SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2000
or
[ ] 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 0-27179
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BioSyntech, Inc.
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(Name of Small Business Issuer in its Charter)
Nevada 88-0329399
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
475 Boulevard Armand-Frappier
Laval, Quebec, Canada H7V 4B3
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(Address of Principal (Zip Code)
Executive Office)
(450) 686-2437
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(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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(Title of Class)
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Check if the issuer (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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes |_| No |X|
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year: $ 0.
Based upon the closing price of the issuer's Common Stock on July 31,
2000, the aggregate market value of the 20,657,250 outstanding shares of Common
Stock held by non-affiliates of the issuer was $83,920,078. Solely for the
purposes of this calculation, shares held by directors and officers of the
issuer have been excluded. Such exclusion should not be deemed a determination
or an admission by the issuer that such individuals are, in fact, affiliates of
the issuer.
As of July 31, 2000, 29,182,250 shares of the issuer's Common Stock,
$.001 par value (the "Common Stock") were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
Transitional Small Business Disclosure Format (check one):
|_| Yes |X| No
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
The following Business section contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors. See "Risk Factors" relating to forward-looking statements. The
consolidated financial statements included in this From 10-KSB are the
continuation of the financial statements of Bio Syntech Ltd., which is treated
for accounting purposes as the acquirer of BioSyntech, Inc. (together with its
subsidiary, Bio Syntech Canada, Inc., also referred to as "we," "us" or the
"Company"). Bio Syntech Ltd. had a fiscal year-end of March 31 and accordingly
March 31 will continue to be used as the Company's year-end. See "History of the
Company" for a description of the transactions involving Bio Syntech Ltd. and
the Company. The Company's functional currency is the Canadian dollar. All
amounts presented in this annual report in Canadian currency are identified as
such. Other amounts are expressed in United States dollars. See "Currency
Exchange Rates" for a description of the exchange rate for the Canadian dollar
per one United States dollar as of March 31, 1998, March 31, 1999 and March 31,
2000.
General
The Company, a Nevada corporation incorporated on December 14, 1994, is
a development stage company engaged in the development of biotherapeutic
delivery systems made of proprietary biomaterials. The Company's systems are
intended to enable or enhance the treatment of diseases or injuries for which
therapies exist or are under development, but which must be transported to the
site of action. The Company has had limited revenues to date. Its future
operations are dependent upon financing necessary to complete research and
development projects and market the Company's products. There can be no
assurance that the Company will be able to complete the development of its
products, or if completed, that they can be successfully marketed. Furthermore,
there is no assurance that even if the products are completed and marketed, the
revenues therefrom will be sufficient to fund the Company's future operations or
to fund additional research, development and marketing.
Technology Overview
The Company focuses on the creation and development of advanced
injectable vehicles for biotherapeutics, cells and genetic material, and intends
to commercialize these products for the biomedical and pharmaceutical markets.
Current development targets include all therapeutics that cannot be administered
orally, either because they are inactivated in the digestive tract, or because
their therapeutic activity is needed only at a specific site in the body. The
Company's research and development efforts, either internally or in
collaboration with corporate partners, are concentrated on several programs
exploiting the multiple benefits of its therapeutic delivery systems, which
include the delivery of, among others, therapeutic proteins and drugs, genetic
material for
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site-specific gene therapy, and living cells or bioartificial organs for
tissue-engineering applications.
In addition, the Company has established an instrumentation division in
which it has developed the ARTHRO-BST(TM), an arthroscopic device providing
precise and non-destructive diagnosis of articular cartilage quality, and the
Mach-1TM Mechanical Tester, a universal mechanical testing system for specimens
with dimensions between hundreds of microns and a few centimeters.
Therapeutic Delivery Systems
The Company has developed three platform technologies, all aimed at the
generation of solutions to efficiently deliver biologically active therapeutics:
o BST-Gel(TM): An injectable thermosensitive (heat-sensitive)
self-forming hydrogel (water-based gel) for the delivery of
therapeutic agents or genetic material. The key functionality
of the gels is that they are injected as liquid and become a
solid gel in vivo (in the body).
o BST-Spheres: The Company has developed and patented a
proprietary process to generate microspheres (small spheres)
for the delivery of therapeutic agents. The BST-Spheres are
free of organic solvents and are adaptable to a wide range of
biomaterials that are either bio-degradable or
non-biodegradable. The BST-Spheres can be adapted for the
delivery of a broad spectrum of drug types, from small to
large molecules. The BST-Spheres can be used in the injectable
form for the delivery of sustained release medications. The
BST-Spheres could potentially enhance the drug-loading (drug
carrying capacity) of the vehicle.
o BST-Cargel(TM): Chondrocytes (cartilage cells) in an adhesive
heat sensitive gel delivered arthroscopically (non-invasive
surgery of the knee) with cells on growth cells for the
treatment and repair of cartilage defects.
BST-Gel(TM) is a family of polymeric gels that are liquid at low
temperatures and solid at the temperature of the human body. This injectable
delivery system is derived from natural sources and contains no toxic chemicals
such as chemical cross-linkers, organic solvents, or detergents. One of its key
properties is its in situ gelling after its injection in liquid form, thus
forming a reservoir for the sustained release of its therapeutic payload.
BST-Gel(TM) requires no surgery for its implantation, is biodegradable, and has
an adjustable composition. The amounts of BST-Gel(TM) injected vary for
different requirements, which result in controllable residence times ranging
from a few days to several weeks. The Company has developed specialized gel and
delivery technologies that can be used in conjunction with BST-GelTM to provide
a proprietary form of delivery of therapeutic agents and can have the following
applications:
o delivery of small molecules, peptides and recombinant
proteins;
o bioengineering of tissues with cells or growth-factor
therapeutics;
o delivery of bone-repair therapeutics;
o delivery of genetic material (DNA vaccines and gene therapy);
and
o development of vaccines based on the sustained release of
antigens.
The Company has developed and patented BST-Spheres, a proprietary
process to generate polymer-based microspheres used in the delivery of
biotherapeutics. This proprietary process offers several advantages over the
current approach of making microspheres:
o It does not require the use of toxic chemicals such as organic
solvents or detergents;
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o It can be adapted to a wide range of biomaterials, whether or
not biodegradable;
o It is injectable for the sustained release of biotherapeutics;
o It can be used with a broad range of biotherapeutic types,
from small to large compounds; and
o It may enhance the biotherapeutic-loading capacity of the
vehicle.
BST-Cargel(TM) is a proprietary generation of bioengineered living
articular (joint) cartilage-tissue implants developed from cells encapsulated
and grown within a BST-Gel(TM)-based matrix for arthroscopic delivery. A
particular formulation of the gel maintains the cell viability during the
delivery period while assuring the adhesion of BST-Gel(TM) to the underlying
bone and surrounding cartilage. Preclinical studies have shown that chondrocytes
embedded in BST-Gel(TM) produce a matrix having the characteristics of normal
cartilage tissue.
Market for the Company's Therapeutic Delivery Systems
Using proprietary technologies, drug delivery companies aim at the
generation of new formulations utilizing drugs developed by others. These
formulations are intended to provide benefits, including control of drug
concentration in the blood, improved safety and efficacy, improved patient
compliance and ease of use and expanded indications. Drug delivery technologies
can provide pharmaceutical companies with a means of developing new products, as
well as expanding existing drug franchises.
Drug delivery technologies can be utilized to address certain needs of
both traditional pharmaceutical compounds and the new class of macromolecules
developed by the biotechnology industry. For example, small synthetic compounds
could benefit from the local high dose delivery of a drug to enhance the
therapeutic effect on a target organ while minimizing systemic side effects.
With the advent of biotechnology, new opportunities in drug delivery have
arisen. Advances in biotechnology have facilitated the development of a new
generation of biopharmaceutical products based on proteins, peptides and nucleic
acids.
Drugs developed by biotechnology companies can rarely be delivered
orally. This results from their instability in harsh conditions in the digestive
tract, their limited ability to be absorbed in an active form in the intestines
and their short half-life in the bloodstream. As a consequence, many of these
drugs can only be administered by the means of frequent injections, which may
limit their clinical applications. These factors have all contributed to the
development of new approaches to deliver these therapeutics to their needed site
of action in the body.
Another promising field of research and development for the Company's
technological systems is cell delivery. The overall goal of tissue engineering
is the promotion of the repair of diseased or injured tissue or organs using
therapeutics to regenerate or heal with a functional normal tissue. This is in
contrast to the approach of replacing an organ with an artificial device. It has
been recognized that artificial organs, although sometimes necessary for short-
term relief, usually have an inadequate working life expectancy. The newer
approach of tissue engineering often involves the transplantation of living
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normal cells that have been expanded in the laboratory. The procedure of normal
cell transplantation requires an accurate positioning of the cell at the site
where it is to perform its therapeutic benefit. This is often accomplished by
providing to existing cells an exogenous matrix containing new cells and
facilitating the correct placement of the new cells within the body.
Biomaterials developed for this purpose consist of either biodegradable or
non-biodegradable materials in a number of physical forms such as films,
sponges, beads and hydrogels. These materials must sustain cell viability and
promote normal cellular activity. Biomaterials, which do not require surgical
implantation, are believed to have a greater chance of success because of the
reduced chance of complications during the injection procedure and the potential
for a faster recovery and shorter hospital stay. Injectable biomaterials as
carriers for cell delivery are therefore an active area of development for this
field of application.
Competition
The Company's product candidates may not gain market acceptance among
physicians, patients, healthcare payors and the medical community. The degree of
market acceptance of any product candidate that the Company may develop will
depend on a number of factors, including:
o Demonstration of their usefulness and safety;
o Their relative cost;
o Their advantage or disadvantage compared to alternative
methods;
o The marketing and distribution support they receive; and
o Reimbursement policies of government and third-party payors.
The Company's products may compete with new products currently under
development by others or with products that may cost less than its products. Its
actual and potential competitors include other therapeutic delivery companies,
biotechnology and pharmaceutical companies, academic and research institutions
and government agencies. Many have greater name recognition and greater
financial, research and development and personnel resources than the Company
does. Many have greater experience in testing and clinical trials and in the
regulatory process.
Strategy
Through the development of advanced biomaterials, the Company is
focusing on enabling or enhancing the activity of a new generation of
therapeutics that cannot be administered orally. There is a relatively small
number of biomaterials that are currently approved and used for parenteral
biotherapeutic delivery. Until recently, attempts to provide delivery solutions
for the fast-growing demands of the medical industry have focused on trying to
adapt commonly used biomaterials to the new requirements of a given therapeutic.
The Company has gathered a multidisciplinary team of scientists working together
to provide new delivery solutions through innovations in advanced biomaterials
that are tailored to a range of unmet medical needs. As part of our business
strategy, we form collaborations to explore opportunities for applications of
our delivery systems to therapeutics developed by third parties.
Therapeutics Delivery Applications
The Company is currently conducting research to develop applications of
its core technology in the following areas.
Cartilage Injuries and Diseases
The current standard of care for the treatment of cartilage injuries
consists of inducing bleeding into the cartilage defect by creating a pathway to
the bone that interfaces with the damaged cartilage tissue. The techniques used
include drilling, microfracture and abrasion to increase blood flow to the
damaged cartilage. These techniques result in the formation of a scarred tissue
(fibro-cartilage) with poor mechanical stability. As a result, a patient must
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undergo repeated treatments and often the affected joint degenerates into
osteoarthritis. Recently, a number of new approaches have been proposed for the
treatment of cartilage injuries that aim at the regeneration of the cartilage
tissue with transplanted cells. The cells used can either be normal cartilage
cells that have been expanded in a laboratory or cells selected for their
ability to become normal cartilage tissue (stem cells). The procedure of
transplanting normal cartilage cells is already marketed in the United States
and Europe. It necessitates a complicated surgical procedure involving an open
arthrotomy (open knee surgery). Although the results are encouraging, there is a
recovery process that can take more than a year. If the same cells could be
delivered in a vehicle introduced in an arthroscopic procedure, in which the
cells are pushed through a small catheter, the expected recovery period and
overall healthcare costs could be greatly reduced.
The Company is actively pursuing a cell therapy program for the
treatment of articular cartilage defect, and has already developed several
formulations of its injectable BST-Gel(TM), which were used to grow human
cartilage cells for several weeks in the laboratory. This has allowed the
Company to undertake an in vivo research program in which laboratory-grown
cartilage cells delivered in BST-Gel(TM) were injected subcutaneously in a
surrogate model and formed new cartilage-like tissue. Based on these results, a
preclinical study for cartilage repair of injuries using an animal model is
currently underway. The Company is also developing ways to deliver
anti-inflammatory drugs for potential delivery into articulations. It is
optimizing formulations of its BST-Spheres microspheres technology to obtain
slow and long-lasting vehicles for anti-inflammatory drug delivery to the knee
for prolonged relief of inflammatory symptoms.
Vaccine Development
The ability to deliver large amounts of molecules over a long period of
time using the injectable BST-Gel(TM) is being explored for the sustained
release of antigens for vaccine development. The Company is currently testing
the immune response of animal models to specific antigens delivered by a single
injection of BST-Gel(TM).
Bone Injuries and Diseases
Two approaches are conducted simultaneously and utilize different
aspects of the proprietary properties of the Company's platform technology.
These developments could provide a series of injectable bone biomaterials that
answer the needs of bone repair: minimally-invasive, low-cost administration,
filling and stabilizing properties, resorption (bone reformation and deposition)
and biological activity.
Injectable osteoconductive (permits bone formation) and osteoinductive
(generates new bones) bone grafting biomaterial
BST-Gel(TM) is used for the development of new bone grafting materials
that enable the repair of bone defects (osteoconductive) such as calcium
phosphates. Patients with osteoporosis who are losing bone mass, patients who
have had bone tissues harvested or bone tumors removed, leaving a weakened or
voided structure,
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or patients with bone defects requiring prostheses could benefit from a material
favoring bone ingrowth and providing a scaffold for bone remodeling. Several
formulations of BST-Gel(TM), combined with mineral additives similar to natural
bone, are scheduled to be tested in animal models in 2000.
In some indications such as fracture repair, spinal fusion or bone
osteonecrosis, the incorporation of bone-inducing agents (osteoinductive) is
required to reach a complete and successful bone repair. The Company is also
investigating the use of BST-Gel(TM) as a carrier for bone-inducing drugs. Two
approaches are planned and consist of the delivery of either a bone-inducing
gene or a bone-inducing protein. This work is currently being tested in animal
models in collaboration with a corporate partner.
Bone cements
The Company is developing new proprietary bone cements based on
BST-Gel(TM) in an effort to provide a strong structural support for severely
weakened bones. The injectability of its carrier is expected to greatly
facilitate the medical treatment and benefit both the patient and the healthcare
provider. BST-Gel(TM)- based bone cements are being optimized, and animal
testing is expected to begin 2001.
Fracture healing
The Company is investigating the use of BST-Gel(TM) as a carrier for
new bone-inducing drugs currently in pre clinical trials developed by Sulzer
Biologics, one of the Company's collaborators. Two approaches are planned and
consist of the delivery of either a bone-inducing gene or a bone-inducing
protein.
Wound Healing
A specific formulation of BST-Gel(TM) is being optimized for the
enhancement of skin-cell growth. This variation of BST-Gel(TM) could be used for
the delivery of skin cells for the treatment of burn victims or the healing of
skin ulcers. The Company expects to have an optimal BST-Gel(TM) formulation for
skin-cell delivery ready by the end of 2000. In addition, the Company intends to
co- develop the formulation of its technology platform with growth factors
enhancing wound healing. Research and development is ongoing with animal models.
Material Agreements
Agreement with Polyvalor
In October 1997, the Company entered into a technology assignment
agreement, as amended in September 1999 and as amended and restated March 15,
2000 (the "Assignment Agreement"), with Polyvalor Limited Partnership, a
Canadian limited partnership, as represented by its General Partner, Polyvalor
Inc. ("Polyvalor"). Polyvalor is an entity created by Ecole Polytechnique de
Montreal (the University of Montreal's engineering faculty, "Ecole
Polytechnique") for the purpose of commercializing the technology in which Ecole
Polytechnique has an
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interest. Through the Assignment Agreement, the Company acquired from
Polyvalor all rights related to certain patents and know-how (the
"Technologies"). In consideration of said assignment, the Company agreed to pay
to Polyvalor a royalty of 5% on all gross sales of all products and services
sold by the Company, up to a maximum cumulative amount of CDN $3,000,000. In
connection with the Assignment Agreement, the Company's subsidiary Bio Syntech
Canada Inc. ("Bio Syntech Canada"), issued to Polyvalor 1,072,000 shares of its
Class A Stock (as hereinafter defined) and granted Polyvalor the right to
nominate one director to its board of directors. As a result of the Transactions
described below under "History of the Company," the Class A Stock is
exchangeable on a share for share basis for common stock, $.001 par value per
share, of the Company (the "Common Stock"), and Polyvalor has the right to
nominate one director to the Company's Board of Directors.
Agreements with Collaborators
As part of our business strategy, we have formed collaborations with
third parties to explore opportunities for applications of our delivery systems
to therapeutics developed by them.
Sulzer Orthopedics Biologics Inc., Wheat Ridge, CO
The Company signed a Non-disclosure and Confidentiality Agreement dated
February 23, 1999 with Sulzer Orthopedics Biologics, Inc. for a feasibility
study of combining bone proteins developed by Sulzer with different formulations
of BST-Gel(TM) for the local induction of bone formation. Sulzer is developing
bone proteins for several applications in orthopedics including spinal fusion
and bone fracture repair. Bone proteins were formulated successfully at
different concentrations in BST-Gel(TM). A first phase of pre-clinical testing
revealed cartilage and bone formation. A second phase study is currently under
way to optimize the BST-Gel(TM) formulation.
Sulzer Orthopedics Ltd., Switzerland
The Company signed a Material Transfer Agreement on January 4, 2000
with Sulzer Orthopedics Ltd. for the study of BST-Gel(TM) as a carrier for human
articular chondrocytes in the treatment of articular cartilage defects. Cell
compatible BST-Gel(TM) formulations are being studied in vitro (cultured in the
laboratory) using cell loaded gels (cells that contain human joint cells).
Reprogenesis, Inc., Cambridge MA
The Company signed a Confidentiality Agreement on May 31, 1999 and a
Material Transfer Agreement on July 27, 1999 with Reprogenesis, Inc. related to
the transfer of human auricular chondrocytes (cartilage cells from the ear) from
Reprogenesis, Inc. to the Company. The initial study aimed at the development of
a human auricular chondrocyte compatible formulation of BST-Gel(TM). This work
was performed at the Company first in vitro where good cell viability was
obtained. The project has now evolved to look at specific cellular events judged
important for the behavior of these cells in vivo. Reprogenesis, Inc. is
currently
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developing human auricular chondrocytes for a variety of tissue augmentation
applications such as incontinence and tissue reconstruction.
Ophidian Pharmaceutical Inc., Madison WI
The Company signed a Confidential Disclosure Agreement and a Biological
Materials Transfer Agreement with Orphidian Pharmaceutical Inc. ("Orphidian") in
August 1999 to evaluate the ability of BST-Gel(TM) to deliver an antigen in a
sustained fashion for chicken immunization. Ophidian is developing therapeutics
based on egg yolk antibodies produced after a series of intramuscular or
subcutaneous injections of a specific antigen. The process of chicken
immunization presently requires a labor intensive process involving several
injections in several thousand chickens. The ability to formulate an antigen for
sustained release could greatly simplify the process. As part of Ophidian
inflammatory bowel disease therapeutics development, it has sent rTNF-alpha (a
growth factor) to the Company for initial formulation study. A longer and more
extensive phase two project was initiated and is ongoing. Finally a phase three
project has been agreed upon where the antigen will be presented as genetic
material for potentially longer lasting immunization in the animal.
Viragen, Incorporated, Plantation FL, and Viragen Ltd., Scotland
The Company signed a Mutual Confidentiality Agreement with Viragen,
Incorporated ("Viragen") on September 2, 1999 for the study of a Viragen
proprietary formulation of Interferon-alpha (Omniferon) formulated in
BST-Gel(TM) for sustained release. Viragen is currently developing
Interferon-alpha as a therapeutic for the modulation of the immune system to
fight viral diseases such as hepatitis. The project, initially carried on at the
Company, aimed at the study of stability and release kinetics of Omniferon
formulated in BST-Gel(TM). After encouraging data, Viragen agreed to pursue the
program on formulation.
Ontogeny, Inc., Cambridge MA
The Company signed a Confidentiality Agreement and a Material Transfer
Agreement with Ontogeny, Inc. on December 3, 1999 for the study of BST-Gel(TM)
as a potential carrier for Hedgehog (a morphogenetic family of proteins that
stimulates cell growth). Several applications are being investigated by
Ontogeny, Inc. and include neuro-degenerative and cartilage diseases.
Formulations of BST-Gel(TM) were sent to Ontogeny, Inc. where an initial
preliminary study on inflammation and a functional study on an animal model are
ongoing.
Biomet Manufacturing Corporation, Warsaw IN
The Company signed a Material Transfer Agreement with Biomet
Manufacturing Corporation ("Biomet") on February 8, 2000 regarding the
possibility of using BST-Gel(TM) as a carrier for a growth factor in wound
healing and for plasmid DNA (circular DNA) for site specific gene therapy. These
projects are expected to commence in the fiscal year March 31, 2001. Biomet has
global operations in orthopedics with a number of approved devices for
therapeutic and diagnostic interventions.
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Instrumentation
The Company has established an instrumentation division in which it
developed the ARTHRO-BST(TM), an arthroscopic device providing precise and non-
destructive diagnosis of articular cartilage quality, and the Mach-1(TM)
Mechanical Tester, a universal mechanical testing system for specimens with
dimensions between hundreds of microns and a few centimeters. The instruments
are closely related to the work carried on by the Company on cartilage.
The ARTHRO-BST(TM)
Description
The ARTHRO-BST(TM) is an arthroscopic device providing precise and non-
destructive diagnosis of articular cartilage quality. Degeneration of cartilage
is a prominent component of arthritis, a disease affecting more than 10% of the
population. Current assessment of articular cartilage is mostly subjective with
no functional evaluation. Therefore, there is a growing need in an aging
population for non-destructive and unbiased clinical evaluation of the health
and function of this connective tissue.
The ARTHRO-BST(TM) is based on an innovative and robust design that
allows simple application of small indentation compression and collection of
resulting electrical signals (streaming potentials) indicative of cartilage
function.
The ARTHRO-BST(TM) is composed of five distinct units: (i) a disposable
sterilized tip consisting of microelectrode arrays (microelectronic circuit) on
a thin aluminum substrate that is adhered to a stainless steel support providing
a connection with the handle, (ii) an ergonomically designed handle, (iii) an
electrical circuit for the acquisition of electrical signals, including a
preamplification and digitalization circuit inside the handle and an interface
circuit exterior to the handle, (iv) software for the acquisition of electrical
signals and for the analysis and interpretation of data to quantify cartilage
quality, and (v) a computer system.
A fully functional clinical version of the ARTHRO-BST(TM) was presented
at the third meeting of the International Cartilage Repair Society (ICRS) in
Sweden in April 2000.
Market
The target market has two sectors : research and clinical. The research
market is composed of pharmaceutical and biotechnology companies in addition to
academic research groups working on therapeutic products for joint disorders or
procedures for cartilage repair. There are several research projects in the
areas of arthritis and joint repair and it is regularly publicly acknowledged
that a major impediment to the understanding of joint disease and the
development of therapeutic products is the lack of an objective diagnostic test
to follow non-destructively the evolution of cartilage quality.
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The clinical market is much potentially much larger. It consists of
orthopaedists practicing arthroscopy who also require a means of objectively
evaluating cartilage quality in patient knees. Currently, arthroscopists use
subjective and relatively uncertain methods of visual inspection and manual
probing (by feeling stiffness) to judge articular cartilage quality.
Competition
To the knowledge of the Company, there are currently no competing
technologies to respond to the demand for functional non-destructive evaluation
of articular cartilage. Most instruments currently under research and
development are based on mechanical measurements of the cartilage stiffness
instead of electrical measurements of streaming potentials.
The ARTHRO-BST(TM) is based on a different technology that overcomes
the major difficulties with the control of the compression amplitude applied to
cartilage and the orientation of the indentor tip relative to cartilage surface.
Significantly inaccurate readings are given if the indentor tip is not
positioned by the orthopaedist perpendicular to the articulating surface. An
error can also be introduced by the force applied by the orthopaedist to
compress the tissue. Instead of measuring the tissue stiffness, the
ARTHRO-BST(TM) measures streaming potential generated during compression of the
tissue. Two dimensional microelectrode arrays placed on non-planar surface
permit a precise determination of (i) the contact distribution of the indentor
with the cartilage, (ii) the compression amplitude and velocity applied to the
cartilage, and (iii) the orientation of the indentor relative to cartilage
surface. Furthermore, the sterilized indentor tip with microelectrode arrays is
disposable to minimize disease transmission.
Regulatory Approval
The Company currently expects that its arthroscopic probe,
ARTHRO-BST(TM), will be classified by the United States Food and Drug
Administration ("FDA") as a Class II medical device because of the low risk
associated with its use. Moreover, because the ARTHRO-BST(TM) can be considered
substantially equivalent to existing devices used for cardiovascular and
neurological diagnoses with electrodes, we expect to submit a Pre-Market
Notification ("510(k)") to the FDA following clinical testing. However, the FDA
may reclassify the device or request additional information if it determines
that the application does not satisfy its regulatory approval criteria. See
"Item 1. Description of Business/Government Regulation." The Company expects to
initiate the filing process once it has completed its Good Manufacturing
Practices ("GMP") compliant facilities. See "Item 2. Property."
Manufacturing
If and when all necessary regulatory approvals are obtained, the
Company plans to manufacture up to 200 units per year of the ARTHRO-BST(TM),
using its current facilities and certain subcontractors for some specialized
components, such as the electronic acquisition card. The production of
disposable sterilized tips with microelectrode arrays can be easily obtained
using commercial
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microelectronic laboratories. The fabrication uses conventional methods and all
the instrumentation required is available. Once a final design for the electrode
tip is completed, it should be possible to transfer production to one of several
subcontractors located near the Company with approved industrial and quality
standards.
New infrastructures will be required for large-scale production. Thus a
decision will eventually be made to acquire additional facilities or to
establish a production alliance with a large manufacturer of orthopaedic
instruments.
Distribution and Marketing Strategy
The introduction of the ARTHRO-BST(TM) has begun through scientific
abstracts presented during international conferences (Garon M et al., ORS 1997;
Legare A et al., ORS 1998; Legare A et al., CCTC 1999; Legare A et al., ICRS
2000), trade shows (25TH Society for Biomaterials Meeting, Providence, April
1999; 46TH Orthopeadic Research Society Meeting, 2000; 3rd International
Cartilage Repair Society Meeting, Sweden, April 2000; 6TH World Biomaterials
Congress, Hawai, May 2000) and full length journal articles (Garon M et al.,
1999; Legare A et al., 2000).
Upon validation of the technology, the Company intends to introduce the
ARTHRO-BST(TM) to the market through demonstration of its efficacy for cartilage
evaluation, through collaborations with leading clinical orthopaedic
researchers, and through the inclusion of the ARTHRO-BST(TM) in clinical trials
of arthritis drugs. In the end of fiscal year 2001, the Company plans to have
several functioning clinical devices available for distribution to selected
leading researchers in clinical orthopaedics. Through collaborative efforts with
these researchers, the ARTHRO-BST(TM) will be publicized in presentations and
publications of these studies and a demand should be created in the research
programs of other academic and industrial research groups. The Company plans to
support this strategy with data from clinical trials to demonstrate the
objective nature of the method and its sensitivity and specificity for cartilage
quality. The recently formed Canadian Arthritis Network of Centres of Excellence
could assist by providing clinical trials to pharmaceutical companies with
arthritis drugs and allowing the Company to participate in these trials by
providing objective data for drug evaluation. Our dual strategy involving
collaboration with leading opinion makers and by providing statistically sound
scientific studies should provide the basis for market penetration.
The Company expects to rely on the distribution and sales network of a
major partner to generate sales.
The MACH-1(TM) Mechanical Tester
Description
The Mach-1(TM) Mechanical Tester is a universal mechanical testing
system for specimens with dimensions between hundreds of microns and a few
centimeters. Typical applications for the Mach-1(TM) Mechanical Tester are in
the mechanical
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characterization of tissues, pharmaceuticals, polymers, gels, adhesives and
food. The instrument allows the characterization of stiffness, strength,
modulus, viscoelasticity, plasticity, hardness, adhesion, swelling and
relaxation and creep using load and displacement control tests. Some of the
features of the Mach-1(TM) Mechanical Tester are :
o Chambers for compression, tension, indentation, bending and
other test configurations are mounted on a platform, which is
controlled to within 25 nanometers.
o Load cells are interchangeable to allow maximum loads between
0.15 kg to 10 kg with load precision being 1 part in 20,000 of
the maximum (10mg minimum).
o The test system can be placed in an incubator for testing or
mechanical stimulation in sterile controlled environments,
such as cell culture conditions.
o Sophisticated and flexible software allows execution of stress
relaxation, ramp, dynamic sinusoidal and creep tests in
automated user-defined sequences.
o Sophisticated analysis software.
o Options include visualization of specimen during testing with
cameras, motorized control of specimen position on the
actuator, and electric field detection (electromechanical
events) during testing.
Market
The Company has identified immediate areas of interest that offer a
sufficient market base to sustain the viability of this product:
o Biomaterials and biological tissues characterization and
stimulation in controlled environments. Cells, ligaments,
collagen, skin, bone, synthetics, transgenic animals.
o Polymers and gels stability, strength, adhesion, brittleness,
cohesion, flexibility, friction, peel strength, viscosity,
elasticity. Adhesives, elastomers, hydrogels, glue, latex.
o Pharmaceuticals mechanical properties, degradation and
swelling, simulation of physiological condition
(gastrointestinal, etc.) Pills, drug delivery systems.
o Food, pulp and paper, electronic packaging and others
mechanical properties, texture analysis, electronic
components, wires, fibers optics, films, packaging material,
spring, switches, tapes, cosmetics, foam, sponges.
Market potential of the Mach-1(TM) Mechanical Tester also includes
conventional segments of mechanical testing. Given the specificity of this
equipment, the Company does not expect that a significant market will develop
for it.
To date, the Company has initiated production of the Mach-1(TM)
Mechanical Tester on a small scale at its premises in Laval Quebec. A small
number of units have been sold, without any marketing efforts on the part of the
Company.
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Competition
The price of other benchtop mechanical testers is around $20,000. While
the Company does offer complete systems at this price, it also offers more
enhanced versions that can be sold for up to $50,000. These high-end systems can
offer sub-micron resolution, multi-axis simultaneous motion, or other
specialized features. With its different versions, the Company covers a broad
range of applications and also offers custom system configurations for specific
needs.
Regulatory Approval
The Mach-1(TM) Mechanical Tester is not a medical device and as such is
not subject to FDA or other regulatory approval.
Manufacturing
Given the small market for this product, the Company expects to be in a
position to fulfill potential demand (up to approximately 10 units per month)
out of its own facilities. The Company could eventually rely on the distribution
and sales network of a major partner to generate sales, in which case adequate
manufacturing capacity would have to be established.
Distribution and Marketing Strategy
The Company intends to use direct sales and direct support as a way to
reach and serve its customers. Talking directly to its customers will enable the
Company to know them and their needs and to establish an expert-to-expert
dialogue that will enhance the trust they put in the Company's products. The
Company could eventually rely on the distribution and sales network of a major
partner to generate additional sales.
Patents and Proprietary Rights
The Company's success will be dependent, in part, on its ability to
obtain patent protection for its product candidates and those of its
collaborators, maintaining trade secret protection and operating without
infringing upon the proprietary rights of others. See "Description of
Business/Risk Factors."
Under the Assignment Agreement, Polyvalor is currently entitled to
certain royalty payments on future sales of products. See "Description of
Business- Agreement with Polyvalor."
The Company has a proprietary portfolio of patent rights and patent
applications. The Company has been issued two patents, and has filed several
United States and international patent applications directed to composition of
matter as well as processes of preparation and methods of use. The Company's
United States patents will expire between 2018 and 2020. The Company intends to
defend its patent position aggressively.
The Company tries to protect its proprietary position by filing United
States, Canada and foreign patent applications related to its proprietary
technology, inventions and improvements that are important to the development of
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its business. The patent position of biopharmaceutical companies involves
complex legal and factual questions, enforceability of patents therefore cannot
be projected with certainty. Patents, if issued, may be challenged, invalidated
or circumvented, and may fail to provide any protection against competitors. The
Company's pending patent applications, those which the Company may file in the
future, or those which the Company may license from third parties, may not
result in patents being issued. If patents were issued, they may not provide the
Company with proprietary protection or competitive advantages against
competitors with similar technology. Furthermore, others may independently
develop similar technologies or duplicate any technology that the Company has
developed. The laws of certain foreign countries do not protect the Company's
intellectual property rights to the same extent as do the laws of the United
States and Canada.
The Company also relies on trade secrets, know-how and technology,
which the Company tries to protect by entering into confidentiality agreements
with parties that have access to it, such as its corporate partners,
collaborators, employees and consultants. Any of these parties may breach their
agreement and disclose our confidential information or the Company's competitors
might learn of the information in some other way.
Government Regulation
The manufacture and marketing of pharmaceutical products and medical
devices in the United States and in Canada require the approval of the FDA under
the Federal Food, Drug and Cosmetic Act and the Health Protection Branch (the
"HPB") of Canada, respectively. Similar approvals by comparable agencies are
required in most foreign countries. The FDA and HPB have established mandatory
procedures and safety standards that apply to the preclinical testing and
clinical trials, manufacture and marketing of pharmaceutical products and
medical devices. Pharmaceutical manufacturing facilities are also regulated by
state, local and other authorities.
As an initial step in the FDA regulatory approval process for a new
drug product, preclinical studies are typically conducted in animal models to
assess a drug's efficacy and to identify potential safety problems. The results
of these studies must be submitted to the FDA as part of an Investigational New
Drug application ("IND"), which must be reviewed by the FDA before proposed
clinical testing can begin. Typically, clinical testing involves a three-phase
process. Phase I trials are conducted with a small number of subjects and are
designed to provide information about both product safety and the expected dose
of the drug. Phase II trials are designed to provide additional information on
dosing and preliminary evidence of product efficacy. Phase III trials are large
scale studies designed to provide statistical evidence of efficacy and safety in
humans. The results of the preclinical testing and clinical trials of a
pharmaceutical product are then submitted to the FDA in the form of a New Drug
Application ("NDA"), or for a biological product in the form of a Product
License Application ("PLA"), for approval to commence commercial sales.
Preparing such applications involves considerable data collection, verification,
analysis and expense. In responding to an NDA or PLA, the FDA may grant
marketing approval,
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request additional information or deny the application if it determines that the
application does not satisfy its regulatory approval criteria.
In the case of a medical device, preclinical-study results must be
submitted to the FDA as part of an Investigational Device Exemption ("IDE"),
which must be reviewed by the FDA before clinical testing can begin. Phase I,
II, and III trials can then be conducted to provide safety, efficacy, and
method- of-use information. The results of the preclinical testing and clinical
trials of a medical device are then submitted to the FDA in the form of a
Pre-Market Notification 510(k) for most Class I and Class II devices, or a
Pre-Market Approval ("PMA") request for most Class III devices. Medical devices
are classified depending upon the level of regulatory control required to
provide reasonable assurance of their safety and effectiveness. In general,
non-critical devices or new devices substantially equivalent to existing devices
fall into Classes I or II, whereas Class III devices are those for which
insufficient information exists to determine that general controls are
sufficient to provide reasonable assurance of their safety and effectiveness.
The possible future uses of BST-Gel(TM)-related biomaterials are
several and are therefore expected to fall into a number of different
categories. Depending on a proposed application, the FDA might designate a
BST-Gel(TM)-related biomaterial as a new drug, new medical device, or new
excipient.
The Company currently expects that the ARTHRO-BST(TM), will be
classified as a Class II medical device because of the low risk associated with
its use. Moreover, because the ARTHRO-BST(TM) can be considered substantially
equivalent to existing devices used for cardiovascular and neurological
diagnoses with electrodes, we expect to submit a 510(k) to the FDA following
clinical testing. However, the FDA may reclassify the device or request
additional information, if it determines that the application does not satisfy
its regulator approval criteria.
This regulatory process can require many years and the expenditure of
substantial resources. Data obtained from preclinical testing and clinical
trials are subject to varying interpretations, which can delay, limit or prevent
FDA approval. In addition, changes in FDA approval policies or requirements may
occur or new regulations may be promulgated, which may result in delay or
failure to receive FDA approval. Similar delays or failures may be encountered
in Canada and in foreign countries.
Among the conditions for NDA or PLA approval, or 510(k) approval or PMA
in the case of a medical device, is the requirement that the prospective
manufacturer's quality control and manufacturing procedures conform on an
ongoing basis with Good Manufacturing Practices (GMPs). The development of a
GMP- compliant manufacturing establishment for BST-Gel(TM)-related biomaterials
will be a multi-step process consisting of designing and building the necessary
facilities, purchasing and installing the ancillary equipment, and validating
the facilities and equipment. Simultaneously, process development and scale-up
as well as assay development (testing, measuring and quality control) will be
done to supply test material and data critical to the clinical program. Once the
facilities are validated, a Type I Drug Master File (DMF) (describing the
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manufacturing site, facilities, operating procedures, and personnel) will be
submitted by us to the FDA, as is recommended for non-U.S. manufacturing
establishments. Other types of DMFs, including a Type II DMF for drug products
and Type IV DMF for excipients, may be submitted by us to the FDA. Before
approval of an NDA, PLA, 510(k), or PMA we submitted, the FDA will perform a
prelicensing inspection of the facility to determine its compliance with GMPs
and other rules and regulations. In complying with GMPs, manufacturers must
continue to expend time, money and effort in the area of production and quality
control to ensure full technical compliance. After the Company's facilities are
licensed, they will be subject to periodic inspections by the FDA.
The Company is also subject to various laws and regulations relating to
safe working conditions, laboratory and manufacturing practices, experimental
use of animals and use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used
in connection with our research. Compliance with existing laws and regulations
relating to the protection of the environment is not expected to have a material
effect on the Company's operations.
History of the Company
Pursuant to an Amalgamation Agreement and related agreements, as
amended (the "Exchange Agreements"), dated February 15, 2000 by and among the
Company, its then wholly-owned subsidiary 9083-5661 Quebec Inc., a Quebec
corporation ("9083"), Bio Syntech Ltd., a Quebec corporation ("Bio Syntech"),
and the shareholders of Bio Syntech (the "Bio Syntech Shareholders"), on
February 29, 2000, 9083 and Bio Syntech were merged into one company under the
name of Bio Syntech Canada. As a result of the Exchange Agreements, the Company
became the record and beneficial owner of all of the issued and outstanding
shares of Bio Syntech Canada's Common Stock and the Bio Syntech Shareholders
were issued non-voting exchangeable shares of Bio Syntech Canada's Preferred
Stock (the "Class A Stock"). The Class A Stock is exchangeable on a
share-for-share basis for an aggregate of 15,177,036 shares of Common Stock. The
shares of Common Stock issued under the Exchange Agreements are held in trust
under the terms of an Exchange and Voting Agreement (the "Trust Agreement"), by
and among the Company, Pierre Barnard (the "Trustee"), Bio Syntech and 9083.
(The foregoing transactions are referred to collectively hereinafter as the
"Transactions"). The predecessor of Bio Syntech was founded in 1995 by Dr. Amine
Selmani.
Each beneficial holder of the Class A Stock has voting rights in that
number of shares of Common Stock equal in number to the number of shares of
Class A Stock held by such holder. Consequently, the Bio Syntech Shareholders
held securities with voting rights equal to approximately 55.7% of the total
voting power of the outstanding Common Stock immediately after the Transactions.
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At such time as the holders of Class A Stock may exchange such shares for Common
Stock, they will have the right to direct the disposition of such Common Stock.
The sole source of consideration for issuance to the Bio Syntech
Shareholders of the Class A Stock was the exchange of the Bio Syntech shares
held by them. At such time as the Bio Syntech Shareholders may exchange their
Class A Stock for Common Stock, the sole source of consideration for the
transfer to them of the Common Stock will be such Class A Stock.
The Exchange Agreements were structured to provide the Bio Syntech
Shareholders with a capital gain deferral under applicable Canadian tax laws,
rules and regulations. In anticipation of the Transactions, the Company changed
its name to "BioSyntech, Inc." from Dream Team International Inc.
On the effective date of the Transactions, the officers and directors
of the Company resigned and new officers and directors, who are designees of Bio
Syntech Canada, were appointed.
Copies of the Exchange Agreements and related transactions documents
were filed as exhibits to the Company's Current Report on Form 8-K dated March
15, 2000 and are incorporated in their entirety herein. The description of the
Exchange Agreements contained in this report is modified by such reference.
Risk Factors
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond our control. The following discussion
highlights the most material of the risks.
We expect that we will incur losses for the foreseeable future.
We have had net operating losses since being founded and currently have
an accumulated deficit. These losses consist of research and development costs,
the costs of acquiring rights to research and development performed by others
and general and administrative expenses. We expect to have substantial
additional expenses over the next several years as our research and development
activities and the process of seeking regulatory approval of our products,
including clinical trials, accelerate. Because we do not expect to have
significant revenues from the sale of products for several years, if ever, we
expect that such expenses will result in additional losses.
Our future profitability depends, in part, on:
o Obtaining regulatory approval for our products;
o Entering into agreements to develop and commercialize
products;
o Developing the capacity to manufacture and market products or
entering into agreements with others to do so;
o Market acceptance of our products;
o The ability to obtain additional research and development
funding from our collaborative partners; and
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o The ability to achieve certain product development milestones.
We may not achieve any or all of these goals and, thus, are unable to
predict whether we will ever achieve significant revenues or profits. Even if we
receive regulatory approval of one or more of our products, we may not achieve
significant commercial success.
We need to spend substantial funds to become profitable.
We need to spend substantial amounts of money before we can be
profitable. The amount we will spend, and when we will spend it, will depend, in
part, on:
o How our research and development programs, including clinical
trials, progress;
o How much time and expense will be required to receive FDA
approval for our product candidates;
o The cost of building, operating and maintaining manufacturing
facilities;
o How many product candidates we pursue;
o How much time and money we need to prosecute and enforce
patent rights;
o How competing technological and market developments affect our
product candidates;
o The cost of possible acquisitions of drug delivery
technologies, products or companies; and
o The cost of obtaining licenses to use technology owned by
others.
We will need additional financing to continue our operations as
planned.
We will seek funds by issuing equity and debt securities and through
arrangements with our collaborative partners. If we issue equity securities, our
present stockholders will suffer dilution. If we issue debt securities, we will
face the risks associated with debt, including rises in interest rates and
insufficient cash flow to pay the principal of and interest on our debt
securities. We are unable to predict whether additional equity or debt financing
will be available to us, on favorable terms or at all. If sufficient financing
is unavailable on a timely basis, we may curtail one or more development
programs or transfer rights in products that could later prove to be of great
value.
Our delivery technologies may not produce safe, useful or commercially
viable products.
We lack a therapeutic delivery system product that we can sell
commercially and we are uncertain that we will have one in the future. To be
profitable, we must develop, manufacture and market our products, either alone
or by collaborating with others. This could take several years and we may never
be successful in bringing our product candidates to the market. Additionally,
our success in preclinical and early clinical trials does not ensure that large
scale clinical trials will be successful. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent further
clinical development or regulatory approvals. The product may:
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o Be shown to be ineffective or to cause harmful side effects
during preclinical testing or clinical trials;
o Fail to receive regulatory approval on a timely basis or at
all;
o Be hard to manufacture on a large scale;
o Be uneconomical;
o Not be pursued by our collaborative partner;
o Not be prescribed by doctors or accepted by patients; or
o Infringe on proprietary rights of another party.
The FDA may not approve our product candidates.
FDA approval is required to manufacture and market pharmaceutical
products in the United States. The process to receive this approval is extensive
and includes preclinical testing and clinical trials to demonstrate safety and
usefulness, and a review of the manufacturing process to ensure compliance with
good manufacturing practices. This process can last many years and be very
costly and still be unsuccessful. The length of time necessary to complete
clinical trials and receive approval for product marketing by regulatory
authorities varies significantly by product and indication and is difficult to
predict. FDA approval can be delayed, limited or denied for many reasons,
including:
o A product candidate may not be safe or effective;
o Data from preclinical testing and clinical trials can be
interpreted by FDA officials in different ways than we
interpret it;
o The FDA might not approve our manufacturing processes or
facilities;
o The FDA may change its approval policies or adopt new
regulations; and
o A product candidate may not be approved for all the uses we
requested.
Countries other than the United States, including Canada, have similar
requirements. The process of getting approvals in foreign countries is subject
to delay and failure for the same reasons.
We are subject to extensive government regulations and we may not be
able to obtain regulatory approvals.
Our product candidates are subject to broad government regulation. In
the United States, the FDA regulates, among other things, the development,
testing, manufacture, safety, usefulness, record-keeping, labeling, storage,
approval, advertising, promotion, sale and distribution of biopharmaceutical
products. If our products are marketed in other countries, they will also be
subject to extensive regulation by foreign governments. Certain material changes
to an approved product, such as manufacturing changes or additional labeling
claims, are subject to further FDA review and approval. Any required approvals,
once obtained, may be withdrawn. Further, if we fail to comply with FDA and
other regulatory requirements at any stage during the regulatory process, we may
be subject to sanctions, including:
o Delays, warning letters and fines;
o Product recalls or seizures and injunctions on sales;
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o Refusal of the FDA to review pending market approval
applications or supplements to approval applications;
o Total or partial suspension of production;
o Withdrawals of previously approved marketing applications; and
o Civil penalties and criminal prosecutions.
We rely heavily on collaborators.
Our arrangements with collaborators and licensors are critical to our
success in bringing our product candidates to the market. Our partners own many
of the drug, cell and genetic material products for which we are designing
delivery systems. In some cases, we depend on these parties to conduct
preclinical testing and clinical trials and to provide funding for our
development programs. Some of our collaborators can terminate their agreements
with us for no reason and on limited notice. We are unsure whether any of these
relationships will continue.
We also expect to rely upon our collaborators to manufacture our
therapeutic delivery products in commercial quantities and for marketing and
sales. Our present plans do not call for us to develop these capabilities on our
own. If we are unable to reach satisfactory agreements with our collaborators or
with third parties, we would incur substantial additional costs and would
experience substantial delay in commercializing most of our products.
We cannot control our collaborators' performance or the resources they
devote to our programs. If a collaborator fails to perform, the research,
development or commercialization program on which it is working will be delayed.
If this happens, we may have to use funds, personnel, laboratories and other
resources that we have not budgeted, and may not have, to continue the program,
or we may have to stop the program entirely.
Disputes may arise between us and a collaborator and may involve the
issue of which of us owns the technology that is developed during a
collaboration. Such a dispute could delay the program or result in expensive
arbitration or litigation, which we might not win. A collaborator may choose to
use its own or other technology to deliver its drug or cell product. Our
collaborators could merge with or be acquired by another company or financial or
operational difficulties that could adversely affect our programs.
We may indirectly be subject to some professional guidelines.
In addition to government agencies that promulgate regulations and
guidelines directly applicable to us and our products, private health/science
foundations and organizations involved in various diseases may also publish,
from time to time, guidelines or recommendations to the healthcare and patient
communities. These private organizations may make recommendations that affect
the usage of certain therapies, drugs or procedures, including our products.
Such recommendations may relate to such matters as usage, dosage, route of
administration and use of concomitant therapies. Recommendations or guidelines
that are followed by patients and healthcare providers and that result in, among
other things, decreased use of our products could have a material adverse effect
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our operations. In addition, the perception that such recommendations or
guidelines will be followed could adversely affect prevailing market prices for
our Common Stock.
Rapid technological change could render our therapeutic delivery
systems obsolete or noncompetitive.
Major technological changes can occur quickly in the biotechnological
and pharmaceutical industries. The development by competitors of technologically
improved or different products may make our product candidates obsolete or
noncompetitive.
The competitive nature of our industry could adversely affect market
acceptance of our products.
Our product candidates may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. The degree of market
acceptance of any product candidate that we develop will depend on a number of
factors, including:
o Demonstration of their usefulness and safety;
o Their relative cost;
o Their advantage or disadvantage compared to alternative
methods;
o The marketing and distribution support they receive; and
o Reimbursement policies of government and third-party payors.
Our products may compete with new products currently under development
by others or with products that may cost less than our products. Our actual and
potential competitors include other therapeutic delivery companies,
biotechnology and pharmaceutical companies, academic and research institutions
and government agencies. Many have greater name recognition and greater
financial, research and development and personnel resources than we do. Many
have greater experience in testing and clinical trials and in the regulatory
process.
Proprietary protection for our products is important and uncertain.
The following factors are important to our success:
o Receiving patent protection for our product candidates and
those of our collaborators;
o Maintaining our trade secrets;
o Not infringing on the proprietary rights of others; and
o Preventing others from infringing our proprietary rights.
We can protect our proprietary rights from unauthorized use by third
parties only if these rights are covered by valid and enforceable patents or are
effectively maintained as trade secrets.
We try to protect our proprietary position by filing United States,
Canada, and foreign patent applications related to our proprietary technology,
inventions and improvements that are important to the development of our
business. The
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patent position of biopharmaceutical companies involves complex legal and
factual questions. Therefore, enforceability of patents cannot be projected with
certainty. Patents, if issued, may be challenged, invalidated or circumvented.
Thus, any patents that we own or license from others may provide no protection
against competitors. Our pending patent applications, those we may file in the
future, or those we may license from third parties, may not result in patents
being issued. If patents do issue, they may not provide us with proprietary
protection or competitive advantages against competitors with similar
technology. Furthermore, others may independently develop similar technologies
or duplicate any technology that we have developed. The laws of certain foreign
countries do not protect our intellectual property rights to the same extent as
the laws of the United States.
We also rely on trade secrets, know-how and technology, which we try to
protect by entering into confidentiality agreements with parties that have
access to it, such as our corporate partners, collaborators, employees and
consultants. Any of these parties may breach the agreement and disclose our
confidential information or our competitors might learn of the information in
some other way.
Efforts to keep down the cost of healthcare may threaten our
profitability.
Third-party payors, which include governments and private health
insurers, are increasingly challenging the prices charged for medical products
and services. In their attempts to reduce healthcare costs, they have also been
limiting their coverage and reimbursement levels for new drugs. In some cases,
they are refusing to cover the costs of drugs that are not new but are being
used for newly approved purposes. Patients who use a product that we may develop
might not be reimbursed for its cost. If third-party payors do not provide
adequate coverage and reimbursement for our products, if and when they reach the
market, doctors may not prescribe them or patients may not use them.
The federal government and various state governments have considered
proposals to regulate the prices of prescription drugs, as is done in certain
foreign countries. We expect that there will be more proposals like these. If
any of these proposals are enacted, we may receive a lower price for our
products, if and when they reach the market, than we currently estimate. Lack of
adequate reimbursement or the enactment of price controls would have a material
adverse effect on our business and financial condition.
We may be unable to retain our key executives and research and
development personnel.
Our success depends on the services of key employees in executive and
research and development positions, notably our Chairman of the Board of
Directors, President and Chief Executive Officer, Dr. Selmani. The loss of the
services of one or more of our key employees could have a material adverse
effect on our operations.
Our insurance coverage may be insufficient for product liability
claims.
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The testing and marketing of bio-therapeutic and medical products, even
after FDA approval, have an inherent risk of product liability. We anticipate we
will obtain product liability insurance coverage in a limited amount at the time
that our operations warrant it. Our profitability will be affected by a
successful product liability claim in excess of any insurance coverage that may
be in effect at such time. We are unsure whether product liability insurance
will be available in the future on reasonable terms or at all.
Our operating results may affected by foreign exchange fluctuations.
We expect a substantial portion of our revenues to be based on sales
and services rendered to come from the United States, while a significant amount
of our operating expenses will be incurred in Canada. As a result, our financial
performance will be affected by fluctuations in the value of the U.S. dollar to
the Canadian dollar. At the present time, we have no plan or policy to utilize
forward contracts or currency options to minimize this exposure, and even if
these measures are implemented, we are unsure whether these arrangements will be
available, be cost effective or be able to fully offset such future currency
risks.
We will pay no dividends on our Common Stock.
We have not paid cash dividends on our Common Stock and do not expect
to do so in the foreseeable future.
Future issuance of shares of Common Stock may dilute present
stockholders.
Our Articles of Incorporation authorize the issuance of a maximum of
50,000,000 shares of Common Stock. Our stockholders may experience a substantial
dilution in the percentage of the Common Stock they hold if we issue all or part
of the remaining authorized Common Stock in the future. Moreover, we may value
any Common Stock issued in the future on a basis other than the current market
price of the Common Stock. Dilution could also occur if we issue our Common
Stock for future services or acquisitions or other corporate actions. These
actions could depress the market price of our Common Stock.
Our Common Stock is regulated as a "penny stock."
Under United States securities regulations, "penny stocks" generally
are equity securities with a price of less than $5.00 per share other than
securities registered on certain national securities exchanges or quoted on the
Nasdaq Stock Market. Our Common Stock is subject to "penny stock rules" that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the "penny stock rules"
require the delivery, prior to the transaction, of a disclosure schedule
prescribed by the Securities and
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Exchange Commission relating to the penny stock market. The broker-dealer must
also disclose the commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information on the
limited market in penny stocks. Consequently, the "penny stock rules" may
restrict the ability of broker-dealers to sell our Common Stock. The "penny
stock rules" will not apply if the market price of our Common Stock is $5.00 or
greater. There can be no assurance that the price of our Common Stock will
attain such a level.
We can give no assurances that our forward looking statements will be
correct.
Certain forward-looking statements, including statements regarding our
business and financing plans, are contained in this Annual Report on Form
10-KSB. These forward-looking statements reflect our views with respect to
future events and financial performance. The words, "believe," "expect," "plans"
and "anticipate" and similar expressions identify forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to be correct. Important factors that could cause actual results to differ
materially from such expectations are disclosed in this Annual Report on Form
10-KSB. All subsequent written and oral forward-looking statements attributable
to us are expressly qualified in their entirety by the cautionary statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
Currency Exchange Rates
All dollar amounts stated in this Annual Report on Form 10-KSB are in
U.S. dollars, except where otherwise specifically indicated. The following table
sets forth, for the dates indicated, the rates at the specific date for the
Canadian dollar per one U.S. dollar, each expressed in Canadian dollars and
based on the noon buying rate in New York City for cable transfers in Canadian
dollars as certified for customs purposes by the Federal Reserve Bank of New
York:
Fiscal Year Ended March 31
1998 1999 2000
---- ---- ----
Rate at end of period 1.4180 1.5092 1.4538
Average rate during the period 1.4027 1.5040 1.4713
High of the period 1.4637 1.5770 1.5135
Low for the period 1.3690 1.4175 1.4350
On July 31, 2000, the noon buying rate in the New York City for cable
transfers in Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York was CDN$1.4880 = US$1.00.
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<PAGE>
ITEM 2. PROPERTY
The Company has its administrative and commercial offices and research
and development facility at 475 Armand-Frappier Boulevard, a 20,000- square-foot
building in Laval (Quebec), in the Greater Montreal Area. The Company purchased
the building in July 2000 at a price of CDN$1,200,000. Prior thereto, the
Company leased the facilities at a net rental of CDN$14,000 per month.
The Company's facilities are designed to be upgradeable to comply with
Good Laboratory Practices (GLPs), while additional space will be devoted in the
future to sites for operations compliant with Good Manufacturing Practices
(GMPs). The Company intends to initiate in the current fiscal year the necessary
work to comply with GMP at an estimated cost of CDN$3,000,000.
ITEM 3. LEGAL PROCEEDINGS
There is no action, suit, proceeding, or investigation pending or, to
the Company's knowledge, threatened against the Company, including any
investigation of any governmental authority or body, except as described below:
Robert Conyers (the "Plaintiff"), a former employee of the Company,
commenced an action on November 16, 1999 in Superior Court, Province of Quebec,
District of Montreal, against the Company and its Chief Executive Officer, Dr.
Amine Selmani. Plaintiff alleges that he was wrongfully terminated as an
employee and seeks CDN$96,581 in compensation allegedly due, the issuance to him
of 100,000 shares of Class A Stock that were subject to an option that was
alleged to have been granted to him and CDN$25,000 in punitive damages. The
Company and Dr. Selmani deny Plaintiff's allegations and believe that they have
meritorious defenses to this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock has been eligible for trading on the Nasdaq Over The
Counter Bulletin Board since the third quarter of the fiscal year ended March
31, 2000. The following table sets out the high and low bid prices of the Common
Stock during the periods indicated. Such prices reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
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<PAGE>
Fiscal Year Quarter High ($) Low ($)
----------- ------------ -------- -------
2000 3rd quarter $0.0000 $0.0000
4th quarter $8.5625 $3.7500
According to information furnished to the Company by the transfer agent
for the Common Stock, as of July 31, 2000, there were 61 holders of record of
the Common Stock, including depositories.
The Company has never declared or paid any cash dividends on its Common
Stock and presently anticipates that any future earnings will be retained for
the development of its business. The payment of future dividends will be at the
discretion of the Company's Board of Directors and will depend upon, among other
things, future earnings, capital requirements, the financial condition of the
Company, and general business conditions.
On December 28, 1999, the Company effectuated a 3.75-for-1 split of its
Common Stock, as a result of which an aggregate of 8,525,000 shares of Common
Stock was issued. The Company relied upon the provisions of Section 2(3) of the
Securities Act of 1933, as amended (the "Securities Act"), inasmuch as such
issuance did not constitute a sale. No consideration was given for such issuance
and no underwriter was involved in such transaction.
On February 2, 2000, the Company received funds for a private placement
of its securities which was conditioned on the closing of the Transactions. The
private placement yielded aggregate proceeds of US $2,350,000, and the Company
issued an aggregate of 470,000 shares of Common Stock and Warrants to purchase
an additional 470,000 shares of Common Stock at a price of US $7.00 on or before
September 30, 2001. The private placement closed on February 29, 2000,
simultaneous with the closing of the Transactions. The Company relied upon the
exemption provided in Regulation S under the Securities Act. No underwriter was
involved in the private placements.
The Company completed a second private placement with five separate
closing dates as shown in the table below. The Company issued a total of
1,910,214 units at a price of US $3.50 per unit yielding gross proceeds of US
$6,055,250 and CDN $900,000. Each unit comprised one share of Common Stock and
one warrant for the purchase of one additional share at a price of US $4.50 per
share before March 30, 2001. The securities were offered and sold in reliance on
the exemption from registration under the Securities Act provided for in
Regulation S. All such securities were deemed by the Company to be restricted
securities and were appropriately legended and restricted as to subsequent
transfer. No underwriter was involved in such transactions.
Closing Date Number of Units Proceeds
------------ --------------- --------
March 31, 2000 843,500 US $2,532,250 and CDN $600,000
(CDN $4,270,243)
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<PAGE>
April 4, 2000 833,857 US $2,813,500 and CDN $150,000
(CDN $4,281,343)
April 17, 2000 82,000 US $287,000
(CDN $425,879)
April 27, 2000 42,857 US $150,000
(CDN $221,925)
June 9, 2000 108,000 US $272,500 and CDN $150,000
(CDN $558,272)
-------------- -------------------------------
Totals 1,910,214 US$6,055,250 and CDN $900,000
(CDN $9,757,662)
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The discussion in this Annual Report on Form 10-KSB contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in the section entitled "Risk Factors" of this report, as well
as those risks discussed in this section and elsewhere in this report.
The discussion and analysis below should be read in conjunction with
the consolidated Financial Statements of the Company and the notes thereto
included elsewhere herein.
BioSyntech, Inc. (together with its subsidiary, Bio Syntech Canada
Inc., also referred to as "we," "us" or the "Company"), a Nevada corporation,
was incorporated on December 14, 1994. It is a development stage company engaged
in the development of biotherapeutic delivery systems made of proprietary
biomaterials. The Company's systems are intended to enable or enhance the
treatment of diseases or injuries for which therapies exist or are under
development, but which must be transported to the site of action. The Company
has had limited revenues to date. Its future operations are dependent upon
financing necessary to complete research and development projects and market the
Company's products. There can be no assurance that the Company will be able to
complete the development of its products, or if completed, that they can be
successfully marketed. Furthermore, there is no assurance that even if the
products are completed and marketed, the revenues therefrom will be sufficient
to fund the Company's future operations or to fund additional research,
development and marketing.
To date, the Company has incurred substantial losses from operations,
and as of March 31, 2000, had an accumulated deficit of CDN $7,655,124 (US
$5,281,581). The Company expects to incur substantial operating expenses in the
future to support its product development efforts and expand its technical and
management personnel and organization.
Revenues from the sales of the Company's products are generally
recognized upon shipment of the product.
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<PAGE>
Results of Operations
The following table sets forth certain items in the Company's
consolidated statements of operations for the fiscal years ended March 31, 2000
and 1999 (in thousands of CDN $)
Fiscal Years Ended March 31,
----------------------------
2000 1999
---- ----
Sales CDN $0 CDN $78.7
Cost of sales 0 35.0
---------- ----------
Gross profit $ 0 $ 43.7
Operating Expenses:
Research and development $ 2,341.7 $ 2,948.3
Investment tax credits (676.9) (599.1)
General and administrative 1,217.5 1,789.5
Amortization of property, plant and 178.2 35.2
---------- ----------
equipment
Total operating expenses $ 3,060.5 $ 4,173.9
---------- ----------
Income from operations (Loss) ($ 3,060.5) ($ 4,130.2)
Interest income 18.6 4.4
Interest expense 198.4 39.9
---------- ----------
Net loss $ 3,240.3 $ 4,165.7
Sales
Since the inception of the Company, revenues have been generated from
sales of Mach-1(TM) Mechanical Testers.
During the year ended March 31, 2000, the Company reported sales of
zero and a net loss of CDN $3,240,283 compared to sales of CDN $78,660 and a net
loss of CDN $4,165,657 for the year ended March 31, 1999.
Loss per share was CDN $0.23 per share for the year ended March 31,
2000, compared to CDN $0.37 per share for the year ended March 31, 1999.
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<PAGE>
Operating Expenses
Research and development expenses were CDN $2,341,697 the year ended
March 31, 2000 compared to CDN $2,948,342 for the year ended March 31, 1999,
partly attributable to the reduction of acquisition of research and development
equipment.
General and administrative expenses were CDN $ 1,217,507 for the year
ended March 31, 2000 compared to CDN $ 1,789,468 for the year ended March 31,
1999, representing a decrease of CDN $571,961. The decrease is principally
attributable to the grant of options in lieu of cash payments to consultants.
Interest Revenue and Interest Expense
Interest revenue represents income earned on the Company's bank
accounts. Interest revenue increased by CDN $14,277, from CDN $4,364, in 1999 to
CDN $18,641 in 2000, primarily due to a higher level of cash on hand during the
period.
Interest expense in 2000 is mainly attributable to interest on the
capital lease transaction entered into by the Company at the end of fiscal year
1999 in order to finance its facility. Interest expense increased by CDN $
158,467 from CDN $39,935 in 1999 to CDN $198,402 in 2000.
Liquidity and Capital Resources
The Company's cash position was CDN $ 7,301,143 (US $5,037,355) as of
March 31, 2000, compared to CDN $57,297 at the end of March 31, 1999.
The Company had an option to terminate the lease of its facility and to
acquire it from its landlord. The Company exercised its option and acquired the
property for a price of CDN$ 1,200,000 during the first week of July 2000.
On February 2, 2000, the Company completed a private placement of its
securities yielding aggregate proceeds of US $2,350,000, for which the Company
issued an aggregate of 470,000 shares of Common Stock and Warrants to purchase
an additional 470,000 shares of Common Stock at a price of US $7.00 on or before
September 30, 2001. The Company relied upon the exemption provided in
regulations under the Securities Act. No underwriter was involved in the private
placement.
The Company completed a second private placement as shown in the table
above and issued a total of 1,910,214 units at a price of US $3.50 (CDN $5,07)
per unit yielding gross proceeds of US $6,055,250 and CDN $900,000 (CDN
$9,757,662). Each unit comprised one share of Common Stock and one warrant for
the purchase of one additional share at a price of US $4.50 (CDN $6.52) per
share before March 30, 2001. The securities were offered and sold in compliance
with the exemption from registration under Securities Act provided for in
Regulation S. All such securities were considered by the Company to be
restricted
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<PAGE>
securities and were appropriately legended and restricted as to subsequent
transfer. No underwriter was involved in such transactions.
The cash position of BioSyntech Inc. on July 31, 2000 is US $6,020,218
plus CDN $575,817.
Employee Growth
As of July 31, 2000, the Company had 27 employees, of whom 22 were
engaged on research and development and five were engaged in corporate and
administrative activities. Over the next 12 months, the Company intends to
increase its corporate and administrative personnel to eight. The existing
research and development team will be expanded by 10 to 15 persons. The Company
anticipates its total employee count to be in the range of 40 employees by 2001.
The information set forth under the caption "Risk Factors - We may be unable to
retain our key executives and research and development personnel" discuss risks
the Company may face in hiring and retaining additional personnel.
ITEM 7. FINANCIAL STATEMENTS
See Index to Financial Statements below.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Ernst & Young LLP has served as the independent accountant for Bio
Syntech Canada and for its predecessors since such corporations' inception.
Under applicable accounting rules and policies, Bio Syntech Canada is deemed to
be the acquirer of the Company as a result of the Transactions. Since the
Transactions, Ernst & Young LLP has served as the independent accountant of the
Company.
Barry L. Friedman of Las Vegas, Nevada, was the independent accountant
of the Company prior to the Transactions.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The following sets forth the name, business address, present principal
occupation, employment and material occupations, positions, offices or
employments for the past five years and ages as of July 31, 2000 for the
executive officers and directors of the Company. Members of the board of
directors shall be elected at the next annual meeting of stockholders to hold
office until the next annual meeting of stockholders and until their respective
successors shall have been duly elected and qualify.
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<PAGE>
Name Age Title
---- --- -----
Amine Selmani 43 Chairman of the Board,
President and Chief Executive Officer
Denis N. Beaudry 57 Director
Pierre Alary 43 Director
Jean-Yves Bourgeois 33 Director
Pierre Ranger 45 Director
Lucie Duval 40 Secretary and Treasurer
Amine Selmani - Dr. Selmani has served as Chairman of the Board,
President and Chief Executive Officer of the Company since February 2000 and
Chairman of the Board, President and Chief Executive Officer of Bio Syntech
Canada and its predecessor corporation since its inception in November 1997.
Prior to founding the predecessor corporation of Bio Syntech Canada in May 1995,
Dr. Selmani had eight years of teaching experience at the Chemical Engineering
Department and Biomedical Institute of Ecole Polytechnique as an Associate
Professor from 1992 to 1997 and as an Assistant Professor from 1989 to 1992. Dr.
Selmani received his Bachelor of Science and Master of Science Degrees in
Physical Chemistry in 1979 and 1981, respectively, from the University of
Bordeaux, France. He also obtained his Doctoral and Post Doctoral Degrees in
Materials Science from the University of Montreal in 1985 and Dalhousy
University in 1988, respectively.
Denis N. Beaudry - Mr. Beaudry has been a director of the Company since
February 2000. Mr. Beaudry has been President and general manager of Polyvalor,
Montreal, Quebec, Canada, a limited partnership formed by the Ecole
Polytechnique for the purpose of commercializing the intellectual property of
the Ecole Polytechnique. His role consists of enhancing the value of research
results for commercial use by means of start-up of high-tech companies in which
Polyvalor holds a participation or interest. Since 1984, he has occupied the
position of director of the Centre de Developpement Technologique of the Ecole
Polytechnique whose sphere of activities includes technology transfer, licensing
of technology and software, joint creation with private industry of laboratories
and research centers, strategic alliances, research partnerships, industrial
chairs and the emergence of high technology enterprises. Mr. Beaudry was
President of the Quebec Association of University Research Directors in 1992,
and is at present a member of the Board of Directors of the Centre des
Technologies Textiles, the College Rosemont, the Corporation de Financement de
l'Institut de Cardiologie de Montreal, the Centre de Technologies du Gaz
Naturel, the Corporation Commerciale de Materiaux Composites, the Centre de
Developpement Rapide de Produits et de Procedes, and the firms Sinlab Inc.,
Phytobiotech Inc., Polyplan Inc., Odotech Inc. and COESI Inc.
Pierre Alary, CA - Mr. Alary has been a director of the Company since
February 2000. Since August 1998, Mr. Alary has been a Vice President for
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<PAGE>
finance and information technologies at Bombardier Transport, a designer,
manufacturer and distributor of rail cars. Prior to joining Bombardier
Transport, Mr. Alary has held various positions from September 1978 to August
1998, including as Senior Partner, at Ernst & Young LLP, specializing in the
biotechnology industry.
Jean-Yves Bourgeois - Mr. Bourgeois has been a director of the Company
since February 2000. Since 1999, Mr. Bourgeois has been a director and Senior
Vice President in charge of corporate finance for eastern Canada of Canaccord, a
securities broker/dealer. Prior to joining Canaccord, Mr. Bourgeois served as a
Chief Financial Officer for Aeterna Laboratories from 1998 to 1999. From 1997 to
1998, Mr. Bourgeois had also been in charge of small capital market development,
specializing in high technology and biotechnology industries, for TD Securities,
a securities broker/dealer. From 1992 to 1997, Mr. Bourgeois held various
positions, including the head of corporate finance for eastern Canada, at Gordon
Capital, a securities broker/dealer, where he specialized in high technology and
biotechnology industries.
Pierre Ranger - Mr. Ranger has been a director of the Company since
February 2000. Since 1991, Mr. Ranger has been a teaching professor in the
orthopedic residents program at the CMDP Sacred Heart Hospital of Montreal. Mr.
Ranger received his Doctoral of Medicine Degree from the University of Montreal
in 1979 and Diploma of Sports Medicine in 1996.
Lucie Duval - Ms. Duval has been the Secretary and Treasurer of the
Company since February 2000 and Secretary and Treasurer of Bio Syntech Canada
and its predecessor corporation since July 1, 1999. From 1986 to 1996, Mrs Duval
was a financial counselor for the city of Montreal, Canada.
Mr. Beaudry is the nominee of Polyvalor which has the right to appoint
one nominee to the Board of Directors under the Assignment Agreement. There are
no family relationships among directors and executive officers.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth, for the periods indicated, all
compensation awarded to, earned by or paid to the Chief Executive Officer of Bio
Syntech, which was merged with the Company's wholly-owned subsidiary, Bio
Syntech Canada, effective February 29, 2000. No other executive officers of Bio
Syntech received annual compensation in excess of US $100,000 during the periods
indicated.
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<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation:
Annual Compensation Award
Fiscal Year
Name and Position (ending 3/31)(1) Salary Bonus(1) # of Options
----------------- --------------- ------ -------- ------------
<S> <C> <C> <C> <C>
Amine Selmani 2000 CDN$120,000 $0 -
President and
Chief Executive 1999 CDN$120,000 $0 312,500(2)
Officer
1998 $0 $0 -
</TABLE>
----------------
(1) Certain of the executive officers of the Company routinely receive other
benefits from the Company, the amounts of which are customary in the Company's
industry. The Company has concluded, after reasonable inquiry, that the
aggregate amounts of such benefits during each of the periods reflected in the
table above did not exceed the lesser of US$50,000 or 10% of the compensation
set forth above for any named individual in respect of any such period.
(2) Represents options awarded under the Bio Syntech Canada, Inc. Stock Option
Plan (the "BSCPlan").
Option Grants
No options were granted to Dr. Selmani under the BSCPlan in the fiscal
year ended March 31, 2000. The Company has never granted any stock appreciation
rights.
Aggregated Fiscal Year-End Option Exercises and Option Values
Dr. Selmani did not exercise any options as of March 31, 2000. The
following table sets forth certain information regarding unexercised stock
options held by Dr. Selmani as of March 31, 2000.
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<PAGE>
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised in
Unexercised Options at the-Money Options at
March 31, 2000(#) March 31, 2000($)
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
---- ------------------------- ----------------------------
<S> <C> <C>
Amine Selmani 312,000/0 $1,521,000/0
</TABLE>
-----------------
(1) Based on the market value, as reported on the Nasdaq Over The Counter
Bulletin Board, of $5.6250 per share of Common Stock at March 31, 2000
and an exercise price of CDN$.75 per share.
Other Compensation Plans
The Company has no pension plan or other compensation plans for its
executive officers or directors.
Compensation of Directors
No fees or other remuneration were paid to directors of the Company
during the fiscal year ended March 31, 2000, with the exception of reimbursement
of expenses. The Board will determine the remuneration of the directors and
officers of the Company during the current and subsequent fiscal years.
Employment Agreements
The Company presently does not have any employment agreement with any
of its executive officers.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table contains information as of July 31, 2000 regarding
the beneficial ownership of shares of Common Stock by the Company's current
directors and executive officers and those persons or entities who, to the
Company's knowledge, beneficially own more than 5% of the Common Stock:
Shares of Common Percentage of Common
Name and Address of Stock Beneficially Stock Beneficially
Beneficial Owner Owned (1)(2) Owned
------------------- ------------------ ------------------
9083-1496 Quebec Inc. (3) 7,640,000 26.2%
475 Boulevard Armand-Frappier
Laval, Quebec, Canada H7V 4B3
Amine Selmani (3) 7,952,500(4) 27.0%
475 Boulevard Armand-Frappier
Laval, Quebec, Canada H7V 4B3
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<PAGE>
Denis N. Beaudry (5)
3744 Jean-Brillant, Suite 6332 0 -
Montreal, Quebec, Canada H3B 1P1
Pierre Alary 0 -
1101 Parent Street
Saint-Bruno, Quebec, Canada J3V 6E6
Jean-Yves Bourgeois 0 -
119 du Bearn Avenue
Saint-Lambert, Quebec, Canada
J4S 1K6
Pierre Ranger 100,000(6) *
1800, Boulevard Le Corbusier,
bur.113
Laval, Quebec, Canada H7S 2K1
Lucie Duval (7) 30,000 *
1111 Arthur Lismer
Unit 610
Montreal, Quebec, Canada H4N 3J3
All Officers and Directors 8,082,500 27.6%
as a group (6 persons)
-----------------------
* Less than one percent.
(1) Includes rights to acquire shares of Common Stock through the exchange
of Class A Stock. See "Description of Business/History of the Company"
for information in respect of the exchange of Class A Stock for Common
Stock.
(2) A person is deemed to be the beneficial owner of voting securities that
can be acquired by such person within 60 days after July 31, 2000 upon
the exercise or conversion of options, warrants or convertible
securities. Each beneficial owner's percentage ownership is determined
by assuming that options, warrants and convertible securities that are
held by such person (but not those held by any other person) and that
are exercisable or convertible within 60 days after July 31, 2000 have
been exercised or converted.
(3) Dr. Selmani does not own directly any Class A Stock or Common Stock.
However, by virtue of his ownership of 9083-1496 Quebec Inc., Dr.
Selmani has shared voting and dispositive power with respect to the
7,640,000 shares of Class A Stock owned by 9083-1496 Quebec Inc. Dr.
Selmani also may be deemed the beneficial owner of 312,500 shares of
Common Stock that would be held by him upon exchange of 312,500 shares
of Class A Stock issuable upon exercise of options granted to Dr.
Selmani.
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<PAGE>
(4) Does not include an aggregate of 1,085,000 shares (which includes
200,000 shares issuable upon the exercise of options) of Common Stock
beneficially owned by Monique Jarry, the spouse of Dr. Selmani. Ms.
Jarry is deemed to be the beneficial owner of such shares of Common
Stock by reason of her beneficial ownership of the same number of
shares of Class A Stock. Dr. Selmani disclaims beneficial ownership of
such shares.
(5) Denis N. Beaudry is the representative of Polyvalor on the Company's
Board. Does not include 1,072,000 shares of Class A Stock beneficially
owned by Polyvalor which are exchangeable on a one-for-one basis for
shares of Common Stock. See "Description of Business -- Material
Agreements." Mr. Beaudry disclaims beneficial ownership of such shares.
(6) Represents 100,000 shares of Common Stock that would be beneficially
owned by Mr. Ranger upon exchange of 100,000 shares of Class A Stock
issuable upon exercise of an option granted to Mr. Ranger.
(7) Represents 30,000 shares of Common Stock that would be beneficially
owned by Ms. Duval upon exchange of 30,000 shares of Class A Stock
issuable upon exercise of an option granted to Ms. Duval.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in "Item 1. Description of Business/History
of the Company" and "-Agreement with Polyvalor" is incorporated herein by
reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 2.1 Amalgamation Agreement made December 2, 1999, as
amended and restated on February 15, 2000, among
BioSyntech Inc., Bio Syntech Ltd. and 9083-5661
Quebec Inc. - Incorporated by reference to Exhibit
2.1 to Current Report on Form 8-K dated March 15,
2000.
Exhibit 3.1 Articles of Incorporation - Incorporated by reference
to Exhibit 3.1 to Registration Statement on Form 10SB
filed August 30, 1999.
*Exhibit 3.2 Amended and Restated By-laws.
Exhibit 4.1 Exchange and Voting Agreement made February 16, 2000
among BioSyntech Inc., 9083-5661 Quebec Inc., Pierre
Barnard and Bio Syntech Ltd. - Incorporated by
reference to Exhibit 4.1 to Current Report on Form
8-K dated March 15, 2000.
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<PAGE>
Exhibit 4.2 Support Agreement made February 15, 2000 among
BioSyntech, Inc., 9083-5661 Quebec Inc. and Bio
Syntech Ltd. - Incorporated by reference to Exhibit
4.2 to Current Report on Form 8-K dated March 15,
2000.
Exhibit 10.1 Amended and Restated Technology Assignment Agreement
among Polyvalor Limited Partnership, Bio Syntech
Canada Inc., and BioSyntech Inc. dated March 15,
2000. - Incorporated by reference to Exhibit 10.1 to
Annual Report on Form 10-KSB for period ended
December 31, 1999 and filed with the Securities and
Exchange Commission on March 30, 2000.
Exhibit 10.2 BioSyntech, Inc. Stock Option Incentive Plan. -
Incorporated by reference to Exhibit 10.2 to Annual
Report on Form 10-KSB for period ended December 31,
1999 and filed with the Securities and Exchange
Commission on March 30, 2000.
Exhibit 10.3 Bio Syntech Canada Inc. Stock Option Incentive Plan.
- Incorporated by reference to Exhibit 10.3 to Annual
Report on Form 10-KSB for period ended December 31,
1999 and filed with the Securities and Exchange
Commission on March 30, 2000.
Exhibit 10.4 Non-Disclosure and Confidentiality Agreement between
Bio Syntech Ltd. and Sulzer Orthopedics Biologics
Inc. dated February 23, 1999. - Incorporated by
reference to Exhibit 10.4 to Annual Report on Form
10-KSB for period ended December 31, 1999 and filed
with the Securities and Exchange Commission on March
30, 2000.
Exhibit 10.5 Material Transfer Agreement between Bio Syntech Ltd.
and Sulzer Orthopedics Ltd. dated January 4, 2000. -
Incorporated by reference to Exhibit 10.5 to Annual
Report on Form 10-KSB for period ended December 31,
1999 and filed with the Securities and Exchange
Commission on March 30, 2000.
Exhibit 10.6 Confidentiality Agreement between Bio Syntech Ltd.
and Reprogenesis, Inc. dated May 31, 1999. -
Incorporated by reference to Exhibit 10.6 to Annual
Report on Form 10-KSB for period ended December 31,
1999 and filed with the Securities and Exchange
Commission on March 30, 2000.
Exhibit 10.7 Material Transfer Agreement between Bio Syntech Ltd.
and Reprogenesis, Inc. dated July 27, 1999. -
Incorporated by reference to Exhibit 10.7 to Annual
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<PAGE>
Report on Form 10-KSB for period ended December 31,
1999 and filed with the Securities and Exchange
Commission on March 30, 2000.
Exhibit 10.8 Confidential Disclosure Agreement between Bio Syntech
Ltd. and Ophidian Pharmaceuticals, Inc. dated August
16, 1999. - Incorporated by reference to Exhibit 10.8
to Annual Report on Form 10-KSB for period ended
December 31, 1999 and filed with the Securities and
Exchange Commission on March 30, 2000.
Exhibit 10.9 Biological Material Transfer Agreement between Bio
Syntech Ltd. and Ophidian Pharmaceuticals, Inc. dated
August 16, 1999. - Incorporated by reference to
Exhibit 10.9 to Annual Report on Form 10-KSB for
period ended December 31, 1999 and filed with the
Securities and Exchange Commission on March 30, 2000.
Exhibit 10.10 Mutual Confidentiality and Non-Disclosure Agreement
between Bio Syntech Ltd. and Viragen Incorporated
dated September 2, 1999. - Incorporated by reference
to Exhibit 10.10 to Annual Report on Form 10-KSB for
period ended December 31, 1999 and filed with the
Securities and Exchange Commission on March 30, 2000.
Exhibit 10.11 Confidential Disclosure Agreement between Bio Syntech
Ltd. and Ontogeny, Inc. dated October 26, 1999. -
Incorporated by reference to Exhibit 10.11 to Annual
Report on Form 10-KSB for period ended December 31,
1999 and filed with the Securities and Exchange
Commission on March 30, 2000.
Exhibit 10.12 Material Transfer Agreement between Bio Syntech Ltd.
and Ontogeny, Inc. dated December 3, 1999. -
Incorporated by reference to Exhibit 10.12 to Annual
Report on Form 10-KSB for period ended December 31,
1999 and filed with the Securities and Exchange
Commission on March 30, 2000.
Exhibit 10.13 Material Transfer Agreement between Bio Syntech Ltd.
and Biomet Manufacturing Corporation dated February
8, 2000. - Incorporated by reference to Exhibit 10.13
to Annual Report on Form 10-KSB for period ended
December 31, 1999 and filed with the Securities and
Exchange Commission on March 30, 2000.
*Exhibit 21 List of Subsidiaries of Company.
*Exhibit 27 Financial Data Schedule.
----------------------------------
* Filed herewith.
-38-
<PAGE>
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated March 15, 2000
(the "March 15 Current Report"), reporting under Item 1. Change in Control of
Registrant and Item 2. Acquisition or Disposition of Assets - the Transactions.
The Company amended the March 15, 2000 Current Report and filed a Form 8-K/A
dated May 15, 2000, to provide the financial statements of Bio Syntech Canada,
Ltd. as of March 31, 2000.
[The remainder of this page was intentionally left blank.]
-39-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BioSyntech, Inc.
August 15, 2000 By: /s/ Amine Selmani
-----------------------
Amine Selmani
President
POWER OF ATTORNEY
BioSyntech, Inc. and each of the undersigned do hereby appoint Dr.
Amine Selmani, its or his true and lawful attorney to execute on behalf of
BioSyntech, Inc. and the undersigned any and all amendments to the Annual Report
on Form 10-KSB and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Title Date
/s/ Amine Selmani President; August 14, 2000
--------------------------- Chief Executive Officer;
Amine Selmani Chief Financial Officer;
Chief Accounting Officer
/s/ Denis N. Beaudry Director August 14, 2000
---------------------------
Denis N. Beaudry
/s/ Pierre Alary Director August 14, 2000
---------------------------
Pierre Alary
/s/ Jean-Yves Bourgeois Director August 14, 2000
---------------------------
Jean-Yves Bourgeois
/s/ Pierre Ranger Director August 14, 2000
---------------------------
Pierre Ranger
-40-
<PAGE>
Consolidated Financial Statements
BioSyntech, Inc.
[formerly Dream Team International Inc.]
[a development stage company]
March 31, 2000 and 1999
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of BioSyntech, Inc.
We have audited the accompanying consolidated balance sheets of BioSyntech, Inc.
[the "Company"], [a development stage company], as of March 31, 2000 and 1999
and the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for the period from inception to March 31, 2000 and
for the years ended March 31, 2000 and 1999. These consolidated financial
statements are the responsibility of the Company's Management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by Management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company [a
development stage company] as of March 31, 2000 and 1999 and the results of its
operations and its cash flows for the period from inception to March 31, 2000
and for the years ended March 31, 2000 and 1999 in conformity with accounting
principles generally accepted in the United States.
Montreal, Canada, /s/ Ernst & Young LLP
June 9, 2000, except as to Note 14, Chartered Accountants
as to which the date is July 4, 2000.
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED BALANCE SHEETs [note 1]
As of March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 2000 1999
US$ C$ C$
---------------------------------------------------------------------------------------------------------------------
[note 2]
<S> <C> <C> <C>
ASSETS
Current assets
Cash 5,037,355 7,301,143 57,297
Short-term investment [note 3] 51,746 75,000 --
Receivables [note 4] 63,044 91,376 68,460
Inventory 32,557 47,188 23,700
Investment tax credits receivable [note 10] 396,716 575,000 603,663
Prepaid expense 12,671 18,365 --
---------------------------------------------------------------------------------------------------------------------
5,594,089 8,108,072 753,120
---------------------------------------------------------------------------------------------------------------------
Property, plant and equipment [note 5] 1,035,525 1,500,890 1,665,163
Other assets 11,487 16,650 15,867
---------------------------------------------------------------------------------------------------------------------
6,641,101 9,625,612 2,434,150
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities
Demand loan [note 6] -- -- 518,598
Accounts payable and accrued liabilities 731,977 1,060,928 579,552
Due to stockholder, without interest and
repayment terms 6,899 10,000 30,394
Deferred revenues 45,157 65,451 --
Current portion of long-term debt [note 7] 51,746 75,000 400,000
Current portion of obligations under capital
leases [note 8] 57,596 83,479 56,452
---------------------------------------------------------------------------------------------------------------------
893,375 1,294,858 1,584,996
---------------------------------------------------------------------------------------------------------------------
Long-term debt [note 7] 155,237 225,000 300,000
Obligations under capital leases [note 8] 629,409 912,266 991,736
---------------------------------------------------------------------------------------------------------------------
1,678,021 2,432,124 2,876,732
---------------------------------------------------------------------------------------------------------------------
Commitment [note 12]
Contingent liability [note 13]
Stockholders' equity (deficiency)
Common stock [note 9]
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding
28,115,536 common shares 9,060,785 13,132,702 2,662,909
Additional paid-in capital 1,183,876 1,715,910 1,309,350
Deficit accumulated during the development stage (5,281,581) (7,655,124) (4,414,841)
---------------------------------------------------------------------------------------------------------------------
4,963,080 7,193,488 (442,582)
---------------------------------------------------------------------------------------------------------------------
6,641,101 9,625,612 2,434,150
=====================================================================================================================
</TABLE>
See accompanying notes
----------------------------------- ---------------------------------------
Director Director
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED STATEMENTS OF OPERATIONS [note 1]
Years ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Cumulative
from inception to
March 31, 2000 2000 2000 1999
C$ US$ C$ C$
--------------------------------------------------------------------------------------------------------------------------
[note 2]
<S> <C> <C> <C> <C>
Sales 168,138 -- -- 78,660
Cost of sales 71,962 -- -- 35,008
--------------------------------------------------------------------------------------------------------------------------
96,176 -- -- 43,652
--------------------------------------------------------------------------------------------------------------------------
Research and development expenses 5,653,972 1,615,632 2,341,697 2,948,342
Investment tax credits (1,413,364) (466,994) (676,861) (599,114)
General and administrative expenses 3,082,139 840,008 1,217,507 1,789,468
Interest on long-term debt 238,337 136,885 198,402 39,935
Amortization of property, plant and equipment 213,221 122,933 178,179 35,042
Interest revenue (23,005) (12,861) (18,641) (4,364)
--------------------------------------------------------------------------------------------------------------------------
7,751,300 2,235,603 3,240,283 4,209,309
--------------------------------------------------------------------------------------------------------------------------
Net loss for the period [note 10] 7,655,124 2,235,603 3,240,283 4,165,657
Deficit accumulated during the
development stage, beginning of period -- 3,045,978 4,414,841 249,184
--------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the
development stage, end of period 7,655,124 5,281,581 7,655,124 4,414,841
--------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 14,042,819 14,042,819 11,274,996
Basic and diluted loss per share [note 9] 0.16 0.23 0.37
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIENCY) [notes 1 and 9]
From inception to March 31, 2000
[In Canadian dollars]
<TABLE>
<CAPTION>
Common Stock
-----------------------------------
Additional
paid-in Accumulated deficit
Shares Amount capital $ Total
$ $ $
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, May 10, 1995 8,525,000 1 -- -- 1
Net loss 1996 [325 day period] -- -- -- (2,865) (2,865)
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 8,525,000 1 -- (2,865) (2,864)
Net loss 1997 -- -- -- (9,332) (9,332)
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 8,525,000 1 -- (12,197) (12,196)
Deemed common stock paid up as of January 31,
1998 and issued on August 3, 1998 -- 215,000 -- -- 215,000
Net loss 1998 -- -- -- (236,987) (236,987)
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 8,525,000 215,001 -- (249,184) (34,183)
Deemed common stock issued for cash 1,746,579 1,083,108 -- -- 1,083,108
Deemed common stock issued in exchange for
services 1,940,000 1,455,000 -- -- 1,455,000
Deemed options granted to consultants -- -- 1,309,350 -- 1,309,350
Net loss 1999 -- (4,165,657) (4,165,657)
Deemed share issuance costs -- (90,200) -- -- (90,200)
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 12,211,579 2,662,909 1,309,350 (4,414,841) (442,582)
Deemed common stock issued for cash 1,893,457 2,595,222 -- -- 2,595,222
Deemed common stock issued in exchange for
intellectual property [note 12] 1,072,000 1,072,000 -- -- 1,072,000
Deemed options granted to consultants -- -- 406,560 -- 406,560
Net loss for the period from April 1, 1999 to
February 28, 2000 -- -- -- (2,850,977) (2,850,977)
------------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding February 29, 2000 15,177,036 6,330,131 1,715,910 (7,265,818) 780,223
Acquisition of BioSyntech, Inc.
by Bio Syntech Ltd. 12,095,000 2,873,848 -- -- 2,873,848
March 31, 2000, issuance [note 9] 843,500 4,270,243 -- -- 4,270,243
Share issue costs [note 9] -- (341,520) -- -- (341,520)
Net loss for the period from February 29, 2000
to March 31, 2000 -- -- -- (389,306) (389,306)
------------------------------------------------------------------------------------------------------------------------------------
28,115,536 13,132,702 1,715,910 (7,655,124) 7,193,488
====================================================================================================================================
US dollars [note 2]
Balance as at March 31, 2000 9,060,785 1,183,876 (5,281,581) 4,963,080
====================================================================================================================================
</TABLE>
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED STATEMENTS OF CASH FLOWS [note 1]
Years ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Cumulative
from inception
to March 31, 2000 2000 2000 1999
C$ US$ C$ C$
----------------------------------------------------------------------------------------------------------------------------------
[note 2]
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss (7,655,124) (2,235,604) (3,240,283) (4,165,657)
Items not affecting cash
Amortization 213,221 122,933 178,179 35,042
Services paid by the isssuance of common stock 2,527,000 739,616 1,072,000 1,455,000
Options granted to consultants 1,715,910 280,502 406,560 1,309,350
Changes in working capital assets and liabilities
Accounts receivable (91,376) (15,811) (22,916) (5,377)
Inventory (47,188) (16,205) (23,488) (23,700)
Investment tax credits receivable (575,000) 19,776 28,663 (468,663)
Prepaid expenses (18,365) (12,671) (18,365) --
Deferred revenues 65,451 45,157 65,451 --
Accounts payable and accrued liabilities 1,044,440 332,121 481,376 339,156
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (2,821,031) (740,186) (1,072,823) (1,524,849)
----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (75,251) (8,904) (12,907) (69,370)
Purchase of short-term investment (75,000) (51,746) (75,000) --
Purchase of other assets (16,650) (575) (833) (14,867)
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (166,901) (61,225) (88,740) (84,237)
----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- -- 700,000
Reimbursement of long-term debt (400,000) (275,976) (400,000) --
Proceeds of demand loan 581,845 -- -- 581,845
Reimbursement of demand loan (581,845) (357,802) (518,598) (63,247)
Increase in due to shareholder 30,394 -- -- 20,394
Repayment to shareholder (20,394) (14,071) (20,394) --
Reimbursement of obligations under capital leases (643,116) (36,182) (52,443) (583,647)
Proceeds from issuance of shares of
Bio Syntech Ltd. prior to the reverse acquisition 3,890,068 1,790,549 2,595,222 1,083,108
Proceeds from issuance of common shares of
BioSyntech, Inc. prior to the reverse acquisition 3,399,980 2,331,503 3,379,279 --
Repurchase of common stock of
BioSyntech, Inc. prior to the reverse acquisition (506,380) (349,372) (506,380) --
Proceeds from issuance of common shares of
BioSyntech, Inc. after the reverse acquisition 4,270,243 2,946,214 4,270,243 --
Share issue costs (431,720) (235,629) (341,520) (90,200)
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 10,289,075 5,799,234 8,405,409 1,648,253
----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash 7,301,143 4,997,823 7,243,846 39,167
Cash, beginning of period -- 39,532 57,297 18,130
----------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 7,301,143 5,037,355 7,301,143 57,297
----------------------------------------------------------------------------------------------------------------------------------
Additional information
Interest paid 228,351 129,996 188,416 39,935
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company was incorporated on December 14, 1994 under the laws of the State of
Nevada. The Company's operations and all of its assets are located in Canada.
Pursuant to an Amalgamation agreement dated February 15, 2000, 9083-5661 Quebec
Inc., a wholly-owned subsidiary of the Company, and Bio Syntech Ltd. ["Bio
Syntech"] were merged into one company under the name of Bio Syntech Canada Inc.
["Bio Syntech Canada"]. As a result of the merger, the Company became the record
and beneficial owner of all of the issued and outstanding voting shares of Bio
Syntech Canada. The former Bio Syntech shareholders were issued 15,177,036
non-voting exchangeable shares of Bio Syntech Canada's Preferred Stock [the
"Class A Shares"]. The Class A Shares are exchangeable on a share-for-share
basis [15,177,036] of common stock of the Company. As at March 31, 2000, the
related 15,177,036 shares of common stock of the Company have been issued and
placed in trust and are thus considered issued and outstanding.
Beneficial holders of the Class A Shares have voting rights equal to the number
of Company shares placed in trust. Therefore, the Bio Syntech shareholders are
deemed to hold securities with voting rights equal to approximately 55% of the
total voting power of the outstanding common stock of the Company. This
transaction is considered an acquisition of the Company, which at the date of
the transaction was a shell company, by Bio Syntech and has been accounted for
as a purchase of the net assets of the Company by Bio Syntech in these
consolidated financial statements. Accordingly, this transaction represents a
recapitalization of Bio Syntech, the legal subsidiary effective February 29,
2000.
These consolidated financial statements are the continuation of the financial
statements of the accounting acquirer Bio Syntech which has a year-end of March
31. This date will continue to be used as the Company's year-end. Bio Syntech's
assets and liabilities are included in the consolidated financial statements at
their historical carrying amounts. Figures for the years ended as at March 31,
2000 and 1999 are those of Bio Syntech. For purposes of the acquisition, the
fair value of the net assets of the Company of $2,873,848 is ascribed to the
12,095,000 previously outstanding common stock of the Company deemed to be
issued in the acquisition as follows:
$
--------------------------------------------------------------------------------
Note receivable from Bio Syntech Ltd. 2,879,986
Accounts payable and accrued liabilities (6,138)
--------------------------------------------------------------------------------
Purchase price 2,873,848
================================================================================
1
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION [Cont'd]
The Company is a development stage company engaged in the development of
biotherapeutic delivery systems made of proprietary biomaterials. The Company's
systems are intended to enable or enhance the treatment of diseases or injuries
for which therapies exist or are under development, but must be transported to
the site of action. The Company has limited revenues to date and is thus subject
to numerous risks, including risks associated with product development and
marketing, obtaining the necessary regulatory approvals, growth, manufacturing,
competition, and attracting and retaining key personnel. It may be necessary for
the Company to raise additional funds for the continuing development and
marketing of its technologies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain 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 revenues and expenses during the reporting period.
Accordingly, actual results could differ from those estimates. The significant
accounting principles are as follows:
Consolidated financial statements and basis of presentation
The consolidated financial statements include the accounts of BioSyntech, Inc.
and the accounts of Bio Syntech Canada Inc. All intercompany transactions and
balances have been eliminated. US dollar amounts presented on the consolidated
balance sheets, consolidated statements of operations, statements of
stockholders' equity (deficiency) and consolidated statements of cash flows are
provided for convenience of reference only and are based on the closing exchange
rate at March 31, 2000, which was $1.4494 Canadian dollar per US dollar.
Revenue recognition
Revenues from sales of the Company's products are recognized upon shipment.
Inventory
Inventory consists of raw materials. Inventories are stated at the lower of cost
[on a first-in, first-out basis] and replacement cost.
2
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Property, plant and equipment
Property, plant and equipment are recorded at cost. They are amortized over
their estimated useful life on a straight-line basis as follows:
Building under capital lease 10 years
Office furniture 5 years
Equipment under capital lease 10 years
Office furniture under capital lease 5 years
Research and development expenditures
Research and development expenditures, including equipment used in research and
development activities, are expensed as incurred.
Foreign exchange
Monetary assets and liabilities denominated in a foreign currency are translated
at the rate of exchange prevailing at the balance sheet date. Non-monetary
assets and liabilities are translated at the rate of exchange prevailing at the
date of the transaction. Revenues and expenses are translated at the monthly
average exchange rate prevailing during the period. Foreign exchange gains and
losses are included in the determination of net earnings. The Canadian dollar is
the functional currency of the Company.
Income taxes
The Company accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards No. 109 Accounting for income
taxes ["SFAS 109"].
Government assistance
Government assistance in connection with research and development activities is
recognized as an expense reduction in the year that the related expenditure is
incurred.
Federal and provincial investment tax credits are accounted for using the cost
reduction method which recognizes the credits as a reduction of the cost of the
related assets or expenditures in the year in which the credits are earned and
when there is reasonable assurance of their recovery.
3
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Stock option plans
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ["APB"] Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations, in accounting for its fixed plan
stock options for options granted to employees and directors.
Impairment of long-lived assets and long-lived assets to be disposed of
The Company accounts for long-lived assets in accordance with the provisions of
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of, if any, are reported at the lower of the carrying amount or fair
value less costs to sell.
Basic and diluted loss per common stock
Per share amounts have been computed based on the weighted average number of
common shares outstanding each period. The weighted average number of common
shares outstanding prior to the transaction of February 29, 2000 are based on
the number of BioSyntech common shares outstanding during that period.
Exchangeable shares of Bio Syntech Canada [15,177,036 shares] outstanding are
deemed to be outstanding common shares of the Company for the purposes of the
loss per share calculations and share continuity disclosures as the exchangeable
shares are the economic equivalent of common shares of the Company.
3. SHORT-TERM INVESTMENT
The short-term investment consists of a held-to-maturity term deposit, maturing
on July 21, 2000, which is pledged as collateral security against a letter of
guarantee issued by a financial institution.
4
<PAGE>
4. RECEIVABLES
2000 1999
$ $
--------------------------------------------------------------------------------
Sales tax receivable 73,623 35,881
Government grants receivable 3,462 20,423
Other 14,291 12,156
--------------------------------------------------------------------------------
91,376 68,460
================================================================================
5. PROPERTY, PLANT AND EQUIPMENT
Accumulated Net
Cost amortization book value
$ $ $
--------------------------------------------------------------------------------
2000
Building and land under capital lease 1,614,629 188,389 1,426,240
Office furniture 74,357 20,954 53,403
Equipment under capital lease 18,050 3,009 15,041
Office furniture under capital lease 7,025 819 6,206
--------------------------------------------------------------------------------
1,714,061 213,171 1,500,890
================================================================================
1999
Building and land under capital lease 1,613,785 27,000 1,586,785
Office furniture 68,370 6,837 61,533
Equipment under capital lease 18,050 1,205 16,845
--------------------------------------------------------------------------------
1,700,205 35,042 1,665,163
================================================================================
5
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
6. DEMAND LOAN AND CREDIT FACILITY
The demand loan of $518,598 at March 31, 1999 carried interest at the prime rate
plus 1.75% and was payable upon receipt of investment tax credits. It was
repaid during the year ended March 31, 2000.
The Company has a $50,000 credit facility, maturing July 31, 2000, payable upon
demand, bearing interest at prime rate plus 2.5%. A $50,000 charge on inventory
and accounts receivable was granted to the financial institution with respect to
this facility. As of March 31, 2000, no amount was drawn under this credit
facility.
As at March 31, 2000 and 1999, the prime rate was 7% and 6.75% respectively.
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
2000 1999
$ $
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank loan bearing interest at the prime rate. The loan has an interest exemption
period covered by a governmental agency, until April 24, 2001, matures on March
25, 2006 and is payable in monthly instalments of $3,333 plus interest starting
on April 25, 2001. The debt is collateralized by a governmental agency and a
$200,000 first rank charge on all tangible and intangible assets not otherwise
encumbered. 200,000 200,000
Bank loan bearing interest at the prime rate plus 3.0%, maturing on July 26,
2001, payable by monthly instalments of $6,250 plus interest and collateralized
by a $225,000 first rank
charge on research and development laboratory equipment. 100,000 175,000
Term loan, without interest, until March 31, 2000, reimbursed in fiscal 2000. -- 325,000
--------------------------------------------------------------------------------------------------------------------
300,000 700,000
Less: current portion 75,000 400,000
--------------------------------------------------------------------------------------------------------------------
225,000 300,000
--------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
7. LONG-TERM DEBT [Cont'd]
The principal instalments payable are as follows for years ending March 31:
$
--------------------------------------------------------------------------------
2001 75,000
2002 65,000
2003 40,000
2004 40,000
2005 40,000
Subsequent to 2005 40,000
--------------------------------------------------------------------------------
300,000
--------------------------------------------------------------------------------
8. obligations UNDER capital leaseS
Future minimum lease payments under the capital leases are as follows for years
ending March 31:
$
--------------------------------------------------------------------------------
2001 180,278
2002 170,409
2003 168,000
2004 168,000
2005 168,000
Subsequent to 2005 644,000
--------------------------------------------------------------------------------
1,498,687
Less: interest portion at rates varying between 10% and 14.38% 502,942
--------------------------------------------------------------------------------
995,745
Less: current portion 83,479
--------------------------------------------------------------------------------
912,266
================================================================================
7
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. Stockholders' equity (deficiency) and
stock options
Authorized
The authorized common stock of the Company consists of 50,000,000 shares with a
par value of $0.001 per share.
On February 2, 2000, the Company completed a private placement yielding gross
proceeds of US$2,350,000 and issued 470,000 common shares and 470,000 warrants
entitling the holder to purchase an aggregate of 470,000 common shares at a
price of US$7.00 on or before September 30, 2001.
On March 31, 2000, the Company issued 723,500 common shares in consideration of
$3,670,243 [US$2,532,250] and 120,000 common shares in consideration of
$600,000. The share issue costs amounted to $341,520 [US$234,980]. As part of
this transaction, a total of 843,500 warrants were issued which entitle the
holder to purchase an aggregate of 843,500 common stocks at a price of US$4.50
on or before March 30, 2001.
As of March 31, 2000, a total of 1,313,500 warrants issued by the Company are
outstanding.
Stock options
Under the Company's Stock Option Plan, options may be granted for an authorized
maximum of 2,500,000 shares of common stock to employees, directors and senior
consultants. No options have been granted by the Company. The Board shall have
the sole authority to determine the terms and conditions of the options to be
issued. The expiry date of options is ten years after the date of grant.
Under the subsidiary's option plan, options may be granted for an authorized
maximum of 1,500,000 Class A shares of Bio Syntech Canada. The subsidiary has
1,500,000 options granted entitling the holders to purchase 1,500,000 Class A
shares of Bio Syntech Canada which are exchangeable in common shares of
BioSyntech, Inc. at prices varying between $0.75 and $2.17. The options are
exercisable at any time before the expiry date which is for a maximum of ten
years following the date of grant.
8
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. stockholders' equity (deficiency) and
stock options [Cont'd]
Stock Weighted
Options Average Exercise
Price
C$
--------------------------------------------------------------------------------
2000
Outstanding, beginning of year 1,247,500 0.83
Granted 252,500 2.17
Exercised -- --
Expired -- --
Canceled/ surrendered -- --
--------------------------------------------------------------------------------
Outstanding and exercisable, end of period 1,500,000 1.06
--------------------------------------------------------------------------------
Weighted average fair value of options granted 3.25
--------------------------------------------------------------------------------
1999
Outstanding, beginning of year -- --
Granted 1,247,500 0.83
Exercised -- --
Expired -- --
Canceled/surrendered -- --
--------------------------------------------------------------------------------
Outstanding and exercisable, end of year 1,247,500 0.83
--------------------------------------------------------------------------------
Weighted average fair value of options granted 2.96
--------------------------------------------------------------------------------
No options were granted prior to 1999. These options expire between December 1,
2001 and June 1, 2008.
182,000 options were granted to consultants in the year ended March 31, 2000
[435,000 for the year ended March 31, 1999]. The fair value of these options at
the time of grant has been charged to general and administrative expenses in the
amount of $406,560 during the year ended March 31, 2000 [$1,309,350 for the year
ended March 31, 1999].
Had compensation cost for the Company's stock options been determined consistent
with SFAS No. 123, the Company's pro forma net loss would be increased by
$380,000 for the year ended March 31, 2000 [$2,050,000 for the year ended March
31, 1999] and basic loss per share would be increased by $0.03 [$0.18 for the
year ended March 31, 1999].
9
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. stockholders' equity (deficiency) and
stock options [Cont'd]
The fair value of options at the date of grant was estimated using the
Black-Scholes pricing model with the following weighted average assumptions.
2000 1999
% %
--------------------------------------------------------------------------------
Expected life (years) 5.00 5.00
Risk-free interest rates 6.00 5.60
Volatility 1.21 0.60
Dividend yield 0.00 0.00
--------------------------------------------------------------------------------
The effects of applying SFAS 123 for the pro forma disclosures are not
representative of the effects expected on reported net earnings in future years
since valuations are based on highly subjective assumptions about the future,
including stock price volatility and exercise patterns.
The following table summarizes information with respect to stock options
outstanding for the subsidiary's option plan that the holder may convert into
common shares of the Company at March 31, 2000:
Options outstanding and exercisable
-------------------------------------------------
Exercise price Number Weighted average remaining
$ outstanding contractual life (years)
--------------------------------------------------------------------------------
0.75 1,147,500 2.31
1.75 100,000 8.25
US 1.50 252,500 2.75
--------------------------------------------------------------------------------
1,500,000 2.79
--------------------------------------------------------------------------------
10
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. stockholders' equity (deficiency) and
stock options [Cont'd]
Loss per share
The following is a reconciliation of the numerator and denominator of the basic
and diluted loss per share computations for the years ended March 31, 2000 and
1999.
2000 1999
$ $
--------------------------------------------------------------------------------
Numerator
Net loss - numerator
For basic and diluted loss per share 3,240,283 4,165,657
Denominator:
Denominator for basic loss per share
Weighted-average shares 14,042,819 11,274,996
Effect of dilutive securities:
Stock options and warrants -- --
--------------------------------------------------------------------------------
Denominator for diluted loss per share
Adjusted weighted-average shares and
assumed conversions 14,042,819 11,274,996
================================================================================
The Company's diluted net loss per share is equivalent to its basic net loss per
share, since all of the Company's potentially issuable securities would have an
anti-dilutive effect in 2000 and 1999. These securities are in the form of stock
options and warrants.
11
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
10. INCOME TAXES
There is no provision for income taxes or income tax recovery as the Company has
had continuous losses and it is not more likely than not that there will be
future taxable income which might offset the current loss carryforward.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
2000 1999
$ $
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards 622,176 123,193
Scientific research and experimental development expenses 451,432 250,823
Excess of tax basis of financing fees over accounting value 20,602 15,064
Excess of tax basis of capital assets over accounting value 471,004 300,266
--------------------------------------------------------------------------------------------------
Total deferred tax assets 1,565,214 689,346
==================================================================================================
Deferred tax liabilities
Excess of accounting value of capital assets over tax basis 429,661 297,494
Investment tax credits -- 84,220
--------------------------------------------------------------------------------------------------
Total deferred tax liabilities 429,661 381,714
==================================================================================================
Net deferred tax assets (liabilities)
Deferred tax assets 1,565,214 689,346
Deferred tax liabilities 429,661 381,714
--------------------------------------------------------------------------------------------------
1,135,553 307,632
Valuation allowance 1,135,553 307,632
--------------------------------------------------------------------------------------------------
Net deferred tax assets (liabilities) -- --
==================================================================================================
</TABLE>
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance.
12
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
10. INCOME TAXES [Cont'd]
The Company has Canadian tax loss and investment tax credit carryforwards for
income tax purposes in the amount of approximately $2,073,000 and $139,000,
respectively, the benefit of which has been offset by a valuation allowance,
that expires as follows:
Tax Investment tax
losses credits
$ $
--------------------------------------------------------------------------------
2001 3,000 --
2002 9,000 --
2003 39,000 --
2004 605,000 --
2005 1,176,000 --
2006 241,000 32,000
2007 -- 65,000
2008 -- 22,000
2009 -- 20,000
--------------------------------------------------------------------------------
The Company has accumulated temporary differences as set out in the summary of
deferred tax assets set out above. The differences are mainly in relation to
scientific research and experimental development and are in the amount of
approximately $1,225,000 at the Canadian federal level and $2,020,000 in Quebec.
The investment tax credits recorded by the Company are subject to review and
approval by the tax authorities and it is possible that the amounts granted will
be different from the amounts accounted for.
11. FINANCIAL INSTRUMENTS
[a] Fair value
Short-term financial assets and liabilities
The carrying amounts of short-term financial assets and liabilities are a
reasonable estimate of the fair values because of the short maturity of these
instruments. Short-term financial assets comprise cash, the short-term
investment, accounts receivable and investment tax credits receivable.
Short-term financial liabilities comprise the demand loan and accounts payable
and accrued liabilities.
13
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
11. FINANCIAL INSTRUMENTS [Cont'd]
Long-term debt
The carrying amount of the Company's floating-rate long-term debt approximates
its fair value as it bears interest at current commercial floating rates.
The fair value of the fixed-rate long-term debt and obligations under capital
leases are based on the rates in effect for financial instruments with similar
terms and maturities, and approximates the carrying amount as of March 31, 2000
and March 31, 1999.
[b] Credit risk
The cash and short-term investment are held by one Canadian financial
institution, a chartered bank.
12. COMMITMENT
Under the terms of a technology licence contract, the Company must pay 5%
royalties to a shareholder on future sales of all products and services, sold or
offered by the Company, to a maximum of $3 million.
13. CONTINGENT LIABILITY
A former employee of a subsidiary company has commenced an action alleging that
he was wrongfully terminated and seeking $97,000 in compensation allegedly due,
the issuance to him of 100,000 Class A common shares of the subsidiary company,
which could be converted in common stock of the Company, that were the subject
of an option that was alleged to have been granted to him, and punitive damages
of $25,000. In the opinion of management, based on the advice and information
provided by its legal counsel, the final determination of this litigation is not
determinable. As such no provision has been recorded.
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
14. SUBSEQUENT EVENTS
[a] Private placement
During April and June 2000, the Company issued 1,006,714 units at a price of
US$3.50 per unit for a consideration of US$3,523,500 and 60,000 units at a price
of C$5,00 per unit for a consideration of C$300,000. The aggregate share issue
costs amounted to C$373,746. Each unit consists of one share of common stock
BioSyntech, Inc. and one warrant entitling the holder to acquire one share of
common stock at a price of US$4.50 on or before March 30, 2001.
[b] Property, plant and equipment
On July 4, 2000, the Company exercised its option to purchase the building and
land under capital lease for an amount of $1,200,000.
15. RECENT DEVELOPMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging
Activities and Activities and Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB Opinion No.
25. SFAS 133 will be effective for the Company's 2002 year-end and interim
periods and Activities and Interpretation No. 44 will be effective July 1, 2000.
The Company has not yet determined the impact, if any, on its consolidated
financial statements arising from the eventual application of these accounting
recommendations.
