CalEthos, Inc. - Quarter Report: 2009 June (Form 10-Q)

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 June 30, 2009

[   ]   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)

Suite 200 – 1892 West Broadway, Vancouver, British Columbia, Canada V6J 1Y9
(Address of principal executive offices) (zip code)

604.638.1674
(Registrant's telephone number, including area code)

Not Applicable
(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
(§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).

- 2 -

Yes [   ]    No [   ]
(Not currently applicable to the Registrant).

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):

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:

49,453,006 common shares issued and outstanding as at August 31, 2009.

- 3 -

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Our interim unaudited consolidated 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 these interim financial statements for the quarter ended June 30, 2009 includes all adjustments considered necessary for fair presentation.

- 4 - 

UPSTREAM BIOSCIENCES INC.

INTERIM FINANCIAL STATEMENTS

JUNE 30, 2009
(Unaudited)
(Stated in U.S. Dollars)

UPSTREAM BIOSCIENCES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these interim consolidated financial statements.

F-1

UPSTREAM BIOSCIENCES, INC
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

The accompanying notes are an integral part of these interim consolidated financial statements.

F-2

UPSTREAM BIOSCIENCES INC
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

The accompanying notes are an integral part of these interim consolidated financial statements.

F-3

UPSTREAM BIOSCIENCES, INC
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009

1.        BASIS OF PRESENTATION

These unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial reporting in the United States of America and the rules and regulations of the Securities and Exchange Commission. They include the accounts of the Company and its wholly-owned subsidiaries, Upstream Canada and PPT, which were acquired pursuant to share exchange agreements on February 24, 2006 and August 24, 2007. All inter-company transactions and account balances have been eliminated on consolidation. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statement disclosure. However, except as disclosed herein, there have been no material changes in the information contained in the notes to the audited consolidated financial statements for the year ended September 30, 2008, included in the Company’s Form 10-K filed with the Securities and Exchange Commission. These interim unaudited consolidated financial statements should be read in conjunction with the audited financial statements included in the Form 10-K In the opinion of management, all adjustments considered necessary for fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending September 30, 2009.

2.        RELATED PARTY TRANSACTIONS

At June 30, 2009, the Company owed $521,207 (restated September 30, 2008 - $257,948) to three Company officers. For the nine months ended June 30, 2009, the Company expensed $515,209 (restated June 30, 2008 – $621,657) in the Statement of Operations. The following table provides a breakdown of these amounts:

Management compensation for the nine months ended June 30, 2009 amounting to $294,388 (restated June 30, 2008 - $308,536) is comprised of management fees and accrued retirement allowances net of a reclassification to research and development expense of $98,439 (June 30, 2008 - $117,803).

F-4

These amounts are expensed in accordance with employment contracts for the three Company officers. The total annual cash compensation for the three officers is $450,000, excluding a 40% bonus commitment for two of the three officers when certain performance milestones, yet to be determined, are achieved. Approximately 80% of the cash compensation commitment has been voluntarily deferred by the three officers for the 2009 calendar year or until such time that the company completes a suitable financing.

Subsequent to June 30, 2009, the Company received notice from one of the Company’s officers, who was serving as CFO, that he has terminated his management services contract with the Company, alleging the Company was in default with respect to his management services contract (see Note 4(b)).

All related party transactions are conducted in the ordinary course of business and measured at the exchange amount established and agreed to by the related parties. Amounts due to related parties are unsecured, non-interest bearing and have no set terms of repayment.

3.        COMMITMENTS AND CONTINGENCIES

(b)        License Agreement with British Columbia Cancer Agency Branch (“BCCA”)

The Company entered into a license agreement with 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 terms of the agreement, the Company has been accruing annual royalties since September 14, 2007 equal to 10% of the gross revenue from licensed product sales or $8,150 (C$10,000), whichever is greater.

F-5

(c)        License Agreement with UBC

The Company entered into a License Agreement with UBC on March 23, 2005 for a ten year term expiring March 2015 regarding the use of bioinformatics technology developed at UBC. The $7,554 cash portion of the initial license fee was paid at the outset and an equity component was left for future negotiation, being accrued by the Company at an estimated amount of $10,190 (C$12,500). In addition, commencing March 2005, the Company was obligated to pay annual royalties equal to the greater of: (a) 15% of the gross revenue from licensed product sales, or (b) minimum sliding scale amounts from $6,488 (C$7,500) in year 1 to $17,300 (C$20,000) in year 10.

4.        RESTATEMENT

The Company has restated its financial statements with respect to the $150,000 retiring allowance for the CFO which was incorrectly accreted upwards in the financial statements from February 7, 2006, the date of the original management services contract, to June 30, 2009. Accordingly, the Company has retroactively reversed this amount from its financial statements as at June 30, 2009 and September 30, 2008.

The effect on the Company’s interim unaudited financial statements for the nine months ended June 30, 2009 is as follows:

F-6

5. SUBSEQUENT EVENTS

a) Amended employment contracts for officers

Effective August 18, 2009, the Company entered into agreements with two of the Company's officers to amend the terms of their respective employment agreements. The amendment agreements revise the severance provisions of the original employment agreements which provided for the payment of $150,000 as a retiring allowance to each of the employees in the event that their employment was terminated for any reason. Under the terms of the amending agreements, the Company agreed to pay each of the directors $150,000 severance only in the event that (a) the Company terminates their employment without cause; or (b) they terminate their employment upon a material breach or default of any term of their respective employment agreements by the Company, but only if they first give written notice of such breach or default to the Company and it is not rectified within a period of 30 days following receipt of such notice. Accordingly, the accrued liability of $300,000 will not be recognized in the Company’s financial statements subsequent to June 30, 2009 since the amended agreements will be accounted for on a prospective basis.

F-7

b) Termination of a management services contract

On August 24, 2009, the Company received notice that the CFO was terminating his management services contract effective August 28, 2009. The notice alleges the CFO's right to terminate is due to an un-rectified material breach arising from the Company’s failure to pay a portion of the compensation owing under the contract on a timely basis. After seeking legal advice, the Company denied the breach. Consequently, the disputed severance claim of the CFO has resulted in the Company recognizing it has a contingent liability of $150,000 as at June 30, 2009. This amount has not been accrued at June 30, 2009.

F-8

- 5 -

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This quarterly report contains forward-looking statements. 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 unaudited consolidated 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 consolidated 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. and our wholly-owned subsidiaries.

Results of Operations for the Three Months Ended June 30, 2009

Revenue

We are a development stage company and have not generated any revenues from our technologies since inception. We anticipate significant additional time and financing will be required before our technologies are developed to a marketable state.

Expenses

During the three months ended June 30, 2009, we incurred net expenses of $211,039 compared to $447,137 during the three months ended June 30, 2008. Management has implemented a number of cost saving measures that have resulted in reducing current expenses compared to prior periods. The decrease in expenses during the three months ended June 30, 2009 was primarily due to decreased research and development expenses (cash) of $36,340 and (stock) $48,487, decreased stock-based compensation of $54,701, decreased office and general administration expenses of $22,775, decreased management compensation of $6,475, decreased license fees & royalties of $16,438, decreased amortization of $29,616, decreased investor and corporate communications of $28,661, decreased professional fees of $5,527. and write down of a share issuance obligation of $6,058. These reductions were partially offset by lower foreign exchange gains of $11,690 and lower interest income of $10,231.

Results of Operations for the Nine Months Ended June 30, 2009

Expenses

During the nine months ended June 30, 2009, we incurred net expenses of $864,880 compared to restated net expenses of $1,636,681 during the nine months ended June 30, 2008. Expenses for the nine months ended June 30, 2008 have been reduced by $56,250 due to the retroactive reversal of retiring allowance amortization following termination of a management services contract.

- 6 -

The decrease in expenses during the nine months ended June 30, 2009 was primarily due to decreased research and development expenses (cash) of $90,563 and (stock) $411,360, decreased stock-based compensation of $158,401, decreased office and general administration expenses of $61,081, decreased management compensation of $26,648, decreased license fees & royalties of $8,764, decreased investor and corporate communications of $63,631, decreased professional fees of $17,290 and write down of a share issuance obligation of $6,058. These reductions were partially offset by lower foreign exchange gains of $33,517 and lower interest income of $34,422.

The decrease in research and development expenses resulted from reduced spending on personnel, contract research, and other suppliers. Deceased office and general administration and decreased investor and corporate communications resulted from reduced spending on services during the period.

Results of Operations – General

Without adequate funding, it is management's intention to halt current research and development efforts associated with our biomarker and drug development programs until sufficient financial resources are available to support the substantial additional spending required to fund the commercialization of our biomarker program. We intend to 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. Even if we complete our proposed research and development and we are successful in identifying commercially viable products and/or treatments, we will have to spend substantial funds on further studies before we will know our products and/or treatments are commercially viable or not.

Although expenses have been reduced, our company has faced difficulties in raising the capital necessary to develop our technologies. Accordingly, we have appointed a special independent committee of the board to evaluate and assess the company's strategic direction. This committee has recommended we undertake strategies to seek potential licensors or acquirors and, to this end, have requested that interested parties contact the committee as soon as possible.

Anticipated Cash Requirements for the Next Twelve Months

Over the next 12 months, we have estimated our minimum cash requirements for continuing operations to be as follows:

Employee and Consultant Compensation

We estimate that our employee and consultant cash compensation expenses for the next twelve months will be approximately $100,000 pertaining to Mr. Joel Bellenson, Chief Executive Officer and Chief Financial Officer and Mr. Dexster Smith, President, Secretary and Treasurer. This amount excludes the value of any stock or option awards that are required to be issued pursuant to their respective employment agreements which would not involve a cash outlay.

- 7 -

All of our current research and development is carried out by Mr. Bellenson and Mr. Smith pursuant to employment agreements with our company calling for annual base salaries of $150,000 each. Of note, Messrs Bellenson and Smith have voluntarily agreed to defer their salaries for the 2009 calendar year, or until such time that our company completes a suitable financing. Effective August 18, 2009, our company entered into agreements with Messrs Bellenson and Smith to amend the terms of their respective employment agreements. The amendment agreements revise the severance provisions of the original employment agreements which provided for the payment of $150,000 as a retiring allowance to each of the employees in the event that their employment was terminated for any reason. Under the terms of the amending agreements, we have agreed to pay each of Messrs. Bellenson and Smith $150,000 severance only in the event that (a) we terminate their employment without cause; or (b) they terminate their employment upon a material breach or default of any term of their respective employment agreements by our company, but only if they first give written notice of such breach or default to us and we fail to rectify it within a period of 30 days following receipt of such notice. Accordingly, the accrued liablity of $300,000 will not be recognized in our company's financial statements subsequent to June 30, 2009 since the amended agreements will be accounted for on a prospective basis.

Prior to August 28, 2009, we paid $150,000 annually to TCF Ventures Corp. ("TCFV") for consulting services primarily pertaining to the function of Chief Financial Officer. TCFV is a company beneficially owned by Mr. Tim Fernback. On August 24, 2009, our company received notice that TCFV was terminating its management services contract effective August 28, 2009. The notice alleges TCFV's right to terminate due to an un-rectified material breach arising from our company's failure to pay a portion of the compensation owing under the contract on a timely basis. After seeking legal advice, our company denied the breach since the compensation in question was voluntarily deferred by TCFV. In the event that it is determined that our company breached the agreement, we may be required to pay $150,000 as severance to TCFV pursuant to the terms of the agreement. In addition, and similar to the situation with respect to Messrs. Bellenson and Smith above, the $150,000 was incorrectly accrued in the financial statements of our company from February 7, 2006 (the date of the original contract) to June 30, 2009. Accordingly, and although in dispute, our company has retroactively reversed the $150,000 accrual from its financial statements as at June 30, 2009 and intends to correct all previous quarterly reports on Form 10-Q and annual reports on Form 10-K affected during the upcoming calendar quarter.

We have also entered into an amended three year consulting agreement with JTAT Consulting through which Dr. Artem Cherkasov provides consulting services related to our biotechnology drug development business. In consideration for such services, we have agreed to pay JTAT Consulting CDN$50,000 annually and an equivalent amount of shares in the capital of our company, calculated based upon the closing price of our shares at the end of each calendar month. Effective March 1, 2008, we amended the agreement with JTAT Consulting to increase the equity component of the contract from CDN$50,000 to CDN$200,000 worth of shares in the capital of our company, calculated based upon the closing price of our shares at the end of each calendar month. All cash payments have been made and all obligations to issue shares have been accrued but not yet issued to date. Due to the need to preserve cash, we have notified JTAT Consulting and Dr. Artem Cherkasov of our intention to terminate the agreement as soon as possible.

Other Expenses

We also expect to incur professional fees of $60,000, corporate communication fees of $5,000 and general and administrative expenses of $5,000 to maintain operations during the next twelve months period.

Liquidity and Capital Resources

Our financial position as at June 30, 2009 and September 30, 2008 is as follows:

- 8 -

Working capital has decreased from restated $296,659 at September 30, 2008 to a working capital deficiency of $313,715 at June 30, 2009. To date, we have had negative cash flows from operations and have been dependent on the proceeds from sale of our equity securities and debt financing to meet our cash requirements. We expect this situation to continue for the next twelve months and the foreseeable future.

For the three and nine months ended June 30, 2009, we recorded a net loss of $211,039 and $864,880. respectively. As at June 30, 2009, we had an accumulated deficit of $6,674,580. As at June 30, 2009, we had cash and cash equivalents of $283,109 available to meet our cash requirements of $170,000 over the next twelve months and also contribute to payment of our current 3^rd party supplier liabilities, Accordingly, we will need to raise additional funds through the issuance of shares or debentures if we are to continue funding our delayed research and development programs and meet our obligations to related parties. We will also endeavor to access available funding from research and development grants or loans from various public and private research granting agencies. On August 10, 2009, we issued a news release that we are seeking acquirors and licensors of our intellectual property assets and portfolio, the proceeds of which will be used to fund future operations. Moreover, all cash operating expenses will be carefully monitored before making any committments.

In addition to the issues set out above regarding our ability to raise capital, global economies are currently undergoing a period of economic uncertainty related to the tightening of credit markets worldwide. This has resulted in numerous adverse effects, including unprecedented volatility in financial markets and stock prices, slower economic activity, decreased consumer confidence and commodity prices, reduced corporate profits and capital spending, increased unemployment, liquidity concerns and volatile energy prices. Due to this uncertainty, there can be no assurance that additional financing will be available when needed or, if available, on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we may not be able to meet our obligations as they come due and may be forced to scale down or perhaps even cease business operations.

Cash Flows

During the nine months ended June 30, 2009 and 2008, net cash used in operating activities was $300,344 and $704,285, respectively with only minor investing activities and no fund raising activities over the last two years. Going Concern

Our independent auditors included an explanatory paragraph in their annual report on our financial statements for the year ended September 30, 2008 regarding concerns about our ability to continue as a going concern. In addition, our financial statements contain further note disclosures in this regard. The audited financial statements included in our Form 10-K for the year ended September 30, 2008 were 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; (iii) the continuing achievement of positive results from our research and development activities; and (iv) the eventual attainment of profitable operations.

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.

- 9 -

Risk Factors

Much of the information included in this quarterly report includes or is based upon estimates, projections or other forward looking statements. Such forward looking statements include any projections and 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.

Risks Related to our Business

We have had negative cash flows from operations since inception. We will require significant additional financing, the availability of which cannot be assured, and if our company is unable to obtain such financing, our business may fail.

To date, we have had negative cash flows from operations and have depended on sales of our equity securities and debt financing to meet our cash requirements. Our ability to develop and, if warranted, commercialize our technologies, will be dependent upon our ability to raise significant additional financing. If we are unable to obtain such financing, we will not be able to fully develop our business. Specifically, we will need to raise additional funds to:

• pay our existing and accrued liabilities;
• 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.

In light of the current financial crises, financing for companies such as ours is very difficult to obtain. Even if financing is available, it may not be available on terms that are favorable to us or in sufficient amounts to satisfy our requirements. If we require, but are unable to obtain, additional financing in the future, we may be unable to implement our business plan and our growth strategies, respond to changing business or economic conditions, withstand adverse operating results and compete effectively. Without additional funds, we may not be able to pay our employees or contracts to provide services, and these same employees or service providers may have to either accept accruals or common shares, or a combination of both, for compensation. More importantly, if we are unable to raise further financing when required, we may be forced to scale down our operations and our ability to continue operations may be negatively affected.

We have a history of losses and nominal operating results, which raise substantial doubt about our ability to continue as a going concern.

Since inception through the three month period ending June 30, 2009, we have accumulated a deficit of $6,674,580. 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.

- 10 -

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 and biotechnology drugs, 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 company's independent registered public accounting firm's audit report dated November 27, 2008 which is included in our annual report on Form 10-K.

In our management's report on internal controls over financial reporting, we identified a number of material weaknesses related to our internal control over financial reporting and concluded that our internal control over financial reporting and disclosure controls and procedures were ineffective as of September 30, 2008. These material weaknesses remain unremedied, which could continue to impact our ability to report results of operations and financial condition accurately and in a timely manner.

We have identified a number of material weaknesses in our internal control over financial reporting. Our management evaluated the effectiveness of our disclosure controls and procedures as at June 30, 2009 pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related SEC rules and concluded that our internal control over financial reporting and disclosure controls and procedures were not effective as at June 30, 2009. Specifically, they concluded that four material weaknesses existed as at June 30, 2009 which are set out in Item 4 under the heading "Controls and Procedures". Although we intend to remediate such material weaknesses as set out in Item 4, we have not yet been able to address these material weaknesses and they may continue to remain unremedied for some time, which could adversely impact the accuracy and timeliness of future reports and filings we make to the SEC and could have a material adverse effect on our business, results of operations, financial condition and liquidity.

We currently hold no patents on our proprietary technology and if we are not able to protect our proprietary technology, our company will suffer a material adverse effect.

We currently have provisional patent applications filed on our technologies. We currently rely on the provisional patent applications and trade secrets to protect our proprietary intellectual property.

The departure of any of our management or any significant technical personnel or consultants we may 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

- 11 -

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 technologies will require significant additional research and development as well as substantial clinical trials. For our biomarker technologies, 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. With regards to our drug technologies for certain infectious diseases and cancers, we believe that Africa, the Middle East and Asia will be the principal market for our technology, although we may elect to expand into Central and South America, Europe and North America. 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 operations 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, technology licenses and trade secrets. This, however, may not be adequate to prevent the unauthorized use of our proprietary technology and our other intellectual property rights. Further, the laws of foreign countries may provide inadequate protection of such intellectual property rights. We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, may result in substantial costs and a diversion of our company's resources. In addition, notwithstanding our rights to our intellectual property, other persons may bring claims against us alleging that we have infringed on their intellectual property rights or claims that our intellectual property rights are not valid. Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our attention and resources, result in the loss of goodwill associated with our business or require us to make changes to our technology.

If our provisional patent applications and proprietary rights do not provide substantial protection, then our business and competitive position will suffer.

Our success depends in large part on our ability to develop, commercialize and protect our proprietary technology. However, patents may not be granted on any of our provisional or future patent applications. Also, the scope of any future patent may not be sufficiently broad to offer meaningful protection. In addition, any patents granted to us in the future may be successfully challenged, invalidated or circumvented so that such patent rights may not create an effective competitive barrier.

Our company may become subject to intellectual property litigation which may harm our business.

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.

- 12 -

If our company commercializes or tests our technology, our company will be subject to potential product liability claims that 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 effects. 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 and biotechnology drug development are both 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 that our technology, when developed to a stage of commercialization, will compete directly against. Many of our competitors have greater financial, technical, sales and marketing resources, better name recognition and a larger customer base than ours. In addition, many of our large competitors may offer customers a broader or superior range of services and technologies. Some of our competitors may conduct more extensive promotional activities and offer lower 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 and the drug development industry may result in significant price competition, reduced profit margins or loss of market share, any of which may have a material adverse effect on our ability to generate revenues and successfully operate our business. Our competitors may develop technologies superior to those that our company is currently developing. In the future, we may need to decrease our prices if our competitors lower their prices. Our competitors may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Such competition will potentially affect our chances of achieving profitability, and ultimately affect our ability to continue as a going concern.

Rapid technological changes in our industry may render our technology non-competitive or obsolete and consequently affect our ability to generate future revenues.

The genetic biomarker and biotechnology drug development industries are 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, new biotechnology drugs and drug candidates to meet technological changes and changes in market demands, our business and operating results, including our ability to generate revenues, may be adversely affected.

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 United States Food and Drug Administration (FDA) before we commence commercialization of our technology in the United States, the principal market for our biomarker technology and internationally. Furthermore we believe that it is important for the success of our business to obtain the approval of the FDA or similar international drug regulatory bodies, before we can commence the commercialization of our biotechnology drug candidates in their respective international markets. 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

- 13 -

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 and biotechnology drugs. Diagnostic markers for cancer, as well as, biotechnology drugs for certain infectious diseases and cancers, 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 as well as treatments for certain diseases. Even if we are able to demonstrate improved or equivalent results from our technology, researchers and practitioners may not use our technology and we may suffer a competitive disadvantage. Finally, to the extent that others develop new technologies that address the targeted application for our current technology, our business will suffer.

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 as Joel Bellenson and Dexster Smith because of their experience developing genetic diagnostic markers and bioinformatics software as it relates to drug development. 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 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.

- 14 -

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, manufacturing and testing of potential drug candidates, pre-clinical and clinical drug trials, 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 a majority of our directors and officers are outside the United States, with the result that it may be difficult for investors to enforce within the United States any judgments obtained against us or any of our directors or officers.

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 judgments against us that are obtained in the United States in any action, including actions predicated upon civil liability provisions of federal securities laws. In addition, three of our four directors and all of our executive officers reside outside the United States, and nearly all of the assets of these non-U.S. persons and our assets are located outside of the United States. As a result, it may not be possible for investors to affect service of process within the United States upon such persons or to enforce against us or such persons judgments predicated upon the liability provisions of United States securities laws. There is substantial doubt as to the enforceability against us or 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, you may have trouble administering a United States bankruptcy case involving a Nevada company as debtor with most of its property located outside the United States. Any orders or judgments of a bankruptcy court obtained by you in the United States may not be enforceable.

Our business is subject to comprehensive government regulation and any change in such regulation may have a material adverse effect on our company.

There is no assurance that the laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States, Canada or any other jurisdiction, will not be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or

- 15 -

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 49,453,006 common shares were issued and outstanding as of June 30, 2009. Our board of directors may fix and determine the designations, rights, preferences or other variations of each class or series within each class. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares will result in a reduction of the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will cause a reduction in the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our company.

Trading of our stock may be restricted by the Securities Exchange Commission's penny stock regulations, which may limit a stockholder's ability to buy and sell our stock.

The Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of

- 16 -

broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

FINRA's sales practice requirements may also limit a stockholder's ability to buy and sell our stock.

In addition to the "penny stock" rules promulgated by the Securities and Exchange Commission (see above for a discussion of penny stock rules), FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.

Our common stock is currently quoted on the OTC Bulletin Board. Trading of our stock through the OTC Bulletin Board is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in the stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

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

We are a development stage company as defined by Statement of Financial Accounting Standard ("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises" and have not realized any revenues from our planned operations to date. The interim unaudited consolidated financial statements of our Company have been prepared in accordance with generally accepted accounting principles for interim financial reporting and the rules and regulations of the Securities and Exchange Commission. They include the accounts of our Company and its wholly-owned subsidiaries, Upstream Canada and PPT, which were acquired pursuant to share exchange agreements on February 24, 2006 and August 24, 2007. All inter-company transactions and account balances have been eliminated on consolidation. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statement disclosure. However, except as disclosed herein, there have been no material changes in the information contained in the notes to the audited consolidated financial statements for the year ended September 30, 2008, included in the Company's Form 10-K filed with the Securities and Exchange Commission. These interim unaudited consolidated financial statements should be read in conjunction with the audited financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending September 30, 2009.

- 17 -

Intellectual property rights

We have adopted the provisions of the Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets". Intangible assets with a definite life are amortized over that expected life and tested for impairment at least annually or whenever events or circumstances indicate a revision to the remaining period of amortization is warranted.

The fair market value of Intellectual Property Rights ("IPR") acquired on August 24, 2007 during the acquisition of Pacific Pharma Technologies Inc. is being amortized on a straight line basis over 5 years. The determination of any impairment of Intellectual Property Rights includes a comparison of net carrying value with estimated future operating cash flows anticipated during the remaining life; and is dependent on our ability to continue operating as a going concern.

During the annual impairment review, we determined the carrying value of our IPR at September 30, 2008 was not impaired.

Research and development

These costs are charged to expense when incurred and consist primarily of direct material and personnel costs, contract services and indirect costs. We have received government assistance in the past and may receive same in the future regarding our research and development activities. When the work is performed that qualifies for such grants, the related assistance amount is credited to research and development expense.

Stock-based compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123R, "Share Based Payments", using the modified prospective transition method. Under this transition method, compensation cost is recognized for all share-based payments granted prior to January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123; and the compensation cost of all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.

All transactions in which goods and services are the consideration received for the issuance of equity instruments are accounted for based on fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

Recent Accounting Pronouncements

We do not believe that any recently issued, but not yet effective accounting standards if currently adopted, will have a material effect on our financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133" ("SFAS 161"). SFAS 161 amends and expands the disclosure requirements of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities – as amended" ("SFAS 133"), to provide enhanced disclosures about how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for under SFAS 133; and how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We have reached the conclusion that this will have no impact on our consolidated financial statements.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with

- 18 -

U.S. generally accepted accounting principles for nongovernmental entities. SFAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles". We have reached the conclusion that this will have no impact on our consolidated financial statements.

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" ("FSP EITF 03-6-1"). FSP EITF 03-6-1 establishes that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities as defined in Emerging Issues Task Force ("EITF") Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128", and should be included in the computation of earnings per share pursuant to the two-class method as described in Statement of Financial Accounting Standards No. 128, "Earnings per Share". FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period earnings per share data presented shall be adjusted retrospectively to conform to the provisions of FSP EITF 03-6-1. Early application is not permitted. We are currently evaluating the impact that the adoption of FSP EITF 03-6-1 will have on our consolidated financial statements.

In September 2008, the FASB issued two separate but related exposure drafts: (1) Proposed Statement of Financial Accounting Standards, "Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140", and (2) Proposed Statement of Financial Accounting Standards, "Amendments to FASB Interpretation No. 46(R)" (together, the "proposed Statements"). The proposed Statements would remove the concept of a qualifying special-purpose entity ("QSPE") from SFAS 140 and the exceptions from applying FIN 46R to QSPEs. The proposed Statements would be effective as of the beginning of a reporting entity's fiscal year that begins after November 15, 2009. We have reached the conclusion that this will have no impact on our consolidated financial statements.

In November 2008, the Financial Accounting Standards Board (the "FASB") voted on the effective date and other amendments of proposed FASB Staff Position FAS 140-e and FIN 46(R)-e, "Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities" ("FSP FAS 140-e and FIN 46R-e"). FSP FAS 140-e and FIN 46R-e would amend SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities – as amended" ("SFAS 140") and FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46R") to require enhanced disclosures by public entities about transfers of financial assets and interests in variable interest entities, and provide users of the financial statements with greater transparency about a transferor's continuing involvement with transferred financial assets and an enterprise's involvement with variable interest entities. The disclosures required by FSP FAS 140-e and FIN 46R-e will be effective for reporting periods (interim and annual) ending after December 15, 2008. We have reached the conclusion that this will have no impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

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

- 19 -

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. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.

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, 2009: (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 have been no changes in our internal controls over financial reporting that occurred during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Except as set out below, we know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

On August 24, 2009, our company received notice that TCF Ventures Corp. ("TCFV") was terminating its management services contract effective August 28, 2009. The notice alleges TCFV's right to terminate due to an unrectified material breach arising from our company's failure to pay a portion of the compensation owing under the contract on a timely basis. After seeking legal advice, our company denied the breach since the compensation in question was voluntarily deferred by TCFV. In the event that it is determined that our company breached the agreement, we may be required to pay $150,000 as severance to TCFV pursuant to the terms of the agreement.

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.

None.

- 20 -

Item 5. Other Information.

Amendment to Employment Agreements

As discussed above under the heading “Employee and Consultant Compensation”, effective August 18, 2009, we entered into agreements with Joel Bellenson and Dexster Smith to amend the terms of their respective employment agreements. The amendment agreements revise the severance provisions of the original employment agreements which provided for the payment of $150,000 as a retiring allowance to each of the employees in the event that their employment was terminated for any reason. Under the terms of the amending agreements, we have agreed to pay each of Messrs. Bellenson and Smith $150,000 severance only in the event that (a) we terminate their employment without cause; or (b) they terminate their employment upon a material breach or default of any term of their respective employment agreements by our company, but only if they first give written notice of such breach or default to us and we fail to rectify it within a period of 30 days following receipt of such notice. Accordingly, the accrued liablity of $300,000 will not be recognized in our company's financial statements subsequent to June 30, 2009 since the amended agreements will be accounted for on a prospective basis.

Change of Chief Financial Officer

Effective August 28, 2009, Tim Fernback resigned from the position of Chief Financial Officer and our Chief Executive Officer, Joel Bellenson, was appointed Chief Financial Officer. On August 24, 2009, our company received notice that TCF Ventures Corp., a company beneficially owned by Mr. Fernback was terminating its management services contract effective August 28, 2009. The notice alleges TCF Ventures Corp.'s right to terminate due to an un-rectified material breach arising from our company's failure to pay a portion of the compensation owing under the contract on a timely basis. After seeking legal advice, our company denied the breach since the compensation in question was voluntarily deferred by TCF Ventures Corp. For more information, please see the section entitled "Employee and Consultant Compensation".

Item 6. Exhibits.

- 21 -

- 22 -

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/ Joel Bellenson                                                                            
Joel Bellenson, Chief Executive Officer, Chief Financial Officer and Director
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)
August 31, 2009