UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
        10-KSB/A




Amendment
        No. 1




(Mark
      One)


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





For
      the
      fiscal year ended December 31, 2005





[ 
]
      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: 333-56848





SEAWRIGHT
      HOLDINGS, INC.


(Name
      of
      Small Business Issuer in Its Charter)





Delaware
            54-1965220(State
                or Other Jurisdiction of
            (I.R.S.
                EmployerIncorporation
                or Organization)
            Identification
                No.)





600
                Cameron Street, Alexandria Virginia
            22314(Address
                of Principal Executive Offices)
            (Zip
                Code)





(703)
      340-1629


(Issuer's
      telephone number, Including Area Code)





Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act: None





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. x





Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) been subject
      to
      such filing requirements for the past 90 days.


Yes
x No
o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. Yes x  No o





Indicate
      by check mark whether the registrant is a shell company as defined in Rule
      12b-2
      of the Exchange Act. Yes o  No x





State
      issuer's revenues for its most recent fiscal year: $2,524 .





The
      trading price of the registrant's stock on the OTC Bulletin Board on March
      17,
      2006 was $0.51/share bid price and $0.60/share ask price. The average bid and
      ask price was $0.55/share. Based on this $0.55 value, the aggregate market
      value
      of common stock owned by non-affiliates of the registrant was approximately
      $1,927,682, calculated on the basis of 3,504,876 shares of common stock owned
      by
      non-affiliates.





As
      of
      March 31, 2006, the total number of issued and outstanding shares of the
      issuer's common stock, par value $0.001, was 8,875,476.





Transitional
      Small Business Disclosure Format: Yes o  No x







Explanatory
          Note
 
 This
          Amendment No. 1 on Form 10-KSB/A amends and restates Part II, Items 6,
          7 and 8A
          to our Annual Report on Form 10-KSB for the fiscal year ended December
          31, 2005,
          as initially filed with the Securities and Exchange Commission on April
          17,
          2006.  We have made the following changes to our Annual
          Report:
  ·
                We
                    have changed our accounting treatment of puts issued under a
                    termination
                    agreement (see Note H of the Financial Statements). We have restated
                    our
                    Financial Statements (Part II, Item 7) and our Managements Discussion
                    and
                    Analysis or Plan of Operation (Part II, Item 6) to reflect this
                    change.
  ·
                We
                    have restated Item 8A, Controls and
                    Procedures.
  Unless
          otherwise noted, this Amendment No. 1 on Form 10-KSB/A does not reflect
          events
          occurring after our filing of the Form 10-KSB on April 17, 2006.
          Information not affected by the adjustments noted above is unchanged and
          reflects the disclosures made at the time of the original filing of our
          Form
          10-KSB on April 17, 2006. Accordingly, this Form 10-KSB/A should be read
          in
          conjunction with our filings made with the SEC subsequent to the filing
          of our original Form 10-KSB, including any amendments to those filings.
  This
          Amendment No. 1 on Form 10-KSB/A also contains updated certifications from
          our
          principal executive officer and principal financial officer, as required
          by
          Section 302 and 906 of the Sarbanes-Oxley Act of 2002.


1




ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      OR PLAN OF OPERATION.





As
      defined under Part I, under Forward-Looking Statements, the forward-looking
      statements in the discussion that follows are subject to significant risks
      and
      uncertainties about us, our current and planned products, our current and
      proposed marketing and sales, and our projected results of operations. There
      are
      a variety of important factors that could cause actual results to differ
      materially from historical results and percentages and results anticipated
      by
      the forward-looking statements. We have sought to identify the most significant
      risks to its business, but cannot predict whether or to what extent any of
      such
      risks may be realized nor can there be any assurance that we have identified
      all
      possible risks that might arise. Investors should carefully consider all of
      such
      risks before making an investment decision with respect to our stock. The
      following discussion and analysis should be read in conjunction with our
      financial statements and notes thereto. This discussion should not be construed
      to imply that the results discussed herein will necessarily continue into the
      future, or that any conclusion reached herein will necessarily be indicative
      of
      actual operating results in the future. Such discussion represents only the
      best
      present assessment from our management.




Plan
      of
      Operation





In
      2003,
      we purchased property containing a spring located in Mt. Sidney, Virginia in
      the
      Shenandoah Valley with the intention of developing a spring water distribution
      business. The spring has a flow in excess of 1,000,000 gallons of water daily.
      In December 2004, we entered into agreements to acquire two parcels of land
      located approximately 10 miles south of the Mt. Sidney property and have
      consummated one of those agreements. We are considering leasing these properties
      for commercial purposes. See “Description of Property” above.




We
      have
      chosen to develop and acquire packaging for selling our water under the brand
      names Seawright Springs and Quibell. We have developed two proprietary
      Polyethylene Terephthalate, or PET, bottles in a 16.9 ounce size and a 33.8
      ounce size. In addition, in June 2005 we acquired from Quibell, glass bottle
      designs for various sized bottles (including 237 ml, 385 ml, 750 ml and 1 liter
      sizes) as well as labels for various sized sparkling water bottles, spring
      water
      bottles and tea bottles (including 237 ml, 385 ml, 750 ml, 1 liter, 1.5 liter
      and 16.9 ounce bottles).




We
      are
      positioning our water in an effort to compete in the luxury brand category
      of
      the water market. We expect to offer a non-sparkling brand and to begin selling
      bottled water under the “Seawright Springs” brand name in the second quarter of
      2006. We will also continue to seek opportunities to sell our daily supply
      of
      water to other bottlers.




The
      further development of this business will require, among other things, further
      capital expenditure on plant and equipment, developing marketing materials,
      renting additional office space, and interviewing and hiring administrative,
      marketing and maintenance personnel. While we have raised the capital necessary
      to meet our working capital and financing needs in the past, additional
      financing is required in order to meet our current and projected cash flow
      deficits from operations and development. We believe that it will be necessary
      to raise further capital to implement our business plan over the course of
      the
      next twelve months.




For
      the
      period from our inception through December 31, 2005, we have:




· formed
      our company and established our initial structure;


· sought
      and pursued investment opportunities;


· reviewed
      and analyzed the potential market for natural spring water;


· purchased
      the Mt. Sidney property and procured the necessary financing to cover the
      initial purchase costs from an offering of preferred stock;


· entered
      into two agreements, one of which has closed, to purchase properties near the
      Mt. Sidney property, which we are considering leasing for commercial
      purposes;


· purchased
      trademarks and other intellectual property relating to the creation and bottling
      of flavored and non-flavored bottled water;


· performed
      required testing of water quality at spring site;


· began
      developing a new web site as part of our marketing strategy; and


· made
      improvements to the spring site and water collection facilities.




2




Product
      Research and Development




We
      do not
      anticipate performing research and development for any products during the
      next
      twelve months.




Acquisition
      or Disposition of Plant and Equipment




We
      do not
      anticipate the sale of any significant property, plant or equipment during
      the
      next twelve months. We are currently making improvements to plant and equipment
      at the spring site, and intend to spend approximately $150,000 to complete
      renovating our spring catchment, which protects the water spring from outside
      elements. We expect this project to be completed by April 30, 2006.




Number
      of
      Employees




As
      of
      December 31, 2005, we had one employee, our chief executive officer and
      president, Joel Sens. We anticipate that the number of employees may increase
      in
      the future. However, given our ability to contract out much of our required
      services, it is not anticipated, based on the current business plan, that new
      employees will be hired in the next twelve months. No formal contract for the
      compensation of Mr. Sens exists as of December 31, 2005, but we may enter into
      an employment contract with him within the next twelve months.





Comparison
      of Financial Results





Years
      Ended December 31, 2005 and 2004





Revenues





During
      the year ended December 31, 2005, we generated $2,524 in revenues from
      continuing operations. Prior to 2005, the Company had generated no revenue
      from
      continuing operations.





Costs
      and
      Expenses





From
      our
      inception through December 31, 2005, we have incurred losses of $2,014,185.
      These losses were associated principally with maintenance and engineering costs
      associated with the spring site, including testing of water quality, stock
      issuances to our founders, legal, consulting and accounting fees and costs
      in
      connection with the development of our business plan, market research, and
      the
      preparation of our registration statement.





We
      incurred operating expenses of $946,457 during the year ended December 31,
      2005
      as compared to $198,506 of expenses in during the year ended December 31, 2004.
      Expenses for the year ended December 31, 2005 are composed principally of
      salary, legal and accounting fees, financing expense on our funding instruments,
      and consulting fees associated with the acquisition of land. Our other expenses
      increased by $39,172 from 2004 to 2005 primarily due to interest expense
      attributable to our private placement, offset by a gain on extinguishment of
      debt and fair value adjustment for a put agreement.






3





During
      the year ended December 31, 2005, we incurred a net loss of $54,592 from our
      trading of marketable securities. During the year ended December 31, 2004,
      we
      recorded net gain of $93,518.





Liquidity
      and Capital Resources





As
      of
      December 31, 2005, we had a working capital deficit of $225,378, an available
      cash balance of $130,857, a marketable securities balance of $138,910 and an
      accounts payable and accrued liabilities balance, including accrued interest
      on
      the notes, of approximately $120,000.





As
      a
      result of our operating losses from our inception through December 31, 2005,
      we
      have generated a cash flow deficit of $1,828,522 from operating
      activities.





In
      order
      to provide funding for operations and capital expenditures, on September 12,
      2005, we entered into an investment agreement with Dutchess Private Equities
      Fund, LP. The investment agreement establishes what is sometimes referred to
      as
      an “equity line of credit.” Under the investment agreement, Dutchess has agreed
      to provide us with up to $5,000,000 during the 36-month period following the
      date a registration statement of our common stock is declared effective by
      the
      Securities and Exchange Commission. During this 36-month period, we may request
      a draw down under the equity line of credit by which we would sell shares of
      our
      common stock to Dutchess, which is obligated to purchase the shares under the
      investment agreement, subject to certain conditions set forth therein. We may,
      at our election, require Dutchess to purchase an amount equal to no more than
      either (a) 200% of the average daily volume of our common stock for the 10
      trading days prior to the put notice date, multiplied by the average of the
      three daily closing bid prices immediately preceding the put notice date or
      (b)
      $100,000; provided that we may not request more than $1,000,000 in any single
      put notice. On the trading day following the put notice date, a pricing period
      of five trading days will begin. The purchase price for the common stock
      identified in the put notice will be equal to 95% of the lowest closing best
      bid
      price of our common stock during the pricing period. We are under no obligation
      to draw down under the equity line of credit. As of the date of filing of this
      Form 10-KSB, no registration statement has been filed with respect to our common
      stock to be issued under the equity line of credit or the investment
      agreement.





Private
      Placement





In
      August
      2004 we issued a private placement memorandum to offer up to 1,000 units of
      equity/notes payable instruments. Each unit consisted of 2,500 shares of our
      common stock, $1,500 of convertible promissory notes, and a warrant to
      purchase 300 shares of our common stock at $0.85 per share. The convertible
      promissory notes accrue interest at 11% per annum, payable and due in September
      2009. The note holders have the option to convert any unpaid note principal
      and
      accrued interest to our common stock at a rate of $0.85 per share anytime after
      six months from the issuance date of the note.





We
      sold
      984 units in 2004. In January 2005, we received $45,000 for an additional 15
      units subscribed. With respect to these 15 units, we issued to the investors
      convertible promissory notes in an aggregate amount of $22,500, 37,500 shares
      of
      our common stock, valued at $25,188, and 15 warrants.






4





On
      January 31, 2005, we notified Jones, Byrd and Attkisson, the placement agent,
      that we would no longer accept any further investment in our private placement.
      Over the course of our private placement, we received total proceeds of
      $2,665,116, net of placement costs and fees, and issued to the investors
      $1,498,500 of convertible promissory notes, 2,497,500 shares of common stock
      and
      999 warrants, none of which have been converted to common stock.





Future
      Funding Requirements and Going Concern





While
      we
      have raised the capital necessary to meet our working capital and financing
      needs in the past, additional financing is required in order to meet our current
      and projected cash flow deficits from operations and development. Within the
      next year, funds will be needed to meet our obligations under the purchase
      agreements for the Staunton, Virginia properties and to fund improvements to
      our
      spring site and our initial operations.




We
      intend
      to generate these funds from our equity line of credit and to enter into a
      bank
      loan to finance the acquisition of the 33.52 acre Staunton property. We believe
      that proceeds from the equity line of credit and the financing of the Staunton
      property will allow us to cover our capital and operating expenses over the
      next
      year.




If
      during
      that period or thereafter, we are not successful in generating sufficient
      liquidity from operations or in raising sufficient capital resources on terms
      acceptable to us, this could have a material adverse effect on our business,
      results of operations, liquidity and financial condition.





Our
      independent certified public accountants have stated in their report included
      herein that we have incurred operating losses since our inception, and that
      we
      are dependent upon management’s ability to develop profitable operations. These
      factors among others may raise substantial doubt about our ability to continue
      as a going concern.




Off-Balance
      Sheet Arrangements





We
      have
      not had, and at December 31, 2005, do not have, any off-balance sheet
      arrangements that have or are reasonably likely to have a current or future
      effect on our financial condition, changes in financial condition, revenues
      or
      expenses, results of operations, liquidity, capital expenditures or capital
      resources that is material to investors.





Critical
      Accounting Policies





The
      preparation of our consolidated financial statements in conformity with
      accounting principles generally accepted in the United States requires us to
      make estimates and judgments that affect our reported assets, liabilities,
      revenues, and expenses, and the disclosure of contingent assets and liabilities.
      We base our estimates and judgments on historical experience and on various
      other assumptions we believe to be reasonable under the circumstances. Future
      events, however, may differ markedly from our current expectations and
      assumptions. While there are a number of significant accounting policies
      affecting our consolidated financial statements; we believe the following
      critical accounting policies involve the most complex, difficult and subjective
      estimates and judgments:





·
            stock-based
                compensation; and


·
            revenue
                recognition.






5





Stock-Based
      Compensation





In
      December 2002, the FASB issued SFAS No. 148 - Accounting for Stock-Based
      Compensation - Transition and Disclosure. This statement amends SFAS No. 123
      -
      Accounting for Stock- Based Compensation, providing alternative methods of
      voluntarily transitioning to the fair market value based method of accounting
      for stock based employee compensation. FAS 148 also requires disclosure of
      the
      method used to account for stock-based employee compensation and the effect
      of
      the method in both the annual and interim financial statements. The provisions
      of this statement related to transition methods are effective for fiscal years
      ending after December 15, 2002, while provisions related to disclosure
      requirements are effective in financial reports for interim periods beginning
      after December 31, 2002.





In
      December 2004, the FASB published Statement of Financial Accounting Standards
      No. 123 (Revised 2004), Share-Based Payment (SFAS 123R). SFAS 123R requires
      that
      compensation cost related to share-based payment transactions be recognized
      in
      the financial statements. Share-based payment transactions within the scope
      of
      SFAS 123R include stock options, restricted stock plans, performance-based
      awards, stock appreciation rights, and employee share purchase plans. The
      provisions of SFAS 123R are effective as of the beginning of the first interim
      or annual reporting period that begins after December 15, 2005.





Currently,
      we account for our share-based payment transactions under the provisions of
      APB
      25, which does not necessarily require the recognition of compensation cost
      in
      the financial statements. We are assessing the implications of this revised
      standard, which may materially impact the Company's results of operations during
      2006 and thereafter.





Revenue
      Recognition





For
      revenue from product sales, the Company recognizes revenue in accordance with
      Staff Accounting Bulletin No. 104, Revenue Recognition (SAB104), which
      superceded Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
      Statements (SAB101). SAB 101 requires that four basic criteria must be met
      before revenue can be recognized: (1) persuasive evidence of an arrangement
      exists; (2) delivery has occurred; (3) the selling price is fixed and
      determinable; and (4) collectibility is reasonably assured. Determination of
      criteria (3) and (4) are based on our judgments regarding the fixed nature
      of
      the selling prices of the products delivered and the collectibility of those
      amounts. Provisions for discounts and rebates to customers, estimated returns
      and allowances, and other adjustments are provided for in the same period the
      related sales are recorded. We defer any revenue for which the product has
      not
      been delivered or is subject to refund until such time that the customer and
      we
      jointly determine that the product has been delivered or no refund will be
      required.





SAB
      104
      incorporates Emerging Issues Task Force 00-21 (EITF 00-21), Multiple-Deliverable
      Revenue Arrangements. EITF 00-21 addresses accounting for arrangements that
      may
      involve the delivery or performance of multiple products, services and/or rights
      to use assets. The effect of implementing EITF 00-21 on the Company's
      consolidated financial position and results of operations was not
      significant.






6





Recent
      Accounting Pronouncements




In
      March
      2005, the FASB issued FASB Interpretation (FIN) No. 47, “Accounting for
      Conditional Asset Retirement Obligations, an interpretation of FASB Statement
      No. 143,” which requires an entity to recognize a liability for the fair value
      of a conditional asset retirement obligation when incurred if the liability’s
      fair value can be reasonably estimated. The Company is required to adopt the
      provisions of FIN 47 no later than the first quarter of fiscal 2006. The Company
      does not expect the adoption of this Interpretation to have a material impact
      on
      its consolidated financial position, results of operations or cash flows.




In
      May
      2005, the FASB issued *Statement
      of Financial Accounting Standards No. 154, Accounting Changes and Error
      Corrections (SFAS 154)* ,
      which
      requires retrospective application of all comparative financial statements
      for
“voluntary” accounting principle changes. This statement, however, does not
      apply to changes in principle due to new accounting pronouncements when the
      new
      pronouncement includes specific transition provisions. SFAS 154 is effective
      for
      accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005. The adoption of this standard is currently not expected
      to have a material impact on the Company’s consolidated results of operations
      and financial position in the foreseeable future.





On
      November 3, 2005, the FASB issued *FASB
      Staff Position on SFAS 115 and 124, The Meaning of Other-Than-Temporary
      Impairment and its Application to Certain Investments (FSP FAS 115-1 and
      124-1)* .
      This
      FSP addresses the determination as to when an investment is considered impaired,
      whether that impairment is other than temporary, and the measurement of an
      impairment loss. It is effective for reporting periods beginning after December
      15, 2005. Accordingly, the Company is reviewing its processes and will adopt
      the
      required accounting and disclosures.





On
      February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid
      Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and
      Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of
      Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial
      instruments that have embedded derivatives to be accounted for as a whole
      (eliminating the need to bifurcate the derivative from its host) if the holder
      elects to account for the whole instrument on a fair value basis. SFAS 155
      also
      clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This
      statement is effective for all financial instruments acquired or issued in
      fiscal years beginning after September 15, 2006. The Company does not
      expect its adoption of this new standard to have a material impact on its
      financial position, results of operations or cash flows.





Trends,
      Risks and Uncertainties





We
      have
      sought to identify what we believe to be the most significant risks to our
      business as discussed below, but cannot predict whether or to what extent any
      of
      such risks may be realized nor can there be any assurances that we have
      identified all possible risks that might arise. Investors should carefully
      consider all of such risk factors before making an investment decision with
      respect to our stock.





*Limited
      operating history; anticipated losses; uncertainly of future
      results*





We
      have
      only a limited operating history upon which to be evaluated. Our prospects
      must
      be evaluated with a view to the risks encountered by a company in an early
      stage
      of development. We will be incurring costs to develop, introduce and enhance
      our
      spring water operations and products, to develop and market an interactive
      website, to establish marketing relationships, to acquire and develop products
      that will complement each other, and to build an administrative organization.
      To
      the extent that such expenses are not followed by commensurate revenue, our
      business, results of operations and financial condition will be materially
      adversely affected. There can be no assurance that we will be able to generate
      sufficient revenues from sales of our products. We expect negative cash flow
      from operations to continue for at least the next 12 months, and we must raise
      additional capital to meet our expected expenses. We intend to raise this
      capital primarily through the establishment of an equity line of credit as
      described above, but it is possible that we will not be able to establish the
      equity line of credit, or that proceeds from the equity line of credit will
      be
      insufficient to cover our future expenses.






7





*Potential
      fluctuations in quarterly operating results*





Our
      quarterly operating results may fluctuate significantly in the future as a
      result of a variety of factors, most of which are outside our control,
      including: market acceptance of our products, the demand for the spring water
      services and related products; seasonal trends in demand; the amount and timing
      of operating costs and capital expenditures relating to the expansion of our
      business, operations and infrastructure, and the implementation of marketing
      programs, key agreements and strategic alliances; our ability to obtain
      additional financing in a timely manner and on terms favorable to us; the
      introduction of new services and products by us or our competitors; price
      competition or pricing changes in the industry; technical difficulties; and
      general economic conditions specific to the beverage market and the spring
      water
      industry. Our quarterly results may also be significantly affected by the impact
      of the accounting treatment of acquisitions, financing transactions or other
      matters. Particularly at our early stage of development, such accounting
      treatment can have a material impact on the results for any quarter. Due to
      the
      foregoing factors, among others, it is likely that our operating results will
      fall below our expectations or investors’ expectations in some future
      quarter.





*We
      are subject to substantial competition and may not have the ability or the
      capital to compete effectively*





The
      industry in which we expect our products to be sold is highly competitive.
      We
      may not have the ability or the capital to compete effectively in this
      environment. The significant competition in our industry could harm our ability
      to win business and increase the price pressure on our products. We face strong
      competition from a wide variety of firms, including large, multinational firms
      with far greater resources than we possess. Many of our competitors have
      considerably greater financial, marketing and technological resources than
      we
      do, which may make it difficult to sell our products. Many of our competitors
      also have longer operating histories and presence in key markets, greater name
      recognition, larger customer bases and significantly greater financial, sales
      and marketing, manufacturing, distribution, technical and other resources.
      As a
      result, these competitors may also be able to devote greater resources to the
      promotion and sale of their products.





*Management
      of growth*





We
      may
      experience significant growth, which would result in increased responsibilities
      for management and the need for additional employees. We believe that our
      ability to attract, train, and retain qualified technical, sales, marketing
      and
      management personnel will be a critical factor to our future
      success.







8




Our
      future success will also be highly dependent upon our ability to successfully
      manage the anticipated expansion of our operations. Our ability to manage and
      support growth effectively will be substantially dependent on our ability to
      implement adequate financial and management controls, reporting systems and
      other procedures, and attract and retain sufficient numbers of financial,
      accounting, administrative and management personnel.





Our
      future success also depends upon our ability to address potential market
      opportunities while managing expenses to match our ability to finance our
      operations. This need to manage our expenses will place a significant strain
      on
      our management and operational resources. If we are unable to manage our
      expenses effectively, our business, results of operations and financial
      condition will be materially and adversely affected.





*Risks
      associated with acquisitions*





Although
      we do not presently intend to do so, as part of our business strategy in the
      future, we could acquire assets and businesses relating to or complementary
      to
      our operations. Any acquisitions by us would involve risks commonly encountered
      in acquisitions of assets or companies. These risks would include, among other
      things, the following: we could be exposed to unknown liabilities of the
      acquired companies; we could incur acquisition costs and expenses higher than
      anticipated; fluctuations in our quarterly and annual operating results could
      occur due to the costs and expenses of acquiring and integrating new businesses
      or technologies; we could experience difficulties and expenses in assimilating
      the operations and personnel of any acquired businesses; our ongoing business
      could be disrupted and our management’s time and attention diverted; and we
      could be unable to integrate with any acquired businesses
      successfully.




For
      example, in June 2005, we acquired certain trademarks and other intellectual
      property, including bottle designs and labeling as well as formulas for flavored
      sparkling water and teas. We expect that this acquisition will assist us in
      establishing and growing market share in the bottled water and tea market.
      However, if we are not able to successfully integrate these acquired assets
      into
      our business by selling more of our products and increasing our market share,
      we
      may not experience a return on investment commensurate with the acquisition
      cost.








ITEM
      7. FINANCIAL STATEMENTS.





Financial
      statements as of and for the year ended December 31, 2005, and for the year
      ended December 31, 2004 are presented in a separate section commencing on page
      F-1.







9





ITEM
      8A. CONTROLS AND PROCEDURES.


We
          maintain disclosure controls and procedures that are designed to ensure
          that
          information required to be disclosed by us in the reports that we file
          under the
          Exchange Act is recorded, processed, summarized and reported within the
          time
          periods specified in the Commission's rules and regulations, and that such
          information is accumulated and communicated to our management, including
          Joel
          Sens, our chief executive officer and treasurer, as appropriate to allow
          timely
          decisions regarding the required disclosures. Any system of controls can
          provide
          only reasonable, and not absolute, assurance that the objectives of the
          control
          system are met. In addition, the design of any control system is based
          on
          certain assumptions about the likelihood of future events. Because of these
          and
          other inherent limitations of control systems, there can be no assurance
          that
          any design will succeed in achieving its stated goal under all potential
          future
          conditions.
  On
          April
          17, 2006, in filing our Annual Report on Form 10-KSB for the fiscal year
          ended
          December 31, 2005 (the “Original 10-KSB”) and a Current Report on Form 8-K (the
“Original 8-K”), we announced that we had concluded that our previously issued
          financial statements for the year ended December 31, 2004 should no longer
          be
          relied upon, and restated those financial statements. On June 12, 2006,
          due to
          certain errors in the financial statements in the Original 10-KSB, we announced,
          in an amendment to the Form 8-K (the Original 8-K, as so amended, the "Amended
          8-K"), that the financial statements included in the Original 10-KSB should
          no
          longer be relied upon. Those financial statements have been restated as of
          the date hereof in this amendment to the previously-filed Form 10-KSB (the
          Original 10-KSB, as so amended, the “Amended 10-KSB”). In addition, in the
          Amended 8-K, we acknowledged that there were errors in our financial statements
          related to our Quarterly Reports on Form 10-QSB for the fiscal quarters
          ended
          March 31, 2005, June 30, 2005 and September 30, 2005, but determined that
          these
          errors did not affect those financial statements in such a material way
          as to
          require amending those quarterly reports.
  The
          restatements changed, and the other error corrections will change, the
          accounting treatment afforded to our August 2004 private placement, the
          termination agreement (sometimes referred to as the put agreement) entered
          into
          with a shareholder in October 2004, our overpayment of amounts owed to
          a
          shareholder, and our proceeds from the sale of trading securities, and
          are
          further described in Note Q to our Consolidated Financial Statements for
          the
          years ended December 31, 2005 and 2004, as contained in this Amended 10-KSB,
          as
          well the Amended 8-K.
  Our
          chief
          executive officer and treasurer (our principal financial officer) has evaluated,
          as of December 31, 2005, the effectiveness of the design, maintenance and
          operation of the Company's disclosure controls and procedures. Based on
          that
          evaluation, and as a result of the weaknesses that resulted in the restatements
          and other expected changes described above, our chief executive officer
          and
          treasurer has determined that our disclosure controls and procedures were
          not
          effective, at a reasonable assurance level, in ensuring that the information
          required to be disclosed by us in the reports that we file under the Exchange
          Act is accurate and is recorded, processed, summarized and reported within
          the
          time periods specified in the Commission's rules and regulations.
          Notwithstanding those weaknesses, we believe that our Consolidated Financial
          Statements for the years ended December 31, 2005 and 2004, as contained
          in the
          Amended 10-KSB, fairly present, in all material respects, our financial
          position, results of operations and cash flows for all periods presented
          therein.
  During
          the quarter ended December 31, 2005, there were no changes in internal
          control
          over financial reporting that materially affected, or are reasonably likely
          to
          materially affect, the Company’s internal control over financial reporting,
          except as follows.




Our
          management is in the process of identifying deficiencies with respect to
          our
          disclosure controls and procedures and implementing corrective measures,
          which
          includes the establishment of new internal policies related to financial
          reporting.
  Our
          chief executive officer and treasurer also conducted an evaluation of the
          Company’s internal controls over financial reporting to determine whether any
          changes occurred during the fourth fiscal quarter that have materially
          affected,
          or are reasonably likely to materially affect, the Company’s internal control
          over financial reporting. During the preparation of the Company’s financial
          statements as of and for the year ended December 31, 2005, the Company
          identified the internal control weaknesses identified below. As a result
          of this
          conclusion, the Company has initiated the changes in internal control,
          to the
          extent possible given limitations in financial and manpower resources,
          also
          described below.
  The
          Company became aware of its staffing needs and took steps to address its
          understaffed Finance and Accounting team to correct this material weakness.
          The
          Company engaged a professional services firm with extensive CFO-level management
          and SEC reporting experience in public companies. The Company feels this
          addition to the Company’s Finance and Accounting team will improve the quality
          of future period financial reporting. Management identified a material
          weakness
          based on the Company’s delay in closing its books. To correct this material
          weakness, checklists will be developed delineating tasks, preparation
          responsibilities, and review responsibilities targeting specific completion
          dates. The checklist will provide evidentiary support of work performed
          and
          reviewed. Specific checklists will be developed for non-quarter end months,
          quarter end months, and the annual close. These checklists have been developed
          and will be implemented in the 2nd quarter 2006 close process and utilized
          in
          the preparation of the 2nd quarter 2006 Form 10-QSB and subsequent period
          ends.




10




SIGNATURES





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.





Date:
        June 15, 2006




Seawright
                  Holdings, Inc.a
                  Delaware CorporationBy:
                  /s/ Joel SensJoel
                  SensTitle:
                  Chief Executive Officer
 
  In
      accordance with the Securities Exchange Act of 1934, this report has been signed
      by the following persons on behalf of the registrant and in the capacities
      and
      on the dates indicated.





Date:
        June 15, 2006


By:
                  /s/ Joel SensJoel
                  SensTitle:
                  Chief Executive Officer,President,
                  Treasurer(principal
                  financial andaccounting
                  officer) andDirector





Date:
        June 15, 2006




By:
                  /s/ Ronald L. AttkissonRonald
                  L. AttkissonTitle:
                  Director








Date:
        June 15, 2006




By:
                  /s/ Jeffrey SensJeffrey
                  SensTitle:
                  Director






11



















***CONSOLIDATED
      FINANCIAL STATEMENTS***





***YEARS
      ENDED***


***DECEMBER
      31, 2005 AND 2004***














***SEAWRIGHT
      HOLDINGS, INC*** .























F-1











***SEAWRIGHT
      HOLDINGS, INC.***











**INDEX
      TO FINANCIAL STATEMENTS**











**Page**Report
                  of Independent Registered Certified Public Accounting Firm
              
              F-3Consolidated
                  Balance Sheets as of December 31, 2005 and 2004
              
              F-4-5Consolidated
                  Statements of Operations for the Years Ended
                  December
                    31, 2005 and 2004 and for the Period From Inception
                    (October
                      14, 1999) Through December 31, 2005
              
              F-6Consolidated
                  Statements of Changes in Stockholders' Equity for
                  the
                    Period From Inception (October 14, 1999) Through
                    December
                      31, 2005
              
              F-7-9Consolidated
                  Statements of Cash Flows for the Years Ended
                  December
                    31, 2005 and 2004 and for the Period From Inception
                    (October
                      14, 1999) Through December 31, 2005
              
              F-10-11Notes
                  to the Consolidated Financial Statements
              
              F-12-31


























F-2





RUSSELL
      BEDFORD STEFANOU MIRCHANDANI , LLP


CERTIFIED
      PUBLIC ACCOUNTANTS











REPORT
      OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM








Board
      of
      Directors


Seawright
      Holdings, Inc.


Alexandria,
      VA





We
        have
        audited the accompanying consolidated balance sheets of Seawright Holdings
        Inc.
        and subsidiary, a development stage company, (the “Company”) as of December 31,
        2005 and 2004 and the related consolidated statements of operations,
        stockholders’ equity, and cash flows for each of the two years in the period
        ended December 31, 2005 and for the period from October 14, 1999 (date of
        inception) to December 31, 2005. These financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based upon our audits.
  We
        conducted
        our audits in accordance with standards of the Public Company Accounting
        Oversight Board (United States of America). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatements. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe our audits provide a reasonable
        basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Seawright Holdings Inc.
        and
        subsidiary as of December 31, 2005 and 2004, and the results of its operations
        and its cash flows for each of the two years in the period ended December
        31,
        2005, and for the period October 14, 1999 (date of inception) to December
        31,
        2005 in conformity with accounting principles generally accepted in the United
        States of America.
  The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern. As shown in the consolidated financial
        statements, the Company has incurred net losses since its inception. This
        raises
        substantial doubt about the Company’s ability to continue as a going concern.
        Management’s plans in regard to this matter are described in Note P. The
        financial statements do not include any adjustments that might result from
        the
        outcome of this uncertainty.
  As
        discussed
        in Note Q to the consolidated financial statements, the Company restated
        the balance sheet as of December 31, 2005 and 2004 and the related consolidated
        statements of operations, cash flows and stockholders’ equity for the years then
        ended.





/s/
      RUSSELL
      BEDFORD STEFANOU MIRCHANDANI LLP


Russell
      Bedford
      Stefanou Mirchandani LLP


Certified
      Public
      Accountants


McLean,
      Virginia


March
      24,
      2006, except


Note
      Q, as to which date


is
      June 5, 2006










F-3





SEAWRIGHT
        HOLDINGS, INC.
 (A
        DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
        BALANCE SHEETS
 DECEMBER
        31, 2005 AND 2004
 
 
 
 (As
                  restated -Note
                  Q)**2005**
              
              2004ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              130,857
              
              $
              190,419Marketable
                  securities
              
              
              138,910
              
              
              1,556,405Deposits
              
              
              125,300
              
              
              65,700Total
                  current assets
              
              
              395,067
              
              
              1,812,524Property
                  and equipment - net
              
              
              1,775,669
              
              
              1,013,955Deferred
                  financing costs - net
              
              
              507,247
              
              
              649,035Intangible
                  asset
              
              
              35,156
              
              
              -Total
                  assets
              
              $
              2,713,139
              
              $
              3,475,514
 
 
 
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.








F-4




SEAWRIGHT
        HOLDINGS, INC.
 (A
        DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
        BALANCE SHEETS (CONTINUED)
 DECEMBER
        31, 2005 AND 2004
  **As
                    restated -****Note
                    Q**LIABILITIES
                    AND STOCKHOLDERS' EQUITY
                
                
                **2005**
                
                
                **2004**Current
                    liabilities:Accrued
                    expenses
                
                $
                120,445
                
                $
                75,273Accrued
                    put agreement
                
                
                -
                
                
                158,752Note
                    payable, current portion
                
                
                500,000
                
                
                -Total
                    current liabilities
                
                
                620,445
                
                
                234,025Long-term
                    liabilitiesNote
                    payable - long-term portion
                
                
                -
                
                
                400,000Convertible
                    notes payable, net of debt discount
                
                
                1,077,944
                
                
                954,777Other
                    long-term liabilities
                
                
                30,683
                
                
                -Total
                    liabilities
                
                
                1,729,072
                
                
                1,588,802STOCKHOLDERS'
                    EQUITYPreferred
                    stock, par value $.001 per share;100,000
                    shares authorized.Series
                    A convertible preferred stock, par value$0.001
                    per share; 60,000 authorized.Common
                    stock, par value $.001 per share;19,900,000
                    shares authorized; 8,875,476 and8,782,978
                    shares issued and outstanding atDecember
                    31, 2005 and 2004, respectively.
                
                
                8,876
                
                
                8,783Additional
                    paid-in-capital
                
                
                3,014,376
                
                
                2,775,485Preferred
                    stock dividend
                
                
                (25,000
                )
                
                (25,000
                )Common
                    stock subscription
                
                
                -
                
                
                25,581Accumulated
                    deficit during development stage
                
                
                (2,014,185
                )
                
                (898,137
                )Total
                    stockholders' equity
                
                
                984,067
                
                
                1,886,712Total
                    liabilities and stockholders' equity
                
                $
                2,713,139
                
                $
                3,475,514
 
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.




F-5


SEAWRIGHT
      HOLDINGS, INC.


(A
        DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
        STATEMENTS OF OPERATIONS
 **(As
                    restated -****Note Q)**
                
                **For
                    the period**
                  **from**
                  **October
                    14, 1999**
                  **(date
                    of
                    inception)**
                  **through****2005**
                
                **2004**
                
                **December
                    31,
                    2005**Sales
                
                $
                2,524
                
                $
                -
                
                $
                2,524Costs
                    and expenses:Selling,
                    general and administrative
                
                
                885,327
                
                
                291,607
                
                
                2,492,843(Gain)
                    loss on trading securities
                
                
                54,592
                
                
                (93,518
                )
                
                (38,926
                )Depreciation
                    and amortization
                
                
                6,538
                
                
                417
                
                
                6,955946,457
                
                
                198,506
                
                
                2,460,872Operating
                    loss
                
                
                (943,933
                )
                
                (198,506
                )
                
                (2,458,348
                )Other
                    income (expense):Other
                    income
                
                
                1,000
                
                
                60,948
                
                
                61,948Gain
                    (loss) on fair value adjustment for put
                    agreement
                
                
                68,752
                
                
                (68,752
                )
                
                -Gain
                    on extinguishment of debt
                
                
                60,000
                
                
                -
                
                
                807,103Interest
                    expense
                
                
                (301,867
                )
                
                (125,139
                )
                
                (441,789
                )Total
                    other income (expense)
                
                
                (172,115
                )
                
                (132,943
                )
                
                427,262Loss
                    from continuing operations before income taxes and discontinued
                    operations
                
                
                (1,116,048
                )
                
                (331,449
                )
                
                (2,031,086
                )Provision
                    for income tax
                
                
                -
                
                
                -
                
                
                -Loss
                    from continuing operations beforediscontinued
                    operations
                
                
                (1,116,048
                )
                
                (331,449
                )
                
                (2,031,086
                )Income
                    from discontinued operations
                
                
                -
                
                
                -
                
                
                16,901Net
                    loss
                
                
                (1,116,048
                )
                
                (331,449
                )
                
                (2,014,185
                )Preferred
                    stock dividend
                
                
                -
                
                
                (25,000
                )
                
                (25,000
                )Net
                      loss attributable to common shareholders
                
                $
                (1,116,048
                )
                $
                (356,449
                )
                $
                (2,039,185
                )Losses
                    per common shareContinuing
                    operationsBasic
                
                $
                (0.13
                )
                $
                (0.06
                )Assuming
                    dilution
                
                $
                (0.13
                )
                $
                (0.06
                )Weighted
                    average common shares outstanding
                
                
                8,874,462
                
                
                6,363,095




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




F-6




SEAWRIGHT
        HOLDINGS, INC.
 (A
        DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
        STATEMENTS OF (DEFICIENCY IN) SHAREHOLDERS' EQUITY
 FOR
        THE
        PERIOD OCTOBER 14, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 2005
 
 Preferred
                  Shares
              
              Preferred
                  Stock Amount
              
              Common
                  Shares
              
              Common
                  Stock Amount
              
              Additional
                  Paid-in Capital
              
              Common
                  Stock Subscription
              
              Preferred
                  Stock Dividend
              
              Deficit
                  Accumulated During Development Stage
              
              TotalNet
                  loss
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              (1,291
              )
              $
              (1,291
              )**Balance
                  at December 31, 1999**
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,291
              )
              
              (1,291
              )Common
                  stock issued on September30,
                  2000 in exchange for convertibledebt
                  at $.50 per share
              
              
              -
              
              
              -
              
              
              78,000
              
              
              78
              
              
              38,922
              
              
              -
              
              
              -
              
              
              -
              
              
              39,000Common
                  stock issued on November27,
                  2000 in exchange for convertibledebt
                  at $.50 per share
              
              
              -
              
              
              -
              
              
              26,000
              
              
              26
              
              
              12,974
              
              
              -
              
              
              -
              
              
              -
              
              
              13,000Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (157,734
              )
              
              (157,734
              )**Balance
                  at December 31, 2000**
              
              
              -
              
              
              -
              
              
              104,000
              
              
              104
              
              
              51,896
              
              
              -
              
              
              -
              
              
              (159,025
              )
              
              (107,025
              )Common
                  stock issued on January 1,2001
                  in exchange for convertible debtat
                  $.50 per share
              
              
              -
              
              
              -
              
              
              174,000
              
              
              174
              
              
              86,826
              
              
              -
              
              
              -
              
              
              -
              
              
              87,000Common
                  stock issued on January 2,2001
                  to founders in exchange forservices
                  rendered at $.001 per share
              
              
              -
              
              
              -
              
              
              5,000,000
              
              
              5,000
              
              
              20
              
              
              -
              
              
              -
              
              
              -
              
              
              5,020Common
                  stock issued on January 2,2001
                  in exchange for servicesrendered
                  at $.50 per share
              
              
              -
              
              
              -
              
              
              90,000
              
              
              90
              
              
              44,910
              
              
              -
              
              
              -
              
              
              -
              
              
              45,000Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (556,921
              )
              
              (556,921
              )**Balance
                  at December 31, 2001**
              
              
              -
              
              
              -
              
              
              5,368,000
              
              
              5,368
              
              
              183,652
              
              
              -
              
              
              -
              
              
              (715,946
              )
              
              (526,926
              )Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (357,588
              )
              
              (357,588
              )**Balance
                  at December 31, 2002**
              
              
              -
              
              $
              -
              
              
              5,368,000
              
              $
              5,368
              
              $
              183,652
              
              $
              -
              
              $
              -
              
              $
              (1,073,534
              )
              $
              (884,514
              )
    F-7
  SEAWRIGHT
          HOLDINGS, INC.
 (A
          DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
          STATEMENTS OF (DEFICIENCY IN) SHAREHOLDERS' EQUITY (CONTINUED)
 FOR
          THE
          PERIOD OCTOBER 14, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 2005
 
 Preferred
                    Shares
                
                Preferred
                    Stock Amount
                
                Common
                    Shares
                
                Common
                    Stock Amount
                
                Additional
                    Paid-in Capital
                
                Common
                    Stock Subscription
                
                Preferred
                    Stock Dividend
                
                Deficit
                    Accumulated During Development Stage
                
                Total**Balance
                    at December 31, 2002**
                
                
                -
                
                $
                -
                
                
                5,368,000
                
                $
                5,368
                
                $
                183,652
                
                $
                -
                
                $
                -
                
                $
                (1,073,534
                )
                $
                (884,514
                )Preferred
                    stock issued in exchangefor
                    cash at $5 per share
                
                
                55,000
                
                
                55
                
                
                -
                
                
                -
                
                
                274,945
                
                
                -
                
                
                -
                
                
                -
                
                
                275,000Stock
                    options issued in exchange forservices
                    rendered
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                5,276
                
                
                -
                
                
                -
                
                
                -
                
                
                5,276Net
                    income
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                506,846
                
                
                506,846**Balance
                    at December 31, 2003**
                
                
                55,000
                
                $
                55
                
                
                5,368,000
                
                $
                5,368
                
                $
                463,873
                
                $
                -
                
                $
                -
                
                $
                (566,688
                )
                $
                (97,392
                )Preferred
                    stock cancelled in exchangefor
                    stock options exercised at$.5625
                    per share
                
                
                (5,000
                )
                
                (5
                )
                
                160,000
                
                
                160
                
                
                64,845
                
                
                -
                
                
                -
                
                
                -
                
                
                65,000Common
                    stock issued on April 8, 2004in
                    exchange for cash at $.30 per share
                
                
                -
                
                
                -
                
                
                300,000
                
                
                300
                
                
                89,700
                
                
                -
                
                
                -
                
                
                -
                
                
                90,000Common
                    stock issued and subscribedin
                    connection with private placement
                
                
                -
                
                
                -
                
                
                2,404,978
                
                
                2,405
                
                
                1,359,491
                
                
                25,581
                
                
                -
                
                
                -
                
                
                1,387,477Conversion
                    of preferred stock tocommon
                    stock
                
                
                (50,000
                )
                
                (50
                )
                
                500,000
                
                
                500
                
                
                (450
                )
                
                -
                
                
                -
                
                
                -
                
                
                -Preferred
                    stock dividend
                
                
                -
                
                
                -
                
                
                50,000
                
                
                50
                
                
                24,950
                
                
                -
                
                
                (25,000
                )
                
                -
                
                
                -Warrants
                    issued to consultants inexchange
                    for services rendered
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                545,460
                
                
                -
                
                
                -
                
                
                -
                
                
                545,460Beneficial
                    conversion feature ofconvertible
                    debentures
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                274,499
                
                
                -
                
                
                -
                
                
                -
                
                
                274,499Value
                    of warrants attached toconvertible
                    debentures
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                187,123
                
                
                -
                
                
                -
                
                
                -
                
                
                187,123Return
                    of contributed capital toshareholder
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (144,006
                )
                
                -
                
                
                -
                
                
                -
                
                
                (144,006
                )Reclassification
                    of equity to liabilityupon
                    issuance of put agreement
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (90,000
                )
                
                
                
                
                
                
                
                
                
                
                (90,000
                )Net
                    loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (331,449
                )
                
                (331,449
                )**Balance
                    at December 31, 2004 (As restated,**
                  **See
                    Note Q)**
                
                
                -
                
                $
                -
                
                
                8,782,978
                
                $
                8,783
                
                $
                2,775,485
                
                $
                25,581
                
                $
                (25,000
                )
                $
                (898,137
                )
                $
                1,886,712
 
  F-8
 SEAWRIGHT
            HOLDINGS, INC.
 (A
            DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
            STATEMENTS OF (DEFICIENCY IN) SHAREHOLDERS' EQUITY (CONTINUED)
 FOR
            THE
            PERIOD OCTOBER 14, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 2005
 
 Preferred
                      Shares
                  
                  Preferred
                      Stock Amount
                  
                  Common
                      Shares
                  
                  Common
                      Stock Amount
                  
                  Additional
                      Paid-in Capital
                  
                  Common
                      Stock Subscription
                  
                  Preferred
                      Stock Dividend
                  
                  Deficit
                      Accumulated During Development Stage
                  
                  Total**Balance
                      at December 31, 2004**
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  8,782,978
                  
                  $
                  8,783
                  
                  $
                  2,775,485
                  
                  $
                  25,581
                  
                  $
                  (25,000
                  )
                  $
                  (898,137
                  )
                  $
                  1,886,712Common
                      stock issued in connectionwith
                      common stock subscribed inconnection
                      with private placement
                  
                  
                  -
                  
                  
                  -
                  
                  
                  54,998
                  
                  
                  55
                  
                  
                  25,526
                  
                  
                  (25,581
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -Common
                      stock issued in connectionwith
                      private placement
                  
                  
                  -
                  
                  
                  -
                  
                  
                  37,500
                  
                  
                  38
                  
                  
                  25,150
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  25,188Fractional
                      share - return of proceeds
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (13
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (13
                  )Beneficial
                      conversion feature ofconvertible
                      debentures
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,708
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,708Value
                      of warrants attached toconvertible
                      debentures
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  3,020
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  3,020Contributed
                      capital
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  89,500
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  89,500Expiration
                    of put agreement
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  90,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  90,000Net
                      loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,116,048
                  )
                  
                  (1,116,048
                  )**Balance
                      at December 31, 2005 (As restated,**
                    **see
                      Note Q)**
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  8,875,476
                  
                  $
                  8,876
                  
                  $
                  3,014,376
                  
                  $
                  -
                  
                  $
                  (25,000
                  )
                  $
                  (2,014,185
                  )
                  $
                  984,067
 The
          accompanying notes are an integral part of these
          consolidated financial statements.
 F-9




SEAWRIGHT
        HOLDINGS, INC.
 (A
        DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 
 **(As
                    restated
                    -****Note Q)****For
                    the years ended December 31,**
                
                **For
                    the period**
                  **from**
                  **October
                    14, 1999**
                  **(date
                    of
                    inception)**
                  **through****2005**
                
                **2004**
                
                **December
                    31,
                    2005**Net
                    loss
                
                $
                (1,116,048
                )
                $
                (331,449
                )
                $
                (2,014,185
                )Income
                    from discontinued operations
                
                
                -
                
                
                -
                
                
                (16,901
                )(1,116,048
                )
                
                (331,449
                )
                
                (2,031,086
                )Adjustments
                    to reconcile to net cash fromoperating
                    activities:Depreciation
                    and amortization
                
                
                6,538
                
                
                417
                
                
                6,955Amortization
                    of debt discount
                
                
                112,083
                
                
                27,775
                
                
                139,858Amortization
                    of deferred financing costs
                
                
                141,788
                
                
                52,410
                
                
                194,198Extinguishment
                    of debt
                
                
                (60,000
                )
                
                -
                
                
                (807,103
                )Fair
                    valuation adjustment - put agreement
                
                
                (68,752
                )
                
                68,752
                
                
                -Accretion
                    of interest on tradename liability
                
                
                1,621
                
                
                -
                
                
                1,621Financing
                    expense attributed to conversionof
                    stock options to common stock
                
                
                -
                
                
                1,500
                
                
                1,500Common
                    stock issued to founders
                
                
                -
                
                
                -
                
                
                5,020Common
                    stock issued in exchange forservices
                    rendered
                
                
                -
                
                
                -
                
                
                45,000Stock
                    options issued in exchange for servicesrendered
                
                
                -
                
                
                -
                
                
                5,276Write-off
                    of claimed receivable -discontinued
                    operations
                
                
                -
                
                
                6,000
                
                
                6,000Change
                    in:Marketable
                    securities - trading
                
                
                1,417,495
                
                
                (1,556,405
                )
                
                (138,910
                )Claims
                    receivable
                
                
                -
                
                
                -
                
                
                (6,000
                )Deposits
                
                
                (59,600
                )
                
                (65,700
                )
                
                (125,300
                )Purchase
                    of intangible
                
                
                (10,000
                )
                
                -
                
                
                (10,000
                )Cash
                    disbursed in excess of available funds
                
                
                -
                
                
                (24,688
                )
                
                -Accrued
                    expenses
                
                
                45,172
                
                
                (73,274
                )
                
                867,548Net
                    cash provided by (used in) continuingoperating
                    activities
                
                
                410,297
                
                
                (1,894,662
                )
                
                (1,845,423
                )Net
                    cash provided by discontinued operatingactivities
                
                
                -
                
                
                -
                
                
                16,901Net
                    cash from operating activities
                
                
                410,297
                
                
                (1,894,662
                )
                
                (1,828,522
                )







F-10




SEAWRIGHT
        HOLDINGS, INC.
 (A
        DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS (CONTINUED)
 
 
 
 **(As
                    restated -****Note
                    Q)****For
                  the years ended December
                  31,**
              
              **For
                  the period**
                **from**
                **October
                  14, 1999**
                **(date
                  of
                  inception)**
                **through****2005**
              
              **2004**
              
              **December
                  31,
                  2005**Cash
                  flows from investing activitiesCapital
                  expenditures
              
              
              (264,346
              )
              
              (7,592
              )
              
              (578,718
              )Net
                  cash from investing activities
              
              
              (264,346
              )
              
              (7,592
              )
              
              (578,718
              )Cash
                  flows from financing activitiesProceeds
                  from issuance of common stock andstock
                  subscription - net of costs and fees
              
              
              25,188
              
              
              1,540,977
              
              
              1,566,165Nonreciprocal
                  (transfer to) receipt from shareholder
              
              
              89,487
              
              
              (144,006
              )
              
              (54,519
              )Proceeds
                  from issuance of capital notes - net
              
              
              -
              
              
              -
              
              
              139,000Proceeds
                  from issuance of convertible notes - net
              
              
              16,792
              
              
              1,065,794
              
              
              1,082,586Proceeds
                  from issuance of warrants attached to convertible notes - net
              
              
              3,020
              
              
              166,845
              
              
              169,865Repayments
                  of notes payable
              
              
              (340,000
              )
              
              (415,000
              )
              
              (640,000
              )Proceeds
                  from issuance of preferred stock - net
              
              
              -
              
              
              -
              
              
              275,000Repayments
                  of shareholder advances
              
              
              -
              
              
              (121,937
              )
              
              -Net
                  cash from financing activities
              
              
              (205,513
              )
              
              2,092,673
              
              
              2,538,097Net
                  increase (decrease) in cash and cash equivalents
              
              $
              (59,562
              )
              $
              190,419
              
              $
              130,857Cash
                  and cash equivalents - beginning of period
              
              
              190,419
              
              
              -
              
              
              -Cash
                  and cash equivalents - end of period
              
              $
              130,857
              
              $
              190,419
              
              $
              130,857Supplemental
                  Disclosures of Cash Flow InformationCash
                  paid for interest
              
              $
              191,130
              
              $
              49,487
              
              $
              240,617Cash
                  paid for income taxes
              
              $
              -
              
              $
              -
              
              $
              -Notes
                  payable issued in connection with capitalexpenditures
              
              $
              500,000
              
              $
              700,000
              
              $
              1,200,000Warrants
                  issued in exchange for financing costs
              
              $
              -
              
              $
              545,460
              
              $
              545,460


The
        accompanying notes are an integral part of these
        consolidated financial statements.
   F-11




***Notes
      to Consolidated Financial Statements***


***Years
      Ended December 31, 2005 and 2004***





NOTE
      A-SUMMARY OF ACCOUNTING POLICIES





A
      summary
      of the significant accounting policies applied in the preparation of the
      accompanying consolidated financial statements follows.





BUSINESS
      AND BASIS OF PRESENTATION





Seawright
      Holdings, Inc., (Company) was formed on October 14, 1999 under the laws of
      the
      state of Delaware. The Company is a development stage enterprise, as defined
      by *Statement
      of Financial Accounting Standards No. 7 (SFAS 7)* and
      is
      seeking to develop a spring water bottling and distribution business. From
      its
      inception through the date of these financial statements, the Company has
      recognized minimal revenues and has incurred significant operating expenses.
      Consequently, its operations are subject to all risks inherent in the
      establishment of a new business enterprise. For the period from inception
      through December 31, 2005, the Company has accumulated losses of
      $2,014,185.





The
      consolidated financial statements include the accounts of the Company, and
      its
      wholly-owned subsidiary, Seawright Springs LLC. Significant intercompany
      transactions have been eliminated in consolidation.





DISCONTINUED
      OPERATIONS





As
      a
      result of the Company's acquisition of real property and improvements in October
      2003 (see Note C), the Company restructured its operations to focus on the
      development of the spring water bottling and distribution business. This
      restructuring included the discontinuance of financing plaintiffs who are
      involved in personal injury claims. Accordingly, the Company's plaintiff's
      financing business segment is accounted for as a discontinued operation, and
      the
      amounts in the financial statements and related notes for all periods shown
      have been
      restated to reflect discontinued operations accounting. The Company has not
      allocated any previously incurred corporate overhead and selling, general and
      administrative expenses to the discontinued operation.





The
      financial statements reflect the operating results of the discontinued
      operations separately from continuing operations. Prior years have been
      restated. Operating results for the discontinued operations are reflected on
      the
      income statement and occurred during the period from inception, being October
      14, 1999, through December 31, 2003.





REVENUE
      RECOGNITION





For
      revenue from product sales, the Company recognizes revenue in accordance with *Staff
      Accounting Bulletin No. 104, Revenue Recognition (SAB 104)* ,
      which
      superseded *Staff
      Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
      101)* .
      SAB 101
      requires that four basic criteria must be met before revenue can be recognized:
      (1) persuasive evidence of an arrangement exists; (2) delivery has occurred;
      (3)
      the selling price is fixed and determinable; and (4) collectibility is
      reasonably assured. Determination of criteria (3) and (4) are based on
      management's judgments regarding the fixed nature of the selling prices of
      the
      products delivered and the collectibility of those amounts. Provisions for
      discounts and rebates to customers, estimated returns and allowances, and other
      adjustments are provided for in the same period the related sales are recorded.
      The Company defers any revenue for which the product has not been delivered
      or
      is subject to refund until such time that the Company and the customer jointly
      determine that the product has been delivered or no refund will be
      required.







F-12





SAB
      104
      incorporates *Emerging
      Issues Task Force 00-21, Multiple-Deliverable Revenue Arrangements (EITF
      00-21)* .
      EITF
      00-21 addresses accounting for arrangements that may involve the delivery or
      performance of multiple products, services and/or rights to use assets. The
      effect of implementing EITF 00-21 on the Company's consolidated financial
      position and results of operations was not significant.





USE
      OF
      ESTIMATES





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent liabilities at the date of the financial statements and the reported
      amount of revenue and expenses during the reporting period. Accordingly, actual
      results could differ from those estimates.





CASH
      AND
      CASH EQUIVALENTS





The
      Company maintains a cash balance in a non-interest bearing account that may,
      at
      times, exceed federally insured limits. For the purposes of the statements
      of
      cash flows, the Company considers all highly liquid debt instruments
      purchased with a maturity date of three months or less to be cash
      equivalents.





PROPERTY
      AND EQUIPMENT





Property
      and equipment are stated at cost. When retired or otherwise disposed, the
      related carrying value and accumulated depreciation are removed from the
      respective accounts and the net difference less any amount realized from
      disposition, is reflected in earnings. Minor additions and renewals are expensed
      in the year incurred. Major additions and renewals are capitalized and
      depreciated over their estimated useful lives being 5 years for equipment and
      4
      years for computers.





ADVERTISING





The
      Company follows the policy of charging the costs of advertising to expense
      as
      incurred. The Company did not incur advertising costs for the past two
      years.





IMPAIRMENT
      OF LONG-LIVED ASSETS





The
      Company has adopted *Statement
      of Financial Accounting Standards No.144, Accounting for the Impairment or
      Disposal of Long-Lived Assets (SFAS 144)* .
      The
      Statement requires that long-lived assets and certain identifiable intangibles
      held and used by the Company be reviewed for impairment whenever events or
      changes in circumstances indicate that the carrying amount of an asset may
      not
      be recoverable. Events relating to recoverability may include significant
      unfavorable changes in business conditions, recurring losses, or a forecasted
      inability to achieve break even operating results over an extended period.
      The
      Company evaluates the recoverability of long-lived assets based upon forecasted
      undiscounted cash flows. Should an impairment in value be indicated, the
      carrying value of intangible assets will be adjusted, based on estimates of
      future discounted cash flows resulting from the use of and ultimate disposition
      of the intangible, to be reported at the lower of the carrying amount or the
      fair value less costs to sell.





FAIR
      VALUE OF FINANCIAL INSTRUMENTS





*Statement
      of Financial Accounting Standards No. 107, Disclosures About Fair Value of
      Financial Instruments (SFAS 107)* requires
      disclosure of the fair value of certain financial instruments. The carrying
      value of cash and cash equivalents, accounts receivable, accounts payable and
      short-term borrowings, as reflected in the balance sheets, approximate fair
      value because of the short-term maturity of these instruments.







F-13





STOCK
      BASED COMPENSATION





In
      December 2002, the Financial Accounting Standards Board (FASB) issued *Statement
      of Financial Accounting Standards No. 148, Accounting for stock-based
      Compensation- Transition and Disclosure- an amendment of SFAS 123 (SFAS
      148)* .
      This
      statement amends *Standards
      of Financial Accounting Standards No.123, Accounting for Stock based
      Compensation (SFAS 123)* to
      provide alternative methods of transition for a voluntary change to the fair
      value based method of accounting for stock based employee compensation. In
      addition, this statement amends the disclosure requirements of SFAS 123 to
      require prominent disclosures in both annual and interim financial compensation
      and the effect of the method used on reported results. The Company has chosen
      to
      continue to account for stock-based compensation using the intrinsic value
      method prescribed in *APB
      Opinion No.25, Accounting for Stock Issued to Employees (APB
      25)* and
      related interpretations. Accordingly, compensation expense for stock options
      is
      measured as the excess, if any, of the fair market value of the Company's stock
      at the date of the grant over the exercise price of the related option. The
      Company has adopted the annual disclosure provisions of SFAS 148 in its
      financial reports for the years ended December 31, 2005 and 2004 and has adopted
      the interim disclosure provisions in its financial reports for subsequent
      periods. Had compensation costs for the Company's stock options been determined
      based on the fair value at the grant dates for the awards, the Company's net
      loss and losses per share for 2005 and 2004 would not have been impacted as
      the
      Company would have reported no expense in its financial statements for those
      two
      years based on outstanding stock options.





On
      December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
      Statement No. 123R (revised 2004), "Share-Based Payment" which is a revision
      of
      FASB Statement No. 123, "Accounting for Stock-Based Compensation". Statement
      123R supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees",
      and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the
      approach in Statement 123R is similar to the approach described in Statement
      123. However, Statement 123R requires all share-based payments to employees,
      including grants of employee stock options, to be recognized in the income
      statement based on their fair values. Pro-forma disclosure is no longer an
      alternative. On April 14, 2005, the SEC amended the effective date of the
      provisions of this statement. The effect of this amendment by the SEC is that
      the Company will have to comply with Statement 123R and use the Fair Value
      based
      method of accounting no later than the first quarter of 2006.








EARNING
      (LOSS) PER SHARE





Net
      earning (loss) per share is provided in accordance with *Statement
      of Financial Accounting Standards No. 128, Earnings per share (SFAS
      128)* .
      Basic
      loss per share is computed by dividing losses available to common stockholders
      by the weighted average number of common shares and dilutive common stock
      equivalents outstanding during the period. Dilutive common stock equivalents
      consist of shares issuable upon conversion of convertible debentures and the
      exercise of the Company's stock options and warrants (calculated using the
      treasury stock method). During the year ended December 31, 2005 and 2004, common
      stock equivalents are not considered in the calculation of the weighted average
      number of common shares outstanding because they would be anti-dilutive, thereby
      decreasing the net loss per common share.










F-14





SEGMENT
      INFORMATION





The
      Company adopted *Statement
      of Financial Accounting Standards No. 131, Disclosures about Segments of an
      Enterprise and Related Information (SFAS 131)* in the
      year ended December 31, 1999. SFAS 131 establishes standards for reporting
      information regarding operating segments in annual financial statements and
      requires selected information for those segments to be presented in interim
      financial reports issued to stockholders. SFAS 131 also establishes standards
      for related disclosures about products and services and geographic areas.
      Operating segments are identified as components of an enterprise about which
      separate discrete financial information is available for evaluation by the
      chief
      operating decision maker, or decision-making group, in making decisions
      regarding the allocation of resources and asset performance. The information
      disclosed herein materially represents all of the financial information related
      to the Company's principal operating segment.





INCOME
      TAXES





The
      Company follows *Statement
      of Financial Accounting Standards No. 109, Accounting for Income taxes (SFAS
      109)* for
      recording the provision for income taxes. Deferred tax assets and liabilities
      are computed based upon the difference between the financial statement and
      income tax basis of assets and liabilities using the enacted marginal tax rate
      applicable when the related asset or liability is expected to realized or
      settled. Deferred income tax expenses or benefits are based on the changes
      in
      the asset or liability during each period. If available evidence suggests that
      it is more likely than not that some portion or all of the deferred tax assets
      will not be realized, a valuation allowance is required to reduce the deferred
      tax assets to the amount that is more likely than not to be realized. Future
      changes in such valuation allowance are included in the provision for deferred
      income taxes in the period of change.





Deferred
      income taxes may arise from temporary differences resulting from income and
      expense items reported for financial accounting and tax purposes in different
      periods. Deferred taxes are classified as current or non-current, depending
      on
      the classification of assets and liabilities to which they relate. Deferred
      taxes arising from temporary differences that are not related to an asset or
      liability are classified as current or non current depending on the periods
      in
      which the temporary differences are expected to reverse.





CONCENTRATIONS
      OF CREDIT RISK





Financial
      instruments and related items, which potentially subject the Company to
      concentrations of credit risk, consist primarily of cash and cash equivalents
      and marketable securities. The Company places its cash and temporary cash
      investments with high credit quality institutions. At times, such investments
      may be in excess of the FDIC insurance limit. Marketable securities are reviewed
      periodically by management who has established guidelines for the Company’s
      investment portfolio. Marketable securities maintained by the Company are not
      FDIC insured.





LIQUIDITY





The
        Company is in the development stage and its efforts have been principally
        devoted to developing the spring water bottling and distribution business.
        To
        date, the Company has generated minimal revenues, has incurred expenses and
        has
        sustained losses. As shown in the accompanying consolidated financial
        statements, the Company has incurred accumulated losses of $2,014,185 for
        the
        period from inception through December 31, 2005. The Company's current
        liabilities exceeded its current assets by $225,378 as of December 31, 2005.
        Consequently, its operations are subject to all risks inherent in the
        establishment of a new business enterprise.













F-15





DEBT
      AND
      EQUITY SECURITIES





The
      Company follows the provisions of *Statement
      of Financial Accounting Standards No. 115, Accounting for Certain Investments
      in
      Debt and Equity Securities (SFAS 115)* .
      The
      Company classifies debt and equity securities into one of three categories:
      held-to-maturity, available-for-sale or trading. These security classifications
      may be modified after acquisition only under certain specified conditions.
      Securities may be classified as held-to-maturity only if the Company has the
      positive intent and ability to hold them to maturity. Trading securities are
      defined as those bought and held principally for the purpose of selling them
      in
      the near term. All other securities must be classified as
      available-for-sale.





Held-to-maturity
      securities are measured at amortized cost in the consolidated balance sheets.
      Unrealized holding gains and losses are not included in earnings or in a
      separate component of capital. They are merely disclosed in the notes to the
      consolidated financial statements.





Available-for-sale
      securities are carried at fair value on the consolidated balance sheets.
      Unrealized holding gains and losses are not included in earnings but are
      reported as a net amount (less expected tax) in a separate component of capital
      until realized.





Trading
      securities are carried at fair value on the consolidated balance sheets.
      Unrealized holding gains and losses for trading securities are included in
      earnings.





Declines
      in the fair value of held-to-maturity and available-for-sale securities below
      their cost that are deemed to be other than temporary are reflected in earnings
      as realized losses.





INTANGIBLES





In
      accordance with *Statement
      of Financial Accounting Standards No. 142* , *Goodwill
      and Other Intangible Assets (SFAS 142)* ,
      indefinite-lived intangible assets are not amortized but are reviewed annually
      for impairment. Separable intangible assets that are not deemed to have an
      indefinite life are amortized over their useful lives and reviewed for potential
      impairment whenever events or circumstances indicate that carrying amounts
      may
      not be recoverable.





The
      Company tests, for impairment, the tradename value reported on the consolidated
      balance sheet on the last day of the Company’s year. The tradename impairment
      test under SFAS 142 requires a two-step approach, which is performed at the
      reporting unit level, as defined in SFAS 142. Step one identifies potential
      impairments by comparing the fair value of the reporting unit to its carrying
      amount. Step two, which is only performed if there is a potential impairment,
      compares the carrying amount of the reporting unit’s tradename value to its
      implied value, as defined in SFAS 142. If the carrying amount of the reporting
      unit’s tradename exceeds the implied fair value of the tradename, an impairment
      loss is recognized for an amount equal to that excess.





Financing
      costs associated with the Company’s convertible promissory notes are deferred
      and amortized over the term of the loan.













F-16





NEW
      ACCOUNTING PRONOUNCEMENTS





In
      March
      2005, the FASB issued FASB Interpretation (FIN) No. 47, “Accounting for
      Conditional Asset Retirement Obligations, an interpretation of FASB Statement
      No. 143,” which requires an entity to recognize a liability for the fair value
      of a conditional asset retirement obligation when incurred if the liability’s
      fair value can be reasonably estimated. The Company is required to adopt the
      provisions of FIN 47 no later than the first quarter of fiscal 2006. The Company
      does not expect the adoption of this Interpretation to have a material impact
      on
      its consolidated financial position, results of operations or cash flows.




In
      May
      2005, the FASB issued *Statement
      of Financial Accounting Standards No. 154, Accounting Changes and Error
      Corrections (SFAS 154)* ,
      which
      requires retrospective application of all comparative financial statements
      for
“voluntary” accounting principle changes. This statement, however, does not
      apply to changes in principle due to new accounting pronouncements when the
      new
      pronouncement includes specific transition provisions. SFAS 154 is effective
      for
      accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005. The adoption of this standard is currently not expected
      to have a material impact on the Company’s consolidated results of operations
      and financial position in the foreseeable future.





On
      November 3, 2005, the FASB issued *FASB
      Staff Position on SFAS 115 and 124, The Meaning of Other-Than-Temporary
      Impairment and its Application to Certain Investments (FSP FAS 115-1 and
      124-1)* .
      This
      FSP addresses the determination as to when an investment is considered impaired,
      whether that impairment is other than temporary, and the measurement of an
      impairment loss. It is effective for reporting periods beginning after December
      15, 2005. Accordingly, the Company is reviewing its processes and will adopt
      the
      required accounting and disclosures.





On
      February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid
      Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and
      Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of
      Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial
      instruments that have embedded derivatives to be accounted for as a whole
      (eliminating the need to bifurcate the derivative from its host) if the holder
      elects to account for the whole instrument on a fair value basis. SFAS 155
      also
      clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This
      statement is effective for all financial instruments acquired or issued in
      fiscal years beginning after September 15, 2006. The Company does not
      expect its adoption of this new standard to have a material impact on its
      financial position, results of operations or cash flows.





RECLASSIFICATIONS


Certain
      reclassifications have been made in prior year’s financial statements to conform
      to classifications used in the current year.





NOTE
      B -
      MARKETABLE SECURITIES





During
      the year ended December 31, 2005 and 2004, the Company classified all of its
      marketable securities as trading as the securities were bought and held
      principally for the purpose of selling them in the near term. The Company
      actively and frequently trades securities with the objective of generating
      profits on short-term differences in price. The trading securities are marked
      to
      market on a monthly basis. At December 31, 2005 and 2004, the Company's trading
      securities were carried at fair values of $138,910 and $1,556,405, respectively.
      Total realized loss amounted to $54,592 while realized gain amounted to $133,515
      at December 31, 2005 and 2004, respectively. There were no unrealized holding
      gains or losses at December 31, 2005. Unrealized holding losses amounted to
      $39,997 at December 31, 2004.






F-17






NOTE
      C -
      PROPERTY AND EQUIPMENT





In
      October, 2003, the Company acquired approximately 140 acres of land and related
      improvements in Augusta County, Virginia, in exchange for $1,000,000, comprised
      of $300,000 of cash and a $700,000 promissory note payable. In June 2005, the
      Company purchased a parcel of land located approximately 10 miles south of
      the
      Augusta County, Virginia location. The purchased parcel is 33.52 acres which
      the
      Company acquired for $725,000, comprised of $225,000 of cash and a $500,000
      promissory note payable. The Company anticipates entering the sale of bulk
      spring water and retail bottling business utilizing the properties’ water
      resources.





Major
      classes of property and equipment at December 31, 2005 and 2004 consist of
      the
      followings:




2005
              
              2004Land
              
              $
              1,725,000
              
              $
              1,000,000Equipment
              
              
              29,438
              
              
              7,592Building
                  improvements
              
              
              24,280
              
              
              6,7801,778,718
              
              
              1,014,372Less
                  - accumulated depreciation
              
              
              (3,049
              )
              
              (417
              )$
              1,775,669
              
              $
              1,013,955
  Depreciation
      expense was $2,632 and $417 for the years ended December 31, 2005 and 2004,
      respectively. The building improvements have not been placed in service as
      of
      December 31, 2005. Accordingly, depreciation has not been recorded on this
      asset
      group.





NOTE
      D -
      INTANGIBLES





INTANGIBLE
      ASSET





In
      June
      2005, the Company purchased intellectual property including trademarks, service
      marks, trade dress, trade names, brand names, designs and logos as well as
      formulas for flavored sparkling waters and teas from a competitor. Under the
      terms of the agreement, the Company paid a purchase price of $10,000 with
      royalties to be paid for the first 4,000,000 cases of bottled water or tea
      sold
      under the trademarks. As of the fifth anniversary of the effective date of
      the
      purchase, if the Company has not sold 4,000,000 cases of product under the
      trademark, the seller shall be entitled to a payment of $50,000 less any
      royalties previously paid under the agreement. The royalty payable under this
      intangible has been recorded at its present value of $30,683 at December 31,
      2005 and is included in other long-term liabilities. The intangibles have been
      recorded at the carrying amount of $39,063 net of the discount amortized and
      charged to interest expense in relation to these intangibles through December
      31, 2005 of $3,906. The intangible assets acquired will be amortized over a
      period of 5 years.





The
      Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets, whereby
      the Company periodically tests its intangible assets for impairment. On an
      annual basis, and when there is reason to suspect that their values have been
      diminished or impaired, these assets are tested for impairment, and write-downs
      will be included in results from operations.









F-18





Estimated
      amortization expense is as follows for years ending December 31:




2006
              
              $
              7,8122007
              
              
              7,8122008
              
              
              7,8122009
              
              
              7,8122010
              
              
              3,908Thereafter
              
              
              -Total
              
              $
              35,156
  DEFERRED
      FINANCING COSTS





Deferred
      financing costs associated with the Company’s convertible notes payable are
      deferred and amortized over the life of the loan. Deferred financing costs
      consisted of the following at December 31:




2005
              
              2004Deferred
                  financing costs
              
              $
              701,445
              
              $
              701,445Less
                  - accumulated amortization
              
              
              (194,198
              )
              
              (52,410
              )$
              507,247
              
              $
              649,035




Amortization
      expense on deferred financing costs was $141,788 and $52,410 as of December
      31,
      2005 and 2004, respectively.





NOTE
      E -
      NOTES PAYABLE





Notes
      payable at December 31 consisted of the following:




2005
              
              2004Note
                  payable, 8% interest, principal and outstandinginterest
                  due and payable in May 2006, collateralizedby
                  land.
              
              $
              500,000
              
              $
              -Note
                  payable, 6% interest payable every six months,principal
                  due in full April 2008, personally guaranteedby
                  the Company's President and principal shareholder.
                  (a)
              
              
              -
              
              
              400,000500,000
              
              
              400,000Less
                  - current portion
              
              
              (500,000
              )
              
              -Notes
                  payable - long-term
              
              $
              -
              
              $
              400,000





F-19





(a)
      In
      February 2005, the Company paid in full the principal and all accrued interest
      of the note. Pursuant to the note agreement, the Company was granted a $60,000
      principal reduction discount when all principal and accrued interest are paid
      in
      full before the second anniversary of the note agreement. The Company has
      accounted for the $60,000 principal reduction discount as other income during
      the year ended December 31, 2005.








NOTE
      F -
      PRIVATE PLACEMENT AND CONVERTIBLE PROMISSORY NOTES PAYABLE





The
      Company entered into a Private Placement Memorandum in August 2004 to offer
      up
      to 1,000 units of an equity/notes payable instrument. Each unit consists of
      2,500 shares of common stock of the Company, $1,500 of convertible promissory
      notes (Convertible Notes), and 1 warrant to purchase 300 shares of the Company's
      common stock at $0.85 per share. The Convertible Notes accrue interest at 11%
      per annum which is payable and due in September 2009. The note holders have
      the
      option to convert any unpaid note principal and accrued interest to the
      Company's common stock at a rate of $0.85 per share anytime after six months
      from the issuance date of the note.





At
      December 31, 2004, the Company had received proceeds of $2,620,116, net of
      placement costs and fees of $331,884, for 984 units subscribed. Pursuant to
      the
      terms of the Private Placement Memorandum, the Company issued to the investors
      Convertible Notes in an aggregate of $1,476,000. The Company is obligated to
      issue 2,460,000 shares of its common stock, valued at $1,387,477, to the
      investors in connection with the private placement. An aggregate of 2,404,978
      shares were issued to the investors at December 31, 2004, and the Company has
      accounted for the remaining 54,998 shares not issued at December 31, 2004 as
      common stock subscription payable in the amount of $25,581 (fractional shares
      of
      24 shares of common stock will not be issued). The 54,998 shares of common
      stock
      were issued to the investors in January 2005. The Company also
      issued to investors an aggregate of 984 warrants as of December 31,
      2004.





In
      January 2005, the Company received additional proceeds of $45,000 for an
      additional 15 units subscribed. Pursuant to the terms of the Private Placement
      Memorandum, the Company issued to the investors Convertible Notes in an
      aggregate of $22,500. The Company also issued an aggregate of 37,500 shares
      of
      its common stock, valued at $25,188 to the investors in connection with the
      private placement. Additionally, the Company issued to investors an aggregate
      of
      15 warrants in January 2005.

















F-20





A
      summary
      of convertible promissory notes payable at December 31 are as
      follows:




2005
              
              2004Convertible
                  notes payable (Convertible Notes), 11% perannum,
                  maturity of September 2009, note holder hasthe
                  option to convert unpaid note principal and interestto
                  the Company's common stock at $0.85 per share
              
              $
              1,498,500
              
              $
              1,476,000Debt
                  discount - note, net of accumulated amortizationof
                  $69,929 and $13,887 at December 31, 2005 and2004,
                  respectively.
              
              
              (210,278
              )
              
              (260,612
              )Debt
                  discount - beneficial conversion feature - note, netof
                  accumulated amortization of $69,929 and $13,888at
                  December 31, 2005 and 2004, respectively.
              
              
              (210,278
              )
              
              (260,611
              )1,077,944
              
              
              954,777Less
                  - current portion
              
              
              -
              
              
              -Total
              
              $
              1,077,944
              
              $
              954,777


In
      accordance with *Emerging
      Issues Task Force Issue 98-5, Accounting For Convertible Securities With a
      Beneficial Conversion Feature or Contingently Adjustable Conversion Ratios
      (EITF
      98-5)* ,
      the
      Company allocated, on a relative fair value basis, the net proceeds amongst
      the
      common stock, convertible notes and warrants issued to the investors. The
      Company recognized a discount to the notes in the amount of $5,708 and $274,499
      during the years ended December 31, 2005 and 2004, respectively. The note
      discount is being amortized over the maturity period of the notes, being five
      years. The Company recognized an imbedded beneficial conversion feature present
      in the Convertible Notes and allocated a portion of the proceeds equal to the
      intrinsic value of that feature to additional paid-in capital. As of December
      31, 2005 and 2004, the Company recognized $5,708 and $274,499, respectively,
      of
      the proceeds, which is equal to the intrinsic value of the imbedded beneficial
      conversion feature, to additional paid-in capital and a discount against the
      Convertible Note. The debt discount attributed to the beneficial conversion
      feature is amortized over the Convertible Notes’ maturity period, being five
      years, as interest expense.





In
      connection with the placement of the Convertible Notes, the Company issued
      detachable warrants granting the holders the right to acquire 4,500 and 295,200
      shares of the Company’s common stock at $0.85 per share as of December 31, 2005
      and 2004, respectively. The warrants expire five years from their issuance.
      In
      accordance with *Emerging
      Issues Task Force Issue 00-27, Application of Issue No. 98-5 to Certain
      Convertible Instruments (EITF 00-27),* the
      Company recognized the value attributable to the warrants in the amount of
      $3,020 and $187,123 to additional paid-in capital during the years ended
      December 31, 2005 and 2004, respectively. The Company valued the warrants in
      accordance with EITF 00-27 using the Black-Scholes pricing model and the
      following assumptions: contractual terms of 5 years, an average risk free
      interest rate of 3.38%, a dividend yield of 0%, and volatility of 296%.





The
      Company amortized the Convertible Notes’ debt discount and the debt discount
      attributed to the beneficial conversion feature and recorded non-cash interest
      expense of $112,083 and $27,775 for the years ended December 31, 2005 and 2004,
      respectively.






F-21






Financing
      costs attributable to the equity portion of the private placement totaled
      $175,899 and were netted against the amount attributable to common stock.
      Deferred financing costs of $155,985 attributable to the debt portion of the
      private placement are being amortized over the life of the debt instrument,
      being 5 years. The Company amortized $31,197 and $12,999 for the years ended
      December 31, 2005 and 2004, respectively, in relation to the deferred financing
      costs.








NOTE
      G -
      CAPITAL STOCK





The
      Company was incorporated under the laws of the State of Delaware on October
      14,
      1999 under the name of Pre-Settlement Funding Corporation. The Company has
      authorized 100,000 shares of preferred stock, with a par value of $.001 per
      share. The Company has designated 60,000 of its preferred stock as Series A
      Convertible Preferred Stock. As of December 31, 2005 and 2004, the Company
      does
      not have any shares of Series A Convertible Preferred Stock issued and
      outstanding. The Company has authorized 19,900,000 shares of common stock,
      with
      a par value of $.001 per share. As of December 31, 2005 and 2004, there were
      8,875,476 and 8,782,978 shares of common stock issued and outstanding,
      respectively.





In
      March
      2000, the Company issued $ 124,000 of notes payable convertible into common
      stock at a price equal to $.50 per share. As of December 31, 2000, the holders
      of the notes payable elected to convert $52,000 of the notes, net of costs,
      in
      exchange for 104,000 shares of the Company's common stock.





In
      January 2001, the holders of the $ 72,000 of convertible Notes Payable,
      exercised their rights to convert the unpaid principal to 144,000 shares of
      the
      Company's common stock at the conversion price of $.50 per share.





In
      January 2001, $15,000 of convertible notes payable were issued and converted
      to
      30,000 shares of the Company's common stock.





In
      January 2001, the Company issued 5,000,000 shares of its common stock to the
      Company's Founders in exchange for services provided to the Company from its
      inception. The Company valued the shares issued at $.001 per share, which
      approximated the fair value of the services rendered. The compensation costs
      of $5,020
      were charged to income during the year ended December 31, 2001.





In
      January 2001, the Company issued 90,000 shares of its common stock to
      consultants in exchange for services provided to the Company. The Company valued
      the shares issued at $ .50 per share, which approximated the fair value of
      the
      shares issued during the period the services were rendered. The compensation
      costs of $ 45,000 were charged to income during the year ended December 31,
      2001.





During
      the year ended December 31, 2003, the Company authorized the issuance of 60,000
      shares of newly designated Series A Convertible Preferred stock, with a par
      value of $0.001 per share. As of December 31, 2003 the Company issued 55,000
      shares of the Series A Convertible Preferred stock in exchange for $275,000,
      net of
      costs
      and fees.





The
      Series A Convertible Preferred Stock are convertible into the Company's common
      stock at the option of the holder at a ratio of ten (10) shares of common stock
      for each share of preferred stock if converted before the first anniversary
      of the original issue date and at a ratio of five (5) shares of common stock
      for
      each share of preferred stock if conversion is made after the first anniversary
      but before the second anniversary.










F-22





The
      preferred shares may be redeemed for cash at the option of the Company, any
      time
      after the first anniversary of the original issue date but before the second
      anniversary. The Preferred Shareholders shall be entitled to cumulative
      dividends when and if declared by the Company's Board of Directors at a per
      share rate of 10% per annum of the original issue price. At the option of the
      preferred shareholders, accrued and unpaid cumulative dividends may be applied
      to the purchase of additional shares of the Company's common stock upon
      conversion of the preferred shares to common shares. The Preferred Shares rank
      senior to the common stock. The Preferred Shares have a liquidation preference
      of payment of the original purchase price of the Preferred Shares plus
      all


declared
      but unpaid dividends on such shares.





The
      fair
      value of the Company's common stock at the time the conversion option was
      granted was below the value of the Preferred Stock if converted. Accordingly,
      the Company recognized no beneficial conversion feature embedded in the Series
      A
      Preferred Stock.


In
          April
          2004, the Company issued 160,000 shares of its common stock to a shareholder
          in
          exchange for previously issued stock options exercised at $.5625 per share,
          for
          a total of $90,000. In exchange for the shares, the holder of the options
          paid
          $63,500 in cash, and tendered 5,000 shares of the Company's previously
          issued
          Series A preferred stock valued at $5 per share. The remaining balance
          of $1,500
          was accounted for as financing expenses and was charged to operations during
          the
          year ended December 31, 2004. The preferred shares tendered were subsequently
          cancelled by the Company.





In
      April
      2004, the Company issued an aggregate of 300,000 shares of its restricted common
      stock to an investor in exchange for $90,000 of proceeds, net of costs and
      fees.


Pursuant
          to the Private Placement Memorandum, the Company was obligated to issue
          an
          aggregate of 2,460,000 shares of its common stock, valued at $1,387,477
          net of
          placement costs attributable to the equity portion of the private placement,
          to
          the investors in connection with 984 units sold in the private placement
          as of
          December 31, 2004. The Company has issued an aggregate of 2,404,978 shares
          to
          the investors at December 31, 2004, and the remaining aggregate of 54,998
          shares
          were issued to the investors in January 2005 (fractional shares of 24 shares
          of
          common stock will not be issued). The Company has accounted for the shares
          not
          issued at December 31, 2004 as common stock subscription payable in the
          amount
          of $25,581.





In
      December 2004, the Company's Series A Preferred Stock holders elected to convert
      an aggregate of 50,000 sharers of Preferred Stock into 500,000 shares of the
      Company's common stock, at a ratio of ten (10) shares of common stock for each
      share of preferred stock. In connection with the conversion, the Company also
      issued an aggregate of 50,000 shares of its common stock in exchange for $25,000
      of dividends in arrears. As of December 31, 2004, all Series A Convertible
      Preferred Stock has been converted to the Company's common stock, and there
      was
      no Preferred Stock issued and outstanding at December 31, 2004.





In
      January 2005, pursuant to the Private Placement Memorandum, the Company was
      obligated to issue an aggregate of 37,500 shares of its common stock, valued
      at
      $25,188 to the investors in connection with 15 units sold in the private
      placement as of December 31, 2005.










F-23





NOTE
        H -
        PUT AGREEMENT





In
      April
      2004, the Company issued 160,000 shares of its common stock to a shareholder
      in
      exchange for previously issued stock options exercised at $.5625 per share,
      for
      a total of $90,000. In exchange for the shares, the holder of the options paid
      $63,500 in cash, and tendered 5,000 shares of the Company's previously issued
      Series A preferred stock valued at $5 per share. The remaining balance of $1,500
      was accounted for as financing expense and was charged to operations during
      the
      year ended December 31, 2004.


In
          October 2004, the Company entered into an agreement (put agreement) granting
          the
          shareholder an option to put the 160,000 shares of common stock to the
          Company
          one year from the date of the agreement for $1.25 per share. The shareholder
          agreed to cancel 677,500 stock options exercisable at $.5625 per
          share.
 
 The
          Company accounted for the puts in accordance with *Statement
          of Financial Accounting Standards No. 150, Accounting for Certain Financial
          Instruments with Characteristics of both Liabilities and Equity (SFAS
          150)* ,
          and
          classified the fair value attributable to the put option as an accrued
          liability, as the puts issued under the put agreement embody an obligation
          to
          repurchase the Company's equity shares which would require the Company
          to settle
          the agreement by transferring its assets. The put option was initially
          measured
          at its fair value of $170,256 as of the date of the agreement. Assumptions
          used
          to estimate the fair value of the put option are as follows:


Risk-free
                  interest rate
              3.38%Dividend
                  yield
              -Volatility
              296%Time
                  to expiration
              1
                  year
 
 Equity
        was reduced by the original value of the shares, being $90,000, with the
        remaining value of $80,256 being charged to other expense. The put option
        was
        determined to have a fair value of $158,752 at year end 2004. Accordingly,
        $11,504 has been credited to other expense.
 In
          October 2005, the put agreement and puts expired without being exercised.
          At the
          time of expiration, the fair value of the accrued liability attributable
          to the
          puts was $87,984. Accordingly, equity has been increased by the original
          value
          of the shares, being $90,000, with the remaining value of $2,016 being
          charged
          to other expense.
  NOTE
      I -
      STOCK OPTIONS AND WARRANTS





STOCK
      OPTIONS





The
      following table summarizes the changes in options outstanding and the related
      prices for the shares of the Company's common stock issued to the Company’s
      Chief Executive Officer. These options were granted in lieu of cash compensation
      for services performed or other consideration.





Options
                  Outstanding
              
              Options
                  ExercisableExercise
                Price
              
              Number
                Outstanding
              
              Weighted
                  Average Contractual Life
                (Years)
              
              Weighted
                  Average Exercise Price
              
              Numbers
                Exercisable
              
              Average
                ExercisePrice$
                  0.50 - 2.00
              
              1,500,000
              
              4.84
              
              $1.35
              
              1,500,000
              
              $ 1.35












F-24





Transactions
      involving options issued to employees and consultants during 2005 and 2004
      are
      summarized as follows:




Number
                  of
                Shares
              
              
              Weighted
                Average
                  Price
                Per
                  ShareOutstanding
                  at December 31, 2003
              
              
              2,337,500
              
              $
              1.07Granted
              
              
              -Exercised
              
              
              (160,000
              )
              
              0.56Cancelled
                  or expired
              
              
              (677,500
              )
              
              0.56Outstanding
                  at December 31, 2004
              
              
              1,500,000
              
              
              1.35Granted
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Cancelled
                  or expired
              
              
              -
              
              
              -Outstanding
                  at December 31, 2005
              
              
              1,500,000
              
              $
              1.35
  The
      Company did not grant any stock options to shareholders during the years ended
      December 31, 2005 or 2004.





WARRANTS





In
      connection with the Company's Private Placement, the Company granted 15 and
      984
      warrants to purchase an aggregate of 4,500 and 295,200 shares of common stock
      to
      investors during the years ended December 31, 2005 and 2004, respectively.
      Each
      warrant will be exercisable for 300 shares of the Company's common stock at
      $0.85 per share. During the year ended December 31, 2004, the Company granted
      594,000 warrants to a placement agent in exchange for services. Each warrant
      will be exercisable for one share of the Company's common stock at $0.85 per
      share.





The
      following table summarizes the changes in warrants outstanding and the related
      prices for the shares of the Company's common stock.







Warrants Outstanding
                
                Warrants
                    ExercisableExercise
                  Price
                
                Number
                  Outstanding
                
                Weighted
                    Average Contractual Life
                  (Years)
                
                Weighted
                    Average Exercise Price
                
                Numbers
                  Exercisable
                
                Average
                  ExercisePrice$
                    0.85
                
                594,999
                
                3.69
                
                $
                    0.85
                
                594,999
                
                $ 0.85








F-25





Transactions
      involving warrants issued to investors and consultants are summarized as
      follows:





Number
                  of
                common
                  shares
                issuable
                  upon
                exercise
                  of warrants
              
              Weighted
                Average
                  Price
                Per
                  ShareOutstanding
                  at December 31, 2003
              
              
              -
              
              $
              -Granted
              
              
              889,200
              
              
              0.85Exercised
              
              
              -
              
              
              -Cancelled
                  or expired
              
              
              -
              
              
              -Outstanding
                  at December 31, 2004
              
              
              889,200
              
              
              0.85Granted
              
              
              4,500
              
              
              0.85Exercised
              
              
              -
              
              
              -Cancelled
                  or expired
              
              
              -
              
              
              -Outstanding
                  at December 31, 2005
              
              
              893,700
              
              $
              0.85





The
      estimated value of the compensatory warrants granted to the Company's placement
      agent in exchange for services rendered was determined using the Black-Scholes
      pricing model and the following assumptions: contractual term of 5 years, a
      risk
      free interest rate of 3.38%, a dividend yield of 0% and volatility of 291%.
      The
      Company capitalized financing costs of $545,460 and the financing costs were
      amortized over the contractual terms (five years) of the convertible debenture.
      During the year ended December 31, 2005 and 2004, the Company amortized
      financing costs and charged to operations $110,591 and $39,411, respectively,
      in
      connection with these warrants.








NOTE
      J -
      RELATED PARTY TRANSACTIONS





The
      Company’s President had advanced funds to the Company for working capital
      purposes. The Company had paid in full the amount due to the Company’s President
      during the year ended December 31, 2004. Additionally, the total payment the
      Company remitted exceeded the total balance due to the Company’s President in
      the amount of $50,500 and $144,006 during the years ended December 31, 2005
      and
      2004, respectively. The Company has accounted for the excess payments to the
      Company’s President as a nonreciprocal transfer to a shareholder for 2005 and
      2004 and, accordingly, has reflected the overpayment as a direct reduction
      of
      additional paid-in capital.





During
      2005, the Company’s President contributed capital of $140,000 to the Company in
      direct response to the excess payments. The Company has accounted for the
      transaction as an addition to paid-in capital.
















F-26





NOTE
      K -
      OTHER INCOME





SALE
      OF
      TIMBER





During
      the year ended December 31, 2004, the Company generated other income of $60,948
      in connection with selling timber on the spring property.








NOTE
      L -
      EARNINGS PER SHARE




**2005**Income
                (Numerator)
              
              Shares(Denominator)
              
              Per-share
                AmountLoss
                  available to common shareholders
              
              $
              (1,116,048
              )Basic
                  and fully diluted loss per share
              
              $
              (1,116,048
              )
              
              8,874,462
              
              $
              (0.13
              )**2004**Loss
              
              $
              (331,449
              )Less
                  - preferred dividends
              
              
              (25,000
              )Loss
                  available to common shareholders
              
              $
              (356,449
              )
              
              6,363,095
              
              $
              (0.06
              )


Options
      to purchase 1,500,000 shares of common stock at $1.25 per share outstanding
      during 2005 and 2004 as well as options to purchase 677,500 shares of common
      stock at $0.56 per share outstanding during 2004 were not included in the
      computation of diluted earnings per share due to their anti-dilutive effect
      on
      earnings per share. The options to purchase 1,500,000 shares of common stock
      were still outstanding at the end of year 2005.





Warrants
      to purchase 893,700 and 889,200 shares of common stock at $0.85 per share were
      outstanding at December 31, 2005 and 2004, respectively, and were not included
      in the computation of diluted earnings per share due to their anti-dilutive
      effect on earnings per share.





Convertible
      notes with the option to purchase 1,762,942 and 1,736,471 shares of common
      stock
      at $0.85 per share were outstanding at December 31, 2005 and 2004, respectively,
      and were not included in the computation of diluted earnings per share due
      to
      their anti-dilutive effect on earnings per share.



















F-27





NOTE
      M -
      INCOME TAXES





The
      Company has adopted SFAS 109, which requires the recognition of deferred tax
      liabilities and assets for the expected future tax consequences of events that
      have been included in the financial statements or tax returns. Under this
      method, deferred tax liabilities and assets are determined based on the
      difference between financial statements and tax bases of assets and liabilities
      using enacted tax rates in effect for the year in which the differences are
      expected to reverse. Permanent differences between taxable income reported
      for
      financial reporting purposes and income tax purposes are
      insignificant.





For
      income tax reporting purposes, the Company's aggregate unused net operating
      losses approximate $2,014,000, and expire through 2025, subject to limitations
      of Section 382 of the Internal Revenue Code, as amended. The deferred
      tax assets related to the net operating loss carryforwards are approximately
      $673,500 and $281,900 for the years ended December 31, 2005 and 2004,
      respectively.





The
      Company has provided a valuation reserve against the full amount of the net
      operating loss benefit for 2005 and 2004 since, in the opinion of management
      based upon the earning history of the Company, it is unlikely the benefits
      will
      be realized.








NOTE
      N -
      COMMITMENTS AND CONTINGENCIES





LEASE
      COMMITMENTS





The
      Company leases office space for its corporate offices in Alexandria, Virginia
      on
      a month to month basis. Rental expense for the years ended December 31, 2005
      and
      2004 was $2,308 and $2,294, respectively, and was charged to operations in
      the
      period incurred.





EMPLOYMENT
      AND CONSULTING AGREEMENTS





The
      Company has an employment agreement with the Company's President and Chief
      Executive Officer. In addition to salary provisions, the agreement includes
      defined commitments should the employee terminate the employment with or without
      cause.





The
      Company has consulting agreements with outside contractors to provide web
      development and business development services. The agreements are generally
      for
      a term of 12 months from inception and renewable automatically from year to
      year
      unless either the Company or Consultant terminates such engagement with written
      notice.








NOTE
      O -
      LINE OF CREDIT





On
      September 12, 2005, the Company entered into an investment agreement (Agreement)
      with Dutchess Private Equities Fund, LP (Dutchess) to provide the Company with
      an Equity Line of Credit. Pursuant to the Agreement, Dutchess has agreed to
      provide the Company with up to $5,000,000 of funding during the 36-month period
      following the date a registration statement of the Company’s common stock is
      declared effective by the Securities and Exchange Commission. During this 36
      month period, the Company may request a draw down under the Equity Line of
      Credit by which the Company would sell shares of its common stock to Dutchess,
      which is obligated to purchase the shares under the Agreement. The Company
      may,
      at its election, require Dutchess to purchase an amount equal to no more than
      either (a) 200% of the average daily volume of the Company’s










F-28





common
      stock for the 10 trading days prior to the put notice date, multiplied by the
      average of the three daily closing bid prices immediately preceding the put
      notice date or (b) $100,000; provided that the Company may not request more
      than
      $1,000,000 in any single put notice. On the trading day following the put notice
      date, a pricing period of five trading days will begin. The purchase price
      for
      the common stock identified in the put notice will be equal to 95% of the lowest
      closing best bid price of the Company’s common stock during the pricing period.
      The Company is under no obligation to draw down under the Equity Line of Credit.
      As of December 31, 2005, no registration statement has been filed with respect
      to the Company’s common stock and the investment Agreement.








NOTE
      P -
      GOING CONCERN MATTERS





The
      accompanying statements have been prepared on a going concern basis, which
      contemplates the realization of assets and the satisfaction of liabilities
      in
      the normal course of business. As shown in the financial statements from October
      14, 1999 (date of inception of Company), the Company has generated minimal
      revenues and has accumulated losses of $2,014,185. These factors, among others,
      may indicate that the Company will be unable to continue as a going concern
      for
      a reasonable period of time.





The
      Company's existence is dependent upon management's ability to develop profitable
      operations and resolve its liquidity problems. Management anticipates the
      Company will attain profitable status and improve its liquidity through
      the continued development of its products, establishing a profitable market
      for
      the Company's products and additional equity investment in the Company. The
      accompanying financial statements do not include any adjustments that might
      result should the Company be unable to continue as a going concern.





In
      order
      to improve the Company's liquidity, the Company is actively pursing additional
      debt and equity financing through discussions with investment bankers and
      private investors. There can be no assurance the Company will be successful
      in
      its effort to secure additional equity financing.





If
      operations and cash flows continue to improve through these efforts, management
      believes that the Company can continue to operate. However, no assurance can
      be
      given that management's actions will result in profitable operations
      or in the resolution of its liquidity problems.



















F-29





NOTE
        Q -
        RESTATEMENT OF FINANCIAL STATEMENTS
 
 The
        Company has restated its financial statements for the year ended December
        31,
        2005 and 2004 to correct the following errors in the financial statements
        previously filed:
 
 In
        connection with the preparation of the Company's December 31, 2005 financial
        statements, it was determined the correct application of accounting principles
        had not been applied in connection with the accounting of the 2004 Private
        Placement (“Placement” - see Note F), put agreement (see Note H) and overpayment
        to the shareholder (see Note J). Subsequent to the issuance of the December
        31, 2005 financial statements, the Company determined the correct application
        of
        accounting principles had not been applied in recording the original restatement
        of the put agreement in 2004, as well as accounting for termination of the
        agreement during the year ended December 31, 2005.
 
 The
        original accounting for the Placement had allocated the proceeds received
        from
        the Placement on the residual value method rather than the relative fair
        value
        method as prescribed in *EITF
        98-5* and *EITF
        00-27* .
        Accordingly, the proceeds attributed to the common stock, convertible debt
        and
        warrants have been restated to reflect the relative fair value method.
 
 During
        2004, the put agreement had been recorded under SFAS 150 with changes in
        fair
        value being charged to other expense. In connection with the preparation of
        the Company's December 31, 2005 financial statements, the fair value attributed
        to the put agreement as of the end of 2005 was determined to be the present
        value of the contract payment. An adjustment was done to restate the 2004
        financials, and the 2005 year end report reflected the value of the put
        agreement liability as being $200,000.  Subsequent to the issuance of the
        December 31, 2005 financial statements, the Company determined the correct
        application of accounting principles had not been applied in recording the
        original restatement of the put agreement in 2004, as well as accounting
        for
        termination of the agreement during the year ended December 31, 2005.
        Accordingly, amounts attributed to the fair value of the liability have been
        restated to reflect the proper valuation.
  The
        overpayment to the shareholder had originally been classified as an increase
        to
        operating expenses with repayments by the shareholder recorded as an increase
        to
        other operating income. In review of accounting standards, it was determined
        the
        transaction was more accurately reflected as a capital transaction due to
        the
        control relationship which existed between the shareholder, who is also the
        Company’s President, and the Company. The Company, through the restatement, is
        accounting for the excess payments to the Company’s shareholder as a
        nonreciprocal transfer and, accordingly, has reflected the overpayment as
        a
        direct reduction of additional paid-in capital.
 
 In
        accordance with *Accounting
        Principles Board Opinion 20, Accounting Changes*  *(APB
        20)* the
        necessary corrections to apply the accounting principles on the aforementioned
        transactions are currently reflected in the reported 2005 and 2004 financial
        information. The impact to the previously issued 2005 and 2004 financial
        statements is as follows:
  2005
                financial
                statement
                balance
                prior
                  to
                restatement
              
              2005
                financial
                statement
                balance
                post
                restatement
              
              Amount
                increase
                (decrease)
                in
                2005
                financialsNet
                  loss
              
              $
              (1,184,800
              )
              $
              (1,116,048
              )
              $
              (68,752
              )Equity
              
              $
              784,067
              
              $
              984,067
              
              $
              200,000Assets
              
              $
              2,713,139
              
              $
              2,713,139
              
              $
              --Liabilities
              
              $
              1,929,072
              
              $
              1,729,072
              
              $
              (200,000
              )Loss
                  per share
              
              $
              (0.13
              )
              $
              (0.13
              )
              $
              --
 
 
 F-30
   
 2004
                financial
                statement
                balance
                prior
                  to
                restatement
              
              2004
                financial
                statement
                balance
                post
                restatement
              
              Amount
                increase
                (decrease)
                in
                2004
                financialsNet
                  loss
              
              $
              (454,171
              )
              $
              (331,449
              )
              $
              (122,722
              )Equity
              
              $
              1,811,237
              
              $
              1,886,712
              
              $
              75,475Assets
              
              $
              3,332,528
              
              $
              3,475,514
              
              $
              142,986Liabilities
              
              $
              1,521,291
              
              $
              1,588,802
              
              $
              67,511Loss
                  per share
              
              $
              (0.09
              )
              $
              (0.05
              )
              $
              (0.04
              )
 
 The
        resulting effect of the prior period adjustment on 2005 net loss by area
        is as
        follows:
  Amount
                increase
                (decrease)
                in
                  net lossPut
                  agreement
              
              $
              (68,752
              )
 
 The
        resulting effects of the prior period adjustments on 2004 net loss by area
        are
        as follows:
  Amount
                increase
                (decrease)
                in
                  net lossPrivate
                  Placement transaction
              
              $
              8,532Put
                  agreement
              
              
              12,752Shareholder
                  overpayment
              
              
              (144,006
              )$
              (122,722
              )
 
 The
        resulting effects of the prior period adjustments on 2004 cash flows by area
        are
        as follows:
  2004
                cash
                  flow
                statement
                balance
                prior
                  to
                restatement
              
              
              2004
                cash
                  flow
                statement
                balance
                post
                restatement
              
              
              Amount
                increase
                (decrease)
                in
                  2004
                cash
                  flow
                statementNet
                  cash from operating activities
              
              $
              (1,975,169
              )
              $
              (1,894,662
              )
              $
              80,507Net
                  cash from investing activities
              
              $
              (7,592
              )
              $
              (7,592
              )
              $
              -Net
                  cash from financing activities
              
              $
              2,173,180
              
              $
              2,092,673
              
              $
              (80,507
              )
 
 The
        prior
        period adjustment on the 2005 financial statements did not have an effect
        on the
        cash flows. Net cash from operating, investing and financing activities remain
        as previously reported.
 
 Interim
        financials issued in 2005 were also impacted by the incorrect application
        of
        accounting principles in continued accounting for the Private Placement,
        put
        agreement and overpayment to the shareholder. Interim financials issued
        throughout 2005 have not been reissued. The necessary corrections to apply
        the
        accounting principles on the aforementioned transactions are currently reflected
        in the reported 2005 annual financial information.
 
 *
        * * *
        *





F-31