SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2001
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( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-27179
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BIOSYNTECH, INC.
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(exact name of registrant as specified in its charter)
NEVADA 88-0329399
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
475 BOULEVARD ARMAND-FRAPPIER, LAVAL, QUEBEC, CANADA H7V 4B3
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(Address of Principal Executive Offices)
(450) 686-2437
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(Issuers Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(X) Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUER
State the number of shares outstanding of each of the issuer's
classes of common equity as of the latest practicable date: 29,182,250 shares
of Common Stock as of August 20, 2001.
Transitional Small Business Disclosure Format (check one):
( ) Yes (X) No
BIOSYNTECH, INC.
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Interim Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2001 and March 31,2001 3
Condensed Consolidated Statements of Operations for the Three-Month 4
periods Ended June 30, 2001 and June 30, 2000
Condensed Consolidated Statements of Stockholders' equity (deficiency) from 5
inception to June 30, 2001
Condensed Consolidated Statements of Cash Flows for the Three-Month periods 7
Ended June 30, 2001 and June 30, 2000
Notes To Condensed Consolidated Interim Financial Statements 8
Item 2. Management's Discussion and Analysis 11
Risk Factors 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
SIGNATURES 21
-2-
BIOSYNTECH, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
BIOSYNTECH, INC.
A development stage company
CONDENSED CONSOLIDATED BALANCE SHEETS
[See Basis of Presentation and Going Concern Assumption - note 2]
As of June 30, 2001 and March 31, 2001
[In Canadian dollars]
JUNE 30, JUNE 30, MARCH 31,
2001 2001 2001
US$ C$ C$
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[NOTE 2] [NOTE 2]
[UNAUDITED] [UNAUDITED]
ASSETS
CURRENT ASSETS
Cash and cash equivalents 1,915,887 2,900,651 6,643,370
Short-term investment 1,000,170 1,514,258 --
Investment tax credits receivable 161,870 245,072 193,000
Other current assets 115,136 174,317 273,681
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3,193,063 4,834,298 7,110,051
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Property, plant and equipment 1,636,718 2,477,991 2,504,963
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Total Assets 4,829,781 7,312,289 9,615,014
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities 619,491 937,909 1,794,641
Other current liabilities 57,985 87,790 67,557
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677,476 1,025,699 1,862,198
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Long term debt and obligations under capital leases 139,340 210,961 223,289
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Total Liabilities 816,816 1,236,660 2,085,487
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Contingent liability [NOTE 4]
STOCKHOLDERS' EQUITY [NOTE 3]
Common stock
Par value $0.001
Authorized 100,000,000 common shares
Issued and outstanding
29,182,250 common shares 12,051,767 18,246,375 18,246,375
Paid-up and not issued
40,000 common shares [nil on March 31, 2001] 26,079 39,483 --
Additional paid-in capital 1,365,692 2,067,658 1,953,410
Deficit accumulated during the development stage (9,430,573) (14,277,887) (12,670,258)
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4,012,965 6,075,629 7,529,527
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4,829,781 7,312,289 9,615,014
=================================================================================================
SEE ACCOMPANYING NOTES
On behalf of the Board
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Director Director
-3-
BIOSYNTECH, INC.
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
[See Basis of Presentation and Going Concern Assumption - note 2]
Three-month periods ended June 30, 2001 and 2000
[In Canadian dollars] Unaudited
CUMULATIVE FROM
INCEPTION TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2001 2001 2000
C$ US$ C$ C$
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[NOTE 2]
Sales 313,924 943 1,428 66,200
Cost of sales 139,059 94 142 28,172
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174,865 849 1,286 38,028
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Research and development expenses 9,681,074 525,118 795,028 535,048
Investment tax credits (1,764,631) (34,394) (52,072) (100,000)
General and administrative expenses 6,729,763 441,647 668,654 479,371
Interest on long-term debt 295,191 7,049 10,672 28,990
Depreciations of property, plant and equipment 407,294 29,702 44,969 45,956
Grants (98,322) (9,247) (14,000) --
Interest income (565,907) (37,899) (57,379) (122,252)
Loss (gain) on foreign exchange (231,710) 140,715 213,043 (99,550)
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14,452,752 1,062,691 1,608,915 767,563
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NET LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD (14,277,887) (1,061,842) (1,607,629) (729,535)
Deficit accumulated during the development
stage, beginning of period -- (8,368,731) (12,670,258) (7,655,124)
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Deficit accumulated during the development
stage, end of period (14,277,887) (9,430,573) (14,277,887) (8,384,659)
==========================================================================================================
Weighted average number of shares
outstanding 29,182,250 29,182,250 29,034,485
Basic and diluted loss per share (0.04) (0.06) (0.03)
==========================================================================================================
SEE ACCOMPANYING NOTES
-4-
BIOSYNTECH, INC.
A development stage company
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
[See Basis of Presentation and Going Concern Assumption - note 2]
From inception to June 30, 2001
[In Canadian dollars] Unaudited
COMMON STOCK COMMON STOCK
ISSUED AND OUTSTANDING PAID-UP AND NOT ISSUED
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
$ $
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Balance, May 10, 1995 8,525,000 1 -- --
Net loss 1996 [325 day period] -- -- -- --
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Balance, March 31, 1996 8,525,000 1 -- --
Net loss 1997 -- -- -- --
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Balance, March 31, 1997 8,525,000 1 -- --
Deemed common stock paid up as of January 31,
1998 and issued on August 3, 1998 -- 215,000 -- --
Net loss 1998 -- -- -- --
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Balance, March 31, 1998 8,525,000 215,001 -- --
Deemed common stock issued for cash 1,746,579 1,083,108 -- --
Deemed common stock issued in exchange
for services 1,940,000 1,455,000 -- --
Deemed options granted to consultants -- -- -- --
Net loss 1999 -- -- -- --
Deemed share issuance costs -- (90,200) -- --
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Balance, March 31, 1999 12,211,579 2,662,909 -- --
Deemed common stock issued for cash 1,893,457 2,595,222 -- --
Deemed common stock issued in exchange for
intellectual property 1,072,000 1,072,000 -- --
Deemed options gtranted to consultants -- -- -- --
Net loss and comprehensive loss for the period from
April 1, 1999 to February 28, 2000 -- -- -- --
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Deemed outstanding February 29, 2000 15,177,036 6,330,131 -- --
Acquisition of BioSyntech, Inc. by Bio Syntech Ltd. 12,095,000 2,873,848 -- --
March 31, 2000, issuance 843,500 4,270,243 -- --
Share issue costs -- (341,520) -- --
Net loss and comprehensive loss for the period from
February 29, 2000 to March 31, 2000 -- -- -- --
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Balance, March 31, 2000 28,115,536 13,132,702 -- --
Share issuances 1,066,714 5,487,419 -- --
Options granted to consultants -- -- -- --
Share issue costs -- (373,746) -- --
Net loss and comprehensive loss for the period from
April 1, 2000 to March 31, 2001 -- -- -- --
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Balance, March 31, 2001 29,182,250 18,246,375 -- --
Common stock to be issued to a consultant in
exchange for services [NOTE 3] -- -- 40,000 39,483
Exchangeable shares of the subsidiary of the
Company issued as part of a settlement [NOTE 3] -- -- -- --
Net loss and comprehensive loss for the period from
April 1, 2001 to June 30, 2001 -- -- -- --
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BALANCE, JUNE 30, 2001 29,182,250 18,246,375 40,000 39,483
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US Dollars [NOTE 2]
Balance, June 30, 2001 12,051,767 26,079
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-5-
BIOSYNTECH, INC.
A development stage company
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONT'D)
[See Basis of Presentation and Going Concern Assumption - note 2]
From inception to June 30, 2001
[In Canadian dollars] Unaudited
ADDITIONAL PAID- ACCUMULATED
IN CAPITAL DEFICIT TOTAL
$ $ $
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Balance, May 10, 1995 -- -- 1
Net loss 1996 [325 day period] -- (2,865) (2,865)
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Balance, March 31, 1996 -- (2,865) (2,864)
Net loss 1997 -- (9,332) (9,332)
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Balance, March 31, 1997 -- (12,197) (12,196)
Deemed common stock paid up as of January 31,
1998 and issued on August 3, 1998 -- -- 215,000
Net loss 1998 -- (236,987) (236,987)
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Balance, March 31, 1998 -- (249,184) (34,183)
Deemed common stock issued for cash -- -- 1,083,108
Deemed common stock issued in exchange
for services -- -- 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)
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Balance, March 31, 1999 1,309,350 (4,414,841) (442,582)
Deemed common stock issued for cash -- -- 2,595,222
Deemed common stock issued in exchange for
intellectual property -- -- 1,072,000
Deemed options gtranted to consultants 406,560 -- 406,560
Net loss and comprehensive loss for the period from
April 1, 1999 to February 28, 2000 -- (2,850,977) (2,850,977)
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Deemed outstanding February 29, 2000 1,715,910 (7,265,818) 780,223
Acquisition of BioSyntech, Inc. by Bio Syntech Ltd. -- -- 2,873,848
March 31, 2000, issuance -- -- 4,270,243
Share issue costs -- -- (341,520)
Net loss and comprehensive loss for the period from
February 29, 2000 to March 31, 2000 -- (389,306) (389,306)
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Balance, March 31, 2000 1,715,910 (7,655,124) 7,193,488
Share issuances -- -- 5,487,419
Options granted to consultants 237,500 -- 237,500
Share issue costs -- -- (373,746)
Net loss and comprehensive loss for the period from
April 1, 2000 to March 31, 2001 -- (5,015,134) (5,015,134)
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Balance, March 31, 2001 1,953,410 (12,670,258) 7,529,527
Common stock to be issued to a consultant in
exchange for services [NOTE 3] -- -- 39,483
Exchangeable shares of the subsidiary of the
Company issued as part of a settlement [NOTE 3] 114,248 -- 114,248
Net loss and comprehensive loss for the period from
April 1, 2001 to June 30, 2001 -- (1,607,629) (1,607,629)
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BALANCE, JUNE 30, 2001 2,067,658 (14,277,887) 6,075,629
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US Dollars [NOTE 2]
Balance, June 30, 2001 1,365,692 (9,430,573) 4,012,965
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SEE ACCOMPANYING NOTES
-6-
BIOSYNTECH, INC.
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Basis of Presentation and Going Concern Assumption - note 2]
Three-month periods ended June 30, 2001 and 2000
[In Canadian dollars] Unaudited
CUMULATIVE FROM
INCEPTION TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2001 2001 2000
C$ US$ C$ C$
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[NOTE 2]
OPERATING ACTIVITIES
Net loss (14,277,887) (1,061,842) (1,607,629) (729,535)
Items not affecting cash
Depreciation 407,294 29,702 44,969 45,956
Common Stock to be issued to a consultant 2,566,483 26,079 39,483 --
Exchangeable shares of the subsidiary of the
Company issued as part of a settlement 114,248 75,461 114,248 --
Options granted to consultants 1,953,410 -- -- --
Exchange loss (gain) (413,028) 118,087 178,783 (142,492)
Changes in working capital assets and liabilities
Investment tax credits receivable (245,072) (34,394) (52,072) (100,000)
Other current assets (174,317) 65,630 99,364 (9,686)
Other current liabilities 14,630 9,663 14,630 (43,360)
Accounts payable and accrued liabilities 894,161 (487,818) (738,557) (563,698)
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CASH FLOWS USED IN OPERATING ACTIVITIES (9,160,078) (1,259,432) (1,906,781) (1,542,815)
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INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,154,440) (8,680) (13,142) (22,680)
Purchase of short term investment (1,589,258) (1,000,170) (1,514,258) --
Proceeds from maturing of short term investments 75,000 -- -- --
Changes in non-cash working capital balances related to
investing activities 27,260 (78,055) (118,175) --
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CASH FLOWS USED IN INVESTING ACTIVITIES (2,641,438) (1,086,905) (1,645,575) (22,680)
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FINANCING ACTIVITIES
Increase in long term debt 700,000 -- -- --
Repayment of long term debt (503,333) (2,201) (3,333) (18,750)
Proceeds of demand loan 581,845 -- -- --
Repayment of demand loan (581,845) -- -- --
Increase in due to stockholder 30,394 -- -- --
Decrease in due to stockholders (20,394) -- -- --
Repayment of obligations under capital leases (1,653,392) (5,447) (8,247) (19,990)
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 -- -- 5,487,419
Share issue costs (805,466) -- -- (373,746)
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CASH FLOWS (USED) FROM FINANCING ACTIVITIES 14,289,139 (7,648) (11,580) 5,074,933
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EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 413,028 (118,087) (178,783) 142,492
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NET CHANGE IN CASH AND CASH EQUIVALENTS 2,900,651 (2,472,072) (3,742,719) 3,651,930
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- 4,387,959 6,643,370 7,301,143
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CASH AND CASH EQUIVALENTS, END OF PERIOD 2,900,651 1,915,887 2,900,651 10,953,073
======================================================================================================================
SEE ACCOMPANYING NOTES
-7-
BIOSYNTECH, INC.
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2001 Unaudited
[In Canadian dollars]
1. ORGANIZATION AND OPERATIONS OF THE COMPANY
The Company has been engaged primarily in research and development since its
inception in 1995. The Company develops advanced biomaterials specializing in
tissue engineering and therapeutic delivery focusing on the repair of damaged
tissue in the human body like bone or cartilage. The Company is also engaged in
the development of advanced injectable biomaterials for the delivery of cells
and genetic material and biotherapeutic agents. The Company also develops
instrumentation products. The Company currently has products at different stages
of development, including the pre-clinical trial stage. The Company has limited
revenues to date and they have come almost entirely from sales of
instrumentation products.
2. BASIS OF PRESENTATION AND GOING CONCERN ASSUMPTION
The condensed consolidated financial statements 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, on a going concern basis which presumes the realization of
assets and the discharge of liabilities in the normal course of business for the
foreseeable future. Accordingly, these condensed consolidated financial
statements do not include any adjustments to amounts and classifications of
assets and liabilities that might be necessary should the Company be unable to
continue its business in the normal course.
The Company has incurred net losses every year since its inception and
anticipates that losses will continue for the foreseeable future. As at June 30,
2001, the Company's accumulated deficit was $14,277,887. The Company's ability
to continue as a going concern is dependent principally upon its ability to
obtain further financing to complete research and development projects and
market products as to which no assurance can be given, achieve profitable
operations, generate positive cash flows from operations, and repay the current
portion of long-term debt.
Given its program to limit operating costs and capital expenditures and based
upon the Company's estimated cash requirements, it is expected that additional
funds will be required before the end of April 2002. Management is currently
negotiating further financing, which if successfully completed, management
believes will be sufficient to allow the Company to operate into the foreseeable
future. The success of these negotiations is dependent on a number of items
outside the Company's control and there is substantial uncertainty about the
Company's ability to successfully complete these negotiations.
In the opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments, consisting only of normal recurring accruals
considered necessary to present fairly the financial position as of June 30,
2001, the results of operations and cash flows for the three months ended June
30, 2001 and 2000. The balance sheet at March 31, 2001 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
-8-
BIOSYNTECH, INC.
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2001 Unaudited
[In Canadian dollars]
2. BASIS OF PRESENTATION AND GOING CONCERN ASSUMPTION
[CONT'D]
for complete financial statements. For further information, refer to the
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the fiscal year ended March 31, 2001.
US dollar amounts presented on the condensed consolidated balance sheet and the
condensed consolidated statements of operations, stockholders' equity
(deficiency) and cash flows are provided for convenience of reference only and
are based on the closing exchange rate at June 30, 2001, which was $1.514
Canadian dollar per US dollar.
The accompanying unaudited condensed consolidated financial statements include
the accounts of BioSyntech, Inc. and its wholly owned subsidiary Bio Syntech
Canada, Inc. All significant intercompany balances and transactions have been
eliminated on consolidation.
3. STOCKHOLDERS' EQUITY
On April 3, 2001, the Company signed an agreement with a consultant to seek
strategic alliances. As part of this agreement, the Company has to pay half in
cash and half in equity for a total value of US$50,000. The Company has to issue
40,000 common shares in exchange for services for a value of C$39,483
[US$25,000], which is equivalent to half of the fair value of the services
provided. As of June 30, 2001, these shares were not issued yet and,
consequently they are shown as "Common stock paid-up and not issued". If the
consultant is successful in seeking strategic alliances and obtains additional
funding, the Company will have to pay success fees of 5% for the first and the
second million, 4% for the third, 3% for the fourth, 2% for the fifth, and 1%
for each additional million obtained. The US$50,000 payment will be credited
against any future success fees. Additional amounts shall be paid half in cash
and half in equity.
On June 22, 2001, the subsidiary of the Company issued 100,000 Class A
exchangeable shares, which are exchangeable into common shares of the Company,
as part of the judgment in a lawsuit by a former employee. The fair value of the
100,000 shares was recorded at C$114,248 representing the value of the expense
booked in the year ended March 31, 2001. These shares are presented as
"Additional paid-in capital".
-9-
BIOSYNTECH, INC.
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2001 Unaudited
[In Canadian dollars]
3. STOCKHOLDERS' EQUITY [CONT'D]
As of June 30, 2001, a total of 470,000 warrants issued by the Company are
outstanding as follows:
NUMBER OF WARRANTS EXPIRY DATE EXERCISE PRICE
470,000 September 30, 2001 US$ 7.00
On June 15, 2001, the Company increased the amount of options which may be
granted under the Company's Stock Option Plan to an authorized maximum number of
3,900,000 shares of common stock.
4. CONTINGENT LIABILITY
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 in the accounts.
5. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
presentation adopted for the quarter ended June 30, 2001.
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The discussion in this report on Form 10-QSB contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in "Risk Factors" in this Report.
The discussion and analysis below should be read in conjunction with
our Unaudited Condensed Consolidated Interim Financial Statements and the Notes
thereto included elsewhere in this report.
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 products. 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. We estimate that our financial resources will only be
sufficient to meet our planned activities at least through fiscal year 2002.
(See Liquidity and Capital Resources)
To date, we have incurred substantial losses from operations, and as
of June 30, 2001, had an accumulated deficit of $14,277,887. We expect to incur
substantial operating expenses in the future to support our product development
efforts and expand our technical and management personnel and organization, in
the event that we are able to continue our operations.
CURRENCY EXCHANGE RATES
All dollar amounts stated in this quarterly report are in Canadian
dollars, except where otherwise specifically indicated. The following table sets
forth, for the dates indicated, the rates at the specific date for the Canadian
dollar per one U.S. dollar, each expressed in Canadian dollars and based on the
noon buying rate, except for the rate at end of period, in New York City for
cable transfers in Canadian dollars as certified for customs purposes by the
Bank of Canada:
Rate at filing date 1.5457
2000 2001
---- ----
Rate at end of period (June 30) 1.4793 1.5177
Period High for the period Low for the period
- ------ ------------------- ------------------
July 2001 1.5327 1.5269
June 2001 1.5283 1.5209
May 2001 1.5448 1.5377
April 2001 1.5621 1.5545
March 2001 1.5618 1.5538
-11-
February 2001 1.5392 1.4936
Period Average for the period
Three Month Period Ended June 30, 2001 1.5403
Three Month Period Ended June 30, 2000 1.4805
Fiscal year ended March 31, 2001 1.5080
Fiscal year ended March 31, 2000 1.4683
Fiscal year ended March 31, 1999 1.5074
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's
condensed consolidated statements of operations for the three-month periods
ended June 30, 2001 and 2000 (in thousands of CDN$).
Three-month period
Ended June 30,
2001 2000
Sales $ 1.4 $ 66.2
Cost of sales .1 28.2
----- --------
Gross profit $ 1.3 $ 38.0
Operating Expenses:
Research and development $ 795.0 $ 535.0
Investment tax credits (52.1) (100.0)
General and administrative (net of grants) 654.7 479.4
Depreciation of property, plant and equipment 45.0 46.0
-------- ---------
Total operating expenses $1,442.6 $ 960.4
-------- ---------
Loss from operations $1,441.3 $ 922.4
-------- --------
Interest income (57.4) (122.3)
Interest expense 10.7 29.0
Loss (gain) on foreign exchange 213.0 (99.6)
-------- ---------
Net loss $1,607.6 $ 729.5
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED JUNE 30,
2001 AND 2000.
Sales
During the three-month period ended June 30, 2001, the Company had
sales of $1,428 and a net loss of $1,607,629 compared to sales of $66,200 and a
net loss of $729,535 for the three-month period ended June 30, 2000. The
decrease in sales is due to the timing of orders that were received at period
end and offset by small sales of chitosan, a raw material of our BST gel.
Loss per share was $0.06 for the three-month period ended June 30,
2001, compared to $0.03 for the three-month period ended June 30, 2000.
-12-
Operating Expenses
Research and development
Research and development expenses were $795,028 for the three-month
period ended June 30, 2001 compared to $535,048 for the three-month period ended
June 30, 2000. The increase of $259,980 in the three-month period is
attributable to acquisition of research and development equipment ($18,696),
hiring of additional researchers and affiliated expenses ($120,946), the cost of
pre-clinical toxicological studies ($62,443), the research and development
activities with our corporate collaborators ($56,172). We anticipate that we
will continue to devote significant resources to research and development for
the rest of fiscal year 2002 if we receive financing.
Investment tax credits
The Company claims an investment tax credit on all allowable
research and development expenses. The amount claimed for the three-month period
ended June 30, 2001 is $52,072 compared to $100,000 for the three-month period
ended June 30, 2000. The decrease is attributable to a decrease in the
qualifying expenses.
General and administrative
General and administrative expenses (net of grants) were $654,654
for the three-month period ended June 30, 2001 compared to $479,371 for the
three-month period ended June 30, 2000, representing an increase of $175,283.
The increase in the three-month period is principally attributable professional
fees ($34,419), investor relations ($9,221), tax on capital ($15,000), an
increase in marketing and administrative expenses due to an increase in
personnel ($118,119), expenses relating to the maintenance of the facility in
which we conduct our operations ($11,557) and offset by an increase in labor
grants received of $14,000.
Depreciation of Property, Plant and Equipment
Depreciation expense was $44,969 for the three-month period ended
June 30, 2001 compared to $45,956 for the three-month period ended June 30,
2000, representing a slight decrease of $987. The decrease in the three-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 the facility. This
decrease was offset by the increased depreciation recorded due to the increased
level of equipment on hand during the period.
Interest Income and Interest Expense
Interest income represents income earned on our cash and cash
equivalents and short-term investment. Interest income for the three-month
period ended June 30, 2001 was $57,379 compared to $122,252 for the three-month
period ended June 30, 2000, representing a decrease of $64,873. The decrease is
primarily due to a lower level of cash on hand during the period versus the
prior year period.
Interest expense was $10,672 for the three-month period ended June
30, 2001 compared to $28,990 for the three-month period ended June 30, 2000. The
decrease is attributable to the elimination of the interest on the capital lease
entered into in order to finance our facility prior to its acquisition in July
2000, and the reduction of long-term debt on record at June 30, 2001.
Loss (Gain) on Foreign Exchange
Loss on foreign exchange was $213,043 for the three-month period
ended June 30, 2001 compared to a gain of $99,550 for the three-month period
ended June 30, 2000 representing a decrease of $312,593. The decrease is a
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result of the variation in the closing CDN to USD foreign exchange rate from
1.4494 at March 31, 2000 to 1.4806 at June 30, 2000 and from 1.5763 at March 31,
2001 to 1.5140 at June 30, 2001.
Liquidity, Capital Resources and Going Concern Uncertainty
We have a limited operating history as a biotechnology company and
have not made significant sales of our products. Therefore, our revenues are
difficult to predict. Our cash position (including cash equivalents and short
term investment) on June 30, 2001 was $4,414,909. We believe that our cash and
cash equivalent balances and short-term investment are sufficient for projected
capital expenditures and operating expenses only through fiscal year 2002. We
also have a program in place to limit our operating costs and future capital
expenditures.
Although management believes that our cash and cash equivalent and
short-term investment balances are sufficient for projected capital expenditures
and operating expenses only through fiscal year 2002, management is currently
pursuing various financing alternatives, including current negotiations for
co-development agreements to raise the required financing. We believe the
additional financing will be sufficient to allow us to operate into the
foreseeable future. Additional financing could result in additional dilution to
the Company's stockholders. However, the success of these negotiations is
dependant on a number of items outside the Company's control and we are unable
to predict whether we will be able to successfully complete a transaction with
any financial institution or investors to raise part of any of the required
funds. To date, we have no agreements, commitments or understandings with
respect to the sale of additional equity or convertible debt securities (See
Note 2, "Basis of Financial Statement Presentation and Going Concern
Assumption", in the Company's Notes to Consolidated Financial Statements.).
On February 2, 2000, the Company completed a private placement of
its securities yielding aggregate proceeds of $3,384,705 for which the Company
issued an aggregate of 470,000 shares of common stock and Warrants to purchase
an additional 470,000 shares of common stock at a price of $10.60 on or before
September 30, 2001.
Commencing March 31, 2000 and during the quarter ended June 30,
2000, the Company completed a second private placement and issued a total of
1,910,214 units at a average price of $5.11 per unit as shown in the table
below, yielding gross proceeds of $9,757,662. Each unit comprised one share of
common stock and one warrant for the purchase of one additional share at a price
of $6.81 per share before March 30, 2001. These warrants have expired
unexercised.
Closing Date Number of Units Proceeds
------------------------------------- ------------------------
March 31, 2000 843,500 $ 4,270,243
April 4, 2000 833,857 $ 4,281,343
April 17, 2000 82,000 $ 425,879
April 27, 2000 42,857 $ 221,925
June 9, 2000 108,000 $ 558,272
Totals 1,910,214 $ 9,757,662
On June 15, 2001, our Board of Directors approved an increase from
2,500,000 to 3,900,000 shares of common stock in the authorized number of shares
which can be granted under our option plan. This amendement was approved by our
stockholders on July 12, 2001.
Employee Count
As of August 20, 2001, BioSyntech had 38 employees, of whom 24 were
engaged on research and development and 14 were engaged in corporate,
administrative and quality assurance activities. Except for two employees in our
research and development team who are involved in the manufacture of the Mach1TM
Mechanical Tester, we have no other employees involved in the manufacture of our
products. BioSyntech anticipates its total employee count to remain at the
current level by the end of fiscal year 2002 if it receives additional
financing, otherwise it will have to reduce the current level of employees.
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RISK FACTORS
The Company operates in a rapidly changing environment that involves
a number of risks, some of which are beyond our control. The following
discussion highlights the most material of the risks.
WE ESTIMATE THE NEED FOR 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 will need
additional financing. If we do not receive additional financing, we will
reassess our operating plan to reduce expenses on an ongoing basis. 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 will
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.
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.
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.
As of June 30, 2001, our accumulated deficit was $14,277,887. We had
net operating losses of $1,607,629 and $5,015,134 for the three-month period
ended June 30, 2001 and fiscal year ended March 31, 2001, respectively. These
losses consist of, among other expenses, 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. (See Liquidity and Capital
Resources)
Our future profitability depends, in part, on:
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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.
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;
-16-
o Data from pre-clinical testing and clinical trials can be
interpreted by FDA officials in different ways than we
interpret it;
o The FDA might not approve our manufacturing processes or
facilities;
o The FDA may change its approval policies or adopt new
regulations; and
o A product candidate may not be approved for all the uses we
requested.
Countries other than the United States, including Canada, have
similar requirements. The process of getting approvals in foreign countries is
subject to delay and failure for the same reasons.
We currently do not have any product that has been approved by the
FDA. We are currently in the process of filing an Investigational Device
Exemption application with the FDA and an Application foe Investigational
Testing with the Health Protection Branch of Canada for our BST-Cargel-CTM.
Additionally, once we complete our pre-clinical stage development, we plan to
make the same applications for the following products:
o OssiFil;
o OssiFix;
o BST-Disc;
o BST-Fill; and
o BST-InHeel.
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.
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 will seek to have these parties fund our development
programs. Our agreements with our 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.
-17-
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 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.
-18-
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 quarterly report on Form 10-QSB/A 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 "Risk Factors" and "Management's Discussion and
Analysis to Financial Condition and Results of Operations". 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.
-19-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the frist quarter of fiscal year 2002, there were no material
developments or new actions or investigations pending or, to our knowledge,
threatened against us, except as described below:
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. On April 18, 2001 a judgment was rendered in favor of Mr. Conyers.
Consequently, on June 22, 2001, the subsidiary of the Company paid Mr. Conyers
$64,727 in cash and issued 100,000 Class A exchangeable shares. The Company
estimates the total dollar value of the judgment to be approximately $180,000.
-20-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOSYNTECH, INC.
By:/s/ Amine Selmani
-----------------------------
Name: Amine Selmani
Title: Chief Executive Officer
and President
By:/s/ Anthony Casola
-----------------------------
Name: Anthony Casola
Title: Chief Financial Officer
Dated: August 30, 2001
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