UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 --------------
                                   FORM 10-KSB
                                 --------------

(Mark One)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934.

For the fiscal year ended: February 28, 2006

                                       OR

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

For the transition period from ______ to ______


Commission File Number 0-26329


                                 POSEIDIS, INC.
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)


        FLORIDA                                           65-0867538
--------------------------------------------------------------------------------
(Sate or Other Jurisdiction of                     (I.R.S. Employer
   Incorporation or Organization)                           Identification No.)


                          222 Lakeview Ave., Suite 160
                            West Palm Beach, FL 33401
--------------------------------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

                                 (305) 428-3757
--------------------------------------------------------------------------------
                (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:
                                                Common Stock, par value, $0.0001

--------------

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


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


<PAGE>


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) has been
subject to such filing requirements for the past 90 days.   Yes [_] No [X]


Check if there is no disclosure  of delinquent  filers in response to Item 405 o
Regulations 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. [_]


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


State issuer's revenues for its most recent fiscal year: $0.


State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked  prices of such common  equity,  as of a
specified date within the past 60 days. Approximately $2,293,628 as of August 7,
2006. The aggregate  market value was based upon the average between the closing
bid and asked price for the common  stock on August 7, 2006 as quoted by various
market makers on the Pink Sheets  Electronic  Quotation Service published by the
National Quotation Bureau under the symbol "PSED", which average was $0.0550.


    (ISSURERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Check wither the issuer has filed all documents and reports required to be filed
by  Section  12,  13 or 15(d) of the  Exchange  Act after  the  distribution  of
securities under a plan confirmed by a court. Yes [_] No [_]


                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable  date:  As of August 7, 2006,  70,156,300
shares of common stock.


                       DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly, describe them
and  identify  the part of the Form 10-KSB  (e.g.,  Part 1, Part II,  etc.) into
which the document is incorporated:  (1) any annual report to  security-holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities  Act"). The listed
documents should be clearly described for identification  purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990). None.


Transitional Small Business Disclosure Format (check one):  Yes [_] No [X]


<PAGE>



                                TABLE OF CONTENTS

                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS..............................................5

ITEM 2.   DESCRIPTION OF PROPERTY.............................................16

ITEM 3.   LEGAL PROCEEDINGS...................................................16

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................16

                                PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS.............................................................16

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
          OPERATION...........................................................19

ITEM 7.   FINANCIAL STATEMENTS................................................45

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND
          FINANCIAL DISCLOSURE................................................46

ITEM 8A.  CONTROLS AND PROCEDURES.............................................46

ITEM 8B.  OTHER INFORMATION...................................................47

                                PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
          PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT..........47

ITEM 10.  EXECUTIVE COMPENSATION..............................................49

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT AND RELATED STOCKHOLDER MATTERS..........................51

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................52

ITEM 13.  EXHIBITS............................................................53

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................55

FINANCIAL STATEMENTS.........................................................F-1


<PAGE>



                           CURRENCY AND EXCHANGE RATES

     All  monetary  amounts  contained  in this  report  are,  unless  otherwise
indicated,  expressed in U.S.  Dollars.  On August 7, 2006, the noon buying rate
for euros as reported by the  Federal  Reserve  Bank of New York was $1.2867 per
one euro.

                           FORWARD-LOOKING STATEMENTS

     The  Private  Securities  Litigation  Reform  Act of 1995  provides a "safe
harbor"  for   forward-looking   statements.   This  report   contains   certain
forward-looking  statements  and  information  that are based on the  beliefs of
management as well as assumptions made by and information currently available to
management. The statements contained in this report relating to matters that are
not  historical  facts are  forward-looking  statements  that involve  risks and
uncertainties,  including, but not limited to, the successful  commercialization
of our products and services,  future demand for our products,  general economic
conditions,  government and environmental  regulation,  competition and customer
strategies,  technological  innovations,  changes in our  business  strategy  or
development plans,  capital  deployment,  business  disruptions,  our ability to
consummate future financings,  the reinclusion of our common stock for quotation
on the NASD OTC Bulletin Board  ("OTC-BB"),  and other risks and  uncertainties,
certain of which are beyond our  control.  Additional  factors that could affect
the  Company's  forward-looking  statements  include,  among other  things:  the
restatement  of the  quarterly  financial  statement  for the  second  and third
quarters in the fiscal year ended February 28, 2006; negative reactions from the
Company's stockholders, creditors, or employees to the results of the review and
restatement or delay in providing  financial  information caused by restatement;
the impact and result of any litigation  (including private  litigation),  or of
any investigation by the Securities and Exchange Commission or any investigation
by any other governmental  agency related to the Company;  the Company's ability
to manage its operations  during and after the financial  statement  restatement
process;  and the Company's ability to successfully  implement internal controls
and  procedures  that  remediate  any  material  weakness in controls and ensure
timely, effective and accurate financial reporting.  Should one or more of these
risks or  uncertainties  materialize,  or should  underlying  assumptions  prove
incorrect,  actual results may differ  materially from those described herein as
anticipated, believed, estimated or expected.

     Forward-looking  statements  are based on  management's  current  views and
assumptions   and  involve  unknown  risks  that  could  cause  actual  results,
performance or events to differ  materially  from those  expressed or implied in
those  statements.  These risks  include,  but are not limited to, the risks set
forth under the caption "Risk Factors."



                                     PART I

     Information  included  or  incorporated  by  reference  in this  report may
contain  forward-looking  statements.  This  information  may involve  known and
unknown  risks,  uncertainties  and other  factors  which  may cause our  actual
results,  performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements.  Forward-looking statements,  which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of  the  words  "may,"  "will,"  "should,"  expect,"  "anticipate,"  "estimate,"
"believe,"  "intend"  or  "project"  or the  negative  of  these  words or other
variations on these words or comparable terminology.



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<PAGE>



     This  report  contains  forward-looking  statements,  including  statements
regarding, among other things, (a) our growth strategies, (b) anticipated trends
in our industry,  (c) our future  financing plans and (d) our anticipated  needs
for  working  capital.   These  statements  may  be  found  under  "Management's
Discussion and Analysis or Plan of Operation" and  "Description of Business," as
well as in this report generally. Actual events or results may differ materially
from  those  discussed  in  forward-looking  statements  as a result of  various
factors, including,  without limitation, the risks outlined under "Risk Factors"
and  matters  described  in this report  generally.  In light of these risks and
uncertainties,  there can be no assurance  that the  forward-looking  statements
contained in this report will in fact occur.


ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

     Poseidis, Inc. ("Poseidis" or the "Company") is a development stage company
that,  together with its subsidiary  Montespan SAS ("Montespan"),  is engaged in
the  development of a sparkling  mineral water spring in central France known as
the La Troliere Spring. We refer to this spring as the "Source".  Our objectives
are to develop and market a new brand of sparkling  natural  mineral water under
the  brand  name  "l' Eau de  Montespan"  as well as  other  beverage  products,
potentially a line of cosmetics  products utilizing the mineral water drawn from
the Source,  and other  related  products and  merchandise.  Toward that end, in
October  2005  Montespan  entered  into a real estate  purchase  agreement  with
Christian  Berthier,  as amended in March 2006 (the  "Berthier  Agreement"),  to
acquire the land where the Source is located for 2,150,000 euros  (approximately
U.S.  $2,580,000  using,  for purposes of  illustration  only in this report,  a
currency exchange rate of U.S. $1.20 per one euro) of which we have paid 430,000
euros  (approximately U.S. $516,000) as of July 31, 2006. The Berthier Agreement
expires on February 28, 2008. In addition, Montespan owns approximately 13 acres
near the Berthier property. Pursuant to the March 2006 amendment of the Berthier
Agreement,  we have agreed to make a monthly  payment of at least  10,000  euros
(approximately  $12,000) to Mr. Berthier commencing in March 2006. These monthly
payments shall be applied  against the 2,150,000  euro aggregate  purchase price
for the  Berthier  property.  Prior to the  October  2005 real  estate  purchase
agreement, Montespan and Mr. Berthier were parties to a lease agreement that was
entered into in April 2003, pursuant to which Montespan leased from Mr. Berthier
the  property at and about the Source.  Pursuant  to the October  2005  Berthier
Agreement,  the 230,000  euros in lease  payments that were made by Montespan to
Mr.  Berthier from April 2003 through  October 2005 have been applied as credits
against the purchase price for the Berthier property.

     We will  need to raise  additional  capital  in  order to make the  monthly
payments to Mr. Berthier and to pay the remaining 1,720,000 euros (approximately
$2,064,000)  balance due as of July 31,  2006 under the  Berthier  Agreement  by
February 28,  2008.  If we are unable to raise such capital and if we default on
the monthly  payments or fail to pay the entire  purchase  price by February 28,
2008, we will be unable to acquire exclusive title to the Berthier property.  In
that event,  the Berthier  Agreement  provides  that Mr.  Berthier and Montespan
shall be co-owners of the property in proportion to the 2,150,000  euro purchase
price, such that Montespan's co-ownership percentage shall be the fraction whose
numerator  is the  total  sum  paid  by  Montespan  to Mr.  Berthier  and  whose
denominator is 2,150,000 euros, and Mr. Berthier's co-ownership percentage shall
be 100% minus Montespan's co-ownership percentage.  In the event of co-ownership
of the



                                       5
<PAGE>



Berthier  property  between Mr. Berthier and Montespan,  the Berthier  Agreement
provides that each party will hold a right of preemption to acquire the interest
of the other party when the other party  wishes to sell its  interest to a third
party.  Such right of preemption is exercisable on the same terms and conditions
that are proposed between the other party and the third party.

     Poseidis has obtained convertible  debenture financing from Cornell Capital
Partners,  LP ("Cornell Capital" or "Cornell") in the aggregate principal amount
of $644,000,  all of which has been fully funded,  and Poseidis has also entered
into a standby equity  distribution  agreement  ("SEDA") with Cornell Capital to
sell a variable amount of shares for gross proceeds of up to $8,000,000.

     Our primary business  strategy is focused first on developing the Montespan
brand of sparkling natural mineral water and commencing sales of that product in
France,  Quebec,  the United Kingdom,  Italy,  Spain,  Germany and the U.S., and
subsequently in other geographic markets in Europe and North America.

     For a variety of reasons as discussed  in this  report,  we believe that an
opportunity  exists in Europe and North America for: the  introduction  of a new
luxury  brand of sparkling  natural  mineral  water  targeted at the most famous
cafes, hotels, and restaurants  ("CHR's");  utilizing a broad marketing strategy
that will include  distinctive  and artistic  bottling and  endorsements  by the
leading chefs in France;  and  incorporating  the  traditional  elements of high
quality flavor,  carbonation,  and mineral content. In addition, we believe that
once our  initial  mineral  water is  launched  in  France  and  French-speaking
territories of Canada (Quebec) a significant demand for this product and related
products can be developed  elsewhere in Europe and in North  America  leveraging
similar business development and marketing strategies.

     Our management  team is  experienced in the beverage and consumer  products
industries and in the development and launch of new products. The team is led by
our Chairman,  Chief Executive Officer, and President,  Louis Pardo. Among other
business ventures,  Mr. Pardo was employed at Symbolic Corp. of France from 1993
until 1996. At Symbolic Corp., Mr. Pardo launched the market leading energy soft
drink in France: "x-energy drink".

     We generated a net loss of  $3,294,210  during the year ended  February 28,
2005, and a net loss of $1,569,140  during the year ended February 28, 2006. Our
accumulated  deficit as of  February  28,  2006 was  $8,312,661.  As of July 31,
2006,our available cash position was approximately  $21,500.  We are continuing
to seek  additional  financing to meet our working capital needs and to continue
on-going equipment  installation at the Source,  development of our pilot plant,
development  of our  commercial  production  and  bottling  facility,  and other
elements of our business plan. We expect that operating and development expenses
will increase  significantly  as we continue to implement our plan. No assurance
can be  given  that we will be  successful  in  completing  these  or any  other
financings  at  the  minimum  level   necessary  to  fund  our  working  capital
requirements  or to  complete  our  development  plan  or  at  all.  If  we  are
unsuccessful in completing these financings, or in acquiring the funds available
pursuant  to the  SEDA,  we  will  not be  able  to  fund  our  working  capital
requirements  or execute our business  plan, we will run out of cash and have to
substantially reduce or curtail the development of our projects.

     On July 19, 2006, the OTC-BB  temporarily ceased quoting our shares because
our annual  report on Form 10-KSB for the year ended  February  28, 2006 had not
been filed with the U.S. Securities and Exchange  Commission("SEC").  The filing
of this report eliminates that



                                       6
<PAGE>



eligibility deficiency. In addition, our quarterly report on Form 10-QSB for the
three months  ended May 31, 2006,  has not been filed with the SEC but we expect
it will be filed on or about  September 28, 2006. The Company's  common stock is
currently  quoted through  various  market makers on the Pink Sheets  Electronic
Quotation Service (the "Pink Sheets") published by the National Quotation Bureau
under the symbol "PSED". The Pink Sheets is a centralized quotation service that
collects and publishes market maker  quotations of securities.  Quoted stocks on
the Pink Sheets are available on www.pinksheets.com  and www.OTCquote.com.  Upon
filing of our 10-KSB for the year ended February 28, 2006 and our 10-QSB for the
quarter  ended May 31,  2006,  the  Company's  stock will again be eligible  for
quotation on the OTC-BB.

     The  principal  address of Poseidis is 222 Lakeview  Ave.,  Suite 160, West
Palm Beach, Florida 33401; telephone number (305) 428-3757.

MARKET OPPORTUNITY

     The global market for bottled water can be broken down into three
categories (listed in ascending order of quality):

o    Purified Waters.
     Mostly sold in the U.S.,  purified  waters are derived from common  network
     waters  and are  subjected  to a  series  of  treatments,  such as  reverse
     osmosis,  to purify,  neutralize and  standardize  their  organoleptic  and
     bacteriological  specifications.  Those waters  offer no mineral  value nor
     valued  components  and have little taste  quality.  Targeting  mass-market
     distribution,  and bottled in plastic  bottles,  those products have raised
     the U.S.  consumers'  awareness of bottled  waters to new levels,  but have
     failed to deliver quality, environmentally-conscious products.

o    Spring and Glacier  Waters.
     Extracted at the  surface,  spring and glacier  waters take  advantage of a
     non-restrictive   and  light  regulation  on  their  capping  and  bottling
     processes.  Therefore,  their exploitation offers no guaranty of purity nor
     sustainability over time, but allows the production of large volumes at low
     cost.

o    Still and Sparkling Mineral Waters
     Very strict and constraining  regulations and production criteria result in
     a constant  and  rigorous  quality  control,  and give to mineral  waters a
     unique value and an international  quality definition.  More than 200 daily
     analyses are required  onsite,  in order to comply with the  specifications
     imposed by AFSSA (the French  governmental  agency for food safety  roughly
     equivalent to the U.S. Food and Drug  Administration) and the French health
     ministry.  Still  mineral  water  refers to  non-carbonated  mineral  water
     whereas  sparkling  mineral  water  refers  to  carbonated  mineral  water.
     Carbonation refers to the carbon dioxide bubbles in the mineral water.

     The consumption of bottled water has been rapidly increasing worldwide.  In
the U.S., the consumption of bottled water increased from 11.9 billion liters in
1995 to 27.2 billion  liters in 2005;  consumption  more than doubled within ten
years. According to the Beverage Marketing Corporation (an industy consultancy),
bottled water  consumption in the U.S. has surpassed that of milk,  coffee,  and
beer. U.S. consumption of sparkling water has also accelerated,  with the market
beating  9.3%  volume  growth  in  2004.   Imported  water  achieved  its  third
consecutive  year of double-digit  volume growth in 2004,  growing by 18.3% when
compared to 2003.




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<PAGE>



Sparkling Mineral Waters: A Market with a Significant Growth Potential -

     Sparkling  mineral  waters have an average  higher  selling  price and as a
result  higher  profit  margins.  The European  market is  characterized  by its
diversity:  95% of the mineral waters sold in Germany and more than 65% in Italy
are sparkling.  In some countries drinking habits reflect the local culture. For
example, in France,  Germany and Poland over 80% of the population drink bottled
mineral water.  In Germany,  where  penetration of bottled mineral water is 88%,
compared with just 61% for  carbonates,  almost half of all consumers also agree
with the  statement "I consider my diet to be very  healthy".  The global demand
for sparkling mineral waters is increasing rapidly. World consumption of bottled
mineral  water is  growing  at a rate of 9 percent  per year,  almost  twice the
increase registered by consumption of other non-alcoholic beverages. The regions
with the most growth were Asia which  registered the largest increase last year,
with 16 percent growth followed by North America,  with an 11 percent  increase.
This has prompted  existing  water  companies  to try and increase  their market
shares outside Europe.

 PRODUCTS/BRAND

     Poseidis  will exploit the  potential for high-end  brand  positioning  and
plans to  initially  offer two  products  focused on the rapidly  growing  North
American and Pan-European markets:

     Bottled  Mineral Water:  L' Eau de Montespan  will be a luxury  traditional
mineral water.  L' Eau de Montespan  will be  exclusively  available at the most
famous  restaurants'  tables. L' Eau de Montespan will possess all the qualities
of premium  sparkling  mineral water and will be comparable to Chateldon  Water,
which is considered  by many to be the best mineral water in France.  Production
and sales of Chateldon  Water is limited to one million  liters per year,  which
restricts its distribution  primarily to the French market.  Derived from a high
profile  historical  iconography,  easily  marketable and  characterized  by its
ability  to  evolve in time,  l' Eau de  Montespan  will have all the  reference
values of a strong  international  brand,  added to the initial  qualities of an
exceptional  mineral  water.  This brand  development,  in order to maximize its
recognition in France and abroad,  will be integrated  into a broader  marketing
strategy,  including media awareness and  partnerships  with and endorsements of
some of the best chefs in France including  Ducasse,  Sanderens,  and Troisgros.
Sold  exclusively in  non-recycled  glass  bottles,  l' Eau de Montespan will be
dedicated to the traditional  distribution networks of restaurants,  hotels, and
luxury grocery stores (such as Dean & Deluca, Hediard, Fauchon and Colette).

     Functional  drink:  Athenais Night Water is envisioned to be the epitome of
the  functional  food  development.  In a base  of l' Eau  de  Montespan  water,
specific concentrations of active ingredients,  such as millepertuis,  chamomile
or pass flora in homeopathic forms and  concentrations  will be added as well as
natural  flavoring.  Athenais Night Water is a luxury water,  positioned  like a
cosmetic  product,  sold  exclusively to and found on the bed tables of high-end
resorts and "5-Star" hotels.  Its exclusive  formula will make it the only water
to  drink  at  night  for  its  detoxifying,  restructuring  and  reconstituting
benefits.

     Follow-on cosmetics by-products under the Athenais and/or Night Water brand
may include:

     o    Athenais Spray 0.5 liter
     o    Athenais Light Moisturizing Fluid for the body
     o    Athenais Lift Serum
     o    Athenais Moisturizing Cream for the face
     o    Athenais Night Repair / Eye Cream



                                       8
<PAGE>



OPERATIONS/PRODUCTION

     The Company's  foundational  asset is its contractual  right to acquire the
real estate where the Source is located in  Theneuille,  France.  The Source has
been well known for its intrinsic  qualities and health  benefits dating back to
the 3rd Century.  In October 2005 Montespan entered into the Berthier  Agreement
(as defined above) with the owner of the Source (Christian Berthier) pursuant to
which  Montespan  may  acquire  the land  where the  spring is  located  and the
immediately   surrounding   area  including   certain   government-granted   and
government-regulated  rights  to draw  and use the  Source's  water  as  natural
mineral water. The Berthier Agreement provides for a purchase price of 2,150,000
euros of which  430,000  euros has been paid as of July 31,  2006 and expires on
February 28, 2008.

     Poseidis  will  develop a production  and  bottling  facility at the Source
which will be highly automated and operationally flexible with a high production
capacity.  The  processing  and  bottling  of the water to be captured at the La
Troliere facility is divided into the following main steps:

o    Initial  capture at the Source - La Troliere is an artesian  source and the
     water is pumped at a depth of approximately  182 meters then transferred to
     the storage location by a system of pipes.

o    From the point of  capture,  stainless  steel  pipes  take the water to the
     conditioning  plant where the water is first degasified,  and the extracted
     gas is stored  temporarily  for  subsequent  addition  to the  water  after
     deferritization.  Deferritization is a filtering process to reduce the iron
     content  of the water  using a  fine-grade  silica  sand.  No  chemical  or
     artificial treatment is used for deferritization.

o    After deferritization,  the mineral water will be stored before bottling in
     double-wall  vats,  each  containing  70,000  liters.  The  water  is  then
     transferred  to the  regasification  and bottling zone via stainless  steel
     pipes. When the water is ready for bottling,  it is moved to the carbonator
     equipment where it is regassified with its own gas (extracted as soon as it
     leaves the pump) without any external additions being made.

o    The regassified  water is then moved to the bottling room which is isolated
     from the  outside  world and air  conditioned  (filtered  air) to avoid all
     possible  contamination during bottle filling.  These operations consist of
     filling  the bottle  with  regassified  water,  capping  it,  labeling  it,
     assigning it with a batch number,  year and time of bottling,  and entering
     the "best before date" (BBD), e.g.: "Best Before December 2006".

o    The  bottles  are then moved to the  packing  and  shipping  area where the
     bundling machine groups the various forms into packs of 4, 6, or 8 bottles,
     wrapping  them in printed film. A handle is then applied  automatically  on
     the line and finally,  the packs are transferred to the pallet-filling area
     where they are palletized for shipment.

o    Poseidis will  maintain a laboratory to maintain a constant  control on the
     quality of the water. In order to maintain its  certification by the French
     authorities  as  well as to  guarantee  a  superior  quality  product,  the
     laboratory  has to process daily chemical and  bacteriological  analyses on
     the entire production chain.



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<PAGE>



 MANAGEMENT

Our management team is comprised of the following senior executives:

Louis Pardo,  Chairman of the Board, Chief Executive  Officer,  and President of
Poseidis

     Mr. Pardo is  responsible  for the strategic  direction,  product and brand
development,  marketing and business  development  activities  of Poseidis.  Mr.
Pardo was appointed the Company's  President in September  2002.  Prior to that,
Mr. Pardo was the  Company's  Marketing  Manager and Product  Developer.  Before
joining  Poseidis in 2000,  Mr. Pardo spent four years with Faz  Productions  of
France. While at Faz Productions,  he received many awards for various music and
video  productions.  Prior to Faz  Productions,  Mr. Pardo spent four years with
Symbolic Corp. of France where he was a Product  Manager.  At Symbolic Corp. Mr.
Pardo launched the market leading energy soft drink in France: "x-energy drink."

Bernard Bouverot, Directeur General of Montespan

     Mr.  Bouverot has been the  Directeur  General  (roughly  equivalent to the
chief  operating  officer  in  the  United  States)  of  Montespan,  our  French
subsidiary,  since  2004.  Prior to  joining  Montespan,  from  2001 to 2004 Mr.
Bouverot was the Technical Manager for Blue Industry, a company that specializes
in the  potabilization  and treatment of used waters. In addition,  Mr. Bouverot
has  served as Chief  Technology  Officer  and as a member of the Board of Smart
Tech Inc. (satellite tracking devices),  as president of several subsidiaries of
Gemplus Group (a leading  manufacturer of microchip  cards) in France,  Holland,
Italy,  and Spain,  and as president of Haviland USA, Inc. (fine porcelain table
products).  While Mr.  Bouverot was a principal of Smart IT  Technology in Lyon,
France  that  company  went  through a  bankruptcy  proceeding.  Mr.  Bouverot's
educational  background  includes a French DESS degree in marketing and business
administration  (MBA  equivalent),  a French DESS degree in business  law, and a
medical doctor degree in applied biology and engineering.

John J. (Jack) McGovern,  Executive Vice President,  Chief Financial Officer and
Treasurer of Poseidis

     Mr.  McGovern  has  over  twenty-five  years  of  financial  and  executive
management experience.  He is the Chairman and a Managing Director of Bridgehead
Partners,  LLC which he founded in January of 2002.  Recently,  Mr. McGovern was
the Chief  Financial  Officer of Lithium  Technology  Corporation  from May 2004
until June 2005.  Prior to Bridgehead,  Mr.  McGovern was the CFO of Multex.com,
Inc., a $100 million  NASDAQ  listed  company  that was  considered  the leading
internet-based  investment  information and technology provider to the financial
services  industry.  Multex was  acquired  by Reuters in March,  2003.  Prior to
Multex,  Mr.  McGovern  spent two  years at  Northsound  Music  Group,  Inc.  as
President and Chief Executive  Officer.  Northsound was the leading producer and
marketer of nature-themed  media. From 1990 to 1995, Mr. McGovern was one of the
founding  principals of FPBSM Industries,  Inc., a holding company for companies
specializing  in the  design  and  manufacturing  of  Defense  Electronics  with
particular  emphasis on high voltage  power  supplies and related  applications.
Prior to forming FPBSM Industries, Mr. McGovern spent over six years as a Senior
Vice President with Merrill Lynch  Interfunding,  Inc., where he was responsible
for the origination, valuation and negotiation of debt and equity investments in
more than twenty-five  leveraged buyouts. Mr. McGovern received a B.S. degree in
Accounting from Monmouth University and an MBA from Columbia University where he
attended the Masters Degree  Program for  Executives.  He is a Certified  Public
Accountant in the State of New Jersey (inactive).



                                       10
<PAGE>



FINANCE/RECENT HISTORY

     From  February  2001  until the end of July 2005 our  operations  have been
financed  primarily  through the use of  proceeds  from  equity  financings  and
borrowings under short term debt  agreements.  Over that period of time, we have
raised $1,138,153 from the sale of our common stock and $170,804 from borrowings
in the form of short term debt,  of which  $33,890 has been repaid and  $108,000
has been converted to common stock. The Board members,  senior  management,  and
key  stockholders  of Poseidis have provided the Company with  aggregate  equity
financing  of  approximately  $1 million  during the period from  February  2001
through December 31, 2005,  excluding the Cornell Capital financing as described
in this report.

     Between August 2005 and February 2006, we received an aggregate of $644,000
in principal  amount of  convertible  debt in two  financing  transactions  with
Cornell Capital pursuant to the terms of two Securities Purchase Agreements (the
"SPA's").  In exchange for financing  under the SPA's, we have issued to Cornell
Capital $644,000 of our 12% secured,  convertible  debentures (the  "Convertible
Debentures").  The SPA's  conversion  provisions  entitle Cornell Capital at any
time,  and from time to time, to convert all or any part of the  principal  plus
accrued interest into Poseidis' common stock (the "Conversion Shares"), at a per
share  price equal to $0.0497  per share with  respect to $300,000 in  principal
amount and interest  accrued thereon and at a per share price equal to $0.04 per
share with respect to $344,000 in principal amount and interest accrued thereon,
which may be adjusted under certain circumstances.  The maturity date of each of
the three  Convertible  Debentures  is  September 1, 2007;  monthly  payments of
principal and accrued  interest  commence on September 1, 2006 as to each of the
Convertible  Debentures.  We have the right to redeem the Convertible Debentures
without a premium if the market  price for our common  stock is greater than the
conversion price then in effect.  Otherwise, a redemption premium of 20% applies
to all three Convertible Debentures.

     In August and September of 2006, the Company entered into letter agreements
with Cornell  Capital  pursuant to which,  among other things,  Cornell  Capital
provided a waiver of certain  defaults  that had arisen  under  applicable  loan
documents and Cornell Capital and the Company also amended certain covenants and
other terms under the loan  documents  including:  termination  of the Company's
obligation  to further fund with cash or stock or  otherwise  an escrow  account
held for the  benefit  of  Cornell  Capital  in  connection  with  the  $344,000
debenture  that we had  issued to  Cornell  Capital in  February  2006;  Cornell
Capital's  consent to the  release of  approximately  $60,000  from such  escrow
account for the purpose of our payment of certain vendors'  invoices relating to
our development  project at the Source in France;  changing the due date for the
first  scheduled  payment of principal  and  interest due under the  Convertible
Debentures from September 1, 2006 to October 1, 2006; and revising the due dates
for our filing with the SEC of certain reports and our registration statement.

     In addition,  in August 2005,  we entered into a SEDA with Cornell  Capital
whereby  we  may  (after  certain   conditions   are  satisfied   including  the
effectiveness of an SEC registration  statement  covering the Conversion  Shares
and the shares issued upon our SEDA draws), at our discretion, periodically sell
to Cornell Capital shares of our common stock for a gross purchase price of $8.0
million.  For each  share of common  stock  purchased  under  the SEDA,  Cornell
Capital  will pay  Poseidis  96% of the market  price for our  common  stock (as
defined in the SEDA).  Further,  Cornell Capital will retain a fee of 5% of each
advance under the SEDA. The documents  pertaining to the SEDA,  the  Convertible
Debentures,  and the related  documents and  agreements  between the Company and
Cornell Capital are included among the exhibits that are attached to our reports
filed with the SEC.




                                       11
<PAGE>



     In March  2006,  Poseidis  completed  a  private  placement  to  accredited
investors  (the "2006 Private  Placement")  and received  gross proceeds of U.S.
$917,800  from  the  issuance  and  sale  of  units  consisting  of  convertible
debentures and warrants.

     In March 2006,  we received a bridge  loan from  Portfolio  Lenders II, LLC
("Portfolio  Lenders")  in the  principal  amount of  $100,000  (the "March 2006
Portfolio  Lenders  Note").  We also  issued to  Portfolio  Lenders a warrant to
purchase  up to 100,000  shares of our common  stock with an  exercise  price of
$0.05 per share.  The March 2006 Portfolio  Lenders Note accrued interest at the
rate of 15% per annum,  of which 30 days worth of interest  ($1,250) was paid in
advance on the closing date.  The Company repaid all amounts due and owing under
the March 2006 Portfolio Lenders Note on April 11, 2006.

     In May 2006,  we obtained a loan of $250,000  from  Portfolio  Lenders (the
"May 2006  Portfolio  Lenders  Note").  We used the loan  proceeds  for  working
capital purposes. We issued to Portfolio Lenders a warrant to purchase 1,000,000
shares of our common  stock with an exercise  price of $0.05 per share.  The May
2006 Portfolio  Lenders Note accrues  interest at the rate of 15% per annum,  of
which 90 days worth of  interest  ($9,375)  was paid in  advance on the  closing
date. The principal and accrued but unpaid  interest shall be paid in full on or
before the earlier of (i) 60 days after the effective  date of the  Registration
Statement  on Form SB-2 as filed by Poseidis  on April 14, 2006 or (ii)  October
31, 2006.

     In July 2006,  we obtained a loan of $30,000 from Louis Pardo which we used
for working  capital  purposes.  Mr.  Pardo is our  President,  Chief  Executive
Officer, and Chairman of our Board of Directors and a substantial stockholder of
the  Company.  This note  accrues  interest at the rate of 9.25% per annum.  The
principal and accrued  interest shall be paid in full on demand,  not later than
the fifth  business  day after  written  demand  therefore  is  received  by the
Company.

     We generated a net loss of  $3,294,210  during the year ended  February 28,
2005, and a net loss of $1,569,140  during the year ended February 28, 2006. Our
accumulated deficit as of February 28, 2006 was $8,312,661. As of July 31, 2006,
our available cash position was approximately $21,500. We are continuing to seek
additional  financing to meet our working capital needs and to continue on-going
equipment   installation  at  the  Source,   development  of  our  pilot  plant,
development  of our  commercial  production  and  bottling  facility,  and other
elements of our business plan. We expect that operating and development expenses
will increase  significantly  as we continue to implement our plan. No assurance
can be  given  that we will be  successful  in  completing  these  or any  other
financings  at  the  minimum  level   necessary  to  fund  our  working  capital
requirements  or to  complete  our  development  plan  or  at  all.  If  we  are
unsuccessful in completing these financings, or in acquiring the funds available
pursuant  to the  SEDA,  we  will  not be  able  to  fund  our  working  capital
requirements  or execute our business  plan, we will run out of cash and have to
substantially reduce or curtail the development of our projects.

TARGETED LAUNCH

     We are  currently  ramping up towards a targeted  commercial  launch of our
natural mineral spring water product in the first quarter of 2008.  Prior to our
product  launch,  our  strategy is to provide  our sales team with  high-quality
samples  with  an  approximate  accuracy  of  98% of the  ultimate  quality  and



                                       12
<PAGE>



composition of the commercial product which we believe will give the Company the
ability to negotiate pre-launch  agreements with major distribution  networks in
Europe  and in the US,  starting  as early as first  quarter  2007.  The date of
product  launch  will be  dependent  upon a number  of  factors,  including  the
availability  of  financing  for  construction  of  our  small-scale  production
facility,  commercial-scale  production  facility,  and related  infrastructure;
receipt  of  regulatory  approvals,  licenses  and  permits  in France and other
applicable  jurisdictions at national and local levels;  hiring qualified senior
management  and   technical/operations   personnel;   obtaining  key  contracts,
alliances, and vendor relationships;  as well as our ability to raise additional
capital.

DISTRIBUTION AGREEMENTS, ALLIANCES AND PARTNERING AGREEMENTS

     Poseidis  believes  that a key to  its  success  will  be  its  ability  to
negotiate  and  enter  into  critical  distribution  agreements,  alliances,  or
partnering  agreements.  The purpose of these  agreements  is to provide  market
penetration  and  brand  recognition  for our  products.  As of the date of this
report,  Poseidis is already  actively  involved in  negotiations  with Promodes
Group, Casino, Auchan and chef Alain Ducasse

COMPETITION

     The  following  are the brands of French  mineral  water  available  on the
market which are potential direct competitors to l' Eau de Montespan:

Badoit

     Badoit water is one of the few naturally fizzy waters.  Filtered  through a
layer of granite rock in the Saint Galmier  region of France,  it emerges at the
source with a light,  natural sparkle,  unlike most sparkling waters, which have
their gaseous bubbles added during the bottling  process.  Light and refreshing,
this  delicate  mineral  water  is  a  favorite  amongst  the  best  hotels  and
restaurants in the world.

Chateldon

     Chateldon water is known as the water of Louis XIV,  probably France's most
famous ruler.  It was transported on two mules from the Auvergne to Louis' table
in the Palace of  Versailles.  It is this Royal seal of  approval  that  creates
Chateldon's distinctive trademark.  Naturally sparkling, Chateldon water is rich
in minerals,  especially  calcium and carbon.  The  production is limited to one
million liters per year.

Ferrarelle

     Ferrarelle is among the very few naturally  carbonated waters in the world.
At 43 milligrams per liter of potassium,  and 81 milligrams per liter of silica,
Ferrarelle  is in a class by itself in terms of  composition;  most high mineral
waters, by comparison, are loaded with sodium and/or bicarbonates.  Harvested in
Val d'Assano, inland from Naples, Ferrarelle dates back to pre-Roman times.

Hildon

     Hildon Natural Mineral Water was discovered in 1989 at the Hildon Estate in
Broughton,   Hampshire,   Southern  England.   A  small  production  outlet  was
established  and the water has been flowing ever since.  The water is wholesome,
naturally filtered and crystal-clear. It is free from pollution and has a stable
composition,  being  naturally low in sodium and naturally high in calcium.  The
water is  bottled  at the  source  and sold in both  still or gently  carbonated
forms.



                                       13
<PAGE>



Perrier

     The legend of Perrier  water dates as far back as Hannibal,  who  allegedly
discovered it in 218 B.C.,  while crossing Spain in his attempt to conquer Rome.
The  Romans  were the  first to  build a stone  basin on the site of the  source
around  two  hundred  years  after it was  discovered  by  Hannibal.  The  first
commercial  ventures  began in 1863  after  the  Granier  family  purchased  the
Bouillens  estate,  which held the source.  In 1898 Louis  Perrier took over the
estate and the first  instance of the  Perrier  name being  associated  with the
source.  In 1992 Perrier water, one of the few naturally  carbonated  waters, in
its distinctive green glass, screw top bottles,  had become such a market player
that Nestle waters bought out the brand.

San Pellegrino

     The town of San  Pellegrino in the mountains  north of Milan was first made
famous by quenching the thirst of Leonardo da Vinci. Today the Fonte Termale, an
opulent  marbled  drinking  hall,  is a monument to the tradition of "taking the
waters." S.  Pellegrino's  sources are three deep  springs  which emerge at 69.8
degrees F. The waters come from an aquifer  1,300 feet below the surface,  where
limestone and volcanic rocks impart unique minerals and trace elements.

Spa

     Spa Natural  Spring  Water is from the town of Spa  Belgium  located in the
Ardennes Mountains,  one of Europe's most renowned  conservation areas. The land
around the spring has been protected  from pollution for centuries.  Spa Natural
Spring Water is sodium free and is lower in total mineral salts than all leading
European bottled waters. Spa Natural Spring Water is owned by the Spadel Group.

Ty Nant

     Beginning  at  London's  top  hotels  in  1989,  Ty  Nant  rapidly   gained
recognition  as a premium  product  and today it can be  ordered  in many of the
world's leading hotels,  clubs and fine  restaurants.  Ty Nant is bottled at its
source in the countryside of mid Wales and exports 60% of its production.

Voss

     Voss Artesian Water comes from an aquifer in Southern Norway which produces
a naturally  unfiltered artesian water which is bottled at the site. The product
comes in still and sparkling versions.

Wattwiller

     Wattwiller has one of the longest pedigrees of any water. It was discovered
by the Romans during their reign over the area now known as Alsace,  France.  It
was  controlled  by the monks of the Abbey of Murbach  beginning  in 735 AD. The
village was called  Wasserweiler  - the village of water.  Guarded by  protected
forest  land,  the water  rises  from  beneath a ten meter  screen of clay.  The
Lithinee  spring  produces only still  mineral  water,  and the Jouvence  spring
produces a mineral water to which is added natural carbonation.

     The Company is not aware of any direct  competitors to Athenais Night Water
at the current time.

CERTAIN AGREEMENTS

     In order to implement our  strategies,  construct our plant and ramp-up our
business,  we have  entered into  agreements  in the U.S.  with Cornell  Capital
(equity  financing and debt  financing),  Bridgehead  Partners,  LLC  (financial


                                       14
<PAGE>



consulting  and related  services),  Phoenix  Ventures,  LLP  (government/public
relations  and  related  services),   and  North  Coast  Securities  Corporation
(placement  agent  for a  completed  offering  and a  financial  consulting  and
advisory  agreement).  We have also  entered  into  agreements  in France with a
hydrology expert for the preparation of the well for commercial use; engineering
consultant;  and suppliers of engines,  production line equipment,  and bottling
instruments.  We also  intend to commence  negotiations  later in 2006 to secure
agreements with one or more distributors,  an engineering consultant for mineral
water  treatment,  computer  hardware and software  providers,  quality  control
specialists,  flavors and fragrances suppliers,  and other vendors. We intend to
enter into a lease agreement for office space in the New York  metropolitan area
in late 2006.

INTELLECTUAL PROPERTY

     We have no  registered  trademarks in the United  States.  In July 2006, we
filed three trademark applications in the U.S. for "Poseidis",  "Montespan", and
"Night  Water".  We have two  registered  trademarks  in  France.  They are "St.
Troliere" (stylized letters) and "Montespan"  (stylized letters and fleur de lis
design).  Both are registered in appropriate  International  Classes  consistent
with our business  development  strategies.  We do have the  opportunity to seek
registration  of these  marks  and  others  in the  United  States  and in other
jurisdictions,  but can give no assurance whether  registration will be granted.
In the meantime,  existing laws afford only limited  protection for intellectual
property based upon use of the trademarks without registration.

GOVERNMENT REGULATION

     In order to enter the bottled water  industry,  Poseidis will be subject to
regulation by each country in which it conducts  business,  and under  national,
regional  and (in some cases)  local laws and  regulations.  Our product  launch
cannot  begin  until all  regulatory  approvals  are  obtained.  There can be no
assurance  that the Company will obtain the requisite  licenses and approvals of
the various regulatory  agencies in a timely fashion, if at all. The securing of
the  requisite   national,   regional  and  local  licenses  and  permits  is  a
prerequisite for conducting, operating or performing any regulated activity.

     Poseidis  is  also  subject  to  certain   national,   regional  and  local
environmental  protection,  health and safety laws,  regulations  and ordinances
that  apply  to  non-bottled  water  businesses  generally,  as well as laws and
regulations which apply to businesses specifically engaging in the bottled water
industry.

EMPLOYEES

     Poseidis and its  consolidated  subsidiary  Montespan have three unsalaried
employees/consultants  as of the date of this  report.  As we progress  with our
development  strategy we intend to hire  full-time and part-time  employees on a
phased basis and to enter into employment agreements with our senior management.

CORPORATE INFORMATION

     Poseidis is a Florida  corporation  that was incorporated on June 10, 1998.
Our corporate name was originally EZ Talk,  Inc.,  which was changed in May 2000
to BillyWeb  Corp.  and changed in August 2002 to Poseidis,  Inc. The  principal
address of Poseidis is 222 Lakeview  Ave.,  Suite 160, West Palm Beach,  Florida
33401; telephone number: (305) 428-3757.



                                       15
<PAGE>



     In May 2000, the Company  entered into an agreement to acquire 77.3% of the
issued and  outstanding  common shares of a  predecessor  company which was then
named BillyWeb Corp. (the "Predecessor")in a reverse merger; upon the completion
of this  transaction the management of the Predecessor  became the management of
the Company. The consideration for this transaction was 23,100,000 shares of the
Company's  common stock. In July 2000, the Company  acquired the remaining 22.7%
of the  Predecessor  that it did not  previously  own in exchange for  5,000,000
shares of  restricted  common  stock.  In October  2000,  the  Company  formed a
subsidiary under the laws of France, SARL BillyWeb.

     In December  2002,  the Company  placed SARL BillyWeb in  bankruptcy  under
French law. The Company recorded a gain of $12,700 as a result of this. In April
2003, the Company created a new wholly owned  subsidiary,  Poseidis,  SAS, under
French law and later changed that subsidiary's name to Montespan SAS.


ITEM 2. DESCRIPTION OF PROPERTY

     Montespan owns approximately 13 acres in Theneuille, France near the Source
(as  defined  above)  and has  entered  into a real  estate  purchase  agreement
pursuant  to which  Montespan  may  purchase  approximately  5.2 acres where the
Source is located and the immediate  surrounding  area.  The purchase  price for
these 5.2 acres is 2,150,000 euros  (approximately  $2,580,000) of which we have
paid 430,000  euros  (approximately  $516,000)  as of July 31,  2006.  This real
estate purchase agreement expires on February 28, 2008.


ITEM 3. LEGAL PROCEEDINGS

     As of the date of this  report,  we are not a party to any  material  legal
proceedings.


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

     No matters  were  submitted to a vote of our  security  holders  during the
fourth quarter of the fiscal year ended February 28, 2006.



                                     PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

                               MARKET INFORMATION

     As  of   February   28,   2006,   our  common   stock  was  traded  in  the
over-the-counter  market, and "bid" and "asked" prices were quoted on the OTC-BB
under the symbol "PSED". The following table sets forth certain information with
respect to the high and low bid  prices  for our common  stock on the OTC-BB for
each quarter  within the fiscal  years ended  February 28, 2006 and February 28,
2005. Such quotations  reflect  inter-dealer  prices,  without retail  mark-ups,
mark-downs or commissions,  and may not represent actual  transactions.  On July
19, 2006, the OTC-BB temporarily ceased quoting our shares on the OTC-BB because
our annual  report on Form 10-KSB for the year ended  February  28, 2006 had not
been filed with the SEC. The filing of this report  eliminates that  eligibility



                                       16
<PAGE>



deficiency.  In  addition,  our  quarterly  report on Form  10-QSB for the three
months ended May 31, 2006, has not been filed with the SEC but we expect it will
be filed on or about  September 28, 2006.  The Company's  common stock is quoted
through  various  market  makers on the Pink Sheets  published  by the  National
Quotation Bureau. Upon filing of our 10-KSB for the year ended February 28, 2006
and our 10-QSB for the quarter  ended May 31,  2006,  the  Company's  stock will
again be eligible for quotation on the OTC-BB.

                                                  Bid Prices for Common Stock
                                                  ---------------------------
                                                     High           Low
                                                   ----------    -----------
 Fiscal Year Ended February 28, 2006

     Fourth Quarter ended February 28, 2006          $0.0900     $0.0200
     Third Quarter ended November 30, 2005           $0.0800     $0.0400
     Second Quarter ended August 31, 2005            $0.2800     $0.0510
     First Quarter ended May 31, 2005                $0.1900     $0.1100

 Fiscal Year Ended February 28, 2005

     Fourth Quarter ended February 28, 2005          $0.2000     $0.1350
     Third Quarter ended November 30, 2004           $0.3500     $0.1650
     Second Quarter ended August 31, 2004            $1.1700     $0.1500
     First Quarter ended May 31, 2004                $2.4500     $0.4062*
----------------------------
*    This low bid price is adjusted  to reflect  the 8:1 forward  stock split on
     March 31, 2004.

     On August 7, 2006,  the  closing  sale price  quoted in the Pink Sheets was
$0.06. As of August 7, 2006, there were  approximately  752 holders of record of
our common stock.

                                    DIVIDENDS

     We have not paid cash  dividends on our common  stock and do not  presently
anticipate  paying cash dividends in the foreseeable  future.  It is anticipated
that  earnings,  if  any,  will  be  retained  for  use in our  business  for an
indefinite period.  Payments of dividends in the future, if any, will depend on,
among other things, our ability to generate earnings,  our need for capital, and
our financial  condition.  Our ability to pay dividends is limited by applicable
state law.  Declaration  of  dividends  in the  future  will  remain  within the
discretion of our Board of Directors, which will review the dividend policy from
time to time.

                    SECURITIES AUTHORIZED FOR ISSUANCE UNDER
                            EQUITY COMPENSATION PLANS

     The following table sets forth  information as to securities  issuable upon
exercise of  outstanding  options and warrants and available for issuance  under
equity compensations plans as of February 28, 2006.







                                       17
<PAGE>



<TABLE>
<CAPTION>
                                                                                 Number of securities
                                  Number of securities         Weighted-average  remaining available
                                  to be issued upon            exercise price    for future issuance under
                                  exercise of outstanding      of outstanding    equity compensation plans
                                  options, warrants            options, warrants  (excluding securities
Plan category                     and rights (a)               and rights (b)    reflected in column (a)) (c)
------------------------------- ----------------------------   ----------------- ----------------------------
<S>                             <C>                            <C>               <C>
Equity compensation plans
approved by security holders:                           N/A          N/A               N/A

Equity compensation plans not approved by security holders:
                                 Options:
                                     2000 Plan (1)        0          N/A                0
                                     2002 Plan (1)        0          N/A                0

                                    Warrants
                                                  1,500,000         $0.0375             0
                                                  1,250,000         $0.12               0
                                                    500,000         $0.12               0
                                                  3,750,000         $0.08               0
                                                  1,250,000         $0.12               0
                                                  1,200,000         $0.25               0
                                                  9,000,000         $0.04               0
                                                  1,000,000         $0.05               0
                                 -------------- -----------   ------------------ ---------------------
                                                 19,450,000(2)     $0.073              0
Total
</TABLE>
----------------------
(1)  No   outstanding   grants   have  been  made  under  the   Company's   2000
     Employee/Consultant  Stock  Compensation  Plan  (the  "2000  Plan")  or the
     Company's  2002  Employee/Consultant  Stock  Compensation  Plan (the  "2002
     Plan").  The 2000 Plan and the 2002 Plan were terminated by Poseidis' Board
     of Directors in July 2006.

(2)  This table excludes  warrants that were issued in  March-April  2006 (after
     the  completion  of the Company's  fiscal year ended  February 28, 2006) in
     connection  with the Company's 2006 Private  Placement.

EMPLOYEE/CONSULTANT STOCK COMPENSATION PLANS

     Poseidis'  Board of Directors  adopted the 2000  Employee/Consultant  Stock
Compensation Plan in 2000 and the 2002  Employee/Consultant  Stock  Compensation
Plan in 2002. No  outstanding  grants have been made by Poseidis  under the 2000
Plan and the 2002  Plan.  The 2000  Plan and the 2002 Plan  were  terminated  by
Poseidis' Board of Directors in July 2006.

WARRANTS

     Warrants issued under equity  compensation plans, which were outstanding as
of February 28, 2006, include the following:

     The Company issued to a consultant warrants to purchase 1,500,000 shares of
common stock with an exercise price of $0.0375.  The warrants  expire on January
12, 2011.




                                       18
<PAGE>



     In February  2006,  the Company  issued  warrants to the designees of North
Coast, the placement agent in the 2006 Private Placement, to purchase a total of
1,000,000 shares of common stock in consideration for services rendered by North
Coast in connection with a Financial  Advisory and Investment Banking Agreement.
These warrants have an exercise price of $0.05 and expire on February 1, 2011.

     The  Company  issued  to  Cornell  Capital  in  connection  with  debenture
financing  and SEDA  financing,  and related  fees,  an aggregate of  16,950,000
warrants to purchase  shares of common stock with the following  exercise prices
and expiration dates:

    Number of          Exercise         Expiration
    Warrants           Price             Date
    -----------        --------         ------------------
    1,250,000          $0.12            August 26, 2010
      500,000          $0.12            August 26, 2010
    3,750,000          $0.08            February 1, 2011
    1,250,000          $0.12            February 1, 2001
    1,200,000          $0.25            February 1, 2011
    9,000,000          $0.04            February 1, 2011

SECURITIES  ISSUED DURING  QUARTER ENDED  FEBRUARY 28, 2006;  securities  issued
during  the year  ended  February  28,  2006 and not  previously  included  in a
quarterly report on Form 10QSB or in a current report on Form 8-K

     In December 2005, the Company issued 280,000 shares of the Company's common
stock at a  purchase  price of $0.14 per  share to five  investors  residing  in
France in private  transactions  in  exchange  for  $40,351 in cash and  160,000
shares  valued at $3,200 in exchange  for  services to the Company. Issuance of
the  securities  in each of these  transactions  was  exempt  from  registration
pursuant to Section 4(2) of the Securities  Act. The  securities  were issued in
private  transactions  without  the use of any form of general  solicitation  or
advertising.  The securities are "restricted  securities"  subject to applicable
limitations on resale.

     In February  2006,  the Company  issued  warrants to the designees of North
Coast to  purchase  a total of  1,000,000  shares of common  stock as  described
above.  These warrants have an exercise price of $0.05 and expire on February 1,
2011.


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

     The  following  discussion  and analysis  should be read  together with the
financial  statements and the accompanying  notes thereto included  elsewhere in
this report.

                                     GENERAL

     Our business is the  commercial  exploitation  of a natural  mineral  water
spring called La Troliere  Spring located in the village of  Theneuille,  Allier
Department,  Canton Cerilly, in the region of one of the largest natural forests
in France.

     We have had no revenues from our current  operations,  our operations since
inception in 1998 have not  generated a profit,  and we have relied on, and will
continue to rely on,  significant  external  financing  to fund our  operations.
During the fiscal year ended  February 28, 2006,  our financing  came  primarily
from the sale of $644,000 of convertible debentures and approximately $86,000 in
private  placement  proceeds.  Subsequent  to  year-end we closed on $917,800 in



                                       19
<PAGE>



gross  proceeds  from the private  sale of our  securities  in the 2006  Private
Placement.  We also have a commitment  for gross  proceeds of up to $8.0 million
that is  available  to us  under  the  SEDA  upon the  satisfaction  of  certain
conditions  including  the  effectiveness  of  an  SEC  registration   statement
covering, among other securities,  the common stock issuable in exchange for the
SEDA funds,  and the listing of our of shares for  quotation  on the OTC-BB.  As
noted above, the OTC-BB has temporarily ceased quoting our shares. The filing of
this 10-KSB report  eliminates  the original  reason for our OTC-BB  de-listing,
though we must also  complete and file our  quarterly  report on Form 10-QSB for
the three  months ended May 31, 2006 before our stock will again be eligible for
quotation on the OTC-BB and in order to satisfy the applicable SEDA  conditions.
Upon such  filing,  we will pursue  reinclusion  of our share  quotation  on the
OTC-BB.  If we determine  not to utilize any of the $8.0 million SEDA funds,  we
will need to raise at least  approximately $9.2 million in additional capital to
finance  operations  through year-end 2006. To the extent we do draw on the SEDA
to finance operations as described above, the aforesaid $9.2 million figure will
decrease by the net amount of such draws.

     We cannot  assure you that  financing,  whether  from  external  sources or
related  parties,  will be available on favorable terms or at all. Our inability
to obtain  adequate  financing  will  result  in the need to  reduce or  curtail
planned business operations.  Any of these events would be materially harmful to
our  business  and may  result  in a lower  stock  price.  We will need to raise
additional  capital to fund our  anticipated  future  development.  No financing
commitments  for future  capital needs have been obtained as of the date of this
report other than the $8.0 million  SEDA funds.  There can be no assurance  that
the  Company's  financial  condition  will  improve.  The Company is expected to
continue  to have  minimal  working  capital or a working  capital  deficit as a
result of current liabilities.

                             FINANCING TRANSACTIONS

     The  following  is a  general  description  of our  most  recent  financing
transactions.  See also the Notes to the financial statements included with this
report.

     From  February  2001  until the end of July 2005 our  operations  have been
financed  primarily  through the use of  proceeds  from  equity  financings  and
borrowings under short term debt  agreements.  Over that period of time, we have
raised $1,138,153 from the sale of our common stock and $170,804 from borrowings
in the form of short term debt,  of which  $33,890 has been repaid and  $108,000
has been converted to common stock. The Board members,  senior  management,  and
key  stockholders  of Poseidis have provided the Company with  aggregate  equity
financing  of  approximately  $1 million  during the period from  February  2001
through December 31, 2005;  excluding the Cornell Capital financing as described
in this report.

     Between August 2005 and February 2006, we received an aggregate of $644,000
in principal  amount of  convertible  debt in two  financing  transactions  with
Cornell  Capital  pursuant  to the  terms  of the two  SPA's.  In  exchange  for
financing under the SPA's, we have issued to Cornell Capital $644,000 of our 12%
secured, Convertible Debentures. The SPA's conversion provisions entitle Cornell
Capital at any time,  and from time to time,  to convert  all or any part of the
principal  plus accrued  interest into  Poseidis'  common stock , at a per share
price equal to $0.0497 per share with  respect to $300,000 in  principal  amount
and interest  accrued  thereon and at a per share price equal to $0.04 per share



                                       20
<PAGE>



with respect to $344,000 in principal amount and interest accrued thereon, which
may be adjusted  under certain  circumstances.  The maturity date of each of the
three Convertible Debentures is September 1, 2007; monthly payments of principal
and accrued interest commence on September 1, 2006 as to each of the Convertible
Debentures.  We have the right to redeem the  Convertible  Debentures  without a
premium if the market price for our common stock is greater than the  conversion
price then in effect.  Otherwise,  a  redemption  premium of 20%  applies to all
three Convertible Debentures.

     In addition,  in August 2005 we entered into the SEDA with Cornell  Capital
whereby  we  may  (after  certain   conditions   are  satisfied   including  the
effectiveness of an SEC registration  statement  covering the Conversion  Shares
and the shares issued upon our SEDA draws), at our discretion, periodically sell
to Cornell Capital shares of our common stock for a gross purchase price of $8.0
million.  For each  share of common  stock  purchased  under  the SEDA,  Cornell
Capital  will pay  Poseidis  96% of the market  price for our  common  stock (as
defined in the SEDA).  Further,  Cornell Capital will retain a fee of 5% of each
advance under the SEDA. The documents  pertaining to the SEDA,  the  Convertible
Debentures,  and the related  documents and  agreements  between the Company and
Cornell Capital are included among the exhibits that are attached to our reports
filed with the SEC.

     In March 2006,  Poseidis  completed the 2006 Private Placement and received
gross proceeds of U.S. $917,800 from the sale of units consisting of convertible
debentures and warrants.

     In March 2006,  we received the bridge loan from  Portfolio  Lenders in the
principal amount of $100,000 . We also issued to Portfolio  Lenders a warrant to
purchase  up to 100,000  shares of our common  stock with an  exercise  price of
$0.05 per share.  The March 2006 Portfolio  Lenders Note accrued interest at the
rate of 15% per annum,  of which 30 days worth of interest  ($1,250) was paid in
advance on the closing date.  The Company repaid all amounts due and owing under
the March 2006 Portfolio Lenders Note on April 11, 2006.

     In May 2006, we obtained the loan of $250,000 from  Portfolio  Lenders.  We
used the loan  proceeds  for working  capital  purposes.  We issued to Portfolio
Lenders a warrant  to  purchase  1,000,000  shares of our  common  stock with an
exercise price of $0.05 per share.  The May 2006 Portfolio  Lenders Note accrues
interest  at the  rate of 15% per  annum,  of which  90 days  worth of  interest
($9,375) was paid in advance on the closing date.  The principal and accrued but
unpaid  interest  shall be paid in full on or before the  earlier of (i) 60 days
after the effective date of the Registration  Statement on Form SB-2 as filed by
Poseidis on April 14, 2006 or (ii) October 31, 2006.

     In July 2006,  we obtained a loan of $30,000 from Louis Pardo which we used
for working  capital  purposes.  Mr.  Pardo is our  President,  Chief  Executive
Officer, and Chairman of our Board of Directors and a substantial stockholder of
the  Company.  This note  accrues  interest at the rate of 9.25% per annum.  The
principal and accrued  interest shall be paid in full on demand,  not later than
the fifth  business  day after  written  demand  therefore  is  received  by the
Company.




                                       21
<PAGE>



     We generated a net loss of  $3,294,210  during the year ended  February 28,
2005, and a net loss of $1,569,140  during the year ended February 28, 2006. Our
accumulated deficit as of February 28, 2006 was $8,312,661. As of July 31, 2006,
our available cash position was approximately $21,500. We are continuing to seek
additional  financing to meet our working capital needs and to continue on-going
equipment   installation  at  the  Source,   development  of  our  pilot  plant,
development  of our  commercial  production  and  bottling  facility,  and other
elements of our business plan. We expect that operating and development expenses
will increase  significantly  as we continue to implement our plan. No assurance
can be  given  that we will be  successful  in  completing  these  or any  other
financings  at  the  minimum  level   necessary  to  fund  our  working  capital
requirements  or to  complete  our  development  plan  or  at  all.  If  we  are
unsuccessful in completing these financings, or in acquiring the funds available
pursuant  to the  SEDA,  we  will  not be  able  to  fund  our  working  capital
requirements  or execute our business  plan, we will run out of cash and have to
substantially reduce or curtail the development of our project.

     Our  operating  plan  seeks  to  minimize  our  capital  requirements,  but
construction of our production facility, purchase of equipment, expansion of our
staff,  and other  expenses  will  require  additional  capital.  We expect that
operating and production expenses will increase  significantly as we continue to
ramp up.

     We are continuing to seek financing  sources.  We need to raise  additional
capital to meet our working  capital  needs,  for the  repayment of debt and for
capital  expenditures.  Such capital is expected to come from the sale of equity
(including  the sale of  common  stock  under the  SEDA) or debt  financing.  We
believe  that  if we  raise  approximately  $9.2  million  in  debt  and  equity
financings, excluding the SEDA, we would have sufficient funds to meet our needs
for working capital and repayment of debt  (approximately  $2.5 million) and for
capital  expenditures  (approximately  $6.7 million) over the next twelve months
ending August 2007.

     No assurance  can be given that we will be  successful  in  completing  any
financings at the minimum level  necessary to fund our capital  equipment,  debt
repayment or working capital requirements,  or at all. If we are unsuccessful in
completing  these  financings,  we will not be able to meet our working capital,
debt repayment or capital  equipment needs or execute our business plan. In such
case we will assess all available alternatives including a sale of our assets or
merger,  the  suspension  of  operations  and  possibly  liquidation,   auction,
bankruptcy, or other measures.

                      STANDBY EQUITY DISTRIBUTION AGREEMENT

     On August 26, 2005, the Company entered into the SEDA with Cornell Capital,
pursuant  to which the  Company  may, at its  discretion,  periodically  sell to
Cornell  Capital  shares  of  Common  Stock  for a total  gross  price  of up to
$8,000,000. The Company and Cornell Capital entered into an Amended and Restated
SEDA and related  letter  agreement  as of October  24,  2005 which  removed the
escrow agent and takes into effect the  termination  of the Escrow  Agreement by
and among the Company, Cornell Capital and David Gonzalez, Esq. In addition, the
Company agreed to not redeem or repay  convertible  debentures issued by Cornell
Capital with proceeds  from the Amended and Restated  SEDA. On February 1, 2006,
the Company and Cornell  Capital entered into a Second Amended and Restated SEDA
which amended the payment terms  pertaining to the $320,000  commitment  fee due
Cornell Capital as provided for in the original SEDA. Under these amended terms,



                                       22
<PAGE>



on February 1, 2006, the Company issued to Cornell Capital (i) 3,000,000  shares
of common stock, (ii) a warrant to purchase  9,000,000 shares of common stock at
an  exercise  price  of $0.04  per  share  and  (iii) a  promissory  note in the
principal amount of $200,000.

     For each share of Common Stock  purchased  under the SEDA,  Cornell Capital
will pay the Company 96% of the lowest volume  weighted  average price of Common
Stock as quoted by on the OTC-BB or other principal market on which Common Stock
is traded for the five days immediately  following the date the Company delivers
a notice requiring Cornell Capital to purchase shares under the SEDA.

     Cornell  Capital's  obligation to purchase shares of common stock under the
SEDA is  subject to certain  conditions,  including  the  Company  obtaining  an
effective registration statement for shares of common stock sold under the SEDA,
reinclusion of the Company's  common stock for quotation on the OTC-BB,  and the
limitation of advances under the SEDA to $300,000 per week. In addition, on each
date that the Company  requests an advance  pursuant to the SEDA, the Company is
required to pay to Cornell  Capital a fee  totaling 5% of each  advance  request
which is payable  directly from the gross proceeds.  If such payment is not made
by the  Company  on the date that  such  advance  is made,  the  payment  may be
deducted  from the  amount  of the  advance  requested  by the  Company  with no
reduction  in the  amount  of shares  to be  delivered  to  Cornell  Capital  in
connection therewith.

                             CONVERTIBLE DEBENTURES

     On August  26,  2005,  the  Company  also  entered  into the first SPA with
Cornell Capital (the "August 2005 SPA"), pursuant to which the Company issued to
Cornell Capital  $300,000 in principal of 12% convertible  debentures (the "2005
Debentures")  under (i) a $150,000  debenture  originally issued August 26, 2005
and  amended  and  restated  in  October  2005 and in  February  2006 and (ii) a
$150,000  debenture  originally issued October 24, 2005 and amended and restated
in February  2006.  On February 1, 2006,  the Company  entered into a second SPA
with Cornell  Capital (the "February  2006 SPA"),  pursuant to which the Company
issued to Cornell Capital  $344,000 in principal of 12%  convertible  debentures
(the  "February  2006  Debenture").  The 2005  Debentures  and the February 2006
Debenture are convertible  into shares of common stock at a conversion  price of
$0.0497 per share and $0.04,  respectively,  which may be adjusted under certain
circumstances.  Interest  on the 12%  debentures  is  payable in cash but may be
payable  in shares of common  stock at the option of the  holder  under  certain
conditions.  All  Convertible  Debentures  issued  to  Cornell  Capital  have  a
September 1, 2007 maturity date and accrue interest at 12% per year.

     Beginning  October 1, 2006, we are required to make monthly  payments until
all amounts under the Convertible Debentures are repaid. The principal amount of
each monthly payment is determined by dividing the outstanding  principal amount
of the  Debentures  as of the date the  monthly  payment is due by the number of
monthly   payments   remaining  until  the  maturity  date  of  the  Convertible
Debentures.

     The  Convertible  Debentures  are secured by security  agreements  covering
substantially  all of our business  assets dated August 26, 2005 (as to the 2005
Debentures)  and  February  1,  2006  (as  to  the  February  2006   Debenture),
respectively,  and by a pledge  and  escrow  agreement  dated  February  1, 2006
whereby  we have  pledged  20,000,000  shares  of our  common  stock  to  secure
repayment of the Convertible Debentures.  Principal plus accrued interest may be



                                       23
<PAGE>



converted  at Cornell  Capital's  option,  into shares of our common  stock at a
price  per share of  $0.0497  (as to the 2005  Debentures)  and $0.04 (as to the
February 2006  Debenture).  If the holder  elects to convert,  we may redeem the
portion of the  debenture  that was subject to the  conversion  notice by paying
120% of the amount being redeemed. We are restricted from issuing such number of
shares upon  conversion of the Convertible  Debentures if such conversion  would
result in Cornell  Capital  owning in excess of 4.9% of our  outstanding  common
stock, which may only be waived by Cornell Capital either in its sole discretion
with  60  days'  notice  or  without  notice  upon an  event  of  default.  This
restriction may significantly  limit and delay our ability to access funds under
the SEDA.

     We are required to register all shares issuable pursuant to the Convertible
Debentures   pursuant  to  the  terms  of  an  Amended  and  Restated   Investor
Registration Rights Agreement between Cornell Capital and us. In addition, while
the Convertible  Debentures are outstanding and unconverted,  we are restricted,
without  prior  consent of Cornell  Capital,  from issuing or selling any of our
common or preferred  stock or other  security for less than fair market value or
less than Cornell's purchase price, or from granting any security interest other
than for equipment, or from filing any registration statement on Form S-8 except
for securities  covered by a bona fide stock  incentive  plan. We have agreed to
pay Cornell  Capital 5% of the proceeds  that we receive from each advance under
the SEDA.

                              GOING CONCERN MATTERS

     Our accompanying  consolidated financial statements have been prepared on a
going  concern  basis,   which  contemplates  the  continuation  of  operations,
realization of assets and  liquidation of liabilities in the ordinary  course of
business.  Since inception,  we have incurred  substantial  operating losses and
expect to incur  additional  operating  losses over the next several  years.  As
February 28, 2006, we had an accumulated deficit of approximately $8,313,000. We
are  continuing  to seek  financing  sources.  We will need to raise  additional
capital  to  meet  our  working  capital  needs  and  to  complete  our  product
commercialization  process.  No assurances can be given that such financing will
be available in sufficient  amounts or at all.  Continuation  of our  operations
through fiscal year 2007 is dependent  upon  obtaining  such further  financing.
These  conditions  raise  substantial  doubt  about our ability to continue as a
going concern. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

                        LIQUIDITY AND FINANCIAL CONDITION

     At  February  28,  2006,  cash and cash  equivalents  were  $73,314.  Total
liabilities  at  February  28,  2006  were  $1,697,947   consisting  of  current
liabilities in the aggregate  amount of $940,517 and long-term  liabilities in
the  amount  of  $757,430.  At  February  28,  2006,  assets  included  $0  in
inventories,  property and  equipment,  net, of  $443,572,  net  intangibles  of
$1,159,978,  and prepaid expenses and other assets of $7,000. As of February 28,
2006 our working  capital  deficit was  $846,787  as compared to $1,090,832 at
February  28,  2005.  We  expect  to incur  substantial  operating  losses as we
continue our  commercialization  efforts.  We are  continuing to seek  financing
sources.  We need to raise additional capital to meet our working capital needs,
for the repayment of debt and for capital expenditures. Such capital is expected
to come from the sale of equity  (including  the sale of common  stock under the
SEDA) or debt financing.  We believe that if we raise approximately $9.2 million
in debt and



                                       24
<PAGE>



equity  financings,  excluding the SEDA, we would have sufficient  funds to meet
our needs for working capital and repayment of debt (approximately $2.5 million)
and for capital  expenditures  (approximately $6.7 million) over the next twelve
months ending August 2007.

                              RESULTS OF OPERATIONS
      YEAR ENDED FEBRUARY 28, 2006 COMPARED TO YEAR ENDED FEBRUARY 28, 2005

Revenues

The Company has generated no revenues since inception.

General and Administrative Expenses

     General and  administrative  expenses  during the year ended  February  28,
2006,  decreased by $170,696 or  approximately  50% to $174,412 from $345,108 in
the year ended  February 28, 2005.  This  decrease was  primarily due to reduced
office, rent, travel and entertainment expenses


Consulting Fees

     Consulting  fees were $528,693  during the year ended  February 28, 2006 as
compared to  $2,711,604  in the year ended  February  28, 2005 for a decrease of
$2,182,911 or  approximately  81%. This decrease was due primarily to reductions
in stock  issuances for consulting  services  during the year ended February 28,
2006 as compared to the year ended February 28, 2005.

Professional Fees

     Professional fee expenses during the year ended February 28, 2006 increased
by $383,973 or  approximately  750% to $435,045 in the year ended  February  28,
2006 from $51,072 in the year ended  February 28, 2005.  The increase was due to
increased  expenditures for legal fees,  financial  advisory  services,  graphic
design and website development.

Other income (Expense)

     Interest expense for the year ended February 28, 2006 increased by $126,211
to  $126,216  from $5 in the year ended  February  28,  2005.  Interest  expense
represents the amortization of the discount on the Debentures of $107,654 and an
interest expense accrual of $18,346 related to various debentures.

Non-operating income - real estate

     Non-operating income - real estate was $249,830 for the year ended February
28, 2006 versus $0 for the year ended February 28, 2005. The increase was due to
a one time benefit  derived from the purchase  agreement  for the land where the
Source is located.

Loss on derivative liability

     Loss on derivative liability, which was related to the embedded derivatives
of the Cornell Capital Debentures,  was $507,154 for the year ended February 18,
2006, with no corresponding amounts in prior years.



                                       25
<PAGE>



Net Loss to Common Shareholders

     Net loss to common  shareholders was approximately  $1,569,000 or $0.02 per
share  for the  year  ended  February  28,  2006 as  compared  to a net  loss of
$3,294,000 or $ 0.07 for the year ended  February 28, 2005.  The decrease in net
loss for the year was principally  due to a decrease in consulting  expenses and
general and administrative expenses and a one time gain on real estate which was
partially  offset by the  following  factors:1)  increased  interest  expense on
outstanding  debt and the interest  expense related to the debentures  including
the amortization of the discount on the warrants and the embedded derivatives on
our convertible debentures,  2) an increase in professional fees for legal fees,
financial  advisory  service,  graphic  design and website  development,  and 3)
amortization  charges  in the year  ended  February  28,  2006  relating  to the
issuance of warrants and convertible notes.

Accumulated Deficit

     Since inception,  we have incurred substantial  operating losses and expect
to incur substantial additional operating losses over the next several years. As
of February 28, 2006, our accumulated deficit was $8,312,661.

                                PLAN OF OPERATION

     We are engaged in the  development  of a sparkling  mineral water spring in
central France known as the La Troliere  Spring.  We refer to this spring as the
"Source".  Our  objectives  are to develop  and market a new brand of  sparkling
natural  mineral  water  under the brand name "l' Eau de  Montespan"  as well as
other beverage products,  potentially a line of cosmetics products utilizing the
mineral water drawn from the Source, and other related products and merchandise.

     Our primary business  strategy is focused first on developing the Montespan
brand of sparkling natural mineral water and commencing sales of that product in
France,  Quebec,  the United Kingdom,  Italy,  Spain,  Germany and the U.S., and
subsequently in other geographic markets in Europe and North America. We believe
that an opportunity  exists in Europe and North America for: the introduction of
a new luxury  brand of  sparkling  natural  mineral  water  targeted at the most
famous cafes, hotels, and restaurants; utilizing a broad marketing strategy that
will include  distinctive and artistic  bottling and endorsements by the leading
chefs in France;  and  incorporating  the traditional  elements of high quality,
flavor, carbonation,  and mineral content. In addition, we believe that once our
initial mineral water is launched in France and  French-speaking  territories of
Canada (Quebec) a significant  demand for this product and related  products can
be  developed  elsewhere  in  Europe  and in North  America  leveraging  similar
business development and marketing strategies.

     Our plan of operation and  development  strategy for the next twelve months
to eighteen months is summarized as follows:

Phase             Description                              Timing (1)
----------------------------------------------------------------------------

  A      Acquisition of balance of ownership interest in   Q3, 2006 - Q2, 2008
         well rights
  1      Organizational/Administrative upgrades            Q3, 2006 - Q1, 2007
  2      Conformity of well finalization, bottling unit    Q4, 2006 - Q2, 2007
         blue print legal, construction approvals
  3      Pilot production for mineral water                Q3, 2007
         a. Water treatment pilot facility
         b. Final bottle molds



                                       26
<PAGE>



  4      Pilot production for Night Water                  Q4, 2007
         a. Water treatment & aromatization
         b. Final bottle molds
  5      Initial marketing and brand recognition           FY 2007
         strategies development of marketing & sales
         organization -  US & Europe
  6      Water treatment and bottling facility             Q2 - Q4, 2007
         construction, water collection infrastructure,
         transportation infrastructure - Phase 1
  7      Installation of second bottling line (1 liter),   Q1 - Q2, 2008
         modification of initial line into a half-liter
         bottle line - Phase 2
  8      Installation of aromatization and flash           Q1 - Q2, 2008
         pasteurization units for Night Water
-------------------
(1) timing presented on a calendar basis, not on our fiscal year.

     Our operations since inception in 1998 have not generated a profit. We have
a  commitment  for $8.0 million in gross  proceeds  that will be available to us
under  the SEDA  upon the  satisfaction  of  certain  conditions  including  the
effectiveness of an SEC registration statement covering, among other securities,
the common stock issuable in exchange for the SEDA funds, and reinclusion of our
common stock for quotation on the OTC-BB.  If we determine not to utilize any of
the $8.0 million SEDA funds, we will need to raise at least  approximately  $9.2
million in additional  capital to finance  operations  through year-end 2007. To
the  extent we do draw on the SEDA  funds to  finance  operations  as  described
above,  the  aforesaid  $9.2 million  figure will decrease by the amount of such
draws. If we are  unsuccessful in accessing the funds available  pursuant to the
SEDA or in obtaining  necessary  capital from other sources,  we will run out of
cash and have to substantially reduce or curtail the development of our project.

     Product  Development;  Market  Entry  Strategy.  Poseidis  will exploit the
potential for high-end brand  positioning  initially with two product  offerings
focused on the rapidly growing U.S. and Pan-European markets:

          Bottled   Mineral  Water:  L'  Eau  de  Montespan  will  be  a  luxury
     traditional  mineral  water.  L'  Eau  de  Montespan  will  be  exclusively
     available at the most famous restaurants'  tables. L' Eau de Montespan will
     possess all the  qualities of premium  sparkling  mineral water and will be
     comparable  to Chateldon  Water,  which is  considered  by many as the best
     mineral   water  in  France.   Derived  from  a  high  profile   historical
     iconography,  easily  marketable and characterized by its ability to evolve
     in time, l' Eau de Montespan will have all the reference values of a strong
     international  brand,  added to the  initial  qualities  of an  exceptional
     mineral water. This brand development, in order to maximize its recognition
     in France and abroad, will be integrated into a broader marketing strategy,
     including media awareness and partnerships with and endorsements of some of
     the best chefs in France including Ducasse,  Sanderens, and Troisgros. Sold
     exclusively  in  non-recycled  glass  bottles,  l' Eau de Montespan will be
     dedicated to the traditional distribution networks of restaurants,  hotels,
     and luxury  grocery  stores  (such as Dean & Deluca,  Hediard,  Fauchon and
     Colette).

          Functional drink: Athenais Night Water is envisioned to be the epitome
     of the functional food development. In a base of l' Eau de Montespan water,
     specific  concentrations  of  active  ingredients,  such  as  millepertuis,
     chamomile or passiflora in  homeopathic  forms and  concentrations  will be



                                       27
<PAGE>



     added as well as natural flavoring. Athenais Night Water is a luxury water,
     positioned like a cosmetic  product,  sold  exclusively to and found on the
     bed tables of high-end resorts and "5-Star" hotels.  Its exclusive  formula
     will  make it the  only  water  to  drink  at  night  for its  detoxifying,
     restructuring and reconstituting benefits.

     Follow-on cosmetics by-products under the Athenais and/or Night Water brand
may include:

     o    Athenais Spray 0.5 liter
     o    Athenais Light Moisturizing Fluid for the body
     o    Athenais Lift Serum
     o    Athenais Moisturizing Cream for the face
     o    Athenais Night Repair / Eye Cream

     Real  Estate,   Plant,  and  Equipment.   Our  foundational  asset  is  our
contractual  right to  acquire  the real  estate  where the Source is located in
Theneuille,  France.  In  October  2005  Montespan  entered  into  the  Berthier
Agreement (as defined above) with the owner of the Source  (Christian  Berthier)
pursuant to which Montespan may acquire the land where the spring is located and
the  immediately  surrounding  area  including  certain  government-granted  and
government-regulated  rights  to draw  and use the  Source's  water  as  natural
mineral water. The Berthier Agreement provides for a purchase price of 2,150,000
euros of which  430,000  euros has been paid as of July 31,  2006 and expires on
February 28, 2008.  Our  development  plan includes  completing the payments for
acquisition of the Berthier property and constructing and equipping the facility
described  below.  We plan to  install  pumping  equipment  at the Source and to
construct,  first, a small-scale  production  facility  capable of manufacturing
limited  quantities of samples of our envisioned  final product (the carbonation
in these samples will vary  slightly  compared to the  carbonation  in the final
commercial product) and, second, a full-scale  commercial  production plant plus
related infrastructure improvements at and around the Source.

     Poseidis  will  develop a production  and  bottling  facility at the Source
which will be highly automated and operationally flexible with a high production
capacity.  The  processing  and  bottling  of the water to be captured at the La
Troliere facility is divided into the following main steps:

o    Initial  capture at the Source - La Troliere is an artesian  source and the
     water is pumped at a depth of approximately  182 meters then transferred to
     the storage location by a system of pipes.

o    From the point of  capture,  stainless  steel  pipes  take the water to the
     conditioning  plant where the water is first degasified,  and the extracted
     gas is stored  temporarily  for  subsequent  addition  to the  water  after
     deferritization.  Deferritization is a filtering process to reduce the iron
     content  of the water  using a  fine-grade  silica  sand.  No  chemical  or
     artificial treatment is used for deferritization.

o    After deferritization,  the mineral water will be stored before bottling in
     double-wall  vats,  each  containing  70,000  liters.  The  water  is  then
     transferred to the  regassification  and bottling zone via stainless  steel
     pipes. When the water is ready for bottling,  it is moved to the carbonator
     equipment where it is regassified with its own gas (extracted as soon as it
     leaves the pump) without any external additions being made.




                                       28
<PAGE>



o    The regassified  water is then moved to the bottling room which is isolated
     from the  outside  world and air  conditioned  (filtered  air) to avoid all
     possible  contamination during bottle filling.  These operations consist of
     filling  the  bottle  with  regassified  water, capping  it,  labeling  it,
     assigning it with a batch number,  year and time of bottling,  and entering
     the "best before date" (BBD), e.g.: "Best Before December 2006".

o    The  bottles  are then moved to the  packing  and  shipping  area where the
     bundling machine groups the various forms into packs of 4, 6, or 8 bottles,
     wrapping  them in printed film. A handle is then applied  automatically  on
     the line and finally,  the packs are transferred to the pallet-filling area
     where they are palletized for shipment.

o    Poseidis will  maintain a laboratory to maintain a constant  control on the
     quality of the water. In order to maintain its  certification by the French
     authorities  as  well as to  guarantee  a  superior  quality  product,  the
     laboratory  has to process daily chemical and  bacteriological  analyses on
     the entire production chain.

Number of Employees.

     By  June  2007  we do not  expect  our  number  of  employees  to  increase
significantly.

RECENT ACCOUNTING PRONOUNCEMENTS

     In December 2004, the Financial  Accounting  Standards Board ("FASB) issued
SFAS No. 153, "Exchanges of Nonmonetary  Assets," ("SFAS No. 153"). SFAS No. 153
amends  Accounting  Principles  Board ("APB")  Opinion No. 29,  "Accounting  for
Nonmonetary  Transactions,"  to  require  exchanges  of  nonmonetary  assets  be
accounted for at fair value, rather than carryover basis.  Nonmonetary exchanges
that lack  commercial  substance are exempt from this  requirement.  SFAS 153 is
effective for nonmonetary exchanges entered into in fiscal years beginning after
June 15, 2005. We do not routinely enter into exchanges that could be considered
nonmonetary,  accordingly  we do not expect the  adoption  of SFAS 153 to have a
material impact on our financial statements.

     In December  2004, the FASB issued SFAS No. 123R,  "Share-Based  Payment"("
SFAS No. 123R").  SFAS No. 123R is a revision of SFAS No. 123,  "Accounting  for
Stock Based  Compensation",  and supersedes APB 25. Among other items,  SFAS No.
123R  eliminates the use of APB 25 and the intrinsic value method of accounting,
and requires  companies to recognize the cost of employee  services  received in
exchange for awards of equity instruments, based on the grant date fair value of
those awards, in the financial  statements.  The effective date of SFAS No. 123R
is the first reporting period beginning after December 15, 2005,  although early
adoption is allowed.  SFAS No. 123R requires companies to adopt its requirements
using a "modified  prospective" method. Under the "modified prospective" method,
compensation cost is recognized in the financial  statements  beginning with the
effective date,  based on the  requirements of SFAS No. 123R for all share-based
payments  granted after that date, and based on the requirements of SFAS No. 123
for all unvested  awards  granted prior to the effective  date of SFAS No. 123R.
The "modified  retrospective"  method also permits entities to restate financial
statements of previous periods based on proforma  disclosures made in accordance
with SFAS No. 123.

     We have adopted SFAS No. 123R effective March 1, 2006. We currently utilize
a standard option pricing model (i.e.,  Black-Scholes) to measure the fair value
of stock options  granted to employees.  SFAS No. 123R permits us to continue to
use such a model.



                                       29
<PAGE>



     SFAS No.  123R also  requires  that the  benefits  associated  with the tax
deductions in excess of recognized  compensation cost be reported as a financing
cash flow,  rather  than as an  operating  cash flow as required  under  current
literature.

     In March 2005, the FASB issued  Interpretation No. 47 (FIN 47), "Accounting
for  Conditional  Asset  Retirement   Obligations--an   interpretation  of  FASB
Statement  No. 143." FIN 47 clarifies  that an entity is required 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.  FIN 47 also
clarifies  when an  entity  would  have  sufficient  information  to  reasonably
estimate the fair value of an asset retirement obligation. FIN 47 was adopted in
the fourth  quarter of 2005 and has had no  significant  impact on our financial
position, results of operations or cash flows.

     In May 2005,  the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections--a  replacement  of APB  Opinion  No. 20 and FASB  Statement  No. 3"
("SFAS  No.  154").  SFAS No.  154  requires  retrospective  application  as the
required  method  for  reporting  a  change  in  accounting  principle,   unless
impracticable or a pronouncement includes specific transition  provisions.  SFAS
No. 154 also requires that a change in  depreciation,  amortization or depletion
method for  long-lived,  non-financial  assets be  accounted  for as a change in
accounting estimate effected by a change in accounting principle. This statement
carries  forward the guidance in APB Opinion No. 20,  "Accounting  Changes," for
the reporting of the correction of an error and a change in accounting estimate.
SFAS No.  154 is  effective  beginning  January  1,  2006.  SFAS No.  154 is not
expected to have a  significant  impact on our  financial  position,  results of
operations or cash flows.

     In June 2005, the Emerging  Issues Task Force ("EITF")  reached a consensus
on EITF Issue No.  05-6,  "Determining  the  Amortization  Period for  Leasehold
Improvements   Purchased  after  Lease  Inception  or  Acquired  in  a  Business
Combination" ("EITF 05-6"). EITF 05-6 requires that leasehold  improvements that
are placed in service  significantly  after and not  contemplated at or near the
beginning of the lease term be amortized  over the shorter of the useful life of
the assets or a term that includes  required lease periods and renewals that are
deemed to be  reasonably  assured  at the date the  leasehold  improvements  are
purchased.  EITF 05-6 was adopted in the fourth  quarter of 2005.  EITF 05-6 did
not have a significant impact on our financial  position,  results of operations
or cash flows.

     In February 2006, FASB issued SFAS No. 155,  "Accounting for Certain Hybrid
Financial  Instruments  an  amendment  of FASB 133,  Accounting  for  Derivative
Instruments and Hedging  Activities,  and FASB 140, Accounting for Transfers and
Servicing of Financial  Assets and  Extinguishments  of Liabilities"  ("SFAS No.
155"). SFAS No. 155, provides the framework for fair value  remeasurement of any
hybrid financial  instrument that contains an embedded derivative that otherwise
would require  bifurcation  as well as  establishes  a  requirement  to evaluate
interests in securitized  financial assets to identify  interests.  SFAS No. 155
further   amends  FASB  140  to  eliminate  the   prohibition  on  a  qualifying
special-purpose  entity from  holding a  derivative  financial  instrument  that
pertains  to a  beneficial  interest  other than  another  derivative  financial
instrument.  The guidance SFAS No. 155 also clarifies which interest-only strips
and  principal-only  strips are not subject to the  requirements of SFAS No. 133
and  concentrations of credit risk in the form of subordination are not embedded
derivatives.  This Statement is effective for all financial instruments acquired



                                       30
<PAGE>



or issued  after the  beginning  of an  entity's  first  fiscal year that begins
September  15, 2006.  SFAS No. 155 is not expected to have a material  impact on
the Company's consolidated financial statements.

     In March  2006,  FASB issued SFAS No. 156,  "Accounting  for  Servicing  of
Financial Assets--an amendment of FASB Statement No. 140" ("SFAS No. 156"). SFAS
No. 156 requires the  recognition  of a servicing  asset or servicing  liability
under certain  circumstances  when an obligation to service a financial asset by
entering into a servicing  contract.  SFAS No. 156 also requires all  separately
recognized  servicing assets and servicing  liabilities to be initially measured
at fair value  utilizing  the  amortization  method or fair market value method.
SFAS No. 156 is effective at the  beginning of the first fiscal year that begins
after September 15, 2006. SFAS No. 156 is not expected to have a material impact
on the Company's consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

     Our  consolidated   financial   statements  and  related  public  financial
information  are based on the  application  of accounting  principles  generally
accepted in the United  States  ("GAAP").  GAAP  requires the use of  estimates,
assumptions,  judgments and subjective  interpretations of accounting principles
that have an impact on the assets,  liabilities,  revenue  and  expense  amounts
reported.  These estimates can also affect supplemental information contained in
our external disclosures including information regarding contingencies, risk and
financial condition.  We believe our use of estimates and underlying  accounting
assumptions adhere to GAAP and are consistently and conservatively  applied.  We
base our estimates on various assumptions that we believe to be reasonable under
the  circumstances.  Actual results may differ  materially  from these estimates
under different  assumptions or conditions.  We continue to monitor  significant
estimates made during the preparation of our financial statements.

     Our  significant  accounting  policies are  summarized  in the Notes of our
consolidated  financial  statements.  While  all  these  significant  accounting
policies  impact its  financial  condition  and results of  operations,  we view
certain of these  policies as critical.  Policies  determined to be critical are
those  policies  that  have  the most  significant  impact  on our  consolidated
financial  statements (or are  anticipated  to have such impact when  operations
commence)  and  require  management  to use a  greater  degree of  judgment  and
estimates.  Actual  results  may differ  from those  estimates.  Our  management
believes  that  given  current  facts and  circumstances,  it is  unlikely  that
applying any other reasonable judgments or estimate  methodologies would cause a
material effect on our consolidated results of operations, financial position or
liquidity  for the periods  presented  in this report.  Our critical  accounting
policies  are useful  lives of  assets,  impairment  testing of assets,  revenue
recognition, and deferred offering costs.

USEFUL LIVES OF TANGIBLE AND INTANGIBLE ASSETS.

     Depreciation and  amortization of tangible and intangible  assets are based
on estimates of the useful lives of the assets.  We regularly  review the useful
life estimates  established to determine their  propriety.  Changes in estimated
useful lives could result in increased  depreciation or amortization  expense in
the period of the change in estimate and in future periods that could materially
impact our financial condition and results of operations.

IMPAIRMENT OF LONG-LIVED ASSETS.

     We adopted  SFAS No. 144,  "Accounting  for the  Impairment  or Disposal of
Long-Lived Assets" ("SFAS No. 144") SFAS No. 144 requires that long-lived assets
and certain identifiable  intangibles be reviewed for impairment whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may



                                       31
<PAGE>



not be recoverable.  Recoverability of assets to be held and used is measured by
a  comparison  of the  carrying  amount  of an asset to  future  net cash  flows
expected  to be  generated  by the asset.  If such assets are  considered  to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying  amount  of the  assets  exceeds  the  fair  value  of the  assets.  An
impairment charge could materially impact our financial condition and results of
operations.

DEFERRED OFFERING COSTS AND DEFERRED FINANCING COSTS.

     We  incurred  certain  costs  related to  financing  activities  during the
twelve-month  period ended February 28, 2006. These costs consisted primarily of
placement  agent  fees,  commissions  and legal  fees  which are  related to the
placement of debt securities  (deferred  financing costs) and equity  securities
(deferred offering costs).

Additional Information. With respect to our cash requirements and sources during
the next 12 months,  see  Management's  Discussion and  Analysis--Liquidity  and
Financial Condition.


Off-Balance   Sheet   Arrangements.   The  Company  has  no  off-balance   sheet
arrangements.

                                  RISK FACTORS

WE ARE SUBJECT TO VARIOUS RISKS THAT MAY MATERIALLY HARM OUR BUSINESS, FINANCIAL
CONDITION  AND  RESULTS OF  OPERATIONS.  IF ANY OF THESE  RISKS OR  UNCERTANTIES
ACTUALLY OCCURS, OUR BUSINESS,  FINANCIAL CONDITION OR OPERATING RESULTS COLD BE
MATERIALLY  HARMED.  IN THAT CASE THE  TRADING  PRICE OF OUR COMMON  STOCK COULD
DECLINE AND CLOSE LOSE ALL OR PART OF YOUR INVESTMENT.

                   RISKS RELATED TO OUR BUSINESS AND INDUSTRY

WE NEED TO RAISE  ADDITIONAL  CAPITAL IN ORDER TO COMPLETE  OUR  PURCHASE OF THE
REAL  ESTATE  WHERE THE  SOURCE IS  LOCATED.  WE COULD  DEFAULT  ON OUR  PAYMENT
OBLIGATIONS UNDER THE BERTHIER REAL ESTATE PURCHASE AGREEMENT.

     We will  need to raise  additional  capital  in  order to make the  monthly
payments to Mr. Berthier and to pay the remaining 1,720,000 euros (approximately
$2,064,000)  balance due as of July 31,  2006 under the  Berthier  Agreement  by
February 28,  2008.  If we are unable to raise such capital and if we default on
the monthly  payments or fail to pay the entire  purchase  price by February 28,
2008, we will be unable to acquire exclusive title to the Berthier property.  In
that event,  the Berthier  Agreement  provides  that Mr.  Berthier and Montespan
shall be co-owners of the property in proportion to the 2,150,000  euro purchase
price, such that Montespan's co-ownership percentage shall be the fraction whose
numerator  is the  total  sum  paid  by  Montespan  to Mr.  Berthier  and  whose
denominator is 2,150,000 euros, and Mr. Berthier's co-ownership percentage shall
be 100% minus Montespan's co-ownership percentage.  In the event of co-ownership
of the  Berthier  property  between Mr.  Berthier  and  Montespan,  the Berthier
Agreement  provides  that each party will hold a right of  preemption to acquire
the interest of the other party when the other party wishes to sell its interest
to a third party.  Such right of preemption is exercisable on the same terms and
conditions that are proposed between the other party and the third party.




                                       32
<PAGE>



WE HAVE NO REVENUE FROM OPERATIONS AND MUST RAISE ADDITIONAL  CAPITAL TO FINANCE
OPERATIONS. OUR OPERATIONS SINCE INCEPTION HAVE NOT GENERATED A PROFIT.

     We have no  revenues  from our  current  operations  as of the date of this
report and we have relied on, and will continue to rely on, significant external
financing  to fund our  operations.  During the fiscal year ended  February  28,
2006,  our financing  came  primarily  from the sale of $644,000 of  convertible
debentures and approximately $86,000 in private placement proceeds. In addition,
we have recently  closed on $917,800 in gross  proceeds from the private sale of
our   securities   and  obtained   loans  of  $100,000,   $250,000  and  $30,000
respectively. We have a commitment for gross proceeds of up to $8.0 million that
will be  available  to us  under  the  SEDA  upon the  satisfaction  of  certain
conditions  including  the  effectiveness  of  an  SEC  registration   statement
covering, among other securities,  the common stock issuable in exchange for the
SEDA funds.  If we determine  not to utilize any of the $8.0 million SEDA funds,
we will need to raise at least  approximately $9.2 million in additional capital
to finance  operations  through  year-end  2007. To the extent we do draw on the
SEDA funds to finance  operations as described above, the aforesaid $9.2 million
figure will decrease by the amount of such draws.

     Our  operations  since  inception in 1998 have not  generated a profit.  We
generated a net loss of $793,520  during the year ended February 28, 2004, a net
loss of $3,294,210  during the year ended  February 28, 2005,  and a net loss of
$1,569,140 during the year ended February 28, 2006.

     We cannot  assure you that  financing,  whether  from  external  sources or
related  parties,  will be available on favorable terms. Our inability to obtain
adequate  financing  will  result  in the need to  reduce  or  curtail  business
operations.  Any of these events would be materially harmful to our business and
may result in a lower stock price. We will need to raise  additional  capital to
fund our anticipated  future  development.  No financing  commitments for future
capital  needs have been  obtained as of the date of this report  other than the
$8.0 million SEDA funds.

WE NEED TO CONSTRUCT A SMALL-SCALE  PRODUCTION  PLANT,  A FULL-SCALE  PRODUCTION
PLANT, AND INFRASTRUCTURE IMPROVEMENTS; OBTAIN AND INSTALL EQUIPMENT; AND OBTAIN
FINANCING FOR THESE PURPOSES,  AND FOR WORKING CAPITAL IN A COMPRESSED TIMEFRAME
WITH LIMITED MANPOWER AND LIMITED RESOURCES. WE COULD FAIL.

     We plan to install pumping equipment at the Source and to construct, first,
a small-scale production facility capable of manufacturing limited quantities of
samples of our envisioned  final product (the  carbonation in these samples will
vary slightly compared to the carbonation in the final commercial  product) and,
second, a full-scale  commercial  production  plant plus related  infrastructure
improvements at and around the Source.  To accomplish this we will need to raise
approximately  $9.2 million in financing in 2007  (excluding the $8.0 million in
SEDA funds available to us). To the extent we utilize the SEDA funds,  such $9.2
million figure that we will need to raise will be reduced on a dollar-for-dollar
basis.  However,   there  can  be  no  assurance  that  one  or  more  financing
transactions will be completed at all, or on terms favorable to us.

WE NEED TO OBTAIN NUMEROUS REGULATORY PERMITS, CERTIFICATES, LICENSES, ETC. FROM
GOVERNMENTAL  AUTHORITIES  WHICH WE COULD  FAIL TO  OBTAIN OR WHICH  COULD  TAKE
LONGER OR BE MORE COSTLY TO OBTAIN THAN WE HAVE PLANNED.

     We are  subject  to a wide  range  of  governmental  regulation  by  French
national,  regional and local governmental agencies and by governmental agencies
in the other  jurisdictions in which our products will be marketed.  We are also
regulated  in the U.S.  by federal  and state  securities  regulators  and other
governmental agencies. Our business will require permits,  licenses,  approvals,
certifications, and various other authorizations including the following:




                                       33
<PAGE>



o    Building permit.

o    Water transportation  permit (pipeline from the Source to the plant).

o    Tag approval (health-related claims on our bottle labeling).

o    Gas pressure treatment approval.

o    Food and health permits from the applicable  French and other  governmental
     regulatory authorities.

     We do not have all the final permits, licenses, approvals,  certifications,
and other  authorizations in place that we need to commence the operation of our
business.  There  can be no  assurance  we will be able to  obtain,  or renew or
extend as applicable, these items on a timely basis or at all. There can also be
no guarantee we will be able to obtain these items at the cost we anticipate.

WE NEED TO OBTAIN  CONTRACTS  FOR OPERATING AND  PRODUCTION  FACILITIES  AND FOR
OTHER KEY COMPONENTS OF OUR BUSINESS.

     In order to conduct our  business,  we must enter into  several  agreements
including without limitation  agreements with one or more distributors,  general
contractors,   computer  hardware  and  software   providers,   quality  control
specialists,  flavors and fragrances suppliers,  and other vendors. There can be
no  assurance  that  we  will  be able  to  obtain  such  agreements.  If we are
unsuccessful in obtaining such  agreements,  we may not be able to implement our
business  plan and,  consequently,  our  ability  to  generate  revenue  and our
business in general will be adversely affected.

OUR BUSINESS IS DEPENDENT ON THE AVAILABILITY OF THE NATURAL MINERAL WATER DRAWN
FROM THE SOURCE.  SIGNIFICANT DISRUPTIONS IN THE SUPPLY OF WATER FROM THE SOURCE
COULD MATERIALLY ADVERSELY AFFECT OUR OPERATING RESULTS.

     Our  operating  results  will be  significantly  impacted  by any  negative
changes in the availability of the natural mineral spring water from the Source.
Changes in government policy concerning the Source or the bottled water industry
in  general,  environmental  concerns,  political  or civil  unrest,  and  other
unpredictable events could adversely affect our business in the future.

OUR  FAILURE  TO  SUCCESSFULLY  IMPLEMENT  OUR  GROWTH  STRATEGY  COULD HARM OUR
BUSINESS.

     Our growth strategy  involves  launch of our primary  product in France,  a
phase-in of our primary product in other geographic markets,  and then expanding
our  product  lines and the  number of  markets  served.  Achieving  our  growth
strategy is critical in order for our business to achieve economies of scale and
to achieve  profitability.  Increasing  the number of  products we offer and the
number of markets  we serve  depends  on a number of  factors  including  market
acceptance  of our  products,  our ability to raise  necessary  capital,  hiring
necessary management and operations  personnel,  successful  construction of our
small-scale  production plant and full-scale  production plant, our obtaining of
distribution  agreements  in our desired  markets on terms  favorable to us, and
other  ramp-up  milestones.  Any condition  that would deny,  limit or delay our
ability to achieve these and other  milestones in the future will  constrain our
ability to grow.  There can be no assurance that we will be able to successfully
implement our growth strategy.

     An inability to obtain  financing,  hire and retain  personnel,  secure the
required  equipment  and  facilities  in a  timely  and  cost-effective  manner,
efficiently operate our facilities, or obtain the necessary regulatory approvals



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<PAGE>



may  adversely  affect our  ability to achieve  our growth  strategy.  We cannot
assure you that we will be able to  successfully  establish  new markets and our
failure to do so could harm our business

     Expansion  of our product  lines and  markets may also strain our  existing
management  resources  and  operational,  financial and  management  information
systems to the point that they may be  inadequate  to  support  our  operations,
requiring us to make significant  expenditures in these areas. We expect that we
will need to develop further  financial,  operational  and management  controls,
reporting systems and procedures to accommodate  future growth. We cannot assure
you that we will be able to develop these  controls,  systems or procedures on a
timely basis, and the failure to do so could harm our business.

WE HAVE AN ABSENCE OF OPERATING HISTORY.

     Poseidis and Montespan do not have an operating history.  Our business plan
is focused on entry into the  sparkling  natural  mineral water  industry.  This
industry  is highly  competitive.  Our  efforts in this regard are recent and in
varying stages of development.  There can be no assurance that successful  entry
into this  industry  will occur or that we will be able to develop our  business
plan as a new line of business.  Moreover,  our lack of an operating  history in
our  industry  makes it  impossible  to predict  whether or not we will  operate
profitably  if we  are  able  to  enter  such  industry.  While  our  management
collectively  possesses  substantial  experience  in our  industry,  and certain
experience in taking start-up companies from early stage to an operational stage
as  described  in the  "Management"  section  of this  report,  there  can be no
assurances  that we  will be able to  locate,  hire  and  retain  the  necessary
personnel to initiate,  manage and operate the  business,  develop and implement
necessary systems, obtain contracts and obtain financing,  and achieve the other
key components as contemplated in our business plan.

FOREIGN CURRENCY RISKS.

     Poseidis will have  operations  throughout the world  including  production
facilities in France and offices in France and the U.S. We will export  products
to various  countries.  Poseidis  purchases services and materials and will sell
its products in foreign currencies,  therefore currency fluctuations may have an
effect on Poseidis'  results of operations,  balance sheet and cash flow,  which
could over time impact its results.  Since  Poseidis  will export many  products
from France and may generate a substantial portion of its revenues in currencies
other than euros, Poseidis' results of operations would be adversely affected by
an  appreciation of the euros against other  currencies,  in particular the U.S.
dollar. Further, the majority of the Company's financing to date has been raised
in U.S.  dollars while its major  expenditures and asset purchases are in euros,
leaving it exposed to significant changes in currency conversion rates.

CHANGES  IN OUR  GOVERNMENTAL  AUTHORIZATIONS,  PERMITS  OR  CERTIFICATES  COULD
ADVERSELY IMPACT OUR BUSINESS.

     A  modification,  suspension,  non-renewal,  or  revocation  of  any of our
authorizations,   permits  or  certificates  to  be  issued  by  the  regulatory
authorities  having  jurisdiction  over us or  institution  of  proceedings  for
non-compliance  with the regulations of such authorities  could adversely impact
our business,  once we have obtained the necessary approvals for our operations.
Several aspects of our operations are subject to regulation by authorities  that
may require changes to operating procedures that could impact our future ongoing
economic performance or operating performance.




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<PAGE>



THE BOTTLED WATER INDUSTRY IS SUBJECT TO EXTENSIVE  GOVERNMENT  REGULATION,  AND
CHANGES  IN  EXISTING  REGULATIONS  AND/OR  NEW  REGULATIONS  MAY  INCREASE  OUR
OPERATING COSTS.

     Bottled  water  producers  are subject to  extensive  regulatory  and legal
compliance  requirements  that result in significant  costs. The maintenance and
operation of our water  purification  system and bottling plant will necessitate
significant  expenditures.  We expect to continue  incurring  expenses to comply
with all applicable  regulations.  In addition,  in the geographical markets and
jurisdictions  that we intend to enter  after  introduction  of our  products in
France,  we will also need to comply with the applicable laws and regulations of
the governmental agencies in those markets and jurisdictions which could require
significant  expenditures.  We  have  not  yet  received  approvals  from  these
governmental  agencies;  however,  we will  be  obligated  to  comply  with  the
regulations  established  by  these  agencies  if and  when we do  receive  such
authorizations.

     New or additional laws, regulations, taxes and the like could significantly
increase the cost of, or reduce the demand for, our  products.  If adopted these
measures  could  have the  effect of raising  prices  charged to our  customers,
reducing revenue and increasing costs. We may not be able to increase our prices
to pass these  costs on to our  customers.  We cannot  assure you that these and
other laws or regulations enacted in the future will not harm our business.

RISK OF  COMPETITION  COULD  IMPACT OUR GROWTH  POTENTIAL  WITHIN A MARKET OR IN
EXPANSION MARKETS.

     If our  products  are  successful  in our initial  market,  our success may
prompt  others to imitate  our  products  and compete in our markets or in other
markets. Such a development could impact our operations or expansion timetable.

THE MARKET WE  ANTICIPATE  FOR OUR  SPARKLING  NATURAL  MINERAL  WATER AND OTHER
PRODUCTS  MIGHT NOT  DEVELOP  OR TAKE  LONGER TO  DEVELOP  OR BE MORE  COSTLY TO
DEVELOP THAN WE ANTICIPATE OR THE MARKET MAY BE UNRECEPTIVE TO OUR PRODUCTS.

     The French  market  that we have  targeted  for the  initial  launch of our
products  is very  competitive  with a very large  number of  sparkling  natural
mineral water products. The success of our new products in this market cannot be
guaranteed or accurately predicted.  The number of potential customers cannot be
predicted  with any degree of certainty  and there can be no  assurance  that we
will operate in a profitable manner.

INTERRUPTIONS  OR DISRUPTIONS IN OUR ABILITY TO PRODUCE AND DELIVER OUR PRODUCTS
COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR OPERATIONS.

     Our business will be dependent on our operations at our planned  production
facility in  Theneuille,  France.  This  facility  at the Source  will  produce,
bottle,  and distribute 100% of our natural mineral water product. A significant
interruption  or disruption at this facility  could have a serious impact on our
business, financial condition and operating results.

WE ARE AT RISK OF  LOSSES  AND  ADVERSE  PUBLICITY  STEMMING  FROM  ANY  PRODUCT
LIABILITY CLAIMS INVOLVING OUR PRODUCTS.

     If our products were to cause health-related claims among our customers, we
could be exposed to significant  tort liability.  The insurance we plan to carry
to cover damages arising from any products  liability  claims may be inadequate.
In the  event  that our  insurance  is not  adequate,  we may be  forced to bear



                                       36
<PAGE>



substantial  losses from a claim or claims.  In addition,  any product liability
claims  involving our products or involving our industry in general could create
a public perception that our products are not safe or reliable, which could harm
our  reputation,  result in  customers  being  reluctant to purchase and use our
product, and harm our business.

     Customers  consider safety and reliability as primary concerns in selecting
consumer  products  and  especially  beverage and food  products.  If we fail to
maintain  a  record  of  safety  and  reliability  that is  satisfactory  to our
customers,  our ability to retain  customers  and attract new  customers  may be
adversely affected.

SEASONALITY AND OTHER FACTORS IMPACT DEMAND FOR OUR PRODUCTS.

     Demand  for  bottled  water is  affected  by factors  such as  seasonality,
economic  conditions,  pricing levels and other factors.  Due to these and other
factors,  operating results for an interim period are not necessarily indicative
of operating results for an entire year.

WE WILL HAVE A SIGNIFICANT AMOUNT OF DEBT AND FIXED OBLIGATIONS WHICH COULD HARM
OUR  ABILITY TO MEET OUR GROWTH  STRATEGY  AND IMPAIR OUR ABILITY TO SERVICE OUR
FIXED OBLIGATIONS.

     We will have a significant  amount of fixed obligations under our financing
arrangements. Our debt and fixed obligations could:

o    impact our  ability to obtain  additional  financing  to support  expansion
     plans and for working capital and other purposes on acceptable  terms or at
     all;

o    divert  substantial  cash flow from our operations  and expansion  plans in
     order to service our fixed obligations;

o    require us to incur  significantly  more interest expense than we currently
     do; and

o    place us at a possible competitive  disadvantage compared to less leveraged
     competitors and competitors that have better access to capital resources.

     Our ability to make  scheduled  payments on our debt and fixed  obligations
will depend on our future  operating  performance  and cash flow,  which in turn
will  depend on  prevailing  economic  conditions  and  financial,  competitive,
regulatory, business and other factors, many of which are beyond our control. We
cannot assure you that we will be able to generate sufficient cash flow from our
operations  to pay our debt and fixed  obligations  as they become due,  and our
failure to do so could harm our  business.  If we are unable to make payments on
our debt and fixed obligations,  we could be forced to seek to renegotiate those
obligations  or obtain  additional  equity or debt  financing.  To the extent we
finance our activities with additional  debt, we may become subject to financial
and other covenants that may restrict our ability to pursue our growth strategy.
We cannot  assure you that our efforts  would be successful or timely or that we
could refinance our obligations on acceptable terms, if at all.

OUR MAINTENANCE COSTS WILL INCREASE AT OUR PRODUCTION FACILITY.

     While our small-scale  production plant and full-scale production plant are
scheduled for construction in 2006 and 2007,  history has shown that maintenance
costs will increase over time. We will incur lower  maintenance  expenses during


                                       37
<PAGE>



the first few years of  operations.  As equipment  ages, the cost to maintain it
naturally  increases.  In addition,  the costs of maintenance increase each year
due to  increases  in parts  prices from  manufacturers  and  increases in labor
rates. Ongoing manufacturer and regulatory  directives also increase maintenance
costs.  Our  maintenance  costs will increase both on an absolute basis and as a
percentage of our operating expenses, as our production facility ages.

IF WE ARE UNABLE TO ATTRACT AND RETAIN  QUALIFIED  PERSONNEL AT REASONABLE COSTS
OR FAIL TO MAINTAIN OUR COMPANY CULTURE, OUR BUSINESS COULD BE HARMED.

     Our business plan requires  specialized  expertise in several fields and is
labor intensive,  with personnel costs representing a significant  percentage of
our anticipated  operating expenses.  We expect salaries,  wages and benefits to
increase on a gross basis and these costs could  increase as a percentage of our
overall costs.  Since we will compete  against the major bottled water suppliers
for management-level personnel and others and many of our competitors offer wage
and benefit packages that will exceed ours, we may be required to increase wages
and/or  benefits  in order to attract  and retain  qualified  personnel  or risk
considerable  employee  turnover.  If we are  unable to hire,  train and  retain
qualified  employees at a reasonable  cost,  our business could be harmed and we
may be unable to complete our expansion plans.

OUR  FAILURE  TO  SUCCESSFULLY  CONSTRUCT,   AND  COMMENCE  OPERATIONS  AT,  OUR
FULL-SCALE PRODUCTION FACILITY COULD HARM OUR BUSINESS.

     We intend to  construct  a  full-scale  commercial  production  facility of
approximately  17,000 square feet for the sourcing,  processing,  bottling,  and
shipping of our products. This facility is currently scheduled for completion in
March,  2008.  This  date  represents  the  anticipated  completion  date.  This
construction will require financing in the amount of approximately  $6.5 million
(excluding the other development  costs discussed in this report).  Construction
of this type of facility  involves a variety of risks relating to its ability to
be successfully placed into service, including:

o    difficulties or delays in obtaining the necessary approvals from regulatory
     authorities;

o    delays in meeting equipment delivery schedules;

o    difficulties in obtaining financing on acceptable terms; and

o    inability of the equipment and all of its  components to comply with agreed
     upon specifications and performance standards.

     In  addition,  we also face risks in  integrating  this  facility  into our
infrastructure  and  operations,   including  among  other  things,  the  costs,
resources  and time  needed  to hire and  train  management,  production  staff,
technicians and other personnel. Our failure to successfully construct and place
into service and integrate  into our  operations our new facility could harm our
business.

OUR  BUSINESS  IS  HIGHLY  DEPENDENT  ON THE  FRENCH  MARKET  AND  INCREASES  IN
COMPETITOIN  OR A REDUCTION  IN DEMAND FOR OUR PRODUCT IN THIS MARKET WOULD HARM
OUR BUSINESS.

     Our plan for market entry  contemplates  phased-in growth focused on France
followed by expansion of our territories and expansion of our product lines. Our
business would be harmed by any circumstances  causing a reduction in demand for
our  products  in the French  market such as adverse  changes in local  economic
conditions,  negative public perception of our product or our industry,  and the
like.


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<PAGE>



WE MAY BE SUBJECT TO UNIONIZATION,  WORK STOPPAGES, SLOWDOWNS OR INCREASED LABOR
COSTS.

     We have a non-union workforce.  If our employees unionize,  it could result
in demands that may increase our  operating  expenses and  adversely  affect our
profitability.  Each of our different employee groups could unionize at any time
and  require  separate  collective  bargaining  agreements.  If any group of our
employees were to unionize and we were unable to reach agreement on the terms of
their  collective  bargaining  agreement  or we were to  experience  wide spread
employee dissatisfaction, we could be subject to work slowdowns or stoppages. In
addition,  we may be subject to disruptions by organized labor groups protesting
our non-union status.  Any of these events would be disruptive to our operations
and could harm our business.

OUR RESULTS OF OPERATIONS WILL FLUCTUATE.

     We expect our  quarterly  operating  results to fluctuate due to additional
costs  associated  with new  market  entries  and new  product  development  and
introductions.  As we enter new markets,  we could also be subject to additional
seasonal variations along with any potential competitive responses to our entry.
As a result of these  factors,  quarter-to-quarter  comparisons of our operating
results may not be a good indicator of our future performance.  In addition,  it
is possible that in any future quarter our operating  results could be below the
expectations of investors and any published reports or analyses regarding us. In
that event, the price of our common stock could decline, perhaps substantially.

OUR BUSINESS COULD BE HARMED IF WE LOSE THE SERVICE OF OUR KEY PERSONNEL;  WE DO
NOT HAVE EMPLOYMENT AGREEMENTS WITH CERTAIN SENIOR EXECUTIVES; WE HAVE NOT HIRED
EMPLOYEES FOR CERTAIN KEY POSITIONS.

     Our business will depend upon the efforts of Louis Pardo (President and CEO
of  Poseidis),  Bernard  Bouverot  (Directeur  General  of  Montespan),  John J.
McGovern (Executive Vice President and Chief Financial Officer of Poseidis), and
a number of management and operating personnel. The Company has not entered into
employment agreements with its executive officers and key personnel except for a
consulting agreement between the Company and Bridgehead  Partners,  LLC (John J.
McGovern,  the Company's Chief Financial  Officer,  is the Chairman and Managing
Director of Bridgehead Partners, LLC). We do not maintain key-man life insurance
on Messrs.  Pardo,  Bouverot,  and McGovern.  The loss of the services of any of
these executives could materially harm our business because of the cost and time
necessary  to replace  and train a  replacement.  Such a loss would also  divert
management  attention  away  from  operational  issues.  We may have  difficulty
replacing  management  or other key  personnel  who are lost or who  leave  and,
therefore, the loss of the services of any of these individuals could materially
harm our business.

     In addition,  we have not hired personnel as of the date of this report who
will fill significant  operations  positions such as production facility manager
and sales  managers.  We may have to pay a higher  salary than we  anticipate to
retain the services of qualified  individuals for these positions.  There can be
no assurances  that we will be able to hire such persons on terms  acceptable to
us. In addition,  the failure to fill such  positions  may affect our ability to
implement our business plan.

OTHER COMPANIES MAY HAVE DIFFICULTY ACQUIRING US, EVEN IF DOING SO WOULD BENEFIT
OUR  STOCKHOLDERS,  DUE TO PROVISIONS UNDER OUR CORPORATE CHARTER AND BYLAWS, AS
WELL AS FLORIDA LAW.

     Provisions in our amended  certificate of  incorporation,  our bylaws,  and
under Florida law could make it more  difficult  for other  companies to acquire
us,  even if  doing  so would  benefit  our  stockholders.  Our  certificate  of


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<PAGE>



incorporation and bylaws contain the following  provisions,  among others, which
may inhibit an acquisition of our company by a third party:

o    advance   notification   procedures   for  matters  to  be  brought  before
     stockholder  meetings;
o    a limitation on who may call stockholder meetings; and
o    the ability of our board of directors to issue u p to 10,000,000  shares of
     preferred stock without a stockholder vote.

     We are also  subject to  provisions  of Florida  law that  prohibit us from
engaging in any business combination with any "interested shareholder",  meaning
generally that a shareholder  who  beneficially  owns more than 10% of our stock
cannot  acquire us unless  various  conditions  are met, such as approval of the
transaction   by   two-thirds  of  the  voting  shares  other  than  the  shares
beneficially  owned by the  interested  shareholder.  Any of these  restrictions
could have the effect of delaying or preventing a change in control.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY.

     Our  success and  ability to compete  depends in part upon our  proprietary
rights and intellectual property. We have no registered trademarks in the United
States,  but have two registered  trademarks in France.  They are "St. Troliere"
(stylized  letters) and "Montespan"  (stylized letters and fleur de lis design).
Both are registered in appropriate  International  Classes  consistent  with our
business development strategies. We do have the opportunity to seek registration
of these marks and others in the United States and in other  jurisdictions,  but
can give no assurance  whether  registration  will be granted.  In the meantime,
existing laws afford only limited  protection  for  intellectual  property based
upon use of the trademarks without registration.  If we are unable to adequately
protect our  intellectual  property or become subject to  intellectual  property
infringement claims, we could incur costly and time-consuming litigation.

IF WE WERE TO DETERMINE THAT OUR EQUIPMENT, PARTS OR INVENTORY WERE IMPAIRED, IT
WOULD HAVE A SIGNIFICANT ADVERSE EFFECT ON OUR OPERATING RESULTS.

     In accordance with GAAP, we plan to periodically perform impairment reviews
in order to  determine  whether  we need to  reduce  the  carrying  value of our
equipment and related assets with a related  charge to earnings.  In addition to
the fact that the value of our equipment will decline as it ages,  other factors
beyond our  control  may  further  contribute  to the decline of the fair market
value of our equipment and related assets and  inventory.  If such an impairment
does occur, Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets", would require us to write down
these assets to their  estimated fair market value through a charge to earnings.
A significant charge to earnings would adversely affect our financial  condition
and operating results.

WE WILL BE DEPENDENT ON THIRD PARTY SUPPLIERS FOR PARTS AND COMPONENTS.

     Frequent  maintenance will be required for our plant, and maintenance costs
will likely comprise a significant  portion of our operating  costs.  Failure or
significant  delay by potential  vendors in providing  necessary parts could, in
the absence of alternative  sources of supply, have a material adverse effect on
our operations. If we are dependent on a small number of suppliers for parts and
other materials for our business, we may also be subject to adverse impacts from
unusually  high price  increases  which are greater  than  overall  inflationary
trends.





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<PAGE>



OUR FINANCIAL  STATEMENTS FOR THE YEAR ENDED FEBRUARY 28, 2006 WERE SUBJECT TO A
GOING CONCERN OPINION FROM OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. WE
MAY NOT BE ABE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING.

     Our independent  registered  public accounting firm included an explanatory
paragraph  to their  audit  opinion  issued in  connection  with the year  ended
February 28, 2006 financial  statements,  which states that Poseidis' ability to
continue as a going  concern  depends upon its ability to secure  financing  and
attain  profitable  operations.  Our ability to obtain  additional  funding will
determine  our  ability  to  continue  as a  going  concern.  Additionally,  our
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

WE FACE RISKS RELATED TO OUR ACCOUNTING RESTATEMENTS.

     On July 25, 2005 we publicly  announced that we had  discovered  accounting
errors in previously reported financial statements.  Following consultation with
our independent accountants, we have decided to restate our financial statements
for the quarters ended August 31, 2005 and November 30, 2005.  The  restatements
relate to (1) the  accounting  for  certain  debt  financings  conducted  by the
Company in August and  October  2005 as well as  certain  compensatory  warrants
issued by the Company and (2) the  accounting  for the issuance of the Company's
common stock in payment of certain accrued expenses.  Further  information about
these restatements is contained in our Current Report on Form 8-K filed July 25,
2006,  as amended  September  12,  2006,  our Amended  Quarterly  Report on Form
10-QSB/A for the three months ended August 31, 2005,  and our Amended  Quarterly
Report on Form 10-QSB/A for the three months ended November 30, 2005.

     The restatement of these financial statements may lead to litigation claims
and/or  regulatory  proceedings  against  us. The  defense of any such claims or
proceedings may cause the diversion of management's attention and resources, and
we may be  required to pay  damages if any such  claims or  proceedings  are not
resolved in our favor. Any litigation or regulatory proceeding, even if resolved
in our favor,  could cause us to incur significant legal and other expenses.  We
also may have difficulty raising equity capital or obtaining other financing. We
may not be able to effectuate our current business strategy. Moreover, we may be
the subject of negative publicity focusing on the financial statement errors and
resulting restatement and negative reactions from our stockholders, creditors or
others with whom we do business.  The  occurrence of any of the foregoing  could
harm our  business  and  reputation  and cause the  price of our  securities  to
decline.

IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL AND DISCLOSURE  CONTROLS,
WE MAY NOT BE ABLE TO ACCURATELY  REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD.
AS A RESULT,  CURRENT AND POTENTIAL  STOCKHOLDERS  COULD LOSE  CONFIDENCE IN OUR
FINANCIAL  REPORTING  WHICH WOULD HARM OUR BUSINESS AND THE TRADING PRICE OF OUR
SECURITIES.

     Effective internal and disclosure  controls are necessary for us to provide
reliable  financial  reports  and  effectively  prevent  fraud  and  to  operate
successfully  as a public  company.  If we  cannot  provide  reliable  financial
reports or prevent fraud, our reputation and operating  results would be harmed.
We have in the past  discovered,  and may in the future  discover,  areas of our
disclosure  and internal  controls  that need  improvement.  As a result after a
review of our August 31,  2005 and  November  30,  2005  operating  results,  we
identified  certain   deficiencies  in  some  of  our  disclosure  controls  and
procedures which we have addressed as stated above.

     We have undertaken  improvements  to our internal  controls in an effort to
remediate  these  deficiencies  through  the  following  efforts:  1) engaging a
qualified,  experienced  Chief  Financial  Officer as of January  12,  2006;  2)


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<PAGE>



implementing a review of all  convertible  securities to identify any securities
that   are   not   conventional   convertible   securities;   and  3)   periodic
reconciliations  of our common stock  transactions with our stock transfer agent
to assure accurate and timely recording of common stock issuances.  We cannot be
certain that our efforts to improve our internal and disclosure controls will be
successful  or that we will be able  to  maintain  adequate  controls  over  our
financial  processes  and  reporting  in the  future.  Any failure to develop or
maintain effective controls or difficulties  encountered in their implementation
or other  effective  improvement of our internal and  disclosure  controls could
harm  our  operating  results  or  cause  us  to  fail  to  meet  our  reporting
obligations.  If we are unable to  adequately  establish or improve our internal
controls  over  financial  reporting,  our external  auditors may not be able to
issue an unqualified  opinion on the effectiveness or our controls.  Ineffective
internal and disclosure  controls could also cause  investors to lose confidence
in our reported financial information, which would likely have a negative effect
on the trading price of our securities.

THERE  MAY  BE NO  REMAINING  PROCEEDS  FOR  STOCKHOLDERS  IN THE  EVENT  OF OUR
DISSOLUTION.

     In the event of our  dissolution,  the proceeds from the liquidation of our
assets,  if any,  will be first used to satisfy  the claims of  creditors.  Only
after all outstanding debts are satisfied will the remaining  proceeds,  if any,
be distributed to our stockholders.  Accordingly, the ability of any investor to
recover  all or any  portion  of an  investment  in our  securities  under  such
circumstances  will depend on the amount of funds so  realized  and claims to be
satisfied therefrom.

OUR COMMON  STOCK MAY BE AFFECTED BY LIMITED  TRADING  VOLUME AND MAY  FLUCTUATE
SIGNIFICANTLY.

     Our common stock may experience in the future  significant price and volume
fluctuations  that could  adversely  affect the market price of our common stock
and/or our stockholders'  ability to sell our common stock without regard to our
operating  performance.  In addition,  we believe that factors such as quarterly
fluctuations in our financial  results and changes in the overall economy or the
condition of the financial  markets could cause the price of our common stock to
fluctuate substantially.

THE OTC BULLETIN BOARD HAS TEMPORARILY CEASED QUOTING OUR COMMON STOCK. AFTER WE
COMPLETE AND FILE  CERTAIN  REPORTS WITH THE SEC SO THAT OUR STOCK WILL AGAIN BE
ELIGIBLE FOR QUOTATION ON THE OTC-BB, IT IS UNCERTAIN AS TO WHEN THE REINCLUSION
OF OUR SHARE QUOTATION ON THE OTC-BB WILL BE ACHIEVED.

     On July 19, 2006, the OTC-BB  temporarily ceased quoting our shares because
our annual  report on Form 10-KSB for the year ended  February  28, 2006 had not
been filed with the SEC. The filing of this report  eliminates that  eligibility
deficiency.  In  addition,  our  quarterly  report on Form  10-QSB for the three
months ended May 31, 2006, has not been filed with the SEC but we expect it will
be filed on or about  September 28, 2006. Upon filing of our 10-KSB for the year
ended  February 28, 2006 and our 10-QSB for the quarter ended May 31, 2006,  the
Company's stock will again be eligible for quotation on the OTC-BB,  and we will
pursue  reinclusion of our share quotation on the OTC-BB.  It is uncertain as to
when the reinclusion of our share quotation on the OTC-BB will be achieved.

OUR  COMMON  STOCK MAY BE DEEMED  TO BE  "PENNY  STOCK,"  WHICH MAY MAKE IT MORE
DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS.

     Our common  stock is deemed to be "penny  stock" as that term is defined in
Rule  3a51-1  promulgated  under  the  Securities  Exchange  Act of 1934.  These
requirements  may reduce the  potential  market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors



                                       42
<PAGE>



in our common stock to sell shares to third  parties or to otherwise  dispose of
them. This could cause our stock price to decline. Penny stocks are stock:

o    With a price of less than $5.00 per share;

o    That are not traded on a "recognized" national exchange;

o    Whose  prices  are not  quoted on the  NASDAQ  automated  quotation  system
     (NASDAQ  listed  stock  must  still have a price of not less than $5.00 per
     share); or

o    In issuers with net  tangible  assets less than $2.0 million (if the issuer
     has been in continuous  operation for at least three years) or $5.0 million
     (if in continuous  operation  for less than three  years),  or with average
     revenues of less than $6.0 million for the last three years.

     Broker/dealers  dealing in penny stocks are  required to provide  potential
investors  with a  document  disclosing  the  risks of penny  stocks.  Moreover,
broker/dealers  are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor.

                   RISKS RELATED TO CORNELL CAPITAL FINANCING

THE SEDA AND CONVERTIBLE  DEBENTURES  CONTAIN CERTAIN COVENANTS  PROHIBITING US,
AMONG OTHER THINGS,  FROM RAISING  CAPITAL AT LESS THAN THE MARKET PRICE OR LESS
THAN CORNELL CAPITAL'S PURCHASE PRICE OR PLEDGING ASSETS TO OTHER LENDERS.

     The SEDA and  Convertible  Debentures  contain  covenants that restrict the
following activities:

o    Raising capital from the sale of stock or other securities convertible into
     stock at a price less than the market  price of  Poseidis'  common stock on
     the date of issuance or less than Cornell Capital's purchase price; or

o    Granting a security interest in Poseidis'  assets,  which security interest
     may be needed  in order to  obtain  borrowings  or  capital  from a lender,
     except that the secured party is obligated to  subordinate  the priority of
     its security interest under certain circumstances.

o    Other  matters as stated in our  agreements  with Cornell as filed with our
     SEC reports which are available at the SEC website.

     The existence of these  covenants may severely limit  Poseidis'  ability to
borrow money or raise capital from the sale of stock or  convertible  securities
because any  potential  lender will likely  require  collateral in the form of a
security  interest on Poseidis'  assets to secure a loan and  purchasers  of our
stock or  convertible  securities may want to pay a discount to the market price
of our stock.

CORNELL  CAPITAL COULD ACQUIRE A SIGNIFICANT  AMOUNT OF OUR COMMON STOCK AND, IF
IT DOES SO, COULD EXERCISE SIGNIFICANT INFLUENCE OVER US.

     Cornell Capital  currently owns 3,000,000 shares of common stock and, based
upon the conversion rights under the Convertible Debentures as described in this
report, could acquire up to 29.48% of our common stock, subject to the terms and
conditions of the applicable agreements. If Cornell Capital acquired such 29.48%
of our common stock, it could exercise  significant  influence over the election



                                       43
<PAGE>



of directors,  determination  of policies,  appointing the persons  constituting
management,   and  determining  the  outcome  of  corporate   actions  requiring
stockholder approval, including mergers, consolidations,  and the sale of all or
substantially  all or our assets.  The  interests of Cornell  Capital may differ
from the interest of other stockholders.

POSSIBLE AMENDMENT OF STANDBY EQUITY DISTRIBUTION AGREEMENT (SEDA)

     As a result of the  number of shares  that  could be  acquired  by  Cornell
Capital  upon full  utilization  of the SEDA,  Cornell  Capital  could become an
affiliate of the Company and own a majority of the Company's  outstanding common
shares.  Accordingly,  in  light  of  recent  informal  positions  taken  by the
Securities  and  Exchange  Commission,  the Company may be required to amend the
SEDA to substantially  reduce the dollar amount available under the SEDA. To the
extent  that the  Company  must  substantially  reduce the  amount of  financing
available  under the  SEDA,  the  Company's  financing  plans may be  materially
adversely affected. Additionally, further delays could occur with respect to the
review and approval of the registration statement covering the SEDA shares.

OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN IS DEPENDENT UPON CORNELL CAPITAL.

     Cornell  Capital  has  provided   $644,000  in  funding   pursuant  to  the
Convertible  Debentures.  However,  in the future,  we will be reliant  upon the
ability of Cornell Capital to provide a significant  amount of funding  pursuant
to the SEDA, which it has agreed to do in accordance with the terms of the SEDA.
In the event that Cornell Capital is unable to fulfill its commitment  under the
SEDA for  whatever  reason,  our ability to  implement  our  business  plan will
suffer.

OUR  ABILITY TO  GENERATE  THE CASH  NEEDED TO MAKE  PAYMENT ON THE  CONVERTIBLE
DEBENTURES AND OUR OTHER OBLIGATIONS AND TO OPERATE OUR BUSINESS DEPENDS ON MANY
FACTORS BEYOND OUR CONTROL.

     Our ability to make payments on the  Convertible  Debentures  and our other
obligations  and to fund  working  capital  needs will  depend on our ability to
generate cash and secure financing in the future. This ability, to an extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors beyond our control.  If our business does not generate  sufficient
cash flow from operations,  and sufficient  future funds are not available to us
from other  sources of  financing,  we may not be able to repay the  Convertible
Debentures,  operate our business or fund our other  liquidity  needs. We cannot
assure  you that we will be able to obtain  additional  financing.  If we cannot
meet or finance our  obligations  when they are due, we may have to sell assets,
reduce  capital  expenditures  or take other actions which could have a material
adverse effect on us.

OUR INDEBTEDNESS  COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL  HEALTH,
OUR  ABILITY  TO OBTAIN  FINANCING  IN THE FUTURE AND TO REACT TO CHANGES IN OUR
BUSINESS.

     We have a significant  amount of debt. Our significant amount of debt could
have important consequences to stockholders. For example, it could:

o    Make it more  difficult  for us to satisfy our  creditors;

o    Increase  our  vulnerability  to  adverse  economic  and  general  industry
     conditions;



                                       44
<PAGE>



o    Require  us to  dedicate  a  substantial  portion  of our  cash  flow  from
     operations to payments on our debt,  which would reduce the availability of
     our cash flow from operations to fund working capital, capital expenditures
     or other general corporate purposes;

o    Limit our  flexibility  in planning  for, or  reacting  to,  changes in our
     business and industry;  and

o    Limit our ability to borrow additional funds in the future.

IF WE DEFAULT UNDER THE CONVERTIBLE  DEBENTURES,  ALL OF OUR ASSETS ARE AT RISK,
AND WE MAY BE FORCED TO CURTAIL OR CEASE OUR OPERATIONS.  WE HAVE PLEDGED SHARES
OF OUR  COMMON  STOCK  WHICH MAY BE SOLD IF WE  DEFAULT  UNDER  THE  CONVERTIBLE
DEBENTURES.

     We have pledged all of our assets as a security interest to Cornell Capital
in  connection  with the  Convertible  Debentures.  In the event of a default to
Cornell Capital, we could lose some or all of our assets which would force us to
curtail or cease operations.  If we default on any of these agreements,  Cornell
Capital would be entitled to, among other things,  accelerate our obligations to
repay outstanding amounts under the Convertible  Debenture,  or to seize control
of our  assets and sell them to third  parties  or to sell  shares of our common
stock that we have pledged to Cornell Capital.

RESTRICTIONS UNDER THE CONVERTIBLE  DEBENTURES AND THE SEDA COULD  SIGNIFICANTLY
LIMIT OUR ABILITY TO ACCESS FUNDS UNDER THE SEDA.

     We are prohibited from issuing shares to Cornell Capital upon conversion of
the Convertible Debentures or pursuant to the SEDA which would result in Cornell
Capital  holding  in excess of 4.9% and 9.9%,  respectively,  of our  issued and
outstanding common stock.  Pursuant to the terms of the Convertible  Debentures,
this  restriction  may only be  waived  by  Cornell  Capital  either in its sole
discretion with 65 days' notice or without notice upon an event of default. This
restriction may significantly  limit and delay our ability to access funds under
the SEDA and,  accordingly,  may affect our ability to  implement  our  business
plan.

CONVERSION OF THE CONVERTIBLE DEBENTURES BY CORNELL CAPITAL WILL HAVE A DILUTIVE
EFFECT ON OUR SHAREHOLDERS.

     We have sold  $644,000 of our  secured  convertible  debentures  to Cornell
Capital.  In the  event  Cornell  Capital  elects  to  convert  the  Convertible
Debentures, the resulting share issuance to Cornell Capital will have a dilutive
effect upon our shareholders.  The Company's  financing  agreements with Cornell
include  anti-dilution  provisions  which,  if  activated,  could  result in the
issuance of a substantial  number of shares to Cornell and dilute the percentage
ownership  of the  investors  who  acquire  shares of our  common  stock.  These
anti-dilution  provisions are contained in the documents that we have filed with
our  periodic  SEC  reports  and are  available  at the SEC's  website  to which
prospective investors are referred.

EXISTING  SHAREHOLDERS  WILL  EXPERIENCE  SIGNIFICANT  DILUTION FROM OUR SALE OF
SHARES UNDER THE SEDA.

     The sale of shares  pursuant to the SEDA will have a dilutive impact on our
stockholders.  As a result,  our net income per share  could  decrease in future
periods,  and the market price of our common stock could  decline.  In addition,
the lower our stock  price is, the more  shares of common  stock we will have to
issue under the SEDA to draw down the full amount.  If our stock price is lower,
then our existing stockholders would experience greater dilution.




                                       45
<PAGE>



CORNELL  CAPITAL  WILL PAY LESS  THAN THE  THEN-PREVAILING  MARKET  PRICE OF OUR
COMMON STOCK FOR SHARES PURCHASED UNDER THE SEDA.

     The common  stock to be issued  under the SEDA will be issued at 96% of the
lowest volume weighted average price of our common stock as quoted on the OTC-BB
or other principal  market on which our common stock is traded for the five days
immediately  following  the notice date of an advance.  These  discounted  sales
could cause the price of our common stock to decline.

THE SALE OF OUR  STOCK  UNDER  OUR SEDA  COULD  ENCOURAGE  SHORT  SALES BY THIRD
PARTIES, WHICH COULD CONTRIBUTE TO THE FUTURE DECLINE OF OUR STOCK PRICE.

     The significant  downward  pressure on the price of our common stock caused
by the sale of material  amounts of common stock under the SEDA could  encourage
short sales by third  parties.  In a short sale, a  prospective  seller  borrows
stock from a shareholder or broker and sells the borrowed stock. The prospective
seller  hopes that the stock  price will  decline,  at which time the seller can
purchase  shares at a lower price to repay the lender.  The seller  profits when
the stock price declines  because it is purchasing  shares at a price lower than
the sale price of the borrowed  stock.  Such sales could place further  downward
pressure  on the price of our common  stock by  increasing  the number of shares
being sold.

WE MAY NOT BE ABLE TO ACCESS SUFFICIENT FUNDS UNDER THE SEDA WHEN NEEDED.

     We are  dependent  on  external  financing  to  fund  our  operations.  Our
financing  needs are expected to be provided  from the SEDA,  in large part.  No
assurances  can be given that such  financing  will be available  in  sufficient
amounts  or at all when  needed,  in  part,  because  the  amount  of  financing
available will  fluctuate with the price and volume of our common stock.  As the
price and volume decline,  then the amount of financing available under the SEDA
will decline.

     There are additional  restrictions on our ability to request advances under
the SEDA. For example,  our ability to request an advance is conditioned upon us
registering the shares of common stock with the SEC. Further, we may not request
advances  if the  shares to be issued in  connection  with such  advances  would
result in Cornell Capital owning more than 9.9% of our outstanding common stock.
Even if we request  advances  the amount of each advance is limited to a maximum
draw down of $300,000 every five (5) trading days.


ITEM 7. FINANCIAL STATEMENTS

     Our  Financial  Statements  beginning on Page F-1 are filed as part of this
Annual Report on Form 10-KSB and are incorporated herein by reference.


ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     Not applicable.


ITEM 8A. CONTROLS AND PROCEDURES

     The Company's  Chief  Executive  Officer and Chief  Financial  Officer have
evaluated the effectiveness of the Company's  disclosure controls and procedures
as of February 28, 2006. Based on that evaluation,  the Chief Executive  Officer
and  Chief  Financial  Officer  have  concluded  that  disclosure  controls  and


                                       46
<PAGE>



procedures are effective to ensure that information  required to be disclosed by
the Company in reports that the Company  files or submits  under the  Securities
Exchange Act of 1934 is recorded, processed,  summarized and reported within the
time  periods  specified  in SEC rules and forms.  No  changes in the  Company's
internal control over financial reporting that have materially affected,  or are
reasonably  likely to materially  affect,  its internal  control over  financial
reporting,   including  any  corrective   actions  with  regard  to  significant
deficiencies and material weaknesses,  occurred during the fourth quarter of the
year ended  February 28, 2006 or subsequent to the date of the evaluation by its
management thereof.


ITEM 8B. OTHER INFORMATION

     Not applicable.



                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT.

     The following sets for  information  concerning  Poseidis' and  Montespan's
directors and executive officers as of August 7, 2006:

NAME                       AGE                POSITION
----                       ---                --------

Louis Pardo                38        Chairman, Chief Executive Officer, and
                                     President of Poseidis

Diane Boisvert             48        Director and Secretary of Poseidis

Bernard Bouverot           41        Directeur General of Montespan

John J. McGovern           50        Executive Vice President, Chief Financial
                                     Officer, and Treasurer of Poseidis

Louis Pardo,  Chairman of the Board, Chief Executive  Officer,  and President of
Poseidis

     Mr. Pardo has served as the Company's President since September 2002 and as
the Company's Chief  Executive  Officer since January 2006. Mr. Pardo has served
as a Director of Poseidis since 2002. Mr. Pardo is responsible for the Company's
strategic  direction,  product and brand  development,  marketing  and  business
development activities. Prior to his appointment as President, Mr. Pardo was the
Company's Marketing Manager and Product Developer.  Before joining Poseidis, Mr.
Pardo served as Marketing  Manager and Product  Developer for Billyweb Corp. and
Music Life  Entertainment  Inc.  from 1999 to 2001.  During  this  time,  he was
responsible for the development of leading  television  programs for children in
France.  From 1996 to 1999, Mr. Pardo served as President of Faz  Productions of
France. While at Faz Productions,  he received many awards for various music and
video  productions.  Prior to Faz  Productions,  Mr. Pardo spent four years with
Symbolic Corp of France where he was President and Senior  Product  Manager.  At





                                       47
<PAGE>



Symbolic Corp. Mr. Pardo  launched  "x-energy  drink," the market leading energy
soft drink in France.  Since 2000,  Mr.  Pardo has also been a partner of Deston
Songs and Deston Entertainment, where he co-produced successful platinum-selling
albums of Ricky Martin, Sakis Rouvas and 2Be3.

Bernard Bouverot, Directeur General of Montespan

     Mr.  Bouverot  has been the  Directeur  General  of  Montespan,  our French
subsidiary,  since  2004.  Prior to  joining  Montespan,  from  2001 to 2004 Mr.
Bouverot was the Technical Manager for Blue Industry, a company that specializes
in the  potabilization  and treatment of used waters. In addition,  Mr. Bouverot
has  served as Chief  Technology  Officer  and as a member of the Board of Smart
Tech Inc. (satellite tracking devices),  as president of several subsidiaries of
Gemplus Group (a leading  manufacturer of microchip  cards) in France,  Holland,
Italy,  and Spain,  and as president of Haviland USA, Inc. (fine porcelain table
products).  While Mr.  Bouverot was a principal of Smart IT  Technology in Lyon,
France  that  company  went  through a  bankruptcy  proceeding.  Mr.  Bouverot's
educational  background  includes a French DESS degree in marketing and business
administration  (MBA  equivalent),  a French DESS degree in business  law, and a
medical doctor degree in applied biology and engineering.

John J. (Jack) McGovern,  Executive Vice President,  Chief Financial Officer and
Treasurer of Poseidis

     Mr.  McGovern  has  over  twenty-five  years  of  financial  and  executive
management experience.  He is the Chairman and a Managing Director of Bridgehead
Partners,  LLC which he founded in January of 2002.  Recently,  Mr. McGovern was
the Chief  Financial  Officer of Lithium  Technology  Corporation  from May 2004
until June 2005.  Prior to Bridgehead,  Mr.  McGovern was the CFO of Multex.com,
Inc., a $100 million  NASDAQ  listed  company  that was  considered  the leading
internet-based  investment  information and technology provider to the financial
services  industry.  Multex was  acquired  by Reuters in March,  2003.  Prior to
Multex,  Mr.  McGovern  spent two  years at  Northsound  Music  Group,  Inc.  as
President and Chief Executive  Officer.  Northsound was the leading producer and
marketer of nature-themed  media. From 1990 to 1995, Mr. McGovern was one of the
founding  principals of FPBSM Industries,  Inc., a holding company for companies
specializing  in the  design  and  manufacturing  of  Defense  Electronics  with
particular  emphasis on high voltage  power  supplies and related  applications.
Prior to forming FPBSM Industries, Mr. McGovern spent over six years as a Senior
Vice President with Merrill Lynch  Interfunding,  Inc., where he was responsible
for the origination, valuation and negotiation of debt and equity investments in
more than twenty-five  leveraged buyouts. Mr. McGovern received a B.S. degree in
Accounting from Monmouth University and an MBA from Columbia University where he
attended the Masters Degree  Program for  Executives.  He is a Certified  Public
Accountant in the State of New Jersey (inactive).

Diane Boisvert, Director and Secretary of Poseidis

     Ms. Boisvert has served as a Director and Secretary since January 2006. Ms.
Boisvert has held senior  positions  with Canada  National Bank  including  Vice
President  and  Senior  Executive  (1992-2003)  in the  bank's  Mortgage  & Loan
Department.  She is the  founder  of,  and is  the  self-employed  operator  of,
Hypotheca, Ltd., a mortgage brokerage firm (2003 to the present).

Employees

     Poseidis and its  consolidated  subsidiary  Montespan have three unsalaried
employees/consultants  as of the date of this  report.  As we progress  with our
development  strategy we intend to hire  full-time and part-time  employees on a
phased basis and to enter into employment agreements with our senior management.



                                       48
<PAGE>



Corporate Information

     Our directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified.

AUDIT COMMITTEE

     We do not currently have a separate audit committee.  Currently, our entire
Board of Directors  performs all the functions that may be delegated to an audit
committee.  We intend to  establish  an audit  committee  during the fiscal year
ending February 28, 2007 and are currently assessing which potential and current
members of our Board are best  qualified,  based on their  accounting or related
financial  management  expertise,  independence,  time  availability,  corporate
experience and other relevant factors, to serve on our audit committee. Based on
our  small  size,  early  development  state  and  limited  financial  and human
resources,  we did not believe  that  creating an audit  committee  separate and
distinct from our full Board of Directors would have been  cost-effective  prior
to fiscal year ending February 28, 2007.

SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE

     Section 16(a) of the Securities  Exchange Act of 1934 requires our officers
and directors,  and persons who beneficially own,  directly or indirectly,  more
than ten percent (10%) of the registered class of our equity  securities to file
reports of  ownership  and changes in ownership on Form 3, 4 and 5 with the SEC.
Officers,  directors,  and greater than ten percent (10%) beneficial  owners are
required by SEC regulation to furnish us with copies of all Forms 3,4 and 5 they
file. To our  knowledge,  based solely on a review of the copies of such reports
furnished  to the  Company and on  representations  that no other  reports  were
required,  the following  persons  required to file such a report filed a report
late or failed to so file during the year ended  February 28, 2006:  Louis Pardo
and Christophe  Giovannetti  did not file Forms 4 nor Form 5 with respect to the
year ended February 28, 2006.

FAMILY RELATIONSHIPS

     No family relationships exist among the Company's directors or officers.

CODE OF ETHICS

     We have not formally  adopted a written Code of Ethics.  Management  of the
Company is  reviewing a draft Code of Ethics  designed to deter  wrongdoing  and
promote  honest  and  ethical  conduct,  full,  fair  and  accurate  disclosure,
compliance with laws, prompt internal reporting, and accountability to adherence
to the Code of Ethics.  We have not  adopted a written  Code of Ethics  prior to
filing this report because based on our small size, early  development stage and
limited financial and human resources, we did not believe that formally adopting
a written Code of Ethics would have been  necessary or  cost-effective  prior to
the fiscal year ending February 28, 2007.


ITEM 10.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The following table shows all the cash  compensation  paid by Poseidis,  as
well as any other  compensation  paid or accrued,  during the fiscal years ended
February 28, 2006,  February 28, 2005, and February 29, 2004 to Poseidis'  Chief
Executive  Officer  and the two  highest  paid  executive  officers  other  than



                                       49
<PAGE>



Poseidis'  Chief  Executive  Officer  during the fiscal year ended  February 28,
2006. Poseidis did not have any salaried employees during the fiscal years ended
February 28, 2006, February 28, 2005, and February 29, 2004. No restricted stock
awards,  long-term incentive plan payouts or other types of compensation,  other
than the  compensation  identified  in the chart below,  were paid or accrued to
these executive  officers during these fiscal years.  Except as indicated below,
no executive officer earned a total annual salary,  bonus, or other compensation
for any of these years in excess of $100,000.

<TABLE>
<CAPTION>
                                                                          Long Term
                          ---------------------------------------------- Compensation
                                     Annual Compensation
                          ----------------------------------------------
Name and                                                Other Annual     Options/    All Other
Principal Position        Year*   Salary ($)  Bonus ($) Compensation ($)   SARs (#) Compensation ($)
------------------        ----    ----------  --------- -------------   --------   ----------------
<S>                       <C>     <C>         <C>       <C>             <C>        <C>
Louis Pardo                2006       -0-        -0-         -0-          -0-      $665,300(1)
Chairman, Chief            2005       -0-        -0-         -0-          -0-           -0-
Executive Officer and      2004       -0-        -0-         -0-          -0-           -0-
President

Bernard Bouverot          2006        -0-        -0-         -0-          -0-           -0-
Directeur General of      2005        -0-        -0-         -0-          -0-           -0-
Montespan                 2004        -0-        -0-         -0-          -0-           -0-


John J. McGovern           2006   $60,000(2)     -0-         -0-     1,500,000 (2)      -0-
Executive Vice President,  2005        0         -0-         -0-          -0-           -0-
Chief Financial  Officer,  2004        0         -0-         -0-          -0-           -0-
and Treasurer
</TABLE>
----------------------
* Fiscal year end is February 28.

(1)  Mr. Pardo provided services to the Company on a consultant basis during the
     period from January  2001  through  December  2005.  On July 11, 2005,  the
     Company issued 6,653,000 shares of common stock to Mr. Pardo as payment for
     these  services.  The Company  and Mr.  Pardo  entered  into an amended and
     restated consulting  agreement in July 2006. The shares were at the time of
     issuance, and are as of the date of this report, subject to restrictions on
     transferability. The closing market price of our common stock on the OTC-BB
     on the date of issuance of these  shares was $0.10 per share.  The issuance
     price  of these  shares  was  $0.816,  based  on a  discount  of 20% to the
     five-day  trailing  average  price for the  Company's  common  stock on the
     OTC-BB as of July 11, 2005.

(2)  The  Company has  entered  into an  engagement  agreement  with  Bridgehead
     Partners,  LLC ("Bridgehead") whereby Mr. McGovern serves as Executive Vice
     President  and Chief  Financial  Officer  of the  Company  effective  as of
     January 12, 2006.  Mr.  McGovern is the  Chairman and Managing  Director of
     Bridgehead.  The engagement agreement with Bridgehead provides, among other
     things,  for a monthly fee of $15,000.  The Company has issued Bridgehead a
     warrant for 1,500,000  shares  exercisable at $0.0375 per share which vests
     in 3 tranches:  one half on January 12, 2006,  one quarter on June 1, 2006,
     and one quarter on October 31, 2006.



                                       50
<PAGE>



Employment Agreements; Management - Related Agreements

     The Company has not entered into  employment  agreements with its executive
officers  except for a consulting  agreement  between the Company and Bridgehead
(John J. McGovern,  the Company's Chief Financial  Officer,  is the Chairman and
Managing Director of Bridgehead) and consulting  agreements  between the Company
and Mr. Pardo as described in this report.

     Poseidis  and  Montespan  intend to  negotiate  and enter  into  employment
agreements with their executive officers later in 2006.

2000 and 2002 Employee/Consultant Stock Compensation Plans

     The Company adopted a 2000 Employee/Consultant  Stock Compensation Plan and
a  2002  Employee/Consultant   Stock  Compensation  Plan.  The  Company  has  no
outstanding  options  or  other  rights  under  those  plans.  Both  plans  were
terminated by Poseidis'  Board of Directors in July 2006. The Company intends to
adopt a new stock  incentive  plan in 2006 and to make grants under that plan as
determined by the Board of Directors or applicable committee.

                            COMPENSATION OF DIRECTORS

     Directors receive no cash compensation or other compensation for serving on
our Board of Directors.  Directors are reimbursed for reasonable travel expenses
incurred in connection with their service on our Board.


ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTER

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets  forth as of August 7,  2006,  the  number  and
percentage of outstanding  shares of our common stock  beneficially owned by our
executive officers, directors and stockholders owning more than 5% of our common
stock and our executive officers and directors as a group:

                                     Shares
Name of Owner (1)             Beneficially Owned     Percentage of Class (2)
------------------------    ---------------------    -------------------------

Louis  Pardo                       14,063,572                  20.05%

Christophe Giovannetti             14,390,389 (3)              20.51%

Diane Boisvert                         35,055                       *

John J. McGovern                    1,125,000 (4)               1.58%

Bernard Bouverot                            0                       *

All Executive Officers &           15,223,627                  21.36%
Directors as a Group
------------------
*    Less than 1%

(1)  Address: c/o Poseidis, Inc., 222 Lakeview Ave., Suite 160, West Palm Beach,
     FL 33401.





                                       51
<PAGE>



(2)  The percentage of class  calculation  for each person or entity is based on
     70,156,300  shares of our common  stock  outstanding  as of August 7, 2006,
     exclusive  of the  number of shares of our  common  stock  issuable  to the
     person or entity upon  conversion of  convertible  securities  held by such
     person or entity  and also  exclusive  of  20,000,000  shares of our common
     stock pledged by us to Cornell Capital as security. Beneficial ownership is
     determined  in  accordance  with the rules of the  Securities  and Exchange
     Commission and generally  includes voting or investment  power with respect
     to securities. Shares of common stock subject to options that are currently
     exercisable or exercisable  within 60 days of August 7, 2006, are deemed to
     be beneficially owned by the person holding such options for the purpose of
     computing the  percentage of ownership of such person,  but are not treated
     as outstanding for the purpose of computing the percentage ownership of any
     other person.  The common stock is the only outstanding class of our equity
     securities.

(3)  Includes a total of 5,774,576 shares of common stock held by DMI Joaillerie
     Paris,  of which Mr.  Giovannetti is the Managing  Director and owns 49% of
     its common stock.  Also includes a total of 168,000  shares of common stock
     held by Matthews  Morris,  Inc., of which Mr.  Giovannetti is the President
     and sole owner.

(4)  This figure represents  shares that may be purchased  pursuant to a warrant
     issued to Bridgehead  Partners,  LLC, which is controlled by Mr.  McGovern,
     within 60 days of July 7, 2006. Pursuant to this warrant,  Mr. McGovern may
     also acquire an additional 375,000 shares, which vests on October 31, 2006.

                       SECURITIES AUTHORIZED FOR ISSUANCE
                         UNDER EQUITY COMPENSATION PLANS

     See Item 5 "Market  for Common  Equity,  Related  Stockholders  Matters and
Small Business Issuer Purchases of Equity Securities".


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Louis Pardo, the Chairman,  Chief Executive  Officer,  and President of the
Company,  provided  services to the  Company on a  consultant  basis  during the
period from January 2001 through  December  2005. On July 11, 2005,  the Company
issued  6,653,000  shares  of common  stock to Mr.  Pardo as  payment  for these
services.  The  Company  and Mr.  Pardo  entered  into an amended  and  restated
consulting agreement in July 2006. The shares were at the time of issuance,  and
are as of the date of this report,  subject to restrictions on  transferability.
The  closing  market  price of our  common  stock on the  OTC-BB  on the date of
issuance of these shares was $0.10 per share. The issuance price of these shares
was $0.816,  based on a discount of 20% to the five-day  trailing  average price
for the Company's common stock on the OTC-BB as of July 11, 2005.

     Christophe   Giovannetti,   a  direct  or  indirect   beneficial  owner  of
approximately  20.51%  of  the  Company's  outstanding  common  stock,  provided
services to the Company on a  consultant  basis  during the period from  January
2001 through  December  2005.  On July 11, 2005,  the Company  issued  6,653,000
shares of common stock to Mr.  Giovannetti  as payment for these  services.  The
Company and Mr.  Giovannetti  entered  into an amended and  restated  consulting
agreement in July 2006.  The shares were at the time of issuance,  and are as of



                                       52
<PAGE>



the date of this report, subject to restrictions on transferability. The closing
market  price of our common stock on the OTC-BB on the date of issuance of these
shares was $0.10 per share. The issuance price of these shares was $0.816, based
on a discount of 20% to the five-day  trailing  average  price for the Company's
common stock on the OTC-BB as of July 11, 2005.

     The Company and Bridgehead are parties to an engagement  agreement  whereby
Mr. McGovern  serves as Executive Vice President and Chief Financial  Officer of
the Company.  The engagement  agreement with  Bridgehead  provides,  among other
things,  for a monthly fee of $15,000.  The Company has issued to  Bridgehead  a
warrant for  1,500,000  shares of the  Company's  common  stock with an exercise
price of $.0375 per share which vests in three tranches: one half on January 12,
2006, one quarter on June 1, 2006, and one quarter on October 31, 2006.


ITEM 13.  EXHIBITS

     (a) Exhibits.  The  following  exhibits are filed as part of this Report or
incorporated herein by reference:


Exhibit
No.      Document Description                                          Location

3.1      Articles of Incorporation                                         (2)
3.2      By-laws                                                           (3)
3.3      Articles of Amendment to Articles of Incorporation                (4)
4.1      Specimen of Common Stock Certificate                              (4)
4.2      Form of Common Stock Purchase Warrant                             (5)
4.3      Form of Unsecured Convertible Debenture                           (5)
10.1     Second Amended & Restated Standby Equity Distribution
         Agreement dated February 1, 2006 between Poseidis, Inc.
         and Cornell Capital Partners, LP                                  (6)
10.2     Registration Rights Agreement between Poseidis, Inc. and
         Cornell Capital Partners, LP                                      (7)
10.3     Securities Purchase Agreement between Poseidis, Inc. and
         Cornell Capital Partners, LP (exhibits omitted)                   (7)
10.4     Security Agreement dated as of August 26, 2005 between
         Poseidis, Inc. and Cornell Capital Partners, LP                   (7)
10.5     Investor Registration Rights Agreement dated as of August
         26, 2005 between the Company and Cornell Capital Partners, LP     (7)
10.6     Letter Agreement dated as of October 24, 2005 between the
         Company Filed herewith and Cornell Capital Partners, LP
         (with respect to Standby Equity Distribution Agreement and
         Escrow Agreement)                                                 (8)
10.7     Letter Agreement dated as of October 24, 2005 between the
         Company Filed herewith and Cornell Capital Partners, LP
         (with respect to Second Debenture and Investor Registration
         Agreement)                                                        (8)
10.8     Lock-Up Agreement between Poseidis, Inc. and Louis
         Pardau dit Pardo                                                  (4)
10.9     Securities Purchase Agreement dated as of February 1, 2006
         between the Company and Cornell Capital Partners, LP
         (exhibits omitted)                                                (6)



                                       53
<PAGE>



10.10    Engagement Agreement dated October 31, 2005
         between Poseidis, Inc. and Bridgehead Partners, LLC               (9)
10.11    Engagement Agreement dated November 10, 2005 between
         Poseidis, Inc. and Phoenix Ventures, LLP                         (10)
10.12    Amended and Restated Consulting Agreement dated July 27, 2006
         between Poseidis, Inc. and Louis Pardo                           (11)
10.13    Amended and Restated Consulting Agreement dated July 27, 2006
         between Poseidis, Inc. and Christophe Giovannetti                (11)
21.1     List of Subsidiaries                                              (4)
31.1     Certification of Chief Executive Officer pursuant to Section
         302 of Sarbanes-Oxley Act of 2002                                 (1)
31.2     Certification of Chief Financial Officer pursuant to Section
         302 of the Sarbanes-Oxley Act of 2002                             (1)
32.1     Certification of Chief Executive Officer pursuant to 18
         U.S.C. Section 1350, as adopted pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002                                    (1)
32.2     Certification of Chief Financial Officer pursuant to 18
         U.S.C. Section 1350, as adopted pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002                                    (1)
99.1     Warrant dated as of August 26, 2005 issued to Cornell
         Capital Partners, LP (500,000 shares)                             (7)
99.2     Warrant dated as of August 26, 2005 issued to Cornell
         Capital Partners, LP (1,250,000 shares)                           (7)
99.3     Secured Convertible Debenture dated as of February 1, 2006
         issued to Cornell Capital Partners, LP                            (6)
99.4     Second Amended and Restated Secured Convertible
         Debenture dated as of February 1, 2006 issued to Cornell
         Capital Partners in the principal amount of $150,000 (No.
         CCP-1aa)                                                          (6)
99.5     Amended and Restated Secured Convertible Debenture dated
         as of February 1, 2006 issued to Cornell Capital Partners in
         the principal amount of $150,000 (No. CCP-2a)                     (6)
99.6     Warrant dated as of February 1, 2006 issued to Cornell
         Capital Partners, LP in the principal amount of $344,000
         (3,750,000)                                                       (6)
99.7     Warrant dated as of February 1, 2006 issued to Cornell
         Capital Partners, LP (1,250,000 shares)                           (6)
99.8     Warrant dated as of February 1, 2006 issued to Cornell
         Capital Partners, LP (1,200,000 shares)                           (6)
99.9     Warrant dated as of February 1, 2006 issued to Cornell
         Capital Partners, LP (9,000,000 shares)                           (6)
99.10    Warrant issued pursuant to Engagement Agreement dated
         October 31, 2005 between Poseidis, Inc. and Bridgehead
         Partners, LLC (1,500,000 shares)                                  (1)
------------------------------
(1)  Filed herewith.

(2)  Originally filed on May 16, 2000 with the Company's  Current Report on Form
     8-K and incorporated herein by reference.

(3)  Originally filed on June 10, 1999 with the Company's Registration Statement
     on Form 10-SB and incorporated herein by reference.

(4)  Filed as an exhibit to our Registration  Statement on Form SB-2 dated April
     14, 2006 and incorporated herein by reference.

(5)  Filed as an  exhibit  to our  Current  Report  on Form 8-K  filed  with the
     Securities and Exchange Commission on April 6, 2006 and incorporated herein
     by reference.



                                       54
<PAGE>


(6)  Filed as an  exhibit  to our  Current  Report  on Form 8-K  filed  with the
     Securities  and Exchange  Commission  on February 7, 2006 and  incorporated
     herein by reference.

(7)  Filed as an  exhibit  to our  Current  Report  on Form 8-K  filed  with the
     Securities  and Exchange  Commission on September 1, 2005 and  incorporated
     herein by reference.

(8)  Filed as an  exhibit  to our  Current  Report  on Form 8-K  filed  with the
     Securities  and Exchange  Commission  on October 28, 2005 and  incorporated
     herein by reference.

(9)  Filed as an  exhibit  to our  Current  Report  on Form 8-K  filed  with the
     Securities  and Exchange  Commission  on January 18, 2006 and  incorporated
     herein by reference.

(10) Filed as an exhibit to our  Quarterly  Report on Form  10-QSB for the three
     months  ended  November  30, 2005 filed with the  Securities  and  Exchange
     Commission on January 24, 2006 and incorporated herein by reference.

(11) Filed as an exhibit to our Amended  Quarterly Report on Form 10-QSB for the
     three  months  ended  August  31,  2005 with the  Securities  and  Exchange
     Commission on September 12, 2006 and incorporated herein by reference.

     (b) Reports on Form 8-K.  During the quarter ended  February 28, 2006,  the
Company filed the following Reports on Form 8-K:

     We filed a Form 8-K dated January 18, 2006 reporting on the  appointment of
     Diane  Boisvert to the Board of Directors  and as Secretary of the Company,
     the  appointment  of John J. McGovern as Executive Vice President and Chief
     Financial  Officer  of  the  Company,  and  the  Company's  entry  into  an
     engagement agreement with Bridgehead Partners, LLC.

     We filed a Form 8-K dated February 7, 2006 reporting on the Company's entry
     into a Securities  Purchase  Agreement with Cornell  Capital  Partners,  LP
     ("Cornell Capital"), amendment of certain terms, agreements and instruments
     with  Cornell  Capital  relating  to  the  $300,000   principal  amount  of
     convertible   secured  debentures  and  our  Standby  Equity   Distribution
     Agreement  with  Cornell  Capital.  In  addition,  we also  reported on the
     Company's  subsidiary in France,  Montespan SAS, entering into an agreement
     with Christian  Berthier  regarding our real estate purchase agreement with
     Mr. Berthier.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

     The aggregate  fees billed for the fiscal years ended February 28, 2006 and
February 28, 2005 for professional  services rendered by Stephen H. Durland, CPA
as our principal accountant for the audit of our annual financial statements for
the fiscal year ended  February 28, 2005 and for review of financial  statements
included  in our Form  10-QSB and  services  that are  normally  provided by the
accountant in connection  with statutory and  regulatory  filings or engagements
for each of the fiscal years ended  February 28, 2006 and February 28, 2005 were
$36,500 and $31,250, respectively.

     The aggregate  fees billed for the fiscal year ended  February 28, 2006 for
professional services rendered by Moore Stephens, PC as our principal accountant
for the audit of our annual financial  statements and services that are normally
provided by the accountant in connection  with statutory and regulatory  filings
or engagements for the fiscal year ended February 28, 2006 were $20,000.




                                       55
<PAGE>



AUDIT RELATED FEES

     The  aggregate  fees billed in each of the fiscal years ended  February 28,
2006 and February 28, 2005 for assurance  and related  services by our principal
accountant that are reasonably related to the performance of the audit or review
of our financial statements (and are not reported under Item 9(e)(1) of Schedule
14(A)) were $0 and $0, respectively.

TAX FEES

     The  aggregate  fees billed in each of the fiscal years ended  February 28,
2006 and February 28, 2005 for professional  services  rendered by our principal
accountant  for tax  compliance,  tax  advice and tax  planning  were $0 and $0,
respectively.

ALL OTHER FEES

     The  aggregate  fees billed in each of the fiscal years ended  February 28,
2006 and February 28, 2005 for products and services  provided by our  principal
accountant  (other than the services reported in Item 9(e)(1) through 9(e)(3) of
Schedule 14(A)) were $0 and $0, respectively.

PRE-APPROVAL POLICIES AND PROCEDURES

     The decision to retain Moore Stephens,  PC as our principal  accountant for
the audit of our financial  statements  for the year ended February 28, 2006 was
approved by our Board of Directors.  We did not have a separate audit  committee
at such time.  At that time,  our entire  Board of Directors  performed  all the
functions that may be delegated to an audit committee.

     We currently do not have a separate audit  committee.  Currently our entire
Board of Directors  perform all the functions  that may be delegated to an audit
committee.  We intend to  establish  an audit  committee  during the fiscal year
ending February 28, 2007 and are currently assessing which current and potential
members of our Board are best  qualified,  based on their  accounting or related
financial  management  expertise,  independence,  time  availability,  corporate
experience and other relevant factors, to serve on our audit committee. Based on
our  small  size,  early  development  stage  and  limited  financial  and human
resources,  we did not believe  that  creating an audit  committee  separate and
distinct from our full Board of Directors would have been  cost-effective  price
to the fiscal year ending February 28, 2007.







                                       56
<PAGE>



                                   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.

                                 POSEIDIS, INC.



                                  By:     /s/ Louis Pardo
                                       ----------------------------------------
Date:  September 13, 2006               Louis Pardo, Chief Executive Officer
                                        and President
                                        (Principal Executive Officer)



                                   By:    /s/ John J. McGovern
                                       ----------------------------------------
                                       John J. McGovern, Chief Financial Officer
                                        Executive Vice President and Treasurer
                                       (Principal Financial Officer
                                        and Principal Accounting Officer)


     In accordance with the Securities and Exchange Act of 1934, this report has
been signed below by the following  persons on behalf of the  registrant  and in
the capacities and on the dates indicated.

Signature               Title                                 Date


 /s/ Louis Pardo
---------------------
Louis Pardo            Chairman of the Board, Chief Executive
                       Officer, and President                 September 13,2006


 /s/ Diane Boisvert
---------------------
Diane Boisvert              Director                          September 13, 2006















                                       57
<PAGE>





                          INDEX TO FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm......................F-1

Report of Independent Registered Public Accounting Firm......................F-2

Consolidated Balance Sheets..................................................F-3

Consolidated Statements of Operations and Comprehensive
  Income (Loss).......................................... ...................F-4

Consolidated Statements of Stockholders' Equity (Deficiency).................F-5

Consolidated Statements of Cash Flows.......................................F-11

Notes to Consolidated Financial Statements..................................F-12

















<PAGE>



            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of  Directors  and  Stockholders  of  Poseidis,  Inc. and
Subsidiaries (A Development Stage Enterprise)

We have audited the accompanying  consolidated  balance sheet of Poseidis,  Inc.
and  Subsidiaries (A Development  Stage  Enterprise) as of February 28 2006, and
the related  consolidated  statements of  operations  and  comprehensive  income
(loss),  stockholders'  equity  (deficiency)  and cash  flows  for the year then
ended.  These  consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated  financial  statements  based on our  audit.  We did not  audit the
consolidated financial statements of Poseidis, Inc. for the period from June 10,
1998 (date of inception) to February 28, 2005.  Such  statements are included in
the cumulative  totals from inception to February 28, 2006, on the  consolidated
statements  of  operations  and  comprehensive  income  (loss),  cash  flows and
stockholders'  equity,  which  reflects a net loss of  $6,743,521 of the related
cumulative totals. Those statements were audited by other auditors whose reports
have been made available to us and our opinion, insofar as it relates to amounts
for the period June 10, 1998 (date of  inception)  to February 28, 2005 included
in the  cumulative  totals,  is based  solely  upon  the  reports  of the  other
auditors.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  We were not engaged to perform an
audit of the Company's  internal  control over  financial  reporting.  Our audit
included  consideration of internal control over financial  reporting as a basis
for designing audit  procedures that are appropriate in the  circumstances,  but
not for the  purpose  of  expressing  an  opinion  on the  effectiveness  of the
Company's internal control over financial reporting.  Accordingly, we express no
such opinion. 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 that our audit provides a reasonable basis for our opinion.

In our opinion,  based on our audit and the reports of other auditors insofar as
it relates  to  amounts  for the period  June 10,  1998 (date of  inception)  to
February 28, 2005, included in the cumulative totals, the consolidated financial
statements  referred to above  present  fairly,  in all material  respects,  the
consolidated   financial   position  of  Poseidis,   Inc.  and  Subsidiaries  (A
Development  Stage  Enterprise)as  of February  28, 2006,  and the  consolidated
results of their operations and their cash flows for the year then ended and for
the period  from June 10, 1998 (date of  inception)  to February  28,  2006,  in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going  concern.  As more fully  described in
Note 5 to the  consolidated  financial  statements,  the Company has sustained a
significant  operating  loss in 2006 and has a  working  capital  deficiency  of
approximately  $847,000 and an accumulated deficit of approximately $8,313,000
as of February 28, 2006.  These  conditions  raise  substantial  doubt about the
Company's ability to continue as a going concern.  Management's  plans regarding
these  matters  are  also  described  in  Note  5.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.



/s/MOORE STEPHENS, P. C.
MOORE STEPHENS, P. C.
Certified Public Accountants.

New York, New York

September 12, 2006




                                            F-1
<PAGE>


            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Poseidis, Inc.
West Palm Beach, Florida

We have audited the accompanying  consolidated balance sheets of Poseidis,  Inc.
(the "Company"), as of February 28, 2005 and the related consolidated statements
of operations and comprehensive  income (loss),  stockholders'  equity (deficit)
and cash flows for each of the two years in the period ended  February 28, 2005.
These financial  statements are the responsibility of the company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We conducted our audits in accordance with the standards of the Public Companies
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  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 that our
audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Poseidis,  Inc. as of February
28,  2005 and the results of its  operations  and its cash flows for each of the
two years in the  period  ended  February  28,  2005,  in  conformity  with U.S.
generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 5 to the
financial  statements,  the Company has experienced a loss since inception.  The
Company's financial position and operating results raise substantial doubt about
its  ability to  continue as a going  concern.  Management's  plans in regard to
these  matters are also  described in Note 5. The  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.


/s/Durland and Company, CPAs, P.A.
Durland and Company, CPAs, P.A.

Palm Beach, Florida
June 13, 2005



                                       F-2
<PAGE>


<TABLE>
<CAPTION>
                        Poseidis, Inc. and Subsidiaries
                          (Development Stage Company)
                          Consolidated Balance Sheets
                               As of February 28,

                                                                     2006               2005
                                                            ------------------  ----------------
<S>                                                         <C>                 <C>
                ASSETS
CURRENT ASSETS
   Cash                                                     $           73,314  $        $ 1,051
   VAT taxes receivable                                                 20,416            39,750
                                                            ------------------  ----------------
           Total Current Assets                                         93,730            40,801
                                                            ------------------  ----------------
PROPERTY AND EQUIPMENT
   Land                                                                316,973            40,863
   Land improvements                                                   131,761           151,530
   Furniture and fixtures                                               22,705            22,705
   Equipment                                                            31,467            30,806
                                                            ------------------  ----------------
      Subtotal Property and Equipment                                  502,906           245,904
                                                            ------------------  ----------------
      Less: Accumulated depreciation                                   (59,334)          (37,144)
                                                            ------------------  ----------------
            Net Property and Equipment                                 443,572           208,760
                                                            ------------------  ----------------
OTHER ASSETS
  Deferred financing costs                                             134,231                 -
  Deferred offering costs                                              995,935                 -
  Deferred consulting expense                                           29,812                 -
  Deposits                                                               7,000            35,889
                                                            ------------------  ----------------
            Total Other Assets                                       1,166,978            35,889
                                                            ------------------  ----------------
Total Assets                                                $        1,704,280  $        285,450
                                                            ==================  ================
     LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
   Accounts payable                                         $          137,014  $        188,667
   Accrued expenses                                                    394,154           887,238
   Accrued salaries/payroll taxes                                       11,185            26,719
Current portion of long term debt, less debt
     discount of $223,478                                               44,855                 -
   Derivative liability                                                353,309                 -
   Short-term loan                                                           -            29,009
                                                            ------------------  ----------------
            Total Current Liabilities                                  940,517         1,131,633
                                                            ------------------  ----------------
LONG TERM LIABILITIES
Secured convertible debentures, less debt
     discount of $312,869                                               62,798                 -
Promissory note                                                        200,000                 -
Derivative liability                                                   494,632
                                                            ------------------  ----------------
            Total Long Term Liabilities                                757,430                 -
                                                            ------------------  ----------------
Total Liabilities                                                    1,697,947         1,131,633
                                                            ------------------  ----------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
 Preferred stock, $0.0001 par value, authorized
    10,000,000 shares; none issued                                           -                 -
Common stock, $0.0001 par value, authorized
    500,000,000 shares;  69,685,800 and 51,761,881
    issued and outstanding at February 28, 2006
    and 2005, respectively                                               6,969             5,176
 Additional paid-in capital                                          8,241,023         5,947,965
 Accumulated comprehensive income (loss)                                71,002           (16,770)
 Deficit accumulated during the development stage                   (8,312,661)       (6,782,554)
                                                            ------------------  ----------------
            Total Stockholders' Equity (Deficiency)                      6,333          (846,183)
                                                            ------------------  ----------------
Total Liabilities and Stockholders' Equity (Deficiency)     $        1,704,280  $        285,450
                                                            ==================  ================
</TABLE>

                   The accompanying notes are an integral part
                    of the consolidated financial statements

                                      F-3
<PAGE>


<TABLE>
<CAPTION>
                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
      Consolidated Statements of Operations and Comprehensive Income (Loss)

                                                            Cumulative from
                                                               Inception                  Years Ended  February 28,
                                                           (June 10, 1998) to   -----------------------------------------
                                                            February 28, 2006           2006                 2005
                                                           -------------------  --------------------  -------------------
<S>                                                        <C>                  <C>                   <C>
REVENUES                                                   $           557,012  $                  -  $                 -
                                                           -------------------  --------------------  -------------------
OPERATING EXPENSES
   General and administrative                                        1,795,795               174,412              345,108
   Salaries                                                             86,747                     -               70,050
   Consulting fees                                                   5,413,968               528,693            2,711,604
   Depreciation                                                         73,120                26,324               23,910
   Professional fees                                                 1,045,633               435,045               51,072
                                                           -------------------  --------------------  -------------------
          Total operating expenses                                   8,415,263             1,164,474            3,201,744
                                                           -------------------  --------------------  -------------------
Operating (loss)                                                    (7,858,251)           (1,164,474)          (3,201,744)
                                                           -------------------  --------------------  -------------------
OTHER INCOME (EXPENSE)
   Interest expense                                                   (129,204)             (126,216)                  (5)
   Loss on derivative liability                                       (507,154)             (507,154)                   -
  Amortization of deferred financing costs                             (18,707)              (18,707)                   -
 Bad debt expense                                                      (93,806)                    -              (93,806)
   Loss on fixed asset abandonment                                     (23,769)                    -              (23,064)
   Costs on trading activity                                           (31,428)              (31,428)                   -

   Foreign currency transaction gain                                    22,916                     -               24,409
Gain on debt forgiveness                                                64,126                29,009                    -
Gain on bankruptcy of subsidiary                                        12,721                     -                    -
Non-operating income - real estate                                     249,830               249,830                    -
                                                           -------------------  --------------------  -------------------
          Total other income (expense)                               (454,475)             (404,666)             (92,466)

Net (loss) before minority interest                                (8,312,726)           (1,569,140)          (3,294,210)

Minority interest in loss of consolidated subsidiaries                      65                     -                    -
                                                           -------------------  --------------------  -------------------
Net (loss)                                                          (8,312,661)           (1,569,140)          (3,294,210)
OTHER COMPREHENSIVE INCOME (LOSS)
   Foreign currency translation gain (loss)                             71,002                87,772                 (869)
                                                           -------------------  --------------------  -------------------

Comprehensive (loss)                                       $        (8,241,659) $         (1,481,368) $        (3,295,079)
                                                           ===================  ====================  ===================
Net (loss) per common share - basic and diluted                                 $              (0.02) $             (0.07)
                                                                                ====================  ===================
Weighted average number of shares                                                         61,150,081           49,922,315
                                                                                ====================  ===================
</TABLE>

                   The accompanying notes are an integral part
                    of the consolidated financial statements

                                      F-4
<PAGE>


<TABLE>
<CAPTION>
                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
          Consolidated Statements of Stockholders' Equity (Deficiency)
                        For the period from June 10, 1998
             (inception of development stage) to February 28, 2006


                                                                                    Additional
                                                           Number        Common       Paid-in
                                                         of Shares       Stock        Captial
                                                        -------------  ----------- --------------
<S>                                                     <C>            <C>         <C>
Issuance of shares for services at inception-
June 10, 1998 at par of $0.0001 per share                   1,000,000  $       100 $            -
  1st Quarter - Shares issued for cash                      1,000,000          100          9,900
  2nd Quarter - Shares issued for cash                         50,000            5         49,995
   Net (loss)                                                       -            -              -
                                                        -------------  ----------- --------------
Balance as of February 28, 1999                             2,050,000          205         59,895
   Net (loss)                                                       -            -              -
                                                        -------------  ----------- --------------
Balance as of February 29, 2000                             2,050,000          205         59,895

  1st Quarter - Shares issued to pay accrued expenses          13,500            1          3,384
  1st Quarter - Common stock contributed                   (1,000,000)        (100)           100
  1st Quarter - 16 for 1 forward split                     15,912,500        1,592         (1,592)
  1st Quarter - Reverse merger                             23,100,000        2,310        190,800
  1st Quarter - Shares issued for services                  1,900,000          190              -
  1st Quarter - Stock subscription receivable                 150,000           15        149,985
  2nd Quarter - Stock subscriptions received                        -            -              -
  2nd Quarter - Shares issued for services                    200,000           20        199,980
  2nd Quarter - Shares issued to acquire minority
interest in subsidiary                                      5,000,000          500         56,210
  3rd Quarter -Shares issued for services                     990,000           99        232,551
   Other comprehensive (loss)                                       -            -              -
Net loss                                                            -            -              -
                                                        -------------  ----------- --------------
BALANCE, February 28, 2001                                 48,316,000        4,832        891,313

  1st Quarter - 1 for 10 reverse split                    (43,484,399)      (4,350)         4,350
  2nd Quarter - Shares issued for cash                        100,189           10        100,179
  2nd Quarter - Shares issued for services                     16,426            2         16,424
  2nd Quarter - Stock subscriptions receivable                 76,712            8         76,704
  3rd Quarter - Common stock cancelled                       (569,600)         (57)            57
  3rd Quarter - Stock subscriptions received                        -            -              -
  3rd Quarter - Stock subscriptions receivable                  7,813            1          9,765
  3rd Quarter - Shares issued for cash                          4,894            1          8,564
  3rd Quarter - Shares issued for services                      8,533            1         14,932
  4th Quarter - Stock subscriptions received                        -            -              -
  4th Quarter - Shares issued for cash                         24,084            2         42,145
  Other comprehensive (loss)                                        -            -              -
Net (loss)                                                          -            -              -
                                                        -------------  ----------- --------------
BALANCE, February 28, 2002                                  4,500,652          450      1,164,432
</TABLE>

                                  (Continued)

                                      F-5
<PAGE>



                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
          Consolidated Statements of Stockholders' Equity (Deficiency)
                        For the period from June 10, 1998
             (inception of development stage) to February 28, 2006
                                   (Continued)

      Stock        Cumulative                         Total
  Subscription    Translation     Accumulated     Stockholders
   Receivable      Adjustment       Deficit          Equity
 --------------- -------------- ---------------- ---------------



 $             - $            - $              - $           100
               -              -                -          10,000
               -              -                -          50,000
               -              -           (8,743)         (8,743)
 --------------- -------------- ---------------- ---------------
               -              -           (8,743)         51,357
               -              -           (2,901)         (2,901)
 --------------- -------------- ---------------- ---------------
               -              -          (11,644)         48,456

               -              -                -           3,385
               -              -                -               -
               -              -                -               -
               -              -                -         193,110
               -              -                -             190
        (150,000)             -                -               -
         150,000              -                -         150,000
               -              -                -         200,000

               -              -                -          56,710
               -              -                -         232,650
               -        (11,637)               -         (11,637)
               -              -         (864,247)       (864,247)
 --------------- -------------- ---------------- ---------------
               -        (11,637)        (875,891)          8,617

               -              -                -               -
               -              -                -         100,189
               -              -                -          16,426
         (76,712)             -                -               -
               -              -                -               -
          76,712              -                -          76,712
          (9,766)             -                -               -
               -              -                -           8,565
               -              -                -          14,933
           9,766              -                -           9,766
               -              -                -          42,147
               -         (7,689)               -          (7,689)
               -              -         (473,929)       (473,929)
 --------------- -------------- ---------------- ---------------
               -        (19,326)      (1,349,820)       (204,264)


                                  (Continued)

                                      F-6
<PAGE>


<TABLE>
<CAPTION>
                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
          Consolidated Statements of Stockholders' Equity (Deficiency)
                        For the period from June 10, 1998
             (inception of development stage) to February 28, 2006
                                   (Continued)

                                                                                    Additional
                                                           Number        Common       Paid-in
                                                         of Shares       Stock        Captial
                                                        -------------  ----------- --------------
<S>                                                     <C>            <C>         <C>
   1st Quarter - 1 for 10 reverse split                    (4,054,058)        (405)           405
   1st Quarter - Shares issued for services                 1,969,784          197      1,029,793
   1st Quarter - Shares issued for cash                         3,887            -          8,745
   1st Quarter - Shares issued to pay accrued expenses      1,080,000          108        134,892
   1st Quarter - Shares issued to settle short-term debt      864,000           86        107,914
   1st Quarter - Stock subscriptions receivable               800,000           80         99,920
   2nd Quarter - Stock subscription received                        -            -              -
   3rd Quarter - Shares issued for cash                         2,705            -          9,468
   4th Quarter - Stock subscriptions received                       -            -              -
   4th Quarter - Shares issued for cash                        35,062            4        122,713
   Other comprehensive (loss)                                       -            -              -
Net (loss)                                                          -            -              -
                                                        -------------  ----------- --------------
ENDING BALANCE, February 28, 2003                           5,202,032          520      2,678,282

   1st Quarter - Shares issued for services                   100,000           10              -
   1st Quarter - Shares issued for cash                        42,224            4        152,314
   2nd Quarter - Shares issued for cash                        13,991            1         52,465
   4th Quarter - Shares issued for services                   184,316           19        128,682
   4th Quarter - Shares issued for cash                        41,573            4        155,895
   Other comprehensive income                                       -            -              -
Net (loss)                                                          -            -              -
                                                        -------------  ----------- --------------
ENDING BALANCE, February 29, 2004                           5,584,136          558      3,167,638

   1st Quarter - Forward split - 8 for 1                   39,295,606        3,930         (3,930)
   1st Quarter - Shares issued for services                 1,614,861          162      2,244,084
   1st Quarter - Shares issued for cash                        93,225            9        116,522
   2nd Quarter - Shares issued for services                   117,704           12        147,118
   2nd Quarter - Shares issued for cash                        83,069            8        103,828
   3rd Quarter - Forward split - 11 for 10                  4,679,008          468           (468)
   3rd Quarter - Shares issued for services                   113,043           11         15,673
   3rd Quarter - Shares issued for cash                        12,944            1         23,145
   4th Quarter - Shares issued for services                   168,285           17         95,322
   Other comprehensive (loss)                                       -            -              -
Net (loss)                                                          -            -              -
                                                        -------------  ----------- --------------
ENDING BALANCE, February 28, 2005                          51,761,881        5,176      5,908,932
</TABLE>

                                  (Continued)

                                      F-7
<PAGE>



                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
          Consolidated Statements of Stockholders' Equity (Deficiency)
                        For the period from June 10, 1998
             (inception of development stage) to February 28, 2006
                                   (Continued)

      Stock        Cumulative                         Total
  Subscription    Translation     Accumulated     Stockholders
   Receivable      Adjustment       Deficit          Equity
 --------------- -------------- ---------------- ---------------

               -              -                -               -
               -              -                -       1,029,990
               -              -                -           8,745
               -              -                -         135,000
               -              -                -         108,000

        (100,000)             -                -               -
          50,000              -                -          50,000
               -              -                -           9,468
          50,000              -                -          50,000
               -              -                -         122,717
               -         (2,609)               -          (2,609)
               -              -       (1,305,971)     (1,305,971)
 --------------- -------------- ---------------- ---------------
               -        (21,935)      (2,655,791)          1,076

               -              -                -              10
               -              -                -         152,318
               -              -                -          52,466
               -              -                -         128,701
               -              -                -         155,899
               -          6,034                -           6,034
               -              -         (793,520)       (793,520)
 --------------- -------------- ---------------- ---------------
               -        (15,901)      (3,449,311)       (297,016)

               -              -                -               -
               -              -                -       2,244,246
               -              -                -         116,531
               -              -                -         147,130
               -              -                -         103,836
               -              -                -               -
               -              -                -          15,684
               -              -                -          23,146
               -              -                -          95,339
               -           (869)               -           (869)
               -              -       (3,294,210)     (3,294,210)
 --------------- -------------- ---------------- ---------------
               -        (16,770)      (6,743,521)       (846,183)


                                  (Continued)

                                      F-8
<PAGE>


<TABLE>
<CAPTION>
                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
          Consolidated Statements of Stockholders' Equity (Deficiency)
                        For the period from June 10, 1998
             (inception of development stage) to February 28, 2006
                                   (Continued)

                                                                                    Additional
                                                           Number        Common       Paid-in
                                                         of Shares       Stock        Captial
                                                        -------------  ----------- --------------
<S>                                                     <C>            <C>         <C>
   1st Quarter - Shares issued for cash                       154,399           16         23,144
   2nd Quarter - Shares issued for services                   585,123           58         51,536
   2nd Quarter - Shares issued for cash                       188,397           19         16,401
   2nd Quarter - Shares issued to pay accrued expenses     13,306,000        1,331      1,084,439
   2nd Quarter - Intrinsic value of warrants issued
    with convertible debentures                                     -            -         62,810
   2nd Quarter - Intrinsic value of warrants issued
    with SEDA                                                       -            -         32,317
   4th  Quarter - Intrinsic value of warrants issued in
    conjunction with convertible debentures                         -            -        240,403
   4th Quarter - Intrinsic value of warrants issued in
     conjunction with SEDA                                          -            -        717,911
   4th Quarter - Issuance of common shares for
     offering costs at par of $0.0001                       3,250,000          325              -
   4th Quarter - Intrinsic value of warrants issued
     with consulting agreement                                      -            -         59,623
   4th Quarter - Shares issued for services                   160,000           16          3,184
   4th Quarter - Shares issued for cash                       280,000           28         40,323
    Other comprehensive income                                      -            -              -
Net (loss)                                                          -            -              -
                                                        -------------  ----------- --------------
ENDING BALANCE, February 28, 2006                          69,685,800  $     6,969 $    8,241,023
                                                        =============  =========== ==============
</TABLE>

                                  (Continued)

                                      F-9
<PAGE>




                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
          Consolidated Statements of Stockholders' Equity (Deficiency)
                        For the period from June 10, 1998
             (inception of development stage) to February 28, 2006
                                   (Continued)

      Stock        Cumulative                         Total
  Subscription    Translation     Accumulated     Stockholders
   Receivable      Adjustment       Deficit          Equity
 --------------- -------------- ---------------- ---------------

               -              -                -          23,160
               -              -                -          51,594
               -              -                -          16,420
               -              -                -       1,085,770

               -              -                -          62,810

               -              -                -          32,317

               -              -                -         240,403

               -              -                -         717,911

               -              -                -             325

               -              -                -          59,623

               -              -                -           3,200

               -              -                -          40,351
               -         87,772                -          87,772
               -              -       (1,569,140)     (1,569,140)
 --------------- -------------- ---------------- ---------------
 $             - $       71,002 $     (8,312,661)$         6,333
 =============== ============== ================ ===============


                   The accompanying notes are an integral part
                    of the consolidated financial statements

                                      F-10
<PAGE>


<TABLE>
<CAPTION>
                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
                      Consolidated Statements of Cash Flows

                                                            Cumulative from
                                                               Inception                  Years Ended  February 28,
                                                           (June 10, 1998) to   ---------------------------------------
                                                            February 28, 2006           2006                 2005
                                                           -------------------  ------------------  -------------------
<S>                                                        <C>                  <C>                  <C>


CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net loss                                                   $        (8,312,661) $       (1,569,140) $        (3,294,210)
Adjustments to reconcile net loss to net cash used
 for development activities
   Stock issued for services                                         4,226,251             375,439           2,277,202
   Depreciation and Amortization                                        91,827              45,031              23,910
Other non-cash charges                                                  61,240              61,240                   -
Debt forgiveness                                                       (64,126)            (29,009)                  -
Non-cash interest expense                                              107,654             107,654                   -
Loss on derivative liability                                           507,154             507,154
Minority interest in consolidated subsidiaries' loss                       (65)                  -                   -
Gain on bankruptcy of subsidiary                                       (12,721)                  -                   -
   Bad debt expense                                                    123,806                   -              93,806
   Loss on fixed asset abandonment                                      23,769                   -              23,064
Change in assets and liabilities
   (Increase) decrease in deferred costs                              (160,442)           (160,442)                  -
   (Increase) decrease in other assets                                  (7,000)             25,814              10,069
   Increase (decrease) in accounts payable                             137,014             (51,653)            142,726
   Increase (decrease) in accrued expenses                           1,171,828             289,561             362,850
   Increase (decrease) in accrued salaries/payroll taxes                11,185             (15,534)             17,047
   Increase (decrease) in VAT payable/receivable                       (20,416)             19,334             (24,260)
                                                           -------------------  ------------------  ------------------
Net cash used by development activities                             (2,115,703)           (394,551)           (367,796)
                                                           -------------------  ------------------ -------------------
CASH FLOW FROM INVESTING ACTIVITIES:
   Deposit on land and land improvements                              (291,137)           (256,341)                  -
   Purchase of property and equipment                                 (211,562)               (661)           (176,737)
                                                           -------------------  ------------------  ------------------
Net cash used by investing activities                                 (502,699)           (257,002)           (176,737)
                                                           -------------------  ------------------ -------------------
CASH FLOW FROM FINANCING ACTIVITIES:
   Proceeds from short-term loans                                      170,804                   -              29,009
   Repayments of short-term loans                                     (93,890)                   -                   -
   Stock sold for cash                                               1,420,181              79,931             491,870
   Cash acquired in reverse merger                                      51,841                   -                   -
   Receipt of stock subscriptions                                      490,000                   -                   -
   Increase (decrease) of bank overdraft                                35,946                   -                   -
   Proceeds from secured convertible debentures                        644,000             644,000                   -
                                                           -------------------  ------------------  ------------------

Net cash provided by financing activities                            2,718,882             723,931             520,879
                                                           -------------------  ------------------ -------------------

Effect of exchange rates on cash                                       (27,166)               (115)             (6,083)
                                                           -------------------  ------------------  ------------------

Net increase (decrease) in cash                                         73,314              72,263             (29,737)

CASH, beginning of period                                                    -               1,051              30,788
                                                           -------------------  ------------------  ------------------

CASH, end of period                                        $            73,314  $           73,314  $            1,051
                                                           ===================  ==================  ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash Paid during the periods for:
     Interest                                              $                -   $                -  $                -
                                                           ===================  ==================  ==================
     Income taxes                                          $                -   $                -  $                -
                                                           ===================  ==================  ==================
   Non-Cash Financing Activities:
     Common stock issued to pay accrued expenses           $           903,510  $          765,125  $                -
                                                           ===================  ==================  ==================
     Common stock issued to pay short term debt            $          108,000   $                -  $                -
                                                           ===================  ==================  ==================
</TABLE>

                   The accompanying notes are an integral part
                    of the consolidated financial statements

                                      F-11
<PAGE>



                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
                   Notes to Consolidated Financial Statements


(1)  Organization and Business

Poseidis,  Inc.  ("Poseidis "or the "Company") was incorporated on June 10, 1998
in the state of Florida.  Our corporate name was originally EZ Talk, Inc., which
was  changed  in May 2000 to  BillyWeb  Corp.  and  changed  in  August  2002 to
Poseidis, Inc.

In May 2000,  we entered into an  agreement  to acquire  77.3% of the issued and
outstanding common shares of a predecessor company which was then named BillyWeb
Corp.  (the  "Predecessor")  in a reverse  merger;  the  consideration  for this
transaction was 23,100,000  shares of the Company's  common stock. In July 2000,
we acquired the  remaining  22.7% of the  Predecessor  that were not  previously
owned in exchange for 5,000,000  shares of restricted  common stock.  In October
2000,  we  formed a  subsidiary  under the laws of  France,  SARL  BillyWeb.  In
December 2002, we placed SARL BillyWeb in bankruptcy  under French law. In April
2003, we created a new  subsidiary,  Poseidis,  SAS,  under French law and later
changed that  subsidiary's  name to Montespan SAS  ("Montespan").  We own 99% of
Montespan and a French citizen holds the remaining 1%, pursuant to French law.

We are a development stage company that, together with our subsidiary  Montespan
(as well as certain inactive  subsidiaries),  is engaged in the development of a
sparkling mineral water spring in central France known as the La Troliere Spring
(the  "Source").  Our  objectives  are to  develop  and  market  a new  brand of
sparkling  natural  mineral  water under the brand name "l' Eau de Montespan" as
well as  other  beverage  products,  potentially  a line of  cosmetics  products
utilizing  the mineral water drawn from the Source,  and other related  products
and merchandise.


(2)  Summary of Significant Accounting Principles

Principles of consolidation - The consolidated  financial statements include the
accounts of Poseidis and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated.  The financial  statements do not include
any adjustments  relating to the  recoverability  and classification of recorded
asset amounts or classification of liabilities that might be necessary should we
be unable to operate in the normal course of business.

Use of estimates - The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts of assets and  liabilities  and the disclosure of contingent  assets and
liabilities at the date of the financial statements, as well as reported amounts
of revenues and expenses  during the  reporting  period.  Actual  results  could
differ from those estimates.

Fair value of financial  instruments  - Fair value  estimates,  assumptions  and
methods used to estimate  fair value of our  financial  instruments  are made in
accordance with the requirements of SFAS No. 107,  "Disclosures about Fair Value
of Financial  Instruments." The Company has used available information to derive
its estimates.  However, because these estimates are made as of a specific point


                                       F-12
<PAGE>


in time,  they are not  necessarily  indicative  of amounts  the  Company  could
realize  currently.  The use of different  assumptions or estimating methods may
have a material  effect on the estimated  fair value  amounts.  We estimate that
there are no  material  variations  between  fair  value  and book  value of our
financial  assets or  liabilities as of February 28, 2006 and 2005. The carrying
amounts of cash and cash  equivalents,  accounts  payable,  accrued expenses and
short-term notes payable  approximate fair value due to the short-term nature of
the instruments.  Long-term  liabilities are comprised of the convertible  notes
which approximate fair value based on borrowing rates available to the Company.

Comprehensive  Income - We report our results in  accordance  with SFAS No. 130,
"Reporting   Comprehensive  Income"  which  requires  that  recognized  revenue,
expense, gains and losses be included in net income. Although certain changes in
assets  and  liabilities,  such as gains or losses  on  translation  of  foreign
currencies,  are reported as a separate  component of the equity  section of the
balance  sheet,   such  items,   along  with  net  income,   are  components  of
comprehensive income.

Property and  equipment - All property  and  equipment  are recorded at cost and
depreciated  over their estimated useful lives,  generally three,  five or seven
years, using the straight-line  method.  Upon sale or retirement,  the costs and
related accumulated  depreciation are eliminated from their respective accounts,
and the resulting gain or loss is included in the results of operations. Repairs
and maintenance charges which do not increase the useful lives of the assets are
charged to operations as incurred.  Depreciation expense was $26,324 and $23,910
for the years ended February 28, 2006 and 2005, respectively.

Long  Lived  Assets - In  accordance  with  SFAS No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets",  we record  impairment  losses on
long-lived  assets used in operations  when indicators of impairment are present
and the  undiscounted  cash flows  estimated to be generated by those assets are
less  than the  assets'  carrying  amounts.  SFAS No.  144  also  addresses  the
accounting for long-lived  assets that are expected to be disposed of.

Revenue recognition - Revenue is recognized as services are rendered or products
are  delivered,  the  price  to  the  buyer  is  fixed  and  determinable,   and
collectibility is reasonably assured.

Advertising - We expense all advertising costs as incurred.

Foreign currency  transaction and translation gains (losses) - On a consolidated
basis our  reporting  currency is the US Dollar.  The  functional  currency  for
foreign operations is the local currency (the euro). For these foreign entities,
we  translate  assets and  liabilities  at  end-of-period  exchange  rates.  For
revenues, expenses, gains and losses, the weighted average exchange rate for the
period is used to  translate  those  elements.  For  equity  items the  historic
conversion  rate is used.  We  record  these  translation  adjustments  in other
comprehensive  income (loss), a separate component of equity in the consolidated
balance sheet.

Income taxes - We account for income taxes under the provisions of SFAS No. 109,
"Accounting  for Income  Taxes."  Under  this  method,  deferred  tax assets and
liabilities  are  determined  based  on the  difference  between  the  financial
statement  and tax bases of assets and  liabilities  using  enacted tax rates in
effect for the years in which the  differences  are  expected to affect  taxable
income.  Valuation  allowances  will be  established  when  necessary  to reduce
deferred tax assets to the amounts expected to be realized.

Cash  Equivalents  - We consider all highly  liquid  investments  with  original
maturities of three months or less to be cash equivalents.



                                      F-13
<PAGE>



Net loss per common share - We have presented net loss per common share pursuant
to SFAS No. 128,  "Earnings Per Share".  Net loss per common share is based upon
the weighted average number of outstanding  common shares.  Due to net losses in
the years ended February 28, 2006 and 2005,  the effect of the potential  common
shares resulting from convertible  notes payable,  stock options and warrants in
those years were excluded,  as the effect would have been anti-dilutive,  though
they may be dilutive in future periods.

Recent  Accounting  Pronouncements - In December 2004, the Financial  Accounting
Standards  Board  ("FASB"),  issued  SFAS No.  153,  "Exchanges  of  Nonmonetary
Assets,"  ("SFAS No.  153").  SFAS No. 153 amends  Accounting  Principles  Board
Opinion No. 29, "Accounting for Nonmonetary  Transactions," to require exchanges
of  nonmonetary  assets be accounted  for at fair value,  rather than  carryover
basis. Nonmonetary exchanges that lack commercial substance are exempt from this
requirement. SFAS No. 153 is effective for nonmonetary exchanges entered into in
fiscal years  beginning  after June 15,  2005.  We do not  routinely  enter into
exchanges that could be considered nonmonetary, accordingly we do not expect the
adoption of SFAS No. 153 to have a material impact on our consolidated financial
statements.

In March 2005, the FASB issued Interpretation No. 47 ("FIN No. 47"), "Accounting
for  Conditional  Asset  Retirement   Obligations--an   interpretation  of  FASB
Statement No. 143." FIN No. 47 clarifies that an entity is required 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.  FIN No. 47
also  clarifies when an entity would have  sufficient  information to reasonably
estimate  the fair  value  of an asset  retirement  obligation.  FIN No.  47 was
adopted in the fourth quarter of 2005 and has had no  significant  impact on our
consolidated financial position, results of operations or cash flows.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections--a  replacement  of APB  Opinion  No. 20 and FASB  Statement  No. 3"
("SFAS  No.  154").  SFAS No.  154  requires  retrospective  application  as the
required  method  for  reporting  a  change  in  accounting  principle,   unless
impracticable or a pronouncement includes specific transition  provisions.  SFAS
No. 154 also requires that a change in  depreciation,  amortization or depletion
method  for  long-lived,  nonfinancial  assets be  accounted  for as a change in
accounting estimate effected by a change in accounting principle. This statement
carries  forward the guidance in APB Opinion No. 20,  "Accounting  Changes," for
the reporting of the correction of an error and a change in accounting estimate.
SFAS No.  154 is  effective  beginning  January  1,  2006.  SFAS No.  154 is not
expected to have a  significant  impact on our  financial  position,  results of
operations or cash flows.

In June 2005,  the Emerging  Issues Task Force  ("EITF")  reached a consensus on
EITF  Issue  No.  05-6,  "Determining  the  Amortization  Period  for  Leasehold
Improvements   Purchased  after  Lease  Inception  or  Acquired  in  a  Business
Combination" ("EITF 05-6"). EITF 05-6 requires that leasehold  improvements that
are placed in service  significantly  after and not  contemplated at or near the
beginning of the lease term be amortized  over the shorter of the useful life of
the assets or a term that includes  required lease periods and renewals that are
deemed to be  reasonably  assured  at the date the  leasehold  improvements  are
purchased.  EITF 05-6 was adopted in the fourth  quarter of 2005.  EITF 05-6 did
not have a significant impact on our financial  position,  results of operations
or cash flows.


                                      F-14
<PAGE>



In February  2006,  FASB issued SFAS No.  155,  "Accounting  for Certain  Hybrid
Financial  Instruments - an amendment of FASB Statements No. 133 and 140" ("SFAS
No.  155") which  provides the  framework  for fair value  remeasurement  of any
hybrid financial  instrument that contains an embedded derivative that otherwise
would require  bifurcation  as well as  establishes  a  requirement  to evaluate
interests in securitized  financial  assets to identify  interests.  SFAS No.155
further  amends  SFAS  No.140  to  eliminate  the  prohibition  on a  qualifying
special-purpose  entity from  holding a  derivative  financial  instrument  that
pertains  to a  beneficial  interest  other than  another  derivative  financial
instrument.  The guidance SFAS No.155 also clarifies which interest-only  strips
and principal-only strips are not subject to the requirements of SFAS No.133 and
concentrations  of credit  risk in the form of  subordination  are not  embedded
derivatives.  This Statement is effective for all financial instruments acquired
or issued  after the  beginning  of an  entity's  first  fiscal year that begins
September 15, 2006. SFAS No.155 is not expected to have a material impact on our
consolidated financial statements.

In March 2006, FASB issued SFAS No. 156,  "Accounting for Servicing of Financial
Assets--an  amendment of FASB Statement No. 140" ("SFAS No. 156") which requires
the  recognition  of a servicing  asset or  servicing  liability  under  certain
circumstances when an obligation to service a financial asset by entering into a
servicing  contract.  FASB  No.  156 also  requires  all  separately  recognized
servicing  assets and  servicing  liabilities  to be initially  measured at fair
value utilizing the  amortization  method or fair market value method.  SFAS No.
156 is  effective  at the  beginning  of the first fiscal year that begins after
September  15, 2006.  SFAS No. 156 is not expected to have a material  impact on
the Company's consolidated financial statements.


(3) Stockholders' Equity.

We have  authorized  500,000,000  shares of $0.0001 par value  common  stock and
10,000,000 shares of $0.0001 par value preferred stock. Rights and privileges of
the  preferred  stock are to be  determined  by our Board of Directors  prior to
issuance.


(4)  Income Taxes.

Deferred  income taxes  (benefits)  are provided for certain items of income and
expense that are recognized in different periods for tax and financial reporting
purposes.  We have net  operating  loss  carry-forwards  for federal  income tax
purposes,  but the future use of such carry-forwards may be severely limited due
to changes in  ownership.  The amounts  recorded  as  deferred  tax assets as of
February 28, 2006 and 2005,  which  represent the amounts of tax benefit related
to the loss carry-forwards, have been fully offset by equal valuation allowances
as we have not  determined  that the  realization  of the assets is "more likely
than not".






                                      F-15
<PAGE>



(5)  Going Concern and  Management's  Plans To Overcome  Operating and Liquidity
     Difficulties.

The accompanying  consolidated  financial statements have been prepared assuming
that we will continue as a going concern,  which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
financial  statements do not include any adjustments  that might be necessary if
we are unable to  continue  as a going  concern.  Since our  inception,  we have
incurred losses, had an accumulated  deficit, and have experienced negative cash
flows from  operations.  The  expansion  and  development  of our business  will
require  additional  capital.  We are in the development stage and have realized
minimal revenues to date. These  conditions  raise  substantial  doubt about our
ability  to  continue  as a  going  concern.  If we fail  to  obtain  additional
financing when required,  we may have to modify, delay or abandon some or all of
our business and expansion plans.

Our development activities are at an early stage and the time and money required
to develop the commercial value and  marketability of our proposed products will
require significant cash expenditures for an indefinite period in the future. In
order to meet these cash needs,  we have entered into the  financing  agreements
detailed  in Notes 7, 8 and 12.  In  addition,  we  continue  to  actively  seek
additional financing to support our development activities.


(6) Deferred Offering Costs and Deferred Financing Costs.

We have incurred certain costs related to financing  activities since inception.
These costs consisted  primarily of placement agent fees,  commissions and legal
fees which are related to the placement of debt securities  (deferred  financing
costs) and equity securities (deferred offering costs).

At February 28, 2006,  we had net deferred  financing  costs of $134,231.  These
costs were related to the  placement of 12%  convertible  notes [Note 7] and are
being  amortized on a  straight-line  basis over the life of the debenture which
approximates the effective  interest method.  We recorded  amortization  expense
related  to  deferred  financing  totaling  $18,707,  $18,707  and  $0  for  the
cumulative  period from  inception  (June 10, 1998) to February 28, 2006 and the
years ended February 28, 2006 and 2005, respectively.

At February 28, 2006 and February 28, 2005, we had net deferred  offering  costs
of  $995,935  and $0,  respectively.  These  costs were  primarily  related to a
Standby  Equity  Distribution  Agreement  ["SEDA"]  [Note 8] and will be  offset
against the proceeds of the offering, when consummated.


(7)  Debt Financings

Short-Term  Notes  Payable- In fiscal 2005 we received a short-term  loan from a
third-party  in the amount of  approximately  $29,000.  This loan was payable on
demand and carried no stated  interest  rate.  This debt was  forgiven in fiscal
2006 and the note payable was written off.

Promissory  Note - In  February  2006 we  issued a  promissory  note to  Cornell
Capital Partners,  L.P. ("Cornell  Capital") in the face amount of $200,000 with
an  interest  rate  of 8%  and a due  date  of  September  1,  2007  as  partial
compensation for the Standby Equity Distribution Agreement [Note 8].

Convertible  Debentures  - In each of August  2005 and October  2005,  we issued
Secured Convertible Debentures in exchange for $150,000 in cash each. The terms


                                      F-16
<PAGE>


of these  debentures  were amended and restated in February,  2006.  In February
2006, the Company issued additional Secured Convertible Debentures (collectively
the  "Debentures")  in exchange for  $344,000 in cash.  In  connection  with the
Debentures,  we  issued to  Cornell  Capital  warrants  to  purchase  1,250,000,
3,750,000, 1,250,000 and 1,200,000 shares of our common stock at exercise prices
of $0.12, $0.08, $0.12 and $0.25 per share, respectively.

The Debentures  are due  September,  1, 2007, and carry an interest rate of 12%.
The Debentures  were issued to Cornell  Capital.  The Debentures are convertible
into  shares  of our  common  stock at a  conversion  prices  of  $0.04  for the
February,  2006 issuance and $0.0497 for the August and October,  2005 issuances
at the  option  of  Cornell  Capital.  The  conversion  is  subject  to  certain
limitations  including that Cornell Capital may not convert the Debentures for a
number of shares in excess of that number of shares which, upon giving effect to
such conversion,  would cause the aggregate number of shares of our common stock
beneficially  held by  Cornell  Capital to exceed  4.9% of our then  outstanding
common stock.  Upon an uncured event of default,  the  conversion  price for the
Debentures  would be reduced to $0.0124 per share.  We are required to set aside
into an escrow  fund for the benefit of Cornell  Capital an amount  equal to one
third of all net  proceeds  from the  future  offering  of up to  $1,500,000  of
debentures and warrants up to a maximum of $350,000.  We are permitted to redeem
all or a portion of the  Debentures.  In the event the closing bid price for our
stock on a redemption date is greater than the Debenture's  conversion price, we
must pay a redemption  premium of 20% of the amount redeemed in addition to such
redemption  costs.  Commencing  October 1, 2006, we are required to make monthly
payments of the remaining principal balance at the rate of approximately $54,000
plus accrued interest.

The above issued  Debentures and related  warrants  required us to value several
discrete elements of the Debentures. For the Debentures, these discrete elements
consisted  of certain  conversion  features,  a  contingent  call  feature and a
re-pricing  of the  conversion  for the  debenture  in the case of  default.  We
accounted  for each of the discrete  elements of the  Debentures  at fair value.
Also required was a fair market valuation of the warrants.

We accounted for the embedded  contingent call feature and the re-pricing of the
conversion for the Debenture in the case of default in accordance  with SFAS No.
133  "Accounting  For Derivative  Instruments  And Hedging  Activities" and EITF
Issue No. 00-19 "Accounting For Derivative Financial  Instruments Indexed To And
Potentially Settled In A Company's Own Stock" which requires us to bifurcate and
separately account for the embedded  contingent call feature and the re- pricing
of the  conversion  for the  Debentures  in the  case  of  default  as  embedded
derivatives contained in the Debentures. Pursuant to SFAS No. 133, we bifurcated
the fair value of the conversion  feature from the convertible  notes, since the
conversion features were determined to not be clearly and closely related to the
debt host. The derivative  liability related to the embedded contingent call and
default  re-pricing  factors has been valued at $321,044 using the Black Scholes
model.

The convertible Debentures are not considered to be conventional debt under EITF
Issue No. 00-19 or SFAS No. 133. We therefore  bifurcated  the fair value of the
embedded  conversion  features  from the debt host and  accounted  for them as a
derivative  liability.  The effect of this  valuation  was the  creation of fair
value of this conversion feature of $526,897.

The warrants issued in conjunction  with the Debentures were valued and recorded
as equity by us in accordance with EITF 00-19 and guidance  described under SFAS
No. 150 as we made the  determination  that the warrants were  conventional.  We
have  valued  the  warrants  by using  the  Black-Scholes  valuation  model  and
accounted for the fair value of the warrants in relation to the debt host.  This
resulted  in a fair value of the  warrants of $303,213  which was  allocated  to
Additional  Paid In Capital and recorded as a discount to the  Debentures.  This
discount  is  being  amortized  on a  straight-line  basis  over the life of the
Debentures which approximates the effective interest method.


                                      F-17
<PAGE>



We recorded the fair value of the embedded  derivatives as either  short-term or
long-term  liabilities (based on the underlying term of the Debentures) and as a
discount to the  Debentures to the extent there was a net carrying value for the
Debentures,  which  resulted in a discount to the  Debentures of $340,787.  This
discount  is  being  amortized  on a  straight-line  basis  over the life of the
Debentures  which  approximates  the effective  interest  method.  The amount in
excess of the net  carrying  value,  $507,154,  was  charged to loss on embedded
derivative in the statement of operations

Long Term Debt

At February 28, 2006 long-term debt consisted of the following:

                                                               February 28, 2006
Convertible  Debentures  due  September 1, 2007 with monthly
payments $53,666.67 plus accrued interest commencing October
1, 2006                                                          $   644,000

Promissory Note due September 1, 2007                                200,000
                                                                 -----------
                                                                     844,000
Less current maturities                                              268,333
                                                                 -----------
                                                                 $   575,667
                                                                 ===========

Scheduled maturities of long-term debt are as follows:

         Years Ending February 28,
                                  2007          $     268,333
                                  2008          $     575,667
                                  2009                      -
                                  2010                      -
                                  2011                      -
                                Thereafter                  -
                                                -------------
                                                $     844,000
                                                =============

The  debt  disclosed  in  the  accompanying   balance  sheet  is  shown  net  of
unamortized debt discounts of $536,347 as of February 28, 2006.


(8) Standby Equity Distribution Agreement.

On August 26, 2005,  we entered into a SEDA with Cornell  Capital.  The SEDA was
subsequently  amended and  restated on October 24, 2005 and on February 1, 2006.
Pursuant to the SEDA, we may, at our  discretion,  periodically  sell to Cornell
Capital  shares  of  our  common  stock  for a  gross  purchase  price  of up to
$8,000,000.For  each share of common  stock  purchased  under the SEDA,  Cornell
Capital  will pay us 96% of the lowest  closing bid price of our common stock as
quoted on the  Over-the-Counter  Bulletin  Board  ("OTC-BB") or other  principal
market  on which  our  common  stock is  traded  for the five  days  immediately
following the date we deliver a notice requiring Cornell Capital to purchase our
shares under the SEDA.

Cornell  Capital's  obligation to purchase  shares of our common stock under the
SEDA is  subject to  certain  conditions,  including,  but not  limited  to, our
obtaining an effective  registration  statement  for shares of common stock sold
under the SEDA (the  "Registration  Statement")  and our shares being listed for
quotation on the Over-the-Counter Bulletin Board, and is limited to $300,000 per
weekly advance.


                                      F-18
<PAGE>



The  commitment  period under the SEDA  commences on the earlier to occur of (i)
the date that the Registration Statement is declared effective by the Securities
and Exchange  Commission (the "Effective Date"), or (ii) such earlier date as we
and Cornell Capital may mutually agree in writing.  The commitment  period under
the SEDA  expires  on the  earliest  to  occur of (i) the date on which  Cornell
Capital has  purchased an aggregate  amount of  $8,000,000  shares of our common
stock  under the SEDA,  (ii) the date  occurring  twenty-four  months  after the
Effective  Date, or (iii) the date the SEDA is earlier  terminated (in the event
that (x) there occurs any stop order or suspension of the  effectiveness  of the
Registration Statement for an aggregate of fifty trading days, other than due to
the acts of Cornell  Capital,  during  the  commitment  period,  and (y) we fail
materially  to comply with any of the  covenants  contained in the SEDA and such
failure is not cured  within  thirty days after  receipt of written  notice from
Cornell Capital,  provided,  however,  that this termination  provision does not
apply to any period commencing upon the filing of a post-effective  amendment to
the Registration Statement and ending upon the date on which such post effective
amendment  is declared  effective  by the  Securities  and  Exchange  Commission
("SEC").

We have agreed to pay Cornell  Capital 5% of the gross  proceeds that we receive
from each advance under the SEDA. In addition, we issued 3,000,000 shares of our
common  stock to Cornell  Capital and 250,000  shares of our common stock to the
placement  agent in  connection  with the SEDA,  which we  recorded at par value
($0.0001 per share) and a promissory note in the face amount of $200,000 with an
interest  rate of 8% [Note 7] and a due date of September 1, 2007.  In addition,
we have issued to Cornell  Capital  warrants to purchase  500,000 and  9,000,000
shares of our  common  stock at  exercise  prices of $0.12 and $0.04 per  share,
respectively.  The Warrants issued in conjunction  with the SEDA were valued and
recorded  as equity  by us in  accordance  with EITF  00-19.  In  valuing  these
Warrants,  we  elected  to use the  Black  Scholes  model.  The  effect  of this
valuation  was the creation of fair value of the Warrants of $750,228  which was
allocated  to APIC.  The  charges  for the Common  Stock,  promissory  notes and
Warrants  have  been  recorded  as  deferred  offering  costs and will be offset
against the proceeds of the offering, when consummated [Note 6].

We also paid Yorkville Advisors Management, LLC a fee of $15,000 for structuring
in connection with this transaction and $10,000 for due diligence expenses which
have been  recorded as deferred  offering  costs and will be offset  against the
proceeds of the offering, when consummated [Note 6].


(9) Commitments and Contingencies.

In October 2005 we entered into a real estate purchase  agreement with Christian
Berthier,  as amended in March 2006 (the  "Berthier  Agreement")  to acquire the
land where the Source is located for  2,150,000  euros.  The Berthier  Agreement
expires on February 28, 2008. In conjunction with the Berthier Agreement, we are
able to apply all previous payments made under our prior lease agreement against
the purchase price for the Source. As a result of the new agreement, we recorded
non-operating  income of $249,830  for the  reversal of the prior  years'  lease
payments.  Pursuant to the March 2006  amendment of the Berthier  Agreement,  we
made a payment of 150,000 euros and agreed to make a monthly payment of at least
10,000 euros to Mr. Berthier  commencing in March 2006.  These monthly  payments
shall be applied against the 2,150,000  euros  aggregate  purchase price for the
Berthier property.


                                      F-19
<PAGE>


Annual  minimum  commitments  under the  Berthier  Agreement at 10,000 euros per
month are as follows (using, for purposes of illustration only in this report, a
currency exchange rate of U.S. $1.20 per one euro):

     Years Ending February 28,

                            2007          $    144,000
                            2008          $  2,160,000
                            2009                     -
                            2010                     -
                            2011                     -
                          Beyond                     -
                                          ------------
                                          $  2,304,000
                                          ============


(10) Related Party Transactions.

In July 2006 we entered into an amended and restated  consulting  agreement with
our CEO,  Mr.  Louis  Pardo in  connection  with the  services he provided to us
during the period from January 2001 through  December  2005.  The Company issued
6,653,000  shares of common  stock to Mr.  Pardo on July 11, 2005 as payment for
these  services.  The  shares  were at the time of  issuance,  and are as of the
balance sheet date,  subject to  restrictions  on  transferability.  The closing
market  price of our common stock on the OTC-BB on the date of issuance of these
shares was $0.10 per share. The issuance price of these shares was $0.816, based
on a discount of 20% to the five-day  trailing  average  price for the Company's
common stock on the OTC-BB as of July 11, 2005.

In July 2006,  we entered into an amended and restated  consulting  agreement in
connection  with  the  services  rendered  by  a  significant  shareholder,  Mr.
Christophe Giovannetti. Mr. Giovannetti provided these services to us during the
period from January 2001 through  December 2005.  The Company  issued  6,653,000
shares of common stock to Mr.  Giovannetti on July 11, 2005 as payment for these
services.  The shares  were at the time of  issuance,  and are as of the balance
sheet date,  subject to restrictions on  transferability.  The issuance price of
these  shares was $0.816,  based on a discount of 20% to the  five-day  trailing
average price for our common stock on the OTC-BB as of July 11, 2005.

On January 12, 2006, we entered into an agreement with Bridgehead Partners,  LLC
("Bridgehead")  whereby Bridgehead provides the services of Mr. John J. McGovern
to serve as our  Executive  Vice  President  and Chief  Financial  Officer.  The
agreement with  Bridgehead  provides,  among other things,  for a monthly fee of
$15,000. We have issued Bridgehead a warrant for 1,500,000 shares exercisable at
$0.0375 per share which vests in 3 tranches:  one half on January 12, 2006,  one
quarter on June 1, 2006,  and one  quarter on October  31,  2006.  The  warrants
expire  on  January  12,  2011.  The  Warrants  issued in  conjunction  with the
Bridgehead  agreement  were  valued  and  recorded  as equity by the  Company in
accordance  with EITF 00-19.  In valuing these  Warrants,  we elected to use the
Black Scholes model. The effect of this valuation was the creation of fair value
of the  Warrants  of  $59,623  which  was  allocated  to APIC;  the value of the
warrants is expensed to consulting expense as they vest.





                                      F-20
<PAGE>



(11) Concentration of Credit Risk.

Financial  instruments that potentially subject the Company to concentrations of
credit  risk  consist  of  cash  and  cash  equivalent   accounts  in  financial
institutions,  which  from  time to time  exceed  Federal  depository  insurance
coverage limits.  At February 28, 2006, cash and cash equivalents did not exceed
federally insured limits.


(12) Subsequent events

In March 2006 we entered into a bridge loan agreement with Portfolio Lenders II,
LLC with gross proceeds of $100,000 for which we issued 100,000  warrants to the
lender  exercisable  at $0.05 per share.  The bridge  loan was repaid in full in
April, 2006.

During  March and April 2006 we  undertook  a private  placement  to  accredited
investors of  convertible  debentures  and warrants  ("Units") for which we held
four closings  aggregating  gross  proceeds of $917,800.  Poseidis  issued (a) a
total of $917,800 in principal amount of convertible  debentures,  (b) 2,753,400
warrants  exercisable  at 125% of the FMV on the four  respective  closing dates
(540,000  warrants at $ 0.086,  701,400 warrants at $0.078,  381,000 warrants at
$0.076,  and  1,131,000   warrants  at  $0.082),   and  (c)  2,753,400  warrants
exercisable  at 145% of the FMV on the four  respective  closing dates  (540,000
warrants at $0.099,  701,400 warrants at $0.090, 381,000 warrants at $0.088, and
1,131,000 warrants at $0.095).

In  March  2006  our  subsidiary  Montespan  ,  entered  into an  amendment  and
restatement  of its October 2005 real estate  purchase  agreement with Christian
Berthier  pertaining to  approximately  5 acres in Theneuille,  France where the
natural mineral water spring is located. The purchase price for this property is
2,150,000  euros of which  Montespan has paid 430,000 euros as of July 26, 2006.
In the agreement, Montespan agreed to pay Mr. Berthier at least 10,000 euros per
month.

In May 2006  Poseidis  issued a  Promissory  Note to  Portfolio  Lenders II, LLC
pursuant  to which  the  Company  obtained  a loan in the  principal  amount  of
$250,000  and issued  warrants to  purchase  1,000,000  shares of the  Company's
common stock exercisable at $0.05 per share.

In June 2006 Poseidis  formed an advisory board to advise the Board of Directors
and  senior  management  on  strategic  planning  issues,  business  development
matters,  and other corporate matters.  Three members have been appointed to the
advisory  board as of July 26, 2006.  Poseidis has agreed to issue stock options
to purchase  100,000 of our common  stock to each member of the  advisory  board
exercisable  at the then current  market value of Poseidis'  common stock on the
date of  approval  of such  options by the  Poseidis  Board of  Directors.  Such
options are to be issued under,  and governed by, an equity incentive plan to be
adopted by Poseidis.

In July 2006 Poseidis  issued a Promissory  Note to Mr. Pardo  pursuant to which
the Company obtained a loan in the principal  amount of $30,000.  The Note bears
interest at the rate of 9.25% per annum.  The  principal  and  accrued  interest
shall be paid in full on  demand,  not later than the fifth  business  day after
written demand for repayment is received by the Company.


                                      F-21
<PAGE>



On July 19, 2006, the OTC-BB  temporarily  ceased  quoting the Company's  shares
pending the completion of the audit of the Poseidis financial statements and the
filing of the Company's Annual Report on Form 10-KSB for the year ended February
28, 2006. The Company's  common stock has continued to be quoted through various
market makers on the Pink Sheets  Electronic  Quotation Service published by the
National Quotation Bureau under the symbol "PSED".

In July 2006 Poseidis  entered into amended and restated  consulting  agreements
with Mr. Pardo, and Mr. Giovannetti in order to address errors identified by the
Company  in the  historical  accounting  treatment  of  consulting  fees and the
issuance of shares of Poseidis  common  stock to Mr.  Pardo and Mr.  Giovannetti
under previously executed consulting agreements [Note 10].

In August and September of 2006, the Company entered into letter agreements with
Cornell  pursuant to which,  among other  things,  Cornell  provided a waiver of
certain defaults that had arisen under applicable loan documents and Cornell and
the  Company  also  amended  certain  covenants  and other  terms under the loan
documents  including:  termination  of the Company's  obligation to further fund
with  cash or stock or  otherwise  an escrow  account  held for the  benefit  of
Cornell in connection with the $344,000  debenture that we had issued to Cornell
in February 2006; Cornell's consent to the release of approximately $60,000 from
such escrow account for the purpose of our payment of certain vendors'  invoices
relating to our  development  project at the Source in France;  changing the due
date for the first  scheduled  payment of  principal  and interest due under the
Debentures from September 1, 2006 to October 1, 2006; and revising the due dates
for our filing with the SEC of certain reports and our registration statement.

In September 2006, the Company filed with the SEC amended  quarterly  reports on
Form 10-QSB/A for the three and six-month  periods ended August 31, 2005 and for
the three and  nine-month  periods ended November 30, 2005, and the Company also
filed with the SEC the  Company's  annual  report on Form  10-KSB for the fiscal
year ended  February  28,  2006.  All three of these  reports  should be read in
conjunction.

















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