`SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                            ------------------------

                                   FORM 10-KSB


(Mark One)

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended March 31, 2001

                                       or

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

            For the transition period from ___________to ____________


                         Commission file number 0-27179
                                                -------

                                BioSyntech, Inc.
                 ----------------------------------------------
                 (Name of Small Business Issuer 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
-----------------------------                                   ----------
(Address of principal                                           (Zip Code)
executive office)

                                 (450) 686-2437
                ------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, par value $.001 per share
                    ---------------------------------------
                                (Title of Class)




            Check if the issuer (1) has filed all  reports  required to be filed
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
preceding 12 months (or for such shorter  period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes /x/ No / /

            Check if there is no disclosure of delinquent  filers in response to
Item  405 of  Regulation  S-B  contained  herein,  and  no  disclosure  will  be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. / /

            State issuer's revenues for its most recent fiscal year: $144,358.

            Based upon the closing  price of the  issuer's  Common Stock on June
18, 2001,  the aggregate  market value of the 20,657,250  outstanding  shares of
Common Stock held by  non-affiliates  of the issuer was $15,286,365.  Solely for
the purposes of this  calculation,  shares held by directors and officers of the
issuer have been excluded.  Such exclusion  should not be deemed a determination
or an admission by the issuer that such individuals are, in fact,  affiliates of
the issuer.

            As of June 15, 2001, 29,182,250 shares of the issuer's Common Stock,
$.001 par value (the "Common Stock") were issued and outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

            Documents  Incorporated by Reference:  The  information  required by
Items 9 through  12 of this  Annual  Report on Form  10-KSB is  incorporated  by
reference  from the  issuer's  definitive  proxy  materials  for its 2001 Annual
Meeting  of  Stockholders,  which  proxy  materials  are to be  filed  with  the
Securities and Exchange Commission not later than July 29, 2001.

            Transitional Small Business Disclosure Format (check one):

                        /   /   Yes         /   /   No



                                     PART I


ITEM 1.     DESCRIPTION OF BUSINESS.

            The following Business section contains  forward-looking  statements
that involve risks and uncertainties. Our actual results could differ materially
from  those  anticipated  in these  forward-looking  statements  as a result  of
certain factors. See "Risk Factors" relating to Forward-Looking  Statements. The
consolidated   financial  statements  included  in  this  Form  10-KSB  are  the
continuation of the Financial  Statements of Bio Syntech Ltd.,  which is treated
for accounting  purposes as the acquirer of BioSyntech,  Inc. (together with its
subsidiary,  Bio Syntech  Canada,  Inc.,  also  referred to as "we," "us" or the
"Company").  Bio Syntech Ltd. had a fiscal  year-end of March 31 and accordingly
March 31 is used as the Company's  year-end.  See "History of the Company" for a
description of the transactions  involving Bio Syntech Ltd. and the Company. The
Company's  functional  currency is the Canadian dollar.  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, March 31, 2000 and March 31, 2001.


1.1         General

            We  are an  advanced  biomaterials  company  specialized  in  tissue
engineering  and therapeutic  delivery.  Our main focus is the repair of damaged
tissue in the human  body like bone or  cartilage.  We are also  engaged  in the
development of advanced  injectable  biomaterials  for the delivery of cells and
genetic material and biotherapeutic agents. We have had limited revenues to date
and they have come  entirely  from sales in our  instrumentation  products.  Our
future  operations are dependent  upon our receiving the financing  necessary to
complete  research  and  development  projects and market our  products.  We are
unsure  whether  we can  complete  the  development  of our  products,  or if we
complete  them whether we can  successfully  market them or generate  sufficient
revenues to fund our future operations or additional  research,  development and
marketing.  In addition,  major  technological  changes can occur quickly in the
biotechnological and pharmaceutical  industries.  The development by competitors
of technologically improved or different products may make our products obsolete
or  noncompetitive.  We believe that our financial  resources are  sufficient to
meet our planned activities at least through fiscal year 2002.

            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 are developing
the ARTHRO-BST(TM) and the Mach-1(TM)  Mechanical Tester.  ARTHRO-BST(TM) is a
device used for visual  examination  of the interior of the articular  cartilage
with a special surgical  instrument  which provides precise and  non-destructive
diagnosis.  The Mach-1(TM)  Mechanical Tester is a universal  mechanical testing
system for  specimens  with  dimensions  between  hundreds  of microns and a few
centimeters.

            For the fiscal  years ended March 31,  2000 and March 31,  2001,  we
spent $2,341,697 and $3,232,074, respectively, for research and development.

                                      -3-


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
external 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  polymers  containing  a large  quantity of
water.  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.

            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   of   tissues   with  or   without   cells   or
                        growth-factor   therapeutics;
            o           delivery  of  small  molecules,  peptides  and  proteins
                        produced using genetic engineering;

                                      -4-


            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 are 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.

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 wear and tear on the affected joint  degenerates  into
arthritis, or more popularly known in the medical field as 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.

            We are currently in the process of filing an Investigational  Device
Exemption  application  with  the FDA  and an  Application  for  Investigational
Testing  with the  Health  Protection  Branch of  Canada.  We will be allowed to
conduct  human  clinical  testing in the  United  States if our  application  is
approved by the FDA, and in Canada if our  application is approved by the Health
Protection Branch of Canada.



                                      -5-


            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 bone
formation property of calcium based minerals.  It is ideally used to form a more
secure base for growth of bone tissues.

            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  bio-therapeutic
agents that  induce the unique bone  formation  performance  to OssiFil.  We are
developing a variety of OssiFil which aims to accelerate  bone  formation in the
treatment of fresh fractures.

            We are currently in the pre-clinical  stage  development of OssiFil.
Upon  successful  completion  of the  pre-clinical  studies,  we  will  file  an
Investigational Device Exemption application with the FDA and an Application for
Investigational  Testing with the Health Protection Branch of Canada. We will be
allowed  to  conduct  human  clinical  testing  in  the  United  States  if  our
application is approved by the FDA, and in Canada if our application is approved
by the Health Protection Branch of Canada.


                        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  fractures  in the  vertebra due to a
decrease  in bone mass with  decreased  density and  enlargement  of bone spaces
producing  porosity and fragility,  or more popularly known in the medical field
as osteoporotic  vertebra. We plan to initiate the clinical application phase as
soon as the OssiFil performances are optimized.

            We are currently in the pre-clinical  stage  development of OssiFix.
Upon  successful  completion  of the  pre-clinical  studies,  we  will  file  an
Investigational Device Exemption application with the FDA and an Application for
Investigational  Testing with the Health Protection Branch of Canada. We will be
allowed  to  conduct  human  clinical  testing  in  the  United  States  if  our
application is approved by the FDA, and in Canada if our application is approved
by the Health Protection Branch of Canada.



                                      -6-


            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  reduces  pressure  on  the
intervertebral  discs.  Furthermore,  the structural integrity of this substance
could limit hernia damage by preventing  extrusion of the nucleus matter through
disc wall defects.

            We are currently in the pre-clinical  stage development of BST-Disc.
Upon  successful  completion  of the  pre-clinical  studies,  we  will  file  an
Investigational Device Exemption application with the FDA and an Application for
Investigational  Testing with the Health Protection Branch of Canada. We will be
allowed  to  conduct  human  clinical  testing  in  the  United  States  if  our
application is approved by the FDA, and in Canada if our application is approved
by the Health Protection Branch of Canada.

            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,  patient's own fat from another site and a variety of acid
which is  viscous  and acts  like a cement  under the skin.  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 is 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  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 materials.

            We have a United States patent pending on this product,  focusing on
its extended residence time and considerable  mechanical  support.  We intend to
file  an  Investigational  Device  Exemption  application  with  the  FDA and an
Application for  Investigational  Testing with the Health  Protection  Branch of
Canada.  We will be  allowed  to conduct  human  clinical  testing in the United
States  if our  application  is  approved  by the  FDA,  and  in  Canada  if our
application is approved by the Health Protection Branch of Canada. Additionally,
we intend to initiate human clinical trials in France and Belgium.

                        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



                                      -7-


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.  We intend  to file an  Investigational  Device  Exemption
application with the FDA and an Application for Investigational Testing with the
Health Protection Branch of Canada. We will be allowed to conduct human clinical
testing in the United States if our  application  is approved by the FDA, and in
Canada if our application is approved by the Health Protection Branch of Canada.
Additionally, we intend to initiate human clinical trials France and Belgium.

            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).  At present,  we have not filed any application  with the FDA or
the Health Protection Branch of Canada.

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.

            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. Our agreements with our collaborators do not
provide for any financial assistance to us.

                        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



                                      -8-


phase study is currently under way to optimize the BST-Gel(TM) formulation.  The
agreement may be  unilaterally  terminated by either party in the event that the
other party  becomes  bankrupt or is judged to be insolvent by a court of law or
if either  party  makes any  assignment  for the benefit of its  creditors.  The
agreement  may also be  terminated  by  written  consent  of both  parties.  The
non-disclosure and confidentiality  provisions of the agreement survive for five
years from February 23, 1999.

                        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.  The  agreement  may be  terminated on 30 days' prior written
notice to the other party.

                        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.
The Confidentiality  Agreement and the Material Transfer Agreement terminated on
May 31,  2001  and were  not  extended.  The  non-disclosure  provisions  of the
Confidentiality Agreement survive for three years from its termination.

                        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 injections under the skin 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.  The  Confidentiality
Disclosure  Agreement  may be  terminated  by either  party on at least 30 days'
prior written notice to the other party.  The  non-disclosure  provisions of the
Confidentiality  Disclosure  Agreement survive for three years from August 1999.
The  Biological  Materials  Transfer  Agreement  does not  provide for events of
termination.

                        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 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.  The  non-disclosure  provisions  of the
agreement  survive for five years  following the disclosure of the  confidential
information.




                                      -9-


                        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 which
include degeneration of the nervous system 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.  The
Confidentiality  Agreement  terminates  five years from  December  3, 1999.  The
Material  Transfer  Agreement  may be  terminated by either party on at least 30
days' prior written notice to the other party.

                        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.  The  agreement may be
terminated  by either  party on at least 30 days'  prior  written  notice to the
other party.

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 external  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  polymers  containing  a large  quantity  of  water.  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.

            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
large molecules  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



                                      -10-


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,  skin  based,  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 have 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,  our competitors have
developed an implant containing living cells. It requires  complicated open knee
surgery and its efficacy and  acceptance  has been  questioned.  Other  surgical
procedures  for  repairing   localized   cartilage   lesions  include  drilling,
microfractures,  abrasion,  and using  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 we may
encounter  competition  in the bone grafts and other bone  related  markets.  In
relation to OssiFIL(TM), injectable bone forming 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 calcium phosphate mixed with polymers, which are mainly used
for  orthopedic  applications  such as bone  filling  or  harvest  site  filler,
fractures healing, spinal fusion and joint 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
calcium  phosphate  mixed with  polymers act as  cement-like  materials  are not
clinically  common,  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.



                                      -11-


                        1.5.2.3  Intervertebral Disc Regeneration

            With respect to intervertebral  disc regeneration,  we may encounter
competition by the spinal surgery market.  According to Merrill Lynch's November
2000 Orthopedic Report, there has been an explosive uptake of minimally invasive
systems to treat low back pains. The report further stated that in 1998,  Oratec
Interventions,  Inc., a California  based  company,  entered the spinal  surgery
market with a minimal  invasive  system and has  experienced a revenue growth of
67% from January 2000 to November 2000.

                        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.

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.



                                      -12-


            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 pre-amplification 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 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.

            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.



                                      -13-


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 a  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.

            The  ARTHRO-BST(TM)  is classified as a Class I device in Europe. We
are in the process of obtaining a European Community marking on the product.

            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)  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 (subject to additional financing) or to establish
a production alliance with a large manufacturer of orthopaedic instruments.

            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.  During the 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.



                                      -14-


            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, viscosity,  plasticity, hardness, adhesion, swelling and relaxation and
use of controlled  force with 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 with a 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,   sine  wave  movement  and
                        controlled   force  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  during
                        testing.

            Market

            The market potential for the Mach-1(TM) is as follows:

            o           Biomaterials and biological tissues characterization and
                        stimulation   in   controlled    environments.    Cells,
                        ligaments,  collagen,  skin, bone,  synthetics,  animals
                        containing extra or modified genes;

            o           Polymers  and  gels   stability,   strength,   adhesion,
                        brittleness,   cohesion,  flexibility,   friction,  peel
                        strength,  viscosity,  elasticity.   Adhesives,  elastic
                        substances  resembling  rubber,  polymers  containing  a
                        large quantity of water, glue, latex;

            o           Pharmaceuticals  mechanical properties,  degradation and
                        swelling,  simulation of physiological condition such as
                        gastrointestinal  conditionals,   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-



                                      -15-


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.

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 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.  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.



                                      -16-


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.

            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-Gel(TM)-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



                                      -17-


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.  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.        Employee Growth

            As of March 31, 2001, we had 37  employees,  of whom 23 were engaged
in research and development and 14 were engaged in corporate and  administrative
activities.  Except for two 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.  We anticipate our
total employee count to be approximately 37 to 40 employees by the end of fiscal
year 2002.

            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.

1.10.       Brief History and 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.  Bio
Syntech Ltd. was founded in 1995 by Dr. Amine Selmani as a Quebec corporation.

            Pursuant to an Amalgamation Agreement and related agreements,  dated
February 15, 2000 by and among us, our then  wholly-owned  subsidiary  9083-5661
Quebec Inc., Bio Syntech Ltd., and the former  stockholders of Bio Syntech Ltd.,
9083-5661  Quebec Inc. and Bio Syntech Ltd.  were merged into one company  under
the name of Bio Syntech  Canada Inc. as of February 29, 2000.  Consequently,  we
became  the  record and  beneficial  owner of all of the issued and  outstanding
shares of Bio Syntech  Canada's Common Stock and the former  stockholders of Bio
Syntech Ltd. were issued non-voting  exchangeable shares of Bio Syntech Canada's
class A stock. 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 are held in trust
under the terms of an  Exchange  and Voting  Agreement  by and among us,  Pierre
Barnard as trustee, Bio Syntech Ltd. and 9083-5661 Quebec Inc.

            Under  the  terms  of  the  Exchange  and  Voting  Agreement,   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 such holder.  Consequently,  upon completion of the  transaction,  the former
stockholders  of Bio  Syntech  Ltd.  held,  through  Pierre  Barnard as trustee,
securities with voting rights equal to  approximately  55.7% of the total voting
power of the  outstanding  shares  of our  common  stock.  As of June 15,  2001,
primarily  because of  subsequent  sales of our  shares,  the shares held by the
trustee  accounted  for  approximately  52% of the  total  voting  power  of the
outstanding  shares of our common stock.  At such time as the holders of class A
stock may exchange  such shares for shares of our common  stock,  they will have
the right to direct the disposition of such shares of common stock.



                                      -18-


            The  sole  source  of  consideration  for  issuance  to  the  former
stockholders  of Bio Syntech  Ltd. of the class A stock was the  exchange of the
Bio Syntech Ltd.  shares they held. At such time as the former  stockholders  of
Bio  Syntech  Ltd.  may  exchange  their  class A stock for shares of our common
stock, the sole source of  consideration  for the transfer to them of the shares
of our common stock will be such class A stock.

            Copies of the share  exchange  agreement  and  related  transactions
documents  are  incorporated  by reference as exhibits to this annual  report on
Form 10-KSB.


1.11.       Risk Factors

            We operate 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.

            Since our inception,  we have incurred  losses and we expect that we
            will incur more losses for the foreseeable future. We also may never
            become profitable.

            As of March 31, 2001 our accumulated deficit was $12,670,258. We had
net operating  losses of $5,015,134  and  $3,240,283  for the fiscal years ended
March  31,  2001 and March 31,  2000,  respectively.  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 for one or more of our products,  we may not achieve
significant commercial success.

            We will need  additional  financing  to continue our  operations  in
fiscal year 2003 and will need substantial funds before we are profitable.

            Based on our current  operating  plan,  we estimate that the cash on
hand and  anticipated  receipts will fund our operations  into fiscal year 2003.
Accordingly, in fiscal year 2003 we will need additional financing. If we do not
receive  additional  financing,  we will reassess our  operating  plan to reduce
expenses.  In addition,  we need to raise substantial amounts of money if we are
ever to become  profitable.  If sufficient  financing is unavailable on a timely
basis,  we will have to  curtail  development  programs  or  transfer  rights in
products  that could later prove to be of great value.  The financing we require
and when we will spend it, will depend, in part, on:

            o           How our research  and  development  programs,  including
                        clinical trials, progress;
            o           How much time and  expense  will be  required to receive
                        FDA approval for our product candidates;
            o           The  cost  of  building,   operating   and   maintaining
                        manufacturing facilities;



                                      -19-


            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. We currently have no commitments,
agreements  or  understandings  regarding  additional  financing  or any current
funding arrangement with any of our collaborative  partners and we may be unable
to obtain additional  financing or enter into a funding  arrangement with any of
our collaborative  partners on satisfactory terms, or at all. In addition, if we
issue equity securities,  our present  stockholders will suffer dilution.  If we
issue debt securities,  we will face the risks  associated with debt,  including
rises in interest rates and  insufficient  cash flow to pay the principal of and
interest on our debt securities.

            There are factors  beyond our control  that may prevent our delivery
            technologies  from producing  safe,  useful or  commercially  viable
            products. Accordingly, we may never become profitable.

            To be  profitable,  we must  develop,  manufacture  and  market  our
products,  either alone or by collaborating with others. This process could take
several years and we may never be successful in bringing our product  candidates
to the market.  Additionally,  our success in  pre-clinical  and early  clinical
trials  does not ensure  that large scale  clinical  trials will be  successful.
Clinical results are frequently susceptible to varying  interpretations that may
delay,  limit or prevent further clinical  development or regulatory  approvals.
Our products may:

            o           Be shown to be  ineffective  or to  cause  harmful  side
                        effects;
            o           Fail to receive regulatory approval on a timely basis or
                        at all;
            o           Be hard to manufacture on a large scale;
            o           Be uneconomical;
            o           Not be pursued by our collaborative partners;
            o           Not be prescribed by doctors or accepted by patients; or
            o           Infringe on proprietary rights of another party.

            If  the  Food  and  Drug   Administration   does  not   approve   or
            significantly  delays  the  approval  of  our  therapeutic  delivery
            products, we may be unable to continue operations.

            FDA approval is required to  manufacture  and market  pharmaceutical
products in the United States. The process to receive this approval is extensive
and includes  pre-clinical testing and clinical trials to demonstrate safety and
efficacy,  and a review of the  manufacturing  process to ensure compliance with
good  manufacturing  practices.  This  process  can last many  years and be very
costly and still be  unsuccessful.  The  length of time  necessary  to  complete
clinical  trials and  receive  approval  for  product  marketing  by  regulatory
authorities  varies  significantly by product and indication and is difficult to
predict.  If the Food and Drug  Administration does not approve or significantly
delays the approval of our therapeutic  delivery  products,  we may be unable to
continue  operations.  FDA approval  can be delayed,  limited or denied for many
reasons, including:

            o           A product candidate may not be safe or effective;
            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.


                                      -20-


            We currently  do not have any product that has been  approved by the
FDA.  We are  currently  in the  process  of  filing an  Investigational  Device
Exemption  application  with  the FDA  and an  Application  for  Investigational
Testing with the Health  Protection  Branch of Canada for our  BST-Cargel-C(TM).
Additionally,  once we complete our pre-clinical stage  development,  we plan to
make the same applications for the following products:

            o           OssiFil;
            o           OssiFix;
            o           BST-Disc;
            o           BST-Fill; and
            o           BST-InHeel.

            We will be allowed to conduct human  clinical  testing in the United
States  if our  application  is  approved  by the  FDA,  and  in  Canada  if our
application is approved by the Health Protection Branch of Canada.

            If our present and future  arrangements  with our  collaborators and
            licensees are unsuccessful,  we may be unable to continue operations
            due to substantial additional operating costs.

            We are designing  delivery systems for medications and drug products
that are protected by our licensees' or collaborators'  patents.  In some cases,
we depend on these parties to conduct  pre-clinical  testing and clinical trials
and in the  future,  we may seek to have  these  parties  fund  our  development
programs.  Our agreements  with our  collaborators  currently do not provide for
financing.   If  we  are  unable  to  reach  satisfactory  agreements  with  our
collaborators or with third parties, we would incur substantial additional costs
and would experience  substantial delay in commercializing most of our products.
Some of our  collaborators  can terminate their agreements with us for no reason
and on limited  notice.  We are unsure whether any of these  relationships  will
continue.

            Our  present  plans  call  for us to  develop  the  capabilities  to
manufacture  our own  products in  commercial  quantities.  We may rely upon our
collaborators and or licensees for the marketing and sales of our products.

            We have limited means of enforcing our  collaborators' or licensees'
performance  or of controlling  the resources they devote to our programs.  If a
collaborator fails to perform,  the research,  development or  commercialization
program on which it is working will be delayed.  If this happens, we may have to
stop the program entirely.

            Disputes may arise between us and a collaborator and may involve the
issue  of  which  of  us  owns  the  technology  that  is  developed   during  a
collaboration.  A  potential  dispute  could  delay  the  program  or  result in
expensive arbitration or litigation,  which we might not win. A collaborator may
choose to use its own or other  technology  to deliver its drug or cell product.
Our  collaborators  could  merge  with or be  acquired  by  another  company  or
financial or operational difficulties that could adversely affect our programs.

            If we are involved in a costly litigation to protect our proprietary
            rights,  the cost may  have a  material  effect  on our  results  of
            operations. We may also be prevented from selling our products.

            The following factors are important to our success:

            o           Receiving patent  protection for our product  candidates
                        and those of our collaborators;
            o           Maintaining our trade secrets;
            o           Not infringing on the proprietary rights of others; and
            o           Preventing   others  from   infringing  our  proprietary
                        rights.

            We can protect our proprietary rights from unauthorized use by third
parties only if these rights are covered by valid and enforceable patents or are
effectively  maintained  as trade  secrets.  We try to protect  our  proprietary
position by filing United  States,  Canadian,  and foreign  patent  applications
related to our  proprietary  technology,  inventions and  improvements  that are
important  to  the   development  of  our  business.   The  patent  position  of
biopharmaceutical



                                      -21-


companies  involves  complex  legal and  factual  questions.  Enforceability  of
patents  cannot  be  projected  with  certainty.  Patents,  if  issued,  may  be
challenged, invalidated or circumvented. Any patents that we own or license from
others  may  provide no  protection  against  competitors.  Our  pending  patent
applications,  those we may file in the  future,  or those we may  license  from
third parties, may not result in patents being issued. If patents do issue, they
may not provide us with proprietary protection or competitive advantages against
competitors with similar  technology.  Also,  others may  independently  develop
similar  technologies or duplicate any technology  that we have  developed.  The
laws of certain  foreign  countries  may not protect our  intellectual  property
rights to the same extent as the laws of the United States.

            We also rely on trade secrets, know-how and technology, which we try
to protect by entering into  confidentiality  agreements  with parties that have
access to it,  including our corporate  partners,  collaborators,  employees and
consultants.  Any of these  parties may breach the  agreement  and  disclose our
confidential  information or our  competitors  might learn of the information in
some other way.

            Protecting our proprietary  rights  involves a significant  level of
resources.  Although we have  provided for the costs of applying for patents and
trade marks,  our results of  operations  may be  materially  affected if we are
involved in a costly  litigation  in the process of protecting  our  proprietary
rights.  We may also be prevented  from selling our products if such  litigation
ensues.

            We may be subject to 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.

            Foreign exchange  fluctuations of the Canadian Dollar may affect our
            financial  performance,  because it is not  cost-effective for us to
            enter into forward contracts or currency options.

            We expect a substantial portion of our revenues to be based on sales
and services rendered to come from the United States, while a significant amount
of our operating expenses will be incurred in Canada. As a result, our financial
performance  will be affected by  fluctuations in the value of the United States
dollar to the Canadian dollar. At the present time, we have no plan or policy to
utilize  forward  contracts or currency  options to minimize this exposure,  and
even if these measures are implemented, we are unsure whether these arrangements
will be available,  be cost effective or be able to fully offset future currency
risks.

            Our common stock  currently  is, and may continue to be,  subject to
            additional  regulations  applicable to lower priced  securities that
            may reduce the trading volume of our shares and may also reduce your
            ability to resell the shares later.

            Our common stock may be subject to a number of regulations  that can
affect its price and your ability to sell it. For example,  Rule 15g-9 under the
Exchange Act may apply to our common  stock.  This rule imposes  sales  practice
requirements on broker-dealers  that sell low priced securities to persons other
than  established  customers  and  institutional   accredited   investors.   For
transactions  covered  by  this  rule,  a  broker-dealer  must  make  a  special
suitability  determination  for the purchaser and have received the  purchaser's
written consent to the transaction.

            In  addition,  under United  States  securities  regulations,  penny
stocks generally are equity securities with a price of less than $5.00 per share
other than securities  registered on certain  national  securities  exchanges or
quoted on the Nasdaq Stock Market. For any transaction  involving a penny stock,
unless  exempt,  the  penny  stock  rules  require  the  delivery,  prior to the
transaction,  of a disclosure schedule prescribed by the Securities and Exchange
Commission  relating  to the penny stock  market.  The  broker-dealer  must also
disclose the commissions  payable to both the  broker-dealer  and



                                      -22-


the  registered  representative  and  current  quotations  for  the  securities.
Finally,  monthly statements must be sent disclosing recent price information on
the  limited  market in penny  stocks.  Consequently,  the penny stock rules may
restrict the ability of broker-dealers to sell our common stock. The penny stock
rules  will  not  apply if the  market  price  of our  common  stock is $5.00 or
greater.  These  requirements  may reduce the level of trading  activity  in any
secondary  market for our common stock and may  adversely  affect the ability of
broker-dealers  to sell our  securities.  This may also affect  your  ability to
resell  our  shares of common  stock in the  future if the  market  price of our
common stock remains below $5.00.

            We may not accurately  predict  business  trends which  consequently
            makes our forward looking statements incorrect.

            This annual report 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; and
            o the occurrence or nonoccurrence of circumstances beyond our control.

            All   subsequent   written  and  oral   forward-looking   statements
attributable  to us are expressly  qualified in their entirety by the cautionary
statements.   We  caution   readers  not  to  place  undue   reliance  on  these
forward-looking statements,  which speak only as of their dates. We undertake no
obligations to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.

1.12.             Currency Exchange Rates

            All dollar  amounts  stated in this  annual  report are in  Canadian
dollars, except where otherwise specifically indicated. The following table sets
forth, for the dates indicated,  the rates at the specific date for the Canadian
dollar per one U.S. dollar,  each expressed in Canadian dollars and based on the
noon buying  rate in New York City for cable  transfers  in Canadian  dollars as
certified for customs purposes by the Bank of Canada:

Rate at filing date                                             1.5351

                                                                  2000                                    2001
                                                                  ----                                    ----
Rate at end of period (March 31)                                1.4494                                   1.5763

Period                                                     High for the period                     Low for the period
------                                                     -------------------                     ------------------

May 2001                                                        1.5448                                   1.5377
April 2001                                                      1.5621                                   1.5545
March 2001                                                      1.5618                                   1.5538
February 2001                                                   1.5392                                   1.4936
January 2001                                                    1.5160                                   1.4936




                                      -23-


December 2000                                                   1.5458                                   1.5002

Period                                              Average for the period
------                                              ----------------------

Fiscal year ended March 31, 2000                                1.4710
Fiscal year ended March 31, 2001                                1.5040


ITEM 2.     PROPERTY

            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 FDA
requirements,  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  the  necessary  work to comply  with the good  manufacturing
practice  standards at an estimated cost of  $3,500,000,  of which we anticipate
that only a minimal  amount will be expended in the fiscal year ending March 31,
2002.  We will only  expend more than a minimal  amount if we obtain  additional
financing.


ITEM 3.     LEGAL PROCEEDINGS

            There is no action or  investigation  pending or, to our  knowledge,
threatened against us, except as described below:

            Marie-Claire  Pilon, our former Chief Executive Officer and a member
of our Board of  Directors,  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 as our Chief
Executive  Officer,  she was  wrongfully  dismissed  and is seeking  $223,590 in
compensation  allegedly  due,  $20,000  for  punitive  damages  and  $15,000 for
additional damages. BioSyntech and Dr. Selmani deny these allegations and intend
to vigorously defend 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.
Selmani. Mr. 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. On May 25, 2001, a decision
was  rendered  with respect to this action.  As a result of this  decision,  Mr.
Conyers  was  awarded  seven  months  of  salary  plus  100,000  shares  of  our
subsidiary's  Common Stock. The total dollar value of the award is approximately
$160,000 and was recorded as an expense in the year-ended March 31, 2001.


ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            Not Applicable


                                      -24-


                                     PART II


ITEM 5.     MARKET FOR COMMON STOCK 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             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
                                   4th quarter          $1.6875              $0.6250


            According  to  information  furnished to the Company by the transfer
agent for the Common Stock, as of June 15, 2001, there were 61 holders of record
of the Common Stock, including depositories.

            The Company has never  declared  or paid any cash  dividends  on its
Common Stock and presently anticipates that any future earnings will be retained
for the development of its business.  The payment of future dividends will be at
the discretion of the Company's  Board of Directors and will depend upon,  among
other things, future earnings, capital requirements,  the financial condition of
the Company, and general business conditions.

            We filed a registration  statement on Form SB-2, Commission File No.
333-45756, which the Securities and Exchange Commission declared effective as of
May 8, 2001.  The  registration  statement  relates to an aggregate of 7,537,036
shares  of our  common  stock  that may be sold from time to time by some of our
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 paid the registration expenses of these shares,  including legal and
accounting  fees,  we do not receive any proceeds from the sale of the shares of
our common  stock  referred  to in the  registration  statement  and all the net
proceeds  from  such  sales  go  to  the  selling   stockholders.   The  selling
stockholders  have been  offering the shares of our common stock  referred to in
the registration statement since May 9, 2001.


ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

            The   discussion   in   this   report   on  Form   10-KSB   contains
forward-looking  statements that involve risks and uncertainties.  The Company'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 the section  entitled "Risk Factors" of this report,  as well
as those risks discussed in this section and elsewhere in this report.

            The discussion and analysis below should be read in conjunction with
the  Consolidated  Financial  Statements  of the Company  and the notes  thereto
included elsewhere herein.

            BioSyntech,  Inc. (together with its subsidiary,  Bio Syntech Canada
Inc.,  also referred to as "we," "us" or the "Company"),  a Nevada  corporation,
was incorporated on December 14, 1994. It is a development stage company engaged
in the  development  of  biotherapeutic  delivery  systems  made of  proprietary
biomaterials.  The  Company's  systems  are  intended  to enable or enhance  the
treatment  of  diseases  or  injuries  for  which  therapies  exist or are under
development,  but which must be transported  to the site of action.  The Company
has had limited  revenues to date.  Its



                                      -25-


future  operations are dependent upon financing  necessary to complete  research
and  development  projects and market the  Company's  products.  There can be no
assurance  that the Company  will be able to  complete  the  development  of its
products, or if completed, that they can be successfully marketed.  Furthermore,
there is no assurance that even if the products are completed and marketed,  the
revenues therefrom will be sufficient to fund the Company's future operations or
to fund additional research, development and marketing.

            To date, we have incurred substantial losses from operations, and as
of March 31, 2001, had an accumulated deficit of $12,670,258. 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 fiscal years ended March 31, 2001 and 2000. The
amounts are in thousands of CDN $.


                                                             Fiscal Years Ended
                                                                  March 31,
                                                             2001            2000
                                                             ----            ----


Sales                                                      $144.4             $0
Cost of sales                                                67.0              0
                                                         --------         --------
Gross profit                                                $77.4             $0
Operating Expenses:
   Research and development                              $3,232.1         $2,341.7
   Investment tax credits                                  (299.2)          (676.9)
   General and administrative (Net of Grants)             2,948.5          1,163.7
Amortization of property, plant and equipment               149.1            178.2
                                                         --------         --------
Total operating expenses                                 $6,030.5         $3,006.7
                                                         --------         --------
Loss from operations                                     $5,953.1         $3,006.7
Interest income                                            (485.5)           (18.6)
Interest expense                                             46.2            198.4
Loss (Gain) on foreign exchange                            (498.6)            53.8
                                                         --------         --------
Net loss                                                 $5,015.2         $3,240.3



Results of Operations for the Fiscal Years Ended March 31, 2001 and 2000.

Sales

            During the year ended March 31,  2001,  we had sales of 3 Mach-1(TM)
units for an aggregate revenue of $144,358 and a net loss of $5,015,134 compared
to sales of zero and a net loss of $3,240,283 for the year ended March 31, 2000.

            Loss per share was $0.17 for the year ended March 31, 2001, compared
to $0.23 per share for the year ended March 31, 2000.



                                      -26-


Operating Expenses

            Research and development expenses were $3,232,074 for the year ended
March 31, 2001  compared to  $2,341,697  for the year ended March 31, 2000.  The
increase of $890,377 in research and  development  expenses is  attributable  to
acquisition  of  research  and  development  equipment  ($944,756),   hiring  of
additional   researchers  and  affiliated  expenses  ($583,559),   the  cost  of
pre-clinical  toxicological  studies  ($285,129),  the research and  development
activities  with  our  corporate  collaborators  ($54,832),   royalty  fees  for
technological  rights ($7,218),  our own in-house programs ($81,216) and reduced
by the  acquisition of  technological  rights in fiscal 2000 of  $1,072,000.  We
anticipate that we will continue to devote significant resources to research and
development.

Investment Tax Credits

            We claim  investment  tax  credits  on all  allowable  research  and
development expenses. The amount we accrued for the year ended March 31, 2001 is
$299,195 compared to $676,861 for the year ended March 31, 2000,  representing a
decrease of  $377,666.  The decrease in the year 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 and a reduction of allowable
tax credits.

General and Administrative Expenses and Grants

            General and  administrative  expenses were  $2,948,459  for the year
ended March 31, 2001 compared to  $1,163,696  for the year ended March 31, 2000,
representing an increase of $1,784,763. The increase is principally attributable
to  professional  fees  ($751,681),   marketing  expenses  ($179,078),  investor
relations  ($269,151),  tax on capital ($90,582),  an increase in administrative
expenses  due to an increase in  personnel  ($617,629)  including a provision of
$166,383  for  pending  lawsuit by former  employee,  expenses  relating  to the
maintenance  of the facility in which we conduct our  operations  ($91,361)  and
offset by an  increase  in labor  grants  received  of $50,938 and a decrease of
$169,060 for options granted to consultants.

Depreciation of Property, Plant and Equipment

            Depreciation  expense was $149,104 for the year ended March 31, 2001
compared to $178,179 for the year ended March 31, 2000,  representing a decrease
of  $29,075.  The  decrease  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 20 years  after we
acquired the facility.

Interest Income and Interest Expense

            Interest  income  represents  income  earned  on our  cash  and cash
equivalents.  Interest  income for the year ended  March 31,  2001 was  $485,523
compared to $18,641 for the year ended March 31, 2000,  representing an increase
of $466,882.  The  increase is  primarily  due to a higher level of cash on hand
during the period as a result of the private  placements  consummated at the end
of fiscal  year ended  March 31,  2000 and at the  beginning  of the fiscal year
ended March 31, 2001.

            Interest  expense  was  $46,182  for the year ended  March 31,  2001
compared to $198,402 for the year ended March 31, 2000,  representing a decrease
of $152,220.  The decrease is attributable to the elimination of the interest on
the capital  lease  entered into in order to finance our  facility  prior to its
acquisition in July 2000.

Loss (Gain) on Foreign Exchange

            Gain on foreign  exchange  was $498,564 for the year ended March 31,
2001  compared  to a loss  of  $53,811  for  the  year  ended  March  31,  2000,
representing  an increase  of  $552,375.  The  increase is a result of a greater


                                      -27-


amount of cash on hand denominated in USD during the fiscal year and an increase
in the average CDN to USD  foreign  exchange  rate from 1.4710 to 1.5040 for the
years ended March 31, 2000 and March 31, 2001, respectively,  and an increase in
the closing CDN to USD foreign exchange rate from 1.4494 to 1.5763 for March 31,
2000 and March 31, 2001, respectively.

Liquidity and Capital Resources

            As of March 31, 2001, our cash position was  $6,643,370  compared to
$7,301,143  as of March 31, 2000.  In July 2000,  we  purchased  the facility in
which we conduct our  operations  for  $1,200,000.  We believe  that the capital
resources   presently  on  hand  will  be  sufficient   for  projected   capital
expenditures and operating  expenses through fiscal year 2002. We have a program
in place to limit  operating  costs  and we have  limited  funds  available  for
capital expenditure.

            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  $6,055,750.  Each unit comprised one share of common stock
and one warrant for the purchase of one additional  share at a price of US $4.50
per share before March 30, 2001. These warrants have expired unexercised.

              --------------------------------------------------------------------------------------
                     Closing Date            Number of Units                         Proceeds
                     ------------            ---------------                         --------
              --------------------------------------------------------------------------------------
              March 31, 2000                      843,500        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$6,055,750 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 will seek to raise  additional funds either
within  the next 12  months  or  thereafter,  by  selling  additional  equity or
convertible  debt  securities  or through  collaboration  agreements  with third
parties.  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.



                                      -28-


ITEM 7.     FINANCIAL STATEMENTS

See Consolidated Financial Statements on page F-1.


ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

            Ernst &  Young LLP has served as the independent  accountant for
Bio Syntech Canada and for its predecessors since such corporations'  inception.
Under applicable accounting rules and policies,  Bio Syntech Canada is deemed to
be the  acquirer  of the  Company  as a result  of the  Transactions.  Since the
Transactions,  Ernst & Young LLP has served as the independent accountant of
the Company.


                                    PART III

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
            COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

            The  information  required  to be set  forth  in this  Item  will be
incorporated by reference from the Company's 2001 proxy statement to be filed no
later than July 29, 2001  pursuant to  Regulation  14A of the General  Rules and
Regulations under the Securities Exchange Act of 1934, as amended.


ITEM 10.    EXECUTIVE COMPENSATION.

            The  information  required  to be set  forth  in this  Item  will be
incorporated by reference from the Company's 2001 proxy statement to be filed no
later than July 29, 2001  pursuant to  Regulation  14A of the General  Rules and
Regulations under the Securities Exchange Act of 1934, as amended.


ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

            The  information  required  to be set  forth  in this  Item  will be
incorporated by reference from the Company's 2001 proxy statement to be filed no
later than July 29, 2001  pursuant to  Regulation  14A of the General  Rules and
Regulations under the Securities Exchange Act of 1934, as amended.

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            The  information  required  to be set  forth  in this  Item  will be
incorporated by reference from the Company's 2001 proxy statement to be filed no
later than July 29, 2001  pursuant to  Regulation  14A of the General  Rules and
Regulations under the Securities Exchange Act of 1934, as amended.



                                      -29-


ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

 Exhibit 2.1            Amalgamation Agreement made December 2, 1999, as amended
                        and  restated on February  15,  2000,  among  BioSyntech
                        Inc.,  Bio  Syntech  Ltd.  and  9083-5661  Quebec Inc. -
                        Incorporated  by  reference  to  Exhibit  2.1 to Current
                        Report on Form 8-K dated March 15, 2000.

 Exhibit 3.1            Articles of Incorporation - Incorporated by reference to
                        Exhibit  3.1 to  Registration  Statement  on Form  10-SB
                        filed August 30, 1999.

 Exhibit 3.2            By-laws -  Incorporated  by  reference to Exhibit 3.2 to
                        Registration  Statement  on Form 10-SB filed  August 30,
                        1999.

 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 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.



                                      -30-


 Exhibit 10.7           Material Transfer Agreement between Bio Syntech Ltd. and
                        Reprogenesis,  Inc.  dated July 27, 1999. - Incorporated
                        by reference  to Exhibit  10.7 to Annual  Report on Form
                        10-KSB for period ended December 31, 1999 and filed with
                        the  Securities  and  Exchange  Commission  on March 30,
                        2000.

 Exhibit 10.8           Confidential  Disclosure  Agreement  between Bio Syntech
                        Ltd. and Ophidian Pharmaceuticals, Inc. dated August 16,
                        1999.  -  Incorporated  by  reference to Exhibit 10.8 to
                        Annual  Report on Form 10-KSB for period ended  December
                        31,  1999 and filed  with the  Securities  and  Exchange
                        Commission on March 30, 2000.

 Exhibit 10.9           Biological   Material  Transfer  Agreement  between  Bio
                        Syntech Ltd. and Ophidian  Pharmaceuticals,  Inc.  dated
                        August 16, 1999. - Incorporated  by reference to Exhibit
                        10.9 to Annual  Report on Form  10-KSB for period  ended
                        December  31,  1999 and filed  with the  Securities  and
                        Exchange Commission on March 30, 2000.

 Exhibit 10.10          Mutual  Confidentiality  and  Non-Disclosure   Agreement
                        between Bio Syntech Ltd. and Viragen  Incorporated dated
                        September  2,  1999.  -  Incorporated  by  reference  to
                        Exhibit 10.10 to Annual Report on Form 10-KSB for period
                        ended  December  31, 1999 and filed with the  Securities
                        and Exchange Commission on March 30, 2000.

 Exhibit 10.11          Confidential  Disclosure  Agreement  between Bio Syntech
                        Ltd.  and  Ontogeny,  Inc.  dated  October 26,  1999.  -
                        Incorporated  by  reference  to Exhibit  10.11 to Annual
                        Report on Form 10-KSB for period ended December 31, 1999
                        and filed with the Securities and Exchange Commission on
                        March 30, 2000.

 Exhibit 10.12          Material Transfer Agreement between Bio Syntech Ltd. and
                        Ontogeny, Inc. dated December 3, 1999. - Incorporated by
                        reference  to  Exhibit  10.12 to  Annual  Report on Form
                        10-KSB for period ended December 31, 1999 and filed with
                        the  Securities  and  Exchange  Commission  on March 30,
                        2000.

 Exhibit 10.13          Material Transfer Agreement between Bio Syntech Ltd. and
                        Biomet Manufacturing Corporation dated February 8, 2000.
                        -  Incorporated  by reference to Exhibit 10.13 to Annual
                        Report on Form 10-KSB for period ended December 31, 1999
                        and filed with the Securities and Exchange Commission on
                        March 30, 2000.

Exhibit 10.14           Employment Agreement of Ajay Gupta with BioSyntech, Inc.
                        dated  as  of  November  20,  2000  -  Incorporated   by
                        reference  to Exhibit  10.14 to  Amendment  No. 3 to the
                        Registration  Statement on Form SB2/A and filed with the
                        Securities and Exchange Commission on April 24, 2001.

Exhibit 21              List of  Subsidiaries  of  Company.  -  Incorporated  by
                        reference to Exhibit 21 to Annual  Report on Form 10-KSB
                        for  period  ended  March 31,  2000 and  filed  with the
                        Securities and Exchange Commission on August 16, 2000.

*Exhibit 23.1           Consent of Independent Auditors

---------------------------
*Filed herewith.

(b) Reports on Form 8-K:

            None.



                                      -31-



                                   SIGNATURES

            Pursuant  to  the  requirements  of  Section  13  or  15(d)  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.


June 19, 2001                           By:          /s/ Amine Selmani
                                                     -------------------------------
                                                     Amine Selmani
                                                     President


                                POWER OF ATTORNEY

            BioSyntech,  Inc. and each of the  undersigned do hereby appoint Dr.
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 Annual Report
on Form  10-KSB  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 1934,
this  Amendment has been signed below by the following  persons on behalf of the
Company and in the capacities and on the dates indicated.


Signature                                                          Title                                     Date

/s/ Amine Selmani                                      Chairman of the Board,                             June 19,2001
-------------------------------------                  Chief Executive Officer and
    Amine Selmani                                      President


/s/ Denis N. Beaudry                                   Director                                           June 19,2001
-------------------------------------
    Denis N. Beaudry

                                                       Director
-------------------------------------
    Pierre Alary

/s/ Jean-Yves Bourgeois                                Director                                           June 19,2001
-------------------------------------
    Jean-Yves Bourgeois

/s/ Pierre Ranger                                      Director                                           June 19,2001
-------------------------------------
    Pierre Ranger

/s/ Marie-Claire Pilon                                 Director                                           June 19,2001
-------------------------------------
    Marie-Claire Pilon

/s/ Anthony Casola                                     Chief Financial Officer,                           June 19,2001
-------------------------------------                  Chief Accounting Officer and
    Anthony Casola                                     Secretary


                                      -32-

Consolidated Financial Statements
BioSyntech, Inc.
[a development stage company]
March 31, 2001 and 2000



                                      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, 2001 and 2000
and the related  consolidated  statements of  operations,  stockholders'  equity
(deficiency)  and cash flows for the period from inception to March 31, 2001 and
for the years  ended  March  31,  2001 and 2000.  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 as of
March 31, 2001 and 2000 and the results of its operations and its cash flows for
the period  from  inception  to March 31, 2001 and for the years ended March 31,
2001 and 2000 in conformity with accounting principles generally accepted in the
United States.

                                                  /S/ ERNST & YOUNG LLP
Montreal, Canada,
May 18, 2001.                                     Chartered Accountants

                                      F-2

BioSyntech, Inc.
A development stage company

                           CONSOLIDATED BALANCE SHEETS


As of March 31, 2001 and 2000


                                                                     2001          2001          2000
                                                                     US$            C$            C$
--------------------------------------------------------------------------------------------------------
                                                                  [note 2]
ASSETS [note 8]
Current assets
Cash and cash equivalents [note 12]                              4,214,534      6,643,370      7,301,143
Short-term investment [note 3]                                        --             --           75,000
Receivables [note 4]                                               132,103        208,233         91,376
Inventory                                                           22,214         35,016         47,188
Investment tax credits receivable [note 11]                        122,439        193,000        575,000
Prepaid expenses                                                    19,305         30,432         18,365
--------------------------------------------------------------------------------------------------------
                                                                 4,510,595      7,110,051      8,108,072
--------------------------------------------------------------------------------------------------------
Property, plant and equipment [note 5]                           1,574,654      2,482,127      1,500,890
Deposits and other assets                                           14,487         22,836         16,650
--------------------------------------------------------------------------------------------------------
                                                                 6,099,736      9,615,014      9,625,612
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities [note 7]                1,138,515      1,794,641      1,060,928
Due to stockholder, without interest and repayment terms             6,344         10,000         10,000
Deferred revenues                                                     --             --           65,451
Current portion of long-term debt [note 8]                          21,146         33,333         75,000
Current portion of obligations under capital leases [note 9]        15,367         24,224         83,479
--------------------------------------------------------------------------------------------------------
                                                                 1,181,372      1,862,198      1,294,858
--------------------------------------------------------------------------------------------------------
Long-term debt [note 8]                                            105,734        166,667        225,000
Obligations under capital leases [note 9]                           35,921         56,622        912,266
--------------------------------------------------------------------------------------------------------
                                                                 1,323,027      2,085,487      2,432,124
--------------------------------------------------------------------------------------------------------

Commitments [note 14]
Contingent liabilities [note 16]

Stockholders' equity
Common stock [note 10]
   Par value $0.001
   Authorized 100,000,000 common shares
      [50,000,000 in 2000]
   Issued and outstanding
      29,182,250 common shares [28,115,536 in 2000]             11,575,446     18,246,375     13,132,702
Additional paid-in capital                                       1,239,237      1,953,410      1,715,910
Deficit accumulated during the development stage                (8,037,974)   (12,670,258)    (7,655,124)
--------------------------------------------------------------------------------------------------------
                                                                 4,776,709      7,529,527      7,193,488
--------------------------------------------------------------------------------------------------------
                                                                 6,099,736      9,615,014      9,625,612
========================================================================================================

See accompanying notes

On behalf of the Board:


--------------------------------------------------------------           ----------------------------------------------------------
Director                                                                 Director

                                      F-3


BioSyntech, Inc.
A development stage company

                      CONSOLIDATED STATEMENTS OF OPERATIONS


Years ended March 31, 2001 and 2000




                                                             Cumulative
                                                                 from
                                                             inception to
                                                           March 31, 2001         2001                2001                 2000
                                                                 C$                US$                 C$                   C$
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                 [note 2]
Sales                                                          312,496            91,580              144,358                 --
Cost of sales                                                  138,917            42,476               66,955                 --
-----------------------------------------------------------------------------------------------------------------------------------
                                                               173,579            49,104               77,403                 --
-----------------------------------------------------------------------------------------------------------------------------------

Research and development expenses                            8,886,046         2,050,418            3,232,074          2,341,697
Investment tax credits                                      (1,712,559)         (189,808)            (299,195)          (676,861)
General and administrative expenses                          6,061,109         1,913,398            3,016,089          1,180,388
Interest on long-term debt                                     284,519            29,298               46,182            198,402
Depreciation of property, plant and
   equipment                                                   362,325            94,591              149,104            178,179
Grants                                                         (84,322)          (42,904)             (67,630)           (16,692)
Interest revenue                                              (508,528)         (308,014)            (485,523)           (18,641)
(Gain) loss on foreign exchange                               (444,753)         (316,287)            (498,564)            53,811
-----------------------------------------------------------------------------------------------------------------------------------
                                                            12,843,837         3,230,692            5,092,537          3,240,283
-----------------------------------------------------------------------------------------------------------------------------------
Net loss and comprehensive loss for the period
   [note 11]                                               (12,670,258)       (3,181,588)          (5,015,134)        (3,240,283)
Deficit accumulated during the
   development stage, beginning of period                           --        (4,856,386)          (7,655,124)        (4,414,841)
-----------------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the
     development stage, end of period                      (12,670,258)       (8,037,974)         (12,670,258)        (7,655,124)
-----------------------------------------------------------------------------------------------------------------------------------

Weighted average number of shares
     outstanding                                                              29,145,309           29,145,309         14,042,819
Basic and diluted loss per share [note 10]                                          0.11                 0.17                0.23
-----------------------------------------------------------------------------------------------------------------------------------

See accompanying notes


                                       F-4


BioSyntech, Inc.
A development stage company

                           STATEMENTS OF STOCKHOLDERS'
                          EQUITY (DEFICIENCY) [note 10]


From inception to March 31, 2001
[In Canadian dollars]




                                                           Common Stock
                                                -----------------------------------
                                                                                      Additional
                                                                                        paid-in    Accumulated deficit
                                                     Shares           Amount            capital             $               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 14]                   1,072,000      1,072,000             --                 --        1,072,000
Deemed options granted to consultants                       --             --        406,560                 --          406,560
Net loss and comprehensive loss for the period
   from April 1, 1999 to
   February 28, 2000                                        --             --             --         (2,850,977)      (2,850,977)
-----------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding February 29, 2000                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 10]                     843,500      4,270,243             --                 --        4,270,243
Share issue costs [note 10]                                 --       (341,520)            --                 --         (341,520)
Net loss and comprehensive loss for the period
   from February 29, 2000 to
   March 31, 2000                                           --             --             --           (389,306)        (389,306)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000                             28,115,536     13,132,702      1,715,910         (7,655,124)       7,193,488
Common stock issued for cash [note 10]               1,066,714      5,487,419             --                 --        5,487,419
Options granted to consultants                              --             --        237,500                 --          237,500
Share issue costs [note 10]                                 --       (373,746)            --                 --         (373,746)
Net loss and comprehensive loss for the
   period from Apri1 1, 2000 to March 31,
   2001                                                     --             --             --         (5,015,134)      (5,015,134)
-----------------------------------------------------------------------------------------------------------------------------------
                                                    29,182,250     18,246,375      1,953,410        (12,670,258)       7,529,527
-----------------------------------------------------------------------------------------------------------------------------------


US dollars [note 2]
Balance as at March 31, 2001                                       11,575,446      1,239,237         (8,037,974)       4,776,709
-----------------------------------------------------------------------------------------------------------------------------------

See accompanying notes

                                      F-5

BioSyntech, Inc.
A development stage company

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


Years ended March 31, 2001 and 2000
                                                                      Cumulative
                                                                         from
                                                                     inception to
                                                                    March 31, 2001          2001            2001             2000
                                                                         C$                 US$              C$               C$
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                        [note 2]
OPERATING ACTIVITIES
Net loss and comprehensive loss                                      (12,670,258)     (3,181,588)      (5,015,134)      (3,240,283)
Items not affecting cash
Depreciation                                                             362,325          94,591          149,104          178,179
Services paid by the issuance of common stock                          2,527,000              --               --        1,072,000
Options granted to consultants                                         1,953,410         150,669          237,500          406,560
Exchange gain                                                           (591,811)       (371,294)        (585,270)          (6,541)
Changes in working capital assets and liabilities
   Accounts receivable                                                  (208,233)        (74,134)        (116,857)         (22,916)
   Inventory                                                             (35,016)          7,722           12,172          (23,488)
   Investment tax credits receivable                                    (193,000)        242,340          382,000           28,663
   Prepaid expenses                                                      (30,432)         (7,655)         (12,067)         (18,365)
   Deferred revenues                                                          --         (41,522)         (65,451)          65,451
   Accounts payable and accrued liabilities                            1,632,718         373,202          588,278          481,376
------------------------------------------------------------------------------------------------------------------------------------
Cash flows used in operating activities                               (7,253,297)     (2,807,669)      (4,425,725)      (1,079,364)
------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment                             (1,118,412)       (661,778)      (1,043,161)         (12,907)
Purchase of short-term investment                                        (75,000)             --               --          (75,000)
Purchase of other assets                                                 (22,886)         (3,956)          (6,236)            (833)
Proceeds from maturing of short-term investments                          75,000          47,580           75,000               --
Changes in non-cash working capital balances related to
   investing activities                                                  145,435          92,264          145,435               --
------------------------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities                                 (995,863)       (525,890)        (828,962)         (88,740)
------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt                                               700,000              --               --               --
Repayment of long-term debt                                             (500,000)        (63,440)        (100,000)        (400,000)
Proceeds of demand loan                                                  581,845              --               --               --
Repayment of demand loan                                                (581,845)             --               --         (518,598)
Increase in due to shareholder                                            30,394              --               --               --
Repayment to shareholder                                                 (20,394)             --               --          (20,394)
Repayment of obligations under capital leases                         (1,645,145)       (635,683)      (1,002,029)         (52,443)
Proceeds from issuance of shares of
   Bio Syntech Ltd. prior to the reverse acquisition                   3,890,068              --               --        2,595,222
Proceeds from issuance of common shares of
   BioSyntech, Inc. prior to the reverse acquisition                   3,399,980              --               --        3,379,279
Repurchase of common stock of
   BioSyntech, Inc. prior to the reverse acquisition                    (506,380)             --               --         (506,380)
Proceeds from issuance of common shares of
   BioSyntech, Inc. after the reverse acquisition                      9,757,662       3,481,202        5,487,419        4,270,243
Share issue costs                                                       (805,466)       (237,103)        (373,746)        (341,520)
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities                                  14,300,719       2,544,976        4,011,644        8,405,409
------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
   equivalents                                                           591,811         371,294          585,270            6,541
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalent                    6,643,370        (417,289)        (657,773)       7,243,846
Cash and cash equivalents, beginning of period                                --       4,631,823        7,301,143           57,297
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period [note 12]                     6,643,370       4,214,534        6,643,370        7,301,143
====================================================================================================================================
Additional information
Interest paid                                                            274,533          29,298           46,182          188,416
------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes

                                      F-6


BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2001 and 2000
[In Canadian dollars]


1.        NATURE OF BUSINESS AND BASIS OF PRESENTATION

BioSyntech, Inc. [the "Company"] was incorporated on December 14, 1994 under the
laws of the State of Nevada.

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, 2001 and
2000,  the related  15,177,036  shares of common  stock of the Company have been
issued  and  placed  in  trust  and  accordingly   are  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  was treated as an acquisition of the Company,  which at the date of
the transaction  was a shell company,  by Bio Syntech and was accounted for as a
purchase of the net assets of the  Company by Bio Syntech in these  consolidated
financial    statements.    Accordingly,    the   transaction    represented   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 has continued 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,
2001 and 2000 are those of Bio  Syntech.  For purposes of the  acquisition,  the
fair value of the net assets of the Company of  $2,873,848  was  ascribed to the
12,095,000  previously  outstanding  common  shares 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.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]

1.        NATURE OF BUSINESS AND BASIS OF PRESENTATION [Cont'd]

The Company develops advanced  biomaterials  specializing in tissue  engineering
and therapeutic  delivery  focusing on the repair of damaged tissue in the human
body like bone or cartilage.  The Company is also engaged in the  development of
advanced injectable  biomaterials for the delivery of cells and genetic material
and biotherapeutic agents. The Company also develops  instrumentation  products.
The Company has limited  revenues to date and they have come entirely from sales
of  instrumentation  products.  As at March 31, 2001, the Company's  accumulated
deficit was $12,670,258.  The Company currently has products at different stages
of development, including the pre-clinical trial stage. The Company has incurred
net losses  every year since its  inception  and  anticipates  that  losses will
continue for the foreseeable future.

The Company has been engaged  primarily in research  and  development  since its
inception  in 1995.  The  Company's  ability to  continue  operations  after its
current  capital  resources are  exhausted  depends on its ability to obtain the
financing  necessary to complete  research and  development  projects and market
products as to which no assurance  can be given.  However,  given its program to
limit operating costs and capital  expenditures,  the Company  believes that its
financial  resources are sufficient to meet planned  activities at least through
the 2002 fiscal year.

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

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, 2001, which was $1.5763 Canadian dollar per US dollar.


                                      F-8

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]


2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd[

Revenue recognition

Product revenue is recognized when persuasive evidence of an arrangement exists,
delivery,  there are no future  performance  obligations,  the purchase price is
fixed and determinable, and collectibility is reasonably assured.

Cash equivalents

Cash  equivalents  consist of investments  that are readily  convertible  into a
known  amount of cash,  are subject to minimal risk of changes in value and have
an original maturity of three months or less from the date of purchase.

Inventory

Inventory consists of raw materials. Inventories are stated at the lower of cost
[on a first-in, first-out basis] and replacement cost.

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                                                               20 years
Building under capital lease                                           10 years
Office furniture and equipment                                    3 and 5 years
Equipment under capital lease                                 3, 5 and 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

The Canadian dollar is the functional  currency of the Company.  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.

                                      F-9

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]


2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]

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.

Stock-based compensation

SFAS No. 123, "Accounting for Stock-Based  Compensation",  encourages,  but does
not require,  companies to record  compensation  cost for  stock-based  employee
compensation  plans at fair  value.  The  Company  has  chosen  to  account  for
stock-based  compensation  awards to employees and directors using the intrinsic
value method  prescribed in Accounting  Principles Board Opinion ["APB"] No. 25,
"Accounting  for  Stock  Issued  to  Employees,"  and  related  Interpretations.
Accordingly,  compensation  cost for stock  options  awarded  to  employees  and
directors is measured as the excess,  if any, of the quoted  market price of the
Company's  stock at the date of grant over the amount an  employee  or  director
must pay to acquire the stock.

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.


                                      F-10

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]


2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]

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.

Accounting for derivative instruments and hedging activities

The Financial  Accounting  Standards Board has issued SFAS No. 133,  "Accounting
for Derivative  Instruments and Hedging  Activities" and SFAS No. 137, "Deferral
of Effective Date".  SFAS No. 133 requires all derivatives to be recorded on the
balance sheet at fair value and provides a comprehensive and consistent standard
for the  recognition  and  measurement  of derivatives  and hedging  activities.
Accordingly,  effective April 1, 2001, the Company adopted these statements. The
Company  has  reviewed  these  statements  and has  concluded  that they have no
significant impact on its consolidated financial statements as at April 1, 2001.


3.        SHORT-TERM INVESTMENT

The short-term  investment consisted of a held-to-maturity  term deposit,  which
matured  on July 21,  2000 and was  pledged  as  collateral  against a letter of
guarantee issued by a financial institution.


4.        RECEIVABLES

                                                    2001           2000
                                                     $              $
--------------------------------------------------------------------------------

Sales tax receivable                             172,921         73,623
Government grants receivable                       9,000          3,462
Interest receivable                               17,272         14,291
Other                                              9,040             --
--------------------------------------------------------------------------------
                                                 208,233         91,376
================================================================================

                                      F-11

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]


5.        PROPERTY, PLANT AND EQUIPMENT

                                                                             Accumulated               Net
                                                     Cost                   amortization          carrying value
                                                       $                         $                      $
----------------------------------------------------------------------------------------------------------------

2001
Land                                                     351,000                    --              351,000
Building                                               2,211,472               299,975            1,911,497
Office furniture and equipment                           169,675                46,015              123,660
Equipment under capital lease                             90,781                14,093               76,688
Office furniture under capital lease                      21,424                 2,142               19,282
----------------------------------------------------------------------------------------------------------------
                                                       2,844,352               362,225            2,482,127
================================================================================================================

2000
Building and land under capital lease                  1,614,629               188,389            1,426,240
Office furniture and equipment                            74,357                20,954               53,403
Equipment under capital lease                             25,075                 3,828               21,247
----------------------------------------------------------------------------------------------------------------
                                                       1,714,061               213,171            1,500,890
================================================================================================================


6.        CREDIT FACILITY

The Company has a $50,000 credit  facility,  maturing on July 31, 2002,  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.  As
of March 31, 2001 and 2000, no amount was drawn under this credit facility.

As at March 31, 2001 and 2000, the prime rate was 6.75% and 7% respectively.


7.        ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

                                                                                   2001          2000
                                                                                    $             $
----------------------------------------------------------------------------------------------------------

Accounts payable                                                              1,143,803       943,806
Accrued compensation                                                            268,588        59,729
Other accrued liabilities                                                       236,815        57,393
Accounts payable related to property, plant and equipment                       145,435            --
----------------------------------------------------------------------------------------------------------
                                                                              1,794,641     1,060,928
==========================================================================================================


                                      F-12

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]



8.        LONG-TERM DEBT

                                                                           2001                     2000
                                                                            $                        $
------------------------------------------------------------------------------------------------------------

Bank loan bearing  interest at the prime rate.  The loan has
an  interest  exemption  period  covered  by a  governmental
agency,  until June 26, 2001, matures on May 26, 2006 and is
payable  in  monthly  instalments  of $3,333  plus  interest
starting on June 26, 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%,
reimbursed   in  fiscal   year  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
------------------------------------------------------------------------------------------------------------
                                                                          200,000                  300,000
Less: current portion                                                      33,333                   75,000
------------------------------------------------------------------------------------------------------------
                                                                          166,667                 225,000
============================================================================================================

The principal instalments payable are as follows for years ending March 31:

                                                                                                      $
------------------------------------------------------------------------------------------------------------

2002                                                                                               33,333
2003                                                                                               40,000
2004                                                                                               40,000
2005                                                                                               40,000
2006                                                                                               40,000
Subsequent to 2006                                                                                  6,667
------------------------------------------------------------------------------------------------------------
                                                                                                  200,000
============================================================================================================



                                      F-13

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]




9.        OBLIGATIONS UNDER CAPITAL LEASES

Future minimum lease payments under the capital leases are as follows:


                                                                                           $
------------------------------------------------------------------------------------------------

2002                                                                                    37,491
2003                                                                                    32,643
2004                                                                                    21,679
2005                                                                                    13,665
------------------------------------------------------------------------------------------------
                                                                                       105,478
Less: interest portion at rates varying between 11.05% and 27.83%                       24,632
------------------------------------------------------------------------------------------------
                                                                                        80,846
Less: current portion                                                                   24,224
------------------------------------------------------------------------------------------------
                                                                                        56,622
================================================================================================

Included in interest on long-term debt is interest on obligations  under capital
leases in the amount of $34,666 [$105,273 in 2000].



10.       STOCKHOLDERS' EQUITY (DEFICIENCY) AND STOCK OPTIONS

Share issuances

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  for a cash
consideration of $3,670,243  [US$2,532,250] and 120,000 common shares for a cash
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
shares at a price of US$4.50 on or before March 30, 2001.  These  warrants  have
expired unexercised.


                                      F-14

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]


10.       STOCKHOLDERS' EQUITY (DEFICIENCY) AND STOCK OPTIONS [CONT'D]

On  April  4,  2000,  the  Company  issued  803,857  common  shares  for a  cash
consideration of $4,131,343  [US$2,813,500]  and 30,000 common shares for a cash
consideration   of  $150,000.   The  share  issue  costs  amounted  to  $326,187
[US$220,892].  As part of this  transaction,  a total of 833,857  warrants  were
issued  which  entitle  the holder to purchase an  aggregate  of 833,857  common
shares at a price of US$4.50 on or before March 30, 2001.  These  warrants  have
expired unexercised.

On  April  17,  2000,  the  Company  issued  82,000  common  shares  for a  cash
consideration  of  $425,879  [US$287,000].  The share  issue  costs  amounted to
$33,912  [US$22,960].  As part of this  transaction,  a total of 82,000 warrants
were issued which  entitle the holder to purchase an aggregate of 82,000  common
shares at a price of US$4.50 on or before March 30, 2001.  These  warrants  have
expired unexercised.

On  April  27,  2000,  the  Company  issued  42,857  common  shares  for a  cash
consideration of $221,925 [US$150,000].  As part of this transaction, a total of
42,857 warrants were issued which entitle the holder to purchase an aggregate of
42,857  common  shares at a price of US$4.50 on or before March 30, 2001.  These
warrants have expired unexercised.

On  June  9,  2000,   the  Company  issued  78,000  common  shares  for  a  cash
consideration  of  $408,272  [US$273,000]  and 30,000  common  shares for a cash
consideration of $150,000. The share issue costs amounted to $13,647 [US$9,240].
As part of this  transaction,  a total of 108,000  warrants  were  issued  which
entitle the holder to purchase an aggregate of 108,000  common shares at a price
of US$4.50 on or before March 30, 2001. These warrants have expired unexercised.

As of March 31, 2001, a total of 470,000  warrants are  outstanding  relating to
the private placement of February 2, 2000.

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
consultants.  As at March 31, 2001, the Company has outstanding  450,000 options
granted  entitling the holders to purchase  450,000  common shares of BioSyntech
Inc. at prices varying between C$1.97 and C$6.31.  The Board shall have the sole
authority to determine the terms and conditions of the options to be issued. The
expiry date of the options is ten years after the date of grant.


                                      F-15

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]




10.       STOCKHOLDERS' EQUITY (DEFICIENCY) AND STOCK OPTIONS [CONT'D]
                                                                       Stock                   Weighted
                                                                      Options              Average Exercise
                                                                                                Price
                                                                                                  C$
-----------------------------------------------------------------------------------------------------------------

2001
Outstanding, beginning of year                                                --                 --
Granted                                                                  625,000                 5.70
Canceled / surrendered                                                   175,000                 6.31
-----------------------------------------------------------------------------------------------------------------
Outstanding, end of year                                                 450,000                 5.47
-----------------------------------------------------------------------------------------------------------------
Exercisable, end of year                                                 175,000                 5.69
-----------------------------------------------------------------------------------------------------------------
Weighted average fair value of options granted                                                   4.52
-----------------------------------------------------------------------------------------------------------------

150,000 options of the 450,000 outstanding are subject to Board of Directors' approval.

No options were granted prior to 2001.  The  outstanding  options expire between
August 4, 2010 and December 31, 2010.

The  following  table  summarizes  information  with  respect  to stock  options
outstanding for the Company's Stock Option Plan that the holder may convert into
common shares of the Company as at March 31, 2001:

                                                       Options outstanding and exercisable
                                ----------------------------------------------------------------------------------------
          Exercise price              Number               Weighted average remaining                Number
                $                  outstanding              contractual life (years)               exercisable
------------------------------------------------------------------------------------------------------------------------

         US 4.00                       350,000                        9.35                                150,000
         US 3.25                         5,000                        9.40                                     --
         US 2.59                        20,000                        9.50                                     --
         US 1.25                        75,000                        9.64                                 25,000
------------------------------------------------------------------------------------------------------------------------
                                       450,000                        9.41                                175,000
========================================================================================================================

Under Bio Syntech  Canada's  Stock  Option  Plan,  options may be granted for an
authorized  maximum  of  1,500,000  Class A shares of Bio  Syntech  Canada.  The
subsidiary  has  1,244,500  options  granted  entitling  the holders to purchase
1,244,500  Class A shares of Bio  Syntech  Canada  which are  exchangeable  into
common shares of BioSyntech,  Inc. at prices varying  between C$0.75 and C$2.36.
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-16

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]



10.       STOCKHOLDERS' EQUITY (DEFICIENCY) AND STOCK OPTIONS [CONT'D]
                                                                         2001                              2000
                                                              --------------------------        ----------------------------
                                                               Stock        Weighted             Stock          Weighted
                                                              Options   Average Exercise        Options     Average Exercise
                                                                              Price                               Price
                                                                               C$                                  C$
--------------------------------------------------------------------------------------------------------------------------------

Outstanding, beginning of year                               1,500,000        1.06            1,247,500           0.83
Granted                                                             --         --               252,500           2.17
Canceled/ surrendered                                          255,500        0.87                   --            --
--------------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year                                     1,244,500        1.09            1,500,000           1.06
--------------------------------------------------------------------------------------------------------------------------------
Exercisable, end of year                                     1,147,500        0.98            1,382,500           0.93
--------------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options granted                                 --                                 3.25
--------------------------------------------------------------------------------------------------------------------------------

No options were granted prior to 1999.  These options expire between December 1,
2001 and June 1, 2008.

The  following  table  summarizes  information  with  respect  to stock  options
outstanding  for Bio  Syntech  Canada's  Stock  Option  Plan that the holder may
convert into common shares of the Company as at March 31, 2001:


                                                                   Options outstanding and exercisable
                                    ----------------------------------------------------------------------------------------------
          Exercise price                       Number                Weighted average remaining                Number
                $                            outstanding              contractual life (years)               exercisable
---------------------------------------------------------------------------------------------------------------------------------

                  C0.75                         947,500                        1.31                             947,500
                  C1.75                         100,000                        7.25                             100,000
                 US1.50                         197,000                        1.75                             100,000
---------------------------------------------------------------------------------------------------------------------------------
                                              1,244,500                        1.86                           1,147,500
---------------------------------------------------------------------------------------------------------------------------------

50,000 options were granted to consultants  during the year ended March 31, 2001
[182,000 during the year ended March 31, 2000].  The fair value of these options
at the time of grant was charged to general and  administrative  expenses in the
amount of $237,500  during the year ended March 31,  2001  [$406,560  during the
year ended March 31, 2000].

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
$1,780,000  for the year ended March 31, 2001 [$380,000 for the year ended March
31,  2000] and basic loss per share would be  increased  by $0.06 [$0.03 for the
year ended March 31, 2000].


                                      F-17

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]




10.       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.

                                                           2001                     2000
                                                             %                        %
-------------------------------------------------------------------------------------------

Expected life [years]                                     5.00                       5.00
Risk-free interest rates                                  6.00                       6.00
Volatility                                                1.20                       1.21
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.

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, 2001 and
2000.

                                                              2001                     2000
                                                               $                        $
---------------------------------------------------------------------------------------------

Numerator
   Net loss - numerator
   For basic and diluted loss per share                  5,015,134                3,240,283
Denominator:
   Denominator for basic loss per share
   Weighted-average shares                              29,145,309               14,042,819
Effect of dilutive securities:
Stock options and warrants                                      --                       --
---------------------------------------------------------------------------------------------
Denominator for diluted loss per share
   Adjusted weighted-average shares and
      assumed conversions                               29,145,309               14,042,819
=============================================================================================

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 2001  and  2000.  These  securities  are  options  and
warrants.



                                      F-18

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]




11.       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:

                                                                             2001            2000
                                                                              $               $
-----------------------------------------------------------------------------------------------------

Deferred tax assets
Net operating loss carryforwards                                        1,542,924         622,176
Scientific research and experimental development expenses               1,018,584         451,432
Excess of tax basis of financing fees over accounting value                12,733          20,602
Excess of tax basis of fixed assets over accounting value                 122,248         471,004
-----------------------------------------------------------------------------------------------------
Total deferred tax assets                                               2,696,489       1,565,214
=====================================================================================================

Deferred tax liabilities
Excess of accounting value of fixed assets over tax basis                      --         429,661
-----------------------------------------------------------------------------------------------------
Total deferred tax liabilities                                                 --         429,661
=====================================================================================================

Net deferred tax assets (liabilities)
Deferred tax assets                                                     2,696,489       1,565,214
Deferred tax liabilities                                                       --         429,661
-----------------------------------------------------------------------------------------------------
                                                                        2,696,489       1,135,553
Valuation allowance                                                     2,696,489       1,135,553
-----------------------------------------------------------------------------------------------------
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-19

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]




11.       INCOME TAXES [Cont'd]

The Company has Canadian tax loss and  investment tax credit  carryforwards  for
income tax purposes in the amount of  approximately  $4,989,000 and  $4,860,000,
respectively,  the benefit of which has been  offset by a  valuation  allowance,
that expires as follows:

                              Federal               Quebec          Investment
                             tax losses           tax losses       tax credits
                                 $                    $                     $
--------------------------------------------------------------------------------

2002                            9,000              9,000                   --
2003                           39,000             27,000                   --
2004                          656,000            553,000                   --
2005                        1,125,000          1,129,000                   --
2006                               --                 --               32,000
2007                          234,000            232,000               65,000
2008                        2,926,000          2,910,000               28,000
2009                               --                 --                   --
2010                               --                 --               29,000
2011                               --                 --              500,000
--------------------------------------------------------------------------------

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 $3,025,000 at the Canadian federal level and $3,870,000 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.

The income tax  recovery  reported  differs  from the amount of the tax recovery
computed  by  applying  statutory  income tax rates to loss  before  taxes.  The
reasons for the differences and the related tax effects are as follows:
                                                                            2001          2000
                                                                              %             %
-------------------------------------------------------------------------------------------------------

Combined statutory federal and provincial rates                           37.79           38.00
Decrease in taxes recoverable resulting from:
   Non-deductible expenses and other permanent differences                (0.06)           (0.08)
   Manufacturing and processing profits deduction                         (7.00)             --
   Unrecognized tax benefits of operating losses and
      other available deductions                                         (30.73)          (37.92)
-------------------------------------------------------------------------------------------------------
                                                                            --               --
-------------------------------------------------------------------------------------------------------

                                      F-20

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]




12.       STATEMENTS OF CASH FLOWS

Cash and cash equivalents

Cash and cash equivalents  consist of cash on hand and money market instruments.
Cash and cash  equivalents  presented  in the cash flow  statement  include  the
following balance sheet amounts:

                                                                     2001            2000
                                                                      $
----------------------------------------------------------------------------------------------

Cash on hand                                                      425,403       7,301,143
Bankers Acceptances                                             6,217,967              --
----------------------------------------------------------------------------------------------
Total cash and cash equivalents [note 13 [c]]                   6,643,370       7,301,143
==============================================================================================



13.       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 and cash equivalents, the
short-term  investment,  receivables  and  investment  tax  credits  receivable.
Short-term   financial   liabilities   comprise  accounts  payable  and  accrued
liabilities.

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, 2001
and March 31, 2000.

[b]      Credit risk

The cash and cash equivalents are held by one Canadian financial institution,  a
chartered bank.


                                      F-21

BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]



13.       FINANCIAL INSTRUMENTS [Cont'd]

[c]      Foreign currency risk

The Company is exposed to foreign  currency  translation  risk due to cash, cash
equivalents,  accounts  receivable  and  accounts  payable  denominated  in U.S.
dollars. As at March 31, 2001, assets,  consisting  principally of cash and cash
equivalents, denominated in U.S. dollars totaled US $4,104,499 [US $3,053,696 as
at March 31,  2000] and  liabilities  denominated  in U.S.  dollars  totaled  US
$138,549 [US $272,747 as at March 31, 2000].



14.       COMMITMENTS

[a]      Lease

Commitments  under an operating  lease for  equipment for each of the next three
years, are as follows:

                                                                         $
--------------------------------------------------------------------------------

2002                                                                  18,345
2003                                                                  18,345
2004                                                                   4,586
--------------------------------------------------------------------------------
                                                                      41,276
================================================================================

[b]      Technology licence

Under  the terms of a  technology  licence  contract,  the  Company  must pay 5%
royalties to a shareholder  on sales of all products and services,  to a maximum
of $3 million.  The Company accrued $7,218 as at March 31, 2001 [nil as at March
31, 2000].


                                      F-22


BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]




15.      SEGMENTED INFORMATION

The  Company  considers  that it operates  only in one segment  that of products
relating  to  the  development  of  biotherapeutic   delivery  systems  made  of
proprietary  biomaterials.  The Company's  operations  and all of its assets are
located in Canada. Information by geographic segment is as follows:

                                                        2001           2000
                                                          $              $
--------------------------------------------------------------------------------

Revenues from external customers
Canada                                                 66,200             --
United States                                          51,881             --
Australia                                              26,277             --
--------------------------------------------------------------------------------
                                                      144,358             --
================================================================================

Revenues from external customers are virtually all related to three customers.



16.      CONTINGENT LIABILITIES

[a]      A former employee of a subsidiary  company filed an action for wrongful
         termination seeking $97,000 in compensation allegedly due, the issuance
         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.  On May 25,  2001 a  judgment  was
         rendered and as a result,  the former employee was awarded seven months
         of salary plus 100,000  common shares of the  subsidiary  company.  The
         terms  associated  with these  shares are to be  determined.  The total
         dollar value of the award is approximately $160,000 and was recorded as
         an expense in the year ended March 31, 2001.

[b]      A former executive employee and officer of the Company has commenced an
         action for wrongful termination and is seeking $224,000 in compensation
         allegedly due plus $35,000 for punitive and additional  damages. In the
         opinion of management,  based on advice and information provided by its
         legal  counsel,  the  final  determination  of this  litigation  is not
         determinable. As such no provision has been recorded in the accounts.



                                      F-23


BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
[In Canadian dollars]




17.       SUBSEQUENT EVENTs

Subsequent to year-end,  the foreign  exchange  rate for US dollars  relative to
Canadian dollars decreased.  As a result, cash and cash equivalents decreased by
approximately C$178,000 as at May 18, 2001. The impact on other accounts was not
significant.



18.       Comparative figures

Certain  figures in the 2000  financial  statements  have been  reclassified  to
conform with the presentation used in 2001.`