`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, 2003

                                       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: $174,240.

            Based upon the closing price of the issuer's common stock, $.001 par
value (the "Common  Stock"),  on July 3, 2003, the aggregate market value of the
20,216,150  outstanding  shares of Common  Stock held by  non-affiliates  of the
issuer  was  $8,646,043  (or  USD$6,469,168).  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 3, 2003,  29,357,250  shares of the issuer's Common Stock
were issued and outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

            Not applicable.

            Transitional Small Business Disclosure Format (check one):

                        / /   Yes            /x/   No





ITEM 1      DESCRIPTION OF BUSINESS.
------      ------------------------

1.1         General                                                              1

1.2         Platform technology, BST-Gel(R)                                      2

1.3         Tissue Repair products                                               2
    1.3.1     Cartilage repair, BST-CarGel(R)                                    2
    1.3.2     Chronic wounds, BST-DermOn(TM)                                     3
    1.3.3     Heel pain, BST-InPod(TM)                                           3

1.4         Research Projects                                                    4
    1.4.1     Bone Injuries and Diseases                                         4
        1.4.1.1   OssiFil(R)and OssiFix(R)                                       4
        1.4.1.2   Antibiotic delivery in bone with BST-Gel(TM)                   4
    1.4.2     Intervertebral Disc Regeneration                                   4
    1.4.3     Therapeutic delivery                                               5
        1.4.3.1   Pacligel(TM)                                                   5
        1.4.3.2   Cerebragel(TM)                                                 5
        1.4.3.3   Cell Delivery                                                  5

1.5         Instrumentation                                                      5
    1.5.1     The Arthro-BST                                                     6
    1.5.2     The MACH-1 Mechanical Tester                                       7

1.6         Patents and Proprietary Rights                                       7

1.7         Pricing                                                              7

1.8         Employee Growth                                                      8

1.9         Material Agreements                                                  8

1.10        Brief History and Issuance of Exchangeable Class A Preferred Stock   8

1.11        Risk Factors                                                         9

1.12        Currency Exchange Rates                                             13

1.13        Forward Looking Statements                                          13


ITEM 2      PROPERTY                                                            14
------      --------

ITEM 3      LEGAL PROCEEDINGS                                                   14
------      -----------------

ITEM 4      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                 14
------      ---------------------------------------------------





ITEM 5      MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS                  14
------      -------------------------------------------------------

ITEM 6      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                15
------      ---------------------------------------------------------

6.1         Summary of Critical Accounting Policies                                  15

    6.1.1     Government Assistance                                                  16
    6.1.2     Long-Lived Assets                                                      16
    6.1.3     Patents and Trademarks                                                 16
    6.1.4     Recent Accounting Pronouncements                                       16

6.2         Results of Operations                                                    16

ITEM 7      FINANCIAL STATEMENTS                                                     19
------      --------------------

ITEM 8      CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON ACCOUNTING  AND
            FINANCIAL DISCLOSURE
            --------------------------------------------------------------------     20

ITEM 9      DIRECTORS,   EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL  PERSONS;
            COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT                        20
            --------------------------------------------------------------------
9.1         Board of Directors                                                       20

9.2         Executive Officers                                                       21

ITEM 10     EXECUTIVE COMPENSATION                                                   23
-------     ----------------------

10.1        Compensation of Executives                                               23
10.2        Summary Compensation Table                                               23
10.3        Option Grants                                                            23
10.4        Aggregated Fiscal Year-End Option Exercises and Option Values            23
10.5        Compensation of Directors                                                23
10.6        Other Compensation Plans                                                 24
10.7        Employment Agreement                                                     24

ITEM 11     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT           24
-------     --------------------------------------------------------------





ITEM 12     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                      25
-------     ----------------------------------------------

12.1        Agreement with Polyvalor                                            25
12.2        Agreement with Chief Executive Officer & President              25

ITEM 13     EXHIBITS AND REPORTS ON FORM 8-K                                    26
-------     --------------------------------

ITEM 14     CONTROLS AND PROCEDURES                                             27
-------     -----------------------

ITEM 15     PRINCIPAL ACCOUNTANT FEES AND SERVICES                              28
-------     --------------------------------------





                                     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, 2002
and March 31, 2003. 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 and our ultrapure chitosan,  called Ultrasan.
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.  Based on our  current  operating  plan,  assuming  we raise
$3,000,000 from a planned private placement and the additional  $10,000 from the
loan from the  Business  Development  Bank of Canada held in escrow,  we believe
that our  financial  resources  are  sufficient  to meet our planned  activities
through  fiscal  year  2004.  We expect,  however,  that  additional  funds will
continue to be required for an  indefinite  period as no estimate can be made as
to when we will achieve profitability.

            Our research and  development  efforts are focused on maximizing the
multiple benefits of our core  technologies.  Those  technologies are applied to
diverse tissue repair specialties,  which include cosmetic surgery,  wound care,
orthopedics  and  rheumatology.  Orthopedic and  rheumatology  problems  include
cartilage   injuries  and  diseases  as  well  as  heel  pain,   bone  injuries,
intervertebral  discs  degeneration.   Our  technologies  are  also  applied  to
therapeutic  delivery,  which  includes  gene and cell  delivery  as well as the
controlled delivery of therapeutic agents.

            We also have an  instrumentation  division  that is  developing  the
Arthro-BST TM and selling the Mach-1TM Mechanical Tester ("Mach-1").  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.  The Mach-1
was  originally  developed  and  used  by the  Company  to  evaluate  mechanical
properties of cartilage and is now one of the products it sells.

            For the fiscal  years ended March 31,  2003 and March 31,  2002,  we
spent $1,968,175 and 2,590,913, respectively, for research and development.

                                      -1-




1.2         PLATFORM TECHNOLOGY, BST-GEL(R)
---         -------------------------------

            Our 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  implant  is derived  from  natural  sources  and  contains  no toxic
chemicals.  One of its  key  properties  is that  it  gels  on  site  after  its
injection,  and  thus  requires  no  surgery  for its  implantation.  It is also
biodegradable,  with  controllable  residence  times that allow its  therapeutic
effect to range from a few days to several weeks.

            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,  and aim to enter into  licensing or
distribution  agreements  with  partners to expedite the launch of our products.
BioSyntech   performed   extensive  research  and  developed  the  manufacturing
infrastructure  for its patented  platform  technologies.  Aside from bringing a
thorough  understanding  of the  injectable  biomaterials,  this  investment now
allows BioSyntech to exploit efficiently the platform potential.

            The gel can act as a mechanical  scaffold to promote  tissue repair,
or as a reservoir used for the effective delivery of a therapeutic agent such as
drugs, proteins, cells or DNA sequences.

1.3         TISSUE REPAIR PRODUCTS
---         ----------------------

          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 or tissue with an artificial  device.  Since our biomaterials
are injectable and do not require surgical implantation, we believe our products
could lead to a higher probability of success. BioSyntech Tissue Repair products
are  regulated  as medical  devices  and thus  benefit  from a  relatively  fast
regulatory  approval process. So far, we have fully developed three products for
tissue repair.

1.3.1       Cartilage repair, BST-CarGel(R)
-----       -------------------------------

            Articular cartilage is the main tissue affected in arthritic disease
and is very challenging to repair  surgically since it lacks both a blood supply
and an appropriate population of repair cells.

            BST-CarGel(R) is a radically new therapeutic  approach for articular
cartilage repair. arthroscopically deliverable, BST-CarGel(R) is a novel product
that fills focal  cartilage  defects  and  supports a dynamic  cartilage  repair
environment.  This  product is based upon our  thermo-sensitive,  physiological,
biocompatible and biodegradable BST-Gel(TM) proprietary platform technology.

            BioSyntech reported promising  pre-clinical efficacy results in July
of 2001 and consequently,  our aggressive  development  program has continued to
apply  BST-CarGel(R) to various cartilage animal models including rabbit,  sheep
and horse. The results have consistently confirmed that BST-CarGel(R)  treatment
in cartilage  focal defects has the ability to  dramatically  improve  cartilage
repair over controls in a safe manner.

STATUS:  BioSyntech  is  in  the  process  of  obtaining  the  CE  marking,  for
commercialisation  on the European Market through directive 93/42 annex 2 (legal
guidance  listing  the  essential  requirements  to  obtain CE  marking).  North
American  regulatory  procedures,  both in Canada and USA have been initiated in
parallel.

MARKET:  The current  standard of care for the  treatment of cartilage  injuries
involves  surgical  techniques and materials that have been shown to result only
in the  formation  of a fibrous  cartilage-like  material  with poor  mechanical
properties.  However,  there are still over 1 million arthroscopic surgeries for
cartilage repair per year, worldwide.

Our competitors have developed an implant  containing living cells that requires
complex  open  knee  surgery  and  whose  efficacy  and  acceptance   have  been
questioned.  There are surgical  procedures  for repairing  localized  cartilage
lesions which include drilling, microfractures, abrasion, and using tissue paste
but do not require implantation. These methods rely on induced bleeding into the

                                      -2-




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.

We believe that  BST-CarGel(R)could  offer something novel and highly desirable:
reproducible cartilage repair.

1.3.2       CHRONIC WOUNDS, BST-DERMON(TM)
-----       ------------------------------

            BST-DermOn(TM) is a spreadable therapy designed for the treatment of
chronic wounds. Developed from the BST-Gel(TM) platform technology, it functions
by  stimulating  and  supporting  the  intrinsic  healing  process  of a slow or
non-healing  wound and has the  potential to be adopted as a first-line  therapy
for these wounds.

            BST-DermOn(TM) acts as a barrier and can seal the wound and maintain
a moist  environment  while continuing to allow gas exchange.  Chitosan has well
documented  wound  healing  properties  as  well  as  inherent  haemostatic  and
bacterio-static capabilities.

STATUS:  BioSyntech  is  in  the  process  of  obtaining  the  CE  marking,  for
commercialisation  on the European Market through directive 93/42 annex 2. North
American  regulatory  procedures,  both in Canada and USA have been initiated in
parallel.

MARKET:  It is  estimated  that  approximately  3,700,000  patients  in the  USA
currently  suffer from chronic  wounds.  About 1.7M of those wounds are pressure
wounds, 1.0M diabetic ulcers, and 1.0M venous stasis ulcers. Chronic wounds have
a negative impact on the quality of life of the patient; it reduces mobility and
can lead to serious  complications,  such as amputations.  From 1997 to 1999, an
average of 82,000  amputations  were  performed on diabetics as a result of what
may have started as a simple foot ulcer (Aurora Capital,  Advanced Chronic Wound
Technology  (ACWT)  Industry  Report,  2002).  The  care of  chronic  wounds  is
estimated  to cost over $1  billion  dollars a year in the USA  (Journal  of the
National Association Orthopaedic Technologists, 22-25, 2002).

For the treatment of  non-healing  wounds,  the treating  physician may consider
surgical  closure  of the  wound or second  line  therapies,  such as  so-called
Advanced Chronic Wound Technologies involving growth factor gel or bioengineered
tissue equivalents. Those therapies are generally expensive, leaving a wide door
for sensibly priced, efficient therapies.

1.3.3       HEEL PAIN, BST-INPOD(TM)
-----       ------------------------

            Heel  pain is an  unpleasant  effect of  aging,  accident  and other
pathologies.  The pain is usually  associated  with an 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 engaged in high impact  sports.  With the
normal loss of fat pads, pressure area starts developing over the metatarsus and
the heel areas as early as age 30.  Over the years,  this  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.

            Individuals  suffering  from this  condition  currently rely only on
orthoses,  orthopaedic insole or heelpieces for their shoes.  BST-InPod(TM) is a
new  injectable  product  that could  restore the  comfort of the natural  shock
absorbers,  the plantar fat pads, by restoring  their  thickness and  cushioning
properties.  All the chemical  components of the  BST-InPod(TM)  formulation are
naturally  occurring  in the human body.  In  addition to being GRAS  (Generally
Regarded As Safe),  they have a long clinical  history of safety as  intravenous
products  available on the North  American and  European  markets.  Pre-clinical
studies required for European and North American  regulatory  agencies have been
successfully completed by CROs operating under GLPs.

                                      -3-




STATUS:  BioSyntech  is  in  the  process  of  obtaining  the  CE  marking,  for
commercialisation  on the European Market through directive 93/42 annex 2. North
American  regulatory  procedures,  both in Canada and USA have been initiated in
parallel.

MARKET:  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. In addition, this proportion increases with
the ageing of the population. Currently, the heel cushioning market is saturated
with  disposable  in-sole  cushions and orthotics.  BST-InPod is a simple way to
replenish the natural heel cushioning  through an injection,  and represents the
first  permanent  therapy for heel pad thinning.  The main  competitors  in this
market are solely  manufacturers  of shoe  inserts and  orthotics.

1.4         RESEARCH PROJECTS
---         -----------------

            In  addition  to this  full line of  products,  other  products  are
currently in development.  BioSyntech  pursues research and development on other
tissue  repair  technologies  or in the field of  therapeutic  delivery,  either
independently  or in  collaboration  with  partners.

1.4.1       BONE  INJURIES  AND DISEASES
-----       ----------------------------

1.4.1.1     OSSIFIL(R) AND OSSIFIX(R)

            BioSyntech is developing  new  proprietary  bone grafting  materials
that  combine the  flowing/carrying  property of BST-Gel  material  and the bone
formation property of calcium based minerals.  OssiFil(R) can be used to promote
bone in  voided or  emptied  bone  tissues,  in  dental  applications  or in the
surgical treatment of fractured hipbones.

            A new proprietary bone composite  cement is also under  development.
This OssiFix(R) bone materials  would be injectable,  self-hardening,  and would
offer a stronger  structural  integrity  and  biomaterial  strength  to severely
weakened  bones.  This  technology is targeted for the treatment of fractures in
the osteoporotic vertebra.

1.4.1.2     ANTIBIOTIC DELIVERY IN BONE WITH BST-GEL(TM)

            BST-Gel(TM)is being tested for use as an injectable delivery vehicle
for  antibiotics  for  use in  treating  chronic  osteomyelitis,  a  devastating
complication,  which can occur following  orthopedic surgical  procedures.  This
work is being carried out with U.S. academic collaborators.

1.4.2       Intervertebral Disc Regeneration
            --------------------------------

            About 55% of the population  will  eventually  suffer from back pain
related  to  faulty  intervertebral  discs  (Western  Journal  of  Medecine,143:
259-265,  1985). These discs are used for human  multi-directional  articulation
and as shock  absorbers.  A pressure  decrease in its central  nucleus  leads to
instability,  painful irritation of the surrounding nerve roots and subjects the
shell to additional stress that can lead to a herniated disc.

            Our 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.  Those  surgeries  include  laminectomy,  nerve root
decompression, lumbar fusion, or the installation of an artificial disc.

            An  efficient  non-surgical  procedure  would cost a fraction of the
surgery 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. We developed BST-Disc to restore the pressure within the intervertebral
disc. 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.

                                      -4-




1.4.3       Therapeutic delivery
-----       --------------------

            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.  This line of product is now undergoing  research
and development.

ANTI-CANCER  TREATMENTS:  The  potential of current  systemic  chemotherapy  for
cancer is  limited  by normal  tissue  toxicity.  Several  approaches  have been
developed  to  overcome  this   problem,   ranging  from  the  use  of  liposome
encapsulated drugs, prodrugs that can be activated selectively in specific tumor
tissue,  etc.  Most of these  approaches  have  revealed  several  disadvantages
including high costs, and have had very limited success clinically.

1.4.3.1     PACLIGEL(TM)
            Paclitaxel  is a  hydrophobic  drug and is the active  ingredient in
Taxol, a cancer drug with worldwide  sales in excess of $2.4 billion US in 2000.
A unique  sustained-release  formulation  of  paclitaxel  based on  Biosyntech's
platform  BST-Gel(TM)  technology  has been  developed.  Sustained  delivery  of
paclitaxel has various  advantages  including  minimal systemic  exposure of the
chemotherapeutic  agent.  This could  potentially  reduce or eliminate  commonly
observed   side   effects  of  Taxol  such  as   vomiting,   cardiotoxicity   or
neurotoxicity-  side  effects  which often  interrupt  treatment  schedules.  We
believe  that our  Pacligel  product is safe and has  potential to become a lead
paclitaxel-based chemotherapeutic agent for the treatment of various cancers.

            A  proof-of-concept  study was performed using a human breast tumour
model implanted in immuno-compromised (SCID) mice. Pacligel doses were implanted
into the mouse  mammary fat pad and tumor volumes were measured as a function of
time over a period.  Pacligel(TM)  formulations sustained over 50-60% inhibition
of tumour  growth with just a single dose,  over at least 80 days.  In addition,
the  Pacligel(TM)  in the  mammary  fat pad showed an  inhibitory  effect on the
growth of mammary tumours implanted at a distal subcutaneous site.

1.4.3.2     CEREBRAGEL(TM)
            Another  formulation,  Cerebragel(TM)  based on BST-Gel(TM) has been
developed.  In vivo animal  studies are currently  underway for the treatment of
glioblastomas  at a  local  university  hospital.  Our  preliminary  tests  show
positive  results that will be confirmed at a larger scale before going to pilot
clinical trials.

1.4.3.3     CELL DELIVERY
            Formulations of BST-Gel(TM)  have been adapted to allow the delivery
of living cell and allow their long-term survival. Proof-of-concept studies have
been  performed  with various cell types,  including  stem cells,  chondrocytes,
keratynocytes, fibroblasts and intervertebral disc cells. Such development could
be  used  in  the  implantation  or  storage  of  cell-based   tissue-engineered
constructs.

1.5         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

                                      -5-




centimeters. These instruments are closely related to our work on cartilage.

1.5.1       The Arthro-BST
-----       --------------

            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.

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, CE
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.

                                      -6-




1.5.2       The MACH-1 Mechanical Tester
-----       ----------------------------

            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  $100,000.  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.

1.6         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  seven  patents  and have filed  fifty-seven
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
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  five   registered   trademarks  and  nine  trademark
applications on proprietary technology and products important to the Company.

1.7         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.

                                      -7-




            The U.S.  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.

1.8         Employee Growth
---         ---------------

            As of March 31, 2003, we had 27  employees,  of whom 17 were engaged
in research and development and 10 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 Mach-1,  we have no other employees  involved
in the manufacture of our products. We anticipate our total employee count to be
approximately 24 employees by the end of fiscal year 2004. Furthermore,  we have
transferred a larger part of our research and development at Ecole  Polytechique
de Montreal where some 15 people are working almost exclusively on our projects.
These persons are  remunerated  through Ecole  Polytechnique,  among those,  our
Vice-President Research and Development, who was awarded a Canada Research Chair
in Cartilage Tissue Engineering.

            Our success  depends on the  services of key  employees in executive
and research and development positions,  notably our 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.

1.9         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 Polyvalor
royalties  of 5%  on  our  gross  sales  up to a  maximum  aggregate  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.


1.10        BRIEF HISTORY AND ISSUANCE OF EXCHANGEABLE CLASS A PREFERRED STOCK
----        ------------------------------------------------------------------

            We were incorporated in the State of Nevada in December 14, 1994 and
became a  publicly-traded  corporation  without  operations in August 1999.  Bio
Syntech Ltd. was founded in 1995 by Dr. Amine Selmani as a Quebec corporation.

            Pursuant to an Amalgamation Agreement and related agreements,  dated
February 15, 2000, by and among us, our then wholly-owned  subsidiary  9083-5661
Quebec Inc., Bio Syntech Ltd., and the former  stockholders of Bio Syntech Ltd.,
9083-5661  Quebec Inc. and Bio Syntech Ltd.  were merged into one company  under
the name of Bio Syntech  Canada Inc. as of February 29, 2000.  Consequently,  we
became  the  record and  beneficial  owner of all of the issued and  outstanding
shares of Bio Syntech  Canada's Common Stock and the former  stockholders of Bio
Syntech Ltd. were issued non-voting  exchangeable shares of Bio Syntech Canada's
class A stock. The class A stock is exchangeable on a share-for-share  basis for
an  aggregate of  15,177,036  shares of our Common Stock which are held in trust
under the terms of an  Exchange  and Voting  Agreement  by and among us,  Pierre
Barnard as trustee, Bio Syntech Ltd. and 9083-5661 Quebec Inc.

            Under  the  terms  of  the  Exchange  and  Voting  Agreement,   each
beneficial holder of class A stock has voting rights in that number of shares of
our Common  Stock  equal in number to the number of shares of class A stock held
by such holder.  Consequently,  upon completion of the  transaction,  the former
stockholders  of Bio  Syntech  Ltd.  held,  through  Pierre  Barnard as trustee,
securities with voting rights equal to  approximately  55.7% of the total voting
power  of the  outstanding  shares  of our  Common  Stock.  As of July 3,  2003,
primarily  because of  subsequent  sales of our  shares,  the shares held by the

                                      -8-




trustee  accounted  for  approximately  26% 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.

            A total  of  7,515,370  shares  of  class A  stock  has so far  been
exchanged for Common Stock held by the Trustee and the Trustee  currently  holds
7,661,666 shares of our Common Stock on behalf of holders of class A 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.

            The share exchange agreement and related transactions  documents are
incorporated by reference as exhibits to this Annual Report on Form 10-KSB.

1.11        RISK FACTORS
----        ------------

            WE OPERATE IN A RAPIDLY CHANGING  ENVIRONMENT THAT INVOLVES A NUMBER
OF  RISKS,  SOME OF WHICH ARE  BEYOND  OUR  CONTROL.  THE  FOLLOWING  DISCUSSION
HIGHLIGHTS THE MOST MATERIAL OF THE RISKS.

            ADDITIONAL FINANCING WILL BE REQUIRED BEFORE WE ARE PROFITABLE.

            On June 26, 2002, our  wholly-owned  subsidiary  entered into a loan
agreement with Business  Development  Bank of Canada providing for borrowings of
up to $2,500,000,  of which $2,490,000 has been advanced to such subsidiary.  On
July 8, 2003, we obtained a $750,000 loan from our Chief  Executive  Officer and
President.  In exchange for the loan, we issued him a  convertible  debenture in
the  principal  amount of  $750,000  which  matures  on July 8, 2004 and bears s
interest at an annual rate of 7%, payable on monthly basis.

            We are also currently  discussing  additional  sources of financing,
such  as  raising  an  aggregate  of  $3,000,000  through  a  private  placement
consisting of our common stock and warrants to purchase our common stock.  Based
on our current  operating  plan,  assuming  receipt of the private  placement of
$3,000,000 and the additional $10,000 of the loan from the Business  Development
Bank of Canada  held in escrow,  we believe  that our  financial  resources  are
sufficient  to meet our planned  activities  through  fiscal year 2004 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 we will  achieve  profitability.
There can be no assurance that the private placement will be consummated.  If we
do not receive additional financing from the private placement or otherwise,  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 "Part
I, Item 2. Management's  Discussion and Analysis - Liquidity,  Capital Resources
and Going  Concern  Uncertainty"  section.  Moreover,  the  consummation  of the
private   placement   will  result  in  additional   dilution  to  our  existing
shareholders.

            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;

                                      -9-




            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;  THEREFORE,  WE HAVE DOUBTS
ABOUT  OUR  ABILITY  TO  CONTINUE  AS A  GOING  CONCERN.  WE  MAY  NEVER  BECOME
PROFITABLE.

            As of March 31, 2003 our accumulated deficit was $20,858,098. We had
net operating  losses of $3,652,709  and  $4,535,131  for the fiscal years ended
March 31, 2003 and March 31, 2002,  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
approval of our products, including clinical trials, accelerate. The independent
accountant's report on our financial  statements for the fiscal year ended March
31, 2003 states that our recurring  operating losses and generated negative cash
flows from operations raise substantial doubt about our ability to continue as a
going  concern.  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    Obtaining additional funding from our collaborative partners;
                 and
            o    Achieving 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.

                                      -10-




            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;
            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.

                                      -11-




            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
trademarks,  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.

            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.

                                      -12-




1.12        CURRENCY EXCHANGE RATES
----        -----------------------

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

Rate at filing date (July 14,2003)                   1.3739

                                                      2003                         2002
                                                      ----                         ----
Rate at end of period (March 31)                     1.4678                       1.5942

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

June 2003                                            1.3591                       1.3474
May 2003                                             1.3908                       1.3789
April 2003                                           1.4639                       1.4543
March 2003                                           1.4801                       1.4714
February 2003                                        1.5161                       1.5092
January 2003                                         1.5442                       1.5371
December 2002                                        1.5620                       1.5559

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

Fiscal year ended March 31, 2003                     1.5479
Fiscal year ended March 31, 2002                     1.5655

1.13        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
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.
            o    Our ability to raise additional financing.

            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.

                                      -13-




ITEM 2      PROPERTY

            Our   administrative   and  commercial   offices  and  research  and
development  facility  is located  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 and we believe it is in very good  condition
and compliant with Good  Laboratory  Practices.  We are the only occupant of the
building.

            On June 26, 2002,  the Company  entered into a loan  agreement  (the
"BDC Loan") for the amount of $2,500,000 with the Business  Development  Bank of
Canada  ("BDC").  To secure the BDC Loan,  the Bio Syntech  Canada granted BDC a
security  interest  on,  among  other  things  and  subject  to the terms of the
Hypothec  Agreement  dated as of June 26,  2002 by and  between  the BDC and Bio
Syntech  Canada,  the land and building where its principal place of business is
currently located.

ITEM 3      LEGAL PROCEEDINGS

            There is no action or  investigation  pending or, to our  knowledge,
threatened against us.

ITEM 4      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            Not Applicable


                                     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 $)
               -----------       -------             -----------     ----------
               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
                                 2nd quarter         $0.5500         $0.2500
                                 3rd quarter         $0.3700         $0.2500
                                 4th quarter         $0.4800         $0.2500

            According to  information  furnished to us by the transfer agent for
our shares of Common Stock, as of July 3, 2003, there were 111 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.

                                      -14-




            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, 2003)

      ----------------------------------------------------------------------------------------------------------------------
      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)                    (b)                      reflected  in column (a))(c)
      ----------------------------------------------------------------------------------------------------------------------
      Equity  compensation                3,630,000                     $1.24                               1,455,500
      plans  approved by
      security holders
      ----------------------------------------------------------------------------------------------------------------------
      Equity compensation                    _                              _                                     _
      plans not approved by
      security holders
      ----------------------------------------------------------------------------------------------------------------------
      Total                               3,630,000                     $1.24                               1,455,500
      ----------------------------------------------------------------------------------------------------------------------

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.

6.1         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.

                                      -15-




6.1.1       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.  Due to the  uncertainty  of the  claim  being  accepted  by  taxation
authorities as filed, accounting for research and development tax credit require
estimates made by management.

6.1.2       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.
Significant judgments are made when estimating the recoverability of such assets
as it 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.

6.1.3       PATENTS AND TRADEMARKS
-----       ----------------------

            The  costs  associated  with the  acquisition  and  application  for
patents and  trademarks  have been  capitalized  and are being  amortized on the
straight-line  basis over 20 years for patents and 10 years for trademarks.  The
Company  regularly  reviews the carrying  value of patents and  impairments  are
recognized when the expected future operating cash flows derived from the patent
is less than their carrying value.

6.1.4       RECENT ACCOUNTING PRONOUNCEMENTS
-----       --------------------------------

            In May 2003,  the FASB issued SFAS No.150,  "Accounting  for Certain
Financial Instruments with Characteristics of both Liabilities and Equity" (SFAS
150). The provision of the Statement will change the  classification  of certain
freestanding  financial instruments classified as equity under the old standard.
This Statement is effective for financial  instrument  arrangements entered into
or modified after May 31, 2003, and otherwise  effective at the beginning of the
first interim period  beginning after June 15, 2003. The Company does not expect
that this Statement will have a significant impact on its financial position.

6.2         RESULTS OF OPERATIONS
---         ---------------------

            To date, we have incurred substantial losses from operations, and as
of March 31, 2003, had an accumulated deficit of $20,858,098. 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.

                                      -16-




            The following  table sets forth  certain  items in our  consolidated
statements of operations for the fiscal years ended March 31, 2003 and 2002. The
amounts are in thousands of CDN $.

                                                                   Fiscal Years Ended March 31,
                                                                      2003           2002
      Revenues:
      Sales and services                                           $  103.8       $  207.0
      Research and development contracts                               70.4           70.8
                                                                  ---------      ---------
      Total Revenues                                                  174.2          277.8

      Expenses:
      Cost of Sales                                                $   31.9       $   98.9
      Research and Development                                      1,968.2        2,590.9
      Investment Tax Credit                                          (190.5)        (249.5)
      General and Administrative (Net of Grants)                    1,442.7        2,286.7
      Depreciation of Property, Plant and Equipment                   188.2          182.4
      Amortization of Patents and Trademarks                           13.9            0.1
      Amortization of Debt Issue Costs                                108.6             --
      Interest Income                                                 (32.3)        (124.5)
      Interest Expense                                                198.8           31.0
      (Gain)/Loss from Foreign Exchange                                97.4           (3.0)
                                                                 ----------      ---------
      Total Expenses                                                3,826.9        4,813.0

      Net Loss                                                     $3,652.7       $4,535.2
                                                                 ==========      =========


RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 2003 AND 2002

Revenues

            During the year ended March 31,  2003,  we had  revenues of $174,240
and a net loss of $3,652,709  compared to revenues of $277,833 and a net loss of
$4,535,131 for the year ended March 31, 2002. The decrease in sales is primarily
due to the decrease in sales of instrumentation devices.

            Loss per share was $0.12 for the year ended March 31, 2003, compared
to $0.16 per share for the year ended March 31, 2002.

Research and development expenses

            Research and development expenses were $1,968,175 for the year ended
March 31, 2003  compared to  $2,590,913  for the year ended March 31, 2002.  The
decrease of $622,738 in research and development expenses is attributable to the
reduction  of  personnel in research and  affiliated  expenses  ($205,356),  the
decreases in expenses  related to (i)  compensation  expenses related to options
granted to consultants ($143,510), (ii) research and development activities with
our  corporate  collaborators  ($126,125),  (iii)  acquisition  of research  and
development  equipment  ($108,099) and (iv) our own in-house programs ($44,844),
offset by the slight  increases  in  expenses  related to (i)  royalty  fees for
technological  rights  ($3,234)  and  (iv)  pre-clinical  toxicological  studies
($1,962). 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, 2003 is
$190,507 compared to $249,453 for the year ended March 31, 2002,  representing a
decrease of $58,946.  The decrease is directly  attributable to a lower level of
allowable research and development expenses.

                                      -17-





General and Administrative Expenses and Grants

            General and administrative  expenses (net of grants) were $1,442,723
for the year ended March 31,  2003  compared  to  $2,286,745  for the year ended
March 31, 2002, representing a decrease of $844,022. The decrease is principally
attributable  to a  decrease  in  expenses  related  to  (i)  professional  fees
($461,706), (ii) compensation expenses related to options granted to consultants
($361,387),  (iii) the  reduction of  administrative  personnel  and  affiliated
expenses  ($156,871),  (iv)  maintenance  of our  principal  place  of  business
($16,894),  (v) tax on capital  ($5,810),  savings resulting from our efforts to
reduce  operating  costs.  The  decrease  was offset by an  increase in expenses
related to investor relations  ($74,982) and a decrease in labor grants received
of $84,488.

Depreciation of Property, Plant and Equipment

            Depreciation  expense was $188,189 for the year ended March 31, 2003
compared to $182,386 for the year ended March 31, 2002, representing an increase
of $5,803. The increase was principally  attributable to the depreciation of our
new acquisitions for the fiscal year 2003.

Amortization of Patents and Trademarks

            Amortization  expense  was $13,935 for the year ended March 31, 2003
compared to $50 for the year ended March 31, 2002,  representing  an increase of
$13,885. The increase was attributable to the amortization of our capitalization
of the costs  associated  with the  acquisition  and application for patents and
trademarks during the fiscal year 2003.

Amortization of Debt Issue Costs

            Amortization  expense was $108,647 for the year ended March 31, 2003
compared  to no  amortization  expense  for  the  year  ended  March  31,  2002,
representing  an increase of  $108,647.  The increase  was  attributable  to the
amortization  of our  new  debt  issue  costs  related  to  the  loan  from  BDC
consummated on June 26, 2002.

Interest Income and Interest Expense

            Interest  income  represents  income  earned  on our  cash  and cash
equivalents.  Interest  income for the year  ended  March 31,  2003 was  $32,336
compared to $124,535 for the year ended March 31, 2002,  representing a decrease
of $92,199.  The decrease is primarily  due to a lower level of cash on hand and
on our short-term investments compared to the same period for the previous year.

            Interest  expense  was  $198,789  for the year ended  March 31, 2003
compared to $30,962 for the year ended March 31, 2002,  representing an increase
of $167,827.  The increase is primarily  attributable  to the interest  expenses
related to the loan from the BDC consummated on June 26,2002.

Loss (Gain) on Foreign Exchange

            Loss on foreign  exchange  was  $97,408 for the year ended March 31,
2003  compared  to a  (gain)  of  $2,997  for the year  ended  March  31,  2002,
representing a decrease of $100,405. The decrease is a result of a lesser amount
of cash on hand and short-term investments  denominated in USD during the fiscal
year ended 2003 offset by a higher  variation  in the average CDN to USD foreign
exchange  rate during each fiscal year (from 1.5655 during the fiscal year ended
2002 to 1.5479 during fiscal year ended 2003).

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,  2003,  our cash  position  was $800,038
(including cash and cash equivalents).

                                      -18-





            On  June  26,  2002,  Bio  Syntech  Canada  Inc.,  our  wholly-owned
subsidiary,  concluded a loan agreement with Business Development Bank of Canada
("BDC") for a total of  $2,500,000  of which  $2,490,000  has been  received and
$10,000  is held in  escrow  until  certain  registration  requirements  for the
security  interest  have been  finalized.  The debt is secured  by a  $2,500,000
hypothec covering moveable and immovable  property  excluding  patents,  a first
ranking  hypothec  on land and  building  and a moveable  hypothec  on  accounts
receivable.  The terms of repayment of the loan are: the  principal  amount plus
all accrued interest at a corporate rate of 10% compounded  monthly shall be due
on February 15, 2006,  and in case of default,  the interest  rate shall be 25%.
Partial or full payment, without penalty, is allowed before the maturity date of
the BDC  Loan.  This  agreement  contains  affirmative  and  negative  covenants
customary  of such loans  including,  but not  limited  to,  those  relating  to
limitations  on  capital  expenditures.  As part  of the  agreement,  we  issued
warrants to purchase  1,000,000 shares of our common stock, $.001 per value (the
"Common  Stock"),  at US$0.33 per share to BDC.  These  warrants  are  currently
exercisable  at any time over a  five-year  term from the date of  issuance.  If
market value exceeds the exercise  price,  BDC shall have the option to exercise
the warrants on a net issue basis by obtaining a number of shares  equivalent to
the difference between the market value and the exercise price.

            On July 8,  2003,  we  obtained  a  $750,000  loan  from  our  Chief
Executive  Officer and  President.  In exchange  for the loan,  we issued him an
unsecured  convertible  debenture  in the  principal  amount of  $750,000  which
matures on July 8, 2004 and bears  interest at an annual rate of 7%,  payable on
monthly basis.  The debenture is convertible  into shares of our common stock on
the maturity  date or any business day  thereafter  until the debenture has been
repaid in full.  The  number of shares  to be issued  upon  conversion  shall be
determined by using a conversion rate equal to USD$0.35 per share,  based on the
exchange  rate for US dollars  published  by the Bank of Canada for the business
day prior to the conversion  date.  The number of shares  issuable on conversion
and the conversion price are subject to certain adjustments.

            We are seeking to raise up to $3,000,000 through a private placement
consisting  of our common stock and warrants to purchase  our common  stock.  To
date,  the  private  placement  has not been  consummated  and  there  can be no
assurance  that we will be able to raise  any  money in the  private  placement.
Management  also plans to continue  to pursue  various  financing  alternatives,
including on-going negotiations for co-development  agreements and a bank credit
facility to raise the required  financing.  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.

            We also plan to continue  with our program of limiting our operating
costs and capital expenditures. Based on our current operating plan, assuming we
receive the $3,000,000  from the private  placement and the  additional  $10,000
held in escrow,  our management  estimates that our cash and cash equivalents on
hand are  sufficient  to fund  our  projected  operating  expenses  and  capital
expenditures through the end of the fiscal year 2004. There can be no assurance,
however,  that the  above-mentioned  private placement will be received from the
investors.  If we do not receive additional financing from the private placement
or  otherwise,  we will  reassess our  operating  plan to reduce  expenses on an
ongoing basis.

             On December 4, 2002,  the  Company  increased  the number of shares
reserved  for  issuance  under  BioSyntech,  Inc.'s  Stock  Option  Plan  to  an
authorized  maximum  number  of  5,000,000  shares  of  common  stock.  For more
information  regarding options granted as of March 31, 2003, refer to Note 11 of
the Notes to Consolidated Financial Statements.

ITEM 7       FINANCIAL STATEMENTS


See Index to Financial Statement on Page F-1.

                                      -19-





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

            The information  required in this Item 8 was previously  reported in
the  Company's  Current  Report on Form 8-K dated October 7, 2002 and filed with
the Securities and Exchange Commission on October 15, 2002.


                                    PART III

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

9.1         Board of Directors
---         ------------------

            The present Class I directors of the Company will serve until annual
meeting of  stockholders  in 2004 and until  their  successors  are  elected and
qualified. The present Class II directors will serve until the annual meeting of
stockholders in 2005 and until their  successors are elected and qualified.  The
present Class III directors will serve until the annual meeting of  stockholders
in 2003 and until their  successors are elected and  qualified.  As of March 31,
2003, the Company had five directors and one vacancy.  On June 19, 2003, Monique
Lefebvre, a former Class II director, resigned as a director of the Company. The
Board of Directors has not appointed a replacement.  The current  members of the
Board of Directors of the Company are as follows:

            AMINE SELMANI PHD, 46 - Class III Director - Dr.  Selmani has served
as a director of the Company since February 2000. Dr. Selmani has also served as
our President and Secretary  since  February 2000, as Chairman of the Board from
February 2000 to August 2002, as our Chief Executive  Officer from February 2000
to  September  2000 and  starting  January  2001,  and  Chairman  of the  Board,
President,  Chief  Executive  Officer and  Secretary of Bio Syntech  Canada Inc.
("Bio Syntech  Canada") and its predecessor  corporation  since its inception in
November  1997.  Prior to founding the  predecessor  corporation  of Bio Syntech
Canada in May 1995,  Dr.  Selmani had eight years of teaching  experience at the
Chemical Engineering  Department and Biomedical Institute of Ecole Polytechnique
as an Associate  Professor from 1992 to 1997 and as an Assistant  Professor from
1989 to 1992. Dr. Selmani received his Bachelor of Science and Master of Science
Degrees  in  Physical  Chemistry  in  1979  and  1981,  respectively,  from  the
University of Bordeaux,  France. He also obtained his Doctoral and Post Doctoral
Degrees  in  Materials  Science  from the  University  of  Montreal  in 1985 and
Dalhousy University in 1988, respectively. Dr. Selmani was also involved in many
university-industry technology transfer projects.

            SERGE  SAVARD,  55 - Class I Director - Mr. Savard has served as our
Chairman of the Board since  August  2002 and as a director of  BioSyntech  from
July 2001 to  August  2002.  Since  1993,  Mr.  Savard  has been a partner  with
Thibault,  Messier,  Savard,  a real estate  investment firm. Prior to 1993, Mr.
Savard served in various  capacities  with the Montreal  Canadiens  Hockey Club,
including as Vice President and General  Manager.  Mr. Savard is deeply involved
in  several   aspects  of  amateur   sports  and  is  associated   with  several
philanthropic organizations.

            GILLES  CLOUTIER,  PhD,  58 - Dr.  Cloutier  has  over 30  years  of
experience in the  pharmaceutical  industry,  including five years with Contract
Research  Organizations  providing  strategic  support to the  biotechnology and
pharmaceutical  industry.  His experience includes US, Canada, and European drug
development  in all phases from IND to NDA filings,  both in strategic  planning

                                      -20-




and the  execution  of the  work  needed  for  successful  approval  of  several
investigational  agents.  Dr.  Cloutier  is the  Chairman of the Board of URRMA.
Furthermore,  he has accepted to serve as Director of Theratechnologies and also
as President  and Chief  Executive  Officer of Fortamed.  Since April 2001,  Dr.
Cloutier  has been the  Chairman of the Board of  Directors  and Chief  Business
Officer of MoliChem Medicines,  a biotechnology  company. From 2000 to 2002, Dr.
Cloutier was  President  and Chief  Executive  Officer of Northern  Therapeutics
Inc., a biotechnology  company.  Dr. Cloutier was Founder of United Therapeutics
Corporation,  a biotechnology company, and from April 1997 to 2002, he served as
its Executive Vice President and Director.  Dr.  Cloutier is also the founder of
Cato Pharma Canada Inc., a pharmaceutical research and development organization.
Dr. Cloutier has also been working with major  pharmaceutical  companies such as
Quintiles Inc.,  Burroughs Wellcome,  Abbott Laboratories and Sandoz Canada. Dr.
Cloutier has a PhD in  pharmacology,  a M.Sc in biochemical  pharmacology  and a
B.Sc. in Pharmacy.  Since 1976,  Dr.  Cloutier has held various  university  and
board  appointments in the  pharmaceutical  field. Dr. Cloutier is the author of
over 30 medical publications.

            CLAUDE LEDUC, 46 - Class I Director - Since December 2000, Mr. Leduc
has been employed by Genzyme Biosurgery, a company offering biosurgery services,
as  Director  for  International  Markets.  Mr.  LeDuc  has full  marketing  and
management  responsibility  for  supporting  and  managing  the  BioOrthopaedics
distribution  partners  in all global  assigned  regions,  as well as  providing
franchise  support to the  worldwide  country  managers.  Mr.  LeDuc  joined the
Genzyme  International Group in Cambridge,  Ma., following his highly successful
position as National Director for Canada,  and his nine year career at Biomatrix
Inc., a Biomaterial Medical applications company,  where he was responsible with
various  marketing,  sales and business  development roles in Canada and Europe.
Mr.  LeDuc  started  his  health  industry  career  17  years  ago  with  Syntex
Laboratories,   a  multinational  pharmaceutical  company,  winning  a  National
Performance Award in sales within his first two years. Mr. LeDuc then progressed
to the  Biotechnology  sector in 1991 with  Serono  Laboratories  as a  regional
marketing and sales manager and then to Biomatrix, Inc.

            Polyvalor  has the  right to  appoint  one  nominee  to the Board of
Directors  of the  Company  (the  "Board of  Directors")  under  the  Assignment
Agreement (as  hereinafter  defined).  There are no family  relationships  among
directors and executive officers.

9.2         Executive Officers
---         ------------------

            The other executive officers of the Company are as follows:

            MICHAEL  BUSCHMANN  PHD,  41 -  Dr.  Buschmann  has  been  the  Vice
President of Research and  Development  Division of the Company  since May 2002.
Since  1997,  Dr.  Buschmann  has been  Professor  of  Chemical  and  Biomedical
Engineering at Ecole  Polytechnique.  He received a Ph.D. in Medical Engineering
and Medical  Physics from the  Division of Health  Sciences  and  Technology  at
Harvard  University and the  Massachusetts  Institute of Technology in 1992, and
completed  postdoctoral  training at the  University of Bern in  Switzerland  in
1994.  Since 1994 Dr.  Buschmann  has  established  a research  program at Ecole
Polytechnique  in  fields  dealing  with  cartilage  and  arthritis.  In 1999 he
received an infrastructure  grant from the Canadian Foundation for Innovation to
construct a large number of integrated  multidisciplinary  laboratories at Ecole
Polytechnique  and in 2001 he was awarded a Canada  Research  Chair in Cartilage
Tissue Engineering at Ecole  Polytechnique.  Dr. Buschmann is co-director of the
bioengineering  theme within the federally funded Canadian  Arthritis Network of
Centres of  Excellence  and has a  research  program  in  cartilage  physiology,
function, pathology,  diagnosis and repair. He has received a number of teaching
awards  at Ecole  Polytechnique  and  several  distinctions  for  innovation  in
research. Dr. Buschmann has published over 100-refereed  scientific articles and
conference  proceedings and has authored three published  patents in addition to
three others that are under review.  Ecole Polytechnique  licensed these patents
to  BioSyntech  Inc.  for  development   into  cartilage  repair  and  cartilage
diagnostic products.

            ERIC  DESROSIERS  PHD,  MBA, 35 - Dr.  DesRosiers  has been the Vice
President of the Tissue Repair and  Manufacturing  Division of the Company since
May 2002.  He has served as the  Director  of Soft  Tissue  Regeneration  of the

                                      -21-





Company from May 2000 to May 2002. From October 1994 to May 2000, Dr. DesRosiers
worked for Apotex Research Inc., a Canadian pharmaceutical company, where he led
a  research  and  development   team  throughout  the  development  of  a  novel
tissue-engineered  skin  product.  In 1988 and  1989,  Dr.  DesRosiers  obtained
bachelor degrees in Biology and Biochemistry  from the University of Ottawa.  In
1991, he received M.Sc.A and, in 1995, Ph.D.  degrees in biomedical  engineering
from  the  University  of  Montreal  /  Ecole  Polytechnique.  He  published  13
peer-reviewed  scientific  articles,  3 patent  applications and more than fifty
scientific  conference  proceedings.  He graduated in 2003 from an executive MBA
program at Universite  du Quebec a Montreal  specializing  in the  management of
Bio-Industries.

            MATTHEW  SHIVE PHD, 31 - Dr.  Shive has been the Vice  President  of
Biocompatibility  and Regulatory Affairs Division of the Company since May 2002.
Dr. Shive has been with the Company since October of 2000,  undertaking the task
of establishing  and directing the department of Material  Biocompatibility.  In
October  2001,  Dr. Shive became  Director of Product  Development  & Regulatory
Affairs of the Company.  He now oversees in-house  biocompatibility  research of
materials,   pre-clinical  development  activities  for  each  product,  and  is
responsible for interactions with regulatory agencies. In addition, Dr. Shive is
active in initiating business development  discussions with potential industrial
licensing  partners  for  Biosyntech  products.  Prior to joining the Company in
October 2000, he worked as a research  assistant at Cleveland Clinic  Foundation
from April 1995 to January 1996. In May 1993,  Dr. Shive received a Bachelors of
Science  degree from John Hopkins  University.  Dr. Shive  obtained a Masters of
Science degree in May 1998, followed by a Ph.D. degree in August 2000, both from
Case Western Reserve  University.  All of Dr. Shive's degrees were in Biomedical
Engineering with a primary focus on materials  science.  Dr. Shive's  scientific
expertise lies in the interactions between implanted biomaterials and biological
systems,  and he has  published  over  25  scientific  articles  and  conference
proceedings in this area.

            LUCIE DUVAL,  43 - Mrs. Duval has been the controller of the Company
since  February 2000 and  controller of Bio Syntech  Canada and its  predecessor
corporation  since  June 1999.  From 1986 to 1996,  Mrs.  Duval was a  financial
counselor  for the City of Montreal,  Canada.  Ms. Duval  obtained a Bachelor of
Business  Administration  in Finance at Universite de Sherbrooke in 1981 and, in
1999 she received a certificate in personal  financial  planning from Universite
Laval in Quebec City.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

            Section  16(a) of the  Securities  Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent  of a  registered  class of the  Company's  equity  securities,  to file
reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with
the Securities and Exchange Commission ("SEC").  Such officers and directors and
10%  stockholders  are also  required by SEC rules to furnish  the Company  with
copies of all Section 16(a) forms they file.

            Based  solely on its review of the copies of such forms  received by
it, or written  representations  from  certain  reporting  persons,  the Company
believes  that  during the  fiscal  year ended  March 31,  2003,  except for the
filings listed below,  there was  compliance  with the Form 3, Form 4 and Form 5
filing requirements applicable to its officers, directors and 10% stockholders:

            1.   The Form 3 for each of Messrs. Shive, Des Rosiers and Buschmann
                 dated May 29, 2002 was filed on August 13, 2002.
            2.   The Form 4 of Mr.  Savard  for June  2002 was filed on July 11,
                 2002.
            3.   The  Form 4 for each of  Messrs.  Savard,,  Shive,  DesRosiers,
                 Buschmann  and Mrs.  Duval  dated  August 22, 2002 was filed on
                 October 10, 2002.

                                      -22-





ITEM 10     EXECUTIVE COMPENSATION

10.1        Compensation of Executives
----        --------------------------

            The  following  table  sets  forth all  compensation  awarded to the
Company's Chief Executive  Officer,  Amine Selmani (the "Named  Executive").  No
other executive  officers received annual  compensation in excess of USD$100,000
during the periods indicated.

10.2        Summary Compensation Table
----        --------------------------

                                                                            Long-Term Compensation
                                                Annual Compensation (CDN$)          (Awards):
                                                                    ------          ---------
                                                                            Securities Underlying
      Name and Position         Fiscal Year       Salary        Bonus             Options (#)
--------------------------------------------------------------------------------------------------
Amine Selmani  President and
Chief Executive Officer            2003          $185,000         $0                  -
                                   2002          $185,000         $0               362,500
                                   2001          $185,000         $0                50,000

10.3        Option Grants
----        -------------

            The Company did not grant any options to the Named Executive for the
fiscal year ended March 31, 2003.

            The Company has never granted any stock appreciation rights.

10.4        Aggregated Fiscal Year-End Option Exercises and Option Values
----        -------------------------------------------------------------

            Dr.  Selmani did not  exercise  any  options  during the fiscal year
ended  March 31,  2003.  The  following  table  sets forth  certain  information
regarding unexercised stock options held by Dr. Selmani as of March 31, 2003.

                       Number of Securities Underlying Unexercised        Value of Unexercised In-The-Money
                              Options  at March 31, 2003 (#)              Options at March 31, 2003 (in USD)
      Name                      Exercisable/Unexercisable                      Exercisable/Unexercisable
      ----                      -------------------------                      -------------------------
   Amine Selmani                        412,500/0                                   0/0

            The value of the  unexercised  in-the-money  options is based on the
market value, as reported on the Over the Counter Electronic  Bulletin Board, of
USD$0.42  per share of Common  Stock at March 31, 2003 and an exercise  price of
USD$0.50 (CDN$0.79) per share of Common Stock.

10.5        Compensation of Directors
----        -------------------------

            The  Company  does not  currently  compensate  directors  for  their
service on the Board of Directors.  The directors,  however,  are reimbursed for
their expenses incurred in attending meetings of the Board of Directors.

            Under the terms of the  Company's  employee  stock option  incentive
plan,  directors are eligible for the grants of options. In August 2002, options
to purchase  100,000 shares of Common Stock at an exercise price of CDN$0.62 (or
USD$0.40)  per share were  granted  under the  Company's  employee  stock option
incentive plan to Mr. Savard. In October 2002, options to purchase 50,000 shares
of Common Stock at an exercise  price of CDN$0.63 (or  USD$0.40)  per share were
granted  under  the  Company's  employee  stock  option  incentive  plan to Mrs.
Lefebvre.  On March 13, 2003,  options to purchase 50,000 shares of Common Stock
at an exercise  price of CDN$0.62 (or USD$0.42) per share were granted under the
Company's  employee  stock option  incentive  plan to each of Messrs.  Leduc and
Cloutier.  Finally,  on March 26,  2003,  options to purchase  50,000  shares of

                                      -23-



Common  Stock at an exercise  price of  CDN$0.59  (or  USD$0.40)  per share were
granted  under the Company's  employee  stock option  incentive  plan to each of
Messrs.  Leduc  and  Mr.  Cloutier.  Due to the  termination  of Ms.  Lefebvre's
position as a director of the Company, the options granted to her will terminate
on September 19, 2003.

            The Board of Directors will  continuously  evaluate the remuneration
of directors for subsequent fiscal years.

10.6        Other Compensation Plans
----        ------------------------

            The Company has no pension plan or other  compensation plans for its
executive officers or directors.

10.7        Employment Agreement
----        --------------------

            AMINE  SELMANI,  PHD - We entered into an employment  agreement with
Dr. Amine  Selmani  dated as of August 26,  2002.  Dr.  Selmani  serves as Chief
Executive Officer with duties and responsibilities,  which are determined by our
board of directors  from time to time.  The  agreement  has a  three-year  term,
starting on June 13, 2002.  Dr.  Selmani is entitled to an annual base salary of
CDN$185,000,  which is to be  reviewed  annually.  Dr.  Selmani  is subject to a
confidentiality and non-solicitation agreement during the term of his employment
and  for an  additional  three-year  period  following  the  termination  of his
employment.  Dr Selmani will be entitled to receive his full salary for a period
of 12 months if we  terminate  the  agreement  without  cause and he will not be
entitled to receive any salary if he is terminated for cause.

ITEM 11     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

            The  following  table  contains  information  as  of  July  3,  2003
regarding  the  beneficial  ownership of shares of Common Stock by the directors
and  executive  officers  of the  Company  (as  defined  in  Item  402(a)(2)  of
Regulation  S-B) and those  persons or  entities  who, to the  knowledge  of the
Company,  beneficially  own more  than 5% of the  outstanding  shares  of Common
Stock. For purposes of calculating  beneficial  ownership,  the shares of Common
Stock  beneficially  owned  by  Messrs.  Cloutier,  Leduc  and  Savard  and Drs.
DesRosiers,  Shive and Selmani,  and Mrs.  Duval include  shares of Common Stock
issuable upon the exercise of stock options  exercisable within sixty days after
July 3, 2003. The address of all the directors and executive officers and owners
of more than 5% of  outstanding  Common Stock is 475 Boulevard  Armand-Frappier,
Laval, Quebec, Canada H7V 4B3, unless otherwise specified.

Name and Address of Beneficial           Shares of Common Stock        Percentage of Common Stock
            Owner                          Beneficially Owned            Beneficially Owned (1)
-------------------------------------------------------------------------------------------------
9083-1496 Quebec Inc.                         7,640,000                        26.0%

Amine Selmani (2)                             9,182,500                        30.6%

Gilles Cloutier (4)                             100,000                          *

Claude Leduc (4)                                100,000                          *

Serge Savard (4)                                329,800                         1.1%

Michael Buschmann (3)                           505,000                         1.7%

Eric DesRosiers (4)                             220,000                          *

Lucie Duval (4)                                  80,000                          *

Matthew Shive (4)                               171,300                          *

All Officers and Directors as a              10,688,600                        34.6%
group (8 persons

                                      -24-




            1)   The  percentages  shown with an `*' mean that the  director  or
                 executive officer owns less than 1.0% of the outstanding shares
                 of Common  Stock.  The  information  shown above also  includes
                 rights to acquire  shares of Common Stock  through the exchange
                 of exchangeable preferred stock.

            2)   Dr.  Selmani has voting and  dispositive  power with respect to
                 the 7,640,000  shares of exchangeable  preferred stock owned by
                 9083-1496  Quebec Inc. Dr.  Selmani holds also 45,000 shares of
                 Common Stock and may be deemed the beneficial  owner of 412,500
                 shares of Common Stock  issuable  upon exercise of his options.
                 Monique Jarry,  spouse of Dr. Selmani,  holds 885,000 shares of
                 Common Stock and options to purchase  200,000  shares of Common
                 Stock,  which are also included in the beneficial  ownership of
                 Dr. Selmani reported above.

            3)   Dr. Michael  Buschmann holds 290,000 shares of Common Stock and
                 may be deemed  the  beneficial  owner  80,000  shares of Common
                 Stock  issuable  upon the  exercise  of his  options.  Caroline
                 Hoemann, spouse of Dr. Buschmann holds 100,000 shares of Common
                 Stock and options to purchase  35,000  shares of Common  Stock,
                 which are also  included  in the  beneficial  ownership  of Dr.
                 Buschmann reported above.

            4)   All the  shares  of our  common  stock  beneficially  owned  by
                 Messrs.  Cloutier and Leduc, Dr.  DesRosiers and Mrs. Duval are
                 options to purchase shares of our common stock.  The beneficial
                 ownership of shares of our common  stock of Mr.  Savard and Dr.
                 Shive  include   options  to  purchase   150,000  and  170,000,
                 respectively, shares of our common stock.

            The Equity Compensation Plan Information presented in Item 5 of this
Annual Report is incorporated herein in its entirety.

ITEM 12     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

12.1        Agreement with Polyvalor
----        ------------------------

            In October 1997, the predecessor company of BioSyntech,  Bio Syntech
Ltd., entered into a technology  assignment  agreement,  as amended in September
1999 and as amended and restated  March 15, 2000 (the  "Assignment  Agreement"),
with  Polyvalor  Limited  Partnership,   a  Canadian  limited  partnership,   as
represented by its General Partner, Polyvalor, Inc. ("Polyvalor").  Polyvalor is
an  entity  created  by Ecole  Polytechnique  de  Montreal  (the  University  of
Montreal's  engineering  faculty,  "Ecole  Polytechnique")  for the  purpose  of
commercializing  the  technology in which Ecole  Polytechnique  has an interest.
Through the Assignment Agreement, the Company acquired from Polyvalor all rights
related to certain patents and know-how.  In  consideration  of said assignment,
the Company agreed to pay to Polyvalor a royalty of 5% on all gross sales of all
products and services sold by the Company,  up to a maximum cumulative amount of
CDN$3,000,000.  In connection with the Assignment Agreement, Bio Syntech Canada,
issued to Polyvalor  1,072,000  shares of its  exchangeable  preferred stock and
granted  Polyvalor the right to nominate one director to the Board of Directors.
As a result of the transactions  described above. On February 6, 2002, Polyvalor
exchanged the 1,072,000  exchangeable  preferred shares into 1,072,000 shares of
Common Stock.

12.2        Agreement with Chief Executive Officer and President
----        ----------------------------------------------------

            On July 8,  2003,  we  obtained  a  $750,000  loan  from  our  Chief
Executive  Officer and  President.  In exchange  for the loan,  we issued him an
unsecured  convertible  debenture  in the  principal  amount of  $750,000  which
matures on July 8, 2004 and bears  interest at an annual rate of 7%,  payable on
monthly basis.  The debenture is convertible  into shares of our common stock on
the maturity  date or any business day  thereafter  until the debenture has been
repaid in full.  The  number of shares  to be issued  upon  conversion  shall be
determined by using a conversion rate equal to USD$0.35 per share,  based on the
exchange  rate for US dollars  published  by the Bank of Canada for the business
day prior to the conversion  date.  The number of shares  issuable on conversion
and the conversion price are subject to certain adjustments.

                                      -25-



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.   -
                    Incorporated by reference to Exhibit 3.1 to Annual Report on
                    Form  10-KSB for fiscal  year ended March 31, 2002 and filed
                    with the SEC on July 16, 2002.

Exhibit 3.2         Amended and Restated By-laws. - Incorporated by reference to
                    Exhibit 3.2 to Annual  Report on Form 10-KSB for fiscal year
                    ended  March  31,  2002 and  filed  with the SEC on July 16,
                    2002.

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

Exhibit 4.2         Support  Agreement made February 15, 2000 among  BioSyntech,
                    Inc.,   9083-5661   Quebec  Inc.  and  Bio  Syntech  Ltd.  -
                    Incorporated  by reference to Exhibit 4.2 to Current  Report
                    on Form 8-K dated March 15, 2000.

Exhibit 10.1        Amended and Restated Technology  Assignment  Agreement among
                    Polyvalor Limited Partnership,  Bio Syntech Canada Inc., and
                    BioSyntech  Inc.  dated March 15,  2000. -  Incorporated  by
                    reference  to Exhibit  10.1 to Annual  Report on Form 10-KSB
                    for  period  ended  December  31,  1999 and  filed  with the
                    Securities and Exchange Commission on March 30, 2000.

Exhibit 10.2        Amended and Restated BioSyntech, Inc. Stock Option Incentive
                    Plan. - Incorporated  by reference to Exhibit 10.2 to Annual
                    Report on Form  10-KSB for fiscal  year ended March 31, 2002
                    and filed with the SEC on July 16, 2002.

Exhibit 10.3*       Employment Agreement of Amine Selmani with BioSyntech,  Inc.
                    dated as of August 26, 2002.

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.

                                      -26-




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.

Exhibit 10.10*      Unsecured Convertible Debenture dated July 8, 2003 issued by
                    BioSyntech, Inc. in favor of Dr. Amine Selmani.

Exhibit 21*         List of Subsidiaries of Company.

Exhibit 23.1*       Consent of KPMG LLP.

Exhibit 23.2*       Consent of Ernst & Young LLP.

Exhibit 99.1*       Statement  under  Oath  of  Chief  Executive   Officer.   We
                    presently do not have a Chief  Financial  Officer but are in
                    the process of hiring one.

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

(b) Reports on Form 8-K:

            None.

ITEM 14     CONTROLS AND PROCEDURES



                  Certification of Principal Executive Officer
                            Section 302 Certification

I, Mr. Amine Selmani,  President and Chief Executive Officer of BioSyntech Inc.,
certify that:

            1.   I have reviewed this annual report on Form 10-KSB of BioSyntech
                 Inc.;

            2.   Based on my  knowledge,  this annual report on Form 10-KSB does
                 not contain any untrue  statement of a material fact or omit to
                 state a material fact necessary to make the statements made, in
                 light of the  circumstances  under which such  statements  were
                 made, not misleading with respect to the period covered by this
                 annual report;

            3.   Based on my  knowledge,  the  financial  statements,  and other
                 financial  information  included in this annual report,  fairly
                 present  in all  material  respects  the  financial  condition,
                 results of operations and cash flows of BioSyntech  Inc. as of,
                 and for, the periods presented in this annual report;

            4.   I am responsible for  establishing  and maintaining  disclosure
                 controls  and  procedures  (as  defined in  Exchange  Act Rules
                 13a-14 and 15d-14) for BioSyntech Inc. and I have:

                                      -27-



                 (a)   designed  such  disclosure  controls  and  procedures  to
                       ensure that material  information  relating to BioSyntech
                       Inc.,  including its consolidated  subsidiaries,  is made
                       known to us by others within those entities, particularly
                       during the period in which  this  annual  report is being
                       prepared;
                 (b)   evaluated  the   effectiveness   of   BioSyntech   Inc.'s
                       disclosure controls and procedures as of a date within 90
                       days prior to the filing date of this annual  report (the
                       "Evaluation Date"); and
                 (c)   presented in this annual report our conclusions about the
                       effectiveness  of the disclosure  controls and procedures
                       based on our evaluation as of the Evaluation Date;

            5.   I have  disclosed,  based  on my  most  recent  evaluation,  to
                 BioSyntech   Inc.'s   auditors  and  the  audit   committee  of
                 BioSyntech Inc.'s board of directors (or persons performing the
                 equivalent function):

                 (a)   all  significant  deficiencies in the design or operation
                       of  internal   controls  which  could  adversely   affect
                       BioSyntech Inc.'s ability to record,  process,  summarize
                       and  report   financial  data  and  have  identified  for
                       BioSyntech  Inc.'s  auditors any material  weaknesses  in
                       internal controls; and
                 (b)   any  fraud,  whether  or  not  material,   that  involves
                       management or other employees who have a significant role
                       in BioSyntech Inc.'s internal controls; and

            6.   I have  indicated  in this annual  report  whether or not there
                 were  significant  changes  in  internal  controls  or in other
                 factors  that  could  significantly  affect  internal  controls
                 subsequent to the date of our most recent evaluation, including
                 any corrective actions with regard to significant  deficiencies
                 and material weaknesses.

            Date: July 14, 2003            /s/ Amine Selmani
                                           -----------------
                                           Amine Selmani
                                           President and Chief Executive Officer

            We  presently do not have a Chief  Financial  Officer but are in the
process of hiring process one.

ITEM 15     PRINCIPAL ACCOUNTANT FEES AND SERVICES

            On  October  7,  2002,  the  Company,  by  action  of the  Board  of
Directors,  terminated its relationship with Ernst & Young LLP ("Ernst & Young")
the independent  auditors previously engaged to audit our financial  statements,
effective  with the date of  completion  of the  review  by Ernst & Young of the
financial  statements  for the period ended  September  30, 2002. On October 18,
2002,  the Board of Directors  appointed  KPMG LLP  ("KPMG") as our  independent
auditors for the fiscal year ending  March 31,  2003,  which was approved by the
stockholders on December 4, 2003.

(a)         Audit Fees

            Ernst & Young  billed us and our  subsidiaries  an  aggregate of CDN
$132,500  for  the  following  professional   services:   audit  of  our  annual
consolidated  financial  statements  for the fiscal  year ended  March 31,  2002
included in our annual report on Form 10-KSB and review of our interim financial
statements  included  in our  quarterly  reports on Form  10-QSB for the periods
ended June 30, 2001,  September 30, 2001,  December 31, 2001,  June 30, 2002 and
September 30, 2002.

            KPMG billed us and our  subsidiaries an aggregate of CDN $42,500 for
the following professional services:  audit of our annual consolidated financial
statements  for the fiscal  year ended  March 31,  2003  included  in our annual
report on Form 10-KSB and review of our interim financial statements included in
our quarterly reports on Form 10-QSB for the period ended December 31, 2002.

                                      -28-





(b)         Audit Related Fees

            Ernst & Young  billed us and our  subsidiaries  an  aggregate of CDN
$23,375 for audit related  services  rendered during the fiscal year ended March
31,  2002  in  connection  with,  among  other  things,  the  preparation  of  a
Registration Statement on Form SB-2 and Current Reports on Form 8-K.

            KPMG did not render any audit related  services  rendered during the
fiscal year ended March 31, 2003.

(c)         Financial Information Systems Design and Implementation Fees

            Neither Ernst & Young LLP nor KPMG rendered any professional service
related to financial information systems design and implementation  services for
the fiscal year ended March 31, 2003.

(d)         All Other Fees

            Ernst & Young LLP billed us and our subsidiaries an aggregate of CDN
$20,900 for other services  rendered during the fiscal year ended March 31, 2002
and the subsequent interim period through October 7, 2002.

            KPMG billed us and our  subsidiaries  an aggregate of CDN $4,000 for
other services rendered during the fiscal year ended March 31, 2003.

(e) The Audit  Committee  has  considered  whether the  provision by KPMG of the
services  covered  by the fees  other  than the audit  fees is  compatible  with
maintaining KPMG's independence and believes that it is compatible.

                                      -29-




                                   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 14, 2003                                By:   /s/ Amine Selmani
                                                   -----------------
                                                   Amine Selmani
                                                   President

July 14, 2003                                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          Chief Executive Officer and         July 14, 2003
------------------         President
  Amine Selmani


                           Director
-------------------
  Gilles Cloutier

/s/ Claude Leduc           Director                            July 14,2003
------------------
  Claude Leduc

/s/ Serge Savard           Chairman                            July 14, 2003
------------------
  Serge Savard

                                      -30-





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


Report of Independent Auditors 2003                                        F-2

Report of Independent Auditors 2002                                        F-3

Consolidated Balance Sheets at March 31, 2003 and 2002                     F-4

Consolidated Statements of Operations for the Fiscal Years
Ended March 31, 2003 and 2002                                              F-5

Consolidated Statements of Changes in Stockholders' Equity
from inception to March 31, 2003                                           F-6

Consolidated Statements of Cash Flows for the Fiscal Years Ended
March 31, 2003 and 2002                                                    F-7

Notes to Consolidated Financial Statements for the
Fiscal Years Ended March 31, 2003 and 2002                                 F-8


                                       F-1




Consolidated Financial Statements

BIOSYNTECH, INC.
[a development stage company]
March 31, 2003 and 2002








                         REPORT OF INDEPENDENT AUDITORS


To the Stockholders of
BIOSYNTECH, INC.

We have audited the  accompanying  consolidated  balance  sheets of  BioSyntech,
Inc.,  a  development  stage  company,  as of March  31,  2003  and the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
the year then ended,  and for the period from May 10, 1995  (inception) to March
31, 2003. 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 audit. The consolidated financial
statements of BioSyntech,  Inc. as of March 31, 2002 and for the period from May
10, 1995  (inception)  through  March 31, 2002,  were audited by other  auditors
whose report dated May 24, 2002 [except for Note 18 as to which the date is June
26, 2002] expressed an unqualified  opinion on those  statements and included an
explanatory  paragraph that disclosed the going concern uncertainty discussed in
Note 1 to these consolidated financial statements. Our opinion on the statements
of operations,  stockholders' equity, and cash flows for the period from May 10,
1995  (inception)  through March 31, 2003,  insofar as it relates to amounts for
prior  periods  through  March 31,  2002 is based  solely on the report of other
auditors.

We conducted our audit 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 audit  provide a  reasonable  basis for our
opinion.

In our  opinion,  based on our  audit  and the  report  of other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material  respects,  the financial  position of BioSyntech,  Inc., a development
stage  company,  as of March 31, 2003 and the results of its  operations and its
cash flows for the year  ended  March 31,  2003 and for the period  from May 10,
1995  (inception) to March 31, 2003, in conformity  with  accounting  principles
generally accepted in the United States.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will  continue as a going  concern.  As more fully  describe in
Note 1 to the  consolidated  financial  statements,  the  Company  has  incurred
recurring  operating  losses and generated  negative cash flows from  operations
since inception, which raises substantial doubt about its ability to continue as
a going  concern.  Management's  plans  in  regard  to  these  matters  are also
described in Note 1. The  consolidated  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.

KPMG LLP

Montreal, Quebec, Canada,
June 13, 2003, except as to Note 18 which is as of July 8, 2003.

                                      F-2





                         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 the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the period  from  inception  to March 31,  2002 and for the year ended
March 31, 2002. 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 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 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-3



BIOSYNTECH, INC.
A development stage company

                           CONSOLIDATED BALANCE SHEETS


As of March 31, 2003 and 2002

                                                                         2003             2003              2002
                                                                          US$               C$                C$
----------------------------------------------------------------------------------------------------------------
                                                                     [note 2]
ASSETS
Current assets
Cash and cash equivalents [note 13]                                   545,060          800,038          443,145
Short-term investments [note 3]                                          --               --          1,395,163
Accounts receivable [notes 4, 6 and 9]                                 24,344           35,732           78,853
Inventory [note 6]                                                     32,339           47,467           21,657
Investment tax credits [note 12]                                      104,919          154,000          213,064
Prepaid expenses                                                       35,338           51,869           58,164
----------------------------------------------------------------------------------------------------------------
                                                                      742,000        1,089,106        2,210,046
----------------------------------------------------------------------------------------------------------------
Property, plant and equipment [note 5]                              1,475,162        2,165,243        2,341,591
Deposits and other assets [note 7]                                    443,387          650,804           19,452
----------------------------------------------------------------------------------------------------------------
                                                                    2,660,549        3,905,153        4,571,089
----------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities [note 8]                     464,562          681,884          651,639
Due to a stockholder, without interest or repayment terms               6,813           10,000           10,000
Deferred revenues                                                      30,082           44,154            3,095
Current portion of long-term debt [note 9]                             27,252           40,000           40,000
Current portion of obligations under capital leases [note 10]          13,415           19,690           26,891
----------------------------------------------------------------------------------------------------------------
                                                                      542,124          795,728          731,625
----------------------------------------------------------------------------------------------------------------
Long-term debt [note 9]                                             1,876,254        2,753,965          126,667
Obligations under capital leases [note 10]                              9,496           13,938           33,628
----------------------------------------------------------------------------------------------------------------
                                                                    2,427,874        3,563,631          891,920
----------------------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock [note 11]
   Par value $0.001
   Authorized 100,000,000 common shares
   Issued and outstanding
      29,357,250 common shares [29,222,250 in 2002]                12,472,994       18,307,860       18,285,858
   Paid-up and not issued
      Nil common shares [15,000 in 2002]                                 --               --             11,009
Additional paid-in capital                                          1,970,132        2,891,760        2,587,691
Deficit accumulated during the development stage                  (14,210,451)     (20,858,098)     (17,205,389)
----------------------------------------------------------------------------------------------------------------
                                                                      232,675          341,522        3,679,169
----------------------------------------------------------------------------------------------------------------

  Basis of presentation and going concern assumption [note 1]
  Commitments [note 15]
  Subsequent event [note 18]
----------------------------------------------------------------------------------------------------------------
                                                                    2,660,549        3,905,153        4,571,089
----------------------------------------------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements

On behalf of the Board:


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

                                      F-4





BIOSYNTECH, INC.
A development stage company

                      CONSOLIDATED STATEMENTS OF OPERATIONS


Years ended March 31, 2003 and 2002 and cumulative period from inception to
March 31, 2003




                                                     Cumulative
                                                        from
                                                    inception to
                                                   March 31, 2003         2003             2003              2002
                                                        C$                 US$               C$                C$
-----------------------------------------------------------------------------------------------------------------
                                                                      [note 2]
Revenues:
Sales and services                                    623,258           70,716          103,797          206,965
Research and development contracts                    141,311           47,992           70,443           70,868
-----------------------------------------------------------------------------------------------------------------
                                                      764,569          118,708          174,240          277,833
-----------------------------------------------------------------------------------------------------------------

Expenses:
Cost of sales and services                            269,736           21,751           31,926           98,893
Research and development                           13,445,130        1,340,901        1,968,175        2,590,913
Investment tax credits                             (2,152,519)        (129,791)        (190,507)        (249,453)
General and administrative                          9,956,899        1,010,792        1,483,640        2,412,150
Government grants                                    (250,644)         (27,876)         (40,917)        (125,405)
Interest on long-term debt and capital lease
   obligations                                        514,270          135,433          198,789           30,962
Depreciation of property, plant and
    equipment                                         732,800          128,212          188,189          182,386
Amortization of patents and trademarks                 14,085            9,493           13,935               50
Amortization of debt issue costs                      108,647           74,020          108,647             --
Interest revenue                                     (665,399)         (22,030)         (32,336)        (124,535)
(Gain) loss on foreign exchange                      (350,338)          66,363           97,408           (2,997)
-----------------------------------------------------------------------------------------------------------------
                                                   21,622,667        2,607,268        3,826,949        4,812,964
-----------------------------------------------------------------------------------------------------------------
Net loss for the period                           (20,858,098)      (2,488,560)      (3,652,709)      (4,535,131)
Deficit accumulated during the
   development stage, beginning of period                --        (11,721,891)     (17,205,389)     (12,670,258)
-----------------------------------------------------------------------------------------------------------------
Deficit accumulated during the
     development stage, end of period             (20,858,098)     (14,210,451)     (20,858,098)     (17,205,389)
-----------------------------------------------------------------------------------------------------------------

Weighted average number of common
     shares outstanding                                             29,248,250       29,248,250       29,202,195
Basic and diluted loss per share [note 2]                                 0.09             0.12             0.16
-----------------------------------------------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements

                                      F-5



BIOSYNTECH, INC.
A development stage company

                        STATEMENTS OF STOCKHOLDERS'EQUITY

From inception to March 31, 2003
[In Canadian dollars]

                                                  Common Stock             Common Stock
                                             issued and outstanding   paid-up and not issued    Additional
                                             ----------------------   ----------------------     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                 1,066,714     5,487,419         --            --           --          --    5,487,419
Options granted to consultants                      --            --         --            --      237,500          --      237,500
Share issue costs                                   --      (373,746)        --            --           --          --     (373,746)
Net loss 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 11]              40,000        39,483         --            --           --          --       39,483
Exchangeable shares of the subsidiary of
   the Company issued as a part of
   settlement [note 11]                             --            --         --            --      114,248          --      114,248
Options granted to consultants                      --            --         --            --      520,033          --      520,033
Common stock to be issued to a consultant
   in exchange for services [note 11]               --            --     15,000        11,009           --          --       11,009
Net loss 2002                                       --            --         --            --           --  (4,535,131)  (4,535,131)
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2002                     29,222,250    18,285,858     15,000        11,009    2,587,691 (17,205,389)   3,679,169
Common stock issued to a consultant in
   exchange for services [note 11]              35,000        22,002    (15,000)      (11,009)          --          --       10,993
Warrants granted to a debtor [note 11]              --            --         --            --      288,933          --      288,933
Options granted to consultants [note 11]            --            --         --            --       15,136          --       15,136
Common stock issued for exchangeable
   shares issued as a part of settlement
   [note 11]                                   100,000            --         --            --           --          --           --
Net loss 2003                                       --            --         --            --           --  (3,652,709)  (3,652,709)
------------------------------------------------------------------------------------------------------------------------------------
                                            29,357,250    18,307,860         --            --    2,891,760 (20,858,098)     341,522
------------------------------------------------------------------------------------------------------------------------------------

US dollars [note 2]
Balance as at March 31, 2003                              12,472,994                       --    1,970,132 (14,210,451)     232,675
------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements

                                      F-6


BIOSYNTECH, INC.
A development stage company

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


Years ended March 31, 2003 and 2002 and cumulative period from inception to
March 31, 2003

                                                                      Cumulative
                                                                         from
                                                                     inception to
                                                                    March 31, 2003         2003             2003             2002
                                                                         C$                 US$               C$               C$
------------------------------------------------------------------------------------------------------------------------------------
                                                                                       [note 2]
OPERATING ACTIVITIES
Net loss                                                           (20,858,098)      (2,488,560)      (3,652,709)      (4,535,131)
Adjustments for:
Depreciation of property, plant and equipment                          732,800          128,212          188,189          182,386
Amortization of patents and trademarks                                  14,085            9,493           13,935               50
Amortization of debt issue costs                                       108,647           74,020          108,647             --
Services paid by the issuance of common stock                        2,588,485            7,489           10,993           50,492
Exchangeable shares of the subsidiary of the Company issued as
   part of a settlement                                                114,248             --               --            114,248
Options granted to consultants                                       2,488,579           10,312           15,136          520,033
Accrued interest on long-term debt                                     177,298          120,792          177,298             --
Exchange loss (gain)                                                  (458,811)          41,369           60,722           72,278
Exchange loss (gain) on short-term investments                           4,129           46,764           68,640          (64,511)
Changes in operating assets and liabilities:
   Accounts receivable                                                 (35,732)          29,378           43,121          129,380
   Inventory                                                           (47,467)         (17,584)         (25,810)          13,359
   Investment tax credits                                             (154,000)          40,240           59,064          (20,064)
   Prepaid expenses                                                    (51,869)           4,289            6,295          (27,732)
   Deferred revenues                                                    44,154           27,973           41,059            3,095
   Accounts payable and accrued liabilities                            639,476           16,506           24,228       (1,017,470)
------------------------------------------------------------------------------------------------------------------------------------
Cash flows related to operating activities                         (14,694,076)      (1,949,307)      (2,861,192)      (4,579,587)
------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment                           (1,172,103)         (21,627)         (31,744)        (167,382)
Purchase of short-term investments                                  (1,589,258)            --               --         (1,514,258)
Proceeds from maturing of short-term investments                     1,585,129          903,749        1,326,523          183,606
Deposits, patents and trademarks                                      (259,318)        (163,350)        (239,766)           3,334
------------------------------------------------------------------------------------------------------------------------------------
Cash flows related to investing activities                          (1,435,550)         718,772        1,055,013       (1,494,700)
------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt                                           3,190,000        1,696,417        2,490,000             --
Repayment of long-term debt                                           (573,333)         (27,252)         (40,000)         (33,333)
Net increase in due to stockholder                                      10,000             --               --               --
Repayment of obligations under capital leases                       (1,692,363)         (18,321)         (26,891)         (20,327)
Proceeds from issuance of shares                                    17,047,710             --               --               --
Repurchase of common stock of
   BioSyntech, Inc. prior to the reverse acquisition                  (506,380)            --               --               --
Share issue costs                                                     (805,466)            --               --               --
Debt issue costs                                                      (199,315)        (135,791)        (199,315)            --
------------------------------------------------------------------------------------------------------------------------------------
Cash flows related to financing activities                          16,470,853        1,515,053        2,223,794          (53,660)
------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
   equivalents                                                         458,811          (41,369)         (60,722)         (72,278)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                   800,038          243,149          356,893       (6,200,225)
Cash and cash equivalents, beginning of period                            --            301,911          443,145        6,643,370
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period [note 13]                     800,038          545,060          800,038          443,145
------------------------------------------------------------------------------------------------------------------------------------

Additional information
Interest paid                                                                                             21,491           26,078
------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements

                                      F-7




BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[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
recorded 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 for 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, 2003,  7,661,666  shares  remain in trust  [7,677,853  as at March 31,
2002].

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.

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. For the years
ended March 31, 2003 and 2002,  losses  amounted to  $3,652,709  and  $4,535,131
respectively  and  accumulated  deficit was  $20,858,098  as at March 31,  2003.
Furthermore,  the Company has not completed the  development of any product that
can generate the level of sales  necessary to enable the Company to continue its
operations  without outside  financing.  The Company's  ability to continue as a
going  concern is  uncertain  and is dependent  principally  upon its ability to


                                      F-8





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]



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

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 any negotiations for future financings.  (See Note 18).



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 such
revenues have principally come from sales of instrumentation products.

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
S.A.R.L. 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, 2003, which was $1.4678 Canadian per US dollar.

                                      F-9





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]



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


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

Revenues from sale of products are  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 deferred until such time as the related product has been delivered.
Service  revenues are recognized when the services have been rendered.  Revenues
from  research and  development  agreements  are  recognized  as the  contracted
services are performed or when  milestones are achieved,  in accordance with the
terms of the specific agreements.

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 its investment in securities at the time of purchase.

CASH EQUIVALENTS

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

INVENTORY

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

                                      F-10





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]



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


PROPERTY, PLANT AND EQUIPMENT

Property,  plant and  equipment are recorded at cost.  Depreciation  is provided
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

PATENTS AND TRADEMARKS

Patents and  trademarks  are  recorded at cost.  They are  amortized  over their
estimated useful life on a straight-line basis as follows:

Patents                                                                 20 years
Trademarks                                                              10 years

IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

The Company accounts for impairment of long-lived  assets in accordance with the
provisions  of SFAS No.  144,  "Accounting  for the  Impairment  or  Disposal of
Long-Lived Assets." This statement requires that long-lived assets held and used
be reviewed for impairment whenever events or changes in circumstances  indicate
that the  carrying  amount of an asset may not be  recoverable.  This  statement
requires the Company to recognize an  impairment  loss of an asset held and used
if the carrying value is not recoverable from its undiscounted cash flows and to
measure an impairment loss as the difference  between the carrying value and the
fair value of the asset.  SFAS 144 also provides  specific criteria for an asset
to be classified and accounted for as held for sale.

DEBT ISSUE COSTS

Debt issue costs are  amortized  on a  straight-line  basis over the term of the
related debt.

RESEARCH AND DEVELOPMENT EXPENDITURES

Research and development expenditures,  including equipment used in research and
development activities, are expensed as incurred.

                                      F-11





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]



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

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

STOCK-BASED COMPENSATION

SFAS No. 123, "Accounting for Stock-Based  Compensation",  encourages,  but does
not require,  companies to record  compensation  cost for  stock-based  employee
compensation  plans at fair  value.  The  Company  has  chosen  to  account  for
stock-based  compensation  awards to employees and directors using the intrinsic
value method  prescribed in Accounting  Principles Board Opinion ["APB"] No. 25,
"Accounting  for Stock  Issued to  Employees,"  and related  interpretations  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."

                                      F-12





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]



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

STOCK-BASED COMPENSATION [CONT'D]

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation - Transition and Disclosure"  (SFAS 148) - an amendment of SFAS 123
"Accounting for Stock-Based Compensation". The standard is intended to encourage
the adoption of the  accounting  provisions  of SFAS 123. It is also intended to
address constituent  concerns about the so-called "ramp-up effect" on net income
that  resulted  from  the  application  of the  transition  guidance  originally
required by SFAS 123. The  transition and annual  disclosure  provisions of SFAS
148 are  effective  for fiscal years ending after  December 15, 2002.  Under the
provisions of SFAS 148, companies that choose to adopt the accounting provisions
of SFAS 123 will be  permitted  to select  from three  transition  methods.  The
Company  continues  to recognize  stock-based  employee  compensation  under APB
Opinion No. 25.

The  fair  value  of  options  at the  date of grant  was  estimated  using  the
Black-Scholes pricing-model with the following weighted average assumptions.

                                                 2003                    2002
                                                  %                       %
--------------------------------------------------------------------------------

Expected life [years]                            5.84                   5.08
Risk-free interest rates                         4.57                   4.98
Volatility                                     110.00                 114.00
Dividend yield                                   0.00                   0.00
--------------------------------------------------------------------------------

30,000 options were granted to consultants  during the year ended March 31, 2003
[1,157,500  during  the year  ended  March 31,  2002].  The fair  value of these
options at the time of grant was  charged to  research  and  development  in the
amount of $15,136  during the year ended March 31, 2003  [$158,646  and $361,387
were  charged  to  research  and  development  and  general  and  administrative
expenses,  respectively  during the year ended March 31, 2002]. Had compensation
cost for the Company's  stock options been  determined  consistent with SFAS No.
123, the Company's pro forma net loss and loss per share would be as follows:

                                        Cumulative from
                                         Inception to      Year ended       Year ended    Year ended
                                           March 31,        March 31,        March 31,     March 31,
                                             2003              2003               2003          2002
                                              C$                US$                 C$            C$
-----------------------------------------------------------------------------------------------------
                                                            [Note 2]

Net loss, as reported                    (20,858,098)      (2,488,560)      (3,652,709)   (4,535,131)
Total stock-based employee
compensation expense
determined under fair value
based method                               3,822,900          496,594          728,900       934,000
                                     -----------------------------------------------------------------
Pro forma net loss                       (24,680,998)      (2,985,154)      (4,381,609)   (5,469,131)
                                     =================================================================

                                      F-13





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


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

STOCK-BASED COMPENSATION [CONT'D]


                                       Cumulative from       Year ended       Year ended      Year ended
                                         Inception to         March 31,        March 31,       March 31,
                                        March 31, 2003             2003             2003            2002
                                             C$                     US$               C$              C$
--------------------------------------------------------------------------------------------------------
                                                              [Note 2]

Loss per share:
Basic and diluted - as reported                                $ 0.09           $ 0.12             $0.16
Basic and diluted - pro forma                                  $ 0.10           $ 0.15             $0.19

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.

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.

COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or  Disposal  Activities"  (SFAS 146).  This  statement  requires  the
recognition of costs  associated with exit or disposal  activities when they are
incurred  rather than at the date of a commitment  to an exit or disposal  plan.
This  statement is effective  for exit or disposal  activities  initiated  after
December  31,  2002.  The  adoption  of SFAS 146 did not have an  impact  on the
Company's financial position or results of operations.

ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES

In  November  2002,  the FASB issued FASB  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires a guarantor to
recognize a liability at the inception of a guarantee equal to the fair value of
the obligation  undertaken  and elaborates on the  disclosures to be made by the
guarantor.  The  disclosure  requirements  of FIN 45 are required for the fiscal
year ended December 31, 2002. The recognition and measurement  provisions of FIN
45 are effective,  on a prospective  basis, for guarantees issued by the Company
beginning in fiscal 2003. The adoption of FIN 45 did not have a material  impact
on the Company's financial position or results of operations.

                                      F-14





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


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

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations"  (SFAS 143).  This  statement  addresses  financial  accounting and
reporting for obligations  associated with the retirement of tangible long-lived
assets and the  associated  asset  retirement  cost.  SFAS 143 is effective  for
financial  statements issued for fiscal years beginning after June 15, 2002. The
Company  does not expect that the  adoption of SFAS 143 will have a  significant
impact on the Company's financial position or results of operations.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with Characteristics of both Liabilities and Equity" (SFAS 150). The
provision  of  the  statement   will  change  the   classification   of  certain
freestanding  financial instruments classified as equity under the old standard.
This statement is effective for financial  instrument  arrangements entered into
or modified after May 31, 2003, and otherwise  effective at the beginning of the
first interim period  beginning after June 15, 2003. The Company does not expect
that this statement will have a significant impact on its financial position.


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.       ACCOUNTS RECEIVABLE

                                                    2003                   2002
                                                       $                      $
--------------------------------------------------------------------------------

Sales tax receivable                              26,764                 48,360
Trade accounts receivable                             --                 15,942
Government grants receivable                          --                  5,000
Interest receivable                                  338                  2,173
Other                                              8,630                  7,378
--------------------------------------------------------------------------------
                                                  35,732                 78,853
--------------------------------------------------------------------------------

                                      F-15





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


5.       PROPERTY, PLANT AND EQUIPMENT

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

2003
Land                                                 351,000              --            351,000
Building                                           2,242,266         549,883          1,692,383
Office furniture and equipment                       187,718         121,045             66,673
Equipment under capital lease                         95,635          51,160             44,475
Office furniture under capital lease                  21,424          10,712             10,712
---------------------------------------------------------------------------------------------------
                                                   2,898,043         732,800          2,165,243
===================================================================================================

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
===============================================================================================


6.       CREDIT FACILITY

The Company has a $50,000 credit facility that extends to July 31, 2003. Amounts
outstanding  under this line of credit are payable upon demand and bear 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, 2003 and
2002, no amount was drawn under this credit facility.

As at March 31, 2003 and 2002, the prime rate was 4.75% and 3.75%, respectively.


7.       DEPOSITS AND OTHER ASSETS

                                                                                 2003         2002
                                                                                    $            $
--------------------------------------------------------------------------------------------------

Patents and trademarks (net of accumulated amortization of $14,085
in 2003 and $150 in 2002)                                                     227,781          850
Debt issue costs (net of accumulated amortization of $108,647 in
2003 and Nil in 2002)                                                         405,521           --
Deposits                                                                       17,502       18,602
--------------------------------------------------------------------------------------------------
                                                                              650,804       19,452
==================================================================================================

Cost of patents and  trademarks  as at March 31,  2003 is  $237,637  and $4,229,
respectively  ($1,000  and Nil en 2002).  Amortization  expense  for patents and
trademarks in the next five fiscal years is estimated at $13,935 per year.

                                      F-16





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


8.       ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

                                                                2003                     2002
                                                                  $                        $
------------------------------------------------------------------------------------------------

Accounts payable                                                494,282                  391,469
Accrued compensation                                            120,970                  126,451
Other accrued liabilities                                        66,632                  113,816
Accounts payable related to property, plant and equipment            --                   19,903
------------------------------------------------------------------------------------------------
                                                                681,884                  651,639
================================================================================================



9.       LONG-TERM DEBT

                                                                2003                     2002
                                                                  $                        $
------------------------------------------------------------------------------------------------

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.                                           126,667                  166,667

Loan agreement with Business Development
Bank of Canada ("BDC") bearing  interest
at 10% per annum compounded  monthly; in
case of default,  the interest rate will
be 25%. The  principal  amount  together
with accrued interest is due on February
15,  2006.   Partial  or  full  payment,
without  penalty,  is allowed before the
maturity  date of the loan.  The debt is
secured   by   a   $2,500,000   hypothec
covering moveable and immovable property
excluding   patents,   a  first  ranking
hypothec  on  land  and  building  and a
moveable     hypothec     on    accounts
receivable. (i)                                               2,667,298                       --
------------------------------------------------------------------------------------------------
                                                              2,793,965                  166,667
Less:  current portion                                           40,000                   40,000
------------------------------------------------------------------------------------------------
                                                              2,753,965                  126,667
================================================================================================

                                      F-17






BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


9.       LONG-TERM DEBT


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

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

2004                                                                  40,000
2005                                                                  40,000
2006                                                               2,707,298
2007                                                                   6,667
----------------------------------------------------------------------------
                                                                   2,793,965
============================================================================

i) The loan  agreement  concluded with BDC is for a total of $2,500,000 of which
   $2,490,000  has been  received  as of March 31,  2003 and  $10,000 is held in
   escrow until certain registration requirements for the security interest have
   been finalized.  This agreement  contains  covenants  customary of such loans
   including,  but not limited to,  those  relating  to  limitations  on capital
   expenditures.

   The debt issue costs were deferred and are presented under "Deposit and other
   assets". The debt issue costs represent a total amount of $225,234, excluding
   the warrants  discussed in note 11, which are being  amortized as  additional
   interest expense over the life of the related  indebtedness.  As of March 31,
   2003, the Company has paid a total of $199,315 of the debt issue costs.


10.      OBLIGATIONS UNDER CAPITAL LEASES

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

                                                                           2003            2002
                                                                             $               $
-------------------------------------------------------------------------------------------------

2003                                                                           --          35,008
2004                                                                       22,860          22,860
2005                                                                       14,836          14,836
2006                                                                           10              10
-------------------------------------------------------------------------------------------------
                                                                           37,706          72,714
Less:  interest portion at rates varying between 11.63% and 31.67%          4,078          12,195
-------------------------------------------------------------------------------------------------
                                                                           33,628          60,519
Less:  current portion                                                     19,690          26,891
-------------------------------------------------------------------------------------------------
                                                                           13,938          33,628
=================================================================================================

Included in interest on long-term debt is interest on obligations under capital
leases in the amount of $8,116 [$12,765 in 2002].

                                      F-18





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


11.      STOCKHOLDERS' EQUITY

a) ISSUANCE OF SHARES, 2002

COMMON STOCK  ISSUED TO A CONSULTANT  IN EXCHANGE FOR SERVICES
On April 3, 2001,  the  Company  entered  into 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,  if any, 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 100,000  common
shares  of the  Company,  as part  of the  judgment  in a  lawsuit  by a  former
employee.  The fair value of these shares amounting to $114,248 had been accrued
as at March  31,  2001.  These  shares  are  presented  as  "Additional  paid-in
capital".

COMMON STOCK TO BE ISSUED TO A CONSULTANT IN EXCHANGE FOR SERVICES
In January 2002, the Company entered into an agreement with a financial advisor.
Under the terms of the agreement,  the financial advisor was entitled to receive
cash and common shares of the Company for the services rendered. As of March 31,
2002,  the  Company  had to issue  15,000  common  shares in  exchange  for such
services. These shares were not issued at that date and, consequently, they were
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.

b) ISSUANCE OF SHARES, 2003

COMMON STOCK ISSUED TO A CONSULTANT IN EXCHANGE FOR SERVICES
As mentioned in a) above, the Company entered into an agreement with a financial
advisor. Under the terms of the agreement, the financial advisor was entitled to
receive cash and common  shares of the Company for the services  rendered.  As a
result, $11,009 and $22,002 were charged to general and administrative  expenses
in 2002 and 2003  respectively,  which  represented  fair value of 35,000 common
shares issued during 2003. The agreement was subsequently terminated.

                                      F-19





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]



11.      STOCKHOLDERS' EQUITY [Cont'd]

b)    ISSUANCE OF SHARES, 2003 [Cont'd]

EXCHANGEABLE  SHARES  OF THE  SUBSIDIARY  OF THE  COMPANY  ISSUED  AS A PART  OF
SETTLEMENT
On January 15, 2003, the Company issued 100,000 common shares as a result of the
exercise of  exchangeable  rights  provided with the issuance in 2002 of Class A
non-voting exchangeable shares of the subsidiary.

STOCK OPTIONS

BioSyntech Inc.

On December 4, 2002,  the Company  increased  the number of shares  reserved for
issuance under the Company's  Stock Option Plan to an authorized  maximum number
of 5,000,000 shares of common stock to employees, directors and consultants. The
Board has the sole  authority  to  determine  the terms  and  conditions  of the
options to be issued.  The maximum expiry date of the options is ten years after
the date of grant.  In addition,  options vest at the date of the grant, or over
periods of 1 to 3 years.

The following table summarizes the options granted and forfeited during 2002 and
2003 as well as options outstanding at the end of each year:

                                                 2003                                  2002
                                       -------------------------               ------------------------
                                                        Weighted                              Weighted
                                                        Average                               Average
                                         Stock          Exercise                 Stock        Exercise
                                        Options           Price                 Options        Price
                                                            C$                                    C$
-------------------------------------------------------------------------------------------------------

Outstanding, beginning of year         2,790,000           1.73                  450,000        5.47
Granted                                1,095,000           0.62                2,435,000        1.12
Forfeited                                455,000           2.07                   95,000        4.10
-------------------------------------------------------------------------------------------------------
Outstanding, end of year               3,430,000           1.24                2,790,000        1.73
-------------------------------------------------------------------------------------------------------
Exercisable, end of year               3,214,500           1.21                1,958,500        1.88
-------------------------------------------------------------------------------------------------------
Weighted average fair value of options
   granted during the year                                 0.46                                 0.59
-------------------------------------------------------------------------------------------------------

As at March 31, 2003, 3,430,000 options are outstanding. No options were granted
prior to 2001. The outstanding options expire between July 11, 2005 and December
31, 2010. 30,000 options granted to consultant for services rendered during 2003
are included in the above table.  Fair value of options was calculated from time
to time when  services  were  rendered  using the  Black-Scholes  option-pricing
model.  As a result,  an amount of  $15,136  was  recorded  under  research  and
development expenses.

                                      F-20





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


11.      STOCKHOLDERS' EQUITY [Cont'd]

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, 2003 (all  options were granted at
an  exercise  price that  exceeded  the  market  price of the stock at the grant
date):

                                                   Options outstanding                        Options exercisable
                        -------------------------------------------------------       -------------------------------------

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

          1.58             442,500                1.58                2.75                293,000                 1.58
          1.19             125,000                1.19                2.28                125,000                 1.19
          0.80              20,000                0.80                4.07                 20,000                 0.80
          0.79             512,500                0.79                2.48                512,500                 0.79
          0.63             175,000                0.63                5.41                175,000                 0.63
          0.62             770,000                0.62                5.75                770,000                 0.62
          0.59             100,000                0.59                4.99                100,000                 0.59
---------------------------------------------------------------------------------------------------------------------------
                         2,145,000                0.89                4.07              1,995,500                 0.84
---------------------------------------------------------------------------------------------------------------------------

US 3.25 to 4.00            205,000             US 3.98                7.37                200,000              US 4.00
        US 2.59             20,000             US 2.59                7.50                     --                   --
        US 1.25             75,000             US 1.25                7.75                 75,000              US 1.25
US 0.40 to 1.00            985,000             US 0.66                2.82                944,000              US 0.65
---------------------------------------------------------------------------------------------------------------------------
                         1,285,000             US 1.25                3.91              1,219,000              US 1.24
---------------------------------------------------------------------------------------------------------------------------
Total                    3,430,000                1.24                4.01              3,214,500                 1.21
===========================================================================================================================

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 200,000 options granted entitling the holders to purchase 200,000
Class A shares of Bio Syntech Canada which are  exchangeable  into common shares
of BioSyntech,  Inc. at prices varying between $0.75 and $1.75.  The options are
exercisable  at any time  before the  maximum  expiry  date,  which is ten years
following the date of grant.

                                      F-21





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


11.      STOCKHOLDERS' EQUITY [Cont'd]


The following table summarizes the options granted,  expired or forfeited during
2002 and 2003 as well as options outstanding at the end of each year:

                                                                         2003                                    2002
                                                              ------------------------------        ------------------------------
                                                               Stock            Weighted             Stock            Weighted
                                                              Options       Average Exercise        Options       Average Exercise
                                                                                  Price                                 Price
                                                                                    $                                     $
----------------------------------------------------------------------------------------------------------------------------------

Outstanding, beginning of year                                   362,000          1.76               1,244,500          1.09
----------------------------------------------------------------------------------------------------------------------------------
Expired                                                          152,000          2.20                 847,500          0.75
----------------------------------------------------------------------------------------------------------------------------------
Forfeited                                                         10,000          2.20                  35,000          2.39
----------------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year                                         200,000          1.25                 362,000          1.76
----------------------------------------------------------------------------------------------------------------------------------
Exercisable, end of year                                         200,000          1.25                 362,000          1.76
----------------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options granted                                     --                                    --
----------------------------------------------------------------------------------------------------------------------------------

No options were granted prior to 1999. These options expire on June 1, 2008.

The  following  table  summarizes  information  with  respect  to stock  options
outstanding  for Bio  Syntech  Canada's  Stock  Option  Plan that the holder may
convert into common shares of the Company as at March 31, 2003 (all options were
granted at an exercise  price that exceeded the market price of the stock at the
grant date):

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

  0.75              100,000                  5.17                      100,000
  1.75              100,000                  5.17                      100,000
--------------------------------------------------------------------------------
                    200,000                  5.17                      200,000
================================================================================

                                      F-22





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


11.      STOCKHOLDERS' EQUITY [Cont'd]


WARRANTS

On  June  26,  2002,  Bio  Syntech  Canada  Inc.,  the  Company's   wholly-owned
subsidiary,  concluded a loan agreement  with BDC for a total of $2,500,000,  as
described in Note 9. As a part of the agreement,  the Company issued warrants to
purchase  1,000,000  common shares at an exercise  price of US$0.33 per share to
BDC. These warrants are currently  exercisable at any time over a five-year term
from the date of issuance. If market value exceeds the exercise price, BDC shall
have the option to exercise  the  warrants  on a net issue basis by  obtaining a
number of shares  equivalent to the difference  between the market value and the
exercise  price.  The fair value of theses warrants at the date of the grant was
calculated  by  using  the  Black-Scholes  option-pricing  model  and  has  been
capitalized  as debt issue costs under the caption  "Deposits  and other assets"
with an offsetting credit to additional paid-in capital.


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, 2003 and
2002.

                                                             2003             2002
                                                               $                $
--------------------------------------------------------------------------------------

Numerator:
   Net loss - numerator
   For basic and diluted loss per share                     3,652,709        4,535,131
Denominator:
   Denominator for basic loss per share
   Weighted-average shares                                 29,248,250       29,202,195
Effect of dilutive securities:
   Stock options and warrants                                      --               --
--------------------------------------------------------------------------------------
Denominator for diluted loss per share
Adjusted weighted-average shares and
   assumed conversions                                     29,248,250       29,202,195
======================================================================================

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 2003 and 2002. These securities are options and warrants
as noted above.

                                      F-23





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]



12.      INCOME TAXES


There is no  provision  for income  taxes or income tax  recovery as the Company
experienced continuous losses and it is not more likely than not that there will
be future taxable income which might offset the current loss carry-forward.

Significant  components of the Company's deferred tax assets and liabilities are
as follows:

                                                                   2003                     2002
                                                                     $                        $
---------------------------------------------------------------------------------------------------

Deferred tax assets
Net operating loss carry-forwards                                2,874,037                2,283,561
Scientific research and experimental development expenses        1,916,859                1,569,907
Share issue cost                                                    (2,672)                   9,472
Property, plant and equipment and patents and trademarks            83,709                  180,737
---------------------------------------------------------------------------------------------------
Total deferred tax assets                                        4,871,933                4,043,677
---------------------------------------------------------------------------------------------------

Net deferred tax assets (liabilities)
Deferred tax assets                                              4,871,933                4,043,677
Deferred tax liabilities                                                --                       --
---------------------------------------------------------------------------------------------------
                                                                 4,871,933                4,043,677
Valuation allowance                                              4,871,933                4,043,677
---------------------------------------------------------------------------------------------------
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.

As at March 31,  2003,  the  Company had  accumulated  scientific  research  and
experimental development expenditures and other unclaimed deductions,  which are
available to reduce future years' taxable income.

                                      F-24





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


12. INCOME TAXES [Cont'd]


Details of the available deductions are as follows:

                                                          US                 Canadian
                                                       -------        -------------------------
                                                       Federal        Federal        Provincial
                                                          $             $                $
------------------------------------------------------------------------------------------------

Research and development expenditures,
without time limitation                                   --         4,720,000        5,818,000

Losses carry-forward expiring in:

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                                                      --         2,350,000        2,339,000
2010                                                      --         1,845,000        1,835,000
2021                                                  72,117                --               --
2022                                                 650,582                --               --
2023                                                 188,766                --               --

===============================================================================================

In addition, research tax credits, not recorded in the accounts and available to
reduce future Canadian Federal income taxes payable, are as follows:

                                                                                             $
------------------------------------------------------------------------------------------------
Research tax credits expiring in:

2006                                                                                     32,000
2007                                                                                     66,000
2008                                                                                     29,000
2009                                                                                         --
2010                                                                                     29,000
2011                                                                                    503,000
2012                                                                                    497,000
2013                                                                                    335,000

===============================================================================================

                                      F-25





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


12.      INCOME TAXES [Cont'd]

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:

                                                             2003            2002
-------------------------------------------------------------------------------------

Net loss:
    US (parent corporation)                                $ 447,665       $ 716,033
    Canadian operations                                  $ 3,184,961     $ 3,813,554
    European operations                                     $ 20,083         $ 5,544

Federal statutory rate                                          34 %            34 %
Decrease in taxes recoverable resulting from:
   Non-deductible expenses and other differences               (0.09)          (0.11)
   Tax credit non taxable in Quebec                            (0.43)          (0.49)
   Manufacturing and processing profits deduction              (7.00)          (7.00)
   Unrecognized tax benefits of operating losses and
      other available deductions                              (28.62)         (30.13)
   Difference of subsidiary's tax rate                          2.14            3.73
-------------------------------------------------------------------------------------
                                                                  --              --
=====================================================================================

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:

                                                             2003            2002
                                                              $               $
-------------------------------------------------------------------------------------

Cash on hand                                                 154,929         443,145
Commercial paper                                             645,109              --
-------------------------------------------------------------------------------------
Total cash and cash equivalents                              800,038         443,145
=====================================================================================

                                      F-26





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[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,  taking into account  warrants
granted to the lender,  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, 2003 and March 31, 2002.

[b]      CREDIT RISK

As of March 31, 2003,  the cash and cash  equivalents  are: the cash on hand and
commercial  paper.  The cash on hand is mainly  held by one  Canadian  financial
institution,  a chartered bank. The commercial paper represents an investment in
a 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,  2003,  assets,   consisting
principally of cash and cash  equivalents and  receivables,  denominated in U.S.
dollars totaled US $493,574 [US $1,071,578 as at March 31, 2002] and liabilities
denominated  in U.S.  dollars  totaled  US $78,028  [US  $52,383 as at March 31,
2002].

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

                                      F-27





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


15.      COMMITMENTS

[a]      LEASE

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

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

2004                                                                   33,493
2005                                                                   28,907
2006                                                                   12,828
2007                                                                    1,995
-----------------------------------------------------------------------------
                                                                       77,223
=============================================================================

The  following  schedule  shows the  composition  of total  rental  expense  for
operating leases:

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

2002                                                                   70,732
2003                                                                   46,754
-----------------------------------------------------------------------------
                                                                      117,486
=============================================================================


[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  $4,082 as at March 31, 2003 [$21,056 as at
March 31, 2002] in respect of these arrangements.


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:

                                                        2003         2002
                                                          $            $
-----------------------------------------------------------------------------

Revenues from external customers
Canada                                                  69,839       27,674
United States                                           89,929      246,528
Others                                                  14,472        3,631
-----------------------------------------------------------------------------
                                                       174,240      277,833
=============================================================================

                                      F-28





BIOSYNTECH, INC.
A development stage company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2002
[In Canadian dollars]


17.      COMPARATIVE FIGURES

Certain of the 2002 comparative  figures have been  reclassified to conform with
the basis of presentation adopted in the current year.


18.      SUBSEQUENT EVENT

On July 8, 2003, the Company issued to a shareholder,  an unsecured  convertible
debenture of $750,000 maturing on July 8, 2004 and bearing interest at an annual
rate of 7%, payable on a monthly basis. The debenture is convertible into shares
of  common  stock  of the  Company  on the  maturity  date or any  business  day
thereafter  until the debenture has been repaid in full. The number of shares to
be issued upon  conversion  shall be determined by using a conversion rate equal
to US$0.35 per share, based on the exchange rate for US dollars published by the
Bank of Canada for the business day prior to the conversion  date. The number of
shares  issuable on conversion and the  conversion  price are subject to certain
adjustments.


                                      F-29`