SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000
-------------------------------------
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-27179
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BioSyntech, Inc.
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
Nevada 88-0329399
------------------------------ -------------------
(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 Executive Offices)
(450) 686-2437
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(X) Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUER
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: 28,115,536 shares of Common
Stock as of March 31, 2000.
Transitional Small Business Disclosure Format (check one):
( ) Yes (X) No
<PAGE>
BIOSYNTECH, INC.
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Interim Balance Sheets 2
as of March 31, 2000 and 1999 (unaudited)
Consolidated Interim Statements of Operations 3
cumulative from inception to March 31, 2000
and for the three months ended March 31, 2000
and 1999 (unaudited)
Statements of Stockholders' Equity (Deficiency) 4
from inception to March 31, 2000 (unaudited)
Consolidated Interim Statements of Cash Flows 5
cumulative from inception to March 31, 2000
and for the three months ended March 31, 2000
and 1999 (unaudited)
Note to Consolidated Interim Financial Statements 6
(unaudited)
Item 2. Plan of Operations 18
PART II. OTHER INFORMATION
Item 2. Changes in Securities 20
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 21
-i-
<PAGE>
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
BIOSYNTECH, INC.
[formerly Dream Team International Inc.]
[a development stage company]
Unaudited
March 31, 2000 and 1999
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED INTERIM BALANCE SHEETs [note 1]
As of March 31, 2000 and 1999 Unaudited
[In Canadian dollars]
2000 1999
$ $
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents 7,301,143 57,297
Short-term investment [note 3] 75,000 --
Accounts receivable [note 4] 91,376 68,460
Inventory 47,188 23,700
Investment tax credits receivable [note 10] 575,000 603,663
Prepaid expenses 18,365 --
- --------------------------------------------------------------------------------
8,108,072 753,120
- --------------------------------------------------------------------------------
Property, plant and equipment [note 5] 1,500,890 1,665,163
Other assets 16,650 15,867
- --------------------------------------------------------------------------------
9,625,612 2,434,150
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities
Demand loan [note 6] -- 518,598
Accounts payable and accrued liabilities 1,060,928 579,552
Due to shareholder, without interest and
repayment terms 10,000 30,394
Deferred revenues 65,451 --
Current portion of long-term debt [note 7] 75,000 400,000
Current portion of obligations under capital
leases [note 8] 83,479 56,452
- --------------------------------------------------------------------------------
1,294,858 1,584,996
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Long-term debt [note 7] 225,000 300,000
Obligations under capital leases [note 8] 912,266 991,736
- --------------------------------------------------------------------------------
2,432,124 2,876,732
- --------------------------------------------------------------------------------
Shareholders' equity (deficiency)
Common stock [notes 1 and 9]
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding
28,115,536 common shares 13,132,702 2,662,909
Additional paid-in capital 1,715,910 1,309,350
Deficit accumulated during the development stage (7,655,124) (4,414,841)
- --------------------------------------------------------------------------------
7,193,488 (442,582)
- --------------------------------------------------------------------------------
9,625,612 2,434,150
================================================================================
Commitment [note 12]
Contingent liability [note 13]
See accompanying notes
- -------------------------------- --------------------------------------
Director Director
-2-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
[note 1]
<TABLE>
<CAPTION>
Three months ended March 31, 2000 and 1999 Unaudited
[In Canadian dollars]
Cumulative
from inception
to March 31, 2000 2000 1999
- ------------------------------------------------------------------------------------
$ $ $
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales 168,138 -- --
Cost of sales 71,962 -- --
- ------------------------------------------------------------------------------------
96,176 -- --
- ------------------------------------------------------------------------------------
Research and development
expenses 5,653,972 335,032 536,186
Investment tax credits (1,413,364) (102,364) (31,043)
General and administrative
expenses 3,082,139 301,891 167,014
Interest on long-term debt 238,337 55,651 15,895
Amortization of property, plant
and equipment 213,221 41,634 18,198
Interest revenue (23,005) (14,376) (3,859)
- ------------------------------------------------------------------------------------
7,751,300 617,468 702,391
- ------------------------------------------------------------------------------------
Net loss for the period [note 10] 7,655,124 617,468 702,391
Deficit accumulated during the
development stage, beginning of period -- 7,037,656 3,712,450
- ------------------------------------------------------------------------------------
Deficit accumulated during the
development stage, end of period 7,655,124 7,655,124 4,414,841
====================================================================================
Weighted average number of shares
outstanding 18,295,094 12,163,807
Basic and diluted loss per share 0.03 0.06
====================================================================================
</TABLE>
See accompanying notes
-3-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
[note 1]
<TABLE>
<CAPTION>
From inception to March 31, 2000 Unaudited
[In Canadian dollars]
Common Shares
----------------------
Additional
paid-in Accumulated
Shares Amount capital deficit 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 shares paid up and issued on
August 3, 1998 for cash -- 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 shares issued for cash 3,686,579 2,538,108 -- -- 2,538,108
Deemed options granted to consultants -- -- 1,309,350 -- 1,309,350
Net loss for the period -- (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 shares issued for cash 2,965,457 3,667,222 -- -- 3,667,222
Deemed options granted to consultants -- -- 406,560 -- 406,560
Net loss for the period ended 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.
[note 1] 12,095,000 2,873,848 -- -- 2,873,848
March 31, 2000, issuance [note 9] 843,500 4,270,243 -- -- 4,270,243
Share issuance 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
================================================================================================================================
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED INTERIM STATEMENTS OF
CASH FLOWS [note 1]
Three months ended March 31, 2000 and 1999 Unaudited
[In Canadian dollars]
Cumulative
from inception
to March 31, 2000 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
$ $ $
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss (7,655,124) (617,468) (702,391)
Items not affecting cash
Amortization of property, plant and equipment 213,221 41,634 18,198
Services paid by the isssuance of common stock 2,527,000 -- --
Options granted to consultants 1,715,910 -- --
- ------------------------------------------------------------------------------------------------------------------------
(3,198,993) (575,834) (684,193)
Changes in working capital assets and liabilities
Accounts receivable (91,376) (19,047) 116,006
Inventory (47,188) (16,213) --
Investment tax credits receivable (575,000) (102,364) (41,854)
Prepaid expenses (18,365) (13,103) 335,026
Deferred revenues 65,451 -- --
Accounts payable and accrued liabilities 1,044,440 182,059 244,920
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (2,821,031) (544,502) (30,095)
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (75,251) (5,001) (540,577)
Purchase of short-term investment (75,000) -- --
Purchase of other assets (16,650) -- (1,667)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (166,901) (5,001) (542,244)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- 206,250
Reimbursement of long-term debt (400,000) (18,750) --
Proceeds of demand loan 581,845 -- 59,753
Reimbursement of demand loan (581,845) (585,000) --
Increase in due to shareholder 30,394 -- 20,394
Decrease in due to shareholder (20,394) -- --
Reimbursement of obligations under capital leases (643,116) (14,326) (32,766)
Proceeds from issuance of shares of Bio Syntech Ltd.
prior the reverse acquisition 3,890,068 2,595,222 226,348
Proceeds from issuance of common shares
of BioSyntech, Inc. prior the reverse acquisition 3,399,980 3,399,980 --
Repurchase of common stock of BioSyntech, Inc.
prior the reverse acquisition (506,380) (506,380) --
Proceeds from issuance of common shares of BioSyntech, Inc.
after the reverse acquisition 4,270,243 4,270,243 --
Share issuance costs (431,720) (341,520) --
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 10,289,075 8,799,469 479,979
- ------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 7,301,143 8,249,966 (92,360)
Cash and cash equivalents, beginning of period -- (948,823) 149,657
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 7,301,143 7,301,143 57,297
========================================================================================================================
Additional information :
Interest paid 228,351 39,935 15,895
========================================================================================================================
</TABLE>
See accompanying notes
-5-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
March 31, 2000 and 1999 Unaudited
[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. These unaudited consolidated interim financial statements have been
prepared to be included in the Company's 10QSB form.
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") [a development stage company] 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 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 reserved and placed in trust though are considered issued
and outstanding.
Each beneficial holder of the Class A Shares has voting rights in the number of
Company shares equal to the number of the Class A Shares held by such holder.
Therefore, the Bio Syntech shareholders hold securities with voting rights equal
to approximately 54% 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 interim financial statements. Accordingly, this
transaction represents a recapitalization of Bio Syntech, the legal subsidiary
effective February 29, 2000.
These consolidated interim financial statements are the continuation of the
financial statements of the accounting acquirer Bio Syntech. Bio Syntech's
assets and liabilities are included in the consolidated financial statements at
their historical carrying amounts. Figures for the three-month period ended as
at March 31, 2000 and 1999 are those of Bio Syntech. For purpose 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 shares 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
================================================================================
-6-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
March 31, 2000 and 1999 Unaudited
[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, growth,
manufacturing and competition.
The Company believes that the capital resources presently on hand and that it
reasonably anticipates to be available will be sufficient for the projected
capital expenditures and operating expenses over the next twelve months.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated interim financial statements have been prepared by management
in accordance with accounting principles generally accepted in the United
States. These financial statements are unaudited and reflect all adjustments
which are, in the opinion of management, necessary for a fair presentation. 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 interim 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.
-7-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
March 31, 2000 and 1999 Unaudited
[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 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. 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.
-8-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
March 31, 2000 and 1999 Unaudited
[In Canadian dollars]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
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.
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.
Basic and diluted loss per common share
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 on February 29, 2000 are based on
the number of Bio Syntech common shares outstanding during that period.
Bio Syntech Canada 15,177,036 exchangeable 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 because 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 and is
pledged as collateral security against a letter of guarantee issued by a
financial institution. The investment is stated at cost.
-9-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
March 31, 2000 and 1999 Unaudited
[In Canadian dollars]
4. ACCOUNTS RECEIVABLE
2000 1999
$ $
- --------------------------------------------------------------------------------
Sales tax receivable 73,623 35,881
Grants receivable 3,462 20,423
Others 14,291 12,156
- --------------------------------------------------------------------------------
91,376 68,460
================================================================================
The grants receivable have been recorded against research and development
expenses.
5. PROPERTY, PLANT AND EQUIPMENT
Accumulated Net
Cost amortization book value
$ $ $
- --------------------------------------------------------------------------------
2000
Building 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 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
================================================================================
6. 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 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.
7. LONG-TERM DEBT
2000 1999
$ $
- --------------------------------------------------------------------------------
-10-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
March 31, 2000 and 1999 Unaudited
[In Canadian dollars]
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 (7.00% as of March 31, 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% (10.0% as of March 31, 2000),
maturing on July 26, 2001, payable by
monthly instalments of $6,250 plus
interest. A $225,000 charge on equipment
was granted. 100,000 175,000
Term loan, without interest, until March 31,
2000, reimbursed in 1999. -- 325,000
- --------------------------------------------------------------------------------
300,000 700,000
Less: current portion 75,000 400,000
- --------------------------------------------------------------------------------
225,000 300,000
================================================================================
The principal instalments payable are as follows:
$
- --------------------------------------------------------------------------------
2001 75,000
2002 61,667
2003 40,000
2004 40,000
2005 40,000
Subsequent to 2005 43,333
- --------------------------------------------------------------------------------
300,000
================================================================================
8. obligations UNDER capital leaseS
Future minimum lease payments under the capital leases are as follows:
$
- --------------------------------------------------------------------------------
2001 180,278
2002 170,409
2003 168,000
2004 168,000
2005 168,000
-11-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
March 31, 2000 and 1999 Unaudited
[In Canadian dollars]
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
================================================================================
9. CAPITAL STOCK
Authorized
The authorized common shares of the Company consist 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 shares at a price of US$4.50
on or before March 30, 2001.
-12-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
March 31, 2000 and 1999 Unaudited
[In Canadian dollars]
9. CAPITAL STOCK [Cont'd]
As of March 31, 2000, a total of 1,313,500 warrants issued by the Company are
outstanding.
On February 25, 2000 Bio Syntech issued shares for a total consideration of
$2,595,222 pursuant to the exercise of warrants.
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 subsidiary's option plan 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 the Company at a price varying between $0.75
and $2.17.
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.
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
2.17 252,500 1.92
- --------------------------------------------------------------------------------
1,500,000 2.69
================================================================================
-13-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
March 31, 2000 and 1999 Unaudited
[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 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
$ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards 343,207 123,193
Scientific research and experimental development expenses 321,924 250,823
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
==================================================================================================
Deferred tax liabilities
Excess of accounting value of capital assets over tax basis 266,433 297,494
Investment tax credits 67,722 84,220
- --------------------------------------------------------------------------------------------------
Total deferred tax liabilities 334,155 381,714
==================================================================================================
Net deferred tax assets (liabilities)
Deferred tax assets 959,182 689,346
Deferred tax liabilities 334,155 381,714
- --------------------------------------------------------------------------------------------------
625,027 307,632
Valuation allowance 625,027 307,632
- --------------------------------------------------------------------------------------------------
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.
-14-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
March 31, 2000 and 1999 Unaudited
[In Canadian dollars]
10. INCOME TAXES [Cont'd]
The Company has tax loss and investment tax credit carryforwards for income tax
purposes in the amount of $1,832,000 and $119,000, respectively, the benefit of
which has not been recognized and that expire as follows:
Tax Investment tax
losses 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 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.
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 and cash equivalents, 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.
-15-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
March 31, 2000 and 1999 Unaudited
[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 because 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 cash equivalents and short-term investment are held by one Canadian
chartered financial institution.
12. COMMITMENT
Under the terms of a technology licence contract, the Company must pay 5%
royalties to a shareholder on future sales, to a maximum of $3 million.
13. CONTINGENT LIABILITY
During the period, a former employee of a subsidiary company commenced an action
alleging that he was wrongfully terminated and seeking $126,000 in compensation
allegedly due, the issuance to him of 100,000 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 this litigation will not
materially affect the Company's financial position or results of operations. No
provision has been recorded.
-16-
<PAGE>
NOTES TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
March 31, 2000 and 1999 Unaudited
[In Canadian dollars]
11. FINANCIAL INSTRUMENTS [Cont'd]
14. SUBSEQUENT EVENTS
Private placement
During April 2000, the Company issued 958,714 units at a price of US$3.50 per
unit for a total consideration of US$3,100,500 and CAN$300,000. 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 31, 2001.
15. 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 2001, 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.
-17-
<PAGE>
Item 2. Plan Of Operations
The Company is a development stage company that has had only minimal
product revenues to date and is thus subject to numerous risks, including risks
associated with product development, growth, manufacturing and competition. See
the information set forth under the caption "Risk Factors" of Item 1.
Description of Business in the Company's annual report on Form 10- KSB for
fiscal year ended December 31, 1999 (the "Annual Report") generally. The
Company's plan of operations for calendar year 2000 is focused on pursuing the
development of its technologies through direct research and development and
collaborative agreements.
The Company's operations are and will continue to be focused on
research and development activities intended to develop biotherapeutic delivery
systems made of proprietary biomaterials. Its strategy is to form collaborative
partnerships with producers of therapeutics seeking delivery solutions that
address the difficulties encountered with presently available delivery methods.
At such time as an effective delivery solution were developed, the Company would
enter into an agreement with its collaborative partner for the manufacture of
the product in limited quantities by the Company for the purpose of regulatory
approval and concomitant testing. At the conclusion of such phase, the product
would be manufactured in commercial quantities, marketed and sold by the
collaborative partner. The Company anticipates that the agreements with its
collaborative partners would provide for an initial payment to the Company,
progress payments as milestones are achieved during the regulatory
approval/testing phase and percentage royalty payments once the product is in
commercial production. Given the early stage of the Company's operations, there
is no assurance that it will in fact enter into any such agreements.
Cash Requirements and Necessity to Raise Additional Funds During the next 12
Months
As of April 30, 2000, the Company had cash on hand and short term
investments of approximately US$7,850,000 (CDN $11,523,000)fn(1). As described
below, it will be required to expend the sum of CDN $1,200,000 (US
$817,439)fn(1) to acquire the facility in which it conducts its operations. It
also expects to expend between CDN $1,000,000 and CDN $1,500,000 (US $681,199
and US $1,021,798)fn(1) during 2000 to equip its facility. The Company believes
that the capital resources presently on hand and that which it reasonably
anticipates to be available will be sufficient for projected capital
expenditures and operating expenses for the next 12 months. The information set
forth under the caption "Risk Factors" of Item 1. Description of Business in the
Company's Annual Report discusses those risks associated with the need to
finance the activities of the Company.
- -------------------
fn(1) The exchange rate utilized was the average exchange rate for the
month of April, 2000 (CDN $1.468 to US $1.00)
-18-
<PAGE>
Research and Development
Research and development activities for calendar year 2000 will be
centered on improving the Company's proprietary position in the field of
advanced biomaterials and development activities with its corporate
collaborators and its own in house programs. In order to provide a streamline of
new technologies, it will dedicate a third of its research efforts to the
discovery or enhancement of new biomaterial formulations. This will include a
second generation of BST-GelTM products and the creation of platform
technologies capable of delivery of additional therapeutics. Another third of
research and development efforts will be dedicated to collaborative programs of
co-development with its corporate partners. These efforts will focus on
establishing the performance of its drug delivery technologies with a number of
therapeutics. Finally, the remainder of its R&D effort will focus on internal
development programs for cartilage and bone repair. The information set forth
under the caption "Risk Factors" in Item 1. Description of Business of the
Company's Annual Report discusses those risks associated with the development of
the Company's products.
Purchase of Plant and Significant Equipment
The information set forth in Item 2. Property of the Company's Annual
Report discusses information in respect of the Company's exercise of its option
to acquire the facility in which it conducts its operations.
The Company's facilities are equipped to conduct high-level research
and development and preliminary production of biomaterials. The Company's
laboratories in Laval are designed to be upgradeable to comply with Good
Laboratory Practices (GLPs). In addition, space on the second floor of the
Company's premises has already been reserved for the construction of a Good
Manufacturing Practices (GMP)-compliant facility for the production of
clinical-grade biomaterials, BST-GelTM and BST-GelTM-related biomaterials. This
will involve designing and building the necessary facilities, purchasing and
installing the ancillary equipment, validating the facilities and equipment, and
applying for FDA approval of the facilities. This undertaking is estimated to
cost approximately CDN $3,000,000 (US $2,043,597)fn(1), of which CDN $1,000,000
to CDN $1,500,000 (US $681,199 to US $1,021,798)fn(1) is expected to be expended
during the remainder of 2000.
Employee Growth
As of April 30, 2000, the Company had 25 employees, of whom 20 were
engaged on research and development and five were engaged in corporate and
administrative activities. Over the next 12 months, it 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 total employee count
is anticipated to be in the range of 40 employees by 2001. The
-19-
<PAGE>
information set forth under the caption "Risk Factors - Possible Inability to
Manage Growth" and "--Dependence upon Key Personnel; Need to Hire Additional
Qualified Personnel" of Item 1. Description of Business in the Company's Annual
Report discuss risks the Company may face in hiring and retaining additional
personnel.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
The information set forth under the caption "History of the Company" in
Item 1. Description of Business of the Company in the Company's Annual Report is
incorporated herein by reference. The securities were issued in reliance on the
exemption from registration under the Securities Act of 1933, as amended (the
"Securities Act") provided in Rule 903 of Regulation S ("Regulation S") to a
trust for the benefit of the holders of Non-Voting Exchangeable Shares of Bio
Syntech Canada, Inc., all of whom are non U.S. Persons (as such term is defined
in Rule 902 of 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 transaction.
On February 29, 2000, the Company issued 470,000 units at a price of US
$5.00 (CDN $7.25)fn(2) per unit yielding gross proceeds of US $2,350,000 (CDN
$3,406,090)fn(2). Each unit comprised one share of the Company's common stock,
$.001 par value (the "Common Stock"), and one warrant for the purchase of one
additional share at a price of U.S. $7.00 (CDN $10.15)fn(2) per share before
September 30, 2001. The securities were offered and sold in reliance on the
exemption from registration under the Securities Act provided for in Regulation
S solely to 3699854 Canada Inc., a non U.S. Person. 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 transaction.
On March 31, 2000, the Company issued 843,500 units at a price of US
$3.50 (CDN $5.07)fn(2) per unit yielding gross proceeds of US $2,532,250 and CDN
$600,000 (CDN $4,270,243)fn(2). 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)fn(2) 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 transaction.
- ---------------
fn(2) The exchange rate utilized was that of February 29, 2000 (CDN
$1.4494 to US $1.00).
-20-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated March 15,
2000 containing information responsive to Item 1. Change in Control of
Registrant and Item 2. Acquisition or Disposition of Assets. - the
Transactions.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOSYNTECH, INC.
By: /s/ Amine Selmani
---------------------------------
Name : Amine Selmani
Title: President; Chief Executive
Officer; Chief Financial Officer;
Chief Accounting Officer
Dated: May 15, 2000
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AS OF MARCH 31, 2000, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. ALL AMOUNTS ARE PRESENTED IN
CANADIAN DOLLARS, THE FUNCTIONAL CURRENCY OF THE REGISTRANT.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,301,143
<SECURITIES> 75,000
<RECEIVABLES> 91,376
<ALLOWANCES> 0
<INVENTORY> 47,188
<CURRENT-ASSETS> 8,108,072
<PP&E> 1,500,890
<DEPRECIATION> 231,171
<TOTAL-ASSETS> 9,625,612
<CURRENT-LIABILITIES> 1,294,858
<BONDS> 0
<COMMON> 13,132,702
0
0
<OTHER-SE> (5,939,214)
<TOTAL-LIABILITY-AND-EQUITY> 9,625,612
<SALES> 168,138
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 617,468
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (14,376)
<INCOME-PRETAX> (617,468)
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