10-K 1 g2991.txt ANNUAL REPORT FOR THE YEAR ENDED 12-31-08 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURUTIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2008 Commission File Number 333-146263 Tres Estrellas Enterprises, Inc. (Exact name of Registrant as specified in its charter)
Nevada 1711 20-8644177 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employee Incorporation or Organization) Classification Code Number) Identification No.) 3401 Adams Avenue, Suite 302, San Diego, CA 92116 775-352-3896 (Address of principal executive offices) (Registrant's telephone number, including area code) With copies to: Jose Chavez, CEO Jill Arlene Robbins, Attorney at Law 3401 Adams Avenue, Suite 302 1224 Washington Ave. San Diego, CA 92116-2490 Miami Beach, Florida 33139 Phone: 775-352-3896 Telephone: (305) 531-1174 Fax: 775-996-8780 Fax: (305) 531-1274 (Name, address and telephone number of agent for service)
Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Common Stock, $.001 par value Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated Filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] (Do Not Check if a Smaller Reporting Company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] As of March 16, 2009, the registrant had 11,500,000 shares of common stock issued and outstanding. No market value has been computed based upon the fact that no active trading market had been established. TRES ESTRELLAS ENTERPRISES, INC. TABLE OF CONTENTS Page No. -------- Part I Item 1. Business 3 Item 1A. Risk Factors 6 Item 2. Properties 8 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Securities Holders 9 Part II Item 5. Market for Common Equity and Related Stockholder Matters 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 8. Financial Statements 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 27 Item 9A. Controls and Procedures 27 Part III Item 10. Directors and Executive Officers 29 Item 11. Executive Compensation 30 Item 12. Security Ownership of Certain Beneficial Owners and Management 31 Item 13. Certain Relationships and Related Transactions 32 Item 14. Principal Accounting Fees and Services 32 Part IV Item 15. Exhibits 33 Signatures 33 2 PART I ITEM 1. BUSINESS ORGANIZATION IN THE LAST FIVE YEARS Tres Estrellas Enterprises, Inc. was incorporated in Nevada on March 5, 2007 for the purpose of utilizing the latest products and methods in pipe restoration plumbing contractor services for commercial and residential rental buildings in Baja California, Mexico. At our formation, the board of directors voted to seek capital and began development of our business plan. We received our initial funding through the sale of common stock to our sole officer and director. Our director has worked in Baja California as a plumbing contractor for the past ten years and supervised advanced methods of pipe restoration for commercial and residential construction projects for the past five years. The Company currently is in a development stage, and although it has formed its business plan, it has conducted limited operating activities. BANKRUPTCY OR SIMILAR PROCEEDINGS There have been no bankruptcy, receivership or similar proceedings. REORGANIZATIONS, PURCHASE OR SALE OF ASSETS There have been no material reclassifications, mergers, consolidations, or purchase or sale of a significant amount of assets not in the ordinary course of business. PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS With sufficient funding, we intend to follow our business plan to offer pipe restoration services to commercial and residential rental building owners in Baja California, Mexico in 2009. We intend to utilize the latest products and methods in pipe restoration involving cleaning existing pipes in buildings and applying the latest epoxy coatings to coat and seal the inside of the pipes. These products and methods allow a building's pipes to be restored without tearing out walls or pipes in the building. This is a faster, cleaner, and less expensive way to restore older pipes than traditional demolition of walls and pipes and installing all new pipes. Pipe restoration is superior to pipe replacement as restoration will normally double or triple the useful life of these pipes compared to the normal thirty to forty year life of replacing the pipes. In addition, pipes may be restored through the use of epoxy coatings two to three times before pipe replacement is needed. Management has determined this type of pipe restoration is between forty and fifty percent less costly than traditional construction processes of removing existing pipes and installing new pipes in older building frames and foundations. Epoxy coatings for pipe restoration have been used for over twenty years in Europe, in commercial vessel repair, and by the U.S. Navy. This type of pipe restoration process has been used in the United States for over ten years, however, it has only found applications in commercial and residential construction in Mexico during the last five years. Because of the relative newness of this process, Management has only found two plumbing contractors in Baja California who are currently offering this type of pipe repair. Building owners have used traditional pipe 3 replacement methods because they are not aware of the advantages of using pipe relining, or there are no plumbing contractors offering this service in their area. In a relatively new segment of the pipe restoration business, we intend to offer our services to a growing market for pipe replacement and restoration: contracting for the repair of desalinization tanks and pipes for building owners in Baja California, Mexico who rely solely on desalinization of sea water for all of their fresh water needs. Baja California's primary climate is that of a desert, with very small amounts of rainfall and underground fresh water. In Baja California, many municipal water authorities, and all hotels, golf courses, local bottled water producers, private homes in gated communities, resort condominiums and vacation club rental properties utilize sea water for producing their fresh water. In Baja California, fresh water from wells, or from transportation of water in large tanker trucks, provides only a small portion of necessary potable water. While Mexicali, a city on the southeastern border of California, does receive water from the Colorado River flowing through California, the majority of Colorado River water is used for commercial and farming industries, with the local residents relying upon tanker trucks of water for their potable water. The numerous desalinization systems throughout Baja California provide fresh water to the majority of residents, however, the sea water salt and the nature of the desalinization process itself accelerates the deterioration of the tanks, pumps, and pipes used in making fresh water. We intend to make these numerous desalinization systems' owners one of our major target customers, as a significant part of our planned commercial building market. Our director has identified older buildings and residences in large Baja California cities such as Mexicali and Cabo San Lucas which are areas with a large number of multi-unit residential rental and commercial buildings which were constructed prior to 1980. While our director has not conducted formal pipe restoration industry studies, and is unaware of any such studies, his experience in securing pipe restoration contracts in Baja California suggests there are currently approximately 10,000 buildings suitable for pipe restoration work in Baja California. Each year, additional older buildings reach an age of thirty to forty years or more at which time their plumbing pipes require extensive replacement or repair. Through our director's experience in this type of business, we believe the aging building pipe replacement and repair market is growing at a rate of approximately 2,000 buildings per year in Baja California, Mexico. STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCTS OR SERVICES We have no new product or service planned or announced to the public. COMPETITION AND COMPETITIVE POSITION In Baja California, the broad market for general plumbing contractors is large and competitive, with many very small businesses and sole proprietors competing for small jobs. There a number of larger plumbing contractors, with two large plumbing contractors, Plomeros Unidos and Plomero Vel competing directly in our target pipe restoration market. As Tres Estrellas Enterprises, Inc., is a development stage company, the size and financial strengths of the Company's competitors are substantially greater than those of the Company. Although we have limited access to in-depth information regarding the day by day operations of our competitors, we believe that we can effectively compete because of our director's extensive knowledge of 4 plumbing and pipe restoration services, his experience in managing pipe restoration jobs efficiently and profitably, and his sales experience and customer contacts in our target market areas. SUPPLIERS AND SOURCES OF RAW MATERIALS We have no current contracts with pipe restoration material and equipment suppliers. Although we have no current relationship with suppliers, we intend to utilize material and equipment suppliers known to our director, such as Materiales Y Plomeria Universal, S.A. and Proveedora Herba, S.A. in Baja California and Sonora, Mexico. These are general plumbing material and equipment suppliers that serve plumbing contractors and require payment at time of delivery of materials and equipment, with no long term contracts necessary. DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS We will not depend on any single or a small number of major customers. Our director has extensive experience in the our target market, the Mexican states of Baja California and Sonora, in residential rental and commercial sales, estimating, and management of plumbing and pipe restoration construction services. These targeted customers represent a broad base of potential sales. PATENTS, TRADEMARKS, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS, OR LABOR CONTRACTS We have no current plans to apply for registrations such as patents, trademarks, copyrights, franchises, concessions, royalty agreements or labor contracts. We will assess the need for any copyright, trademark or patent applications on an ongoing basis. NEED FOR GOVERNMENT APPROVAL FOR ITS PRODUCTS OR SERVICES We are not required to apply for or have any government approval for our services. EFFECT OF GOVERNMENTAL REGULATIONS ON THE COMPANY'S BUSINESS Our business will be subject to Mexican Federal laws and regulations that relate to employment, social security, national health policies, and to individual State laws pertaining to construction building codes. RESEARCH AND DEVELOPMENT COSTS DURING THE LAST TWO YEARS We have not expended funds for research and development costs since inception. COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS We are not aware of any environmental regulations that could directly affect our operations, but no assurance can be given that environmental regulations will not, in the future, have a material adverse impact on our business. Should new governmental environmental regulations be enacted that affect our business, 5 related direct and indirect costs could result in a material negative impact on our ability to achieve or sustain profits. NUMBER OF EMPLOYEES We have one employee, our sole director and officer who will devote as much time as the board of directors determines is necessary to manage the affairs of the company. REPORTS TO SECURITIES HOLDERS We will file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any reports, statement or other information that we file with the Commission at the Commission's public reference rooms in Washington, D.C. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. These Commission filings are also available to the public from commercial document retrieval services and at the Internet site maintained by the Commission at http://www.sec.gov. ITEM 1A. RISK FACTORS SINCE WE ARE A DEVELOPMENT STAGE COMPANY, HAVE GENERATED NO REVENUES AND LACK AN OPERATING HISTORY, AN INVESTMENT IN OUR SHARES IS HIGHLY RISKY AND COULD RESULT IN A COMPLETE LOSS OF YOUR INVESTMENT IF WE ARE UNSUCCESSFUL IN OUR BUSINESS PLANS. Our company was incorporated on March 5, 2007 and we have not yet realized any revenues. We have no operating history upon which an evaluation of our future prospects can be made. Based upon current plans, we expect to incur operating losses in future periods as we incur significant expenses associated with the initial startup of our business. Further, we cannot guarantee that we will be successful in realizing revenues or in achieving or sustaining positive cash flow at any time in the future. Any such failure could result in the possible closure of our business or force us to seek additional capital through loans or additional sales of our equity securities to continue business operations. OUR FINANCIAL STATUS CREATES A DOUBT WHETHER WE WILL CONTINUE AS A GOING CONCERN. OUR INDEPENDENT AUDITORS HAVE ISSUED AN AUDIT OPINION FOR TRES ESTRELLAS ENTERPRISES, INC. WHICH INCLUDES A STATEMENT DESCRIBING OUR GOING CONCERN STATUS. IF OUR BUSINESS PLAN FOR THE FUTURE IS NOT SUCCESSFUL, INVESTORS WILL LIKELY LOSE ALL OF THEIR INVESTMENT IN OUR STOCK. Our only asset is $4,803 cash in the bank. As noted in our accompanying financial statements, our current financial condition of nominal assets and limited operating business activities necessary for revenues and operating capital create substantial doubt as to our ability to continue as a going concern. If our business plan does not work, we could remain as a start-up company with no material operations, revenues, or profits. WE DO NOT HAVE ANY ADDITIONAL SOURCE OF FUNDING FOR OUR BUSINESS PLANS AND MAY BE UNABLE TO FIND ANY SUCH FUNDING IF AND WHEN NEEDED, RESULTING IN THE FAILURE OF OUR BUSINESS. 6 Other than the funds from our recent offering and loans from our director no other source of capital has been identified or sought. As a result we do not have an alternate source of funds should we fail to generate revenue from operations. If we do find an alternative source of capital, the terms and conditions of acquiring such capital may result in dilution and the resultant lessening of value of the shares of our current stockholders. At this time in the banking and financial markets there has been a major reduction in investor and lender willingness to provide capital to new businesses throughout the world. In our efforts to seek additional funding we may encounter high levels of resistance to our inquiries for new sources of cash flows, resulting in the failure of our business. TRES ESTRELLAS ENTERPRISES, INC HAS NO SALES, PROVEN MARKET, OR CONSUMER DEMAND. WITHOUT SIGNIFICANT USER DEMAND FOR OUR SERVICES, THE COMPANY COULD HAVE CONTINUED NEGATIVE CASH FLOW AND BE UNABLE TO REMAIN IN BUSINESS. The lack of a proven market for our services means that the true market may be minor or nonexistent. This could result in little or no revenue. OUR COMPETITORS HAVE BEEN IN BUSINESS LONGER THEN WE HAVE AND HAVE SUBSTANTIALLY GREATER RESOURCES THAN WE DO. SHOULD WE BE UNABLE TO ACHIEVE ENOUGH CUSTOMER MARKET SHARE IN OUR INDUSTRY, WE MAY EXPERIENCE LOWER LEVELS OF REVENUE THAN OUR BUSINESS PLAN ANTICIPATES. In our development stage, we will have size and market share disadvantages as we attempt to implement our marketing plan. We may be unsuccessful in achieving our sales goals and market share and, therefore, be unable to ever become a competitive force in our industry. THERE IS NO ACTIVE TRADING MARKET FOR OUR SECURITIES, INVESTORS SHOULD BE AWARE THEY PROBABLY WILL BE UNABLE TO SELL THEIR SHARES AND THEIR INVESTMENT IN OUR SECURITIES IS NOT LIQUID. We are listed on the OTC Electronic Bulletin Board but there has been no active trading market. There is no guarantee of trading volume or trading price levels sufficient for investors to sell their stock, recover their investment in our stock, or profit from the sale of their stock. OUR SHARES ARE DEFINED AS "PENNY STOCK", THE RULES IMPOSED ON THE SALE OF THE SHARES MAY AFFECT AN INVESTORS ABILITY TO RESELL ANY SHARES, IF AT ALL. Our shares are defined as a penny stock under the Securities and Exchange Act of 1934, and rules of the Commission. The Exchange Act and such penny stock rules generally impose additional sales practice and disclosure requirements on broker-dealers who sell our securities to persons other than certain accredited investors who are, generally, institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 ($300,000 jointly with spouse), or in transactions not recommended by the broker-dealer. For transactions covered by the penny stock rules, a broker-dealer must make a suitability determination for each purchaser and receive the purchaser's written agreement prior to the sale. In addition, the broker-dealer must make certain mandated disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer quotations, the compensation to be received by the broker-dealer and certain associated persons, and deliver certain disclosures required by the 7 Commission. Consequently, the penny stock rules may affect the ability of broker-dealers to make a market in or trade our common stock and may also affect an investor's ability to resell any shares. OUR DIRECTOR WILL CONTINUE TO EXERCISE SIGNIFICANT CONTROL OVER OUR OPERATIONS, WHICH MEANS MINORITY SHAREHOLDERS MAY HAVE NO CONTROL OVER CERTAIN MATTERS REQUIRING STOCKHOLDER APPROVAL THAT COULD AFFECT THEIR ABILITY TO EVER RESELL ANY SHARES. Our executive officer and sole director owns 47% of our common stock. Due to the amount of his share ownership, he has a significant influence in determining the outcome of all corporate transactions, including the election of directors, approval of significant corporate transactions, changes in control of the company or other matters that could affect an investor's ability to ever resell shares. His interests may differ from the interests of the other stockholders and thus result in corporate decisions that are disadvantageous to other shareholders. WE WILL INCUR ONGOING COSTS AND EXPENSES FOR SEC REPORTING AND COMPLIANCE, WITHOUT REVENUE WE MAY NOT BE ABLE TO REMAIN IN COMPLIANCE, MAKING IT DIFFICULT FOR INVESTORS TO SELL THEIR SHARES, IF AT ALL. To be eligible for quotation on the OTCBB, issuers must remain current in their filings with the SEC. Market Makers are not permitted to begin quotation of a security whose issuer does not meet this filing requirement. Securities already quoted on the OTCBB that become delinquent in their required filings will be removed following a 30 or 60 day grace period if they do not make their required filing during that time. In order for us to remain in compliance we will require future revenues to cover the cost of these filings, which could comprise a substantial portion of our available cash resources. ITEM 2. PROPERTIES Our principal executive office address is 3401 Adams Avenue, Suite 302, San Diego, CA 92116-2490. The principal executive office and telephone number are provided by the officer of the corporation. The costs associated with the use of the telephone and mailing address were deemed by management to be immaterial as the telephone and mailing address were almost exclusively used by the officer for other business purposes. We consider our current principal office space arrangement adequate for the foreseeable future. We currently have no investment policies as they pertain to real estate, real estate interests or real estate mortgages. ITEM 3. LEGAL PROCEEDINGS We are not currently involved in any legal proceedings and we are not aware of any pending or potential legal actions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the security holders during the year ended December 31, 2008. 8 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On December 4, 2007 we received our listing for quotation on the Over-the-Counter Bulletin Board under the symbol "TLLA". To date there has not been an active trading market. PENNY STOCK RULES The Securities and Exchange Commission has also adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our shares are considered penny stock under the Securities and Exchange Act. The shares will remain penny stocks for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document, which: - contains a description of the nature and level of risk in the market for penny stock in both public offerings and secondary trading; - contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the Securities Act of 1934, as amended; - contains a brief, clear, narrative description of a dealer market, including "bid" and "ask" price for the penny stock and the significance of the spread between the bid and ask price; - contains a toll-free telephone number for inquiries on disciplinary actions; - defines significant terms in the disclosure document or in the conduct of trading penny stocks; and - contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation; The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer: 9 - the bid and offer quotations for the penny stock; - the compensation of the broker-dealer and its salesperson in the transaction; - the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and - monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficulty selling their securities. SHARES AVAILABLE UNDER RULE 144 There are currently 5,500,000 shares of common stock that are considered restricted securities under Rule 144 of the Securities Act of 1933. All 5,500,000 shares are held by an affiliate, as that term is defined in Rule 144(a)(1). Under Rule 144, such shares can be publicly sold, subject to volume restrictions and certain restrictions on the manner of sale, commencing six months after their acquisition for those companies that have been subject to the reporting requirements of section 13 or 15(d) of the Exchange Act for a period of at least 90 days before the sale. HOLDERS As of December 31, 2008, we have 11,500,000 Shares of $0.001 par value common stock issued and outstanding held by 41 shareholders of record. Island Stock Transfer is our transfer agent. DIVIDENDS We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects, and other factors that the board of directors considers relevant. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS We have generated no revenues since inception and have incurred $52,797 in expenses from inception through December 31, 2008. For the year ended December 31, 2008 we incurred $32,038 in expenses. These costs consisted of general and administrative expenses. For the year ended December 31, 2007 we incurred $20,759 in general and administrative expenses. At this time, our plan is to continue to implement our business plan at a reduced level of activity. With current business conditions in Mexico, there has been a significant reduction in construction and plumbing repair demand. This has had the effect of a material lengthening of time we will need to secure service contracts for our company. We are now considering potential other business opportunities that could include possibly changing our business plan, acquiring an existing business with sufficient cash flows, or merging with another company. At this time we have not begun any negotiations with any other company or made any agreements or other arrangements to change our business plan, or implement any business merger or acquisition. The following table provides selected financial data about our company for the years ended December 31, 2008 and 2007. Balance Sheet Data: 12/31/08 12/31/07 ------------------- -------- -------- Cash $ 4,803 $ 27,741 Total assets $ 6,773 $ 29,711 Total liabilities $ 24,570 $ 15,470 Shareholders' equity $(17,797) $ 14,241 There was no cash provided from operating activities for the quarter ended December 31, 2008. From inception the director had loaned the company $22,470. Cash provided by financing since inception was $35,000, consisting of $11,000 from the sale of shares to our officer and director and $24,000 resulting from the sale of our common stock to 40 unaffiliated investors. CAPITAL RESOURCES AND LIQUIDITY We cannot continually incur operating losses in the future and may decide that we can no longer continue with our business operations as detailed in our original business plan because of a lack of financial results and a lack of available financial resources. Our cash balance at December 31, 2008 was $4,803. We have developed our marketing plans, begun sales meetings with building owners for potential job bidding for future contracts, and rented our first office space. We have contacted industry equipment vendors and met with their sales representatives in order to determine which companies we will utilize to either purchase or lease equipment we deem necessary for our proposed plumbing services. If we are unable to secure adequate capital to continue our business, our shareholders will lose some or all of their investment and our business will likely fail. Our director has advanced us funds of $22,470 and has agreed to advance funds in a limited operations scenario. In the event our director does 11 not provide such funding, our business will likely fail. We are a development stage company and have generated no revenue to date. PLAN OF OPERATION Statements contained herein which are not historical facts are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and actual results may differ materially from those in the forward-looking statements. Such risks and uncertainties include, without limitation: established competitors who have substantially greater financial resources and operating histories, regulatory delays or denials, ability to compete as a start-up company in a highly competitive market, and access to sources of capital. We anticipate that our operational, and general & administrative expenses for the next 12 months will total approximately $10,000. We do not anticipate the purchase or sale of any significant equipment. Due to a slowdown in construction and plumbing repair work in Mexico, we do not plan to hire any new employees until later in 2009, and any employee hiring will depend solely on improvement of economic conditions in Mexico. We have developed our marketing plans and continue to have sales meetings with building owners for potential job bidding. We have contacted industry equipment vendors and met with their sales representatives in order to determine which companies we will utilize to either purchase or lease equipment we deem necessary for our proposed plumbing services. At this time we have not entered into any agreements or negotiations with vendors. The foregoing represents our best estimate of our cash needs based on current planning and business conditions. The exact allocation, purposes and timing of any expenditure may vary significantly depending upon our progress with the execution of our business plan. In the event we are not successful in reaching our initial revenue targets, additional funds may be required, and we may not be able to proceed with our business plan. Should this occur, we would likely seek additional financing to support the continued operation of our business. We anticipate that the slowdown in construction and plumbing repair demand in Mexico will delay our plan of operations, and, therefore, we will incur operating losses in the foreseeable future. We base this expectation, in part, on the fact that we may not be able to generate enough gross profit from the sale of our pipe restoration products to cover our operating expenses. OFF-BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. SIGNIFICANT ACCOUNTING POLICIES Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination of many assets and liabilities is dependent upon future events, 12 the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment. The financial statements have, in management's opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below: a) BASIS OF PRESENTATION The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (US GAAP) applicable to development stage companies. b) USE OF ESTIMATES The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. c) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. d) FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS The Company has adopted Statement of Financial Accounting Standards ("SFAS") Number 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments." The carrying amount of accrued liabilities approximates its fair value because of the short maturity of this item. Certain fair value estimates may be subject to and involve, uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The Company does not hold or issue financial instruments for trading purposes, nor does it utilize derivative instruments in the management of its foreign exchange, commodity price or interest rate market risks. e) SEGMENTED REPORTING SFAS Number 131, "Disclosure About Segments of an Enterprise and Related Information", changed the way public companies report information about segments of their business in their quarterly reports issued to shareholders. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues and its major customers. f) FEDERAL INCOME TAXES Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with SFAS Number 109, "Accounting for Income 13 Taxes", which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carryforwards when realization is more likely than not. g) EARNINGS (LOSS) PER SHARE The Company has adopted Financial Accounting Standards Board ("FASB") Statement Number 128, "Earnings per Share," ("EPS") which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net income/loss by the weighted average number of shares of common stock outstanding during the period. h) STOCK-BASED COMPENSATION The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123(R), "SHARE-BASED PAYMENT", which establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS 123(R), stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees' requisite service period (generally the vesting period of the equity grant). The Company accounts for share-based payments to non-employees, in accordance with SFAS 123 (as originally issued) and Emerging Issues Task Force Issue No. 96-18, "ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR SERVICES". For the period ended December 31, 2008 the Company did not have any stock-based compensation. i) REVENUE RECOGNITION The Company recognizes revenue from the sale of products and services in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue Recognition in Financial Statements." Revenue will consist of services income and will be recognized only when all of the following criteria have been met: (i) Persuasive evidence for an agreement exists; (ii) Service has occurred; (iii) The fee is fixed or determinable; and (iv) Revenue is reasonably assured. 14 ITEM 8. FINANCIAL STATEMENTS TRES ESTRELLAS ENTERPRISES, INC. Index Report of Independent Registered Public Accounting Firm Financial Statements: Balance Sheet - December 31, 2008 and 2007 Statement of Operations - Years ended December 31, 2008 and 2007 Statement of Stockholders' Equity - Years ended December 31, 2008 and 2007 Statement of Cash Flows - Years ended December 31, 2008 and 2007 Notes to Financial Statements 15 GEORGE STEWART, CPA 2301 SOUTH JACKSON STREET, SUITE 101-G SEATTLE, WASHINGTON 98144 (206) 328-8554 FAX(206) 328-0383 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors Tres Estrellas Enterprises, Inc. I have audited the accompanying balance sheet of Tres Estrellas Enterprises, Inc. (A Development Stage Company) as of December 31, 2008 and 2007, and the related statement of operations, stockholders' equity and cash flows for the years then ended and for the period from March 5, 2007 (inception), to December 31, 2008. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tres Estrellas Enterprises, Inc., (A Development Stage Company) as of December 31, 2008 and 2007, and the results of its operations and cash flows for the years then ended and from March 5, 2007 (inception), to December 31, 2008 in conformity with generally accepted accounting principles in the United States of America. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note # 1 to the financial statements, the Company has had no operations and has no established source of revenue. This raises substantial doubt about its ability to continue as a going concern. Management's plan in regard to these matters is also described in Note # 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ George Stewart ---------------------------- Seattle, Washington March 10, 2009 16 Tres Estrellas Enterprises, Inc. (A Development Stage Company) Balance Sheet --------------------------------------------------------------------------------
As of As of December 31, December 31, 2008 2007 -------- -------- ASSETS CURRENT ASSETS Cash $ 4,803 $ 27,741 -------- -------- TOTAL CURRENT ASSETS 4,803 27,741 OTHER ASSETS Organization Costs 1,970 1,970 -------- -------- TOTAL OTHER ASSETS 1,970 1,970 TOTAL ASSETS $ 6,773 $ 29,711 ======== ======== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 2,100 $ -- Officers Advances Payable 22,470 15,470 -------- -------- TOTAL CURRENT LIABILITIES 24,570 15,470 -------- -------- TOTAL LIABILITIES 24,570 15,470 -------- -------- STOCKHOLDERS' EQUITY Common stock, ($0.001 par value, 75,000,000 shares authorized; 5,500,000 shares issued and outstanding as of December 31, 2007 11,500 11,500 Additional paid-in capital 23,500 23,500 Deficit accumulated during development stage (52,797) (20,759) -------- -------- TOTAL STOCKHOLDERS' EQUITY (17,797) 14,241 -------- -------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 6,773 $ 29,711 ======== ========
See Notes to Financial Statements 17 Tres Estrellas Enterprises, Inc. (A Development Stage Company) Statement of Operations --------------------------------------------------------------------------------
March 5, 2007 (inception) Year Ended Year Ended through December 31, December 31, December 31, 2008 2007 2008 ----------- ----------- ----------- REVENUES Revenues $ -- $ -- $ -- ----------- ----------- ----------- TOTAL REVENUES -- -- -- GENERAL & ADMINISTRATIVE EXPENSES 32,038 20,759 52,797 ----------- ----------- ----------- TOTAL GENERAL & ADMINISTRATIVE EXPENSES (32,038) (20,759) (52,797) ----------- ----------- ----------- NET INCOME (LOSS) $ (32,038) $ (20,759) $ (52,797) =========== =========== =========== BASIC EARNING (LOSS) PER SHARE $ (0.00) $ (0.00) =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 11,500,000 6,782,192 =========== ===========
See Notes to Financial Statements 18 Tres Estrellas Enterprises, Inc. (A Development Stage Company) Statement of Changes in Stockholders' Equity From March 5, 2007 (Inception) through December 31, 2008 --------------------------------------------------------------------------------
Deficit Accumulated Common Additional During Common Stock Paid-in Development Stock Amount Capital Stage Total ----- ------ ------- ----- ----- BALANCE, MARCH 5, 2007 -- $ -- $ -- $ -- $ -- Stock issued for cash on April 3, 2007 @ $0.002 per share 5,500,000 5,500 5,500 11,000 Stock issued for cash on October 11, 2007 @ $0.004 per share 6,000,000 6,000 18,000 24,000 Net loss, December 31, 2007 (20,759) (20,759) ---------- ------- ------- -------- -------- BALANCE, DECEMBER 31, 2007 11,500,000 $11,500 $23,500 $(20,759) $ 14,241 ========== ======= ======= ======== ======== Net loss, December 31, 2008 (32,038) (32,038) ---------- ------- ------- -------- -------- BALANCE, DECEMBER 31, 2008 11,500,000 $11,500 $23,500 $(52,797) $(17,797) ========== ======= ======= ======== ========
See Notes to Financial Statements 19 Tres Estrellas Enterprises, inc. (A Development Stage Company) Statement of Cash Flows --------------------------------------------------------------------------------
March 5, 2007 March 5, 2007 March 5, 2007 (inception) (inception) (inception) through through through December 31, December 31, December 31, 2008 2007 2008 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(32,038) $(20,759) $(52,797) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Changes in operating assets and liabilities: (Increase) Decrease Organization Costs -- (1,970) (1,970) Increase (Decrease) Accounts Payable 2,100 -- 2,100 Increase (Decrease) Loans from Director 7,000 15,470 22,470 -------- -------- -------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (22,938) (7,259) (30,197) CASH FLOWS FROM INVESTING ACTIVITIES -- -- -- -------- -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES -- -- -- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock -- 11,500 11,500 Additional paid-in capital -- 23,500 23,500 -------- -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES -- 35,000 35,000 -------- -------- -------- NET INCREASE (DECREASE) IN CASH (22,938) 27,741 4,803 CASH AT BEGINNING OF PERIOD 27,741 -- -- -------- -------- -------- CASH AT END OF YEAR $ 4,803 $ 27,741 $ 4,803 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during year for: Interest $ -- $ -- $ -- ======== ======== ======== Income Taxes $ -- $ -- $ -- ======== ======== ========
See Notes to Financial Statements 20 Tres Estrellas Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements December 31, 2008 -------------------------------------------------------------------------------- 1. ORGANIZATION Tres Estrellas Enterprises, Inc. (the "Company") is a Nevada corporation incorporated on March 5, 2007. The Company is a development stage company that intends to utilize the latest products and methods in pipe restoration plumbing contractor services for commercial and residential buildings. The latest products and methods in pipe restoration involve cleaning existing pipes in buildings and applying the latest epoxy coatings to the inside of the pipes. These products and methods allow a building's pipes to be restored without tearing out walls or pipes in the building. To date, the Company's activities have been limited to its formation and the raising of equity capital. The Company's fiscal year end is December 31. GOING CONCERN AND LIQUIDITY CONSIDERATIONS The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. As at December 31, 2008, the Company had a loss from operations of $52,797, stockholders' deficit of ($17,797) and has earned no revenues since inception. The Company intends to fund operations through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year ending December 31, 2009. The ability of the Company to emerge from the development stage is dependent upon, among other things, obtaining additional financing to continue operations, development of its business plan and generation of revenue. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2. SIGNIFICANT ACCOUNTING POLICIES a) BASIS OF PRESENTATION The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (US GAAP) applicable to development stage companies. b) USE OF ESTIMATES The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. 21 Tres Estrellas Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements December 31, 2008 -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED c) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. d) FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS The Company has adopted Statement of Financial Accounting Standards ("SFAS") Number 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments." The carrying amount of accrued liabilities approximates its fair value because of the short maturity of this item. Certain fair value estimates may be subject to and involve, uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The Company does not hold or issue financial instruments for trading purposes, nor does it utilize derivative instruments in the management of its foreign exchange, commodity price or interest rate market risks. e) SEGMENTED REPORTING SFAS Number 131, "Disclosure About Segments of an Enterprise and Related Information", changed the way public companies report information about segments of their business in their quarterly reports issued to shareholders. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues and its major customers. f) FEDERAL INCOME TAXES Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with SFAS Number 109, "Accounting for Income Taxes", which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carryforwards when realization is more likely than not. 22 Tres Estrellas Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements December 31, 2008 -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED g) EARNINGS (LOSS) PER SHARE The Company has adopted Financial Accounting Standards Board ("FASB") Statement Number 128, "Earnings per Share," ("EPS") which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net income/loss by the weighted average number of shares of common stock outstanding during the period. h) STOCK-BASED COMPENSATION The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123(R), "SHARE-BASED PAYMENT", which establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS 123(R), stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees' requisite service period (generally the vesting period of the equity grant). The Company accounts for share-based payments to non-employees, in accordance with SFAS 123 (as originally issued) and Emerging Issues Task Force Issue No. 96-18, "ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR SERVICES". For the period ended December 31, 2008 the Company did not have any stock-based compensation. i) REVENUE RECOGNITION The Company recognizes revenue from the sale of products and services in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue Recognition in Financial Statements." Revenue will consist of services income and will be recognized only when all of the following criteria have been met: (i) Persuasive evidence for an agreement exists; (ii) Service has occurred; (iii) The fee is fixed or determinable; and (iv) Revenue is reasonably assured. 23 Tres Estrellas Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements December 31, 2008 -------------------------------------------------------------------------------- 3. CAPITAL STOCK a) AUTHORIZED STOCK The Company has authorized 75,000,000 common shares with $0.001 par value. Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholder of the corporation is sought. b) SHARE ISSUANCES Since inception (March 5, 2007), to December 31, 2008, the Company has issued the following shares: A total of 5,500,000 common stock shares to the sole officer and director at $0.002 per share for a total of $11,000. A total of 6,000,000 common stock shares to 40 unaffiliated investors at $.004 per share for a total of $24,000 pursuant to an SB-2 Registration Statement. 4. INCOME TAXES The company has incurred operating losses of $52,797, which, if unutilized, will begin to expire in 2027. Future tax benefits, which may arise as a result of these losses, have not been recognized in these financial statements, and have been off set by a valuation allowance. Details of future income tax assets are as follows: December 31, 2008 -------- Future income tax assets: Net operating loss (from inception (March 5, 2007 to December 31, 2008) $ 52,797 Statutory tax rate (combined federal and state) 34% -------- Non-capital tax loss 17,951 Valuation allowance (17,951) -------- $ -- ======== The potential future tax benefits of these losses have not been recognized in these financial statements due to uncertainty of their realization. When the future utilization of some portion of the carryforwards is determined not to be "more likely than not," a valuation allowance is provided to reduce the recorded tax benefits from such assets. 24 Tres Estrellas Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements December 31, 2008 -------------------------------------------------------------------------------- 5. NEW ACCOUNTING PRONOUNCEMENTS Recent accounting pronouncements that are listed below did and/or are not currently expected to have a material effect on the Company's financial statements. FASB STATEMENTS: In February 2007, FASB issued Financial Accounting Standards No. 159, "THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES--INCLUDING AN AMENDMENT OF FASB STATEMENT NO. 115." This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board's long-term measurement objectives for accounting for financial instruments. SFAS 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. In December 2007, the FASB issued SFAS No. 141 (Revised 2007), BUSINESS COMBINATIONS ("SFAS 141R"). SFAS 141R replaces SFAS No. 141. SFAS 141R retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. SFAS 141R also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We will apply SFAS 141R prospectively to business combinations completed on or after that date. There will be no impact upon adoption to our current consolidated results of operations and financial condition. In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS, AN AMENDMENT OF ARB 51 ("SFAS 160"). SFAS 160 changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent's equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, except for the presentation and disclosure requirements, which will apply retrospectively. There will be no impact upon adoption to our current consolidated results of operations and financial condition. In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 161, DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, AN AMENDMENT OF FASB STATEMENT NO. 133 ("SFAS 161"). SFAS 161 expands the disclosure requirements in Statement 133 about an entity's derivative instruments and hedging activities. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We are currently evaluating the impact of adopting FAS 161. 25 Tres Estrellas Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements December 31, 2008 -------------------------------------------------------------------------------- 5. NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB's amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Company's financial position, statements of operations, or cash flows at this time. In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-and interpretation of FASB Statement No. 60". SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company's financial position, statements of operations, or cash flows at this time. 6. RELATED PARTY TRANSACTIONS Mr. Chavez has advanced funds to the company to pay for any costs incurred by it. These funds are interest free and there are no specific terms of repayment or any contract regarding the funds loaned. The balance due Mr. Chavez was $22,470 on December 31, 2008. Jose Chavez, the sole officer and director of the Company may, in the future, become involved in other business opportunities as they become available, thus he may face a conflict in selecting between the Company and his other business opportunities. The company has not formulated a policy for the resolution of such conflicts. 26 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer (our president), we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission reports is accumulated and communicated to our management, including our principal executive and financial officer, recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms relating to our company, particularly during the period when this report was being prepared. MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the company. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. 27 Under the supervision and with the participation of our president, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of December 31, 2008, based on the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under this framework, management concluded that our internal control over financial reporting was not effective as of the evaluation date due to the factors stated below. Management assessed the effectiveness of the Company's internal control over financial reporting as of evaluation date and identified the following material weaknesses: INSUFFICIENT RESOURCES: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting. INADEQUATE SEGREGATION OF DUTIES: We have an inadequate number of personnel to properly implement control procedures. LACK OF AUDIT COMMITTEE & OUTSIDE DIRECTORS ON THE COMPANY'S BOARD OF DIRECTORS: We do not have a functioning audit committee or outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures. Management is committed to improving its internal controls and will (1) continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel and (3) may consider appointing outside directors and audit committee members in the future. Management, including our president, has discussed the material weakness noted above with our independent registered public accounting firm. Due to the nature of this material weakness, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management's report in this annual report. CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter for our fiscal year ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The sole director and officer of Tres Estrellas Enterprises, Inc, whose one year term will expire on 3/31/10, or at such a time as his successor(s) shall be elected and qualified is as follows: Name & Address Age Position Date First Elected Term Expires -------------- --- -------- ------------------ ------------ Jose Chavez 29 President, 3/15/07 3/31/10 3401 Adams Ave. #302 Secretary, San Diego, CA 92116 Treasurer, Director The foregoing person may be deemed a "promoter" of Tres Estrellas Enterprises, Inc., as that term is defined in the rules and regulations promulgated under the Securities and Exchange Act of 1933. Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the board of directors following the next annual meeting of stockholders and until their successors have been elected and qualified. No executive officer or director of the corporation has been the subject of any order, judgment, or decree of any court of competent jurisdiction, or any regulatory agency permanently or temporarily enjoining, barring, suspending or otherwise limiting him or her from acting as an investment advisor, underwriter, broker or dealer in the securities industry, or as an affiliated person, director or employee of an investment company, bank, savings and loan association, or insurance company or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any securities. No executive officer or director of the corporation has been convicted in any criminal proceeding, excluding traffic violations, nor is the subject of a criminal proceeding which is currently pending. DIRECTOR'S RESUME - JOSE CHAVEZ WORK HISTORY 2003-Current Dippesa SA De CV, Mexicali, B.C. Mexico, general plumbing contractor, commercial projects and pipe restoration. Construction superintendent, responsible for estimating, bidding of projects, employee supervision. 1997-2003 Plomeria Delta, Tijuana B.C. Mexico, general plumbing contractor. plumber, construction superintendent. 29 EDUCATION Preparatory School, Tijuana B.C. Mexico, graduated in 1996 Secondary School, Tijuana B.C. Mexico, graduated in 1993 INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS To the best of our knowledge, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the commodities futures trading commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. CODE OF ETHICS We do not currently have a code of ethics. Because we have only limited business operations and one officer and director, we believe a code of ethics would have limited utility. We intend to adopt a code of ethics as our business operations expand and we have additional directors, officers and employees. ITEM 11. EXECUTIVE COMPENSATION In November 2007 we began paying our officer and director a monthly salary of $400 for his services during the development stage of our operations. He is reimbursed for any out-of-pocket expenses he incurs on our behalf. We do not currently have any benefits, such as health insurance, life insurance or any other benefits available to our employee. Our officer and director is not party to any employment agreements. SUMMARY COMPENSATION TABLE
Change in Pension Value and Non-Equity Nonqualified Incentive Deferred All Name and Plan Compen- Other Principal Stock Option Compen- sation Compen- Position Year Salary Bonus Awards Awards sation Earnings sation Totals ------------ ---- ------ ----- ------ ------ ------ -------- ------ ------ Jose 2008 $4,800 0 0 0 0 0 0 0 Chavez, 2007 $ 800 0 0 0 0 0 0 0 President, CEO and Director
30 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
Option Awards Stock Awards ----------------------------------------------------------------- ---------------------------------------------- Equity Incentive Equity Plan Incentive Awards: Plan Market or Awards: Payout Equity Number of Value of Incentive Number Unearned Unearned Plan Awards; of Market Shares, Shares, Number of Number of Number of Shares Value of Units or Units or Securities Securities Securities or Units Shares or Other Other Underlying Underlying Underlying of Stock Units of Rights Rights Unexercised Unexercised Unexercised Option Option That Stock That That That Options (#) Options (#) Unearned Exercise Expiration Have Not Have Not Have Not Have Not Name Exercisable Unexercisable Options (#) Price Date Vested(#) Vested Vested Vested ---- ----------- ------------- ----------- ----- ---- --------- ------ ------ ------ Jose 0 0 0 0 0 0 0 0 0 Chavez
DIRECTOR COMPENSATION
Change in Pension Value and Fees Non-Equity Nonqualified Earned Incentive Deferred Paid in Stock Option Plan Compensation All Other Name Cash Awards Awards Compensation Earnings Compensation Total ---- ---- ------ ------ ------------ -------- ------------ ----- Jose Chavez 0 0 0 0 0 0 0
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of the date of this annual report, the total number of shares owned beneficially by our director, officer and key employee, individually and as a group, and the present owners of 5% or more of our total outstanding shares. The stockholder listed below has direct ownership of his shares and possesses sole voting and dispositive power with respect to the shares. Name and Address No. of Percentage Beneficial Owner Shares (a) of Ownership ---------------- ---------- ------------ Jose Chavez 5,500,000 47% 3401 Adams Ave., Suite 302 San Diego, CA 92116 All Officers and Directors as a Group 5,500,000 47% ---------- (a) Mr. Chavez purchased 5,500,000 shares of the company's common stock on April 3, 2007 for $11,000 ($0.002 per share). 31 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS From inception to June 30, 2007, 5,500,000 shares were issued to Jose Chavez, the officer and director of the company in exchange for $11,000 in cash, or $.002 per share. The principal executive office and telephone number are provided by Mr. Chavez, the officer of the corporation. The costs associated with the use of the telephone and mailing address were deemed to be immaterial as the telephone and mailing address were almost exclusively used by him for other business purposes. Mr. Chavez has advanced funds to the company to pay for organizational costs and operating expenses. The loan is interest free and has no specific terms of repayment. The balance due on December 31, 2008 was $22,470. Beginning in November 2007 we pay Mr. Chavez a salary of $400 per month. The total amount paid to him for the year ended December 31, 2008 was $4,800, of which $2,000 was accrued as an account payable due to our limited cash funds. We do not currently have any conflicts of interest by or among our current officers, director, key employees or advisors. We have not yet formulated a policy for handling conflicts of interest; however, we intend to do so prior to hiring any additional employees. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES For the year ended December 31, 2008, the total fees charged to the company for audit services, including quarterly reviews were $8,400, for audit-related services were $Nil, for tax services were $Nil and for other services were $Nil. For the year ended December 31, 2007, the total fees charged to the company for audit services, including quarterly reviews were $4,900, for audit-related services were $Nil, for tax services were $Nil and for other services were $Nil. 32 PART IV ITEM 15. EXHIBITS The following exhibits are included with this filing: Exhibit Number Description ------ ----------- 3(i) Articles of Incorporation* 3(ii) Bylaws* 31.1 Sec. 302 Certification of CEO 31.2 Sec. 302 Certification of CFO 32 Sec. 906 Certification of CFO ---------- * Included in our original SB-2 filed with the Securities & Exchange Commission on September 24, 2007 under File Number 333-146263. SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Tres Estrellas Enterprises, Inc. March 16, 2008 By /s/ Jose Chavez -------------- ------------------------------------------- Jose Chavez President, Secretary, Treasurer, Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Sole Director In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and dates stated. /s/ Jose Chavez March 16, 2008 ------------------------------------------- -------------- Jose Chavez President, Secretary, Treasurer, Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Sole Director 33