STELLAR RESOURCES LTD - FORM 10-K

Attached files

file	filename
EX-32 - STELLAR RESOURCES 10K, CERTIFICATION 906, CEO/CFO - STELLAR RESOURCES LTD	stellarexh32.htm
EX-31.2 - STELLAR RESOURCES 10K, CERTIFICATION 302, CFO - STELLAR RESOURCES LTD	stellarexh31_2.htm
EX-31.1 - STELLAR RESOURCES 10K, CERTIFICATION 302, CEO - STELLAR RESOURCES LTD	stellarexh31_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended July 31, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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	(I.R.S. Employer
incorporation or organization	Identification No.)

375 N. Stephanie Street, Suite 1411, Las Vegas, Nevada, 89014-1411

(Address of principal executive offices)

Registrant’s telephone number, including area code (702) 475-5857

Securities registered pursuant to section 12(b) of the Act: N/A

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No

Indicate by check mark if 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 if disclosure of delinquent filers pursuant to Item 405of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filed, a non-accelerated filer, or a smaller reporting company.

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. o Yes o No

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the registrant’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 November 12, 2010 is 69,344,051.

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TABLE OF CONTENTS

PART I

Item 1.	Business	3

Item 1A.	Risk Factors	4

Item 2.	Oil and Gas Properties/ Technologies	5

Item 3.	Legal Proceedings	10

Item 4.	Submission of Matters to a Vote of Security holders	11

PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	11

Item 6.	Selected Financial Data	12

Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	37

Item 7A	Quantative and Qualitative Disclosures About Market Risk	42

Item 8.	Financial Statements and Supplementary Data	42

Item 9.	Change in and Disagreements with Accounting and Financial Disclosure	42

Item 9A	Controls and Procedures.	42

PART III

Item 9B	Other Information	46

Item 10.	Directors, Executive Officers and Corporate Governance.	46

Item 11.	Executive Compensation.	47

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters	49

Item 13.	Certain Relationships and Related Transactions, and Director Independence	50

Item 14.	Principal Accounting Fees and Services	52

PART IV

Item 15.	Exhibits, Financial Statement Schedules	53

SIGNATURES		54

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PART I

Item 1. Business

General

Stellar Resources Ltd. is listed on the OTC Bulletin Board under the Symbol "SRRL" and have since our formation on April 9, 1999 been in the pre-exploration and exploration stage and are not operators of any mines or wells nor are we engaged in any mineral/oil 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. Historically the Company concentrated on mineral property exploration. During 2010 the Company’s focus changed to oil and gas property, exploration and development. 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 technology and exploration and development company. We are committed to developing and acquiring oil and gas technologies that have high impact on the profitability of oil and gas projects. Our strategy is to apply these high profit impact technologies our own oil and gas exploration and production projects.

The Company has focused its oil and gas operations principally on approximately 20,000 acres of oil and gas leases in Carbon County, Montana and approximately 6,400 acres of oil and gas leases in Park County, Wyoming. Stellar plans to operate a majority of its projects through the drilling and production phases. The Company intends to leverage the risks associated with drilling by obtaining industry partners to share in the costs of drilling. However, in some cases Stellar will retain a controlling interest in the prospects it drills.

On July 14 2011 the Company acquired from its’ President, Mr. Ray Jefferd, all right, title and interest to the ZeroGap intellectual property, free of any encumbrances or royalties.

ZeroGap stands for Zero Emission Refining Onsite with Gas Assisted Production. The ZeroGap technology is still in the research and development stage but shows significant promise based on existing proven technologies of hydrocracking and hydrotreating for upgrading and refining crude oil.

A key benefit of the ZeroGap technology is its promise of upgrading oil in-situ. The second key benefit is the potential to significantly increase the recovery of oil-in-place, particularly low API crude oil. ZeroGap is also an environmentally friendly technology with a small footprint and potential for near zero toxic emissions. The technology involves the use of a gasifier to produce injection gases that will be used to upgrade underground crude oil and enhance its extraction/recovery.

The purchase price for the acquisition is $3,000,000 which the Company has satisfied by the issuance of 30,000,000 of its restricted common shares to Mr. Jefferd. The shares have been recorded at the exchange amount of $37,291 being the legal fees incurred by Mr. Jefferd in developing the Intellectual Property.

Stellar has acquired this technology as part of its ongoing strategic plan to be in the business of oil and gas exploration and production, technological development, and the accumulation of oil and gas reserves. The Company obtained an independent expert fairness opinion on July 11, 2011 prepared by Dr. Michael Tenhover prior to finalizing the acquisition of ZeroGap outlining the inherent value and validity of the technology. Dr. Tenhover, has over 30 years of experience in the oil and gas industry and is the former chief scientist for advanced materials at BP. Dr. Tenhover has 36 issued US patents, 3 invited review chapters for scientific books, 89 publications in peer reviewed scientific publications and has given numerous invited scientific lectures at conferences and major universities around the world.

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Website Access to Our Reports

We make available free of charge our annual report on Form 10K, quarterly reports on Form 10-Q, current reports on Form 8K, and all amendments to those reports as reasonably practicable after such reports are filed electronically with the Securities and Exchange Commission. Information of our website is not part of this report. Our website can be viewed at www.stellarltd.com

Strategic Business Plan

One of our key plans is to enhance shareholder value to the implementation of plans for controlled growth and development. Our long term goal and focus is to grow our oil and gas production through a strategic combination of selected feasible property acquisition and an exploration and development program primarily focused on developing the Company’s leasehold properties. Further, Stellar is committed to developing and acquiring oil and gas technologies that have high impact on the profitability of oil and gas projects. The Company’s strategy is to apply these high profit impact technologies to its own oil and gas exploration and production projects.

Item 1A. Risk Factors

The information set forth in this Item 1A should be read in conjunction with the rest of the information included in this report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 the historical financial statements and related notes this report contains. While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial also may negatively impact our business, financial condition or operating results.

Our acquisition strategy exposes us to various risks, including those relating to difficulties in identifying suitable acquisition opportunities and integrating businesses, assets and/or personnel, as well as difficulties in obtaining financing for our targeted acquisitions and the potential for increased leverage or debt service requirements.

A key component of our business strategy is that, we have pursued and intend to continue to pursue acquisitions of complementary assets and businesses.

Our acquisition strategy in general and our recent acquisitions in particular, involve numerous inherent risks, including:

●

unanticipated costs and assumption of liabilities and exposure to unforeseen liabilities of acquired businesses, including environmental liabilities;

●

difficulties in integrating the operations and assets of the acquired business and the acquired personnel;

●

limitations on our ability to properly assess and maintain an effective internal control environment over an acquired business in order to comply with applicable periodic reporting requirements;

●

potential losses of key employees and customers of the acquired businesses;

●

risks of entering markets in which we have limited prior experience; and

●

increases in our expenses and working capital requirements. The process of integrating an acquired business may involve unforeseen costs and delays or other operational, technical and financial difficulties that may require a disproportionate amount of management attention and financial and other resources. Possible future acquisitions may be for purchase prices significantly higher than those we paid for previous acquisitions. Our failure to achieve consolidation savings, to incorporate the acquired businesses and assets into our existing operations successfully or to minimize any unforeseen operational difficulties could have a material adverse effect on our financial condition and results of operations.

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In addition, we may not have sufficient capital resources to complete additional acquisitions. We may incur substantial additional indebtedness to finance future acquisitions and also may issue equity securities or convertible securities in connection with such acquisitions. Debt service requirements could represent a significant burden on our results of operations and financial condition and the issuance of additional equity or convertible securities could be dilutive to our existing shareholders. Furthermore, we may not be able to obtain additional financing on satisfactory terms.

Even if we have access to the necessary capital, we may be unable to continue to identify additional suitable acquisition opportunities, negotiate acceptable terms or successfully acquire identified targets.

Item 2. Oil and Gas Properties / Technologies

Oil and Gas Properties

Elk Hills, Montana

On March 3, 2010, as completed on June 10, 2010, the Company announced it was entering into an agreement to acquire 100% of Elk Hills Heavy Oil, LLC (“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, and the assets of FBHO consist of more than 6,400 acres of oil and leases in Park County, Wyoming. The Company will 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 Stellar acquired 100% of EHHO and 100% of FBHO from Mr. Ray Jefferd and Mr. Glen Landry. The Company 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, 2010 Stellar 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, Stellar 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 has since been terminated by mutual agreement in order to enter into an agreement with Deloro Resources Ltd. (TSX-V:DLL “Deloro”).

On May 10, 2011, Stellar announced it has 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.

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Under the terms of the agreement, Deloro can earn up to 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, and making a capital contribution of Cdn$600,000 to EHHO on or before September 11, 2011 ($450,000 for approved exploration expenditures and the balance of funds to meet current and future 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, pursuant to the agreement Deloro has earned 30,000 ownership units (a 16.66% interest) in EHHO. As Deloro failed to complete its full capital contribution of Cdn$600,000 by September 11, 2011, Deloro can no longer earn any further interest in EHHO.

During the fall of 2010 three exploration wells were drilled on the property. Stellar 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 1,350 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.

Morris Block	High	Most Likely	Low
Oil in Place	15,000,000	10,000,000	5,000,000
Recovery Factor	60%	50%	40%
Oil in Tanks	9,000,000	5,000,000	2,000,000
Total Net Profit	372,960,000	207,200,000	82,880,000

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:

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Limiting reservoir parameters

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.

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.

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. 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:

Drill additional updip wells to further block reserves and provided additional baseline data for the reservoir engineer.

Retain the reservoir engineer, KADE Technologies, to model the reserves and producibility of the field from the 15-13 Bauwens alone.

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.

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In the spring of 2011 Loring Tarcore of Calgary, AB completed its testing of the cores from the Bauwens and Paugh wells. Notwithstanding earlier positive analysis by Prisem the Company concluded that the low gravity of the oil and porosity and permeability were not sufficient to justify continued investment in the project by the Company.

On October 25, 2011 the Company sold its remaining 75,000 units of capital in EHHO for $1,000,000. Payment of the purchase price is by a non-interest bearing promissory note due on or before April 30, 2012. The purchaser holds 4,000,000 shares of the Company which are to be used as collateral for the payment.

Four Bear Property, Wyoming

Four Bear Heavy Oil LLC, a wholly owned subsidiary of Stellar, owns more than 5,800 acres of oil and gas leases in Park County, Wyoming, USA. There are three potential drilling areas on the property.

1. Willow Draw Field

The Willow Draw field is adjoining one of the Four Bear leases. Within 500 meters of the Four Bear Leases more than 150,000 barrels of oil has been produced from three wells. On March 23, 2011, Legacy Energy as subsidiary of Nimin Energy Corp, the operators of the Willow Draw field received permits to drill three additional new wells all with 1000 meters of the Four Bear Leases. Geological work indicates that the Willow Draw field continues onto the Four Bear leased property. Four Bear has potentially at least one and as many as ten offsetting wells that can be drilled on the Four Bear Leases that adjoin the Legacy Energy leases.

The following is except from an announcement by Nimin Energy:

“Nimin Energy Corp. owns and operates at an average 97 percent working interest in four mature heavy oil fields located in Park County Wyoming which it acquired in December of 2009. The fields which were discovered between 1966 and 1971, have produced over nine million barrels of oil since discovery.

The fields are part of the Basin Margin Anticline play on the Western side of the Big Horn Basin and produce from the Tensleep Sandstone of Pennsylvanian age and the Phosphoria limestone of Permian age. Oil gravities range from 14 to 18 degrees API from an approximate reservoir depth of 3,500 to 4,500 feet.

The Company believes the fields to have significant infill drilling potential and plan to drill multiple development wells in the fields. Offset fields in the basin have already been infill drilled and have shown a significant increase in oil recovery and production rates due to the drilling. The company anticipates several years of drilling activity as it develops this core set of assets. While drilling these development wells the company will be studying the feasibility of implementing its CMD technology (see technology section) on the fields for future enhanced oil recovery.”

2. Section 2

Section 2 is 558 Acres (225 hectares) in Township 47 North, Range 103 West, Section 2, Park County, Wyoming.

Four wells with cumulative production of 361,000 barrels of oil from three producing zones are located within one mile of the Project. The nearest well to the proposed drilling location is 0.6 miles (1 kilometer) distant. Total production within five miles (8 kilometers) is more than 5 million barrels from more than 50 wells.

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3. Undrilled Structures nearby

Four Bear also owns leases covering more than 1,500 acres that is approximately two kilometers to the east this is a potential structure, undrilled, similar in size to the Willow Draw field and the original Four Bear Field.

Oil and Gas Technologies

ZeroGap

On July 14 2011 the Company acquired from its’ President, Mr. Ray Jefferd, all right, title and interest to the ZeroGap intellectual property, free of any encumbrances or royalties. The purchase price for the acquisition is $3,000,000 which the company has satisfied by the issuance of 30,000,000 of its restricted common shares to Mr. Jefferd.

ZeroGap is also an environmentally friendly technology with a small footprint and potential for near zero toxic emissions. The technology involves the use of a gasifier to produce injection gases that will be used to upgrade underground crude oil and enhance its extraction/recovery.

Stellar obtained an independent expert fairness opinion on July 11, 2011 prior to finalizing the acquisition of ZeroGap. The following are excerpts from the Fairness Opinion written by Dr. Michael Tenhover.

ZeroGap is a “Platform Technology” – the various embodiments constitute a wide range of uses, applications and methods.”

In principal, ZeroGap can address all the oil production opportunities mentioned in Enhanced Crude Oil Extraction. These relate to heavy and extra heavy crude oils. As discussed, these are multiple billions of bbls of oil opportunities.

In addition, two other markets may be of interest for this technology. These may be of near term interest since in these cases, the wells have already been drilled and production is in place. ZeroGap may be able to recover and enhance their existing production.

Stranded oil – After production, a large amount of the oil remains in the formation. In North America as much as 60% of the oil will be left after conventional production. ZeroGap may be used here in mobilizing and in-situ upgrading this oil.

Transition zone oil – A lot of oil is left behind at the oil-water interface. Due to the higher mobility of water, recovery is difficult. ZeroGap may be useful here to apply the appropriate gas chemistry to increase the mobility of the oil phase and decrease the mobility of the water phase”.

The bottom-line here is that there is a very large resource available and lots of opportunities for new technology to aid in the production/extraction of the World’s heavy/extra heavy crude oil.

Subsequent Events

Subsequent to the year end the Company:

Issued 187,300 common shares at $0.10 per share for aggregate proceeds of $18,730 (Cdn$18,000).

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ii)

Accepted as subscription for 1,181,100 common shares at $.02 per share for aggregate proceeds of $23,622 (Cdn$24,000).

iii)

On September 2, 2011 the Company transferred 1,000,000 shares of its investment in Deloro in full settlement of the Cdn$28,000 note payable.

iv)

On September 23, 2011 entered into a binding agreement, subject to due diligence, to acquire 100% of American Microbial Labs which holds technology suitable for cleaning produced water generated from the recovery of oil and gas wells as well as oil spills located both on land and in water. (See below)

American Microbial Labs

On September 26, 2011 Stellar entered into a binding agreement, subject to due diligence, to acquire 100% of American Microbial Labs LLC (“American Microbial).

American Microbial has 33 species of specialized microbes. These microbes have an affinity for hydrocarbons such as crude oil, diesel fuel and kerosene. They are particularly effective at consuming hydrocarbons in both waters and soils. American Microbial Labs has the proven technology to grow, harvest, stabilize and package the microbes in commercial quantities.

The Company, upon closing, intends to increase the production of the microbes by adding new production equipment in Alabama. The company intends to build a services business based on using the microbes for cleaning produced water and for oil spill clean-up.

Produced Water

Stellar sees a large and growing market for produced water clean-up in the oil and gas business. Many oil wells produce more water than oil, often a lot more water than oil. Regulatory bodies worldwide are tightening rules on the disposal of produced water. New regulations are planned throughout the world and when they come into effect the current practice of simply pumping untreated produced water into disposal wells will be severely curtailed. Meeting new standards for treating and disposing of produced water will demand new solutions. Without cost effective methods and technologies for treating produced water many existing mature oil fields will simply become uneconomical to operate.

Testing

The Company will be conducting tests using the microbes on Alberta oil sands produced water as part of its due diligence process. The Company sees the Alberta Oil Sands as a large potential market to utilize the microbes to treat the tailings ponds from heavy oil recovery and upgrading facilities. Further, the microbes have proven effective in cleaning up oil spills on land. Clean-up can be achieved in-situ without the requirement of excavating the soil, allowing for better and lower cost clean-up for large and small oil spills.

Item 3. 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.

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Item 4. Submission of Matters to a Vote of Security holders

There were no matters submitted to a vote of shareholders by the Company during this Fiscal Year.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common equity is registered on the Over the Counter Bulletin Board ("OTCQB" Symbol "SRRL"). We have no common equity which is subject to outstanding options, or warrants or securities convertible into common equity.

The following table sets forth the periods indicated the range of high and low closing bid quotations per share as reported by the over-the-counter market for the past two (2) years. These quotations represent inter-dealer prices, without retail markups, markdowns or commissions and may not necessarily represent actual transactions.

Year 2011	High		Low

First Quarter	$	0.46	$	0.10
Second Quarter	$	0.38	$	0.06
Third Quarter	$	0.11	$	0.03
Fourth Quarter	$	0.12	$	0.04

Year 2010	High		Low

First Quarter	$	0.08	$	0.07
Second Quarter	$	0.07	$	0.06
Third Quarter	$	0.30	$	0.065
Fourth Quarter	$	0.30	$	0.08

As of July 31, 2011, the closing price of our common stock as reported on the OTCBB was $0.12 and there were 69,344,051 shares of our common equity outstanding, held by 34 shareholders of record. Of our common stock outstanding 4,370,000 are held in brokerage accounts, and therefore we are unable to give an accurate statement as to the number of shareholders.

Rule 144 Shares

Under Rule 144, as currently in effect, a person who has beneficially owned shares of a company's common stock for at least six months, begins when the securities were bought and fully paid for, is entitled to sell within any three month period a number of shares that does not exceed the greater of 1% of the outstanding shares of the same class being sold, or if the class is listed on a stock or quoted on Nasdaq, the greater of 1% or the average reported weekly trading volume during the four weeks preceding filing of Form 144 (Notice of Proposed Sale) with the SEC.

Under Rule 144 (k), a person who is not one of the Company’s affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two (2) years, is entitled to sell their shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.

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As of the date of this filing, persons who are affiliates hold 6,764,528 of the 52642,247 common shares that may be sold pursuant to Rule 144.

Dividends

We have not paid any dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. If any earnings are realized, we intend to finance the growth of our business. We cannot assure you that we will ever pay cash dividends. Whether we pay any cash dividends in the future will depend on the financial condition, results of operations and other factors that the Board of Directors (“Board”) will consider at that time.

Recent Sale of Unregistered Security

On July 7, 2010 the Company 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, the Company issued 45,833 common shares at $0.30 for aggregate proceeds of $13,750.

On February 11, 2011, the Company issued 101,215 common shares at $0.20 for aggregate proceeds of $20,243. The Company paid a cash finder’s fee of $1,026 pursuant to this financing.

On February 25, 2011, the Company issued 136,353 common shares at $0.15 for aggregate proceeds of $20,453.

On July 14, 2011, the Company issued 30,000,000 common shares to the President in consideration for the acquisition of the Zerogap Intellectual Property.

On August 15, 2011 the Company issued 187,300 common shares at $0.10 per share for aggregate proceeds of $18,730.

On October 25, 2011, the Company entered into a subscription agreement for 1,181,100 common shares at $.02 per share for aggregate proceeds of $23,622.

Item 6. Selected Financial Data.

The following information derives from our audited financial statements. This information should be reviewed in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this report and the historical financial statements and related notes this report contains.

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Stellar Resources Ltd.

We have audited the accompanying consolidated balance sheets of Stellar Resources Ltd (an exploration stage company) as of July 31, 2011 and 2010 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years ended July 31, 2011 and 2010 and the period from April 9, 1999 (inception) through July 31, 2011. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the consolidated financial position of Stellar Resources Ltd as of July 31, 2011 and 2010 and the results of its operations and its cash flows for the years ended July 31, 2011 and 2010 and the period from April 9, 1999 (inception) through July 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, to date the Company has reported losses since inception from operations and requires additional funds to meet its obligations and fund the costs of its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

“DMCL”

DALE MATHESON CARR-HILTON LABONTE LLP

CHARTERED ACCOUNTANTS

Vancouver, Canada

November 15, 2011

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS

	JULY 31,			JULY 31,
	2011			2010

ASSETS

Current
Cash	$	1,221		$	58,300
Investment (Note 4)		330,000			-
Prepaid expenses		-			8,845
		331,221			67,145

Investment in EHHO (Note 6)		200,000			541,858
Oil and gas properties, unproven (Note 7)		134,720			128,000
Intangible asset (Note 9)		40,091			-

	$	706,032		$	737,003

LIABILITIES

Current
Accounts payable	$	64,292		$	3,592
Advances payable (Note 10)		108,346			108,346
Due to related parties (Note 11)		46,559			35,121
Notes payable (Note 12)		54,338			23,702
		273,535			170,761

FUTURE INCOME TAX LIABILITY (Notes 6 & 14)		30,000			30,000
		303,535			200,761

STOCKHOLDERS’ EQUITY

Capital stock (Note 13)
Authorized:
200,000,000 common shares with a par value of $0.001 per share
Issued and outstanding:
69,344,051 common shares (2010: 39,060,650 common shares)		69,343			39,060
Additional paid-in capital		2,119,543			2,059,142
Deficit accumulated during the exploration stage		(1,778,022	)		(1,555,674	)
Accumulated other comprehensive loss		(8,367	)		(6,286	)
		402,497			536,242

	$	706,032		$	737,003

The accompanying notes are an integral part of these financial statements

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

							CUMULATIVE RESULTS OF OPERATIONS FROM APRIL 9, 1999 (INCEPTION)
							TO
	YEARS ENDED JULY 31,						JULY 31,
	2011			2010			2011

Expenses
General and administrative	$	77,278		$	58,942		$	238,932
Interest and finance fees (Note 11)		5,366			1,776			23,004
Investor relations		-			-			17,989
Management fees (Note 11)		51,140			21,270			822,410
Professional fees		91,706			56,606			288,198
Property examination and expenditure costs		-			1,105			165,489

Loss before other items		(225,490	)	$	(139,699	)		(1,556,022	)

Other Items
Gain on partial disposal of EHHO (Note 6)		304,689			-			304,689
Management fees		15,000			-			15,000
Dilution loss from EHHO (Note 6)		-			(196,000	)		(196,000	)
Impairment loss on EHHO (Note 6)		(314,908	)		-			(314,908	)
Loss from equity interest in EHHO (Note 6)		(1,639	)		(29,142	)		(30,781	)

Net Loss	$	(222,348	)	$	(364,841	)	$	(1,778,022	)

Basic and Diluted Loss Per Common Share	$	(0.01	)	$	(0.01	)

Weighted Average Number of Common Shares Outstanding – Basic and Diluted		40,595,223			31,951,198

The accompanying notes are an integral part of these financial statements

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD APRIL 9, 1999 TO JULY 31, 2011

												Deficit
												Accumulated
					Additional			Share		Deferred		During The
	Common stock				Paid-In			Subscriptions		Stock		Exploration
	Shares		Amount		Capital			Received		Compensation		Stage			Total

Issuance of common stock for cash at $0.001 per share – April 12, 1999		18,000,000	$	18,000	$	(15,000	)	$	-	$	-	$	-		$	3,000

Net loss, April 9, 1999
(inception) to July 31, 1999		-		-		-			-		-		(2,090	)		(2,090	)

Balance, July 31, 1999		18,000,000		18,000		(15,000	)		-		-		(2,090	)		910

Net loss		-		-		-			-		-		(680	)		(680	)

Balance, July 31, 2000		18,000,000		18,000		(15,000	)		-		-		(2,770	)		230

Net loss		-		-		-			-		-		(180	)		(180	)

Balance, July 31, 2001		18,000,000		18,000		(15,000	)		-		-		(2,950	)		50

Subscriptions received		-		-		-			35,981		-		-			35,981

Net loss		-		-		-			-		-		(43,953	)		(43,953	)

Balance, July 31, 2002		18,000,000	$	18,000	$	(15,000	)	$	35,981	$	-	$	(46,903	)	$	(7,922	)

The accompanying notes are an integral part of these financial statements

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD APRIL 9, 1999 TO JULY 31, 2011

													Deficit
													Accumulated
					Additional			Share			Deferred		During The
	Common stock				Paid-In			Subscriptions			Stock		Exploration
	Shares		Amount		Capital			Received			Compensation		Stage			Total

Balance, July 31, 2002		18,000,000	$	18,000	$	(15,000	)	$	35,981		$	-	$	(46,903	)	$	(7,922	)

Issuance of common stock for cash at $0.10 per share – October 2, 2002		2,192,856		2,193		34,354			(35,981	)		-		-			566
Issuance of common stock for cash at $0.25 per share – October 2, 2002		722,976		723		29,401			-			-		-			30,124
Issuance of common stock for cash at $0.25 per share – October 15, 2002		96,000		96		3,904			-			-		-			4,000
Issuance of common stock for cash at $0.25 per share – January 9, 2003		120,000		120		4,880			-			-		-			5,000
Issuance of common stock for cash at $0.25 per share – March 21, 2003		277,488		277		11,285			-			-		-			11,562

Net loss		-		-		-			-			-		(54,823	)		(54,823	)

Balance, July 31, 2003		21,409,320		21,409		68,824			-			-		(101,726	)		(11,493	)

Net loss		-		-		-			-			-		(76,798	)		(76,798	)

Balance, July 31, 2004		21,409,320		21,409		68,824			-			-		(178,524	)		(88,291	)

Net Loss		-		-		-			-			-		(35,127	)		(35,127	)

Balance, July 31, 2005		21,409,320	$	21,409	$	68,824		$	-		$	-	$	(213,651	)	$	(123,418	)

The accompanying notes are an integral part of these financial statements

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD APRIL 9, 1999 TO JULY 31, 2011

												Deficit
												Accumulated			Accumulated
					Additional		Share		Deferred			During The			Other
	Common stock				Paid-In		Subscriptions		Stock			Exploration			Comprehensive
	Shares		Amount		Capital		Received		Compensation			Stage			Loss			Total

Balance, July 31, 2005		21,409,320	$	21,409	$	68,824	$	-	$	-		$	(213,651	)	$	-		$	(123,418	)

Net loss		-		-		-		-		-			(62,279	)		-			(62,279	)

Balance July 31, 2006		21,409,320		21,409		68,824		-		-			(275,930	)		-			(185,697	)

Issuance of common stock in settlement of notes payable and accrued interest at $0.0833 per share – October 3, 2006		1,230,876		1,231		101,342		-		-			-			-			102,573

Issuance of common stock on grant of stock award at $0.125 per share – October 4, 2006		6,000,000		6,000		744,000		-		(750,000	)		-			-			-

Amortization of deferred compensation		-		-		-		-		465,550			-			-			465,550

Foreign currency translation adjustment		-		-		-		-		-			-			(5,034	)		(5,034	)

Net loss		-		-		-		-		-			(531,309	)		-			(531,309	)

Balance July 31, 2007		28,640,196	$	28,640	$	914,166	$	-	$	(284,450	)	$	(807,239	)	$	(5,034	)	$	(153,917	)

The accompanying notes are an integral part of these financial statements

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD APRIL 9, 1999 TO JULY 31, 2011

												Deficit
												Accumulated			Accumulated
					Additional		Share		Deferred			During The			Other
	Common stock				Paid-In		Subscriptions		Stock			Exploration			Comprehensive
	Shares		Amount		Capital		Received		Compensation			Stage			Loss			Total

Balance July 31, 2007		28,640,196	$	28,640	$	914,166	$	-	$	(284,450	)	$	(807,239	)	$	(5,034	)	$	(153,917	)

Amortization of deferred compensation		-		-		-		-		244,750			-			-			244,750

Foreign currency translation adjustment		-		-		-		-		-			-			(1,161	)		(1,161	)

Net loss		-		-		-		-		-			(294,738	)		-			(294,738	)

Balance July 31, 2008		28,640,196		28,640		914,166		-		(39,700	)		(1,101,977	)		(6,195	)		(205,066	)

Issuance of common stock for cash at $0.01 per share – December 19, 2008		801,294		801		7,302		-		-			-			-			8,103

Issuance of common stock for cash at $0.02 per share – March 16, 2009		1,619,160		1,619		30,674		-		-			-			-			32,293

Amortization of deferred compensation		-		-		-		-		39,700			-			-			39,700

Foreign currency translation adjustment		-		-		-		-		-			-			938			938

Net loss		-		-		-		-		-			(88,856	)		-			(88,856	)

Balance July 31, 2009		31,060,650	$	31,060	$	952,142	$	-	$	-		$	(1,190,833	)	$	(5,257	)	$	(212,888	)

The accompanying notes are an integral part of these financial statements

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD APRIL 9, 1999 TO JULY 31, 2011

											Deficit
											Accumulated			Accumulated
					Additional		Share		Deferred		During The			Other
	Common stock				Paid-In		Subscriptions		Stock		Exploration			Comprehensive
	Shares		Amount		Capital		Received		Compensation		Stage			Loss			Total

Balance July 31, 2009		31,060,650	$	31,060	$	952,142	$	-	$	-	$	(1,190,833	)	$	(5,257	)	$	(212,888	)

Issuance of common stock on acquisition of EHHO and FBHO at $0.08 per share – May 20, 2010		3,000,000		3,000		237,000		-		-		-			-			240,000

Issuance of common stock for cash at $0.175 per share – July 2, 2010		5,000,000		5,000		870,000		-		-		-			-			875,000

Foreign currency translation adjustment		-		-		-		-		-		-			(1,029	)		(1,029	)

Net loss		-		-		-		-		-		(364,841	)		-			(364,841	)

Balance July 31, 2010		39,060,650	$	39,060	$	2,059,142	$	-	$	-	$	(1,555,674	)	$	(6,286	)	$	536,242

The accompanying notes are an integral part of these financial statements

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD APRIL 9, 1999 TO JULY 31, 2011

												Deficit
												Accumulated			Accumulated
					Additional			Share		Deferred		During The			Other
	Common stock				Paid-In			Subscriptions		Stock		Exploration			Comprehensive
	Shares		Amount		Capital			Received		Compensation		Stage			Loss			Total

Balance July 31, 2010		39,060,650	$	39,060	$	2,059,142		$	-	$	-	$	(1,555,674	)	$	(6,286	)	$	536,242

Issuance of common stock for cash at $0.30 per share – November 19,2010		45,833		46		13,704			-		-		-			-			13,750

Issuance of common stock for cash at $0.20 per share – February 25, 2011		101,215		101		20,142			-		-		-			-			20,243

Finders fees paid		-		-		(1,026	)		-		-		-			-			(1,026	)

Issuance of common stock for cash at $0.15 per share – February 25, 2011		136,353		136		20,290			-		-		-			-			20,426

Issuance of common stock for intellectual property – July 14, 2011		30,000,000		30,000		2,970,000			-		-		-			-			3,000,000

Reversal of additional paid-in capital upon related party transaction (Note 9)						(2,962,709	)												(2,962,709	)

Foreign currency translation adjustment		-		-		-			-		-		-			(2,081	)		(2,081	)

Net loss		-		-		-			-		-		(222,348	)		-			(222,348	)

Balance July 31, 2011		69,344,051	$	69,343	$	2,119,543		$	-	$	-	$	(1,778,022	)	$	(8,367	)	$	402,497

The accompanying notes are an integral part of these financial statements

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

							CUMULATIVE RESULTS OF OPERATIONS FROM APRIL 9, 1999 (INCEPTION)
							TO
	YEARS ENDED JULY 31,						JULY 31,
	2011			2010			2011

Cash Flows from Operating Activities
Net loss	$	(222,348	)	$	(364,841	)	$	(1,778,022	)

Adjustments to reconcile net loss to net cash used in operating activities:
Realized foreign exchange losses on settlement of notes payable		-			(5	)		12,518
Unrealized foreign exchange		3,945			-			3,975
Stock-based compensation		-			-			750,000
Accrued interest		4,515			321			22,686
Share of loss of equity investment		1,639			29,142			30,781
Gain on partial disposal of EHHO		(304,689	)		-			(304,689	)
Impairment loss on EHHO		314,908			-			314,908
Dilution loss		-			196,000			196,000
Changes in operating assets and liabilities:
Prepaid expenses		8,845			(8,845	)		-
Accounts payable and accrued liabilities		60,700			(722	)		64,292
Net cash used in operating activities		(132,485	)		(148,950	)		(687,581	)

Cash Flows from Financing Activities
Proceeds from issuance of common stock, net		53,393			875,000			1,059,022
Proceeds from (repayment of) notes payable		25,000			(4,365	)		114,300
Advances payable		-			(74,010	)		108,346
Advances from related parties		6,533			34,432			41,654
Net cash provided by financing activities		84,926			831,057			1,323,322

Cash Flows from Investing Activities
Acquisition of oil and gas properties		(6,720	)		(250,000	)		(256,720	)
Acquisition of Intellectual property		(2,800	)		-			(2,800	)
Investment in EHHO		-			(375,000	)		(375,000	)
		(9,520	)		(625,000	)		(634,520	)

Net Increase (Decrease) in Cash		(57,079	)		57,107			1,221

Cash, Beginning		58,300			1,193			-

Cash, Ending	$	1,221		$	58,300		$	1,221

Continued…

The accompanying notes are an integral part of these financial statements

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

					CUMULATIVE RESULTS OF OPERATIONS FROM APRIL 9, 1999 (INCEPTION)
					TO
	YEARS ENDED JULY 31,				JULY 31,
	2011		2010		2011

Supplemental Disclosures of Cash Flow Information and Non-Cash Investing and Financing Activities

Cash paid for:
Interest	$	-	$	110	$	110
Income taxes	$	-	$	-	$	-

Common shares issued on settlement of notes payable and accrued interest	$	-	$	-	$	102,573

Common shares issued on acquisition of intellectual property	$	37,291	$	-	$	37,291

Common stock of Deloro received as part proceeds on partial disposal of EHHO (Note 6)	$	330,000	$	-	$	330,000

Common shares issued on acquisition of EHHO and FBHO	$	-	$	240,000	$	240,000

Future income tax liability on property acquisition	$	-	$	30,000	$	30,000

The accompanying notes are an integral part of these financial statements

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

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 asset consists of oil and 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 changed from the exploration of mineral properties to oil and gas exploration. 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 at July 31 Deloro has acquired a 1/6 interest in EHHO pursuant to this agreement, and the Company now holds a 41.67% interest in EHHO. (Note 6)

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 working capital of $57,587 and an accumulated deficit of $1,778,022 at July 31, 2011. The Company’s 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 the Company’s ability to continue as a going concern. The Company is currently negotiating with several 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.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States and are presented in United States dollars.

Exploration Stage Company

The Company is an exploration stage company. The Company is devoting substantially all of its present efforts to establish a new business. All losses accumulated since inception have been considered as part of the Company’s exploration stage activities.

Basis of Consolidation

The consolidated financial statements include the results of the Company and the results of its wholly-owned subsidiary, FBHO, a company incorporated in Washington State on February 28, 2010.

The Company previously consolidated its interest in EHHO; however, during the year ended July 31, 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 (Notes 5 and 6).

All intercompany balances and transactions have been eliminated in the consolidation.

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investments

Long term investments in which the Company has voting interests of 20% to 50%, or where the Company has the ability to exercise significant influence, are accounted for using the equity method. Under this method, the Company’s share of the investees’ earnings and losses are included in operations and its investments therein are adjusted by a like amount. Dividends are credited to the investment accounts.

Investments over which the Company does not exercise significant influence have been designated as available for sale investments and are measured at fair value, with unrealized gains and losses recorded in other comprehensive income until the asset is realized, at which time they will be recorded in net earnings (losses). The market value of publicly traded investments is based on quoted market prices.

Cash and Cash Equivalents

For purposes of the balance sheet and statement of cash flows, the Company considers all highly liquid instruments purchased with maturity of three months or less to be cash and equivalents. At July 31, 2011 and 2010, the Company had no cash equivalents.

Oil and Gas Properties

The Company follows 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.

Proceeds from a sale of petroleum and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost centre.

Asset Retirement Obligations

The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs an obligation associated with the retirement of long lived tangible assets as a result of the acquisition, construction, development and/or normal use of an asset. The estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk free rate. The liability is capitalized as part of the cost of the related asset and amortized over its useful life. The liability accretes until the Company settles the obligation.

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of Long-lived Assets

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. The Company recognizes 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.

Intangible Asset

Intangible assets consist of a patent pending are stated at cost and amortized over 10 year straight– line.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of outstanding common shares. Diluted earnings (loss) per share gives effect to all potential dilutive common shares outstanding. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. Because the Company does not have any potentially dilutive securities, diluted earnings (loss) per share is equal to basic earnings (loss) per share.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Accordingly, actual results could differ from those estimates. Significant areas requiring management’s estimates and assumptions are determining the fair value of transactions involving common stock, valuation of deferred tax balances, carrying value of unproven oil and gas interests and equity accounted investments.

Foreign Currency Translation

Foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the period. Related translation adjustments are reported as a separate component of stockholders' deficit, whereas gains or losses resulting from foreign currency transactions are included in results of operations.

Stock Based Compensation

The Company accounts for stock based compensation arrangements using a fair value method and records such expense on a straight-line basis over the vesting period. The Company has not granted any stock options since inception.

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Long-lived Assets

Acquired intangible assets are initially recorded at cost, and provision for impairment is made whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. We measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value.

Income Taxes

Deferred income taxes are provided for tax effects of temporary differences between the tax basis of asset and liabilities and their reported amounts in the financial statements. The Company uses the liability method to account for income taxes, which requires deferred taxes to be recorded at the statutory rate expected to being in effect when the taxes are paid. Valuation allowances are provided for a deferred tax asset when it is more likely than not that such asset will not be realized.

Management evaluates tax positions taken or expected to be taken in a tax return. The evaluation of a tax position includes a determination of whether a tax position should be recognized in the financial statements, and such a position should only be recognized if the Company determines that it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based upon the technical merits of the position. For those tax positions that should be recognized, the measurement of a tax position is determined as being the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

New Accounting Standards

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.

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

3.	FINANCIAL INSTRUMENTS

Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including the entity’s own credit risk.

A fair value hierarchy for valuation inputs is established. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels and which is determined by the lowest level input that is significant to the fair value measurement in its entirety.

These levels are:

Level 1 –

inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2 –

inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 –

inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

In management’s opinion, the carrying value of the Company’s financial assets and liabilities consisting of cash, investments, accounts payable, advances payable, notes payable and amounts due to related parties, approximate their fair value due to the short maturity of such instruments. These financial assets and liabilities are valued using level 3 inputs, except for cash and investment which are at level 1. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, exchange or credit risks arising from these financial instruments.

4.	INVESTMENT

	2011		2010

Deloro – 3,000,000 common shares at market value (2010 – Nil common shares)	$	330,000	$	-

Pursuant to a letter agreement dated May 4, 2011 between the Company, Deloro, EHPC and EHHO whereby Deloro can acquire up to a 1/3 ownership of EHHO (Note 6), the Company received 3,000,000 common shares of Deloro with a fair value of $330,000. At July 31, 2011 the fair value of the shares remained at $330,000.

As at July 31, 2011 the Company has pledged 1,000,000 common shares of Deloro as security against a note payable which falls due on September 1, 2011 in the amount of $28,148 (Note 12).

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

5.	AQUISITIONS

The issuance of 3,000,000 common shares with a fair value of $240,000; and

Cash in the amount of $250,000.

This transaction has been recorded as an asset acquisition. The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of acquisition:

	EHHO		FBHO		Total
Assets
Loan receivable	$	100,000	$	-	$	100,000
Unproved oil and gas properties		139,857		41,716		181,573
		239,857		41,716		281,573
Liabilities
Accounts payable		67,913		-		67,913
Loan payable		100,000		-		100,000
		167,913		-		167,913

Net assets acquired		71,944		41,716		113,660

Consideration paid		392,000		98,000		490,000
Excess of consideration paid over fair value of assets acquired	$	320,056	$	56,284	$	376,340

The excess of the purchase consideration over the value of net assets acquired was allocated to the cost of unproven oil and gas properties upon acquisition.

On July 7, 2010, the Company’s interest in EHHO was diluted to 50% as a result of EHHO issuing 90,000 units of ownership capital to EHPC, and on May 4, 2011 the Company’s interest was further reduced to 41.67% as a result of the Company selling 15,000 capital units of its interest in EHHO to Deloro for proceeds of $330,000 (Notes 4 and 6).

6.	INVESTMENT IN EHHO

Upon issuance of the 90,000 units of capital by 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. 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 interest in EHHO as an equity investment.

On July 7, 2010, the Company entered into an agreement with EHPC, which resulted in the dilution of the Company’s interest in EHHO to a 50% equity holding. The agreement called for EHHO to issue 90,000 ownership capital units from treasury to EHPC of which 80,000 would be held initially in escrow; both the Company and EHPC to make capital contributions of $375,000 each to EHHO. Additionally, EHPC agreed to participate in a private placement of the Company’s stock for 5,000,000 shares at $0.175 per share for proceeds of $875,000.

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

6.	INVESTMENT IN EHHO (Continued)

The agreement also required the completion of a reserve report. Upon completion of the reserve report which concludes the lands do not indicate a reservoir with commercial potential then the 80,000 capital units 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 the hydrocarbons from the lands, 20% of the net revenue from such production shall be applied to repayment of the Loan and 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.

The reserve report was completed and a reservoir with commercial potential was not indicated. On May 4, 2011, the agreement was terminated to allow Deloro to acquire up to a 1/3rd interest in EHHO.

On May 4, 2011, the Company entered into a letter agreement with Deloro, EHPC and EHHO, allowing Deloro to acquire up to a 1/3rd interest (being 60,000 ownership units) in EHHO in stages as follows::

On or before May 11, 2011, Deloro will issue 3,000,000 common shares each to the Company (received) and to EHPC. As consideration both the Company and EHPC will transfer 15,000 units of capital 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.

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.

Deloro completed conditions (i) and (ii) above, accordingly Deloro 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%.

As at July 31, 2011, the Company recorded a gain on the disposal of 15,000 units of capital of EHHO amounting to $304,689, as follows:

Sale proceeds received
3,000,000 Common shares of Deloro	$	330,000
Cost of 15,000 equity units sold to Deloro		(89,924	)
Gain on disposal of 15,000 capital units of EHHO		240,076

Share of capital contribution to EHHO by Deloro		64,613

Total gain on disposal of 15,000 capital units of EHHO	$	304,689

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

6.	INVESTMENT IN EHHO (Continued)

At July 31, 2011 the Company recorded an impairment of $314,908 on its investment in EHHO to bring the balance down to its estimated recoverable value.

EQUITY INVESTMENT IN EHHO:

90,000 units of capital	$	392,000
Capital contribution		375,000

Non-cash loss on dilution of Company’s interest		(196,000	)
		571,000
Share of loss of EHHO		(29,142	)

Balance at July 31, 2010		541,858

Cost of 15,000 equity units sold to Deloro		(89,924	)
Share of capital contributed to EHHO by Deloro		64,613
Share of loss of EHHO to July 31, 2011		(1,639	)
Impairment of EHHO		(314,908	)

Balance at July 31, 2011	$	200,000

Summarized information of assets, liabilities, and results of operations of EHHO as at July 31, 2011 is presented below:

Cash	$	56,450
Oil and gas property, unproven		860,065
Total assets	$	916,515

Accounts payable	$	783

Operating expenses and net loss	$	3,007

7.	OIL AND GAS PROPERTIES

	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 gas 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. During the year ended July 31, 2011, the Company incurred a further $6,720 in annual oil and gas annual lease payments.

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

9.	INTANGIBLE ASSET

On July 14, 2011, the Company purchased from the President of the Company ZeroGap Intellectual Property, which is a patent pending with the US Patent office. The Company has acquired all right, title and interest in the ZeroGap Intellectual Property, free of any encumbrances or royalties.

ZeroGap stands for “Zero Emission Refine Onsite with Gas Assisted Production”. The technology is still in the research and development stage, and has the potential to upgrade oil reserves in situ thereby increasing the recovery and extraction of oil reserves.

The Company issued 30,000,000 common shares with a fair value of $3,000,000 to the President as consideration for the Intellectual Property. As this is a related party transaction, the Intellectual Property was recorded at the related party cost of $37,291. The difference between the fair value of the shares issued and the related party cost, being $2,962,709, was recorded as a reduction of additional paid-in capital.

Shares issued to President (30,000,000 common shares)	$	37,291
Valuation opinion		2,800

Balance July 31, 2011	$	40,091

10.	ADVANCES PAYABLE

At July 31, 2011, an amount of $108,346 (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.

11.	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:

	2011		2010
i) Prepaid expenses
Amount advanced to a director for travel expenses	$	-	$	4,000

ii) Due to Directors
Amounts payable for reimbursement of corporate expenses	$	1,462	$	1,206
Amounts payable for management fees		6,277		-

iii) Note Payable
Note payable (Cdn$35,000) including accrued interest to Director, unsecured bearing interest at 6% per annum. The loan was due on July 25, 2011. There are no default charges and interest continues to accrue.		38,819		33,915
	$	46,558	$	35,121
iv) Interest paid or accrued
Interest paid to Director on settlement of promissory note	$	-	$	110
Interest accrued on promissory note owing to Director		2,106		-
	$	2,106	$	110
v) Finance fee paid
Finance fee paid to a Director in consideration for arranging a $33,915 (Cdn$35,000) promissory note.	$	-	$	1,350

iv) Management Fees
Fees paid to three Directors for services rendered	$	51,140	$	21,270

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

12.	NOTES PAYABLE

On July 23, 2010, the Company settled a note payable with a director of $4,365 (Cdn$5,000) and accrued interest of $110 (Cdn$127).

During the year ended July 31, 2011, the Company recorded a foreign exchange transaction loss of $2,081 (2010 - loss of $1,029) in connection with these notes payable and accrued interest payable as a result of fluctuations in the foreign exchange rate.

At July 31, 2011, $28,148 (Cdn$26,905) (2010 - $nil) was due on a secured third party promissory note. The Company received a loan for Cdn$25,000 and provided the lender a Promissory Note redeemable on or before September 1, 2011 for Cdn$28,000 including loan fees and interest. The loan is secured by 1,000,000 common shares of Deloro (Note 4). As at July 31, 2011, the Company has recorded $1,905 (2010 - $nil) of interest and loan fees and a foreign exchange loss of $1,243 in relation to this note.

Subsequent to the year end the Company defaulted on repayment of the loan and the security of 1,000,000 common shares of Deloro was issued to the noteholder in full and final settlement of the note.

13.	CAPITAL STOCK

The Company’s capitalization is 200,000,000 authorized common shares with a par value of $0.001 per share.

On May 20, 2010, the Company issued 3,000,000 common shares with a fair value of $0.08 per share on the acquisition of EHHO and FBHO (Note 5).

On July 7, 2010, the Company issued 5,000,000 common shares at $0.175 per share for aggregate proceeds of $875,000.

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.

On July 14, 2011, the Company issued 30,000,000 common shares to the President in consideration for the acquisition of the Zerogap Intellectual Property (Note 9).

As of July 31, 2011 and 2010 the Company has no outstanding stock options or warrants.

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

14.	INCOME TAXES

The provision for income taxes differs from the result which would be obtained by applying the statutory income tax rate of 34% to income before income taxes. The difference results from the following items:

	2011			2010

Net income (loss) before income taxes	$	(222,348	)	$	(364,841	)
Statutory tax rate		34	%		34	%

Expected tax expense		(75,598	)		(124,000	)
Unrecognized items for tax purposes		55			76,600
Other		(9,908	)		-
Increase in valuation allowance		85,451			47,400

Income tax provision	$	-		$	-

Significant components of the Company’s deferred income tax assets are as follows:

	2011			2010

Net operating losses	$	206,042		$	197,710
Equity investment		93,783			-
Valuation allowance		(299,825	)		(197,710	)
		-			-

Future income tax liabilities		(30,000	)		(30,000	)

Net deferred tax liabilities	$	(30,000	)	$	(30,000	)

The Company has approximately $606,000 of net operating loss carry forwards which may be used to offset future taxable income. The losses expire between 2026 and 2031.

The Company has provided a valuation allowance against its deferred tax assets given that it is in the exploration stage and there is substantial uncertainty as to the Company’s ability to realize future tax benefits through utilization of operating loss carry forwards.

The Company has not filed income tax returns since inception in the United States. Inherent uncertainties arise over tax positions taken with respect to transfer pricing, related party transactions, tax credits, tax based incentives and stock based transactions. Management has considered the likelihood and significance of possible penalties associated with its intended filing positions and has determined, based on their assessment, that such penalties, if any, would not be expected to be material.

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STELLAR RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2011 AND 2010

15.	SUBSEQUENT EVENTS

Subsequent to the year end the Company:

Issued 187,300 common shares at $0.10 per share for aggregate proceeds of $18,730 (Cdn$18,000).

ii)

Issued 1,181,100 common shares at $.02 per share for aggregate proceeds of $23,622 (Cdn$24,000).

iii)

On September 2, 2011 the Company transferred 1,000,000 shares of its investment in Deloro in full settlement of the Cdn$28,000 note payable (Note 12).

iv)

On September 23, 2011 entered into a binding agreement, subject to due diligence, to acquire 100% of American Microbial Labs LLC which holds technology designed for cleaning produced water generated from the recovery of oil and gas wells as well as oil spills located both on land and in water.

On October 25, 2011 the Company sold its remaining 75,000 units of capital in EHHO for $1,000,000. Payment of the purchase price is by a non-interest bearing promissory note due on or before April 30, 2012. The purchaser holds 4,000,000 common shares of the Company which are to be used as collateral for the payment.

16.	COMPARATIVE FIGURES

Certain of the comparative figures have been reclassified to conform to the presentation adopted for the current year.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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 July 31, 2011 Stellar has expended $238,933 on general and administrative costs comprising consulting fees, filing fees, office expenses and travel costs. The Company has also expended $23,004 on interest and finance fees; $17,989 on investor relations; $822,410 on management fees of which $750,000 relate to stock-based compensation; $289,198 on legal, audit and accounting fees; and $165,489 on resource property examination and exploration. The Company has also 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, realized a gain on partial disposal of EHHO of $304,689 as a result of the sale of 1/6th of its holding in EHHO, realized an impairment loss of $314,908 on the investment in EHHO and finally recorded 50% of the losses of EHHO which amount to $30,781.

To date, the Company has not generated any revenues from operations and has working capital of $57,687 and an accumulated deficit of $1,778,022 at July 31, 2011. The Company’s 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 the Company’s ability to continue as a going concern. The Company is 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 the Company 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.

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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 the Company’s credit-adjusted risk-free interest rate. As of July 31 2011, the Company has 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.

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Concurrent to the above changes of our officers and directors, Stellar announced on March 3, 2010 that the Company was entering into an agreement to acquire 100% of Elk Hills Heavy Oil, LLC and Four Bear Heavy Oil, LLC 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. Stellar will 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, Stellar acquired 100% of EHHO and 100% of FBHO from Mr. Ray Jefferd and Mr. Glen Landry. The Company 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, 2010 the Company announced the completion of a non-brokered private placement with 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, Stellar 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.

On May 10, 2011, the Company announced it has 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 up to 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 future 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. As Deloro failed to complete its full capital contribution of Cdn$600,000 by September 11, 2011, Deloro can no longer earn any further interest in EHHO.

On July 14 2011 the Company acquired from its President, Mr. Ray Jefferd, all right, title and interest to the ZeroGap intellectual property, free of any encumbrances or royalties. The purchase price for the acquisition is $3,000,000 which the company has satisfied by the issuance of 30,000,000 of its restricted common shares to Mr. Jefferd.

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Comparison of Twelve Months Ended July 31, 2011 and 2010

We have not generated any revenues from operations since our incorporation on April 9, 1999 through July 31, 2011. During the year ended July 31, 2011 we incurred management fees of $51,140 (2010 - $21,270. Professional fees, comprising legal, accounting and audit costs increased to $91,706 (2010 - $56,606) as a result of increased accounting activity and fees. Interest and finance fees increased to $5,366 (2010 - $1,776) due to a one off financing fee being paid to secure working capital financing from a director of Cdn$35,000 in July 2010. Interest incurred on the notes payable was consistent with the prior year. General and administrative expenses amounted to $77,278 (2010 - $58,942) predominantly as a result of moving the corporate offices to downtown Vancouver and incurring office rental, consulting, travel and other general office expenses. We incurred $nil (2010 - $1,105) in resource property examination and exploration. The charge in the prior year was a result of abandoning the Texada Property. Loss on dilution of equity interest in EHHO decreased to $nil (2010 - $196,000) as in 2010 EHHO issued equity to EHPC resulting in the Company’s investment being diluted to a 50% interest. The Company recorded a gain on partial disposal of EHHO of $304,689 (2010 - $nil) as a result of the Company selling 1/6 of its interest to Deloro, offset by an impairment loss of $314,908 on the investment in EHHO. The impairment was a result of management assessment of the investment’s estimated fair value Management fee income of $15,000 (2010 - nil) was recorded as a result of overseeing the operations of EHHO and the share of loss of equity investment (EHHO) decreased to $1,639 (2010 - $29,142) as EHHO experienced lower administrative costs during 2011.

Sales and Marketing Expenses: We have incurred no sales and marketing expense 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 on any of our oil and gas properties. We are presently in the exploration stage of our business and we can provide no assurance that we will discover commercially exploitable levels of oil and gas resources on any of our properties, or if such resources are discovered, that we will enter into commercial production on any of the properties.

Net Loss

For the year ended July 31, 2011, we recorded an operating loss of $225,490, consisting of general and administrate fees (comprising office expenses filing fees consulting fees and office expenses) of $77,278; interest and financing costs of $5,366; cash management fees of $51,140; legal, accounting and audit fees of $91,706. The Company has also incurred a gain on partial disposal of EHHO of $304,689, , offset by an impairment loss of $314,908 on the investment in EHHO, management fee income of $15,000, and finally recorded its proportionate share of losses of EHHO amounting to $1,639, for a total net income of $92,560.

There can be no assurance that we will ever achieve profitability or that revenues will be generated and sustained in the future. We are dependent upon obtaining additional and future financing to pursue our activities.

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Comparison for Fourth quarter Ended July 31, 2011 and 2010

During the three month period ended July 31, 2011 we incurred cash management fees of $10,339 (2010 - $21,270); professional fees comprising legal, accounting and audit costs increased to $11,891 (2010 - $7,866) as a result of an increase in legal fees. General and administrative expenses comprising consulting, travel, filing fees and office expenses decreased to $6,892 (2010 - $43,360) as a result of the Company paying less rent at offices in Vancouver, and lower office and travel related costs. Interest and financing costs increased to $2,803 (2010 - $1,458). The Company experienced a non-cash loss on dilution of its equity interest in EHHO of $nil (2010 - $196,000) as a result of EHHO issuing stock from treasury to a third party in the prior year; a gain on partial disposal of EHHO of $304,689 (2010 - $nil) was recorded as the Company sold a 1/6 share of its holding, offset by an impairment loss of $314,908 on the investment in EHHO (2010 – nil); and finally losses of its equity investment in EHHO were recorded amounting to $1,639 (2010 - $29,142) representing the Company’s proportionate share of losses of EHHO.

Liquidity and Further Capital Resources

At July 31, 2011, we had assets of $1,020,940 comprising cash of $1,221, an investment valued at $330,000, an equity investment in EHHO of $200,000, oil and gas properties in Wyoming of valued at $134,720.and an intangible asset valued at $40,091 for financial statement purposes. Total stockholders’ equity was $717,405 at July 31, 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 the Company’s operations the Company has relied upon cash on hand, sources internally generated from management, advances from shareholders and financing via loans, debt and equity financing.

As of July 31, 2011, we have advances payable of $108,346 (July 31, 2010 - $108,346) relating to advances received from the former President.

At July 31, 2011 amounts owed to related parties totaled $46,559 (July 31, 2010 – $35,121) comprising the following:

	2011		2010
Due to Directors
Amounts payable for reimbursement of corporate expenses	$	1,462	$	1,206
Amounts payable for management fees		6,277		-

Note Payable
Note payable (Cdn$35,000) including accrued interest to Director, unsecured bearing interest at 6% per annum. The loan was due on July 25, 2011. There are no default charges and interest continues to accrue.		38,819		33,915
	$	46,558	$	35,121

As at July 31, 2011 $18,832 (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 July 31, 2011), and $7,358 (2010 - $6,260) of accrued interest is payable. 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.

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At July 31, 2011, $28,148 (Cdn$26,905) (2010 - $nil) was due on a secured third party promissory note. The Company received a loan for Cdn$25,000 and provided the lender a Promissory Note redeemable on or before September 1, 2011 for Cdn$28,000 including loan fees and interest. The loan was secured by 1,000,000 common shares of Deloro. The Company defaulted on repayment of the promissory note and the security was released to the lender during October 2011.

On July 8, 2010 the Company announced that it raised $875,000 via Private Placement at $0.175 upon the issuance of 5,000,000 shares of common stock. The majority of the funds raised have been allocated for the exploration program to be carried out on the oil and gas properties held in EHHO.

During the period from August 1, 2010 to date the Company has raised the following amounts by way of equity issuances:

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 25, 2011 the Company accepted a share subscription for 136,353 common shares at $0.15 for aggregate proceeds of $20,426.

On August 15, 2011 the Company accepted a share subscription for 187,300 common shares at $0.10 per share for aggregate proceeds of $18,730.

On October 25, 2011 the Company accepted a share subscription for 1,181,100 common shares at $.02 per share for aggregate proceeds of $23,622.

Investor Relations Contract

At July 31, 2011 no investor relations contracts are in force.

Item 7A. Quantative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

As of July 31, 2011, the end of our fourth 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 July 31, 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 July 31, 2011, our disclosure controls and procedures are satisfactory. There have been no changes in our internal controls over financial reporting during the quarter ended July 31, 2011. Effective June 1, 2010, the Company adopted an Audit Committee Charter and formed an audit Committee comprised of Ray Jefferd, Luigi Rispoli and Panfilo Rosatone. The Audit Committee Charter as adopted follows below.

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STELLAR RESOURCES LTD.

AUDIT COMMITTEE CHARTER

Purpose

To assist the board of directors in fulfilling its oversight responsibilities for the financial reporting process, the system of internal control over financial reporting, the audit process, and the company’s process for monitoring compliance with laws and regulations and the code of conduct.

Authority

The audit committee has authority to conduct or authorize investigations into any matters within its scope of responsibility. It is empowered to:

●

Retain outside counsel, accountants or others to advise the committee or assist in the conduct of an investigation

●

Seek any information it requires from employees –all of whom are directed to cooperate with the committee’s requests –or external parties

●

Meet with company officers, external auditors or outside counsel, as necessary

Composition

The audit committee will consist of at least three and no more than six members the majority of which shall also be members of the board of directors. The board or its nominating committee will appoint committee members and the committee chair. Each committee member will be financially literate, as defined by applicable regulation and the board of directors. At least one member shall have expertise in financial reporting.

Meetings

The committee will meet at least four times a year, with authority to convene additional meetings, as circumstances require. All committee members are expected to attend each meeting, in person or via tele –or video-conference. The committee will invite members of management, auditors or others to attend meetings and provide pertinent information, as necessary. It will hold private meetings with auditors (see below) and executive sessions. Meeting agendas will be prepared and provided in advance to members, along with appropriate briefing materials. Minutes will be prepared.

Responsibilities

The committee will carry out the following responsibilities:

Financial Statements

●

Review significant accounting and reporting issues, including complex or unusual transactions and highly judgmental areas, and recent professional and regulatory pronouncements, and understand their impact on the financial statements

●

Review with management and the external auditors the results of the audit, including any difficulties encountered

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●

Review the annual financial statements, and consider whether they are complete, consistent with information known to committee members, and reflect appropriate accounting principles

●

Review other sections of the annual report and related regulatory filings before release and consider the accuracy and completeness of the information

●

Review with management and the external auditors all matters required to be communicated to the committee under generally accepted auditing standards

●

Understand how management develops interim financial information, and the nature and extent of internal and external auditor involvement

●

Review interim financial reports with management and the external auditors, before filing with regulators, and consider whether they are complete and consistent with the information known to committee members

Internal Controls

●

Consider the effectiveness of the company’s internal control over annual and interim financial reporting, including information technology security and control

●

Understand the scope of internal and external auditors’ review of internal control over financial reporting, and obtain reports on significant findings and recommendations, together with management’s responses

Internal Audit

●

Determine annually whether the company should establish an internal audit function.

●

Currently the company does not have an internal audit function.

External Audit

●

Review the external auditors’ proposed audit scope and approach, including coordination of audit effort with internal audit

●

Review the performance of the external auditors, and exercise final approval on the appointment or discharge of the auditors

●

Review and confirm the independence of the external auditors by obtaining statements from the auditors on relationships between the auditors and the company, including non-audit services, and discussing the relationship with the auditors

●

On a regular basis, meet separately with the external auditors to discuss any matters that the committee or auditors believe should be discussed privately

Compliance

●

Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management’s investigation and follow-up (including disciplinary action) of any instances of noncompliance

●

Review the findings of any examinations by regulatory agencies, and any auditor observations

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●

Review the process for communicating the code of conduct to company personnel, and for monitoring compliance therewith

●

Obtain regular updates from management and company legal counsel regarding compliance matters

Reporting Responsibilities

●

Regularly report to the board of directors about committee activities, issues and related recommendations

●

Provide an open avenue of communication between internal audit, if any, the external auditors and the board of directors

●

Review any other reports the company issues that relate to committee responsibilities

Other Responsibilities

●

Perform other activities related to this charge as requested by the board of directors

●

Institute and oversee special investigations as needed

●

Confirm annually that all responsibilities outlined in this charter have been carried out

●

Evaluate the committee’s and individual members’ performance on a regular basis

Effective

●

This Audit Committee Charter is effective as of June 1, 2010.

●

Review and assess the adequacy of the committee charter annually, requesting board approval for proposed changes

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.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended July 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This annual report on 10K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial report. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report. Changes in Internal Control over Financial Reporting in preparation for management's report on internal control over financial reporting, we documented and tested the design and operating effectiveness of our internal control over financial reporting.

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Material weaknesses identified are as follows:

We lack segregation of duties in the period-end financial reporting process. The Company has historically had limited accounting and minimal operating revenue and, as such all accounting and financial reporting operations have been and are currently performed by one individual on an as needed consulting basis. The consultant is the only individual with any significant knowledge of generally accepted accounting principles. The consultant is also in charge of the general ledger (including the preparation of routine and non-routine journal entries and journal entries involving accounting estimates), the preparation of accounting reconciliations, the selection of accounting principles, and the preparation of interim and annual financial statements (including report combinations, consolidation entries and footnote disclosures) in accordance with generally accepted accounting principles. In addition, the lack of additional staff with significant knowledge of generally accepted accounting principles could result in ineffective oversight and monitoring of the work performed by the Company's financial consultant.

We lack an effective period-end financial statement closing process. There is no formal guidance or checklist of procedures to facilitate the accounting period-end closing process. Also, general ledger accounting reconciliations, other than cash accounts, are not formally performed or documented, and, in some cases supporting general ledger balances are not effectively maintained. In addition, analytical reviews of financial and operational results are not consistently performed on a formal basis or documented. Finally, there is no procedure currently in place for the reconciliation of the opening accounting period balance of general ledger accounts to the previous period closing balance to mitigate exposure related to the inadequate segregation of systems administration capabilities as described above.

Item 9B. Other Information

Reports on Form 8-K, March 4, March 10, June 10, June 16, July 14 and July 30, 2010 respectfully.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Date	Name	Age	Position
Mar. 3, 10 to Present	*Raymond Jefferd	60	President and Chief Executive Officer

June, 02 to Present	Michael Rezac	36	Secretary and Director

Apr. 12, 09 to Present	*Luigi Rispoli	53	Chief Financial Officer and Director

Mar. 3, 10 to Present	*Panfilo Rosatone	71	Director

* Members of the Audit Committee

All directors hold offices until the next annual meeting of the shareholders or until their successors are duly elected and qualified. Officers of the Company serve at the discretion of the board of directors.

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Raymond Jefferd

Raymond Jefferd, our President and Chief Executive Officer and Director and has been active as an advisor to Asian investors wishing to make investments in the natural resource sector in North America. He has been an investor in the oil and gas sector and also an inventor of various US patent pending, for a method of enhanced recovery of heavy oil. In 2007 Mr. Jefferd arranged a $13 million in private placement financings for Poplar Point Energy, a Calgary based junior oil and gas company.

Michael Rezac

Michael Rezac, our Secretary and Director, helped to provide support since our formation in April 1999, and took his position as a director in June 2002. In the early part of our formation, he was a "key" to most of our accomplishments for a number of years, due to his efforts and ability and raising working capital. Mr. Rezac will serve as a director until the next annual general meeting of our shareholders whether he can either sit for re-election or until his successors has been duly elected and qualified, or until his resignation or removal. We have no employment contract in place with Mr. Rezac.

Luigi Rispoli

Luigi Rispoli, our Chief Financial Officer and a Director, was our past President. Mr. Rispoli has been a loyal supporter of the Company. Mr. Rispoli has provided valuable services to the Company and shown great dedication. He has stepped up by making key decisions to improve the future of the Company.

Panfilo Rosatone

Panfilo Rosatone, a Director, a long term believer and investor of the Company, has a very strong and independent voice towards the day to day running of the Company.

Item 11. Executive Compensation

Summary Compensation Table

The table below summarizes all compensation awarded to, earned by, or paid to our executive officers by any person for all services rendered in all capacities to us for the last three fiscal years to July 31, 2011.

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ANNUAL COMPENSATION

Name

Title

Year

Salary

Bonus

Other Annual Comp.

Restricted Stock Award

# Shares

Options/LTIP

SAR Payouts

All Other Comp.

Raymond Jefferd

President/CEO

2011

2010

Nil

$22,351

$12,620

Nil

Panfilo Rosatone

Director

2011

2010

Nil

$3,500

Nil

Michael Rezac

Director/ Sec.

2011

2010

2009

2008

2007

2006

2005

Nil

Luigi Rispoli

Director/

CFO

2011

2010

2009

Nil

$25,416

$8,650

Nil

K. Whyte

Past Pres./CEO/CFO

2010

2009

2008

2007

Nil

6,000,000

Nil

A. Reid

Past Pres./CEO

2007

Nil

Long Term Incentive Awards

The Company presently has no long-term incentive award program. On October 3, 2007, under a restricted stock award agreement, the Company issued 6,000,000 post-split of restricted common stock with a fair value of $750,000 to the Company's then President. Stock-based compensation expenses recognized during the year ended July 31, 2011 totaled $nil (2010 - $nil)

Fringe Benefits and Pre-requisites

The Company presently provides no fringe benefits to any Director.

As at July 31, 2011, none of our officers or directors had received any additional form of compensation for services rendered on our behalf other than what has been reported above, nor has any form of compensation accrued to any officer or director for such services. Although there is no current plan in existence, it is possible that we will adopt a plan to pay or accrue compensation to our officers and directors for services rendered. The Board of Directors have recommended the adoption of a Restricted Option Award in an effort to attract, retain, and reward quality executives, employees, and other persons who provide services to the Company, which will enable such persons to acquire or increase interest in the Company in order to strengthen the mutuality of interests between such persons and the Company's shareowners, and providing such person with annual and long term performance incentive to expend their maximum efforts in the creation of share owner value.

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Employment Consulting Agreements

We have no employment/consulting contracts or compensatory plan or any arrangement with an executive officer or director other than has been reported above. Our directors currently do not receive any cash compensation for their services as members of the board of directors, save and except as mentioned in the "Summary Compensation Table" above. There is no compensation committee, and no compensation policies have been adopted.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stock holder Matters.

The following table sets forth, as of July 31, 2011, our outstanding common stock owned of record or beneficially by each executive officer and director and by each person who owned of record, or was known by us to own beneficially, more than 5% of our common stock, and the shareholdings of all executive officers and directors as a group. Each person has sole voting and investment power with respect to the shares shown.

Title of Class	Name and Address of Beneficial Owner	Amount of Beneficial Ownership	Percentage of Class
Common Stock	Ray Jefferd, President & CEO 375 N. Stephanie Street, Suite 1411, Las Vegas, Nevada, 89014	31,500,000	45.43%

Common Stock	Michael Rezac Secretary/Treasurer and Director 201-454 West 12th Street, Vancouver, B.C. V6R 2T3	724,830	1.86%

Common Stock	Luigi Rispoli Director and Chief Financial Officer 367 Johnston Street, New Westminster, B.C. V3M 5M4	1,481,624	3.79%

Common Stock	Panfilo Rosatone Director 12552 – 190A Street, Maple Ridge, B.C. V3Y 2J2	*3,058,074	7.83%

Common Stock	Kathy Whyte, Former Chief Executive Officer 151 – 10090 – 152nd Street, Suite 401, Surrey B.C. V3R 8X8	6,000,000	15.36%

Common Stock	All Officers and Directors as a Group consist of 4 people.	36,764,528	53.02%

*Panfilo Rosatone directly owns 2,755,854 common shares (7.05%). Related party owns 302,220 of the common stock of the Company.

The percentage of class is based on 69,344,051 shares of common stock issued and outstanding as of July 31, 2011.

Description of Securities

General

Our authorized capital stock consists of 200,000,000 shares of common stock at a par value of $0.001 per share.

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Common Stock

As of July 31, 2011, there were 69,344,051 shares of our common stock issued and outstanding held by 34 stockholders of record.

Holders of our common stock are entitled to one vote for each share on all matters submitted to a stockholder's vote. Holders of common stock do not have cumulative voting rights. Therefore, holders of a majority of shares of common stock voting for the election of directors can elect all of the directors. Holders of our common stock representing a majority of the voting power of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stock holders.

Holders of our common stock are entitled to one vote for each share on all matters submitted to a stockholder’s vote. Holders of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of our common stock representing a majority of the voting power of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A Vote by the holders of a majority of our outstanding shares are required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our articles of incorporation.

Holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.

Dividend Policy

We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.

Share Purchase Warrants

We have not issued and do not have outstanding any warrants to purchase shares of our common stock.

Options

We have not issued and do not have outstanding any options to purchase shares of our common stock.

Convertible Securities

We have not issued and do not have outstanding any securities convertible into shares of our common stock or any rights convertible or exchangeable into shares of our common stock.

Item 13. Certain Relationships and Related Transactions, and Director Independence

As of July 31, 2011, we have advances payable of $108,346 (July 31, 2010 - $108,346) relating to advances received from a former President. These advances are unsecured, non-interest bearing and have no specific terms of repayment.

At July 31, 2011 and 2010 the following amounts were included in the financial statements of the Company which were owed to/from related parties:

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	2011		2010
i) Prepaid Expenses
Amount advanced to a director for travel expenses	$	-	$	4,000

ii) Due to Directors
Amounts payable for reimbursement of corporate expenses	$	1,462	$	1,206
Amounts payable for management fees		6,277		-

iii) Note Payable
Note payable (Cdn$35,000) including accrued interest to Director, unsecured bearing interest at 6% per annum. The loan was due on July 25, 2011. There are no default charges and interest continues to accrue.		38,819		33,915
	$	46,558	$	35,121

During the years ended July 31, 2011 and 2010 the following amounts were accrued or paid to related parties:

	2011		2010
iv) Interest paid or accrued
Interest paid to Director on settlement of promissory note	$	-	$	110
Interest accrued on promissory note owing to Director		2,106		-
	$	2,106	$	110
v) Finance fee paid
Finance fee paid to a Director in consideration for arranging a $33,915 (Cdn$35,000) promissory note.	$	-	$	1,350

iv) Management Fees
Fees paid to three Directors for services rendered	$	51,140	$	21,270

On October 4, 2006, under a restricted stock award agreement, the Company issued 6,000,000 post-split shares of restricted common stock with a fair value of $750,000 to the Company's then President. These shares have a vesting provision as follows: 2,100,000 shares vested immediately, 1,950,000 shares vested on October 3, 2007 and the final 1,950,000 shares vest on October 3, 2008. The fair value of the restricted stock award which amounted to $750,000 has been amortized on a straight line basis over the vesting period resulting in the entire balance having been expensed by July 31, 2009.

On March 3, 2010, as completed on June 10, 2010, the Company announced it was entering into an agreement to acquire 100% of EHHO and FBHO from Mr. Ray Jefferd and Mr. Glen Landry.

On June 10, 2010, the Company acquired 100% of the outstanding capital units of EHHO and FBHO. The aggregate fair value of the purchase price for EHHO and FBHO was $490,000 which comprised the issuance of 3,000,000 common shares with a fair value of $240,000; and cash payments in the amount of $250,000.

On July 14, 2011, the Company acquired from its’ President, Mr. Ray Jefferd, all right, title and interest to the ZeroGap intellectual property, free of any encumbrances or royalties. The purchase price for the acquisition is $3,000,000 which the company has satisfied by the issuance of 30,000,000 of its restricted common shares to Mr. Jefferd.

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Item 14. Principal Accounting Fees and Services

Dale Matheson Carr-Hilton LaBonte, LLP ("DMCHL") has billed us aggregate audit and audit related fees of approximately $40,400 during the year ended July 31, 2011.

We understand the need for DMCHL to maintain objectivity and independence in its audit of our financial statements. To minimize relationships that could appear to impair the objectivity of DMCHL, Management has restricted the non-audit services that DMCHL may provide to us and has determined that we would obtain these non-audited services from DMCHL only when the services offered by DMCHL are more effective or economical than services available from other service providers.

Management has pre-approved all non-audited work performed by DMCHL to undertake to provide assurances of accuracy on matters not required by laws or regulations.

The aggregate fees billed for professional services to DMCHL in 2011 and 2010 for services were:

Type of Fees	2011		2010

Audit fees	$	25,000	$	12,000
Audit related fees		15,400		8,600
Tax fees		-		-
All other fees		-		-

Total	$	40,400	$	20,600

In the above table, in accordance with the SEC's definitions and rules, "audited fees" are fees the company paid DMCHL for professional services for the financial statements included in the audit of our financial reporting and the review of our quarterly financial statements included in our Form 10-K's as well as for services that are normally provided by accounting firms in connection with statutory and regulatory filings or engagements.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) the following documents are filed as part of this report.

FINANCIAL STATEMENTS: The following financial statements of the Registrant and Report of Independent Registered Public Accounting firm therein are filed as part of this Report on Form 10-K..

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Report of Dale Matheson Carr-Hilton LaBonte, LLP	14
Consolidated Balance Sheet	15
Consolidated Statement of Income	16
Consolidated Statement of Change in Stock Holders Equity	17
Consolidated Statement of Cash Flow	23
Notes to Consolidated Financial Statements	25

FINANCIAL STATEMENTS SCHEDULES: Other financial statement schedules have been omitted because the information required to be set forth therein is not applicable, is immaterial or is shown in the consolidated financial statements or notes thereto.

EXHIBITS: The following documents are filed as exhibits (or are incorporated by reference as indicated) into this Report:

EXHIBIT NUMBER	DESCRIPTION
3.1	Articles of Incorporation (1)
3.2	By-Laws (1)
10.1	Option Agreement (1)
31.1	Rule 13a – 14(a) Certification of Chief Executive Officer
31.2	Rule 13a – 14(a) Certification of Chief Financial Officer
32	Officers Section

(1) Incorporated by reference from our registration statement on Form SB-2 effectively filed with the commission on February 20, 2004, File No. 333-103364.

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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 thereto duly authorized.

Date: November 15, 2011

By: /s/ Ray Jefferd

Ray Jefferd,

President and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following on behalf of the Registrant and in the capacities and on the dates indicated.

Signature		Capacity	Date

By:	/s/ Ray Jefferd	President Director	November 15, 2011
	Ray Jefferd	Chief Executive Officer

By:	/s/ Luigi Rispoli	Director Chief Financial Officer	November 15, 2011
	Luigi Rispoli

By:	/s/ Michael Rezac	Director Secretary/Treasurer	November 15, 2011
	Michael Rezac

By:	/s/ Panfilo Rosatone	Director	November 15, 2011
	Panfilo Rosatone

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STELLAR RESOURCES LTD.

Index to Consolidated Financial Statements and Schedules

Report of Dale Matheson Carr-Hilton LaBonte, LLP	14

Consolidated Balance Sheet	15

Consolidated Statement of Income	16

Consolidated Statement of Change in Stock Holders Equity	17

Consolidated Statement of Cash Flow	23

Notes to Consolidated Financial Statements	25

Table of Contents

Index to Exhibits

EXHIBIT NUMBER		DESCRIPTION

3.1		Articles of Incorporation (1)

3.2		By-Laws (1)

10.1		Option Agreement (1)

31.1		Rule 13a – 14(a) Certification of Chief Executive Officer

31.2		Rule 13a – 14(a) Certification of Chief Financial Officer

32		Officers Section

(1) Incorporated by reference from our registration statement on Form SB-2 effectively filed with the commission on February 20, 2004, File No. 333-103364.

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