UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

ý	Quarterly report pursuant section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended August 31, 2010
r	Transition report pursuant section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________ to ________________
Commission File Number 000-53520

Santos Resource Corp.
(Exact name of registrant as specified in its charter)

Nevada
(State of Incorporation)
98-0507846
(I.R.S. Employer Identification No.)

11450 - 201A Street
Maple Ridge, British Columbia  V2X 0Y4
Tel: (604) 460-8440

(Address and telephone number of Registrant's principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý      No r

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

Yes r      No ý

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 definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer r	Accelerated filer r
Non-accelerated filer r (Do not check if a smaller reporting company)	Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ý    No q

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

Class: common stock - $0.001 par value Outstanding at October 15, 2010: 32,076,500

2

Santos Resource Corp.
(An Exploration Stage Company)

Financial Statements

August 31, 2010

(Unaudited - Prepared by Management)

(Presented In US Dollars)

3

Santos Resource Corp.
(an Exploration stage company)
Balance Sheets
At August 31, 2010
(Expressed in US Dollars)
(Unaudited)

		August 31, 2010  (Unaudited)		February 28, 2010
Assets
Current Assets
Cash	$	4,379	$	307
GST Receivable		1,176		733
Total Assets	$	5,555	$	1,040
Liabilities and Stockholders' Equity (Deficiency)
Current Liabilities
Accrued Payables	$	15,950	$	27,562
Payable to Shareholders Notes 3(b) and (c)		28,198		9,500
Total Current Liabilities		44,148		37,062
Stockholders' Equity (Deficiency)
Common Stock (Note 5) 75,000,000 shares authorized, $0.001 par value - 32,076,500 shares issued		32,077		32,077
Additional paid in capital		149,871		149,871
Deficit accumulated during the exploration stage		(220,541)		(217,970)
Total Stockholders' Equity (Deficiency)		(38,593)		(36,022)
Total Liabilities and Stockholders' Equity (Deficiency)	$	5,555	$	1,040

Nature of operations and continuance of Business - Note 1

On Behalf of the Board:

/s/ Richard Pierce                 Director

/s/ Andrew Lee Smith                 Director

The accompanying notes are an integral part of these interim financial statements

 

4

Santos Resource Corp.
(an Exploration stage company)
Statements of Operations
(Expressed in US Dollars)
(Unaudited)
		Three months Ended		Three months Ended		Six months Ended		Six months Ended		Cumulative to
		August 31,		August 31,		August 31,		August 31,		August 31,
		2010		2009		2010		2009		2010
Expenses
General and Administrative	$	253	$	24	$	430	$	85	$	1,174
Foreign Exchange		(440)		100		(440)		756		(331)
Mineral Property Costs		-		-		-		8,926		69,689
Professional Fees		(216)		11,201		2,581		11,182		150,009
Total Expenses		(403)		11,325		2,571		20,949		220,541
Net loss and comprehensive loss	$	403	$	(11,325)	$	(2,571)	$	(20,949)	$	(220,541)
Net loss per share
Basic and diluted	$	(0)	$	(0)	$	(0)	$	(0)
Weighted average number of shares
outstanding - basic and diluted		32,076,500		32,076,500		32,076,500		32,076,500

The accompanying notes are an integral part of these interim financial statements

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Santos Resource Corp.					Deficit
(an Exploration stage company)					Accumulated
Statement of Stockholders Equity				Additional	During the	Total
At August 31, 2010		Common	Stock	Paid-in	Exploration	Shareholders'
(Expressed in US Dollars)		Number	Par Value	Capital	Stage	Equity
Balance, May 24, 2006
(date of inception)		-	$         -	$            -	$                 -	$                 -
Net loss for the period ending
February 28, 2007		-	-	-	-	-
Balance, February 28, 2007		-	-	-	-	-
Capital Stock issued for subscriptions
receivable at $0.0005 per share and services
at $0.005 per share	19-Jun-07	31,040,000	31,040	(15,520)		15,520
Mineral Property Option - Starfire Minerals	25-Jun-07	75,000	75	11,175	-	11,250
Private Placement Fees at $0.15 per share	1-Feb-08	961,500	962	143,264	-	144,226
Private Placement Fees	1-Feb-08	-	-	(4,568)	-	(4,568)
Net loss, for the year ending
February 29, 2008		-	-	15,520	(70,888)	(55,368)
Balance, February 29, 2008		32,076,500	32,077	149,871	(70,888)	111,060
Net loss, for the year ending
February 28, 2009		-	-	-	(92,777)	(92,777)
Balance, February 28, 2009		32,076,500	32,077	149,871	(163,665)	18,283
Net loss, for the year ending
February 28, 2010		-	-	-	(54,305)	(54,305)
Balance, February 28, 2010		32,076,500	32,077	149,871	(217,970)	(36,022)
Net loss, for the six months ending
August 31, 2010		-	-	-	(2,571)	(2,571)
Balance, August 31, 2010		32,076,500	$  32,077	$  149,871	$  (220,541)	$       (38,593)
	The accompanying notes are an integral part of these interim financial statement

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Santos Resource Corp.
(an Exploration stage company)
Statements of Cash Flows
(Expressed in US Dollars)
(Unaudited)
		Six Months Ended		Six Months Ended		Cumulative to
		August 31,		August 31,		August 31,
		2010		2009		2010
Cash flows used in Operating Activities
Net loss for the period	$	(2,571)	$	(20,949)	$	(220,541)
Adjustments to net loss for non-cash activities
Shares issued for property acquisition		-		-		11,250
Services provided by founders in exchange               for shares		-		-		15,520
Unrealized foreign exchange loss (gain		(440)		756		(331)
Decrease (Increase) in GST Receivable		(443)		-		(1,176)
Increase (Decrease) in accrued payable		(11,612)		(12,508)		15,950
Net cash used in operating activities		(15,066)		(32,701)		(179,328)
Cash flows from financing activities
Capital Stock issued		-		-		159,746
Private Placement Fees		-		-		(4,568)
Advances from shareholders		19,989		-		29,841
Net cash flows from financing activities		19,989		-		185,019
Foreign exchange effect on cash		(851)		492		(1,312)
Cash increase (decrease) during the period		4,072		(32,209)		4,379
Cash beginning of the period		307		38,661		-
Cash end of the period	$	4,379	$	6,542	$	4,379
Interest Paid in the period	$	-	$	-	$	-
Income Taxes Paid in the period	$	-	$	-	$	-

The accompanying notes are an integral part of these interim financial statements

 

7

Santos Resource Corp.
(an exploration stage company)
Notes to the Financial Statements
For the period ending August 31, 2010
(Expressed in U.S. dollars)

1)          Nature of Operations and Continuance of Business

Santos Resource Corp. (the "Company") was incorporated in the state of Nevada on May 24, 2006.  The Company is an Exploration Stage Company.  The Company's principal business is the acquisition and exploration of mineral properties.  The Company has not presently determined whether its properties contain mineral reserves that are economically recoverable. 

The accompanying financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has never generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, confirmation of the Company's interests in the underlying properties, and the attainment of profitable operations. As at August 31, 2010, the Company has never generated any revenues and has an accumulated loss of $220,541, since inception. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

2.          Summary of Significant Accounting Policies

a)         Basis of Presentation

These interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Item 310(b) of Regulation S-B.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the periods ended August 31, 2010 and 2009 are not necessarily indicative of the results that may be expected for any interim period or the entire year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended February 28, 2010. 

b)         Recent Accounting Pronouncements

In June 2009 the FASB established the Accounting Standards Codification ("Codification" or "ASC") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States ("GAAP"). Rules and interpretive releases of the Securities and Exchange Commission ("SEC") issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change did not impact our financial statements.

Statement of Financial Accounting Standards ("SFAS") No. 166 (ASC Topic 810), "Accounting for Transfers of Financial Assets - an Amendment of FASB Statement No. 140", SFAS No. 167 (ASC Topic 810), "Amendments to FASB Interpretation No. 46(R)", and SFAS No. 168 (ASC Topic 105), "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162" were recently issued. SFAS No. 166, 167, and 168 have no current applicability to the Company or their effect on the financial statements would not have been significant.

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Santos Resource Corp.
(an exploration stage company)
Notes to the Financial Statements
For the period ending August 31, 2010
(Expressed in U.S. dollars)

2.          Summary of Significant Accounting Policies (continued)

b)         Recent Accounting Pronouncements (continued)

Accounting Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605), Multiple-Deliverable Revenue Arrangements,  ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and various other ASU's No. 2009-2 through ASU No. 2009-15 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.

3.          Related Party Transactions

a)           On June 25, 2007, the Company issued 75,000 shares of common stock at $0.15 per share to Starfire Minerals as part of its contract to Option to Purchase Property in Quebec.  Richard Pierce, President of Santos Resource Corp. is a director on the board of each company.

b)           A shareholder loaned the company US$9,399 (CAD$10,000) in May 2007. The loan is non interest bearing and unsecured and is payable upon request from the shareholder; accordingly fair value cannot be reliably determined.

c)          A shareholder loaned the company US$18,799 (CAD$20,000) in April 2010. The loan is non interest bearing and unsecured and is payable upon request from the shareholder; accordingly fair value cannot be reliably determined.

4.         Mineral Properties

On June 25, 2007 the Company signed an option agreement, subsequently amended, to acquire a 75% interest in 18 mineral property claims in Northern Quebec known as the Lordeau Property, with Starfire Minerals Inc. ("Starfire"). Santos was granted an option to acquire 75% of the right, title and undivided interest in the property (subject to the NSR Royalty reserved to Starfire). Terms and conditions are as follows:  

a)         $10,582 (CAD$10,000) cash payment by Santos on execution of this agreement (paid);

b)         75,000 common shares of Santos to be allotted and issued and certificates therefore delivered to Starfire (issued June 25, 2007)

c)         Exploration expenditures to be incurred as follows:

(i) $24,092 (CAD$25,000) on September 19, 2008 (incurred);

(ii) $8,926 (CAD$10,260) on May 5, 2009 (incurred);

(iii) $13,855 (CAD$14,740) to be paid on or before December 31, 2010.

 

9

Santos Resource Corp.
(an exploration stage company)
Notes to the Financial Statements
For the period ending August 31, 2010
(Expressed in U.S. dollars)

4.         Mineral Properties (continued)

In the event that the Company fails to incur the full amount of Expenditures in a given period, the Company may, within 45 days of the end of such period pay Starfire an amount equal to the outstanding balance to be incurred by way of 50% cash and 50% shares (valued at the weighted average trading price for during the 10 trading days preceding the period end date).

In addition, any shares delivered, cash payments made, or Expenditures incurred toward the option price that is over and above that required to be made during a particular time shall be carried forward and applied against the required payment in subsequent periods.

Santos will pay Starfire a 3% net smelter return royalty ("NSR Royalty").  Santos may purchase in the aggregate up to two-thirds (i.e., 2% NSR Royalty) of the NSR Royalty on the basis of one hundred thousand dollars for each one-tenth percent of the NSR Royalty (i.e., $100,000 per 0.1% NSR Royalty) acquired on the first one-half of the NSR Royalty (i.e., the first 1% NSR Royalty), and one hundred fifty ($150,000) dollars for each one-tenth percent of the NSR Royalty (i.e., $150,000 per 0.1% NSR Royalty) thereafter for the remaining NSR Royalty (i.e., the remaining 1% NSR Royalty).  To exercise its option to purchase the NSR Royalty or any portion thereof, Santos must provide the Owner with at least 30 days advance written notice of its intention to do so, and must close upon each purchase within 60 days of each notice.

5.            Common Stock

On June 19, 2007, the Company issued 31,040,000 shares of common stock at $0.0005 per share for cash proceeds of $15,520 and contributed services of $15,520, to Directors, officers and a relative of a Director.

On June 25, 2007 the Company issued 75,000 shares of common stock to Starfire Minerals at $0.15 per share for proceeds of $11,250, as part of its contract to Option to purchase Property in Quebec.

On February 1, 2008, the Company issued 961,500 shares of common stock at $0.15 per share for proceeds of $144,225, all collected in fiscal 2008.

 

10

Santos Resource Corp.
(an exploration stage company)
Notes to the Financial Statements
For the period ending August 31, 2010
(Expressed in U.S. dollars)

6.          Financial Instruments

The Company's financial instruments consist of cash, shareholder loans and accrued payables unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency, or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying value, unless otherwise noted.

Currency risk is the risk to the Company's earnings that arises from fluctuations of foreign exchange rates and the degree of volatility of these rates. The Company does not use derivative instruments to reduce its exposure to foreign currency risk.

At August 31, 2010 the Company had the following financial assets and liabilities in Canadian dollars:

		USD equivalent		CDN Dollars
Cash on deposit	$	4,293	$	4,568
Due to Shareholder	$	28,198	$	30,000
Accounts payable and accrued liabilities	$	15,950	$	16,969

At August 31, 2010 US dollar amounts were converted at a rate of $1.0639 Canadian dollars to $1.00 US dollar.

 

11

Santos Resource Corp.
(an exploration stage company)
Notes to the Financial Statements
For the period ending August 31, 2010
(Expressed in U.S. dollars)

7.         Income Taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has a net operating loss of approximately $220,000, which expires beginning in 2027. Pursuant to SFAS No. 109, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

The components of the net deferred tax asset at February 28, 2010 and the statutory tax rate, the effective tax rate and the elected amount of the valuation allowance are scheduled below:

	Year	Year
	ended	ended
	February 28,	February 28,
	2010	2009
	$	$
Net Loss	54,305	92,777
Statutory Tax Rate	35%	35%
Deferred Tax Asset	19,010	32,472
Valuation Allowance	(19,010)	(32,472)
Net Deferred Tax Asset	-	-

 

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Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

THE FOLLOWING PRESENTATION OF MANAGEMENT'S DISCUSSION AND ANALYSIS OF SANTOS RESOURCE CORP. SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION INCLUDED HEREIN.

Overview

Santos Resource Corp. (the "Company" or "Santos") was incorporated under the laws of the state of Nevada on May 24, 2006.  We have not commenced business operations and we are considered an exploration stage company.  We are defined as a "shell company" under the Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act because we have nominal operations and nominal assets.  To date, our activities have been limited to organizational matters, obtaining a geological report on the Lourdeau Claims and the preparation and filing of a registration statement on Form S-1. 

Lourdeau Claims

Under the Property Option Agreement entered into on June 25, 2007, we acquired an option to acquire a 75% interest in and to 18 mineral claims called the Lourdeau Claims from Starfire Minerals Inc., the registered owner of the Lourdeau Claims.  On May 29, 2008, we amended the property option agreement whereby our option to acquire the Lourdeau Claims is subject to the approval of the TSX Venture Exchange, which approval was obtained in September 2008.  On April 23, 2009, we amended the Property Option Agreement again, which extends the schedule for Santos to incur a portion of the final $22,732 (CAD$25,000) of Expenditures to earn Starfire's interest in the Lordeau Claims to April 30, 2010.  On April 26, 2010, we amended the Property Option Agreement, which extends the schedule for Santos to incur the final $14,004 (CAD$14,740) of Expenditures in order to earn 75% of Starfire's interest in the Lourdeau Claims, from April 30, 2010 to August 31, 2010.  On August 31, 2010, we amended the Property Option Agreement to extend the August 31, 2010 deadline to December 31, 2010.  The Lourdeau Claims consist of 18 mineral claims covering approximately 900.75 hectares (9.01 km²), located in the La Grande geological area of Quebec in the James Bay Territory about 620 miles (1,000 km) north of Montreal, Quebec. 

Under the Property Option Agreement, Starfire Minerals Inc. has a 3% Net Smelter Return ("NSR") royalty interest in the Lourdeau Claims, if and when Santos exercises its option to acquire a 75% interest in the Lourdeau Claims by making the required cash and share payments.  NSR means the actual proceeds received from the sale of ore, metals or concentrated products from the Lourdeau Property derived from commercial production as recorded by the producer and net of any smelting and refining charges, penalties, costs of transportation of ores, metals or concentrates from the Lourdeau Property to any mint, smelter or other purchaser, cost of insurance of the products, and any export and import taxes levied with respect to production from the Lourdeau Property.

Santos also has the right to purchase up to two-thirds of the NSR royalty (i.e. 2% of the NSR royalty) on the basis of $100,000 for each 0.1% of the NSR royalty (i.e. $100,000 per 0.1% NSR royalty) acquired on the first one-half of the NSR royalty, and $150,000 for each 0.1% of the NSR royalty (i.e. $150,000 per 0.1% NSR royalty) thereafter for the remaining NSR royalty (i.e. the remaining 1% NSR royalty).  To exercise its option to purchase the NSR royalty or any portion thereof, Santos must provide Starfire with at least 30 days advance written notice of its intention to do so, and must close upon each purchase within 60 days of each notice.

Under the Property Option Agreement, Santos is required to make all filings related to the Lourdeau Property and to maintain the Lourdeau Claims in good standing by preparing and filing the assessment reports, paying taxes and keeping the Lourdeau Property free and clear of all liens and encumbrances.  The Lourdeau Claims are in good standing until July 18, 2011 and have been assigned tenure numbers 87500, 87501, 87502, 87503, 87504, 87505, 87506, 87507, 87508, 87509, 87510, 87511, 87512, 87513, 87514, 87515, 87516 and 87517 by the Province of Quebec. 

13

In order to exercise the Option and to earn its 75% interest in the Property, Santos has to pay Starfire $10,582 (CAD$10,000) in cash payment and issue 75,000 shares to Starfire, and incur an aggregate of $47,024 (CAD$50,000) in expenditures before December 31, 2010, within the following time schedule:

(a)        pay $10,582 (CAD$10,000) upon signing of the Property Option Agreement (paid);

(b)        issue and deliver 75,000 shares within 10 business days of the date of approval of the Property Option Agreement by the board of directors of Santos (issued in June 2007);

(c)        incur $24,092 (CAD$25,000) of expenditures on the Lourdeau Property on or before September 30, 2008 (in September 2008, Santos paid Starfire cash of $24,092 instead of incurring expenditures on the property);

(d)        incur $8,926 (CAD$10,260) on the Lourdeau Property on or before May 11, 2009 (in May 2009 Santos paid Starfire cash of $8,926 instead of incurring expenditures on the property); and

(e)        incur additional expenditures of approximately $14,004 (CAD$14,740) on the Lourdeau Property on or before December 31, 2010.

Any shares delivered, cash payments made, or expenditures incurred toward the option price that is over and above that required to be made during a particular time will be carried forward and applied against the required payment in subsequent periods.

If Santos does not incur the full amount of expenditures within the set time period, Santos may, within 45 days after the end of the period, pay Starfire the outstanding balance to be incurred for that specific year by way of either 100% cash or 50% cash and 50% shares (valued at the weighted average trading price during the 10 trading days preceding the period ended).  After these payments, the option from Starfire remains in good standing and Santos will be deemed to have acquired 75% of the Lourdeau Claims from Starfire. 

Plan of Operation

Our business plan is to proceed with the exploration of the Lourdeau Claims to determine whether there are commercially exploitable reserves of base and precious metals.  We presently do not have funds to meet our general operating expenses and to meet our obligations under the Property Option Agreement.  We do not have the funds to conduct the recommended exploration program.  Due to extreme weather conditions, exploration activities can only be conducted between June and August of each year.  We are attempting to raise additional money, and have not started the exploration program as we have not been successful in raising funds.  However, if we are able to raise additional money, we can only conduct the exploration program recommended by Mr. Michel Boily in the summer of 2011.  We anticipate the recommended program will cost approximately $101,770 (CAD$107,570). 

Mr. Michel Boily, Ph.D., P. Geo. was hired by Santos to provide a Technical Report in July 2007 on the Lourdeau Claims.  Mr. Boily does not have any interest in the Lourdeau Property or the Company.  The report is based on published and private reports, maps and data provided by the Company and in the public domain. 

Mr. Boily recommends a systemic surface sampling program of the Lourdeau Vein site and its vicinity, and the northern edge of the Lourdeau Hill, incorporating grab and channel sampling, in order to get a solid geochemical assay database.  Mr. Boily recommends obtaining a helicopter-borne geophysical survey to cover the rest of the Lourdeau Property.  Mr. Boily recommends the geophysical magnetic and radiometric surveys to be done on a 100 m spaced grid. 

Depending on the results of this program, the next phase could involve a drilling campaign which would define the targets acquired during the geophysical surveys and sampling campaign.  The focus of the drilling will be the uranium-mineralized sandstones at the Lourdeau Hill, with the gold, copper and silver-mineralized metavolcanic constituting secondary targets. 

14

We anticipate that additional funding will be in the form of equity financing from the sale of our common stock.  However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund additional phases of the exploration program should we decide to proceed. We believe that debt financing will not be an alternative for funding any further phases in our exploration program. The risky nature of this enterprise and lack of tangible assets places debt financing beyond the credit-worthiness required by most banks or typical investors of corporate debt until such time as an economically viable mine can be demonstrated. We do not have any arrangements in place for any future equity financing.

Risk Factors

An investment in Santos' common stock involves a number of very significant risks.  Prospective investors should refer to all the risk factors disclosed in Santos' Annual Report on Form 10-K filed with the SEC on May 28, 2010.

Financial Condition

As at August 31, 2010, Santos had a cash balance of $4,379.  Management does not anticipate generating any revenue for the foreseeable future.  When additional funds become required, the additional funding will come from equity financing from the sale of Santos' common stock.  If Santos is successful in completing an equity financing, existing shareholders will experience dilution of their interest in Santos.  Santos does not have any financing arranged and Santos cannot provide investors with any assurance that Santos will be able to raise sufficient funding from the sale of its common stock.  In the absence of such financing, Santos' business will fail.

Based on the nature of Santos' business, management anticipates incurring operating losses in the foreseeable future.  Management bases this expectation, in part, on the fact that very few mineral claims in the exploration stage ultimately develop into producing, profitable mines.  Santos' future financial results are also uncertain due to a number of factors, some of which are outside its control.  These factors include, but are not limited to:

• Santos' ability to raise additional funding;
• the market price for minerals; and
• the results of Santos' proposed exploration programs on its exploration mineral properties.

Due to Santos' lack of operating history and present inability to generate revenues, Santos' auditors have stated their opinion that there currently exists a substantial doubt about Santos' ability to continue as a going concern.  This means that there is substantial doubt whether Santos can continue as an on going business for the next 12 months unless we obtain additional capital to pay our bills.  We presently do not have the funds to conduct the recommended exploration program.  Further, even if Santos completes its current exploration program, we will require additional funds in order to place the Lourdeau Claims into commercial production.

Liquidity

Santos' internal sources of liquidity will be loans that may be available to Santos from management.  Although Santos has no written arrangements with any of directors and officers, Santos expects that the directors and officers will provide Santos with internal sources of liquidity, if it is required.

Also, Santos' external sources of liquidity will be private placements for equity conducted outside the United States.  Since inception on May 24, 2006 to August 31, 2010, Santos did not complete any definitive arrangements for any external sources of liquidity, except for a private placement in February 2008 where the Company issued 961,500 shares of common stock at $0.15 per share for proceeds of $144,226.

15

Capital Resources

As of August 31, 2010, Santos had total assets of $5,555 and total liabilities of $44,148 for a net working capital deficiency of $38,593, compared with a net working capital deficiency of $36,022 as of February 28, 2010 (a increase of $2,571).  The assets as at August 31, 2010 are comprised of cash of $4,379 and GST Receivable of $1,176.  The liabilities as at August 31, 2010 consisted of shareholders loan of $28,198 and accounts payables of $15,950.

There are no assurances that Santos will be able to achieve further sales of its common stock or any other form of additional financing.  If Santos is unable to achieve the financing necessary to continue its plan of operations, then Santos will not be able to continue its exploration programs and its business will fail.

Management does not believe that Santos' current cash will be sufficient to meet our general operating expenses for the next 12 months and to meet our obligations under the Property Option Agreement.  We do not have the funds to conduct the recommended exploration program which is estimated to cost approximately $102,224 (CAD$107,570).  We need to raise additional money to conduct our exploration program, however we have not been successful in raising funds.  If we are able to raise additional money, we plan to conduct our exploration program in the summer of 2011. 

Results of Operations

Our results of operations for the three and six month periods ended August 31, 2010 and 2009 are summarized as follows:

		Three months ended Aug. 31, 2010		Three months ended Aug. 31, 2009		Six months ended Aug. 31, 2010		Six months ended Aug. 31, 2009
Revenue	$	-	$	-	$	-	$	-
Operating Expenses	$	(403)	$	11,325	$	2,571	$	20,949
Net Loss	$	(403)	$	11,325	$	2,571	$	20,949

We did not earn any revenues for the six months ended August 31, 2010 and 2009.  We do not anticipate earning revenues until such time as we have entered into commercial production of our mineral 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 mineral resources on our properties, or if such resources are discovered, that we will enter into commercial production of our mineral properties.

Our expenses for the three and six month period ended August 31, 2010 and 2009 are outlined in the table below:

		Three months ended Aug. 31, 2010		Three months ended Aug. 31, 2009		Six months ended Aug. 31, 2010		Six months ended Aug. 31, 2009
General and Administrative	$	253	$	24	$	430	$	85
Foreign Exchange		(440)		100		(440)		756
Mineral Property Costs		-		-		-		8,926
Professional Fees		(216)		11,201		2,581		11,182
Total	$	(403)	$	11,325	$	2,571	$	20,949

Off-Balance Sheet Arrangements

Santos has no off-balance sheet arrangements.

16

Cautionary Statement Regarding Forward-Looking Statements

This quarterly report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "our company believes," "management believes" and similar language. These forward-looking statements are based on our current expectations and are subject to certain risks, uncertainties and assumptions, including those set forth in the following discussion, including under the heading "Risk Factors". Our actual results may differ materially from results anticipated in these forward-looking statements. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. In addition, our historical financial performance is not necessarily indicative of the results that may be expected in the future and we believe that such comparisons cannot be relied upon as indicators of future performance. Other important factors that could cause actual results to differ materially include the following: business conditions, the price of precious metals, ability to attract and retain personnel; the price of the Company's stock; and the risk factors set forth from time to time in the Company's SEC reports, including but not limited to its annual report on Form 10-K; its quarterly reports on Form 10-Q; and any current reports on Form 8-K.  In addition, the Company disclaims any obligation to update or correct any forward-looking statements in all the Company's annual reports and SEC filings to reflect events or circumstances after the date hereof.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of the Company's management, including the Company's principal executive officer and principal financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and Rule 15d-15(e) as of the end of the period covered by this quarterly report.  Based on that evaluation, the principal executive officer and principal financial officer have identified that the lack of segregation of accounting duties as a result of limited personnel resources is a material weakness of its financial procedures.  Other than for this exception, the principal executive officer and principal financial officer believe the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that our disclosure and controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies and material weaknesses.

Changes in Internal Control over Financial Reporting

None.

 

17

PART II  -  OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Not applicable.

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

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Removed and Reserved

Item 5. Other Information

None.

Item 6. Exhibits

			Incorporated by reference
Exhibit No.	Description of Exhibit	Filed herewith	Form	Exhibit	Filing date (mm/dd/yy)
3.1	Articles of Incorporation		S-1	3.1	07/14/08
3.2	Bylaws		S-1	3.2	07/14/08
4.1	Specimen Stock Certificate		S-1	4.1	07/14/08
10.1	Mineral Property Option Agreement dated June 25, 2007 between Starfire Minerals Inc. and Santos Resource Corp., whereby Santos has an option to acquire a 75% interest in and to the Lourdeau Property		S-1	10.1	07/14/08
10.2	Mineral Property Option Amending Agreement dated May 29, 2008 between Starfire Minerals Inc. and Santos Resource Corp.		S-1	10.2	11/26/08
10.3	Mineral Property Option Agreement Amendment No. 2 dated April 23, 2009 between Starfire Minerals Inc. and Santos Resource Corp.		10-K	10.3	05/27/09
10.4	Mineral Property Option Amending Agreement (third amendment) dated April 26, 2010 between Starfire Minerals Inc. and Santos Resource Corp.		8-K	10.4	04/30/10

 

18

			Incorporated by reference
Exhibit No.	Description of Exhibit	Filed herewith	Form	Exhibit	Filing date (mm/dd/yy)
31.1	Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1	Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X

SIGNATURES

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

	SANTOS RESOURCE CORP.
Date: October 15, 2010	By:       /s/ Richard Pierce                                              Richard Pierce             Director, President and Treasurer