U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 2006
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER
EDGEWATER FOODS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Nevada 20-3113571
-------- ------------
(STATE OR OTHER JURISDICTION IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
US REPRESENTATIVE OFFICE
5552 West Island Highway, Qualicum Beach, British Columbia, Canada
V9K 2C8
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(250) 757-9811
(ISSUER'S TELEPHONE NUMBER)
(FORMER ADDRESS)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE EXCHANGE ACT OF 1934 DURING THE PAST 12 MONTHS (OR FOR SUCH
SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2)
HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X ]
NO [ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN
RULE 12B-2 OF THE SECURITIES EXCHANGE ACT OF 1934) YES [ ] NO [X]
AS OF JULY 12, 2006, THERE WERE 20,983,260 SHARES OF COMMON STOCK OUTSTANDING
AND 7,877,999 SHARES OF PREFERRED SERIES A STOCK. ALL STOCK PAR VALUE IS $.001.
PART I - FINANCIAL INFORMATION.................................................3
Item 1. Financial Statements Note:
Unaudited Balance Sheet at May 31, 2006........................................3
Unaudited Statements of Operations for the three and nine month periods
ended May 31, 2006, and 2005...................................................4
Unaudited Statements of Cash Flows for the
nine month periods ended May 31, 2006 and 2005...............................5
Notes to Financial Statements..................................................6
Item 2 - Management's Discussion and Analysis of Results of Operations
and Financial Condition........................................................7
Item 3 - Controls and Procedures..............................................16
PART II - OTHER INFORMATION...................................................17
Item 1. LEGAL PROCEEDINGS....................................................17
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................17
Item 3. DEFAULTS UPON SENIOR SECURITIES......................................17
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................17
Item 5. OTHER INFORMATION....................................................18
Item 6. EXHIBITS.............................................................18
2
EXPLANATORY NOTE
We are filing this amendment number 1 to our Quarterly Report on Form 10-QSB for
the quarter ended May 31, 2006, which was initially filed on July 17, 2006, to
revise the following line items in the balance sheet for this same quarter:
Accumulated deficit and Accumulated other comprehensive income. We also
corrected a typographical error in the Stockholders Deficit portion of our
Balance Statement. We are also filing this Amendment to ensure that information
presented in all of our filings is consistent since we also filed an amendment
to our Annual Report on Form 10-KSB for the year ending August 31, 2005 on July
17, 2006 and on this same day, as well as amendments to our Quarterly Report on
Form 10-QSB for the quarters ending November 30, 2005 and February 28, 2006. No
other information in the Form 10-QSB is being amended by this Amendment. This
Amendment continues to speak as of the date of the original filing of the Form
10-QSB and we have not updated the disclosure in this Amendment to speak as of
any later date.
PART I - FINANCIAL INFORMATION
EDGEWATER FOODS INTERNATIONAL
CONSOLIDATED BALANCE SHEET
UNAUDITED
MAY 31, 2006
ASSETS
Current assets:
Cash $ 1,371,392
Accounts receivable, net 16,176
Inventory 986,850
Other current assets 94,305
------------
Total current assets 2,468,723
Property, plant and equipment, net 1,249,556
Investments in other assets 3,629
------------
Total assets $ 3,721,908
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 4,536
Short term debt 1,932,311
Current portion of warrant liabilities 1,757,884
Current portion of long term debt 1,014,169
Accounts payable and accrued liabilities 312,342
------------
Total current liabilities 5,021,242
Warrant liabilities, net current portion 12,336,175
Long term debt, net current portion 45,259
Total liabilities 17,402,676
------------
Stockholders' deficit
Series A Preferred stock, par $0.001,10,000,000
authorized, 3,888,000 issued and outstanding at May 31, 2006 3,888
Common stock, par $0.001, 100,000,000 authorized,
20,960,400 issued and outstanding at May 31, 2006 2,096
Additional paid in capital 0
Accumulated deficit (13,412,932)
3
Accumulated other comprehensive income - (273,820)
foreign exchange adjustment
------------
Total stockholders' deficit (13,680,768)
------------
Total liabilities and stockholders' deficit $ 3,721,908
============
See accompanying summary of accounting policies and notes to financial
statements
4
EDGEWATER FOODS INTERNATIONAL
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS PERIOD ENDING MAY 31, 2006
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
--------------------------- ---------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue $ 133,120 $ 35,444 $ 437,045 $ 307,915
Cost of goods sold 170,485 29,287 475,767 288,282
------------ ------------ ------------ ------------
Gross profit (loss) (37,365) 6,157 (38,722) 19,633
------------ ------------ ------------ ------------
Expenses:
General and administrative expenses 286,449 51,876 393,550 122,550
Salaries and benefits 38,316 18,190 118,015 54,661
Stock compensation expense -- -- 182,500 --
------------ ------------ ------------ ------------
Total 324,765 70,066 694,065 177,211
------------ ------------ ------------ ------------
Loss from operations (362,130) (63,909) (732,787) (157,578)
------------ ------------ ------------ ------------
Other income (expense):
Interest (expense), net (54,178) (49,896) (160,269) (51,221)
Change in fair value of warrants (2,525,419) -- (2,525,419) --
Other income (expense) 12,805 -- (500,711) --
Other income (expense), net (2,566,791) (49,896) (3,186,399) (51,221)
------------ ------------ ------------ ------------
Net income (loss) $ (2,928,922) $ (113,805) $ (3,919,186) $ (208,799)
============ ============ ============ ============
Foreign currency translation (51,467) (80,129) (103,417) (201,787)
------------ ------------ ------------ ------------
============ ============ ============ ============
Total Comprehensive (loss) $ (2,980,389) $ (193,934) $ (4,022,603) $ (410,586)
============ ============ ============ ============
Net income (loss) per Share
Basic and diluted $ (0.14) $ (0.01) $ (0.19) $ (0.02)
Weighted average shares outstanding
Basic and diluted 20,969,400 10,300,000 20,738,971 10,300,000
See accompanying summary of accounting policies and notes to financial
statements
5
EDGEWATER FOODS INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASHFLOWS
NINE MONTHS ENDED MAY 31, 2006
NINE MONTHS ENDED
MAY 31,
--------------------------
2006 2005
----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) $(3,919,186) $ (208,799)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization 90,003 51,220
Changes in fair value of warrants 2,525,419 --
Common stock issued for services 702,500 --
Changes in current assets and liabilities:
Accounts receivable (16,176) 18,103
Prepaid expenses (65,785) (1,289)
Other current assets -- --
Loan receivable 20,387 1,126
Inventory (446,724) (237,371)
Accounts payable (177,382) 75,081
Bank overdrafts (38,538) --
----------- -----------
Net cash used in operating activities (1,325,482) (301,930)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (158,170) (315,818)
----------- -----------
Net cash provided by (used in) investing activities (158,170) (315,818)
----------- -----------
Cash flows from financing activities:
Line of credit, net (60,828) --
Proceeds from short term debt 504,198 664,606
Payment of short term debt (148,408) --
Proceeds of long term debt 2,268 --
Payment of long term debt (19,624) (21,797)
Proceeds from sale of preferred Stock 2,562,000 --
----------- -----------
Net Cash provided by financing activities 2,839,606 642,809
----------- -----------
Foreign currency translation effect 14,878 (9,256)
6
Net increase in cash 1,370,832 15,805
Cash, beginning of period 560 12,910
----------- -----------
Cash, end of period $ 1,371,392 $ 28,715
=========== ===========
Supplemental disclosure of cash flow information
Net cash paid during nine months
Interest $ 160,269 $ 51,221
=========== ===========
Income taxes $ -- $ --
=========== ===========
See accompanying summary of accounting policies and notes to financial
statements
7
Edgewater Foods International, Inc.
Notes to Consolidated Financial Statements
(unaudited)
NOTE 1. BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS
Edgewater Foods International Inc. ("Edgewater"), a Nevada Corporation, is the
parent company of Island Scallops Ltd., a Vancouver Island aquaculture company.
Island Scallops Ltd. ("Island Scallops") was established in 1989 and for over 15
years has successfully operated a scallop farming and marine hatchery business.
Island Scallops is dedicated to the farming, processing and marketing of high
quality, high value marine species: scallops and sablefish. Scallop farming is
relatively new to North America and Island Scallops is the only producer of both
live-farmed Pacific scallops and live sablefish (or blackcod). Given Island
Scallops' unique hatchery technology and extensive research and development, we
believe that there is no significant competition for the farming of these marine
species in our geographic area. Island Scallops is committed to rapidly
expanding production and profits while continuing to finance our aggressive
growth and maintaining a healthy respect for the marine environment.
On June 29, 2005, Edgewater, a holding private company established under the
laws of Nevada in order to acquire assets in the aquaculture industry, issued
10,300,000 shares of common stock in exchange for a 100% equity interest in
Island Scallops. As a result of the share exchange, Island Scallops become the
wholly own subsidiary of Edgewater. As a result, the shareholders of Island
Scallops owned a majority (54.21%) of the voting stock of Edgewater. The
transaction was regarded as a reverse merger whereby Island Scallops was
considered to be the accounting acquirer as its shareholders retained control of
Edgewater Foods after the exchange, although Edgewater is the legal parent
company. The share exchange was treated as a recapitalization of Edgewater
Foods. As such, Island Scallops (and its historical financial statements) is the
continuing entity for financial reporting purposes.
On August 15, 2005, we completed a reverse acquisition of Heritage Management
Corporation ("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. To accomplish the share exchange Heritage issued 19,000,000 shares of
common stock on a one to one ratio for a 100% equity interest in Edgewater
Foods. Per the terms of the Share Exchange and Bill of Sale of Heritage Funding
Corporation and E. Lee Murdoch, Heritage delivered will zero assets and zero
liabilities at time of closing. Following the reverse acquisition, we changed
the name of Heritage Management Corporation to "Edgewater Foods International,
Inc." The transaction was regarded as a reverse merger whereby Edgewater was
considered to be the accounting acquirer as it retained control of Heritage
after the exchange. Although Heritage is the legal parent company, the share
exchange was treated as a recapitalization of Edgewater. Edgewater is the
continuing entity for financial reporting purposes. The financial statements
8
have been prepared as if Edgewater had always been the reporting company and
then on the share exchange date, had changed its name and reorganized its
capital stock.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our unaudited consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America for
reporting interim financial information and the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments necessary for a fair presentation of the financial position and
results of operations for the periods presented have been included. All such
adjustments are of a normal recurring nature. These unaudited consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements included in our Annual Report on Form 10-KSB for the year
ended August 31, 2005. Results of operations for the three and nine months ended
May 31, 2006 are not necessarily indicative of the operating results for the
full accounting year or any future period.
Inventory
We maintain 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).
Raw materials are reported at the lesser of purchase cost and estimated net
realizable value.
Biomass and finished goods are reported at the lesser of cost and estimated net
realizable value. Cost includes direct and reasonably attributable indirect
production costs related to hatchery, cultivation, harvesting, and processing
activities. Carrying costs per unit are determined on a weighted average basis.
At May 31, 2006, inventory consisted of the following:
Biomass (Scallops): $986,850
Derivative Financial Instruments
In connection with the sale of debt or equity instruments, we may sell options
or warrants to purchase our common stock. In certain circumstances, these
options or warrants may be classified as derivative liabilities, rather than as
equity. Additionally, the debt or equity instruments may contain embedded
derivative instruments, such as embedded derivative features, which in certain
circumstances may be required to be bifurcated from the associated host
instrument and accounted for separately as a derivative instrument liability.
9
The Company accounts for all derivatives financial instruments in accordance
with SFAS No. 133. Derivative financial instruments are recorded as liabilities
in the consolidated balance sheet, measured at fair value. When available,
quoted market prices are used in determining fair value. However, if quoted
market prices are not available, the Company estimates fair value using either
quoted market prices of financial instruments with similar characteristics or
other valuation techniques.
The identification of, and accounting for, derivative instruments is complex.
Our derivative instrument liabilities are re-valued at the end of each reporting
period, with changes in the fair value of the derivative liability recorded as
charges or credits to income, in the period in which the changes occur. For
options, warrants and bifurcated embedded derivative features that are accounted
for as derivative instrument liabilities, we estimate fair value using either
quoted market prices of financial instruments with similar characteristics or
other valuation techniques. The valuation techniques require assumptions related
to the remaining term of the instruments and risk-free rates of return, our
current common stock price and expected dividend yield, and the expected
volatility of our common stock price over the life of the option. The
identification of, and accounting for, derivative instruments and the
assumptions used to value them can significantly affect our financial
statements.
Derivative financial instruments that are not designated as hedges or that do
not meet the criteria for hedge accounting under SFAS No. 133 are recorded at
fair value, with gains or losses reported currently in earnings. All derivative
financial instruments held by the Company as May 31, 2006 were not designated as
hedges.
Recent accounting pronouncements
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
10
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, we 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.
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment at May 31, 2006 consisted of the following:
Accumulated Net Book
Cost Amortization Value
----------------------------------------
Land $ 228,613 $ -- $ 228,613
Buildings 449,530 228,966 220,564
Seawater piping and tanks 470,942 267,401 203,541
Boats and Barge 284,128 112,272 171,856
Field equipment 1,112,886 699,725 413,161
Office equipment 13,748 12,373 1,375
Vehicles 36,413 33,228 3,185
Computer equipment 11,848 4,587 7,261
----------------------------------------
$2,608,108 $1,358,552 $1,249,556
Depreciation expenses for the nine months ended May 31, 2006 and 2005 were
$90,003 and $51,220.
NOTE 4. INVESTMENTS IN OTHER ASSETS (TENURES)
We carry our investment in other assets (tenures) at $3,629 at May 31, 2006.
This amount represents the carrying costs of certain shellfish tenures acquired
by our wholly-owned subsidiary Island Scallops 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. One tenure has an
11
expiration date of July 10, 2021. Other shellfish tenures that we and our
subsidiaries hold have expiration dates ranging from 2021 to 2024.
These tenures are considered to have an indefinite useful life because renewal
on expiration is anticipated, and therefore are not subject to amortization.
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Included in accounts payable and accrued liabilities are balances outstanding
related to credit cards held in the name of the shareholder totaling $10,298 at
May 31, 2006. We used these credit cards as a means of short term financing and
incur interest charges on such unpaid balances.
Included in accounts payable and accrued liabilities at May 31, 2006 is an
amount of $119,622 related to deposits paid by two third parties in respect to
an agreement to purchase geoduck seed from us (for additional information see
Note 9 - Contingent Liabilities).
Included in accounts payable and accrued liabilities at May 31, 2006 is an
amount of $3,683 related to interest accrued in respect to the loan from the
National Research Council of Canada Industrial Research Assistance Program (see
Note 8 - Long Term Debt for additional information).
Other accounts payable and accrued liabilities at May 31, 2006 carry a balance
of $178,739.
As a result, at May 31, 2006, we had accounts payable and accrued liabilities
balance of $312,342.
NOTE 6. SHORT TERM DEBT
Included in short-term debt is a loan with an authorized limit of $1,451,510
secured by our assets, including a mortgage charge in the amount of $1,451,510
on our land and building, and by a personal guarantee of Robert Saunders, our
Chairman, President and CEO, and former sole shareholder of Island Scallops. The
note bears interest at a rate of 1% per month, payable monthly, and is due June
30, 2006. As of May 31, 2006, the entire authorized limit of $1,451,510 had been
lent to Island Scallops. In addition, Island Scallops was currently in arrears
on interest payment for $14,785. As a result, the debt is carried as $1,466,295
of short term debt on the balance sheet.
Included in short-term debt is Island Scallop's mortgage loan repayable at
$1,918 per month including interest calculated at the greater of 10% and
(Canadian) prime plus 6%. The loan, which is due on April 1, 2007, is secured by
a second charge on the real property of Island Scallops. At May 31, 2006, the
principal due is $194,314.
12
Included in short-term debt is a non-interest bearing loan to Island Scallops
from Industry Science and Technology Canada requiring repayment equal to 0.5% of
Island Scallops' gross scallop sales for each preceding year, which is due
January 1, 2007. If at the due date we have not generated sufficient revenues to
be required to repay the original amount of $165,814, the remaining portion of
the loan is to be forgiven. Amounts currently due bear interest based on the
published rates of 90 day (Canadian) treasury bills.
Included in short-term debt at May 31, 2006 is estimated royalties of $60,378
payable to a third party from whom the former sole shareholder of Island
Scallops originally acquired the shares of Island Scallops. The 1992 share
purchase agreement (for Island Scallops) provided that the third party was to
receive from us 3% of our revenues as earned, on a quarterly basis, throughout
the period from December 1, 1992 to November 30, 2002. The third party holds a
first charge (or first lien) over our inventory (including broodstock) in the
amount of $317,518 in support of its royalty entitlement. The third party has
not taken further action to enforce payment of the arrears liability. To date,
we have accrued the entire balance of $60,738 as short term debt and we plan to
pay it with available funds in the near future.
Included in short-term notes debt at May 31, 2006 is an unsecured non-interest
bearing demand loan from an individual with a face value of $45,510 and no
specific terms of repayment. However, the lender has informally requested that
the loan be repaid in full by October 6, 2008.
As a result, at May 31, 2006, we had $1,932,311 of short-term notes.
NOTE 7. LONG TERM DEBT
These consolidated financial statements include a Western Diversification
Program non-interest bearing loan to Island Scallops that requires repayment
equal to 12% of gross revenues from our scallop sales, payable semi-annually,
with no specified due date. At May 31, 2006 as Island Scallops is approximately
$173,000 in arrears in respect to the payment of these amounts, the full
principal balance of $614,437 is reflected as a current liability as current
portion of long-term debt. Our management is seeking to renegotiate terms of
repayment of this debt.
These consolidated financial statements include Island Scallops' unsecured
non-interest bearing loan from the National Research Council of Canada
Industrial Research Assistance Program which requires quarterly payments
commencing March 1, 2003 equal to 3% of gross black cod revenues of the Island
Scallops until the earlier of full repayment or December 1, 2012. The amount
repayable is up to 150% of the original advance of $399,732, if repayment is
before December 1, 2007. If at December 1, 2012, Island Scallops has not earned
sufficient revenues required to repay the original loan amount, the remaining
portion of the loan is to be forgiven. The $39,917 currently due at May 31, 2006
bears interest at a rate of 1% per month. At May 31, 2006, Island Scallops is in
13
arrears in respect to the payment of these amounts, the full principal balance
of $399,732 is reflected as a current liability as current portion of long-term
debt.
These consolidated financial statements include two bank loans for Island
Scallops. The first bank loan is repayable at $1,134 per month, plus interest
calculated at the floating base rate of the Business Development Bank of Canada
plus 1.5% annum, is due February 23, 2009, and is secured by a General Security
Agreement over Island Scallops' assets , a mortgage charge on Island Scallop's
real property and a personal guarantee of $45,360 by our Chairman, President and
CEO, and former sole shareholder of Island Scallops. At May 31, 2006, the
principal due is $37,422. The second bank loan is repayable at $472 per month
plus interest calculated at (Canadian) prime plus 3% per annum, is unsecured and
is due October 23, 2007. At February 28, 2006, the principal due is $7,837.
As a result, at May 31, 2006, we had $1,059,428 of long-term debt less a current
portion of $1,014,169 for a balance of $45,259.
NOTE 8. WARRANT LIABILITIES
The warrants that each investor received as a result of our April 12 and May 30
Preferred Stock Financing (see Note 11 Preferred Stock Financing for additional
details) contained a cashless exercise provision that becomes effective if our
registration statement (that we are required to file under the registration
rights agreement) is not declared effective one-year after the initial issue
date of each warrant. As such and in accordance with the accounting guidelines
under SFAS No. 133, we valued the warrants as a derivative financial instrument
and the corresponding liabilities were entered onto our consolidated balance
sheet, measured at fair value. The Company determined the fair value of the
warrants as follows as of April 12, 2006 and May 30, 2006 (the issuance date):
The Company used the Black Scholes option-pricing model with the following
assumptions: an expected life equal to the contractual term of the warrants
(one, three or five), underlying stock price of $1.10 (at April 12) and $1.40
(at May 30), no dividends; a risk free rate of 4.91%, 4.90% and 4.91%, which
equals the one, three and five-year yield on Treasury bonds at constant (or
fixed) maturity (for those warrants issued on April 12) and a risk free rate of
4.99%, which equals three and five-year yield on Treasury bonds at constant (or
fixed) maturity (for those warrants issued on May 30); and volatility of 97%.
Under the assumptions, the Black-Scholes option pricing model yielded an
aggregate value of approximately $11,569,000 with a current portion of
approximately 1,240,000.
The Company performed the same calculations as of May 31, 2006, to revalue the
warrants as of that date. In using the Black Scholes option-pricing model, the
Company used an underlying stock price of $1.40 per share; no dividends; a risk
free rate of 5.07%, 5.03% and 5.04%, which equals the one, three and five-year
yield on Treasury bonds at constant (or fixed); and maturity volatility of 97%.
The resulting aggregate allocated value of the warrants as of May 31 2006
equaled approximately $14,094,000. The change in fair value of approximately
14
$2,525,000 (with a current portion of roughly $518,000) was recorded for the
period ended May 31, 2006.
Upon the earlier of the warrant exercise or the expiration date, the warrant
liability will be reclassified into shareholders' equity. Until that time, the
warrant liability will be recorded at fair value based on the methodology
described above. Liquidated damages under the registration rights agreement will
be expensed as incurred and will be included in operating expenses.
NOTE 9. CONTINGENT LIABILITIES
Island Scallops entered into an Agreement in the 1998 year with two parties,
under which Island Scallops was to produce and sell geoduck seed to the two
parties. Island Scallops received advance payments from each of the two parties
in the 2002 year of approximately $64,140 and recognized related revenue of
$43,705 in respect to seed delivered in the 2002 year. The balance of the
deposits received (advance payments), net of sales, totaling $119,622, is
included in accounts payable and accrued liabilities.
The position of Management is that the two parties violated the terms of the
agreement, such that we are 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 May 31, 2006, one of the two parties had made claims that we owed to it
amounts totaling $89,417. This particular party believed that the agreement
required Island Scallops to deliver the product in year one and did not allow
Island Scallops to make up any shortfall with product produced in the following
year. The balance included in accounts payable and accrued liabilities related
to this party is $34,899.
Any additional liability to us, or any reduction of the currently recognized
liability, in respect to these deposits will be recorded at the time a
conclusion to this matter can be determined.
Neither we nor our wholly owned subsidiary maintain insurance in respect to
replacement of its inventory. Consequently, we are exposed to financial losses
or failure as a result of this risk.
NOTE 10. STOCK-COMPENSATION EXPENSE
In October 2005, we engaged Aurelius Consulting to provide marketing and
investor relations services. The initial term of the agreement is one year.
Aurelius is entitled to receive 25,000 shares of our restricted common stock per
quarter during the term of its agreement, in consideration for their services.
The shares were valued at $1.45 per share, the closing bid price for shares of
our common stock on the date of the contract. Therefore, the total aggregate
15
value of the transaction recognized by the Company in the first quarter of 2006
was $145,000.
At October 21, 2005 and November 11, 2005, our board approved the issuing a
total of 25,000 shares of the Company's common stock to The Shemano Group, LLC
for preparing a research report for the Company. The shares were valued at $1.50
per share, the closing market bid of our common stock on the date of the
resolution. Therefore, the total aggregate value of the transaction recognized
by the Company in the first quarter of 2006 was $37,500.
On January 31, 2006, we issued 400,000 shares of our restricted common stock to
World Wide Mortgage as consideration for agreeing to extend the due date to
April 15, 2006 for us to repay our CDN $1,500,000 loan pursuant to the bridge
loan agreement dated November 9, 2004 and amended on April 15, 2005 between us
and World Wide. The shares have piggy-back registration rights that require us
to register the shares in our next registration statement. The shares were
valued at $1.30 per share, the closing bid price for shares of our common stock
on the date we issued the shares. Therefore, the total aggregate value of the
transaction is $520,000 which was recorded as other expense.
Stock Options
In August 2005, our Board of Directors approved the "Edgewater Foods
International 2005 Equity Incentive Plan." The Board of Directors reserved
5,000,000 shares of our common stock to be issued in the form of incentive
and/or non-qualified stock options for employees, directors and consultants to
Edgewater. As of May 31, 2006, our Board of Directors had authorized the
issuance of 282,000 options to employees.
Stock option activity during the nine month period ending May 31, 2006 was as
follows:
Weighted
Number of Average
Shares Exercise Price
---------------------------------
Outstanding, August 31, 2005 282,000 $ 1.50
Granted -- --
Exercised -- --
Forfeited -- --
Expired -- --
---------------------------------
Outstanding, May 31, 2006 282,000 $ 1.50
=================================
Exercisable, May 31, 2006 282,000 $ 1.50
=================================
At May 31, 2006, 62,000 of the outstanding options expire in August 2010 with
the remaining balance of 220,000 having an expiration date of August 2015.
NOTE 11. PREFERRED STOCK FINANCING
16
On April 12, 2006, we completed a private equity financing of $1,062,000 with
two accredited investors. Net proceeds from the financing were approximately
$952,000. We issued 1,888,000 shares of our Series A Preferred Stock, par value
$0.001 per share and stated value of $0.75 per share, at a purchase price of
$0.5625 per share. Each investor also received one of each of the following
warrants: (i) Series A Warrant, (ii) Series B Warrant, (iii) Series C Warrant,
(iv) Series D Warrant, (v) Series J Warrant, (vi) Series E Warrant, (vii) Series
F Warrant, (viii) Series G Warrant, and (ix) Series H Warrant, each to purchase
a number of shares of common stock equal to 50% of the number of Series A
Preferred Stock purchased, except for the Series J Warrants, which entitled the
investor to purchase a number of shares of common stock equal to 100% of the
number of shares of Series A Preferred Stock purchased. We issued a total of
9,440,000 Warrants. Each of the Warrants has a term of 5 years, except for the
Series J Warrants, which have a term of 1 year.
In connection with the April 12, 2006 financing, we paid cash compensation to a
placement consultant in the amount of $84,960 and issued him 188,800 warrants.
Each of the placement consultant's warrants allow him to purchase one share of
our Series A Preferred Stock, and one half of each of the Series A-I Warrants
and one Series J warrant. Each of the placement consultant's warrants to
purchase the securities described above is exercisable at a price of $0.5625 per
warrant, for a period of three years.
On May 30, 2006, we completed another round of private equity financing of
$1,500,000 with one accredited investor pursuant to a Series A Convertible
Preferred Stock Purchase Agreement. Net proceeds from this financing were
approximately $1,380,000. We issued 2,000,000 shares of our Series A Preferred
Stock, stated value of $0.75per share, at a purchase price of $0.75 per share
and the investor also received one of each of the following warrants: (i) Series
A Warrant, (ii) Series B Warrant, (iii) Series C Warrant, and (iv) Series D
Warrant, each to purchase a 1,000,000 shares of Common Stock; therefore, we
issued a total of 4,000,000 Warrants. Each of the Warrants has a term of 5 years
and is identical to the Series A-D Warrants we issued to investors pursuant to
the financing we closed on April 12, 2006 as disclosed in our Current Report on
Form 8-K filed on April 14, 2006. Each share of the Series A Preferred Stock is
convertible into one fully paid and nonassessable share of our common stock.
Pursuant to the Purchase Agreement, the investor was committed to purchase an
additional $2,400,000 of our Series A Preferred Stock in subsequent closings to
be completed no later than June 30, 2006.
In connection with the May 30, 2006 financing, we paid cash compensation to a
placement consultant in the amount of $120,000 and issued him 200,000 warrants.
Each of the placement consultant's warrants allow him to purchase one share of
our Series A preferred stock, and one half of each of the Series A-D Warrants.
Each of the placement consultant's warrants to purchase the securities described
above is exercisable at a price of $0.75 per warrant, for a period of 3 years.
17
NOTE 12. GOING CONCERN
Prior to the completion of our Preferred Stock Financing (see Note 11 for
additional details), our working capital had been primarily financed with
various forms of debt. We have suffered operating losses since inception in our
efforts to establish and execute our business strategy. As of May 31, 2006 we
had a cash balance of approximately $1,370,000. Although management believes
that we have adequate funds to maintain our business operations into the next
fiscal year and until we become cash flow positive, we are likely to continue to
suffer operational losses until the first quarter of our 2007 fiscal year. Until
our operations are able to demonstrate and maintain positive cash flows, we may
require additional working capital to fund our ongoing operations and execute
our business strategy. If we are unable to raise such capital, if it is
required, it could raise substantial doubt about our ability to continue as a
going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
we be unable to continue as a going concern. Our ability to continue as a going
concern is dependent upon our ability to generate sufficient cash flows to meet
our obligations on a timely basis and ultimately to attain profitability. Our
Management intends to obtain working capital through operations and to seek
additional funding through debt and equity offerings to help fund our operations
as we expand. There is no assurance that we will be successful in our efforts to
raise additional working capital or achieve profitable operations. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
NOTE 13. SUBSEQUENT EVENTS
On June 30, 2006 and July 11, 2006, we completed two final rounds of private
equity financing, accepting subscriptions in the aggregate amount of $2,840,000
from nine institutional and accredited investors pursuant to the May 30, 2006
Series A Convertible Preferred Stock Purchase. On June 30, 2006 and July 11,
2006, we entered into separate Joinder Agreements to each of the Series A
Convertible Preferred Stock Purchase Agreement and the Registration Rights
Agreement, each dated as of May 30, 2006, with each of the new investors which
added such investors as additional parties to the May 30, 2006 financing
documents. Net cash proceeds from these two rounds were approximately
$2,659,000. Pursuant to these round two final financings, we issued a total of
3,786,666 shares of our Series A Preferred Stock, stated value of $0.75 per
share, at a purchase price of $0.75 per share and each investor also received
one of each of the following warrants: (i) Series A Warrant, (ii) Series B
Warrant, (iii) Series C Warrant, and (iv) Series D Warrant, each to purchase
1,893,338 shares of Common Stock ; therefore, we issued a total of 7,573,352
Warrants in these two final rounds of financing. Each of the Warrants has a term
of 5 years and is identical to the Series A-D Warrants we issued to investors
pursuant to the financings we closed on April 12, 2006 and May 30, 2006. Each
share of the Series A Preferred Stock is convertible into one fully paid and
nonassessable share of our common stock.
18
In connection with the June 30, 2006 and July 11, 2006 financing, we paid a
total placement consultant fee of $217,000. The placement consultant received
$160,000 of his fee in securities (as described below) and $57,000 in cash. As a
result, we issued the placement consultant 213,333 shares of our Series A
Preferred Stock, and one of each of the A-D Warrants, each to purchase 106,667
shares of our Common Stock. The A-D Warrants issued to the placement consultant
are identical to the Series A-D Warrants we issued to the investors as described
above.
We used a portion of the proceeds of the above referenced private equity
financings to repay the entire balance of short-term loan with an authorized
limit of $1,451,510 secured by our assets, including a mortgage charge in the
amount of $1,451,510 on land and building of the Company, and by a personal
guarantee of Robert Saunders, our Chairman, President and CEO, and former sole
shareholder of Island Scallops. (For additional information on this note, please
see Note 7 - Short Term Debt above)
On June 30, we issued 22,860 shares of common stock to the two accredited
investors of our April 12 and May 30, 2006 financings as payment of the
semi-annual dividend per the terms of the Certificate of Designation of the
Relative Rights and Preferences of the Series A Convertible Preferred Stock.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following discussion should be read in conjunction with our financial
statements and the notes thereto which appear elsewhere in this report. The
results shown herein are not necessarily indicative of the results to be
expected in any future periods. This discussion contains forward-looking
statements based on current expectations, which involve uncertainties. Actual
results and the timing of events could differ materially from the
forward-looking statements as a result of a number of factors. Readers should
also carefully review factors set forth in other reports or documents that we
file from time to time with the Securities and Exchange Commission.
OVERVIEW
In the second quarter of 2006, we started harvesting our 2004 year class of
scallops and began inspecting our 2005 year class of scallops as we prepare to
begin moving these scallops to their final grow-out stage in the second half of
2006. We refer to the year-class of scallops based on when the scallops were
spawned. Generally, the harvest occurs approximately 22 to 24 months after
spawning of the scallops. Originally, we planned to ear-hang our entire 2005
scallop crop, but after inspection of growth rates of the 2004 ear-hung crops
and an analysis of labor costs of ear-hanging versus the cost of additional nets
we decided to use nets for the final grow-out stage of the 2005 crop.
The 2005 year-class scallops are currently maturing in our tenured growing sites
and joint venture locations. We are currently preparing our farm sites for the
transfer of these scallops to their final stage large grow-out nets. This
19
transfer will be completed during the summer of 2006 and we anticipate
commencing harvesting up to approximately four million 2005 year-class scallops
during April of 2007. The 2006 year-class scallop spawning season commenced in
March of 2006 and was completed in April 2006. The scallop brood-stock
conditioning for these spawning began in mid-December 2005. We expect to begin
harvesting the 2006 year-class scallops during the Spring of 2008, however, we
could begin harvesting portions of the class sooner if mortality rates (at
various points of the growth cycle) are significantly better than our current
projection or if growth rates are substantially higher. We anticipate that of
the over 350 million larvae that were spawned, at least 10 million scallops
could reach full maturity and thus be harvested. The use of DNA based family
analysis started in 2005 will continue through 2006, with the goal of breeding
high meat yield scallops.
As a result of the above, we believe that the 2005 scallop-class will produce at
least $5.5 million of revenue over a twelve month period beginning in April of
2007. We anticipate that the harvest of our 2006 scallop class will eventually
result in total revenue of at least $14.0 million over the twelve month period
beginning in April 2008. If our mortality rates are better than our current
projections, our revenues from the 2005 and 2006 scallop class could be higher,
however, conversely if our mortality rates are worse than we anticipate our
revenues for this period could be lower than we anticipate. In the near term,
the sales of the remainder of our 2004 scallop class between October 2006 and
March 2007 are expected to produce more the $1.0 million of revenue.
Additionally, we plan on generating additional revenues via the sale of scallop
and possibly other shellfish seed.
COMPARISON OF RESULTS FOR THE THREE MONTHS AND NINE MONTHS ENDED MAY 31, 2006 TO
THE THREE AND SIX MONTHS ENDED MAY 31, 2005.
Revenues. Revenues for the three months ended May 31, 2006, were approximately
$133,000. We had revenues of approximately $35,000 for the three months ended
May 31, 2005. This is an increase of approximately $98,000 or 280%. Revenues for
the nine months ended May 31, 2006 were approximately $437,000 as compare to
$308,000 for the nine months ended May 31, 2005. This was an increase of
approximately $129,000 or 42%. For the three and nine month periods ended May
31, 2006 and 2005, the majority of our revenue resulted from the sale of
scallops. The slight increase in our revenue from 2005 to 2006 was due to the
increased emphasis on the development and production of larger scallops crops in
2005 and continuing into 2006 as opposed to our prior emphasis on selling our
scallops earlier in the growth cycle to generate working capital. Management
believes that this emphasis on the development and production of larger scallop
crops has positioned the company for revenue growth and that our continued
emphasis on expansion of future crops should yield a significant increase in
revenues in first part of 2007 and beyond.
Gross profit (loss). Gross loss for the three months ended May 31, 2006, was
approximately $37,000, an increase of approximately $43,000 as compared to gross
profit of roughly $6,000, for the three months ended May 31, 2005. For the nine
months ended May 31, 2006, gross loss was approximately $39,000 as compared to a
20
gross profit of $20,000 for the nine months ended May 31, 2005. The increase in
the amount of gross loss for the three and nine months ended May 31, 2006 was
mainly attributable to management's decision to focus on the expansion and
development of larger scallop crops and larger scallop yields for the crop year
2005 and 2006. As a result, we expended a larger portion of our resources on the
maintaining, developing and tending our scallop crops in 2005 and 2006 and are
only beginning to see the benefits of our efforts in developing larger and
profits.
General and administrative. General and administrative expenses for the three
months ended May 31, 2006, were approximately $286,000. Our general and
administrative expenses were approximately $51,000 for the three months ended
May 31, 2005. This is an increase of approximately $235,000. General and
administrative expenses for the nine months ended May 31, 2006, were
approximately $394,000. Our general and administrative expenses were
approximately $123,000 for the nine months ended May 31, 2005. This is an
increase of approximately $271,000. Our general and administrative expenses for
the three and nine months ended May 31, 2006 were attributable to costs
associated with establishing, building, and supporting our infrastructure and
included various consulting costs, legal and accounting fees, compensation paid
as result of our recent financing, overhead, realized stock compensation and
salaries. We anticipate that these costs will rise as we continue to expand our
operations.
Stock compensation expense. During the three months ended May 31, 2006, our
Board of Directors did not authorize the issuance of shares of our restricted
common stock for compensation. As a result, we did not incur any stock
compensation expense for the three months ended May 31, 2006.
We did have an expense of approximately $183,00 during the three months ended
November 30, 2005. The expense was for two consulting groups who would provide
services to us. As such, we incurred a stock compensation expense of
approximately $183,000 for the nine months ended May 31, 2006.
Other income (expense), net. Interest expense for the three months ended May 31,
2006 was approximately $54,000. For the three months ended May 31, 2005, we had
interest expense of roughly $50,000. Other income for the three months ended May
31, 2006 was approximately $13,000 as opposed to no other income for the three
months ended May 31, 2005. The Company recognized a loss of approximately
$2,525,000 which was related to the change in the fair value of warrants issued
to three accredited investors in conjunction with preferred stock financings on
April 12 and May 30 and the market price of the common stock underlying such
warrants at May 31, 2006 No such loss was recorded for the three months ended
May 31, 2005. As a result, other expense for the three months ended May 31, 2006
was approximately $2,566,000 as compared to other expense of approximately
$50,000 for the three months ended May 31, 2005. This increase was primarily
attributed to loss associated with the change in fair value of the recently
issued warrants.
21
Interest expense for the nine months ended May 31, 2006 was approximately
$160,000. For the nine months ended May 31, 2005, we had interest expense of
roughly $51,000. The Company recognized a loss of approximately $2,525,000 which
was related to the change in the fair value of warrants issued to three
accredited investors in conjunction with preferred stock financings on April 12
and May 30 and the market price of the common stock underlying such warrants at
May 31, 2006 No such loss was recorded for the nine months ended May 31, 2005.
Other expense for the nine months ended May 31, 2006 was approximately $501,000
as opposed to no other expense for the nine months ended May 31, 2005. As a
result, other expense for the nine months ended May 31, 2006 was approximately
$3,186,000 as compared to other expense of approximately $51,000 for the nine
months ended May, 2006. This is an increase of more than $3,100,000 is primarily
attributed to loss associated with the change in fair value of the recently
issued warrants and other expense related to the issuance of 400,000 shares of
restricted stock (requiring us to incur non-cash expenses for the issuance of
stock of approximately $520,000) to one group in consideration for the extension
of the due date on a share term loan to Island Scallops and expenses related to
the expansion of our scallop crops and interest expenses related to this term
loan.
Net profit (loss). As a result of the above, the net loss for the three and nine
months ended May 31, 2006, was approximately $2,929,000 and $3,919,000 as
compared to a net loss of approximately $114,000 and $209,000 for the three and
nine months ended May 31, 2005. The majority on the increases to the net loss
can be attributed to the loss associated with the change in fair value of the
recently issued warrants.
Liquidity and Cash Resources. At May 31, 2006 we had a cash balance of
approximately $1,372,000. During the three months ended May 31, 2006 we
completed two private equity financings that resulted in net proceeds of
approximately $2,332,000. These financings contain warrants which if fully
exercised could raise approximately an additional $20,470,000. Prior to the
three months ended May 31, 2006, our recent expansion had been largely funded by
a short term note with a maximum limit of approximately $1,451,000. Previously,
we have also relied on short term loans from certain shareholders to assist with
our working capital needs and to meet short term cash requirements. We used a
portion of our recent private equity financing to repay these short term loans
and as a result we will be able to deploy the bulk of the proceeds from our
financing toward our business strategy.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
We maintain controls and procedures designed to ensure that information
required to be disclosed in the reports that we file or submit under
the Securities Exchange Act of 1934 is recorded, processed, summarized
22
and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Based upon their evaluation
of those controls and procedures performed as of the end of the period
covered by this report, our chief executive officer and principal
financial officer concluded that our disclosure controls and procedures
were effective.
(b) Changes in internal controls
There was no change in our internal control over financial reporting
identified in connection with the evaluation required by Rule 13a-15(d)
and 15d-15(d) of the Exchange Act that occurred during the period
covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1998 Island Scallops entered into an agreement with two purchasers, pursuant
to which Island Scallops was to produce and sell geoduck seed to the two
purchasers. Island Scallops received advance payments from each of the two
purchasers in 2002 totaling approximately $64,140. As a result of breaches of
the purchase agreements by the purchasers, it is our position that we may retain
any unused portion of these advance payments.
As of August 31, 2004, one of the two purchasers had claimed that Island
Scallops owed it amounts totaling $85,888. Since it is our position that the
purchasers breached their agreements with Island Scallops, we have no intention
of seeking a settlement of this matter at this time. We are unaware of any
formal proceedings that may have been commenced by either of these two
purchasers in regard to any claims that they may have.
Other than as set forth herein, we are not a party to any material legal
proceeding and to our knowledge, no such proceeding is currently contemplated or
pending.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Unregistered Sales of Equity Securities
Information with respect to unregistered sales of equity securities was
previously filed on our current report on Form 8-K filed with the Securities and
Exchange Commission on May 30, 2006.
(b) Not Applicable.
(c) Not Applicable.
(d) Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not Applicable.
(b) Not Applicable.
24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
(a) During the quarter ended May 31, 2006, we did not submit any matters to
a vote of our security holders. However, on July 16, 2006, our Board of
Directors approved increasing our authorized capital by 50,000,000
shares of common stock, for a total of 100,000,000 shares of common
stock, and amending our articles of incorporation accordingly. A
majority of our shareholders (67.87%) also approved, by written
consent, these same actions on July 16, 2006. A copy of our articles of
incorporation, as amended is attached hereto as exhibit 3.1.
(b) Not applicable.
ITEM 6. EXHIBITS
(a) The following exhibits are filed as part of this report.
Exhibit No. Document
3.1 Articles of Incorporation, as amended.
31.1 Certification of Chief Executive Officer and
Acting Chief Financial Officer required by Rule
13a-14/15d-14(a) under the Exchange Act
32.1 Certification of Chief Executive Officer and Acting
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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.
Date: October 6, 2006 EDGEWATER FOODS INTERNATIONAL, INC.
By:
/s/ Robert Saunders
------------------------
Robert Saunders,
Chief Executive Officer
By:
/s/ Michael Boswell
------------------------
Michael Boswell,
Acting Chief Accounting Officer
25
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Robert Saunders certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Edgewater Foods
International, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
26
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: October 6, 2006
/s/ Robert Saunders
- -----------------------
Robert Saunders
Chief Executive Officer
27
CERTIFICATION OF ACTING CHIEF FINANCIAL OFFICER
I, Michael Boswell certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Edgewater Foods
International, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
e. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
f. Designed such internal control over financial reporting, or caused
such internal control to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
g. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
h. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
c. All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
28
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
d. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: October 6, 2006
/s/ Michael Bosell
- -------------------------------
Michael Boswell
Acting Chief Accounting Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Edgewater Foods International, Inc.
(the "Company") on Form 10-QSB for the period ending May 31, 2006, as filed with
the Securities and Exchange Commission on the date hereof (the "Report'), I,
Robert Saunders, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company
at the dates and for the periods indicated.
Date: October 6, 2006
/s/ Robert Saunders
- -----------------------
Robert Saunders,
Chief Executive Officer
30
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Edgewater Foods International, Inc.
(the "Company") on Form 10-QSB for the period ending May 31, 2006, as filed with
the Securities and Exchange Commission on the date hereof (the "Report'), I,
Michael Boswell, Acting Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company
at the dates and for the periods indicated.
Date: October 6, 2006
/s/ Michael Boswell
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Michael Boswell,
Acting Chief Accounting Officer
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