UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2012
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to ____________
Commission file number 000-50331
UPSTREAM BIOSCIENCES INC.
(Exact name of registrant as specified in its charter)
Nevada 98-0371433
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Three Sugar Creek Center, Suite 100, Sugar Land, TX 77478
(Address of Principal Executive Offices) (Zip Code)
713-929-3863
(Registrant's telephone number, including area code)
50 West Liberty St., Suite 880, Reno, NV, 89501
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer," " and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
1,975,645 common shares issued and outstanding as at February 14, 2013.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Our unaudited interim financial statements are stated in United States dollars
and are prepared in accordance with United States generally accepted accounting
principles.
It is the opinion of management that the unaudited interim financial statements
for the quarter ended December 31, 2012 include all adjustments necessary in
order to ensure that the unaudited interim financial statements are not
misleading.
2
Upstream Biosciences, Inc.
(A Development Stage Company)
Balance Sheets
December 31, September 30,
2012 2012
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 1,065 $ 4,312
Prepaid expenses 2,125 3,500
------------ ------------
Total Current Assets 3,190 7,812
------------ ------------
Total Assets $ 3,190 $ 7,812
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 28,348 $ 24,576
Advances from related parties 30,823 10,000
------------ ------------
Total Current Liabilities 59,171 34,576
------------ ------------
STOCKHOLDERS' DEFICIT:
Preferred stock: $0.001 par value; 100,000,000 shares authorized;
none issued or outstanding -- --
Common stock: $0.001 par value; 100,000,000 shares authorized;
1,974,630 shares issued and outstanding 1,975 1,975
Additional paid-in capital 7,190,770 7,190,770
Deficit accumulated during the development stage (7,236,888) (7,207,671)
Accumulated other comprehensive income (loss):
Foreign currency translation gain (loss) (11,838) (11,838)
------------ ------------
Total Stockholders' Deficit (55,981) (26,764)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 3,190 $ 7,812
============ ============
See accompanying notes to the financial statements.
3
Upstream Biosciences, Inc.
(A Development Stage Company)
Statements of Operations
For the Period from
For the For the June 14, 2004
Three Months Three Months (inception)
Ended Ended through
December 31, December 31, December 31,
2012 2011 2012
------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
Revenues $ -- $ -- $ 67,600
------------ ------------ ------------
Operating expenses:
Amortization -- -- 133,600
Consulting fees -- -- 12,598
Investor and corporate communications -- -- 258,349
License fees and royalties -- -- 114,384
Management compensation -- -- 1,526,086
Research and development -- -- 1,421,530
Stock-based compensation -- -- 2,090,632
Loss on foreign exchange translations -- -- 15,544
Professional fees 10,649 3,490 661,111
General and administrative expenses 18,568 3,603 514,132
------------ ------------ ------------
Total operating expenses 29,217 7,093 6,747,966
------------ ------------ ------------
Loss from operations (29,217) (7,093) (6,680,366)
Other (income) expense:
Asset impairment loss -- -- 59,010
Compensation shares -- -- 25,000
Interest and finance charges -- -- 598,965
Interest income -- -- (84,671)
Loss on sale of intellectual property -- -- 78,570
(Gain) loss on sale of subsidiary -- -- (126,515)
Other (income) expense -- -- (34,122)
------------ ------------ ------------
Total other (income) expense -- -- 516,237
Loss before income tax provision (29,217) (7,093) (7,196,603)
Income tax provision -- -- 57,415
------------ ------------ ------------
Net loss $ (29,217) $ (7,093) $ (7,139,188)
============ ============ ============
Net loss per common share:
- Basic and diluted $ (0.01) $ (0.01)
============ ============
Weighted average common shares outstanding:
- Basic and diluted 1,974,630 974,630
============ ============
See accompanying notes to the financial statements.
4
Upstream Biosciences, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Period from
For the For the June 14, 2004
Three Months Three Months (inception)
Ended Ended through
December 31, December 31, December 31,
2012 2011 2012
------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (29,217) $ (7,093) $ (7,139,188)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization -- -- 133,600
Accretion of convertible debenture -- -- 302,808
Shares issued or to be issued for services -- -- 1,487,236
Stock-based compensation -- -- 1,658,590
Compensation shares -- -- 25,000
Deferred income tax -- -- (57,415)
Asset impairment -- -- 59,010
Gain on sale of subsidiary -- -- (126,515)
Loss from sale of intellectual property -- -- 78,570
Changes in operating assets and liabilities:
Prepaid expenses 1,375 396 (4,906)
Other receivables -- -- (10,259)
Accounts payable and accrued liabilities 3,772 (619) 259,755
Due to related parties -- -- 271,984
------------ ------------ ------------
Net cash used in operating activities (24,070) (7,316) (3,061,730)
------------ ------------ ------------
Cash flows from investing activities:
Cash paid for acquisition of PPT shares -- -- (51,507)
Proceeds from the sale of subsidiary -- -- 1
Purchase of equipment -- -- (22,764)
------------ ------------ ------------
Net cash used in investing activities -- -- (74,270)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of convertible debentures -- -- 1,000,000
Proceeds from issuance of common shares, net -- -- 2,030,345
Advances from (repayment made to) related party 20,823 -- 109,310
------------ ------------ ------------
Net cash provided by financing activities 20,823 -- 3,139,655
------------ ------------ ------------
Effect of exchange rate changes on cash -- 207 (2,590)
------------ ------------ ------------
Net change in cash (3,247) (7,109) 1,065
Cash at beginning of period 4,312 12,602 --
------------ ------------ ------------
Cash at end of period $ 1,065 $ 5,493 $ 1,065
============ ============ ============
Supplemental disclosure of cash flows information:
Interest paid $ -- $ -- $ --
============ ============ ============
Income tax paid $ -- $ -- $ --
============ ============ ============
See accompanying notes to the financial statements.
5
Upstream Biosciences, Inc.
(A Development Stage Company)
December 31, 2012 and 2011
Notes to the Financial Statements
(Unaudited)
NOTE 1 - ORGANIZATION AND OPERATIONS
UPSTREAM BIOSCIENCES, INC.
Upstream Biosciences, Inc. ("the Company") was incorporated on March 20, 2002
under the laws of the State of Nevada. The Company engages in developing
technology relating to biomarker identification, disease susceptibility and drug
response areas of cancer.
UPSTREAM BIOSCIENCES, INC., THE CANADIAN SUBSIDIARY
The Company acquired its wholly-owned Canadian subsidiary, Upstream Biosciences,
Inc. ("Upstream Canada") on February 24, 2006. This transaction was accounted
for as a recapitalization transaction, similar to a reverse acquisition
accounting, with Upstream Canada being treated as the accounting parent (legal
subsidiary) and the Company being treated as the accounting subsidiary (legal
parent).
On February 15, 2011, the Company sold Upstream Canada to a third party, for
consideration of $1, realizing a gain on disposal of $126,515.
PACIFIC PHARMA TECHNOLOGIES, INC.
On December 14, 2009, The Company's subsidiary, Pacific Pharma Technologies,
Inc. ("PPT"), a British Columbia company, entered into and closed an asset sale
agreement with JTAT Consulting Inc., a company wholly-owned by Art Cherkasov.
Pursuant to the terms of the agreement, Pacific Pharma sold all of the assets
held by Pacific Pharma to JTAT Consulting for the payment of $1.
The agreement resulted in the cancellation of the Company's obligation to issue
shares with a value of $99,737, resulting in a loss on disposal of $78,570.
AMENDMENT TO THE ARTICLES OF INCORPORATION
Effective December 4, 2012 the Board of Directors and the majority voting
stockholders adopted and approved a resolution to amend its Articles of
Incorporation to effectuate a reverse split of all issued and outstanding shares
of common stock, at a ratio of one-for-thirty five (1:35) (the "Reverse Stock
Split").
All shares and per share amounts in the financial statements have been adjusted
to give retroactive effect to the Reverse Stock Split.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited interim financial statements and related notes have
been prepared in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP") for interim financial information, and
with the rules and regulations of the United States Securities and Exchange
Commission ("SEC") to Form 10-Q and Article 8 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by U.S. GAAP
for complete financial statements. The unaudited interim financial statements
furnished reflect all adjustments (consisting of normal recurring accruals)
which are, in the opinion of management, necessary to a fair statement of the
results for the interim periods presented. Interim results are not necessarily
indicative of the results for the full year. These financial statements should
be read in conjunction with the financial statements of the Company for the
fiscal year ended September 30, 2012 and notes thereto contained in the
Company's Annual Report on Form 10-K as filed with the SEC on December 31, 2012.
6
RECLASSIFICATION
Certain amounts in the prior period financial statements have been reclassified
to conform to the current period presentation. These reclassifications had no
effect on reported income or losses.
DEVELOPMENT STAGE COMPANY
The Company is a development stage company as defined by section 915-10-20 of
the FASB Accounting Standards Codification. Although the Company recognized
nominal amount of revenues, it is still devoting substantially all of its
efforts on establishing the business and its planned principal operations have
not commenced. All losses accumulated since inception have been considered as
part of the Company's development stage activities.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amount of revenues and expenses during the
reporting period.
The Company's significant estimates and assumptions include the fair value of
financial instruments; income tax rate, income tax provision and valuation
allowance of deferred tax assets; and the assumption that the Company will be a
going concern. Those significant accounting estimates or assumptions bear the
risk of change due to the fact that there are uncertainties attached to those
estimates or assumptions, and certain estimates or assumptions are difficult to
measure or value.
Management bases its estimates on historical experience and on various
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Management regularly reviews its estimates utilizing currently available
information, changes in facts and circumstances, historical experience and
reasonable assumptions. After such reviews, and if deemed appropriate, those
estimates are adjusted accordingly.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards
Codification for disclosures about fair value of its financial instruments and
paragraph 820-10-35-37 of the FASB Accounting Standards Codification ("Paragraph
820-10-35-37") to measure the fair value of its financial instruments. Paragraph
820-10-35-37 establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value
measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair
value hierarchy which prioritizes the inputs to valuation techniques used to
measure fair value into three (3) broad levels. The fair value hierarchy gives
the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs.
The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37
are described below:
Level 1 Quoted market prices available in active markets for identical assets
or liabilities as of the reporting date.
Level 2 Pricing inputs other than quoted prices in active markets included in
Level 1, which are either directly or indirectly observable as of the
reporting date.
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Level 3 Pricing inputs that are generally observable inputs and not
corroborated by market data.
Financial assets are considered Level 3 when their fair values are determined
using pricing models, discounted cash flow methodologies or similar techniques
and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. If the inputs used to measure the
financial assets and liabilities fall within more than one level described
above, the categorization is based on the lowest level input that is significant
to the fair value measurement of the instrument.
The carrying amounts of the Company's financial assets and liabilities, such as
cash, prepaid expenses and accounts payable and accrued liabilities, approximate
their fair values because of the short maturity of these instruments.
Transactions involving related parties cannot be presumed to be carried out on
an arm's-length basis, as the requisite conditions of competitive, free-market
dealings may not exist. Representations about transactions with related parties,
if made, shall not imply that the related party transactions were consummated on
terms equivalent to those that prevail in arm's-length transactions unless such
representations can be substantiated.
It is not, however, practical to determine the fair value of advances from
stockholder, if any, due to their related party nature.
FISCAL YEAR-END
The Company elected September 30 as its fiscal year-end date.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents.
RELATED PARTIES
The Company follows subtopic 850-10 of the FASB Accounting Standards
Codification for the identification of related parties and disclosure of related
party transactions.
Pursuant to Section 850-10-20 the related parties include a. affiliates of the
Company; b. entities for which investments in their equity securities would be
required, absent the election of the fair value option under the Fair Value
Option Subsection of Section 825-10-15, to be accounted for by the equity method
by the investing entity; c. trusts for the benefit of employees, such as pension
and profit-sharing trusts that are managed by or under the trusteeship of
management; d. principal owners of the Company; e. management of the Company; f.
other parties with which the Company may deal if one party controls or can
significantly influence the management or operating policies of the other to an
extent that one of the transacting parties might be prevented from fully
pursuing its own separate interests; and g. other parties that can significantly
influence the management or operating policies of the transacting parties or
that have an ownership interest in one of the transacting parties and can
significantly influence the other to an extent that one or more of the
transacting parties might be prevented from fully pursuing its own separate
interests.
The financial statements shall include disclosures of material related party
transactions, other than compensation arrangements, expense allowances, and
other similar items in the ordinary course of business. However, disclosure of
transactions that are eliminated in the preparation of consolidated or combined
financial statements is not required in those statements. The disclosures shall
include: a. the nature of the relationship(s) involved; b. a description of the
transactions, including transactions to which no amounts or nominal amounts were
ascribed, for each of the periods for which income statements are presented, and
such other information deemed necessary to an understanding of the effects of
8
the transactions on the financial statements; c. the dollar amounts of
transactions for each of the periods for which income statements are presented
and the effects of any change in the method of establishing the terms from that
used in the preceding period; and d. amounts due from or to related parties as
of the date of each balance sheet presented and, if not otherwise apparent, the
terms and manner of settlement.
COMMITMENT AND CONTINGENCIES
The Company follows subtopic 450-20 of the FASB Accounting Standards
Codification to report accounting for contingencies. Certain conditions may
exist as of the date the financial statements are issued, which may result in a
loss to the Company but which will only be resolved when one or more future
events occur or fail to occur. The Company assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In assessing
loss contingencies related to legal proceedings that are pending against the
Company or unasserted claims that may result in such proceedings, the Company
evaluates the perceived merits of any legal proceedings or unasserted claims as
well as the perceived merits of the amount of relief sought or expected to be
sought therein.
If the assessment of a contingency indicates that it is probable that a material
loss has been incurred and the amount of the liability can be estimated, then
the estimated liability would be accrued in the Company's financial statements.
If the assessment indicates that a potential material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, and an estimate of the range of
possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they
involve guarantees, in which case the guarantees would be disclosed. Management
does not believe, based upon information available at this time, that these
matters will have a material adverse effect on the Company's financial position,
results of operations or cash flows. However, there is no assurance that such
matters will not materially and adversely affect the Company's business,
financial position, and results of operations or cash flows.
REVENUE RECOGNITION
The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards
Codification for revenue recognition. The Company recognizes revenue when it is
realized or realizable and earned. The Company considers revenue realized or
realizable and earned when all of the following criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) the product has been shipped or the
services have been rendered to the customer, (iii) the sales price is fixed or
determinable, and (iv) collectability is reasonably assured.
FOREIGN CURRENCY TRANSACTIONS
The Company applies the guidelines as set out in Section 830-20-35 of the FASB
Accounting Standards Codification ("Section 830-20-35") for foreign currency
transactions. Pursuant to Section 830-20-35 of the FASB Accounting Standards
Codification, foreign currency transactions are transactions denominated in
currencies other than U.S. Dollar, the Company's reporting currency or Canadian
dollar, the Company's Canadian subsidiaries' functional currency. Foreign
currency transactions may produce receivables or payables that are fixed in
terms of the amount of foreign currency that will be received or paid. A change
in exchange rates between the functional currency and the currency in which a
transaction is denominated increases or decreases the expected amount of
functional currency cash flows upon settlement of the transaction. That increase
or decrease in expected functional currency cash flows is a foreign currency
transaction gain or loss that generally shall be included in determining net
income for the period in which the exchange rate changes. Likewise, a
transaction gain or loss (measured from the transaction date or the most recent
intervening balance sheet date, whichever is later) realized upon settlement of
a foreign currency transaction generally shall be included in determining net
income for the period in which the transaction is settled. The exceptions to
this requirement for inclusion in net income of transaction gains and losses
pertain to certain intercompany transactions and to transactions that are
9
designated as, and effective as, economic hedges of net investments and foreign
currency commitments. Pursuant to Section 830-20-25 of the FASB Accounting
Standards Codification, the following shall apply to all foreign currency
transactions of an enterprise and its investees: (a) at the date the transaction
is recognized, each asset, liability, revenue, expense, gain, or loss arising
from the transaction shall be measured and recorded in the functional currency
of the recording entity by use of the exchange rate in effect at that date as
defined in section 830-10-20 of the FASB Accounting Standards Codification; and
(b) at each balance sheet date, recorded balances that are denominated in
currencies other than the functional currency or reporting currency of the
recording entity shall be adjusted to reflect the current exchange rate.
STOCK-BASED COMPENSATION FOR OBTAINING EMPLOYEE SERVICES
The Company accounts for its stock based compensation in which the Company
obtains employee services in share-based payment transactions under the
recognition and measurement principles of the fair value recognition provisions
of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to
paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all
transactions in which goods or services are the consideration received for the
issuance of equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. The measurement date used to determine
the fair value of the equity instrument issued is the earlier of the date on
which the performance is complete or the date on which it is probable that
performance will occur.
The fair value of options and similar instruments is estimated on the date of
grant using a Black-Scholes option-pricing valuation model. The ranges of
assumptions for inputs are as follows:
* Expected term of share options and similar instruments: The expected life
of options and similar instruments represents the period of time the option
and/or warrant are expected to be outstanding. Pursuant to Paragraph
718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the
expected term of share options and similar instruments represents the
period of time the options and similar instruments are expected to be
outstanding taking into consideration of the contractual term of the
instruments and employees' expected exercise and post-vesting employment
termination behavior into the fair value (or calculated value) of the
instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to
use the SIMPLIFIED METHOD, I.E., EXPECTED TERM = ((VESTING TERM + ORIGINAL
CONTRACTUAL TERM) / 2), if (i) A company does not have sufficient
historical exercise data to provide a reasonable basis upon which to
estimate expected term due to the limited period of time its equity shares
have been publicly traded; (ii) A company significantly changes the terms
of its share option grants or the types of employees that receive share
option grants such that its historical exercise data may no longer provide
a reasonable basis upon which to estimate expected term; or (iii) A company
has or expects to have significant structural changes in its business such
that its historical exercise data may no longer provide a reasonable basis
upon which to estimate expected term. The Company uses the simplified
method to calculate expected term of share options and similar instruments
as the company does not have sufficient historical exercise data to provide
a reasonable basis upon which to estimate expected term.
* Expected volatility of the entity's shares and the method used to estimate
it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or
nonpublic entity that uses the calculated value method shall disclose the
reasons why it is not practicable for the Company to estimate the expected
volatility of its share price, the appropriate industry sector index that
it has selected, the reasons for selecting that particular index, and how
it has calculated historical volatility using that index. The Company uses
the average historical volatility of the comparable companies over the
expected contractual life of the share options or similar instruments as
its expected volatility. If shares of a company are thinly traded the use
of weekly or monthly price observations would generally be more appropriate
than the use of daily price observations as the volatility calculation
using daily observations for such shares could be artificially inflated due
to a larger spread between the bid and asked quotes and lack of consistent
trading in the market.
10
* Expected annual rate of quarterly dividends. An entity that uses a method
that employs different dividend rates during the contractual term shall
disclose the range of expected dividends used and the weighted-average
expected dividends. The expected dividend yield is based on the Company's
current dividend yield as the best estimate of projected dividend yield for
periods within the expected contractual life of the option and similar
instruments.
* Risk-free rate(s). An entity that uses a method that employs different
risk-free rates shall disclose the range of risk-free rates used. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect
at the time of grant for periods within the contractual life of the option
and similar instruments.
The Company's policy is to recognize compensation cost for awards with only
service conditions and a graded vesting schedule on a straight-line basis over
the requisite service period for the entire award.
EQUITY INSTRUMENTS ISSUED TO PARTIES OTHER THAN EMPLOYEES FOR ACQUIRING GOODS OR
SERVICES
The Company accounts for equity instruments issued to parties other than
employees for acquiring goods or services under guidance of Sub-topic 505-50 of
the FASB Accounting Standards Codification ("Sub-topic 505-50").
Pursuant to ASC Section 505-50-30, all transactions in which goods or services
are the consideration received for the issuance of equity instruments are
accounted for based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument
issued is the earlier of the date on which the performance is complete or the
date on which it is probable that performance will occur.
The fair value of option or warrant award is estimated on the date of grant
using a Black-Scholes option-pricing valuation model. The ranges of assumptions
for inputs are as follows:
* Expected term of share options and similar instruments: Pursuant to
Paragraph 718-10-50-2 of the FASB Accounting Standards Codification the
expected term of share options and similar instruments represents the
period of time the options and similar instruments are expected to be
outstanding taking into consideration of the contractual term of the
instruments and holder's expected exercise behavior into the fair value (or
calculated value) of the instruments. The Company uses historical data to
estimate holder's expected exercise behavior. The contractual term of share
options or similar instruments is used as expected term of share options or
similar instruments for the Company if it is a newly formed corporation.
* Expected volatility of the entity's shares and the method used to estimate
it. An entity that uses a method that employs different volatilities during
the contractual term shall disclose the range of expected volatilities used
and the weighted-average expected volatility. A thinly-traded or nonpublic
entity that uses the calculated value method shall disclose the reasons why
it is not practicable for the Company to estimate the expected volatility
of its share price, the appropriate industry sector index that it has
selected, the reasons for selecting that particular index, and how it has
calculated historical volatility using that index. The Company uses the
average historical volatility of the comparable companies over the expected
contractual life of the share options or similar instruments as its
expected volatility. If shares of a company are thinly traded the use of
weekly or monthly price observations would generally be more appropriate
than the use of daily price observations as the volatility calculation
using daily observations for such shares could be artificially inflated due
to a larger spread between the bid and asked quotes and lack of consistent
trading in the market.
* Expected annual rate of quarterly dividends. An entity that uses a method
that employs different dividend rates during the contractual term shall
disclose the range of expected dividends used and the weighted-average
expected dividends. The expected dividend yield is based on the Company's
current dividend yield as the best estimate of projected dividend yield for
periods within the expected contractual life of the option and similar
instruments.
11
* Risk-free rate(s). An entity that uses a method that employs different
risk-free rates shall disclose the range of risk-free rates used. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect
at the time of grant for periods within the contractual life of the option
and similar instruments.
Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity
instruments are issued at the date the grantor and grantee enter into an
agreement for goods or services (no specific performance is required by the
grantee to retain those equity instruments), then, because of the elimination of
any obligation on the part of the counterparty to earn the equity instruments, a
measurement date has been reached. A grantor shall recognize the equity
instruments when they are issued (in most cases, when the agreement is entered
into). Whether the corresponding cost is an immediate expense or a prepaid asset
(or whether the debit should be characterized as contra-equity under the
requirements of paragraph 505-50-45-1) depends on the specific facts and
circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude
that an asset (other than a note or a receivable) has been received in return
for fully vested, non-forfeitable equity instruments that are issued at the date
the grantor and grantee enter into an agreement for goods or services (and no
specific performance is required by the grantee in order to retain those equity
instruments). Such an asset shall not be displayed as contra-equity by the
grantor of the equity instruments. The transferability (or lack thereof) of the
equity instruments shall not affect the balance sheet display of the asset. This
guidance is limited to transactions in which equity instruments are transferred
to other than employees in exchange for goods or services. Section 505-50-30
provides guidance on the determination of the measurement date for transactions
that are within the scope of this Subtopic.
Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9,an entity may grant fully
vested, non-forfeitable equity instruments that are exercisable by the grantee
only after a specified period of time if the terms of the agreement provide for
earlier exercisability if the grantee achieves specified performance conditions.
Any measured cost of the transaction shall be recognized in the same period(s)
and in the same manner as if the entity had paid cash for the goods or services
or used cash rebates as a sales discount instead of paying with, or using, the
equity instruments. A recognized asset, expense, or sales discount shall not be
reversed if a stock option that the counterparty has the right to exercise
expires unexercised.
Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to
receive future services in exchange for unvested, forfeitable equity
instruments, those equity instruments are treated as unissued for accounting
purposes until the future services are received (that is, the instruments are
not considered issued until they vest). Consequently, there would be no
recognition at the measurement date and no entry should be recorded.
INCOME TAX PROVISION
The Company accounts for income taxes under Section 740-10-30 of the FASB
Accounting Standards Codification. Deferred income tax assets and liabilities
are determined based upon differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance to the extent
management concludes it is more likely than not that the assets will not be
realized. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the statements
of operations in the period that includes the enactment date.
The Company adopted section 740-10-25 of the FASB Accounting Standards
Codification ("Section 740-10-25"). Section 740-10-25 addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under Section 740-10-25,
the Company may recognize the tax benefit from an uncertain tax position only if
it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
12
position should be measured based on the largest benefit that has a greater than
fifty percent (50%) likelihood of being realized upon ultimate settlement.
Section 740-10-25 also provides guidance on de-recognition, classification,
interest and penalties on income taxes, accounting in interim periods and
requires increased disclosures.
The estimated future tax effects of temporary differences between the tax basis
of assets and liabilities are reported in the accompanying balance sheets, as
well as tax credit carry-backs and carry-forwards. The Company periodically
reviews the recoverability of deferred tax assets recorded on its balance sheets
and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation of the tax laws that might
be challenged upon an audit and cause changes to previous estimates of tax
liability. In addition, the Company operates within multiple taxing
jurisdictions and is subject to audit in these jurisdictions. In management's
opinion, adequate provisions for income taxes have been made for all years. If
actual taxable income by tax jurisdiction varies from estimates, additional
allowances or reversals of reserves may be necessary.
UNCERTAIN TAX POSITIONS
The Company did not take any uncertain tax positions and had no adjustments to
its income tax liabilities or benefits pursuant to the provisions of Section
740-10-25 for the interim period ended December 31, 2012 or 2011.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed pursuant to Section 260-10-45 of
the FASB Accounting Standards Codification. Basic net income (loss) per common
share is computed by dividing net income (loss) by the weighted average number
of shares of common stock outstanding during the period. Diluted net income
(loss) per common share is computed by dividing net income (loss) by the
weighted average number of shares of common stock and potentially dilutive
outstanding shares of common stock during the period to reflect the potential
dilution that could occur from common shares issuable through contingent share
arrangements, stock options and warrants.
There were no potentially dilutive common shares outstanding for the interim
period ended December 31, 2012 or 2011.
CASH FLOWS REPORTING
The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards
Codification for cash flows reporting, classifies cash receipts and payments
according to whether they stem from operating, investing, or financing
activities and provides definitions of each category, and uses the indirect or
reconciliation method ("Indirect method") as defined by paragraph 230-10-45-25
of the FASB Accounting Standards Codification to report net cash flow from
operating activities by adjusting net income to reconcile it to net cash flow
from operating activities by removing the effects of (a) all deferrals of past
operating cash receipts and payments and all accruals of expected future
operating cash receipts and payments and (b) all items that are included in net
income that do not affect operating cash receipts and payments. The Company
reports the reporting currency equivalent of foreign currency cash flows, using
the current exchange rate at the time of the cash flows and the effect of
exchange rate changes on cash held in foreign currencies is reported as a
separate item in the reconciliation of beginning and ending balances of cash and
cash equivalents and separately provides information about investing and
financing activities not resulting in cash receipts or payments in the period
pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards
Codification.
SUBSEQUENT EVENTS
The Company follows the guidance in Section 855-10-50 of the FASB Accounting
Standards Codification for the disclosure of subsequent events. The Company will
evaluate subsequent events through the date when the financial statements were
issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification,
the Company as an SEC filer considers its financial statements issued when they
are widely distributed to users, such as through filing them on EDGAR.
13
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
FASB ACCOUNTING STANDARDS UPDATE NO. 2011-08
In September 2011, the FASB issued the FASB Accounting Standards Update No.
2011-08 "INTANGIBLES--GOODWILL AND OTHER: TESTING GOODWILL FOR IMPAIRMENT" ("ASU
2011-08"). This Update is to simplify how public and nonpublic entities test
goodwill for impairment. The amendments permit an entity to first assess
qualitative factors to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying amount as a basis for
determining whether it is necessary to perform the two-step goodwill impairment
test described in Topic 350. Under the amendments in this Update, an entity is
not required to calculate the fair value of a reporting unit unless the entity
determines that it is more likely than not that its fair value is less than its
carrying amount.
The guidance is effective for interim and annual periods beginning on or after
December 15, 2011. Early adoption is permitted.
FASB ACCOUNTING STANDARDS UPDATE NO. 2011-11
In December 2011, the FASB issued the FASB Accounting Standards Update No.
2011-11 "BALANCE SHEET: DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES"
("ASU 2011-11"). This Update requires an entity to disclose information about
offsetting and related arrangements to enable users of its financial statements
to understand the effect of those arrangements on its financial position. The
objective of this disclosure is to facilitate comparison between those entities
that prepare their financial statements on the basis of U.S. GAAP and those
entities that prepare their financial statements on the basis of IFRS.
The amended guidance is effective for annual reporting periods beginning on or
after January 1, 2013, and interim periods within those annual periods.
FASB ACCOUNTING STANDARDS UPDATE NO. 2012-02
In July 2012, the FASB issued the FASB Accounting Standards Update No. 2012-02
"INTANGIBLES--GOODWILL AND OTHER (TOPIC 350) TESTING INDEFINITE-LIVED INTANGIBLE
ASSETS FOR IMPAIRMENT" ("ASU 2012-02").
This Update is intended to reduce the cost and complexity of testing
indefinite-lived intangible assets other than goodwill for impairment. This
guidance builds upon the guidance in ASU 2011-08, entitled TESTING GOODWILL FOR
IMPAIRMENT. ASU 2011-08 was issued on September 15, 2011, and feedback from
stakeholders during the exposure period related to the goodwill impairment
testing guidance was that the guidance also would be helpful in impairment
testing for intangible assets other than goodwill.
The revised standard allows an entity the option to first assess qualitatively
whether it is more likely than not (that is, a likelihood of more than 50
percent) that an indefinite-lived intangible asset is impaired, thus
necessitating that it perform the quantitative impairment test. An entity is not
required to calculate the fair value of an indefinite-lived intangible asset and
perform the quantitative impairment test unless the entity determines that it is
more likely than not that the asset is impaired.
This Update is effective for annual and interim impairment tests performed in
fiscal years beginning after September 15, 2012. Earlier implementation is
permitted.
OTHER RECENTLY ISSUED, BUT NOT YET EFFECTIVE ACCOUNTING PRONOUNCEMENTS
Management does not believe that any other recently issued, but not yet
effective accounting pronouncements, if adopted, would have a material effect on
the accompanying financial statements.
14
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates continuity of
operations, realization of assets, and liquidation of liabilities in the normal
course of business.
As reflected in the accompanying financial statements, the Company had a deficit
accumulated during the development stage at December 31, 2012, a net loss and
net cash used in operating activities for the interim period then ended,
respectively. These factors raise substantial doubt about the Company's ability
to continue as a going concern.
While the Company is attempting to commence operations and generate sufficient
revenues, the Company's cash position may not be sufficient enough to support
the Company's daily operations. Management intends to raise additional funds by
way of a private or public offering. Management believes that the actions
presently being taken to further implement its business plan and generate
sufficient revenues provide the opportunity for the Company to continue as a
going concern. While the Company believes in the viability of its strategy to
generate sufficient revenues and in its ability to raise additional funds, there
can be no assurances to that effect. The ability of the Company to continue as a
going concern is dependent upon the Company's ability to further implement its
business plan and generate sufficient revenues.
The financial statements do not include any adjustments related to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
NOTE 4 - RELATED PARTY TRANSACTIONS
ADVANCES FROM SOLE DIRECTOR AND OFFICER
From time to time, the sole director and officer of the Company advances funds
to the Company for working capital purpose. Those advances are unsecured,
non-interest bearing and due on demand.
At December 31, 2012 the Company owed $30,823 to the sole director and officer
of the Company. The balance relates to advances during the year and is
unsecured, does not bear interest and is due on demand.
NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT)
SHARES AUTHORIZED
Upon formation the total number of shares of all classes of stock which the
Company is authorized to issue is Two Hundred Million (200,000,000) shares of
which One Hundred Million (100,000,000) shares shall be Preferred Stock, par
value $0.001 per share, and One Hundred Million (100,000,000) shares shall be
Common Stock, par value $0.001 per share.
Effective December 4, 2012, the Board of Directors and the majority voting
stockholders adopted and approved a resolution to amend its Articles of
Incorporation to effectuate a reverse split of all issued and outstanding shares
of common stock, at a ratio of one-for-thirty five (1:35) (the "Reverse Stock
Split").
All shares and per share amounts in the financial statements have been adjusted
to give retroactive effect to the Stock Split.
15
COMMON STOCK
On July 23, 2012, the Company issued 1,000,000 shares of common stock, at $0.035
per share for gross proceeds of $35,000.
STOCK OPTIONS
The Company has a stock option plan (the "Plan") authorizing the issuance of up
to 5,000,000 shares of its common stock upon exercise of the options granted
pursuant to the Plan. Under the Plan, the Company's employees, directors,
officers, consultants and advisors (collectively the "Optionee Group") are
eligible to receive a grant of the Company's options, provided however that bona
fide services are rendered by consultants or advisors and such services are not
in connection with the offer or sale of securities in a capital-raising
transaction.
During the interim period ended December 31, 2012, the Company did not grant any
stock options.
NOTE 6 - SUBSEQUENT EVENTS
The Company has evaluated all events that occur after the balance sheet date
through the date when the financial statements were issued to determine if they
must be reported. The Management of the Company determined that there were no
reportable subsequent events to be disclosed.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements that involve risk,
uncertainties and assumptions. In some cases, you can identify forward-looking
statements by terminology such as "may", "should", "expect", "plan",
"anticipate", "believe", "estimate", "predict", "potential" or "continue" or the
negative of these terms or other comparable terminology. Examples of
forward-looking statements made in this quarterly report on Form 10-Q include
statements about:
* Our business plans,
* Our ability to raise additional finances, and
* Our future investments and allocation of capital resources.
These statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including:
* General economic and business conditions,
* Our lack of operating history,
* Our financial condition,
* Our material weakness in our internal control over financial
reporting,
* Our patents are only a provisional patent, and
* The risks in the section of this annual report entitled "Risk
Factors",
any of which may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
forward-looking statements.
While these forward-looking statements and any assumptions upon which they are
based are made in good faith and reflect our current judgment regarding the
direction of our business, actual results will almost always vary, sometimes
materially, from any estimates, predictions, projections, assumptions or other
future performance suggested herein. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
Our unaudited interim financial statements are stated in United States dollars
and are prepared in accordance with United States generally accepted accounting
principles. The following discussion should be read in conjunction with our
unaudited interim financial statements and the related notes that appear
elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all references to "common
shares" refer to the common shares in our capital stock and the terms "we", "us"
and "our" mean Upstream Biosciences Inc..
17
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
REVENUE
We are a development stage company and have not generated any significant
revenues from our technologies since inception and $nil during the current
period. We anticipate significant additional time and financing will be required
before our technologies are developed to a marketable state.
EXPENSES
Our operating expenses for the three month period ended December 31, 2012 were
$29,217 compared to $7,093 in 2011. This net increase of $22,124 was primarily
due to the following:
- $7,159 increase in professional fees, which comprise legal and
accounting fees, due to the special meeting held by the company during
the period;
- 14,965 increase in general and administrative expenses due to the
special meeting held by the company during the period.
PLAN OF OPERATIONS AND CASH REQUIREMENTS OVER THE NEXT 12 MONTHS
Without adequate funding, it is management's intention to halt current research
and development efforts associated with our biomarker program and wait until
sufficient financial resources exist before spending additional and significant
funds for the commercialization of our biomarker program. However, we will
continue to evaluate and determine the most cost effective use of available
funds for all future research and development programs, including diagnostic
biomarkers, biomarkers for a drug response assay and drug development efforts.
There is no assurance that our research and development programs will produce
commercially viable products or treatments, and a great deal of additional
research and development will be required before a final evaluation of the
economic feasibility of our technologies can be determined.
We are also currently seeking new acquisitions and/or business opportunities
with established business entities for the merger of a target business with our
company including businesses not having a resource focus. In certain instances,
a target business may wish to become a subsidiary of us or may wish to
contribute assets to us rather than merge. There can be no assurance that we
will be able to enter into any agreements. We anticipate that any new
acquisition or business opportunities by our company will require additional
financing. There can be no assurance, however, that we will be able to acquire
the financing necessary to enable us to pursue our plan of operation. If our
company requires additional financing and we are unable to acquire such funds,
our business may fail.
ANTICIPATED CASH REQUIREMENTS
Over the next 12 months, we have estimated our minimum cash requirements to be
as follows:
ESTIMATED CASH EXPENSES FOR THE NEXT TWELVE MONTH PERIOD
Cash Operating Expenses
Professional fees $20,000
General and administrative expenses $20,000
Corporate communications $ 5,000
-------
Total $45,000
=======
For the three and months ended December 31, 2012, we recorded a net operating
loss, before other items, of $29,217 and have accumulated losses of $7,109,971
since inception. As at December 31, 2012, we had a working capital deficiency of
18
$55,981 and for the next twelve months, management estimates minimum cash
requirements of $45,000 to fund on-going operations.
Accordingly, we do not have sufficient funds to meet our plan of operation over
the next twelve months and will need to obtain further financing through
issuance of shares, debentures or convertible debentures. We will also endeavor
to access available funding from research and development grants or loans from
various public and private research granting agencies. Moreover, all cash
operating expenses will be carefully monitored to ensure we can meet our
obligations as they come due.
There can be no assurance that additional financing will be available when
needed or, if available, on commercially reasonable terms. If we are not able to
obtain additional financing on a timely basis, we may not be able to meet our
obligations as they come due.
LIQUIDITY AND CAPITAL RESOURCES
Our financial positions as at December 31, 2012 and September 30, 2012 are as
follows:
WORKING CAPITAL
As at As at
December 31, September 30,
2012 2012
-------- --------
(unaudited) (audited)
Current assets $ 3,190 $ 7,812
Current liabilities 59,171 34,576
Working capital deficiency $(55,981) $(26,764)
Working capital deficiency has increased from $26,764 at September 30, 2012 to
$55,981 at December 31, 2012. 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
during the next twelve month period.
CASH FLOWS
Three Months Three Months
Ended Ended
December 31, December 31,
2012 2011
-------- --------
Net cash used in operating activities $(24,070) $ (7,316)
Net cash from investing activities $ -- $ --
Net cash provided by financing activities $ 20,823 $ --
Effect of exchange rate changes $ -- $ 207
Decrease in cash during the period $ (3,247) $ (7,109)
Cash, beginning of period $ 4,312 $ 12,602
Cash, end of period $ 1,065 $ 5,493
During the three month period ended December 30, 2012 and 2011:
i) Our net cash used in operating activities increased from $7,316 to
$24,070 primarily due to our ( company holding a special meeting
during the period and incurring various costs related to the meeting;
(ii) Our net cash from investing activities was $nil in 2012 and $nil in
2011.
(iii) Our net cash from financing activities was $20,823 in 2012 and $nil
in 2011.
19
GOING CONCERN
The audited financial statements accompanying our annual report on Form 10-K
have been prepared on a going concern basis, which implies that our company will
continue to realize its assets and discharge its liabilities and commitments in
the normal course of business. Our company has not generated revenues since
inception, has never paid any dividends and is unlikely to pay dividends or
generate earnings in the immediate or foreseeable future. The continuation of
our company as a going concern is dependent upon: (i) the continued financial
support from our shareholders; (ii) the ability of our company to continue
raising necessary equity financing to achieve its operating objectives; and
(iii) the eventual attainment of profitable operations.
Our independent auditors included an explanatory paragraph in their annual
report on our financial statements for the year ended September 30, 2011
regarding concerns about our ability to continue as a going concern. In
addition, our financial statements contain further note disclosures in this
regard. The continuation of our business plan is dependent upon our ability to
continue raising sufficient new capital from equity or debt markets in order to
fund our on-going operating losses. The issuance of additional equity securities
could result in a significant dilution in the equity interests of our current
stockholders.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying disclosures of our company. Although these estimates are based on
management's knowledge of current events and actions that our company may
undertake in the future, actual results may differ from such estimates.
BASIS OF PRESENTATION
These financial statements and related notes are presented in accordance with
United States generally accepted accounting principles ("US GAAP") and are
expressed in US dollars. Our company is in the development stage and has not
realized significant revenues from its business plan to date. These financial
statements include the accounts of our company and our previously wholly-owned
Canadian subsidiaries up to the date of their disposal.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with US GAAP requires our
company to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. We base our estimates and assumptions on
current facts, historical experience and various other factors that we believe
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities and the
accrual of costs and expenses that are readily apparent from other sources. The
actual results experienced by our company may differ materially from our
company's estimates. To the extent there are material differences, future
results may be affected. There were no significant estimates used in preparing
these financial statements.
SHARE-BASED COMPENSATION
Our company accounts for share-based compensation using the fair value method
and related compensation expense is recognized over the period of benefit when
the service is rendered.
FINANCIAL INSTRUMENTS
Our company's financial instruments consist of cash, accounts payable and due to
related parties. The carrying amounts of these financial instruments approximate
their fair values due to their short term nature.
20
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION
The functional of our company is the Canadian dollar and the reporting currency
is the United States dollar. The financial statements are translated into United
States dollars using period-end rates of exchange for assets and liabilities,
and period average rates of exchange for revenues and expenses. Foreign currency
transaction gains (losses) are included in the statements of operations and
those arising from translation are included in other comprehensive income (loss)
which is disclosed as a separate component of shareholders' deficit. Our company
has not entered into any derivative instruments to offset the impact of foreign
currency fluctuations.
RESEARCH AND DEVELOPMENT
These costs were expensed when incurred and consisted primarily of direct
material and personnel costs, contract services and indirect costs. Our company
has received government assistance in the past and may receive same in the
future regarding research and development activities. When work is performed
that qualifies for such grants, the related assistance amount is credited to
research and development expense. There were no research or development
expenditures incurred during the period.
INCOME TAXES
Our company uses the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
temporary differences between the financial statements and the tax basis of
assets and liabilities, and net operating loss carry forwards based on using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the year that includes the enactment
date. Valuation allowances are established to the extent that it is considered
more likely than not that deferred tax assets will be realized. A valuation
allowance for the full amount of the deferred tax assets has been recorded.
LOSS PER SHARE
Basic loss per share is computed by dividing the net loss by the weighted
average number of outstanding common shares during the year. Diluted loss per
share gives effect to all potentially dilutive common shares outstanding during
the year, including convertible debt, stock options and share purchase warrants,
using the treasury stock method. The computation of diluted loss per share does
not assume conversion, exercise or contingent exercise of securities that would
have an anti-dilutive effect on loss per share.
RECENT ACCOUNTING PRONOUNCEMENTS
Our company has reviewed recently issued, but not yet effective, accounting
pronouncements and plans to adopt those that are applicable to it. Due to our
limited activity we do not expect the adoption of these pronouncements to have a
material impact on our reported financial position, results of operations or
cash flows.
OFF-BALANCE SHEET ARRANGEMENTS
We have no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial position, revenues and expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to
stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
21
ITEM 4. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act,
our principal executive officer and principal financial officer evaluated our
company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act) as of the end of the period covered by this
quarterly report on Form 10-Q. Based on this evaluation, these officers
concluded that as of the end of the period covered by this quarterly report on
Form 10-Q, these disclosure controls and procedures were not effective to ensure
that the information required to be disclosed by our company in reports it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities Exchange Commission and include controls and procedures designed to
ensure that such information is accumulated and communicated to our company's
management, including our company's principal executive officer and principal
financial officer, to allow timely decisions regarding required disclosure. The
conclusion that our disclosure controls and procedures were not effective was
due to the presence of the following material weaknesses in internal control
over financial reporting which are indicative of many small companies with small
staff: (i) inadequate segregation of duties and effective risk assessment; (ii)
insufficient written policies and procedures for accounting and financial
reporting with respect to the requirements and application of both US GAAP and
SEC guidelines; (iii) inadequate security and restricted access to computer
systems including insufficient disaster recovery plans; and (iv) no written
whistle-blower policy.
Our company plans to take steps to enhance and improve the design of our
internal controls over financial reporting. During the period covered by this
quarterly report on Form 10-Q, we have not been able to remediate the material
weaknesses identified above. To remediate such weaknesses, we plan to implement
the following changes during our fiscal year ending September 30, 2012: (i)
appoint additional qualified personnel to address inadequate segregation of
duties and ineffective risk management; (ii) adopt sufficient written policies
and procedures for accounting and financial reporting and a whistle-blower
policy; and (iii) implement sufficient security and restricted access measures
regarding our computer systems and implement a disaster recovery plan. The
remediation efforts set out in (i) and (iii) are largely dependent upon our
company securing additional financing to cover the costs of implementing the
changes required. If we are unsuccessful in securing such funds, remediation
efforts may be adversely effected in a material manner.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues, if any, within
our company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur
because of simple error or mistake.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
There were no changes in our company's internal control over financial reporting
during the period ended December 31, 2012, that affected our company's internal
control over financial reporting subsequent to the date that we carried out our
evaluation for that period.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We know of no material, active, or pending legal proceeding against our company,
nor are we involved as a plaintiff in any material proceeding or pending
litigation where such claim or action involves damages for more than 10% of our
current assets. Additionally, there were no proceedings in which any of our
company's directors, officers, or affiliates, or any registered or beneficial
shareholders holding more than 5% of our voting securities, is an adverse party
or has a material interest adverse to our company's interest.
22
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibit
Number Description
------ -----------
(2) PLAN OF PURCHASE, SALE, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION
2.1 Share Exchange Agreement dated February 3, 2006, among our company,
Upstream Canada, the shareholders of Upstream Canada and Steve Bajic
(incorporated by reference from our Current Report on Form 8-K filed
on February 6, 2006).
2.2 Amended and Restated Share Exchange Agreement dated February 24, 2006,
among our company, Upstream Canada, the shareholders of Upstream
Canada and Steve Bajic (incorporated by reference from our Current
Report on Form 8-K filed on February 27, 2006).
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Articles of Incorporation (incorporated by reference from our
Registration Statement on Form SB-2 filed on July 5, 2002).
3.2 Bylaws (incorporated by reference from our Registration Statement on
Form SB-2 Filed on July 5, 2002).
3.3 Certificate of Amendment filed with the Nevada Secretary of State on
March 8, 2005 (incorporated by reference from our Current Report on
Form 8-K filed on March 10, 2005).
3.4 Certificate of Change filed with the Nevada Secretary of State on
December 20, 2005 (incorporated by reference from our Current Report
on Form 8-K filed on December 29, 2005).
3.5 Articles of Merger filed with the Nevada Secretary of State on
February 6, 2006 (incorporated by reference from our Current Report on
Form 8-K filed on February 9, 2006).
3.6 Certificate of Amendment filed with the Nevada Secretary of State on
November 27, 2006 (incorporated by reference from our Current Report
on Form 8-K filed on November 30, 2006).
(10) MATERIAL CONTRACTS
10.1 2007 Stock Option Plan (incorporated by reference from our
Registration Statement on Form SB-2 filed on October 1, 2007).
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10.2 Amendment to Employment Agreement dated August 18, 2009 between our
company and Dexster Smith (incorporated by reference from our
Quarterly Report on Form 10-Q filed on August 31, 2009).
10.3 Amendment to Employment Agreement dated August 18, 2009 between our
company and Joel Bellenson (incorporated by reference from our
Quarterly Report on Form 10-Q filed on August 31, 2009).
10.4 Return to Treasury Agreement dated December 14, 2009 between our
company and Joel Bellenson (incorporated by reference from our Current
Report on Form 8-K filed on December 14, 2009).
10.5 Return to Treasury Agreement dated December 14, 2009 between our
company and Dexster Smith (incorporated by reference from our Current
Report on Form 8-K filed on December 14, 2009).
10.6 Asset Sale Agreement dated December 14, 2009 between Pacific Pharma
Technologies Inc. and JTAT Consulting Inc. (incorporated by reference
from our Current Report on Form 8-K filed on December 14, 2009).
(31) SECTION 302 CERTIFICATIONS
31.1* Certification of Principal Executive Officer and Principal Financial
Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
(32) SECTION 906 CERTIFICATIONS
32.1* Certification of Principal Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(99) ADDITIONAL EXHIBITS
99.1 Compensation Committee Charter (incorporated by reference from our
Annual Report on Form 10-K filed on December 19, 2008)
99.2 Audit Commission Charter (incorporated by reference from our Annual
Report on Form 10-K filed on December 19, 2008)
101* Interactive data files pursuant to Rule 405 of Regulation S-T
----------
* Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UPSTREAM BIOSCIENCES INC.
By: /s/ Charles El-Moussa
-------------------------------------------------
Charles El Moussa
Chief Financial Officer, President,
Chief Executive Officer, Treasurer and Director
(Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer)
Dated: February 14, 2013
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