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: December 31, 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 February 15, 2002.
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 December 31, 2001 and 3
March 31, 2001
Condensed Consolidated Statements of Operations for the Three- 4
Month Periods Ended December 31, 2001 and December 31, 2000
Condensed Consolidated Statements of Operations for the Nine- 5
Month Periods Ended December 31, 2001 and December 31, 2000
Condensed Statements of Stockholders' equity (deficiency) from 6
inception to December 31, 2001
Condensed Consolidated Statements of Cash Flows for the Three- 7
Month Periods Ended December 31, 2001 and December 31, 2000
Condensed Consolidated Statements of Cash Flows for the Nine- 8
Month Periods Ended December 31, 2001 and December 31, 2000
Notes To Condensed Consolidated Interim Financial Statements 9
Item 2. Management's Discussion and Analysis 13
Risk Factors 18
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 23
SIGNATURES 24
2
BIOSYNTECH, INC.
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated
Interm Financial Statements.
BioSyntech, Inc.
A development stage company
CONDENSED CONSOLIDATED BALANCE SHEETS
[See Basis of Presentation and Going Concern Assumption - note 2]
As of December 31, 2001 and March 31, 2001
[In Canadian dollars]
December 31, December 31, March 31,
2001 2001 2001
US$ C$ C$
- --------------------------------------------------------------------------------------------------------
[note 2] [note 2]
[unaudited] [unaudited]
ASSETS
Current assets
Cash and cash equivalents 1,591,836 2,535,477 6,643,370
Investment tax credits receivable 207,850 331,064 193,000
Other current assets 81,231 129,384 273,681
- --------------------------------------------------------------------------------------------------------
1,880,917 2,995,925 7,110,051
- --------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,499,193 2,387,915 2,504,963
- --------------------------------------------------------------------------------------------------------
Total Assets 3,380,110 5,383,840 9,615,014
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 422,691 673,263 1,794,641
Other current liabilities 22,336 35,576 34,224
Current portion of long-term debt 25,113 40,000 33,333
- --------------------------------------------------------------------------------------------------------
470,140 748,839 1,862,198
- --------------------------------------------------------------------------------------------------------
Long-term debt and obligations under capital leases 111,460 177,534 223,289
- --------------------------------------------------------------------------------------------------------
Total Liabilities 581,600 926,373 2,085,487
- --------------------------------------------------------------------------------------------------------
Contingent liability [note 4]
Stockholders' equity [note 3]
Common stock
Par value $0.001
Authorized 100,000,000 common shares
Issued and outstanding
29,222,250 common shares 11,480,324 18,285,858 18,246,375
Additional paid-in capital 1,614,181 2,571,068 1,953,410
Deficit accumulated during the development stage (10,295,995) (16,399,459) (12,670,258)
- --------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 2,798,510 4,457,467 7,529,527
- --------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity 3,380,110 5,383,840 9,615,014
========================================================================================================
See accompanying notes
On behalf of the Board
- ------------------------------------------------ ---------------------------------------------------
Director Director
3
BioSyntech, Inc.
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
[See Basis of Presentation and Going Concern Assumption - note 2]
Three-month period ended December 31, 2001 and 2000
[In Canadian dollars] Unaudited
Cumulative from
inception to
December 31, December 31, December 31, December 31,
2001 2001 2001 2000
C$ US$ C$ C$
- ------------------------------------------------------------------------------------------------------------
[note 2]
- ------------------------------------------------------------------------------------------------------------
Sales 554,909 117,971 187,905 --
Cost of sales 233,765 49,979 79,606 --
- ------------------------------------------------------------------------------------------------------------
321,144 67,992 108,299 --
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Research and development expenses 10,981,941 411,748 655,833 926,660
Investment tax credits (1,850,623) (26,369) (42,000) (35,000)
General and administrative expenses 7,977,545 484,687 772,009 839,037
Interest on long-term debt 310,181 3,996 6,365 1,917
Depreciations of property, plant and equipment 497,489 28,345 45,148 27,827
Grants (124,242) (4,709) (7,500) (25,307)
Interest income (620,975) (12,929) (20,594) (161,079)
Loss (gain) on foreign exchange (450,713) (47,236) (75,237) 10,108
- ------------------------------------------------------------------------------------------------------------
16,720,603 837,533 1,334,024 1,584,163
- ------------------------------------------------------------------------------------------------------------
Net loss and comprehensive loss for the period (16,399,459) (769,541) (1,225,725) (1,584,163)
- ------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, beginning of period -- (9,526,454) (15,173,734) (9,663,722)
- ------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, end of period (16,399,459) (10,295,995) (16,399,459) (11,247,885)
============================================================================================================
Weighted average number of shares
outstanding 29,222,250 29,222,250 29,182,250
Basic and diluted loss per share (0.03) (0.04) (0.05)
============================================================================================================
See accompanying notes
4
BioSyntech, Inc.
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
[See Basis of Presentation and Going Concern Assumption - note 2]
Nine-month period ended December 31, 2001 and 2000
[In Canadian dollars] Unaudited
Cumulative from
inception to
December 31, December 31, December 31, December 31,
2001 2001 2001 2000
C$ US$ C$ C$
- ----------------------------------------------------------------------------------------------------------------
[note 2]
Sales 554,909 152,193 242,413 88,536
Cost of sales 233,765 59,548 94,848 38,208
- ----------------------------------------------------------------------------------------------------------------
321,144 92,645 147,565 50,328
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Research and development expenses 10,981,941 1,315,856 2,095,895 2,118,209
Investment tax credits (1,850,623) (86,680) (138,064) (135,000)
General and administrative expenses 7,977,545 1,203,187 1,916,436 2,176,017
Interest on long-term debt 310,181 16,111 25,662 39,106
Depreciations of property, plant and equipment 497,489 84,859 135,164 101,628
Grants (124,242) (25,063) (39,920) (42,652)
Interest income (620,975) (70,597) (112,447) (387,070)
Loss (gain) on foreign exchange (450,713) (3,742) (5,960) (227,149)
- ----------------------------------------------------------------------------------------------------------------
16,720,603 2,433,931 3,876,766 3,643,089
- ----------------------------------------------------------------------------------------------------------------
Net loss and comprehensive loss for the period (16,399,459) (2,341,286) (3,729,201) (3,592,761)
Deficit accumulated during the development
stage, beginning of period -- (7,954,709) (12,670,258) (7,655,124)
- ----------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, end of period (16,399,459) (10,295,995) (16,399,459) (11,247,885)
================================================================================================================
Weighted average number of shares
outstanding 29,195,632 29,195,632 29,132,995
Basic and diluted loss per share (0.08) (0.13) (0.12)
================================================================================================================
See accompanying notes
5
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 December 31, 2001
[In Canadian dollars] Unaudited
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 - - - -
- -------------------------------------------------------------------------------------------------------------------
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 - - - -
- -------------------------------------------------------------------------------------------------------------------
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
Common stock issued to a consultant in
exchange for services [note 3] 40,000 39,483 (40,000) (39,483)
Options granted to consultants [note 3] - - - -
Net loss and comprehensive loss for the period from
October 1, 2001 to December 31, 2001 - - - -
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 29,222,250 18,285,858 - -
US Dollars [note 2]
Balance, December 31, 2001 11,480,324 -
===================================================================================================================
6
BioSyntech, Inc.
A development stage company
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
[See Basis of Presentation and Going Concern Assumption - note 2]
(Cont'd)
From inception to December 31, 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)
- -------------------------------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------------------------------
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
Common stock issued to a consultant in
exchange for services [note 3] - - -
Options granted to consultants [note 3] 503,410 - 503,410
Net loss and comprehensive loss for the period from
October 1, 2001 to December 31, 2001 - (1,225,725) (1,225,725)
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 2,571,068 (16,399,459) 4,457,467
US Dollars [note 2]
Balance, December 31, 2001 1,614,181 (10,295,995) 2,798,510
======================================================================================================
See accompanying notes
6A
BioSyntech, Inc.
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Basis of Presentation and Going Concern Assumption - note 2]
Three-month period ended December 31, 2001 and 2000
[In Canadian dollars] Unaudited
Cumulative from
inception to
December 31, December 31, December 31, December 31,
2001 2001 2001 2000
C$ US$ C$ C$
- --------------------------------------------------------------------------------------------------------------------------
[note 2]
OPERATING ACTIVITIES
Net loss and comprehensive loss (16,399,459) (769,541) (1,225,725) (1,584,163)
Items not affecting cash
Depreciation 497,489 28,345 45,148 27,827
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 2,456,820 316,053 503,410 --
Exchange loss (gain) (518,311) (11,716) (18,661) 21,792
Exchange loss (gain) on short-term investments (64,511) -- -- --
Changes in working capital assets and liabilities
Investment tax credits receivable (331,064) (26,369) (42,000) 359,092
Other current assets (129,384) 59,560 94,867 (140,497)
Other current liabilities -- (26,822) (42,722) --
Accounts payable and accrued liabilities 654,805 (142,235) (226,552) 84,420
- --------------------------------------------------------------------------------------------------------------------------
Cash flows relating to operating activities (11,152,884) (572,725) (912,235) (1,231,529)
- --------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,154,559) 5,531 8,809 (484,529)
Purchase of short-term investments (1,589,258) -- -- --
Proceeds from maturing of short-term investments 1,653,769 991,190 1,578,769 --
Changes in non-cash working capital balances related to
investing activities 1,970 119 189 --
- --------------------------------------------------------------------------------------------------------------------------
Cash flows relating to investing activities (1,088,078) 996,840 1,587,767 (484,529)
- --------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- -- --
Repayment of long-term debt (523,333) (6,278) (10,000) (62,500)
Proceeds of demand loan 581,845 -- -- --
Repayment of demand loan (581,845) -- -- --
Increase in due to stockholder 30,394 -- -- --
Decrease in due to stockholder (20,394) -- -- --
Repayment of obligations under capital leases (1,664,403) (3,541) (5,640) (2,686)
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) -- -- (53,935)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows relating to financing activities 14,258,128 (9,819) (15,640) (119,121)
- --------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 518,311 11,716 18,661 (21,792)
- --------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 2,535,477 426,012 678,553 (1,856,971)
Cash and cash equivalents, beginning of period -- 1,165,824 1,856,924 9,286,803
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 2,535,477 1,591,836 2,535,477 7,429,832
==========================================================================================================================
7
See accompanying notes
BioSyntech, Inc.
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Basis of Presentation and Going Concern Assumption - note 2]
Nine-month period ended December 31, 2001 and 2000
[In Canadian dollars] Unaudited
Cumulative from
inception to
December 31, December 31, December 31, December 31,
2001 2001 2001 2000
C$ US$ C$ C$
- -------------------------------------------------------------------------------------------------------------------------
[note 2]
OPERATING ACTIVITIES
Net loss and comprehensive loss (16,399,459) (2,341,286) (3,729,201) (3,592,761)
Items not affecting cash
Depreciation 497,489 84,859 135,164 101,628
Common stock to be issued to a consultant 2,566,483 24,789 39,483 --
Exchangeable shares of the subsidiary of the
Company issued as part of a settlement 114,248 71,728 114,248 --
Options granted to consultants 2,456,820 316,053 503,410 237,500
Exchange loss (gain) (518,311) 46,145 73,500 (258,205)
Exchange loss (gain) on short-term investments (64,511) (40,502) (64,511)
Changes in working capital assets and liabilities
Investment tax credits receivable (331,064) (86,680) (138,064) 518,780
Other current assets (129,384) 90,593 144,297 (138,438)
Other current liabilities -- -- -- (65,451)
Accounts payable and accrued liabilities 654,805 (613,958) (977,913) (204,058)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows relating to operating activities (11,152,884) (2,448,259) (3,899,587) (3,401,005)
- -------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,154,559) (8,326) (13,261) (772,658)
Purchase of short-term investments (1,589,258) (950,688) (1,514,258) --
Proceeds from maturing of short-term investments 1,653,769 991,190 1,578,769 75,000
Changes in non-cash working capital balances related to
investing activities 1,970 (90,071) (143,465) --
- -------------------------------------------------------------------------------------------------------------------------
Cash flows relating to investing activities (1,088,078) (57,895) (92,215) (697,658)
- -------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- -- --
Repayment of long-term debt (523,333) (14,649) (23,333) (100,000)
Proceeds of demand loan 581,845 -- -- --
Repayment of demand loan (581,845) -- -- --
Increase in due to stockholder 30,394 -- -- --
Decrease in due to stockholder (20,394) -- -- --
Repayment of obligations under capital leases (1,664,403) (12,091) (19,258) (990,591)
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) -- -- (427,681)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows relating to financing activities 14,258,128 (26,740) (42,591) 3,969,147
- -------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 518,311 (46,145) (73,500) 258,205
- -------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 2,535,477 (2,579,039) (4,107,893) 128,689
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of period -- 4,170,875 6,643,370 7,301,143
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 2,535,477 1,591,836 2,535,477 7,429,832
=========================================================================================================================
See accompanying notes
8
BioSyntech, Inc.
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 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 of December
31, 2001, the Company's accumulated deficit was $16,399,459. The Company's
ability to continue as a going concern is uncertain and 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 August 2002. Management is currently
negotiating further financing. 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 December 31,
2001, the results of operations and cash flows for the three-month and
nine-month period ended December 31, 2001 and 2000. The balance sheet at March
31, 2001 has
9
BioSyntech, Inc.
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 2001 Unaudited
[In Canadian dollars]
2. BASIS OF PRESENTATION AND GOING CONCERN ASSUMPTION [Cont'd]
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 December 31, 2001, which was $1.5928
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 must pay half the consideration in cash and half the consideration in
equity for a total value of US$50,000. On October 1, 2001, the Company issued
40,000 common shares in exchange for services for a value of C$39,483
[US$25,000]. If the consultant is successful in seeking strategic alliances and
obtains additional funding which result in milestone payments, the Company will
be required to pay a 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 owed to the consultant 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
December 31, 2001 Unaudited
[In Canadian dollars]
3. STOCKHOLDERS' EQUITY [CONT'D]
On July 12, 2001, the Company increased the number of shares reserved for
issuance under the Company's Stock Option Plan to an authorized maximum number
of 3,900,000 shares of common stock.
As of September 30, 2001, warrants to purchase 470,000 shares of common stock of
the Company expired.
On November 29, 2001, options to purchase 2,235,000 shares of common stock under
the Company's Stock Option Plan have been granted as follows: 977,500 stock
options to employees, 300,000 stock options to members of the Board of Directors
and 957,500 stock options to consultants. These options can be exercised over a
five-year period from the grant date.
The following table summarizes information regarding the price and the vesting
date:
- ---------------------------------------------------------------------------------------------------
Price Fully vested Vesting on Vesting on Vesting on Total
- ----- ------------ ----------- ----------- ------------ -----
May 16, 2002 December 31, 2002 December 31, 2003
------------ ----------------- -----------------
- ---------------------------------------------------------------------------------------------------
$0.79 1,022,500 175,000 - - 1,197,500
- ---------------------------------------------------------------------------------------------------
$1.19 175,000 - - - 175,000
- ---------------------------------------------------------------------------------------------------
$1.58 406,000 - 221,000 235,500 862,500
- ---------------------------------------------------------------------------------------------------
Total 1,603,500 175,000 221,000 235,500 2,235,000
- ---------------------------------------------------------------------------------------------------
The fair value of the stock options granted to the consultants at the date of
grant was charged to research and development and general administrative
expenses in the amount of $158,646 and $344,764, respectively. The fair value of
these stock options are presented as "Additional paid-in capital". Some of these
options were granted to pay future services. The fair value of these services
amount to $40,300 and will be charged to expenses as services are rendered. The
fair value of these stock options at the date of grant was estimated using the
Black-Scholes pricing model.
As of December 31, 2001, options to purchase 847,500 Class A shares of Bio
Syntech Canada Inc. expired. Also, options to purchase 5,000 Class A shares of
Bio Syntech Canada Inc. and options to purchase 50,000 share of the common stock
of the Company were cancelled because more than 90 days had elapsed since the
departure date of some employees.
11
BioSyntech, Inc.
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 2001 Unaudited
[In Canadian dollars]
4. CONTINGENT LIABILITY
A former executive employee and officer of the Company has commenced an action
for wrongful termination and is seeking C$224,000 in compensation allegedly due
plus C$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. SUBSEQUENT EVENTS
On January 10, 2002, the Company signed an agreement with RCG Capital Markets
Group Inc. ("RCG") expiring in eighteen months. RCG will serve as the exclusive
financial relations counsel for the Company in the United States. As part of
this agreement, the Company will pay for the financial relations services to be
rendered in cash and in equity. For the first seven-month period, the Company
must issue a total of 35,000 common shares and pay in cash US$21,000 in exchange
for the services provided and US$6,000 per month subsequently until the end of
the agreement. The contract is cancellable by either party, subject to terms and
conditions, after the conclusion of the initial seven-month period.
The Company has granted RCG, subject to Board of Directors' approval, an option
to purchase 200,000 shares of common stock of the Company at an exercise price
of US$0.60 of which options to purchase 20,000 shares of common stock
immediately vested at the date of the agreement The vesting dates of the other
options are conditional upon the rendering of specified services. The options
can be exercised over a six-year period.
6. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
presentation adopted for the quarter ended December 31, 2001.
12
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 December 31, 2001, had an accumulated deficit of $16,399,459. We
expect to incur substantial operating expenses in the future to support our
product development efforts and expand our technical and management personnel
and organization, subject to obtaining financing.
Currency Exchange Rates
-----------------------
All dollar amounts stated in this quarterly report are in
Canadian dollars, except where otherwise specifically indicated. The following
table sets forth, for the dates indicated, the rates at the specific date for
the Canadian dollar per one U.S. dollar, each expressed in Canadian dollars and
based on the noon buying rate, except for the rate at end of period which is the
closing rate, in New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Bank of Canada:
Rate at filing date 1.5885
2000 2001
---- ----
Rate at end of period (December 31) 1.4995 1.5928
Period High for the period Low for the period
- ------ ------------------- ------------------
January 2002 1.6033 1.5967
December 2001 1.5805 1.5743
November 2001 1.5955 1.5898
October 2001 1.5740 1.5679
September 2001 1.5703 1.5632
13
August 2001 1.5425 1.5366
July 2001 1.5327 1.5269
June 2001 1.5283 1.5209
May 2001 1.5448 1.5377
April 2001 1.5621 1.5545
March 2001 1.5618 1.5538
February 2001 1.5392 1.4936
Period Average for the period
- ------ ----------------------
Three Month Period Ended December 31, 2001 1.5804
Three Month Period Ended December 31, 2000 1.5256
Nine Month Period Ended December 31, 2001 1.5559
Nine Month Period Ended December 31, 2000 1.4960
Fiscal year ended March 31, 2001 1.5040
Fiscal year ended March 31, 2000 1.4683
Results of Operations
---------------------
The following table sets forth certain items in the Company's
condensed consolidated statements of operations for the three-month periods
ended December 31, 2001 and 2000, and the nine-month periods ended December 31,
2001 and 2000 (in thousands of CDN$).
Three-month Nine-month
Periods Periods
Ended December 31, Ended December 31,
2001 2000 2001 2000
---------------------------------------------
Sales $ 187.9 $ -- $ 242.4 $ 88.5
Cost of sales 79.6 -- 94.8 38.2
-------- -------- --------- --------
Gross profit $ 108.3 $ -- $ 147.6 $ 50.3
Operating Expenses:
Research and development $ 655.8 $ 926.7 $ 2,095.9 $2,118.2
Investment tax credits (42.0) (35.0) (138.1) (135.0)
General and administrative (net of grants) 764.5 813.7 1,876.5 2,133.4
Depreciation of property, plant and equipment 45.1 27.8 135.2 101.6
Interest income (20.6) (161.1) (112.4) (387.1)
Interest expense 6.4 1.9 25.7 39.1
Loss (gain) on foreign exchange (75.2) 10.1 (6.0) (227.1)
---------------------------------------------
Net loss $1,225.7 $1,584.1 $3,729.2 $3,592.8
Sales
During the three-month period ended December 31, 2001, the
Company had sales of $187,905 (sale of products and research service revenues)
and a net loss of $1,225,725 compared to sales of zero and a net loss of
$1,584,163 for the three-month period ended December 31, 2000. The increase in
sales is primarily due to the revenue related to sale of products. During the
nine-month period ended December 31, 2001, the Company had sales of $242,413
(sale of products and research service revenues) and a net loss of $3,729,201
compared to sales of $ 88,536 and a net loss of $ 3,592,761 for the nine-month
period ended December 31, 2000.
14
Loss per share was $0.04 for the three-month period ended
December 31, 2001, compared to $0.05 for the three-month period ended December
31, 2000. Loss per share was $0.13 for the nine-month period ended December 31,
2001, compared to $0.12 for the nine-month period ended December 31, 2000.
Operating Expenses
Research and development
Research and development expenses were $655,833 for the
three-month period ended December 31, 2001 compared to $926,660 for the
three-month period ended December 31, 2000. The decrease of $270,827 in the
three-month period is primarily attributable to lower expenses for (i) the
acquisition of research and development equipment and (ii) pre-clinical
toxicological studies, a reduction of researchers and affiliated expenses offset
by the increase in compensation expense related to options granted to
consultants during the period.
Research and development expenses were $2,095,895 for the
nine-month period ended December 31, 2001 compared to $2,118,209 for the
nine-month period ended December 31, 2000, representing a decrease of $22,314.
The decrease in the nine-month period is primarily attributable to lower
expenses for (i) the acquisition of research and development equipment and (ii)
pre-clinical toxicological studies offset by the increase in compensation
expense related to options granted to consultants during the period.
Investment tax credits
The Company claims an investment tax credit on all allowable
research and development expenses. The amount for the three-month period ended
December 31, 2001 is $42,000 compared to $35,000 for the three-month period
ended December 31, 2000, representing an increase of $7,000. The amount for the
nine-month period ended December 31, 2001 is $138,064 compared to $135,000 for
the nine-month period ended December 31, 2000, representing an increase of
$3,064. The increases in the three-month and nine-month periods are due to the
higher level of allowable research and development expenses.
General and administrative
General and administrative expenses (net of grants) were
$764,509 for the three-month period ended December 31, 2001 compared to $813,730
for the three-month period ended December 31, 2000, representing a decrease of
$49,221. The decrease in the three-month period is principally attributable to a
decrease in expenses related to investors, professional fees and personnel and
in marketing expenses resulting from the Company's efforts to reduce operating
costs offset by an increase in compensation expense related to options granted
to consultants.
General and administrative expenses (net of grants) were
$1,876,516 for the nine-month period ended December 31, 2001 compared to
$2,133,365 for the nine-month period ended December 31, 2000, representing a
decrease of $256,849. The decrease in the nine-month period is principally
attributable to a decrease in professional fees, in expenses related to
investors and marketing expenses resulting from the Company's efforts to reduce
operating costs offset by an increase in compensation expense related to options
granted to consultants and an increase of administrative personnel.
Depreciation of Property, Plant and Equipment
Depreciation expense was $45,148 for the three-month period
ended December 31, 2001 compared to $27,827 for the three-month period ended
December 31, 2000, representing an increase of $17,321. Depreciation expense was
$135,164 for the nine-month period ended December 31, 2001 compared to $101,628
for the nine-month period ended December 31, 2000, representing an increase of
$33,536. The increases in the three-month period and in the nine-month period
ended December 31, 2001 were principally attributable to the increased amount of
fixed assets during the two periods compared to the amounts during the same two
periods for the previous fiscal year.
15
Interest Income and Interest Expense
Interest income represents income earned on our cash and cash
equivalents. Interest income for the three-month period ended December 31, 2001
was $20,594 compared to $161,079 for the three-month period ended December 31,
2000, representing a decrease of $140,485. Interest income for the nine-month
period ended December 31, 2001 was $112,447 compared to $387,070 for the
nine-month period ended December 31, 2000, representing a decrease of $274,623.
The decreases in the three-month period and the nine-month period are primarily
due to a higher level of cash on hand during the same period for the previous
year as a result of the private placements realized at the end of fiscal year
ended March 31, 2000 and during the nine-month period ended December 31, 2000.
Interest expense was $6,365 for the three-month period ended
December 31, 2001 compared to $1,917 for the three-month period ended December
31, 2000, representing an increase of $4,448. Interest expense was $25,662 for
the nine-month period ended December 31, 2001 compared to $39,106 for the
nine-month period ended December 31, 2000, representing a decrease of $13,444.
The decrease in the nine-month period is primarily attributable to interest on
the capital lease transaction on the building entered into by the Company at the
end of fiscal 1999 prior to its acquisition on July 4, 2000.
Loss (Gain) on Foreign Exchange
Gain on foreign exchange was $75,237 for the three-month
period ended December 31, 2001 compared to a loss of $10,108 for the three-month
period ended December 31, 2000 representing a change of $85,345. 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 three-month periods and its impact on cash and
cash equivalents at the end of both periods. Gain on foreign exchange was $5,960
for the nine-month period ended December 31, 2001 compared to a gain of $227,149
for the nine-month period ended December 31, 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 nine-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 on December 31, 2001 was $2,535,477. We
believe that our cash and cash equivalent balances are sufficient for projected
capital expenditures and operating expenses only through August 2002. We also
have a program in place to limit our operating costs and future capital
expenditures.
Management believes that our cash and cash equivalent
balances are only sufficient for projected operating expenses only through
August 2002. Management continues to pursue various financing alternatives,
including on-going negotiations for co-development agreements and bank credit
facility to raise the required financing. 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. The warrants expired on 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
16
warrant for the purchase of one additional share at a price of US$4.50 per share
before March 30, 2001. The warrants expired on September 30, 2001.
------------------------------------------------------------------
Closing Date Number of Units Proceeds
------------------------------------------------------------------
March 31, 2000 843,500 $ 4,270,243
------------------------------------------------------------------
April 4, 2000 833,857 $ 4,281,343
------------------------------------------------------------------
April 17, 2000 82,000 $ 425,879
------------------------------------------------------------------
April 27, 2000 42,857 $ 221,925
------------------------------------------------------------------
June 9, 2000 108,000 $ 558,272
------------------------------------------------------------------
Totals 1,910,214 $ 9,757,662
------------------------------------------------------------------
On July 12, 2001, the Company increased the number of shares
reserved for issuance under the Company's Stock Option Plan to an authorized
maximum number of 3,900,000 shares of common stock. For more information
regarding options granted as of December 30, 2001, refer to Note 3 of the Notes
to Condensed Consolidated Financial Statements.
Employee Count
As of February 8, 2001, BioSyntech had 30 employees, of whom
18 were engaged on research and development and 12 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
Mach1TM 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.
17
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 WE 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 in the form of debt securities and
through arrangements with our collaborative partners. We currently have no
commitments, agreements or understandings regarding additional financing, except
for that which was discussed in "Management's Discussion and Analysis --
Liquidity, Capital Resources and Going Concern Uncertainty", 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 December 31, 2001, our accumulated deficit was
$16,399,459. We had net operating losses of $1,225,725 and $5,015,134 for the
three-month period ended December 31, 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
18
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:
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
19
necessary to complete clinical trials and receive approval for product marketing
by regulatory authorities varies significantly by product and indication and is
difficult to predict. If the Food and Drug Administration does not approve or
significantly delays the approval of our therapeutic delivery products, we may
be unable to continue operations. FDA approval can be delayed, limited or denied
for many reasons, including:
o A product candidate may not be safe or effective;
o Data from pre-clinical testing and clinical trials can
be interpreted by FDA officials in different ways than
we interpret it;
o The FDA might not approve our manufacturing processes or
facilities;
o The FDA may change its approval policies or adopt new
regulations; and
o A product candidate may not be approved for all the uses
we requested.
Countries other than the United States, including Canada,
have similar requirements. The process of getting approvals in foreign countries
is subject to delay and failure for the same reasons.
We currently do not have any product that has been approved
by the FDA. We are currently in the process of filing a pre-submission package
for BST-InPod with the FDA. Upon successful completion of the required
pre-clinical studies, an Investigational Device Exemption ("IDE") application
for BST-InPod will be filed with the FDA. We will also file an Investigational
Testing application for BST-InPod with Health Protection Branch of Canada. We
plan to make the same applications for the following products also:
o BST-Fill;
o BST-Cargel-C(TM) and
o Arthro-BST.
We will be allowed to conduct human clinical trials in the
United States if our IDE 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
20
commercialization program on which it is working will be delayed. If this
happens, we may have to stop the program entirely.
Disputes may arise between us and a collaborator and may
involve the issue of which of us owns the technology that is developed during a
collaboration. A potential dispute could delay the program or result in
expensive arbitration or litigation, which we might not win. A collaborator may
choose to use its own or other technology to deliver its drug or cell product.
Our collaborators could merge with or be acquired by another company or
financial or operational difficulties that could adversely affect our programs.
IF WE ARE INVOLVED IN A COSTLY LITIGATION TO PROTECT OUR
PROPRIETARY RIGHTS, THE COST MAY HAVE A MATERIAL EFFECT ON
OUR RESULTS OF OPERATIONS. WE MAY ALSO BE PREVENTED FROM
SELLING OUR PRODUCTS.
The following factors are important to our success:
o Receiving patent protection for our product candidates
and those of our collaborators;
o Maintaining our trade secrets;
o Not infringing on the proprietary rights of others; and
o Preventing others from infringing our proprietary
rights.
We can protect our proprietary rights from unauthorized use
by third parties only if these rights are covered by valid and enforceable
patents or are effectively maintained as trade secrets. We try to protect our
proprietary position by filing United States, Canadian, and foreign patent
applications related to our proprietary technology, inventions and improvements
that are important to the development of our business. The patent position of
biopharmaceutical companies involves complex legal and factual questions.
Enforceability of patents cannot be projected with certainty. Patents, if
issued, may be challenged, invalidated or circumvented. Any patents that we own
or license from others may provide no protection against competitors. Our
pending patent applications, those we may file in the future, or those we may
license from third parties, may not result in patents being issued. If patents
do issue, they may not provide us with proprietary protection or competitive
advantages against competitors with similar technology. Also, others may
independently develop similar technologies or duplicate any technology that we
have developed. The laws of certain foreign countries may not protect our
intellectual property rights to the same extent as the laws of the United
States.
We also rely on trade secrets, know-how and technology, which
we try to protect by entering into confidentiality agreements with parties that
have access to it, including our corporate partners, collaborators, employees
and consultants. Any of these parties may breach the agreement and disclose our
confidential information or our competitors might learn of the information in
some other way.
Protecting our proprietary rights involves a significant
level of resources. Although we have provided for the costs of applying for
patents and trade marks, our results of operations may be materially affected if
we are involved in a costly litigation in the process of protecting our
proprietary rights. We may also be prevented from selling our products if such
litigation ensues.
FOREIGN EXCHANGE FLUCTUATIONS OF THE CANADIAN DOLLAR MAY
AFFECT OUR FINANCIAL PERFORMANCE, BECAUSE IT IS NOT
COST-EFFECTIVE FOR US TO ENTER INTO FORWARD CONTRACTS OR
CURRENCY OPTIONS.
We expect a substantial portion of our revenues to be based
on sales and services rendered to come from the United States, while a
significant amount of our operating expenses will be incurred in Canada. As a
result, our financial performance will be affected by fluctuations in the value
of the United States dollar to the Canadian dollar. At the present time, we have
no plan or policy to utilize forward contracts or currency options to minimize
this 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.
21
OUR COMMON STOCK CURRENTLY IS, AND MAY CONTINUE TO BE,
SUBJECT TO ADDITIONAL REGULATIONS APPLICABLE TO LOWER PRICED
SECURITIES THAT MAY REDUCE THE TRADING VOLUME OF OUR SHARES
AND MAY ALSO REDUCE YOUR ABILITY TO RESELL THE SHARES LATER.
Our common stock may be subject to a number of regulations
that can affect its price and your ability to sell it. For example, Rule 15g-9
under the Exchange Act may apply to our common stock. This rule imposes sales
practice requirements on broker-dealers that sell low priced securities to
persons other than established customers and institutional accredited investors.
For transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction.
In addition, under United States securities regulations,
penny stocks generally are equity securities with a price of less than US$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 US$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 US$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.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On April 3, 2001, the Company signed an agreement with a
consultant to seek strategic alliances. As part of this agreement, the Company
agreed to pay the consultant a total value of US$50,000, payable half in cash
and the other half in equity securities of the Company. On October 1, 2001, the
Company issued 40,000 shares of Common Stock to the consultant which was valued
and recorded in the Company's book for the quarter ended June 30, 2001 at
$39,483 (US$25,000). The securities were issued in accordance with the exemption
contained in Section 4(2) of the Securities Act of 1933, as amended.
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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: February 19, 2002
By: /s/ Amine Selmani
----------------------------------
Name: Amine Selmani
Title: Chief Executive Officer and President
By: /s/ Lucie Duval
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Name: Lucie Duval
Title: Controller
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