Tribute Pharmaceuticals Canada (SLRXF) 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2010
or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: ______ to ________

STELLAR PHARMACEUTICALS INC.

 (Exact name of small business issuer as specified in its charter)

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

544 Egerton St London, Ontario Canada	N5W 3Z8
(Address of Principal Executive Office)	(Zip Code)

(519) 434-1540

 (Issuer’s telephone number, including area code)

N/A

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

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):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer   (Do not check if a smaller reporting company)	o	Smaller Reporting Company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of outstanding common shares, no par value, of the Registrant at: September 30, 2010: 23,585,040

STELLAR PHARMACEUTICALS INC.

TABLE OF CONTENTS

PART I – FINANCIAL STATEMENTS

Item 1.	Unaudited Condensed Interim Financial Statements
	Condensed Interim Balance Sheet	1
	Condensed Interim Statements of Operations, Comprehensive Income 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	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Evaluation of Disclosure Controls and Procedures	19
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1a.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Submission of Matters to a Vote of Security Holders	21
Item 5.	Other information	21
Item 6.	Exhibits	21

i

PART I –FINANCIAL STATEMENTS

ITEM 1. CONDENSED INTERIM FINANCIAL STATEMENTS

STELLAR PHARMACEUTICALS INC.

BALANCE SHEETS

(Expressed in Canadian dollars)

	As at September 30, 2010			As at December 31, 2009
	(Unaudited)
ASSETS
CURRENT
Cash and cash equivalents (Note 2)	$	3,274,412		$	2,325,212
Accounts receivable, net of allowance of $nil (2009 - $nil)		608,513			293,565
Inventories (Note 3)		799,825			721,061
Taxes recoverable		5,998			1,501
Loan receivable		15,814			15,818
Prepaids, deposits and sundry receivables (Note 4)		125,000			163,698
Total current assets		4,829,562			3,520,855
PROPERTY, PLANT AND EQUIPMENT, net (Note 5)		1,574,899			1,390,296
OTHER ASSETS (Note 6)		129,999			114,553
Total assets	$	6,534,460		$	5,025,704
LIABILITIES
CURRENT
Accounts payable	$	134,847		$	228,367
Accrued liabilities		91,173			175,637
Deferred revenues		4,473			2,890
Total current liabilities		230,493			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)
23,585,040 Common shares (December 31, 2009 – 23,480,040)		8,291,429			8,183,638
Additional Paid-in capital options - outstanding		172,849			89,562
Additional Paid-in capital options -  expired		724,127			724,127
		9,188,405			8,997,327
DEFICIT		(2,884,438	)		(4,378,517	)
Total shareholders’ equity		6,303,967			4,618,810
Total liabilities and shareholders’ equity	$	6,534,460		$	5,025,704

See accompanying notes to the condensed interim financial statements.

1

STELLAR PHARMACEUTICALS INC.

CONDENSED STATEMENTS OF OPERATIONS, COMPREHENSIVE INCOME AND DEFICIT

 (Expressed in Canadian Dollars)

(Unaudited)

	For the Three Month Period Ended September 30						For the Nine Month Period Ended September 30
	2010			2009			2010			2009
PRODUCT SALES (Note 15)	$	690,881		$	811,684		$	2,052,144		$	2,270,229
ROYALTY AND LICENSING REVENUES (Note 15)		1,546,044			15,233			2,018,472			403,498
TOTAL REVENUES FROM ALL SOURCES		2,236,925			826,917			4,070,616			2,673,727
COST OF PRODUCTS SOLD		235,334			275,710			719,809			763,744
GROSS PROFIT		2,001,591			551,207			3,350,807			1,909,983
EXPENSES
Selling, general and administrative (Notes 7(a), (d) and 12)		566,371			505,391			1,726,890			1,646,388
Research and development (Note 10 (c))		45,606			9,009			81,560			16,420
Amortization (non-manufacturing property, plant and equipment)		11,600			14,488			38,919			41,888
		623,577			528,888			1,847,369			1,704,696
INCOME FROM OPERATIONS		1,378,014			22,319			1,503,438			205,287
INTEREST AND OTHER INCOME		2,827			3,559			5,949			10,462
LOSS ON DISPOSAL OF EQUIPMENT (Note 5)		-			-			(15,308	)		-
INCOME AND COMPREHENSIVE INCOME FOR THE PERIOD BEFORE INCOME TAXES		1,380,841			25,878			1,494,079			215,749
Current income tax expense (Note 13)		(421,300	)		(10,100	)		(435,100	)		(18,200	)
Future income tax recovery (Note 13)		421,300			10,100			435,100			18,200
NET INCOME AND COMPREHENSIVE INCOME FOR THE PERIOD		1,380,841			25,878			1,494,079			215,749
DEFICIT, beginning of period		(4,265,279	)		(4,425,682	)		(4,378,517	)		(4,615,553	)
DEFICIT, end of period	$	(2,884,438	)	$	(4,399,804	)	$	(2,884,438	)	$	(4,399,804	)
EARNINGS PER SHARE - basic (Note 8)	$	0.06		$	0.00		$	0.06		$	0.01
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC (Note 8)		23,585,040			23,493,736			23,517,256			23,505,241
EARNINGS PER SHARE - diluted (Note 8)	$	0.06		$	0.00		$	0.06		$	0.01
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED (Note 8)		23,594,579			23,493,736			23,518,390			23,505,241

See accompanying notes to condensed interim financial statements.

2

STELLAR PHARMACEUTICALS INC.

STATEMENTS OF CASH FLOWS

(Expressed in Canadian dollars)

(Unaudited)

	For the Three Month Period  Ended September 30						For the Nine Month Period Ended September 30
	2010			2009			2010			2009
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES -
Net income for the period	$	1,380,841		$	25,878		$	1,494,079		$	215,749
Items not affecting cash
Amortization		21,474			15,770			79,053			83,885
Current income tax expense		(421,300	)		(10,100	)		(435,100	)		(18,200	)
Future income tax recovery		421,300			10,100			435,100			18,200
Loss on disposal of equipment		-			-			15,308			-
Issuance of equity instruments for services rendered (Note 7(a))		-			-			4,000			-
Stock-based compensation (Note 7(d))		66,689			-			118,079			-
Change in non-cash operating asset and liabilities    (Note 9)		39,974			65,698			(535,908	)		(322,815	)
CASH FLOWS (USED IN) OPERATING ACTIVITIES		1,508,978			107,346			1,174,611			(23,181	)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES -
Additions to property, plant and equipment		(28,052	)		(66,899	)		(290,194	)		(112,776	)
Increase to other assets		(6,000	)		-			(16,847	)		(26,231	)
Proceeds from sale of equipment (Note 5)		-			-			12,630			-
CASH FLOWS USED IN INVESTING ACTIVITIES		(34,052	)		(66,899	)		(294,411	)		(139,007	)
CASH FLOWS USED IN FINANCING ACTIVITIES -
Stock options exercised (Note 7(a))		-			-			69,000			-
Re-purchase of Common shares for cash		-			(9,293	)		-			(30,584	)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES		-			(9,293	)		69,000			(30,584	)
CHANGE IN CASH AND CASH EQUIVALENTS		1,474,926			31,154			949,200			(192,772	)
CASH AND CASH EQUIVALENTS
Beginning of period		1,799,486			1,882,040			2,325,212			2,105,966
CASH AND CASH EQUIVALENTS,
End of period	$	3,274,412		$	1,913,194		$	3,274,412		$	1,913,194

See accompanying notes to condensed interim financial statements.

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STELLAR PHARMACEUTICALS INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

(Expressed in Canadian dollars)

 (Unaudited)

SEPTEMBER 30, 2010

1. BASIS OF PRESENTATION

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 September 30, 2010, and the results of its operations and cash flows for the three and nine month periods ended September 30, 2010 and 2009.  Note disclosures have been presented for material updates to the information previously reported in the annual audited financial statements.

a) 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.

b) 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.

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STELLAR PHARMACEUTICALS INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION (continued)   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.

2. CASH AND CASH EQUIVALENTS

	September 30,		December 31,
	2010		2009
Cash	$	1,975,530	$	824,558
Short-term investments		1,298,882		1,500,654
	$	3,274,412	$	2,325,212

3. INVENTORIES

	September 30,		December 31,
	2010		2009
Raw materials	$	196,504	$	182,123
Finished goods		140,542		113,531
Packaging materials		95,017		67,571
Work in process		367,762		357,836
	$	799,825	$	721,061

4. PREPAIDS, DEPOSITS AND SUNDRY RECEIVABLES

	September 30,			December 31,
	2010			2009
Prepaid operating expenses		$	121,513		$	161,140
Interest receivable on investments			3,487			2,558
		$	125,000		$	163,698

5

STELLAR PHARMACEUTICALS INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

5. PROPERTY, PLANT AND EQUIPMENT

				September 30, 2010
			Accumulated		Net Carrying
	Cost		Amortization		Amount
Land	$	90,000	$	––	$	90,000
Building		618,254		169,420		448,834
Office equipment		44,308		40,958		3,350
Manufacturing equipment		1,467,004		558,687		908,317
Warehouse equipment		17,085		9,308		7,777
Packaging equipment		110,120		14,036		96,084
Computer equipment		137,755		117,220		20,535
	$	2,484,526	$	909,629	$	1,574,897

During the nine month period ended September, 2010, the Company disposed of $29,035 in assets from manufacturing equipment and recorded a reduction to accumulated amortization of $1,097 and ($15,308) to loss on disposal of equipment.

				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

6. OTHER ASSETS

				September 30, 2010
			Accumulated		Net Carrying
	Cost		Amortization		Amount
Patents	$	139,641	$	9,642	$	129,999

				December 31, 2009
			Accumulated			Net Carrying
	Cost		Amortization			Amount
Patents	$	122,793		$	8,240	$	114,553

The Company currently has patents of $74,587 which are not being amortized as these patents are currently pending or have not been fully authorized.

6

STELLAR PHARMACEUTICALS INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

7. CAPITAL STOCK

(a) Common Shares   During the nine month period ended September 30, 2010, 100,000 (2009 – nil) Common Shares were issued by the Company for options exercised by officers and employees of the Company for gross proceeds of $69,000.  The Company issued 5,000 Common Shares to consultants valued at $4,000 based on the fair market value, as payment for services rendered, which was charged to the statement of operations as selling, general and administrative expense.   Authorized – Unlimited Common shares with no par value

	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
Options exercised		100,000		69,000
Valuation allocation on exercise of stock options		––		34,791
Shares issued to consultants		5,000		4,000
Balance, June 30 and September 30, 2010		23,585,040	$	8,291,429

(b) Paid-in Capital Options - Outstanding

	Amount
Balance, January 1, 2010	$	89,562
Expense recognized for options issued to employees/ directors		33,947
Balance, March 31, 2010		123,509
Valuation allocation on exercise of stock options		(34,792	)
Expense recognized for options issued to employees/ directors		17,443
Balance, June 30, 2010		106,160
Expense recognized for options issued to employees/ directors		66,689
Balance, September 30, 2010	$	172,849

(c) Paid-in Capital Options - Expired   For the three and nine month periods ended September 30, 2010 there were no changes to the paid-in capital options expired.

(d) 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.

7

STELLAR PHARMACEUTICALS INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

7. CAPITAL STOCK (continued)

During the three month and nine month periods ended September 30, 2010, the Company issued a total of 615,000 (2009 – nil) stock options to its directors and officers. The exercise price of these options has been set at $0.95, with quarterly vesting terms over a three year period. 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 three and nine month periods ended September 30, 2010, the Company recorde d $66,689 and $118,079, respectively (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 September 30, 2010 was 942,500 (December 31, 2009 – 460,000).  The total number of options exercisable as at September 30, 2010 was 263,750 (December 2009 – 202,500)

As at September 30, 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 nine month period ended September 30, 2010 was estimated at $0.93 (2009 - $nil).

8. EARNINGS PER SHARE   The treasury stock method assumes that proceeds received upon the exercise of all dilutive warrants and stock options outstanding in the period would be used to repurchase the Company's shares at the average market price during the period, with the incremental number of shares being included in the denominator of the diluted earnings per share calculation. The diluted earnings per share is not computed when the effect of such calculation is anti-dilutive.   The following table sets forth the computation of earnings per share based on the treasury method:

	For the Three Month Period					For the Nine Month Period
For the periods ended September 30	2010			2009			2010			2009
Numerator - net earnings available to common shareholders Net earnings	$	1,380,841		$	25,878	$	1,494,079		$	215,749
Denominator - Weighted average # of Common Shares outstanding - basic		23,585,040			23,493,736		23,517,256			23,505,241
Dilutive effect of stock options		263,750			-		263,750			-
Repurchase of shares under treasury stock method		(254,211	)		-		(262,616	)		-
Denominator - Weighted average # of Common Shares outstanding - diluted		23,594,579			23,493,736		23,518,390			23,505,241
Earnings per share - basic	$	0.06		$	0.00	$	0.06		$	0.01
Earnings per share - diluted	$	0.06		$	0.00	$	0.06		$	0.01

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STELLAR PHARMACEUTICALS INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

9. STATEMENT OF CASH FLOWS

Changes in non-cash balances related to operations are as follows:

	For the Three Month Period						For the Nine Month Period
For the periods ended  September 30	2010			2009			2010			2009
Accounts receivable	$	131,725		$	300,144		$	(314,948	)	$	172,372
Inventories		(112,622	)		69,260			(78,764	)		(217,487	)
Prepaids, deposits and sundry receivables		20,152			49,223			38,698			(96,896	)
Taxes recoverable		(5,998	)		(10,262	)		(4,497	)		(3,702	)
Loan receivable		-			-			4			-
Accounts payable and accrued liabilities		11,398			(347,714	)		(177,984	)		(184,250	)
Taxes payable		(1,917	)		-			-			-
Deferred revenues		(2,764	)		5,047			1,583			7,148
	$	39,974		$	65,698		$	(535,908	)	$	(322,815	)

Non-cash transactions for the three and nine month periods ended September 30, 2010, for the purchase of manufacturing equipment were $nil (2009 – $15,07l). During the three and nine month periods ended September 30, 2010 there was no interest or taxes paid (2009 – $nil).

10. CONTINGENCIES AND COMMITMENTS

(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 and nine month periods ended September 30, 2010 were $21,006 and $66,010, respectively  (2009 - $7,854 and $50,875, respectively).  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 and nine month periods ended September 30, 2010 the total expense related to leases was $949 and $3,497 (2009 - $1,274 and $3,822, respectively).   At September 30, 2010, the remaining future minimum lease payments under operating leases are $6,132 (December 31, 2009 - $9,629) due over the next two years.

(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 $333,790 over the period May 2005 to January 2009.  For the three and nine month periods ended September 30, 2010, the Company recorded $1,224 and $12,999, respectively (2009 - $3,536 and $3,356, respectively) to research and development expense.

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STELLAR PHARMACEUTICALS INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

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 with a change of control provision.  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 followi ng the date of termination.

11. SIGNIFICANT CUSTOMERS   During the three month period ended September 30, 2010, the Company had two significant customers that represented 72% (one major wholesaler – 12%; and one international customer – 60%) of revenues (2009 - three significant customers that represented 60% (one major wholesaler – 24%; and two international customer – 23% and 13%). During the nine month period ended September 30, 2010, the Company had three significant customers that represented 64% (one major wholesaler – 19%; and two international customers –33% and 12%) of revenues (2009 –  48%; three significant customers that represented (one major wholesaler – 22%; and two international customers – 15% and 11%).   The Company believes that its relationships with these customers are satisfactory.

12. RELATED PARTY TRANSACTIONS   The Company amended 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 and nine month periods ended September 30, 2010, the Company recorded and paid $19,800 and $58,800, respectively (2009 - $18,000 and $54,000, respectively) as selling, general and administrative costs.

13. INCOME TAXES   The Company has non-capital loss carry-forwards at September 30, 2010 of approximately $1,088,300, 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 September 30, 2010 was $335,000.  All taxable benefits are fully allowed for because the realization of the assets is undeterminable.   During the three and nine month periods ended September 30, 2010, the Company recognized a future income tax recovery of $421,300 and $435,100 (2009 - $10,100 and $18,200) as the Company used its non-capital loss carry forwards to offset its current income tax expense.

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STELLAR PHARMACEUTICALS INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

14. RECENT ACCOUNTING PRONOUNCEMENTS   Recent accounting pronouncements followed by the Company under U.S. GAAP are summarized below.   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 th e 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.  The Company is currently evaluating the impact on its financial statements.

15. SEGMENTED INFORMATION   Revenue for the three and nine month periods ended September 30, 2010 and 2009 includes products sold in Canada and international sales of products.  Revenue earned is as follows:   The Company is engaged in the sale of three lines of product:

	September 30
	Unaudited
	For the Three Month Period						For the Nine Month Period
Product Sales	2010			2009			2010			2009
NeoVisc		17.7	%		69.7	%		32.9	%		63.4	%
Uracyst		12.6	%		27.8	%		16.6	%		20.5	%
BladderChek		0.5	%		0.5	%		0.8	%		0.8	%
Subtotal		30.8	%		98.0	%		50.3	%		84.7	%
Licensing & Royalty Fees		69.1	%		1.8	%		49.5	%		15.1	%
Other		0.1	%		0.2	%		0.2	%		0.2	%

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STELLAR PHARMACEUTICALS INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

15. SEGMENTED INFORMATION (continued)   Royalty and licensing revenues for the three and nine month periods ended September 30, 2010 and 2009 includes royalties earned during these periods, as well as license fee milestones.  Revenues earned are as follows:

	September 30 Unaudited
	For the Three Month Period				For the Nine Month Period
Product Sales	2010		2009		2010		2009
Domestic sales	$	448,932	$	405,172	$	1,382,135	$	1,250,742
International sales		239,814		405,512		663,730		1,016,245
Other revenues		2,135		1,000		6,279		3,242
Total Product Sales	$	690,881	$	811,684	$	2,052,144	$	2,270,229
Royalties & Licensing Revenues
Licensing fees	$	1,446,168	$	-	$	1,849,960	$	376,687
Royalty payments		99,376		15,233		168,512		26,811
Total Royalty & Licensing Revenues	$	1,546,044	$	15,233	$	2,018,472	$	403,498

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

16. FOREIGN CURRENCY GAIN (LOSS)   The Company enters into foreign currency transactions in the normal course of business.  During the three and nine month periods ended September 30, 2010, the Company had a foreign currency (gain) loss of ($12,015) and $3,461, respectively (2009 – $20,200 and $41,723, respectively).  These amounts have been included in selling, general and administrative expenses on the statement of operations.

17. SUBSEQUENT EVENTS   Subsequent to September 30, 2010, the Company completed a non-brokered private placement consisting of 1,000,000 units of the Company ("Units") at a price of US$1.00 per Unit for gross proceeds of US$1,000,000.  Each Unit consists of one Common Share and one-half of a Series 1 Warrant, one-half of a Series 2 Warrant and one-half of a Series 3 Warrant.  Each whole Series 1 Warrant entitles the holder to acquire one Common Share during a period of 18 months from the Closing Date at an exercise price of US$1.50, subject to adjustment as set forth in the Series 1 Warrant.  Each whole Series 2 Warrant entitles the holder to acquire one Common Share during a period of 18 months from the Closing Date at an exercise price of $2.00, subject to adjustment as set forth in the Series 2 Warrant.  Each whole Series 3 Warrant entitles the holder to acquire one Common Share during a perio d of 18 months from the Closing Date at an exercise price of $2.50, subject to adjustment as set forth in the Series 3 Warrant.  In establishing the pricing for the Units, the market price of the Common Shares in effect at the time of the private placement negotiations was considered. The Company granted customary registration rights with respect to the Common Shares covered by the Units.

12

STELLAR PHARMACEUTICALS INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

17. SUBSEQUENT EVENTS (continued)   Subsequent to September 30, 2010, the Company announced that its U.S. licensee, has verbally informed the Company that its preliminary analysis of data from a recently completed placebo controlled pilot study using the Company’s Uracyst® product to treat interstitial cystitis/ painful bladder syndrome ("IC/PBS") did not meet statistical significance in its primary endpoints and, as a result, the company has elected not to proceed with Uracyst for the United States market.

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ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

This document was prepared on November 11, 2010 and should be read in conjunction with the September 30, 2010 financial statements of Stellar Pharmaceuticals Inc. ("Stellar" or the "Company").  All amounts are stated in Canadian dollars and have been rounded to the nearest one hundredthdollar.

FORWARD-LOOKING STATEMENTS

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", "cont inues", "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.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to the Company’s Critical Accounting Policies and Assumptions filed in the Company’s 2009 Annual Report on the Form 10-K.

RECENT ACCOUNTING PRONOUNCEMENTS

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 us ing 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.

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OVERVIEW

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’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.

Stellar has developed and is marketing three products in Canada based on its core polysaccharide technology:

(i)    NeoVisc®, 3 injection treatment for osteoarthritis;

(ii)    NeoVisc® Single Dose, a single injection treatment for osteoarthritis: and

(iii)    Uracyst®; for the treatment of Interstitial Cystitis (IC)

Stellar also has acquired the exclusive Canadian marketing and distribution rights for: Matritech’s, NMP22® BladderChek® ("BladderChek"), a proteomics-based diagnostic test for the diagnosis and monitoring of bladder cancer.  Stellar began selling BladderChek in Canada in October 2004.

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.

Stellar currently has out-licensing agreements for NeoVisc and Uracyst in 58 countries.  For an overview of these out-licensing agreements refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2010

For the three month period ended September 30, 2010, total operating revenues from all sources increased by 170.5% to $2,236,900 compared to $826,900 for the same period in 2009.  This differential was impacted by milestone revenue from Watson Pharma, Inc of $1,345,200 (US$1,300,000) related to the issuance of the Company’s Uracyst high dose patent in the USA. During the third quarter of 2010, international NeoVisc sales were down by 78.1% directly related to the negative economic situation in Eastern Europe.  This situation is not expected to improve in the next quarter, however, it is difficult to provide accurate projections at this time. International Uracyst sales (including royalties) for the third quarter of 2010, increased by 78.3% over the same period of 2009 as our European licensees continue to incr ease market share.  Canadian sales for NeoVisc were up 7.3%, as an improved marketing focus has had favourable results in this highly competitive Canadian viscosupplement market.  Canadian Uracyst sales were up 17.1% for the quarter, as continued positive results in treating GAG deficient cystitis are positively influencing this market.  BladderChek sales increased 182.7% for the quarter, which is an encouraging sign for its future potential.

For the nine month period ended September 30, 2010, total operating revenues from all sources increased by 52.2% to $4,070,600 compared to $2,673,700 for the same period in 2009.  This increase primarily attributed to the milestone payment of US$1,300,000 received from Watson Pharma, Inc.  During the nine month period ended September 30, 2010, total international sales (including royalties) were down by 20.2%, driven by the decline in NeoVisc sales related to the negative economic situation in Eastern Europe.  International Uracyst sales (including royalties) for the nine month period ended September 30, 2010, increased by 60.4% over the same period of 2009.  Canadian sales for the nine month period of 2010 were up 10.8% compared to the same period in 2009, with NeoVisc sales up 5.0%, Uracyst sal es up 32.5% and BladderChek up 38.5%.

Solid growth for all products in the Canadian market, as well as strong growth for Uracyst in international markets, combined with the revenues from a milestone payment, resulted in the Company showing a profit for the three month period ended September 30, 2010, of $1,380,800 and $1,494,100 for the year-to-date.  Considering the non-cash expenses of $157,000 incurred year to date, we are quite pleased with our progress given the slow economic recovery in many key markets.

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Gross Profit and Cost of Sales

Gross profit for the third quarter of 2010 was $2,001,600 up 263.1% compared to a gross profit of $551,200 in the same period in 2009.  Gross profit for the nine month period ending September 30, 2010 was $3,350,800 up 75.4%, compared to $1,910,000, for the same period in 2009.

For the three and nine month periods ended September 30, 2010, cost of products sold, as a percentage of product sales, was 34.1% and 35.1%, respectively, compared to 34.0% and 33.6%, respectively, during the same periods in 2009.  These fluctuations in cost of sales are due to the change in ratio of Canadian market sales compared to international markets sales, which generate lower gross margins.

Research and Development

Stellar continues to invest in research of its products in Canada and in international markets.  In the three and nine month periods ended September 30, 2010, the Company incurred $45,600 and $81,600, respectively, in research and development compared to $9,000 and $16,400, respectively, for the same period in 2009.  During 2010, the Company will continue 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. Stellar continues to work with Dr. Robert Hurst from the University of Oklahoma on Uracyst and its treatment of GAG deficient cystitis.  Although there can be no assurance, Dr. Hurst’s work is expected to fu rther enhance Uracyst treatment of this bladder defect.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three and nine month periods ended September 30, 2010 were up 12.1% and 4.9% to $566,400 and $1,726,900 respectively, compared to $505,400 and $1,646,400 respectively, for the same periods in 2009.  This increase for the three month period ended September 30, 2010, was mainly driven by $66,700 in compensation expense related to options granted to directors, officers and employee’s (2009 - $nil). Stellar continues to pursue business development activities by out-licensing Stellar’s current products in other international markets, in-licensing new products for the Stellar’s existing markets and developing additional products.

Interest and Other Income

Interest and other income during the three and nine month periods ended September 30, 2010 was $2,800 and $5,900, respectively (2009 - $3,600 and $10,500, respectively).  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 0.35% compared to an average of 0.69% in 2009, resulting in a decrease in interest income in 2010.

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SUMMARY OF QUARTERLY RESULTS

			Net Income			Earnings (Loss)
Quarter Ended	Revenues		(Loss)			Per Share
September 30, 2010	$	2,236,925	$	1,380,841		$	0.06
June 30, 2010		1,255,800		360,800			0.02
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

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents totaled $3,274,400 at September 30, 2010 as compared with $2,325,200 at December 31, 2009.

At September 30, 2010, the Company did not have any outstanding indebtedness.

Although there can be no assurance, the Company expects to remain profitable for the remainder of 2010, thereby funding its ongoing operations from the sale of its products, milestone payments and royalty income resulting from out-licensing agreements for at least the next 12 months.

Cash utilization during 2010 included but not limited to the following capital expenditures:

● Capital expenditures in the amount of $290,200 related to property, plant and equipment; and

● Capital expenditures of $16,800 related to patent filings

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.

OFF-BALANCE SHEET ARRANGEMENTS

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.

RELATED PARTY TRANSACTIONS

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 and nine month periods ended September 30, 2010, the Company recorded and paid $19,800 and $58,800, respectively (2009 - $18,000 and $54,000, respectively) as selling, general and administrative costs.

17

CAPITAL STOCK

The Company has authorized an unlimited number of Common Shares, without par value.  There are no other classes of shares issued.  During the three and nine month periods ended September 30, 2010, the Company issued an aggregate of 105,000 Common Shares (2009 – nil).  100,000 (2009 – nil) Common Shares were issued by the Company for options exercised by officers and employees of the Company, while the remaining 5,000 Common Shares were issued to consultants as payment for services rendered.

During the three month and nine month periods ended September 30, 2010, the Company issued a total of 615,000 (2009 – nil) stock options to its directors and officers. The exercise price of these options has been set at $0.95, with quarterly vesting terms over a three year period.

As of the date of this report, the Company has 24,585,040 Common Shares issued and outstanding.

As of the date of this report, the Company had 942,500 Common Share options outstanding with an average exercise price of $0.93 per option.

SIGNIFICANT CUSTOMERS

During the three month period ended September 30, 2010, the Company had two significant customers that represented 72% (one major wholesaler – 12%; and one international customer – 60%) of revenues (2009 - three significant customers that represented 60% (one major wholesaler – 24%; and two international customer – 23% and 13%). During the nine month period ended September 30, 2010, the Company had three significant customers that represented 64% (one major wholesaler – 19%; and two international customers –33% and 12%) of revenues (2009 –  48%; three significant customers that represented (one major wholesaler – 22%; and two international customers – 15% and 11%).   The Company believes that its relationships with these customers are satisfactory.

OUTLOOK

As at November 1, 2010, the Company is debt free and had working capital of $5,473,100.  The Company believes, although there can be no assurance, 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.

As discussed above under the heading "Liquidity and Capital Resources," 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.

RISKS AND UNCERTAINTIES

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.

A description of our risk factors can be found in Item IA of our Annual Report on Form 10-K for the year ended December 31, 2009.  There were no material changes to those risk factors during the nine months ended September 30, 2010.

18

SUBSEQUENT EVENTS

Subsequent to September 30, 2010, the Company completed a non-brokered private placement consisting of 1,000,000 units of the Company ("Units") at a price of US$1.00 per Unit for gross proceeds of US$1,000,000.  Each Unit consists of one Common Share and one-half of a Series 1 Warrant, one-half of a Series 2 Warrant and one-half of a Series 3 Warrant.  Each whole Series 1 Warrant entitles the holder to acquire one Common Share during a period of 18 months from the Closing Date at an exercise price of US$1.50, subject to adjustment as set forth in the Series 1 Warrant.  Each whole Series 2 Warrant entitles the holder to acquire one Common Share during a period of 18 months from the Closing Date at an exercise price of $2.00, subject to adjustment as set forth in the Series 2 Warrant.  Each whole S eries 3 Warrant entitles the holder to acquire one Common Share during a period of 18 months from the Closing Date at an exercise price of $2.50, subject to adjustment as set forth in the Series 3 Warrant.  In establishing the pricing for the Units, the market price of the Common Shares in effect at the time of the private placement negotiations was considered. The Company granted customary registration rights with respect to the Common Shares covered by the Units.

Subsequent to September 30, 2010, the Company announced that its U.S. licensee, has verbally informed the Company that its preliminary analysis of data from a recently completed placebo controlled pilot study using the Company’s Uracyst® product to treat interstitial cystitis/ painful bladder syndrome ("IC/PBS") did not meet statistical significance in its primary endpoints and, as a result, the company has elected not to proceed with Uracyst for the United States market.

ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Stellar is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

ITEM 4.        EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

(a)           Evaluation of Disclosure Controls and Procedures

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 perform ing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

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(b)           Changes in Internal Control Over Financial Reporting

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.

ADDITIONAL INFORMATION

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.

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PART II.   OTHER INFORMATION

ITEM 1.        LEGAL PROCEEDINGS.

None.

ITEM 1A.     RISK FACTORS.

Stellar is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide information required under this item.

ITEM 2.        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.        DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.        SUMBISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5.        OTHER INFORMATION.

None.

ITEM 6.        EXHIBITS.

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

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SIGNATURES

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

STELLAR PHARMACEUTICALS INC.
By:	/s/ Peter Riehl
	Peter Riehl Chief Executive Officer

Date: November 11, 2010

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