UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-KSB/A


Amendment
No. 2








ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For the
fiscal year ended December 31, 2007







TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934










Commission
file number 001-32220





AMERICAN WATER STAR,
INC.


(Exact
name of small business issuer as specified in its charter)




Nevada
            87-0636498(State
      or other jurisdiction of incorporation or organization)
            (IRS
      Employer Identification No.)





2580
Anthem Village Dr., Suite B1


Henderson,
Nevada 89052


(Address
of principal executive offices)





Securities
registered pursuant to Section 12(b) of the Exchange Act: None




Securities
registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.001
par value




Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes   No







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 registrant'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 checkmark whether the Company is a shell company (as defined in Rule 12b-2 of
the Exchange Act)  Yes X No ___





The
issuer's revenues for its most recent fiscal year ended December 31, 2007.
$-0-.





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average bid and ask price, as of
August 2, 2007 was $373,076 based on a share value of $0.005.





The
number of shares of Common Stock, $0.001 par value, outstanding on February 7,
2008 was 136,852,858 shares.







Transitional
Small Business Disclosure Format (check
one):  Yes  No





1









AMERICAN
WATER STAR, INC


FOR THE
YEAR ENDED


DECEMBER
31, 2005




Index to
Report


on Form
10-KSB






PART
      I
            PageItem
      1.
            Description
      of Business
            4Item
      2.
            Description
      of Property
            7Item
      3.
            Legal
      Proceedings
            7Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            8




PART
II




Item
      5.
            Market
      for Common Equity, Related Stockholder Matters and Small Business Issuer
      Purchases of Equity Securities
            8Item
      6.
            Management’s
      Discussion and Analysis or Plan of Operation
            10Item
      7.
            Financial
      Statements
            12Item
      8.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            12Item
      8A.
            Controls
      and Procedures
            12Item
      8B.
            Other
      Information
            13




PART
III




Item
      9.
            Directors,
      Executive Officers, Promoters, Control Persons and Corporate Governance;
      Compliance With Section 16(a) of the Exchange Act
            14Item
      10.
            Executive
      Compensation
            16Item
      11.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            18Item
      12.
            Certain
      Relationships and Related Transactions and Director
      Independence
            19Item
      13.
            Exhibits
            20Item
      14.
            Principal
      Accountant Fees and Services
            21










2







FORWARD-LOOKING
STATEMENTS





This
document contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995.  All statements other than
statements of historical fact are “forward-looking statements” for purposes of
federal and state securities laws, including, but not limited to, any
projections of earnings, revenue or other financial items; any statements of the
plans, strategies and objections of management for future operations; any
statements concerning proposed new services or developments; any statements
regarding future economic conditions or performance; any statements or belief;
and any statements of assumptions underlying any of the foregoing.





Forward-looking
statements may include the words “may,” “could,” “estimate,” “intend,”
“continue,” “believe,” “expect” or “anticipate” or other similar
words.  These forward-looking statements present our estimates and
assumptions only as of the date of this report.  Except for our
ongoing securities laws, we do not intend, and undertake no obligation, to
update any forward-looking statement.





Although
we believe the expectations reflected in any of our forward-looking statements
are reasonable, actual results could differ materially from those projected or
assumed in any of our forward-looking statements.  Our future
financial condition and results of operations, as well as any forward-looking
statements, are subject to change and inherent risks and
uncertainties.  The factors impacting these risks and uncertainties
include, but are not limited to:





·
            Our
      current deficiency in working
capital;




·
            Our
      ability to comply with SEC reporting
  requirements;




·
            Loss
      of our real and personal property as a result of foreclosure or sale of
      our assets by a receiver;




·
            Increased
      competitive pressures from existing competitors and new
      entrants;




·
            Inability
      of co-packers to meet production
requirements;




·
            Interruption
      of critical packaging materials and/or
  flavorings;




·
            Unavailability
      of critical production ingredients such as sweeteners and
      plastics;




·
            Adverse
      state or federal legislation or regulation that increases the costs of
      compliance, or adverse findings by a regulator with respect to existing
      operations;




·
            Loss
      of customers or sales weakness;




·
            Our
      ability to collect accounts
receivable;




·
            Inability
      to achieve future sales levels or other operating results;
    and




·
            The
      unavailability of funds for capital
  expenditures.




Actual
future performance and results could differ from that contained in or suggested
by these forward-looking statements as a result of factors set forth in this
Form 10-KSB in particular as set forth in the “Management’s Discussion and
Analysis or Plan of Operation” under Item 6.





In this
form 10-KSB references to “American Water Star,” “the Company”, “we,” “us,” and
“our” refer to AMERICAN WATER STAR, INC and its subsidiaries, unless context
otherwise determines.





3


PART
I





ITEM
1.                      DESCRIPTION
OF BUSINESS





(a)
Business Development





American
Water Star, Inc. was incorporated as American Career Centers, Inc., in the State
of Nevada on June 15, 1999.  The purpose of the company was to serve
as a holding company for the acquisition of information technology career
training centers and related businesses.  Effective December 3, 1999,
American Water Star acquired 100% of the outstanding shares of Tunlaw Capital
Corporation, a publicly-held reporting company, in exchange for an aggregate of
200,000 shares of common stock, with Tunlaw becoming a wholly-owned
subsidiary.  With the completion of this acquisition, American Water
Star became the successor issuer to Tunlaw, and retained public company
reporting status under the Exchange Act.  Tunlaw has had no operations
to date and is inactive.





On April
2, 2002, we authorized the amendment to American Career Centers, Inc.’s Articles
of Incorporation to change its name to American Water Star, Inc., to reflect the
significant change in our character and strategic focus relating to our water
bottling and distribution business.  Subsequent to our name change we
pursued the acquisition of Water Star Bottling, Inc. as the basis of our new
business plan.  We later voided the acquisition and have since filed
an involuntary bankruptcy petition against Water Star Bottling.





Acquisition
of New Age Packaging, Inc.





On
December 23, 2002, we completed the acquisition of New Age Packaging, Inc. (then
known as American Distribution & Packaging, Inc.), a privately-held Nevada
corporation (“New Age”). Pursuant to that Agreement, New Age exchanged 100% of
its outstanding common stock for 5,200,000 newly issued shares of our common
stock, which was issued to former officers and directors of American Water Star
whom were shareholders of New Age pre-merger. Upon completion of the
acquisition, New Age became a wholly-owned subsidiary of American Water
Star.





Although
the consideration exchanged in the New Age acquisition was not negotiated at
“arms-length,” our directors and executive officers deemed it reasonable based
on certain criteria, such as the valuation of the assets of New Age; New Age’s
current and historical business operations; the potential of New Age; and the
potential benefit to our stockholders. Our directors determined that the
consideration for the exchange was reasonable under these
circumstances.





New Age
is developing a packaging process that will be an alternative to traditional
plastic bottles, glass containers and aluminum cans. This process requires
alternative manufacturing and distribution coordination as compared to
traditional bottling procedures.





All of
the original equipment owned by New Age was designed to be used in the
production of bottled beverages; accordingly, it was transferred as a dividend
to American Water Star in early 2003.  In December of 2003, our Board
of Directors declared a dividend to stockholders of record as of March 15, 2004,
in the form of all of the common stock of New Age.  Due to American
Water Star’s issues with its loans with Laurus Master Fund and the delisting of
our securities from the American Stock Exchange, we have not been able to
effectuate the distribution of the NAP shares. We still believe the anticipated
business model for NAP is not compatible with our current operations and we
believe that the divestiture will have little impact on our future
operations.





Acquisition
of All-Star Beverages, Inc.





On
December 24, 2002, we completed the acquisition of All-Star Beverages, Inc., a
privately-held Nevada corporation (“All-Star”), pursuant to an Acquisition
Agreement dated as of September 6, 2002. Pursuant to that Agreement, All-Star
exchanged 100% of its outstanding common stock for 12,645,824 newly issued
shares of our common stock.  Roger Mohlman, our current CEO and
Chairman, received 11,103,433 of the shares issued in the exchange. Upon
completion of the acquisition, All-Star became a wholly-owned subsidiary of
American Water Star.





Although
the consideration exchanged in the All-Star acquisition was not negotiated at
“arms-length,” our directors and executive officers deemed it reasonable based
on certain criteria such as the valuation of the assets of All-Star; All-Star’s
current and historical business operations; the potential of All-Star; and the
potential benefit to our stockholders. Our directors determined that the
consideration for the exchange was reasonable under these
circumstances.





The
majority of our operations were conducted through All-Star. We had contractual
relationships with various independent distributors, brokers, both single and
multi-location retail operations, and governmental agencies throughout the
United States.





As a
result of the All-Star and New Age acquisitions, the former stockholders of
All-Star and New Age became the controlling stockholders of American Water
Star.











Acquisition
of Colorado River Distributors (“C.R.D.”), Nevada Division:





During
the first quarter of 2005, we entered into an agreement to purchase from
Colorado River Distributors, LLC, the distribution rights of their Nevada
Division.  In addition to purchasing the distribution rights, we
purchased the existing inventory of their Nevada Division.  Colorado
River Distributors has distributing agreements for the paper products of
Arrowhead Water, Coca Cola, Gatorade, and Tropicana.  Upon this
acquisition, we established a new subsidiary; C.R.D. of Nevada, in which we
incorporated the operations of Colorado River Distributors’ Nevada Division and
consolidated the business with our operations in Las Vegas, Nevada.





Subsidiaries
of American Water Star, Inc.





With the
purchase and completion of the three plants in the United States, separate
Nevada corporations were incorporated for each plant.  These
corporations only held the physical assets of each plant.  The
following is a list of all subsidiaries of American Water Star owned as of
December 31, 2007.  Due to the defaults with Laurus Master Fund, which
is described in more detail below, we lost all assets owned by the listed
subsidiaries and no longer operate any of the listed entities.





Name
      of SubsidiaryC.R.D.
      OF NEVADA, INC.GEYSER
      VEVERAGES, INC.NEW
      AGE PACKAGING, INC.DELTA
      DISTRIBUTORS, INC.HAWAIIAN
      TROPICALS, INC.SUNSET
      BOTTLING, INC.MID
      SOUTH DISTRIBUTING, INC.TRAIL
      DUST DISTRIBUTING, INC.O.C.
      BEVERAGE, INC.ISLAND
      BEVERAGE, INC.EXCALIBUR
      SALES, INC.EXCALIBUR
      TRUCKING, INC.ALL-STAR
      BEVERAGES, INC.AMERICAN
      BEVERAGE & DISTRIBUTING, INC.ALL-STAR
      BEVERAGE JAX, INC.ALL-STAR
      BEVERAGES MISSISSIPPI, INC.









4


(b)
Business of Issuer





American
Water Star was started as a company that developed, marketed, sold, and
distributed bottled water with four branded beverages: Hawaiian Tropic, Geyser
Fruit, Geyser Sport, and Geyser Fruta. The products were orientated to the
health conscious consumer looking for an alternative to products containing high
sugar and caffeine levels. Our customers included single and multi-store retail
operations, governmental agencies, and distributors who in turn sell to retail
stores, convenience stores, schools and other outlets.   In
addition, we branched into the private label and co-packing industries in the
fourth quarter of 2004.





We
initially sold our products exclusively through distributors who then supplied
our products to retailers.  Although we continued to use distributors,
we also expanded our sales effort through sales directly to
retailers.





We had
hoped the private label and co-packaging of beverages for other corporations
would allow us to avoid costly marketing expenses that would otherwise be
associated with brand development, launch, and continuing
promotions.





CURRENT
OPERATIONS





During
the third quarter of 2005, we entered into a “Forbearance Agreement” with Laurus
Master Fund (“Laurus”).  Pursuant to the Forbearance Agreement, Laurus
agreed to forbear taking action on our existing defaults until October 26, 2007,
provided that we did not default under the new Forbearance
Agreement.  In consideration for the Forbearance Agreement, we issued
a Secured Convertible Term Note in the principal amount of $1,286,098.61, which
represented the aggregate accrued interest and fees owed to Laurus as of July
31, 2005.





On
September 15, 2005, Laurus notified us that certain Events of Default had
occurred under the Second Note and demanded payment of approximately $207,458 by
September 21, 2005.  Although our operations continued through the
third quarter of 2005, the impact of the default to Laurus had a negative impact
on our ability to continue operations as previously planned.





During
the fourth quarter of 2005, our operations ceased and Laurus began to foreclose
on all of our assets and subsidiaries.  On November 4, 2005, Laurus
again notified us that certain defaults had occurred in the Securities Purchase
Agreement, including our failure to make interest payments on September 1, 2005,
October 1, 2005 and November 1, 2005.  In addition, we had failed to
make principal and interest payments due to Laurus on August 1, 2005, September
1, 2005, October 1, 2005 and November 1, 2005.  Based upon the
occurrence and continuance of these defaults, Laurus notified us that they had
accelerated the amounts due under the obligations, demanding payment in full on
November 7, 2005 in the amount of $6,694,875.





Subsequent
to November 7, 2005, foreclosure proceedings were begun on all of our real,
personal, tangible, and intangible property, including all buildings,
structures, leases, fixtures, and moveable personal property.  On
March 2, 2006, all of the real property was sold through a foreclosure sale, and
on March 23, 2006, all personal property was sold through a UCC
sale.  Pursuant to the Order of the Court, on or about April 3, 2006,
the Superior Court of the State of Arizona in and for the County of Maricopa
approved an order (i) Approving Receiver’s Final Report; (ii) Discharging
Receiver; and (iii) Dismissing Case. Further, the Order of the Court stated as
follows: “On March 2, 2006, all of the real property of the Receivership
Property was sold through a foreclosure sale (“Real Property Sale”). Laurus
purchased the real property sold at the Real Property Sale.” “On March 23, 2006,
all of the personal property of the Receivership Property was sold through a UCC
sale (“Personal Property Sale”). Laurus purchased the personal property sold at
the Personal Property Sale.” “Following the Real Property Sale and the Personal
Property Sale, substantially all of the Company’s assets have been sold to
Laurus.” The loss of the assets included the loss of the ownership of five of
our subsidiaries; All Star Beverage, Inc., All Star Beverages Arizona, Inc., All
Star Beverages Jax, Inc., All Star Beverages Mississippi, Inc., and Hawaiian
Tropicals, Inc. Substantially all of our assets were sold, which had a
significant negative impact on our Results of
Operations.    Our results of
operations discussed for the year ended December 31, 2007 and
2006  are not indicative of future operations since during the fourth
quarter of 2005 we substantially ceased all operations and lost all assets due
to the foreclosure process by Laurus in the first quarter of
2006.





On
November 23, 2005, we received a letter from the American Stock Exchange
(“AMEX”) notifying us we were not in compliance with Sections 134, 1003(a)(iv),
and 1101 of AMEX’s Company Guide.  Pursuant to AMEX’s letter we were
required to submit two plans, one by December 9 and the second one by December
23, 2005, advising AMEX on the action we planned to take to become compliant by
January 5, 2006 and February 23, 2006.  On January 11, 2006, we
received notice from AMEX that we were not in compliance with their continued
listing standards and that our securities were being delisted.





5


Personnel





As of
December 31, 2007 we had 1 full-time employee.  We also used the
service of independent consultants and contractors to perform various
professional services.  We believe the use of third-party service
providers enhanced our ability to contain general and administrative
expenses.  Management believes our future success will depend in large
part upon our ability to attract and retain qualified employees.  We
had no collective bargaining agreements with our employees and believe our
relations with our employees are good.





ITEM
2.                      DESCRIPTION
OF PROPERTY





As of
December 31, 2007, American Water Star maintained its corporate headquarters at
2580 Anthem Village Drive, Henderson NV 89052 which we currently pay
$150  month.   Prior to May 2007, we leased 4560 South
Decatur Blvd., Suite 301, Las Vegas, Nevada 89103 which was approximately 4,000
square feet of office space under a lease set to expire in April 2008. The
minimum monthly rental for the premises was approximately $8,700, plus standard,
ancillary charges, such as property taxes, insurance, and certain operating
expenses applicable to the leased premises. The lease was subject to annual rent
increases at a rate of four percent per annum.





In
addition, we leased property at 4545 Cameron Street, Suites A and B, Las Vegas,
NV 89103.  We leased approximately 11,000 square feet of warehouse and
4,000 square feet of office space under a lease, set to expire in October
2006.  We initially used this property as our warehouse space and our
accounting department before relocating the accounting office to our Arizona
facility.  Subsequently, we utilized this space for the operations of
our subsidiary, C.R.D. of Nevada.  The minimum monthly rental for the
premises was approximately $8,900, plus standard, ancillary charges, such as
property taxes, insurance, and certain operating expenses applicable to the
leased premises.  The lease was subject to an annual rent increase of
approximately $300.





As
previously mentioned, upon Laurus completing its foreclosure we lost all assets
and no longer operate in any of the described properties.  In May of
2007, we signed a one-year lease for a virtual executive suite in Henderson,
Nevada whereby we currently pay $150 per month.





ITEM
3.                      LEGAL
PROCEEDINGS








On
November 4, 2005, Laurus again notified us that certain defaults had occurred in
the Securities Purchase Agreement, including our failure to make interest
payments on September 1, 2005, October 1, 2005 and November 1,
2005.  In addition, we had failed to make principal and interest
payments due to Laurus on August 1, 2005, September 1, 2005, October 1, 2005 and
November 1, 2005.  Based upon the occurrence and continuance of these
defaults, Laurus notified us that they had accelerated the amounts due under the
obligations, demanding payment in full on November 7, 2005 in the amount of
$6,694,875.  In the event the payment amount was not received by
Laurus, foreclosure proceedings covered by the Deed of Trust would
begin.





Subsequent
to November 7, 2005, foreclosure proceedings were begun on all of our real,
personal, tangible, and intangible property, including all buildings,
structures, leases, fixtures, and moveable personal property.  On
March 2, 2006, all of the real property was sold through a foreclosure sale, and
on March 23, 2006, all personal property was sold through a UCC
sale.  Pursuant to the Order of the Court, on or about April 3, 2006,
the Superior Court of the State of Arizona in and for the County of Maricopa
approved an order (i) Approving Receiver’s Final Report; (ii) Discharging
Receiver; and (iii) Dismissing Case. Further, the Order of the Court stated as
follows: “On March 2, 2006, all of the real property of the Receivership
Property was sold through a foreclosure sale (“Real Property Sale”). Laurus
purchased the real property sold at the Real Property Sale.” “On March 23, 2006,
all of the personal property of the Receivership Property was sold through a UCC
sale (“Personal Property Sale”). Laurus purchased the personal property sold at
the Personal Property Sale.” “Following the Real Property Sale and the Personal
Property Sale, substantially all of the Company’s assets have been sold to
Laurus.” The loss of the assets included the loss of All Star Beverage, Inc.,
All Star Beverages Arizona, Inc., All Star Beverages Jax, Inc., All Star
Beverages Mississippi, Inc., and Hawaiian Tropicals, Inc.





6


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





We did
not submit any matters to a vote of our security holders during the fourth
quarter of the fiscal year 2007.





PART
II





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





a)
Market Information





In June
of 2004, our common
stock was approved for listing and trading on the American Stock Exchange under
the symbol “AMW.”  Prior to being listed on the American Stock
Exchange, our common stock was quoted on the OTC Bulletin Board under the symbol
“AMWS.”  Our common stock began being quoted on the OTC Bulletin Board
in December 2000.





On June
18, 2004 we were listed on the American Stock Exchange and therefore the second
quarter includes OTC Bulletin Board high and low bid prices from April 1, 2004
to June 17, 2004 and American Stock Exchange sales prices from June 18, 2004 to
June 30, 2004.  The third quarter of 2004 lists only the high and low
sales prices as reported by the American Stock Exchange.





On
November 23, 2005, we received a letter from the American Stock Exchange
(“AMEX”) notifying us we were not in compliance with Sections 134, 1003(a)(iv),
and 1101 of AMEX’s Company Guide.  Pursuant to AMEX’s letter we were
required to submit two plans, one by December 9 and the second one by December
23, 2005, advising AMEX on the action we planned to take to become compliant by
January 5, 2006 and February 23, 2006.  On January 11, 2006, we
received notice from AMEX that we continued to not be in compliance with their
continued listing standards and that are securities were subject to
delisting.  As a result of being delisted from AMEX we are unable to
locate historical quotes for that time period.





PERIOD
            HIGH
            LOW2007
      (1)First
      Quarter
            $0.02
            $0.01Second
      Quarter
            $0.02
            $0.01Third
      Quarter
            $0.02
            $0.01Fourth
      Quarter
            $0.01
            $0.012006First
      Quarter
            
            $0.01
            
            $0.01Second
      Quarter
            
            $0.01
            
            $0.01$0.01
            
            $0.01Third
      Quarter
            
            $0.01
            
            $0.01Fourth
      Quarter
            
            $0.01
            
            $0.01





(b)
Holders of Common Stock





As of
December 31, 2007, we had approximately 670 stockholders of record
and 92,744,525 shares of common stock outstanding.





(c)
Dividends





We have
never paid cash dividends on our Common Stock.  We intend to follow a
policy of retaining earnings, if any, to finance the growth of the business and
do not anticipate paying any cash dividends in the foreseeable
future.  The declaration and payment of future dividends on the Common
Stock will be at the sole discretion of the Board of Directors and will depend
on our profitability and financial condition, capital requirements, statutory
and contractual restrictions, future prospects and other factors deemed
relevant.





7


New
Age Spin-Off





In
December of 2003, our Board of Directors declared a dividend to stockholders of
record on March 15, 2004, in the form of all of the common stock of New Age, one
of our wholly owned subsidiaries. As of the date of this report, the dividend
has not been paid.





(d)
Securities Authorized for Issuance under Equity Compensation Plans





On
December 27, 2002, we adopted a Stock Plan that allowed for 10,000,000 shares of
common stock to be issued for stock awards or pursuant to the exercise of stock
options.  The purpose of the plan was to compensate officers,
directors, employees, consultants, and certain other persons providing bona fide
services to American Water Star or to compensate officers, directors, and
employees for accrual of salary through the award of the our common
stock.  The authority to determine and oversee the administration of
the plan was the Board of Directors.  On March 1, 2004, we amended the
Stock Plan which increased the allowance of 10,000,000 shares to 30,000,000
million shares.




Plan
      Category
            
            Number
              of
      shares to be issued upon exercise of outstanding options, warrants and
      rights
              (a)
            
            
            Weighted-average
      exercise price of outstanding options, warrants and rights
              (b)
            
            
            Number
      of shares remaining available for future issuance under equity
      compensation plans (excluding shares reflected in column (a))
              (c)Equity
      compensation plans approved by stockholders
            
            
            0
            
            
            $
            0.00
            
            
            
            0Equity
      compensation plans not approved  by stockholders
            
            
            600,000
            (1)
            
            $
            0.77
            
            
            
            12,111,140Total
            
            
            600,000
            
            
            $
            0.77
            
            
            
            12,111,140





(1)
            The
      directors as of August 17, 2004 all received options of 120,000 shares at
      an exercise price of $0.77.








Recent
      Sales of Unregistered Securities





On
November 11, 2005, we authorized the issuance of 40,000 shares of our common
stock pursuant to a subscription agreement and received $10,000.  As
of the date of this filing, the shares have not been issued.





On
December 31, 2005, we authorized the issuance of 33,333,333, shares of common
stock to the Roger Mohlman Nevada Trust as conversion for notes payable to our
CEO, Roger Mohlman.  On January 1, 2006, the shares were
issued.





Subsequent
Issuances





On
January 23, 2006, we issued 6,000,000 shares of common stock to Redwood
Consultants, LLC for services performed.





We
believe that the issuance of the shares described above were exempt from
registration and prospectus delivery requirements of the Securities Act of 1933
by virtue of Section 4(2). The shares were issued directly by us and did not
involve a public offering or general solicitation. The recipients of the shares
were afforded an opportunity for effective access to our files and records that
contained the relevant information needed to make their investment decision,
including our financial statements and 34 Act reports. We reasonably believed
that the recipients, immediately prior to granting the shares, had such
knowledge and experience in our financial and business matters that they were
capable of evaluating the merits and risks of their investment. The recipients
had the opportunity to speak with our management on several occasions prior to
their investment decision.





Recent
Issuances of Securities Registered Pursuant to Form S-8





8


The
following lists shows the shares issued from a Registration Statement on Form
S-8 filed on October 31, 2005.





Person
      Issued to
            Date
      of Issuance
            Number
      of SharesDaniel
      Hollis
            November
      10, 2005
            2,000,000Jens
      Dalsgaard
            November
      10, 2005
            1,000,000Jens
      Dalsgaard
            January
      1, 2006
            1,000,000James
      Hibbert
            February
      23, 2006
            1,487,500Sean
      Flanagan
            March
      28, 2006
            2,287,500








ITEM
      6.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION





OVERVIEW
AND OUTLOOK





American
Water Star was started as a company which developed, marketed, sold, and
distributed bottled water with four branded beverages: Hawaiian Tropic, Geyser
Fruit, Geyser Sport, and Geyser Fruta. The products were orientated to the
health conscious consumer looking for an alternative to products containing high
sugar and caffeine levels. Our customers included single and multi-store retail
operations, governmental agencies, and distributors who in turn sell to retail
stores, convenience stores, schools and other outlets.   In
addition, we branched into the private label and co-packing industries in the
fourth quarter of 2004.





We
initially sold our products exclusively through distributors who then supplied
our products to retailers.  Although we continued to use distributors,
we also expanded our sales effort through sales directly to
retailers.  As of December 31, 2005, we sold through distributors and
directly to customers.





We had
hoped the private label and co-packaging of beverages for other corporations
would allows us to avoid costly marketing expenses that would otherwise be
associated with brand development, launch, and continuing
promotions.





CURRENT
OPERATIONS





During
the third quarter of 2005, we entered into a “Forbearance Agreement” with Laurus
Master Fund (“Laurus”) as a result of having previously defaulted on our initial
agreements with Laurus dated as of October 2004.  Pursuant to the
Forbearance Agreement, Laurus agreed to forbear taking action on our existing
defaults until October 26, 2007, provided that we did not default under the new
Forbearance Agreement.  In consideration for the Forbearance
Agreement, we issued a Secured Convertible Term Note in the principal amount of
$1,286,098.61, which represented the aggregate accrued interest and fees owed to
Laurus as of July 31, 2005.





On
September 15, 2005, Laurus notified us that certain Events of Default had
occurred under the second note and demanded payment of approximately $207,458 by
September 21, 2005.





Although
our operations continued through the third quarter of 2005, the impact of the
Laurus debt which was in default by the end of the third quarter was having a
negative impact on our ability to continue operations as previously
planned.  Most of our operations had completely ceased by the fourth
quarter of 2005.





On
November 4, 2005, Laurus again notified us that certain defaults had occurred in
the Securities Purchase Agreement, including our failure to make interest
payments on September 1, 2005, October 1, 2005 and November 1,
2005.  In addition, we had failed to make principal and interest
payments due to Laurus on August 1, 2005, September 1, 2005, October 1, 2005 and
November 1, 2005.  Based upon the occurrence and continuance of these
defaults, Laurus notified us that they had accelerated the amounts due under the
obligations, demanding payment in full on November 7, 2005 in the amount of
$6,694,875.  In the event the payment amount was not received by
Laurus, foreclosure proceedings covered by the Deed of Trust would
begin.









9


Subsequent
to November 7, 2005, foreclosure proceedings were begun on all of our real,
personal, tangible, and intangible property, including all buildings,
structures, leases, fixtures, and moveable personal property.








SUBSEQUENT
EVENTS





On March
2, 2006, all of the real property was sold through a foreclosure sale, and on
March 23, 2006, all personal property was sold through a UCC
sale.  Pursuant to the Order of the Court, on or about April 3, 2006,
the Superior Court of the State of Arizona in and for the County of Maricopa
approved an order (i) Approving Receiver’s Final Report; (ii) Discharging
Receiver; and (iii) Dismissing Case. Further, the Order of the Court stated as
follows: “On March 2, 2006, all of the real property of the Receivership
Property was sold through a foreclosure sale (“Real Property Sale”). Laurus
purchased the real property sold at the Real Property Sale.” “On March 23, 2006,
all of the personal property of the Receivership Property was sold through a UCC
sale (“Personal Property Sale”). Laurus purchased the personal property sold at
the Personal Property Sale.” “Following the Real Property Sale and the Personal
Property Sale, substantially all of the Company’s assets have been sold to
Laurus.” The loss of the assets included the loss of the ownership of five of
our subsidiaries; All Star Beverage, Inc., All Star Beverages Arizona, Inc., All
Star Beverages Jax, Inc., All Star Beverages Mississippi, Inc., and Hawaiian
Tropicals, Inc. Substantially all of our assets were sold, which had a
significant negative impact on our Results of Operations.





Results
of Operations for the Years Ended December 31, 2007 and 2006.





We had no
revenues for the year ended December 31, 2007.  For the year ended
December 31, 2006 we had revenues of  $35,589 as we wound down
operations.  These sales resulted in a loss as our cost of goods sold
totalled $79,406.  For the year ended December 31, 2007 our general
and administrative expenses totalled $726,000 a decrease of $1,274,647 or 63.7%
from the $2,000,647 for the year ended December 31, 2006.  For 2007,
our general and administrative expenses consisted of a consulting fee of
$240,000 to our president Roger Mohlman and rent of $486,000 paid to entities
controlled by the former wife of Mr. Mohlman.  For the year-ended
December 31, 2006, our general and administrative expenses consisted of $315,000
in consulting fees to Mr. Mohlman, $486,000 in rent to entities controlled by
the former wife of Mr. Mohlman; $293,000 of rent paid to non-related parties,
$738,358 in professional fees, principally involving the Laurus repossession
matter, other offices salaries of $125,000, lawsuit settlement cost of $29,750
and miscellaneous expenses of $13,505.





For the
year ended December 31, 2006, the Company also incurred a loss on the disposal
of operations of $3,178,244.  There was no similar loss for the year
ended December 31, 2007.





As a
result of the foregoing, the Company incurred a loss of $726,000 or $0.01 per
share for the year-ended December 31, 2007 compared to a loss of $5,227,473 or
$0.04 per share for the year-ended December 31, 2006.





Liquidity
and Capital Resources





As of
December 31, 2007, the company had no cash and a deficit in working capital of
$8,354,076 compared to no cash and a deficit in working capital of $7,628,076 as
of December 31, 2006.





Cash used
in operating activities totalled $243,000 for the year-ended December 31,
2007.  The 2007 amounts represent on the loss of $726,000 which was
partially offset by an increase in accounts payable and accrued expenses of
$483,000.  Cash used in operations for the year ended December 31,
2006 totalled $3,232,368 consisting of the loss of $5,227,473 which was
partially offset by a non-cash item of stock issued for services  of
$285,500 and changes to the current account consisting of a decrease in accounts
receivable and an increase in accounts payable of $1,676,476.





Cash
flows from financing activities totalled $243,000 for the year ended December
31, 2007 compared to $3,181,807 for the year ended December 31,
2006.  The $243,000 for 2007 consisted entirely of advances from
related parties.  The 2006 amount consisted of a $3,346,499 advance
from a related party which was partially offset by $164,692 of a stock
subscription received.









10


There
were no investing activities in either period.  The company currently
has insufficient liquidity to conduct its operations for the next twelve
months.  Although the company has no cash and a deficit in working
capital it believes that it will be able to raise funds for its operations or
find a company to acquire with its stock or with which to merge.





Unless,
we are able to make an acquisition with our stock or find a company with which
to merge, we will not have revenue in the next reporting period or thereafter.
We will, however, incur expenses to maintain our corporate estates and keep our
Securities Act filings current.





Off-Balance
Sheet Arrangements





We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.





Going
Concern





The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the financial statements, during
the years ended December 31, 2007 and 2006, the Company incurred losses from
discontinued operations of $726,000 and $5,227,473, respectively. The financial
statements do not include any adjustments relating to the recoverability and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.





It is the
intent of management and significant stockholders to provide sufficient working
capital necessary to support and preserve the integrity of the corporate
entity.  However, no form commitments or arrangements to advance or
loan funds to the Company or repay any such advances or loans
exist.  There is no legal obligation for either management or
significant stockholders to provide additional future funding.





ITEM 7.  FINANCIAL
STATEMENTS





See Index
to Financial Statements and Financial Statement Schedules appearing on page F-1
through F-21 of this Form 10-KSB.





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





On
February 24, 2005, we dismissed Kelly & Company as our principal independent
accountant and appointed Weaver and Martin LLC as our principal independent
accountant.





On
February 1, 2007, American Water Star dismissed Weaver & Martin, LLC as its
independent auditor and appointed L.L. Bradford & Company, LLC as American
Water Star’s independent accountants for the years ended December 31, 2004 and
2005.  This is a change in accountants recommended by American Water
Star’s Audit Committee and ratified by American Water Star’s Board of
Directors.  L.L. Bradford & Company, LLC was engaged by American
Water Star on February 1, 2006.





On May 8,
2006, the Registrant dismissed L.L. Bradford & Company, LLC as its
independent auditor and appointed E. Randall Gruber CPA PC as their independent
accountants for the years ending December 31, 2005 and 2006.  This is
a change in accountants recommended and approved by the Registrant’s Executive
Management and the Registrant’s Board of Directors.








ITEM
8A.            CONTROLS
AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the
specified time periods. As of the date of this filing, Roger Mohlman, our Chief
Executive Officer and Principal Financial Officer, of evaluated the
effectiveness of our disclosure controls and procedures pursuant to Exchange Act
Rules 13a-15.  Based upon his evaluation, Mr. Mohlman concluded that
as of December 31, 2007, our disclosure controls and procedures were not
effective in timely alerting him to material information required to be included
in our periodic Securities and Exchange Commission filings at the reasonable
assurance level due to the material weaknesses described below.









11


In light
of the material weaknesses described below, we performed additional analysis and
other post-closing procedures to ensure our consolidated financial statements
were prepared in accordance with generally accepted accounting principles.
Accordingly, we believe that the consolidated financial statements included in
this report fairly present, in all material respects, our financial condition,
results of operations and cash flows for the periods presented.





A
material weakness is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or
combination of control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. Management has identified the
following two material weaknesses which have caused management to conclude that,
as of December 31, 2007, our disclosure controls and procedures were not
effective at the reasonable assurance level:





1.
            We
      were unable to meet our requirements to timely file our Form 10-QSB for
      the period ended September 30, 2005; our Form 10-KSB for the year ended
      December 31, 2005; our quarterly reports on Form 10-QSB for the periods
      ended March 31, 2006, June 30, 2006 and September 30, 2006; our Form
      10-KSB for the year ended December 31, 2006; and our Form 10-QSB for the
      periods ended March 31, 2007 and anticipate filing our 10-QSB for the
      period ended June 30, 2007 late. Management evaluated the impact of our
      inability to timely file periodic reports with the Securities and Exchange
      Commission on our assessment of our disclosure controls and procedures and
      has concluded that the control deficiency that resulted in the inability
      to timely make these filings represented a material
    weakness.








2.
            We
      did not maintain a sufficient complement of finance and accounting
      personnel with adequate depth and skill in the application of generally
      accepted accounting principles as demonstrated by significant adjustments
      to our financial statements identified by our independent registered
      accounting firm in the preparation of this quarterly report. In addition,
      we did not maintain a sufficient complement of finance and accounting
      personnel to handle the matters necessary to timely file our Form 10-KSB
      for the year ended December 31, 2005 and our Forms 10-QSB for the three
      months ended March 31, 2006, the six months ended June 30, 2006 and the
      nine months ended September 30, 2006, or the Form 10-KSB for year ended
      December 31, 2006, or the Form 10-QSB for the three months ended March 31,
      2007 and the six month ended June 30,
2007.





Remediation
of Material Weaknesses





To
remediate the material weaknesses in our disclosure controls and procedures
identified above, we have implemented the following:





1.          Hired
sufficient personnel to perform all measuring accounting  functions,
including the preparation of financial statements (21 engaged outside
professional personnel to review all financial statements and assist with the
preparation of the `34 Act filing .  Management believes such change
will be sufficient to remedy the deficiencies in the company’s internal
controls.





Changes
in Internal Control over Financial Reporting





Except as
noted above, there were no changes in our internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act,
during our most recently completed fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.





ITEM
8B.    OTHER INFORMATION





None.







12





PART
III





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








Name
            Age
            TitleRoger
      Mohlman
            60
            President,
      CEO, Treasurer, Chairman





Duties,
Responsibilities, and Experience





Roger
Mohlman has been the President, Treasurer, CEO and a Director of the
Board of American Water Star since August of 2002.  From 1986 to July
2002, Mr. Mohlman was the President of Camelot Ltd., LLC, a holding company for
various businesses, including Rumours, Delizia, and Excalibur Awards. From
January 1998 until June 2001, he was the CEO and President of Venda Tel, Inc.
and Merlin Computers, manufacturers of slot machines and telco equipment and
software. From 1981 to 1997, Mr. Mohlman was the owner of Pobeda Manufacturing,
Inc. in Mexico, a licensee for manufacturing name-brand clothing for U.S.
companies.  Mr. Mohlman has over 30 years of experience in product
licensing and business development. Prior to joining American Water Star, Mr.
Mohlman in 2001 was found guilty of a misdemeanor for unlicensed practice of
contracting in California.  Mr. Mohlman currently devotes
substantially all of his time to American Water Star and its
subsidiaries.





On June
28, 2004, American Water Star joined with other creditors and filed involuntary
bankruptcy petitions against Geyser Products, LLC and Water Star Bottling, Inc.,
in United States Bankruptcy Court, District of Nevada.





Arthur de
Joyawas
appointed to the Board on February 1, 2005 to fill the vacancy left by Mr.
Lieberman’s resignation and serves on the all three committees of American Water
Star.  Upon Mr. Paisley’s resignation, Mr. de Joya was appointed as
the Chairman of the Audit Committee.  Subsequent to the year ending
December 31, 2005, Mr. de Joya resigned from American Water Star’s Board of
Directors and from all positions held on the Board of Directors’
Committees.  He has over 13 years of experience in both public and
private accounting, mainly working with publicly traded
companies.  Mr. de Joya is a Certified Public Accountant licensed in
Nevada and since April 2003 he has worked as an independent accountant in Las
Vegas at De Joya & Company, a certified public accounting and consulting
firm.  Prior to being an independent accountant, Mr. de Joya worked at
L.L. Bradford & Company, LCC as a partner-in-charge of the audit practice
for approximately five years.  Mr. de Joya was employed for KMPG LLP
working with many large publicly traded companies before he began work at L.L.
Bradford & Company.  Currently, Mr. de Joya serves as the Chief
Financial Officer for GamezNFlix, Inc, a publicly traded company on the OTC
Bulletin Board.  Mr. de Joya has also served as a chief financial
officer for a publicly traded mining company, Vista Continental
Corporation.  Mr. de Joya received his B.S. in Business Administration
from the University of Nevada, Las Vegas and is a member of the American
Institute of Certified Public Accountants and Nevada Society of Certified Public
Accountants.





Limitation
of Liability of Directors





Pursuant
to the Nevada General Corporation Law, our Articles of Incorporation exclude
personal liability for our Directors for monetary damages based upon any
violation of their fiduciary duties as Directors, except as to liability for any
breach of the duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, or any transaction
from which a Director receives an improper personal benefit. This exclusion of
liability does not limit any right which a Director may have to be indemnified
and does not affect any Director’s liability under federal or applicable state
securities laws. We have agreed to indemnify our directors against expenses,
judgments, and amounts paid in settlement in connection with any claim against a
Director if he acted in good faith and in a manner he believed to be in our best
interests.





Election
of Directors and Officers.





Directors
are elected to serve until the next annual meeting of stockholders and until
their successors have been elected and qualified. Officers are appointed to
serve until the meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors have been elected and
qualified.





Our
Executive Officers or Directors have not been the subject of any Order,
Judgment, or Decree of any Court of competent jurisdiction, or any regulatory
agency permanently or temporarily enjoining, barring, suspending or otherwise
limiting him from acting as an investment advisor, underwriter, broker or dealer
in the securities industry, or as an affiliated person, director or employee of
an investment company, bank, savings and loan association, or insurance company
or from engaging in or continuing any conduct or practice in connection with any
such activity or in connection with the purchase or sale of any
securities.







13


Our
Executive Officers or Directors have not been convicted in any criminal
proceeding (excluding traffic violations) nor are they the subject of a criminal
proceeding which is currently pending.





Our
Executive Officers or Directors have not been the subject of any pending legal
proceedings.








Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires our executive officers and directors, and persons who beneficially own
more than ten percent of our common stock, to file initial reports of ownership
and reports of changes in ownership with the SEC.  Executive officers,
directors and greater than ten percent beneficial owners are required by the SEC
regulations to furnish us with copies of all Section 16(a) forms they
file.  Based upon a review of the copies of such forms furnished to us
and written representations from our executive officers and directors, we
believe that as of the date of this filing, our CEO and President, Roger
Mohlman, was current in his reports under this section.





Audit
Committee





Prior to
June 17, 2004, we did not have an Audit Committee and our board of directors
performed the necessary functions of an Audit Committee, such as: recommending a
firm of independent certified public accountants to audit the annual financial
statements; reviewing the independent auditors independence, the financial
statements, and their audit report; and reviewing management’s administration of
the system of internal accounting controls.





On June
17, 2004, we established and appointed members of the Board to the Audit
Committee in accordance with section 3(a)(58)(A) of the Securities Exchange Act
of 1934.  The Audit Committee initially was comprised of two
directors; Messrs. Paisley (Chairman) and Lieberman.  On January 31,
2005, Mr. Lieberman resigned as a director and a member of the Audit
Committee.  The board of directors for American Water Star appointed
Mr. Arthur de Joya to fill the vacancies left by Mr. Lieberman’s
resignation.  On March 8, 2005, Mr. Paisley resigned as the Chairman
of the Audit Committee and the Board appointed Mr. de Joya to serve as the new
Chairman and appointed Dr. DeBruin to serve as a member of the Audit Committee.
None of the members of the Audit Committee were or had been our officers or
employees, and each member qualified as an independent director as defined by
Section 121B(2)(c) of the American Stock Exchange Company and Section 10A(m) of
the Securities Exchange Act of 1934, and Rule 10A-3 thereunder.





Upon Mr.
de Joya’s resignation in February 2006 and as a result of no longer being traded
on the AMEX, we no longer have an Audit Committee.  At the time of
this filing, we only have one officer and director so we are not able to have an
independent Audit Committee.  Our board of directors will perform some
of the same functions of an Audit Committee, such as: recommending a firm of
independent certified public accountants to audit the annual financial
statements; reviewing the independent auditors independence, the financial
statements and their audit report; and reviewing management's administration of
the system of internal accounting controls.  If and when we are able
to reestablish operations and able to appoint new members to the Board of
Directors, we will reestablish the various board committees such as the Audit
Committee.





14


Code
of Ethics





A code of
ethics relates to written standards that are reasonably designed to deter
wrongdoing and to promote:







(1)
            Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;





(2)
            Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that are filed with, or submitted to the Commission and in other
      public communications made by an
issuer;





(3)
            Compliance
      with applicable governmental laws, rules and
  regulations;





(4)
            The
      prompt internal reporting of violations of the code to the Audit
      Committee; and





(5)
            Accountability
      for adherence to the code.





We
adopted a corporate code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions in that our officers and
directors serve in all the above capacities.  We will provide an
electronic or paper copy of the code of ethics free of charge, upon request made
to our Company Secretary.  If any substantive amendments are made to
the written code of ethics, or if any waiver (including any implicit waiver) is
granted from any provision of the code to our Chief Executive Officer, Chief
Financial Officer or Corporate Controller, we will disclose the nature of such
amendment or waiver in a report on Form 8-K.





Nominating
Committee





Prior to
June 17, 2004, we did not have a Nominating and Corporate Governance Committee
Charter.  Our board of directors performed the necessary functions
associated with a Nominating and Corporate Governance Committee.





After
June 17, 2004, we drafted a Nominating and Corporate Governance Committee
Charter and appointed members of the Board to the Committee.  The
Nominating and Corporate Governance Committee was initially with Messrs.
Paisley, Lieberman, and Dr. DeBruin, however since the resignation of Mr.
Lieberman and Mr. Paisley, Mr. de Joya joined Dr. DeBruin as a member of the
committee.  Each member of the Nominating and Corporate Governance
Committee qualified as an independent director as defined by Section 121 of the
American Stock Exchange Company Guide.  Upon the resignations of Dr.
DeBruin and Mr. de Joya, we no longer have a standing Nominating and Corporation
Governance Committee.





As a
result of only having one sole officer and director we do not have the resources
to have a Nominating and Corporate Governance Committee. Our board of directors
will perform some of the functions associated with a Nominating Committee while
we recommence our operations and until we are able to appoint additional members
to the Board of Directors who would qualify to serve on the Nominating and
Corporate Governance Committee.





ITEM
10.                            EXECUTIVE
COMPENSATION





(a)
General





The
following table sets forth information concerning the total compensation that we
have paid or that has accrued on behalf of our chief executive officer and other
executive officers with annual compensation exceeding $100,000 during the most
recent fiscal year ending December 31, 2006 and for the fiscal years ending
December 31, 2005 and 2004. The remuneration described in the table does not
include the cost of American Water Star’s benefits furnished to the named
executive officers, including premiums for health insurance and other benefits
provided to such individuals that are extended in connection with the conduct of
American Water Star’s business.







15


(b)
Summary Compensation Table





Name
      and Principal Position
            Year
            Annual
      Compensation
            Long
      Term CompensationSalary
            Bonus
            Other
      Annual
              Compen-sation
            Awards
            Payouts
            All
      other compen-sationRestricted
              Stock
            Options
            LTIP
              payoutsRoger
      Mohlman
              Roger
      Mohlman (1)
              Chief
      Executive Officer and President
            2007
              2006
              
              2005
            $-0.00
              $-0.00
              
              $-0-
            -0-
              -0-
              
              -0-
            -0-
              -0-
              
              -0-
            $-0-
              $-0-
              
              $-0-
            $-0-
              $-0-
              
              $-0-
            -0-
              -0-
              
              -0-
            -0-
              -0-
              
              -0-


(1) Mr.
Mohlman has served as Chief Executive Officer, President, and director of
American Water Star since June 2002.  In July 2003, he was also named
Chairman of the Board and Chief Financial Officer of American Water
Star.  Mr. Mohlman’s salary was accrued for American Water Star’s 2003
and 2004 fiscal years.





(c)
Option Grant Table





Stock
Option Grants





We
maintained a consultant and employee stock compensation plan at American Water
Star to compensate officers, directors, employees, consultants, and certain
other persons providing bona fide services to American Water Star or to
compensate officers, directors, employees for accrual of salary, through the
award of our common stock.  The effective date of the stock plan is
December 27, 2002 and was later amended in March of 2004.  The
following table includes the current options granted as of December 31,
2007.





On August
17, 2004, in accordance with Section 5 of American Water Star’s Stock Plan, the
Board of Directors granted to each of its directors options, pursuant to a
Grants of Options Agreement, to purchase up to 120,000 shares of its common
stock at the exercise price of $0.77 per share.





EXECUTIVE
OFFICER/DIRECTOR OPTION GRANTS





Name
            Year
            Number
      of securities underlying options granted
            
            Percent
      of total options granted to employees in fiscal year
            
            Exercise
      or base price ($/Share)
            
            Expiration
      DateRoger
      Mohlman
            2004
            120,000
            
            20%
            
            $0.77
            
            08/17/2009





(d)
Aggregated Option Exercises and Fiscal Year-End 2006 andFiscal
Year-End 2005


Name
            Year
            Shares
      acquired on exercise (#)
            
            Value
      Realized ($)
            
            Number
      of Securities underlying unexercised options at December 31,
      2006
            
            Value
      of unexercised options at December 31, 2005Roger
      Mohlman
            2004
            0
            
            0
            
            0
            
            0







16





AGGREGATED
OPTION EXERCISES IN FISCAL YEAR AND OPTION VALUES





(f)
Compensation of Directors





During
the 2007 year we did not give our directors any compensation for their services
as a director.





(g)
Employment contracts and termination of employment and change-in-control
arrangements.





Roger
Mohlman:
Effective January 1, 2003, we entered into an employment agreement with Roger
Mohlman to serve as our President and CEO. Prior to that date, Mr. Mohlman did
not have an employment agreement. The term of the employment contract was for
one year from the effective date. The contract could be extended for an
additional two years upon both parties mutual consent. The initial annual base
compensation for 2003 was set at $120,000 (subject to increase by the Board of
Directors), stock options, annual bonus in accordance with American Water Star’s
performance, and various benefits. In February 2004, pursuant to a resolution of
the Board, the employment agreement was extended for two years and Mr. Mohlman's
base salary was set at $240,000. In 2003, we accrued the $120,000 base salary
and awarded Mr. Mohlman compensation of approximately $42,500 for his services
to us commencing in August 2002, all of which compensation was paid in April
2004.  During the year ended December 31, 2004, we accrued $101,015 in
compensation for Mr. Mohlman and during the years 2005 and 2006 did not accrue
any compensation.





Termination
of Employment





There are
no compensatory plans or arrangements, including payments to be received from
American Water Star, with respect to any of our executives officers, set out
above which would in any way result in payments to any such person because of
his resignation, retirement, or other termination of such person’s employment
with American Water Star, or any change in control of American Water Star, or a
change in the person’s responsibilities following a change in control of
American Water Star.





COMPENSATION
COMMITTEE





Prior to
June 17, 2004, we did not have a Compensation Committee Charter and the Board
performed the necessary functions related to compensation.  Subsequent
June 17, 2004, a Compensation Committee Charter was approved and members of the
Board were appointed to the Committee.  The Compensation Committee was
comprised of two directors: Messrs. De Joya and Dr. DeBrun.  Each
member of the Compensation Committee qualified as an independent director as
defined by Section 121 of the American Stock Exchange Company
Guide.





As a
result of currently only having one sole officer and director we do not have the
resources to have a Compensation Committee. Our board of directors will perform
some of the functions associated with Compensation Committee if we are able to
recommence our operations and until we are able to appoint additional members to
the Board of Directors who would qualify to serve on a Compensation
Committee.





The
Compensation Committee will have the responsibility to develop guidelines for,
evaluate and approve cash and equity compensation and benefit plans, programs,
and agreements for our Chief Executive Officer and other executive officers; to
administer our stock incentive plans; and to develop and review the Company’s
compensation philosophy.





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





The
following table presents information, to the best of our knowledge, about the
beneficial ownership of our common stock on July 16, 2007, held by those persons
known to beneficially own more than 5% of our capital stock and by our directors
and executive officers.





The
percentage of beneficial ownership for the following table is based on
136,852,858 shares of common stock outstanding as of February 7,
2008.  Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission and does not necessarily indicate
beneficial ownership for any other purpose. Under these rules, beneficial
ownership includes those shares of common stock over which the stockholder has
sole or shared voting or investment power. It also includes (unless footnoted)
shares of common stock that the stockholder has a right to acquire within 60
days after February 7, 2008 through the exercise of any option, warrant or other
right. The percentage ownership of the outstanding common stock, however, is
based on the assumption, expressly required by the rules of the Securities and
Exchange Commission, that only the person or entity whose ownership is being
reported has converted options or warrants into shares of our common
stock.







17


Security
Ownership of Management and Certain Beneficial Owners





Name
      and Address of Beneficial Owner (1), Officer, or Director
            
            Number
              of
      Shares (2)
            
            Percent
      of Ownership
              (3)Roger
      Mohlman,
              President,
      CEO, and Chairman (4)
            
            62,237,677
            
            45%Total
      of all Officers, Directors, and Beneficial Owners
            
            62,237,677
            
            45%








(1)
            As
      used in this table, “beneficial ownership” means the sole or shared power
      to vote, or to direct the voting of, a security, or the sole or shared
      investment power with respect to a security (i.e., the power to dispose
      of, or to direct the disposition of, a security). All addresses are care
      of the Company, 4560 South Decatur Boulevard, Las Vegas, NV
      89103.





(2)
            The
      amount listed does not include 120,000 options granted to the directors as
      of August 17, 2004, which were to Roger Mohlman, Dale Barnhart, Dale
      Paisley, David Lieberman, and Dr. Mark
DeBruin.





(3)
            Figures
      are rounded to the nearest tenth of a
percent.





(4)
            This
      amount includes shares held in Mr. Mohlman’s name as well as those held in
      a Trust for Mr. Mohlman.








ITEM
      12.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE





Related
Party Transactions




During
the year ended December 31, 2007 our Chairman, Chief Executive Officer and
largest stockholder of the Company has advanced $4,434,837 to the
Company.




Entities
controlled by the former wife of the Company's Chairman, Chief Executive Officer
and largest stockholder provided the following to the Company for the year ended
December 31, 2005 and December 31, 2004, respectively:





Services:




For
      the
              Year
      Ended
              December
      31,
              2007
            For
      the
              Year
      Ended
              December
      31,
              2007Payments
      under operating and capital leases
            $
      486,000
            486,000









18





ITEM  13.
            EXHIBITS








Incorporated
      by referenceExhibit
            Exhibit
      Description
            Filed
      herewith
            Form
            Period
      ending
            Exhibit
            Filing
      date3(i)(a)
            Articles
      of Incorporation
            
            10-KSB
            12/31/99
            3.1
            04/13/003(i)(b)
            Certificate
      of Amendment to the Articles of Incorporation
            
            10-KSB
            12/31/99
            3.2
            04/13/003(i)(d)
            Certificate
      of Amendment to the Articles of Incorporation
            
            10-QSB
            03/31/02
            3.4
            05/20/023(ii)(a)
            Bylaws
      of the Company
            
            10-KSB
            12/31/99
            3.3
            04/13/004.1
            Certificate
      of Change in Number of Authorized Shares
            
            S-8
            
            4.3
            04/05/024.2
            Certificate
      of Designation Series A Convertible Preferred Stock
            
            S-8
            
            4.4
            04/05/024.3
            Amended
      Stock Plan
            
            10-QSB
            09/30/04
            4.1
            11/19/044.4
            Securities
      Purchase Agreement with Laurus Master Fund, Ltd.
            
            8-K
            
            4.1
            11/04/044.5
            Registration
      Rights Agreement with Laurus Master Fund, Ltd.
            
            8-K
            
            4.2
            11/04/044.6
            Master
      Security Agreement with Laurus Master Fund, Ltd.
            
            8-K
            
            4.3
            11/04/044.7
            Subsidiary
      Agreement between All-Star Beverages and Laurus Master Fund,
      Ltd.
            
            8-K
            
            4.4
            11/04/0410.1
            Employment
      Agreement with Roger Mohlman
            
            10-KSB
            12/31/02
            10.4
            04/16/0310.2
            Trademark
      and Design License Agreement for use of Hawaiian Tropic
    name
            
            10-KSB
            12/31/02
            10.6
            04/16/0310.3
            Employment
      Agreement with Daniel Beckett
            
            8-K
            
            10
            05/19/0510.4
            Forbearance
      Agreement with Laurus Master Fund, Ltd.
            
            8-K
            
            10.1
            08/10/0510.5
            Secured
      Convertible Note with Laurus Master Fund, Ltd.
            
            8-K
            
            10.2
            08/10/0510.6
            Master
      Security Agreement with Laurus Master Fund, Ltd.
            
            8-K
            
            10.3
            08/10/0510.7
            Subsidiary
      Guarantee with Laurus Master Fund, Ltd
            
            8-K
            
            10.4
            08/10/0510.8
            Deed
      of Trust, Assignments of Rents, Security Agreement and Fixture Filing for
      the benefit of Laurus Master Fund
            
            8-K
            
            10.5
            08/10/0514.1
            Code
      of Ethics
            
            10-KSB
            12/31/02
            14.1
            04/16/0316.1
            Letter
      by L.L. Bradford & Company, LLC
            
            8-K/A
            
            16
            06/25/0716.2
            Letter
      by Weaver & Martin, LLC
            
            8-K/A
            
            16
            07/24/0720.1
            Notice
      of Trustee’s Sale
            
            8-K
            
            10.1
            12/29/0520.2
            Copy
      of the Statement of Breach or Non-Performance and Notice of Election to
      Sell
            
            8-K
            
            10.2
            12/29/0521
            List
      of Subsidiaries
            X31
            Certification
      of Roger Mohlman Chief Executive Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act
            X32
            Certification
      of Roger Mohlman, Chief Executive Officer, pursuant to Section 906 of the
      Sarbanes-Oxley Act
            X







19


ITEM
14.                                PRINCIPAL
ACCOUNTANT FEES AND SERVICES




2007                                                                       2006




Audit
            $10,000
            $10,000Quarterly
      Review
            $15,000
            $15,000Tax
            $-0-
            $-0-Other
            $-0-
            $-0-TOTAL
            $25,000
            $25,000




As of
December 31, 2005, the Registrant no longer has an audit committee.






(6) If
greater than 50 percent, disclose the percentage of hours expended on the
principal accountant's engagement to audit the registrant's financial statements
for the most recent fiscal year that were attributed to work performed by
persons other than the principal accountant's full-time, permanent
employees.






Not
applicable.







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 our behalf by
the undersigned, thereunto duly authorized.





AMERICAN
      WATER STAR, INC.Date:
      June 10, 2008
            By:
            /s/ Roger
      MohlmanRoger
      MohlmanChief
      Executive Officer
              (On
      Behalf of the Registrant and as the
              Principal
      Financial Officer and
              Principal
      Accounting 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 and on the dates indicated.








/s/ Roger
Mohlman


Roger
Mohlman


Chief
Executive Officer, Director


June 10,
2008






20


EXHIBIT
31.2





I, Roger
Mohlman, certify that:





1.   I
have reviewed this annual report on Form 10-KSB of American Water Star,
Inc.





2.   Based
on my knowledge, this report does not contain any untrue statement of a
material  fact or omit to state
a  material  fact  necessary  to make
the statements made, in light of the circumstances  under which such
statements were
made,  not  misleading  with  respect  to
the  period  covered by this report;





3.   Based
on
my  knowledge,  the  financial  statements,  and  other  financial
information  included  in  this  report,  fairly  present  in
all  material respects the
financial  condition,  results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;





4.   The  registrant's  other  certifying  officers  and
I are  responsible  for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules  13a-15(e) and 15d-15(e))  and
internal  control over
financial  reporting  (as  defined  in  Exchange  Act
Rules  13a-15(f)  and 15d-15(f)) for the registrant and
have:





(a)  Designed
such disclosure controls and procedures, or caused such disclosure controls
and  procedures to be designed  under
our  supervision,  to ensure
that  material  information  relating  to  the  registrant,  including  its
consolidated  subsidiaries,  is made  known to us
by  others  within  those
entities,  particularly  during the  period in
which  this  report is being prepared;





(b)Designed
such  internal  control  over  financial  reporting,  or
caused such
internal  control  over  financial  reporting  to  be  designed  under  our
supervision,  to provide reasonable  assurance regarding the
reliability of
financial  reporting  and  the  preparation  of  financial  statements  for
external  purposes  in  accordance  with  generally   accepted   accounting
principles;





(c)  Evaluated
the  effectiveness  of the
registrant's  disclosure  controls and
procedures  and  presented  in  this  report  our  conclusions   about  the
effectiveness of the disclosure  controls and
procedures,  as of the end of the period covered by this report based
on such evaluation; and





(d)  Disclosed
in this report any change in
the  registrant's  internal  control over
financial  reporting that occurred during the registrant's most recent
fiscal  quarter (the  registrant's  fourth fiscal
quarter in the case of an annual report) that
has  materially  affected,  or is
reasonably  likely to
materially  affect,  the  registrant's   internal  control  over  financial
reporting; and





5.   The
registrant's other certifying  officers and I have
disclosed,  based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent
functions):





(a)  All  significant  deficiencies  and  material  weaknesses  in
the design or operation of internal control over financial reporting which are
reasonably likely to adversely  affect
the  registrant's  ability to record,  process,
summarize and report financial information; and





(b)  Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial
reporting.





Date:
June 10,
2008








/s/   Roger
Mohlman


Roger
Mohlman


Chief
Executive Officer and Principal Accounting Officer






21


EXHIBIT
32.1





Certification
of Periodic Financial Report


Pursuant
to 18 U.S.C. Section 1350





For
purposes of 18 U.S.C.  Section 1350,  as
adopted  pursuant to Section 906 of
the  Sarbanes-Oxley  Act of
2002,  the  undersigned,  Roger
Mohlman,  the chief executive officer and principal accounting officer
of American Water Star, Inc. (the "Company"),  hereby certifies that,
to his knowledge:





(i)  the
Annual Report on Form 10-KSB of the Company for the year ended December 31,
2005, as filed with the Securities and Exchange  Commission on the
date hereof (the "Report") fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and





(ii)the  information  contained
in the Report fairly  presents,  in all material respects,
the financial condition and results of operations of the Company.





Date:
June 10,
2008





/s/    Roger
Mohlman


Roger
Mohlman


Chief
Executive Officer and Principal Accounting Officer










22










Exhibit
21





American
Water Star, Inc’s Subsidiaries





Name
      of Subsidiary
            State
      of IncorporationC.R.D.
      OF NEVADA, INC.GEYSER
      VEVERAGES, INC.NEW
      AGE PACKAGING, INC.DELTA
      DISTRIBUTORS, INC.HAWAIIAN
      TROPICALS, INC.SUNSET
      BOTTLING, INC.MID
      SOUTH DISTRIBUTING, INC.TRAIL
      DUST DISTRIBUTING, INC.O.C.
      BEVERAGE, INC.ISLAND
      BEVERAGE, INC.EXCALIBUR
      SALES, INC.EXCALIBUR
      TRUCKING, INC.ALL-STAR
      BEVERAGES, INC.AMERICAN
      BEVERAGE & DISTRIBUTING, INC.ALL-STAR
      BEVERAGE JAX, INC.ALL-STAR
      BEVERAGES MISSISSIPPI, INC.








23















INDEX







REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:
            PageReport
      on audited consolidated financial statements
            F-1FINANCIAL
      STATEMENTSConsolidated
      balance sheets as of December 31, 2007 and 2006
            F-2Consolidated
      statements of operations for the years ended December 31,  2007
      and 2006
            F-3Consolidated
      statements of stockholders' equity (deficit) for years ended December
      31, 2007 and 2006
            F-4Consolidated
      statements of cash flows for the years ended December 31,  2007
      and 2006
            F-5Notes
      to consolidated financial statements
            F-6
      –F-21













24










E.
Randall Gruber, CPA, PC


Certified
Public
Accountant                                                   Telephone
(636)561-5639 121 Civic Center Drive, Suite 125


Fax
(636)561-0735


Lake
Saint Louis, Missouri  63367





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








TO
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF


AMERICAN
WATER STAR, INC. AND SUBSIDIARIES





I have
audited the accompanying consolidated balance sheets of American Water Star,
Inc. and Subsidiaries as of December 31, 2007 and 2006 and the related
consolidated statements of operations, stockholders’ deficit and cash
flows  for the years then ended.  These consolidated
financial statements are the responsibility of the Company’s
management.   My responsibility is to express an opinion on these
consolidated financial statements based on my audits.





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





In my
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of American Water Star, Inc.
and Subsidiaries as of December 31, 2007 and 2006 and  the results of
its operations and cash flows for the  years then ended in conformity
with accounting principles generally accepted in the United States of
America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As described in Note 2 and 7 to the
consolidated financial statements conditions exist which raise substantial doubt
about the Company’s ability to continue as a going concern unless it is able to
generate sufficient cash flows to meet its obligations and sustain its
operations.  Those conditions raise substantial doubt about its
ability to continue as a going concern.  Management’s plans regarding
those matters are also described in Note 2.  The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.








/s/ E. Randall Gruber, CPA,
PC





Lake Saint Louis,
Missouri





March 2,
2008                                                       Member:  American
Institute of Certified Public Accountants


Registered:  Public Company
Accounting Oversight Board  (PCAOB)










25







American
      Water Star, Inc.Consolidated
      Balance SheetsDecember
      31,
            
            
            December
      31,2007
            
            
            2006AssetsCurrent
      assets:Cash
            
            $
            -
            
            
            $
            -Accounts
      receivable
            
            
            -
            
            
            
            -Total
      current assets
            
            
            -
            
            
            
            -Total
      assets
            
            $
            -
            
            
            $
            -Liabilities
      and Stockholder's EquityCurrent
      liabilities:Accounts
      payable
            
            
            3,874,239
            
            
            
            3,631,239Accrued
      liabilities
            
            
            45,000
            
            
            
            45,000Accrued
      compensation - chairman and majority stockholder
            
            
            616,015
            
            
            
            376,015Advances
      from related parties
            
            
            3,818,822
            
            
            
            3,575,822Total
      current liabilities
            
            
            8,354,076
            
            
            
            7,628,076Stockholders'
      equityPreferred
      stock, $0.0001 par value, 20,000,000 shares
            
            
            -
            
            
            
            -authorized,
      no shares issued.Series
      A preferred convertible, 4,100,0000 shares
            
            
            -
            
            
            
            -authorized,
      no shares issuedCommon
      stock, $0.0001 par value, 150,000,000 sharesauthorized,
      136,852,858 and 136,852,858 shares issuedand
      outstanding as of 12/31/07 and 12/31/06
            
            
            13,685
            
            
            
            13,685Stock
      bought or for services not issued 720,000 and 720,000shares
      at 12/31/07and 12/31/06
            
            
            72
            
            
            
            72Common
      stock subscribed
            
            
            10,000
            
            
            
            10,000Additional
      paid-in capital
            
            
            37,755,580
            
            
            
            37,755,580Accumulated
      (deficit)
            
            
            (46,133,413
            )
            
            
            (45,407,413
            )Total
      stockholders' equity
            
            
            (8,354,076
            )
            
            
            (7,628,076
            )Total
      liabilities and stockholders' equity
            
            $
            -
            
            
            $
            -








See noted
to consolidated financial statements







26




American
      Water Star, Inc.Consolidated
      Statements of Discontinued OperationsFor
      the Years EndedDecember
      31,2007
            
            
            2006Sales
            
            $
            -
            
            
            $
            35,589Cost
      of sales
            
            
            -
            
            
            
            79,406Gross
      profit
            
            
            -
            
            
            
            (43,817
            )Expenses:Depreciation
      and amortization
            
            
            -
            
            
            
            -General
      and administrative expenses
            
            
            243,000
            
            
            
            2,000,647General
      and administrative expenses - related party
            
            
            483,000
            
            
            
            -Loss
      on disposal of disposal of discontinued operations
            
            
            -
            
            
            
            3,178,244Total
      cost and expenses
            
            
            726,000
            
            
            
            5,178,891Net
      operating (loss)
            
            
            (726,000
            )
            
            
            (5,222,708
            )Other
      (expense):Interest
      (expense)
            
            
            -
            
            
            
            (4,765
            )Interest
      (expense) related party
            
            
            -
            
            
            
            -Total
      other income (expense)
            
            
            -
            
            
            
            (4,765
            )Net
      loss
            
            
            (726,000
            )
            
            
            (5,227,473
            )Loss
      per share from continuing operations
            
            $
            -
            
            
            $
            -Loss
      per share from discontinued operations
            
            $
            (0.01
            )
            
            $
            (0.04
            )Total
      loss per share
            
            $
            (0.01
            )
            
            $
            (0.04
            )Weighted
      average number ofcommon
      shares outstanding - basic and fully diluted
            
            
            136,852,858
            
            
            
            135,764,316





See noted
to consolidated financial statements





27




American
      Water Star, Inc.Consolidated
      Statements of Changes in Stockholders' EquityUnamortized
            
            
            StockAdditional
            
            
            cost
      of
            
            
            Earned
            
            
            Stock
            
            
            Common
            
            
            
            
            
            TotalCommon
      Stock
            
            
            Paid-in
            
            
            Shares
      Issued
            
            
            for
      Services
            
            
            Issuance
            
            
            Stock
            
            
            Accumulated
            
            
            Stockholders'Shares
            
            
            Amount
            
            
            Capital
            
            
            for
      Services
            
            
            Not
      Issued
            
            
            Obligation
            
            
            Subscribed
            
            
            (Deficit)
            
            
            EquityBalance,
      December 31, 2004
            
            
            80,227,858
            
            
            $
            8,023
            
            
            $
            32,864,840
            
            
            $
            (119,879
            )
            
            
            72
            
            
            
            -
            
            
            $
            -
            
            
            $
            (23,344,304
            )
            
            $
            9,408,752Warrants
      issued to Laurus forconvertible
      debenture
            
            
            
            
            
            
            
            
            
            
            114,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            114,000Common
      stock subscribed
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10,000
            
            
            
            
            
            
            
            10,000Amortization
      of unearned services
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,171,820
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,171,820Warrants
      issued for services
            
            
            
            
            
            
            
            
            
            
            107,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            107,000Common
      stock issued for services
            
            
            12,516,667
            
            
            
            1,251
            
            
            
            2,686,739
            
            
            
            (1,051,941
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,636,049Stock
      issuance obligation to CEOto
      settle notes payable
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,700,000
            
            
            
            
            
            
            
            
            
            
            
            1,700,000Net
      loss for the yearended
      December 31, 2005
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (16,835,636
            )
            
            
            (16,325,636
            )Balance,
      December 31, 2005
            
            
            92,744,525
            
            
            $
            9,274
            
            
            $
            35,772,579
            
            
            $
            -
            
            
            $
            72
            
            
            $
            1,700,000
            
            
            $
            10,000
            
            
            $
            (40,179,940
            )
            
            $
            (2,688,015
            )Paid-in
      capital adjustment
            
            
            
            
            
            
            
            
            
            
            1,912
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,912Common
      stock issued for services
            
            
            10,775,000
            
            
            
            1,078
            
            
            
            284,422
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            285,500Common
      stock issued
            
            
            33,333,333
            
            
            
            3,333
            
            
            
            1,696,667
            
            
            
            
            
            
            
            
            
            
            
            (1,700,000
            )Net
      loss for the yearended
      December 31, 2006
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (5,227,473
            )
            
            
            (5,227,473
            )Balance,
      December 31, 2006
            
            
            136,852,858
            
            
            
            13,685
            
            
            
            37,755,580
            
            
            
            -
            
            
            
            72
            
            
            
            -
            
            
            
            10,000
            
            
            
            (45,407,413
            )
            
            
            (7,628,076
            )Net
      loss for the yearended
      December 31, 2007
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (726,000
            )
            
            
            (726,000
            )Balance,
      December 31, 2007
            
            
            136,852,858
            
            
            $
            13,685
            
            
            $
            37,755,580
            
            
            $
            -
            
            
            $
            72
            
            
            $
            -
            
            
            $
            10,000
            
            
            $
            (46,133,413
            )
            
            $
            (8,354,076
            )





See noted
to consolidated financial statements










28




American
Water Star, Inc. and Its Subsidiaries


Notes to
the Consolidated Financial Statements


As of
December 31, 2007











1.       Significant
Accounting Policies





Nature of
Business




The
Company was originally organized on June 1, 1999 as American Career Centers,
Inc. On April 2, 2002 we amended our Articles of Incorporation to change our
name to American Water Star, Inc.





Use of
Estimates





The
preparation of our consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosures of contingent assets and
liabilities in our consolidated financial statements and accompanying
notes.  Although these estimates are based on our knowledge of current
events and actions we may undertake in the future, actual results may ultimately
differ from estimates and assumptions.





Principles
of Consolidation





The
accompanying consolidated financial statements include the accounts of American
Water Star, Inc. a Nevada corporation and its wholly owned subsidiaries, New Age
Packaging and Distribution, Inc., and Colorado River Distribution, LLC and are
prepared in accordance with accounting principles generally accepted in the
United States.  The accompanying financial statements reflect the
results of operations and financial condition of


New Age
Packaging and Distribution, Inc. and Colorado River Distribution,
LLC.





During
2005, we entered into an agreement to purchase from Colorado River Distributors,
LLC, the distribution rights of their Nevada division for the amount of
$103,000.  In addition to purchasing the distribution rights, we
purchased the existing inventory of their Nevada Division for
$55,216.





As more
fully described in notes 2 and 7, on March 2, 2006 and March 23, 2006, all of
the Company’s personal and real property were sold through a UCC sale for the
benefit of a secured creditor.  Substantially all of the Company’s
assets were sold and the Company was fully released and discharged from it’s
obligation to Laurus Master Fund.  Included in the assets was All Star
Beverage, Inc.   These financial statements include the
operations of All Star Beverage, Inc. through March 2, 2006.





Risks and
Uncertainties





The
Company’s operations could be adversely affected by restrictions on sources of
supply; advertising effectiveness; changes in labeling requirements; changes in
governmental regulations; changes in the rate of taxation; the expropriation of
private enterprise; or product issues such as a product recall.  The
foregoing list of risks and uncertainties is not exclusive.  We
monitor our operations with a view to minimizing the impact to our overall
business that could arise as a result of the risks inherent in our
business.





Loss per
Share





Net loss
per share is provided in accordance with Statement of Financial Accounting
Standards No. 128 (SFAS #128) “Earnings Per Share”.  Basis loss per
share is computed by dividing losses available to common stockholders by the
weighted average number of common shares outstanding during the
period.  There were no securities considered to be dilutive in the
computation of loss per share.





Trade
Accounts Receivable





We record
trade accounts receivable at net realizable value.  This value
includes an appropriate allowance for estimated uncollectible accounts to
reflect any loss anticipated on the trade accounts receivable balances and
charged to the provision for doubtful accounts.  We calculate the
allowance based on our history of write-offs, level of past due accounts based
on the contractual terms of the receivables and our relationships with and
economic status of our customers.







29


Inventories





Inventories
consist primarily of raw materials, supplies, concentrates and syrups and are
valued at the lower of cost or market.  We determine cost on the basis
of average cost or first-in, first-out methods.





Stock
Based Compensation





Common
stock, warrants and options issued for services by non-employees is accounted
for based on the fair market value at the date the services are
performed.  If the services are to be performed over a period of time
the value is amortized over the life of the period that services are
performed.





We
account for our stock option plan in accordance with the provisions of SFAS No.
123, “Accounting for Stock Based Compensation.”  SFAS No. 123 permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of the grant.











Income
Taxes





We
account for income taxes under SFAS 109, “Accounting for Income
Taxes”.  The asset and liability approach requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax basis of assets
and liabilities.  The provision for income taxes differ from the
amounts currently payable because of temporary differences in the recognition of
certain income and expense items for financial reporting and tax reporting
purposes.





Fair
Value of Financial Instruments





The
carrying value of current assets and liabilities reasonably approximates their
fair value due to their short maturity periods.  The carrying value of
our debt obligations reasonably approximates there fair value at the stated
interest rate approximates current market interest rates of debt with similar
terms that is available to us.





Earnings
per Common Share





SFAS No.
128, “Earnings per Share” requires presentation of “basic” and
“diluted.”  This standard requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the diluted loss per share computations.





Potentially
issuable shares of common stock pursuant to outstanding stock options and
warrants are excluded from the diluted computation, as their effect would be
anti-dilutive.





Cash and
Cash Equivalents





Cash and
cash equivalents include cash in banks and certificates of deposit that mature
within three months of the date of purchase.





Property,
Plant and Equipment





We state
property, plant and equipment at cost and depreciate such assets principally by
the straight-line method over the estimated useful lives of the
assets.  Management assesses the recoverability of the carrying amount
of property, plant and equipment if certain events or changes occur, such as a
significant decrease in market value of the assets or a significant change in
the business conditions in a particular market.  The estimated useful
lives of the assets or the lease term based on the following life
expectancy:







LifeComputer
      equipment
            5Software
            3Office
      furniture and fixtures
            7Bottling
      equipment
            7
      -10Leasehold
      improvements
            Life
      of leaseBuildings
            30







30


Depreciation
commences upon implementation of the asset.  Repairs and maintenance
expenditures are charged to operations as incurred.  Major
improvements and replacements which extend the useful life of an asset, are
capitalized and depreciated over the remaining estimated useful life of the
asset.  When assets are retired or sold, the costs and accumulated
depreciation and amortization are eliminated and any resulting gain or loss is
reflected in operations.





Derivative
Financial Instruments





We
account for derivative financial instruments in accordance with SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” as amended by
SFAS No. 137, SFAS No. 138, and SFAS No. 149.  Our Company recognizes
all derivative instruments as either assets or liabilities at fair value in our
consolidated balance sheets.





Advertising
Costs





The
Company expenses all costs of advertising as incurred.  There were
$-0- and $-0- advertising costs included in general and administrative expenses
as of December 31, 2007 and 2006.





Revenue
Recognition





Revenue
from the sale of our products is recorded when all of the following criteria are
met:





Persuasive
evidence of an arrangement exists,





Delivery
has occurred or services have been rendered,





Our price
to the buyer is fixed and determinable, and





Collectibility
is reasonably assured.





Sales are
recorded net of discounts, rebates and promotional costs.





Debt
issue costs





Costs
related to securing our long-term debt are recorded as an asset and are
amortized over the life of the debt.





Long-lived
Assets





We review
the carrying value of long-lived assets at each balance sheet date if indication
of impairment exists.  Recoverability is assessed using undiscounted
cash flows based upon historical results and current projections of earnings
before interest and taxes.  Impairment is measured using discounted
cash flows of future operating results based upon a rate that corresponds to the
cost of capital.  Impairments are recognized in operating results to
the extent that carrying value exceeds discounted cash flows of future
operations.  At December 31, 2005, we recognized an impairment expense
in the amount of $1,654,949.





Recently
Issued Accounting Standards





In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Liabilities, including an amendment of FASB Statement No.
115" ("SFAS No. 159"). SFAS No. 159 permits entities to choose, at specified
election dates, to measure many financial instruments and certain other items at
fair value that are not currently required to be measured at fair value.
Unrealized gains and losses shall be reported on items for which the fair value
option has been elected in earnings at each subsequent reporting date. SFAS No.
159 is effective for fiscal years beginning after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year that begins on or
before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS No. 157 "Fair Value Measurements" ("SFAS No. 157"). The
Company is currently assessing the impact that SFAS No. 159 will have on
its financial statements.






31


In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51.  This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements.  This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and the
noncontrolling interest.  This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  Based on current conditions, the Company does not
expect the adoption of SFAS 160 to have a significant impact on its results of
operations or financial position.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.”  This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called
the purchase method) be used for all business combinations and for an acquirer
to be identified for each business combination. This statement defines the
acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that the
acquirer achieves control. This statement requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the statement. This statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not expect the adoption of SFAS 160 to have
a significant impact on its results of operations or financial
position.





Reclassifications





Certain
reclassifications have been made to prior periods to conform to current
presentation .




2.      Going
Concern




The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the financial statements, during
the years  ended December 31, 2007 and 2006, the Company incurred
losses from operations of $726,000 and $5,227,473, respectively. The financial
statements do not include any adjustments relating to the recoverability and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. As further discussed in Note 7, on
November 4, 2005, Laurus Master Fund (“Laurus”)notified the Company that certain
defaults had occurred in the Securities Purchase Agreement, including the
Company’s failure to make interest payments on September 1, 2005, October 1,
2005 and November 1, 2005.  In addition, the Company had failed to
make principal and interest payments due to Laurus Master Fund on August 1,
2005, September 1, 2005, October 1, 2005 and November 1, 2005.  Based
upon the occurrence and continuance of the defaults, the Company was notified
that Laurus had accelerated the amounts due under the obligations, demanding
payment in full on November 7, 2005 in the amount of $6,694,875.  In
the event the payment amount was not received by Laurus by the due date,
foreclosure proceedings covered by the Deed of Trust would begin.





Subsequent
to November 7, 2005, foreclosure proceedings were begun on all of the Company’s
real, personal, tangible, and intangible property, including all buildings,
structures, leases, fixtures, and moveable personal property.  On
March 2, 2006, all of the real property was sold through a foreclosure sale, and
on March 23, 2006, all personal property was sold through a UCC
sale.  Substantially all of the Company’s assets were sold and the
Company was fully released and discharged from it’s obligation to
Laurus.





3.  Accounts
Receivable





Trade
accounts receivable are stated at the amount the Company expects to
collect.  The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments.  Management considers the following factors when determining
the collectibility of specific customer accounts; customer credit-worthiness,
past transaction history, current economic and industry trends, and changes in
customer payment terms.  If the financial condition of the Company’s
customers were to deteriorate, adversely affecting their ability to make
payments, additional allowances would be required.







32


4.  Accrued
Compensation and Notes Payable to the Chairman / CEO





Loans
payable to the Chairman / CEO consist primarily of cash advances and at December
31, 2004 the advances totaled $1,635,000.  Each loan was non-interest
bearing and was due on demand.  The Company recorded accrued interest
of $35,000 based upon a 6% interest rate.  On November 18, 2005, the
Company’s Board of Directors authorized the Chairman’s / CEO’s request to
convert notes payable totaling $1,700,000 into shares of the Company’s common
stock, thus reducing the Company’s liabilities by $1,700,000.  The
conversion was done on January 6, 2006 at $.05 per share based on the reported
market price of the Company’s common shares on that date.





Accrued
compensation totaled $ 616,015 and $ 376,015 at December 31, 2007 and
2006.





5.  Long-term
Convertible Debt





On
October 28, 2004, we issued a $5,000,000 secured convertible note (“Note”) to
Laurus Master Fund, Ltd. (“Laurus”).  The note was convertible into
shares of our common stock at an initial conversion price of $0.57 per
share.  Pursuant to this agreement, we also issued to Laurus a warrant
(“Warrant”) to purchase up to 2,543,860 shares of our common stock at an
exercise price of $0.66.  The warrant expires on October 28,
2009.  The unamortized cost of the warrants issued to Laurus of
$322,515 accretes to interest expense over the period of the loan based on the
interest method.  The accreted amount of the unamortized cost of
warrants was $290,116 and $32,399 for the years ended December 31, 2005 and
2004, and these amounts were reported as interest expense.  There was
a beneficial conversion feature to the convertible note totaling $234,796 based
on the difference between the conversion price and the trading price of our
common stock.  For the years ended December 31, 2005 and 2004, the
amount of accretion to interest expense resulting from the beneficial conversion
was $224,075 and $10,721.





The Note
had a term of three years and accrued interest at the prime rate plus 3% per
year.  All of our assets serve as security for this
Note.  Interest on the principal amount was payable monthly, in
arrears, on the first business day of each calendar month commencing December 1,
2004.  In addition, effective February 1, 2005, we were required to
make monthly principal payments in the amount of $151,515 per month, continuing
until the maturity date.  Under the terms of the Note, the monthly
interest payment and the monthly principal payment are payable either in cash at
102% of the respective monthly amortization amount, or, if certain criteria are
met, in shares of our common stock.  The principal criteria for the
monthly payments to be made in shares of our common stock include:





·
            the
      effectiveness of a current registration statement covering the shares of
      our common stock into which the principal and interest under the note are
      convertible;





·
            an
      average closing price of our common stock for the previous five trading
      days greater than or equal to 110% of the fixed conversion price;
      and





·
            the
      amount of such conversion not exceeding 25% of the aggregate
      dollar-trading volume of our common stock for the previous 22 trading
      days.






Upon an
event of default under the Note, Laurus may demand repayment of the outstanding
principal balance at a rate of 130% of the Note plus any accrued
interest.






On a
month-by-month basis, if we register the shares of our common stock issuable
upon conversion of the Note and upon exercise of the Warrant on a registration
statement declared effective by the Securities and Exchange Commission, and the
market price of our common stock exceeds the conversion price by at least 25%
for five consecutive trading days, then the interest rate of the Note for the
succeeding calendar month shall be reduced by 1% for every 25% increase in the
market price of our common stock above the conversion price of the Note, but in
no event shall the interest rate be less than 6%.






33


Laurus
also had the option to convert all or a portion of the Note into shares of our
common stock at any time, subject to limitations described below, at a
conversion price of $0.57 per share, subject to adjustment as described
below.  At December 312, 2004, the maximum amount of conversion that
Laurus could convert was 3,898,136 shares of our common stock.






Laurus
was limited on its ability to convert if the conversion of the Note or the
exercise of the Warrant would cause the shares then held by Laurus to exceed
4.99% of our outstanding shares of common stock unless there had been an event
of default or Laurus provided us with 75 days prior notice.






We were
obligated to file a registration statement with the Securities and Exchange
Commission registering the resale of shares of our common stock issuable upon
conversion of the Note and exercise of the Warrant by December 12, 2004, and to
have such Statement declared effective by the SEC not later than February 5,
2005.  We timely filed the registration statement.






On
February 28, 2005, the Company entered into an “Amendment and Waiver Agreement”
with Laurus in connection with the financing agreement entered into on October
28, 2004.  The amended Agreement provides for payment of accrued
interest, principal and fees, pursuant to the original note in the form of a
warrant to purchase 1,500,000 shares of the Company’s common stock with an
exercise price of $0.50 per share.






On July
22, 2005 in order to satisfy a default under the terms of the Laurus note (“the
first note”), the Company entered into various agreements with Laurus relating
to, supplementing and amending the prior agreements.  Laurus agreed to
forbear from taking action on existing defaults until October 26,
2007.  In consideration of Laurus forbearance, the Company issued
Laurus a Secured Convertible Term Note in the principal amount of $1,286,099
(the “Second Note”) representing the aggregate accrued interest and fees owed by
the Company to Laurus as of July 31, 2005.  Under the terms of the
second note, interest would be paid monthly, in arrears, commencing on September
1, 2005 until October 26, 2007, the Maturity Date.  Principal and any
unpaid interest is due on the Maturity Date.  The Second Note was
issued in addition to, and not in replacement or satisfaction of, the First
Note.






On
November 4, 2005, Laurus notified us via certified mail that certain Forbearance
Defaults had occurred, and were continuing due to our failure to make payments
of interest to Laurus on September 1, 2005, October 1, 2005 and November 1, 2005
in accordance with the requirements of the July 22, 2005 note, and regularly
scheduled payments of principal and interest to Laurus on August 1, 2005,
September 1, 2005, October 1, 2005 and November 1, 2005 under and in accordance
with the terms of the October, 2004 note.  Based upon the occurrence
and continuance of the defaults, Laurus notified us that all obligations and
liabilities owed to Laurus are accelerated.  Demand was made in the
amount of $6,694,875, constituting all obligations and liabilities to Laurus as
of November 7, 2005.  If the payment was not received by Laurus by
November 7, 2005, Laurus would exercise its rights and remedies against us under
the Note documents and applicable law, including without limitation the
immediate commencement of foreclosure proceedings against our real property
covered by the Deed of Trust.




On
November 23, 2005, we received a Notice of Trustee’s Sale in which Laurus
notified us that all real property interests, including all property and
fixtures described under the Deed of Trust, Assignment of Rents. Security
Agreement and Fixture Filing executed by us and recorded on July 28, 2005 in the
Official Records of Maricopa County, Arizona would be sold to the highest bidder
on March 2, 2006 .




34




On May 8,
2006 in the Superior Court of the State of Arizona in the county of Maricopa,
Case number CV2006-001476, Laurus Master Fund, Ltd. an order was filed granting
motion for an entry of order (i) approving the receiver’s final report, (ii)
discharging the receiver, and (iii) dismissing the case against
us.  The Court found that the Court appointed receiver over all of the
real, personal, tangible and intangible property of the Company, including all
buildings, structures, leases, fixtures, and movable personal property had
fulfilled all of its duties under the Appointment Order, had engaged in the
following activities:






1.
            Engaged
      in correspondence with Laurus and its various representatives regarding
      the status and security of the receivership
  property;





2.
            Secured
      possession of real and personal property constituting the Receivership
      Property;





3.
            Conducted
      site tours of the real property to ensure the security of Receivership
      Property;





4.
            Monitored
      the limited operations of the Company and its employees to ensure the
      security of the Receivership
Property;





5.
            Verified
      the ownership of certain items of personal property owned by third parties
      and monitored removal of those items of personal property from the
      Receivership Property;





6.
            Attended
      (1) hearing on “Application for Order to Show Cause Why a Receiver Should
      Not be Appointed; (2) foreclosure sale; and (3) UCC personal property
      sale.






The Court
found that the Receiver had fully complied with and discharged all of its
obligations under the Appointment order, and was released from any and all
claims relating to its roles and duties under the Appointment
Order.  The Case, including all claims and counterclaims, was
dismissed with prejudice, with each side to bear their own fees and
costs.






The
Receiver’s Final Report reporting that on March 2, 2006, all of our real
property was sold through a foreclosure sale (Real Property Sale).  In
addition, on March 23, 2006 all of our personal property was sold through a UCC
sale (Personal Property Sale).  Following the Real Property Sale and
the Personal Property Sale, substantially all of our assets had been sold in
satisfaction of Laurus claims.







6.  Commitments
and Contingencies





Legal
proceedings





The
Company is involved in various unresolved legal actions, administrative
proceedings and claims in the ordinary course of business.  Although
it is not possible to predict with certainity the outcome of these unresolved
actions, the Company believes these unresolved legal actions will not have a
material effect on its financial position or results of operation.





Operating
Leases





We have
lease agreements and arrangements, whereby we lease warehouse and operating
facilities.  Each lease expired on or before January 1,
2008.  For the years ended December 31, 2007 and 2006 our rent expense
was approximately $486,000 and $779,000 respectively.





During
the year ended December 31, 2005, we became delinquent on building lease
payments to a non-related party.  Under the terms of the lease
agreement we were locked-out, and under the terms of a court order, the lessor
enforced their lien and took possession of our personal property to satisfy the
payment of the delinquent lease.







35


License
Agreements





In
January, 2003, the Company entered into an agreement with a corporation that
owns the licensing rights to a consumer product trademark.  The
agreement provides the Company with a three-year exclusive license to produce,
market and sell flavored water bearing the trademark name in the United States
and Canada.  In consideration, the Company agreed to pay a royalty of
four percent of invoice sales (net of shipping and sales taxes), payable each
quarter.  The agreement calls for a guaranteed minimum annual royalty
fee of $40,000 in 2003, $120,000 in 2004 and $200,000 in 2005.  The
agreement may be renewed at the option of the Company provided certain minimum
sales have occurred.  Royalty expense was $-0- and $-0- for the years
ended December 31, 2007 and 2006.





7.  Impairment
Charges on Equipment





As a
result of the foreclosure and subsequent trustee’s sale by Laurus, we have
recorded an impairment in the carrying value of our property, plant and
equipment of $1,654,949 at December 31, 2005.





8.  Income
Taxes





Deferred
income taxes are determined based on the tax effect of items subject to
differences in book and taxable income.  The Company had no income tax
provision for the years ended December 31, 2007 and 2006.  There is
approximately $46,000,000 of net operating loss carry-forward, which expires
beginning in 2022.  the net deferred tax is as follows:










For
      the Years Ended December 31,2007
            
            2006Non-current
      deferred tax assets (liabilities):
              Net
      operating loss carry-forward
            
            $
            14,052,000
            
            $
            13,835,000Valuation
      allowance
            
            
            (14,052,000
            )
            
            (13,835,000
            )$
            ---
            
            $
            ---








A
reconciliation of the provision for income taxes to the statutory federal rate
(34%) for continuing operations is as follows:







For
      the Years Ended December 31,2007
            
            
            2006Statutory
      tax benefit
            
            $
            (246,840
            )
            
            $
            (1,680,000
            )Non-deductible
      expense
            
            
            164,220
            
            
            
            316,000Valuation
      allowance
            
            
            82,620
            
            
            
            5,871,000$
            ----------
            
            
            $
            ----------







10.           Related
Party Transactions




During
the year ended December 31, 2007 our Chairman, Chief Executive Officer and
largest stockholder of the Company has advanced $4,434,837 to the
Company.




Entities
controlled by the former wife of the Company's Chairman, Chief Executive Officer
and largest stockholder provided the following to the Company for the year ended
December 31, 2005 and December 31, 2004, respectively:







36


Services:




For
      the
              Year
      Ended
              December
      31,
              2007
            
            
            For
      the
              Year
      Ended
              December
      31,
              2007Payments
      under operating and capital leases
            
            $
            486,000
            
            
            
            486,000


11.  Equity
Transactions




During
the first quarter 2005:




On
February 28, 2005, the Company issued Laurus a warrant to purchase 1,500,000
shares of common stock with a purchase price of $0.50 pursuant to an Amendment
and Waiver Agreement for the purpose of amending the terms of the previous
Secured Convertible Term Note, the Securities Purchase Agreement, and the
Registration Rights Agreement, all dated October 26, 2004.  The
warrant has a five year term.  The value of the warrants, according to
a Black-Sholes calculation, was $114,000.




During
the second quarter 2005




On June
10, 2005, the Company granted a warrant to purchase 1,000,000 shares of common
stock with a purchase price of $0.20 to a consultant for the Company pursuant to
the Company’s Stock Plan and a Consultant Agreement.  The warrant has
a five year term.  The value of the warrants, according to a
Black-Sholes calculation, was $107,000.





During
the third quarter 2005





On July
20, 2005, the Company issued 6,750,000 shares of its common stock for
services.  The fair value o these shares at the date of issuance was
$1,485,000.





On August
16, 2005, the Company issued 1,500,000 shares of its common stock for
services.  The fair value o these shares at the date of issuance was
$320,000.





On
September 9, 2005 the Company issued 16,667 post 1:12 split shares of its common
stock to an investor in the Company’s predecessor, American Career
Centers.  The investor had purchased 200,000 shares prior to the split
on March 12, 2002 for $20,000 but the shares were never issued.





On
September 13, 2005, the Company issued 300,000 shares of its common stock for
services.  The fair value of these shares at the date of issuance was
$87,000.





On
September 16, 2005, the Company issued 950,000 shares of its common stock for
services.  The fair value of these shares at the date of issuance was
$266,000.





During
the fourth quarter of 2005





Subscribed
for 40,000 shares of its common stock and received $10,000.





On
November 10, 2005 the Company issued 3,000,000 shares of its common stock for
services.  The fair value of these shares at the date of issuance was
$510,000.





During
the first quarter, 2006





On
January 6, 2006, the Company issued 33,333,333 shares of its common stock to
retire a note payable from its’ Chairman, and major stockholder.  The
fair value of these shares at the date of issuance was $1,700,000.





On
January 23, 2006 the Company issued 7,000,000 shares of its common stock for
services.  The fair value of these shares at the date of issuance was
$210,000.





On
February 23, 2006, the Company issued 1,487,500 shares of its common stock in
settlement of a lawsuit.  The fair value of these shares at the date
of issuance was $29,750.







37


On March
28, 2006, the Company issued 2,287,500 shares of its common stock for legal
services rendered.  The fair value of these shares at the date of
issuance was $45,750.





On
November 18, 2005, the Board of Directors authorized Roger Mohlman’s request to
convert the notes payable to him by the Company into shares of the Company’s
common stock thereby reducing the Company’s current liabilities by approximately
$1,700,000.  The conversion rate was $0.05 per share based on the
reported market price of the Company’s common stock on the date of conversion of
January 6, 2006.  At December 31, 2005, this transaction is reflected
in the Stockholders’ Equity section of the balance sheet as a stock issuance
obligation.










38












American
Water Star, Inc. and Its Subsidiaries


Notes to
the Consolidated Financial Statements


As of
December 31, 2007











Options
and Warrants





During
the first quarter of 2005, we issued warrants to purchase 1,500,000 shares of
common stock to Laurus Master Fund, Ltd.  The value of the warrants
using the Black-Scholes method was $107,000 that was recorded as additional
paid-in capital.





A summary
of stock options and warrants is as follows:






Options
            
            
            Weighted
      Average Price
            
            
            Warrants
            
            
            Weighted
      Average Exercise PriceOutstanding
      at December 31, 2006
            
            
            600,000
            
            
            $
            .77
            
            
            
            13,376,538
            
            
            $
            .48Granted
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---Cancelled
            
            
            (600,000
            )
            
            $
            (.77
            )
            
            
            (13,376,538
            )
            
            $
            (.48
            )ExercisedOutstanding
      at December 31, 2007
            
            
            ---
            
            
            $
            ---
            
            
            
            ---
            
            
            $
            ---