`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, 2002

                                       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: $277,833.

            Based upon the closing price of the issuer's common stock, $.001 par
value (the "Common  Stock"),  on July 2, 2002, the aggregate market value of the
20,597,250  outstanding  shares of Common  Stock held by  non-affiliates  of the
issuer was $5,561,258. 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 July 2, 2002,  29,222,250  shares of the issuer's 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 2002 Annual
Meeting  of  Stockholders,  which  proxy  materials  are to be  filed  with  the
Securities and Exchange Commission not later than July 29, 2002.

            Transitional Small Business Disclosure Format (check one):

                 /   /   Yes                      /x/   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
fiscal  year end of Bio  Syntech,  Inc.  (together  with our  subsidiaries,  Bio
Syntech Canada Inc. and  Biosyntech  Europe  S.A.R.L,  also referred to as "we,"
"us" or the "Company") is March 31 and its  functional  currency is the Canadian
dollar. See "Currency Exchange Rates" for information  regarding of the exchange
rate for the Canadian  dollar per one United  States dollar as of March 31, 2001
and March 31, 2002. All amounts in this report are expressed in Canadian dollars
unless otherwise indicated.

1.1         General

            We are an advanced biomaterials company specialized in tissue repair
and therapeutic delivery.  Our main focus is the repair of damaged tissue in the
human body like bone or  cartilage,  and the delivery of  therapeutic  agents to
their  site of  action.  We are also  engaged  in the  development  of  advanced
injectable  biomaterials for the delivery of cells and genetic material. We have
had limited  revenues to date and they have been  generated  almost  entirely by
sales of instrumentation products, which we are developing.  The continuation of
our  operations  is 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  through  fiscal year 2003 but it is expected  that
additional  funds will  continue to be required for an  indefinite  period as no
estimate can be made as to when the Company will achieve profitability.

            Our research and  development  efforts are focused on maximizing the
multiple benefits of our core technologies, which include:

               o   tissue repair and augmentation

               o   the therapeutic delivery of cells

               o   the delivery of therapeutic agents.

            Our  technologies  apply  to  diverse  specialties,   which  include
reconstructive and/or cosmetic surgery, orthopedics and rheumatology. Orthopedic
and  rheumatology  problems include  cartilage  injuries and diseases as well as
bone injuries and diseases. Therapeutic delivery includes gene and cell delivery
as well as the  delivery of  therapeutic  agents.  Reconstructive  and  cosmetic
surgery include soft tissue augmentations and wrinkle management.

            We also have an  instrumentation  division  that is  developing  the
Arthro-BST  (TM) and the Mach-1(TM)  Mechanical  Tester.  Arthro-BST is a device
used for visual examination of the articular cartilage and diagnosis. The Mach-1
is a universal  mechanical  testing system for specimens with dimensions between
hundreds of microns and a few  centimeters.  It is being used by the Company for
evaluating mechanical properties of cartilage.

                                      -1-




            For the fiscal  years ended March 31,  2001 and March 31,  2002,  we
spent $3,232,074 and $2,590,913, respectively, for research and development.

1.2         Tissue Repair and Therapeutic Delivery Technologies

            We  pursue  our   therapeutic   delivery   and  our  tissue   repair
technologies  either by  ourselves  or in  collaboration  with  partners.  These
technologies  aim at  effectively  delivering  cells,  proteins,  or therapeutic
agents like proteins and peptides.  We also use our technology for tissue repair
and tissue augmentation.

            We have  developed a platform  technology  aimed at the promotion of
tissue repair and the effective delivery of active  therapeutics.  This platform
technology,  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.  The gel can then act as
a mechanical  scaffold or as a reservoir used to prolong the delivery and action
of the  therapeutic  agent.  The  amounts  of  BST-Gel  injected  vary  based on
different  requirements.  It has  controllable  residence  times  that allow its
therapeutic delivery function to range from a few days to several weeks. BST-Gel
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.  These  proprietary
forms of delivery of therapeutic agents can have the following applications:

            o  delivery of bone-repair therapeutics;
            o  growth  of  tissues  with  or  without  cells  or   growth-factor
               therapeutics;
            o  delivery of small molecules, peptides and proteins produced using
               genetic engineering;
            o  delivery of DNA vaccines and gene therapy.

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 scar 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.
Alternative therapies such as mosaicplasty and Assisted Cell Implantation (ACI)
necessarily involve an open knee surgery, which often result in additional joint
problems such as stiff knee and  inflammation.  Our approach using BST-CarGel is
to augment the natural healing response provided by microfracture or drilling by
providing a defect-filling  implant that can be delivered  arthroscopically  and
improve the retention of the wound-healing  blood clot. This minimally  invasive
procedure  is  easily  appended  to the  normal  arthroscopic  technique,  while
offering a higher chance of success in generating  durable  repair  tissue.  The
application  of  BST-CarGel  to the  treated  defect  also may reduce  potential
negative  side-effects  such as subchondral cyst formation.  We are currently in
the process of preparing an  Investigational  Device Exemption  application with
the United States Food and Drug  Administration  (the "FDA") and an  Application
for  Investigational  Testing with the Health Products and Food Branch of Health
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 Products and Food Branch of Health Canada.

                                      -2-




1.3.2       Bone Injuries and Diseases

1.3.2.1     OssiFil(TM)

            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  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.

            1.3.2.2 OssiFix(TM)

            We are developing a new proprietary bone composite cement based upon
our BST-Gel technology and calcium phosphate technology. These series of OssiFix
bone materials  would be injectable and  self-hardening.  They also would give a
stronger  structural  integrity and  biomaterial  strength to severely  weakened
bones.

            OssiFix bone  substitutes  would be ideal  materials for  supporting
weakened or fractured bones that need to regain structural support and strength.
This technology would be 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 OssiFix performances are optimized.

1.4         Intervertebral Disc Regeneration; BST-Disc(TM)

            About 55% of the population  will  eventually  suffer from back pain
related  to  faulty  intervertebral  discs.  These  discs  are  used  for  human
multi-directional  articulation  and as  shock  absorbers.  Their  structure  is
complex,  with an outside shell and a pressurized centre,  similar in feature to
an  automobile   tire.   Through  time,  the   composition  of  the  semi-liquid
cartilaginous  substance  in the centre of the discs  changes,  which leads to a
decrease  in pressure  and,  consequently  decreases  disc  height,  a condition
similar to driving an  automobile  with a flat tire.  This  decrease in pressure
often leads to painful  irritation of the  surrounding  nerve roots and subjects
the shell to additional stress that can lead to a herniated disc.

            Conservative treatments include rest, heat, and pain management with
non-steroidal  anti-inflammatory  drugs.  Most of the  cases  will  then heal or
become  tolerable.  However,  in cases in which the herniated discs do not heal,
there is no  recourse  other  than  any of the  following  surgical  procedures:
laminectomy,  nerve root decompression,  lumbar fusion, or even the installation
of an  artificial  disc.  Estimates  show that  approximately  5.3% of the North
American  population will go through some form of back surgery for  disc-related
problems  between  the  ages  of  20-50.  Despite  the  recent  introduction  of
laparoscopic  techniques and fusion cages, the surgical methods remain major and
expensive  interventions.  In 1996,  there  were  approximately  440,000  spinal
implants  installed by surgery  worldwide,  approximately  40% of which involved
spinal  instrumentation at a typical average cost of $67,000.  This procedure is
gradually  being replaced by laparoscopic  implantation of a fusion cage,  which
costs approximately  $13,000 and has a faster  post-surgical  recovery.  The new
procedure,  nevertheless,  places  stress on the two  adjacent  discs that often
leads to a repeat  surgery  within the next four years.  The current  artificial
disc prosthesis is not a popular  alternative since it cannot,  or hardly,  meet
the normal articular range of motion and fatigue resistance requirements.

            An efficient  non-surgical  procedure  would cost a fraction of what
surgery would cost and would have a broader appeal to "back sufferers": to those
who would  normally go through  surgery,  and to the many who endure the pain to
avoid surgery.  Our goal is to offer the patient one last non-surgical  solution
that could either permanently solve the problem,  or at least delay the surgical
intervention  by a few years.  We  developed  the  BST-Disc  to  re-inflate  the

                                      -3-





intervertebral tire. In a procedure that is similar to diagnostic discography, a
liquid gel is injected  into the disc via a syringe,  whereupon  it restores the
disc's height and supports  physiological  load. We have shown in ex vivo animal
studies that BST-Disc can be injected in  intervertebral  discs to increase disc
thickness and support the mechanical  load. We are currently in the pre-clinical
stage of  development  of  BST-Disc.  Further  animal  implantation  studies are
planned. A patent is currently pending.

1.5         Soft Tissue Augmentation

            1.5.1        BST-Fill(TM)

            Soft tissue injectable  fillers are used in cosmetic surgery to fill
out lines and  creases  caused by aging,  gravity  and sun  exposure.  Collagen,
autologous fat, and the more recently  introduced  Hyaluronic acid, are the most
commonly used cosmetic fillers.  Botulism toxin (Botox) is used in a similar way
to improve facial cosmetic.  All of those products have temporary  effects,  and
require  repeated  injection  within  a  few  months.  However,  a new  type  of
longer-lasting  cosmetic  fillers is currently  emerging in some markets.  Those
products, based on polymers such as polymethyl  methacrylate,  poly-lactic acid,
acrylic,  polyacrylamide  and even  silicon,  can offer a much  longer  cosmetic
correction.   The  long-lasting  advantage  is  appreciated  by  customers,  and
justifies a higher  selling  price,  despite the fact that some of the available
products are known to cause hypertrophic scars and prolonged inflammation.

            BST-Fill is a simple and direct cosmetic  application of the BST-Gel
platform  technology.  This  injectable  polymer  solution,  which  gels at body
temperature and physiological pH, provides a long-lasting  mechanical support to
the  surrounding  soft  tissues.  Our tests have shown that highly  deacetylated
chitosans can last more than 18 months after being  injected  into  subcutaneous
sites.  BST-Fill  is  therefore  indicated  for  long-term,  or  even  permanent
correction of small wrinkles and pronounced  defects.  Its use could even extend
to the more demanding  needs of  reconstructive  surgery,  bridging the gap to a
field that usually requires surgically implanted polymeric forms.

            All  pre-clinical  studies  have  been  successfully   completed  by
Contract Research  Organisations  operating under Good Laboratory  Practices for
this product. The French authorities (Agence Francaise de Securite Sanitaire des
Produits de Sante and other similar ethics review board) has approved a clinical
study protocol based on such results.  Six clinical  investigators are currently
treating and  recruiting  a total of 100  patients,  in France (five  centers in
Paris, one in Provence).  The protocol involves two series of tolerance tests in
the forearms, followed by a treatment of the naso-labial crease. Each patient is
followed for at least eight months.

            1.5.2 BST- InPod(TM)

            The American  College of Foot and Ankle  Surgeons  reports that heel
pain is a complaint  voiced by 14 percent of the adult  population  and suspects
that millions more  silently cope with it. The pain is usually  associated  with
atrophy of the  calcaneal  fatty pad.  These  natural  cushions  play a critical
biomechanical   role  in  absorbing   the  shocks  of  walking  and  running  by
distributing  the load and absorbing  impact energy.  The fat pads normally thin
out with age, and the risk of premature  atrophy  increases if the individual is
overweight,  has diabetes,  has often worn  inadequate  shoes, or has engaged in
high  impact  sports.  Also,  the common  treatment  of plantar  fasciitis  with
cortisone injections actually leads to further loss of fatty acid substance.

            The aging and  active  segment  of the  population  is  particularly
affected  by this  problem.  With the normal loss of fat pads,  a pressure  area
starts  developing  over the  metatarsus  and the heel areas as early as age 30.
Over the years,  the  pressure  gradually  aggravates  into some form of walking
discomfort and pain,  first  noticeable only during  locomotion,  then worsening
into  continuous  pain, and possibly  progressing  into  disabling  pathologies.
Before  resorting to surgery,  the  individuals  suffering  from this  condition
currently  rely only on orthoses,  orthopaedic  insole or  heelpieces  for their
shoes.

                                      -4-





            BST-InPod is a new injectable product that could restore the comfort
of these  pads in a  physiological  fashion by  restoring  their  thickness  and
cushioning  properties.  There  has been no known  attempt  to  restore  in-heel
cushioning.

            All  the  chemical  components  of  the  BST-InPod  formulation  are
naturally  occurring  in the human body.  In  addition to being GRAS  (Generally
Regarded As Safe), such chemicals components are currently used on patients at a
much higher dose, in injectable  products  routinely  sold on the North American
and European markets.  The chemical components also have a long clinical history
of safety.  Not  surprisingly,  pre-clinical  studies  required for the European
clinical  studies  have  been  completed  with  success  by  Contract   Research
Organizations  operating under Good Laboratory Practices. In addition, a Belgian
ethics  review  board has  approved  a  clinical  study  protocol.  We have also
initiated  additional  pre-clinical  tests that we expect to be  required by the
FDA.

1.6         Material Agreements

            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,  which  Polyvalor  exchanged in February
2002 for 1,072,000 shares of Common Stock.  Polyvalor has the right to designate
one member of our Board of Directors and Mr. Denis N. Beaudry  currently  serves
as Polyvalor's designee.


1.7         Market for our Tissue  Repair 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.  We believe the market  potential  for both the  treatment  of
cartilage  injuries  and  diseases  and the market for  tissue  augmentation  is
enormous.  Since our  biomaterials  do not  require  surgical  implantation,  we
believe our products could lead to a higher probability of success.

            With the unparalleled growth of the biotechnology industry, there is
a  growing  need  for  the  development  of  biomaterials  for the  delivery  of
therapeutic  agents. We work independently and in collaboration with partners to
develop  and  expand  our   therapeutic   delivery   program.   Our  therapeutic
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
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.

                                      -5-





1.8         Strategy

            Our  research  and  development  efforts  aim  to  develop  advanced
biomaterials  for the  fast-growing  demands of the medical  and  pharmaceutical
industry.  We are focusing on 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.

1.9         Competition


            Our  products  may  compete  with  new  products   currently   under
development  by others or with products that may cost less than ours. 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 or
other materials for the sustained delivery of therapeutic agents.  However,  our
BST-Gel can be adapted for the delivery of a broad spectrum of drug types,  from
small molecules, or even living tissues.

            1.9.1  Cartilage Injuries and Diseases

            With regard to cartilage injuries and diseases, our competitors have
developed an implant containing living cells that requires complicated open knee
surgery and whose efficacy and acceptance have been  questioned.  Other surgical
procedures  for  repairing   localized   cartilage   lesions  include  drilling,
microfractures,  abrasion, and using tissue paste. These methods rely on induced
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.

            1.9.2    Bone Injuries and Diseases

            We expect to encounter  competition in the bone graft and other bone
related markets. In relation to OssiFil 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,  fracture  healing,  spinal  fusion and joint  revision/replacement.  In
relation  to  OssiFix  direct  competition  derives  from  self-setting  calcium
phosphate  substitutes.  Another competing product is high-strength polymer bone
cement. Injectable calcium phosphate mixed with polymers acting as a cement-like
material is not clinically common,  although calcium phosphate bone cements have
been proposed and are currently used. OssiFix cement-like material would present
some specific enhanced features such as injectability and cohesion.

            1.9.3    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 minimally  invasive system and has experienced a revenue growth of
67% from January 2000 to November 2000.

                                      -6-





1.9.4       Soft Tissue Augmentation

            With  regard to soft  tissue  augmentation,  BST-Fill  could  gain a
strong  position within the  competitive  market.  Most soft tissue fillers like
collagen and  autologous  fat transfers  have  temporary  effects that disappear
within a few months. Moreover, other soft tissue fillers are expensive,  painful
to inject and require skin tests.  BST-Fill, on the other hand, is an attractive
long-lasting  solution for the smoothing of small  wrinkles or the correction of
pronounced  defects.  In relation to BST- InPod,  the heel cushioning  market is
saturated with disposable  in-sole  cushions and orthotics.  BST- InPod 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 payers and the medical community. The degree of
market  acceptance  of product  candidates  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 payers.

            1.9.5 Pricing

            Third-party  payers,  including  the United States  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 and  technologies.  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 our products might not be reimbursed  for their expense.  If third-party
payers 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.

1.10.       Instrumentation

            We have  developed two products in our  instrumentation  division to
date. First, we have developed the Arthro-BST,  an arthroscopic device providing
precise and non-destructive diagnosis of articular cartilage quality.  Secondly,
we have developed the Mach-1 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.

                                      -7-





            1.10.1 The Arthro-BST

            Description

            The  Arthro-BST  is an  arthroscopic  device  providing  precise and
non-destructive diagnosis of arthritis, a disease affecting more than 10% of the
population.   Current  assessment  of  articular  cartilage  quality  is  mostly
subjective, with no functional evaluation. Arthritis is also diagnosed at a late
stage of the disease, when no preventive treatments are available. Consequently,
there is a growing need in an aging population for  non-destructive and unbiased
clinical evaluation of the health and function of cartilage.

            The Arthro-BST is based on an innovative and robust design. During a
standard  arthroscopic  procedure,   the  sterile  and  disposable  tip  of  the
Arthro-BST is inserted into the patient knee through a small surgical  aperture.
The  cartilage  surface  is  then  lightly  compressed.   Cartilage  compression
generates   streaming   potentials,   which  are  recorded   with  a  matrix  of
microelectrodes  located at the extremity of the disposable  tip. The potentials
are acquired by an electronic  system inside the  ergonomically  designed handle
and transferred to a computer for instant diagnosis.  These streaming potentials
are  sensitive  indicators  of  cartilage  health  versus  disease.  The surgeon
performs several  compressions at defined  positions on the cartilage surface in
order to obtain a detailed  mapping of the  functional  properties  of cartilage
over the joint surface.

            Market

            Arthritis affects more than 42 million Americans, resulting in total
costs  estimated of US$65 Billion  annually.  Therefore,  there is an urgent and
growing need for an objective  clinical  instrument to diagnose arthritis in the
early stages of the disease and to evaluate cartilage repair techniques.

            The target market for the Arthro-BST  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.

            A larger  market,  the  clinical  market,  consists of  orthopedists
practicing  minimally invasive  arthroscopic surgery who also require a means of
objectively  evaluating  cartilage quality in patient's knees. In the knee joint
alone, more than 1.6 million arthroscopic procedures are carried out annually in
the US.

            Competition

            Two  arthroscopic  probes  for  cartilage  diagnosis  have just been
accepted on the United States market.  The  Artscan(TM)  and the Actaeon(TM) are
two  purely  mechanical  arthroscopic  probes  based  on an  entirely  different
technology than the Arthro-BST.  These probes measure cartilage stiffness during
compression.  The  major  problem  related  to this  technology  is the  lack of
knowledge  of the  displacement  and  orientation  of the  force  sensor  during
compression of the cartilage. Significantly inaccurate readings are given if the
instrument  is not  positioned  perpendicular  to the  cartilage  surface by the
orthopedist.

            Regulatory Approval

            The  Arthro-BST  is expected to be  classified as a class II medical
device by the FDA based on the intended use as well as the indication for use of
the device. The Arthro-BST is also expected to be identified as a medical device
with non significant risk, because it is an arthroscopic device characterized by
a minimal  contact  time with the human  body and a sterile,  biocompatible  and
disposable  tip that will be used only one time per patient.  Additionally,  the
Arthro-BST  is expected to be  considered  substantially  equivalent  to legally
marketed  devices  in the  United  States.  Consequently,  we  expect  to file a
pre-market notification or application with FDA in order to obtain approval.

                                      -8-





            The  Arthro-BST  is expected to be  classified as a class II medical
device in Europe. Consequently, no clinical trials are required for approval. In
fact, Conformite Europeenne marking is awarded by a European notified body based
on the technical file of the product as well as other requirements, including: a
certified  quality  system for  manufacturing,  biocompatibility,  sterility and
electrical safety.

            1.10.2      The MACH-1 Mechanical Tester

            Description

            The  Mach-1  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  Mechanical Tester are in the
mechanical stimulation and characterization of tissues, cells,  pharmaceuticals,
polymers,  gels,  adhesives and food. The instrument allows the characterization
of  mechanical  properties  such  as  stiffness,   strength,   Young's  modulus,
viscosity,  plasticity,  hardness,  adhesion, swelling and relaxation and use of
controlled force and displacement. Some of the features of the Mach-1 Mechanical
Tester are: chambers for compression,  tension,  indentation,  bending and other
test configurations are mounted on a platform,  which is controlled to within 25
nanometers.

            Pricing

            While we offer complete systems  starting at $20,000,  we also offer
more  enhanced  versions  for up to $50,000.  These  high-end  systems can offer
sub-micron  resolution,  multi-axis  simultaneous  motion, and other specialized
features.  With our different  versions,  we cover a broad range of applications
and we also offer custom system configurations for specific needs.


1.11.  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 five patents and have filed thirty-nine United
States, international or foreign patent applications directed to the composition
of matter as well as processes of preparation and methods of use.

            We plan to protect our proprietary position by filing United States,
Canada and foreign patent  applications  related to its proprietary  technology,
inventions  and  improvements  that  are  important  to the  development  of our
business.  The patent position of  biopharmaceutical  companies involves complex
legal and factual  questions.  The enforceability of patents cannot be projected
with  certainty.   Patents,  if  issued,  may  be  challenged,   invalidated  or
circumvented,  and may fail to provide any protection against  competitors.  Our
pending  patent  applications,  those which we may file in the future,  or those
which we may license from third parties, may not result in patents being issued.
If patents were issued,  they may not provide us with proprietary  protection or
competitive advantages against competitors with similar technology.  Competitors
may independently  develop similar technologies or duplicate any technology that
we have  developed.  The laws of certain  foreign  countries  do not protect our
intellectual  property  rights to the same  extent as do the laws of the  United
States and Canada.

            We also rely on trade secrets, know-how and technology, which we try
to protect by entering into  confidentiality  agreements  with parties that have
access to it, which include  corporate  partners,  collaborators,  employees and

                                      -9-





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.

            We  also  have  10  registered   trademarks   and  three   trademark
applications on proprietary technology and products important to the Company.


1.12.  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 Products and Food Branch
of Health 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-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-related biomaterial as a
new drug, new medical device, or new additive.

            We currently  expect that the  Arthro-BST  will be  classified  as a
Class II medical device because of the low risk associated with its use. Because
the Arthro-BST 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

                                      -10-





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-related  biomaterials  will be a multi-step  process  consisting of
designing and building the necessary  facilities,  purchasing and installing the
ancillary   equipment,    and   validating   the   facilities   and   equipment.
Simultaneously,  process development and scale-up as well as testing,  measuring
and quality  control will be done to supply test  material and data  critical to
the clinical program. 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 the Company's operations.

1.13.  Employee Growth

            As of March 31, 2002, we had 28  employees,  of whom 16 were engaged
in research and development and 12 were engaged in corporate and  administrative
activities.  Except for one employee in our research and development team who is
involved in the manufacture of the Mach1, we have no other employees involved in
the  manufacture  of our products.  We anticipate our total employee count to be
approximately 30 employees by the end of fiscal year 2003.

            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. Amine Selmani. The loss of the services of
one or more of our key  employees  could have a material  adverse  effect on our
operations.

1.14.   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 the 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

                                      -11-





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 our Common Stock.

            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.

1.15.   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.

            Additional  financing  will be required to continue  our  operations
            beyond fiscal year 2003 and we will need substantial funds before we
            are profitable.

            Our wholly-owned  subsidiary  recently entered into a loan agreement
providing  for  borrowings  of up to  $2,500,000,  $2,000,000  of which has been
advanced to such subsidiary. We are also currently discussing additional sources
of financing.  We have received a proposal from a banking institution for a line
of credit of  $1,200,000,  but we  currently  have no  commitment,  agreement or
understanding  regarding  this  additional  financing.   Based  on  our  current
operating  plan,  we  estimate  that the cash on hand will  fund our  operations
through  fiscal year 2003. We expect,  however,  that  additional  funds will be
required to continue operating for an indefinite period since we cannot estimate
when  the  Company  will  become  profitable.  If we do not  receive  additional
financing,  we will reassess our operating plan to reduce expenses on an ongoing
basis.  For a more  detailed  discussion on our recent  financing  transactions,
please see "Item 6. Management's  Discussion and Analysis or Plan of Operation -
Liquidity, Capital Resources and Going Concern Uncertainty" section.

            In addition, we need to raise substantial amounts of money if we are
ever to become  profitable.  If sufficient  financing is unavailable on a timely
basis,  we will have to  curtail  development  programs  or  transfer  rights in
products  that could later prove to be of great value.  The financing we require
and when we will spend it, will depend, in part, on:

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

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

            As of March 31, 2002 our accumulated deficit was $17,205,389. We had
net operating  losses of $4,535,131  and  $5,015,134  for the fiscal years ended
March 31, 2002 and March 31, 2001,  respectively.  These losses represent mainly
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

                                      -12-





approval of our products,  including clinical trials, accelerate. We expect that
our expenses will result in additional losses,  because we do not expect to have
significant revenues, from the sale of products for the next several years.

            Our future profitability depends, in part, on:

            o  Obtaining regulatory approval for our products;
            o  Entering into agreements to develop and commercialize products;
            o  Developing  the capacity to  manufacture  and market  products or
               entering into agreements with others to do so;
            o  Market acceptance of our products;
            o  The ability to obtain  additional  funding from our collaborative
               partners; and
            o  The ability to achieve certain product development milestones.

            We may not  achieve  any or all of these  goals  and are  unable  to
predict whether we will ever achieve significant revenues or profits. Even if we
receive regulatory approval for one or more of our products,  we may not achieve
significant commercial success.

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

            To be  profitable,  we must  develop,  manufacture  and  market  our
products,  either alone or by collaborating with others. This process could take
several years and we may never be successful in bringing our product  candidates
to the market.  Additionally,  our successes in pre-clinical  and early clinical
trials do 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 FDA 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;

                                      -13-





            o  The  FDA  might  not  approve  our  manufacturing   processes  or
               facilities;
            o  The  FDA  may  change  its   approval   policies   or  adopt  new
               regulations; and
            o  A  product  candidate  may not be  approved  for all the  uses we
               requested.

            Countries  other  than the United  States,  including  Canada,  have
similar  requirements.  The process of getting approvals in foreign countries is
subject to delay and failure for the same reasons.

             We do not have any  product  that has been  approved by the FDA. We
are  currently in the process of filing a  pre-submission  package for BST-InPod
with the FDA. Upon successful  completion of the required  pre-clinical  studies
for the BST-InPod,  we will file an  Investigational  Device  Exemption  ("IDE")
application with the FDA. We also file an  Investigational  Testing  application
for BST-InPod with the Health  Protection  Branch of Health  Canada.  We plan to
make the same applications for the following products as well:

            o  BST-CarGel
            o  BST-Fill; and
            o  Arthro-BST

            We will be allowed to conduct  human  clinical  trials in the United
States  if our IDE  application  is  approved  by the FDA,  and in Canada if our
application is approved by the Health Protection Branch of Health 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
experience financial or operational difficulties that could adversely affect our
programs.

            We could  become  involved  in a costly  litigation  to protect  our
            proprietary  rights.  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;

                                      -14-





            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 laws of  certain  foreign
countries, however, may not protect our intellectual property rights to the same
extent as the laws of the United States and Canada.

            The patent position of biopharmaceutical  companies involves complex
legal and factual questions.  Enforceability of patents cannot be projected with
certainty.  Patents, if issued, may be challenged,  invalidated or circumvented.
Any patents that we own or license to others may provide no  protection  against
competitors. Our pending and future patent applications or those that we 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.  In  addition,  others may also
independently  develop similar  technologies or duplicate any technology that we
have developed.

            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. Although we
anticipate we will obtain  product  liability  insurance  coverage for a limited
amount at the time that our operations warrant it, we are unsure whether it will
be available at reasonable terms. However, 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.

            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.

                                      -15-





            Our Common Stock is, and may continue to 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 applies to our Common Stock. This rule imposes
sales practice requirements on broker-dealers that sell low priced securities to
persons other than established customers and institutional accredited investors.
For  transactions  covered by this  rule,  a  broker-dealer  must make a special
suitability  determination  for the purchaser and have received the  purchaser's
written consent to the transaction.

            In  addition,  under United  States  securities  regulations,  penny
stocks  generally  are equity  securities  with a price of less than US$5.00 per
share other than securities  registered on certain national securities exchanges
or quoted on the Nasdaq  Stock  Market.  For any  transaction  involving a penny
stock,  unless exempt, the penny stock rules require the delivery,  prior to the
transaction,  of a disclosure schedule prescribed by the Securities and Exchange
Commission  relating  to the penny stock  market.  The  broker-dealer  must also
disclose the commissions  payable to both the  broker-dealer  and the registered
representative  and current  quotations  for the  securities.  Finally,  monthly
statements  must be sent  disclosing  recent  price  information  on the limited
market in penny  stocks.  Consequently,  the penny stock rules may  restrict the
ability of  broker-dealers  to sell our Common  Stock.  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.

1.16.  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 (July 16,2002)                1.5348

                                                   2002              2001
                                                   ----              ----
Rate at end of period (March 31)                  1.5942            1.5763

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

June 2002                                       1.5349              1.5276
May 2002                                        1.5531              1.5469
April 2002                                      1.5843              1.5792
March 2002                                      1.5899              1.5838
February 2002                                   1.5986              1.5931
January 2002                                    1.6033              1.5967
December 2001                                   1.5805              1.5743

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

Fiscal year ended March 31, 2002                1.5655
Fiscal year ended March 31, 2001                1.5040

1.17.  Forward Looking Statements

            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

                                      -16-





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 are 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.

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.

            In accordance  with the June 26, 2002  financing,  the obligation of
the  Company  under the loan  agreement  for the amount of  $2,500,000  with the
Business  Development  Bank of Canada ("BCD") is secured by a mortgage on all of
assets of Bio Syntech  Canada Inc. ("Bio Syntech  Canada").  To secure the Loan,
the Bio Syntech Canada granted BCD a security  interest on, subject to the terms
of the Hypothec  Agreement  dated as of June 26, 2002 by and between the BCD and
Bio Syntech  Canada,  (i) all of its present  and future  movable and  immovable
properties  (excluding patents);  (ii) the land and building where its principal
place of  business  is  currently  located;  (iii)  all its  movable  properties
consisting of machinery,  equipment,  furniture and fixtures (subject to certain
encumbrances listed in the Loan Agreement (as defined hereinafter); and (iv) its
present and future accounts  receivable (subject to a prior security interest of
the National Bank of Canada).


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  sought  $223,590  for
compensation  allegedly  due,  $20,000  for  punitive  damages  and  $15,000 for
additional damages. On March 27, 2002, the Superior Court of Canada, Province of
Quebec, District of Laval dismissed this action at no cost to the Company.


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

            Not Applicable

                                      -17-





                                     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 $)
          -----------           -------         -----------       ----------
              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
              2002             1st quarter        $0.8500           $0.5900
                               2nd quarter        $0.9500           $0.5500
                               3rd quarter        $0.7300           $0.3100
                               4th quarter        $0.6400           $0.3100
              2003             1st quarter        $0.4700           $0.2100

            According to  information  furnished to us by the transfer agent for
our shares of Common Stock, as of July 2, 2002,  there were 95 holders of record
of the shares of Common Stock, including depositories. Based upon information we
have received from some of these record  owners,  we believe there are more than
2,300 beneficial holders of our shares of Common Stock.

            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. As long as the principal amount of
the loan and any accrued interest remain outstanding under the loan agreement we
entered  into  with  BDC,  we are  restricted  from  declaring  and  paying  any
dividends.


Disclosure of Equity Compensation Plan Information (as of March 31, 2002)

----------------------------------------------------------------------------------------------------- --------
Plan Category                 Number of securities       Weighted-average     Number of securities remaining
                               to be issued upon        exercise price of      available for future issuance
                              exercise of outstanding   outstanding options,    under equity compensation
                               options, warrants and    warrants and rights     plans (excluding securities
                                      rights (a)                                 reflected in column (a))
-------------------------------------------------------------------------------------------------------------

Equity compensation               3,152,000 (1)                1.73                    2,248,000
plans approved by
security holders(1)

Equity compensation                   _                         _                          _
plans not approved by
security holders


Total                             3,152,000 (1)                1.73                    2,248,000

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

            (1) Includes  options to purchase an  additional  200,000  shares of
Common Stock that have been committed to a third party vendor of the Company and
are subject to the approval of the Board of Directors.

                                      -18-





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.  Our actual
results may differ  materially from those discussed  herein.  Factors that could
cause or contribute to such differences  include,  but are not limited to, those
discussed in 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  our
Consolidated  Financial  Statements  and the notes  thereto  included  elsewhere
herein.

            We have had limited  revenues  to date.  Our future  operations  are
dependent  upon  receiving   financing   necessary  to  complete   research  and
development projects and market our products.  There can be no assurance that we
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  our  future  operations  or to fund  additional  research,
development and marketing.

            Summary of Critical Accounting Policies

            The  preparation of our financial  statements is in conformity  with
United States Generally  Accepted  Accounting  Principles and requires estimates
and assumptions that affect the reporting of assets,  liabilities,  revenues and
expenses,  and the disclosure of contingent  assets and liabilities.  Certain of
our accounting  policies are critical to understanding our financial  statements
because their application places significant  demands on management's  judgment,
with  financial  reporting  results  relying on  estimates  of matters  that are
inherently uncertain.

            We believe that the critical  accounting  policies  described in the
following paragraphs affect the most significant  estimates and assumptions used
in the  preparation  of our  consolidated  financial  statements.  For all these
policies, we caution that future events rarely develop exactly as estimated, and
the best estimates routinely require adjustment.

Revenue Recognition

            Product  revenue  is  recognized  when  persuasive  evidence  of  an
arrangement  exists,  the product is delivered,  there are no future performance
obligations, the purchase price is fixed and determinable, and collectibility is
reasonably assured.  Amounts billed in advance of satisfying revenue recognition
criteria are differed until such time as the related product has been delivered.
Service revenue is recognized when the services have been rendered.

Government Assistance

            Government  assistance in connection  with research and  development
activities  is  recognized as reduction of expenses in the year that the related
expenditure is incurred.  Canadian 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.

                                      -19-




Long-Lived Assets

            Long-lived assets,  principally property and equipment, are reviewed
and  evaluated  for  impairment  whenever  events or  changes  in  circumstances
indicate that the carrying value of the assets may not be fully recoverable. The
recoverability of such assets is measured by comparing the carrying value to the
potential future cash flows to be generated by the respective  assets.  If these
factors indicate that the assets are considered  impaired,  the impairment to be
recognized is measured as the excess of the carrying  value over the  calculated
potential future discounted cash flows.

            Results of Operations

            To date, we have incurred substantial losses from operations, and as
of March 31, 2002, had an accumulated deficit of $17,205,389. We expect to incur
substantial  operating expenses in the future to support our product development
efforts and expand our technical  and  management  personnel  and  organization,
subject to obtaining financing.

            The following  table sets forth  certain  items in our  consolidated
statements of operations for the fiscal years ended March 31, 2002 and 2001. The
amounts are in thousands of CDN $.

                                                           Fiscal Years Ended
                                                              March 31
                                                         2002            2001
                                                         ----            ----
      Sales                                             $277.8          $144.4
      Cost of Sales                                       98.9            67.0
                                                        ------          ------
      Gross Profit                                      $178.9           $77.4
      Operating Expenses
         Research and Development                      2,590.9         3,232.1
         Investment Tax Credit                          (249.5)         (299.2)
         General and Administrative (Net of Grants)    2,286.8         2,948.5
         Amortization of Property, Plant and
         Equipment                                       182.4           149.1
                                                      --------        --------
      Total Operating Expenses                        $4,810.6        $6,030.5
                                                      --------        --------
      Loss from Operations                            $4,631.7        $5,953.1
                                                      --------        --------
      Interest Income                                   (124.5)         (485.5)
      Interest Expense                                    31.0            46.2
      Gain from Foreign Exchange                          (3.0)         (498.6)
                                                      --------        --------
      Net Loss                                        $4,535.2        $5,015.2
                                                      --------        --------


Results of Operations for the Fiscal Years Ended March 31, 2002 and 2001

Sales

            During the year ended March 31, 2002, we had sales of $277,833 (sale
of products and research service revenues) and a net loss of $4,535,131 compared
to sales of $144,358 and a net loss of  $5,015,134  for the year ended March 31,
2001.  The  increase in sales is  primarily  due to the  revenue  related to the
increased sales of instrumentation devices.

            Loss per share was $0.16 for the year ended March 31, 2002, compared
to $0.17 per share for the year ended March 31, 2001.

                                      -20-





Operating Expenses

            Research and development expenses were $2,590,913 for the year ended
March 31, 2002  compared to  $3,232,074  for the year ended March 31, 2001.  The
decrease of $641,161 in research and  development  expenses is  attributable  to
lower  expenses  for the  acquisition  of  research  and  development  equipment
($637,369) and pre-clinical  toxicological  studies ($123,601) and the reduction
of  personnel  in research  and  affiliated  expenses  ($86,228),  offset by the
increases in expenses related to (i) options granted to consultants  ($158,645),
(ii)  our own  in-house  programs  ($30,209),  (iii)  research  and  development
activities with our corporate  collaborators ($12,400) and (iv) royalty fees for
technological  rights  ($6,620).  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, 2002 is
$249,453 compared to $299,195 for the year ended March 31, 2001,  representing a
decrease of $49,742.  The  decrease  in the year is directly  attributable  to a
lower level of allowable research and development expenses.

General and Administrative Expenses and Grants

            General and administrative  expenses (net of grants) were $2,286,745
for the year ended March 31,  2002  compared  to  $2,948,459  for the year ended
March 31, 2001, representing a decrease of $661,714. The decrease is principally
attributable  to a  decrease  in  expenses  related  to  (i)  professional  fees
($288,308), (ii) investor relations ($203,543), (iii) marketing ($169,975), (iv)
tax on capital  ($70,795),  (v)  maintenance of our principal  place of business
($15,973),  savings  resulting from our efforts to reduce operating costs and an
increase in labor  grants  received of $57,775.  The  decrease  was offset by an
increase of  $123,846 in  compensation  expenses  related to options  granted to
consultants and an increase of administrative personnel ($21,142).

Depreciation of Property, Plant and Equipment

            Depreciation  expense was $182,436 for the year ended March 31, 2002
compared to $149,104 for the year ended March 31, 2001, representing an increase
of  $33,332.  The  increase  was  principally  attributable  to the full year of
depreciation of our acquisitions for the fiscal year 2001.

Interest Income and Interest Expense

            Interest  income  represents  income  earned  on our  cash  and cash
equivalents.  Interest  income for the year ended  March 31,  2002 was  $124,535
compared to $485,523 for the year ended March 31, 2001,  representing a decrease
of $360,988. The decrease is primarily due to a higher level of cash on hand and
on our short-term  investments during the same period for the previous year as a
result of the private placements  realized at the end of fiscal year ended March
31, 2000 and during the fiscal year ended March 31, 2001.

            Interest  expense  was  $30,962  for the year ended  March 31,  2002
compared to $46,182 for the year ended March 31, 2001,  representing  a decrease
of $15,220. The decrease is primarily attributable to the elimination of capital
lease payments interest when we acquired our building on July 4, 2000.

Gain on Foreign Exchange

            Gain on foreign  exchange  was  $2,997 for the year ended  March 31,
2002  compared  to a gain of  $498,564  for  the  year  ended  March  31,  2001,
representing a decrease of $495,567. The change is a result of (i) lesser amount

                                      -21-





of cash on hand and short-term investments  denominated in USD during the fiscal
year and (ii) lesser  variation in the average CDN to USD foreign  exchange rate
during the fiscal year 2002.

Liquidity, Capital Resources and Going Concern Uncertainty

            We have limited  operating  history as a  biotechnology  company and
have not made  significant  sales of our products.  Therefore,  our revenues are
difficult to predict.  As of March 31, 2002,  our cash  position was  $1,838,308
(including cash and cash equivalents and short-term investments).

            To  provide  us with  additional  financing,  on June 26,  2002,  we
entered into a loan agreement with the Business  Development Bank of Canada (the
"BDC Loan")  whereby we were loaned  $2,000,000  and will receive an  additional
$500,000 that is held in escrow subject to finalization of certain  registration
requirements  for the  security  interest.  In  addition,  on July 2,  2002,  we
received  a formal  offer from  National  Bank of Canada for a line of credit of
$1,200,000, but we have no commitment, agreement or understanding regarding this
additional  financing.  We also plan to  continue  with our program to limit our
operating costs and capital  expenditures.  Based on our current operating plan,
including with our cost-cutting measures, and assuming we receive the additional
$500,000 and we receive the $1,200,000  line of credit from the National Bank of
Canada, our management  estimates that our cash and cash equivalents on hand and
short-term  investment  balances are sufficient to fund our projected  operating
expenses and capital expenditures through the end of the fiscal year 2003.

            Management,  however,  plans to continue to pursue various financing
alternatives,  including on-going negotiations for co-development agreements and
bank credit  facility  to raise the  required  financing.  We are  currently  in
discussion  with the  National  Bank of  Canada  for  additional  financing.  We
received  a formal  offer from  National  Bank of Canada for a line of credit of
$1,200,000 but we have no agreement,  commitment or  understanding in connection
with this line of credit.  The success of these  negotiations  is dependant on a
number of items which we cannot control and we are unable to predict  whether we
will be able to successfully complete additional transactions with any financial
institution  or  investors  to  raise  part of any of our  additional  financing
requirements.

            On June 26, 2002, Business Development Bank of Canada ("BDC") agreed
to loan the Company's wholly-owned subsidiary,  Bio Syntech Canada Inc., a total
of  $2,500,000 of which  $2,000,000  was received and $500,000 is held in escrow
subject to finalization of certain  registration  requirements  for the security
interest.  The  debt  is  collateralized  by  all of the  Company's  assets  not
otherwise  encumbered.  The terms of repayment  of the loan are:  the  principal
amount,  together with the compound interest at a corporate rate of 10% annually
shall be due on  February  15,  2006;  thereafter  and in case of  default,  the
interest rate will be 25%. Partial or full payment,  without penalty, is allowed
before the maturity  date of the loan. As a part of the  agreement,  the Company
has also agreed to issue  warrants to purchase  1,000,000  common  shares of the
Company at US$0.33 per common share.  The warrants are  exercisable for a period
of five years  from the date of  issuance.  BDC shall be  entitled  to  exercise
warrants  on a  "cashless  basis"  so that  they  would  not be  subject  to any
restriction on transfer.  The exercise of the BDC warrants on a "cashless basis"
shall not encompass any obligation on the part of the Company to redeem the said
warrants.

            On July 12,  2001,  the  Company  increased  the  number  of  shares
reserved for issuance  under the  Company's  Stock Option Plan to an  authorized
maximum  number  of  3,900,000  shares  of common  stock.  For more  information
regarding options granted as of March 31, 2002, refer to Note 10 of the Notes to
Consolidated Financial Statements.


ITEM 7.  FINANCIAL STATEMENTS

See Index to Financial Statement on Page F-1.

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

            None.

                                      -22-





                                    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 2002 proxy statement to be filed no
later than July 29, 2002  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 2002 proxy statement to be filed no
later than July 29, 2002  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 2002 proxy statement to be filed no
later than July 29, 2002  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 2002 proxy statement to be filed no
later than July 29, 2002  pursuant to  Regulation  14A of the General  Rules and
Regulations under the Securities Exchange Act of 1934, as amended.


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*          Amended and Restated Articles of Incorporation.

 Exhibit 3.2*          Amended and Restated By-laws.

 Exhibit 4.1           Exchange  and Voting  Agreement  made  February  16, 2000
                       among  BioSyntech  Inc.,  9083-5661  Quebec Inc.,  Pierre
                       Barnard and Bio Syntech Ltd. - Incorporated  by reference
                       to Exhibit 4.1 to Current  Report on Form 8-K dated March
                       15, 2000.

                                      -23-





 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*         Amended  and  Restated  BioSyntech,   Inc.  Stock  Option
                       Incentive Plan.

Exhibit 10.3           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 10.4           Loan  Agreement by and among Bio Syntech  Canada Inc. and
                       Business Development Bank of Canada dated June 26, 2002 -
                       Incorporated   by   reference  to  Exhibit  10.1  to  the
                       Company's  Current  Report on Form 8-K and filed with the
                       Securities and Exchange Commission on July 15, 2002.

Exhibit 10.5           Promissory  Note by and among Bio Syntech Canada Inc. and
                       Business Development Bank of Canada dated June 26, 2002 -
                       Incorporated  by  reference  to Exhibit 10.2 to Company's
                       Current  Report on Form 8-K and filed with the Securities
                       and Exchange Commission on July 15, 2002.

Exhibit 10.6           Hypothec  Agreement by and between  Business  Development
                       Bank of Canada and Bio Syntech Canada Inc. dated June 26,
                       2002 -  Incorporated  by  reference  to  Exhibit  10.3 to
                       Company's  Current  Report on Form 8-K and filed with the
                       Securities and Exchange Commission on July 15, 2002.

Exhibit 10.7           Investor   Rights   Agreement   by  and  among   Business
                       Development Bank of Canada, BioSyntech, Inc., Bio Syntech
                       Canada Inc.,  BioSyntech  Europe S.A.R.L.,  Amine Selmani
                       and  9083-1496   Quebec  Inc.   dated  June  26,  2002  -
                       Incorporated  by  reference  to Exhibit 10.4 to Company's
                       Current  Report on Form 8-K and filed with the Securities
                       and Exchange Commission on July 15, 2002.

Exhibit 10.8           Warrant Subscription Agreement by and between BioSyntech,
                       Inc. and Business  Development  Bank of Canada dated June
                       26, 2002 -  Incorporated  by reference to Exhibit 10.5 to
                       Company's  Current  Report on Form 8-K and filed with the
                       Securities and Exchange Commission on July 15, 2002.

Exhibit 10.9           Warrant to Purchase Shares of Common Stock of BioSyntech,
                       Inc. issued to Business  Development Bank of Canada dated
                       June 26, 2002 - Incorporated by reference to Exhibit 10.6
                       to  Company's  Current  Report on Form 8-K and filed with
                       the Securities and Exchange Commission on July 15, 2002.


                                      -24-





Exhibit 21*            List of Subsidiaries of Company.

Exhibit 23*            Consent of Auditors.
------------------------
* Filed herewith

(b) Reports on Form 8-K:

            None.

                                      -25-






                                   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.


July 16, 2002                     By: /s/ Amine Selmani
                                     ---------------------------
                                     Amine Selmani
                                     President

July 16, 2002                     By: /s/ Lucie Duval
                                     ---------------------------
                                     Lucie Duval
                                     Controller & Chief Accounting Officer


                                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,          July 16, 2002
---------------------       Chief Executive Officer and
    Amine Selmani           President


                            Director
---------------------
    Denis N. Beaudry

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

/s/ Jean-Yves Bourgeois     Director                        July 16, 2002
-----------------------
    Jean-Yves Bourgeois

/s/ Pierre Ranger           Director                        July 16, 2002
-----------------------
    Pierre Ranger

/s/ Serge Savard            Director                        July 16, 2002
-----------------------
    Serge Savard

                                      -26-



Consolidated Financial Statements
BioSyntech, Inc.
[a development stage company]
March 31, 2002 and 2001



                   Index To Consolidated Financial Statements
                                BioSyntech, Inc.
                          (A Development Stage Company)


Report of Independent Auditors                                            F-2

Consolidated Balance Sheets at March 31, 2002 and 2001                    F-3

Consolidated Statements of Operations for the Fiscal Years
Ended March 31, 2002 and 2001                                             F-4

Consolidated Statements of Changes in Shareholders' Equity
from inception to March 31, 2002                                          F-5

Consolidated Statements of Cash Flows for the Fiscal Years Ended
March 31, 2002 and 2001                                                   F-6

Notes to Consolidated Financial Statements for the
Fiscal Years Ended March 31, 2002 and 2001                                F-7




                                       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, 2002 and 2001
and the related consolidated statements of operations,  stockholders' equity and
cash flows for the period  from  inception  to March 31,  2002 and for the years
ended March 31, 2002 and 2001. 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 financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  Management,  as well as  evaluating  the  overall  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 consolidated  financial  position of the
Company  at  March  31,  2002  and  2001  and the  consolidated  results  of its
operations  and its cash flows for the period from  inception  to March 31, 2002
and for the years ended March 31, 2002 and 2001 in  conformity  with  accounting
principles generally accepted in the United States.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going  concern.  As more fully  describe in Note 1 to
the financial  statements,  the Company has incurred recurring  operating losses
and generated negative cash flows from operations since inception,  which raises
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans in  regard to these  matters  are  described  in Note 1. The
financial  statements  do not include any  adjustments  to reflect the  possible
future effects on the recoverability and classification of assets or the amounts
and  classification  of  liabilities  that may result  from the outcome of these
uncertainties.



Montreal, Canada,                                   /s/ Ernst & Young LLP
May 24, 2002.                                       Chartered Accountants
[except for note 18, as to which the date is June 26, 2002]

                                      F-2





BioSyntech, Inc.
A development stage company

                           CONSOLIDATED BALANCE SHEETs
        [See Basis of Presentation and Going Concern Assumption - note 1]


As of March 31, 2002 and 2001

                                                                    2002            2002           2001
                                                                     US$              C$            C$
---------------------------------------------------------------------------------------------------------
                                                                  [note 2]
ASSETS [notes 8 and 18]
Current assets
Cash and cash equivalents [note 13]                                277,973        443,145      6,643,370
Short-term investments [note 3]                                    875,149      1,395,163           --
Receivables [notes 4 and 6]                                         49,462         78,853        208,233
Inventory [note 6]                                                  13,585         21,657         35,016
Investment tax credits receivable [note 12]                        133,650        213,064        193,000
Prepaid expenses                                                    36,485         58,164         30,432
--------------------------------------------------------------------------------------------------------
                                                                 1,386,304      2,210,046      7,110,051
--------------------------------------------------------------------------------------------------------
Property, plant and equipment [note 5]                           1,468,819      2,341,591      2,482,127
Deposits and other assets                                           12,202         19,452         22,836
--------------------------------------------------------------------------------------------------------
                                                                 2,867,325      4,571,089      9,615,014
========================================================================================================


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities [note 7]                  408,756        651,639      1,794,641
Due to stockholder, without interest and repayment terms             6,273         10,000         10,000
Deferred revenues                                                    1,941          3,095           --
Current portion of long-term debt [note 8]                          25,091         40,000         33,333
Current portion of obligations under capital leases [note 9]        16,868         26,891         24,224
--------------------------------------------------------------------------------------------------------
                                                                   458,929        731,625      1,862,198
--------------------------------------------------------------------------------------------------------

Long-term debt [note 8]                                             79,455        126,667        166,667
Obligations under capital leases [note 9]                           21,094         33,628         56,622
--------------------------------------------------------------------------------------------------------
                                                                   559,478        891,920      2,085,487
--------------------------------------------------------------------------------------------------------

Commitments [note 15]
Contingent liability [note 17]
Subsequent events [note 18]

Stockholders' equity
Common stock [note 10]

   Par value $0.001
   Authorized 100,000,000 common shares
   Issued and outstanding
      29,222,250 common shares [29,182,250 in 2001]             11,470,242     18,285,858     18,246,375
   Paid-up and not issued
      15,000 common shares [nil in 2001]                             6,906         11,009           --
Additional paid-in capital                                       1,623,191      2,587,691      1,953,410
Deficit accumulated during the development stage               (10,792,492)   (17,205,389)   (12,670,258)
--------------------------------------------------------------------------------------------------------
                                                                 2,307,847      3,679,169      7,529,527
--------------------------------------------------------------------------------------------------------
                                                                 2,867,325      4,571,089      9,615,014
========================================================================================================

See accompanying notes

On behalf of the Board:


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

                                      F-3




BioSyntech, Inc.
A development stage company

                      CONSOLIDATED STATEMENTS OF OPERATIONS
        [See Basis of Presentation and Going Concern Assumption - note 1]


Years ended March 31, 2002 and 2001




                                                         Cumulative
                                                             from
                                                         inception to
                                                       March 31, 2002      2002          2002             2001
                                                            C$             US$             C$              C$
---------------------------------------------------------------------------------------------------------------
                                                                        [note 2]
Sales                                                      590,329        174,277        277,833        144,358
Cost of sales                                              237,810         62,033         98,893         66,955
---------------------------------------------------------------------------------------------------------------
                                                           352,519        112,244        178,940         77,403
---------------------------------------------------------------------------------------------------------------

Research and development expenses                       11,476,959      1,625,212      2,590,913      3,232,074
Investment tax credits                                  (1,962,012)      (156,475)      (249,453)      (299,195)
General and administrative expenses                      8,473,259      1,513,079      2,412,150      3,016,089
Interest on long-term debt and capital lease
   obligations                                             315,481         19,422         30,962         46,182
Depreciation of property, plant and
   equipment                                               544,761        114,437        182,436        149,104
Government grants                                         (209,727)       (78,663)      (125,405)       (67,630)
Interest revenue                                          (633,063)       (78,118)      (124,535)      (485,523)
(Gain) loss on foreign exchange                           (447,750)        (1,880)        (2,997)      (498,564)
----------------------------------------------------------------------------------------------------------------
                                                        17,557,908      2,957,014      4,714,071      5,092,537
----------------------------------------------------------------------------------------------------------------
Net loss and comprehensive loss for the
   period [note 11]                                    (17,205,389)    (2,844,770)    (4,535,131)    (5,015,134)
Deficit accumulated during the
   development stage, beginning of period                     --       (7,947,722)   (12,670,258)    (7,655,124)
----------------------------------------------------------------------------------------------------------------
Deficit accumulated during the
     development stage, end of period                  (17,205,389)   (10,792,492)   (17,205,389)   (12,670,258)
----------------------------------------------------------------------------------------------------------------

Weighted average number of common
     shares outstanding                                                29,202,195     29,202,195     29,145,309
Basic and diluted loss per share [note 10]                                   0.10           0.16           0.17
===============================================================================================================

See accompanying notes

                                      F-4



BioSyntech, Inc.
A development stage company

                  STATEMENTS OF STOCKHOLDERS' EQUITY [note 10]
        [See Basis of Presentation and Going Concern Assumption - note 1]

From inception to March 31, 2002
[In Canadian dollars]

                                                 Common Stock                 Common Stock         Additional
                                            issued and outstanding       paid-up and not issued      paid-in     Accumulated
                                              Shares        Amount       Shares        Amount        capital       deficit     Total
                                                              $                          $              $             $         $
------------------------------------------------------------------------------------------------------------------------------------

Balance, May 10, 1995                        8,525,000           1         --           --             --           --             1
Net loss 1996 [325 day period]                    --          --           --           --             --         (2,865)     (2,865)
------------------------------------------------------------------------------------------------------------------------------------

Balance, March 31, 1996                      8,525,000           1         --           --             --         (2,865)     (2,864)
Net loss 1997                                     --          --           --           --             --         (9,332)     (9,332)
------------------------------------------------------------------------------------------------------------------------------------

Balance, March 31, 1997                      8,525,000           1         --           --             --        (12,197)    (12,196)
Deemed common stock paid up as of
   January 31, 1998 and issued on
    August 3, 1998                                --       215,000         --           --             --           --       215,000
Net loss 1998                                     --          --           --           --             --       (236,987)   (236,987)
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998                      8,525,000     215,001         --           --             --       (249,184)    (34,183)
Deemed common stock issued for cash          1,746,579   1,083,108         --           --             --           --     1,083,108
Deemed  common  stock  issued in  exchange
   for services                              1,940,000   1,455,000         --           --             --           --     1,455,000
Deemed options granted to consultants             --          --           --           --        1,309,350         --     1,309,350
Net loss 1999                                                                                          --     (4,165,657) (4,165,657)
Deemed share issuance costs                       --       (90,200)        --           --             --           --       (90,200)
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999                     12,211,579   2,662,909         --             --      1,309,350   (4,414,841)   (442,582)
Deemed common stock issued for cash          1,893,457   2,595,222         --             --           --           --     2,595,222
Deemed common stock issued in exchange
   for intellectual property                 1,072,000   1,072,000         --             --           --           --     1,072,000
Deemed options granted to consultants             --          --           --             --          406,560       --       406,560
Net loss 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                       843,500   4,270,243         --             --          --           --      4,270,243
Share issue costs                                 --      (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)
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2001                     29,182,250  18,246,375         --             --      1,953,410  (12,670,258)  7,529,527
Common stock issued to a consultant in
   exchange for services [note 10]              40,000      39,483         --             --          --           --         39,483

Exchangeable shares of the subsidiary
   of the Company issued as a part of
   settlement [note 10]                           --          --           --             --        114,248        --        114,248
Options granted to consultants [note 10]          --          --           --             --        520,033        --        520,033
Common stock to be issued to a
   consultant in exchange for services            --          --         15,000         11,009        --           --         11,009
   [note 10]
Net loss and comprehensive loss for the
   period from April 1, 2001 to
   March 31, 2002                                 --          --           --             --          --     (4,535,131)  (4,535,131)
------------------------------------------------------------------------------------------------------------------------------------
                                            29,222,250  18,285,858       15,000         11,009    2,587,691 (17,205,389)   3,679,169
====================================================================================================================================

US dollars [note 2]
Balance as at March 31, 2002                           11,470,242                        6,906    1,623,191 (10,792,492)   2,307,847
====================================================================================================================================

See accompanying notes
                                      F-5



BioSyntech, Inc.
A development stage company

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
        [See Basis of Presentation and Going Concern Assumption - note 1]


Years ended March 31, 2002 and 2001
                                                                      Cumulative
                                                                         from
                                                                     inception to
                                                                    March 31, 2002   2002         2002             2001
                                                                         C$          US$           C$               C$
-----------------------------------------------------------------------------------------------------------------------------------------
                                                                                  [note 2]
OPERATING ACTIVITIES
Net loss and comprehensive loss                                  (17,205,389)    (2,844,770)    (4,535,131)    (5,015,134)
Items not affecting cash
Depreciation                                                         544,761        114,437        182,436        149,104
Services paid by the issuance of common stock                      2,577,492         31,672         50,492           --
Exchangeable shares of the subsidiary of the Company issued as
   part of a settlement                                              114,248         71,665        114,248           --
Options granted to consultants                                     2,473,443        326,203        520,033        237,500
Exchange loss (gain)                                                (519,533)        45,338         72,278       (585,270)
Exchange loss (gain) on short-term investments                       (64,511)       (40,466)       (64,511)          --
Changes in working capital assets and liabilities
   Receivables                                                       (78,853)        81,157        129,380       (116,857)
   Inventory                                                         (21,657)         8,380         13,359         12,172
   Investment tax credits receivable                                (213,064)       (12,586)       (20,064)       382,000
   Prepaid expenses                                                  (58,164)       (17,395)       (27,732)       (12,067)
   Deferred revenues                                                   3,095          1,941          3,095        (65,451)
   Accounts payable and accrued liabilities                          615,248       (638,232)    (1,017,470)       588,278
--------------------------------------------------------------------------------------------------------------------------
Cash flows used in operating activities                          (11,832,884)    (2,872,656)    (4,579,587)    (4,425,725)
--------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment                         (1,160,262)       (26,251)       (41,850)    (1,043,161)
Purchase of short-term investments                                (1,589,258)      (949,854)    (1,514,258)          --
Proceeds from maturing of short-term investments                     258,606        115,171        183,606         75,000
Deposits and other assets                                            (19,552)         2,091          3,334         (6,236)

Changes in non-cash working capital balances related to
   investing activities                                               19,903        (78,743)      (125,532)       145,435
-------------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities                           (2,490,563)      (937,586)    (1,494,700)      (828,962)
--------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt                                           700,000           --             --             --
Repayment of long-term debt                                         (533,333)       (20,909)       (33,333)      (100,000)
Proceeds from demand loan                                            581,845           --             --             --
Repayment of demand loan                                            (581,845)          --             --             --
Increase due to stockholder                                           30,394           --             --             --
Repayment due to stockholder                                         (20,394)          --             --             --
Repayment of obligations under capital leases                     (1,665,472)       (12,751)       (20,327)    (1,002,029)
Proceeds from issuance of shares of
   Bio Syntech Ltd. prior to the reverse acquisition               3,890,068           --             --             --
Proceeds from issuance of common shares of
   BioSyntech, Inc. prior to the reverse acquisition               3,399,980           --             --             --
Repurchase of common stock of
   BioSyntech, Inc. prior to the reverse acquisition                (506,380)          --             --             --
Proceeds from issuance of common shares of
   BioSyntech, Inc. after the reverse acquisition                  9,757,662           --             --        5,487,419
Share issue costs                                                   (805,466)          --             --         (373,746)
-------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities                              14,247,059        (33,660)       (53,660)     4,011,644
-------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
    equivalents                                                      519,533        (45,338)       (72,278)       585,270
-------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                 443,145     (3,889,240)    (6,200,225)      (657,773)
Cash and cash equivalents, beginning of period                          --        4,167,213      6,643,370      7,301,143
-------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of period [note 13]                   443,145        277,973        443,145      6,643,370
=========================================================================================================================

Additional information
Interest paid                                                        300,611         19,422         26,078         46,182
-------------------------------------------------------------------------------------------------------------------------

See accompanying notes

                                      F-6



BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]

1.        BASIS OF PRESENTATION AND GOING CONCERN ASSUMPTION

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. The related 15,177,036 shares
of common  stock of the  Company  have been  issued and were placed in trust and
accordingly  are  considered  issued  and  outstanding.  As at March  31,  2002,
7,677,853 shares remain in trust [15,177,036 as at March 31, 2001].

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,
2002 and 2001 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, 2002 and 2001
[In Canadian dollars]

1.     BASIS OF PRESENTATION AND GOING CONCERN
       ASSUMPTION [Cont'd]

The  consolidated  financial  statements  of the Company  have been  prepared in
accordance with accounting principles generally accepted in the United States on
a going concern basis which presumes the realization of assets and the discharge
of  liabilities  in the normal  course of business for the  foreseeable  future.
Accordingly,   these  consolidated  financial  statements  do  not  include  any
adjustments  to reflect the possible  future effects on the  recoverability  and
classification  of assets or the amount and  classification  of liabilities that
may be  necessary  should the Company be unable to continue  its business in the
normal course.

The  Company  has  incurred  net  losses  each  year  since  its  inception  and
anticipates  that losses will continue for the foreseeable  future.  As of March
31, 2002,  the  Company's  accumulated  deficit was  $17,205,389.  The Company's
ability to continue as a going concern is uncertain and is dependent principally
upon  its  ability  to  obtain  further   financing  to  complete  research  and
development  projects  and  market  products,   achieve  profitable  operations,
generate  positive cash flows from  operations,  as to which no assurance can be
given.

It is  expected  that  additional  funds will  continue  to be  required  for an
indefinite period as no estimate can be made as to when the Company will achieve
profitability.  The  Company  continues  to limit  operating  costs and  capital
expenditures  based on its estimated cash requirements and financing  available.
Management  continues  to  negotiate  further  financing.  The  success of these
negotiations is dependent on a number of items outside the Company's control and
there is substantial  uncertainty  about the Company's  ability to  successfully
complete these negotiations.



2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of business

The Company, which is a development stage company, has been engaged primarily in
research  and  development  since its  inception in 1995.  The Company  develops
advanced  biomaterials   specializing  in  tissue  engineering  and  therapeutic
delivery focusing on the repair of damaged tissue in the human body like bone or
cartilage. The Company is also engaged in the development of advanced injectable
biomaterials for the delivery of cells and genetic  material and  biotherapeutic
agents.  The  Company  also  develops  instrumentation   products.  The  Company
currently  has  products  at  different  stages of  development,  including  the
pre-clinical trial stage. The Company has limited revenues to date and they have
come almost entirely from sales of instrumentation products.

                                      F-8



BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002 and 2001
[In Canadian dollars]


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

Principles of consolidation

The consolidated financial statements include the accounts of BioSyntech,  Inc.,
the accounts of Bio Syntech  Canada Inc and the accounts of  Biosyntech  Europe.
Biosyntech  Europe has a year-end of December 31. All intercompany  transactions
and balances have been eliminated.

US dollar amounts  presented on the  consolidated  balance sheets,  consolidated
statements of operations,  stockholders'  equity and cash flows are provided for
convenience  of  reference  only and are based on the closing  exchange  rate at
March 31, 2002, which was $1.5942 Canadian per US dollar.

Utilization of estimates

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.

Revenue recognition

Product revenue is recognized when persuasive evidence of an arrangement exists,
the  product is  delivered,  there are no future  performance  obligations,  the
purchase  price is fixed and  determinable,  and  collectibility  is  reasonably
assured.  Amounts billed in advance of satisfying revenue  recognition  criteria
are differed until such time as the related product has been delivered.  Service
revenue is recognized when the services have been rendered.

Short-term investments

Short-term  investments  consist primarily of commercial paper, all of which are
classified  as   held-to-maturity.   The  Company   determines  the  appropriate
classification  of debt  and  equity  securities  at the  time of  purchase  and
reassesses the classification at each reporting date.

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.

                                      F-9




BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002 and 2001
[In Canadian dollars]


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

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
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.  The functional  currency of
the Company's foreign subsidiaries is the Canadian dollar.

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 reduction of expenses in the year that the related  expenditure is
incurred.

Federal and  provincial  investment tax credits are accounted for using the cost
reduction  method which recognizes the credits as a reduction of the cost of the
related assets or  expenditures  in the year in which the credits are earned and
when there is reasonable assurance of their recovery.

                                       F-10



BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002 and 2001
[In Canadian dollars]


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

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  in
accounting  for its  employee  stock  options as provided for under SFAS No.123,
including pro forma disclosure.  Accordingly,  compensation cost for fixed 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.

Stock option grants and similar equity instruments  granted to non-employees are
accounted  for under the fair  value  method  provided  for in SFAS No.  123 and
Emerging  Issues Task Force  ["EITF"],  Issue No. 96-18  "Accounting  for Equity
Instruments  That are  Issued  to Other  Than  Employees  for  Acquiring,  or in
Conjunction with Selling, Goods or Services."

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. Exchangeable shares of Bio Syntech Canada
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

In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting  for Derivative  Instruments  and Hedging  Activities.  The Statement
requires the Company to recognize all  derivatives  on the balance sheet at fair
value.  Derivatives  that are not hedges must be adjusted to fair value  through
income.  If the  derivative  is a hedge,  depending  on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change in
fair value of assets,  liabilities,  or firm  commitments  through  earnings  or
recognized in other comprehensive  income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately  recognized in earnings.  Accordingly,  effective April 1, 2001, the
Company  adopted  this  statement.  The  Company  has  concluded  that it has no
significant impact on its consolidated financial statements.

                                      F-11



BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002 and 2001
[In Canadian dollars]


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

Accounting for the impairment or disposal of long-lived asset

Effective April 1, 2001, the Company adopted the Financial  Accounting Standards
Board Statement of Financial  Accounting Standards SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of."
Although   retaining  many  of  the  fundamental   recognition  and  measurement
provisions  of SFAS No.  121,  the new rules  modify the  criteria  required  to
classify an asset as held-for-sale.

The adoption of this standard had no impact on the Company's  financial position
or results of operations for the year ended March 31, 2002.


3.        SHORT-TERM INVESTMENTS

Short-term investments at March 31, 2002 consist of held-to-maturity  commercial
papers  denominated  in US  dollars,  maturing  on July 11,  2002 and  having an
average effective rate of 1.82%.



4.        RECEIVABLES

                                                      2002               2001
                                                       $                  $
--------------------------------------------------------------------------------

Sales tax receivable                                48,360              172,921
Trade receivables                                   15,942                   --
Government grants receivable                         5,000                9,000
Interest receivable                                  2,173               17,272
Other                                                7,378                9,040
--------------------------------------------------------------------------------
                                                    78,853              208,233
--------------------------------------------------------------------------------

                                      F-12




BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002 and 2001
[In Canadian dollars]

5.        PROPERTY, PLANT AND EQUIPMENT

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

2002
Land                                             351,000               --           351,000
Building                                       2,233,166          423,640         1,809,526
Office furniture and equipment                   184,977           82,322           102,655
Equipment under capital lease                     95,635           32,222            63,413
Office furniture under capital lease              21,424            6,427            14,997
-------------------------------------------------------------------------------------------
                                               2,886,202          544,611         2,341,591
-------------------------------------------------------------------------------------------

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


6.        CREDIT FACILITY

The Company has a $50,000 credit  facility,  maturing on July 31, 2002,  payable
upon demand,  bearing  interest at the prime rate plus 2.5%. A $50,000 charge on
inventory  and  receivables   was  granted  to  the  financial   institution  as
collateral. As of March 31, 2002 and 2001, no amount was drawn under this credit
facility.

As at March 31, 2002 and 2001, the prime rate was 3.75% and 6.75% respectively.

                                      F-13



BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]


7.        ACCOUNTS PAYABLE AND ACCRUED LIABILITIES


                                                                        2002             2001
                                                                          $                $
----------------------------------------------------------------------------------------------

Accounts payable                                                      391,469        1,143,803
Accrued compensation                                                  126,451          268,588
Other accrued liabilities                                             113,816          236,815
Accounts payable related to property, plant and equipment              19,903          145,435
----------------------------------------------------------------------------------------------
                                                                      651,639        1,794,641
----------------------------------------------------------------------------------------------


8.        LONG-TERM DEBT

                                                                        2002            2001
                                                                          $              $
-----------------------------------------------------------------------------------------------

Bank loan bearing interest at the prime rate. Interest on
the loan was paid by a governmental agency until
June 26, 2001. The loan matures on May 26, 2006
and is payable in monthly  installments  of $3,333 plus
interest  starting on June 26, 2001. The debt is
guaranteed by a governmental  agency and  collateralized
by a $200,000 first rank charge on all tangible and
intangible assets not otherwise encumbered.                           166,667         200,000
----------------------------------------------------------------------------------------------
                                                                      166,667         200,000
Less:  current portion                                                 40,000          33,333
----------------------------------------------------------------------------------------------
                                                                      126,667         166,667
==============================================================================================

The principal repayments are as follows for years ending March 31:

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

2003                                                                                   40,000
2004                                                                                   40,000
2005                                                                                   40,000
2006                                                                                   40,000
2007                                                                                    6,667
---------------------------------------------------------------------------------------------
                                                                                      166,667
=============================================================================================

                                      F-14



BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]

9.        OBLIGATIONS UNDER CAPITAL LEASES

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

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

2003                                                                   35,008
2004                                                                   22,860
2005                                                                   14,836
2006                                                                       10
--------------------------------------------------------------------------------
                                                                       72,714
Less:  interest portion at rates varying between 11.63% and 31.67%     12,195
--------------------------------------------------------------------------------
                                                                       60,519
Less:  current portion                                                 26,891
--------------------------------------------------------------------------------
                                                                       33,628
================================================================================

Included in interest on long-term debt is interest on obligations  under capital
leases in the amount of $12,765 [$34,666 in 2001].



10.       STOCKHOLDERS' EQUITY AND STOCK OPTIONS

a)    Fiscal 2001 transactions

Common stock issued for cash
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.

                                      F-15



BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]


10.       STOCKHOLDERS' EQUITY AND STOCK OPTIONS [Cont'd]

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.

On September 30, 2001, a total of 470,000  warrants  relating to the February 2,
2000 private placement have expired unexercised.

b)    Fiscal 2002 transactions

Common stock issued to a consultant in exchange for services
On April 3, 2001, the Company signed an agreement with a mergers and acquisition
firm to seek strategic  alliances.  As part of this agreement,  the Company must
pay half the fees in cash and half in equity for a total value of US$50,000.  On
October 1, 2001,  the  Company  issued  40,000  common  shares in  exchange  for
services for a value of $39,483 [US$25,000].  If the consultant is successful in
seeking  strategic  alliances  and obtains  additional  funding  which result in
milestone  payments,  the Company will be required to pay success fees of 5% for
the first and the second US million dollar, 4% for the third, 3% for the fourth,
2% for the  fifth,  and 1% for each  additional  US  million  dollar in  funding
obtained.  The  US$50,000  payment will be credited  against any future  success
fees.  Additional  amounts owed to the consultant shall be paid half in cash and
half in equity.

Exchangeable  shares  of the  subsidiary  of the  Company  issued  as a part  of
settlement.

On  June  22,  2001,  the  subsidiary  of the  Company  issued  100,000  Class A
non-voting exchangeable shares, which are exchangeable into common shares of the
Company,  as part of the  judgment in a lawsuit by a former  employee.  The fair
value of the 100,000 shares issued  amounting to $114,248 had been accrued as at
March 31, 2001. These shares are presented as "Additional paid-in capital".

                                      F-16



BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]

10.       STOCKHOLDERS' EQUITY AND STOCK OPTIONS [Cont'd]

Common stock to be issued to a consultant in exchange for services
On January 10, 2002, the Company  signed an agreement  with RCG Capital  Markets
Group Inc. ["RCG"] expiring in July 2003. Under the agreement, RCG serves as the
exclusive  financial  relations counsel for the Company in the United States. As
part of this  agreement,  RCG is compensated in cash and in common shares of the
Company.  For the first  seven-month  period,  the Company must issue a total of
35,000  common  shares and pay in cash  US$21,000  in exchange  for the services
provided and US$6,000 per month subsequently until the end of the agreement. The
contract is cancellable by either party, subject to terms and conditions,  after
the  conclusion of the initial  seven-month  period.  As of March 31, 2002,  the
Company has to issue 15,000 common shares in exchange for services. These shares
have not been  issued yet and,  consequently,  they are shown as  "Common  stock
paid-up  and not  issued".  The fair  value of these  shares,  in the  amount of
$11,009, was charged to general and administrative expenses.

Stock options

BioSyntech Inc.

On July 12,  2001,  the  Company  increased  the number of shares  reserved  for
issuance under the Company's  Stock Option Plan to an authorized  maximum number
of 3,900,000 shares of common stock to employees,  directors and consultants. As
at March 31,  2002,  the  Company  has  outstanding  2,790,000  options  granted
entitling the holders to purchase  2,790,000 common shares of BioSyntech Inc. at
prices varying  between  C$0.79 and C$6.38.  The Board has the sole authority to
determine the terms and conditions of the options to be issued.  The expiry date
of the options is for a maximum of ten years after the date of grant.

On November 29, 2001, options to purchase 2,235,000 shares of common stock under
the Company's  Stock Option Plan were granted as follows:  977,500 stock options
to  employees,  300,000  stock  options to members of the Board of Directors and
957,500 stock  options to  consultants.  These  options can be exercised  over a
maximum of five-year period from the grant date.

As a part of the agreement signed with RCG, the Company has granted RCG, subject
to Board of Directors' approval,  an option to purchase 200,000 shares of common
stock of the Company, in exchange for services,  at an exercise price of US$0.60
of which options to purchase 20,000 shares of common stock immediately vested at
the date of the  agreement.  These  options  are  shown as  "Additional  paid-in
capital".   The  fair  value  of  these  options  was  charged  to  general  and
administrative expenses in the amount of $16,623. The vesting dates of the other
options are conditional  upon the rendering of specified  services.  The options
can be exercised over a six-year period.

                                      F-17




BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]


10.       STOCKHOLDERS' EQUITY AND STOCK OPTIONS [Cont'd]

As of March 31, 2002,  options to purchase  95,000 shares of the common stock of
the Company  were  forfeited  because  more than 90 days had  elapsed  since the
departure date of some employees.

                                                           2002                                2001
                                                   ---------------------------------------------------------
                                                                   Weighted                         Weighted
                                                                   Average                          Average
                                                    Stock          Exercise            Stock        Exercise
                                                   Options          Price             Options        Price
                                                                      C$                               C$
------------------------------------------------------------------------------------------------------------

Outstanding, beginning of year                      450,000           5.47                 --         --
Granted                                           2,435,000           1.12            625,000        5.70
Forfeited                                            95,000           4.10            175,000        6.31
------------------------------------------------------------------------------------------------------------
Outstanding, end of year                          2,790,000           1.73            450,000        5.47
------------------------------------------------------------------------------------------------------------
Exercisable, end of year                          1,958,500           1.88            175,000        5.69
------------------------------------------------------------------------------------------------------------
Weighted average fair value of options
   granted during the year                                            0.59                           4.52
------------------------------------------------------------------------------------------------------------

As at March 31, 2002,  200,000 options of the 2,790,000  outstanding are subject
to Board of  Directors'  approval.  No options were granted  prior to 2001.  The
outstanding options expire between July 11, 2005 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, 2002:

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

              C 1.58             517,500              C 1.58                3.75               169,000          C 1.58
              C 1.19             125,000              C 1.19                3.28               125,000          C 1.19
              C 0.79             612,500              C 0.79                3.48               462,500          C 0.79
----------------------------------------------------------------------------------------------------------------------------
                               1,255,000              C 1.16                3.57               756,500          C 1.03
----------------------------------------------------------------------------------------------------------------------------

     US 3.25 to 4.00             305,000             US 3.99                8.35               300,000         US 4.00
             US 2.59              20,000             US 2.59                8.50                    --              --
             US 1.25              75,000             US 1.25                8.75                50,000         US 1.25
     US 0.50 to 1.00           1,135,000             US 0.66                3.84               852,000         US 0.65
---------------------------------------------------------------------------------------------------------------------------
                               1,535,000             US 1.38                5.04             1,202,000         US 1.51
---------------------------------------------------------------------------------------------------------------------------

Total                          2,790,000              C 1.73                4.38             1,958,500          C 1.88
===========================================================================================================================

                                      F-18




BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]

10.       STOCKHOLDERS' EQUITY AND STOCK OPTIONS [Cont'd]

Bio Syntech Canada Inc.

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 362,000 options granted entitling the holders to purchase 362,000
Class A shares of Bio Syntech Canada which are  exchangeable  into common shares
of BioSyntech, Inc. at prices varying between C$1.75 and C$2.39. The options are
exercisable  at any time  before the  expiry  date which is for a maximum of ten
years following the date of grant.

As of  December  31,  2001,  options to purchase  847,500  Class A shares of Bio
Syntech Canada Inc.  expired.  As of March 31, 2002,  options to purchase 35,000
Class A of Bio Syntech Canada Inc. were forfeited  because more than 90 days had
elapsed since the departure date of some employees.

                                                                         2002                                    2001
                                                           -----------------------------------------------------------------------
                                                               Stock            Weighted             Stock            Weighted
                                                              Options       Average Exercise        Options       Average Exercise
                                                                                  Price                                 Price
                                                                                   C$                                    C$
----------------------------------------------------------------------------------------------------------------------------------

Outstanding, beginning of year                                 1,244,500          1.09               1,500,000          1.06
Forfeited                                                        882,500          0.82                 255,500          0.87
----------------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year                                         362,000          1.76               1,244,500          1.09
----------------------------------------------------------------------------------------------------------------------------------
Exercisable, end of year                                         362,000          1.76               1,147,500          0.98
----------------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options granted                                     --                                    --
----------------------------------------------------------------------------------------------------------------------------------

No options were granted prior to 1999. These options expire between December 31,
2002 and December 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, 2002:

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

             C1.75                          100,000                          6.67                         100,000
            US1.50                          162,000                          0.75                         162,000
            US0.75                          100,000                          6.67                         100,000
------------------------------ ------------------------------ ------------------------------------ ---------------------
                                            362,000                          4.02                         362,000
-------------------------------------------------------------------------------------------------- ---------------------

                                      F-19





BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]

10.       STOCKHOLDERS' EQUITY 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.

                                       2002                     2001
                                         %                        %
----------------------------------------------------------------------

Expected life [years]                 5.08                       5.00
Risk-free interest rates              4.98                       6.00
Volatility                          114.00                     120.00
Dividend yield                        0.00                       0.00
---------------------------------------------------------------------

1,157,500  options were granted to  consultants  during the year ended March 31,
2002  [50,000  during the year ended  March 31,  2001].  The fair value of these
options at the time of grant was charged to research and development and general
and administrative expenses in the amount of $158,646 and $361,387, including an
amount of $16,653 for the options  issued to RCG,  respectively  during the year
ended March 31, 2002 [$237,500 was charged to research and development  expenses
during the year ended March 31, 2001].

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
$934,000 for the year ended March 31, 2002  [$1,780,000 for the year ended March
31,  2001] and basic and  diluted  loss per share  would be  increased  by $0.03
[$0.06 for the year ended March 31, 2001].

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.

                                      F-20





BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]

10.       STOCKHOLDERS' EQUITY AND STOCK OPTIONS [Cont'd]

Loss per share
The following is a reconciliation  of the numerator and denominator of the basic
and diluted loss per share  computations  for the years ended March 31, 2002 and
2001.

                                                    2002             2001
                                                     $                 $
----------------------------------------------------------------------------

Numerator
   Net loss - numerator
   For basic and diluted loss per share          4,535,131         5,015,134
Denominator:
   Denominator for basic loss per share
   Weighted-average shares                      29,202,195        29,145,309
Effect of dilutive securities:
Stock options and warrants                              --                --
----------------------------------------------------------------------------
Denominator for diluted loss per share
Adjusted weighted-average shares and
   assumed conversions                          29,202,195        29,145,309
----------------------------------------------------------------------------

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 2002 and 2001. These securities are options and warrants
as noted above.

                                      F-21





BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[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:

                                                                 2002             2001
                                                                   $               $
----------------------------------------------------------------------------------------

Deferred tax assets
Net operating loss carryforwards                               2,016,683       1,542,924
Scientific research and experimental development expenses      1,569,907       1,018,584
Excess of tax basis of financing fees over accounting value        9,472          12,733
Excess of tax basis of fixed assets over accounting value        180,737         122,248
----------------------------------------------------------------------------------------
Total deferred tax assets                                      3,776,799       2,696,489
========================================================================================

Net deferred tax assets (liabilities)
Deferred tax assets                                            3,776,799       2,696,489
Deferred tax liabilities                                              --              --
----------------------------------------------------------------------------------------
                                                               3,776,799       2,696,489
Valuation allowance                                            3,776,799       2,696,489
----------------------------------------------------------------------------------------
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-22





BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]


11.       INCOME TAXES [Cont'd]

The Company has accumulated Canadian non-capital losses carryforwards for income
tax purposes, the benefit of which has been offset by a valuation allowance, and
which expire as follows:

                                                           Canadian
                                                            federal                   Quebec
                                                          tax losses                tax losses
                                                              $                         $
---------------------------------------------------------------------------------------------

2003                                                          39,000                   27,000
2004                                                         656,000                  553,000
2005                                                       1,125,000                1,129,000
2006                                                              --                       --
2007                                                         234,000                  233,000
2008                                                       2,064,000                2,048,000
2009                                                       2,389,000                2,372,000
---------------------------------------------------------------------------------------------
                                                           6,507,000                6,362,000
=============================================================================================

The Company has accumulated  temporary  differences as set out in the summary of
deferred tax assets above.  The differences are mainly in relation to scientific
research  and  experimental  development  expenditures  and are in the amount of
approximately $4,720,000 at the Canadian federal level and $5,818,000 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:

                                                           2002         2001
                                                            %            %
----------------------------------------------------------------------------

Combined statutory federal and provincial rates           36.23        37.79
Decrease in taxes recoverable resulting from:
   Non-deductible expenses and other differences          (0.11)       (0.06)
   Tax credit non taxable in Quebec                       (0.49)       (0.39)
   Manufacturing and processing profits deduction         (5.50)       (7.00)
   Unrecognized tax benefits of operating losses and
      other available deductions                         (30.13)      (30.34)
-----------------------------------------------------------------------------
                                                             --           --
=============================================================================

                                      F-23





BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]


12.       GOVERNMENT ASSISTANCE

The  Company has  incurred  scientific  research  and  experimental  development
expenditures  which are  eligible  for  investment  tax credits at the  Canadian
federal level.  The investment  tax credits  recorded are based on  management's
estimates of amounts  expected to be  recovered  and are subject to audit by the
taxation authorities and, accordingly, these amounts may vary.

The Company has  non-refundable  investment tax credits  available  amounting to
$1,153,000   related  to  scientific   research  and  experimental   development
expenditures  which may be  utilized to reduce  Canadian  federal  income  taxes
payable in the future years end expire as follows:

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

2006                                                              32,000
2007                                                              66,000
2008                                                              29,000
2009                                                                  --
2010                                                              29,000
2011                                                             503,000
2012                                                             494,000
------------------------------------------------------------------------
                                                               1,153,000
========================================================================

The  benefits  of these  non-refundable  investment  tax  credits  have not been
recognized in the financial statements.


13.       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:

                                                         2002            2001
                                                          $               $
-----------------------------------------------------------------------------

Cash on hand                                          443,145         425,403
Bankers' acceptances                                       --       6,217,967
-----------------------------------------------------------------------------
Total cash and cash equivalents                       443,145       6,643,370
=============================================================================

                                      F-24





BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]

14.       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,
short-term  investments,  receivables  and  investment  tax credits  receivable.
Short-term   financial   liabilities   comprise  accounts  payable  and  accrued
liabilities and due to stockholder.

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, 2002
and March 31, 2001.

[b]         Credit risk

The  cash and  cash  equivalents  at  March  31,  2002 are held by one  Canadian
financial institution, a chartered bank.

The short-term  investments at March 31, 2002 represent  commercial paper of one
US Company with a credit rating of A-2 as defined by Standard & Poors.

[c]         Foreign currency risk

The Company is exposed to foreign  currency  translation  risk due to cash, cash
equivalents,   short-term   investments,   receivables   and  accounts   payable
denominated  in  U.S.  dollars.  As  at  March  31,  2002,  assets,   consisting
principally of cash and cash equivalents and short-term investments, denominated
in U.S.  dollars  totaled US $1,071,578 [US $4,104,499 as at March 31, 2001] and
liabilities  denominated in U.S.  dollars  totaled US $52,383 [US $138,549 as at
March 31, 2001].

The Company does not enter into arrangements to hedge its foreign currency risk.

                                      F-25





BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]

15.       COMMITMENTS

[a]         Lease

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

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

2003                                                                23,633
2004                                                                 4,586
--------------------------------------------------------------------------
                                                                    28,219
==========================================================================

[b]         Technology license

Under  the terms of a  technology  license  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  $21,056 as at March 31, 2002 [$7,218 as at
March 31, 2001] in respect of these arrangements.

[c]         Contract with a consultant

On January 10, 2002, the Company  signed an agreement  with RCG Capital  Markets
Group Inc. ("RCG") expiring in July 2003. Under the agreement, RCG serves as the
exclusive  financial  relations counsel for the Company in the United States. As
part of this  agreement,  RCG is compensated in cash and in common shares of the
Company.  For the first  seven-month  period,  the Company must issue a total of
35,000  common  shares and pay in cash  US$21,000  in exchange  for the services
provided and US$6,000 per month subsequently until the end of the agreement. The
contract is cancelable by either party,  subject to terms and conditions,  after
the conclusion of the initial  seven-month  period. The Company has granted RCG,
subject to Board of Directors' approval, an option to purchase 200,000 shares of
common stock of the Company at an exercise  price of US$0.60 of which options to
purchase  20,000  shares of common stock  immediately  vested at the date of the
agreement.  The  vesting  dates of the other  options are  conditional  upon the
rendering of specified services in the future. The options can be exercised over
a six-year period [note 10].

[d]         Contract with LAB Pre-Clinical Research International Inc.

On March 8, 2002, the Company signed an agreement with LAB Pre-Clinical Research
International Inc. ["LAB"]. LAB will perform a study beginning on March 13, 2002
and expiring in twenty-six weeks. As part of this agreement,  the Company has to
pay in cash  $111,000 in  exchange  for the  services  provided.  The  scheduled
billing is 30% upon  quotation  approval,  30% on initiation  of dosing,  30% on
completion  of  observation  period and 10% at  dispatch  of the  audited  draft
report.  The  contract  is  cancelable  by either  party,  subject  to terms and
conditions. As at March 31, 2002, the Company paid only the first payment.

                                      F-26




BioSyntech, Inc.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2002 and 2001
[In Canadian dollars]


16.         SEGMENTED INFORMATION

The Company considers that it operates only in one reportable  industry segment,
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:

                                                          2002          2001
                                                           $             $
------------------------------------------------------------------------------

Revenues from external customers
Canada                                                    27,674        66,200
United States                                            246,528        51,881
Australia                                                  3,631        26,277
------------------------------------------------------------------------------
                                                         277,833       144,358
==============================================================================


17.       CONTINGENT LIABILITY

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. On March 27, 2002 this action
was dismissed at no cost to the Company by the Superior Court of Canada.


18.       SUBSEQUENT EVENTS

On June 26, 2002, Business Development Bank of Canada ["BDC"] agreed to loan the
Company's wholly-owned subsidiary, Bio Syntech Canada Inc, a total of $2,500,000
of  which  $2,000,000  was  received  and  $500,000  is  subject  to  terms  and
conditions.  The  debt is  collateralized  by all of the  Company's  assets  not
otherwise  encumbered.  The terms of repayment  of the loan are:  the  principal
amount,  together with the compound  interest at a compound rate of 10% annually
shall be due on  February  15,  2006;  thereafter  and in case of  default,  the
interest rate will be 25%. Partial or full payment,  without penalty, is allowed
before the maturity date of the loan.

As a part of the  agreement,  the Company  has also agreed to issue  warrants to
purchase  1,000,000  common  shares at a strike price of US$0.33 per share.  The
warrants  will be  exercisable  for a  period  of five  years  from  the date of
issuance.  BDC shall be entitled to exercise  warrants on a "cashless  basis" so
that they would not be subject to any  restriction on transfer.  The exercise of
the BDC warrants on a "cashless basis" shall not encompass any obligation on the
part of the Company to redeem the said warrants.

                                      F-27`