slxcf_10q.htm

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 þ No o

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

	PART I – FINANCIAL STATEMENTS

Item 1.	Unaudited Condensed Interim Financial Statements	1

	Condensed Balance Sheets	1

	Condensed Interim Statements of Operations and Comprehensive Loss and Deficit	2

	Condensed Interim Statements of Cash Flows	3

	Notes to Condensed Interim Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4.	Evaluation of Disclosure Controls and Procedures	17

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	19

Item 1a.	Risk Factors	19

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19

Item 3.	Defaults Upon Senior Securities	19

Item 4.	Submission of Matters to a Vote of Security Holders	19

Item 5.	Other information	19

Item 6.	Exhibits	19

	As at March 31, 2010			As at December 31, 2009
	(Unaudited)
ASSETS
CURRENT	2010			2009
Cash and cash equivalents (Note 2)	$	1,795,557		$	2,325,212
Accounts receivable, net of allowance of $nil (2009 - $nil)		312,323			293,565
Inventories (Note 3)		652,045			721,061
Taxes recoverable		11,528			1,501
Loan receivable		15,818			15,818
Prepaids, deposits and sundry receivables (Note 4)		147,817			163,698
Total current assets		2,935,088			3,520,855
PROPERTY, PLANT AND EQUIPMENT, net (Note 5)		1,557,765			1,390,296
OTHER ASSETS (Note 6)		122,227			114,553
Total assets	$	4,615,080		$	5,025,704
LIABILITIES
CURRENT
Accounts payable	$	69,024		$	228,367
Accrued liabilities		132,900			175,637
Deferred revenues		7,937			2,890
Total current liabilities		209,861			406,894

CONTINGENCIES AND COMMITMENTS (Note 10)

SHAREHOLDERS’ EQUITY
CAPITAL STOCK
AUTHORIZED
Unlimited Non-voting, convertible, redeemable and retractable preferred shares with no par value

Unlimited Common shares with no par value

ISSUED (Note 7)
23,480,040 Common shares (2009 – 23,480,040)		8,183,638			8,183,638
Additional Paid-in capital options - outstanding		123,509			89,562
Additional Paid-in capital options - expired		724,127			724,127
		9,031,274			8,997,327
DEFICIT		(4,626,055	)		(4,378,517	)
Total shareholders’ equity		4,405,219			4,618,810
Total liabilities and shareholders’ equity	$	4,615,080		$	5,025,704

See accompanying notes to the condensed interim financial statements.

	For the Three Month Period
	Ended March 31,
	2010			2009
PRODUCT SALES (Note 15)	$	549,510		$	544,419
ROYALTIES & LICENSING REVENUE (Note 15)		28,369			228,096
TOTAL REVENUE FROM ALL SOURCES		577,879			772,515
COST OF PRODUCTS SOLD		203,757			154,955
GROSS PROFIT		374,122			617,560
EXPENSES
Selling, general and administrative (Note 7(e))		567,932			578,052
Research and development		26,270			5,608
Amortization of assets (non-manufacturing property, plant and equipment)		13,663			13,698
		607,865			597,358
(LOSS) INCOME FROM OPERATIONS		(233,743	)		20,202
INTEREST AND OTHER INCOME		1,513			4,975
LOSS ON DISPOSAL OF EQUIPMENT (Note 5)		(15,308	)		—
(LOSS) NET INCOME AND COMPREHENSIVE (LOSS) INCOME FOR THE PERIOD		(247,538	)		25,177
DEFICIT, beginning of period		(4,378,517	)		(4,615,553	)
DEFICIT, end of period	$	(4,626,055	)		(4,590,376	)
(LOSS) EARNINGS PER SHARE (Note 8) - Basic and diluted	$	(0.01	)	$	0.00
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - Basic and diluted		23,480,040			23,527,318

	For the Three Month Period
	Ended March 31,
	2010			2009
CASH FLOWS USED IN OPERATING ACTIVITIES
Net (loss) income	$	(247,538	)	$	25,177
Items not affecting cash
Amortization		26,785			34,995
Loss on disposal of equipment		15,308			––
Issuance of equity instruments for services rendered (Notes 7(b))		33,947			––
Change in non-cash operating assets and liabilities (Note 9)		(140,920	)		203,043
CASH FLOWS USED IN OPERATING ACTIVITIES		(312,419	)		263,215

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Additions to property, plant and equipment		(221,853	)		(197	)
Increase in other assets		(8,014	)		(6,957	)
Proceeds from sale of equipment (Note 5)		12,630			––
CASH FLOWS USED IN INVESTING ACTIVITIES		(217,237	)		(7,154	)

CASH FLOWS USED IN FINANCING ACTIVITIES
Repurchase of common shares for cash		––			(21,292	)
CASH FLOWS USED IN FINANCING ACTIVITIES		––			(21,292	)

CHANGE IN CASH AND CASH EQUIVALENTS		(529,655	)		234,769

CASH AND CASH EQUIVALENTS, beginning of period		2,325,212			2,105,966
CASH AND CASH EQUIVALENTS, end of period	$	1,795,557		$	2,340,735

These condensed unaudited interim financial statements should be read in conjunction with the financial statements for Stellar Pharmaceuticals Inc.’s (the "Company") most recently completed fiscal year ended December 31, 2009. These condensed interim financial statements do not include all disclosures required in annual financial statements but rather are prepared in accordance with recommendations for interim financial statements in conformity with accounting principles generally accepted in the United States of America. These condensed interim financial statements have been prepared using the same accounting policies, and methods as those used by the Company in the annual audited financial statements for the year ended December 31, 2009.

The unaudited condensed interim financial statements contain all adjustments (consisting of only normal recurring adjustments), which are necessary to present fairly the financial position of the Company as at March 31, 2010 and December 31, 2009, and the results of its operations and cash flows for the three month periods ended March 31, 2010 and 2009. Note disclosures have been presented for material updates to the information previously reported in the annual audited financial statements.

Estimates

The preparation of these financial statements has required management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of the revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to provision for doubtful accounts, accrued liabilities, income taxes, stock based compensation, revenue recognition and intangible assets. The Company bases its estimates on historical experiences and on various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates. As adjustments become necessary, they are reported in earnings in the period in which they become known.

Fair Value

The Company follows Financial Accounting Standards Board (FASB) ASC 820-10-65-1 (formerly referred to as SFAS 157), “Fair Value Measurements” (SFAS 157). ASC 820-10-65-1 defines fair value, establishes a framework for measuring fair value and expands disclosures regarding fair value measurements. ASC 820-10-65-1 defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10-65-1 provides guidance on how to measure the fair value of financial instruments according to a fair value hierarchy that prioritizes the information used to measure fair value into three broad levels. ASC 820-10-65-1 broadly applies to most existing pronouncements that require or permit fair value measurements (including both financial and non-financial assets and liabilities) but does not require any new fair value measurements.

In February 2008, the FASB issued ASC 820-10-65-1 (formerly referred to as FSP SFAS 157-2) “Effective Date of FASB Statement No. 157” (FSP SFAS 157-2), which permits a one-year deferral of the application of ASC 820-10-65-1 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of ASC 820-10-65-1 as of January 1, 2009, did not have a material impact on the Company’s non-financial assets and non-financial liabilities for the period

				March 31, 2010
			Accumulated		Net Carrying
	Cost		Amortization		Amount
Land	$	90,000	$	––	$	90,000
Building		618,254		153,963		464,291
Office equipment		43,302		40,532		2,770
Manufacturing equipment		1,412,309		534,138		878,171
Warehouse equipment		17,085		7,599		9,486
Packaging equipment		110,120		11,575		98,545
Computer equipment		125,115		110,613		14,502
	$	2,416,185	$	858,420	$	1,557,765

				December 31, 2009
			Accumulated		Net Carrying
	Cost		Amortization		Amount
Land	$	90,000	$	––	$	90,000
Building		618,254		146,236		472,018
Office equipment		43,302		40,338		2,964
Manufacturing equipment		1,219,490		522,959		696,531
Warehouse equipment		17,085		6,745		10,340
Packaging equipment		110,120		10,724		99,396
Computer equipment		125,116		106,069		19,047
	$	2,223,367	$	833,071	$	1,390,296

(a)

Common Shares

During the three month period ended March 31, 2010, no Common Shares were issued by the Company. On April 9, 2009, the Company commenced a normal course issuer bid (the "NCIB") for its Common Shares. Pursuant to the terms of the NCIB, the Company could during the 12 month period commencing April 9, 2009 and ending April 8, 2010, purchase up to 1,175,752 Common Shares. Purchases of Common Shares were made in open market transactions, at market prices prevailing at the time of acquisition. All Common Shares purchased under the NCIB will be cancelled.

Authorized: An unlimited number of Common Shares, with no par value.

(e)

Stock Based Compensation

The Company’s stock based compensation program includes stock options in which some options vest based on continuous service while others vest based on performance conditions, such as profitability and sales goals. For those equity awards that vest based on continuous service, compensation expense is recorded over the service period from the date of grant. For performance-based awards, compensation expense is recorded over the remaining service period when the Company determines that achievement is probable.

During the three month period ended March 31, 2010, there were no options granted (2009 – nil). Since share based compensation is recognized only for those awards that are ultimately expected to vest, the Company has applied an estimated forfeiture rate (based on historical experience and projected employee turnover) to unvested awards for the purpose of calculating compensation expense. For the period ended March 31, 2010, the Company recorded $33,947 (2009 – $nil) as compensation expense for options previously issued to directors, officers and employees based on continuous service. This was recorded as selling, general and administrative expense. The total number of options outstanding as at March 31, 2010 was 450,000 (2009 – 105,000).

As at March 31, 2010, the maximum number of options that may be issued under the plan is 4,629,452 (December 31, 2009 – 4,629,452).

The weighted average fair value of options expensed during the period ended March 31, 2010 was estimated at $0.88 (2009 - $nil).

The treasury stock method assumes that proceeds received upon the exercise of all warrants and options outstanding in the period are used to repurchase the Company's shares at the average share price during the period. The diluted earnings per share is not computed when the effect of such calculation is anti-dilutive. Total shares issuable of 263,750 (2009 – 202,500) from options, were excluded from the computation of diluted earnings (loss) per share as they were anti-dilutive for the period ended March 31, 2010 and 2009. The following table sets forth the computation of earnings (loss) per share:

The following table sets forth the computation of (loss) earnings per share:

	For the three months ended March
	2010			2009
Numerator - net (loss) earnings available to common shareholders
(Loss) earnings from operations	$	(247,538	)	$	25,177
Denominator – Weighted average number of Common Shares outstanding – Basic and diluted		23,480,040			23,527,318
(Loss) earnings per share Basic and diluted	$	(0.01	)	$	0.00

For the periods ended March 31	2010			2009
Accounts receivable	$	(18,758	)	$	231,119
Inventories		69,016			(242,858	)
Prepaids, deposits and sundry receivables		15,881			(106,284	)
Taxes recoverable		(10,027	)		(3,158	)
Accounts payable and accrued liabilities		(202,080	)		325,273
Deferred revenues		5,047			(1,049	)
	$	(140,921	)	$	203,043

(a)

Royalty Agreements

Royalty agreements were activated in November and December 2008 upon the signing of each of the European license agreements for sales of Uracyst® in the defined territories. These agreements involved royalty payments to be paid to the Consultants, who introduced the licensee to the Company. The royalty payments being issued to Consultants included 10% of the upfront fees received from the licensee and 10% to 50% of any future milestone payments received. In addition, royalty payments to consultants were also based on 4 to 5% of the total sales of Uracyst at a declining rate of 1% per year over a three to five year period, declining to a 1% rate effective in the final year. Expenses recorded in regards to licensing and royalty fees for the three month period ended March 31, 2010 were $827 (2009 - $32,061). These amounts have been recorded as royalty expense in selling, general and administrative.

(b)

Leases

The Company presently leases office and warehouse equipment under operating leases. For the three month period ended March 31, 2010 the total expense related to leases was $1,274 (2009 - $1,274). At March 31, 2010, the remaining future minimum lease payments under operating leases are $8,355 (December 31, 2009 - $9,629).

(c)

Consulting Agreements

In May 2005, the Company entered into a research and development agreement with a university in the United States. This agreement was extended until January 2009, for additional research to be performed. The program is on Bladder Urothelial research in interstitial cystitis and cost the Company US$265,300 over the period May 2005 to January 2009. The Company has approved an extension until August 2010 for ongoing work in regards to this research. During the three month period ended March 31, 2010, the Company has recorded $1,224 (2009 - $3,536) as research and development costs.

10.	CONTINGENCIES AND COMMITMENTS (CONTINUED)

(d)

Executive Termination Agreement

The Company’s President and Chief Executive Officer is the only officer who currently has an employment agreement with the Company. The agreement provides that in the event that the employment is terminated by the Company other than for cause, for good reason or within six months of a change of control of the Company, then the officer is an entitled to (i) a lump sum payment equal to $383,600 (based on current base salary), (ii) all outstanding and accrued regular and vacation pay and expenses and (iii) the immediate vesting of his options which shall continue to be available for exercise for a period of 30 days following the date of termination.

During the three month period ended March 31, 2010, the Company had three significant customers that represented 60.3% (one major wholesaler – 37.4%; and two international customers – 22.9%) of product sales (2009 – 44.1%; two significant customers that represented (one major wholesaler – 28.7%; and one international customer – 15.4%). The Company believes that its relationship with these customers is satisfactory.

The Company entered a fiscal advisory and consulting agreement in February 2010 with LMT Financial Inc. ("LMT") (a company beneficially owned by a director and his spouse) for, among other things, services to be provided for a one year period. Compensation under the new agreement has been recorded at $6,600 per month or $79,200 annually (2009 - $72,000). For the three month period ended March 31, 2010, the Company recorded and paid $19,200 (2009 - $18,000) as selling, general and administrative costs.

The Company has had no taxable income under the Federal and Provincial tax laws for the three month periods ended March 31, 2010 and 2009. The Company has non-capital loss carry-forwards at March 31, 2010 totaling $2,659,000, which may be offset against future taxable income. If not utilized, the loss carry-forwards will expire between 2010 and 2029. The cumulative carry-forward pool of SR&ED expenditures that may be offset against future taxable income, with no expiry date, is $1,880,800.

The non-refundable portion of the tax credits as at March 31, 2010 was $335,000. All taxable benefits are fully allowed for because the realization of the assets is undeterminable.

14.	RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements followed by the Company under U.S. GAAP are summarized below.

prices of deliverables, if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price. The update eliminates the use of the residual method and requires an entity to allocate revenue using the relative selling price method and also significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. ASC Update 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. As a result, ASC Update 2009-13 will be effective for the Company no later than the first quarter of fiscal 2011. The adoption of ASC Update 2009-13 may have a material impact on the Company’s financial position or results of operations for future collaborations arrangements. The Company is currently evaluating the impact on its financial statements.

ASU No. 2010-13 was issued in April 2010, and will clarify the classification of an employee share based payment award with an exercise price denominated in the currency of a market in which the underlying security trades. This ASU will be effective for the first fiscal quarter beginning after December 15, 2010, with early adoption permitted.

15.	SEGMENTED INFORMATION

The Company is engaged in one line of business which is in the development and marketing of polysaccharide-based therapeutic products used in a treatment of osteoarthritis and certain types of cystitis. Licensing arrangements have been obtained to distribute and sell the Company’s products in various countries including the United States of America.

The Company is engaged in the sale of three lines of product:

Royalty and licensing revenues for the three month periods ended March 31, 2010 and 2009 includes royalties earned during these periods, as well as, license fee milestones. The Company did not sign any license agreements during the three month period ended March 31, 2010, therefore, license fees are $nil for the three month period ended March 31, 2010. Revenues earned are as follows:

The Company currently sells its own products and is in-licensing other products in Canada. In addition, revenues include products which the Company out-licenses in Europe, the Caribbean, Lebanon, Malaysia, Kuwait, Romania, the United Arab Emirates and Turkey. The continuing operations reflected in the statements of operations include the Company’s activities in these markets.

The Company enters into foreign currency transactions in the normal course of business. During the three month period ended March 31, 2010, the Company had a foreign currency loss of $20,240 (2009 – $1,395). These amounts have been included in selling, general and administrative expenses on the statement of operations.

On May 6, 2010, Company signed a license agreement with medac GmbH ("medac") for the distribution and sale of Uracyst® in Germany and Austria. Under the terms of the agreement, medac will pay Stellar an upfront licensee fee in addition to a specified transfer price in exchange for the rights to an exclusive agreement for this territory. The agreement has an initial five-year term with additional two-year renewal periods.

Readers are cautioned that actual results may differ materially from the results projected in any "forward-looking" statements included in this report, which involve a number of risks or uncertainties. Forward-looking statements are statements that are not historical facts, and include statements regarding the Company’s planned research and development programs, anticipated future losses, revenues and market shares, planned clinical trials, expected future expenditures, the Company’s intention to raise new financing, sufficiency of working capital for continued operations, and other statements regarding anticipated future events and the Company’s anticipated future performance. Forward-looking statements generally can be identified by the words "expected", "intends", "anticipates", "feels", "continues", "planned", "plans", "potential", "with a view to", and similar expressions or variations thereon, or that events or conditions "will", "may", "could" or "should" occur, or comparable terminology referring to future events or results.

The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of numerous factors, including those listed under "Risks and Uncertainties", any of which could cause actual results to vary materially from current results or the Company's anticipated future results. The Company assumes no responsibility to update the information contained herein.

In September 2009, the FASB Emerging Issues Task Force, or EITF, reached a consensus on ASC Update 2009-13 (Topic 605), Multiple-Deliverable Revenue Arrangements, or ASC Update 2009-13. ASC Update 2009-13 applies to multiple-deliverable revenue arrangements that are currently within the scope of ASC 605-25. ASC Update 2009-13 provides principles and application guidance on whether multiple deliverables exist and how the arrangement should be separated and the consideration allocated. ASC Update 2009-13 requires an entity to allocate revenue in an arrangement using estimated selling prices of deliverables, if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price. The update eliminates the use of the residual method and requires an entity to allocate revenue using the relative selling price method and also significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. ASC Update 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. As a result, ASC Update 2009-13 will be effective for the Company no later than the first quarter of fiscal 2011. The adoption of ASC Update 2009-13 may have a material impact on the Company’s financial position or results of operations for future collaborations arrangements. The Company is currently evaluating the impact on its financial statements.

Stellar, founded in 1996, is a Canadian pharmaceutical company involved in the development and commercialization of high quality, polysaccharide-based therapeutic products used in the treatment of osteoarthritis and certain types of cystitis. Stellar also markets a test kit that confirms the existence of bladder lining defects in interstitial cystitis ("IC") (an inflammatory disease of the urinary bladder wall) patients and helps identify those patients who should respond positively to the Company’s proprietary therapeutic product. Stellar’s product development strategy focuses on seeking novel applications for its product technologies in markets where its products demonstrate true, cost-effective therapeutic advantages. Stellar is also building revenues through in-licensing products for Canada that are focused on similar niche markets and out-licensing to international markets.

In December 2006, the Company entered into license and supply agreements with Watson Pharma, Inc. ("Watson"), whereby Watson was granted the exclusive rights and license to use the methods and technical know-how for the purposes of developing, marketing and selling Uracyst products in the United States.

Under the terms of the agreement, Watson is responsible for conducting clinical trials and obtaining regulatory approvals for Uracyst in the United States. Watson has completed a Canadian-based, placebo controlled, pilot clinical study in IC patients, which were presented in late 2009 and is currently conducting an Uracyst multicenter, phase II clinical trial in the United States. The results of these studies will be utilized in designing the pivotal Phase III safety and efficacy trial, the data from which will be submitted to the United States Food and Drug Administration (FDA) in support of marketing approval. Although it cannot be certain, Stellar anticipates that the FDA approval required to market Uracyst in the United States will be obtained around the end of 2011. There can be no assurance, however, that such FDA approvals will be obtained or that Stellar or its United States licensee will be able to successfully market its products in the United States. The costs associated with obtaining such FDA approval for Uracyst is the responsibility of Watson.

Stellar markets its products in Canada through its own direct sales force of commissioned and salaried sales people. The Company’s focus on product development continues to be both in-licensing and out-licensing for immediate impact on the revenue stream allowing Stellar to fund its own in-house product development for future growth and stability.

For the three month period ended March 31, 2010, total operating revenues from all sources decreased by 25.2% to $577,900 compared to $772,500 in the same period during 2009. This differential was mainly due to licensing revenues of $219, 200, which occurred in 2009 compared to no licensing revenues recorded in 2010. The Company had anticipated licensing fees in the first quarter, which unfortunately did not materialize until May. Had these revenues been recorded in the first quarter of 2010 the Company would have surpassed the revenues of 2009. During the first quarter of 2010, international sales were down by 3.0% due to one NeoVisc order being rescheduled from March 2010 delivery to May 2010 delivery. International Uracyst sales (including royalties) for the first quarter of 2010, increased by 30.0% over the same period of 2009 as our European licensees continue to increase market share. Domestic sales for NeoVisc were up by 10.8%, which is viewed as favourable growth given the highly competitive Canadian viscosupplement market. Uracyst sales were also up 13.8% as its efficacy in treating GAG deficient cystitis continues to grow. BladderChek’s sales decreased 14.7% for the quarter.

The first quarter of 2010 is still being impacted by a weaker economy, but the Company expects, although it can not be certain, that the second quarter will show much stronger growth from all markets. The Company’s net loss for the first quarter of 2010 was ($247,500) compared to a profit of $25,200 in the same period in 2009.

Stellar continues to invest in research, of its products in Canada and in international markets. In the three month period ended March 31, 2010, the Company incurred $26,300 in research and development compared to $5,600 in research costs in the same period in 2009. During 2010, the Company continued its development of manufacturing processes to improve yields from both Uracyst and NeoVisc production. This work is an ongoing task allowing Stellar to improve its manufacturing processes and remain competitive in the global market.

Interest and other income during the three month period ended March 31, 2010 was $1,500 (2009 - $5,000). These amounts include interest received on short-term investments for both 2010 and 2009. In 2010, interest earned on its short-term investments was an average of 0.29% compared to an average of 1.01% in 2009, resulting in a decrease in interest income in 2010.

Quarter Ended	Revenues		Net Income (loss)			Earnings (loss) per share
March 31, 2010	$	577,900	$	(247,500	)	$	(0.01	)
December 31, 2009		907,600		23,200			0.00
September 30, 2009		826,900		25,900			0.00
June 30, 2009		1,074,300		164,700			0.01
March 31, 2009		772,500		25,200			0.00
December 31, 2008		903,000		196,000			0.00
September 30, 2008		481,100		(60,300	)		0.00
June 30, 2008		647,900		(68,000	)		0.00

The Company may seek additional funding, primarily by way of one or more equity offerings, to carry out its business plan and to minimize risks to its operations. The market for equity financing for companies such as Stellar is challenging and there can be no assurance that additional funding will become available by way of equity financing. Any additional equity financing may result in significant dilution to the existing shareholders at the time of such financing. The Company may also seek additional funding from other sources, including technology licensing, co-development collaborations, and other strategic alliances. Such funding, if obtained, may reduce the Company’s interest in its projects or products. Regardless, there can be no assurance that any alternative sources of funding will be available to the Company.

The Company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

The Company entered a fiscal advisory and consulting agreement in February 2010 with LMT Financial Inc. ("LMT") (a company beneficially owned by a director and his spouse) for, among other things, services to be provided for a one year period. Compensation under the agreement has been recorded at $6,600 per month or $79,200 annually (2009 - $72,000). Pursuant to this agreement, LMT assists and will continue to assist the Company in assessing available methods of financing the operations of the Company and the impact on the market for Common Shares in the United States created by developments in Stellar’s business.

The Company has authorized an unlimited number of Common Shares, without par value. There are no other classes of shares issued. During the three month period ended March 31, 2010, no Common Shares (2009 – nil) were issued by the Company. As of the date of this report, the Company has 23,480,040 Common Shares issued and outstanding.

As at May 7, 2010, the Company is debt free and had working capital of $2,590,500. Management remains confident that it can continue to fund its ongoing operations from several sources, including the sale of its products, milestone payments and royalty income resulting from out-licensing agreements for at least the next 12 months.

This quarterly report and the documents incorporated or deemed to be incorporated by reference in this quarterly report contain statements concerning our future results and performance and other matters that are "forward-looking" statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The words "believe," "expect," "anticipate," "intend," "plan," "project," "may," "will," and variations of such words or similar expressions are intended, but are not the exclusive means, to identify forward-looking statements. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements.

Based on an evaluation of the Company’s disclosure controls and procedures performed by the Company’s Chief Executive Officer and Chief Financial Officer as of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

As used herein, “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms issued by the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its chief executive officer and its chief financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

We make available free of charge through our website, www.stellarpharma.com, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as soon as reasonably practicable after those reports are filed with or furnished to the Securities and Exchange Commission (“SEC”).

The public may read any of the items we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding the Company and other issuers that file electronically with the SEC at http://www.sec.gov.

Exhibit No.		Description
31.1		Certificate of the Chief Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certificate of the Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certificate of the Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certificate of the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2010
or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____________ to _____________

ONTARIO, CANADA	0-31198	N/A
(State or Other Jurisdiction	(Commission	(I.R.S. Employer
of Incorporation)	File Number)	Identification No.)

	March 31,		December 31,
	2010		2009
Raw materials	$	207,923	$	182,123
Finished goods		118,624		113,531
Packaging materials		63,430		67,571
Work in process		262,068		357,836
	$	652,045	$	721,061

	March 31,		December 31,
	2010		2009
Prepaid operating expenses	$	131,280	$	161,140
Deposit on manufactured goods*		13,750		––
Interest receivable on investments		2,787		2,558
	$	147,817	$	163,698

	March 31,
Products sales	2010			2009
NeoVisc		66.5	%		51.0	%
Uracyst		27.4	%		18.5	%
BladderChek		0.9	%		0.8	%
Subtotal		94.8	%		70.3	%
Licensing & royalty fees		4.9	%		29.5	%
Other		0.3	%		0.2	%

	Number of Shares		Amount
Balance, January 1, 2010		23,480,040	$	8,183,638
Share transactions		––		––
Balance, March 31, 2010		23,480,040	$	8,183,638

	March 31,
Royalties and licensing revenue	2010			2009
Royalty revenues		$	28,369		$	8,890
Licensing fees			––			219,206
Royalty and licensing revenue		$	28,369		$	228,096