<PAGE>

                            UNITED STATES SECURITIES
                             AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
    OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2005

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934.

                                    000-33099
                 -----------------------------------------------
                            (Commission File Number)

                           STELLAR TECHNOLOGIES, INC.
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

                  COLORADO                              84-1553046
      ----------------------------------    ------------------------------------
      (State or other jurisdiction of       (IRS Employer Identification Number)
       Incorporation of organization)

              7935 AIRPORT PULLING ROAD
                    SUITE NO. 201
                   NAPLES, FLORIDA                             34109
----------------------------------------------       ---------------------------
   (Address of Principal Executive Offices)                   (Zip Code)

                                 (239) 592-1816
                ------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

            Title of Each Class             Name of Exchange on which Registered
 ----------------------------------------   ------------------------------------
 Common Stock, $0.001 par value per share                None

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

Yes  _X_  No____

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this form 10-KSB. ____

         Indicate by check mark whether the registrant is a shell company (as
defined in rule 12b-2 of the Exchange Act). Yes ___ No _X_

         State issuer's revenues for the year ended June 30, 2005.  $882,805




<PAGE>

         The aggregate market value of the voting common equity held by
non-affiliates of the issuer based on the closing sale price of the issuer's
common stock as reported on the OTC Bulletin Board on October 26, 2005 was
$11,284,840. The information provided shall in no way be construed as an
admission that any person whose holdings are excluded from the figure is an
affiliate or that any person whose holdings are included in the figure is not an
affiliate, and any such admission is hereby disclaimed.

         As of October 26, 2005, 26,479,136 shares of the issuer's common stock
were outstanding.

         Transitional Small Business Disclosure Formats (check one):

         Yes ___   No _X_


DOCUMENTS INCORPORATED BY REFERENCE

         None.









<PAGE>
<TABLE>
<CAPTION>
                                                TABLE OF CONTENTS

                                                                                                            PAGE
                                                                                                            ----
<S>          <C>                                                                                            <C>
                                                      PART I
Item 1.      Description of Business ..........................................................................1
Item 2.      Description of Property .........................................................................29
Item 3.      Legal Proceedings ...............................................................................29
Item 4.      Submission of Matters to a Vote of Security Holders .............................................29

                                                     PART II
Item 5.      Market for Common Equity, Related Stockholder Matters and Small Business Issuer
                 Purchasers of Equity Securities .............................................................29
Item 6.      Management's Discussion and Analysis ............................................................30
Item 7.      Financial Statements ............................................................................38
Item 8.      Changes in and Disagreements with Accountants on Accounting and Financial
                 Disclosures..................................................................................38
Item 8A.     Controls and Procedures .........................................................................38
Item 8B.     Other Information ...............................................................................39

                                                     PART III
Item 9.      Directors, Executive Officers, Promoters and Control Persons; Compliance with
                 Section 16(a) of the Exchange Act ...........................................................39
Item 10.     Executive Compensation ..........................................................................42
Item 11.     Security Ownership of Certain Beneficial Owners and Management and Related
                 Stockholder Matters .........................................................................43
Item 12.     Certain Relationships and Related Transactions ..................................................46
Item 13.     Exhibits ........................................................................................47
Item 14.     Principal Accountant Fees and Services ..........................................................50
Financial Statements.........................................................................................F-1
Signatures....................................................................................................52
</TABLE>


<PAGE>


                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included or incorporated by reference in this
report, including, without limitation, statements regarding our future financial
position, business strategy, budgets, projected revenues, projected costs and
plans and objective of management for future operations, are forward-looking
statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as "may," "will," "expects,"
"intends," "plans," "projects," "estimates," "anticipates," or "believes" or the
negative thereof or any variation thereon or similar terminology or expressions.

         These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from results proposed in
such statements. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations include, but are not
limited to: our ability to fund future growth and implement our business
strategy; our ability to attract and retain customers and qualified personnel;
customer acceptance and satisfaction with our Internet management solutions;
anticipated product enhancements and releases; defects in our products and
services; legal claims against us, including, but not limited to, intellectual
property infringement claims; our ability to protect our intellectual property;
forecasts of Internet usage and the growth and acceptance of the employee
Internet management industry; rapid technological changes in the employee
Internet management industry; competition in our industry and markets; general
economic and business conditions, either nationally or internationally or in the
jurisdictions in which we are doing business; the condition of the securities
and capital markets; legislative or regulatory changes; and statements of
assumption underlying any of the foregoing, as well as any other factors set
forth under the caption "Risk Factors" on page 18 of this report and
"Management's Discussions and Analysis" below.

         All subsequent written and oral forward-looking statements attributable
to us, or persons acting on our behalf, are expressly qualified in their
entirety by the foregoing. Except as required by law, we assume no duty to
update or revise our forward-looking statements based on changes in internal
estimates or expectations or otherwise.


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

         We were incorporated on July 20, 2000 as a Colorado corporation. We
were initially engaged in the business of providing photography and digital
services to organizations in the travel industry. We exited the travel industry
in April 2002.






<PAGE>

         During the quarter ended December 31, 2002, we announced our intention
to engage in the business of acquiring, exploring and developing natural gas and
oil properties. Our plan was to acquire ownership interests in properties
located in Louisiana as well as other traditional oil producing states in the
southwestern United States. In furtherance of this plan, we purchased a limited
partnership interest in a limited partnership that owns oil and gas leasehold
interests in Cameron Parish, Louisiana and certain seismic data related thereto
in offshore oil fields. In September 2003, we disposed of all of our oil and gas
interests and exited the oil and gas business.

         On January 15, 2004, we acquired Stellar Venture Partners, LLC, a
Georgia limited liability company ("Stellar Venture Partners"), by merging a
wholly-owned subsidiary of ours with and into Stellar Venture Partners, with
Stellar Venture Partners remaining as the surviving entity and becoming our
wholly-owned subsidiary. At the effective time of the merger, we issued
18,000,001 shares of our common stock to the membership interest holders of
Stellar Venture Partners, LLC, representing, on a fully diluted basis,
approximately seventy-four percent (74%) of the then issued and outstanding
shares of our common stock, and Richard A. Schmidt was appointed to serve as our
Chairman and Chief Executive Officer. As a result of the merger, we entered the
employee Internet management ("EIM") industry.

         On July 14, 2004, we acquired all of the issued and outstanding capital
stock of CompuSven, Inc., a Florida corporation ("CompuSven"). Upon completion
of this acquisition CompuSven became a wholly owned subsidiary of the Company.
CompuSven provides e-mail migration, e-mail data and directory management
software and related services.

OVERVIEW

         We provide employee Internet management products that enable
businesses, government agencies, schools and other organizations to monitor,
analyze and evaluate reports displaying how their employees use computing
resources, including Internet access and instant messaging. Our primary product
offering consists of our Stellar IM Web Based Edition, our Stellar IM Enterprise
Edition, and our Stellar Internet GEM, which we refer to collectively in this
prospectus as our Stellar Internet Management solutions, and our E-mail Shuttle.

         Our flexible software applications operate in conjunction with our
databases to monitor employee access to websites, employee use of network
bandwidth and employee software application use at the desktop. Our Stellar
Internet Management solutions enable businesses to rapidly implement and
configure Internet access policies for specific groups, user types and
individuals within an organization. Our flexible and easy-to-use solutions
capture information on Internet usage and store it on our remote secured
servers, prevent the dissemination of confidential or other sensitive
information via e-mail or instant messaging and restrict access to certain
websites. We consolidate and review employee Internet and instant messaging
activity with sophisticated rule-based systems for compliance with policies
implemented by our customers. Business managers are then notified when a
violation has occurred, and have the option of running a detailed graphical
report displaying the aggregate Internet activity for the employees monitored.
Our products are easy to deploy and use, and have minimal impact on an
organization's information technology department. In addition, our products can
grow with our customers as they expand and support a broad range of network
platforms, including proxy servers, firewalls and other network appliances and
software.





                                        2
<PAGE>


INDUSTRY BACKGROUND

         As a highly flexible network capable of carrying almost any type of
digital traffic, the Internet continues to evolve as a critical business tool
and an important communications and commerce platform for enterprises worldwide.
As part of their overall business strategies, many organizations are using the
Internet to utilize business applications that are accessed over their corporate
networks. Companies utilize the Internet to optimize their extended supply
chains, automate their sales forces, track shipments and communicate with
employees, customers, partners and suppliers. Due to the efficiencies,
cost-savings and competitive advantages that can be gained by leveraging the
Internet, many businesses are continuing to build out their computer networks
and information technology infrastructure. In order to accommodate a significant
number of simultaneous users and the increasing volume of data transfer
associated with enterprise Internet use, many organizations continue to make
substantial investments in wide-bandwidth connections such as dedicated T-1
lines, enabling high-speed Internet access.

         The Internet has also become a highly popular consumer medium for
communication, entertainment, information and commerce. This rapid adoption of
the Internet has been accompanied by remarkable growth in the number of
consumer-oriented content and commerce websites and by an expanding assortment
of web-based consumer services and applications. Internet users today have the
ability to communicate through e-mail and instant messaging, retrieve news and
information from numerous Internet sources, download music, movies and other
high-bandwidth content, share files over peer-to-peer networks, make online
purchases of goods and services ranging from books to airline tickets, and
generally access a broad range of non-business content and commerce websites. As
the rapid evolution of Internet technology and web content continues, the amount
and types of data, as well as the way people access it, has increased, creating
growing challenges for employers.

         Internet access in the workplace is fast, convenient and essentially
free to employees. In general, employees enjoy quicker and relatively
unrestricted Internet access from their work desktop computers. As a result,
many employees use their employers' computing resources for recreational "web
surfing," peer-to-peer file sharing, downloading of high-bandwidth content,
instant messaging and other personal matters during business hours. However,
this unmanaged non-business use of company computing and network resources,
including Internet access, can result in increased risk and cost to the
employer, including lost employee productivity, increased network bandwidth
consumption, increased network security risks, and potential legal liability.
Additionally, an employee's use of websites that offer free software downloads,
pirated software and peer-to-peer applications may introduce spyware and other
malicious code to the employee's desktop and to the corporate network, placing
valuable corporate data at risk. In recent years, the rapid rise in the use of
instant messaging and peer-to-peer file sharing in the workplace has created new
conduits for viruses and malicious code that bypass traditional network security
measurer. All of these factors can contribute to higher costs for companies that
make computing and network resources available to their employees.




                                        3
<PAGE>

         Traditionally, employers have attempted to mitigate the legal
liability, productivity and bandwidth waste risks through written policies
governing acceptable employee use of computing resources, and protect against
security risks with a combination of external firewalls and anti-virus software.
With the growth in multi-media content, the proliferation of blended viruses,
and the rapid increase in employee use of instant messaging and peer-to-peer
file sharing, employers are finding that these measures are increasingly
inadequate. Written Internet access and software application use policies are
easily ignored, difficult to enforce and often require manual review of log
files, which is both cumbersome and time-consuming. Because this method of
enforcement does not proactively curtail undesirable Internet and software
application usage, employers are forced to take potentially costly disciplinary
actions after the fact. Firewalls can provide protections against external
threats such as hacking, but do little to prevent employees from accessing
unauthorized data from within an organization. Anti-virus software provides
protection from e-mail borne viruses, but does not prevent the possible theft or
corruption of corporate data by spyware and offers only limited protection
against viruses that proliferate via peer-to-peer networks and instant
messaging.

         To address these problems, businesses are recognizing the need for a
proactive approach to managing employee use of the Internet and computing
resources, as well as the need to layer security and policy enforcement measures
across multiple network access points, including the Internet gateway, the
internal network infrastructure and employees' desktops. In the past, many
businesses have sought products that enable them to proactively manage their
employees' Internet access through filtering of URLs. Early Internet filtering
software for the enterprise was largely derived from products that were
originally developed to help parents prevent their children from accessing adult
content at home or in schools, and used keyword matching and dynamic page review
to block content. These products, and other more recent products, are limited to
filtering of website URLs and do not address the evolving nature of Internet use
with the accompanying rise in the use of instant messaging and peer-to-peer file
sharing. Additionally, they typically lack the ability to meet the needs of
growing organizations, cannot operate on multiple network platforms, do not
provide the flexibility required by management, and can be labor-intensive to
deploy, consuming valuable information technology resources. Moreover, these
applications generally do not operate in conjunction with a comprehensive
database that is consistently refreshed and as effective.

         Workplace management of non-business-related use of computing resources
and Internet access is becoming an increasingly important priority for
organizations because of its impact on employee productivity, network bandwidth
consumption, network and data security, and potential legal liability. IDC
estimates that between 30 and 40 percent of all internet use in the workplace is
not related to business and that the employee Internet management market grew to
$750 million in 2004. Given the necessity of corporate Internet access and
consumers' continuing adoption of the web as a mass communication,
entertainment, information and commerce medium, we believe there is a
significant opportunity for an employee Internet management solution that
effectively addresses the needs of businesses to manage employee usage of the
computing environment, including Internet access and desktop application use.
Additionally, although the web and e-mail are the primary drivers of Internet
traffic today, the rapid emergence of Internet-enabled applications creates the
need for software that applies management policies to file types, applications
and protocols, as well as web pages, at multiple points on the network. Software
tools are needed to implement policy-based bandwidth management and regulation
of applications such as instant messaging, peer-to-peer file exchange tools,
interactive games and desktop software applications. These solutions must also
be adaptable enough to mange new applications and technologies as they are
developed.




                                        4
<PAGE>

EMPLOYEE INTERNET MANAGEMENT SOLUTIONS

         Certain of our closest competitors for our Stellar Internet Management
solutions have been offering software applications that enable managers to
select the types of Internet content and applications they wish to allow, block
or continue employee access to, based on the database categories they have
defined. The software applications are loaded onto the customers' servers and
are monitored by the customers' information technology staff. Their software
applications categorize websites in a URL database, and then classify them into
different categories to enable organizations to determine the types of Internet
content that are appropriate for their workplace culture. Their software
applications allow managers to permit or deny Internet access based on the
employee, type of user, time of day, amount of personal surfing time and type of
content being accessed. Most of the content management solutions do not have a
comprehensive archiving solution for their customers.

         With the introduction of Stellar Internet GEM, we now offer a fully
integrated suite of solutions for establishing and consistently enforcing
employee Internet use policies and electronic communications with others inside
and outside of an organization. Stellar Internet GEM archives and filters
internal and external e-mail communications including attachments, instant
messaging activities, and Web site browsing across the enterprise. Stellar
Internet GEM also provides graphical, real-time hierarchal reporting and
immediate warnings for policy violations. Stellar Internet GEM is a complete
archiving solution to assist in compliance records retention and content policy
management. The initial reaction of prospective customers to our designed
Stellar Internet GEM has been very favorable.

         Our Stellar Internet Management solutions enable organizations to
analyze, report and manage how their employees use the Internet, the network and
their desktop computers. Our products provide organizations with the ability to
implement customized Internet access and use policies for different user groups
within the organization, and supports the organization's efforts to improve
employee productivity, conserve network bandwidth, enhance network security and
mitigate potential legal liability. The principal benefits of our products
include:

         Enhanced Network and Data Security. Our employee Internet management
solutions add an additional layer of protection to an organization's network and
data security by monitoring employee access to security-risk web sites such as
those containing malicious mobile code or spyware. This allows an organization
to proactively reduce the risk of malicious mobile code attacks - such as
web-based worms, viruses, Visual Basic scripts and more - and prevent
back-channel communication of important corporate or personal data by spyware
programs.

         Increased Employee Productivity. Our software gives businesses the
ability to more effectively manage employees' use of corporate computing
resources, including Internet access, application use at the desktop and network
bandwidth, thereby reducing non-productive use of these assets by employees. Our
employee Internet management solutions enable organizations to identify the
pattern and scope of employees' Internet use, and to manage access to
non-business related content and applications such as instant messaging. In
addition, our software allows managers to monitor employee use of the Internet
based on the employee, type of user, time of day, amount of personal surfing
time and type of content being accessed, without denying the employee's access
to the Internet.




                                        5
<PAGE>

         Conservation of IT Resources. We believe our employee Internet
management solutions allow organizations to reduce bandwidth consumption by
managing personal Internet use and access to websites, in particular those that
may contain bandwidth-intensive content, such as streaming audio and video, MP3
music files, multi-player games and other new media. Our employee Internet
management solutions further enhance bandwidth management capabilities by
monitoring network usage in real-time and by allowing employee access management
based on bandwidth thresholds. Reducing the bandwidth consumed by
non-business-related Internet traffic allows an organization to use its network
more efficiently and effectively, and helps ensure that bandwidth is available
for mission-critical business applications such as voice-over-IP. By monitoring
access to bandwidth-intensive content, organizations are able to save valuable
network storage from being cluttered with MP3s, images and other files. This
avoids costs arising from the need to buy additional networking equipment or
storage servers.

         Reduced Exposure to Potential Legal Liabilities. Our employee Internet
management solutions support organizations' efforts to reduce exposure to legal
liability resulting from the improper use of the Internet in the workplace. By
implementing our products in conjunction with an overall corporate Internet
usage policy, organizations can proactively curtail access to objectionable
Internet content such as adult entertainment, illegal activities, hate, and
racism.

         In addition to the above benefits, our employee Internet management
solutions include several analysis and reporting capabilities to provide
managers and IT administrators with multiple options for identifying, analyzing
and reporting on Internet and activity and the risks associated with employee
computing. These options include a full-featured reporting engine with
pre-defined and customizable report templates, a real-time analyzer that
provides a current view of network activity and browser-based reporting tools
that allow non-technical managers to view Internet and application use data. In
addition, our employee Internet management solutions are designed to have
minimal impact on network performance by eliminating the need for customers to
install our applications on their servers and maintain them. Our employee
Internet management solutions may be used on a broad range of network platforms,
and work with popular proxy servers, firewalls, cache engines, switches and
routers.

PRODUCTS AND SERVICES

         Our employee Internet management solutions are comprised of three (3)
different product offerings, each tailored to a different customer target group.
These product offerings consist of:

         o      Stellar IM Web Based Edition;

         o      Stellar IM Enterprise Edition; and

         o      Stellar Internet Global Employee Management.

         We also offer our E-Mail Shuttle e-mail migration software solutions. A
description of each of these products is provided below.




                                        6
<PAGE>



Stellar IM Web Based Edition
----------------------------

         Stellar IM Web Based Edition is a web-based product that provides
organizations with the ability to utilize monitoring and reporting technology
without the capital and manpower expenditures necessary to run in-house
solutions. Stellar IM Web Based Edition requires only a small application to run
at a customer's site while the "work" is performed on our servers, utilizing our
manpower and network bandwidth to process the data. Users simply logon via a
secure web site to view their data using real-time reports.

         Monitoring both web browsing and instant messaging conversations,
Stellar IM Web Based Edition is a robust monitoring tool that provides
management with the information that they need, when they need it in real time.
E-mail alert notification is one of the many features available within Stellar
IM Web Based Edition, providing management with a break-down of people and
computers that have violated the organization's Internet usage policy.

         Stellar IM Web Based Edition offers a wide range of functions and key
features including:

         o        web-based reporting that eliminates the need for IT
                  professionals to generate reports for managers, thus allowing
                  them to concentrate on their core responsibilities;

         o        secure, real-time reports that can be viewed online from any
                  computer in the world, giving management the ability to view
                  company activity while out of the office;

         o        data storage, processing and reporting that is performed on
                  our servers, saving organizations expenditures on IT resources
                  and equipment costs; and

         o        alert notifications that provide managers with automated
                  e-mails that contain a list of violations by their employees.

         o        Stellar IM Web Based Edition monitors, reports and alerts on
                  web browsing and instant messaging conversations for all major
                  instant messaging protocols. Activity can be viewed for
                  employees and departments via real-time reports while alerts
                  can be created to flag web sites and instant messaging words
                  or phrases that managers deem inappropriate. Stellar IM Web
                  Based Edition also offers instant messaging archiving for
                  businesses that are required to record and store their
                  messages.

Stellar IM Enterprise Edition
-----------------------------

         Stellar IM Enterprise Edition is a state-of-the-art enterprise solution
that provides IT staff with full control of our SIM database, security and
employee access to information. It provides managers with quick, reliable
reporting on employees' use of the Internet rather than restricting access to
useful websites. Comprehensive activity reports can be generated from the
collected data and used to develop and enforce Internet usage policies as well
as reward productive employees. The enterprise solution provides IT staff with
the in-house capabilities to fully manage our Stellar IM database.




                                        7
<PAGE>

         Stellar IM Enterprise Edition offers a wide range of functions and key
features, including:

System Features

         o        the use of a high-speed, secure, industry standard Oracle
                  database;

         o        Secure encrypted information transfer;

         o        a centrally monitored application service provider
                  environment;

         o        accessibility via a web browser over the Internet from
                  anywhere in the world through secure socket layer connections
                  to our servers;

         o        multiple logons for each organization, each with their own
                  security access restrictions;

         o        remote recording of Internet usage on our servers; and

         o        support for multiple languages.

Monitoring
         o        monitoring of Internet usage on virtually every computer in an
                  organization;

         o        monitoring of web browsing and instant messaging for
                  compliance with human resource Internet usage policies;

         o        distribution of monitored data to our servers using
                  proprietary encrypted data streams, ensuring a high level of
                  security for an organization's information;

         o        consolidation and review of monitored data for compliance
                  based on policies the organization has implemented; and

         o        access to the monitored information through a standard
                  SSL-enabled web browser.

Alerts
         o        Alerts may be used to help monitor activity on an exception
                  basis so that managers don't have to sift through tedious logs
                  to determine if or when employees have broken the
                  organization's Internet usage policy. Managers can receive
                  detailed information about each violation, including:

         o        which user visited which web site;

         o        information about the web sites visited;




                                        8
<PAGE>

         o        alerts if a violation of the organization's Internet usage
                  policy occurs;

         o        drill down viewing of violations;

         o        ability to sort violations by alert type and date range; and

         o        e-mail notification of any alerts.

Secure Reporting

         o        enterprise-wide reporting based on the corporate organization
                  hierarchy;

         o        departmental level management reports, including text and
                  graphical reports, reports by physical location and reports by
                  organizational level;

         o        secure distribution of reports and alerts to department
                  managers with security at every level to ensure that mangers
                  can only access their direct employees' usage;

         o        conversion of hits and time spent online to a cost based on an
                  employee's hourly wage; and

         o        enhanced customized alert categories to allow managers to be
                  notified via e-mail of specific violations in their
                  department.

         Upon an organization's selection of either our Stellar IM Web Based
Edition or our Stellar IM Enterprise Edition, a monitoring program is installed
on one (1) computer on the organization's network. The program monitors the
Internet traffic that the organization wants to monitor, encrypts the
information, then sends small summary information packets of all Internet usage
by the organization's employees to a server. The data is collected and stored in
a database behind a firewall. The data is then available for managers of the
organization to view through our secure applications by means of a standard
browser.

Stellar Internet GEM(TM) (Global Employee Management)
-----------------------------------------------------

         We have completed the initial development of our Stellar Internet GEM
of employee Internet management solutions which provides archiving with complete
fidelity, real-time content filtering, accurate analysis of Internet activity
habits, and real-time reporting of Internet policy violations. Stellar Internet
GEM is a combination of more than ten years of e-mail experience of CompuSven
and our experience with our existing EIM solutions. This new suite of solutions
helps corporations and government agencies worldwide by:

         o        protecting confidential data from being transported out of the
                  organization via e-mail or instant messaging;

         o        archiving Internet activity for both regulatory compliance and
                  legal liability issues;




                                        9
<PAGE>

         o        improving employee productivity;

         o        reducing the use of expensive data processing bandwidth for
                  Internet activities; and

         o        providing audit and investigatory capabilities for Internet
                  activities.

Stellar Internet GEM is composed of the following three modules:
----------------------------------------------------------------

         o        Stellar Web Browser(TM) - manages Web browsing by filtering,
                  reporting, altering and archiving employee Web browsing
                  activity. The web browser prevents access to websites that are
                  restricted in accordance with company policy while at the same
                  time enables organizations to maintain compliance with
                  industry regulations including those imposed by Sarbanes-Oxley
                  and HIPAA;

         o        Stellar E-Mail Manager - manages inbound, outbound and
                  internal e-mail including attachments. E-Mail Manager prevents
                  e-mail from being sent which contains confidential information
                  or which could form the basis of a potential lawsuit. E-Mail
                  Manager also archives e-mail communications to satisfy
                  industry regulations imposed by the NASD, SEC, Sarbanes-Oxley
                  and HIPAA;

         o        Stellar IM Manager - filters, archives and reports on instant
                  messaging communications. Industry regulations imposed by the
                  NASD and SEC require that all electronic communications be
                  archived. Stellar IM Manager also filters instant messages for
                  policy violations and can either report the violation or block
                  the message.

The initial introduction of Stellar Internet GEM has been well received by the
market and we expect it to be a major component of the future growth of our
business.

Stellar E-Mail Shuttle
----------------------

         The Stellar E-Mail Shuttle(TM) is an e-mail migration and coexistence
product that provides e-mail migration and data synchronization between e-mail
systems, known as Anywhere2Anywhere technology. Stellar E-Mail Shuttle helps
organizations with multiple e-mail platforms consolidate to a single we-mail
platform saving both computer hardware and technical resources. Stellar E-Mail
Shuttle has helped some of the largest organizations in the world; especially
those acquiring other organizations and those modernizing their computer
operations. The e-mail systems supported by the Stellar E-Mail Shuttle include:
Microsoft (R) Exchange Server/Outlook, Lotus (R) Domino/Notes, Novell Groupwise
(R) and any IMAP4 e-mail system. The Stellar E-Mail Shuttle migrates and/or
synchronizes inboxes, public folders and directories, calendars, bulletin
boards, conferences, to-do lists, and groups. Its modular design includes
extractor and loader components which allow migration from multiple systems at
any one time from a single management console called Launchpad(TM).






                                       10
<PAGE>



TECHNOLOGY

         Our Stellar Internet Monitoring solutions comprise a server-based
system designed to function in networks of virtually any size and configuration.
Our Stellar Internet Monitoring solutions are composed of a system of analyzing,
reporting and managing applications integrated in a proprietary central policy
engine. We use a process of automated content assessment and classification with
manual verification to gather and classify new websites and applications for our
databases. Our automated search technology uses Java-based tools and proprietary
algorithmic classification systems to automatically search the Internet to
identify and catalog websites. It is designed to accommodate network growth
without impairing performance or requiring major infrastructure modifications
and can scale to support networks of a virtually unlimited number of users on a
single server and networks of virtually any size using multiple servers. We have
designed our products to run on multiple network platforms and in multiple
locations. Our SIM solutions integrate with major firewalls, proxy servers,
caching engines, network switches and routers.

         Our new Stellar Internet GEM solution provides the full functionality
of our Stellar Internet Monitoring solutions as well as:

         o        Comprehensive archival for e-mail and instant messaging
                  including all attachments;

         o        Content management with blocking for e-mail, instant messaging
                  with Web surfing including attachments; and

         o        Improved use of categories and regular expressions that allows
                  for flexible, uniform and effective internet policy
                  enforcement.

STRATEGY

         Our strategy is to maintain and strengthen our position in the market
for employee Internet management products and services. Key components of our
strategy include the following:

         Increase Sales to Existing Customers. Many of our customers are
organizations with hundreds or thousands of Internet-enabled employees. In most
cases, these customers initially deploy our Stellar Internet Management
solutions in one or two internal departments and pay licensing fees based only
on the number of Internet users in those departments. We believe that there is a
large opportunity to sell our existing customers licenses for additional
Internet users within their organizations. We intend to aggressively pursue
renewals of existing licenses and enterprise-wide deployment of our Stellar
Internet Monitoring solutions within our existing customer base.

         Aggressively Leverage Indirect Sales Channels. We currently have
relationships with value-added resellers that focus on the U.S. market. Our
indirect sales channels accounted for less than 10% of our licensing revenue for
the year ended June 30, 2005. We intend to increase these channels through our
Stellar Partner Channel Program and, accordingly, expect that the percentage of
our total sales derived from our indirect channels will increase in the future.
We also plan to improve the productivity of our existing value-added resellers
through lead development, marketing support, sales assistance and training. We
intend to aggressively leverage and expand our indirect sales changes in both
the domestic and international markets, through recruitment programs and our
Stellar Partner Channel Program.




                                       11
<PAGE>

         Expand Our Customer Base. Our products have been deployed in more than
500 organizations worldwide. We believe our large installed base of customers
provides our products with market credibility, and we intend to leverage this
credibility to further our market penetration. To address opportunities abroad,
we intend to continue to increase the number of international resellers
participating in our Stellar Partner Channel Program. Given the relatively
higher costs of Internet access in many foreign markets, we believe that the
need to mange employee Internet use will be cost-driven.

         Expand Our EIM Solutions Product Offering. We intend to continuously
develop and update our software and database in order to keep current with the
evolution of employee Internet management technology. We plan to offer our
customers enhanced reporting and management applications and provide additional
software features that address additional categories of worker productivity and
enterprise bandwidth consumption. We may also acquire additional employee
Internet management technologies complementary to our existing solutions to
expand the breadth of our product offering.

         Develop and Maintain Leading Employee Internet Management Processes and
Technologies. We intend to continue developing proprietary processes and
technologies that give us what we believe is a distinct advantage over our
competitors. We believe our competitive advantage lies in the ability of our
employee Internet management solutions to enable organizations to monitor
employee access to websites, employee use of network bandwidth and employee
software application use at the desktop, without restricting the employees'
access to web sites, as well as the ability of our employee Internet management
solutions to capture information on Internet usage and store it on our remote
secured servers that we maintain, rather than requiring customers to load the
applications onto their servers and maintain it themselves. We intend to
continue to develop software and technology that will facilitate the integration
of our products with the systems of our customers and Internet infrastructure
providers. We believe that this will enable us to offer our products to a
broader customer base than our competitors.

         Work Closely With Internet Infrastructure Providers. We intend to
continue to work closely with Internet infrastructure providers and to continue
to modify our software to integrate with these providers' products. We also
intend to continue to work with these providers to migrate our software
applications deeper into the network infrastructure, from proxy servers,
firewalls and cache engines, to network routers. In addition, we plan to
continue to sponsor co-marketing programs with these companies to associate our
SIM solutions with their established brands so as to further enhance our market
position.



                                       12
<PAGE>



SALES, MARKETING AND DISTRIBUTION

         We sell our products and services through direct channels and through
indirect channels comprising a network of more than 15 value-added resellers.
Our channel sales efforts are coordinated worldwide through a sales team of 4
individuals. We derive substantially all of our employee Internet management
revenue from licensing fees that we receive upon the sale of our Stellar
Internet Monitoring solutions. Our customers generally enter into licensing
agreements with us that are typically 12, 24 or 36 months in duration and for a
fixed number of users. We promptly invoice customers for the full amount of
their license at the time the license is activated. Payment is due generally
within 30 days of the invoice for the full term of the license. We record
amounts billed to customers in excess of recognizable revenue as deferred
revenue on our balance sheet.

         Our marketing strategy is to raise awareness of the potential risks
associated with unmanaged employee use of corporate computing resources,
generate qualified sales leads for our channel partners and increase recognition
of Stellar Internet Monitoring(TM), Stellar E-mail Shuttle(TM) and Stellar
Internet GEM as employee Internet management solutions. Our marketing efforts
are targeted toward business executives, including information technology
professionals, chief executives, upper-level management and human resource
personnel. We actively manage our public relations programs, communicating
directly with technology professionals and the media in an effort to promote
greater awareness for the growing problems caused by employee misuse of the
Internet and other computing resources at work. We also provide potential
customers and channel partners with free trials of our employee Internet
management solutions, typically for 30-day periods. Our additional marketing
initiatives include:

         o        advertising online and in high-technology magazines,
                  management journals and other business-oriented periodicals;

         o        participating in and sponsoring trade shows and industry
                  events;

         o        hosting regional and international seminars, webinars and
                  training sessions for our sales organization and reseller
                  partners, as well as customers and prospects;

         o        participating in cooperative marketing efforts with our
                  Internet infrastructure partners including web link exchanges,
                  joint press announcements, joint trade show activities,
                  channel marketing campaigns, road shows and seminars;

         o        conducting speaking engagements on topics of interest to our
                  customers and prospects;

         o        using our website to communicate with our indirect sales
                  channels, and provide product and company information to
                  interested parties; and

         o        providing and distributing soft- and hard- copy materials on
                  our company, products, solutions, technologies, partnerships
                  and benefits.




                                       13
<PAGE>

         Our strategic vision is to build long-term partnerships with our
customers that help our customers maximize the success of their businesses. In
furtherance of this, we have designed and implemented the Stellar Partner
Channel Program to allow our reseller and partner channel to be our primary
source of sales of our Internet management solutions to our customers. The
purpose of this program is to reward our service partners for both the initial
sale of our Internet management solutions to a customer and the monthly
recurring revenue streams generated by such customer's continued use of our
Internet management solutions. We believe that this provides a valuable
incentive to our reseller partners to market our products and services to their
customer base.

         Our service provider network is comprised of managed security, network
and human resource companies that work with us towards delivering quality,
online service solutions to our customers. Our reseller partner network consists
of resellers worldwide that resell our Stellar Internet GEM, Stellar Internet
Monitoring,(TM) and Stellar E-mail Shuttle(TM) solutions to their customer base.
We also provide our reseller partners with numerous benefits designed to
incentivize them to present our Internet management and E-mail migration
solutions to their customer base, including:

         o        discounted in-house use of our employee Internet management
                  solutions and free technical support for in-house use of our
                  employee Internet management solutions;

         o        sales and marketing support, including sales tools such as
                  white papers, Internet usage audit reports, Internet abuse
                  fact sheets, brochures and other materials designed to assist
                  them in selling our employee Internet management solutions;

         o        a web-based reseller tutorial designed to help our resellers
                  in understanding the benefits of our employee Internet
                  management solutions;

         o        access to our regional partner managers to assist our
                  resellers in qualifying leads, sales calls, conference calls,
                  volume pricing and other support in presenting our employee
                  Internet management solutions to potential customers; and

         o        access to marketing opportunities in advertising, trade shows
                  and similar media where our employee Internet management
                  solutions can provide visibility for our partners.

CUSTOMERS

         We have more than 400 customers ranging in size from organizations with
as few as 100 employees to global 1000 companies, and include government
agencies and educational institutions. As of June 30, 2005, these customers had
subscribed to a total of approximately 4,000,000 seats. For the year ended June
30, 2005, none of our customers accounted for more than ten percent (10%) of our
total revenues.

         Some of our key customers include the following:





                                       14
<PAGE>

         o        Char-Broil - W.C. Bradley Holding Company;

         o        Central DePage Healthcare;

         o        Comtech Telecommunications Corp.;

         o        Cook County Government, Chicago, Illinois;

         o        Shutts & Bowne, LLP;

         o        Coconut Grove Bank;

         o        Bank of America;

         o        Public Supermarkets; and

         o        Iowa State Penitentiary

CUSTOMER SERVICE, TRAINING AND SUPPORT

         We believe that superior customer support is critical to retaining and
expanding our customer base. Our technical support group provides dependable and
timely resolution of customer technical inquiries and is available to customers
by telephone, e-mail and over the web, and our training services group delivers
education, training and pre-sales support to our customers. We also offer online
training to our customers and resellers to provide them with the knowledge and
skills to successfully deploy, use and maintain our products. Our customer
service team is responsible for handling general customer inquires, answering
questions about the ordering process, updating and maintaining customer account
information, investigating the status of orders and payments, as well as
processing customer orders. In addition, our customer service team proactively
updates customers on a variety of topics, including release dates of new
products and updates to existing products.

COMPETITION

         The market for our products is fragmented, highly and increasingly
competitive, quickly evolving and subject to rapid technological change.
Increased competition may result in reduced market acceptance of our products,
pricing pressure and reduced gross margins, any of which could seriously harm
our business. Competitors vary in size and in scope and breadth of the products
and services they offer. Our current principal competitors include:

         o        companies offering network filtering products, such as
                  Websense, SurfControl, Tumbleweed, Secure Computing, Symantec,
                  8e6 Technologies, Webwasher, Elron and Cerberian;

         o        companies offering network reporting products, such as NetIQ
                  and Wavecrest Computing; and





                                       15
<PAGE>

         o        companies integrating URL filtering into specialized security
                  appliances, such as SonicWALL and Internet Security Systems.

         We also face current and potential competition from vendors of Internet
servers, operating systems and networking hardware, many of which now or may in
the future develop and/or bundle EIM or other competitive products with their
offerings. We compete against and expect increased competition from anti-virus
software developers, traditional network management software developers, and web
management service providers. We may face new competition from companies
offering quality of service solutions, such a Packeteer; companies with a direct
presence on computer desktops, such as Microsoft; and companies offering desktop
management solutions, such as Altiris.


         Many of our current and potential competitors have longer operating
histories and significantly greater financial, technical, marketing or other
resources than we do. They may have significantly greater name recognition,
established marketing relationships and access to a larger installed base of
customers. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the functionality of their products to address customer needs.
Accordingly, new competitors or alliances among competitors may emerge and
rapidly acquire significant market share.

         We believe that the principal competitive factors in the market for our
products include:

         o        a product's ability to scale and support the requirements of
                  complex networks;

         o        the robustness of the solution, allowing management of
                  emerging software and Internet applications, protocols and
                  URLs;

         o        the use of a large and professionally maintained database;

         o        the breadth of the product offering;

         o        the depth of the product's monitoring, reporting and analysis
                  capabilities;

         o        the capacity of an industry participant to integrate with key
                  network providers;

         o        the quality of customer support provided by the industry
                  participant; and

         o        the price at which the products are offered to customers.

INTELLECTUAL PROPERTY RIGHTS

         Our intellectual property rights are important to our business. We rely
upon confidentiality procedures and contractual provisions to protect our
proprietary technology and our SIM brand. Our general policy is to enter into
confidentiality agreements with our employees and consultants, and nondisclosure
agreements with all other parties to whom we disclose confidential information.





                                       16
<PAGE>

         We do not have any trademark registrations for our SIM brand or patents
relating to our proprietary technologies, nor do we have any applications for
such rights pending. We intend to apply for legal protection for certain of our
intellectual property in the future. However, we can provide no assurance that
we will receive such legal protection or that, if received, such legal
protection will be adequate to protect our intellectual property rights.

RESEARCH AND DEVELOPMENT

         We have invested significant time and resources in creating a
structured process for undertaking product and database development projects.
Members of our research and development department are involved with database
production, software development, validation and testing, documentation and
research. They work as part of cross-disciplined teams designed to provide a
framework for defining and addressing the activities required to bring product
concepts and development projects to market successfully. Research and
development expenses totaled $193,853 for the year ended June 30, 2005 and
$55,507 for the six months ended June 30, 2004.

EMPLOYEES

         As of October 14, 2005, we had 14 employees. Of this number, 13 were
full-time employees and 1 was a part-time employee. None of our employees are
represented by a labor union, and we have never experienced a work stoppage. We
believe that our relations with our employees are good.

REGULATORY AND LEGISLATIVE ISSUES

         As use of the Internet has become more prevalent and various negative
issue associated with the Internet have received increasing amounts of
publicity, there has been a correspondingly greater amount of governmental
attention directed to the Internet in the United States Congress and elsewhere.
While various pieces of legislation regulating different aspects of the Internet
and Internet-related activity have been proposed, to date there has been no
legislation enacted that places any direct and substantial regulatory burden on
us. Nonetheless, we anticipate further attempts to regulate internet-related
activity in the future, some of which may impose substantial burdens on our
ability to do business.






                                       17
<PAGE>
                                  RISK FACTORS

         An investment in our common stock involves a high degree of risk. You
should carefully consider the following risk factors in addition to other
information in this Annual Report on Form 10-KSB before purchasing our common
stock. The risks and uncertainties described below are those that we currently
deem to be material and that we believe are specific to our company and our
industry. In addition to these risks, our business may be subject to risks
currently unknown to us. If any of these or other risks actually occurs, our
business may be adversely affected, the trading price of our common stock may
decline and you may lose all or part of your investment.

                       RISKS ASSOCIATED WITH OUR BUSINESS

BASED ON OUR RECURRING LOSSES FROM OPERATIONS, OUR AUDITORS HAVE INCLUDED AN
EXPLANATORY PARAGRAPH IN THEIR OPINION AS TO THE SUBSTANTIAL DOUBT ABOUT OUR
ABILITY TO CONTINUE AS A GOING CONCERN.

         We have met our working capital requirements through financing
transactions involving the private placement of our securities. We do not expect
our current working capital to support our operations through June 2005 and we
are in need of substantial additional capital to fund operations. Since our
inception, we have not generated any significant revenue, have experienced
substantial losses, including approximately $6 million during the year ended
June 30, 2005, and we currently have negative working capital. As a result of
these factors, our independent auditors have included an explanatory paragraph
in their opinion for the year ended June 30, 2005 as to the substantial doubt
about our ability to continue as a going concern. Our financial statements have
been prepared in accordance with accounting principals generally accepted in the
United States, which contemplate that we will continue to operate as a going
concern. Our financial statements do not contain any adjustments that might
result if we are unable to continue as a going concern.

WE ARE AN EARLY-STAGE COMPANY WITH AN UNPROVEN BUSINESS MODEL, WHICH MAKES IT
DIFFICULT FOR US TO EVALUATE OUR CURRENT BUSINESS AND FUTURE PROSPECTS.

         We have only a limited operating history upon which to base an
evaluation of our current business and future prospects. We have only been
offering our employee Internet management ("EIM") applications since 2001. As a
result, the revenue and income potential of our business and our market are
unproven. In addition, we have very limited historical data with respect to
sales of our Stellar Internet Monitoring ("SIM") solutions because we sell our
SIM solutions under licensing agreements generally ranging in duration from 12
to 36 months and have been licensing our SIM solutions for less than three (3)
years. Because of our limited operating history and because the market for EIM
products is relatively new and rapidly evolving, we have limited insight into
trends that may emerge and affect our business. We may make errors in predicting
and reacting to relevant business trends, which could harm our business.

         Before purchasing our common stock, you should consider an investment
in our common stock in light of the risks, uncertainties and difficulties
frequently encountered by early-stage companies in new and rapidly evolving
markets such as ours, including those described herein. We may not be able to
successfully address any or all of these risks. Failure to adequately address
such risks could cause our business, financial condition and results of
operations to suffer.






                                       18
<PAGE>

WE HAVE A HISTORY OF LOSSES AND, BECAUSE WE EXPECT OUR OPERATING EXPENSES TO
INCREASE IN THE FUTURE, WE DO NOT EXPECT TO BECOME PROFITABLE IN THE NEAR TERM,
IF EVER.

         We have experienced net losses in each fiscal quarter since our
inception and as of June 30, 2005, we had an accumulated deficit of
approximately $12.5 million. We incurred net losses to common shareholders of
approximately $6 million during the year ended June 30, 2005, and approximately
$3.3 million during the six months ended June 30, 2004. We expect to continue to
incur significant net losses for the foreseeable future. We also expect our
operating expenses to continue to increase as we:

         o        expand our domestic and international selling and marketing
                  activities;

         o        increase our research and development efforts to upgrade our
                  existing SIM solutions and develop new products and
                  technologies;

         o        upgrade our operational and financial systems, procedures and
                  controls;

         o        hire additional personnel, including additional engineers and
                  other technical staff; and

         o        fulfill our responsibilities associated with being a public
                  company.

WE MAY NEED TO RAISE ADDITIONAL FUNDS IN THE FUTURE, WHICH FUNDS MAY NOT BE
AVAILABLE OR, IF AVAILABLE, MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS.

         We expect that our operating expenses will continue to increase over
the next 12 months. In addition, we may experience a material decrease in
liquidity due to unforeseen capital requirements or other events and
uncertainties. As a result, we may need to raise additional funds, and such
funds may not be available on favorable terms, if at all. If we cannot raise
funds on acceptable terms, we may not be able to develop or enhance our software
applications, execute on our business plan, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.
This may seriously harm our business, financial condition and results of
operations.

OUR FUTURE SUCCESS DEPENDS ON OUR EXISTING CUSTOMERS RENEWING AND PURCHASING
ADDITIONAL LICENSES OF OUR SIM SOLUTIONS.

         Our future success depends on our ability to achieve substantial
revenue from customer renewals for licenses of our SIM solutions. Licenses for
our SIM solutions typically have durations of 12, 24 or 36 months, and our
customers have no obligation to renew such licenses upon expiration. As a
result, we may be unable to generate significant revenue from renewals. In order
to maintain our revenue, we must be successful in renewing our license
agreements.

         Our future success also depends on our ability to license additional
services or product offerings to existing customers. As a result, to increase
our revenue, we must obtain greater penetration of our existing customers to
obtain greater coverage of their workforces.





                                       19
<PAGE>

BECAUSE WE RECOGNIZE REVENUE FROM LICENSING FEES FOR OUR SIM SOLUTIONS RATABLY
OVER THE TERM OF THE SUBSCRIPTION, DOWNTURNS IN SALES MAY NOT BE IMMEDIATELY
REFLECTED IN OUR REVENUE.

         We expect that nearly all of our revenue for the foreseeable future
will come from the licensing of our SIM solutions. Upon execution of a licensing
agreement, we invoice our customers for the full term of the licensing
agreement. We then recognize revenue from customers monthly over the terms of
their licensing agreements, which typically have durations of 12, 24 or 36
months. As a result, a majority of the revenue we report in each quarter is
deferred revenue from license agreements entered into and paid for during
previous quarters. Because of this financial model, the revenue we report in any
quarter or series of quarters may not be a reliable indicator of market
acceptance of our SIM solutions.

WE MUST DEVELOP AND EXPAND OUR INDIRECT SALES CHANNELS TO INCREASE REVENUE AND
IMPROVE OUR OPERATING RESULTS.

         We currently sell our products both directly and indirectly. We intend,
however, to rely increasingly on our indirect sales channels. We depend on our
indirect sales channels, including value-added resellers, distributors and
Internet service providers, to offer our SIM solutions to a larger customer base
than we can reach through our direct sales efforts. We will need to expand our
existing relationships and enter into new relationships in order to increase our
current and future market share and revenue. We cannot assure you that we will
be able to maintain and expand our existing relationships or enter into new
relationships, or that any new relationships will be available on commercially
reasonable terms. If we are unable to maintain and expand our existing
relationships or enter into new relationships, we may lose customer
introductions and co-marketing benefits and our operating results may suffer.

OUR INCREASING RELIANCE ON INDIRECT SALES CHANNELS COULD RESULT IN REDUCED
REVENUE GROWTH BECAUSE WE HAVE LITTLE CONTROL OVER OUR VALUE-ADDED RESELLERS,
DISTRIBUTORS AND ORIGINAL EQUIPMENT MANUFACTURERS.

         We anticipate that sales from our various indirect sales channels,
including value-added resellers, distributors, providers of managed Internet
services and others, will account for a larger percentage of our total revenue
in future periods. None of these parties is obligated to continue selling our
products or to make any purchases from us. Our ability to generate increased
revenue depends significantly upon the ability and willingness of our indirect
sales channels to market and sell our products to organizations worldwide. If
they are unsuccessful in their efforts or are unwilling or unable to market and
sell our new product offerings, our operating results may suffer. We cannot
control the level of effort these parties expend or the extent to which any of
them will be successful in marketing and selling our products. A number of our
value-added resellers and distributors have been adversely affected by the
global economic downturn and we believe that their financial difficulties may
negatively impact their ability to sell and market our SIM solutions. Some of
our indirect sales channels also market and sell products that compete with our
SIM solutions or may decide to do so in the future. We may not be able to
prevent these parties from devoting greater resources to support our
competitors' products and reducing or eliminating their efforts to sell our SIM
solutions.




                                       20
<PAGE>

BECAUSE WE EXPECT TO DERIVE SUBSTANTIALLY ALL OF OUR FUTURE REVENUE FROM
LICENSING FEES FOR OUR SIM SOLUTIONS, ANY FAILURE OF THIS PRODUCT TO SATISFY
CUSTOMER DEMANDS OR TO ACHIEVE MEANINGFUL MARKET ACCEPTANCE MAY SERIOUSLY HARM
OUR BUSINESS.

         Substantially all of our revenue come from licensing fees for our SIM
solutions, and we expect this trend to continue for the foreseeable future. If,
for any reason, revenues from the licensing of our SIM solutions decline or do
not grow as rapidly as we anticipate, our operating results and our business may
be significantly impaired. If our SIM solutions fail to meet the needs of our
target customers, or if they do not compare favorably in price and performance
to competing products, our growth may be limited. We cannot assure you that our
SIM solutions will achieve any meaningful market acceptance. Our future
financial performance also will depend, in part, on our ability to diversify our
offerings by successfully developing, introducing and gaining customer
acceptance of new products and enhanced versions of our SIM solutions. We cannot
assure you that we will be successful in achieving market acceptance of any new
products that we develop or of enhanced versions of our SIM solutions. Any
failure or delay in diversifying our existing offering could harm our business,
financial condition and results of operations.

WE MAY NOT BE ABLE TO DEVELOP ACCEPTABLE NEW PRODUCTS OR ENHANCEMENTS TO OUR
EXISTING PRODUCTS AT A RATE REQUIRED BY OUR RAPIDLY CHANGING MARKET.

         Our future success depends on our ability to develop new products or
enhancements to our existing products that keep pace with rapid technological
developments and that address the changing needs of our customers. Although our
SIM solutions are designed to operate with a variety of network hardware and
software platforms, we will need to continuously modify and enhance our SIM
solutions to keep pace with changes in Internet-related hardware, software,
communication, browser and database technologies. We may not be successful in
either developing such products or timely introducing them to the market. In
addition, uncertainties about the timing and nature of new network platforms or
technologies, or modifications to existing platforms or technology, could
increase our research and development expenses. The failure of our products to
operate effectively with the existing and future network platforms and
technologies may limit or reduce the market for our products, result in customer
dissatisfaction and seriously harm our business, financial condition and results
of operations.

FAILURE OF OUR PRODUCTS TO WORK PROPERLY COULD IMPACT SALES, INCREASE COSTS, AND
CREATE RISKS OF POTENTIAL NEGATIVE PUBLICITY AND LEGAL LIABILITY.

         Because our products are complex and are deployed in a wide variety of
complex network environments, they may have errors or defects that users
identify after deployment, which could harm our reputation and our business. In
addition, products as complex as ours frequently contain undetected errors when
first introduced or when new versions or enhancements are released. We have from
time to time found errors in versions of our SIM solutions and we may find such
errors in the future. The occurrence of errors could adversely affect licenses
of our products, divert the attention of engineering personnel from our product
development efforts and cause significant customer relations problems. In
addition, given that EIM technology generally, and our SIM solutions
specifically, have yet to gain widespread acceptance in the market, any delays
would likely have a more detrimental impact on our business than if we operated
in a more established industry.




                                       21
<PAGE>

         In addition, because customers rely on our SIM solutions to manage
employee behavior, any significant defects or error in our products may result
in negative publicity or legal claims. Negative publicity or legal claims could
seriously harm our business, results of operations and financial condition. In
addition, our SIM solutions' capability to report Internet data retrieval
requests and software application execution requests along with the workstations
from which they originated may result in negative publicity or legal claims
based on potential privacy violations.

OUR FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY AND STELLAR BRAND
COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.

         Intellectual property is important to our success. We generally rely
upon confidentiality procedures and contractual provisions to protect our
proprietary technology and our SIM brand, and we intend to apply for legal
protection for certain of our intellectual property in the future. Any such
legal protection we obtain may be challenged by others or invalidated through
administrative process or litigation. Furthermore, legal standards relating to
the validity, enforceability and scope of protection of intellectual property
rights are uncertain, and adequate legal protection of our intellectual property
may not be available to us in every country in which we intend to sell our
products. The laws of some foreign countries may not be as protective of
intellectual property rights as United States laws, and their mechanisms for
enforcement of intellectual property rights may be inadequate. As a result, our
means of protecting our proprietary technology and brands may be inadequate.
Furthermore, despite our efforts, we may be unable to prevent third parties from
infringing upon or misappropriating our intellectual property. Any such
infringement or misappropriation could have a material adverse effect on our
business, financial condition and results of operations.

WE MAY BE SUED BY THIRD PARTIES FOR ALLEGED INFRINGEMENT OF THEIR PROPRIETARY
RIGHTS.

         The software and Internet industries are characterized by the existence
of a large number of patents, trademarks and copyrights, and by frequent
litigation based on allegations of patent infringement or other violations of
intellectual property rights. As the number of entrants into our market
increases, the possibility of an intellectual property claim against us grows.
Our technologies and products may not be able to withstand any third-party
claims or rights against their use. Any intellectual property claims, with or
without merit, could be time-consuming and expensive to litigate or settle, and
could divert management attention from the execution of our business plan.




                                       22
<PAGE>

OUR SYSTEMS MAY BE VULNERABLE TO SECURITY RISKS OR SERVICE DISRUPTIONS THAT
COULD HARM OUR BUSINESS.

         Although we have taken measures to secure our systems against security
risks and other causes of disruption of electronic services, our servers are
vulnerable to physical or electronic break-ins and service disruptions, which
could lead to interruptions, delays, loss of data or the inability to process
customer requests. Such events could be very expensive to remedy, could damage
our reputation and could discourage existing and potential customers from using
our products. Any such events could substantially harm our business, results of
operations and financial condition.

IF WE ACQUIRE ADDITIONAL COMPANIES OR TECHNOLOGIES IN THE FUTURE, SUCH COMPANIES
AND TECHNOLOGIES COULD PROVE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS,
DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS.

         We intend to acquire or make investments in complementary companies,
businesses, assets and technologies in the future. We have only made one such
acquisition, and therefore, our ability to make acquisitions or investments is
unproven. Acquisitions and investments involve numerous risks, including:

     o   difficulties in integrating operations, technologies, services and
         personnel;

     o   the diversion of financial and management resources from existing
         operations;

     o   the risk of entering new markets;

     o   the potential loss of key employees; and

     o   the inability to generate sufficient revenue to offset acquisition or
         investment costs.

         In addition, if we finance any acquisitions by issuing convertible debt
or equity securities, our existing stockholders may be diluted which could
affect the market price of our stock. As a result, if we fail to properly
evaluate and execute any acquisitions or investments, our business and prospects
may be seriously harmed.

OUR CONTINUED GROWTH COULD STRAIN OUR PERSONNEL AND INFRASTRUCTURE RESOURCES,
AND IF WE ARE UNABLE TO IMPLEMENT APPROPRIATE CONTROLS AND PROCEDURES TO MANAGE
OUR GROWTH, WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS PLAN.

         We continue to experience rapid growth in our operations, which has
placed, and will continue to place, a significant strain on our management,
administrative, operational and financial infrastructure. Our future success
will depend in part upon the ability of our senior management to manage growth
effectively. This will require us to hire and train additional personnel to
manage our expanding operations. In addition, we will be required to continue to
improve our operational, financial and management controls and our reporting
systems and procedures. If we fail to successfully manage our growth, we may be
unable to execute upon our business plan.

WE FACE INCREASING COMPETITION FROM MORE ESTABLISHED COMPANIES THAT HAVE
SIGNIFICANTLY GREATER RESOURCES THAN WE DO, WHICH MAY PLACE PRESSURE ON OUR
PRICING AND WHICH COULD PREVENT US FROM INCREASING REVENUE OR ATTAINING
PROFITABILITY.




                                       23
<PAGE>

         The market for our products is intensely competitive and is likely to
become even more so in the future. Our current principal competitors may offer
their products at a significantly lower price than our SIM solutions, which
could result in pricing pressures on licenses of our product and in the
commoditization of EIM products. If we are unable to maintain the current
pricing on sales of our SIM solutions or increase our pricing in the future, our
results of operations could be negatively impacted. In addition, pricing
pressures and increased competition generally could result in reduced licensing,
reduced margins or the failure of our SIM solutions to achieve or maintain more
widespread market acceptance, any of which could have a material adverse effect
on our business, financial condition and results of operations. Our current
principal competitors include:

     o   companies offering network filtering products, such as Websense,
         SurfControl, Tumbleweed, Secure Computing, Symantec, 8e6 Technologies,
         Webwasher, Elron, and Cerberian;

     o   companies offering network reporting products, such as NetIQ and
         Wavecrest Computing; and

     o   companies integrating URL filtering into specialized security
         appliances, such as SonicWALL and Internet Security Systems.

We also face current and potential competition from vendors of Internet servers,
operating systems and networking hardware, many of which have developed and/or
bundle, or may in the future develop and/or bundle, EIM or other competitive
products with their products. We compete against, and expect increased
competition from, anti-virus software developers, traditional network management
software developers and web management service providers. We may face new
competition from companies offering quality of service solutions, such as
Packeteer, companies with a direct presence on computer desktops, such as
Microsoft, and companies offering desktop management solutions, such as Altiris.
If EIM functions become standard features of Internet-related hardware or
software, the demand for our SIM solutions may decrease. In addition, our own
indirect sales channels may decide to develop or sell competing products instead
of our SIM solutions. Moreover, even if our SIM solutions provide greater
functionality and are more effective than the products offered by vendors of
Internet-related hardware or software, potential customers might accept this
limited functionality in lieu of purchasing our SIM solutions.

         Many of our potential competitors enjoy substantial competitive
advantages, such as:

     o   greater name recognition and larger marketing budgets and resources;

     o   established marketing relationships and access to larger customer
         bases; and

     o   substantially greater financial, technical and other resources.

As a result, they may be able to respond more quickly and effectively than we
can to new or changing opportunities, technologies, standards or customer
requirements. For all of the foregoing reasons, we may not be able to compete
successfully against our current and future competitors.



                                       24
<PAGE>



WE ARE DEPENDENT ON OUR MANAGEMENT TEAM, AND THE LOSS OF ANY KEY MEMBER OF THIS
TEAM MAY PREVENT US FROM IMPLEMENTING OUR BUSINESS PLAN IN A TIMELY MANNER.

         Our success depends largely upon the continued services of our
executive officers and other key management and development personnel. We are
also substantially dependent on the continued service of our existing
engineering personnel because of the complexity of our products and
technologies. With the exception of our President, Donald R. Innis, we do not
have an employment agreement with any of our officers, management or other key
personnel and, therefore, they may terminate their employment with us at any
time without penalty. We do not maintain key person life insurance policies on
any of our employees. The loss of one or more of our key employees could
seriously harm our business, financial condition or results of operations. In
such an event we may be unable to recruit personnel to replace these individuals
in a timely manner, or at all, on acceptable terms.

BECAUSE COMPETITION FOR OUR TARGET EMPLOYEES IS INTENSE, WE MAY NOT BE ABLE TO
ATTRACT AND RETAIN THE HIGHLY SKILLED EMPLOYEES THAT WE NEED TO SUPPORT OUR
PLANNED GROWTH.

         To execute our growth plan, we must attract and retain highly qualified
personnel. We need to hire additional personnel in virtually all operational
areas, including selling and marketing, research and development, operations and
technical support, customer service and administration. Competition for these
personnel remains intense, especially for engineers with high levels of
experience in designing and developing software and Internet-related products.
We may not be successful in attracting and retaining qualified personnel. We
have from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. Many of the companies with which we
compete for experienced personnel have greater resources than we have. If we
fail to attract new personnel or retain and motivate our current personnel, our
business and future growth prospects could be severely harmed.

                       RISKS ASSOCIATED WITH OUR INDUSTRY

THE MARKET FOR OUR PRODUCTS CONTINUES TO EMERGE, AND IF WE ARE NOT SUCCESSFUL IN
PROMOTING AWARENESS OF THE NEED FOR OUR SIM SOLUTIONS AND OF OUR STELLAR BRAND,
OUR GROWTH MAY BE LIMITED.

         Based on our experience with potential customers, we believe that many
corporations do not recognize or acknowledge the existence or scope of problems
caused by employee misuse of the Internet or of their computers. In addition,
there may be a time-limited opportunity to achieve and maintain a significant
share of the market for EIM and our other products due in part to the emerging
nature of these markets and the substantial resources available to our existing
and potential competitors. If employers do not recognize or acknowledge these
problems, then the market for our SIM solutions may develop more slowly than we
expect, which could adversely affect our operating results. Developing and
maintaining awareness of our Stellar brand is critical to achieving widespread
acceptance of our existing and future products. Furthermore, we believe that the
importance of brand recognition will increase as competition in our market
develops. Successful promotion of our Stellar brand will depend largely on the
effectiveness of our marketing efforts and on our ability to develop reliable
and useful products at competitive prices. If we fail to successfully promote
our Stellar brand, or if our expenses to promote and maintain our Stellar brand
are greater than anticipated, our financial condition and results of operations
could suffer.





                                       25
<PAGE>

THE SUCCESS OF OUR BUSINESS DEPENDS UPON THE CONTINUED GROWTH AND ACCEPTANCE OF
THE INTERNET AS A BUSINESS TOOL.

         Expansion in the sales of our SIM solutions depends on the continued
acceptance of the Internet as a communications and commerce platform for
enterprises. The Internet could lose its viability as a business tool due to
delays in the development or adoption of new standard and protocols to handle
increase demands of Internet activity, security, reliability, cost, ease-of-use,
accessibility and quality of service. If the Internet does not continue to be a
widespread communications medium and commercial platform, the demand for our SIM
solutions could be significantly reduced, which could have a material adverse
effect on our business, financial condition and results of operations.

EVOLVING REGULATION OF THE INTERNET MAY AFFECT US ADVERSELY.

         As Internet commerce continues to evolve, increasing regulation by
federal, state or foreign agencies becomes more likely. Such regulation is
likely in the areas of user privacy, pricing, content and quality of products
and services. Taxation of Internet use or other charges imposed by government
agencies or by private organizations for accessing the Internet may also be
imposed. Laws and regulations applying to the solicitation, collection or
processing of personal or consumer information could affect our activities.
Furthermore, any regulation imposing fees for Internet use could result in a
decline in the use of the Internet and the validity of Internet commerce, which
could have a material adverse effect on our business, financial condition and
results of operations.

                         RISKS ASSOCIATED WITH OUR STOCK

NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE TANGIBLE NET
BOOK VALUE OF THEIR SHARES.

         As of the date of this report, the market price of our common stock
significantly exceeds the net tangible book value of our common stock. The book
value of one share of our common as of June 30, 2005 was $.05. As a result,
investors purchasing common stock in the market will incur substantial dilution.
In addition, we have issued warrants and options to acquire shares of common
stock at prices significantly below the current market price of our common
stock, the exercise of which will likely result in additional dilution when and
if they are exercised.

FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.

         The sale of a large number of shares of our common stock in the market,
or the belief that such sales could occur, could cause a drop in the market
price of our common stock. We currently have 26,479,136 shares of common stock
outstanding, of which 19,947,027 shares are "restricted securities," as that
term is defined in Rule 144 of the Securities Act. We are in the process of
registering the public resale of 8,998,715 of these restricted shares which will




                                       26
<PAGE>

be freely tradable without restriction or further registration under the
Securities Act, unless such shares are purchased by our affiliates. Accordingly,
we expect that 15,530,824 of our outstanding shares of common stock will either
be freely tradable without restriction or subject to an effective registration
statement. The remaining 10,948,312 shares of common stock continue to be
restricted securities, all of which are currently eligible for sale under Rule
144 of the Securities Act. We are also in the process of registering the public
resale of up to 4,296,751 additional shares of common stock underlying various
warrants and a convertible promissory note. None of our directors, executive
officers or other stockholders is subject to lock-up agreements or market
stand-off provisions that limit their ability to sell common stock.

WE INTEND TO ATTEMPT TO RAISE ADDITIONAL FUNDS IN THE FUTURE, AND SUCH
ADDITIONAL FUNDING MAY BE DILUTIVE TO STOCKHOLDERS OR IMPOSE OPERATIONAL
RESTRICTIONS.

         We intend to attempt to raise additional capital in the future to help
fund our operations through sales of shares of our common stock or securities
convertible into shares of our common stock, as well as issuances of debt. Such
additional financing may be dilutive to our stockholders, and debt financing, if
available, may involve restrictive covenants which may limit our operating
flexibility. If additional capital is raised through the issuances of shares of
our common stock or securities convertible into shares of our common stock, the
percentage ownership of our stockholders will be reduced. These stockholders may
experience additional dilution in net book value per share and any additional
equity securities may have rights, preferences and privileges senior to those of
the holders of our common stock. In addition, certain of our outstanding
warrants and our $1.6 million principal amount convertible note contain
provisions that provide for a downward adjustment in the exercise or conversion,
as applicable, in the event that we issue shares of our common stock or
securities convertible or exercisable into shares of our common stock at a price
less than the exercise or conversion price in effect at the time of the issuance
of such securities which could result in additional dilution to our
stockholders.

THE MARKET PRICE OF OUR COMMON STOCK IS LIKELY TO BE HIGHLY VOLATILE AND SUBJECT
TO WIDE FLUCTUATIONS.

         The market price of our common stock is likely to be highly volatile
and could be subject to wide fluctuations in response to a number of factors
that are beyond our control, including:

     o   announcements of technological innovations or new products or services
         by our competitors;

     o   demand for our SIM solutions, including fluctuations in license
         renewals; and

     o   fluctuations in revenue from our indirect sales channels.

        In addition, the market price of our common stock could be subject to
wide fluctuations in response to:

     o   quarterly variations in our revenues and operating expenses;





                                       27
<PAGE>

     o   announcements of technological innovations or new products or services
         by us; and

     o   our technological capabilities to accommodate the future growth in our
         operations or those of our customers.

         In addition, the stock market has experienced significant price and
volume fluctuations that have particularly affected the market price of the
stock of many Internet-related companies, and that often have been unrelated or
disproportionate to the operating performance of these companies. Market
fluctuations such as these may seriously harm the market price of our common
stock. Further, securities class action suits have been filed against companies
following periods of market volatility in the price of their securities. If such
an action is instituted against us, we may incur substantial costs and a
diversion of management attention and resources, which would seriously harm our
business, financial condition and results of operations.

OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, AND THESE FLUCTUATIONS MAY
CAUSE OUR STOCK PRICE TO FALL.

         Our operating results will likely vary in the future primarily as the
result of fluctuations in our billings, revenues and operating expenses. We
expect that our operating expenses will continue to increase in the future as we
expand our selling and marketing activities, increase our research and
development efforts, and hire additional personnel. If our results of operations
do not meet the expectations of current or potential investors, the price of our
common stock may decline.

WE DO NOT INTEND TO PAY DIVIDENDS.

         We have never declared or paid any cash dividends on our common stock.
We currently intend to retain any future profits from operations to fund growth
and do not expect to pay any dividends in the foreseeable future.

APPLICABLE SEC RULES GOVERNING THE TRADING OF "PENNY STOCKS" LIMITS THE TRADING
AND LIQUIDITY OF OUR COMMON STOCK WHICH MAY AFFECT THE TRADING PRICE OF OUR
COMMON STOCK.

         Our common stock currently trades on the OTC Bulletin Board. Since our
common stock continues to trade below $5.00 per share, our common stock is
considered a "penny stock" and is subject to SEC rules and regulations which
impose limitations upon the manner in which our shares can be publicly traded.
These regulations require the delivery, prior to any transaction involving a
penny stock, of a disclosure schedule explaining the penny stock market and the
associated risks. Under these regulations, certain brokers who recommend such
securities to persons other than established customers or certain accredited
investors must make a special written suitability determination regarding such a
purchaser and receive such purchaser's written agreement to a transaction prior
to sale. These regulations may have the effect of limiting the trading activity
of our common stock and reducing the liquidity of an investment in our common
stock.






                                       28
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

         Our corporate headquarters and principal offices are located at 7935
Airport Pulling Road, Naples, Florida 34109, where we lease approximately 5,500
square feet of space for a monthly rent payment of approximately $11,500. This
lease expires in December 2008, however, we have two one year options to renew
this lease. We lease additional office space at Airport Road #3, Naples, Florida
34109, where we lease approximately 1,900 square feet of space for a monthly
rent payment of approximately $2,600. This lease expires in December 2006. We no
longer occupy any of this space and are currently subletting this space for a
monthly rent payment of approximately $2,600. We believe that our office space
is adequate to support our current operations and that adequate additional space
is available to support our operations over the next 12 months.

ITEM 3. LEGAL PROCEEDINGS

         We are not currently a party to any material legal proceedings. We may
from time to time become involved in litigation relating to claims arising in
the ordinary course of our business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

         Our common stock currently trades on the OTC Bulletin Board under the
symbol "SLLR". The following table sets forth the range of high and low bid
prices for shares of our common stock on the OTC Bulletin Board for the periods
indicated, as reported by Nasdaq. These quotations represent inter-dealer
prices, without retail mark-up, markdown or commission, and may not represent
actual transactions.

         Fiscal Year Ended June 30, 2005                   High           Low
         -------------------------------                   ----          -----

         Quarter ended June 30, 2005                       $1.10         $0.47
         Quarter ended March 31, 2005                       2.25         $0.99
         Quarter ended December 31, 2004                    2.90          2.19
         Quarter ended September 30, 2004                   3.60          2.45





                                       29
<PAGE>

         Fiscal Year Ended June 30, 2004                   High           Low
         -------------------------------                   ----          -----

         Quarter ended June 30, 2004                       $4.00         $2.65
         Quarter ended March 31, 2004                       6.00          1.12
         Quarter ended December 31, 2003                    1.60          1.00
         Quarter ended September 30, 2003                   4.80          0.88


         The last price of the Company's common stock as reported on the OTC
Bulletin Board on October 26, 2005, was $.49 per share.

HOLDERS
         As of October 14, 2004, the number of stockholders of record of our
common stock was seventy (70). Based on broker inquiry conducted in connection
with the distribution of proxy solicitation materials in connection with our
special meeting of shareholders on March 11, 2004, we believe that there are
approximately 1,600 beneficial owners of our common stock.

DIVIDENDS

         We have not paid any cash dividends on our common stock to date, nor do
we intend to pay any cash dividends on our common stock in the foreseeable
future. We intend to retain future earnings, if any, to finance the operation
and development of our business.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS

         This Management's Discussion and Analysis and other parts of this
Annual Report on Form 10-KSB contain forward-looking statements that involve
risks and uncertainties. All forward-looking statements included in this Annual
Report on Form 10-KSB are based on information available to us on the date
hereof, and we assume no obligation to update any such forward-looking
statements. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of a number of factors, including
those set forth under the caption "Risk Factors" on page 18 of this Annual
Report on Form 10-KSB and elsewhere in this Annual Report on Form 10-KSB. The
following should be read in conjunction with our annual and interim financial
statements contained elsewhere in this Annual Report on Form 10-KSB.

OVERVIEW

         We provide employee Internet management products and services that
enable businesses, government agencies, educational institutions and other
organizations to monitor, report and manage how their employees use the
Internet. The employee Internet management market involves the provision of
traditional Internet access control and management services with added
management and productivity-enhancing functionality. The projected growth of
this market may be attributable in part to the growing importance of protecting
an organization's assets from being illegally distributed or acquired by its
employees by means of the Internet, and keeping control over information
technology expenditures, while maintaining high employee productivity.





                                       30
<PAGE>

         Our Stellar Internet Monitoring(TM) solutions provide managers with the
ability to implement Internet access policies for different users and groups
within their organizations. We believe that Stellar Internet GEM, our
next-generation technology, is more effective at monitoring employee Internet
use than the technologies currently being used for this purpose. Our
applications provide organizations of any size with the security of knowing how
its Internet connections are being used by providing them with detailed reports
describing which web sites are being visited, what instant messages are being
sent and received, which employees were involved, and what time the actions took
place. Our suite of solutions also assist organizations by protecting
confidential data from being transported out of the organization via e-mail or
instant messaging; archiving Internet activity for both regulatory compliance
and legal liability issues; improving employee productivity; reducing the use of
expensive data processing bandwidth for Internet activities; and providing audit
and investigatory capabilities for Internet activities.

         Our E-Mail Shuttle solutions are state-of-the-art software products
that provide immediate and automatic migration and synchronization of data from
any e-mail system to any other e-mail system. They enable businesses to migrate
and synchronize inboxes, public folders and directories, calendars, bulletin
boards, conferences, to-do lists, and groups on e-mail systems such as Microsoft
Exchange, Lotus Domino, Lotus cc:Mail, Novell GroupWise, Netscape's Messaging
Server and OpenWave's InterMail. Through our e-mail migration solutions, we
provide migration to and from each of these systems and develop processes and
products that enable easy migration from proprietary e-mail and calendaring
systems. Our e-mail migration solutions' modular design includes extractor and
loader components that allow migration from multiple systems at any one time
from a single management console.

KEY PERFORMANCE INDICATORS

         Our key performance indicators are customer orders received (bookings),
recognized revenue, and deferred revenue. We measure bookings as the dollar
value of contractual agreements entered into with customers in the period that
result in either revenue recognized in the period, deferred revenue at the end
of the period, or expected billings in future periods. Generally, an increase in
our bookings will result in an increase in our revenue and/or deferred revenue.
The timing of bookings is uncertain as we sell to both companies and government
organizations. The process of contractual negotiation is critical and may be
lengthy.

         Deferred revenue consists of amounts billed to customers in excess of
the amount we recognize on our statement of operations and/or for which the
product or service has not yet been delivered. Our deferred revenue excludes all
items relating to consulting services. Deferred revenue was $398,378 and
$164,768 at June 30, 2005 and June 30, 2004, respectively. We believe that
$323,476 of the deferred revenue at June 30, 2005 will be recognized as revenue
in the next 12 months and that continued growth in deferred revenue is
indicative of future growth in revenue.

OUTLOOK

         The market for our solutions is large and continues to grow. Sustained
spending on technology, continued emphasis on employee efficiency, and growing
awareness of and compliance with regulatory and reporting requirements by
employers are all key external conditions which may affect our ability to
execute our business plan.




                                       31
<PAGE>

         Our primary strategic objective is to maintain and strengthen our
position in the market for EIM solutions and generate a substantial increase in
revenue over the next 12 months. We plan to achieve this objective by enhancing
the functionality of our current EIM solutions, developing new cutting-edge
products and services, expanding our network of value-added resellers and
distributors, increasing our direct sales force, pursuing subscription renewals
and enterprise-wide deployment of our applications with existing customers, and
acquiring technologies, assets, businesses and companies that we believe are
complementary to our business.

         We believe that our near-term success will depend particularly on our
ability to increase customer adoption of our employee Internet management
products, our ability to successfully integrate our e-mail migration
technologies and products with our employee Internet management products and
technologies, and our ability to maintain control over expenses and cash. We
believe that key risks include overall economic conditions and the overall level
of information technology spending, economic and business conditions within our
target customer sectors, timing of the closure of customer contracts, expanding
our reseller channel, and competitive factors in our rapidly changing industry.
Our prospects must be considered in light of the risks, expenses and
difficulties encountered by companies at an early stage of development,
particularly given that we operate in new and rapidly evolving markets and face
an uncertain economic environment. We may not be successful in addressing such
risks and difficulties.

CRITICAL ACCOUNTING POLICIES

         Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements and accompanying
notes, which have been prepared in accordance with accounting principals
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. When making these estimates and
assumptions, we consider our historical experience, our knowledge of economic
and market factors and various other factors that we believe to be reasonable
under the circumstances. Actual results may differ under different estimates and
assumptions.

         The accounting estimates and assumptions discussed in this section are
those that we consider to be the most critical to an understanding of our
financial statements because they inherently involve significant judgments and
uncertainties.

Revenue Recognition
-------------------

         We recognize revenue in accordance with Statement of Position 97-2,
Software Revenue Recognition ("SOP 97-2"). Significant management judgments and
estimates must be made and used in connection with the revenue recognized in any
accounting period. Specifically, in connection with each transaction involving
our products, we must evaluate whether persuasive evidence of an arrangement
exists, the product has been delivered, title and risk of loss has been
transferred to the customer, the fee is fixed or determinable, and collection of
the resulting receivable is reasonably assured. Material differences may result
in the amount and timing of recognized revenue for any period if we make
different judgments or utilize different estimates.




                                       32
<PAGE>

RESULTS OF OPERATIONS

         On January 15, 2004, we acquired all of the issued and outstanding
membership interests in Stellar Venture Partners, LLC, a Georgia limited
liability company. In connection therewith, we issued a total of 18,000,001
shares of our common stock to the former members of Stellar Venture Partners,
representing approximately 74% of our issued and outstanding shares of common
stock on a fully diluted basis. As a result of this issuance, under United
States generally accepted accounting principles, Stellar Venture Partners was
treated as the accounting acquiror, and the operations and financial statements
of Stellar Venture Partners prior to the merger became those of the Company.

         On July 14, 2004, we completed the acquisition of CompuSven, Inc. for a
purchase price of $1,390,985. The purchase price consisted of a cash payment in
the amount of $869,379 and the issuance of 43,353 shares of our common stock.
The shares were valued at $150,000 based on the last sales price of our common
stock on the date immediately preceding the closing. As a result, our results of
operations for the year ended June 30, 2005 reflect the combined results of
operations of both us and CompuSven, while the periods prior to June 30, 2004
reflect only our results of operations. In order to present the reader with a
more meaningful comparison between the periods discussed below, we have, where
possible, quantified the material changes in our results of operations that are
attributable to the acquisition of CompuSven.

OVERVIEW OF THE FISCAL YEAR ENDED JUNE 30, 2005

         We generated $882,805 of revenue during the year ended June 30, 2005
representing a substantial improvement over the corresponding period ended June
30, 2004. Our growth in revenue during the year ended June 30, 2005 was driven
by a number of factors, including increased customer adoption of our employee
Internet management solutions, revenues from the e-mail migration solutions we
obtained from our acquisition of CompuSven, and growth in our targeted customer
groups. We recorded net loss of $6,026,649 during the year ended June 30, 2005,
representing a substantial increase over the corresponding period in 2004. A
material amount of the increase was due to a one-time charge of $1,788,839 for
interest expense that consisted primarily of non-cash charges resulting from the
amortization of the debt discount associated with the beneficial conversion
feature of convertible notes and warrants that we issued on June 8, 2004, and
the partial amortization of fees that we paid in connection with the issuance of
the notes and warrants. The balance of the increase was due to increases in
labor costs and expense reimbursements, general and administrative expenses
associated with our acquisition of CompuSven, and costs associated with becoming
a public company.





                                       33
<PAGE>

COMPARISON OF THE YEAR ENDED JUNE 30, 2005 TO THE TWELVE MONTHS ENDED JUNE 30,
2004 (UNAUDITED)

         In connection with the merger of the Company and Stellar Venture
Partners, the former members of Stellar Venture Partners received approximately
74% of the then issued and outstanding shares of common stock of the Company on
a fully diluted basis. As a result, under the United States General Accepted
Accounting Principles ("GAAP"), Stellar Venture Partners is treated as the
accounting acquirer and the operations and financial statements of Stellar
Venture Partners prior to the Merger have become those of the Company.

         Prior to the Merger, Stellar Venture Partners had a fiscal year end of
December 31, while the Company had and continues to maintain a fiscal year end
of June 30. As a result, Stellar Venture Partners has changed its fiscal year
end to June 30 in order to match that of the Company. Accordingly, the audited
financial statements of the Company for the past two fiscal years appearing
elsewhere herein relate to the twelve-month period ended June 30, 2005, the
six-month period ended June 30, 2004 and the two calendar years ended December
31, 2004. Management's Discussion and Analysis will compare the operating
results for the fiscal year ended June 30, 2005 to the comparative twelve-month
period ended June 30, 2004. For comparison purposes, a condensed consolidated
statement of operations for the twelve months ended June 30, 2004 and a
condensed consolidated statement of cash flows for the twelve months ended June
30, 2004 are included in Note 16 to our audited financial statements contained
elsewhere in this report.

Revenues
--------

         Revenue consists of licensing fees that we receive upon the sale of our
Internet management and E-mail migration solutions. Revenues increased $675,013
to $882,805 for the year ended June 30, 2005 from $207,792 for twelve-month
period ended June 30, 2004. The increase was primarily a result of the addition
of $638,587 in sales attributable to our acquisition of CompuSven and a $36,426
increase in licensing revenues received from our employee Internet management
solutions. We expect growth in revenues for future periods to exceed growth in
revenues for past periods as we continue to focus substantial resources on sales
and marketing efforts in order to generate licensing revenues from existing and
new customers and continue the roll out of our Stellar Internet GEM solution. We
also expect CompuSven to continue to generate incremental revenue for us.

Operating Expenses
------------------

         Operating expenses consist primarily of labor costs and expense
reimbursements, selling and marketing expenses, general and administrative,
professional fees, and research and development expenses.

         General and Administrative and Related Expenses. General,
administrative and related expenses consist of salaries, commissions, stock
compensation, benefits and related compensation that we pay to our employees,
management fees paid to related parties, costs related to production of
marketing brochures, trade shows, direct mailing programs, advertising,




                                       34
<PAGE>

promotions, travel, customer support, public relations and investor relations,
general and administrative expenses, and office rents. General, administrative
and related expenses increased $1,297,182 to $2,740,864 for the year ended June
30, 2005 from $1,443,682 for the twelve-month period ended June 30, 2004. The
increase resulted primarily from an increase of $368,054 in general and
administrative fees related to travel, increased personnel, and the overall
growth of our business, an increase of $923,150 of expenses associated with
program development which consists of fees to developers, including third party
consultants, and related costs, an increase of $80,128 for additional office
space and related lease termination fees and $72,513 in share-based compensation
to a former employee.

         We expect general, administrative and related fee expenses to increase
in future periods as a result of increased costs associated with growth in our
operations. Specifically, we expect that marketing expenses will increase as we
continue to expand our marketing efforts and promote our SIM solutions and
related e-mail migration, e-mail data and directory management software and
related services. We also expect labor costs and expense reimbursements to
increase in the future as we continue to add more personnel to support our
expanding sales and marketing efforts and as increased licenses result in higher
overall sales commission expenses.

         Professional Fees. Professional fees consist of accounting, legal and
financial consulting fees. Professional fees increased $1,596,537 to $1,985,595
for the year ended June 30, 2005 from $389,058 for the twelve-month period ended
June 30, 2004. The increase consisted solely of financial consulting fees
including $1,420,133 of non cash charges associated with the issuance and
modification of warrants issued to certain financial advisors.

         Research, Development and Product Support. Research and development
expenses consist primarily of costs associated with the development of new
products and services, enhancement of our existing SIM solutions and product
support. Research and development expenses increased $28,721 to $193,853 for the
year ended June 30, 2005 from $165,132 for the twelve-month period ended June
30, 2004. The increase was primarily a result of increased costs associated with
the development of new products and services, including Stellar Internet GEM,
the enhancement of our existing SIM solutions, and increased product support
associated with our growing customer base. We expect research and development
expenses to increase in future periods as we pursue future product and service
development, enhance our existing SIM solutions and e-mail migration, data and
directory management solutions, enter into arrangements with additional
technology partners, and our customer base continues to grow.

Other income (expense)
----------------------

         Other income (expense) consists of investor losses, interest and money
market dividends, gains in trading securities and interest expense.

         Interest Expense. Interest expense increased $1,774,297 to $1,837,171
for the year ended June 30, 2005 from $62,874 for the twelve-month period ended
June 30, 2004. The increase consisted of $1,449,416 of interest expense from the
amortization of the remaining debt discount associated with the warrants we
issued with the $1.5 million convertible notes in June 2004, and $110,000 from
the amortization of the remaining loan fees that we paid to broker/dealers in
connection with the note offering. In July 2004, we expensed all remaining debt




                                       35
<PAGE>

discounts and beneficial conversion discounts we incurred in connection with the
$1.5 million convertible note offering as the notes were converted into common
stock upon the effective date of the registration statement covering the public
resale of the common stock underlying the notes. In addition, we amortized
$179,904 of debt discount associated with the common stock and warrants issued
with the $1.6 million convertible note in April 2005 and $49,519 of loan fees
associated with the offering.

         Gains in Trading Securities. Gains in trading securities consists of
gains on the sale of securities held for investment. We did not realize any
gains in trading securities during the year ended June 30, 2005. We realized
$138,391 of gains for the twelve-month period ended June 30, 2004. We have not
made and do not expect to make any additional material investments in investment
securities in the future, as we intend to focus our operations exclusively in
the EIM and related e-mail migration, data and directory management markets. For
this reason, we do not expect to realize any material gains in trading
securities in the future.

LIQUIDITY AND CAPITAL RESOURCES

         Since our inception, we have funded our operations primarily through
private sales of equity securities and the use of short-term and long-term debt.

         Net cash used in operating activities was $2,646,418 for the year ended
June 30, 2005 compared to $1,186,034 for the twelve-month period ended June 30,
2004. The $1,460,384 increase in cash used in operating activities was due
primarily to an increase in our net loss.

         Net cash used in investing activities during the year ended June 30,
2005 was $916,204 compared to $153,041 for the twelve-month period ended June
30, 2004. The $763,163 increase in cash used in investing activities was due
primarily to the payment of $864,540 in cash in connection with our acquisition
of CompuSven.

         Net cash provided by financing activities during the year ended June
30, 2005 was $1,549,963 compared to $4,352,435 for the twelve-month period ended
June 30, 2004. The $2,802,472 decrease in cash flows from financing activities
was due primarily to a decrease in net proceeds from sales of our preferred
stock of $1,767,750, from sales of our common stock of $800,000, and receipt of
a subscription receivable of $321,100.

         At June 30, 2005, we had working capital deficit of $378,306 as
compared to $2,472,803 of working capital at June 30, 2004. The $2,851,109
decrease in working capital was due primarily to decreases in cash of $2,012,659
and to increases in deferred revenue of $158,700, in notes payable of $660,323,
and in accounts payable and accrued expenses of $176,160. These amounts were
partially offset by an increase in accounts receivable of $150,411.

         Our primary sources of financing over the past eighteen (18) months are
set forth below.

         On June 8, 2004, we issued convertible promissory notes (the
"Convertible Notes") and warrants to a small group of accredited investors for
cash consideration of $1,500,000. The Convertible Notes were issued and sold





                                       36
<PAGE>

together with the warrants to purchase an aggregate of 2,400,000 shares of our
common stock. The principal amount of the Convertible Notes and all accrued
interest due thereunder were converted into 601,155 shares of common stock at a
conversion price of $2.50 per share. All of Series A Warrants and Series B
Warrants are exercisable into one (1) share of our common stock at an exercise
price of $1.00 per share. The exercise price of the Series A Warrants and Series
B Warrants are subject to downward adjustment in the event that we issue shares
of our common stock or securities convertible into shares of our common stock at
a purchase or conversion price less than the purchase or conversion price in
effect immediately prior to such issuance. Our Series A Warrants expired October
10, 2005 and our Series B Warrants expire June 7, 2009.

         On April 1, 2005, we entered into a Loan Agreement (the "Loan
Agreement") with Trident Growth Fund, LP ("Trident"). Under the Loan Agreement
we issued a $1,600,000 principal amount secured convertible promissory note (the
"Trident Note") and a warrant (the "Warrant") to purchase 450,000 shares of our
common stock to Trident.

         The Trident Note accrues interest at the rate of 12% per annum payable
monthly in arrears on the last day of each month, is secured by substantially
all of our assets, and is redeemable, in whole or in part, at our option at 100%
of par. Interest is payable in cash unless Trident elects to have it paid in
shares of common stock valued at the conversion price in effect on such date.
The Trident Note is due the earlier of: (i) April 30, 2006; (ii) the closing
date of our next public offering of our securities for our own account; or (iii)
the date of any change of management control. The Trident Note is convertible in
whole or in part at the option of Trident into shares of our common stock at an
initial conversion price of $1.00 per share. The conversion price is subject to
downward adjustment in the event that we issue additional shares of our common
stock or securities convertible or exercisable into shares of our common stock
at a price or conversion or exercise price less than the conversion price in
effect immediately prior to such issuance. The Trident Note contains a number of
financial and negative covenants. As of the date of this report, we are not in
compliance with any of the financial covenants which constitutes an event of
default under the Trident Note. As a result, Trident has the right to
accelerate repayment of all amounts owed under the Trident Note, interest
accrues at the rate of up to 21% per annum, and we are required to issue
shares of Common Stock to Trident equal to .1% of our outstanding shares each
day until the default is cured.

         In connection with the issuance of the Trident Note, we issued a
Warrant to Trident to purchase 450,000 shares of our common stock. The Warrant
is immediately exercisable at an exercise price of $1.00 per share, subject to
adjustment, contains standard and customary cashless exercise provisions, and
terminates five years from the date of grant. The exercise price is subject to
downward adjustment in the event we issue additional shares of our common stock
or securities convertible or exercisable into shares of our common stock at a
price or conversion or exercise price less than the exercise price in effect
immediately prior to such issuance.

         The foregoing constitutes our principal sources of financing during the
past eighteen (18) months. We do not currently maintain a line of credit or term
loan with any commercial bank or other financial institution. To date, our
capital needs have been principally met through the receipt of proceeds from
sales of our equity and debt securities. We intend to continue to invest our
cash in excess of current operating requirements in interest-bearing,
investment-grade securities. Other than the repayment of the Trident Note in the
amount of $1,600,000, we do not expect to incur any material capital
expenditures during the next twelve (12)months.




                                       37
<PAGE>

         As of the date of this report, we have cash resources of approximately
$200,000. We believe that our current cash resources, expected recurring monthly
revenue and revenue, from new customers, will not be sufficient to sustain our
current operations for the next twelve (12) months. We are currently seeking to
obtain additional financing through sales of equity securities in order to
execute our business plan and finance possible acquisitions of technologies,
assets, businesses or companies that we believe are complementary to our
business. The sale of additional equity or convertible debt securities would
result in additional dilution to our shareholders. The issuance of additional
debt would result in increased expenses and could subject us to covenants that
may have the effect of restricting our operations. We have not made arrangements
to obtain additional financing and we can provide no assurance that such
financing will be available in amount or on terms acceptable to us, if at all.
If we are unable to obtain additional funds when they are needed or if such
funds cannot be obtained on terms favorable to us, we may be required to delay
or scale back our operations and any plans we may have to acquire such
technologies, assets, businesses or companies.

OFF-BALANCE SHEET ARRANGEMENTS

         As of June 30, 2005, we did not have any relationships with
unconsolidated entities or financial partners, such as entities often referred
to as structured finance or special purpose entities, which had been established
for the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As such, we are not materially exposed
to any financing, liquidity, market or credit risk that could arise if we had
engaged in such relationships.

ITEM 7. FINANCIAL STATEMENTS

         See Financial Statements beginning on page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.

         None.

ITEM 8A. CONTROLS AND PROCEDURES

         An evaluation of the effectiveness of our "disclosure controls and
procedures" (as such term is defined in Rules 13a-15(e) or 15d-15(e) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) was carried
out by us under the supervision and with the participation of our President
("President") and Chief Financial Officer ("CFO"). Based upon that evaluation,
our President and CFO concluded that, as of the end of the period covered by
this Annual Report, our disclosure controls and procedures were not effective to
ensure that information we are required to disclose in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission
rules and forms. Specifically, in connection with the completion of its audit
of, and the issuance of its report on our financial statements for the year
ended June 30, 2005, our independent auditors identified deficiencies in our
internal controls related to expense recognition and disclosure control
deficiencies related to transactions involving issuances of our stock and stock
options. The adjustment to expense and the footnote disclosure deficiencies were
detected in the audit process and have been appropriately recorded and disclosed
in this Form 10-KSB. We are in the process of improving our internal controls in
an effort to remediate these deficiencies through implementing certain controls
and procedures and improving supervision and training of our accounting staff.
We are continuing our efforts to improve and strengthen our control processes
and procedures to fully remedy these deficiencies. Our management and directors
will continue to work with our auditors and other outside advisors to ensure
that our controls and procedures are adequate and effective.

         There were no changes in internal controls over financial reporting
that occurred during the fiscal quarter ended June 30, 2005, that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.




                                       38
<PAGE>

ITEM 8B. OTHER INFORMATION

         None

                                    PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

         DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

         The following chart sets forth certain information about each director,
executive officer and significant employee of the Company.
<TABLE>
<CAPTION>
       Name                        Age                        Positions Held
       ----                        ---                        --------------
<S>                                <C>        <C>
Richard A. Schmidt                 62         Chairman, Chief Executive Officer  and Treasurer

Donald R. Innis                    58         President

John E. Baker                      65         Chief Financial Officer and Secretary
</TABLE>

         The following is a brief summary of the business experience of each of
the above-named individuals:

         Richard A. Schmidt, age 62, has served as our Chairman, Chief Executive
Officer, Treasurer and Secretary since January 2004. Mr. Schmidt was the founder
and Manager of Stellar Venture Partners, LLC from it formation on March 13, 2000
until its merger with the Company in January 2004. Since May 1995, Mr. Schmidt
has served as the President and Chairman of the Board of MAS Services, Inc., a
holding company with investments in entities involved in the publishing
industry. In his position as President of MAS Services, Inc., Mr. Schmidt is the
author of and investment strategist for the "Stellar Stock Report," an
investment advisory publication with over 13,000 paid subscribers, and is the
author of and investment strategist for the stellarstockreport.com, an Internet
financial website. Prior to founding MAS Services, Inc., Mr. Schmidt held the
position of General Manager with several Fortune 500 companies, including Evans
Products, Caterpillar Tractor Company and Echlin Manufacturing, where he
specialized in start-ups, turnarounds, mergers and acquisitions and divestiture
activities. Mr. Schmidt graduated from Bradley University in Peoria, Illinois in
1966 and has participated in advanced management curricula and executive
enhancement programs at the business schools of Roosevelt University, Ohio State
University and Harvard University.





                                       39
<PAGE>

         Donald R. Innis, age 58, has served as our President since February 2,
2004. Mr. Innis has over 25 years of senior management experience with many
Information Technology solution companies and is recognized as an expert on
encryption and data security. He served as the President of Control Break
International Corporation ("Control Break"), a developer of data encryption
software, from April 2003 to February 2004, during which time the company's
revenues increased over 800% from the previous year. Beginning in 1987, Mr.
Innis served as President of Inware Corporation, a developer of enterprise
software that he founded. In 1998, Inware was acquired by Allen Systems Group
("ASG"), a provider of software to global Fortune 1000 companies, at which time
he joined ASG and served as Senior Vice President of Worldwide Sales and Support
until April 2003. During his time at ASG, the company's annual revenues grew
from $5 million to more than $200 million. Between 1985 and 1987, Mr. Innis
served as the Chief Executive Officer of Fisher International, a company he
founded that was a pioneer in the electronic mail and PC access control and
encryption industry. Mr. Innis began his career in technology as a computer
system designer for General Motors Corporation after receiving a Bachelor of
Science degree in mathematics with a minor in economics from Otterbein College.

         John E. Baker, age 65, has served as our Chief Financial Officer since
January 31, 2005. Mr. Baker joined the Company in May 2004 as the Company's
Controller. Mr. Baker is a certified public accountant with over thirty years of
financial management experience in both the private and public sectors. During
his career he has held financial management positions with Deloitte & Touche,
City Investing Company, Rheem Manufacturing Company, The Home Insurance Company,
John Blaire & Co. and Alleghany Beverage Corp. Mr. Baker has served as the
Controller of the Company since May 10, 2004. From May 1997 until January 2004,
Mr. Baker served as the President and Chief Operating Officer of Highlander
Sports, Inc., a Huntsville, Alabama based sporting goods manufacturer of which
he was also a principal stockholder. From January 2004 until joining the
Company, Mr. Baker provided financial and accounting services to various
organizations.

BOARD OF DIRECTORS

         Richard A. Schmidt has served as our sole director since January 2004
and will continue to serve until the next annual meeting of shareholders or
until his successor is duly elected and qualified. Directors hold office until
the next annual meeting of shareholders and the election and qualification of
their successors. Officers are elected annually by our board of directors and
serve at the discretion of the Board. We do not currently have any committees of
our board of directors.

AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT

         Our Board of Directors is currently comprised of one member who acts as
our audit committee.

         Since our inception, we have conducted limited operations, have had a
limited number of employees, and generated limited revenues. In light of the
foregoing, and our limited financial resources, our Board of Directors concluded
that the benefits of retaining an individual who qualifies as an "audit
committee financial expert," as the term is defined in Item 401(e) of Regulation
S-B promulgated under the Securities Act, would be outweighed by the costs of
retaining such a person. As a result, no member of our Board of Directors is an
"audit committee financial expert."





                                       40
<PAGE>

DIRECTORS COMPENSATION

         Members of our board of directors receive no compensation for serving
on our board of directors, except that each director is entitled to be
reimbursed for the reasonable costs and expenses incurred in attending Board
meetings.


SHAREHOLDER COMMUNICATIONS

         We have not implemented any formal procedures for shareholder
communication with our Board of Directors, including nominations for director.
Any matter intended for the Board, or for any individual member or members of
the Board, should be directed to our corporate secretary at Stellar
Technologies, Inc., 7935 Airport Pulling Road, Suite No. 201, Naples, Florida
34109. In general, all shareholder communication, including nominations for
director, delivered to the corporate secretary for forwarding to the Board will
be forwarded in accordance with the shareholder's instructions. However, the
corporate secretary reserves the right to not forward to Board members any
abusive, threatening or otherwise inappropriate materials.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the U.S. Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), requires the Company's officers and directors and
persons who own greater than ten percent (10%) of the Company's common stock to
file with the Securities and Exchange Commission ("SEC") initial reports of
ownership and reports of changes in beneficial ownership of the Company's common
stock. Such officers, directors and greater than ten percent (10%) stockholders
are also required by applicable SEC rules to furnish the Company with copies of
all forms filed with the SEC pursuant to Section 16(a) of the Exchange Act.
Based solely on its review of the copies of such forms received by it, or
written representations from such persons that no other reports were required
for such persons, the Company believes that during the fiscal year ended June
30, 2005, all Section 16(a) filing requirements applicable to the Company's
officers, directors and greater than ten percent (10%) stockholders were
satisfied in a timely fashion, except that Richard A. Schmidt and MAAS Services,
Ltd. did not timely file Forms 4 reporting the sale of 1,000,000 shares of
common stock on March 28, 2005.

CODE OF ETHICS

         We have adopted a written code of ethics that applies to our directors,
officers and employees, including our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions. A copy of our code of ethics is attached as
Exhibit 14.1 to this Annual Report on Form 10-KSB.







                                       41
<PAGE>



ITEM 10. EXECUTIVE COMPENSATION

         The following table provides certain summary information concerning
compensation paid to or accrued by the executive officers named below during the
fiscal years ended June 30, 2005, 2004 and 2003:

                          SUMMARY COMPENSATION TABLE

                                                                  Securities
             Name And                     Fiscal                  Underlying
             Principal Position            Year       Salary ($)  Options (#)
             ------------------            ----       ----------  -----------
             Richard A. Schmidt(1)         2005       $240,000        ---
             Chairman and Chief            2004       $120,000        ---
             Executive Officer

             Donald R. Innis(2)
             President                     2005       $204,716        ---
                                           2004       $76,923       242,500

(1) Richard A. Schmidt began serving as our Chairman, Chief Executive Officer,
Treasurer and Secretary on January 15, 2004. Mark A. Bush served as our
President, Treasurer and Secretary from March 26, 2003 until January 15, 2004.
Mr. Bush did not receive any compensation for such services.

(2) Donald R. Innis began serving as our President on February 2, 2004.


                         AGGREGATED OPTION EXERCISES IN
               LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

         The following table sets forth the number of stock options/SARs held by
the executive officers named in the Summary Compensation Table as of June 30,
2005 and the value of unexercised "in-the-money" options/SARs held which
represents the positive difference between the exercise price and the market
price at fiscal year end. No such executive exercised any options/SARs during
the fiscal year ended June 30, 2005.
<TABLE>
<CAPTION>
                                                                Number of Securities                  Value of
                                                                Underlying Unexercised                Unexercised "In-
                           Shares                               Options at Fiscal                     The-Money"
                           Acquired on         Value            Year End                              Options/SARs at
           Name            Exercise (#)      Realized ($)       Exercisable/Unexercisable             Fiscal Year End (1)
           ----            ------------      ------------       -------------------------             -------------------
<S>                        <C>               <C>                <C>                                   <C>
Richard A. Schmidt             -0-              $ -0-                   -0-                             ---

Donald R. Innis                -0-              $ -0-                242,500/0                          -0-
</TABLE>





                                       42
<PAGE>

(1) The last sales price of the Company's Common Stock as reported on the OTC
Bulletin Board on June 30, 2005 was $.51.

LONG-TERM INCENTIVE PLANS AND AWARDS IN LAST FISCAL YEAR

         We did not have any long-term incentive plans in effect during the
fiscal year ended June 30, 2005, and thus, did not make any awards under any
such plan to any of our named executive officers during such fiscal year.

EMPLOYMENT AGREEMENTS

         We have entered into a letter agreement with Donald R. Innis pursuant
to which Mr. Innis was appointed our President effective February 1, 2004. The
letter agreement provides for an annual base salary of $200,000 and, if
employment is terminated involuntarily, severance in an amount equal to the
amount of salary received by him during the three (3) most recently completed
months of employment with us. Mr. Innis' annual salary was increased on April
10, 2005 to $220,000. The letter agreement also provided that we would grant Mr.
Innis a stock option exercisable into that number of shares of our common stock
equal to one percent (1%) of the number of shares of our common stock issued and
outstanding on the date of grant. The letter agreement contains no specific term
of employment and may be terminated by either us or Mr. Innis at any time with
or without cause.

         On February 4, 2004, pursuant to the terms of the letter agreement, we
issued Mr. Innis an option to purchase 242,500 shares of our common stock. The
option was issued at an exercise price of $1.76, the last sales price of our
common stock as reported on the OTC Bulletin Board on the date of grant. The
option has a term of ten (10) years and vested in full on February 4, 2005.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

         The following table sets forth, as of October 14, 2005, information
with respect to the securities holdings of all persons that we have reason to
believe, pursuant to filings with the SEC and our stock transfer records, may be
deemed the beneficial owner of more than five percent (5%) of our common stock.
The following table also sets forth, as of such date, the beneficial ownership
of our common stock by all executive officers and directors, individually and as
a group. The beneficial owners set forth below have been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended. Unless otherwise indicated, each person or entity named below has sole
voting and investment power with respect to all common stock beneficially owned
by that person or entity, subject to the matters set forth in the footnotes to
the table below.




                                       43
<PAGE>
<TABLE>
<CAPTION>

                                                                        Amount and Nature
                                                                          of Beneficial             Percentage
Name and Address of Beneficial Owner                                      Ownership (1)            of Class (1)
------------------------------------                                      -------------            ------------
<S>                                                                       <C>                      <C>
MAS Services, Inc.                                                         1,600,000                   6.0%
5633 Strand Boulevard
Suite 318
Naples, FL  34110

Richard A. Schmidt                                                         1,600,000 (2)               6.0%
7935 Airport Pulling Road
Suite 201
Naples, FL  34109

Donald R. Innis                                                               242,500 (3)                *
7935 Airport Pulling Road
Suite 201
Naples, FL  34109

John E. Baker                                                                 0(4)                       *
7935 Airport Pulling Road
Suite 201
Naples, FL  34109

Montex Exploration, Inc. (5)                                               1,848,850                   7.0%
43 Addison Road
London, United Kingdom W148JH

Trident Growth Fund, L.P. (6)                                              2,340,000                   8.13%
700 Gemini
Houston, Texas 77058

All Officers and Directors as a group (3 persons) (7)                      1,842,500                   6.90%
</TABLE>
_____________
* Represents less than one percent of class.

(1) This table has been prepared based on 26,479,136 shares of our common stock
outstanding as of October 26, 2005.

(2) Represents shares held of record by MAS Services, Inc., for which Mr.
Schmidt has sole voting and investment power.

(3) Consists of shares issuable upon exercise of options.





                                       44
<PAGE>

(4) Does not include 100,000 shares issuable upon exercise of options which are
subject to vesting.

(5) The power to vote and dispose of these shares is controlled by David
Stevenson.

(6) Consists of 40,000 shares of common stock, 700,000 shares issuable upon
exercise of warrants, and 1,600,000 shares issuable upon conversion of a
convertible promissory note. The power to vote and dispose of these shares is
controlled by Trident Management, LLC, the managing member of which is Scotty D.
Cook.

(7) Consists of shares indirectly owned by Mr. Schmidt through MAS Services,
Inc. and stock options to acquire up to 242,500 shares of common stock held by
Mr. Innis, all of which are presently exercisable.
<TABLE>
<CAPTION>
                                          EQUITY COMPENSATION PLAN INFORMATION

------------------------------- ---------------------------- ---------------------------- ----------------------------
                                                                                          Number of securities
                                                                                          remaining available
                                                                                          for future issuance
                                Number of securities                                      under equity
                                to be issued upon            Weighted-average             compensation plans
                                exercise of                  exercise price of            (excluding securities
                                outstanding warrants         outstanding options,         reflected in column
                                        and rights           warrants and rights          (a))
Plan Category                              (a)                        (b)                          (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                             <C>                          <C>                          <C>
Equity Compensation
Plans approved by
security holders                            0                    Not applicable                     0
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation
plans not approved by
security holders                       1,327,500                      $1.39                         0
------------------------------- ---------------------------- ---------------------------- ----------------------------
Total                                  1,327,500                      $1.39                         0
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
         On February 4, 2004, pursuant to the terms of a letter agreement, we
issued Mr. Innis an option to purchase 242,500 shares of our common stock. The
option was issued at an exercise price of $1.76, the last sales price of our
common stock as reported on the OTC Bulletin Board on the date of grant. The
option has a term of ten (10) years and vests one year from the date of grant.
The terms of the option provide that if, at any time while the option is
outstanding and unexpired, we become a party to a reorganization, merger or
consolidation in which the shares of our capital stock are converted into other
property, whether in the form of securities, cash or otherwise, then, as a part
of such transaction, the option will be exercisable into the kind and number of
shares of common stock or other securities or property otherwise receivable upon
such transaction by a holder of the number of shares of our common stock that
might have been purchased upon exercise of the option immediately prior to such
transaction.




                                       45
<PAGE>

         In addition, on February 4, 2004, we issued an aggregate of 485,000
options to various employees of the Company pursuant to individual stock option
agreements between us and each employee. Each option has an exercise price of
$1.76, has a term of ten (10) years and vests one year from the date of grant.
On May 13, 2005, we issued Mr. Baker an option to purchase 100,000 shares of our
common stock at an exercise price of $0.59, the last sales price of our common
stock as reported on the OTC Bulletin Board on the date of grant. The option has
a term of ten (10) years and vests one year from the date of grant.

         On May 27, 2004, we issued warrants to purchase 300,000 shares of our
common stock pursuant to a three year financial advisory services agreement. The
warrants are currently exercisable at $1.00 per share, have a term of three (3)
years, and became fully vested on January 1, 2005. The exercise price is subject
to downward adjustment in the event we issue additional shares of our common
stock or securities convertible or exercisable into shares of our common stock
at a price or conversion or exercise price less than the exercise price in
effect immediately prior to such issuance.

         In connection with the issuance of the Trident Note, we issued warrants
to consultants to purchase 200,000 shares of our common stock. The warrants are
immediately exercisable at an exercise price of $1.00 per share, subject to
adjustment, contain standard and customary cashless exercise provisions, and
terminate five years from the date of grant. The exercise price is subject to
downward adjustment in the event we issue additional shares of our common stock
or securities convertible or exercisable into shares of our common stock at a
price or conversion or exercise price less than the exercise price in effect
immediately prior to such issuance.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         On February 4, 2004, pursuant to the terms of the letter agreement, we
issued Donald R. Innis, our President, an option to purchase 242,500 shares of
our common stock. The option was issued at an exercise price of $1.76, the last
sales price of our common stock as reported on the OTC Bulletin Board on the
date of grant. The option has a term of ten (10) years and vested in full on
February 4, 2005. See "EXECUTIVE COMPENSATION - EMPLOYMENT AGREEMENTS."

         On May 13, 2005, we issued John E. Baker, our Chief Financial Officer,
an option to purchase 100,000 shares of our common stock. The option was issued
at an exercise price of $0.59, the last sales price of our common stock as
reported on the OTC Bulletin Board on the date of grant. The option has a term
of ten (10) years and vests one year from the date of grant.

         Pursuant to Securities Purchase Agreement dated March 28, 2005 by and
between MAS Services, Inc. ("MAS Services") and Montex Exploration, Inc.
("Montex"), MAS Services sold 1,000,000 shares of common stock to Montex in a
private transaction for a total purchase price of $1,000,000. In connection with
the sale, we agreed to register the public sale of the shares of common stock
purchased by Montex by including such shares in any registration statement we
file with the Securities and Exchange Commission. Our Chairman and Chief
Executive Officer, Richard A. Schmidt, is the President and Chairman of the
Board of MAS Services.





                                       46
<PAGE>

         Pursuant to Securities Purchase Agreement dated May 27, 2005 by and
between MAS Services and Moonlight Investments Limited Exploration, Inc.
("Moonlight"), MAS Services sold 1,000,000 shares of common stock to Moonlight
in a private transaction for a total purchase price of $1,000,000. In connection
with the sale, we agreed to register the public sale of the shares of common
stock purchased by Moonlight by including such shares in any registration
statement we file with the Securities and Exchange Commission.

         On April 5, 2005, we entered into a Consultant Agreement with Trident
Advisors, Inc. ("Trident Advisors"), an affiliate of Trident Growth Fund, LP.,
the beneficial owner of 2,340,000 shares of our common stock. The initial term
of the Consultant Agreement is six months after which either party may terminate
upon written notice. Under the Consultant Agreement, Trident Advisors will
provide services consisting of identifying possible business combinations or
investors. The Consultant Agreement provides for a nonrefundable retainer fee of
$60,000 and in the event we enter into a transaction with a person introduced to
us by Trident Advisors, the payment of an additional fee between 6-8% of the
proceeds of the transaction.

ITEM 13. EXHIBITS

         The following exhibits are filed as part of this report:


    Exhibit No.                                                 Exhibit
    -----------                                                 -------

        3.1          Articles of Incorporation (incorporated by reference to
                     Exhibit 3.1 to the Company's Registration Statement on Form
                     SB-2, Registration No. 333-54292, filed with the SEC on
                     January 25, 2001 (the "Registration Statement")

        3.2          Bylaws (incorporated by reference to Exhibit 3.2 to the
                     Registration Statement)

        3.3          Articles of Amendment to Articles of Incorporation
                     (incorporated by reference to Exhibit 3.3 to the Company's
                     Quarterly Report on Form 10-QSB for the quarter ended
                     December 31, 2002)

        3.4          Articles of Amendment to Articles of Incorporation
                     (incorporated by reference to Exhibit 3.3 to the Company's
                     Quarterly Report on Form 10-QSB for the quarter ended
                     December 31, 2003)

        3.5          Certificate of Designation for Series A Convertible
                     Preferred Stock (incorporated by reference to Exhibit 3.5
                     to the Company's Quarterly Report on Form 10-QSB for the
                     quarter ended March 31, 2004)

        3.6          Amended and Restated Articles of Incorporation
                     (incorporated by reference to Exhibit 3.6 to the Company's
                     Quarterly Report on Form 10-QSB for the quarter ended March
                     31, 2004)

        4.1          Specimen Stock Certificate (incorporated by reference to
                     Exhibit 4.1 to the Registration Statement)





                                       47
<PAGE>

       10.1          Securities Purchase Agreement, dated January 12, 2004, by
                     and between the Company and RAM Trading, Ltd. (incorporated
                     by reference to Exhibit 10.17 to the Company's Quarterly
                     Report on Form 10-QSB for the quarter ended March 31, 2004)

       10.2          Option to Purchase 242,500 shares of Common Stock issued to
                     Donald R. Innis (incorporated by reference to Exhibit 10.18
                     to the Company's Quarterly Report on Form 10-QSB for the
                     quarter ended March 31, 2004)

       10.3          Restated Option to Purchase 242,500 shares of Common Stock
                     issued to Donald R. Innis (incorporated by reference to
                     Exhibit 10.19 to the Company's Quarterly Report on Form
                     10-QSB for the quarter ended March 31, 2004)

       10.4          Form of Warrant issued in connection with Offering of
                     Series A Convertible Preferred Stock and Warrants to
                     Acquire Shares of Common Stock (incorporated by reference
                     to Exhibit 10.20 to the Company's Quarterly Report on Form
                     10-QSB for the quarter ended March 31, 2004)

       10.5          Letter Agreement, dated January 8, 2004, by and between the
                     Company and Donald R. Innis (incorporated by reference to
                     Exhibit 10.21 to the Company's Amendment No. 1 to
                     Registration Statement Report on Form SB-2 filed with the
                     Commission on July 6, 2004)

       10.6          Form of Securities Purchase Agreement relating to the sale
                     of $1.5 million principal amount convertible notes and
                     2,400,000 warrants (incorporated by reference to Exhibit
                     10.22 to the Company's Registration Statement Report on
                     Form SB-2 filed with the Commission on June 9, 2004)

       10.7          Form of Series A Warrant to purchase 1,200,000 shares of
                     common stock (incorporated by reference to Exhibit 10.23 to
                     the Company's Registration Statement Report on Form SB-2
                     filed with the Commission on June 9, 2004)

       10.8          Form of Series B Warrant to purchase 1,200,000 shares of
                     common stock (incorporated by reference to Exhibit 10.24 to
                     the Company's Registration Statement Report on Form SB-2
                     filed with the Commission on June 9, 2004)


       10.9          Loan Agreement dated April 1, 2005 by and between the
                     Company and Trident Growth Fund, LP (incorporated by
                     reference to Exhibit 10.1 to the Company's Current Report
                     on Form 8-K filed with the Commission on April 7, 2005)

       10.10         Warrant dated April 1, 2005 to Purchase Shares of Common
                     Stock issued to Trident Growth Fund, LP (incorporated by
                     reference to Exhibit 10.2 to the Company's Current Report
                     on Form 8-K filed with the Commission on April 7, 2005)





                                       48
<PAGE>

       10.11         Form of Security Agreement dated April 1, 2005 by and
                     between Trident Growth Fund, LP and each of the Company and
                     its operating subsidiaries (incorporated by reference to
                     Exhibit 10.3 to the Company's Current Report on Form 8-K
                     filed with the Commission on April 7, 2005)

       10.12         Form of Guaranty dated April 1, 2005 by and between Trident
                     Growth Fund, LP and each of the Company's operating
                     subsidiaries. (incorporated by reference to Exhibit 10.4 to
                     the Company's Current Report on Form 8-K filed with the
                     Commission on April 7, 2005)

       10.13         12% Secured Convertible Note dated April 1, 2005 in the
                     Principal Amount of $1,600,000 (incorporated by reference
                     to Exhibit 10.5 to the Company's Current Report on Form 8-K
                     filed with the Commission on April 7, 2005)

       10.14         Form of First Amendment to Series A Warrants to purchase
                     1,200,000 shares of Common Stock (incorporated by reference
                     to Exhibit 10.2 to the Company Quarterly Report on Form
                     10-QSB for the quarter ended September 30, 2004)

       10.15         Form of First Amendment to Warrant issued in connection
                     with offering of Series A Convertible Preferred Stock and
                     Warrants to acquire shares of Common Stock (incorporated by
                     reference to Exhibit 10.31 to the Company's Registration
                     Statement on Form SB-2, SEC File No. 333-126453, filed with
                     the Commission on July 7, 2005)

       10.16         Form of First Amendment to Warrant dated June 8, 2004 to
                     purchase shares of Common Stock issued to FEQ Investments,
                     Inc. (incorporated by reference to Exhibit 10.32 to the
                     Company's Registration Statement on Form SB-2, SEC File No.
                     333-126453, filed with the Commission on July 7, 2005)

      14.1**         Code of Ethics

       21.1          Subsidiaries of the Company (incorporated by reference to
                     Exhibit 21.1 to the Company's Annual Report on Form 10-KSB
                     for the year ended June 30, 2004)

      31.1**         Certification of Chief Executive Officer of the Company
                     required by Rule 13a-14(a) under the Securities Exchange
                     Act of 1934, as amended

      31.2**         Certification of Chief Financial Officer of the Company
                     required by Rule 13a-14(a) under the Securities Exchange
                     Act of 1934, as amended

      32.1**         Certification of President of the Company Pursuant to 18
                     USC Section 1350, as Adopted Pursuant to Section 906 of the
                     Sarbanes-Oxley Act of 2002





                                       49
<PAGE>

      32.2**         Certification of Chief Financial Officer of the Company
                     Pursuant to 18 USC Section 1350, as Adopted Pursuant to
                     Section 906 of the Sarbanes-Oxley Act of 2002


**  filed herewith

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The following table presents fees for professional audit services
performed by Malone & Bailey, PC for the audit of our annual financial
statements for the fiscal year ended June 30, 2005 and for professional audit
services performed by L J Soldinger Associates, LLC for the audit of our annual
financial statements for the fiscal year ended June 30, 2004 and fees billed for
other services rendered by L J Soldinger Associates, LLC and Malone & Bailey, PC
during such years.
<TABLE>
<CAPTION>
                                   June 30, 2005             June 30, 2004
                                   -------------             -------------
<S>                                <C>                       <C>
Audit Fees:                            $60,480                    $132,000

Audit-Related Fees:                    $ 8,400                    $133,000

Tax Fees:                              $    --                      $5,000

All Other Fees:                        $    --                    $     --
                                  --------------         -----------------

Total:                                 $68,880                    $270,000
                                  ==============         =================
</TABLE>

Audit Fees consist of fees billed for professional services rendered for the
audit of our financial statements and review of the interim financial statements
included in quarterly reports and services that are normally provided by our
independent accountants in connection with statutory and regulatory filings or
engagements.

Audit-Related Fees consist of fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of our
consolidated financial statements, including services relating to audits of
acquired entities and services in connection with registration statements which
are not reported under "Audit Fees."

Tax Fees consists of fees billed for professional services for tax compliance,
tax advice and tax planning. These services include assistance regarding federal
and state tax compliance, tax audit defense, customs and duties, and mergers and
acquisitions.

All Other Fees consist of fees billed for products and services provided by the
principal accountant, other than those services described above.





                                       50
<PAGE>

AUDIT COMMITTEE PRE-APPROVAL PROCEDURES

         Our Board of Directors serves as our audit committee. Our Board of
Directors approves the engagement of our independent auditors, and meets either
telephonically, or in person, with our independent auditors to approve the
annual scope of accounting services to be performed and the related fee
estimates. It also meets with our independent auditors, on a quarterly basis,
following completion of their quarterly reviews and annual audit and prior to
our earnings announcements, if any, to review the results of their work. During
the course of the year, our chairman has the authority to pre-approve requests
for services that were not approved in the annual pre-approval process. The
chairman reports any interim pre-approvals at the following quarterly meeting.
At each of the meetings, management and our independent auditors update the
Board of Directors with material changes to any service engagement and related
fee estimates as compared to amounts previously approved. During the fiscal year
ended June 30, 2004, all audit and non-audit services performed by our
independent accountants were pre-approved by the Board of Directors in
accordance with the foregoing procedures.














                                       51
<PAGE>

                           STELLAR TECHNOLOGIES, INC.





                                TABLE OF CONTENTS





Item 1.   Financial Statements as of and for the Year Ended June 30, 2005
          and for the Six Month Period Ended June 30, 2004

                Report of Independent Registered Public Accounting Firm      F-2


                Report of Independent Registered Public Accounting Firm      F-3


                Consolidated Balance Sheet                                   F-4


                Consolidated Statements of Operations                        F-5


                Consolidated Statement of Stockholders' Equity               F-6


                Consolidated Statements of Cash Flows                        F-8


                Notes to  Consolidated Financial Statements                  F-9





          Financial Statements as of and for the Year Ended
          December 31, 2003 and 2002

                Report of Independent Registered Public Accounting Firm     F-24

                Consolidated Balance Sheets                                 F-25


                Consolidated Statements of Operations                       F-26


                Consolidated Statement of Stockholders' Equity              F-27


                Consolidated Statements of Cash Flows                       F-28


                Notes to Financial Statements                               F-29



                                       F-1


<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of
  Stellar Technologies, Inc.
  Naples, Florida

We have audited the accompanying consolidated balance sheet of Stellar
Technologies, Inc. and subsidiaries ("Stellar") as of June 30, 2005, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of Stellar's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Stellar as of June
30, 2005, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared assuming
that Stellar will continue as a going concern. As shown in the financial
statements, Stellar has suffered recurring losses from operations and has
negative working capital at June 30, 2005. These factors and others raise
substantial doubt about Stellar's ability to continue as a going concern.
Management's plans in regard to those matters are described in Note 3 to the
financial statements. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or to the amounts and classification of liabilities that might be
necessary in the event Stellar cannot continue in existence.

MALONE & BAILEY, PC
www.malone-bailey.com
Houston, Texas
October 28, 2005


                                       F-2

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of
  Stellar Technologies, Inc.
  Naples, Florida

We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Stellar Technologies, Inc. and
subsidiaries for the six months ended June 30, 2004. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of its operations, changes in stockholders'
equity and cash flows of Stellar Technologies, Inc. and subsidiaries for the six
months ended June 30, 2004, in conformity with accounting principles generally
accepted in the United States of America.

L J SOLDINGER ASSOCIATES, LLC

Deer Park, Illinois
October 13, 2004





                                       F-3


<PAGE>
<TABLE>
<CAPTION>
                                                        PART I
                                                FINANCIAL INFORMATION


                                              STELLAR TECHNOLOGIES, INC.
                                              Consolidated Balance Sheet


                                                                                                          June 30,
                                                                                                           2005
                                                                                                        ------------
<S>                                                                                                     <C>
                                                        ASSETS
                                                        ------
Current assets
   Cash                                                                                                 $  1,024,023
   Accounts receivable, net of allowance for doubtful accounts of $31,750                                    275,387
   Deposits                                                                                                   49,500
   Debt issuance costs, net                                                                                   93,555
   Prepaid expenses and other assets                                                                          18,646
                                                                                                        ------------
Total current assets                                                                                       1,461,111

Property and equipment, net                                                                                  326,881
Cost based investment                                                                                        400,000
Goodwill                                                                                                     863,907
Intangible assets                                                                                            176,515
Other assets                                                                                                  12,320
                                                                                                        ------------
   Total assets                                                                                         $  3,240,734
                                                                                                        ============

                                         LIABILITIES AND STOCKHOLDERS' EQUITY
                                         ------------------------------------
Current liabilities
    Accounts payable and accrued expenses                                                               $    451,001
    Current portion of obligations under capital leases                                                        4,652
    Convertible note payable, net of unamortized discount of $539,712                                      1,060,288
    Deferred revenues                                                                                        323,476
                                                                                                        ------------
Total current liabilities                                                                                  1,839,417
    Deferred revenues                                                                                         74,902
    Obligations under capital leases, net of current portion                                                   1,951
                                                                                                        ------------
Total liabilities                                                                                          1,916,270

Commitments and contingencies                                                                                      -

Stockholders' equity
   Preferred stock, no par value; 10,000,000 shares authorized;
     zero shares issued and outstanding                                                                            -
   Common stock, $0.001 per share par value; 100,000,000 shares authorized;
     26,479,136 shares issued, and outstanding                                                                26,480
Additional paid-in capital                                                                                13,872,157
Accumulated deficit                                                                                      (12,574,173)
                                                                                                        ------------
Total stockholders' equity                                                                                 1,324,464
                                                                                                        ------------
     Total liabilities and stockholders' equity                                                         $  3,240,734
                                                                                                        ============
</TABLE>



                   The accompanying notes are an integral part
                   of these consolidated financial statements


                                       F-4
<PAGE>


                           STELLAR TECHNOLOGIES, INC.
                      Consolidated Statements of Operations



                                                      Year          Six Months
                                                     Ended              Ended
                                                  June 30, 2005    June 30, 2004
                                                  ------------     -------------

Revenues                                          $    882,805     $    109,374
                                                  ------------     ------------

Expenses
    Depreciation and amortization expense              164,401           23,275
    General and administrative                       2,740,864          951,969
    Professional fees                                1,985,595          384,523
    Research, development and product
     support                                           193,853           55,507
    Loan impairment                                       --            354,949
                                                  ------------     ------------

              Total expenses                         5,084,713        1,770,223

                                                  ------------     ------------

Loss from operations                                (4,201,908)      (1,660,849)
                                                  ------------     ------------

Other income (expense)

    Interest income                                     12,430            4,341
    Gains in trading securities                           --            138,393
    Interest expense                                (1,837,171)         (62,874)
                                                  ------------     ------------

Total other income (expense)                        (1,824,741)          79,860
                                                  ------------     ------------

Net loss                                            (6,026,649)      (1,580,989)

Preferred stock dividend                                  --          1,767,750
                                                  ------------     ------------

Net loss to common stockholders                   $ (6,026,649)    $ (3,348,739)
                                                  ============     ============

Basic and diluted loss per common share           $      (0.23)    $      (0.14)
                                                  ============     ============
Basic and diluted weighted average common
shares outstanding                                  26,392,136       24,493,028
                                                  ============     ============



                   The accompanying notes are an integral part
                   of these consolidated financial statements

                                       F-5

<PAGE>
<TABLE>
<CAPTION>
                                                     STELLAR TECHNOLOGIES, INC.
                                     Consolidated Statement of Changes in Stockholders' Equity






                                             Common Stock       Additional
                                         --------------------    Paid-in        Deferred    Subscription   Accumulated
                                           Shares      Amount     Capital     Compensation   Receivable      Deficit       Total
                                         -----------------------------------------------------------------------------------------
<S>                                      <C>           <C>      <C>           <C>           <C>            <C>          <C>
Balance at December 31, 2003             18,000,001   $     -   $ 4,246,069   $          -  $     (1,100)  $(3,198,785) $1,046,184

Paid subscription receivable                      -         -             -              -         1,100             -       1,100

February 2004 private placement
    of Series A Preferred automatically
    converted and warrants,
    net of offering costs paid            1,178,500         -     1,764,001              -             -             -   1,764,001

Preferred dividend from
    beneficial conversion feature
    of preferred stock issuance                   -         -     1,767,750              -             -             -   1,767,750

Gain on sale of treasury stock                    -         -        59,163              -             -             -      59,163

Net assets and liabilities
    acquired in merger with
    International Travel CD's, Inc.       6,250,022         -       573,706              -      (320,000)            -     253,706


Collection of subscription receivable             -         -             -              -       320,000             -     320,000


Amendment to articles of
   incorporation                                  -    25,429       (25,429)             -             -             -           -

Additional shares issued for
   waiver of dissenters rights              331,035       331          (331)             -             -             -           -

 Debt discount in connection
   with warrants to acquire
   2,400,000 shares issued in
   Convertible note offering in
   June 2004                                      -         -     1,057,500              -             -             -   1,057,500

Warrants to acquire 300,000
   shares issued in June 2004 for
   advisory services                              -         -       746,070       (746,070)            -             -           -

 Amortization of warrants issued
   for advisory services                          -         -             -         20,724             -             -      20,724

Net loss                                          -         -             -              -             -    (3,348,739) (3,348,739)
                                         ----------   -------   -----------   ------------  ------------   -----------  ----------
Balance at June 30, 2004                 25,759,558   $25,760   $10,188,499   $   (725,346) $          -   $(6,547,524) $2,941,389
                                         ==========   =======   ===========   ============  ============   ===========  ==========
</TABLE>


                   The accompanying notes are an integral part
                   of these consolidated financial statements




                                       F-6
<PAGE>
<TABLE>
<CAPTION>
                                                  STELLAR TECHNOLOGIES, INC.
                                   Consolidated Statement of Changes in Stockholders' Equity
                                                          (Continued)



                                      Common Stock         Paid-in       Deferred    Subscription    Accumulated
                                    Shares      Amount     Capital     Compensation   Receivable      Deficit         Total
                                  ----------   -------   -----------   ------------  ------------   ------------   -----------
<S>                               <C>          <C>       <C>           <C>           <C>            <C>           <C>
Balance at June 30, 2004          25,759,558   $25,760   $10,188,499   $  (725,346)  $         --   $ (6,547,524)  $ 2,941,389

Shares issued for CompuSven
  acquisition                         43,353        43       149,957            --             --             --       150,000

Exercised warrants                    35,070        35        29,965            --             --             --        30,000

Debt discount on $1.5 million
  convertible notes                       --        --       442,500            --             --             --       442,500

Conversion of $1.5 million
  convertible notes                  601,155       602     1,502,286            --             --             --     1,502,888

Debt discount in connection with
  beneficial conversion feature
  and shares and warrants issued
  on $1.6 million convertible note    40,000        40       719,576            --             --             --       719,616

Modification of options and warrants      --        --       767,300            --             --             --       767,300

Warrants issued in connection
  with $1.6 million convertible note      --        --        72,074            --             --             --        72,074
  for debt issuance costs

Amortization of warrants issued
  for advisory services                   --        --            --       725,346             --             --       725,346

Net loss                                  --        --            --            --             --     (6,026,649)   (6,026,649)
                                  ----------   -------   -----------   ------------  ------------   ------------   -----------
Balance at June 30, 2005          26,479,136   $26,480   $13,872,157   $        --   $         --   $(12,574,173)  $ 1,324,464
                                  ==========   =======   ===========   ============  ============   ============   ===========
</TABLE>






                   The accompanying notes are an integral part
                   of these consolidated financial statements




                                       F-7
<PAGE>


                                   STELLAR TECHNOLOGIES, INC.
                              Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                      Year
                                                                     Ended     Six months Ended
                                                                 June 30, 2005   June 30, 2004
                                                                  ------------   ------------
<S>                                                              <C>           <C>
Cash flows from operation activities
     Net loss                                                     $(6,026,649)   $(1,580,989)
     Adjustments to reconcile net income (loss) to net cash
          Provided by (used in) operating activities
               Depreciation and amortization                          164,401         23,275
               Amortization of deferred advisory services             725,346         20,724
               Amortization of debt discounts                       1,629,320         50,584
               Amortization of debt issuance costs                    159,519         10,000
               Share based compensation                               767,300             --
               Loan impairment                                             --        354,949
               Bad debts                                               27,000          3,000
               Gain on sale of property and equipment                  (2,966)            --
               Gain on trading securities                                  --       (138,391)
               Proceeds from sales of trading securities                   --        294,530
               Changes in assets and liabilities
                    Increase in accounts receivable                   (81,388)      (125,088)
                    Decrease (increase) in other current assets       (94,830)        32,074
                    Increase in other assets                          (12,320)            --
                    Increase in accounts payable                       36,374        126,430
                    Increase in deferred revenues                      62,475         87,048
                                                                  -----------    -----------
Net cash used in operating activities                              (2,646,418)      (841,854)

Cash flows provided by (used in) investing activities
    Purchase of property and equipment                                (64,164)       (25,659)
    Proceeds from sale of property and equipment                       12,500             --
    Checks issued in excess of funds acquired under
      merger with International Travel CD                                  --       (109,086)
     Acquisition of CompuSven, net of cash acquired                  (864,540)            --
                                                                  -----------    -----------
Net cash used in investing activities                                (916,204)      (134,745)

Cash flows from financing activities
    Advances                                                               --        (22,000)
    Principal payments on capital
        leases and short-term obligations                             (64,037)        (1,866)
    Offering costs paid                                                    --       (123,749)
    Proceeds from sale of treasury stock                                   --         88,163
    Gain on sale of treasury stock                                         --         59,163
    Proceeds from sales of preferred stock and warrants                    --      1,767,750
    Proceeds from sales of common stock                                30,000             --
    Collection of subscription receivable                                  --        321,100
    Proceeds from sale of convertible notes                         1,584,000      1,500,000
                                                                  -----------    -----------
Net cash provided by financing activities                           1,549,963      3,588,561

Net increase (decrease) in cash                                    (2,012,659)     2,611,962
Cash and cash equivalents, beginning of period                      3,036,682        424,720
                                                                  -----------    -----------

Cash and cash equivalents, end of period                          $ 1,024,023    $ 3,036,682
                                                                  ===========    ===========
Supplemental disclosure of cash flow information:
   Interest                                                       $    31,562    $       395
   Income taxes                                                            --             --
Non-cash Investing and Financing Activities:
   Discount on convertible notes                                    1,162,116      1,057,500
   Conversion of convertible notes                                  1,502,888             --
   Acquisition of note receivable                                          --        350,000
</TABLE>




                   The accompanying notes are an integral part
                   of these consolidated financial statements


                                       F-8

<PAGE>


                           STELLAR TECHNOLOGIES, INC.
                   Notes to Consolidated Financial Statements


NOTE 1 - DESCRIPTION OF BUSINESS

Nature of Operations
--------------------

Stellar Technologies, Inc. and subsidiaries (collectively, the "Company")
provide employee Internet management ("EIM") products and services that enable
businesses to monitor, report, and manage how their employees use the Internet.
The Company's products and services give managers the ability to implement
Internet access policies for different users and groups within their businesses,
and support their efforts to improve employee productivity, conserve network
bandwidth, and mitigate potential legal liability.

The Company is also engaged in the development and selling of "E-Mail Shuttle,"
a migration software specifically designed to migrate, upgrade and provide
coexistence and synchronization of data for its customers' e-mail data. The
Company also provides product support and maintenance for its software and
consulting services for the installation of its products.

History
-------

The Company, formerly International Travel CD's, Inc. ("ILCD"), was formed on
July 20, 2000, as a Colorado corporation. In September 2003, the Company exited
the oil and gas exploration business and disposed of its oil and gas interests.

In January 2004, the Company consummated an agreement and plan of merger with
Stellar Venture Partners, LLC ("Stellar LLC"). The plan of merger provided for
the Company to issue 18,000,001 shares of its common stock to the members of
Stellar LLC in consideration for which each of the issued and outstanding Class
A and Class B member units of Stellar LLC were cancelled and each issued and
outstanding share of common stock of the Company's wholly owned subsidiary,
International Travel CD's Acquisition Corp., was converted into one membership
interest in Stellar LLC. The combination of Stellar LLC and ILCD was treated as
a recapitalization of Stellar LLC and all equity transactions have been revised
to reflect the recapitalization. As a result of the merger, the former members
of Stellar LLC received approximately 74% of the issued and outstanding common
stock of the Company on a fully diluted basis, which resulted in Stellar LLC
being treated as the accounting acquirer and thus the operations and the
financial statements of Stellar LLC have become those of the Company. In
connection with the merger, the Company changed its name to Stellar
Technologies, Inc.

Stellar Venture Partners, LLC was formed as a limited liability company under
the laws of the state of Georgia on March 13, 2000. In November of 2000, Stellar
LLC and IO Ventures, LLC ("IO") formed Stellar Business Builders, LLC ("SBB")
for the purpose of acquiring and managing the operations of its startup
affiliates. Stellar LLC and IO each owned 50% of SBB. In May and June of 2001,
Stellar Business Builders, LLC formed two wholly-owned subsidiaries, Stellar
Internet Monitoring, LLC ("SIM") (formerly known as ICaughtYou, LLC), whose
principal activity is providing companies with the ability to monitor their
employee usage of the internet, and Kidweb, LLC ("KW"), whose primary activity
was providing a web site development suite targeted directly at children. In
November 2003, the Company purchased IO's remaining 50% interest in SBB for
$100,000 in cash and as a result, SBB became a wholly-owned subsidiary of the
Company.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
---------------------

The accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America ("US GAAP"). The Company was previously in the
development stage. The year ended June 30, 2005 is the first year during which
the Company is considered an operating company and is no longer in the
development stage.






                                       F-9
<PAGE>

Principles of Consolidation and Ownership Interest in Investees
---------------------------------------------------------------

The accompanying financial statements have been presented on the consolidated
basis and include all the accounts of SBB, SIM, KW and CompuSven, Inc.
(See Note 4).

In July 2001, the Company purchased a 10% interest in Synergy Networks, Inc.
("SNI") for $400,000 in cash which is accounted for under the cost method.

Consolidation
-------------

Affiliate entities in which the Company directly or indirectly owns more than
50% of the outstanding, voting interest are accounted for under the
consolidation method of accounting. Under this method, an investee company's
results of operations are reflected within the Company's consolidated statement
of operations. All significant intercompany accounts and transactions have been
eliminated.

Reclassifications
-----------------

Some amounts from the previous year have been reclassified to conform to the
fiscal 2005 presentation of financial statements. These reclassifications do not
affect earnings.

Cost Method
-----------

Entities in which the Company directly or indirectly owns less than 20% of the
outstanding voting interest are accounted for under the cost method of
accounting. Under this method income received from the investees is reflected
within the Company's consolidated statement of operations as investment income
or loss unless the amount of the dividends exceeds the Company's proportionate
share of the affiliates' income. In that case the excess amount would be
considered a return of capital and be recorded as a reduction of the investment.

It is not practicable to estimate the fair value of the Company's 10% investment
in the common stock of Synergy Networks, Inc., which provides business internet
and data communications, web design, web hosting and E-commerce services to
companies throughout the state of Florida, because of the lack of quoted market
prices and the inability to estimate fair value without incurring excessive
costs. However, management believes that the carrying amount of $400,000 at June
30, 2005 was not impaired.

Use of Estimates
----------------

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosures of
contingent assets and liabilities at the date of financial statements and the
reported amounts of increases and decreases in net assets from operations during
the reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents
-------------------------

Cash and cash equivalents include cash on hand and investments in money market
funds. The Company considers all highly-liquid instruments with an original
maturity of 90 days or less at the time of purchase to be cash equivalents.

Debt Issuance Costs
-------------------

Costs associated with the issuance of debt instruments are capitalized and are
being amortized over the terms of the respective financing arrangements using
the straight-line method.



Goodwill and Acquired Intangibles
---------------------------------

The Company accounts for goodwill and acquired intangible assets in accordance
with SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").
Accordingly, goodwill arising from the acquisition of investments is not
amortized, but is reviewed annually for impairment. The Company has elected to
perform its annual goodwill impairment test as of June 30, 2005. Other
intangibles are amortized over their useful life on a straight-line basis.

Federal Income Taxes
--------------------

Prior to the merger on January 15, 2004, no provision for income taxes has been
made, since under federal and state regulation, tax attributes were passed
through to the former Stellar LLC members who assumed responsibility for payment
of income taxes, if any. Subsequent to the merger, income taxes are recorded in
the period in which the related transactions are recognized in the financial
statements, net of any valuation allowances recorded against deferred tax
assets, if the Company estimates that it is more likely than not that it will be
unable to utilize those deferred tax benefits in future periods. Deferred tax
assets and liabilities are recorded for the expected future tax consequences of
temporary differences between the tax basis and the financial reporting basis of
assets and liabilities.


                                      F-10
<PAGE>

Credit Risk
-----------

Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash deposits at financial institutions and
trade receivables. To mitigate these risks, the Company provides credit in the
normal course of business and performs ongoing credit reviews of its customers
while maintaining a provision for credit losses which, when realized have been
with in the range of management's expectations. Also, the Company places its
cash deposits only with high credit quality institutions. At various times
during the year, the Company may exceed the federally insured limits. Management
believes the risk of loss of cash placed in these institutions is minimal.

Fair Value of Financial Instruments
-----------------------------------

The carrying amounts reflected in the consolidated balance sheet for cash and
equivalents, short-term receivables and short-term payables approximate their
fair value due to the short maturity of the instruments.

Recent Accounting Pronouncements
--------------------------------

In December 2004, the FASB issued SFAS No.123R, "Accounting for Stock-Based
Compensation". SFAS No.123R establishes standards for transactions in which an
entity exchanges its equity instruments for goods or services. This Statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS No.123R requires
that the fair value of such equity instruments be recognized as expense in the
historical financial statements as services are performed. Prior to SFAS
No.123R, only certain pro forma disclosures of fair value were required. SFAS
No.123R shall be effective for small business issuers as of the beginning of the
first interim or annual reporting period that begins after December 15, 2005.
The Company is in the process of evaluating the effects of this Statement's
provisions on its financial position and results of operations.

The Company does not expect the adoption of any other recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flow.

Revenue Recognition
-------------------

Revenue from the sale of migration software is recognized at the time the
software is released to the customer, revenue for consulting services is
recognized as the service is performed, and revenue for product support or
maintenance is recognized ratably over the life of the support or maintenance
agreement. Accounts receivable represent the balances due from customers for
products released and consulting services performed as well as the full value of
any support or maintenance agreements. As a result of billing support or
maintenance agreement payments received in advance of services being performed,
the Company has established a deferred income account representing amounts
billed but not earned. In addition, the Company receives payments from customers
for maintenance and support in advance of performing those services. These
amounts are also included in deferred revenue. Management estimates that such
deferred revenues are fully collectible. Bad debts are charged to operations in
the year in which the account is determined to be uncollectible.

Revenue from the sale of monitoring services is recognized ratably over the life
of the monitoring service agreement. Accounts receivable represent balances due
from customers for all billed but not collected Internet monitoring service
agreements signed by the customer. As a result of billing monitoring service
agreements in advance of services performed, the Company has established a
deferred income account representing amounts billed but not earned. Bad debts
are charged to operations in the year in which the account is determined to be
uncollectible.

Marketable Securities
---------------------

Prior to 2005, the Company's short-term investments were comprised of equity
securities that trade either on a United States national securities market or on
the over-the-counter bulletin board ("OTCBB"). The securities were all
classified as trading securities, and were carried at fair market value based
upon the quoted market prices of those investments. Accordingly, net realized
gains and losses on trading securities were included in net earnings for the
period. The Company uses the specific identification method as the basis for
determining the cost of trading securities sold. The Company sold its
investments in marketable securities in fiscal 2004.





                                      F-11
<PAGE>

Advertising Costs
-----------------

The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising costs amounted to $171,287 and $116,045 for the year
ended June 30, 2005 and the six months ended June 30, 2004, respectively.

Property and Equipment
----------------------

Property and equipment is recorded at cost, less accumulated depreciation and is
depreciated using the straight-line method over the estimated useful life of the
asset, which ranges from three to seven years.

Loss Per Share
--------------

Loss per common share is calculated in accordance with SFAS No. 128, "Earnings
Per Share." Basic loss per common share is computed based upon the weighted
average number of shares of common stock outstanding for the period and excludes
any potential dilution. Shares associated with stock options, warrants and
convertible debt are not included because their inclusion would be antidilutive
(i.e., reduce the net loss per share). The per share calculations take into
effect all stock dividends, stock splits, recapitalizations and reverse stock
splits.

The total numbers of such shares excluded from diluted net loss per common share
were 4,804,250 and 4,098,000 at June 30, 2005 and June 30, 2004, respectively.

Stock-Based Compensation
------------------------

In May, 2005, the Company granted stock options to an employee. In February,
2004, the Company granted options to its new President as part of his employment
agreement and to five of its existing employees. The Company accounts for those
options under the recognition and measurement principles of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Consequently, no stock-based employee
compensation cost is included in net loss, as all the options granted had an
exercise price equal to the market value of the stock on the date of grant. The
following table illustrates the effect on net loss and earnings per share if the
Company had applied the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," to stock-based compensation.












                                      F-12
<PAGE>
<TABLE>
<CAPTION>
                                                             Year Ended       Six Months Ended
                                                            June 30, 2005       June 30, 2004
                                                          -----------------     ------------
<S>                                                       <C>                 <C>
Net loss to common stockholders, as reported              $      (6,026,649)    $ (3,348,739)

Add: Stock-based employee/director compensation
   included in reported net loss determined
   under APB No. 25, net of related tax effects                           -                -
Deduct: Total stock-based employee/director
   compensation expense under the fair value based
   method for all awards, net of related tax effects               (622,768)        (482,060)
                                                          -----------------     ------------

Pro forma net loss                                        $      (6,649,417)    $ (3,830,799)
                                                          =================     ============

   Loss per share basic and diluted - as reported                 $   (0.23)       $   (0.14)
   Loss per share basic and diluted - pro forma                   $   (0.25)       $   (0.16)

Shares used in basic and diluted loss per share
   amounts                                                       26,392,136       24,493,028
                                                          =================     ============
</TABLE>
These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be issued in future years. The
estimated fair value of each option granted was calculated using the
Black-Scholes option pricing model. The following summarizes the weighted
average of the assumptions used in the model.

                                                      2005             2004
                                                 -------------    --------------
          Risk free rate                              4.12%            4.15%
          Expected years until exercise                10              9.58
          Expected stock volatility                    88%             100%
          Dividend yield                                -                -

The weighted average grant-date fair value of options granted during 2005 and
2004 was $0.59 and $1.59 per share, respectively.

The terms of awards issued to employees state that awards are forfeited upon
termination of employment with the Company. In January 2005, the Company
modified the terms of an award issued to a former employee such that the award
continues after termination of employment. The award fully vested in fiscal
2005. As a result of this modification, the Company recorded expense totaling
$72,513 in fiscal 2005, representing the fair value of the options on the date
of modification.

Stock compensation expense for options and warrants granted to non-employees has
been determined in accordance with Emerging Issues Task Force consensus in 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 (EITF
96-18).


NOTE 3 - GOING CONCERN

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying financial
statements, the Company has suffered recurring losses from operations. These
conditions raise substantial doubt as to the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
Management's plans in regard to these matters are described below.

The Company has experienced recurring losses from operations and has relied on
raising proceeds through the sale of equity securities and issuance of
convertible notes to fund its operations. If necessary, the Company intends to
provide additional working capital through issuance of equity securities.
Although in the past the Company has been able to provide working capital
through borrowings, there can be no assurances that it will succeed in its
efforts, which creates a doubt about the Company's ability to continue as a
going concern.





                                      F-13
<PAGE>


NOTE 4 - PURCHASE OF COMPUSVEN, INC.

On July 14, 2004, the Company purchased 100% of the common stock of CompuSven,
Inc. ("CompuSven). The primary reasons for this acquisition was to obtain the
E-Mail migration line of business and the systems design and development
knowledge which will help the Company in the design and development of its
internet management monitoring and reporting systems. The purchase price of the
CompuSven common stock was $869,379 paid in cash plus a total of 43,353 shares
of Company common stock valued at $150,000. Transaction costs associated with
the acquisition totaled $17,219.

The following table summarizes the fair values assigned of the assets acquired
and the liabilities assumed at the date of acquisition:



   Current assets                                                 $  101,663
   Property and equipment                                            284,293
   Goodwill                                                          863,906
   Intangible assets                                                 250,000
   Other assets                                                        3,500
                                                              --------------
        Total Assets                                             $ 1,503,362
                                                              ==============

   Current liabilities                                               460,245
   Long-term deferred revenue                                          6,519
                                                              --------------
        Total Liabilities                                            466,764
                                                              --------------

        Total purchase price                                     $ 1,036,598
                                                              ==============

The excess of the purchase price over the fair value of assets acquired and
liabilities assumed was allocated to goodwill. The amount assigned to intangible
assets represents customer relationships and employment contracts, and was based
on an independent appraisal. The intangible assets will be amortized on a
straight-line basis over periods ranging 3 to 5 years. See Note 7.

The $863,906 of goodwill was assigned to the E-Mail registration segement. No
amount of this goodwill is expected to be deductible for tax purposes.

The pro forma information assuming the acquisition of CompuSven occurred as of
July 1, 2004 is not presented since the pro forma results would not materially
differ from the actual results reported. The following pro forma information
assumes the acquisition of CompuSven occurred as of July 1, 2003. The pro forma
results are not necessarily indicative of what actually would have occurred had
the acquisition been in effect for the period presented.

                                                                 Twelve Months
                                                                    Ended
                                                                 June 30, 2004
                                                               ----------------
            Revenues                                           $    1,246,201
            Net loss                                               (2,002,144)
            Net loss to common shareholders                        (3,768,894)
            Loss per share - basic and diluted                          (0.18)



NOTE 5- NOTE RECEIVABLE

A note receivable was acquired in the merger with ILCD (see Notes 1 and 12) in
the amount of $350,000 as consideration for the sale of its 0.7 unit limited
partnership interest of Louisiana Shelf Partners, LP in September, 2003 to LSP
Exploration, LLC. The note accrued interest at the rate of three percent per
annum and was due on September 24, 2004. The acquisition of this note receivable
by the Company was a non-cash transaction and is therefore not reflected in the
cumulative statement of cash flows. The Company impaired the entire amount of
the note and interest receivable at June 30, 2004 as management determined that
it is more likely than not that it will not be able to collect on the note and
accrued interest. The loss was recorded in loan impairment loss at June 30,
2004.





                                      F-14
<PAGE>
NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:
<TABLE>
<CAPTION>
                                                              Useful Life           June 30,
                                                                (Years)               2005
                                                            --------------       ------------
          <S>                                               <C>                  <C>
          Computer equipment                                      5                 $  49,138
          Software                                                3 - 5               357,120
          Furniture, fixtures and equipment                       5 - 7                76,391
          Leasehold improvements                                  5                    13,325
          Capital leases - equipment                              5                    13,088
                                                                                 ------------
                                                                                      509,062
          Less: accumulated depreciation                                             (182,181)
                                                                                 ------------
                                                                                    $ 326,881
                                                                                 ============
</TABLE>
Deprecation expense, which includes property under capital leases, amounted to
$87,235 during the year ended June 30, 2005 and $23,275 during the six months
ended June 30, 2004.

NOTE 7 - GOODWILL AND INTANGIBLE ASSETS

The following intangibles arose from the acquisition of CompuSven.  See Note 4.
<TABLE>
<CAPTION>
                                                                                 June 30, 2005
                                                                       ----------------------------------
                                                                                           Accumulated
                                                                            Cost           amortization
                                                                       ---------------    ---------------
            <S>                                                        <C>                <C>
            Employment contract                                         $    200,000       $   (63,894)
            Customer relationships                                            50,000            (9,591)
                                                                       ---------------    ---------------
                      Total                                             $    250,000       $   (73,485)
                                                                       ===============    ===============
</TABLE>
The weighted average amortization period for intangible assets is 4 years.

The Company performed its annual impairment of goodwill, in accordance with SFAS
142. As of June 30, 2005, no impairment was indicated.




<PAGE>

NOTE 8 - INCOME TAXES

The Company uses the liability method, where deferred tax assets and liabilities
are determined based on the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
and income tax reporting purposes. During fiscal 2005 and 2004, the Company
incurred net losses and, therefore, had no tax liability. Realization of the
benefits of the deferred tax assets generated by the loss carry-forward will
require that the Company generate future taxable income. There can be no
assurance that the Company will generate any taxable income in future years.
Therefore, the Company has established a valuation allowance for the full amount
of the deferred tax assets at June 30, 2005. The cumulative net operating loss
carry-forward is approximately $5,990,000 at June 30, 2005, and will expire in
the years 2022 through 2025. The components of deferred tax assets and
liabilities at June 30, 2005 are as follows:
<TABLE>
            <S>                                                        <C>
            Deferred tax asset:
               Accumulated depreciation and amortization               $      25,000
               Allowance for doubtful accounts                                11,000
               Federal and state deferred tax benefit arising from
                  net operating loss carryforwards                         2,311,000
                                                                       -------------
                                                                           2,347,000
            Deferred tax liability:
               Depreciation and amortization                                 (26,000)
            Less: valuation allowance                                     (2,321,000)
                                                                       -------------
                      Net deferred tax asset                           $           -
                                                                       =============
</TABLE>
Income tax benefit consists of the following:
<TABLE>
<CAPTION>
                                                                             Six Months
                                                           Year Ended         Ended
                                                          June 30, 2005    June 30, 2004
                                                          -------------     -----------
<S>                                                       <C>              <C>
Deferred:
   Federal                                                $       8,000     $    99,000
   State                                                          2,000          17,000
Federal and state tax benefit of net operating loss
  carryforward                                                2,311,000         891,000
                                                          -------------     -----------
                                                              2,321,000       1,007,000
Less: valuation allowance                                    (2,321,000)     (1,007,000)
                                                          -------------     -----------
          Total                                           $           -     $        -
                                                          =============     ===========
</TABLE>
The following table presents the principal reasons for the difference between
the Company's effective tax rates and the United States federal statutory income
tax rate of 35% for the year ended June 30, 2005 and the six months ended June
30, 2004:
<TABLE>
<CAPTION>
                                                                                Six Months
                                                              Year Ended June      Ended
                                                                  30, 2005     June 30, 2004
                                                                ------------    -----------
<S>                                                           <C>              <C>
Federal income tax benefit at statutory rate                    $  2,084,000    $   553,000
ILCD federal net operating loss benefit                                    -        380,000
State income tax benefit (net of effect of federal benefit)          215,000         94,000
Non-deductible expense                                              (985,000)       (20,000)
Valuation allowance                                               (1,314,000)    (1,007,000)
                                                                ------------    -----------
          Income tax benefit                                    $          -    $         -
                                                                ============    ===========
          Effective income tax rate                                        0%             0%
                                                                ============    ===========
</TABLE>
                                      F-15
<PAGE>

NOTE 9 - CAPITAL LEASE OBLIGATIONS

In September 2003, SIM entered into a capital lease to purchase computer
equipment with a cost of $4,787. The term of the lease is 36 months with monthly
payments in the amount of $187. The interest rate on the capital lease is
approximately 25%. At the end of the lease, SIM may purchase the equipment for
$1. The lessor holds a security interest in the equipment purchased.

In December 2003, SIM entered into a capital lease to purchase a new phone
system with a cost of $8,302. The term of the lease is 36 months with monthly
payments of $251. The interest rate on the lease is 6%. At the end of the lease,
SIM may purchase the equipment for $1. The lessor holds a security interest in
the equipment purchased.

The following is a schedule by year of future minimum lease payments required to
be paid by SIM under capital lease obligations together with the present value
of the net minimum lease payments as of June 30, 2005:

         2006                                                     $      5,254
         2007                                                            1,816
                                                                  --------------
         Total Minimum Lease Payments                                    7,070

         Less Amount Representing Interest                                (467)
                                                                  --------------
         Present Value of Net Minimum Lease Payments                     6,603

         Less Current Portion                                           (4,652)
                                                                  --------------
         Non-Current Portion                                      $      1,951
                                                                  ==============


NOTE 10 - DEFERRED REVENUES

Deferred revenues represent payments from and/or billings to customers for
internet monitoring and e-mail migration services prior to the Company's
requirement to perform the internet monitoring service and/or email migration
services.


NOTE 11 - CONVERTIBLE NOTES PAYABLE

$1.6 million Convertible Note - In April 2005 the Company raised $1,600,000 by
issuing a convertible note (the "$1.6 million Note") and detachable warrants to
purchase 450,000 shares of common stock. The warrants have an exercise price of
$1.00 per share and an expiration date of five years after the issue date. The
$1.6 million Note accrues interest at the rate of 12% per annum paid monthly in
arrears and is due the earlier of (i) April 30, 2006 (ii) the next public
offering of securities of the Company for its own account or (iii) a change in
management control of the Company. The $1.6 million Note is secured by
substantially all of the Company's assets.

At the option of the lender, it may elect to receive shares of common stock
instead of cash payments for interest due under the $1.6 million Note and may
convert the principal due into shares of common stock at a conversion price of
$1.00 per share subject to certain anti-dilution adjustments. In addition, the
$1.6 million Note includes a provision requiring the Company to file a
registration statement with the SEC to cover the public sale of shares that have
been or may be issued under the $1.6 million Note or warrants.

The $1.6 million Note contains standard and customary affirmative covenants with
which the Company is required to comply. These include permitting a
representative of Trident to attend all of the Company's board meetings and
providing of quarterly and annual financial statements. Commencing six (6)
months from the date of the $1.6 million Notes, Trident has the right to
nominate two (2) persons to serve on the Company's board of directors.
Commencing 180 days after the date of the $1.6 million Note, the Company is
required to comply with various financial covenants which include maintaining
adequate cash flow and a current ratio of not less than 1.5 to 1. As of October
28, 2005, the Company is not in compliance with any of the financial covenants
included in the $1.6 million Note, which constitutes an event of default under
the $1.6 million Note. See further discussion below.

The $1.6 million Note also contains various negative covenants which prohibit
the Company from taking certain action without obtaining the prior written
consent of Trident. These include incurring additional liens on our property,
incurring indebtedness in excess of $100,000, acquiring any additional assets or
selling any of our assets other than in the ordinary course of business, making
capital expenditures in excess of $50,000, or issuing any additional securities.

Failure to comply with affirmative and negative covenants is an event of default
under the $1.6 million Note. The Company has thirty (30) days following an event
of default to cure such default. As the Company has not cured the defaults under
the financial covenants within the 30-day cure period, the entire unpaid
principal balance, together with accrued interest, is at the option of Trident
immediately due and payable in full, interest accrues at the lesser of: (i) 21%
per annum or (ii) the maximum rate allowed under applicable law, and until such
default is cured, the Company will be required to issue shares of common stock
to Trident equal to 0.1% of the Company's outstanding shares for each day it is
in default until such default is cured.


                                      F-16
<PAGE>
The Company's stock price at the time of the $1.6 million Note offering was
$1.02; consequently, pursuant to the requirements of Emerging Issues Task Force
("EITF") 98-5 "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios" and EITF 00-27
"Application of Issue No. 98-5 to Certain Convertible Instruments", the issuance
of the $1.6 million Note and detachable warrants resulted in a discount being
recorded in the amount of $719,616 from the beneficial conversion feature and
relative fair value of the warrants, as determined using the Black-Scholes
model, and is being amortized over the term of the $1.6 million Note. During the
year ended June 30, 2005, the Company amortized $179,904 of the discount to
interest expense.

The Company paid a 1.0% origination fee, $60,000 for a six month non-exclusive
investment services agreement with an affiliate of the lender, and issued
100,000 warrants to an advisor in connection with the debt valued at $72,074.
These costs were recorded as debt issuance costs and are being amortized over
the life of the $1.6 million Note, or six months in the case of the investment
services agreement. The Company also issued 40,000 shares of common stock and
warrants to purchase 100,000 shares of common stock to the lender. The value of
the common stock and warrants was recorded as a discount and is being amortized
over the term of the $1.6 million Notes.

$1.5 million Convertible Notes - In June 2004, the Company raised gross proceeds
of $1,500,000 through the issuance of Convertible Promissory Notes (the " $1.5
million Notes") plus two series of detachable warrants, Series A and B, to
acquire 2,400,000 shares of common stock. The $1.5 million Notes bore interest
at a rate of 1.98% per annum, payable monthly, and had an original maturity date
of June 7, 2005. The $1.5 million Notes were convertible, at an initial
conversion price of $2.50, into 600,000 shares of common stock. The $1.5 million
Notes included a provision requiring the Company to file a registration
statement with the Securities and Exchange Commission ("SEC") covering the
public resale of the shares underlying the $1.5 million Notes and warrants. The
$1.5 million Notes automatically converted into common stock upon the effective
date of such registration statement. Each A and B Warrant is exercisable into
one share of common stock at a modified exercise price each of $1.00 per share.
The exercise prices of the A and B Warrants are subject to downward adjustment
in the event that the Company issues shares of common stock or securities that
are convertible into shares of common stock at a purchase or conversion price
less than the exercise price of the warrants. The Series A Warrants have an
expiration date of October 12, 2005. The Series B Warrants have an expiration
date of June 7, 2009. In July 2004, upon the SEC declaring the Company's
registration statement effective, the $1.5 million Notes and accrued interest
automatically converted into 601,155 shares of common stock.

The Company's stock price at the time of the $1.5 million Note offering was
$3.28; consequently, the issuance of the $1.5 million Notes and detachable
warrants resulted in a discount being recorded in the amount of $1,057,500 from
the relative fair value of the warrants, as determined using the Black-Scholes
model, and was being amortized over the term of the $1.5 million Notes.

The Company did not record the relative fair value assigned to the beneficial
conversion feature of the $1.5 million Notes at June 30, 2004, which amounted to
$442,500, since the discount was contingent upon the effectiveness of a
registration statement covering the public resale of the shares underlying the
$1.5 million Notes, at which time the notes automatically convert into common
stock. In July of 2004 the registration statement was declared effective by the
SEC, and the remaining unamortized warrant discount and the contingent discount
from the beneficial conversion feature totaling $1,449,416 was immediately
recorded and expensed as interest expense.

In connection with the $1.5 million Notes, the Company paid commissions of
$120,000 to Founders Equity Securities, Inc. which was recorded to debt issuance
costs. Upon the registration statement being declared effective by the SEC, the
unamortized balance of $110,000 was immediately expensed to interest expense.

NOTE 12- STOCKHOLDERS' EQUITY

In January 2004, the Company consummated an agreement and plan of merger with
Stellar LLC pursuant to which the Company acquired 100% of the issued and
outstanding membership interests of Stellar LLC in consideration for which the
members of Stellar LLC received 18,000,001 newly-issued shares of the Company's
common stock. The combination of Stellar LLC and the Company was treated as a
recapitalization of Stellar LLC and all equity transactions have been revised to
reflect the recapitalization. Upon consummation of the merger the total number
of common shares outstanding was 24,250,023 including the 250,000 newly issued
private placement shares subscribed to on the date of the merger and 162,500
shares issued for advisory services.

In January 2004, the Company raised $320,000 through the issuance of 250,000
shares of its common stock in a private placement transaction, which was
consummated on the date of the merger. The related subscription receivable was
collected the following day.

In January 2004, in connection with the merger, the Company issued 162,500
shares of common stock for advisory services rendered to ILCD prior to the
merger.

Subsequent to the merger, the sole officer and director of the Company resigned
and was replaced by the manager of Stellar LLC. The Company changed its name to
Stellar Technologies, Inc. and effected a 1-for-4 reverse stock split.

In November 2003, Stellar LLC acquired 25,000 shares of common stock of the
Company for its trading account. Upon completion of the merger on January 15,
2004, these shares were reclassified to treasury stock. In March 2004, Stellar
LLC, a subsidiary of the Company, sold the 25,000 shares of its treasury stock
for gross proceeds of $88,163, which resulted in a gain of $59,163, recorded as
additional paid in capital.

                                      F-17
<PAGE>

From January through February 2004, the Company raised gross proceeds of
$1,767,750 through the sale of 2,357,000 shares of Series A Convertible
Preferred Stock ("Series A Preferred"), $0.001 par value per share, and warrants
("Warrants") to acquire up to 589,250 shares of common stock, $0.001 par value
per share. The Series A Preferred and Warrants were sold in units comprised of
one share of Series A Preferred and one Warrant ("Units"). The Units were sold
at a purchase price of $0.75 per Unit. Each Series A Preferred was initially
convertible into one-half of a share of common stock, subject to adjustment, and
each Warrant was initially exercisable into one share of common stock at an
exercise price of $2.40 per share, subject to adjustment, for a period of three
years from the date of issuance. The Series A Preferred had no voting rights,
dividend rights that were pari passu with the common stock of the Company, and
no liquidation preferences. The Series A Preferred had a mandatory conversion
feature, whereby if the Company either (i) effected a reverse stock split or
(ii) increased the number of shares authorized to be issued above the current
authorized limit of 100,000,000, each Series A Preferred automatically converted
into one-half of a share of common stock of the Company. The Company's stock
price on the commencement of the offering was $2.20; consequently, pursuant to
the requirements of Emerging Issues Task Force ("EITF") 98-5 "Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios" and EITF 00-27 "Application of Issue No. 98-5 to
Certain Convertible Instruments," the issuance of the Series A Preferred, which
was convertible at $1.50 per share, and detachable warrants with an exercise
price of $2.40 per share, resulted in a beneficial conversion feature recorded
as a preferred stock dividend in the amount of $1,767,750. In April 2005, the
exercise price of the warrants was reduced to $1.00 per share. See further
discussion below.

In March 2004, the Company effected a 1-for-4 reverse stock split of its common
stock. On the date of the reverse stock split all 2,357,000 shares of Series A
Preferred automatically converted into 1,178,500 shares of common stock. All
share and per share amounts in these financial statements have been adjusted for
the reverse stock split. At this time the Company also changed the par value of
its common stock to $0.001 from no par value.

In June 2004, the Company issued 331,035 shares of common stock to a former
member of Stellar LLC in consideration for the waiver of dissenters' rights
obtained by the member in connection with the merger.

In June 2004, the Company entered into an agreement whereby FEQ Investments,
Inc. (FEQ) will provide the Company with financial advisory services for a
period of three years for a fee of $5,000 per month and warrants to acquire
300,000 shares of common stock to FEQ at an exercise price of $3.25 per share,
expiring on June 7, 2009. The warrants vested on January 1, 2005. In accordance
with EITF 96-18, the Company accounts for stock options and warrants issued to
non-employees at fair value. The value of such warrants is amortized to expense
over the vesting period. The Company recorded compensation expense of $725,346
and $20,724 in 2005 and 2004, respectively, associated with the warrants. On
April 1, 2005, the Company reduced the exercise price to $1.00. See further
discussion below.

In April 2005, the Company reduced the exercise price of certain of its
outstanding and vested warrants granted to non-employees to $1.00. This
modification resulted in additional expense totaling $694,787, which was
recorded in full on the date of modification as all of the outstanding warrants
were fully vested on the date of modification.

The estimated fair value of the warrant granted was calculated using the
Black-Scholes option pricing model. The following summarizes the weighted
average of the assumptions used in the model.

                                                      2005              2004
                                                  --------------    ------------
            Risk free rate                            4.13%             3.96%
            Expected years until exercise              3.8               5.0
            Expected stock volatility                  88%               100%
            Dividend yield                              -                  -


On February 4, 2004, the Company granted to five employees and the new president
of the Company, all of whom are leased employees, options to purchase 727,500
shares of the Company's common stock at the exercise price of $1.76, which was
the closing price of the Company's common stock on that date. The options vest
over 1 year and expire 10 years from the date of grant.




                                      F-18
<PAGE>

On May 13, 2005, the Company granted one employee, who is a leased employee,
options to purchase 100,000 shares of the Company's common stock at the exercise
price of $0.59 which was the closing price on that date. The options vest over 1
year and expire 10 years from the date of grant.

The following tables summarize the Company's stock option and warrant activity
and related information:
<TABLE>
<CAPTION>
                                             STOCK OPTIONS                          STOCK WARRANTS
                                    ---------------------------------    -------------------------------------
                                                       Weighted-                              Weighted-
                                      Number of         Average            Number of           Average
                                       Shares       Exercise Price           Shares       Exercise Price (a)
                                    -------------- ------------------    --------------- ---------------------
<S>                                 <C>            <C>                   <C>             <C>
Balance at December 31, 2003                  -    $             -             81,250    $             1.00
Granted                                 727,500               1.76          3,289,250                  1.00
Exercised                                     -                  -                  -                     -
Expired                                       -                  -                  -                     -
                                    -------------- ------------------    --------------- ---------------------
Balance at June 30, 2004                727,500               1.76          3,370,500                  1.00
Granted                                 100,000               0.59            650,000                  1.00
Exercised                                     -                  -            (43,750)                (1.40)
Expired                                       -                  -                  -                     -
                                    -------------- ------------------    --------------- ---------------------
Balance at June 30, 2005                827,500    $          1.62          3,976,750    $             1.00
</TABLE>
(a) The weighted-average exercise price reflects a modification to the award
approved in April 2005 which resulted in a decrease in the exercise price of
outstanding warrants.
<TABLE>
<CAPTION>
                                        OPTIONS OUTSTANDING                               OPTIONS EXERCISABLE
                      ---------------------------------------------------------    -----------------------------------
                           Number of             Weighted           Weighted            Number            Weighted
    Range of          Outstanding Shares          Average           Average         Exercisable at         Average
    Exercise              At June 30,            Remaining          Exercise           June 30,           Exercise
     Prices                  2005              Contract Life         Price               2005               Price
------------------    --------------------    ----------------    -------------    -----------------    --------------
<S>                   <C>                     <C>                 <C>              <C>                  <C>
       $   0.59                 100,000               10.00           $ 0.59                    -                 -
       $   1.76                 727,500                8.75           $ 1.76              727,500          $   1.76
</TABLE>
<TABLE>
<CAPTION>
                                        WARRANTS OUTSTANDING                              WARRANTS EXERCISABLE
                      ---------------------------------------------------------    -----------------------------------
                           Number of             Weighted           Weighted            Number            Weighted
    Range of          Outstanding Shares          Average           Average         Exercisable at         Average
    Exercise              At June 30,            Remaining          Exercise           June 30,           Exercise
     Prices                  2005              Contract Life         Price               2005               Price
------------------    --------------------    ----------------    -------------    -----------------    --------------
<S>                   <C>                     <C>                 <C>              <C>                  <C>
       $   1.00               3,976,750                2.66           $ 1.00            3,976,750          $   1.00
</TABLE>

NOTE 13 - OPERATING LEASES

The Company has a lease commitment for its office space until January, 2008 at
which time the Company has the option to extend the term of this lease for three
(3) periods of one (1) year on the same terms and conditions as the base lease.
If the lease is renewed for only one year, the Company will have to pay a
penalty of $10,000, and if the lease is renewed for only two years, the Company
will have to pay a penalty of $5,000. The monthly lease commitment is $11,238
per month which includes common area maintenance and taxes.

Total rental expense for all operating leases was $157,053 and $60,445 for the
year ended June 30, 2005 and six months ending June 30, 2004, respectively.





                                      F-19
<PAGE>


The following is a schedule by year of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
of one year or greater as of June 30, 2005:


                                   2006                         101,292
                                   2007                         106,292
                                   2008                          57,167
                                                         -----------------
                                                             $  264,751
                                                         =================

NOTE 14 - SEGMENT REPORTING

With the acquisition of CompuSven, Inc. in July, 2005 (see Note 4), the Company
determined it has two reportable segments, employee Internet monitoring and
Email migration. In 2004, the Company had one reportable segment, employee
Internet monitoring. Information about operations by reportable segment for
fiscal 2005 is as follows:
<TABLE>
<CAPTION>
                                                                                  Corporate
                                           Internet             Email                and
                                          Monitoring          Migration          Eliminations         Consolidated
                                       -----------------    ---------------    ----------------    ------------------
<S>                                    <C>                  <C>                <C>                 <C>
Revenues                                $    244,218        $    638,587       $            -       $      882,805
Depreciation and amortization                 31,814             132,097                    -              164,401
Operating profit (loss)                   (2,706,402)             95,721           (1,591,227)          (4,201,908)
Capital expenditures                          62,559               1,605                    -               64,164
Total assets                               1,689,356           1,127,161              424,215            3,240,734
</TABLE>

NOTE 15 - TRANSACTIONS WITH AFFILIATES

MAS Services, Inc. provided management services to Stellar LLC. MAS Services,
Inc. is an investment analysis Company. Under the Stellar LLC operating
agreement, MAS Services, Inc. earned an annual management fee equal to three
percent (3%) of the total capital committed to Stellar LLC by its members. MAS
Services was also reimbursed for all out-of-pocket costs it incurred in
connection with the organization or operation of Stellar LLC. The Company
incurred management fees in the amount of $79,500 for the six months ended June
30, 2004, which is reflected in general and administrative expense. There were
no management fees in the year ended June 30, 2005. MAS Services and the Company
had mutually agreed to terminate the management services arrangement between MAS
Services, Inc. and Stellar LLC during fiscal 2004.








                                      F-20
<PAGE>


NOTE 16 - COMPARATIVE FINANCIAL INFORMATION - UNAUDITED

The following table presents the unaudited condensed consolidated statement of
operations of the Company for the twelve months ended June 30, 2004:
<TABLE>
<S>                                                                                <C>
 Revenues                                                                          $   207,792

 Operating expenses
    Depreciation                                                                        43,181
     General and administrative                                                      1,443,682
     Professional fees                                                                 389,058
     Research, development and product support                                         165,132
     Impairment of goodwill                                                            121,595
     Loan impairment                                                                   354,949
                                                                                   -----------

 Total expenses                                                                      2,517,597
                                                                                   -----------

 Loss from operations                                                               (2,309,805)

  Other income (expense):
    Interest expense                                                                  (62,874)
    Gains in trading securities                                                        180,103
    Interest and money market dividends                                                  4,983
                                                                                   -----------
 Total other income (expense)                                                          122,212

 Net loss                                                                          $(2,187,593)
                                                                                   ===========

 Preferred stock dividends                                                           1,767,750

 Net loss to common shareholders                                                   $(3,955,343)


 Basic and diluted loss per share                                                  $     (0.19)
                                                                                   ===========

 Basic and diluted weighted average common shares outstanding                       20,388,640
                                                                                   ===========
</TABLE>


                                      F-21

<PAGE>



The following table presents the unaudited condensed consolidated statement of
cash flows of the Company for the twelve months ended June, 30, 2004:
<TABLE>
<S>                                                                                <C>
 Cash used in operations                                                           $(1,186,034)
                                                                                   -----------

 Cash flows from investing activities
    Merger of ILCD                                                                    (109,086)
    Purchase of property and equipment                                                 (43,955)
                                                                                   -----------

     Cash used in investing activities                                                (153,041)
                                                                                   -----------

 Cash flows from financing activities
     Advances                                                                          (22,000)
     Principal payments on leases                                                       (2,393)
     Proceeds from sale of common stock                                                800,000
     Proceeds from sale of treasury stock                                               88,163
     Gain on sale of treasury stock                                                     59,163
     Proceeds from sale of preferred stock                                           1,767,750
     Collection of subscription receivable                                             321,100
     Proceeds from sale of convertible notes                                         1,500,000
     Offering costs paid                                                              (159,348)
                                                                                   -----------

     Cash provided by financing activities                                           4,352,435

 Net increase in cash                                                                3,013,360

 Cash and cash equivalents, beginning of period                                         23,322
                                                                                   -----------

 Cash and cash equivalents, end of period                                          $ 3,036,682
                                                                                   ===========
</TABLE>



                                      F-22
<PAGE>

                   STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTITY)






















               FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
                           DECEMBER 31, 2003 and 2002





















                                      F-23
<PAGE>



                     REPORT OF INDEPENDENT REGISTERED PUBLIC
                                 ACCOUNTING FIRM




To the Board of Directors of
Stellar Technologies, Inc.
Naples, Florida


We have audited the accompanying consolidated balance sheets of Stellar
Technologies, Inc. and subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended and for the period March 13, 2000 (date of
inception) through December 31, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stellar Technologies, Inc. and
subsidiaries as of December 31, 2003 and 2002, and the results of its
operations, changes in stockholders' equity and cash flows for the years then
ended and for the period March 13, 2000 (date of inception) through December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America.


L J SOLDINGER ASSOCIATES LLC


Deer Park, Illinois
March 4, 2004 (except for Notes 1, 8 and 16, for which the date is April 30,
2004)








                                      F-24
<PAGE>
<TABLE>

                                  STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                                         (A DEVELOPMENT STAGE ENTITY)
                                          Consolidated Balance Sheets
                                          December 31, 2003 and 2002



                                                    ASSETS
                                                    ------
                                                                                  2003               2002
                                                                              -----------         -----------
<S>                                                                           <C>                 <C>
Current assets
   Cash                                                                       $   424,720         $   528,250
   Marketable securities                                                          244,300             179,460
   Accounts receivable                                                              2,888                   -
   Prepaid management fees, related party                                          14,250              16,750
   Prepaid expenses                                                                 9,524               2,351
                                                                              -----------         -----------

Total current assets                                                              695,682             726,811
                                                                              -----------         -----------

Property and equipment, net                                                        72,809              23,471
Cost based investment                                                             400,000             400,000
Deposits                                                                            2,534                   -
                                                                              -----------         -----------

                                                                              $ 1,171,025         $ 1,150,282
                                                                              ===========         ===========


                                     LIABILITIES AND STOCKHOLDERS' EQUITY
                                     ------------------------------------

Current liabilities
    Current portion of obligations under capital leases                       $     4,088         $         -
    Accounts payable and accrued expenses                                          34,560              18,370
    Deferred revenues                                                              77,720                   -
                                                                              -----------         -----------

Total current liabilities                                                         116,368              18,370

Obligations under capital leases, net of current portion                            8,473                   -
                                                                              -----------         -----------

Total liabilities                                                                 124,841              18,370
                                                                              -----------         -----------

Stockholders' equity
   Preferred stock, no par value; authorized 10,000,000 shares;
     zero shares issued and outstanding                                                 -                   -
   Common stock, no par value; authorized 100,000,000 shares; 18,000,001
     and 14,697,249 shares issued and outstanding as of December 31, 2003
     and 2002                                                                           -                   -
Additional paid-in capital                                                      4,246,069           3,311,511
Subscription receivable                                                            (1,100)             (1,100)
Deficit accumulated with the development stage                                 (3,198,785)         (2,178,499)
                                                                              -----------         -----------
Total Stockholders' Equity                                                      1,046,184           1,131,912
                                                                              -----------         -----------

                                                                              $ 1,171,025         $ 1,150,282
                                                                              ===========         ===========
</TABLE>






                                  The accompanying notes are an integral part
                                         of the financial statements.




                                      F-25
<PAGE>

<TABLE>
<CAPTION>
                                       STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                                               (A DEVELOPMENT STAGE ENTITY)
                                          Consolidated Statements of Operations
                                      Years Ended December 31, 2003 and 2002 and for
                                      the Period March 13, 2000 (Date of Inception)
                                                through December 31, 2003




                                                                                                           March 13, 2000
                                                                                                           (Inception) to
                                                                                                            December 31,
                                                                         2003                 2002              2003
                                                                      -----------          -----------      ------------
<S>                                                                   <C>                  <C>              <C>
Revenues                                                              $   173,711          $         -      $    173,711

Expenses
    Depreciation and amortization expense                                  39,428                6,015            53,301
    Investment costs                                                       22,831               50,890            90,228
    Labor costs and expense reimbursements                                547,791               34,350           582,431
    Management fees, related party                                        109,000              100,500           393,750
    General and administrative                                            165,339               27,267           286,268
    Professional fees                                                      12,970               41,818           156,658
    Marketing                                                              93,082                    -           104,619
    Research, development and product support                             138,849                    -           138,849
    Office rents                                                           33,774               30,328           111,767
    Subsidiary loan impairment                                                  -              378,404           378,404
    Impairment of goodwill                                                121,595                    -           121,595
                                                                      -----------          -----------      ------------

Total expenses                                                          1,284,659              669,572         2,417,870
                                                                      -----------          -----------      ------------

Loss from operations                                                   (1,110,948)            (669,572)       (2,244,159)
                                                                      -----------          -----------      ------------

Other income (expense)
    Investee losses                                                             -             (870,627)       (1,040,096)
    Interest and money market dividends                                     1,882               10,408           174,017
    Gains (losses) in trading securities                                   88,780             (172,978)          (88,547)
                                                                      -----------          -----------      ------------

Total other income (expense)                                               90,662           (1,033,197)         (954,626)
                                                                      -----------          -----------      ------------

Net loss to common stockholders                                       $(1,020,286)         $(1,702,769)     $ (3,198,785)
                                                                      ===========          ===========      ============

Pro forma information (unaudited)
    Net loss                                                           (1,020,286)          (1,702,769)       (3,198,785)
    Pro forma tax provision                                                     -                    -                 -
                                                                      -----------          -----------      ------------
    Pro forma net loss                                                 (1,020,286)          (1,702,769)       (3,198,785)
                                                                      ===========          ===========      ============

Basic and diluted loss per common share                               $     (0.06)         $     (0.12)     $      (0.25)
                                                                      ===========          ===========      ============

Basic and diluted weighted average common
    shares outstanding                                                 15,728,793           14,697,249        12,873,092
                                                                      ===========          ===========      ============
</TABLE>



                   The accompanying notes are an integral part
                          of the financial statements.

                                      F-26
<PAGE>

<TABLE>
<CAPTION>
                                        STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                (A DEVELOPMENT STAGE ENTITY)
                                        Statement of Changes in Stockholders' Equity






                                                                                                Deficit
                                                                                              Accumulated
                                      Common Stock              Additional                      in the
                                 -----------------------         Paid-in     Subscription     Development
                                   Shares        Amount          Capital      Receivable         Stage            Total
                                 ----------     --------        ----------    ----------      -----------      -----------
<S>                              <C>            <C>             <C>           <C>             <C>              <C>
March 13, 2000 (Inception)                -     $      -        $        -    $        -      $         -      $         -

June 6, 2000 private placement    3,633,028            -             1,100        (1,100)               -                -

June 15, 2000 private placement  11,064,221            -         3,350,000             -                -        3,350,000

Offering costs paid                       -            -           (29,843)            -                -          (29,843)

Net loss                                  -            -                 -             -         (475,730)        (475,730)
                                 ----------     --------        ----------    ----------      -----------      -----------

Balance at December 31, 2001     14,697,249            -         3,321,257        (1,100)        (475,730)       2,844,427

Offerings costs paid                      -            -            (9,746)            -                -           (9,746)

Net loss                                  -            -                 -             -       (1,702,769)      (1,702,769)
                                 ----------     --------        ----------    ----------      -----------      -----------

Balance at December 31, 2002     14,697,249            -         3,311,511        (1,100)      (2,178,499)       1,131,912

November 2003 private
  placement                       3,302,752            -         1,000,000             -                -        1,000,000

Offering costs paid                       -            -           (65,442)            -                -          (65,442)

Net loss                                  -            -                 -             -       (1,020,286)      (1,020,286)
                                 ----------     --------        ----------    ----------      -----------      -----------

Balance at December 31, 2003     18,000,001     $      -        $4,246,069    $   (1,100)     $(3,198,785)     $ 1,046,184
                                 ==========     ========        ==========    ==========      ===========      ===========
</TABLE>










                   The accompanying notes are an integral part
                          of the financial statements.


                                      F-27
<PAGE>

<TABLE>
<CAPTION>
                                      STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                                             (A DEVELOPMENT STAGE ENTITY)
                                         Consolidated Statements of Cash Flows
                                        Years Ended December 31, 2003 and 2002




                                                                                                        March 13, 2000
                                                                                                         (Inception) to
                                                                                                          December 31,
                                                                         2003              2002              2003
                                                                      -----------       -----------       -----------
<S>                                                                   <C>               <C>               <C>
Cash flows from operating activities
    Net loss                                                          $(1,020,286)      $(1,702,769)      $(3,198,785)
    Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities
        Depreciation                                                       39,428             6,015            53,301
        Loss on impairment of goodwill                                    121,595                 -           121,595
        Equity method loss in subsidiary                                        -           870,627         1,040,096
        Subsidiary loan impairment loss                                         -           378,404           378,404
        (Gains) losses in trading securities                              (88,780)          172,978            88,546
        Purchases of trading securities                                  (156,019)          (92,490)         (683,589)
        Redemptions of trading securities                                 179,959           175,132           350,743
        Changes in assets and liabilities
            Decrease in accounts receivable                                 5,485                 -             5,485
            Increase in prepaid expenses                                   (7,208)                -           (26,308)
            Decrease in accounts payable                                  (30,722)          (25,024)          (11,353)
            Increase in deferred revenues                                  17,643                 -            17,643
                                                                      -----------       -----------       -----------

Net cash used in operating activities                                    (938,905)         (217,127)       (1,864,222)
                                                                      -----------       -----------       -----------

Cash flows provided by (used in) investing activities
    Purchase of property and equipment                                     (6,601)           (3,303)          (43,945)
    Purchase of investee interest, net of cash assumed                    (92,055)                -          (893,055)
    Advances to investees                                                       -        (1,018,500)       (1,018,500)
                                                                      -----------       -----------       -----------

Net cash used in investing activities                                     (98,656)       (1,021,803)       (1,955,500)
                                                                      -----------       -----------       -----------

Cash flows from financing activities
    Principal payments on capital lease obligations                          (527)                -              (527)
    Offering costs paid                                                   (65,442)           (9,746)         (105,031)
    Proceeds from sales of common stock                                 1,000,000                 -         4,350,000
                                                                      -----------       -----------       -----------

Net cash provided by (used in) financing activities                       934,031            (9,746)        4,244,442
                                                                      -----------       -----------       -----------

Net increase (decrease) in cash                                          (103,530)       (1,248,676)          424,720

Cash and cash equivalents, beginning of year                              528,250         1,776,926                 -
                                                                      -----------       -----------       -----------

Cash and cash equivalents, end of year                                $   424,720       $   528,250       $   424,720
                                                                      ===========       ===========       ===========
</TABLE>




                   The accompanying notes are an integral part
                          of the financial statements.


                                      F-28
<PAGE>

                   STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTITY)
                          Notes to Financial Statements



NOTE 1 - DESCRIPTION OF BUSINESS

Nature of Operations
--------------------

Stellar Technologies, Inc. and subsidiaries (the "Company") are engaged in two
activities, acquiring a controlling interest in and providing financial,
management and technical support to development stage internet businesses which
the Company either participates in its founding or identifies it as meeting
certain investment criteria and to a lesser extent, trading in public equity
securities. All of the Company's affiliate companies are currently in the
development stage. The Company is no longer, and has no intention of continuing,
in the business of trading in securities.

History
-------

The Company, formerly International Travel CD's, Inc. ("ILCD"), was formed on
July 20, 2000, as a Colorado corporation. In September 2003, the Company
disposed of all of its former operations and related assets resulting in it
becoming a public shell company, defined as an inactive, publicly quoted company
with minimal assets or liabilities.

In January 2004, the Company consummated an agreement and plan of merger with
Stellar Venture Partners, LLC ("Stellar LLC"). The plan of merger provided for
the Company to issue 18,000,001 shares of its common stock to the members of
Stellar LLC in consideration for which each of the issued and outstanding Class
A and Class B member units of Stellar LLC were cancelled and each issued and
outstanding share of common stock of the Company's wholly-owned subsidiary,
International Travel CD's Acquisition Corp., was converted into one membership
interest in Stellar LLC. The combination of Stellar LLC and ILCD was treated as
a recapitalization of Stellar LLC and all equity transactions have been revised
to reflect the recapitalization. As a result of the merger, the former members
of Stellar LLC received approximately 74% of the then issued and outstanding
common stock of the Company on a fully diluted basis, which resulted in Stellar
LLC being treated as the accounting acquirer and thus the operations and the
financial statements of Stellar LLC prior to the merger have become those of the
Company. In connection with the merger, the Company changed its name to Stellar
Technologies, Inc.

Stellar Venture Partners, LLC was formed as a limited liability company under
the laws of the state of Georgia on March 13, 2000. In November of 2000, Stellar
LLC and IO Ventures, LLC ("IO") formed Stellar Business Builders, LLC ("SBB")
for the purpose of acquiring and managing the operations of its startup
affiliates. Stellar LLC and IO each owned 50% of SBB. In May and June of 2001,
Stellar Business Builders, LLC formed two wholly-owned subsidiaries, Stellar
Internet Monitoring, LLC ("SIM"), (formerly known as ICaughtYou, LLC), whose
principal activity is providing companies with the ability to monitor their
employee usage of the internet and Kidweb, LLC ("KW") whose primary activity is
providing a web site development suite targeted directly to children. In
November 2003, the Company purchased IO's remaining 50% interest in SBB for
$100,000 in cash and as a result, SBB became a wholly-owned subsidiary of the
Company (see Note 4).


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
---------------------

The accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America ("US GAAP").

Principles of Consolidation and Ownership Interest in Investors
---------------------------------------------------------------
The accompanying financial statements have been presented on the consolidated
basis in 2003 and include all the accounts of SBB, SIM and KW. No loss was
allocated to the minority interest (see Note 10).






                                      F-29
<PAGE>


                   STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTITY)
                          Notes to Financial Statements



NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)

Prior to 2003, the Company accounted for SBB under the equity method. The
applicable accounting method is generally determined based on the Company's
ownership interest in the affiliate.

In July 2001, the Company purchased a 10% interest in Synergy Networks, Inc.
("SNI") for $400,000 in cash which was reflected under the cost method for 2003
and 2002.

Consolidation
-------------

Affiliate entities in which the Company directly or indirectly owns more than
50% of the outstanding, voting interest are accounted for under the
consolidation method of accounting. Under this method, an investee company's
results of operations are reflected within the Company's consolidated statement
of operations. All significant intercompany accounts and transactions have been
eliminated.

Equity Method
-------------

Affiliate entities in which the Company directly or indirectly owns between 20%
and 50% of the outstanding, voting interests are accounted for under the equity
method of accounting. Under the equity method of accounting, the Company's
proportionate share of the investees' net income or loss is included in
"Investee Losses" in the Consolidated Statements of Operations.

Cost Method
-----------

Entities in which the Company directly or indirectly owns less than 20% of the
outstanding voting interest are accounted for under the cost method of
accounting. Under this method income received from the investees is reflected
within the Company's consolidated statement of operations as investment income
or loss unless the amount of the dividends exceeds the Company's proportionate
share of the affiliates' income. In that case the excess amount would be
considered a return of capital and be recorded as a reduction of the investment.

Development Stage Enterprise
----------------------------

The Company is a Development Stage Enterprise, as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7 "Accounting and Reporting for
Development Stage Enterprises." Under SFAS No. 7, certain additional financial
information is required to be included in the financial statements for the
period from inception of the Company to the current balance sheet date.

Use of Estimates
----------------

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosures of
contingent assets and liabilities at the date of financial statements and the
reported amounts of increases and decreases in net assets from operations during
the reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents
-------------------------

Cash and cash equivalents include cash on hand and investments in money market
funds. The Company considers all highly-liquid instruments with an original
maturity of 90 days or less at the time of purchase to be cash equivalents.







                                      F-30
<PAGE>



                   STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTITY)
                          Notes to Financial Statements



NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)

Federal Income Taxes
--------------------

Prior to the merger on January 15, 2004, no provision for income taxes has been
made, since under federal and state regulation, tax attributes were passed
through to the former Stellar LLC members who assumed responsibility for payment
of income taxes, if any. Subsequent to the merger, income taxes are recorded in
the period in which the related transactions are recognized in the financial
statements, net of any valuation allowances recorded against deferred tax
assets, if the Company estimates that it is more likely than not that it will be
unable to utilize those deferred tax benefits in future periods. Deferred tax
assets and liabilities are recorded for the expected future tax consequences of
temporary differences between the tax basis and the financial reporting basis of
assets and liabilities.

Credit Risk
-----------

Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash deposits at financial institutions. To
mitigate this risk, the Company places its cash deposits only with high credit
quality institutions. At various times during the year, the Company may exceed
the federally insured limits. Management believes the risk of loss is minimal.

Goodwill and Acquired Intangibles
---------------------------------

The Company accounts for goodwill and acquired intangible assets in accordance
with SFAS No. 142, "Goodwill and Other Intangible Assets." Accordingly, goodwill
arising from the acquisition of investments is not amortized, but is reviewed
annually for impairment.

Fair Value of Financial Instruments
-----------------------------------

The carrying amounts reflected in the consolidated balance sheet for cash and
equivalents, short-term receivables and short-term payables approximate their
fair value due to the short maturity of the instruments. The carrying value of
the investment in equity securities approximates fair value based on their
market trading price.

Recent Accounting Pronouncements
--------------------------------

In January 2003, the FASB issued Financial Interpretation No. 46, "Consolidation
of Variable Interest Entities - An Interpretation of ARB No. 51" ("FIN 46" or
"Interpretation"). FIN 46 is an interpretation of Accounting Research Bulletin
51, "Consolidated Financial Statements," and addresses consolidation by business
enterprises of variable interest entities ("VIEs"). The primary objective of the
Interpretation is to provide guidance on the identification of, and financial
reporting for, entities over which control is achieved through means other than
voting rights; such entities are known as VIEs. The Interpretation requires an
enterprise to consolidate a VIE if that enterprise has a variable interest that
will absorb a majority of the entity's expected losses if they occur, receive a
majority of the entity's expected residual returns if they occur or both. An
enterprise is required to consider the rights and obligations conveyed by its
variable interests in making this determination. On October 9, 2003, the FASB
issued Staff Position No. 46-6 which deferred the effective date for applying
the provisions of FIN 46 for interests held by public entities in variable
interest entities or potential variable interest entities created before
February 1, 2003. On December 24, 2003, the FASB issued a revision to FIN 46.
Under the revised interpretation, the effective date was delayed to periods
ending after March 15, 2004 for all variable interest entities, other than SPEs.
The adoption of FIN 46 is not expected to have an impact on the Company's
financial condition, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. The adoption of SFAS No. 149 did not have a material impact
on the Company's results of operations or financial position.






                                      F-31
<PAGE>


                   STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTITY)
                          Notes to Financial Statements



NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for classification and measurement by an issuer of certain
financial instruments with characteristics of both liabilities and equity. The
statement requires that an issuer classify a financial instrument that is within
its scope as a liability (or asset in some circumstances). Many of those
instruments were previously classified as equity. This Statement also addresses
questions about the classification of certain financial instruments that embody
obligations to issue equity shares. The adoption of the effective provisions of
SFAS No. 150 did not have a material impact on the Company's results of
operations or financial position.

On December 17, 2003, the Staff of the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin No. 104 ("SAB 104"), Revenue
Recognition, which supersedes Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements ("SAB 101"). SAB 104's primary purpose is to
rescind the accounting guidance contained in SAB 101 related to multiple-element
revenue arrangements that was superseded as a result of the issuance of EITF
00-21, Accounting for Revenue Arrangements with Multiple Deliverables.
Additionally, SAB 104 rescinds the SEC's related Revenue Recognition in
Financial Statements Frequently Asked Questions and Answers issued with SAB 101
that had been codified in SEC Topic 13, Revenue Recognition. While the wording
of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue
recognition principles of SAB 101 remain largely unchanged by the issuance of
SAB 104, which was effective upon issuance. The adoption of SAB 104 did not have
a material effect on the Company's financial position or results of operations.

Marketable Securities
---------------------

The investments with which the Company is involved with are primarily of a
traditional nature. The Company's short-term investments are comprised of equity
securities that trade either on a United States national securities market or on
the over-the-counter bulletin board ("OTC BB"). The securities are all
classified as trading securities, and are carried at fair market value based
upon the quoted market prices of those investments at period end. Accordingly,
net realized and unrealized gains and losses on trading securities are included
in net earnings for the period.

The Company uses the specific identification method as the basis for determining
the cost of trading securities sold. Unrealized losses in trading securities
amounted to $18,314 and $156,976 for securities held as of December 31, 2003 and
2002, respectively.

Revenue Recognition
-------------------

Revenue from the sale of monitoring services is recognized ratably over the life
of the monitoring service agreement. Accounts receivable represents balances due
from customers for internet monitoring services rendered. Management estimates
that such revenues are fully collectible. Since inception essentially all sales
have been from internet monitoring services.

Advertising Costs
-----------------

The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising costs amounted to $94,837, $11,582 and $108,053 for
2003, 2002 and the period March 13, 2000 (inception) through December 31, 2003,
respectively.

Property and Equipment
----------------------

Property and equipment is recorded at cost, less accumulated depreciation and is
depreciated using the straight-line method over their estimated useful life of
the asset, which range from three to seven years.







                                      F-32
<PAGE>



                   STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTITY)
                          Notes to Financial Statements



NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loss Per Share
--------------

Loss per common share is calculated in accordance with SFAS No. 128, "Earnings
Per Share." Basic loss per common share is computed based upon the weighted
average number of shares of common stock outstanding for the period and excludes
any potential dilution. Shares associated with stock options, warrants and
convertible debt are not included because their inclusion would be antidilutive
(i.e., reduce the net loss per share). The per share calculations take into
effect all stock dividends, stock splits, recapitalizations and reverse stock
splits (See Note 15).

From inception through December 31, 2003 the Company did not issue any dilutive
securities.

Pro Forma Financial Information
-------------------------------

As discussed in Note 1 and Note 15, Stellar LLC was originally organized in the
form of a Limited Liability Company. Upon the merger of the wholly owned
subsidiary of the Company into Stellar LLC in 2004, the capital structure
changed for income tax purposes to that of a corporation. The change resulted in
the Company retaining the tax benefit for the portion of the losses generated
subsequent to January 15, 2004, whereas the previous losses were passed through
to the Stellar LLC members. Pursuant to Staff Accounting Bulletin Number 1B.2
"Pro Forma Financial Statements and Earnings per Share" ("SAB 1B.2"), a pro
forma income statement has been presented which reflects the impact of the
Stellar LLC change in capital structure as if it had occurred March 13, 2000
(Stellar LLC's inception). This presentation reflects the Company generating a
tax benefit, which has been offset with a valuation allowance, which includes
the net operating losses incurred by Stellar LLC during the period from March
12, 2000 to December 31, 2003, the operating period prior to Stellar LLC's
termination.


NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
                                                            Useful Life       2003         2002
                                                            -----------     --------     --------
<S>                                                         <C>             <C>          <C>

          Software                                            3 years       $ 75,000     $      -
          Furniture, Fixtures and Equipment                  5-7 years        82,038       37,344
          Capital Leases - Equipment                          5 years         13,088            -
                                                                            --------     --------
                                                                             170,126       37,344
          Less: Accumulated Depreciation                                     (97,317)     (13,873)
                                                                            --------     --------

                                                                            $ 72,809     $ 23,471
                                                                            ========     ========
</TABLE>
Deprecation expense which includes amounts under capital leases amounted to
$39,428, $6,015 and $53,301 during 2003, 2002 and from Inception through
December 31, 2003, respectively.


NOTE 4 - GOODWILL

On November 14, 2003, the Company paid $100,000 in cash to IO to acquire the
remaining 50% of SBB it did not own. On the date of the acquisition, SBB's
liabilities exceeded it assets, which resulted in the Company recording goodwill
in the entire amount of the purchase price of $100,000 plus the amount by which
the liabilities exceeded the assets in the amount of $21,595. At December 31,
2003, the Company fully impaired the goodwill in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets."






                                      F-33
<PAGE>


                   STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTITY)
                          Notes to Financial Statements


NOTE 5 - INCOME TAXES

In accordance with federal income tax regulations, the net loss incurred by
Stellar Venture Partners, LLC from inception to the date of its merger with the
Company has been excluded from the benefits of the net operating loss
carryforwards reflected in this footnote.

The following table presents the principal reasons for the difference between
the Company's effective tax rates and the United States federal statutory income
tax rate of 35%.
<TABLE>
<CAPTION>
                                                                                                March 13, 2000
                                                                                                (Inception) to
                                                                                                 December 31,
                                                                     2003           2002             2003
                                                                   ---------      ---------       ----------
     <S>                                                           <C>            <C>             <C>
     Federal income tax benefit at statutory rate                  $ 357,100      $ 596,000       $1,119,575
     Federal income tax benefit passed through to the
       members of Stellar Venture Partners, LLC                     (357,100)      (352,000)        (921,575)
     Non-deductible expenses                                               -       (244,000)        (198,000)
                                                                   ---------      ---------       ----------

         Income Tax Benefit                                        $       -      $       -       $        -
                                                                   =========      =========       ==========

         Effective Income Tax Rate                                        0%             0%               0%
                                                                   =========      =========       ==========
</TABLE>

NOTE 6 - CAPITAL LEASE OBLIGATIONS

In September 2003, SIM entered into a capital lease to purchase computer
equipment with a cost of $4,787. The term of the lease is 36 months with monthly
payments in the amount of $187. The interest rate on the capital lease is
approximately 25%. At the end of the lease, SIM may purchase the equipment for
$1. The lessor holds a security interest in the equipment purchased.

In December 2003, SIM entered into a capital lease to purchase a new phone
system with a cost of $8,302. The term of the lease is 36 months with monthly
payments of $251. The interest rate on the lease is 6%. At the end of the lease,
SIM may purchase the equipment for $1. The lessor holds a security interest in
the equipment purchased.

The following is a schedule by year of future minimum lease payments required to
be paid by SIM under capital lease obligations together with the present value
of the net minimum lease payments as of December 31, 2003:

         2004                                                      $ 5,254
         2005                                                        5,254
         2006                                                        4,258
                                                                   -------

         Total Minimum Lease Payments                               14,766

         Less Amount Representing Interest                          (2,205)
                                                                   -------

         Present Value of Net Minimum Lease Payments                12,561

         Less Current Portion                                       (4,088)
                                                                   -------

         Non-Current Portion                                       $ 8,473
                                                                   =======






                                      F-34
<PAGE>


                   STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTITY)
                          Notes to Financial Statements



NOTE 7 - DEFERRED REVENUES

Deferred revenues represent payments from customers for internet monitoring
services prior to the Company's requirement to perform the internet monitoring
service.


NOTE 8 - STOCKHOLDERS' EQUITY

On June 6, 2000, the Company sold 3,633,028 shares of its common stock to MAS
Services, Inc. for a subscription receivable of $1,100 under a private placement
offering. In January 2004, MAS Services, Inc. paid $1,100 to the Company in
satisfaction of the subscription receivable.

During the third and fourth quarters of 2000, the Company sold 11,064,221 shares
of its common stock under a private placement offering, and received gross
proceeds of $3,350,000. The Company paid offering costs of $29,843 and $9,746 in
2000 and 2001, respectively, in connection with this offering.

In November 2003, the Company sold 3,302,751 shares of its common stock under a
private placement offering and received $1,000,000 in gross proceeds. The
Company paid $65,442 in offering costs in connection with this private
placement.


NOTE 9 - OPERATING LEASES

The Company had a lease commitment for its office space commencing August 1,
2001 for a period of 24 months. The lease was renewed for a year in August 2003.
The monthly lease commitment is $2,371 per month which includes common area
maintenance and taxes.

SIM has a lease commitment for its office space commencing December 1, 2003 for
a period of 37 months. The lease contains one month of free rent and yearly
escalation clauses that raise the basic monthly rent from $1,935 in 2004 to
$2,052 in 2006. SIM is also responsible for common area maintenance and taxes in
addition to the base rent.

In January 2003, the Company leased space for its computer servers and high
speed internet lines with a term of twelve months with a minimum lease rate of
approximately $4,450 per month.

Total rental expense for all operating leases was $83,706, $101,561 and $237,962
for 2003, 2002 and the period of March 13, 2000 (Inception) through December 31,
2003.

The following is a schedule by year of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
of one year or greater as of December 31, 2003:

                 2004                 $23,216
                 2005                  23,912
                 2006                  24,629
                                      -------

                                      $71,757
                                      =======






                                      F-35
<PAGE>


                   STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTITY)
                          Notes to Financial Statements



NOTE 10 - EQUITY METHOD LOSSES AND IMPAIRMENT OF INVESTEE LOAN RECEIVABLE

In accordance with Emerging Issues Task Force ("EITF") 98-13 "Accounting by an
Equity Method Investor for Investee Losses When the Investor has Loans to and
Investments in Other Securities of the Investee," and 99-10 "Percentage Used to
Determine the Amount of Equity Method Losses," in the event that minority
interest losses exceed stockholders' equity for the majority interest, the
excess minority interest loss is recorded against loan advances or other forms
of equity invested in the subsidiary. Accordingly, during 2002 the Company
reduced its loan receivable from the original amount invested of $1,018,500 by
the amount of the losses recorded in excess of the minority interest deficiency,
leaving a loan balance of $378,404 at December 31, 2002.

In addition, the Company fully impaired the remaining balance of the loan
receivable from the subsidiary at December 31, 2002.


NOTE 11 - SEGMENT REPORTING

Management Policy in Identifying Reportable Segments
----------------------------------------------------

The Company's reportable business segments are strategic business units that
offer distinctive products and services that are marketed through different
channels. They are managed separately because of their unique technology,
marketing and distribution requirements.

Types of Activities
-------------------

In 2003 the Company had three reportable segments: Internet Monitoring,
Children's Website Development and Sales, and Investment Management and
Corporate Development. Prior to 2003, the Company had only one segment,
Investment Management and Corporate Development.
<TABLE>
<CAPTION>
                                                                        Child Web        Investment
                                                          Internet      Site and       and Corporate
                                                         Monitoring    Development      Management
                                                         ----------    -----------     -------------
     <S>                                                 <C>           <C>             <C>
     Total assets (excluding intercompany)               $   54,943    $    14,606     $   1,101,476
                                                         ==========    ===========     =============

     Total liabilities (excluding intercompany)          $  104,693    $       175     $      19,973
                                                         ==========    ===========     =============

     Results of operations:
        Revenues                                         $  173,711    $         -     $           -
        Depreciation                                     $    7,995    $    25,000     $       6,433
        Net loss                                         $ (598,270)   $   (28,494)    $    (393,522)
</TABLE>

During 2003, one customer accounted for approximately 14% of revenue.






                                      F-36
<PAGE>


                   STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTITY)
                          Notes to Financial Statements




NOTE 12 - EQUITY INTERESTS IN UNCONSOLIDATED SUBSIDIARIES

The following table summarizes financial information for subsidiaries accounted
for under the equity method for the year ended December 31, 2002 which was SBB
and its two wholly-owned subsidiaries:
<TABLE>
<CAPTION>
                                                        SIM              KW            SBB
                                                    -----------       --------      ----------
<S>                                                 <C>               <C>           <C>
     Other assets                                   $    45,215       $ 39,654      $   39,849
     Intercompany loans receivable                            -              -         968,500
                                                    -----------       --------      ----------

     Total assets                                   $    45,215       $ 39,654      $1,008,349
                                                    ===========       ========      ==========

     Other liabilities                              $   106,909       $     79      $2,048,445
     Intercompany loans payable                         968,250            250               -
                                                    -----------       --------      ----------

     Total liabilities                              $ 1,075,159       $    329      $2,048,445
                                                    ===========       ========      ==========

     Results of operations:
       Net loss                                     $(1,023,350)      $(55,285)     $  (22,523)
       Revenues                                     $    79,140       $    214      $    4,000
       Depreciation                                 $     6,978       $ 25,000      $        -
</TABLE>


NOTE 13 - TRANSACTIONS WITH AFFILIATES

MAS Services, Inc. is the manager of the Company. MAS Services, Inc. is an
investment analysis company. Under the operating agreement of the Company, the
manager earns an annual management fee equal to three percent (3%) of the total
capital committed to the Company by its members. The manager also is reimbursed
for all out-of-pocket costs it incurred or has incurred in connection with the
organization or operation of the Company. The Company incurred management fees
in the amount of $109,000, $100,500 and $393,750 in 2003, 2002 and from
inception through December 31, 2003, respectively.


NOTE 14 - SUPPLEMENTARY CASH FLOW INFORMATION

In 2003, SIM financed $13,088 of the purchase of computer and phone system
equipment through capital lease obligations.

In 2003, SIM paid $97 of interest expense on the capital lease obligations.


NOTE 15 - SUBSEQUENT EVENTS

In January, 2004 the Company consummated an agreement and plan of merger with
Stellar LLC, pursuant to which the Company acquired 100% of the issued and
outstanding membership interests of Stellar LLC in consideration for which the
members of Stellar LLC received 18,000,001 shares of the Company common stock
after adjusting for the 1 for 4 reverse stock split in March 2004. As a result
of the merger, International Travel CD's Acquisition Corp., a wholly-owned
subsidiary of the Company, merged with and into Stellar LLC and the Company
became the sole member of Stellar LLC.







                                      F-37
<PAGE>




                   STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTITY)
                          Notes to Financial Statements



NOTE 15 - SUBSEQUENT EVENTS (Continued)

The combination of Stellar LLC and the Company was treated as a recapitalization
of Stellar LLC. As a result of the merger, Stellar LLC members acquired
approximately 74% of the issued and outstanding voting common stock of the
Company on a fully diluted basis. The Company was the legal acquirer in the
merger. Stellar LLC was the accounting acquirer since its members acquired a
majority ownership interest in ILCD. Consequently, the financial statements of
Stellar LLC have become those of the Company.

Subsequent to the merger, the sole officer and director of the Company resigned
and was replaced by the manager of Stellar LLC and the Company changed its name
to Stellar Technologies, Inc. and entered into a 1 for 4 reverse stock split.

In connection with the merger, the Company issued 162,500 shares of common stock
for advisory services.

In the first quarter of 2004, the Company sold 25,000 shares of its stock
resulting in a gain of $59,183.

After the merger the Company commenced raising capital through a private
offering of up to 2,500,000 shares of Series A Convertible Preferred Stock
("Shares"), no par value per share, and warrants ("Warrants") to acquire up to
625,000 shares of common stock, no par value per share. The Shares and Warrants
will be sold in units comprised of one share of Series A Convertible Preferred
Stock and one Warrant ("Units"). The Units will be sold at a purchase price of
$0.75 per Unit pursuant to Section 4(2) of the Securities Act of 1933, as
amended, and Rule 506 of Regulation D thereunder. Each Share is initially
convertible into one half share of common stock, subject to adjustment, and each
Warrant is initially exercisable into one share of common stock at an exercise
price of $2.40 per share, subject to adjustment for a period of three years from
the date of issuance. The Series A Preferred Stock has no voting rights,
dividend rights that are pari passu with the common stock of the Company, and no
liquidation preferences. All shares of Series A Convertible Preferred Stock
automatically converted effective March 12, 2004 or upon issuance thereafter.

As of March 23, 2004, the Company had issued approximately 589,250 units and
raised approximately $1,767,750 through the private offering.


NOTE 16 - BUSINESS COMBINATION

On November 14, 2003, Stellar LLC acquired the remaining 50% membership interest
in SBB and its wholly-owned subsidiaries from IO Ventures for $100,000 in cash.
The purchase price was allocated to the assets and liabilities in accordance
with SFAS No. 141 "Business Combinations." On the date of the acquisition, the
net liabilities of SBB and its wholly-owned subsidiaries exceeded its net assets
by $21,595, which consisted of the following components:

  Cash                                 $  7,943
  Accounts receivable                     4,873
  Other current assets                    3,500
  Fixed assets                           69,077
                                       --------
  Total Assets                         $ 85,393
                                       ========

  Accounts payable                     $ 46,724
  Other liabilities                      60,264
                                       --------
  Total Liabilities                    $106,988
                                       ========

  Net Deficit Acquired                 $(21,595)
                                       ========




                                      F-38
<PAGE>


                   STELLAR TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTITY)
                          Notes to Financial Statements



NOTE 16 - BUSINESS COMBINATION (Continued)

The excess purchase price of $121,595 was recognized as goodwill as described in
Note 4.

The following pro forma presentation assumes the Company's acquisition of the
remaining 50% of SBB and its wholly-owned subsidiaries took place on January 1,
2002, and shows the pro forma effect on loss from operations.
<TABLE>
<CAPTION>
                                                                                       For the Year Ended
                                                                                       December 31, 2002
                                                                               --------------------------------
                                                                                                        Pro
                                                                                Historical             Forma
                                                                               -----------          -----------
                                                                                                    (Unaudited)
<S>                                                                            <C>                  <C>
                                                                               $         -          $    79,832
Revenues
Expenses
  Depreciation and amortization expense                                              6,015               37,992
  Investment costs                                                                  50,890               50,890
  Labor costs and expense reimbursements                                            34,350              820,865
  Management fees, related party                                                   100,500              100,500
  General and administrative                                                        27,267              101,976
  Professional fees                                                                 41,818               54,101
  Marketing                                                                              -              139,904
  Research, development and product support                                              -              135,602
  Office rents                                                                      30,328               30,328
  Subsidiary loan impairment                                                       378,404                    -
                                                                               -----------          -----------
           Total expenses                                                          669,572            1,472,158

Loss from operations                                                           $  (669,572)         $(1,392,326)
                                                                               ===========          ===========
Net loss to commons stockholders                                               $(1,702,769)         $(1,554,896)
                                                                               ===========          ===========
Net loss per common share - basic and diluted                                  $     (0.12)         $     (0.11)
                                                                               ===========          ===========
Weighted average number of common shares
    outstanding - basic and diluted                                             14,697,249           14,697,249
                                                                               ===========          ===========
</TABLE>





                                      F-39

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                      STELLAR TECHNOLOGIES, INC.


Date: November 1, 2005                               /s/ Richard A. Schmidt
                                                     ---------------------------
                                                     Richard A. Schmidt
                                                     Chief Executive Officer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
<TABLE>
<CAPTION>
Signature                               Title                                   Date
---------                               -----                                   ----
<S>                                     <C>                                     <C>
/s/ Richard A. Schmidt                  Chief Executive Officer and Director    November 1, 2005
---------------------------             (Principal Executive Officer)
Richard A. Schmidt

/s/ John E. Baker                       Chief Financial Officer (Principal      November 1, 2005
---------------------------             Financial and Accounting Officer)
John E. Baker
</TABLE>



<PAGE>


                                  EXHIBIT INDEX

Exhibit Number       Description
--------------       -----------

         14.1        Code of Ethics

         31.1        Certification of President of the Company required by Rule
                     13a-14(a) under the Securities Exchange Act of 1934, as
                     amended

         31.2        Certification of Chief Financial Officer of the Company
                     required by Rule 13a-14(a) under the Securities Exchange
                     Act of 1934, as amended

         32.1        Certification of President of Registrant to 18 USC Section
                     1350, as Adopted Pursuant to Section 906 of the
                     Sarbanes-Oxley Act of 2002

         32.2        Certification of Chief Financial Officer of Registrant to
                     18 USC Section 1350, as Adopted Pursuant to Section 906 of
                     the Sarbanes-Oxley Act of 2002