-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UqxpYic06BqtkcxIae1gsKnVdGyumoTGejLsqDXO6ZwwPW7uzVvCWVScpTmTdeDG 0SABfCq8EjWD4ahxTf3l+A== 0001021408-02-014198.txt : 20021118 0001021408-02-014198.hdr.sgml : 20021118 20021114182116 ACCESSION NUMBER: 0001021408-02-014198 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOSTON LIFE SCIENCES INC /DE CENTRAL INDEX KEY: 0000094784 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 870277826 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06533 FILM NUMBER: 02827327 BUSINESS ADDRESS: STREET 1: 137 NEWBURY STREET STREET 2: 8TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6174250200 MAIL ADDRESS: STREET 1: 137 NEWBURY STREET STREET 2: 8TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: STRATEGIC MEDICAL RESEARCH CORP /DE DATE OF NAME CHANGE: 19790521 FORMER COMPANY: FORMER CONFORMED NAME: GREENWICH PHARMACEUTICALS INC DATE OF NAME CHANGE: 19920703 10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 ------------------------------ or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ______________ Commission File Number 0-6533 ----------------------------------------------------- BOSTON LIFE SCIENCES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 87-0277826 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 20 Newbury Street, 5/th/ Floor, Boston, Massachusetts 02116 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (617) 425-0200 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (X) Yes ( ) No As of November 12, 2002 there were 22,374,210 shares of Common Stock outstanding. BOSTON LIFE SCIENCES, INC. INDEX TO FORM 10-Q
Page (s) -------- Part I - Financial Information Item 1 - Financial Statements (Unaudited) Consolidated Balance Sheets as of September 30, 2002 1 and December 31, 2001 Consolidated Statements of Operations for the three and 2 nine months ended September 30, 2002 and 2001, and for the period from inception (October 16, 1992) to September 30, 2002 Consolidated Statements of Cash Flows for the nine months 3 ended September 30, 2002 and 2001, and for the period from inception (October 16, 1992) to September 30, 2002 Notes to Consolidated Financial Statements 4 - 7 Item 2 - Management's Discussion and Analysis of Financial 8 - 13 Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures about Market Risk 13 Item 4 - Controls and Procedures 14 Part II - Other Information Item 1 - Legal Proceedings 15 Item 2 - Changes in Securities 15 Item 3 - Defaults Upon Senior Securities 15 Item 4 - Submission of Matters to a Vote of Security Holders 15 Item 5 - Other Information 15 Item 6 - Exhibits and Reports on Form 8-K 15 - 16 Signatures 17 Certifications 18 - 19
Part I - Financial Information Item 1 - Financial Statements Boston Life Sciences, Inc. (A Development Stage Enterprise) Consolidated Balance Sheets (Unaudited)
September 30, December 31, 2002 2001 ------------- ------------ Assets Current assets: Cash and cash equivalents $ 1,667,303 $ 287,302 Short-term investments 7,483,181 10,012,198 Other current assets 401,784 599,801 ------------- ------------ Total current assets 9,552,268 10,899,301 Fixed assets, net 792,491 523,505 Other assets 356,191 3,613 ------------- ------------ Total assets $ 10,700,950 $ 11,426,419 ============= ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 1,967,564 $ 1,803,584 10% convertible senior secured promissory notes 3,699,872 - Stockholders' equity: Convertible preferred stock, $.01 par value; 1,000,000 shares authorized; 525,000 shares designated; no shares issued and outstanding - - Common stock, $.01 par value; 50,000,000 shares authorized; 22,374,210 and 20,774,642 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively 223,742 207,746 Additional paid-in capital 87,812,377 84,319,102 Accumulated other comprehensive income 124,507 130,818 Deficit accumulated during development stage (83,127,112) (75,034,831) ------------- ------------ Total stockholders' equity 5,033,514 9,622,835 ------------- ------------ Total liabilities and stockholders' equity $ 10,700,950 $ 11,426,419 ============= ============
The accompanying notes are an integral part of the consolidated financial statements. 1 Boston Life Sciences, Inc. (A Development Stage Enterprise) Consolidated Statements of Operations (Unaudited)
From Inception (October 16, Three Months Ended Nine Months Ended 1992) to September 30, September 30, September 30, 2002 2001 2002 2001 2002 ------------- ------------- ------------ ------------ -------------- Revenues $ - $ - $ - $ - $ 900,000 Operating expenses: Research and development 1,722,338 1,973,858 5,521,737 5,868,485 53,619,489 General and administrative 794,467 758,876 2,559,233 2,427,966 21,469,802 Purchased in-process research and development - - - - 12,146,544 ------------- ------------- ------------ ------------ -------------- Total operating expenses 2,516,805 2,732,734 8,080,970 8,296,451 87,235,835 ------------- ------------- ------------ ------------ -------------- Loss from operations (2,516,805) (2,732,734) (8,080,970) (8,296,451) (86,335,835) Other expenses - - (287,000) (396,880) (970,880) Interest expense (100,950) - (100,950) - (2,353,407) Interest income 141,502 242,609 376,639 847,122 6,533,010 ------------- ------------- ------------ ------------ -------------- Net loss $ (2,476,253) $ (2,490,125) $ (8,092,281) $ (7,846,209) $ (83,127,112) ============= ============= ============ ============ ============== Basic and diluted net loss per share $ (0.11) $ (0.12) $ (0.37) $ (0.38) ============= ============= ============ ============ Weighted average shares outstanding 22,374,210 20,726,638 21,959,507 20,726,638 ============= ============= ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 2 Boston Life Sciences, Inc. (A Development Stage Enterprise) Consolidated Statements of Cash Flows (Unaudited)
From Inception (October 16, Nine Months Ended 1992) to September 30, September 30, 2002 2001 2002 ----------- ----------- -------------- Cash flows from operating activities: Net loss $(8,092,281) $(7,846,209) $ (83,127,112) Adjustments to reconcile net loss to net cash used for operating activities: Purchased in-process research and development - - 12,146,544 Write-off of acquired technology - - 3,500,000 Modification of warrants 287,000 396,880 970,880 Non-cash interest expense 19,872 - 599,557 Compensation charge related to options and warrants 51,328 25,000 2,162,054 Amortization and depreciation 123,903 31,673 1,699,885 Changes in current assets and liabilities: Decrease in other current assets 198,017 437,983 457,179 Increase in accounts payable and accrued expenses 163,980 603,082 1,194,899 ----------- ----------- -------------- Net cash used for operating activities (7,248,181) (6,351,591) (60,396,114) Cash flows from investing activities: Cash acquired through Merger - - 1,758,037 Purchases of fixed assets (386,332) (222,913) (1,240,344) (Increase) decrease in other assets (253,545) 1,117 (610,793) Purchases of short term investments (6,959,705) (6,180,347) (91,803,357) Sales and maturities of short term investments 9,482,411 14,735,128 84,444,683 ----------- ----------- -------------- Net cash provided by (used for) investing activities 1,882,829 8,332,985 (7,451,774) Cash flows from financing activities: Proceeds from issuance of common stock 3,439,071 - 34,688,253 Proceeds from issuance of preferred stock - - 27,022,170 Preferred stock conversion inducement - - (600,564) Proceeds from issuance of notes payable 4,000,000 - 6,585,000 Proceeds from issuance of convertible debentures - - 9,000,000 Principal payments of notes payable - - (2,796,467) Payments of financing costs (693,718) - (4,383,201) ----------- ----------- -------------- Net cash provided by financing activities 6,745,353 - 69,515,191 ----------- ----------- -------------- Net increase in cash and cash equivalents 1,380,001 1,981,394 1,667,303 Cash and cash equivalents, beginning of period 287,302 407,327 - ----------- ----------- -------------- Cash and cash equivalents, end of period $ 1,667,303 $ 2,388,721 $ 1,667,303 =========== =========== ============== Supplemental cash flow disclosures: Non cash transactions (see note 5)
The accompanying notes are an integral part of the consolidated financial statements. 3 Boston Life Sciences, Inc. (A Development Stage Enterprise) Notes to Consolidated Financial Statements (Unaudited) September 30, 2002 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared by Boston Life Sciences, Inc. (the "Company") in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The interim unaudited consolidated financial statements contained herein include, in management's opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The results of operations for the interim period shown on this report are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the Company's consolidated financial statements and notes for the year ended December 31, 2001 included in the Company's Annual Report on Form 10-K. At September 30, 2002, the Company had available cash, cash equivalents and short-term investments of approximately $9.2 million and working capital of approximately $7.6 million. The Company has incurred substantial losses and negative cash flows from operations in each fiscal year since inception. For the nine months ended September 30, 2002, the Company incurred a net loss of $8.1 million and negative cash flows from operations of $7.2 million. Additionally, as of September 30, 2002, the Company had an accumulated deficit of $83.1 million. Based on its current financial resources, the Company presently anticipates a substantial reduction in operating cash outflows over the next twelve months primarily due to an expected significant decrease in research and development expenses. This potential reduction can be attributed to the absence of certain costs incurred in 2002 associated with completing the remaining studies for the filing of the New Drug Application, or NDA, for ALTROPANE(TM) as a diagnostic for Parkinsonian Syndrome, which we call PS, (including Parkinson's Disease, which we call PD), lower clinical trial costs for the ongoing Phase II trial of ALTROPANE(TM) as a diagnostic for Attention Deficit Hyperactivity Disorder, which we call ADHD, lower research and development expenditures on the Company's early stage programs, and decreased research and development related payroll costs associated with a lower expected headcount in 2003. These reductions are not expected to materially affect the filing of an NDA for ALTROPANE(TM) for PS, the completion of the pre-clinical studies required for the filing of an Investigational New Drug, or IND, application for Inosine, and manufacturing development efforts on Troponin. Management believes that other actions, including reductions in the use of outside consultants are also available to reduce future operating cash outflows. Based on the Company's forecasted cash outflows and its cash, cash equivalents and short-term investments on hand as of September 30, 2002, the Company expects to have sufficient cash to finance its operations through at least September 30, 2003. The Company's future beyond the next twelve months may be dependent upon its ability to raise additional financing. The Company may raise additional capital in the future through collaborative agreements with other pharmaceutical or biotechnology companies, debt financings and equity offerings. There can be no assurance, however, that the Company will be successful or that additional funds will be available on acceptable terms, if at all. 2. Net Loss Per Share Basic and diluted net loss per share available to common stockholders has been calculated by dividing net loss by the weighted average number of common shares outstanding during the period. All potential common shares have been excluded from the calculation of weighted average common shares outstanding since their inclusion would be anti-dilutive. Stock options and warrants to purchase approximately 10.3 million and 8.0 million shares of common stock were outstanding at September 30, 2002 and 2001, respectively, but were not included in the computation of diluted net loss per common share because they were anti-dilutive. The exercise of those stock options and warrants outstanding at September 30, 2002, which could generate proceeds to the Company of up to $26 million, could potentially dilute earnings per share in the future. 3. Comprehensive Loss The Company had total comprehensive loss of $2,448,949 and $2,353,135 for the three months ended September 30, 2002 and 2001, respectively. For the nine months ended September 30, 2002 and 2001, total comprehensive loss was $8,098,592 and $7,641,784, respectively. 4 Boston Life Sciences, Inc. (A Development Stage Enterprise) Notes to Consolidated Financial Statements (Unaudited) 4. Stockholders' Equity In March 2002, the Company completed a private placement of 1,599,568 shares of common stock which raised approximately $3.4 million in gross proceeds. In connection with the financing, the Company issued warrants to the investors to purchase 399,892 shares of common stock at an exercise price equal to $2.75 per share. In connection with this financing, the Company paid $271,772 in cash and issued a warrant to purchase 157,557 shares of common stock at an exercise price equal to $2.75 per share to the placement agent. 5. 10% Convertible Promissory Notes In July 2002, the Company entered into agreements pursuant to which the Company issued $4.0 million in principal amount of 10% Convertible Senior Secured Promissory Notes, or Notes, to a single institutional investor in a private placement. Warrants to purchase a total of 500,000 shares of common stock at $2.16 per share were also issued to the investor. The Notes mature in July 2005 and bear interest at 10% per annum, payable semi-annually on June 1 and December 1. The Company may elect to pay interest on the Notes in either cash or, subject to certain limitations, additional notes on the same terms. The Notes may be converted into the Company's common stock at the option of the holder at a conversion price of $2.16 per share, subject to anti-dilution adjustments. Among other adjustments, unless the investor consents otherwise, if the Company issues equity securities in the future for consideration per share of common stock less than the then applicable conversion price of the Notes, the conversion price of the Notes will be reduced to equal that lower price. The Notes are secured by a first priority security interest and continuing lien on all current and after acquired property of the Company. The Company generally may obtain a release of the security interest by providing alternative collateral in the form of either cash or a bank letter of credit. Until the time, if any, that the Company provides alternative collateral or less than $500,000 principal amount of Notes remains outstanding, the agreements also prohibit the Company, among other things, from entering into any merger, consolidation or sale of all or substantially all of its assets, incurring additional indebtedness, encumbering its assets with any liens and redeeming or paying dividends on any of its capital stock. The Company is permitted to grant licenses or sublicenses of its intellectual property to third parties in the ordinary course of its business free from the security interest, but the holders of the Notes will receive a first priority security interest and continuing lien on all amounts owing to the Company in respect of any such license or sublicense. The agreements also contain customary events of default, including any change of control of the Company and breach by the Company of its representations and warranties and covenants contained in the agreements. If any event of default were to occur, the Company's obligations under the notes could be accelerated and become immediately due and payable in full. The net proceeds of $3.9 million have been allocated between the warrants (approximately $0.3 million) and the Notes (approximately $3.6 million) based on their relative fair values. The initial carrying value of the Notes is being accreted ratably, over the term of the Notes, to the $4 million amount due at maturity. Interest expense totaled $100,950 for the three months ended September 30, 2002, and included $74,521 in interest accrued on the 10% coupon and $19,872 in discount accretion. Debt issuance costs totaling $105,590 have been capitalized and will be amortized over the life of the Notes. 5 Boston Life Sciences, Inc. (A Development Stage Enterprise) Notes to Consolidated Financial Statements (Unaudited) 6. Modification of Warrants In June 2001, the Company entered into an agreement with Pictet Global Sector Fund-Biotech, or Pictet, whereby Pictet agreed to defer the effective date of the reset provision contained in its 500,000 warrants (300,000 exercisable at $8.00 per share and 200,000 exercisable at $10.00 per share) until June 30, 2002, at which time the exercise price was reset to $3.00 per share. In return, the Company issued 160,000 additional new warrants exercisable at $3.40 per share to Pictet. The Company was not required to record an initial charge in connection with the transaction because the fair value (as determined under the Black-Scholes pricing model) of the 160,000 new warrants being issued was equivalent to the net decrease in the fair value of the existing warrants resulting from the one year deferral in the reset provision. Under the June 2001 agreement, the Company is also obligated to issue additional warrants to Pictet in an amount equal to 9.9% of the increase in common stock outstanding from June 25, 2001 through June 30, 2004, provided that the total number of such additional warrants to Pictet cannot exceed 240,000. In accordance with this agreement, in June 2002, the Company issued an additional 163,110 warrants, exercisable at $1.27 per share, based on the increase in common stock outstanding from June 25, 2001 through June 30, 2002. The remaining obligation of up to 76,890 warrants may become issuable based on the increase in common stock outstanding from July 1, 2002 through June 30, 2004. The Company recorded a charge of $287,000 related to this obligation which is included ratably during the first and second quarters of 2002 in Other Expenses in the Consolidated Statement of Operations. In the second quarter of 2001, the Company entered into an agreement with Brown Simpson Partners I, Ltd., or Brown Simpson, whereby the exercise price of certain warrants held by Brown Simpson was reduced. The exercise price of 720,000 warrants previously exercisable at $8.25 per share was reduced to $4.625 and the exercise price of 970,000 warrants previously exercisable at $5.75 per share was also reduced to $4.625. In return, Brown Simpson agreed to the following restrictions (based on daily trading volume) on the number of shares of common stock that it could sell through May 2002. Percent of Daily Total shares of Volume Common allowed to be sold by Stock traded Daily Brown Simpson ---------------------- ----------------------------------- less than 100,001 10% 100,001 - 150,000 15% 150,001 - 300,000 20% 300,001 - 700,000 25% greater than 700,000 30% 6 Boston Life Sciences, Inc. (A Development Stage Enterprise) Notes to Consolidated Financial Statements (Unaudited) In connection with the transaction, the Company recorded a charge of $396,880 which is included in Other Expenses in the Consolidated Statement of Operations for the nine month period ended September 30, 2001. The amount of the charge is based upon the difference between the fair value (as determined under the Black-Scholes pricing model) of the 1,690,000 warrants currently exercisable at $4.625 per share compared to the fair value of the 720,000 warrants previously exercisable at $8.25 per share and the 970,000 warrants previously exercisable at $5.75 per share. In March 2002, the number of warrants and the exercise price thereof was adjusted. The exercise price of the 1,690,000 warrants was reduced to $2.15. In addition, Brown Simpson received an additional 130,123 warrants exercisable at $2.15 per share. In May 2002, the Company entered into an agreement with Brown Simpson under which Brown Simpson agreed to certain trading restrictions (based on daily trading volume) on the number of shares of common stock that it could sell through December 31, 2003. 7. Accounting Pronouncements In January 2002, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and that intangible assets other than goodwill be amortized over their useful lives. The Company's adoption of SFAS No. 142 did not have a material effect on its financial statements. In January 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses the financial accounting and reporting for the disposal of long-lived assets. The Company's adoption of SFAS No. 144 did not have a material effect on its financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (the "EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. EITF 94-3 allowed for an exit cost liability to be recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also requires that liabilities recorded in connection with exit plans be initially measured at fair value. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. The Company does not expect the adoption of SFAS No. 146 will have a material impact on its financial position or results of operations. 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q contains forward-looking statements. Specifically, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. There are a number of meaningful factors that could cause the Company's actual results to differ materially from those indicated by any such forward-looking statements. These factors include, without limitation, the duration and results of pre-clinical testing and clinical trials and their effect on the Food & Drug Administration, or FDA, regulatory process, uncertainties regarding receipt of approvals for any possible products and any commercial acceptance of such products, possible difficulties with obtaining necessary patent protection, and uncertainties regarding the Company's reliance on outside providers for the conduct of its research and development, pre-clinical and clinical activities. Other factors include those set forth under the caption "Forward-Looking Statements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and the documents referred to under such caption. General Description of Company The Company is a biotechnology company engaged in the research and development of biopharmaceutical products for the diagnosis and treatment of central nervous system, or CNS, diseases and for the treatment of some cancers and autoimmune diseases. At September 30, 2002, the Company is considered a "development stage enterprise" as defined in Statement of Financial Accounting Standards No.7. Product Development ALTROPANE(TM) is an imaging agent for the diagnosis of Parkinsonian Syndrome, which we call PS, (including Parkinson's Disease, which we call PD, and Attention Deficit Hyperactivity Disorder, which we call ADHD. We have completed a Phase III clinical trial for the diagnosis of PS, and during the past year, have had extensive discussions with the FDA regarding what information needs to be included in the New Drug Application, or NDA, filing. The FDA has requested certain additional studies which we are in the process of completing. We do not believe that any of the requested information represents a substantial impediment to the filing of the NDA. Based on the estimated time that it will take to complete these studies and compile this information, and assuming no additional data is requested by the FDA, we expect to request a pre-filing meeting with the FDA during the first quarter of 2003 and file our NDA in the first half of 2003. We are currently conducting our second Phase II trial of Altropane for the diagnosis of ADHD in adults using a simplified scanning procedure and algorithm adjustments. Inosine is a nerve growth factor which specifically promotes axon outgrowth in CNS cells. We recently had a pre-Investigational New Drug, or IND, meeting with the FDA regarding Inosine during which the FDA detailed the pre-clinical information that must be included in the IND filing. We expect to commence the remaining pre-clinical studies, and compile the necessary information, during the remainder of 2002 and into 2003. We hope to file an IND application and commence a Phase I clinical trial for Inosine in Acute Ischemic Stroke victims in late 2003 or early 2004. Troponin I, which we refer to as Troponin, is our anti-angiogenic agent. As has been the experience of many companies in the biotech community, the establishment of an effective, scaled-up manufacturing process for complex proteins like Troponin has been very challenging. The Company believes it has developed such a process at its internal pilot manufacturing facility in Baltimore, Maryland which we are now converting into a GMP compliant production site. The current process produces pure, active material at a scale that is still pre-commercial. In order to produce the material at the level required for all of the clinical trials (phase I, II, and III) at a commercially feasible cost, the Company needs to further "scale-up" the manufacturing process. Once this expanded production level has been attained, the Company will complete the remaining pre-clinical studies identified by the FDA as required for the filing of an IND. 8 Earlier stage product candidates include FLOURATEC(TM), a "second-generation" imaging agent for the diagnosis of PD and ADHD; C-MAF for the treatment of autoimmune disease and allergies; and compounds for the treatment of PD and other central nervous system disorders. To date, we have not marketed, distributed or sold any products and, with the exception of the ALTROPANE(TM) imaging agent, all of our technologies and early-stage product candidates are in pre-clinical development. Our product candidates must undergo a rigorous regulatory approval process which includes extensive pre-clinical and clinical testing to demonstrate safety and efficacy before any resulting product can be marketed. The FDA has stringent laboratory and manufacturing standards which must be complied with before we can test our product candidates in people or make them commercially available. Pre-clinical testing and clinical trials are lengthy and expensive and the historical rate of failure for product candidates is high. Clinical trials require sufficient patient enrollment which is a function of many factors, and delays and difficulties in completing patient enrollment can result in increased costs and longer development times. The foregoing uncertainties and risks limit our ability to estimate the timing and amount of future costs that will be required to complete the clinical development of each program. In addition, we are unable to estimate when material net cash inflows are expected to commence as a result of the successful completion of one or more of our programs. However, we do not currently expect to generate revenues from product sales for at least the next twelve months. The biotechnology and pharmaceutical industries are highly competitive and are dominated by larger, more experienced and better capitalized companies. Any delays we encounter in completing our clinical trial programs may adversely impact our competitive position in the markets in which we compete. Such delays may also adversely affect our financial position and liquidity. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared by us in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our estimates include those related to investments and research contracts. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For a complete description of our accounting policies, see Note 2 to our consolidated financial statements in our Annual Report on Form 10-K. Investments Our investments consist exclusively of investments in United States agency bonds and corporate debt obligations. These marketable securities are adjusted to fair value on the consolidated balance sheet through other comprehensive income. We disclose the value of restricted investments, if any, in the notes to our consolidated financial statements. Research contracts We regularly enter into contracts with third parties to perform research and development activities in connection with our scientific technologies. Costs incurred under these contracts are 9 recognized ratably over the term of the contract which we believe corresponds to the manner in which the work is performed. Results of Operations Three Months Ended September 30, 2002 and 2001 The Company's net loss was $2,476,253 during the three months ended September 30, 2002 as compared with $2,490,125 during the three months ended September 30, 2001. Net loss per common share equaled $0.11 per share for the 2002 period as compared to $0.12 per share for the 2001 period. The lower net loss in the 2002 period was primarily due to decreased research and development costs. The decrease in these expenses was mostly offset by lower interest income and higher interest expense. The lower net loss per common share in the 2002 period was primarily due to an increase in weighted average shares outstanding of approximately 1.6 million shares. Research and development expenses were $1,722,338 during the three months ended September 30, 2002 as compared with $1,973,858 during the three months ended September 30, 2001. The decrease was primarily attributable to lower manufacturing development costs for Troponin and ALTROPANE(TM) of approximately $296,000 and $358,000, respectively. The decrease in these expenses was partially offset by higher pre-clinical costs for Inosine of approximately $244,000 and higher research and development wages resulting from increased headcount of approximately $142,000. General and administrative expenses were $794,467 during the three months ended September 30, 2002 as compared with $758,876 during the three months ended September 30, 2001. There was no specific category or type of expense to which the increase can be primarily attributed. Interest expense totaled $100,950 during the three months ended September 30, 2002 as compared to zero during the three months ended September 30, 2001. In July 2002, the Company issued $4 million of 10% convertible notes, and incurred $74,521 in interest on the 10% coupon and $19,872 in non-cash interest associated with the accretion of the discounted carrying value of the notes. Interest income was $141,502 during the three months ended September 30, 2002 as compared with $242,609 during the three months ended September 30, 2001. The decrease was primarily due to lower average cash, cash equivalents, and short-term investment balances during the 2002 period as compared to the 2001 period. Nine Months Ended September 30, 2002 and 2001 The Company's net loss was $8,092,281 during the nine months ended September 30, 2002 as compared with $7,846,209 during the nine months ended September 30, 2001. Net loss per common share equaled $0.37 per share for the 2002 period as compared to $0.38 per share for the 2001 period. The higher net loss in the 2002 period was primarily related to a decrease in interest income partially offset by lower research and development expenses. The lower net loss per common share in the 2002 period was due to an increase in weighted average shares outstanding of approximately 1.2 million shares. Research and development expenses were $5,521,737 during the nine months ended September 30, 2002 as compared with $5,868,485 during the nine months ended September 30, 2001. The decrease was primarily attributable to lower manufacturing development costs for Troponin and ALTROPANE(TM) of approximately $914,000 and $552,000, respectively. The decrease in these expenses was partially offset by higher pre-clinical costs for Inosine of approximately $583,000 and higher research and development wages resulting from increased headcount of approximately $189,000. In addition, higher clinical trial expenses were incurred in the 2002 period related to our Phase II trial for ALTROPANE(TM) for the diagonsis of ADHD of approximately $162,000. General and administrative expenses were $2,559,233 during the nine months ended September 30, 2002 as compared with $2,427,966 during the nine months ended September 30, 2001. The increase was primarily related to higher legal fees in connection with patent and intellectual property matters of approximately $336,000. The increase in these expenses was partially offset by the absence of personnel recruitment costs of approximately $150,000 that were incurred in the 2001 period when the Company hired a number of senior executives. 10 Other expenses were $287,000 during the nine months ended September 30, 2002 as compared with $396,880 during the nine months ended September 30, 2001. The decrease in 2002 was due to lower non-cash charges related to agreements the Company entered into with securityholders to modify outstanding warrants. One agreement, which resulted in a charge of $396,880 in the 2001 period, lowered the exercise price of certain warrants held by Brown Simpson in return for daily trading restrictions on the number of shares of common stock that Brown Simpson could sell through May 2002. The other agreement, which resulted in a charge of $287,000 in the 2002 period, deferred the date on which the exercise price of warrants held by Pictet would be reset. In return, the Company issued additional warrants to Pictet. The non-cash charge was based upon a fair value calculation of the additional warrants issued to the securityholder as determined under the Black-Scholes pricing model. Interest expense totaled $100,950 during the nine months ended September 30, 2002 as compared to zero during the nine months ended September 30, 2001. In July 2002, the Company issued $4 million of 10% convertible notes, and incurred $74,521 in interest on the 10% coupon and $19,872 in non-cash interest associated with the accretion of the discounted carrying value of the notes. Interest income was $376,639 during the nine months ended September 30, 2002 as compared with $847,122 during the nine months ended September 30, 2001. The decrease was primarily due to lower average cash, cash equivalents, and short-term investment balances during the 2002 period as compared to the 2001 period. Liquidity and Capital Resources Since its inception, the Company has primarily satisfied its working capital requirements from the sale of the Company's securities through private placements. These private placements have included the sale of preferred stock and common stock, as well as notes payable and convertible debentures. Each private placement has included the issuance of warrants to purchase common stock. A summary of financings completed during the three years ended September 30, 2002 is as follows:
Date Net Proceeds Raised Securities Issued - ---- ------------------- ----------------- July 2002 $4.0 million Convertible secured promissory notes March 2002 $2.9 million Common stock June 2000 $9.9 million Common stock
In the future, the Company's working capital and capital requirements will depend on numerous factors, including the progress of the Company's research and development activities, the level of resources that the Company devotes to the developmental, clinical, and regulatory aspects of its technologies, and the extent to which the Company enters into collaborative relationships with pharmaceutical and biotechnology companies. At September 30, 2002, the Company had available cash, cash equivalents and short-term investments of approximately $9.2 million and working capital of approximately $7.6 million. The Company has incurred substantial losses and negative cash flows from operations in each fiscal year since inception. For the nine months ended September 30, 2002, the Company incurred a net loss of $8.1 million and negative cash flows from operations of $7.2 million. Additionally, as of September 30, 2002, the Company had an accumulated deficit of $83.1 million. Based on its current financial resources, the Company presently anticipates a substantial reduction in operating cash outflows over the next twelve months primarily due to an expected significant decrease in research and development expenses. This potential reduction can be attributed to the absence of certain costs incurred in 2002 associated with completing the remaining studies for the filing of the NDA for ALTROPANE(TM) as a diagnostic for PS (including PD), lower clinical trial costs for the ongoing Phase II trial of ALTROPANE(TM) as a diagnostic for ADHD, lower research and development expenditures on the Company's early stage programs, and decreased research and development related payroll costs associated with a lower expected headcount in 2003. These reductions are not expected to materially affect the filing of an NDA for ALTROPANE(TM) for PS, the completion of the pre-clinical studies required for the filing of an IND application for Inosine, and manufacturing development efforts on Troponin. Management believes that other actions, including reductions in the use of outside consultants are also available to reduce future operating cash outflows. Based on the Company's forecasted cash outflows and its cash, cash equivalents and short-term investments on hand as of September 30, 2002, the Company expects to have sufficient cash to finance its operations through at least September 30, 2003. The Company's future beyond the next twelve months may be dependent upon its ability to raise additional financing. The Company may raise additional capital in the future through collaborative agreements with other pharmaceutical or biotechnology companies, debt financings and equity offerings. There can be no assurance, however, that the Company will be successful or that additional funds will be available on acceptable terms, if at all. 11 Following is information on the direct research and development costs incurred (all amounts in thousands) on the Company's principal scientific technology programs currently under development. These amounts do not include research and development employee and related overhead costs which total approximately $7.7 million on a cumulative basis.
Program Period (1) Year to date Cumulative - -------------------------------------- ------------------------------------------------------------------------ Diagnostic imaging $ 384 $ 977 $14,728 Anti-angiogenesis 423 1,669 12,588 CNS regeneration 338 1,203 3,984 Auto-immune diseases 13 39 2,604 Other $ 47 $184 $ 747
_________ (1) three months ended September 30, 2002 Estimating costs and time to complete development of a specific program or technology is difficult due to the uncertainties of the development process and the requirements of the FDA which could require additional clinical trials or other development and testing. Results of any testing could lead to a decision to change or terminate development of a technology, in which case estimated future costs could change substantially. In the event the Company were to enter into a licensing or other collaborative agreement with a corporate partner involving sharing or funding by such corporate partner of development costs, the estimated development costs incurred by the Company could be substantially less than estimated. Additionally, research and development costs are extremely difficult to estimate for early-stage technologies due to the fact that there is generally less comprehensive data available for such technologies to determine the development activities that would be required prior to the filing of an NDA. As a result, the Company cannot reasonably estimate the cost and the date of completion for any technology that is not at least in Phase III clinical development due to the uncertainty of the number of required trials and size of such trials and the duration of development. The Company presently estimates that it will incur approximately $750,000 in additional direct research and development costs to complete the preparation and filing of the NDA for ALTROPANE(TM) for the diagnosis of PD. This estimate does not include research and development employee and related overhead costs. Actual costs and time to complete may differ significantly from the estimates. In July 2002, the Company entered into agreements pursuant to which the Company has issued $4.0 million in principal amount of 10% convertible senior secured promissory notes to a single institutional investor in a private placement. The Notes were issued pursuant to exemptions afforded by Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder. The notes mature in July 2005 and bear interest at 10% per annum, payable semi-annually on June 1 and December 1. The Company may elect to pay interest on the notes in either cash or, subject to certain limitations, additional notes on the same terms. The notes may be converted into the Company's common stock at the option of the holder at a conversion price of $2.16 per share, subject to anti-dilution adjustments. Among other adjustments, unless the investor consents otherwise, if the Company issues equity securities in the future for consideration per share of common stock less than the then applicable conversion price of the notes, the conversion price of the notes will be reduced to equal that lower price. The notes are secured by a first priority security interest and continuing lien on all current and after acquired property of the Company. The Company generally may obtain a release of the security interest by providing alternative collateral in 12 the form of either cash or a bank letter of credit. Until the time, if any, that the Company provides alternative collateral or less than $500,000 principal amount of notes remains outstanding, the agreements also prohibit the Company, among other things, from entering into any merger, consolidation or sale of all or substantially all of its assets, incurring additional indebtedness, encumbering its assets with any liens and redeeming or paying dividends on any of its capital stock. The Company is permitted to grant licenses or sublicenses of its intellectual property to third parties in the ordinary course of its business free from the security interest, but the holders of the notes will receive a first priority security interest and continuing lien on all amounts owing to the Company in respect of any such license or sublicense. The agreements also contain customary events of default, including any change of control of the Company and breach by the Company of its representations and warranties and covenants contained in the agreements. If an event of default were to occur, the Company's obligations under the notes could be accelerated and become immediately due and payable in full. There have been no material changes in the commitments and contingencies reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Accounting Pronouncements In January 2002, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and that intangible assets other than goodwill be amortized over their useful lives. The Company's adoption of SFAS No. 142 did not have a material effect on its financial statements. In January 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses the financial accounting and reporting for the disposal of long-lived assets. The Company's adoption of SFAS No. 144 did not have a material effect on its financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (the "EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. EITF 94-3 allowed for an exit cost liability to be recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also requires that liabilities recorded in connection with exit plans be initially measured at fair value. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. The Company does not expect the adoption of SFAS No. 146 will have a material impact on its financial position or results of operations. Item 3 - Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in the market risks reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. 13 Item 4 - Controls and Procedures Evaluation of disclosure controls and procedures The Company's principal executive and financial officers reviewed and evaluated the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-14) as of a date within 90 days before the filing date of this Form 10-Q. Based on that evaluation, the Company's principal executive and financial officer concluded that the Company's disclosure controls and procedures are effective in enabling the Company to identify, process and report information required to be disclosed in the reports the Company files under the Exchange Act. Changes in internal controls There were no significant changes in the Company's internal controls or other factors that could significantly affect those controls subsequent to the date of the Company's evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 14 PART II -- OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS. None. ITEM 2: CHANGES IN SECURITIES. In July 2002, the Company entered into agreements pursuant to which the Company issued $4.0 million in principal amount of 10% Convertible Senior Secured Promissory Notes to a single institutional investor in a private placement. Warrants to purchase a total of 500,000 shares of common stock at $2.16 per share were also issued to the investor. ITEM 3: DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5: OTHER INFORMATION. On September 27, 2002, Mr. Scott Weisman resigned as a director of the Company. (a) Exhibits. None. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 99.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1) 99.2 Agreement dated May 16, 2002 between Brown Simpson Partners I, Ltd and the Company (1) 99.3 Employment Agreement dated July 9, 2002 between Robert Rosenthal and the Company (2) 99.4 Securities Purchase Agreement, dated as of July 25, 2002, by and among the Company and the Investor named therein (3) 99.5 10% Convertible Senior Secured Promissory Note, dated as of July 25, 2002 (3) 99.6 Registration Rights Agreement, dated as of July 25, 2002, by and among the Company and the Investor named therein (3) 99.7 Warrant to Purchase Common Stock, dated as of July 25, 2002 (3) (1) Filed herewith. (2) Incorporated by reference to the Company's report on Form 8-K dated July 10, 2002. (3) Incorporated by reference to the Company's report on Form 8-K dated July 25, 2002. 15 (b) Reports on Form 8-K: The Registrant filed the following reports on Form 8-K during the quarter ended September 30, 2002: Date of Report Item Reported -------------- ------------- July 10, 2002 5,7 July 25, 2002 5,7 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOSTON LIFE SCIENCES, INC. -------------------------- (Registrant) DATE: November 14, 2002 /s/ S. David Hillson ------------------------------- S. David Hillson Chairman and Chief Executive Officer (Principal Executive Officer) /s/ Joseph Hernon ------------------------------- Joseph Hernon Chief Financial Officer (Principal Financial and Accounting Officer) 17 CERTIFICATIONS I, David Hillson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Boston Life Sciences, Inc.; 2. Based on my knowledge, this quarterly report 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 quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant'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 the registrant's ability to record, process, summarize and report financial data and have identified for the registrant'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 the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly 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: November 12, 2002 /s/ S. David Hillson ------------------------------------- S. David Hillson Chairman and Chief Executive Officer 18 I, Joseph Hernon, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Boston Life Sciences, Inc.; 2. Based on my knowledge, this quarterly report 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 quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant'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 the registrant's ability to record, process, summarize and report financial data and have identified for the registrant'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 the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly 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: November 12, 2002 /s/ Joseph Hernon ------------------------------------- Joseph Hernon Executive Vice President, Chief Financial Officer and Secretary 19 EX-99.1 3 dex991.txt CEO/CFO CERTIFICATIONS Exhibit 99.1 CERTIFICATION PURSUANT TO SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Boston Life Sciences, Inc. (the "Company"), does hereby certify that to his knowledge: 1) the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2002 fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ S. David Hillson -------------------- S. David Hillson Chairman and Chief Executive Officer /s/ Joseph P. Hernon -------------------- Joseph P. Hernon Executive Vice President, Chief Financial Officer and Secretary Dated: November 14, 2002 EX-99.2 4 dex992.txt OMNIBUS AGREEMENT II EXHIBIT 99.2 OMNIBUS AGREEMENT II OMNIBUS AGREEMENT II (this "Agreement"), dated as of May 16, 2002, by and between BOSTON LIFE SCIENCES, INC., a Delaware corporation (the "Company"), and BROWN SIMPSON PARTNERS I, LTD., a Cayman Islands company (the "Holder"). Reference is made to each of the Series A and Series B Stock Purchase Warrants set forth on Schedule I hereto (each a "Warrant", together the "Warrants") issued by the Company and held by the Holder, initially issued for the purchase of an aggregate of 1,690,000 shares of the Company's common stock, par value $.01 per share (the "Common Stock"), subject to certain adjustments as set forth in the Warrants. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to such terms in the Warrants or the transaction documents related thereto. WHEREAS, in March 2002, the Company entered into a private placement pursuant to which it sold, inter alia, $3,400,000 of the Common Stock to individual and institutional investors at a purchase price of $2.15 per share (the "Issuance"); WHEREAS, the Issuance triggered certain adjustments to the Warrants in accordance with the terms of the Warrants (the "Adjustments"); and WHEREAS, the purpose of this Agreement is to set forth the Adjustments, as well as other agreements between the Company and the Holder. NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Holder hereby agree as follows: A. Warrant Shares. The Company and the Holder each hereby acknowledge and agree that the number of Warrant Shares with respect to each Warrant shall be adjusted as set forth on Schedule I hereto and that the number of Warrants Shares set forth in the first sentence of Section 2 of each Warrant shall be adjusted accordingly. B. Exercise Price. The Company and the Holder each hereby acknowledge and agree that Section 3(a) of each Warrant shall be null and void and of no further force and effect, and replaced in its entirety with the following: "3. Exercise Price. The initial per share exercise price of this Warrant, representing the price per share at which the shares of stock issuable upon exercise of this Warrant may be purchase, is $2.15, subject to adjustment from time to time pursuant to the provisions of Section 6 hereof (the "Exercise Price")." C. Adjustment of Number of Shares. The Company and the Holder each further hereby acknowledge and agree that Section 6(i) of each Warrant only shall apply to situations where the Company raises cash through the issuance of shares of its Common Stock or options, warrants or other securities convertible or exchangeable therefor (other than Excluded Securities). The Issuance is such an issuance. D. Certain Events. The Company and the Holder each further hereby acknowledge and agree that Section 6(h)(i)(D)(V) ("Certain Events") shall be deleted and shall have no force and effect. E. Continuing Force and Effect. All other provisions of the Warrants, except as otherwise specifically set forth herein, shall remain in full force and effect. F. Registration Statement. The current registration statement for the Warrants, which is presently effective, shall remain effective in accordance with the terms of the Registration Rights Agreement dated September 22, 1999, among the Company and the Purchasers as set forth therein. G. Replacement Warrants. The Company further acknowledges and agrees that within five (5) days of the date first set forth above, it shall mark and initial changes to the Warrants to reflect the terms set forth herein, but, at any time, the Holder may request, and the Company shall promptly provide, new, replacement warrants reflecting the changes set forth herein. The Company acknowledges that such new, replacement warrants are not necessary for the exercise of the Warrants in accordance with the provisions set forth herein and therein. H. Trading Restrictions. (i) The Holder hereby acknowledges and agrees that, through and including December 31, 2003, it only shall sell shares of the Common Stock (including shares of the Common Stock issuable upon the exercise of the Warrants) in accordance with the following: . On any day when the Common Stock trades fewer than 100,001 shares, the Holder may sell up to seventeen percent (17%) of the daily volume (on a net basis, i.e., including sales and purchases) as traded on the NASDAQ or a Subsequent Market (the "Daily Volume"); . On any day when the Common Stock trades between 100,001 and 150,000 shares, the Holder may sell up to twenty five percent (25%) of the Daily Volume (on a net basis); . On any day when the Common Stock trades between 150,001 and 300,000 shares, the Holder may sell up to thirty percent (30%) of the Daily Volume (on a net basis); . On any day when the Common Stock trades between 300,001 and 700,000 shares, the Holder may sell up to thirty five percent (35) of the Daily Volume (on a net basis); and . On any day when the Common Stock trades more than 700,000 shares, the Holder may sell up to forty five percent (45%) of the Daily Volume (on a net basis); provided further, however, that on any Trading Day when the Common Stock closes above $8.00 per share, each of the above percentages shall be increased by five percent (5%) for that Trading Day; provided further, however, that on any Trading Day when the Common Stock closes above $10.00 per share, each of the above percentages shall be increased by ten percent (10%) for that Trading Day; provided further, however, that on any Trading Day when the Common Stock closes above $12.00 per share, there shall be no restriction on the number of shares of the Common Stock that the Holder may sell on that Trading Day. (The trading activity set forth in 2 the foregoing five bullet points hereinafter shall be referred to as the "Permitted Sales"). Nothing contained herein shall restrict the ability of the Holder to sell any number of shares of the Common Stock or any number of the Warrants or the Warrant Shares in direct placement(s) with a single purchaser or group of purchasers, such direct placement(s) to be made on an off-market basis. (ii) The Holder hereby agrees that, without the prior written consent of the Company, neither it nor its affiliates will, through and including December 31, 2003, in excess of the Permitted Sales, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of the Common Stock or any securities convertible into or exercisable or exchangeable for shares of the Common Stock (including, inter alia, the Warrants) or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of shares of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of shares of the Common Stock or other securities, in cash or otherwise. The foregoing sentence shall not apply to, or in any way affect, the Permitted Sales. (iii) The restrictions on trading activity set forth in this Section H shall not apply to, and shall have no force and effect upon, the sale or transfer of a Warrant, the Warrants or any part of a Warrant to any third-party and such a purchaser, transferee or other recipient thereof shall not be bound by the trading restrictions set forth in this Section H; provided, however, that the trading restrictions set forth in this Section H shall survive if such sale or transfer is to an affiliate of the Holder. For example, and for the avoidance of any doubt, if the Holder sells the Warrants to an unaffiliated third party, that unaffiliated third party may sell the Common Stock, long and/or short, without any restriction as to volume (or otherwise) through any means available in the public and/or private markets. I. May 31, 2001 Omnibus Agreement. This Agreement supersedes and replaces in its entirety the Omnibus Agreement between the Company and the Holder, dated May 31, 2001. J. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed within that State, without regard to the conflicts of laws principles thereof. K. Counterparts; Facsimile Signatures. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. Any copy of this Agreement containing a facsimile signature page shall be deemed an original. L. Whereas Clauses. The Whereas clause set forth in this Agreement are hereby specifically made a part of this Agreement. 3 BOSTON LIFE SCIENCES, INC. /s/ David Hillson - -------------------------------- Name: David Hillson Title: Chairman BROWN SIMPSON PARTNERS I, LTD. /s/ Peter D. Greene - -------------------------------- Peter D. Greene Attorney-in-Fact 4 SCHEDULE I Warrant Number of Series/No. Registered Owner Shares ---------- ---------------- ------ A/1 Brown Simpson Partners I, Ltd. 835,749 A/2 Brown Simpson Partners I, Ltd. 208,937 B/1 Brown Simpson Partners I, Ltd. 620,350 B/2 Brown Simpson Partners I, Ltd. 155,087 5 -----END PRIVACY-ENHANCED MESSAGE-----