Attached files
| file | filename |
|---|---|
| EX-32.2 - STELLAR RESOURCES LTD. 10Q, CERTIFICATION 906, CFO - STELLAR RESOURCES LTD | stellarexh32_2.htm |
| EX-31.2 - STELLAR RESOURCES LTD. 10Q, CERTIFICATION 302, CFO - STELLAR RESOURCES LTD | stellarexh31_2.htm |
| EX-32.1 - STELLAR RESOURCES LTD. 10Q, CERTIFICATION 906, CEO - STELLAR RESOURCES LTD | stellarexh32_1.htm |
| EX-31.1 - STELLAR RESOURCES LTD. 10Q, CERTIFICATION 302, CEO - STELLAR RESOURCES LTD | stellarexh31_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2011
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from ____________________________ to ____________________________
Commission File number 0-51400
Stellar Resources Ltd.
(Exact name of registrant as specified in its charter)
| Nevada | 98-0373867 |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
375 N. Stephanie Street, Suite 1411, Las Vegas, Nevada, 89014-1411
(Address of principal executive offices)
(702) 547-4614
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | |
| Non- accelerated filer | o | (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b(2) of the Exchange Act).
o Yes x No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
x Yes o No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
The total number of shares of Common Stock, par value $0.001 per share, outstanding as of June 17, 2011, is 39,344,051.
TABLE OF CONTENTS
STELLAR RESOURCES LTD.
(An Exploration Stage Company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2011
(Unaudited)
STELLAR RESOURCES LTD.
(An Exploration Stage Company)
INTERIM CONSOLIDATED BALANCE SHEETS
|
APRIL 30,
|
JULY 31,
|
|||||||
|
2011
|
2010
|
|||||||
|
(Unaudited)
|
(Audited)
|
|||||||
|
ASSETS
|
||||||||
|
Current
|
||||||||
|
Cash
|
$ | 607 | $ | 58,300 | ||||
|
Prepaid expenses (Note 8)
|
- | 8,845 | ||||||
| 607 | 67,145 | |||||||
|
Investment in EHHO (Note 5)
|
540,231 | 541,858 | ||||||
|
Oil and gas properties, unproven (Note 6)
|
134,720 | 128,000 | ||||||
| $ | 675,558 | $ | 737,003 | |||||
|
LIABILITIES
|
||||||||
|
Current
|
||||||||
|
Accounts payable
|
$ | 65,010 | $ | 3,592 | ||||
|
Advances payable (Note 7)
|
108,346 | 108,346 | ||||||
|
Due to related parties (Note 8)
|
38,754 | 35,121 | ||||||
|
Notes payable (Note 9)
|
26,188 | 23,702 | ||||||
| 238,298 | 170,761 | |||||||
|
Future income tax liability (Note 6)
|
30,000 | 30,000 | ||||||
| 268,298 | 200,761 | |||||||
|
STOCKHOLDERS’ EQUITY
|
||||||||
|
Capital stock (Note 10)
|
||||||||
|
Authorized:
|
||||||||
|
200,000,000 common shares with a par value of $0.001 per share
|
||||||||
|
Issued and outstanding:
|
||||||||
|
39,344,051 common shares (July 31, 2010: 39,060,650 common shares)
|
39,344 | 39,060 | ||||||
|
Additional paid-in capital
|
2,112,251 | 2,059,142 | ||||||
|
Deficit accumulated during the exploration stage
|
(1,735,866 | ) | (1,555,674 | ) | ||||
|
Accumulated other comprehensive loss
|
(8,469 | ) | (6,286 | ) | ||||
| 407,260 | 536,242 | |||||||
| $ | 675,558 | $ | 737,003 | |||||
The accompanying notes are an integral part of these financial statements
STELLAR RESOURCES LTD.
(An Exploration Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| CUMULATIVE RESULTS OF OPERATIONS FROM APRIL 9, 1999 (INCEPTION) | ||||||||||||||||||||
| THREE MONTHS ENDED | NINE MONTHS ENDED | TO | ||||||||||||||||||
| APRIL 30, | APRIL 30, | APRIL 30, | APRIL 30, | APRIL 30, | ||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | ||||||||||||||||
|
Expenses
|
||||||||||||||||||||
|
General and administrative
|
$ | 15,045 | $ | 12,292 | $ | 70,386 | $ | 15,582 | $ | 232,040 | ||||||||||
|
Interest and finance fees (Notes 8 and 9)
|
1,310 | 104 | 2,563 | 318 | 20,201 | |||||||||||||||
|
Investor relations
|
- | - | - | - | 17,989 | |||||||||||||||
|
Management fees (Note 8)
|
5,645 | - | 40,801 | - | 812,071 | |||||||||||||||
|
Professional fees
|
18,519 | 27,380 | 79,815 | 48,740 | 276,307 | |||||||||||||||
|
Property examination and expenditure costs
|
- | - | - | 1,105 | 165,489 | |||||||||||||||
|
Loss before other items
|
(40,519 | ) | (39,776 | ) | (193,565 | ) | (65,745 | ) | (1,524,097 | ) | ||||||||||
|
Other Items
|
||||||||||||||||||||
|
Management fees (Note 8)
|
- | - | 15,000 | - | 15,000 | |||||||||||||||
|
Dilution loss from EHHO (Note 5)
|
- | - | - | - | (196,000 | ) | ||||||||||||||
|
Loss from equity interest in EHHO (Note 5)
|
(28 | ) | - | (1,627 | ) | - | (30,769 | ) | ||||||||||||
|
Net Loss
|
$ | (40,547 | ) | $ | (39,776 | ) | $ | (180,192 | ) | $ | (65,745 | ) | $ | (1,735,866 | ) | |||||
|
Basic and Diluted Net Loss Per Common Share
|
$ | - | $ | - | $ | - | $ | - | ||||||||||||
|
Weighted Average Number of Common Shares Outstanding – Basic and Diluted
|
39,293,240 | 31,060,650 | 39,148,732 | 31,060,650 | ||||||||||||||||
The accompanying notes are an integral part of these financial statements
STELLAR RESOURCES LTD.
(An Exploration Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
CUMULATIVE RESULTS OF OPERATIONS FROM APRIL 9, 1999 (INCEPTION)
|
||||||||||||
|
NINE MONTHS ENDED
|
TO
|
|||||||||||
|
APRIL 30,
|
APRIL 30,
|
|||||||||||
|
2011
|
2010
|
2011
|
||||||||||
|
Cash Flows from (used in) Operating Activities
|
||||||||||||
|
Net loss
|
$ | (180,192 | ) | $ | (65,745 | ) | $ | (1,735,866 | ) | |||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||||||
|
Realized foreign exchange losses on settlement of notes payable
|
- | - | 12,518 | |||||||||
|
Unrealized foreign exchange
|
2,051 | 2,051 | ||||||||||
|
Stock-based compensation
|
- | - | 750,000 | |||||||||
|
Accrued interest
|
1,858 | 318 | 20,029 | |||||||||
|
Dilution loss
|
- | - | 196,000 | |||||||||
|
Share of loss of equity investment
|
1,627 | - | 30,769 | |||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Prepaid expenses
|
8,845 | - | - | |||||||||
|
Deposit
|
- | (20,000 | ) | - | ||||||||
|
Accounts payable
|
61,445 | 23,306 | 65,037 | |||||||||
|
Net cash used in operating activities
|
(104,366 | ) | (62,121 | ) | (659,462 | ) | ||||||
|
Cash Flows from Financing Activities
|
||||||||||||
|
Proceeds from issuance of common stock, net
|
53,393 | - | 1,059,022 | |||||||||
|
Proceeds from (repayment of) notes payable
|
- | - | 89,300 | |||||||||
|
Advances payable
|
- | (9,666 | ) | 108,346 | ||||||||
|
Advances from related parties
|
- | 143,286 | 35,121 | |||||||||
|
Net cash provided by financing activities
|
53,393 | 133,620 | 1,291,789 | |||||||||
|
Cash Flows from (used in) Investing Activities
|
||||||||||||
|
Oil and gas properties
|
(6,720 | ) | - | (256,720 | ) | |||||||
|
Investment in EHHO
|
- | - | (375,000 | ) | ||||||||
|
Net cash used in investing activities
|
(6,720 | ) | - | (631,720 | ) | |||||||
|
Net Increase (Decrease) in Cash
|
(57,693 | ) | 71,499 | 607 | ||||||||
|
Cash, Beginning
|
58,300 | 1,193 | - | |||||||||
|
Cash, Ending
|
$ | 607 | $ | 72,692 | $ | 607 | ||||||
Continued…
The accompanying notes are an integral part of these financial statements
STELLAR RESOURCES LTD.
(An Exploration Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
|
CUMULATIVE RESULTS OF OPERATIONS FROM APRIL 9, 1999 (INCEPTION)
|
||||||||||||
|
NINE MONTHS ENDED
|
TO
|
|||||||||||
|
APRIL 30,
|
APRIL 30,
|
|||||||||||
|
2011
|
2011
|
2011
|
||||||||||
|
Supplemental Disclosures of Cash Flow Information and Non-Cash Investing and Financing Activities
|
||||||||||||
|
Cash paid for:
|
||||||||||||
|
Interest
|
$ | - | $ | - | $ | 110 | ||||||
|
Income taxes
|
$ | - | $ | - | $ | - | ||||||
|
Common shares issued on settlement of notes payable and accrued interest
|
$ | - | $ | - | $ | 102,573 | ||||||
|
Common shares issued on acquisition of EHHO and FBHO
|
$ | - | $ | - | $ | 240,000 | ||||||
|
Future income tax liability on property acquisition
|
$ | - | $ | - | $ | 30,000 | ||||||
The accompanying notes are an integral part of these financial statements
5
STELLAR RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2011
(Unaudited)
|
1.
|
NATURE OF CONTINUED OPERATIONS AND BASIS OF PRESENTATION
|
The Company was incorporated in the State of Nevada on April 9, 1999 and is in the exploration stage of its resource property activities.
On June 10, 2010, the Company completed the acquisition of 100% of Elk Hills Heavy Oil, LLC (“EHHO”) and Four Bear Heavy Oil, LLC. (“FBHO”). EHHO’s assets consist of oil and gas leases in Carbon County, Montana, and FBHO’s assets consist of oil and gas leases in Park County, Wyoming. On July 7 2010, the Company’s interest in EHHO was diluted to 50% as a result of EHHO issuing 90,000 units of capital to Elk Hills Petroleum Canada Inc. (“EHPC”). As a result of the above transactions the Company’s focus has changed from the exploration of mineral properties to oil and gas exploration. On August 24, 2010, the Company completed the acquisition of 100% of Core54 Petroleum Canada Ltd, (“Core 54”).
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. This contemplates that assets will be realized and liabilities and commitments satisfied in the normal course of business. To date, the Company has not generated any revenues from operations and had a working capital deficit of $237,691 and an accumulated deficit of $1,735,866 at April 30, 2011. The Company’s continuance of operations is contingent on raising additional working capital, and on the future acquisition and development of resource property interests. Accordingly, these factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company is currently negotiating with third parties to provide equity financing sufficient to finance corporate operations and provide working capital for the next twelve months. Although there is no assurance that management’s plans will be realized, management believes that the Company will be able to continue operations in the future. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue operating as a going concern.
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q of Regulation S-K. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material changes in the information disclosed in the notes to the financial statements for the year ended July 31, 2010 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal and recurring adjustments have been made. Operating results for the nine months ended April 30, 2011 are not necessarily indicative of the results that may be expected for the year ending July 31, 2011.
|
2.
|
SIGNIFICANT ACCOUNTING POLICY
|
|
|
Basis of Consolidation
|
The consolidated financial statements include the results of the Company and the post acquisition results of its wholly-owned subsidiaries, FBHO, a company incorporated in Washington State on February 28, 2010 and Core 54, a company incorporated in British Columbia, Canada on March 9, 2010.
The Company previously consolidated its interest in EHHO; however, on July 7, 2010 the Company’s interest in EHHO was reduced to the level of significant influence, and thus effective July 7, 2010, the investment in EHHO is recorded using the equity method of accounting (Note 6).
Intercompany balances and transactions have been eliminated in the consolidation.
6
STELLAR RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2011
(Unaudited)
|
3.
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
Recent Accounting Standards Not Yet Adopted
The Company has reviewed issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.
|
4.
|
AQUISITION
|
On August 24, 2010, pursuant to an acquisition agreement the Company acquired 100% of the outstanding share capital of Core54 for $1 cash.
Core54 had no assets but had liabilities of $6,300 upon acquisition. The excess of the purchase consideration over the value of net liability assumed of $6,300 was expensed on acquisition.
|
5.
|
INVESTMENT IN EHHO
|
Upon issuance of 90,000 units of the capital of EHHO to EHPC on July 7, 2010, the Company’s equity holding of EHHO was reduced to 50% from 100% and the Company recorded a loss on dilution of $196,000. Of the 90,000 units of capital issued to EHPC, 80,000 are held in escrow. Subsequent to the dilution of the Company’s investment in EHHO, management determined that the Company continued to hold significant influence over the activities of EHHO but did not exercise control. Accordingly from July 7, 2010, the Company has accounted for its 50% interest in EHHO as an equity investment.
|
APRIL 30,
|
JULY 31,
|
|||||||
|
Investment in EHHO
|
2011
|
2010
|
||||||
|
90,000 units of ownership capital
|
$ | 392,000 | $ | 392,000 | ||||
|
Capital contribution
|
375,000 | 375,000 | ||||||
|
Non-cash loss on dilution of the Company’s interest
|
(196,000 | ) | (196,000 | ) | ||||
| 571,000 | 571,000 | |||||||
|
Share of loss of significantly influenced investee
|
(30,769 | ) | (29,142 | ) | ||||
|
Investment in EHHO
|
$ | 540,231 | $ | 541,858 | ||||
Under the agreement with EHPC, upon completion of a reserve report that concludes the lands held in EHHO do not indicate a reservoir with commercial potential, then 80,000 capital units of EHHO held in escrow shall be released from escrow. If the report states the lands indicate a reservoir with commercial potential then EHPC shall make a US$1,750,000 loan (the "Loan") to EHHO within sixty days after EHPC has received a copy of the report. The Loan shall be non-interest bearing, and repayable only from revenue generated from the production of hydrocarbons from lands. Starting in the second year of production of hydrocarbons from the lands, 20% of the net revenue from such production shall be applied to repayment of the Loan and will continue until the Loan is repaid. Should EHPC fail to provide the Loan to EHHO within the required sixty day period, then 80,000 ownership capital units held in escrow shall be cancelled. Subsequent to April 30, 2011 the agreement was terminated and replaced with an agreement between Deloro Resources Ltd,, EHPC and EHHO. See Note 11.
7
STELLAR RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2011
(Unaudited)
|
6.
|
OIL AND GAS PROPERTIES
|
|
APRIL 30,
|
JULY 31,
|
|||||||
|
2011
|
2010
|
|||||||
|
Unproved properties
|
||||||||
|
Acquisition costs
|
$ | 128,000 | $ | 128,000 | ||||
|
Annual lease costs
|
6,720 | - | ||||||
| $ | 134,720 | $ | 128,000 | |||||
Park County, Wyoming
On June 10, 2010 the Company acquired oil and leases in Park County, Wyoming, upon the acquisition of FBHO for $98,000. In addition, the Company recorded a future income tax liability of $30,000 relating to the excess of book value over the tax value. The vendors retained a 5% overriding royalty interest in the property.
|
7.
|
ADVANCES PAYABLE
|
At April 30, 2011, an amount of $108,346 (July 31, 2010 - $108,346) was owing to a former president of the Company for cash advances and expenses paid on behalf of the Company. The amounts are unsecured, non-interest bearing and have no specific terms of repayment.
|
8.
|
RELATED PARTY TRANSACTIONS
|
In addition to the related party transactions disclosed elsewhere in these financial statements the Company incurred the following balances and transactions during the year:
|
APRIL 30,
|
JULY 31,
|
|||||||
|
2011
|
2010
|
|||||||
|
Balances:
|
||||||||
|
i) Prepaid expenses
|
||||||||
|
Amount advanced to a director for travel expenses
|
$ | - | $ | 4,000 | ||||
|
ii) Due to directors
|
||||||||
|
Amounts payable for reimbursement of corporate expenses
|
$ | 1,206 | $ | 1,206 | ||||
|
Note payable (Cdn $35,000) including accrued interest to Director, unsecured, bearing interest at 6% per annum and due July 25, 2011.
|
37,548 | 33,915 | ||||||
| $ | 38,754 | $ | 35,121 | |||||
8
STELLAR RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2011
(Unaudited)
|
8.
|
RELATED PARTY TRANSACTIONS (Continued)
|
|
NINE MONTHS ENDED
|
||||||||
|
APRIL 30
|
||||||||
|
2011
|
2010
|
|||||||
|
Transactions:
|
||||||||
|
i) Interest accrued to a Director pursuant to promissory note
|
$ | 1,556 | $ | - | ||||
|
ii) Management fees charged to EHHO
|
$ | 15,000 | - | |||||
|
iii) Fees paid to three Directors for services rendered
|
$ | 40,801 | $ | - | ||||
|
9.
|
NOTES PAYABLE
|
As at April 30, 2011 $18,941 (July 31, 2010: - $17,442) was due on third party demand promissory notes bearing interest at the Bank of Canada prime rate plus 2% (3.25% as of April 30, 2011), and $7,247 (July 31, 2010 - $6,260) of accrued interest is payable.
During the nine month period ended April 30, 2011, the Company recorded a foreign exchange loss of $2,182 (April 30, 2010 – loss of $1,844) in connection with these notes payable and accrued interest payable as a result of fluctuations in the foreign exchange rate.
|
10.
|
CAPITAL STOCK
|
The Company’s authorized share capitalization is 200,000,000 common shares with a par value of $0.001 per share.
On November 19, 2010, the Company accepted a share subscription for 45,833 common shares at $0.30 per share for aggregate proceeds of $13,750.
On February 11, 2011 the Company accepted a share subscription for 101,215 common shares at $0.20 for aggregate proceeds of $20,243. The Company paid a finders fee of $1,026 in relation to this financing.
On February 25, 2011 the Company accepted a share subscription for 136,353 common shares at $0.15 for aggregate proceeds of $20,426.
As of April 30, 2011 and July 31, 2010 the Company has no outstanding stock options or warrants.
9
STELLAR RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2011
(Unaudited)
|
11.
|
SUBSEQUENT EVENT
|
On May 4, 2011, the Company entered into a Letter agreement with Deloro Resources Ltd, (“Deloro”), EHPC and EHHO, whereby Deloro may acquire up to a 1/3rd interest (being 60,000 ownership units) in EHHO as follows:
|
|
i)
|
On or before May 11, 2011, Deloro will issue 3,000,000 common shares each to the Company and to EHPC. As consideration both the Company and EHPC will transfer 15,000 ownership units of EHHO to Deloro immediately and an aggregate of 30,000 ownership units of EHHO (15,000 from the Company and 15,000 from EHPC) will be placed into escrow until the completion of Deloro’s obligations described below. The Deloro shares have been issued.
|
|
|
ii)
|
On or before May 13, 2011, Deloro shall make a capital contribution of Cdn$150,000 to EHHO (received).
|
|
|
iii)
|
On or before September 30, 2011, Deloro will make further capital contributions aggregating Cdn$450,000 to EHHO in either cash or approved exploration expenditures.
|
Upon fulfilling the capital contribution obligations, Deloro will have earned the 30,000 ownership units held in escrow and they shall be released to Deloro.
In the event Deloro completes the share issuance component of the transaction but does not fully complete Cdn$600,000 in aggregate capital contributions then Deloro shall retain 30,000 ownership units in EHHO, and the ownership units held in escrow shall be returned to the Company and EHPC respectively.
As of the time of filing Deloro had completed conditions (i) and (ii) above, accordingly Deloro had earned an aggregate of 30,000 ownership units of EHHO and the Company’s interest in EHHO had been reduced from 50% to 41.67%.
On June 7, 2011 the Company received a loan for CAD$25,000 and provided the lender a Promissory Note redeemable on or before September 1, 2011 for CAD$28,000 including loan fees and interest. The loan is secured by 1,000,000 common shares of Deloro.
Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations
Our actual results could differ materially form those reflected in these forward-looking statements as a Statements we make in the following discussion that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance or achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including general economic and business conditions and industry trends, the continued strength or weakness of the contract land drilling industry in the geographic areas in which we operate, decisions about onshore exploration and development projects to be made by oil and gas companies, the highly competitive nature of our business, the availability, terms and deployment of capital, the availability of qualified personnel, and changes in, or our failure or inability to comply with, government regulations, including those relating to the environment. We have discussed many of these factors in more detail elsewhere in this report, including under the headings “Special Note Regarding Forward-Looking Statements” in the Introductory Note to Part I and “Risk Factors” in Item 1A. These factors are not necessarily all the important factors that could affect us. Unpredictable or unknown factors we have not discussed in this report or could also have material adverse effect on actual results of matters that are the subject of our forward-looking statements. All forward-looking statements speak only as the date on which they are made and we undertake no duty to update or revise any forward-looking statements. We advise our shareholders that they should (1) be aware that important factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.
From inception on April 9, 1999 to April 30, 2011 we have expended $232,040 on general and administration expenses; $20,201 on interest; $17,989 on investor relations; $812,071 on management fees of which $750,000 relates to non-cash to stock-based compensation; $276,307 on legal, audit and accounting fees; and $165,489 on resource property examination and exploration. Stellar Resources Ltd. (the "Issuer") has also charged management fees of $15,000 to Elk Hills Heavy Oil LLC (“EHHO”) for services rendered, incurred a loss on dilution of its equity interest in EHHO to 50% of $196,000 as a result of EHHO issuing stock from treasury to a third party, and finally recorded 50% of the losses of EHHO of $30,769.
To date, we have not generated any revenues from operations and had a working capital deficit of $237,691 and an accumulated deficit of $1,735,866 at April 30, 2011. Our continuance of operations is contingent on raising additional working capital, and on the future development of its potential resource property interests. Accordingly, these factors raise substantial doubt about our ability to continue as a going concern. We are currently negotiating with several parties to provide equity financing sufficient to finance additional exploration work and provide working capital for the next twelve months. Although there is no assurance that management’s plans will be realized, management believes that we will be able to continue operations in the future.
OVERVIEW
We have been in the pre-exploration stage since our formation on April 9, 1999, and are not operators of any mines or wells nor are we engaged in any mineral or oil and gas production or sales activities. We have a minimum amount of cash and have not yet developed any producing resource properties. We have no history of any earnings. There is no assurance that we will be a profitable company. We presently operate with minimum overhead costs and need to raise additional funds in the next 12 months, either in the forms of loans or issuance of equity, in order to continue our operations. We are primarily an oil and gas property acquisition, exploration and development company.
We follow the full cost method of accounting for oil and gas operations whereby all costs of exploring for and developing oil and gas reserves are initially capitalized on a country-by-country (cost centre) basis. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling and overhead charges directly related to acquisition and exploration activities.
Costs capitalized, together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated gross proved reserves. Petroleum products and reserves are converted to a common unit of measure, using 6 MCF of natural gas to one barrel of oil.
Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations.
If capitalized costs, less related accumulated amortization and deferred income taxes, exceed the “full cost ceiling” the excess is expensed in the period such excess occurs. The “full cost ceiling” is determined based on the present value of estimated future net revenues attributed to proved reserves, using current prices less estimated future expenditures plus the lower of cost and fair value of unproved properties within the cost centre.
The carrying value of intangible assets and other long-lived assets are reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. We recognize impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. Impairment on the properties with unproved reserves is evaluated by considering criteria such as future drilling plans for the properties, the results of geographic and geologic data related to the unproved properties and the remaining term of the property leases.
Asset retirement obligations (“ARO”) associated with the retirement of tangible long-lived assets, including natural gas and oil properties, are recognized as liabilities in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated assets. The cost of tangible long-lived assets, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the assets. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted fair value is accreted to the expected settlement value.
The fair value of the ARO is measured using expected future cash flow, discounted at our credit-adjusted risk-free interest rate. As of April 30 2011, we have determined that it does not have any asset retirement obligation.
We currently do not have any research and development activities planned for the next 12 months.
We currently have no plans to purchase or sell any additional property or significant equipment in the next 12 months.
We do not expect any significant changes in the number of employees over the next 12 months.
On March 3, 2010 we announced the appointment of Mr. Ray Jefferd to the Board of Directors as well as his appointment as President and Chief Executive Officer. We also welcomed Mr. Panfilo Rosatone as a director and Mr. Luigi Rispoli resigned his position as our President and Chief Executive Officer. Mr. Rispoli continues to be a director and our Chief Financial Officer.
Concurrent to the above changes of our officers and directors, we announced on March 3, 2010 entering into an agreement to acquire 100% of EHHO and Four Bear Heavy Oil, LLC (“FBHO”) from Mr. Ray Jefferd and Mr. Glen Landry. The assets of EHHO consist of more than 20,000 continuous acres of oil and gas leases in Carbon County, Montana. The assets of FBHO consist of more than 6,400 acres of oil and leases in Park County, Wyoming. We have an area of mutual interest with the Sellers to acquire additional leases within one mile of the borders of the existing oil and gas leases, excluding the properties in Big Horn County Montana.
On June 14, 2010 we acquired 100% of EHHO and 100% of FBHO from Mr. Ray Jefferd and Mr. Glen Landry. We have acquired these oil and gas leases as part of its strategic plan to enter into the business of oil and gas production, development, exploration, and the accumulation of oil and gas reserves.
On July 8 we announced the completion of a non-brokered private placement with Elk Hills Petroleum Canada Ltd. (“EHPC”) for 5,000,000 common shares at $.175 per share for gross proceeds of $875,000.
Concurrent with the private placement Stellar experienced a 50% dilution of its equity interest in EHHO as EHHO issued 90,000 Ownership Units to EHPC.
Further, we and EHPC have each made $375,000 capital contributions (total $750,000) into EHHO enabling EHHO to undertake an exploration drilling program on the EHHO oil and gas leases in Carbon County, Montana. Additionally EHPC has agreed in principal to lend EHHO $1,750,000 repayable from future revenue generated from hydrocarbons produced from the EHHO leases. The loan obligation is has since been terminated by mutual agreement in order to enter into an agreement with Deloro Resources Ltd. (TSX-V:DLL “Deloro”).
Subsequent to the reporting period end, on May 10, 2011, we announced we have entered into an agreement with Deloro and EHPC whereby Deloro can acquire up to a 1/3 interest in the ~ 20,000 acre Elk Hills Heavy Oil Project in Carbon County, Montana.
Under the terms of the agreement, Deloro can earn a 1/3 interest (60,000 ownership units) in EEHHO from Stellar and EHPC by issuing 3,000,000 shares to Stellar and 3,000,000 shares to EHPC, making a capital contribution of Cdn$600,000 on or before September 11, 2011 ($450,000 for approved exploration expenditures and the balance of funds to meet current and operating liabilities of EHHO). Deloro will become the Operator of the project. The Deloro shares issued to Stellar and EHPC shall be subject to a four month and one day hold. The TSX-V has approved this transaction. Upon Deloro meeting all the terms and conditions of the acquisition Stellar shall retain a 1/3 interest in EHHO.
To date Deloro has issued the required shares to Stellar and EHPC and also made a Cdn$150,000 capital contribution to EHHO. Accordingly to date, pursuant to the agreement Deloro has earned 30,000 ownership units (a 16.66% interest ) in EHHO.
On August 24th, 2010 we acquired 100% of Core54 Petroleum Canada Ltd. (“Core54”) for $6,300 cash. Upon acquisition Core54 had no assets or liabilities. This acquisition was completed for the purpose of acquiring oil and gas properties located within Canada in the future.
We received a report on the EHHO lands summarizing the exploration activities on the two of the three test wells drilled in 2010.
The Morris Block
From the introduction of the Morris Block Evaluation Report prepared by Glen Landry of Longshot Oil and Ted Doughty of Prisem Geoscience Consulting.
Introduction
The 15-13 Bauwens was drilled as an exploration well to evaluate the Tensleep sands in the hanging wall of the Bluewater fault. This location was determined to be the highest structural position along approximately 8.5 miles of the Bluewater fault.
The Tensleep sandstone was encountered approximately 54 feet high to the prognosis at a depth of 1350 feet KB. After encountering the oil shows at this point, it was determined that the core point was too high in perhaps the Crow Mountain sand and that we should drill ahead to the prognosticated top. The decision was reversed but 16 feet of the top of the Tensleep has already been cut.
A total of 93 feet of 4 inch core was cut and recovered. The top 3-4 feet were oil saturated. Logs confirm the water line. Approximately 20 feet of oil column is present.
The volume of oil can be calculated from the Anderson photo interpretation or from surface measurements of the Gray bull sands by Ted Doughty.
Conclusion
The 15-13 Bauwens was drilled to evaluate the idea that oil would accumulate on the downdip or hanging wall of the Bluewater fault. It was hoped that the commercial oil leg would extend downdip as much as one mile or more from the drill site.
The oil leg is very commercial.
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Morris Block
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High
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Most Likely
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Low
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Oil in Place
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15,000,000
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10,000,000
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5,000,000
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Recovery Factor
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60%
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50%
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40%
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Oil in Tanks
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9,000,000
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5,000,000
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2,000,000
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Total Net Profit
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372,960,000
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207,200,000
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82,880,000
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It is hard to believe that the vertical column in the 15-13 Bauwens is not larger. Several theories may explain the size of the reservoir in the Morris Block as follows:
Limiting reservoir parameters
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1.
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There may be leakage across the fault. The Loma Oil #1 just two miles to the northeast was drilled across the fault and an accumulation of 20 feet is present. This suggests that some leakage is present along the fault. The oil column in the Morris Block stops at 1350 or +3270.
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2.
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All oil fields around the flank of the Pryor Mountains have a tilted water table. While the bottom of the column in the Morris Block is at +3279 we will likely find the column to be much lower further down the flank of the trap.
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3.
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The various blocks may carry separate water lines from the sealing along their flanks. We have an apparent waterline at +2963 in the Barber #1 located in the northwest of section one of the Jim and Mary Block, located two miles north. Numerous waterlines are depicted in the fault blocks on the original cross section.
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The oil leg is expected to be thicker and wider as we explore to the north. Development drilling should follow the handing wall with adequate setback so as to not cut the fault.
Summary
The core in the 15-13 revealed limited permeability in the upper portion of the core samples. Porosity improves in the lower wet section. The offsetting updip development wells will be oil wet in this section, with 64 feet of pay likely. Permeability may or may not be adequate for commercial production with steam. We think commercial viability is likely. Based upon our evaluation, the Morris Block should produce in excess of 5 mmbo.
Two options are available:
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1.
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Drill additional updip wells to further block reserves and provided additional baseline data for the reservoir engineer.
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2.
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Retain the reservoir engineer, KADE Technologies, to model the reserves and producibility of the field from the 15-13 Bauwens alone.
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Glen Landry, Longshot Oil, LLC
Ted Doughty, Prisem Geoscience Consulting
The Paugh Block
The 2-25 Paugh was drilled to explore the reserve potential of the Tensleep Sandstone. Cuttings and core suggest a very large reserve potential subject to the results of the core analysis. Only 40 feet of core survived the trip to Calgary but the analysis was revealing. Oil saturations were in the 30% - 45% range, below the saturation to be commercial. Updip drilling should increase the oil saturation significantly. The northeast of section 36 should be adequately updip to attain commercial oil saturations.
Permeability is a problem. Originally the risk in the project was adequate permeability. There was some concern that the core lab could not get the crude flushed from the plugs to adequately determine the permeability. As can be seen by the charts on the following page the permeability is primarily 1 – 5 millidarcies. This analysis is likely close to the truth but note that the permeability does not track with the porosity, but instead is “flatline”. One can question whether we got the bitumen out of the pore space before the calculation was made.
Summary
In summary, a significant amount of oil was observed in the Paugh 2-25. A shift of a few points in saturation and permeability would make the prospect a world class deposit. More drilling is recommended.
In future the porosity core data from this well will be overlain atop the electric logs as was done in the Bauwens. The log calculations for porosity and oil saturation will be qualified with the core. Logging on new wells will be calibrated from the core to approximately the true porosity and oil saturation with the need for new cores.
Subsequent Events
On May 10, 2011, we announced we have entered into an agreement with Deloro and EHPC whereby Deloro can acquire up to a 1/3 interest in the ~ 20,000 acre Elk Hills Heavy Oil Project in Carbon County, Montana.
Under the terms of the agreement, Deloro can earn a 1/3 interest (60,000 ownership units) in EHHO from Stellar and EHPC by issuing 3,000,000 shares to Stellar and 3,000,000 shares to EHPC, making a capital contribution of Cdn$600,000 on or before September 11, 2011 ($450,000 for approved exploration expenditures and the balance of funds to meet current and operating liabilities of EHHO.) Deloro will become the Operator of the project. The Deloro shares issued to Stellar and EHPC shall be subject to a four month and one day hold. The TSX-V has approved this transaction. Upon Deloro meeting all the terms and conditions of the acquisition Stellar shall retain a 1/3 interest in EHHO.
To date Deloro has issued the required shares to Stellar and EHPC and also made a Cdn$150,000 capital contribution to EHHO. According, pursuant to the agreement Deloro has earned 30,000 ownership units (a 16.66% interest) in EHHO.
On June 7, 2011 we issued a promissory note for CAD$28,000 to a private lender.
Results of Operations for the Nine Months Ended April 30, 2011
We have not generated any revenues from operations since our incorporation on April 9, 1999 through April 30, 2011. During the nine month period ended April 30, 2011 the Company incurred a loss of $180,192. The loss for the comparable nine month period of the prior year was $65,745. During the nine month period ended April 30, 2011 we incurred management fees of $40,801 (2010- $nil). Professional fees, comprising legal, accounting and audit costs increased to $79,815 (2010 - $48,740). Interest expense increased to $2,563 (2010 - $318). The interest increased due to the Company being charged late payment interest on overdue accounts payable and the Company taking on an additional loan from a Director with an interest rate of 6% in the latter part of the prior year which is denominated in Canadian dollars. The interest on the notes payable is based on a Canadian dollar denominated loan and interest charges have increased slightly as a result of increasing foreign exchange rates General and administrative expenses which include travel, filing fees, office expenses and foreign exchange gains and losses amounted to $70,386 (2010 - $15,582).
The Company also recorded management fee income of $15,000 (2010 - $nil) which was charged to EHHO for management services provided by the Company, and finally recorded a loss from equity interest in EHHO of $1,627 (2010 - $nil).
Results of Operations for the Three Months Ended April 30, 2011
We have not generated any revenues from operations since our incorporation on April 9, 1999 through April 30, 2011. During the three month period ended April 30, 2011 we incurred a loss of $40,547. The loss for the comparable three month period of the prior year was $39,776. During the three month period ended April 30, 2011 we incurred management fees of $5,645 (2010- $nil). Professional fees, comprising legal, accounting and audit costs decreased to $18,519 (2010 - $27,380). Interest expense increased to $1,310 (2010 - $104). The interest increased due to the Company being charged late payment interest on overdue accounts payable. The Company also took on an additional loan from a Director with an interest rate of 6% in the latter part of the prior year which is denominated in Canadian dollars. The interest on the notes payable is based on a Canadian dollar denominated loan and interest charges have increased slightly as a result of increasing foreign exchange rates. General and administrative expenses which include travel, filing fees, office expenses and foreign exchange gains and losses amounted to $15,045 (2010 - $12,292).
We also recorded a loss from equity interest in EHHO of $28 (2010 - $nil).
Sales and Marketing Expenses: We have incurred no sales and marketing expenses since the date of inception due to the fact that we are in the pre-exploration stage of our business.
Our activities have been financed from proceeds of shareholders, related or third party subscriptions and loans. We do not anticipate earning revenues until such time as we have entered into commercial production of any mineral claims. We are presently in the pre-exploration stage of our business and we can provide no assurance that we will discover commercially exploitable levels of mineral resources on any properties, or if such resources are discovered, that we will enter into commercial production of any claims.
Liquidity and Further Capital Resources
At April 30, 2011, we had assets of $675,558 comprising cash of $607, an equity investment in EHHO of $540,231 and oil and gas properties in Wyoming of $134,720. Total stockholders’ equity was $407,260 at April 30, 2011. We are a pre-exploration and exploration stage company and, since inception, have experienced significant changes in liquidity, capital resources and shareholders’ equity.
To finance our operations we have relied upon cash on hand, sources internally generated from management, advances from shareholders and financing via loans, debt and equity financing.
As of April 30, 2011, we have advances payable of $108,346 (July 31, 2010 - $108,346) relating to advances received from the former President.
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APRIL 30,
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JULY 31,
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2011
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2010
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Balances:
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i) Prepaid expenses
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||||||||
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Amount advanced to a director for travel expenses
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$ | - | $ | 4,000 | ||||
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ii) Due to directors
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Amounts payable for reimbursement of corporate expenses
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$ | 1,206 | $ | 1,206 | ||||
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Note payable (Cdn $35,000) including accrued interest to Director, unsecured, bearing interest at 6% per annum and due July 25, 2011.
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37,548 | 33,915 | ||||||
| $ | 38,754 | $ | 35,121 | |||||
During the nine month periods ended April 30, 2011 and 2010 the Company incurred the following transactions with related parties:
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NINE MONTHS ENDED
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APRIL 30
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2011
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2010
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|||||||
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Transactions:
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||||||||
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i) Interest accrued to a Director pursuant to promissory note
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$ | 1,556 | $ | - | ||||
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ii) Management fees charged to EHHO
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$ | 15,000 | - | |||||
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iii) Fees paid to three Directors for services rendered
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$ | 40,801 | $ | - | ||||
Debt financing received at April 30, 2011 from third parties secured by Promissory Notes together with accrued interest amounted to $26,188 (Cdn$23,702). Interest is calculated on the basis of a 365 or 366 day year on the unpaid principal balance from day to day and computed from the date of the Promissory Note until the principal amount is paid completely at Bank of Canada prime rate per annum plus two percent. These notes are payable upon demand. If we are not able to get further financing, we may not be able to continue as a going concern and we may have to delay exploration or cease our operations and liquidate our business.
Item 3. Quantative and Qualitive Disclosures Above Market Risk.
Not applicable.
Item 4. Controls and Procedures
As of April 30, 2011, the end of our third fiscal quarter covered by this report, we carried out an evaluation, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of April 30, 2011. This evaluation was carried out under the supervision and with the participation of our Chief Financial Officer, Mr. Luigi Rispoli. Based upon that evaluation, our Chief financial Officer concluded that, as of April 30, 2011, our disclosure controls and procedures are satisfactory. There have been no changes in our internal controls over financial reporting during the quarter ended April 30, 2011. Effective June 1, 2010, we adopted an Audit Committee Charter and formed an audit Committee comprised of Ray Jefferd, Luigi Rispoli and Panfilo Rosatone.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures, designed to ensure that information required to be disclosed in our reports filed under the Exchange Act in accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Item 4T. Controls and Procedures
Not applicable.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not aware of any pending litigation nor do we have any reason to believe that any such litigation exists. Further, our officers and directors know of no legal proceedings against us, or our property contemplated by any governmental authority.
Item 1A. Risk Factors
A smaller reporting company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 10, 2010 we issued 1,500,000 Common shares to Mr. Ray Jefferd as part of the acquisition cost of the Elk Hills and Four Bear Properties.
On June 10, 2010 we issued 1,500,000 Common shares to Mr. Glen Landry as part of the acquisition cost of the Elk Hills and Four Bear Properties.
On July 7, 2010 we entered into a private placement with Elk Hills Petroleum Canada and sold 5,000,000 of its common shares at US$.175 per share for net proceeds of $875,000.
On December 1, 2010 we issued 45,833 common shares at $0.30 for aggregate proceeds of $13,750.
On February 11, 2011 we issued 101,215 common shares at $0.20 for aggregate proceeds of $20,243. The Company paid a cash finders fee of $1,026 pursuant to this financing.
On February 25, 2011 we issues 136,353 common shares at $0.15 for aggregate proceeds of $20,453.
Item 3. Defaults Upon Senior Securities
None.
Item 5. Other Information
Report filed by the Issuer May 12, 2011
Item 6. Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: June 20, 2011
STELLAR RESOURCES LTD.
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By:
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/s/ Ray Jefferd | |
| Ray Jefferd | |||
| President and Chief Executive Officer | |||
| By: | /s/ Luigi Rispoli | ||
| Luigi Rispoli | |||
| Director and Chief Financial Officer | |||
| By: | /s/ Michael Rezac | ||
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Michael Rezac
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Director
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20