333	)			(296,441	)
Net cash used in operating activities			(893,908	)			(1,231,918	)
Cash Flows from Investing Activities
Purchases of property and equipment			(248,765	)			(132,010	)
Net cash used in investing activities			(248,765	)			(132,010	)
Cash Flows from Financing Activities
Net payments on line of credit			—				(984,323	)
Proceeds from note payable			1,087,627				1,000,000
Payments of note payable			(586,893	)			(51,742	)
Sale of common and preferred stock			—				886,093
Net repayment of advances from shareholders			—				(24,000	)
Net cash provided by financing activities			500,734				826,028
Net cash from continuing operations			(641,939	)			(537,900	)
Cash Flows from Discontinued Operations
Net change in operating cash flows			—				(7,834,869	)
Net change in investing cash flows			—				6,204,786
Cash Flows from Discontinued Operations			—				(1,630,083	)
Net Change in Cash and Cash Equivalents			(641,939	)			(2,167,983	)
Cash and Cash Equivalents at Beginning of Period			2,038,635				3,396,617
Cash and Cash Equivalents at End of Period		$	1,396,696			$	1,228,635

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

New World Brands, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended
June 30, 2008 and 2007
		2008				2007
		(unaudited)				(unaudited)
Cash paid during the period for:
Interest paid		$	35,645			$	83,108
Income taxes paid			—				300
Supplemental disclosure of non-cash investing and financing activities
Property and Equipment			108,847			$	—
Notes Payable			108,847				—
		$	—			$	—
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

NEW WORLD BRANDS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

NOTE A          ORGANIZATION, CAPITALIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated unaudited interim financial statements of New World Brands, Inc. and Subsidiary (the “ Company ,” “ we ,” “ us ,” or “ our ”) were prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “ SEC ”) and should be read in conjunction with the Company’s annual, quarterly and current reports on Forms 10-K and 10-KSB, Forms 10-Q and 10-QSB, and Form 8-Ks, filed with the SEC by the Company. In the opinion and to the knowledge of management, the accompanying condensed consolidated unaudited interim financial statements reflect all adjustments (including normal recurring adjustments) which, in the opinion of management and based upon management’s knowledge of the Company’s business operations during the period presented, are necessary to present fairly the Company’s financial position and cash flows for the period presented. The results of operations for the three and six months ended June 30, 2008 are not necessarily indicative of the results of operations for the full year.

In June 2006, the Company decided to change its business plan by selling its wine and spirits business for the sum of $500,000 (the “ Sale Transaction ”), selling 7,500,000 shares of its common stock (the “ Common Stock ”) for $1,500,000 (the “ Private Equity Investment ”), and acquiring substantially all of the assets of Qualmax, Inc. (“ Qualmax ”) in exchange for shares of the Company’s Series A Convertible, par value $0.01 per share (the “ Preferred Stock ” and the transaction, the “ Reverse Acquisition ”). The Private Equity Investment was consummated on September 14, 2006, and the Sale Transaction and Reverse Acquisition were consummated on September 14 and 15, 2006, respectively.

As a result of the Reverse Acquisition, we are no longer in the wine and spirits business, and are now a telecommunications sales, and service company, focusing on products and services utilizing voice over internet protocol (“ VoIP ”) technology. We provide wholesale long distance carrier termination services as a reseller of VoIP telephony services. We are also a reseller of VoIP related telecommunications equipment.

In furtherance of treating the Sale Transaction and Reverse Acquisition as a reverse acquisition for accounting purposes, the board of directors of the Company (the “ Board ”) and the board of directors of Qualmax (collectively, the “ Boards ”) have agreed that for accounting purposes they have treated the transactions as a reverse acquisition of Qualmax by the Company, and have since the time of the consummation, intended the transaction to ultimately result in a downstream merger of the Company and Qualmax, and, in furtherance thereof, the Boards have each determined that Qualmax will merge with and into the Company (the “ Merger ”), and in connection with the Merger, the separate corporate existence of Qualmax will cease.

The Boards agreed that certain events (the “ Merger Events ”) were required to occur in order to effectively consummate the transactions contemplated, including, without limitation, certain amendments to the Certificate of Incorporation of the Company to, among other things, increase the authorized number of shares of Common Stock of the Company, the resultant conversion of the Preferred Stock into shares of the Company’s Common Stock, make any filings necessary to complete the Merger, and receive approval by the stockholders of the Company and Qualmax.

During 2007, the number of authorized shares was increased from 50 million shares to 600 million shares to allow for a sufficient number of authorized shares to convert the existing Preferred shares to Common shares. All Preferred Stock was then converted into Common Stock as a further step towards the completion of the Merger.

On February 18, 2008, the Company and Qualmax entered into an agreement by which Qualmax will be merged with and into the Company (the “ Merger Agreement ”). As of the date of the filing of this Quarterly Report on Form 10-Q, the Merger had not been completed. Reference is made to the Company’s Current Report on Form 8-K, filed with the SEC on February 22, 2008, and the Company’s Preliminary Schedule 14C Information Statement, filed with the SEC on May 20, 2008, for additional information and documentation concerning the Merger and the Merger Agreement.

Under the generally accepted accounting principles in the United States of America (“ GAAP ”), the acquisition of Qualmax has been accounted for as a reverse acquisition and Qualmax has been treated as the acquiring entity for accounting and financial reporting purposes. As a result of the Reverse Acquisition, the Company’s fiscal year end changed from May 31 to December 31.

9

NEW WORLD BRANDS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(continued)

NOTE A          ORGANIZATION, CAPITALIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. Although we believe that the disclosures are adequate to make the information presented not misleading, we suggest that these financial statements be read in conjunction with the year-end and interim financial statements and notes thereto, and additional information included in our prior annual, quarterly and current reports on Forms 10-KSB, 10-QSB and 8-K, respectively, as filed with the SEC.

Reclassification

Certain reclassifications of amounts previously reported have been made to the accompanying condensed consolidated financial statements in order to maintain consistency and comparability between periods presented.

In July 2007, the Company sold all the issued and outstanding common stock of IP Gear, Ltd. For purposes of comparability, the results of these operations have been reclassified from continuing operations to discontinued operations for the six months ended June 30, 2007 presented in the accompanying condensed consolidated statements of operations. See “Part I. Financial Information—Item 1. Financial Statements—Note G—Discontinued Operations—IP Gear, Ltd.”

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (the “ FASB ”) issued Statement of Financial Accounting Standards (“ SFAS ”) No. 157, “Fair Value Measurements” (“ SFAS 157 ”). This Statement establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The FASB deferred the effective date of SFAS 157 until fiscal years beginning after November 15, 2007 as it relates to the fair value measurement requirements for non-financial assets and liabilities that are initially measured at fair value, but not measured at fair value in subsequent periods. These non-financial assets include goodwill and other intangible assets with indefinite lives which are included within other assets. The Company has adopted the provisions of SFAS 157 with respect to non-financial assets effective January 1, 2008 and its adoption did not have a material impact on our results of operations or our financial condition.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“ SFAS 159 ”), which is effective for fiscal years beginning after November 15, 2007. SFAS 159 permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The Company has adopted the provisions of SFAS 159 and does not expect it having a material impact on our financial statements.

In December 2007, the FASB issued SFAS No. 141R (revised 2007), “Business Combinations” (“SFAS 141R”) . SFAS 141R replaces SFAS 141 and establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, including goodwill, the liabilities assumed and any non-controlling interest in the acquiree. SFAS 141R also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact the adoption of SFAS 141R will have on our financial position and consolidated results of operations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”) . SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This standard is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact the adoption of SFAS 160 will have on our financial position and consolidated results of operations.

10

NEW WORLD BRANDS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(continued)

NOTE A          ORGANIZATION, CAPITALIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“ SFAS 161 ”), an amendment of FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“ SFAS 133 ”). SFAS 161 amends and expands the disclosure requirement for SFAS 133 by requiring enhanced disclosure about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for the Company as of January 1, 2009.

In April 2008, the FASB issued FASB Staff Position ( “ FSP ”) 142-3, “Determination of the Useful Life of Intangible Assets” (“ FSP 142-3 ”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of FSP 142-3 on its consolidated financial position and results of operations.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“ SFAS 162 ”). SFAS 162 identifies the sources of accounting principles and provides entities with a framework for selecting the principles used in preparation of financial statements that are presented in conformity with GAAP. The current GAAP hierarchy has been criticized because it is directed to the auditor rather than the entity; it is complex; and it ranks FASB Statements of Financial Accounting Concepts, which are subject to the same level of due process as FASB SFAS, below industry practices that are widely recognized as generally accepted but that are not subject to due process. The Board believes the GAAP hierarchy should be directed to entities because it is the entity (not its auditors) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. The adoption of SFAS 162 is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement No. 60” (“ SFAS 63 ”). Under FASB SFAS No. 60, “Accounting and Reporting by Insurance Enterprises” (“ SFAS 60 ”), diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprises, which diversity results in inconsistencies in the recognition and measurement of claim liabilities. SFAS 63 requires that an insurance enterprise recognize a claim liability prior to an event of default (an insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. SFAS 63 requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of SFAS 63 will improve the quality of information provided to users of financial statements. The adoption of SFAS 163 is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“ ABP 14-1 ”). APB 14-1 requires the issuer to separately account for the liability and equity components of convertible debt instruments in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The guidance will result in companies recognizing higher interest expense in the statement of operations due to amortization of the discount that results from separating the liability and equity components. APB 14-1 will be effective for financial statements issued for fiscal years beginning after December 15, 2008 and for interim periods within those fiscal years. The Company is currently evaluating the impact of adopting APB 14-1 on its consolidated financial statements.

NOTE B          INVENTORIES

Inventories as of June 30, 2008 and December 31, 2007 consisted of the following:

		June 30,				December 31,
Resale Hardware		2008				2007
Finished Goods inventories		$	1,343,819			$	819,654
Less allowance for obsolete inventories			(51,900	)			(75,000	)
Inventories, net		$	1,291,919			$	744,654
11

NEW WORLD BRANDS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(continued)

NOTE C          NOTES PAYABLE
Loans from P&S Spirit

On and effective March 30, 2007, we entered into a term loan and security agreement with P&S Spirit (the “ P&S Term Loan” ). The principal amount of the P&S Term Loan was $1,000,000. Monthly payments of interest at two percent over the Wall Street Journal Prime Rate payable in arrears were due commencing on May 1, 2007.

On May 30, 2007, the Company entered into another agreement with P&S Spirit, a Credit Line and Security Agreement (the “ P&S Credit Line” ), for a line of credit facility in the amount of $1,050,000. The terms of the credit facility are an interest rate of Prime plus 2% (as reported in the Wall Street Journal), payments are to be interest only in arrears commencing July 1, 2007. The P&S Credit Line is secured by a corporate guaranty by Qualmax (which pending completion of the merger of Qualmax into the Company, holds a controlling interest in the Company) and a security interest in the assets of Qualmax (consisting solely of 298,673,634 shares of common stock of the company). The Company must meet covenants of a ratio of current assets to current liabilities of at least 1.2:1.0 and a total liabilities to net worth ratio not exceeding 2.5:1.0. The maturity date of the credit facility is June 1, 2011 when all principal and any outstanding interest payments are due. The company was in compliance with all its covenants as of June 30, 2008 and December 31, 2007.

The Company paid $500,000 towards the balance of the P&S Term Loan on August 13, 2007. This reduced the balance of the loan to $500,000. On February 21, 2008, effective February 15, 2008, the Company repaid all outstanding obligations under the P&S Term Loan Agreement, in the amount of $500,000. This was accomplished by a $500,000 draw against the P&S Credit Line facility to pay the P&S Term Loan. A further draw was made on the P&S Credit Line in two equal amounts of $275,000 each for a total of $550,000 on May 22 and May 23, 2008. As of June 30, 2008, the Company had paid off the full amount of the P&S Term Loan and had drawn the maximum amount or a total of $1,050,000 against the P&S Credit Line. The interest rate on the P&S Credit Line on June 30, 2008 was 7.00%.

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

TELES AG Loan Agreement

On February 21, 2008, TELES AG Informationstechnologien (“ TELES ”), granted the Company a line of credit effective February 15, 2008, in the amount of $1,000,000 under a Term Loan and Security Agreement (the “ Teles Loan ”). The Teles Loan is available for the company to draw upon from time to time prior to February 1, 2009, subject to the condition of the Company having completed the “Merger” ( as per note A - Organization, Capitalization And Summary Of Significant Accounting Policies). Amounts borrowed may not be reborrowed, notwithstanding any payments thereunder. The outstanding balance of the TELES Loan will be due and payable on or before February 1, 2012. The outstanding principal amount of the TELES Loan will be payable in twelve (12) quarterly installments commencing May 1, 2009. Interest on the outstanding principal amount of the TELES Loan is payable quarterly at an interest rate equal to 7% per annum, compounded quarterly. The company has not drawn on any funds from this loan facility as of June 30, 2008 nor is it eligible until the completion of the merger of the Company and Qualmax.

Total maturities of all notes payable as of June 30, 2008 were as follows:
2008		$	7,279
2009			14,694
2010			14,184
2011			1,806
2012			1,050,000
Total notes payable			1,087,963
Notes payable, current portion			14,633
Notes payable, net of current portion		$	1,073,330

For comparison, the interest expense the Company incurred on the above notes payable was approximately $28,000 and $76,000 for the six months ended June 30, 2008 and 2007, respectively.

12

NEW WORLD BRANDS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(continued)

NOTE D            STOCKHOLDERS’ EQUITY

Computation of Basic and Diluted Share Data

The following tables set forth the computation of basic and diluted share data for the six months ended June 30, 2008 and 2007:

Weighted average number of shares outstanding as at June 30, 2007:
Basic (Common Stock)		402,370,578
Preferred Stock (as converted to Common Stock)		—
Total		402,370,578
Effect of dilutive securities
Common Stock - options and warrants		—
Preferred Stock - options and warrants		—
Total		—
Weighted average number of shares outstanding (diluted)		402,370,578
Weighted average of options and warrants not included above (anti-diluted):
Basic (Common Stock)		5,495,000
Preferred Stock (as converted to Common Stock)		66,666,659
Total		474,532,237
Weighted average number of shares outstanding as at June 30, 2008:
Basic (Common Stock)		416,095,058
Total		416,095,058
Effect of dilutive securities
Common Stock - options and warrants		—
Preferred Stock - options and warrants		—
Total		—
Weighted average number of shares outstanding (diluted)		416,095,058
Weighted average of options and warrants not included above (anti-diluted):
Basic (Common Stock)		61,050,556
Preferred Stock (as converted to Common Stock)		—
Total		477,145,614

NOTE E          INCOME TAXES

In May 2007, the FASB issued FASB Staff Position FIN 48-1, which clarifies when a tax position is considered settled under FIN 48. The FSP explains that a tax position can be effectively settled on the completion of an examination by a taxing authority without legally being extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if (1) the tax position is not considered more likely than not to be sustained solely on the basis of its technical merits and (2) the statute of limitations remain open. FSP FIN 48-1 should be applied upon the initial adoption of FIN 48. The impact of our adoption of FIN 48 (as of January 1, 2007) is in accordance with this FSP and the implementation has not resulted in any changes to our consolidated financial statements.

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NOTE F          COMMITMENTS AND CONTINGENCIES

The MPI Litigation

As a result of the Reverse Acquisition the Company assumed the liabilities of Qualmax. Qualmax was named as a defendant in certain litigation filed in France before the Trade Tribunal of Nanterre against Better Online Systems (“ BOS ”) by Media Partners International (“ MPI ,” and the “ MPI Litigation ”), a former distributor of BOS, whose contract with BOS allegedly related to certain distribution rights for the product division Qualmax purchased from BOS on December 31, 2005. Pursuant to the asset purchase agreement between Qualmax and BOS, BOS agreed to indemnify and hold Qualmax harmless from liability, without limitation, arising from the claims raised in the MPI Litigation, and BOS has undertaken defense of Qualmax at BOS’s expense. Initial hearings on a motion for a change in venue were concluded in February 2007. Additional hearings were conducted in late April 2007 and September 2007. Management does not believe this litigation poses any significant financial risk to the Company.

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

The Blackstone Litigation

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

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

Credit Facility with Pacific Continental Bank

The Company entered into an agreement for the use of various credit services with Pacific Continental Bank in February 2007. The conditions of this agreement require the deposit of $250,000 with the bank as security for the services. The terms and balance remain unchanged at June 30, 2008. The deposit is in the company’s money market account with the bank and is reported on the balance sheet as part of cash and cash equivalents.

Piecom Tech

As part of the agreement to sell our IP Gear Ltd. subsidiary to TELES (see “—Note G—Discontinued Operations”), we have accepted any liabilities and or any amounts recovered as a result of any claims from/against Piecom Tech (“Piecom”) to/from IP Gear Ltd. in the future, beyond the date of closing the sale of our subsidiary. Piecom 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 is scheduled for August, 2008. Management believes that, at present, this litigation does not pose a material or significant financial risk to the Company.

NOTE G            DISCONTINUED OPERATIONS – IP GEAR, LTD.

We completed the sale of IP Gear, Ltd., our Israeli subsidiary, as of an effective date of July 1, 2007 for accounting purposes. The Company agreed to sell all the outstanding shares of the Company’s subsidiary, IP Gear Ltd., to TELES in exchange for cash on closing and further payments over a period of time. The Company’s consideration, as determined by the Final Agreement, calls for four elements: a fixed price of $1,500,000 as part of closing; an Earn Out over four years paid quarterly of not less than $750,000 over the four years; a minimum of $400,000 over two years defined as marketing support; and an interest bearing loan credit facility up to $1,000,000 payable over four years. The Earn Out is to be paid at the greater of $46,875 or 10% of the “CPE” product line revenue for the quarter to be paid within 90 days of the end of the quarter. The Company also received a return of working capital invested during the transition period.

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NEW WORLD BRANDS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(continued)

NOTE G            DISCONTINUED OPERATIONS – IP GEAR, LTD. (continued)

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.

In accordance with the Final Agreement, the Company and TELES entered into a partner contract relating to the promotion, marketing, sale, and support of certain products of TELES and IP Gear, Ltd., pursuant to which the Company became the exclusive distributor of products of TELES and IP Gear, Ltd. in North America (including the United States, Canada, Mexico, all Caribbean nations, Guatemala, and Honduras) and non-exclusive distributor in other markets.

TELES assumed responsibility for all the liabilities and obligations of IP Gear, Ltd. except those specifically outlined in the agreement. The two items excluded are any past potential liability that IP Gear, Ltd. may have to the Office of the Chief Scientist of Israel and under a contract with one of IP Gear, Ltd.’s vendors, Piecom.

New World Brands’ management was authorized by the board to complete the sale of IP Gear, Ltd. to TELES. A preliminary agreement was reached July 18 2007 and the closing occurred on July 26, 2007. The final agreement for the sale was approved by our Board’s consent and by Teles’ Supervisory board on July 25, 2007.

Following is a comparative statement of selected financial data resulting from the discontinued operations of the Company’s former subsidiary, IP Gear Ltd.:

Selected Statements of Operations		Three Months								Six Months
Data for the Company’s		Ended								Ended
Discontinued Operations		June 30,								June 30,
		2008				2007				2008			2007
Total Revenue		$	-			$	421,244			$	-		$	998,981
Pre-Tax Loss from Discontinued			-				(3,351,659	)			-			(3,870,359	)
Income Tax Provision Operations			-				-				-			-
Loss from Discontinued Operations			-				(3,351,659	)			-			(3,870,359	)
Pre-Tax Impairment Loss			-				-				-			-
Income Tax Provision			-				-				-			-
Loss from Discontinued Operations, Net of Tax		$	-			$	(3,351,659	)		$	-		$	(3,870,359	)

15

NEW WORLD BRANDS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(continued)

NOTE H            BUSINESS SEGMENT REPORTING

The following presents our segmented financial information by business line for the six months ended June 30, 2008, and 2007. As a result of the sale of a wholly-owned subsidiary, IP Gear, Ltd. we are currently focused on two principal lines of businesses: (i) resale hardware, which is the sale and distribution of VoIP and other telephony equipment and related professional services via our U.S.-based business, which operates under the name “ NWB Networks , ” including sales and support of TELES and IP Gear, Ltd products; and (ii) wholesale carrier services, which is telephony service resale and direct call routing via our U.S.-based VoIP service business, which operates under the name “ NWB Telecom .”

		2008				2007
Net sales:
NWB Telecom		$	6,988,193			$	5,460,774
NWB Networks			4,696,143				2,195,015
			11,684,336				7,655,789
Cost of sales:
NWB Telecom			(6,090,638	)			(4,689,328	)
NWB Networks			(3,564,363	)			(1,973,607	)
			(9,655,001	)			(6,662,931	)
Gross profit:
NWB Telecom			897,555				771,446
NWB Networks			1,131,780				221,408
			2,029,335				992,858
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ITEM 2.            MANAGEMENT’S DISCUSSION AND ANALYSIS

General

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

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial operations. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere herein, and with our Annual Report on Form 10-KSB/A, filed with the SEC on May 13, 2008 and our other prior filings with the SEC.

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

Disclosure Regarding Forward-Looking Statements

We caution readers that this Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, written, oral or otherwise, are based on the Company’s current expectations or beliefs rather than historical facts concerning future events, and they are indicated by words or phrases such as (but not limited to) “anticipate,” “could,” “may,” “might,” “potential,” “predict,” “should,” “estimate,” “expect,” “project,” “believe,” “think,” “hope,” “intend,” “plan,” “envision,” “continue,” “target,” “contemplate,” or “will” and similar words or phrases or comparable terminology. Forward-looking statements involve substantial 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 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 any forward-looking statements to reflect new information or the occurrence of unanticipated events or otherwise.

The Company has a short operating history and is operating in a rapidly changing industry environment, and its ability to predict results or the actual effect of future plans or strategies, based on historical results or trends or otherwise, is inherently uncertain. While we believe that these forward-looking statements are reasonable, they are merely 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, implied or suggested by such forward-looking statements. Factors that could have a material adverse affect on the operations and future prospects of the Company include those factors discussed in our Annual Report on Form 10-KSB/A, filed with the SEC on May 13, 2008, under Item 1, “Description of Business—Certain Risk Factors,” and other factors set forth in this Report, and in our other SEC filings, including, without limitation, the following:

	•		A downturn in the market for, or supply of, our core products and services, could reduce our revenue and gross profit margin by placing downward pressure on prices and sales volume, and we may not accurately anticipate changing supply and demand conditions.
	•		We have a limited backlog, or “pipeline,” of product and services sales, and we do not control the manufacturing of the core products we distribute and sell, exposing our future revenues and profits to fluctuations and risks of either supply interruptions in areas of high demand, or rapid declines in demand. Increased demand has on occasion exceeded our capacity, and we are taking steps, including adding new vendors and new routes, and utilizing new technologies, to increase our capacity to meet the demand.
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	•		We derive a relatively large amount of our revenue and gross profit from sales to a small number of customers, and from resale of products and services purchased from a small number of vendors. The interruption of our relationships with one or more of these key customers or vendors could negatively impact our gross profit, without a corresponding short-term reduction in our expenses, negatively impacting our net profits.
	•		Changes in laws or regulations, or regulatory practices, in the United States and internationally, may increase our costs or may prohibit continued operations or entry into some areas of business. The market for our products and services is particularly subject to change resulting from foreign regulatory practices in South and Central America, and Mexico.
	•		The limited availability of technically skilled employees in the VoIP industry, especially in the Eugene, OR area, may affect our ability to grow and properly service our networks, which could be reasonably expected to negatively affect sales and profits. We rely upon a small number of key sales and management employees, and should one or more of them depart the company on short notice, the company may experience a short-term decline in sales revenue until adequate replacements can be found and trained.
	•		We have had recurring quarterly and annual losses and negative cash flow, potentially requiring us to either raise additional capital, increase gross profits relative to total expenditures, or reduce costs relative to gross margins.
	•		We may not be able to raise necessary additional capital, and may not be able to reduce costs or otherwise increase profits sufficiently to reverse our negative cash flow, absent additional capital.
	•		If we are successful in raising additional capital, it will likely dilute current shareholders’ ownership.
	•		We may not be able to effectively contain corporate overhead and other costs, including the costs of operating a public company, relative to our profits and cash.

Overview of Business

We are a telecommunications sales and service company, focusing on products and services utilizing Voice over Internet Protocol (“ VoIP ”) technology. As a result of the sale of our former subsidiary, IP Gear, Ltd. effective July 1, 2007, we are no longer in the VoIP equipment research and development (“ R&D ”) and manufacturing business, and instead currently focus on two principal lines of business: (i) resale and distribution of VoIP and other telephony equipment, and related professional services, particularly as the exclusive North American distributor of products manufactured by TELES AG Informationstechnologien (“ TELES ”); and (ii) telephony service resale, direct call routing and carrier support services. Our VoIP-related telecommunications equipment distribution and resale business, formerly operated under the divisional name “IP Gear,” is now operated under the divisional name “ NWB Networks .” Our wholesale international VoIP service business, formerly operated under the name “IP Gear Connect,” is now operated under the divisional name “ NWB Telecom .” Both NWB Networks and NWB Telecom are based in Eugene, Oregon.

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

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

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

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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 sales of TELES equipment.

Since July 1, 2007, the Company has been the exclusive distributor of TELES products in certain north 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 “Results of Operations.”

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 set-off, or net out, 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 set-off accounts receivable for equipment against accounts payable for communication services. We have call termination agreements with local lower-tier service providers in Latin America, Europe, Asia and Africa.

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

Company History

Company history prior to 2006 acquisition of Qualmax, Inc .

New World Brands, Inc. was incorporated in Delaware in May 1986 under the name Oak Tree Construction Computers, Inc. From 1986 through 1990, we were engaged in the sale of computer systems for the construction

19

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 the Reverse Acquisition, all of the assets and assumed all of the liabilities of Qualmax. The Reverse Acquisition marked a change in direction for the Company, away from wine and spirits distribution, to the VoIP technology industry. The transaction was accounted for as a reverse acquisition, with Qualmax being the acquiring party for accounting purposes. The accounting rules for reverse acquisitions require that beginning with the date of the transaction, September 15, 2006, our balance sheet had to include the assets and liabilities of Qualmax, and our equity accounts had to be recapitalized to reflect the net equity of New World Brands, Inc. Our historical operating results will be the operating results of Qualmax. In conjunction with the Reverse Acquisition, in September 2006, we moved our headquarters from Florida to Eugene, Oregon, which were previously the headquarters of Qualmax.

Qualmax, Inc. history.

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

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, to TELES, as reported in more detail in the Company’s Current Reports on Form 8-K filed with the SEC on July 20, August 1, and August 9, 2007, and as discussed in more detail below under “Recent Developments.” The 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 of sales and service. As a result of the sale, we currently base all our operations at our headquarters in Eugene, Oregon.

By the sale of IP Gear, Ltd. to TELES, we divested ourselves of our manufacturing, research and development activities, and have now rededicated our efforts to distribution, sale, service and support of VoIP-related telecommunications equipment and services. As a part of the sale of IP Gear, Ltd., we became the exclusive distributor for both TELES products and IP Gear, Ltd. products in North America and have therefore focused our telecommunications equipment sales and distribution plan on TELES and IP Gear, Ltd. products.

Employees .

As of May 14, 2008, we had approximately 35 full-time employees and 2 part-time employees, all based in our Eugene, Oregon headquarters (including outside sales and remote technical support staff reporting to management in Eugene). We consider our employee relationships to be good. None of our employees are members of a labor union, and we have never experienced a work stoppage.

Recent Developments

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

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P&S Spirit term loan .

On and effective March 30, 2007, the Company entered into a Term Loan and Security Agreement (the “ P&S Term Loan Agreement ” and the debt obligation pursuant thereto, the “ P&S Term Loan ”) with P&S Spirit, LLC, a Nevada limited liability company (“ P&S Spirit ”) 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. Reference is made to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007.

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

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

P&S Spirit credit line .

As previously reported on the Company’s Current Report on Form 8-K, filed with the SEC on June 6, 2007, on and effective May 31, 2007, the Company entered into a Credit Line and Security Agreement (the “ P&S Credit Line Agreement ” and the debt obligation pursuant thereto, the “ P&S Credit Line ”) with P&S Spirit. The maximum principal available under the Credit Line is $1,050,000; the interest rate is 2% over the Prime Rate (as reported in The Wall Street Journal), payable in relation to the then-outstanding principal; consecutive monthly payments of interest only (payable in arrears) are required commencing July 1, 2007; and all unpaid principal, interest and charges are due upon the maturity date of June 1, 2011. Upon default, the entire P&S Credit Line amount (including accrued unpaid interest and any fees) will be accelerated, and the Company would be required to pay any costs of collection. The P&S Credit Line Agreement includes certain affirmative covenants, including, without limitation, a financial reporting requirement (quarterly – 45 days after the close of a calendar quarter), and a requirement that the Company maintain a ratio of current assets to current liabilities of at least 1.2:1.0 and a total liabilities to tangible net worth ratio not exceeding 2.5:1.0. Both of these covenants had been met at of June 30, 2008.

The P&S Credit Line Agreement grants P&S Spirit a security interest with respect to all of the Company’s assets, but was subordinated to the P&S Term Loan. The P&S Credit Line Agreement is also backed by a corporate Guaranty by Qualmax (which, pending completion of the contemplated merger of Qualmax into the Company, holds a controlling interest in the Company), and a security interest in the assets of Qualmax (consisting solely of 298,673,634 shares of Common Stock). Copies of the P&S Credit Line Agreement, P&S Credit Line Note, Guaranty of Qualmax, Collateral Pledge Agreement by Qualmax, and the Collateral Pledge Agreement by the Company, were included as Exhibits 10.1, 10.2, 10.3, 10.4, and 10.5, respectively, to the Company’s Current Report on Form 8-K, filed with the SEC on June 6, 2007.

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

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 ”), following the execution of a preliminary share sale and purchase agreement (the “ Preliminary Agreement ”), both of which agreements are governed by the laws of Germany. The Preliminary Agreement was executed on July 18, 2007, and the Final Agreement was approved by the Board and by TELES’ supervisory board on July 25, 2007. The closing of the purchase and sale took place on July 26, 2007, immediately upon the execution of the Final Agreement. The share sale and purchase has an effective date, for accounting purposes, of July 1, 2007.

Pursuant to the Final Agreement, the Company agreed to sell all of the outstanding capital stock of its wholly-owned subsidiary, IP Gear, Ltd., to TELES for a purchase price consisting of: (i) a payment at closing of $1.5 million and (ii) an earn out equal to 10% of TELES’ worldwide revenues (including revenues of TELES’ affiliates) within TELES’ CPE Product Line (as defined in the Final Agreement) for a period of four years after closing. The total earn out payments shall not be less than $750,000 (the “ Minimum Earn Out ”), and shall not be subject to a cap. The Minimum Earn Out shall be paid in quarterly amounts of $46,875, each quarterly payment due within 90 days of the close of the quarter, commencing

21

with the quarter ended September 30, 2007. In the event the Minimum Earn Out is exceeded, the differential amount is due within 90 days after June 30, 2008, 2009, 2010 and 2011.

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.

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 North America (including the United States, Canada, Mexico, all Caribbean nations, Guatemala and Honduras), and a non-exclusive distributor in other markets. In connection therewith, TELES granted the Company a marketing subsidy of 5% of total annual purchases and additional marketing support in the amount of $200,000 per year for a period of two years (and for a third year, based on revenues, if agreed by the parties), and TELES granted the Company an inventory credit line in the initial amount of $200,000 (the “ Inventory Credit Line ”), which has been increased based upon subsequent sales performance by the Company. The Company received the first year’s $200,000 marketing subsidy as follows; $100,000, received as of March 31, 2008 in the form of a credit memo offset against accounts payable to TELES for inventory purchases and $100,000, received as of December 31, 2007 in the form of a direct cash payment.

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

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

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

•

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

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•		On the closing date and on the date of each advance, no default or event of default under the P&S Credit Line Agreement and all related documents thereto shall have occurred and remain outstanding or uncured; and
•		All obligations of the Company owed to P&S Spirit under the P&S Term Loan Agreement shall have been irrevocably repaid in full, and the obligations under any related guarantees, stock pledges and other loan documents securing the obligations of the Company under the P&S Term Loan Agreement shall have been released (on February 21, 2008, effective February 15, 2008, the Company repaid all outstanding obligations under the P&S Term Loan Agreement, in the amount of $500,000).

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

•		maintaining on a consolidated basis a ratio of current assets to current liabilities of not less than 1.2:1; and
•		maintaining on a consolidated basis a ratio of total indebtedness (with certain exclusions) to tangible net worth of not greater than 2.5:1.

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

•		issuing or distributing any capital stock or other securities of the Company without giving TELES at least 15 days prior written notice; and
•		amending, modifying or waiving any provisions of the P&S Credit Line Agreement.

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

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 ”), 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

23

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.

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

On May 22 and 23, 2008, in two equal amounts, the Company drew an additional $550,000 (in total) in principal on the P&S Credit Line, leaving no further amounts available for borrowing by the Company under the P&S Credit Line.

Execution of merger agreement .

On February 18, 2008, the Company and Qualmax entered into an agreement by which Qualmax will be merged with and into the Company (the “ Merger Agreement ” and the merger contemplated thereby, the “ Merger ”). As of the date of this filing, the Merger had not been completed. Reference is made to the Company’s Current Report on Form 8-K, filed with the SEC on February 22, 2008, and the Company’s Information Statement on Schedule 14C, filed with the SEC on May 20, 2008, for additional information and documentation concerning the Merger and the Merger Agreement.

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 and six month periods ended June 30, 2008 and 2007, were as follows:

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Revenue
Company-Wide
for 3 Months Ending and Year-to-Date		2007			2008			Change
March 31		$	4,099,021		$	5,080,949		23.96	%
June 30		$	3,556,769			6,603,386		85.66	%
September 30		$	4,182,157			n/a		n/a
December 31		$	5,263,257			n/a		n/a
Year-to-Date June 30		$	7,655,790		$	11,684,335		52.62	%
Gross Profit
Company-Wide
for 3 Months Ending and Year-to-Date		2007			2008			Change
March 31		$	570,550		$	704,391		23.46	%
June 30		$	422,310			1,324,944		213.74	%
September 30		$	509,455			n/a		n/a
December 31		$	794,240			n/a		n/a
Year-to-Date June 30		$	992,860		$	2,029,335		104.39	%
Gross Profit Margin
Company-Wide
for 3 Months Ending and Year-to-Date		2007			2008			Change
March 31			13.92	%		13.86	%	-0.43	%
June 30			11.87	%		20.06	%	69.00	%
September 30			12.18	%		n/a		n/a
December 31			15.09	%		n/a		n/a
Year-to-Date June 30			12.97	%		17.37	%	33.92	%

Company-wide revenue and gross profit reflect the results of the Company’s initiatives in both equipment and service divisions to improve gross margins and quality of accounts receivable, and to reduce slow moving inventory. As illustrated in more detail below, the revenue and gross margin increase reflects continued revenue and gross margin growth of TELES sales in our NWB Networks division, and a short-term recovery from recent supply interruptions in certain niche VoIP service termination routes in our NWB Telecom division.

We note that the following percentages are based upon pro forma restated unaudited financial statements for the three and six month periods ended June 30, 2007 and 2008, showing our former subsidiary, IP Gear, Ltd. (an Israeli company) listed as discontinued operations; furthermore, the following percentages are based only upon the operations of the Company’s continuing businesses in equipment distribution and resale, and telephony service:

		NWB Networks						NWB Telecom
		as Portion of Company-Wide						as Portion of Company-Wide
Revenue		Revenue						Revenue
for 3 Months Ending and
Year-to-Date		2007			2008			2007			2008
March 31		29.96	%		40.20	%		70.04	%		59.80	%
June 30		27.19	%		40.19	%		72.81	%		59.81	%
September 30		37.41	%		n/a			62.59	%		n/a
December 31		36.06	%		n/a			63.94	%		n/a
Year-to-Date June 30		28.67	%		40.19	%		71.33	%		59.81	%

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		NWB Networks						NWB Telecom
		as Portion of Company-Wide						as Portion of Company-Wide
Gross Profit		Gross Profit						Gross Profit
for 3 Months Ending and
Year-to-Date		2007			2008			2007			2008
March 31		19.11	%		53.12	%		80.89	%		46.88	%
June 30		26.61	%		57.18	%		73.39	%		42.82	%
September 30		37.60	%		n/a			62.40	%		n/a
December 31		36.56	%		n/a			63.44	%		n/a
Year-to-Date June 30		22.30	%		55.77	%		77.70	%		44.23	%

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

Sale of IP Gear, Ltd. subsidiary .

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

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

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

NWB Networks division revenue and gross profit .

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

Revenue, gross profit and gross profit margin for the NWB Networks division for the three and six month periods ended June 30, 2007 and 2008 were as follows:

Revenue
NWB Networks
for 3 Months Ending and Year-to-Date		2007			2008			Change
March 31		$	1,228,024		$	2,042,400		66.32	%
June 30		$	966,991			2,653,742		174.43	%
September 30		$	1,564,526			n/a		n/a
December 31		$	1,898,148			n/a		n/a
Year-to-Date June 30		$	2,195,015		$	4,696,142		113.95	%

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Gross Profit
NWB Networks
for 3 Months Ending and Year-to-Date		2007			2008			Change
March 31		$	109,015		$	374,174		243.27	%
June 30		$	112,393			757,605		574.04	%
September 30		$	191,555			n/a		n/a
December 31		$	290,313			n/a		n/a
Year-to-Date June 30		$	221,408		$	1,131,779		411.19	%
Gross Profit Margin
NWB Networks
for 3 Months Ending and Year-to-Date		2007			2008			Change
March 31			8.88	%		18.32	%	106.31	%
June 30			11.62	%		28.55	%	145.70	%
September 30			12.25	%		n/a		n/a
December 31			15.29	%		n/a		n/a
Year-to-Date June 30			10.09	%		24.10	%	138.85	%

Revenues of our legacy VoIP equipment resale business (VoIP access servers and related equipment, other than TELES and IP Gear, Ltd. products) continued to reflect a declining market for these products at acceptable gross margins. As illustrated below, our legacy equipment business continued to decline in the second quarter of 2008, reflecting declining prices in the market for legacy and refurbished products, a continued effort to reduce or eliminate slow moving legacy inventory, and the Company’s decision to focus more of its resources on the TELES equipment line. Gross profits in our legacy equipment business also continue to remain low, but have increased over recent quarters reflecting recent efforts to eliminate slow-moving inventory.

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

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

The table below shows the portion of NWB Networks divisional revenue, gross profit and gross profit margin attributable to sales of TELES and IP Gear products, in comparison to sales of all other products in the NWB Networks division, during 2007 and 2008 year-to-date on a quarterly and year end basis. We note that the following figures are based upon financial statements showing our former subsidiary, IP Gear, Ltd. (an Israeli company) listed as discontinued operations; the following figures are based only upon the operations of the Company’s NWB Networks division continuing businesses in equipment distribution and resale for the following periods in 2007 and 2008:

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		2007 NWB Networks Revenue						2007 NWB Networks Revenue								2008 NWB Networks Revenue						2008 NWB Networks Revenue
		non- TELES			TELES only			non- TELES			TELES only					non- TELES				TELES only		non- TELES			TELES only
Q1		$	1,127,874		$	100,150		91.84	%		8.16	%		Q1		$	748,150		$	1,294,250		36.63	%		63.37	%
Q2		$	833,349		$	133,642		86.18	%		13.82	%		Q2			340,896			2,312,847		12.85	%		87.15	%
Q3		$	1,018,220		$	546,306		65.08	%		34.92	%		Q3			n/a			n/a		n/a			n/a
Q4		$	557,059		$	1,341,089		29.35	%		70.65	%		Q4			n/a			n/a		n/a			n/a
2007		$	3,536,502		$	2,121,187		62.51	%		37.49	%		2008		$	1,089,046		$	3,607,097		23.19	%		76.81	%
		2007 NWB Networks Gross Profit						2007 NWB Networks Gross Profit Margin								2008 NWB Networks Gross Profit						2008 NWB Networks Gross Profit Margin
		non- TELES			TELES only			non- TELES			TELES only					non- TELES			TELES only			non- TELES			TELES only
Q1		$	89,112		$	19,903		7.90	%		19.87	%		Q1		$	15,342		$	358,832		2.05	%		27.73	%
Q2		$	45,742		$	66,651		5.49	%		49.87	%		Q2			26,962			730,643		7.91	%		31.59	%
Q3		$	42,517		$	149,038		4.18	%		27.28	%		Q3			n/a			n/a		n/a			n/a
Q4		$	(106,989	)	$	397,333		(19.21	)%		29.63	%		Q4			n/a			n/a		n/a			n/a
2007		$	70,382		$	632,925		1.99	%		29.84	%		2008		$	42,304		$	1,089,475		3.88	%		30.20	%

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

Our exclusive distribution rights for TELES equipment are contingent upon reaching certain minimum purchase thresholds (meaning, the amount of TELES equipment we purchase from TELES). For the fifteen month period ending September 30, 2008, the purchase threshold is $1,000,000. For the twelve month period from July 1, 2007 to June 30, 2008, our TELES purchases (for inventory received from TELES) totaled approximately $4.8 million.

Initially, our TELES sales orders outpaced TELES’s ability to supply certain products, particularly fixed wireless gateways, potentially constraining sales growth and negatively impacting customer relations and brand acceptance. However, towards the end of the first quarter of 2008 TELES was able to increase production and enable us to fill a number of pending orders, and we did not experience material supply delay on shortages in the second quarter. 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 current product demand and continue product innovation in key product lines, such as fixed wireless gateways and customer premise VoIP equipment. However, we do not control production of any of the products we distribute and sell.

All products purchased from TELES are per contract quoted in the base currency used by TELES, the Euro. NWB Networks 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. For more than the past year, the Euro has increased substantially relative to the U.S. dollar, and it appears likely that the Euro may increase further. Currently our exposure to dollar devaluation relative to the Euro is limited, but as our purchase volume from TELES and other Euro-based manufacturers increases relative to our total revenue, and as the amount of our Euro-based inventory on hand increases, our exposure to currency risk will increase.

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

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

Revenue and cost of goods for the IP Gear Connect division (wholesale VoIP services) for the three and six month periods ended June 30, 2007 and 2008 were as follows:

Revenue
NWB Telecom
for 3 Months Ending and Year-to-Date		2007				2008			Change
March 31		$	2,870,997			$	3,038,548			5.84	%
June 30		$	2,589,778				3,949,644			52.51	%
September 30		$	2,617,632				n/a			n/a
December 31		$	3,365,108				n/a			n/a
Year-to-Date June 30		$	5,460,775			$	6,988,192			27.97	%
Gross Profit
NWB Telecom
for 3 Months Ending and Year-to-Date		2007				2008			Change
March 31		$	461,535			$	330,216			-28.45	%
June 30		$	309,911				567,339			83.07	%
September 30		$	317,900				n/a			n/a
December 31		$	503,896				n/a			n/a
Year-to-Date June 30		$	771,446			$	897,555			16.35	%
Gross Profit Margin
NWB Telecom
for 3 Months Ending and Year-to-Date		2007				2008				Change
March 31			16.08	%			10.87	%		-32.40	%
June 30			11.97	%			14.36	%		19.97	%
September 30			12.14	%			n/a			n/a
December 31			14.97	%			n/a			n/a
Year-to-Date June 30			14.13	%			12.84	%		-9.13	%

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

During the three month period ended June 30, 2008, NWB Telecom has continued to rely upon a concentration of foreign termination service from two vendors (and their affiliates). The following table illustrates, for the three month period ended June 30, 2008, the revenue generated from resale of service purchased from these two vendors, and the related cost, in comparison to the costs and associated revenue of all other NWB Telecom vendors during the period:

3 Months Ended
June 30, 2008		Two Significant Vendors
Revenue (generated from resale of service purchased from vendors)		$	3,092,883
Gross Profit (earned from resale of service purchased from vendors)		$	412,158
Revenue as Portion of NWB Telecom Division Revenue			78.31	%
Revenue as Portion of Company-Wide Revenue			46.84	%
Gross Profit as Portion of NWB Telecom Division Profit			72.65	%
Gross Profit as Portion of Company-Wide Profit			20.31	%

We remain at risk of interruption of supply of certain high-margin termination routes from one of the two significant vendors, potentially negatively impacting revenue and gross profits for the NWB Telecom division. We can identify the risk of supply interruptions from these and other vendors, and we believe it is likely that supply interruptions will recur, but we

29

are not able to forecast such interruptions with any degree of certainty. To mitigate this risk we continue to seek to increase the number and diversity of vendors, but also to continue to improve the quality and stability of supply. However, our revenues and gross profits remain subject to risk of supply fluctuations, and under current circumstances we are unable to predict the timing or severity of such fluctuations.

These vendors are under no enforceable obligation to sell us service of any kind, and we are under no obligation to buy, other than on a daily or weekly basis. Furthermore, we can have no assurance that these vendors will continue to be able to offer services for sale at the gross margins currently earned. Loss of this significant vendor, or of the high-margin services we currently purchase, would result in an attendant loss of associated gross profits, without a corresponding immediate decrease in related sales, general and administrative costs, therefore negatively impacting our overall profitability in the near term.

We also experienced a customer concentration during the three months ending June 30, 2008. The following table illustrates, for the three month period ended June 30, 2008, the revenue generated from sales of NWB Telecom services purchased by our largest customer, and the related gross profit, in comparison to the gross profit and associated revenue of all other NWB Telecom customers during the period:

3 Months Ended
June 30, 2008		Significant Customer
Revenue (generated from resale of service to customer)		$	1,545,072
Revenue as Portion of NWB Telecom Division Revenue			39.12	%
Revenue as Portion of Company-Wide Revenue			22.10	%

This customer is under no enforceable obligation to continue to purchase services from us in any particular quality or quantity, and we are under no obligation to sell, other than on a daily or weekly basis. The market for the type of service we provide to this customer is extremely price-competitive, and we can have no assurance that if we are able to continue to provide services to this customer, we will continue to earn our current level of gross profits. Loss of this significant customer would result in an attendant loss of associated gross profits, without a corresponding immediate decrease in related sales, general and administrative costs, therefore negatively impacting our overall profitability in the near term.

Summary: company-wide and divisional revenue, gross profit and gross profit margin, on a quarterly and year-end basis, for 2008 year to date .

The following tables duplicate information presented elsewhere in this Item 2, but we believe that the following presentation of that information in a summary format may be helpful to shareholders and potential investors. Reference is made to similar tables showing quarterly and year end results of operations for the year ending December 31, 2007, in the Company’s Form 10-KSB/A filed with the SEC on May 13, 2008, under Item 6, “Management’s Discussion and Analysis or Plan of Operation — Summary: company-wide and divisional revenue, gross profit and gross profit margin, on a quarterly and year-end basis, for 2007.” The following presentation is not intended to substitute for any other portion of this Item 2.

											Revenue						Revenue
								% of			NWB			% of			NWB			% of
		Revenue			Revenue			Company-			Networks			Company-			Networks			Company-
		Company			NWB			Wide			(non-			Wide			(TELES			Wide
2008		Wide			Telecom			Revenue			TELES)			Revenue			only)			Revenue
Q1		$	5,080,949		$	3,038,548		59.80	%		$	748,150		14.72	%		$	1,294,250		25.47	%
Q2			6,603,386			3,949,644		59.81	%			340,896		5.16	%			2,312,847		35.03	%
Q3			n/a			n/a		n/a				n/a		n/a				n/a		n/a
Q4			n/a			n/a		n/a				n/a		n/a				n/a		n/a
Year		$	11,684,335		$	6,988,192		59.81	%		$	1,089,046		9.32	%		$	3,607,097		30.87	%

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								% of			Gross			% of			Gross			% of
		Gross			Gross			Company-			Profit NWB			Company-			Profit NWB			Company-
		Profit			Profit			Wide			Networks			Wide			Networks			Wide
		Company			NWB			Gross			(non-			Gross			(TELES			Gross
2008		Wide			Telecom			Profit			TELES)			Profit			only)			Profit
Q1		$	704,390		$	330,216		46.88	%		$	15,342		2.18	%		$	358,832		50.94	%
Q2			1,324,944			567,339		42.82	%			26,962		2.03	%			730,643		55.15	%
Q3			n/a			n/a		n/a				n/a		n/a				n/a		n/a
Q4			n/a			n/a		n/a				n/a		n/a				n/a		n/a
Year		$	2,029,334		$	897,555		44.23	%		$	42,304		2.08	%		$	1,089,475		53.69	%

								Gross Profit Margin
		Gross Profit Margin			Gross Profit Margin			NWB Networks			Gross Profit Margin
2008		Company Wide			NWB Telecom			(non-TELES)			(TELES only)
Q1		13.86	%		10.87	%		2.05	%		27.73	%
Q2		20.06	%		14.36	%		7.91	%		31.59	%
Q3		n/a			n/a			n/a			n/a
Q4		n/a			n/a			n/a			n/a
Year		17.37	%		12.84	%		3.88	%		30.20	%

Total Company expenses .

Total Company expenses (sales, marketing, general and administrative) for the following periods ended June 30, 2007 and 2008 were as follows:

Total Company Expenses for 3 Months Ending and Year-to-Date Continuing Operations Only		2007			2008			Change
March 31		$	1,129,526		$	1,550,777		37.29	%
June 30			1,095,310			1,529,051		39.60	%
Year to Date June 30		$	2,224,836		$	3,079,829		38.43	%

The substantial increase in total expenses for the comparative three month periods is due primarily to increases in bad debt write-offs, trade show and travel, legal and litigation, increased payroll and accounting services. We note that the above figures are based upon financial statements for the periods ended June 30, 2008 and 2007, segregating the 2007 figures for our former subsidiary, IP Gear, Ltd. (an Israeli company), as discontinued operations; the above figures are based only upon the operations of the Company’s continuing businesses in equipment distribution and resale, and telephony service.

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Interest .

Interest (Company wide) for 3 Months Ending and Year-to-Date Continuing Operations Only		2007			2008			Change
March 31		$	51,082		$	17,515		-65.71	%
June 30			32,026			18,130		-43.39	%
Year to Date June 30		$	83,108		$	35,645		-57.11	%

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

Amortization and depreciation .

Amortization and Depreciation (Company wide) for 3 Months Ending and Year-to-Date Continuing Operations Only		2007			2008			Change
March 31		$	108,547		$	116,280		7.12	%
June 30			107,613			142,165		32.11	%
Year to Date June 30		$	216,160		$	258,445		19.56	%

Amortization and depreciation for the Company for continuing operations increased in the second quarter of 2008 as a reflection of the steadily increasing capital investment of the company in switching, routing, and tracking equipment and technology utilized in relation to our NWB Telecom VoIP service business. Our U.S.-based operations have had a very limited amount invested in software technology, and as a result, our current amortization is negligible and not expected to increase in the near term.

Net loss.

The above factors contributed to a net loss for the Company for the three and six month periods ended June 30, 2008. As a result of the sale of our IP Gear, Ltd. subsidiary to TELES, we are required to restate financials on a pro forma basis for 2007, showing our former subsidiary, IP Gear, Ltd., listed as discontinued operations, and separately reporting the results of operations of the Company’s continuing businesses in equipment distribution and resale, and telephony service. However, we believe that for a better understanding of the impact of the IP Gear, Ltd. sale on our net losses, it is important to also consider the Company’s net losses reported to include the losses generated by discontinued operations (meaning, including losses from IP Gear, Ltd.) in net losses generated by continuing operations. The Company’s net losses for the periods ended 2008 and 2007, shown both excluding and including discontinued operations, are as follows:

Continuing Operations Only Net Loss (Company wide) for 3 Months Ending and Year-to-Date		2007				2008				Change
March 31		$	(530,517	)		$	(833,121	)		-57.04	%
June 30			(661,079	)			(141,900	)		78.54	%
Year to Date		$	(1,191,596	)		$	(975,020	)		18.18	%
Continuing and Discontinued Operations Net Loss (Company wide) for 3 Months Ending and Year-to-Date
March 31		$	(1,049,217	)		$	(833,121	)		20.60	%
June 30			(4,012,738	)			(141,900	)		96.46	%
Year to Date		$	(5,061,955	)		$	(975,020	)		80.74	%

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The difference between net loss from continuing operations only, as compared to the net loss for continuing and discontinued (meaning, IP Gear, Ltd.), illustrates the impact of the Company’s former subsidiary, IP Gear, Ltd., on the Company’s financial performance. The impact on net loss resulting from the sale of IP Gear, Ltd., is also illustrated, in part, above in “Part I. Financial Information—Item 1. Financial Statements—Note G—Discontinued Operations.”

Following is a summary of total company expenses, interest, amortization and depreciation, other income/expense, and resultant net profit/loss, allocated among our two operating divisions, NWB Telecom and NWB Networks, and showing NWB Networks results for the six month period ending June 30, 2008:

		Company-								NWB				NWB
Jan 1 - June 30, 2008		Wide				Corporate				Telecom				Networks
Gross Profit		$	2,029,335				n/a			$	897,556			$	1,131,780
SG&A Expense (1)		$	(3,079,828	)		$	(1,457,042	) (2)		$	(975,625	)		$	(647,161	)
Interest		$	(35,645	)		$	(28,078	)		$	(7,541	)		$	(26	)
Depreciation/Amortization		$	(258,445	)		$	(88,930	)		$	(169,652	)		$	137
Other Income (Expense)		$	75,472			$	60,675			$	14,774			$	23
2008 Net Loss		$	(975,020	)		$	(1,396,368	)		$	(63,295	)		$	484,643

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

Liquidity and Capital Resources

The Company’s year-end cash balance and ratio of current assets to current liabilities as of December 31, 2007 and June 30, 2008 are as follows:

		2007			2008
Cash		$	2,038,635		$	1,396,696
Current Assets		$	4,562,197		$	4,951,788
Current Liabilities		$	2,274,814		$	2,987,408
Current Ratio (current assets to current liabilities)			2.01:1			1.66:1
Quick Ratio (cash and accounts receivable to current liabilities)			1.35:1			0.94:1

The Company’s cash utilization rates (meaning, amount of cash used in operations) for both Continuing Operations and Discontinued Operations for the six months ended June 30, 2008 and 2007 were, respectively, $(641,939) and $(1,977,579). However, the Company’s cash utilization rate for Continuing Operations only for the six months ending June 30, 2008 and 2007 was $(641,938) and $(537,900) is a more direct comparison of the change in our cash position year over year. The biggest element of differentiation between the two years’ numbers is the amount of funds raised from the issue of debt or equity. There was over $200,000 more in cash inflow from these sources in 2007 than in 2008. We actually were better off by approximately $300,000 in change in cash from operations in 2008 than in 2007. The cash needed to fund operations has significantly reduced compared to the same period a year ago. However, the company’s liquidity or ability to pay its current obligations from current assets or exclusively from cash has reduced compared to the same time a year ago as indicated in the ratios above.

Our ability to draw on additional capital resources has reduced in 2008 from the same time in 2007 due to the company having drawn fully on one if its credit facilities. We borrowed a net $550,000 during the first six months of 2008 and have used all of our facility with P & S Spirit. No capital was raised in the period from equity sources. We still have the full amount of the second of our lines of credit, the TELES Loan which we have not yet drawn any funds on. Its availability to us is contingent upon the completion of the Qualmax merger.

Capital expenditures.

In 2008 New World Brands increased it investment in increased switching capacity for its NWB Telecom unit. In the past, the Company’s primary investment in capital had been focused on funding the R&D efforts of our IP Gear, Ltd. subsidiary. In the first six months of 2007, the Company made investments in this subsidiary, until it was sold on July 1, 2007. These capital expenditures are referred to as “Discontinued Operations” in our current financial statements. Capital expenditures by the Company for equipment providing the infrastructure of our telecom services division, NWB Telecom, are referred to as “Continuing Operations” in our current financial statements. Capital expenditures of Continuing Operations for 2007 also include certain expenditures associated with equity-based financing activities. The following chart provides a comparative representation of the capital expenditures and disposals for Continuing Operations over the last six quarters:

Capital Expenditures of Continuing Operations of New World Brands
				Additions and Disposals over the Last Six Quarters
				Additions			Dispositions				Net Additions
Q1		2007			142,810			-				142,810
Q2		2007			1,809			(12,609	)			(10,800	)
Q3		2007			20,449			(95,730	)			(75,281	)
Q4		2007			227,314			-				227,314
Q1		2008			147,746			(60,928	)			86,818
Q2		2008			272,400			(1,606	)			270,794
				Comparative Six Month Ending June 30,
		2007			144,619			(12,609	)			132,010
		2008			420,146			(62,534	)			357,612
Change (%)												170.90	%

The Company has been steadily increasing the amount invested in capital expenditures for continuing operations over the last six quarters. An increase of almost double our 2007 investment reflects our decision to increase total switching capacity and also incorporates hardware and software we have acquired to measure and improve the quality of our services. The dispositions represent the replacement of older technology with newer equipment and/or equipment that is better suited to our business’ needs. We are committed to funding the NWB Telecom unit for its capital needs to maintain its position as a leading edge VOIP telecom carrier. A significant portion of those funds have already been invested and we are starting to see some return in the 3 months ended June 30, 2008 and feel that it will continue into future quarters.

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Future capital needs.

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

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

Technology

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

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to the risk of fluctuating interest rates in the normal course of business, primarily as a result of our short-term borrowing and investment activities, which generally bear interest at variable rates. We invest cash balances in excess of operating requirements in short-term securities, generally with maturities of 90 days or less. In addition, our credit facility provides for borrowings which bear interest at variable rates based on the prime rate. We believe that the effect, if any, of reasonably possible near-term changes in interest rates on our financial position, results of operations and cash flows should not be material.

Foreign currency fluctuations may affect the prices of our products and impact our gross profit. Our prices for TELES products are denominated in Euros, but otherwise our sales prices are primarily denominated in U.S. Dollars. Our revenues are therefore affected by fluctuations in the Euro/Dollar exchange rate. To the extent that the Dollar continues to lose value relative to the Euro, our pricing strength and gross margins will be negatively affected: the currency of most of our customers and our fixed costs (Dollars) would become less valuable relative to the currency of our primary equipment vendor, TELES (Euros).

ITEM 4T.           CONTROLS AND PROCEDURES

As of the end of the period covered by this Report, we have evaluated under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, and based on the framework for Internal Control — Integrated Framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “ Exchange Act ”). Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2008, our disclosure controls and procedures are reasonably effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure and to present the Company’s financial statements fairly. As a result of the Reverse Acquisition, the Company’s former controls and procedures have been replaced with those formerly of Qualmax, and this Item 4 describes evaluation and operation of the controls and procedures formerly of Qualmax. There has been no change in our internal controls over financial reporting during the three month period ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

All internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding of controls. Therefore, even effective internal control over financial reporting can provide only reasonable, and not absolute, assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal controls over financial reporting may vary over time. Because of its inherent limitations, internal control over financial reporting may also fail to prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

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PART II – OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

MPI Litigation

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

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

Blackstone Litigation

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

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

Piecom Tech Litigation

As part of the agreement to sell our IP Gear Ltd. subsidiary to TELES, we indemnified and agreed to defend TELES and IP Gear, Ltd. against any liabilities arising from, and will receive any amounts recovered as a result of, any claims from/against Piecom to/from IP Gear Ltd. in the future, beyond July 1, 2007, the date of closing the sale of IP Gear Ltd. to TELES. Piecom 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 is scheduled for August 2008. Management believes that, at present, this litigation does not pose a material or significant financial risk to the Company.

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Additional Disputes

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

ITEM 1A.           RISK FACTORS

Factors that could have a material adverse affect on the operations and future prospects of the Company include those factors discussed in our Annual Report on Form 10-KSB/A, filed with the SEC on May 13, 2008, under Item 1, “Description of Business—Certain Risk Factors,” and other factors set forth in this Report, including without limitation under Part I, Item 2, “Management’s Discussion and Analysis—Disclosure Regarding Forward-Looking Statements,” and in our other SEC filings.

ITEM 2.           UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5.           OTHER INFORMATION

Management Changes

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

On and effective April 30, 2008, Abe Narkunski resigned as Vice President of Operations of the Company’s NWB Telecom division. Noah Kamrat will assume Mr. Narkunski’s duties as relate to NWB Telecom and will continue to serve as the Company’s Chief Technology Officer.

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ITEM 6.           EXHIBITS

Exhibit
Number		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (*)
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (*)
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 (*)
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes -Oxley Act of 2002 (*)

(*)		Filed herewith.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		NEW WORLD BRANDS, INC.
Dated: August 14, 2008		By:	/s/ M. David Kamrat
			M. David Kamrat
			Chief Executive Officer and Chairman of the Board
Dated: August 14, 2008		By:	/s/ Shehryar Wahid
			Shehryar Wahid
			Chief Financial Officer

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