SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2001
--------------------------
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-27179
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BIOSYNTECH, INC.
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
NEVADA 88-0329399
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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: 29,222,250 shares of
Common Stock as of November 9, 2001.
Transitional Small Business Disclosure Format (check one):
( ) Yes (X) No
BIOSYNTECH, INC.
TABLE OF CONTENTS
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Interim Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2001 2
and March 31,2001
Condensed Consolidated Statements of Operations for the 3
Three-Month periods Ended September 30, 2001 and
September 30, 2000
Condensed Consolidated Statements of Operations for the 4
Six-Month periods Ended September 30, 2001 and
September 30, 2000
Condensed Statements of Stockholders' equity (deficiency) 5
from inception to September 30, 2001
Condensed Consolidated Statements of Cash Flows for the 7
Three-Month periods Ended September 30, 2001 and
September 30, 2000
Condensed Consolidated Statements of Cash Flows for the 8
Six-Month periods Ended September 30, 2001 and
September 30, 2000
Notes To Condensed Consolidated Interim Financial Statements 9-11
Item 2. Management's Discussion and Analysis 12
Risk Factors 17
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 22
Item 4. Submission of Matters to a Vote of Security Holders 22
SIGNATURES 23
1
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 September 30, 2001 and March 31, 2001
[In Canadian dollars]
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
2001 2001 2001
US$ C$ C$
- ------------------------------------------------------------------------------------------------
[NOTE 2] [NOTE 2]
[UNAUDITED] [UNAUDITED]
ASSETS
CURRENT ASSETS
Cash and cash equivalents 1,176,385 1,856,924 6,643,370
Short-term investments 1,000,171 1,578,769 --
Investment tax credits receivable 183,126 289,064 193,000
Other current assets 142,066 224,251 273,681
- -----------------------------------------------------------------------------------------------
2,501,748 3,949,008 7,110,051
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Property, plant and equipment 1,546,957 2,441,872 2,504,963
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Total Assets 4,048,705 6,390,880 9,615,014
===============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities 569,925 899,626 1,794,641
Other current liabilities 74,156 117,055 67,557
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644,081 1,016,681 1,862,198
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Long term debt and obligations under capital leases 123,166 194,417 223,289
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Total Liabilities 767,247 1,211,098 2,085,487
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Contingent liability [NOTE 4]
STOCKHOLDERS' EQUITY [NOTE 3]
Common stock
Par value $0.001
Authorized 100,000,000 common shares
Issued and outstanding
29,182,250 common shares 11,559,313 18,246,375 18,246,375
Paid-up and not issued
40,000 common shares [nil on March 31, 2001] 25,013 39,483 --
Additional paid-in capital 1,309,888 2,067,658 1,953,410
Deficit accumulated during the development stage (9,612,756) (15,173,734) (12,670,258)
- -----------------------------------------------------------------------------------------------
3,281,458 5,179,782 7,529,527
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4,048,705 6,390,880 9,615,014
===============================================================================================
SEE ACCOMPANYING NOTES
On behalf of the Board
- -------------------------- -----------------------
Director Director
2
BioSyntech, Inc.
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
[See Basis of Presentation and Going Concern Assumption - note 2]
Three-month period ended September 30, 2001 and 2000
[In Canadian dollars] Unaudited
Cumulative from
inception to
September 30, September 30, September 30, September 30,
2001 2001 2001 2000
C$ US$ C$ C$
- -------------------------------------------------------------------------------------------------------------
[note 2]
Sales 367,004 33,627 53,080 22,336
Cost of sales 154,159 9,566 15,100 10,036
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212,845 24,061 37,980 12,300
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Research and development expenses 10,326,108 408,637 645,034 656,500
Investment tax credits (1,808,623) (27,869) (43,992) --
General and administrative expenses 7,205,536 301,408 475,773 857,609
Interest on long-term debt 303,816 5,464 8,625 8,200
Depreciations of property, plant and equipment 452,341 28,538 45,047 27,845
Grants (116,742) (11,669) (18,420) (17,345)
Interest income (600,381) (21,840) (34,474) (103,739)
Loss (gain) on foreign exchange (375,476) (91,077) (143,766) (137,707)
- -------------------------------------------------------------------------------------------------------------
15,386,579 591,592 933,827 1,291,363
- -------------------------------------------------------------------------------------------------------------
Net loss and comprehensive loss for the period (15,173,734) (567,531) (895,847) (1,279,063)
Deficit accumulated during the development
stage, beginning of period -- (9,045,225) (14,277,887) (8,384,659)
- -------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, end of period (15,173,734) (9,612,756) (15,173,734) (9,663,722)
=============================================================================================================
Weighted average number of shares
outstanding 29,182,250 29,182,250 29,182,250
Basic and diluted loss per share (0.02) (0.03) (0,04)
=============================================================================================================
See accompanying notes
3
BioSyntech, Inc.
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
[See Basis of Presentation and Going Concern Assumption - note 2]
Six-month period ended September 30, 2001 and 2000
[In Canadian dollars] Unaudited
Cumulative from
inception to
September 30, September 30, September 30, September 30,
2001 2001 2001 2000
C$ US$ C$ C$
- ------------------------------------------------------------------------------------------------------------
[note 2]
Sales 367,004 34,532 54,508 88,536
Cost of sales 154,159 9,656 15,242 38,208
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212,845 24,876 39,266 50,328
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Research and development expenses 10,326,108 912,298 1,440,062 1,191,548
Investment tax credits (1,808,623) (60,858) (96,064) (100,000)
General and administrative expenses 7,205,536 725,009 1,144,427 1,336,980
Interest on long-term debt 303,816 12,225 19,297 37,190
Depreciations of property, plant and equipment 452,341 57,026 90,016 73,801
Grants (116,742) (20,538) (32,420) (17,345)
Interest income (600,381) (58,190) (91,853) (225,991)
Loss (gain) on foreign exchange (375,476) 43,889 69,277 (237,257)
- ------------------------------------------------------------------------------------------------------------
15,386,579 1,610,861 2,542,742 2,058,926
- ------------------------------------------------------------------------------------------------------------
Net loss and comprehensive loss for the period (15,173,734) (1,585,985) (2,503,476) (2,008,598)
Deficit accumulated during the development
stage, beginning of period -- (8,026,771) (12,670,258) (7,655,124)
- ------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, end of period (15,173,734) (9,612,756) (15,173,734) (9,663,722)
============================================================================================================
Weighted average number of shares
outstanding 29,182,250 29,182,250 29,108,368
Basic and diluted loss per share (0.05) (0.09) (0.07)
============================================================================================================
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 September 30, 2001
[In Canadian dollars]
Common Stock Common Stock
issued and outstanding paid-up and not issued
Shares Amount Shares Amount
$ $
- --------------------------------------------------------------------------------------------------------------
Balance, May 10, 1995 8,525,000 1 -- --
Net loss 1996 [325 day period] -- -- -- --
- --------------------------------------------------------------------------------------------------------------
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 -- -- -- --
- --------------------------------------------------------------------------------------------------------------
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) -- --
- --------------------------------------------------------------------------------------------------------------
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 granted to consultants -- -- -- --
Net loss and comprehensive loss for the period from
April 1, 1999 to February 28, 2000 -- -- -- --
- --------------------------------------------------------------------------------------------------------------
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 -- -- -- --
- --------------------------------------------------------------------------------------------------------------
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 -- -- -- --
- --------------------------------------------------------------------------------------------------------------
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
Net loss and comprehensive loss for the period from
July 1, 2001 to September 30, 2001 -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Balance, September 30, 2001 29,182,250 18,246,375 40,000 39,483
US Dollars [note 2]
Balance, September 30, 2001 11,559,313 25,013
==============================================================================================================
5
From inception to September 30, 2001
[In Canadian dollars] Unaudited
Additional paid- Accumulated Total
in capital deficit
$ $ $
- ------------------------------------------------------------------------------------------------
Balance, May 10, 1995 -- -- 1
Net loss 1996 [325 day period] -- (2,865) (2,865)
- ------------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------
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 granted 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)
- ------------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------
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
Net loss and comprehensive loss for the period from
July 1, 2001 to September 30, 2001 -- (895,847) (895,847)
- ------------------------------------------------------------------------------------------------
Balance, September 30, 2001 2,067,658 (15,173,734) 5,179,782
US Dollars [note 2]
Balance, September 30, 2001 1,309,888 (9,612,756) 3,281,458
================================================================================================
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 September 30, 2001 and 2000
[In Canadian dollars] Unaudited
Cumulative from
inception to
September 30, September 30, September 30, September 30,
2001 2001 2001 2000
C$ US$ C$ C$
- ---------------------------------------------------------------------------------------------------------------------------
[note 2]
OPERATING ACTIVITIES
Net loss and comprehensive loss (15,173,734) (567,531) (895,847) (1,279,063)
Items not affecting cash
Depreciation 452,341 28,538 45,047 27,845
Common stock to be issued to a consultant 2,566,483 -- -- --
Exchangeable shares of the subsidiary of the
Company issued as part of a settlement 114,248 -- -- --
Options granted to consultants 1,953,410 -- -- 237,500
Exchange loss (gain) (499,650) (54,875) (86,622) (137,505)
Exchange loss (gain) on short-term investments (64,511) (40,870) (64,511) --
Changes in working capital assets and liabilities
Investment tax credits receivable (289,064) (27,869) (43,992) 259,688
Other current assets (224,251) (31,634) (49,934) 68,519
Other current liabilities 42,722 17,797 28,092 --
Accounts payable and accrued liabilities 881,357 (8,111) (12,804) 275,220
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows relating to operating activities (10,240,649) (684,555) (1,080,571) (547,796)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,163,368) (5,656) (8,928) (344,315)
Purchase of short-term investments (1,589,258) -- -- --
Proceeds from maturing of short-term investments 75,000 -- -- 75,000
Changes in non-cash working capital balances related to
investing activities 1,781 (16,141) (25,479) --
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows relating to investing activities (2,675,845) (21,797) (34,407) (269,315)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long term debt 700,000 -- -- --
Repayment of long term debt (513,333) (6,335) (10,000) (18,750)
Proceeds of demand loan 581,845 -- -- --
Repayment of demand loan (581,845) -- -- --
Increase in due to stockholder 30,394 -- -- --
Repayment due to stockholder (20,394) -- -- --
Repayment of obligations under capital leases (1,658,763) (3,403) (5,371) (967,914)
Proceeds from issuance of shares of Bio Syntech Ltd.
prior to the reverse acquisition 3,890,068 -- -- --
Proceeds from issuance of common shares of BioSyntech, Inc.
prior to the reverse acquisition 3,399,980 -- -- --
Repurchase of common stock of BioSyntech, Inc.
prior to the reverse acquisition (506,380) -- -- --
Proceeds from issuance of common shares of BioSyntech, Inc.
after the reverse acquisition 9,757,662 -- -- --
Share issue costs (805,466) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows relating to financing activities 14,273,768 (9,738) (15,371) (986,664)
- ---------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 499,650 54,875 86,622 137,505
- ---------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 1,856,924 (661,215) (1,043,727) (1,666,270)
Cash and cash equivalents, beginning of period -- 1,837,600 2,900,651 10,953,073
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 1,856,924 1,176,385 1,856,924 9,286,803
===========================================================================================================================
See accompanying notes
7
BioSyntech, Inc.
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Basis of Presentation and Going Concern Assumption - note 2]
Six-month periods ended September 30, 2001 and 2000
[In Canadian dollars] Unaudited
Cumulative from
inception to
September 30, September 30, September 30, September 30,
2001 2001 2001 2000
C$ US$ C$ C$
- --------------------------------------------------------------------------------------------------------------------------
[note 2]
OPERATING ACTIVITIES
Net loss and comprehensive loss (15,173,734) (1,585,985) (2,503,476) (2,008,598)
Items not affecting cash
Depreciation 452,341 57,026 90,016 73,801
Common stock to be issued to a consultant 2,566,483 25,013 39,483 --
Exchangeable shares of the subsidiary of the
Company issued as part of a settlement 114,248 72,378 114,248 --
Options granted to consultants 1,953,410 -- -- 237,500
Exchange loss (gain) (499,650) 58,385 92,161 (279,997)
Exchange loss (gain) on short-term investments (64,511) (40,868) (64,511) --
Changes in working capital assets and liabilities
Investment tax credits receivable (289,064) (60,858) (96,064) 159,688
Other current assets (224,251) 31,315 49,430 58,833
Other current liabilities 42,722 27,065 42,722 (43,360)
Accounts payable and accrued liabilities 881,357 (475,997) (751,361) (288,478)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows relating to operating activities (10,240,649) (1,892,526) (2,987,352) (2,090,611)
- --------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,163,368) (13,982) (22,070) (366,995)
Purchase of short-term investments (1,589,258) (959,301) (1,514,258) --
Proceeds from maturing of short-term investments 75,000 -- -- 75,000
Changes in non-cash working capital balances related to
investing activities 1,781 (91,007) (143,654) --
- --------------------------------------------------------------------------------------------------------------------------
Cash flows relating to investing activities (2,675,845) (1,064,290) (1,679,982) (291,995)
- --------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long term debt 700,000 -- -- --
Repayment of long term debt (513,333) (8,447) (13,333) (37,500)
Proceeds of demand loan 581,845 -- -- --
Repayment of demand loan (581,845) -- -- --
Increase in due to stockholder 30,394 -- -- --
Repayment due to stockholder (20,394) -- -- --
Repayment of obligations under capital leases (1,658,763) (8,627) (13,618) (987,904)
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)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows relating to financing activities 14,273,768 (17,074) (26,951) 4,088,269
- --------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 499,650 (58,385) (92,161) 279,997
- --------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 1,856,924 (3,032,275) (4,786,446) 1,985,660
Cash and cash equivalents, beginning of period -- 4,208,660 6,643,370 7,301,143
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 1,856,924 1,176,385 1,856,924 9,286,803
==========================================================================================================================
See accompanying notes
8
BioSyntech, Inc.
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 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
September 30, 2001, the Company's accumulated deficit was $15,173,734. 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, achieve profitable operations, generate positive
cash flows from operations, as to which no assurance can be given, 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 September 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 September
30, 2001, the results of operations and cash flows for the three-month and
six-month periods ended September 30, 2001 and 2000. The balance sheet at March
31,
9
BioSyntech, Inc.
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2001 Unaudited
[In Canadian dollars]
2. BASIS OF PRESENTATION AND GOING CONCERN ASSUMPTION [Cont'd]
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 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 September 30, 2001, which was $1.5785
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 mergers and
acquisitions firm to seek strategic alliances. As part of this agreement, the
Company has to pay fees 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 September 30, 2001, these shares were
not issued yet and, consequently, they are shown as "Common stock paid-up and
not issued". These shares were issued on October 1, 2001. If the consultant is
successful in seeking strategic alliances and obtains additional funding which
result in milestone payments, 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 $1 million dollars in funding
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".
10
BioSyntech, Inc.
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2001 Unaudited
[In Canadian dollars]
3. STOCKHOLDERS' EQUITY [CONT'D]
As of September 30, 2001, all 470,000 warrants issued by the Company expired.
On July 12, 2001, the Company increased the amount of options, which may be
granted under the Company 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 September 30, 2001.
11
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 mostly 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 up to August 2002. (See Liquidity and Capital Resources)
To date, we have incurred substantial losses from operations, and as
of September 30, 2001, had an accumulated deficit of $15,173,734. We expect to
incur substantial operating expenses in the future to support our product
development efforts and expand our technical and management personnel and
organization, in the event that we are able to continue our operations.
CURRENCY EXCHANGE RATES
All dollar amounts stated in this quarterly report are in Canadian
dollars, except where otherwise specifically indicated. The following table sets
forth, for the dates indicated, the rates at the specific date for the Canadian
dollar per one U.S. dollar, each expressed in Canadian dollars and based on the
noon buying rate, except for the rate at end of period which is the closing
rate, in New York City for cable transfers in Canadian dollars as certified for
customs purposes by the Bank of Canada:
Rate at filing date 1.5916
2000 2001
---- ----
Rate at end of period (September 30) 1.5035 1.5785
Period High for the period Low for the period
- ------ ------------------- ------------------
October 2001 1.5740 1.5679
September 2001 1.5703 1.5632
August 2001 1.5425 1.5366
July 2001 1.5327 1.5269
June 2001 1.5283 1.5209
12
May 2001 1.5448 1.5377
April 2001 1.5621 1.5545
March 2001 1.5618 1.5538
February 2001 1.5392 1.4936
Period Average for the period
- ------ ----------------------
Three Month Period Ended September 30, 2001 1.5461
Three Month Period Ended September 30, 2000 1.4822
Six Month Period Ended September 30, 2001 1.5436
Six Month Period Ended September 30, 2000 1.4812
Fiscal year ended March 31, 2001 1.5080
Fiscal year ended March 31, 2000 1.4683
Fiscal year ended March 31, 1999 1.5074
RESULTS OF OPERATIONS
The following table sets forth certain items in BioSyntech Inc.'s
(the "Company") condensed consolidated statements of operations for the
three-month periods ended September 30, 2001 and 2000, and the six-month periods
ended September 30, 2001 and 2000 (in thousands of CDN$).
Three-month Six-month
Period Period
Ended September 30, Ended September 30,
2001 2000 2001 2000
------------------------------------------------
Sales $ 53.1 $ 22.3 $ 54.5 $ 88.5
Cost of sales 15.1 10.0 15.2 38.2
Gross profit $ 38.0 $ 12.3 $ 39.3 $ 50.3
Operating Expenses:
Research and development $ 645.0 $ 656.5 $ 1,440.1 $ 1,191.5
Investment tax credits (44.0) (96.1) (100.0)
General and administrative (net of grants) 457.4 840.3 1,120.0 $ 1,319.6
Depreciation of property, plant and equipment 45.0 27.8 90.0 73.8
Interest income (34.4) (103.7) (91.8) (226.0)
Interest expense 8.6 8.2 19.3 37.2
Loss (gain) on foreign exchange (143.8) (137.7) (69.3) (237.2)
------ ------ ----- ------
Net loss
$ 895.8 $ 1,279.1 $ 2,503.5 $ 2,008.6
RESULTS OF OPERATIONS
Sales
During the three-month period ended September 30, 2001, the Company
had sales of $53,080 (sale of products and research service revenues) and a net
loss of $895,847
13
compared to sales of $22,336 and a net loss of $1,279,063 for the three-month
period ended September 30, 2000. The increase in sales is primarily due to the
revenue related to a research contract which started this quarter. During the
six-month period ended September 30, 2001, the Company had sales of $54,508
(sale of products and research service revenues) and a net loss of $2,503,476
compared to sales of $ 88,536 and a net loss of $ 2,008,598 for the six-month
period ended September 30, 2000.
Loss per share was $0.03 for the three-month period ended September
30, 2001, compared to $0.04 for the three-month period ended September 30, 2000.
Loss per share was $0.09 for the six-month period ended September 30, 2001,
compared to $0.07 for the six-month period ended September 30, 2000.
Operating Expenses
Research and development
Research and development expenses were $645,034 for the three-month
period ended September 30, 2001 compared to $656,500 for the three-month period
ended September 30, 2000. The decrease of $11,466 in the three-month period is
primarily attributable to a lower acquisition of research and development
equipment offset by the hiring of additional researchers during the period .
Research and development expenses were $1,440,062 for the six-month
period ended September 30, 2001 compared to $1,191,548 for the six-month period
ended September 30, 2000, representing an increase of $248,514. The increase in
the six-month period is primarily attributable to the hiring of additional
researchers and higher costs of pre-clinical toxicological studies during the
period.
Investment tax credits
The Company claims an investment tax credit on all allowable
research and development expenses. The amount claimed for the six-month period
ended September 30, 2001 is $96,064 compared to $100,000 for the six-month
period ended September 30, 2000, representing a decrease of $3,936. The decrease
is attributable to lower allowable expenses for tax credits calculations in the
six-month period ended September 30, 2001.
General and administrative
General and administrative expenses (net of grants) were $457,353
for the three-month period ended September 30, 2001 compared to $840,264 for the
three-month period ended September 30, 2000, representing a decrease of
$382,911. The decrease in the three-month period is principally attributable to
a decrease in options granted to consultants, in professional fees, and in
marketing expenses due to the Company's efforts to reduce operating costs,
offset by an increase in administrative expenses due to an increase in
personnel.
General and administrative expenses (net of grants) were $1,112,007
for the six-month period ended September 30, 2001 compared to $1,319,635 for the
six-month period ended September 30, 2000, representing a decrease of $207,628.
The decrease in the six-month period is principally attributable to a decrease
in options granted to consultants, in professional fees, and in marketing
expenses due to the Company's efforts to reduce operating costs offset by an
increase in administrative expenses due to an increase in personnel during the
period.
14
Depreciation of Property, Plant and Equipment
Depreciation expense was $45,047 for the three-month period ended
September 30, 2001 compared to $27,845 for the three-month period ended
September 30, 2000, representing an increase of $17,202. Depreciation expense
was $90,016 for the six-month period ended September 30, 2001 compared to
$73,801 for the six-month period ended September 30, 2000, representing a
increase of $16,215. The increases in the three-month period and in the
six-month period ended September 30, 2001 were principally attributable to the
increased amount of fixed assets during the two periods compared to the amounts
during the same two periods last fiscal year.
Interest Income and Interest Expense
Interest income represents income earned on our cash and cash
equivalents and short-term investments. Interest income for the three-month
period ended September 30, 2001 was $34,474 compared to $103,739 for the
three-month period ended September 30, 2000, representing a decrease of $69,265.
Interest income for the six-month period ended September 30, 2001 was $91,853
compared to $225,991 for the six-month period ended September 30, 2000,
representing a decrease of $134,138. The decreases in the three-month period and
the six-month period are primarily due to a higher level of cash on hand during
the same period last year as a result of the private placements realized at the
end of fiscal year ended March 31, 2000 and during the six-month period ended
September 30, 2000.
Interest expense was $8,625 for the three-month period ended
September 30, 2001 compared to $8,200 for the three-month period ended September
30, 2000, representing a slight increase of $425. Interest expense was $19,297
for the six-month period ended September 30, 2001 compared to $37,190 for the
six-month period ended September 30, 2000, representing a decrease of $17,893.
The decrease in the six-month period is mainly attributable to interest on the
capital lease transaction on the building entered into by the Company at the end
of fiscal 1999 in order to finance its facility prior to its acquisition on July
4, 2000.
Loss (Gain) on Foreign Exchange
Gain on foreign exchange was $143,766 for the three-month period
ended September 30, 2001 compared to a gain of $137,707 for the three-month
period ended September 30, 2000 representing a decrease of $6,059. The decrease
is a result of the variation in the closing CDN to USD foreign exchange rate
from the beginning and the end of each three-month periods and its impact on
cash and cash equivalents at the end of both periods. Loss on foreign exchange
was $69,277 for the six-month period ended September 30, 2001 compared to a gain
of $237,257 for the six-month period ended September 30, 2000. The change is a
result of the variation in the closing CDN to USD foreign exchange rate from the
beginning and the end of each six-month periods and its impact on cash and cash
equivalents at the end of both periods.
Liquidity, Capital Resources and Going Concern Uncertainty
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. Our cash position (including cash equivalents and short
term investments) on September 30, 2001 was $3,435,693. We believe that our cash
and cash equivalent balances and short-term investments are sufficient for
projected capital expenditures and operating expenses only through September
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 operating expenses
only through August 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.
15
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 US$7.00 on/or before
September 30, 2001. These warrants have expired unexercised.
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 US$4.50 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 July 12, 2001, the Company increased the amount of options, which
may be granted under the Company Stock Option Plan to an authorized maximum
number of 3,900,000 shares of common stock.
Employee Count
As of November 7, 2001, BioSyntech had 32 employees, of whom 21 were
engaged on research and development and 11 were engaged in corporate,
administrative and quality assurance activities. Except for two employees in our
research and development team who are involved in the manufacturing of the
Mach1(TM) Mechanical Tester, we have no other employees involved in the
manufacturing of our products. BioSyntech anticipates that its total employee
count to remain at the current level up to the end of fiscal year 2002.
CONTINGENT MATTERS
Refer to Note 4 of the Notes to Condensed Consolidated Financial
Statements for a discussion of legal contingencies.
DISCLOSURE OF THE IMPACT THAT RECENTLY ISSUED ACCOUNTING STANDARDS
WILL HAVE ON THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS WHEN
ADOPTED IN THE FUTURE
In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
effective for fiscal years beginning after December 15, 2001. The new rules
retain many of the fundamental recognition and measurement provisions of SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". The Company will apply the new rules effective April
1, 2002 and has not yet determined what the effect of SFAS No. 144 will be on
the earnings and financial position of the Company.
16
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.
ADDITIONAL FINANCING WILL BE REQUIRED TO CONTINUE OUR OPERATIONS
AFTER AUGUST 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 August 2002.
Accordingly, in order to continue operating after August 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 are seeking funds by form of 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 September 30, 2001, our accumulated deficit was $15,173,734.
We had net operating losses of $895,847 and $5,015,134 for the three-month
period ended September 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:
17
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;
18
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 for 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.
19
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.
20
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 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.
21
PART II. OTHER INFORMATION
ITEM 2.
On June 22, 2001, the subsidiary of the Company issued 100,000 Class
A exchangeable shares as part of the judgement in a lawsuit by a former
employee. The fair market value of the 100,000 shares was recorded at $114,248,
representing the value of the expenses booked in the fiscal year ended March 31,
2001. Each Class A exchangeable share can be exchanged into one share of common
stock, $.01 par value, of the Company.
ITEM 4. SUBMISSION FOR MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders of the Company on July 12,
2001, the stockholders (i) elected two Class I directors to the Company's board
of directors to serve for a three-year term; (ii) approved an amendment to the
Company's employee stock option incentive plan to increase the total number of
shares of our common stock available for issuance under such option plan from
2,500,000 shares to 3,900,000 shares; and (iii) ratified the appointment of
Ernst & Young LLP as the Company's independent auditors for the fiscal year
ending March 31, 2002.
(1) The votes received by each director nominee elected as Class I
directors are as follows:
Nominee For Against Abstain
Serge Savard 16,589,528 None 1,250
Pierre Alary 16,589,528 None 1,250
(2) The votes received for the approval of an amendment to the Company's
employee stock option incentive plan.
For Against Abstain
16,576,420 14,350 None
(3) The votes received for the ratification of the appointment of Ernst
& Young LLP as the Company's independent auditors for the fiscal
year ending March 31, 2002.
For Against Abstain
16,589,928 None 850
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOSYNTECH, INC.
Dated: November 14, 2001
By:/s/ Amine Selmani
---------------------------------
Name: Amine Selmani
Title: Chief Executive Officer and President
By:/s/ Lucie Duval
---------------------------------
Name: Lucie Duval
Title: Chief Accounting Officer
(to verify title with US lawyers)
23
