UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 000-50331
UPSTREAM BIOSCIENCES INC.
(Exact name of small business issuer as specified in its charter)
Nevada 98-0371433
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 100 - 570 West 7th Avenue, Vancouver, British Columbia, Canada V5Z 4S6
(Address of principal executive offices)
(604) 707-5800
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). (Check one): Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
44,847,077 common shares issued and outstanding as of February 9, 2007
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
EXPLANATION OF THE AMENDED FILING: THIS FORM 10-QSB AND THE CONSOLIDATED
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2006 INCLUDED
HEREIN HAVE BEEN AMENDED. OUR COMPANY HAS RESTATED THE FINANCIAL STATEMENTS TO
CORRECT THE CALCULATION OF THE CONSOLIDATED ACCOUNTING FOR THE ACCRUAL SEVERANCE
LIABILITES TO TWO EMPLOYEES. ACCORDINGLY, OUR COMPANY HAS RESTATED THE BALANCE
SHEET, STATEMENT OF OPERATIONS AND DEFICIT, AND STATEMENT OF CASH FLOWS FOR THE
PERIOD ENDING DECEMBER 31, 2006 TO CORRECTLY PRESENT THESE REVISED CALCULATIONS.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
UPSTREAM BIOSCIENCES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31,
2006
(Unaudited) September 30,
(Restated - 2006
see Note 9) (Audited)
---------- ----------
$ $
ASSETS
CURRENT ASSETS
Cash 344,476 471,527
Receivables 21,892 16,075
Prepaid expenses 5,373 5,649
---------- ----------
371,741 493,251
Restricted cash 10,455 10,455
Furniture and Equipment (Note 3) 10,868 11,644
---------- ----------
393,064 513,350
========== ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (Note 4) 406,088 378,291
Accrued license fees (Note 8) 28,399 25,802
Amounts owing to related parties (Note 4) 81,599 68,798
---------- ----------
516,086 472,891
CONVERTIBLE DEBENTURE (Note 5) 591,442 567,378
---------- ----------
1,107,528 1,040,269
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' DEFICIENCY
COMMON STOCK (Note 6)
750,000,000 shares authorized at $0.001 par value
44,847,077 issued and outstanding (September 30, 2006 -
44,847,077) 893 893
ADDITIONAL PAID IN CAPITAL 1,523,575 1,506,033
DEFERRED EXPENSE -- (2,782)
ACCUMULATED OTHER COMPREHENSIVE LOSS (5,830) (9,179)
DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE (2,233,102) (2,019,884)
---------- ----------
(714,464) (524,919)
---------- ----------
393,064 513,350
========== ==========
The accompanying notes are an integral part of these
interim consolidated financial statements
3
UPSTREAM BIOSCIENCES INC.
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited)
Cumulative
From Inception
For the Three Months Ended (June 14, 2004) to
December 31, December 31,
2006 2006
(Restated - (Restated -
see Note 9) 2005 see Note 9)
----------- ----------- -----------
$ $ $
REVENUE
Consulting revenue -- -- 67,600
----------- ----------- -----------
OPERATING EXPENSES
Depreciation 776 -- 1,539
(Gain) Loss on foreign exchange 1,246 -- (3,409)
Interest and bank charges 31,366 55 397,868
Investor communications 9,057 -- 32,712
License fees and royalties 3,842 17,021 51,065
Management compensation 71,351 635 1,338,845
Office and miscellaneous 25,694 (299) 80,380
Research and development 38,003 -- 156,846
Professional fees 31,883 9,683 147,156
----------- ----------- -----------
213,218 27,095 2,203,002
----------- ----------- -----------
NET LOSS (213,218) (27,095) (2,135,402)
=========== =========== ===========
BASIC NET LOSS PER SHARE (0.00) (0.00)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 44,847,077 24,000,000
=========== ===========
The accompanying notes are an integral part of these
interim consolidated financial statements
4
UPSTREAM BIOSCIENCES INC
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
From Inception
For the Three Months Ended (June 14, 2004) to
December 31, December 31,
2006 2006
(Restated - (Restated -
see Note 9) 2005 see Note 9)
----------- ----------- -----------
$ $ $
CASH FLOW USED IN OPERATING ACTIVITIES
Net loss (213,218) (27,095) (2,135,402)
Non-cash items included in net loss:
Depreciation 776 -- 1,539
Shares issued for operating expenses 2,782 -- 738,447
Beneficial conversion feature 17,542 -- 285,650
Accretion of convertible debenture 24,064 -- 94,251
Changes in non-cash working capital:
Receivables (5,817) 8,604 (21,892)
Prepaid expenses 276 (5,927) (8,154)
Accounts payable and accrued liabilities 27,797 (13,624) 366,719
Amounts owing to related parties 12,801 14,200 (55,221)
Accrued license fees 2,597 23,707 28,399
---------- ---------- ----------
NET CASH FLOW USED IN OPERATING ACTIVITIES (130,400) (135) (705,664)
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of office furniture and equipment -- -- (12,407)
Purchase of short term investment -- -- (10,455)
---------- ---------- ----------
NET CASH FLOW FROM INVESTING ACTIVITIES -- -- (22,862)
---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from convertible debentures -- -- 1,000,000
Loan from related party -- -- 78,487
Issuance of common stock for cash -- -- 345
---------- ---------- ----------
NET CASH FLOW FROM FINANCING ACTIVITIES -- -- 1,078,832
---------- ---------- ----------
EFFECT OF EXCHANGE RATES 3,349 -- --
---------- ---------- ----------
INCREASE IN CASH (127,051) (955) 344,476
CASH, BEGINNING 471,527 22,389 --
---------- ---------- ----------
CASH, ENDING 344,476 21,434 344,476
========== ========== ==========
The accompanying notes are an integral part of these
interim consolidated financial statements.
5
UPSTREAM BIOSCIENCES INC.
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(Unaudited)
Accumulated Accumulated
Common Stock Additional Other Comp. During the
Number of Paid-in Deferred Income Development Stockholders'
shares Amount Capital Expense (Loss) Stage Deficit
------ ------ ------- ------- ------ ----- -------
Balance, September 30, 2006 44,847,077 $ 893 $1,506,033 $(2,782) $(9,179) $(2,019,884) $(524,919)
Amortization of fair value
of stock options granted -- -- 17,542 -- -- -- 17,542
Amortization of stock issued
for operating expenses -- -- -- 2,782 -- -- 2,782
Comprehensive income (loss)
Foreign exchange translation
adjustment -- -- -- -- 3,349 -- 3,349
Net loss (restated - Note 9) -- -- -- -- -- (213,218) (213,218)
---------- ------ ---------- ------- ------- ----------- ---------
Balance, December 31, 2006 44,847,077 $ 893 $1,523,575 $ -- $(5,830) $(2,233,102) $(714,464)
========== ====== ========== ======= ======= =========== =========
The accompanying notes are an integral part of these
interim consolidated financial statements.
6
UPSTREAM BIOSCIENCES, INC.
(A Development Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006 (Unaudited)
1. NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS
Upstream Biosciences, Inc (the "Company") was incorporated in the State of
Nevada on March 20, 2002. On December 31, 2005, the Company affected a one and
one-half for one stock split of its authorized, issued and outstanding common
stock resulting in all share and per share information in these unaudited
interim financial statements being presented as if the stock split took place at
the beginning of all periods presented. On February 24, 2006, the Company
completed the acquisition of 100% of the issued and outstanding common stock of
Upstream Biosciences, Inc. ("Upstream Canada"), a private Canadian corporation,
pursuant to a share exchange agreement entered into with the shareholders of
Upstream Canada (see Note 2). In connection with this transaction, the Company
changed its name to Upstream Biosciences, Inc. and its fiscal year end from
March 31 to December 31.
Upstream Canada was incorporated on June 14, 2004 under the laws of Canada for
the purpose of developing genetic diagnostic biomarkers for use in determining a
patient's susceptibility to disease and predicting a patient's response to
drugs. Through its acquisition of Upstream Canada, the Company's business
strategy is now to obtain United States patent protection for the biomarkers and
generate revenues through licensing proprietary 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.
GOING CONCERN
These unaudited interim consolidated financial statements have been prepared in
accordance with United States generally accepted accounting principles, 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
of December 31, 2006, the Company had a working capital deficiency of $144,345
and incurred losses since inception of $2,233,102. Further losses are
anticipated in the development of its business and there can be no assurance
that the Company will be able to achieve or maintain profitability. The
continuing operations of the Company and the recoverability of the carrying
value of assets is dependent upon the ability of the Company to obtain necessary
financing to fund its working capital requirements, and upon future profitable
operations. The accompanying financial statements do not include any adjustments
relative to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result from the outcome
of this uncertainty. There can be no assurance that capital will be available as
necessary to meet the Company's working capital requirements or, if the capital
is available, that it will be on terms acceptable to the Company. The issuances
of additional equity securities by the Company may result in dilution in the
equity interests of its current stockholders. Obtaining commercial loans,
assuming those loans would be available, will increase the Company's liabilities
and future cash commitments. If the Company is unable to obtain financing in the
amounts and on terms deemed acceptable, the business and future success may be
adversely affected. Management intends to finance operating costs over the next
twelve months with existing cash on hand, commercial loans and/or private
placement of capital stock.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB of Regulation S-B. They may not include all information and footnotes
required by United States generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there have been no
material changes in the information disclosed in the notes to the financial
statements for the year ended September 30, 2006 included in the Company's form
10-KSB filed with the Securities and Exchange Commission. The unaudited interim
consolidated financial statements should be read in conjunction with those
financial statements included in the Form 10-KSB. In the opinion of Management,
all adjustments considered necessary for a fair presentation, consisting solely
of normal recurring adjustments, have been made. Operating results for the three
months ended December 31, 2006 are not necessarily indicative of the results
that may be expected for the year ending September 30, 2007.
7
UPSTREAM BIOSCIENCES, INC.
(A Development Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006 (Unaudited)
2. SHARE EXCHANGE AGREEMENT WITH UPSTREAM CANADA
On February 24, 2006, the Company entered into an Amended and Restated Share
Exchange Agreement ("Amended Share Agreement") with Upstream Canada and the
former shareholders of Upstream Canada. The Amended Share Agreement restated the
terms of a share exchange agreement initially entered into among the same
parties effective February 3, 2006.
The transactions contemplated in the Amended Share Agreement occurred on March
1, 2006. In accordance with the Agreement, the Company issued 24,000,000 common
shares to the former shareholders of Upstream Canada in exchange for the
acquisition by the Company of all 6,000,000 issued and outstanding common shares
of Upstream Canada on the basis of four common shares of the Company for every
one common share of Upstream Canada.
After the closing of the Amended Share Agreement, the Company had 44,300,000
common shares issued and outstanding after the issuance of the 24,000,000 common
shares to the former shareholders of Upstream Canada and the cancellation
without consideration of 68,650,000 common shares held by two former
shareholders of the Company. This resulted in the former shareholders of
Upstream Canada holding 24,000,000 common shares, representing 54.2% of the
issued and outstanding common shares of the Company. Accordingly, the share
exchange was deemed to be a reverse acquisition for accounting purposes whereby
Upstream Canada is treated as the accounting parent (legal subsidiary) and the
Company is treated as the accounting subsidiary (legal parent). This means the
consolidated results of operations of the Company going forward include those of
Upstream Canada for the period from its inception on June 14, 2004 and those of
the Company from the closing date of the reverse acquisition, March 1, 2006.
Upstream Canada, the acquired entity, is regarded as the predecessor and
continuing entity as of March 1, 2006. The fiscal year end of both the Company
and the Upstream Canada is September 30.
3. FURNITURE AND EQUIPMENT
December 31, September 30,
2006 2006
-------- --------
(Unaudited)
Office furniture and computers $ 12,421 $ 12,421
Less: accumulated depreciation (1,553) (777)
-------- --------
$ 10,868 $ 11,644
======== ========
4. RELATED PARTY TRANSACTIONS
At December 31, 2006, the Company owed $81,599 (September 30, 2006 - $68,798) to
three officers of the Company, who are also directors, for unpaid compensation.
At December 31, 2006 an amount of $300,000 was accrued, and included in accounts
payable, as a severance liability for two Company officers.
During the three months ended December 31, 2006, management fees of $109,354
(December 31, 2005 - $635) were paid or accrued to the Company's three officers
per above of which $38,003 (December 31, 2005 - $nil) was expensed as research
and development.
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 under contract with the related parties.
8
UPSTREAM BIOSCIENCES, INC.
(A Development Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006 (Unaudited)
5. CONVERTIBLE DEBENTURE
In March and April 2006, the Company issued a $1,000,000 three-year convertible
debenture bearing interest at 5% per annum which is due on February 1, 2009. The
debenture is convertible into 1,000,000 shares of common stock anytime at the
Company's option.
In September 2006, the Company filed a provisional patent application with the
US patent office for certain ovarian and thyroid cancer biomarkers ("milestone
event"). In accordance with the debenture agreement, this milestone event
triggered the forfeiture of $200,000 of the debenture face value together with
the expiry of all 400,000 stock purchase warrants, which were attached to the
original debenture exercisable at $1.25 per share. Accordingly, the maturity
value at February 1, 2009 was reduced to $800,000; the convertibility feature
was reduced to 800,000 shares; and the stock purchase warrants expired. For the
three months ended December 31, 2006, 5% interest of $10,000 on the debenture
was accrued bringing the total interest payable at December 31, 2006 to $39,167.
In accordance with EITF 98-5 "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" and
as soon as the debenture was issued, the Company recognized the value of the
embedded beneficial conversion feature of $268,108 as non-cash interest expense
with an offset to additional paid-in capital owing to its convertibility anytime
at the Company's option.
In addition, and in accordance with EITF 00-27 "Application of Issue No. 98-5 to
Certain Convertible Instruments", the Company allocated the proceeds of issuance
between the convertible debenture and the detachable warrants based on their
relative fair values. The $639,036 fair value of the convertible debenture at
issuance was determined based on a fair value interest rate of 20% on debt with
a comparable risk profile. The $360,964 difference was attributed to the
detachable warrants and recorded as additional paid-in capital. Over the three
year term of the debenture, this amount will be accreted to the face value of
$1,000,000 at maturity and charged to interest expense. This amount was
subsequently reduced to $800,000 following the partial forfeiture in September
2006, as explained above. In this connection, interest expense of $24,064 was
accreted for the three months ended December 31, 2006 (December 31, 2005 - $nil)
thereby increasing the carrying value of the debenture from $567,378 at
September 30, 2006 to $591,442 at December 31, 2006.
6. CAPITAL STOCK
During the three months ended December 31, 2006, no shares of preferred or
common stock were issued by the Company.
STOCK PURCHASE WARRANTS
At December 31, 2006, there were no stock purchase warrants outstanding.
STOCK OPTIONS
As of December 31, 2006, the Company had granted 400,000 stock options to one
officer of the Company exercisable at $0.80 per share until March 1, 2016.
100,000 of these options vested immediately when granted in February 2006 and
300,000 will vest equally over the following three years until February 2009.
The fair value of these options was estimated to be $263,700 using the
Black-Scholes option pricing model incorporating the following assumptions:
expected stock price volatility of 100%, risk-free interest rate of 4.45%,
expected option life of 3 years, and expected dividend yield of 0%. The Company
recognized $17,542 of stock-based compensation in the statement of operations
during the three months ended December 31, 2006 (December 31, 2005 - nil). The
unamortized balance of $146,008 will be charged to operations on a straight-line
basis over the three year vesting period.
9
UPSTREAM BIOSCIENCES, INC.
(A Development Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006 (Unaudited)
6. CAPITAL STOCK (CONTINUED)
STOCK OPTIONS (CONTINUED)
In addition, the Company has committed to grant 900,000 stock options under the
terms and conditions of a stock option plan for future development as follows:
(i) 800,000 to two senior officers, who are also directors, of which 300,000
will vest on February 28, 2007, 300,000 on February 28, 2008 and the balance of
200,000 on February 20, 2009; and (ii) 100,000 to a corporate communications
consultant for monthly vesting after granting over the one year contract term
ending February 2007.
Due to the subjective nature of these assumptions, the fair value estimate can
vary significantly with changed assumptions.
7. INCOME TAXES
The parent Company is subject to income taxes in Canada while its wholly-owned
subsidiary is subject to income taxes in the United States. As of December 31,
2006, the Company and its subsidiary had accumulated non-capital loss
carry-forwards of approximately $1,145,000, which are available to reduce
taxable income in future taxation years. These losses begin to expire in 2015
after carry forward periods ranging from 10 to 20 years. The Company is required
to compute the deferred tax benefits from non-capital loss carry-forwards.
However, due to the uncertainty of realization of these loss carry-forwards, a
full valuation allowance has been provided for this deferred tax asset. The
components of the deferred tax asset are shown below as of:
December 31, September 30,
2006 2006
---------- ----------
(Unaudited)
Non-capital tax loss carry-forwards $1,145,000 $ 950,000
Statutory tax rate 35% 35%
Effective tax rate -- --
Deferred tax asset 400,700 332,500
Less: valuation allowance (400,700) (332,500)
---------- ----------
Net deferred tax asset $ -- $ --
========== ==========
8. COMMITMENTS AND CONTINGENCIES
LICENSE AGREEMENTS
(I) BRITISH COLUMBIA CANCER AGENCY BRANCH ("BCCA")
The Company entered into a license agreement with the BCCA on March 10, 2005 for
a seven year term expiring March 2012 regarding bioinformatics technology
developed at the University of British Columbia ("UBC"). Under the terms of the
contract, the Company paid a license fee in shares of the Company (29,577
shares) valued at $17,747, which was agreed with BCCA prior to September 30,
2006. These shares are subject to trading restrictions under Regulation S.
In addition to the license fee, the Company has agreed to pay annual royalties
starting September 13, 2006 equal to 10% of the gross revenue from licensed
product sales or $8,573 (CAD$10,000), whichever is greater. At December 31,
2006, $2,143 (CAD$2,500) has been accrued in this regard.
10
UPSTREAM BIOSCIENCES, INC.
(A Development Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006 (Unaudited)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LICENSE AGREEMENTS (CONTINUED)
(II) UNIVERSITY OF BRITISH COLUMBIA ("UBC")
Upstream Canada entered into a License Agreement with UBC on March 23, 2005 for
a ten year term expiring March 2015 regarding bioinformatics technology
developed at UBC. Under the contract, Upstream Canada paid a license fee down
payment of $6,746 (CAD$7,500) cash plus agreed to pay an equity component
subject to further negotiations which was recorded at the estimated amount of
$10,717 (CAD$12,500) at September 30, 2006. Due to the share exchange agreement
with Upstream Canada described in Note 2, the Company is currently negotiating
with UBC to issue common shares of the Company instead of those of Upstream
Canada in order to satisfy the equity component of the license fee commitment.
In addition to the license fee and commencing in March 2005, Upstream Canada has
agreed to pay the greater of (a) annual royalties equal to 15% of the gross
revenue from licensed product sales or (b) the minimum annual sliding scale
amounts as follows: $6,430 (CAD$7,500) for years 1 and 2; $12,860 (CAD$15,000)
for years 3 through 7; and $17,147 (CAD$20,000) for years 8 through 10. At
December 31, 2006, royalties of $11,252 (CAD$13,125) had been accrued but remain
unpaid pending completion of on-going negotiations.
(III) EMPLOYMENT CONTRACTS WITH COMPANY OFFICERS/DIRECTORS
The Company has entered into employment contracts with three officers of the
Company who are also directors. The total annual compensation commitment was
increased on October 1, 2006 from $303,000 to $364,600, excluding the $100,000
bonus payable to the two senior officers. Since both milestones were achieved
during the nine months ended September 30, 2006, the bonus was expensed at the
time as part of management compensation. The two milestones pertained to the
filing of provisional patents for liver and prostate cancer biomarkers in March
2006 and for thyroid and ovarian cancer biomarkers in September 2006. At April
30, 2007, the first year anniversary of these contracts, a minimum 40% annual
bonus will be established for the two senior officers subject to achieving
additional mutually agreed performance milestones yet to be determined.
In addition and pursuant to these contracts; (i) 500,000 shares were issued as a
signing bonus of which 300,000 shares vested immediately and 200,000 shares were
put into escrow pending achievement of specific objectives; (ii) 400,000 stock
options were granted with 100,000 vesting immediately and 300,000 vesting
equally over the following three years; and (iii) 800,000 stock options were
committed to be granted over the following three years as contemplated in the
employment contracts, all in accordance with the terms and conditions of a stock
option plan for future development. For (i) above, the amount of $599,500 was
recorded as stock-based compensation and credited to additional paid-in capital
for the nine months ended September 30, 2006. For (ii) above, the amount of
$263,700 is being charged to stock-based compensation on a straight-line basis
over the three year vesting period, of which $17,542 was charged to operations
during the three months ended December 31, 2006.
In the event of contract termination under two of the three contracts retiring
allowances of $300,000 will become payable to each of the two Company officers.
11
UPSTREAM BIOSCIENCES, INC.
(A Development Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006 (Unaudited)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(IV) OFFICE LEASE AGREEMENT As At December
The Company has entered into an agreement with BCCA to issue its common shares
in advance every six months for payment of office rent valued at $2,782 per
month. The lease term is one year commencing May 2006 and is renewable by mutual
consent. The next issuance of shares for the six months ended April 30, 2007 has
been delayed for administrative reasons.
(V) FUND RAISING AGREEMENT
The Company has engaged an investment banker, Atlas Capital Services, LLC
("Atlas"), to raise financing up to $10 million on a best efforts basis over the
nine month period from August 21, 2006 to May 20, 2007 and subsequently by
mutual consent. Atlas's sole compensation will be a cash transaction fee upon
consummation of a financing arrangement equal to 8% of the principal amount of
the financing plus stock purchase warrants. The warrants will allow for purchase
of the Company's common stock in quantity equal to 10% of the financed amount
exercisable on a cashless basis over a period of up to four years from the
closing date of the financing and at a price equal to the effective per share or
per unit price paid in the financing.
9. RESTATEMENTS
The Company has restated its financial statements for the three months ended
December 31, 2006 to reflect the following adjustments:
As At December 31, 2006
-----------------------------------------------
As Originally
Reported Adjustments As Restated
---------- ----------- -----------
$ $ $
BALANCE SHEET
Accounts payable and accrued liabilities 106,088 300,000 406,088
Amounts owing to related parties 164,932 (83,333) 81,599
Accumulated deficit (2,016,435) (216,667) (2,233,102)
12
UPSTREAM BIOSCIENCES, INC.
(A Development Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006 (Unaudited)
9. RESTATEMENTS (CONTINUED)
For The Three Months Ended December 31, 2006
-----------------------------------------------
As Originally
Reported Adjustments As Restated
---------- ----------- -----------
$ $ $
STATEMENT OF OPERATIONS AND DEFICIT
Management compensation 96,351 (25,000) 71,351
Net Loss increase (238,218) (25,000) (213,218)
Cumulative From Inception (June 14, 2004) to December 31, 2006
--------------------------------------------------------------
As Originally
Reported Adjustments As Restated
---------- ----------- -----------
$ $ $
STATEMENT OF OPERATIONS AND DEFICIT
Management compensation 1,122,178 216,667 1,338,845
Net Loss increase (1,918,735) 216,667 (2,135,402)
(I) EMPLOYMENT CONTRACT WITH COMPANY OFFICERS
In connection with the employment contract with company officers, the Company
has corrected the following:
- The entire $300,000 of severance payable to officers and directors of
the company has now been recognized in the December 31, 2006 reporting
period rather than deferred over the life of the contracts as
previously recorded.
(II) OTHER
The net loss per share for the three months ended December 31, 2006 decreased
from $0.01 to $0.00 resulting from the restatement
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements as that term is
defined in Section 27A of the United States Securities Act of 1933 and section
21E of the United States Securities Exchange Act of 1934. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may", "should",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential" or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks in the section
entitled "Risk Factors",that 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.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. 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.
Our financial statements are stated in United States dollars and are prepared in
conformity with generally accepted accounting principles in the United States of
America for interim financial statements. The following discussion should be
read in conjunction with our financial statements and the related notes that
appear elsewhere in this quarterly report.
As used in this quarterly report and unless otherwise indicated, the terms "we",
"us" and "our" refer to Upstream Biosciences Inc. and our wholly-owned
subsidiary. The term "Upstream Nevada" specifically refers to our company and
the term "Upstream Canada" specifically refers to our wholly-owned subsidiary,
Upstream Biosciences Inc., a Canadian corporation. 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.
CORPORATE HISTORY
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. On March 1, 2006, we closed an
amended and restated share exchange agreement dated February 24, 2006, whereby
we acquired all of the issued and outstanding common shares of Upstream Canada
in exchange for the issuance of 24,000,000 common shares in the capital of our
company. As at the closing date, the former shareholders of Upstream Canada held
approximately 54.2% of the issued and outstanding common shares of our company.
The acquisition of Upstream Canada was deemed to be a reverse acquisition for
accounting purposes and Upstream Canada, the acquired entity, was regarded as
the predecessor entity as of March 1, 2006.
Following our incorporation, we commenced the business as a start-up integrated
marketing services company. We offered integrated marketing services such as
advertising design, advertisement placement strategies, advertising sales,
branding services, website development, marketing plans, and tools to establish
focus groups and media strategies to prospective clients. Additionally, we
offered advertising and integrated marketing and branding services in hopes of
assisting companies in describing their products and services.
We were not successful in implementing our business plan as a marketing and
branding services business. As management of our company investigated
opportunities and challenges in the business of being a marketing and branding
services company, management realized that the business did not present the best
opportunity for our company to realize value for our shareholders. Accordingly,
we abandoned our previous business plan and focussed on the identification of
suitable businesses with which to enter into a business opportunity or business
combination.
BUSINESS SUBSEQUENT TO THE ACQUISITION OF UPSTREAM CANADA
As of the closing date of the amended share exchange agreement on March 1, 2006,
our company commenced the business of developing genetic diagnostic biomarkers
for use in determining a patient's susceptibility to disease and predicting a
patient's response to drugs. Our business strategy is to generate revenues
14
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.
Our company focuses our research on variations in the untranslated regions of
the human genome. Variations in these regions can be used as diagnostic markers
to predict or aid in the prediction of susceptibility to disease or to predict a
patient's response to drugs. We have identified and 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 colorectal cancer. We
have also filed a provisional patent application on an assay for identifying
genetic markers that may predict a patient's response to a drug. On March 22,
2006, we identified and filed a provisional patent application on genetic
markers that, following successful development and testing, may assist in
determining the susceptibility of patients to prostate cancer. On September 12,
2006, we identified and filed a provisional patent application on genetic
markers that, following successful development and testing, may assist in
determining the susceptibility of patients to ovarian cancer. On September 26,
2006, we identified and filed a provisional patent application on genetic
markers that, following successful development and testing, may assist in
determining the susceptibility of patients to thyroid cancer.
We incorporate data, ideas and methods from disciplines such as mathematics,
computer science, biochemistry, evolutionary biology, literature mining, pattern
recognition and network analysis and apply such information in a manner that
permits us to understand the genetic basis of human disease and the role that
variations in genes and their related gene regulatory regions play in the onset
of disease, particularly cancer. If successful, we believe that our research and
development will result in predictive models, discovery engines and related
technologies, which will enable us to develop potential diagnostic markers. The
presence, absence, varying quantities, and varying composition of molecules
provide information about the development of a disease or other physiological
condition. A molecule that provides this information is referred to as a
diagnostic marker. In order to develop a diagnostic marker, we must identify a
correlation between the presence of a particular variation of a molecule and a
disease or other physiological condition. Once a correlation is identified, we
must develop a method for identifying the correlation. Our goal is to develop
our research into marketable diagnostic markers that are easy to perform,
sensitive, consistent, safe, inexpensive and cover an attractive market segment.
We are currently developing platforms and related technologies that we hope will
enable the discovery of marketable diagnostic markers to aid in the disease
susceptibility and drug response areas of cancer. We are currently developing
our technologies which will enable us to identify and prioritize potential
diagnostic markers. Our goal is to develop our platforms and related
technologies to identify a variety of novel gene regulatory regions with
potential applications in diagnostics. Our business strategy is to understand
the relationship between genetic regulation, proteins and human diseases in
order to develop molecular diagnostic products. Through our research and
development, we intend to identify important disease genes, the proteins they
produce, and the biological pathways in which they are involved to better
understand the underlying molecular basis for the cause of human disease.
We have not generated any revenues from our technologies to date, including the
quarter ended December 31, 2006. We are a development stage company and we
anticipate that we will require significant time and financing before our
technologies are developed to a marketable state. Once we have developed our
technologies to commercialization, we intend to generate revenues in one of two
ways. We may elect to license our diagnostic biomarkers to third parties or we
may elect to enter into joint ventures or other collaborations with third
parties such as pharmaceutical, biotechnology and diagnostics companies, with
the aim that they will develop and commercialize our discoveries into
therapeutic or diagnostic products. If such a collaboration is successful, we
will seek to receive payments upon the successful completion of certain
predetermined developmental stages and milestones, and receive royalties from
the sales of the drugs and/or diagnostics kits, which will be based on our
discoveries.
PLAN OF OPERATIONS
As of December 31, 2006, our company had cash and cash equivalents of $344,476
and a working capital deficit of $144,345. We estimate our operating expenses
and working capital requirements for the next twelve month period to be as
follows:
15
Estimated Expenses for the Next Twelve Month Period
Operating Expenses
Employee and consultant compensation $480,000
Business development and travel expenses $194,000
Professional fees $170,000
Royalties $ 50,000
General and administrative expenses $ 40,000
--------
Total $934,000
========
EMPLOYEE AND CONSULTANT COMPENSATION
We estimate that our employee and consultant compensation expenses for the next
twelve months will be approximately $480,000. Most of our employee and
consultant compensation expense consists of payments to Joel Bellenson, our
Chief Executive Officer, Dexster Smith, our President and Tim Fernback, our
Chief Financial Officer.
All of our current research and development is carried out by Mr. Bellenson and
Mr. Smith. Both individuals have entered into employment agreements with our
company. Pursuant to the terms of the employment agreements, our company
currently pays Mr. Bellenson and Mr. Smith a base salary of $120,000. As agreed
to in the respective employment agreements, we paid Mr. Bellenson and Mr. Smith
a bonus of $25,000 each after we filed a provisional patent application
regarding a DNA biomarker to enhance the accuracy of existing prostrate cancer
diagnostic tests. Our company was required to increase the respective salaries
to $150,000 on September 26, 2006, upon the company filing provisional patent
applications for DNA biomarkers for two additional diseases. Our company also
agreed to pay a further bonus of $25,000 upon the filing of provisional patent
applications for DNA biomarkers for two additional diseases. This particular
milestone was reached on September 26, 2006 when we filed a provisional patent
application for the second of two additional diseases. Mr. Bellenson and Mr.
Smith have agreed to accrue the additional compensation, including an increase
in salary from $120,000 annually to $150,000 annually and the individual bonuses
of $25,000 each, until such time that the company has secured additional funds
for its operations. In addition to this compensation above, we anticipate
issuing options to both Mr. Bellenson and Mr. Smith pursuant to the terms of
their respective employment agreements.
Our company also retained TCF Ventures Corp., a company beneficially owned by
Mr. Fernback, as a consultant to provide financial advisory services to our
company pursuant to the terms of an amended Consultant Engagement Agreement
dated February 13, 2006. In addition to the issuance of common shares and the
grant of 400,000 stock options, our company agreed to pay the consultant $4,510
(CAD$5,000) per month plus applicable taxes subject to adjustment as set out in
the consulting agreement. The stock options are exercisable until March 1, 2016
at the exercise price of $0.80 per share. Upon reaching the first milestone as
described in the consulting agreement on March 31, 2006, our company agreed to
pay the consultant approximately $5,410 (CAD$6,000) per month plus applicable
taxes subject to further upward adjustment as set out in the consulting
agreement. On April 12, 2006, Mr. Fernback became our company's Chief Financial
Officer.
Although our company anticipates that the majority of our research and
development requirements will be met from the efforts of Mr. Bellenson and Mr.
Smith, we may retain additional services as and when circumstances warrant. In
the event we require such services, we intend to hire such persons as
independent contractors based upon terms to be determined when needed.
BUSINESS DEVELOPMENT AND TRAVEL EXPENSES
We estimate our business development and travel expenses for the next twelve
months to be the approximately $194,000. We anticipate that we will incur
$94,000 in investor relations and marketing costs and $100,000 in travel costs
and costs incurred from attending industry conferences. We have hired an
investor relations person to, among other things, produce investor and marketing
materials. Our company also intends to incur travelling expenses to attend
biotech related conferences and investigate financing opportunities should our
company require additional financing during this period.
16
PROFESSIONAL FEES
We expect to incur significant legal expenses to prepare and file a number of
provisional patent applications over the next twelve months, as new discoveries
are made in our research and development process. Furthermore, as a publicly
traded company, we expect to incur ongoing legal and accounting expenses to
comply with our reporting responsibilities as public company under the United
States Securities Exchange Act of 1934, as amended. During this period, we
intend to obtain director and officer insurance and perhaps general insurance
for our company. We estimate our legal, accounting and insurance expenses for
the next twelve months to be approximately $170,000.
ROYALTIES
We estimate our royalty related expenditures on licensing complementary
technology for the next twelve months to be $50,000 in aggregate.
GENERAL AND ADMINISTRATIVE EXPENSES
We anticipate spending $40,000 on general and administrative costs in the next
twelve months. These costs primarily consist of expenses such as rent, office
supplies and office equipment.
PRODUCT RESEARCH AND DEVELOPMENT
Except for approximately $10,000 that we may spend in connection with the
development of our website, we do not anticipate that we will expend any
significant additional funds on research and development, other than the
salaries of Mr. Bellenson, our Chief Executive Officer, and Mr. Smith, our
President over the next twelve months.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not intend to purchase any significant equipment over the next twelve
months.
EMPLOYEES
As of December 31, 2006, we had four employees consisting of Joel Bellenson as
our Chief Executive Officer, Dexster Smith as our President, Tim Fernback as our
Chief Financial Officer and Steve Bajic as our Secretary and Treasurer. We plan
to hire additional employees when circumstances warrant.
TRENDS AND UNCERTAINTIES
Our ability to generate revenues in the future is dependent on whether we
successfully develop our technologies and create a marketable product and
license or otherwise commercialize our products. We cannot predict whether or
when this may happen and this causes uncertainty with respect to the growth of
our company and our ability to generate revenues.
FINANCING
To date, we have had negative cash flows from operations and we have been
dependent on sales of our equity securities and debt financing to meet our cash
requirements. We expect this situation to continue for the foreseeable future.
We anticipate that we will have negative cash flows in the next twelve month
period.
Our company incurred a loss of $213,218 for the three months ended December 31,
2006. As of December 31, 2006, we had a working capital deficit of $144,345. As
indicated above, our estimated working capital requirements and projected
operating expenses for the next twelve month period total $934,000. As we had
cash and cash equivalents of $344,476 and total current assets of $371,741 at
December 31, 2006, we anticipate that such funds will not be sufficient to pay
our estimated expenses for the next twelve months. We intend to fulfil any
additional cash requirement through the sale of our equity securities or by way
of issuance of a debenture or convertible debenture.
There are no assurances that we will be able to obtain funds required for our
continued operation. There can be no assurance that additional financing will be
17
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain additional financing
on a timely basis, we will not be able to meet our other obligations as they
become due and we will be forced to scale down or perhaps even cease the
operation of our business.
Given that we are a development stage company and have not generated significant
revenues to date, our cash flow projections are subject to numerous
contingencies and risk factors beyond our control, including market acceptance
of our products, competition from well-funded competitors, and our ability to
manage our expected growth. We can offer no assurance that our company will
generate cash flow sufficient to meet our cash flow projections or that our
expenses will not exceed our projections. If our expenses exceed estimates, we
will require additional monies during the next twelve months to execute our
business plan.
There is substantial doubt about our ability to continue as a going concern as
the continuation of our business is dependent upon obtaining further long-term
financing, successful development of our technologies into a marketable product
and successful and sufficient market acceptance of our products once developed
and, finally, achieving a profitable level of operations. The issuance of
additional equity securities by us could result in significant dilution of the
equity interests of our current stockholders. Obtaining commercial loans,
assuming those loans would be available, will increase our liabilities and
future cash commitments.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2006, we had cash and cash equivalents of $344,476 and
$516,086 in current liabilities. The current liabilities primarily consisted of
amounts due to related parties of $81,599, accounts payable and accrued
liabilities of $406,088 and accrued license fees of $28,399. We had a working
capital deficiency of $144,345 as of December 31, 2006.
There are no assurances that we will be able to obtain further funds required
for our continued operations. We intend to pursue various financing alternatives
to meet our immediate and long-term financial requirements. There can be no
assurance that additional financing will be available to us when needed or, if
available, that it can be obtained on commercially reasonable terms. If we are
not able to obtain additional financing on a timely basis, we will be unable to
conduct our operations as planned, and we will not be able to meet our other
obligations as they become due. In such event, we will be forced to scale down
or perhaps even cease our operations.
In March and April 2006, we issued a $1,000,000 three-year convertible debenture
bearing interest at 5% per annum which is due and payable on February 1, 2009.
Following the filing of a provisional patent application with the US patent
office for certain ovarian and thyroid cancer biomarkers, the principal amount
of the debenture was reduced to $800,000 and the conversion feature was reduced
accordingly. During the three months ended December 31, 2006, interest of
$10,000 on the debenture was accrued bringing the total interest payable at
December 31, 2006 to $39,167.
GOING CONCERN
Due to the uncertainty of our ability to meet our current operating and capital
expenses, in their audit report on our consolidated financial statements for the
nine month transition period ended September 30, 2006, Upstream Canada's
independent auditors included an explanatory paragraph regarding substantial
doubt about its ability to continue as a going concern. Our financial statement
footnotes contain additional disclosures describing the circumstances that lead
to this disclosure by our independent auditors. Our December 31, 2006
consolidated financial statements also reflect an explanatory paragraph
regarding substantial doubt about our ability to continue as a going concern.
OFF-BALANCE SHEET ARRANGEMENTS
Our company has no outstanding derivative financial instruments, off-balance
sheet guarantees, interest rate swap transactions or foreign currency contracts.
Neither our company nor our operating subsidiary engages in trading activities
involving non-exchange traded contracts.
18
CAPITAL EXPENDITURES
We incurred a negligible amount of capital expenditures during the three months
ended December 31, 2006 and 2005. As of February 9, 2007, our company did not
have any material commitments for capital expenditures and management does not
anticipate that our company will spend additional material amounts on capital
expenditures in the next twelve month period.
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.
STOCK-BASED COMPENSATION ACCOUNTING POLICY
In accordance with SFAS No. 123R, "Share-Based Payments", all grants of stock
options and share issuances to employees and consultants for compensation are
recognized in the financial statements based on the fair value of the award at
the grant date. The Black-Scholes fair value pricing model has been selected to
value these share-based payments on the date of grant.
RECENT DEVELOPMENTS FUND RAISING AGREEMENT
We have engaged Atlas Capital Services, LLC, an investment banking firm, to
raise financing up to $10 million on a best efforts basis over the nine month
period from August 21, 2006 to May 20, 2007, which agreement may be extended by
mutual consent. We have agreed to pay Atlas Capital Services a cash transaction
fee upon consummation of a financing, which fee will equal 8% of the principal
amount of the financing plus warrants. The warrants will allow for the purchase
of our common stock equal to 10% of the financing amount exercisable on a
cashless basis over a period of four years from the closing date of the
financing and at a price equal to the effective per share price paid in the
financing.
RISK FACTORS
Much of the information included in this current report includes or is based
upon estimates, projections or other "forward-looking statements". Such
forward-looking statements include any projections or estimates made by us and
our management in connection with our business operations. 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 future performance
suggested herein.
Such estimates, projections or other "forward-looking statements" involve
various risks and uncertainties as outlined below. We caution the reader that
important factors in some cases have affected and, in the future, could
materially affect actual results and cause actual results to differ materially
from the results expressed in any such estimates, projections or other
"forward-looking statements".
Our common shares are considered speculative during the development of our new
business operations. Prospective investors should consider carefully the risk
factors set out below.
19
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:
- support our planned growth and carry out our business plan;
- continue scientific progress in our research and development programs;
- address costs and timing of conducting clinical trials and seek
regulatory approvals and patent prosecutions;
- address competing technological and market developments;
- establish additional collaborative relationships; and
- market and develop our technologies.
We may not be able to obtain additional equity or debt financing on acceptable
terms as required. Even if financing is available, it may not be available on
terms that are favorable to us or in sufficient amounts to satisfy 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. 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 generate revenues 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 December 31, 2006, we have incurred aggregate net losses
of $1,918,735 from operations. 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 are engaged in the business
of developing and commercializing genetic biomarkers, which technology is in the
development stage and we have not commenced the regulatory approval process for
our technology. 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.
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 independent registered public accounting firm's report dated
December 14, 2006, as well as in the notes to our consolidated financial
statements, both of which are included in the nine-month transition report ended
September 30, 2006.
20
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 five provisional patent applications of our technologies. We
currently rely on the provisional patent applications and trade secrets to
protect our proprietary intellectual property.
The departure of any of our management or any significant technical personnel or
consultants we hire in the future, the breach of their confidentiality and
non-disclosure obligations, or the failure to achieve our intellectual property
objectives may have a material adverse effect on our business, financial
condition and results of operations. 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.
OUR INABILITY TO COMPLETE OUR PRODUCT DEVELOPMENT ACTIVITIES SUCCESSFULLY MAY
SEVERELY LIMIT OUR ABILITY TO OPERATE AND FINANCE OPERATIONS.
Commercialization of our core technology will require significant additional
research and development as well as substantial clinical trials. We believe that
the United States will be the principal market for our technology, although we
may elect to expand into Japan and Western Europe. We may not be able to
successfully complete development of our core technology, or successfully market
our technology. We, and any of our potential collaborators, may encounter
problems and delays relating to research and development, regulatory approval
and intellectual property rights of our technology. Our research and development
programs may not be successful. Our core technology may not prove to be safe and
efficacious in clinical trials, and we may not obtain the intended regulatory
approvals for our core technology. Whether or not any of these events occur, we
may not have adequate resources to continue operations for the period required
to resolve the issue delaying commercialization and we may not be able to raise
capital to finance our continued operation during the period required for
resolution of that issue.
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 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 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
21
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.
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.
IF OUR COMPANY COMMERCIALIZES OR TESTS OUR TECHNOLOGY, OUR COMPANY WILL BE
SUBJECT TO POTENTIAL PRODUCT LIABILITY CLAIMS WHICH MAY AFFECT OUR EARNINGS AND
FINANCIAL CONDITION.
We face an inherent business risk of exposure to product liability claims in the
event that the use of our core technology during research and development
efforts, including clinical trials, or after commercialization, results in
adverse affects. As a result, we may incur significant product liability
exposure, which may exceed any insurance coverage that we obtain in the future.
Even if we elect to purchase such issuance in the future, we may not be able to
maintain adequate levels of insurance at reasonable cost and/or reasonable
terms. Excessive insurance costs or uninsured claims may increase our operating
loss and affect our financial condition.
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 commercialization or licensing of
our technology may adversely affect our ability to generate revenue. The
business of developing genetic biomarkers is highly competitive and subject to
frequent technological innovation with improved price and/or performance
characteristics. There can be no assurance that our new or existing technologies
will gain market acceptance. Management is aware of similar technologies which
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
commercialization and 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 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
commercialization and licensing of our technology and that it will require us to
continuously develop and enhance our technology that is currently being
developed and introduce new and more technologically advanced technologies
promptly into the market. 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 to meet
technological changes and changes in market demands, our business and operating
results, including our ability to generate revenues, may be adversely affected.
22
IF WE FAIL TO EFFECTIVELY MANAGE THE GROWTH OF OUR COMPANY AND THE
COMMERCIALIZATION OR LICENSING OF OUR TECHNOLOGY, OUR FUTURE BUSINESS RESULTS
COULD BE HARMED AND OUR MANAGERIAL AND OPERATIONAL RESOURCES MAY BE STRAINED.
As we proceed with the development of our technology and the expansion of our
marketing and commercialization efforts, we expect to experience significant
growth in the scope and complexity of our business. We will need to add staff to
market our services, manage operations, handle sales and marketing efforts and
perform finance and accounting functions. We anticipate that we will be required
to hire a broad range of additional personnel in order to successfully advance
our operations. This growth is likely to place a strain on our management and
operational resources. The failure to develop and implement effective systems,
or to hire and retain sufficient personnel for the performance of all of the
functions necessary to effectively service and manage our potential business, or
the failure to manage growth effectively, could have a material adverse effect
on our business and financial condition.
FAILURE TO OBTAIN AND MAINTAIN REQUIRED REGULATORY APPROVALS WILL SEVERELY LIMIT
OUR ABILITY TO COMMERCIALIZE OUR TECHNOLOGY.
We believe that it is important for the success of our business to obtain the
approval of the Food and Drug Administration in the United States (FDA) before
we commence commercialization of our technology in the United States, the
principal market for our technology. We may also be required to obtain
additional approvals from foreign regulatory authorities to apply for any sales
activities we may carry out in those jurisdictions. If we cannot demonstrate the
safety, reliability and efficacy of our technology, the FDA or other regulatory
authorities could delay or withhold regulatory approval of our technology.
Even if we obtain regulatory approval of our technology, that approval may be
subject to limitations on the indicated uses for which it may be marketed. Even
after granting regulatory approval, the FDA and other regulatory agencies and
governments in other countries will continue to review and inspect any future
marketed products as well as any manufacturing facilities that we may establish
in the future. Later discovery of previously unknown problems with a product or
facility may result in restrictions on the product, including a withdrawal of
the product from the market. Further, governmental regulatory agencies may
establish additional regulations which could prevent or delay regulatory
approval of our technology.
EVEN IF WE OBTAIN REGULATORY APPROVAL TO COMMERCIALIZE OUR TECHNOLOGY, LACK OF
COMMERCIAL ACCEPTANCE MAY IMPAIR OUR BUSINESS.
Our product development efforts are primarily directed toward obtaining
regulatory approval to market genetic diagnostic markers. Diagnostic markers for
cancer have been widely available for a number of years, and our technology may
not be accepted by the marketplace as readily as these or other competing
products, processes and methodologies. Additionally, our technology may not be
employed in all potential applications being investigated, and any reduction in
applications may limit the market acceptance of our technology and our potential
revenues. As a result, even if our technology is developed into a marketable
technology and we obtain all required regulatory approvals, we cannot be certain
that our technology will be adopted at a level that would allow us to operate
profitably.
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. 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.
23
OUR ABILITY TO HIRE AND RETAIN KEY PERSONNEL WILL BE AN IMPORTANT FACTOR IN THE
SUCCESS OF OUR BUSINESS AND A FAILURE TO HIRE AND RETAIN KEY PERSONNEL MAY
RESULT IN OUR INABILITY TO MANAGE AND IMPLEMENT OUR BUSINESS PLAN.
We are highly dependent upon our management personnel such Joel Bellenson and
Dexster Smith because of their experience developing genetic diagnostic markers.
The loss of the services of one or more of these individuals may impair
management's ability to operate our company. We have not purchased key man
insurance on any of these individuals, which insurance would provide us with
insurance proceeds in the event of their death. Without key man insurance, we
may not have the financial resources to develop or maintain our business until
we could replace the individual or to replace any business lost by the death of
that person. The competition for qualified personnel in the markets in which we
operate is intense. In addition, in order to manage growth effectively, we must
implement management systems and recruit and train new employees. We may not be
able to attract and retain the necessary qualified personnel. If we are unable
to retain or to hire qualified personnel as required, we may not be able to
adequately manage and implement our business.
WE WILL DEPEND UPON THE ESTABLISHMENT OF RELATIONSHIPS WITH THIRD PARTIES TO
TEST OUR TECHNOLOGIES AND ANY RELATIONSHIP MAY REQUIRE OUR COMPANY TO SHARE
REVENUES AND TECHNOLOGY.
Management anticipates that it will be crucial to identify the degree of
elevated or reduced risk of a particular disease or medication based on a
particular variation or combination of variations. To do so will require access
to samples of patients who have had the diseases in question as well as normal
populations. And for each of these collections of samples, it will be important
to note the demographic and epidemiological ranges covered by the collection.
This would entail establishing relationships with clinics, hospitals,
universities and companies that have repositories of biological samples with
carefully curated patient disease and demographic information. These
relationships have various confidentiality provisions that require negotiations
that can span several months. In addition, some of these institutions have
national or provincial mandates for providing access to these samples that may
require us to make our test results publicly available for these jurisdictions
or institutions at a reduced rate and could also require us to provide a flow
back of intellectual property licensing for their further research process. Any
such requirement may reduce our revenues.
OUR COMPANY WILL BE DEPENDENT ON VARIOUS OUTSOURCING ACTIVITIES FOR TESTING OUR
TECHNOLOGY AND FAILURE TO OUTSOURCE CERTAIN ACTIVITIES WILL HAVE A MATERIAL
ADVERSE EFFECT ON OUR COMPANY.
We intend to establish relationships with various vendors of biological
laboratory services. Such laboratory services may include DNA SNP profiling,
gene expression profiling, cell culturing, recombinant techniques for inserting
reporter genes into artificial constructs for testing purposes, profiling of
transcription factors active in different disease states, and other laboratory
and analytical services depending upon the outcome of the results at various
stages. Our ability to secure and maintain these future relationships will be
critical to the success of our business objectives, and conversely the inability
to secure these future relationships on reasonable commercial terms represents a
risk and could have a material adverse effect on our operations or financial
condition.
MOST OF OUR ASSETS AND ALL 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.
Although we are organized under the laws of the State of Nevada, United States,
our principal business office is located in Vancouver, British Columbia, Canada.
Outside the United States, it may be difficult for investors to enforce
judgements 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, all of our directors and officers reside outside
the United States, and nearly all of the assets of these persons and our assets
are located outside of the United States. As a result, it may not be possible
for investors to effect service of process within the United States upon such
persons or to enforce against us or such persons judgements predicated upon the
liability provisions of United States securities laws. There is substantial
doubt as to the enforceability against us or any of our directors and officers
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,
24
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 judgements 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 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 44,847,077 common shares were issued as of
February 9, 2007. Our board of directors may fix and determine the designations,
rights, preferences or other variations of our class of preferred shares or
series within the class of preferred shares. Our board of directors may choose
to issue common 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
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
corporation.
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
25
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.
NASD SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO BUY
AND SELL OUR STOCK.
In addition to the "penny stock" rules described above, the National Association
of Securities Dealers (NASD) has adopted rules that 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, the NASD believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The NASD 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 currently trades on a limited basis 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.
ITEM 3. CONTROLS AND PROCEDURES.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the
end of the period covered by this quarterly report, being December 31, 2006, we
have carried out an evaluation of the effectiveness of the design and operation
of our company's disclosure controls and procedures. This evaluation was carried
out under the supervision and with the participation of our company's
management, including our company's Chief Executive Officer and our Chief
Financial Officer. Based upon that evaluation, our company's Chief Executive
Officer and our Chief Financial Officer concluded that our company's disclosure
controls and procedures are effective as at the end of the period covered by
this report. There have been no changes in our company's internal controls or in
other factors, which could affect internal control subsequent to the date we
carried out our evaluation.
Disclosure controls and procedures and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time period specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934 is accumulated and communicated to management including our
Chief Executive Officer and our Chief Financial Officer as appropriate, to allow
timely decisions regarding required disclosure.
26
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We know of no material, active or pending legal proceedings against us, nor are
we involved as a plaintiff in any material proceedings or pending litigation.
There are no proceedings in which any of our directors, officers or affiliates,
or any registered beneficial shareholder are an adverse party or has a material
interest adverse to us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On September 18, 2006, shareholders holding a majority of our issued and
outstanding shares approved an amendment to our Articles of Incorporation
pursuant to a shareholder consent resolution in accordance with Nevada law. The
amendment altered our authorized share structure to include 100,000,000
preferred shares with a par value of $0.001, issuable in one or more series,
with the number of shares in, and the special rights and restrictions attached
to such series, to be designated by our board of directors. We filed a Schedule
14C Information Statement on October 11, 2006 and delivered the document to our
shareholders of record as of the close of business on September 26, 2006. The
amendment to our Articles of Incorporation was effective with the State of
Nevada on November 27, 2006 and in accordance with the expiration of the 20 day
period mandated by Rule 14C of the Securities Exchange Act of 1934.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibits required by Item 601 of Regulation S-B
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).
27
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 Collaborative Research Agreement dated August 11, 2004, among Upstream
Canada, the University of British Columbia and Vancouver Coastal Health
Authority (incorporated by reference from our Current Report on Form
8-K filed on March 7, 2006).
10.2 Contract Service Agreement dated December 20, 2004, between Inimex
Pharmaceuticals Inc. and Upstream Canada (incorporated by reference
from our Current Report on Form 8-K filed on March 7, 2006).
10.3 License Agreement dated March 10, 2005, between British Columbia Cancer
Agency Branch and Upstream Canada (incorporated by reference from our
Current Report on Form 8-K filed on March 7, 2006).
10.4 License Agreement dated March 23, 2005, between The University of
British Columbia and Upstream Canada (incorporated by reference from
our Current Report on Form 8-K filed on March 7, 2006).
10.5 Letter Agreement dated July 17, 2005 between Integrated Brand Solutions
Inc. and ABS Capital Finance (incorporated by reference from our
Current Report on Form 8-K filed on July 21, 2005).
10.6 Termination Agreement dated September 19, 2005 between Integrated Brand
Solutions Inc. and ABS Capital Finance Inc. (incorporated by reference
from our Current Report on Form 8-K filed on September 27, 2005).
10.7 5% $1,000,000 Convertible Debenture dated February 1, 2006 issued to
Novar Capital Corp. by our company (incorporated by reference from our
Current Report on Form 8-K filed on March 7, 2006).
10.8 Consultant Engagement Agreement dated February 7, 2006 among TCF
Ventures Corp., our company and Upstream Canada (incorporated by
reference from our Current Report on Form 8-K filed on March 7, 2006).
10.9 Stock Option and Subscription Agreement dated February 13, 2006,
between our company and TCF Ventures Corp. (incorporated by reference
from our Current Report on Form 8-K filed on March 7, 2006).
10.10 Amendment Agreement dated February 13, 2006, among TCF Ventures Corp.,
our company and Upstream Canada (incorporated by reference from our
Current Report on Form 8-K filed on March 7, 2006).
10.11 Assignment of Invention Agreement dated February 27, 2006 among Joel
Bellenson, Dexster Smith and our company (incorporated by reference
from our Current Report on Form 8-K filed on March 7, 2006).
10.12 Assignment of Invention Agreement dated February 27, 2006 among Joel
Bellenson, Dexster Smith and our company (incorporated by reference
from our Current Report on Form 8-K filed on March 7, 2006).
28
10.13 Employment Agreement dated March 1, 2006, between our company and Joel
Bellenson (incorporated by reference from our Current Report on Form
8-K filed on March 7, 2006).
10.14 Employment Agreement dated March 1, 2006 between our company and
Dexster Smith (incorporated by reference from our Current Report on
Form 8-K filed on March 7, 2006).
10.15 Financing Services Agreement dated August 29, 2006 between our company
and Atlas Capital Services, LLC (incorporated by reference from our
Current Report on Form 8-K filed on August 30, 2006).
(14) CODE OF ETHICS
14.1 Code of Business Conduct and Ethics (incorporated by reference from our
Annual Report on Form 10-KSB filed on July 2, 2004, as amended on July
6, 2004).
(31) SECTION 302 CERTIFICATIONS
31.1* Certification of Principal Executive Officer filed pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of 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.
32.2* Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
- ----------
* Filed herewith.
29
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UPSTREAM BIOSCIENCES INC.
By:
/s/ Joel Bellenson
- ----------------------------------------------------
Joel Bellenson, Chief Executive Officer and Director
(Principal Executive Officer)
November 26, 2010
/s/ Tim Fernback
- ----------------------------------------------------
Tim Fernback, Chief Financial Officer
(Principal Financial Officer and Accounting Officer)
November 26, 2010
30