UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.

                    For the Fiscal Year Ended August 31, 2006

                         Commission File Number 0-50092

                       EDGEWATER FOODS INTERNATIONAL, INC.
                 (Name of Small Business Issuer in Its Charter)

             Nevada                                            20-3113571
--------------------------------------------------------------------------------
(State or Other Jurisdiction of                             (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)
--------------------------------------------------------------------------------

5552 West Island Highway, Qualicum Beach, British Columbia, Canada      V9K 2C8
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                              (Zip Code)

                                 (250) 757-9811
                (Issuer's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:   None
Securities registered pursuant to Section 12(g) of the Act:   Common Stock and
Series A Convertible Preferred

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act.

                      YES                        X NO
                ----                           -------


Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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 requirement for the past 90 days.

                  X    YES                         NO
                ----                           -------


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

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                             YES                        X NO
                       ----                          ---------

<PAGE>

The issuer's revenues for its most recent fiscal year were:  $527,623.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of  the  registrant  as of  November  27,  2006  was  $9,567,496
(computed by  multiplying  the closing  sales price for our common stock on such
date by the  number of  shares  of  common  stock  held by  persons  other  than
officers,  directors  or by record  holders  of 10% or more of the  registrant's
outstanding common stock. This  characterization of officers,  directors and 10%
or more beneficial  owners as affiliates is for purposes of computation only and
is not an admission  for any  purposes  that such people are  affiliates  of the
registrant).

The number of shares of our common  stock  outstanding  on November 27, 2006 was
21,049,926.

















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<PAGE>



                                TABLE OF CONTENTS

                                     PART I
Item 1           Description of Business............................... Page 5
Item 2           Description of Property............................... Page 14
Item 3           Legal Proceedings..................................... Page 16
Item 4           Submission of Matter to a Vote of Security Holders.... Page 16

                                     PART II
Item 5           Market for Common Equity, Related Stockholder Matters
                 and Small Business Issuer Purchases of Equity
                 Securities............................................ Page 17
Item 6           Management's Discussion and Analysis or Plan of
                 Operation............................................. Page 22
Item 7           Financial Statements.................................. Page F-1
Item 8           Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure................... Page 30
Item 8A          Controls and Procedures............................... Page 30

                                    PART III
Item 9           Directors and Executive Officers of the Registrant.... Page 32
Item 10          Executive Compensation................................ Page 37
Item 11          Security Ownership of Certain Beneficial Owners, and
                 Management and Related................................
                 Stockholder Matters...........                         Page 40
Item 12          Certain Relationships and Related Transactions........ Page 42
Item 13          Exhibit List and Reports on Form 8-K.................. Page 43
Item 14          Principal Accountants Fees and Services............... Page 46

                 Signatures............................................ Page 46









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<PAGE>



                                     PART I.

                         CAUTIONARY STATEMENT REGARDING
                           FORWARD-LOOKING INFORMATION

From time to time, we may make written  statements  that are  "forward-looking,"
including  statements  contained  in this  report  and  other  filings  with the
Securities  and  Exchange  Commission,  reports  to our  stockholders  and  news
releases.  All statements  that express  expectations,  estimates,  forecasts or
projections are forward-looking  statements.  In addition, other written or oral
statements which constitute  forward-looking  statements may be made by us or on
our  behalf.  Words  such  as  "expects,"   "anticipates,"  "intends,"  "plans,"
"believes,"  "seeks,"  "estimates,"  "projects,"  "forecasts,"  "may," "should,"
variations of such words and similar  expressions  are intended to identify such
forward-looking  statements.  These  statements  are not  guarantees  of  future
performance and involve risks, uncertainties and assumptions which are difficult
to predict.  Therefore,  actual outcomes and results may differ  materially from
what  is  expressed  or  forecasted  in or  suggested  by  such  forward-looking
statements.  We undertake no obligation to update  publicly any  forward-looking
statements, whether as a result of new information,  future events or otherwise.
Important factors on which such statements are based are assumptions  concerning
uncertainties,  including but not limited to  uncertainties  associated with the
following:

         (a) volatility or decline of our stock price;

         (b) potential fluctuation in quarterly results;

         (c) our failure to earn revenues or profits;

         (d) inadequate  capital and barriers to raising the additional  capital
             or to obtaining the financing needed to implement its business
             plans;

         (e) inadequate capital to continue business;

         (f) changes in demand for our products and services;

         (g) rapid and significant changes in markets;

         (h) litigation with or legal claims and allegations by outside parties;
             or

         (i) insufficient revenues to cover operating costs.

There  is no  assurance  that  we  will  be  profitable,  we may  not be able to
successfully develop,  manage or market our products and services, we may not be
able to attract or retain  qualified  executives and technology  personnel,  our
products and services may become obsolete,  government regulation may hinder our
business, additional dilution in outstanding stock ownership may be incurred due
to the issuance of more shares,  warrants and stock options,  or the exercise of
warrants and stock options, and other risks inherent in the our businesses.


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<PAGE>


We undertake no obligation to publicly revise these  forward-looking  statements
to reflect  events or  circumstances  that arise after the date hereof.  Readers
should  carefully  review the factors  described in other documents we file from
time  to time  with  the  Securities  and  Exchange  Commission,  including  the
Quarterly  Reports  on Form  10-QSB  and  Annual  Report on Form  10-KSB and any
Current  Reports  on  Form  8-K  filed  by us.  All  forward-looking  statements
attributable  to us are expressly  qualified in their entirety by the cautionary
statement above.

ITEM 1.       DESCRIPTION OF BUSINESS

OVERVIEW

We were  incorporated  under the laws of the  State of Nevada on June 12,  2000,
with the name Heritage Management Corporation. In August 2005, we entered into a
share exchange  agreement with Edgewater Foods  International,  Inc., the parent
company of Island  Scallops  Ltd. an  aquaculture  company  located in Vancouver
Island,  British Columbia.  As a result of the Share Exchange,  Edgewater became
our wholly owned  subsidiary and Edgewater's  shareholders  became the owners of
the majority of our voting  stock.  Pursuant to the terms of the Share  Exchange
Agreement, Edgewater's officers and directors were appointed as our officers and
directors.  Additionally,  we changed our name from Heritage Management, Inc. to
Edgewater Foods International, Inc.

Our wholly  owned  subsidiary,  Edgewater  Foods  International  Inc.,  a Nevada
Corporation,  is the parent company of Island Scallops Ltd., a Vancouver  Island
aquaculture  company.  Island  Scallops was  established in 1989 and for over 17
years has successfully  operated a scallop farming and marine hatchery business.
Island  Scallops is dedicated to the farming,  processing  and marketing of high
quality, high value marine species:  scallops and sablefish.  Scallop farming is
relatively new to North America and Island Scallops is the only producer of both
live-farmed  Pacific  scallops and live  sablefish (or  blackcod).  Given Island
Scallops' unique hatchery technology and extensive research and development,  we
believe  that there is  currently no  significant  competition  for these marine
species.  Island  Scallops is  committed  to rapidly  expanding  production  and
profits  while  continuing to finance the  aggressive  growth of the company and
maintaining a healthy respect for the marine environment.

Edgewater  acquired  Island  Scallops  in June  2005  through  a tax free  share
exchange.  Island  Scallops was  established in 1989 to  commercialize  Canadian
government research on scallop aquaculture. Island Scallops' hatchery operations
have  diversified to produce other species of shellfish such as mussels,  clams,
geoducks  and oysters.  Island  Scallops  has also  investigated  the culture of
halibut,  spot  prawn,  sea urchin and  abalone.  Island  Scallops  is the first
hatchery to successfully produce sablefish juveniles for commercial grow-out.

Currently,  Island Scallops' primary product is farmed pacific scallops for sale
in the west coast of North America.  Island  Scallops  offers a variety of other
products  and  services  to  the  industry  including   aquaculture   equipment,
consulting,  research and  development,  and custom  processing  and  marketing.
Internationally,  Island  Scallops  has  collaborated  with  both  Japanese  and
Moroccan fisheries interests.



                                       5
<PAGE>

On August 30, 2006,  we filed a Form 8-A to register our common stock and series
A preferred  stock pursuant to Section 12(g) of the Act and we therefore  ceased
being a voluntary filer.

KEY CORPORATE OBJECTIVES

Our key business  development  objectives over the next 36 months are to: expand
scallops  sales  and begin  blackcod  production  using  both  existing  and new
infrastructure at our facilities in Qualicum Beach,  Canada,  that we anticipate
will  allow us to  reach  annual  sales of  approximately  US$18.4  million  and
earnings of  approximately  US$6 million by the end of 2008 (on  scallops  sales
alone).  We plan to implement this significant  expansion  through the following
five initiatives:


     o    Produce at least 15 million scallops of our 2006 scallop class,  which
          we will start harvesting in the spring of 2008.

     o    Capitalize  on the high  demand for  sablefish  in foreign  markets by
          entering into the blackcod market in the next 2 to 3 years.

     o    Expand   current    distribution   by   establishing   new   strategic
          relationships  with 10-15  American  fisheries  importers  in Seattle,
          Portland, San Francisco, San Jose, and Los Angeles in 2007.

     o    During 2007, rapidly increase farm production with a projected minimum
          2007  scallop  class  of at least 50  million  which we will  begin to
          harvest in early 2009.

     o    Produce more than 200 million  scallop seeds in 2008, with a projected
          2008 scallop class of at least 100 million scallops.


MARKETING AND DISTRIBUTION

Our  marketing  and  distribution  strategy  for Island  Scallops  is focused on
developing and maintaining  long-term  relationships  with distribution  channel
members.  Island Scallops also strives to differentiate  its products to achieve
consistent  supply and quality.  Island  Scallops  believes  the scallop  market
effectively  functions as a commodity market and therefore,  relationships  with
distributors are important. To develop these relationships,  Island Scallops has
identified  key purchasing  criteria for the  distributors:  price,  quality and
consistent  farmed supply. In the short term, Island Scallops intends to adopt a
pricing policy equal to the market wholesale  prices.  In other words, we do not
intend to set any  promotional or premium prices for either the whole or shucked
product,  but instead intend to sell our products at the market rate. This would
mean Island  Scallops'  products would compete on other factors,  such as supply
and consistent quality.

Over the long term,  for the  reasons  noted  below,  Island  Scallops  wants to
differentiate  its products so that it can command premium prices.  Freshness is
an important  factor for scallops since whole scallops only have a shelf life of


                                       6
<PAGE>

approximately 7 days while shucked  scallops remain fresh for up to 20 days. Due
to this short  shelf  life,  distributors  try to offer the  freshest  products.
Island Scallops believes it is in a favorable  position to supply fresh products
to United  States  brokers/distributors,  especially  those  located on the west
coast   where   demand   for   the   product   is   strong.   Currently,   these
brokers/distributors  are  supplied  for the most  part with  east  coast  North
American  scallops,  which have several  transportation-related  delivery delays
that decrease freshness.

Supply is another key factor  where Island  Scallops  has a distinct  advantage.
Based on our planned  increase  in scallop  production,  we believe  that Island
Scallops  will  have a  large  quantity  of  scallops  for  sale.  Therefore,  a
distributor  would  not  have to  deal  with  numerous  suppliers,  which  costs
additional time and money.  This makes Island Scallops an attractive  source for
scallops,  since  we  believe  that we will be able to  satisfy  the  demand  of
distributors, which will save them time and money.

Island Scallops has also developed a unique live holding system for use with our
distribution  model.  This system allows Island Scallops to deliver live product
directly to seafood suppliers and individual restaurants.

CURRENT PRODUCTS

Island Scallops currently focuses exclusively on aquaculture products and is not
involved  in wild  fisheries.  All  seafood  products  are  produced  in private
hatcheries and grown on ocean farm sites. Currently,  the Pacific Scallop is the
only product that Island Scallops produces, grows, processes and markets. Island
Scallops has,  however,  produced a variety of other shellfish species including
the Pacific  oyster,  European  flat oyster,  Manila clam,  eastern blue mussel,
Mediterranean  mussel, rock scallop,  geoduck clam and sea urchin,  which in the
past we have sold to third party shellfish farmers.  Additionally,  our hatchery
has  produced  and is capable of  producing  a variety  of  shellfish  seed (for
grow-out and sale by our  companies)  including  mussel,  oysters and geoduck as
well as scallop seed.

Island Scallops has been a leader in marine hatchery  technology for the past 17
years.  Island  Scallops has developed  proprietary  hatchery  techniques  for a
number of marine  species,  most notably the  hybridizing of the Pacific Scallop
and becoming the first  company to produce  commercial  quantities  of sablefish
juveniles.  Both of these breakthroughs have required many years of research and
considerable  investment.  In the case of sablefish,  which is a cold-water fish
that spawns at depths of 800 - 2400 ft, a variety of techniques were required to
successfully  mature,  spawn,  incubate and rear the larvae. In addition,  there
were technical difficulties associated with egg and yolk sac incubation (as well
as larvae rearing and weaning) that were resolved using  proprietary  technology
developed at Island Scallops. Island Scallops was only able to reach its goal of
commercially  farming  sablefish  with over 8 years of  dedicated  research  and
capital  investment  of  approximately   US$2.4  million.  We  intend  to  begin
significant  further  commercialization  of  sablefish  in the next two to three
years,  provided we are able to finance the  expansion of this product  which we
estimate will require at least $5.0 million of capital.


                                       7
<PAGE>


SCALLOP OVERVIEW

Island Scallops' main product is the "Pacific Scallop", which is a hybrid of the
imported  Japanese scallop and the local weathervane  scallop.  Between 1993 and
1999,  Island Scallops  developed this new scallop using Japanese  scallops that
were  imported  under  quarantine in the early  1990's.  This unique  scallop is
marketed  as the  Pacific  scallop  and is the  largest  scallop  in the  world,
reaching  sizes of 15 cm and 500 grams.  The  scallop  species  farmed by Island
Scallops,  has a proven record of being disease  resistant,  with a 95% survival
rate during the grow-out phase. We have the necessary farming  infrastructure to
significantly  increase  our  scallop  production  to a  minimum  of 15  million
scallops  annually  beginning  with the 2006 scallop  class which will begin its
harvest in early 2008.  Given the high  worldwide  demand for  scallops,  Island
Scallops  is poised to rapidly  expand  production  and  significantly  increase
revenues and earnings.

The Pacific Scallop is sold live in four sizes, extra small,  small,  medium and
large. Pricing ranges from a low of US$1.20 per pound to $4.00 per pound for the
larger sized scallops.  Previously,  Island Scallops also produced shucked meats
with or without  roe.  However,  due to the large demand and high value for live
scallops,  meat product was  discontinued  and the focus switched to the sale of
live scallops.

The basis for our anticipated  scallop farming production  increase stems from a
combination of our tenure  expansion,  our recent  financing,  improved grow-out
techniques and our transition to a combination  of  "lantern-style"  netting and
ear-hanging  methods.  Scallops  culture  utilizes  two  styles  of small  cages
referred  to as "pearl  nets and  lantern  nets."  Pearl nets are shaped  like a
pyramid  with a 35 by 35 cm square base and grow small  scallops  from 2-3 mm to
10mm. The 10-mm  scallops are grown in cylindrical  nets called lantern nets and
are 60 cm in  diameter  and 1.2  meters  deep  containing  12  layers.  Once the
scallops  reach  5cm  they  can be  grown  to  harvest  using  a  method  called
"earhanging"  or be grown out in lantern  nets.  Our  Hindoo  Creek and Deep Bay
tenures have been approved for expansion and once expansion of our Denman tenure
is approved,  which we believe will occur by the second or third  quarter of our
next  fiscal  year,  we  will  be able to  increase  capacity  to  approximately
25,000,000 animals per annum. Thereafter, we intend to further expand our Bowser
tenure in 2007,  which would supply us with the  capacity to produce  additional
30-50 million animals at harvest.

As the only  hatchery/producer  of cultured  scallops on the west coast of North
America,  Island  Scallops  has the  ability  to  supply  fresh  scallops  (of a
predictable  quality and quantity)  throughout the year.  Although the supply of
scallops has  fluctuated in the past,  consumer  demand has always  absorbed the
available  supply. A primary factor for increased  consumption is the increasing
health  consciousness  among  consumers.  Scallops are low in saturated fats and
cholesterol  and high in  protein.  All parts of the  scallop  body are  edible;
however,  different parts tend to be consumed in different regions of the world.
In North America, the adductor muscle is traditionally the only part eaten, with
the rest of the body discarded. In Europe,  Australia and Tasmania, the adductor
muscle is usually marketed and eaten with the gonad attached. Japan utilizes the
whole  animal,  where most of the  product is cooked in the shell prior to sale.
Marketed scallops generally take the following product forms:

     o    Whole-live (shelf life of seven days);
     o    Whole dried;
     o    Eviscerated whole;


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<PAGE>

     o    Shucked fresh (shelf life of about 15-20 days);
     o    Shucked frozen (shelf life of about a year); and
     o    Value added forms (smoked, breaded, canned).

The  shucked  product  form is the  most  significant  form for  North  American
markets.   A   whole-live   product  form  is  the  most   desirable   from  the
aquaculturist's point of view, as processing costs are minimal.  Island Scallops
has  developed a market for whole live  scallops,  which  exceeds 5,000 lbs. per
week into Vancouver.  Our initial  expansion plan envisions four major cities on
the west coast  (Seattle,  Portland,  San  Francisco and Los Angeles) to consume
2,500 lbs. per week per city based on the successful Vancouver model.

Island  Scallops  currently   distributes  through  specialty  wholesalers  with
particular  expertise in selling to restaurants.  In Vancouver these include but
are not  limited to Albion  Fisheries,  Tri-Star  Seafood  Supply,  Pacific  Rim
Shellfish,  Sea  World  Fisheries  and  Teamway  Fisheries.  As  we  expand  our
distribution,  we will  continue to focus on specialty  wholesalers  with strong
ties to major restaurants.

The most predominant scallop production in North America comes from the offshore
fishery  located on the  Georgia  Band on the east  coast.  Large  American  and
Canadian fishing companies  dominate the fishery.  The majority of their product
is shucked aboard ship then supplied to primarily  frozen to seafood  processors
onshore.  The processors  then  distribute  the product to various  restaurants,
retail outlets and seafood brokers.

Sablefish (Blackcod) Overview

Sablefish (Anoplopoma  fimbria),  often called blackcod although not a member of
the cod family, is an elongate fish with two dorsal fins and an anal fin similar
to and  opposite  the second  dorsal  fin.  Adults are black or  greenish  gray;
usually with slightly paler blotches or chainlike  pattern on the upper back. At
30-61 cm in size they are often greenish with faint stripes on the back.

Sablefish inhabit shelf and slope waters in depths of greater than 1,500 meters,
from Baja  California  to the  Aleutian  Islands and the Bering Sea.  The larger
populations of sablefish are centered in northern  British Columbia and the Gulf
of Alaska. Adults favor mud bottoms and feed on benthic invertebrates, squid and
numerous fish species.  In turn, they are prey for halibut,  lingcod,  hagfishes
and marine mammals such as sea lions. In addition, killer whales have been known
to take sablefish from long line gear as it is being retrieved.

Sablefish spawn from January to March along the  continental  shelf at depths of
250 to 750 meters.  Fecundity ranges from  60,000-200,000 eggs up to one million
eggs for a 102-cm fish.  Larval  sablefish are found in surface  waters over the
shelf  and  slope  in  April  and  May.  Juveniles  are  highly  migratory  with
significant  movement  from nursery areas in northern B.C. to the Gulf of Alaska
and the Bering Sea.  Sablefish  move to deeper waters as they mature.  Growth is
rapid with sizes at maturity reaching 52-61 cm for five-year-old males and 58-71
cm for five-to-seven year old females.  Sablefish growth appears to be rapid for
the first three-to-five years and slow asymptotically thereafter. Annual natural
mortality of adults has been estimated to be about 10 percent.


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<PAGE>


Island  Scallops plans to raise  sablefish  onshore using shallow ponds or above
ground  tanks.  This  system  has been  successful  in Texas for the  culture of
catfish.  Tests have shown that  sablefish  prove to be very hardy when grown in
ponds and have the added  advantage of causing  sablefish  to be parasite  free.
Wild  sablefish  carry a parasite  that does not allow the fish to be eaten raw.
With adequate funding,  Island Scallops has already demonstrated the feasibility
of onshore  sablefish  farming and plans to develop a new blackcod facility that
could  produce at least  500,000  sablefish  as early as 2007,  with  production
planned to increase by at least 500,000 annually by 2008 and beyond.

Over the past  eight  years,  Island  Scallops  has also  developed  proprietary
hatchery technology for the production of sablefish  juveniles.  We believe that
sablefish will be the next species,  after salmon,  for  successful  large-scale
commercial  farming.  Sablefish,  which is a  premium-quality  whitefish  with a
delicate  texture and moderate  flavor,  is an ideal  substitute for Chilean sea
bass  (currently  over-fished  in all  oceans).  To date,  Island  Scallops  has
marketed a limited number of live sablefish into the Vancouver  market.  Initial
response was excellent  for a small  1-kilogram  live  sablefish  (~$11/kg).  To
capitalize on Island Scallops'  breakthrough  sablefish hatchery technology,  in
the next two to three  years,  we plan to  construct  a new  sablefish  hatchery
consisting of the following:

     o    An expanded  Brood  Stock  facility  with larger  capacity to hold the
          various families of selected  strains of sablefish.  This new facility
          will incorporate a new state-of-the-art water treatment system.

     o    An  improved  incubation  and larval  rearing  facility  incorporating
          proprietary improvements in tank design and seawater systems.

     o    An upgraded  zooplankton  culture facility with improved  handling and
          enrichment techniques.

     o    An expanded  and  improved  juvenile  rearing  facility  incorporating
          proprietary recirculation system designs.

As part of this  expansion,  we also intend to construct a new onshore tank farm
consisting  of  large  and  small  ponds  and  tanks  complete  with  associated
recirculation  systems.  This  onshore  facility  will be used  to  augment  the
juvenile rearing area and will house and grow juvenile fish.

At the present time, worldwide "non-farming" sablefish catches are struggling to
meet the  worldwide  demand  according to DFOWeb,  NPFMCWeb and Pacific  Fishery
Management Council Website.  Currently,  there are only two hatchery facilities:
Island Scallops Ltd. and Sablefish  Hatcheries Inc. that have produced sablefish
juveniles.  Current production is only approximately 100,000 juveniles per year.
Based  on our  analysis  of  present  market  conditions,  increasing  worldwide
hatchery  production  tenfold (to roughly 1 million 3 kilo sablefish) would fill
less than 10% of the current  world demand  shortfall.  If Island  Scallops' new
sablefish  facilities  are able to reach a  production  of 3  million  sablefish
annually,  this will only fill less than 30% of the current  overall  shortfall.
The economic  potential  for  sablefish is therefore  considerable.  Given these
market conditions and opportunities,  Island Scallops, subject to our ability to


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<PAGE>

secure  adequate  funding,  is determined to enter the market for sablefish in a
significant manner with the next two to three years.


OTHER PRODUCTS

In the past Island Scallops sold a variety of shellfish  larvae and seed to both
international and local customers. Sales included two species of mussels, manila
clams,  geoduck clams,  oysters,  abalone and sea urchins.  Island  Scallops has
established  suppliers of aquaculture  equipment in Japan and China and supplies
nets,  ropes,  floats,  and  processing  equipment  into  the  British  Columbia
industry.  Currently, Island Scallops is focused almost exclusively on expansion
of scallop  sales and  development  of its  sablefish  operation  with a goal of
further  commercialization of sablefish in two to three years.  However,  during
the second half of 2006,  Island  Scallops was  approached by a new customer and
began producing and selling a limited amount of oyster seed to this customer.

GENERAL FISHERIES MARKET OVERVIEW

The worldwide market for farmed marine species  continues to grow.  According to
personal  communications  with the National Marine Fisheries Service,  Fisheries
Statistics  Division,  Silver Spring,  MD, in British  Columbia  alone,  farming
production increased from US$44.56 million in 1988 to US$190.24 million in 1998.
Although  significant  growth occurred in salmon farming and little or no growth
occurred  in  shellfish  (oyster)  farming,  recent  problems  within the salmon
industry are causing some salmon  farming  interests to turn towards  shellfish.
Island  Scallops can only benefit from this recent trend towards  shellfish,  as
training farmers in correct husbandry would only add another revenue stream.

The majority of the world's current scallop  production comes from three species
of scallops:  the Japanese  scallop,  the sea scallop and the king scallop.  The
Chinese  scallop is also selling well, but FDA  inspections of China  facilities
found that the  conditions  and hygiene  were issues as  hatcheries  were highly
polluted. There has also been a fishery boom on the east coast of Canada and the
United States with the Digby or sea scallop.

In the United  States,  consumption  of scallops  exceeded 64 million  pounds in
2002. Various  communications between Island Scallops personnel and the National
Marine Fisheries Service,  Fisheries Statistics Division,  Silver Spring, MD and
analysis  of data from the  Fisheries  Statistics  &  Economics  Division of the
National  Marine  Fisheries  Service  (NMFS)  website  for  annual  landings  of
commercial  fisheries   (http://www.st.nmfs.noaa.gov/st1/commercial/index.html),
tell us that this  represented a per capita  consumption of 0.22 pounds,  with a
dollar value of US$342 million. After shrimp, scallops represent one of the most
popular  shellfish  products  in the  United  States.  In  general,  per  capita
consumption  of seafood in the United  States has remained  steady over the last
six  years  ranging  from 15.2 to 16.2  pounds  per  annum.  Based  upon  Robert
Saunders',  our chairman and president,  communications with the National Marine
Fisheries  Service,  Fisheries  Statistics  Division of Silver  Spring,  MD, and
personal  observations,  given consumers'  growing  preoccupation with healthier
foods and the increasing availability of seafood (due to the recent successes in
aqua  farming  and  improved  distribution   channels),  we  expect  per  capita
consumption to continue to increase.



                                       11
<PAGE>

Shifts in North American  shellfish  market trends from shucked to live in shell
products  can be seen in the oyster  markets.  Within the last 5 years,  we have
seen a  significant  trend away from  shucked  oyster  meat to live in the shell
product in the  Pacific  Northwest  due to the  demand  for fresh  high  quality
products.  We believe that once a live in the shell product is readily available
within the scallop  market,  a shift from frozen  scallop meat to fresh in shell
product will also occur.

REGULATORY ENVIRONMENT

Effect of Government Regulation

There  are  a  limited  number  of   regulations   that  restrict  the  fishing,
distributing or purchase of scallops in Canada and the United States. Therefore,
the  country of origin  makes  little  difference  for the  pricing or demand of
scallops.

A limitation to market  supply is paralytic  shellfish  poisoning  (PSP) or "red
tide". PSP is a toxin generated by plankton (scallops' food) at particular times
of the year.  The toxin is passed to the scallop when plankton is digested,  but
the toxin does not harm the  shellfish.  However,  the shellfish  containing the
toxin can be harmful to humans who consume it. Although only a limited number of
human  deaths  caused by  red-tide  poisoning  have been  reported,  the  public
announcement of red tide has a devastating  effect on most shellfish  sales. The
exception is scallop meat,  because the adductor  muscle of the scallop does not
concentrate the toxin; shucked scallops are safe to eat at any time of the year.
Nevertheless,  public perception could still influence demand over short periods
of time. To monitor for PSP, the federal Fisheries  Inspection Branch constantly
monitors samples of shellfish production and wild shellfish populations.

Tenure Expansion and Compliance with Environmental Laws

Our planned  tenure  expansions  will require  that we undergo an  environmental
screening from Transports Canada pursuant to Canadian  Environmental  Assessment
Act, which includes a review of factors such as the environmental effects of the
planned  expansions,  including the  environmental  effects of  malfunctions  or
accidents  that may occur in  connection  with the  planned  expansions  and any
cumulative  environmental  effects  that are likely to result from such  planned
expansions; the significance of such environmental effects and any comments from
the public  that are  received  in  accordance  with the CEA Act and  applicable
regulations;  and measures that are  technically and  economically  feasible and
that would mitigate any significant adverse environmental effects of the planned
expansions.

Our Deep Bay and Hindo Creek tenures have received final CEA Act approval, which
lasts for twenty years and which  allows us to expand these 2 tenures.  We still
need CEA Act approval and re-zoning  approval for our Denman tenure and approval
of our Management Plan, along with a satisfactory environmental assesment of our
Bowser bottom lease.  Please see our risk factor, If we are unable to expand our
tenures, our projected production may be delayed.


                                       12
<PAGE>


COMPETITION

Fisheries Industry in General

Island Scallops is in the farmed seafood  business.  The main  concentration  of
marine farming in British Columbia has traditionally  been in the salmon sector.
The salmon farming  business has developed into a mature  industry  dominated by
Norwegian farmers.  The rest of the British Columbia marine farming sector is in
the  shellfish  industry,  mainly in oysters and Manila clams and more  recently
mussels.  This sector is rapidly  expanding and it accounted  for  approximately
US$16  million in British  Columbia in 2002,  according to the British  Columbia
Shellfish  Growers  Association  website.  Given Island Scallops'  expertise and
significant research and development experience, we believe that there is little
or no  direct  competition  in the  production  of  farmed  scallops  or  farmed
sablefish.

Scallops

There are no significant  direct  competitors in the scallop farming business in
British Columbia. The United States will not allow farming this species in their
waters,  as this species is considered  "exotic".  Although scallop farming is a
very significant  industry in Japan and China,  only frozen shucked scallops are
currently sold into North America from these  countries.  Recent  examination by
the United States and Canadian Food Inspection authorities of the growing waters
in China resulted in reduced exporting due to high levels of pollution.

Island Scallops is the only hatchery,  outside of China,  that has  successfully
produced the  Japanese  scallop,  and the only  company  that has  successfully,
hybridized the weathervane and the Japanese scallop. Island Scallops is uniquely
positioned as the sole producer of live Pacific Scallops in North America. There
currently are no other hatcheries in North America that we are aware of that are
capable of producing  this unique  breed.  Although a large  commercial  scallop
fishery exists on the east coast of North America,  the majority of the scallops
are shucked at sea with only limited  quantities  sold live.  These scallops are
sold as "Digby" or "Sea" scallops.  A number of companies have attempted to grow
the bay scallop and the sea scallop on the east coast,  but these companies have
only achieved limited success.

The primary British Columbia participants in scallop farming are Island Scallops
joint venture farmers or independent scallop farmers, which receive their supply
of seed scallops  solely from Island  Scallops.  These  farmers are  chronically
underfinanced  and are  generally  able to purchase  and grow less than  300,000
scallops per farm.  Island  Scallops is uniquely  positioned  to rapidly  expand
these farms (up to six farms) under an exclusive farming and marketing contract.
Three joint  venture  farmers are  currently  farming  scallops and receive free
scallop  seed,  technology  and  support  for a 12%  royalty on the  harvest and
exclusive marketing of their product through Island Scallops.

Due to its large size and small  count per pound,  the sea  scallop is the prime
competitor in the United States market.  The fishery for this scallop is located
primarily on the North American east coast,  in particular  Georges Bank off New
England and the Maritime provinces.  This is a limited opportunity fishery, with
actual fishing time being dictated by sea and other environmental conditions.


                                       13
<PAGE>


Sablefish

Island Scallops is currently only one of two hatcheries to produce quantities of
juvenile  sablefish.  These  fish were sold to five  commercial  salmon  farming
facilities and the fish have been marketed successfully. Little demand for a new
species has materialized.  Although  hatcheries have been constructed in British
Columbia,  neither has successfully produced large quantities of sablefish.  The
farming of  sablefish is still in its infancy and only  limited  production  has
occurred.

This limited production is not a matter of biological barriers but rather a lack
of interest by the major producers to venture into a new marine species.  Alaska
sablefish  fishermen  have  expressed  interest  in  farming  sablefish  and the
Sablefish Association of Alaska has voted unanimously to start farming sablefish
in southern Alaska. Island Scallops has been in discussion with this association
and has been told that due to  "anti-aquaculture"  policy in Alaska,  it is very
unlikely that any farming will occur in the near future.

Washington State contains two parties  interested  parties in sablefish farming.
The first is the  Makah  Tribe and the  second  is a private  company,  which is
trying to obtain  farming  permits  in Port  Angeles.  These  parties  have made
inquiries to Island Scallops for juvenile sablefish. However, to date, no orders
have been placed.

RESEARCH AND DEVELOPMENT

Due to changes in Canadian  Federal  Government's  Research and  Development tax
credits (SRED)  program,  which prevents any part of the research to be combined
with  commercial  production,  no Research and  Development  claims were made in
fiscal 2005 and 2006. Research did continue on the genetic selection of superior
strains of scallops,  as did developments in the culture process for both marine
algae and  developments  in  re-circulation  systems.  In the near future Island
Scallops  plans to conduct  research and  development  under a separate  company
called RKS  Laboratories  Ltd.,  which has no  commercial  production  and whose
primary goal is the genetic  improvement  in breeds of the Pacific  Scallops and
other marine species. We believe that this will allow the continued support from
the SRED program.

EMPLOYEES

At August 31, 2006, we had 25 full time employees.  We anticipate hiring between
10 and 15  temporary  workers  during the  upcoming  spring  and summer  growing
seasons.

None of our  employees  is  represented  by a labor  union and we  consider  our
relationships with our employees to be good.


ITEM 2.  DESCRIPTION OF PROPERTY


                                       14
<PAGE>


For the fiscal year ended August 31, 2006, our U.S. corporate office was located
at 400 Professional Drive, Suite 310,  Gaithersburg,  Maryland 20878. This space
was provided on a rent free basis by one of our shareholders.

Island  Scallops'  main  office and  hatcheries  are located on the east side of
Vancouver  Island  in the town of  Qualicum  Bay at 5552  West  Island  Highway,
Qualicum Beach,  British  Columbia,  Canada V9K 2C8. The shellfish  hatchery and
processing  facilities are housed in a 930 square meter  building.  A 600 square
meter sablefish  hatchery is also located at this site.  Corporate scallop farms
are  situated  along  the  east and  west  coasts  of  Vancouver  Island.  These
facilities  represent the largest private marine research hatchery and the first
fully integrated shellfish producer in Canada.

Island  Scallops has a total of seven farm sites  (including two joint ventures)
for  scallops.  Five of these farm sites are  located  at Island  Scallops  held
tenures  (shellfish  tenures  are  government-granted  rights  that allow use of
offshore waters to cultivate  shellfish).  Three of those five scallop farms are
located in Baynes  Sound,  25 minutes  north of the main  facility.  These farms
sites total  approximately  200 acres and can currently  accommodate more than 8
million scallops.  Approximately 30% of the farm area is currently being farmed.
As part of our expansion  plans, we are currently  adding  additional main lines
and plan to  increase  our  capacity  at these  tenures  to more than 24 million
scallops in the near future. An additional bottom tenure of 926 acres is located
10 minutes north of the main facility (at Bowser) and is capable of producing at
least 30  million  scallops  annually.  The final farm site on the west coast of
Vancouver  Island near  Tofino is capable of  producing  at least three  million
scallops,  although that site is currently  under-developed.  Baynes Sound,  the
marine waterway  situated between eastern Vancouver Island and the western shore
of  Denman  Island,  is  considered  the most  productive  and  highly  utilized
shellfish growing area in coastal British Columbia.  The area supports extensive
beach  culture  (manila  clams and  oysters) as well as  deepwater  culture that
produces oysters, scallops and some mussels.
--------------------- ------------------- ------------------- ------------------
  Common Site Name      Lands File No.           Acres               Type
--------------------- ------------------- ------------------- ------------------
       Denman               1406063              38.64             Deepwater
--------------------- ------------------- ------------------- ------------------
    Hindoo Creek            1406664             123.32             Deepwater
--------------------- ------------------- ------------------- ------------------
      Deep Bay              1406711               43               Deepwater
--------------------- ------------------- ------------------- ------------------
       Tofino               1406061               9.6              Deepwater
--------------------- ------------------- ------------------- ------------------
       Bowser               1407517               926            Bottom lease
--------------------- ------------------- ------------------- ------------------

The three  Baynes  Sound  tenures  (Denman,  Hindoo  Creek and Deep Bay) and the
Tofino tenure offer unique  features,  which will add additional  value to these
properties.  These include the split of tenures  between east and west shores of
Baynes  Sound as well as the east and west coast of Vancouver  Island,  allowing
continual   accessibility  to  shellfish   despite  managed  closures   (harvest
restrictions) due to incidental water quality or Paralytic  Shellfish  Poisoning
(PSP or red tide).  The seasonal  closures caused by short-term  bacteriological
contamination  related to rainfall and upland bacterial sources,  are limited to
the western  shore of the Baynes Sound and thus to only two of the three tenures
retained  by Island  Scallops.  The result of having  operating  tenures on both
sides of the Baynes  Sound  ensures that  product can be  continually  harvested
despite  closures  that may occur  within this  management  area.  The  expanded
tenures should easily  accommodate  our increasing  scallop  harvest in 2009 and


                                       15
<PAGE>

beyond.  At their  current size and with the  introduction  of  sufficient  main
lines, our tenures have the capacity to accommodate  approximately 13-15 million
scallops without any increase in their footprints.

Expansion of our Deep Bay and Hindo Creek has been  approved  and such  approval
does not need to be renewed for twenty  years.  We are  seeking  approval of our
Denman tenure and our Bowser bottom lease, which once approved, will allow us to
accommodate  30-50 million scallops at harvest.  The biggest hurdle to obtaining
the Denman tenure approval is the corresponding  re-zoning application that also
must be approved before we can expand the tenure.

Island Scallops'  location is a distinct advantage for producing marine species.
The waters off British Columbia are pristine and unspoiled by large  populations
or major  industries.  The close  proximity to major western cities allows us to
effectively put our products into the hands of the consumer within 24 hours.

The source of our raw material comes from our own hatchery  brood stock.  In the
case of the Pacific Scallop, we have been selectively  breeding this species for
superior  growth and  survival for the past 15 years.  The breeding  program has
produced a vigorous,  rapid growing,  disease resistant scallop with exceptional
meat yield.  In the case of sablefish we have been  selecting  fast growing fish
for the past 5 years, these display a high degree of domestication. The spawning
season  has been  extended  for  both of these  species  allowing  for  juvenile
production  almost  year  round.  This  ability  to hold seed  stock and  select
superior  strains gives Island  Scallops an advantage in the  industry.  It also
allows Island  Scallops to tailor its production to varying  seasonal and market
demands.


ITEM  3. LEGAL PROCEEDINGS

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

As of August  31,  2006,  one of the two  purchasers  had  claimed  that  Island
Scallops  owed it amounts  totaling  $88,925.  Since it is our position that the
purchasers breached their agreements with Island Scallops,  we have no intention
of  seeking a  settlement  of this  matter at this time.  We are  unaware of any
formal  proceedings  that  may have  been  commenced  by  either  of  these  two
purchasers in regard to any claims that they may have.

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

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

On July 16, 2006,  our Board of Directors  approved  increasing  our  authorized
capital by 50,000,000 shares of common stock, for a total of 100,000,000  shares
of common  stock,  and  amending our articles of  incorporation  accordingly.  A


                                       16
<PAGE>

majority of our shareholders  (67.87%) also approved,  by written consent,  this
action on July 16, 2006.


                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
         BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

The common  stock is currently  quoted on the  over-the-counter  Bulletin  Board
under the symbol "EDWT."

The  following  table sets forth the  quarterly  high and low bid prices for the
common stock since the quarter  ended  December  31, 2004.  The prices set forth
below  represent  inter-dealer  quotations,  without retail markup,  markdown or
commission and may not be reflective of actual transactions.

                                                        HIGH            LOW
                                                        ----            ---
  Quarter ended December 31, 2004                      $0.25          $0.25
  Quarter ended March 31, 2005                         $0.30          $0.25
  Quarter ended June 30, 2005                          $0.55          $0.30
  Quarter ended August 31, 2005                        $1.95          $0.52
  Quarter ended November 30, 2005                      $1.80          $1.45
  Quarter ended February 28, 2006                      $1.64          $1.10
  Quarter ended May 31, 2006                           $1.45          $0.80
  Quarter ended August 31, 2006                        $1.70          $1.20

At August 31,  2006,  the closing bid price of the common stock was $1.40 and we
had  approximately  49 record holders of our common stock.  This number excludes
any estimate by us of the number of  beneficial  owners of shares held in street
name, the accuracy of which cannot be guaranteed.

At November 27, 2006, the closing bid price of the common stock was $1.40 and we
had  approximately  46 record holders of our common stock and 13 record  holders
of our preferred stock. This number excludes any estimate by us of the number of
beneficial owners of shares held in street name, the accuracy of which cannot be
guaranteed.

Dividends

We have not paid cash  dividends on any class of common  equity since  formation
and we do not anticipate paying any dividends on our outstanding common stock in
the foreseeable future.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS


                                       17
<PAGE>


2005 Equity Incentive Plan

Our 2005 Equity  Incentive  Plan is intended to further our growth and financial
success by providing  additional  incentives to our  directors,  executives  and
selected  employees and  consultants  so that such  participants  may acquire or
increase their proprietary  interest in us. The term "Corporation" shall include
any parent corporation or subsidiary corporation of Edgewater as those terms are
defined  in Section  424(e) and (f) of the  Internal  Revenue  Code of 1986,  as
amended.  Stock options  granted under the Plan may be either  "Incentive  Stock
Options",  as defined in Code section 422 and any regulations  promulgated under
that  Section,  or  "Nonstatutory  Options"  at the  discretion  of our Board of
Directors and as reflected in the  respective  written  stock option  agreements
granted  pursuant to this Equity Plan.  Stock  Appreciation  Rights,  Restricted
Stock, Restricted Stock Unit, Performance Awards, Dividend Equivalents, or Other
Stock-Based Awards may also be granted under the Equity Plan. The Board believes
that the Equity Plan will maintain the flexibility  that Edgewater needs to keep
pace with its  competitors  and effectively  recruit,  motivate,  and retain the
caliber of employees, directors and consultants essential for achievement of our
success.

Individuals  eligible to receive awards under the Equity Plan include  officers,
directors,  employees of and  consultants to Edgewater and its  affiliates.  The
number of shares  available  under the Equity Plan shall be 5,000,000  shares of
our  common  stock,  as well as the  following:  As of  January 1 of each  year,
commencing  with the year 2006 and  ending  with the year  2008,  the  aggregate
number of Shares  available  for  granting  Awards  under the Equity  Plan shall
automatically  increase  by a number of Shares  equal to the lesser of (x) 5% of
the total  number of Shares then  outstanding  or (y)  1,000,000.  The Board may
distribute  those  shares in  whatever  form of award they so choose  within the
Equity Plan's  guidelines.  There are no  restrictions  on the amount of any one
type of award that may be granted under the Equity Plan.

As of August 31, 2006,  our Board of Directors  had granted  282,000  options to
employees,  directors  and  consultants  under the Equity Plan. As of August 31,
2006,  there  are  6  Directors,   2  executive  officers,  10  consultants  and
approximately  25 employees other than executive  officers,  who are eligible to
receive awards under the Equity Plan.

The Board may delegate a Committee to administer  the Equity Plan. The Committee
shall not  consist  of fewer than two  members,  each of whom is a member of the
Board and all of whom are disinterested  persons,  as contemplated by Rule 16b-3
promulgated  under the  Securities  Exchange Act of 1934, as amended and each of
whom is an outside  director for purposes of Section 162(m) of the Code,  acting
in accordance with the provisions of Section 3.
Currently, we do not have any definitive plans for granting further awards under
the Equity Plan and no determination has been made as to the number of awards to
be granted,  or the number or identity of recipients  of awards.  Had the Equity
Plan been in effect  last year,  the options  granted  under the 2004 Plan would
have been the awards granted under the Equity Plan.

AMENDING  THE  PLAN.  The Board  may  amend,  alter,  suspend,  discontinue,  or
terminate  the  Equity  Plan,  including,  without  limitation,  any  amendment,
alteration,  suspension,  discontinuation,  or termination that would impair the
rights of any  Participant,  or any other  holder  or  beneficiary  of any Award
theretofore granted, without the consent of any share owner, Participant,  other


                                       18
<PAGE>

holder or beneficiary of an Award, or other Person. The Board may also waive any
conditions  or rights  under,  amend any  terms  of, or amend,  alter,  suspend,
discontinue,  or terminate,  any Awards  theretofore  granted,  prospectively or
retroactively,   without  the  consent  of  any  Participant,  other  holder  or
beneficiary of an Award. Except as provided in the following sentence, the Board
is  authorized  to make  adjustments  in the terms and  conditions  of,  and the
criteria  included in, Awards in recognition of unusual or  nonrecurring  events
affecting the Company, any Affiliate, or the financial statements of the Company
or any Affiliate, or of changes in applicable laws,  regulations,  or accounting
principles,  whenever the Board determines that such adjustments are appropriate
in order to  prevent  dilution  or  enlargement  of the  benefits  or  potential
benefits to be made  available  under the Equity Plan.  In the case of any Award
that is intended to qualify as  performance-based  compensation  for purposes of
Section  162(m) of the Code,  the Board  will not have  authority  to adjust the
Award in any manner that would cause the Award to fail to meet the  requirements
of Section 162(m).

OPTIONS AND RIGHTS.  Options and Stock Appreciation  Rights may be granted under
the Equity Plan.  The exercise  price of options  granted shall be determined by
the Board or the  Committee;  provided,  however,  that such exercise  price per
Share under any Incentive  Stock Option shall not be less than 100% (110% in the
case of a "10-percent  shareholder as such term is used in Section  422(c)(5) of
the  Code)  of the  Fair  Market  Value  of a Share on the date of grant of such
Incentive  Stock  Option.  The  Board or  Committee  shall  fix the term of each
Option,  provided that no Incentive  Stock Option shall have a term greater than
10 years (5 years in the case of a "10-percent shareholder" as such term is used
in Section 422(c)(5) of the Code).

A Stock  Appreciation  Right  granted  under the Equity Plan shall confer on the
holder thereof a right to receive,  upon exercise thereof, the excess of (1) the
Fair  Market  Value of one  Share on the date of  exercise  or,  if the Board or
Committee  shall  so  determine  in the case of any such  right  other  than one
related to any  Incentive  Stock Option,  at any time during a specified  period
before or after the date of  exercise  over (2) the grant  price of the right as
specified by the Board or Committee. Subject to the terms of the Plan, the grant
price, term, methods of exercise, methods of settlement, and any other terms and
conditions of any Stock  Appreciation  Right shall be as determined by the Board
or the  Committee.  The Board and the  Committee  may impose such  conditions or
restrictions  on the  exercise  of any Stock  Appreciation  Right as it may deem
appropriate.

FEDERAL INCOME TAX CONSEQUENCES.  The current federal income tax consequences of
grants under the Equity Plan are generally  described below. This description of
tax  consequences  is not a complete  description,  and is based on the Internal
Revenue  Code as  presently  in effect,  which is subject to change,  and is not
intended  to be a complete  description  of the  federal  income tax  aspects of
options and stock awards under the Equity Plan. Accordingly, the discussion does
not deal with all  federal  income tax  consequences  that may be  relevant to a
particular  recipient,  or any  foreign,  state  or  local  tax  considerations.
Accordingly, potential recipients are urged to consult their own tax advisors as
to the specific federal,  foreign, state and local tax consequences to them as a
result of receiving an Award under the Equity Plan.

NONQUALIFIED  STOCK  OPTIONS.  A recipient will not be subject to federal income
tax upon the  grant of a  nonqualified  stock  option.  Upon the  exercise  of a
nonqualified stock option,  the recipient will recognize  ordinary  compensation


                                       19
<PAGE>

income in an amount  equal to the excess,  if any, of the then fair market value
of the shares  acquired over the exercise  price.  We will  generally be able to
take a deduction with respect to this compensation income for federal income tax
purposes.  The  recipient's  tax basis in the  shares  acquired  will  equal the
exercise price plus the amount taxable as compensation to the recipient.  Upon a
sale of the  shares  acquired  upon  exercise,  any  gain  or loss is  generally
long-term or short-term  capital gain or loss,  depending on how long the shares
are held. The required  holding  period for long-term  capital gain is presently
more than one year.  The  recipient's  holding  period for shares  acquired upon
exercise will begin on the date of exercise.

INCENTIVE  STOCK  OPTIONS.  A recipient  who receives  incentive  stock  options
generally  incurs no federal  income tax  liability at the time of grant or upon
exercise of the options.  However, the spread will be an item of tax preference,
which  may  give  rise to  alternative  minimum  tax  liability  at the  time of
exercise.  If the  recipient/optionee  does not dispose of the shares before the
date  that is two  years  from the date of grant  and one year  from the date of
exercise, the difference between the exercise price and the amount realized upon
disposition of the shares will constitute long-term capital gain or loss, as the
case may be. Assuming both holding  periods are satisfied,  no deduction will be
allowable to us for federal  income tax purposes in connection  with the option.
If,  within  two years of the date of grant or within  one year from the date of
exercise,  the holder of shares  acquired  upon  exercise of an incentive  stock
option disposes of the shares,  the  recipient/optionee  will generally  realize
ordinary  compensation  income  at the  time  of the  disposition  equal  to the
difference between the exercise price and the lesser of the fair market value of
the stock on the date of exercise or the amount realized on the disposition. The
amount  realized upon such a disposition  will generally be deductible by us for
federal income tax purposes.

STOCK AWARDS. If a recipient receives an unrestricted  stock award,  he/she will
recognize  compensation income upon the grant of the stock award. If a recipient
receives a restricted  stock award,  he/she normally will not recognize  taxable
income upon  receipt of the stock award until the stock is  transferable  by the
recipient or no longer subject to a substantial  risk of  forfeiture,  whichever
occurs earlier.  When the stock is either transferable or no longer subject to a
substantial risk of forfeiture, the recipient will recognize compensation income
in an amount  equal to the fair market value of the shares (less any amount paid
for such  shares) at that time.  A recipient  may,  however,  elect to recognize
ordinary compensation income in the year the stock award is granted in an amount
equal to the fair  market  value of the  shares  (less any  amount  paid for the
shares) at that time,  determined  without regard to the  restrictions.  We will
generally be entitled to a corresponding  deduction at the same time, and in the
same amount, as the recipient  recognizes  compensation income with respect to a
stock  award.  Any gain or loss  recognized  by the  recipient  upon  subsequent
disposition of the shares will be capital gain or loss.

TAX DEDUCTIBILITY  UNDER SECTION 162(M).  Section 162(m) of the Internal Revenue
Code disallows a public company's deductions for employee compensation exceeding
$1,000,000  per year for the chief  executive  officer  and the four  other most
highly compensated executive officers.  Section 162(m) contains an exception for
performance-based compensation that meets specific requirements. The Equity Plan
is intended to permit all options to qualify as  performance-based  compensation
at the Board of Directors or Committee's  discretion.  If an Award is to qualify
as such, it shall clearly state so in the award agreement.


                                       20
<PAGE>

<TABLE>

<CAPTION>


WITHHOLDING.  We have the right to deduct any taxes required to be withheld with
respect to grants under the Equity Plan. We may require that the participant pay
to us the amount of any required  withholding.  The  Compensation  Committee may
permit the participant to elect to have withheld from the shares issuable to him
or her with respect to an option or restricted stock the number of shares with a
value equal to the required tax withholding amount.


The following  table provides  information as of August 31, 2006 with respect to
compensation plans (including individual compensation  arrangements) under which
our securities are authorized for issuance:

------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan Category                   Number of securities to be   Weighted average exercise    Number of securities
                                issued upon exercise of      price of outstanding         remaining available for
                                outstanding options,         options, warrants and        future issuance under
                                warrants and rights          rights                       equity compensation plans
                                                                                          (excluding securities
                                                                                          reflected in column (a))

                                (a)                           (b)                         (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                                                                             <C>       <C>

Equity    Compensation   plans
approved by security holders              282,000                       $1.50                     5,718,000*
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity  compensation plans not
approved by security holders                 N/A                          N/A                          N/A
------------------------------- ---------------------------- ---------------------------- ----------------------------
Total                                     282,000                       $1.50                      5,718,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>


*As of January 1 of each year, commencing with the year 2006 and ending with the
year 2008, the aggregate  number of shares  available for granting  Awards under
the Equity Plan shall automatically  increase by a number of Shares equal to the
lesser  of (x)  5% of  the  total  number  of  Shares  then  outstanding  or (y)
1,000,000.


RECENT SALES OF UNREGISTERED SECURITIES

To  accomplish  the Share  Exchange  with  Edgewater,  we issued an aggregate of
19,000,000  shares  of  common  stock  in  exchange  for all of the  issued  and
outstanding capital stock of Edgewater.  The shares were issued to 17 accredited
investors  pursuant to the exemption from registration  provided by Section 4(2)
of the Securities Act for issuances not involving any public offering.

In October  2005,  we engaged  Aurelius  Consulting  to  provide  marketing  and
investor  relations  services.  The initial  term of the  agreement is one year.
Aurelius is entitled to receive  100,000 shares of our  restricted  common stock
during the term of its agreement  (25,000 per  quarter),  in  consideration  for
their services. The shares were valued at $1.45 per share, the closing bid price


                                       21
<PAGE>

for  shares of our common  stock on the date of the  contract.  The shares  were
issued in accordance with the exemption from the registration  provisions of the
Securities  Act of 1933,  as amended,  provided by Section  4(2) of such Act for
issuances not involving any public offering.

On October 21, 2005 and November 11, 2005, our board approved issuing a total of
25,000  shares of our common  stock to The Shemano  Group,  LLC for  preparing a
research  report for us. The shares were valued at $1.50 per share,  the closing
market bid of our common  stock on the date of the  resolution.  The shares were
issued in accordance with the exemption from the registration  provisions of the
Securities  Act of 1933,  as amended,  provided by Section  4(2) of such Act for
issuances not involving any public offering.

On January 31, 2006, we issued 400,000 shares of our restricted  common stock to
World Wide Mortgage as consideration  for agreeing to extend the due date for us
to repay our CDN  $1,500,000  loan pursuant to the bridge loan  agreement  dated
November 9, 2004 and amended on April 15,  2005  between us and World Wide.  The
shares  have  piggy-back  registration  rights that  require us to register  the
shares in our next registration  statement.  The shares were valued at $1.30 per
share,  the  closing  bid price for  shares of our  common  stock on the date we
issued the shares.  The shares were issued in accordance with the exemption from
the registration provisions of the Securities Act of 1933, as amended,  provided
by Section 4(2) of such Act for issuances not involving any public offering.

Pursuant to the  financings  we closed on April 12, May 30, June 30 and July 11,
2006, we issued an aggregate of 30,905,619  shares of our preferred  stock.  The
shares were issued to 10 accredited  investors  pursuant to the  exemption  from
registration  provided by Section 4(2) of the  Securities  Act for issuances not
involving any public offering.

On June 30,  we issued  22,860  shares  of  common  stock to the two  accredited
investors  of our  April  12 and May  30,  2006  financings  as  payment  of the
semi-annual  dividend  (8%  per  annum)  per the  terms  of the  Certificate  of
Designation of the Relative  Rights and  Preferences of the Series A Convertible
Preferred Stock. The dividend shares were issued to these investors  pursuant to
the exemption from  registration  provided by Section 4(2) of the Securities Act
for issuances not involving any public offering.


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

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


                                       22
<PAGE>


OVERVIEW

In the second  quarter of 2006,  we  started  harvesting  our 2004 year class of
scallops and began  inspecting  our 2005 year class of scallops as we prepare to
begin moving these  scallops to their final grow-out stage in the second half of
2006.  We refer to the  year-class  of scallops  based on when the scallops were
spawned.  Generally,  the harvest  occurs  approximately  22 to 24 months  after
spawning of the  scallops.  Originally,  we planned to ear-hang  our entire 2005
scallop crop,  but after  inspection of growth rates of the 2004 ear-hung  crops
and an analysis of labor costs of ear-hanging versus the cost of additional nets
we decided to use nets for the final grow-out stage of the 2005 crop.

In October 2005,  we installed  twenty new longlines at our Hindoo Creek scallop
farm in Baynes Sound (1). Each longline is 108 yds (324 feet) long and submerged
at  approximately  25 ft  depth.  In July  2006,  we  received  approval  for an
additional 23 longlines.  The October and July additions  bring the tenure up to
its  management  plan of 67. At harvest,  each new  longline has the capacity to
hold 90,000  scallops in final  stage  grow-out  nets,  thereby  increasing  the
production of this farm to 6 million scallops. Additionally, the Deep Bay tenure
has been expanded to 32 longlines, which has the capacity to hold 2.8 million at
harvest.

In the fourth  quarter of 2006, we  transferred  our 2005  year-class  scallops,
which  had  been  maturing  in our  tenured  growing  sites  and  joint  venture
locations,  to final stage large grow-out nets on our farm sites.  We anticipate
commencing  harvesting up to approximately four million 2005 year-class scallops
during April of 2007. The 2006 year-class  scallop  spawning season commenced in
March  of 2006  and  was  completed  in  April  2006.  The  scallop  brood-stock
conditioning  for these spawning began in mid-December  2005. We expect to begin
harvesting the 2006 year-class  scallops during the Spring of 2008,  however, we
could begin  harvesting  portions  of the class  sooner if  mortality  rates (at
various  points of the growth cycle) are  significantly  better than our current
projection or if growth rates are  substantially  higher.  We anticipate that of
the over 350 million larvae that were spawned  during the 2006 spawning  season,
at least 10 million  scallops  could reach full  maturity and thus be harvested.
During the fourth  quarter of 2006,  we began  moving the 2006 scallop crop from
the  onshore  ponds at our harvest  facility  into  grow-out  nets at our tenure
sites.  This transfer will continue during the first quarter of 2007. The use of
DNA based family analysis  started in 2005 will continue  through 2006, with the
goal of breeding high meat yield scallops.

As a result of the above, we believe that the 2005 scallop-class will produce at
least $5.5 million of revenue  over a twelve month period  beginning in April of
2007. We anticipate  that the harvest of our 2006 scallop class will  eventually
result in total  revenue of at least $14.0  million over the twelve month period
beginning  in April  2008.  If our  mortality  rates are better than our current
projections,  our revenues from the 2005 and 2006 scallop class could be higher,
however,  conversely,  if our mortality  rates are worse than we anticipate  our
revenues  for this period could be lower than we  anticipate.  In the near term,
the sales of the remainder of our 2004 scallop  class  between  October 2006 and
March  2007  are   expected  to  produce  more  the  $1.0  million  of  revenue.
Additionally,  we plan on generating additional revenues via the sale of scallop
and possibly other shellfish seed.


                                       23
<PAGE>


LIQUIDITY AND CASH RESOURCES

At August 31, 2006, we had a cash balance of approximately $1,817,000. We expect
to achieve  operating  positive cash flow in 2007. During the year ending August
31, 2006 we  completed  four  private  equity  financings  that  resulted in net
proceeds of approximately $5,140,000. These financings contain warrants which if
fully  exercised  could  raise  approximately  an  additional  $34,350,000.  The
exercise of the warrants is, however, to a large extent dependent upon the price
of our stock in the public market.  As a result, we cannot guarantee when any of
the warrants  will be exercised,  if at all and, as a result,  the proceeds from
the  exercise  of the  warrants  may not be  available  to us should we  require
additional  financing or ever.  Prior to the three months third quarter of 2006,
our recent expansion had been largely funded by a short term note with a maximum
limit of approximately $1,451,000. Previously, we have also relied on short term
loans from certain  shareholders to assist with our working capital needs and to
meet short  term cash  requirements.  We used a portion  of our  recent  private
equity  financing  to repay  these short term loans and as a result we have been
able to deploy the bulk of the proceeds from our  financing  toward our business
strategy.


SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying  consolidated  financial statements include the accounts of the
acquired  entities since their respective dates of acquisition.  All significant
inter-company amounts have been eliminated.

Cash and equivalents

Cash and equivalents  include cash, bank  indebtedness,  and highly liquid short
term market  investments  with terms to maturity  of three  months or less.  The
Company considers all highly liquid  investments with original  maturities of 90
days or less to be cash  equivalents.  The Company  maintains  its cash balances
primarily in on financial  institution,  which exceeded federally insured limits
by $1,653,378 at August 31, 2006. The Company has not experienced any losses, in
such accounts and believes it is not exposed to any  significant  credit risk on
cash and cash equivalents.

Accounts receivable

Accounts  receivable is presented net of allowance  for doubtful  accounts.  The
allowance  for  doubtful  accounts  reflects  estimates  of  probable  losses in
accounts  receivable.  The allowance is determined based on balances outstanding
for over 90 days at the period end date, historical experience and other current
information.

Loans receivable

Loans receivable is presented net of an allowance for loan losses, as necessary.
The loans are written off when collectibility becomes uncertain.


                                       24
<PAGE>


Inventory

We maintain  inventories  of raw  materials  for our  aquaculture  products,  of
biomass (inventory of live aquaculture product being actively  cultivated),  and
of finished goods (aquaculture product ready for sale).

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

Long term investments

Long  term   investments  are  recorded  at  cost.  We  review  our  investments
periodically to assess whether there is an "other than temporary" decline in the
carrying value of the investment.  We consider whether there is an absence of an
ability  to  recover  the  carrying  value of the  investment  by  reference  to
projected  undiscounted  future cash flows for the investment.  If the projected
undiscounted future cash flow is less than the carrying amount of the asset, the
asset is deemed  impaired.  The  amount of the  impairment  is  measured  as the
difference between the carrying value and the fair value of the asset.

Property, plant, and equipment

Property,   plant,   and  equipment  are  recorded  at  cost  less   accumulated
amortization and are amortized in the following manner based on estimated useful
lives:

         Buildings                                   4% - 5% declining balance
         Seawater piping and tanks                   6% declining balance
         Boats                                       15% declining balance
         Field equipment                             20% declining balance
         Office equipment                            20% declining balance
         Vehicles                                    30% declining balance
         Computer equipment                          30% declining balance

Impairment of long-lived assets

We monitor the  recoverability  of  long-lived  assets,  including  property and
equipment and  intangible  assets,  based upon  estimates  using factors such as
expected future asset utilization, business climate, and undiscounted cash flows
resulting  from the use of the related  assets or to be  realized  on sale.  Our
policy is to write down assets to the estimated net recoverable  amount,  in the
period in which it is  determined  likely that the carrying  amount of the asset
will not be recoverable.

Government assistance

Government assistance we receive, such as grants, subsidies, and tax credits, is
recorded as a recovery of the appropriate related expenditure in the period that
the assistance is received.


                                       25
<PAGE>


We have received government assistance in the form of loans, for which repayment
is may not be required if we fail to meet  sufficient  future  revenue levels to
repay these loans based on a percentage of gross sales for certain products over
a defined  period of time.  If we receive any such  assistance,  it is initially
recorded as a liability,  until such time as all conditions for  forgiveness are
met, and is then recognized as other income in that period.

Farm license costs

We must pay annual license costs in respect to  government-granted  tenures that
it holds,  which give us the right to use certain  offshore ocean waters for the
purpose of aquaculture farming.  Such license costs are recognized as an expense
when incurred.

Research and development costs

Development costs include costs of materials, wages, and reasonably attributable
indirect costs incurred by us which are directly attributable to the development
of hatchery  techniques  for sablefish and  shellfish,  these costs are expensed
when incurred.

Research costs are expensed when incurred.

Income taxes

We calculate  our provision  for income taxes in  accordance  with  Statement of
Financial  Accounting  Standards  No. 109  (Accounting  for Income Taxes) ("SPAS
109"),  which requires an asset and liability  approach to financial  accounting
for income  taxes.  This  approach  recognizes  the  amount of taxes  payable or
refundable for the current year, as well as deferred tax assets and  liabilities
attributable  to  the  future  tax  consequences  of  events  recognized  in the
financial  statements  and tax  returns.  Deferred  income taxes are adjusted to
reflect the effects of enacted changes in tax laws or tax rates. Deferred income
tax assets are recorded in the financial statements if realization is considered
more likely than not.

Revenue recognition

We recognize revenue when it is realized or realizable,  and earned. We consider
revenue realized or realizable and earned when there is persuasive evidence of a
contract,  the product has been  delivered or the services have been provided to
the customer,  the sales price is fixed or determinable,  and  collectibility is
reasonably assured.

Our  revenue  is derived  principally  from the sale of  scallops  we produce or
purchase  from third  parties,  and from the sale of seed and farm  supplies  to
other aquaculture farms.

Financial instruments

The carrying amount of our financial  instruments,  which include cash, accounts
receivable,  loans receivable,  bank indebtedness,  accounts payable and accrued


                                       26
<PAGE>

liabilities,  short term debt and long term debt  approximate  fair value. It is
management's  opinion that the Company is not exposed to  significant  interest,
currency  or  credit  risk  arising  from  these  financial  instruments  unless
otherwise noted.

Derivative financial instruments

In connection with the sale of debt or equity  instruments,  we may sell options
or  warrants to  purchase  our common  stock.  In certain  circumstances,  these
options or warrants may be classified as derivative liabilities,  rather than as
equity.  Additionally,  the debt or  equity  instruments  may  contain  embedded
derivative instruments,  such as embedded derivative features,  which in certain
circumstances  may  be  required  to be  bifurcated  from  the  associated  host
instrument and accounted for separately as a derivative instrument liability.

We account for all derivatives financial instruments in accordance with SFAS No.
133.  Derivative  financial  instruments  are  recorded  as  liabilities  in the
consolidated  balance  sheet,  measured at fair value.  When  available,  quoted
market  prices are used in  determining  fair value.  However,  if quoted market
prices are not  available,  we estimate  fair value using either  quoted  market
prices of financial instruments with similar  characteristics or other valuation
techniques.

The  identification of, and accounting for,  derivative  instruments is complex.
Our derivative instrument liabilities are re-valued at the end of each reporting
period,  with changes in the fair value of the derivative  liability recorded as
charges  or credits to income,  in the period in which the  changes  occur.  For
options, warrants and bifurcated embedded derivative features that are accounted
for as derivative  instrument  liabilities,  we estimate fair value using either
quoted market prices of financial  instruments with similar  characteristics  or
other valuation techniques. The valuation techniques require assumptions related
to the remaining  term of the  instruments  and risk-free  rates of return,  our
current  common  stock  price and  expected  dividend  yield,  and the  expected
volatility  of  our  common  stock  price  over  the  life  of the  option.  The
identification   of,  and  accounting  for,   derivative   instruments  and  the
assumptions  used  to  value  them  can   significantly   affect  our  financial
statements.

Derivative  financial  instruments  that are not designated as hedges or that do
not meet the  criteria for hedge  accounting  under SFAS No. 133 are recorded at
fair value, with gains or losses reported currently in earnings.  All derivative
financial  instruments  held by us at August  31,  2006 were not  designated  as
hedges.

Foreign exchange

The  functional  currency  of our  foreign  subsidiaries  is the  local  foreign
currency.  All assets and  liabilities  denominated  in foreign  currencies  are
translated  into U.S.  dollars at the exchange  rate  prevailing  on the balance
sheet date.  Revenues,  costs and expenses are  translated  at average  rates of
exchange prevailing during the period.  Translation  adjustments  resulting from
translation  of  the  subsidiaries'  accounts  are  accumulated  as  a  separate
component  of  shareholders'  equity.  Gains and losses  resulting  from foreign
currency transactions are included in the consolidated  statements of operations
and have not been significant.


                                       27
<PAGE>


Use of estimates

The  preparation  of financial  statements  in  conformity  with U.S.  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect the reported amounts of assets,  liabilities,  revenues,
expenses and  disclosure of contingent  assets and  liabilities.  Such estimates
include  providing for  amortization  of property,  plant,  and  equipment,  and
valuation of inventory. Actual results could differ from these estimates.

OFF-BALANCE SHEET ARRANGEMENTS

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

INVESTMENTS IN TENURES AS COMPARED TO ESTIMATED MARKET VALUE OF TENURES

We currently carry our investment in Island  Scallops'  tenures at $3,609.  This
amount  represents  the initial  carrying costs of certain  tenures  acquired by
Island  Scallop's  subsidiary.  These  tenures do not expire until various dates
ranging  from 2021 - 2024,  however,  we  believe  that they have an  indefinite
useful life because renewal on expiration is anticipated. The area available for
shellfish  aquaculture within Baynes Sound is fully subscribed,  and as a result
new tenures are not available  through the Canadian  Provincial  application and
review  process.  The  shellfish  companies  within  the  Sound  are  also  well
established  and sales of tenures are quite rare,  making the  assessment of the
market value for the Island Scallops  tenures  difficult.  Historical  sales and
government  auction of tenures  have  received as much as  $300,000  (CDN) for a
small beach tenure  (less than 4 acres) and $65,000  CDN) for a small  deepwater
tenure without  infrastructure.  The few tenures on the market over the previous
12 months  suggest  that the current  market value is  approximately  $10,000 to
$25,000  (CDN) per acre.  Based on  listings  of tenures on the coast of British
Columbia,  discussions with local shellfish  growers and individuals from the BC
Assets and Land  Corporation,  and an  independent  appraisal  (commissioned  by
Island Scallops) that recently  estimated the value of our roughly 1018 acres of
tenures, the value is estimated to be approximately  $8,600,000. If the proposed
expansion of two of our tenures is approved,  the estimated  market value of our
overall  tenures would  increase to roughly  $10,600,000.  The estimated  market
value is based on the size,  location and whether they are beach or deepwater in
nature.  However, given the variable nature of the shellfish tenures market, the
actual value that we receive from the sale of a tenure or a partial tenure could
vary significantly from these estimated values.

Although we cannot determine the exact amount we would  ultimately  receive from
the sale of our tenure(s),  based upon the information stated above we expect to
receive more than the carrying cost ($3,609)  from such sale.  Accordingly,  the
carrying  cost of our tenures is not  indicative  of their  actual  value.  This
analysis   indicates  our  cash  generating   capabilities   after   considering
investments  in capital  assets  necessary  to  maintain  and  enhance  existing
operations.

COMPARISON  OF RESULTS FOR THE FISCAL YEAR ENDED AUGUST 31, 2006,  TO THE FISCAL
YEAR ENDED AUGUST 31, 2005.


                                       28
<PAGE>


Revenues. Revenues for the fiscal year ended August 31, 2006, were approximately
$528,000.  We had revenues of  approximately  $316,000 for the fiscal year ended
August 31,  2005.  This is an increase  of  approximately  $212,000 or 67%.  The
increase  in our  revenue  was mainly the result an  increase in oyster seed and
scallop seed sales. As was the case in 2005,  management  continued its emphasis
on the  development  and  production  of  larger  2005 and 2006  scallop  crops.
Management  believes that our emphasis on expansion of future crops will yield a
significant increase in revenues starting in 2007 and beyond.

Gross  profit  (loss).  Gross  loss for the year  ended  August  31,  2006,  was
approximately  $48,000, a decrease of approximately  $3,000 as compared to gross
loss of roughly $51,000, for the year ended August 31, 2005. The slight decrease
in the  amount  of  gross  loss  for  2006 (as  compared  to  2005)  was  mainly
attributable to management's continued focus on the expansion and development of
larger  scallop crops and larger scallop yields for the crop year 2005 and 2006.
We continued to focus resources on the  maintaining,  developing and tending our
scallop  crops in 2005 and 2006 and believe that we will begin  seeing  benefits
from our efforts in  developing  larger  crops as early as the first  quarter of
2007.

General and administrative.  General and administrative  expenses for the fiscal
year ended  August 31,  2006,  were  approximately  $653,000.  Our  general  and
administrative  expenses were  approximately  $221,000 for the fiscal year ended
August 31,  2005.  This is an increase of  approximately  $432,000 or 195%.  Our
increase in general and  administrative  expenses  for the year ended August 31,
2006 were  attributable to costs  associated with  establishing,  building,  and
supporting our  infrastructure  and included various consulting costs, legal and
accounting fees compensation  paid as result of our recent financing,  overhead,
realized stock  compensation  and salaries.  We anticipate  that these costs may
continue to rise as we continue to expand our operations.

Stock compensation expense.  During the year ended August 31, 2006, we had stock
compensation  expense  of  approximately  $183,000.  The  expense  was  for  two
consulting groups who would provide services to us. As such, we incurred a stock
compensation  expense of approximately  $183,000 for year ended August 31, 2006.
During the year ended August 31, 2005,  our Board of  Directors  authorized  the
issuance of shares of our  restricted  common stock to an  individual  who would
provide services to Edgewater.  Based upon the common stock trading price at the
times of issuance,  and FASB rules, we were required to incur non-cash  expenses
for the issuance of stock of  approximately  $10. Since these shares were issued
by Edgewater in June 2005 prior to the share exchange,  these shares were valued
based on the par value, $0.0001 of the stock at time of issuance and we recorded
a $10 stock  compensation  expense for the issuance of these  shares  during the
year ended August 31, 2005.

Other income (expense), net. Interest expense for the year ended August 31, 2006
was approximately $696,000. Interest expense for the year ending August 31, 2005
was  approximately  $81,000.  The  increase in  interest  expense was due to the
issuance of common stock for the extension of the due date of debt. Other income
for the year ended August 31, 2006 was approximately $45,000 as opposed to other
income  of  approximately  $2,600  for the  year  ending  August  31,  2005.  We
recognized a loss of approximately $2,666,000 which was related to the change in
the fair value of warrants issued to 10 institutional  and accredited  investors
in conjunction with preferred stock financings on April 12, May 30, June 30 and


                                       29
<PAGE>

July 11 and the market price of the common  stock  underlying  such  warrants at
August 31, 2006. No such loss was recorded for the year ended August 31, 2005.

As a result,  other expense for the year ended August 31, 2006 was approximately
$3,316,000  as compared to other expense of  approximately  $78,000 for the year
ended August 31, 2005. This increase was primarily attributed to loss associated
with the change in fair  value of the  recently  issued  warrants  and  interest
expense related to the extension of a former bridge financing loan.

Net profit  (loss).  As a result of the  above,  the net loss for the year ended
August 31,  2006,  was  approximately  $4,200,000  as  compared to a net loss of
approximately $350,000 for the year ended August 31, 2005.

                                  RISK FACTORS

You  should  carefully  consider  the risks  described  below  before  making an
investment in us. All of these risks may impair our business operations.  If any
of the following  risks  actually  occurs our business,  financial  condition or
results of operations could be materially adversely affected.  In such case, the
trading price of our common stock could decline, and you may lose all or part of
your investment.

RISKS RELATING TO AQUACULTURE

We are subject to a number of biological and environmental risks.

Our  business  would be  adversely  affected if our scallop  crop is infected by
Perkinsus Quagwadi.  Perkinsus affects a variety of scallops. In 1992, mortality
due to Perkinsus infection was large and mortality was high, but Island Scallops
was able to overcome this disease by breeding the remaining  stock.  Eight years
of successfully breeding hardy individuals resulted in the remaining populations
of scallops being Perkinsus-free. Although there is a chance that other diseases
may occur,  the Island Scallops hybrid scallop has proven resistant to Perkinsus
disease for the last ten years.

Paralytic  Shellfish  Poisoning  (PSP or Red Tide)  could  limit  the  amount of
scallops available for sale.

Paralytic  Shellfish Poisoning (PSP or red tide) is another concern when farming
scallops.  The  adductor  muscle can be  processed  for sale to the  traditional
scallop  meat market even when there is a PSP  closure.  On the other hand,  the
live animal  market is stopped by PSP  toxicity.  Sewage  Contamination  (faecal
coliform) is also  monitored by the Canadian  Food  Inspection  Agency (CFIA) to
avoid this  problem.  These types of  contaminants  do not threaten the crop, it
only causes a temporary  displacement  to the  marketing of the product.  Island
Scallops'  aquaculture  is not without  total  risk;  however,  the  development
program over the last decade has reduced the risk of disease and  increased  the
historical grow-out survival rate to 95% over the past six years.  Despite these
advances,  however,  an  outbreak  of  PSP,  even if it did  not  affect  Island
Scallops'  stock,  could have a  depressive  effect on the  shellfish  market in
general, which could then adversely affect our business.


                                       30
<PAGE>


Aquaculture  and  scallop  farming is  subject  to a variety of general  disease
risks.

Bacteria are almost always  associated with  mortalities in the larval stages of
growth.  Control  of  disease  outbreaks  in the  hatchery  consists  of regular
inspection,  growth rates, color and larvae is checked for proper shape.  Proper
hygiene  practices  within the hatchery  minimize  problems  with  Bacteria.  In
general,  scallops are harder to handle and transport and care needs to be taken
when moving  them.  Scallops  can develop a stress  related  disease that can be
avoided by proper handling  conditions  such as temperature,  moisture rates and
time before getting back in the water (maximum time being 24 hours).

Boring sponges and worms can adversely impact our scallop yield.

Boring sponges and worms are organisms  that make holes in the scallop's  shell,
weakening it and  requiring the scallop to make  repairs.  Secreting  additional
layers of shell material to mend these holes directs energy away from growth and
maintenance of the scallop. In cases of severe infestation,  the adductor muscle
may be reduced in weight by up to 50%, and the meat may be discolored.

Our  business  would be  adversely  affected if our scallop  crop is infected by
flatworm.

Flatworms  can be  devastating,  destroying  all seed  within  2  weeks.  Island
Scallops  has managed to minimize  this  problem  and keep  mortalities  down by
keeping the seeds in the pond a little longer so it becomes  larger,  making the
time  spent in the first net  culture  less.  We then move the seeds to a larger
mesh net culture,  which  causes the  flatworms to fall off and no longer pose a
problem. This husbandry technique alleviates the problem to a large degree.

Scallops  raised in the open ocean are  subject to a variety of  predators  that
could adversely impact crop yield.

Starfish are a major predator of scallops,  particularly in bottom  culture.  If
the hanging  techniques are far enough from the bottom,  even during extreme low
tides,  then this  does is not  problematic.  Since  starfish  and crabs  have a
free-swimming  larval  stage as part of their life cycle,  it is  possible  that
these larvae can settle within the "grow-out"  nets and settle there and prey on
these scallops.  However,  with proper husbandry techniques these effects can be
minimized.

Our  business  would be  adversely  affected if a majority  of our scallop  crop
experiences fouling.

Fouling  is  caused  by  settlement  and  growth of  several  organisms  such as
macroalgae,  bryozoans,  barnacles  and  mussels on the nets.  Heavy  fouling of
culture nets and scallops  impedes  growth of the  scallops.  Since most fouling
occurs in  shallower  waters,  hanging  scallops  at deeper  depths  can  reduce
fouling. If culture systems are managed properly, fouling is not a problem.

Aquaculture can be subject to a variety of growing conditions that can adversely
affect product growth and development.


                                       31
<PAGE>


Certain  growing  conditions  and sea  conditions  can  affect the  quality  and
quantity  of  scallops  produced,  decreasing  the  supply of our  products  and
negatively impacting  profitability.  Extreme wave actions tend to make scallops
seasick.  In cases of extreme  seasickness,  scallops stop feeding and growth is
reduced.  This may create  mortality by  weakening  the scallops and making them
susceptible to other problems and diseases. Currently, the water leases owned by
Island  Scallops  are  located  in  areas  where  this  will  prove  to be  less
problematic.  Additionally,  if other environmental  conditions are unfavorable,
growing  conditions in the ocean can greatly inhibit  scallop growth.  Generally
this  risk is  mitigated  by  year-to-year  variations  in  growing  conditions.
However, we cannot guarantee that we will not be negatively  affected,  at least
in the short term, if we experience poor growing conditions.

Increased mortality rates would adversely impact our business.

In general,  increased  mortality rates in juveniles are due to improper feeding
and hatchery  husbandry.  Once scallops are  introduced to the ocean,  increased
mortality  rates are  caused by the above  factors  as well as  fluctuations  in
salinity and currents.  Given the location of Island  Scallops'  current farming
areas, the salinity and currents should not be problematic.  Mortality rates can
also increase due to  overcrowding  problems.  In cases of extreme  overcrowding
scallops actually bite each other and their shells become damaged.

If we are unable to expand our tenures, our projected production may be delayed.

To  increase  our  production  capacity,  we must expand our  tenures.  However,
expanding tenures requires government approval, which can be a timely and costly
process.  Two of our tenures,  Hindoo Creek and Deep Bay, have been approved for
expansion.  Our Denman tenure must be re-zoned before expansion  thereof will be
approved and our Bowser bottom lease Management Plan must be reconfigured before
expansion of that area is approved. Although we are confident that such approval
will be granted after issues raised by local  residents and  fisherman,  such as
the use of surface  floats for our longlines  have been  addressed,  there is no
guarantee that it will be granted.  In the future, we will seek expansion of our
other  tenures,  which also may not be granted.  If we do not receive  expansion
approval  for our  Denman  tenure  and Bowser  bottom  lease,  it will delay our
proposed expansion.

BUSINESS RISKS

We will require additional capital to fund our current business plan.

Our success is dependent on future financings. The aquaculture or marine farming
industry is a  capital-intensive  business,  which requires  substantial capital
expenditures  to develop  and  acquire  farms and to  improve or expand  current
production.  Further,  the farming of marine life and  acquisition of additional
farms may require  substantial  amounts of working capital.  We project the need
for significant capital spending and increased working capital requirements over
the next several years. There can be no assurance that we will be able to secure
such financing on terms, which are acceptable,  if at all. The failure to secure
future  financing with favorable  terms could have a material  adverse effect on
our business and operations.

We are dependent on certain key existing and future personnel.


                                       32
<PAGE>


Our success will depend,  to a large  degree,  upon the efforts and abilities of
our officers and key management employees such as Mr. Saunders, Mr. Bruce Evans,
Ms. Patti  Greenham and Ms. Leslie  Chapman.  The loss of the services of one or
more of these or other key employees could have a material adverse effect on our
operations.  We currently  maintain key man life insurance on Mr. Saunders for a
value of $1,000,000.  We also have an employment agreement with Mr. Saunders. We
do not maintain key man  insurance  for,  nor do we  currently  have  employment
agreements  with, any of our other key employees.  In addition,  as our business
plan is implemented,  we will need to recruit and retain  additional  management
and key employees in virtually all phases of our operations.  Key employees will
require a strong background in the marine aquaculture industry. We cannot assure
that we will be able to successfully attract and retain key personnel.

The fact that our  directors and officers own  approximately  49% of our capital
stock  and 68% of our  voting  capital  stock may  decrease  your  influence  on
shareholder decisions.

Our  executive  officers  and  directors,  in the  aggregate,  beneficially  own
approximately 49% of our capital stock and 68% of our voting capital stock. As a
result,  our officers  and  directors,  will have the ability to  influence  our
management and affairs and the outcome of matters  submitted to shareholders for
approval,  including  the election and removal of  directors,  amendments to our
bylaws and any merger,  consolidation or sale of all or substantially all of our
assets.

Our acquisitions and potential future acquisitions involve a number of risks.

Our potential future  acquisitions  involve risks  associated with  assimilating
these  operations  into our company;  integrating,  retaining and motivating key
personnel;   integrating   and  managing   geographically-dispersed   operations
integrating the technology and infrastructures of disparate entities;  and risks
inherent in the husbandry and farming of marine species.

We may have difficulty  competing with larger and  better-financed  companies in
our sector.

In  general,  the  aquaculture  industry  is  intensely  competitive  and highly
fragmented. Many of our competitors have greater financial, technical, marketing
and public  relations  resources than we presently have. Our sales may be harmed
to the  extent we are not able to  compete  successfully  against  such  seafood
producers.

Contamination of our seafood would harm our business.

Because our products are designed for human consumption, our business is subject
to  certain  hazards  and  liabilities   related  to  food  products,   such  as
contamination.  A discovery of  contamination  in any of our  products,  through
tampering  or  otherwise,  could  result in a recall of our  products.  Any such
recall would significantly  damage our reputation for product quality,  which we
believe is one of our principal competitive assets, and could seriously harm our
business  and sales.  Although we maintain  insurance  to protect  against  such
risks,  we may not be able to maintain such  insurance on  acceptable  terms and
such insurance may not be adequate to cover any resulting liability.


                                       33
<PAGE>


We may experience  barriers to conducting  business due to potential  government
regulations.

There are no  hatchery/producer  competitors in the scallop farming  business in
British  Columbia.  The United  States will not allow the farming of the species
farmed by Island  Scallops in their  waters,  as this species is  considered  an
"exotic".  It is unlikely that the Canadian  government would decide to regulate
this species like the United States does (as the Canadian  government  developed
the technology) however if it does, this would have a material adverse affect on
our business.

Our business may be adversely affected by price volatility.

If market prices for Island Scallops' products decrease, we will incur a loss of
profits.  However,  our operational  costs will increase because we will have to
produce the same quantity to meet the current demand, which will decrease profit
margin. This form of price volatility would be detrimental for our business.

Foreign exchange rates risks, political stability risk, and/or the imposition of
adverse trade regulations could harm our business.

We conduct some of our business in foreign currencies. Our profitability depends
in part on revenues  received in United States dollars as a result of sales into
the United  States.  A decline in the value of the United States dollar  against
the Canadian  dollar would  adversely  affect  earnings from sales in the United
States.  As part of our plans to  acquire  other  businesses  we may  expand our
operations to other countries,  operate those businesses in foreign  currencies,
and export  goods from those  countries.  Thus far,  we have not  engaged in any
financial hedging  activities to offset the risk of exchange rate  fluctuations.
We may in the future, on an as-needed basis, engage in limited financial hedging
activities  to offset the risk of exchange  rate  fluctuations.  There is a risk
that a shift in certain  foreign  exchange rates or the imposition of unforeseen
and adverse  political  instability  and/or trade  regulations  could  adversely
impact the costs of these items and the  liquidity  of our  assets,  and have an
adverse  impact  on our  operating  results.  In  addition,  the  imposition  of
unforeseen  and adverse trade  regulations  could have an adverse  effect on our
exported seafood operations. We expect the volume of international  transactions
to  increase,   which  may  increase  our  exposure  to  future   exchange  rate
fluctuations.

Our common stock may be considered a "penny stock" and may be difficult to sell.

The SEC has adopted  regulations which generally define a "penny stock" to be an
equity  security  that has a market  price of less  than  $5.00  per share or an
exercise price of less than $5.00 per share, subject to specific exemptions. The
market price of our common stock is less than $5.00 per share and, therefore, it
may be designated as a "penny stock"  according to SEC rules.  This  designation
requires  any broker or dealer  selling  these  securities  to disclose  certain
information  concerning  the  transaction,  obtain a written  agreement from the
purchaser  and determine  that the purchaser is reasonably  suitable to purchase
the  securities.  These rules may  restrict the ability of brokers or dealers to
sell our  common  stock and may affect the  ability of  investors  to sell their
shares.

                                       34
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Edgewater Foods International, Inc.
Qualicum Beach, British Columbia, Canada

We have audited the accompanying  consolidated  balance sheet of Edgewater Foods
International,  Inc.  as of August  31,  2006,  and the  related  statements  of
operations, stockholders' deficit, and cash flows for each of the two years then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion of these  financial
statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States).  Those standard require that we plan
and perform the audit 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 statement referred to above present fairly, in all
material respects, the financial position of Edgewater Foods International, Inc.
as of August 31, 2006,  and the results of its operations and its cash flows for
each of the two years then ended, in conformity  with the accounting  principles
generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that Edgewater
will  continue as a going  concern.  As  discussed  in Note 16 to the  financial
statements,  Edgewater has incurred  losses from  operations  for the year ended
August 31, 2006 and has suffered  operating  losses  since its  inception in its
efforts to establish and execute our business  strategy.  Edgewater will require
additional  working capital to develop its business until  Edgewater  either (1)
achieves a level of revenues  adequate to  generate  sufficient  cash flows from
operations; or (2) obtains additional financing necessary to support its working
capital requirements. These conditions raise substantial doubt about Edgewater's
ability to continue as a going concern.  Management's  plans with regard to this
matter are described in Note 16. The  accompanying  financial  statements do not
include  any   adjustments   that  might  results  from  the  outcome  of  these
uncertainties.


LBB & Associates Ltd., LLP
--------------------------
LBB & Associates Ltd., LLP
Houston, Texas
October 26, 2006


                                      F-1
<PAGE>



                          EDGEWATER FOODS INTERNATIONAL
                           CONSOLIDATED BALANCE SHEET
                                 AUGUST 31, 2006


ASSETS

Current assets:
     Cash                                                        $  1,816,742
     Accounts receivable, net of allowance for
              doubtful accounts of $386                                38,850
     Inventory                                                      1,252,051
     Other current assets                                              67,596
                                                                 ------------

       Total current assets                                         3,175,239

Property, plant and equipment, net                                  1,824,394

Investments in other assets                                             3,609
                                                                 ------------

     Total assets                                                $  5,003,242
                                                                 ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
     Bank indebtedness                                           $        689
     Short term debt                                                  462,249
     Current portion of warrant liabilities                         1,743,996
     Current portion of long term debt                                948,732
     Accounts payable and accrued liabilities                         687,405
                                                                 ------------

       Total current liabilities                                    3,843,071

Warrant liabilites, net of current portion                         20,415,454
Long term debt, net of current portion                                 40,217
                                                                 ------------

     Total liabilities                                             24,298,742
                                                                 ------------

Stockholders' Deficit
     Series A preferred stock, par $0.001, 10,000,000
        authorized, 7,887,999 issued and outstanding                    7,888

     Common stock, par $0.001, 100,000,000 authorized,
       20,983,260 issued and outstanding                                2,098
     Additional paid in capital                                          --
     Accumulated deficit                                          (19,049,166)
     Accumulated other comprehensive income -
       foreign exchange adjustment                                   (256,320)
                                                                 ------------

      Total stockholders' deficit                                 (19,295,500)
                                                                 ------------

     Total Liabilities and Stockholders' Deficit                 $  5,003,242
                                                                 ============

See  accompanying   summary  of  accounting  policies  and  notes  to  financial
statements

                                      F-2
<PAGE>



                          EDGEWATER FOODS INTERNATIONAL
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      YEARS ENDING AUGUST 31, 2006 and 2005


                                                   2006            2005
                                               ------------    ------------

Revenue                                       $    527,623    $    315,869
Cost of goods sold                                 576,069         366,724
                                              ------------    ------------

Gross profit (loss)                                (48,446)        (50,855)
                                              ------------    ------------

Operating Expenses:
      General and administrative expenses         (329,870)       (137,337)
      Salaries and benefits                       (323,186)        (83,653)
      Stock compensation expense                  (182,500)           --
                                              ------------    ------------

Total  operating expense                          (835,556)       (220,990)
                                              ------------    ------------

Loss from operations                              (884,002)       (271,845)
                                              ------------    ------------

Other income (expense):
      Interest expense, net                       (695,889)        (80,868)
      Change in fair value of warrants          (2,665,571)           --
      Other income (expense)                        45,185           2,637
                                              ------------    ------------

                Other income (expense), net     (3,316,275)        (78,231)
                                              ------------    ------------

Net loss                                        (4,200,277)       (350,076)

Dividend on preferred stock                        (34,709)           --
                                              ------------    ------------
Net loss applicable to common  shareholders   $ (4,234,986)   $   (350,076)
                                              ============    ============
Net loss per share
      Basic and diluted                       $      (0.20)   $      (0.03)
                                              ============    ============

Weighted average shares outstanding
      Basic and diluted                         20,794,784      11,899,320
                                              ============    ============


See  accompanying   summary  of  accounting  policies  and  notes  to  financial
statements


                                      F-3
<PAGE>

<TABLE>

<CAPTION>

                          EDGEWATER FOODS INTERNATIONAL
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                           YEARS ENDED AUGUST 31, 2006



                                                                                                                         Other
                                                                                                       Accumulated    Comprehensive
                                                                                                           Paid          Income
                                               Preferred Stock                Common Stock                  in      Foreign Exchange
                                           Number       Value             Number          Value           Capital       Adjustment
                                      ------------    ------------    ------------    ------------    ------------    ------------
<S>                                                                             <C>   <C>             <C>             <C>

Balance at August 31, 2004                    --      $       --        10,300,000    $      1,030    $     (1,029)   $    144,012

Comprehensive loss

  Net loss

  Foreign exchange adjustment                                                                                             (314,415)

      Total comprehensive loss



Common stock issued for services              --              --           100,000              10            --

  Common stock issued in
   connection Island Scallops, Ltd.
    with                                      --              --         8,600,000             860            (860)



  Forgiveness of shareholder debt                                                                        3,153,848

  Common stock issued in
   connection with Heritage
    Management recapitalization                --              --        1,585,400             159            (159)

                                      ------------    ------------    ------------    ------------    ------------    ------------
Balance at August 31, 2005                     --              --       20,585,400           2,059       3,151,800        (170,403)

Comprehensive loss

  Net loss

  Foreign                                                                                                                  (85,917)


       Total comprehensive loss


Common stock cancelled                        --              --          (150,000)            (15)             15


Common stock issued for services              --              --           525,000              52         702,448



Common stock issued for dividends                                           22,860               2          34,707

Preferred Series A stock issued in
 connection with financing               7,887,999           7,888            --              --         5,132,136



Warrants liability incurred in
 connection with financings                                                                             (9,021,106)
                                      ------------    ------------    ------------    ------------    ------------    ------------

Balance at August 31, 2006               7,887,999    $      7,888      20,983,260    $      2,098    $          0    $   (256,320)
                                      ============    ============    ============    ============    ============    ============


                                        Accumulated
                                         Deficit          Total
                                        ------------    ------------

Balance at August 31, 2004              $ (3,991,330)   $ (3,847,317)

Comprehensive loss

  Net loss                                  (350,076)       (350,076)

  Foreign exchange adjustment                               (314,415)
                                                        ------------
      Total comprehensive loss
                                                            (664,491)

                                                                  10
Common stock issued for services

  Common stock issued in
   connection Island Scallops, Ltd.
    with                                      --



  Forgiveness of shareholder debt                         3,153,848

  Common stock issued in
   connection with Heritage
    Management recapitalization                                 --

                                        ------------    ------------
Balance at August 31, 2005                (4,341,406)     (1,357,950)

Comprehensive loss

  Net loss                                (4,200,277)     (4,200,277)

  Foreign                                                    (85,917)
                                                        ------------

       Total comprehensive loss                           (4,286,194)


Common stock cancelled                                          --


Common stock issued for services                             702,500



Common stock issued for dividends            (34,709)           --

Preferred Series A stock issued in
 connection with financing                                 5,140,024



Warrants liability incurred in
 connection with financings              (10,472,774)    (19,493,880)
                                        ------------    ------------

Balance at August 31, 2006              $(19,049,166)   $(19,295,500)
                                        ============    ============


</TABLE>


See  accompanying   summary  of  accounting  policies  and  notes  to  financial
statements


                                      F-4
<PAGE>

<TABLE>

<CAPTION>

                          EDGEWATER FOODS INTERNATIONAL
                      CONSOLIDATED STATEMENTS OF CASHFLOWS
                      YEARS ENDED AUGUST 31, 2006 and 2005

                                                                2006            2005
                                                           ------------    ------------
<S>                                                                        <C>
Cash flows from operating activities:

             Net income (loss)                             $ (4,200,277)   $   (350,076)

             Adjustments  to  reconcile  net loss to net
             cash used in  operating
             activities:
                Depreciation and amortization                   123,008          80,435
                Changes in fair value of warrants             2,665,570            --
                Common stock issued for services                702,500              10
                Bad debt expense                                   --               347
             Changes in current assets and liabilities:

                Accounts receivable                             (38,850)         25,069
                Prepaid expenses                                (16,061)           --
                Other current assets                             (2,628)        (22,338)
                Loan receivable                                    --              --
                Inventory                                      (711,925)       (540,126)
                Accounts payable                                197,681         221,644
                Bank overdrafts                                 (38,538)         38,538
                                                           ------------    ------------

Net cash used in operating activities                        (1,319,520)       (546,497)
                                                           ------------    ------------

Cash flows from investing activities:

             Purchase of property, plant and equipment         (784,291)       (493,018)
                                                           ------------    ------------

Net cash provided by (used in) investing activities            (784,291)       (493,018)
                                                           ------------    ------------

Cash flows from financing activities:


             Line of credit, net                                (64,675)          6,591
             Proceeds from short term debt                      862,451       1,125,247
             Payment of short term debt                      (1,609,901)        (38,128)
             Proceeds from long term debt                        62,112            --
             Payment of long term debt                         (382,456)        (25,408)
             Proceeds from the sale of common stock                --               860
             Proceeds from sale of preferred stock            5,140,024            --
                                                           ------------    ------------

Net cash provided by financing activities                     4,007,555       1,069,162
                                                           ------------    ------------


Foreign currency translation effect                             (87,562)        (41,997)


Net increase in cash                                          1,816,182         (12,350)


Cash, beginning of period                                           560          12,910
                                                           ------------    ------------

Cash, end of period                                        $  1,816,742    $        560
                                                           ============    ============

Supplemental cash flow information:

Interest                                                   $       --      $       --
                                                           ============    ============
Income taxes                                               $       --      $       --

Supplement disclosure of non-cash transactions:

Issuance of common stock for dividends                     $     34,709    $       --

Warrant liability incurred in connection with financing    $ 19,493,880    $       --

</TABLE>


                                      F-5


See  accompanying   summary  of  accounting  policies  and  notes  to  financial
statements


<PAGE>


                       Edgewater Foods International, Inc.

                   Notes to Consolidated Financial Statements

NOTE 1.  BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS

Edgewater Foods International Inc., a Nevada Corporation,  is the parent company
of Island Scallops Ltd., a Vancouver Island aquaculture company. Island Scallops
was  established  in 1989 and for  over 15 years  has  successfully  operated  a
scallop  farming and marine hatchery  business.  Island Scallops is dedicated to
the  farming,  processing  and  marketing  of high  quality,  high value  marine
species: scallops and sablefish.

On June 29, 2005, Edgewater Foods International,  Inc. ("Edgewater"),  a holding
private company  established under the laws of Nevada in order to acquire assets
in the  aquaculture  industry,  issued  10,300,000  shares  of  common  stock in
exchange for a 100% equity interest in Island Scallops,  Ltd. As a result of the
share  exchange,  Island  Scallops,  Ltd.  become the wholly own  subsidiary  of
Edgewater  Foods  International,  Inc. As a result,  the  shareholders of Island
Scallops  owned a majority  (54.21%)  of the  voting  stock of  Edgewater  Foods
International,  Inc. The  transaction  was regarded as a reverse  merger whereby
Island Scallops was considered to be the accounting acquirer as its shareholders
retained  control of Edgewater Foods after the exchange,  although  Edgewater is
the legal parent company.  The share exchange was treated as a  recapitalization
of Edgewater Foods. As such, Island Scallops, Ltd. (and its historical financial
statements) is the continuing entity for financial reporting purposes.

On August 15, 2005, we completed a reverse  acquisition  of Heritage  Management
Corporation,  a public shell  company,  as that term is defined in Rule 12b-2 of
the Exchange  Act,  established  under the laws of Nevada on June 12,  2000.  To
accomplish the share exchange we issued  19,000,000  shares of common stock on a
one to one ratio for a 100% equity interest in Edgewater Foods. Per the terms of
the Share Exchange and Bill of Sale of Heritage  Funding  Corporation and E. Lee
Murdoch, Heritage was delivered with zero assets and zero liabilities at time of
closing.  Following  the  reverse  acquisition,  we changed the name of Heritage
Management Corporation to "Edgewater Foods International,  Inc." The transaction
was regarded as a reverse  merger  whereby  Edgewater  was  considered to be the
accounting  acquirer as it  retained  control of  Heritage  after the  exchange.
Although the Company is the legal parent company, the share exchange was treated
as a  recapitalization  of  Edgewater.  Edgewater is the  continuing  entity for
financial reporting purposes.  The Financial Statements have been prepared as if
Edgewater had always been the reporting  company and then on the share  exchange
date, had changed its name and reorganized its capital stock.

NOTE 2.  SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying  consolidated  financial statements include the accounts of the
acquired  entities since their respective dates of acquisition.  All significant
inter-company amounts have been eliminated.



                                      F-6
<PAGE>

Cash and equivalents

Cash and equivalents  include cash, bank  indebtedness,  and highly liquid short
term market  investments  with terms to maturity  of three  months or less.  The
Company considers all highly liquid  investments with original  maturities of 90
days or less to be cash  equivalents.  The Company  maintains  its cash balances
primarily in on financial  institution,  which exceeded federally insured limits
by $1,653,378 at August 31, 2006. The Company has not experienced any losses, in
such accounts and believes it is not exposed to any  significant  credit risk on
cash and cash equivalents.

Accounts receivable

Accounts  receivable is presented net of allowance  for doubtful  accounts.  The
allowance  for  doubtful  accounts  reflects  estimates  of  probable  losses in
accounts  receivable.  The allowance is determined based on balances outstanding
for over 90 days at the period end date, historical experience and other current
information.

Loans receivable

Loans receivable is presented net of an allowance for loan losses, as necessary.
The loans are written off when collectibility becomes uncertain.

Inventory

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

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

At August 31, 2006, inventory consisted of the following:

Biomass (Scallops):                         $1,252,051

Reclassification

Certain  amounts in the 2005  financial  statements  have been  reclassified  to
conform to the 2006 financial statement presentation.

Long term investments

Long term  investments are recorded at cost. The Company reviews its investments
periodically to assess whether there is an "other than temporary" decline in the
carrying  value of the  investment.  The Company  considers  whether there is an
absence of an  ability  to  recover  the  carrying  value of the  investment  by
reference to projected undiscounted future cash flows for the investment. If the
projected  undiscounted future cash flow is less than the carrying amount of the
asset, the asset is deemed impaired. The amount of the impairment is measured as
the difference between the carrying value and the fair value of the asset.


                                      F-7
<PAGE>



Property, plant, and equipment

Property,   plant,   and  equipment  are  recorded  at  cost  less   accumulated
amortization and are amortized in the following manner based on estimated useful
lives:

         Buildings                                   4% - 5% declining balance
         Seawater piping and tanks                   6% declining balance
         Boats                                       15% declining balance
         Field equipment                             20% declining balance
         Office equipment                            20% declining balance
         Vehicles                                    30% declining balance
         Computer equipment                          30% declining balance

Impairment of long-lived assets

The Company monitors the recoverability of long-lived assets, including property
and equipment and intangible assets,  based upon estimates using factors such as
expected future asset utilization, business climate, and undiscounted cash flows
resulting  from the use of the related  assets or to be  realized  on sale.  The
Company's  policy is to write  down  assets  to the  estimated  net  recoverable
amount,  in the period in which it is determined likely that the carrying amount
of the asset  will not be  recoverable.  At August  31,  2006 no  indication  of
impairment were present.

Government assistance

Government  assistance received by the Company, such as grants,  subsidies,  and
tax credits, is recorded as a recovery of the appropriate related expenditure in
the period that the assistance is received.

The Company has received  government  assistance in the form of loans, for which
repayment  may not be required if the Company  fails to meet  sufficient  future
revenue  levels to repay these loans  based on a  percentage  of gross sales for
certain products over a defined period of time., Such assistance received by the
Company is initially recorded as a liability,  until such time as all conditions
for forgiveness are met, and is then recognized as other income in that period.

Farm license costs

The  Company  must pay annual  license  costs in  respect to  government-granted
tenures that it holds,  which give the Company the right to use certain offshore
ocean waters for the purpose of  aquaculture  farming.  Such  license  costs are
recognized as an expense when incurred.

Research and development costs

Development costs include costs of materials, wages, and reasonably attributable
indirect  costs incurred by the Company which are directly  attributable  to the
development of hatchery techniques for sablefish and shellfish.  These costs are
expensed when incurred.



                                      F-8
<PAGE>


Research costs are expensed when incurred.

Income taxes

The  Company  calculates  its  provision  for income  taxes in  accordance  with
Statement of  Financial  Accounting  Standards  No. 109  (Accounting  for Income
Taxes) ("SFAS 109"), which requires an asset and liability approach to financial
accounting  for  income  taxes.  This  approach  recognizes  the amount of taxes
payable or  refundable  for the current year, as well as deferred tax assets and
liabilities  attributable to the future tax consequences of events recognized in
the financial statements and tax returns.  Deferred income taxes are adjusted to
reflect the effects of enacted changes in tax laws or tax rates. Deferred income
tax assets are recorded in the financial statements if realization is considered
more likely than not.

Revenue recognition

The Company  recognizes  revenue when it is realized or realizable,  and earned.
The Company  considers  revenue  realized or  realizable  and earned when it has
persuasive  evidence  of a  contract,  the  product  has been  delivered  or the
services  have  been  provided  to the  customer,  the  sales  price is fixed or
determinable, and collectibility is reasonably assured.

Revenue of the Company is derived principally from the sale of scallops produced
by the Company or purchased  from third  parties,  and from the sale of seed and
farm supplies to other aquaculture farms.

Financial instruments

The carrying amount of the Company's financial instruments,  which include cash,
accounts receivable,  loans receivable, bank indebtedness,  accounts payable and
accrued  liabilities,  short term debt,  shareholder  debt,  and long term debt,
approximate  fair  value.  It is  management's  opinion  that the Company is not
exposed to  significant  interest,  currency or credit risk  arising  from these
financial instruments unless otherwise noted.

Derivative Financial Instruments

In connection with the sale of debt or equity  instruments,  we may sell options
or  warrants to  purchase  our common  stock.  In certain  circumstances,  these
options or warrants may be classified as derivative liabilities,  rather than as
equity.  Additionally,  the debt or  equity  instruments  may  contain  embedded
derivative instruments,  such as embedded derivative features,  which in certain
circumstances  may  be  required  to be  bifurcated  from  the  associated  host
instrument and accounted for separately as a derivative instrument liability.

The Company  accounts for all  derivatives  financial  instruments in accordance
with SFAS No. 133. Derivative financial  instruments are recorded as liabilities
in the  consolidated  balance  sheet,  measured at fair value.  When  available,
quoted  market prices are used in  determining  fair value.  However,  if quoted
market prices are not available,  the Company  estimates fair value using either
quoted market prices of financial  instruments with similar  characteristics  or
other valuation techniques.

The  identification of, and accounting for,  derivative  instruments is complex.
Our derivative instrument liabilities are re-valued at the end of each reporting


                                      F-9
<PAGE>

period,  with changes in the fair value of the derivative  liability recorded as
charges  or credits to income,  in the period in which the  changes  occur.  For
options, warrants and bifurcated embedded derivative features that are accounted
for as derivative  instrument  liabilities,  we estimate fair value using either
quoted market prices of financial  instruments with similar  characteristics  or
other valuation techniques. The valuation techniques require assumptions related
to the remaining  term of the  instruments  and risk-free  rates of return,  our
current  common  stock  price and  expected  dividend  yield,  and the  expected
volatility  of  our  common  stock  price  over  the  life  of the  option.  The
identification   of,  and  accounting  for,   derivative   instruments  and  the
assumptions  used  to  value  them  can   significantly   affect  our  financial
statements.

Derivative  financial  instruments  that are not designated as hedges or that do
not meet the  criteria for hedge  accounting  under SFAS No. 133 are recorded at
fair value, with gains or losses reported currently in earnings.  All derivative
financial instruments held by the Company as August 31, 2006 were not designated
as hedges.

Foreign exchange

The functional currency of the Company's foreign subsidiary is the local foreign
currency (Canadian dollars).  All assets and liabilities  denominated in foreign
currencies are translated  into U.S.  dollars at the exchange rate prevailing on
the balance sheet date.  Revenues,  costs and expenses are translated at average
rates  of  exchange  prevailing  during  the  period.   Translation  adjustments
resulting from  translation of the  subsidiaries'  accounts are accumulated as a
separate  component of  shareholders'  equity.  Gains and losses  resulting from
foreign currency  transactions  are included in the  consolidated  statements of
operations and have not been significant.

Use of estimates

The  preparation  of financial  statements  in  conformity  with U.S.  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect the reported amounts of assets,  liabilities,  revenues,
expenses and  disclosure of contingent  assets and  liabilities.  Such estimates
include  providing for  amortization  of property,  plant,  and  equipment,  and
valuation of inventory. Actual results could differ from these estimates.

Concentration of risk

The Company operates in the regulated aquaculture industry.  Material changes in
this industry or the applicable  regulations could have a significant  impact on
the Company.

The quality and quantity of the aquaculture products  cultivated,  harvested and
processed by the Company could be impacted by biological and environmental risks
such as  contamination,  parasites,  predators,  disease  and  pollution.  These
factors  could  severely  restrict  the ability of the  Company to  successfully
market its products.

During the year ended August 31, 2006, three customers,  Summer Breeze,  TriStar
and Sea  World,  individually  accounted  for 30%,  15% and 13% or our  revenues
respectively, and we therefore are materially dependent upon such customers. The
Company's  ongoing  operations  are  dependent on continued  business from these
customers.



                                      F-10
<PAGE>


Stock-based compensation

The Company accounts for stock-based  employee  compensation  arrangements using
the  intrinsic  value method in  accordance  with the  provisions  of Accounting
Principles  Board  (APB)  Opinion  No.  25,  "Accounting  for  Stock  Issued  to
Employees,"  and  complies  with  the  disclosure  provisions  of SFAS  No.  123
"Accounting for Stock-Based Compensation," as amended by SFAS No. 148. Under APB
Opinion  No.  25,  compensation  cost  is  generally  recognized  based  on  the
difference, if any, on the date of grant between the fair value of the Company's
common stock and the amount an employee must pay to acquire the stock.

The Company  periodically  issues  common  stock for  acquisitions  and services
rendered.  Common stock issued is valued at the estimated fair market value,  as
determined by management  and the board of directors of the Company.  Management
and the board of  directors  consider  market  price  quotations,  recent  stock
offering prices and other factors in determining  fair market value for purposes
of valuing the common stock.

The following table  illustrated the effect on net income and earnings per share
if Edgewater had applied the fair value recognition provisions of FASB Statement
No. 123,  Accounting  for  Stock-Based  Compensation,  to  stock-based  employee
compensation.

                                                               Year Ended
                                                               August 31,
                                                           2006         2005
                                                    ----------------------------
Net loss, as reported                               $   (4,200,277)   $(350,076)

Add:  Stock based intrinsic value included
 in report loss                                               --           --

Less:  Total stock-based employee compensation
expense determined under the fair value based
method for all awards                                         --       (370,565)
                                                    ---------------------------

Pro-forma net loss                                  $   (4,200,277)   $(720,641)
                                                    ---------------------------

Basis and diluted net loss per share
    As reported                                     $        (0.20)   $   (0.03)
    Pro-forma                                       $        (0.20)   $   (0.03)


The fair value of each option  granted is  estimated  on the date of grant using
the  Black-Scholes  option-pricing  model with the  following  weighted  average
assumptions:  dividend yield $0, expected  volatility of 93%, average  risk-free


                                      F-11
<PAGE>

interest  rate of 4.15%,  and  expected  lives of 10 and 5 years  (for 2006) and
dividend yield $0, expected  volatility of 100%, average risk-free interest rate
of 4.70% and 4.71%, and expected lives of 10 and 5 years (for 2005).

Basic and diluted net loss per share

Basic income or loss per share  includes no dilution and is computed by dividing
net income or loss by the  weighted-average  number of common shares outstanding
for the period. Diluted income or loss per share includes the potential dilution
that could occur if  securities  or other  contracts  to issue common stock were
exercised or converted  into common stock.  For all periods  presented,  diluted
loss per share equaled the basic loss per share as all  convertible  instruments
were anti-dilutive.

Recent accounting pronouncements

In December of 2004, the FASB issued Statement of Financial Accounting Standards
No, 123 (revised  2004)  (Share-Based  Payment)  ("SFAS  123R").  SFAS 123R is a
revision of SFAS 123 (Accounting for Stock-Based  Compensation),  and supersedes
Accounting  Principles Beard ("APB") Opinion No. 25 (Accounting for Stock Issued
to  Employees).  SFAS 123R  requires  that the fair  value of  employees  awards
issued,   modified,   repurchased  or  cancelled  after  implementation,   under
share-based  payment  arrangements,  be  measured  as of the date  the  award is
issued,  modified,   repurchased  or  cancelled.  The  resulting  cost  is  then
recognized in the statement of earnings  over the service  period.  SFAS 123R is
required to be adopted by the  Company not later than for the 2007 fiscal  year.
In the opinion of  Management,  the adoption of this  statement  will not have a
significant impact on the Company's consolidated financial statements.

In December of 2004, the FASB issued Statement of Financial Accounting Standards
No. 153 (Exchanges of  Nonmonetary  Assets - An Amendment of APB Opinion No. 29,
Accounting for Nonmonetary  transactions)  ("SFAS 153"). SFAS 153 eliminates the
exception  from fair value  measurement  for  nonmonetary  exchanges  of similar
productive  assets in paragraph 21(b) of APB Opinion No. 29 and replaces it with
an exception  for  exchanges  that do not have  commercial  substance,  SFAS 153
specifies  that a nonmonetary  exchange has  commercial  substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange.  SFAS 153 is effective  for fiscal  periods  beginning  after June 15,
2005,  and is required to be adopted by the Company in the second quarter of the
2006 fiscal year. We do not currently  believe that the adoption of SFAS No. 153
will have a material impact on its consolidated financial statements.

In May  2005,  SFAS No.  154,  "Accounting  Changes  and Error  Corrections"  (a
replacement  of APB  Opinion No. 20 and SFAS No. 3) was  issued.  Statement  154
requires  that all  voluntary  changes  in  accounting  principles  and  changes
required  by a  new  accounting  pronouncement  that  do  not  include  specific
transition  provisions be applied  retrospectively  to prior periods'  financial
statements,  unless it is  impracticable  to do so. APB Opinion 20 required that
most  voluntary  changes in accounting  principle be recognized by including the
cumulative effect of changing to the new accounting  principle as a component of
net income in the period of change. Statement 154 is effective prospectively for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after  December  15,  2005,  with  earlier   application   encouraged.   Earlier
application is permitted for accounting  changes and  corrections of errors made
in fiscal years  beginning  after the date the  Statement was issued (May 2005).
SFAS 154 does not change the  transition  provisions of any existing  accounting
pronouncements,  including  those  that  are  in a  transition  phase  as of the
effective  date of the  Statement.  Accordingly,  the Company will implement the
provisions  of this  accounting  pronouncement  in the fiscal  reporting  period
ending August 31, 2007.  We do not  currently  believe that the adoption of SFAS
145  No.  154  will  have  a  material  impact  on  our  consolidated  financial
statements.

In June  2006,  the FASB  issued  FASB  Interpretation  No. 48,  Accounting  for
Uncertainty in Income Taxes - An  Interpretation of FASB Statement No. 109 ("FIN
48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized


                                      F-12
<PAGE>

in a company's financial  statements and prescribes a recognition  threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position  expected to be taken in a tax return.  The  Interpretation  also
provides  guidance on  de-recognition,  classification,  interest and penalties,
accounting in interim  periods,  disclosure and transition.  FIN 48 is effective
for fiscal years beginning after December 15, 2006. Currently, there would be no
effect of this interpretation on the company's financial position and results of
operations.

NOTE 3.  PROPERTY, PLANT AND EQUIPMENT

Property, Plant and Equipment at August 31, 2006 consisted of the following:



                                                         Accumulated    Net Book
                                            Cost         Amortization   Value
                                            ------------------------------------

Land                                        $  227,355   $     --     $  227,355
Buildings                                      451,445      230,302      221,143
Seawater piping and tanks                      473,376      268,965      204,411
Boats and Barge                                286,489      118,063      168,426
Field equipment                              1,701,247      716,419      984,828
Office equipment                                13,673       12,373        1,300
Vehicles                                        38,168       33,283        4,885
Computer equipment                              17,149        5,103       12,046
                                            ------------------------------------
                                            $3,208,902   $1,384,508   $1,824,394


Accumulated amortization was $1,384,508 year ended August 31, 2006. Depreciation
expenses  are  $123,000  and $10,195 for the year ended August 31, 2006 and 2005
respectively.

NOTE 4.  RELATED PARTY TRANSACTIONS

The  Company  has two  secured  notes  receivable  from RKS  Laboratories,  Inc.
("RKS"), a Vancouver research and development that is working towards developing
superior  strains of scallops with  beneficial  traits such as higher meat yield
and rapid growth.  (Robert  Saunders  owns 100% of RKS.) The first  non-interest
bearing  note in the amount of $18,044 is secured by all assets of RKS is due on
or before June 15, 2007. The second  non-interest  bearing note in the amount of
$4,971 is also secured by all assets of RKS is due on or before August 31, 2007.
These amounts are included in other current assets.




                                      F-13
<PAGE>

NOTE 5.  INVESTMENTS IN TENURES

The Company carries its Investment in Tenures at $3,609 at August 31, 2006. This
amount represent the carrying costs of certain shellfish tenures acquired by the
subsidiary of the Company's wholly-owned subsidiary Island Scallops Ltd., 377332
B.C. Ltd. Shellfish tenures are  government-granted  rights allowing limited use
of offshore waters for the purposes of cultivation of shellfish. The granting of
shellfish  tenure  rights  are the  responsibility  of the  Provincial  (British
Columbia)  Government  and not the Canadian  Federal  Government.  As such,  the
government  assistance  that we receive via loan agreement with various  Federal
Agencies  has no effect on our  ability  to renew  and/or  modify  these  tenure
agreements.  The tenure held by 377332 B.C. Ltd. has an expiration  date of July
10, 2021. Other shellfish  tenures held by the Company and its subsidiaries have
expiration dates ranging from 2021 to 2024.

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

NOTE 6.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Included in accounts  payable and accrued  liabilities are balances  outstanding
related to credit cards held in the name of the shareholder  totaling $13,325 at
August 31,  2006.  The Company  used these credit cards as a means of short term
financing and incurs interest charges on such unpaid balances.

Included in accounts  payable and accrued  liabilities  at August 31, 2006 is an
amount of $118,963 in respect to an agreement to purchase  geoduck seed from the
Company (for additional information see Note 10 - Contingent Liabilities).

Included in accounts  payable and accrued  liabilities  at August 31, 2006 is an
amount of $59,856  payments due and interest accrued in respect to the loan from
the National Research Council of Canada Industrial  Research  Assistance Program
(see Note 8 - Long Term Debt for additional information).

NOTE 7.  SHORT TERM DEBT

These consolidated  financial  statements include Island Scallop's mortgage loan
repayable at $2,030 per month  including  interest  calculated at the greater of
10% and (Canadian) prime plus 6% (12% as of August 31, 2006). The loan, which is
due on April 1,  2007,  is secured by a second  charge on the real  property  of
Island Scallops. At August 31, 2006, the principal due is $192,690.

These consolidated  financial  statements include a non-interest bearing loan to
Island Scallops from Industry Science and Technology Canada requiring  repayment
equal to 0.5% of gross scallop sales of the  Company's  wholly owned  subsidiary
(Island  Scallops) for each preceding year,  which is due January 1, 2007. If at
the due date the Company has not generated sufficient revenues to be required to
repay the original amount of $164,254,  the remaining  portion of the loan is to
be forgiven. Amounts currently due bear interest based on the published rates of
90 day (Canadian) treasury bills.

Included in short-term debt at August 31, 2006 is estimated royalties of $60,045
payable to a third party from who the former sole shareholder of Island Scallops
Ltd.  originally  acquired  the shares of Island  Scallops  Ltd.  The 1992 share
purchase  agreement (for Island  Scallops)  provided that the third party was to


                                      F-14
<PAGE>

receive from the Company 3% of revenues of the Company as earned, on a quarterly
basis,  throughout  the period from  December 1, 1992 to November 30, 2002.  The
third party holds a first  charge (or first lien) over  inventory of the Company
(including  broodstock)  in the amount of  $315,770  in  support of its  royalty
entitlement.  The third party has not taken further action to enforce payment of
the arrears liability. To date, we have accrued the entire balance of $60,045 as
a  current  liability  and we plan to pay it with  available  funds  in the near
future.

Included  in  short-term  notes  payable  at  August  31,  2006 is an  unsecured
non-interest bearing demand loan from an individual with a face value of $45,260
and no specific terms of repayment. However, the lender has informally requested
that the loan be repaid in full by October 6, 2008.

NOTE 8.  LONG TERM DEBT

These  consolidated  financial  statements  include  a  Western  Diversification
Program  non-interest  bearing loan to Island  Scallops that requires  repayment
equal to 12% of gross  revenues  from  scallop  sales  of the  Company,  payable
semi-annually, with no specified due date. At August 31, 2006 as Island Scallops
is in arrears in respect to the  payment of these  amounts,  the full  principal
balance of $611,055 is reflected as a current  liability.  Our management of the
Company  is  seeking  to  renegotiate  terms  of  repayment  of this  debt  (for
additional information see Note 15 - Subsequent Events).

These  consolidated  financial  statements  include the  Company's  wholly owned
subsidiary's  (Island  Scallops)  unsecured  non-interest  bearing loan from the
National Research Council of Canada Industrial Research Assistance Program which
requires quarterly payments  commencing March 1, 2003 equal to 3% of gross black
cod  revenues  of the Island  Scallops  until the earlier of full  repayment  or
December 1, 2012. The amount  repayable is up to 150% of the original advance of
$397,532,  if  repayment  is before  December  1, 2007.  If at December 1, 2012,
Island Scallops has not earned  sufficient  revenues to be required to repay the
original  loan  amount,  the  remaining  portion of the loan is to be  forgiven.
Amounts  currently  due at August 31,  2006,  bear  interest at a rate of 1% per
month.  At August  31,  2006,  Island  Scallops  is in arrears in respect to the
payment of these amounts.  The National  Council of Canada  Industrial  Research
Assistance  Program has requested payment of the $59,856 that they claim is owed
under this loan agreement.  As such, at August 31, 2006,  $59,856 is included in
accounts payable and accrued liabilities and remaining full principal balance of
$337,676  is  reflected  as a current  liability.  The  Company  is  seeking  to
renegotiate the repayment terms.

These  consolidated  financial  statements  include  two bank  loans for  Island
Scallops.  The first bank loan is repayable at $1,128 per month,  plus  interest
calculated at the floating base rate of the Business  Development Bank of Canada
plus 1.5% annum (7.5% as of August 31, 2006),  is due February 23, 2009,  and is
secured by a General Security  Agreement over the assets of the Company's wholly
owned subsidiary (Island  Scallops),  a mortgage charge on Island Scallop's real
property and a personal guarantee of $45,110 by our Chairman, President and CEO,
and  former  sole  shareholder  of Island  Scallops.  At August  31,  2006,  the
principal  due is $33,833.  The second bank loan is  repayable at $470 per month
plus interest  calculated at (Canadian) prime plus 3% per annum (9% as of August
31, 2006),  is unsecured  and is due October 23, 2007.  At August 31, 2006,  the
principal due is $6,384.


                                      F-15
<PAGE>


As a result, at August 31, 2006, the Company had $988,949 of long-term debt less
a current portion of $948,732 for a balance of $40,217.  Principal  payments due
within each of the next five fiscal years and  subsequently,  in respect to long
term debt are approximately as follows:

                     2007                               $948,732
                     2008                                 $6,384
                     2009                                $33,833
                                             -------------------

                                                        $988,949
                                             ===================

NOTE 9.  WARRANT LIABILITIES


The warrants  that each  investor  received as a result of our April 12, May 30,
June 30 and July 11 Preferred  Stock  Financing  (see Note 13 - Preferred  Stock
Financing for additional  details)  contained a cashless exercise provision that
becomes  effective if our  registration  statement (that we are required to file
under the  registration  rights  agreement) is not declared  effective  one-year
after the initial issue date of each warrant. As such and in accordance with the
accounting guidelines under SFAS No. 133, we valued the warrants as a derivative
financial  instrument and the  corresponding  liabilities  were entered onto our
consolidated  balance sheet,  measured at fair value. The Company determined the
fair value of the warrants as follows as of April 12, 2006,  May 30, 2006,  June
30, 2006 and July 11, 2006 (the issuance date):

The  Company  used the Black  Scholes  option-pricing  model with the  following
assumptions:  an expected  life equal to the  contractual  term of the  warrants
(one,  three or five),  underlying stock price of $1.10 (at April 12), $1.40 (at
May 30),  $1.35 (at June 30) and $1.40 (July 11) no dividends;  a risk free rate
of 4.91%,  4.90% and 4.91%,  which equals the one, three and five-year  yield on
Treasury  bonds at constant (or fixed)  maturity (for those  warrants  issued on
April 12), a risk free rate of 4.99%,  which equals three and five-year yield on
Treasury bonds at constant (or fixed) maturity (for those warrants issued on May
30), a risk free rate of 4.71% and 4.70%,  which equals the three and  five-year
yield on Treasury  bonds at constant  (or fixed)  maturity  (for those  warrants
issued on June 30) and a risk free rate of 4.71% and  4.70%,  which  equals  the
three and five-year yield on Treasury bonds at constant (or fixed) maturity (for
those warrants issued on July 11); and volatility of 93%. Under the assumptions,
the   Black-Scholes   option  pricing  model  yielded  an  aggregate   value  of
approximately $19,494,000 with a current portion of approximately $1,225,000.

The Company  performed the same  calculations  as of August 31, 2006, to revalue
the warrants as of that date. In using the Black Scholes  option-pricing  model,
the Company used an underlying  stock price of $1.40 per share; no dividends;  a
risk free rate of  5.00%,  4.71% and  5.70%,  which  equals  the one,  three and
five-year  yield  on  Treasury  bonds  at  constant  (or  fixed);  and  maturity
volatility of 97%. The resulting aggregate allocated value of the warrants as of
August 31 2006 equaled  approximately  $22,160,000.  The change in fair value of
approximately  $2,666,000  (with a current  portion  of  roughly  $519,000)  was
recorded for the period ended August, 2006.

Upon the earlier of the warrant  exercise or the  expiration  date,  the warrant
liability will be reclassified into shareholders'  equity.  Until that time, the
warrant  liability  will be  recorded  at fair  value  based on the  methodology
described above. Liquidated damages under the registration rights agreement will
be expensed as incurred and will be included in operating expenses.


                                      F-16
<PAGE>


NOTE 10.  CONTINGENT LIABILITIES

The  Company's  wholly  owned  subsidiary,  Island  Scallops,  entered  into  an
Agreement in the 1998 year with two parties,  under which Island Scallops was to
produce and sell  geoduck  seed to the two  parties.  Island  Scallops  received
advance  payments from each of the two parties in the 2002 year of approximately
$64,140 and recognized  related  revenue of $43,705 in respect to seed delivered
in the 2002 year. The balance of the deposits received (advance  payments),  net
of sales,  totaling  $118,963,  is  included  in  accounts  payable  and accrued
liabilities.

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

As of August 31,  2004,  one of the two parties had made claims that the Company
owed to it amounts  totaling  $88,925.  This particular  party believed that the
agreement  required  Island  Scallops to deliver the product in year one and did
not allow Island Scallop to make up any shortfall  with product  produced in the
following year. The balance included in accounts payable and accrued liabilities
related to this party is $34,708.

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

Neither  the Company  nor its wholly  owned  subsidiary  maintain  insurance  in
respect to replacement of its inventory. Consequently, the Company is exposed to
financial losses or failure as a result of this risk.

NOTE 11.  INCOME TAXES

The Company did not provide any current or deferred United States federal, state
or foreign income tax provision or benefit for the period  presented  because it
has experienced  operation  losses since  inception.  The Company has provided a
full  valuation  allowance  on the  deferred  tax  asset,  consisting  primarily
unclaimed  research  and  development   expenditures,   because  of  uncertainty
regarding the Company's ability to realize the benefit.

Deferred  income  taxes  reflect  the net tax  effect of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the net deferred taxes at August 31, 2006 are as follows:

                                                           August 31,
                                                              2006
                                                       ---------------
       Deferred tax asset attributable to:
           Net operating loss carryover                $       884,219
           Less, valuation allowance                          (884,219)
                                                       ---------------
       Total net deferred tax asset                    $             -
                                                       ===============



                                      F-17
<PAGE>

Edgewater follows Statement of Financial  Accounting  Standards Number 109 (SFAS
109),  "Accounting  for  Income  Taxes."  SFAS  No.  109  requires  a  valuation
allowance,  if any, to reduce the deferred tax assets  reported if, based on the
weight of the  evidence,  it is more likely than not that some portion or all of
the deferred tax assets will not be realized.  Management has determined  that a
valuation  allowance  of $884,219 at August 31, 2006 is  necessary to reduce the
deferred  tax  assets to the  amount  that will  more  than  likely  than not be
realized. The change in valuation allowance for 2006 was approximately $438,661.

At August 31, 2006 Edgewater had net operating loss  carryforwards  amounting to
approximately  $524,000 for U.S. and Canadian tax purposes,  respectively,  that
expires in various  amounts  beginning  in 2009 and 2009 in the U.S. and Canada,
respectively.

The federal  statutory tax rate reconciled to the effective tax rate for 2006 is
as follows:

                                                      2006         2005
                                                    --------------------
Tax at U.S. statutory rate                            34.0%        34%
State tax rate, net of federal benefits                0.0          0.0
Foreign tax rate in excess of U.S. statutory rate     17.6%        17.6%
Change in valuation allowance                         51.6%        51.6%
                                                    --------------------
Effective tax rate                                     0.0%         0.0%
                                                    ====================


NOTE 12.  STOCK-COMPENSATION EXPENSE

In October  2005,  we engaged  Aurelius  Consulting  to  provide  marketing  and
investor  relations  services.  The initial  term of the  agreement is one year.
Aurelius is entitled to receive  100,000 shares of our  restricted  common stock
during the term of its agreement  (25,000 per  quarter),  in  consideration  for
their services. The shares were valued at $1.45 per share, the closing bid price
for shares of our common stock on the date of the contract. Therefore, the total
aggregate  value of the  transaction  recognized  by the  Company  in the  first
quarter of 2006 was $145,000.

At October 21, 2005 and  November  11,  2005,  our board  approved the issuing a
total of 25,000 shares of the Company's  common stock to The Shemano Group,  LLC
for preparing a research report for the Company. The shares were valued at $1.50
per  share,  the  closing  market  bid of our  common  stock  on the date of the
resolution.  Therefore,  the total aggregate value of the transaction recognized
by the Company in the first quarter of 2006 was $37,500.

On January 31, 2006, we issued 400,000 shares of our restricted  common stock to
World Wide  Mortgage  as  consideration  for  agreeing to extend the due date to
April 15, 2006 for us to repay our CDN  $1,500,000  loan  pursuant to the bridge
loan  agreement  dated November 9, 2004 and amended on April 15, 2005 between us
and World Wide. The shares have piggy-back  registration  rights that require us
to  register  the shares in our next  registration  statement.  The shares  were
valued at $1.30 per share,  the closing bid price for shares of our common stock
on the date we issued the shares.  Therefore,  the total  aggregate value of the
transaction is $520,000 which was recorded as interest expense.


                                      F-18
<PAGE>


On June 30, 2006, we issued 22,860 shares of common stock to the two  accredited
investors  of our  April  12 and May  30,  2006  financings  as  payment  of the
semi-annual  dividend  (8%  per  annum)  per the  terms  of the  Certificate  of
Designation of the Relative  Rights and  Preferences of the Series A Convertible
Preferred  Stock  (see  Note 13 -  Preferred  Shares  Financing  for  additional
information on the Series A Convertible  Preferred Stock).  The number of shares
issued was based on the Dividend Payment at a rate of 8% per annum (subject to a
pro rata adjustment) of the Liquidation  Preference  Amount  ($1,416,000 for the
April 12 financing and  $1,500,000  for the May 30 financing)  payable in shares
equal to 90% of the  quotient of (i) the  Dividend  Payment  divided by (ii) the
average of the VWAP for the twenty (20) trading days  immediately  preceding the
date the Dividend  Payment is due, but in no event less than $0.65. As such, the
shares were valued at approximately $34,700 and the total aggregate value of the
transaction was recorded as a preferred stock dividend.

Stock Options

In  August  2005,  our  Board  of  Directors   approved  the  "Edgewater   Foods
International  2005  Equity  Incentive  Plan." The Board of  Directors  reserved
5,000,000  shares of our  common  stock to be  issued  in the form of  incentive
and/or  non-qualified stock options for employees,  directors and consultants to
Edgewater.  As of August 31, 2006,  our Board of Directors  had  authorized  the
issuance of 282,000 options to employees.

Stock option activity during the year ending August 31, 2006 was as follows:

                                                                Weighted Average
                                              Number of          Exercise Price
                                                 Shares
                                            -----------------------------------
Outstanding, August 31, 2005                       282,000    $            1.50
    Granted                                             --                  --
    Exercised                                           --                  --
    Forfeited                                           --                  --
    Expired                                             --                  --
                                            -----------------------------------
Outstanding, August 31, 2006                       282,000    $
                                                                           1.50
                                            ===================================
Exercisable, August 31, 2006                       282,000    $
                                                                           1.50
                                            ===================================

At August 31, 2006, 62,000 of the outstanding options expire in August 2010 with
the remaining balance of 220,000 having an expiration date of August 2015.

NOTE 13.  PREFERRED STOCK FINANCING

On April 12, 2006, we completed a private  equity  financing of $1,062,000  with
two accredited  investors.  Net proceeds from the financing  were  approximately
$952,000.  We issued 1,888,000 shares of our Series A Preferred Stock, par value
$0.001 per share and stated  value of $0.75 per  share,  at a purchase  price of
$0.5625 per share.  Each  investor  also  received one of each of the  following
warrants:  (i) Series A Warrant, (ii) Series B Warrant,  (iii) Series C Warrant,
(iv) Series D Warrant, (v) Series J Warrant, (vi) Series E Warrant, (vii) Series
F Warrant,  (viii) Series G Warrant, and (ix) Series H Warrant, each to purchase
a number  of  shares  of  common  stock  equal to 50% of the  number of Series A
Preferred Stock purchased,  except for the Series J Warrants, which entitled the
investor  to  purchase a number of shares of common  stock  equal to 100% of the
number of shares of Series A  Preferred  Stock  purchased.  We issued a total of
9,440,000  Warrants.  Each of the Warrants has a term of 5 years, except for the
Series J Warrants, which have a term of 1 year.


                                      F-19
<PAGE>


In connection with the April 12, 2006 financing,  we paid cash compensation to a
placement  consultant in the amount of $84,960 and issued him 188,800  warrants.
Each of the placement  consultant's  warrants allow him to purchase one share of
our Series A Preferred  Stock,  and one half of each of the Series A-I  Warrants
and one  Series  J  warrant.  Each of the  placement  consultant's  warrants  to
purchase the securities described above is exercisable at a price of $0.5625 per
warrant,  for a period  of three  years.  The fees  were  recorded  as a cost of
capital.

On May 30,  2006,  we completed  another  round of private  equity  financing of
$1,500,000  with one  accredited  investor  pursuant  to a Series A  Convertible
Preferred  Stock  Purchase  Agreement.  Net proceeds  from this  financing  were
approximately  $1,380,000.  We issued 2,000,000 shares of our Series A Preferred
Stock,  stated value of $0.75 per share,  at a purchase price of $0.75 per share
and the investor also received one of each of the following warrants: (i) Series
A Warrant,  (ii)  Series B Warrant,  (iii)  Series C Warrant,  and (iv) Series D
Warrant,  each to purchase a 1,000,000  shares of Common  Stock;  therefore,  we
issued a total of 4,000,000 Warrants. Each of the Warrants has a term of 5 years
and is identical  to the Series A-D Warrants we issued to investors  pursuant to
the financing we closed on April 12, 2006 as disclosed in our Current  Report on
Form 8-K filed on April 14, 2006.  Each share of the Series A Preferred Stock is
convertible into one fully paid and nonassessable share of our common stock.

In connection  with the May 30, 2006 financing,  we paid cash  compensation to a
placement  consultant in the amount of $120,000 and issued him 200,000 warrants.
Each of the placement  consultant's  warrants allow him to purchase one share of
our Series A preferred  stock,  and one half of each of the Series A-D Warrants.
Each of the placement consultant's warrants to purchase the securities described
above is exercisable  at a price of $0.75 per warrant,  for a period of 3 years.
The fees were recorded as a cost of capital.

On June 30, 2006 and July 11,  2006,  we  completed  two final rounds of private
equity financing,  accepting subscriptions in the aggregate amount of $2,840,000
from nine  institutional and accredited  investors  pursuant to the May 30, 2006
Series A Convertible  Preferred  Stock  Purchase.  On June 30, 2006 and July 11,
2006,  we  entered  into  separate  Joinder  Agreements  to each of the Series A
Convertible  Preferred  Stock  Purchase  Agreement and the  Registration  Rights
Agreement,  each dated as of May 30, 2006,  with each of the new investors which
added  such  investors  as  additional  parties  to the May 30,  2006  financing
documents.   Net  cash  proceeds  from  these  two  rounds  were   approximately
$2,808,000.  Pursuant to these round two final financings,  we issued a total of
3,786,666  shares of our Series A  Preferred  Stock,  stated  value of $0.75 per
share,  at a purchase  price of $0.75 per share and each  investor also received
one of each of the  following  warrants:  (i)  Series A Warrant,  (ii)  Series B
Warrant,  (iii)  Series C Warrant,  and (iv) Series D Warrant,  each to purchase
1,893,338  shares of Common  Stock ;  therefore,  we issued a total of 7,573,352
Warrants in these two final rounds of financing. Each of the Warrants has a term
of 5 years and is  identical  to the Series A-D  Warrants we issued to investors
pursuant to the  financings  we closed on April 12, 2006 and May 30, 2006.  Each
share of the Series A  Preferred  Stock is  convertible  into one fully paid and
nonassessable share of our common stock.

In  connection  with the June 30,  2006 and July 11, 2006  financing,  we paid a
total placement  consultant fee of $217,000.  The placement  consultant received
$160,000 of his fee in securities (as described below) and $57,000 in cash. As a
result,  we issued  the  placement  consultant  213,333  shares of our  Series A
Preferred Stock,  and one of each of the A-D Warrants,  each to purchase 106,667
shares of our Common Stock. The A-D Warrants issued to the placement  consultant
are identical to the Series A-D Warrants we issued to the investors as described
above. The fees were recorded as a cost of capital.


                                      F-20
<PAGE>


We used a  portion  of the  proceeds  of the  above  referenced  private  equity
financings  to repay the entire  balance of  short-term  loan with an authorized
limit of $1,451,510  secured by our assets,  including a mortgage  charge in the
amount of  $1,451,510  on land and  building of the  Company,  and by a personal
guarantee of Robert Saunders,  our Chairman,  President and CEO, and former sole
shareholder of Island Scallops. (For additional information on this note, please
see Note 7 - Short Term Debt above)

Series A Preferred Stock

         Our  Board of  Directors  of has  designated  10,000,000  shares of our
authorized  preferred  stock  as  Series  A  Convertible  Preferred  Stock.  The
principal terms of the preferred stock are as follows:

         Voting.  Except with respect to specified  transactions that may affect
the rights,  preferences,  privileges  or voting power of the Series A Preferred
Stock and except as  otherwise  required by Nevada  law,  the Series A Preferred
Stock has no voting  rights.  We shall not affect such  specified  transactions,
which include  authorizing,  creating,  issuing or increasing  the authorized or
issued  amount of any class or series of stock,  ranking pari passu or senior to
the Series A Preferred  Stock,  with  respect to the  distribution  of assets on
liquidation,  dissolution or winding up, without the affirmative vote or consent
of the  holders of at least 75% of the shares of the  Series A  Preferred  Stock
outstanding at the time, given in person or by proxy,  either in writing or at a
meeting, in which the holders of the Series A Preferred Stock vote separately as
a class. The common stock into which the Series A Preferred Stock is convertible
shall,  upon  issuance,  have all of the same voting  rights as other issued and
outstanding common stock and none of the rights of the Series A Preferred Stock.

         Dividends.  The holders of record of shares of Series A Preferred Stock
are  entitled  to  receive,  out of any  assets  at the time  legally  available
therefor  and when and as declared by the Board of  Directors,  dividends at the
rate of 8% per annum in  shares of our  common  stock.  The  number of shares of
common  stock to be issued to the holder  shall be an amount equal to 90% of the
quotient of (i) the  dividend  payment  divided by (ii) the average of the daily
volume  weighted  average  price (VWAP) of our common stock for such date on the
OTC Bulletin  Board for the 20 trading days  immediately  preceding the date the
dividend  payment is due,  but in no event  less than  $0.65.  Dividends  on the
Series A Preferred Stock are cumulative,  accrue and are payable  semi-annually.
Dividends  on the Series A Preferred  Stock are prior and in  preference  to any
declaration or payment of any  distribution on any outstanding  shares of junior
stock.  So long as any shares of Series A Preferred  Stock are  outstanding,  we
will  not  declare,  pay or set  apart  for  payment  any  dividend  or make any
distribution on any junior stock (other than dividends or distributions  payable
in additional  shares of junior  stock),  unless at the time of such dividend or
distribution  we shall  have  paid  all  accrued  and  unpaid  dividends  on the
outstanding shares of Series A Preferred Stock.

         Conversion.  At any time on or after the issuance  date,  the holder of
any such shares of Series A Preferred Stock may, at the holder's  option,  elect
to convert all or any portion of the shares of the Series A Preferred Stock held
by such  person into a number of fully paid and  nonassessable  shares of common
stock equal to the quotient of (i) the liquidation  preference amount ($0.75) of
the shares of Series A  Preferred  Stock  being  converted  plus any accrued but
unpaid dividends divided by (ii) the conversion price,  which initially is $0.75
per share, subject to certain adjustments.


                                      F-21
<PAGE>


         If within 3  business  days of our  receipt  of an  executed  copy of a
conversion notice the transfer agent shall fail to issue and deliver to a holder
the number of shares of common stock to which such holder is entitled  upon such
holder's  conversion of the Series A Preferred Stock or to issue a new preferred
stock certificate  representing the number of shares of Series A Preferred Stock
to which such holder is entitled, we shall pay additional damages to such holder
on each  business day after such 3rd business  day that such  conversion  is not
timely  effected  in an amount  equal 0.5% of the  product of (A) the sum of the
number of shares of common  stock not issued to the holder on a timely basis and
to which  such  holder is  entitled  and,  in the  event we failed to  deliver a
preferred  stock  certificate  to the  holder on a timely  basis,  the number of
shares  of common  stock  issuable  upon  conversion  of the  shares of Series A
Preferred Stock  represented by such  certificate,  as of the last possible date
which we could have issued such  certificate  to such holder  timely and (B) the
closing bid price of our common stock on the last  possible  date which we could
have issued such common stock and such certificate,  as the case may be, to such
holder timely. If we fail to pay those additional damages within 5 business days
of the date incurred,  then such payment shall bear interest at the rate of 2.0%
per month (pro rated for partial months) until such payments are made.

         The conversion price of the Series A Preferred Stock may be adjusted in
the event of (i)  combination,  stock split, or  reclassification  of the common
stock; (ii) capital reorganization; (iii) distribution of dividends; or (iv) the
issuance  or  sale  of  additional  shares  of  common  stock  or  common  stock
equivalents.

         Liquidation. In the event of the liquidation, dissolution or winding up
of our  affairs,  whether  voluntary  or  involuntary,  the holders of shares of
Series A Preferred Stock then outstanding  shall be entitled to receive,  out of
our assets  available for distribution to its  stockholders,  an amount equal to
$0.75 per share or the liquidation  preference amount, of the Series A Preferred
Stock plus any accrued and unpaid  dividends before any payment shall be made or
any assets  distributed  to the holders of the common  stock or any other junior
stock.  If  our  assets  are  not  sufficient  to pay in  full  the  liquidation
preference  amount plus any accrued and unpaid dividends  payable to the holders
of  outstanding  shares  of the  Series A  Preferred  Stock  and any  series  of
preferred  stock or any other class of stock ranking pari passu, as to rights on
liquidation,  dissolution or winding up, with the Series A Preferred Stock, then
all of said  assets  will be  distributed  among  the  holders  of the  Series A
Preferred  Stock and the other  classes  of stock  ranking  pari  passu with the
Series A Preferred  Stock,  if any,  ratably in accordance  with the  respective
amounts that would be payable on such shares if all amounts payable thereon were
paid  in  full.  The  liquidation  payment  with  respect  to  each  outstanding
fractional  share  of  Series A  Preferred  Stock  shall  be equal to a  ratably
proportionate amount of the liquidation payment with respect to each outstanding
share of Series A Preferred Stock. All payments  pursuant  thereto,  shall be in
cash,  property (valued at its fair market value as determined by an independent
appraiser  reasonably  acceptable  to the  holders of a majority of the Series A
Preferred Stock) or a combination thereof; provided, however, that no cash shall
be paid to holders of junior stock unless each holder of the outstanding  shares
of  Series  A  Preferred  Stock  has  been  paid in cash  the  full  Liquidation
Preference  Amount plus any accrued and unpaid dividends to which such holder is
entitled as provided herein.  After payment of the full  liquidation  preference
amount plus any accrued and unpaid  dividends  to which each holder is entitled,
such  holders of shares of Series A Preferred  Stock will not be entitled to any
further participation as such in any distribution of our assets.


                                      F-22
<PAGE>

NOTE 14.  COMMITMENTS AND CONTINGENCIES

Corporate Offices

For the fiscal year ended August 31, 2006, our U.S. corporate office was located
at 400 Professional Drive, Suite 310,  Gaithersburg,  Maryland 20878. This space
was provided on a rent free basis by one of our shareholders.  As a result,  the
Company did not recognize rental expense in the fiscal year.

Employment Agreements

We entered into an employment agreement with Mr. Robert Saunders as our Chairman
and  President  effective on June 29,  2005.  Subsequently  in August 2005,  Mr.
Saunders was appointed CEO by our Board of Directors. Mr. Saunders will serve at
the pleasure of the Board of Director's. For serving as President, Mr. Saunders'
compensation will be US $60,000 per annum. Additionally,  we agreed to grant Mr.
Saunders  a signing  bonus of US  $150,000  to be paid on closing of at least US
$3,500,000 in third party  financing and increase his  compensation  to $120,000
per annum if we receive at least US  $5,000,000  in outside  funding.  After the
completion  of our Preferred  Stock  Financing  (see Note 13 - Preferred  Shares
Financing  for  additional  information  on the Series A  Convertible  Preferred
Stock),  Mr. Saunders was due the signing bonus of $150,000 and a monthly salary
of $10,000 per month beginning in August 2006.  However,  Mr. Saunders agreed to
reduce his  monthly  salary to $5,000  per month  until such time that we become
significantly  cash  flow  positive  for its  operations.  Additionally,  we are
currently discussing possible  restructuring/payment terms of the $150,000 bonus
and the accrued  salary of $70,000 as of August 31, 2006 until such time that we
become significantly cash flow positive for its operations.

NOTE 15.  SUBSEQUENT EVENTS (UNAUDITED)

In September  2006,  the Company  entered into a Settlement  Agreement  with the
Minister of Western Economic Diversification to amend the repayment terms of the
Company  non-interest  bearing  loan of $611,055 (to Island  Scallops)  with the
Western Diversification Program. The Company agreed to repay the $174,976 due as
of August  31,  2006 in  accordance  with a payment  schedule  beginning  with a
payment of $64,202 in September  2006 and  continuing  with  monthly  payment of
roughly  $10,070  until August 15, 2007.  The parties  agreed that the remaining
balance of the  $436,079  shall be repaid  via  quarterly  payment  equal to the
greater  of  $31,577  or 4% of the gross  scallop  sales  starting  the  quarter
beginning on June 1, 2007 and  subsequent  quarters until the balance is repaid.
Under the terms of this  agreement,  the first  quarter  payment  will be due on
September 30, 2007.

In September  2006,  we engaged PR Global  Concept GBR to provide  international
investor  relations  services.  The initial term of the  agreement is two years.
Pursuant to the consulting agreement, we will pay PR Global $5,000 per month for
the term of the  agreement.  As  additional  compensation,  we will also issue a
total of 500,000  options to purchase our common stock in quarter  installments,
the  first of which  vested  immediately  upon  signing  the  agreement  and the
remainder of which will vest 3 months, 12 months and the final  installment,  15
months after the date of signing;  the options are  exercisable at strike prices
ranging from $1.40 to $2.25.


                                      F-23
<PAGE>


NOTE 16. GOING CONCERN

Prior to the  completion  of our  Preferred  Stock  Financing  (see  Note 13 for
additional  details),  our working  capital  had been  primarily  financed  with
various forms of debt. We have suffered  operating losses since inception in our
efforts to establish and execute our business strategy. As of August 31, 2006 we
had a cash balance of approximately  $1,800,000.  Although  management  believes
that we have adequate  funds to maintain our business  operations  into the next
fiscal year and until we become cash flow positive, we are likely to continue to
suffer operational losses until the first quarter of our 2007 fiscal year. Until
our operations are able to demonstrate and maintain  positive cash flows, we may
require  additional  working capital to fund our ongoing  operations and execute
our business strategy.  Based on these factors, there is substantial doubt about
our ability to continue as a going concern.

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

NOTE 17.    FOREIGN OPERATIONS

The Company's  share of the net assets held outside of the United States totaled
approximately $3,250,000 at August 31, 2006.






                                      F-24
<PAGE>



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

We have had no disagreements  with our certified public accountants with respect
to accounting practices or procedures or financial disclosure.


ITEM 8A. CONTROLS AND PROCEDURES

QUARTERLY EVALUATION OF CONTROLS

As of the end of the period  covered by this annual  report on Form 10-KSB,  the
Company  evaluated  the  effectiveness  of the design and operation of (i) their
disclosure  controls  and  procedures,  and (ii)  their  internal  control  over
financial reporting. The evaluators who performed this evaluation were our Chief
Executive Officer, Robert Saunders and Acting Chief Accounting Officer,  Michael
Boswell;  their  conclusions,  based on and as of the date of the Evaluation (i)
with  respect to the  effectiveness  of our  Disclosure  Controls  and (ii) with
respect to any change in our Internal  Controls  that  occurred  during the most
recent fiscal quarter that has materially  affected,  or is reasonably likely to
materially affect our Internal Controls are presented below.

CEO AND CFO CERTIFICATIONS

Attached  to this  annual  report,  as  Exhibits  31.1  and  31.2,  are  certain
certifications  of the CEO and Acting CAO, which are required in accordance with
the Exchange Act and the Commission's rules implementing such section (the "Rule
13a-14(a)/15d-14(a) Certifications"). This section of the annual report contains
the   information   concerning   the   Evaluation   referred   to  in  the  Rule
13a-14(a)/15d-14(a)   Certifications.   This  information   should  be  read  in
conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete
understanding of the topic presented.

DISCLOSURE CONTROLS AND INTERNAL CONTROLS

Disclosure  Controls are procedures designed with the objective of ensuring that
information  required to be disclosed in the  Company's  reports  filed with the
Securities and Exchange  Commission  under the Securities  Exchange Act, such as
this annual report, is recorded,  processed,  summarized and reported within the
time period specified in the Commission's rules and forms.  Disclosure  Controls
are also  designed  with the  objective of ensuring  that  material  information
relating  to the  Company is made known to the CEO and the Acting CAO by others,
particularly during the period in which the applicable report is being prepared.
Internal Controls, on the other hand, are procedures which are designed with the
objective of providing reasonable assurance that (i) the Company's  transactions
are properly  authorized,  (ii) the  Company's  assets are  safeguarded  against
unauthorized or improper use, and (iii) the Company's  transactions are properly
recorded and reported,  all to permit the  preparation  of complete and accurate
financial statements in conformity with accounting principals generally accepted
in the United States.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS


                                       30
<PAGE>


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

SCOPE OF THE EVALUATION

The CEO and Acting CAO's evaluation of the our Disclosure  Controls and Internal
Controls included a review of the controls' (i) objectives,  (ii) design,  (iii)
implementation, and (iv) the effect of the controls on the information generated
for use in this  annual  report.  In the course of the  Evaluation,  the CEO and
Acting CAO sought to identify data errors, control problems,  acts of fraud, and
they sought to confirm that appropriate  corrective  action,  including  process
improvements,  was  being  undertaken.  This  type  of  evaluation  is done on a
quarterly  basis so that the  conclusions  concerning the  effectiveness  of our
controls  can be  reported  in our  quarterly  reports on Form 10-QSB and annual
reports on Form 10-KSB. The overall goals of these various evaluation activities
are to monitor  our  Disclosure  Controls  and  Internal  Controls,  and to make
modifications  if and as necessary.  Our external  auditors also review Internal
Controls in  connection  with their audit and review  activities.  Our intent in
this regard is that the  Disclosure  Controls and the Internal  Controls will be
maintained  as  dynamic  systems  that  change   (including   improvements   and
corrections) as conditions warrant.

Among other  matters,  the  Evaluation  was to determine  whether there were any
significant  deficiencies or material weaknesses in our Internal Controls, which
are  reasonably  likely to  adversely  affect our  ability  to record,  process,
summarize and report financial information, or whether the Evaluators identified
any acts of  fraud,  whether  or not  material,  involving  management  or other
employees who have a significant role in our Internal Controls. This information
was  important  for  both  the  Evaluation,  generally,  and  because  the  Rule
13a-14(a)/15d-14(a)  Certifications, Item 5, require that the CEO and Acting CAO
disclose that  information to our Board (audit  committee),  and our independent
auditors, and to report on related matters in this section of the annual report.
In the professional auditing literature, "significant deficiencies" are referred
to as  "reportable  conditions".  These  are  control  issues  that  could  have
significant  adverse  affect on the ability to record,  process,  summarize  and
report  financial  data in the financial  statements.  A "material  weakness" is


                                       31
<PAGE>

defined  in  the  auditing  literature  as  a  particularly  serious  reportable
condition where the internal control does not reduce, to a relatively low level,
the risk that  misstatement  cause by error or fraud may occur in  amounts  that
would be material in relation to the  financial  statements  and not be detected
within a timely  period by employee  in the normal  course of  performing  their
assigned  functions.  The  Evaluators  also  sought to deal with other  controls
matters in the Evaluation,  and in each case, if a problem was identified,  they
considered what revisions, improvements and/or corrections to make in accordance
with our ongoing procedures.

CONCLUSIONS

Based upon the Evaluation,  our disclosure  controls and procedures are designed
to provide reasonable assurance of achieving our objectives.  Our CEO and Acting
CAO concluded that our disclosure  controls and procedures are effective at that
reasonable assurance level to ensure that material information relating to us is
made known to management,  including the CEO and Acting CFO, particularly during
the period when our periodic  reports are being prepared,  and that our Internal
Controls are effective at that assurance level to provide  reasonable  assurance
that our financial statements are fairly presented  inconformity with accounting
principals generally accepted in the United States. Additionally, there has been
no change in our Internal  Controls that occurred  during our most recent fiscal
quarter that has materially  affected,  or is reasonably  likely to affect,  our
Internal Controls.

                                    PART III.

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  following  table and text set forth the names and ages of all directors and
executive  officers as of November 27, 2006. The Board of Directors is comprised
of only one class. All of the directors will serve until the next annual meeting
of shareholders, which is anticipated to be held in January or February of 2007,
and until their  successors  are elected and  qualified,  or until their earlier
death,  retirement,  resignation  or removal.  To date we have not had an annual
meeting.  Except as disclosed herein,  there are no family  relationships  among
directors and executive officers. Also provided herein are brief descriptions of
the business  experience of each director,  executive officer and advisor during
the past five years and an indication of directorships  held by each director in
other  companies  subject  to  the  reporting  requirements  under  the  Federal
securities laws.

Dr.  Kristina  Miller,  our  Chief  Scientific  Advisor  is the  wife of  Robert
Saunders, our Chairman, CEO and President.

NAME                        AGE       POSITION
----                        ---       --------
Robert Saunders              53      Chairman, CEO and President
Douglas C. MacLellan         50      Vice Chairman
Mark H. Elenowitz            36      Director
Robert L. Rooks              51      Director
Ian Fraser                   45      Director
Michael Boswell              37      Director, Acting Chief Accounting Officer


                                       32
<PAGE>


ROBERT  SAUNDERS,  CHAIRMAN,  CEO AND PRESIDENT.  Mr.  Saunders has directed all
research and  development  efforts at Island  Scallops since its  establishment.
After studying for his B.Sc. at the University of British  Columbia in the early
1970's,  Mr.  Saunders has worked  exclusively in the  aquaculture  research and
development   field.   His  efforts  have  primarily   involved   designing  and
implementing  innovative  culture  technology  and methods  for new  aquaculture
species in British  Columbia.  Mr. Saunders has direct  experience with managing
projects  similar  to  the  type  proposed,  such  as  developing  the  hatchery
technology for producing the Japanese  scallop and the  development of sablefish
aquaculture.

DOUGLAS C.  MACLELLAN,  VICE-CHAIRMAN.  Since May 1992,  Mr.  MacLellan has been
President and Chief Executive Officer of the MacLellan Group,  Inc., a privately
held business  incubator and financial advisory firm. Mr. MacLellan is currently
a member of the board of directors and chairman of the audit  committee of AMDL,
Inc. (AMEX: ADL), a publicly held biotechnology  firm. From 2002 until September
2005, Mr. MacLellan was Vice Chairman and a Director of AXM Pharma,  Inc. (AMEX;
AXJ). From March 1998 through October 2000, Mr. MacLellan was the co-founder and
a  significant  shareholder  of  Wireless  Electronique,   Ltd.,  a  China-based
telecommunications  company  having joint venture  operations  with China Unicom
(NASDAQ:  CHU) in Yunnan,  Inner  Mongolia and Ningxia  provinces.  He is also a
co-founder  and, since May 1997, has been a director of Datalex  Corporation,  a
Canadian-based  legacy software solution  provider.  From November 1996 to March
1998, Mr.  MacLellan was co-Chairman and an Investment  Committee  member of the
Strategic  East European Fund.  From November 1995 to March 1998, Mr.  MacLellan
was  President,  Chief  Executive  Officer and a Director of PortaCom  Wireless,
Inc.,  a company  engaged as a developer  and  operator of cellular and wireless
telecommunications  ventures in selected developing world markets. Mr. MacLellan
is a former  member  of the  board  of  directors  and  co-founder  of  FirstCom
Corporation  (NASDAQ:  FCLX), an international  telecommunications  company that
operates a  competitive  access fiber and  satellite  network in Latin  America,
which became AT&T Latin America (NASDAQ:  ATTL) in August 2000.  During 1996, he
was also the Vice-Chairman of Asia American  Telecommunications  (now Metromedia
China  Corporation),  a  majority-owned  subsidiary of Metromedia  International
Group,  Inc.  (AMEX:  MMG).  Mr.  MacLellan  was educated at the  University  of
Southern  California  in  economics  and  finance,  with  advanced  training  in
classical economic theory.

MARK H. ELENOWITZ, DIRECTOR. Mr. Elenowitz is a co-founder and managing director
of the TriPoint family of companies. He is responsible for the overall corporate
development  of the  firm  and  assisting  Tripoint's  clients  with  high-level
financial  services and general  business  development.  From  December  2002 to
September  2005, Mr.  Elenowitz was a board member of AXM Pharma formerly (AMEX:
AXJ).  From  September  2001 to March 2002,  Mr.  Elenowitz  was a Director  and
President  of  Image  World  Media,   Inc.,  an   international   media  company
specializing  in the  production and  distribution  of various media content for
worldwide  distribution  across  multiple media  platforms,  such as traditional
television,  film and the Internet.  From  February  1998 to October  2001,  Mr.
Elenowitz was Co-Chairman and Managing Director of GroupNow!,  Inc., a financial
consulting  firm.  In this role he was  responsible  for the  company's  overall
corporate  development and corporate finance. Mr. Elenowitz integrates a strong,
successful  entrepreneurial  background  with extensive  financial  services and
capital markets experience.  He is also the senior managing director of Investor
Communications Company, LLC (ICC), a national investor relations firm he founded


                                       33
<PAGE>

in 1996.  Through ICC, Mr. Elenowitz has developed  ongoing  relationships  with
other investment banking firms,  market makers, and analysts.  Mr. Elenowitz has
worked with over 30 publicly traded companies providing financial consulting and
strategic  planning  services.  Previously,  Mr.  Elenowitz held Series 7 and 63
licenses as a broker,  and held a Series 24 license (Branch Manager) at regional
brokerage  firm and also served as Vice  President of Sales at NYSE member firm.
Mr.  Elenowitz  is the  recipient  of several  entrepreneurial  awards.  He is a
graduate of the University of Maryland School of Business and Management, with a
Bachelor of Science in Finance.


DR.  ROBERT L. ROOKS,  DIRECTOR.  Dr. Robert L. Rooks has been Chief of Staff of
All Care Animal Referral Center (ACARC) in Fountain  Valley,  California,  since
1990. ACARC is the largest  strictly  referral  veterinary  center in the United
States.  Dr. Rooks has a staff of over 20 veterinarians in the areas of surgery,
critical care, internal medicine, oncology, dentistry,  radiology and neurology.
Their services  include  24-hour  critical  care/emergency  service,  MRI and CT
scans,  color-flow  Doppler  ultrasounds,  hyperbaric oxygen therapy, a complete
orthopedic  program  including total hip replacements and joint  reconstruction,
cobalt  radiation  therapy,  a  complete   neuro-diagnostic  service,  a  kidney
transplant program and a physical rehabilitation department and much more. He is
the published author of over 100 journals,  magazine and newspaper articles. Dr.
Rooks is also the author of the book "Canine  Orthopedics"  published in 1997 by
Howell Bookhouse.  Dr. Rooks completed his  undergraduate  studies at Iowa State
University in 1978. He graduated from the College of Veterinary Medicine at Iowa
State.  Dr. Rooks  received his Masters Degree as well as completed his surgical
residency at the  University  of Illinois in 1981.  He is a Diplomat of both the
American  College of Veterinary  Surgeons and the American College of Veterinary
Practitioner.

IAN FRASER,  DIRECTOR.  Since 1997,  Mr. Ian Fraser has been President of Fraser
Yacht Sales Ltd., a successful Yacht Brokerage located in Vancouver,  B.C. Prior
to establishing  Fraser Yacht Sales Ltd., Mr. Fraser gained  experience in sales
and marketing both nationally and  internationally as a yacht broker for two top
brokerage  houses  in  Vancouver.  Previously,  Mr.  Fraser  was  worked  as  an
advertising  sales  executive with Naylor  communications  from 1988 to 1990 and
learned  valuable  communication  skills  while  working  with  numerous  trades
including the Truck  Logger's  association,  the I.W.A of America,  and the B.C.
Construction  industry.  He also operated as a commercial  fisherman on the West
coast working on commercial salmon fishing boats for the B.C. Packer Corporation
over a 4 year period and gained valuable knowledge of the coastline of Vancouver
Island and along the mainland from Victoria to the Queen Charlotte Islands.  Mr.
Fraser also acquired sea time and  commercial  shipping  skills while working on
the deck  department of the B.C.  Ferry  Corporation  based out of Horseshoe Bay
during  his early  professional  career  and  during  the  summer  months  while
attending school in the early 1980s. Mr. Fraser also competes internationally on
ocean racing yachts and has crossed the Pacific and sailed up and down the coast
to Mexico on numerous  occasions  while racing and  delivering  racing yachts as
captain.  Mr. Fraser studied Business  Administration at Simon Fraser University
and Capilano College graduating with a diploma in Business Administration.

MICHAEL BOSWELL,  DIRECTOR AND ACTING CHIEF ACCOUNTING OFFICER. Mr. Boswell is a
co-founder and member in TriPoint  Capital  Advisors,  LLC, a boutique  merchant
bank focused on small and  mid-sized  growth  companies  and a co founder of the
TriPoint family of companies. Mr. Boswell provides high-level financial services
to start-up businesses and small to mid-sized  companies.  Prior to the founding
of  TriPoint,  Mr.  Boswell  had a number of  executive  positions  focusing  on


                                       34
<PAGE>

business  development  and management  consulting.  Mr. Boswell also spent eight
years as a senior  analyst  and/or senior  engineer for various  branches of the
United States Government.  He earned a MBA from John Hopkins University and a BS
degree in Mechanical Engineering from University of Maryland.

DARRYL HORTON, DIRECTOR. Mr. Horton has been a businessman successfully involved
in numerous  construction and development  projects for the past 35 years. He is
the President,  Manager and a Partner of Abbotsford Development  Corporation and
is currently  managing a development  project in  Abbotsford,  British  Columbia
called Eagle Mountain. Eagle Mountain is an upscale, master planned community of
single family homes, town homes and commercial properties covering approximately
60 acres  that is  expected  to be  valued,  upon  completion,  in excess of 200
million dollars. Prior to Eagle Mountain, Mr. Horton managed, owned and marketed
numerous other residential and commercial projects including the construction of
a 30 million dollar  multi-function  residential  Intermediate  Care Facility in
LaJolla  California.  For  15  years  Mr.  Horton  was a  partner  in a  general
contracting  company that did various  contracts with an average volume of about
25  million  per year.  In the  1970's,  Mr.  Horton was the Vice  president  of
Community Builders, the largest single family developer in British Columbia. Mr.
Horton is also the director of several other building and development  companies
in British Columbia.

VICTOR BOLTON,  DIRECTOR. Mr. Bolton founded a Mechanical contracting firm after
graduating  from  college  and  evolved  that  firm  into  all  aspects  of  the
construction  industry  including  building and raw land  developing  as well as
extensive property  management.  Retiring from this business in 2000, Mr. Bolton
now focuses time and energy towards the food manufacturing field.


Significant Employees

The following are employees who are not executive officers, but who are expected
to make significant contributions to our business:

BRUCE  EVANS,  FARM  MANAGER.  Mr.  Bruce Evans has been  involved in  shellfish
production since 1985. He successfully established an oyster business, employing
methods of long-line  and beach  culture  production.  That business is still in
operation today,  producing 7,000 gals of shucked oysters annually and employing
3 full time people and 4 part time people.  He moved to Island Scallops in 1989.
Mr. Evans was responsible for securing the leases from the Provincial government
for this scallop grow-out  project.  He built the established  long-line systems
that currently  produce  scallops for Island  Scallops.  Mr. Evans worked with a
Japanese  scallop  farmer  for two years in B.C.  and spent a month  working  on
highly acclaimed scallop farms in Japan. Mr. Evans has BS in Marine Biology from
the University of Victoria.

DR. KRISTINA M. MILLER,  CHIEF SCIENTIFIC ADVISOR.  Dr. Miller is currently Head
of the Molecular  Genetics  Section in the Pacific  Region for the Department of
Fisheries  and Oceans,  Canada (DFO).  She has been a research  scientist at DFO
since obtaining her PhD in Biological Sciences from Stanford University in 1992.
The Molecular  Genetics  section she oversees  contains a staff of 26, including
scientists,  biologists,  computer analysts and research technicians. Dr. Miller
conducts  research  on  the  genetic  composition,   adaptation,   immunity  and
physiology  of wild and  domesticated  fish and  shellfish  species  using  both


                                       35
<PAGE>

molecular and genomic  approaches.  She has been a leader in the  development of
molecular  technologies  to aid in the  conservation  and  management of aquatic
resources.  In  the  past  10  years,  she  has  published  over  40  scientific
peer-reviewed journal manuscripts,  and her group has been the focus of numerous
magazine and newspaper articles. Dr. Miller brings a strong scientific component
to the  management of Edgewater  Foods,  and she will serve as Chief  Scientific
Advisor.  In  addition to her PhD,  Dr.  Miller  received a BSc in Zoology  from
University of California, Davis in 1983, and a MSc in Biology from University of
British Columbia in 1986. Dr. Miller is Robert Saunders,  our Chairman,  CEO and
President's wife.

AUDIT COMMITTEE AND FINANCIAL EXPERT

We have an Audit Committee as specified in Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended,  composed of Douglas MacLellan (Chair), Robert
Rooks and Ian Fraser.  The Audit Committee  focuses its efforts on assisting our
Board of Directors  to fulfill its  oversight  responsibilities  with respect to
our:

     o    Quarterly and annual consolidated  financial  statements and financial
          information filed with the Securities and Exchange Commission;
     o    System of internal controls;
     o    Financial accounting principles and policies;
     o    Internal and external audit processes; and
     o    Regulatory compliance programs.

The committee meets periodically with management to consider the adequacy of our
internal  controls and financial  reporting  process.  It also  discusses  these
matters with our independent  auditors and with appropriate  financial personnel
that we employ.  The committee  reviews our financial  statements  and discusses
them  with  management  and our  independent  auditors  before  those  financial
statements are filed with the Securities and Exchange Commission.

The  committee  has the sole  authority  to retain and dismiss  our  independent
auditors and  periodically  reviews  their  performance  and  independence  from
management.  The  independent  auditors  have  unrestricted  access  and  report
directly to the committee.

AUDIT COMMITTEE FINANCIAL EXPERT

Douglas  MacLellan  is our Audit  Committee  Financial  Expert,  as that term is
defined  in Item 401 of  Regulation  S-B and the Board has  determined  that Mr.
MacLellan is independent,  as that term is used in Item  7(d)(3)(iv) of Schedule
14A under the Exchange Act. Mr. MacLellan's qualifications as an audit committee
financial expert are described in his biography above.


COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires our  officers,  directors and persons
who own more than 10% of any class of our  securities  registered  under Section
12(g) of the Exchange Act to file reports of ownership  and changes in ownership


                                       36
<PAGE>

<TABLE>


with the SEC. Officers, directors and greater than 10% stockholders are required
by SEC  regulation  to furnish us with  copies of all  Section  16(a) forms they
file.

We were a voluntary  filer pursuant to Section 15(d) of the Act until August 30,
2006 and, therefore,  our officers,  directors and 10% or greater holders of our
securities  were not required to file reports  pursuant to Section  16(a) during
the fiscal year ended  August 31,  2006.  However,  after we filed a Form 8-A to
register our common stock and series A preferred stock pursuant to Section 12(g)
of the Act, on August 30, 2006, based upon our review of copies of such reports,
our  officers,  directors  and 10%  stockholders  filed the reports  required by
Section 16(a).

CODE OF ETHICS

On August  3,  2005,  we  adopted a code of  ethics  that  applies  to our Chief
Executive Officer and Principal Financial and Accounting Officer. You may obtain
a copy of any of our  codes  of  ethics  at no  cost,  by  written  request  to:
Edgewater Foods International,  Inc., 5552 West Island Highway,  Qualicum Beach,
British Columbia, Canada V9K 2C8; or, by oral request at: (250) 757-9811.


ITEM 10. EXECUTIVE COMPENSATION

                           Summary Compensation Table

                                                               ------------------------------ -----------
ANNUAL COMPENSATION                                            AWARDS                         Payouts
-------------------------------------------------------------- -------------- --------------- -----------
   (a)           (b)        (c)       (d)              (e)       (f)              (g)           (h)           (i)

                                                      Other                                                   All
Name                                                  Annual   Restricted       Securities                    Other
And                                                   Compen-  Stock            Underlying       LTIP        Compen-
Principal                                             sation   Award(s)         Options/       Payouts       sation
Position         Year     Salary($)  Bonus($)         ($)         $             SARs (#)         ($)           ($)
---------------- -------- ---------- -------------- --------- --------------- --------------- ------------ -----------
<S>                                                                           <C>             <C>          <C>

Robert           2006      60,000       150,000        0            0               0              0           0
Saunders,
Chairman,
President and
CEO(1)
---------------- -------- ---------- -------------- --------- --------------- --------------- ------------ -----------
Robert           2005      10,000          0           0            0               0              0           0
Saunders,
Chairman,
President and
CEO
---------------- -------- ---------- -------------- --------- --------------- --------------- ------------ -----------



                                       37
<PAGE>

Robert           2004         0            0           0            0               0              0           0
Saunders,
Chairman,
President and
CEO
---------------- -------- ---------- -------------- --------- --------------- --------------- ------------ -----------
Michael          2006         0            0           0            0               0              0           0
Boswell,
President and
Acting Chief
Account
Officer (2)
---------------- -------- ---------- -------------- --------- --------------- --------------- ------------ -----------
Michael          2005         0            0           0            0               0              0           0
Boswell,
President and
Acting Chief
Account Officer
---------------- -------- ---------- -------------- --------- --------------- --------------- ------------ -----------
Michael Boswell  2004         0            0           0            0               0              0           0
---------------- -------- ---------- -------------- --------- --------------- --------------- ------------ -----------

</TABLE>

     (1)  In June 2005, we entered into an employment  agreement with Mr. Robert
          Saunders as our  Chairman  and  President  effective on June 29, 2005.
          Subsequently  in August 2005,  Mr.  Saunders was  appointed CEO by our
          Board of  Directors.  Mr.  Saunders  will serve at the pleasure of the
          Board  of  Director's.   For  serving  as  President,   Mr.  Saunders'
          compensation will be US $60,000 per annum. Additionally,  we agreed to
          grant  Mr.  Saunders  a  signing  bonus of US  $150,000  to be paid on
          closing  of at  least  US  $3,500,000  in third  party  financing  and
          increase his compensation to $120,000 per annum if we receive at least
          US  $5,000,000 in outside  funding.  The Board  recently  approved the
          Compensation  Committee's   recommendation  to  reduce  Mr.  Saunders'
          compensation  to  $5,000  per  month  until  our  cash  flow  position
          improves,  at which time the Committee will reconvene and recommend to
          the Board that Mr. Saunders' compensation increase back to $10,000 per
          month.

     (2)  Mr.  Boswell served as our President from March to June 2005, at which
          time Mr. Saunders  replaced Mr. Boswell as President.  Mr. Boswell has
          served as our Acting Chief  Accounting  Officer since August 2005. Mr.
          Boswell  indirectly  owns a  minority  interest  in  TriPoint  Capital
          Advisors,  LLC,  a  significant  shareholder  and party  with which we
          maintain a  consulting  agreement.  The Board  recently  approved  the
          Compensation  Committee's  recommendation  to pay TriPoint $15,000 per
          month,  which includes fees for Mr.  Boswell's  services as our Acting
          Chief Accounting  during 2005,  however TriPoint agreed to reduce such
          fee to $7,000  per month  until our cash flow  position  improves,  at
          which time the  Committee  will  reconvene  and  recommend a return to
          $15,000 per month. In addition,  TriPoint has agreed not to accept any
          additional fees, other than expenses, until we are sufficiently funded
          to carry out our business and operations. Although Mr. Boswell did not
          work for us in any capacity until 2005, we are required to include our


                                       38
<PAGE>

          last three  fiscal  years in the above  table.  According to the above
          reasons, Mr. Boswell did not receive any compensation in 2003, 2004 or
          2005.


Options/SARs

We did not grant any  options  or SARs to any of our  named  executive  officers
during the last fiscal year nor did any of our executive  officers  exercise any
options or SARs during the last fiscal year.

Long Term Incentive Plans

No Long Term Incentive awards were granted in the last fiscal year.


BOARD OF DIRECTORS

Our  directors  who are  employees do not receive any  compensation  from us for
services rendered as directors.  The Board has created three classes of fees for
outside  directors:  (1) outside directors who are  "independent," as defined in
the Exchange Act will be paid $500 per meeting,  whether telephonic or in person
for director  fee - there shall not be any fees for written  consents in lieu of
board meetings; (2) outside directors who are not "independent" will not receive
any  fees  at  this  time,  but  once  our  cash  flow  position  improves,  the
Compensation  Committee  will reconvene and make  recommendations;  (3) the Vice
Chairman will receive $3,000 per month,  which includes $1,500 per month for his
role as  Chairman  of our  Audit  Committee.  Additionally,  although  we do not
currently  provide stock based  compensation  to our outside  directors,  in the
future we may grant outside directors incentive-based stock compensation.

BOARD COMMITTEES

We currently have five committees appointed by our Board of Directors:

     o    Audit  Committee,  which is  comprised of Douglas  MacLellan  (Chair),
          Robert Rooks and Ian Fraser.

     o    Finance  Committee,  which is  comprised  of Mark  Elenowitz  (Chair),
          Douglas MacLellan and Robert Saunders.

     o    Compensation Committee, which is comprised of Ian Fraser (Chair), Mark
          Elenowitz and Doug MacLellan.

     o    Disclosure Committee, which is comprised of Douglas MacLellan (Chair),
          Robert Saunders and Michael Boswell.

     o    Nominating  Committee,  which is comprised of Robert Saunders (Chair),
          Douglas MacLellan and Robert Rooks.


                                       39
<PAGE>


EMPLOYMENT AGREEMENTS

In June 2005, we entered into an employment agreement with Robert Saunders,  our
Chairman,  CEO and  President.  Mr.  Saunders  will serve at the pleasure of the
Board  of  Directors.  Pursuant  to  his  employment  agreement,  Mr.  Saunders'
compensation  will be $60,000 (USD) per annum for his services as our President.
Following  the receipt of at least  $5,000,000  (USD) min outside  funding,  Mr.
Saunders  will  receive an  additional  $10,000  per month for his  services  as
Chairman  and,  thereafter,  $20,000 per month  provided  that we achieve  gross
revenues  of at least  $20,000,000  (USD) for our most  recent  fiscal  year and
continuing as long as we maintain gross revenues of at least  $20,000,000  (USD)
for  each  successive  fiscal  year.  If we fail to  achieve  gross  revenue  of
$20,000,000  (USD) in a successive  fiscal year, Mr.  Saunders  compensation  as
Chairman shall be reduced to $10,000 (USD) per month. Additionally, we agreed to
grant Mr. Saunders a signing bonus of $150,000 (USD) to be paid upon the closing
of at least $3,500,000 in new third party  financing.  In August 2006, our Board
approved the  following  revisions  to Mr.  Saunders'  compensation:  reduce Mr.
Saunders'  compensation  from  $10,000 to $5,000  per month  until our cash flow
position improves, at which time the Compensation  Committee will recommend that
Mr. Saunders' compensation increase back to $10,000 per month. We are discussing
possible restructuring/payment terms regarding the $70,000 deferred compensation
from fiscal year 2006 and 2005 and the $150,000 bonus that was to be paid to Mr.
Saunders upon the closing of at least US$3,500,000 in outside funding.  Although
we have yet to reach a final  agreement on payment terms,  we paid Mr.  Saunders
$50,000 towards the bonus in September of 2006.


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

Securities  authorized for issuance under equity  compensation plans. Please see
Part II, Item 5:  "Market for Common  Equity and  Related  Stockholder  Matters"
above.

Security Ownership of Certain Beneficial Owners and Management

As used in this  section,  the  term  beneficial  ownership  with  respect  to a
security is defined by Rule 13d-3 under the Securities  Exchange Act of 1934, as
amended,  as consisting of sole or shared voting power  (including  the power to
vote or direct the vote) and/or sole or shared  investment  power (including the
power to dispose of or direct the  disposition  of) with respect to the security
through any contract,  arrangement,  understanding,  relationship  or otherwise,
subject to community property laws where applicable.

As of November 27, 2006 we had a total of 21,049,926  shares of common stock and
7,821,333 shares of Preferred Stock issued and  outstanding,  which are the only
issued and outstanding voting equity securities of the Company.

The  following  table sets forth,  as of November  27,  2006:  (a) the names and
addresses of each beneficial  owner of more than five percent (5%) of our common
stock and Preferred  Stock (taken together as one class) known to us, the number
of shares of common stock and Preferred  Stock  beneficially  owned by each such
person,  and the percent of our common stock and Preferred  Stock so owned;  and
(b) the names and addresses of each director and executive  officer,  the number
of shares our common  stock and  Preferred  Stock  beneficially  owned,  and the


                                       40
<PAGE>

percentage  of our  common  stock and  Preferred  Stock so  owned,  by each such
person,  and by all of our  directors and  executive  officers as a group.  Each
person has sole voting and  investment  power with  respect to the shares of our
common stock and  Preferred  Stock,  except as otherwise  indicated.  Beneficial
ownership  consists  of a direct  interest  in the  shares of  common  stock and
Preferred Stock, except as otherwise indicated.


Name and Address                      Amount and Nature of        Percentage
                                      Beneficial Ownership        of Voting of
                                                                  Securities (1)

Robert Saunders                              9,900,000               34.29%
Chairman, President and CEO
5552 West Island Highway
Qualicum Beach, British Columbia
Canada V9K 2C8

Douglas C. MacLellan                         1,040,000                3.60%
Vice Chairman
8324 Delgany Avenue
Playa del Ray, CA 90293

Mark Elenowitz                               1,238,000 (2)            4.29%
Director
400 Professional Drive
Suite 310
Gaithersburg, MD 20879

Dr. Robert Rooks                               300,000                1.04%
Director
912 Pine Avenue
Huntington Beach, CA 90293

Ian Fraser                                     800,000                2.77%
Director
3056 West 2nd Avenue
Vancouver, British Columbia
Canada V6T 1E9

Michael Boswell                                938,000 (3)            3.25%
Director and
Acting Chief Accounting Officer
400 Professional Drive
Suite 310
Gaithersburg, MD 20879



                                       41
<PAGE>


Name and Address                      Amount and Nature of        Percentage
                                      Beneficial Ownership        of Voting of
                                                                  Securities (1)

Victor Bolton                                        0                0.0%
345-916 W. Broadway
Vancouver, BC V5Z 1K7

Darryl Horton                                        0                0.0%
33568 Eagle Mountain Drive
Abbortsford, BC V3G 2X7
All directors and officers as a
 group (8 persons)                         14,216,000               49.24%

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

     (1)  All  Percentages  have been rounded up to the nearest one hundredth of
          one percent.
     (2)  Mr.  Elenowitz is a one hundred  (100%)  percent  shareholder  of MHE,
          Inc., which owns 18,000 shares of our voting stock. Additionally, MHE,
          Inc. is a forty  percent  (40%) member of TriPoint  Capital  Advisors,
          LLC, which owns 3,000,000  shares of our voting stock.  Mr.  Elenowitz
          owns  20,000  shares of our  voting  stock  directly.  Therefore,  Mr.
          Elenowitz beneficially owns 1,238,000shares of our voting stock.
     (3)  Mr. Boswell and his wife jointly own Invision,  LLC, which owns 38,000
          shares of our voting stock.  Additionally,  Invision, LLC. is a thirty
          percent (30%) member of TriPoint  Capital  Advisors,  LLC,  which owns
          3,000,000  shares  of  our  voting  stock.   Therefore,   Mr.  Boswell
          beneficially owns 938,000 shares of our voting stock

CHANGES IN CONTROL

To the best of our  knowledge,  there are no  arrangements  that  could  cause a
change in our control.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Dr.  Kristina  Miller,  our Chief  Scientific  Advisor is Robert  Saunders,  our
Chairman, CEO and President's wife.

We are party to a consulting  agreement with TriPoint Capital  Advisors,  LLC, a
company  in  which  Mark  Elenowitz,  a  director  and  one of  our  significant
shareholders, indirectly owns a 40% interest.  Michael Boswell, our acting Chief
Accounting  Officer and one of our directors,  indirectly owns a 30% interest in
TriPoint.  Louis  Taubman,  our outside  corporate and  securities  counsel also
indirectly owns an interest (30%) in TriPoint.  Our Board recently  approved the
Compensation  Committee's  recommendation  of a flat rate $15,000 per month fee,
which  shall be  reduced  to  $7,500  per month  until  our cash  flow  position
improves,  for the legal  services  Louis  Taubman  provides  us. The Board also
approved the  recommendation  of a $15,000 per month fee, which shall be reduced


                                       42
<PAGE>

to $7,000 per month until our cash flow  position  improves,  for the Acting CFO
type  services and financial  advisory  services  Michael  Boswell and TriPoint,
respectively, provide us.  Additionally,  our corporate offices in Gaithersburg,
Maryland are currently provided by Tripoint Holdings, LLC, the parent company of
Tripoint at no cost to us.

Island  Scallops,  our  wholly  owned  subsidiary,   recently  transferred  100%
ownership of RKS Laboratories, Inc.  to Robert Saunders,  our Chairman,  CEO and
President.  RKS is a Vancouver  research and development that is working towards
developing  superior strains of scallops (developed by Island Scallops and known
as the Pacific  Scallop)  with  beneficial  traits such as higher meat yield and
rapid  growth.  Island  Scallops  agreed to  transfer  its  ownership  of RKS in
consideration  for the grant to Island  Scallops by RKS and Robert Saunders of a
right of first refusal to commercialize any intellectual  property  developed by
RKS. Island Scallops has the right to acquire or use any  intellectual  property
from RKS at RKS' cost,  in  perpetuity  or until such time as RKS shall cease to
exist.  In June and August 2006,  Island  Scallops agreed to loan RKS a total of
approximately  $23,000 under two non-interest  bearing notes that are secured by
all assets of RKS and are due on or before  June 15,  2007 or August  31,  2007,
respectively.


ITEM 13. EXHIBITS LIST


Exhibit Number      Description
--------------      -----------

3.1+                Articles of Incorporation of the Company, as amended.

3.2                 Amended and restated Bylaws of the Company  (Incorporated by
                    reference to Exhibit 3.1 to the Company's  Current Report on
                    Form 8-K filed on August 16, 2005).

4.1+                Form of  certificate  representing  shares of the  Company's
                    common stock.

4.2                 Form of Certificate of Designation of Rights and Preferences
                    of Series A Convertible  Preferred  Stock.  (Incorporated by
                    reference to Exhibit 10.3 to the Company's Current Report on
                    Form 8-K filed on April 14, 2006).

4.3+                Form of  certificate  representing  shares of the  Company's
                    preferred stock.

10.1                Form  of  Series  A  Convertible  Preferred  Stock  Purchase
                    Agreement,  dated April 12, 2006, by and between the Company
                    and  each  of  the  Purchasers   thereto   (Incorporated  by
                    reference to Exhibit 10.1 to the Company's Current Report on
                    Form 8-K filed on April 14, 2006).

10.2                Form of Registration Rights Agreement, dated April 12, 2006,
                    by and  between  the  Company  and  each  of the  Purchasers
                    thereto.  (Incorporated  by reference to Exhibit 10.2 to the
                    Company's  Current  Report  on Form 8-K  filed on April  14,
                    2006).

10.4                Form of Individual Lock-Up Agreement dated April 12, 2006 by
                    and between the Company and each of the shareholders  listed
                    therein.  (Incorporated  by reference to Exhibit 10.4 to the
                    Company's  Current  Report  on Form 8-K  filed on April  14,
                    2006).

10.5                Form  of  Lock-Up  Agreement  dated  April  12,  2006 by and
                    between  the Company  and World Wide  Mortgage  Corporation.
                    (Incorporated  by reference to Exhibit 10.5 to the Company's
                    Current Report on Form 8-K filed on April 14, 2006).


                                       43
<PAGE>


10.6                Form of Series A Warrant dated April 12, 2006. (Incorporated
                    by reference to Exhibit 10.6 to the Company's Current Report
                    on Form 8-K filed on April 14, 2006).

10.7                Form of Series B Warrant dated April 12, 2006. (Incorporated
                    by reference to Exhibit 10.7 to the Company's Current Report
                    on Form 8-K filed on April 14, 2006).

10.8                Form of Series C Warrant dated April 12, 2006. (Incorporated
                    by reference to Exhibit 10.8 to the Company's Current Report
                    on Form 8-K filed on April 14, 2006).

10.9                Form of Series D Warrant dated April 12, 2006. (Incorporated
                    by reference to Exhibit 10.9 to the Company's Current Report
                    on Form 8-K filed on April 14, 2006).

10.10               Form of Series E Warrant dated April 12, 2006. (Incorporated
                    by  reference  to  Exhibit  10.10 to the  Company's  Current
                    Report on Form 8-K filed on April 14, 2006).

10.11               Form of Series F Warrant dated April 12, 2006. (Incorporated
                    by  reference  to  Exhibit  10.11 to the  Company's  Current
                    Report on Form 8-K filed on April 14, 2006).

10.12               Form of Series G Warrant dated April 12, 2006. (Incorporated
                    by  reference  to  Exhibit  10.12 to the  Company's  Current
                    Report on Form 8-K filed on April 14, 2006).

10.13               Form of Series H Warrant dated April 12, 2006. (Incorporated
                    by  reference  to  Exhibit  10.13 to the  Company's  Current
                    Report on Form 8-K filed on April 14, 2006).

10.14               Form of Series J Warrant dated April 12, 2006. (Incorporated
                    by  reference  to  Exhibit  10.14 to the  Company's  Current
                    Report on Form 8-K filed on April 14, 2006).

10.15               Form  of  Series  A  Convertible  Preferred  Stock  Purchase
                    Agreement,  dated May 30,  2006,  by and between the Company
                    and  each  of  the  Purchasers   thereto   (Incorporated  by
                    reference to Exhibit 10.1 to the Company's Current Report on
                    Form 8-K filed on May 30, 2006).

10.16               Form of Registration  Rights Agreement,  dated May 30, 2006,
                    by and  between  the  Company  and  each  of the  Purchasers
                    thereto.  (Incorporated  by reference to Exhibit 10.2 to the
                    Company's Current Report on Form 8-K filed on May 30, 2006).

10.17               Form of Series A Warrant  dated May 30, 2006.  (Incorporated
                    by reference to Exhibit 10.3 to the Company's Current Report
                    on Form 8-K filed on May 30, 2006).

10.18               Form of Series B Warrant  dated May 30, 2006.  (Incorporated
                    by reference to Exhibit 10.4 to the Company's Current Report
                    on Form 8-K filed on May 30, 2006).

10.19               Form of Series C Warrant  dated May 30, 2006.  (Incorporated
                    by reference to Exhibit 10.5 to the Company's Current Report
                    on Form 8-K filed on May 30, 2006).16, 2005).

10.20               Form of Series D Warrant  dated may 30, 2006.  (Incorporated
                    by reference to Exhibit 10.6 to the Company's Current Report
                    on Form 8-K filed on May 30, 2006).


                                       44
<PAGE>


10.21               Amendment to  Registration  Rights  Agreement  dated May 30,
                    2006(Incorporated  by  reference  to  Exhibit  10.7  to  the
                    Company's  Current  Report on Form 8-K  filed on August  16,
                    2005).

10.22               Form  of  Joinder  Agreement  to the  Series  A  Convertible
                    Preferred Stock Purchase  Agreement,  dated May 30, 2006, by
                    and between the Company and each of the  Purchasers  thereto
                    (Incorporated  by reference to Exhibit 10.1 to the Company's
                    Current Report on Form 8-K filed on June 30, 2006).

10.23               Form  of  Joinder  Agreement  to  the  Registration   Rights
                    Agreement,  dated May 30,  2006,  by and between the Company
                    and  each  of  the  Purchasers  thereto.   (Incorporated  by
                    reference to Exhibit 10.2 to the Company's Current Report on
                    Form 8-K filed on June 30, 2006).

21.1+               List of Subsidiaries.

31.1+               Certification of Chief Executive Officer Pursuant to Section
                    302 of the Sarbanes-Oxley Act of 2002.

31.2+               Certification of Acting Chief Accounting Officer Pursuant to
                    Section 302 of the Sarbanes-Oxley Act of 2002.

32.1+               Certification  of Chief  Executive  Officer and Acting Chief
                    Accounting  Officer  Pursuant to 18 U.S.C.  Section 1350, as
                    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002.

+ Filed herewith.











                                       45
<PAGE>



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

(1) AUDIT FEES

         The aggregate fees billed for professional  services  rendered by LBB &
Associates,  Ltd., LPP (formerly Lopez, Blevins, Bork & Associates, LLP) for the
audit of the registrant's  annual  financial  statements and review of financial
statements  included  in the  registrant's  Form  10-KSB  or  services  that are
normally  provided by the accountant in connection with statutory and regulatory
filings or engagements for fiscal years 2006 and 2005 were approximately $46,000
and $9,000, respectively.

(2) AUDIT-RELATED FEES
NONE

(3) TAX FEES
NONE

(4) ALL OTHER FEES
NONE

(5) AUDIT COMMITTEE POLICIES AND PROCEDURES

         The  policy  of our Audit  Committee  is to  pre-approve  all audit and
permissible  non-audit  services to be  performed by the  Company's  independent
auditors during the fiscal year.

         No services related to  Audit-Related  Fees, Tax Fees or All Other Fees
described above, were approved by the Audit Committee.


                                   SIGNATURES

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


/s/  Robert Saunders                               Dated: November 28, 2006
---------------------------
Robert Saunders
President and Chief Executive Officer

/s/  Michael Boswell                               Dated: November 28, 2006
---------------------------
Michael Boswell
Director & Acting Chief Accounting Officer


                                       46
<PAGE>


/s/  Douglas C. MacLellan                          Dated: November 28, 2006
---------------------------
Douglas C. MacLellan
Vice-chairman of the Board

/s/  Mark H. Elenowitz                             Dated: November 28, 2006
---------------------------
Mark H. Elenowitz
Director

/s/  Robert Rooks                                  Dated: November 28, 2006
--------------------------
Dr. Robert Rooks
Director

/s/  Ian Fraser                                    Dated: November 28, 2006
--------------------------
Ian Fraser
Director

                                                   Dated:
--------------------------
Victor Bolton
Director

/s/  Daryl Horton                                  Dated: November 28, 2006
--------------------------
Darryl Horton
Director







                                       47