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: September 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.
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(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
------------------------------------------------------------
(Issuers 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 October 25, 2000.
Transitional Small Business Disclosure Format (check one):
( ) Yes (X) No
<PAGE>
BIOSYNTECH, INC.
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Condensed Consolidated Financial Statements
BioSyntech, Inc.
[formerly Dream Team International Inc.]
[a development stage company] - Unaudited
Quarter ended September 30, 2000
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED BALANCE SHEETS [note 1]
As of September 30, 2000 and March 31, 2000
<TABLE>
<CAPTION>
September 30, March 31,
------------------------------ ---------
2000 2000 2000
US$ C$ C$
--------------------------------------------------------------------------------------------------------------
[unaudited] [unaudited]
<S> <C> <C> <C>
ASSETS
Current assets
Cash 6,176,789 9,286,803 7,301,143
Investment tax credits receivable 276,230 415,312 575,000
Other current assets 115,128 173,096 231,929
--------------------------------------------------------------------------------------------------------------
6,568,147 9,875,211 8,108,072
--------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,139,769 1,713,642 1,517,540
--------------------------------------------------------------------------------------------------------------
7,707,916 11,588,853 9,625,612
--------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 513,768 772,450 1,060,928
Other current liabilities 64,521 97,007 233,930
--------------------------------------------------------------------------------------------------------------
578,289 869,457 1,294,858
--------------------------------------------------------------------------------------------------------------
Long-term debt and obligations under
capital leases [note 3] 121,937 183,333 1,137,266
--------------------------------------------------------------------------------------------------------------
700,226 1,052,790 2,432,124
--------------------------------------------------------------------------------------------------------------
Contingent liability [note 4]
Shareholders' equity
Common stock [note 2]
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding
29,182,250 common shares 12,135,933 18,246,375 13,132,702
Additional paid-in capital 1,299,242 1,953,410 1,715,910
Deficit accumulated during the development stage (6,427,485) (9,663,722) (7,655,124)
--------------------------------------------------------------------------------------------------------------
7,007,690 10,536,063 7,193,488
--------------------------------------------------------------------------------------------------------------
7,707,916 11,588,853 9,625,612
--------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
----------------------------------- ---------------------------------------
Director Director
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS [note 1]
Unaudited
<TABLE>
<CAPTION>
Three months ended
Cumulative September 30,
from inception ---------------------------------------------------
to September 30,
2000 2000 2000 1999
C$ US$ C$ C$
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
Sales 256,674 14,856 22,336 --
Cost of sales 110,170 6,675 10,036 --
---------------------------------------------------------------------------------------------------------------------
146,504 8,181 12,300 --
---------------------------------------------------------------------------------------------------------------------
Research and development expenses 6,845,520 436,648 656,500 171,637
Investment tax credits (1,513,364) -- -- (178,052)
General and administrative expenses 4,181,862 478,818 719,902 125,743
Interest on long-term debt 275,527 5,454 8,200 90,219
Amortization of property, plant and
equipment
287,022 18,520 27,845 44,437
Grants (17,345) (11,536) (17,345) (4,000)
Interest income (248,996) (68,998) (103,739) (473)
---------------------------------------------------------------------------------------------------------------------
9,810,226 858,906 1,291,363 249,511
---------------------------------------------------------------------------------------------------------------------
Net loss (9,663,722) (850,725) (1,279,063) (249,511)
Deficit accumulated during the
development stage, beginning of
period
-- (5,576,760) (8,384,659) (4,775,390)
---------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the
development stage, end of period (9,663,722) (6,427,485) (9,663,722) (5,024,901)
---------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding
29,182,250 29,182,250 12,388,282
Basic and diluted loss per share (0.03) (0.04) (0.02)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS [note 1]
Unaudited
<TABLE>
<CAPTION>
Six months ended
Cumulative September 30,
from inception ---------------------------------------------------
to September 30,
2000 2000 2000 1999
C$ US$ C$ C$
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------
Sales 256,674 58,887 88,536 --
Cost of sales 110,170 25,413 38,208 --
-------------------------------------------------------------------------------------------------------------------------
146,504 33,474 50,328 --
-------------------------------------------------------------------------------------------------------------------------
Research and development expenses 6,845,520 792,516 1,191,548 500,698
Investment tax credits (1,513,364) (66,511) (100,000) (362,651)
General and administrative expenses 4,181,862 731,442 1,099,723 278,901
Interest on long-term debt 275,527 24,736 37,190 108,909
Amortization of property, plant and equipment
287,022 49,086 73,801 88,871
Grants (17,345) (11,536) (17,345) (4,000)
Interest income (248,996) (150,310) (225,991) (668)
-------------------------------------------------------------------------------------------------------------------------
9,810,226 1,369,423 2,058,926 610,060
-------------------------------------------------------------------------------------------------------------------------
Net loss (9,663,722) (1,335,949) (2,008,598) (610,060)
Deficit accumulated during the development stage,
beginning of period
-- (5,091,536) (7,655,124) (4,414,841)
-------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development stage,
end of period (9,663,722) (6,427,485) (9,663,722) (5,024,901)
-------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 29,108,368 29,108,368 (12,299,930)
Basic and diluted loss per share (0.05) (0.07) (0.05)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIENCY) [note 1]
<TABLE>
<CAPTION>
From inception to September 30, 2000 Unaudited
[In Canadian dollars]
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
Share issuances [note 2] 1,066,714 5,487,419 -- -- 5,487,419
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)
------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 29,182,250 18,246,375 1,715,910 (8,384,659) 11,577,626
Options granted to consultants -- -- 237,500 -- 237,500
Net loss for the period from July 1, 2000 to
September 30, 2000 -- -- -- (1,279,063) (1,279,063)
------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 29,182,250 18,246,375 1,953,410 (9,663,722) 10,536,063
------------------------------------------------------------------------------------------------------------------------------------
US Dollars
Balance as at September 30, 2000 12,135,933 1,299,242 (6,427,485) 7,007,690
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS [note 1]
<TABLE>
<CAPTION>
Unaudited
Cumulative Three months ended
from inception September 30,
to September 30, 2000
2000 2000 1999
C$ US$ C$ C$
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss (9,663,722) (850,725) (1,279,063) (249,511)
Items not affecting cash
Amortization 287,022 18,520 27,845 44,437
Services paid by the issuance of common stock
2,527,000 -- -- --
Options granted to consultants 1,953,410 157,966 237,500 --
Exchange gain (279,997) (91,457) (137,505) --
Changes in working capital assets and liabilities
Investment tax credits receivable (415,312) 172,722 259,688 221
Other current assets (98,096) 45,573 68,519 (11,434)
Other current liabilities 22,091 -- -- --
Accounts payable and accrued liabilities 755,962 183,053 275,220 53,530
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (4,911,642) (364,348) (547,796) (162,757)
------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (487,187) (229,009) (344,315) --
Disposal of property, plan and equipment 28,291 -- -- 28,291
Purchase of short-term investment (75,000) -- -- (75,000)
Proceeds from maturing of short term investments
75,000 49,884 75,000 --
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (458,896) (179,125) (269,315) (46,709)
------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- -- --
Repayment of long-term debt (437,500) (12,471) (18,750) (18,750)
Proceeds of demand loan 581,845 -- -- 250,000
Repayment of demand loan (581,845) -- -- --
Increase in due to stockholder 30,394 -- -- --
Decrease in due to stockholders (20,394) -- -- --
Repayment of obligations under capital leases (1,631,020) (643,774) (967,914) (15,215)
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 -- -- --
Share issue costs (805,466) -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 14,377,344 (656,245) (986,664) 216,035
------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 279,997 91,457 137,505 --
------------------------------------------------------------------------------------------------------------------------------------
Net change in cash 9,286,803 (1,108,261) (1,666,270) 6,569
Cash, beginning of period -- 7,285,050 10,953,073 (48,138)
------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 9,286,803 6,176,789 9,286,803 (41,569)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS [note 1]
<TABLE>
<CAPTION>
Unaudited
Cumulative Six months ended
from September 30,
inception to
September 30, 2000
2000 2000 1999
C$ US$ C$ C$
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss (9,663,722) (1,335,949) (2,008,598) (610,060)
Items not affecting cash
Amortization 287,022 49,086 73,801 88,871
Services paid by the issuance of common stock 2,527,000 -- -- --
Options granted to consultants 1,953,410 157,966 237,500 --
Exchange gain (279,997) (186,230) (279,997) --
Changes in working capital assets and liabilities
Investment tax credits receivable (415,312) 106,211 159,688 (196,657)
Other current assets (98,096) 39,131 58,833 9,153
Other current liabilities 22,091 (28,840) (43,360) --
Accounts payable and accrued liabilities 755,962 (191,871) (288,478) 219,178
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (4,911,642) (1,390,496) (2,090,611) (489,515)
------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (487,187) (244,094) (366,995) (9,024)
Disposal of property, plan and equipment 28,291 -- -- 28,291
Purchase of short-term investment (75,000) -- -- (75,000)
Proceeds from maturing of short term investments 75,000 49,884 75,000 --
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (458,896) (194,210) (291,995) (55,733)
------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- -- 300,000
Repayment of long-term debt (437,500) (24,942) (37,500) (37,500)
Proceeds of demand loan 581,845 -- -- 250,000
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 (1,631,020) (657,069) (987,904) (45,724)
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 3,649,763 5,487,419 --
Share issue costs (805,466) (248,584) (373,746) --
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 14,377,344 2,719,168 4,088,269 446,382
------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 279,997 186,230 279,997 --
------------------------------------------------------------------------------------------------------------------------------------
Net change in cash 9,286,803 1,320,692 1,985,660 (98,866)
Cash, beginning of period -- 4,856,097 7,301,143 57,297
------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 9,286,803 6,176,789 9,286,803 (41,569)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 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 BioSyntech
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 September 30, 2000, the
results of operations and cash flows for the three months and six months periods
ended September 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 September 30, 2000, which was $1.5035
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.
8
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 Unaudited
[In Canadian dollars]
2. STOCKHOLDERS' EQUITY
During the six months ended September 30, 2000, the Company issued 1,006,714
common shares and warrants in consideration of US$3,523,500 [$5,187,419] and
60,000 common shares and warrants in consideration of $300,000. The share issue
costs amounted to $373,746. The warrants entitle the holder to purchase an
aggregate of 1,066,714 common shares at a price of US$4.50 on or before March
30, 2001.
Warrants
As of September 30, 2000, a total of 2,380,214 warrants issued by the Company
are outstanding as follows :
Number of warrants Expiry date Exercise price
--------------------------------------------------------------------------------
1,910,214 March 30, 2001 US$ 4.50
470,000 September 30, 2001 US$ 7.00
--------------------------------------------------------------------------------
2,380,214
--------------------------------------------------------------------------------
Stocks Options
In August 2000, options to purchase 475,000 shares of common stock under the
BioSyntech, Inc. Option Incentive Plan have been granted to Directors, Officers
and Consultants. These options may be exercised at a price of US$4.00 over a
ten-year period of which options to purchase 150,000 shares of common stock are
exercisable immediately, options to purchase 200,000 shares of common stock are
exercisable commencing in August 2001, options to purchase 50,000 shares of
common stock are exercisable commencing in August 2002 and options to purchase
75,000 shares of common stock are exercisable commencing in August 2003.
3. SIGNIFICANT EVENT
On July 4, 2000, the Company exercised its option to purchase the building and
land under capital lease for a cash consideration of $1,200,000. The difference
between the purchase price and the carrying amount of the lease obligations has
been recorded as an adjustment of the carrying amount of the building and land
as of the date of purchase.
9
<PAGE>
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 Unaudited
[In Canadian dollars]
4. CONTINGENT LIABILITY
A former employee of a subsidiary company has filed 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, that
were the subject of an option that was alleged to have been granted to him, and
punitive damages of $25,000. These Class A common shares are exchangeable into
common stock of the Company. 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.
10
<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 September 30, 2000, had an accumulated deficit of
$9,663,722. The Company expects to incur substantial operating expenses in the
future to support its product development efforts and expand its technical and
management personnel and organization.
Currency Exchange Rates
All dollar amounts stated in this Quarterly Report on Form 10-QSB in
the sections entitled "Management Discussion and Analysis or Plan of Operation"
and "Risk Factors" are in Canadian dollars. All dollar amounts in the Condensed
Consolidated Financial Statements and the notes thereto in this Quarterly Report
on Form 10-QSB are in Canadian dollars, except where otherwise specifically
indicated. The following table sets forth, for the dates indicated, the rates at
the specific date for the Canadian dollar per one U.S. dollar, each expressed in
Canadian dollars and based on the noon buying rate in New York City for cable
transfers in Canadian dollars as certified for customs purposes by the Bank of
Canada:
Quarter Ended September 30,
1999 2000
---- ----
Rate at end of period 1.4674 1.5035
Average rate during the period 1.4828 1.4822
High of the period 1.5127 1.5035
Low for the period 1.4616 1.4650
Results of Operations
The following table sets forth certain items in the Company's
condensed consolidated statements of operations for the three-month period ended
September 30, 2000 and 1999, and the six-month period ended September 30, 2000
and 1999 (in thousands of CDN$).
11
<PAGE>
<TABLE>
<CAPTION>
Three-month period Six-month period
Ended September 30 Ended September 30
------------------ ------------------
2000 1999 2000 1999
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Sales $ 22.3 $ 0 $ 88.5 $ 0
Cost of sales 10.0 0 $ 38.2 0
---------- -------- ---------- --------
Gross profit $ 12.3 $ 0 $ 50.3 $ 0
Operating Expenses:
Research and development $ 656.5 $171,6 $ 1,191.5 $500,7
Investment tax credits 0 (178.1) (100.0) (362.7)
General and administrative (Net of Grants) 702.6 121.7 1,082.4 274,9
Amortization of property, plant and equipment 27.8 44.4 73.8 88.9
---------- -------- ---------- --------
Total operating expenses $ 1,386.9 $ 159.6 $ 2,247.7 $ 501.8
---------- -------- ---------- --------
Loss from operations ($ 1,374.6) ($ 159.6) ($ 2,197.4) ($ 501.8)
---------- -------- ---------- --------
Interest income (103.7) (.5) (225,9) (0.6)
Interest expense 8.2 90.2 37.2 108.9
---------- -------- ---------- --------
Net loss $ 1,279.1 $ 249.3 $ 2,008.7 $ 610.1
</TABLE>
Results of Operations
Sales
Revenues have only been generated from the sales of Mach-1tm
mechanical tester.
During the three-month period ended September 30, 2000, the Company
had sales of $22,336 (sale of 1 Mach-1(TM) Mechanical Tester) and a net loss of
$1,279,063 compared to sales of zero and a net loss of $249,511 for the
three-month period ended September 30, 1999. During the six-month period ended
September 30, 2000, the Company had sales of $88,536 (sale of 2 Mach-1TM
Mechanical Tester) and a net loss of $2,008,598 compared to sales of zero and a
net loss of $610,060 for the six-month period ended September 30, 1999.
Loss per share was $0.04 per share for the three-month period ended
September 30, 2000, compared to $0.02 per share for the three-month period ended
September 30, 1999. Loss per share was $0.07 per share for the six-month period
ended September 30, 2000, compared to $0.05 per share for the six-month period
ended September 30, 1999.
Operating Expenses
Research and development expenses were $656,500 for the three-month
period ended September 30, 2000 compared to $171,637 for the three-month period
ended September 30, 1999. Research and development expenses were $1,191,548 for
the six-month period ended September 30, 2000 compared to $500,698 for the
six-month period ended September 30, 1999. The increases in research and
development expenses for the three-month and six-month periods are mostly
attributable to hiring of additional researchers, the cost of pre-clinical
toxicological studies and the research and development activities of the Company
with its corporate collaborators and its own in-house programs. The Company
anticipates that it will continue to devote significant resources to research
and development.
Investment tax credits
The Company claims an investment tax credit on all allowable
research and development expenses. The amount claimed for the six-month period
ended September 30, 2000 is $100,000 compared to $362,651 for the six-month
period ended September 30, 1999. The decrease is directly attributable to a
reduction in
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the effective rate used to calculate the tax credits since the Company can no
longer benefit from private company rates.
General and administrative
General and administrative expenses were $702,557 for the
three-month period ended September 30, 2000 compared to $121,743 for the
three-month period ended September 30, 1999, representing an increase of
$580,814. General and administrative expenses were $1,082,378 for the six-month
period ended September 30, 2000 compared to $274,901 for the six-month period
ended September 30, 1999 representing an increase of $807,477. The increases in
the three-month period and the six-month periods are principally attributable to
professional fees, marketing expenses, and to an increase in administrative
personnel.
Amortization of property, plant and equipment
Amortization expense was $27,845 for the three-month period ended
September 30, 2000 compared to $44, 437 for the three-month period ended
September 30, 1999, representing a decrease of $16,592. Amortization expenses
were $73,801 for the six-month period ended September 30, 2000 compared to
$88,871 for the six-month period ended September 30, 1999, representing a
decrease of $15,070. The decreases in the three-month and six-month periods were
principally attributable to the change in amortization period of the Company's
facility, which was amortized over the term of the lease of 10 years prior to
its acquisition and subsequently changed to a period of 25 years.
Interest Income and Interest Expense
Interest income represents income earned on the Company's cash
deposits. Interest income increased by $103,266, from $473 for the three-month
period ended September 30, 1999 to $103,739 for the three-month period ended
September 30, 2000. Interest income increased by $225,323 from $668 for the
six-month period ended September 30, 1999 to $225,991 for the six-month period
ended September 30, 2000. The increases in the three-month period and the
six-month period are 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 prior to its acquisition in the month of July
2000. Interest expense decreased by $82,019 from $90,219 for the three-month
period ended September 30, 1999 to $8,200 for the three-month period ended
September 30, 2000. Interest expense decreased by $71,719 from $108,909 for the
six-month period ended September 30, 1999 to $37,190 for the six-month period
ended September 30,2000.
Liquidity and Capital Resources
The cash position of the Company on September 30, 2000 is
$9,286,803. In the month of July 2000, the Company disbursed the sum of
$1,200,000 to acquire the facility in which the Company conducts its operations.
The Company also expects to disburse approximately $2,600,000 to equip its
facility during the remaining period for the fiscal year ending March 31, 2001.
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.
On February 2, 2000, the Company completed a private placement of
its securities yielding aggregate proceeds of $3,406,090, for which the Company
issued an aggregate of 470,000 shares of common stock and Warrants to purchase
an additional 470,000 shares of common stock at a price of $10.15 on or before
September 30, 2001.
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 $5.07 per unit as shown in the table
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below, yielding gross proceeds of $9,757,663. Each unit comprised one share of
common stock and one warrant for the purchase of one additional share at a price
of $6.52 per share before March 30, 2001.
---------------------------------------------------------------
Closing Date Number of Units Proceeds
------------ --------------- --------
---------------------------------------------------------------
March 31, 2000 843,500 $ 4,270,243
---------------------------------------------------------------
April 4, 2000 833,857 $ 4,281,343
---------------------------------------------------------------
April 17, 2000 82,000 $ 425,879
---------------------------------------------------------------
April 27, 2000 42,857 $ 221,925
---------------------------------------------------------------
June 9, 2000 108,000 $ 558,272
---------------------------------------------------------------
Totals 1,910,214 $ 9,757,663
---------------------------------------------------------------
Employee Growth
As of October 31, 2000, the Company had 33 employees, of whom 21 were engaged on
research and development and 12 were engaged in corporate and administrative
activities. Over the next 12 months, the Company intends to increase its
corporate and administrative personnel by three to five persons. The existing
research and development team will increase by ten to fifteen persons. The
Company anticipates its total employee count to be in approximately 43 to 53
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 those 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;
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o The ability to obtain additional research and
development funding from our collaborative
partners; and
o The ability to achieve certain product development
milestones.
We may not achieve any or all of these goals and 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.
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 pre-clinical 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:
o Be shown to be ineffective or to cause harmful
side effects during pre-clinical testing or
clinical trials;
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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 pre-clinical 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:
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o A product candidate may not be safe or effective;
o Data from pre-clinical 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 rely on collaborators.
Our present and future arrangements with collaborators and licensors
may be critical to our success. We are designing delivery systems for
medications and drug products that are protected by our licensees' or
collaborators' patents. In some cases, we depend on these parties to conduct
pre-clinical 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.
Our present plans call for us to develop the capabilities to
manufacture our own products in commercial quantities. We may rely upon our
collaborators and or licensees for the marketing and sales of our products. 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 have limited means of enforcing our collaborators' or licensees'
performance or of controlling 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
stop the program entirely.
Disputes may arise between a collaborator and us and may involve the
issue of which of us owns the technology that is developed during a
collaboration. A potential 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.
These recommendations may relate to matters, which include 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 on our operations. In addition, the perception that
these recommendations or guidelines will be followed, could adversely affect
prevailing market prices for our common stock.
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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 payers 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 payers.
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, marketing 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 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 may not protect our intellectual property rights to
the same extent as the laws of the United States.
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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, including 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 payers, 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 payers 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 and President, Dr. Selmani and our Chief Executive Officer,
Marie-Claire Pilon. The loss of the services of one or more of our key employees
could have a material adverse effect on our operations.
Our insurance coverage may be insufficient for product liability
claims.
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 that time. We are unsure whether product
liability insurance will be available in the future on reasonable terms or at
all.
Our operating results may be 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 future currency risks.
Future issuance of shares of common stock may dilute present
stockholders.
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.
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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
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 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 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 this level.
We can give no assurances that our forward-looking statements will
be correct.
Certain forward-looking statements, including statements regarding
our expected financial position, business and financing plans are contained in
this Prospectus. 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 these
forward-looking statements are reasonable, we can give no assurance that these
expectations will prove to be correct. Important factors that could cause actual
results to differ materially from these expectations are disclosed in this
Prospectus. 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
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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/ Anthony Casola
--------------------------------
Name: Anthony Casola
Title: Chief Financial Officer
Dated: November 14, 2000
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