UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 2003
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 000-27715
AMERICAN STELLAR ENERGY, INC.
(Name of small business issuer in its charter)
FORMERLY Merchantpark Communications, Inc.
Nevada 88-0441332
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2162 Acorn Court, Wheaton Ill. 60187
(Address of principal executive offices) (Zip Code)
Issuers telephone no.: (630) 462-2079
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Check whether the issuer (1) filed all reports required to be filed in
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [ ] No [x ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State the issuers revenues for its most recent fiscal year. $ Nil.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and ask prices of such stock as of a specified date within 60 days.
$ 1,558,964 (based on price of $0.04 per share as of December 31, 2003.)
State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date.
Class Outstanding as of December 31, 2003
Common Stock, $.001 Par Value 45,116,169
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format. Yes [ ] No [x]
1
American Stellar Energy, Inc.
TABLE OF CONTENTS
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matter to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Managements Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a)of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
SIGNATURES
2
PART I
This document includes statements that may constitute forward-looking
statements made pursuant to the Safe Harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company would like to caution
readers regarding certain forward-looking statements in this document and in
all of its communications to shareholders and others, press releases,
securities filings, and all other communications. Statements that are based
on managements projections, estimates and assumptions are forward-looking
statements. The words believe, expect, anticipate, intend, and similar
expressions generally identify forward-looking statements. While the Company
believes in the veracity of all statements made herein, forward-looking
statements are necessarily based upon a number of estimates and
assumptions that, while considered reasonable by the Company, are inherently
subject to significant business, economic and competitive
uncertainties and contingencies and known and unknown risks. Many of
the uncertainties and contingencies can affect events and the Company's
actual results and could cause its actual results to differ materially
from those expressed in any forward-looking statements made by, or on
behalf of, the Company.
Item 1. Description Business
Company History
The Company was incorporated October 14, 1999 in the State of Nevada as
Westnet Communications Group, Inc., for the purpose of developing a
special interest worldwide web site as a development stage company. In mid
2000, the Company realized it needed additional capital to further its
business plan either from sale of equities or an industry affiliate.
In February of 2001 the Company signed a Letter of Intent to acquire
Merchantpark Communications, Inc., a Nevada corporation. Merchantpark
appeared to have much larger capital availability and in the e-2b &
e-2e business solution business.
Westnet agreed to acquire Merchantpark with a Plan of Reorganization by
issuing 14,285,400 shares of common stock for the trade style and assets
subject to the liabilities of that company. Westnet issued 14,285,400
shares of common stock to the shareholders of Merchantpark in exchange for
14,285,400 shares of common stock Merchantpark had outstanding. The
transaction was ratified by the Westnet shareholders at a meeting on March
29, 2001. The Westnet name was changed to Merchantpark Communications,
Inc., at the same meeting. The stock was issued on April 15, 2001. Pursuant to
the reverse merger reorganization Westnet was the legal survivor and
Merchantpark was the accounting survivor. The consolidated Companies
filed the appropriate Forms 8-K, 8-KAs and subsequent 10-Qs for June 30 and
September 30, 2001. The new entity initiated the development of proprietary
software platform and applications thereof and offered web hosting and related
services to small business clients.
2
The Company's Business
The company from 2001 was engaged in the development of proprietary 2nd
generation E-business software for subsequent licensing to small business end
users. In addition revenue was to be generated from website development and
hosting applications. In March 2002 the company discontinued the development
of the software due to lack of operating capital and laid off all non-
management staff. A reorganization in Management determined that the continued
development of the software was impractical due to capital costs and
technology changes and new management looked to a company restructure to deal
with existing liabilities and move forward to new business opportunities. Over
the next 12 months the company was relatively inactive and in addition to
reviewing several new business opportunities underwent a corporate restructure
involving the disposal of all software related assets and liabilities and
entered into debt settlement agreements with all creditors. Two subsidiary
entities, which were initially incorporated for additional business
opportunities were closed and one entity was assigned to a previous Company
Officer. This assignment included all software and related assets and included
a commitment to continue to fund the further development of the software and
platform and applications, with no further funding required from Merchantpark.
A royalty fee of 15% was to be applicable to the company on income generated
from the software and applications of, for a term of 1.5 years. As of
September 2004, no revenue has been received and we have been advised that the
development of the software program was not pursued by the assignor and
therefore no funds should be expected to accrue to the company, in the future.
In July 2003, Mr. Peter Matousek resigned and Mr. Francis R. Biscan Jr. who
had been assisting management through 2003 to identify business opportunities
and was directly involved with the restructuring of the company, was appointed
President. Under the direction of Mr. Biscan, the company, after looking at
several different fields of business opportunities, considered that the energy
sector was an under serviced area that would provide good growth and profit
potential. Management subsequently identified a suitable oil prospect and
entered into agreements to provide the framework to test and develop the
prospect. In 2004, development commenced work on one property, Corsicana,
outlined below.
CORSICANA FIELD PROJECT:
The property is located in Corsicana, Texas and consists of a 1000 acre tract
of land on which oil fields have been developed since the 1960's, with varying
degrees of success. Due to fractured operations in previous years and the
advent of modern recovery equipment and technology, management believes an
opportunity exists in which a known oil bearing formation, coupled with these
new technologies, can provide a relatively low risk opportunity to produce
oil. It was anticipated that positive results could be achieved within a 6
month time frame and may provide a positive cash flow stream for several
years. Through an operating agreement with Armen Energy LLC, the Company
obtained an undivided 45% Working Interest, by way of a "Farm Out Agreement",
on acreage that will be held-by-production. Mr. Francis R. Biscan Jr. holds a
minority interest in Armen Energy LLC and has also negotiated a "Right of
First Refusal" on subsequent properties identified by Armen Energy as having
development potential. The remaining 45% working interest in the property was
taken by KOKO Petroleum Inc., an unrelated public company which is responsible
for funding 50% of the development costs of the project. A development plan to
test 3 exploratory zones the "Woodbine" the Wolfe City"
3
and one development zone, the "Pecan Gap", was initiated in June, 2004.
Currently, the first well named "1B McKinney" is producing at the rate of 21.3
barrels of fluids per day. Of this, 10.65 barrels of oil were recovered and
10.65 barrels of "work-over" water. Work-over water is related to Drilling,
cleaning, and infiltration from the Wolf City, which occurred when the Bridge
Plug between the Wolf City and the Pecan Gap was blown out, while fracing the
formation. Now that the well is operating continuously, the water should be
worked off and result in 90% or better, of all fluids produced, being oil. As
of October 20, 2004, wells number 2 and 3 have been drilled successfully,
logged,(showing indications of oil bearing rock,) and cased. They are now in
the process of being completed. Estimates of monthly operating expenses have
been provided by the operator. Each well should operate at approximately
$27.00 / Day, or less then 1 barrel/Day at $40.00 Oil prices.
Item 2. Description of Property
The Company operates from premises shared and supplied by the company
President at no cost to the Company. The premises are adequate to represent
the interests of the Company until such time as additional space is required.
Item 3. Legal Proceedings
The Company is not subject to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fiscal year covered by this report, a consent vote by shareholders
was approved by 60% to effect a name change to American Stellar Energy, Inc.,
effective November 30, 2003.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
As of December 31, 2003, the company was classified as being in arrears on
filing matters and the company shares are therefore traded on the NQB: Pink
Sheets. It is the intention of the Company to proceed to bring all filings up
to date in as short a time frame as possible, and to apply for relisting on
the OTC:BB. As of December 31, 2003, the Company had issued and outstanding
45,116,169 shares of common stock outstanding and there were approximately
150 registered shareholders of record.
The ability of an individual shareholder to trade their shares in a
particular state may be subject to various rules and regulations of that
state. A number of states require that an issuers securities be registered
in their state or appropriately exempted from registration before the
securities are permitted to trade in that state. Presently, the Company
has no plans to register its securities in any particular state The Company
Common Stock is subject to the provisions of Section 15(g) and Rule 15g-9 of
the Securities Exchange Act of 1934, as amended (the Exchange Act),
commonly referred to as the penny stock rule. Section 15(g) sets forth,
certain requirements for transactions in penny stock and Rule 15g-9(d) (1),
incorporates the definition of penny stock as that term is used in Rule
3a51-1 of the Exchange Act
4
The Securities and Exchange Commission (the Commission generally defines penny
stock to be any equity security that has a market price less than $5.00 per
share, subject to certain exception. Rule 3a51-1 provides that any equity
security is considered to be a penny stock unless that security is:
registered and traded on a national securities exchange meeting specified
criteria set by the Commission; authorized for quotation on the NASDAQ Stock
Market; issued by a registered investment company; excluded from the
definition on the basis of price (at least $5.00 per share), or the issuers
net tangible assets; or exempted form the definition by the Commission.
As Company shares are deemed to be a penny stock, trading in the shares will
be subject to additional sales practice requirements, on broker-dealers, who,
sell penny stocks to person other than established customers and accredited
investors, generally persons with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with spouse.
For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must
have received the purchasers written consent to the transaction prior
to the purchase. Additionally, for any transaction involving penny
stock, unless exempt, the rules require the delivery, prior to the first
transaction, of a risk disclosure document relating to the penny stock
market. A broker dealer must also disclose the commissions payable to both
the broker-dealer and the registered representative, and current quotations
for the securities. Finally, monthly statements must be sent disclosing
recent price information for the penny stocks held in the account
information on the limited market in penny stocks. Consequently, these rules
may restrict the ability of broker-dealers to trade and/or maintain a market
in the Company's Common Stock and may affect the ability of shareholders to
sell their shares.
Sale of Unregistered Securities
In 2003 the company issued shares as follows.
Common stock issued for cash 3,754,848
Common stock issued for debt 9,019,445
Dividends
The Company has not declared or paid cash dividends or made distributions in
the past, and the Company does not anticipate that it will pay cash dividends
or make distributions in the foreseeable future.
Item 6. Managements Discussion and Analysis or Plan of Operation
The following information should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form
10-KSB.
5
PLAN OF OPERATION
In 2002 the company ceased operations to continue development of propriety
technology and the associated business plan to license this software and
technology, to small business end users. Further, web development and
associated services were discontinued with the layoff of all staff. In 2003,
the company disposed of all remaining assets and restructured to look for new
business opportunities in the energy sector. The Company has in the past
raised capital from the sale of its securities to finance acquisitions and
operations and while, it is uncertain as to the nature of financing which will
be required and the size of the financing until the need occurs, it is
expected that the additional capital will be raised by selling equity
securities. Should the Company decide to raise additional capital from the
sale of securities the percentage ownership of the Company's existing
shareholders could be substantially diluted.
In October 2003 the Company identified a suitable property in Corsicana,
Texas, which comprised of a 1,000 acre property on which existing oil
production is in place and which has produced several million barrels of oil,
since the 1950's. The company intends to identify areas which were not worked
on, due to either technology at that time not being effective to economically
complete a producing well or, test results not being satisfactory to warrant a
permanent well to be completed. By using modern technology, it is expected
that several locations could be immediately identified, which would have a
very good chance of becoming good revenue producing wells.
RESULTS OF OPERATIONS
For the year ending December 31, 2003 the company did not generate any
revenues from any source. In the period ending December 31, 2002 sales
revenue of $14,925 was recorded which income was recorded in the first quarter
of 2002 from web hosting and related services prior to the closing of this
service and the laying off of all staff.
Administrative, general and consulting services expense decreased for the year
ending December 31, 2003 to $ 93,518 from the year ending December 31, 2002 of
$ 254,148 due to reduced costs, as a result of the company's restructuring
efforts.
Depreciation and amortization for 2003 was recorded as zero due to the write
off of all company assets in that year. In the year ending December 31, 2002
depreciation of $63,370 was evident.
For the year ending December 31, 2003 the company incurred a loss of $155,543
being a $62,025 loss recorded on extinguishment of debt, and operating
expenses of $93,518. These amounts reflect a reduction in net loss to the
company of $ 522,048 from the $ 677,591 recorded in the year ending December
31, 2002.
The Company had a cash flow deficiency of $168,555 in the year ending December
31, 2003 as compared to a cash flow deficiency of $205,513 for the year ending
December 31, 2002. The cash flow financing was provided to the company from
loans raised from related parties of $131,656 and the sale of common stock for
$56,650. These activities resulted in cash on hand as at December 31, 2003 of
$22,192,to fund ongoing company operating expenses.
6
CAPITAL STOCK
The weighted average number of common shares outstanding during the year ended
December 31, 2003 was 39,210,954 compared to 24,166,468 for the year ended
December 31, 2002.
The Company issued 3,754,848 common shares for cash subscriptions in 2003,
and issued 9,019,445 common shares to settle company debts and obligations.
By a resolution of the Board of Directors on 5 April 2004, the company
increased its authorized share capital from Fifty Million (50,000,000) shares
to One Hundred Million ( 100,000,000)
ASSET DISPOSITION
All software related activities being discontinued in 2002 and the resulting
disposition based on a valuation of these assets resulted in a write down of
$218,836.
As at December 31, 2003 the company had total assets comprising of cash of
$22,192.
RELATED PARTY TRANSACTIONS
The Company carries an account payable of $ 9,708 as of December 31, 2003 a
reduction of $13,012 from December 31, 2002. All accounts are current. Further
related party loans have been reduced to $ 2,250 as of December 31, 2003 a
reduction of $66,369 from total related party loans recorded at
$ 68,619, as at December 31, 2002. The majority of these loans were repaid by
debt settlements being agreed to by the creditors. Advances are non interest
bearing and carry no fixed terms of repayment. The balance of $2,250 was
settled in 2004, by the issuance of restricted Company common shares.
INVESTOR RELATIONS
In 2003, investor relations for the company was carried out by Peter Matousek
the previous company President and Director until August 2003 and on
commencing as President, Francis R. Biscan Jr. assumed these responsibilities.
LIQUIDITY AND SOLVENCY
The Company had working capital deficiency of $168,555 as at December 31, 2003
compared to a working capital deficiency of $205,513 for the period ending
December 31, 2002. The Company has raised funds for operations through the
sale of its common stock. It is expected that the Company will be able to
continue to finance the ongoing operations in a similar manner.
MANAGEMENT REPORT TO SHAREHOLDERS
The accompanying financial statements and all information in the annual report
are the responsibility of the Management and the Board of Directors of the
Corporation. The financial statements have been prepared in accordance with
United States generally accepted accounting principals using appropriate
accounting policies and methods as selected by Management giving consideration
to the Corporation's circumstances. Financial information elsewhere in the
annual report has been reviewed to ensure consistency with the financial
statements.
7
Management in 2003 were committed to maintain adequate internal accounting and
administrative controls were designed to provide reasonable assurances, that
the financial information is relevant, reliable and accurate and that any
assets acquired are appropriately accounted for and adequately safeguarded.
No expansion of company manpower resources was required in 2003. In 2004, it
is expected that this situation will be carried forward with the present
officers and directors working closely with each other, as operations to
commence the development of producing oil wells are sub contracted to
operators, and do not require additional staff resources.
External auditors appointed by the shareholders have conducted an examination
of the accounting records and the financial statements in accordance with
generally accepted auditing standards for the United States and provide an
independent professional opinion. The auditors have full and complete access
to Management and the Board of Directors.
It should be noted that the Company's auditors HJ & Associates, LLC., have
expressed in their financial statements that there are substantial doubt
about the Company's ability to continue as a growing concern.
INFLATION
In the opinion of management, inflation will not have a material effect on the
operations of the Company.
RISK FACTORS AND CAUTIONARY STATEMENTS
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
The Company wished to advise readers that actual result may differ
substantially from such forward-looking statements. Forward-looking
statements involve risks and uncertainties that could cause actual results
to differ materially from those expressed in, or implied by the statements,
including, but not limited to, the following: the ability of the Company to
complete development of its primary products and its ability to
successfully market its product if and when developed and other risks
detailed in the Company's periodic report filings with the Securities and
Exchange Commission.
Item 7. Financial Statements
See the financial statements annexed to this report.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
No disagreements with the Company accountants are evident regarding accounting
and financial disclosure.
8
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The directors and officers of the Company are as follows:
Name Age Position
Francis R. Biscan Jr. 43 President/Director/CEO
Alexander Anderson 55 Secretary/Director/CFO
Al Saavereda. 50 Director
Mr. Francis R. Biscan Jr. is also the president of Acorn Family Holdings, LLC,
a consulting company serving private and public companies. Over the course of
his career Mr. Biscan has worked with various public and private companies, in
the area of business consulting, structuring, mergers & acquisitions, and
finance. He has served as a director for Latitude Minerals, a public mining
company, and in numerous outside advisory roles. He has also served on the
Board of Timothy Christian Schools.
Alexander Anderson is a former banker with over 32 years of experience in all
aspects of the industry. In 1994 Mr. Anderson commenced to offer consulting
and administrative services to private and public company's, and has held
numerous directorship positions and officer positions, since that time. In
2001, Mr. Anderson assisted with some financial reporting for the Company and
in 2002 when current management was appointed, Mr. Anderson was elected to the
position of Secretary.
Mr. Al Saavereda is a resident of Sylmar, California and has been successfully
involved in the Real Estate and Land Development Industry for over 13 years.
Some of his achievements include the award winning energy efficient community
of "Village Green" in Sylmar, CA. This community garnered several awards
including recognition by President Bill Clinton and Vice President Al Gore as
well as a Department of Energy Award.
All directors hold office until the next annual meetings of stockholders, or
until their successors have been duly qualified. There are no agreements with
respect to the election of directors. The Company has not compensated
its directors for service on the Board of Directors or any committee
thereof. Any non-employee director of the Company shall be reimbursed for
expenses incurred for attendance at meetings of the Board of Directors and
any committee of the Board of Directors. The executive committee, of the
Board of Directors, to the extent permitted under Nevada law, consists of
three directors and exercises all the power and authority of the Board of
Directors in the management of the business and affairs of the Company,
between meetings of the Board of Directors. Each executive officer is
appointed by and serves at the discretion of the Board of Directors.
9
No Company officer , nor any of the affiliates or promoters of the Company,
has filed any bankruptcy petition, been convicted in or has been the subject
of any pending criminal proceedings, or the subject to any order, judgment,
or decree involving the violation of any state or federal securities laws
within the past five years.
Item 10. Executive Compensation
Francis R. Biscan Jr. President/Director $60,000
Alexander Anderson Secretary/Director $30,000
In 2003 Mr. Biscan drew $30,000 in compensation for 6 months service. In 2004
Mr. Biscan's compensation was increased to $96,000 per annum.
In 2003, Mr. Anderson entered into a debt settlement agreement whereby company
common stock valued at $30,000 was issued as payment in full for services
rendered in 2003.
All compensation for 2004 has been accrued by the Officers and/or has been
settled by the issuance of common stock of the company as payment in full.
There are no annuity, pension or retirement benefits proposed to pay to
officers, directors or employees of the Corporation in the event of
retirement date pursuant to any presently existing plan provided or
contributed to by the Corporation or any of its subsidiaries.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, to the best knowledge of the
Company as of December 31, 2003 with respect to each director and officer
and management as a group and any holder owning more than 5% of the
outstanding common stock.
Title of Amount of
Name and Address Position Class Shares Percentage %
Francis R. Biscan Jr. President Common 4,701,208 10.42
2162 Wheaton Court
Wheaton, IL.
Alexander Anderson Secretary Common 604,000 1.34
718-333 Brooksbank
Avenue, Suite 173
North Vancouver BC
Canada
Alfonso S. Saavedra Director Common 836,820 1.85
13616 Charity Drive
Sylmar, CA
10
Management as a Group 13.61
Others of record own 5% or more
Sumash Enterprises Ltd. Common 2,800,000 6.21
920-800 West Pender Street
Vancouver BC
Canada
Peter Matousek Common 3,709,421 8.22
3933 SW 9th Court
Gresham, OR
Novak Capital Corp. Common 632,000 1.40
800 West Pender Street, Suite 920
Vancouver BC
Canada
(1) Based on 45,116,169 (after adjustments) shares of common stock
outstanding as of December 31, 2003.
(2) Peter Matousek is the President of Novak Capital, Inc. and as such
can vote its 632,000 shares.
Item 12. Certain Relationships and Related Transactions
The Company's officers and directors are subject to the doctrine of
corporate opportunities only insofar as it applies to business opportunities
in which the Company has indicated an interest, either through its
proposed business plan or by way of an express statement of interest
contained in the Company's minutes. If directors are presented with business
opportunities that may conflict with business interests identified by
the Company, such opportunities must be promptly disclosed to the Board
of Directors and made available to the Company. In the event the Board
shall reject an opportunity presented, and only in that event, any of the
Company's officers and directors may avail themselves of such an
opportunity. Every effort will be made to resolve any conflicts that may
arise in favor of the Company. There can be no assurance, however, that these
efforts will be successful.
It should be noted that Peter Matousek is the past company President and is
the President of Novak Capital, Inc., which company provided consulting
services for Merchantpark in 2002
Item 13. Exhibits and reports on Form 8-K
a) Exhibits
No. Description
--------------------------------------------------
3.1 Certificate of Amendment to Articles of
Incorporation for Name change to American
Stellar Energy, Inc.
10.1 Participation agreement Corsican project
10.2 First Right of Refusal, Corsican Field
11
31.1 Section 302 Certification - CEO
31.2 Section 302 Certification - CFO
32.1 Section 906 Certification - CEO
32.2 Section 906 Certification - CFO
(b) Reports on Form 8-K & 8-KA
No reports, on Form 8K were filed during the year covered by this report
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, The Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
American Stellar Energy, Inc.
By: /S/ Francis R. Biscan Jr.
Francis R. Biscan Jr.
President/CEO/Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Title Date
/S/ Francis R. Biscan Jr. President/CEO/Director October 21, 2004
/S/ Alexander Anderson Secretary/CFO/Director October 21, 2004
12
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
13
C O N T E N T S
Report of Independent Registered Public Accounting Firm.....................3
Consolidated Balance Sheet..................................................4
Consolidated Statements of Operations and Other Comprehensive Income........5
Consolidated Statements of Stockholders' Equity (Deficit)...................6
Consolidated Statements of Cash Flows.......................................7
Notes to the Consolidated Financial Statements..............................8
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
American Stellar Energy, Inc.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
We have audited the accompanying consolidated balance sheet of American
Stellar Energy, Inc., (Formerly Merchantpark Communications, Inc.) (a
development stage company) as of December 31, 2003 and the related
consolidated statements of operations and other comprehensive income,
stockholders' equity (deficit) and cash flows for the years ended December 31,
2003 and 2002 and from inception of the development stage on January 1, 2003
through December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated 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 consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of American Stellar Energy, Inc. and Subsidiaries (formerly Merchant Park
Communications, Inc.) (a development stage company) as of December 31, 2003,
and the consolidated results of their operations and their cash flows for the
years ended December 31, 2003 and 2002 and from inception of the development
stage on January 1, 2003 through December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company generated significant losses
for the years ended December 31, 2003 and 2002, raising substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ HJ & Asssociates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
November 15, 2004
15
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
December 31,
2003
-------------
CURRENT ASSETS
Cash and cash equivalents $ 22,192
-------------
Total Current Assets 22,192
-------------
PROPERTY AND EQUIPMENT, NET (Notes 1 and 3) -
-------------
TOTAL ASSETS $ 22,192
=============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 9,708
Loan from related parties (Note 6) 2,250
Accrued interest 2,941
-------------
Total Current Liabilities 14,899
-------------
Total Liabilities 14,899
-------------
STOCKHOLDERS' EQUITY
Common stock: 100,000,000 shares authorized
of $0.001 par value, 45,116,169 shares
issued and outstanding 45,116
Additional paid-in capital 1,220,593
Accumulated deficit prior to the development stage (1,104,365)
Accumulated deficit during the development stage (155,543)
Other comprehensive income 1,492
-------------
Total Stockholders' Equity 7,293
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,192
=============
The accompanying notes are an integral part of these
consolidated financial statements
16
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Statements of Operations and Other Comprehensive Income
From
Inception
of the
Development
Stage on
January 1,
For the Years Ended 2003 through
December 31, December 31,
2003 2002 2003
------------- ------------- ---------------
NET SALES $ - $ 14,925 $ -
EXPENSES
Depreciation and amortization - 63,370 -
Consulting 75,800 106,510 75,800
General and administrative 17,718 147,638 17,718
------------- ------------- ---------------
Total Expenses 93,518 317,518 93,518
------------- ------------- ---------------
LOSS BEFORE OTHER INCOME (93,518) (302,593) (93,518)
------------- ------------- ---------------
OTHER INCOME & EXPENSES
Interest expense - (8,762) -
Loss on valuation of assets - (218,836) -
Loss on extinguishments of debt (62,025) (147,400) (62,025)
------------- ------------- ---------------
Total Other Income(Expense) (62,025) (374,998) (62,025)
------------- ------------- ---------------
NET LOSS (155,543) (677,591) (155,543)
OTHER COMPREHENSIVE INCOME
Foreign currency translation - 581 -
------------- ------------- ---------------
NET COMPREHENSIVE LOSS $ (155,543) $ (677,010) $ (155,543)
============= ============= ===============
BASIC LOSS PER SHARE $ (0.00) $ (0.03)
============= =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 39,210,954 24,166,468
============= =============
The accompanying notes are an integral part of these
consolidated financial statements
17
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Additional Other
Common Stock Paid in Comprehensive Accumulated
Shares Amount Capital Income Deficit
------------- ------------- ------------- ------------- -------------
Balance, December 31, 2001 18,160,400 $ 18,160 $661,929 $ 911 $ (426,774)
Stock issued for services
at $0.027 per share 562,500 565 14,625 - -
Stock issued for debt at
$0.50 per share 44,976 45 22,443 - -
Stock issued for debt at
$0.25 per share 900,000 900 224,100 - -
Stock issued for cash at
$0.005 per share 5,750,000 5,750 23,000 - -
Stock issued for cash at
$0.001 per share 250,000 250 - - -
Stock issued for debt at
$0.007 per share 1,000,000 1,000 6,000 - -
Stock issued for debt at
$0.006 per share 3,900,000 3,900 19,500 - -
Stock issued for services
at $0.027 per share 1,774,000 1,771 7,096 - -
Currency translation
adjustment - - - 581 -
Net loss for the year ended
December 31, 2002 - - - - (677,591)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 2002 32,341,876 32,341 978,693 1,492 (1,104,365)
Stock issued for cash at
$0.005 per share 1,131,208 1,132 4,519 - -
Stock issued for cash at
$0.024 per share 1,673,640 1,674 38,326 - -
Stock issued for debt at
$0.02 per share 3,000,000 3,000 57,000 - -
Stock issued for cash at
$0.01 per share 500,000 500 4,500 - -
Stock issued for cash at
$0.02 per share 250,000 250 4,750 - -
Stock issued for debt at
$0.02 per share 2,900,000 2,900 55,100 - -
Stock issued for cash at
$0.02 per share 200,000 200 800 - -
Stock issued for debt at
$0.02 per share 600,000 600 11,400 - -
Stock issued for debt at
$0.027 per share 2,519,445 2,519 65,505 - -
Net loss for the year ended
December 31, 2003 - - - - (155,543)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 2003 45,116,169 $ 45,116 $ 1,220,593 $ 1,492 $ (1,259,908)
============= ============= ============= ============= =============
Accumulated deficit prior to the development stage $ (1,104,365)
Accumulated deficit during to the development stage (155,543)
-------------
$ (1,259,908)
=============
The accompanying notes are an integral part of these consolidated financial statements
18
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Statements of Cash Flows
From
Inception of the
Development
Stage on
January 1,
For the Years Ended 2003 through
December 31, December 31,
2003 2002 2003
--------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (155,543) $ (677,591) $ (155,543)
Adjustments to reconcile net loss to net cash
flows used by operating activities:
Depreciation and amortization - 63,370 -
Loss on disposal of assets - 218,836 -
Loss on extinguishment of debt - 147,400 -
Foreign currency translation - 581 -
Common stock issued for services - 24,057 -
Changes in operating assets and liabilities:
Increase in accrued interest - 987 -
Increase(decrease)in accounts payable (13,012) 16,847 (13,012)
--------------- ------------- --------------
Net Cash Used by Operating Activities (168,555) (205,513) (168,555)
--------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets - - -
--------------- ------------- --------------
Net Cash Used by Investing Activities - - -
--------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash 56,650 29,000 56,650
Proceeds from loans from related parties 131,656 176,619 131,656
--------------- ------------- --------------
Net Cash Provided by Financing Activities 188,306 205,619 188,306
--------------- ------------- --------------
NET INCREASE IN CASH 19,751 106 19,751
CASH AT BEGINNING OF PERIOD 2,441 2,335 2,441
--------------- ------------- --------------
CASH AT END OF PERIOD $ 22,192 $ 2,441 $ 22,192
=============== ============= ==============
CASH PAID DURING THE YEAR FOR:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
NON-CASH TRANSACTIONS
Common stock issued for services $ - $ 24,057 $ -
Conversion of debt to common stock $ 198,025 $ 130,488 $ 198,025
The accompanying notes are an integral part of these
consolidated financial statements.
19
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The consolidated financial statements presented are those of American Stellar
Energy, Inc. (Formerly Merchantpark Communications, Inc.) and its wholly-owned
subsidiaries (the "Company"). Merchantpark Communications, Inc. (MCPI) was
incorporated on December 5, 2000 under the laws of the State of Nevada. By
special resolution of the shareholders, the Company changed its name to
American Stellar Energy, Inc. on November 30, 2003.
The Company provides second-generation E-Business technologies to the small
and medium enterprise markets. During the year ended December 31, 2001, the
Company started generating revenue from its website development and hosting
operations.
On January 3, 2001, an agreement was authorized allowing the Company to
exchange 1,500,000 shares of common stock for 100% of the outstanding common
stock of Merchantpark.com, Inc. (MP.com). At the time of the agreement,
MP.com was a start-up corporation with no operations and no assets. The
acquisition was accounted for as a purchase. This agreement made MP.com a
wholly-owned subsidiary of the Company.
On January 30, 2001, MPCI acquired substantially all of the assets of Caged
Iron Technologies, Inc. (CIT) in exchange for 2,000,000 shares of the
Company's common stock. The acquisition was accounted for as a purchase
between entities, with a common officer. The assets of CIT are recorded at
their historical cost. CIT became a wholly-owned subsidiary of the Company.
Westnet Communications Group, Inc. (Westnet) was incorporated on October 14,
1999 to engage in or transact any and all lawful activities or business
permitted under the laws of the State of Nevada. Westnet was exploring
various business opportunities and had not yet commenced operations.
On April 1, 2001, Westnet and MPCI completed an Agreement and Plan of
Reorganization whereby Westnet issued 14,285,400 shares of its common stock in
exchange for all of the outstanding common stock of MPCI. Immediately prior
to the Agreement and Plan of Reorganization, Westnet had 3,500,000 shares of
common stock issued and outstanding. The acquisition was accounted for as a
recapitalization of MPCI because the shareholders of MPCI controlled Westnet
after the acquisition. MPCI was treated as the acquiring entity for
accounting and presentation purposes and Westnet was the acquiring entity for
legal purposes. Costs of approximately $187,500 associated with this
transaction were expensed as incurred prior to the acquisition. The costs
prior to the acquisition were paid by issuing 375,000 shares of common stock.
The costs associated with this acquisition were eliminated in the
recapitalization.
Due to the Company ceasing substantially all of its activities during December
2002, January 1, 2003 it effectively entered the development stage as it seeks
a merger or acquisition with an operating entity.
20
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
b. Accounting Method
The Company's consolidated financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less at the time of acquisition.
d. Basic Loss per Share
The computations of basic loss per share of common stock are based on the
weighted average number of shares outstanding during the period of the
consolidated financial statements. Common stock equivalents have not been
included in the calculation as their effect is antidilutive for the period
presented. There were no common stock equivalents at December 31, 2003 and
2002.
e. Provision for Taxes
At December 31, 2003, the Company had an accumulated deficit of approximately
$948,000 that may be offset against future taxable income from the year 2003
through 2023. No tax benefit has been reported in the consolidated financial
statements as the Company believes there is a 50% or greater chance the net
operating loss carry forwards will expire unused. Accordingly, the potential
tax benefits of the net operating loss carry forwards are offset by a
valuation allowance of the same amount.
Net deferred tax assets consist of the following components as of December 31,
2003 and 2002:
For the Years Ended
December 31,
2003 2002
-------------- --------------
Deferred tax assets:
NOL Carryover $ 370,000 $ 334,700
Accrued Interest 1,100 1,100
Deferred tax liabilities - -
Valuation allowance (371,100) (334,700)
-------------- --------------
Net deferred tax asset $ - $ -
============== ==============
The income tax provision differs from the amount of income tax determined by
applying the U.S. Federal and state income tax rates of 39% to pretax income
from continuing operations for the years ended December 31, 2002 and 2001 due
to the following:
For the Years Ended
December 31,
2003 2002
------------- -------------
Book income $ (60,660) $ (206,775)
Stock for services - 9,385
Loss on debt extinguishment 24,190 -
Other 70 (6,732)
Valuation allowance 36,400 204,122
------------- -------------
$ - $ -
============= =============
21
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carry forwards for federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net
operating loss carry forwards may be limited as to use in the future.
f. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
g. Property and Equipment
Property and equipment are stated at cost. Expenditures for small tools,
ordinary maintenance and repairs are charged to operations as incurred. Major
additions and improvements are capitalized. Depreciation is computed using
the straight-line method over estimated useful lives as follows:
Computer software 3 to 5 years
Websites 3 to 5 years
Computer equipment 3 to 5 years
Office furniture and equipment 3 to 5 years
Depreciation expense for the years ended December 31, 2003 and 2002 was $0.00
and $63,370, respectively.
h. Revenue Recognition
The Company currently has no sources of revenue, for the year ended December
31, 2003, the Company recognizes revenues services when persuasive evidence of
an arrangement exists, delivery has occurred, the fee was fixed or
determinable, and collection of the resulting receivable was probable.
Amounts invoiced and collected in advance of product delivery were recorded as
deferred revenue. The Company earned its revenues from different contracts
with small and medium business customers. The Company recognized the revenue
when it was earned and the contract was complete.
22
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
i. Other Comprehensive Income
In March 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. This standard
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balances of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
j. Long Lived Assets
The Company reviews long-lived assets and identifiable intangibles whenever
events or circumstances indicate that the carrying amounts of such assets may
not be fully recoverable. The Company evaluates the recoverability of
long-lived assets by measuring the carrying amounts of the assets against the
estimated undiscounted cash flows associated with these assets. At the time
such evaluation indicates that the future undiscounted cash flows of certain
long-lived assets are not sufficient to recover the assets' carrying value,
the assets are adjusted to their fair values (based upon discounted cash
flows).
23
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
( A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
k. Newly Issued Accounting Pronouncements
During the year ended December 31, 2003, the Company adopted the following
accounting pronouncements:
SFAS No. 143 -- In August 2001, the FASB issued SFAS No. 143, Accounting for
Asset Retirement Obligations, which established a uniform methodology for
accounting for estimated reclamation and abandonment costs. The statement was
effective for fiscal years beginning after June 15, 2002. The adoption of
SFAS No. 143 did not have a material effect on the financial statements of the
Company.
SFAS No. 145 -- On April 30, 2002, the FASB issued FASB Statement No. 145
(SFAS 145), "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." SFAS 145 rescinds both
FASB Statement No. 4 (SFAS 4), "Reporting Gains and Losses from Extinguishment
of Debt," and the amendment to SFAS 4, FASB Statement No. 64 (SFAS 64),
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." Through
this rescission, SFAS 145 eliminates the requirement (in both SFAS 4 and SFAS
64) that gains and losses from the extinguishment of debt be aggregated and,
if material, classified as an extraordinary item, net of the related income
tax effect. However, an entity is not prohibited from classifying such gains
and losses as extraordinary items, so long as it meets the criteria in
paragraph 20 of Accounting Principles Board Opinion No. 30, Reporting the
Results of Operations Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. Further, SFAS 145 amends paragraph 14(a) of FASB Statement No.
13, "Accounting for Leases", to eliminate an inconsistency between the
accounting for sale-leaseback transactions and certain lease modifications
that have economic effects that are similar to sale-leaseback transactions.
The amendment requires that a lease modification (1) results in recognition of
the gain or loss in the 9 financial statements, (2) is subject to FASB
Statement No. 66, "Accounting for Sales of Real Estate," if the leased asset
is real estate (including integral equipment), and (3) is subject (in its
entirety) to the sale-leaseback rules of FASB Statement No. 98, "Accounting
for Leases: Sale-Leaseback Transactions Involving Real Estate, Sales-Type
Leases of Real Estate, Definition of the Lease Term, and Initial Direct Costs
of Direct Financing Leases." Generally, FAS 145 is effective for transactions
occurring after May 15, 2002. The adoption of SFAS 145 did not have a
material effect on the financial statements of the Company.
24
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
( A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
SFAS No. 146 -- In June 2002, the FASB issued SFAS No. 146, "Accounting for
Exit or Disposal Activities" (SFAS 146). SFAS 146 addresses significant
issues regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring
activities that are currently accounted for under EITF No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." The scope
of SFAS 146 also includes costs related to terminating a contract that is not
a capital lease and termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit arrangement that is
not an ongoing benefit arrangement or an individual deferred-compensation
contract. SFAS 146 will be effective for exit or disposal activities that are
initiated after December 31, 2002 and early application is encouraged. The
provisions of EITF No. 94-3 shall continue to apply for an exit activity
initiated under an exit plan that met the criteria of EITF No. 94-3 prior to
the adoption of SFAS 146. The effect on adoption of SFAS 146 will change on a
prospective basis the timing of when the restructuring charges are recorded
from a commitment date approach to when the liability is incurred. The
adoption of SFAS 146 did not have a material effect on the financial
statements of the Company.
SFAS No. 147 -- In October 2002, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 147,
"Acquisitions of Certain Financial Institutions" which is effective for
acquisitions on or after October 1, 2002. This statement provides
interpretive guidance on the application of the purchase method to
acquisitions of financial institutions. Except for transactions between two
or more mutual enterprises, this Statement removes acquisitions of financial
institutions from the scope of both SFAS 72 and Interpretation 9 and requires
that those transactions be accounted for in accordance with SFAS No. 141,
"Business Combinations" and No. 142, "Goodwill and Other Intangible Assets".
The adoption of SFAS No. 147 did not have a material effect on the financial
statements of the Company.
25
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
k. Newly Issued Accounting Pronouncements (Continued)
SFAS No. 148 -- In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock Based Compensation-Transition and Disclosure-an amendment of FASB
Statement No. 123" which is effective for financial statements issued for
fiscal years ending after December 15, 2002. This Statement amends SFAS 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based compensation and the effect of the method used on reported
results. The adoption of SFAS No. 148 did not have a material effect on the
financial statements of the Company.
SFAS No. 149 -- In April 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities" which is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. This statement amends
and clarifies financial accounting for derivative instruments embedded in
other contracts (collectively referred to as derivatives) and hedging
activities under SFAS 133. The adoption of SFAS No. 149 did not have a
material effect on the financial statements of the Company.
SFAS No. 150 -- In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" which is effective for financial instruments entered into or modified
after May 31, 2003, and is otherwise effective at the beginning of the first
interim period beginning after June 15, 2003. This Statement 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. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies an obligation of the
issuer. The adoption of SFAS No. 150 did not have a material effect on the
financial statements of the Company.
26
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
FASB Interpretation No. 45 -- "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others an Interpretation of FASB Statements No. 5, 57 and 107". The initial
recognition and initial measurement provisions of this Interpretation are to
be applied prospectively to guarantees issued or modified after December 31,
2002. The disclosure requirements in the Interpretation were effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FASB Interpretation No. 45 did not have a material
effect on the financial statements of the Company.
FASB Interpretation No. 46 -- In January 2003, the FASB issued FASB
interpretation No. 46 "Consolidation of Variable Interest Entities." FIN 46
provides guidance on the identification of entities for which control is
achieved through means other than through voting rights, variable interest
entities, and how to determine when and which business enterprises should
consolidate variable interest entities. This interpretation applies
immediately to variable interest entities created after January 31, 2003. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The adoption of FIN 46 did
not have a material impact on the Company's financial statements.
27
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
k. Newly Issued Accounting Pronouncements (Continued)
During the year ended December 31, 2003, the Company adopted the following
Emerging Issues Task Force Consensuses: EITF Issue No. 00-21 "Revenue
Arrangements with Multiple Deliverables", EITF Issue No. 01 8 " Determining
Whether an Arrangement Contains a Lease", EITF Issue No. 02-3 "Issues Related
to Accounting for Contracts Involved in Energy Trading and Risk Management
Activities", EITF Issue No. 02-9 "Accounting by a Reseller for Certain
Consideration Received from a Vendor", EITF Issue No. 02-17, "Recognition of
Customer Relationship Intangible Assets Acquired in a Business Combination",
EITF Issue No. 02-18 "Accounting for Subsequent Investments in an Investee
after Suspension of Equity Method Loss Recognition", EITF Issue No. 03-1, "The
Meaning of Other Than Temporary and its Application to Certain Instruments",
EITF Issue No. 03-5, "Applicability of AICPA Statement of Position 9702,
'Software Revenue Recognition' to Non-Software Deliverables in an Arrangement
Containing More Than Incidental Software", EITF Issue No. 03-7, "Accounting
for the Settlement of the Equity Settled Portion of a Convertible Debt
Instrument That Permits or Requires the Conversion Spread to be Settled in
Stock", EITF Issue No. 03-10, "Application of EITF Issue No. 02-16 by
Resellers to Sales Incentives Offered to Consumers by Manufacturers.
l. Foreign Currency Translation
All transactions in currencies other than the United States dollar during the
year are translated at the exchange rates on the transaction dates. Monetary
assets and liabilities denominated in a foreign currency are translated at the
prevailing year-end rates of exchange. Exchange gains or losses are included
in the consolidated statements of income (loss) and retained earnings.
m. Principles of Consolidation
The consolidated financial statements include those of American Stellar
Energy, Inc. (AMRS), and Merchantpark Communications Inc.,(MPC). No
subsidiary companies were operated in 2003.
28
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 2 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has incurred losses since inception
which has resulted in an accumulated deficit of approximately $1,200,000 at
December 31, 2003 which raises substantial doubt about the Company's ability
to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result from the outcome of this uncertainty. It is the
intent of the management to seek additional financing through new stock
issuances and lines of credit. The Company plans to continue generating
revenues through sales of dedicated servers and professional services that
include consulting web design, system architecture and server management. The
Company also plans to generate recurring monthly subscription based revenue
when it launches its white label ASP platform.
NOTE 3 - PROPERTY AND EQUIPMENT
During the year ended December 31, 2002, the Company elected to discontinue
its software development project (see Note 4). Because the project was
discontinued, the Company no longer had any use for the fixed assets described
above as they were all purchased and used exclusively for the development of
the software. Accordingly, the net book values of these assets were expensed
in 2002. The total loss recognized was $218,836 and is shown on the Statement
of Operations under Other Income and Expenses for the year ended December 31,
2002.
NOTE 4 - SOFTWARE DEVELOPMENT COSTS
The Company is in the process of developing software to be sold, leased, or
otherwise marketed. According to FAS 86, the development stage of the
software must be technologically feasible in order to meet the capitalization
criteria. The technologically feasibility of a computer software product is
established when the Company has completed all the planning, designing,
coding, and testing activities that are necessary to establish that the
product can be produced to meet its design specifications including functions,
features, and technical performance requirements.
It was determined that the development stage of the software was not
technologically feasible at the year ended December 31, 2001. Therefore, the
costs associated with the developing of the software were expensed. There
were no software development costs for the year ended December 31, 2003 and
2002.
29
AMERICAN STELLAR ENERGY, INC. AND SUBSIDIARIES
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 5 - SIGNIFICANT EVENTS
Effective June 30, 2002, all shares of Caged Iron Technologies, Inc. (CIT)
were transferred to a former officer and director of the Company at no cost.
This inactive wholly owned subsidiary had no material operations.
On October 1, 2002, the Company entered into an agreement with CIT, whereby
the Company assigned all interest in the proprietary software and all related
technology that it had developed. The Company transferred all property and
equipment associated with the software and the development of the software per
the terms of the agreement. As consideration for the transfer of these
assets, CIT agreed to accept full responsibility for settlement of any past,
present or future liabilities related to these assets. It is the intention of
CIT to complete the beta testing of the software then license the completed
program and systems to worldwide users.
The parties also entered into a revenue split agreement, that for a 24 month
period, CIT will pay the Company 15% of all revenue earned by the usage of the
technology assigned. Such payment will be made on a quarterly basis and will
be paid on gross revenue produced by the application of the software
technology produced. As of December 31, 2003 no revenue had been earned.
NOTE 6 - RELATED PARTY TRANSACTIONS
Loans from shareholders are non-interest bearing and have no fixed terms of
repayments. The total amount owed to shareholders at December 31, 2003 was
$14,899.
The President and Executive Vice President of Novak Capital were also
Directors of the Company in 2002 and 2003 and provided consulting services for
the Company. The amount of consulting expense to these directors for the years
ended December 31, 2003 and 2002 was $75,800 and $106,510, respectively.
The Company issued a total of 0- and 2,336,500 shares of its common stock
valued at $0 and $24,057 to several related parties for various consulting
services performed during the years ended December 31, 2003 and 2002,
respectively.
During the year ended December 31, 2003 the Company issued 9,019,445 shares of
its common stock to settle notes payable to related parties. The book value
of the notes was $136,000. Because the market value of the stock issued was
higher than the book value of the debt, the Company recognized a loss of
$62,025 in association with the settlement of the debt.
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AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
Note 7 Subsequent Events
Commencing January 1, 2004 Michael England was engaged for 3 months for the
amount of $10,500 and company options for 100,000 shares at an exercise price
of $0.05. This contract was not renewed and the options expired and were
cancelled. In July 2004, a company, in which the principal is a former officer
and Director of the Company, was engaged for a three month period. The
contract called for company restricted common stock, with a value of $1,000
per month to be issued. This contract was not renewed. In September 2004
Clayton Smith was engaged to provide investor relations on a 4 month renewal
contract, calling for the issuance of 25,000 restricted common shares monthly.
In addition, the company President, Francis R. Biscan Jr. remains involved
with investor relation responsibilities.
In addition, an officer of the Company has loaned the Company $60,000 at 6.0%
with rights to convert the loans to common stock, at the option of the
officer, at $0.03 per share up to one year from the date of the advance.
31