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: June 30, 2000
--------------------------------
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- -------------------
Commission File Number: 0-27179
-------
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
------------------------------------------------------------
(Address of Principal Executive Offices)
(450) 686-2437
------------------------------------------------
(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: 29,182,250 shares
of Common Stock as of July 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. Condensed Consolidated Interim Unaudited
Financial Statements as ofJune 30, 2000 3
Item 2. Management's Discussion and Analysis or Plan of
Operations 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures
-2-
<PAGE>
Condensed Consolidated Financial Statements
BioSyntech, Inc.
[formerly Dream Team International Inc.]
[a development stage company] - Unaudited
Quarter ended June 30, 2000
-3-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED BALANCE SHEETS [note 1]
As of June 30, 2000 and March 31, 2000
[In Canadian dollars]
<TABLE>
<CAPTION>
June 30, June 30, March 31,
2000 2000 2000
US$ C$ C$
------------------------------------------------------------------------------------------------------------------------------------
[note 1
[unaudited] [unaudited]
ASSETS
Current assets
<S> <C> <C> <C>
Cash 7,397,726 10,953,073 7,301,143
Investment tax credits receivable 455,896 675,000 575,000
Other current assets 163,188 241,615 231,929
---------- ---------- ----------
8,016,810 11,869,688 8,108,072
---------- ---------- ----------
Property, plant and equipment 1,009,228 1,494,264 1,517,540
---------- ---------- ----------
9,026,038 13,363,952 9,625,612
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 335,830 497,230 1,060,928
Other current liabilities 129,887 192,312 233,930
---------- ---------- ----------
465,717 689,542 1,294,858
---------- ---------- ----------
Long-term debt and
obligations under capital leases 740,770 1,096,784 1,137,266
---------- ---------- ----------
1,206,487 1,786,326 2,432,124
---------- ---------- ----------
Contingent liability [note 3]
Shareholders' equity
Common stock [note 2]
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding
29,182,250 common shares 12,323,636 18,246,375 13,132,702
Additional paid-in capital 1,158,929 1,715,910 1,715,910
Deficit accumulated during the development stage (5,663,014) (8,384,659) (7,655,124)
---------- ---------- ----------
7,819,551 11,577,626 7,193,488
---------- ---------- ----------
9,026,038 13,363,952 9,625,612
========== ========== ==========
</TABLE>
See accompanying notes
-4-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS [note 1]
Three-month period ended June 30, 2000 and 1999 Unaudited
[In Canadian dollars]
<TABLE>
<CAPTION>
Cumulative
from inception
to June 30,
2000 2000 2000 1999
C$ US$ C$ C$
------------------------------------------------------------------------------------------------------------------------------------
[note 1]
<S> <C> <C> <C> <C>
Sales 234,338 44,712 66,200 --
Cost of sales 100,134 19,027 28,172 --
----------- ---------- ---------- ----------
134,204 25,685 38,028 --
----------- ---------- ---------- ----------
Research and development expenses 6,189,020 361,372 535,048 329,061
Investment tax credits (1,513,364) (67,540) (100,000) (184,599)
General and administrative expenses 3,461,960 256,532 379,821 153,158
Interest on long-term debt 267,327 19,580 28,990 18,690
Amortization of property, plant and equipment 259,177 31,039 45,956 44,434
Interest revenue (145,257) (82,569) (122,252) (195)
----------- ---------- ---------- ----------
8,518,863 518,414 767,563 360,549
----------- ---------- ---------- ----------
Net loss for the period 8,384,659 492,729 729,535 360,549
Deficit accumulated during the
development stage, beginning of
period -- 5,170,285 7,655,124 4,414,841
----------- ---------- ---------- ----------
Deficit accumulated during the
development stage, end of period 8,384,659 5,663,014 8,384,659 4,775,390
=========== ========== ========== ==========
Weighted average number of shares
outstanding 29,034,485 29,034,485 9,398,626
Basic and diluted loss per share 0.02 0.03 0.04
=========== ========== ========== ==========
</TABLE>
See accompanying notes
-5-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIENCY) [note 1]
From inception to June 30, 2000 Unaudited
[In Canadian dollars]
<TABLE>
<CAPTION>
Common Stock
----------------------
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 stock paid up as of January 31,
1998 and issued on August 3, 1998 -- 215,000 -- -- 215,000
Net loss 1998 -- -- -- (236,987) (236,987)
---------- ------- --------- ----------- ------------
Balance, March 31, 1998 8,525,000 215,001 -- (249,184) (34,183)
Deemed common stock issued for cash 1,746,579 1,083,108 -- -- 1,083,108
Deemed common stock issued in exchange for
services 1,940,000 1,455,000 -- -- 1,455,000
Deemed options granted to consultants -- -- 1,309,350 -- 1,309,350
Net loss 1999 -- (4,165,657) (4,165,657)
Deemed share issuance costs -- (90,200) -- -- (90,200)
---------- ------- --------- ----------- ------------
Balance, March 31, 1999 12,211,579 2,662,909 1,309,350 (4,414,841) (442,582)
Deemed common stock issued for cash 1,893,457 2,595,222 -- -- 2,595,222
Deemed common stock issued in exchange for
intellectual property 1,072,000 1,072,000 -- -- 1,072,000
Deemed options granted to consultants -- -- 406,560 -- 406,560
Net loss for the period from April 1, 1999 to
February 28, 2000 -- -- -- (2,850,977) (2,850,977)
---------- ------- --------- ----------- ------------
Deemed outstanding February 29, 2000 15,177,036 6,330,131 1,715,910 (7,265,818) 780,223
Acquisition of BioSyntech, Inc. by Bio
Syntech Ltd. 12,095,000 2,873,848 -- -- 2,873,848
March 31, 2000, issuance 843,500 4,270,243 -- -- 4,270,243
Share issue costs -- (341,520) -- -- (341,520)
Net loss for the period from February 29, 2000
to March 31, 2000 -- -- -- (389,306) (389,306)
---------- ------- --------- ----------- ------------
Balance, March 31, 2000 28,115,536 13,132,702 1,715,910 (7,655,124) 7,193,488
April 4, 2000 issuance [note 2] 833,857 4,281,343 -- -- 4,281,343
April 17, 2000 issuance [note 2] 82,000 425,879 -- -- 425,879
April 27, 2000 issuance [note 2] 42,857 221,925 -- -- 221,925
June 9, 2000 issuance [note 2] 108,000 558,272 -- -- 558,272
Share issue costs [note 2] -- (373,746) -- -- (373,746)
Net loss for the period from April 1, 2000 to
June 30, 2000 -- -- -- (729,535) (729,535)
---------- ---------- --------- ----------- ------------
29,182,250 18,246,375 1,715,910 (8,384,659) 11,577,626
========== ========== ========= =========== ============
US Dollars [note 1]
Balance as at June 30, 2000 12,323,636 1,158,929 (5,663,014) 7,819,551
========== ========== ========= =========== ============
</TABLE>
-6-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS [note 1]
Three-month period ended June 30, 2000 and 1999 Unaudited
[In Canadian dollars]
<TABLE>
<CAPTION>
Cumulative
from inception
to June 30,
2000 2000 2000 1999
C$ US$ C$ C$
------------------------------------------------------------------------------------------------------------------------------------
[note 1]
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net loss (8,384,659) (492,729) (729,535) (360,549)
Items not affecting cash
Amortization 259,177 31,039 45,956 44,434
Services paid by the issuance of common stock 2,527,000 -- -- --
Options granted to consultants 1,715,910 -- -- --
Exchange gain (142,492) (96,239) (142,492) --
Changes in working capital assets and liabilities
Investment tax credits receivable (675,000) (67,540) (100,000) (196,878)
Other current assets (166,615) (6,542) (9,686) 20,587
Other current liabilities 22,091 (29,285) (43,360) --
Accounts payable and accrued liabilities 480,742 (380,723) (563,698) 165,648
---------- --------- ---------- --------
Cash flows from operating activities (4,363,846) (1,042,019) (1,542,815) (326,758)
---------- --------- ---------- --------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (114,581) (15,318) (22,680) (9,024)
Purchase of short-term investment (75,000) -- -- --
---------- --------- ---------- --------
Cash flows from investing activities (189,581) (15,318) (22,680) (9,024)
---------- --------- ---------- --------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- -- 300,000
Repayment of long-term debt (418,750) (12,663) (18,750) (18,750)
Proceeds of demand loan 581,845 -- -- --
Repayment of demand loan (581,845) -- -- --
Increase in due to stockholder 30,394 -- -- --
Decrease in due to stockholders (20,394) -- -- (20,394)
Repayment of obligations under capital leases (663,106) (13,501) (19,990) (30,509)
Proceeds from issuance of shares of Bio Syntech Ltd. prior
to the reverse acquisition 3,890,068 -- -- --
Proceeds from issuance of common shares of BioSyntech, Inc.
prior to the reverse acquisition 3,399,980 -- -- --
Repurchase of common stock of BioSyntech, Inc. prior to the
reverse acquisition (506,380) -- -- --
Proceeds from issuance of common shares of BioSyntech, Inc.
after the reverse acquisition 9,757,662 3,706,213 5,487,419 --
Share issue costs (805,466) (252,428) (373,746) --
---------- --------- ---------- --------
Cash flows from financing activities 15,364,008 3,427,621 5,074,933 230,347
---------- --------- ---------- --------
Effect of exchange rate changes on cash 142,492 96,239 142,492 --
---------- --------- ---------- --------
Net change in cash 10,953,073 2,466,523 3,651,930 (105,435)
Cash, beginning of period -- 4,931,203 7,301,143 57,297
---------- --------- ---------- --------
Cash, end of period 10,953,073 7,397,726 10,953,073 (48,138)
========== ========= ========== ========
</TABLE>
See accompanying notes
-7-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2000 Unaudited
[In Canadian dollars]
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of BioSyntech, Inc. and its wholly-owned subsidiary Bio Syntech
Canada, Inc. They have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-QSB and item 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying consolidated financial statements
contain all adjustments, consisting only of normal recurring accruals considered
necessary to present fairly the financial position as of June 30, 2000, the
results of operations and cash flows for the three months ended June 30, 2000
and 1999. The balance sheet at March 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the financial statements
and notes thereto included in the Company's annual report for the year ended
March 31, 2000.
US dollar amounts presented on the condensed consolidated balance sheet and the
condensed consolidated statements of operations, stockholders' equity
(deficiency) and cash flows are provided for convenience of reference only and
are based on the closing exchange rate at June 30, 2000, which was $1.4806
Canadian dollar per US dollar.
The Company is a development stage company engaged in the development of
biotherapeutic delivery systems made of proprietary biomaterials. The Company's
systems are intended to enable or enhance the treatment of diseases or injuries
for which therapies exist or are under development, but must be transported to
the site of action. The Company has limited revenues to date and is thus subject
to numerous risks, including risks associated with product development and
marketing, obtaining the necessary regulation approvals, growth, manufacturing,
competition and attracting and retaining key personnel. It may be necessary for
the Company to raise additional funds for the continuing development and
marketing of its technologies.
2. STOCKHOLDERS' EQUITY
On April 4, 2000, the Company issued 803,857 common shares in consideration of
$4,131,343 [US$2,813,500] and 30,000 common shares in consideration of $150,000.
The share issue costs amounted to $326,187. As part of this transaction, a total
of 833,857 warrants were issued which entitle the holder to purchase an
aggregate of 833,857 common shares at a price of US$4.50 on or before March 30,
2001.
On April 17, 2000, the Company issued 82,000 common shares in consideration of
$425,879 [US$287,000]. The share issue costs amounted to $33,912. As part of
this transaction, a total of 82,000 warrants were issued which entitle the
holder to purchase an aggregate of 82,000 common shares at a price of US$4.50 on
or before March 30, 2001.
-8-
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2000 Unaudited
[In Canadian dollars]
2. STOCKHOLDERS' EQUITY [Cont'd]
On April 27, 2000, the Company issued 42,857 common shares in consideration of
$221,925 [US$150,000]. As part of this transaction, a total of 42,857 warrants
were issued which entitle the holder to purchase an aggregate of 42,857 common
shares at a price of US$4.50 on or before March 30, 2001.
On June 9, 2000, the Company issued 78,000 common shares in consideration of
$408,272 [US$273,000] and 30,000 common shares in consideration of $150,000. The
share issue costs amounted to $13,647. As part of this transaction, a total of
108,000 warrants were issued which entitle the holder to purchase an aggregate
of 108,000 common shares at a price of US$4.50 on or before March 30, 2001.
As of June 30, 2000, a total of 2,380,214 warrants issued by the Company are
outstanding as follows :
Number of warrants Expiry date Exercise price
----------------------------------------------------------------------------
1,910,214 March 30, 2001 US$ 4.50
470,000 September 30, 2001 US$ 7.00
----------------------------------------------------------------------------
2,380,214
----------------------------------------------------------------------------
3. CONTINGENT LIABILITY
A former employee of a subsidiary company has commenced an action alleging that
he was wrongfully terminated and seeking $97,000 in compensation allegedly due,
the issuance to him of 100,000 Class A common shares of the subsidiary company,
which could be converted in common stock of the Company, that were the subject
of an option that was alleged to have been granted to him, and punitive damages
of $25,000. In the opinion of management, based on the advice and information
provided by its legal counsel, the final determination of this litigation is not
determinable. As such no provision has been recorded.
4. SUBSEQUENT EVENT
On July 4, 2000, the Company exercised its option to purchase the building and
land under capital lease for an amount of $1,200,000.
-9-
<PAGE>
BIOSYNTECH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The discussion in this report on Form 10-QSB contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors" in this Report.
The discussion and analysis below should be read in conjunction with
the condensed consolidated interim Financial Statements of the Company and the
notes thereto included elsewhere herein.
BioSyntech, Inc., a Nevada corporation, was incorporated on December
14, 1994. It is a development stage company engaged in the development of
biotherapeutic delivery systems made of proprietary biomaterials. The Company's
systems are intended to enable or enhance the treatment of diseases or injuries
for which therapies exist or are under development, but which must be
transported to the site of action. The Company has had limited revenues to date.
Its future operations are dependent upon financing necessary to complete
research and development projects and market the Company's products. There can
be no assurance that the Company will be able to complete the development of its
products, or if completed, that they can be successfully marketed. Furthermore,
there is no assurance that even if the products are completed and marketed, the
revenues therefrom will be sufficient to fund the Company's future operations or
to fund additional research, development and marketing.
To date, the Company has incurred substantial losses from
operations, and as of June 30, 2000, had an accumulated deficit of $8,384,659
(US $5,663,014). The Company expects to incur substantial operating expenses in
the future to support its product development efforts and expand its technical
and management personnel and organization.
-10-
<PAGE>
Currency Exchange Rates
All dollar amounts stated in this Quarterly Report on Form 10-QSB
are in Canadian dollars, except where otherwise specifically indicated. The
following table sets forth, for the dates indicated, the rates at the specific
date for the Canadian dollar per one U.S. dollar, each expressed in Canadian
dollars and based on the noon buying rate in New York City for cable transfers
in Canadian dollars as certified for customs purposes by the Federal Reserve
Bank of New York:
Quarter Ended June 30,
1999 2000
---- ----
Rate at end of period 1.4735 1.4798
Average rate during the period 1.4729 1.4805
High of the period 1.5035 1.5085
Low for the period 1.4512 1.4515
Results of Operations
The following table sets forth certain items in the Company's
condensed consolidated statements of operations for the three-month period ended
June 30, 2000 and 1999 (in thousands of CDN $)
<TABLE>
<CAPTION>
Three-month periods Ended June 30,
----------------------------------
2000 1999
---- ----
<S> <C> <C>
Sales $66.2 $0
Cost of sales $28.2 $0
-------- --------
Gross profit $38.0 $0
Operating Expenses:
Research and development $ 535.0 $ 329.1
Investment tax credits (100.0) (184.6)
General and administrative 379.8 153.2
Amortization of property, plant and equipment 46.0 44.4
-------- --------
Total operating expenses $ 860.8 $ 342.1
-------- --------
Income from operations (Loss) ($ 822.8) ($ 342.1)
-------- --------
Interest income 122.3 0.2
Interest expense 29.0 18.7
-------- --------
Net loss $ 729.5 $ 360.6
</TABLE>
-11-
<PAGE>
Sales
Since the inception of the Company, revenues have been generated
from sales of Mach-1(TM) Mechanical Testers.
During the three-month period ended June 30, 2000, the Company had
sales of $66,200 (sale of one Mach-1(TM) Mechanical Tester) and a net loss of
$729,535 compared to sales of zero and a net loss of $360,549 for the
three-month period ended June 30, 1999.
Loss per share was $0.03 per share for the three-month period ended
June 30, 2000, compared to $0.04 per share for the three-month period ended June
30, 1999.
Operating Expenses
Research and development expenses were $535,048 for the three-month
period ended June 30, 2000 compared to $329,061 for the three-month period ended
June 30, 1999, mostly attributable to hiring of additional researchers and the
cost of clinical studies. Research and development activities for fiscal year
2001 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. Accordingly, the Company
anticipates that it will devote significant resources to research and
development.
General and administrative expenses were $ 379,821 for the
three-month period ended June 30, 2000 compared to $ 153,158 for the three-month
period ended June 30, 1999, representing a increase of $226,663. The increase is
principally attributable to professional fees and marketing.
Interest Revenue and Interest Expense
Interest revenue represents income earned on the Company's bank
accounts. Interest revenue increased by $122,057, from $195, for the three-month
period ended June 30, 1999 to $122,252 for the three-month period ended June 30,
2000, primarily due to a higher level of cash on hand during the period.
Interest expense in 2000 is mainly attributable to interest on the
capital lease transaction entered into by the Company at the end of fiscal 1999
in order to finance its facility. Interest expense increased by $10,300 from
$18,690 for the three-month period ended June 30,1999 to $28,990 for the
three-month period ended June 30,2000.
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<PAGE>
Liquidity and Capital Resources
As of June 30, 2000, the Company had cash on hand and short term
investments of approximately $10,953,073 (US $7,397,726). The cash position of
BioSyntech Inc. on July 31, 2000 is US $6,020,218 plus CDN $575,817. Subsequent
to June 30, 2000, the Company expended the sum of $1,200,000 to acquire the
facility in which it conducts its operations. The Company also expects to expend
between $1,000,000 and $1,500,000 during the remaining period for the fiscal
year ending March 31, 2001 to equip its facility. The Company believes that the
capital resources presently on hand will be sufficient for projected capital
expenditures and operating expenses for the next 12 months.
Commencing March 31, 2000 and during the quarter ended June 30,
2000, the Company completed a second private placement and issued a total of
1,910,214 units at a price of US $3.50 (CDN $5.07) per unit as shown in the
table below per unit yielding gross proceeds of US $6,055,250 and CDN $900,000
(CDN $9,757,662). Each unit comprised one share of Common Stock and one warrant
for the purchase of one additional share at a price of US $4.50 (CDN $6.52) per
share before March 30, 2001.
<TABLE>
<CAPTION>
Closing Date Number of Units Proceeds
------------ --------------- --------
<S> <C> <C>
March 31, 2000 843,500 US $2,532,250 and CDN $600,000
(CDN $4,270,243)
April 4, 2000 833,857 US $2,813,500 and CDN $150,000
(CDN $4,281,343)
April 17, 2000 82,000 US $287,000
(CDN $425,879)
April 27, 2000 42,857 US $150,000
(CDN $221,925)
June 9, 2000 108,000 US $272,500 and CDN $150,000
(CDN $558,272)
------ ---------- -----------------------------
Totals 1,910,214 US$6,055,250 and CDN $900,000
(CDN $9,757,662)
</TABLE>
-13-
<PAGE>
Employee Growth
As of July 31, 2000, the Company had 27 employees, of whom 22 were
engaged on research and development and five were engaged in corporate and
administrative activities. Over the next 12 months, the Company intends to
increase its corporate and administrative personnel to eight. The existing
research and development team will be expanded by 10 to 15 persons. The Company
anticipates its total employee count to be in approximately 40 to 50 employees
by the end of fiscal year 2001. The information set forth under the caption
"Risk Factors - We may be unable to retain our key executives and research and
development personnel" discuss risks the Company may face in hiring and
retaining additional personnel.
Risk Factors
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond our control. The following discussion
highlights the most material of the risks.
We expect that we will incur losses for the foreseeable future.
We have had net operating losses since being founded and currently have
an accumulated deficit. These losses consist of research and development costs,
the costs of acquiring rights to research and development performed by others
and general and administrative expenses. We expect to have substantial
additional expenses over the next several years as our research and development
activities and the process of seeking regulatory approval of our products,
including clinical trials, accelerate. Because we do not expect to have
significant revenues from the sale of products for several years, if ever, we
expect that such expenses will result in additional losses.
Our future profitability depends, in part, on:
o Obtaining regulatory approval for our products;
o Entering into agreements to develop and commercialize
products;
o Developing the capacity to manufacture and market products or
entering into agreements with others to do so;
o Market acceptance of our products;
o The ability to obtain additional research and development
funding from our collaborative partners; and
-14-
<PAGE>
o The ability to achieve certain product development milestones.
We may not achieve any or all of these goals and, thus, are unable to
predict whether we will ever achieve significant revenues or profits. Even if we
receive regulatory approval of one or more of our products, we may not achieve
significant commercial success.
We need to spend substantial funds to become profitable.
We need to spend substantial amounts of money before we can be
profitable. The amount we will spend, and when we will spend it, will depend, in
part, on:
o How our research and development programs, including clinical
trials, progress;
o How much time and expense will be required to receive FDA
approval for our product candidates;
o The cost of building, operating and maintaining manufacturing
facilities;
o How many product candidates we pursue;
o How much time and money we need to prosecute and enforce
patent rights;
o How competing technological and market developments affect our
product candidates;
o The cost of possible acquisitions of drug delivery
technologies, products or companies; and
o The cost of obtaining licenses to use technology owned by
others.
We will need additional financing to continue our operations as
planned.
We will seek funds by issuing equity and debt securities and through
arrangements with our collaborative partners. If we issue equity securities, our
present stockholders will suffer dilution. If we issue debt securities, we will
face the risks associated with debt, including rises in interest rates and
insufficient cash flow to pay the principal of and interest on our debt
securities. We are unable to predict whether additional equity or debt financing
will be available to us, on favorable terms or at all. If sufficient financing
is unavailable on a timely basis, we may curtail one or more development
programs or transfer rights in products that could later prove to be of great
value.
Our delivery technologies may not produce safe, useful or commercially
viable products.
We lack a therapeutic delivery system product that we can sell
commercially and we are uncertain that we will have one in the future. To be
profitable, we must develop, manufacture and market our products, either alone
or by collaborating with others. This could take several years and we may never
be successful in bringing our product candidates to the market. Additionally,
our success in preclinical and early clinical trials does not ensure that large
scale clinical trials will be successful. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent further
clinical development or regulatory approvals. The product may:
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o Be shown to be ineffective or to cause harmful side effects
during preclinical testing or clinical trials;
o Fail to receive regulatory approval on a timely basis or at
all;
o Be hard to manufacture on a large scale;
o Be uneconomical;
o Not be pursued by our collaborative partner;
o Not be prescribed by doctors or accepted by patients; or
o Infringe on proprietary rights of another party.
The FDA may not approve our product candidates.
FDA approval is required to manufacture and market pharmaceutical
products in the United States. The process to receive this approval is extensive
and includes preclinical testing and clinical trials to demonstrate safety and
usefulness, and a review of the manufacturing process to ensure compliance with
good manufacturing practices. This process can last many years and be very
costly and still be unsuccessful. The length of time necessary to complete
clinical trials and receive approval for product marketing by regulatory
authorities varies significantly by product and indication and is difficult to
predict. FDA approval can be delayed, limited or denied for many reasons,
including:
o A product candidate may not be safe or effective;
o Data from preclinical testing and clinical trials can be
interpreted by FDA officials in different ways than we
interpret it;
o The FDA might not approve our manufacturing processes or
facilities;
o The FDA may change its approval policies or adopt new
regulations; and
o A product candidate may not be approved for all the uses we
requested.
Countries other than the United States, including Canada, have similar
requirements. The process of getting approvals in foreign countries is subject
to delay and failure for the same reasons.
We are subject to extensive government regulations and we may not be
able to obtain regulatory approvals.
Our product candidates are subject to broad government regulation. In
the United States, the FDA regulates, among other things, the development,
testing, manufacture, safety, usefulness, record-keeping, labeling, storage,
approval, advertising, promotion, sale and distribution of biopharmaceutical
products. If our products are marketed in other countries, they will also be
subject to extensive regulation by foreign governments. Certain material changes
to an approved product, such as manufacturing changes or additional labeling
claims, are subject to further FDA review and approval. Any required approvals,
once obtained, may be withdrawn. Further, if we fail to comply with FDA and
other regulatory requirements at any stage during the regulatory process, we may
be subject to sanctions, including:
o Delays, warning letters and fines;
o Product recalls or seizures and injunctions on sales;
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o Refusal of the FDA to review pending market approval
applications or supplements to approval applications;
o Total or partial suspension of production;
o Withdrawals of previously approved marketing applications; and
o Civil penalties and criminal prosecutions.
We rely heavily on collaborators.
Our arrangements with collaborators and licensors are critical to our
success in bringing our product candidates to the market. Our partners own many
of the drug, cell and genetic material products for which we are designing
delivery systems. In some cases, we depend on these parties to conduct
preclinical testing and clinical trials and to provide funding for our
development programs. Some of our collaborators can terminate their agreements
with us for no reason and on limited notice. We are unsure whether any of these
relationships will continue.
We also expect to rely upon our collaborators to manufacture our
therapeutic delivery products in commercial quantities and for marketing and
sales. Our present plans do not call for us to develop these capabilities on our
own. If we are unable to reach satisfactory agreements with our collaborators or
with third parties, we would incur substantial additional costs and would
experience substantial delay in commercializing most of our products.
We cannot control our collaborators' performance or the resources they
devote to our programs. If a collaborator fails to perform, the research,
development or commercialization program on which it is working will be delayed.
If this happens, we may have to use funds, personnel, laboratories and other
resources that we have not budgeted, and may not have, to continue the program,
or we may have to stop the program entirely.
Disputes may arise between us and a collaborator and may involve the
issue of which of us owns the technology that is developed during a
collaboration. Such a dispute could delay the program or result in expensive
arbitration or litigation, which we might not win. A collaborator may choose to
use its own or other technology to deliver its drug or cell product. Our
collaborators could merge with or be acquired by another company or financial or
operational difficulties that could adversely affect our programs.
We may indirectly be subject to some professional guidelines.
In addition to government agencies that promulgate regulations and
guidelines directly applicable to us and our products, private health/science
foundations and organizations involved in various diseases may also publish,
from time to time, guidelines or recommendations to the healthcare and patient
communities. These private organizations may make recommendations that affect
the usage of certain therapies, drugs or procedures, including our products.
Such recommendations may relate to such matters as usage, dosage, route of
administration and use of concomitant therapies. Recommendations or guidelines
that are followed by patients and healthcare providers and that result in, among
other things, decreased use of our products could have a material adverse effect
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our operations. In addition, the perception that such recommendations or
guidelines will be followed could adversely affect prevailing market prices for
our Common Stock.
Rapid technological change could render our therapeutic delivery
systems obsolete or noncompetitive.
Major technological changes can occur quickly in the biotechnological
and pharmaceutical industries. The development by competitors of technologically
improved or different products may make our product candidates obsolete or
noncompetitive.
The competitive nature of our industry could adversely affect market
acceptance of our products.
Our product candidates may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. The degree of market
acceptance of any product candidate that we develop will depend on a number of
factors, including:
o Demonstration of their usefulness and safety;
o Their relative cost;
o Their advantage or disadvantage compared to alternative
methods;
o The marketing and distribution support they receive; and
o Reimbursement policies of government and third-party payors.
Our products may compete with new products currently under development
by others or with products that may cost less than our products. Our actual and
potential competitors include other therapeutic delivery companies,
biotechnology and pharmaceutical companies, academic and research institutions
and government agencies. Many have greater name recognition and greater
financial, research and development and personnel resources than we do. Many
have greater experience in testing and clinical trials and in the regulatory
process.
Proprietary protection for our products is important and uncertain.
The following factors are important to our success:
o Receiving patent protection for our product candidates and
those of our collaborators;
o Maintaining our trade secrets;
o Not infringing on the proprietary rights of others; and
o Preventing others from infringing our proprietary rights.
We can protect our proprietary rights from unauthorized use by third
parties only if these rights are covered by valid and enforceable patents or are
effectively maintained as trade secrets.
We try to protect our proprietary position by filing United States,
Canada, and foreign patent applications related to our proprietary technology,
inventions and improvements that are important to the development of our
business. The
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patent position of biopharmaceutical companies involves complex legal and
factual questions. Therefore, enforceability of patents cannot be projected with
certainty. Patents, if issued, may be challenged, invalidated or circumvented.
Thus, any patents that we own or license from others may provide no protection
against competitors. Our pending patent applications, those we may file in the
future, or those we may license from third parties, may not result in patents
being issued. If patents do issue, they may not provide us with proprietary
protection or competitive advantages against competitors with similar
technology. Furthermore, others may independently develop similar technologies
or duplicate any technology that we have developed. The laws of certain foreign
countries do not protect our intellectual property rights to the same extent as
the laws of the United States.
We also rely on trade secrets, know-how and technology, which we try to
protect by entering into confidentiality agreements with parties that have
access to it, such as our corporate partners, collaborators, employees and
consultants. Any of these parties may breach the agreement and disclose our
confidential information or our competitors might learn of the information in
some other way.
Efforts to keep down the cost of healthcare may threaten our
profitability.
Third-party payors, which include governments and private health
insurers, are increasingly challenging the prices charged for medical products
and services. In their attempts to reduce healthcare costs, they have also been
limiting their coverage and reimbursement levels for new drugs. In some cases,
they are refusing to cover the costs of drugs that are not new but are being
used for newly approved purposes. Patients who use a product that we may develop
might not be reimbursed for its cost. If third-party payors do not provide
adequate coverage and reimbursement for our products, if and when they reach the
market, doctors may not prescribe them or patients may not use them.
The federal government and various state governments have considered
proposals to regulate the prices of prescription drugs, as is done in certain
foreign countries. We expect that there will be more proposals like these. If
any of these proposals are enacted, we may receive a lower price for our
products, if and when they reach the market, than we currently estimate. Lack of
adequate reimbursement or the enactment of price controls would have a material
adverse effect on our business and financial condition.
We may be unable to retain our key executives and research and
development personnel.
Our success depends on the services of key employees in executive and
research and development positions, notably our Chairman of the Board of
Directors, President and Chief Executive Officer, Dr. Selmani. The loss of the
services of one or more of our key employees could have a material adverse
effect on our operations.
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Our insurance coverage may be insufficient for product liability
claims.
The testing and marketing of bio-therapeutic and medical products, even
after FDA approval, have an inherent risk of product liability. We anticipate we
will obtain product liability insurance coverage in a limited amount at the time
that our operations warrant it. Our profitability will be affected by a
successful product liability claim in excess of any insurance coverage that may
be in effect at such time. We are unsure whether product liability insurance
will be available in the future on reasonable terms or at all.
Our operating results may affected by foreign exchange fluctuations.
We expect a substantial portion of our revenues to be based on sales
and services rendered to come from the United States, while a significant amount
of our operating expenses will be incurred in Canada. As a result, our financial
performance will be affected by fluctuations in the value of the U.S. dollar to
the Canadian dollar. At the present time, we have no plan or policy to utilize
forward contracts or currency options to minimize this exposure, and even if
these measures are implemented, we are unsure whether these arrangements will be
available, be cost effective or be able to fully offset such future currency
risks.
We will pay no dividends on our Common Stock.
We have not paid cash dividends on our Common Stock and do not expect
to do so in the foreseeable future.
Future issuance of shares of Common Stock may dilute present
stockholders.
Our Articles of Incorporation authorize the issuance of a maximum of
50,000,000 shares of Common Stock. Our stockholders may experience a substantial
dilution in the percentage of the Common Stock they hold if we issue all or part
of the remaining authorized Common Stock in the future. Moreover, we may value
any Common Stock issued in the future on a basis other than the current market
price of the Common Stock. Dilution could also occur if we issue our Common
Stock for future services or acquisitions or other corporate actions. These
actions could depress the market price of our Common Stock.
Our Common Stock is regulated as a "penny stock."
Under United States securities regulations, "penny stocks" generally
are equity securities with a price of less than $5.00 per share other than
securities registered on certain national securities exchanges or quoted on the
Nasdaq Stock Market. Our Common Stock is subject to "penny stock rules" that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the "penny stock rules"
require the delivery, prior to the transaction, of a disclosure schedule
prescribed by the Securities and
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Exchange Commission relating to the penny stock market. The broker-dealer must
also disclose the commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information on the
limited market in penny stocks. Consequently, the "penny stock rules" may
restrict the ability of broker-dealers to sell our Common Stock. The "penny
stock rules" will not apply if the market price of our Common Stock is $5.00 or
greater. There can be no assurance that the price of our Common Stock will
attain such a level.
We can give no assurances that our forward looking statements will be
correct.
Certain forward-looking statements, including statements regarding
our business and financing plans, are contained in this Quarterly Report on Form
10-QSB. These forward-looking statements reflect our views with respect to
future events and financial performance. The words, "believe," "expect," "plans"
and "anticipate" and similar expressions identify forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to be correct. Important factors that could cause actual results to differ
materially from such expectations are disclosed in this Quarterly Report on Form
10-QSB. All subsequent written and oral forward-looking statements attributable
to us are expressly qualified in their entirety by the cautionary statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
As described under "Management's Discussion and Analysis or Plan of
Operation", the Company consumated a private placement of its securities during
the quarter ended June 30, 2000. The securities were offered and sold in
reliance on the exemption from registration under the Securities Act provided
for in Regulation S. All such securities were deemed by the Company to be
restricted securities and were appropriately legended and restricted as to
subsequent transfer. No underwriter was involved in such transactions.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated March 15, 2000 (the "March
15 Current Report"), reporting under Item 1. Change in Control of Registrant and
Item 2. Acquisition or Disposition of Assets - the Transactions. The Company
amended the March 15, 2000 Current Report and filed a Form 8-K/A dated May 15,
2000, to provide the financial information required under Item 7. Financial
Statements, Pro Forma Financial Information and Exhibits.
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 and Chairman of the
Board; Chief Financial Officer;
Chief Accounting Officer
Dated: August 21, 2000
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