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EX-31.1 - SECTION 302 CERTIFICATION - RealSource Residential, Incex31-1.txt
EX-32.1 - SECTION 906 CERTIFICATION - RealSource Residential, Incex32-1.txt

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

                                   FORM 10-K/A
                                (Amendment No. 1)

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                  For the fiscal year ended September 30, 2010

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

         For the transition period from ______________to________________

                        Commission file number 000-50331

                            UPSTREAM BIOSCIENCES INC.
             (Exact name of registrant as specified in its charter)

           Nevada                                                98-0371433
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

 71130, 198 - 8060 Silver Spring Blvd.
       Calgary, Alberta Canada                                    T3B 5K2
(Address of principal executive offices)                         (Zip Code)


         Registrant's telephone number, including area code 403.537.2516

              Securities registered under Section 12(b) of the Act:

       None                                               N/A
Title of each class                    Name of each exchange on which registered


              Securities registered under Section 12(g) of the Act:

                         Common Stock, $0.001 par value
                                (Title of class)

Indicate by checkmark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by checkmark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Act. Yes [ ] No [X]

Indicate by checkmark whether the registrant has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [ ] (Not
currently applicable to the Registrant).

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]

Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large  accelerated  filer [ ]                      Accelerated  filer [ ]
Non-accelerated filer [ ]                          Smaller reporting company [X]
(Do not check if a small reporting company)

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

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter: $511,681 based on a price of $0.012 per share, being the average bid
and asked price of such common equity as of March 31, 2010.

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                     PROCEEDINGS DURING THE PAST FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. 34,122,065 shares of common
stock as of September 26, 2011.

                       DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980). Not Applicable

EXPLANATORY NOTE: This amendment to our Form 10-K for the annual period ended September 30, 2010 has been filed in order to provide additional disclosure in our management's discussion and analysis. All other information included in our annual report on Form 10-K for the fiscal year ended September 30, 2010 has not been amended. Except for the matter described above, this amendment does not modify or update disclosures in the originally filed annual report on Form 10-K, or reflect events occurring after September 30, 2011, which is the date of the filing of the originally filed annual report on Form 10-K. PART I FORWARD LOOKING STATEMENTS. This annual report contains forward-looking statements that involve risk, uncertainties and assumptions. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or "continue" or the negative of these terms or other comparable terminology. Examples of forward-looking statements made in this annual report on Form 10-K include statements about: * Our business plans, * Our ability to raise additional finances, and * Our future investments and allocation of capital resources. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including: * General economic and business conditions, * Our lack of operating history, * Our financial condition, * Our material weakness in our internal control over financial reporting, * Our patents are only a provisional patent, and * The risks in the section of this annual report entitled "Risk Factors", any of which may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other 2
future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results The following discussion and analysis should be read in conjunction with the financial statements and related notes and the other financial information appearing elsewhere in this annual report. Our financial statements are stated in United States dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. In this report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common shares" refer to the common shares in our capital stock. As used in this report and unless otherwise indicated, the terms "we", "us" and "our" refer to Upstream Biosciences Inc. and our wholly-owned subsidiaries. ITEM 1. BUSINESS CORPORATE DEVELOPMENTS We were incorporated pursuant to the laws of the State of Nevada on March 20, 2002 under the name Integrated Brand Solutions Inc. and on February 6, 2006, we changed our name to Upstream Biosciences Inc. We have not generated any revenues from our technologies to date. On August 10, 2009, our company issued a press release announcing that we were actively seeking licensors or acquirors for our novel anti-parasitic drug discovery portfolio and cancer diagnostic platform. To that end, our company formed an independent committee of the board to assess the strategic direction of our company. During the four months following the issuance of the press release, the independent board shortlisted a number of potential candidates that may have had interest in the acquisition of our company's pharmaceutical business as formerly held by our subsidiary Pacific Pharma Technologies Inc. Our independent committee contacted such organizations but discussions did not result in any offers or agreements to acquire such assets. After several months, our company continued to face challenges in raising funds due to the continued financial downturn, especially for early-stage life sciences companies. To this end, and as discussed in our periodic reports, Joel Bellenson and Dexster Smith, both former directors and officers of our company, agreed to voluntarily defer their salaries for the 2009 calendar year, or until such time that our company completed a sizeable financing. TCF Ventures Corp., a company through which Tim Fernback provided services as chief financial officer of our company, agreed to defer a portion of the amounts owed to him for consulting services on the understanding that such amounts would be repaid when our company obtained sufficient funds. However, a dispute arose as to the terms of the deferral as discussed under the heading "Item 3 - Legal Proceedings". Following the continued downturn, low cash reserves, no available financing, and the commencement of litigation with TCF Ventures, our company was left with two available options. The first option was to restructure our company, including a change of its management and board of directors, and the second option was bankruptcy. As bankruptcy would effectively prevent our shareholders from realizing any value in our company, the board agreed to restructure our company. As a result, and following a write-down of the pharmaceutical business operated by Pacific Pharma, our wholly-owned subsidiary, we entered into the Asset Sale Agreement to transfer such assets as described below under the heading "Asset Sale Agreement". Joel Bellenson and Dexster Smith then agreed to enter into return to treasury agreements and cancel the remaining stock held by them to treasury for no consideration. The entire board of directors and management resigned but not before appointing Mike McFarland as sole director and officer of our company. Following the appointment of the new director, the new board of directors intends to seek out viable business opportunities in order to maximize shareholder value. ASSET SALE AGREEMENT On December 14, 2009, our subsidiary, Pacific Pharma, a British Columbia company, entered into and closed an asset sale agreement with JTAT Consulting Inc., a company wholly-owned by Art Cherkasov. Pursuant to the terms of the agreement, Pacific Pharma sold all of the assets held by Pacific Pharma to JTAT Consulting for the payment of $1.00. The assets included the URL domain name www.pacificpharmatech.com, Pacific Pharma's patents, patent applications, and 3
inventions, methods, processes and discoveries that may be patentable, Pacific Pharma's know-how, trade secrets, confidential information, technical information, data, process technology and plans and drawings, owned, used, or licensed by Pacific Pharma as licensee or licensor. Our board of directors decided to proceed with the write-down following our inability to find any potential acquiror or licensor to purchase the assets and advance the technology and upon deciding to cease any further research and development of this segment of our business. The write-down resulted in an impairment charge of $59,010, and a loss on disposal of $78,570. Our company does not believe that this amount will result in any future cash expenditures. RETURN TO TREASURY AGREEMENTS In connection with the restructuring of our company, and on December 4, 2009, we entered into a return to treasury agreement with each of Joel Bellenson and Dexster Smith. Pursuant to the terms of the agreements, each of Mr. Bellenson and Mr. Smith agreed to return 8,095,470 restricted common shares to the treasury of our company for cancellation without consideration effective December 4, 2009. Following the share cancellations, each of Joel Bellenson and Dexster Smith held nil shares in our company. OPTION TERMINATION AGREEMENTS On December 14, 2009, Mr. Bellenson and Mr. Smith, both former directors and officers of our company, entered into Option Termination Agreements with our company, whereby the 400,000 options held by each person were immediately cancelled. RELEASE WITH FORMER DIRECTORS AND MANAGEMENT On December 14, 2009, our company executed a mutual release with each of Mr. Bellenson and Mr. Smith, whereby each party agreed to release the other for all claims each party may have against the other. OUR BUSINESS Our business strategy is to generate revenues through licensing our technologies or collaborating with third parties in the disease susceptibility, biomarkers identification, and drug response areas of cancer, primarily to companies that develop and/or market developing diagnostic products. On June 27, 2008, we re-filed a provisional patent application on genetic markers that, following successful development and testing, may assist in determining the susceptibility of patients to liver cancer. These markers may also be important for determining the susceptibility of patients to other types of cancer, such as prostate or other cancers. On June 27, 2008, we re-filed a provisional patent application on an assay for identifying genetic markers that may predict a patient's response to a drug entitled "In-Vivo Assay, Database and Software Algorithm for using Liver Enzyme CIS-Regulatory Allelic Binding Affinities to Profile and Predict a Haplotype's Drug Response". On August 13, 2008, we re-filed the three provisional patents that related to genetic biomarkers for prostate, ovarian and thyroid cancer susceptibility. On July 22, 2010, we re-filed the five above noted provisional patents along with provisional patents for "Three-Dimensional Genetic-Variant QSAR Methods" and "Anti-Parasitic Compounds and Methods for Selection Thereof." OTHER BUSINESS OPPORTUNITIES Simultaneously with our genetic diagnostic business, we are seeking new acquisitions and/or business opportunities with established business entities for the merger of a business with our company. In certain instances, a business may wish to become a subsidiary of us or may wish to contribute assets to us rather than merge. We are not currently in negotiations with any parties to enter into a business opportunity and there can be no assurance that we will be able to enter into any agreement. We anticipate that any new acquisition or business opportunities by our company will require additional financing. There can be no assurance, however, that we will be able to acquire the financing necessary to enable us to pursue our plan of operation. If our company requires additional financing and we are unable to acquire such funds, our business may fail. 4
Management of our company believes that there are perceived benefits to being a reporting company with a class of publicly-traded securities. These are commonly thought to include: (i) the ability to use registered securities to acquire assets or businesses; (ii) increased visibility in the financial community; (iii) the facilitation of borrowing from financial institutions; (iv) improved trading efficiency; (v) stockholder liquidity; (vi) greater ease in subsequently raising capital; (vii) compensation of key employees through stock options; (viii) enhanced corporate image; and (ix) a presence in the United States capital market. We may seek a business opportunity with entities that have recently commenced operations, or entities who wish to utilize the public marketplace in order to raise additional capital in order to expand business development activities, to develop a new product or service, or for other corporate purposes. We may acquire assets and establish wholly-owned subsidiaries in various businesses or acquire existing businesses as subsidiaries. In implementing a structure for a particular business acquisition or opportunity, we may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity. We may also acquire stock or assets of an existing business. As of the date hereof, management has not entered into any formal written agreements for a business combination or opportunity and there is no guarantee that we will be able to enter into such an agreement. COMPETITION The biotechnology industry is highly competitive. Numerous entities in the United States and elsewhere compete with our efforts to commercialize our technologies. Our competitors include pharmaceutical, biomedical, biotechnology and diagnostic companies, academic and research institutions and governmental and other publicly and privately funded research agencies. We face, and expect to continue to face, competition from these entities to the extent that they develop products that have a function similar or identical to the function of our technologies. We also face, and expect to continue to face, competition from entities that seek to discover therapeutic and diagnostic products. Because many of our competitors have substantially greater capital resources and more experience in research and development, manufacturing and marketing than we do, we may not succeed in developing our proposed products and bringing them to market in a cost-effective and timely manner. We are a development stage company. We have not yet completed the development of our first product and have no revenue from operations. As a result, we may have difficulty competing with larger, established biomedical companies and organizations. Within the global genetic biomarker industry, examples of publicly traded companies include: Compugen, Ltd., Epigenomics AG, Myriad Genetics, Inc. and Diagnocure Inc. These companies and organizations have much greater financial, technical, research, marketing, sales, distribution, service and other resources than us. Moreover, they may offer broader product lines, services and have greater name recognition than we do, and may offer discounts as a competitive tactic. As we are currently seeking other business opportunities, we compete with other companies for both the acquisition of prospective properties and businesses and the financing necessary to develop such properties or businesses. We conduct our business in an environment that is highly competitive and unpredictable. In seeking out prospective properties and other businesses, we have encountered intense competition in all aspects of our proposed business as we compete directly with other development stage companies as well as established international companies. Many of our competitors are national or international companies with far greater resources, capital and access to information than us. Accordingly, these competitors may be able to spend greater amounts on the acquisition of prospective properties and on the exploration and development of such properties or the acquisition of other businesses. 5
INTELLECTUAL PROPERTY PATENT APPLICATIONS Our company has re-filed four original provisional patent applications. Our company re-files provisional patents with the US Patent and Trademark Office on an annual basis, prior to completing an initial patent filing as part of our overall intellectual property strategy. We have identified and filed provisional patent applications on genetic markers that, following successful development and testing, may assist in determining the susceptibility of patients to liver cancer, prostate cancer, ovarian cancer, thyroid cancer, as well as, an assay for identifying genetic markers that may predict a patient's response to a drug. The validity and breadth of claims in medical technology patents involve complex legal and factual questions and, therefore, may be highly uncertain. No assurance can be given that any patents based on pending patent applications or any future patent applications by us, or any future licensors, will be issued, that the scope of any patent protection will exclude competitors or provide competitive advantages to us, that any of the provisional patent applications that have been or may be issued to us or our licensors will be held valid if subsequently challenged or that others will not claim rights in or ownership of the provisional patent applications and other proprietary rights held or licensed by us. Furthermore, there can be no assurance that others have not developed or will not develop similar products, duplicate any of our technology or design around any patents that may be issued to us or our licensors. Since provisional patent applications in the United States are maintained in secrecy until patents are issued, we also cannot be certain that others have not or will not file prior applications for inventions covered by our, and our licensors' pending patent applications, nor can we be certain that we will not infringe any patents that may be issued to others on such applications. We have not conducted freedom of use patent searches and no assurance can be given that patents do not exist or could not be filed which would have an adverse affect on our ability to market our technology or maintain our competitive position with respect to our technology. If our technologies or subject matter are claimed under other existing United States or foreign patents or are otherwise protected by third party proprietary rights, we may be subject to infringement actions. In such event, we may challenge the validity of such patents or other proprietary rights or we may be required to obtain licenses from such companies in order to develop, manufacture or market our technology. There can be no assurances that we will be able to obtain such licenses or that such licenses, if available, may be obtained on commercially reasonable terms. Furthermore, the failure to either develop a commercially viable alternative or obtain such licenses may result in delays in marketing our proposed technology or the inability to proceed with the development, manufacture or sale of products requiring such licenses, which may have a material adverse affect on our business, financial condition and results of operations. If we are required to defend ourselves against charges of patent infringement or to protect our proprietary rights against third parties, substantial costs will be incurred regardless of whether we are successful. Such proceedings are typically protracted with no certainty of success. An adverse outcome could subject us to significant liabilities to third parties and force us to curtail or cease our development and commercialization of our technology. DOMAIN NAMES We own and operate the following registered internet domain name: www.upstreambio.com. The information contained on our website does not form part of this annual report. GENERAL We also rely on trade secrets and unpatentable know-how that we seek to protect, in part, by confidentiality agreements. We intend to require all future employees, consultants, contractors, manufacturers, outside scientific collaborators and sponsored researchers, directors on our board, technical review board and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements will provide that all confidential information developed or made known to the individual during the course of the individual's relationship with us is to be kept confidential and not disclosed to third parties except in specific limited circumstances. We intend to require signed confidentiality or material transfer 6
agreements from any company that receives confidential information from our company. We intend to ensure that, in the case of employees, consultants and contractors, any agreements that our company enters into with such persons will generally provide that all inventions conceived by the person while rendering services to us shall be assigned to us as the exclusive property of our company. We can offer no assurance, however, that all persons who we seek to sign such agreements will sign, or if they do, that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets or unpatentable know-how will not otherwise become known or be independently developed by competitors. GOVERNMENT REGULATION The products and technologies that would be developed from our patents will require regulatory approval by governmental agencies prior to commercialization. Various federal statutes and regulations also govern or influence the testing, manufacturing, safety, labeling, storage, record keeping, and marketing of therapeutic products. The process of obtaining these approvals and the subsequent compliance with applicable statutes and regulations require the expenditure of substantial time and financial resources. RESEARCH AND DEVELOPMENT Our research and development costs primarily consist of research programs related to the development of drug candidates for the treatment of certain infectious diseases and cancers. We estimate that we will not have any research and development cash expenditures for the next twelve months. Our company incurred no research and developments costs in 2010 (2009: $260,147 consisting of $174,801 in cash expenses and $85,346 in stock expenses). We were focused on the restructuring of the Company and did not expend funds on research and development during the past fiscal year. EMPLOYEES We currently have one employee consisting of Michael McFarland, our sole director and officer. We will hire additional employees when circumstances warrant. CUSTOMERS As we are in the development stage of our business, we do not currently have any customers of our technologies. SUPPLIERS Our company is not reliant upon any suppliers for the research and development of our technologies. ITEM 1A. RISK FACTORS RISKS RELATED TO OUR BUSINESS WE HAVE HAD NEGATIVE CASH FLOWS FROM OPERATIONS SINCE INCEPTION. WE WILL REQUIRE SIGNIFICANT ADDITIONAL FINANCING, THE AVAILABILITY OF WHICH CANNOT BE ASSURED, AND IF OUR COMPANY IS UNABLE TO OBTAIN SUCH FINANCING, OUR BUSINESS MAY FAIL. To date, we have had negative cash flows from operations and have depended on sales of our equity securities and debt financing to meet our cash requirements. Our ability to develop and, if warranted, commercialize our technologies, will be dependent upon our ability to raise significant additional financing. If we are unable to obtain such financing, we will not be able to fully develop our business. Specifically, we will need to raise additional funds to pay our existing and accrued liabilities, and support our planned growth and carry out our business plan. In light of the current financial crises, financing for companies such as ours is very difficult to obtain. Even if financing is available, it may not be available on terms that are favorable to us or in sufficient amounts to satisfy 7
our requirements. If we require, but are unable to obtain, additional financing in the future, we may be unable to implement our business plan and our growth strategies, respond to changing business or economic conditions, withstand adverse operating results and compete effectively. Without additional funds, we may not be able to pay our employees or contracts to provide services, and these same employees or service providers may have to either accept accruals or common shares, or a combination of both, for compensation. More importantly, if we are unable to raise further financing when required, we may be forced to scale down our operations and our ability to continue operations may be negatively affected. WE HAVE A HISTORY OF LOSSES AND NOMINAL OPERATING RESULTS, WHICH RAISE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. Since inception through the fiscal year ended September 30, 2010, we have incurred aggregate net losses of $7,172,154. We can offer no assurance that we will operate profitably or that we will generate positive cash flow in the future. In addition, our operating results in the future may be subject to significant fluctuations due to many factors not within our control, such as the level of competition and general economic conditions. Our company's operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. No assurance can be given that we may be able to operate on a profitable basis. Due to the nature of our business and the early stage of our development, our securities must be considered highly speculative. We have not realized a profit from our operations to date and there is little likelihood that we will realize any profits in the short or medium term. Any profitability in the future from our business will be dependent upon the successful commercialization or licensing of our core technology, which itself is subject to numerous risk factors as set forth herein or the acquisition of another business. We expect to continue to incur development costs and operating costs. Consequently, we expect to incur operating losses and negative cash flows until our technology gains market acceptance sufficient to generate a sustainable level of income from the commercialization or licensing of our technology. Our history of losses and nominal operating results raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph in our company's independent registered public accounting firm's audit report dated September 7, 2011 which is included in our annual report on Form 10-K. THE WORLDWIDE MACROECONOMIC DOWNTURN MAY REDUCE THE ABILITY OF OUR COMPANY TO OBTAIN THE FINANCING NECESSARY TO CONTINUE OUR BUSINESS AND MAY REDUCE THE NUMBER OF VIABLE BUSINESSES THAT WE MAY WISH TO ACQUIRE. In 2009 and 2010, there has been a downturn in general worldwide economic conditions due to many factors, including the effects of the subprime lending and general credit market crises, volatile but generally declining energy costs, slower economic activity, decreased consumer confidence and commodity prices, reduced corporate profits and capital spending, adverse business conditions, increased unemployment and liquidity concerns. In addition, these macroeconomic effects, including the resulting recession in various countries and slowing of the global economy, will likely result in decreased business opportunities as potential target companies face increased financial hardship. Tightening credit and liquidity issues will also result in increased difficulties for our company to raise capital for our continued operations and to consummate a business opportunity with a viable business. WE HAVE IDENTIFIED MATERIAL WEAKNESSES RELATED TO OUR INTERNAL CONTROL OVER FINANCIAL REPORTING AND CONCLUDED THAT OUR INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES WERE INEFFECTIVE AS OF SEPTEMBER 30, 2010. THESE MATERIAL WEAKNESSES REMAIN UNREMEDIED, WHICH COULD CONTINUE TO IMPACT OUR ABILITY TO REPORT RESULTS OF OPERATIONS AND FINANCIAL CONDITION ACCURATELY AND IN A TIMELY MANNER. We have identified a number of material weaknesses in our internal control over financial reporting. Our management assessed the effectiveness of our internal control over financial reporting and disclosure controls and procedures as at September 30, 2009 pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related SEC rules and concluded that our internal control over financial reporting and disclosure controls and procedures were ineffective. In connection with the preparation of our quarterly report for the period ended June 30, 2009, 8
we determined that an accrual error with respect to the management compensation of one of our senior officers had been made in our financial statements in prior periods and we determined that our disclosure controls and procedures were not effective as at September 30, 2010. We have concluded that five material weaknesses existed as at September 30, 2010 which are set out in Item 9A under the heading "Controls and Procedures". Although we intend to remediate such material weaknesses as set out in Item 9A, we have not yet been able to address these material weaknesses and they may continue to remain unremedied for some time, which could adversely impact the accuracy and timeliness of future reports and filings we make to the SEC and could have a material adverse effect on our business, results of operations, financial condition and liquidity. WE CURRENTLY HOLD NO PATENTS ON OUR PROPRIETARY TECHNOLOGY AND IF WE ARE NOT ABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, OUR COMPANY WILL SUFFER A MATERIAL ADVERSE EFFECT. We currently have provisional patent applications filed on our technologies. We currently rely on the provisional patent applications and trade secrets to protect our proprietary intellectual property. We believe our success depends upon the knowledge and experience of our management and our ability to market our existing technology and to develop new technologies. While we believe that we have adequately protected our proprietary technology, and we intend to take all appropriate and reasonable legal measures to protect it in the future, the use of our technology by a competitor could have a material adverse effect on our business, financial condition and results of operations. Our ability to compete successfully and achieve future revenue growth will depend, in part, on our ability to protect our proprietary technology and operate without infringing upon the rights of others. We may not be able to successfully protect our proprietary technology, and our proprietary technology may otherwise become known or similar technology may be independently developed by competitors. Competitors may discover novel uses, develop similar or more marketable technologies or offer services similar to our company at lower prices. We cannot predict whether our technologies and services will compete successfully with the technologies and services of existing or emerging competitors. WE MAY LOSE OUR COMPETITIVENESS IF WE ARE NOT ABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS AGAINST INFRINGEMENT, AND ANY RELATED LITIGATION MAY BE TIME-CONSUMING AND COSTLY. Our success and ability to compete depends to a significant degree on our proprietary technology. If any of our competitors copy or otherwise gain access to our proprietary technology or develop similar technologies independently, we may not be able to compete as effectively. The measures we have implemented to protect our proprietary technology and other intellectual property rights are currently based upon a combination of provisional patent applications, technology licenses and trade secrets. This, however, may not be adequate to prevent the unauthorized use of our proprietary technology and our other intellectual property rights. Further, the laws of foreign countries may provide inadequate protection of such intellectual property rights. We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, may result in substantial costs and a diversion of our company's resources. In addition, notwithstanding our rights to our intellectual property, other persons may bring claims against us alleging that we have infringed on their intellectual property rights or claims that our intellectual property rights are not valid. Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our attention and resources, result in the loss of goodwill associated with our business or require us to make changes to our technology. IF OUR PROVISIONAL PATENT APPLICATIONS AND PROPRIETARY RIGHTS DO NOT PROVIDE SUBSTANTIAL PROTECTION, THEN OUR BUSINESS AND COMPETITIVE POSITION WILL SUFFER. Our success depends in large part on our, and any of our potential collaborators, ability to develop, commercialize and protect our proprietary technology. However, patents may not be granted on any of our provisional or future patent applications. Also, the scope of any future patent may not be sufficiently broad to offer meaningful protection. In addition, any patents granted to us in the future may be successfully challenged, invalidated or circumvented so that such patent rights may not create an effective competitive barrier. OUR COMPANY MAY BECOME SUBJECT TO INTELLECTUAL PROPERTY LITIGATION WHICH MAY HARM OUR BUSINESS. 9
Our success depends in part on our ability to develop commercially viable products without infringing the proprietary rights of others. Although we have not been subject to any filed infringement claims, other patents could exist or could be filed which may prohibit or limit our ability to market our products or maintain a competitive position. In the event of an intellectual property dispute, we may be forced to litigate. Intellectual property litigation may divert management's attention from developing our technology and may force us to incur substantial costs regardless of whether we are successful. An adverse outcome could subject us to significant liabilities to third parties, and force us to curtail or cease the development and commercialization of our technology. WE HAVE NOT GENERATED ANY REVENUES FROM OPERATIONS AND IF WE ARE UNABLE TO DEVELOP MARKET SHARE AND GENERATE SIGNIFICANT REVENUES FROM THE COMMERCIALIZATION OR LICENSING OF OUR TECHNOLOGY, THEN OUR BUSINESS MAY FAIL. We operate in a highly competitive industry and our failure to compete effectively and generate income through the licensing of our technology may adversely affect our ability to generate revenue. There can be no assurance that our new or existing technologies will gain market acceptance. Management is aware of similar technologies that our technology, when developed to a stage of commercialization, will compete directly against. Many of our competitors have greater financial, technical, sales and marketing resources, better name recognition and a larger customer base than ours. In addition, many of our large competitors may offer customers a broader or superior range of services and technologies. Some of our competitors may conduct more extensive promotional activities and offer lower licensing costs to customers than we do, which could allow them to gain greater market share or prevent us from establishing and increasing our market share. Increased competition in the genetic biomarker industry and the drug development industry may result in significant price competition, reduced profit margins or loss of market share, any of which may have a material adverse effect on our ability to generate revenues and successfully operate our business. Our competitors may develop technologies superior to those that our company is currently developing. In the future, we may need to decrease our prices if our competitors lower their prices. Our competitors may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Such competition will potentially affect our chances of achieving profitability, and ultimately affect our ability to continue as a going concern. RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY MAY RENDER OUR TECHNOLOGY NON-COMPETITIVE OR OBSOLETE AND CONSEQUENTLY AFFECT OUR ABILITY TO GENERATE FUTURE REVENUES. The genetic biomarker industry is characterized by rapidly changing technology, evolving industry standards and varying customer demand. We believe that our success will depend on our ability to generate income through the licensing of our technology. We can make no assurance that our technology will not become obsolete due to the introduction of alternative technologies. If we are unable to continue to develop and introduce new genetic biomarkers, new biotechnology drugs and drug candidates to meet technological changes and changes in market demands, our business and operating results, including our ability to generate revenues, may be adversely affected. IF WE DO NOT KEEP PACE WITH OUR COMPETITORS, TECHNOLOGICAL ADVANCEMENTS AND MARKET CHANGES, OUR TECHNOLOGY MAY BECOME OBSOLETE AND OUR BUSINESS MAY SUFFER. The market for our technology is very competitive, is subject to rapid technological changes and varies for different individual products. We believe that there are potentially many competitive approaches being pursued that compete with our technology, including some by private companies for which information is difficult to obtain. Many of our competitors have significantly greater resources and have developed products and processes that directly compete with our technology. Our competitors may develop, or may in the future develop, new technologies that directly compete with our technology or even render our technology obsolete. Our technology is designed to develop diagnostic products as well as treatments for certain diseases. Even if we are able to demonstrate improved or equivalent results from our technology, researchers and practitioners may not use our technology and we may suffer a competitive disadvantage. Finally, to the extent that others develop new technologies that address the targeted application for our current technology, our business will suffer. MOST OF OUR ASSETS AND A MAJORITY OF OUR DIRECTORS AND OFFICERS ARE OUTSIDE THE UNITED STATES, WITH THE RESULT THAT IT MAY BE DIFFICULT FOR INVESTORS TO ENFORCE WITHIN THE UNITED STATES ANY JUDGMENTS OBTAINED AGAINST US OR ANY OF OUR DIRECTORS OR OFFICERS. 10
Although we are organized under the laws of the State of Nevada, United States, our principal business office is located in Calgary, Alberta, Canada. Outside the United States, it may be difficult for investors to enforce judgments against us that are obtained in the United States in any action, including actions predicated upon civil liability provisions of federal securities laws. In addition, our sole director and officer resides outside the United States, and all of the assets of this non-U.S. person and our assets are located outside of the United States. As a result, it may not be possible for investors to affect service of process within the United States upon such persons or to enforce against us or such persons judgments predicated upon the liability provisions of United States securities laws. There is substantial doubt as to the enforceability against us or our sole director and officer located outside the United States in original actions or in actions of enforcement of judgments of United States courts or liabilities predicated on the civil liability provisions of United States federal securities laws. In addition, as the majority of our assets are located outside of the United States, it may be difficult to enforce United States bankruptcy proceedings against us. Under bankruptcy laws in the United States, courts typically have jurisdiction over a debtor's property, wherever it is located, including property situated in other countries. Courts outside of the United States may not recognize the United States bankruptcy court's jurisdiction. Accordingly, you may have trouble administering a United States bankruptcy case involving a Nevada company as debtor with most of its property located outside the United States. Any orders or judgments of a bankruptcy court obtained by you in the United States may not be enforceable. OUR BUSINESS IS SUBJECT TO COMPREHENSIVE GOVERNMENT REGULATION AND ANY CHANGE IN SUCH REGULATION MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR COMPANY. There is no assurance that the laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States, Canada or any other jurisdiction, will not be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on our company. Any or all of these situations may have a negative impact on our operations. RISKS RELATED TO OUR COMMON STOCK A DECLINE IN THE PRICE OF OUR COMMON STOCK COULD AFFECT OUR ABILITY TO RAISE FURTHER WORKING CAPITAL AND ADVERSELY IMPACT OUR ABILITY TO CONTINUE OPERATIONS. A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because a significant portion of our operations has been and will be financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our operations. Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plans and operations, including our ability to develop new products and continue our current operations. If our stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations. The market price for our common stock may also be affected by our ability to meet or exceed expectations of analysts or investors. Any failure to meet these expectations, even if minor, may have a material adverse effect on the market price of our common stock. IF WE ISSUE ADDITIONAL SHARES IN THE FUTURE, IT WILL RESULT IN THE DILUTION OF OUR EXISTING SHAREHOLDERS. Our certificate of incorporation authorizes the issuance of up to 750,000,000 shares of common stock with a $0.001 par value and 100,000,000 preferred shares with a par value of $0.001, of which 34,112,06 common shares were issued and outstanding as of September 30, 2010. Our board of directors may fix and determine the designations, rights, preferences or other variations of each class or series within each class. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares will result in a reduction of the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will 11
cause a reduction in the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our company. TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SECURITIES EXCHANGE COMMISSION'S PENNY STOCK REGULATIONS, WHICH MAY LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK. The Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock. FINRA'S SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK. In addition to the "penny stock" rules promulgated by the Securities and Exchange Commission (see above for a discussion of penny stock rules), FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares. OUR COMMON STOCK IS ILLIQUID AND THE PRICE OF OUR COMMON STOCK MAY BE NEGATIVELY IMPACTED BY FACTORS WHICH ARE UNRELATED TO OUR OPERATIONS. Our common stock is currently quoted on the OTC Bulletin Board. Trading of our stock through the OTC Bulletin Board is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in the stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock. 12
ITEM 2. PROPERTIES EXECUTIVE OFFICES Effective December 14, 2009, our principal offices are located at 71130, 198 - 8060 Silver Spring Blvd., Calgary, Alberta, Canada. Our sole director and officer provides this space to us free of charge. This space may not be available free of charge in the future. We do not own any real property. We believe this office will be adequate for the near future. ITEM 3. LEGAL PROCEEDINGS Other than as set forth below, we know of no material, active, or pending legal proceeding against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation where such claim or action involves damages for more than 10% of our current assets as of June 1, 2011. Additionally, there were no proceedings in which any of our company's directors, officers, or affiliates, or any registered or beneficial shareholders holding more than 5% of our voting securities, is an adverse party or has a material interest adverse to our company's interest as of June 1, 2011. On September 1, 2009, TCF Ventures filed a Writ of Summons and Statement of Claim against our company. The Statement of Claim alleged that our company notified TCF Ventures that it would be reducing amounts payable to TCF Ventures by 33% and that our company would eventually repay the salary owed when it had sufficient funds. TCF Ventures accepted the deferral of salary on the understanding that the deferral was temporary and that it would be repaid as soon as possible. The Statement of Claim further alleged that on or about January 2009, our company notified TCF Ventures that our company would be deferring the salary by 50%. In response, on or about February 3, 2009, the Statement of Claim alleges that TCF Ventures delivered a written notice to our company advising that our company was in material breach of the agreement for failing to pay the salary. TCF Ventures claimed judgment against our company for $68,750 plus GST for outstanding salary under the agreement and $150,000 for severance. On September 22, 2009, our company filed a Statement of Defence against TCF Ventures, whereby our company denied the allegations made against our company and counter claimed against TCF Ventures, which counterclaim included the following: (a) causing our company to pay GST on amounts payable to TCF Ventures, even though the agreement did not provide for the payment of GST to TCF Ventures; (b) failure to cause our company to deduct GST from amounts payable to TCF Ventures and to remit such payments to the required government authority; and (c) during the term of the agreement, Mr. Fernback caused our company to overpay on salary payments by applying a rate of exchange between the Canadian and US dollars that was more favourable to TCF Ventures than existing market rates. Our company took the position that such breaches constituted repudiation of the agreement with TCF Ventures such that our company was entitled to treat the agreement at an end and that TCF Ventures has no cause of action against our company for the severance. Our company further claimed that our company was entitled to repayment of the GST paid to TCF Ventures and the amount paid in excess of the market exchange rates, and therefore claimed a right of set-off for such amounts against any amount held to be owing to TCF Ventures. On December 14, 2009, TCF Ventures and our company signed a mutual release whereby, in consideration for the payment of $50,000 from our company to TCF Ventures, both parties agreed to release each other from all claims or liabilities for any allegations pled in the Statement of Claim and the Statement of Defence. ITEM 4. (REMOVED AND RESERVED) 13
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET FOR SECURITIES Our stock is listed for quotation on the OTC Bulletin Board under the trading symbol "UPBS". Our common shares initially began trading on the OTC Bulletin Board on September 1, 2004 under the trading symbol "IBSO.OB". The following table sets forth, for the periods indicated, the high and low closing prices for each quarter within the last two fiscal years ended September 30, 2010 as reported by the quotation service operated by the OTC Bulletin Board. All quotations for the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Quarter Ended High Low ------------- ---- --- September 30, 2010 $0.02 $0.01 June 30, 2010 $0.02 $0.01 March 31, 2010 $0.02 $0.01 December 31, 2009 $0.03 $0.02 September 30, 2009 $0.25 $0.02 June 30, 2009 $0.09 $0.03 March 31, 2009 $0.08 $0.02 December 31, 2008 $0.17 $0.02 On September 26, 2011, the closing price for the common stock as reported by the quotation service operated by the OTC Bulletin Board was $0.01. Nevada Agency and Trust Company is the registrar and transfer agent for our common shares. Their address is 50 West Liberty, Suite 800 Reno, Nevada, 89501 Telephone: 775.322.0626, Facsimile: 775.322.5623. HOLDERS OF OUR COMMON STOCK As of September 26, 2011 there were 10 registered holders of record of our common stock. As of such date, 34,112,065 common shares were issued and outstanding. DIVIDEND POLICY We have not declared or paid any cash dividends since inception. Although there are no restrictions that limit our ability to pay dividends on our common shares, we intend to retain future earnings, if any, for use in the operation and expansion of our business and do not intend to pay any cash dividends in the foreseeable future. EQUITY COMPENSATION PLAN INFORMATION On March 16, 2007, our board of directors approved the 2007 Stock Option Plan. Under the terms of the 2007 Stock Option Plan, options to purchase up to 5,000,000 shares of our common stock may be granted to our officers, directors, employees and permitted consultants of our company. The following table sets forth certain information concerning all equity compensation plans previously approved by stockholders and all previous equity compensation plans not previously approved by stockholders, as of the most recently completed fiscal year. 14
RECENT SALES OF UNREGISTERED SECURITIES The following sets forth certain information concerning securities which were sold or issued by us during the last fiscal year ended September 30, 2010 without the registration of these securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements. On November 19, 2009, we issued 1,000,000 shares to one person. We issued the shares upon an exemption from registration in an offering of securities in an offshore transaction to a non US Person (as that term is defined in Regulation S of the Securities Act of 1933), relying on Regulation S and/or Section 4(2) of the Securities Act of 1933. December 4, 2009, we returned 16,190,940 restricted common shares to the treasury of our company for cancellation without consideration. On December 14, 2009, Mr. Bellenson and Mr. Smith, both former directors and officers of our company, entered into Option Termination Agreements with our company, whereby the 400,000 options held by each person were immediately cancelled. ITEM 6. SELECTED FINANCIAL DATA Not Applicable. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report. Our audited consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. PLAN OF OPERATIONS AND CASH REQUIREMENTS OVER THE NEXT 12 MONTHS Without adequate funding, it is management's intention to halt current research and development efforts associated with our biomarker program and wait until sufficient financial resources exist before spending additional and significant funds for the commercialization of our biomarker program. However, we will continue to evaluate and determine the most cost effective use of available funds for all future research and development programs, including diagnostic biomarkers, biomarkers for a drug response assay and drug development efforts. There is no assurance that our research and development programs will produce commercially viable products or treatments, and a great deal of additional R&D will be required before a final evaluation of the economic feasibility of our technologies can be determined. We are also currently seeking new acquisitions and/or business opportunities with established business entities for the merger of a target business with our company including businesses not having a resource focus. In certain instances, a target business may wish to become a subsidiary of us or may wish to contribute assets to us rather than merge. There can be no assurance that we will be able to enter into any agreements. We anticipate that any new acquisition or business opportunities by our company will require additional financing. There can be no assurance, however, that we will be able to acquire the financing necessary to enable us to pursue our plan of operation. If our company requires additional financing and we are unable to acquire such funds, our business may fail. 15
ANTICIPATED CASH REQUIREMENTS Over the next 12 months, we have estimated our minimum cash requirements to be as follows: Estimated Expenses for the Next Twelve Month Period --------------------------------------------------- Cash Operating Expenses Employee and consultant compensation $ 15,000 Professional fees $ 50,000 General and administrative expenses $ 30,000 Corporate communications $ 10,000 Research and development $ 10,000 -------- Total $115,000 ======== For the 12 months ended September 30, 2010, we recorded a net operating loss of $242,920 and have an accumulated deficit of $7,269,854 since inception. As at September 30, 2010, we had a working capital deficit of $139,443 and for the next 12 months, management estimates minimum cash requirements of $115,000 to fund on-going operations and planned research and development programs. Accordingly, we do not have sufficient funds to meet our plan of operation over the next 12 months and will need to obtain further financing through issuance of shares, debentures or convertible debentures. We will also endeavor to access available funding from research and development grants or loans from various public and private research granting agencies. Moreover, all cash operating expenses will be carefully monitored to ensure we can meet our obligations as they come due. There can be no assurance that additional financing will be available when needed or, if available, on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we may not be able to meet our obligations as they come due and may be forced to scale down or perhaps even cease business operations. LIQUIDITY AND CAPITAL RESOURCES Our financial position as at September 30, 2010 and September 30, 2009 and the changes for the years then ended are as follows: WORKING CAPITAL As at As at September 30, September 30, 2010 2009 ---------- ---------- Current Assets $ 41,411 $ 241,132 Current Liabilities $ 180,854 $ 424,116 Working Capital (Deficiency) $ (139,443) $ (182,984) Working capital deficiency has decreased by $43,544 from the year ended September 30, 2010 to September 30, 2009 as a result of the Company being able to renegotiate balances owing to related parties. CASH FLOWS Year Ended Year Ended September 30, September 30, 2009 2009 ---------- ---------- Net cash (used in) Operating Activities $ (192,410) $ (375,201) Net cash from (used in) Investing Activities $ 30,235 $ 1,466 Net cash provided by Financing Activities $ -- $ -- Effect of exchange rate changes $ (15,950) $ (29,237) Increase (Decrease) in Cash during the Year $ (178,182) $ (402,972) Cash, Beginning of Year $ 209,334 $ 612,306 Cash, End of Year $ 31,152 $ 209,334 16
During the years ended September 30, 2010 and 2009: (i) Our net cash used in operating activities decreased by $182,734 primarily due to our company focusing on reducing expenses and conserving our available cash. (ii) Our net cash provided by investing activities of $30,235 in 2010 resulted from converting $31,765 of restricted cash to cash, offset by the purchase of equipment for $1,530. The cash which was converted from restricted to free is a result of our deposit on a credit card being returned when the credit card was cancelled. (iii) Our net cash from financing activities was $nil in 2010 and 2009 as we did not partake in any financing activities during these periods. RESULTS OF OPERATIONS FOR YEAR ENDING SEPTEMBER 30, 2010 The following summary should be read in conjunction with our audited financial statements for the years ended September 30, 2010 and 2009 included herein. Year Ended Year Ended September 30, September 30, 2010 2009 ------------ ------------ Revenue $ Nil $ Nil Expenses Management and consulting fees $ 72,245 $ 322,652 Amortization 192 64,826 License fees and royalties 24,016 10,677 Loss (gain) of foreign exchange 5,533 9,302 Professional fees 71,285 118,284 General and administration 37,402 61,851 Corporate communications, transfer agent and media -- 20,164 Research and development -- 260,147 Interest (income) expense - net 32,247 (3,529) Asset impairment loss -- 59,010 Compensation shares 25,000 -- Loss on sale of intellectual property 78,570 -- Stock-based compensation -- 194,545 ------------ ----------- Total expenses $ 346,490 $ 1,117,929 ============ =========== Deferred income tax benefit 27,857 18,075 ------------ ----------- Net Loss $ (318,633) $(1,099,854) ============ =========== REVENUE We are a development stage company and have not generated any revenues from our technologies since inception. We anticipate significant additional time and financing will be required before our technologies are developed to a marketable state. EXPENSES Our operating expenses for the year ended September 30, 2010 were $242,920 compared to $1,058,919 in 2009. This net decrease of $815,999 was primarily due to the following: 17
* $250,407 decrease in management and consulting fees due to us renegotiating its management compensation structure as part of our restructuring plan. * $64,634 decrease in amortization is a result of us selling our intellectual property rights and thus not having an asset to amortize. * $13,339 increase in license fees and royalties resulting from under accruals in previous periods which resulted in a catch up in the current period. * $3,769 decrease in loss on foreign exchange as a result of us having fewer operations in Canada during the year combined with favorable exchange rates throughout the year. * $46,999 decrease in professional fees as a result of a significant restructuring including the sale of our subsidiary (Pacific Pharma) to JTAT consulting, a return to treasury by former directors and officers of our company, negotiations related to the terminations of former directors and officers including a mutual releases, sale of 1,000,000 shares and on-going legal proceedings with TCF Ventures Corp. These restructuring fees were primarily incurred in fiscal 2009 with some being included in the first quarter of 2010. * $24,449 decrease in general and administration due to a cash conservation strategy adopted by our management during the fiscal year. This included a reduction in rent expense, business insurance expenses, and website maintenance. * $20,164 decrease in corporate communication expenses due to a cash conservation strategy adopted by our management during the fiscal year. * $260,147 decrease in research and development. The decrease in cash spend was due to a cash conservation strategy adopted by management during the fiscal year. In addition, we did not continue stock based research and development costs. * $35,776 increase in interest expense as we booked a journal entry to catch up for interest expense not recorded in previous periods with respect to the license agreement. * $194,545 decrease in stock-based compensation due to a management re-evaluation program. * We also recognized various one time charges with respect to asset impairment, loss on disposal of assets and issuance of compensation shares which are a result of our restructuring. GOING CONCERN The audited financial statements accompanying this report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our company has not generated revenues since inception, has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon: (i) the continued financial support from our shareholders; (ii) the ability of our company to continue raising necessary equity financing to achieve its operating objectives; and (iii) the eventual attainment of profitable operations. Our independent auditors included an explanatory paragraph in their annual report on our financial statements for the year ended September 30, 2010 regarding concerns about our ability to continue as a going concern. In addition, our financial statements contain further note disclosures in this regard. The continuation of our business plan is dependent upon our ability to continue raising sufficient new capital from equity or debt markets in order to fund our on-going operating losses and oil and gas acquisition and exploration activities. The issuance of additional equity securities could result in a significant dilution in the equity interests of our current stockholders. 18
APPLICATION OF CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures of our company. Although these estimates are based on management's knowledge of current events and actions that our company may undertake in the future, actual results may differ from such estimates. BASIS OF PRESENTATION AND CONSOLIDATION These consolidated financial statements and related notes are presented in accordance with United States generally accepted accounting principles ("US GAAP") and are expressed in US dollars. The Company is in the development stage and has not realized significant revenues from its business plan to date. These financial statements include the accounts of the Company and its wholly-owned Canadian subsidiaries, Upstream Biosciences, Inc. ("Upstream Canada") and Pacific Pharma Technologies Inc. ("PPT"). All inter-company transactions and account balances have been eliminated on consolidation. The Company acquired Upstream Canada on February 24, 2006. This transaction was accounted for as a recapitalization transaction, similar to a reverse acquisition accounting, with Upstream Canada being treated as the accounting parent (legal subsidiary) and the Company being treated as the accounting subsidiary (legal parent). Accordingly, the consolidated results of operations of the Company include those of Upstream Canada for the period from its inception on June 14, 2004 and those of the Company since the date of the reverse acquisition, February 24, 2006. EQUIPMENT Equipment is valued at cost less accumulated amortization. Amortization is recorded using the straight-line method over four years and maintenance and repairs are expensed as incurred. INTELLECTUAL PROPERTY RIGHTS Intellectual Property Rights ("IPR") were being amortized on a straight line basis over 5 years. The carrying value of the IPR were reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The determination of any impairment includes a comparison of net carrying value with estimated future operating cash flows anticipated during the remaining useful life. USE OF ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are readily apparent from other sources. The actual results experienced by the Company may differ materially from the Company's estimates. To the extent there are material differences, future results may be affected. Estimates used in preparing these financial statements include the carrying value of intellectual property rights and the fair value of share-based payments, deferred income taxes, financial instruments and deferred compensation. SHARE-BASED COMPENSATION The Company accounts for share-based compensation using the fair value method and related compensation expense is recognized over the period of benefit when the service is rendered. FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents, other receivables, restricted cash, accounts payable, and amounts due to related parties. The carrying amounts of these financial instruments at September 30, 2010 and 2009 approximate their fair values due to their short term nature. 19
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION The functional and reporting currency of the Company is the United States dollar and of the Company's Canadian subsidiaries is the Canadian dollar. The financial statements of the Canadian subsidiaries are translated into United States dollars using period-end rates of exchange for assets and liabilities, and period average rates of exchange for revenues and expenses. Foreign currency transaction gains (losses) are included in the consolidated statements of operations and those arising from translation of the Canadian subsidiaries during the consolidation process are included in other comprehensive income (loss) which is disclosed as a separate component of shareholders' deficit. The Company has not entered into any derivative instruments to offset the impact of foreign currency fluctuations. RESEARCH AND DEVELOPMENT These costs are expensed when incurred and consist primarily of direct material and personnel costs, contract services and indirect costs. The Company has received government assistance in the past and may receive same in the future regarding its research and development activities. When the work is performed that qualifies for such grants, the related assistance amount is credited to research and development expense. INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statements and the tax basis of assets and liabilities, and net operating loss carry forwards based on using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the year that includes the enactment date. Valuation allowances are established to the extent that it is considered more likely than not that deferred tax assets will be realized. At September 30, 2010 and 2009, a valuation allowance for the full amount of the deferred tax assets was recorded. LOSS PER SHARE Basic loss per share is computed by dividing the net loss by the weighted average number of outstanding common shares during the year. Diluted loss per share gives effect to all potentially dilutive common shares outstanding during the year, including convertible debt, stock options and share purchase warrants, using the treasury stock method. The computation of diluted loss per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on loss per share. NEW ACCOUNTING PRONOUNCEMENTS AND POLICIES The Company has reviewed recently issued, but not yet effective, accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its reported financial position, results of operations or cash flows. OFF-BALANCE SHEET ARRANGEMENTS We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial position, revenues and expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders. 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Upstream Biosciences, Inc. We have audited the accompanying consolidated balance sheets of Upstream Biosciences, Inc. (a development stage company) as of September 30, 2010 and 2009 and the related consolidated statements of operations, cash flows and stockholders' deficit for the years then ended and the period from June 14, 2004 (inception) to September 30, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Upstream Biosciences, Inc. as at September 30, 2010 and 2009 and the results of its operations and its cash flows for the years then ended and the period from June 14, 2004 (inception) to September 30, 2010 in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has a working capital deficiency, has incurred losses in developing its business, and further losses are anticipated. The Company requires additional funds to meet its obligations and the costs of its operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ DALE MATHESON CARR-HILTON LABONTE LLP --------------------------------------------- DALE MATHESON CARR-HILTON LABONTE LLP CHARTERED ACCOUNTANTS Vancouver, Canada September 7, 2011 21
UPSTREAM BIOSCIENCES, INC. (A Development Stage Company) CONSOLIDATED BALANCE SHEETS September 30, September 30, 2010 2009 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 31,152 $ 209,334 Other receivables 10,259 2,564 Prepaid expenses -- 29,234 ------------ ------------ 41,411 241,132 RESTRICTED CASH -- 31,765 EQUIPMENT, net 1,338 -- INTELLECTUAL PROPERTY RIGHTS, net -- 178,315 ------------ ------------ $ 42,749 $ 451,212 ============ ============ LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities $ 185,854 $ 126,146 Due to related parties -- 297,970 ------------ ------------ 180,854 424,116 DEFERRED INCOME TAX -- 27,857 ------------ ------------ 180,854 451,973 ------------ ------------ STOCKHOLDERS' DEFICIT CAPITAL STOCK Authorized: 100,000,000 non-voting preferred shares at $0.001 par value 750,000,000 common shares at $0.001 par value Issued and outstanding: 34,112,065 common shares (2009 - 49,453,006) 34,112 49,453 ADDITIONAL PAID-IN CAPITAL 7,123,633 6,889,878 OBLIGATION TO ISSUE SHARES -- 99,737 DEFERRED COMPENSATION -- (78,570) ACCUMULATED OTHER COMPREHENSIVE LOSS (25,996) (10,038) DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (7,269,854) (6,951,221) ------------ ------------ (138,105) (761) ------------ ------------ $ 42,749 $ 451,212 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 22
UPSTREAM BIOSCIENCES, INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS Cumulative Results From Inception (June 14, 2004) to Years Ended September 30, September 30, 2010 2009 2010 ------------ ------------ ------------ REVENUE $ -- $ -- $ 67,600 ------------ ------------ ------------ OPERATING EXPENSES Amortization 192 64,826 133,425 Consulting fees -- -- 12,598 Interest and finance charges 33,586 398 596,430 Interest income (1,339) (3,927) (84,671) Investor and corporate communications -- 20,164 258,349 License fees and royalties 24,016 10,677 105,009 Loss on foreign exchange 5,533 9,302 15,453 Management compensation 72,245 322,652 1,526,086 Office and general administration 37,402 61,851 473,796 Professional fees 71,285 118,284 585,952 Research and development -- 260,147 1,421,530 Stock-based compensation -- 194,545 2,090,632 ------------ ------------ ------------ (242,920) (1,058,919) (7,134,589) OTHER ITEMS Asset impairment loss -- 59,010 59,010 Compensation shares 25,000 -- 25,000 Loss on sale of intellectual property 78,570 -- 78,570 ------------ ------------ ------------ LOSS BEFORE INCOME TAX (346,490) (1,117,929) (7,229,569) Deferred income tax recovery 27,857 18,075 57,415 ------------ ------------ ------------ NET LOSS $ (318,633) $ (1,099,854) $ (7,172,154) ============ ============ ============ NET LOSS PER SHARE - BASIC AND DILUTED $ (0.01) $ (0.02) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED 36,844,724 49,453,006 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 23
UPSTREAM BIOSCIENCES, INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS Cumulative Results From Inception (June 14, 2004) to Years Ended September 30, September 30, 2010 2009 2010 ------------ ------------ ------------ CASH FLOW FROM OPERATING ACTIVITIES Net loss $ (318,633) $ (1,099,854) $ (7,177,065) Adjustments to reconcile net loss to net cash used in operating activities: Amortization 192 64,826 133,425 Accretion of convertible debenture -- -- 302,808 Shares issued or to be issued for services -- 85,346 1,487,236 Stock-based compensation -- 194,545 1,658,590 Compensation shares 25,000 -- 25,000 Deferred income tax (27,857) (18,075) (57,415) Asset impairment -- 59,019 59,010 Loss from sale of intellectual property 78,570 -- 78,570 Changes in operating assets and liabilities: Other receivables (7,695) 3,921 (10,259) Prepaid expenses 29,234 4,897 (2,781) Accounts payable and accrued liabilities 54,708 32,589 258,069 Due to related parties (25,986) 297,585 271,984 ------------ ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (192,467) (375,201) (2,967,917) ------------ ------------ ------------ CASH FLOW FROM INVESTING ACTIVITIES Decrease in restricted cash 31,765 1,466 -- Cash paid for acquisition of PPT shares -- -- (51,507) Purchase of equipment (1,530) -- (22,764) ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 30,235 1,466 (74,271) ------------ ------------ ------------ CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issuance of convertible debentures -- -- 1,000,000 Proceeds from issuance of common shares, net -- -- 1,995,345 Loan from related party -- -- 78,487 ------------ ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES -- -- 3,073,832 ------------ ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES (15,950) (29,237) (492) ------------ ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (178,182) (402,972) 31,152 CASH AND CASH EQUIVALENTS, BEGINNING 209,334 612,306 -- ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, ENDING $ 31,152 $ 209,334 $ 31,152 ============ ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 24
UPSTREAM BIOSCIENCES, INC. (A Development Stage Company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE PERIOD FROM JUNE 14, 2004 TO SEPTEMBER 30, 2010 Common Stock -------------------- Additional Obligation Number of Paid-In to Issue Shares Amount Capital Shares ------ ------ ------- ------ BALANCE - JUNE 14, 2004 59,300,000 $59,300 $ (10,300) $ -- Forward stock split on a 1.5:1 basis 29,650,000 29,650 (29,650) -- Comprehensive income (loss) Foreign exchange translation adjustment -- -- -- -- Net loss -- -- -- -- ----------- ------- ---------- ------- BALANCE - DECEMBER 31, 2005 88,950,000 88,950 (39,950) -- Share exchange and recapitalization Shares issued to former shareholders of Upstream Canada 24,000,000 24,000 -- -- Shares cancelled on acquisition (68,650,000) 68,650 -- -- Recapitalization adjustment -- -- (4,005) -- Fair value compensation to consultant Issuance of stock at $1.20 per share 500,000 500 599,500 -- Amortization of fair value of stock options granted -- -- 100,150 -- Issuance of convertible debenture Fair value of detachable warrants -- -- 360,964 -- Embedded beneficial conversion feature -- -- 268,108 -- Issuance of stock for services Prepaid for six months ended October 31, 2006 17,500 18 17,750 -- Less: amount expensed to September 30, 2006 -- -- -- -- Issuance of stock for BCCA license fee 29,577 30 17,717 -- Partial forfeiture of convertible debenture -- -- 141,844 -- Comprehensive loss Foreign exchange translation adjustment -- -- -- -- Net loss -- -- -- -- ----------- ------- ---------- ------- BALANCE - SEPTEMBER 30, 2006 44,847,077 44,848 1,462,078 -- Amortization of fair value of stock options granted -- -- 771,809 -- Amortization of stock issued for operating expenses -- -- -- -- Issuance of stock for services Prepaid for twelve months ended October 31, 2007 48,326 48 34,674 -- Less: amount expensed to September 30, 2007 -- -- -- -- Issuance of stock for cash @ 1.50 per share 1,333,334 1,333 1,998,667 -- Cash payment for unsuccessful due diligence -- -- (5,000) -- Issuance of stock for convertible debenture Principal 800,000 800 799,200 -- Interest payable 53,973 54 53,919 -- Issuance of stock for acquisition of PPT For 100% of PPT's shares 520,000 520 243,880 -- For performance-based escrow shares as deferred compensation 225,000 225 105,525 -- Obligation to issue shares under contract -- -- -- 4,842 Comprehensive income (loss) Foreign exchange translation adjustment -- -- -- -- Net loss -- -- -- -- ----------- ------- ---------- ------- BALANCE - SEPTEMBER 30, 2007 47,827,710 47,828 5,464,752 4,842 Amortization of fair value of stock options granted -- -- 424,128 -- Amortization of stock issued for operating expenses -- -- -- -- Issuance of stock for consulting services contract For six months ended January 31, 2008 @ $0.30 per share 83,183 83 24,872 (4,842) For amended and restated contract @ $0.25 per share 403,388 403 100,445 -- For six months ended August 31, 2008 @ $0.30 per share 213,725 214 46,841 -- Issuance of stock for achieving Malaria milestone New stock issued @ $0.3624/sh 925,000 925 334,295 -- Release of 75,000 performance-based shares from escrow -- -- -- -- Obligation to issue shares under contract -- -- -- 14,391 Comprehensive income (loss) Foreign exchange translation adjustment -- -- -- -- Net loss -- -- -- -- ----------- ------- ---------- ------- BALANCE - SEPTEMBER 30, 2008 49,453,006 49,453 6,395,333 14,391 Amortization of fair value of stock options granted -- -- 194,545 -- Forgiveness of related party debt -- 300,000 -- -- Obligation to issue shares under contract -- -- 85,346 -- Comprehensive income (loss) Foreign exchange translation adjustment -- -- -- -- Net loss -- -- -- -- ----------- ------- ---------- ------- BALANCE - SEPTEMBER 30, 2009 49,453,006 49,453 6,889,878 99,737 ----------- ------- ---------- ------- Forgiveness of related party debt -- -- 271,984 -- Issuance of stock as per agreement 1,000,000 1,000 24,000 -- Stock returned to treasury (16,340,941) (16,341) 16,341 -- Forgiveness of obligation to issue shares -- -- -- (99,737) Forgiveness of deferred compensation due to cancellation of escrow shares -- -- (78,570) -- Comprehensive income (loss) Foreign exchange translation adjustment -- -- -- -- Net loss -- -- -- -- ----------- ------- ---------- ------- BALANCE - SEPTEMBER 30, 2010 34,112,065 $34,112 $7,123,633 $ -- =========== ======= ========== ======= Accumulated Deficit Other Accumulated Comprehensive During the Total Deferred Income Development Stockholders' Compensation (Loss) Stage Equity ------------ ------ ----- ------ BALANCE - JUNE 14, 2004 $ -- $ -- $ (77,105) $ (28,105) Forward stock split on a 1.5:1 basis Comprehensive income (loss) Foreign exchange translation adjustment -- (3,472) -- (3,472) Net loss -- -- (50,205) (50,205) --------- -------- ----------- ----------- BALANCE - DECEMBER 31, 2005 -- (3,472) (127,310) (81,782) Share exchange and recapitalization Shares issued to former shareholders of Upstream Canada -- -- -- 24,000 Shares cancelled on acquisition -- -- -- (68,650) Recapitalization adjustment -- -- (49,045) (53,050) Fair value compensation to consultant Issuance of stock at $1.20 per share -- -- -- 600,000 Amortization of fair value of stock options granted -- -- -- 100,150 Issuance of convertible debenture Fair value of detachable warrants -- -- -- 360,964 Embedded beneficial conversion feature -- -- -- 268,108 Issuance of stock for services Prepaid for six months ended October 31, 2006 (17,768) -- -- -- Less: amount expensed to September 30, 2006 14,986 -- -- 14,986 Issuance of stock for BCCA license fee -- -- -- 17,747 Partial forfeiture of convertible debenture -- -- -- 141,844 Comprehensive loss Foreign exchange translation adjustment -- (5,707) -- (5,707) Net loss -- -- (1,843,529) (1,843,529) --------- -------- ----------- ----------- BALANCE - SEPTEMBER 30, 2006 (2,782) (9,179) (2,019,884) (283,252) Amortization of fair value of stock options granted -- -- -- 771,809 Amortization of stock issued for operating expenses 2,782 -- -- 2,782 Issuance of stock for services Prepaid for twelve months ended October 31, 2007 (34,722) -- -- -- Less: amount expensed to September 30, 2007 31,600 -- -- 31,600 Issuance of stock for cash @ 1.50 per share -- -- -- 2,000,000 Cash payment for unsuccessful due diligence -- -- -- (5,000) Issuance of stock for convertible debenture Principal -- -- -- 800,000 Interest payable -- -- -- 53,973 Issuance of stock for acquisition of PPT For 100% of PPT's shares -- -- -- 244,400 For performance-based escrow shares as deferred compensation (105,750) -- -- -- Obligation to issue shares under contract -- -- -- 4,842 Comprehensive income (loss) Foreign exchange translation adjustment -- 36,035 -- 36,035 Net loss -- -- (1,796,981) (1,796,981) --------- -------- ----------- ----------- BALANCE - SEPTEMBER 30, 2007 (108,872) 26,856 (3,816,865) 1,618,541 Amortization of fair value of stock options granted 424,128 Amortization of stock issued for operating expenses 3,122 -- -- 3,122 Issuance of stock for consulting services contract For six months ended January 31, 2008 @ $0.30 per share -- -- -- 20,113 For amended and restated contract @ $0.25 per share -- -- -- 100,848 For six months ended August 31, 2008 @ $0.30 per share -- -- -- 47,055 Issuance of stock for achieving Malaria milestone New stock issued @ $0.3624/sh -- -- -- 335,220 Release of 75,000 performance-based shares from escrow 27,180 -- -- 27,180 Obligation to issue shares under contract -- -- -- 14,391 Comprehensive income (loss) Foreign exchange translation adjustment -- (7,657) -- (7,657) Net loss -- -- (2,034,502) (2,034,502) --------- -------- ----------- ----------- BALANCE - SEPTEMBER 30, 2008 (78,570) 19,199 (5,851,367) 548,439 Amortization of fair value of stock options granted -- -- -- 194,545 Forgiveness of related party debt -- -- -- 300,000 Obligation to issue shares under contract -- -- -- 85,346 Comprehensive income (loss) Foreign exchange translation adjustment -- (29,237) -- (29,237) Net loss -- -- (1,099,854) (1,099,854) --------- -------- ----------- ----------- BALANCE - SEPTEMBER 30, 2009 (78,570) (10,038) (6,951,221) (761) --------- -------- ----------- ----------- Forgiveness of related party debt -- -- -- 271,984 Issuance of stock as per agreement -- -- -- 25,000 Stock returned to treasury -- -- -- -- Forgiveness of obligation to issue shares -- -- -- (99,737) Forgiveness of deferred compensation due to cancellation of escrow shares 78,570 -- -- -- Comprehensive income (loss) Foreign exchange translation adjustment -- (15,958) -- (15,958) Net loss -- -- (318,633) (318,633) --------- -------- ----------- ----------- BALANCE - SEPTEMBER 30, 2010 $ -- $(25,996) $(7,269,854) $ (138,105) ========= ======== =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 25
UPSTREAM BIOSCIENCES, INC (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2010 1. NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS Upstream Biosciences, Inc. ("the Company") was incorporated on March 20, 2002 under the laws of the State of Nevada. The Company is engaged in developing technology relating to biomarker identification, disease susceptibility and drug response areas of cancer. GOING CONCERN These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP") on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As at September 30, 2010, the Company has a working capital deficiency of $139,443 and has incurred losses since inception of $7,269,854. This raises substantial doubt about the Company's ability to continue as a going concern which is dependent upon generating profitable operations and obtaining the necessary financing to meet its obligations when they become due. There is no assurance that equity or debt capital will be available as necessary to meet the Company's requirements or, if the capital is available, that it will be on terms acceptable to the Company. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND CONSOLIDATION These consolidated financial statements and related notes are presented in accordance with United States generally accepted accounting principles ("US GAAP") and are expressed in US dollars. The Company is in the development stage and has not realized significant revenues from its business plan to date. These financial statements include the accounts of the Company and its wholly-owned Canadian subsidiaries, Upstream Biosciences, Inc. ("Upstream Canada") and Pacific Pharma Technologies Inc. ("PPT"). All inter-company transactions and account balances have been eliminated on consolidation. The Company acquired Upstream Canada on February 24, 2006. This transaction was accounted for as a recapitalization transaction, similar to a reverse acquisition accounting, with Upstream Canada being treated as the accounting parent (legal subsidiary) and the Company being treated as the accounting subsidiary (legal parent). Accordingly, the consolidated results of operations of the Company include those of Upstream Canada for the period from its inception on June 14, 2004 and those of the Company since the date of the reverse acquisition, February 24, 2006. EQUIPMENT Equipment is valued at cost less accumulated amortization. Amortization is recorded using the straight-line method over four years and maintenance and repairs are expensed as incurred. INTELLECTUAL PROPERTY RIGHTS Intellectual Property Rights ("IPR") were being amortized on a straight line basis over 5 years. The carrying value of the IPR was reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The determination of any impairment includes a comparison of net carrying value with estimated future operating cash flows anticipated during the remaining useful life. USE OF ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are readily apparent from other sources. The actual results experienced by the Company may differ materially from the Company's estimates. To the extent there are material differences, future results may be affected. Estimates used in preparing these 26
financial statements include the carrying value of intellectual property rights and the fair value of share-based payments, deferred income taxes, financial instruments and deferred compensation. SHARE-BASED COMPENSATION The Company accounts for share-based compensation using the fair value method and related compensation expense is recognized over the period of benefit when the service is rendered. FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents, other receivables, restricted cash, accounts payable, and amounts due to related parties. The carrying amounts of these financial instruments at September 30, 2010 and 2009 approximate their fair values due to their short term nature. FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION The functional and reporting currency of the Company is the United States dollar and of the Company's Canadian subsidiaries is the Canadian dollar. The financial statements of the Canadian subsidiaries are translated into United States dollars using period-end rates of exchange for assets and liabilities, and period average rates of exchange for revenues and expenses. Foreign currency transaction gains (losses) are included in the consolidated statements of operations and those arising from translation of the Canadian subsidiaries during the consolidation process are included in other comprehensive income (loss) which is disclosed as a separate component of shareholders' deficit. The Company has not entered into any derivative instruments to offset the impact of foreign currency fluctuations. RESEARCH AND DEVELOPMENT These costs are expensed when incurred and consist primarily of direct material and personnel costs, contract services and indirect costs. The Company has received government assistance in the past and may receive same in the future regarding its research and development activities. When the work is performed that qualifies for such grants, the related assistance amount is credited to research and development expense. INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statements and the tax basis of assets and liabilities, and net operating loss carry forwards based on using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the year that includes the enactment date. Valuation allowances are established to the extent that it is considered more likely than not that deferred tax assets will be realized. At September 30, 2010 and 2009, a valuation allowance for the full amount of the deferred tax assets was recorded. LOSS PER SHARE Basic loss per share is computed by dividing the net loss by the weighted average number of outstanding common shares during the year. Diluted loss per share gives effect to all potentially dilutive common shares outstanding during the year, including convertible debt, stock options and share purchase warrants, using the treasury stock method. The computation of diluted loss per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on loss per share. NEW ACCOUNTING PRONOUNCEMENTS AND POLICIES The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its reported financial position, results of operations or cash flows. 27
3. INTELLECTUAL PROPERTY RIGHTS September 30, September 30, 2010 2009 ---------- ---------- Cost $ 295,907 $ 295,907 Deferred income tax 56,779 56,779 ---------- ---------- Total cost 352,686 352,686 Less: Accumulated amortization (115,361) (115,361) ---------- ---------- 237,325 237,325 Less: Impairment (59,010) (59,010) ---------- ---------- 178,315 178,315 Less: Disposal by sale (178,315) -- ---------- ---------- $ -- $ 178,315 ========== ========== Pursuant to an agreement dated December 14, 2009, the Company sold its IPR for proceeds of $1. The agreement resulted in the cancellation of the Company's obligation to issue shares with a value of $99,744, resulting in a loss on disposal of $78,570. 4. EQUIPMENT Equipment consists of computer equipment purchased during the year for $1,530 less accumulated amortization of $192. 5. RELATED PARTY TRANSACTIONS For the year ended September 30, 2010, the Company incurred expenses of $72,245 (2009 - $439,703) to management, directors, or companies controlled by directors. Year End Year End September 30, September 30, 2010 2009 -------- -------- Management fees and benefits $ 72,245 $423,070 Amortization of stock options granted -- 122,382 -------- -------- Sub-total 72,245 545,452 Less: Reclassified to research and development expense -- (100,418) -------- -------- Net Total $ 72,245 $445,034 ======== ======== As at September 30, 2010, the Company owed $Nil (2009 - $297,970) to directors, or companies controlled by directors. These amounts were unsecured, did not bear interest and were due on demand. During the year ended September 30, 2010, $271,984 owing to the directors was forgiven. The forgiveness of debt was treated as a capital transaction and recorded as Additional Paid in Capital in the consolidated financial statements. During the year ended September 30, 2010, 16,190,940 shares were returned to treasury and cancelled for no consideration by two directors of the Company in connection with their resignation. During the year ended September 30, 2010, the Company sold its IPR for proceeds of $1 to a former member of the Company's management. In connection with this transaction, its obligation to issue shares with a value of $99,744 was cancelled, and deferred compensation expense of $78,570, which was included in shareholders' deficit, was reversed upon the cancellation of 150,000 performance-based escrow shares. During the year ended September 30, 2009, two directors of the Company amended their employment agreements with the Company. The amendments resulted in accrued termination benefits amounting to $300,000 no longer being payable. The reversal of the termination benefit accrual was treated as a capital transaction and recorded as Additional Paid in Capital in the consolidated financial statements. 28
Included in other receivables is $2,430 (2009 - $Nil) due from a company controlled by a member of the Company's management. This amount is unsecured, bears not interest and is due on demand. Related party transactions were conducted in the ordinary course of business and measured at the exchange amount established and agreed to by the related parties. 6. INCOME TAXES A reconciliation of the Company's expected income tax provision compared to the actual tax provision is as follows: Year ended Year ended September 30, September 30, 2010 2009 ------------ ------------ Loss before income taxes $ (346,490) $ (1,117,929) Corporate tax rate 35% 35% ------------ ------------ Expected tax recovery (121,272) (391,275) Increase resulting from: Permanent differences 200,672 79,803 Differences in foreign tax rates 35,797 91,910 Change in valuation allowance (143,054) 201,487 ------------ ------------ $ (27,857) $ (18,075) ============ ============ At September 30, 2010 and 2009, the components of the deferred income tax assets and liabilities are as follows: September 30, September 30, 2010 2009 ------------ ------------ Non-capital tax loss carry forwards $ 968,826 $ 1,120,500 Other deferred tax assets 8,620 -- ------------ ------------ Total deferred tax assets 977,446 1,120,500 Intangible assets -- (27,857) ------------ ------------ Net deferred tax assets 977,446 1,092,643 Less: Valuation allowance (977,446) (1,120,500) ------------ ------------ $ -- $ (27,857) ============ ============ The parent Company is subject to income taxes in the US and its wholly-owned subsidiaries are subject to income taxes in Canada. At September 30, 2010, the Company and its subsidiaries had total accumulated non-capital loss carry-forwards of approximately $3,700,000, of which $300,000 pertained to the US and $3,400,000 to Canada. These losses are available to reduce taxable income in future taxation years and begin to expire in 2025 after a carry-forward period of 20 years. The Company is required to compute the deferred income tax benefits from non-capital loss carry-forwards and other temporary differences. However, due to the uncertainty of realization of these tax assets, a full valuation allowance has been provided. 7. CAPITAL STOCK A) AUTHORIZED The authorized capital stock of the Company is comprised of 100,000,000 non-voting preferred shares and 750,000,000 voting common shares, both with a par value of $0.001 per share. 29
B) ISSUED AND OUTSTANDING No preferred shares have been issued to date. During the year ended September 30, 2010, the changes in common stock were as follows: (i) On November 17, 2009, 1,000,000 shares were issued with a fair market value of $25,000 pursuant to the terms of an agreement dated August 24, 2007 regarding the purchase of PPT, whereby the Company was obligated to issue these shares since the minimum $150,000 was not expended on third-party testing of the PPT technology during the year ended September 30, 2009. (ii) On December 4, 2009, 16,190,940 shares were returned to treasury and cancelled for no consideration by two directors of the Company in connection with their resignation. (iii) Pursuant to an agreement dated December 10, 2009 to sell the Company's IPR (Note 3), 150,000 performance-based escrow shares, recorded as deferred compensation of $78,570 in shareholders' deficit, were cancelled and returned to treasury. During the year ended September 30, 2009, there were no changes in common stock. C) STOCK OPTIONS The Company has a stock option plan (the "Plan") authorizing the issuance of up to 5,000,000 shares of common stock upon exercise of the options granted pursuant to the Plan. Under the Plan, the Company's employees, directors, officers, consultants and advisors (collectively the "Optionee Group") are eligible to receive a grant of the Company's options, provided however that bona fide services are rendered by consultants or advisors and such services are not in connection with the offer or sale of securities in a capital-raising transaction. During the years ended September 30, 2010 and 2009 the Company did not grant any stock options. The Company recorded $Nil as stock-based compensation expense for vested options for the year ended September 30, 2010 (2009 - $194,545). A summary of transactions involving stock options is as follows: Year ended Year ended September 30, 2010 September 30, 2009 ------------------- -------------------- Weighted Weighted average average Number of exercise Number of exercise options price options price ------- ----- ------- ----- Outstanding, beginning of year 2,000,000 0.95 2,000,000 0.95 Expired (1,200,000) 0.91 -- -- ---------- ---- --------- ---- Outstanding, end of year 800,000 1.02 2,000,000 0.95 ========== ==== ========= ==== Exercisable, end of year 800,000 1.02 1,966,666 0.94 ========== ==== ========= ==== At September 30, 2010, 800,000 stock options were outstanding with a weighted average exercise price and remaining life of $1.02 and 1.5 years respectively. D) SHARE PURCHASE WARRANTS There are no stock purchase warrants outstanding at September 30, 2010 and 2009. 30
8. COMMITMENTS AND CONTINGENCIES An individual has alleged a breach of contract by the Company and has filed a claim in the amount $500,000 plus interest of $114,000 (as at November 26, 2010) against the Company and its directors. The Company refuted the claims on December 13, 2010 and there have been no further developments since that time. The Company entered into license agreements in March 2005 with both the University of British Columbia ("UBC") and the British Columbia Cancer Agency ("BCCA"). Both UBC and BCCA have not delivered to the Company the software code and documentation associated with their licensed technologies and the Company deems both parties to be in defaults of the license agreements. As official contract termination notices have also not been delivered to UBC and BCCA the Company continues to accrue for obligations in terms of the license agreements in breach. As at September 30, 2010, the Company has accrued $125,074 (2009 - 64,834) for the unpaid license fees in accordance with the terms of these agreements. 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES DISCLOSURE CONTROLS AND PROCEDURES As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act, our principal executive officer and principal financial officer evaluated our company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, these officers concluded that as of the end of the period covered by this Annual Report on Form 10-K, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission and include controls and procedures designed to ensure that such information is accumulated and communicated to our company's management, including our company's principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of material weaknesses in internal control over financial reporting as identified below under the heading "Management's Report on Internal Control Over Financial Reporting." Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated. Our company intends to remediate the material weaknesses as set out below. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) for our company. Our company's internal control over financial reporting is designed to provide reasonable assurance, not absolute assurance, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our company's assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that our company's receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate. Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the design and operation of our internal control over financial reporting as of September 30, 2010 based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, our 32
management concluded our internal control over financial reporting was not effective as at September 30, 2010 due to the following material weaknesses which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines; (iii) inadequate security and restricted access to computer systems including insufficient disaster recovery plans; and (iv) no written whistle-blower policy. Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending September 30, 2010: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; (ii) adopt sufficient written policies and procedures for accounting and financial reporting and a whistle-blower policy; and (iii) implement sufficient security and restricted access measures regarding our computer systems and implement a disaster recovery plan. The remediation efforts set out in (i) and (iii) are largely dependent upon our company securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner. This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There were no changes in our company's internal control over financial reporting during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our company's internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE DIRECTORS AND EXECUTIVE OFFICERS As at September 26, 2011, our directors and executive officers, their ages, positions held, and duration of such, are as follows: Date First Elected Name Position Held with the Company Age or Appointed ---- ------------------------------ --- ------------ Mike President, Secretary, Treasurer, 51 December 14, 2009 McFarland(1)(2) Chief Executive Officer, Chief Financial Officer and Director ---------- (1) Member of the Compensation Committee (2) Member of the Audit Committee 33
BUSINESS EXPERIENCE The following is a brief account of the education and business experience of each director and executive officer during at least the past five years, indicating each person's principal occupation during the period, and the name and principal business of the organization by which he was employed. MIKE MCFARLAND Mike McFarland was appointed as a director and the president, secretary, treasurer, chief executive officer and chief financial officer of our company on December 14, 2009. Mr. McFarland earned his Bachelor of Science degree in 1982 and his Bachelor of Education in 1984, both from St. Francis Xavier University. Mr. McFarland has been in the education and teaching profession for over 25 years. Since 2005, he has been teaching at Notre Dame High School in Calgary, Alberta. He has been an active investor in both private and public ventures for the past 12 years. We believe Mr. McFarland is qualified to serve on our board of directors because of his knowledge of our company's history and current operations, which he gained from working for our company as described above, in addition to his education and business experience as described above. SIGNIFICANT EMPLOYEES We have no significant employees other than the sole director and officer of our company. FAMILY RELATIONSHIPS There are no family relationships among our directors or officers. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS Our sole director and executive officer has not been involved in any of the following events during the past ten years: 1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; 2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences); 3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; 4. being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; 5. being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or 34
6. being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. AUDIT COMMITTEE Mike McFarland has been appointed as the sole member of the audit committee. Mr. McFarland is not an independent director of our company as defined by Rule 4200(a)(15) of the Nasdaq Marketplace Rules. Our audit committee undertakes an independent review of our company's financial statements, and meets with management to determine the adequacy of internal controls and other financial reporting matters. Prior to Mike McFarland being appointed to the audit committee, Dr. Geert Cauwenbergh and Jeffrey Bacha acted as the audit committee. Our board of directors determined that Dr. Geert Cauwenbergh and Jeffrey Bacha were the only members of our board of directors that were "independent" as the term is defined by Rule 4200(a)(15) of the Nasdaq Marketplace Rules. AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has determined that it does not have an audit committee member that qualifies as an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K. We believe that the sole audit committee member is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. In addition, we believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated revenues to date. NOMINATION PROCEDURES FOR APPOINTMENT OF DIRECTORS As of September 26, 2011, we did not effect any material changes to the procedures by which our stockholders may recommend nominees to our board of directors. CODE OF ETHICS Effective January 29, 2004, our company's board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, members of our board of directors, our company's officers, contractors, consultants and advisors. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote: (1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (2) full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us; (3) compliance with applicable governmental laws, rules and regulations; (4) the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and (5) accountability for adherence to the Code of Business Conduct and Ethics. Our Code of Business Conduct and Ethics requires, among other things, that all of our company's personnel shall be accorded full access to our president with respect to any matter which may arise relating to the Code of Business Conduct 35
and Ethics. Further, all of our company's personnel are to be accorded full access to our company's board of directors if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our company officers. In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our company's President. If the incident involves an alleged breach of the Code of Business Conduct and Ethics by the President, the incident must be reported to any member of our board of directors. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our company policy to retaliate against any individual who reports in good faith the violation or potential violation of our company's Code of Business Conduct and Ethics by another. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to our company at the address on the cover of this annual report. SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the fiscal year ended September 30, 2009, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with, with the exception of the following: Number of Transactions Not Number of Late Reported on a Timely Failure to File Name Reports Basis Requested Forms ---- ------- ----- --------------- Dr. Geert Cauwenbaugh 1(1) 1 Nil ---------- (1) The named director filed a late Form 4 - Statement of Changes in Beneficial Ownership which has subsequently been filed. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth all compensation received during the two years ended September 30, 2010 by our Chief Executive Officer, Chief Financial Officer and each of the other most highly compensated executive officers whose total compensation exceeded $100,000 in such fiscal year. These officers are referred to as the Named Executive Officers in this Report. SUMMARY COMPENSATION The following table provides a summary of the compensation received by the persons set out therein for each of our last two fiscal years: 36
SUMMARY COMPENSATION TABLE Change in Pension Value and Non-Equity Nonqualified Name and Incentive Deferred Principal Stock Option Plan Compensation All Other Position Year Salary($) Bonus($) Awards($) Awards($)(5) Compensation($) Earnings($) Compensation($) Totals($) -------- ---- --------- -------- --------- --------- --------------- ----------- --------------- --------- Mike McFarland(1) 2010 N/A N/A N/A N/A N/A N/A N/A N/A Chief Executive 2009 N/A N/A N/A N/A N/A N/A N/A N/A Officer, Chief Financial Officer, President, Secretary Treasurer and Director Joel L. 2010 N/A Nil Nil Nil Nil Nil Nil Nil Bellenson(2) 2009 178,808 Nil Nil Nil Nil Nil 53,017 178,808 Chief Executive Officer, Chief Financial Offer and Director Dexster L. Smith(3) 2010 N/A Nil Nil Nil Nil Nil Nil Nil President and 2009 178,808 Nil Nil Nil Nil Nil Nil 178,808 Director Tim Fernback(4) 2010 N/A Nil Nil Nil Nil Nil Nil Nil former 2009 156,687 Nil Nil Nil Nil Nil Nil 156,687 Chief Financial Officer ---------- (1) Mike McFarland was appointed as chief executive officer, chief financial officer, president, secretary, treasurer and director on December 14, 2009. (2) Joel Bellenson was appointed director and chief executive officer of our company on March 1, 2006. Mr. Bellenson was appointed our chief financial officer on August 28, 2009. Mr. Bellenson resigned as an officer and director on December 14, 2009. (3) Dexster Smith was appointed director and president of our company on March 1, 2006. Mr. Smith resigned as an officer and director on December 4, 2009. (4) Tim Fernback was our chief financial officer from April 12, 2006 to August 28, 2009. (5) The determination of value of option awards is based upon the Black-Scholes Option pricing model, details and assumptions of which are set out in our financial statements included in this annual report. The amounts represent annual amortization of fair value of stock options granted to the named executive officer. COMPENSATION DISCUSSION AND ANALYSIS All of our current research and development was carried out by Mr. Bellenson and Mr. Smith, former directors and officers of our company, pursuant to employment agreements with our company calling for annual base salaries of $150,000 each. Of note, Messrs. Bellenson and Smith voluntarily agreed to defer their salaries for the 2009 calendar year, or until such time that our company completes a suitable financing. Effective August 18, 2009, our company entered into agreements with Messrs. Bellenson and Smith to amend the terms of their 37
respective employment agreements. The amendment agreements revise the severance provisions of the original employment agreements which provided for the payment of $150,000 as a retiring allowance to each of the employees in the event that their employment was terminated for any reason. Under the terms of the amending agreements, we agreed to pay each of Messrs. Bellenson and Smith $150,000 severance only in the event that (a) we terminate their employment without cause; or (b) they terminate their employment upon a material breach or default of any term of their respective employment agreements by our company, but only if they first give written notice of such breach or default to us and we fail to rectify it within a period of 30 days following receipt of such notice. Accordingly, the accrued liablity of $300,000 will not be recognized in our company's financial statements subsequent to June 30, 2009 since the amended agreements will be accounted for on a prospective basis. Subsequent to our year ended September 30, 2009, we terminated the amending agreements with Messrs. Bellenson and Smith. Prior to August 28, 2009, we paid $150,000 annually to TCF Ventures Corp. ("TCFV") for consulting services primarily pertaining to the function of chief financial officer. TCFV is a company beneficially owned by Mr. Tim Fernback. TCFV agreed to defer a portion of the amounts owed to him for consulting services on the understanding that such amounts would be repaid when our company obtained sufficient funds. TCFV a company through which Tim Fernback provided services as chief financial officer of our company, agreed to defer a portion of the amounts owed to him for consulting services on the understanding that such amounts would be repaid when our company obtained sufficient funds. On August 24, 2009, our company received notice that TCFV was terminating its management services contract effective August 28, 2009. The notice alleges TCFV's right to terminate due to an un-rectified material breach arising from our company's failure to pay a portion of the compensation owing under the contract on a timely basis. After seeking legal advice, our company denied the breach since the compensation in question was voluntarily deferred by TCFV. On December 14 2009, TCF Ventures and our company signed a mutual release whereby, in consideration for the payment of $50,000 from our company to TCF Ventures, both parties agreed to release each other from all claims or liabilities for any allegations pled in the Statement of Claim and the Statement of Defence. In addition, and similar to the situation with respect to Messrs. Bellenson and Smith above, the $150,000 was incorrectly accrued in the financial statements of our company from February 7, 2006 (the date of the original contract) to June 30, 2009. Accordingly, and although in dispute, our company has retroactively reversed the $150,000 accrual from its financial statements as at June 30, 2009. We have also entered into an amended three year consulting agreement with JTAT Consulting through which Dr. Artem Cherkasov provides consulting services related to our biotechnology drug development business. In consideration for such services, we have agreed to pay JTAT Consulting CDN$50,000 annually and an equivalent amount of shares in the capital of our company, calculated based upon the closing price of our shares at the end of each calendar month. Effective March 1, 2008, we amended the agreement with JTAT Consulting to increase the equity component of the contract from CDN$50,000 to CDN$200,000 worth of shares in the capital of our company, calculated based upon the closing price of our shares at the end of each calendar month. All cash payments have been made and all obligations to issue shares have been accrued but not yet issued to date. On December 14, 2009, we stopped making any payments to JTAT Consulting as we entered into an asset purchase agreement with JTAT Consulting and Dr. Artem Cherkasov. Our compensation program for our executive officers is administered and reviewed by our board of directors and the Compensation Committee. Historically, executive compensation consists of a combination of base salary and bonuses. Individual compensation levels are designed to reflect individual responsibilities, performance and experience, as well as the performance of our company. The determination of discretionary bonuses is based on various factors, including implementation of our business plan, acquisition of assets, development of corporate opportunities and completion of financing. The objectives of our compensation program are to retain and offer an incentive to current management, and to carry out our compensation related policies as per our Compensation Committee Charter. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END The following table sets forth for each named executive officer certain information concerning the outstanding equity awards as of September 30, 2010. 38
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END Option Awards Stock Awards -------------------------------------------------------------------- ------------------------------------------- Equity Incentive Equity Plan Incentive Awards: Plan Market or Awards: Payout Equity Number of Value of Incentive Number Unearned Unearned Plan Awards; of Market Shares, Shares, Number of Number of Number of Shares Value of Units or Units or Securities Securities Securities or Units Shares or Other Other Underlying Underlying Underlying of Stock Units of Rights Rights Unexercised Unexercised Unexercised Option Option That Stock That That That Options Options Unearned Exercise Expiration Have Not Have Not Have Not Have Not Name Exercisable(#)(1) Unexercisable(#) Options(#)(2) Price($) Date Vested(#) Vested($) Vested(#) Vested(#) ---- -------------- ---------------- ---------- ----- ---- --------- --------- --------- --------- Mike Nil Nil Nil Nil Nil Nil Nil Nil Nil McFarland(3) Chief Executive Officer, Chief Financial Officer, President, Secretary Treasurer and Director Joel L. Nil Nil Nil Nil Nil Nil Nil Nil Nil Bellenson(4) former Chief Executive Officer, Chief Financial Officer and Director Dexster L. Nil Nil Nil Nil Nil Nil Nil Nil Nil Smith(5) former President and Director Tim Fernback(6) Nil Nil Nil Nil Nil Nil Nil Nil Nil former Chief Financial Officer ---------- (1) Represents options granted to the named executive officer that have vested. (2) Represents options granted to the named executive officer that have not yet vested. (3) Mike McFarland was appointed as chief executive officer, chief financial officer, president, secretary, treasurer and director on December 14, 2009. 39
(4) Joel Bellenson was appointed director and chief executive officer of our company on March 1, 2006. Mr. Bellenson was appointed our chief financial officer on August 28, 2009. Mr. Bellenson resigned from as an officer and director on December 14, 2009. (5) Dexster Smith was appointed director and president of our company on March 1, 2006. Mr. Smith resigned from as an officer and director on December 4, 2009. (6) Mr. Fernback resigned as our chief financial officer on August 28, 2009. No options were granted during the year ended September 30, 2010. At September 30, 2010, there were 800,000 stock options issued and outstanding. In March 2007, our company approved and adopted a stock option plan authorizing the issuance of up to 5,000,000 shares of common stock upon exercise of the options granted pursuant to the plan. Under the plan, our employees, directors, officers, consultants and advisors are eligible to receive a grant of our shares, provided however that bona fide services are rendered by consultants or advisors and such services are not in connection with the offer or sale of securities in a capital-raising transaction. In connection with previously granted options, we recorded $Nil as stock-based compensation expense for the year ended September 30, 2010 (year ended September 30, 2009 - $194,545). A summary of our outstanding stock options as of September 30, 2010 is presented below: Options Outstanding at Grant Date Expiry Date Exercise Price September 30, 2010 ---------- ----------- -------------- ------------------ March 16, 2007 March 16, 2012 $0.96-$1.00 700,000 May 3, 2007 May 3, 2012 $1.41 100,000 ------- TOTALS 800,000 ======= ---------- (1) On December 14, 2009, these options were cancelled. The weighted average exercise price and remaining life of the stock options was $1.02 and 1.5 years, respectively. AGGREGATED OPTION EXERCISES There were no options exercised by any officer or director of our company during our twelve month period ended September 30, 2010. LONG-TERM INCENTIVE PLAN Currently, our company does not have a long-term incentive plan in favor of any director, officer, consultant or employee of our company. DIRECTORS COMPENSATION The particulars of compensation paid to our directors for our year ended September 30, 2010, is set out in the following director compensation table: 40
Change in Pension Value and Fees Non-Equity Nonqualified Earned Incentive Deferred Paid in Stock Option Plan Compensation All Other Name Cash($) Awards($) Awards($)(1) Compensation($) Earnings($) Compensation($) Total($) ---- ------- --------- --------- --------------- ----------- --------------- -------- Mike McFarland(1) N/A N/A N/A N/A N/A N/A N/A ---------- (1) Mike McFarland was appointed as a director of our company on December 14, 2009. Independent directors may be paid their expenses for attending each board of directors meeting and may be paid a fixed sum for attendance at each meeting of the directors or a stated salary as director. No payment precludes any director from serving our company in any other capacity and being compensated for the service. Members of special or standing committees may be allowed like reimbursement and compensation for attending committee meetings. PENSION AND RETIREMENT PLANS Currently, we do not offer any annuity, pension or retirement benefits to be paid to any of our officers, directors or employees, in the event of retirement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS As of September 26, 2011, there were 34,112,065 shares of our common stock outstanding. The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of that date by (i) each of our directors, (ii) each of our executive officers, and (iii) all of our directors and executive officers as a group. Except as set forth in the table below, there is no person known to us who beneficially owns more than 5% of our common stock. Name and Address of Amount and Nature of Percentage Beneficial Owner Position Beneficial Ownership of Class ---------------- -------- -------------------- -------- Mike McFarland Chief Executive Officer, Nil N/A 71130, 198 - 8060 Silver Chief Financial Officer, Spring Blvd., Calgary, President, Secretary, Alberta Canada Treasurer and Director Directors and Executive Officers as a Group Nil N/A CHANGES IN CONTROL We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of our company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Except as described below, no director, executive officer, principal shareholder holding at least 5% of our common shares, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction, since the beginning of our year ended September 30, 2010, or in any currently proposed transaction, in which the amount involved in the transaction exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at the year end for the last two completed fiscal years. 41
Of the management compensation incurred during the year ended September 30, 2009, $100,418 was expensed as research and development. During the year ended September 30, 2009 two of our directors amended their employment agreements with us. The amendments resulted in accrued termination benefits amounting to $300,000 no longer being payable. All related party transactions are conducted in the ordinary course of business and measured at the exchange amount, which is the consideration established and agreed to by the related parties. CORPORATE GOVERNANCE We currently have one director: Mike McFarland. We have determined that Mr. McFarland is not an independent director, as that term is used in Rule 4200(a)(15) of the Nasdaq Marketplace Rules and National Instrument 52-110. AUDIT COMMITTEE Our board of directors struck an audit committee on December 3, 2008. As of that date, Jeffrey Bacha and Dr. Geert Cauwenbergh were appointed as sole members of the audit committee, both of whom were independent. Currently, upon the resignations of Jeffrey Bacha and Dr. Geert Cauwenbergh, Mike McFarland is the sole member of our audit committee. Mike McFarland is not independent as defined by Rule 4200(a)(15) of the Nasdaq Marketplace Rules. Our audit committee undertakes an independent review of our company's financial statements, and meets with management to determine the adequacy of internal controls and other financial reporting matters. Our board of directors has determined that it does not have an audit committee member that qualifies as an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K. We believe that the audit committee members are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. In addition, we believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated revenues to date. The audit committee acts in accordance with our Audit Committee Charter which was filed as an exhibit to our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on December 22, 2008. COMPENSATION COMMITTEE - COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Our board of directors struck a compensation committee on September 11, 2008. As of that date, Dr. Geert Cauwenbergh and Jeffrey Bacha were appointed as sole members of the committee, each of whom were non-employee directors of our company. Currently, upon the resignations of Jeffrey Bacha and Dr. Geert Cauwenbergh, Mike McFarland is the sole member of our compensation committee. Our sole member of the compensation committee is not independent as defined by Rule 4200(a)(15) of the Nasdaq Marketplace Rules. The purpose of our compensation committee is to oversee our company's compensation and benefit plans, including our compensation and equity-based plans. Our compensation committee also monitors and evaluates matters relating to the compensation and benefits structure of our company and takes other such actions within the scope of the compensation committee charter as our board of directors may assign to the compensation committee from time to time. The compensation committee acts in accordance with our Compensation Committee Charter which is filed as an exhibit to this annual report. 42
COMPENSATION COMMITTEE REPORT The compensation committee has reviewed and discussed the Compensation Discussion and Analysis with management, and based on the review and discussion, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in our company's annual report. NATIONAL INSTRUMENT 52-110 We are a reporting issuer in the Province of British Columbia. National Instrument 52-110 of the Canadian Securities Administrators requires our company, as a venture issuer, to disclose annually in our annual report certain information concerning the constitution of our audit committee and our relationship with our independent auditor. As defined in National Instrument 52-110, our sole director and officer, Mike McFarland, is not independent. For a description of the education and experience of each audit committee member that is relevant to the performance of his responsibilities as an audit committee member, please see the disclosure under the heading "Item 10. Directors, Executive Officers and Corporate Governance - Business Experience". Mike McFarland, the sole member of our audit committee, is "financially literate", as defined in National Instrument 52-110, as he has the industry experience necessary to understand and analyze financial statements of our company, as well as the understanding of internal controls and procedures necessary for financial reporting. The audit committee is responsible for review of both interim and annual financial statements for our company. For the purposes of performing his duties, the sole member of the audit committee has the right at all times, to inspect all the books and financial records of our company and any subsidiaries and to discuss with management and the external auditors of our company any accounts, records and matters relating to the financial statements of our company. The audit committee members meet periodically with management and annually with the external auditors. Since the commencement of our company's most recently completed financial year, our company's board of directors has not failed to adopt a recommendation of the audit committee to nominate or compensate an external auditor. Since the commencement of our company's most recently completed financial year, our company has not relied on the exemptions contained in sections 2.4 or 8 of National Instrument 52-110. Section 2.4 (DE MINIMIS NON-AUDIT SERVICES) provides an exemption from the requirement that the audit committee must pre-approve all non-audit services to be provided by the auditor, where the total amount of fees related to the non-audit services are not expected to exceed 5% of the total fees payable to the auditor in the fiscal year in which the non-audit services were provided. Section 8 (EXEMPTIONS) permits a company to apply to a securities regulatory authority for an exemption from the requirements of National Instrument 52-110 in whole or in part. The audit committee has adopted specific policies and procedures for the engagement of non-audit services as set out in the Audit Committee Charter of our company. A copy of our company's Audit Committee Charter was filed as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on December 19, 2008. NATIONAL INSTRUMENT 58-101 We are a reporting issuer in the Province of British Columbia. National Instrument 58-101 of the Canadian Securities Administrators requires our company, as a venture issuer, to disclose annually in our annual report certain information concerning corporate governance disclosure. 43
BOARD OF DIRECTORS Our board of directors currently acts with one member consisting of Mike McFarland. Mr. McFarland is not independent as that term is defined in National Instrument 52-110 due to the fact that he is the sole executive officer of our company. Our board of directors facilitates its exercise of independent supervision over management by endorsing the guidelines for responsibilities of the board as set out by regulatory authorities on corporate governance in Canada and the United States. Our board's primary responsibilities are to supervise the management of our company, to establish an appropriate corporate governance system, and to set a tone of high professional and ethical standards. The board is also responsible for: * selecting and assessing members of the Board; * choosing, assessing and compensating the chief executive officer of our company, approving the compensation of all executive officers and ensuring that an orderly management succession plan exists; * reviewing and approving our company's strategic plan, operating plan, capital budget and financial goals, and reviewing its performance against those plans; * adopting a code of conduct and a disclosure policy for our company, and monitoring performance against those policies; * ensuring the integrity of our company's internal control and management information systems; * approving any major changes to our company's capital structure, including significant investments or financing arrangements; and * reviewing and approving any other issues which, in the view of the board or management, may require board scrutiny. DIRECTORSHIPS The following directors are also directors of other reporting issuers (or the equivalent in a foreign jurisdiction), as identified next to their name: Reporting Issuers or Equivalent Director in a Foreign Jurisdiction -------- ------------------------- Mike McFarland None ORIENTATION AND CONTINUING EDUCATION We have an informal process to orient and educate new recruits to the board regarding their role of the board, our committees and our directors, as well as the nature and operations of our business. This process provides for an orientation with key members of the management staff, and further provides access to materials necessary to inform them of the information required to carry out their responsibilities as a board member. This information includes the most recent board approved budget, the most recent annual report, the audited financial statements and copies of the interim quarterly financial statements. The board does not provide continuing education for its directors. Each director is responsible to maintain the skills and knowledge necessary to meet his or her obligations as directors. 44
NOMINATION OF DIRECTORS The board is responsible for identifying new director nominees. In identifying candidates for membership on the board, the board takes into account all factors it considers appropriate, which may include strength of character, mature judgment, career specialization, relevant technical skills, diversity and the extent to which the candidate would fill a present need on the board. As part of the process, the board, together with management, is responsible for conducting background searches, and is empowered to retain search firms to assist in the nominations process. Once candidates have gone through a screening process and met with a number of the existing directors, they are formally put forward as nominees for approval by the board. ASSESSMENTS The board intends that individual director assessments be conducted by other directors, taking into account each director's contributions at board meetings, service on committees, experience base, and their general ability to contribute to one or more of our company's major needs. However, due to our stage of development and our need to deal with other urgent priorities, the board has not yet implemented such a process of assessment. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES AUDIT FEES The aggregate fees billed for the two most recently completed fiscal periods ended September 30, 2010 and September 30, 2009 for professional services rendered by Dale Matheson Carr-Hilton Labonte LLP, Chartered Accountants for the audit of our annual consolidated financial statements, quarterly reviews of our interim consolidated financial statements and services normally provided by the independent accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows: Year Ended Year Ended September 30, September 30, 2010 2009 -------- -------- Audit Fees and Audit Related Fees $ 20,000 $ 30,000 Tax Fees 1,000 10,000 All Other Fees Nil Nil -------- -------- Total $ 21,000(1) $ 40,000 ======== ======== ---------- (1) Audit fees for year ended September 30, 2010 have not been billed to us yet In the above table, "audit fees" are fees billed by our company's external auditor for services provided in auditing our company's annual financial statements for the subject year. "Audit-related fees" are fees not included in audit fees that are billed by the auditor for assurance and related services that are reasonably related to the performance of the audit review of our company's financial statements. "Tax fees" are fees billed by the auditor for professional services rendered for tax compliance, tax advice and tax planning. "All other fees" are fees billed by the auditor for products and services not included in the foregoing categories. POLICY ON PRE-APPROVAL BY AUDIT COMMITTEE OF SERVICES PERFORMED BY INDEPENDENT AUDITORS The board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered. 45
The board of directors has considered the nature and amount of fees billed by Dale Matheson Carr-Hilton Labonte LLP and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Dale Matheson Carr-Hilton Labonte LLP. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Exhibit Number Description ------ ----------- (2) PLAN OF PURCHASE, SALE, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION 2.1 Share Exchange Agreement dated February 3, 2006, among our company, Upstream Canada, the shareholders of Upstream Canada and Steve Bajic (incorporated by reference from our Current Report on Form 8-K filed on February 6, 2006). 2.2 Amended and Restated Share Exchange Agreement dated February 24, 2006, among our company, Upstream Canada, the shareholders of Upstream Canada and Steve Bajic (incorporated by reference from our Current Report on Form 8-K filed on February 27, 2006). (3) ARTICLES OF INCORPORATION AND BY-LAWS 3.1 Articles of Incorporation (incorporated by reference from our Registration Statement on Form SB-2 filed on July 5, 2002). 3.2 Bylaws (incorporated by reference from our Registration Statement on Form SB-2 Filed on July 5, 2002). 3.3 Certificate of Amendment filed with the Nevada Secretary of State on March 8, 2005 (incorporated by reference from our Current Report on Form 8-K filed on March 10, 2005). 3.4 Certificate of Change filed with the Nevada Secretary of State on December 20, 2005 (incorporated by reference from our Current Report on Form 8-K filed on December 29, 2005). 3.5 Articles of Merger filed with the Nevada Secretary of State on February 6, 2006 (incorporated by reference from our Current Report on Form 8-K filed on February 9, 2006). 3.6 Certificate of Amendment filed with the Nevada Secretary of State on November 27, 2006 (incorporated by reference from our Current Report on Form 8-K filed on November 30, 2006). (10) MATERIAL CONTRACTS 10.1 2007 Stock Option Plan (incorporated by reference from our Registration Statement on Form SB-2 filed on October 1, 2007) 10.2 Amendment to Employment Agreement dated August 18, 2009 between our company and Dexster Smith (incorporated by reference from our Quarterly Report on Form 10-Q filed on August 31, 2009) 10.3 Amendment to Employment Agreement dated August 18, 2009 between our company and Joel Bellenson (incorporated by reference from our Quarterly Report on Form 10-Q filed on August 31, 2009) 46
10.4 Return to Treasury Agreement dated December 14, 2009 between our company and Joel Bellenson (incorporated by reference from our Current Report on Form 8-K filed on December 14, 2009) 10.5 Return to Treasury Agreement dated December 14, 2009 between our company and Dexster Smith (incorporated by reference from our Current Report on Form 8-K filed on December 14, 2009) 10.6 Asset Sale Agreement dated December 14, 2009 between Pacific Pharma Technologies Inc. and JTAT Consulting Inc. (incorporated by reference from our Current Report on Form 8-K filed on December 14, 2009) (31) SECTION 302 CERTIFICATIONS 31.1* Certification of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (32) SECTION 906 CERTIFICATIONS 32.1* Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (99) ADDITIONAL EXHIBITS 99.1 Compensation Committee Charter (incorporated by reference from our Annual Report on Form 10-K filed on December 19, 2008) 99.2 Audit Committee Charter (incorporated by reference from our Annual Report on Form 10-K filed on December 19, 2008) 47
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UPSTREAM BIOSCIENCES INC. /s/ Charles El-Moussa ---------------------------------------- Charles El-Moussa Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and Director (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) Date: May 29, 2012 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Charles El-Moussa ------------------------------------- Charles El-Moussa Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and Director (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) Date: May 29, 2012 4