As filed with the Securities and Exchange Commission on September 13, 2000
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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BIOSYNTECH, INC.
(Exact Name of Small Business Issuer in Its Charter)
Nevada 9995 88-0329399
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
475 Boulevard Armand-Frappier
Laval, Quebec, Canada H7V 4B3
(450) 686-2437
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(Address and Telephone Number, of Principal Executive Offices)
[Dr. Amine Selmani]
Chairman of the Board and President
BioSyntech, Inc.
475 Boulevard Armand-Frappier
Laval, Quebec, Canada H7V 4B3
(450) 686-2437
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(Name, Address and Telephone Number of Agent for Service)
Copy to:
David J. Adler, Esq.
Olshan Grundman Frome Rosenzweig & Wolosky LLP
505 Park Avenue
New York, New York 10022
(212) 753-7200
(212) 935-1787 (Facsimile)
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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CALCULATION OF REGISTRATION FEE
Proposed
Title of Each Class of Proposed Maximum Maximum Amount of
Securities Amount to be Aggregate Offering Aggregate Registration
to Be Registered Registered Price Per Share(1) Offering Price Fee
Common Stock, $.001 par 7,537,036 $3.4375 $25,908,561 $7,202.58
value per share
(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(c) based on the average of the high and low sale prices
of the Company's Common Stock as reported on the Over the Counter Electronic
Bulletin Board on September 11, 2000.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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We will amend and complete the information in this prospectus. Although
we are permitted by US federal securities laws to offer these securities using
this prospectus, we may not sell them or accept your offer to buy them until the
documentation filed with the SEC relating to these securities had been declared
effective by the SEC. This prospectus is not an offer to sell these securities
or our solicitation of your offer to buy these securities in any jurisdiction
where that would not be permitted or legal.
SUBJECT TO COMPLETION, DATED SEPTEMBER 13, 2000
PRELIMINARY PROSPECTUS
7,537,036 Shares of Common Stock
BIOSYNTECH, INC.
This prospectus relates to shares of our common stock that may be
offered for resale by the selling stockholders listed on pages 34 -36 through
public or private transactions at prevailing market prices or at privately
negotiated prices. We will not receive any proceeds from the sale of the shares
of common stock.
Our common stock is listed on the Over the Counter Electronic Bulletin
Board under the symbol "BSYI." On September 11, 2000, the closing price of our
common stock was $3.4375 per share.
AN INVES(TM)ENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. BEFORE
INVESTING IN OUR COMMON STOCK, YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
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The date of this prospectus is September 13, 2000.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY...........................................................-3-
RISK FACTORS.................................................................-5-
USE OF PROCEEDS.............................................................-11-
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....................-11-
DESCRIPTION OF BUSINESS.....................................................-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS AND
PLAN OF OPERATION...........................................................-25-
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS ...............-29-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............-31-
EXECUTIVE COMPENSATION......................................................-32-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .............................-34-
SELLING STOCKHOLDERS .......................................................-34-
PLAN OF DISTRIBUTION .......................................................-36-
DESCRIPTION OF CAPITAL STOCK................................................-37-
EXPERTS ...................................................................-37-
LEGAL MATTERS...............................................................-38-
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES..............................-38-
WHERE YOU CAN FIND MORE INFORMATION.........................................-38-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................................F-1
-2-
PROSPECTUS SUMMARY
This summary highlights information contained in this prospectus. It is
not complete and may not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully, including "Risk Factors" and our financial statements. Unless
otherwise indicated, all information in this prospectus gives effect to the
conversion into 7,537,036 shares of our Common Stock, $.001 par value (the
"Common Stock") of exchangeable preferred stock of our subsidiary, Bio Syntech
Canada, Inc. Some of the statements contained in this summary, as well as the
sections entitled "Risk Factors," "Plan of Operations" and "Description of
Business" are forward-looking. These statements include those concerning
strategy and plan of operations and the ability to obtain financing, competitive
pressure in the industry, legal proceedings, regulatory matters and general
economic conditions. Actual results may differ materially from those suggested
by the forward- looking statements for various reasons, including those
discussed under "Risk Factors." All references to "the Company," "we," "our," or
"us" refer to the operations BioSyntech, Inc.
BioSyntech, Inc.
We were incorporated in the State of Nevada on December 14, 1994. We
are an advanced biomaterials company specialized in tissue engineering (the
repair of damaged tissue in the human body, such as bone or cartilage). We are
also engaged in the development of advanced injectable biomaterials for the
delivery of cells and genetic material and biotherapeutic agents. We have had
limited revenues and our future operations are dependent upon our receiving the
financing necessary to complete research and development projects and market our
products. We are unsure whether we can complete the development of our products,
or if we complete them whether we can successfully market them or generate
sufficient revenues to fund our future operations or additional research,
development and marketing.
Our research and development efforts, (either alone or together with
our corporate partners), are focused on maximizing the multiple benefits of our
core technologies, which include tissue engineering, the therapeutic delivery of
cells, genetic material for site specific gene therapy and the delivery of
biotherapeutic agents such as proteins and peptides. Our technologies apply to
diverse specialties: Orthopedics and Rheumatology which includes cartilage
injuries and diseases as well as bone injuries and diseases, vaccines, and the
delivery of biotherapeutic agents.
We also have an instrumentation division. We have developed the
ARTHRO-BST(TM), an arthroscopic device providing precise and non-destructive
diagnosis of articular cartilage quality, and the Mach-1(TM) Mechanical Tester,
a universal mechanical testing system for specimens with dimensions between
hundreds of microns and a few centimeters.
Our functional currency is the Canadian dollar. All amounts presented
in this registration statement on Form SB-2 (the "Registration Statement") in US
currency are identified as such. Other amounts are expressed in Canadian
dollars. See "Currency Exchange Rates" for a description of the exchange rate
for the Canadian dollar per one United States dollar as of March 31, 1999 and
March 31, 2000 and as of June 30, 1999 and June 30, 2000.
Our address is 475 Boulevard Armand-Frappier, Laval, Quebec, Canada H7V
4B3. Our telephone number is (450) 686-2437.
The Offering
Common Stock Being Offered................... 7,537,036 shares
Common Stock Outstanding Prior to this Offering.. 29,182,250 shares (1)
-3-
Common Stock to be Outstanding after the Offering. 29,182,250 shares (1)
Use of proceeds................................ We will receive no proceeds
from the sale of the shares by
the selling stockholders listed
on pages 34 to 36 (the "Selling
Stockholders").
(1) Based on the number of shares of Common Stock outstanding on August 31,
2000. This number excludes 1,500,000 shares reserved for issuance upon the
exercise of options granted under the Bio Syntech Canada, Inc. Stock Option
Plan, 2,500,000 shares of Common Stock reserved for issuance upon the exercise
of options to be granted under the BioSyntech, Inc. Stock Option Plan, and
2,380,214 shares issuable upon exercise of outstanding warrants.
Risk Factors
An investment in the shares of Common Stock offered hereby involves a
high degree of risk, including without limitation our accumulated deficit,
historical and projected future operating losses; dependence upon new products
and uncertain market acceptance of our products; lack of revenue and limited
operating history. An investment in the shares of Common Stock offered herein
should be considered only by investors who can afford the loss of their entire
investment. See "Risk Factors."
-4-
RISK FACTORS
An investment in our Common Stock involves a high degree of risk, In
addition to the other information contained in this prospectus, you should
carefully consider the following risk factors and other information in the
prospectus before investing in our Common Stock.
We expect that we will incur losses for the foreseeable future.
We have had net operating losses since being founded and currently have
an accumulated deficit. These losses consist of research and development costs,
the costs of acquiring rights to research and development performed by others
and general and administrative expenses. We expect to have substantial
additional expenses over the next several years as our research and development
activities and the process of seeking regulatory approval of our products,
including clinical trials, accelerate. Because we do not expect to have
significant revenues from the sale of products for several years, if ever, we
expect that such expenses will result in additional losses.
Our future profitability depends, in part, on:
o Obtaining regulatory approval for our products;
o Entering into agreements to develop and commercialize
products;
o Developing the capacity to manufacture and market products or
entering into agreements with others to do so;
o Market acceptance of our products;
o The ability to obtain additional research and development
funding from our collaborative partners; and
o The ability to achieve certain product development milestones.
We may not achieve any or all of these goals and, thus, are unable to
predict whether we will ever achieve significant revenues or profits. Even if we
receive regulatory approval of one or more of our products, we may not achieve
significant commercial success.
We need to spend substantial funds to become profitable.
We need to spend substantial amounts of money before we can be
profitable. The amount we will spend, and when we will spend it, will depend, in
part, on:
o How our research and development programs, including clinical
trials, progress;
o How much time and expense will be required to receive FDA
approval for our product candidates;
o The cost of building, operating and maintaining manufacturing
facilities;
o How many product candidates we pursue; o How much time and
money we need to prosecute and enforce patent rights;
o How competing technological and market developments affect our
product candidates;
o The cost of possible acquisitions of drug delivery
technologies, products or companies; and
o The cost of obtaining licenses to use technology owned by
others.
We will need additional financing to continue our operations as
planned.
We will seek funds by issuing equity and debt securities and through
arrangements with our collaborative partners. If we issue equity securities, our
present stockholders will suffer dilution. If we issue debt securities, we will
face the risks associated with debt, including rises in interest rates and
insufficient cash flow to pay the principal of and interest on our debt
securities. We are unable to predict whether additional equity or debt financing
-5-
will be available to us, on favorable terms or at all. If sufficient financing
is unavailable on a timely basis, we may curtail one or more development
programs or transfer rights in products that could later prove to be of great
value.
Our delivery technologies may not produce safe, useful or commercially
viable products.
To be profitable, we must develop, manufacture and market our
products, either alone or by collaborating with others. This could take several
years and we may never be successful in bringing our product candidates to the
market. Additionally, our success in preclinical and early clinical trials does
not ensure that large scale clinical trials will be successful. Clinical results
are frequently susceptible to varying interpretations that may delay, limit or
prevent further clinical development or regulatory approvals. The product may:
o Be shown to be ineffective or to cause harmful side effects
during preclinical testing or clinical trials;
o Fail to receive regulatory approval on a timely basis or at
all;
o Be hard to manufacture on a large scale;
o Be uneconomical;
o Not be pursued by our collaborative partner;
o Not be prescribed by doctors or accepted by patients; or
o Infringe on proprietary rights of another party.
The FDA may not approve our product candidates.
FDA approval is required to manufacture and market pharmaceutical
products in the United States. The process to receive this approval is extensive
and includes preclinical testing and clinical trials to demonstrate safety and
usefulness, and a review of the manufacturing process to ensure compliance with
good manufacturing practices. This process can last many years and be very
costly and still be unsuccessful. The length of time necessary to complete
clinical trials and receive approval for product marketing by regulatory
authorities varies significantly by product and indication and is difficult to
predict. FDA approval can be delayed, limited or denied for many reasons,
including:
o A product candidate may not be safe or effective;
o Data from preclinical 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 are subject to extensive government regulations and we may not be
able to obtain regulatory approvals.
Our product candidates are subject to broad government regulation. In
the United States, the FDA regulates, among other things, the development,
testing, manufacture, safety, usefulness, record-keeping, labeling, storage,
approval, advertising, promotion, sale and distribution of biopharmaceutical
products. If our products are marketed in other countries, they will also be
subject to extensive regulation by foreign governments. Certain material changes
to an approved product, such as manufacturing changes or additional labeling
claims, are subject to further FDA review and approval. Any required approvals,
once obtained, may be withdrawn. Further, if we fail to comply with FDA and
other regulatory requirements at any stage during the regulatory process, we may
be subject to sanctions, including:
-6-
o Delays, warning letters and fines;
o Product recalls or seizures and injunctions on sales;
o Refusal of the FDA to review pending market approval
applications or supplements to approval applications;
o Total or partial suspension of production;
o Withdrawals of previously approved marketing applications; and
o Civil penalties and criminal prosecutions.
We rely on collaborators.
Our present and future arrangements with collaborators and licensors
may be critical to the success in bringing some of our biotherapeutic products
to the market. 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 preclinical testing and
clinical trials and to provide funding for our development programs. Some of our
collaborators can terminate their agreements with us for no reason and on
limited notice. We are unsure whether any of these relationships will continue.
Our present plans call for us to develop the capabilities to
manufacture our own products in commercial quantities. We may rely upon our
collaborators and or licensees for the marketing and sales of our products. If
we are unable to reach satisfactory agreements with our collaborators or with
third parties, we would incur substantial additional costs and would experience
substantial delay in commercializing most of our products.
We have limited means of enforcing our collaborators' or licensees'
performance or of controlling the resources they devote to our programs. If a
collaborator fails to perform, the research, development or commercialization
program on which it is working will be delayed. If this happens, we may have to
stop the program entirely.
Disputes may arise between us and a collaborator and may involve the
issue of which of us owns the technology that is developed during a
collaboration. Such a dispute could delay the program or result in expensive
arbitration or litigation, which we might not win. A collaborator may choose to
use its own or other technology to deliver its drug or cell product. Our
collaborators could merge with or be acquired by another company or financial or
operational difficulties that could adversely affect our programs.
We may indirectly be subject to some professional guidelines.
In addition to government agencies that promulgate regulations and
guidelines directly applicable to us and our products, private health/science
foundations and organizations involved in various diseases may also publish,
from time to time, guidelines or recommendations to the healthcare and patient
communities. These private organizations may make recommendations that affect
the usage of certain therapies, drugs or procedures, including our products.
Such recommendations may relate to such matters as usage, dosage, route of
administration and use of concomitant therapies. Recommendations or guidelines
that are followed by patients and healthcare providers and that result in, among
other things, decreased use of our products could have a material adverse effect
our operations. In addition, the perception that such recommendations or
guidelines will be followed could adversely affect prevailing market prices for
our Common Stock.
Rapid technological change could render our therapeutic delivery
systems obsolete or noncompetitive.
Major technological changes can occur quickly in the biotechnological
and pharmaceutical industries. The development by competitors of technologically
improved or different products may make our product candidates obsolete or
noncompetitive.
-7-
The competitive nature of our industry could adversely affect market
acceptance of our products.
Our product candidates may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. The degree of market
acceptance of any product candidate that we develop will depend on a number of
factors, including:
o Demonstration of their usefulness and safety;
o Their relative cost;
o Their advantage or disadvantage compared to alternative
methods;
o The marketing and distribution support they receive; and
o Reimbursement policies of government and third-party payors.
Our products may compete with new products currently under development
by others or with products that may cost less than our products. Our actual and
potential competitors include other therapeutic delivery companies,
biotechnology and pharmaceutical companies, academic and research institutions
and government agencies. Many have greater name recognition and greater
financial, research and development, marketing and personnel resources than we
do. Many have greater experience in testing and clinical trials and in the
regulatory process.
Proprietary protection for our products is important and uncertain.
The following factors are important to our success:
o Receiving patent protection for our product candidates and
those of our collaborators;
o Maintaining our trade secrets;
o Not infringing on the proprietary rights of others; and
o Preventing others from infringing our proprietary rights.
We can protect our proprietary rights from unauthorized use by third
parties only if these rights are covered by valid and enforceable patents or are
effectively maintained as trade secrets.
We try to protect our proprietary position by filing United States,
Canada, and foreign patent applications related to our proprietary technology,
inventions and improvements that are important to the development of our
business. The patent position of biopharmaceutical companies involves complex
legal and factual questions. Therefore, enforceability of patents cannot be
projected with certainty. Patents, if issued, may be challenged, invalidated or
circumvented. Thus, any patents that we own or license from others may provide
no protection against competitors. Our pending patent applications, those we may
file in the future, or those we may license from third parties, may not result
in patents being issued. If patents do issue, they may not provide us with
proprietary protection or competitive advantages against competitors with
similar technology. Furthermore, others may independently develop similar
technologies or duplicate any technology that we have developed. The laws of
certain foreign countries may not protect our intellectual property rights to
the same extent as the laws of the United States.
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, such as our corporate partners, collaborators, employees and
consultants. Any of these parties may breach the agreement and disclose our
confidential information or our competitors might learn of the information in
some other way.
Efforts to keep down the cost of healthcare may threaten our
profitability.
Third-party payors, which include governments and private health
insurers, are increasingly challenging the prices charged for medical products
and services. In their attempts to reduce healthcare costs, they have also been
limiting their coverage and reimbursement levels for new drugs. In some cases,
they are refusing to cover the costs
-8-
of drugs that are not new but are being used for newly approved purposes.
Patients who use a product that we may develop might not be reimbursed for its
cost. If third-party payors do not provide adequate coverage and reimbursement
for our products, if and when they reach the market, doctors may not prescribe
them or patients may not use them.
The federal government and various state governments have considered
proposals to regulate the prices of prescription drugs, as is done in certain
foreign countries. We expect that there will be more proposals like these. If
any of these proposals are enacted, we may receive a lower price for our
products, if and when they reach the market, than we currently estimate. Lack of
adequate reimbursement or the enactment of price controls would have a material
adverse effect on our business and financial condition.
We may be unable to retain our key executives and research and
development personnel.
Our success depends on the services of key employees in executive and
research and development positions, notably our Chairman of the Board of
Directors and President, Dr. Selmani and our Chief Executive Officer,
Marie-Claire Pilon. The loss of the services of one or more of our key employees
could have a material adverse effect on our operations.
Our insurance coverage may be insufficient for product liability
claims.
The testing and marketing of bio-therapeutic and medical products, even
after FDA approval, have an inherent risk of product liability. We anticipate we
will obtain product liability insurance coverage in a limited amount at the time
that our operations warrant it. Our profitability will be affected by a
successful product liability claim in excess of any insurance coverage that may
be in effect at such time. We are unsure whether product liability insurance
will be available in the future on reasonable terms or at all.
Our operating results may be affected by foreign exchange fluctuations.
We expect a substantial portion of our revenues to be based on sales
and services rendered to come from the United States, while a significant amount
of our operating expenses will be incurred in Canada. As a result, our financial
performance will be affected by fluctuations in the value of the U.S. dollar to
the Canadian dollar. At the present time, we have no plan or policy to utilize
forward contracts or currency options to minimize this exposure, and even if
these measures are implemented, we are unsure whether these arrangements will be
available, be cost effective or be able to fully offset such future currency
risks.
We will pay no dividends on our Common Stock.
We have not paid cash dividends on our Common Stock and do not expect
to do so in the foreseeable future.
Future issuance of shares of Common Stock may dilute present
stockholders.
Our stockholders may experience a substantial dilution in the
percentage of the Common Stock they hold if we issue all or part of the
remaining authorized Common Stock in the future. Moreover, we may value any
Common Stock issued in the future on a basis other than the current market price
of the Common Stock. Dilution could also occur if we issue our Common Stock for
future services or acquisitions or other corporate actions. These actions could
depress the market price of our Common Stock.
Our Common Stock is regulated as a "penny stock."
-9-
Under United States securities regulations, "penny stocks" generally
are equity securities with a price of less than $5.00 per share other than
securities registered on certain national securities exchanges or quoted on the
Nasdaq Stock Market. Our Common Stock is subject to "penny stock rules" that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the "penny stock rules"
require the delivery, prior to the transaction, of a disclosure schedule
prescribed by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer must also disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. Consequently, the "penny
stock rules" may restrict the ability of broker-dealers to sell our Common
Stock. The "penny stock rules" will not apply if the market price of our Common
Stock is $5.00 or greater. There can be no assurance that the price of our
Common Stock will attain such a level.
We can give no assurances that our forward looking statements will be
correct.
Certain forward-looking statements, including statements regarding our
expected financial position, business and financing plans are contained in this
Prospectus. These forward-looking statements reflect our views with respect to
future events and financial performance. The words, "believe," "expect," "plans"
and "anticipate" and similar expressions identify forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to be correct. Important factors that could cause actual results to differ
materially from such expectations are disclosed in this Prospectus. All
subsequent written and oral forward-looking statements attributable to us are
expressly qualified in their entirety by the cautionary statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
Currency Exchange Rates
All dollar amounts stated in this Prospectus are in Canadian dollars,
except where otherwise specifically indicated. The following table sets forth,
for the dates indicated, the rates at the specific date for the Canadian dollar
per one U.S. dollar, each expressed in Canadian dollars and based on the noon
buying rate in New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Bank of Canada:
Fiscal Year Ended March 31,
1999 2000
---- ----
Rate at end of period 1.5175 1.4494
Average rate during the period 1.5038 1.4713
High of the period 1.5450 1.4923
Low for the period 1.4310 1.4489
Quarter Ended June 30,
1999 2000
---- ----
Rate at end of period 1.4630 1.4806
Average rate during the period 1.4728 1.4803
High of the period 1.5040 1.5108
Low for the period 1.4465 1.4497
-10-
USE OF PROCEEDS
This prospectus relates to an aggregate of 7,537,036 shares of Common
Stock that may be sold from time to time by the Selling Stockholders, all of
which are issuable upon the exchange on a one-to-one basis of Class A Shares (as
defined herein) held by them. Although we will pay the expenses of registration
of these shares, including legal and accounting fees, we will not receive any
proceeds from the sale of the shares of Common Stock. All net proceeds from the
sale of the Common Stock will go to the Selling Stockholders.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock has been eligible for trading on the Over The Counter
Electronic Bulletin Board since the third quarter of the fiscal year ended March
31, 2000. The following table sets out the high and low bid prices of the Common
Stock during the periods indicated. Such prices reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
Fiscal Year Quarter High (US $) Low (US $)
----------- ------------ ----------- ----------
2000 3rd quarter $0.0000 $0.0000
4th quarter $8.5625 $3.7500
2001 1st quarter $5.50 $3.000
2nd quarter $5.00 $2.968
(Until September 9, 2000)
According to information furnished to the Company by the transfer agent
for the Common Stock, as of August 31, 2000, there were 61 holders of record of
the Common Stock, including depositories.
Dividend Policy
The Company has never declared or paid any cash dividends on its Common
Stock and presently anticipates that any future earnings will be retained for
the development of its business. The payment of future dividends will be at the
discretion of the Company's Board of Directors and will depend upon, among other
things, future earnings, capital requirements, the financial condition of the
Company, and general business conditions.
-11-
DESCRIPTION OF BUSINESS
The following Business section contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors. See "Risk Factors" relating to forward-looking statements. The
consolidated financial statements included in this Registration Statement are
the continuation of the financial statements of Bio Syntech Ltd., which is
treated for accounting purposes as the acquirer of BioSyntech, Inc. (together
with its subsidiary, Bio Syntech Canada, Inc., also referred to as "we," "us" ,
"our" or the "Company"). Bio Syntech Ltd. had a fiscal year-end of March 31 and
accordingly March 31 will continue to be used as the Company's year-end. See
"History of the Company" for a description of the transactions involving Bio
Syntech Ltd. and the Company. The Company's functional currency is the Canadian
dollar. All amounts presented in this Registration Statement in US currency are
identified as such. Other amounts are expressed in Canadian dollars. See
"Currency Exchange Rates" for a description of the exchange rate for the
Canadian dollar per one United States dollar as of March 31, 1999 and March 31,
2000 and as of June 30, 1999 and June 30, 2000.
1.1 General
The Company is a Nevada corporation incorporated on December 14, 1994.
We are an advanced biomaterials company specialized in tissue engineering (the
repair of damaged tissue in the human body, such as bone or cartilage). We are
also engaged in the development of advanced injectable biomaterials for the
delivery of cells and genetic material and biotherapeutic agents. We have had
limited revenues and our future operations are dependent upon our receiving the
financing necessary to complete research and development projects and market our
products. We are unsure whether we can complete the development of our products,
or if we complete them whether we can successfully market them or generate
sufficient revenues to fund our future operations or additional research,
development and marketing.
Our research and development efforts, (either alone or in collaboration
with our corporate partners), are focused on maximizing the multiple benefits of
our core technologies, which include tissue engineering, the therapeutic
delivery of cells, genetic material for site specific gene therapy and the
delivery of biotherapeutic agents. Our technologies apply to diverse
specialties: Orthopedics and Rheumatology, which includes cartilage injuries and
diseases as well as bone injuries and diseases, vaccines, and the delivery of
biotherapeutic agents.
We also have an instrumentation division. We have developed the
ARTHRO-BST(TM), an arthroscopic device providing precise and non-destructive
diagnosis of articular cartilage quality, and the Mach-1(TM) Mechanical Tester,
a universal mechanical testing system for specimens with dimensions between
hundreds of microns and a few centimeters.
1.2 Tissue Engineering and Therapeutic Delivery
The overall goal of tissue engineering is the promotion of the repair
of diseased or injured tissue or organs using therapeutics to regenerate or heal
with a functional normal tissue. This is in contrast to the approach of
replacing an organ with an artificial device. It has been recognized that
artificial organs, although sometimes necessary for short-term relief, usually
have an inadequate working life expectancy. The newer approach of tissue
engineering often involves the transplantation of living normal cells that have
been expanded in the laboratory. The procedure of normal cell transplantation
requires an accurate positioning of the cell at the site where it is to perform
its therapeutic benefit. This positioning is often accomplished by providing to
existing cells an exogenous matrix containing new cells and facilitating the
correct placement of the new cells within the body. Biomaterials developed for
this purpose consist of either biodegradable or non-biodegradable materials in a
number of physical forms such as films, sponges, beads and hydrogels. These
materials must sustain cell viability and promote normal
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cellular activity. Biomaterials, which do not require surgical implantation, are
believed to have a greater chance of success because of the reduced chance of
complications during the injection procedure and the potential for a faster
recovery and shorter hospital stay. Injectable biomaterials as carriers for cell
delivery are therefore an active area of development for this field of
application.
The Company's therapeutic delivery technologies- either pursued alone
or in collaboration with a partner- aim at effectively delivering cells, genetic
material for site specific gene therapy and the delivery of biotherapeutic
agents such as proteins and peptides.
The Company has developed three platform technologies, all aimed at the
promotion of tissue repair and of the generation of solutions to efficiently
deliver biologically active therapeutics:
o BST-Gel(TM): An injectable thermosensitive (heat-sensitive)
self-forming hydrogel (water-based gel) for the delivery of
therapeutic agents or genetic material. The key functionality
of the gels is that they are injected as liquid and become a
solid gel in vivo (in the body).
o BST-Cargel(TM): Chondrocytes (cartilage cells) in an adhesive
heat sensitive gel delivered arthroscopically (non-invasive
examination of the knee) with biotherapeutic agents for the
treatment and repair of cartilage defects.
o BST-Spheres: We have developed and patented a proprietary
process to generate microspheres (small spheres) for the
delivery of therapeutic agents. The BST-Spheres are free of
organic solvents (oil-based liquids in which another substance
can be dissolved) and are adaptable to a wide range of
biomaterials that are either biodegradable or
non-biodegradable. The BST-Spheres can be adapted for the
delivery of a broad spectrum of drug types, from small to
large molecules. The BST-Spheres can be used in the injectable
form for the delivery of sustained release medications
(medications with a long duration of action).
BST-Gel(TM) is a family of polymeric (a compound made by linking a
number of small molecules) gels that are liquid at low temperatures and solid at
the temperature of the human body. This injectable delivery system is derived
from natural sources and contains no toxic chemicals such as chemical
cross-linkers, organic solvents, (oil-based liquids in which another substance
can be dissolved) or detergents. One of its key properties is its in situ
(localized) gelling after its injection in liquid form, thus forming a reservoir
for the sustained release of the therapeutic agent. BST-Gel(TM) requires no
surgery for its implantation, is biodegradable (compatible with living tissues)
and has an adjustable composition. The amounts of BST-Gel(TM) injected vary for
different requirements, which result in controllable residence times ranging
from a few days to several weeks. In addition, we have developed specialized gel
and delivery technologies that can be used in conjunction with BST-Gel(TM) to
provide a proprietary form of delivery of therapeutic agents and can have the
following applications:
o delivery of bone-repair therapeutics;
o bioengineering of tissues with or without cells or
growth-factor therapeutics;
o delivery of small molecules, peptides and recombinant
proteins;
o delivery of genetic material (DNA vaccines and gene therapy);
and
o development of vaccines based on the sustained release of
antigens.
BST-Cargel(TM) is a proprietary generation of bioengineered living
articular (joint) cartilage-tissue implants developed from cells encapsulated
and grown within a BST-Gel(TM)-based matrix for arthroscopic delivery. A
particular formulation of the gel maintains the cell viability during the
delivery period while assuring the adhesion of BST-Gel(TM) to the underlying
bone and surrounding cartilage. Preclinical studies have shown that chondrocytes
(cartilage cells) embedded in BST-Gel(TM) produce a matrix having the
characteristics of normal cartilage tissue.
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BST-Spheres: The Company has developed and patented BST-Spheres, a
proprietary process to generate polymer-based microspheres used in the delivery
of biotherapeutics. This proprietary process offers several advantages over the
current approach of making microspheres:
o It does not require the use of toxic chemicals such as organic
solvents or detergents;
o It can be adapted to a wide range of biomaterials, whether or
not biodegradable;
o It is injectable for the sustained release of biotherapeutics;
o It can be used with a broad range of biotherapeutic types,
from small to large compounds; and
o It may enhance the biotherapeutic-loading capacity of the
vehicle.
1.3 Tissue Engineering and Therapeutic Delivery Applications
The Company is currently conducting research to develop applications of
its core technology in the following areas.
1.3.1 Cartilage Injuries and Diseases
The current standard of care for the treatment of cartilage injuries
consists of inducing bleeding into the cartilage defect by creating a pathway to
the bone that interfaces with the damaged cartilage tissue. The techniques used
include drilling, microfracture and abrasion to increase blood flow to the
damaged cartilage. These techniques result in the formation of a scarred tissue
(fibro-cartilage) with poor mechanical stability. As a result, a patient must
undergo repeated treatments and often the affected joint degenerates into
osteoarthritis. Recently, a number of new approaches have been proposed for the
treatment of cartilage injuries that aim at the regeneration of the cartilage
tissue with transplanted cells. The cells used can either be normal cartilage
cells that have been expanded in a laboratory or cells selected for their
ability to become normal cartilage tissue (stem cells). The procedure of
transplanting normal cartilage cells is already marketed in the United States
and Europe. It necessitates a complicated surgical procedure involving an open
arthrotomy (open knee surgery). Although the results are encouraging, there is a
recovery process that can take more than a year. If the same cells could be
delivered in a vehicle introduced in an arthroscopic procedure, in which the
cells are pushed through a small catheter, the expected recovery period and
overall healthcare costs could be greatly reduced.
BST-Cargel(TM) is a proprietary generation of bioengineered living
articular (joint) cartilage-tissue implants developed from cells encapsulated
and grown within a BST-Gel(TM)-based matrix for arthroscopic delivery. A
particular formulation of the gel maintains the cell viability during the
delivery period while assuring the adhesion of BST-Gel(TM) to the underlying
bone and surrounding cartilage. Preclinical studies have shown that chondrocytes
(cartilage cells) embedded in BST-Gel(TM) produce a matrix having the
characteristics of normal cartilage tissue.
1.3.2 Bone Injuries and Diseases
Two approaches are conducted simultaneously and utilize different
aspects of the proprietary properties of the Company's platform technology.
These developments could provide a series of injectable bone biomaterials that
answer the needs of bone repair: minimally-invasive, low-cost administration,
filling and stabilizing properties, resorption (bone formation and deposition)
and biological activity.
OssiFil
The BST-Gel(TM) technology is used for the development of OssiFil bone
material, a new proprietary bone grafting material consisting of an injectable
self-gelling composite that is not hardened in situ. The OssiFil technology
combines the flowing/carrying property of BST-Gel(TM) material and the
osteoconductivity property of calcium based minerals, and is ideally composed to
form a scaffold favoring the bone tissue ingrowth.
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OssiFil is mainly applied as an injectable bone defect filler to favor
bone ingrowth in voided or emptied bone tissues. We have initiated a program to
locally apply OssiFil materials to the treatment of osteoporotic bones. This
two-step program intends to use OssiFil filling materials in the prophylactic
treatment of osteoporotic hip bones (weakened bone) as well as in the surgical
treatment of osteoporotic hip bones (fractured).
A special second development of OssiFil includes the incorporation of
bone-inductive agents that gives a unique osteoinductive performance to OssiFil.
We are developing an osteoinductive OssiFil material that is specifically used
as an injectable bone inducing material to accelerate bone formation such as in
the treatment of fresh fractures.
OssiFix
We are developing a new proprietary bone composite cement based upon
the BST-Gel(TM) technology and the calcium phosphate technology. These series of
OssiFix bone materials are injectable and self-hardening in situ, but give a
stronger structural integrity and biomaterial strength to severely weakened
bones.
OssiFix bone substitutes are ideal materials for supporting
osteoporotic bones that need to regain structural support and strength, such as
the treatment of fractured osteoporotic vertebra (vertebroplasty). We plan to
initiate the clinical application phase as soon as the OssiFil performances are
optimized.
1.3.3 Vaccine Development
The ability to deliver large amounts of molecules over a long period of
time using the injectable BST-Gel(TM) is being explored for the sustained
release of antigens for vaccine development. The Company is currently testing
the immune response of animal models to specific antigens delivered by a single
injection of BST-Gel(TM).
1.4 Material Agreements
1.4.1 Agreement with Polyvalor
In October 1997, the Company entered into a technology assignment
agreement, as amended in September 1999 and as amended and restated March 15,
2000 (the "Assignment Agreement"), with Polyvalor Limited Partnership, a
Canadian limited partnership, as represented by its General Partner, Polyvalor
Inc. ("Polyvalor"). Polyvalor is an entity created by Ecole Polytechnique de
Montreal (the University of Montreal's engineering faculty, "Ecole
Polytechnique") for the purpose of commercializing the technology in which Ecole
Polytechnique has an interest. Through the Assignment Agreement, the Company
acquired from Polyvalor all rights related to certain patents and know-how (the
"Technologies"). In consideration of said assignment, the Company agreed to pay
to Polyvalor a royalty of 5% on all gross sales of all products and services
sold by the Company, up to a maximum cumulative amount of CDN $3,000,000. In
connection with the Assignment Agreement, the Company's subsidiary Bio Syntech
Canada Inc. ("Bio Syntech Canada"), issued to Polyvalor 1,072,000 shares of its
Class A Stock (as hereinafter defined) and granted Polyvalor the right to
nominate one director to its board of directors. As a result of the Transactions
described below under "History of the Company," the Class A Stock is
exchangeable on a share for share basis for common stock, $.001 par value per
share, of the Company (the "Common Stock"), and Polyvalor has the right to
nominate one director to the Company's Board of Directors.
1.4.2 Agreements with Collaborators
We are working alone and in collaboration with partners to develop and
expand our therapeutic delivery program. Our therapeutic technologies aim at
effectively delivering cells, genetic material for site specific gene therapy
and the delivery of biotherapeutic agents such as proteins and peptides.
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As part of our business strategy, we have formed collaborations with
third parties to explore opportunities for applications of our delivery systems
to therapeutics developed by them.
1.4.2.1 Sulzer Orthopedics Biologics Inc., Wheat Ridge, CO
We signed a Non-disclosure and Confidentiality Agreement dated February
23, 1999 with Sulzer Orthopedics Biologics, Inc. for a feasibility study of
combining bone proteins developed by Sulzer with different formulations of
BST-Gel(TM) for the local induction of bone formation. Sulzer is developing bone
proteins for several applications in orthopedics including spinal fusion and
bone fracture repair. Bone proteins were formulated successfully at different
concentrations in BST-Gel(TM). A first phase of pre-clinical testing revealed
cartilage and bone formation. A second phase study is currently under way to
optimize the BST-Gel(TM) formulation.
1.4.2.2 Sulzer Orthopedics Ltd., Switzerland
We signed a Material Transfer Agreement on January 4, 2000 with Sulzer
Orthopedics Ltd. for the study of BST-Gel(TM) as a carrier for human articular
chondrocytes in the treatment of articular cartilage defects. Cell compatible
BST-Gel(TM) formulations are being studied in vitro (cultured in the laboratory)
using cell loaded gels (cells that contain human joint cells).
1.4.2.3 Reprogenesis, Inc., Cambridge MA
We signed a Confidentiality Agreement on May 31, 1999 and a Material
Transfer Agreement on July 27, 1999 with Reprogenesis, Inc. related to the
transfer of human auricular (cartilage cells from the ear) chondrocytes from
Reprogenesis, Inc. to us. The initial study aimed at the development of a human
auricular chondrocyte compatible formulation of BST-Gel(TM). This work was
performed in our facilities first in vitro where good cell viability was
obtained. The project has now evolved to look at specific cellular events judged
important for the behavior of these cells in vivo. Reprogenesis, Inc. is
currently developing human auricular chondrocytes for a variety of tissue
augmentation applications such as incontinence and tissue reconstruction.
1.4.2.4 Ophidian Pharmaceutical Inc., Madison WI
We signed a Confidential Disclosure Agreement and a Biological
Materials Transfer Agreement with Orphidian Pharmaceutical Inc. ("Orphidian") in
August 1999 to evaluate the ability of BST-Gel(TM) to deliver an antigen in a
sustained fashion for chicken immunization. Ophidian is developing therapeutics
based on egg yolk antibodies produced after a series of intramuscular or
subcutaneous injections of a specific antigen. The process of chicken
immunization presently requires a labor intensive process involving several
injections in several thousand chickens. The ability to formulate an antigen for
sustained release could greatly simplify the process. As part of Ophidian
inflammatory bowel disease therapeutics development, it has sent rTNF-alpha (a
growth factor) to us for initial formulation study. A longer and more extensive
phase two project was initiated and is ongoing. Finally a phase three project
has been agreed upon where the antigen will be presented as genetic material for
potentially longer lasting immunization in the animal.
1.4.2.5 Viragen, Incorporated, Plantation FL, and Viragen Ltd.,
Scotland
We signed a Mutual Confidentiality Agreement with Viragen, Incorporated
("Viragen") on September 2, 1999 for the study of a Viragen proprietary
formulation of Interferon-alpha (Omniferon) formulated in BST-Gel(TM) for
sustained release. Viragen is currently developing Interferon-alpha as a
therapeutic for the modulation of the immune system to fight viral diseases such
as hepatitis. The project, initially carried on at our facilities, aimed at the
study of stability and release kinetics of Omniferon formulated in BST-Gel(TM).
After encouraging data, Viragen agreed to pursue the program on formulation.
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1.4.2.6 Ontogeny, Inc., Cambridge MA
We signed a Confidentiality Agreement and a Material Transfer Agreement
with Ontogeny, Inc. on December 3, 1999 for the study of BST-Gel(TM) as a
potential carrier for Hedgehog (a morphogenetic family of proteins that
stimulates cell growth). Several applications are being investigated by
Ontogeny, Inc. and include neuro-degenerative and cartilage diseases.
Formulations of BST-Gel(TM) were sent to Ontogeny, Inc. where an initial
preliminary study on inflammation and a functional study on an animal model are
ongoing.
1.4.2.7 Biomet Manufacturing Corporation, Warsaw IN
We signed a Material Transfer Agreement with Biomet Manufacturing
Corporation ("Biomet") on February 8, 2000 regarding the possibility of using
BST-Gel(TM) as a carrier for a growth factor in wound healing and for plasmid
DNA (circular DNA) for site specific gene therapy. These projects are expected
to commence in the fiscal year ending March 31, 2001. Biomet has global
operations in orthopedics with a number of approved devices for therapeutic and
diagnostic interventions.
1.5 Market for the Company's Tissue Engineering and Therapeutic Delivery
Technologies
The overall goal of tissue engineering is the promotion of the repair
of diseased or injured tissue or organs using therapeutics to regenerate or heal
with a functional normal tissue. This is in contrast to the current approach of
replacing an organ with an artificial device. It has been recognized that
artificial organs, although sometimes necessary for short-term relief, usually
have an inadequate working life expectancy. The newer approach of tissue
engineering often involves the transplantation of living normal cells that have
been expanded in the laboratory. The procedure of normal cell transplantation
requires an accurate positioning of the cell at the site where it is to perform
its therapeutic benefit. This is often accomplished by providing to existing
cells an exogenous matrix containing new cells and facilitating the correct
placement of the new cells within the body. Biomaterials developed for this
purpose consist of either biodegradable or non-biodegradable materials in a
number of physical forms such as films, sponges, beads and hydrogels. These
materials must sustain cell viability and promote normal cellular activity.
Biomaterials, which do not require surgical implantation, are believed to have a
greater chance of success because of the reduced chance of complications during
the injection procedure and the potential for a faster recovery and shorter
hospital stay. Injectable biomaterials as carriers for cell delivery are
therefore an active area of development for this field of application.
We believe the market potential for both the treatment of cartilage
injuries and diseases and the market for bone injuries and diseases is enormous.
The current approaches for treatment include replacing an organ with a surgical
device. Our biomaterials are designed for the treatment of cartilage and bone
defects and do not require surgical implementation; therefore, we believe they
have a greater chance for success.
Vaccine Development is a field that is rapidly evolving. One of the
goals in developing a vaccine is the delivery of a sustained-released antigen,
e.g. a vaccine that provides immunity over a long period of time. As part of
pipeline research and development projects, we are working on the development of
such a vaccine utilizing the BST-Gel Technology. Although we believe there are a
number of companies currently working on vaccine development, with the growing
resistance of organisms to current therapy and vaccines, we expect this to be a
field that will continue to experience much growth.
We are working alone and in collaboration with partners to develop and
expand our therapeutic delivery program. Our therapteutic technologies aim at
effectively delivering biotherapeutic agents such and peptides and peptides.
-17-
Therapeutic delivery technologies can be utilized to address certain
needs of both traditional pharmaceutical compounds and the new class of
macromolecules developed by the biotechnology industry. For example, small
synthetic compounds could benefit from the local high dose delivery of a drug to
enhance the therapeutic effect on a target organ while minimizing systemic side
effects. With the advent of biotechnology, new opportunities in drug delivery
have arisen. Advances in biotechnology have facilitated the development of a new
generation of biopharmaceutical products based on proteins, peptides and nucleic
acids. Drugs developed by biotechnology companies often cannot be delivered
orally. This inability results from their instability in harsh conditions in the
digestive tract, their limited ability to be absorbed in an active form in the
intestines and their short half-life in the bloodstream. Consequently, many of
these drugs can only be administered by the means of frequent injections, which
may limit their clinical applications. These factors have all contributed to the
development of new approaches to deliver these therapeutics to their needed site
of action in the body. With the unparalleled growth of the biotechnology
industry, there is a growing need for the development of biomaterials for the
delivery of therapeutic agents.
1.5.1 Strategy
Our research and development efforts aim to develop advanced
biomaterials for the fast-growing demands of the medical and pharmaceutical
industry. At this point, we are expanding our in-house research and development
program to expedite our product development effort. Once we have sufficient
clinical data, we will be entering into licensing agreements with partners to
expedite the launch of our products. Also, to expand our research and
development efforts, we will continue to work with companies with which we have
strategic collaborations.
1.5.2 Competition
Our products may compete with new products currently under development
by others or with products that may cost less than our products. Our actual and
potential competitors include other therapeutic delivery companies,
biotechnology and pharmaceutical companies, academic and research institutions
and government agencies. Many have greater name recognition and greater
financial, research and development and personnel resources than us. Many have
greater experience in testing and clinical trials and in the regulatory process.
The Company's product candidates may not gain market acceptance among
physicians, patients, healthcare payors and the medical community. The degree of
market acceptance of any product candidate that the Company may develop will
depend on a number of factors, including:
o Demonstration of their usefulness and safety;
o Their relative cost;
o Their advantage or disadvantage compared to alternative
methods;
o The marketing and distribution support they receive; and
o Reimbursement policies of government and third-party payors.
1.6 Instrumentation
The Company has established an instrumentation division in which it
developed the ARTHRO-BST(TM), an arthroscopic device providing precise and
non-destructive diagnosis of articular cartilage quality, and the Mach-1(TM)
Mechanical Tester, a universal mechanical testing system for specimens with
dimensions between hundreds of microns and a few centimeters. The instruments
are closely related to the work carried on by the Company on cartilage.
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1.6.1 The ARTHRO-BST(TM)
Description
The ARTHRO-BST(TM) is an arthroscopic device providing precise and
non-destructive diagnosis of articular cartilage quality. Degeneration of
cartilage is a prominent component of arthritis, a disease affecting more than
10% of the population. Current assessment of articular cartilage is mostly
subjective with no functional evaluation. Therefore, there is a growing need in
an aging population for non-destructive and unbiased clinical evaluation of the
health and function of this connective tissue.
The ARTHRO-BST(TM) is based on an innovative and robust design that
allows simple application of small indentation compression and collection of
resulting electrical signals (streaming potentials) indicative of cartilage
function.
The ARTHRO-BST(TM) is composed of five distinct units: (i) a disposable
sterilized tip consisting of microelectrode arrays (microelectronic circuit) on
a thin aluminum substrate that is adhered to a stainless steel support providing
a connection with the handle, (ii) an ergonomically designed handle, (iii) an
electrical circuit for the acquisition of electrical signals, including a
preamplification and digitalization circuit inside the handle and an interface
circuit exterior to the handle, (iv) software for the acquisition of electrical
signals and for the analysis and interpretation of data to quantify cartilage
quality, and (v) a computer system.
A fully functional clinical version of the ARTHRO-BST(TM) was presented
at the third meeting of the International Cartilage Repair Society (ICRS) in
Sweden in April 2000.
Market
The target market has two sectors : research and clinical. The research
market is composed of pharmaceutical and biotechnology companies in addition to
academic research groups working on therapeutic products for joint disorders or
procedures for cartilage repair. There are several research projects in the
areas of arthritis and joint repair and it is regularly publicly acknowledged
that a major impediment to the understanding of joint disease and the
development of therapeutic products is the lack of an objective diagnostic test
to follow non-destructively the evolution of cartilage quality.
The clinical market is much potentially much larger. It consists of
orthopaedists practicing arthroscopy who also require a means of objectively
evaluating cartilage quality in patient knees. Currently, arthroscopists use
subjective and relatively uncertain methods of visual inspection and manual
probing (by feeling stiffness) to judge articular cartilage quality.
Competition
To the knowledge of the Company, there are currently no competing
technologies to respond to the demand for functional non-destructive evaluation
of articular cartilage. Most instruments currently under research and
development are based on mechanical measurements of the cartilage stiffness
instead of electrical measurements of streaming potentials.
The ARTHRO-BST(TM) is based on a different technology that overcomes
the major difficulties with the control of the compression amplitude applied to
cartilage and the orientation of the indentor tip relative to cartilage surface.
Significantly inaccurate readings are given if the indentor tip is not
positioned by the orthopaedist perpendicular to the articulating surface. An
error can also be introduced by the force applied by the orthopaedist to
compress the tissue. Instead of measuring the tissue stiffness, the
ARTHRO-BST(TM) measures streaming potential generated during compression of the
tissue. Two dimensional microelectrode arrays placed on non-planar surface
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permit a precise determination of (i) the contact distribution of the indentor
with the cartilage, (ii) the compression amplitude and velocity applied to the
cartilage, and (iii) the orientation of the indentor relative to cartilage
surface. Furthermore, the sterilized indentor tip with microelectrode arrays is
disposable to minimize disease transmission.
Regulatory Approval
The Company currently expects that its arthroscopic probe,
ARTHRO-BST(TM), will be classified by the United States Food and Drug
Administration ("FDA") as a Class II medical device because of the low risk
associated with its use. Moreover, because the ARTHRO-BST(TM) can be considered
substantially equivalent to existing devices used for cardiovascular and
neurological diagnoses with electrodes, we expect to submit a Pre-Market
Notification ("510(k)") to the FDA following clinical testing. However, the FDA
may reclassify the device or request additional information if it determines
that the application does not satisfy its regulatory approval criteria. See
"Item 1. Description of Business/Government Regulation." The Company expects to
initiate the filing process once it has completed its Good Manufacturing
Practices ("GMP") compliant facilities. See "Item 2. Property."
Manufacturing
If and when all necessary regulatory approvals are obtained, the
Company plans to manufacture up to 200 units per year of the ARTHRO-BST(TM),
using its current facilities and certain subcontractors for some specialized
components, such as the electronic acquisition card. The production of
disposable sterilized tips with microelectrode arrays can be easily obtained
using commercial microelectronic laboratories. The fabrication uses conventional
methods and all the instrumentation required is available. Once a final design
for the electrode tip is completed, it should be possible to transfer production
to one of several subcontractors located near the Company with approved
industrial and quality standards.
New infrastructures will be required for large-scale production. Thus a
decision will eventually be made to acquire additional facilities or to
establish a production alliance with a large manufacturer of orthopaedic
instruments.
Distribution and Marketing Strategy
The introduction of the ARTHRO-BST(TM) has begun through scientific
abstracts presented during international conferences (Garon M et al., ORS 1997;
Legare A et al., ORS 1998; Legare A et al., CCTC 1999; Legare A et al., ICRS
2000), trade shows (25TH Society for Biomaterials Meeting, Providence, April
1999; 46TH Orthopeadic Research Society Meeting, 2000; 3rd International
Cartilage Repair Society Meeting, Sweden, April 2000; 6TH World Biomaterials
Congress, Hawai, May 2000) and full length journal articles (Garon M et al.,
1999; Legare A et al., 2000).
Upon validation of the technology, the Company intends to introduce the
ARTHRO-BST(TM) to the market through demonstration of its efficacy for cartilage
evaluation, through collaborations with leading clinical orthopaedic
researchers, and through the inclusion of the ARTHRO-BST(TM) in clinical trials
of arthritis drugs. In end of fiscal year 2001, the Company plans to have
several functioning clinical devices available for distribution to selected
leading researchers in clinical orthopaedics. Through collaborative efforts with
these researchers, the ARTHRO-BST(TM) will be publicized in presentations and
publications of these studies and a demand should be created in the research
programs of other academic and industrial research groups. The Company plans to
support this strategy with data from clinical trials to demonstrate the
objective nature of the method and its sensitivity and specificity for cartilage
quality. The recently formed Canadian Arthritis Network of Centres of Excellence
could assist by providing clinical trials to pharmaceutical companies with
arthritis drugs and allowing the Company to participate in these trials by
providing objective data for drug evaluation. Our dual strategy involving
collaboration with leading opinion makers and by providing statistically sound
scientific studies should provide the basis for market penetration.
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The Company expects to rely on the distribution and sales network of a
major partner to generate sales.
1.6.2 The MACH-1(TM) Mechanical Tester
Description
The Mach-1(TM) Mechanical Tester is a universal mechanical testing
system for specimens with dimensions between hundreds of microns and a few
centimeters. Typical applications for the Mach-1(TM) Mechanical Tester are in
the mechanical characterization of tissues, pharmaceuticals, polymers, gels,
adhesives and food. The instrument allows the characterization of stiffness,
strength, modulus, viscoelasticity, plasticity, hardness, adhesion, swelling and
relaxation and creep using load and displacement control tests. Some of the
features of the Mach-1(TM) Mechanical Tester are :
o Chambers for compression, tension, indentation, bending and
other test configurations are mounted on a platform, which is
controlled to within 25 nanometers.
o Load cells are interchangeable to allow maximum loads between
0.15 kg to 10 kg with load precision being 1 part in 20,000 of
the maximum (10mg minimum).
o The test system can be placed in an incubator for testing or
mechanical stimulation in sterile controlled environments,
such as cell culture conditions.
o Sophisticated and flexible software allows execution of stress
relaxation, ramp, dynamic sinusoidal and creep tests in
automated user-defined sequences.
o Sophisticated analysis software.
o Options include visualization of specimen during testing with
cameras, motorized control of specimen position on the
actuator, and electric field detection (electromechanical
events) during testing.
Market
o Biomaterials and biological tissues characterization and
stimulation in controlled environments. Cells, ligaments,
collagen, skin, bone, synthetics, transgenic animals.
o Polymers and gels stability, strength, adhesion, brittleness,
cohesion, flexibility, friction, peel strength, viscosity,
elasticity. Adhesives, elastomers, hydrogels, glue, latex.
o Pharmaceuticals mechanical properties, degradation and
swelling, simulation of physiological condition
(gastrointestinal, etc.) Pills, drug delivery systems.
o Food, pulp and paper, electronic packaging and others
mechanical properties, texture analysis, electronic
components, wires, fibers optics, films, packaging material,
spring, switches, tapes, cosmetics, foam, sponges.
Market potential of the Mach-1(TM) Mechanical Tester also includes
conventional segments of mechanical testing. Given the specificity of this
equipment, the Company does not expect that a significant market will develop
for it.
To date, the Company has initiated production of the Mach-1(TM)
Mechanical Tester on a small scale at its premises in Laval Quebec. A small
number of units have been sold, without any marketing efforts on the part of the
Company.
Competition
The price of other benchtop mechanical testers is around $20,000. While
the Company does offer complete systems at this price, it also offers more
enhanced versions that can be sold for up to $50,000. These high-end systems can
offer sub-micron resolution, multi-axis simultaneous motion, or other
specialized features.
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With its different versions, the Company covers a broad range of applications
and also offers custom system configurations for specific needs.
Regulatory Approval
The Mach-1(TM) Mechanical Tester is not a medical device and as such is
not subject to FDA or other regulatory approval.
Manufacturing
Given the small market for this product, the Company expects to be in a
position to fulfill potential demand (up to approximately 10 units per month)
out of its own facilities. The Company could eventually rely on the distribution
and sales network of a major partner to generate sales, in which case adequate
manufacturing capacity would have to be established.
Distribution and Marketing Strategy
The Company intends to use direct sales and direct support as a way to
reach and serve its customers. Talking directly to its customers will enable the
Company to know them and their needs and to establish an expert-to-expert
dialogue that will enhance the trust they put in the Company's products. The
Company could eventually rely on the distribution and sales network of a major
partner to generate additional sales.
1.7 Patents and Proprietary Rights
The Company's success will be dependent, in part, on its ability to
obtain patent protection for its product candidates and those of its
collaborators, maintaining trade secret protection and operating without
infringing upon the proprietary rights of others. See "Description of
Business/Risk Factors."
Under the Assignment Agreement, Polyvalor is currently entitled to
certain royalty payments on future sales of products. See "Description of
Business-Agreement with Polyvalor."
The Company has a proprietary portfolio of patent rights and patent
applications. The Company has been issued two patents, and has filed several
United States and international patent applications directed to composition of
matter as well as processes of preparation and methods of use. The Company's
United States patents will expire between 2018 and 2020. The Company intends to
defend its patent position aggressively.
The Company tries to protect its proprietary position by filing United
States, Canada and foreign patent applications related to its proprietary
technology, inventions and improvements that are important to the development of
its business. The patent position of biopharmaceutical companies involves
complex legal and factual questions, enforceability of patents therefore cannot
be projected with certainty. Patents, if issued, may be challenged, invalidated
or circumvented, and may fail to provide any protection against competitors. The
Company's pending patent applications, those which the Company may file in the
future, or those which the Company may license from third parties, may not
result in patents being issued. If patents were issued, they may not provide the
Company with proprietary protection or competitive advantages against
competitors with similar technology. Furthermore, others may independently
develop similar technologies or duplicate any technology that the Company has
developed. The laws of certain foreign countries do not protect the Company's
intellectual property rights to the same extent as do the laws of the United
States and Canada.
The Company also relies on trade secrets, know-how and technology,
which the Company tries to protect by entering into confidentiality agreements
with parties that have access to it, such as its corporate partners,
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collaborators, employees and consultants. Any of these parties may breach their
agreement and disclose our confidential information or the Company's competitors
might learn of the information in some other way.
1.8 Government Regulation
The manufacture and marketing of pharmaceutical products and medical
devices in the United States and in Canada require the approval of the FDA under
the Federal Food, Drug and Cosmetic Act and the Health Protection Branch (the
"HPB") of Canada, respectively. Similar approvals by comparable agencies are
required in most foreign countries. The FDA and HPB have established mandatory
procedures and safety standards that apply to the preclinical testing and
clinical trials, manufacture and marketing of pharmaceutical products and
medical devices. Pharmaceutical manufacturing facilities are also regulated by
state, local and other authorities.
As an initial step in the FDA regulatory approval process for a new
drug product, preclinical studies are typically conducted in animal models to
assess a drug's efficacy and to identify potential safety problems. The results
of these studies must be submitted to the FDA as part of an Investigational New
Drug application ("IND"), which must be reviewed by the FDA before proposed
clinical testing can begin. Typically, clinical testing involves a three-phase
process. Phase I trials are conducted with a small number of subjects and are
designed to provide information about both product safety and the expected dose
of the drug. Phase II trials are designed to provide additional information on
dosing and preliminary evidence of product efficacy. Phase III trials are large
scale studies designed to provide statistical evidence of efficacy and safety in
humans. The results of the preclinical testing and clinical trials of a
pharmaceutical product are then submitted to the FDA in the form of a New Drug
Application ("NDA"), or for a biological product in the form of a Product
License Application ("PLA"), for approval to commence commercial sales.
Preparing such applications involves considerable data collection, verification,
analysis and expense. In responding to an NDA or PLA, the FDA may grant
marketing approval, request additional information or deny the application if it
determines that the application does not satisfy its regulatory approval
criteria.
In the case of a medical device, preclinical-study results must be
submitted to the FDA as part of an Investigational Device Exemption ("IDE"),
which must be reviewed by the FDA before clinical testing can begin. Phase I,
II, and III trials can then be conducted to provide safety, efficacy, and
method-of-use information. The results of the preclinical testing and clinical
trials of a medical device are then submitted to the FDA in the form of a
Pre-Market Notification 510(k) for most Class I and Class II devices, or a
Pre-Market Approval ("PMA") request for most Class III devices. Medical devices
are classified depending upon the level of regulatory control required to
provide reasonable assurance of their safety and effectiveness. In general,
non-critical devices or new devices substantially equivalent to existing devices
fall into Classes I or II, whereas Class III devices are those for which
insufficient information exists to determine that general controls are
sufficient to provide reasonable assurance of their safety and effectiveness.
The possible future uses of BST-Gel(TM)-related biomaterials are
several and are therefore expected to fall into a number of different
categories. Depending on a proposed application, the FDA might designate a BST-
Gel(TM)-related biomaterial as a new drug, new medical device, or new excipient.
The Company currently expects that the ARTHRO-BST(TM), will be
classified as a Class II medical device because of the low risk associated with
its use. Moreover, because the ARTHRO-BST(TM) can be considered substantially
equivalent to existing devices used for cardiovascular and neurological
diagnoses with electrodes, we expect to submit a 510(k) to the FDA following
clinical testing. However, the FDA may reclassify the device or request
additional information, if it determines that the application does not satisfy
its regulator approval criteria.
This regulatory process can require many years and the expenditure of
substantial resources. Data obtained from preclinical testing and clinical
trials are subject to varying interpretations, which can delay, limit or prevent
-23-
FDA approval. In addition, changes in FDA approval policies or requirements may
occur or new regulations may be promulgated, which may result in delay or
failure to receive FDA approval. Similar delays or failures may be encountered
in Canada and in foreign countries.
Among the conditions for NDA or PLA approval, or 510(k) approval or PMA
in the case of a medical device, is the requirement that the prospective
manufacturer's quality control and manufacturing procedures conform on an
ongoing basis with Good Manufacturing Practices (GMPs). The development of a
GMP-compliant manufacturing establishment for BST-Gel(TM)-related biomaterials
will be a multi-step process consisting of designing and building the necessary
facilities, purchasing and installing the ancillary equipment, and validating
the facilities and equipment. Simultaneously, process development and scale-up
as well as assay development (testing, measuring and quality control) will be
done to supply test material and data critical to the clinical program. Once the
facilities are validated, a Type I Drug Master File (DMF) (describing the
manufacturing site, facilities, operating procedures, and personnel) will be
submitted by us to the FDA, as is recommended for non-U.S. manufacturing
establishments. Other types of DMFs, including a Type II DMF for drug products
and Type IV DMF for excipients, may be submitted by us to the FDA. Before
approval of an NDA, PLA, 510(k), or PMA we submitted, the FDA will perform a
prelicensing inspection of the facility to determine its compliance with GMPs
and other rules and regulations. In complying with GMPs, manufacturers must
continue to expend time, money and effort in the area of production and quality
control to ensure full technical compliance. After the Company's facilities are
licensed, they will be subject to periodic inspections by the FDA.
The Company is also subject to various laws and regulations relating to
safe working conditions, laboratory and manufacturing practices, experimental
use of animals and use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used
in connection with our research. Compliance with existing laws and regulations
relating to the protection of the environment is not expected to have a material
effect on the Company's operations.
1.9 Legal Proceedings
There is no action, suit, proceeding, or investigation pending or, to
the Company's knowledge, threatened against the Company, including any
investigation of any governmental authority or body, except as described below:
Robert Conyers (the "Plaintiff"), a former employee of the Company,
commenced an action on November 16, 1999 in Superior Court, Province of Quebec,
District of Montreal, against the Company and its Chairman of the Board, Dr.
Amine Selmani. Plaintiff alleges that he was wrongfully terminated as an
employee and seeks $96,581 in compensation allegedly due, the issuance to him of
100,000 shares of Class A Stock that were subject to an option that was alleged
to have been granted to him and $25,000 in punitive damages. The Company and Dr.
Selmani deny Plaintiff's allegations and believe that they have meritorious
defenses to this action.
1.10 Properties
The Company has its administrative and commercial offices and research
and development facility at 475 Armand-Frappier Boulevard, a 20,000- square-foot
building in Laval (Quebec), in the Greater Montreal Area. The Company purchased
the building in July 2000 at a price of $1,200,000. Prior thereto, the Company
leased the facilities at a net rental of $14,000 per month.
-24-
The Company's facilities are designed to be upgradeable to comply with
Good Laboratory Practices (GLPs), while additional space will be devoted in the
future to sites for operations compliant with Good Manufacturing Practices
(GMPs). The Company intends to initiate in the current fiscal year the necessary
work to comply with GMP at an estimated cost of $3,500,000.
1.11 History of the Company
Pursuant to an Amalgamation Agreement and related agreements, as
amended (the "Exchange Agreements"), dated February 15, 2000 by and among the
Company, its then wholly-owned subsidiary 9083-5661 Quebec Inc., a Quebec
corporation ("9083"), Bio Syntech Ltd., a Quebec corporation ("Bio Syntech"),
and the shareholders of Bio Syntech (the "Bio Syntech Shareholders"), on
February 29, 2000, 9083 and Bio Syntech were merged into one company under the
name of Bio Syntech Canada. As a result of the Exchange Agreements, the Company
became the record and beneficial owner of all of the issued and outstanding
shares of Bio Syntech Canada's Common Stock and the Bio Syntech Shareholders
were issued non-voting exchangeable shares of Bio Syntech Canada's Preferred
Stock (the "Class A Stock"). The Class A Stock is exchangeable on a
share-for-share basis for an aggregate of 15,177,036 shares of Common Stock
which were issued in accordance with the Exchange Agreements and are held in
trust under the terms of an Exchange and Voting Agreement (the "Trust
Agreement"), by and among the Company, Pierre Barnard (the "Trustee"), Bio
Syntech and 9083. (The foregoing transactions are referred to collectively
hereinafter as the "Transactions"). Bio Syntech was founded in 1995 by Dr. Amine
Selmani.
Under the terms of the Trust Agreement, each beneficial holder of Class
A Stock has voting rights in that number of shares of Common Stock equal in
number to the number of shares of Class A Stock held by such holder.
Consequently, the Bio Syntech Shareholders held through the Trustee, securities
with voting rights equal to approximately 55.7% (and is currently approximately
52%) of the total voting power of the outstanding Common Stock immediately after
the Transaction. At such time as the holders of Class A Stock may exchange such
shares for Common Stock, they will have the right to direct the disposition of
such Common Stock.
The sole source of consideration for issuance to the Bio Syntech
Shareholders of the Class A Stock was the exchange of the Bio Syntech shares
held by them. At such time as the Bio Syntech Shareholders may exchange their
Class A Stock for Common Stock, the sole source of consideration for the
transfer to them of the Common Stock will be such Class A Stock.
The Exchange Agreements were structured to provide the Bio Syntech
Shareholders with a capital gain deferral under applicable Canadian tax laws,
rules and regulations. In anticipation of the Transactions, the Company changed
its name to "BioSyntech, Inc." from Dream Team International Inc.
On the effective date of the Transactions, the officers and directors
of the Company resigned and new officers and directors, who were designees of
Bio Syntech Canada, were appointed.
Copies of the Exchange Agreements and related transactions documents
were filed as exhibits to the Company's Current Report on Form 8-K dated March
15, 2000 and are incorporated in their entirety herein. The description of the
Exchange Agreements contained in this report is modified by such reference.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The discussion in this Registration Statement contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those discussed herein. Factors that
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could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors" in this Registration Statement.
The discussion and analysis below should be read in conjunction with
the condensed consolidated Financial Statements of the Company and the notes
thereto included elsewhere herein.
BioSyntech, Inc., a Nevada corporation, was incorporated on December
14, 1994. It is a development stage company engaged in the development of
biotherapeutic delivery systems made of proprietary biomaterials. The Company's
systems are intended to enable or enhance the treatment of diseases or injuries
for which therapies exist or are under development, but which must be
transported to the site of action. The Company has had limited revenues to date.
Its future operations are dependent upon financing necessary to complete
research and development projects and market the Company's products. There can
be no assurance that the Company will be able to complete the development of its
products, or if completed, that they can be successfully marketed. Furthermore,
there is no assurance that even if the products are completed and marketed, the
revenues therefrom will be sufficient to fund the Company's future operations or
to fund additional research, development and marketing.
To date, the Company has incurred substantial losses from operations,
and as of June 30, 2000, had an accumulated deficit of $8,384,659 (US
$5,663,014). The Company expects to incur substantial operating expenses in the
future to support its product development efforts and expand its technical and
management personnel and organization.
Revenues from the sales of the Company's products are generally
recognized upon shipment of the product.
Results of Operations
The following table sets forth certain items in the Company's
consolidated statements of operations for the quarters ended June 30, 2000 and
1999 and fiscal years ended March 31, 2000 and 1999 (in thousands of CDN $)
Quarters Ended Fiscal Years Ended
--------------- ------------------
June 30, March 31,
-------- ---------
2000 1999 2000 1999
---- ----
Sales $66.2 $0 $0 $78.7
Cost of sales 28.2 0 0 35.0
--------- --------- ----------- ------------
Gross profit $38.0 $0 $0 $43.7
Operating Expenses:
Research and development $535.0 $329.1 $2,341.7 $2,948.3
Investment tax credits (100.0) (184.6) (676.9) (599.1)
General and administrative 379.8 153.2 1,217.5 1,789.5
Amortization of property, plant and 46.0 44.4 178.2 35.2
equipment ------ ------------ ------------ ------------
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Total operating expenses $860.8 $342.1 $3,060.5 $4,173.9
------- ---------- ------------ ------------
Loss from operations ($822.8) ($342.1) ($3,060.5) ($4,130.2)
Interest income 122.3 0.2 18.6 4.4
Interest expense 29.0 18.7 198.4 39.9
------- ------------ ------------ ------------
Net loss $729.5 $360.6 $3,240.3 $4,165.7
Results of operations for the quarters ended June 30, 2000 and 1999.
Sales
Revenues have only been generated from sales of Mach-1(TM) Mechanical
Testers.
During the three-month period ended June 30, 2000, the Company had
sales of $66,200 (sales of one Mach-1(TM) Mechanical Tester) and a net loss of
$729,535 compared to sales of zero and a net loss of $360,549 for the
three-month period ended June 30, 1999.
Loss per share was $0.03 per share for the three-month period ended
June 30, 2000, compared to $0.04 per share for the three-month period ended June
30, 1999.
Operating Expenses
Research and development expenses were $535,048 for the three-month
period ended June 30, 2000 compared to $329,061 for the three-month period ended
June 30, 1999, mostly attributable to hiring of additional researchers and the
cost of pre-clinical toxicalogical studies. Research and development activities
with its corporate collaborators and its own in house programs. Accordingly, the
Company anticipates that it will devote significant resources to research and
development.
General and administrative expenses were $379,821 for the three-month
period ended June 30, 2000 compared to $153,158 for the three-month period ended
June 30, 1999, representing a increase of $226,663. The increase is principally
attributable to professional fees and marketing expenses.
Interest Revenue and Interest Expense
Interest revenue represents income earned on the Company's cash
deposits. Interest revenue increased by $122,057, from $195, for the three-month
period ended June 30, 1999 to $122,252 for the three-month period ended June 30,
2000, primarily due to a higher level of cash on hand during the period.
Interest expense in 2000 is mainly attributable to interest on the
capital lease transaction entered into by the Company at the end of fiscal 1999
in order to finance its facility prior to its acquisition. Interest expense
increased by $10,300 from $18,690 for the three-month period ended June 30,1999
to $28,990 for the three-month period ended June 30,2000.
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Results of Operations for the Fiscal Years Ended March 31, 2000 and 1999.
Sales
Revenues have only been generated from sales of Mach-1(TM) Mechanical
Testers.
During the year ended March 31, 2000, the Company reported sales of
zero and a net loss of $3,240,283 compared to sales of $78,660 and a net loss of
$4,165,657 for the year ended March 31, 1999.
Loss per share was $0.23 per share for the year ended March 31, 2000,
compared to $0.37 per share for the year ended March 31, 1999.
Operating expenses
Research and development expenses were $2,341,697 for the year ended
March 31, 2000 compared to $2,948,342 for the year ended March 31, 1999, partly
attributable to the reduction of acquisition of research and development
equipment.
General and administrative expenses were $ 1,217,507 for the year ended
March 31, 2000 compared to $1,789,468 for the year ended March 31, 1999,
representing a decrease of $571,961. The decrease is principally attributable to
the grant of options in lieu of cash payments to consultants.
Interest Revenue and Interest Expense
Interest revenue represents income earned on the Company's cash
deposits. Interest revenue increased by $14,277, from $4,364, in 1999 to $18,641
in 2000, primarily due to a higher level of cash and cash equivalents on hand at
the end of 2000.
Interest expense in 2000 is mainly attributable to interest on the
capital lease transaction entered into by the Company at the end of fiscal year
1999 in order to finance its facility prior to its acquisition. Interest expense
increased by $158,467 from $39,935 in 1999 to $198,402 in 2000. The remaining
balance under the loan agreement was repaid in full during July 4, 2000.
Liquidity and Capital Resources
The cash position of the Company on August 31, 2000 is US $5,991,006
plus CDN $512,854. As of June 30, 2000, the Company's cash position was
$10,953,073. Subsequent to June 30, 2000, the Company expended the sum of
$1,200,000 to acquire the facility in which it conducts its operations. The
Company also expects to expend approximately $3,500,000 during the remaining
period of the fiscal year ending March 31, 2001 to equip its facility. The
Company believes that the capital resources presently on hand will be sufficient
for projected capital expenditures and operating expenses for the next 12
months. As of March 31, 2000, the Company's cash position was $ 7,301,143 as
compared to $57,297 at the end of March 31, 1999.
On February 2, 2000, the Company completed a private placement of its
securities yielding aggregate proceeds of US $2,350,000, 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.
Commencing March 31, 2000 and during the quarter ended June 30, 2000,
the Company completed a second private placement and issued a total of 1,910,214
units at a price of US $3.50 per unit (or CDN $5.00) as
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shown in the table below, yielding gross proceeds of US $6,055,250 and CDN
$900,000 ($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.
Closing Date Number of Units Proceeds
March 31, 2000 843,500 US $2,532,250 and CDN $600,000
(CDN $4,270,243)
April 4, 2000 833,857 US $2,813,500 and CDN $150,000
(CDN $4,281,343)
April 17, 2000 82,000 US $287,000
(CDN $425,879)
April 27, 2000 42,857 US $150,000
(CDN $221,925)
June 9, 2000 108,000 US $273,000 and CDN $150,000
(CDN $558,272)
-------------- ------------------------------
Totals 1,910,214 US$6,055,250 and CDN $900,000
(CDN $9,757,662)
Employee Growth
As of September 8, 2000, the Company had 32 employees, of whom 22
were engaged on research and development and 10 were engaged in corporate and
administrative activities. Over the next 12 months, the Company intends to
increase its corporate and administrative personnel by three (3) to five (5)
persons. The existing research and development team will be expanded by 10 to 15
persons. The Company anticipates its total employee count to be in approximately
40 to 50 employees by the end of fiscal year 2001. The information set forth
under the caption "Risk Factors - We may be unable to retain our key executives
and research and development personnel" discuss risks the Company may face in
hiring and retaining additional personnel.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Executive Officers and Directors
The following sets forth the name, present principal occupation,
employment and material occupations, positions, offices or employments for the
past five years and ages as of August 31, 2000 for the executive officers and
directors of the Company. Members of the board of directors are elected and
serve for one year terms or until their successors are duly elected and shall
have qualified.
Name Age Title
---- --- -----
Amine Selmani 43 Chairman of the Board and President
Marie-Claire Pilon 46 Chief Executive Officer
Denis N. Beaudry 57 Director
Pierre Alary 43 Director
Jean-Yves Bourgeois 33 Director
Pierre Ranger 45 Director
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Lucie Duval 40 Secretary and Treasurer
Amine Selmani PhD- Dr. Selmani has served as Chairman of the Board and
President of the Company since February 2000, Chief Executive Officer of the
Company from February 2000 to September 2000 and Chairman of the Board,
President and Chief Executive Officer of Bio Syntech Canada and its predecessor
corporation since its inception in November 1997. Prior to founding the
predecessor corporation of Bio Syntech Canada in May 1995, Dr. Selmani had eight
years of teaching experience at the Chemical Engineering Department and
Biomedical Institute of Ecole Polytechnique as an Associate Professor from 1992
to 1997 and as an Assistant Professor from 1989 to 1992. Dr. Selmani received
his Bachelor of Science and Master of Science Degrees in Physical Chemistry in
1979 and 1981, respectively, from the University of Bordeaux, France. He also
obtained his Doctoral and Post Doctoral Degrees in Materials Science from the
University of Montreal in 1985 and Dalhousy University in 1988, respectively.
Marie-Claire Pilon -Ms. Pilon became the Chief Executive Officer of the
Company on August 7, 2000. Ms Pilon is a pharmacist and hold an Executive
Masters in Business Administration. Prior to joining Biosyntech, Ms Pilon held a
number of senior positions within both the North American and European
pharmaceutical industry. Most recently, Ms. Pilon was a Senior Business
Development Consultant to private and publicly traded companies.In that role,
she assumed the responsibilities of Executive Vice President of Business
Development for Nastech Pharmaceutical Company, Inc., a publicly traded nasal
drug delivery company. From 1996 to 1999, Ms. Pilon was Vice-President of
Biovail Corporation International, a full service pharmaceutical company engaged
in the formulation, registration, clinical testing and manufacture of drug
products utilizing advanced drug delivery technologies. From 1994 to 1995, Ms.
Pilon was Executive Director for Business Development for the Benefit Research
Group, a Quintiles company specializing in Health Economics and Outcomes
Research. From 1981 to 1994, Ms. Pilon held positions of increasing
responsibilities within the industry.
Denis N. Beaudry - Mr. Beaudry has been a director of the Company since
February 2000. Mr. Beaudry has been President and general manager of Polyvalor,
Montreal, Quebec, Canada, a limited partnership formed by the Ecole
Polytechnique for the purpose of commercializing the intellectual property of
the Ecole Polytechnique. His role consists of enhancing the value of research
results for commercial use by means of start-up of high-tech companies in which
Polyvalor holds a participation or interest. Since 1984, he has occupied the
position of director of the Centre de Developpement Technologique of the Ecole
Polytechnique whose sphere of activities includes technology transfer, licensing
of technology and software, joint creation with private industry of laboratories
and research centers, strategic alliances, research partnerships, industrial
chairs and the emergence of high technology enterprises. Mr. Beaudry was
President of the Quebec Association of University Research Directors in 1992,
and is at present a member of the Board of Directors of Lumenon Innovative
Lightwave Technologies, Inc., the Centre des Technologies Textiles, the College
Rosemont, the Corporation de Financement de l'Institut de Cardiologie de
Montreal, the Centre de Technologies du Gaz Naturel, the Corporation Commerciale
de Materiaux Composites, the Centre de Developpement Rapide de Produits et de
Procedes, and the firms Sinlab Inc., Phytobiotech Inc., Polyplan Inc., Odotech
Inc. and COESI Inc.
Pierre Alary, CA - Mr. Alary has been a director of the Company since
February 2000. Since August 1998, Mr. Alary has been a Vice President for
finance and information technologies at Bombardier Transport, a designer,
manufacturer and distributor of rail cars. Prior to joining Bombardier
Transport, Mr. Alary has held various positions from September 1978 to August
1998, including as Senior Partner, at Ernst & Young LLP, specializing in the
biotechnology industry.
Jean-Yves Bourgeois - Mr. Bourgeois has been a director of the Company
since February 2000. Since 1999, Mr. Bourgeois has been a director and Senior
Vice President in charge of corporate finance for eastern Canada of Canaccord, a
securities broker/dealer. Prior to joining Canaccord, Mr. Bourgeois served as a
Chief Financial Officer for Aeterna Laboratories from 1998 to 1999. From 1997 to
1998, Mr. Bourgeois had also been in charge of small capital market development,
specializing in high technology and biotechnology industries, for TD Securities,
a securities
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broker/dealer. From 1992 to 1997, Mr. Bourgeois held various positions,
including the head of corporate finance for eastern Canada, at Gordon Capital, a
securities broker/dealer, where he specialized in high technology and
biotechnology industries.
Pierre Ranger MD - Dr. Ranger has been a director of the Company since
February 2000. Since 1991, Dr. Ranger has been a teaching professor in the
orthopedic residents program at the CMDP Sacred Heart Hospital of Montreal. Dr.
Ranger received his Doctoral of Medicine Degree from the University of Montreal
in 1979 and Diploma of Sports Medicine in 1996.
Lucie Duval - Ms. Duval has been the Secretary and Treasurer of the
Company since February 2000 and Secretary and Treasurer of Bio Syntech Canada
and its predecessor corporation since July 1, 1999. From 1986 to 1996, Mrs Duval
was a financial counselor for the city of Montreal, Canada.
Mr. Beaudry is the nominee of Polyvalor which has the right to appoint
one nominee to the Board of Directors under the Assignment Agreement. There are
no family relationships among directors and executive officers. Directors are
elected for a term of office to expire at the annual meeting of stockholders
after their election.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information as of August 31, 2000
regarding the beneficial ownership of shares of Common Stock by the Company's
current directors and executive officers and those persons or entities who, to
the Company's knowledge, beneficially own more than 5% of the Common Stock:
Shares of Common Percentage of Common
Name and Address of Stock Beneficially Stock Beneficially
Beneficial Owner Owned (1)(2) Owned
---------------- ------------ -----
9083-1496 Quebec Inc. (3) 7,640,000 26.2%
475 Boulevard Armand-Frappier
Laval, Quebec, Canada H7V 4B3
Amine Selmani (3)(7) 7,975,500(4) 27.0%
475 Boulevard Armand-Frappier
Laval, Quebec, Canada H7V 4B3
Denis N. Beaudry (6)(7) 25,000 >0.1%
Pierre Alary (7) 25,000 >0.1%
Jean-Yves Bourgeois (7) 25,000 >0.1%
Pierre Ranger (7)(8) 125,000 0.4%
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Lucie Duval (9) 30,000 0.1%
All Officers and Directors 8,205,500 28.0%
as a group (6 persons)
- -----------------------
(1) Includes rights to acquire shares of Common Stock through the exchange
of Class A Stock. See "Description of Business/History of the Company"
for information in respect of the exchange of Class A Stock for Common
Stock.
(2) A person is deemed to be the beneficial owner of voting securities that
can be acquired by such person within 60 days after August 31, 2000
upon the exercise or conversion of options, warrants or convertible
securities. Each beneficial owner's percentage ownership is determined
by assuming that options, warrants and convertible securities that are
held by such person (but not those held by any other person) and that
are exercisable or convertible within 60 days after August 31, 2000
have been exercised or converted.
(3) Dr. Selmani does not own directly any Class A Stock or Common Stock.
However, by virtue of his ownership of 9083-1496 Quebec Inc., Dr.
Selmani has shared voting and dispositive power with respect to the
7,640,000 shares of Class A Stock owned by 9083-1496 Quebec Inc. Dr.
Selmani also may be deemed the beneficial owner of 312,500 shares of
Common Stock that would be held by him upon exchange of 312,500 shares
of Class A Stock issuable upon exercise of options granted to Dr.
Selmani.
(4) Does not include an aggregate of 1,085,000 shares (which includes
200,000 shares issuable upon the exercise of options) of Common Stock
beneficially owned by Monique Jarry, the spouse of Dr. Selmani. Ms.
Jarry is deemed to be the beneficial owner of such shares of Common
Stock by reason of her beneficial ownership of the same number of
shares of Class A Stock. Dr. Selmani disclaims beneficial ownership of
such shares.
(5) Represents 175,000 shares of Common Stock that would be beneficially
owned by Ms. Pilon upon exercise of options granted under the Company's
Stock Option Plan
(6) Denis N. Beaudry is the representative of Polyvalor on the Company's
Board. Does not include 1,072,000 shares of Class A Stock beneficially
owned by Polyvalor which are exchangeable on a one-for-one basis for
shares of Common Stock. See "Description of Business -- Material
Agreements." Mr. Beaudry disclaims beneficial ownership of such shares.
(7) Includes 25,000 shares of Common Stock issuable upon exercise of
options granted to directors under the Company's Stock Option Plan. See
footnote #4 of the Company's Consolidated Financial Statement for the
period ended June 30, 2000 for details of recent stock option grants of
the Company.
(8) Includes 100,000 shares of Common Stock that would be beneficially
owned by Dr. Ranger upon exchange of 100,000 shares of Class A Stock
issuable upon exercis of an option granted to Dr. Ranger.
(9) Represents 30,000 shares of Common Stock that would be beneficially
owned by Ms. Duval upon exchange of 30,000 shares of Class A Stock
issuable upon exercise of an option granted to Ms. Duval.
EXECUTIVE COMPENSATION
Compensation of Executives
The following table sets forth, for the periods indicated, includes all
compensation awarded to, earned by or paid to the Chief Executive Officer of Bio
Syntech, which was merged with the Company's wholly-owned subsidiary,
-32-
Bio Syntech Canada, effective February 29, 2000. Except for those listed below,
no other executive officers of the Company and Bio Syntech received annual
compensation in excess of US $100,000 during the periods indicated.
Summary Compensation Table
Long-Term
Compensation:
Annual Compensation Award
Fiscal
Name and Position Year(1) Salary Bonus(1) # of Options
----------------- ------- ------ -------- ------------
Amine Selmani 2000 $120,000 $0 -
President and
Chief Executive Officer 1999 $120,000 $0 312,500(2)
1998 $0 $0 -
- ----------------
(1) Certain of the executive officers of the Company routinely receive
other benefits from the Company, the amounts of which are customary in the
Company's industry. The Company has concluded, after reasonable inquiry, that
the aggregate amounts of such benefits during each of the periods reflected in
the table above did not exceed the lesser of US$50,000 or 10% of the
compensation set forth above for any named individual in respect of any such
period.
(2) Represents options awarded under the Bio Syntech Canada, Inc. Stock
Option Plan (the "BSCPlan").
Option Grants
No options were granted to Dr. Selmani in the fiscal year ended March
31, 2000. The Company has never granted any stock appreciation rights.
Aggregated Fiscal Year-End Option Exercises and Option Values
Dr. Selmani did not exercise any options as of March 31, 2000. The
following table sets forth certain information regarding unexercised stock
options held by Dr. Selmani as of March 31, 2000.
Number of Securities Underlying Value of Unexercised in the-Money
Unexercised Options at Options at
March 31, 2000(#) March 31, 2000($)
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
---- ------------------------- ----------------------------
Amine Selmani 312,500/0 $1,596,094/0
- -----------------
(1) Based on the market value, as reported on the Over the Counter
Electronic Bulletin Board, of US$5.6250 per share of Common Stock at
March 31, 2000 and an exercise price of $.75 (US$0.5175) per share.
Other Compensation Plans
The Company has no pension plan or other compensation plans for its
executive officers or directors.
Compensation of Directors
-33-
No fees or other remuneration were paid to directors of the Company
during the fiscal year ended March 31, 2000, with the exception of reimbursement
of expenses. The Board will determine the remuneration of the directors and
officers of the Company during the current and subsequent fiscal years.
Employment Agreement
Marie Claire Pilon Employment Agreement - We have entered into a
three-year employment agreement with Marie-Claire Pilon dated as of August 7,
2000. Ms. Pilon will serve as Chief Executive Officer with such duties and
responsibilities as are determined by our Board from time to time. Ms. Pilon
shall be entitled to an annual base salary of $165,000 which shall be reviewed
annually plus a bonus payment at the discretion of the Board's compensation
committee. The Board also granted Ms. Pilon options to purchase 175,000 shares
of our Common Stock at an exercise price of $4.00 per share, vesting in three
installments commencing August 2001. Ms. Pilon is subject to a confidentiality
and non-solicitation provisions during the term of her employment and two year
thereafter, respectively. Ms. Pilon will be entitled to receive her full salary
for a period of either six months or twelve months if she was terminated without
Cause and the notice of termination was delivered by December 11, 2000 or after
December 11, 2000, respectively. She will not be entitled to receive any salary
if she is terminated for Cause, disability or death.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in "Description of Business -- History of the
Company" and "-Material Agreement" is incorporated herein by reference.
SELLING STOCKHOLDERS
Except as indicated below, none of the Selling Stockholders has held
any position or office or had any other material relationship with us within the
past three years. The following table shows the beneficial ownership of our
Common Stock on September 13, 2000. The table assumes that the Selling
Stockholders will sell all of the shares and that the Selling Stockholders will
make no other purchases or sales of our Common Stock. However, the Selling
Stockholders are not obligated to sell their shares at any time or at any price.
Therefore, we cannot state with certainty the number of shares of common stock
that will be owned by each of the Selling Stockholders upon the termination of
this offering. The number of shares of common stock that each holder may own may
also change due to stock splits or other anti-dilution adjustments.
Shares of Percentage of Shares of
Common Common Common Percentage of
Stock Stock Shares of Stock Common Stock
Beneficially Beneficially Common Beneficially Beneficially
Name and Address of Owned Before Owned Before Stock Being Owned After Owned After
Beneficial Owner Offering(1) Offering (2) Offered Offering Offering
------------------ ----------- ------------ -------- --------- ---------
Monique Jarry 885,000 3.0% 885,000 0 0%
Michael Buschmann 290,000 1.0% 290,000 0 0%
Abdellatif Chenite 300,000 1.0% 300,000 0 0%
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Caroline Hoemann 100,000 0.3% 100,000 0 0%
Cyril Chaput 200,000 0.7% 200,000 0 0%
Fairouze Jalal 100,000 0.3% 100,000 0 0%
Ronald D. Guttmann 133,334 0.5% 133,334 0 0%
William Stanimir 110,000 0.4% 110,000 0 0%
Pierre Barnard 21,429 >0.1% 21,429 0 0%
C.B.C. Consulting Inc. 233,333 0.8% 233,333 0 0%
Henry Yersh 70,000 0.2% 70,000 0 0%
Michael Teryzos 166,667 0.6% 166,667 0 0%
Belwest Capital Management Corp. 155,000 0.5% 155,000 0 0%
Thensor SKY Corp. 371,900 1.3% 371,900 0 0%
Groupe Montoni 33,333 0.1% 33,333 0 0%
Francois Rodrigue 30,001 0.1% 30,001 0 0%
Astrid Guttmann 13,333 >0.1% 13,333 0 0%
Carla Guttmann 13,333 >0.1% 13,333 0 0%
Gregory Guttmann 13,333 >0.1% 13,333 0 0%
2845351 Canada Inc. 327,000 1.1% 327,000 0 0%
Louise Gauthier 6,666 >0.1% 6,666 0 0%
Julie Rodrigue 6,666 >0.1% 6,666 0 0%
Serge Cadorette 100,000 0.3% 100,000 0 0%
Lirojen Enterprises Ltd. 50,000 0.2% 50,000 0 0%
Multivox Marketing Inc. 528,333 1.8% 528,333 0 0%
Richard D. Spizzirri 66,375 0.2% 66,375 0 0%
Lewis Capital Ltd. 9,521 >0.1% 9,521 0 0%
Jim Beckerleg 17,600 >0.1% 17,600 0 0%
-35
Charles Beaudoin 135,000 0.5% 135,000 0 0%
Multivesco 110,000 0.4% 110,000 0 0%
Polyvalor, Societe en commandite 1,072,000 3.4% 1,072,000 0 0%
146479 Canada Inc. 120,000 0.4% 120,000 0 0%
Compensation BNC Inc. 1,200,000 4.1% 1,200,000 0 0%
Michele Kosich 90,000 0.3% 90,000 0 0%
Jean-Marie Rodrigue 10,000 >0.1% 10,000 0 0%
Kebir Ratnani 15,000 >0.1% 15,000 0 0%
Compensation BNC INC EFP Pierre Larue 6,666 >0.1% 6,666 0 0%
(0TC9RE2)
Roytor & Co. 426,213 1.5% 426,213 0 0%
TOTAL 7,537,036 25.8% 7,537,036 0 0%
- ----------------------
(1) Includes rights to acquire shares of Common Stock through the exchange
of the Class A Shares. See "Description of Business/History of the
Company" for information in respect of the exchange of the Class A
Shares for shares of Common Stock.
(2) Based upon 29,182,250 outstanding shares of Common Stock as reported in
the Company's report for the quarter ended June 30, 2000 on Form 10-QSB
filed with the Securities and Exchange Commission on August 15, 2000.
PLAN OF DISTRIBUTION
As used in this prospectus, "Selling Stockholders" includes the
pledgees, donees, transferees or others who may later hold the Selling
Stockholders' beneficial ownership of shares of Common Stock. We will pay the
costs and fees of registering the shares of Common Stock, but the Selling
Stockholders will pay any brokerage commissions, discounts or other expenses
relating to the sale of these shares.
The Selling Stockholders may sell the shares of Common Stock in the
over-the-counter market or otherwise, at market prices prevailing at the time of
sale, at prices related to the prevailing market prices or at negotiated prices.
In addition, the Selling Stockholders may sell some or all of their shares
through:
o a block trade in which a broker-dealer may resell a portion of
the block, as principal, in order to facilitate the transaction;
o purchases by a broker-dealer, as principal, and resale by the
broker-dealer for its account; or
o ordinary brokerage transactions and transactions in which a
broker solicits purchasers.
When selling the shares of Common Stock, the Selling Stockholders may
enter into hedging transactions. For example, the Selling Stockholders may:
o enter into transactions involving short sales of the shares by
broker-dealers;
-36-
o sell shares short themselves and redeliver the shares to close
out their short positions;
o enter into option or other types of transactions that require
the Selling Stockholder to deliver shares to a broker-dealer,
who will then resell or transfer the common shares under this
prospectus; or
o loan or pledge the shares to a broker-dealer, who may sell the
loaned shares or, in the event of default, sell the pledged
shares.
The Selling Stockholders may negotiate and pay broker-dealers
commissions, discounts or concessions for their services. Broker-dealers engaged
by the Selling Stockholders may allow other broker-dealers to participate in
resales. However, the Selling Stockholders and any broker-dealers involved in
the sale or resale of the shares of common stock may qualify as "underwriters"
within the meaning of Section 2(a)(11) of the Securities Act of 1933. In
addition, the broker-dealers' commissions, discounts or concession may qualify
as underwriters' compensation under the Securities Act of 1933.
In addition to selling their shares under this prospectus, the Selling
Stockholders may:
o agree to indemnify any broker-dealer or agent against
liabilities related to the selling of the shares, including
liabilities arising under the Securities Act of 1933;
o transfer their shares in other ways not involving market
makers or established trading markets, including directly by
gift, distribution or other transfer; or
o sell their shares under Rule 144 of the Securities Act of 1933
rather than under this prospectus, if the transaction meets
the requirements of Rule 144.
DESCRIPTION OF CAPITAL STOCK
Common Stock
The Company's Articles of Incorporation authorizes the issuance of
50,000,000 shares of Common Stock, $0.001 par value per share, of which 29,
182,250 are issued and outstanding as of August 31, 2000, which includes
7,537,036 shares of Common Stock being offered herein. The shares are
non-assessable, without pre- emptive rights, and do not carry cumulative voting
rights. Holders of Common Shares are entitled to one vote for each share on all
matters to be voted on by the stockholders. The shares are fully paid,
non-assessable, without pre-emptive rights, and do not carry cumulative voting
rights. Holders of Common Shares are entitled to share ratably in dividends, if
any, as may be declared by the Company from time-to-time, from funds legally
available. In the event of a liquidation, dissolution, or winding up of the
Company, the holders of shares of Common Stock are entitled to share on a
pro-rata basis all assets remaining after payment in full of all liabilities.
Class A Shares
Class A Shares are non-voting exchangeable shares of Bio Syntech
Canada's Preferred Stock which are exchangeable on a one-to-one basis for the
shares of Common Stock of the Company. There are currently 15,177,036 Class A
Shares outstanding and options to purchase 1,500,000 Class A Shares outstanding.
EXPERTS
The consolidated financial statements of the Company at March 31, 2000
and March 31, 1999 and for the fiscal years ended March 31, 2000 and1999
appearing in this prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as is set forth in their report thereon
appearing elsewhere herein
-37-
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be
passed upon for the Company by Olshan Grundman Frome Rosenzweig & Wolosky LLP,
New York, New York.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company's By-laws provides that the Company shall indemnify its
directors, officers and agents to the fullest extent possible under the Nevada
General Corporate Law ("NGCL"). The Company's By-laws is consistent with the
indemnification provisions in the NGCL which allow for discretionary and
mandatory indemnification of a corporation's officers, directors, employees and
agents. Section 78.7502 of the NGCL provides for the general concept of
indemnification and Section 78.751 of the NGCL provides for authorization,
advance and limitation of such indemnification.
Insofar as determination for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore, unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statement and
other information with the SEC. Our SEC filings are available to the public over
the Internet at the SEC's website at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. You may
also request a copy of these filings at no cost, by writing or telephoning us at
the following address: BioSyntech, Inc., 475 Boulevard Armand-Frappier, Laval,
Quebec, Canada H7V 4B3, Telephone, (450) 686-2437.
This prospectus is a part of the registration statement on Form SB-2
(the "Registration Statement") that we filed with the SEC. The Registration
Statement contains more information than the prospectus regarding the company
and our Common Stock, including certain exhibits. You can get a copy of the
Registration Statement from the SEC at the address listed above or from its
internet site.
-38-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BioSyntech, Inc.
(A Development Stage Company)
Report of Independent Auditors F-2
Consolidated Balance Sheets at March 31, 2000 and 1999 F-3
Consolidated Statements of Operations for the Fiscal Years
Ended March 31, 2000 and 1999 F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficiency)
for the Fiscal Years ended March 31, 2000 and 1999 F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended
March 31, 2000 and 1999 F-6
Notes to Consolidated Financial Statements for the
Fiscal Years ended March 31, 2000 and 1999 F-7
Condensed Consolidated Balance Sheets at June 30, 2000
and March 31, 2000 F-23
Condensed Consolidated Statement of Operations for the
quarters ended June 30, 2000 and June 30, 1999 F-24
Condensed Statements of Changes in Stockholders' Equity (Deficiency)
from inception to June 30, 2000 F-25
Condensed Consolidated Statements of Cash Flow for the
quarters ended June 30, 2000 and 1999 F-26
Notes to Consolidated Financial Statements as of June 30, 2000 F-27
-39-
We have not authorized anyone to give any information or make any
representations, other than those contained in this prospectus. You must not
rely on any unauthorized information or representations. Only the shares
descried within this prospectus are being offered, and only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
BIOSYNTECH, INC.
7,537,036 Shares of
Common Stock
PROSPECTUS
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Directors and Officers
Article VII of the Company's By-laws provides that the Company shall
indemnify its directors, officers and agents to the fullest extent possible
under the Nevada General Corporate Law ("NGCL"). Article VII of the Company's
By-laws states that:
"No Officer or Director shall be personally liable for any
obligations of the Corporation or for any duties or obligations
arising out of any or conducts of said Officer or Director
performed for or on behalf of the Corporation. The Corporation
shall and does hereby indemnify and hold harmless each person and
their heirs and administrators who shall serve at any time
hereafter as a Director or Officer of the Corporation from and
against any and all claims, judgements and liabilities to which
such persons shall become subject by reason of their having
heretofore or hereafter been a Director or Officer of the
Corporation, or by reason of any action alleged to have heretofore
or hereafter taken or omitted to have been taken by him as such
Director or Officer, and shall reimburse each such person for all
legal and other expenses reasonably incurred by him in connection
with any such claim or liability, including power to defend such
persons from all suits or claims as provided for under the
provisions of the Nevada Revised Statutes; provided, however, that
no such persons shall be indemnified against, or be reimbursed
for, any expense incurred in connection with an claim or liability
arising out of his (or her) own negligence or willful misconduct.
The rights accruing to any person under the foregoing provisions
of this section shall not exclude any other right to which he or
she may lawfully be entitled, nor shall anything herein contained
restrict the right of the Corporation to indemnify or reimburse
such person in any proper case, even though not specifically
herein provided for. The Corporation, its Directors, Officers,
employees and agents shall be fully protected in taking any action
or making any payment, or in refusing so to do in reliance upon
the advice of counsel."
Article VII of the Company's By-laws is consistent with the
indemnification provisions in the NGCL which allow for discretionary and
mandatory indemnification of a corporation's officers, directors, employees and
agents. Section 78.7502 of the NGCL provides for the general concept of
indemnification and Section 78.751 of the NGCL provides for authorization,
advance and limitation of such indemnification.
Section 78.7502 of the NGCL states that:
" A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or
in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good
faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent,
does not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed
II-1
to be in or not opposed to the best interests of the corporation,
and that, with respect to any criminal action or proceeding, he
had reasonable cause to believe that his conduct was unlawful.
A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees
actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit if he acted in good
faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation. Indemnification
may not be made for any claim, issue or matter as to which such a
person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action
or suit was brought or other court of competent jurisdiction
determines upon application that in view of all the circumstances
of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
To the extent that a director, officer, employee or agent of
a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subsections 1 and 2, or in defense of any claim, issue or matter
therein, he must be indemnified by the corporation against
expenses, including attorneys' fees actually and reasonably
incurred by him in connection with the defense."
Section 78.751 of the NGCL states that:
"(1) Any indemnification under Section 78.7502 of the NGCL, unless
ordered by a court or advanced pursuant to subsection 2, must be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made:
o By the shareholders;
o By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding;
o If a majority vote of a quorum consisting of directors who
were not parties to the action, suit or proceeding so orders, by independent
legal counsel in a written opinion; or
o If a quorum consisting of directors who were not parties to
the action, suit or proceeding cannot be obtained, by independent legal counsel
in a written opinion.
(2) The articles of incorporation, the bylaws or an
agreement made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal
action, suit or proceeding must be paid by the corporation as they
are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or
on behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he
is not entitled to be indemnified by the corporation. The
provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or
otherwise by law.
II-2
(3) The indemnification and advancement of expenses
authorized in or ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be entitled
under the articles of incorporation or any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, for either an
action in his official capacity or an action in other capacity while
holding his office, except that indemnification, unless ordered by a
court pursuant to Section 78.7502 of the NGCL or for the advancement of
expenses made pursuant to subsection 2, may not be made to or on behalf
of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs,
executors and administrators of such a person."
ITEM 25. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses (other than
brokerage commissions, discounts or other expenses relating to the sale of the
shares of Common Stock by the Selling Stockholders) which will be paid by the
Company in connection with the issuance and distribution of the securities being
registered. With the exception of the Securities and Exchange Commission (the
"SEC") registration fee, all amounts shown are estimates.
SEC Registration Fee $[ ]
Blue Sky Fees and Expenses [ ]
Printing and Engraving [ ]
Subscription Agent Fees [ ]
Accounting Fees and Expenses [ ]
Legal Fees and Expenses [ ]
Miscellaneous expenses [ ]
Total [ ]
Item 26. Recent Sales of Unregistered Securities
The information set forth under the caption "History of the Company" in
Description of Business above is incorporated herein. The securities were issued
in reliance on the exemption from registration under the Securities Act of 1933,
as amended (the "Securities Act") provided for in Rule 903 of Regulation S
("Regulation S") to a trust for the benefit of the holders of Non-Voting
Exchangeable Shares (as such term is defined in the Company's Registration
Statement) of Bio Syntech Canada, Inc., all of whom are non U.S. Persons (as
such term is defined in Rule 902 of Regulation S). All such securities were
deemed by the Company to be restricted securities and were appropriately
legended and restricted as to subsequent transfer. No underwriter was involved
in such transaction.
On February 2, 2000, the Company received funds for a private placement
of its securities which was conditioned on the closing of the Transactions. The
private placement yielded aggregate proceeds of US $2,350,000, and 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 private placement closed on February 29, 2000,
simultaneous with the closing of the Transactions. The Company relied upon the
exemption provided in Regulation S under the Securities Act. No underwriter was
involved in the private placements.
II-3
The Company completed a second private placement with five separate
closing dates as shown in the table below. The Company issued a total of
1,910,214 units at a price of US $3.50 per unit yielding gross proceeds of US
$6,055,250 and CDN $900,000. Each unit comprised one share of Common Stock and
one warrant for the purchase of one additional share at a price of US $4.50 per
share before March 30, 2001. The securities were offered and sold in reliance on
the exemption from registration under the Securities Act provided for in
Regulation S. All such securities were deemed by the Company to be restricted
securities and were appropriately legended and restricted as to subsequent
transfer. No underwriter was involved in such transactions.
Closing Date Number of Units Proceeds
March 31, 2000 843,500 US $2,532,250 and CDN $600,000
(CDN $4,270,243)
April 4, 2000 833,857 US $2,813,500 and CDN $150,000
(CDN $4,281,343)
April 17, 2000 82,000 US $287,000
(CDN $425,879)
April 27, 2000 42,857 US $150,000
(CDN $221,925)
June 9, 2000 108,000 US $273,500 and CDN $150,000
(CDN $558,272)
------------ -------------------------------
Totals 1,910,214 US$6,055,250 and CDN $900,000
(CDN $9,757,662)
Item 27. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit 2.1 Amalgamation Agreement made December 2, 1999, as amended and
restated on February 15, 2000, among BioSyntech Inc., Bio
Syntech Ltd. and 9083-5661 Quebec Inc. - Incorporated by
reference to Exhibit 2.1 to Current Report on Form 8-K dated
March 15, 2000.
Exhibit 3.1 Articles of Incorporation - Incorporated by reference to
Exhibit 3.1 to Registration Statement on Form 10SB filed
August 30, 1999.
Exhibit 3.2 Restated and Amended By-laws.
Exhibit 4.1 Exchange and Voting Agreement made February 16, 2000 among
BioSyntech Inc., 9083-5661 Quebec Inc., Pierre Barnard and Bio
Syntech Ltd. - Incorporated by reference to Exhibit 4.1 to
Current Report on Form 8-K dated March 15, 2000.
Exhibit 4.2 Support Agreement made February 15, 2000 among BioSyntech,
Inc., 9083-5661 Quebec Inc. and Bio Syntech Ltd. -
Incorporated by reference to Exhibit 4.2 to Current Report on
Form 8-K dated March 15, 2000.
*Exhibit 5 Opinion of Counsel as to the legality of the securities being
registered.
II-4
Exhibit 10.1 Amended and Restated Technology Assignment Agreement among
Polyvalor Limited Partnership, Bio Syntech Canada Inc., and
BioSyntech Inc. dated March 15, 2000. - Incorporated by
reference to Exhibit 10.1 to Annual Report on Form 10-KSB for
period ended December 31, 1999 and filed with the Securities
and Exchange Commission on March 30, 2000.
Exhibit 10.2 BioSyntech, Inc. Stock Option Incentive Plan. - Incorporated
by reference to Exhibit 10.2 to Annual Report on Form 10-KSB
for period ended December 31, 1999 and filed with the
Securities and Exchange Commission on March 30, 2000.
Exhibit 10.3 Bio Syntech Canada Inc. Stock Option Incentive Plan. -
Incorporated by reference to Exhibit 10.3 to Annual Report on
Form 10-KSB for period ended December 31, 1999 and filed with
the Securities and Exchange Commission on March 30, 2000.
Exhibit 10.4 Non-Disclosure and Confidentiality Agreement between Bio
Syntech Ltd. and Sulzer Orthopedics Biologics Inc. dated
February 23, 1999. - Incorporated by reference to Exhibit 10.4
to Annual Report on Form 10-KSB for period ended December 31,
1999 and filed with the Securities and Exchange Commission on
March 30, 2000.
Exhibit 10.5 Material Transfer Agreement between Bio Syntech Ltd. and
Sulzer Orthopedics Ltd. dated January 4, 2000. - Incorporated
by reference to Exhibit 10.5 to Annual Report on Form 10-KSB
for period ended December 31, 1999 and filed with the
Securities and Exchange Commission on March 30, 2000.
Exhibit 10.6 Confidentiality Agreement between Bio Syntech Ltd. and
Reprogenesis, Inc. dated May 31, 1999. - Incorporated by
reference to Exhibit 10.6 to Annual Report on Form 10-KSB for
period ended December 31, 1999 and filed with the Securities
and Exchange Commission on March 30, 2000.
Exhibit 10.7 Material Transfer Agreement between Bio Syntech Ltd. and
Reprogenesis, Inc. dated July 27, 1999. - Incorporated by
reference to Exhibit 10.7 to Annual Report on Form 10- KSB for
period ended December 31, 1999 and filed with the Securities
and Exchange Commission on March 30, 2000.
Exhibit 10.8 Confidential Disclosure Agreement between Bio Syntech Ltd. and
Ophidian Pharmaceuticals, Inc. dated August 16, 1999. -
Incorporated by reference to Exhibit 10.8 to Annual Report on
Form 10-KSB for period ended December 31, 1999 and filed with
the Securities and Exchange Commission on March 30, 2000.
Exhibit 10.9 Biological Material Transfer Agreement between Bio Syntech
Ltd. and Ophidian Pharmaceuticals, Inc. dated August 16, 1999.
- Incorporated by reference to Exhibit 10.9 to Annual Report
on Form 10-KSB for period ended December 31, 1999 and filed
with the Securities and Exchange Commission on March 30, 2000.
Exhibit 10.10 Mutual Confidentiality and Non-Disclosure Agreement between
Bio Syntech Ltd. and Viragen Incorporated dated September 2,
1999. - Incorporated by reference to Exhibit 10.10 to Annual
Report on Form 10-KSB for period ended December 31, 1999 and
filed with the Securities and Exchange Commission on March 30,
2000.
Exhibit 10.11 Confidential Disclosure Agreement between Bio Syntech Ltd. and
Ontogeny, Inc. dated October 26, 1999. - Incorporated by
reference to Exhibit 10.11 to Annual Report on Form 10-KSB for
period ended December 31, 1999 and filed with the Securities
and Exchange Commission on March 30, 2000.
II-5
Exhibit 10.12 Material Transfer Agreement between Bio Syntech Ltd. and
Ontogeny, Inc. dated December 3, 1999. - Incorporated by
reference to Exhibit 10.12 to Annual Report on Form 10-KSB for
period ended December 31, 1999 and filed with the Securities
and Exchange Commission on March 30, 2000.
Exhibit 10.13 Material Transfer Agreement between Bio Syntech Ltd. and
Biomet Manufacturing Corporation dated February 8, 2000. -
Incorporated by reference to Exhibit 10.13 to Annual Report on
Form 10-KSB for period ended December 31, 1999 and filed with
the Securities and Exchange Commission on March 30, 2000.
*Exhibit 10.14 Employment Agreement between the Company and Marie-Claire
Pilon, dated September 11, 2000.
*Exhibit 23.1 Consent of Accountants.
*Exhibit 23.2 Consent of Counsel (included in Exhibit 5).
*Exhibit 24 Power of Attorney (see page II-8).
- ----------------------------------
* Filed herewith.
Item 28. Undertakings.
I. Rule 415 Offering
The undersigned Registrant hereby undertakes:
(a) to file, during any period in which if offers or sells securities,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement to
include any additional or changed material information on the plan of
distribution.
(2) That, for the purpose of determining any liability under
the Securities Act, treat each post-effective amendment as a new registration
statement for the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriters during
the subscription period, the amount of unsubscribed securities to be purchased
by the underwriters, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriters is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
II-6
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance on Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declare effective.
(2) For the purpose of determining any liability under the
Securities Act, treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
II. Request for Acceleration of Effective Date
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
[The remainder of this page was intentionally left blank.]
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Montreal, Province of Quebec, Canada on the 13
day of September, 2000.
BIOSYNTECH, INC.
September 13, 2000 By: /s/ Marie-Claire Pilon
--------------------------
Marie-Claire Pilon,
Chief Executive Officer
POWER OF ATTORNEY
BioSyntech, Inc. and each of the undersigned do hereby appoint
Marie-Claire Pilon, its or her true and lawful attorney to execute on behalf of
BioSyntech, Inc. and the undersigned any and all amendments to the Registration
Statement on Form SB-2 and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons on behalf of the Company and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Amine Selmani Chairman of the Board and September 13, 2000
- ----------------------- President
Amine Selmani
/s/ Denis N. Beaudry Director September 13, 2000
- -----------------------
Denis N. Beaudry
/s/ Pierre Alary Director September 13, 2000
- -----------------------
Pierre Alary
Director
- -----------------------
Jean-Yves Bourgeois
Director
- -----------------------
Pierre Ranger
II-8
Consolidated Financial Statements
BioSyntech, Inc.
[formerly Dream Team International Inc.]
[a development stage company]
March 31, 2000 and 1999
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
BioSyntech, Inc.
We have audited the accompanying consolidated balance sheets of BioSyntech, Inc.
[the "Company"], [a development stage company], as of March 31, 2000 and 1999
and the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for the period from inception to March 31, 2000 and
for the years ended March 31, 2000 and 1999. These consolidated financial
statements are the responsibility of the Company's Management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by Management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company [a
development stage company] as of March 31, 2000 and 1999 and the results of its
operations and its cash flows for the period from inception to March 31, 2000
and for the years ended March 31, 2000 and 1999 in conformity with accounting
principles generally accepted in the United States.
Montreal, Canada, /s/ Ernst & Young LLP
June 9, 2000, except as to Note 14, Chartered Accountants
as to which the date is July 4, 2000.
F-2
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED BALANCE SHEETS [note 1]
As of March 31, 2000 and 1999
2000 2000 1999
US$ C$ C$
- ------------------------------------------------------------------------------------------------------------------------------------
[note 2]
ASSETS
Current assets
Cash 5,037,355 7,301,143 57,297
Short-term investment [note 3] 51,746 75,000 --
Receivables [note 4] 63,044 91,376 68,460
Inventory 32,557 47,188 23,700
Investment tax credits receivable [note 10] 396,716 575,000 603,663
Prepaid expenses 12,671 18,365 --
- ------------------------------------------------------------------------------------------------------------------------------------
5,594,089 8,108,072 753,120
- ------------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment [note 5] 1,035,525 1,500,890 1,665,163
Other assets 11,487 16,650 15,867
- ------------------------------------------------------------------------------------------------------------------------------------
6,641,101 9,625,612 2,434,150
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities
Demand loan [note 6] -- -- 518,598
Accounts payable and accrued liabilities 731,977 1,060,928 579,552
Due to stockholder, without interest and
repayment terms 6,899 10,000 30,394
Deferred revenues 45,157 65,451 --
Current portion of long-term debt [note 7] 51,746 75,000 400,000
Current portion of obligations under capital
leases [note 8] 57,596 83,479 56,452
- ------------------------------------------------------------------------------------------------------------------------------------
893,375 1,294,858 1,584,996
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt [note 7] 155,237 225,000 300,000
Obligations under capital leases [note 8] 629,409 912,266 991,736
- ------------------------------------------------------------------------------------------------------------------------------------
1,678,021 2,432,124 2,876,732
- ------------------------------------------------------------------------------------------------------------------------------------
Commitment [note 12]
Contingent liability [note 13]
Stockholders' equity (deficiency)
Common stock [note 9]
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding
28,115,536 common shares 9,060,785 13,132,702 2,662,909
Additional paid-in capital 1,183,876 1,715,910 1,309,350
Deficit accumulated during the development stage (5,281,581) (7,655,124) (4,414,841)
- ------------------------------------------------------------------------------------------------------------------------------------
4,963,080 7,193,488 (442,582)
- ------------------------------------------------------------------------------------------------------------------------------------
6,641,101 9,625,612 2,434,150
====================================================================================================================================
See accompanying notes
- --------------------------------- ------------------------
Director Director
F-3
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED STATEMENTS OF OPERATIONS [note 1]
Years ended March 31, 2000 and 1999
Cumulative
from inception to
March 31, 2000 2000 2000 1999
C$ US$ C$ C$
- -------------------------------------------------------------------------------------------------------------------------------
[note 2]
Sales 168,138 -- -- 78,660
Cost of sales 71,962 -- -- 35,008
- -----------------------------------------------------------------------------------------------------------------------------
96,176 -- -- 43,652
- -----------------------------------------------------------------------------------------------------------------------------
Research and development expenses 5,653,972 1,615,632 2,341,697 2,948,342
Investment tax credits (1,413,364) (466,994) (676,861) (599,114)
General and administrative expenses 3,082,139 840,008 1,217,507 1,789,468
Interest on long-term debt 238,337 136,885 198,402 39,935
Amortization of property, plant and equipment
213,221 122,933 178,179 35,042
Interest revenue (23,005) (12,861) (18,641) (4,364)
- -----------------------------------------------------------------------------------------------------------------------------
7,751,300 2,235,603 3,240,283 4,209,309
- -----------------------------------------------------------------------------------------------------------------------------
Net loss for the period [note 10] 7,655,124 2,235,603 3,240,283 4,165,657
Deficit accumulated during the
development stage, beginning of period -- 3,045,978 4,414,841 249,184
- -----------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the
development stage, end of period 7,655,124 5,281,581 7,655,124 4,414,841
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 14,042,819 14,042,819 11,274,996
Basic and diluted loss per share [note 9] 0.16 0.23 0.37
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-4
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIENCY) [notes 1 and 9]
From inception to March 31, 2000
[In Canadian dollars]
Common Stock
-----------------------------------
Additional
paid-in Accumulated
Shares Amount capital deficit Total
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, May 10, 1995 8,525,000 1 -- -- 1
Net loss 1996 [325 day period] -- -- -- (2,865) (2,865)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 8,525,000 1 -- (2,865) (2,864)
Net loss 1997 -- -- -- (9,332) (9,332)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 8,525,000 1 -- (12,197) (12,196)
Deemed common stock paid up as of January 31,
1998 and issued on August 3, 1998
-- 215,000 -- -- 215,000
Net loss 1998 -- -- -- (236,987) (236,987)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 8,525,000 215,001 -- (249,184) (34,183)
Deemed common stock issued for cash 1,746,579 1,083,108 -- -- 1,083,108
Deemed common stock issued in exchange for
services 1,940,000 1,455,000 -- -- 1,455,000
Deemed options granted to consultants -- -- 1,309,350 -- 1,309,350
Net loss 1999 -- (4,165,657) (4,165,657)
Deemed share issuance costs -- (90,200) -- -- (90,200)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 12,211,579 2,662,909 1,309,350 (4,414,841) (442,582)
Deemed common stock issued for cash 1,893,457 2,595,222 -- -- 2,595,222
Deemed common stock issued in exchange for
intellectual property [note 12] 1,072,000 1,072,000 -- -- 1,072,000
Deemed options granted to consultants -- -- 406,560 -- 406,560
Net loss for the period from April 1, 1999 to
February 28, 2000 -- -- -- (2,850,977) (2,850,977)
- ------------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding February 29, 2000 15,177,036 6,330,131 1,715,910 (7,265,818) 780,223
Acquisition of BioSyntech, Inc.
by Bio Syntech Ltd. 12,095,000 2,873,848 -- -- 2,873,848
March 31, 2000, issuance [note 9] 843,500 4,270,243 -- -- 4,270,243
Share issue costs [note 9] -- (341,520) -- -- (341,520)
Net loss for the period from February 29, 2000
to March 31, 2000 -- -- -- (389,306) (389,306)
- ------------------------------------------------------------------------------------------------------------------------------------
28,115,536 13,132,702 1,715,910 (7,655,124) 7,193,488
====================================================================================================================================
US dollars [note 2]
Balance as at March 31, 2000 9,060,785 1,183,876 (5,281,581) 4,963,080
====================================================================================================================================
F-5
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED STATEMENTS OF CASH FLOWS [note 1]
Years ended March 31, 2000 and 1999
Cumulative
from inception
to March 31, 2000 2000 2000 1999
C$ US$ C$ C$
- -----------------------------------------------------------------------------------------------------------------------------------
[note 2]
OPERATING ACTIVITIES
Net loss (7,655,124) (2,235,604) (3,240,283) (4,165,657)
Items not affecting cash
Amortization 213,221 122,933 178,179 35,042
Services paid by the isssuance of common stock 2,527,000 739,616 1,072,000 1,455,000
Options granted to consultants 1,715,910 280,502 406,560 1,309,350
Changes in working capital assets and liabilities
Accounts receivable (91,376) (15,811) (22,916) (5,377)
Inventory (47,188) (16,205) (23,488) (23,700)
Investment tax credits receivable (575,000) 19,776 28,663 (468,663)
Prepaid expenses (18,365) (12,671) (18,365) --
Deferred revenues 65,451 45,157 65,451 --
Accounts payable and accrued liabilities 1,044,440 332,121 481,376 339,156
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (2,821,031) (740,186) (1,072,823) (1,524,849)
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (75,251) (8,904) (12,907) (69,370)
Purchase of short-term investment (75,000) (51,746) (75,000) --
Purchase of other assets (16,650) (575) (833) (14,867)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (166,901) (61,225) (88,740) (84,237)
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- -- 700,000
Repayment of long-term debt (400,000) (275,976) (400,000) --
Proceeds of demand loan 581,845 -- -- 581,845
Repayment of demand loan (581,845) (357,802) (518,598) (63,247)
Increase in due to shareholder 30,394 -- -- 20,394
Repayment to shareholder (20,394) (14,071) (20,394) --
Repayment of obligations under capital leases (643,116) (36,182) (52,443) (583,647)
Proceeds from issuance of shares of
Bio Syntech Ltd. prior to the reverse acquisition 3,890,068 1,790,549 2,595,222 1,083,108
Proceeds from issuance of common shares of
BioSyntech, Inc. prior to the reverse acquisition 3,399,980 2,331,503 3,379,279 --
Repurchase of common stock of
BioSyntech, Inc. prior to the reverse acquisition (506,380) (349,372) (506,380) --
Proceeds from issuance of common shares of
BioSyntech, Inc. after the reverse acquisition 4,270,243 2,946,214 4,270,243 --
Share issue costs (431,720) (235,629) (341,520) (90,200)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 10,289,075 5,799,234 8,405,409 1,648,253
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash 7,301,143 4,997,823 7,243,846 39,167
Cash, beginning of period -- 39,532 57,297 18,130
- ----------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 7,301,143 5,037,355 7,301,143 57,297
- ----------------------------------------------------------------------------------------------------------------------------------
Additional information
Interest paid 228,351 129,996 188,416 39,935
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-6
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company was incorporated on December 14, 1994 under the laws of the State of
Nevada. The Company's operations and all of its assets are located in Canada.
Pursuant to an Amalgamation agreement dated February 15, 2000, 9083-5661 Quebec
Inc., a wholly-owned subsidiary of the Company, and Bio Syntech Ltd. ["Bio
Syntech"] were merged into one company under the name of Bio Syntech Canada Inc.
["Bio Syntech Canada"]. As a result of the merger, the Company became the record
and beneficial owner of all of the issued and outstanding voting shares of Bio
Syntech Canada. The former Bio Syntech shareholders were issued 15,177,036
non-voting exchangeable shares of Bio Syntech Canada's Preferred Stock [the
"Class A Shares"]. The Class A Shares are exchangeable on a share-for-share
basis [15,177,036] of common stock of the Company. As at March 31, 2000, the
related 15,177,036 shares of common stock of the Company have been issued and
placed in trust and are thus considered issued and outstanding.
Beneficial holders of the Class A Shares have voting rights equal to the number
of Company shares placed in trust. Therefore, the Bio Syntech shareholders are
deemed to hold securities with voting rights equal to approximately 55% of the
total voting power of the outstanding common stock of the Company. This
transaction is considered an acquisition of the Company, which at the date of
the transaction was a shell company, by Bio Syntech and has been accounted for
as a purchase of the net assets of the Company by Bio Syntech in these
consolidated financial statements. Accordingly, this transaction represents a
recapitalization of Bio Syntech, the legal subsidiary effective February 29,
2000.
These consolidated financial statements are the continuation of the financial
statements of the accounting acquirer Bio Syntech which has a year-end of March
31. This date will continue to be used as the Company's year-end. Bio Syntech's
assets and liabilities are included in the consolidated financial statements at
their historical carrying amounts. Figures for the years ended as at March 31,
2000 and 1999 are those of Bio Syntech. For purposes of the acquisition, the
fair value of the net assets of the Company of $2,873,848 is ascribed to the
12,095,000 previously outstanding common stock of the Company deemed to be
issued in the acquisition as follows:
$
- ------------------------------------------------------------------------------
Note receivable from Bio Syntech Ltd. 2,879,986
Accounts payable and accrued liabilities (6,138)
- ------------------------------------------------------------------------------
Purchase price 2,873,848
- ------------------------------------------------------------------------------
F-7
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION [Cont'd]
The Company is a development stage company engaged in the development of
biotherapeutic delivery systems made of proprietary biomaterials. The Company's
systems are intended to enable or enhance the treatment of diseases or injuries
for which therapies exist or are under development, but must be transported to
the site of action. The Company has limited revenues to date and is thus subject
to numerous risks, including risks associated with product development and
marketing, obtaining the necessary regulatory approvals, growth, manufacturing,
competition, and attracting and retaining key personnel. It may be necessary for
the Company to raise additional funds for the continuing development and
marketing of its technologies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Accordingly, actual results could differ from those estimates. The significant
accounting principles are as follows:
Consolidated financial statements and basis of presentation
The consolidated financial statements include the accounts of BioSyntech, Inc.
and the accounts of Bio Syntech Canada Inc. All intercompany transactions and
balances have been eliminated. US dollar amounts presented on the consolidated
balance sheets, consolidated statements of operations, statements of
stockholders' equity (deficiency) and consolidated statements of cash flows are
provided for convenience of reference only and are based on the closing exchange
rate at March 31, 2000, which was $1.4494 Canadian dollar per US dollar.
Revenue recognition
Revenues from sales of the Company's products are recognized upon shipment.
Inventory
Inventory consists of raw materials. Inventories are stated at the lower of cost
[on a first-in, first-out basis] and replacement cost.
F-8
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Property, plant and equipment
Property, plant and equipment are recorded at cost. They are amortized over
their estimated useful life on a straight-line basis as follows:
Building under capital lease 10 years
Office furniture 5 years
Equipment under capital lease 10 years
Office furniture under capital lease 5 years
Research and development expenditures
Research and development expenditures, including equipment used in research and
development activities, are expensed as incurred.
Foreign exchange
Monetary assets and liabilities denominated in a foreign currency are translated
at the rate of exchange prevailing at the balance sheet date. Non-monetary
assets and liabilities are translated at the rate of exchange prevailing at the
date of the transaction. Revenues and expenses are translated at the monthly
average exchange rate prevailing during the period. Foreign exchange gains and
losses are included in the determination of net earnings. The Canadian dollar is
the functional currency of the Company.
Income taxes
The Company accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards No. 109 Accounting for income
taxes ["SFAS 109"].
Government assistance
Government assistance in connection with research and development activities is
recognized as an expense reduction in the year that the related expenditure is
incurred.
Federal and provincial investment tax credits are accounted for using the cost
reduction method which recognizes the credits as a reduction of the cost of the
related assets or expenditures in the year in which the credits are earned and
when there is reasonable assurance of their recovery.
F-9
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Stock option plans
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ["APB"] Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations, in accounting for its fixed plan
stock options for options granted to employees and directors.
Impairment of long-lived assets and long-lived assets to be disposed of
The Company accounts for long-lived assets in accordance with the provisions of
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of, if any, are reported at the lower of the carrying amount or fair
value less costs to sell.
Basic and diluted loss per common stock
Per share amounts have been computed based on the weighted average number of
common shares outstanding each period. The weighted average number of common
shares outstanding prior to the transaction of February 29, 2000 are based on
the number of BioSyntech common shares outstanding during that period.
Exchangeable shares of Bio Syntech Canada [15,177,036 shares] outstanding are
deemed to be outstanding common shares of the Company for the purposes of the
loss per share calculations and share continuity disclosures as the exchangeable
shares are the economic equivalent of common shares of the Company.
3. SHORT-TERM INVESTMENT
The short-term investment consists of a held-to-maturity term deposit, maturing
on July 21, 2000, which is pledged as collateral security against a letter of
guarantee issued by a financial institution.
F-10
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
4. RECEIVABLES
2000 1999
$ $
- -------------------------------------------------------------------
Sales tax receivable 73,623 35,881
Government grants receivable 3,462 20,423
Other 14,291 12,156
- ------------------------------------------------------------------
91,376 68,460
- ------------------------------------------------------------------
5. PROPERTY, PLANT AND EQUIPMENT
Accumulated Net
Cost amortization book value
$ $ $
- ---------------------------------------------------------------------------------------
2000
Building and land under capital lease 1,614,629 188,389 1,426,240
Office furniture 74,357 20,954 53,403
Equipment under capital lease 18,050 3,009 15,041
Office furniture under capital lease 7,025 819 6,206
- --------------------------------------------------------------------------------------
1,714,061 213,171 1,500,890
- --------------------------------------------------------------------------------------
1999
Building and land under capital lease 1,613,785 27,000 1,586,785
Office furniture 68,370 6,837 61,533
Equipment under capital lease 18,050 1,205 16,845
- -------------------------------------------------------------------------------------
1,700,205 35,042 1,665,163
- -------------------------------------------------------------------------------------
F-11
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
6. DEMAND LOAN AND CREDIT FACILITY
The demand loan of $518,598 at March 31, 1999 carried interest at the prime rate
plus 1.75% and was payable upon receipt of investment tax credits. It was repaid
during the year ended March 31, 2000.
The Company has a $50,000 credit facility, maturing July 31, 2000, payable upon
demand, bearing interest at prime rate plus 2.5%. A $50,000 charge on inventory
and accounts receivable was granted to the financial institution with respect to
this facility. As of March 31, 2000, no amount was drawn under this credit
facility.
As at March 31, 2000 and 1999, the prime rate was 7% and 6.75% respectively.
7. LONG-TERM DEBT
2000 1999
$ $
- -----------------------------------------------------------------------------------------------
Bank loan bearing interest at the prime rate. The
loan has an interest exemption period covered by a
governmental agency, until April 24, 2001,
matures on March 25, 2006 and is payable in
monthly instalments of $3,333 plus interest starting
on April 25, 2001. The debt is collateralized by a
governmental agency and a $200,000 first rank
charge on all tangible and intangible assets not
otherwise encumbered. 200,000 200,000
Bank loan bearing interest at the prime rate plus
3.0%, maturing on July 26, 2001, payable by
monthly instalments of $6,250 plus interest and
collateralized by a $225,000 first rank charge on
research and development laboratory equipment. 100,000 175,000
Term loan, without interest, until March 31, 2000,
reimbursed in fiscal 2000. -- 325,000
- ----------------------------------------------------------------------------------------------
300,000 700,000
Less: current portion 75,000 400,000
- ----------------------------------------------------------------------------------------------
225,000 300,000
- ----------------------------------------------------------------------------------------------
F-12
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
7. LONG-TERM DEBT [Cont'd]
The principal instalments payable are as follows for years ending March 31:
$
- --------------------------------------------------------------------------
2001 75,000
2002 65,000
2003 40,000
2004 40,000
2005 40,000
Subsequent to 2005 40,000
- --------------------------------------------------------------------------
300,000
- --------------------------------------------------------------------------
8. obligations UNDER capital leaseS
Future minimum lease payments under the capital leases are as follows for years
ending March 31:
$
- --------------------------------------------------------------------------
2001 180,278
2002 170,409
2003 168,000
2004 168,000
2005 168,000
Subsequent to 2005 644,000
- --------------------------------------------------------------------------
1,498,687
Less: interest portion at rates varying between 10% and 14.38% 502,942
- --------------------------------------------------------------------------
995,745
Less: current portion 83,479
- --------------------------------------------------------------------------
912,266
- --------------------------------------------------------------------------
F-13
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. Stockholders' equity (deficiency) and
stock options
Authorized
The authorized common stock of the Company consists of 50,000,000 shares with a
par value of $0.001 per share.
On February 2, 2000, the Company completed a private placement yielding gross
proceeds of US$2,350,000 and issued 470,000 common shares and 470,000 warrants
entitling the holder to purchase an aggregate of 470,000 common shares at a
price of US$7.00 on or before September 30, 2001.
On March 31, 2000, the Company issued 723,500 common shares in consideration of
$3,670,243 [US$2,532,250] and 120,000 common shares in consideration of
$600,000. The share issue costs amounted to $341,520 [US$234,980]. As part of
this transaction, a total of 843,500 warrants were issued which entitle the
holder to purchase an aggregate of 843,500 common stocks at a price of US$4.50
on or before March 30, 2001.
As of March 31, 2000, a total of 1,313,500 warrants issued by the Company are
outstanding.
Stock options
Under the Company's Stock Option Plan, options may be granted for an authorized
maximum of 2,500,000 shares of common stock to employees, directors and senior
consultants. No options have been granted by the Company. The Board shall have
the sole authority to determine the terms and conditions of the options to be
issued. The expiry date of options is ten years after the date of grant.
Under the subsidiary's option plan, options may be granted for an authorized
maximum of 1,500,000 Class A shares of Bio Syntech Canada. The subsidiary has
1,500,000 options granted entitling the holders to purchase 1,500,000 Class A
shares of Bio Syntech Canada which are exchangeable in common shares of
BioSyntech, Inc. at prices varying between $0.75 and $2.17. The options are
exercisable at any time before the expiry date which is for a maximum of ten
years following the date of grant.
F-14
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. STOCKHOLDERS' EQUITY (DEFICIENCY) AND
STOCK OPTIONS [Cont'd]
Stock Weighted
Options Average Exercise
Price
C$
- ------------------------------------------------------------------------------------------------
2000
Outstanding, beginning of year 1,247,500 0.83
Granted 252,500 2.17
Exercised -- --
Expired -- --
Canceled/ surrendered -- --
- ------------------------------------------------------------------------------------------------
Outstanding and exercisable, end of period 1,500,000 1.06
- ------------------------------------------------------------------------------------------------
Weighted average fair value of options granted 3.25
- ------------------------------------------------------------------------------------------------
1999
Outstanding, beginning of year -- --
Granted 1,247,500 0.83
Exercised -- --
Expired -- --
Canceled/surrendered -- --
- ------------------------------------------------------------------------------------------------
Outstanding and exercisable, end of year 1,247,500 0.83
- ------------------------------------------------------------------------------------------------
Weighted average fair value of options granted 2.96
- ------------------------------------------------------------------------------------------------
No options were granted prior to 1999. These options expire between December 1,
2001 and June 1, 2008.
182,000 options were granted to consultants in the year ended March 31, 2000
[435,000 for the year ended March 31, 1999]. The fair value of these options at
the time of grant has been charged to general and administrative expenses in the
amount of $406,560 during the year ended March 31, 2000 [$1,309,350 for the year
ended March 31, 1999].
Had compensation cost for the Company's stock options been determined consistent
with SFAS No. 123, the Company's pro forma net loss would be increased by
$380,000 for the year ended March 31, 2000 [$2,050,000 for the year ended March
31, 1999] and basic loss per share would be increased by $0.03 [$0.18 for the
year ended March 31, 1999].
F-15
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. STOCKHOLDERS' EQUITY (DEFICIENCY) AND
STOCK OPTIONS [Cont'd]
The fair value of options at the date of grant was estimated using the
Black-Scholes pricing model with the following weighted average assumptions.
2000 1999
% %
- ------------------------------------------------------------------------
Expected life (years) 5.00 5.00
Risk-free interest rates 6.00 5.60
Volatility 1.21 0.60
Dividend yield 0.00 0.00
- ------------------------------------------------------------------------
The effects of applying SFAS 123 for the pro forma disclosures are not
representative of the effects expected on reported net earnings in future years
since valuations are based on highly subjective assumptions about the future,
including stock price volatility and exercise patterns.
The following table summarizes information with respect to stock options
outstanding for the subsidiary's option plan that the holder may convert into
common shares of the Company at March 31, 2000:
Options outstanding and exercisable
Exercise price Number Weighted average remaining
$ outstanding contractual life (years)
- ---------------------------------------------------------------------------
0.75 1,147,500 2.31
1.75 100,000 8.25
US 1.50 252,500 2.75
- ---------------------------------------------------------------------------
1,500,000 2.79
===========================================================================
F-16
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. STOCKHOLDERS' EQUITY (DEFICIENCY) AND
STOCK OPTIONS [Cont'd]
Loss per share
The following is a reconciliation of the numerator and denominator of the basic
and diluted loss per share computations for the years ended March 31, 2000 and
1999.
2000 1999
$ $
- --------------------------------------------------------------------------------
Numerator
Net loss - numerator
For basic and diluted loss per share 3,240,283 4,165,657
Denominator:
Denominator for basic loss per share
Weighted-average shares 14,042,819 11,274,996
Effect of dilutive securities:
Stock options and warrants -- --
- --------------------------------------------------------------------------------
Denominator for diluted loss per share
Adjusted weighted-average shares and
assumed conversions 14,042,819 11,274,996
================================================================================
The Company's diluted net loss per share is equivalent to its basic net loss per
share, since all of the Company's potentially issuable securities would have an
anti-dilutive effect in 2000 and 1999. These securities are in the form of stock
options and warrants.
F-17
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
10. INCOME TAXES
There is no provision for income taxes or income tax recovery as the Company has
had continuous losses and it is not more likely than not that there will be
future taxable income which might offset the current loss carryforward.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
2000 1999
$ $
- ------------------------------------------------------------------------------------------
Deferred tax assets
Net operating loss carryforwards 622,176 123,193
Scientific research and experimental development expenses 451,432 250,823
Excess of tax basis of financing fees over accounting value 20,602 15,064
Excess of tax basis of capital assets over accounting value 471,004 300,266
- ------------------------------------------------------------------------------------------
Total deferred tax assets 1,565,214 689,346
- ------------------------------------------------------------------------------------------
Deferred tax liabilities
Excess of accounting value of capital assets over tax basis 429,661 297,494
Investment tax credits -- 84,220
- ------------------------------------------------------------------------------------------
Total deferred tax liabilities 429,661 381,714
- ------------------------------------------------------------------------------------------
Net deferred tax assets (liabilities)
Deferred tax assets 1,565,214 689,346
Deferred tax liabilities 429,661 381,714
- ------------------------------------------------------------------------------------------
1,135,553 307,632
Valuation allowance 1,135,553 307,632
- ------------------------------------------------------------------------------------------
Net deferred tax assets (liabilities) -- --
==========================================================================================
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance.
F-18
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
10. INCOME TAXES [Cont'd]
The Company has Canadian tax loss and investment tax credit carryforwards for
income tax purposes in the amount of approximately $2,073,000 and $139,000,
respectively, the benefit of which has been offset by a valuation allowance,
that expires as follows:
Tax Investment tax
losses credits
$ $
- ----------------------------------------------------------------------------
2001 3,000 --
2002 9,000 --
2003 39,000 --
2004 605,000 --
2005 1,176,000 --
2006 241,000 32,000
2007 -- 65,000
2008 -- 22,000
2009 -- 20,000
- ----------------------------------------------------------------------------
The Company has accumulated temporary differences as set out in the summary of
deferred tax assets set out above. The differences are mainly in relation to
scientific research and experimental development and are in the amount of
approximately $1,225,000 at the Canadian federal level and $2,020,000 in Quebec.
The investment tax credits recorded by the Company are subject to review and
approval by the tax authorities and it is possible that the amounts granted will
be different from the amounts accounted for.
11. FINANCIAL INSTRUMENTS
[a] Fair value
Short-term financial assets and liabilities
The carrying amounts of short-term financial assets and liabilities are a
reasonable estimate of the fair values because of the short maturity of these
instruments. Short-term financial assets comprise cash, the short-term
investment, accounts receivable and investment tax credits receivable.
Short-term financial liabilities comprise the demand loan and accounts payable
and accrued liabilities.
F-19
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
11. FINANCIAL INSTRUMENTS [Cont'd]
Long-term debt
The carrying amount of the Company's floating-rate long-term debt approximates
its fair value as it bears interest at current commercial floating rates.
The fair value of the fixed-rate long-term debt and obligations under capital
leases are based on the rates in effect for financial instruments with similar
terms and maturities, and approximates the carrying amount as of March 31, 2000
and March 31, 1999.
[b] Credit risk
The cash and short-term investment are held by one Canadian financial
institution, a chartered bank.
12. COMMITMENT
Under the terms of a technology licence contract, the Company must pay 5%
royalties to a shareholder on future sales of all products and services, sold or
offered by the Company, to a maximum of $3 million.
13. CONTINGENT LIABILITY
A former employee of a subsidiary company has commenced an action alleging that
he was wrongfully terminated and seeking $97,000 in compensation allegedly due,
the issuance to him of 100,000 Class A common shares of the subsidiary company,
which could be converted in common stock of the Company, that were the subject
of an option that was alleged to have been granted to him, and punitive damages
of $25,000. In the opinion of management, based on the advice and information
provided by its legal counsel, the final determination of this litigation is not
determinable. As such no provision has been recorded.
F-20
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
14. SUBSEQUENT EVENTs
[a] Private placement
During April and June 2000, the Company issued 1,006,714 units at a price of
US$3.50 per unit for a consideration of US$3,523,500 and 60,000 units at a price
of C$5,00 per unit for a consideration of C$300,000. The aggregate share issue
costs amounted to C$373,746. Each unit consists of one share of common stock
BioSyntech, Inc. and one warrant entitling the holder to acquire one share of
common stock at a price of US$4.50 on or before March 30, 2001.
[b] Property, plant and equipment
On July 4, 2000, the Company exercised its option to purchase the building and
land under capital lease for an amount of $1,200,000.
15. RECENT DEVELOPMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging
Activities and Activities and Interpretation No.44, Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB Opinion
No.25. SFAS 133 will be effective for the Company's 2002 year-end and interim
periods and Activities and Interpretation No.44 will be effective July 1, 2000.
The Company has not yet determined the impact, if any, on its consolidated
financial statements arising from the eventual application of these accounting
recommendations.
F-21
Condensed Consolidated Financial Statements
BioSyntech, Inc.
[formerly Dream Team International Inc.]
[a development stage company] - Unaudited
Quarter ended June 30, 2000
F-22
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED BALANCE SHEETS [note 1]
As of June 30, 2000 and March 31, 2000
[In Canadian dollars]
June 30, June 30, March 31,
2000 2000 2000
US$ C$ C$
- --------------------------------------------------------------------------------------------------------------
[note 1
[unaudited] [unaudited]
ASSETS
Current assets
Cash 7,397,726 10,953,073 7,301,143
Investment tax credits receivable 455,896 675,000 575,000
Other current assets 163,188 241,615 231,929
- --------------------------------------------------------------------------------------------------------------
8,016,810 11,869,688 8,108,072
- --------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,009,228 1,494,264 1,517,540
- --------------------------------------------------------------------------------------------------------------
9,026,038 13,363,952 9,625,612
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 335,830 497,230 1,060,928
Other current liabilities 129,887 192,312 233,930
- --------------------------------------------------------------------------------------------------------------
465,717 689,542 1,294,858
- --------------------------------------------------------------------------------------------------------------
Long-term debt and
obligations under capital leases 740,770 1,096,784 1,137,266
- --------------------------------------------------------------------------------------------------------------
1,206,487 1,786,326 2,432,124
- --------------------------------------------------------------------------------------------------------------
Contingent liability [note 3]
Shareholders' equity
Common stock [note 2]
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding
29,182,250 common shares 12,323,636 18,246,375 13,132,702
Additional paid-in capital 1,158,929 1,715,910 1,715,910
Deficit accumulated during the development stage (5,663,014) (8,384,659) (7,655,124)
- --------------------------------------------------------------------------------------------------------------
7,819,551 11,577,626 7,193,488
- --------------------------------------------------------------------------------------------------------------
9,026,038 13,363,952 9,625,612
- --------------------------------------------------------------------------------------------------------------
See accompanying notes
- ----------------------------------- ----------------------------------
Director Director
F-23
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS [note 1]
Three-month period ended June 30, 2000 and 1999 Unaudited
[In Canadian dollars]
Cumulative
from inception
to June 30,
2000 2000 2000 1999
C$ US$ C$ C$
- ------------------------------------------------------------------------------------------------------------------------------------
[note 1]
Sales 234,338 44,712 66,200 --
Cost of sales 100,134 19,027 28,172 --
- ------------------------------------------------------------------------------------------------------------------------------------
134,204 25,685 38,028 --
- ------------------------------------------------------------------------------------------------------------------------------------
Research and development expenses 6,189,020 361,372 535,048 329,061
Investment tax credits (1,513,364) (67,540) (100,000) (184,599)
General and administrative expenses 3,461,960 256,532 379,821 153,158
Interest on long-term debt 267,327 19,580 28,990 18,690
Amortization of property, plant and equipment 259,177 31,039 45,956 44,434
Interest revenue (145,257) (82,569) (122,252) (195)
- ------------------------------------------------------------------------------------------------------------------------------------
8,518,863 518,414 767,563 360,549
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss for the period 8,384,659 492,729 729,535 360,549
Deficit accumulated during the
development stage, beginning of period -- 5,170,285 7,655,124 4,414,841
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the
development stage, end of period 8,384,659 5,663,014 8,384,659 4,775,390
====================================================================================================================================
Weighted average number of shares
outstanding 29,034,485 29,034,485 9,398,626
Basic and diluted loss per share 0.02 0.03 0.04
====================================================================================================================================
See accompanying notes
F-24
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIENCY) [note 1]
From inception to June 30, 2000 Unaudited
[In Canadian dollars]
Common Stock
-----------------------------------
Additional
paid-in Accumulated
Shares Amount capital deficit Total
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, May 10, 1995 8,525,000 1 -- -- 1
Net loss 1996 [325 day period] -- -- -- (2,865) (2,865)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 8,525,000 1 -- (2,865) (2,864)
Net loss 1997 -- -- -- (9,332) (9,332)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 8,525,000 1 -- (12,197) (12,196)
Deemed common stock paid up as of January 31,
1998 and issued on August 3, 1998 -- 215,000 -- -- 215,000
Net loss 1998 -- -- -- (236,987) (236,987)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 8,525,000 215,001 -- (249,184) (34,183)
Deemed common stock issued for cash 1,746,579 1,083,108 -- -- 1,083,108
Deemed common stock issued in exchange for
services 1,940,000 1,455,000 -- -- 1,455,000
Deemed options granted to consultants -- -- 1,309,350 -- 1,309,350
Net loss 1999 -- -- -- (4,165,657) (4,165,657)
Deemed share issuance costs -- (90,200) -- -- (90,200)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 12,211,579 2,662,909 1,309,350 (4,414,841) (442,582)
Deemed common stock issued for cash 1,893,457 2,595,222 -- -- 2,595,222
Deemed common stock issued in exchange for
intellectual property 1,072,000 1,072,000 -- -- 1,072,000
Deemed options granted to consultants -- -- 406,560 -- 406,560
Net loss for the period from April 1, 1999 to
February 28, 2000 -- -- -- (2,850,977) (2,850,977)
- ------------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding February 29, 2000 15,177,036 6,330,131 1,715,910 (7,265,818) 780,223
Acquisition of BioSyntech, Inc. by Bio
Syntech Ltd. 12,095,000 2,873,848 -- -- 2,873,848
March 31, 2000, issuance 843,500 4,270,243 -- -- 4,270,243
Share issue costs -- (341,520) -- -- (341,520)
Net loss for the period from February 29, 2000
to March 31, 2000 -- -- -- (389,306) (389,306)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 28,115,536 13,132,702 1,715,910 (7,655,124) 7,193,488
April 4, 2000 issuance [note 2] 833,857 4,281,343 -- -- 4,281,343
April 17, 2000 issuance [note 2] 82,000 425,879 -- -- 425,879
April 27, 2000 issuance [note 2] 42,857 221,925 -- -- 221,925
June 9, 2000 issuance [note 2] 108,000 558,272 -- -- 558,272
Share issue costs [note 2] -- (373,746) -- -- (373,746)
Net loss for the period from April 1, 2000 to
June 30, 2000 -- -- -- (729,535) (729,535)
- ------------------------------------------------------------------------------------------------------------------------------------
29,182,250 18,246,375 1,715,910 (8,384,659) 11,577,626
====================================================================================================================================
US Dollars [note 1]
Balance as at June 30, 2000 12,323,636 1,158,929 (5,663,014) 7,819,551
====================================================================================================================================
F-25
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS [note 1]
Three-month period ended June 30, 2000 and 1999 Unaudited
[In Canadian dollars]
Cumulative
from inception
to June 30,
2000 2000 2000 1999
C$ US$ C$ C$
- -----------------------------------------------------------------------------------------------------------------------------------
[note 1]
OPERATING ACTIVITIES
Net loss (8,384,659) (492,729) (729,535) (360,549)
Items not affecting cash
Amortization 259,177 31,039 45,956 44,434
Services paid by the issuance of common stock 2,527,000 -- -- --
Options granted to consultants 1,715,910 -- -- --
Exchange gain (142,492) (96,239) (142,492) --
Changes in working capital assets and liabilities
Investment tax credits receivable (675,000) (67,540) (100,000) (196,878)
Other current assets (166,615) (6,542) (9,686) 20,587
Other current liabilities 22,091 (29,285) (43,360) --
Accounts payable and accrued liabilities 480,742 (380,723) (563,698) 165,648
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (4,363,846) (1,042,019) (1,542,815) (326,758)
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (114,581) (15,318) (22,680) (9,024)
Purchase of short-term investment (75,000) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (189,581) (15,318) (22,680) (9,024)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- -- 300,000
Repayment of long-term debt (418,750) (12,663) (18,750) (18,750)
Proceeds of demand loan 581,845 -- -- --
Repayment of demand loan (581,845) -- -- --
Increase in due to stockholder 30,394 -- -- --
Decrease in due to stockholders (20,394) -- -- (20,394)
Repayment of obligations under capital leases (663,106) (13,501) (19,990) (30,509)
Proceeds from issuance of shares of Bio Syntech Ltd. prior
to the reverse acquisition 3,890,068 -- -- --
Proceeds from issuance of common shares of BioSyntech, Inc.
prior to the reverse acquisition 3,399,980 -- -- --
Repurchase of common stock of BioSyntech, Inc. prior to the
reverse acquisition (506,380) -- -- --
Proceeds from issuance of common shares of BioSyntech, Inc.
after the reverse acquisition 9,757,662 3,706,213 5,487,419 --
Share issue costs (805,466) (252,428) (373,746) --
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 15,364,008 3,427,621 5,074,933 230,347
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 142,492 96,239 142,492 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in cash 10,953,073 2,466,523 3,651,930 (105,435)
Cash, beginning of period -- 4,931,203 7,301,143 57,297
- -----------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 10,953,073 7,397,726 10,953,073 (48,138)
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-26
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2000 Unaudited
[In Canadian dollars]
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of BioSyntech, Inc. and its wholly-owned subsidiary BioSyntech
Canada, Inc. They have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-QSB and item 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying consolidated financial statements
contain all adjustments, consisting only of normal recurring accruals considered
necessary to present fairly the financial position as of June 30, 2000, the
results of operations and cash flows for the three months ended June 30, 2000
and 1999. The balance sheet at March 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the financial statements
and notes thereto included in the Company's annual report for the year ended
March 31, 2000.
US dollar amounts presented on the condensed consolidated balance sheet and the
condensed consolidated statements of operations, stockholders' equity
(deficiency) and cash flows are provided for convenience of reference only and
are based on the closing exchange rate at June 30, 2000, which was $1.4806
Canadian dollar per US dollar.
The Company is a development stage company engaged in the development of
biotherapeutic delivery systems made of proprietary biomaterials. The Company's
systems are intended to enable or enhance the treatment of diseases or injuries
for which therapies exist or are under development, but must be transported to
the site of action. The Company has limited revenues to date and is thus subject
to numerous risks, including risks associated with product development and
marketing, obtaining the necessary regulation approvals, growth, manufacturing,
competition and attracting and retaining key personnel. It may be necessary for
the Company to raise additional funds for the continuing development and
marketing of its technologies.
2. STOCKHOLDERS' EQUITY
On April 4, 2000, the Company issued 803,857 common shares in consideration of
$4,131,343 [US$2,813,500] and 30,000 common shares in consideration of $150,000.
The share issue costs amounted to $326,187. As part of this transaction, a total
of 833,857 warrants were issued which entitle the holder to purchase an
aggregate of 833,857 common shares at a price of US$4.50 on or before March 30,
2001.
On April 17, 2000, the Company issued 82,000 common shares in consideration of
$425,879 [US$287,000]. The share issue costs amounted to $33,912. As part of
this transaction, a total of 82,000 warrants were issued which entitle the
holder to purchase an aggregate of 82,000 common shares at a price of US$4.50 on
or before March 30, 2001.
F-27
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2000 Unaudited
[In Canadian dollars]
2. STOCKHOLDERS' EQUITY [Cont'd]
On April 27, 2000, the Company issued 42,857 common shares in consideration of
$221,925 [US$150,000]. As part of this transaction, a total of 42,857 warrants
were issued which entitle the holder to purchase an aggregate of 42,857 common
shares at a price of US$4.50 on or before March 30, 2001.
On June 9, 2000, the Company issued 78,000 common shares in consideration of
$408,272 [US$273,000] and 30,000 common shares in consideration of $150,000. The
share issue costs amounted to $13,647. As part of this transaction, a total of
108,000 warrants were issued which entitle the holder to purchase an aggregate
of 108,000 common shares at a price of US$4.50 on or before March 30, 2001.
As of June 30, 2000, a total of 2,380,214 warrants issued by the Company are
outstanding as follows:
Number of warrants Expiry date Exercise price
- --------------------------------------------------------------------------------
1,910,214 March 30, 2001 US$ 4.50
470,000 September 30, 2001 US$ 7.00
- --------------------------------------------------------------------------------
2,380,214
================================================================================
3. CONTINGENT LIABILITY
A former employee of a subsidiary company has commenced an action alleging that
he was wrongfully terminated and seeking $97,000 in compensation allegedly due,
the issuance to him of 100,000 Class A common shares of the subsidiary company,
which could be converted in common stock of the Company, that were the subject
of an option that was alleged to have been granted to him, and punitive damages
of $25,000. In the opinion of management, based on the advice and information
provided by its legal counsel, the final determination of this litigation is not
determinable. As such no provision has been recorded.
4. SUBSEQUENT EVENT
On July 4, 2000, the Company exercised its option to purchase the building and
land under capital lease for an amount of $1,200,000.
On August 4, 2000, 425,000 options on common share under the BioSyntech, Inc.
option plan have been granted to Directors and Officers. These options may be
exercised at a price of US$4.00 over a three year period on which 125,000
options are exercisable immediately, 175,000 options on August 2001, 50,000
options on August 2002 and 75,000 options on August 2003.
F-28