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

                                  FORM 10-QSB/A
                                 AMENDMENT NO. 2

                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
(of incorporation or organization)                  Identification No.)

             222 LAKEVIEW AVE., SUITE 160, WEST PALM BEACH, FL 33401
             -------------------------------------------------------
                    (Address of principal executive offices)

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

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

Yes [_] No [X]

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
<PAGE>

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 November 14, 2007 the issuer
had 135,512,689 shares of common stock, $0.0001 par value per share,
outstanding.

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


                                EXPLANATORY NOTE

We are amending our Form 10-QSB/A for the quarter ended May 31, 2006 previously
filed on October 4, 2006 in response to a comment letter from the SEC staff
dated October 20, 2006.

The Company's management has reviewed and approved, and takes full
responsibility for, the revisions made to the Form 10-QSB for the fiscal quarter
ended May 31, 2006 as set forth in this 10-QSB/A.
<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-4
         Notes to Consolidated Financial Statements..........................F-5

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............. 3

ITEM 3. CONTROLS AND PROCEDURES...............................................24

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.....................................................25

ITEM 2. UREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS............25

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................................25

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................25

ITEM 5. OTHER INFORMATION.....................................................25

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................26
<PAGE>

                                     PART I

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                         POSEIDIS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                                 May 31, 2006   February 28,
                                                                 (Unaudited)       2006
                                                                 -----------    -----------
                             ASSETS
CURRENT ASSETS
<S>                                                              <C>            <C>
     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
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                                            273,933        353,309
     Promissory note, less debt discounts of $42,134 and $0          207,866              0
                                                                 -----------    -----------
              Total Current Liabilities                              953,937        940,517
                                                                 -----------    -----------
LONG TERM LIABILITIES
     Secured convertible debentures, less debt discounts of           73,092         62,798
     $141,574 and $312,869
     Unsecured convertible debentures, less debt discounts of        355,897              0
     $561,903 and $0
     Promissory note                                                 200,000        200,000
     Derivative liability                                            458,852        494,632
                                                                 -----------    -----------
              Total Long Term Liabilities                          1,087,841        757,430
                                                                 -----------    -----------
Total Liabilities                                                  2,041,778      1,697,947
                                                                 -----------    -----------
STOCKHOLDERS' EQUITY
     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                                 46,090         71,002
     Accumulated deficit                                          (8,573,384)    (8,312,661)
                                                                 -----------    -----------
              Total Stockholders' Equity                             118,251          6,333
                                                                 -----------    -----------
Total Liabilities and Stockholders' Equity                       $ 2,160,029    $ 1,704,280
                                                                 ===========    ===========

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
</TABLE>


                                      F-1
<PAGE>

<TABLE>
<CAPTION>


                         POSEIDIS, INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                                   (UNAUDITED)

                                                     Three Months Ended May 31
                                                   ----------------------------
                                                       2006            2005
                                                   ------------    ------------
<S>                                                <C>             <C>
REVENUES                                           $          0    $          0
                                                   ------------    ------------

OPERATING EXPENSES
     General and administrative                          65,005          54,655
     Salaries                                                 0          26,461
     Consulting fees                                    102,342          58,958
     Depreciation                                         3,750           5,706
     Professional fees                                  311,744               0
                                                   ------------    ------------
         Total operating expenses                       482,841         145,780
                                                   ------------    ------------
Operating loss                                         (482,841)       (145,780)

OTHER INCOME (EXPENSE)
     Interest expense                                  (183,640)            (96)
     Gain on derivative liability                       439,086               0
     Amortization of deferred financing costs           (33,327)              0
     Gain on foreign currency transactions                    0             128
                                                   ------------    ------------
         Total other income (expense)                   222,119              32

Net loss                                               (260,722)       (145,748)

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

Comprehensive loss                                 $   (285,634)   $    (83,222)
                                                   ============    ============

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

Weighted average number of shares,
    basic and diluted                                69,685,800      50,236,882
                                                   ============    ============

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
</TABLE>


                                      F-2
<PAGE>

<TABLE>
<CAPTION>

                         POSEIDIS, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)


                                                                                    ADDITIONAL
                                                            NUMBER       COMMON       PAID-IN
                                                          OF SHARES      STOCK        CAPITAL
                                                          ----------   ----------   ----------
<S>                                                      <C>          <C>          <C>
Balance at March 1, 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 -Fair value of warrants issued
                with convertible debentures                     --           --         62,810
     2nd Quarter -Fair value of warrants issued
                with SEDA                                       --           --         32,317
     4th Quarter -Fair value of warrants issued in
                conjunction with convertible debentures         --           --        240,403
         4th Quarter -  Fair value of warrants and
            common shares
                       issued in conjunction with SEDA     3,250,000          325      717,911
     4th Quarter -Fair 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                                                        --           --           --
                                                          ----------   ----------   ----------
Balance at February 28, 2006                              69,685,800   $    6,969   $8,241,023

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

                                   (Continued)

                                      F-3
<PAGE>

                         POSEIDIS, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                   (CONTINUED)

                                                                       Total
                       Cumulative                                   Stockholders
                      Translation             Accumulated              Equity
                       Adjustment               Deficit             (Deficiency)
                       ----------            -----------            -----------
                       $  (16,770)           $(6,743,521)           $  (846,183)
                             --                     --                   23,160
                                                                         51,594
                             --                     --                   16,420

                             --                     --                1,085,770

                             --                     --                   62,810

                             --                     --                   32,317

                             --                     --                  240,403

                             --                     --                  718,236

                             --                     --                   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)
                             --                 (260,722)              (260,722)
                       ----------            -----------            -----------
                       $   46,090            $(8,573,384)           $   118,251
                       ----------            -----------            -----------


    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
</TABLE>


                                      F-4
<PAGE>

<TABLE>
<CAPTION>

                         POSEIDIS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                      Three Months Ended May 31,
                                                      --------------------------
                                                         2006            2005
                                                      -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                   <C>            <C>
Net loss                                              $  (260,722)   $  (145,748)
Adjustments to reconcile net loss to net cash
         used for operating activities:
     Depreciation                                           3,750          5,706
     Amortization of deferred financing costs              33,327              0
     Gain on derivative liability                        (439,086)             0
     Non-cash interest expense                            145,034              0
Change in assets and liabilities
     (Increase) decrease in deferred costs               (202,411)             0
     (Increase) decrease in other assets                    7,000         17,245
     Increase (decrease) in accounts payable              (45,345)       (17,747)
     Increase (decrease) in accrued expenses             (196,677)        25,780
     Increase (decrease) in accrued interest               29,913              0
                                                      -----------    -----------
Net cash (used) by operating activities                  (925,217)      (114,764)
                                                      -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Deposit on land and land improvements               (151,119)             0
     Purchase of property and equipment                    (2,813)             0
                                                      -----------    -----------
Net cash (used) by investing activities                  (153,932)             0
                                                      -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from short-term loans                       350,000              0
     Repayment of short-term loan                        (100,000)             0
     Debenture sinking fund                              (121,624)             0
     Stock sold for cash                                        0         35,000
     Increase (decrease) of bank overdraft                      0          3,341
     Proceeds from unsecured convertible debentures       917,800              0
                                                      -----------    -----------
Net cash provided by financing activities               1,046,176         38,341
                                                      -----------    -----------

                                                      -----------    -----------
Effect of exchange rates on cash                             (399)        77,779
                                                      -----------    -----------

Net increase (decrease) in cash                           (33,372)         1,356
                                                      -----------    -----------
CASH, beginning of period                                  73,314          1,051
                                                      -----------    -----------

                                                      ===========    ===========
CASH, end of period                                   $    39,942    $     2,407
                                                      ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the periods for:
     Interest                                         $    16,083    $         0
                                                      ===========    ===========
     Income Taxes                                     $         0    $         0
                                                      ===========    ===========

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
</TABLE>



                                      F-5
<PAGE>

                         POSEIDIS, INC. AND SUBSIDIARIES
                   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.

Together with our subsidiary Montespan (as well as certain inactive
subsidiaries), we are 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/A 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-6
<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, the fair value estimates 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, 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 (LOSS) - We report our operating 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 (loss).

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.

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

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

                                      F-7
<PAGE>

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

(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".

(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. 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 and marketing of a new brand of sparkling natural mineral water
is 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 $33,327 and
$0 for the three month periods ended May 31, 2006 and 2005, respectively.

                                      F-8
<PAGE>

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.

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 -- Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity 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.

                                      F-9
<PAGE>

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.

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 the
initial fair value of this conversion feature of $526,897 at February 28, 2006.
The fair value of the embedded conversion features at May 31, 2006 was $87,811
resulting in a gain on derivative liabilities of $439,086 which was recorded
during the quarter ended May 31, 2006.

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.

                                      F-10
<PAGE>

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").

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.

                                      F-11
<PAGE>

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                                $       644,000
payments $53,666.67 plus accrued
interest commencing October 1, 2006

Promissory Note due September 1, 2007                                 200,000

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

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 $1,033,050 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-12
<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 $750,228 for the 3,000,000 shares of
commons stock and the Warrants 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
negotiated the use of all previous payments made under our prior lease agreement
be used to offset a portion of 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) were
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
                     Thereafter                      --
                                           -----------------
                                           $      2,304,000
                                           =================

                                      F-13
<PAGE>

(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.

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 additional 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 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.

                                      F-14
<PAGE>

On July 19, 2006, the OTC-BB ceased quoting the Company's shares pending the
filing of the Company's annual and quarterly reports on Form 10-KSB and 10-QSB.
The Company's common stock has continued to be quoted through various market
makers on the Pink Sheets Electronic Quotation Service published by the National
Quotation Bureau under the symbol "PSED".

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

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

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

In October 2006, the Company filed with the SEC an amended quarterly report on
Form 10-QSB/A for the three-month period ended May 31, 2006 and the Company also
filed with the SEC a registration statement on Form SB-2. The SEC staff issued a
comment letter dated October 20, 2006 with respect to the Form 10-KSB for the
fiscal year ended February 28, 2006 and the Form 10-QSB/A for the three-month
period ended May 31, 2006.

On September 4, 2007, the Company filed a reply to the SEC comment letter via
EDGAR and on September 12, 2007, the Company filed with the SEC a current report
on Form 8-K reporting on the Company's recent developments.

On September 28, 2007, the Company filed with the SEC an amended annual report
on Form 10-KSB/A for the year ended February 28, 2006. This Report should be
read in conjunction with the Company's Form 8-K filed on September 12, 2007 and
the Company's Form 10-KSB/A filed on September 28, 2007.


                [Balance of this page intentionally left blank.]

                                      F-15
<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/A for the fiscal
year ended February 28, 2006 that was filed with the SEC on September 28, 2007.

                           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 annual and
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.


                                      -3-
<PAGE>

                                     GENERAL

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

         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 February 28, 2006, we closed
on $917,800 in gross proceeds from the private sale of our securities in the
2006 Private Placement. We also had 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 ceased quoting our shares.
The Company's common stock is currently quoted through various market makers on
the Pink Sheets Electronic Quotation Service (the "Pink Sheets") published by
the National Quotation Bureau under the symbol "PSED".

         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 our outstanding liabilities.

                             FINANCING TRANSACTIONS

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

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

         Between August 2005 and February 2006, we received an aggregate of
$644,000 in principal amount of convertible debt in two financing transactions
with Cornell Capital pursuant to the terms of the two 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


                                      -4-
<PAGE>

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
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 $260,722 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 $8,573,384. 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


                                      -5-
<PAGE>

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.

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

                      STANDBY EQUITY DISTRIBUTION AGREEMENT

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


                                      -6-
<PAGE>

                             CONVERTIBLE DEBENTURES

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

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

         The Convertible Debentures are secured by security agreements covering
substantially all of our business assets dated August 26, 2005 (as to the 2005
Debentures) and February 1, 2006 (as to the February 2006 Debenture),
respectively, and by a pledge and escrow agreement dated February 1, 2006
whereby we have pledged 20,000,000 shares of our common stock to secure
repayment of the Convertible Debentures. Principal plus accrued interest may be
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 $8,573,000. We are
continuing to seek financing sources. We will need to raise additional capital


                                      -7-
<PAGE>

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 $2,041,778 consisting of current liabilities in
the aggregate amount of $953,937 and long-term liabilities in the amount of
$1,087,841. At May 31, 2006, assets included $0 in inventories, property and
equipment, net, of $595,883, 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 $885,116 as compared to $846,787 at February 28, 2006.

         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 or debt financing.

                              RESULTS OF OPERATIONS

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

REVENUES

The Company has generated no revenues during the prior two years.

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 and accounting fees,
financial advisory services, graphic design and website development.


                                      -8-
<PAGE>

OTHER INCOME (EXPENSE)

         Other income was $222,119 for the three months ended May 31, 2006 as
compared to $32 for the three months ended May 31, 2005 for an increase of
$222,087. The reason for the increase was a $439,086 gain on derivative
liability (see Note 7 -- Secured Convertible Debentures) that was offset by
increased interest expense and amortization of deferred financing costs.
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 as a result of the
increased level of outstanding debt. 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 $260,722 or $0.00 per
share for the three months ended May 31, 2006 as compared to a net loss of
$145,748 or $0.00 per share for the three months ended May 31, 2005. The
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
attributed to 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 debt issuance costs associated with our debt.

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 $8,573,384.

                                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 on initially developing the
Montespan brand of sparkling natural mineral water and commencing sales of that
product in North America (U.S. and Canada) and the Middle East and subsequently
in other geographic markets in Europe and Asia.

         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 additional capital to finance
operations and other expenses. 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:


                                      -9-
<PAGE>

         Bottled Mineral Water: L' Eau de Montespan will be a luxury traditional
mineral water. Management believes L' Eau de Montespan will possess all the
qualities of premium sparkling mineral water and will be comparable to Chateldon
Water, which is considered by many to be the best mineral water in France.
Production and sale of Chateldon Water is limited to one million liters per
year, which restricts its distribution primarily to the French market.
Management believes that its mineral water will be comparable to Chateldon Water
for several reasons. Firstly, it will have limited production and limited
availability and will generally be available only in high-end restaurants and
hotel establishments. Secondly, the source of the Montespan Water is from a
similar source as the Chateldon Water with respect to water quality and
processing Management believes its water quality will be similar to Chateldon
based on carbonation level, purity of water, i.e., absence of Phosphates and
Nitrates, quantity of dry matter per liter, and salt concentration levels.
Thirdly, Montespan will be priced similarly to Chateldon Water at or above the
price that Chateldon Water is available at retail. Generally, this product will
not be a mass market product as is the case with Chateldon Water.


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


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

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

OPERATIONS/PRODUCTION

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

         Poseidis will develop a production and processing facility at the
Source 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. 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.

                                      -10-
<PAGE>

o        After deferritization, the mineral water will be packaged in bulk for
         container shipment to our to-be-acquired bottling operation in North
         America for final processing and bottling. In conjunction with a
         supplier, we have developed innovative, single-use bulk shipping
         containers that will be used to transport the water from the Source to
         the North American bottling plant. The containers will be constructed
         with recyclable materials.

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 UNCERTAINTIES
ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS MAY BE
ADVERSELY AFFECTED. IN THAT CASE THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE AND INVESTORS MAY LOSE ALL OR PART OF THEIR 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 AGREEMENT.

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

                                      -11-
<PAGE>

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

We have no revenues from our current operations as of the date of this report
and we have relied on, and will continue to rely on, significant external
financing to fund our operations. During the fiscal year ended February 28,
2006, our financing came primarily from the sale of $644,000 of convertible
debentures and approximately $86,000 in private placement proceeds. In addition,
we have recently closed on $917,800 in gross proceeds from the private sale of
our securities and obtained loans of $100,000, $250,000 and $30,000
respectively. We had a commitment for gross proceeds of up to $8.0 million that
would 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.

         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 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) 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.

                                      -12-
<PAGE>

         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 initially developing the Montespan brand
of sparkling natural mineral water and commencing sales of that product in North
America (U.S. and Canada) and the Middle East and subsequently in other
geographic markets in Europe and Asia. Achieving our growth strategy is critical
in order for our business to achieve economies of scale and to achieve
profitability. Increasing the number of products we offer and the number of
markets we serve depends on a number of factors including market acceptance of
our products, our ability to raise necessary capital, hiring necessary
management and operations personnel, successful construction of our small-scale
production plant and full-scale production plant, our obtaining of distribution
agreements in our desired markets on terms favorable to us, and other ramp-up
milestones. Any condition that would deny, limit or delay our ability to achieve
these and other milestones in the future will constrain our ability to grow.
There can be no assurance that we will be able to successfully implement our
growth strategy.

         An inability to obtain financing, hire and retain 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.

                                      -13-
<PAGE>

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
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 the
U.S., Canada, and the Middle East, 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.

                                      -14-
<PAGE>

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

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

         Our business will be dependent on our operations at our planned
production facility in Theneuille, France. A significant interruption or
disruption at the Source 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.

                                      -15-
<PAGE>

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

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

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

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

OUR MAINTENANCE COSTS WILL INCREASE AT OUR PRODUCTION FACILITY.

         While our small-scale production plant and full-scale production plant
are scheduled for construction in 2007 and 2008, 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.

                                      -16-
<PAGE>

OUR BUSINESS IS HIGHLY DEPENDENT ON THE MARKET IN THE U.S., CANADA AND THE
MIDDLE EAST AND INCREASES IN COMPETITION 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
North America (U.S. and Canada) 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.
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.

                                      -17-
<PAGE>

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.

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.

                                      -18-
<PAGE>

OUR FINANCIAL STATEMENTS FOR THE YEAR ENDED FEBRUARY 28, 2006 WERE SUBJECT TO A
GOING CONCERN OPINION FROM OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. WE
MAY NOT BE ABLE 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, 2006 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.

         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.

                                      -19-
<PAGE>

         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
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 CEASED QUOTING OUR COMMON STOCK. UPON THE FILING OF
OUR DELINQUENT REPORTS 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 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. 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;

                                      -20-
<PAGE>

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

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

                   RISKS RELATED TO CORNELL CAPITAL FINANCING

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

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

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

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.

                                      -21-
<PAGE>

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.

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.

                                      -22-
<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 earnings 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 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.

                                      -23-
<PAGE>

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. The Company's officers have concluded that the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act is accumulated and communicated to the Company's management, including the
principal executive and principal financial officers, to allow timely decisions
regarding required disclosure in accordance with Exchange Act Rule 13a-15(e).

         In conjunction with the preparation of the amended report 10QSB/A for
the period ended May 31, 2006, management noted that there was an error
attributable to the accounting for unconventional anti-dilution provisions and
other derivative instruments. Management is in the process of strengthening the
Company's controls and procedures over the financial reporting process.

CHANGES IN INTERNAL CONTROLS

         The Company's principal executive and principal financial officers
believe that we have sufficient compensating controls to minimize the risks
associated with a reoccurrence of the error discussed in the immediately
preceding section of this Item 3. There were no changes to internal controls
during the quarter ended May 31, 2006 that have materially or that are
reasonably likely to affect the internal controls.

         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.


                                      -24-
<PAGE>

                                     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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         None.

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

         None.

ITEM 5. OTHER INFORMATION

         None.



                                      -25-
<PAGE>

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:

<TABLE>
<CAPTION>

EXHIBIT         DESCRIPTION                                                                      LOCATION
NUMBER
------------------------------------------------------------------------------------------------------------
<S>             <C>                                                                             <C>
10.1            Amended and Restated Real Estate Purchase Agreement dated as of March 15,        (2)
                2006 between Christian Berthier and Montespan SAS.

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)

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)

<FN>

(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.

                                      -26-
<PAGE>

(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.
</FN>
</TABLE>


         (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.

                [Balance of this page intentionally left blank.]

                                      -27-
<PAGE>

                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                 POSEIDIS, INC.
                                  (Registrant)

Dated: November 21, 2007

                                  By:       /S/ LOUIS PARDO
                                       ---------------------------------------
                                       Louis Pardo
                                       Chief Executive Officer and President

Dated: November 21, 2007

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



                                      -28-