As filed with the Securities and Exchange Commission on January 26, 2001
Registration No. 333-45756
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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
(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
(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)
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. o
THE REGISTRANT AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE 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.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 JANUARY 26, 2001
PRELIMINARY PROSPECTUS
7,537,036 SHARES OF COMMON STOCK
BIOSYNTECH, INC.
This prospectus relates to shares of our common stock that may be
offered for resale by the selling stockholders through public or private
transactions at prevailing market prices or at privately negotiated prices. We
will not receive any proceeds from the sale of the shares of our common stock.
Our common stock is listed on the Over the Counter Electronic Bulletin
Board under the symbol "BSYI". On January 25, 2001, the closing price of our
common stock was $1.1875 per share.
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. BEFORE
INVESTING IN OUR COMMON STOCK, YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
-----------------
The date of this prospectus is ____________, 2001.
TABLE OF CONTENTS
PROSPECTUS SUMMARY................................................................................................1
RISK FACTORS......................................................................................................3
We expect that we will incur loses for the foreseeable future and may never become profitable............3
We need to raise substantial funds if we are ever to become profitable...................................3
Our delivery technologies may not produce safe, useful or commercially viable products and accordingly,
we may never be profitable.....................................................................4
The Food and Drug Administration may not approve our product candidates..................................4
Our present and future arrangements with collaborators and licenses are critical to our success..........5
Rapid technological change could render our therapeutic delivery systems obsolete or noncompetetive......6
The competitive nature of our industry could adversely affect market acceptance of our products..........6
Proprietary protection for our products is uncertain and we could become involved in costly litigation
and be prevented from selling our products......................................................6
We may be unable to retain our key executives and research and development personnel.....................7
Our operating results may be affected by foreign exchnage fluctuations of the Canadian Dollar...........7
Our common stock may be subject to additional regulations applicable to lower priced securities..........7
Our forward looking statements may not be correct........................................................8
USE OF PROCEEDS...................................................................................................9
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........................................................9
DESCRIPTION OF BUSINESS..........................................................................................10
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........................................................28
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.....................................................32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................34
EXECUTIVE COMPENSATION...........................................................................................35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................37
SELLING STOCKHOLDERS.............................................................................................37
PLAN OF DISTRIBUTION.............................................................................................39
DESCRIPTION OF CAPITAL STOCK.....................................................................................41
EXPERTS..........................................................................................................41
LEGAL MATTERS....................................................................................................41
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES.................................................................................42
WHERE YOU CAN FIND MORE INFORMATION..............................................................................42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS......................................................................F-1
PROSPECTUS SUMMARY
BIOSYNTECH, INC.
We were incorporated in the State of Nevada on December 14, 1994. We
are an advanced biomaterials company specialized in tissue engineering and
therapeutic delivery. Our main focus is the repair of damaged tissue in the
human body, such as bone or cartilage. We are also engaged in the development of
advanced injectable biomaterials for the delivery of cells, genetic material and
biotherapeutic agents. We have had limited revenues. Our future operations are
dependent upon our receiving the financing necessary to complete research and
development projects and market our products. We are unsure whether we can
complete the development of our products, or if we complete them, whether we can
successfully market them or generate sufficient revenues to fund our future
operations or additional research, development and marketing.
Our functional currency is the Canadian dollar. All amounts presented
in this prospectus are in Canadian dollars. Other amounts that are expressed in
United States dollars are identified as such. See "Currency Exchange Rates" for
a description of the exchange rate for the Canadian dollar per one United States
dollar as of March 31, 1999 and March 31, 2000 and as of September 30, 1999 and
September 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
Common stock to be outstanding after the offering, 29,182,250 shares
assuming no exercise of options or warrants..........
Use of proceeds...................................... We will receive no
proceeds from the sale
of the shares by the
selling stockholders
listed in this
prospectus.
2
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE INVESTING IN OUR COMMON
STOCK.
WE EXPECT THAT WE WILL INCUR LOSSES FOR THE FORESEEABLE FUTURE AND MAY
NEVER BECOME PROFITABLE.
We have had net operating losses since being founded and currently have
an accumulated deficit. These losses consist of research and development costs
and general and administrative expenses. We expect to have substantial
additional expenses over the next several years as our research and development
activities and the process of seeking regulatory approval of our products,
including clinical trials, accelerate. Because we do not expect to have
significant revenues from the sale of products for several years, if ever, we
expect that those expenses will result in additional losses.
Our future profitability depends, in part, on:
o Obtaining regulatory approval for our products;
o Entering into agreements to develop and commercialize products;
o Developing the capacity to manufacture and market products or
entering into agreements with others to do so;
o Market acceptance of our products;
o The ability to obtain additional funding from our collaborative
partners; and
o The ability to achieve certain product development milestones.
We may not achieve any or all of these goals and are unable to predict
whether we will ever achieve significant revenues or profits. Even if we receive
regulatory approval of one or more of our products, we may not achieve
significant commercial success.
WE NEED TO RAISE SUBSTANTIAL FUNDS TO BECOME PROFITABLE.
We need to raise substantial amounts of money if we are ever to become
profitable. If sufficient financing is unavailable on a timely basis, we may
have to curtail development programs or transfer rights in products that could
later prove to be of great value. The financing we require and when we will
spend it, will depend, in part, on:
o How our research and development programs, including clinical
trials, progress;
o How much time and expense will be required to receive FDA approval
for our product candidates;
o The cost of building, operating and maintaining manufacturing
facilities;
o How many product candidates we pursue;
o How much time and money we need to prosecute and enforce patent
rights;
o How competing technological and market developments affect our
product candidates; and
o The cost of obtaining licenses to use technology owned by others.
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
will be available to us, on favorable terms or at all.
3
OUR DELIVERY TECHNOLOGIES MAY NOT PRODUCE SAFE, USEFUL OR COMMERCIALLY
VIABLE PRODUCTS AND ACCORDINGLY, WE MAY NEVER BE PROFITABLE.
To be profitable, we must develop, manufacture and market our products,
either alone or by collaborating with others. This process could take several
years and we may never be successful in bringing our product candidates to the
market. Additionally, our success in pre-clinical and early clinical trials does
not ensure that large scale clinical trials will be successful. Clinical results
are frequently susceptible to varying interpretations that may delay, limit or
prevent further clinical development or regulatory approvals. Our products may:
o Be shown to be ineffective or to cause harmful side effects;
o Fail to receive regulatory approval on a timely basis or at all;
o Be hard to manufacture on a large scale; o Be uneconomical;
o Not be pursued by our collaborative partners;
o Not be prescribed by doctors or accepted by patients; or
o Infringe on proprietary rights of another party.
THE FOOD AND DRUG ADMINISTRATION 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 pre-clinical testing and clinical trials to demonstrate safety and
efficacy, and a review of the manufacturing process to ensure compliance with
good manufacturing practices. This process can last many years and be very
costly and still be unsuccessful. The length of time necessary to complete
clinical trials and receive approval for product marketing by regulatory
authorities varies significantly by product and indication and is difficult to
predict. FDA approval can be delayed, limited or denied for many reasons,
including:
o A product candidate may not be safe or effective;
o Data from pre-clinical testing and clinical trials can be
interpreted by FDA officials in different ways than we
interpret it;
o The FDA might not approve our manufacturing processes or
facilities;
o The FDA may change its approval policies or adopt new
regulations; and
o A product candidate may not be approved for all the uses we
requested.
Countries other than the United States, including Canada, have similar
requirements. The process of getting approvals in foreign countries is subject
to delay and failure for the same reasons.
4
OUR PRESENT AND FUTURE ARRANGEMENTS WITH COLLABORATORS AND LICENSEES
ARE CRITICAL TO OUR SUCCESS.
We are designing delivery systems for medications and drug products
that are protected by our licensees' or collaborators' patents. In some cases,
we depend on these parties to conduct pre-clinical testing and clinical trials
and to provide funding for our development programs. If we are unable to reach
satisfactory agreements with our collaborators or with third parties, we would
incur substantial additional costs and would experience substantial delay in
commercializing most of our products. Some of our collaborators can terminate
their agreements with us for no reason and on limited notice. We are unsure
whether any of these relationships will continue.
Our present plans call for us to develop the capabilities to
manufacture our own products in commercial quantities. We may rely upon our
collaborators and or licensees for the marketing and sales of our products.
We have limited means of enforcing our collaborators' or licensees'
performance or of controlling the resources they devote to our programs. If a
collaborator fails to perform, the research, development or commercialization
program on which it is working will be delayed. If this happens, we may have to
stop the program entirely.
Disputes may arise between us and a collaborator and may involve the
issue of which of us owns the technology that is developed during a
collaboration. A potential dispute could delay the program or result in
expensive arbitration or litigation, which we might not win. A collaborator may
choose to use its own or other technology to deliver its drug or cell product.
Our collaborators could merge with or be acquired by another company or
financial or operational difficulties that could adversely affect our programs.
5
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.
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. This would reduce our
revenues and increase our losses. 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 UNCERTAIN AND WE COULD
BECOME INVOLVED IN COSTLY LITIGATION AND BE PREVENTED FROM SELLING OUR
PRODUCTS.
The following factors are important to our success:
o Receiving patent protection for our product candidates and those of
our collaborators;
o Maintaining our trade secrets;
o Not infringing on the proprietary rights of others; and
o Preventing others from infringing our proprietary rights.
We can protect our proprietary rights from unauthorized use by third
parties only if these rights are covered by valid and enforceable patents or are
effectively maintained as trade secrets. Otherwise, we could become involved in
costly litigation and be prevented from selling our products.
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. Enforceability of patents cannot be projected with
certainty. Patents, if issued, may be challenged, invalidated or circumvented.
Any patents that we own or license from others may provide no protection against
competitors. Our pending patent applications, those we may file in the future,
or those we may license from third parties, may not result in patents being
issued. If patents do issue, they may not provide us with proprietary protection
or competitive advantages against competitors with similar technology. Also,
others may independently develop similar technologies or duplicate any
technology that we have developed. The laws of certain foreign countries may not
protect our intellectual property rights to the same extent as the laws of the
United States.
6
We also rely on trade secrets, know-how and technology, which we try to
protect by entering into confidentiality agreements with parties that have
access to it, including our corporate partners, collaborators, employees and
consultants. Any of these parties may breach the agreement and disclose our
confidential information or our competitors might learn of the information in
some other way.
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, Chief
Executive Officer and President, Dr. Selmani. The loss of the services of one or
more of our key employees could have a material adverse effect on our
operations.
OUR OPERATING RESULTS MAY BE AFFECTED BY FOREIGN EXCHANGE FLUCTUATIONS
OF THE CANADIAN DOLLAR.
We expect a substantial portion of our revenues to be based on sales
and services rendered to come from the United States, while a significant amount
of our operating expenses will be incurred in Canada. As a result, our financial
performance will be affected by fluctuations in the value of the United States
dollar to the Canadian dollar. At the present time, we have no plan or policy to
utilize forward contracts or currency options to minimize this exposure, and
even if these measures are implemented, we are unsure whether these arrangements
will be available, be cost effective or be able to fully offset future currency
risks.
OUR COMMON STOCK MAY BE SUBJECT TO ADDITIONAL REGULATIONS APPLICABLE TO
LOWER PRICED SECURITIES.
Our common stock may be subjected to a number of regulations that can
affect its price and your ability to sell it. For example, Rule 15g-9 under the
Exchange Act may apply to our common stock. This rule imposes sales practice
requirements on broker-dealers that sell low priced securities to persons other
than established customers
7
and institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction.
In addition, under United States securities regulations, penny stocks
generally are equity securities with a price of less than $5.00 per share other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq Stock Market. For any transaction involving a penny stock, unless
exempt, the penny stock rules require the delivery, prior to the transaction, of
a disclosure schedule prescribed by the Securities and Exchange Commission
relating to the penny stock market. The broker-dealer must also disclose the
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements must be
sent disclosing recent price information on the limited market in penny stocks.
Consequently, the penny stock rules may restrict the ability of broker-dealers
to sell our common stock. The penny stock rules will not apply if the market
price of our common stock is $5.00 or greater. These requirements may reduce the
level of trading activity in any secondary market for our common stock and may
adversely affect the ability of broker-dealers to sell our securities.
OUR FORWARD LOOKING STATEMENTS MAY NOT BE CORRECT.
This prospectus includes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The words "believe", "anticipate", "estimate", "expect" or
words of similar import identify these forward-looking statements. These
forward-looking statements are contained principally under the headings
"Summary", "Risk Factors", "Management's Discussion and Analysis to Financial
Condition and Results of Operations" and "Business". Although we have based
these forward-looking statements on management's analysis of the business trends
in the biotechnology industry, these forward-looking statements are subject to
risks and uncertainties. Our actual results may differ materially from the
expectations expressed by these forward-looking statements. Important factors
that may cause actual results to differ materially from the expectations
reflected in the forward-looking statements include, but not limited to, those
set forth below:
o general economic, business and market conditions
o customer acceptance of new products
o the occurrence or nonoccurrence of circumstances beyond our
control.
8
o All subsequent written and oral forward-looking statements
attributable to us are expressly qualified in their entirety by
the cautionary statements. We caution readers not to place undue
reliance on these forward-looking statements, which speak only as
of their dates. We undertake no obligations to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
CURRENCY EXCHANGE RATES
All dollar amounts stated in this prospectus are in Canadian dollars,
except where otherwise specifically indicated. The following table sets forth,
for the dates indicated, the rates at the specific date for the Canadian dollar
per one U.S. dollar, each expressed in Canadian dollars and based on the noon
buying rate in New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Bank of Canada:
Fiscal Year Ended March 31,
1999 2000
---- ----
Rate at end of period 1.5175 1.4494
Average rate during the period 1.5030 1.4713
High of the period 1.5450 1.4923
Low for the period 1.4310 1.4489
Quarter Ended September 30,
1999 2000
---- ----
Rate at end of period 1.4674 1.5035
Average rate during the period 1.4828 1.4822
High of the period 1.5127 1.5035
Low for the period 1.4616 1.4650
USE OF PROCEEDS
This prospectus relates to an aggregate of 7,537,036 shares of our
common stock that may be sold from time to time by the selling stockholders.
These shares are issuable upon the exchange on a one-to-one basis of class A
stock of our subsidiary, Bio Syntech Canada, Inc. Although we will pay the
registration expenses of these shares, including legal and accounting fees, all
net proceeds from the sale of the shares of our common stock in this prospectus
will go to the selling stockholders.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been eligible for trading on the Over The Counter
Electronic Bulletin Board since the third quarter of the fiscal year ended March
31, 2000. The following table sets out the high and low closing bid prices of
our common stock during the periods indicated. Prices reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
Fiscal Year Quarter High (US $) Low (US $)
-----------
2000 3rd quarter $0.0000 $0.0000
4th quarter $8.5625 $3.7500
2001 1st quarter $5.5000 $3.0000
2nd quarter $4.9375 $2.5938
3rd quarter $2.7656 $0.8750
9
4th quarter $1.2500 $0.8750
(Until January 17, 2001)
According to information furnished by our transfer agent, we have 69
holders of record, including depositories, of our common stock as of December
31, 2000.
DIVIDEND POLICY
We do not anticipate declaring or paying any cash dividends on our
common stock. We plan to retain any future earnings for the development of our
business. The payment of future dividends will be at the discretion of our board
of directors and will depend upon our, among other things, future earnings,
capital requirements, financial condition and general business conditions.
DESCRIPTION OF BUSINESS
1.1 GENERAL
We are a Nevada corporation incorporated on December 14, 1994. We are
an advanced biomaterials company specialized in tissue engineering and
therapeutic delivery. Our main focus is the repair of damaged tissue in the
human body like bone or cartilage. We are also engaged in the development of
advanced injectable biomaterials for the delivery of cells and genetic material
and biotherapeutic agents. We have had limited revenues. 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.
10
Our research and development efforts are focused on maximizing the
multiple benefits of our core technologies, which include:
o tissue engineering;
o the therapeutic delivery of cells;
o genetic material for site specific gene therapy; and
o the delivery of biotherapeutic agents.
Our technologies apply to diverse specialties, which include
orthopedics and rheumatology. Orthopedic and rheumatology problems include
cartilage injuries and diseases as well as bone injuries and diseases, vaccines,
and the delivery of biotherapeutic agents.
We also have an instrumentation division wherein we have developed the
ARTHRO-BSTTM and the Mach-1(TM) Mechanical Tester. ARTHRO-BST(TM) is an
arthroscopic device providing precise and non-destructive diagnosis of articular
cartilage quality. The Mach-1TM Mechanical Tester is a universal mechanical
testing system for specimens with dimensions between hundreds of microns and a
few centimeters.
1.2 TISSUE ENGINEERING AND THERAPEUTIC DELIVERY TECHNOLOGIES
The overall goal of tissue engineering is the repair of diseased or
injured tissue or organs. We use therapeutics to regenerate or heal with a
functional normal tissue. This is in contrast to the approach of replacing an
organ with an artificial device. It has been recognized that artificial organs,
although sometimes necessary for short-term relief, usually have an inadequate
working life expectancy. The newer approach of tissue engineering often involves
the transplantation of living normal cells that have been expanded in the
laboratory. The procedure of normal cell transplantation requires an accurate
positioning of the cell at the site where it is to perform its therapeutic
benefit. This positioning is often accomplished by providing existing cells an
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 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 pursue our therapeutic delivery technologies either by ourselves or
in collaboration with a partner. These technologies aim at effectively
delivering cells and genetic material for specific gene therapy and at the
delivery of biotherapeutic agents like proteins and peptides.
We have developed three platform technologies, all aimed at the
promotion of tissue repair and of the generation of solutions to efficiently
deliver biologically active therapeutics:
o BST-Gel(TM):An injectable heat-sensitive self-forming water-based
gel for the delivery of therapeutic agents or genetic material. The
key functionality of the gels is that they are injected as liquid
and become a solid gel in the body.
o BST-Cargel-C(TM):Cartilage cells in an adhesive heat sensitive gel
for the treatment and repair of cartilage defects. These cartilage
cells are delivered with biotherapeutic agents by way of a non
invasive procedure.
11
o BST-Spheres: A proprietary process to generate microspheres for the
delivery of therapeutic agents. The BST-Spheres are free of organic
solvents and are adaptable to a wide range of biomaterials. The
BST-Spheres can be adapted for the delivery of a broad spectrum of
drug types, from small to large molecules. The BST-Spheres can be
used in the injectable form for the delivery of medications with a
long duration of action.
BST-Gel(TM) is a family of gels that are liquid at low temperatures and
solid at the temperature of the human body. This injectable delivery system is
derived from natural sources and contains no toxic chemicals. One of its key
properties is that it gels locally after its injection in liquid form. This
forms a reservoir used to prolong the action of the therapeutic agent. The
amounts of BST-Gel(TM) injected may be varied for different requirements, which
result in controllable residence times ranging from a few days to several weeks.
BST-Gel(TM) requires no surgery for its implantation. It is biodegradable and
has an adjustable composition.
We have also developed other specialized gel and delivery technologies
that can be used in conjunction with BST-Gel(TM). These proprietary forms of
delivery of therapeutic agents can have the following applications:
o delivery of bone-repair therapeutics;
o growing tissues with or without cells or growth-factor
therapeutics;
o delivery of small molecules, peptides and recombinant proteins;
o delivery of DNA vaccines and gene therapy; and
o development of vaccines based on the long sustained release of
antigens.
BST-Cargel-C(TM) is a proprietary generation of bioengineered living
cartilage-tissue implants. These cartilage-tissue implants are developed from
cells encapsulated and grown within a BST-Gel(TM)-based matrix and are delivered
through a non-invasive procedure. A particular formulation of the BST-Gel(TM)
maintains the cartilage tissue implant's viability during the delivery period
and facilitates the adhesion of the tissues to the underlying bone and
surrounding cartilage. Pre-clinical studies have shown that cartilage cells
embedded in BST-Gel(TM) produce a matrix having the characteristics of normal
cartilage tissue.
BST-Spheres is a proprietary process to generate polymer-based
microsphere particles, such as proteins and peptides, used in the delivery of
biotherapeutics. This process offers several advantages over the current
approach of making these microspheres which include, but not limited to:
o It does not require the use of toxic chemicals as organic solvents or
detergents;
o It can be adapted to a wide range of biomaterials, whether or
not biodegradable;
o It is injectable for the long duration of action of biotherapeutics;
o It can be used with a broad range of biotherapeutic types, from
small to large compounds; and
o It may enhance the biotherapeutic-loading capacity of the vehicle.
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1.3 APPLICATIONS FOR OUR TECHNOLOGIES
We are currently conducting research to develop applications of our
core technologies 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
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 stem cells selected for their
ability to become normal cartilage tissue. The procedure of transplanting normal
cartilage cells is already marketed in the United States and Europe. It
necessitates a complicated surgical procedure involving an open knee surgery.
Although the results are encouraging, there is a recovery process that can take
more than a year. If the same cells could be delivered through a vehicle
introduced in non-invasive procedure, as when the cells are pushed through a
small catheter, the expected recovery period and overall healthcare costs could
be greatly reduced. The BST-Cargel-C(TM) is primarily used for this process.
1.3.2 BONE INJURIES AND DISEASES
We are currently developing two simultaneous approaches utilizing
different aspects of our products. We aim to provide injectable bone
biomaterials that provide advantages over traditional bone repair methods. These
advantages include, but are not limited to:
o minimally invasive;
o low-cost administration;
o filling and stabilizing properties;
o bone formation and deposition; and
o biological activity.
1.3.2.1 OssiFIL
OssiFIL is a new proprietary bone grafting material consisting of an
injectable self-gelling composite that is not hardened. The OssiFIL technology
combines the flowing/carrying property of BST-Gel(TM) material and the
osteoconductivity property of calcium based minerals. It is ideally used to form
a more secure base for growth of bone tissues.
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OssiFIL is mainly applied as an injectable bone defect filler. This
favors bone tissue growth in voided or emptied bone tissues. We have initiated a
program to locally apply OssiFIL materials to the treatment of weakened or
fractured bones. We also intend to apply OssiFil filling materials in the
surgical treatment of fractured hip bones.
A second development of OssiFIL is to incorporate bone-inductive agents
that give a unique osteoinductive performance to OssiFIL. We are developing an
osteoinductive OssiFIL material to accelerate bone formation for the treatment
of fresh fractures.
1.3.2.2 OssiFIX
We are developing a new proprietary bone composite cement based upon
the BST-Gel(TM) technology and the calcium phosphate technology. These series of
OssiFIX bone materials are injectable and self-hardening. They also give a
stronger structural integrity and biomaterial strength to severely weakened
bones.
OssiFIX bone substitutes are ideal materials for supporting weakened or
fractured bones that need to regain structural support and strength. This
technology is used for the treatment of fractured osteoporotic vertebra. We plan
to initiate the clinical application phase as soon as the OssiFil performances
are optimized.
1.3.3 INTERVERTEBRAL DISC REGENERATION; BST-DISC
A significant portion of the population suffers from back pains between
the ages of 20-50. This condition can often be traced to faulty intervertebral
discs. Intervertebral discs aid in multi-directional movement and serve as a
shock absorber to the body. Through time, these intervertebral discs decrease in
height which often causes hernia and/or pain and irritation in the surrounding
nerve roots. Conservative treatments include rest, heat, and pain management
with anti-inflammatory drugs. If these treatments do not work, the only current
recourse is surgery. As an alternative, we are developing an efficient
non-surgical procedure that would cost much less than surgery.
Our goal is to offer to the patient this one last non-surgical solution
that could either permanently solve the problem, or at least delay the surgical
intervention by a few years. We are developing the BST-Disc, a gel solution
derived from our platform BST-GEL{TM). We have a patent pending on this product.
It is injected within the disc using a syringe, similar to a common disc imaging
procedure. The gel supports the physiological load and restores the disc's
height through intrinsic elasticity and colloid pressure. Furthermore, the
structural integrity of this substance could limit hernia damage by preventing
extrusion of the nucleus matter through disc wall defects.
1.3.4 SOFT TISSUE AUGMENTATION
1.3.4.1 BST-FILL
Soft tissue injectable fillers are used in cosmetic surgery to fill out
lines and creases caused by aging, gravity and sun exposure. The most common
fillers are collagen , hyaluronic acid and patient's own fat from another site.
Both methods have temporary effects that disappear within a few months,
depending on the patient and site of injection, typically within 3-6 months for
fat, and up to 1 1/2 year for collagen. In addition, about 3% of the population
are allergic to collagen, requiring that skin tests be performed before the
treatment. Other fillers have high selling prices are painful to inject and
require skin tests.
We are developing BST-Fill from our BST-GEL(TM) platform It is easily
injectable, gels in site and provides substantial mechanical support to the
surrounding soft tissues. It is s biodegradable and can be adjusted to achieve
very long-term, or even permanent, correction. This combination of
characteristics makes it an attractive long-lasting solution for the smoothing
of small wrinkles or the correction of pronounced defects. Its use could even
extend to the more demanding needs of reconstructive surgery, bridging the gap
to a field that usually require surgically implanted polymeric forms.
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We have a United States patent pending on this product, focusing on its
extended residence time and considerable mechanical support.
1.3.4.2 BST-INHEEL
Heel pain is a common complaint that leads, every year, about 1% of the
North-American population to consult a physician. Persistent walking or standing
discomfort is usually related to thinned-out natural heel cushions known as
calcaneal fatty pad. This fat pad cushion plays a critical biomechanical role in
absorbing the impact of walking and running by distributing the load and
absorbing energy upon impact. It consists of interconnected pockets filled with
fatty acids. Pad thickness is important to its mechanical characteristics. The
fat pads normally thins out after the age of 50, but the risk of premature
atrophy increases with diabetes, if the individual is overweight, or has often
worn thin-sole or high-heel shoes.
We are developing an injectable product to replenish these feet
cushions and restore a functional pad height. The heel cushioning market is
predominantly held by in-sole cushioning and other orthopedic inserts. There is
no known previous attempts to restore the in-heel cushioning. The obvious main
market for BST-In Heel is the aging but active segment of the population.
We have a pending United States patent application covering this
product and the general concept of restoring the fat pad cushion with an
injectable solution.
1.3.5 VACCINE DEVELOPMENT
The ability to deliver large amounts of molecules over a long period of
time using the injectable BST-Gel(TM) is being explored for the sustained
release of antigens for vaccine development. We are currently testing the immune
response of animal models to specific antigens delivered by a single injection
of BST-Gel(TM).
1.4 MATERIAL AGREEMENTS
1.4.1 AGREEMENT WITH POLYVALOR
In October 1997, we entered into a technology assignment agreement with
Polyvalor Limited Partnership. Polyvalor is an entity created by Ecole
Polytechnique de Montreal for the purpose of commercializing the technology in
which Ecole Polytechnique has an interest. Through this agreement, we acquired
all rights related to certain patents and know-how. We agreed to pay to
Polyvalor a royalty of 5% on our gross sales up to a maximum cumulative amount
of $3,000,000. Our subsidiary Bio Syntech Canada, Inc. issued to Polyvalor
1,072,000 shares of its class A stock and granted Polyvalor the right to
nominate one director to our board of directors. This class A stock is
exchangeable on a share for share basis for our common stock and Polyvalor has
the right to nominate one director to our board of directors.
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1.4.2 AGREEMENTS WITH COLLABORATORS
As part of our business strategy, we have formed collaborations with
third parties to explore opportunities for applications of our delivery systems
to therapeutics developed by them.
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 cartilage
cells in the treatment of articular cartilage defects. Cell compatible
BST-Gel(TM) formulations are being studied in vitro using gels that contain
human joint cells.
1.4.2.3 REPROGENESIS, INC., CAMBRIDGE MA
We signed a Confidentiality Agreement on May 31, 1999 and a Material
Transfer Agreement on July 27, 1999 with Reprogenesis, Inc. related to the
transfer of human cartilage cells from the ear by Reprogenesis, Inc. The initial
study aimed at the development of a human cartilage cell compatible formulation
of BST-Gel(TM). This work was performed in our facilities, first in vitro where
good cell viability was obtained. The project has now evolved to look at
specific cellular events judged important for the behavior of these cells in
vivo. Reprogenesis is currently developing human cartilage cells for a variety
of tissue augmentation applications for incontinence and tissue reconstruction.
1.4.2.4 OPHIDIAN PHARMACEUTICAL INC., MADISON WI
We signed a Confidential Disclosure Agreement and a Biological
Materials Transfer Agreement with Orphidian Pharmaceutical Inc. in August 1999
to evaluate the ability of BST-Gel(TM) to deliver an agent that triggers immune
response in a sustained fashion for chicken immunization. Ophidian is developing
therapeutics based on egg yolk antibodies produced after a series of
intramuscular or 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's inflammatory bowel disease therapeutics development, it has sent
rTNF-alpha, a growth factor, to us for initial formulation study. A longer and
more extensive phase two project is ongoing. Finally a phase three project has
been agreed upon where the antigen will be presented as genetic material for
potentially longer lasting immunization in the animal.
1.4.2.5 VIRAGEN, INCORPORATED, PLANTATION FL, AND VIRAGEN LTD.,
SCOTLAND
We signed a Mutual Confidentiality Agreement with Viragen, Incorporated
on September 2, 1999 for the study of a Viragen proprietary formulation of
Interferon-alpha (Omniferon) formulated in BST-Gel(TM) for long duration of
action. Viragen is currently developing Interferon-alpha as a therapeutic for
the modulation of the immune system to fight viral diseases like hepatitis. The
project was initially carried
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on at our facilities and was aimed at studying the stability and release
kinetics of Omniferon formulated in BST-Gel(TM). After encouraging data, Viragen
agreed to pursue the program on formulation in their own facilities.
1.4.2.6 ONTOGENY, INC., CAMBRIDGE MA
We signed a Confidentiality Agreement and a Material Transfer Agreement
with Ontogeny, Inc. on December 3, 1999 for the study of BST-Gel(TM) as a
potential carrier for a family of proteins that stimulates cell growth, known as
Hedgehog. Several applications are being investigated by Ontogeny and include
neuro-degenerative and cartilage diseases. Formulations of BST-Gel(TM) were sent
to Ontogeny where an initial preliminary study on inflammation and a functional
study on an animal model are ongoing.
1.4.2.7 BIOMET MANUFACTURING CORPORATION, WARSAW IN
We signed a Material Transfer Agreement with Biomet Manufacturing
Corporation on February 8, 2000 regarding the possible use of BST-Gel(TM) as a
carrier for a growth factor in wound healing and for circular DNA for specific
gene therapy. These projects are expected to commence in the current fiscal
year. Biomet has global operations in orthopedics with a number of approved
devices for therapeutic and diagnostic interventions.
1.5 MARKET FOR OUR TISSUE ENGINEERING AND THERAPEUTIC DELIVERY TECHNOLOGIES
The overall goal of tissue engineering is the repair of diseased or
injured tissue or organs using therapeutics to regenerate or heal with a
functional normal tissue. This is in contrast to the current approach of
replacing an organ with an artificial device. Artificial organs, although
sometimes necessary for short-term relief, usually have an inadequate working
life expectancy. The newer approach of tissue engineering often involves the
transplantation of living normal cells that have been expanded in the
laboratory. This procedure requires an accurate positioning of the cell at the
site where it is to perform its therapeutic benefit. This is often accomplished
by providing to existing cells an 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 which include 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. This results
from the reduced chance of complications during the injection procedure and the
potential for a faster recovery and shorter hospital stay. Injectable
biomaterials as carriers for cell delivery are therefore an active area of
development for this field of application.
We believe the market potential for both the treatment of cartilage
injuries and diseases and the market for bone injuries and diseases is enormous.
Our biomaterials do not require surgical implementation which we believe could
lead to a higher probability of success.
Vaccine development is a field that is rapidly evolving. One of the
goals in developing a vaccine is to provide immunity over a longer period of
time. As part of our research and development projects, we are working on the
development of a vaccine utilizing the BST-Gel technology. There are a number of
companies currently working on vaccine development. However, with the growing
resistance of organisms to current therapy and vaccines, we expect this field to
experience significant growth.
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We either work by ourselves and in collaboration with partners to
develop and expand our therapeutic delivery program. Our therapteutic
technologies aim at effectively delivering biotherapeutic agents like proteins
and peptides. Therapeutic delivery technologies can also be utilized to address
certain needs of both traditional pharmaceutical compounds and the new class of
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 side effects
to the body. With the advancement of biotechnology, new opportunities in drug
delivery have arisen. Advances in biotechnology have facilitated the development
of a new generation of biopharmaceutical products based on proteins, peptides
and nucleic acids. Drugs developed by biotechnology companies often cannot be
delivered orally. This inability to deliver drugs orally results from their
instability in harsh conditions in the digestive tract, their limited ability to
be absorbed in an active form in the intestines and their short half-life in the
bloodstream. Consequently, many of these drugs can only be administered by
frequent injections. This may limit their clinical applications. Consequently,
new approaches to deliver these therapeutics to their needed site of action in
the body are being developed. With the unparalleled growth of the biotechnology
industry, there is a growing need for the development of biomaterials for the
delivery of therapeutic agents.
1.5.1 STRATEGY
Our research and development efforts aim to develop advanced
biomaterials for the fast-growing demands of the medical and pharmaceutical
industry. We are expanding our in-house research and development program to
expedite our product development effort. Once we have sufficient clinical data,
we will be entering into licensing agreements with partners to expedite the
launch of our products. We will continue to work with companies with which we
have strategic collaborations to expand our research and development efforts.
1.5.2 COMPETITION
Our products may compete with new products currently under development
by others or with products that may cost less than our products. Our actual and
potential competitors include other therapeutic delivery companies,
biotechnology and pharmaceutical companies, academic and research institutions
and government agencies. Many have greater name recognition and greater
financial, research and development and personnel resources than us. Many have
greater experience in testing and clinical trials and in the regulatory process.
With respect to therapeutic delivery, we are aware that various methods
such as injectable, pulmonary, transdermal, and oral methods to therapeutic
delivery have already been developed or being developed. In regards to
injectable methods, there are other companies developing microspheres for the
sustained delivery of therapeutic agents. The microspheres we developed can be
adapted for the delivery of a broad spectrum of drug types, from small
molecules, or even living tissues.
1.5.2.1 CARTILAGE INJURIES AND DISEASES
In regards to cartilage injuries and diseases, competitors of our
technology have developed an implant containing living cells. It requires
complicated open knee surgery and its efficacy and acceptance has been
questioned. In addition, there are other surgical procedures for repairing
localized cartilage lesions (i.e., drilling, microfractures, abrasion, Kevin
Stone's tissue paste). They depend on producing bleeding into the cartilage
defect although they are known to cause incomplete filling of the defect, and
poor tissue composition resulting in poor mechanical properties and tissue
degradation.
1.5.2.2 BONE INJURIES AND DISEASES
With respect to bone injuries and diseases, in general our Company may
encounter competition by the bone grafts and orthobiologicals market. In
relation to OssiFIL(TM), injectable osteoconductive composites based upon
polymeric gels and solid Calcium Phosphates are not so common clinically,
although some products have been proposed. Competitors have developed composite
gels made of collagen, including BCP solids, which are mainly used for
orthopaedic applications such as bone filling (harvest site filler), fractures
healing, spinal fusion and joint
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revision/replacement. In relation to OssiFIX(TM), direct competition derives
from self-setting calcium phosphate substitutes. Other competitors are
high-strength polymer bone cement. Injectable composite Calcium
Phosphate-Polymer cement-like materials are not common clinically, although
Calcium Phosphate bone cements have been proposed and are currently used.
OssiFIX(TM) cement-like material will present some specific enhanced features
such as injectability and cohesion.
1.5.2.3 INTERVERTEBRAL DISC REGENERATION
With respect to intervertebral disc regeneration, our Company may
encounter competition by the spinal surgery market. According to a recent
report, there has been an explosive uptake of minimally invasive systems to
treat low back pains. In fact, a company with its minimally invasive system
entered the spinal market in 1998 and has since known a tremendous growth of
67%.
1.5.2.4 SOFT TISSUE AUGMENTATION
In regards to soft tissue augmentation, the BST-Fill can gain a strong
position within the competitive market. Most common fillers like collagen and
autologous fat transfers have temporary effects that disappear within a few
months. Moreover, other fillers have high selling prices, are painful to inject,
and require skin tests. The BST-Fill on the other hand, due to its
characteristics is an attractive long-lasting solution for the smoothing of
small wrinkles or the correction of pronounced defects. In relation to the
BST-InHeel, the heel cushioning market is saturated with disposable in-sole
cushions and orthotics. BST-In Heel has been developed as an easy way to
replenish the natural heel cushioning through a simple injection. It represents
the first permanent therapy for heel pad thinning. The main competitors in this
market are solely manufacturers of shoe inserts and orthotics.
Our product candidates may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. The degree of market
acceptance of any product candidate that we may develop will depend on a number
of factors, including:
o Demonstration of their usefulness and safety;
o Their relative cost;
o Their advantage or disadvantage compared to alternative methods;
o The marketing and distribution support they receive; and
o Reimbursement policies of government and third-party payors.
1.5.3 PRICING
Third-party payors, which include governments and private health
insurers, are increasingly challenging the prices charged for medical products
and services. In their attempts to reduce healthcare costs, they have also been
limiting their coverage and reimbursement levels for new drugs. In some cases,
they are refusing to cover the costs 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.
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1.6 INSTRUMENTATION
We have developed two products in our instrumentation division to date.
First, we have developed the ARTHRO-BST(TM), an arthroscopic device providing
precise and non-destructive diagnosis of articular cartilage quality. Secondly,
we have also developed the Mach-1(TM) Mechanical Tester, a universal mechanical
testing system for specimens with dimensions between hundreds of microns and a
few centimeters. These instruments are closely related to our work on cartilage.
1.6.1 THE ARTHRO-BST(TM)
DESCRIPTION
The ARTHRO-BST(TM) is an arthroscopic device providing precise and
non-destructive diagnosis of articular cartilage quality. Degeneration of
cartilage is a prominent component of arthritis, a disease affecting more than
10% of the population. Current assessment of articular cartilage is mostly
subjective with no functional evaluation. There is a growing need in an aging
population for non-destructive and unbiased clinical evaluation of the health
and function of this connective tissue.
The ARTHRO-BST(TM) is based on an innovative and robust design that
allows simple application of small indentation compression and collection of
resulting electrical signals indicative of cartilage function.
The ARTHRO-BST(TM) is composed of five distinct units:
o a disposable sterilized tip consisting of microelectronic circuits on
a thin aluminum substrate that is adhered to a stainless steel
support providing a connection with the handle,
o an ergonomically designed handle;
o an electrical circuit for the acquisition of electrical signals,
including a preamplification and digitalization circuit inside the
handle and an interface circuit exterior to the handle;
o software for the acquisition of electrical signals and for the
analysis and interpretation of data to quantify cartilage quality;
and
o a computer system.
A fully functional clinical version of the ARTHRO-BST(TM) was presented
at the third meeting of the International Cartilage Repair Society (ICRS) in
Sweden in April 2000. In comparison with tissue stiffness, streaming potentials
measured showed almost identical behavior for the normal and degraded cartilage
explant. The simplicity of the technique for the assessment of cartilage quality
was demonstrated.
MARKET
The target market has two sectors: research and clinical. The research
market is composed of pharmaceutical and biotechnology companies in addition to
academic research groups working on therapeutic products for joint disorders or
procedures for cartilage repair. There are several research projects in the
areas of arthritis and joint repair and it is regularly publicly acknowledged
that a major impediment to the understanding of 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.
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The clinical market is potentially much larger. It consists of
orthopedists practicing minimally invasive arthroscopic surgery who also require
a means of objectively evaluating cartilage quality in patient's knees.
Currently, arthroscopists use subjective and relatively uncertain methods of
visual inspection and manual probing by feeling stiffness to judge articular
cartilage quality.
COMPETITION
To our knowledge, there are currently no competing technologies to
respond to the demand for functional non-destructive evaluation of articular
cartilage. Most instruments currently under research and development are based
on mechanical measurements of the cartilage stiffness instead of electrical
measurements of streaming potentials.
The ARTHRO-BST(TM) is based on a different technology that overcomes
the major difficulties with the control of the compression amplitude applied to
cartilage and the orientation of the indentor tip relative to cartilage surface.
Instead of measuring the tissue stiffness, the ARTHRO-BST(TM) measures streaming
potential generated during compression of the tissue. Two dimensional
microelectronic circuits placed on non-planar surface permit a precise
determination of the contact distribution of the indentor with the cartilage,
the compression amplitude and velocity applied to the cartilage, and the
orientation of the indentor relative to cartilage surface. Furthermore, the
sterilized indentor tip is disposable to minimize disease transmission.
REGULATORY APPROVAL
We currently expect that the ARTHRO-BST(TM) will be classified by FDA
as a Class II medical device because of the low risk associated with its use.
Because the ARTHRO-BST(TM) can be considered substantially equivalent to
existing devices used for cardiovascular and neurological diagnoses with
electrodes, we expect to submit a Pre-Market Notification to the FDA following
clinical testing. However, the FDA may reclassify the device or request
additional information if it determines that the application does not satisfy
its regulatory approval criteria. We expect to initiate the filing process once
we have completed our compliant facilities.
MANUFACTURING
If and when all necessary regulatory approvals are obtained, we plan to
manufacture up to 200 units per year of the ARTHRO-BST(TM) per year using our
current facilities and certain subcontractors for some specialized components,
such as the electronic acquisition card. The production of disposable sterilized
tips can be easily obtained using commercial microelectronic laboratories. The
fabrication uses conventional methods and all the instrumentation required is
available in our facilities. Once a final design for the electrode tip is
completed, it should be possible to transfer production to one of several
subcontractors located near our offices with approved industrial and quality
standards.
New infrastructures will be required for large-scale production. A
decision will be by the end of fiscal year ending March 31, 2002 whether to
acquire additional facilities or to establish a production alliance with a large
manufacturer of orthopaedic instruments.
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DISTRIBUTION AND MARKETING STRATEGY
Upon validation of the technology, we intend to introduce the
ARTHRO-BST(TM) to the market through demonstration of its efficacy for cartilage
evaluation, through collaborations with leading clinical orthopaedic
researchers, and through the inclusion of the ARTHRO-BST(TM) in clinical trials
of arthritis drugs. In the beginning of fiscal year 2002, BioSyntech 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. We plan to support
this strategy with data from clinical trials to demonstrate the objective nature
of the method and its sensitivity and specificity for cartilage quality. The
recently formed Canadian Arthritis Network of Centres of Excellence could assist
by providing clinical trials to pharmaceutical companies with arthritis drugs
and allowing us to participate in these trials by providing objective data for
drug evaluation. Our dual strategy involving collaboration with leading opinion
makers and by providing statistically sound scientific studies should provide
the basis for market penetration.
We expect to rely on the distribution and sales network of a major
partner to generate sales.
1.6.2 THE MACH-1(TM) MECHANICAL TESTER
DESCRIPTION
The Mach-1(TM) Mechanical Tester is a universal mechanical testing
system for specimens with dimensions between hundreds of microns and a few
centimeters. Typical applications for the Mach-1(TM) are in the mechanical
characterization of tissues, pharmaceuticals, polymers, gels, adhesives and
food. The instrument allows the characterization of stiffness, strength,
modulus, viscoelasticity, plasticity, hardness, adhesion, swelling and
relaxation and creep using load and displacement control tests. Some of the
features of the Mach-1(TM) are:
o Chambers for compression, tension, indentation, bending and other
test configurations are mounted on a platform, which is controlled to
within 25 nanometers;
o Load cells are interchangeable to allow maximum loads between 0.15 kg
to 10 kg with load precision being 1 part in 20,000 of the maximum
(10mg minimum);
o The test system can be placed either in an incubator for testing or
in mechanical stimulation sterile controlled environments, like cell
culture conditions;
o Sophisticated and flexible software allows execution of stress
relaxation, ramp, dynamic sinusoidal and creep tests in automated
user-defined sequences;
o Sophisticated analysis software; and
o Options include visualization of specimen during testing with
cameras, motorized control of specimen position on the actuator, and
electric field detection (electromechanical events) during testing.
MARKET
The market potential for the Mach-1(TM) is as follows:
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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; and
o Food, pulp and paper, electronic packaging and others mechanical
properties, texture analysis, electronic components, wires, fibers
optics, films, packaging material, spring, switches, tapes,
cosmetics, foam, sponges.
Market potential of the Mach-1(TM) also includes conventional segments
of mechanical testing. Given the specificity of this equipment, BioSyntech does
not expect that a significant market will develop for it.
COMPETITION
The price of other bench-top mechanical testers is around $20,000.
While we offer complete systems at this price, we also offer more enhanced
versions that we can sell for up to $50,000. These high-end systems can offer
sub-micron resolution, multi-axis simultaneous motion, or other specialized
features. With our different versions, we cover a broad range of applications
and also offer custom system configurations for specific needs. Companies in the
mechanical testing industry sell large mechanical testers that serve industries
such as the automobile industry and the aerospace industry whereas, the Company
has an acquired expertise and specialization in tissue engineering and testing
of biomaterials.
REGULATORY APPROVAL
The Mach-1(TM) Mechanical Tester is not a medical device and is not
subject to FDA or other regulatory approval.
MANUFACTURING
Given the small market for this product, we expect to be in a position
to fulfill potential demand of up to approximately 10 units per month in our
facilities. We could eventually rely on the distribution and sales network of a
major partner to generate sales, in which case adequate manufacturing capacity
would have to be established.
DISTRIBUTION AND MARKETING STRATEGY
We intend to use direct sales and direct support as a way to reach and
serve customers. Talking directly to customers will enable us to know them and
their needs and to establish dialogue that will enhance the trust they put in
our products. We could eventually rely on the distribution and sales network of
a major partner to generate additional sales. To date, we have sold a small
number of the Mach-1(TM) without any marketing effort.
23
1.7 PATENTS AND PROPRIETARY RIGHTS
Our success will be dependent, in part, on our ability to obtain patent
protection for our product candidates and those of our collaborators,
maintaining trade secret protection and operating without infringing upon the
proprietary rights of others.
We have a proprietary portfolio of patent rights and patent
applications. We have been issued two patents and have filed several United
States and international patent applications directed to the composition of
matter as well as processes of preparation and methods of use. Our United States
patents will expire between 2018 and 2020.
We plan to protect our proprietary position by filing United States,
Canada and foreign patent applications related to its proprietary technology,
inventions and improvements that are important to the development of our
business. The patent position of biopharmaceutical companies involves complex
legal and factual questions. The enforceability of patents cannot be projected
with certainty. Patents, if issued, may be challenged, invalidated or
circumvented, and may fail to provide any protection against competitors. Our
pending patent applications, those which we may file in the future, or those
which we may license from third parties, may not result in patents being issued.
If patents were issued, they may not provide us with proprietary protection or
competitive advantages against competitors with similar technology. Competitors
may independently develop similar technologies or duplicate any technology that
we have developed. The laws of certain foreign countries do not protect our
intellectual property rights to the same extent as do the laws of the United
States and Canada.
We also rely on trade secrets, know-how and technology, which we try to
protect by entering into confidentiality agreements with parties that have
access to it, which include corporate partners, collaborators, employees and
consultants. Any of these parties may breach their agreement and disclose our
confidential information. Our competitors might also learn of the information in
some other way.
1.8 GOVERNMENT REGULATION
The manufacture and marketing of pharmaceutical products and medical
devices in the United States and in Canada require the approval of the FDA under
the Federal Food, Drug and Cosmetic Act and the Health Protection Branch of
Canada, respectively. Similar approvals by comparable agencies are required in
most foreign countries. These agencies have established mandatory procedures and
safety standards that apply to the pre-clinical testing and clinical trials,
manufacture and marketing of pharmaceutical products and medical devices.
Pharmaceutical manufacturing facilities are also regulated by state, local and
other authorities.
24
As an initial step in the regulatory approval process for a new drug
product, pre-clinical studies are typically conducted in animal models to assess
a drug's efficacy and to identify potential safety problems. The results of
these studies must be submitted to the FDA as part of an Investigational New
Drug application, before proposed clinical testing can begin. Usually, clinical
testing involves a three-phase process. Phase I trials are conducted with a
small number of subjects and are designed to provide information about both
product safety and the expected dose of the drug. Phase II trials are designed
to provide additional information on dosing and preliminary evidence of product
efficacy. Phase III trials are large scale studies designed to provide
statistical evidence of efficacy and safety in humans. The results of the
pre-clinical testing and clinical trials of a pharmaceutical product are then
submitted to the FDA in the form of a New Drug Application, or for a biological
product in the form of a Product License Application, for approval to commence
commercial sales. Preparing applications involves considerable data collection,
verification, analysis and expense. In responding to an application, the FDA may
grant marketing approval, request additional information or deny the application
if it determines that the application does not satisfy its regulatory approval
criteria.
In the case of a medical device, pre-clinical-study results must be
submitted to the FDA as part of an Investigational Device Exemption before
clinical testing can begin. Phase I, II, and III trials can then be conducted to
provide safety, efficacy, and method-of-use information. The results of the
pre-clinical testing and clinical trials of a medical device are then submitted
to the FDA in the form of a Pre-Market Notification for most Class I and Class
II devices, or a Pre-Market Approval request for most Class III devices. Medical
devices are classified depending upon the level of regulatory control required
to provide reasonable assurance of their safety and effectiveness. In general,
non-critical devices or new devices substantially equivalent to existing devices
fall into Classes I or II. Class III devices are those for which insufficient
information exists to determine that general controls are sufficient to provide
reasonable assurance of their safety and effectiveness.
The possible future uses of BST-Gel(TM)-related biomaterials are
several and are expected to fall into a number of different categories.
Depending on a proposed application, the FDA might designate a BST-GelTM-related
biomaterial as a new drug, new medical device, or new additive.
We currently expect that the ARTHRO-BST(TM), will be classified as a
Class II medical device because of the low risk associated with its use. Because
the ARTHRO-BST(TM) can be considered substantially equivalent to existing
devices used for cardiovascular and neurological diagnoses with electrodes, we
expect to submit a pre-market notification to the FDA following clinical
testing. However, the FDA may reclassify the device or request additional
information, if it determines that the application does not satisfy its
regulator approval criteria.
This regulatory process can require many years and the expenditure of
substantial resources. Data obtained from pre-clinical testing and clinical
trials are subject to varying interpretations, which can delay, limit or prevent
FDA approval. In addition, changes in FDA approval policies or requirements may
occur or new regulations may be promulgated, which may result in delay or
failure to receive FDA approval. Similar delays or failures may be encountered
in Canada and in foreign countries.
A prospective manufacturer's quality control and manufacturing
procedures must conform on an ongoing basis with good manufacturing practices as
defined by the FDA. The development of a compliant manufacturing establishment
for BST-Gel(TM)-related biomaterials will be a multi-step process consisting of
designing and building the necessary facilities, purchasing and installing the
ancillary equipment, and validating the facilities and equipment.
Simultaneously, process development and scale-up as well as testing, measuring
and quality control will be done to supply test material and data critical to
the clinical program.
25
Before approval of our application, the FDA will perform a prelicensing
inspection of the facility to determine its compliance. After our facilities are
licensed, they will be subject to periodic inspections by the FDA.
We are also subject to various laws and regulations relating to safe
working conditions, laboratory and manufacturing practices, experimental use of
animals and use and disposal of hazardous or potentially hazardous substances,
including radioactive compounds and infectious disease agents, used in
connection with our research. Compliance with existing laws and regulations
relating to the protection of the environment is not expected to have a material
effect on BioSyntech's operations.
1.9 LEGAL PROCEEDINGS
1.9.1 EXISTING LEGAL CLAIMS
There is no action or investigation pending or, to our knowledge,
threatened against us, except as described below:
Marie-Claire Pilon, a former employee of BioSyntech, commenced an
action on January 23, 2001 in Superior Court, Province of Quebec, District of
Montreal, against BioSyntech and our Chairman of the Board, Dr. Amine Selmani.
Ms. Pilon alleged that she was wrongfully dismissed as an employee and is
seeking $223,590 in compensation allegedly due, $20,000 for punitive damages and
$15,000 for additional damages. Based on the facts submitted to BioSyntech's
attention, BioSyntech and Dr. Selmani believe that they have a valid defense to
this action.
Robert Conyers, a former employee of Bio Syntech Ltd., commenced an
action on November 16, 1999 in Superior Court, Province of Quebec, District of
Montreal, against Bio Syntech Ltd. and its then Chairman of the Board, Dr. Amine
Selmani. Conyers alleged that he was wrongfully dismissed as an employee and is
seeking $96,581 in compensation allegedly due, the issuance to him of 100,000
shares of class A stock that were subject to an option that was alleged to have
been granted to him and $25,000 in punitive damages. Bio Syntech Ltd. and Dr.
Selmani deny Plaintiff's allegations and believe that they have a valid defense
to this action.
1.9.2 POTENTIAL PRODUCT LIABILITY CLAIMS
The testing and marketing of bio-therapeutic and medical products, even
after FDA approval, have an inherent risk of product liability. We anticipate we
will obtain product liability insurance coverage in a limited amount at the time
that our operations warrant it. Our profitability will be affected by a
successful product liability claim in excess of any insurance coverage that may
be in effect at that time. We are unsure whether product liability insurance
will be available in the future on reasonable terms or at all.
1.10 PROPERTIES
We have our administrative and commercial offices and research and
development facility at 475 Armand-Frappier Boulevard, a 20,000- square-foot
building in Laval (Quebec), in the Greater Montreal Area. We purchased the
building in July 2000 at a price of $1,200,000. We previously leased these
facilities at a net rental of $14,000 per month.
Our facilities are designed to be upgradeable to comply with the FDA,
while additional space will be devoted in the future to sites for operations
compliant with the FDA's good manufacturing practice standards. We intend to
initiate
26
the necessary work to comply with the good manufacturing practice standards at
an estimated cost of $3,500,000 in the next fiscal year.
1.11 THE ISSUANCE OF EXCHANGEABLE CLASS A PREFERRED STOCK
We were incorporated in the State of Nevada in December 14, 1994 and
became a publicly-traded corporation without operations in August 1999. Pursuant
to a share exchange agreement dated February 15, 2000, we became the owner of
all of the shares of Bio Syntech Ltd., and the shareholders of Bio Syntech Ltd.
were issued shares of non-voting exchangeable class A stock of our new Canadian
subsidiary, Bio Syntech Canada, Inc. Bio Syntech Ltd was founded in 1995 by Dr.
Amine Selmani as a Quebec corporation. The class A stock is exchangeable on a
share-for-share basis for an aggregate of 15,177,036 shares of our common stock
which were issued and are held in trust.
Each beneficial holder of class A stock has voting rights in that
number of shares of our common stock equal in number to the number of shares of
class A stock held by him. The holders of class A stock may exchange these
shares for our common stock, and as a result, they will have the right to direct
the disposition of the common stock.
Copies of the share exchange agreement and related transactions
documents were filed as exhibits to our Current Report on Form 8-K dated March
15, 2000 and are incorporated by reference in their entirety to this prospectus.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The discussion and analysis below should be read in conjunction with
our condensed consolidated Financial Statements.
To date, we have incurred substantial losses from operations, and as of
September 30, 2000, had an accumulated deficit of $9,663,722. We expect to incur
substantial operating expenses in the future to support our product development
efforts and expand our technical and management personnel and organization.
RESULTS OF OPERATIONS
The following table sets forth certain items in our consolidated
statements of operations for the quarters ended September 30, 2000 and 1999 and
fiscal years ended March 31, 2000 and 1999 (in thousands of CDN $)
Six-Month Periods Ended Fiscal Years Ended
-----------------------
September 30, March 31,
------------- ---------
2000 1999 2000 1999
---- ---- ----
(Unaudited) (Unaudited)
Sales $88.5 $0 $0 $78.7
Cost of sales 38.2 0 0 35.0
------- ------ -------- --------
Gross profit $50.3 $0 $0 $43.7
Operating Expenses:
Research and development $1,191.5 $500.7 $2,341.7 $2,948.3
Investment tax credits (100.0) (362.7) (676.9) (599.1)
General and administrative 1,082.4 274.9 1,217.5 1,789.5
Amortization of property, plant and
Equipment 73.8 88.9 178.2 35.2
--------- ------ -------- --------
Total operating expenses $2,247.7 $501.8 $3,060.5 $4,173.9
--------- ------ -------- --------
Loss from operations ($2,197.4) ($501.8) ($3,060.5) ($4,130.2)
Interest income (225.9) (0.6) 18.6 4.4
Interest expense 37.2 108.9 198.4 39.9
--------- ------ -------- --------
Net loss $2,008.7 $610.1 $3,240.3 $4,165.7
28
RESULTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED SEPTEMBER 30, 2000 AND
1999.
SALES
Revenues have only been generated from sales of Mach-1(TM) Mechanical
Testers.
During the six-month period ended September 30, 2000, we had sales of
two Mach-1(TM) for an aggregate revenue of $88,536 and a net loss of $2,008,598
compared to sales of zero and a net loss of $610,060 for the six-month period
ended September 30, 1999.
Loss per share was $0.07 per share for the six-month period ended
September 30, 2000, compared to $0.05 per share for the six-month period ended
September 30, 1999.
OPERATING EXPENSES
Research and development expenses were $1,191,548 for the six-month
period ended September 30, 2000 compared to $500,698 for the six-month period
ended September 30, 1999, mostly attributable to the hiring of additional
researchers, the cost of pre-clinical toxicalogical studies, research and
development activities with our corporate collaborators and our own in house
programs.
INVESTMENT TAX CREDITS
We claim investment tax credits on all allowable research and
development expenses. The amount we claimed for the six-month period ended
September 30, 2000 is $100,000 compared to $362,651 for the six-month period
ended September 30, 1999. The decrease is directly attributable to a reduction
in the effective rate used to calculate the tax credits since we can no longer
benefit from the private company rates.
29
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $1,082,378 for the six-month
period ended September 30, 2000 compared to $274,901 for the six-month period
ended September 30, 1999, representing an increase of $807,477. The increase is
principally attributable to professional fees and marketing expenses, and to an
increase in the number of administrative personnel.
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Amortization expense was $73,801 for the six-month period ended
September 30, 2000 compared to $88,871 for the six-month period ended September
30, 1999, representing a decrease of $15,070. The decrease in the six-month
period was principally attributable to the change in amortization period of our
facility. Previously, we amortized the term of our lease for 10 years. We
subsequently changed the term to 25 years after we acquired our facility.
INTEREST REVENUE AND INTEREST EXPENSE
Interest revenue represents income earned on our cash deposits.
Interest revenue increased by $225,323, from $668, for the six-month period
ended September 30, 1999 to $225,991 for the six-month period ended September
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 BioSyntech at the end of fiscal 1999
in order to finance its facility prior to its acquisition. Interest expense
decreased by $71,719 from $108,909 for the six-month period ended September 30,
1999 to $37,190 for the six-month period ended September 30, 2000.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 2000 AND 1999.
SALES
Revenues have only been generated from sales of Mach-1(TM) Mechanical
Testers. During the year ended March 31, 2000, we reported sales of zero and a
net loss of $3,240,283 compared to sales of $78,660 and a net loss of $4,165,657
for the year ended March 31, 1999. Loss per share was $0.23 for the year ended
March 31, 2000, compared to $0.37 for the year ended March 31, 1999.
OPERATING EXPENSES
Research and development expenses were $2,341,697 for the year ended
March 31, 2000 compared to $2,948,342 for the year ended March 31, 1999, 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 our cash deposits.
Interest revenue increased by $14,277, from $4,364, in 1999 to $18,641 in 2000,
primarily due to a higher level of cash and cash equivalents on hand at the end
of 2000.
Interest expense in 2000 is mainly attributable to interest on the
capital lease transaction entered into at the end of fiscal year 1999 in order
to finance our facility prior to our acquisition. Interest expense increased by
$158,467 from $39,935 in 1999 to $198,402 in 2000. The remaining balance under
the loan agreement was repaid in full during July 4, 2000.
30
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, our cash position was $9,286,803. We expect
to expend approximately $2,600,000 during the remaining period of the fiscal
year ending March 31, 2001 to equip our facility. We believe 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, our cash position was $7,301,143 as compared to $57,297 at the end of
March 31, 1999.
On February 2, 2000, we completed a private placement of our securities
yielding aggregate proceeds of US $2,350,000, for which we issued an aggregate
of 470,000 shares of common stock and warrants to purchase an additional 470,000
shares of common stock at a price of US $7.00 on or before September 30, 2001.
Commencing March 31, 2000 and during the quarter ended June 30, 2000,
we completed a second private placement and issued a total of 1,910,214 units at
a price of US $3.50 per unit as shown in the table below, yielding gross
proceeds of US $6,055,250. Each unit comprised one share of common stock and one
warrant for the purchase of one additional share at a price of US $4.50 per
share before March 30, 2001.
Closing Date Number of Units Proceeds
------------ --------------- --------
March 31, 2000 843,500 US $2,532,250 and CDN $600,000
(CDN $4,270,243)
April 4, 2000 833,857 US $2,813,500 and CDN $150,000
(CDN $4,281,343)
April 17, 2000 82,000 US $287,000
(CDN $425,879)
April 27, 2000 42,857 US $150,000
(CDN $221,925)
June 9, 2000 108,000 US $273,000 and CDN $150,000
(CDN $558,272)
Totals 1,910,214 US$6,055,250 and CDN $900,000
(CDN $9,757,662)
We have limited operating history as a biotechnology company and have
not made significant sales of our products. Therefore, our revenues are
difficult to predict. Although we believe that our cash and cash equivalent
balances are sufficient for projected capital expenditures and operating
expenses for the next 12 months, we may seek to raise additional funds either
within the next 12 months or thereafter, by selling additional equity or
convertible debt securities. The sale of additional equity or convertible debt
securities could result in additional dilution to our stockholders. To date, we
have no agreements, commitments or understandings with respect to the sale of
additional equity or convertible debt securities and we are unable to predict
whether we will sell additional equity or debt on acceptable terms or at all.
31
EMPLOYEE GROWTH
As of October 31, 2000, BioSyntech had 33 employees, of whom 21 were
engaged on research and development and 12 were engaged in corporate and
administrative activities. Over the next 12 months, BioSyntech intends to
increase its corporate and administrative personnel by three to five persons.
The existing research and development team will be expanded by 10 to 15 persons.
Except for 2 employees in our research and development team who are involved in
the manufacture of the Mach1(TM) Mechanical Tester, we have no other employees
involved in the manufacture of our products. BioSyntech anticipates its total
employee count to be approximately 43 to 53 employees by the end of fiscal year
2001.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
EXECUTIVE OFFICERS AND DIRECTORS
The following sets forth the name, present principal occupation,
employment and material occupations, positions, offices or employments for the
past five years and ages as of December 31, 2000 of our executive officers and
directors. Members of our board of directors are 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, Chief Executive
Officer and President
Denis N. Beaudry 57 Director
Pierre Alary 43 Director
Jean-Yves Bourgeois 33 Director
Pierre Ranger 45 Director
Anthony Casola 37 Chief Financial Officer, Principal
Financial Officer, Principal Accounting
Officer & Secretary
AMINE SELMANI PHD- Dr. Selmani has served as our Chairman of the Board
and President since February 2000, as our Chief Executive Officer from February
2000 to September 2000 and 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.
32
DENIS N. BEAUDRY - Mr. Beaudry has been a director of BioSyntech since
February 2000. Mr. Beaudry has been President and general manager of Polyvalor,
Montreal, Quebec, Canada, a limited partnership formed by the Ecole
Polytechnique for the purpose of commercializing the intellectual property of
the Ecole Polytechnique. His 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 BioSyntech since
February 2000. Since August 1998, Mr. Alary has been a Vice President for
finance and information technologies at Bombardier Transport, a designer,
manufacturer and distributor of rail cars. Prior to joining Bombardier
Transport, Mr. Alary 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 BioSyntech
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 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 BioSyntech since
February 2000. Since 1991, Dr. Ranger has been a teaching professor in the
orthopedic residents program at the CMDP Sacred Heart Hospital of Montreal. Dr.
Ranger received his Doctoral of Medicine Degree from the University of Montreal
in 1979 and Diploma of Sports Medicine in 1996.
ANTHONY CASOLA - Mr. Casola has been our Chief Financial Officer,
Principal Accounting Officer, Principal Financial Officer and Secretary as of
September 2000. From August 1990 to June 2000, Mr. Casola worked for Naya Inc.,
a branded bottled water manufacturer, where he held various senior positions in
the accounting and finance areas such as Vice President for Corporate
Development, Director of Finance, Controller and Accounting Manager. Mr. Casola
obtained his Bachelor of Commerce degree from McGill University in June 1986. He
has also been designated as a Certified Management Accountant since January
1989.
Mr. Beaudry is the director nominated by Polyvalor. Polyvalor has the
right to appoint one nominee to our board of directors under an assignment
agreement between them and us. There are no family relationships among directors
and executive officers. Our directors are elected for a term of office to expire
at the annual meeting of our stockholders after their election.
33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information as of December 31, 2000
regarding the beneficial ownership of shares of our common stock by our current
directors and executive officers and those persons or entities who, to our
knowledge, beneficially own more than 5% of the common stock. For the purposes
of calculating beneficial ownership, the shares of common stock beneficially
owned by Messrs. Denis N. Beaudry, Pierre Alary, Jean-Yves Bourgeois and Pierre
Ranger represent shares of our common stock issuable upon the exercise of stock
options exercisable within sixty days after December 31, 2000. The address of
all of our officers and directors and owners of more than 5% of our common stock
is 475 Boulevard Armand-Frappier, Laval, Quebec, Canada H7V 4B3
Shares of Common Percentage of Common
Name and Address of Stock Beneficially Stock Beneficially
Beneficial Owner- Owned Owned
9083-1496 Quebec Inc. 7,640,000 26.2%
Amine Selmani 9,062,500 27.0%
Denis N. Beaudry 25,000 >0.1%
Pierre Alary 25,000 >0.1%
Jean-Yves Bourgeois 25,000 >0.1%
Pierre Ranger 125,000 0.3%
Anthony Casola ----- -----
All Officers and Directors 8,207,500 28.0%
as a group (6 persons)
The information shown above includes rights to acquire shares of common
stock through the exchange of class A stock.
Dr. Selmani owns all of the outstanding shares of 9083-1496 Quebec Inc. and
has shared voting and dispositive power with respect to the 7,640,000 shares of
class A stock owned by 9083-1496 Quebec Inc. Dr. Selmani also may be deemed the
beneficial owner of 312,500 shares of common stock that would be held by him
upon exchange of 312,500 shares of class A stock issuable upon exercise of
options. 1,085,000 shares of class A stock, including 200,000 shares issuable
upon the exercise of options, are held by Monique Jarry, the spouse of Dr.
Selmani.
34
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVES
The following table sets forth all compensation awarded to our Chief
Executive Officer. No other executive officers received annual compensation in
excess of US $100,000 during the periods indicated.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation:
Annual Compensation Award
-------------------
Fiscal
Name and Position Year Salary Bonus # of Options
Amine Selmani 2000 $120,000 $0 -
President and
Chief Executive Officer
1999 $120,000 $0 312,500
1998 $0 $0 -
35
OPTION GRANTS
No options were granted to Dr. Selmani in the fiscal year ended March
31, 2000. We have never granted any stock appreciation rights.
AGGREGATED FISCAL YEAR-END OPTION EXERCISES AND OPTION VALUES
Dr. Selmani did not exercise any options as of March 31, 2000. The
following table sets forth certain information regarding unexercised stock
options held by Dr. Selmani as of March 31, 2000.
Number of Securities Underlying Value of Unexercised in the-Money
Unexercised Options at Options at
March 31, 2000(#) March 31, 2000($)
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 $0.75 (US$0.5175) per share.
OTHER COMPENSATION PLANS
We have no pension plan or other compensation plans for its executive
officers or directors.
COMPENSATION OF DIRECTORS
No fees or other remuneration were paid to our directors during the
fiscal year ended March 31, 2000, with the exception of reimbursement of
expenses. Our board of directors will determine the remuneration of our
directors and officers during the current and subsequent fiscal years.
EMPLOYMENT AGREEMENTS
ANTHONY CASOLA - We have entered into a three-year employment agreement
with Anthony Casola dated as of September 5, 2000. Mr. Casola will serve as
Chief Financial Officer, Principal Financial Officer, Principal Accounting
Officer and Secretary with duties and responsibilities which are determined by
our board of directors from time to time. Mr. Casola shall be entitled to an
annual base salary of $125,000 which shall be reviewed annually plus a bonus
payment at the discretion of the board of directors' compensation committee. The
board of directors also granted Mr. Casola options to purchase 50,000 shares of
our common stock at an exercise price of U.S.$4.00 per share, vesting in three
installments commencing
36
September 2001. Mr. Casola is subject to a confidentiality and non-solicitation
agreement during the term of his employment and for an additional two year
period following the termination of his employment. Mr. Casola will be entitled
to receive his full salary for a period of four months if he is terminated
without cause and the notice of termination was delivered by September 5, 2001.
This period will be increased by one month for each subsequent year of
employment, up to a maximum of 12 months. He will not be entitled to receive any
salary if he is terminated for cause, disability or death.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in "Description of Business -- History of
BioSyntech" and "-Material Agreement" is incorporated by reference.
SELLING STOCKHOLDERS
The following table shows the beneficial ownership of our common stock
on December 31, 2000 by the selling stockholders, which includes the right to
acquire shares of our common stock upon the exchange of the class A stock of our
subsidiary Bio Syntech Canada.. The table assumes that the selling stockholders
will sell all of the shares and that the selling stockholders will make no other
purchases or sales of our common stock. However, the selling stockholders are
not obligated to sell their shares at any time or at any price. We cannot state
with certainty the number of shares of our common stock that will be owned by
each of the selling stockholders upon the termination of this offering. The
number of shares of our common stock that each holder may own may also change
due to stock splits or other anti-dilution adjustments. All percentages are
based on 29,182,250 shares of our common stock outstanding as of October 25,
2000 as reported in our quarterly report on From 10-QSB for the quarter ended
September 30, 2000 and filed with the SEC on November 14, 2000. Relationships of
any of the selling stockholders with BioSyntech within the last three years are
enumerated after the table.
Percentage of Shares of
Shares of common common Percentage of
common stock stock Shares of Stock common stock
Beneficially Beneficially common Beneficially Beneficially
Name and Address of Owned Before Owned Before stock being Owned After Owned After
Beneficial Owner Offering Offering Offered Offering Offering
---------------- -------- -------- ------- -------- --------
Monique Jarry (1) 885,000 3.0% 885,000 0 0%
Michael Buschmann (2) 290,000 1.0% 290,000 0 0%
Abdellatif Chenite (1) 300,000 1.0% 300,000 0 0%
Caroline Hoemann - 100,000 0.3% 100,000 0 0%
Cyril Chaput 200,000 0.7% 200,000 0 0%
Fairouze Jalal (3) 100,000 0.3% 100,000 0 0%
37
Percentage of Shares of
Shares of common common Percentage of
common stock stock Shares of Stock common stock
Beneficially Beneficially common Beneficially Beneficially
Name and Address of Owned Before Owned Before stock being Owned After Owned After
Beneficial Owner Offering Offering Offered Offering Offering
---------------- -------- -------- ------- -------- --------
Ronald D. Guttmann (4) 133,334 0.5% 133,334 0 0%
William Stanimir 110,000 0.4% 110,000 0 0%
Pierre Barnard (5) 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 (6) 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%
38
Percentage of Shares of
Shares of common common Percentage of
common stock stock Shares of Stock common stock
Beneficially Beneficially common Beneficially Beneficially
Name and Address of Owned Before Owned Before stock being Owned After Owned After
Beneficial Owner Offering Offering Offered Offering Offering
---------------- -------- -------- ------- -------- --------
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%
Charles Beaudoin 135,000 0.5% 135,000 0 0%
Multivesco (7) 110,000 0.4% 110,000 0 0%
Polyvalor, Societe en commandite (8) 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 6,666 >0.1% 6,666 0 0%
Larue (0TC9RE2)
Roytor & Co. 426,213 1.5% 426,213 0 0%
--------- ----- --------- --- ---
TOTAL 7,537,036 25.8% 7,537,036 0 0%
- -------------------
(1) Monique Jarry and Abdellatif Chenite currently are employees of BioSyntech.
(2) Michael Buschmann is currently a research and development consultant of
BioSyntech.
(3) Fairouze Jalal is a former employee of BioSyntech within the past three
years.
(4) Ronald Guttmann is currently a consultant of BioSyntech.
(5) Pierre Barnard is currently a legal adviser of BioSyntech.
(6) BioSyntech purchased the building where its principal offices are located
from Group Montoni for $120,000.
(7) BioSyntech was a previous debtor of Multivesco.
(8) BioSyntech has an agreement with Polyvalor wherein the former will pay the
latter royalties from future sales.
PLAN OF DISTRIBUTION
As referred to in this prospectus, selling stockholders include the
pledgees, donees, transferees or others who may later hold the selling
stockholders' beneficial
39
ownership of shares of common stock. We will file a post-effective amendment
registration statement to identify the pledgees, donees, transferees of the
shares currently held by the selling stockholders. We will pay the costs and
fees of registering the shares of common stock, but the selling stockholders
will pay any brokerage commissions, discounts or other expenses relating to the
sale of these shares.
The selling stockholders may sell the shares of common stock in the
over-the-counter market or otherwise, at market prices prevailing at the time of
sale, at prices related to the prevailing market prices or at negotiated prices.
In addition, the selling stockholders may sell some or all of their shares
through:
o a block trade in which a broker-dealer may resell a portion of
the block, as principal, in order to facilitate the
transaction;
o purchases by a broker-dealer, as principal, and resale by the
broker-dealer for its account; or
o ordinary brokerage transactions and transactions in which a
broker solicits purchasers.
When selling the shares of common stock, the selling stockholders may
enter into hedging transactions. For example, the selling stockholders may:
o enter into transactions involving short sales of the shares by
broker-dealers;
o sell shares short themselves and redeliver the shares to close
out their short positions;
o enter into option or other types of transactions that require
the selling stockholder to deliver shares to a broker-dealer,
who will then resell or transfer the common shares under this
prospectus; or
o loan or pledge the shares to a broker-dealer, who may sell the
loaned shares or, in the event of default, sell the pledged
shares.
The selling stockholders may negotiate and pay broker-dealers
commissions, discounts or concessions for their services. Broker-dealers engaged
by the selling stockholders may allow other broker-dealers to participate in
resales. However, the selling stockholders and any broker-dealers involved in
the sale or resale of the shares of our common stock may qualify as underwriters
within the meaning of Section 2(a)(11) of the Securities Act. In addition, the
broker-dealers' commissions, discounts or concession may qualify as
underwriters' compensation under the Securities Act.
In addition to selling their shares under this prospectus, the selling
stockholders may:
o agree to indemnify any broker-dealer or agent against liabilities
related to the selling of the shares, including liabilities arising
under the Securities Act;
o transfer their shares in other ways not involving market makers or
established trading markets, including directly by gift, distribution
or other transfer; or
o sell their shares under Rule 144 of the Securities Act rather than
under this prospectus, if the transaction meets the requirements of
Rule 144.
40
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Our 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 October 25, 2000, which includes 15,177,036 shares
held in trust pending the exchange of the class A stock. The 7,537,036 shares of
common stock being offered under this prospectus are included in these
29,182,250 shares. The shares are non-assessable, without preemptive rights, and
do not carry cumulative voting rights. Holders of common shares are entitled to
one vote for each share on all matters to be voted on by the stockholders. The
shares are fully paid, non-assessable, without pre-emptive rights, and do not
carry cumulative voting rights. Holders of common shares are entitled to share
ratably in dividends, if any, we may be declare from time-to-time. In the event
of a liquidation, dissolution, or winding up of our operations, the holders of
shares of our common stock are entitled to share on a pro-rata basis all assets
remaining after payment in full of all liabilities.
PREFERRED STOCK
Our amended and Restated Articles of Incorporation authorizes the
issuance of 5,000,000 shares of preferred stock, $0.001 par value per share,
none of which have been are issued and outstanding as of December 31, 2001. Our
board of directors is expressly authorized to provide for the issuance of all or
any shares of our preferred stock, in one or more series, and to fix for each
such series such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participationg, optional or other
special rights and such qualifications, limitations or restrictions as shall be'
stated and expressed in the resolutions adopted by our board of directors
providing for the issuance of such series and as may be permitted by the Nevada
General Corporate Law.
CLASS A STOCK
Class A stock are non-voting exchangeable shares of our Canadian
subsidiary which are exchangeable on a one-to-one basis for shares of our common
stock. There are currently 15,177,036 shares of class A stock outstanding. In
addition, options to purchase 1,500,000 shares of class A stock are outstanding
and are currently exercisable.
EXPERTS
Our consolidated financial statements as of March 31, 2000 and March
31, 1999 and for the fiscal years ended March 31, 2000 and1999 appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as is set forth in their report this appearing elsewhere
in the present document and are included in reliance upon this report given upon
the authority of this firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of our common stock offered will be passed
upon for us by Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York, New
York.
41
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our By-laws provides that we shall indemnify our directors, officers
and agents to the fullest extent legally possible. Our By-laws are consistent
with the indemnification provisions in the Nevada General Corporate Law ("NGCL")
which allow for discretionary and mandatory indemnification of a corporation's
officers, directors, employees and agents. Section 78.7502 of the NGCL provides
for the general concept of indemnification and Section 78.751 of the NGCL
provides for authorization, advance and limitation of indemnification.
Insofar as determination for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission indemnification is against public policy as expressed in the
Securities Act and is unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statement and
other information with the SEC. Our SEC filings are available to the public over
the Internet at the SEC's website at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. You may also request a copy of these filings at no cost, by
writing or telephoning us at the following address: BioSyntech, Inc., 475
Boulevard Armand-Frappier, Laval, Quebec, Canada H7V 4B3, Telephone, (450)
686-2437.
This prospectus is a part of the registration statement on Form SB-2
that we filed with the SEC. The registration statement contains more information
than the prospectus regarding BioSyntech and our common stock, including certain
exhibits. You can get a copy of the registration statement from the SEC at the
address listed above or from its internet site.
42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BIOSYNTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
Report of Independent Auditors F-2
Consolidated Balance Sheets at March 31, 2000 and 1999 F-3
Consolidated Statements of Operations for the Fiscal Years
Ended March 31, 2000 and 1999 F-4
Consolidated Statements of Changes in Shareholders' Equity
(Deficiency) 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 September
30, 2000 and March 31, 2000 F-23
Condensed Consolidated Statement of Operations for the quarters ended
September 30, 2000 and September 30, 1999 F-24
Condensed Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) from inception to September 30, 2000 F-26
Condensed Consolidated Statements of Cash Flow for the quarters ended
September 30, 2000 and September 30, 1999 F-27
Notes to Consolidated Financial Statements as of September 30, 2000 F-29
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
BioSyntech, Inc.
We have audited the accompanying consolidated balance sheets of BioSyntech, Inc.
[the "Company"], [a development stage company], as of March 31, 2000 and 1999
and the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for the period from inception to March 31, 2000 and
for the years ended March 31, 2000 and 1999. These consolidated financial
statements are the responsibility of the Company's Management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by Management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company [a
development stage company] as of March 31, 2000 and 1999 and the results of its
operations and its cash flows for the period from inception to March 31, 2000
and for the years ended March 31, 2000 and 1999 in conformity with accounting
principles generally accepted in the United States.
Montreal, Canada, /s/ Ernst & Young LLP
June 9, 2000, except as to Note 14, Chartered Accountants
as to which the date is July 4, 2000.
F-2
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED BALANCE SHEETS [note 1]
As of March 31, 2000 and 1999
2000 2000 1999
US$ C$ C$
- ------------------------------------------------------------------------------------------------------------------------------------
[note 2]
ASSETS
Current assets
Cash 5,037,355 7,301,143 57,297
Short-term investment [note 3] 51,746 75,000 --
Receivables [note 4] 63,044 91,376 68,460
Inventory 32,557 47,188 23,700
Investment tax credits receivable [note 10] 396,716 575,000 603,663
Prepaid expenses 12,671 18,365 --
- ------------------------------------------------------------------------------------------------------------------------------------
5,594,089 8,108,072 753,120
- ------------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment [note 5] 1,035,525 1,500,890 1,665,163
Other assets 11,487 16,650 15,867
- ------------------------------------------------------------------------------------------------------------------------------------
6,641,101 9,625,612 2,434,150
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities
Demand loan [note 6] -- -- 518,598
Accounts payable and accrued liabilities 731,977 1,060,928 579,552
Due to stockholder, without interest and
repayment terms 6,899 10,000 30,394
Deferred revenues 45,157 65,451 --
Current portion of long-term debt [note 7] 51,746 75,000 400,000
Current portion of obligations under capital
leases [note 8] 57,596 83,479 56,452
- ------------------------------------------------------------------------------------------------------------------------------------
893,375 1,294,858 1,584,996
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt [note 7] 155,237 225,000 300,000
Obligations under capital leases [note 8] 629,409 912,266 991,736
- ------------------------------------------------------------------------------------------------------------------------------------
1,678,021 2,432,124 2,876,732
- ------------------------------------------------------------------------------------------------------------------------------------
Commitment [note 12]
Contingent liability [note 13]
Stockholders' equity (deficiency)
Common stock [note 9]
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding
28,115,536 common shares 9,060,785 13,132,702 2,662,909
Additional paid-in capital 1,183,876 1,715,910 1,309,350
Deficit accumulated during the development stage (5,281,581) (7,655,124) (4,414,841)
- ------------------------------------------------------------------------------------------------------------------------------------
4,963,080 7,193,488 (442,582)
- ------------------------------------------------------------------------------------------------------------------------------------
6,641,101 9,625,612 2,434,150
====================================================================================================================================
See accompanying notes
- --------------------------------- ------------------------
Director Director
F-3
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED STATEMENTS OF OPERATIONS [note 1]
Years ended March 31, 2000 and 1999
Cumulative
from inception to
March 31, 2000 2000 2000 1999
C$ US$ C$ C$
- -------------------------------------------------------------------------------------------------------------------------------
[note 2]
Sales 168,138 -- -- 78,660
Cost of sales 71,962 -- -- 35,008
- -----------------------------------------------------------------------------------------------------------------------------
96,176 -- -- 43,652
- -----------------------------------------------------------------------------------------------------------------------------
Research and development expenses 5,653,972 1,615,632 2,341,697 2,948,342
Investment tax credits (1,413,364) (466,994) (676,861) (599,114)
General and administrative expenses 3,082,139 840,008 1,217,507 1,789,468
Interest on long-term debt 238,337 136,885 198,402 39,935
Amortization of property, plant and equipment
213,221 122,933 178,179 35,042
Interest revenue (23,005) (12,861) (18,641) (4,364)
- -----------------------------------------------------------------------------------------------------------------------------
7,751,300 2,235,603 3,240,283 4,209,309
- -----------------------------------------------------------------------------------------------------------------------------
Net loss for the period [note 10] 7,655,124 2,235,603 3,240,283 4,165,657
Deficit accumulated during the
development stage, beginning of period -- 3,045,978 4,414,841 249,184
- -----------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the
development stage, end of period 7,655,124 5,281,581 7,655,124 4,414,841
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 14,042,819 14,042,819 11,274,996
Basic and diluted loss per share [note 9] 0.16 0.23 0.37
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-4
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIENCY) [notes 1 and 9]
From inception to March 31, 2000
[In Canadian dollars]
Common Stock
-----------------------------------
Additional
paid-in Accumulated
Shares Amount capital deficit Total
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, May 10, 1995 8,525,000 1 -- -- 1
Net loss 1996 [325 day period] -- -- -- (2,865) (2,865)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 8,525,000 1 -- (2,865) (2,864)
Net loss 1997 -- -- -- (9,332) (9,332)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 8,525,000 1 -- (12,197) (12,196)
Deemed common stock paid up as of January 31,
1998 and issued on August 3, 1998
-- 215,000 -- -- 215,000
Net loss 1998 -- -- -- (236,987) (236,987)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 8,525,000 215,001 -- (249,184) (34,183)
Deemed common stock issued for cash 1,746,579 1,083,108 -- -- 1,083,108
Deemed common stock issued in exchange for
services 1,940,000 1,455,000 -- -- 1,455,000
Deemed options granted to consultants -- -- 1,309,350 -- 1,309,350
Net loss 1999 -- (4,165,657) (4,165,657)
Deemed share issuance costs -- (90,200) -- -- (90,200)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 12,211,579 2,662,909 1,309,350 (4,414,841) (442,582)
Deemed common stock issued for cash 1,893,457 2,595,222 -- -- 2,595,222
Deemed common stock issued in exchange for
intellectual property [note 12] 1,072,000 1,072,000 -- -- 1,072,000
Deemed options granted to consultants -- -- 406,560 -- 406,560
Net loss for the period from April 1, 1999 to
February 28, 2000 -- -- -- (2,850,977) (2,850,977)
- ------------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding February 29, 2000 15,177,036 6,330,131 1,715,910 (7,265,818) 780,223
Acquisition of BioSyntech, Inc.
by Bio Syntech Ltd. 12,095,000 2,873,848 -- -- 2,873,848
March 31, 2000, issuance [note 9] 843,500 4,270,243 -- -- 4,270,243
Share issue costs [note 9] -- (341,520) -- -- (341,520)
Net loss for the period from February 29, 2000
to March 31, 2000 -- -- -- (389,306) (389,306)
- ------------------------------------------------------------------------------------------------------------------------------------
28,115,536 13,132,702 1,715,910 (7,655,124) 7,193,488
====================================================================================================================================
US dollars [note 2]
Balance as at March 31, 2000 9,060,785 1,183,876 (5,281,581) 4,963,080
====================================================================================================================================
F-5
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONSOLIDATED STATEMENTS OF CASH FLOWS [note 1]
Years ended March 31, 2000 and 1999
Cumulative
from inception
to March 31, 2000 2000 2000 1999
C$ US$ C$ C$
- -----------------------------------------------------------------------------------------------------------------------------------
[note 2]
OPERATING ACTIVITIES
Net loss (7,655,124) (2,235,604) (3,240,283) (4,165,657)
Items not affecting cash
Amortization 213,221 122,933 178,179 35,042
Services paid by the isssuance of common stock 2,527,000 739,616 1,072,000 1,455,000
Options granted to consultants 1,715,910 280,502 406,560 1,309,350
Changes in working capital assets and liabilities
Accounts receivable (91,376) (15,811) (22,916) (5,377)
Inventory (47,188) (16,205) (23,488) (23,700)
Investment tax credits receivable (575,000) 19,776 28,663 (468,663)
Prepaid expenses (18,365) (12,671) (18,365) --
Deferred revenues 65,451 45,157 65,451 --
Accounts payable and accrued liabilities 1,044,440 332,121 481,376 339,156
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (2,821,031) (740,186) (1,072,823) (1,524,849)
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (75,251) (8,904) (12,907) (69,370)
Purchase of short-term investment (75,000) (51,746) (75,000) --
Purchase of other assets (16,650) (575) (833) (14,867)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (166,901) (61,225) (88,740) (84,237)
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- -- 700,000
Repayment of long-term debt (400,000) (275,976) (400,000) --
Proceeds of demand loan 581,845 -- -- 581,845
Repayment of demand loan (581,845) (357,802) (518,598) (63,247)
Increase in due to shareholder 30,394 -- -- 20,394
Repayment to shareholder (20,394) (14,071) (20,394) --
Repayment of obligations under capital leases (643,116) (36,182) (52,443) (583,647)
Proceeds from issuance of shares of
Bio Syntech Ltd. prior to the reverse acquisition 3,890,068 1,790,549 2,595,222 1,083,108
Proceeds from issuance of common shares of
BioSyntech, Inc. prior to the reverse acquisition 3,399,980 2,331,503 3,379,279 --
Repurchase of common stock of
BioSyntech, Inc. prior to the reverse acquisition (506,380) (349,372) (506,380) --
Proceeds from issuance of common shares of
BioSyntech, Inc. after the reverse acquisition 4,270,243 2,946,214 4,270,243 --
Share issue costs (431,720) (235,629) (341,520) (90,200)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 10,289,075 5,799,234 8,405,409 1,648,253
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash 7,301,143 4,997,823 7,243,846 39,167
Cash, beginning of period -- 39,532 57,297 18,130
- ----------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 7,301,143 5,037,355 7,301,143 57,297
- ----------------------------------------------------------------------------------------------------------------------------------
Additional information
Interest paid 228,351 129,996 188,416 39,935
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-6
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company was incorporated on December 14, 1994 under the laws of the State of
Nevada. The Company's operations and all of its assets are located in Canada.
Pursuant to an Amalgamation agreement dated February 15, 2000, 9083-5661 Quebec
Inc., a wholly-owned subsidiary of the Company, and Bio Syntech Ltd. ["Bio
Syntech"] were merged into one company under the name of Bio Syntech Canada Inc.
["Bio Syntech Canada"]. As a result of the merger, the Company became the record
and beneficial owner of all of the issued and outstanding voting shares of Bio
Syntech Canada. The former Bio Syntech shareholders were issued 15,177,036
non-voting exchangeable shares of Bio Syntech Canada's Preferred Stock [the
"Class A Shares"]. The Class A Shares are exchangeable on a share-for-share
basis [15,177,036] of common stock of the Company. As at March 31, 2000, the
related 15,177,036 shares of common stock of the Company have been issued and
placed in trust and are thus considered issued and outstanding.
Beneficial holders of the Class A Shares have voting rights equal to the number
of Company shares placed in trust. Therefore, the Bio Syntech shareholders are
deemed to hold securities with voting rights equal to approximately 55% of the
total voting power of the outstanding common stock of the Company. This
transaction is considered an acquisition of the Company, which at the date of
the transaction was a shell company, by Bio Syntech and has been accounted for
as a purchase of the net assets of the Company by Bio Syntech in these
consolidated financial statements. Accordingly, this transaction represents a
recapitalization of Bio Syntech, the legal subsidiary effective February 29,
2000.
These consolidated financial statements are the continuation of the financial
statements of the accounting acquirer Bio Syntech which has a year-end of March
31. This date will continue to be used as the Company's year-end. Bio Syntech's
assets and liabilities are included in the consolidated financial statements at
their historical carrying amounts. Figures for the years ended as at March 31,
2000 and 1999 are those of Bio Syntech. For purposes of the acquisition, the
fair value of the net assets of the Company of $2,873,848 is ascribed to the
12,095,000 previously outstanding common stock of the Company deemed to be
issued in the acquisition as follows:
$
- ------------------------------------------------------------------------------
Note receivable from Bio Syntech Ltd. 2,879,986
Accounts payable and accrued liabilities (6,138)
- ------------------------------------------------------------------------------
Purchase price 2,873,848
- ------------------------------------------------------------------------------
F-7
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION [Cont'd]
The Company is a development stage company engaged in the development of
biotherapeutic delivery systems made of proprietary biomaterials. The Company's
systems are intended to enable or enhance the treatment of diseases or injuries
for which therapies exist or are under development, but must be transported to
the site of action. The Company has limited revenues to date and is thus subject
to numerous risks, including risks associated with product development and
marketing, obtaining the necessary regulatory approvals, growth, manufacturing,
competition, and attracting and retaining key personnel. It may be necessary for
the Company to raise additional funds for the continuing development and
marketing of its technologies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Accordingly, actual results could differ from those estimates. The significant
accounting principles are as follows:
Consolidated financial statements and basis of presentation
The consolidated financial statements include the accounts of BioSyntech, Inc.
and the accounts of Bio Syntech Canada Inc. All intercompany transactions and
balances have been eliminated. US dollar amounts presented on the consolidated
balance sheets, consolidated statements of operations, statements of
stockholders' equity (deficiency) and consolidated statements of cash flows are
provided for convenience of reference only and are based on the closing exchange
rate at March 31, 2000, which was $1.4494 Canadian dollar per US dollar.
Revenue recognition
Revenues from sales of the Company's products are recognized upon shipment.
Inventory
Inventory consists of raw materials. Inventories are stated at the lower of cost
[on a first-in, first-out basis] and replacement cost.
F-8
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Property, plant and equipment
Property, plant and equipment are recorded at cost. They are amortized over
their estimated useful life on a straight-line basis as follows:
Building under capital lease 10 years
Office furniture 5 years
Equipment under capital lease 10 years
Office furniture under capital lease 5 years
Research and development expenditures
Research and development expenditures, including equipment used in research and
development activities, are expensed as incurred.
Foreign exchange
Monetary assets and liabilities denominated in a foreign currency are translated
at the rate of exchange prevailing at the balance sheet date. Non-monetary
assets and liabilities are translated at the rate of exchange prevailing at the
date of the transaction. Revenues and expenses are translated at the monthly
average exchange rate prevailing during the period. Foreign exchange gains and
losses are included in the determination of net earnings. The Canadian dollar is
the functional currency of the Company.
Income taxes
The Company accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards No. 109 Accounting for income
taxes ["SFAS 109"].
Government assistance
Government assistance in connection with research and development activities is
recognized as an expense reduction in the year that the related expenditure is
incurred.
Federal and provincial investment tax credits are accounted for using the cost
reduction method which recognizes the credits as a reduction of the cost of the
related assets or expenditures in the year in which the credits are earned and
when there is reasonable assurance of their recovery.
F-9
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Stock option plans
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ["APB"] Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations, in accounting for its fixed plan
stock options for options granted to employees and directors.
Impairment of long-lived assets and long-lived assets to be disposed of
The Company accounts for long-lived assets in accordance with the provisions of
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of, if any, are reported at the lower of the carrying amount or fair
value less costs to sell.
Basic and diluted loss per common stock
Per share amounts have been computed based on the weighted average number of
common shares outstanding each period. The weighted average number of common
shares outstanding prior to the transaction of February 29, 2000 are based on
the number of BioSyntech common shares outstanding during that period.
Exchangeable shares of Bio Syntech Canada [15,177,036 shares] outstanding are
deemed to be outstanding common shares of the Company for the purposes of the
loss per share calculations and share continuity disclosures as the exchangeable
shares are the economic equivalent of common shares of the Company.
3. SHORT-TERM INVESTMENT
The short-term investment consists of a held-to-maturity term deposit, maturing
on July 21, 2000, which is pledged as collateral security against a letter of
guarantee issued by a financial institution.
F-10
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
4. RECEIVABLES
2000 1999
$ $
- -------------------------------------------------------------------
Sales tax receivable 73,623 35,881
Government grants receivable 3,462 20,423
Other 14,291 12,156
- ------------------------------------------------------------------
91,376 68,460
- ------------------------------------------------------------------
5. PROPERTY, PLANT AND EQUIPMENT
Accumulated Net
Cost amortization book value
$ $ $
- ---------------------------------------------------------------------------------------
2000
Building and land under capital lease 1,614,629 188,389 1,426,240
Office furniture 74,357 20,954 53,403
Equipment under capital lease 18,050 3,009 15,041
Office furniture under capital lease 7,025 819 6,206
- --------------------------------------------------------------------------------------
1,714,061 213,171 1,500,890
- --------------------------------------------------------------------------------------
1999
Building and land under capital lease 1,613,785 27,000 1,586,785
Office furniture 68,370 6,837 61,533
Equipment under capital lease 18,050 1,205 16,845
- -------------------------------------------------------------------------------------
1,700,205 35,042 1,665,163
- -------------------------------------------------------------------------------------
F-11
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
6. DEMAND LOAN AND CREDIT FACILITY
The demand loan of $518,598 at March 31, 1999 carried interest at the prime rate
plus 1.75% and was payable upon receipt of investment tax credits. It was repaid
during the year ended March 31, 2000.
The Company has a $50,000 credit facility, maturing July 31, 2000, payable upon
demand, bearing interest at prime rate plus 2.5%. A $50,000 charge on inventory
and accounts receivable was granted to the financial institution with respect to
this facility. As of March 31, 2000, no amount was drawn under this credit
facility.
As at March 31, 2000 and 1999, the prime rate was 7% and 6.75% respectively.
7. LONG-TERM DEBT
2000 1999
$ $
- -----------------------------------------------------------------------------------------------
Bank loan bearing interest at the prime rate. The
loan has an interest exemption period covered by a
governmental agency, until April 24, 2001,
matures on March 25, 2006 and is payable in
monthly instalments of $3,333 plus interest starting
on April 25, 2001. The debt is collateralized by a
governmental agency and a $200,000 first rank
charge on all tangible and intangible assets not
otherwise encumbered. 200,000 200,000
Bank loan bearing interest at the prime rate plus
3.0%, maturing on July 26, 2001, payable by
monthly instalments of $6,250 plus interest and
collateralized by a $225,000 first rank charge on
research and development laboratory equipment. 100,000 175,000
Term loan, without interest, until March 31, 2000,
reimbursed in fiscal 2000. -- 325,000
- ----------------------------------------------------------------------------------------------
300,000 700,000
Less: current portion 75,000 400,000
- ----------------------------------------------------------------------------------------------
225,000 300,000
- ----------------------------------------------------------------------------------------------
F-12
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
7. LONG-TERM DEBT [Cont'd]
The principal instalments payable are as follows for years ending March 31:
$
- --------------------------------------------------------------------------
2001 75,000
2002 65,000
2003 40,000
2004 40,000
2005 40,000
Subsequent to 2005 40,000
- --------------------------------------------------------------------------
300,000
- --------------------------------------------------------------------------
8. obligations UNDER capital leaseS
Future minimum lease payments under the capital leases are as follows for years
ending March 31:
$
- --------------------------------------------------------------------------
2001 180,278
2002 170,409
2003 168,000
2004 168,000
2005 168,000
Subsequent to 2005 644,000
- --------------------------------------------------------------------------
1,498,687
Less: interest portion at rates varying between 10% and 14.38% 502,942
- --------------------------------------------------------------------------
995,745
Less: current portion 83,479
- --------------------------------------------------------------------------
912,266
- --------------------------------------------------------------------------
F-13
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. Stockholders' equity (deficiency) and
stock options
Authorized
The authorized common stock of the Company consists of 50,000,000 shares with a
par value of $0.001 per share.
On February 2, 2000, the Company completed a private placement yielding gross
proceeds of US$2,350,000 and issued 470,000 common shares and 470,000 warrants
entitling the holder to purchase an aggregate of 470,000 common shares at a
price of US$7.00 on or before September 30, 2001.
On March 31, 2000, the Company issued 723,500 common shares in consideration of
$3,670,243 [US$2,532,250] and 120,000 common shares in consideration of
$600,000. The share issue costs amounted to $341,520 [US$234,980]. As part of
this transaction, a total of 843,500 warrants were issued which entitle the
holder to purchase an aggregate of 843,500 common stocks at a price of US$4.50
on or before March 30, 2001.
As of March 31, 2000, a total of 1,313,500 warrants issued by the Company are
outstanding.
Stock options
Under the Company's Stock Option Plan, options may be granted for an authorized
maximum of 2,500,000 shares of common stock to employees, directors and senior
consultants. No options have been granted by the Company. The Board shall have
the sole authority to determine the terms and conditions of the options to be
issued. The expiry date of options is ten years after the date of grant.
Under the subsidiary's option plan, options may be granted for an authorized
maximum of 1,500,000 Class A shares of Bio Syntech Canada. The subsidiary has
1,500,000 options granted entitling the holders to purchase 1,500,000 Class A
shares of Bio Syntech Canada which are exchangeable in common shares of
BioSyntech, Inc. at prices varying between $0.75 and $2.17. The options are
exercisable at any time before the expiry date which is for a maximum of ten
years following the date of grant.
F-14
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. STOCKHOLDERS' EQUITY (DEFICIENCY) AND
STOCK OPTIONS [Cont'd]
Stock Weighted
Options Average Exercise
Price
C$
- ------------------------------------------------------------------------------------------------
2000
Outstanding, beginning of year 1,247,500 0.83
Granted 252,500 2.17
Exercised -- --
Expired -- --
Canceled/ surrendered -- --
- ------------------------------------------------------------------------------------------------
Outstanding and exercisable, end of period 1,500,000 1.06
- ------------------------------------------------------------------------------------------------
Weighted average fair value of options granted 3.25
- ------------------------------------------------------------------------------------------------
1999
Outstanding, beginning of year -- --
Granted 1,247,500 0.83
Exercised -- --
Expired -- --
Canceled/surrendered -- --
- ------------------------------------------------------------------------------------------------
Outstanding and exercisable, end of year 1,247,500 0.83
- ------------------------------------------------------------------------------------------------
Weighted average fair value of options granted 2.96
- ------------------------------------------------------------------------------------------------
No options were granted prior to 1999. These options expire between December 1,
2001 and June 1, 2008.
182,000 options were granted to consultants in the year ended March 31, 2000
[435,000 for the year ended March 31, 1999]. The fair value of these options at
the time of grant has been charged to general and administrative expenses in the
amount of $406,560 during the year ended March 31, 2000 [$1,309,350 for the year
ended March 31, 1999].
Had compensation cost for the Company's stock options been determined consistent
with SFAS No. 123, the Company's pro forma net loss would be increased by
$380,000 for the year ended March 31, 2000 [$2,050,000 for the year ended March
31, 1999] and basic loss per share would be increased by $0.03 [$0.18 for the
year ended March 31, 1999].
F-15
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. STOCKHOLDERS' EQUITY (DEFICIENCY) AND
STOCK OPTIONS [Cont'd]
The fair value of options at the date of grant was estimated using the
Black-Scholes pricing model with the following weighted average assumptions.
2000 1999
% %
- ------------------------------------------------------------------------
Expected life (years) 5.00 5.00
Risk-free interest rates 6.00 5.60
Volatility 1.21 0.60
Dividend yield 0.00 0.00
- ------------------------------------------------------------------------
The effects of applying SFAS 123 for the pro forma disclosures are not
representative of the effects expected on reported net earnings in future years
since valuations are based on highly subjective assumptions about the future,
including stock price volatility and exercise patterns.
The following table summarizes information with respect to stock options
outstanding for the subsidiary's option plan that the holder may convert into
common shares of the Company at March 31, 2000:
Options outstanding and exercisable
Exercise price Number Weighted average remaining
$ outstanding contractual life (years)
- ---------------------------------------------------------------------------
0.75 1,147,500 2.31
1.75 100,000 8.25
US 1.50 252,500 2.75
- ---------------------------------------------------------------------------
1,500,000 2.79
===========================================================================
F-16
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
9. STOCKHOLDERS' EQUITY (DEFICIENCY) AND
STOCK OPTIONS [Cont'd]
Loss per share
The following is a reconciliation of the numerator and denominator of the basic
and diluted loss per share computations for the years ended March 31, 2000 and
1999.
2000 1999
$ $
- --------------------------------------------------------------------------------
Numerator
Net loss - numerator
For basic and diluted loss per share 3,240,283 4,165,657
Denominator:
Denominator for basic loss per share
Weighted-average shares 14,042,819 11,274,996
Effect of dilutive securities:
Stock options and warrants -- --
- --------------------------------------------------------------------------------
Denominator for diluted loss per share
Adjusted weighted-average shares and
assumed conversions 14,042,819 11,274,996
================================================================================
The Company's diluted net loss per share is equivalent to its basic net loss per
share, since all of the Company's potentially issuable securities would have an
anti-dilutive effect in 2000 and 1999. These securities are in the form of stock
options and warrants.
F-17
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
10. INCOME TAXES
There is no provision for income taxes or income tax recovery as the Company has
had continuous losses and it is not more likely than not that there will be
future taxable income which might offset the current loss carryforward.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
2000 1999
$ $
- ------------------------------------------------------------------------------------------
Deferred tax assets
Net operating loss carryforwards 622,176 123,193
Scientific research and experimental development expenses 451,432 250,823
Excess of tax basis of financing fees over accounting value 20,602 15,064
Excess of tax basis of capital assets over accounting value 471,004 300,266
- ------------------------------------------------------------------------------------------
Total deferred tax assets 1,565,214 689,346
- ------------------------------------------------------------------------------------------
Deferred tax liabilities
Excess of accounting value of capital assets over tax basis 429,661 297,494
Investment tax credits -- 84,220
- ------------------------------------------------------------------------------------------
Total deferred tax liabilities 429,661 381,714
- ------------------------------------------------------------------------------------------
Net deferred tax assets (liabilities)
Deferred tax assets 1,565,214 689,346
Deferred tax liabilities 429,661 381,714
- ------------------------------------------------------------------------------------------
1,135,553 307,632
Valuation allowance 1,135,553 307,632
- ------------------------------------------------------------------------------------------
Net deferred tax assets (liabilities) -- --
==========================================================================================
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance.
F-18
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
10. INCOME TAXES [Cont'd]
The Company has Canadian tax loss and investment tax credit carryforwards for
income tax purposes in the amount of approximately $2,073,000 and $139,000,
respectively, the benefit of which has been offset by a valuation allowance,
that expires as follows:
Tax Investment tax
losses credits
$ $
- ----------------------------------------------------------------------------
2001 3,000 --
2002 9,000 --
2003 39,000 --
2004 605,000 --
2005 1,176,000 --
2006 241,000 32,000
2007 -- 65,000
2008 -- 22,000
2009 -- 20,000
- ----------------------------------------------------------------------------
The Company has accumulated temporary differences as set out in the summary of
deferred tax assets set out above. The differences are mainly in relation to
scientific research and experimental development and are in the amount of
approximately $1,225,000 at the Canadian federal level and $2,020,000 in Quebec.
The investment tax credits recorded by the Company are subject to review and
approval by the tax authorities and it is possible that the amounts granted will
be different from the amounts accounted for.
11. FINANCIAL INSTRUMENTS
[a] Fair value
Short-term financial assets and liabilities
The carrying amounts of short-term financial assets and liabilities are a
reasonable estimate of the fair values because of the short maturity of these
instruments. Short-term financial assets comprise cash, the short-term
investment, accounts receivable and investment tax credits receivable.
Short-term financial liabilities comprise the demand loan and accounts payable
and accrued liabilities.
F-19
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
11. FINANCIAL INSTRUMENTS [Cont'd]
Long-term debt
The carrying amount of the Company's floating-rate long-term debt approximates
its fair value as it bears interest at current commercial floating rates.
The fair value of the fixed-rate long-term debt and obligations under capital
leases are based on the rates in effect for financial instruments with similar
terms and maturities, and approximates the carrying amount as of March 31, 2000
and March 31, 1999.
[b] Credit risk
The cash and short-term investment are held by one Canadian financial
institution, a chartered bank.
12. COMMITMENT
Under the terms of a technology licence contract, the Company must pay 5%
royalties to a shareholder on future sales of all products and services, sold or
offered by the Company, to a maximum of $3 million.
13. CONTINGENT LIABILITY
A former employee of a subsidiary company has commenced an action alleging that
he was wrongfully terminated and seeking $97,000 in compensation allegedly due,
the issuance to him of 100,000 Class A common shares of the subsidiary company,
which could be converted in common stock of the Company, that were the subject
of an option that was alleged to have been granted to him, and punitive damages
of $25,000. In the opinion of management, based on the advice and information
provided by its legal counsel, the final determination of this litigation is not
determinable. As such no provision has been recorded.
F-20
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
[In Canadian dollars]
14. SUBSEQUENT EVENTs
[a] Private placement
During April and June 2000, the Company issued 1,006,714 units at a price of
US$3.50 per unit for a consideration of US$3,523,500 and 60,000 units at a price
of C$5,00 per unit for a consideration of C$300,000. The aggregate share issue
costs amounted to C$373,746. Each unit consists of one share of common stock
BioSyntech, Inc. and one warrant entitling the holder to acquire one share of
common stock at a price of US$4.50 on or before March 30, 2001.
[b] Property, plant and equipment
On July 4, 2000, the Company exercised its option to purchase the building and
land under capital lease for an amount of $1,200,000.
15. RECENT DEVELOPMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging
Activities and Activities and Interpretation No.44, Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB Opinion
No.25. SFAS 133 will be effective for the Company's 2002 year-end and interim
periods and Activities and Interpretation No.44 will be effective July 1, 2000.
The Company has not yet determined the impact, if any, on its consolidated
financial statements arising from the eventual application of these accounting
recommendations.
16. SUBSEQUENT EVENT (Unaudited)
A former employee of a subsidiary company has commenced an action that she was
wrongfully terminated and is seeking $224,000 in compensation allegedly due plus
$35,000 for punitive and additional damages. In the opinion of management, based
on advice and information provided by its legal counsel, the final determination
of this litigation is not determinable. As such no provision has been recorded.
F-21
BIOSYNTECH, INC.
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Condensed Consolidated Financial Statements
BioSyntech, Inc.
[formerly Dream Team International Inc.]
[a development stage company] - Unaudited
Quarters ended September 30, 2000 and September 30, 1999
F-22
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED BALANCE SHEETS [note 1]
As of September 30, 2000 and March 31, 2000
September 30, March 31,
------------------------------ ---------
2000 2000 2000
US$ C$ C$
- --------------------------------------------------------------------------------------------------------------
[unaudited] [unaudited]
ASSETS
Current assets
Cash 6,176,789 9,286,803 7,301,143
Investment tax credits receivable 276,230 415,312 575,000
Other current assets 115,128 173,096 231,929
- --------------------------------------------------------------------------------------------------------------
6,568,147 9,875,211 8,108,072
- --------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,139,769 1,713,642 1,517,540
- --------------------------------------------------------------------------------------------------------------
7,707,916 11,588,853 9,625,612
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 513,768 772,450 1,060,928
Other current liabilities 64,521 97,007 233,930
- --------------------------------------------------------------------------------------------------------------
578,289 869,457 1,294,858
- --------------------------------------------------------------------------------------------------------------
Long-term debt and obligations under
capital leases [note 3] 121,937 183,333 1,137,266
- --------------------------------------------------------------------------------------------------------------
700,226 1,052,790 2,432,124
- --------------------------------------------------------------------------------------------------------------
Contingent liability [note 4]
Shareholders' equity
Common stock [note 2]
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding
29,182,250 common shares 12,135,933 18,246,375 13,132,702
Additional paid-in capital 1,299,242 1,953,410 1,715,910
Deficit accumulated during the development stage (6,427,485) (9,663,722) (7,655,124)
- --------------------------------------------------------------------------------------------------------------
7,007,690 10,536,063 7,193,488
- --------------------------------------------------------------------------------------------------------------
7,707,916 11,588,853 9,625,612
- --------------------------------------------------------------------------------------------------------------
See accompanying notes
- ----------------------------------- ---------------------------------------
Director Director
F-23
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS [note 1]
Unaudited
Three months ended
Cumulative September 30,
from inception ---------------------------------------------------
to September 30,
2000 2000 2000 1999
C$ US$ C$ C$
- ---------------------------------------------------------------------------------------------------------------------
Sales 256,674 14,856 22,336 --
Cost of sales 110,170 6,675 10,036 --
- ---------------------------------------------------------------------------------------------------------------------
146,504 8,181 12,300 --
- ---------------------------------------------------------------------------------------------------------------------
Research and development expenses 6,845,520 436,648 656,500 171,637
Investment tax credits (1,513,364) -- -- (178,052)
General and administrative expenses 4,181,862 478,818 719,902 125,743
Interest on long-term debt 275,527 5,454 8,200 90,219
Amortization of property, plant and
equipment
287,022 18,520 27,845 44,437
Grants (17,345) (11,536) (17,345) (4,000)
Interest income (248,996) (68,998) (103,739) (473)
- ---------------------------------------------------------------------------------------------------------------------
9,810,226 858,906 1,291,363 249,511
- ---------------------------------------------------------------------------------------------------------------------
Net loss (9,663,722) (850,725) (1,279,063) (249,511)
Deficit accumulated during the
development stage, beginning of
period
-- (5,576,760) (8,384,659) (4,775,390)
- ---------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the
development stage, end of period (9,663,722) (6,427,485) (9,663,722) (5,024,901)
- ---------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding
29,182,250 29,182,250 12,388,282
Basic and diluted loss per share (0.03) (0.04) (0.02)
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-24
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS [note 1]
Unaudited
Six months ended
Cumulative September 30,
from inception ---------------------------------------------------
to September 30,
2000 2000 2000 1999
C$ US$ C$ C$
- -------------------------------------------------------------------------------------------------------------------------
Sales 256,674 58,887 88,536 --
Cost of sales 110,170 25,413 38,208 --
- -------------------------------------------------------------------------------------------------------------------------
146,504 33,474 50,328 --
- -------------------------------------------------------------------------------------------------------------------------
Research and development expenses 6,845,520 792,516 1,191,548 500,698
Investment tax credits (1,513,364) (66,511) (100,000) (362,651)
General and administrative expenses 4,181,862 731,442 1,099,723 278,901
Interest on long-term debt 275,527 24,736 37,190 108,909
Amortization of property, plant and equipment
287,022 49,086 73,801 88,871
Grants (17,345) (11,536) (17,345) (4,000)
Interest income (248,996) (150,310) (225,991) (668)
- -------------------------------------------------------------------------------------------------------------------------
9,810,226 1,369,423 2,058,926 610,060
- -------------------------------------------------------------------------------------------------------------------------
Net loss (9,663,722) (1,335,949) (2,008,598) (610,060)
Deficit accumulated during the development stage,
beginning of period
-- (5,091,536) (7,655,124) (4,414,841)
- -------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development stage,
end of period (9,663,722) (6,427,485) (9,663,722) (5,024,901)
- -------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 29,108,368 29,108,368 (12,299,930)
Basic and diluted loss per share (0.05) (0.07) (0.05)
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-25
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIENCY) [note 1]
From inception to September 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
Share issuances [note 2] 1,066,714 5,487,419 -- -- 5,487,419
Share issue costs [note 2] -- (373,746) -- -- (373,746)
Net loss for the period from April 1, 2000 to
June 30, 2000 -- -- -- (729,535) (729,535)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 29,182,250 18,246,375 1,715,910 (8,384,659) 11,577,626
Options granted to consultants -- -- 237,500 -- 237,500
Net loss for the period from July 1, 2000 to
September 30, 2000 -- -- -- (1,279,063) (1,279,063)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 29,182,250 18,246,375 1,953,410 (9,663,722) 10,536,063
- ------------------------------------------------------------------------------------------------------------------------------------
US Dollars
Balance as at September 30, 2000 12,135,933 1,299,242 (6,427,485) 7,007,690
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-26
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS [note 1]
Unaudited
Cumulative Three months ended
from inception September 30,
to September 30, 2000
2000 2000 1999
C$ US$ C$ C$
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss (9,663,722) (850,725) (1,279,063) (249,511)
Items not affecting cash
Amortization 287,022 18,520 27,845 44,437
Services paid by the issuance of common stock
2,527,000 -- -- --
Options granted to consultants 1,953,410 157,966 237,500 --
Exchange gain (279,997) (91,457) (137,505) --
Changes in working capital assets and liabilities
Investment tax credits receivable (415,312) 172,722 259,688 221
Other current assets (98,096) 45,573 68,519 (11,434)
Other current liabilities 22,091 -- -- --
Accounts payable and accrued liabilities 755,962 183,053 275,220 53,530
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (4,911,642) (364,348) (547,796) (162,757)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (487,187) (229,009) (344,315) --
Disposal of property, plan and equipment 28,291 -- -- 28,291
Purchase of short-term investment (75,000) -- -- (75,000)
Proceeds from maturing of short term investments
75,000 49,884 75,000 --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (458,896) (179,125) (269,315) (46,709)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- -- --
Repayment of long-term debt (437,500) (12,471) (18,750) (18,750)
Proceeds of demand loan 581,845 -- -- 250,000
Repayment of demand loan (581,845) -- -- --
Increase in due to stockholder 30,394 -- -- --
Decrease in due to stockholders (20,394) -- -- --
Repayment of obligations under capital leases (1,631,020) (643,774) (967,914) (15,215)
Proceeds from issuance of shares of Bio Syntech Ltd.
prior to the reverse acquisition 3,890,068 -- -- --
Proceeds from issuance of common shares of
BioSyntech, Inc. prior to the reverse acquisition
3,399,980 -- -- --
Repurchase of common stock of BioSyntech, Inc. prior
to the reverse acquisition (506,380) -- -- --
Proceeds from issuance of common shares of
BioSyntech, Inc. after the reverse acquisition 9,757,662 -- -- --
Share issue costs (805,466) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 14,377,344 (656,245) (986,664) 216,035
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 279,997 91,457 137,505 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in cash 9,286,803 (1,108,261) (1,666,270) 6,569
Cash, beginning of period -- 7,285,050 10,953,073 (48,138)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 9,286,803 6,176,789 9,286,803 (41,569)
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-27
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS [note 1]
Unaudited
Cumulative Six months ended
from September 30,
inception to
September 30, 2000
2000 2000 1999
C$ US$ C$ C$
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss (9,663,722) (1,335,949) (2,008,598) (610,060)
Items not affecting cash
Amortization 287,022 49,086 73,801 88,871
Services paid by the issuance of common stock 2,527,000 -- -- --
Options granted to consultants 1,953,410 157,966 237,500 --
Exchange gain (279,997) (186,230) (279,997) --
Changes in working capital assets and liabilities
Investment tax credits receivable (415,312) 106,211 159,688 (196,657)
Other current assets (98,096) 39,131 58,833 9,153
Other current liabilities 22,091 (28,840) (43,360) --
Accounts payable and accrued liabilities 755,962 (191,871) (288,478) 219,178
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (4,911,642) (1,390,496) (2,090,611) (489,515)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (487,187) (244,094) (366,995) (9,024)
Disposal of property, plan and equipment 28,291 -- -- 28,291
Purchase of short-term investment (75,000) -- -- (75,000)
Proceeds from maturing of short term investments 75,000 49,884 75,000 --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (458,896) (194,210) (291,995) (55,733)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 700,000 -- -- 300,000
Repayment of long-term debt (437,500) (24,942) (37,500) (37,500)
Proceeds of demand loan 581,845 -- -- 250,000
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 (1,631,020) (657,069) (987,904) (45,724)
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 3,649,763 5,487,419 --
Share issue costs (805,466) (248,584) (373,746) --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 14,377,344 2,719,168 4,088,269 446,382
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 279,997 186,230 279,997 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in cash 9,286,803 1,320,692 1,985,660 (98,866)
Cash, beginning of period -- 4,856,097 7,301,143 57,297
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 9,286,803 6,176,789 9,286,803 (41,569)
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-28
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 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 September 30, 2000, the
results of operations and cash flows for the three months and six months periods
ended September 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 September 30, 2000, which was $1.5035
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.
F-29
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 Unaudited
[In Canadian dollars]
2. STOCKHOLDERS' EQUITY
During the six months ended September 30, 2000, the Company issued 1,006,714
common shares and warrants in consideration of US$3,523,500 [$5,187,419] and
60,000 common shares and warrants in consideration of $300,000. The share issue
costs amounted to $373,746. The warrants entitle the holder to purchase an
aggregate of 1,066,714 common shares at a price of US$4.50 on or before March
30, 2001.
Warrants
As of September 30, 2000, a total of 2,380,214 warrants issued by the Company
are outstanding as follows :
Number of warrants Expiry date Exercise price
- --------------------------------------------------------------------------------
1,910,214 March 30, 2001 US$ 4.50
470,000 September 30, 2001 US$ 7.00
- --------------------------------------------------------------------------------
2,380,214
- --------------------------------------------------------------------------------
Stocks Options
In August 2000, options to purchase 475,000 shares of common stock under the
BioSyntech, Inc. Option Incentive Plan have been granted to Directors, Officers
and Consultants. These options may be exercised at a price of US$4.00 over a
ten-year period of which options to purchase 150,000 shares of common stock are
exercisable immediately, options to purchase 200,000 shares of common stock are
exercisable commencing in August 2001, options to purchase 50,000 shares of
common stock are exercisable commencing in August 2002 and options to purchase
75,000 shares of common stock are exercisable commencing in August 2003.
3. SIGNIFICANT EVENT
On July 4, 2000, the Company exercised its option to purchase the building and
land under capital lease for a cash consideration of $1,200,000. The difference
between the purchase price and the carrying amount of the lease obligations has
been recorded as an adjustment of the carrying amount of the building and land
as of the date of purchase.
F-30
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 Unaudited
[In Canadian dollars]
4. CONTINGENT LIABILITY
A former employee of a subsidiary company has filed 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, that
were the subject of an option that was alleged to have been granted to him, and
punitive damages of $25,000. These Class A common shares are exchangeable into
common stock of the Company. In the opinion of management, based on the advice
and information provided by its legal counsel, the final determination of this
litigation is not determinable. As such, no provision has been recorded.
5. SUBSEQUENT EVENT
A former employee of a subsidiary company has commenced an action that she was
wrongfully terminated and is seeking $224,000 in compensation allegedly due plus
$35,000 for punitive and additional damages. In the opinion of management, based
on advice and information provided by its legal counsel, the final determination
of this litigation is not determinable. As such no provision has been recorded.
F-31
We have not authorized anyone to give any information or make any
representations, other than those contained in this prospectus. You must not
rely on any unauthorized information or representations. Only the shares
described within this prospectus are being offered, and only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
--------------
BIOSYNTECH, INC.
7,537,036 SHARES OF
COMMON STOCK
--------------
PROSPECTUS
--------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VII of our By-laws provides that we shall indemnify ourrectors,
officers and agents to the fullest extent possible under the Nevada General
Corporate Law ("NGCL"). Article VII of our By-laws states that:
"No Officer or Director shall be personally liable for any
obligations of the Corporation or for any duties or obligations arising
out of any or conducts of said Officer or Director performed for or on
behalf of Biosynthec. Biosynthec shall and does indemnify and hold
harmless each person and their heirs and administrators who shall serve
at any time as a Director or Officer of Biosynthec from and against any
and all claims, judgements and liabilities to which persons shall
become subject by reason of their having been a Director or Officer of
Biosynthec, or by reason of any action alleged to have taken or omitted
to have been taken by him as Director or Officer, and shall reimburse
each person for all legal and other expenses reasonably incurred by him
in connection with any claim or liability, including power to defend
these persons from all suits or claims as provided for under the
provisions of the Nevada Revised Statutes; provided, however, that none
of those persons shall be indemnified against, or be reimbursed for,
any expense incurred in connection with an claim or liability arising
out of his (or her) own negligence or willful misconduct. The rights
accruing to any person under the foregoing provisions of this section
shall not exclude any other right to which he or she may lawfully be
entitled, nor shall anything which is contained restrict the right of
Biosynthec to indemnify or reimburse that person in any proper case,
even though not specifically provided for. Biosynthec, its Directors,
Officers, employees and agents shall be fully protected in taking any
action or making any payment, or in refusing to do so in reliance upon
the advice of counsel."
Article VII of our By-laws is consistent with the indemnification
provisions in the NGCL which allow for discretionary and mandatory
indemnification of a corporation's officers, directors, employees and agents.
Section 78.7502 of the NGCL provides for the general concept of indemnification
and Section 78.751 of the NGCL provides for authorization, advance and
limitation of indemnification.
Section 78.7502 of the NGCL states that:
"A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the right of
the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he
acted in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create
a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal
action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
II-2
A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him
in connection with the defense or settlement of the action or suit if
he acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to
which a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines
upon application that in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for expenses as
the court deems proper.
To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections 1 and 2,
or in defense of any claim, issue or matter, he must be indemnified by
the corporation against expenses, including attorneys' fees actually
and reasonably incurred by him in connection with the defense."
Section 78.751 of the NGCL states that:
"(1) Any indemnification under Section 78.7502 of the NGCL,
unless ordered by a court or advanced pursuant to subsection 2, must be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee
or agent is proper in the circumstances. The determination must be
made:
o By the shareholders;
o By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the action,
suit or proceeding;
o If a majority vote of a quorum consisting of directors who
were not parties to the action, suit or proceeding so orders,
by independent legal counsel in a written opinion; or
o If a quorum consisting of directors who were not parties to
the action, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
(2) The articles of incorporation, the bylaws or an agreement
made by the corporation may provide that the expenses of officers and
directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in
advance of the final disposition of the action, suit or proceeding,
upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court
of competent jurisdiction that he is not entitled to be indemnified by
the corporation. The provisions of this subsection do not affect any
rights to advancement of expenses to which corporate personnel other
than directors or officers may be entitled under any contract or
otherwise by law.
(3) The indemnification and advancement of expenses authorized
in or ordered by a court pursuant to this section:
II-3
(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 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 our common stock by the selling stockholders) which we will pay in
connection with the issuance and distribution of the securities being
registered. With the exception of registration fees, all amounts shown are
estimates.
SEC Registration Fee $7,203
Blue Sky Fees and Expenses 2,500
Printing and Engraving 5,000
Subscription Agent Fees 2,500
Accounting Fees and Expenses 35,000
Legal Fees and Expenses 50,000
Miscellaneous expenses 3,000
Total 105,203
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The information set forth under the caption "History of BioSyntech" in
Description of Business above is incorporated. The securities were issued in
reliance on the exemption from registration under the Securities Act provided
for in Rule 903 of Regulation S to a trust for the benefit of the holders of
class A shares of Bio Syntech Canada, Inc., all of whom are non U.S. Persons
within the meaning of Rule 902 of Regulation S. All the securities were deemed
by us to be restricted securities and were appropriately legended and restricted
as to subsequent transfer. No underwriter was involved in the transaction.
On February 2, 2000, we received funds for a private placement of our
securities which was conditioned on the closing of the Transactions. The private
placement yielded aggregate proceeds of US $2,350,000, and we issued an
aggregate of 470,000 shares of our common stock and Warrants to purchase an
additional 470,000 shares of common stock at a price of US $7.00 on or before
September 30, 2001. The securities were offered and sold solely to 3699854
Canada Inc., an entity incorporated and doing business outside the United
States, in reliance on the exemption provided in Regulation S of the Securities
Act. The private placement closed on February 29, 2000, simultaneous with the
closing of the Transactions. No underwriter was involved in the private
placements.
II-4
We completed a second private placement with five separate closing
dates as shown in the table below. We issued a total of 1,910,214 units at a
price of US $3.50 per unit yielding gross proceeds of US $6,055,250 and CDN
$900,000. Each unit comprised one share of common stock and one warrant for the
purchase of one additional share at a price of US $4.50 per share before March
30, 2001. The securities were offered and sold to the persons and entities
listed on Appendix I of this registration statement, none of whom are citizens,
incorporated, residing or doing business in the United States. We relied on the
exemption from registration under the Securities Act provided for in Regulation
S. All of the securities were deemed by us to be restricted securities and were
appropriately legended and restricted as to subsequent transfer. No underwriter
was involved in the transactions.
Closing Date Number of Units Proceeds
- ------------ --------------- --------
March 31, 2000 843,500 US $2,532,250 and CDN $600,000
(CDN $4,270,243)
April 4, 2000 833,857 US $2,813,500 and CDN $150,000
(CDN $4,281,343)
April 17, 2000 82,000 US $287,000
(CDN $425,879)
April 27, 2000 42,857 US $150,000
(CDN $221,925)
June 9, 2000 108,000 US $273,500 and CDN $150,000
(CDN $558,272)
Totals 1,910,214 US$6,055,250 and CDN $900,000
(CDN $9,757,662)
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
Exhibit 2.1 Amalgamation Agreement made December 2, 1999, a 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. Incorporated by reference to Exhibit 5 to
Registration Statement on Form SB2 and filed with the Securities
and Exchange Commission on September 13, 2000.
II-5
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.
II-6
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.
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 23.1 Consent of Independent Auditors.
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 undertakes:
(a) To file, during any period in which if offers or sells securities,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) 1) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to information in the registration statement to include
any additional or changed material information on the plan of distribution.
(2) That, for the purpose of determining any liability under
the Securities Act, treat each post-effective amendment as a new registration
statement for the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
II-7
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) The undersigned registrant undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering . If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of offering.
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance on Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declare effective.
(2) For the purpose of determining any liability under the
Securities Act, treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
II. Request for Acceleration of Effective Date
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
BioSyntech pursuant to the foregoing provisions, or otherwise, BioSyntech has
been advised that in the opinion of the Securities and Exchange Commission
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
liabilities (other than the payment by BioSyntech of expenses incurred or paid
by a director, officer or controlling person of BioSyntech in the successful
defense of any action, suit or proceeding) is asserted by director, officer or
controlling person in connection with the securities being registered,
BioSyntech will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of issue.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
II-8
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 22nd
day of January, 2001.
BIOSYNTECH, INC.
January 26, 2001
By: /s/ Amine Selmani
---------------------
Name: Amine Selmani,
Title: Chief Executive Officer
and President
POWER OF ATTORNEY
BioSyntech, Inc. and each of the undersigned do appoint Amine Selmani,
its or his true and lawful attorney to execute on behalf of BioSyntech, Inc. and
the undersigned any and all amendments to the registration statement on Form
SB-2 and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1933, as
amended, this registration statement has been signed below by the following
persons on behalf of BioSyntech and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Amine Selmani
- ------------------------- Chairman of the Board, January 18, 2001
Amine Selmani Chief Executive Officer
and President
/s/ Denis N. Beaudry
- ------------------------- Director January 18, 2001
Denis N. Beaudry
/s/ Pierre Alary
- ------------------------- Director January 18, 2001
Pierre Alary
/s/ Jean-Yves Bourgeois
- ------------------------- Director January 18, 2001
Jean-Yves Bourgeois
- ------------------------
Pierre Ranger Director January __, 2001
/s/ Anthony Casola
- ------------------------
Anthony Casola Chief Financial Officer, January 26, 2001
Principal Financial Officer,
Principal Accounting Officer &
Secretary
II-8
APPENDIX I
List of Investors for Second Private Placement of BioSyntech, Inc.
BIO SYNTECH - PRIVATE PLACEMENT - CLOSING 1 - MARCH 31, 2000
Each Unit comprises one share of common stock of BioSyntech, Inc. and one
warrant for the purchase of one additional share at a price of US$4.50 per share
before March 30, 2001.
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Les Investissements Delman 3455, rue Drummond, #705 30,000 $150,000
Montreal (Quebec)
H3G 2R6
Michal Inc. 5305 des Bouleaux 60,000 $210,000
Montreal (Quebec)
H1T 2P4
Richard De Carufel 135 Les Pins 30,000 $105,000
Laval sur le Lac (Quebec)
H7R 1C8
France De Carufel 4660 Lacombe 30,000 $105,000
Montreal (Quebec)
H3W 1R3
Asuno Inc. P.O. Box 345 170,000 $595,000
CH-4010 Basel
Switzerland
2973-9711 Quebec Inc. 51, Rang 7 50,000 $175,000
St-Benoit Ladre (Quebec)
G0M 1P0
2973-9711 Quebec Inc. 51, Rang 7 70,000 $245,000
St-Benoit Ladre (Quebec)
G0M 1P0
Les Placements R.L.J.C., s.n.c. 1345, boul. Forest 43,000 $150,500
Val D'Or (Quebec)
J9P 4R2
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Gestion Lyma 2000 Inc. 171, rue Trudel 43,000 $150,500
Amos (Quebec)
J9T 3E4
Sidney Morris 6860 Emerson 110,000 $385,000
Cote St-Luc (Quebec)
H4W 1G5
Daniel Hache 870 Roguebrune 30,000 $150,000
Mont St-Hilaire, Quebec
Canada J3H 5M4
Alain Geahchan 2503 Stallion 60,000 $300,000
St Lazare
Quebec Canada
J7T 2E4
Jean-Louis Poulin 15,600, 10e Avenue 87,500 $306,250
St-Georges (Quebec)
Pictet & Cie 29, Bv. Georges Favon 30,000 $105,000
1204 Geneva
Switzerland
TOTAL 843,500 $600,000 $2,532,250
BIO SYNTECH - PRIVATE PLACEMENT - CLOSING 2 - APRIL 4, 2000
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Compensation B.N.C. Inc. 1155 Metcalfe Street, 96,000 $336,000
5th Floor
Montreal (Quebec)
H3B 4S9
National Bank Financial BCE Place 100,000 $1,050,000
P.O. Box 500 100,000
161 Bay Street, 10th Floor 100,000
Toronto (Ontario)
M5J 2S8
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Roytor & Co. Roytor & Co. 30,000 $105,000
Global Securities Services
Security Cage
Att: Free Mouvement
Royal Bank of Canada
S1 Level, South Tower
Royal Bank Plaza
200 Bay Street
Toronto (Ontario)
M5J 2J5
792126 Alberta Ltd. 220 Capital Place 60,000 $210,000
9707 - 110th Street
Edmonton (Alberta)
T5K 2L9
151976 Canada Inc. 8500 Pascal Gagnon 30,000 $105,000
St-Leonard (Quebec)
H1P 1Y4
Consultants Alconsultex Inc. 5604, avenue Robinson 55,000 $192,500
Cote St-Luc (Quebec)
H4V 2R2
Mr. Marcel Lu 5604, avenue Robinson 7,000 $105,000
Cote St-Luc (Quebec) 8,700
H4V 2R2 14,300
SEVA Consultants Ltd. 205 Edgehill Road 30,000 $105,000
Westmount (Quebec)
H3Y 1G1
Jacques Felton 500 de la Montagne, #206 30,000 $150,000
Montreal (Quebec)
H3C 4T6
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Rush & Co. Swiss American Securities 30,000 $105,000
12 East 49th Street
New York, NY 10017
Account no. 961-382-9-1
Pierre H. Lessard 1515 Kenilworth Road 50,000 $175,000
Town of Mount-Royal (Que.)
H3R 2S2
Andree D. Lessard 1515 Kenilworth Road 50,000 $175,000
Town of Mount-Royal
(Que.)
H3R 2S2
Jean Marcotte 1010, Chemin des Petites Terres 42,857 $150,000
Pointe-du-Lac (Quebec)
G0X 1Z0
TOTAL 833,857 $150,000 $2,813,500
BIO SYNTECH - PRIVATE PLACEMENT - CLOSING 3 - AVRIL 17, 2000
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
130 King Street West
GeneVest Inc. Suite 2810 50,000 $175,000
Toronto, Ontario
M5X 1A9
Jean-Louis Poulin 15 600, 10e Avenue 32,000 $112,000
Ville St-Georges (Quebec)
G5Y 7G1
TOTAL 82,000 $287,000
BIO SYNTECH - PRIVATE PLACEMENT - CLOSING 4 - APRIL 27, 2000
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Rodrigue Julien 1189, rue Etienne Letellier 42,857 $150,000
Cap-Rouge (Quebec)
G1Y 2Y8
TOTAL 42,857 $150,000
BIO SYNTECH - PRIVATE PLACEMENT - CLOSING 5 - June 9, 2000
INVESTMENT
NAME ADDRESS UNITS CDN$ US$
---- ------- ----- ---- ---
Prodier Ltee 3878, boul. Neilson 30,000 $150,000
Sainte-Foy (Quebec)
G1W 4Y8
9088-4586 Quebec Inc. 3525, chemin Sullivan 33,000 $115,000
Sullivan (Quebec)
J0Y 2N0
Valeurs Mobilieres Desjardins Inc. BNP (Canada) Valeurs Mobilieres Inc. 45,000 $157,500
a/s Pierre Demers
1981, ave. McGill College
Montreal (Quebec)
H3A 2W8
TOTAL 108,000 $150,000 $272,500