SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
February 29, 2000
- --------------------------------------------------------------------------------
Date of Report
(Date of Earliest Event Reported)
BioSyntech Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 0-27179 88-0329399
- ---------------- ------------------- ---------------------------
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
475 Boulevard Armand-Frappier
Laval, Quebec, Canada
H7V 4B3
- --------------------------------------------------------------------------------
(Address of Principal Executive Office)
(450) 686-2437
- --------------------------------------------------------------------------------
(Registrant's telephone number,
including area code)
Dream Team International, Inc.
3675 Pecos-McLeod, Suite 112
Las Vegas, NV 89119
- --------------------------------------------------------------------------------
(Former Name and Former Address)
<PAGE>
BioSyntech, Inc. (the "Company") hereby amends Item 7 of its Current
Report on Form 8-K filed with the Securities and Exchange Commission on March
15, 2000 (the "Form 8-K"), to provide the financial statements of Bio Syntech
Ltd., the acquisition of which was reported under Item 2 of the Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Balance Sheets of BioSyntech Ltd. as of February 28, 2000
and March 31, 1999 and 1998 4
Statements of Operations for the 334-day period ended
February 28, 2000 and years ended March 31, 1999 and 1998 5
Statements of Stockholders' Equity (Dificiency) for the 334-day
period ended February 28, 2000 and years ended March 31, 1999
and 1998 6
Statements of Cash Flows for the 334-day period ended
February 28, 2000 and years ended March 31, 1999 and 1998 7
Notes to Financial Statements 8
<PAGE>
FINANCIAL STATEMENTS
BIO SYNTECH LTD.
February 28, 2000, March 31, 1999 and 1998
<PAGE>
AUDITORS' REPORT
To the Board of Directors and Stockholders of
Bio Syntech Ltd.
We have audited the accompanying balance sheets of Bio Syntech Ltd. (the
"Company"), (a development stage company), as of February 28, 2000 and March 31,
1999 and 1998, and the related statements of operations, stockholders' equity
(deficiency) and cash flows for the cumulative from inception to February 28,
2000 and for the 334 day period ended February 28, 2000 and each year in the
two-year period ended March 31, 1999. These financial statements are the
responsibility of the Company's Management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company (a development
stage company) as of February 28, 2000, March 31, 1999 and 1998, and the results
of its operations and its cash flows for the cumulative from inception to
February 28, 2000 and for the 334 day period ended February 28, 2000 and each
year in the two-year period ended March 31, 1999 in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in note 1 to the financial
statements, the Company has suffered recurring losses from operations and has no
established source of revenue. These matters raise substantial doubt about the
ability of the Company to continue as a going concern. Management's plan in
regard to these matters is described in note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Montreal, Canada, /s/ Ernst & Young LLP
March 23, 2000. Chartered Accountants
[except for the note 15, as to which the date is April 20, 2000]
-3-
<PAGE>
Bio Syntech Ltd.
A development stage company
BALANCE SHEETs [note 1]
As at February 28, 2000, March 31, 1999 and 1998
[In Canadian dollars]
<TABLE>
<CAPTION>
February 28, March 31,
2000 1999 1998
$ $ $
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents 3,175,830 57,297 18,130
Short-term investment [note 3] 75,000 -- --
Accounts receivable [note 4] 91,284 68,460 63,083
Inventory 30,975 23,700 --
Investment tax credits receivable [note 11] 575,000 603,663 135,000
Prepaid expenses 54,534 -- --
- ------------------------------------------------------------------------------------------------------------------------
4,002,623 753,120 216,213
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment [note 5] 1,514,037 1,665,163 --
Other assets 17,382 15,867 --
- ------------------------------------------------------------------------------------------------------------------------
5,534,042 2,434,150 216,213
========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities
Demand loan [note 7] -- 518,598 --
Accounts payable and accrued liabilities 489,849 579,552 240,396
Due to shareholder, without interest and
repayment terms 10,000 30,394 10,000
Deferred revenues 65,451 -- --
Current portion of long-term debt [note 8] 75,000 400,000 --
Current portion of obligations under capital
leases [note 9] 82,691 56,452 --
- ------------------------------------------------------------------------------------------------------------------------
722,991 1,584,996 250,396
- ------------------------------------------------------------------------------------------------------------------------
Promissory note [note 6] 2,879,986 -- --
Long-term debt [note 8] 231,250 300,000 --
Obligations under capital leases [note 9] 919,592 991,736 --
- ------------------------------------------------------------------------------------------------------------------------
4,753,819 2,876,732 250,396
- ------------------------------------------------------------------------------------------------------------------------
Shareholders' equity (deficiency)
Capital stock [note 10] 6,330,131 2,662,909 215,001
Additional paid in capital 1,715,910 1,309,350 --
Deficit accumulated during the development stage (7,265,818) (4,414,841) (249,184)
- ------------------------------------------------------------------------------------------------------------------------
780,223 (442,582) (34,183)
- ------------------------------------------------------------------------------------------------------------------------
5,534,042 2,434,150 216,213
========================================================================================================================
</TABLE>
Commitments [note 13]
Contingent liabilities [notes 1 and 14]
See accompanying notes
- ----------------------------------------- ----------------------------------
Director Director
-4-
<PAGE>
Bio Syntech Ltd.
A development stage company
STATEMENTS OF OPERATIONS [note 1]
334 day period ended February 28, 2000
and years ended March 31, 1999 and 1998
[In Canadian dollars]
<TABLE>
<CAPTION>
Cumulative
from inception
to February 28,
2000 2000 1999 1998
$ $ $ $
- --------------------------------------------------------------------------------------------------------------------------------
[334 days]
<S> <C> <C> <C> <C>
Sales 168,138 -- 78,660 89,478
Cost of sales 71,962 -- 35,008 36,954
- --------------------------------------------------------------------------------------------------------------------------------
96,176 -- 43,652 52,524
- --------------------------------------------------------------------------------------------------------------------------------
Research and development
expenses [note 10] 5,506,743 2,194,468 2,948,342 363,933
Investment tax credits (1,413,364) (676,861) (599,114) (137,389)
General and administrative
expenses [note 10] 2,850,975 986,343 1,789,468 62,967
Interest on long-term debt 228,531 188,596 39,935 --
Amortization of property, plant
and equipment 198,264 163,222 35,042 --
Interest revenue (9,155) (4,791) (4,364) --
- --------------------------------------------------------------------------------------------------------------------------------
7,361,994 2,850,977 4,209,309 289,511
- --------------------------------------------------------------------------------------------------------------------------------
Net loss [note 11] 7,265,818 2,850,977 4,165,657 236,987
================================================================================================================================
</TABLE>
-5-
See accompanying notes
<PAGE>
Bio Syntech Ltd.
A development stage company
STATEMENTS OF STOCKHOLDERS' EQUITY
(DEFICIENCY) [note 1]
334 day period ended February 28, 2000
and years ended March 31, 1999 and 1998
[In Canadian dollars]
<TABLE>
<CAPTION>
Class A Common Shares
--------------------------
Additional Accumulated
Shares Amount paid in deficit Total
$ capital $ $
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, May 10, 1995 (inception of the Company) 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)
Share capital paid up and not issued as of
January 31, 1998 (see 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)
Issuance of Class A common shares [note 10]
May 8, 1998
$0.75 per share 1,500,000 1,125,000 -- -- 1,125,000
July 7, 1998
$0.75 per share 440,000 330,000 -- -- 330,000
July 24, 1998
$1.25 per share 120,000 150,000 -- -- 150,000
August 3, 1998
$0.5479 per share 1,073,666 588,262 -- -- 588,262
See January 31, 1998 375,000 -- -- -- --
September 17, 1998
$1.75 per share 57,142 99,998 -- -- 99,998
November 3, 1998
$1.75 per share 9,521 16,661 -- -- 16,661
January 26, 1999
$1.75 per share 44,250 77,437 -- -- 77,437
February 17, 1999
$2.25 per share 67,000 150,750 -- -- 150,750
Options granted to consultants [note 10]
December 3, 1998
$3.01 per share -- -- 1,309,350 -- 1,309,350
Net loss 1999 -- (4,165,657) (4,165,657)
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)
Issuance of Class A common shares[note 10]
September 15, 1999
$1.00 per share 1,072,000 1,072,000 -- -- 1,072,000
February 25, 2000
$0,75 per share 60,000 45,000 -- -- 45,000
$1.16 per share 112,833 131,291 -- -- 131,291
$1.20 per share 16,666 20,000 -- -- 20,000
$1.21 per share 55,000 66,625 -- -- 66,625
$1.25 per share 1,413,333 1,766,666 -- -- 1,766,666
$2.17 per share 180,000 391,797 -- -- 391,797
$2.55 per share 22,125 56,593 -- -- 56,593
$3.50 per share 33,500 117,250 -- -- 117,250
Options granted to consultants [note 10]
December 12, 1999
$2.36 per share -- -- 236,000 -- 236,000
$2.08 per share -- -- 170,560 -- 170,560
Net loss for the period ended February 28, 2000 -- -- -- (2,850,977) (2,850,977)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, February 28, 2000 15,177,036 6,330,131 1,715,910 (7,265,818) 780,223
==================================================================================================================================
</TABLE>
See accompanying notes
-6-
<PAGE>
Bio Syntech Ltd.
A development stage company
STATEMENTS OF CASH FLOWS [note 1]
334 day period ended February 28, 2000
and years ended March 31, 1999 and 1998
[In Canadian dollars]
<TABLE>
<CAPTION>
Cumulative
from inception
to February 28,
2000 2000 1999 1998
$ $ $ $
- ----------------------------------------------------------------------------------------------------------------------------------
[334 days]
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss (7,265,818) (2,850,977) (4,165,657) (236,987)
Items not affecting cash
Amortization of property, plant
and equipment 198,264 163,222 35,042 --
Services paid by the isssuance of
common stock 2,527,000 1,072,000 1,455,000 --
Options granted to consultants 1,715,910 406,560 1,309,350 --
Write-off of intangibles 10,617 -- -- 10,617
- ----------------------------------------------------------------------------------------------------------------------------------
(2,814,027) (1,209,195) (1,366,265) (226,370)
Changes in working capital assets and liabilities
Accounts receivables (91,284) (22,824) (5,377) (62,351)
Inventory (30,975) (7,275) (23,700) --
Investment tax credits receivable (575,000) 28,663 (468,663) (135,000)
Prepaid expenses (54,534) (54,534) -- --
Deferred revenues 65,451 65,451 -- --
Accounts payable and accrued liabilities 489,849 (89,703) 339,156 228,444
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (3,010,520) (1,289,417) (1,524,849) (195,277)
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (74,395) (5,025) (69,370) --
Purchase of short-term investment (75,000) (75,000) -- --
Purchase of other assets (27,045) (1,561) (14,867) --
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (176,440) (81,586) (84,237) --
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- 700,000 --
Reimbursement of long-term debt (393,750) (393,750) -- --
Proceeds on demand loan 581,845 -- 581,845 --
Reimbursement of demand loan (581,845) (518,598) (63,247) --
Increase (decrease) in due to shareholder 10,000 (20,394) 20,394 (2,327)
Increase in promissory note 2,879,986 2,879,986 -- --
Reimbursement of obligations under
capital leases (636,577) (52,930) (583,647) --
Proceeds from issuance of common stock 3,893,331 2,595,222 1,083,108 215,000
Share issuance costs (90,200) -- (90,200) --
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 6,362,790 4,489,536 1,648,253 212,673
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,175,830 3,118,533 39,167 17,396
Cash and cash equivalents, beginning of period -- 57,297 18,130 734
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 3,175,830 3,175,830 57,297 18,130
==================================================================================================================================
Additional information :
Interest paid 218,545 178,610 39,935 --
==================================================================================================================================
</TABLE>
See accompanying notes
-7-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company was incorporated on May 10, 1995 under the Part IA of the Quebec
Companies Act. The year end of the Company is March 31. These financial
statements have been prepared to be included in the form 8K of Bio Syntech Inc.
[see note 15(a)]. 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.
Going concern uncertainty
The Company has incurred losses from its start-up activities and has no
operations or revenues, which raises doubt about its ability to continue as a
going concern. The ability of the Company to continue as a going concern is
dependent upon obtaining the necessary financing to complete its research and
development projects, to market those products once available and upon future
profitable operations. There can be no assurance that the Company will be able
to complete the development of its products, or if completed, that it will be
able to market them successfully. There is no assurance that even if completed
and marketed, that revenues from the products will be sufficient to fund the
Company's operations or fund any additional research, development or marketing.
The Company may be required to raise additional capital through debt or equity
financing which is management's plan to continue the development of its
products. There are no assurance that the Company will receive any revenues from
operations or other proceeds nor that is will be able to raise such capital
through debt or equity financing. If the Company is not able to raise such
financing or to obtain alternative sources of funding, management will be
required to curtail development. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
The Company's financial statements have been prepared assuming that the Company
will continue as a going concern which contemplates the realization of assets
and liquidation of liabilities in the ordinary course of business. However, the
Company does not have an established source of revenues sufficient to cover its
operating costs and to allow it to continue as a going concern. [see note
15(b)].
-8-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These 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:
Cash equivalents
Cash equivalents are short term highly liquid held-to-maturity investments, with
a maturity of 90 days or less from the date of purchase accounted for at
amortized cost.
Inventory
Inventory consists mainly of raw materials. The Company periodically evaluates
the carrying value of its inventory and makes any adjustments necessary.
Inventories are stated at the lower of cost (on a first-in, first-out basis) and
replacement cost.
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 are expensed as incurred.
-9-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
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 Statements 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. Government assistance in connection with capital expenditures is
treated as a reduction of the cost of the applicable asset.
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.
Stock option plan
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. As such,
compensation expense would be recorded on the date of grant only if the then
current market price of the underlying stock exceeded the exercise price.
-10-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Impairment of long-lived assets and long-lived assets to be disposed of
The Corporation 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 are reported at the lower of the carrying amount or fair value less
costs to sell.
3. SHORT-TERM INVESTMENT
The short-term investment consists of a term deposit held to maturity and is
pledged as collateral security against a letter of guarantee issued by a
financial institution. Short-term investment is stated at cost.
4. ACCOUNTS RECEIVABLE
As of As of
February 28, March 31,
-----------------------------
2000 1999 1998
$ $ $
- --------------------------------------------------------------------------------
Trade -- -- 32,962
Sales tax receivable 89,505 35,881 30,121
Grants receivable -- 20,423 --
Others 1,779 12,156 --
- --------------------------------------------------------------------------------
91,284 68,460 63,083
================================================================================
The grants receivable have been recorded against research and development
expenses.
-11-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
5. PROPERTY, PLANT AND EQUIPMENT
Accumulated Net
Cost amortization book value
$ $ $
- --------------------------------------------------------------------------------
As of February 28, 2000
Building under capital lease 1,613,785 174,930 1,438,855
Office furniture 73,395 19,727 53,668
Equipment under capital lease 18,050 2,859 15,191
Office furniture under capital lease 7,025 702 6,323
- --------------------------------------------------------------------------------
1,712,255 198,218 1,514,037
================================================================================
As of March 31, 1999
Building 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
================================================================================
Assets acquired using capital lease financing totalled $7,025 during the period
ended February 28, 2000 [$1,631,835 and nil for the years ended March 31, 1999
and 1998 respectively].
6. PROMISSORY NOTE
The promissory note is for an amount of US$2M and is held by Bio Syntech Inc.
[see note 15]. It bears interest at rate of 6.2% and is repayable in one
instalment on April 30, 2001.
7. DEMAND LOAN AND CREDIT FACILITY
The demand loan of $518,598 carried interest at prime rate plus 1.75% and was
payable upon receipt of investment tax credits. It was reimbursed during the
period ended February 28, 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 at February 28, 2000, no amount was drawn under this credit
facility.
-12-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
8. LONG-TERM DEBT
2000 1999 1998
$ $ $
- --------------------------------------------------------------------------------
Bank loan bearing interest at prime
rate, preceded by an interest exemption
period covered by the Fonds d'Aide aux
Entreprises, until April 24, 2001,
maturing on March 25, 2006, payable in
monthly instalments of $3,333 plus
interest (6.75% as at February 28, 2000)
starting on April 25, 2001. The debt is
collateralized by the Fonds d'Aide aux
Entreprises and a $200,000 charge on all
tangible and intangible assets. 200,000 200,000 --
Bank loan bearing interest at prime rate
plus 3.0% (9.75% as at February 28,
2000), maturing on July 26, 2001,
payable by monthly instalments of $6,250
plus interest. A $225,000 charge on
equipment was granted. 106,250 175,000 --
Term loan, without interest, until March
31, 2000 and bore interest at a rate of
12% beginning March 31, 2000, reimbursed
during the period ended February 28,
2000. -- 325,000 --
- --------------------------------------------------------------------------------
306,250 700,000 --
Less: current portion 75,000 400,000 --
- --------------------------------------------------------------------------------
231,250 300,000 --
================================================================================
-13-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
8. LONG-TERM DEBT [Cont'd]
The principal instalments payable are as follows:
$
- --------------------------------------------------------------------------------
2001 75,000
2002 64,583
2003 40,000
2004 40,000
2005 43,333
2006 and others 43,334
- --------------------------------------------------------------------------------
306,250
================================================================================
9. OBLIGATIONS UNDER CAPITAL LEASES
Future minimum lease payments under capital leases are as follows:
$
- --------------------------------------------------------------------------------
2001 180,276
2002 171,433
2003 168,000
2004 168,000
2005 168,000
2006 and others 658,000
- --------------------------------------------------------------------------------
1,513,709
Less: interest portion at rates varying between 10% an 14.38% (511,426)
- --------------------------------------------------------------------------------
1,002,283
Less: current portion 82,691
- --------------------------------------------------------------------------------
919,592
================================================================================
-14-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
10. CAPITAL STOCK
Authorized
Unlimited number of Class A common shares, without par value, voting,
participating, convertible at the Company's option into Class D shares.
Unlimited number of Class B shares, without par value, voting and participating.
Unlimited number of Class C shares, without par value, voting and
non-participating, without dividend rights, automatically redeemable upon the
death of the shareholder at the amount of paid-up capital or at any time, by the
Company in consideration of a negotiated amount, with a priority over all other
classes of shares relating to repayment of their paid-up capital in the event of
the dissolution of the Company.
Unlimited number of Class D shares, without par value, non-voting and
non-participating, with monthly non-cumulative preferred dividends at 1% of
their redemption value, redeemable by mutual consent of the Company and the
holder and retractable at an amount equal to the paid-up capital plus a premium
equal to the difference between the fair market value of the Class A shares
where they are converted to Class D shares and the paid-up capital amount plus
any declared and unpaid dividends or redeemable at the Company's option in
consideration of a negotiated price not exceeding the aforementioned redemption
price, with priority over all other classes of shares, but subsequently to Class
C shareholders upon payment of their redemption value plus any declared and
unpaid dividends in the event of the dissolution of the Company.
Unlimited number of Class E shares, without par value, non-voting and
non-participating, with monthly non-cumulative preferred dividends at 1% of
their redemption value, but subsequently to Class C and D shareholders,
retractable at an amount equal to their paid-up capital plus a premium equal to
the difference between the fair market value and the amount of their paid-up
capital upon issuance, to which any declared and unpaid dividends or redeemable
at the Company's option in consideration of a negotiated price not exceeding the
aforementioned redemption price, with priority over all other classes of shares,
but subsequently to Class C and D shareholders upon payment of their redemption
value plus any declared and unpaid dividends in the event of the dissolution of
the Company.
Unlimited number of Class F shares, without par value, non-voting and
non-participating, with non-cumulative preferred dividends of $1 per share, but
subsequently to Class C, D and E shareholders, retractable at an amount equal to
their paid-up capital plus any declared and unpaid dividends, or redeemable at
the Company's option in consideration of a negotiated price, with priority over
all other classes of shares, but subsequently to Class C, D and E shareholders
upon payment of their paid-up capital plus any declared and unpaid dividends in
the event of the dissolution of the Company.
-15-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
10. CAPITAL STOCK [Cont'd]
Unlimited number of Class G shares, without par value, non-voting and
non-participating, with non-cumulative preferred dividends of $1 per share, but
subsequently to Class C, D, E and F shareholders, redeemable at the Company's
option with a 30-day written notice at an amount equal to their paid-up capital
plus any declared and unpaid dividends or at any time and without notice in
consideration of a negotiated price, with priority over any other classes of
shares, but subsequently to Class C, D, E and F shareholders upon payment of
their paid-up capital plus any declared and unpaid dividends in the event of the
dissolution of the Company.
Issued and outstanding
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
15,177,036 shares of Class A common shares
[12,211,579 and 8,525,000 shares as of
March 31, 1999 and 1998 respectively] 6,330,131 2,662,909 215,001
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
During the period ended February 28, 2000, the Company issued 600,000 warrants
which entitled the holder to buy Class A common shares at exercise prices
ranging between $0.50 and $1.50 per share [1,612,526 warrants at exercise prices
ranging between $0.75 and $3.50 for the year ended March 31, 1999 and no
warrants for the year ended March 31, 1998].
On February 25, 2000, the Corporation issued 1,893,457 Class A common shares for
a total consideration of $2,595,222 pursuant to exercise of 1,893,457 warrants
at a price ranging between $0.75 and $3.50.
During the period ended February 28, 2000, the Company issued 1,072,000 Class A
shares in exchange for intellectual property valued at $1,072,000.
As of February 28, 2000, no warrant was outstanding.
During the year ended March 31, 1999, the Company issued 1,737,058 Class A
shares for a consideration in cash of $1,066,447 in 1999 [$215,000 in 1998] and
9,521 Class A shares in exchange for professional services valued at $16,661.
-16-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
10. CAPITAL STOCK [Cont'd]
In addition, the Company issued 1,940,000 Class A shares in consideration of the
following services:
900,000 shares as employee incentives and in recognition of their
contribution to the Company for a fair value of $675,000.
500,000 shares for brokers and suppliers services valued at $375,000.
540,000 shares for various professionals services and valued at $405,000.
Stock options
Under the Company's Stock Option Plan, options may be granted for an authorized
maximum of 2,000,000 shares of Class A common stock to employees, directors and
senior consultants. Option activity during 2000, 1999 and 1998 is summarized as
follows:
Weighted
Average Exercise
Shares Price
$
- -------------------------------------------------------------------------------
2000
Outstanding, beginning of period 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 $2.81
- -------------------------------------------------------------------------------
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.
-17-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
10. CAPITAL STOCK [Cont'd]
The Company accounts for options granted to employees and directors under the
Plan using APB No.25, under which no compensation cost has been recognized for
stock options granted. There was 182,000 options granted to consultants in 2000
[435,000 and nil for years ended March 31, 1999 and 1998 respectively] for a
total amount expensed in general and administrative expenses for an amount of
$406,560 during the 334 day period ended February 28, 2000 [$1,309,350 an nil
for the years ended March 31, 1999 and 1998]. Had compensation cost for these
stock options been determined consistent with SFAS No. 123, the Company's pro
forma net loss would be increased by $2,225,090 for the period ended February
28, 2000 [$1,347,825 and none for the years ended March 31, 1999 and 1998].
The fair value of options at the date of grant was estimated using the
Black-Scholes pricing model with the following weighted average assumptions.
1999 1998
% %
- ------------------------------------------------------------------------
Expected life (years) 5.00 5.00
Risk-free interest rates 8.55 8.55
Volatility 0.00 0.00
Dividend yield 0.00 0.00
- ------------------------------------------------------------------------
The following table summarizes information with respect to stock options
outstanding at February 28, 2000:
Options outstanding and exercisable
-----------------------------------------------------
Exercise Number Weighted average remaining
prices outstanding contractual life
$ (years)
- --------------------------------------------------------------------------------
0.75 1,147,500 2.31
1.75 100,000 8.25
2.17 252,500 1.92
- --------------------------------------------------------------------------------
1,500,000 2.69
================================================================================
-18-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
11. INCOME TAXES
There is no provision for income taxes or income tax recovery as the Company has
had continuous losses and there is no assurance 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 1998
$ $ $
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets
Net operating losses carryforwards 343,207 123,193 9,044
Scientific research and experimental development expenses 321,924 250,823 52,582
Excess of tax basis of financing fees over accounting value 11,298 15,064 --
Excess of tax basis of capital assets over accounting value 282,753 300,266 --
- -------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 959,182 689,346 61,626
===================================================================================================================
Deferred tax liabilities
Excess of accounting value of capital assets over tax basis 266,433 297,494 --
Foreign exchange 67,722 84,220 16,048
- -------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 334,155 381,714 16,048
===================================================================================================================
Net deferred tax assets (liabilities)
Deferred tax assets 959,182 689,346 61,626
Deferred tax liabilities 334,155 381,714 16,048
- -------------------------------------------------------------------------------------------------------------------
625,027 307,632 45,578
Valuation allowance 625,027 307,632 45,478
- -------------------------------------------------------------------------------------------------------------------
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. The valuation allowance
increased by $317,395 [1999 - $262,154; 1998 - $43,286] for the period.
-19-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
11. INCOME TAXES [Cont'd]
The Company has unrecognized tax loss and investment tax credit carryforwards
for income tax purposes in the amount of $1,832,000 and $119,000, respectively,
that expire as follows:
Tax losses Investment tax credits
$ $
- ----------------------------------------------------------------------
2003 3,000 --
2004 9,000 --
2005 39,000 --
2006 605,000 --
2007 1,176,000 --
2008 -- 32,000
2009 -- 65,000
2010 -- 22,000
- ----------------------------------------------------------------------
The Company has accumulated temporary timing differences that are not reflected
in the financial statements. The differences are mainly in relation to
scientific research and experimental development and are in the amount of
approximately $1,449,262 at the Canadian federal level and $2,229,794 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.
12. 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 theses
instruments.
Short-term financial assets comprise cash and cash equivalents, short-term
investment, accounts receivable and investment tax credits receivable.
Short-term financial liabilities comprise demand loan, accounts payable and
accrued liabilities, due to shareholder.
-20-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
12. FINANCIAL INSTRUMENTS [Cont'd]
Long-term debt
The carrying amount of the Company's floating-rate long-term debt approximates
its fair value because it bears interest at current commercial floating rates.
The fair value of the fixed-rate long-term debt, obligations under capital
leases and of the promissory note are based on the rates in effect for financial
instrument with similar terms and maturities, and approximates the carrying
amount as of February 28, 2000, March 31, 1999 and 1998.
[b] Credit risk
The cash and cash equivalents and short-term investment are held by one Canadian
chartered financial institution.
13. COMMITMENT
Under the terms of a technology licence contract, the Company must pay 5%
royalties, to an shareholder, on future sales to a maximum of $3 million.
14. CONTINGENT LIABILITIES
During the period, a former employee commenced an action against the Company,
alleging that he was wrongfully terminated as an employee and seeking $126,000
in compensation allegedly due, the issuance to him of 100,000 Class A common
shares that were the subject of an option that was alleged to have been granted
to him and punitive damages. In the opinion of management, based on the advice
and information provided by its legal counsel, final determination of these
litigations will not materially affect the Company's financial position or
results of operations. Consequently, no provision has been recorded.
-21-
<PAGE>
Bio Syntech Ltd.
A development stage company
NOTES TO FINANCIAL STATEMENTS
February 28, 2000
[In Canadian dollars]
15. SUBSEQUENT EVENTS
[a] Merger
Following an agreement dated December 2, 1999, the Company and a wholly-owned
subsidiary of a US shell public company (Bio Syntech Inc.) were merged on
February 29, 2000. The merged company was continued under the name of Bio
Syntech Canada Inc. ("Bio Syntech Canada"). As a result of the merger, Bio
Syntech Inc. company became the beneficial owner of all of the issued and
outstanding voting shares of Bio Syntech Canada and the Company's shareholders
were issued non-voting exchangeable preferred shares of Bio Syntech Canada (the
"Class A Shares"). The Class A Shares are exchangeable on a share-for-share
basis, for a controlling interest of Bio Syntech Inc., the parent company.
[b] Private placement
On April 20, 2000, the parent company (Bio Syntech Inc.) of the merged company's
announced a private placement pursuant to which a total of 1,802,214 units of
Bio Syntech Inc. were issued at a price of $3.50 per unit for a total
consideration of US$6,307,550. Each unit is comprised of one share of Bio
Syntech Inc. and one warrant entitling the holder to acquire one share of common
stock at a price of US$4.00 on or before March 31, 2001.
16. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect the Company, including
those related to clients, suppliers, or other third parties, have been fully
resolved.
17. RECENT DEVELOPMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 will be effective for the Company's March 31, 2002,
year-end and interim periods. The Company has not yet determined the impact, if
any, on its consolidated financial statements arising from the eventual
application of SFAS 133.
18. COMPARATIVE FIGURES
Some of the comparative figures have been reclassified to conform with the
presentation adopted in the current period.
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BIOSYNTECH INC.
May 15, 2000 By: /s/ Amine Selmani
--------------------------------
Amine Selmani, President
