SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 2000
----------------------------------------
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
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Commission File Number: 0-27179
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BioSyntech, Inc.
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(exact name of registrant as specified in its charter)
Nevada 88-0329399
-------- ------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
475 Boulevard Armand-Frappier, Laval, Quebec, Canada H7V 4B3
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(Address of Principal Executive Offices)
(450) 686-2437
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(Issuers Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(X) Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUER
State the number of shares outstanding of each of the issuer's
classes of common equity as of the latest practicable date: 29,182,250 shares of
Common Stock as of February 7, 2001.
Transitional Small Business Disclosure Format (check one):
( ) Yes (X) No
BIOSYNTECH, INC.
TABLE OF CONTENTS
Registrant Company and Subsidiaries
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets-December 31, 2000 3
and March 31, 2000
Condensed consolidated statements of operations - 4
Nine months ended December 31, 2000 and 1999; Three
months ended December 31, 2000 and 1999;
Condensed statements of stockholders' equity (deficiency) 6
- From inception to December 31, 2000
Condensed consolidated statements of cash flows -
Three months ended December 31, 2000 and 1999; Nine months 7
ended December 31, 2000 and 1999
Notes to condensed consolidated financial 9
statements - December 31, 2000
Item 2. Management's Discussion and Analysis or Plan of Operation 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures
2
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED BALANCE SHEETS [note 1]
As of December 31, 2000 and March 31, 2000
December 31, March 31,
2000 2000 2000
US$ C$ C$
[unaudited] [unaudited]
ASSETS
Current assets
Cash and cash equivalents 4,954,873 7,429,832 7,301,143
Investment tax credits receivable 37,492 56,220 575,000
Other current assets 196,977 295,367 231,929
- ----------------------------------------------------------------------------------------------------------------------------------
5,189,342 7,781,419 8,108,072
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Property, plant and equipment 1,459,533 2,188,570 1,517,540
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Total Assets 6,648,875 9,969,989 9,625,612
==================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 571,436 856,870 1,060,928
Other current liabilities 27,890 41,821 233,930
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599,326 898,691 1,294,858
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Long term debt and obligations under
capital leases 115,594 173,333 1,137,266
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714,920 1,072,024 2,432,124
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Contingent liabilities [note 3]
Shareholders' equity
Common stock [note 2]
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding
29,182,250 common shares 12,132,337 18,192,440 13,132,702
Additional paid-in capital 1,302,708 1,953,410 1,715,910
Deficit accumulated during the development stage (7,501,090) (11,247,885) (7,655,124)
- ----------------------------------------------------------------------------------------------------------------------------------
5,933,955 8,897,965 7,193,488
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6,648,875 9,969,989 9,625,612
==================================================================================================================================
See accompanying notes
3
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [note 1]
Unaudited
Cumulative from Nine months ended
inception to December 31,
December 31, ------------------------------------------------
2000 2000 2000 1999
C$ US$ C$ C$
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Sales 256,674 59,044 88,536 --
Cost of sales 110,170 25,480 38,208 --
- -----------------------------------------------------------------------------------------------------------------------------------
146,504 33,564 50,328 --
- -----------------------------------------------------------------------------------------------------------------------------------
Research and development expenses 7,772,180 1,412,610 2,118,209 872,293
Investment tax credits (1,548,364) (90,030) (135,000) (543,977)
General and administrative expenses 5,031,007 1,299,679 1,948,868 461,558
Interest on long-term debt 277,444 26,079 39,106 161,268
Amortization of property, plant and equipment 314,849 67,775 101,628 133,333
Grants (42,652) (28,444) (42,652) (13,230)
Interest income (410,075) (258,133) (387,070) (3,137)
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11,394,389 2,429,536 3,643,089 1,068,108
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Net loss for the period (11,247,885) (2,395,972) (3,592,761) (1,068,108)
Deficit accumulated during the development
stage, beginning of period -- (5,105,118) (7,655,124) (4,414,841)
- -----------------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, end of period (11,247,885) (7,501,090) (11,247,885) (5,482,949)
===================================================================================================================================
Weighted average number of shares
outstanding 29,132,995 29,132,995 12,627,813
Basic and diluted loss per share (0.08) (0.12) (0.08)
===================================================================================================================================
See accompanying notes
4
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [note 1]
Unaudited
Cumulative from Three months ended
inception to December 31,
December 31, ------------------------------------------------
2000 2000 2000 1999
C$ US$ C$ C$
- ------------------------------------------------------------------------------------------------------------------------------------
Sales 256,674 -- -- --
Cost of sales 110,170 -- -- --
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146,504 -- -- --
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Research and development expenses 7,772,180 617,979 926,660 371,595
Investment tax credits (1,548,364) (23,341) (35,000) (181,326)
General and administrative expenses 5,031,007 566,285 849,145 182,657
Interest on long-term debt 277,444 1,278 1,917 52,359
Amortization of property, plant and equipment 314,849 18,558 27,827 44,462
Grants (42,652) (16,877) (25,307) (9,230)
Interest income (410,075) (107,422) (161,079) (2,469)
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11,394,389 1,056,460 1,584,163 458,048
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Net loss for the period (11,247,885) (1,056,460) (1,584,163) (458,048)
Deficit accumulated during the development
stage, beginning of period -- (6,444,630) (9,663,722) (5,024,901)
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, end of period (11,247,885) (7,501,090) (11,247,885) (5,482,949)
===================================================================================================================================
Weighted average number of shares
outstanding 29,182,250 29,182,250 13,283,579
Basic and diluted loss per share (0.04) (0.05) (0.03)
===================================================================================================================================
See accompanying notes
5
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIENCY) [note 1]
From inception to December 31, 2000 Unaudited
[In Canadian dollars]
Common Stock
------------------------
Additional Accumulated
Shares Amount paid-in-capital deficit Total
$ $ $ $
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Balance, May 10, 1995 8,525,000 1 -- -- 1
Net loss 1996 [325 day period] -- -- -- (2,865) (2,865)
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Balance, March 31, 1996 8,525,000 1 -- (2,865) (2,864)
Net loss 1997 -- -- -- (9,332) (9,332)
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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)
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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)
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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)
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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)
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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)
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Balance, September 30, 2000 29,182,250 18,246,375 1,953,410 (9,663,722) 10,536,063
Share issue costs [note 2] -- (53,935) -- -- (53,935)
Net loss for the period from October 1, 2000 to
December 31, 2000 -- -- -- (1,584,163) (1,584,163)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 29,182,250 18,192,440 1,953,410 (11,247,885) 8,897,965
===================================================================================================================================
US Dollars
Balance as at December 31, 2000 12,132,337 1,302,708 (7,501,090) 5,933,955
===================================================================================================================================
See accompanying notes
6
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS [note 1] OF CASH FLOWS [note 1]
Unaudited
Cumulative Three months ended
from inception December 31,
to December 31, ----------------------------------------
2000 2000 2000 1999
C$ US$ C$ C$
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss (11,247,885) (1,056,460) (1,584,163) (458,048)
Items not affecting cash
Amortization 314,849 18,558 27,827 44,462
Services paid by the issuance of common stock 2,527,000 -- -- --
Options granted to consultants 1,953,410 -- -- --
Exchange loss (gain) (258,205) 14,533 21,792 --
Changes in working capital assets and liabilities
Investment tax credits receivable (56,220) 239,474 359,092 361,477
Other current assets (238,593) (93,696) (140,497) (11,624)
Other current liabilities 22,091 -- -- 65,451
Accounts payable and accrued liabilities 840,382 56,299 84,420 (61,477)
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Cash flows from operating activities (6,143,171) (821,292) (1,231,529) (59,759)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (954,047) (330,211) (495,151) (1,135)
Disposal of property, plan and equipment 10,622 7,084 10,622 --
Purchase of short term investment (75,000) -- -- --
Proceeds from maturing of short term investments 75,000 -- -- --
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Cash flows from investing activities (943,425) (323,127) (484,529) (1,135)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long term debt 700,000 -- -- --
Repayment of long term debt (500,000) (41,681) (62,500) (643,750)
Proceeds of demand loan 581,845 -- -- --
Repayment of demand loan (581,845) -- -- (183,598)
Increase in due to stockholder 30,394 -- -- --
Decrease in due to stockholders (20,394) -- -- --
Repayment of obligations under capital leases (1,633,706) (1,791) (2,686) (18,897)
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 (859,401) (35,969) (53,935) --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 14,258,223 (79,441) (119,121) (846,245)
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Effect of exchange rate changes on cash 258,205 (14,533) (21,792) --
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Net change in cash 7,429,832 (1,238,393) (1,856,971) (907,139)
Cash, beginning of period -- 6,193,266 9,286,803 (41,569)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 7,429,832 4,954,873 7,429,832 (948,708)
====================================================================================================================================
See accompanying notes
7
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS [note 1] OF CASH FLOWS [note 1]
Unaudited
Cumulative Nine months ended
from inception December 31,
to December 31, ----------------------------------------
2000 2000 2000 1999
C$ US$ C$ C$
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss (11,247,885) (2,395,972) (3,592,761) (1,068,108)
Items not affecting cash
Amortization 314,849 67,775 101,628 133,333
Services paid by the issuance of common stock 2,527,000 -- -- --
Options granted to consultants 1,953,410 158,386 237,500 --
Exchange loss (gain) (258,205) (172,194) (258,205) --
Changes in working capital assets and liabilities
Investment tax credits receivable (56,220) 345,969 518,780 161,547
Other current assets (238,593) (92,323) (138,438) (1,261)
Other current liabilities 22,091 (43,649) (65,451) 65,451
Accounts payable and accrued liabilities 840,382 (136,084) (204,058) 157,692
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (6,143,171) (2,268,092) (3,401,005) (551,346)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (954,047) (522,362) (783,280) (4,393)
Disposal of property, plan and equipment 10,622 7,084 10,622 --
Purchase of short term investment (75,000) -- -- (75,000)
Proceeds from maturing of short term investments 75,000 50,017 75,000 --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (943,425) (465,261) (697,658) (79,393)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long term debt 700,000 -- -- 300,000
Repayment of long term debt (500,000) (66,689) (100,000) (681,250)
Proceeds of demand loan 581,845 -- -- 250,000
Repayment of demand loan (581,845) -- -- (183,598)
Increase in due to stockholder 30,394 -- -- --
Decrease in due to stockholders (20,394) -- -- (20,394)
Repayment of obligations under capital leases (1,633,706) (660,614) (990,591) (40,024)
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 3,659,499 5,487,419 --
Share issue costs (859,401) (285,216) (427,681) --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 14,258,223 2,646,980 3,969,147 (375,266)
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 258,205 172,194 258,205 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in cash 7,429,832 85,821 128,689 (1,006,005)
Cash, beginning of period -- 4,869,052 7,301,143 57,297
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 7,429,832 4,954,873 7,429,832 (948,708)
====================================================================================================================================
See accompanying notes
8
Condensed Consolidated Financial Statements
BioSyntech, Inc.
[formerly Dream Team International Inc.]
[a development stage company] - Unaudited
Quarter ended December 31, 2000
9
BioSyntech, Inc. [formerly Dream Team International Inc.]
A development stage company
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 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 December 31, 2000, the
results of operations and cash flows for the three months and nine months
periods ended December 31, 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 December 31, 2000, which was $1.4995
Canadian dollar per US dollar.
The Company is a development stage company engaged in the development of
biotherapeutic delivery systems made of proprietary biomaterials. The Company's
systems are intended to enable or enhance the treatment of diseases or injuries
for which therapies exist or are under development, but must be transported to
the site of action. The Company has limited revenues to date and is thus subject
to numerous risks, including risks associated with product development and
marketing, obtaining the necessary regulation approvals, growth, manufacturing,
competition and attracting and retaining key personnel. It may be necessary for
the Company to raise additional funds for the continuing development and
marketing of its technologies.
2. STOCKHOLDERS' EQUITY
During the nine months ended December 31, 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 $427,681. The warrants entitle the holder to purchase an
aggregate of 1,066,714 common shares at a price of US$4.50 on or before March
30, 2001.
2. STOCKHOLDERS' EQUITY [continued]
Warrants
As of December 31, 2000, a total of 2,380,214 warrants issued by the Company are
outstanding as follows:
10
Number of warrants Expiry date Exercise price
- --------------------------------------------------------------------------------
1,910,214 March 30, 2001 US$ 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. CONTINGENT LIABILITIES
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.
A former executive employee and officer of the company has commenced an action
for wrongful termination and is seeking $224,000 in compensation allegedly due
plus $35,000 for punitive and additional damages. In the opinion of management,
based on advice and information provided by its legal counsel, the final
determination of this litigation is not determinable. As such no provision has
been recorded.
11
BIOSYNTECH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OPERATIONS
The discussion in this report on Form 10-QSB contains forward-looking
statements that involve risks and uncertainties. BioSyntech, Inc.'s actual
results may differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in "Risk Factors" in this Report.
The discussion and analysis below should be read in conjunction with
the condensed consolidated interim Financial Statements of BioSyntech, Inc. (the
"Company") and the notes thereto included elsewhere herein.
The Company is a Nevada corporation incorporated on December 14, 1994.
It is a development stage company which is engaged in the development of
advanced biomaterials specialized in tissue engineering and therapeutic
delivery. The Company's main focus is the repair of damaged tissue in the human
body, such as bone or cartilage. The Company is also engaged in the development
of advanced injectable biomaterials for the delivery of cells, genetic material
and biotherapeutic agents. The Company has had limited revenues. The Company's
future operations are dependent upon Its receiving the financing necessary to
complete research and development projects and market the Company's products.
There can be no assurance that the Company will be able to complete the
development of its products, or if completed that they can be successfully
marketed. Furthermore, there is no assurance that even if the products are
completed and marketed, the revenues therefrom will be sufficient to fund the
Company's future operations or to fund additional research, development and
marketing.
To date, the Company has incurred substantial losses from operations,
and as of December 31, 2000, had an accumulated deficit of $11,247,885 CAD. The
Company expects to incur substantial operating expenses in the future to support
its product development efforts and expand its technical and management
personnel and organization.
Currency Exchange Rates
All dollar amounts stated in this Quarterly Report on Form 10-QSB in
the sections entitled "Management Discussion and Analysis or Plan of Operation"
and "Risk Factors" are in Canadian dollars. All dollar amounts in the Condensed
Consolidated Financial Statements and the notes thereto in this Quarterly Report
on Form 10-QSB are in Canadian dollars, except where otherwise specifically
indicated. The following table sets forth, for the dates indicated, the rates at
the specific date for the Canadian dollar per one U.S. dollar, each expressed in
Canadian dollars and based on the noon buying rate in New York City for cable
transfers in Canadian dollars as certified for customs purposes by the Bank of
Canada:
1999 2000
---- ----
Rate at end of period 1.4730 1.4995
Rate at filing date [xxxxx]
Period High of the period Low for the period
- ------ ------------------ ------------------
January 2001 1.5160 1.4936
December 2000 1.5458 1.5002
November 2000 1.5593 1.5298
October 2000 1.5310 1.4954
September 2000 1.5070 1.4735
August 2000 1.4888 1.4722
12
Period Average for the period
Fiscal year ended March 31, 1999 1.5074
Fiscal year ended March 31, 2000 1.4683
Three months ended June 30, 2000 1.4861
Three months ended September 30, 2000 1.4888
Three months ended December 31, 2000 1.5210
Results of Operations
The following table sets forth certain items in the Company's condensed
consolidated statements of operations for the three-month period ended December
31, 2000 and 1999, and the nine-month period ended December 31, 2000 and 1999
(in thousands of CDN$).
Three-month period Nine-month period
Ended December 31 Ended December 31
2000 1999 2000 1999
----------------------------------------------------------------------------
Sales $ 0 $ 0 $ 88.5 $ 0
Cost of sales 0 0 $ 38.2 0
----------- --------- ------------- ----------
Gross profit $ 0 $ 0 $ 50.3 $ 0
Operating Expenses:
Research and development $ 926.7 $ 371.6 $ 2,118.2 $ 872.3
Investment tax credits ( 35.0) (181.3) ( 135.0) (544.0)
General and administrative (Net of Grants) 823.8 173.4 1,906.2 448.3
Amortization of property, plant and equipment 27.8 44.5 101.6 133.3
----------------------------------------------------------------------------
Total operating expenses $ 1,743.3 $ 408.2 $ 3,991.0 $ 909.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss from operations $ 1,743.3 $ 408.2 $ 3,991.0 $ 909.9
----------------------------------------------------------------------------
Interest income (161.1) (2.5) (387.1) ( 3.1)
Interest expense 1.9 52.4 39.1 161.3
----------------------------------------------------------------------------
Net loss for the period $ 1,584.1 $ 458.1 $ 3,592.8 $ 1,068.1
Results of Operations
Sales
Revenues have only been generated from the sales of Mach-1TM mechanical
tester.
During the three-month period ended December 31, 2000, the Company had
sales of zero and a net loss of $1,584,163 compared to sales of zero and a net
loss of $458,048 for the three-month period ended December 31, 1999. During the
nine-month period ended December 31, 2000, the Company had sales of $88,536
(sale of 2 Mach-1TM Mechanical Testers) and a net loss of $3,592,761 compared to
sales of zero and a net loss of $1,068,108 for the nine-month period ended
December 31, 1999.
13
Loss per share was $0.05 for the three-month period ended December 31,
2000, compared to $0.03 per share for the three-month period ended December 31,
1999. Loss per share was $0.12 for the nine-month period ended December 31,
2000, compared to $0.08 per share for the nine-month period ended December 31,
1999.
Operating Expenses
Research and development expenses were $926,660 for the three-month
period ended December 31, 2000 compared to $371,595 for the three-month period
ended December 31, 1999. Research and development expenses were $2,118,209 for
the nine-month period ended December 31, 2000 compared to $872,293 for the
nine-month period ended December 31, 1999. The increases in research and
development expenses for the three-month and nine-month periods are mostly
attributable to hiring of additional researchers, the cost of pre-clinical
toxicological studies and the research and development activities of the Company
with its corporate collaborators and its own in-house programs. The Company
anticipates that it will continue to devote significant resources to research
and development.
Investment tax credits
The Company claims investment tax credits on all allowable research and
development expenses. The amount claimed for the three-month period ended
December 31, 2000 is $35,000 compared to $181,326 for the three-month period
ended December 31, 1999. The amount claimed for the nine-month period ended
December 31, 2000 is $135,000 compared to $543,977 for the nine-month period
ended December 31, 1999. The decreases in the three-month and nine-month periods
are directly attributable to a reduction in the effective rate used to calculate
the tax credits since the Company can no longer benefit from favourable rates
applicable to private companies.
General and administrative
General and administrative expenses, net of grants were $823,838 for
the three-month period ended December 31, 2000 compared to $173,427 for the
three-month period ended December 31, 1999, representing an increase of
$650,411. General and administrative expenses were $1,906,216 for the nine-month
period ended December 31, 2000 compared to $448,328 for the nine-month period
ended December 31, 1999 representing an increase of $1,457,888. The increases in
the three-month period and the nine-month periods are principally attributable
to professional fees, marketing expenses, investor relations, and an increase in
administrative personnel.
Amortization of property, plant and equipment
Amortization expense was $27,827 for the three-month period ended
December 31, 2000 compared to $44,462 for the three-month period ended December
31, 1999, representing a decrease of $16,635. Amortization expenses were
$101,628 for the nine-month period ended December 31, 2000 compared to $133,333
for the nine-month period ended December 31, 1999, representing a decrease of
$31,705. The decreases in the three-month and nine-month periods were
principally attributable to the change in amortization period of the Company's
facility, which was amortized over the term of the lease of 10 years prior to
its acquisition and subsequently changed to a period of 20 years.
Interest Income and Interest Expense
Interest income represents income earned on the Company's cash
deposits. Interest income increased by $158,610 from $2,469 for the three-month
period ended December 31, 1999 to $161,079 for the three-month period ended
December 31, 2000. Interest income increased by $383,933 from $3,137 for the
nine-month period ended December 31, 1999 to $387,070 for the nine-month period
ended December 31, 2000. The increases in the three-month period and the
nine-month period are primarily due to a higher level of cash on hand during the
period as a result of the two private placements consummated earlier in the
calendar year.
14
Interest expense in 2000 is mainly attributable to interest on the
capital lease transaction entered into by the Company at the end of fiscal 1999
to finance its facility prior to its acquisition in July 2000. Interest expense
decreased by $50,442 from $52,359 for the three-month period ended December 31,
1999 to $1,917 for the three-month period ended December 31, 2000. Interest
expense decreased by $122,162 from $161,268 for the nine-month period ended
December 31, 1999 to $39,106 for the nine-month period ended December 31, 2000.
Liquidity and Capital Resources
The cash position of the Company on December 31, 2000 is $7,429,832. In
July 2000, the Company purchased the facility in which the Company conducts its
operations for $1,200,000. The Company also expects to expend approximately
$2,000,000 to equip the facility during the remaining period for the fiscal year
ending March 31, 2001. The Company believes that the capital resources presently
on hand will be sufficient for projected capital expenditures and operating
expenses for the next 12 months.
On February 2, 2000, the Company completed a private placement of its
securities yielding aggregate proceeds of $3,384,705 for which the Company
issued an aggregate of 470,000 shares of common stock and Warrants to purchase
an additional 470,000 shares of common stock at a exercise price of $10.50 per
share exercisable on or before September 30, 2001.
Commencing March 31, 2000 and during the quarter ended June 30, 2000,
the Company completed a second private placement and issued a total of 1,910,214
units at a average price of $5.11 per unit as shown in the table below, yielding
gross proceeds of $9,757,663. Each unit comprised one share of common stock and
one warrant for the purchase of one additional share at an exercise price of
$6.75 per share exercisable on or before March 30, 2001.
Closing Date Number of Units Proceeds
------------ --------------- --------
March 31, 2000 843,500 $ 4,270,243
April 4, 2000 833,857 $ 4,281,343
April 17, 2000 82,000 $ 425,879
April 27, 2000 42,857 $ 221,925
June 9, 2000 108,000 $ 558,272
--------------- -----------
Totals 1,910,214 $ 9,757,663
The Company has a limited operating history as a biotechnology company
and has not made significant sales of products. Therefore, the Company's
revenues are difficult to predict. Although the Company believes that the cash
and cash equivalent balances are sufficient for projected capital expenditures
and operating expenses for the next 12 months, the Company 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 the
Company's stockholders. To date, the Company has no agreements, commitments or
understandings with respect to the sale of additional equity or convertible debt
securities and the Company is unable to predict whether the Company will sell
additional equity or debt on acceptable terms or at all.
15
Employee Growth
As of December 31, 2000, the Company had 36 employees, of whom 22 were
engaged on research and development and 14 were engaged in corporate and
administrative activities. Over the next 12 months, the Company intends to
increase its corporate and administrative personnel by three to five persons.
The existing research and development team will increase by ten to fifteen
persons. The Company anticipates its total employee count to be in approximately
50 to 55 employees by the end of fiscal year 2001. The information that it will
have set forth under the caption "Risk Factors - We may be unable to retain our
key executives and research and development personnel" discuss risks the Company
may face in hiring and retaining additional personnel.
RISK FACTORS
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond our control. The following discussion
highlights the most material of the risks.
We 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;
16
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. To date, we have no agreements, commitments or understandings with
respect to the sale of additional equity or debt securities and we are unable to
predict whether additional equity or debt financing will be available to us, on
favorable terms or at all.
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;
17
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.
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 a collaborator and us 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.
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
18
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.
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.
19
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 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.
We can give no assurances that our forward-looking statements will be
correct.
Certain forward-looking statements, including statements regarding our
expected financial position, business and financing plans are contained in this
Form 10-QSB. These forward-looking statements reflect our views with respect to
future events and financial performance. The words, "believe," "expect," "plans"
and "anticipate" and similar expressions identify forward-looking statements.
Although we believe that the expectations reflected in these forward-looking
statements are reasonable, we can give no assurance that these expectations will
prove to be correct. Important factors that could cause actual results to differ
materially from these expectations are disclosed in this Form 10-QSB. All
subsequent written and oral forward-looking statements attributable to us are
expressly qualified in their entirety by the cautionary statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Marie-Claire Pilon, a former executive employee and officer of the
Company commenced an action on January 23, 2001 in the Superior Court, Province
of Quebec, District of Montreal against the Company and its chairman Dr. Amine
Selmani, alleging 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.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the Company on November 30,
2000, the stockholders (i) approved the adoption of the Amended and
Restated Articles of Incorporation, (ii) elected six members of the
Board of Directors, (iii) approved the adoption of the Company's
Stock Option Incentive Plan and Bio Syntech Canada, Inc.'s Stock
Option Incentive Plan, (iv) ratified the appointment of Ernst &
Young, LLP as the Company's independent auditors for the fiscal and
year ending March 31, 2001.
(i) The vote for the adoption of the Amended and Restated Articles
of Incorporation was as follows:
For Against Abstain
--- ------- -------
14,879,446 9,030 0
(ii) The vote to elect six members of the Board of Directors was as
follows:
Nominee Class* For Against Abstain
------- ------ --- ------- -------
Marie-Claire Pilon I 15,464,211 0 6,750
Pierre Alary I 15,464,211 0 6,750
Jean-Yves Bourgeois II 15,464,211 0 6,750
Pierre Ranger II 15,464,211 0 6,750
Amine Selmani III 15,464,211 0 6,750
Denis N. Beaudry III 15,464,211 0 6,750
------------
* Class I Directors serve until the 2001 Annual Meeting of
Stockholders and until their successors are elected and
qualified.
Class II Directors serve until the 2002 Annual Meeting of
Stockholders and until their successors are elected and
qualified.
Class III Directors serve until the 2003 Annual Meeting of
Stockholders and until their successors are elected and
qualified.
(iii) The vote for the adoption of the Company's Stock Option
Incentive Plan and Bio Syntech Canada, Inc.'s Stock Option
Incentive Plan was as follows:
For Against Abstain
--- ------- -------
14,879,536 1,190 3,000
(iv) The vote for ratifying the appointment of Ernst & Young, LLP
as the Company's independent auditors for the fiscal year
ending March 31, 2001 was as follows:
For Against Abstain
--- ------- -------
15,469,771 1,190 0
21
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOSYNTECH, INC.
Dated: February 13th, 2001 By: /s/ Anthony Casola
----------------------------------
Name: Anthony Casola
Title: Chief Financial Officer
Principal Financial Officer &
Principal Accounting Officer &
Secretary
By: /s/ Amine Selmani
----------------------------------
Name: Amine Selmani
Title: Chief Executive Officer and
President