SBOT Stellar Biotechnologies, Inc. (MM)

NOTICE OF 2019 ANNUAL GENERAL MEETING OF SHAREHOLDERS
To be Held on May 30, 2019

To the Shareholders of Stellar Biotechnologies, Inc.:

Notice is hereby given that the 2019 Annual General Meeting of Shareholders (the “Annual Meeting”) of Stellar Biotechnologies, Inc. (“Stellar”) will be held at 10:00 a.m. (local time) on May 30, 2019, at the Holiday Inn Express, located at 350 E. Port Hueneme Road, Port Hueneme, California 93041, to consider and act upon the following matters:

Stellar will also consider such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof. 

Only Stellar shareholders of record at the close of business on April 18, 2019, the record date, are entitled to notice of, and to vote at, the Annual Meeting and any adjournments or postponements thereof.

All Stellar shareholders are cordially invited to attend the Annual Meeting and vote in person. To assure your representation at the Annual Meeting, however, you are urged to sign, date and return the proxy as soon as possible, to vote by telephone or on the Internet. You may vote in person at the Annual Meeting even if you have previously returned a proxy. Telephone and Internet voting is available until 11:59 p.m. Eastern Time, on May 29, 2019.

Port Hueneme, California
April 18, 2019

ABOUT THIS DOCUMENT

Stellar Biotechnologies, Inc., is referred to herein as the “Company,” “Stellar,” “we,” “our,” or “us,” is providing these proxy materials in connection with the solicitation by Stellar’s Board of proxies to be voted at the Annual Meeting to be held on May 30, 2019, commencing at 10:00 a.m. local time, at the Holiday Inn Express, located at 350 E. Port Hueneme Road, Port Hueneme, California 93041, or at any adjournment or postponement thereof. This proxy statement and the enclosed proxy card will be mailed to each Stellar shareholder entitled to notice of, and to vote at, the Annual Meeting commencing on or about April 25, 2019.

We refer to Edesa Biotech Inc. herein as “Edesa.”

When we refer to the “combined company,” we are referring to Stellar, upon the completion of the Exchange.

You should rely only on the information contained in or incorporated by reference into this proxy statement. No one has been authorized to provide you with information that is different from that contained in or incorporated by reference into this proxy statement. This proxy statement is dated April 18, 2019. You should not assume that the information contained in this proxy statement is accurate as of any other date, nor should you assume that the information incorporated by reference into this proxy statement is accurate as of any date other than the date of such incorporated document. The mailing of this proxy statement to Stellar’s shareholders will not create any implication to the contrary.

This proxy statement does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

QUESTIONS AND ANSWERS ABOUT THE EXCHANGE AND THE ANNUAL MEETING

The following section provides answers to frequently asked questions about the Exchange and other matters relating to the Annual Meeting. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections. Stellar urges its shareholders to read this document in its entirety prior to making any decision.

Upon completion of the Exchange, current Stellar shareholders are expected to own approximately 10%, and the Edesa shareholders and option holders are expected to own approximately 90% of the combined company on a fully-diluted basis, subject to a 2% upward or downward adjustment based upon the amount of Stellar’s working capital balance on the day before the completion of the Exchange. As discussed below under “What will the Edesa shareholders receive in the Exchange?”, the exchange ratio is subject to adjustment if Stellar’s working capital is more than $3 million or less than $2 million on the day before the completion of the Exchange.

The Exchange has been approved by the boards of directors of both Stellar and Edesa and is expected to close in the second quarter of 2019, subject to certain approvals of the Stellar shareholders as well as other customary conditions. Upon completion of the Exchange, Stellar will change its corporate name, to “Edesa Biotech Inc.” as required by the Exchange Agreement.

For a more complete description of the Exchange, please see the section entitled “Exchange Agreement.”

proxy statement contains important information about the Exchange and the Annual Meeting and you should read it carefully and in its entirety. The enclosed voting materials allow you to authorize a proxy to vote your Stellar Common Shares held without attending the Annual Meeting. As promptly as practicable, please complete, sign, date and mail your proxy card in the pre-addressed postage-paid envelope provided.

The approval of the issuance of Stellar Common Shares pursuant to the Exchange Agreement requires the affirmative vote of the majority of votes properly cast (not counting “abstentions” or “broker non-votes” as votes cast).

Each holder of Edesa shares exchangeable for Stellar Common Shares is a party to the Exchange Agreement, so no meeting of the Edesa shareholders related to the Exchange is required or will be held.

In addition to the requirement of obtaining such Stellar shareholder approvals, each of the other closing conditions set forth in the Exchange Agreement must be satisfied or waived.

For a more complete description of the closing conditions under the Exchange Agreement, Stellar urges you to read the section entitled “Exchange Agreement – Conditions to the Completion of the Exchange” in this proxy statement.

Upon and following the completion of the Exchange, the Stellar Board and its committees are expected to be composed of the individuals set forth in the table below. The directors shall serve until their respective successors are duly elected or appointed and qualified or their earlier death, resignation or removal.

However, if Proposal No. 1 is approved by the Stellar shareholders and the Exchange is completed, the directors and executive officers of Stellar will be reconstituted in accordance with the terms of the Exchange Agreement. See the section entitled “Directors and Officers of the Combined Company” in this proxy statement.

Beneficial Owner . If your Stellar Common Shares are held in a brokerage account or by a bank or other nominee, you are considered the beneficial owner of Stellar Common Shares held in street name. The organization holding your account is considered the shareholder of record for purposes of voting at the Annual Meeting. As the beneficial owner, you have the right to instruct that organization on how to vote the Stellar Common Shares held in your account. Those instructions are contained in a “voting instruction form.”

Your bank or broker does not have discretion to vote uninstructed Stellar Common Shares on the proposals in this Proxy Statement, except for Proposal No. 3 to appoint the independent registered public accounting firm until the close of the 2020 annual meeting of shareholders.

If you are a beneficial holder and do not provide specific voting instructions to your broker, the organization that holds your Stellar Common Shares will not be authorized to vote on Proposals No. 1, 2, and 4. Accordingly, for your vote to be counted, you now will need to communicate your voting decisions to your broker, bank, or other nominee before the date of the Annual Meeting. Accordingly, Stellar encourages you to vote promptly, even if you plan to attend the Annual Meeting.

Stellar Biotechnologies, Inc.
332 E. Scott Street
Port Hueneme, California 93041
Attention: Corporate Secretary

Stellar shareholders who hold shares in street name may contact their brokerage firm, bank, broker-dealer, or other similar organization to request information about householding.

Any Stellar shareholder entitled to vote at the Annual Meeting may attend the meeting and vote in person on any matter presented for a vote to the Stellar shareholders at the meeting, whether or not that Stellar shareholder has previously given a proxy. However, with respect to a shareholder of record, attendance at the Annual Meeting will not have the effect of revoking a proxy unless you give written notice of revocation to the Stellar Corporate Secretary before any vote in which the proxy has been given. If you hold your shares in “street name” and have instructed your broker, bank or other nominee to vote your shares for you, you must follow directions received from your broker, bank or other nominee to change those instructions.

1/3%) of the issued Stellar Common Shares, in person or represented by proxy, or a duly appointed proxy holder or representative for a shareholder so entitled and holding or represented by proxy at least thirty-three and one-third percent (33 – 1/3%) of the issued Stellar Common Shares, in order to establish a quorum for the transaction of business. Abstentions and “broker non-votes” will be counted for purposes of determining whether a quorum is present for the transaction of business at the Annual Meeting.

Stellar Biotechnologies, Inc.
332 E. Scott Street
Port Hueneme, California 93041
Attention: Investor Relations
Tel:     (805) 488-2800 ext. 104
Email:   ir@stellarbiotech.com

RISK FACTORS

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement, you should carefully consider the material risks described below before deciding how to vote your Stellar Common Shares. In addition, you should read and consider the risks associated with the business of Stellar because these risks may also affect the combined company — these risks can be found in the Annual Report, which is incorporated by reference into this proxy statement. You should also read and consider the other information in this proxy statement. Please see the section entitled “Where You Can Find Additional Information” in this proxy statement.

Risks Related to the Exchange

The exchange ratio is not adjustable based on the market price of Stellar Common Shares, so the Stellar Common Shares issuable upon the completion of the Exchange may have a greater or lesser value than at the time the Exchange Agreement was signed.

The Exchange Agreement has set a fixed exchange ratio at which Edesa shares will be exchanged for Stellar Common Shares in the Exchange, and the exchange ratio is only subject to adjustment if Stellar’s working capital is more than $3 million or less than $2 million upon the completion of the Exchange. Any changes in the market price of Stellar Common Shares before the completion of the Exchange will not affect the number of Stellar Common Shares Edesa shareholders will be entitled to receive pursuant to the Exchange Agreement. Therefore, if before the completion of the Exchange the market price of the Stellar Common Shares declines from the market price on the date of the Exchange Agreement, then Edesa shareholders could receive Stellar Common Shares with substantially lower value than the parties had negotiated for in the establishment of the exchange ratio. Similarly, if before the completion of the Exchange the market price of Stellar Common Shares increases from the market price on the date of the Exchange Agreement, then Edesa shareholders could receive Stellar Common Shares with substantially higher value than the parties had negotiated for in the establishment of the exchange ratio. The Exchange Agreement does not include a price-based termination right. Because the exchange ratio does not adjust as a result of changes in the market value of Stellar Common Shares, for each percentage point that the market value of Stellar Common Shares rises or declines from the date of the Exchange Agreement, there is a corresponding one percentage point rise or decline in the value of the Stellar Common Shares issued to Edesa shareholders (assuming no adjustment to the exchange ratio relating to working capital).

Stellar’s shareholders will experience immediate and substantial dilution upon the completion of the Exchange.

Upon completion of the Exchange, current Stellar shareholders are expected to own approximately 10%, and the Edesa shareholders and option holders are expected to own approximately 90% of the combined company on a fully-diluted basis, subject to a 2% upward or downward adjustment based upon the amount of Stellar’s working capital balance calculated on the day before the completion of the Exchange. As a result, the current Stellar shareholders’ ownership of Stellar will be substantially diluted upon completion of the Exchange.

The announcement and pendency of the Exchange could have an adverse effect on the market price of Stellar Common Shares and/or the business, financial condition, results of operations, or business prospects for Stellar and/or Edesa.

The market price of Stellar Common Shares may decline as a result of the Exchange for a number of reasons including if:

The announcement and pendency of the Exchange could also disrupt Edesa’s and/or Stellar’s businesses. For example, Edesa and Stellar management may need to focus additional attention on the completion of the Exchange and related matters, thereby diverting their attention from the day-to-day business operations of their respective companies. Should these disruptions occur, any of these matters could adversely affect the Stellar Common Share price or harm the financial condition, results of operations, or business prospects of Edesa and/or Stellar.

The Exchange may be completed even though material adverse changes may result from the announcement of the Exchange, industry-wide changes and other causes.

Although both Stellar and Edesa have certain termination rights, there could be material adverse changes that affect either or both of Stellar or Edesa that do not give rise to a termination right. In particular certain matters which affect the wider industry or markets and certain matters which are not within the control of the companies may give rise to material adverse changes but may not give rise to a termination right.

If adverse changes occur and Stellar and Edesa still complete the Exchange, the combined company share price may suffer. This in turn may reduce the value of the Exchange to the shareholders of Stellar, Edesa or both.

Some Stellar officers and directors have interests in the Exchange that are different from, or in addition to, yours and that may influence them to support or approve the issuance of Stellar Common Shares in connection with the Exchange and the related matters to be acted upon by Stellar’s shareholders at the Annual Meeting.

Certain officers and directors of Stellar participate in arrangements that provide them with interests in the Exchange that are different from, or in addition to, yours, including, among others, the continued service as an officer or director of the combined company, the acceleration of option vesting, and continued indemnification.

For example, Kathi Niffenegger, the Chief Financial Officer and Corporate Secretary of Stellar, will enter into an employment agreement, effective upon completion of the Exchange, and Frank R. Oakes, the President, Chief Executive Officer, and Chairman of Stellar, will remain as a director.

These interests, among others, may influence the executive officers and directors of Stellar to support or approve the issuance of Stellar Common Shares in the Exchange. For more information concerning the interests of Stellar executive officers and directors, see the section entitled “The Exchange — Interests of the Stellar Directors and Executive Officers in the Exchange” in this proxy statement.

The Stellar Common Shares could be delisted from The Nasdaq Capital Market if Stellar does not comply with Nasdaq’s listing standards.

Pursuant to the Nasdaq listing standards, the completion of the Exchange requires the combined company to submit an initial listing application and, at the time of the Exchange, meet all of the criteria applicable to a company initially requesting listing. Stellar and Edesa intend to file an initial listing application with The Nasdaq Capital Market. While Stellar and Edesa intend to obtain listing status for the combined company and maintain such listing, no guarantees can be made about the ability to do so.

If the Stellar Common Shares are delisted by Nasdaq, the Stellar Common Shares may be eligible to trade on the OTCQB or another over-the-counter market. Any such alternative would likely result in it being more difficult for Stellar to raise additional capital through the public or private sale of equity securities and for investors to dispose of, or obtain accurate quotations as to the market value of, the Stellar Common Shares. In addition, there can be no assurance that the Stellar Common Shares would be eligible for trading on any such alternative exchange or markets.

Stellar and Edesa shareholders may not realize a benefit from the Exchange commensurate with the ownership dilution they will experience in connection with the Exchange.

If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the Exchange, Stellar and Edesa shareholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the Exchange. Significant management attention and resources will be required to integrate the two companies, including the anticipated wind-down or spin-off of Stellar’s current operations. Delays in this process could adversely affect the combined company’s business, financial results, financial condition and share price following the Exchange. Even if the combined company were able to integrate the business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, innovation and operational efficiencies that may be possible from this integration and that these benefits will be achieved within a reasonable period of time.

Prior to the completion of the Exchange, Stellar may not be able to enter into a business combination with another party at a more favorable price because of restrictions in the Exchange Agreement, which may discourage third parties from making alternative takeover proposals.

Both Edesa and Stellar are prohibited by the terms of the Exchange Agreement from directly or indirectly soliciting, initiating, encouraging or facilitating the making, submission or announcement of any Acquisition Proposal or Acquisition Inquiry or taking any action that would reasonably be expected to lead to an Acquisition Proposal or Acquisition Inquiry.  However, before obtaining shareholder approval of the issuance of Stellar Common Shares in the Exchange, Stellar may provide information in response to an Acquisition Proposal if the Stellar Board concludes in good faith, after consultation with its outside legal counsel and financial advisors, that the failure to take such action is reasonably likely to be inconsistent with the fiduciary duties of the Stellar Board to the Stellar shareholders under applicable legal requirements.

In addition, if Stellar or Edesa terminate the Exchange Agreement under certain circumstances, including because Stellar enters into an acquisition agreement with respect to a Superior Offer, or because Stellar breaches or fails to perform the representations, warranties, covenants or other agreements in the Exchange Agreement resulting in a failure to satisfy the applicable closing conditions and which breach or failure is not capable of being cured or is not subsequently cured and Stellar then consummates an Acquisition Transaction under certain circumstances within six months after the termination of the Exchange Agreement, Stellar would be required to pay a termination fee of $1.0 million to Edesa. This termination fee may discourage third parties from submitting alternative takeover proposals to Stellar or the Stellar shareholders and may cause the Stellar Board to be less inclined to recommend an alternative proposal.

Failure to complete the Exchange may result in Stellar paying a termination fee or reimbursing fees and expenses incurred by Edesa and the Edesa shareholders and could harm the Stellar Common Share price and future business and operations of Stellar.

If the Exchange is not completed, Stellar is subject to the following risks:  

In addition, if the Exchange Agreement is terminated, the Stellar Board may elect to, among other things, attempt to complete another business combination transaction like the Exchange, attempt to sell or otherwise dispose of the various assets of Stellar, or continue to operate the business of Stellar, any of which involves significant risks and uncertainties. As more fully described in the section entitled “Exchange Agreement — Termination” below.

Because the lack of a public market for Edesa shares makes it difficult to evaluate the fairness of the exchange ratio, Stellar may pay more than the fair market value of the Edesa shares.

The outstanding share capital of Edesa is privately held and is not traded in any public market. The lack of a public market makes it difficult to determine the fair market value of the Edesa shares. Because the percentage of Stellar equity to be issued to Edesa shareholders was determined based on negotiations between the parties, it is possible that Stellar may pay more than the aggregate fair market value for the Edesa shares.

The Stellar Common Shares issuable in the Exchange will constitute restricted securities under federal securities laws and are subject to additional restrictions on transfer. As a result, the shares will not be freely tradable following the Exchange, and shareholders receiving them may never be able to achieve liquidity.

The Stellar Common Shares issued as consideration in the Exchange will not immediately be registered under the Securities Act. The Stellar Common Shares will constitute “restricted stock” under the Securities Act and, therefore, such shares may not be sold unless the shares are registered or unless an exemption from the registration and prospectus delivery requirements of the Securities Act is available. As a general matter, holders of such shares will not be able to transfer any of their shares until at least six (6) months after receiving Stellar Common Shares, which is when the shares would first be eligible to be sold under Rule 144 promulgated under the Securities Act, assuming the conditions thereof are otherwise satisfied.

If the conditions to the Exchange are not met or waived, the Exchange will not occur.

Specified conditions must be satisfied or waived to complete the Exchange. These conditions are set forth in the Exchange Agreement and described in the section entitled “Exchange Agreement — Conditions to the Completion of the Exchange” in this proxy statement. Neither Stellar nor Edesa can assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Exchange will not occur or will be delayed, and Stellar and Edesa each may lose some or all of the intended benefits of the Exchange. In the event that the Exchange is not completed, Stellar may be subject to many risks, including the fees and the costs related to the Exchange, such as legal, accounting and advisory fees, which must be paid even if the Exchange is not completed.

If there is substantial fluctuation in Stellar’s working capital, the Base Ratio could fluctuate.

Pursuant to the Exchange Agreement, the Base Ratio is subject to adjustment in the event that Stellar’s working capital is more than $3 million or less than $2 million, as calculated on the day before the Exchange. Any adjustment to the Base Ratio could affect the proportional ownership of Stellar Common Shares following the Exchange.

The combined company may become involved in securities class action litigation that could divert management’s attention and harm the combined company’s business and insurance coverage may not be sufficient to cover all costs and damages.

In the past, securities class action or shareholder derivative litigation often follows certain significant business transactions, such as the sale of a business division or announcement of a merger. The combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the combined company’s business.

The success of the proposed business combination of Stellar and Edesa will depend in part on relationships with third parties, which relationships may be affected by third-party preferences or public attitudes about the Exchange. Any adverse changes in these relationships could adversely affect the combined company’s business, financial condition, or results of operations.

The success of the Exchange will be in part dependent on the combined company’s ability to maintain and renew business relationships and to establish new business relationships. There can be no assurance that management of the combined company will be able to maintain such business relationships, or enter into or maintain new business contracts and other business relationships, on acceptable terms, if at all. The failure to maintain important business relationships could have a material adverse effect on the business, financial condition, or results of operations of the combined company.    

If any of the events described in “Risks Related to Edesa’s Business” occur, those events could cause the potential benefits of the Exchange not to be realized.

Edesa’s business is expected to constitute most, if not all, of the business of the combined company following the Exchange. To the extent any of the events in the risks described below in the section entitled “Risks Related to Edesa’s Business” beginning on page 23 occur, those events could cause the potential benefits of the Exchange not to be realized and the market price of the combined company’s common shares to decline.

Because the Exchange will result in an ownership change of Stellar for purposes of the Internal Revenue Code and is expected to result in an acquisition of control of Stellar for purposes of the Income Tax Act (Canada), Stellar’s pre-Exchange net operating loss carryforwards and certain other tax attributes will be subject to limitation.

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Internal Revenue Code (the “Code”), or Section 382, the corporation’s US federal net operating loss carryforwards and certain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain shareholders that exceeds fifty percentage points by value over a rolling three-year period. Similar rules may apply under state tax laws. The Exchange will result in an ownership change for Stellar and, accordingly, Stellar’s U.S. federal and state net operating loss carryforwards and certain other tax attributes will be subject to limitation and possibly elimination after the Exchange. Additional ownership changes in the future could result in additional limitations on the combined company’s net operating loss carryforwards and certain other tax attributes.

Similarly, for purposes of the Income Tax Act (Canada) (the “ITA”), in general terms, where control of a corporation is acquired or deemed to be acquired, as is expected to apply to Stellar as a result of the Exchange, the corporation is subject to a “loss restriction event”, and the corporation’s net operating loss carryforwards, other losses and certain other tax attributes will also be subject to limitation and possibly elimination for purposes of the ITA after the Exchange. Similar rules are expected to apply for Canadian provincial purposes, not addressed herein.

Consequently, even if the combined company achieves profitability, it may not be able to utilize a material portion of the combined company’s net operating loss carryforwards and certain other tax attributes, which could have an adverse effect on cash flow and results of operations.

Risks Related to a Reverse Share Split

A reverse share split may not increase the combined company’s share price over the long-term.

Stellar may effect a reverse share split of the Stellar Common Shares in a ratio to be determined prior to the completion of the Exchange. Under Canadian law, prior shareholder approval of the reverse share split would not be required. The terms of any reverse share split have not yet been determined. The principal purpose of any reverse share split is to increase the per-share market price of Stellar’s Common Shares in order to obtain listing of the combined company’s shares following the completion of the Exchange. It cannot be assured, however, that any reverse share split will accomplish this objective for any meaningful period of time. While it is expected that a reduction in the number of outstanding Stellar Common Shares will proportionally increase the market price of

Stellar’s Common Shares, it cannot be assured that any reverse share split will increase the market price of the Stellar Common Shares share by a multiple of the proposed reverse share split ratio, or result in any permanent or sustained increase in the market price of Stellar’s Common Shares, which is dependent upon many factors, including the combined company’s business and financial performance, general market conditions, and prospects for future success. Thus, while the share price of the combined company might meet the continued listing requirements for The Nasdaq Capital Market initially, it cannot be assured that it will continue to do so.

A reverse share split may decrease the liquidity of the combined company’s common shares.

The liquidity of the Stellar Common Shares could also be adversely affected by the reduced number of shares outstanding after a reverse share split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for Stellar’s Common Shares.

A reverse share split may lead to a decrease in the combined company’s overall market capitalization.

Should the market price of the combined company’s common share decline after any reverse share split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to any reverse share split. A reverse share split may be viewed negatively by the market and, consequently, can lead to a decrease in the combined company’s overall market capitalization. If the per share market price does not increase in proportion to the reverse share split ratio, then the value of the combined company, as measured by its share capitalization, will be reduced. In some cases, the per-share price of companies that have effected reverse share splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of Stellar’s Common Shares will remain the same after any reverse share split is effected, or that a reverse share split will not have an adverse effect on the price of Stellar’s Common Shares due to the reduced number of shares outstanding after a reverse share split.

Risks Related to Stellar

Stellar may not be able to complete the Exchange and may elect to pursue another business combination transaction similar to the Exchange, which may not occur on commercially reasonably terms or at all.

Stellar cannot assure you that it will complete the Exchange in a timely manner or at all. The Exchange Agreement is subject to many closing conditions and termination rights, as set forth in more detail in “Exchange Agreement — Conditions to the Completion of the Exchange” and “Exchange Agreement — Termination” below. If Stellar does not close the Exchange, the Stellar Board may elect to attempt to complete another business combination transaction similar to the Exchange. Attempting to complete another business combination transaction similar to the Exchange will be costly and time consuming, and Stellar cannot make any assurances that a future business combination transaction will occur on commercially reasonable terms or at all. Even if Stellar does complete the Exchange, the Exchange ultimately may not deliver the anticipated benefits or enhance shareholder value.

If Stellar does not successfully complete the Exchange, it will require substantial additional funding and may need to curtail operations if it has insufficient capital.

Stellar had cash and cash equivalents of approximately $7.4 million at December 31, 2018. Stellar expects its negative cash flows from operations to continue for the foreseeable future.

Stellar currently believes that its available cash, cash equivalents and marketable securities and interest income will be sufficient to fund its anticipated levels of operations for the next 12 months. However, if Stellar does not successfully complete the Exchange and increases its level of operations, Stellar will require additional funding and such funding may be substantial. As such, its future capital requirements will depend on many factors, including:

Having an insufficient level of capital may require Stellar to significantly curtail its operations, which could have a negative impact on Stellar’s financial condition and Stellar’s ability to successfully pursue its business strategy.

Risks Related to the Stellar Common Shares

Ownership of Stellar Common Shares involves a high degree of risk.

Investing in and owning Stellar Common Shares involves a high degree of risk. Stellar shareholders should read carefully the risk factors provided within this section, as well as Stellar’s public documents filed with the SEC, including the financial statements therein.

If the Stellar warrant holders do not elect to cash-out their warrants, Stellar’s shareholders’ ownership in the combined company may be further diluted.

Upon completion of the Exchange, holders of warrants of Stellar to purchase 2,049,808 Stellar Common Shares will be offered cash for their warrants. If any Stellar warrant holders do not accept the cash offer for their outstanding warrants, under the exchange ratio, the number of Stellar Common Shares that must be issued to Edesa in the Exchange may increase. As a result, following the completion of the Exchange, the Stellar shareholders’ ownership in the combined company may be further diluted.

If the Exchange is not completed, the Stellar Common Share price may continue to be volatile.

The market price of Stellar is subject to significant fluctuations. During the six-month period ended March 7, 2019, the trading day before the Exchange was announced, the closing price per share of Stellar on The Nasdaq Capital Market ranged from a high of $1.43 in September 2018 to a low of $0.84 in December 2018. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. The volatility of the market price of Stellar can be exacerbated by low trading volume. Some of the factors that may cause the market price of Stellar to fluctuate include:

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of Stellar Common Shares.

In the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted class action securities litigation. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm Stellar’s profitability and reputation.

If Stellar fails to meet all applicable Nasdaq Capital Market requirements and Nasdaq determines to delist Stellar Common Shares, the delisting could adversely affect the market liquidity of the Stellar Common Shares and the market price of Stellar Common Shares could decrease.

Stellar Common Shares are listed on The Nasdaq Capital Market. To maintain its listing, Stellar must meet minimum financial, operating and other requirements, including requirements for a minimum amount of capital, a minimum price per share, and active operations. If Stellar is unable to comply with Nasdaq’s listing standards,

Nasdaq may determine to delist the Stellar Common Shares from The Nasdaq Capital Market. If Stellar Common Shares are delisted for any reason, it could reduce the value of the Stellar Common Shares and its liquidity. Delisting could also adversely affect Stellar’s ability to obtain financing for the continuation of its operations, or to use the Stellar Common Shares in acquisitions, including the Exchange. Delisting may also result in the loss of confidence by suppliers, investors and employees.

Raising additional funds by issuing securities may cause dilution to existing shareholders.

Additional financing may not be available to Stellar when it needs it or such financing may not be available on favorable terms. To the extent that Stellar raises additional capital by issuing equity securities, its existing shareholders’ ownership will be diluted and the terms of any new equity securities may have preferences over the Stellar Common Shares.

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on Stellar’s share price.

Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC require an annual management assessment of the effectiveness of Stellar’s internal control over financial reporting. If Stellar fails to maintain the adequacy of its internal control over financial reporting as such standards are modified, supplemented or amended from time to time, it may not be able to ensure that it can conclude on an ongoing basis that Stellar has effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC. If Stellar cannot in the future favorably assess the effectiveness of its internal control over financial reporting, investor confidence in the reliability of its financial reports may be adversely affected, which could have a material adverse effect on Stellar’s share price.

Risks Related to Edesa’s Business

Risks Related to Edesa’s Financial Position and Need for Additional Capital

Edesa has incurred significant losses since its inception. Edesa expects to continue to incur losses and may never generate profits from operations or maintain profitability.

Since inception, Edesa has incurred significant operating losses. Edesa’s net loss for the years ended December 31, 2018 and 2017 was approximately $1,536,000 and $876,000, respectively, and Edesa’s accumulated deficit as of December 31, 2018 was approximately $3,762,000. To date, Edesa has financed its operations primarily through issuances of preferred shares, loans that were converted into shares of common stock and government grants. Edesa has devoted substantially all of its efforts to research and development, including clinical trials and has not completed the development of any of its drug candidates. Upon completion of the Exchange, Edesa expects to continue to incur significant expenses and increasing operating losses for the foreseeable future as it continues the development of, and seeks marketing approvals for its product candidates, prepares for and begins the commercialization of any approved products, and adds infrastructure and personnel to support its product development efforts and operations as a public company in the United States. The net losses Edesa incurs may fluctuate significantly from quarter to quarter and year to year.

Edesa’s ability to generate profits from operations and thereafter to remain profitable depends heavily on, among other things:

Edesa must generate significant revenue to achieve and maintain profitability.

Edesa must generate significant revenue to achieve and maintain profitability. Based on Edesa’s current plans, Edesa does not expect to generate significant revenue unless and until it or a current or potential future licensee obtains marketing approval for, and commercializes, one or more of its product candidates, which it does not expect to occur for at least the next few years. Neither Edesa nor a licensee may ever succeed in obtaining marketing approval for, or commercializing Edesa’s product candidates and, even if marketing approval is obtained, Edesa may never generate revenues that are significant enough to generate profits from operations. Even if Edesa does generate profits from operations, Edesa may not be able to sustain or increase profitability on a quarterly or annual basis. Edesa’s failure to generate profits from operations and remain profitable would decrease the value of the combined company and could impair its ability to raise capital, expand its business, maintain its research and development efforts, diversify its product offerings or continue its operations. A decline in the value of the combined company could also cause you to lose all or part of your investment.

Edesa’s limited operating history may make it difficult for you to evaluate the success of its business to date and to assess its future viability .

Edesa was formed on July 9, 2015. To date, Edesa’s operations have been limited to organization and staffing, developing and securing its technology, entering into licensing arrangements, raising capital and undertaking preclinical studies and clinical trials of its product candidates. Edesa’s business is subject to all of the risks inherent in the establishment of a new business enterprise. Edesa’s likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with development and expansion of a new business enterprise. Consequently, any predictions made about Edesa’s future success or viability may not be as accurate as they could be if Edesa had a longer operating history.

Edesa has not yet demonstrated its ability to successfully complete development of any product candidate, obtain marketing approval, manufacture a commercial scale product, or arrange for a third-party to do so on its behalf, or conduct sales and marketing activities necessary for successful product commercialization. Assuming Edesa obtains marketing approval for any of its product candidates, Edesa will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. Edesa may encounter unforeseen expenses, difficulties, complications and delays and may not be successful in such a transition.

The combined company will need substantial additional funding to finance its operations through regulatory approval of one or more of its product candidates. If the combined company is unable to raise capital when needed, it could be forced to delay, reduce or eliminate its product development programs or commercialization efforts.

Edesa expects its research and development expenses to increase substantially in the future, particularly as it advances EB01 beyond Phase 2 clinical development for the treatment of ACD. Edesa expects that its research and development expenses will increase even further if it advances any other current or future product candidates into further clinical trials. In addition, if Edesa obtains marketing approval for any of its product candidates that are not then subject to licensing, collaboration or similar arrangements with third parties, it expects to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. Furthermore, upon the completion of the Exchange, Edesa expects to incur additional costs associated with operating as a public company in the United States. If the combined company is unable to raise capital when needed, or on attractive terms, it could be forced to delay, reduce or eliminate research and development programs or future commercialization efforts.

Raising additional capital may cause dilution to the combined company’s investors, restrict its operations or require it to relinquish rights to its technologies or product candidates

Until such time, if ever, as the combined company can generate substantial product revenues, it expects to finance its cash needs through a combination of equity offerings, licensing, collaboration or similar arrangements, grants and debt financings. The combined company does not have any committed external source of funds. To the extent that the combined company raises additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of the combined company’s common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting the combined company’s ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends or other distributions.

If the combined company raises additional funds through licensing, collaboration or similar arrangements, it may have to relinquish valuable rights to its technologies, future revenue streams, research and development programs or product candidates or to grant licenses on terms that may not be favorable to the combined company. If the combined company is unable to raise additional funds through equity or debt financings or other arrangements when needed, it may be required to delay, limit, reduce or terminate its product development or future commercialization efforts or grant rights to develop and market product candidates that it would otherwise prefer to develop and market itself.

Risks Related to the Development, Regulatory Approval and Commercialization of Edesa’s Product Candidates 

Edesa depends heavily on the success of its lead product candidate, EB01, which Edesa is developing for the treatment of chronic ACD. If Edesa is unable to obtain regulatory approval or commercialize EB01, or experiences significant delays in doing so, Edesa’s business will be materially harmed.

EB01 is in Phase 2B clinical development. Edesa’s ability to generate product revenues, which may not occur for multiple years, if at all, will depend heavily on the successful development and commercialization of EB01 as a treatment for chronic ACD. The success of Edesa’s product candidates, including EB01, will depend on a number of factors, including the following:

If Edesa does not achieve one or more of these factors in a timely manner or at all, Edesa could experience significant delays or an inability to successfully commercialize EB01 or any of its other product candidates, which

would materially harm its business. Many of these factors are beyond Edesa’s control. Accordingly, Edesa may never be able to generate revenues through the license or sale of any of its product candidates.

If clinical trials of Edesa’s product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA, the Health Canada (HC) or the European Medicines Agency (EMA), or do not otherwise produce favorable results, Edesa may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of EB01 or any other Edesa product candidate.

In connection with obtaining marketing approval from regulatory authorities for the sale of any product candidate, Edesa must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of its product candidates in humans. Clinical trials are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials. In particular, the small number of subjects and patients in Edesa’s early clinical trials may make the results of these clinical trials less predictive of the outcome of later clinical trials. The design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed. There is no assurance that Edesa will be able to design and execute a clinical trial to support marketing approval. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.

Positive results in pre-clinical studies of a product candidate may not be predictive of similar results in humans during clinical trials, and promising results from early clinical trials of a product candidate may not be replicated in later clinical trials. Interim results of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in early-stage development. Accordingly, the results from completed pre-clinical studies and clinical trials for Edesa’s product candidates may not be predictive of the results Edesa may obtain in later stage trials or studies. Pre-clinical studies or clinical trials may produce negative or inconclusive results, and Edesa may decide, or regulators may require Edesa, to conduct additional pre-clinical studies or clinical trials, or to discontinue clinical trials altogether. Ultimately, Edesa may be unable to complete the development and commercialization of EB01 or any other Edesa product candidate.

If Edesa’s clinical trials for its product candidates are prolonged or delayed, Edesa may be unable to commercialize its product candidates on a timely basis, which would require Edesa to incur additional costs and delay its receipt of any revenue from potential product sales.

Edesa cannot predict whether it will encounter problems with any of its ongoing or planned clinical trials that will cause Edesa or any regulatory authority to delay or suspend those clinical trials. A number of events, including any of the following, could delay the completion of Edesa’s ongoing and planned clinical trials and negatively impact its ability to obtain regulatory approval for, and to market and sell, a particular product candidate:

treatments for the relevant disease and competition from other clinical trial programs for similar indications;

Additionally, changes in standard of care or regulatory requirements and guidance may occur and Edesa may need to amend clinical trial protocols to reflect these changes. Such amendments may require Edesa to resubmit its clinical trial protocols to IRBs for re-examination, which may impact the cost, timing or successful completion of a clinical trial. Such changes may also require Edesa to reassess the viability of the program in question. 

Edesa does not know whether its clinical trials will begin as planned, will need to be restructured or will be completed on schedule, if at all. Delays in clinical trials will result in increased development costs for Edesa’s product candidates. In addition, if Edesa experiences delays in completion of, or if Edesa terminates, any of its clinical trials, the commercial prospects for its product candidates may be affected and Edesa’s ability to generate product revenues will be delayed. Furthermore, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate.

The clinical trial designs, endpoints and outcomes that will be required to obtain marketing approval of a drug to treat chronic ACD or any other indication are uncertain. Edesa may never receive marketing approval for EB01 as a treatment for chronic ACD.

To Edesa’s knowledge, there are currently no FDA approved treatment options specifically indicated for chronic ACD. Accordingly, there is not a well-established development path that, with positive outcomes in clinical trials, would be reasonably assured of receiving marketing approval for chronic ACD. In particular, if Edesa’s ongoing Phase 2B clinical trial of EB01 in individuals with chronic ACD is successful, Edesa plans to use the trial to support pivotal clinical trials designed to establish the efficacy of EB01 to support, together with additional long-term safety data, an application for regulatory approval as a treatment for chronic ACD. The FDA or any regulatory authority outside of the United States may determine that the designs or endpoints of any potentially pivotal trial that Edesa conducts, or that the outcome shown on any particular endpoint in any potentially pivotal trial that Edesa conducts, are not sufficient to establish a clinically meaningful benefit for EB01 in the treatment of chronic ACD or otherwise to support approval, even if the primary endpoint or endpoints of the trial is or are met with statistical significance. If this occurs, Edesa’s business could be materially harmed. Moreover, if the FDA requires Edesa to conduct additional clinical trials beyond the ones that Edesa currently contemplates in order to support regulatory approval in the United States of EB01 for the treatment of chronic ACD, the company’s finances and results from operations will be adversely impacted.

Likewise, if Edesa conducts any future clinical trials designed to support marketing approval of EB02 as a treatment for hemorrhoids or clinical trials designed to support marketing approval of any other of its product candidates, the FDA or any regulatory authority outside of the United States may determine that the designs or endpoints of the

trial, or that the outcomes shown on any particular endpoint in the trial, are not sufficient to establish a clinically meaningful benefit or otherwise to support approval, even if the primary endpoint of the trial is met with statistical significance.

Edesa’s Phase 2B clinical trial of EB01 in individuals with chronic ACD will not be sufficient to be considered a pivotal trial to support an application for marketing approval of EB01. Even if Edesa’s Phase IIB study meets its primary endpoints, it is not certain that additional pivotal Phase III studies, together with additional long-term safety data will have positive outcomes and or will be sufficient to enable EB01 to gain regulatory approval as a treatment for chronic ACD.

If Edesa’s Phase 2B clinical trial of EB01 in individuals with chronic ACD meets its primary endpoints, Edesa plans to request an end of Phase 2 meeting with the FDA and regulatory authorities outside the United States to seek guidance on the requirements for a new drug application. Edesa cannot predict the requirements for each of these regulatory agencies and the requirements set forth by the agencies could delay and/or negatively impact Edesa’s ability to obtain regulatory approval for, and to market and sell a particular product candidate. Edesa expects to be required by the FDA to conduct two phase 3 pivotal clinical trials in patients with chronic ACD to establish the efficacy of EB01 to support, together with additional long-term safety data, an application for regulatory approval of EB01 as a treatment for chronic ACD. The likelihood that the FDA or any regulatory authority outside the United States will concur with Edesa’s plan is uncertain. The FDA or any other regulatory authority may instead determine that additional clinical and/or non-clinical trials are required to establish the efficacy of EB01 as a treatment for chronic ACD, even if the outcome of Edesa’s Phase 2B study in individuals is favorable. The risk that the FDA or any other regulatory authority will determine that additional clinical and/or non-clinical trials are required to establish the efficacy of EB01 as a treatment for chronic ACD may be even higher if Edesa selects a primary endpoint for its planned pivotal Phase 3 trials in chronic ACD for which there is only limited data generated in Edesa’s Phase 2 studies. In addition, Edesa is enrolling in its ongoing study individuals with chronic ACD caused by any of a number of different conditions (allergens). This may also increase the risk of the FDA or another regulatory authority determining that additional clinical and/or non-clinical trials are required to establish the efficacy of EB01 as a treatment for chronic ACD. If the FDA or a regulatory authority outside of the United States makes the determination that additional clinical and/or non-clinical trials are required, it would result in a more expensive and potentially longer development program for EB01 than Edesa currently contemplates, which could delay Edesa’s ability to generate product revenues with EB01, interfere with Edesa’s ability to enter into any potential licensing or collaboration arrangements with respect to this program, cause the value of the combined company to decline, and limit the combined company’s ability to obtain additional financing.

If Edesa experiences new or additional delays or difficulties in the enrollment of patients in its clinical trial of EB01 or any other product candidate, Edesa’s application and or receipt of marketing approvals could be delayed or prevented.

Recruiting patients with moderate to severe chronic ACD may be challenging as there have not been recent clinical studies conducted with this patient population. If Edesa is unable to locate and enroll a sufficient number of eligible patients to participate in clinical trials of its product candidates including, in particular, its ongoing trial of EB01 and its planned pivotal trials of EB01 as a treatment for ACD, Edesa may not be able to initiate or complete the clinical trials. Patient enrollment is affected by many factors, including:

Enrollment delays in Edesa’s ongoing or planned clinical trials may result in increased development costs for its product candidates, which would cause the value of the combined company to decline and limit the combined company’s ability to obtain additional financing. Edesa’s inability to enroll a sufficient number of patients in its ongoing or planned clinical trials of EB01, or any other Edesa product candidate, would result in significant delays or may require Edesa to abandon one or more clinical trials altogether.

If the commercial opportunity in chronic ACD is smaller than Edesa anticipates, or if Edesa elects to develop EB01 to treat only a specific subpopulation of patients with chronic ACD, Edesa’s future revenue from EB01 will be adversely affected and Edesa’s business will suffer.

It is critical to Edesa’s ability to grow and become profitable that Edesa successfully identifies patients with chronic ACD. Edesa’s projections of the number of people who have chronic ACD as well as the subset who have the potential to benefit from treatment with EB01, are based on a variety of sources, including third-party estimates and analyses in the scientific literature, and may prove to be incorrect. Further, new information may emerge that changes Edesa’s estimate of the prevalence of these diseases or the number of patient candidates for EB01. The effort to identify patients with chronic ACD or Edesa’s other potential target indications is at an early stage, and Edesa cannot accurately predict the number of patients for whom treatment might be possible. Additionally, the potentially addressable patient population for EB01 may be limited or may not be amenable to treatment with EB01, and new patients may become increasingly difficult to identify or access. If the commercial opportunity in chronic ACD is smaller than Edesa anticipates, or if Edesa elects to develop EB01 to treat only a specific subpopulation of patients with chronic ACD, Edesa’s future financial performance may be adversely impacted.

While Edesa has chosen to test its product candidates in specific clinical indications based in part on its understanding of their mechanisms of action, Edesa’s understanding may be incorrect or incomplete and, therefore, Edesa’s product candidates may not be effective against the diseases tested in its clinical trials.

Edesa’s rationale for selecting the particular therapeutic indications for each of its product candidates is based in part on its understanding of the mechanism of action of these product candidates. However, Edesa’s understanding of the product candidate’s mechanism of action may be incomplete or incorrect, or the mechanism may not be clinically relevant to the diseases treated. In such cases, Edesa’s product candidates may prove to be ineffective in the clinical trials for treating those diseases, and adverse clinical trial results would likely negatively impact Edesa’s business and results from operations.

A successful sPLA ₂ drug has not been developed to date and Edesa can provide no assurances that Edesa will be successful or that there will be no adverse side effects.

Edesa’s unique lead product candidates are first-in-class, novel, non-steroidal, synthetic anti-inflammatory products that address the need to target sPLA ₂ in a broad-ranged manner while avoiding any interference with the homeostatic cPLA ₂ family. To date no drug companies have successfully commercialized an sPLA ₂ inhibitor and as a result the efficacy and long-term side effects are not known. There is no guarantee that Edesa will successfully develop and/or commercialize an sPLA2 inhibitor and/or that the product candidate will have no adverse side effects.

If serious or unacceptable side effects are identified during the development of EB01 or any of Edesa’s other product candidates, Edesa may need to abandon or limit its development of that product candidate.

All of Edesa’s product candidates are in clinical or preclinical development and their risk of failure is high. It is impossible to predict when or if any of Edesa’s product candidates will prove effective or safe in humans or will receive marketing approval. If Edesa’s product candidates are associated with undesirable side effects or have other unexpected, unacceptable characteristics, Edesa may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many investigational products that initially showed promise in clinical or earlier stage testing have later been found to cause side effects or other safety issues that prevented further development. If any of these events occur, Edesa’s business may be adversely impacted.

Even if EB01 or any future product candidate of Edesa’s receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.

If EB01 or any future product candidate of Edesa’s receives marketing approval, the approved product may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If an approved product does not achieve an adequate level of acceptance, Edesa may not generate significant product revenues or any profits from operations. The degree of market acceptance of Edesa’s product candidates, if approved for commercial sale, will depend on a number of factors, including:

Edesa’s ability to negotiate, secure and maintain third-party coverage and reimbursement for its product candidates may be affected by political, economic and regulatory developments in the United States, Canada, the European Union and other jurisdictions. Governments continue to impose cost containment measures, and third-party payors are increasingly challenging prices charged for medicines and examining their cost effectiveness, in addition to their safety and efficacy. These and other similar developments could significantly limit the degree of market acceptance of EB01 or any of Edesa’s other future product candidates that receive marketing approval.

If Edesa is unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell EB01 or any of its other current or future product candidates, Edesa may not be successful in commercializing the applicable product candidate if it receives marketing approval .

Edesa does not have a sales or marketing infrastructure and has no experience as a company in the sale or marketing of pharmaceutical products. To achieve commercial success for any approved product, Edesa must either develop a sales and marketing organization or outsource these functions to third parties. There are risks involved with establishing Edesa’s own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which Edesa recruits a sales force and establishes marketing capabilities is delayed or does not occur for any reason, Edesa would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and Edesa’s investment would be lost if it cannot retain or reposition its sales and marketing personnel. Factors that may inhibit Edesa’s efforts to commercialize its products on its own include:

If Edesa enters into arrangements with third parties to perform sales and marketing services, Edesa’s product revenues or the profitability of these product revenues to Edesa could be lower than if Edesa were to market and sell 

any products that Edesa develops itself. In addition, Edesa may not be successful in entering into arrangements with third parties to sell and market its product candidates or may be unable to do so on terms that are acceptable to Edesa. Edesa likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market Edesa’s products effectively. If Edesa does not establish sales and marketing capabilities successfully, either on Edesa’s own or in collaboration with third parties, Edesa will not be successful in commercializing its product candidates.

Edesa faces substantial competition, which may result in others discovering, developing or commercializing products to treat Edesa’s target indications or markets before or more successfully than Edesa does.

The development and commercialization of new drug products is highly competitive. Edesa faces competition with respect to its current product candidates and any products Edesa may seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide.

Competitors may also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Many of Edesa’s competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining approvals from regulatory authorities and marketing approved products than Edesa does. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of Edesa’s competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with Edesa in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies that may be complementary to or necessary for Edesa’s programs.

Edesa’s commercial opportunities could be reduced or eliminated if Edesa’s competitors develop and commercialize products that are more effective, safer, have fewer or less severe side effects, are approved for broader indications or patient populations, or are more convenient or less expensive than any products that Edesa develops and commercializes. Edesa’s competitors may also obtain marketing approval for their products more rapidly than Edesa may obtain approval for its products, which could result in Edesa’s competitors establishing a strong market position before Edesa is able to enter the market.

If approved, Edesa’s product candidates will compete for a share of the existing market with numerous other products being used to treat ACD.

Even if Edesa is able to commercialize EB01 or any other product candidate that Edesa develops, the product may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm Edesa’s business.

The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted and, in some markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, Edesa might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay Edesa’s commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues Edesa is able to generate from the sale of the product in that country. Adverse pricing limitations may hinder Edesa’s ability to recoup its investment in one or more product candidates, even if Edesa’s product candidates obtain marketing approval.

Edesa’s ability to commercialize EB01 or any other product candidate successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government

authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S., Canada and E.U. healthcare industries and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Edesa cannot be sure that coverage and reimbursement will be available for EB01 or any other product that Edesa commercializes and, if coverage and reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidate for which Edesa obtains marketing approval. In addition, third-party payors are likely to impose strict requirements for reimbursement of a higher priced drug, and any launch of a competitive product is likely to create downward pressure on the price initially charged. If reimbursement is not available or is available only to a limited degree, Edesa may not be able to successfully commercialize any product candidate for which Edesa obtains marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the applicable regulatory authority. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers Edesa’s costs, including research, development, intellectual property, manufacturing, sale and distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover Edesa’s costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. In the United States, third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. In the European Union, reference pricing systems and other measures may lead to cost containment and reduced prices. Edesa’s inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that Edesa develops could have a material adverse effect on Edesa’s operating results, the combined company’s ability to raise capital needed to commercialize products and Edesa’s overall financial condition.

Governments outside the United States tend to impose strict price controls, which may adversely affect Edesa’s revenues, if any.

In some countries, particularly Canada and the member states of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by Canada and various E.U. member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, Edesa may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of Edesa’s product candidate to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on prices or reimbursement levels within the country of publication and other countries. If reimbursement of Edesa’s products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, Edesa’s business could be adversely affected.

Product liability lawsuits against Edesa could cause it to incur substantial liabilities and to limit commercialization of any products that Edesa may develop.

Edesa faces an inherent risk of product liability exposure related to the testing of Edesa’s product candidates in human clinical trials and will face an even greater risk if Edesa commercially sells any products that it may develop. If Edesa cannot successfully defend itself against claims that Edesa’s product candidates or products caused injuries, Edesa will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

Edesa has separate liability insurance policies that cover each of Edesa’s ongoing clinical trials, which provide coverage in varying amounts. The amount of insurance that Edesa currently holds may not be adequate to cover all liabilities that it may incur. Edesa will need to increase its insurance coverage when and if it begins conducting more expansive clinical development of, or commercializing, EB01 or any other of its product candidates. Insurance coverage is increasingly expensive. Edesa may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Edesa may expend its limited resources to pursue a particular product candidate and fail to capitalize on product candidates that may be more profitable or for which there is a greater likelihood of success.

Because Edesa has limited financial and managerial resources, Edesa focuses on specific product candidates. As a result, Edesa may forego or delay pursuit of opportunities with other product candidates that later could prove to have greater commercial potential. Edesa’s resource allocation decisions may cause it to fail to capitalize on viable commercial products or profitable market opportunities.

If Edesa does not accurately evaluate the commercial potential or target market for a particular product candidate, its business may be negatively impacted.

Risks Related to Edesa’s Dependence on Third Parties

Edesa will be dependent on third-parties for the synthesis, formulation, and manufacturing, including optimization, technology transfers and scaling up of clinical scale quantities of all of its product candidates.

Edesa has no direct experience in synthesizing, formulating and manufacturing any of its product candidates, and currently lacks the resources or capability to synthesize, formulate and manufacture any of its product candidates on a clinical or commercial scale. As a result, Edesa will be dependent on third-parties for the synthesis, formulation, and manufacturing, including optimization, technology transfers and scaling up of clinical scale quantities of all its product candidates. Edesa believes that this strategy will enable it to direct operational and financial resources to the development of its product candidates rather than diverting resources to establishing manufacturing infrastructure.

Reliance on third-party manufacturers entails risks, to which Edesa would not be subject if Edesa manufactured product candidates or products itself, including:

If Edesa is not able to obtain adequate supplies of its product candidates, it will be more difficult for Edesa to develop its product candidates and compete effectively. Edesa’s product candidates and any products that Edesa

and/or its potential future collaborators may develop may compete with other product candidates and products for access to manufacturing facilities.

Use of third parties to manufacture Edesa’s product candidates may increase the risk that Edesa will not have sufficient quantities of its product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair Edesa’s development or commercialization efforts.

Edesa does not own or operate manufacturing facilities for the production of clinical or commercial supplies of its product candidates. Edesa has limited personnel with experience in drug manufacturing and lacks the resources and the capabilities to manufacture any of its product candidates on a clinical or commercial scale. Edesa currently relies on third parties for supply of the active pharmaceutical ingredients, or API, in Edesa’s product candidates. Edesa’s strategy is to outsource all manufacturing of its product candidates and products to third parties.

Edesa does not currently have any agreements with third-party manufacturers for the long-term clinical or commercial supply of any of its product candidates. Edesa currently engages a single third-party manufacturer to provide API for EB01. Edesa also currently engages a single third-party vendor to manufacture the final drug product formulation of EB01 that is being used in Edesa’s clinical trials. Edesa may in the future be unable to scale-up and/or conclude agreements for commercial supply with commercial third-party manufacturers on acceptable terms, or at all.

Even if Edesa is able to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

Third-party manufacturers may encounter difficulties in achieving volume production, laboratory testing, quality control or quality assurance or suffer shortages of qualified personnel, any of which could result in its inability to manufacture sufficient quantities to meet clinical timelines for a particular product candidate, to obtain marketing approval for the product candidate or to commercialize the product candidate. In addition, third-party manufacturers may not be able to comply with current good manufacturing practice, or GMP, regulations or similar regulatory requirements outside the United States. Edesa’s failure, or the failure of Edesa’s third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on Edesa, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of Edesa’s product candidates.

Edesa’s product candidates and any products that it may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for Edesa.

If the third parties that Edesa engages to manufacture product for its non-clinical tests and clinical trials cease to continue to do so for any reason, Edesa likely would experience delays in advancing these clinical trials while Edesa identifies and qualifies replacement suppliers and Edesa may be unable to obtain replacement supplies on terms that are favorable to it. In addition, if Edesa is not able to obtain adequate supplies of Edesa’s product candidates or the drug substances used to manufacture them, it will be more difficult for Edesa to develop its product candidates and compete effectively.

Edesa’s current and anticipated future dependence upon others for the manufacture of its product candidates may adversely affect its future profit margins and its ability to develop product candidates and commercialize any products that receive marketing approval on a timely and competitive basis.

Edesa depends on third-party suppliers for key raw materials used in its manufacturing processes, and the loss of these third-party suppliers or their inability to supply Edesa with adequate raw materials could harm its business.

Edesa relies on third-party suppliers for the raw materials required for the production of its product candidates. Edesa’s dependence on these third-party suppliers and the challenges Edesa may face in obtaining adequate supplies of raw materials involve several risks, including limited control over pricing, availability, quality, and delivery schedules. Edesa cannot be certain that its current suppliers will continue to provide it with the quantities of these raw materials that Edesa requires to satisfy its anticipated specifications and quality requirements. Any supply interruption in limited or sole sourced raw materials could materially harm Edesa’s ability to manufacture its products until a new source of supply, if any, can be identified and qualified. Although Edesa believes there are several other suppliers of these raw materials, Edesa may be unable to find a sufficient alternative supply channel in a reasonable time or on commercially reasonable terms. Any performance failure on the part of Edesa’s suppliers could delay the development and commercialization of Edesa’s product candidates, including limiting supplies necessary for clinical trials and regulatory approvals, or interrupt production of the existing products that are already marketed, which would have a material adverse effect on Edesa’s business.

Edesa relies on Yissum for the successful development and commercialization of EB01 to treat ACD.

In 2016, the Company entered into an exclusive license agreement with Yissum Research Development Company of the Hebrew University of Jerusalem ("Yissum") to obtain exclusive rights to certain know-how, patents and data relating to a pharmaceutical product. The Company is using the exclusive rights to develop the product for therapeutic, prophylactic and diagnostic uses in topical dermal applications and anorectal applications, including for the development of EB01 to treat ACD. Concurrently, the Company also entered into a consulting agreement with an individual associated with Yissum for the development of the product. If Edesa defaults or fails to perform any of the terms, covenants, provisions or its obligations under the License Agreement, Yissum has the option to terminate the License Agreement, subject to advance notice to cure such default. Any termination of this license agreement would have a materially adverse impact on Edesa’s business and results from operations.

Edesa relies on third-parties to conduct its clinical trials and those third-parties may not perform satisfactorily, including failing to meet deadlines for the completion of such clinical trials.

Edesa does not independently conduct clinical trials for its product candidates. Edesa relies on third-parties, such as contract research organizations, clinical data management organizations, medical institutions, clinical investigators and government agencies, to perform this function. Any of these third-parties may terminate their engagements with Edesa at any time. If Edesa needs to enter into alternative arrangements, it would delay Edesa’s product development activities.

Edesa’s reliance on these third parties for clinical development activities reduces its control over these activities but does not relieve Edesa of its responsibilities. For example, Edesa remains responsible for ensuring that each of Edesa’s clinical trials is conducted in accordance with the general investigational plan and protocols for the clinical trial. Moreover, the FDA and foreign regulatory authorities require Edesa to comply with standards, commonly referred to as Good Clinical Practice, or GCP, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity of data and confidentiality of clinical trial participants are protected. Edesa also is required to register clinical trials subject to FDA regulation and, with some exceptions, post the results of completed clinical trials on a government-sponsored database, www.ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions. The National Institutes of Health also has announced plans to require sponsors to post results of clinical trials for unapproved products, including unfavorable results in clinical trials for unapproved uses of approved products.

Furthermore, third parties that Edesa relies on for its clinical development activities may also have relationships with other entities, some of which may be Edesa’s competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct Edesa’s clinical trials in accordance with regulatory requirements or Edesa’s stated protocols, Edesa will not be able to obtain, or may be delayed in obtaining, marketing approvals for its product candidates and will not be able to, or may be delayed in its efforts to, successfully

commercialize Edesa’s product candidates. Edesa’s product development costs will increase if Edesa experiences delays in testing or obtaining marketing approvals.

Edesa also relies on other third parties to store and distribute drug supplies for its clinical trials. Any performance failure on the part of Edesa’s distributors could delay clinical development or marketing approval of its product candidates or commercialization of Edesa’s products, producing additional losses and depriving Edesa of potential product revenue.

Edesa may depend on additional collaborations, licenses or similar arrangements with third parties for the development and commercialization of some of its product candidates. If those collaborations are not successful, Edesa may not be able to capitalize on the market potential of these product candidates.

Edesa may in the future enter into other licensing, collaboration or similar arrangements for the development and commercialization of EB01 or any future product candidate of Edesa’s for any or all indications and for any or all territories.

Edesa’s likely counterparties for any licensing, collaboration or similar arrangement include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. However, if Edesa does enter into any such arrangements with any third parties in the future, Edesa will likely have limited control over the amount and timing of resources that its collaborators dedicate to the development or commercialization of the applicable product candidate. Edesa’s ability to generate revenues from these arrangements will depend on its collaborators’ abilities and efforts to successfully perform the functions assigned to them in these arrangements.

Any licensing, collaboration or similar arrangement involving Edesa’s product candidates would pose numerous risks to Edesa, including the following:

Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a collaborator of Edesa’s were to be involved in a business combination, the continued pursuit and emphasis on Edesa’s product development or commercialization program could be delayed, diminished or terminated.

If Edesa is not able to establish additional collaborations, Edesa may have to alter its development and commercialization plans.

Edesa’s product development programs and the potential commercialization of its product candidates will require substantial additional cash to fund expenses. For some of Edesa’s product candidates, Edesa may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.

Edesa faces significant competition in seeking appropriate collaborators. Whether Edesa reaches a definitive agreement for a collaboration will depend, among other things, upon Edesa’s assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to Edesa’s ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with Edesa for Edesa’s product candidate. Edesa may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

Edesa may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If Edesa is unable to do so, Edesa may have to curtail the development of a product candidate, reduce or delay its development program or one or more of Edesa’s other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase its expenditures and undertake development or commercialization activities at its own expense. If Edesa elects to increase its expenditures to fund development or commercialization activities on its own, Edesa would likely need to obtain additional capital, which may not be available to Edesa on acceptable terms, or at all. If Edesa does not have sufficient funds, it may not be able to further develop its product candidates or bring them to market and generate product revenue.

Risks Related to Edesa’s Intellectual Property

If Edesa is unable to obtain and maintain patent protection for its licensed technology and products, or if the scope of the patent protection is not sufficiently broad, Edesa’s competitors could develop and commercialize technology and products similar or identical to Edesa’s, and Edesa’s ability to successfully commercialize its licensed technology and products may be adversely affected.

Edesa’s success will partially depend on its ability to obtain and maintain patent protection in the United States and other countries with respect to its proprietary technology and products. Edesa intends to protect its proprietary position by filing patent applications in the United States, in Europe and in certain additional jurisdictions related to its novel technologies and product candidates that are important to its business. This process is expensive and time-consuming, and Edesa may not be able to file and prosecute all necessary or desirable patent applications at a

reasonable cost or in a timely manner. It is also possible that Edesa will fail to identify patentable aspects of its research and development output before it is too late to obtain patent protection. Moreover, if Edesa licenses technology or product candidates from third parties in the future, these license agreements may not permit Edesa to control the preparation, filing and prosecution of patent applications, or to maintain or enforce the patents, covering the licensed technology or product candidates. These agreements could also give Edesa’s licensors the right to enforce the licensed patents without Edesa’s involvement, or to decide not to enforce the patents at all. Therefore, in these circumstances, these patents and applications may not be prosecuted or enforced in a manner consistent with the best interests of Edesa’s business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of any patents issued to Edesa will likely be highly uncertain. Patent applications that Edesa files may not result in patents being issued which protect Edesa’s technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may also diminish the value of patents issued to Edesa, narrow the scope of Edesa’s patent protection or make enforcement more difficult or uncertain.

Edesa may become involved in lawsuits or other enforcement proceedings to protect or enforce its patents or other intellectual property, which could be expensive, time consuming and potentially unsuccessful.

Competitors may infringe Edesa’s patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, Edesa may be required to file claims, which can be expensive and time consuming to prosecute. Any claims Edesa asserts against perceived infringers could provoke these parties to assert counterclaims against Edesa alleging that Edesa infringes their intellectual property or that Edesa’s patent and other intellectual property rights are invalid or unenforceable, including for antitrust reasons. As a result, in a patent infringement proceeding, a court or administrative body may decide that a patent of Edesa’s is invalid or unenforceable, in whole or in part, or may construe the patent’s claims narrowly and so refuse to stop the other party from using the technology at issue on the grounds that Edesa’s patents do not cover the competitor technology in question. Even if Edesa is successful in a patent infringement action, the unsuccessful party may subsequently raise antitrust issues and bring a follow-on action thereon. Antitrust issues may also provide a bar to settlement or constrain the permissible settlement terms.

Third parties may initiate legal proceedings alleging that Edesa is infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of Edesa’s business.

Edesa’s commercial success depends upon its ability and the ability of its collaborators to develop, manufacture, market and sell Edesa’s product candidates and use Edesa’s proprietary technologies without infringing the intellectual property and other proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries, and Edesa may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to Edesa’s products and technology, including interference, derivation, inter partes review, reexamination, reissue or post-grant review proceedings before the USPTO. The risks of being involved in such litigation and office proceedings may also increase as Edesa’s product candidates approach commercialization, and as Edesa’s business gains greater visibility operating as a publicly traded company in the United States. Third parties may assert infringement claims against Edesa based on existing or future intellectual property rights and to restrict Edesa’s freedom to operate. Third parties may also seek injunctive relief against Edesa, whereby they would attempt to prevent Edesa from practicing its technologies altogether pending outcome of any litigation against Edesa. Edesa may not be aware of all such intellectual property rights potentially relating to Edesa’s product candidates prior to their assertion against Edesa. For example, Edesa has not conducted an in-depth freedom-to-operate search or analysis for EB01 or any of Edesa’s other product candidates. Any freedom-to-operate search or analysis previously conducted may not have uncovered all relevant patents and pending patent applications, and there may be pending or future patent applications that, if issued, would block Edesa from commercializing EB01 or any of Edesa’s other product candidates. Thus, Edesa does not know with certainty whether EB01, or any other product candidate or Edesa’s commercialization thereof, does not and will not infringe any third party’s intellectual property.

If Edesa is found to infringe a third party’s intellectual property rights, to avoid or settle litigation, Edesa could be required to obtain a license to enable Edesa to continue developing and marketing its products and technology. However, Edesa may not be able to obtain any required license on commercially reasonable terms, or at all. Even if Edesa were able to obtain a license, it could be nonexclusive, thereby giving its competitors access to the same technologies as are licensed to Edesa, and could require Edesa to make substantial payments. Absent a license, Edesa could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, Edesa could be found liable for monetary damages, including treble damages and attorneys’ fees if Edesa is found to have willfully infringed a patent or other intellectual property right. A finding of infringement could prevent Edesa from commercializing its product candidates or force it to cease some of its business operations, which could materially harm its business.

Edesa may be subject to claims by third parties asserting that Edesa or its employees have misappropriated their intellectual property, or claiming ownership of what Edesa regards as its own intellectual property.

Many of Edesa’s employees were previously employed at universities or other biotechnology or pharmaceutical companies. Although Edesa tries to ensure that its employees do not use the proprietary or otherwise confidential information or know-how of others in their work for Edesa, Edesa may be subject to claims that Edesa or these employees have without authorization used or disclosed intellectual property, including trade secrets or other proprietary or confidential information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.

In addition, while Edesa typically requires its employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to Edesa and agreeing to cooperate and assist Edesa with securing and defending Edesa’s intellectual property, Edesa may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that Edesa regards as its own. These assignment agreements may not be self-executing or may be breached, and Edesa may be forced to bring claims against third parties, or defend claims they may bring against Edesa, to determine the ownership of what Edesa regards as its intellectual property.

If Edesa fails in prosecuting or defending any such claims, in addition to paying monetary damages, Edesa may lose valuable intellectual property rights or personnel. Even if Edesa is successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.

Intellectual property litigation could cause Edesa to spend substantial resources and could distract Edesa’s personnel from their normal responsibilities.

Even if resolved in Edesa’s favor, litigation or other legal proceedings relating to intellectual property claims may cause Edesa to incur significant expenses and likely would distract its technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of the combined company’s common stock. Such litigation or proceedings could substantially increase Edesa’s operating losses and reduce the resources available for development, sales, marketing or distribution activities. Edesa may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of Edesa’s competitors may be able to sustain the costs of such litigation or proceedings more effectively than Edesa can because of their greater financial resources. Accordingly, costs and lost management time, as well as uncertainties resulting from the initiation and continuation of patent litigation or other proceedings, could have a material adverse effect on Edesa’s ability to compete in the marketplace.

If Edesa is unable to protect the confidentiality of its trade secrets, Edesa’s business and competitive position would be harmed.

Edesa partially relies on trade secrets and know-how, including unpatented know-how, technology and other proprietary and confidential information, to maintain its competitive position. Edesa seeks to protect these trade secrets, in part, by entering into nondisclosure and confidentiality agreements with parties who have access to them,

such as Edesa’s employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. However, Edesa cannot guarantee that it has executed these agreements with each party that may have or have had access to Edesa’s trade secrets or that the agreements Edesa has executed will provide adequate protection. Any party with whom Edesa has executed such an agreement may breach that agreement and disclose Edesa’s proprietary or confidential information, including Edesa’s trade secrets, and Edesa may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of Edesa’s trade secrets were to be lawfully obtained or independently developed by a competitor, Edesa would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with Edesa. If any of Edesa’s trade secrets, particularly unpatented know-how, were to be obtained or independently developed by a competitor, Edesa’s competitive position would be harmed.

Risks Related to Regulatory Approval and Marketing of Edesa’s Product Candidates

Even if Edesa completes the necessary clinical trials, the marketing approval process is expensive, time consuming and uncertain and may prevent Edesa from obtaining approvals for the commercialization of some or all of its product candidates. If Edesa is not able to obtain, or if there are delays in obtaining, required marketing approvals, Edesa will not be able to commercialize its product candidates, and Edesa’s ability to generate revenue will be materially impaired.

Edesa’s product candidates, including EB01, and the activities associated with its development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent Edesa from commercializing the product candidate. Edesa has not received approval to market EB01 or any other Edesa product candidate from regulatory authorities in any jurisdiction.

Edesa has only limited experience in filing and supporting the applications necessary to obtain marketing approvals for product candidates and expects to rely on third-party contract research organizations to assist Edesa in this process. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and effectiveness. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Regulatory authorities may determine that EB01, or any other Edesa product candidate is not effective, is only moderately effective or has undesirable or unintended side effects, toxicities, safety profiles or other characteristics that preclude Edesa from obtaining marketing approval or that prevent or limit commercial use.

The process of obtaining marketing approvals is expensive, may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that Edesa’s data are insufficient for approval and require additional preclinical studies, clinical trials or other trials. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval Edesa ultimately obtains may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable. If Edesa experiences delays in obtaining approval or if Edesa fails to obtain approval of its product candidates, the commercial prospects for Edesa’s product candidates may be harmed and its ability to generate revenues will be materially impaired.

Even if Edesa obtains marketing approval for its product candidates, the terms of approvals and ongoing regulation of Edesa’s products may limit how it manufactures and markets its products and compliance with such requirements may involve substantial resources, which could materially impair Edesa’s ability to generate revenue.

Even if marketing approval of a product candidate is granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation, including the possible requirement to implement a risk evaluation and mitigation strategy or to conduct costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. Edesa must also comply with requirements concerning advertising and promotion for any of its product candidates for which Edesa obtains marketing approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, Edesa will not be able to promote any products it develops for indications or uses for which they are not approved. In addition, manufacturers of approved products and those manufacturers’ facilities are required to ensure that quality control and manufacturing procedures conform to cGMP, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. Edesa and its contract manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMP.

Accordingly, assuming Edesa receives marketing approval for one or more of its product candidates, Edesa and its contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If Edesa is not able to comply with post-approval regulatory requirements, Edesa could have the marketing approvals for its products withdrawn by regulatory authorities and Edesa’s ability to market any future products could be limited, which could adversely affect Edesa’s ability to achieve or sustain profitability. Thus, the cost of compliance with post-approval regulations may have a negative effect on Edesa’s operating results and financial condition.

Edesa’s relationships with customers, healthcare providers and professionals and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose Edesa to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidate, including EB01, for which Edesa may obtain marketing approval. Edesa’s future arrangements with customers, healthcare providers and professionals, and third-party payors may expose Edesa to broadly applicable federal anti-kickback, federal and state fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which Edesa markets, sells and distributes any product candidate for which Edesa obtains marketing approval.

Efforts to ensure that Edesa’s business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that Edesa’s business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If Edesa’s operations are found to be in violation of any of these laws or any other governmental regulations that may apply to it, Edesa may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of Edesa’s operations. Violation of certain of these laws could also result in exclusion, suspension and debarment from government funded healthcare programs. Exclusion, suspension or debarment would significantly impact Edesa’s ability to commercialize, sell or distribute any product candidate for which Edesa obtains regulatory approval. If any of the physicians or other providers or entities with whom Edesa expects to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Edesa is subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing Edesa’s operations. If Edesa fails to comply with these laws, it could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect Edesa’s business, results of operations and financial condition.

Edesa’s operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, or the FCPA, and other anti-corruption laws that apply in countries where Edesa does business and may do business in the future. The FCPA and these other laws generally prohibit Edesa, Edesa’s officers, and Edesa’s employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. Edesa may in the future operate in jurisdictions that pose a high risk of potential FCPA violations, and Edesa may participate in collaborations and relationships with third parties whose actions could potentially subject Edesa to liability under the FCPA or local anti-corruption laws. In addition, Edesa cannot predict the nature, scope or effect of future regulatory requirements to which Edesa’s international operations might be subject or the manner in which existing laws might be administered or interpreted.

Edesa is also subject to other laws and regulations governing its international operations, including regulations administered by the government of the United States and authorities in the European Union, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws.

There is no assurance that Edesa will be completely effective in ensuring its compliance with all applicable anti-corruption laws, including the FCPA or other legal requirements, including Trade Control laws. If Edesa is not in compliance with the FCPA and other anti-corruption laws or Trade Control laws, it may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on Edesa’s business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the FCPA, other anti-corruption laws or Trade Control laws by U.S. or other authorities could also have an adverse impact on Edesa’s reputation, its business, results of operations and financial condition.

Edesa relies significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm Edesa’s ability to operate its business effectively.

Despite the implementation of security measures, Edesa’s internal computer systems and those of third parties with which Edesa contracts are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in Edesa’s operations, and could result in a material disruption of Edesa’s clinical and commercialization activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data could result in delays in Edesa’s regulatory approval efforts and significantly increase Edesa’s costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, Edesa’s data or applications, or inappropriate disclosure of confidential or proprietary information, Edesa could incur liability and its product research, development and commercialization efforts could be delayed.

Risks Related to Edesa’s Business Operations, Employee Matters and Managing Growth

Edesa’s future success depends on its ability to retain its chief executive officer and other key executives and to attract, retain and motivate qualified personnel.

Edesa is highly dependent on Dr. Pardeep Nijhawan, its Chief Executive Officer, President and Secretary, and Michael Brooks, its Vice President of Corporate Development and Strategy, and other principal members of its management and scientific teams. Although the combined company will have formal employment agreements with each of its executive officers, these agreements do not prevent the combined company’s executives from terminating their employment with it at any time. The unplanned loss of the services of any of these persons could materially impact the achievement of Edesa’s research, development and commercialization objectives.

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel, including in the United States and Canada, will also be critical to Edesa’s success. Edesa may not be able to attract and retain these personnel on acceptable terms given the competition among numerous biotechnology and pharmaceutical companies for similar personnel. Edesa also experiences competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, Edesa relies on consultants and advisors, including scientific and clinical advisors, to assist it in formulating Edesa’s research and development and commercialization strategy. Edesa’s consultants and advisors may be employed by employers other than Edesa and may have commitments under consulting or advisory contracts with other entities that may limit their availability to Edesa.

Edesa expects to expand its capabilities, and as a result, Edesa may encounter difficulties in managing its growth, which could disrupt its operations.

Edesa expects to experience significant growth in the number of its employees and the scope of its operations, particularly in the areas of drug development, regulatory affairs, finance and administration and, potentially, sales and marketing. To manage Edesa’s anticipated future growth, Edesa must continue to implement and improve its managerial, operational and financial systems, expand its facilities and continue to recruit and train additional qualified personnel. Due to Edesa’s limited financial resources and the limited experience of its management team in managing a company with such anticipated growth, Edesa may not be able to effectively manage the expansion of its operations or recruit and train additional qualified personnel. The physical expansion of Edesa’s operations may lead to significant costs and may divert its management and business development resources. Any inability to manage growth could delay the execution of Edesa’s business plans or disrupt its operations.

Edesa is exposed to risks related to currency exchange rates.

Edesa conducts a significant portion of its operations outside of the United States. Because Edesa’s financial statements are presented in U.S. dollars, changes in currency exchange rates have had and could have in the future a significant effect on Edesa’s operating results when Edesa’s operating results are translated into U.S. dollars. Exchange rate fluctuations between local currencies and the dollar create risk in several ways, including the following: weakening of the dollar may increase the cost of research and development expenses outside of the United States and the cost of sourced product components outside the United States; strengthening of the dollar may decrease the value of Edesa’s revenues denominated in other currencies; the exchange rates on nondollar transactions and cash deposits can distort Edesa’s financial results; and affecting commercial pricing and profit margins.

Edesa’s employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could cause significant liability for Edesa and harm its reputation.

Edesa is exposed to the risk of fraud or other misconduct by its employees, principal investigators, consultants and collaborators, including intentional failures to comply with FDA or Office of Inspector General regulations or similar regulations of comparable non-U.S. regulatory authorities, provide accurate information to the FDA or comparable non-U.S. regulatory authorities, comply with manufacturing standards Edesa has established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable non-U.S. regulatory authorities, report financial information or data accurately or disclose unauthorized activities to Edesa. Misconduct by these parties could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to Edesa’s reputation. It is not always possible to identify and deter employee misconduct, and the precautions Edesa takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting Edesa from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws, standards or regulations. If any such actions are instituted against Edesa, and Edesa is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business and results of operations, including the imposition of significant fines or other sanctions.

Risks Related to the Combined Company

In determining whether you should approve the Exchange, the issuance of Stellar Common Shares and other matters related to the Exchange, as the case may be, you should carefully read the following risk factors in addition to the other risks described under this section which will also apply to the combined company.

The combined company will incur losses for the foreseeable future and might never achieve profitability.

The combined company may never become profitable, even if the combined company is able to complete clinical development for one or more product candidates and eventually commercialize such product candidates. The combined company will need to successfully complete significant research, development, testing and regulatory compliance activities that, together with projected general and administrative expenses, is expected to result in substantial increased operating losses for at least the next several years. Even if the combined company does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis.

The combined company will continue to be a smaller reporting company. The combined company cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make the combined company’s common shares less attractive to investors or otherwise limit the combined company’s ability to raise additional funds.

Stellar is currently, and the combined company will continue to be upon completion of the Exchange, a “smaller reporting company” under applicable securities regulations. A smaller reporting company is a company that has an aggregate market value of the company’s voting stock held by non-affiliates, or public float, of less than $250 million as of the last business day of its most recently completed second fiscal quarter and does not meet certain exceptions. SEC rules provide that companies with a public float of less than $75 million may only sell shares under a Form S-3 shelf registration statement, during any 12-month period, in an amount less than or equal to one-third of the public float. If the combined company does not meet this public float requirement, any offering by the combined company under a Form S-3 will be limited to raising an aggregate of one-third of the combined company’s public float in any 12-month period. In addition, a smaller reporting company is able to provide simplified executive compensation disclosures in its filings, is exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that an independent registered public accounting firm provide an attestation report on the effectiveness of internal control over financial reporting if its public float is less than $75 million, and has certain other reduced disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Reduced disclosure in the combined company’s SEC filings due to its status as a smaller reporting company may make it harder for investors to analyze its results of operations and financial prospects.

Stellar expects the share price of the combined company to be volatile, and the market price of the Stellar Common Shares may drop following the Exchange.

The market price of Stellar Common Shares following the Exchange could be subject to significant fluctuations. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of Stellar Common Shares to fluctuate include:

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the Stellar Common Shares after the Exchange.

In the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm the combined company’s profitability and reputation.

The failure to integrate successfully the businesses of Edesa and Stellar in the expected timeframe could adversely affect the future results of the combined company following the completion of the Exchange.

The success of the Exchange will depend, in part, on the ability of the combined company following the completion of the Exchange to realize the anticipated benefits from combining the businesses of Stellar and Edesa.

The failure to integrate successfully and to manage successfully the challenges presented by the integration process may result in the combined company’s failure to achieve some or all of the anticipated benefits of the Exchange.

Potential difficulties that may be encountered in the integration process include the following:

The combined company will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.

The combined company will incur significant legal, accounting and other expenses that Edesa did not primarily incur as a private company, including costs associated with public company reporting requirements. The combined company will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as new rules implemented by the SEC and The Nasdaq Stock Market. These rules and regulations are expected to increase the combined company’s legal and financial compliance costs and to make some activities more time-consuming and costly. For example, the combined company’s management team will primarily consist of the executive officers of Edesa prior to the Exchange, many of whom have not previously managed and operated a public company. These executive officers and other personnel will need to devote substantial time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations. These rules and regulations may also make it difficult and expensive for the combined company to obtain directors and officers liability insurance. As a result, it may be more difficult for the combined company to attract and retain qualified individuals to serve on the combined company’s board of directors or as executive officers of the combined company, which may adversely affect investor confidence in the combined company and could cause the combined company’s business or share price to suffer.

Stellar and Edesa do not anticipate that the combined company will pay any cash dividends in the foreseeable future.

The current expectation is that the combined company will retain its future earnings to fund the development and growth of the combined company’s business. As a result, capital appreciation, if any, of the Stellar Common Shares after the Exchange will be your sole source of gain, if any, for the foreseeable future.

The pro forma financial statements are presented for illustrative purposes only and may not be indicative of the combined company’s financial condition or results of operations following the completion of the Exchange.

The pro forma financial statements contained in this proxy statement are presented for illustrative purposes only and may not be indicative of the combined company’s financial condition or results of operations following the Exchange for several reasons. The pro forma financial statements have been derived from the historical financial statements of Stellar and Edesa and adjustments and assumptions have been made regarding the combined company after giving effect to the Exchange. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the Exchange. For example, the impact of any incremental costs incurred in integrating the two companies is not reflected in the pro forma financial statements. As a result, the actual financial condition of the combined company following the Exchange may not be consistent with, or evident from, these pro forma financial statements. The assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s financial condition following the transaction. See section entitled “Unaudited Pro Forma Combined Financial Statements” below.

Future sales of shares by existing shareholders could cause the Stellar Common Share price to decline, after the Exchange.

If existing shareholders of Stellar and Edesa sell, or indicate an intention to sell, substantial amounts of the Stellar Common Shares after the Exchange in the public market after the legal restrictions on resale discussed in this proxy statement lapse, the trading price of the Stellar Common Shares, following the Exchange could decline.

The ownership of the Stellar Common Shares following the completion of the Exchange will be highly concentrated, which may prevent you and other shareholders from influencing significant corporate decisions and may result in conflicts of interest that could cause the Stellar Common Shares price to decline.

The Edesa shareholders and option holders are expected to beneficially own or control approximately 90% of the outstanding Stellar Common Shares on a fully-diluted basis upon the completion of the Exchange. Accordingly, the Edesa shareholders will have substantial influence over the outcome of corporate actions requiring shareholder

approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the combined company’s assets or any other significant corporate transaction. The Edesa shareholders may also delay or prevent a change of control of the combined company, even if such a change of control would benefit the other shareholders of the combined company. The significant concentration of share ownership may adversely affect the trading price of the Stellar Common Shares after the Exchange due to investors’ perception that conflicts of interest may exist or arise.

Upon completion of the Exchange, it is expected that the combined company will qualify as a foreign private issuer, and as a result, shareholders of the combined company may receive less information and be afforded less protection under the U.S. federal securities laws.

Following completion of the Exchange, it is expected that the combined company will qualify as a foreign private issuer within the meaning of rules promulgated under the Securities and Exchange Act of 1934, as amended, (the “Exchange Act”) because a majority of the Stellar Common Shares will be held by non U.S. persons. As a foreign private issuer, the combined company will be exempt from certain Exchange Act rules and requirements that apply to U.S. public companies, including: (i) the requirement to file with the SEC quarterly reports on Form 10-Q and current reports on Form 8-K; (ii) rules regulating the solicitation of proxies in connection with shareholder meetings; (iii) Regulation FD prohibiting selective disclosures of material information; and (iv) rules requiring insiders to disclose stock ownership and trading activities and establishing liability for profits realized from “short-swing” trading transactions (i.e., a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months). If the combined company elects to be treated as a foreign private issuer, shareholders of the combined company will receive less information about the combined company and trading in the combined company’s shares by its affiliates than was provided by Stellar, which is treated as a domestic issuer under the Exchange Act, and shareholders will be afforded less protection under the U.S. federal securities laws than would be afforded to shareholders of a domestic U.S. company. 

FORWARD-LOOKING STATEMENTS

This proxy statement and the documents incorporated by reference into this proxy statement contain forward-looking statements. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as Stellar cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include, but are not limited to statements about: (i) expectations related to the Exchange, including the benefits of the Exchange and the timing of the Exchange; (ii) expectations relating to the resulting ownership of the combined company; (iii) expectations and plans relating to the business of the combined company; (iv) expectations regarding listing of the Stellar Common Shares on the Nasdaq Capital Market; (v) expectations related to cash flows from operations; and (v) beliefs about Stellar’s ability to fund its anticipated levels of operations;

Readers should not unduly rely on these forward-looking statements, which are not a guarantee of future performance. There can be no assurance that forward-looking statements will prove to be accurate, as all such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results or future events to differ materially from the forward-looking statements. Such risks include, but may not be limited to: the possibility that Stellar may be unable to obtain shareholder approval required for the Exchange, the expected timing and likelihood of completion of the Exchange, the possibility that Stellar’s working capital decreases prior to the Exchange, and therefore, the Stellar shareholders are subject to decreased ownership in the combined company, the inability to successfully integrate the businesses or the risk that such integration may be more difficult, time-consuming or costly than expected, the occurrence of any event, change or other circumstances that could give rise to the termination of the Exchange Agreement, the inability of the parties to meet expectations regarding the accounting and tax treatments of the Exchange, the potential for the Exchange to involve unexpected costs, the risk that the parties may not be able to satisfy the conditions to the proposed transaction in a timely

manner or at all, risks related to disruption of management time from ongoing business operations due to the Exchange, the risk that the expected benefits of the proposed combined company are not realized, the risk that any announcements relating to the Exchange could have adverse effects on the market price of Stellar’s Common Shares, the ability to maintain and enforce patents and other intellectual property rights or the unexpected costs associated with such enforcement or litigation, as well as general economic and business conditions, technology changes, competition, changes in strategy or development plans, availability of funds and resources, anticipated requirements for operating capital, governmental regulations and the ability or failure to comply with governmental regulations, changes in trade policy and international law and other factors referenced in Stellar’s filings with securities regulators. Risks and uncertainties related to Edesa that may cause actual results to differ materially from those expressed or implied in any forward-looking statements include, but are not limited to: the ability of Edesa to obtain regulatory approval for or successfully commercialize any of its product candidates, the risk that access to sufficient capital to fund Edesa’s operations may not be available or may be available on terms that are not commercially favorable to Edesa, the risk that Edesa’s product candidates may not be effective against the diseases tested in its clinical trials, the risk that Edesa fails to comply with the terms of license agreements with third parties and as a result loses the right to use key intellectual property in its business, Edesa’s ability to protect its intellectual property and the timing and success of submission, acceptance and approval of regulatory filings. Many of these factors that will determine actual results are beyond Stellar’s, Edesa’s or the combined company's ability to control or predict.

Other risks and uncertainties are more fully described in periodic filings with the SEC, including the factors described in the section entitled "Risk Factors" in our Annual Report, which is incorporated by reference into this proxy statement and any Quarterly Reports on Form 10-Q filed thereafter, and in other filings that Stellar makes and will make with the SEC in connection with the proposed transactions, including the proxy statement, as well as its filings with the British Columbia Securities Commission. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

For a discussion of the factors that may cause Stellar, Edesa or the combined company’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of Stellar and Edesa to complete the Exchange and the effect of the Exchange on the business of Stellar, Edesa and the combined company, see “Risk Factors” beginning on page 15.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by Stellar. See “Where You Can Find Additional Information” beginning on page 135.

If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, the results of Stellar, Edesa or the combined company could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement are current only as of the date on which the statements were made. Stellar and Edesa do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.

THE ANNUAL MEETING OF STELLAR SHAREHOLDERS

2019 Annual Meeting of Stellar Shareholders

This Proxy Statement is being furnished to the holders of Stellar Common Shares in connection with the solicitation of proxies for use at the Annual Meeting. The Annual Meeting is to be held at 10:00 a.m. (local time) on May 30, 2019, at the Holiday Inn Express, located at 350 E. Port Hueneme Road, Port Hueneme, California 93041, and at any adjournment or adjournments thereof.

Record Date

The Stellar Board has fixed the close of business on April 18, 2019 as the record date (the “Record Date”) for the determination of shareholders entitled to notice of, and to vote and act at, the Annual Meeting. Only shareholders of record at the close of business on that date are entitled to notice of, and to vote and act at, the Annual Meeting.

Proposals to be Submitted at the Annual Meeting

At the Annual Meeting, shareholders will be acting upon the following proposals:

Stellar will also consider such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof.

Recommendation of the Stellar Board

After careful consideration, the Stellar Board recommends that Stellar shareholders vote:

Information Concerning Solicitation and Voting

As of the Record Date, there were 5,330,715 outstanding Stellar Common Shares, each share entitled to one vote on each matter to be voted on at the Annual Meeting.  Only holders of Stellar Common Shares on the Record Date will be entitled to vote at the Annual Meeting.  Stellar’s Amended Articles require the representation of at least one person entitled to vote at the Annual Meeting who holds at least thirty-three and one-third percent (33 – 1/3%) of the issued Stellar Common Shares, in person or represented by proxy, or a duly appointed proxy holder or representative

for a shareholder so entitled and holding or represented by proxy at least thirty-three and one-third percent (33 – 1/3%) of the issued Stellar Common Shares, in order to establish a quorum for the transaction of business. Abstentions and “broker non-votes” will be counted for purposes of determining whether a quorum is present for the transaction of business at the Annual Meeting. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is obtained. 

Proposal No. 1 – To approve the Exchange, Proposal No. 1 must receive the vote of a majority of the votes of the Stellar Common Shares cast in person or represented by proxy at the Annual Meeting. For the purposes of the approval, although abstentions will count toward the presence of a quorum, they will not be counted as votes cast and will have no effect on the result of the vote. “Broker non-votes,” which occur when brokers are prohibited from exercising discretionary voting authority for beneficial owners who have not provided voting instructions, will not be counted for the purpose of determining the number of shares present in person or by proxy on Proposal No. 1 and will have no effect on the outcome of the vote.  Brokers who hold shares in street name may not vote on behalf of beneficial owners with respect to Proposal No. 1 without instruction from beneficial owners.

Proposal No. 2 – To be elected, the nominees named in Proposal No. 2 must receive the vote of a plurality of votes of the Stellar Common Shares cast in person or represented by proxy at the Annual Meeting. For the purposes of the approval, although abstentions will count toward the presence of a quorum, they will not be counted as votes cast and will have no effect on the result of the vote. “Broker non-votes” will not be counted for the purpose of determining the number of shares present in person or by proxy on Proposal No. 2 and will have no effect on the outcome of the vote.  Brokers who hold shares in street name may not vote on behalf of beneficial owners with respect to Proposal No. 2 without instruction from beneficial owners.

Proposal No. 3 – For the appointment of the independent registered public accounting firm, Proposal No. 3 must receive the vote of a majority of votes cast in person or represented by proxy at the Annual Meeting.  For the purposes of the appointment, although abstentions will count toward the presence of a quorum, they will not be counted as votes cast and will have no effect on the result of the vote.  Brokers who hold shares in street name may vote on behalf of beneficial owners with respect to Proposal No. 3.

Proposal No. 4 – For the approval of the adjournment with respect to Proposal No. 1, this Proposal No. 4 must receive the vote of a majority of the shares cast in person or represented by proxy at the Annual Meeting.  For the purposes of the adjournment, although abstentions will count toward the presence of a quorum, they will not be counted as votes cast and will have no effect on the result of the vote.  “Broker non-votes” will not be counted for the purpose of determining the number of shares present in person or by proxy on Proposal No. 4 and will have no effect on the outcome of the vote.  Brokers who hold shares in street name may not vote on behalf of beneficial owners with respect to Proposal No. 4 without instruction from beneficial owners.

As of the date of this proxy statement, the Stellar Board does not know of any business to be presented at the Annual Meeting other than as described above. If any other matters should properly come before the Annual Meeting, it is intended that the shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting the proxies.

Expenses

The expense of preparing, printing and mailing this Proxy Statement and Annual Report and the proxies solicited hereby will be borne by Stellar. In addition to the use of the mails, proxies may be solicited by officers, directors and regular employees of Stellar, without additional remuneration, by personal interviews, telephone, email or facsimile transmission. Stellar will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of Stellar Common Shares held of record and will provide reimbursements for the cost of forwarding the material in accordance with customary charges.

No Right of Appraisal

None of British Columbia law, Stellar’s Certificate of Incorporation, Stellar’s Notice of Articles nor Stellar’s Articles provide for appraisal or other similar rights for dissenting shareholders in connection with the Exchange. Accordingly, Stellar shareholders will have no right to dissent and obtain payment for their Stellar Common Shares.

Attending the Annual Meeting

Only shareholders and invited guests are permitted to attend the Annual Meeting. To gain admittance, you must bring a form of personal identification to the Annual Meeting, where your name will be verified against the Stellar shareholder list. If a nominee holds your Stellar Common Shares and you plan to attend the Annual Meeting, you should bring a brokerage statement showing your ownership of the Stellar Common Shares as of the record date or a letter from the nominee confirming such ownership, and a form of personal identification. If you wish to vote your Stellar Common Shares that are held by a nominee at the meeting, you must obtain a proxy from your nominee and bring such proxy to the meeting.