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.
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.
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;
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difficulties in integrating the operations and assets of the acquired business and the acquired personnel;
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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;
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potential losses of key employees and customers of the acquired businesses;
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risks of entering markets in which we have limited prior experience; and
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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.
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.
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.
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:
Limiting reservoir parameters
1.
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.
2.
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.
3.
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:
1.
Drill additional updip wells to further block reserves and provided additional baseline data for the reservoir engineer.
2.
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.
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.
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 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.
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.
1.
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.
2.
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:
i)
Issued 187,300 common shares at $0.10 per share for aggregate proceeds of $18,730 (Cdn$18,000).
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)
v)
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.
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.
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.
Item 4.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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:
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.
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 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 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.
Item 7A. Quantative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8.
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
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.
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
●
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
●
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.
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.
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.
Item 10. Directors, Executive Officers and Corporate Governance
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.
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.
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.
ANNUAL COMPENSATION
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.
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.
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.
*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.
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.
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:
During the years ended July 31, 2011 and 2010 the following amounts were accrued or paid to related parties:
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.
Item 14.
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:
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.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
(a) the following documents are filed as part of this report.
1.
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..
2.
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.
3.
EXHIBITS: The following documents are filed as exhibits (or are incorporated by reference as indicated) into this Report:
(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.
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.
STELLAR RESOURCES LTD.
Index to Consolidated Financial Statements and Schedules
Index to Exhibits
(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.