As filed with the Securities and Exchange Commission on April 24, 2001
Registration No. 333- 45756
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
BioSyntech, Inc.
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(Exact Name of Small Business Issuer in Its Charter)
Nevada 9995 88-0329399
- ------------------------------- ---------------------------- ----------------
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
475 Boulevard Armand-Frappier
Laval, Quebec, Canada H7V 4B3
(450) 686-2437
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(Address and Telephone Numberof Principal Executive Offices)
Dr. Amine Selmani
Chairman of the Board and President
BioSyntech, Inc.
475 Boulevard Armand-Frappier
Laval, Quebec, Canada H7V 4B3
(450) 686-2437
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(Name, Address and Telephone Number of Agent for Service)
Copy to:
David J. Adler, Esq.
Olshan Grundman Frome Rosenzweig & Wolosky LLP
505 Park Avenue
New York, New York 10022
(212) 753-7200
(212) 935-1787 (Facsimile)
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after this registration statement becomes effective. If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box./ /
The Registrant amends this registration statement on the date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on date as the Commission, acting pursuant to said Section
8(a), may determine.
We will amend and complete the information in this prospectus. Although we are
permitted by us Federal securities laws to offer these securities using this
prospectus, we may not sell them or accept your offer to buy them until the
documentation filed with the Securities and Exchange Commission relating to
these securities had been declared effective by the Securities and Exchange
Commission. this prospectus is not an offer to sell these securities or our
solicitation of your offer to buy these securities in any jurisdiction where
that would not be permitted or legal.
Subject to Completion, Dated April 24, 2001
Preliminary Prospectus
7,537,036 shares of common stock
BioSyntech, Inc.
This prospectus relates to shares of our common stock that may be
offered for resale by the selling stockholders through public or private
transactions at prevailing market prices or at privately negotiated prices. We
will not receive any proceeds from the sale of the shares of our common stock.
Our common stock is listed on the Over the Counter Electronic Bulletin
Board under the symbol "BSYI". On April 23, 2001, the closing price of our
common stock was $.83 per share.
An investment in our common stock involves a high degree of risk.
Before investing in our common stock, you should consider carefully the risk
factors beginning on page 2 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ____________, 2001.
Table of Contents
Prospectus Summary 2
Risk Factors 2
Since our inception, we have incurred losses and we expect that we will
incur more losses for the foreseeable future. We also may never become
profitable. 2
We may need additional financing to continue our operations after
April 1, 2002 and will need substantial funds before we are profitable. 2
There are factors beyond our control which may prevent our delivery
technologies from producing safe, useful or commercially viable products.
Accordingly, we may never become profitable. 3
If the Food and Drug Administration does not approve or significantly
delays the approval of our therapeutic delivery products, we may be
unable to continue operations. 3
If our present and future arrangements with our collaborators and
licensees are unsuccessful, we may be unable to continue operations
due to substantial additional operating costs 3
If we are involved in a costly litigation to protect our proprietary
rights, the cost may have a material effect on our results of
operations. We may also be prevented from selling our products. 4
Foreign exchange fluctuations of the Canadian Dollar may affect our
financial performance since it is not cost-effective for us to enter into
forward contracts or currency options. 4
Our common stock may be subject to additional regulations applicable to
lower priced securities that may reduce the trading volume of our shares
and may also reduce your ability to resell the shares later. 4
We may not accurately predict business trends which consequently makes our
forward looking statements incorrect. 5
Use Of Proceeds 6
Market For Common Equity And Related Stockholder Matters 6
Description Of Business 7
Management's Discussion And Analysis Or Plan Of Operation 22
Directors, Executive Officers, Promoters And Control Persons 26
Security Ownership Of Certain Beneficial Owners And Management 28
Executive Compensation 30
Certain Relationships And Related Transactions 30
Selling Stockholders 30
Plan Of Distribution 34
Description Of Capital Stock 34
Experts 35
Legal Matters 35
Disclosure Of Commission Position On Indemnification For Securities
Act Liabilities 35
Where You Can Find More Information 36
Index To Consolidated Financial Statements F-1
-ii-
Prospectus Summary
BioSyntech, Inc.
We are an advanced biomaterials company specialized in tissue
engineering and therapeutic delivery. Our main focus is the repair of damaged
tissue in the human body, such as bone or cartilage. We are also engaged in the
development of advanced injectable biomaterials for the delivery of cells,
genetic material and biotherapeutic agents. We have had limited revenues to date
and they have come entirely from sales in our instrumentation division. Our
future operations are dependent upon our receiving the financing necessary to
complete research and development projects and market our products. We are
unsure whether we can complete the development of our products, or if we
complete them, whether we can successfully market them or generate sufficient
revenues to fund our future operations or additional research, development and
marketing.
Our functional currency is the Canadian dollar. All amounts presented
in this prospectus are in Canadian dollars. Other amounts that are expressed in
United States dollars are identified as such. See "Currency Exchange Rates" for
a description of the exchange rate for the Canadian dollar per one United States
dollar as of March 31, 1999 and March 31, 2000 and as of December 31, 1999 and
December 31, 2000.
We were incorporated in the State of Nevada on December 14, 1994. Our
address is 475 Boulevard Armand-Frappier, Laval, Quebec, Canada H7V 4B3. Our
telephone number is (450) 686-2437.
The Offering
We are registering for resale by the selling stockholders up to
7,537,036 shares of our common stock. We currently have 29,182,250 shares of
common stock outstanding. Our stockholders will experience no dilution since the
number shares of common stock outstanding already includes the shares being
registered for resale.
1
Risk Factors
An investment in our common stock involves a high degree of risk. In
addition to the other information contained in this prospectus, you should
carefully consider the following risk factors before investing in our common
stock.
Since our inception, we have incurred losses and we expect that we will
incur more losses for the foreseeable future. We also may never
become profitable.
We have had net operating losses since being founded and currently have
an accumulated deficit. These losses consist of research and development costs
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;
o The ability to obtain additional 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 for one or more of our products, we may not achieve
significant commercial success.
We may need additional financing to continue our operations after
April 1, 2002 and will need substantial funds before we are profitable.
Based on our current operating plan, we estimate that the cash on hand
and anticipated receipts will fund our operations only until April 1, 2002.
Accordingly, in order to continue operating after April 1, 2002, we may need
additional financing. If we do not receive additional financing, we will
reassess our operating plan to reduce expenses. In addition, we need to raise
substantial amounts of money if we are ever to become profitable. If sufficient
financing is unavailable on a timely basis, we may have to curtail development
programs or transfer rights in products that could later prove to be of great
value. The financing we require 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; and
o The cost of obtaining licenses to use technology owned by
others.
2
We will seek funds by issuing equity and debt securities and through
arrangements with our collaborative partners. We currently have no commitments,
agreements or understandings regarding additional financing or any current
funding arrangement with any of our collaborative partners and we may be unable
to obtain additional financing or enter into a funding arrangement with any of
our collaborative partners on satisfactory terms, or at all. In addition, 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.
There are factors beyond our control that may prevent our delivery
technologies from producing safe, useful or commercially viable products.
Accordingly, we may never become profitable.
To be profitable, we must develop, manufacture and market our products,
either alone or by collaborating with others. This process 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. Our products may:
o Be shown to be ineffective or to cause harmful side effects;
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 partners;
o Not be prescribed by doctors or accepted by patients; or
o Infringe on proprietary rights of another party.
If the Food and Drug Administration does not approve or significantly
delays the approval of our therapeutic delivery products, we may be
unable to continue operations.
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
efficacy, 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. If the Food and Drug Administration does not approve or significantly
delays the approval of our therapeutic delivery products, we may be unable to
continue operations. 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 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.
If our present and future arrangements with our collaborators and
licensees are unsuccessful, we may be unable to continue operations due
to substantial additional operating costs.
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 in the future, we may seek to have these parties fund our development
programs. Our agreements with our
3
collaborators currently do not provide for financing. 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. 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.
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 us and a collaborator 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.
If we are involved in a costly litigation to protect our proprietary
rights, the cost may have a material effect on our results of
operations. We may also be prevented from selling our products.
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, Canadian, 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.
Enforceability of patents cannot be projected with certainty. Patents, if
issued, may be challenged, invalidated or circumvented. 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. Also, 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.
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.
Protecting our proprietary rights involves a significant level of
resources. Although we have provided for the costs of applying for patents and
trade marks, our results of operations may be materially affected if we are
involved in a costly litigation in the process of protecting our proprietary
rights. We may also be prevented from selling our products if such litigation
ensues.
Foreign exchange fluctuations of the Canadian Dollar may affect our
financial performance, because it is not cost-effective for us to enter
into forward contracts or currency options.
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 United States
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
4
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.
Our common stock currently is and may continue to be subject to
additional regulations applicable to lower priced securities that
may reduce the trading volume of our shares and may also reduce
your ability to resell the shares later
Our common stock may be subject to a number of regulations that can
affect its price and your ability to sell it. For example, Rule 15g-9 under the
Exchange Act may apply to our common stock. This rule imposes sales practice
requirements on broker-dealers that sell low priced securities to persons other
than established customers and institutional accredited investors. For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction.
In addition, 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. 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. These requirements may reduce the
level of trading activity in any secondary market for our common stock and may
adversely affect the ability of broker-dealers to sell our securities. This
may also affect your ability to resell our shares of common stock in the future
if the market price of our common stock remains below $5.00.
We may not accurately predict business trends which consequently makes
our forward looking statements incorrect.
This prospectus includes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The words "believe", "anticipate", "estimate", "expect" or
words of similar import identify these forward-looking statements. These
forward-looking statements are contained principally under the headings
"Summary", "Risk Factors", "Management's Discussion and Analysis to Financial
Condition and Results of Operations" and "Business". Although we have based
these forward-looking statements on management's analysis of the business trends
in the biotechnology industry, these forward-looking statements are subject to
risks and uncertainties. Our actual results may differ materially from the
expectations expressed by these forward-looking statements. Important factors
that may cause actual results to differ materially from the expectations
reflected in the forward-looking statements include, but not limited to, those
set forth below:
o general economic, business and market conditions;
o customer acceptance of new products; and
o the occurrence or nonoccurrence of circumstances beyond our
control.
All subsequent written and oral forward-looking statements attributable
to us are expressly qualified in their entirety by the cautionary statements. We
caution readers not to place undue reliance on these forward-looking statements,
which speak only as of their dates. We undertake no obligations to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Currency Exchange Rates
All dollar amounts stated in this prospectus 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:
Rate at filing date 1.5464
5
1999 2000
---- ----
Rate at end of period (December 31) 1.4433 1.5002
Rate at end of period (March 31) 1.5092 1.4535
Period High for the period Low for the period
- ------ ------------------- ------------------
March 2001 1.5618 1.5538
February 2001 1.5392 1.4936
January 2001 1.5160 1.4936
December 2000 1.5458 1.5002
November 2000 1.5593 1.5298
October 2000 1.5310 1.4954
Period Average for the period
- ------ ----------------------
Fiscal year ended March 31, 1999 1.5074
Fiscal year ended March 31, 2000 1.4683
Three months ended June 30, 2000 1.4861
Three months ended September 30, 2000 1.4888
Three months ended December 31, 2000 1.5210
Nine months ended December 31, 2000 1.4986
Nine months ended December 31, 1999 1.5072
Use of Proceeds
This prospectus relates to an aggregate of 7,537,036 shares of our
common stock that may be sold from time to time by the selling stockholders.
These shares are issuable upon the exchange on a one-to-one basis of class A
stock of our subsidiary, Bio Syntech Canada, Inc. Although we will pay the
registration expenses of these shares, including legal and accounting fees, all
net proceeds from the sale of the shares of our common stock in this prospectus
will go to the selling stockholders.
Market for Common Equity and Related Stockholder Matters
Our common stock has been eligible for trading on the Over The Counter
Electronic Bulletin Board since the third quarter of the fiscal year ended March
31, 2000. The following table sets out the high and low closing bid prices of
our common stock during the periods indicated. Prices reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
Fiscal Year Quarter High (US $) Low (US $)
2000 4th quarter $8.5625 $3.7500
2001 1st quarter $5.5000 $3.0000
2nd quarter $4.9375 $2.5938
3rd quarter $2.7656 $0.8750
4th quarter $1.6875 $0.6250
2002 1st quarter $0.8300 $0.6250
(Until April 23,
2001)
According to information furnished by our transfer agent, we have 69
holders of record, including depositories, of our common stock as of December
31, 2000.
Dividend Policy
We do not anticipate declaring or paying any cash dividends on our
common stock. We plan to retain any future earnings for the development of our
business. The payment of future dividends will be at the discretion of our board
of directors and will depend upon our, among other things, future earnings,
capital requirements, financial condition and general business conditions.
6
Description of Business
1.1 General
We are an advanced biomaterials company specialized in tissue
engineering and therapeutic delivery. Our main focus is the repair of damaged
tissue in the human body like bone or cartilage. We are also engaged in the
development of advanced injectable biomaterials for the delivery of cells and
genetic material and biotherapeutic agents. We have had limited revenues to date
and they have come entirely from sales in our instrumentation division. Our
future operations are dependent upon our receiving the financing necessary to
complete research and development projects and market our products. We are
unsure whether we can complete the development of our products, or if we
complete them whether we can successfully market them or generate sufficient
revenues to fund our future operations or additional research, development and
marketing. In addition, 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 products obsolete
or noncompetitive.
Our research and development efforts are focused on maximizing the
multiple benefits of our core technologies, which include:
o tissue engineering;
o the therapeutic delivery of cells;
o genetic material for site specific gene therapy; and
o the delivery of biotherapeutic agents.
Our technologies apply to diverse specialties, which include
orthopedics and rheumatology. Orthopedic and rheumatology problems include
cartilage injuries and diseases as well as bone injuries and diseases, vaccines,
and the delivery of biotherapeutic agents.
We also have an instrumentation division wherein we are developing the
ARTHRO-BST(TM) and the Mach-1(TM) Mechanical Tester. ARTHRO-BST(TM) is a device
used for visual examination of the interior of the articular cartilage with a
special surgical instrument which provides precise and non-destructive
diagnosis. The Mach-1TM Mechanical Tester is a universal mechanical testing
system for specimens with dimensions between hundreds of microns and a few
centimeters.
1.2 Tissue Engineering and Therapeutic Delivery Technologies
The overall goal of tissue engineering is the repair of diseased or
injured tissue or organs. We use therapeutics to regenerate or heal with a
functional normal tissue. This is in contrast to the approach of replacing an
organ with an artificial device. It has been recognized that artificial organs,
although sometimes necessary for short-term relief, usually have an inadequate
working life expectancy. The newer approach of tissue engineering often involves
the transplantation of living normal cells that have been expanded in the
laboratory. The procedure of normal cell transplantation requires an accurate
positioning of the cell at the site where it is to perform its therapeutic
benefit. This positioning is often accomplished by providing existing cells an
external matrix containing new cells and facilitating the correct placement of
the new cells within the body. Biomaterials developed for this purpose consist
of either biodegradable or non-biodegradable materials in a number of physical
forms as films, sponges, beads and polymers containing a large quantity of
water. These materials must sustain cell viability and promote normal cellular
activity. Biomaterials, which do not require surgical implantation, are believed
to have a greater chance of success because of the reduced chance of
complications during the injection procedure and the potential for a faster
recovery and shorter hospital stay. Injectable biomaterials as carriers for cell
delivery are therefore an active area of development for this field of
application.
We pursue our therapeutic delivery technologies either by ourselves or
in collaboration with a partner. These technologies aim at effectively
delivering cells and genetic material for specific gene therapy and at the
delivery of biotherapeutic agents like proteins and peptides.
7
We have developed three platform technologies, all aimed at the
promotion of tissue repair and of the generation of solutions to efficiently
deliver biologically active therapeutics:
o BST-Gel(TM): An injectable heat-sensitive self-forming
water-based gel for the delivery of therapeutic agents or
genetic material. The key functionality of the gels is that
they are injected as liquid and become a solid gel in the
body.
o BST-Cargel-C(TM): Cartilage cells in an adhesive heat
sensitive gel for the treatment and repair of cartilage
defects. These cartilage cells are delivered with
biotherapeutic agents by way of a non invasive procedure.
o BST-Spheres: A proprietary process to generate microspheres
for the delivery of therapeutic agents. The BST-Spheres are
free of organic solvents and are adaptable to a wide range of
biomaterials. The BST-Spheres can be adapted for the delivery
of a broad spectrum of drug types, from small to large
molecules. The BST-Spheres can be used in the injectable form
for the delivery of medications with a long duration of
action.
BST-Gel(TM) is a family of gels that are liquid at low temperatures and
solid at the temperature of the human body. This injectable delivery system is
derived from natural sources and contains no toxic chemicals. One of its key
properties is that it gels locally after its injection in liquid form. This
forms a reservoir used to prolong the action of the therapeutic agent. The
amounts of BST-Gel(TM) injected may be varied for different requirements, which
result in controllable residence times ranging from a few days to several weeks.
BST-Gel(TM) requires no surgery for its implantation. It is biodegradable and
has an adjustable composition.
We have also developed other specialized gel and delivery technologies
that can be used in conjunction with BST-Gel(TM). These proprietary forms of
delivery of therapeutic agents can have the following applications:
o delivery of bone-repair therapeutics;
o growing of tissues with or without cells or growth-factor
therapeutics;
o delivery of small molecules, peptides and
proteins produced using genetic engineering;
o delivery of DNA vaccines and gene therapy; and
o development of vaccines based on the long sustained release of
antigens.
BST-Cargel-C(TM) is a proprietary generation of bioengineered living
cartilage-tissue implants. These cartilage-tissue implants are developed from
cells encapsulated and grown within a BST-Gel(TM)-based matrix and are delivered
through a non-invasive procedure. A particular formulation of the BST-Gel(TM)
maintains the cartilage tissue implant's viability during the delivery period
and facilitates the adhesion of the tissues to the underlying bone and
surrounding cartilage. Pre-clinical studies have shown that cartilage cells
embedded in BST-Gel(TM) produce a matrix having the characteristics of normal
cartilage tissue.
BST-Spheres is a proprietary process to generate polymer-based
microsphere particles, such as proteins and peptides, used in the delivery of
biotherapeutics. This process offers several advantages over the current
approach of making these microspheres which include, but are not limited to:
o It does not require the use of toxic chemicals as organic
solvents or detergents;
o It can be adapted to a wide range of biomaterials, whether or
not biodegradable;
o It is injectable for the long duration of action of
biotherapeutics;
o It can be used with a broad range of biotherapeutic types,
from small to large compounds; and
o It may enhance the biotherapeutic-loading capacity of the
vehicle.
1.3 Applications for our technologies
We are currently conducting research to develop applications of our
core technologies in the following areas.
8
1.3.1 Cartilage Injuries and Diseases
The current standard of care for the treatment of cartilage injuries
consists of inducing bleeding into the cartilage defect by creating a pathway to
the bone that interfaces with the damaged cartilage tissue. The techniques used
include drilling, microfracture and abrasion to increase blood flow to the
damaged cartilage. These techniques result in the formation of a scarred tissue
with poor mechanical stability. As a result, a patient must undergo repeated
treatments and often the wear and tear on the affected joint degenerates into
arthritis, or more popularly known in the medical field as osteoarthritis.
Recently, a number of new approaches have been proposed for the
treatment of cartilage injuries that aim at the regeneration of the cartilage
tissue with transplanted cells. The cells used can either be normal cartilage
cells that have been expanded in a laboratory or stem cells selected for their
ability to become normal cartilage tissue. The procedure of transplanting normal
cartilage cells is already marketed in the United States and Europe. It
necessitates a complicated surgical procedure involving an open knee surgery.
Although the results are encouraging, there is a recovery process that can take
more than a year. If the same cells could be delivered through a vehicle
introduced in non-invasive procedure, as when the cells are pushed through a
small catheter, the expected recovery period and overall healthcare costs could
be greatly reduced. The BST-Cargel-C(TM) is primarily used for this process.
We are currently in the process of filing an Investigational Device
Exemption application with the FDA and an Application for Investigational
Testing with the Health Protection Branch of Canada. We will be allowed to
conduct human clinical testing in the United States if our application is
approved by the FDA, and in Canada if our application is approved by the Health
Protection Branch of Canada.
1.3.2 Bone Injuries and Diseases
We are currently developing two simultaneous approaches utilizing
different aspects of our products. We aim to provide injectable bone
biomaterials that provide advantages over traditional bone repair methods. These
advantages include, but not limited to:
o minimally invasive; o low-cost administration;
o filling and stabilizing properties;
o bone formation and deposition; and
o biological activity.
1.3.2.1 OssiFil
OssiFil is a new proprietary bone grafting material consisting of an
injectable self-gelling composite that is not hardened. The OssiFil technology
combines the flowing/carrying property of BST-Gel(TM) material and the bone
formation property of calcium based minerals. It is ideally used to form a more
secure base for growth of bone tissues.
OssiFil is mainly applied as an injectable bone defect filler. This
favors bone tissue growth in voided or emptied bone tissues. We have initiated a
program to locally apply OssiFil materials to the treatment of weakened or
fractured bones. We also intend to apply OssiFil filling materials in the
surgical treatment of fractured hip bones.
A second development of OssiFil is to incorporate bio-therapeutic
agents that induce the unique bone formation performance to OssiFil. We are
developing a variety of OssiFil which aims to accelerate bone formation in the
treatment of fresh fractures.
We are currently in the pre-clinical stage development of OssiFil. Upon
successful completion of the pre-clinical studies, we will file an
Investigational Device
9
Exemption application with the FDA and an Application for Investigational
Testing with the Health Protection Branch of Canada. We will be allowed to
conduct human clinical testing in the United States if our application is
approved by the FDA, and in Canada if our application is approved by the Health
Protection Branch of Canada.
1.3.2.2 OssiFix
We are developing a new proprietary bone composite cement based upon
the BST-Gel(TM) technology and the calcium phosphate technology. These series of
OssiFix bone materials are injectable and self-hardening. They also give a
stronger structural integrity and biomaterial strength to severely weakened
bones.
OssiFix bone substitutes are ideal materials for supporting weakened or
fractured bones that need to regain structural support and strength. This
technology is used for the treatment of fractures in the vertebra due to a
decrease in bone mass with decreased density and enlargement of bone spaces
producing porosity and fragility, or more popularly known in the medical field
as osteoporotic vertebra. We plan to initiate the clinical application phase as
soon as the OssiFil performances are optimized.
We are currently in the pre-clinical stage development of OssiFix. Upon
successful completion of the pre-clinical studies, we will file an
Investigational Device Exemption application with the FDA and and Application
for Investigational Testing withthe Health Protection Branch of Canada. We will
be allowed to conduct human clinical testing in the United States if our
application is approved by the FDA, and in Canada if our application is approved
by the Health Protection Branch of Canada.
1.3.3 Intervertebral Disc Regeneration; BST-Disc
A significant portion of the population suffers from back pains between
the ages of 20-50. This condition can often be traced to faulty intervertebral
discs. Intervertebral discs aid in multi-directional movement and serve as a
shock absorber to the body. Through time, these intervertebral discs decrease in
height which often causes hernia and/or pain and irritation in the surrounding
nerve roots. Conservative treatments include rest, heat, and pain management
with anti-inflammatory drugs. If these treatments do not work, the only current
recourse is surgery. As an alternative, we are developing an efficient
non-surgical procedure that would cost much less than surgery.
Our goal is to offer to the patient this one last non-surgical solution
that could either permanently solve the problem, or at least delay the surgical
intervention by a few years. We are developing the BST-Disc, a gel solution
derived from our platform BST-GEL(TM). We have a patent pending on this product.
It is injected within the disc using a syringe, similar to a common disc imaging
procedure. The gel supports the physiological load and restores the disc's
height through intrinsic elasticity and reduces pressure on the intervertebral
discs. Furthermore, the structural integrity of this substance could limit
hernia damage by preventing extrusion of the nucleus matter through disc wall
defects.
We are currently in the pre-clinical stage development of BST-Disc.
Upon successful completion of the pre-clinical studies, we will file an
Investional Device Exemption application with the FDA and an Application for
Investigational Testing with the Health Protection Branch of Canada. We will be
allowed to conduct human clinical testing in the United States if our
application is approved by the FDA, and in Canada if our application is approved
by the Health Protection Branch of Canada.
1.3.4 Soft Tissue Augmentation
1.3.4.1 BST-Fill
Soft tissue injectable fillers are used in cosmetic surgery to fill out
lines and creases caused by aging, gravity and sun exposure. The most common
fillers are collagen, patient's own fat from another site and a variety of
10
acid which is viscous and acts like a cement under the skin. Both methods have
temporary effects that disappear within a few months, depending on the patient
and site of injection, typically within 3-6 months for fat, and up to 1 1/2 year
for collagen. In addition, about 3% of the population is allergic to collagen,
requiring that skin tests be performed before the treatment. Other fillers have
high selling prices are painful to inject and require skin tests.
We are developing BST-Fill from our BST-GEL(TM) platform. It is easily
injectable, gels in site and provides substantial mechanical support to the
surrounding soft tissues. It is biodegradable and can be adjusted to achieve
very long-term, or even permanent, correction. This combination of
characteristics makes it an attractive long-lasting solution for the smoothing
of small wrinkles or the correction of pronounced defects. Its use could even
extend to the more demanding needs of reconstructive surgery, bridging the gap
to a field that usually require surgically implanted materials.
We have a United States patent pending on this product, focusing on its
extended residence time and considerable mechanical support. We intend to file
an Investigational Device Exemption application with the FDA and an Application
for Investigational Testing with the Health Protection Branch of Canada. We will
be allowed to conduct human clinical testing in the United States if our
application is approved by the FDA, and in Canada if our application is approved
by the Health Protection Branch of Canada. Additionally, we intend to initiate
human clinical trials in France and Belgium.
1.3.4.2 BST-InHeel
Heel pain is a common complaint that leads, every year, about 1% of the
North-American population to consult a physician. Persistent walking or standing
discomfort is usually related to thinned-out natural heel cushions known as
calcaneal fatty pad. This fat pad cushion plays a critical biomechanical role in
absorbing the impact of walking and running by distributing the load and
absorbing energy upon impact. It consists of interconnected pockets filled with
fatty acids. Pad thickness is important to its mechanical characteristics. The
fat pads normally thins out after the age of 50, but the risk of premature
atrophy increases with diabetes, if the individual is overweight, or has often
worn thin-sole or high-heel shoes.
We are developing an injectable product to replenish these feet
cushions and restore a functional pad height. The heel cushioning market is
predominantly held by in-sole cushioning and other orthopedic inserts. There is
no known previous attempts to restore the in-heel cushioning. The obvious main
market for BST-In Heel is the aging but active segment of the population.
We have a pending United States patent application covering this
product and the general concept of restoring the fat pad cushion with an
injectable solution. We intend to file an Investigational Device Exemption
application with the FDA and an Application for Investigational Testing with the
Health Protection Branch of Canada. We will be allowed to conduct human clinical
testing in the United States if our application is approved by the FDA, and in
Canada if our application is approved by the Health Protection Branch of Canada.
Additionally, we intend to initiate human clinical trials in France and Belgium.
1.3.5 Vaccine Development
The ability to deliver large amounts of molecules over a long period of
time using the injectable BST-Gel(TM) is being explored for the sustained
release of antigens for vaccine development. We are currently testing the immune
response of animal models to specific antigens delivered by a single injection
of BST-Gel(TM). At present, we have not filed any application with the FDA or
the Health Protection Board of Canada.
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1.4 Material Agreements
1.4.1 Agreement with Polyvalor
In October 1997, we entered into a technology assignment agreement with
Polyvalor Limited Partnership. Polyvalor is an entity created by Ecole
Polytechnique de Montreal for the purpose of commercializing the technology in
which Ecole Polytechnique has an interest. Through this agreement, we acquired
all rights related to certain patents and know-how. We agreed to pay to
Polyvalor a royalty of 5% on our gross sales up to a maximum cumulative amount
of $3,000,000. Our subsidiary Bio Syntech Canada, Inc. issued to Polyvalor
1,072,000 shares of its class A stock and granted Polyvalor the right to
nominate one director to our board of directors. This class A stock is
exchangeable on a share for share basis for our common stock and Polyvalor has
the right to nominate one director to our board of directors.
1.4.2 Agreements with Collaborators
As part of our business strategy, we have formed collaborations with
third parties to explore opportunities for applications of our delivery systems
to therapeutics developed by them. Our agreements with our collaborators do not
provide for any financial assistance to us.
1.4.2.1 Sulzer Orthopedics Biologics Inc., Wheat Ridge, CO
We signed a Non-disclosure and Confidentiality Agreement dated February
23, 1999 with Sulzer Orthopedics Biologics, Inc. for a feasibility study of
combining bone proteins developed by Sulzer with different formulations of
BST-Gel(TM) for the local induction of bone formation. Sulzer is developing bone
proteins for several applications in orthopedics including spinal fusion and
bone fracture repair. Bone proteins were formulated successfully at different
concentrations in BST-Gel(TM). A first phase of pre-clinical testing revealed
cartilage and bone formation. A second phase study is currently under way to
optimize the BST-Gel(TM) formulation. The agreement may be unilaterally
terminated by either party in the event that the other party becomes bankrupt or
is judged to be insolvent by a court of law or if either party makes any
assignment for the benefit of its creditors. The agreement may also be
terminated by written consent of both parties. The non-disclosure and
confidentiality provisions of the agreement survive for five years from February
23, 1999.
1.4.2.2 Sulzer Orthopedics Ltd., Switzerland
We signed a Material Transfer Agreement on January 4, 2000 with Sulzer
Orthopedics Ltd. for the study of BST-Gel(TM) as a carrier for human cartilage
cells in the treatment of articular cartilage defects. Cell compatible
BST-Gel(TM) formulations are being studied in vitro using gels that contain
human joint cells. The agreement may be terminated on 30 days' prior written
notice to the other party.
1.4.2.3 Reprogenesis, Inc., Cambridge MA
We signed a Confidentiality Agreement on May 31, 1999 and a Material
Transfer Agreement on July 27, 1999 with Reprogenesis, Inc. related to the
transfer of human cartilage cells from the ear by Reprogenesis, Inc. The initial
study aimed at the development of a human cartilage cell compatible formulation
of BST-Gel(TM). This work was performed in our facilities, first in vitro where
good cell viability was obtained. The project has now evolved to look at
specific cellular events judged important for the behavior of these cells in
vivo. Reprogenesis is currently developing human cartilage cells for a variety
of tissue augmentation applications for incontinence and tissue reconstruction.
The Confidentiality Agreement initially terminates on May 31, 2001 but may be
extended on an annual basis. The non-disclosure provisions of the
Confidentiality Agreement survive for three years from its termination. The
Material Transfer Agreement may be terminated on at least 60 days' prior written
notice to the other party.
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1.4.2.4 Ophidian Pharmaceutical Inc., Madison WI
We signed a Confidential Disclosure Agreement and a Biological
Materials Transfer Agreement with Orphidian Pharmaceutical Inc. in August 1999
to evaluate the ability of BST-Gel(TM) to deliver an agent that triggers immune
response in a sustained fashion for chicken immunization. Ophidian is developing
therapeutics based on egg yolk antibodies produced after a series of
intramuscular or injections under the skin of a specific antigen. The process of
chicken immunization presently requires a labor intensive process involving
several injections in several thousand chickens. The ability to formulate an
antigen for sustained release could greatly simplify the process. As part of
Ophidian's inflammatory bowel disease therapeutics development, it has sent
rTNF-alpha, a growth factor, to us for initial formulation study. A longer and
more extensive phase two project is ongoing. Finally a phase three project has
been agreed upon where the antigen will be presented as genetic material for
potentially longer lasting immunization in the animal. The Confidentiality
Disclosure Agreement may be terminated by either party on at least 30 days'
prior written notice to the other party. The non-disclosure provisions of the
Confidentiality Disclosure Agreement survive for three years from August 1999.
The Biological Materials Transfer Agreement does not provide for events of
termination.
1.4.2.5 Viragen, Incorporated, Plantation FL, and Viragen Ltd.,
Scotland
We signed a Mutual Confidentiality Agreement with Viragen, Incorporated
on September 2, 1999 for the study of a Viragen proprietary formulation of
Interferon-alpha Omniferon formulated in BST-Gel(TM) for long duration of
action. Viragen is currently developing Interferon-alpha as a therapeutic for
the modulation of the immune system to fight viral diseases like hepatitis. The
project was initially carried on at our facilities and was aimed at studying the
stability and release kinetics of Omniferon formulated in BST-Gel(TM). After
encouraging data, Viragen agreed to pursue the program on formulation in their
own facilities. The non-disclosure provisions of the agreement survive for five
years following the disclosure of the confidential information.
1.4.2.6 Ontogeny, Inc., Cambridge MA
We signed a Confidentiality Agreement and a Material Transfer Agreement
with Ontogeny, Inc. on December 3, 1999 for the study of BST-Gel(TM) as a
potential carrier for a family of proteins that stimulates cell growth, known as
Hedgehog. Several applications are being investigated by Ontogeny which include
degeneration of the nervous system and cartilage diseases. Formulations of
BST-Gel(TM) were sent to Ontogeny where an initial preliminary study on
inflammation and a functional study on an animal model are ongoing. The
Confidentiality Agreement terminates five years from December 3, 1999. The
Material Transfer Agreement may be terminated by either party on at least 30
days' prior written notice to the other party.
1.4.2.7 Biomet Manufacturing Corporation, Warsaw IN
We signed a Material Transfer Agreement with Biomet Manufacturing
Corporation on February 8, 2000 regarding the possible use of BST-Gel(TM) as a
carrier for a growth factor in wound healing and for circular DNA for specific
gene therapy. These projects are expected to commence in the current fiscal
year. Biomet has global operations in orthopedics with a number of approved
devices for therapeutic and diagnostic interventions. The agreement may be
terminated by either party on at least 30 days' prior written notice to the
other party.
1.5 Market for our Tissue Engineering and Therapeutic Delivery Technologies
The overall goal of tissue engineering is the repair of diseased or
injured tissue or organs using therapeutics to regenerate or heal with a
functional normal tissue. This is in contrast to the current approach of
replacing an organ with an artificial device. Artificial organs, although
sometimes necessary for short-term relief, usually have an inadequate working
life expectancy. The newer approach of tissue engineering often involves the
transplantation of living normal cells that have been expanded in the
laboratory. This procedure requires an accurate positioning of the cell at the
site where it is to perform its therapeutic benefit. This is often accomplished
by providing to existing cells an external matrix containing new cells and
facilitating the correct placement of the new cells within the body.
Biomaterials developed for this purpose consist of either biodegradable or
non-biodegradable materials in a number of physical forms which include films,
sponges, beads and polymers containing a large quantity of water. These
13
materials must sustain cell viability and promote normal cellular activity.
Biomaterials, which do not require surgical implantation, are believed to have a
greater chance of success. This results from the reduced chance of complications
during the injection procedure and the potential for a faster recovery and
shorter hospital stay. Injectable biomaterials as carriers for cell delivery are
therefore an active area of development for this field of application.
We believe the market potential for both the treatment of cartilage
injuries and diseases and the market for bone injuries and diseases is enormous.
Our biomaterials do not require surgical implementation which we believe could
lead to a higher probability of success.
Vaccine development is a field that is rapidly evolving. One of the
goals in developing a vaccine is to provide immunity over a longer period of
time. As part of our research and development projects, we are working on the
development of a vaccine utilizing the BST-Gel technology. There are a number of
companies currently working on vaccine development. However, with the growing
resistance of organisms to current therapy and vaccines, we expect this field to
experience significant growth.
We either work by ourselves and in collaboration with partners to
develop and expand our therapeutic delivery program. Our therapteutic
technologies aim at effectively delivering biotherapeutic agents like proteins
and peptides. Therapeutic delivery technologies can also be utilized to address
certain needs of both traditional pharmaceutical compounds and the new class of
large molecules developed by the biotechnology industry. For example, small
synthetic compounds could benefit from the local high dose delivery of a drug to
enhance the therapeutic effect on a target organ while minimizing side effects
to the body. With the advancement of biotechnology, new opportunities in drug
delivery have arisen. Advances in biotechnology have facilitated the development
of a new generation of biopharmaceutical products based on proteins, peptides
and nucleic acids. Drugs developed by biotechnology companies often cannot be
delivered orally. This inability to deliver drugs orally results from their
instability in harsh conditions in the digestive tract, their limited ability to
be absorbed in an active form in the intestines and their short half-life in the
bloodstream. Consequently, many of these drugs can only be administered by
frequent injections. This may limit their clinical applications. Consequently,
new approaches to deliver these therapeutics to their needed site of action in
the body are being developed. With the unparalleled growth of the biotechnology
industry, there is a growing need for the development of biomaterials for the
delivery of therapeutic agents.
1.5.1 Strategy
Our research and development efforts aim to develop advanced
biomaterials for the fast-growing demands of the medical and pharmaceutical
industry. We are expanding our in-house research and development program to
expedite our product development effort. Once we have sufficient clinical data,
we will be entering into licensing agreements with partners to expedite the
launch of our products. We will continue to work with companies with which we
have strategic collaborations to expand our research and development efforts.
1.5.2 Competition
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 us. Many have
greater experience in testing and clinical trials and in the regulatory process.
With respect to therapeutic delivery, we are aware that various methods
such as injectable, pulmonary, skin based, and oral methods to therapeutic
delivery have already been developed or being developed. In regards to
injectable methods, there are other companies developing microspheres for the
sustained delivery of therapeutic agents. The microspheres we have developed can
be adapted for the delivery of a broad spectrum of drug types, from small
molecules, or even living tissues.
14
1.5.2.1 Cartilage Injuries and Diseases
In regards to cartilage injuries and diseases, our competitors have
developed an implant containing living cells. It requires complicated open knee
surgery and its efficacy and acceptance has been questioned. Other surgical
procedures for repairing localized cartilage lesions include drilling,
microfractures, abrasion, and using tissue paste. They depend on producing
bleeding into the cartilage defect although they are known to cause incomplete
filling of the defect, and poor tissue composition resulting in poor mechanical
properties and tissue degradation.
1.5.2.2 Bone Injuries and Diseases
With respect to bone injuries and diseases, in general we may encounter
competition in the bone grafts and other bone related markets. In relation to
OssiFIL(TM), injectable bone forming composites based upon polymeric gels and
solid Calcium Phosphates are not so common clinically, although some products
have been proposed. Competitors have developed composite gels made of collagen,
including calcium phosphate mixed with polymers, which are mainly used for
orthopedic applications such as bone filling or harvest site filler, fractures
healing, spinal fusion and joint revision/replacement. In relation to
OssiFIX(TM), direct competition derives from self-setting calcium phosphate
substitutes. Other competitors are high-strength polymer bone cement. Injectable
calcium phosphate mixed with polymers act as cement-like materials are not
clinically common, although calcium phosphate bone cements have been proposed
and are currently used. OssiFIX(TM) cement-like material will present some
specific enhanced features such as injectability and cohesion.
1.5.2.3 Intervertebral Disc Regeneration
With respect to intervertebral disc regeneration, we may encounter
competition by the spinal surgery market. According to Merrill Lynch's November
2000 Orthopedic Report, there has been an explosive uptake of minimally invasive
systems to treat low back pains. The report further stated that in 1998, Oratec
Interventions, Inc., a California based company, entered the spinal surgery
market with a minimal invasive system and has experienced a revenue growth of
67% from January 2000 to November 2000.
1.5.2.4 Soft Tissue Augmentation
In regards to soft tissue augmentation, the BST-Fill can gain a strong
position within the competitive market. Most common fillers like collagen and
autologous fat transfers have temporary effects that disappear within a few
months. Moreover, other fillers have high selling prices, are painful to inject,
and require skin tests. The BST-Fill on the other hand, due to its
characteristics is an attractive long-lasting solution for the smoothing of
small wrinkles or the correction of pronounced defects. In relation to the
BST-InHeel, the heel cushioning market is saturated with disposable in-sole
cushions and orthotics. BST-In Heel has been developed as an easy way to
replenish the natural heel cushioning through a simple injection. It represents
the first permanent therapy for heel pad thinning. The main competitors in this
market are solely manufacturers of shoe inserts and orthotics.
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 may develop will depend on a number
of factors, including:
o Demonstration of their usefulness and safety;
o Their relative cost;
o Their advantage or disadvantage compared to alternative methods;
o The marketing and distribution support they receive; and
o Reimbursement policies of government and third-party payors.
1.5.3 Pricing
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
15
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.
1.6 Instrumentation
We have developed two products in our instrumentation division to date.
First, we have developed the ARTHRO-BST(TM), an arthroscopic device providing
precise and non-destructive diagnosis of articular cartilage quality. Secondly,
we have also developed the Mach-1(TM) Mechanical Tester, a universal mechanical
testing system for specimens with dimensions between hundreds of microns and a
few centimeters. These instruments are closely related to our work on cartilage.
1.6.1 The ARTHRO-BST(TM)
Description
The ARTHRO-BST(TM) is an arthroscopic device providing precise and
non-destructive diagnosis of articular cartilage quality. Degeneration of
cartilage is a prominent component of arthritis, a disease affecting more than
10% of the population. Current assessment of articular cartilage is mostly
subjective with no functional evaluation. There is a growing need in an aging
population for non-destructive and unbiased clinical evaluation of the health
and function of this connective tissue.
The ARTHRO-BST(TM) is based on an innovative and robust design that
allows simple application of small indentation compression and collection of
resulting electrical signals indicative of cartilage function.
The ARTHRO-BST(TM) is composed of five distinct units:
o a disposable sterilized tip consisting of microelectronic
circuits on a thin aluminum substrate that is adhered to a
stainless steel support providing a connection with the handle,
o an ergonomically designed handle;
o an electrical circuit for the acquisition of electrical signals,
including a preamplification and digitalization circuit inside
the handle and an interface circuit exterior to the handle;
o software for the acquisition of electrical signals and for the
analysis and interpretation of data to quantify cartilage
quality; and
o a computer system.
A fully functional clinical version of the ARTHRO-BST(TM) was presented
at the third meeting of the International Cartilage Repair Society in Sweden in
April 2000. In comparison with tissue stiffness, streaming potentials measured
showed almost identical behavior for the normal and degraded cartilage explant.
The simplicity of the technique for the assessment of cartilage quality was
demonstrated.
Market
The target market has two sectors: research and clinical. The research
market is composed of pharmaceutical and biotechnology companies in addition to
academic research groups working on therapeutic products for joint disorders or
procedures for cartilage repair. There are several research projects in the
areas of arthritis and joint repair and it is regularly publicly acknowledged
that a major impediment to the understanding of
16
joint disease and the development of therapeutic products is the lack of an
objective diagnostic test to follow non-destructively the evolution of cartilage
quality.
The clinical market is potentially much larger. It consists of
orthopedists practicing minimally invasive arthroscopic surgery who also require
a means of objectively evaluating cartilage quality in patient's knees.
Currently, arthroscopists use subjective and relatively uncertain methods of
visual inspection and manual probing by feeling stiffness to judge articular
cartilage quality.
Competition
To our knowledge, there are currently no competing technologies to
respond to the demand for functional non-destructive evaluation of articular
cartilage. Most instruments currently under research and development are based
on mechanical measurements of the cartilage stiffness instead of electrical
measurements of streaming potentials.
The ARTHRO-BST(TM) is based on a different technology that overcomes
the major difficulties with the control of the compression amplitude applied to
cartilage and the orientation of the indentor tip relative to cartilage surface.
Instead of measuring the tissue stiffness, the ARTHRO-BST(TM) measures streaming
potential generated during compression of the tissue. Two dimensional
microelectronic circuits placed on non-planar surface permit a precise
determination of the contact distribution of the indentor with the cartilage,
the compression amplitude and velocity applied to the cartilage, and the
orientation of the indentor relative to cartilage surface. Furthermore, the
sterilized indentor tip is disposable to minimize disease transmission.
Regulatory Approval
We currently expect that the ARTHRO-BST(TM) will be classified by FDA
as a Class II medical device because of the low risk associated with its use.
Because the ARTHRO-BST(TM) can be considered substantially equivalent to
existing devices used for cardiovascular and neurological diagnoses with
electrodes, we expect to submit a Pre-Market Notification to the FDA following
clinical testing. However, the FDA may reclassify the device or request
additional information if it determines that the application does not satisfy
its regulatory approval criteria. We expect to initiate the filing process once
we have completed our compliant facilities.
The ARTHRO-BST(TM) is classified as a Class I device in Europe. We are
in the process of obtaining a European Community marking on the product.
Manufacturing
If and when all necessary regulatory approvals are obtained, we plan to
manufacture up to 200 units per year of the ARTHRO-BST(TM) per year using our
current facilities and certain subcontractors for some specialized components,
such as the electronic acquisition card. The production of disposable sterilized
tips can be easily obtained using commercial microelectronic laboratories. The
fabrication uses conventional methods and all the instrumentation required is
available in our facilities. Once a final design for the electrode tip is
completed, it should be possible to transfer production to one of several
subcontractors located near our offices with approved industrial and quality
standards.
New infrastructures will be required for large-scale production. A
decision will be by the end of fiscal year ending March 31, 2002 whether to
acquire additional facilities or to establish a production alliance with a large
manufacturer of orthopaedic instruments.
Distribution and Marketing Strategy
Upon validation of the technology, we intend to introduce the
ARTHRO-BST(TM) to the market through demonstration of its efficacy for cartilage
evaluation, through collaborations with leading clinical orthopaedic
researchers, and through the inclusion of the ARTHRO-BST(TM) in clinical trials
of arthritis drugs. In the beginning of the fiscal year 2002, BioSyntech plans
to have several functioning clinical devices available for distribution to
17
selected leading researchers in clinical orthopaedics. Through collaborative
efforts with these researchers, the ARTHRO-BST(TM) will be publicized in
presentations and publications of these studies and a demand should be created
in the research programs of other academic and industrial research groups. We
plan to support this strategy with data from clinical trials to demonstrate the
objective nature of the method and its sensitivity and specificity for cartilage
quality. The recently formed Canadian Arthritis Network of Centres of Excellence
could assist by providing clinical trials to pharmaceutical companies with
arthritis drugs and allowing us to participate in these trials by providing
objective data for drug evaluation. Our dual strategy involving collaboration
with leading opinion makers and by providing statistically sound scientific
studies should provide the basis for market penetration.
We expect to rely on the distribution and sales network of a major
partner to generate sales.
1.6.2 The MACH-1(TM) Mechanical Tester
Description
The Mach-1(TM) Mechanical Tester is a universal mechanical testing
system for specimens with dimensions between hundreds of microns and a few
centimeters. Typical applications for the Mach-1(TM) are in the mechanical
characterization of tissues, pharmaceuticals, polymers, gels, adhesives and
food. The instrument allows the characterization of stiffness, strength,
modulus, viscosity, plasticity, hardness, adhesion, swelling and relaxation and
use of controlled force with load and displacement control tests. Some of the
features of the Mach-1(TM) are:
o Chambers for compression, tension, indentation, bending and
other test configurations are mounted on a platform, which is
controlled to within 25 nanometers;
o Load cells are interchangeable to allow maximum loads between
0.15 kg to 10 kg with load precision being 1 part in 20,000 of
the maximum with a 10mg minimum;
o The test system can be placed either in an incubator for
testing or in mechanical stimulation sterile controlled
environments, like cell culture conditions;
o Sophisticated and flexible software allows execution of stress
relaxation, ramp, sine wave movement and controlled force tests
in automated user-defined sequences;
o Sophisticated analysis software; and
o Options include visualization of specimen during testing with
cameras, motorized control of specimen position on the
actuator, and electric field detection during testing.
Market
The market potential for the Mach-1(TM) is as follows:
o Biomaterials and biological tissues characterization and
stimulation in controlled environments. Cells, ligaments,
collagen, skin, bone, synthetics, animals containing extra or
modified genes;
o Polymers and gels stability, strength, adhesion, brittleness,
cohesion, flexibility, friction, peel strength, viscosity,
elasticity. Adhesives, elastic substances resembling rubber,
polymers containing a large quantity of water, glue, latex;
o Pharmaceuticals mechanical properties, degradation and
swelling, simulation of physiological condition such as
gastrointestinal conditionals, pills, drug delivery systems;
and
o Food, pulp and paper, electronic packaging and others
mechanical properties, texture analysis, electronic components,
wires, fibers optics, films, packaging material, spring,
switches, tapes, cosmetics, foam, sponges.
18
Market potential of the Mach-1(TM) also includes conventional segments
of mechanical testing. Given the specificity of this equipment, BioSyntech does
not expect that a significant market will develop for it.
Competition
The price of other bench-top mechanical testers is around $20,000.
While we offer complete systems at this price, we also offer more enhanced
versions that we can sell for up to $50,000. These high-end systems can offer
sub-micron resolution, multi-axis simultaneous motion, or other specialized
features. With our different versions, we cover a broad range of applications
and also offer custom system configurations for specific needs. Companies in the
mechanical testing industry sell large mechanical testers that serve industries
such as the automobile industry and the aerospace industry whereas, the Company
has an acquired expertise and specialization in tissue engineering and testing
of biomaterials.
Regulatory Approval
The Mach-1(TM) Mechanical Tester is not a medical device and is not
subject to FDA or other regulatory approval.
Manufacturing
Given the small market for this product, we expect to be in a position
to fulfill potential demand of up to approximately 10 units per month in our
facilities. We could eventually rely on the distribution and sales network of a
major partner to generate sales, in which case adequate manufacturing capacity
would have to be established.
Distribution and Marketing Strategy
We intend to use direct sales and direct support as a way to reach and
serve customers. Talking directly to customers will enable us to know them and
their needs and to establish dialogue that will enhance the trust they put in
our products. We could eventually rely on the distribution and sales network of
a major partner to generate additional sales. To date, all our revenues have
come from sales of a small number of the Mach-1(TM), which we sold without any
marketing effort.
1.7 Patents and Proprietary Rights
Our success will be dependent, in part, on our ability to obtain patent
protection for our product candidates and those of our collaborators,
maintaining trade secret protection and operating without infringing upon the
proprietary rights of others.
We have a proprietary portfolio of patent rights and patent
applications. We have been issued two patents and have filed several United
States and international patent applications directed to the composition of
matter as well as processes of preparation and methods of use. Our United States
patents will expire between 2018 and 2020.
We plan to protect our proprietary position by filing United States,
Canada and foreign patent applications related to its proprietary technology,
inventions and improvements that are important to the development of our
business. The patent position of biopharmaceutical companies involves complex
legal and factual questions. The enforceability of patents cannot be projected
with certainty. Patents, if issued, may be challenged, invalidated or
circumvented, and may fail to provide any protection against competitors. Our
pending patent applications, those which we may file in the future, or those
which we may license from third parties, may not result in patents being issued.
If patents were issued, they may not provide us with proprietary protection or
competitive advantages against competitors with similar technology. Competitors
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 do the laws of the United
States and Canada.
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, which include corporate partners, collaborators,
19
employees and consultants. Any of these parties may breach their agreement and
disclose our confidential information. Our competitors might also learn of the
information in some other way.
1.8 Government Regulation
The manufacture and marketing of pharmaceutical products and medical
devices in the United States and in Canada require the approval of the FDA under
the Federal Food, Drug and Cosmetic Act and the Health Protection Branch of
Canada, respectively. Similar approvals by comparable agencies are required in
most foreign countries. These agencies have established mandatory procedures and
safety standards that apply to the pre-clinical testing and clinical trials,
manufacture and marketing of pharmaceutical products and medical devices.
Pharmaceutical manufacturing facilities are also regulated by state, local and
other authorities.
As an initial step in the regulatory approval process for a new drug
product, pre-clinical studies are typically conducted in animal models to assess
a drug's efficacy and to identify potential safety problems. The results of
these studies must be submitted to the FDA as part of an Investigational New
Drug application, before proposed clinical testing can begin. Usually, clinical
testing involves a three-phase process. Phase I trials are conducted with a
small number of subjects and are designed to provide information about both
product safety and the expected dose of the drug. Phase II trials are designed
to provide additional information on dosing and preliminary evidence of product
efficacy. Phase III trials are large scale studies designed to provide
statistical evidence of efficacy and safety in humans. The results of the
pre-clinical testing and clinical trials of a pharmaceutical product are then
submitted to the FDA in the form of a New Drug Application, or for a biological
product in the form of a Product License Application, for approval to commence
commercial sales. Preparing applications involves considerable data collection,
verification, analysis and expense. In responding to an application, the FDA may
grant marketing approval, request additional information or deny the application
if it determines that the application does not satisfy its regulatory approval
criteria.
In the case of a medical device, pre-clinical-study results must be
submitted to the FDA as part of an Investigational Device Exemption before
clinical testing can begin. Phase I, II, and III trials can then be conducted to
provide safety, efficacy, and method-of-use information. The results of the
pre-clinical testing and clinical trials of a medical device are then submitted
to the FDA in the form of a Pre-Market Notification for most Class I and Class
II devices, or a Pre-Market Approval request for most Class III devices. Medical
devices are classified depending upon the level of regulatory control required
to provide reasonable assurance of their safety and effectiveness. In general,
non-critical devices or new devices substantially equivalent to existing devices
fall into Classes I or II. Class III devices are those for which insufficient
information exists to determine that general controls are sufficient to provide
reasonable assurance of their safety and effectiveness.
The possible future uses of BST-Gel(TM)-related biomaterials are
several and are expected to fall into a number of different categories.
Depending on a proposed application, the FDA might designate a
BST-Gel(TM)-related biomaterial as a new drug, new medical device, or new
additive.
We currently expect that the ARTHRO-BST(TM), will be classified as a
Class II medical device because of the low risk associated with its use. Because
the ARTHRO-BST(TM) can be considered substantially equivalent to existing
devices used for cardiovascular and neurological diagnoses with electrodes, we
expect to submit a pre-market notification to the FDA following clinical
testing. However, the FDA may reclassify the device or request additional
information, if it determines that the application does not satisfy its
regulator approval criteria.
This regulatory process can require many years and the expenditure of
substantial resources. Data obtained from pre-clinical testing and clinical
trials are subject to varying interpretations, which can delay, limit or prevent
FDA approval. In addition, changes in FDA approval policies or requirements may
occur or new regulations may be promulgated, which may result in delay or
failure to receive FDA approval. Similar delays or failures may be encountered
in Canada and in foreign countries.
A prospective manufacturer's quality control and manufacturing
procedures must conform on an ongoing basis with good manufacturing practices as
defined by the FDA. The development of a compliant manufacturing establishment
for BST-Gel(TM)-related biomaterials will be a multi-step process consisting of
designing and building the necessary facilities, purchasing and installing the
ancillary equipment, and validating the facilities and
20
equipment. Simultaneously, process development and scale-up as well as testing,
measuring and quality control will be done to supply test material and data
critical to the clinical program. Before approval of our application, the FDA
will perform a prelicensing inspection of the facility to determine its
compliance. After our facilities are licensed, they will be subject to periodic
inspections by the FDA.
We are also subject to various laws and regulations relating to safe
working conditions, laboratory and manufacturing practices, experimental use of
animals and use and disposal of hazardous or potentially hazardous substances,
including radioactive compounds and infectious disease agents, used in
connection with our research. Compliance with existing laws and regulations
relating to the protection of the environment is not expected to have a material
effect on BioSyntech's operations.
1.9 Legal Proceedings
1.9.1 Existing Legal Claims
There is no action or investigation pending or, to our knowledge,
threatened against us, except as described below:
Marie-Claire Pilon, a former employee of BioSyntech, commenced an
action on January 23, 2001 in Superior Court, Province of Quebec, District of
Montreal, against BioSyntech and our Chairman of the Board, Dr. Amine Selmani.
Ms. Pilon alleged that she was wrongfully dismissed as an employee and is
seeking $223,590 in compensation allegedly due, $20,000 for punitive damages and
$15,000 for additional damages. BioSyntech and Dr. Selmani deny these
allegations and intend to vigorously defend this action.
Robert Conyers, a former employee of Bio Syntech Ltd., commenced an
action on November 16, 1999 in Superior Court, Province of Quebec, District of
Montreal, against Bio Syntech Ltd. and its then Chairman of the Board, Dr.
Selmani. Mr. Conyers alleged that he was wrongfully dismissed as an employee and
is seeking $96,581 in compensation allegedly due, the issuance to him of 100,000
shares of class A stock that were subject to an option that was alleged to have
been granted to him and $25,000 in punitive damages. On April 18,2001, a verbal
decision was rendered with respect to this action. As a result of this
decision, Mr. Conyers was awarded seven months of salary plus 100,000 class A
stock. The total dollar value of the award is approximately $200,000.
1.9.2 Potential 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.
1.10 Properties
We have our administrative and commercial offices and research and
development facility at 475 Armand-Frappier Boulevard, a 20,000- square-foot
building in Laval (Quebec), in the Greater Montreal Area. We purchased the
building in July 2000 at a price of $1,200,000. We previously leased these
facilities at a net rental of $14,000 per month.
Our facilities are designed to be upgradeable to comply with FDA
requirements, while additional space will be devoted in the future to sites for
operations compliant with the FDA's good manufacturing practice standards. We
intend to initiate the necessary work to comply with the good manufacturing
practice standards at an estimated cost of $3,500,000 of which we anticipate
that only a minimal amount will be expended in the fiscal year ending March 31,
2002. We will only expend more than a minimal amount if we obtain additional
financing.
-21-
1.11 Brief History and Issuance of Exchangeable Class A Preferred Stock
We were incorporated in the State of Nevada in December 14, 1994 and
became a publicly-traded corporation without operations in August 1999. Bio
Syntech Ltd.was founded in 1995 by Dr. Amine Selmani as a Quebec corporation.
Pursuant to an Amalgamation Agreement and related agreements, dated
February 15, 2000 by and among us, our then wholly-owned subsidiary 9083-5661
Quebec Inc., Bio Syntech Ltd., and the former stockholders of Bio Syntech Ltd.,
9083-5661 Quebec Inc. and Bio Syntech Ltd. were merged into one company under
the name of Bio Syntech Canada Inc. as of February 29, 2000. Consequently, we
became the record and beneficial owner of all of the issued and outstanding
shares of Bio Syntech Canada's Common Stock and the former stockholders of Bio
Syntech Ltd. were issued non-voting exchangeable shares of Bio Syntech Canada's
class A stock. The class A stock is exchangeable on a share-for-share basis for
an aggregate of 15,177,036 shares of our common stock which are held in trust
under the terms of an Exchange and Voting Agreement by and among the us, Pierre
Barnard as trustee, Bio Syntech Ltd. and 9083-5661 Quebec Inc.
Under the terms of the Exchange and Voting Agreement, each beneficial
holder of class A stock has voting rights in that number of shares of our common
stock equal in number to the number of shares of class A stock held by such
holder. Consequently, upon completion of the transaction, the former
stockholders of Bio Syntech Ltd. held, through Pierre Barnard as trustee,
securities with voting rights equal to approximately 55.7% of the total voting
power of the outstanding shares of our common stock. As of April 23, 2001,
primarily because of subsequent sales of our shares, the shares held by the
trustee accounted for approximately 52%, of the total voting power of the
outstanding shares of our common stock. At such time as the holders of class A
stock may exchange such shares for shares of our common stock, they will have
the right to direct the disposition of such shares of common stock.
The sole source of consideration for issuance to the former
stockholders of Bio Syntech Ltd. of the class A stock was the exchange of the
Bio Syntech Ltd. shares they held. At such time as the former stockholders of
Bio Syntech Ltd. may exchange their class A stock for shares of our common
stock, the sole source of consideration for the transfer to them of the shares
of our common stock will be such class A stock.
Copies of the share exchange agreement and related transactions
documents are incorporated by reference as exhibits to this registration
statement.
Management's Discussion and Analysis or Plan of Operation
The discussion and analysis below should be read in conjunction with
our condensed consolidated Financial Statements.
To date, we have incurred substantial losses from operations, and as of
December 31, 2000, had an accumulated deficit of $11,247,885. We expect to incur
substantial operating expenses in the future to support our product development
efforts and expand our technical and management personnel and organization.
Results of Operations
The following table sets forth certain items in our consolidated
statements of operations for the nine-month ended December 31, 2000 and 1999 and
fiscal years ended March 31, 2000 and 1999. The amounts are in thousands of CDN
$.
-22-
Nine-Month Periods Ended Fiscal Years Ended
December 31, March 31,
------------ ---------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited)
Sales $88.5 $0 $0 $78.7
Cost of sales 38.2 0 0 35.0
-------- ------ ------ ------
Gross profit $50.3 $0 $0 $43.7
Operating Expenses:
Research and development $2,118.2 $872.3 $2,341.7 $2,948.3
Investment tax credits (135.0) (544.0) (676.9) (599.1)
General and administrative
(Net of Grants) 1,906.2 448.3 1,217.5 1,789.5
Amortization of property, plant and
Equipment 101.6 133.3 178.2 35.2
-------- ------ ------ ------
Total operating expenses $3,991.0 $909.9 $3,060.5 $4,173.9
---------- ------- ------ ---------
Loss from operations (3,940.7) ($909.9) $3,060.5) ($4,130.2)
Interest income (387.1) (3.1) (18.6) (4.4)
Interest expense 39.1 161.3 198.4 39.9
---------- ------- ------ ---------
Net loss $3,592.7 $1,068.1 $3,240.3 $4,165.7
Results of operations for the nine-month period ended December 31, 2000 and
1999.
Sales
During the nine-month period ended December 31, 2000, we had sales of
two Mach-1(TM) for an aggregate revenue of $88,536 and a net loss of $3,592,761
compared to sales of zero and a net loss of $1,068,108 for the nine-month period
ended December 31, 1999.
Loss per share was $0.12 per share for the nine-month period ended
December 31, 2000, compared to $0.08 per share for the nine-month period ended
December 31, 1999.
Operating Expenses
Research and development expenses were $2,118,209 for the nine-month
period ended December 31, 2000 compared to $872,293 for the nine-month period
ended December 31, 1999. The increase of $1,245,916 in research and development
expenses for the nine-month period is attributable to acquisition of research
and development equipment ($522,670), hiring of additional researchers and
affiliated expenses ($358,738), the cost of pre-clinical toxicalogical
studies($210,280), and the research and development activities with our
corporate collaborators ($129,150) and our own in house programs ($24,801). We
anticipate that we will continue to devote significant resources to research and
development.
Investment Tax Credits
We claim investment tax credits on all allowable research and
development expenses. The amount we will claim for the nine-month period ended
December 31, 2000 is $135,000 compared to $543,977 for the nine-month
23
period ended December 31, 1999, representing a decrease of $408,977. The
decrease in the nine-month period is directly attributable to a reduction in the
effective rate used to calculate the tax credits since we can no longer benefit
from the private company rates and reduction of allowable tax credits.
General and Administrative Expenses
General and administrative expenses were $1,906,216 for the nine-month
period ended December 31, 2000 compared to $448,328 for the nine-month period
ended December 31, 1999, representing an increase of $1,457,888. The increase in
the nine-month period is principally attributable to professional fees
^($702,576), marketing expenses ($161,685), investor relations ($233,233),
options granted to consultants ($237,500), tax on capital ($57,166), an increase
in administrative expenses due to an increase in personnel ($267,409) and offset
by a foreign exchange gain of $227,149.
Amortization of Property, Plant and Equipment
Amortization expense was $101,628 for the nine-month period ended
December 31, 2000 compared to $133,333 for the nine-month period ended December
31, 1999, representing a decrease of $31,705. The decrease in the nine-month
period was principally attributable to the change in amortization period of our
facility. Previously, we amortized the term of our lease for 10 years. We
subsequently changed the term to 20 years after we acquired our facility.
Interest Income and Interest Expense
Interest income represents income earned on our cash deposits. Interest
income increased by $383,933, from $3,137, for the nine-month period ended
December 31, 1999 to $387,070 for the nine-month period ended December 31, 2000.
The increase in the nine-month period is primarily due to a higher level of cash
on hand during the period as a result of the two private placements consummated
earlier in the calendar year 2000.
Interest expense in 2000 is mainly attributable to interest on the
capital lease transaction entered into by BioSyntech at the end of fiscal 1999
in order to finance its facility prior to its acquisition in July 2000. Interest
expense decreased by $122,162 from $161,268 for the nine-month period ended
December 31, 1999 to $39,106 for the nine-month period ended December 31, 2000.
Results of Operations for the Fiscal Years Ended March 31, 2000 and 1999.
Sales
Revenues have only been generated from sales of Mach-1(TM) Mechanical
Testers. During the year ended March 31, 2000, we reported sales of zero and a
net loss of $3,240,283 compared to sales of $78,660 and a net loss of $4,165,657
for the year ended March 31, 1999.
Loss per share was $0.23 for the year ended March 31, 2000, compared to
$0.37 for the year ended March 31, 1999.
Operating expenses
Research and development expenses were $2,341,697 for the year ended
March 31, 2000 compared to $2,948,342 for the year ended March 31, 1999. The
decrease of $606,645 is attributable to the reduction of acquisition of research
and development equipment.
General and administrative expenses were $ 1,217,507 for the year ended
March 31, 2000 compared to $1,789,468 for the year ended March 31, 1999,
representing a decrease of $571,961. The decrease is principally attributable to
the grant of options in lieu of cash payments to consultants.
24
Interest Revenue and Interest Expense
Interest revenue represents income earned on our cash deposits.
Interest revenue increased by $14,277, from $4,364, in 1999 to $18,641 in 2000,
primarily due to a higher level of cash and cash equivalents on hand at the end
of 2000.
Interest expense in 2000 is mainly attributable to interest on the
capital lease transaction entered into at the end of fiscal year 1999 in order
to finance our facility prior to our acquisition. Interest expense increased by
$158,467 from $39,935 in 1999 to $198,402 in 2000. The remaining balance under
the capital lease agreement was repaid in full during the first week of July
2000.
Liquidity and Capital Resources
As of December 31, 2000, our cash position was $7,429,832. In July
2000, we purchased the facility in which we conduct our operations for
$1,200,000. We expect to spend $750,000 to equip our facility for the quarter
ending March 31, 2001. We believe that the capital resources presently on hand
will be sufficient for projected capital expenditures and operating expenses
until April 1, 2002. We have a program in place to limit operating costs and we
have limited funds available for capital expenditure.
On February 2, 2000, we completed a private placement of our securities
yielding aggregate proceeds of US $2,350,000, for which we issued an aggregate
of 470,000 shares of common stock and warrants to purchase an additional 470,000
shares of common stock at a price of US $7.00 on or before September 30, 2001.
Commencing March 31, 2000 and during the quarter ended June 30, 2000,
we completed a second private placement and issued a total of 1,910,214 units at
a price of US $3.50 per unit as shown in the table below, yielding gross
proceeds of US $6,055,250. Each unit comprised one share of common stock and one
warrant for the purchase of one additional share at a price of US $4.50 per
share before March 30, 2001.
Closing Date Number of Units Proceeds
- ------- ---- --------------- --------
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 $273,000 and CDN $150,000
(CDN $558,272)
Totals 1,910,214 US$6,055,250 and CDN $900,000
(CDN $9,757,662)
We have limited operating history as a biotechnology company and have
not made significant sales of our products. Therefore, our revenues are
difficult to predict. Although we believe that our cash and cash equivalent
balances are sufficient for projected capital expenditures and operating
expenses for the next 12 months, we may seek to raise additional funds either
within the next 12 months or thereafter, by selling additional equity or
convertible debt securities. The sale of additional equity or convertible debt
securities could result in additional dilution to our stockholders. To date, we
have no agreements, commitments or understandings with respect to the sale of
additional equity or convertible debt securities and we are unable to predict
whether we will sell additional equity or debt on acceptable terms or at all.
25
Employee Growth
As of March 15, 2001, BioSyntech had 37 employees, of whom 23 were
engaged on research and development and 14 were engaged in corporate and
administrative activities. Except for two employees in our research and
development team who are involved in the manufacture of the Mach1(TM) Mechanical
Tester, we have no other employees involved in the manufacture of our products.
BioSyntech anticipates its total employee count to be approximately 37 to 40
employees by the end of fiscal year 2002.
Our success depends on the services of key employees in executive and
research and development positions, notably our Chairman of the Board, Chief
Executive Officer and President, Dr. Selmani. The loss of the services of one or
more of our key employees could have a material adverse effect on our
operations.
Directors, Executive Officers, Promoters and Control Persons
Executive Officers and Directors
The following sets forth the name, present principal occupation,
employment and material occupations, positions, offices or employments for the
past five years and ages as of December 31, 2000 of our executive officers and
directors. Members of our board of directors are divided into three classes. One
class of directors are elected each year, and the members of such class hold
office for a three-year term and until their successors are duly elected and
qualified, or until their death, resignation or removal from office. The present
Class I directors serve until annual meeting of stockholders in 2001 and until
their successors are elected and qualified. The present Class II directors serve
until the annual meeting of stockholders in 2002 and until their successors are
elected and qualified. The present Class III directors serve until the annual
meeting of stockholders in 2003 and until their successors are elected and
qualified.
Name Age Title
---- --- -----
Amine Selmani 43 Chairman of the Board, Class III
Director, Chief Executive Officer
and President
Denis N. Beaudry 57 Class III Director
Jean-Yves Bourgeois 33 Class II Director
Pierre Ranger 45 Class II Director
Pierre Alary 43 Class I Director
Marie-Claire Pilon 46 Class I Director
Ajay Gupta 39 Chief Operating Officer
Anthony Casola 37 Chief Financial Officer, Chief
Accounting Officer and Secretary
Amine Selmani PhD - Dr. Selmani has served as our Chairman of the
Board, and President since February 2000, as our Chief Executive Officer from
February 2000 to September 2000 and starting January 2001, and Chairman of the
Board, President and Chief Executive Officer of Bio Syntech Canada and its
predecessor corporation since its inception in November 1997. Prior to founding
the predecessor corporation of Bio Syntech Canada in May 1995, Dr. Selmani had
eight years of teaching experience at the Chemical Engineering Department and
Biomedical Institute of Ecole Polytechnique as an Associate Professor from 1992
to 1997 and as an Assistant Professor from 1989 to 1992. Dr. Selmani received
his Bachelor of Science and Master of Science Degrees in Physical Chemistry in
1979 and 1981, respectively, from the University of Bordeaux, France. He also
obtained his Doctoral and Post Doctoral Degrees in Materials Science from the
University of Montreal in 1985 and Dalhousy University in 1988, respectively.
Denis N. Beaudry - Mr. Beaudry has been a director of BioSyntech since
February 2000. Mr. Beaudry has been President and general manager of Polyvalor,
Montreal, Quebec, Canada, a limited partnership formed by the Ecole
Polytechnique for the purpose of commercializing the intellectual property of
the Ecole Polytechnique. His
26
role consists of enhancing the value of research results for commercial use by
means of start-up of high-tech companies in which Polyvalor holds a
participation or interest. Since 1984, he has occupied the position of director
of the Centre de Developpement Technologique of the Ecole Polytechnique whose
sphere of activities includes technology transfer, licensing of technology and
software, joint creation with private industry of laboratories and research
centers, strategic alliances, research partnerships, industrial chairs and the
emergence of high technology enterprises. Mr. Beaudry was President of the
Quebec Association of University Research Directors in 1992, and is at present a
member of the Board of Directors of Lumenon Innovative Lightwave Technologies,
Inc., the Centre des Technologies Textiles, the College Rosemont, the
Corporation de Financement de l'Institut de Cardiologie de Montreal, the Centre
de Technologies du Gaz Naturel, the Corporation Commerciale de Materiaux
Composites, the Centre de Developpement Rapide de Produits et de Procedes, and
the firms Sinlab Inc., Phytobiotech Inc., Polyplan Inc., Odotech Inc. and COESI
Inc.
Jean-Yves Bourgeois - Mr. Bourgeois has been a director of BioSyntech
since February 2000. Since July 1999, Mr. Bourgeois has been a director and
Senior Vice President in charge of corporate finance for eastern Canada of
Canaccord, a securities broker/dealer. Prior to joining Canaccord, Mr. Bourgeois
served as a Chief Financial Officer for Aeterna Laboratories from July 1998 to
July 1999. From July 1997 to July 1998, Mr. Bourgeois had also been in charge of
small capital market development, specializing in high technology and
biotechnology industries, for TD Securities, a securities broker/dealer. From
1993 to July 1997, Mr. Bourgeois was a partner at Gordon Capital, a securities
broker/dealer, where he specialized in high technology and biotechnology
industries and became head of the corporate finance for eastern Canada in May
1996.
Pierre Ranger MD - Dr. Ranger has been a director of BioSyntech since
February 2000. Since 1991, Dr. Ranger has been a teaching professor in the
orthopedic residents program at the CMDP Sacred Heart Hospital of Montreal. Dr.
Ranger received his Doctoral of Medicine Degree from the University of Montreal
in 1979 and Diploma of Sports Medicine in 1996.
Pierre Alary, CA - Mr. Alary has been a director of BioSyntech since
February 2000. Since August 1998, Mr. Alary has been a Vice President for
finance and information technologies at Bombardier Transport, a designer,
manufacturer and distributor of rail cars. Prior to joining Bombardier
Transport, Mr. Alary was a Senior Partner at Ernst & Young LLP from April 1988
to August 1998, specializing in the biotechnology industry. As Senior Partner,
Mr. Alary was in charge of providing audit and consulting services to major
manufacturing companies and high technology companies, more specifically
biotechnology companies. He has also participated in a number of special
financing engagements for manufacturing companies in respect of equity
financing.
Marie-Claire-Pilon - Ms. Pilon has been a director of BioSyntech since
November 2000. From September to December 2000, Ms. Pilon served as our Chief
Executive Officer. Ms Pilon is a pharmacist and holds an Executive Masters in
Business Administration from the University of New Haven, Connecticut. From 1999
to August 2000, Ms. Pilon served a business development consultant to private
and publicly traded companies. In that role, she assumed the responsibilities of
Executive Vice President of Business Development for Nastech Pharmaceutical
Company, Inc., a publicly traded nasal drug delivery company. From 1996 to 1999,
Ms. Pilon was Vice-President of Biovail Corporation International, a full
service pharmaceutical company engaged in the formulation, registration,
clinical testing and manufacture of drug products utilizing advanced drug
delivery technologies. From 1994 to 1995, Ms. Pilon was Executive Director for
Business Development for the Benefit Research Group, a Quintiles company
specializing in Health Economics and Outcomes Research. From 1981 to 1994, Ms.
Pilon held positions of increasing responsibilities within the industry. As
described under the "Legal Proceeding" section, Marie-Claire Pilon has commenced
an action against BioSyntech and our President, Dr. Selmani, alleging that was
wrongfully dismissed as an employee.
Ajay Gupta - Dr. Gupta has been employed by us since June 2000 as
Director for Business & Product Development. In November 2000 Dr. Gupta was
nominated as our Chief Operations Officer. From May 1999 to June 2000, Dr. Gupta
worked for ITR Laboratories Canada as Director, Analytical/ADME/Pharmacy, being
responsible for the overall administration and scientific direction of the three
departments. From January 1997 to May 1999, Dr. Gupta worked for Neurochem Inc.
as Director of Chemistry. He was responsible for the overall administration and
scientific direction of the chemistry department involved in drug discovery and
drug development in the areas of Alzheimer's, Type II Diabetes, Epilepsy, Kidney
27
failure and Congestive heart disease. From January 1994 to January 1997, Dr.
Gupta worked for MDS Inc. formerly known as Phoenix International Life Sciences
Inc. as Manager, GMP Synthesis/Senior Research Chemist being responsible for the
overall administration of GMP's synthesis department and evaluation of new
technologies.
Anthony Casola - Mr. Casola has been our Chief Financial Officer, Chief
Accounting Officer and Secretary since September 2000. From August 1990 to June
2000, Mr. Casola worked for Naya Inc., a branded bottled water manufacturer,
where he held various senior positions in the accounting and finance areas such
as Vice President for Corporate Development, Director of Finance, Controller and
Accounting Manager. Mr. Casola obtained his Bachelor of Commerce degree from
McGill University in June 1986. He has also been designated as a Certified
Management Accountant since January 1989.
Mr. Beaudry is the director nominated by Polyvalor. Polyvalor has the
right to appoint one nominee to our board of directors under an assignment
agreement between them and us. There are no family relationships among directors
and executive officers. Our directors are elected for a term of office to expire
at the annual meeting of our stockholders after their election.
Security Ownership of Certain Beneficial Owners and Management
The following table contains information as of December 31, 2000
regarding the beneficial ownership of shares of our common stock by our current
directors and executive officers and those persons or entities who, to our
knowledge, beneficially own more than 5% of the common stock. For the purposes
of calculating beneficial ownership, the shares of common stock beneficially
owned by Messrs. Denis N. Beaudry, Pierre Alary, Jean-Yves Bourgeois, Pierre
Ranger and Ajay Gupta represent shares of our common stock issuable upon the
exercise of stock options exercisable within sixty days after December 31, 2000.
The address of all of our officers and directors and owners of more than 5% of
our common stock if 475 Boulevard Armand-Frappier, laval, Quebec, Canada H7V
4B3.
Shares of Common Percentage of Common
Name and Address of Stock Beneficially Stock Beneficially
Beneficial Owner- Owned Owned
- ------------------- ------------------ ---------------------
9083-1496 Quebec Inc. 7,640,000 26.2%
Amine Selmani 9,062,500 27.0%
Denis N. Beaudry 25,000 *
Pierre Alary 25,000 *
Jean-Yves Bourgeois 25,000 *
Pierre Ranger 125,000 0.3%
Marie-Claire Pilon 0 -----
Ajay Gupta 25,000 *
Anthony Casola 0 -----
All Officers and Directors
as a group (7 persons) 8,232,500 28.0%
The percentages shown with an '*' mean that the director owns less than
0.1% of the outstanding shares of our common stock. The information shown above
also includes rights to acquire shares of common stock through the exchange of
class A stock.
Dr. Selmani owns all of the outstanding shares of 9083-1496 Quebec Inc.
and has shared voting and dispositive power with respect to the 7,640,000 shares
of class A stock owned by 9083-1496 Quebec Inc. Dr. Selmani also may be deemed
the beneficial owner of 312,500 shares of common stock that would be held by him
upon exchange of 312,500 shares of class A stock issuable upon exercise of
options. Monique Jarry, spouse of Dr. Selmani, holds 1,085,000 shares of class A
stock, including 200,000
28
shares issuable upon the exercise of options, which are also included
in the beneficial ownership of Dr. Selmani reported above.
Executive Compensation
Compensation of Executives
The following table sets forth all compensation awarded to our Chief
Executive Officer. No other executive officers received annual compensation in
excess of US $100,000 during the periods indicated.
Summary Compensation Table
Long-Term
Compensation:
Annual Compensation Award
Fiscal
Name and Position Year Salary Bonus # of Options
- ----------------- ---- ------ ----- ------------
Amine Selmani 2000 $120,000 $0 -
President and
Chief Executive Officer 1999 $120,000 $0 312,500
1998 $0 $0 -
Option Grants
No options were granted to Dr. Selmani in the fiscal year ended March
31, 2000. We have never granted any stock appreciation rights.
Aggregated Fiscal Year-End Option Exercises and Option Values
Dr. Selmani did not exercise any options during the fiscal year ended
March 31, 2000. The following table sets forth certain information regarding
unexercised stock options held by Dr. Selmani as of March 31, 2000.
Number of Securities Underlying Value of Unexercised in
Unexercised Options at -the-money Options at
March 31, 2000(#) March 31, 2000($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
Amine Selmani 312,500/0 $1,596,094/0
The value of the unexercised in-the-money options is based on the
market value, as reported on the Over the Counter Electronic Bulletin Board, of
US$5.6250 per share of common stock at March 31, 2000 and an exercise price of
$0.75 (US$0.5175) per share.
Other Compensation Plans
We have no pension plan or other compensation plans for its executive
officers or directors.
Compensation of Directors
No fees or other remuneration were paid to our directors during the
fiscal year ended March 31, 2000, with the exception of reimbursement of
expenses. Our board of directors will determine the remuneration of our
directors and officers during the current and subsequent fiscal years.
-29-
Employment Agreement
Ajay Gupta - We have entered into an indefinite employment agreement
with Ajay Gupta dated as of November 2000. Mr. Gupta will serve as Chief
Operating Officer with duties and responsibilities which are determined by our
board of directors from time to time. Mr. Gupta shall be entitled to an annual
base salary of $135,000 which shall be reviewed annually plus a bonus payment at
the discretion of the board of directors' compensation committee. The board of
directors also granted Mr. Gupta options to purchase 75,000 shares of our common
stock at an exercise price of U.S.$1.25 per share, vesting in three installments
commencing December 31, 2000. Mr. Gupta is subject to a confidentiality and
non-solicitation agreement during the term of his employment and for an
additional three year period following the termination of his employment. Mr.
Gupta,or his estate, will be entitled to receive his full salary for a period of
three months if he is terminated without cause, death or disability. He will
not be entitled to receive any salary if he is terminated for cause.
Certain Relationships and Related Transactions
Issuance of Class A Preferred Stock
Pursuant to an Amalgamation Agreement and related agreements, dated
February 15, 2000 by and among us, our then wholly-owned subsidiary 9083-5661
Quebec Inc., Bio Syntech Ltd., and the former stockholders of Bio Syntech Ltd.,
9083-5661 Quebec Inc. and Bio Syntech Ltd. were merged into one company under
the name of Bio Syntech Canada as of February 29, 2000. Consequently, we became
the record and beneficial owner of all of the issued and outstanding shares of
Bio Syntech Canada's Common Stock and the former stockholders of Bio Syntech
Ltd. were issued non-voting exchangeable shares of Bio Syntech Canada's class A
stock. The class A stock is exchangeable on a share-for-share basis for an
aggregate of 15,177,036 shares of our common stock which are held in trust under
the terms of an Exchange and Voting Agreement by and among the us, Pierre
Barnard as trustee, Bio Syntech Ltd. and 9083-5661 Quebec Inc.
Beneficial Ownership of Dr. Amine Selmani
Bio Syntech Ltd. was founded in 1995 by Dr. Amine Selmani, our Chairman
of the Board, Chief Executive Officer and President and the beneficial holder of
more than 5% of our outstanding shares of common stock. Dr. Selmani has shared
voting and dispositive power with respect to 7,640,000 class A shares owned by
9083-1496 Quebec Inc. as a result of the transaction. He may also be deemed the
beneficial owner of 337,500 shares of our common stock that would be held by him
upon exercise of options to purchase 25,000 shares of our common stock granted
under our stock option incentive plan and exchange of 312,000 shares of class A
shares issuable upon exercise of options granted to Dr. Selmani under the stock
option incentive plan of Bio Syntech Canada. Dr. Selmani may also be deemed the
beneficial owner of 1,085,000 shares of our common stock issuable upon the
exchange of 1,085,000 shares of class A shares which the spouse of Dr. Selmani,
Monique Jarry, holds.
Agreement with Polyvalor Limited Partnership
In October 1997, we entered into a technology assignment agreement with
Polyvalor Limited Partnership. Polyvalor is an entity created by Ecole
Polytechnique de Montreal for the purpose of commercializing the technology in
which Ecole Polytechnique has an interest. Through this agreement, we acquired
all rights related to certain patents and know-how. We agreed to pay to
Polyvalor a royalty of 5% on our gross sales up to a maximum cumulative amount
of $3,000,000. Our subsidiary Bio Syntech Canada, Inc. issued to Polyvalor
1,072,000 shares of its class A stock and granted Polyvalor the right to
nominate one director to our board of directors. This class A stock is
exchangeable on a share for share basis for our common stock and Polyvalor has
the right to nominate one director to our board of directors.
Selling Stockholders
The following table shows the beneficial ownership of our common stock on
December 31, 2000 by the selling stockholders, which includes the right to
acquire shares of our common stock upon the exchange of the class A stock of our
subsidiary Bio Syntech Canada. The table assumes that the selling stockholders
will sell all of the
30
shares and that the selling stockholders will make no other purchases or sales
of our common stock. However, the selling stockholders are not obligated to sell
their shares at any time or at any price. We cannot state with certainty the
number of shares of our common stock that will be owned by each of the selling
stockholders upon the termination of this offering. The number of shares of our
common stock that each holder may own may also change due to stock splits or
other anti-dilution adjustments. All percentages are based on 29,182,250 shares
of our common stock outstanding as of October 25, 2000 as reported in our
quarterly report on From 10-QSB for the quarter ended December 31, 2000 and
filed with the SEC on November 14, 2000. Relationships of any of the selling
stockholders with BioSyntech within the last three years are enumerated after
the table.
Percentage of Shares of
Shares of common Common Percentage of
common stock stock Shares of Stock common stock
Beneficially Beneficially common Beneficially Beneficially
Name and Address of Owned Before Owned Before stock being Owned After Owned After
Beneficial Owner Offering Offering Offered Offering Offering
- ---------------- -------- -------- ------- -------- --------
Monique Jarry 885,000 3.0% 885,000 0 0%
Michael Buschmann 290,000 1.0% 290,000 0 0%
Abdellatif Chenite 300,000 1.0% 300,000 0 0%
Caroline Hoemann 100,000 0.3% 100,000 0 0%
Cyril Chaput 200,000 0.7% 200,000 0 0%
Fairouze Jalal 100,000 0.3% 100,000 0 0%
Ronald D. Guttmann 133,334 0.5% 133,334 0 0%
William Stanimir 110,000 0.4% 110,000 0 0%
Pierre Barnard 21,429 * 21,429 0 0%
C.B.C. Consulting Inc. 233,333 0.8% 233,333 0 0%
Henry Yersh 70,000 0.2% 70,000 0 0%
Michael Teryzos 166,667 0.6% 166,667 0 0%
Belwest Capital
Management Corp. 155,000 0.5% 155,000 0 0%
Thensor SKY Corp. 371,900 1.3% 371,900 0 0%
Groupe Montoni 33,333 0.1% 33,333 0 0%
Francois Rodrigue 30,001 0.1% 30,001 0 0%
Astrid Guttmann 13,333 * 13,333 0 0%
Carla Guttmann 13,333 * 13,333 0 0%
Gregory Guttmann 13,333 * 13,333 0 0%
31
Percentage of Shares of
Shares of common Common Percentage of
common stock stock Shares of Stock common stock
Beneficially Beneficially common Beneficially Beneficially
Name and Address of Owned Before Owned Before stock being Owned After Owned After
Beneficial Owner Offering Offering Offered Offering Offering
- ---------------- -------- -------- ------- -------- --------
2845351 Canada Inc. 327,000 1.1% 327,000 0 0%
Louise Gauthier 6,666 * 6,666 0 0%
Julie Rodrigue 6,666 * 6,666 0 0%
Serge Cadorette 100,000 0.3% 100,000 0 0%
Lirojen Enterprises Ltd. 50,000 0.2% 50,000 0 0%
Multivox Marketing Inc. 528,333 1.8% 528,333 0 0%
Richard D. Spizzirri 66,375 0.2% 66,375 0 0%
Lewis Capital Ltd. 9,521 * 9,521 0 0%
Jim Beckerleg 17,600 * 17,600 0 0%
Charles Beaudoin 135,000 0.5% 135,000 0 0%
Multivesco 110,000 0.4% 110,000 0 0%
Polyvalor, Societe
en commandite 1,072,000 3.4% 1,072,000 0 0%
146479 Canada Inc. 120,000 0.4% 120,000 0 0%
Compensation BNC Inc. 1,200,000 4.1% 1,200,000 0 0%
Michele Kosich 90,000 0.3% 90,000 0 0%
Jean-Marie Rodrigue 10,000 * 10,000 0 0%
Kebir Ratnani 15,000 * 15,000 0 0%
Compensation BNC INC EFP
Pierre Larue (0TC9RE2) 6,666 * 6,666 0 0%
Roytor & Co. 426,213 1.5% 426,213 0 0%
--------- ---- ---------
TOTAL 7,537,036 25.8% 7,537,036 0 0%
All percentages shown with an '*' mean that the selling stockholder
owns less than 0.1% of the outstanding shares of our common stock.
We have had material relationships in the last three years with certain
selling stockholders as follows:
o Ms. Monique Jarry, Ms. Caroline Hoemann, Mr. Cyril Chaput and
Mr. Abdellatif Chenite are currently our employees;
32
o Mr. Michael Buschmann is currently a consultant in our
research and development department;
o Mr. Ronald D. Guttmann is currently one of our consultants;
o Mr. Pierre Barnard is currently our legal advisor;
o Mr. Fairouze Jalal is our former employee;
o We previously purchased the building where our principal
offices are located from Groupe Montoni for $1,200,000;
o We were a former debtor of Multivesco; and
o We have an agreement with Polyvalor, Societe en commandite
wherein we are required to pay them royalties on our future
sales.
The following table names the ultimate beneficial owners of the shares
of our common stock for those selling stockholders which are not individuals.
Name of the Entity Information
- ------------------ -----------
C.B.C. Consulting Mr. Mahmoud Ahmed
Mr. Ehab Lotfi
Belwest Capital Management Corp. Mr. Jim Beckerleg
Group Montoni Mr. Dario Montoni
2845351 Canada Inc. Mrs. Dominique Gendron
Lirojen Enterprises Ltd. Mr. Morden C. Lazarus
Multivox Marketing Inc. Mr. Claude Gendron
Multivesco Mr. Camille Villeneuve
146479 Canada Inc. Mr. Larry Fisher
Compensation BNC Inc. National Bank of Canada, a Canadian
chartered bank, acting on behalf of
its clients
Compensation NBC Inc. EEP Pierre
Larue (OTC9RE2) Mr. Pierre Larue
Roytor & Co. Royal Bank of Canada, a Canadian
chartered bank, acting on behalf of its
clients.
Polyvalor Societe en comandite (i) Polyvalor Limited Partnership, as
General Partner, represented by Mr.
Denis N. Beaudry and (ii) Ecole
Polytechnique, as minority stockholder.
Lewis Capital Ltd. Bernard Allaire
Additionally, the ultimate beneficial owners of the shares held by
Thensor SKY Corp. are investors who are non-residents of the United States or
Canada. The ultimate beneficial owners of the shares held Lewis Capital are
private investors. The beneficial owners of the shares held by Polyvalor Societe
en comandite is Polyvalor Limited Partnership, with its head office at 3744 Jean
Brillant Street, Suite 6332, Montreal, Quebec, H3T 1P1, and with Polyvalor, Inc.
as its general partner and represented by Mr. Denis N. Beaudry.
Plan of Distribution
As referred to in this prospectus, selling stockholders include the
pledgees, donees, transferees or others who may later hold the selling
stockholders' beneficial ownership of shares of common stock. We will file a
post-effective amendment registration statement to identify the pledgees,
donees, transferees of the shares currently held by the selling stockholders. We
will pay the costs and fees of registering the shares of common stock, but the
selling stockholders will pay any brokerage commissions, discounts or other
expenses relating to the sale of these shares.
33
The selling stockholders may sell the shares of common stock in the
over-the-counter market or otherwise, at market prices prevailing at the time of
sale, at prices related to the prevailing market prices or at negotiated prices.
In addition, the selling stockholders may sell some or all of their shares
through:
o a block trade in which a broker-dealer may resell a portion
of the block, as principal, in order to facilitate the
transaction;
o purchases by a broker-dealer, as principal, and resale by the
broker-dealer for its account; or
o ordinary brokerage transactions and transactions in which a
broker solicits purchasers.
When selling the shares of common stock, the selling stockholders may
enter into hedging transactions. For example, the selling stockholders may:
o enter into transactions involving short sales of the shares
by broker-dealers;
o sell shares short themselves and redeliver the shares to
close out their short positions;
o enter into option or other types of transactions that require
the selling stockholder to deliver shares to a broker-dealer,
who will then resell or transfer the common shares under this
prospectus; or
o loan or pledge the shares to a broker-dealer, who may sell
the loaned shares or, in the event of default, sell the
pledged shares.
The selling stockholders may negotiate and pay broker-dealers
commissions, discounts or concessions for their services. Broker-dealers engaged
by the selling stockholders may allow other broker-dealers to participate in
resales. However, the selling stockholders and any broker-dealers involved in
the sale or resale of the shares of our common stock may qualify as underwriters
within the meaning of Section 2(a)(11) of the Securities Act. In addition, the
broker-dealers' commissions, discounts or concession may qualify as
underwriters' compensation under the Securities Act. We will disclose in a
post-effective amendment to the registration statement any addition of
broker-dealers in the selling effort of the selling stockholders.
In addition to selling their shares under this prospectus, the selling
stockholders may:
o agree to indemnify any broker-dealer or agent against
liabilities related to the selling of the shares, including
liabilities arising under the Securities Act;
o transfer their shares in other ways not involving market
makers or established trading markets, including directly by
gift, distribution or other transfer; or
o sell their shares under Rule 144 of the Securities Act rather
than under this prospectus, if the transaction meets the
requirements of Rule 144.
Description of Capital Stock
Common Stock
Our Amended and Restated Articles of Incorporation authorizes the
issuance of 100,000,000 shares of common stock, $0.001 par value per share, of
which 29,182,250 are issued and outstanding as of October 25, 2000, which
includes 15,177,036 shares held in trust pending the exchange of the class A
stock. The 7,537,036 shares of common stock being offered under this prospectus
are included in these 29,182,250 shares. The shares are non-assessable, without
preemptive rights, and do not carry cumulative voting rights. Holders of common
shares are entitled to one vote for each share on all matters to be voted on by
the stockholders. The shares are fully paid, non-assessable, without pre-emptive
rights, and do not carry cumulative voting rights. Holders of common shares are
entitled to share ratably in dividends, if any, we may be declare from
time-to-time. In the event of a liquidation,
34
dissolution, or winding up of our operations, the holders of shares of our
common stock are entitled to share on a pro-rata basis all assets remaining
after payment in full of all liabilities.
Preferred Stock
Our Amended and Restated Articles of Incorporation authorizes the
issuance of 5,000,000 shares of preferred stock, $0.001 par value per share,
none of which have been are issued and outstanding as of December 31, 2001. Our
board of directors is expressly authorized to provide for the issuance of all or
any shares of our preferred stock, in one or more series, and to fix for each
such series such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions as shall be stated
and expressed in the resolutions adopted by our board of directors providing for
the issuance of such series and as may be permitted by the Nevada General
Corporate Law.
Class A Stock
Class A stock are non-voting exchangeable shares of our Canadian
subsidiary which are exchangeable on a one-to-one basis for shares of our common
stock. There are currently 15,177,036 shares of class A stock outstanding. In
addition, options to purchase 1,500,000 shares of class A stock are outstanding
and are currently exercisable.
Experts
Our consolidated financial statements as of March 31, 2000 and March
31, 1999 and for the fiscal years ended March 31, 2000 and1999 appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as is set forth in their report thereon appearing
elsewhere in the present document and are included in reliance upon this report
given upon the authority of this firm as experts in accounting and auditing.
Legal Matters
The legality of the shares of our common stock offered will be passed
upon for us by Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York, New
York.
Disclosure of Commission Position on
Indemnification for Securities Act Liabilities
Our By-laws provide that we shall indemnify our directors, officers and
agents to the fullest extent legally possible. Our By-laws are consistent with
the indemnification provisions in the Nevada General Corporate Law ("NGCL")
which allow for discretionary and mandatory indemnification of a corporation's
officers, directors, employees and agents. Section 78.7502 of the NGCL provides
for the general concept of indemnification and Section 78.751 of the NGCL
provides for authorization, advance and limitation of indemnification.
Insofar as determination for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission indemnification is against public policy as expressed in the
Securities Act and is unenforceable.
Where You Can Find More Information
We file annual, quarterly and special reports, proxy statement and
other information with the SEC. Our SEC filings are available to the public over
the Internet at the SEC's website at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. You may also request a copy of these filings at no cost, by
writing or telephoning us at the following address: BioSyntech, Inc., 475
Boulevard Armand-Frappier, Laval, Quebec, Canada H7V 4B3, Telephone, (450)
686-2437.
35
This prospectus is a part of the registration statement on Form SB-2
that we filed with the SEC. The registration statement contains more information
than the prospectus regarding BioSyntech and our common stock, including certain
exhibits. You can get a copy of the registration statement from the SEC at the
address listed above or from its internet site.
36
Index To Consolidated Financial Statements
BioSyntech, Inc.
(A Development Stage Company)
Report of Independent Auditors F-2
Consolidated Balance Sheets at March 31, 2000 and 1999 F-3
Consolidated Statements of Operations for the Fiscal Years
Ended March 31, 2000 and 1999 F-4
Consolidated Statements of Changes in Shareholders' Equity
(Deficiency) from inception to March 31, 2000 F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended
March 31, 2000 and 1999 F-6
Notes to Consolidated Financial Statements for the
Fiscal Years Ended March 31, 2000 and 1999 F-7
Condensed Consolidated Balance Sheets at December 31, 2000
and March 31, 2000 F-23
Condensed Consolidated Statement of Operations for
the nine-month and three-month periods
ended December 31, 2000 and December 31, 1999 F-24
Condensed Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) from inception to December 31, 2000 F-26
Condensed Consolidated Statements of Cash Flow for the
nine-month and three-month periods ended December 31, 2000
and December 31, 1999 F-27
Notes to Consolidated Financial Statements as of December 31, 2000 F-29
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
BioSyntech, Inc.
We have audited the accompanying consolidated balance sheets of BioSyntech, Inc.
[the "Company"], [a development stage company], as of March 31, 2000 and 1999
and the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for the period from inception to March 31, 2000 and
for the years ended March 31, 2000 and 1999. These consolidated financial
statements are the responsibility of the Company's Management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by Management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company [a
development stage company] as of March 31, 2000 and 1999 and the results of its
operations and its cash flows for the period from inception to March 31, 2000
and for the years ended March 31, 2000 and 1999 in conformity with accounting
principles generally accepted in the United States.
Montreal, Canada, /s/ Ernst & Young LLP
June 9, 2000, except as to Note 14, Chartered Accountants
as to which the date is July 4, 2000.
F-2
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED BALANCE SHEETS [note 1]
As of March 31, 2000 and 1999
2000 2000 1999
US$ C$ C$
- ------------------------------------------------------------------------------------------------------------------------------------
[note 2]
ASSETS
Current assets
Cash 5,037,355 7,301,143 57,297
Short-term investment [note 3] 51,746 75,000 --
Receivables [note 4] 63,044 91,376 68,460
Inventory 32,557 47,188 23,700
Investment tax credits receivable [note 10] 396,716 575,000 603,663
Prepaid expenses 12,671 18,365 --
- ------------------------------------------------------------------------------------------------------------------------------------
5,594,089 8,108,072 753,120
- ------------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment [note 5] 1,035,525 1,500,890 1,665,163
Other assets 11,487 16,650 15,867
- ------------------------------------------------------------------------------------------------------------------------------------
6,641,101 9,625,612 2,434,150
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities
Demand loan [note 6] -- -- 518,598
Accounts payable and accrued liabilities 731,977 1,060,928 579,552
Due to stockholder, without interest and
repayment terms 6,899 10,000 30,394
Deferred revenues 45,157 65,451 --
Current portion of long-term debt [note 7] 51,746 75,000 400,000
Current portion of obligations under capital
leases [note 8] 57,596 83,479 56,452
- ------------------------------------------------------------------------------------------------------------------------------------
893,375 1,294,858 1,584,996
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt [note 7] 155,237 225,000 300,000
Obligations under capital leases [note 8] 629,409 912,266 991,736
- ------------------------------------------------------------------------------------------------------------------------------------
1,678,021 2,432,124 2,876,732
- ------------------------------------------------------------------------------------------------------------------------------------
Commitment [note 12]
Contingent liability [note 13]
Stockholders' equity (deficiency)
Common stock [note 9]
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding
28,115,536 common shares 9,060,785 13,132,702 2,662,909
Additional paid-in capital 1,183,876 1,715,910 1,309,350
Deficit accumulated during the development stage (5,281,581) (7,655,124) (4,414,841)
- ------------------------------------------------------------------------------------------------------------------------------------
4,963,080 7,193,488 (442,582)
- ------------------------------------------------------------------------------------------------------------------------------------
6,641,101 9,625,612 2,434,150
====================================================================================================================================
See accompanying notes
- --------------------------------- ------------------------
Director Director
F-3
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED STATEMENTS OF OPERATIONS [note 1]
Years ended March 31, 2000 and 1999
Cumulative
from inception to
March 31, 2000 2000 2000 1999
C$ US$ C$ C$
- -------------------------------------------------------------------------------------------------------------------------------
[note 2]
Sales 168,138 -- -- 78,660
Cost of sales 71,962 -- -- 35,008
- -----------------------------------------------------------------------------------------------------------------------------
96,176 -- -- 43,652
- -----------------------------------------------------------------------------------------------------------------------------
Research and development expenses 5,653,972 1,615,632 2,341,697 2,948,342
Investment tax credits (1,413,364) (466,994) (676,861) (599,114)
General and administrative expenses 3,082,139 840,008 1,217,507 1,789,468
Interest on long-term debt 238,337 136,885 198,402 39,935
Amortization of property, plant and equipment
213,221 122,933 178,179 35,042
Interest revenue (23,005) (12,861) (18,641) (4,364)
- -----------------------------------------------------------------------------------------------------------------------------
7,751,300 2,235,603 3,240,283 4,209,309
- -----------------------------------------------------------------------------------------------------------------------------
Net loss for the period [note 10] 7,655,124 2,235,603 3,240,283 4,165,657
Deficit accumulated during the
development stage, beginning of period -- 3,045,978 4,414,841 249,184
- -----------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the
development stage, end of period 7,655,124 5,281,581 7,655,124 4,414,841
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 14,042,819 14,042,819 11,274,996
Basic and diluted loss per share [note 9] 0.16 0.23 0.37
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-4
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIENCY) [notes 1 and 9]
From inception to March 31, 2000
[In Canadian dollars]
Common Stock
-----------------------------------
Additional
paid-in Accumulated
Shares Amount capital deficit Total
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, May 10, 1995 8,525,000 1 -- -- 1
Net loss 1996 [325 day period] -- -- -- (2,865) (2,865)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 8,525,000 1 -- (2,865) (2,864)
Net loss 1997 -- -- -- (9,332) (9,332)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 8,525,000 1 -- (12,197) (12,196)
Deemed common stock paid up as of January 31,
1998 and issued on August 3, 1998
-- 215,000 -- -- 215,000
Net loss 1998 -- -- -- (236,987) (236,987)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 8,525,000 215,001 -- (249,184) (34,183)
Deemed common stock issued for cash 1,746,579 1,083,108 -- -- 1,083,108
Deemed common stock issued in exchange for
services 1,940,000 1,455,000 -- -- 1,455,000
Deemed options granted to consultants -- -- 1,309,350 -- 1,309,350
Net loss 1999 -- (4,165,657) (4,165,657)
Deemed share issuance costs -- (90,200) -- -- (90,200)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 12,211,579 2,662,909 1,309,350 (4,414,841) (442,582)
Deemed common stock issued for cash 1,893,457 2,595,222 -- -- 2,595,222
Deemed common stock issued in exchange for
intellectual property [note 12] 1,072,000 1,072,000 -- -- 1,072,000
Deemed options granted to consultants -- -- 406,560 -- 406,560
Net loss for the period from April 1, 1999 to
February 28, 2000 -- -- -- (2,850,977) (2,850,977)
- ------------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding February 29, 2000 15,177,036 6,330,131 1,715,910 (7,265,818) 780,223
Acquisition of BioSyntech, Inc.
by Bio Syntech Ltd. 12,095,000 2,873,848 -- -- 2,873,848
March 31, 2000, issuance [note 9] 843,500 4,270,243 -- -- 4,270,243
Share issue costs [note 9] -- (341,520) -- -- (341,520)
Net loss for the period from February 29, 2000
to March 31, 2000 -- -- -- (389,306) (389,306)
- ------------------------------------------------------------------------------------------------------------------------------------
28,115,536 13,132,702 1,715,910 (7,655,124) 7,193,488
====================================================================================================================================
US dollars [note 2]
Balance as at March 31, 2000 9,060,785 1,183,876 (5,281,581) 4,963,080
====================================================================================================================================
F-5
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED STATEMENTS OF CASH FLOWS [note 1]
Years ended March 31, 2000 and 1999
Cumulative
from inception
to March 31, 2000 2000 2000 1999
C$ US$ C$ C$
- -----------------------------------------------------------------------------------------------------------------------------------
[note 2]
OPERATING ACTIVITIES
Net loss (7,655,124) (2,235,604) (3,240,283) (4,165,657)
Items not affecting cash
Amortization 213,221 122,933 178,179 35,042
Services paid by the isssuance of common stock 2,527,000 739,616 1,072,000 1,455,000
Options granted to consultants 1,715,910 280,502 406,560 1,309,350
Changes in working capital assets and liabilities
Accounts receivable (91,376) (15,811) (22,916) (5,377)
Inventory (47,188) (16,205) (23,488) (23,700)
Investment tax credits receivable (575,000) 19,776 28,663 (468,663)
Prepaid expenses (18,365) (12,671) (18,365) --
Deferred revenues 65,451 45,157 65,451 --
Accounts payable and accrued liabilities 1,044,440 332,121 481,376 339,156
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (2,821,031) (740,186) (1,072,823) (1,524,849)
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (75,251) (8,904) (12,907) (69,370)
Purchase of short-term investment (75,000) (51,746) (75,000) --
Purchase of other assets (16,650) (575) (833) (14,867)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (166,901) (61,225) (88,740) (84,237)
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- -- 700,000
Repayment of long-term debt (400,000) (275,976) (400,000) --
Proceeds of demand loan 581,845 -- -- 581,845
Repayment of demand loan (581,845) (357,802) (518,598) (63,247)
Increase in due to shareholder 30,394 -- -- 20,394
Repayment to shareholder (20,394) (14,071) (20,394) --
Repayment of obligations under capital leases (643,116) (36,182) (52,443) (583,647)
Proceeds from issuance of shares of
Bio Syntech Ltd. prior to the reverse acquisition 3,890,068 1,790,549 2,595,222 1,083,108
Proceeds from issuance of common shares of
BioSyntech, Inc. prior to the reverse acquisition 3,399,980 2,331,503 3,379,279 --
Repurchase of common stock of
BioSyntech, Inc. prior to the reverse acquisition (506,380) (349,372) (506,380) --
Proceeds from issuance of common shares of
BioSyntech, Inc. after the reverse acquisition 4,270,243 2,946,214 4,270,243 --
Share issue costs (431,720) (235,629) (341,520) (90,200)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 10,289,075 5,799,234 8,405,409 1,648,253
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash 7,301,143 4,997,823 7,243,846 39,167
Cash, beginning of period -- 39,532 57,297 18,130
- ----------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 7,301,143 5,037,355 7,301,143 57,297
- ----------------------------------------------------------------------------------------------------------------------------------
Additional information
Interest paid 228,351 129,996 188,416 39,935
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-6
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company was incorporated on December 14, 1994 under the laws of the State of
Nevada. The Company's operations and all of its assets are located in Canada.
Pursuant to an Amalgamation agreement dated February 15, 2000, 9083-5661 Quebec
Inc., a wholly-owned subsidiary of the Company, and Bio Syntech Ltd. ["Bio
Syntech"] were merged into one company under the name of Bio Syntech Canada Inc.
["Bio Syntech Canada"]. As a result of the merger, the Company became the record
and beneficial owner of all of the issued and outstanding voting shares of Bio
Syntech Canada. The former Bio Syntech shareholders were issued 15,177,036
non-voting exchangeable shares of Bio Syntech Canada's Preferred Stock [the
"Class A Shares"]. The Class A Shares are exchangeable on a share-for-share
basis [15,177,036] of common stock of the Company. As at March 31, 2000, the
related 15,177,036 shares of common stock of the Company have been issued and
placed in trust and are thus considered issued and outstanding.
Beneficial holders of the Class A Shares have voting rights equal to the number
of Company shares placed in trust. Therefore, the Bio Syntech shareholders are
deemed to hold securities with voting rights equal to approximately 55% of the
total voting power of the outstanding common stock of the Company. This
transaction is considered an acquisition of the Company, which at the date of
the transaction was a shell company, by Bio Syntech and has been accounted for
as a purchase of the net assets of the Company by Bio Syntech in these
consolidated financial statements. Accordingly, this transaction represents a
recapitalization of Bio Syntech, the legal subsidiary effective February 29,
2000.
These consolidated financial statements are the continuation of the financial
statements of the accounting acquirer Bio Syntech which has a year-end of March
31. This date will continue to be used as the Company's year-end. Bio Syntech's
assets and liabilities are included in the consolidated financial statements at
their historical carrying amounts. Figures for the years ended as at March 31,
2000 and 1999 are those of Bio Syntech. For purposes of the acquisition, the
fair value of the net assets of the Company of $2,873,848 is ascribed to the
12,095,000 previously outstanding common stock of the Company deemed to be
issued in the acquisition as follows:
$
- ------------------------------------------------------------------------------
Note receivable from Bio Syntech Ltd. 2,879,986
Accounts payable and accrued liabilities (6,138)
- ------------------------------------------------------------------------------
Purchase price 2,873,848
- ------------------------------------------------------------------------------
F-7
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION [Cont'd]
The Company is a development stage company engaged in the development of
biotherapeutic delivery systems made of proprietary biomaterials. The Company's
systems are intended to enable or enhance the treatment of diseases or injuries
for which therapies exist or are under development, but must be transported to
the site of action. The Company has limited revenues to date and is thus subject
to numerous risks, including risks associated with product development and
marketing, obtaining the necessary regulatory approvals, growth, manufacturing,
competition, and attracting and retaining key personnel. It may be necessary for
the Company to raise additional funds for the continuing development and
marketing of its technologies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Accordingly, actual results could differ from those estimates. The significant
accounting principles are as follows:
Consolidated financial statements and basis of presentation
The consolidated financial statements include the accounts of BioSyntech, Inc.
and the accounts of Bio Syntech Canada Inc. All intercompany transactions and
balances have been eliminated. US dollar amounts presented on the consolidated
balance sheets, consolidated statements of operations, statements of
stockholders' equity (deficiency) and consolidated statements of cash flows are
provided for convenience of reference only and are based on the closing exchange
rate at March 31, 2000, which was $1.4494 Canadian dollar per US dollar.
Revenue recognition
Revenues from sales of the Company's products are recognized upon shipment.
Inventory
Inventory consists of raw materials. Inventories are stated at the lower of cost
[on a first-in, first-out basis] and replacement cost.
F-8
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Property, plant and equipment
Property, plant and equipment are recorded at cost. They are amortized over
their estimated useful life on a straight-line basis as follows:
Building under capital lease 10 years
Office furniture 5 years
Equipment under capital lease 10 years
Office furniture under capital lease 5 years
Research and development expenditures
Research and development expenditures, including equipment used in research and
development activities, are expensed as incurred.
Foreign exchange
Monetary assets and liabilities denominated in a foreign currency are translated
at the rate of exchange prevailing at the balance sheet date. Non-monetary
assets and liabilities are translated at the rate of exchange prevailing at the
date of the transaction. Revenues and expenses are translated at the monthly
average exchange rate prevailing during the period. Foreign exchange gains and
losses are included in the determination of net earnings. The Canadian dollar is
the functional currency of the Company.
Income taxes
The Company accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards No. 109 Accounting for income
taxes ["SFAS 109"].
Government assistance
Government assistance in connection with research and development activities is
recognized as an expense reduction in the year that the related expenditure is
incurred.
Federal and provincial investment tax credits are accounted for using the cost
reduction method which recognizes the credits as a reduction of the cost of the
related assets or expenditures in the year in which the credits are earned and
when there is reasonable assurance of their recovery.
F-9
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Stock option plans
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ["APB"] Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations, in accounting for its fixed plan
stock options for options granted to employees and directors.
Impairment of long-lived assets and long-lived assets to be disposed of
The Company accounts for long-lived assets in accordance with the provisions of
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of, if any, are reported at the lower of the carrying amount or fair
value less costs to sell.
Basic and diluted loss per common stock
Per share amounts have been computed based on the weighted average number of
common shares outstanding each period. The weighted average number of common
shares outstanding prior to the transaction of February 29, 2000 are based on
the number of BioSyntech common shares outstanding during that period.
Exchangeable shares of Bio Syntech Canada [15,177,036 shares] outstanding are
deemed to be outstanding common shares of the Company for the purposes of the
loss per share calculations and share continuity disclosures as the exchangeable
shares are the economic equivalent of common shares of the Company.
3. SHORT-TERM INVESTMENT
The short-term investment consists of a held-to-maturity term deposit, maturing
on July 21, 2000, which is pledged as collateral security against a letter of
guarantee issued by a financial institution.
F-10
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
4. RECEIVABLES
2000 1999
$ $
- -------------------------------------------------------------------
Sales tax receivable 73,623 35,881
Government grants receivable 3,462 20,423
Other 14,291 12,156
- ------------------------------------------------------------------
91,376 68,460
- ------------------------------------------------------------------
5. PROPERTY, PLANT AND EQUIPMENT
Accumulated Net
Cost amortization book value
$ $ $
- ---------------------------------------------------------------------------------------
2000
Building and land under capital lease 1,614,629 188,389 1,426,240
Office furniture 74,357 20,954 53,403
Equipment under capital lease 18,050 3,009 15,041
Office furniture under capital lease 7,025 819 6,206
- --------------------------------------------------------------------------------------
1,714,061 213,171 1,500,890
- --------------------------------------------------------------------------------------
1999
Building and land under capital lease 1,613,785 27,000 1,586,785
Office furniture 68,370 6,837 61,533
Equipment under capital lease 18,050 1,205 16,845
- -------------------------------------------------------------------------------------
1,700,205 35,042 1,665,163
- -------------------------------------------------------------------------------------
F-11
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
6. DEMAND LOAN AND CREDIT FACILITY
The demand loan of $518,598 at March 31, 1999 carried interest at the prime rate
plus 1.75% and was payable upon receipt of investment tax credits. It was repaid
during the year ended March 31, 2000.
The Company has a $50,000 credit facility, maturing July 31, 2000, payable upon
demand, bearing interest at prime rate plus 2.5%. A $50,000 charge on inventory
and accounts receivable was granted to the financial institution with respect to
this facility. As of March 31, 2000, no amount was drawn under this credit
facility.
As at March 31, 2000 and 1999, the prime rate was 7% and 6.75% respectively.
7. LONG-TERM DEBT
2000 1999
$ $
- -----------------------------------------------------------------------------------------------
Bank loan bearing interest at the prime rate. The
loan has an interest exemption period covered by a
governmental agency, until April 24, 2001,
matures on March 25, 2006 and is payable in
monthly instalments of $3,333 plus interest starting
on April 25, 2001. The debt is collateralized by a
governmental agency and a $200,000 first rank
charge on all tangible and intangible assets not
otherwise encumbered. 200,000 200,000
Bank loan bearing interest at the prime rate plus
3.0%, maturing on July 26, 2001, payable by
monthly instalments of $6,250 plus interest and
collateralized by a $225,000 first rank charge on
research and development laboratory equipment. 100,000 175,000
Term loan, without interest, until March 31, 2000,
reimbursed in fiscal 2000. -- 325,000
- ----------------------------------------------------------------------------------------------
300,000 700,000
Less: current portion 75,000 400,000
- ----------------------------------------------------------------------------------------------
225,000 300,000
- ----------------------------------------------------------------------------------------------
F-12
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
7. LONG-TERM DEBT [Cont'd]
The principal instalments payable are as follows for years ending March 31:
$
- --------------------------------------------------------------------------
2001 75,000
2002 65,000
2003 40,000
2004 40,000
2005 40,000
Subsequent to 2005 40,000
- --------------------------------------------------------------------------
300,000
- --------------------------------------------------------------------------
8. obligations UNDER capital leaseS
Future minimum lease payments under the capital leases are as follows for years
ending March 31:
$
- --------------------------------------------------------------------------
2001 180,278
2002 170,409
2003 168,000
2004 168,000
2005 168,000
Subsequent to 2005 644,000
- --------------------------------------------------------------------------
1,498,687
Less: interest portion at rates varying between 10% and 14.38% 502,942
- --------------------------------------------------------------------------
995,745
Less: current portion 83,479
- --------------------------------------------------------------------------
912,266
- --------------------------------------------------------------------------
F-13
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. Stockholders' equity (deficiency) and
stock options
Authorized
The authorized common stock of the Company consists of 50,000,000 shares with a
par value of $0.001 per share.
On February 2, 2000, the Company completed a private placement yielding gross
proceeds of US$2,350,000 and issued 470,000 common shares and 470,000 warrants
entitling the holder to purchase an aggregate of 470,000 common shares at a
price of US$7.00 on or before September 30, 2001.
On March 31, 2000, the Company issued 723,500 common shares in consideration of
$3,670,243 [US$2,532,250] and 120,000 common shares in consideration of
$600,000. The share issue costs amounted to $341,520 [US$234,980]. As part of
this transaction, a total of 843,500 warrants were issued which entitle the
holder to purchase an aggregate of 843,500 common stocks at a price of US$4.50
on or before March 30, 2001.
As of March 31, 2000, a total of 1,313,500 warrants issued by the Company are
outstanding.
Stock options
Under the Company's Stock Option Plan, options may be granted for an authorized
maximum of 2,500,000 shares of common stock to employees, directors and senior
consultants. No options have been granted by the Company. The Board shall have
the sole authority to determine the terms and conditions of the options to be
issued. The expiry date of options is ten years after the date of grant.
Under the subsidiary's option plan, options may be granted for an authorized
maximum of 1,500,000 Class A shares of Bio Syntech Canada. The subsidiary has
1,500,000 options granted entitling the holders to purchase 1,500,000 Class A
shares of Bio Syntech Canada which are exchangeable in common shares of
BioSyntech, Inc. at prices varying between $0.75 and $2.17. The options are
exercisable at any time before the expiry date which is for a maximum of ten
years following the date of grant.
F-14
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. STOCKHOLDERS' EQUITY (DEFICIENCY) AND
STOCK OPTIONS [Cont'd]
Stock Weighted
Options Average Exercise
Price
C$
- ------------------------------------------------------------------------------------------------
2000
Outstanding, beginning of year 1,247,500 0.83
Granted 252,500 2.17
Exercised -- --
Expired -- --
Canceled/ surrendered -- --
- ------------------------------------------------------------------------------------------------
Outstanding and exercisable, end of period 1,500,000 1.06
- ------------------------------------------------------------------------------------------------
Weighted average fair value of options granted 3.25
- ------------------------------------------------------------------------------------------------
1999
Outstanding, beginning of year -- --
Granted 1,247,500 0.83
Exercised -- --
Expired -- --
Canceled/surrendered -- --
- ------------------------------------------------------------------------------------------------
Outstanding and exercisable, end of year 1,247,500 0.83
- ------------------------------------------------------------------------------------------------
Weighted average fair value of options granted 2.96
- ------------------------------------------------------------------------------------------------
No options were granted prior to 1999. These options expire between December 1,
2001 and June 1, 2008.
182,000 options were granted to consultants in the year ended March 31, 2000
[435,000 for the year ended March 31, 1999]. The fair value of these options at
the time of grant has been charged to general and administrative expenses in the
amount of $406,560 during the year ended March 31, 2000 [$1,309,350 for the year
ended March 31, 1999].
Had compensation cost for the Company's stock options been determined consistent
with SFAS No. 123, the Company's pro forma net loss would be increased by
$380,000 for the year ended March 31, 2000 [$2,050,000 for the year ended March
31, 1999] and basic loss per share would be increased by $0.03 [$0.18 for the
year ended March 31, 1999].
F-15
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. STOCKHOLDERS' EQUITY (DEFICIENCY) AND
STOCK OPTIONS [Cont'd]
The fair value of options at the date of grant was estimated using the
Black-Scholes pricing model with the following weighted average assumptions.
2000 1999
% %
- ------------------------------------------------------------------------
Expected life (years) 5.00 5.00
Risk-free interest rates 6.00 5.60
Volatility 1.21 0.60
Dividend yield 0.00 0.00
- ------------------------------------------------------------------------
The effects of applying SFAS 123 for the pro forma disclosures are not
representative of the effects expected on reported net earnings in future years
since valuations are based on highly subjective assumptions about the future,
including stock price volatility and exercise patterns.
The following table summarizes information with respect to stock options
outstanding for the subsidiary's option plan that the holder may convert into
common shares of the Company at March 31, 2000:
Options outstanding and exercisable
Exercise price Number Weighted average remaining
$ outstanding contractual life (years)
- ---------------------------------------------------------------------------
0.75 1,147,500 2.31
1.75 100,000 8.25
US 1.50 252,500 2.75
- ---------------------------------------------------------------------------
1,500,000 2.79
===========================================================================
F-16
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. STOCKHOLDERS' EQUITY (DEFICIENCY) AND
STOCK OPTIONS [Cont'd]
Loss per share
The following is a reconciliation of the numerator and denominator of the basic
and diluted loss per share computations for the years ended March 31, 2000 and
1999.
2000 1999
$ $
- --------------------------------------------------------------------------------
Numerator
Net loss - numerator
For basic and diluted loss per share 3,240,283 4,165,657
Denominator:
Denominator for basic loss per share
Weighted-average shares 14,042,819 11,274,996
Effect of dilutive securities:
Stock options and warrants -- --
- --------------------------------------------------------------------------------
Denominator for diluted loss per share
Adjusted weighted-average shares and
assumed conversions 14,042,819 11,274,996
================================================================================
The Company's diluted net loss per share is equivalent to its basic net loss per
share, since all of the Company's potentially issuable securities would have an
anti-dilutive effect in 2000 and 1999. These securities are in the form of stock
options and warrants.
F-17
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
10. INCOME TAXES
There is no provision for income taxes or income tax recovery as the Company has
had continuous losses and it is not more likely than not that there will be
future taxable income which might offset the current loss carryforward.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
2000 1999
$ $
- ------------------------------------------------------------------------------------------
Deferred tax assets
Net operating loss carryforwards 622,176 123,193
Scientific research and experimental development expenses 451,432 250,823
Excess of tax basis of financing fees over accounting value 20,602 15,064
Excess of tax basis of capital assets over accounting value 471,004 300,266
- ------------------------------------------------------------------------------------------
Total deferred tax assets 1,565,214 689,346
- ------------------------------------------------------------------------------------------
Deferred tax liabilities
Excess of accounting value of capital assets over tax basis 429,661 297,494
Investment tax credits -- 84,220
- ------------------------------------------------------------------------------------------
Total deferred tax liabilities 429,661 381,714
- ------------------------------------------------------------------------------------------
Net deferred tax assets (liabilities)
Deferred tax assets 1,565,214 689,346
Deferred tax liabilities 429,661 381,714
- ------------------------------------------------------------------------------------------
1,135,553 307,632
Valuation allowance 1,135,553 307,632
- ------------------------------------------------------------------------------------------
Net deferred tax assets (liabilities) -- --
==========================================================================================
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance.
F-18
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
10. INCOME TAXES [Cont'd]
The Company has Canadian tax loss and investment tax credit carryforwards for
income tax purposes in the amount of approximately $2,073,000 and $139,000,
respectively, the benefit of which has been offset by a valuation allowance,
that expires as follows:
Tax Investment tax
losses credits
$ $
- ----------------------------------------------------------------------------
2001 3,000 --
2002 9,000 --
2003 39,000 --
2004 605,000 --
2005 1,176,000 --
2006 241,000 32,000
2007 -- 65,000
2008 -- 22,000
2009 -- 20,000
- ----------------------------------------------------------------------------
The Company has accumulated temporary differences as set out in the summary of
deferred tax assets set out above. The differences are mainly in relation to
scientific research and experimental development and are in the amount of
approximately $1,225,000 at the Canadian federal level and $2,020,000 in Quebec.
The investment tax credits recorded by the Company are subject to review and
approval by the tax authorities and it is possible that the amounts granted will
be different from the amounts accounted for.
11. FINANCIAL INSTRUMENTS
[a] Fair value
Short-term financial assets and liabilities
The carrying amounts of short-term financial assets and liabilities are a
reasonable estimate of the fair values because of the short maturity of these
instruments. Short-term financial assets comprise cash, the short-term
investment, accounts receivable and investment tax credits receivable.
Short-term financial liabilities comprise the demand loan and accounts payable
and accrued liabilities.
F-19
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
11. FINANCIAL INSTRUMENTS [Cont'd]
Long-term debt
The carrying amount of the Company's floating-rate long-term debt approximates
its fair value as it bears interest at current commercial floating rates.
The fair value of the fixed-rate long-term debt and obligations under capital
leases are based on the rates in effect for financial instruments with similar
terms and maturities, and approximates the carrying amount as of March 31, 2000
and March 31, 1999.
[b] Credit risk
The cash and short-term investment are held by one Canadian financial
institution, a chartered bank.
12. COMMITMENT
Under the terms of a technology licence contract, the Company must pay 5%
royalties to a shareholder on future sales of all products and services, sold or
offered by the Company, to a maximum of $3 million.
13. CONTINGENT LIABILITY
A former employee of a subsidiary company has commenced an action alleging that
he was wrongfully terminated and seeking $97,000 in compensation allegedly due,
the issuance to him of 100,000 Class A common shares of the subsidiary company,
which could be converted in common stock of the Company, that were the subject
of an option that was alleged to have been granted to him, and punitive damages
of $25,000. In the opinion of management, based on the advice and information
provided by its legal counsel, the final determination of this litigation is not
determinable. As such no provision has been recorded.
F-20
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
14. SUBSEQUENT EVENTs
[a] Private placement
During April and June 2000, the Company issued 1,006,714 units at a price of
US$3.50 per unit for a consideration of US$3,523,500 and 60,000 units at a price
of C$5,00 per unit for a consideration of C$300,000. The aggregate share issue
costs amounted to C$373,746. Each unit consists of one share of common stock
BioSyntech, Inc. and one warrant entitling the holder to acquire one share of
common stock at a price of US$4.50 on or before March 30, 2001.
[b] Property, plant and equipment
On July 4, 2000, the Company exercised its option to purchase the building and
land under capital lease for an amount of $1,200,000.
15. RECENT DEVELOPMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging
Activities and Activities and Interpretation No.44, Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB Opinion
No.25. SFAS 133 will be effective for the Company's 2002 year-end and interim
periods and Activities and Interpretation No.44 will be effective July 1, 2000.
The Company has not yet determined the impact, if any, on its consolidated
financial statements arising from the eventual application of these accounting
recommendations.
16. EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF
INDEPENDENT AUDITORS
A former executive employee and officer of the company has commenced an action
for wrongful termination and is seeking $224,000 in compensation allegedly due
plus $35,000 for punitive and additional damages. In the opinion of management,
based on advice and information provided by its legal counsel, the final
determination of this litigation is not determinable. As such no provision has
been recorded.
On April 18, a verbal decision was rendered with respect to outstanding
litigation (see Note 13). As a result of the decision, a former employee of a
subsidiary company has been awarded seven months of salary plus 100,000 Class A
common shares of the subsidiary company. The total dollar value of the award
is approximately $200,000.
F-21
Condensed Consolidated Financial Statements
BioSyntech, Inc.
[formerly Dream Team International Inc.]
[a development stage company] - Unaudited
Quarter ended December 31, 2000
F-22
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED BALANCE SHEETS [note 1]
As of December 31, 2000 and March 31, 2000
December 31, March 31,
2000 2000 2000
US$ C$ C$
[unaudited] [unaudited]
ASSETS
Current assets
Cash and cash equivalents 4,954,873 7,429,832 7,301,143
Investment tax credits receivable 37,492 56,220 575,000
Other current assets 196,977 295,367 231,929
- ----------------------------------------------------------------------------------------------------------------------------------
5,189,342 7,781,419 8,108,072
- ----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,459,533 2,188,570 1,517,540
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets 6,648,875 9,969,989 9,625,612
==================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 571,436 856,870 1,060,928
Other current liabilities 27,890 41,821 233,930
- ----------------------------------------------------------------------------------------------------------------------------------
599,326 898,691 1,294,858
- ----------------------------------------------------------------------------------------------------------------------------------
Long term debt and obligations under
capital leases 115,594 173,333 1,137,266
- ----------------------------------------------------------------------------------------------------------------------------------
714,920 1,072,024 2,432,124
- ----------------------------------------------------------------------------------------------------------------------------------
Contingent liabilities [note 3]
Shareholders' equity
Common stock [note 2]
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding
29,182,250 common shares 12,132,337 18,192,440 13,132,702
Additional paid-in capital 1,302,708 1,953,410 1,715,910
Deficit accumulated during the development stage (7,501,090) (11,247,885) (7,655,124)
- ----------------------------------------------------------------------------------------------------------------------------------
5,933,955 8,897,965 7,193,488
- ----------------------------------------------------------------------------------------------------------------------------------
6,648,875 9,969,989 9,625,612
==================================================================================================================================
See accompanying notes
F-23
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [note 1]
Unaudited
Cumulative from Nine months ended
inception to December 31,
December 31, ------------------------------------------------
2000 2000 2000 1999
C$ US$ C$ C$
- -----------------------------------------------------------------------------------------------------------------------------------
Sales 256,674 59,044 88,536 --
Cost of sales 110,170 25,480 38,208 --
- -----------------------------------------------------------------------------------------------------------------------------------
146,504 33,564 50,328 --
- -----------------------------------------------------------------------------------------------------------------------------------
Research and development expenses 7,772,180 1,412,610 2,118,209 872,293
Investment tax credits (1,548,364) (90,030) (135,000) (543,977)
General and administrative expenses 5,031,007 1,299,679 1,948,868 461,558
Interest on long-term debt 277,444 26,079 39,106 161,268
Amortization of property, plant and equipment 314,849 67,775 101,628 133,333
Grants (42,652) (28,444) (42,652) (13,230)
Interest income (410,075) (258,133) (387,070) (3,137)
- -----------------------------------------------------------------------------------------------------------------------------------
11,394,389 2,429,536 3,643,089 1,068,108
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss for the period (11,247,885) (2,395,972) (3,592,761) (1,068,108)
Deficit accumulated during the development
stage, beginning of period -- (5,105,118) (7,655,124) (4,414,841)
- -----------------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, end of period (11,247,885) (7,501,090) (11,247,885) (5,482,949)
===================================================================================================================================
Weighted average number of shares
outstanding 29,132,995 29,132,995 12,627,813
Basic and diluted loss per share (0.08) (0.12) (0.08)
===================================================================================================================================
See accompanying notes
F-24
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [note 1]
Unaudited
Cumulative from Three months ended
inception to December 31,
December 31, ------------------------------------------------
2000 2000 2000 1999
C$ US$ C$ C$
- ------------------------------------------------------------------------------------------------------------------------------------
Sales 256,674 -- -- --
Cost of sales 110,170 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
146,504 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Research and development expenses 7,772,180 617,979 926,660 371,595
Investment tax credits (1,548,364) (23,341) (35,000) (181,326)
General and administrative expenses 5,031,007 566,285 849,145 182,657
Interest on long-term debt 277,444 1,278 1,917 52,359
Amortization of property, plant and equipment 314,849 18,558 27,827 44,462
Grants (42,652) (16,877) (25,307) (9,230)
Interest income (410,075) (107,422) (161,079) (2,469)
- ------------------------------------------------------------------------------------------------------------------------------------
11,394,389 1,056,460 1,584,163 458,048
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss for the period (11,247,885) (1,056,460) (1,584,163) (458,048)
Deficit accumulated during the development
stage, beginning of period -- (6,444,630) (9,663,722) (5,024,901)
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, end of period (11,247,885) (7,501,090) (11,247,885) (5,482,949)
===================================================================================================================================
Weighted average number of shares
outstanding 29,182,250 29,182,250 13,283,579
Basic and diluted loss per share (0.04) (0.05) (0.03)
===================================================================================================================================
See accompanying notes
F-25
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIENCY) [note 1]
From inception to December 31, 2000 Unaudited
[In Canadian dollars]
Common Stock
------------------------
Additional Accumulated
Shares Amount paid-in-capital deficit Total
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
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
Share issue costs [note 2] -- (53,935) -- -- (53,935)
Net loss for the period from October 1, 2000 to
December 31, 2000 -- -- -- (1,584,163) (1,584,163)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 29,182,250 18,192,440 1,953,410 (11,247,885) 8,897,965
===================================================================================================================================
US Dollars
Balance as at December 31, 2000 12,132,337 1,302,708 (7,501,090) 5,933,955
===================================================================================================================================
See accompanying notes
F-26
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS [note 1] OF CASH FLOWS [note 1]
Unaudited
Cumulative Three months ended
from inception December 31,
to December 31, ----------------------------------------
2000 2000 2000 1999
C$ US$ C$ C$
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss (11,247,885) (1,056,460) (1,584,163) (458,048)
Items not affecting cash
Amortization 314,849 18,558 27,827 44,462
Services paid by the issuance of common stock 2,527,000 -- -- --
Options granted to consultants 1,953,410 -- -- --
Exchange loss (gain) (258,205) 14,533 21,792 --
Changes in working capital assets and liabilities
Investment tax credits receivable (56,220) 239,474 359,092 361,477
Other current assets (238,593) (93,696) (140,497) (11,624)
Other current liabilities 22,091 -- -- 65,451
Accounts payable and accrued liabilities 840,382 56,299 84,420 (61,477)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (6,143,171) (821,292) (1,231,529) (59,759)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (954,047) (330,211) (495,151) (1,135)
Disposal of property, plan and equipment 10,622 7,084 10,622 --
Purchase of short term investment (75,000) -- -- --
Proceeds from maturing of short term investments 75,000 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (943,425) (323,127) (484,529) (1,135)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long term debt 700,000 -- -- --
Repayment of long term debt (500,000) (41,681) (62,500) (643,750)
Proceeds of demand loan 581,845 -- -- --
Repayment of demand loan (581,845) -- -- (183,598)
Increase in due to stockholder 30,394 -- -- --
Decrease in due to stockholders (20,394) -- -- --
Repayment of obligations under capital leases (1,633,706) (1,791) (2,686) (18,897)
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 (859,401) (35,969) (53,935) --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 14,258,223 (79,441) (119,121) (846,245)
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 258,205 (14,533) (21,792) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in cash 7,429,832 (1,238,393) (1,856,971) (907,139)
Cash, beginning of period -- 6,193,266 9,286,803 (41,569)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 7,429,832 4,954,873 7,429,832 (948,708)
====================================================================================================================================
See accompanying notes
F-27
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS [note 1] OF CASH FLOWS [note 1]
Unaudited
Cumulative Nine months ended
from inception December 31,
to December 31, ----------------------------------------
2000 2000 2000 1999
C$ US$ C$ C$
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss (11,247,885) (2,395,972) (3,592,761) (1,068,108)
Items not affecting cash
Amortization 314,849 67,775 101,628 133,333
Services paid by the issuance of common stock 2,527,000 -- -- --
Options granted to consultants 1,953,410 158,386 237,500 --
Exchange loss (gain) (258,205) (172,194) (258,205) --
Changes in working capital assets and liabilities
Investment tax credits receivable (56,220) 345,969 518,780 161,547
Other current assets (238,593) (92,323) (138,438) (1,261)
Other current liabilities 22,091 (43,649) (65,451) 65,451
Accounts payable and accrued liabilities 840,382 (136,084) (204,058) 157,692
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (6,143,171) (2,268,092) (3,401,005) (551,346)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (954,047) (522,362) (783,280) (4,393)
Disposal of property, plan and equipment 10,622 7,084 10,622 --
Purchase of short term investment (75,000) -- -- (75,000)
Proceeds from maturing of short term investments 75,000 50,017 75,000 --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (943,425) (465,261) (697,658) (79,393)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long term debt 700,000 -- -- 300,000
Repayment of long term debt (500,000) (66,689) (100,000) (681,250)
Proceeds of demand loan 581,845 -- -- 250,000
Repayment of demand loan (581,845) -- -- (183,598)
Increase in due to stockholder 30,394 -- -- --
Decrease in due to stockholders (20,394) -- -- (20,394)
Repayment of obligations under capital leases (1,633,706) (660,614) (990,591) (40,024)
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 3,659,499 5,487,419 --
Share issue costs (859,401) (285,216) (427,681) --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 14,258,223 2,646,980 3,969,147 (375,266)
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 258,205 172,194 258,205 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in cash 7,429,832 85,821 128,689 (1,006,005)
Cash, beginning of period -- 4,869,052 7,301,143 57,297
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 7,429,832 4,954,873 7,429,832 (948,708)
====================================================================================================================================
See accompanying notes
F-28
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 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 December 31, 2000, the
results of operations and cash flows for the three months and nine months
periods ended December 31, 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 December 31, 2000, which was $1.4995
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
During the nine months ended December 31, 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 $427,681. The warrants entitle the holder to purchase an
aggregate of 1,066,714 common shares at a price of US$4.50 on or before March
30, 2001.
F-29
2. STOCKHOLDERS' EQUITY [continued]
Warrants
As of December 31, 2000, a total of 2,380,214 warrants issued by the Company are
outstanding as follows:
Number of warrants Expiry date Exercise price
- --------------------------------------------------------------------------------
1,910,214 March 30, 2001 US$ 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. CONTINGENT LIABILITIES
A former employee of a subsidiary company has filed an action for wrongful
termination 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.
On April 18, a verbal decision was rendered with respect to the outstanding
litigation above. As a result of the decision, a former employee of a subsidiary
company has been awarded seven months of salary plus 100,000 Class A common
shares of the subsidiary company. The total dollar value of the award is
approximately $200,000.
A former executive employee and officer of the company has commenced an action
for wrongful termination and is seeking $224,000 in compensation allegedly due
plus $35,000 for punitive and additional damages. In the opinion of management,
based on advice and information provided by its legal counsel, the final
determination of this litigation is not determinable. As such no provision has
been recorded.
F-30
We have not authorized anyone to give any information or make any
representations, other than those contained in this prospectus. You must not
rely on any unauthorized information or representations. Only the shares
described within this prospectus are being offered, and only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
--------------
BioSyntech, Inc.
7,537,036 Shares of
Common Stock
--------------
Prospectus
--------------
II-1
Part II
Information Not Required In Prospectus
Item 24. Indemnification of Directors and Officers
Article VII of our By-laws provides that we shall indemnify our
directors, officers and agents to the fullest extent possible under the Nevada
General Corporate Law ("NGCL"). Article VII of our By-laws states that:
"No Officer or Director shall be personally liable for any
obligations of the Corporation or for any duties or obligations arising
out of any or conducts of said Officer or Director performed for or on
behalf of BioSyntech. BioSyntech shall and does indemnify and hold
harmless each person and their heirs and administrators who shall serve
at any time as a Director or Officer of BioSyntech from and against any
and all claims, judgements and liabilities to which persons shall
become subject by reason of their having been a Director or Officer of
BioSyntech, or by reason of any action alleged to have taken or omitted
to have been taken by him as Director or Officer, and shall reimburse
each person for all legal and other expenses reasonably incurred by him
in connection with any claim or liability, including power to defend
these persons from all suits or claims as provided for under the
provisions of the Nevada Revised Statutes; provided, however, that none
of those persons shall be indemnified against, or be reimbursed for,
any expense incurred in connection with an claim or liability arising
out of his (or her) own negligence or willful misconduct. The rights
accruing to any person under the foregoing provisions of this section
shall not exclude any other right to which he or she may lawfully be
entitled, nor shall anything which is contained restrict the right of
BioSyntech to indemnify or reimburse that person in any proper case,
even though not specifically provided for. BioSyntech, its Directors,
Officers, employees and agents shall be fully protected in taking any
action or making any payment, or in refusing to do so in reliance upon
the advice of counsel."
Article VII of our By-laws is consistent with the indemnification
provisions in the NGCL which allow for discretionary and mandatory
indemnification of a corporation's officers, directors, employees and agents.
Section 78.7502 of the NGCL provides for the general concept of indemnification
and Section 78.751 of the NGCL provides for authorization, advance and
limitation of indemnification.
Section 78.7502 of the NGCL states that:
"A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the right of
the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he
acted in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create
a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal
action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
II-2
A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him
in connection with the defense or settlement of the action or suit if
he acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to
which a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines
upon application that in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for expenses as
the court deems proper.
To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections 1 and 2,
or in defense of any claim, issue or matter, he must be indemnified by
the corporation against expenses, including attorneys' fees actually
and reasonably incurred by him in connection with the defense."
Section 78.751 of the NGCL states that:
"(1) Any indemnification under Section 78.7502 of the NGCL,
unless ordered by a court or advanced pursuant to subsection 2, must be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee
or agent is proper in the circumstances. The determination must be
made:
o By the shareholders;
o By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the action,
suit or proceeding;
o If a majority vote of a quorum consisting of directors who
were not parties to the action, suit or proceeding so
orders, by independent legal counsel in a written opinion;
or
o If a quorum consisting of directors who were not parties to
the action, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
(2) The articles of incorporation, the bylaws or an agreement
made by the corporation may provide that the expenses of officers and
directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in
advance of the final disposition of the action, suit or proceeding,
upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court
of competent jurisdiction that he is not entitled to be indemnified by
the corporation. The provisions of this subsection do not affect any
rights to advancement of expenses to which corporate personnel other
than directors or officers may be entitled under any contract or
otherwise by law.
(3) The indemnification and advancement of expenses authorized
in or ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be entitled
under the articles of incorporation or any bylaw,
II-3
agreement, vote of shareholders or disinterested directors or
otherwise, for either an action in his official capacity or an action
in other capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to Section 78.7502
of the NGCL or for the advancement of expenses made pursuant to
subsection 2, may not be made to or on behalf of any director or
officer if a final adjudication establishes that his acts or omissions
involved intentional misconduct, fraud or a knowing violation of the
law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs,
executors and administrators of a person."
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses, excluding
brokerage commissions, discounts or other expenses relating to the sale of the
shares of our common stock by the selling stockholders^, which we will pay in
connection with the issuance and distribution of the securities being
registered. With the exception of registration fees, all amounts shown are
estimates.
SEC Registration Fee $7,203
Blue Sky Fees and Expenses 2,500
Printing and Engraving 5,000
Subscription Agent Fees 2,500
Accounting Fees and Expenses 50,000
Legal Fees and Expenses 70,000
Miscellaneous expenses 3,000
Total 140,203
Item 26. Recent Sales of Unregistered Securities
We were incorporated in the State of Nevada in December 14, 1994 and
became a publicly-traded corporation without operations in August 1999. Bio
Syntech Ltd was founded in 1995 by Dr. Amine Selmani as a Quebec corporation.
Bio Syntech Ltd. focused on the creation and development of advanced injectable
vehicles for biotherapeutics, cells and genetic material, and intends to
commercialize these products for the biomedical and pharmaceutical markets.
Pursuant to an Amalgamation Agreement and related agreements, dated
February 15, 2000 by and among us, our then wholly-owned subsidiary 9083-5661
Quebec Inc., Bio Syntech Ltd., and the former stockholders of Bio Syntech Ltd.,
9083-5661 Quebec Inc. and Bio Syntech Ltd. were merged into one company under
the name of Bio Syntech Canada as of February 29, 2000. Consequently, we became
the record and beneficial owner of all of the issued and outstanding shares of
Bio Syntech Canada's Common Stock and the former stockholders of Bio Syntech
Ltd. were issued non-voting exchangeable shares of Bio Syntech Canada's class A
stock. The class A stock is exchangeable on a share-for-share basis for an
aggregate of 15,177,036 shares of our common stock which are held in trust under
the terms of an Exchange and Voting Agreement by and among the us, Pierre
Barnard as trustee, Bio Syntech Ltd. and 9083-5661 Quebec Inc. The securities
were issued in reliance on the exemption from registration under the Securities
Act provided for in Rule 903 of Regulation S to a trust for the benefit of the
holders of class A shares of Bio Syntech Canada, Inc., all of whom are non U.S.
Persons within the meaning of Rule 902 of Regulation S. All the securities were
deemed by us to be restricted securities and were appropriately legended and
restricted as to subsequent transfer. No underwriter was involved in the
transaction.
We also issued securities in reliance on the exemption from
registration under the Securities Act provided for in Rule 903 of Regulation S
to a trust for the benefit of the holders of class A shares of Bio Syntech
Canada, Inc., all of whom are non U.S. Persons within the meaning of
Rule 902 of Regulation S. All the securities were deemed by us to be restricted
securities and were appropriately legended and restricted as to subsequent
transfer. No underwriter was involved in the transaction.
II-4
On February 2, 2000, we received funds for a private placement of our
securities which was conditioned on the closing of the Transactions. The private
placement yielded aggregate proceeds of US $2,350,000, and we issued an
aggregate of 470,000 shares of our common stock and Warrants to purchase an
additional 470,000 shares of common stock at a price of US $7.00 on or before
September 30, 2001. The securities were offered and sold solely to 3699854
Canada Inc., an entity incorporated and doing business outside the United
States, in reliance on the exemption provided in Regulation S of the Securities
Act. The private placement closed on February 29, 2000, simultaneous with the
closing of the Transactions. No underwriter was involved in the private
placements.
We completed a second private placement with five separate closing
dates as shown in the table below. We issued a total of 1,910,214 units at a
price of US $3.50 per unit yielding gross proceeds of US $6,055,250 and CDN
$900,000. Each unit comprised one share of common stock and one warrant for the
purchase of one additional share at a price of US $4.50 per share before March
30, 2001. The securities were offered and sold to the persons and entities
listed on Appendix I of this registration statement, none of whom are citizens,
incorporated, residing or doing business in the United States. We relied on the
exemption from registration under the Securities Act provided for in Regulation
S. All of the securities were deemed by us to be restricted securities and were
appropriately legended and restricted as to subsequent transfer. No underwriter
was involved in the transactions.
Closing Date Number of Units Proceeds
- ------------ --------------- --------
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 $273,500 and CDN $150,000
(CDN $558,272)
--------- -----------------------------
Totals 1,910,214 US$6,055,250 and CDN $900,000
(CDN $9,757,662)
Item 27. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit 2.1 Amalgamation Agreement made December 2, 1999, as amended and
restated on February 15, 2000, among BioSyntech Inc., Bio
Syntech Ltd. and 9083-5661 Quebec Inc. -Incorporated by
reference to Exhibit 2.1 to Current Report on Form 8-K dated
March 15, 2000.
II-5
Exhibit 3.1 Articles of Incorporation - Incorporated by reference to
Exhibit 3.1 to Registration Statement on Form 10SB filed
August 30, 1999.
Exhibit 3.2 Restated and Amended By-laws.
Exhibit 4.1 Exchange and Voting Agreement made February 16, 2000 among
BioSyntech Inc., 9083-5661 Quebec Inc., Pierre Barnard and Bio
Syntech Ltd. - Incorporated by reference to Exhibit 4.1 to
Current Report on Form 8-K dated March 15, 2000.
Exhibit 4.2 Support Agreement made February 15, 2000 among BioSyntech,
Inc., 9083-5661 Quebec Inc. and Bio Syntech Ltd. -
Incorporated by reference to Exhibit 4.2 to Current Report on
Form 8-K dated March 15, 2000.
II-6
Exhibit 5 Opinion of Counsel as to the legality of the securities being
registered. . Incorporated by reference to Exhibit 5 to
Registration Statement on Form SB2 and filed with the
Securities and Exchange Commission on September 13, 2000.
Exhibit 10.1 Amended and Restated Technology Assignment Agreement among
Polyvalor Limited Partnership, Bio Syntech Canada Inc., and
BioSyntech Inc. dated March 15, 2000. - Incorporated by
reference to Exhibit 10.1 to Annual Report on Form 10-KSB for
period ended December 31, 1999 and filed with the Securities
and Exchange Commission on March 30, 2000.
Exhibit 10.2 BioSyntech, Inc. Stock Option Incentive Plan. - Incorporated
by reference to Exhibit 10.2 to Annual Report on Form 10-KSB
for period ended December 31, 1999 and filed with the
Securities and Exchange Commission on March 30, 2000.
Exhibit 10.3 Bio Syntech Canada Inc. Stock Option Incentive Plan. -
Incorporated by reference to Exhibit 10.3 to Annual Report on
Form 10-KSB for period ended December 31, 1999 and filed with
the Securities and Exchange Commission on March 30, 2000.
Exhibit 10.4 Non-Disclosure and Confidentiality Agreement between Bio
Syntech Ltd. and Sulzer Orthopedics Biologics Inc. dated
February 23, 1999. - Incorporated by reference to Exhibit 10.4
to Annual Report on Form 10-KSB for period ended December 31,
1999 and filed with the Securities and Exchange Commission on
March 30, 2000.
Exhibit 10.5 Material Transfer Agreement between Bio Syntech Ltd. and
Sulzer Orthopedics Ltd. dated January 4, 2000. - Incorporated
by reference to Exhibit 10.5 to Annual Report on Form 10-KSB
for period ended December 31, 1999 and filed with the
Securities and Exchange Commission on March 30, 2000.
Exhibit 10.6 Confidentiality Agreement between Bio Syntech Ltd. and
Reprogenesis, Inc. dated May 31, 1999. - Incorporated by
reference to Exhibit 10.6 to Annual Report on Form 10-KSB for
period ended December 31, 1999 and filed with the Securities
and Exchange Commission on March 30, 2000.
Exhibit 10.7 Material Transfer Agreement between Bio Syntech Ltd. and
Reprogenesis, Inc. dated July 27, 1999. - Incorporated by
reference to Exhibit 10.7 to Annual Report on Form 10-KSB for
period ended December 31, 1999 and filed with the Securities
and Exchange Commission on March 30, 2000.
Exhibit 10.8 Confidential Disclosure Agreement between Bio Syntech Ltd. and
Ophidian Pharmaceuticals, Inc. dated August 16, 1999. -
Incorporated by reference to Exhibit 10.8 to Annual Report on
Form 10-KSB for period ended December 31, 1999 and filed with
the Securities and Exchange Commission on March 30, 2000.
Exhibit 10.9 Biological Material Transfer Agreement between Bio Syntech
Ltd. and Ophidian Pharmaceuticals, Inc. dated August 16, 1999.
- Incorporated by reference to Exhibit 10.9 to Annual Report
on Form 10-KSB for period ended December 31, 1999 and filed
with the Securities and Exchange Commission on March 30, 2000.
Exhibit 10.10 Mutual Confidentiality and Non-Disclosure Agreement between
Bio Syntech Ltd. and Viragen Incorporated dated September 2,
1999. - Incorporated by reference to Exhibit 10.10 to Annual
Report on Form 10-KSB for period ended December 31, 1999 and
filed with the Securities and Exchange Commission on March 30,
2000.
Exhibit 10.11 Confidential Disclosure Agreement between Bio Syntech Ltd. and
Ontogeny, Inc. dated October 26, 1999. - Incorporated by
reference to Exhibit 10.11 to Annual Report on Form 10-KSB for
period ended December 31, 1999 and filed with the Securities
and Exchange Commission on March 30, 2000.
II-7
Exhibit 10.12 Material Transfer Agreement between Bio Syntech Ltd. and
Ontogeny, Inc. dated December 3, 1999. - Incorporated by
reference to Exhibit 10.12 to Annual Report on Form 10-KSB for
period ended December 31, 1999 and filed with the Securities
and Exchange Commission on March 30, 2000.
Exhibit 10.13 Material Transfer Agreement between Bio Syntech Ltd. and
Biomet Manufacturing Corporation dated February 8, 2000. -
Incorporated by reference to Exhibit 10.13 to Annual Report on
Form 10-KSB for period ended December 31, 1999 and filed with
the Securities and Exchange Commission on March 30, 2000.
*Exhibit 10.14 Employment Agreement of Ajay Gupta with BioSyntech, Inc. dated
as of November 20, 2000.
*Exhibit 23.1 Consent of Independent Auditors.
Exhibit 23.2 Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(included in Exhibit 5).
Exhibit 24 Power of Attorney (see page II-8).
- ----------------------------------
* Filed herewith.
Item 28. Undertakings.
I. Rule 415 Offering
The undersigned Registrant undertakes:
(a) To file, during any period in which if offers or sells securities,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) 1) To include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to information in the registration statement to
include any additional or changed material information on the plan of
distribution.
(2) That, for the purpose of determining any liability under
the Securities Act, treat each post-effective amendment as a new registration
statement for the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) The undersigned registrant undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any
II-8
subsequent reoffering . If any public offering by the underwriters is to be made
on terms differing from those set forth on the cover page of the prospectus, a
post-effective amendment will be filed to set forth the terms of offering.
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance on Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declare effective.
(2) For the purpose of determining any liability under the
Securities Act, treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
II. Request for Acceleration of Effective Date
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
BioSyntech pursuant to the foregoing provisions, or otherwise, BioSyntech has
been advised that in the opinion of the Securities and Exchange Commission
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
liabilities (other than the payment by BioSyntech of expenses incurred or paid
by a director, officer or controlling person of BioSyntech in the successful
defense of any action, suit or proceeding) is asserted by director, officer or
controlling person in connection with the securities being registered,
BioSyntech will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of issue.
[The remainder of this page was intentionally left blank.]
II-9
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Montreal, Province of Quebec, Canada on the 24th
day of April, 2001.
BioSyntech, Inc.
By: /s/ Dr. Amine Selmani
--------------------------------
Name: Dr. Amine Selmani,
Title: Chief Executive Officer &
President
Power of Attorney
BioSyntech, Inc. and each of the undersigned do appoint Dr. Amine
Selmani, its or his true and lawful attorney to execute on behalf of BioSyntech,
Inc. and the undersigned any and all amendments to the registration statement on
Form SB-2 and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1933, as
amended, this registration statement has been signed below by the following
persons on behalf of BioSyntech and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Dr. Amine Selmani Chairman of the Board April 24, 2001
- ------------------------- Class III Director
Dr. Amine Selmani Chief Executive Officer &
President
/s/ Denis N. Beaudry* Class III Director April 24, 2001
- -------------------------
Denis N. Beaudry
/s/ Pierre Alary* Class II Director April 24, 2001
- -------------------------
Pierre Alary
/s/ Jean-Yves Bourgeois* Class II Director April 24, 2001
- -------------------------
Jean-Yves Bourgeois
- ------------------------- Class I Director
Dr. Pierre Ranger
- ------------------------- Class I Director
Marie-Claire Pilon
/s/ Anthony Casola Chief Financial Officer, April 24, 2001
- ------------------------ Principal Financial Officer &
Anthony Casola Principal Accounting Officer
Secretary
* /s/ Dr. Amine Selmani
- ---------------------------
Dr. Amine Selmani
Attorney-in-Fact
APPENDIX I
List of Investors for Second Private Placement of BioSyntech, Inc.
BIO SYNTECH - PRIVATE PLACEMENT - CLOSING 1 - MARCH 31, 2000
Each Unit comprises one share of common stock of BioSyntech, Inc. and one
warrant for the purchase of one additional share at a price of US$4.50 per share
before March 30, 2001.
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Les Investissements Delman 3455, rue Drummond, #705 30,000 $150,000
Montreal (Quebec)
H3G 2R6
Michal Inc. 5305 des Bouleaux 60,000 $210,000
Montreal (Quebec)
H1T 2P4
Richard De Carufel 135 Les Pins 30,000 $105,000
Laval sur le Lac (Quebec)
H7R 1C8
France De Carufel 4660 Lacombe 30,000 $105,000
Montreal (Quebec)
H3W 1R3
Asuno Inc. P.O. Box 345 170,000 $595,000
CH-4010 Basel
Switzerland
2973-9711 Quebec Inc. 51, Rang 7 50,000 $175,000
St-Benoit Ladre (Quebec)
G0M 1P0
2973-9711 Quebec Inc. 51, Rang 7 70,000 $245,000
St-Benoit Ladre (Quebec)
G0M 1P0
Les Placements R.L.J.C., s.n.c. 1345, boul. Forest 43,000 $150,500
Val D'Or (Quebec)
J9P 4R2
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Gestion Lyma 2000 Inc. 171, rue Trudel 43,000 $150,500
Amos (Quebec)
J9T 3E4
Sidney Morris 6860 Emerson 110,000 $385,000
Cote St-Luc (Quebec)
H4W 1G5
Daniel Hache 870 Roguebrune 30,000 $150,000
Mont St-Hilaire, Quebec
Canada J3H 5M4
Alain Geahchan 2503 Stallion 60,000 $300,000
St Lazare
Quebec Canada
J7T 2E4
Jean-Louis Poulin 15,600, 10e Avenue 87,500 $306,250
St-Georges (Quebec)
Pictet & Cie 29, Bv. Georges Favon 30,000 $105,000
1204 Geneva
Switzerland
TOTAL 843,500 $600,000 $2,532,250
BIO SYNTECH - PRIVATE PLACEMENT - CLOSING 2 - APRIL 4, 2000
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Compensation B.N.C. Inc. 1155 Metcalfe Street, 96,000 $336,000
5th Floor
Montreal (Quebec)
H3B 4S9
National Bank Financial BCE Place 100,000 $1,050,000
P.O. Box 500 100,000
161 Bay Street, 10th Floor 100,000
Toronto (Ontario)
M5J 2S8
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Roytor & Co. Roytor & Co. 30,000 $105,000
Global Securities Services
Security Cage
Att: Free Mouvement
Royal Bank of Canada
S1 Level, South Tower
Royal Bank Plaza
200 Bay Street
Toronto (Ontario)
M5J 2J5
792126 Alberta Ltd. 220 Capital Place 60,000 $210,000
9707 - 110th Street
Edmonton (Alberta)
T5K 2L9
151976 Canada Inc. 8500 Pascal Gagnon 30,000 $105,000
St-Leonard (Quebec)
H1P 1Y4
Consultants Alconsultex Inc. 5604, avenue Robinson 55,000 $192,500
Cote St-Luc (Quebec)
H4V 2R2
Mr. Marcel Lu 5604, avenue Robinson 7,000 $105,000
Cote St-Luc (Quebec) 8,700
H4V 2R2 14,300
SEVA Consultants Ltd. 205 Edgehill Road 30,000 $105,000
Westmount (Quebec)
H3Y 1G1
Jacques Felton 500 de la Montagne, #206 30,000 $150,000
Montreal (Quebec)
H3C 4T6
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Rush & Co. Swiss American Securities 30,000 $105,000
12 East 49th Street
New York, NY 10017
Account no. 961-382-9-1
Pierre H. Lessard 1515 Kenilworth Road 50,000 $175,000
Town of Mount-Royal (Que.)
H3R 2S2
Andree D. Lessard 1515 Kenilworth Road 50,000 $175,000
Town of Mount-Royal
(Que.)
H3R 2S2
Jean Marcotte 1010, Chemin des Petites Terres 42,857 $150,000
Pointe-du-Lac (Quebec)
G0X 1Z0
TOTAL 833,857 $150,000 $2,813,500
BIO SYNTECH - PRIVATE PLACEMENT - CLOSING 3 - AVRIL 17, 2000
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
130 King Street West
GeneVest Inc. Suite 2810 50,000 $175,000
Toronto, Ontario
M5X 1A9
Jean-Louis Poulin 15 600, 10e Avenue 32,000 $112,000
Ville St-Georges (Quebec)
G5Y 7G1
TOTAL 82,000 $287,000
BIO SYNTECH - PRIVATE PLACEMENT - CLOSING 4 - APRIL 27, 2000
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Rodrigue Julien 1189, rue Etienne Letellier 42,857 $150,000
Cap-Rouge (Quebec)
G1Y 2Y8
TOTAL 42,857 $150,000
BIO SYNTECH - PRIVATE PLACEMENT - CLOSING 5 - June 9, 2000
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Prodier Ltee 3878, boul. Neilson 30,000 $150,000
Sainte-Foy (Quebec)
G1W 4Y8
9088-4586 Quebec Inc. 3525, chemin Sullivan 33,000 $115,000
Sullivan (Quebec)
J0Y 2N0
Valeurs Mobilieres Desjardins Inc. BNP (Canada) Valeurs Mobilieres Inc. 45,000 $157,500
a/s Pierre Demers
1981, ave. McGill College
Montreal (Quebec)
H3A 2W8
TOTAL 108,000 $150,000 $272,500
