UNITED STATES


SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.20549
  FORM 10-Q
  x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended January 31, 2010




or




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


For the transition period from




Commission File number   0-51400




Stellar Resources Ltd.


(Exact name of registrants specified in its charter)




Nevada
98-0373867(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)





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


(Address of principal executive offices)




(702)547-4614


(Issuer’s telephone number)




N/A


(Former name, former address and former fiscal year, if changed since last report)






Indicate by check mark whether the registrant (1) 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 a checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


x Yes    o No




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer
o
Accelerated filer
oNon- 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).


x Yes    o No




APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS DURING THE PRECEDING FIVE YEARS




Indicate by check mark  whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.


x Yes    o No




APPLICABLE ONLY TO CORPORATE ISSUERS




Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:




The total number of shares of Common Stock, par value $0.001 per share, outstanding as of March 15, 2010, is 31,060,650.






1








TABLE OF CONTENTS






Part  I – FINANCIAL INFORMATION
3Item 1.
Financial Statements:
3Balance Sheets
4Statements of Operations
5Statements of Cash Flows
6Notes to Financial Statements
7Item 2.
Management’s Discussion and Analysis or Plan of Operations
12Item 3.
Quantitative and Qualitative Disclosure About Market Risk
17Item 4T.
Controls and Procedures.
17Part II – OTHER INFORMATION
18Item 1.
Legal Proceedings
18Item 1A.
Risk Factors.
18Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
18Item 3.
Defaults Upon Senior Securities
18Item 4.
Submission of Matters to a Vote of Security Holders
18Item 5.
Other Information
18Item 6.
Exhibits
18SIGNATURES
19

















2
 Table of Contents








Part  I– FINANCIAL INFORMATION
  Item 1.   Financial Statements
     STELLAR RESOURCES LTD.


(An Exploration Stage Company)








FINANCIAL STATEMENTS








JANUARY 31, 2010


(Unaudited)































3
 Table of Contents








STELLAR RESOURCES LTD.


(An Exploration Stage Company)





BALANCE SHEETS




JANUARY 31,


JULY 31,2010


2009(Unaudited)ASSETSCurrentCash

$
1,125


$
1,193$
1,125


$
1,193LIABILITIESCurrentAccounts payable and accrued liabilities

$
4,827


$
4,314Advances payable (Note 4)


30,845



-Notes payable (Note 5)


27,390



26,722Due to related parties (Note 7)


177,374



183,045240,436



214,081STOCKHOLDERS’ DEFICITCapital stock (Note 6)Authorized:200,000,000 common shares with a par value of $0.001 per shareIssued and outstanding:31,060,650 common shares (July 31, 2009: 31,060,650 common shares)


31,060



31,060Additional paid-in capital


952,142



952,142Deficit accumulated during the exploration stage


(1,216,802
)


(1,190,833
)Accumulated other comprehensive loss


(5,711
)


(5,257
)(239,311
)


(212,888
)$
1,125


$
1,193


























The accompanying notes are an integral part of these financial statements


4
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STELLAR RESOURCES LTD.


(An Exploration Stage Company)





STATEMENTS OF OPERATIONS


(Unaudited)




CUMULATIVE RESULTS OF OPERATIONS FROM APRIL 9, 1999 (INCEPTION)THREE MONTHS ENDED


SIX MONTHS ENDED


TOJANUARY 31,


JANUARY 31,


JANUARY 31,


JANUARY 31,


JANUARY 31,2010


2009


2010


2009


2010ExpensesConsulting fees

$
-


$
-


$
-


$
-


$
27,780Filing fees


658



1,955



2,709



3,128



41,623Foreign exchange (gain) loss


(6
)


160



202



269



14,026General and administrative


128



9



379



320



21,632Interest expense


107



126



214



287



16,076Investor relations


-



65



-



65



17,989Professional fees


4,730



4,111



21,360



16,120



161,246Stock-based compensation


-



-



-



39,700



750,000Resource property expenditures


-



-



1,105



-



150,114Property examination costs






-



-



-



15,375Travel and entertainment


-



-



-



-



941Net Loss

$
(5,617
)

$
(6,426
)

$
(25,969
)

$
(59,889
)

$
(1,216,802
)Basic and Diluted Net Loss Per Common Share

$
-


$
-


$
-


$
-Weighted Average Number of Common Shares Outstanding – Basic and Diluted


31,060,650



29,014,714



31,060,650



28,827,455














The accompanying notes are an integral part of these financial statements





5
 Table of Contents








STELLAR RESOURCES LTD.


(An Exploration Stage Company)





STATEMENTS OF CASH FLOWS


(Unaudited)





CUMULATIVE RESULTS OF OPERATIONS FROM APRIL 9, 1999 (INCEPTION)THREE MONTHS ENDED


TOJANUARY 31,


JANUARY 31,2010


2009


2010Cash Flows from Operating ActivitiesNet loss

$
(25,969
)

$
(59,889
)

$
(1,216,802
)Adjustments to reconcile net loss to net cash used in operating activities:Realized foreign exchange losses on settlement of notes payable


-



-



12,523Stock-based compensation


-



39,700



750,000Accrued interest


214



287



18,064Changes in operating assets and liabilities:Prepaid expenses


-



(20
)


-Accounts payable and accrued liabilities


513



55



4,827Net cash used in operating activities


(25,242
)


(19,867
)


(431,388
)Cash Flows from Financing ActivitiesProceeds from issuance of common stock


-



8,013



130,629Proceeds from notes payable


-



-



93,665Advances payable


30,845







30,845Advances from related parties


(5,671
)


11,883



177,374Net cash provided by financing activities


25,174



19,896



432,513Net Increase (Decrease) in Cash


(68
)


29



1,125Cash, Beginning


1,193



(38
)


-Cash, (Bank Indebtedness) Ending

$
1,125


$
(9
)

$
1,125Supplemental Disclosures of Cash Flow Information and Non-Cash Investing and Financing ActivitiesInterest paid

$
-


$
-


$
-Income taxes paid

$
-


$
-


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

$
-


$
-


$
102,573








The accompanying notes are an integral part of these financial statements


6
 Table of Contents








STELLARRESOURCES LTD.


(An Exploration Stage Company)


NOTES TO FINANCIAL STATEMENTS


JANUARY 31, 2010


(Unaudited)





1.
NATURE OF CONTINUED OPERATIONS AND BASIS OF PRESENTATION





The Company was incorporated in the State of Nevada on April 9, 1999 and is in the exploration stage of its resource property activities.





The accompanying financial statements have been prepared assuming the Company will continue as a going concern.  This contemplates that assets will be realized and liabilities and commitments satisfied in the normal course of business.  To date, the Company has not generated any revenues from operations and had a working capital deficit of $239,311 and an accumulated deficit of $1,216,802 at January 31, 2010.  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 all corporate operations and provide working capital for the next twelve months.  Although there is no assurance that management’s plans will be realized, management believes that the Company will be able to continue operations in the future.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue operating as a going concern.





Unaudited Interim Financial Statements


The accompanying unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q of Regulation S-K.  They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements.  However, except as disclosed herein, there has been no material changes in the information disclosed in the notes to the financial statements for the year ended July 31, 2009 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.  The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-K.  In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal and recurring adjustments have been made.  Operating results for the six months ended January 31, 2010 are not necessarily indicative of the results that may be expected for the year ending July 31, 2010.





2
RECENT ACCOUNTING PRONOUNCEMENTS





Accounting Standards Codification


The Accounting Standards Codification (ASC) has become the source of authoritative U.S. generally accepted accounting principles (“GAAP”).  The ASC only changes the referencing of financial accounting standards and does not change or alter existing GAAP.





Recently Adopted Accounting Pronouncements


Effective August 1, 2009, the Company adopted ASC 855, Subsequent Events (formerly FAS No. 165 “Subsequent Events”).  ASC 855 requires companies to recognize in the financial statements the effects of subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.  An entity shall disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued.  Companies are not permitted to recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are issued.  Some non recognized subsequent events must be disclosed to keep the financial statements from being misleading.  For such events a company must disclose the nature of the event, an estimate of its financial effect, or a statement that such an estimate cannot be made.  This Statement applies prospectively for interim or annual financial periods ending after June 15, 2009.







7
 Table of Contents








STELLAR RESOURCES LTD.


(An Exploration Stage Company)





NOTES TO FINANCIAL STATEMENTS


JANUARY 31, 2010


(Unaudited)






2.
RECENT ACCOUNTING PRONOUNCEMENTS (Continued)


The adoption of ASC 855 did not have a material impact on the Company’s results of operations and financial position.




Certain other recent accounting pronouncements have not been disclosed as they are not applicable to the Company.






3.
RESOURCE PROPERTIES





Texada Island, British Columbia, Proposed Earn In Agreement





On June 15, 2009, the Company entered into an Earn In Agreement with Zyrox Mining Company Ltd. (“Zyrox”), to further explore and develop Zyrox’s mineral tenures located on Texada Island, British Columbia.  Under the terms of the Earn In Agreement, Zyrox agreed to make available to the Company its 250 ton per day processing plant, historical exploration data, its bulk test permit to extract 10,000 tons, reclamation bond and intellectual property pertaining to the mineral tenures which comprise 104 mining claims totaling 3,846 hectares.  Zyrox also granted the Company the exclusive right to acquire a 70% working interest in the property on or before June 15, 2010.





In order to acquire its 70% interest in the property the Company must provide Cdn$1,000,000 working capital in order to commission the production facility and commence bulk testing, explore and bulk test Zyrox’s portfolio of mining assets and commission a geological report.  The Company has also agreed to pay Cdn$4,000 per month for the use of the processing plant during the life of the agreement.  Within 30 days of receipt of a third party evaluation of the mineral interests and pilot plant, the Company will negotiate the definitive terms to acquire a 70% working interest in the property.





As of July 31, 2009 the Company has incurred property investigation costs amounting to US$14,270 (2008 - $nil) in relation to this agreement.  During the six month period ended January 31, 2010 the Company incurred $1,105 in expenses pursuant to the agreement.





On November 10, 2009, the Company terminated the Earn In Agreement with Zyrox.




Chunya Mining District of Mbeya Tanzania, Earn-in Agreement




On September 9, 2008, the Company entered into a Farm-In Agreement with Canafra Mineral Exploration Corp., a Canadian private company, and Two Drums G & C Company Limited, a Tanzanian private company, (jointly “Canafra”), whereby the Company has the right to acquire a 50% interest in a mineral property in Tanzania.  The property consists of three Mining and Prospecting Licenses and the Granted Mining and Prospecting Concessions comprising approximately 26 square kilometers, in the Chunya mining district of Mbeya Tanzania.  The operator of the property will be Canafra.





The funding provisions and share issuance are subject to the Company receiving the Mining and Prospecting Licenses for the property, which to date have not yet been received.





In order to acquire its full interest in the property the Company will advance to Canafra $1,100,000 to fund exploration expenditures and provide working capital in phased payments and also issue 4,000,000 restricted common shares to Canafra in stages as described below. The Company will earn its interest at a vested rate of 10% based on its funding efforts until fully funded.





8
 Table of Contents





STELLAR RESOURCES LTD.


(An Exploration Stage Company)





NOTES TO FINANCIAL STATEMENTS


JANUARY 31, 2010


(Unaudited)





3.
RESOURCE PROPERTIES(Continued)


Chunya Mining District of Mbeya Tanzania, Earn-in Agreement(Continued)




CommonCash


Stock to beConsideration


IssuedPhase I – Conditional upon receipt of Mining andProspecting LicensesWithin 30 days of receiving the Mining and Prospecting Licenses

$
60,000



-Within 60 days of receiving the Mining and Prospecting Licenses


80,000



-Within 90 days of receiving the Mining and Prospecting Licenses


80,000



-Within 120 days of receiving the Mining and Prospecting Licenses


80,000



-Within 150 days of receiving the Mining and Prospecting Licenses


80,000



-380,000



-Phase II – Within 90 days of completion of Phase Iincluding geological work to be done by Canafra


380,000



2,000,000Phase III – Within 90 days of completion of Phase II orwithin a mutually agreed timeframe, includingfurther geological work done by Canafra


340,000



2,000,000$
1,100,000



4,000,000








4.
ADVANCES PAYABLE





The Company received advances of $30,845 (Cdn$33,000) (July 31, 2009 - $nil) from a shareholder.  The advances have no specified terms of repayment, are unsecured and bear no interest.  Subsequent to January 31, 2010, this shareholder became a director of the Company.








5.
NOTES PAYABLE





As of January 31, 2010 the Company had received a total of $21,676 (Cdn$23,000), (July 31, 2009 -$21,181, Cdn$23,000) from unrelated third parties by way of unsecured demand promissory notes bearing interest at the Bank of Canada prime rate plus 2% (2.5% as of January 31, 2010).  As at January 31, 2010 $5,714 (July 31, 2009 - $5,541) of accrued interest is payable.





During the six months ended January 31, 2010, the Company recorded a foreign exchange transaction loss of $454 (January 31, 2009: gain of $3,795) in connection with these notes payable and accrued interest payable as a result of fluctuations in the foreign exchange rate.








9
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STELLAR RESOURCES LTD.


(An Exploration Stage Company)





NOTES TO FINANCIAL STATEMENTS


JANUARY 31, 2010


(Unaudited)





6.
CAPITAL STOCK





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





As of January 31, 2010 and July 31, 2009, the Company has 31,060,650 common shares issued and outstanding.





As of January 31, 2010 and July 31, 2009, the Company has no outstanding stock options or warrants.






7.
RELATED PARTY TRANSACTIONS





As at January 31, 2010, a director of the Company was owed $951 (July 31, 2009 - $689) in relation to expenses incurred on behalf of the Company.





As at January 31, 2010 $176,423 (July 31, 2009 – 182,356) was owed to a former Company President.  These advances are unsecured, non-interest bearing and have no specific terms of repayment.





Refer to Note 4.








8.
SUBSEQUENT EVENT





Subsequent to January 31, 2010, the Company:-





a)
Received advances of Cdn$9,000 from a shareholder, who became a director of the Company on March 3, 2010 These advances have no specified terms of repayment, are unsecured and bear no interest.





b)
On March 3, 2010 the Company entered into an agreement to acquire 100% of Elk Hills Heavy Oil, LLC (“EHHO”) and Four Bear Heavy Oil, LLC. (“FBHO”) from a newly appointed director and his business associate.  The EHHO assets consists of more than 20,000 continuous acres of oil and gas leases in Carbon County, Montana, and FBHO assets consists of more than 6,400 acres of oil and leases in Park County, Wyoming.





In consideration for the acquisitions the Company will:





a)
issue of a total of three million common shares


b)
make cash payments of $250,000 on or before December 31, 2011.


c)
grant the vendors a net profit interest of five per cent on the properties





c)
On March 8, 2010 the Company entered into an agreement (subject to due diligence) with Elk Hills Petroleum Canada Ltd. (“EHPC”) whereby EHPC would acquire a 50% interest in EHHO for $3,000,000.  The agreement requires EHPC to complete its due diligence on or before March 26, 2010.





As consideration for the sale the Company will receive staged payments as follows:




(i)
A payment of $500,000 is due on or before March 27, 2010.


(ii)
A payment of $750,000 is due on or before April 5, 2010.


10
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STELLAR RESOURCES LTD.


(An Exploration Stage Company)





NOTES TO FINANCIAL STATEMENTS


JANUARY 31, 2010


(Unaudited)





8.
SUBSEQUENT EVENTS(Continued)





(iii)
A payment of $1,750,000 is due within thirty days after EHPC has received a copy of a third party prepared report on drill cores obtained from the EHHO leases and the reservoir study conducted on the EHHO leases.





The Company evaluated subsequent events through the financial statements filing.














































11
 Table of Contents








Item 2.   Management Discussion and Analysis or Plan of Operations





Our actual results could differ materially from those reflected in these forward-looking statements as a result of certain factors that include, but are not limited to, the risks discussed in the Section entitled “Risk Factors”.  Please see the statements contained under the Section entitled “Forward-Looking Statements”.





Except for historical information, the following Management’s Discussion and Analysis contains forward-looking statements based upon current expectations that involve certain risks and uncertainties.  Such forward-looking statements include statements regarding, among other things, (a) our estimates of mineral reserves and mineralized material, (b) our projected sales and profitability, (c) our growth strategies, (d) anticipated trends in our industry, (e) our future financing plans, (f) our anticipated needs for working capital, (g) our lack of operational experience, and (h) the benefits related to ownership of our common stock.  Forwarding-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect” “anticipate,” “estimate,” “believe,” “intend,”or“project”or the negative of these words or other variations on these words or comparable terminology.  This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements expressed or implied by any forward-looking statements.  These statements may be found under “Management’s Discussions and Analysis of Financial Condition and Results of Operations” and “Business” as well as in this Form 10-K generally.  Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Form 10-Q generally.  In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Form 10-Q will in fact occur as projected.





OVERVIEW





Since our formation on April 9, 1999, we have been in the pre-exploration stage and are not operators of any mines nor are we engaged in any mineral production or sales activities.  We have a minimum amount of cash and have not yet developed any producing mines.  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 engaged in the acquisition and exploration of resource properties.





Pursuant to EITF 04-2, the Company classified its mineral rights as tangible assets and accordingly acquisition costs are capitalized as mineral property costs.  Generally accepted accounting principles require that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  In performing the review for recoverability, the Company is to estimate the future cash flows expected to result from the use of the asset and its eventual disposition.  If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized.  Mineral exploration costs are expensed as incurred until commercially mineable deposits are determined to exist within a particular property. To date the Company has not established any proven or probable reserves.





The Company has adopted the provisions of SFAS No. 143 “Accounting for Asset Retirement Obligations” which establishes standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment, or other disposal of long-term tangible assets arising from the acquisition, construction or development and for normal operations of such assets. As of January 31, 2010, the Company, based on the stage of development, has determined that it is not necessary to make a provision for any asset retirement obligation.





We currently do not know of any research and development activities planned for the next 12 months.





We currently have no plans to purchase or sell any property or significant equipment in the next 12 months.






12
 Table of Contents








We do not expect any significant changes in the number of employees over the next 12 months.





On December 6, 2009 Mr. Lee Balak tendered his resignation as our Chief Executive Officer and director.  Mr. Luigi Rispoli was appointed as our President and Chief Financial Officer. On March 3rd 2010 we announced the appointment of Mr. Ray Jefferd to the Board of Directors, President and Chief Executive Officer.  We also welcomed Mr. Panfilo Rosatone as a director.  Mr. Luigi Rispoli resigned his position as our President, Mr. Rispoli will continue as a director and as our Chief Financial Officer.





Concurrent to the above changes regarding our officers and directors, we announced 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 Elk Hills Heavy Oil, LLC assets consists of more than 20,000 continuous acres of oil and gas leases in Carbon County, Montana, and Four Bear Heavy Oil, LLC assets consists of more than 6,400 acres of oil and leases in Park County, Wyoming.  We 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.




Results of Operations for the Three Months Ended January 31, 2010




We have not generated any revenues from operations since our incorporation on April 9, 1999 through January 31, 2010.  During the three month period ended January 31, 2010the Company incurred a loss of $5,617.  The loss for the comparable three month period of the prior year was $6,426.  During the three month period ended January 31, 2010 we incurred non-cash management fees - stock based compensation of $nil (2009 - $nil as a result of the stock award granted to the president in October 2006).  Professional fees, comprising legal, accounting and audit costs increased to $4,730 (2009 - $4,111).  Interest expense decreased to $107 (2009 - $126) The interest is based on a Canadian dollar denominated loan which was reduced as a result of falling interest rates.  General and administrative expenses amounted to $128 (2009 - $9).  We also experienced a foreign exchange gain of $6(2009 –  loss of $160) as a result of foreign exchange changes during the quarter which affected transactions not denominated in the US dollar, and filing fees decreased to $658 (2009- $1,955).





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 of any mineral claims.  We are presently in the pre-exploration stage of our business and we can provide no assurance that we will discover commercially exploitable levels of mineral resources on any properties, or if such resources are discovered, that we will enter into commercial production of any claims.












13
 Table of Contents








Net Loss for the Six Month Period Ended January 31, 2010





For the six month period ended January 31, 2010, we recorded an operating loss of $25,969 compared to a loss of $59,889,for the comparative six month period of the prior year.  The loss consists of: management fee - stock based compensation of $nil, (2009 - $39,700) filing fees of $2,709 (2009 - $3,128); interest expense of $214 (2009 - $287), general and administrative expenses of $379 (2009 - $320),professional fees of $21,360 (2009 - 16,120),investor relations of $nil (2009 - $65), resource property expenditures of $1,105 (2009 - $nil) and a loss on foreign exchange of $202 (2009 - $269).





Cumulative Loss to January 31, 2010





We have not generated any revenues from operations since our incorporation on April 9, 1999 through January 31, 2010. We have recorded a cumulative loss from Inception to January 31, 2010 totalling $1,216,802. This loss comprises the following:-management fees - stock based compensation of $750,000 consulting fees of $27,780; filing fees of $41,623; foreign exchange losses of $14,026, general and administrative expenses of $21,632, interest expense of $16,076, investor relations charges of $17,989, professional fees of $161,246, resource property expenditures of $150,114 property examination costs of $15,375 and travel and entertainment charges of $941.





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 exploration activities.





Liquidity and Further Capital Resources





At January 31, 2010, we had assets of $1,125 consisting of cash.  Total stockholders’ deficit was $239,311 at January 31, 2010.  We are a pre-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 and debt financing.





As of January 31, 2010, we have advances payable of $30,845 (July 31, 2009 - $nil) relating to advances received from a shareholder who became a director subsequent to January 31, 2010.





At January 31, 2010 a director was owed $951 (July 31, 2009 - $689) and a former President was owed $176,423 (July 31, 2009 - $182,356).





Debt financing received at January 31, 2010 from shareholders secured by Promissory Notes together with accrued interest amounted to $27,390 (Cdn$29,303).  Interest is calculated on the basis of a 365 or 366 day year on the unpaid principal balance from day to day and computed from the date of the Promissory Note until the principal amount is paid completely at Bank of Canada prime rate per annum plus two percent.  These notes are payable upon demand.  If we are not able to get further financing, we may not be able to continue as a going concern and we may have to delay exploration or cease our operations and liquidate our business.





The Company has not raised any equity from stock issuances during the six month period ended January 31, 2010.





RESOURCES PROPERTIES





Chunya mining district of Mbeya Tanzania





On September 9, 2008, the Company entered into a Farm-In Agreement with Canafra Mineral Exploration Corp., a Canadian private company, and Two Drums G & C Company Limited, a Tanzanian private company, (jointly “Canafra”), whereby the Company has the right to acquire a 50% net profit








14
 Table of Contents








interest in the subject mineral property in Tanzania. The property consists of three Mining and Prospecting Licenses and the Granted Mining and Prospecting Concessions comprising approximately 26 square kilometers, in the Chunya mining district of Mbeya Tanzania.  The operator of the property will be Canafra.




CommonCash


Stock to beConsideration


IssuedPhase I – Conditional upon receipt of Mining andProspecting LicensesWithin 30 days of execution of agreement

$
60,000



-Within 60 days of execution of agreement


80,000



-Within 90 days of execution of agreement


80,000



-Within 120 days of execution of agreement


80,000



-Within 150 days of execution of agreement


80,000



-380,000



-Phase II – Within 90 days of completion of Phase Iincluding geological work to be done by Canafra


380,000



2,000,000Phase III – Within 90 days of completion of Phase II orwithin a mutually agreed timeframe, includingfurther geological work done by Canafra


340,000



2,000,000$
1,100,000



4,000,000





The funding provisions are subject to the Company receiving the Mining and Prospecting Licenses for the subject property, which to date have not yet been received.





In order to acquire its full interest in the property the Company will advance to the operator $1,100,000 to fund exploration expenditures and provide working capital in phased payments and also issue 4,000,000 restricted common shares to the operator in stages as described below. The Company will earn its interest at a vested rate of 10% based on its funding efforts until fully funded.





The Company awaits formal licensing documentation from Canafra showing that the Mining and Prospecting Licenses with the geographic coordinates are 100% owned by Canafra.  The delay is as a result of Canafra experiencing certain setbacks, due to the current economic conditions, and there can be no assurances that we will be able to obtain sufficient funding in order to complete our obligations under the agreement.





Texada Island British Columbia, Earn In Agreement





On June 15, 2009, the Company entered into a proposed Earn In Agreement with Zyrox Mining Company Ltd. (“Zyrox”), to further explore and develop Zyrox’s mineral tenures located on Texada Island, British Columbia.





Under the terms of the earn in Arrangement, Zyrox agreed to make available to the Company its 250 ton per day processing plant, historical exploration data, its bulk test permit to extract 10,000 tons, reclamation bond and intellectual property pertaining to the mineral tenures which comprise 104 mining claims totaling 3846 hectares.  Zyrox also granted the Company the exclusive right to acquire a 70% working interest in the property on or before June 15, 2010.





In order to acquire its 70% interest in the property the Company must provide $1,000,000 working capital in order to commission the production facility and commence bulk testing, explore and bulk test Zyrox’s portfolio of mining assets and commission a geological report that is 43-101 compliant.  The Company has also agreed to pay Cdn$ 4,000 per month for the use of the processing plant during the life of the agreement.






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During the year ended July 31, 2009 the Company incurred property investigation costs amounting to US$14,270 (2008 - $nil) in relation to this agreement.  During the six month period ended January 31, 2010 the Company incurred property investigation costs amounting to $1,105 pursuant to this agreement.





On November 10, 2009 the Company terminated the earn in agreement with Zyrox.





To date, the Company has not generated any revenues from operations and had a working capital deficit of $239,311 and an accumulated deficit of $1,216,802 at January 31, 2010.  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.





Acquisition of Oil and Gas Properties





On March 3, 2010, we announced 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 Elk Hills assets consists of more than 20,000 continuous acres of oil and gas leases in Carbon County, Montana, and Four Bear Heavy Oil, LLC assets consists of more than 6,400 acres of oil and leases in Park County, Wyoming.  We 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.





The purchase price for Elk Hills Heavy Oil, LLC and the Four Bear Heavy Oil, LLC includes:





a)
issuance of a total of three million (3,000,000) fully paid and non-assessable common shares to the Sellers; and





b)
granting to the Sellers a Net Profit Interest (NPI) of five per cent (5%) on the properties; and





c)
a cash payment totaling $250,000 to be paid to the Sellers once we have obtained future financing for the development of the Elk Hills and Four Bear leases.





On March 8, 2010, we announced that Elk Hills Petroleum Canada Ltd. (EHPC) has agreed to invest $3,000,000 to acquire a 50% interest in Elk Hills Heavy Oil, LLC (EHHO).





EHPC will acquire a 50% interest by investing $3,000,000 upon the following terms and conditions:




(i)
$500,000 shall be paid to us; and




(ii)
$2,500,000 shall be paid into the bank account of EHHO for the exploration and development of oil and gas on the leases held by EHHO and general business purposes of EHHO.




EHPC shall have conducted satisfactory legal, land title and geological due diligence on or before March 26, 2010.





EHPC shall make its $3,000,000 investment as follows:




(i)
A payment of $500,000 is due on or before March 27, 2010.




(ii)
A payment of $750,000 is due on or before April 5, 2010.




(iii)
A payment of $1,750,000 is due within thirty days after EHPC, has received a copy of a third party prepared report on drill cores obtained from the Elk Hills leases and the reservoir study conducted on the Elk Hills leases. The US$1,750,000 shall be paid into the bank account of EHHO.








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Elk Hills Heavy Oil, LLC hold more than 20,000 acres of oil and gas leases in Carbon County, Montana.  The property is located with 30 miles of three oil refineries and has good road access.




Item 3.    Quantative and Qualitative Disclosure About Market Risk




Not applicable.




Item 4T.  Controls and Procedures


As of January 31, 2010, the end of our second 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 January 31, 2010.  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 January 31, 2010, our disclosure controls and procedures are not effective. There have been no changes in our internal controls over financial reporting during the quarter ended January 31, 2010.





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 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.





Limitations on effectiveness of Internal Controls





Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.  Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer conclude that our disclosure controls and procedures are effective at that reasonable assurance level.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.   Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control.  The design of any system controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, control may become inadequate because of changes in conditions, or the degree of compliance within the policies or procedures may determine.











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PART II– OTHER INFORMATION




Item 1.     Legal Proceedings





We are not aware of any pending litigation nor do we have any reason to believe that any such litigation exists.





Item 1A.   Risk Factors





A smaller reporting company is not required to provide the information required by this Item.




Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds





Effective October 20, 2006, the Company completed a forward split of its shares of common stock at a ratio of a six (6) new shares for each one (1) old share currently held.





On October 3, 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 President.





On October 3, 2006, pursuant to two separate share-for-debt agreements, the Company issued 1,230,876 post-split common shares in settlement of notes payable amounting to $89,006 and accrued interest of $13,567.





On December 19, 2008, the Company issued 801,294 common shares at $0.01 for aggregate proceeds of $8,103.





On March 9, 2009 the Company issued 1,619,160 common shares at $0.02 for aggregate proceeds of $32,383.





Stock-based compensation expense recognized during the six month period ended January 31, 2010 totaled $nil (six months ended January 31, 2009 - $39,700).  As at July 31, 2009 the deferred stock compensation had been fully expensed.





Item 3.    Defaults Upon Senior Securities





None.





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





No matters were submitted to a vote of the Company's shareholders during the three months ended January 31, 2010





Item 5.     Other Information





Reports were filed by the Issuer November 13, 2009 and December 11, 2009 respectively.





Item 6.     Exhibits





31.1
Certification of Ray Jefferd, President & CEO of Stellar Resources Ltd. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.





32.1
Certification of Ray Jefferd, President & CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.





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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





Dated:       March 15, 2010





STELLAR RESOURCES LTD.







By:
/s/ Ray JefferdRay JefferdPresident & CEOBy:
/s/ Luigi RispoliLuigi RispoliChief Financial Officer





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