CURRENT REPORT FOR ISSUERS SUBJECT TO THE
1934 ACT REPORTING REQUIREMENTS
FORM 8-K/A2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
August 15, 2005
Date of Report
(Date of Earliest Event Reported)
Edgewater Foods International, Inc.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
5552 WEST ISLAND HWY
QUALICUM BEACH, BRITISH COLUMBIA, CANADA. V9K 2C8
(Address of principal executive offices (zip code))
(250)757-9811
(Registrant's telephone number, including area code)
5031 GORDON SMITH
ROWLETT, TEXAS 75088
(Previous Address)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2 below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a - 12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13d-4(c))
We are filing this amendment to our Current Report on Form 8-K dated August 15,
2005 to include certain financial information required by Item 9.01(b) that was
not included in the August 15, 2005 8-K.
We previously filed our Current Report on Form 8-K, dated August 15, 2005,
without certain financial information required by Item 9.01 (b) on such Form
8-K. We hereby amend the Current Report on Form 8-K to file such financial
information. Item 9.01 of the Report dated August 15, 2005, is hereby amend to
read as follows:
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
Item 9.01: Financial Statements and Exhibits
(a) Financial statements of business acquired
The Audited Consolidated Financial Statements for Island
Scallops, Ltd as of August 31, 2004 and 2003, and for the
years ended August 31, 2004 and 2003 are included following
this Item 9.01(a).
The Unaudited Consolidated Financial Statements for Island
Scallops, Ltd. as of May 31, 2005 and for the nine months
ended May 31, 2005 are included following this Item 9.01 (a).
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Edgewater Foods International, Inc.
Qualicum Beach, British Columbia, Canada
We have audited the accompanying consolidated balance sheets of Island Scallops,
Ltd. as of August 31, 2004 and 2003, and the related statements of operations,
stockholders' deficit and cash flows for each of the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion of these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above present fairly, in all
material respects, the financial position of Island Scallops, Ltd. as of August
31, 2004 and 2003, and the results of its operations and its cash flows for each
of the two years then ended, in conformity with the accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that Island
Scallops, Ltd. will continue as a going concern. As discussed in Note 2 to the
financial statements, Island Scallops, Ltd. has incurred a net loss from
operations for the year ended August 31, 2004 totaling approximately $135,000,
has negative net worth approximating $3,847,000 and current liabilities exceed
current assets by a significant amount. Island Scallops, Ltd. will require
additional working capital to develop its business until Island Scallops either
(1) achieves a level of revenues adequate to generate sufficient cash flows from
operations; or (2) obtains additional financing necessary to support its working
capital requirements. These conditions raise substantial doubt about Island
Scallops, Ltd's ability to continue as a going concern. Management's plans
regard to this matter are described in Note 2. The accompanying financial
statements do not include any adjustments that might results from the outcome of
these uncertainties.
/s/ LBB & Associates Ltd., LLP
- -------------------------------
LBB & Associates Ltd., LLP
Houston, Texas
October 2, 2006
F-1
ISLAND SCALLOPS, LTD
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN US DOLLARS)
May 31, August 31, August 31,
2005 2004 2003
(unaudited) (audited) (audited)
-----------------------------------------
ASSETS
Current assets:
Cash $ 28,715 $ 12,910 $ --
Accounts receivable, net 9,385 25,416 23,653
Loans receivable -- 2,042 2,150
Inventory 237,371 -- --
Prepaid expenses 9,123 7,476 7,584
-----------------------------------------
Total current assets 284,594 47,844 33,387
Property, plant and equipment, net 909,023 620,636 645,354
Loans receivable 19,051 17,051 29,123
Investments in other assets (tenures) 3,197 3,032 5,770
-----------------------------------------
$ 1,215,865 $ 688,563 $ 713,634
Total assets
=========================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank overdrafts $ -- $ -- $ 16,433
Line of credit -- -- 14,425
Accounts payable and accrued liabilities 363,709 276,412 225,338
Short term debt 732,672 88,464 84,183
Due to shareholder 3,107,412 2,946,789 2,804,179
Current portion of long term debt 948,811 896,336 833,504
-----------------------------------------
Total Current Liabilities 5,152,604 4,208,001 3,978,062
Long term debt 321,164 327,879 267,147
Total Liabilities 5,473,768 4,535,880 4,245,209
-----------------------------------------
Commitments and Contingencies
Stockholders' Deficit
Common stock, par value $0.001, 25,000,000 authorized, 1 1 1
10,300,000 issued and outstanding
Additional paid in capital -- -- --
Accumulated deficit (4,200,130) (3,991,330) (3,856,445)
Accumulated other comprehensive income (loss) (57,774) 144,012 324,869
-----------------------------------------
Total Stockholders' Deficit (4,257,903) (3,847,317) (3,531,575)
-----------------------------------------
Total Liabilities and Stockholders' Deficit $ 1,215,865 $ 688,563 $ 713,634
=========================================
F-2
ISLAND SCALLOPS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN US DOLLARS)
NINE MONTHS NINE MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
MAY 31, MAY 31, AUGUST 31, AUGUST 31,
2005 2004 2004 2003
------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)
Revenue $ 307,915 $ 349,823 $ 449,928 $ 457,743
Cost of goods sold 288,282 399,471 530,319 396,632
------------------------------------------------------------
Gross profit (loss) 19,633 (49,648) (80,391) 61,111
------------------------------------------------------------
Operating expenses:
Advertising and promotion (1,701) (739) (845) (1,082)
Amortization (51,220) (29,588) (39,660) (39,828)
Automotive (10,141) (7,138) (10,254) (7,843)
Consulting (3,085) (7,223) (4,744) (13,495)
Dues, subscriptions and fees (933) (612) (612) (1,159)
Insurance (8,067) (5,556) (8,465) (6,059)
Gain on sale of tenure -- -- 112,641 --
Loss on disposal of property, plant and
equipment -- -- -- (10,883)
Loss on settlement of lawsuit -- -- (40,551) --
Office and miscellaneous (5,955) (3,701) (4,343) (3,369)
Professional (27,187) (18,050) (37,144) (20,131)
Research and development (recovery) -- 89,991 89,989 (239,389)
Salaries and benefits (54,661) (10,073) (63,349) (37,261)
Telephone (7,996) (6,202) (8,650) (6,597)
Travel (6,266) (2,375) (3,559) (3,336)
Writeoff of investment -- -- -- (5,024)
------------------------------------------------------------
Total (177,212) (1,266) (19,546) (395,456)
------------------------------------------------------------
Loss from operations (157,581) (50,914) (99,937) (334,345)
------------------------------------------------------------
Other income (expense):
Interest (51,220) (24,340) (34,948) (16,451)
------------------------------------------------------------
Other income (expense), net (51,220) (24,340) (34,948) (16,451)
------------------------------------------------------------
Net loss (208,800) (75,254) (134,885) (350,796)
============================================================
Foreign currency translation (201,786) (115,771) (180,857) (345,845)
============================================================
Total comprehensive loss $ (410,586) $ (191,025) $ (315,742) $ (696,641)
============================================================
Net loss per share
Basic and diluted $ (208,800) $ (75,254) $ (134,885) $ (350,796)
============================================================
Weighted average shares outstanding
Basic and diluted 1 1 1 1
============================================================
F-3
ISLAND SCALLOPS LTD
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR EACH OF THE YEARS ENDED AUGUST 31,
2004 and 2003
Common Stock
---------------------------
Number Value Additional Other
Paid Comprehensive Accumulated
Capital Income Deficit Total
- -----------------------------------------------------------------------------------------------------------------------
Balance at August 31, 2002 1 $ 1 $ -- $ 697,940 $(3,505,649) $(2,807,708)
Comprehensive loss
Net income (loss) (350,796) (350,796)
Foreign currency (373,071) (373,071)
-----------
Total comprehensive loss (723,867)
---------------------------------------------------------------------------------------
Balance at August 31,2003 1 1 -- 324,869 (3,856,445) (3,531,575)
=======================================================================================
Comprehensive loss
Net income (loss) (134,885) (134,885)
Foreign currency (180,857) -- (180,857)
-----------
Total comprehensive loss (315,742)
---------------------------------------------------------------------------------------
Balance at August 31, 2004 1 $ 1 $ -- $ 144,012 $(3,991,330) $(3,847,317)
=======================================================================================
F-4
ISLAND SCALLOPS, LTD.
(AUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN US DOLLARS)
NINE MONTHS NINE MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
MAY 31, MAY 31, AUGUST 31, AUGUST 31,
2005 2004 2004 2003
---------------------------------------------------
(unaudited) (unaudited) (audited) (audited)
Cash flows from operating activities:
Net loss $(208,800) (75,254) $(134,885) (350,796)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 51,220 29,588 39,660 39,828
Loss on disposal of property, plant and equipment -- -- -- 10,883
Gain on sale of tenure -- -- (112,641) --
Writeoff of investment -- -- -- 5,024
Loss on settlement of lawsuit -- -- 3,004 --
Changes in current assets and liabilities:
Accounts receivable 18,103 882 (556) 16,494
Income taxes receivable -- -- -- 104,706
Inventory (237,371) -- -- --
Prepaid expenses (1,289) (2,650) 488 4,751
Accounts Payable 75,081 56,192 39,247 231,474
Bank overdraft -- (30,858) (30,858) 30,858
------------------------------------------------
Net cash provided by (used in) operating activities (303,056) (22,100) (196,541) 93,222
------------------------------------------------
Cash flows from investing activities:
Proceeds on sale of property, plant and equipment -- -- 22,234 --
Purchase of property, plant and equipment (315,818) (7,749) (4,884) (34,731)
Proceeds on sale of tenure -- -- 112,641 --
Decrease in loans receivable 1,126 2,447 13,644 8,588
Purchase of tenures -- -- -- (5,398)
------------------------------------------------
Net Cash provided by (used in) investing activities (314,692) (5,302) 143,635 (31,541)
------------------------------------------------
Cash flows from Financing activites:
Proceeds from short term debt 664,606 -- -- --
Line of Credit -- -- -- 1,156
Proceeds of long term debt -- 181,197 165,207 --
Repayment of long term debt (21,797) (109,485) (98,238) (50,772)
------------------------------------------------
Net Cash provided by (used in) financing activities 642,809 71,712 66,969 (49,616)
------------------------------------------------
Effect of exchange rate changes (9,256) (872) (1,152) (2,486)
Net increase in cash 15,805 43,438 12,911 9,579
Cash, beginning of period 12,910 -- -- (9,579)
------------------------------------------------
Cash, end of period $ 28,715 $ 43,438 $ 12,910 $ --
================================================
F-5
ISLAND SCALLOPS, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
(INFORMATION AS AT MAY 31, 2005 AND FOR THE NINE MONTH INTERIM PERIODS ENDED MAY
31, 2005 AND 2004 IS UNAUDITED)
1. NATURE OF BUSINESS
Island Scallops, Ltd. ("the Company") was incorporated under the
Company Act of British Columbia on February 17, 1989. The principal
business activities of the Company are aquaculture development and
production. It conducts these activities at its facilities near
Qualicum Beach, British Columbia.
2. BASIS OF PRESENTATION AND GOING CONCERN
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Westglade Holdings Ltd.,
377331 B.C. Ltd., 377332 B.C. Ltd., 377333 B.C. Ltd., and 401619 B.C.
Ltd. These consolidated financial statements have been prepared in
accordance with United States generally accepted accounting principles,
with the assumption that the Company will be able to realize its assets
and discharge its liabilities in the normal course of business.
Since inception, the Company has devoted its efforts to develop
effective techniques for the farming of various shellfish and sablefish
(also known as blackcod) and to market those products. At May 31, 2005,
the Company had a cumulative deficit of $4,200,130 and a working
capital deficiency of $4,868,008. These factors, among others, indicate
that the ability of the Company to continue to operate and meet its
obligations is uncertain. Continued operations of the company are
dependent upon the ability of the Company to secure additional adequate
financing, and to expand commercial sales of scallops and other
aquaculture products on a profitable basis. Management of the Company
believes that it will be successful in achieving these objectives. It
is actively seeking financing by means of an acquisition by a publicly
traded entity.
These financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern
and therefore be required to realize its assets and discharge its
liabilities other than in the normal course of business.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and cash equivalents
F-6
Cash and cash equivalents include cash and highly liquid short term
market investments with original maturity of three months or less. The
Company does not have any short term investments.
(b) Accounts receivable
Accounts receivable is presented net of allowance for doubtful
accounts. The allowance for doubtful accounts reflects estimates of
probable losses in accounts receivable. The allowance is determined
based on balances outstanding for over 90 days at the period end date,
historical experience and other current information.
(c) Loans receivable
Loans receivable is presented net of an allowance for loan losses, as
necessary. The loans are written off when collectibility becomes
uncertain.
(d) Inventory
The Company maintains inventories of raw materials for its aquaculture
products, of biomass (inventory of live aquaculture product being
actively cultivated), and of finished goods (aquaculture product ready
for sale).
Inventory is carried at the lesser of cost and estimated net realizable
value.
The cost of Biomass and finished goods includes direct and reasonably
attributable indirect production costs related to hatchery,
cultivation, harvesting, and processing activities. Carrying costs per
unit are determined on a weighted average basis.
(e) Other Current Assets (Tenures)
Long term investments are recorded at cost. The Company reviews its
investments periodically to assess whether there is an "other than
temporary" decline in the carrying value of the investment. The Company
considers whether there is an absence of an ability to recover the
carrying value of the investment by reference to projected undiscounted
future cash flows for the investment. If the projected undiscounted
future cash flow is less than the carrying amount of the asset, the
asset is deemed impaired. The amount of the impairment is measured as
the difference between the carrying value and the fair value of the
asset.
(f) Intangible assets
Intangible assets are recorded at cost. Cost is amortized over the
estimated useful life of the asset unless that life is determined to be
F-7
indefinite. Intangible assets not subject to amortization are tested
for impairment on at least an annual basis. If the fair value of the
intangible asset is determined to be less than the carrying amount, an
impairment loss is recognized in the amount of that difference.
Intangible assets subject to amortization are reviewed for impairment
in accordance with the provisions applying to long-live assets.
(g) Property, plant, and equipment
Property, plant, and equipment is recorded at cost less accumulated
amortization and is amortized in the following manner based on
estimated useful lives:
Buildings 4% - 5% declining balance
Seawater piping and tanks 6% declining balance
Boats 15% declining balance
Field equipment 20% declining balance
Office equipment 20% declining balance
Vehicles 30% declining balance
Computer equipment 30% declining balance
(h) Impairment of long-lived assets
The Company monitors the recoverability of long-lived assets, including
property and equipment and intangible assets, based upon estimates
using factors such as expected future asset utilization, business
climate, and undiscounted cash flows resulting from the use of the
related assets or to be realized on sale. The Company's policy is to
write down assets to the estimated net recoverable amount, in the
period in which it is determined likely that the carrying amount of the
asset will not be recoverable.
(i) Government assistance
Government assistance received by the Company, such as grants,
subsidies, and tax credits, is recorded as a recovery of the
appropriate related expenditure in the period that the assistance is
received.
The Company has received government assistance in the form of loans,
for which repayment may not be required if the Company fails to meet
sufficient future revenue levels to repay these loans based on a
percentage of gross sales for certain products over a defined period of
time. Such assistance received by the Company is initially recorded as
a liability, until such time as all conditions for forgiveness are met,
and is then recognized as other income in that period.
(j) Farm license costs
F-8
The Company must pay annual license costs in respect to
government-granted tenures that it holds, which give the Company the
right to use certain offshore ocean waters for the purpose of
aquaculture farming. Such license costs are recognized as an expense
when incurred.
(k) Research and development costs
Development costs include costs of materials, wages, and reasonably
attributable indirect costs incurred by the Company which are directly
attributable to the development of hatchery techniques for sablefish
and shellfish, these costs are expensed when incurred.
Research costs are expensed when incurred.
(l) Income taxes
The Company calculates its provision for income taxes in accordance
with Statement of Financial Accounting Standards No. 109 (Accounting
for Income Taxes) ("SFAS 109"), which requires an asset and liability
approach to financial accounting for income taxes. This approach
recognizes the amount of taxes payable or refundable for the current
year, as well as deferred tax assets and liabilities attributable to
the future tax consequences of events recognized in the financial
statements and tax returns. Deferred income taxes are adjusted to
reflect the effects of enacted changes in tax laws or tax rates.
Deferred income tax assets are recorded in the financial statements if
realization is considered more likely than not.
(m) Revenue recognition
The Company recognizes revenue when it is realized or realizable, and
earned. The Company considers revenue realized or realizable and earned
when it has persuasive evidence of a contract, the product has been
delivered or the services have been provided to the customer, the sales
price is fixed or determinable, and collectibility is reasonably
assured.
Revenue of the Company is derived principally from the sale of scallops
produced by the Company or purchased from third parties, and from the
sale of seed and farm supplies to other aquaculture farms.
Revenue from the sale of scallops and other products is recognized upon
delivery of the product and invoicing of the customer, assuming
collection is considered reasonably assured.
Since ISL is located in Canada, the Canadian dollar has been designated
as the functional currency. All balance sheet accounts have been
translated at the current exchange rate as of August 31, 2004.
F-9
Statement of operations elements have been translated at average
currency exchange rates. The resulting translation adjustment is
recorded as a separate component of comprehensive loss within
stockholders' deficit.
(o) Use of estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and disclosure of contingent assets and
liabilities. Such estimates include providing for amortization of
property, plant, and equipment, and valuation of inventory. Actual
results could differ from these estimates.
4. FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which
include cash, accounts receivable, loans receivable, checks issued in
excess of funds on deposit, bank indebtedness, accounts payable and
accrued liabilities, short term and long term debt approximate fair
value. It is management's opinion that the Company is not exposed to
significant interest, currency or credit risk arising from these
financial instruments unless otherwise noted.
5. CONCENTRATION OF RISK
(a) The Company operates in the regulated aquaculture industry.
Material changes in this industry or the applicable regulations
could have a significant impact on the Company.
(b) The quality and quantity of the aquaculture products cultivated,
harvested and processed by the Company could be impacted by
biological and environmental risks such as contamination,
parasites, predators, disease and pollution. These factors could
severely restrict the ability of the Company to successfully
market its products.
(c) During the nine months ended May 31, 2005, three customers,
TriStar, Sea World and Lobsterman, individually accounted for 25%,
19% and 16% or our revenues respectively, and we therefore are
materially dependent upon such customers. During the year ended
August 31, 2004, TriStar, Summer Breeze and Sea World,
individually accounted for 27%, 15% and 10% or our revenues
respectively. During the year ended August 31, 2003, Summer
Breeze, Tri Star, Sea World, Albion and Lobsterman, individually
accounted for 20%, 14%, 13%, 11% and 10% or our revenues
respectively.
6. INVENTORY
F-10
Inventory consists of the following:
May 31, August 31, August 31,
2005 2004 2003
(unaudited)
----------------------------------
Biomass (scallops) $237,371 $ - $ -
----------------------------------
For periods prior to May 31, 2005, management determined that the
remaining cost of cultivation and harvest relating to the biomass
inventory exceeded the amounts expected to be realized upon sales and,
accordingly, inventory was carried at $0.
7. PROPERTY, PLANT AND EQUIPMENT, NET
May 31, 2005
(unaudited)
Accumulated Amortized
Cost Amortization Cost
------------------------------------
Land $201,407 $ -- $ 201,407
Buildings 395,493 192,093 203,400
Seawater piping and tanks 397,562 224,815 172,747
Boats 121,714 76,956 44,758
Field equipment 824,787 547,012 277,775
Office equipment 12,112 11,929 183
Vehicles 32,080 28,179 3,901
Computer equipment 7,462 2,610 4,852
------------------------------------
$1,992,617 $1,083,594 $ 909,023
F-11
7. PROPERTY, PLANT AND EQUIPMENT, NET (CONTINUED)
August 31,
2004
-------------------------------------
Accumulated Amortized
Cost Amortization Cost
-------------------------------------
Land $ 190,996 $ -- $ 190,996
Buildings 368,875 175,301 193,574
Seawater piping and tanks 357,605 206,390 151,215
Boats 87,392 69,374 18,018
Field equipment 551,901 492,604 59,297
Office equipment 11,052 9,870 1,182
Vehicles 30,421 25,648 4,773
Computer equipment 3,272 1,691 1,581
------------------------------------
$1,601,514 $ 950,878 $ 620,636
========== ========== ==========
August 31,
2003
-------------------------------------
Accumulated Amortized
Cost Amortization Cost
-------------------------------------
Land $ 181,752 $ -- $ 181,752
Buildings 351,023 157,675 193,348
Seawater piping and tanks 336,539 187,343 149,196
Boats 83,162 62,991 20,171
Field equipment 546,546 454,657 91,889
Office equipment 9,587 9,228 359
Vehicles 28,949 22,460 6,489
Computer equipment 3,114 964 2,150
------------------------------------
$1,540,672 $ 895,318 $ 645,354
========== ========== ==========
Depreciation expense was and $51,220, $39,660 and $39,828 for the years ended
May 31, 2005, August 31, 2004 and 2003, respectively.
8. LOANS RECEIVABLE
F-12
An unsecured note receivable from Seascal Enterprices, Ltd. ("Seascal")
requires monthly interest payments, calculated at the Business
Development Bank of Canada's operational rate plus 1%, per annum, and
has no fixed term of repayment. The Company has an informal arrangement
to provide scallop seed to Seascal, for which the Company receives a
percentage of ultimate sales. At May 31, 2005 and August 31, 2004, the
Company had loan receivables due with a balance of $0 and $2,042,
respectively.
9. INVESTMENTS IN TENURES
May 31, August 31, August 31,
2005 2004 2003
(unaudited)
----------------------------------------
Shellfish tenures $3,197 $3,032 $5,770
----------------------------------------
These amounts represent the carrying costs of certain shellfish tenures
acquired by the subsidiary of the Company, 377332 B.C. Ltd. Shellfish
tenures are government-granted rights allowing limited use of offshore
waters for the purposes of cultivation of shellfish. The granting of
shellfish tenure rights are the responsibility of the Provincial
(British Columbia) Government and not the Canadian Federal Government.
As such, the government assistance that we receive via loan agreement
with various Federal Agencies has no effect on our ability to renew
and/or modify these tenure agreements. The tenure held by 377332 B.C.
Ltd. with a carrying cost of $3,197 at May 31, 2005, has an expiry date
of July 10, 2021. Other shellfish tenures held by the Company and its
subsidiaries have expiry dates ranging from 2021 to 2024.
These tenures are considered to have an indefinite useful life because
renewal on expiry is anticipated, and therefore are not subject to
amortization.
During the 2004 year, the Company sold a shellfish tenure which had a
carrying amount of $0, for cash proceeds of $112,641.
10. LONG TERM INVESTMENTS
The Company holds an investment with an original cost of $5,024 in 15%
of the issued share capital of Aquasur, S.A., a Moroccan company
involved in developing a commercial scallop fishery in Morocco. The
investment has been fully written off as at August 31, 2003, and an
impairment loss recognized, since positive future cash flows can not be
projected.
11. LINE OF CREDIT
F-13
The Company maintains a bank line of credit facility with a limit of
$39,962. Advances under this facility bear interest at a rate equal to
the Royal Bank of Canada prime rate plus 1.75% per annum. The prime
rate, as of May 30, 2005 and August 31, 2004 was 7.75% and 5.75%,
respectively. Advances are secured by a General Security Agreement over
the assets of the Company, and by a $39,962 collateral charge on real
property of the shareholder.
12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
(a) Included in accounts payable and accrued liabilities are balances
outstanding related to credit cards held in the name of the
shareholder totaling at May 31, 2005, $81,951 (August 31, 2004:
$44,681; August 31, 2003: $13,832). The Company has used these
credit cards as a means of short term financing and incurs
interest charges on such unpaid balances.
(b) Included in accounts payable and accrued liabilities at May 31,
2005 and August 31, 2004 and 2003 is estimated royalties of
$53,192 (August 31, 2004: $50,443; August 31, 2003: $48,001)
payable to a third party from who the current shareholder acquired
the shares of the Company. The share purchase agreement provided
that the third party was to receive from the Company 3% of
revenues of the Company as earned, on a quarterly basis,
throughout the period from December 1, 1992 to November 30, 2002.
The third party holds a first charge over inventory of the Company
(including broodstock) in the amount of $293,731 (August 31, 2004:
$265,272; August 31, 2003: $252,434) in support of its royalty
entitlement.
The third party has not taken further action to enforce payment of
the arrears liability.
(c) Included in accounts payable and accrued liabilities at May 31,
2005 is an amount of $105,386 (August 31, 2004: $99,939; August
31, 2003: $95,102) related to deposits paid by two third parties
in respect to an agreement to purchase geoduck seed from the
Company (see Note 17).
(d) Included in accounts payable and accrued liabilities at May 31,
2005 is an amount of $5,880 (August 31, 2004: $nil; August 31,
2003: $nil), related to interest accrued in respect to the loan
described in Note 15(f).
13. SHORT TERM DEBT
May 31, August 31, August 31,
2005 2004 2003
(unaudited)
-----------------------------------
F-14
(a) An unsecured non-interest bearing demand loan from an individual no
specific terms of repayment. However, the lender has informally requested
that theloan be repaid in full by October 6, 2008. $40,094 $38,022 $36,182
(b) Estimated royalties of $53,192 (August 31, 2004: $50,443; August 31, 2003:
$48,001) payable to a third party from who the current shareholder acquired
the shares of the Company. The share purchase agreement provided that the
third party was to receive from the Company 3% of revenues of the Company
as earned, on a quarterly basis, throughout the period from December 1,
1992 to November 30, 2002. The third party holds a first charge over
inventory of the Company (including broodstock) in the amount of $293,731
(August 31, 2004: $265,272; August 31, 2003: $252,434) in support of its
royalty entitlement. The third party has not taken further action to
enforce payment of the arrears liability. $53,192 $50,442 $48,001
(c) A loan with an authorized limit of $799,923 secured by the assets of the
Company, including a mortgage charge in the amount of $799,923 on land and
building of the Company, and by a personal guarantee of the shareholder,
bears interest at a rate of 1% per month, payable monthly, and is due
November 19, 2005.
The lending agreement also provides that if the Company obtains financing
in excess of $1,599,846, the lender is to receive a bonus equal to 4% of
any shares received by the Company or its shareholder, as a result of the
financing. In addition, the lender has an option to convert the loan to
additional shares, based on a discounted price to be determined, or to be
repaid in full from proceeds of the financing. 639,386 - -
-----------------------------------
$732,672 $88,464 $84,183
===================================
14. DUE TO SHAREHOLDER
An amount payable to the shareholders is unsecured, does not bear
interest, and has no specific terms of repayment. This balance
substantially represents an amount advanced to the Company by the
previous shareholder of the Company. The loan was acquired by the
current shareholder at the time of acquisition of the shares of the
Company in 1992.
It is likely that any significant public company, or other major
financing, arranged by the Company would necessitate a sale,
settlement, or other reorganization of the debt. Any accounting
consequences of such a transaction would be recognized at the time that
the terms are known.
15. LONG TERM DEBT
F-15
- ----------------------------------------------------------------- ------------- ------------- -------------
May 31, August 31, August 31,
2005 2004 2003
(unaudited)
- ----------------------------------------------------------------- ------------- ------------- -------------
(a) A mortgage loan is repayable at $1,798 per month including interest
calculated at the greater of 10% and prime plus 6% (12.75% as of May 31,
2005), is due April 1, 2007, and is secured by a second charge on real
property of the Company. $172,526 $165,848 $ -
- ----------------------------------------------------------------- ------------- ------------- -------------
b) A bank loan was repayable at $902 per month, plus interest calculated at
the floating base rate of the Business Development Bank of Canada ("BDC")
plus 1% per annum (7.75% as of May 31, 2005). - - 41,471
- ----------------------------------------------------------------- ------------- ------------- -------------
c) A bank loan was repayable at $368 per month, plus interest calculated at
BDC's floating base rate plus 1% per annum. - - 13,242
- ----------------------------------------------------------------- ------------- ------------- -------------
d) A bank loan was repayable at $664 per month, plus interest calculated at
BDC's floating base reate plus 1% per annum. - - 38,485
- ----------------------------------------------------------------- ------------- ------------- -------------
e) A bank loan repayable at $999 per month, plus interest calculated at BDC's
floating base rate plus 1.5% per annum, is due February 23, 2009, and is
secured by a General Security Agreement over the assets of the Company, a
mortgage charge on real property of the Company, and by
a personal guarantee of $50,000 by the shareholder. 44,957 51,160 59,501
- ----------------------------------------------------------------- ------------- ------------- -------------
f) An unsecured non-interest bearing loan from the National Research Council
of Canada Industrial Research Assistance Program requires quarterly
payments commencing March 1, 2003 equal to 3% of gross revenues of the
Company until the earlier of full repayment is before December 1, 2007. If
at December 1, 2012, the Company has not earned sufficient revenues to be
required to repay the original amount, the remaining portion of the loan is
to be forgiven. Amounts currently due at May 31, 2005, based on revenues,
of $35,166 (August 31, 2004: $24,253; August 31, 2003: $8,655) bear
interest at a rate of 1% per month. As the Company is in arrears in respect
to the payment of these amounts, the full principal balance is reflected as
a current liability. 352,162 333,958 317,797
- ----------------------------------------------------------------- ------------- ------------- -------------
g) A bank loan repayable at $416 (August 31, 2004: $395) per month plus
interest calculated at prime plus 3% (9.75% as of May 31, 2005) per annum,
is unsecured and is due October 23, 2007. 11,900 14,837 -
- ----------------------------------------------------------------- ------------- ------------- -------------
h) A non-interest bearing loan from Industry Science and Technology Canada
requiring repayment equal to 0.5% of gross scallop sales of the Company for
each preceding year, is due January 1, 2007. If at the due date the Company
has not generated sufficient revenues to be required to repay the original
amount of $187,414, the remaining portion of the loan is to be forgiven.
Amounts currently due at May 31, 2004, based on revenues, of $nil (August
31, 2004: $2,534; August 31, 2003: $1,251) bear interest based on published
rates of 90 day treasury bills. 147,115 142,045 135,171
- ----------------------------------------------------------------- ------------- ------------- -------------
F-16
i) A Western Diversification Program non-interest bearing loan requires
repayments equal to 12% of gross revenues from scallop sales of the
Company, payable semi-annually, with no specified due date. Amounts due at
May 31, 2004, based on revenues, are $137,454 (August 31, 2004: $111,019;
August 31, 2003: $81,370). As the Company is in arrears in respect to the
payment of these amounts, the full principal balance is reflected as a
current liability. Management of the Company is seeking to renegotiate
terms of repayment of this debt. 541,315 516,367 494,984
- ----------------------------------------------------------------- ------------- ------------- -------------
- ----------------------------------------------------------------- ------------- ------------- -------------
1,269,975 1,224,215 1,100,651
Current portion of long term debt (948,811) (896,336) (833,504)
- ----------------------------------------------------------------- ------------- ------------- -------------
-------- -------- --------
- ----------------------------------------------------------------- ------------- ------------- -------------
$321,164 $327,879 $267,147
- ----------------------------------------------------------------- ------------- ------------- -------------
Principal payments due within each of the next fiscal five years and
subsequently, in respect to long term debt are approximately as follows:
2005 $ 898,956
2006 22,620
2007 23,434
2008 20,677
2009 13,860
2010 and subsequent 290,428
----------
$1,269,975
==========
These balances reflect estimates, based on revenues for the 2004 year, for the
loan described in Note 15(h), required repayments of which are based on
revenues. The balance due in 2005 includes the full balance of the loan
described in Notes 15(f) and (i).
16. COMMON STOCK
At May 31, 2005, we had 10,000 shares of common stock, no par value
authorized. As of May 31, 2005 we issued one share of common stock valued at $1
(2004: $1 and 2003:$1).
17. CONTINGENT LIABILITIES
F-17
(a) The Company entered into an Agreement in fiscal 1998 with two
parties, under which the Company was to produce and sell geoduck
seed to the two parties. The Company received advance payments
from each of the two parties in fiscal 2002 of approximately
$64,140. The Company recognized related revenue of $43,705 in
respect to seed delivered in fiscal 2002. The balance of the
deposits received (advanced payments), net of sales, totaling
$105,386, is included in accounts payable and accrued liabilities.
The position of management of the Company is that the two parties
violated the terms of the agreement, such that the Company is
entitled to retain the balance of the deposits. Per the terms of
the original agreement, Island Scallop was entitled to make up any
shortfall in the product produced in the following year. Although
product was available and offered by Island Scallops in the
following year, the two parties refused to honor the terms of the
agreement and would not accept the product (to make up the
shortfall) in the following year.
As of August 31, 2004, one of the two parties had made claims that
the Company owed to it amounts totaling $74,704. This particular
party believed that the agreement required Island Scallops to
deliver the product in year one and did not allow Island Scallop
to make up any shortfall with product produced in the following
year. The balance included in accounts payable and accrued
liabilities related to this party is $29,156.
Any additional liability to the Company, or any reduction of the
currently recognized liability, in respect to these deposits will
he recorded at the lime a conclusion to this matter can he
determined.
(b) The Company does not maintain insurance in respect to replacement
of its inventory. Consequently, the Company is exposed to
financial losses or failure as a result of this risk.
18. SETTLEMENT OF LAWSUIT
During the 1997 year, the Company entered into a joint venture
agreement with Blackfin Research Ltd. ("BRL") for the purpose of
researching and developing a black cod hatchery. In the 2001 year, BRL
made a legal claim against the Company totaling $353,965, seeking to
recover amounts it claimed it had contributed to the joint venture.
During the 2004 year, the Company made a settlement with BRL under
which the Company was required to pay to BRL cash of $37,547, and to
transfer to BRL a shellfish tenure with a carrying amount of $3,004.
BRL agreed that the Company would retain sole rights to all
intellectual property developed by the joint venture
F-18
The settlement resulted in a loss to the Company of $40,551.
19. INCOME TAXES
(a) The company has incurred losses for Canadian Income tax purposes
of approximately $330,000 that may be applied to reduce taxable
income in future years. If not utilized these losses will expire
commencing in the 2009 year.
The potential future income tax benefit which may arise from
claiming these losses has not been reflected in those financial
statements, as the Company's ability to realize the benefit is
uncertain.
(b) Following is reconciliation of the expected income tax benefit
from the loss for the period based on the applicable statutory
income tax rate, to the actual amount:
May 31, August 31, August 31,
2005 2004 2003
(unaudited)
------------------------------------
Tax at statutory rate (17.6%) $33,354 $23,960 $65,992
Net effect of non-deductible expenses
And non-taxable income 45 3,843 (89)
Effect of expiration of investment tax credits - (3,650) -
-----------------------------------
Expected increase in tax asset 35,399 24,153 65,903
Increase in allowance for uncertain realization (35,399) (24,153) (65,903)
Increase in tax asset per financial statements $ - $ - $ -
---------------------------------
The income tax effects of losses carried forward, temporary
differences and other amounts that give rise to a future tax asset
are summarized as follows:
May 31, August 31, August 31,
2005 2004 2003
(unaudited)
------------------------------
Tax losses carried forward $73,146 $44,020 $2,412
Temporary difference - property, plant,
and equipment (11,372) (19,009) (20,918)
Temporary differences - other - - -
Unclaimed research and development
expenditures 631,670 599,019 585,241
F-19
Investment tax credits - carried forward 24,396 23,135 25,489
Tax asset before allowance for uncertain
realization 717,840 647,165 592,224
Allowance for uncertain realization (717,840) (647,165) (592,224)
--------------------------------
$ - - -
--------------------------------
20. SUPPLEMENTAL DISCLOSURE TO THE STATEMENTS OF CASH FLOWS
Cash paid in respect to interest and taxes is as follows:
Nine Month Nine Month
Period Ended Period Ended Year Ended Year Ended
May 31, May 31, August 31, August 31,
2005 2004 2004 2003
(unaudited) (unaudited)
------------------------------------------------------------
Interest $ 43,611 $20,569 $33,182 $17,997
------------------------------------------------------------
Income taxes $ - $ - $ - $ -
------------------------------------------------------------
22. RECENT ACCOUNTING PRONOUNCEMENTS
(a) In November of 2002, the Financial Accounting and Standards Board
("FASB') issued Interpretation No. 45 ("FIN 45"), (Guarantor's
Accounting and Discount Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others). FIN 45 addresses
disclosure and initial recognition and measurement issues related
to guarantees. The disclosure provisions are effective for periods
ending after December 15, 2002. The initial recognition and
measurement provisions apply to guarantees issued after December
31, 2002.
(b) In January of 2003, the FASB issued Interpretation No. 46 ("FIN
46"), (Consolidation of Variable Interest Entities). FIN 46
requires all companies with variable interests in entities created
after January 31, 2003 to apply its provisions to those entities
immediately, in December of 2003, the FASB issued a revised
Interpretation "FIN 46R." Under the revised Interpretation, an
entity deemed to be a business, based on certain specified
criteria, need not be evaluated to determine if it is a Variable
Interest Entity. The provisions of FIN 46R must he applied for the
first interim or annual period beginning after June 15, 2003.
F-20
(c) In April of 2003, the FASB issued Statement of Financial
Accounting Standards No, 149 (Amendment of Statement 133 on
Derivative Instruments and Hedging Activities) ("SFAS 149"). SEAS
149 amends SEAS 133, in requiring that contracts with comparable
characteristics be accounted for similarly, and clarifies when a
derivative contains a financing component requiring special
reporting. SEAS 149 is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003, and must be applied prospectively.
(d) In May of 2003, the PASB issued Statement of Financial Accounting
Standards No. 150 (Accounting For Certain Financial Instruments
with Characteristics of both Liabilities and Equity) ("SEAS 150").
SEAS 150 establishes standards for how an issuer classifies and
measures in its statement of financial position certain financial
instruments with characteristics of both liabilities and equity.
SEAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 1.5,
2003 and must be applied prospectively.
(e) In November of 2004, the FASB issued Statement of Financial
Accounting Standards No. 151 ("SFAS 151"). SPAS 151 amends the
guidance in Accounting Research Bulletin No. 43 (Inventory
Pricing) to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and waste material.
Among other provisions, SPAS 151 requires that items, such as idle
facility expense, excessive spoilage, double freight, and
rehandling costs, be recognized as current period charges.
Additionally, SEAS 151 requires that the allocation of fixed
production overheads to the costs of conversions be based on
normal capacity of the production facilities. SPAS 151 is
effective for fiscal years beginning after June 15, 2005, and is
required to be adopted by the Company in the first quarter of
fiscal 2006. In the opinion of Management, the adoption of this
statement will not have any impact on the Company's consolidated
financial statements.
(f) In December of 2004, the FASB issued Statement of Financial
Accounting Standards No, 123 (revised 2004) (Share-Based Payment)
("SPAS 123k"). SPAS 123k is a revision of SFAS 123 (Accounting for
Stock-Based Compensation), and supersedes Accounting Principles
Beard ("APB") Opinion No. 25 (Accounting for Stock Issued to
Employees). SEAS 123R. requires that the fair value of employees
awards issued, modified, repurchased or cancelled after
implementation, under share-based payment arrangements, be
measured as of the date the award is issued, modified, repurchased
or cancelled. The resulting cost is then recognized in the
statement of earnings over the service period. SFAS 123k is
required to be adopted by the Company not later than for the 2007
fiscal year. In the opinion of Management, the adoption of this
statement will not have a significant impact on the Company's
consolidated financial statements.
F-21
(g) In December of 2004, the FASB issued Statement of Financial
Accounting Standards No. 153 (Exchanges of Nonmonetary Assets - An
Amendment of APB Opinion No. 29, Accounting for Nonmonetary
transactions) ("SPAS 153"). SFAS 153 eliminates the exception from
fair value measurement for nonmonetary exchanges of similar
productive assets in paragraph 21(b) of APB Opinion No. 29 and
replaces it with an exception for exchanges that do not have
commercial substance, SPAS 153 specifies that a nonmonetary
exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the
exchange. SPAS 153 is effective for fiscal periods beginning after
June 15, 2005, and is required to be adopted by the Company in the
second quarter of the 2006 fiscal year. We do not currently
believe that the adoption of SFAS No. 153 will have a material
impact on its consolidated financial statements.
(h) In May 2005, SFAS No. 154, "Accounting Changes and Error
Corrections" (a replacement of APB Opinion No. 20 and SFAS No. 3)
was issued. Statement 154 requires that all voluntary changes in
accounting principles and changes required by a new accounting
pronouncement that do not include specific transition provisions
be applied retrospectively to prior periods' financial statements,
unless it is impracticable to do so. Opinion 20 required that most
voluntary changes in accounting principle be recognized by
including the cumulative effect of changing to the new accounting
principle as a component of net income in the period of change.
Statement 154 is effective prospectively for accounting changes
and corrections of errors made in fiscal years beginning after
December 15, 2005, with earlier application encouraged. Earlier
application is permitted for accounting changes and corrections of
errors made in fiscal years beginning after the date the Statement
was issued (May 2005). Statement 154 does not change the
transition provisions of any existing accounting pronouncements,
including those that are in a transition phase as of the effective
date of the Statement. Accordingly, the Company will implement the
provisions of this accounting pronouncement in the fiscal
reporting period ending August 31, 2007. We do not currently
believe that the adoption of SFAS 145 No. 154 will have a material
impact on our consolidated financial statements.
F-22
(b) Pro Forma financial information
The Unaudited Pro Forma Financial information of Island
Scallops, Ltd (Edgewater Foods International) and Heritage
Management Corporation for the period ended May 31, 2005 and
June 30, 2005, respectively, related to the acquisition of
Island Scallops, Ltd (Edgewater Foods International) are
included following this item 9.01 (b).
PRO FORMA COMBINING FINANCIAL STATEMENTS
The following pro forma balance sheet has been derived from the balance sheet of
Heritage Management, Inc. at June 30, 2005 and adjusts such information to give
the effect to the acquisition of Edgewater Foods International (Island Scallops,
Ltd.) as if the acquisition had occurred at May 31, 2005. The pro forma balance
sheet is presented for informational purposes only and does not purport to be
indicative of the financial condition that would have resulted if the
acquisition had been consummated at May 31, 2005.
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited) (Expressed in US Dollars)
Heritage
Island Management,
Scallops Ltd Inc. Adjustments Proforma
May 31, June 30,
2005 2005
(unaudited) (unaudited)
-------------------------------------------- -----------
ASSETS
Current assets:
Cash $ 28,715 $ 1,612 $ (1,612) A $ 28,715
Accounts receivable, 9,385 -- -- 9,385
Loans receivable -- 10,000 (10,000) A --
Inventory 237,371 -- -- 237,371
Prepaid expenses 9,123 -- -- 9,123
Advances and other current assets -- 93,121 (93,121) A --
-------------------------------------------- -----------
Total current assets 284,594 104,733 (104,733) $ 284,594
Property, plant and equipment 909,023 18,909 (18,909) A 909,023
F-23
Loans receivable 19,051 14,000 (14,000) A 19,051
Investments in tenures 3,197 -- -- 3,197
-------------------------------------------- ----------
Total assets $ 1,215,865 $ 137,642 $ (137,642) $ 1,215,865
============================================ ===========
LIABILITIES
Current Liabilities:
Accounts payable and accrued
liabilities $ 363,709 $ 8,939 $ (8,939) $A 416,901
Short term debt 732,672 -- -- 679,480
Due to shareholder 3,107,412 -- -- 3,107,412
Current portion of long term debt 948,811 6,018 (6,018) A 948,811
-------------------------------------------- ----------
Total Current Liabilities 5,152,604 14,957 (14,957) $ 5,152,604
Long term debt 321,164 12,559 (12,559) A 321,164
-------------------------------------------- ----------
Total Liabilities 5,473,768 27,516 (27,516) $ 5,473,768
Stockholders' Equity (Deficit)
Common stock 1 3,885 (2,300) B 11,885
10,299 C
Additional paid in capital -- 174,965 (174,965) A (11,884)
(10,299) C
(1,585) B
Accumulated Deficit $(4,200,130) (68,724) 68,724 $(4,200,130)
Accumulated other comprehensive income $ (57,774) $ (57,774)
-------------------------------------------- ----------
Total Stockholders' Equity (Deficit) $(4,257,903) 110,126 (110,126) (4,257,903)
Total Liabilities and Stockholders'
Equity (Deficit) $ 1,215,865 137,642 (137,642) $ 1,215,865
============================================ ===========
F-24
UNAUDITED NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
On August 15, 2005, Heritage Management, Inc. ("Heritage"), a public shell
company as that term is defined in Rule 12b-2 of the Exchange Act, established
under the laws of Nevada on June 12, 2000, completed a Share Exchange (the
"Share Exchange") with Edgewater Foods International, Inc., the parent company
of Island Scallops Ltd. an aquaculture company located in Vancouver Island,
British Columbia. As a result of the Share Exchange, Edgewater Foods
International became our wholly owned subsidiary. The shareholders of Edgewater
now own the majority (92.30%) of our voting stock. To accomplish the Share
Exchange, we issued an aggregate of 19,000,000 shares of our Common Stock on a
one to one ratio in exchange for all of the issued and outstanding capital stock
of Edgewater from the shareholders of Edgewater. The shares issued to the
Edgewater Shareholders were issued to 17 accredited investors pursuant to a
claim of exemption under Section 4(2) of the Securities Act of 1933, as amended
for issuances not involving a public offering. Additionally, as a condition of
the Share Exchange, E. Lee Murdoch, our controlling shareholder prior to the
Share Exchange, agreed to cancel 2,300,000 shares of our Common Stock upon close
of the Share Exchange. Pursuant to the Share Exchange Agreement, E. Lee Murdoch
resigned as a Director of Heritage. The Share Exchange did not require the
approval of our shareholders.
The transaction was regarded as a reverse merger whereby Edgewater Foods
International was considered to be the accounting acquirer as it retained
control of Heritage after the exchange.
All amounts of Heritage were reversed to net assets assumed by Edgewater Foods
International, Inc. in the reverse merger were $0.
On June 29, 2005, Edgewater Foods International, Inc., a private holding company
established under the laws of Nevada in order to acquire assets in the
aquaculture industry, issued 10,300,000 shares of common stock in exchange for
100% equity interest in Island Scallops, Ltd. As a result of the share exchange,
Island Scallops, Ltd. become the wholly own subsidiary of Edgewater Foods
International, Inc. As a result, the shareholders of Island Scallops owned a
majority (54.21%) of the voting stock of Edgewater Foods International. The
transaction was regarded as a reverse merger whereby Island Scallops was
considered to be the accounting acquirer as its shareholders retained control of
Edgewater Foods after the exchange, although Edgewater is the legal parent
company. The share exchange was treated as a recapitalization of Edgewater. As
such, Island Scallops is the continuing entity for financial reporting purposes.
The preceding unaudited pro forma combined balance sheet represents the combined
financial position of Edgewater Foods International as of May 31, 2005 as if the
reverse merger acquisition occurred on May 31, 2005.
The pro forma financial statements for the reverse acquisition of Edgewater by
Heritage would simply present the pro forma income statement of Edgewater after
the results of operations for Heritage are adjusted to zero and the weighted
average shares outstanding are adjusted for the total shares outstanding of
F-25
Heritage (as described) prior to the acquisition and resulting in 11,885,400
basic and diluted weighted average shares outstanding. As such and per the
provision set forth in Rule 11-02(b)(1) of Regulation S-X, the unaudited pro
forma combining financial information are not presented for illustrative
purposes.
Assumptions and Adjustments:
A) Per the terms of the Share Exchange and Bill of Sale of Heritage
Funding Corporation and E. Lee Murdoch, Heritage delivered zero assets
and zero liabilities at time of closing.
B) Mr. E. Lee Murdoch agreed to cancel 2,300,000 shares which he owns,
resulting in 1,585,400 shares issued and outstanding immediately before
issuing 19,000,000 shares to the shareholders of Edgewater Foods
International.
Total shares issued and outstanding at
June 30, 2005 per Form 10-QSB 3,855,400
Cancellation of 2,300,000 shares owned
by Mr. E. Lee Murdoch 2,300,000
---------
Total shares outstanding 1,585,400
C) On August 15, 2005, Heritage issues 19,000,000 shares of common stock
to the shareholders of Edgewater Foods International for 100% interest
in Edgewater Foods International.
Total shares issued for Edgewater Foods 19,000,000
Adjustment for recapitalization of Edgewater
in conjunction with Island Scallops
(accounting acquirer) acquisition 8,700,000
---------
Retroactive shares issued 10,300,000
F-26
(c) Exhibits
3.1 Amended and Restated Bylaws*
10.1 Share Exchange Agreement between Heritage Management
Corporation and Edgewater Foods International, dated August
15, 2005*
10.2 Bill of Sale between Heritage Management, Inc. and E. Lee
Murdock, dated August 14, 2005*
* Previously filed on Form 8-K dated August 15, 2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
Date: October 6, 2006 Edgewater Foods International, Inc.
By: /s/ Michael Boswell
-------------------------------
Michael Boswell, Acting Chief
Financial Officer