UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________to________________
Commission file number 000-29595
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchant Park Communications, Inc.)
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(Exact name of small business issuer as specified in its charter)
Nevada 88-0441332
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2162 Acorn Court, Wheaton Ill. 60187
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(Address of principal executive offices)
(630) 462-2079
--------------------------
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [_] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: June 30, 2004 49,233,169
common shares.
Transitional Small Business Disclosure Format (check one). Yes [_] No [X]
-1-
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS ................................3
Consolidated Balance Sheets for June 30, 2004 and
December 31, 2003..............................................4
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 2004 and June 30, 2003 and
From Inception on December 5, 2000 to June 30, 2004 ...........5
Consolidated Statements of Stockholders' Equity
(Deficiency) from inception on December 5, 2000 through
June 30, 2004..................................................7
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2004 and 2003 and from inception
On December 5, 2000 to June 30, 2004...........................12
Notes to Financial Statements..................................14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......20
ITEM 3. CONTROLS AND PROCEDURES........................................27
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..............................................27
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS....27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............28
ITEM 5. OTHER INFORMATION .............................................28
ITEM 6. EXHIBITS.......................................................29
SIGNATURES..............................................................30
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Explanatory Note
----------------
This Quarterly Report on Form 10QSB is related to our operations during the
three and six month periods ended June 30, 2004 and the related financial
statements for that period, and is being filed on a delinquent basis. The
financial statements that follow and the information contained below is not
indicative of our current business operations as we have redirected our
business from oil and gas to mining, which included both the acquisition and
disposal of our oil operations during 2004 and 2005, and the acquisition of
interest in various gold mining properties in Chihuahua, Mexico during 2005.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our Statements of
Operations for the three and six months ended June 30, 2004 are unaudited.
This financial information, in the opinion of management, includes all
adjustments consisting of normal recurring entries necessary for the fair
presentation of such data. The results of operations for the three and six
months ended June 30, 2004 are not indicative of results of subsequent
periods.
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2004
-3-
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Balance Sheet
June 30, December 31,
2004 2003
------------- -------------
(Unaudited) (Audited)
ASSETS
-------
CURRENT ASSETS
Cash $ 17,620 $ 22,192
Corsicana field project deposit 57,039 -
------------- -------------
74,659 22,192
PROVED NATURAL GAS AND OIL PROPERTIES
AND EQUIPMENT 47,961 -
------------- -------------
$ 122,620 $ 22,192
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 2,149 $ 9,708
Loans from related parties 8,591 2,250
Accrued interest - 2,941
------------- -------------
10,740 14,899
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STOCKHOLDERS' EQUITY
Common voting stock: 100,000,000
shares authorized of $0.001 par value,
49,233,169 (2003 - 45,116,169) shares
issued and outstanding 49,234 45,117
Additional paid-in capital 1,495,645 1,220,592
Share subscriptions received 70,000 -
Accumulated deficit (1,504,127) (1,259,908)
Other comprehensive income 1,128 1,492
------------- -------------
111,880 7,293
------------- -------------
$ 122,620 $ 22,192
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Statements of Operation
(Unaudited)
CUMULATIVE
PERIOD FROM
INCEPTION ON
DECEMBER 5,
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED 2000 TO
JUNE 30, JUNE 30, JUNE 30,
2004 2003 2004 2003 2004
------------- ------------- -------------- ------------- --------------
REVENUE
Revenue from website
development and software $ - $ - $ - $ - $ 168,209
------------- ------------- -------------- ------------- --------------
- - - - 168,209
------------- ------------- -------------- ------------- --------------
Expenses
Consulting 61,909 22,500 217,682 44,955 595,819
General and administrative 10,431 283 26,537 4,044 385,380
Depreciation, depletion and
amortization - - - - 196,790
Software development cost - - - - 55,812
------------- ------------- -------------- ------------- --------------
72,340 22,783 244,219 48,999 1,233,801
------------- ------------- -------------- ------------- --------------
LOSS BEFORE OTHER (EXPENSES) (72,340) (22,783) (244,219) (48,999) (1,065,592)
------------- ------------- -------------- ------------- --------------
OTHER INCOME (EXPENSES)
Interest expense - - - - (10,716)
(Cont'd...)
The accompanying notes are an integral part of these consolidated financial statements.
5
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Statements of Operation
(Unaudited)
(Cont'd...)
CUMULATIVE
PERIOD FROM
INCEPTION ON
DECEMBER 5,
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED 2000 TO
JUNE 30, JUNE 30, JUNE 30,
2004 2003 2004 2003 2004
------------- ------------- -------------- ------------- --------------
Interest income - - - - 442
Loss on disposal of assets - - - - (218,836)
Loss on extinguishments of
debt - (30,000) - (30,000) (209,425)
------------- ------------- -------------- ------------- --------------
- (30,000) - (30,000) (438,535)
------------- ------------- -------------- ------------- --------------
NET LOSS (72,340) (52,783) (244,219) (78,999) (1,504,127)
OTHER COMPREHENSIVE (LOSS)
Foreign currency translation (208) - (364) - 1,128
------------- ------------- -------------- ------------- --------------
NET LOSS $ (72,548) $ (52,783) $ (244,583) $ (78,999) $ (1,502,999)
============= ============= ============== ============= ==============
NET LOSS PER COMMON
SHARE - BASIC $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============== =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC 47,721,169 35,509,361 45,978,758 35,095,597
============= ============== ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
6
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficiency)
(Unaudited)
Total
Common Stock Additional Share Other Stockholders'
---------------------- Paid-in Subscriptions Comprehensive Accumulated Equity
Shares Amount Capital Received Income Deficit (Deficiency)
------------ --------- ----------- ------------- ------------ ------------ -------------
Balance at Inception
December 5, 2000 - $ - $ - $ - $ - $ - $ -
Common stock issued
to founders for cash
at $0.001 per share 4,000,000 4,000 - - - - 4,000
Net loss for the
period - - - - - (8,901) (8,901)
------------ --------- ----------- ------------- ------------ ------------ -------------
Balance,
December 31, 2000 4,000,000 4,000 - - - (8,901) (4,901)
Common stock issued
in exchange for 100%
of common stock of
Merchantpark.com 1,500,000 1,500 (1,500) - - - -
Common stock issued
for cash 2,491,583 2,491 151,892 - - - 154,383
Common stock issued
for services 4,645,261 4,645 77,289 - - - 81,934
Common stock issued
in exchange for 100%
of shares of Caged
Iron Technologies 2,000,000 2,000 100,472 - - - 102,472
(Cont'd...)
The accompanying notes are an integral part of these consolidated financial statements.
7
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
(Unaudited)
Consolidated Statement of Stockholders' Equity (Deficiency)
Total
Common Stock Additional Share Other Stockholders'
---------------------- Paid-in Subscriptions Comprehensive Accumulated Equity
Shares Amount Capital Received Income Deficit (Deficiency)
------------ --------- ----------- ------------- ------------ ------------ -------------
(Cont'd...)
Common stock issued
for debt 459,000 459 45,441 - - - 45,900
Common stock issued
for assets 3,064,556 3,065 300,935 - - - 304,000
Stock offering costs - - (12,600) - - - (12,600)
Currency translation
adjustment - - - - 911 - 911
Net loss for the year - - - - - (417,873) (417,873)
------------ --------- ----------- ------------- ------------ ------------ -------------
Balance,
December 31, 2001 18,160,400 18,160 661,929 - 911 (426,774) 254,226
Stock issued for
services at $0.027
per share 562,500 563 14,627 - - - 15,190
Stock issued for
debt at $0.50 per
share 44,976 45 22,443 - - - 22,488
Stock issued for
debt at $0.25 per
share 900,000 900 224,100 - - - 225,000
(Cont'd...)
The accompanying notes are an integral part of these consolidated financial statements.
8
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficiency)
(Unaudited)
Total
Common Stock Additional Share Other Stockholders'
---------------------- Paid-in Subscriptions Comprehensive Accumulated Equity
Shares Amount Capital Received Income Deficit (Deficiency)
------------ --------- ----------- ------------- ------------ ------------ -------------
(Cont'd...)
Stock issued for
cash at $0.005 per
share 5,750,000 5,750 23,000 - - - 28,750
Stock issued for
cash at $0.001 per
share 250,000 250 - - - - 250
Stock issued for
debt at $0.007 per
share 1,000,000 1,000 6,000 - - - 7,000
Stock issued for
debt at $0.006 per
share 3,900,000 3,900 19,500 - - - 23,400
Stock issued for
services at $0.005
per share 1,774,000 1,774 7,093 - - - 8,867
Currency translation
adjustment - - - - 581 - 581
Net loss for the year - - - - - (677,591) (677,591)
------------ --------- ----------- ------------- ------------ ------------ -------------
Balance,
December 31, 2002 32,341,876 32,342 978,692 - 1,492 (1,104,365) (91,839)
Stock issued for
cash at $0.005 per
share 1,131,208 1,132 4,519 - - - 5,651
Stock issued for
cash at $0.024 per
share 1,673,640 1,674 38,326 - - - 40,000
Stock issued for
debt at $0.02 per
share 3,000,000 3,000 57,000 - - - 60,000
(Cont'd...)
The accompanying notes are an integral part of these consolidated financial statements.
9
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficiency)
(Unaudited)
Total
Common Stock Additional Share Other Stockholders'
---------------------- Paid-in Subscriptions Comprehensive Accumulated Equity
Shares Amount Capital Received Income Deficit (Deficiency)
------------ --------- ----------- ------------- ------------ ------------ -------------
(Cont'd...)
Stock issued for
cash at $0.01 per
share 500,000 500 4,500 - - - 5,000
Stock issued for
cash at $0.02 per
share 250,000 250 4,750 - - - 5,000
Stock issued for
debt at $0.02 per
share 2,900,000 2,900 55,100 - - - 58,000
Stock issued for
cash at $0.02 per
share 200,000 200 800 - - - 1,000
Stock issued for
debt at $0.02 per
share 600,000 600 11,400 - - - 12,000
Stock issued for
debt at $0.027 per
share 2,519,445 2,519 65,505 - - - 68,024
Net loss for the year - - - - - (155,543) (155,543)
------------ --------- ----------- ------------- ------------ ------------ -------------
Balance,
December 31, 2003 45,116,169 45,117 1,220,592 - 1,492 (1,259,908) 7,293
Stock issued for
services at $0.05
per share 845,000 845 41,405 - - - 42,250
Stock issued for
cash at $0.05 per
share 520,000 520 25,480 - - - 26,000
(Cont'd...)
The accompanying notes are an integral part of these consolidated financial statements.
10
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficiency)
(Unaudited)
Total
Common Stock Additional Share Other Stockholders'
---------------------- Paid-in Subscriptions Comprehensive Accumulated Equity
Shares Amount Capital Received Income Deficit (Deficiency)
------------ --------- ----------- ------------- ------------ ------------ -------------
(Cont'd...)
Stock issued for
cash at $0.06 per
share 2,267,000 2,267 133,753 - - - 136,020
Stock issued for
cash at $0.10 per
share 20,000 20 1,980 - - - 2,000
Stock issued for
services at $0.14
per share 45,000 45 6,255 - - - 6,300
Stock issued for
services at $0.08
per share 45,000 45 3,555 - - - 3,600
Stock issued for
services at $0.04
per share 1,575,000 1,575 61,425 - - - 63,000
Stock cancelled (1,200,000) (1,200) 1,200 - - - -
Share subscriptions
received - - - 70,000 - - 70,000
Currency translation
adjustment - - - - (364) - (364)
Net loss for the
period - - - - - (244,219) (244,219)
------------ --------- ----------- ------------- ------------ ------------ -------------
Balance, June 30,
2004 49,233,169 $ 49,234 $1,495,645 $ 70,000 $ 1,128 $(1,504,127) $ 111,880
============ ========= =========== ============= ============ ============ =============
The accompanying notes are an integral part of these consolidated financial statements.
11
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
Inception on
December 5,
For the Six For the Six 2000 to
Months Ended Months Ended June 30,
June 30, 2004 June 30, 2003 2004
------------- ------------- -------------
Cash provided by (used in):
OPERATING ACTIVITIES
Net loss $ (244,219) $ (78,999) $ (1,504,127)
Items not involving cash:
Depreciation, depletion and amortization - - 196,790
Loss on disposal of assets - - 218,836
Common stock issued for services 115,150 - 217,424
Loss on extinguishment of debt - 30,000 147,400
------------- ------------- -------------
(129,069) (48,999) (723,677)
Changes in non-cash operating working capital items:
Prepaids and other assets (57,039) - (11,139)
Accounts payable (7,559) 13,726 2,149
Accrued interest (2,941) - -
------------- ------------- -------------
(196,608) (35,273) (732,667)
------------- ------------- -------------
INVESTING ACTIVITIES
Proved oil and gas properties and equipment (47,961) - (47,961)
Purchase of fixed asset - - (9,154)
------------- ------------- -------------
(47,961) - (57,115)
------------- ------------- -------------
FINANCING ACTIVITIES
Common stock issued for cash 164,020 45,650 391,536
Stock offering cost - - (12,600)
Share subscriptions received 70,000 - 86,517
Cash acquired in reverse acquisition - - 3,717
Repayment of loans from related parties 6,341 (14,045) -
Proceeds from loans from related parties - 3,603 337,104
------------- ------------- -------------
240,361 35,208 806,274
------------- ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (364) - 1,128
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH (4,572) (65) 17,620
CASH, BEGINNING OF THE PERIOD 22,192 2,441 -
------------- ------------- -------------
CASH, END OF THE PERIOD $ 17,620 $ 2,376 $ 17,620
============= ============= =============
Cont'd...
The accompanying notes are an integral part of these consolidated financial statements
12
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
Inception on
December 5,
For the Six For the Six 2000 to
Months Ended Months Ended June 30,
June 30, 2004 June 30, 2003 2004
------------- ------------- -------------
(Cont'd...)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ - $ - $ 10,716
Income taxes paid $ - $ - $ -
NON-CASH TRANSACTIONS
Common stock issued for services $ 115,150 $ - $ 217,424
Conversion of debt to common stock $ - $ 60,000 $ 198,025
The accompanying notes are an integral part of these consolidated financial statements.
13
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
(Unaudited)
Notes to the Consolidated Financial Statements
June 30, 2004
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements are consolidated with the Company's
wholly owned subsidiary and have been prepared by the Company without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows for the six months ended June 30, 2004
and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. It
is suggested that these condensed financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
December 31, 2003 audited financial statements. The results of operations for
the six months ended June 30, 2004 are not necessarily indicative of the
operating results for the full year.
NOTE 2 - (a) NATURE OF OPERATION
During 2003, the Company began seeking business opportunities in the energy
sector and changed its name to American Stellar Energy Inc. In early 2004,
management identified a suitable oil prospect, the Corsicana prospect,
acquired working interest in that prospect, and began operating in the oil and
gas industry. Subsequent to June 30, 2004, it acquired additional oil and gas
properties, commenced operations on those properties and began receiving
revenues. During 2005, the Company disposed of the oil and gas properties in
favor of the acquisition and development of mining properties.
NOTE 2 - (b) 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 of $244,219 for
the 6 month period ended June 30, 2004 that have resulted in an accumulated
deficit of approximately $1,504,127 at June 30, 2004, 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 liabilities that might
result from the outcome of this uncertainty. It is management's intent to
seek additional financing through new stock issuances and lines of credit. The
Company sold all of its oil interests by November 2005. The Company plans to
focus on the mining of gold and other precious metals and hopes to generate
revenues through sales of these metals.
NOTE 3 - CORSICANA FIELD PROJECT
Through an operating agreement on January 20, 2004 with Armen Energy LLC and
an initial $25,000 deposit on execution, the Company obtained an undivided 45%
working interest, by way of a "Farm Out Agreement", on acreage that will be
held-by-production. The property is located in Corsicana, Texas and consists
of a 1,000 acre tract of land on which oil fields have been developed since
the 1960's, with varying degrees of success. Mr. Francis R. Biscan Jr.,
President , 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
- 14 -
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
(Unaudited)
Notes to the Consolidated Financial Statements
June 30, 2004
NOTE 3 - CORSICANA FIELD PROJECT DEPOSIT (Continued)
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.
The Company will earn an interest in the held-by-production leases (the
"farmout leases") in the following manner:
i) It will pay to the operator funds for land and geological/geophysical
expenses, as follows:
a. $25,000 upon execution of the agreement (paid), and
b. $25,000 before participating in any well beyond the initial test well
ii) When 100% of the participating interest in the drilling of the initial
test well is placed, the operator shall invoice the Company for 50% of
the $150,000 estimated total cost to drill and complete the initial test
well on the Farmout. Failure to remit such payment within 30 days from
receipt of the invoice will result in the forfeiture of all of the
Company's right under this agreement and the forfeiture of the $25,000
previously paid for land and geological/geophysical expenses.
iii) Upon the operator's receipt of the assignment of the oil and gas lease
to be earned as provided for in the Farmout, the operator shall assign
to the Company an undivided 45% working interest in and to said leases,
delivering a 37% net revenue interest in each lease.
iv) The Company agrees to pay an additional 5% of the total cost to drill
and complete in the next consecutive nineteen wells after the initial
test well on the farmout. The Company agrees to tender such payment
within 30 days from receipt of the invoice.
v) The Company shall own an undivided 45% interest in each well drilled
until payout. Payout is defined as that point in time when the value of
the oil, gas and other hydrocarbons produced, saved and marketed or
taken from each well, equals the total cost of:
a. drilling, testing, completing and equipping the well into the tanks
or gas gathering lines;
b. the cost of operating the well up to the date of payout;
c. severance, production and/or mineral ad valorem taxes measured by
production and assessed on production from the well;
d. royalty to the lessors in the well; and
e. the overriding royalty reserved to the operator and all other
overriding royalty or other burdens created by the operator or its
predecessors in title.
Value shall be determined by the net proceeds realized from the sale of
such production, or the fair market value thereof at the wellhead if not
sold but taken for use in field operation. At payout of each well, the
operator shall back-in for and own a 10% working interest in such
paid-out well, proportionately reduced to the Company's initial interest
in such well. At each well payout, the Company shall execute and deliver
assignments to the operator sufficient to vest the operator with its
back-in working interest.
- 15 -
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
(Unaudited)
Notes to the Consolidated Financial Statements
June 30, 2004
NOTE 3 - CORSICANA FIELD PROJECT DEPOSIT (Continued)
vi) Prior to initial drilling operations on the first well on the farmout,
the Company and the operator shall enter into a mutually acceptable
operating agreement.
vii) Should the operator propose the drilling of a well on the farmout lands
and the Company elects to not drill the well, then upon spudding of the
well, the Company shall assign to the operator all of the Company's
interest in the lease covering and affecting 80 acres around the
proposed well location. At such time when the well achieves 400% payout,
the Company shall back-in for a 40.5% working interest in the wellbore.
Such back-in at 400% payout shall apply to any and all wells drilled
within 80 acres.
The Company has no other oil and gas activity outside this block.
Total deposit as of June 30, 2004 was $57,039.
Capitalized costs relating to oil and gas producing assets at June 30, 2004
consisted of the following:
Proved oil and gas properties $47,961
NOTE 4 - RELATED PARTY TRANSACTIONS
During the 6 months ended June 30, 2004, the Chief Executive Officer of the
Company loaned $8,591 to the Company for working capital. The loan is
unsecured, non-interest bearing, and payable on demand.
The Chief Executive Officer provided consulting services to the Company which
resulted in $48,000 of consulting expense for the six months ended June 30,
2004 (June 30, 2003 $30,000).
The Company's Chief Executive Officer holds a minority interest in Armen
Energy LLC, the operator of its natural gas and oil properties, and has also
negotiated a "Right of First Refusal" for the Company on subsequent properties
identified by the operator as having development potential.
The Company issued 550,000 shares of common stock valued at $27,500 to a
related party for consulting services performed in the prior year.
The Company's Chief Executive Officer and Chief Financial Officer purchased
650,000 shares and 200,000 shares, respectively, of the common stock of the
Company at $0.06 per share.
A stock certificate of 1,200,000 shares was issued to a former director for
services. Subsequent to being issued, the number of shares was renegotiated
downward and this certificate was cancelled.
- 16 -
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
(Unaudited)
Notes to the Consolidated Financial Statements
June 30, 2004
NOTE 5 - SUBSEQUENT EVENTS
(a) Mexican Subsidiary
Amermin S.A. de C.V.
In May 2005, the Company invested in one or more mining projects in Mexico and
become a full vested 49% partnership with Amermin S.A. de C.V (Amermin), a
mining company incorporated in Chihuahua, Mexico. By making initial cash
deposits towards the purchase of La Currita mining concessions and one other
mining project, the Company exercised an option to acquire a further 48%
interest in Amermin.
(b) Oil and Gas Properties
Hill Lease
In January 2005, the Company acquired a 45% working interest and a 33.75% net
revenue interest in 15.5 acres with one existing oil well in Navarro County,
Texas, known as the "Hill Lease", for $11,700. The Company sold this interest
to Future Quest Nevada, Inc. for $37,000 in November 2005.
Interest in Corsicana Field Project
In August 2005, the Company sold its 45% working interest in its Corsicana
1,000 acre farmout in Navarro County, Texas. The sale price was $165,000, and
the proceeds were received in 2005.
(c) Mining Properties
La Currita mining concessions
In May 2005, the Company entered an agreement to purchase 100% of the assets
and concession rights in Chihuahua, Mexico, known as "La Currita", through its
newly acquired 97% owned Mexican subsidiary, Amermin. La Currita is a set of 3
mineral concessions, including 4 mines and a 150 ton per day floatation mill
for processing ore. The terms of the purchase agreement call for a total
purchase price of $1,200,000. Terms of payment are $225,000, with 19 monthly
installments of $50,000, which is payable until March, 2007. Should the
Company fail to make 2 successive payments, the Company may lose this property
and forfeit all previous payments. The mill is currently in start up mode,
processing 80 tons of gold and silver ore per day with varying consistency.
San Miguel mining concessions
In May 2005, the Company paid $10,000 to enter an option agreement to purchase
100% of the rights to 12 undeveloped concessions, known as "San Miguel",
located in Chihuahua, Mexico, through its newly acquired 97% owned Mexican
subsidiary, Amermin. The total purchase price is $700,000.
La Millionaire mining concessions
In June 2005, the Company paid $100,000 for an option agreement in a set of 4
mineral concessions on approximately 2,162 acres in Chihuahua, Mexico, known
as "La Millionaire", through its newly acquired 97% owned Mexican subsidiary,
Amermin. The option agreement allows the Company to enter a joint venture
agreement to earn 60% interest in La Millionaire when the Company spends an
additional $350,000 within 7 years to put the property into production. Once
La Millionaire is in production, the Company receives 100% of the profits
until its original $450,000 investment has been repaid. Thereafter the Company
participates at a 60% rate. If the Company fails to make the required
investment, the Company may lose its interest in La Millionaire and forfeit
all previous payments.
- 17 -
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
(Unaudited)
Notes to the Consolidated Financial Statements
June 30, 2004
NOTE 5 - SUBSEQUENT EVENTS (Continued)
Paramount joint venture
In August 2005, the Company entered an option agreement through its newly
acquired 97% owned Mexican subsidiary, Amermin, with Paramount Gold Mining
Corp. "Paramount" for the sale of the San Miguel mining concessions. Paramount
made an initial payment of $50,000.00 for the option to acquire a 35% interest
in San Miguel mining concessions. Pending the affirming results of a title
search, Paramount will make a payment of $250,000 to purchase 25% interest in
the San Miguel mining concessions. A further payment of $100,000 will
increase the purchase to 35% interest in the San Miguel mining concessions. In
order to maintain its interest, Paramount will make an additional payment of
$50,000 or an equivalent value of its shares on every anniversary date of this
agreement.
Paramount may increase its interest in the San Miguel mining concessions to
55%, after the following conditions have been met:
a) Paramount spends an additional $1,000,000 on exploration and
development within 18 months of the date this agreement is signed.
b) Paramount issues to the Company an additional 700,000 restricted common
shares.
Furthermore, Paramount has an option to increase its interest in the San
Miguel mining concessions to 70%, on the following conditions:
a) Paramount spends an additional $1,500,000 over and above the $1,000,000
expenditure spent on exploration and development within 30 months of
the date this agreement is signed.
b) Paramount issues to the Company 200,000 restricted common shares
The option to finalize the agreement was subsequently extended to November 30,
2005, and Paramount has exercised the option subsequent to the year end.
La Blanca properties
In December 2005, the Company entered into a joint purchase agreement with
paramount to acquire certain assets and rights obtained by Drilling
Consultants, Inc. (DCI) to 4 mining claims located in Guazapares, Chihuahua,
Mexico. These four concessions are known as the La Blanca property and total
140 hectares. They are located adjacent to our San Miguel properties. The
total purchase price of the claims is $4,300,000 which will be paid in
accordance with a specific purchase price schedule agreed upon by paramount
and DCI. Under the Company's agreement with Paramount, the Company has the
right to earn a 10% interest and up to a 30% interest in the La Blanca
property under certain conditions: (1) after Paramount has made property
payments for one year (totaling $1,010,000), the Company will pay 20% of all
additional payments (totaling $3,290,000) due under a specific schedule to
earn a 20% interest in the assets and rights in the four mining concessions;
(2) the Company's payments will begin on January 30, 2007 and will continue
through January 10, 2010 at which time the Company will have paid $658,000 for
its interest; (3) if at any time the Company fail to make its 20% share of any
payment on the payment schedule, the Company's percentage interest will reduce
proportionately; and (4) once payment has been made in full under the
schedule, the Company will have earned its 20% interest (or proportionately
reduced interest) and the Company will also shall have earned an additional
10% regardless of what was paid by the Company through the payment period.
- 18 -
AMERICAN STELLAR ENERGY, INC.
(Formerly Merchantpark Communications, Inc.)
(A Development Stage Company)
(Unaudited)
Notes to the Consolidated Financial Statements
June 30, 2004
NOTE 5 - SUBSEQUENT EVENTS (Continued)
Shares Issuance
Subsequent to June 30, 2004, the Company issued 1,400,000 shares of common
stock for $70,000 to investor relations consultants for services performed for
the 6 months ended June 30, 2004. Accordingly, the amounts were disclosed as
share subscriptions received at June 30, 2004.
Subsequent to June 30, 2004, the Company issued 100,000 shares to the
Company's Chief Financial Officer for signing the employment agreement on
November 2004.
- 19 -
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In this report, references to "American Stellar," "Merchant Park," "we," "us,"
and "our" refer to American Stellar Energy Inc. (formerly Merchant Park
Communications, Inc.).
Safe Harbor for Forward-Looking Statements
------------------------------------------
When used in this report, the words "may," "will," "expect," "anticipate,"
"continue," "estimate," "project," "intend," and similar expressions are
intended to identify forward-looking statements within the meaning of Section
27a of the Securities Act of 1933 and Section 21e of the Securities Exchange
Act of 1934 regarding events, conditions, and financial trends that may affect
the Company's future plans of operations, business strategy, operating
results, and financial position. Persons reviewing this report are cautioned
that any forward-looking statements are not guarantees of future performance
and are subject to risks and uncertainties and that actual results may differ
materially from those included within the forward-looking statements as a
result of various factors. Such factors are discussed under this "Item 2.
Management's Discussion and Analysis or Plan of Operation," and also include
general economic factors and conditions that may directly or indirectly impact
the our financial condition or results of operations.
General
-------
We were incorporated October 14, 1999 in Nevada as Westnet Communications
Group, Inc. ("Westnet"), for the purpose of developing a special interest
worldwide web site. On April 1, 2001 we acquired Merchantpark Communications,
Inc., a Nevada corporation ("Merchantpark") and its software development
operations in a stock for stock transaction and changed our name to
Merchantpark Communications, Inc. In March 2002 we discontinued our software
development operations due to lack of operating capital which included the
disposal of our software related assets and liabilities, entering into debt
settlement agreements with creditors, and disposing of our inactive subsidiary
entities. During 2003, we began seeking business opportunities in the energy
sector and changed our name to American Stellar Energy Inc to better reflect
our proposed business. In early 2004, management identified a suitable oil
prospect, the Corsicana prospect, acquired working interest in that prospect,
and began operating in the oil and gas industry. We initiated our first well
on the Corsicana Prospect in the second quarter of 2004. Subsequent to June
30, 2004, we commenced operations on our properties and began receiving
revenues in the fourth quarter of 2004. During 2005, we acquired additional
oil properties but disposed of all of our oil and gas interest in 2005 in
favor of the acquisition and development of mining properties.
American Stellar is considered a development stage company and as such our
statements of operations, stockholders' equity and cash flows disclose
activity since inception. This discussion relates to our operations during our
three and six month period ended June 30, 2004 and should be read in
conjunction with the financial statements and notes which precede under "ITEM
2. FINANCIAL STATEMENTS."
-20-
Results of Operations for the Three and Six Months Ended June 30, 2004 & 2003
-----------------------------------------------------------------------------
REVENUES
During our second quarter of 2004, we had not yet started receiving revenues
from our oil operations. We acquired our 45% working interest in the Corsicana
property in Texas through an initial $25,000 payment in our first quarter and
the execution of an agreement with Armen Energy LC. During our second quarter
our deposit increased by $32,039. The agreement with Armen Energy is
discussed in greater detail below. We did not begin realizing revenues from
oil production until our fourth quarter of 2004. During 2003 we were seeking
business opportunities and had no revenues from operations in either the first
or second quarter. Therefore, we had no revenues in the three or six months
ended June 30, 2004 or 2003 from any source.
EXPENSES
Our consulting expenses almost tripled between our 2004 second quarter and our
2003 second quarter, from $22,500 in 2003 to $61,909 in 2004. Our general
administrative expenses also increased from $283 in the three months ended
June 30, 2003 to $10,431 in three months ended June 30, 2004. When comparing
the six month periods ended June 30, 2004 and 2003, there is an increase of
approximately 384% between the periods in consulting expenses which rose from
$44,955 in the first six months of 2003 to $217,682 in the first six months of
2004. General and Administrative expenses also increased from $4,044 to
$26,537 between the two years first six months. These increases reflect the
shift from minimal operations in 2003 to the startup of our oil and gas
operations in 2004 and includes $48,000 in compensation paid to our CEO under
an employment agreement in effect for 2004 and also includes the payment in
stock of 550,000 of our common shares for $27,500 in services performed by
another officer/director during the prior year. The higher increase in
consulting expenses incurred during the first three month period were a result
of 2003 compensation due various individuals which were not expensed until our
first quarter of 2004.
Our loss before other expenses was $244,219 in the six months ended June 30,
2004 with $72,340 of that amount occurring in the second quarter. Our net
loss before other expenses was $48,999 during the six months ended June 30,
2003 with $22,783 of that loss attributed to the second quarter. Our total net
loss during the six months ended June 30, 2003 increased to $78,099 as a
result of a $30,000 loss on extinguishment of debt which took place in the
second quarter of 2003 increasing the net loss for the three month period to
$52,783. We had no comparative loss in other expenses in the six month period
of 2004 although we incurred a foreign currency translation loss in of $364 in
the first six months of 2004, with $208 occurring during the second quarter
bring our net loss for the six months ended June 30, 2004 to $244,583 and for
the three months ended June 30, 2004 to $72,548.
Liquidity and Capital Resources
-------------------------------
The following discussion is based on our financial condition as of June 30,
2004 and our liquidity and capital resources at that time as it related to our
then existing operations in the oil industry.
-21-
Our monthly cash outflows are primarily related to consulting services costs,
and the expenses of day to day operations as we attempt to develop our oil
business and include our working interest responsibilities on the Corsicana
properties. These cash outflows exceed monthly cash inflows based on lack of
revenues from oil production or any other source. We had $17,620 in cash as of
June 30, 2004 to fund operations.
We had a cash flow deficiency related to operating activities of $196,608 in
the six month period ended June 30, 2004 compared to $35,273 in the six months
ended June 30, 2003. Part of our non-cash activities in the first half of
2004 reflects $115,150 of services rendered for which common stock was issued
during the first six months of 2004 and includes stock issued to officers for
$63,000 in accrued services under existing employment agreements during that
period. Investing activities consisted of a $47,961 investment in proved oil
and gas properties and equipment during our second quarter. The cash flow
financing was provided by sale of common stock for $164,020, and subscriptions
received for $70,000 for shares of stock in lieu of compensation. These
financing activities occurred mostly in the first quarter of 2004 and resulted
in cash on hand as at June 30, 2004 of $17,620 to fund ongoing company
operating expenses as well as working interest expenses on the well with the
majority of the funding expended during the first two quarters.
We had total assets as of June 30, 2004 of $122,620. This includes the $17,620
in cash and a $57,039 deposit on our Corsicana project. It also includes
$47,961 in capitalized costs related to proved oil and gas properties.
Our liabilities consist of a loan from a related party/shareholder in the
amount of $8,591 which is non interest bearing and has no fixed terms of
repayment; we also had accounts payable of $2,149.
Farm Out Agreement with Armen Energy LLC
-----------------------------------------
On January 20, 2004, we executed an agreement with Armen Enrgy LLC ("Armen")
which initiated our new plan of operation in the oil and gas industry.
Through the "farmout" agreement with Armen, we obtained an undivided 45%
working interest on acreage that is held-by-production. Armen had previously
obtained from Spartan General Partners ("Spartan") a farmout of 1,000 acres of
held-by-production leases with the right to drill and earn an undivided 90%
interest in the farmout lands. Armen agreed to carry Spartan for a 10%
interest in each well up to 20 wells. It granted American Stellar an undivided
working interest by way of a Participation Agreement in January of 2004; the
remaining 45% undivided working interest was granted to Koko Petroleum, Inc.,
an unrelated party.
Upon the purchase of our interest which required a deposit of $25,000, paid at
execution by us, and an additional $25,000 required to be paid before
participating in any well beyond the initial test well, we became responsible
for 50% of the estimated costs for drilling and completion of the initial well
at which point we were assigned our 45% working interest which equaled a 37%
net revenue interest. Net revenues means the percentage of oil and gas left
to the working interest participants after reserving for Armen an overriding
royalty interest in each lease equal to the difference between current lease
burdens and 74%.
-22-
Under the agreement the parties agreed that Armen, or a mutually acceptably
designee, would become the operator of the wells. We entered into an agreement
with Texas MOR, Inc. dba Rife Oil Properties, to be our operator (the
"Operator").
Our Chief Executive Officer, Mr. Francis R. Biscan Jr., holds a minority
interest in Armen and has also negotiated a "Right of First Refusal" for
American Stellar on subsequent properties identified by Armen as having
development potential.
Plan of Operation for the 12 months Following our Second Quarter of 2004
------------------------------------------------------------------------
During the 12 months following the period of this report we planned to
continue to develop our Corsicana property and put it into production as well
as seek other oil and gas properties to invest in. Our cash requirements over
the 12 months following June 30, 2004, included: compensation due under
employment agreements with officers and directors aggregating $126,000
annually; additional consulting expenses related to investor relations and
acquisition opportunities; expenses related to well drilling and operation
based on our 45% working interest in the Corsicana properties, general and
administrative expenses related to day to operations, and legal and accounting
expenses related to reporting obligations both past and current.
Financing
---------
We operate in a very competitive industry in which large amounts of capital
are required in order to continually acquire, explore and develop properties.
Most of our competitors have significantly greater capital resources than we
have. In order to achieve cash flows from operations we must receive revenues
from oil production which will require spudding new wells on our Corsicana
properties or the acquisition of additional properties. We do not have cash
flows from our current operations and our existing cash on hand will not be
sufficient to provide for our day to day administrative costs or any expansion
into additional properties, or the drilling of additional wells, or the costs
associated with our working interest.
In the past we have relied on loans from related parties and sales of our
stock to fund operations, including the issuance of stock as payment for
services. If we rely on equity offerings for funding, then we will likely use
private placements of our common stock pursuant to exemptions from the
registration requirements provided by federal and state securities laws. The
purchasers and manner of issuance will be determined according to our
financial needs and the available exemptions. We also note that if we issue
more shares of our common stock our stockholders may experience dilution in
the value per share of their common stock.
Trends, Uncertainties and Risks
-------------------------------
The following risks, trends and uncertainties relate to our business
operations as of June 30, 2004. Our oil operations were disposed of in their
entirety by November 2005.
. There is no guarantee we will be successful in achieving revenues from
oil production.
-23-
. If we succeed in achieving revenues from production, such revenues will
be highly dependent on the price of crude oil which is unpredictable.
. We are highly dependent on the Operator of our wells and must rely on
their expertise for both the operation of the wells and sale of crude oil
to distributors when and if we achieve production.
. We have no diversification with only one business, that of oil and gas
exploration and development, and only one property in that business.
. The oil and gas industry is subject to substantial regulation with
respect to discharge of materials into the environment or otherwise
relating to the protection of the environment. Exploration, development
and production of oil and gas are regulated by various government
agencies with respect to storage and transportation of hydrocarbons and
clean-up of sites of wells. Many of these activities require government
approval before underwriting the costs associated with compliance with
applicable laws and regulations which have increased the costs associated
with planning, designing, drilling, installing, operating, and plugging
and abandoning a well. To the extent that we own an interest in a well,
we may be responsible for costs of environmental regulation compliance
even well after the plugging and abandoning of that well.
. Operation of an oil and gas well is subject to risks such as blowouts,
cratering, pollution, and fires, any one of which could result in damage
or destruction of the well or production faults.
. We will compete with many other oil and gas companies which are better
capitalized and have more experience in the industry than we do. Our
lack of experience could adversely affect our chances to compete in an
industry dominated by larger more experienced firms.
. We have a limited operating history in this field and have recognized no
revenues from operations in this field. Accordingly, there can be no
assurance that we can operate at a profitable level.
. Our officers and directors have no experience in the oil and gas industry
and this lack of experience could adversely affect our chances of
success.
. We have incurred losses for our second quarter ended June 30, 2004
resulting in an accumulated deficit as of that date of $1,504,127 which
raises substantial doubt as to our ability to continue as a going
concern.
Off-balance Sheet Arrangements
------------------------------
None
Subsequent Events Related to Oil Producing Activities
-----------------------------------------------------
The following is a brief synopsis of our oil activities subsequent to the June
30, 2004:
-24-
. The first well on the Corsicana property which was initiated in June 2004
tested 3 exploratory zones: the "Woodbine," the Wolfe City," and one
development zone, the "Pecan Gap". This first well named "1B McKinney"
initially produced 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. It was initially thought that this water would be worked
off and result in 90% or better, of all fluids produced, being oil, but
the integrity of the formation was severely compromised and production
declined to just 2 barrels of oil per day. In October, 2004, wells number
2 and 3 were drilled successfully, logged, and completed with Initial
Production Rates of 25 and 36 barrels per day.
. In January 2005, we acquired a 45% Working Interest in a new property
called the "Hill Lease" located on 15.5 acres in Navarro, Texas, which
had a well that had been drilled and cased in the Pecan Gap zone, but
missed most of the zone with the previous completion. We paid $11,700
for the working interest in the Hill Lease.
. By the fall of 2005, our initial production from our three producing
wells on the Corsicana property had declined to approximately 5 barrels
per day each.
. In September, 2005 the "Hill" well was recompleted and resulted in an
initial production rate of approximately 6 barrels per day, which
declined quickly to about 3 barrels per day.
. Although the Corsicana wells were operating economically and generating
revenue of approximately $3,000 to $4,000 per month, it was determined by
management that they were not providing the return on investment
necessary to achieve a satisfactory growth rate. In August, of 2005, the
Corsicana lease was sold for a contract price of $175,000 which was
reduced for early payment to $165,000 which has been paid in full by the
purchasers. The Hill lease, after determining production rates was also
deemed to be of limited long term value, was subsequently sold for
$37,000 in early November, 2005.
Subsequent Events Related to Mining Activities
-----------------------------------------------
The following activities have occurred subsequent to June 30, 2004 which are
not related to the ongoing oil operations in 2004 but reflect our
diversification into the mining industry:
. Acquisition of Amermin S.A. de C.V. subsidiary: In May of 2005 we
exercised an option to acquire a 97% working interest in Amermin S.A. de
C.V. ("Armermin"), a mining company in Chihuahua, Mexico by making
initial cash payments towards the purchase of La Currrita mining
concessions and one other mining project.
. La Currita Mining Concessions: Also in May of 2005 we entered into an
agreement to purchase 100% of the assets and concession rights in
property in Chihuahua, Mexico known as "La Currita". The agreement was
entered into through our 97% owned Mexican subsidiary, Amermin. La
Currita is a set of 3 mineral concessions including 4 mines and a 150
ton a day flotation mill for processing ore. The total purchase price is
$1.2 million of which we have paid $225,000 with 19 monthly installments
-25-
due of $50,000. We will lose our rights to this property should we fail
to make two consecutive payments and forfeit all previous payments. The
mill currently processes 80 tons of gold/silver per day with varying
consistency.
. San Miguel Mining Concessions: On May 16 of 2005, through Amermin, we
entered into option agreement with Compania Minera Navojoa S.A. de C.V.
to purchase 100% of the rights to 12 mineral concessions located in
Chihuahua, Mexico known as "San Miguel". We paid $10,000 to enter into
this option. Development of this concession is contingent on the results
of a title search. Under the agreement we agreed to pay $700,000 for the
12 mineral concessions: $300,000 at execution of a formal purchase
agreement, and $100,000 at 6 month intervals until paid in full. The
title search was completed and we have paid $150,000 of the first
$300,000 with the balance of $150,000 due upon the completion and
execution of the formal purchase agreement. Our first $100,000 payment
will be due 6 months from the execution of the formal purchase
agreement. The San Miguel concessions are the subject of an agreement
with Paramount Gold Mining Corp as discussed below.
. La Millionaire Mining Concessions: In June 2005, through our subsidiary
Amermin, we paid $100,000 to enter into an option on "La Millionaire", a
set of four mineral concessions on 2,162 acres in Chihuahua, Mexico. The
option agreement allows us to enter a joint venture to earn a 60%
interest in La Millionaire once we spend an additional $350,000 within 7
years over the initial $100,000 to put the property into production.
Once La Millionaire is in production, we will receive 100% of the
profits until our original $450,000 investment has been repaid. After
that, we participate at a rate of 60%. If we fail to make the required
investment we may lose our interest in La Millionaire and forfeit all
payments.
. On August 3, 2005, Amermin entered into an option agreement with
Paramount Gold Mining Corp. ("Paramount") for the sale of up to a 70%
interest in the San Miguel mining concessions. Paramount made an
initial payment to us of $50,000 for the option to acquire a 35% interest
in the San Miguel concessions. Pending results of a title search,
Paramount agreed to pay $250,000 to purchase a 25% interest in the
concessions; a further payment of $100,000 will increase Paramount's
interest to the 35%. To maintain its interest, Paramount is required to
make a yearly payment of $50,000 or an equivalent value of its shares, on
the anniversary date of the agreement. Paramount may increase its
interest in San Miguel to 55% once certain conditions are met: it spends
$1,000,000 on exploration and development, and issues us 700,000 of its
restricted shares. Paramount has the further option to increase is
interest to 70% by spending an additional $1.5 Million over and above the
$1,000,000 spent on exploration and development within 30 months and
through the issuance of an additional 200,000 shares. The option to
finalize this agreement was extended to November 30, 2005 and Paramount
has exercised the option and paid us $250,000 on December 1, 2005.
Under the agreement, Paramount has the right to process ore at our La
Currita Mill at a minimum rate of 75 tons per day and pay a processing
fee to us equal to actual milling costs per ton plus 10% of the net
smelter proceeds. Any revenues, net of operating costs, derived from
mining ore at San Miguel groupings, will be divided between us and
-26-
Paramount based on each partner's proportionate interest at the time. So
long as Paramount pursues exploration of the property it will be deemed
to be the operator; if it does not pursue exploration, it will no longer
be the operator but will retain its interest.
. On December 12, 2005, we entered into a Joint Purchase Agreement with
Paramount to acquire certain assets and rights obtained by Drilling
Consultants, Inc. ("DCI") to 4 mining claims located in Guazapares,
Chihuahua, Mexico. These four concessions are known as the La Blanca
property and total 140 hectares. They are located adjacent to our San
Miguel properties. The total purchase price of the claims is $4,300,000
which will be paid in accordance with a specific purchase price schedule
agreed upon by Paramount and DCI. Under our agreement with Paramount,
American Stellar has the right to earn a 10% interest and up to a 30%
interest in the La Blanca property under certain conditions: (1) after
Paramount has made property payments for one year (totaling $1,010,000),
we will pay 20% of all additional payments (totaling $3,290,000) due
under a specific schedule to earn a 20% interest in the assets and rights
in the four mining concessions; (2) our payments will begin on January
30, 2007 and will continue through January 10, 2010 at which time we will
have paid $658,000 for our interest; (3) if at any time we fail to make
our 20% share of any payment on the payment schedule, our percentage will
reduce proportionately; and (4) once payment has been made in full under
the schedule, we will have earned our 20% interest (or proportionately
reduced interest) and we will also shall have earned an additional 10%
regardless of what was paid by us through the payment period.
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer and our Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, they concluded that
our disclosure controls and procedures were effective.
Also, our Chief Executive and Financial Officers determined that there were no
changes made in our internal controls over financial reporting during the
first quarter of 2004 that have materially affected, or are reasonably likely
to materially affect our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following discussion describes all securities sold by American Steller
Energy Corporation during the three month period ended June 30, 2004. Note:
these transactions were disclosed in our Annual Report on 10KSB for the year
ended December 31, 2004 which was filed prior to this report.
-27-
. On April 27, 2004, we issued an aggregate of 2,807,000 of our
unregistered common shares to nine individuals who purchased shares at
various prices from $.05 - $.10 per share for a total of $164,020 in cash
received between February 20, 2004 and March 15, 2004. One of those
individuals was an affiliate at the time of the transaction, Mr. Francis
Biscan Jr., our CEO, who purchased 650,000 shares at $0.06 per share.
We relied on an exemption from registration for a private transaction not
involving a public distribution provided by Section 4(2) of the
Securities Act.
. On June 25, 2004, we issued 1,620,000 to three individuals: Clayton
Smith, Francis Biscan Jr. and Alexander Anderson, for $66,600 worth of
services. Mr. Biscan, our CEO, received his 1,200,000 shares in lieu of
payment under an employment compensation plan for services valued at
$48,000; Mr Anderson, an officer and director at the time of the
transaction, received 375,000 shares for services valued at $15,000;
Clayton Smith, received 45,000 shares as payment for services rendered
valued at $3,600 or $.14 per share. We relied on an exemption from
registration for a private transaction not involving a public
distribution provided by Section 4(2) of the Securities Act.
In connection with each of these isolated issuances of our securities, we
believe that each purchaser:
. was aware that the securities had not been registered under federal
securities laws;
. acquired the securities for his/hers/its own account for investment
purposes and not with a view to or for resale in connection with any
distribution for purposes of the federal securities laws;
. understood that the securities would need to be held indefinitely unless
registered or an exemption from registration applied to a proposed
disposition; and
. was aware that the certificate representing the securities would bear a
legend restricting their transfer.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
All information required to be disclosed on a Form 8K related to the period
covered by this report has been previously reported in a prior filing(s).
-28-
ITEM 6. EXHIBITS
Exhibit
Number Title
-----------------------------------------------------------------------------
2.1 Agreement and Plan of Reorganization between Westnet
Inc. and MerchantPark Communications, Inc. (Filed as
Exhibit 2 to Form 8-K on April 6, 2001)
3.1 Articles of Incorporation of Westnet, Inc.
(Filed as Exhibit 3.1 to Form 10SB on March 24, 2000)
3.2 Certificate of Amendment to Articles of Incoporation
for Name Change to MerchantPark Communications (Filed
As Exhibit 3.(I) to Form 8-K on April 6. 2001)
3.3 Certificate of Amendment to Articles of
Incorporation for Name change to American
Stellar Energy, Inc. (Filed as Exhibit 3.1 to Form
10KSB for December 31, 2003 on December 21, 2004)
3.4 Bylaws - (Filed as Exhibit 3.2 to Form 10SB on
March 24, 2000)
10.1 CIT Agreement dated October 31, 2002 (filed as Exhibit
10.1 to Form 10KSB for December 31, 2002 on December 16,
2004)
10.2 Participation Agreement Corsican project (Filed as
Exhibit 10.1 of Form 10KSB for December 31, 2003 on
December 21, 2004) ("Farmout Agreement")
10.3 First Right of Refusal, Corsican Field (Filed as Exhibit
10.2 to Form 10KSB for December 31, 2003 on December 21,
2004)
10.4 Employment Agreement - Francis R. Biscan Jr. (Filed as
Exhibit 10.4 of Form 10KSB for December 31, 2004 on
December 16, 2005)
10.5 Employment Agreement - Clifford Brown (Filed as
Exhibit 10.5 of Form 10KSB for December 31, 2004 on
December 16, 2005)
10.6 Assignment of Hill Property to American Stellar, dated
April 16, 2005 (Filed as Exhibit 10.1 to Form 8K on
December 23, 2005)
10.7 Purchase Agreement re: sale of Corsicana Oil Lease
Farmouts to RPMJ Corporate Communications, Ltd and 658111
B.C. Ltd, dated August 31, 2005 (Filed as Exhibit 10.2
to Form 8K on December 23, 2005)
10.8 Purchase Agreement re: sale of Hill Property to Future
Quest Nevada Inc., dated November 1, 2005. (Filed as
Exhibit 10.3 to Form 8K on December 23, 2005)
10.9 Agreement American Stellar Energy & Ramiro Trevizo Ledezma
re: acquisition of his 48% interest in Amermin S.A. de
C.V., dated May 14, 2005 (Filed as Exhibit 10.4 to Form 8K
on December 23, 2005)
10.10 Agreement American Stellar & Amermin S.A. de C.V. dated
May 14, 2005 re: acquisition of stock equaling a 49%
interest in Amermin (Filed as Exhibit 10.5 to Form 8K on
December 23, 2005)
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10.11 Mining, Exploration, Exploitation and Purchase Option
Agreement between Amermin and Minera Tres de Mayo S.A. de
C.V. re: La Currito concessions, Chihuahua Mexico, dated
May 12, 2005 (Filed as Exhibit 10.6 to Form 8K on
December 23, 2005)
10.12 Promissory Agreement between Amermin and Minera Navojoa
S.A. de C.V. - San Miguel Properties, Chihuahua Mexico -
dated May 12, 2005 (Filed as Exhibit 10.7 to Form 8K on
December 23, 2005)
10.13 Joint Venture Agreement Amermin S.A. de C.V. and Minas de
Topago S.A. de C.V., 4 mining concessions, dated June 9,
2005 (Filed as Exhibit 10.8 to Form 8K on December 23,
2005.)
10.14 Option Agreement on San Miguel re: purchase of 35% of
American Stellar's interest in San Miguel concessions by
Paramount Gold Mining Corporation, dated August 3, 2005
(Filed as Exhibit 10.9 to Form 8K on December 23, 2005)
10.15 Extension of San Miguel purchase option dated September 15
2005 (Filed as Exhibit 10.10 to Form 8K on December 23,
2005)
10.16 Joint Purchase Agreement with Paramount Gold Mining Corp,
Re La Blanca properties, executed and agreed to on
December 12, 2005 (filed as Exhibit 10.1 to Form 8K on
January 5, 2006)
31.1 Section 302 Certification - CEO *
31.2 Section 302 Certification - CFO *
32.1 Section 906 Certification - CEO *
32.2 Section 906 Certification - CFO *
* Filed herewith
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.
AMERICAN STELLAR ENERGY, INC.
(Registrant)
DATE: January 27, 2006
/s/ Francis R. Biscan Jr.
By:_________________________________________
Francis R. Biscan Jr.
President, Chief Executive
Officer and Director
DATE: January 27, 2006 By: /s/ Clifford Brown
_________________________________________
Clifford Brown
Chief Financial Officer and
Director
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