10-Q 1 cross10q033108.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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 March 31, 2008 OR |_| 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 333-1311294 Cross Atlantic Commodities, Inc. (Exact name of registrant as specified in its charter) Nevada 76-0768756 --------------------------- --------------------------------------- (State or other jurisdiction (I.R.S. Employer Identification Number) of incorporation or organization 4581 Weston Road Suite #273 Weston, FL 33331 -------------------------------------------------- (Address of principal executive offices, Zip Code) 954-678-0698 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 [ ] 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 |_| Accelerated filer |_| Non-accelerated filer |_| 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 under the Act). Yes |_| No |X| The number of shares of Common Stock outstanding was 27,956,453 as of March 31, 2008. PART I -- FINANCIAL INFORMATION Cross Atlantic Commodities, Inc. Item 1. Financial Statements Balance Sheet, Condensed March 31, 2008 (unaudited) and December 31, 2007 3 Condensed Statements of Operations For the Three Months Ended March 31, 2008 and 2007, and for the Period From March 12, 1998 (Inception) to March 31, 2008 (unaudited) 4 Statements of Cash Flows For the Three Months Ended March 31, 2008 and 2007, and for the Period From March 12, 1998 (Inception) to March 31, 2008 (unaudited) 5 Notes to financial statements 6 2

See notes to financial statements. 3

See notes to financial statements. 5 CROSS ATLANTIC COMMODITIES, INC. (A Development Stage Company) NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS MARCH 31, 2007 (1) Basis Of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and Rule 8.03 of Regulation SX. They do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements of the Company as of December 31, 2007, and for the years ended December 31, 2007 and 2006, and the period from inception (March 12, 1998) to December 31, 2007. (2) Earnings Per Share The Company calculates net income (loss) per share as required by Statement of Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods when anti-dilutive commons stock equivalents are not considered in the computation. (3) Loans Payable and Accounts Payable - Related Parties During the three months ended March 31, 2008 advances aggregating $100 were made by the officers of the Company for working capital purposes. The balance at March 31, 2008, which is due on demand and bears no stated interest rate aggregated $32,535. In addition the Company accrued $30,000 for services provided by its officers. The balance due aggregated $72,563 at March 31, 2008 and is included in accounts payable and accrued expenses. (4) Commitments, Concentrations and Contingencies During the periods covered by these financial statements the Company issued shares of common stock without registration under the Securities Act of 1933. Although the Company believes that the sales did not involve a public offering of its securities and that the Company did comply with the "safe harbor" exemptions from registration, if such exemptions were found not to apply, this could have a material impact on the Company's financial position and results of operations. (5) Basis of Reporting The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced a significant loss from operations from inception aggregating $7,615,188 and has working capital and stockholder deficits at March 31, 2008. In addition, the Company has no significant revenue generating operations. 6 The Company's ability to continue as a going concern is contingent upon its ability to secure additional financing, increase ownership equity and attain profitable operations. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in established markets and the competitive environment in which the Company operates. The Company is pursuing financing for its operations and seeking additional investments. In addition, the Company is seeking to expand its revenue base by adding new customers and increasing its advertising. Failure to secure such financing or to raise additional equity capital and to expand its revenue base may result in the Company depleting its available funds and not being able pay its obligations. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. (6) STOCKHOLDERS' (DEFICIT) During March 2008 the Company issued 1,135,000 shares of common stock for services valued at its fair value of $1,135 which has been charged to operations during the period. During the period ended March 31, 2008, the Company issued 2,714,113 shares of common stock for the conversion of $1,907 of convertible debt. (7) SECURED CONVERTIBLE NOTES On December 27, 2006, the Company entered into a Securities Purchase Agreement with four accredited investors ("Note Holders") for the sale of an aggregate of up to $1,000,000 of Callable Secured Convertible Notes (the "Convertible Notes") and warrants to purchase up to 15,000,000 shares of its common stock (the "Warrants"). The proceeds related to $600,000 of Convertible Notes and the Warrants were received on December 27, 2006 and an additional $150,000 of the Convertible Notes were issued on February 22, 2008. In connection with the issuance of the additional $150,000 of Convertible Notes, the Company also issued additional warrants to purchase up to 10,000,000 shares of its common stock (the "Additional Warrants"). The Company has granted the Note Holders a security interest in substantially all of the Company's assets. The Company also entered into a Registration Rights Agreement with the Note Holders under which it was required to file, by January 26, 2007, a registration statement to register for resale the shares of common stock issuable on conversion of the $600,000 of Convertible Notes and exercise of the Warrants. The registration statement was filed on February 1, 2007 and was required to be effective by April 26, 2007. Because the registration statement did not become effective until October 22, 2007, the Company began to incur penalties of 2% per month of the outstanding principal amount of the Convertible Notes. However, at March 31, 2008, The Company was required to file, by April 7, 2008, a registration statement to register for resale the shares of common stock issuable on conversion of the $150,000 of Convertible Notes and the Additional Warrants issued on February 22, 2008. The Company has not yet filed the registration statement. An estimate of the penalties that the Company expects to incur as a result of the delay in filing the required registration statement was accrued as part of the initial allocation of the proceeds of $150,000 received from the issuance of the Convertible Notes and Additional Warrants. The Convertible Notes bear interest at 8% per annum and have a maturity date of three years from the date of issuance. No interest is payable for any month in 7 which the trading price of our common stock is greater than $0.40 for each trading day during the month. The Company is not required to make any principal payments during the term of the Convertible Notes. The Convertible Notes are convertible at any time into shares of the Company's common stock at the Note Holders' option, at a conversion price of 45% of the average of the three lowest intra-day trading prices for the common stock as quoted on the Over-the-Counter Bulletin Board for the 20 trading days preceding the conversion date. Upon the occurrence of an event of default, as defined in the Convertible Notes, the Note Holders may demand repayment at an amount equal to the greater of (i) the then outstanding principal amount of the Convertible Notes, together with unpaid interest and any outstanding registration penalties (collectively, the "Default Sum") times 140% or (ii) the "parity value" of the Default Sum, where parity value means (a) the highest number of shares of common stock issuable upon conversion of such Default Sum, treating the Trading Day immediately preceding the prepayment date as the "conversion date" for purposes of determining the lowest applicable conversion price, multiplied by (b) the highest closing price for the common stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the prepayment date. Because the required registration statement related to the $150,000 of Convertible Notes issued on February 22, 2008 has not yet been filed, an event of default has occurred and is continuing. However, the Note Holders have not demanded repayment nor have they indicated that they will demand repayment. At March 31, 2008, the Convertible Notes are carried at their face amount and the bifurcated embedded derivative liability related to the Convertible Notes is recognized as the difference between the parity value the Note Holders could demand based on the above formula and the carrying amount (face amount) of the underlying Convertible Notes (see Note 8). The Company has the right to prepay the Convertible Notes so long as (i) no Event of Default has occurred and is continuing, (ii) the Company has a sufficient number of authorized shares of common stock reserved for issuance upon full conversion of the Notes, and (iii) the common stock is trading at or below $0.50 per share. The Company is required to give the Note Holders not less than three trading days prior written notice. The Company may prepay the Convertible Notes at an amount equal to the Default Sum multiplied by either (i) 120% if prepayment occurs within 30 days of issuance of the Convertible Notes, (ii) 130% if prepayment occurs between 31 and 60 days of issuance, or (iii) 140% if prepayment occurs more than 60 days after issuance. When the requirements to exercise its right to prepay the Convertible Notes are met, the Company's right to prepay the Convertible Notes at a premium may effectively limit its liability related to any associated embedded derivative instruments that have been bifurcated and accounted for separately and such limitation is recognized in valuing those instruments. If the average daily price of the common stock for each day of a month is below $0.32 (the volume weighted average price of the common stock for the five trading days immediately preceding issuance of the Convertible Notes), the Company may, at its option, prepay a portion of the outstanding principal amount of the Convertible Notes equal to 104% of the principal amount divided by 36, plus one month's interest. The 15,000,000 warrants issued on December 27, 2006 and the 10,000,000 warrants issued on February 22, 2008 are exercisable for a period of seven years from the date of issuance at an exercise price of $0.30 per share and $0.0001 per share, respectively. In addition, on December 27, 2006, the Company issued to its placement agent, 157,143 common stock warrants exercisable for a period of seven years from the date of issuance at an exercise price of $0.30 per share. 8 The conversion price of the Convertible Notes and the exercise price of the warrants will be adjusted in certain circumstances such as if the Company pays a stock dividend, subdivides or combines outstanding shares of common stock into a greater or lesser number of shares, or takes such other actions as would otherwise result in dilution of the Note Holders' position. Because the number of shares that may be required to be issued on conversion of the Convertible Notes is indeterminate, the embedded conversion option of the Convertible Notes and the Warrants and Additional Warrants are accounted for as derivative instrument liabilities in accordance with EITF Issue 00-19, "Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In, a Company's Own Common Stock" (EITF 00-19). Accordingly, the initial fair values of the embedded conversion options, the Warrants and the Additional Warrants were recorded as derivative instrument liabilities. Because the initial fair values of the Warrants, the Additional Warrants and the bifurcated derivative instruments exceeded the proceeds received, the Company recognized initial charges to income for the difference. The Company is required to re-measure the fair value of these derivative instrument liabilities at each reporting period. The discount from the face amount of the Convertible Notes represented by the value initially assigned to the Warrants, Additional Warrants and bifurcated derivative instruments is amortized over the period to the due date of the Convertible Notes, using the effective interest method. However, as noted above, because the Company has not yet filed the registration statement required in connection with the $150,000 of Convertible Notes issued on February 22, 2008, an event of default has occurred. Accordingly, recognition of the unamortized discount has been accelerated and at March 31, 2008, the Convertible Notes are carried at their face amounts. A summary of the 8% Callable Secured Convertible Notes at March 31, 2008, is as follows: Carrying Value - Face Principal Unamortized March 31, Issue Date Due Date Amount Outstanding Discount 2008 ---------- ---------- --------- ----------- ----------- ----------- 12-27-2006 12-27-2009 $ 600,000 $ 593,532 $-0- $ 593,537 02-22-2008 02-22-2011 $ 150,000 $ 150,000 $-0- 150,000 ----------- $ 743,537 ----------- (8) DERIVATIVE FINANCIAL INSTRUMENT LIABILITIES The Company is required to re-measure the fair value of its derivative instrument liabilities at each reporting period. For option-based derivative instruments, the Company usually estimates fair value using the Cox-Ross-Rubinstein binomial option valuation model, based on the market price of the common stock on the valuation date, an expected dividend yield of 0%, risk-free interest rates based on constant maturity rates published by the U.S. Federal Reserve applicable to the remaining term of the instruments, and an expected life equal to the remaining term of the instruments. The expected 9 volatility of our common stock over the remaining life of the derivative instrument liabilities is based on a review of historical volatility of our common stock and has been estimated at 180%. However, as discussed in Note 7, at March 31, 2008, because an event of default has occurred, the bifurcated embedded derivative liability related to the Convertible Notes is valued as the difference between the parity value that the Note Holders may demand, as described in Note 7, and the carrying amount (face amount) of the underlying Convertible Notes. At March 31, 2008, the following derivative liabilities related to common stock Warrants and embedded derivative instruments were outstanding: Exercise Price Value - Expiry Per Value - March 31, Issue Date Date Warrants Share Issue Date 2008 ---------- ---------- ---------- -------- ---------- ----------- 12-27-2006 12-27-2013 15,000,000 $0.30 $1,985,385 $ 130,829 12-27-2006 12-27-2013 157,143 $0.30 20,799 1,371 02-22-2008 02-22-2015 10,000,000 $0.0001 12,951 99,889 ----------- Fair value of freestanding derivative instrument liabilities for warrants $ 232,089 ----------- Face Amount - Expiry Convertible Value - March 31, Issue Date Date Notes Issue Date 2008 ---------- ---------- ----------- ------- ---------- ----------- 12-27-2006 12-27-2009 $ 593,532 $ 720,000 $ 2,936,027 02-22-2008 02-22-2011 $ 150,000 $ 405,294 835,416 ----------- Fair value of bifurcated embedded derivative instrument liabilities associated with the Convertible Notes $ 3,771,443 ----------- Total derivative financial instruments $ 4,003,532 =========== (9) CONSULTING AGREEMENT During February 2008 the Company entered into a consulting agreement with a client of its primary lender for a 90 day period. The agreement called for payments aggregating $100,000 of which $80,000 has been paid at March 31, 2008, and $20,000 is included in accounts payable and accrued expenses. The Company has expensed $50,000 during the period ended March 31, 2008, and included $50,000 in prepaid expenses at March 31, 2008. 10 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with our financial statements and notes thereto. Trends and Uncertainties. We are a development stage company. Our auditors have raised substantial doubt as to our ability to continue as a going concern. We incurred net losses of $(3,502,242) for the three months ended March 31, 2008, and have an accumulated deficit of $(7,615,188) at March 31, 2008. As of March 31, 2008, we had total assets of $58,977 and total liabilities of $5,028,572 creating a stockholders' deficiency of $4,969,595. Cross Atlantic currently has $5,228 in cash as of March 31, 2008. Our ability to continue as a going concern is contingent upon our ability to secure additional financing, increase ownership equity and attain profitable operations. In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in established markets and the competitive environment in which we operate. We are pursuing financing for our operations and seeking additional investments and we will need a minimum of $200,000 over the next twelve months to continue operations. In addition, we are seeking to expand our revenue base by adding new customers and increasing our advertising. Failure to secure such financing or to raise additional equity capital and to expand its revenue base may result in Cross Atlantic depleting our available funds and not being able pay our obligations. There are several known trends that are reasonably likely to have a material effect on our net sales or revenues alongside our income from continuing operations and profitability. Our BlackWhiteCoffee is currently being produced at Peter Larsens coffee roaster in Denmark. We do not own this coffee facility and we may not be able to produce our coffee at this facility in the future. If we are not able to produce our retail coffee at Peters Larsens coffee roaster our revenues and profit could be effected negatively. Our product is new to the market (December 2006) and we do not have any customers (March 31 2008). Our ability to obtain and successfully sell our product to new customers will be important for our ability to become profitable. If we are not able to sell our products to retailers or distributors we may not be able to sell our retail coffee at all and this could have a negative effect on our profit and revenues. Coffee at the moment (March 31 2008) and in other different periods of time is relatively more expensive at origin due to a difficult supply and demand situation. It is likely that we will be forced to pay a higher price for coffee in order to obtain the volumes described in our contract. It is likely that we will be able to collect a higher price from our customers in such periods, however if we are not able to collect a higher price we may be forced to turn down coffee deliveries which will negatively effect our revenues or accept to make a smaller profit which may effect our profitability. Coffee is highly dependant on the right weather conditions. It is likely that we experience lower volumes throughout our 10-year contract due to unfavorable weather conditions. The price of oil may lead to a higher freight cost for both inland trucking and shipping by vessel. It is likely that our cost of freight may go down or go up according to the world price of oil. We will try to forward a higher transportation cost to our buyers, however if we are not successful in doing so a higher or lower cost of transporting goods to the final destination will affect our profitability. 11 Our profits could be negatively affected if any of the following occur: - If we are not able to find a private buyer or we need to sell our coffees on the Coffee, Sugar, Cocoa Exchange, we will make less profit or we might not be able to bring in a profit at all. - If Victoria Coffees are no longer capable or willing to supply us, weather financially able or psychically able. - If the price of transportation goes up - If there is an embargo on Uganda or Kenya - If there is civil insurrection - If one of our competitors are able to buy up all the coffee from farmers - If production in other countries exceed the world market demand prices may go down without our ability to get cheaper products. - If there is a war or force majure situation Plan of Operation. Cross Atlantic has experienced a loss from operations during its development stage as a result of its investment necessary to achieve its operating plan, which is long-range in nature. For the period from inception to March 31, 2008, Cross Atlantic incurred a net loss of $(7,615,188). In addition, Cross Atlantic has no significant assets or revenue generating operations. In the first quarter of 2008 we ceased operations on importing our green coffee due to the lack of margins to justify the expense. In November 2006, Cross Atlantic announced the commencement of operations for a new wholesale food division. Cross Atlantic will be producing its own brand name coffee and obtaining exclusive distribution contracts with manufactures outside the United States. Cross Atlantic will be presenting products to all major retailers throughout the United States through our extensive broker network, which, along with existing relationships, has enabled us to go direct to most major chains. We estimate serving at least the top 50 coffee retailers, along with established distribution houses. Our wholesale food division will also enable Cross Atlantic to achieve substantial revenue growth and profit if the strategy of selling retail coffee and other products manufactured outside the United States directly or indirectly to major U.S. retailers proves to be successful. In December 2006, Cross Atlantic launched a retail coffee product under the company's own brand name, "BlackWhite Coffee." We are just beginning to market our product throughout the United States, presenting to all major retailers and distribution houses. Cross Atlantic will be manufacturing product in both Europe and the United States. The first production of readymade retail coffee has been produced for Cross Atlantic by Peter Larsens Coffee in Denmark. The production is aimed at presenting the products to retailers and brokers in order to obtain small orders and get production in place for larger orders in the future. Cross Atlantic is currently looking to outsource sales of the BlackWhite Coffee in Denmark and the United Kingdom to a locally established company in order to sell the products produced by Cross Atlantic without dealing directly with the consumer or retailer in the two countries. Cross Atlantic is currently looking into the possibility of roasting the BlackWhite Coffee aimed at the United States market with a roaster in the United States. It is our goal to produce all retail coffee to be sold in the United States locally within the country. Until a relationship with a roasting facility in the United States has been found, Cross Atlantic expects to produce the coffee in Denmark at Peter Larsens Coffee. Distribution of the retail coffee began in the first quarter of 2007 through our current networks, with additional sales to be driven from a web based marketing effort. We will launch this effort with a "direct from source, direct to consumer" marketing approach. Cross Atlantic has also secured the domain name for www.blackwhitecoffee.com 12 BlackWhite Coffee is a series of high quality consumer products manufactured by Cross Atlantic in joint venture with coffee growing communities ensuring sustainable business and trading terms for the individual farmer and a superior quality for the consumer. BlackWhite Coffee is made with the finest green coffee beans available, made from AA Arabica that originates from the Region of Mt. Elgon in East Africa. BlackWhite Coffee is a truly sophisticated blend, ensuring the consumer of one of the finest coffees available. Buying green coffee at origin enables us to eliminate the middleman, which gives us a competitive edge when evaluating on a cost basis. Our low cost basis benefits sales on two fronts. Cross Atlantic is now able to provide exceptional quality products with increased profit margins, since we are direct to source, and distributors and retailers are enticed by our cheaper prices. Our marketing strategy is to give the retailer a healthy margin, meanwhile selling a premium coffee at well below our competitor's prices. Cross Atlantic intends to buy the coffee to be used for the BlackWhite Coffee direct once the production is running a full 40,000 pounds minimum per roast. Cross Atlantic aims to buy coffee to be used for smaller quantities through relationships with brokers such as Berhard Rothfos GmbH in Hamburg, Germany. Coffee bought for smaller quantities may only be available at higher prices, which likely have a negative impact on our profit margin. Cross Atlantic intends to market its retail coffee, BlackWhite Coffee, on price, quality and social story. The coffee is a gourmet AA Arabica quality that normally retails in the high-end price range. Cross Atlantic wants to retail the coffee in the mid to lower end price range, giving retailers and consumers a good value at a good price point. Cross Atlantic would also like to brand the coffees social story by explaining to consumers the direct link between the coffee and the farmers via labeling and packaging. By buying direct, Cross Atlantic supports the farming communities in Uganda thereby insuring the farmers a fair price and a place to sell their products. Cross Atlantic expects to generate revenues by producing BlackWhiteCoffee in Denmark. We expect our production price to be $1.35 per 12oz bag, with a wholesale price to the retailers of $2.00 to $2.10. We expect that the retailers will offer the coffee to consumers for $2.99 making BlackWhiteCoffee one of the cheapest gourmet coffees sold. Our price compares to a regular quality but our quality compares to a high end gourmet coffee. We expect to present our retail coffee through a broker network, giving us the advantage of the relationship between the broker and retailer. We have redesigned our marketing and efforts and expect to obtain orders throughout 2008. Throughout the first quarter of 2008 we have begun to focus on manufacturing and distribution of nationally branded commodities, food and general merchandise to food stores, supermarkets and club stores under a new division called Import Foods Division ("IFD"). The function of IFD is to assist foreign manufacturers with marketing and distribution of foods produced or manufactured outside the USA. IFD will primarily focus on European manufacturers who desire to enter the US markets to sell products. Most foreign manufacturers are unfamiliar with US standards and require assistance with packaging, labeling, nutritional disclosures, distribution and sales. We can assist these clients and introduce them to most of the major retailers, distributors and club stores. IFD already has the infrastructure in place. We are very familiar with the conformities and standards required by the US and assisting foreign manufacturers with packaging, labeling and US regulations is a natural fit because we are already doing it for ourselves. Our target clients are manufacturers that gross over $20 million in revenues and contracts primarily with major retailers in their respective countries. These manufacturers desire to enter new markets but lack the knowledge and/or experience of producing compliant packaging or labeling when crossing borders. IFD is the agent and consultant that will create a 'turn key operation' for these manufacturers to seamlessly sell their products to new markets abroad. 13 In addition to using their sourcing agents from around the world, IFD will advertise in Food & Beverage International, the information source for food and drink manufacturers in Europe. Food and Beverage International has a guaranteed circulation; the only magazine of its kind that has an audited circulation of over 13,000 for each of the past 5 years. "F&B is read by industry experts, producers, manufacturers and circulated only to the food and drink industry in Europe. It is the magazine of choice for new products. IFD expects to generate revenue from three fronts; retainer, program development and percentage of sales. We will receive a $5,000 retainer from every manufacturer and a six-month program, specific to the manufacturers needs, for $30,000. After the six months we receive 10% commission on the manufacturer's sales. In addition to our BlackWhite Coffee, Cross Atlantic Commodities, Inc., will manufacture, distribute and market specialty food products and general merchandise to large food chains, clubs and mass merchants. Through our moniker, Import Foods Division, we will assist overseas manufacturers in the conformities of US packaging and label standards. We do not have sufficient cash on hand to meet funding requirements for the next twelve months. Although we eventually intend to primarily fund general operations with revenues received from the sale of green coffee, retail coffee and ice cream, our revenues are not increasing at a rate sufficient to cover our monthly expenses in the near future. If we are not successful in becoming cash flowing, we will have to seek alternative funding through additional advances, debt or equity financing in the next twelve months that could result in increased dilution to the shareholders. No specific terms of possible equity or debt financing have been determined or pursued. Recent Financing On Feburary 22, 2008, we entered into a Securities Purchase Agreement with AJW Capital Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and New Millennium Capital Partners II, LLC. Under the terms of the Securities Purchase Agreement, the Investors purchased an aggregate of (i) $150,000.00 in Callable Secured Convertible Notes and (ii) warrants to purchase 15,000,000 shares of our common stock. On December 27, 2006, we entered into a Securities Purchase Agreement with AJW Capital Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and New Millennium Capital Partners II, LLC. Under the terms of the Securities Purchase Agreement, the Investors purchased an aggregate of (i) $1,000,000 in Callable Secured Convertible Notes and (ii) warrants to purchase 15,000,000 shares of our common stock. Pursuant to the Securities Purchase Agreement, the Investors will purchase the Notes and Warrants in two tranches as set forth below: At closing on December 27, 2006, the Investors purchased Notes aggregating $600,000 and Warrants to purchase 15,000,000 shares of CXAC common stock; Upon effectiveness of the Registration Statement, the Investors will purchase Notes aggregating $400,000. The Notes carry an interest rate of 8% per annum and a maturity date of December 27, 2009. The notes are convertible into CXAC common shares at the applicable percentage of the average of the lowest three (3) trading prices for CXAC shares of common stock during the twenty (20) trading day period prior to conversion. The "Applicable Percentage" means 50%; provided, however, that the Applicable Percentage shall be increased to (i) 55% in the event that a Registration Statement is filed within thirty (30) days of the closing, and (ii) 60% in the event that the Registration Statement becomes effective within 120 days from the Closing. 14 At our option, we may prepay a portion of the Notes in the event that no event of default exists, there are a sufficient number of shares available for conversion of the Notes and the market price is at or below $.25 per share. In addition, in the event that the average daily price of the common stock, as reported by the reporting service, for each day of the month ending on any determination date is below $.32, we may prepay a portion of the outstanding principal amount of the Notes equal to 104% of the principal amount hereof divided by thirty-six (36) plus one month's interest. Exercise of this option will stay all conversions for the following month. The full principal amount of the Notes is due upon default under the terms of Notes. In addition, we have granted the Investors a security interest in substantially all of our assets and intellectual property as well as registration rights. We simultaneously issued to the Investors seven year warrants to purchase 15,000,000 shares of our common stock at an exercise price of $.30. The Investors have contractually agreed to restrict their ability to convert the Notes and exercise the Warrants and receive shares of our common stock such that the number of shares of our common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of CXAC's common stock. There is no limit to the number of shares that we may be required to issue upon conversion of the Notes as it is dependent upon our share price, which varies from day to day. This could cause significant downward pressure on the price of our common stock. Off-Balance Sheet Arrangements We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities" (SPEs). Item 3. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, under the supervision and with the participation of our chief executive officer, conducted an evaluation of our "disclosure controls and procedures" (as defined in Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c)). Based on his evaluation, our chief executive officer and chief financial officer have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that all material information required to be filed in this quarterly report on Form 10QSB has been made known to him in a timely fashion. Changes in Internal Controls There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date set forth above. 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings. not applicable. Item 2. Changes in Securities and Use of Proceeds. Not applicable. 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. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Reports on Form 8-K. none (b) Exhibits. none SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 19, 2008 Cross Atlantic Commodities, Inc. By: /s/ Jorge Bravo ------------------------ Jorge Bravo President and Director 16

Cross Atlantic Commodities, Inc. 10-Q