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


                                 FORM 10-QSB/A1
                                AMENDMENT NO. 1

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


(Mark One)

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

For the quarterly period ended: May 31, 2006


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

For the transition period from __________ to __________


Commission File No.:  0-26329



                                 Poseidis, Inc.
--------------------------------------------------------------------------------
     (Exact name of small business issuer as specified in its charter)


               Florida                                     65-0867538
-------------------------------------      -------------------------------------
(State or other jurisdiction                (I.R.S. Employer Identification No.)
   (of incorporation or organization)


             222 Lakeview Ave., Suite 160, West Palm Beach, FL 33401
             -------------------------------------------------------
                    (Address of principal executive offices)


                                 (305) 428-3757
             -------------------------------------------------------
                           (Issuer's telephone number)










<PAGE>



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


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



          APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEDINGS
                           DURING THE PAST FIVE YEARS

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



                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable date: As of September 21, 2006 the issuer
had 70,156,300 shares of common stock, $0.0001 par value per share, outstanding.



Transitional Small Business Disclosure Format: Yes [_] No [X]



                       Statement Regarding This Amendment

We are  amending our Form 10-QSB for the quarter  ended May 31, 2006  previously
filed on October 2, 2006. This Form 10-QSB/A Amendment No. 1 ("Amendment No. 1")
amends the previously filed Form 10-QSB to correct a check-the-box  error on the
cover page of the  previously  filed Form 10-QSB wherein we had checked the "No"
box instead of the "Yes" box in response to the item:  "Check whether the issuer
(1)  filed  all  reports  required  to be  filed by  Section  13 or 15(d) of the
Exchange  Act  during  the past 12  months  (or  such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days." Except as stated in this introductory
statement,  this  Amendment No. 1 is identical in all respects to our previously
filed Form 10-QSB for the quarter ended May 31, 2006.




<PAGE>


                                     PART I

ITEM 1. FINANCIAL STATEMENTS

      Consolidated Balance Sheets...........................................F-1
      Consolidated Statements of Operations and Comprehensive Income (Loss).F-2
      Consolidated Statements of Stockholders' Equity (Deficiency)..........F-3
      Consolidated Statements of Cash Flows.................................F-7
      Notes to Consolidated Financial Statements............................F-8

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............22

ITEM 3. CONTROLS AND PROCEDURES............................................. 47


                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS................................................... 47

ITEM 2. UREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.......... 47

ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................... 48

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 48

ITEM 5. OTHER INFORMATION................................................... 48

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 48








<PAGE>

                                     PART I

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
                           Consolidated Balance Sheets
                                                                  May 31, 2006
                                                                  (Unaudited)     February 28, 2006
                                                              ------------------  -----------------
<S>                                                           <C>                 <C>
                ASSETS
CURRENT ASSETS
   Cash                                                       $           39,942  $          73,314
   Other current assets                                                   28,879             20,416
                                                              ------------------  -----------------
           Total Current Assets                                           68,821             93,730
                                                              ------------------  -----------------
PROPERTY AND EQUIPMENT
   Land                                                                  468,093            316,973
   Land improvements                                                     134,342            131,761
   Furniture and fixtures                                                 22,705             22,705
   Equipment                                                              31,699             31,467
                                                              ------------------  -----------------
      Subtotal Property and Equipment                                    656,839            502,906
      Less: Accumulated depreciation                                     (60,956)           (59,334)
                                                              ------------------  -----------------
            Net Property and Equipment                                   595,883            443,572
                                                              ------------------  -----------------
OTHER ASSETS
  Deferred financing costs                                               347,954            134,231
  Deferred offering costs                                                995,935            995,935
  Debenture sinking fund                                                 121,624                  0
  Deferred consulting expense                                             29,812             29,812
  Deposits                                                                     0              7,000
                                                              ------------------  -----------------
            Total Other Assets                                         1,495,325          1,166,978
                                                              ------------------  -----------------
Total Assets                                                  $        2,160,029  $       1,704,280
                                                              ==================  =================
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
   Accounts payable                                           $           91,669  $         137,014
   Accrued expenses                                                      190,316            386,993
   Accrued interest                                                       48,259             18,346
   Current portion of long term debt, less debt
     discounts of $287,439 and $223,478                                  141,895             44,855
   Derivative liability                                                  568,120            353,309
   Promissory note, less debt discounts of $42,134
     and $0                                                              207,866                  0
                                                              ------------------  -----------------
            Total Current Liabilities                                  1,248,125            940,517
                                                              ------------------  -----------------
LONG TERM LIABILITIES
  Secured convertible debentures, less debt
     discounts of $141,574 and $312,869                                   73,092             62,798
  Unsecured convertible debentures, less debt
     discounts of $561,903 and $0                                        355,897                  0
  Promissory note                                                        200,000            200,000
  Derivative liability                                                   603,750            494,632
                                                              ------------------  -----------------
            Total Long Term Liabilities                                1,232,739            757,430
                                                              ------------------  -----------------
Total Liabilities                                                      2,480,864          1,697,947
                                                              ------------------  -----------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
   Preferred stock, $0.0001 par value, authorized
     10,000,000 shares; none issued
   Common stock, $0.0001 par value, authorized
     500,000,000 shares; 69,685,800 issued and outstanding
     at May 31, 2006 and February 28, 2006                                 6,969              6,969
   Additional paid-in capital                                          8,638,576          8,241,023
   Accumulated comprehensive income (loss)                                46,090             71,002
   Deficit accumulated during the development stage                   (9,012,470)        (8,312,661)
                                                              ------------------  -----------------
            Total Stockholders' Equity (Deficiency)                     (320,835)             6,333
                                                              ------------------  -----------------
Total Liabilities and Stockholders' Equity (Deficiency)       $        2,160,029  $       1,704,280
                                                              ==================  =================
</TABLE>

    The accompanying notes are an integral part of these financial statements

                                       F-1
<PAGE>


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

                                             Cumulative from
                                                 Inception          Three Months Ended May 31
                                            (June 10, 1998) to   -----------------------------
                                               May 31, 2006           2006            2005
                                             ----------------   ---------------- --------------
<S>                                          <C>                <C>              <C>
REVENUES                                     $        557,012   $            0   $            0
                                             ----------------   --------------   --------------
OPERATING EXPENSES
   General and administrative                       1,860,800           65,005           54,655
   Salaries                                            86,747                0           26,461
   Consulting fees                                  5,516,310          102,342           58,958
   Depreciation                                        76,870            3,750            5,706
   Professional fees                                1,357,378          311,744                0
                                             ----------------   --------------   --------------
          Total operating expenses                  8,898,105          482,841          145,780
                                             ----------------   --------------   --------------
Operating (loss)                                   (8,341,093)        (482,841)        (145,780)

OTHER INCOME (EXPENSE)
   Interest expense                                  (312,844)        (183,640)             (96)
   Loss on derivative liability                      (507,154)               0                0
   Amortization of deferred financing costs           (52,034)         (33,327)               0
   Bad debt expense                                   (93,806)               0                0
   Loss on fixed asset abandonment                    (23,769)               0                0
   Costs on trading activity                          (31,428)               0                0
   Foreign currency transaction gain                   22,916                0              128
   Gain on debt forgiveness                            64,126                0                0
   Gain on bankruptcy of subsidiary                    12,721                0                0
   Non-operating income - real estate                 249,830                0                0
                                             ----------------   --------------   --------------
          Total other (expense)                      (671,442)        (216,967)              32

Net (loss) before minority interest                (9,012,535)        (699,808)        (145,748)

Minority interest in loss of
consolidated subsidiaries                                  65                0                0
                                             ----------------   --------------   --------------
Net (loss)                                         (9,012,470)        (699,808)        (145,748)

OTHER COMPREHENSIVE INCOME (LOSS)
   Foreign currency translation gain (loss)            46,090          (24,912)          62,526
                                             ----------------   --------------   --------------

Comprehensive (loss)                         $     (8,966,380)  $     (724,720)  $      (83,222)
                                             ================   ==============   ==============

Net (loss) per common share
  basic and diluted                                             $        (0.01)  $        (0.00)
                                                                ==============   ==============

Weighted average number of shares                                   69,685,800       50,236,882
                                                                ==============   ==============
</TABLE>


    The accompanying notes are an integral part of these financial statements


                                       F-2
<PAGE>

<TABLE>
<CAPTION>
                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
          Consolidated Statements of Stockholders' Equity (Deficiency)
                        For the period from June 10, 1998 (inception of
                development stage) to May 31, 2006


                                                                                    Additional
                                                           Number        Common       Paid-in
                                                         of Shares       Stock        Capital
                                                        -------------  ----------- --------------
<S>                                                     <C>            <C>         <C>
Issuance of shares for services at inception-June
10, 1998 at par of $0.0001 per share                        1,000,000  $       100 $            -
  1st Quarter - Shares issued for cash                      1,000,000          100          9,900
  2nd Quarter - Shares issued for cash                         50,000            5         49,995
   Net (loss)                                                       -            -              -
                                                        -------------  ----------- --------------
Balance as of February 28, 1999                             2,050,000          205         59,895
   Net (loss)                                                       -            -              -
                                                        -------------  ----------- --------------
Balance as of February 29, 2000                             2,050,000          205         59,895
  1st Quarter - Shares issued to pay accrued                   13,500            1          3,384
                expenses
  1st Quarter - Common stock contributed                   (1,000,000)       (1000)           100
  1st Quarter - 16 for 1 forward split                     15,912,500        1,592         (1,592)
  1st Quarter - Reverse merger                             23,100,000        2,310        190,800
  1st Quarter - Shares issued for services                  1,900,000          190              -
  1st Quarter - Stock subscription receivable                 150,000           15        149,985
  2nd Quarter - Stock subscriptions received                        -            -              -
  2nd Quarter - Shares issued for services                    200,000           20        199,980
  2nd Quarter - Shares issued to acquire minority
                interest in subsidiary                      5,000,000          500         56,210
  3rd Quarter - Shares issued for services                    990,000           99        232,551
   Other comprehensive income (loss)                                -            -              -
Net loss                                                            -            -              -
                                                        -------------  ----------- --------------
BALANCE, February 28, 2001                                 48,316,000        4,832        891,313
  1st Quarter - 1 for 10 reverse split                     43,484,399       (4,350)         4,350
  2nd Quarter - Shares issued for cash                        100,189           10        100,179
  2nd Quarter - Shares issued for services                     16,426            2         16,424
  2nd Quarter - Stock subscriptions receivable                 76,712            8         76,704
  3rd Quarter - Common stock cancelled                       (569,600)         (57)            57
  3rd Quarter - Stock subscriptions received                        -            -              -
  3rd Quarter - Stock subscriptions receivable                  7,813            1          9,765
  3rd Quarter - Shares issued for cash                          4,894            1          8,564
  3rd Quarter - Shares issued for services                      8,533            1         14,932
  4th Quarter - Stock subscriptions received                        -            -              -
  4th Quarter - Shares issued for cash                         24,084            2         42,145
  Other comprehensive income (loss)                                 -            -              -
Net loss                                                            -            -              -
                                                        -------------  ----------- --------------
BALANCE, February 28, 2002                                  4,500,652          450      1,164,432
   1st Quarter - 1 for 10 reverse split                    (4,054,058)        (405)           405
   1st Quarter - Shares issued for services                 1,969,784          197      1,029,793
   1st Quarter - Shares issued for cash                         3,887            -          8,745
   1st Quarter - Shares issued to pay accrued expenses      1,080,000          108        134,892
</TABLE>
                                   (Continued)


                                       F-3
<PAGE>



                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
          Consolidated Statements of Stockholders' Equity (Deficiency)
                        For the period from June 10, 1998 (inception of
                development stage) to May 31, 2006
                                   (Continued)

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

$             - $            - $              - $           100
              -              -                -          10,000
              -              -                -          50,000
              -                          (8,743)         (8,743)
--------------- -------------- ---------------- ---------------
              -                          (8,743)         51,357
              -                          (2,901)         (2,901)
--------------- -------------- ---------------- ---------------
              -                         (11,644)         48,456
              -                               -           3,385

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

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

                                                        100,189
                                                         16,426
        (76,712)                                              -
              -              -                -               -
         76,712                                          76,712
         (9,766)                                              -
                                                          8,565
                                                         14,933
          9,766                                           9,766
                                                         42,147
              -         (7,689)               -          (7,689)
              -              -         (473,929)       (473,929)
--------------- -------------- ---------------- ---------------
              -        (19,326)      (1,349,820)       (204,264)
              -              -                -               -
              -              -                -       1,029,990
                                                          8,745
              -              -                -         135,000


                                   (Continued)


                                       F-4
<PAGE>


<TABLE>
<CAPTION>
                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
          Consolidated Statements of Stockholders' Equity (Deficiency)
                        For the period from June 10, 1998 (inception of
                development stage) to May 31, 2006
                                   (Continued)

                                                                                    Additional
                                                           Number        Common       Paid-in
                                                         of Shares       Stock        Captial
                                                        -------------  ----------- --------------
<S>                                                     <C>            <C>         <C>
   1st Quarter - Shares issued to settle short-term
                 debt                                         864,000           86        107,914
   1st Quarter - Shares issued for stock
                 subscriptions receivable                     800,000           80         99,920
   2nd Quarter - Stock subscription received                        -            -              -
   3rd Quarter - Shares issued for cash                         2,705            -          9,468
   4th Quarter - Stock subscriptions received
   4th Quarter - Shares issued for cash                        35,062            4        122,713
   Other comprehensive (loss)                                       -            -              -
Net (loss)                                                          -            -              -
                                                        -------------  ----------- --------------
ENDING BALANCE, February 28, 2003                           5,202,032          520      2,678,282
   1st Quarter - Shares issued for services                   100,000           10              -
   1st Quarter - Shares issued for cash                        42,224            4        152,314
   2nd Quarter - Shares issued for cash                        13,991            1         52,465
   4th Quarter - Shares issued for services                   184,316           19        128,682
   4th Quarter - Shares issued for cash                        41,573            4        155,895
   Other comprehensive (loss)                                       -            -              -
Net (loss)                                                          -            -              -
                                                        -------------  ----------- --------------
ENDING BALANCE, February 29, 2004                           5,584,136          558      3,167,638
   1st Quarter - Forward split - 8 for 1                   39,295,606        3,930         (3,930)
   1st Quarter - Shares issued for services                 1,614,861          162      2,244,084
   1st Quarter - Shares issued for cash                        93,225            9        116,522
   2nd Quarter - Shares issued for services                   117,704           12        147,118
   2nd Quarter - Shares issued for cash                        83,069            8        103,828
   3rd Quarter - Forward split - 11 for 10                  4,679,008          468           (468)
   3rd Quarter - Shares issued for services                   113,043           11         15,673
   3rd Quarter - Shares issued for cash                        12,944            1         23,145
   4th Quarter - Shares issued for services                   168,285           17         95,322
   Other comprehensive (loss)                                       -            -              -
Net (loss)                                                          -            -              -
                                                        -------------  ----------- --------------
ENDING BALANCE, February 28, 2005                          51,761,881        5,176      5,908,932
   1st Quarter - Shares issued for cash                       154,399           16         23,144
   2nd Quarter - Shares issued for services                   585,123           58         51,536
   2nd Quarter - Shares issued for cash                       188,397           19         16,401
   2nd Quarter - Shares issued to pay accrued
                 expenses                                  13,306,000        1,331      1,084,439
   2nd Quarter - Intrinsic value of warrants issued
                 with convertible debentures                        -            -         62,810
   2nd Quarter - Intrinsic value of warrants issued
                 with SEDA                                          -            -         32,317
   4th Quarter - Intrinsic value of warrants issued in
                 conjunction with convertible debentures            -            -        240,403
   4th Quarter - Intrinsic value of warrants issued in
                 conjunction with SEDA                              -            -        717,911
   4th Quarter - Issuance of common shares for
                 offering costs at par of $0.0001           3,250,000          325              -
   4th Quarter - Intrinsic value of warrants issued
                 with consulting agreement                          -            -         59,623
   4th Quarter - Shares issued for services                   160,000           16          3,184
   4th Quarter - Shares issued for cash                       280,000           28         40,323
   Other comprehensive income                                       -            -              -
Net (loss)                                                          -            -              -
                                                        -------------  ----------- --------------
ENDING BALANCE, February 28, 2006                          69,685,800  $     6,969 $    8,241,023

   1st Quarter - Intrinsic value of warrants issued in
                 conjunction with unsecured convertible
                 debentures                                         -            -        264,940
   1st Quarter - Intrinsic value of warrants issued in
                 conjunction with short term bridge loan            -            -          6,521
   1st Quarter - Intrinsic value of warrants issued in
                 conjunction with promissory notes                  -            -         46,347
   1st Quarter - Intrinsic value of warrants issued in
                 conjunction with financial advisory
                 agreement                                          -            -         79,745
    Other comprehensive(loss)                                       -            -              -
Net (loss)                                                          -            -              -
                                                        -------------  ----------- --------------
ENDING BALANCE, May 31, 2006                               69,685,800  $     6,969 $    8,638,576
                                                        =============  =========== ==============
</TABLE>

                                   (Continued)

                                       F-5
<PAGE>



                         Poseidis, Inc. and Subsidiaries
                           (Development Stage Company)
          Consolidated Statements of Stockholders' Equity (Deficiency)
                        For the period from June 10, 1998 (inception of
                development stage) to May 31, 2006
                                   (Continued)

      Stock        Cumulative                         Total
  Subscription    Translation     Accumulated     Stockholders
   Receivable      Adjustment       Deficit          Equity
---------------- -------------- ---------------- ---------------
               -              -                -         108,000

        (100,000)             -                -               -

          50,000              -                -          50,000
               -              -                -           9,468
           50000                                          50,000
                                                         122,717
               -         (2,609)               -          (2,609)
               -              -       (1,305,971)     (1,305,971)
 --------------- -------------- ---------------- ---------------
               -        (21,935)      (2,655,791)          1,076
                                                              10
                                                         152,318
                                                          52,466
               -              -                -         128,701
               -              -                -         155,899
               -          6,034                -           6,034
               -              -         (793,520)       (793,520)
 --------------- -------------- ---------------- ---------------
               -        (15,901)      (3,449,311)       (297,016)
               -              -                -               -
               -              -                -       2,244,246
               -              -                -         116,531
                                                         147,130
                                                         103,836
               -              -                -               -
               -              -                -          15,684
               -              -                -          23,146
                                                          95,339
               -           (869)               -            (869)
               -              -       (3,294,210)     (3,294,210)
 --------------- -------------- ---------------- ---------------
               -        (16,770)      (6,743,521)       (846,183)
               -                                          23,160
               -                                          51,594
                                                          16,420
               -
                                                       1,085,770
               -
                                                          62,810
               -
                                                          32,317

               -              -                -         240,403

               -              -                -         717,911

               -              -                -             325

               -              -                -          59,623

               -              -                -           3,200

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

               -              -                -         264,940

               -              -                -           6,521

               -              -                -          46,347

               -              -                -          79,745
               -        (24,912)               -         (24,912)
               -              -         (699,808)       (699,808)
  --------------  ------------- ---------------- ---------------
  $            -   $     46,090 $     (9,012,469)$      (320,834)
  ==============  ============= ================ ===============

    The accompanying notes are an integral part of these financial statements



                                       F-6
<PAGE>


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

                                                                  Cumulative from
                                                                     Inception           Three Months Ended May 31,
                                                                  (June 10, 1998)      -----------------------------
                                                                  to May 31, 2006           2006             2005
                                                                  ----------------     -------------    --------------
<S>                                                               <C>                  <C>              <C>
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net (loss)                                                        $     (9,012,469)    $    (699,808)   $     (145,748)
Adjustments to reconcile net (loss) to net cash
          used for development activities:
   Stock issued for services                                             4,226,251                 0                 0
   Depreciation and amortization                                           128,905            37,078             5,706
   Other non-cash charges                                                   61,240                 0                 0
   Debt forgiveness                                                        (64,126)                0                 0
   Non-cash interest expense                                               252,688           145,034                 0
   Loss on derivative liability                                            507,154                 0                 0
   Minority interest in consolidated subsidiaries' income                      (65)                0                 0
   Gain on bankruptcy of subsidiary                                        (12,721)                0                 0
   Bad debt expense                                                        123,806                 0                 0
   Loss on fixed asset abandonment                                          23,769                 0                 0
Change in assets and liabilities
   (Increase) decrease in deferred costs                                  (362,853)         (202,411)                0
   (Increase) decrease in other assets                                    (142,040)         (114,624)           17,245
   Increase (decrease) in accounts payable                                  91,670           (45,346)          (17,747)
   Increase (decrease) in accrued expenses                                 967,990          (196,677)           25,780
   Increase (decrease) in accrued interest                                  48,259            29,913                 0
                                                                  ----------------     -------------    --------------
Net cash (used) by development activities                               (3,162,544)       (1,046,841)         (114,764)
                                                                  ----------------     -------------    --------------
CASH FLOW FROM INVESTING ACTIVITIES:
   Deposit on land and land improvements                                  (442,256)         (151,119)                0
   Purchase of property and equipment                                     (214,375)           (2,813)                0
                                                                  ----------------     -------------    --------------
Net cash (used) by investing activities                                   (656,631)         (153,932)                0
                                                                  ----------------     -------------    --------------
CASH FLOW FROM FINANCING ACTIVITIES:
   Proceeds from short-term loans                                          520,804           350,000                 0
   Repayment of short-term loan                                           (193,890)         (100,000)                0
   Stock sold for cash                                                   1,420,181                 0            35,000
   Cash acquired in reverse merger                                          51,841                 0                 0
   Receipt of stock subscriptions                                          490,000                 0                 0
   Increase (decrease) of bank overdraft                                    35,946                 0             3,341
   Proceeds from secured convertible debentures                            644,000                 0                 0
   Proceeds from unsecured convertible debentures                          917,800           917,800                 0
                                                                  ----------------     -------------    --------------
Net cash provided by financing activities                                3,886,682         1,167,800            38,341
                                                                  ----------------     -------------    --------------
Effect of exchange rates on cash                                           (27,565)             (399)           77,779
                                                                  ----------------     -------------    --------------
Net increase in cash                                                        39,942           (33,372)            1,356

CASH, beginning of period                                                        0           73,314              1,051
                                                                  ----------------     -------------    --------------
CASH, end of period                                               $         39,942     $      39,942    $        2,407
                                                                  ================     =============    ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the periods for:
     Interest                                                     $         16,083     $      16,083    $            0
                                                                  ================     =============    ==============
     Income Taxes                                                 $             0      $           0    $            0
                                                                  ================     =============    ==============
 Non-Cash Financing Activities:
     Common stock issued to pay accrued expenses                  $        903,510     $           0    $            0
                                                                  ================     =============    ==============
     Common stock issued to pay short term debt                   $        108,000     $           0    $            0
                                                                  ================     =============    ==============
</TABLE>

    The accompanying notes are an integral part of these financial statements

                                       F-7
<PAGE>



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


(1)  Organization and Business

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

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

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


(2)  Summary of Significant Accounting Principles

Basis  of  presentation  - The  accompanying  unaudited  consolidated  financial
statements have been prepared in accordance with generally  accepted  accounting
principles for interim financial information.  Accordingly,  they do not include
all information and notes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals)  considered necessary in order to make
the interim financial statements not misleading have been included.  Results for
the interim  periods are not  necessarily  indicative of the results that may be
expected for the fiscal year. For further information, refer to the consolidated
financial  statements and notes thereto  included in the Company's annual report
on Form 10-KSB for the year ended February 28, 2006.

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

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




                                       F-8
<PAGE>



Fair value of financial  instruments  - Fair value  estimates,  assumptions  and
methods used to estimate  fair value of our  financial  instruments  are made in
accordance with the requirements of SFAS No. 107,  "Disclosures about Fair Value
of Financial  Instruments." The Company has used available information to derive
its estimates.  However, because these estimates are made as of a specific point
in time,  they are not  necessarily  indicative  of amounts  the  Company  could
realize  currently.  The use of different  assumptions or estimating methods may
have a material  effect on the estimated  fair value  amounts.  We estimate that
there are no  material  variations  between  fair  value  and book  value of our
financial  assets or  liabilities  as of May 31, 2006 and February 28, 2006. The
carrying  amounts  of cash  and  cash  equivalents,  accounts  payable,  accrued
expenses  and  short-term  notes  payable  approximate  fair  value  due  to the
short-term nature of the instruments. Long-term liabilities are comprised of the
convertible  notes  which  approximate  fair  value  based  on  borrowing  rates
available to the Company.

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

Property and  equipment - All property  and  equipment  are recorded at cost and
depreciated  over their estimated useful lives,  generally three,  five or seven
years,  using the  straight-line  method.  Upon sale or retirement the costs and
related  accumulated  depreciation are eliminated from their respective accounts
and the resulting gain or loss is included in the results of operations. Repairs
and maintenance charges which do not increase the useful lives of the assets are
charged to  operations as incurred.  Depreciation  expense was $3,750 and $5,706
for the quarters ended May 31, 2006 and 2005, respectively.

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

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

Advertising - We expense all advertising costs as incurred.

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




                                       F-9
<PAGE>



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

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

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


(3) Stockholders' Equity.

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


(4)  Income Taxes.

Deferred  income taxes  (benefits)  are provided for certain items of income and
expense that are recognized in different periods for tax and financial reporting
purposes.  We have net  operating  loss  carry-forwards  for federal  income tax
purposes,  but the future use of such carry-forwards may be severely limited due
to changes in ownership.  The amounts  recorded as deferred tax assets as of May
31, 2006 and  February  28,  2006,  which  represent  the amounts of tax benefit
related to the loss  carry-forwards,  have been fully offset by equal  valuation
allowances as we have not determined that the realization of the assets is "more
likely than not".



                                      F-11
<PAGE>



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

The accompanying  consolidated  financial statements have been prepared assuming
that we will continue as a going concern,  which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
financial  statements do not include any adjustments  that might be necessary if
we are unable to  continue  as a going  concern.  Since our  inception,  we have
incurred losses, had an accumulated  deficit, and have experienced negative cash
flows from  operations.  The  expansion  and  development  of our business  will
require  additional  capital.  We are in the  development  stage and have earned
minimal  revenues to date and no revenues  from our  current  operations.  These
conditions  raise  substantial  doubt  about our  ability to continue as a going
concern. If we fail to obtain additional financing when required, we may have to
modify, delay or abandon some or all of our business and expansion plans.

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


(6) Deferred Offering Costs and Deferred Financing Costs.

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

At May 31, 2006 and February 28, 2006,  we had net deferred  financing  costs of
$347,954 and $134,231,  respectively.  These costs were related to the placement
of 12% convertible debentures,  the 10% unsecured convertible debentures and the
promissory note [Note 7] and are being  amortized on a straight-line  basis over
the life of the debenture which  approximates the effective  interest method. We
recorded  amortization  expense related to deferred  financing totaling $52,034,
$33,327 and $0 for the cumulative  period from inception  (June 10, 1998) to May
31, 2006 and the three month periods ended May 31, 2006 and 2005, respectively.

At both May 31, 2006 and February 28, 2006, we had net deferred  offering  costs
of $995,935. These costs were primarily related to a Standby Equity Distribution
Agreement  ["SEDA",  Note 8] and will be  offset  against  the  proceeds  of the
offering, when consummated.


(7)  Debt Financings

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



                                      F-12
<PAGE>



Short Term Bridge Loan - In March 2006 we entered  into a bridge loan  agreement
with  Portfolio  Lenders II, LLC. Under the agreement we obtained gross proceeds
of  $100,000  and  agreed to pay  interest  at a rate of 15%,  repay the loan on
demand, and issue 100,000 warrants to the lender exercisable at $0.05 per share.
The warrants issued in conjunction with the bridge loan were valued and recorded
as equity  by us in  accordance  with  EITF  Issue  No.  00-19  "Accounting  For
Derivative  Financial  Instruments  Indexed  To  And  Potentially  Settled  In A
Company's Own Stock" ("EITF 00-19") as we made the determination  under SFAS No.
150 that the  warrants  were  conventional.  We valued the warrants by using the
Black-Scholes  valuation  model and accounted for the fair value of the warrants
in relation to the debt host.  This  resulted in a fair value of the warrants of
$6,521  which was  allocated  to  additional  paid-in  capital and recorded as a
discount to the bridge  loan.  This  discount was  amortized on a  straight-line
basis over the life of the bridge loan which approximated the effective interest
method. The bridge loan was repaid in full in April, 2006.

Short  Term  Promissory  Note - In May  2006  we  issued  a  Promissory  Note to
Portfolio  Lenders II, LLC pursuant to which the Company  obtained a loan in the
principal  amount of $250,000 with a 15% interest rate and a due date of October
31,  2006;  in  conjunction  with this  Promissory  Note we issued  warrants  to
purchase 1,000,000 shares of the Company's common stock exercisable at $0.05 per
share.  The warrants  issued in conjunction  with the short term promissory note
were  valued and  recorded as equity by us in  accordance  with EITF 00-19 as we
made the determination  under SFAS No. 150 that the warrants were  conventional.
We valued the warrants by using the Black-Scholes  valuation model and accounted
for the fair value of the warrants in relation to the debt host.  This  resulted
in a fair value of the warrants of $46,247  which was  allocated  to  additional
paid-in  capital and recorded as a discount to the short term  promissory  note.
This discount is being amortized on a  straight-line  basis over the life of the
promissory notes which approximates the effective interest method.

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

Secured  Convertible  Debentures - In each of August 2005 and October  2005,  we
issued  Secured  Convertible  Debentures  in exchange for $150,000 in cash for a
total of $300,000.  The terms of these  debentures  were amended and restated in
February,  2006.  In  February  2006,  the  Company  issued  additional  Secured
Convertible Debentures  [collectively the "Debentures"] in exchange for $344,000
in cash.  In  connection  with the  Debentures,  we  issued to  Cornell  Capital
warrants to purchase 1,250,000, 3,750,000, 1,250,000 and 1,200,000 shares of our
common  stock at  exercise  prices of $0.12,  $0.08,  $0.12 and $0.25 per share,
respectively.

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


                                      F-13
<PAGE>



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

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

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

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

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

Unsecured  Convertible  Debentures  - During March and April 2006 we undertook a
private placement of unsecured convertible debentures and warrants ("Units") for
which we held four closings  aggregating  gross  proceeds of $917,800.  Poseidis
issued (a) a total of  $917,800 in  principal  amount of  unsecured  convertible
debentures,  (b) 2,753,400  warrants  exercisable at 125% of the FMV on the four
respective  closing  dates  (540,000  warrants at $ 0.086,  701,400  warrants at
$0.078,    381,000   warrants   at   $0.076,    and   1,131,000    warrants   at
$0.082)(collectively,  the "125% Warrants"),  (c) 2,753,400 warrants exercisable
at 145% of the FMV on the four  respective  closing dates  (540,000  warrants at
$0.099,  701,400 warrants at $0.090,  381,000 warrants at $0.088,  and 1,131,000
warrants  at  $0.095)  (collectively,  the "145%  Warrants")  and (d) a variable
number of warrants  that are  exercisable  into the same number of shares as the
debentures issued under the Units when and if they are converted  (collectively,
the "85% Warrants").


                                      F-14
<PAGE>



The  debentures  issued  under  the Units  are due four  years  from the date of
closing,  and carry an interest rate of 10% with semi-annual  interest  payments
which we can elect, in our sole  discretion,  to pay in cash or in shares of our
common stock.  The Units were issued to  accredited  investors.  The  debentures
issued  under the Units are  convertible  into shares of our common stock at the
election of the holders at any time  commencing 90 days after the effective date
of our Form SB-2 registration statement to be filed with the SEC at a conversion
price of 85% of the average  closing market price of our common stock for the 10
trading days immediately preceding the conversion notice.

The Units  required us to value  certain  conversion  features of the  unsecured
convertible  debentures  and the 85% Warrants  which were  accounted for at fair
value.  Also  required was a fair market  valuation of the 125% Warrants and the
145% Warrants.

The  debentures  issued under the Units and the 85% Warrants were not considered
to be  conventional  under EITF Issue No.  00-19 or SFAS No. 133.  We  therefore
bifurcated the fair value of the embedded  conversion feature from the debt host
and accounted for it as a derivative  liability.  We also accounted for the fair
value  of the  85%  Warrants  as a  derivative  liability.  The  effect  of this
valuation was the creation of the fair value of the  conversion  feature and the
85% Warrants of $323,929. We recorded the fair value of the embedded derivatives
as either short-term or long-term  liabilities  (based on the underlying term of
the  debentures  issued  under the Units) and as a  discount  to the  debentures
issued under the Units.  This  discount is being  amortized  on a  straight-line
basis over the life of the Debentures which  approximates the effective interest
method.

The 125%  Warrants and 145% Warrants were valued and recorded as equity by us in
accordance with EITF 00-19 and guidance  described under SFAS No. 150 as we made
the  determination  that the  warrants  were  conventional.  We have  valued the
warrants by using the  Black-Scholes  valuation model and accounted for the fair
value of the  warrants  in relation  to the debt host.  This  resulted in a fair
value of the  warrants of $264,940  which was  allocated to  additional  paid-in
capital and  recorded as a discount to the  Debentures.  This  discount is being
amortized on a straight-line  basis over the life of the debentures issued under
the Units which approximates the effective interest method.


Long Term Debt

At May 31, 2006 long-term debt consisted of the following:

                                                                 May 31, 2006
                                                                -------------
Secured  Convertible  Debentures  due September 1, 2007 with
monthly payments $53,666.67 plus accrued interest commencing
October 1, 2006                                                 $     644,000

Promissory Note due September 1, 2007                                 200,000

Unsecured Convertible Debentures                                      917,800
                                                                -------------
                                                                    1,761,800
Less current maturities                                               429,333
                                                                -------------
                                                                $   1,332,467
                                                                =============



                                      F-15
<PAGE>







Scheduled maturities of long-term debt are as follows:

         Years Ending February 28,

                       2007          $     429,333
                       2008          $     575,667
                       2009                      -
                       2010                      -
                       2011                917,800
                     Thereafter                  -
                                     -------------
                                     $   1,761,800
                                     =============

The debt disclosed in the accompanying balance sheet is shown net of unamortized
debt discounts of $990,916 as of May 31, 2006.


(8) Standby Equity Distribution Agreement.

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

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

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



                                      F-16
<PAGE>



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

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


(9) Commitments and Contingencies.

In October 2005 we entered into a real estate purchase  agreement with Christian
Berthier,  as amended in March 2006 [the  "Berthier  Agreement"]  to acquire the
land where the Source is located for  2,150,000  euros.  The Berthier  Agreement
expires on February 28, 2008. In conjunction with the Berthier Agreement, we are
able to apply all previous payments made under our prior lease agreement against
the purchase price for the Source. As a result of the new agreement, we recorded
non-operating  income of $249,830  for the  reversal of the prior  years'  lease
payments  for the year  ended  February  28,  2006.  Pursuant  to the March 2006
amendment  of the  Berthier  Agreement,  we made a payment of 150,000  euros and
began to make a  monthly  payment  of at  least  10,000  euros  to Mr.  Berthier
commencing in March 2006.  These monthly  payments shall be applied  against the
2,150,000 euros aggregate purchase price for the Berthier  property.  A total of
180,000 euros ($216,000) and 30,000 euros ($36,000)was paid towards the Berthier
property   during  the  three  month  periods  ended  May  31,  2006  and  2005,
respectively.

Annual  minimum  commitments  under the  Berthier  Agreement at 10,000 euros per
Month and  inclusive of the 150,000  euros  payment  made in March,  2006 are as
follows  (using,  for purposes of illustration  only in this report,  a currency
exchange rate of U.S. $1.20 per one euro):

     Years Ending February 28,

                            2007          $    324,000
                            2008          $  1,980,000
                            2009                     -
                            2010                     -
                            2011                     -
                          Beyond                     -
                                          ------------
                                          $  2,304,000
                                          ============


(10) Related Party Transactions.

In July 2006 we entered into an amended and restated  consulting  agreement with
our CEO,  Mr.  Louis  Pardo in  connection  with the  services he provided to us
during the period from January 2001 through  December  2005.  The Company issued
6,653,000  shares of common  stock to Mr.  Pardo on July 11, 2005 as payment for
these  services.  The  shares  were at the time of  issuance,  and are as of the
balance sheet date,  subject to  restrictions  on  transferability.  The closing
market  price of our common stock on the OTC-BB on the date of issuance of these
shares was $0.10 per share. The issuance of these shares was recorded at a value
of $0.082, based on a discount of 20% to the five-day trailing average price for
the Company's common stock on the OTC-BB as of July 11, 2005.



                                      F-17
<PAGE>



In July 2006,  we entered into an amended and restated  consulting  agreement in
connection  with  the  services  rendered  by  a  significant  shareholder,  Mr.
Christophe Giovannetti. Mr. Giovannetti provided these services to us during the
period from January 2001 through  December 2005.  The Company  issued  6,653,000
shares of common stock to Mr.  Giovannetti on July 11, 2005 as payment for these
services.  The shares  were at the time of  issuance,  and are as of the balance
sheet date,  subject to restrictions on  transferability.  The issuance of these
shares  was  recorded  at a value of $0.082,  based on a discount  of 20% to the
five-day  trailing  average  price for our common stock on the OTC-BB as of July
11, 2005.

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


(11) Concentration of Credit Risk.

Financial  instruments that potentially subject the Company to concentrations of
credit  risk  consist  of  cash  and  cash  equivalent   accounts  in  financial
institutions,  which  from  time to time  exceed  Federal  depository  insurance
coverage  limits.  At May 31,  2006,  cash and cash  equivalents  did not exceed
federally insured limits.


(12) Subsequent events

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

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

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



                                      F-18
<PAGE>



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

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

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












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                                      F-19
<PAGE>



Item 2. Management's Discussion and Analysis or Plan of Operation

     The following  discussion and analysis  should be read in conjunction  with
our financial statements and notes thereto included elsewhere in this report and
appearing  in our annual  report  filed on Form 10-KSB for the fiscal year ended
February 28, 2006.

                           FORWARD-LOOKING STATEMENTS

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

     Forward-looking  statements  are based on  management's  current  views and
assumptions   and  involve  unknown  risks  that  could  cause  actual  results,
performance or events to differ  materially  from those  expressed or implied in
those  statements.  These risks  include,  but are not limited to, the risks set
forth  under the caption  "Risk  Factors."  Actual  events or results may differ
materially  from those  discussed in  forward-looking  statements as a result of
various factors,  including,  without limitation, the risks outlined under "Risk
Factors" and matters described in this report generally. In light of these risks
and uncertainties, there can be no assurance that the forward-looking statements
contained in this report will in fact occur.

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



                                       22
<PAGE>



                                     GENERAL

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

     We have had no revenues from our current  operations,  our operations since
inception in 1998 have not  generated a profit,  and we have relied on, and will
continue to rely on,  significant  external  financing  to fund our  operations.
During the fiscal year ended  February 28, 2006,  our financing  came  primarily
from the sale of $644,000 of convertible debentures and approximately $86,000 in
private  placement  proceeds.  Subsequent  to  year-end we closed on $917,800 in
gross  proceeds  from the private  sale of our  securities  in the 2006  Private
Placement.  We also have a commitment  for gross  proceeds of up to $8.0 million
that is available to us under the Standby Equity Distribution Agreement ("SEDA")
upon the satisfaction of certain  conditions  including the  effectiveness of an
SEC registration  statement covering,  among other securities,  the common stock
issuable  in exchange  for the SEDA funds,  and the listing of our of shares for
quotation on the OTC-BB.  The OTC-BB has temporarily  ceased quoting our shares.
The filing of this  quarterly  report on Form 10-QSB for the three  months ended
May 31, 2006 eliminates the remaining reason for our OTC-BB de-listing. Upon the
filing of the 10-QSB, we will pursue  re-inclusion of our share quotation on the
OTC-BB.  If we determine  not to utilize any of the $8.0 million SEDA funds,  we
will need to raise at least  approximately $9.2 million in additional capital to
finance  operations  and other  expenses  from  October  2006  through  calendar
year-end  2007.  To the extent we do draw on the SEDA to finance  operations  as
described  above,  the  aforesaid  $9.2 million  figure will decrease by the net
amount of such draws.

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

                             FINANCING TRANSACTIONS

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

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



                                       23
<PAGE>



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

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

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

     In March  2006 we  entered  into a bridge  loan  agreement  with  Portfolio
Lenders.  Under the agreement we obtained  gross proceeds of $100,000 and agreed
to pay interest at a rate of 15%,  repay the loan on demand,  and issue  100,000
warrants to the lender  exercisable at $0.05 per share. A total of 30 days worth
of interest  $1,250 was paid in advance on the closing date.  The Company repaid
all amounts due and owing under the March 2006  Portfolio  Lenders Note on April
11, 2006.

     In May 2006 we issued a Promissory  Note to Portfolio  Lenders  pursuant to
which the Company obtained a loan in the principal amount of $250,000 with a 15%
interest  rate of which 90 days worth of interest  $9,375 was paid in advance on
the closing date. The principal and accrued but unpaid interest shall be paid in
full on or before the  earlier of (i) 60 days  after the  effective  date of the
Registration  Statement  on Form SB-2 as filed by  Poseidis on April 14, 2006 or
(ii)  October 31,  2006.  In  conjunction  with this  Promissory  Note we issued
warrants to purchase  1,000,000 shares of the Company's common stock exercisable
at $0.05 per share.

     In July 2006,  we obtained a loan of $30,000 from Louis Pardo which we used
for working  capital  purposes.  Mr.  Pardo is our  President,  Chief  Executive
Officer, and Chairman of our Board of Directors and a substantial stockholder of
the Company. This note accrues interest at the rate of 9.25% per annum. The



                                       24
<PAGE>



principal and accrued  interest shall be paid in full on demand,  not later than
the fifth  business  day after  written  demand  therefore  is  received  by the
Company.

     We generated a net loss of  $3,294,210  during the year ended  February 28,
2005, a net loss of  $1,569,140  during the year ended  February 28, 2006, a net
loss of $699,808  during the three months ended May 31, 2006,  and a net loss of
$145,748 during the three months ended May 31, 2005. Our accumulated  deficit as
of February 28, 2006 was $8,312,661 and as of May 31, 2006 was $9,012,470. As of
July 31, 2006, our available  cash position was  approximately  $21,500.  We are
continuing to seek additional financing to meet our working capital needs and to
continue on-going equipment installation at the Source, development of our pilot
plant, development of our commercial production and bottling facility, and other
elements of our business plan. We expect that operating and development expenses
will increase  significantly  as we continue to implement our plan. No assurance
can be  given  that we will be  successful  in  completing  these  or any  other
financings  at  the  minimum  level   necessary  to  fund  our  working  capital
requirements  or to  complete  our  development  plan  or  at  all.  If  we  are
unsuccessful in completing these financings, or in acquiring the funds available
pursuant  to the  SEDA,  we  will  not be  able  to  fund  our  working  capital
requirements  or execute our business  plan, we will run out of cash and have to
substantially reduce or curtail the development of our project.

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

     We are continuing to seek financing  sources.  We need to raise  additional
capital to meet our working  capital  needs,  for the  repayment of debt and for
capital  expenditures.  Such capital is expected to come from the sale of equity
(including  the sale of  common  stock  under the  SEDA) or debt  financing.  We
believe  that  if we  raise  approximately  $9.2  million  in  debt  and  equity
financings, excluding the SEDA, we would have sufficient funds to meet our needs
for working capital and repayment of debt  (approximately  $2.5 million) and for
capital  expenditures  (approximately  $6.7  million)  from October 2006 through
calendar year-end 2007.

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

                      STANDBY EQUITY DISTRIBUTION AGREEMENT

     On August 26, 2005, the Company entered into the SEDA with Cornell Capital,
pursuant  to which the  Company  may, at its  discretion,  periodically  sell to
Cornell  Capital  shares  of  Common  Stock  for a total  gross  price  of up to
$8,000,000. The Company and Cornell Capital entered into an Amended and Restated
SEDA and related  letter  agreement  as of October  24,  2005 which  removed the
escrow agent and takes into effect the  termination  of the Escrow  Agreement by
and among the Company, Cornell Capital and David Gonzalez, Esq. In addition, the



                                       25
<PAGE>



Company agreed to not redeem or repay  convertible  debentures issued by Cornell
Capital with proceeds  from the Amended and Restated  SEDA. On February 1, 2006,
the Company and Cornell  Capital entered into a Second Amended and Restated SEDA
which amended the payment terms  pertaining to the $320,000  commitment  fee due
Cornell Capital as provided for in the original SEDA. Under these amended terms,
on February 1, 2006, the Company issued to Cornell Capital (i) 3,000,000  shares
of common stock, (ii) a warrant to purchase  9,000,000 shares of common stock at
an  exercise  price  of $0.04  per  share  and  (iii) a  promissory  note in the
principal amount of $200,000.

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

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

                             CONVERTIBLE DEBENTURES

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

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



                                       26
<PAGE>



     The  Convertible  Debentures  are secured by security  agreements  covering
substantially  all of our business  assets dated August 26, 2005 (as to the 2005
Debentures)  and  February  1,  2006  (as  to  the  February  2006   Debenture),
respectively,  and by a pledge  and  escrow  agreement  dated  February  1, 2006
whereby  we have  pledged  20,000,000  shares  of our  common  stock  to  secure
repayment of the Convertible Debentures.  Principal plus accrued interest may be
converted  at Cornell  Capital's  option,  into shares of our common  stock at a
price  per share of  $0.0497  (as to the 2005  Debentures)  and $0.04 (as to the
February 2006  Debenture).  If the holder  elects to convert,  we may redeem the
portion of the  debenture  that was subject to the  conversion  notice by paying
120% of the amount being redeemed.  Cornell Capital is restricted from acquiring
such number of shares upon  conversion  of the  Convertible  Debentures  if such
conversion  would  result  in  Cornell  Capital  owning in excess of 4.9% of our
outstanding  common stock, which may only be waived by Cornell Capital either in
its sole  discretion  with 60 days'  notice or without  notice  upon an event of
default.  This  restriction  may  significantly  limit and delay our  ability to
access funds under the SEDA.

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

                              GOING CONCERN MATTERS

     Our accompanying  consolidated financial statements have been prepared on a
going  concern  basis,   which  contemplates  the  continuation  of  operations,
realization of assets and  liquidation of liabilities in the ordinary  course of
business.  Since inception,  we have incurred  substantial  operating losses and
expect to incur  additional  operating losses over the next several years. As of
May 31, 2006, we had an accumulated deficit of approximately  $9,012,000. We are
continuing to seek financing  sources.  We will need to raise additional capital
to meet our working capital needs and to complete our product  commercialization
process.  No assurances  can be given that such  financing  will be available in
sufficient amounts or at all. Continuation of our operations through fiscal year
2007 is dependent upon obtaining such further financing.  These conditions raise
substantial  doubt  about  our  ability  to  continue  as a going  concern.  The
accompanying  consolidated  financial  statements do not include any adjustments
that might result from the outcome of this uncertainty.

                        LIQUIDITY AND FINANCIAL CONDITION

     At May 31, 2006, cash and cash equivalents were $39,942.  Total liabilities
at May 31,  2006  were  $2,480,864  consisting  of  current  liabilities  in the
aggregate  amount of  $1,248,125  and  long-term  liabilities  in the  amount of
$1,232,739.  At May 31, 2006,  assets included $0 in  inventories,  property and
equipment, net, of $585,883, net intangibles of $1,373,701, other current assets
of $28,879 and other assets of $121,624.  As of May 31, 2006 our working capital
deficit was $1,179,304 as compared to $846,787 at May 31, 2005.



                                       27
<PAGE>



     We  expect  to  incur  substantial  operating  losses  as we  continue  our
commercialization  efforts. We are continuing to seek financing sources. We need
to raise additional capital to meet our working capital needs, for the repayment
of debt and for capital expenditures.  Such capital is expected to come from the
sale of  equity  (including  the sale of  common  stock  under the SEDA) or debt
financing.  We believe that if we raise  approximately  $9.2 million in debt and
equity  financings,  excluding the SEDA, we would have sufficient  funds to meet
our needs for working capital and repayment of debt (approximately $2.5 million)
and for capital  expenditures  (approximately  $6.7  million)  from October 2006
through calendar year-end 2007.

                              RESULTS OF OPERATIONS

   THREE MONTHS ENDED MAY 31, 2006 COMPARED TO THREE MONTHS ENDED MAY 31, 2005

Revenues

     The Company has generated no revenues since inception.

General and Administrative Expenses

     General and  administrative  expenses during the three months ended May 31,
2006,  increased by $10,350 or approximately  19% to $65,005 from $54,655 in the
three months  ended May 31, 2005.  This  increase  was  primarily  due to higher
office, rent, travel and entertainment expenses.

Consulting Fees

     Consulting fees were $102,342 during the three months ended May 31, 2006 as
compared  to $58,958 in the three  months  ended May 31, 2005 for an increase of
$43,384 or  approximately  74%.  This increase was due primarily to expenses for
CFO  (Bridgehead  Partners,  LLC) and  business  development  services  (Phoenix
Ventures)  during the three  months  ended May 31, 2006 as compared to the three
month ended May 31, 2005.

Professional Fees

     Professional  fee expenses  during the three months ended May 31, 2006 were
$311,744 as compared to $0 in the three months ended May 31, 2005.  The increase
was due to increased  expenditures for legal fees,  financial advisory services,
graphic design and website development.

Other income (Expense)

     Interest  expense  for the three  months  ended May 31, 2006  increased  by
$183,544 to $183,640  from $96 in the three months ended May 31, 2005.  Interest
expense  represents the  amortization of the discount on our debt obligations of
$167,557 and interest expense accruals of $38,600.

Net Loss to Common Shareholders

     Net loss to common  shareholders  was  approximately  $699,808 or $0.01 per
share  for the three  months  ended May 31,  2006 as  compared  to a net loss of
$145,748 or $0.01 per share for the three months ended May 31, 2005. The



                                       28
<PAGE>



increase  in net loss for the  period  was  principally  due to a  increases  in
consulting expenses and general and administrative expenses,  increased interest
expense on outstanding  debt including the  amortization  of the discount on the
warrants and the embedded  derivatives  on our various debt  obligations,  2) an
increase  in  professional  fees for legal  fees,  financial  advisory  service,
graphic design and website development,  and 3) amortization charges relating to
the issuance of warrants and convertible notes.

Accumulated Deficit

     Since inception,  we have incurred substantial  operating losses and expect
to incur substantial additional operating losses over the next several years. As
of May 31, 2006, our accumulated deficit was $9,012,470.

                                PLAN OF OPERATION

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

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

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

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

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



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<PAGE>



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

     Our operations since inception in 1998 have not generated a profit. We have
a  commitment  for $8.0 million in gross  proceeds  that will be available to us
under  the SEDA  upon the  satisfaction  of  certain  conditions  including  the
effectiveness of an SEC registration statement covering, among other securities,
the common stock issuable in exchange for the SEDA funds, and reinclusion of our
common stock for quotation on the OTC-BB.  If we determine not to utilize any of
the $8.0 million SEDA funds, we will need to raise at least  approximately  $9.2
million in  additional  capital to finance  operations  and other  expenses from
October 2006 through  calendar  year-end  2007.  To the extent we do draw on the
SEDA funds to finance  operations as described above, the aforesaid $9.2 million
figure  will  decrease by the amount of such draws.  If we are  unsuccessful  in
accessing  the funds  available  pursuant to the SEDA or in obtaining  necessary
capital from other  sources,  we will run out of cash and have to  substantially
reduce or curtail the development of our project.

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

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

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



                                       30
<PAGE>



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

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

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

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

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

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

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

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



                                       31
<PAGE>



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

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

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

Number of Employees

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

     The Company  maintains its executive  offices at 222 Lakeview  Ave.,  Suite
160, West Palm Beach, FL 33401, telephone: (305) 428-3757.

Research and Development Plans

     For the  next  three  months  there  is not a plan  for  funding  extensive
research and development efforts.

                                  RISK FACTORS

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

                   RISKS RELATED TO OUR BUSINESS AND INDUSTRY

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

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



                                       32
<PAGE>



price, such that Montespan's co-ownership percentage shall be the fraction whose
numerator  is the  total  sum  paid  by  Montespan  to Mr.  Berthier  and  whose
denominator is 2,150,000 euros, and Mr. Berthier's co-ownership percentage shall
be 100% minus Montespan's co-ownership percentage.  In the event of co-ownership
of the  Berthier  property  between Mr.  Berthier  and  Montespan,  the Berthier
Agreement  provides  that each party will hold a right of  preemption to acquire
the interest of the other party when the other party wishes to sell its interest
to a third party.  Such right of preemption is exercisable on the same terms and
conditions that are proposed between the other party and the third party.

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

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

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

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

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

     We plan to install pumping equipment at the Source and to construct, first,
a small-scale production facility capable of manufacturing limited quantities of
samples of our envisioned  final product (the  carbonation in these samples will
vary slightly compared to the carbonation in the final commercial  product) and,
second, a full-scale commercial production plant plus related infrastructure



                                       33
<PAGE>



improvements  at and around the  Source.  To  accomplish  this,  and cover other
expenses from October 2006 through calendar year-end 2007, we will need to raise
approximately  $9.2  million in financing  from  October  2006 through  calendar
year-end 2007 (excluding the $8.0 million in SEDA funds available to us). To the
extent we utilize the SEDA funds,  such $9.2 million figure that we will need to
raise will be reduced on a  dollar-for-dollar  basis.  However,  there can be no
assurance that one or more financing  transactions  will be completed at all, or
on terms favorable to us.

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

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

     o    Building permit.
     o    Water transportation permit (pipeline from the Source to the plant).
     o    Tag approval (health-related claims on our bottle labeling).
     o    Gas pressure treatment approval.
     o    Food  and  health  permits  from  the  applicable   French  and  other
          governmental regulatory authorities.

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

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

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

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

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

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

     Our growth strategy involves the launch of our primary product in France, a
phase-in of our primary product in other geographic markets,  and then expanding
our product lines and the number of markets served. Achieving our growth



                                       34
<PAGE>



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

     An  inability to obtain  financing,  hire and retain  qualified  personnel,
secure the required  equipment  and  facilities  in a timely and  cost-effective
manner,  efficiently operate our facilities,  or obtain the necessary regulatory
approvals may adversely  affect our ability to achieve our growth  strategy.  We
cannot assure you that we will be able to successfully establish new markets and
our failure to do so could harm our business

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

WE HAVE AN ABSENCE OF OPERATING HISTORY.

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

FOREIGN CURRENCY RISKS.

     Poseidis will have  operations  throughout the world  including  production
facilities in France and offices in France and the U.S. We will export  products
to various  countries.  Poseidis  purchases services and materials and will sell
its products in foreign currencies,  therefore currency fluctuations may have an
effect on Poseidis'  results of operations,  balance sheet and cash flow.  Since
Poseidis  will export many  products  from France and may generate a substantial
portion of its revenues in currencies other than the euro,  Poseidis' results of
operations would be adversely affected by an appreciation of the euro against



                                       35
<PAGE>



other currencies,  in particular the U.S. dollar.  Further,  the majority of the
Company's  financing  to date has been  raised in U.S.  dollars  while its major
expenditures and asset purchases are in euros, leaving it exposed to significant
changes in currency conversion rates.

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

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

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

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

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

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

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

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

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



                                       36
<PAGE>



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

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

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

     If our products were to cause health-related claims among our customers, we
could be exposed to significant  tort liability.  The insurance we plan to carry
to cover damages arising from any products  liability  claims may be inadequate.
In the  event  that our  insurance  is not  adequate,  we may be  forced to bear
substantial  losses from a claim or claims.  In addition,  any product liability
claims  involving our products or involving our industry in general could create
a public perception that our products are not safe or reliable, which could harm
our  reputation,  result in  customers  being  reluctant to purchase and use our
product, and harm our business.

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

SEASONALITY AND OTHER FACTORS IMPACT DEMAND FOR OUR PRODUCTS.

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

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

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

     o    impact our ability to obtain additional financing to support expansion
          plans and for working  capital and other purposes on acceptable  terms
          or at all;
     o    divert  substantial  cash flow from our operations and expansion plans
          in order to service our fixed obligations;
     o    require  us to  incur  significantly  more  interest  expense  than we
          currently do; and
     o    place  us at a  possible  competitive  disadvantage  compared  to less
          leveraged  competitors  and  competitors  that have  better  access to
          capital resources.

     Our ability to make  scheduled  payments on our debt and fixed  obligations
will depend on our future  operating  performance  and cash flow,  which in turn
will  depend on  prevailing  economic  conditions  and  financial,  competitive,
regulatory, business and other factors, many of which are beyond our control. We



                                       37
<PAGE>



cannot assure you that we will be able to generate sufficient cash flow from our
operations  to pay our debt and fixed  obligations  as they become due,  and our
failure to do so could harm our  business.  If we are unable to make payments on
our debt and fixed obligations,  we could be forced to seek to renegotiate those
obligations  or obtain  additional  equity or debt  financing.  To the extent we
finance our activities with additional  debt, we may become subject to financial
and other covenants that may restrict our ability to pursue our growth strategy.
We cannot  assure you that our efforts  would be successful or timely or that we
could refinance our obligations on acceptable terms, if at all.

OUR MAINTENANCE COSTS WILL INCREASE AT OUR PRODUCTION FACILITY.

     While our small-scale  production plant and full-scale production plant are
scheduled for construction in 2006 and 2007, and into the first quarter of 2008,
history has shown that maintenance  costs will increase over time. We will incur
lower  maintenance  expenses  during  the  first  few  years of  operations.  As
equipment ages, the cost to maintain it naturally  increases.  In addition,  the
costs of  maintenance  increase  each year due to increases in parts prices from
manufacturers and increases in labor rates.  Ongoing manufacturer and regulatory
directives also increase  maintenance costs. Our maintenance costs will increase
both on an absolute basis and as a percentage of our operating expenses,  as our
production facility ages.

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

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

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

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

     o    difficulties  or delays in  obtaining  the  necessary  approvals  from
          regulatory authorities;
     o    delays in meeting equipment delivery schedules;
     o    difficulties in obtaining financing on acceptable terms; and
     o    inability of the  equipment  and all of its  components to comply with
          agreed upon specifications and performance standards.



                                       38
<PAGE>



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

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

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

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

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

OUR RESULTS OF OPERATIONS WILL FLUCTUATE.

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

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

     Our business will depend upon the efforts of Louis Pardo (President and CEO
of  Poseidis),  Bernard  Bouverot  (Directeur  General  of  Montespan),  John J.
McGovern (Executive Vice President and Chief Financial Officer of Poseidis), and
a number of management and operating personnel. The Company has not entered into
employment agreements with its executive officers and key personnel except for a
consulting agreement between the Company and Bridgehead Partners, LLC (John J.



                                       39
<PAGE>



McGovern,  the Company's Chief Financial  Officer,  is the Chairman and Managing
Director of Bridgehead Partners, LLC). We do not maintain key-man life insurance
on Messrs.  Pardo,  Bouverot,  and McGovern.  The loss of the services of any of
these executives could materially harm our business because of the cost and time
necessary  to replace  and train a  replacement.  Such a loss would also  divert
management  attention  away  from  operational  issues.  We may have  difficulty
replacing  management  or other key  personnel  who are lost or who  leave  and,
therefore, the loss of the services of any of these individuals could materially
harm our business.

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

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

     Provisions in our amended  certificate of  incorporation,  our bylaws,  and
under Florida law could make it more  difficult  for other  companies to acquire
us,  even if  doing  so would  benefit  our  stockholders.  Our  certificate  of
incorporation and bylaws contain the following  provisions,  among others, which
may inhibit an acquisition of our company by a third party:

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

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

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY.

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



                                       40
<PAGE>



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

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

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

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

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

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

WE FACE RISKS RELATED TO OUR ACCOUNTING RESTATEMENTS.

     On July 25, 2005 we publicly  announced that we had  discovered  accounting
errors in previously reported financial statements.  Following consultation with
our  independent  accountants,  we restated  our  financial  statements  for the
quarters ended August 31, 2005 and November 30, 2005. The  restatements  related
to (1) the  accounting for certain debt  financings  conducted by the Company in
August and October 2005 as well as certain  compensatory  warrants issued by the
Company and (2) the accounting for the issuance of the Company's common stock in
payment  of  certain  accrued   expenses.   Further   information   about  these
restatements is contained in our Current Report on Form 8-K filed July 25, 2006,
as amended  September  13, 2006 and September  20, 2006,  our Amended  Quarterly
Report on Form  10-QSB/A for the three  months  ended  August 31, 2005,  and our
Amended  Quarterly  Report on Form 10-QSB/A for the three months ended  November
30, 2005.




                                       41
<PAGE>



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

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

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

     We have undertaken  improvements  to our internal  controls in an effort to
remediate  these  deficiencies  through  the  following  efforts:  1) engaging a
qualified,  experienced  Chief  Financial  Officer as of January  12,  2006;  2)
implementing a review of all  convertible  securities to identify any securities
that   are   not   conventional   convertible   securities;   and  3)   periodic
reconciliations  of our common stock  transactions with our stock transfer agent
to assure accurate and timely recording of common stock issuances.  We cannot be
certain that our efforts to improve our internal and disclosure controls will be
successful  or that we will be able  to  maintain  adequate  controls  over  our
financial  processes  and  reporting  in the  future.  Any failure to develop or
maintain effective controls or difficulties  encountered in their implementation
or other  effective  improvement of our internal and  disclosure  controls could
harm  our  operating  results  or  cause  us  to  fail  to  meet  our  reporting
obligations.  If we are unable to  adequately  establish or improve our internal
controls  over  financial  reporting,  our external  auditors may not be able to
issue an unqualified  opinion on the effectiveness or our controls.  Ineffective
internal and disclosure  controls could also cause  investors to lose confidence
in our reported financial information, which would likely have a negative effect
on the trading price of our securities.

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

     In the event of our  dissolution,  the proceeds from the liquidation of our
assets,  if any,  will be first used to satisfy  the claims of  creditors.  Only
after all outstanding debts are satisfied will the remaining  proceeds,  if any,
be distributed to our stockholders. Accordingly, the ability of any investor to



                                       42
<PAGE>



recover  all or any  portion  of an  investment  in our  securities  under  such
circumstances  will depend on the amount of funds so  realized  and claims to be
satisfied therefrom.

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

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

THE OTC BULLETIN BOARD HAS TEMPORARILY CEASED QUOTING OUR COMMON STOCK. UPON THE
FILING  OF THIS  REPORT  WITH  THE SEC OUR  STOCK  WILL  AGAIN BE  ELIGIBLE  FOR
QUOTATION  ON THE OTC-BB.  IT IS UNCERTAIN  AS TO WHEN THE  RE-INCLUSION  OF OUR
SHARE QUOTATION ON THE OTC-BB WILL BE ACHIEVED.

     On July 19, 2006, the OTC-BB  temporarily ceased quoting our shares because
our annual  report on Form 10-KSB for the year ended  February  28, 2006 had not
been  filed  with the SEC.  The  filing of that  report on  September  13,  2006
eliminated that  eligibility  deficiency.  In addition,  our quarterly report on
Form 10-QSB for the three months ended May 31, 2006, became overdue. Upon filing
of our 10-QSB for the quarter ended May 31, 2006, the Company's stock will again
be eligible for quotation on the OTC-BB, and we will pursue  re-inclusion of our
share  quotation on the OTC-BB.  It is uncertain as to when the  re-inclusion of
our share quotation on the OTC-BB will be achieved.

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

     Our common  stock is deemed to be "penny  stock" as that term is defined in
Rule  3a51-1  promulgated  under  the  Securities  Exchange  Act of 1934.  These
requirements  may reduce the  potential  market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third  parties or to otherwise  dispose of
them. This could cause our stock price to decline. Penny stocks are stock:

     o    With a price of less than $5.00 per share;
     o    that are not traded on a "recognized" national exchange;
     o    whose prices are not quoted on the NASDAQ  automated  quotation system
          (NASDAQ  listed  stock  must still have a price of not less than $5.00
          per share); or
     o    in issuers  with net  tangible  assets less than $2.0  million (if the
          issuer has been in  continuous  operation for at least three years) or
          $5.0 million (if in  continuous  operation for less than three years),
          or with average  revenues of less than $6.0 million for the last three
          years.

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




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<PAGE>



                   RISKS RELATED TO CORNELL CAPITAL FINANCING

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

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

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

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

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

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

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

     Cornell Capital  currently owns 3,000,000 shares of common stock and, based
upon the conversion rights under the Convertible Debentures as described in this
report, could acquire up to 29.48% of our common stock, subject to the terms and
conditions of the applicable agreements. If Cornell Capital acquired such 29.48%
of our common stock, it could exercise  significant  influence over the election
of directors,  determination  of policies,  appointing the persons  constituting
management,   and  determining  the  outcome  of  corporate   actions  requiring
stockholder approval, including mergers, consolidations,  and the sale of all or
substantially  all or our assets.  The  interests of Cornell  Capital may differ
from the interest of other stockholders.

POSSIBLE AMENDMENT OF STANDBY EQUITY DISTRIBUTION AGREEMENT (SEDA)

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




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<PAGE>



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

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

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

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

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

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

     o    Make it more difficult for us to satisfy our creditors;
     o    increase our  vulnerability  to adverse  economic and general industry
          conditions;
     o    require  us to  dedicate a  substantial  portion of our cash flow from
          operations   to  payments  on  our  debt,   which  would   reduce  the
          availability of our cash flow from operations to fund working capital,
          capital expenditures or other general corporate purposes; and
     o    limit our  flexibility in planning for, or reacting to, changes in our
          business and  industry;  and o Limit our ability to borrow  additional
          funds in the future.

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

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



                                       45
<PAGE>



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

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

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

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

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

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

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

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

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

     The significant  downward  pressure on the price of our common stock caused
by the sale of material  amounts of common stock under the SEDA could  encourage
short sales by third  parties.  In a short sale, a  prospective  seller  borrows
stock from a shareholder or broker and sells the borrowed stock. The prospective
seller hopes that the stock price will decline, at which time the seller can



                                       46
<PAGE>



purchase  shares at a lower price to repay the lender.  The seller  profits when
the stock price declines  because it is purchasing  shares at a price lower than
the sale price of the borrowed  stock.  Such sales could place further  downward
pressure  on the price of our common  stock by  increasing  the number of shares
being sold.

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

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

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


Item 3. Controls and Procedures

     As of May 31, 2006, an evaluation was carried out under the supervision and
with the participation of management,  including the Chief Executive Officer and
Chief  Financial  Officer,  of the  effectiveness  of  disclosure  controls  and
procedures.  Based on that  evaluation,  the Chief  Executive  Officer and Chief
Financial  Officer have  concluded that  disclosure  controls and procedures are
effective to ensure that information  required to be disclosed by the Company in
reports that the Company files or submits under the  Securities  Exchange Act of
1934 is recorded,  processed,  summarized  and reported  within the time periods
specified in SEC rules and forms. No changes in the Company's  internal  control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, its internal control over financial  reporting,  including
any  corrective  actions with regard to  significant  deficiencies  and material
weaknesses,  occurred  during the first  quarter of fiscal 2007 or subsequent to
the date of the evaluation by management.



                                     Part II


Item 1. Legal Proceedings

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


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

     All  unregistered  equity  securities sold during the quarter ended May 31,
2006 have previously been reported in a Current Report on Form 8-K.



                                       47
<PAGE>



Item 3. Defaults upon Senior Securities

     None.


Item 4. Submission of Matters to a Vote of Security Holders

     None.


Item 5. Other Information

     None.


Item 6. Exhibits and Reports on Form 8-K

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

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

10.1       Amended and Restated Real Estate Purchase Agreement dated as
           of March 15, 2006 between  Christian  Berthier and Montespan
           SAS.                                                              (2)

10.2       Form of Unsecured Convertible Debenture from 2006 Private
           Placement.                                                        (3)

10.3       Form of A Warrant from 2006 Private Placement.                    (3)

10.4       Form of B Warrant from 2006 Private Placement.                    (3)

10.5       Form of C Warrant from 2006 Private Placement.                    (3)

16.1       Letter from Durland and Company, CPAs, PA regarding change
           of certifying accountant.                                         (4)

31.1       Certification by Chief Executive Officer pursuant to Section
           302 of Sarbanes-Oxley Act of 2002.                                (1)

31.2       Certification of Chief Financial Officer pursuant to Section
           302 of Sarbanes-Oxley Act of 2002.                                (1)

32.1       Certification  by Chief  Executive  Officer  pursuant  to 18
           U.S.C.  Section 1350, as adopted  pursuant to Section 906 of
           the Sarbanes-Oxley Act of 2002.                                   (1)

32.2       Certification  by Chief  Financial  Officer  pursuant  to 18
           U.S.C.  Section 1350, as adopted  pursuant to Section 906 of
           the Sarbanes-Oxley Act of 2002.                                   (1)




                                       48
<PAGE>



99.1       Promissory Note dated as of May 12, 2006 issued to Portfolio
           Lenders II, LLC in the principal amount of $250,000.              (5)

99.2       Warrant dated as of May 12, 2006 issued to Portfolio Lenders
           II, LLC (1,000,000 shares).                                       (5)
-----------------------
(1)  Filed herewith.

(2)  Filed as an  exhibit  to our  Current  Report  on Form 8-K  filed  with the
     Securities  and  Exchange  Commission  on March 21,  2006 and  incorporated
     herein by reference.

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

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

(5)  Filed as an  exhibit  to our  Current  Report  on Form 8-K  filed  with the
     Securities and Exchange  Commission on May 17, 2006 and incorporated herein
     by reference.


     (b) REPORTS ON FORM 8-K. During the quarter ended May 31, 2006, the Company
filed the following Reports on Form 8-K:

     On March 21, 2006, the Company filed a Current Report on Form 8-K reporting
     the entry into a material agreement by Montespan and Christian Berthier.

     On April 6, 2006,  the Company filed a Current Report on Form 8-K reporting
     the  termination  of our offering of units of our  securities  in a private
     placement.

     On April 18, 2006, the Company filed a Current Report on Form 8-K reporting
     the change of our  certifying  accountant.  This Current Report on Form 8-K
     was later amended on June 26, 2006.

     On May 17, 2006,  the Company filed a Current  Report on Form 8-K reporting
     the issuance of a Promissory Note to Portfolio Lenders II pursuant to which
     we obtained a loan in the principal  amount of $250,000 and issued warrants
     to  purchase  1,000,000  shares  of the  Company's  common  stock.  We also
     reported the engagement of Moore Stephens,  P.C. by the Company to serve as
     the Company's independent accountants.







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<PAGE>



                                   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.



                                 POSEIDIS, INC.
                            -----------------------
                                  (Registrant)


Dated:  October 3, 2006
                               By: /s/Louis Pardo
                                  -------------------------------------------
                                  Louis Pardo
                                  Chief Executive Officer and President


Dated: October 3, 2006
                             By: /s/John J. McGovern
                                 -------------------------------------------
                                 John J. McGovern
                                 Chief Financial Officer,
                                 Executive Vice President and Treasurer
                                 (Principal Financial Officer and
                                 Principal Accounting Officer)




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