U.S.
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-QSB


(Mark
One)





[x]
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d)OF
      THE SECURITIES EXCHANGE ACT OF 1934





For
the quarterly period ended May 31, 2008








[
       ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13OR
      15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the transition period from _______________ to _______________








Commission
File Number





Edgewater
Foods International, Inc.


(Exact
name of registrant as specified in its charter)





Nevada
            
            20-3113571(State
      or other jurisdiction
              of
      incorporation or organization)
            
            (IRS
      Employer Identification No.)





US
Representative Office 400
Professional Drive, Suite 310, Gaithersburg, Maryland
20878


(Address
of principal executive offices (zip code))





(250)
757-9811


(Issuer's telephone
number)





(Former
address)





Check
whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X ] No [ ]





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act of 1934) Yes [  ] No
[X]





As
of July 15, 2008 there were 24,479,150 shares of Common Stock, par value $0.0001
outstanding, 7,773,998 shares of Series A Preferred Stock, par value is $.001,
207 shares of Series B Preferred Stock, par value is $.001, 747,870 shares of
Series C Preferred Stock, par value is $.001 and 304,558 shares of Series D
Preferred Stock, par value is $.001.























TABLE
OF CONTENTS





PART
      I - FINANCIAL INFORMATIONItem
      1.  Financial StatementsUnaudited
      Consolidated Balance Sheet at May 31, 2008
            3Unaudited
      Consolidated Statements of Operations for the three and nine months ended
      May 31, 2008 and May 31, 2007
            4Unaudited
      Consolidated Statements of Cash Flows for thenine
      months ended May 31, 2008 and May 31, 2007
            5Unaudited
      Notes to Consolidated Financial Statements
            6Item
      2.  Management’s Discussion and Analysis or Plan of
      Operation
            19Item
      3.  Controls and Procedures
            25PART
      II – OTHER INFORMATIONItem
      1.  Legal Proceedings
            26Item
      2.  Unregistered Sales of Equity Securities And Use Of
      Proceeds
            26Item
      3.  Defaults Upon Senior Securities
            27Item
      4.  Submission Of Matters To A Vote Of Security
      Holders
            27Item
      5.  Other Information
            27Item
      6.  Exhibits
            27





2





PART
I – FINANCIAL INFORMATION





EDGEWATER
      FOODS INTERNATIONAL, INC.CONSOLIDATED
      BALANCE SHEETMAY
      31,2008(unaudited)2008ASSETSCurrent
      assets:Cash
            
            $
            252,899Accounts
      receivable, net
            
            
            95,800Inventory
            
            
            2,358,552Other
      current assets
            
            
            71,236Total
      current assets
            
            
            2,778,487Property,
      plant and equipment, net
            
            
            4,198,830Loans
      receivable, related party
            
            
            116,988Investments
      in other assets
            
            
            4,031Total
      assets
            
            $
            7,098,336LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Short
      term debt
            
            $
            117,626Line
      of credit
            
            
            78,403Current
      portion of long term debt
            
            
            453,537Accounts
      payable and accrued liabilities
            
            
            1,339,822Total
      current liabilities
            
            
            1,989,388Long
      term debt, net current portion
            
            
            522,373Total
      liabilities
            
            
            2,511,761Stockholders'
      equitySeries
      A Preferred  stock, par $0.001, 10,000,000
            
            
            7,774authorized,
      7,773,998 issued and outstandingSeries
      B Preferred  stock, par $0.001, 220
            
            
            -authorized,
      207 issued and outstandingSeries
      C Preferred  stock, par $0.001, 1,000,000
            
            
            748authorized,
      747,870 issued and outstandingCommon
      stock, par $0.0001, 100,000,000 authorized,
            
            
            2,40324,029,332
      issued and outstanding




Additional
      paid in capital
            
            
            25,318,548Accumulated
      deficit
            
            
            (20,873,739
            )Accumulated
      other comprehensive income (loss) -foreign
      exchange adjustment
            
            
            130,841Total
      stockholders' equity
            
            
            4,586,575Total
      liabilities and stockholders' equity
            
            $
            7,098,336
















See
accompanying notes to consolidated financial statements


3


EDGEWATER
      FOODS INTERNATIONAL, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONSTHREE
      AND NINE MONTHS ENDED MAY 31THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDMAY
      31,
            
            
            MAY
      31,2008
            
            
            2007
            
            
            2008
            
            
            2007(unaudited)
            
            
            (unaudited)
            
            
            (unaudited)
            
            
            (unaudited)Revenue
            
            $
            264,942
            
            
            $
            128,925
            
            
            $
            1,059,907
            
            
            $
            434,324Cost
      of goods sold
            
            
            489,081
            
            
            
            187,382
            
            
            
            1,517,352
            
            
            
            653,150Gross
      profit (loss)
            
            
            (224,139
            )
            
            
            (58,457
            )
            
            
            (457,445
            )
            
            
            (218,826
            )Expenses:General
      and administrative expenses
            
            
            674,196
            
            
            
            332,673
            
            
            
            2,158,896
            
            
            
            753,399Salaries
      and benefits
            
            
            98,130
            
            
            
            78,040
            
            
            
            286,622
            
            
            
            238,650Total
      operating expenses
            
            
            (772,326
            )
            
            
            (410,713
            )
            
            
            (2,445,518
            )
            
            
            (992,049
            )Loss
      from operations
            
            
            (996,465
            )
            
            
            (469,170
            )
            
            
            (2,902,963
            )
            
            
            (1,210,875
            )Other
      income (expense):Interest
      (expense), net
            
            
            (6,762
            )
            
            
            (2,499
            )
            
            
            (63
            )
            
            
            (14,135
            )Change
      in fair value of warrants
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            5,826,630Other
      income (expense)
            
            
            (59,763
            )
            
            
            6,984
            
            
            
            31,453
            
            
            
            168,241Total
      other income (expense), net
            
            
            (66,525
            )
            
            
            4,485
            
            
            
            31,390
            
            
            
            5,980,736Net
      income (loss)
            
            
            (1,062,990
            )
            
            
            (464,685
            )
            
            
            (2,871,573
            )
            
            
            4,769,861Dividend
      on preferred stock
            
            
            -
            
            
            
            -
            
            
            
            (310,476
            )
            
            
            (234,497
            )




Deemed
      dividend for beneficialconversion
      feature
            
            
            -
            
            
            
            -
            
            
            
            (163,386
            )
            
            
            -Net
      income (loss) applicable tocommon
      shareholders
            
            
            (1,062,990
            )
            
            
            (464,685
            )
            
            
            (3,345,435
            )
            
            
            4,535,364Foreign
      currency translation
            
            
            (61,950
            )
            
            
            218,058
            
            
            
            236,385
            
            
            
            127,295Accumulated
      other comprehensiveincome
      (loss)
            
            $
            (1,124,940
            )
            
            $
            (246,627
            )
            
            $
            (3,109,050
            )
            
            $
            4,662,659Net
      income (loss) per shareBasic
      and diluted
            
            $
            (0.04
            )
            
            $
            (0.02
            )
            
            $
            (0.14
            )
            
            $
            0.21Weighted
      average shares outstandingBasic
      and diluted
            
            
            24,014,607
            
            
            
            22,703,407
            
            
            
            23,880,083
            
            
            
            21,634,417



















See
accompanying notes consolidated to financial statements


4





EDGEWATER
      FOODS INTERNATIONAL, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSNINE
      MONTHS ENDED MAY 31, 2008 and 20072008
            
            
            2007(unaudited)
            
            
            (unaudited)Cash
      flows from operating activities:Net
      income (loss)
            
            $
            (2,871,573
            )
            
            $
            4,769,861Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            429,437
            
            
            
            249,560Changes
      in fair value of warrants
            
            
            -
            
            
            
            (5,826,630
            )Stock
      option expense
            
            
            1,486,352
            
            
            
            228,353Common
      stock issued for services
            
            
            87,151
            
            
            
            -Gain
      on disposal of debt
            
            
            -
            
            
            
            (158,728
            )Changes
      in current assets and liabilities:Accounts
      receivable
            
            
            (22,377
            )
            
            
            16,376Prepaid
      expenses
            
            
            -
            
            
            
            -Other
      current assets
            
            
            (9,994
            )
            
            
            (3,985
            )Loan
      receivable
            
            
            (34,728
            )
            
            
            (49,828
            )Inventory
            
            
            (531,039
            )
            
            
            (453,931
            )Accounts
      payable
            
            
            618,529
            
            
            
            60,582Net
      cash used in operating activities
            
            
            (848,242
            )
            
            
            (1,168,370
            )Cash
      flows from investing activities:Purchase
      of property, plant and equipment
            
            
            (1,460,178
            )
            
            
            (1,196,055
            )Net
      cash used in investing activities
            
            
            (1,460,178
            )
            
            
            (1,196,055
            )Cash
      flows from financing activities:Net
      proceeds from line of credit
            
            
            77,798
            
            
            
            -Proceeds
      from short term debt
            
            
            -
            
            
            
            3,175Payment
      of short term debt
            
            
            (827
            )
            
            
            (193,405
            )Proceeds
      from long term debt
            
            
            30,000
            
            
            
            233,106Payment
      of long term debt
            
            
            (110,414
            )
            
            
            (185,694
            )Common
      stock issued for cash
            
            
            -
            
            
            
            1,083,239Preferred
      stock issued for cash
            
            
            800,648
            
            
            
            1,970,701Net
      cash provided by financing activities
            
            
            797,205
            
            
            
            2,911,122Foreign
      currency translation effect
            
            
            107,246
            
            
            
            79,747Net
      increase (decrease) in cash
            
            
            (1,403,969
            )
            
            
            626,444





Cash,
      beginning of period
            1,656,868
            1,816,742Cash,
      end of period
            $         252,899
            
            $
            2,443,186Supplemental
      disclosure of cash flow informationNet
      cash paidInterest
            $                    -
            
            $
            25,000Income
      taxes
            $                    -
            
            $
            -Supplemental
      disclosure of non-cash flow informationIssuance
      of stock for dividends
            $         310,476
            
            $
            234,497Warrant
      liability incurred in connection with financing
            $                    -
            
            $
            4,116,739Reclassification
      of warrant liability
            $                    -
            
            $
            (20,449,559)













See
accompanying notes consolidated to financial statements


5





EDGEWATER
FOODS INTERNATIONAL, INC.




NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





Note
1.  Basis of Presentation, Organization and Nature of
Operations





Edgewater
Foods International Inc., a Nevada Corporation, is the parent company of Island
Scallops Ltd., a Vancouver Island aquaculture company. Island Scallops was
established in 1989 and for over 18 years has successfully operated a scallop
farming and marine hatchery business. Island Scallops is dedicated to the
farming, processing and marketing of high quality, high value marine species:
scallops and sablefish.





Note
2.  Significant Accounting Policies





Basis
of Presentation





Our
unaudited consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America for
reporting interim financial information and the rules and regulations of the
Securities and Exchange Commission. In management’s opinion, all adjustments
necessary for a fair presentation of the financial position and results of
operations for the periods presented have been included. All such adjustments
are of a normal recurring nature. These unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements included in our Annual Report on Form 10-KSB for the year ended
August 31, 2007. Results of operations for the three months and nine months
ended May 31, 2008 and May 31, 2007, are not necessarily indicative of the
operating results for the full accounting year or any future
period.





Inventory





Edgewater
maintains inventories of raw materials for its aquaculture products, of biomass
(inventory of live aquaculture product being actively cultivated), and of
finished goods (aquaculture product ready for sale).





Inventories
are reported at the lesser of cost or estimated net realizable
value.  Biomass and finished goods includes direct and reasonably
attributable indirect production costs related to hatchery, cultivation,
harvesting, and processing activities.  Carrying costs per unit are
determined on a weighted average basis.





At May
31, 2008, inventory consisted of the following:





Biomass
(Scallops):                $
2,358,552








6


Reclassifications





Certain
2007 amounts have been reclassified to conform to 2008
presentation.








Note
3.  Property, Plant and Equipment





Property,
plant and equipment at May 31, 2008, consisted of the following:


Cost
            
            
            Accumulated
      Amortization
            
            
            Net
      Book ValueLand
            
            $
            253,955
            
            
            $
            -
            
            
            $
            253,955Buildings
            
            
            1,224,551
            
            
            
            (304,072
            )
            
            
            920,479Seawater
      piping and  tanks
            
            
            688,214
            
            
            
            (355,560
            )
            
            
            332,654Boats
      and barge
            
            
            663,537
            
            
            
            (186,827
            )
            
            
            476,710Field
      equipment
            
            
            3,528,574
            
            
            
            (1,416,671
            )
            
            
            2,111,903Office
      equipment
            
            
            26,120
            
            
            
            (15,720
            )
            
            
            10,400Vehicles
            
            
            107,837
            
            
            
            (49,710
            )
            
            
            58,127Computer
      equipment
            
            
            57,340
            
            
            
            (22,738
            )
            
            
            34,602$
            6,550,128
            
            
            $
            (2,351,298
            )
            
            $
            4,198,830








Depreciation
expenses for the nine months ended May 31, 2008 and May 31, 2007 was $429,437
and $249,560, respectively.





Note
4.  Related Party Transactions





We have
five secured notes receivable from RKS Laboratories, Inc., a Vancouver research
and development company that is working towards developing superior strains of
scallops with beneficial traits such as higher meat yield and rapid
growth.  Robert Saunders, our President and CEO, owns 100% of
RKS.  The first  non-interest bearing notes in the combined
amount of $78,797, which are secured by all assets of RKS, were originally due
on or before various dates between June 15, 2007 and May 31, 2008, but were
recently extended to August 31, 2008.  The second non-interest bearing note
in the amount of $9,150, which is also secured by all assets of RKS, is due on
or before August 31, 2008.  The third non-interest bearing note in the
amount of $5,716, which is also secured by all assets of RKS, is due on or
before November 30, 2008.  These amounts are included in assets as
loans receivable.  The fourth non-interest bearing note in the amount of
$20,904, which is also secured by all assets of RKS, is due on or before
February 28, 2009.  The fifth non-interest bearing note in the amount
of $2,421, which is also secured by all assets of RKS, is due on or before May
31, 2009.  These amounts are included in assets as loans
receivable.







7




Note
5.  Investments in Tenures




Edgewater
carries its Investment in Tenures at $4,031 at May 31, 2008.  This
amount represents the carrying costs of certain shellfish tenures acquired by
Island Scallops’ subsidiary, 377332 B.C. Ltd.  Shellfish tenures are
government-granted rights allowing limited use of offshore waters for the
purposes of cultivation of shellfish.  The granting of shellfish
tenure rights are the responsibility of the Provincial (British Columbia)
Government and not the Canadian Federal Government.  As such, the
government assistance that we receive via loan agreement with various Federal
Agencies has no effect on our ability to renew and/or modify these tenure
agreements.  The tenure held by 377332 B.C. Ltd. has an expiration
date of July 10, 2021.  Other shellfish tenures held by Edgewater and
our subsidiaries have expiration dates ranging from 2021 to 2024.





These
tenures are considered to have an indefinite useful life because renewal on
expiration is anticipated, and are not subject to amortization.





Note
6.  Accounts Payable and Accrued Liabilities





Included
in accounts payable and accrued liabilities are balances outstanding related to
credit cards held in the name of one of our shareholders totaling $55,434 at May
31, 2008.  We used these credit cards as a means of short term
financing and incur interest charges on such unpaid balances.





Included
in accounts payable and accrued liabilities at May 31, 2008, is an amount of
$132,882 in respect to an agreement to purchase geoduck seed from us (for
additional information see Note 11 – Contingent Liabilities).





Included
in accounts payable and accrued liabilities at May 31, 2008, is $99,401 of
principal due and interest accrued in respect to the loan from the National
Research Council of Canada Industrial Research Assistance Program (see Note 9 –
Long Term Debt for additional information).





Note
7.  Short Term Debt





Included
in short-term debt at May 31, 2008, are estimated royalties of $67,071 payable
to a third party from whom the former sole shareholder of Island Scallops
originally acquired the shares of Island Scallops.  The 1992 share
purchase agreement (for Island Scallops) provided that the third party was to
receive 3% of revenues from Island Scallops as earned, on a quarterly basis,
throughout the period from December 1, 1992 to November 30, 2002.  The
third party holds a first charge (or first lien) over our inventory (including
broodstock) in the amount of $352,716 in support of its royalty
entitlement.  The third party has not taken further action to enforce
payment of the arrears liability.  To date, we have accrued the entire
balance of $67,071 as a current liability and we plan to pay it with available
funds in the near future.





Included
in short-term notes payable at May 31, 2008, is an unsecured non-interest
bearing demand loan payable to an individual with a face value of $50,555 and no
specific
terms of repayment.  However, the lender had informally requested that
the loan be repaid in full by October 6, 2008.


8





Note
8.  Line of Credit





Included
in line of credit at May 31, 2008 are two bank lines of credit.  The
first line is a $75,582 bank line of credit for Island Scallops.  The
interest rate on the line of credit is 7.5% as of May 31, 2008.  At
May 31, 2008, the balance due is $73,364. The second line is a $5,039 bank line
of credit for Island Scallops.  The interest rate on the line of
credit is 6.5% as of May 31, 2008.  At May 31, 2008, the balance due
is $5,039.








Note
9.  Long Term Debt





These
consolidated financial statements include a Western Diversification Program
non-interest bearing loan to Island Scallops that requires repayment equal to
12% of gross revenues from our scallop sales, payable semi-annually, with no
specified due date.  In September 2006, we entered into a Settlement
Agreement with the Minister of Western Economic Diversification to amend the
repayment terms of our non-interest bearing loan of $597,103 (to Island
Scallops) with the Western Diversification Program. We agreed to repay the
$170,981 due as of August 31, 2006, in accordance with a payment schedule
beginning with a payment of $62,736 in September 2006 and continuing with
monthly payments of roughly $9,840 until August 15, 2007.  The parties
agreed that the remaining balance of the $426,122 shall be repaid via quarterly
payments equal to the greater of $30,856 or 4% of the gross scallop sales
starting in the quarter beginning on June 1, 2007 and each quarter thereafter
until the balance is repaid.  Under the terms of this agreement, the
first quarter payment was due on September 30, 2007.  At May 31, 2008,
the balance due is $381,286, of which $141,086 is reflected in the current
portion of long term debt and the remaining balance of $240,200 is reflected as
long term debt.  In June of 2008, the Western Diversification Program
agreed to allow Island Scallops to suspend repayment until October 2008 and
modify the terms thereafter (see Note 14 – Subsequent Events for additional
information).





These
consolidated financial statements include Island Scallops’ unsecured loan from
the National Research Council of Canada Industrial Research Assistance Program
which requires quarterly payments commencing March 1, 2003 equal to 3% of gross
revenues of Island Scallops until the earlier of full repayment or December 1,
2012.  The amount repayable is up to 150% of the original advance of
$444,503, if repayment is before December 1, 2007.  If at December 1,
2012, Island Scallops has not earned sufficient revenues to be required to repay
the original loan amount, the remaining portion of the loan is to be
forgiven.  Amounts currently due at May 31, 2008, bear interest at a
rate of 1% per month.  At May 31, 2008, Island Scallops is in arrears
in respect to the payment of these amounts.  The National Council of
Canada Industrial Research Assistance Program has requested payment of the
$99,401 that they claim is owed under this loan agreement.  As such,
at May 31, 2008, $99,401 is included in accounts payable and accrued
liabilities and the remaining full principal balance of $312,451 is reflected in
the current portion of long term debt. We are seeking to renegotiate the
repayment terms.


9





These
consolidated financial statements include Island Scallop’s mortgage loan
repayable at $2,802 per month (currently interest only calculated at 10.5% per
annum).  The loan is secured by a second charge on the real property
of Island Scallops. At May 31, 2008, the principal due is $282,173.





Note
10.  Series C Preferred Stock Financing





We
completed a private equity financing of $897,444 on November 5, 2007, with one
accredited investor.  Net proceeds from the offering are approximately
$801,000.  As part of this financing, the investor returned the Series
J Warrant, Series D Warrant, Series E Warrant and Series F Warrant that they
received as a result of our Series B financing completed on January 16,
2007.  Pursuant to this financing, we issued 747,870 shares of our
Series C Preferred Stock,  par value $0.001 per share and the investor
also received one of each of the following warrants: (i) Series A Warrant, (ii)
Series B Warrant, (iii) Series C Warrant, (iv) Series J Warrant, (v) Series D
Warrant, (vi) Series E Warrant, and (vii) Series F Warrant, each to purchase a
number of shares of common stock equal to fifty percent (50%) of the number of
shares of common stock issuable upon conversion of the purchaser’s preferred
stock, except for the Series J Warrants, which shall entitle the investor to
purchase a number of shares of our Series C Preferred Stock equal to one hundred
percent (100%) of the number of Series C Preferred Stock it received in the
financing.  Each of the Warrants has a term of 5 years, except for the
Series J Warrants, which have a term of 1 year.  Each share of the
preferred stock is convertible into one fully paid and nonassessable share of
our common stock at an initial conversion price of $1.20, subject to
adjustment.  We are obligated to file a registration statement on or
before December 5, 2007 providing for the resale of the shares of common stock
issuable upon conversion of the preferred stock and the shares of common stock
underlying the Warrants and underlying the preferred stock issuable upon
exercise of the Warrants.  In connection with the financing, our
management agreed not to sell any of our securities owned by them, their
affiliates or anyone they have influence over until the registration statement
has been effective for nine months.    In connection with
the financing, a deemed dividend was recorded for $163,386 based on the relative
fair values of the preferred shares and warrants.





In
connection with this financing, we paid cash compensation to a placement
consultant in the amount of approximately $72,000 and issued him placement
consultant warrants, exercisable for a period of three years from the date of
issue. The placement consultant's warrants allow him to purchase up to (i)
74,787 shares of Series C Preferred Stock, and each of the following warrants,
which are identical to the warrants issued to the investors of the financing:
(i) Series A Warrant, (ii) Series B Warrant, (iii) Series C Warrant, (iv) Series
D Warrant, (v) Series J Warrant, (vi) Series E Warrant, and (vii) Series F
Warrant, each to purchase 37,393 shares of common stock, except for the Series J
Warrants, which shall entitle the Consultant to purchase 74,787 shares of our
Series C Preferred Stock.


10


The net
proceeds from the financing are to be used for working capital and general
corporate purposes.








Note
11.  Contingent Liabilities





Our
wholly owned subsidiary, Island Scallops, entered into an agreement in 1998 with
two parties, under which Island Scallops was to produce and sell geoduck seed to
the two parties. Island Scallops received advance payments from each of the two
parties in 2002 of approximately $64,140 and recognized related revenue of
$43,705 in respect to seed delivered in 2002. The balance of the deposits
received (advance payments), net of sales, totaling $132,882, is included in
accounts payable and accrued liabilities.





Management’s
position is that the two parties violated the terms of the agreement and we are
therefore entitled to retain the balance of the deposits.  Per the
terms of the original agreement, Island Scallops was entitled to make up any
shortfall in the product produced in the following year.  Although
product was available and offered by Island Scallops in the following year, the
two parties refused to honor the terms of the agreement and would not accept the
product (to make up the shortfall) in the following year.





As of
August 31, 2004, one of the two parties made claims that Island Scallops owed it
an amount totaling $88,925.   This particular party believed that
the agreement required Island Scallops to deliver the product in year one and
did not allow Island Scallops to make up any shortfall with product produced in
the following year.The
balance included in accounts payable and accrued liabilities related to this
party is $38,767.





Any
additional liability to us, or any reduction of the currently recognized
liability, in respect to these deposits will be recorded at the time a
conclusion to this matter can be determined.





Neither
we nor our wholly owned subsidiary maintain insurance covering the replacement
of our inventory. Consequently, we are exposed to financial losses or failure as
a result of this risk.





Note
12.  Stock-Compensation Expense





On
October 31, 2007, we issued 25,000 shares of common stock to Pacific Crab
Seafood Company, Inc. as part of the 100,000 shares of our common stock that our
Board of Directors previously approved for the consulting and marketing services
that they will provide to us.  The remaining 35,000 shares will be
issued in equal monthly installments of 5,000 shares during the remaining term
of the agreement.  The shares were issued in accordance with the
exemption from the registration provisions of the Securities Act of 1933, as
amended, provided by Section 4(2) of such Act for issuances not involving any
public offering.  The 25,000 shares issued were valued at $1.28 per
share, the closing bid of our common stock on the date of
issue.  Therefore, total aggregate value of the transaction
recognized by the company was $32,000. Going forward the cost of these shares
will be expense at current market price as they are
issued.


11





On
November 30, 2007 we issued 5,000 shares of common stock to Pacific Crab Seafood
Company, Inc. as part of the 100,000 shares of our common stock that our Board
of Directors previously approved for the consulting and marketing services that
they will provide to us.  The remaining 30,000 shares will be issued
in equal monthly installments of 5,000 shares during the remaining term of the
agreement.  The shares were issued in accordance with the exemption
from the registration provisions of the Securities Act of 1933, as amended,
provided by Section 4(2) of such Act for issuances not involving any public
offering.  The 5,000 shares issued were valued at $1.25 per share, the
closing bid of our common stock on the date of issue.  Therefore,
total aggregate value of the transaction recognized by the company was $6,250.
Going forward the cost of these shares will be expense at current market price
as they are issued.





On
December 31, 2007, we issued 172,750 shares of common stock to the investors of
our April 12, May 30, June 30 and July 11, 2006 financings as payment of the
semi-annual dividend (8% per annum) per the terms of the Certificate of
Designation of the Relative Rights and Preferences of the Series A Convertible
Preferred Stock. The number of shares issued was based on the dividend payment
at a rate of 8% per annum (subject to a pro rata adjustment) of the Liquidation
Preference Amount ($1,416,000 for the April 12 financing, $1,500,000 for the May
30 financing, $1,550,000 for the June 30 financing and $1,450,000 for the July
11 financing) payable in shares equal to 90% of the quotient of (i) the dividend
payment divided by (ii) the average of the VWAP for the 20 trading days
immediately preceding the date the dividend payment is due, but in no event less
than $0.65.  As such, the shares were valued at approximately $233,500
and the total aggregate value of the transaction was recorded as a preferred
stock dividend.





On
December 31, 2007, we issued 45,999 shares of common stock to the investors of
our January 16, 2007 financing as payment of the semi-annual dividend (6% per
annum) per the terms of the Certificate of Designation of the Relative Rights
and Preferences of the Series B Convertible Preferred Stock (see Note 9 – Series
B Preferred Shares Financing for additional information on the Series B
Convertible Preferred Stock).  The number of shares issued was based
on the dividend payment at a rate of 6% per annum (subject to a pro rata
adjustment) of the Liquidation Preference Amount ($1,416,000) payable in shares
equal to 90% of the quotient of (i) the dividend payment divided by (ii) the
average of the VWAP for the 20 trading days immediately preceding the date the
dividend payment is due, but in no event less than $0.65.  As such,
the shares were valued at approximately $63,000 and the total aggregate value of
the transaction was recorded as a preferred stock dividend.





On
December 31, 2007, we issued 17,883 shares of common stock to the investors of
our November 5, 2007 financing as payment of the semi-annual dividend (6% per
annum) per the terms of the Certificate of Designation of the Relative Rights
and Preferences of the Series C Convertible Preferred Stock (see Note 9 – Series
B Preferred Shares Financing for additional information on the Series C
Convertible Preferred Stock).  The number of


12


shares
issued was based on the dividend payment at a rate of 6% per annum (subject to a
pro rata adjustment) of the Liquidation Preference Amount (approximately
$897,000) payable in shares equal to 90% of the quotient of (i) the dividend
payment divided by (ii) the average of the VWAP for the 20 trading days
immediately preceding the date the dividend payment is due, but in no event less
than $0.65.  As such, the shares were valued at approximately $24,000
and the total aggregate value of the transaction was recorded as a preferred
stock dividend.





On
January 1, 2008 we issued 5,000 shares of common stock to Pacific Crab Seafood
Company, Inc. as part of the 100,000 shares of our common stock that our Board
of Directors previously approved for the consulting and marketing services that
they will provide to us.  The remaining 25,000 shares will be issued
in equal monthly installments of 5,000 shares during the remaining term of the
agreement.  The shares were issued in accordance with the exemption
from the registration provisions of the Securities Act of 1933, as amended,
provided by Section 4(2) of such Act for issuances not involving any public
offering.  The 5,000 shares issued were valued at $1.35 per share, the
closing bid of our common stock on the date of issue.  Therefore,
total aggregate value of the transaction recognized by the company was $6,750.
Going forward the cost of these shares will be expense at current market price
as they are issued.





On
February 1, 2008 we issued 5,000 shares of common stock to Pacific Crab Seafood
Company, Inc. as part of the 100,000 shares of our common stock that our Board
of Directors previously approved for the consulting and marketing services that
they will provide to us.  The remaining 20,000 shares will be issued
in equal monthly installments of 5,000 shares during the remaining term of the
agreement.  The shares were issued in accordance with the exemption
from the registration provisions of the Securities Act of 1933, as amended,
provided by Section 4(2) of such Act for issuances not involving any public
offering.  The 5,000 shares issued were valued at $0.98 per share, the
closing bid of our common stock on the date of issue.  Therefore,
total aggregate value of the transaction recognized by the company was $4,900.
Going forward the cost of these shares will be expense at current market price
as they are issued.





On March
4, 2008 we issued 5,000 shares of common stock to Pacific Crab Seafood Company,
Inc. as part of the 100,000 shares of our common stock that our Board of
Directors previously approved for the consulting and marketing services that
they will provide to us.  The remaining 15,000 shares will be issued
in equal monthly installments of 5,000 shares during the remaining term of the
agreement.  The shares were issued in accordance with the exemption
from the registration provisions of the Securities Act of 1933, as amended,
provided by Section 4(2) of such Act for issuances not involving any public
offering.  The 5,000 shares issued were valued at $0.95 per share, the
closing bid of our common stock on the date of issue.  Therefore,
total aggregate value of the transaction recognized by the company was $4,750.
Going forward the cost of these shares will be expense at current market price
as they are issued.







13






On April
1, 2008, we issued 5,000 shares of common stock to Pacific Crab Seafood Company,
Inc. as part of the 100,000 shares of our common stock that our Board of Directors
previously approved for the consulting and marketing services that they will
provide to us.  The remaining 10,000 shares will be issued in equal
monthly installments of 5,000 shares during the remaining term of the
agreement.  The shares were issued in accordance with the exemption
from the registration provisions of the Securities Act of 1933, as amended,
provided by Section 4(2) of such Act for issuances not involving any public
offering.  The 5,000 shares issued were valued at $0.95 per share, the
closing bid of our common stock on the date of issue.  Therefore,
total aggregate value of the transaction recognized by the company was $4,750.
Going forward the cost of these shares will be expense at current market price
as they are issued.





On April
1, 2008, we issued 25,000 shares of common stock to Consulting for Strategic
Growth, Inc. as part of the 25,000 shares of our common stock that our Board of
Directors previously approved for the consulting and investor relations services
that they will provide to us.  The shares were issued in accordance
with the exemption from the registration provisions of the Securities Act of
1933, as amended, provided by Section 4(2) of such Act for issuances not
involving any public offering.  The 25,000 shares issued were valued
at $0.95 per share, the closing bid of our common stock on the date of
issue.  Therefore, total aggregate value of the transaction recognized
by the company was $23,750. Going forward the cost of these shares will be
expense at current market price as they are issued.





On May
19, 2008, we issued 5,000 shares of common stock to Pacific Crab Seafood
Company, Inc. as part of the 100,000 shares of our common stock that our Board
of Directors previously approved for the consulting and marketing services that
they will provide to us.  The remaining 5,000 shares will be issued in
equal monthly installments of 5,000 shares during the remaining term of the
agreement.  The shares were issued in accordance with the exemption
from the registration provisions of the Securities Act of 1933, as amended,
provided by Section 4(2) of such Act for issuances not involving any public
offering.  The 5,000 shares issued were valued at $0.80 per share, the
closing bid of our common stock on the date of issue.  Therefore,
total aggregate value of the transaction recognized by the company was $4,000.
Going forward the cost of these shares will be expense at current market price
as they are issued.








Stock
Options





In August
2005, our Board of Directors approved the “Edgewater Foods International 2005
Equity Incentive Plan.” The Board of Directors reserved 5,000,000 shares of our
common stock to be issued in the form of incentive and/or non-qualified stock
options for employees, directors and consultants to Edgewater. As of May 31,
2008, our Board of Directors had authorized the issuance of 2,962,000 options to
employees.





During
the nine months ended May 31, 2008 and May 31, 2007, $1,486,352 and $228,353 in
stock option expenses were recognized respectively.  In the subsequent
period through August 31, 2008, $294,530 in stock option expense will be
recognized.  An additional, $6,789 will be recognized in the three
month period ending November 30, 2009.


14







Stock
option activity during the period ending May 31, 2008, was as
follows:





Number
      of Shares
            
            
            Weighted
      Average Exercise PriceOutstanding,
      August 31, 2007
            
            
            2,962,000
            
            
            
            1.26Granted
            
            
            30,000
            
            
            
            1.21Exercised
            
            
            --
            
            
            
            --Forfeited
            
            
            (400,000
            )
            
            
            1.50Expired
            
            
            --
            
            
            
            --Outstanding,
      May 31, 2008
            
            
            2,592,000
            
            
            $
            1.23Exercisable,
      May 31, 2008
            
            
            472,000
            
            
            $
            1.36





At May
31, 2008, 300,000 of the exercisable options expire in May 2010, 62,000 of the
exercisable options expire in August 2010 with the remaining balance of 220,000
having an expiration date of August 2015.





Warrant
activity during the period ending May 31, 2008, was as follows:





Number
      ofWarrants
            
            Weighted
      Average Exercise PriceOutstanding,
      August 31, 2007
            28,086,252
            
            1.69Granted
            3,028,873
            
            2.00Exercised
            --
            
            --Forfeited
            --
            
            --Returned
            (3,739,350)
            
            1.78Expired
            (304,347)
            
            --Outstanding,
      May 31, 2008
            27,071,428
            $
            1.73Exercisable,
      May 31, 2008
            27,071,428
            $
            1.73





At May
31, 2008, if all options and warrants were exercised and all shares of preferred
stock were converted, the company would have 64,014,715 shares of common stock
outstanding.





Note
13.  Going Concern





15




Prior to
the completion of our initial Preferred Stock Financing, working capital had
been primarily financed with various forms of debt.  We have suffered
operating losses since inception in our efforts to establish and execute our
business strategy.  As of May 31, 2008, we had a cash balance of
approximately $253,000.  After the completion of the recent Series D
preferred financing (see Note 13 – Subsequent Events for additional information),
management believes that we have adequate funds to maintain our business
operations into our 2009 fiscal year and/or until we become cash flow positive,
but we continued to suffer operational losses in the first nine months of our
2008 fiscal year. Until our operations are able to demonstrate and maintain
positive cash flows, we may require additional working capital to fund our
ongoing operations and execute our business strategy of expanding our
operations.  In fact,   based on our current estimates
of future sales and capital costs of expanding our farms in order to increase
future crop yields, we will require additional financings to continue our
current rate of expansion.  Based on these factors, there is
substantial doubt about our ability to continue as a going concern.





The
financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
we be unable to continue as a going concern.  Our ability to continue
as a going concern is dependent upon our ability to generate sufficient cash
flows to meet our obligations on a timely basis and ultimately to attain
profitability.  Our management intends to obtain working capital
through operations and to seek additional funding through debt and equity
offerings to help fund our operations as we expand.  There is no
assurance that we will be successful in our efforts to raise additional working
capital or achieve profitable operations.  The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.





Note
14.  Subsequent Events





On May
29, 2008, we signed a Series D Convertible Preferred Stock Purchase Agreement
with one accredited investor whereby such investor was
committed, subject to the satisfaction of certain closing conditions, to
purchase $1,500,000 of our Series D Preferred Shares.  Pursuant
to the Purchase Agreement, this investor is also committed to investing an
additional $500,000 no later than 90 days from the initial closing date provided
that we have hired a chief operating officer acceptable to such
investor.  Pursuant to the Purchase Agreement, additional investments
of up to an aggregate of $2,000,000 of Series D Preferred Shares may be made in
subsequent closings to be completed no later than June 30, 2008.  As
part of this financing, we also entered into an Exchange Agreement with the
investor and certain other holders of our outstanding warrants, whereby the
Series J Warrant that the investor received pursuant to the financing we closed
on November 5, 2007, as disclosed in the Form 8-K filed on November 7, 2007,
will be cancelled, and the investor and certain other holders of our outstanding
warrants shall return to us warrants to purchase an aggregate of 24,941,605
shares of our common stock, which the investor and such other warrant holders
received pursuant to the financings we closed on: (i) April 12, 2006, as
disclosed in our Form 8-K filed on April 14, 2007; (ii) May 30, 2006, as
disclosed in our Form 8-K filed on May 30, 2006; and (iii) November 5, 2007, as
disclosed in our Form 8-K filed on November 7, 2007, in exchange for an
aggregate of 267,059 Series D Preferred Shares. The net proceeds from the
financing are to be used for supplies, processing plant upgrades, working
capital and general corporate purposes.  All of the closing conditions
were satisfied
and accordingly we completed the private equity financing and received net
proceeds of approximately $1.46 million on June 11,
2008.


16





Pursuant
to the financing, we filed a Certificate of Designation of the Relative Rights
and Preferences of our Series D Convertible Preferred Stock on May 29,
2008.  The Certificate of Designation designates 380,000 shares of our
authorized preferred stock as Series D Convertible Preferred Stock, which ranks
junior to our Series A, Series B and Series C Convertible Preferred Stock, but
senior to our common stock.  Except with respect to specified
transactions that may affect the rights, preferences, privileges or voting power
of the Series D Preferred Shares and except as otherwise required by Nevada law,
the Series D Preferred Shares have no voting rights.  At any time on
or after the issuance date, the holder of any Series D Preferred Shares may, at
the holder's option, elect to convert all or any portion of the Series D
Preferred Shares held by such person into a number of fully paid and
nonassessable shares of common stock equal to the quotient of (i) the stated
value ($40.00 per share) of the Series D Preferred Shares being converted
divided by (ii) the conversion price, which initially is $0.80 per share,
subject to certain adjustments.  In the event of our liquidation,
dissolution or winding up, the holders shall receive a liquidation preference
equal to 120% of the stated value per Series D Preferred Share.





In June
of 2008, the Western Diversification Program agreed to allow Island Scallops to
suspend repayment of the roughly $381,000 loan until October
2008.  Starting in October 2008, Island Scallops will begin repaying
the loan at a rate of $10,078 per month for five months.   Once
Island Scallops has completed these five months of loan payments are completed,
the Western Diversification Program has  agreed to base quarterly
repayments on 3% of the gross scallop sales (as opposed to the originally agreed
upon 4%).





On June
20, 2008, we issued the final 5,000 share installment of common stock to Pacific
Crab Seafood Company, Inc. as part of the 100,000 shares of our common stock
that our Board of Directors previously approved for the consulting and marketing
services that they will provide to us.  The shares were issued in
accordance with the exemption from the registration provisions of the Securities
Act of 1933, as amended, provided by Section 4(2) of such Act for issuances not
involving any public offering.  The 5,000 shares issued were valued at
$0.80 per share, the closing bid of our common stock on the date of
issue.  Therefore, total aggregate value of the transaction recognized
by the company was $4,000. Going forward the cost of these shares will be
expense at current market price as they are issued.








On June
30, 2008, we issued 322,228 shares of common stock to the investors of our April
12, May 30, June 30 and July 11, 2006 financings as payment of the semi-annual
dividend (8% per annum) per the terms of the Certificate of Designation of the
Relative Rights and Preferences of the Series A Convertible Preferred Stock. The
number of shares issued was based on the dividend payment at a rate of 8% per
annum (subject to a pro rata adjustment) of the Liquidation Preference Amount
($1,416,000 for the April 12 financing, $1,500,000 for the May 30 financing,
$1,550,000 for the June 30 financing and $1,450,000
for the July 11 financing) payable in shares equal to 90% of the quotient of (i)
the dividend payment divided by (ii) the average of the VWAP for the 20 trading
days immediately preceding the date the dividend payment is due, but in no event
less than $0.65.  As such, the shares were valued at approximately
$231,000 and the total aggregate value of the transaction was recorded as a
preferred stock dividend.


17





On June
30, 2008, we issued 85,515 shares of common stock to the investors of our
January 16, 2007 financing as payment of the semi-annual dividend (6% per annum)
per the terms of the Certificate of Designation of the Relative Rights and
Preferences of the Series B Convertible Preferred Stock (see Note 9 – Series B
Preferred Shares Financing for additional information on the Series B
Convertible Preferred Stock).  The number of shares issued was based
on the dividend payment at a rate of 6% per annum (subject to a pro rata
adjustment) of the Liquidation Preference Amount ($1,416,000) payable in shares
equal to 90% of the quotient of (i) the dividend payment divided by (ii) the
average of the VWAP for the 20 trading days immediately preceding the date the
dividend payment is due, but in no event less than $0.65.  As such,
the shares were valued at approximately $62,000 and the total aggregate value of
the transaction was recorded as a preferred stock dividend.





On June
30, 2008, we issued 37,075 shares of common stock to the investors of our
November 5, 2007 financing as payment of the semi-annual dividend (6% per annum)
per the terms of the Certificate of Designation of the Relative Rights and
Preferences of the Series C Convertible Preferred Stock (see Note 9 – Series B
Preferred Shares Financing for additional information on the Series C
Convertible Preferred Stock).  The number of shares issued was based
on the dividend payment at a rate of 6% per annum (subject to a pro rata
adjustment) of the Liquidation Preference Amount (approximately $897,000)
payable in shares equal to 90% of the quotient of (i) the dividend payment
divided by (ii) the average of the VWAP for the 20 trading days immediately
preceding the date the dividend payment is due, but in no event less than
$0.65.  As such, the shares were valued at approximately $27,000 and
the total aggregate value of the transaction was recorded as a preferred stock
dividend.











18


Item
2


MANAGEMENT’S
DISCUSSION AND ANALYSIS





The
following discussion should be read in conjunction with our financial statements
and the notes thereto which appear elsewhere in this report.  The
results shown herein are not necessarily indicative of the results to be
expected in any future periods.  This discussion contains
forward-looking statements based on current expectations, which involve
uncertainties.  Actual results and the timing of events could differ
materially from the forward-looking statements as a result of a number of
factors.  Readers should also carefully review factors set forth in
other reports or documents that we file from time to time with the Securities
and Exchange Commission.





Overview





In the
nine months of our 2008 fiscal year, we continued the harvesting, processing and
sale of our 2005 year class of scallops and continued sorting our 2006 scallop
class and transferring our 2007 year-class scallops, which were still maturing
in our tenured growing sites and on-shore ponds, to larger grow-out nets on our
farm sites.  We also started spawning (and grow-out in our on-shore
nursery ponds) of our 2008 scallop year class.  We refer to the
year-class of scallops based on when the scallops were
spawned.  Generally, the harvest occurs approximately 22 to 24 months
after spawning of the scallops.





During
the first nine months of our 2008 fiscal year, we also continued the new sales
and marketing efforts that were begun in the later stages our 2007 fiscal
year.  Traditionally, we have sold live scallops within the Pacific
Northwest market, but our seafood sale and distribution consultants have begun
to introduce new product lines of fresh meat and a new unique frozen on the
half-shell product that is generating significant interest. We are currently in
the process of expanding our live scallop distribution network into Hong Kong
and the western United States.  During the first three quarters of
2008, we were able to begin distribution into the Hong Kong market and expect
these sales to increase in the upcoming quarters.  We are also in the
process of introducing fresh scallop meat into high end restaurants in Toronto
and Montreal and frozen on the half-shell product into the eastern United
States, Canada and Europe.  In 2008, we expect our overall product
mixture to consist of 40% live scallops, 30% fresh meat, 30% frozen on the
half-shell. This mixture may change if the market prefers one form of our
product over another form.    We had originally planned,
beginning in 2009, to increase the proportion of frozen on the half-shell to
50%, with the remainder of our product allocated 30% to live and 20% to
fresh.  However, based on a recently completed “top-down” review of
operations and initial direct live sales into the western United States, we may
increase the percentage of live product sold because we believe that may enable
us to increase gross margins.  To fully capitalize on the live scallop
market, management is currently investigating the development of live tanks for
holding, display and direct transportation.  We plan to fund the
development of this live tank system via either additional private fundings or
from increasing cash flow.





19


Management
believes that these new marketing efforts, coupled with the recently completed
processing plant will continue yielding significant revenue increases for the
rest of 2008 and continuing thereafter.  The completed processing
plant supplies us with an improved processing facility and will provide us with
several important advantages, including a significantly larger inventory holding
and handling area and the ability to mitigate future weather related harvest
delays to our sales.  We believe that this will lead to expedited sale
processes in the upcoming months.  In addition, recent experience
gained from harvesting and sorting scallops on the new longline systems should
allow for greater future harvesting rates. Also, as a result of the recently
completed operational review, we have indentified areas where we can streamline
operations while continuing to grow our revenues.  Additionally, we
plan on generating additional near term revenues via the sale of scallop and
possibly other shellfish seed.  We are also moving forward with our
continuing discussions with various First Nations1 groups about possible partnerships or joint
ventures on potential farm sites on First Nation owned lands.  This
will provide the company with additional growing areas for scallops and future
joint venture revenues.





In May
2008, we started the expansion of our Bowser farm (or scallop growing
area).  We installed thirteen new “triple” lines that will have the
capacity to handle up to 135,000 scallops per line.  In the coming
months, we will continue to outfit these new 300 meter lines with the necessary
floats and netting required for scallop farming.





During
the continued harvesting of our 2005, sorting of our 2006 scallops classes and
transfer of our 2007 scallop classes, we were able to review our mortality rates
and update our class size projections.  Based on this review and
recent sales, we expect to bring the remaining 2.3 million of our 2005 and 2006
year class scallops to market through the end of December 2008 and possibly into
the beginning of 2009.  Originally, we believed that our 2006 spawning
would yield between 5 and 10 million scallops at full
maturity/harvest.  However, mortality rates were at the higher end of
our projections due to the handling and sorting learning curve associated with
the roll-out of our new longline and anchor system.  Additionally,
problems associated with the timing of moving scallops to large nets (also known
as “ocean timing”) and the density (i.e. number of scallops per net level)
contributed to additional mortality problems.  We anticipate that
survival rates for the future classes, starting with the 2007 scallop class,
will significantly improve due to the addition of more lines and anchors, better
spacing and sorting within each lantern net, experience gained from the sorting
and farming of both the 2005 and 2006 year classes and lessons learned on ocean
timing and scallop density during the handling of our 2006 scallop class. We are
already noticing significant gains in animal survival rates and individual
scallop size in the 2007 class as compared to the 2006 class at a similar point
in its development.  As of our most recent review of our scallop
inventory, we currently believe that our 2007 year class that should yield up to
12 million scallops at full maturity/harvest. We are also preparing to move the
first part of the 2008





1 First
Nations commonly refers to the indigenous peoples in
what is now Canada. There are
currently over 600 recognized First Nations governments or
bands in Canada, roughly half of which are in the provinces of Ontario and British
Columbia.


20


scallops
class from our hatchery ponds and into the ocean farms.  We plan to
conduct at least one additional hatchery spawn and continue to grow and move
2008 scallops from our nursery and into the ocean during the fourth quarter of
2008.





As a
result of a recent review of our business plan and sales and marketing efforts
to date, we currently plan to harvest and sell approximately 12 million
full-size 2007 scallops over the 12 months ending December 2009.  In
addition, we estimate that our 2008 year class will produce 24 million full-size
scallops and our 2009 and 2010 year classes will result in the harvest and sale
of approximately 34 million and 44 million scallops,
respectively.  These classes will be harvested and sold in subsequent
12 month periods following the sales our 2007 year class.  Based on
our current review of sales and marketing conditions, we believe our scallops
will yield at least $1 of revenue per scallop.  The yield per scallop
could increase significantly if we are able to sell a greater percentage of live
scallops.  We also plan on generating additional annual revenues via
the sale of scallop and other shellfish seed in the upcoming
years.  We also believe our newly planned First Nations joint venture
partnership will begin producing significant new revenue as early as our 2009
fiscal year; we anticipate formalizing a joint venture with a first nations
group as early as the summer of 2008.





If our
mortality rates are better than our current projections, our yield and revenues
from the 2005, 2006 and 2007 scallop class could be higher; conversely, if our
mortality rates are worse than we anticipate our revenues for this period could
be lower than we anticipate.  In addition, changes in the anticipated
growth rates, projected harvesting cycles and large fluctuations in the price of
scallops or the US-Canadian exchange rate could impact our current
projections.  Furthermore, if we cannot achieve our estimated product
mixture (live/fresh/frozen) than our average sales price per scallop will be
lower.  Alternatively, if we are able to sell a large percentage of
high yield product (live or frozen on the half shells) than our average price
per scallop will be higher.





In fiscal
year 2007, our cost of goods sold increased more rapidly than our overall
revenues.  Part of this increase was attributable to extreme
circumstances related to costs associated with handling problems for our 2004
ear-hang scallop class and initial operations in our improved processing
plant.  In the first nine months of fiscal year 2008, this trend began
to reverse (as many of the reasons for the increased costs of goods sold were
unique to last the fiscal year) and our sales began increasing faster than our
cost of goods sold.  As we continue to review and improve our
operations, we expect this trend to continue to improve throughout the 2008
fiscal year.  As such, we expect our margins to improve in future
years.





We
recently completed a private placement that resulted in net proceeds of $1.46
million.  Based on our current estimates of near-term sales and
capital costs of expanding our farms to increase future crop yields, we will
require additional financings to continue our current rate of
expansion.  If we are unable to raise additional capital, we may have
to scale back our expansion plans outlined herein.  We currently
anticipate that we will need approximately $1.0 million over the next 14 months
in order to continue our planned expansion activities.


21





Comparison
of results for the three and nine months ended May 31, 2008 to the three and
nine months ended May 31, 2007.





Revenues.Revenues
for the three months ended May 31, 2008, were approximately
$265,000.  We had revenues of approximately $129,000 for the three
months ended May 31, 2007.  This is an increase of approximately
$136,000 or 105%.  Revenues for the nine months ended May 31, 2008,
were approximately $1,060,000 as compared to revenues of approximately $434,000
for the nine months ended May 31, 2007.  This is an increase of
approximately $626,000 or 144%.  The increase in our overall sales was
a direct result of management’s new sales and marketing efforts coupled with our
emphasis on infrastructure improvements and crop expansion.  Although
some of this increase in sales can be attributed to the recent improvement in
Canadian dollar exchange rate to the US dollar, sales in absolute Canadian
dollars still improved by over 110% over the nine month period.  As in
the previous year, management continued its emphasis on the development and
production of larger future crops.  Management believes that our
emphasis on expansion of future crops coupled with the recently completed new
processing facility and new marketing efforts will result in continued increases
in revenue next quarter and continuing thereafter.





Gross loss.Gross loss for
the three months ended May 31, 2008, was approximately $224,000, an increase of
approximately $166,000 as compared to gross loss of roughly $58,000, for the
three months ended May 31, 2007. For the nine months ended May 31, 2008, gross
loss was approximately $457,000.  Gross loss for the nine months ended
May 31, 2007, was roughly $219,000.  The increase in the amount of
gross loss for first three and nine months ended May 31st (as compared the same
periods to 2007) was mainly attributable to management’s continued focus on the
both expansion and development of larger scallop crops and larger scallop yields
for future years and increased marketing efforts.  We do not expect
these problems to continue in future years.  Our cost of sales also
increased due to higher processing plant and trucking costs as we attempted to
establish a larger sales effort.  Additionally, almost 50% of the
increase was directly attributable to management decision to significantly
expand our marketing efforts in 2008.  Management believes that as we
move forward, sales will rapidly increase while these costs only increase
slightly.  If management is correct and our sales rapidly increase
while costs of goods only increase slightly, we expect our margins to improve in
future years.  We continued to focus resources on maintaining,
developing and tending to our scallop crops and believe that we have already
seen the initial benefits in increased sales of our own scallops and that we
will continue to see additional benefits from our efforts in developing larger
crops in the rest of 2008 and beyond.





22




General and
administrative.  General and administrative expenses for the three months ended May 31, 2008, were
approximately $772,000.  Our general and administrative expenses were
approximately $411,000 for the three months ended May 31, 2007.  This
is an increase of approximately $361,000 or 88%. The majority of this increase
was directly attributable to stock compensation expense of approximately $37,000
and stock option expense of roughly $453,000.  For the nine months
ended May 31, 2008, general and
administrative expenses were roughly $2,446,000 as compared to roughly $992,000
for the nine months ended May 31, 2007.  This increase of roughly
$1,454,000 was mainly the result of an increase of approximately $1,258,000 in
stock option expense from the same period in our 2007 fiscal year.  To
date, the company has already expense the majority of the stock option costs
related to the 2,592,000 outstanding options.  As such, management
expects general and administrative expenses to drop significantly in upcoming
periods.  Other general and administrative expenses for the three and
nine months ended May 31, 2008, were attributable to costs associated with
establishing, building, and supporting our infrastructure and included various
consulting costs, legal and accounting fees compensation paid as result of our
recent financing and salaries.  We anticipate that these costs may
slightly rise as we continue to expand our operations.  However, we
believe that we now have the necessary general and administrative staff in place
to maintain our expansion into scallop crops of 30 million and
beyond.  In addition, if our stock option and stock compensation
expenses return to previously level, our overall general and administrative
expenses will significantly drop.





Stock compensation and stock option
expense.  During the three and nine months ended May 31, 2008,
we had stock compensation expense of approximately $37,000 and $87,000,
respectively.  During the three and nine months ended May 31, 2007,
our Board of Directors did not authorize the issuance of shares of our
restricted common stock for compensation.  As a result, we did not
incur any stock compensation expense for the three and nine months ended May 31,
2007.  We did not issue any new options during the three and nine
months ended May 31, 2008.  Due to options issued to employees,
consultants and directors during 2007 and based upon the common stock trading
price at the times of issuance, vesting schedules and FASB rules, we incurred
stock option compensation expenses of approximately $454,000 and $1,486,000
during the three and nine months ended May 31, 2008.





Other income (expense),
net.  Interest expense for the three months ended May 31, 2008,
was approximately $7,000.  Interest expense for the three months ended
May 31, 2007, was approximately $2,500.  Other expense for the three
months ended May, 2008, was approximately $60,000 as opposed to other income of
approximately $7,000 for the three months ended May 31, 2007. Interest expense
for the nine months ended May 31, 2008, was approximately $60.





Interest
expense for the nine months ended May 31, 2007, was approximately
$14,000.  Other income for the nine months ended May, 2008, was
approximately $31,000 as opposed to other income of approximately $168,000 for
the nine months ended May 31, 2007. This other income from the nine months ended
May 31, 2007 was mainly as a result of a one-time gain related to the
forgiveness of a third party short-term debt.  For the nine months
ended May 31, 2007, we recognized a gain of approximately $5,827,000 which was
related to the change in the fair value of warrants issued to 10 institutional
and accredited investors in conjunction with preferred stock financings on April
12, May 30, June 30, July 11, 2006, and January 16, 2007, and the market price
of the common stock underlying such warrants.  As a result of
reclassifying these warrant liabilities on February 21, 2007, no such gain or
loss was recorded for the period ended May 31, 2008.


23





As a
result, other expense for the three months ended May 31, 2008, was approximately
$67,000 as compared to other income of approximately $5,000 for the three months
ended May 31, 2007.  For the nine months ended May 31, 2008, other
income was approximately $31,000 as compared to other income of approximately
$5,980,000 for the nine months ended May 31, 2007.





Net profit
(loss).As a result of the above, the net loss for three and
nine months ended May 31, 2008 was approximately $1,062,000 and $2,872,000 as
compared to a net loss of approximately $465,000  and net profit of
$4,770,000 for the three and nine months ended May 31, 2007.





Liquidity and Cash
Resources.  At May 31, 2008, we had a cash balance of
approximately $253,000. We originally expected to reach positive operating cash
flow during the second half of our 2007 fiscal year, but slower than expected
harvest rates and handling and harvesting problems resulted in lower than
expected revenues.   As part of the process to reach cash flow
positive operations, management recently completed a “top-down” review of Island
Scallops’ operations (by a third-party) and is currently reengineering parts of
our operations as a result of this review.  As a result, we now expect
to achieve operating positive cash flow as early as the last quarter of our 2008
fiscal year or early in the our 2009 fiscal year.  During the nine
months ended May 31, 2008, we completed one private equity financing that
resulted in net proceeds of approximately $800,000.  Additionally, in
June 2008, we completed a new private equity financing and received net proceeds
of approximately $1.46 million.  During the year ending August 31,
2007, we completed one private equity financing and had investors exercise
various warrants that resulted in net proceeds of approximately
$3,074,000.  During the year ending August 31, 2006, we relied on four
private equity financings that resulted in net proceeds of approximately
$5,140,000.  These 2006 and 2007 financings formerly contained
warrants which if fully exercised, could raise approximately an additional
$49,350,000.  To date, exercises of these warrants resulted in net
proceeds of approximately $1,200,000; however, our recently completed financing
also resulted in a warrant exchange that eliminated most of the remaining
warrants from the 2006 and 2007 financing.  Prior to the completion of
the private equity financings in 2006, our initial expansion had been largely
funded by a short term note with a maximum limit of approximately
$1,451,000.  Previously, we have also relied on short term loans from
certain shareholders to assist with our working capital needs and to meet short
term cash requirements.  We used a portion of the 2006 private equity
financing to repay these short term loans and as a result we were able to deploy
the bulk of the proceeds from our financing toward our business
strategy.  In addition to the foregoing, on January 10, 2008, our
Board of Directors determined, based on due diligence concerns and because we
were unable to negotiate what we believe to be appropriate terms, to terminate
negotiations for the establishment of clam farming operations in Morocco;
accordingly, we were able to use the funds set aside for such operations to
continue our planned expansion of scallop farming and processing
infrastructure.  Based on our current estimates of future sales and
capital costs of expanding our farms in order to increase future
crop yields, we will require additional financings to continue our current rate
of expansion.


24








ITEM
3.  CONTROLS AND PROCEDURES








(a)
            Evaluation of
      disclosure controls and
procedures







Under the
supervision and with the participation of our management, including our
principal executive officer and acting chief accounting officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as of May 31, 2008. Based on this evaluation, our
principal executive officer and our acting chief accounting officer concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective and adequately designed to ensure that
the information required to be disclosed by us in the reports we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in applicable rules and forms and
that our Internal Controls are effective at that assurance level to provide
reasonable assurance that our financial statements are fairly presented
inconformity with accounting principals generally accepted in the United
States.










(b)
            Changes in internal
      control over financial
reporting







During
the quarter ended May 31, 2008, there has been no change in our internal control
over financial reporting that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.







Management
does not expect that Disclosure Controls or Internal Controls will prevent all
error and all fraud. A control system, no matter how well developed and
operated, can provide only reasonable, but not absolute assurance that the
objectives of the control system are met. Further, the design of the control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of a system
of controls also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated objectives under all potential future conditions. Over
time, control may become inadequate because of changes in conditions, or because
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.


25







PART
II - OTHER INFORMATION









ITEM
1.   Legal Proceedings





In 1998
our wholly owned subsidiary, Island Scallops, entered into an Agreement with two
parties, pursuant to which Island Scallops was to produce and sell geoduck seed
to the two parties. Island Scallops received advance payments from each of the
two parties in 2002 totaling approximately $64,140.  As a result of
breaches of the purchase agreements by the purchasers, it is our position that
we may retain any unused portion of these advance payments.





As of
August 31, 2004, one of the two purchasers had claimed that Island Scallops owed
it amounts totaling $88,925.  Since it is our position that the
purchasers breached their agreements with Island Scallops, we have no intention
of seeking a settlement of this matter at this time.  We are unaware
of any formal proceedings that may have been commenced by either of these two
purchasers in regard to any claims that they may have.





Other
than as set forth herein, we are not a party to any material legal proceeding
and to our knowledge no such proceeding is currently contemplated or
pending.








ITEM
2. Unregistered Sales of Equity Securities and Use of Proceeds








(a)
            Unregistered
      Sales of Equity Securities





On March
4, April 1, 2008 and May 19, 2008, we issued 5,000 shares of common stock to
Pacific Crab Seafood Company, Inc. as part of the 100,000 shares of our common
stock that our Board of Directors previously approved for the consulting and
marketing services that they will provide to us.  The remaining 5,000
shares were issued in June.  The shares were issued in accordance with
the exemption from the registration provisions of the Securities Act of 1933, as
amended, provided by Section 4(2) of such Act for issuances not involving any
public offering.





On April
1, 2008 we issued 25,000 shares of common stock to Consulting for Strategic
Growth 1, Ltd. pursuant to our investor relation/ media relations consulting
agreement with them.  The shares were issued in accordance with the
exemption from the registration provisions of the Securities Act of 1933, as
amended, provided by Section 4(2) of such Act for issuances not involving any
public offering.











(b)
            Not
      Applicable.


26


(c)
            Not
      Applicable


(d)
            Not
      Applicable.





(e)
            Not
      Applicable.








ITEM 3. Defaults upon Senior Securities





(a)
            Not
      Applicable.





(b)
            Not
      Applicable.





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





We did
not submit any matters to a vote of our shareholders during the period covered
by this report.





ITEM
5. OTHER INFORMATION








(a)
            Not
      applicable.





(b)
            Not
      applicable.





ITEM
6.  EXHIBITS





(a) The
following exhibits are filed as part of this report.





Exhibit
No.                     Document


3.1
            Articles
      of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 to
      the Company’s Quarterly Report on Form 10-QSB filed on April 13,
      2007).3.2
            Amended
      and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to the
      Company’s Quarterly Report on Form 10-QSB filed on April 13,
      2007).31.1
            Certification  of  Chief  Executive  Officer
      and Acting Chief Financial Officer  required  by Rule
      13a-14/15d-14(a) under the Exchange Act32.1
            Certification
      of Chief Executive Officer and Acting Chief Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant   to
      Section   906 of the Sarbanes-Oxley Act of
      2002.





27








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.





Date:  July
      15, 2008
            EDGEWATER
      FOODS
              INTERNATIONAL,
      INC.By:   /s/ Robert
      SaundersRobert
      Saunders,Chief
      Executive OfficerBy:   /s/  Michael
    BoswellMichael
      Boswell,
              Acting
      Chief Accounting Officer





28