10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2003

OR

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

For the transition period

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 incorporation or organization)	(I.R.S. Employer Identification No.)
20 NEWBURY STREET, 5th FLOOR	02116
BOSTON, MASSACHUSETTS	(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (617) 425-0200

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 $.01 Per Share

Warrants to Purchase Common Stock

Rights to Purchase Preferred Stock

(Title of Class)

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.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((§) 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes  ¨    No  x

Based on the last sales price of the registrant’s Common Stock as reported on the NASDAQ SmallCap Market on June 30, 2003 (the last business day of our most recently completed second fiscal quarter), the aggregate market value of the 32,173,958 outstanding shares of voting stock held by nonaffiliates of the registrant was $59,521,822.

As of March 24, 2004, there were 33,915,533 shares of the registrant’s Common Stock issued and outstanding.

Documents incorporated by reference:    Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission relative to the registrant’s 2004 Annual Meeting of Stockholders are incorporated by reference into Items 10, 11, 12 and 13 of Part III of this Annual Report on Form 10-K.

PART I

Item 1.    Business.

Overview

We are a development stage 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. We were originally a privately held company founded in 1992 and merged with a publicly held company effective June 15, 1995. Our principal executive offices are located at 20 Newbury Street, 5th Floor, Boston, Massachusetts 02116, and our telephone number is (617) 425-0200.

We are strategically located in one of the world’s most prominent centers of biotechnology research – Boston, Massachusetts. Many of the world’s leading universities and hospitals are located in the Boston area and these institutions have established highly regarded medical schools and research facilities. Since our founding we have effectively utilized our close relationships with these institutions to secure the rights to a broad array of diagnostic and therapeutic discoveries. We currently have 11 technologies in our product portfolio, all of which were invented or discovered by researchers working at Harvard University and its affiliated hospitals, or Harvard and its Affiliates, and have been licensed to us.

Corporate Strategy

Our business model remains uncommon in the biotechnology industry, although in recent years there have been a growing number of other companies which have recognized the value of employing such an approach. One of the unique aspects of our model is that it focuses on commercializing novel medical technologies while minimizing the infrastructure that would otherwise be required in the successful growth and development of a medical technology or biotechnology company. The primary elements of our model include:

1. Utilization of close relationships with Boston area universities and hospitals to identify promising new medical discoveries.

2. Acquisition of the exclusive licensing rights to such discoveries. Under such agreements, we normally agree to pay the licensor a modest royalty on any future product sales, thereby retaining the licensing institution’s long-term interest in the technology’s development.

3. Execution of a sponsored research agreement with the licensing institution. Under these agreements, we provide funding to the collaborating scientist who discovered the technology. Another unique feature of our business model is that this research is conducted at the laboratories of the collaborating scientist. As a result, we are able to control our operating costs by not having to establish our own internal lab facilities and attendant personnel.

4. Managing and directing research and development activities during this early-stage while focusing on early validation of product candidates.

5. Advancement of the validated product candidates into clinical trials where safety and efficacy can be demonstrated in patients.

6. Partnering the program with major pharmaceutical and biotechnology companies to fund the completion of the significantly more expensive late stage clinical trials. These larger organizations would also be utilized to handle the sales, marketing, and distribution of any approved products. Under these agreements, we would expect to receive milestone payments based on the completion of Phase II and/or Phase III clinical trials as well as royalties on the sale of any approved products.

We believe that our unique business model is well suited for the biotechnology industry for a number of important reasons. Our employment of an outsourcing strategy whereby we utilize the research facilities of our collaborating scientists enables us to pursue the research and development of a specific program at a cost

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significantly below that of most fully staffed biotechnology concerns. As a result of these cost controls, we have been able to pursue the development of a greater number of scientific programs thereby mitigating the high risk of product failure that is inherent in the drug development process. We have further minimized our risks by pursuing development in a number of scientific areas compared to those biotechnology companies which are narrowly focused.

The following are trademarks of ours that are mentioned in this Annual Report on Form 10-K: ALTROPANE^® and FLUORATEC^™. Other trademarks used in this Annual Report on Form 10-K are the property of their respective owners.

ALTROPANE Imaging Agent

The ALTROPANE imaging agent is a small molecule invented by researchers at Harvard and its Affiliates, including the Massachusetts General Hospital, that we are developing as an aide in the diagnosis of Parkinsonian Syndromes, or PS, in patients with tremor and as an aide in the diagnosis of Attention Deficit Hyperactivity Disorder, or ADHD.

Proposed Mechanism of Action

The ALTROPANE imaging agent is an ¹²³I-based nuclear medicine imaging agent that binds with extremely high affinity and specificity to the Dopamine Transporter, or DAT. The DAT is a protein that is on the surface membrane of specialized neurons in the brain that produce dopamine, a key neurotransmitter.

ALTROPANE selectively binds to the DAT in the brain. The amount of the ALTROPANE imaging agent taken up by the brain is therefore directly proportional to the number of DATs that are present in any given area of the brain. Since DATs are on the membrane of dopamine-producing cells, destruction of these cells results in decreased numbers of DATs. Therefore, Parkinson’s Disease, or PD, which is caused by a decreased number of dopamine producing cells, is associated with a marked decreased in the number of DATs. As a result, when the ALTROPANE imaging agent is administered to patients with PD, its uptake is substantially diminished as compared to patients without PD. This marked decrease in the ALTROPANE imaging agent uptake in patients with PD is the basis for the use of the ALTROPANE imaging agent as a diagnostic test for Parkinsonian Syndromes (including PD).

The route of administration of the ALTROPANE molecule is by intravenous injection. By radioactively labeling ALTROPANE with ¹²³I, it can be used as a nuclear imaging agent that can be detected using a specialized nuclear medicine camera known as a Single Photon Emission Computed Tomography, or SPECT, camera. SPECT cameras are widely available in both community and academic medical centers. The scanning procedure using ALTROPANE takes about 40 minutes to complete. Results of these tests are usually available the same day as the scanning procedure.

Parkinsonian Syndromes (PS)

Parkinsonian Syndromes are characterized by presynaptic loss of dopamine-producing cells. The most prevalent form of PS is Parkinson’s Disease which is a chronic, irreversible, neurodegenerative disease that generally affects people over 50 years old. It is caused by a significant decrease in the number of dopamine producing cells in specific areas of the brain. Inadequate production of dopamine causes the PD symptoms of resting tremor, muscle retardation, and rigidity. PD afflicts about 250,000-500,000 Americans and about 4 million individuals in developed nations worldwide. The number of individuals having PD is expected to grow substantially as people continue to live longer and the overall population ages. Since administration of currently available therapies at an early stage of PD may delay the progression of the disease, early definitive diagnosis may be of substantial benefit. To our knowledge, there is presently no objective test commercially available in the United States to diagnose PD.

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Clinical Trial Program for ALTROPANE as a Diagnostic for PS

We are continuing with our clinical development program which, to date, demonstrates ALTROPANE’s potential as a diagnostic for PS. As a diagnostic imaging agent, ALTROPANE is subject to the same regulatory requirements as a new therapeutic drug. These requirements include:

• Phase I clinical trials—The purpose of Phase I clinical trials is to determine whether a drug is safe in clinical studies involving healthy patients. We completed our 39 patient Phase I trial in 1998.

• Phase II clinical trials—The purpose of Phase II clinical trials is to gather additional information about short-term safety of a particular drug, but mainly to begin to assess the effectiveness of the drug. We completed our 37 patient Phase II trial in February 1999. The results of this trial indicated that patients with early or mild PD were reliably and easily differentiated from normal patients based on the ALTROPANE imaging agent scan results. The differentiation of PD patients from normal patients was demonstrated by the distinct differences in binding potential. The highest binding potential for a PD patient (0.66) was still well below the lowest binding potential seen in the normal patients (0.90). Qualitative assessment of the scans revealed moderate to marked decrease in at least one quadrant of the striatum in the brain of PD patients compared to the normal patients.

• Phase III clinical trials—The purpose of Phase III clinical trials is to determine the safety, efficacy, and appropriate dosage for a new drug. We have completed a Phase III trial of ALTROPANE for use in differentiating PS movement disorders from non-PS movement disorders. We intend to conduct a new Phase III trial of ALTOPANE for use in distinguishing Parkinsonian from non-Parkinsonian Syndromes in patients with tremors.

Initial Phase III Trial

Our initial Phase III study was designed to confirm the ALTROPANE imaging agent’s ability to differentiate PS movement disorders (including PD) from other non-PS movement disorders and to assess the efficacy of the ALTROPANE imaging agent-SPECT scanning in a sample population representative of those individuals that consult with neurologists or internists for undiagnosed movement disorders. Both of the trial’s primary endpoints were met on a statistically significant basis. The study enrolled 100 subjects having the clinical diagnosis of Parkinsonian Syndrome, and 65 patients having non-Parkinsonian Syndrome movement disorders. The clinical diagnosis of patients in the trial was made by expert neurologists specializing in movement disorders. The ALTROPANE imaging agent-SPECT scans were performed on each subject and were reviewed by an independent three-member panel of nuclear medicine physicians specializing in neuroimaging who had no knowledge of the clinical diagnosis. The ALTROPANE imaging agent scans were read and categorized as being consistent with either PS or non-PS, and were then compared to the expert clinical diagnosis. There were no ALTROPANE imaging agent-related serious adverse events reported in the study.

Post Initial Phase III Trial Activities

Following the completion of our initial Phase III clinical trial, we addressed a number of important manufacturing and regulatory matters. We also began compiling the clinical and regulatory information that will be required in order to submit a New Drug Application, or NDA, for ALTROPANE with the Food and Drug Administration, or FDA.

FDA regulations require that we establish a manufacturing source for the commercial supply of ALTROPANE under the Good Manufacturing Practice, or GMP, regulations established by the FDA. In August 2000, we signed an agreement with MDS Nordion, Inc., or MDS Nordion, of Ottawa, Canada to supply ALTROPANE under GMP standards. MDS Nordion is a well-recognized manufacturer of ¹²³I and specializes in the production of radioactive isotopes and in radioactively labeling imaging agents. MDS Nordion completed the GMP commercial manufacturing scale-up process for the ALTROPANE imaging agent in September 2001. According to the terms of the Development and Supply Contract, MDS Nordion compiled and prepared the regulatory information for the Chemistry Manufacturing and Controls, or CMC, section of our planned NDA for PD. In February 2003, MDS Nordion submitted a Drug Master File describing the manufacture of ALTROPANE to the FDA. MDS Nordion will also supply the GMP ALTROPANE imaging agent for our ADHD and other

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clinical trials, as well as manufacture and distribute the ALTROPANE imaging agent following commercial launch, when and if an NDA filing is approved by the FDA.

We have initiated efforts to determine our sales, marketing and distribution strategy for the ALTROPANE imaging agent so that we are adequately prepared to launch the product when and if marketing approval is received from the FDA. Such efforts have included the commissioning of an independent market analysis which generally confirmed our internal assessment of the potential market for a PS diagnostic, including expected demand, estimated pricing, and other factors such as insurance reimbursement. In addition, we have held discussions with a number of potential partners and collaborators regarding the sales, marketing and distribution of the ALTROPANE imaging agent. To date, we have not finalized our sales, marketing and distribution strategy. However, we believe we can successfully launch the product within six months of receiving marketing approval from the FDA, although no assurances can be made that we will receive such approval.

Following completion of our initial Phase III trial, we had a series of meetings and discussions with the FDA regarding the clinical trial data accumulated to date, manufacturing requirements, and other related considerations associated with a late stage product. The purpose of these communications and conferences was to identify and resolve any questions or issues that the FDA wanted addressed. Our communications with the FDA also included an assessment of the market opportunity for ALTROPANE based on the indications tested to date, and the possibility of expanding the market size by expanding the indications tested.

New Phase III Trial in Tremor Patients

Based on our meetings and discussions with the FDA, we plan to conduct a new Phase III clinical trial designed to distinguish Parkinsonian from non-Parkinsonian Syndromes in patients with tremors. In July 2003, we filed a Special Protocol Assessment, or SPA, with the FDA relating to the design and analysis of the study protocol for this new Phase III trial. The new Phase III trial will enroll subjects who have been referred to a neurology clinic with a diagnosis of tremor. Upon enrollment in the study, the subjects will then be diagnosed by the general practitioner or internist as having either a Parkinsonian or non-Parkinsonian tremor. Each subject will then undergo an ALTROPANE SPECT scan prior to being diagnosed by a Movement Disorder Specialist, or MDS, as having either a Parkinsonian or non-Parkinsonian tremor. The SPECT scans will be read “blind” by a panel of nuclear medicine physicians and the results of the blinded reads will then be compared to the MDS diagnosis for sensitivity and specificity. The primary endpoint will be the confirmation of the hypothesis that the diagnostic accuracy of ALTROPANE is significantly superior to the diagnostic accuracy of the internist or general practitioner. Because we have elected to pursue a single, large Phase III trial for this indication, rather than two smaller, replicate trials, the FDA has required that we power the trial to achieve a p-value of 0.02 or less and we expect that the FDA will require that level of statistical significance for the primary endpoint in order to achieve approvability. We currently expect to enlist up to 25 academic medical centers for the study and expect to enroll a minimum of 500 patients (250 patients with Parkinsonian tremors and 250 patients with non-Parkinsonian tremors).

We have had several communications with FDA since the initial SPA was filed with the FDA. The FDA offered us recommendations pertaining to the design of the clinical protocol for the new Phase III trial, including alternatives for inclusion criteria for the clinical indication being sought by us, and guidance concerning primary and secondary endpoints proposed in the statistical plan. The FDA also provided advice on further clarification of the SPECT imaging criteria. In December 2003 and in February 2004 we submitted a revised protocol addressing FDA’s recommendations concerning study design, statistical plan and safety assessments. We are currently awaiting final agreement from the FDA on the most recent submission of the protocol. In order to expedite reaching a written agreement with the FDA, our most recent submission was not made under the SPA process, but rather was submitted under an alternative, expedited procedure. The FDA has assured us that a binding agreement reached under this alternative procedure will be equivalent to an agreement reached pursuant to the SPA process. We currently expect to receive correspondence from the FDA containing a binding agreement relating to this protocol and to initiate the new Phase III trial in the first half of 2004. Once initiated, we presently anticipate this new Phase III clinical trial will take approximately twelve months to complete. If the results of this trial are successful, we hope to submit an NDA for ALTROPANE for use in distinguishing Parkinsonian from non-Parkinsonian Syndromes in patients with tremors within six months of the trial’s completion.

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Attention Deficit Hyperactivity Disorder (ADHD)

Attention Deficit Hyperactivity Disorder, or ADHD, is the most commonly diagnosed behavioral disorder in children and is the fastest growing psychiatric disorder in adults. ADHD is characterized by inattention, impulsivity, and hyperactivity. Since 1990, the total number of American children diagnosed with ADHD has risen from 900,000 to over 5.5 million, and the use of stimulant medication such as RITALIN^® (methylphenidate) has increased 700% in the same period. It is estimated that four to 12 percent of school-aged children are affected by this disorder. ADHD often continues to manifest itself throughout a patient’s adolescence and into adulthood. It is estimated that 40 to 80 percent of children with ADHD still meet the diagnostic criteria in adolescence and young adulthood.

It is estimated that two to four percent of adults are affected by ADHD. Adults with ADHD tend to have fewer problems with hyperactivity, but more problems with inattention and distractibility. Many patients with ADHD often express other psychiatric disorders as well, such as depression, anxiety, obsessive compulsive disorder, and alcohol and substance abuse.

ADHD is a chronic disorder, therefore it is important for a physician to establish a continuing plan of monitoring, evaluating, and optimizing treatment plans. ADHD is typically treated with stimulant medications. It should be noted, however, that there is controversy over the long-term use of these stimulant medications, particularly in children. Although most patients with ADHD respond to medications, there are still between 15 percent to 30 percent who do not respond or suffer from intolerable side effects.

Diagnosing ADHD

ADHD is currently diagnosed according to a set of behavioral criteria defined in the Diagnostic and Statistical Manual, or DSM, used by psychiatrists. This manual provides clinicians with the currently accepted list of diagnostic criteria to use in diagnosing the vast majority of mental disorders. A comprehensive evaluation is necessary to establish a diagnosis, rule out other causes and determine the presence or absence of co-morbid conditions. Such evaluation should include a clinical assessment of the individual’s academic, social emotional, functional and developmental capabilities. Because everyone shows signs of these behaviors at one time or another, the guidelines for determining whether a person has ADHD are very specific. Patients with ADHD exhibit three broad behavioral symptoms that may be indicative of the disease. These include inattentiveness, hyperactivity, and impulsiveness. In children and teenagers, the symptoms must be more frequent or more severe than in other children the same age. In adults, the symptoms must impair a patient’s ability to function normally in daily life. In addition, the behaviors must create significant difficulty in at least two areas of a patient’s life, such as at home, in social settings, at school, or at work. Finally, symptoms must be present for at least six concurrent months.

While these criteria provide a structural framework for diagnosing ADHD, it has not been possible to validate these criteria against an objective biological standard since such a standard has never been established and does not currently exist. Consequently, the DSM criteria have generated widespread concern and, in the view of many critics, often are misapplied and misinterpreted. The lack of a clear-cut, demonstrated biological basis for ADHD has led to a great deal of confusion concerning the diagnosis of ADHD and has even provoked skepticism regarding its existence. It is interesting to note, for example, that 40 percent of adult patients who likely have ADHD would not meet the criteria set forth in the DSM-IV manual because it states that symptoms must have been evident before the age of seven. Because of such imprecise diagnostic methods, we believe it facilitates both the over- and under- diagnosis of ADHD. As such, the introduction of an objective test to assist in the definitive diagnosis of ADHD would help avoid the unnecessary treatment of patients who simply have behavioral problems unrelated to ADHD. At the same time, it would identify those patients who have not received treatment for the condition because of inadequate diagnostic methods.

Researchers have recently postulated, but have not been able to confirm, that ADHD may be linked to an abnormality in the DAT. A number of stimulant medications, including RITALIN^® (methylphenidate) and other

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newer therapeutics, currently constitute the most prescribed treatment for the broadly described disorder labeled ADHD. Since there has not been an objective test to differentiate between biochemical abnormality and purely psychological behavior disorders, the increasing use of potentially addictive drugs among children has prompted vigorous public debate amongst educators, parents and the medical community. This concern has escalated in recent years as evidenced by widespread coverage in the media.

Clinical Trial Program for ALTROPANE as a Diagnostic for ADHD

We initiated our development program utilizing the ALTROPANE imaging agent for the early diagnosis of ADHD in June 1999. Under a Physician’s Sponsored Investigational New Drug, or IND, application, adult patients with ADHD underwent brain scanning using the ALTROPANE imaging agent, and were found to have a significantly abnormal elevation in the number of DATs in the midbrain. All of the patients tested showed this abnormality. The excessive number of dopamine transporters found in the midbrain in these ADHD subjects suggests that this may be the underlying detectable biochemical abnormality in at least a certain segment of individuals presenting with symptoms of ADHD. The results of the study were subsequently published in the British medical journal The Lancet.

We completed our initial Phase II clinical trial in September 2000. The trial, comprising 40 adult patients, was designed to expand the database on normal individuals and to elaborate on the findings obtained in our Physician’s Sponsored trial. In March 2001, we announced that the ALTROPANE imaging agent had succeeded in identifying adults with long-standing expertly-diagnosed ADHD in the Phase II study. Adults (age 20-40) diagnosed by clinical experts as having ADHD had highly statistically-significant elevations in the number of their brain dopamine transporters (p<0.001) compared to normal (non-ADHD) individuals of the same age group. The 40 subject study was carried out at four academic medical institutions in the U.S., and the data analysis was performed at the Massachusetts General Hospital in Boston. The highly statistically significant separation of ADHD from normal individuals based on the ALTROPANE imaging agent brain scan in this study confirmed the results of the pilot study.

Our second Phase II trial in adults using a simplified scanning procedure and algorithm adjustments is presently ongoing. If we obtain successful results in this trial, we will then proceed to a Phase III clinical trial.

Market Potential for ALTROPANE

ALTROPANE is the only dopamine transporter imaging agent currently available that is capable of effectively detecting abnormal levels (higher or lower than normal) of the DAT in the brain. Most neurologists believe that a clinical history and a physical diagnosis are adequate for diagnosing most patients with PS. However, they also admit that approximately 25 percent of these patients present with symptoms and/or a clinical history that are inconclusive. As such, they would clearly benefit from a diagnostic test that would provide them with additional clinical information that is highly specific to these conditions to help them make a definite diagnosis when clinical symptoms and the history are inconclusive. We believe that early definitive diagnosis of patients with PS should lead to more effective treatment and a higher quality of life for these patients.

We believe that the total market prospects for the ALTROPANE imaging agent in both PS and ADHD are substantial. It is estimated that approximately 132,000 individuals per year present to their physician with new, undiagnosed movement disorders, and are therefore candidates for the ALTROPANE imaging agent scan to diagnose or rule out early PS. In the far larger ADHD market, a conservatively estimated 1.5 million adults between the ages of 20 to 40 are tentatively diagnosed with ADHD. The most significant single market is, of course, the 3 million children who are categorized as having ADHD. The annual incidence (new cases) of behavioral disorders consistent with ADHD in both adults and children is approximately 1.3 million. We believe that an effective diagnostic for ADHD will provide a much-needed objective basis for therapeutic intervention with drugs such as RITALIN^® (methylphenidate) and newer therapeutics. Including its use for both PD and ADHD indications, we believe that the ALTROPANE imaging agent has the potential, if approved, to become

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one of the largest selling radiopharmaceuticals ever developed. Our preliminary projections point toward a combined potential of 300,000 to 500,000 scans per year, five years post marketing approval and commercial introduction.

Principal Preclinical Development Programs

1.    Inosine, Axogenesis Factor 1 (AF-1), and Macrophage Factor

Scientific Background

It has been widely believed that human beings are incapable of regenerating damaged or destroyed nerves in their central nervous system. Thus, severe injuries to the spinal cord and brain generally result in permanent disability. In a limited way, other accessory nerve pathways can compensate for those that have been destroyed, resulting in limited recovery with rehabilitation, particularly after stroke. In contrast, peripheral nerves, such as those innervating the limbs, can regenerate, although extremely slowly, resulting in the potential for substantial functional recovery with time. The question as to why peripheral nerves, but not CNS nerves, can regenerate has been one of the central questions in neurobiology. Much research effort has been devoted to identifying the factors that could explain the differences in regenerative potential between the peripheral and CNS nerves.

Inosine, AF-1 and Macrophage Factor are nerve growth factors which specifically promote axon outgrowth in CNS cells. We acquired the rights to Inosine, AF-1 and Macrophage Factor from Children’s Hospital in 1998, 1995, and 2001, respectively. Since axons form the connections between cells of the CNS (brain and spinal cord), we believe that Inosine and AF-1 could provide a means to regenerate those connections following CNS damage suffered in stroke or spinal cord injury. Inosine is currently our lead candidate. AF-1 and Macrophage Factor are presently in early stage pre-clinical development.

Proposed Mechanism of Action

Inosine is a purine that is a naturally occurring product of the hydrolysis of adenosine, a purine nucleoside. Inosine is released in small quantities in the nervous system after injury. After a stroke, increased levels of inosine are found in the brain along with a host of other trophic factors from the brain tissue surrounding the stroke. These trophic factors are believed to contribute to limited reorganization of the CNS cells after stroke. This reorganization helps to explain how damaged areas of the brain can undergo axonal sprouting and the structural remodeling that is responsible for new axonal connections.

Inosine acts as an agonist of a novel enzyme, N-kinase, which is thought to be the master switch for axon regeneration. Based upon research over the past decade or more, it has become apparent that the key to axonal regeneration is overcoming the inhibitory factors that are activated or naturally present when axons are injured or severed. Some of these inhibitory factors include inhibitory proteins found in the myelin sheaths surrounding the axons themselves. The purpose of the myelin sheaths is to speed nerve conduction along the length of an axon.

An examination of the damage caused by stroke and the limitations of existing forms of treatment provides a good example of why we believe that Inosine may provide a therapeutic benefit to stroke patients. In simple terms, ischemic stroke is essentially caused by an acute blockage of a blood vessel to a specific area of the brain. Depending on the extent of the territory vascularized by this vessel, clinical consequences range from minor debility to death. As far as we are aware, all current therapies, both approved or in development, are focused on minimizing the damage to the affected territory of the brain, either by reversing the blockage (by clot dissolution) or protecting brain cells from the ischemic injury (cytoprotective agents). However, once the damage is complete, there is little or no functional recovery, since there is little or no nerve regeneration in the CNS that could compensate for the irreversible loss of the nerve cells and their connections. Up to now, the inability to provide regeneration therapy for stroke has been simply due to the absence of any effective compounds having the necessary in vivo regenerative activity. Based on experimental results in animals, Inosine appears to be effective in regenerating nerve connections in the CNS. Inosine can be administered directly into the

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cerebrospinal fluid which bathes the brain, thereby exposing the relevant brain tissue to therapeutic amounts of Inosine while potentially minimizing systemic toxicity. Inosine can potentially be administered via a widely-used delivery system for several months if necessary, in order to promote the optimal amount of regeneration. In animals, Inosine appears to be effective even when given after the damage has been done and the stroke is complete. This is in sharp contrast to other potential agents for stroke therapy now in development which must be given almost immediately after the stroke.

Pre-Clinical Development to Date

Experiments and animal tests conducted by our principal collaborating scientist, Dr. Larry Benowitz, and his colleagues at Children’s Hospital in Boston have reported some of the most significant accomplishments in the field of nerve regeneration published to date. We believe that these results demonstrate that we are in the forefront in the search for potentially important regenerative agents for stroke and spinal cord injury. A summary of these milestones is set forth below:

• Inosine stimulated axon collateral growth in an animal model that has many features in common with spinal cord injury in humans. Almost all of the treated animals showed signs of extensive collateral sprouting of axons from the uninjured to the injured side of the corticospinal tract reaching below the level of the hemi-transection. The number of collateral (new) axons ranged up to 2,500 per treated animal, compared to 28-170 axons seen in control animals.

• Our collaborating scientists developed a methodology to stimulate regeneration of the optic nerve to a degree far greater than had previously been documented in scientific literature. In these studies published in the Journal of Neuroscience, the authors describe how retinal ganglion cells that give rise to the optic nerve could be stimulated to regenerate optic nerve fibers following an experimental crush injury to the optic nerve. Not only was the amount of regeneration far greater than has ever been reported previously elsewhere, but the regenerated fibers were observed to pass through the crush injury and extend for several millimeters distally along the degenerated optic nerve tract towards the brain.

• Our collaborating scientists demonstrated that Inosine treatment produced near total functional recovery in an experimental rat model of stroke. The improvement in limb function in the treated animals, as assessed in a number of behavioral tasks, was highly statistically significant. Treated animals recovered greater than 90% of their pre-stroke function. The untreated group continued to exhibit severe functional impairment, remaining effectively paralyzed.

• We have completed a one-month toxicology study which indicated that Inosine does not cause random, non-regulated axon growth in normal rats. This is important because such growth could potentially cause bizarre changes in behavior, personality or other functions.

• Our principal collaborating scientists at Harvard and its Affiliates discovered a means to stimulate nerve fiber (axons) regeneration over long distances following injury to the optic nerve in rats. In these studies, published in the Journal of Neuroscience, the optic nerves of rats were either crushed or transected. The injuries were followed by an intra-ocular injection of a yeast cell wall extract to activate inflammatory cells (macrophages) in the retina. Rats that received the injections showed significant growth of the nerve fibers that carry information from the retina to the brain through the crush injury and beyond. In associated experiments, it was demonstrated that following macrophage activation in the eye, there was a large increase in the number of axons that could grow through a nerve transection into a peripheral nerve graft. The therapeutic significance was that the activated macrophages were shown to produce a specific protein that was responsible for this optic nerve regeneration. This protein was then purified and tested in a series of in vitro experiments. In these experiments, the protein was found to act synergistically with another of our proprietary molecules, AF-1, to increase axon outgrowth.

• Our collaborating scientists have shown in animal studies that to achieve extensive optic nerve regeneration requires activation of the intrinsic axonal growth program in optic nerve cells, in addition to suppressing the activity of the Nogo receptor. In the study, published in the Journal of Neuroscience,

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activation of the intrinsic growth program of the optic nerve cells was achieved through the use of our Macrophage Factor. The study concludes that, while Nogo inhibition plays a major role in limiting regeneration in the mature optic nerve, suppression of Nogo inhibition alone is not sufficient to promote extensive axonal regeneration after optic nerve injury, and that stimulation of the axonal growth program is required for extensive regeneration.

Codman & Shurtleff, Inc.

In September 2003, we entered into an agreement with Codman & Shurtleff, Inc., or Codman, a Johnson & Johnson subsidiary, related to our development of Inosine for stroke. Under the agreement, Codman will supply us with implantable pumps and catheters for our preclinical and clinical studies for Inosine, and in exchange, Codman will receive a right of first refusal for Inosine for a specified period and under certain conditions. We believe that the sourcing of the pumps and catheters from a reliable, high quality supplier in Codman will enable us to complete our pre-clinical toxicology studies, file our IND, and proceed into clinical development in a more streamlined manner by utilizing the same drug delivery technology in each step.

Investigational New Drug Application and Clinical Trial Program

We are currently compiling the pre-clinical data required for the filing of an IND for Inosine for treatment of ischemic stroke. We are currently conducting three-month toxicity studies designed to assess the toxicity of Inosine administered via continuous infusion into the lateral ventricle of the brain in both rats and dogs in a manner identical to that proposed in the clinical trials. We have initiated the design of the Phase I and II clinical trials, including the preparation of the trial protocols, and have held discussions with a number of potential clinical sites. We expect to file an IND for treatment of ischemic stroke for Inosine in the third quarter of 2004 and, subsequent to FDA’s approval, initiate clinical studies in humans. However, there can be no assurances that the FDA will accept our IND submission or will not request additional pre-clinical data before allowing us to initiate human clinical trials.

Market Opportunity

Although the full range of uses for these growth factors is still under development, our current research is centered on nerve regeneration in patients with stroke and spinal cord injuries.

The annual incidence of stroke in the U.S. is approximately 500,000 with more than 3,000,000 stroke survivors currently alive. The incidence of traumatic brain injury is approximately 50,000 annually. The incidence of spinal cord injury is approximately 10,000 cases annually. Treatment for these conditions is presently limited to hemodynamic support, steroids to reduce inflammation, and, in the case of stroke, the correction of predisposing hematological abnormalities.

2.    Troponin

Description

Troponin-I, or Troponin, is a naturally occuring protein found within human cartilage and other tissues, such as skeletal muscle. As a tissue of the body, cartilage has few blood vessels and is a very infrequent site for tumor formation. Troponin was discovered to be present in cartilage by scientists at Children’s Hospital in Boston, and found to have extremely strong anti-angiogenic activity, both in vitro and in vivo. The scientific basis for our development of Troponin was published in the March 16, 1999, edition of the Proceedings of the National Academy of Sciences.

Scientific Background

Angiogenesis, the formation of new blood vessels, plays an important role in the growth and spread of cancer throughout the body. Experimental and clinical evidence strongly suggests that the inhibition of

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angiogenesis could potentially offer a general therapeutic approach to the prevention or treatment of all solid tumor metastases. This approach is independent of tumor type since it targets only proliferating blood vessel cells, and if the anti-angiogenic agent is specific to endothelial (blood vessel) cells, it is also theoretically nontoxic since angiogenesis does not take place under normal circumstances. In addition to the treatment of cancer, the anti-angiogenic approach appears to have significant potential for the treatment of eye diseases that are associated with abnormal retinal angiogenesis. Two of these diseases, Macular Degeneration and Diabetic Retinopathy, are the major causes of blindness in developed countries.

Mechanism of Action

Troponin has been shown to inhibit the proliferative response of endothelial cells to tumor-related growth factors such as vascular endothelial growth factor, or VEGF, and fibroblast growth factor, or FGF. Troponin’s anti-angiogenic effect is not dependent on the binding of Troponin to these growth factors, but rather is due to a “paralysis” of the cellular response. The exact mechanism by which this occurs is the subject of ongoing investigation.

Troponin I has been shown to markedly suppress the expression of key genes associated with blood vessel cell (endothelial cell) division and growth. Typically, endothelial cells upregulate (i.e. stimulate) certain “proliferative-response” genes in reaction to angiogenic factors such as FGF, which may be generated by tumors to promote blood vessel development (angiogenesis) necessary for tumor growth. However, we have observed that when blood vessel cells were treated with Troponin I prior to exposure to FGF, the expression of some of these genes was suppressed in some cases by up to 90% compared to expression stimulated by treatment with FGF alone. These results suggest that Troponin’s anti-angiogenic and anti-cancer effects may be due at least in part to a broad-based suppression of tumor-induced angiogenesis at the fundamental level of gene expression.

Pre-Clinical Development to Date

To date, much of our effort has focused on the development of a reliable manufacturing process for Troponin. This work has largely been performed at our research and manufacturing facility, which was established in Baltimore, Maryland in 2001. The development of an economic, scale-up methodology for the production of complex proteins while still retaining the necessary biological activity has been a very difficult problem for the biotechnology industry. This has been especially true in the case of most anti-angiogenic agents. We believe that we have developed a proprietary method for the purification of complex bacterial-produced recombinant proteins, such as Troponin, that conserves the biological activity of the native protein. We have scaled-up the manufacturing process for Troponin in order to produce material for our pre-clinical efficacy study. If this study is successful, we will then increase the scale-up process to the level required for clinical trial production.

We have completed initial one-month toxicology tests for Troponin. Preliminary results revealed no significant toxicity in either species (primates and rats) during and after the one-month infusion period. These tests evaluated the toxic potential of recombinant human Troponin when administered as a continuous infusion for a one-month period in both rats and primates. These studies incorporated doses up to ten times the anticipated dose to be used in human clinical trials. Significantly, primates exhibited no demonstrable immune response. Preliminary evaluation revealed no adverse effects on any organs, and blood tests revealed no clinically significant abnormalities in hematologic or chemistry parameters.

We have also completed efficacy testing in animal models which indicate that Troponin, when administered by constant infusion in extremely low doses to mice, had dramatically suppressed growth of melanoma metastases in the lung. These results, though preliminary, strongly support our belief that Troponin has significant potential as a clinically effective anti-angiogenic product for the prevention of tumor metastases in high-risk cancer patients.

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Investigational New Drug Application and Clinical Trial Program

We have initiated a cancer survival study in mice utilizing the same Troponin formulation that we anticipate using in human testing. The results of this important “proof of concept” study should be available in the second quarter of 2004. Following this study, if successful, we plan to carry out the pre-clinical studies that will be required to be included in an IND application. These data will include the results of pharmacologic efficacy and toxicology studies in animals. We have initiated the design of the Phase I and II clinical trials, including the preparation of the trial protocol, and have held discussions with a number of potential clinical sites. We currently expect that our initial trial would be in patients with non-small cell lung cancer. However, there can be no assurances that the FDA will accept our IND submission or will not request additional pre-clinical data before allowing us to initiate human clinical trials.

Market Potential

Cancer is the second leading cause of death in the U.S., exceeded only by heart disease. In the U.S., 1 of every 4 deaths is from cancer. According to the American Cancer Society, American men have a 1 in 2 lifetime risk of developing cancer. American women have a 1 in 3 lifetime chance. The number of Americans suffering from cancer is expected to increase dramatically over the next few decades due to the overall aging of the population. Nearly 80% of all cancers are diagnosed at ages 55 and older.

According to Merrill Lynch estimates, the market potential for cancer therapeutics exceeds $10 billion in the U.S. alone based solely on those patients who currently receive treatment for solid tumors. It has been estimated that there are approximately 800,000 new cases of solid tumors annually in the U.S. and more than 6 million cases in developed countries. In addition to cancer, the incidence of various forms of eye disease in which angiogenesis plays a role, most of which cause blindness, has been estimated at 500,000 annually in the U.S.

3.    Other Pre-clinical Programs

Parkinson’s Disease Therapeutic

In September 2001, we acquired the licensing rights to a group of new therapeutic compounds developed by the same scientists who developed the ALTROPANE imaging agent. We believe that this group of compounds represents a novel and promising approach to the treatment of PD. Each product candidate in this group is a small tropane-based molecule that binds with extremely high selectivity to the DAT, thereby blocking the re-uptake of dopamine from nerve connections. This blockade results in an increase in local dopamine concentrations at the nerve junctions and thus compensates for the decreased dopamine production characteristic of PD. We believe that the strategy of DAT blockade represents a new approach to the treatment of PD.

The scientific basis for our development of this group of compounds was supported by a research paper, published in a September 2001 issue of the journal Science, entitled “Dendrodendritic inhibition through reversal of dopamine transport.” The research described in the paper strongly implicates the DAT as a major mediator of the brain damage that causes the symptoms of PD. While we initially assumed that our DAT blockers would be effective in reducing the symptoms of early PD, we did not have enough evidence to be able to assert that they might also fundamentally change the course of the underlying disease. We believe that we now have a scientific basis for the pursuit of such a claim.

The initial, early stage pre-clinical results have provided evidence that these compounds can improve the symptoms of experimental PD, and possibly reverse the movement abnormalities associated with PD. Further pre-clinical development, including additional animal studies will be required before we can determine which, if any, product candidate(s) should advance into human clinical trials.

FLUORATEC Imaging Agent

We have initiated the preclinical development of a “second generation” technetium-based compound for the diagnosis of PD and ADHD. This compound differs from the ALTROPANE imaging agent in structure and in

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the advantageous substitution of technetium for iodine as the radioligand. Primate studies using the technetium compound have demonstrated that this compound is taken up by the normal striatum in sufficient quantity to provide an easily readable image. Primates with experimentally-induced PD had markedly decreased uptake of the compound. Radiation dosimetry, pharmacokinetic, and toxicology studies were all favorable. Based on these pre-clinical results, a Physician’s Sponsored IND was filed with the FDA and studies with the FLUORATEC imaging agent were subsequently performed in healthy volunteers. The image quality was comparable to that obtained with the ALTROPANE imaging agent. We believe that the ability to eventually follow the ALTROPANE imaging agent to market with a second-generation technetium product would give us a long-term competitive advantage.

FlouroPharma Cardiac Imaging Agent

FlouroPharma, Inc., an early-stage company, is developing Positron Emission Tomography, or PET, imaging agents for the diagnosis of cardiac ischemia. We are not currently in a financial position to commit capital and resources to acquire rights to and/or fund development of this technology. The Chairman of our Board of Directors, David Hillson, and our President, Marc Lanser, have equity interests in FlouroPharma and Dr. Lanser intends to serve as a director and chairman of the board of FlouroPharma. We understand that FlouroPharma has agreed in principle with its founding investors to grant us a right of first refusal if it pursues a development and/or sublicensing agreement with a biotechnology or pharmaceutical company, subject to our meeting certain financial, liquidity and other conditions.

Scientific Collaborators

A summary of the principal scientific, research and development professionals associated with us, and a composite of their professional background and affiliations is as follows:

Larry I. Benowitz, Ph.D., Director, Laboratories for Neuroscience Research in Neurosurgery, Children’s Hospital, Boston; Associate Professor of Neuroscience, Department of Surgery, Harvard Medical School;

Alan J. Fischman, M.D., Ph.D., Director, Department of Nuclear Medicine, Massachusetts General Hospital; Professor of Radiology, Harvard Medical School;

Robert S. Langer, Sc.D., Germeshausen Professor of Chemical and Biomedical Engineering, Massachusetts Institute of Technology;

Robert Licho, M.D., Director of Medical Imaging, Boston Life Sciences, Inc.; Clinical Director of Nuclear Medicine, University of Massachusetts/Memorial Medical Center; Associate Professor of Radiology, University of Massachusetts Medical School;

Peter Meltzer, Ph.D., President, Organix, Inc., Woburn, MA; and

Marsha A. Moses, Ph.D., Associate Professor, Harvard Medical School and Children’s Hospital.

Research and Development

We rely on licensing from third parties, principally Harvard and its Affiliates, as our source for new technologies and product candidates and we maintain only limited internal research and development personnel and facilities. Research and development expenses for the years ended December 31, 2003, 2002 and 2001 were $4.4 million, $6.9 million and $7.4 million, respectively.

Licensing Agreements, Patents and Intellectual Property

We have obtained exclusive licenses to patent portfolios that cover each of our products in development. Additional licenses are currently being negotiated for additional patent properties that will extend our protection.

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The licenses in place provide for milestone payments and royalties based on product sales or revenues, at rates that are consistent with those standard in the industry. We generally have a first option to license additional technologies invented or discovered during the course of related research programs funded by us. There can be no assurance that such research will lead to the discovery of new technologies or that we will be able to obtain a license for any newly discovered technologies on acceptable terms, if at all.

Our patent strategy is to pursue patent protection in the U.S. and in major developed countries for our technologies. At December 31, 2003, we owned or licensed 12 issued U.S. patents and had 22 pending patent applications in the U.S. to protect our proprietary methods and processes. We have also filed 63 corresponding foreign patent applications for certain of these U.S. patent applications. The issued U.S. patents relate to imaging the central nervous system, nerve regeneration and angiogenesis inhibition. Our goal is to obtain broad patent protection for our technologies and their related medical indications. The patents on the ALTROPANE imaging agent expire beginning in February 2013, with the last issued U.S. patent expiring in October 2013. The patents on Inosine expire in September 2017 and the Troponin composition and method patents expire in February 2016.

The patent positions of pharmaceutical and biotechnology companies, including ours, are uncertain and involve complex and evolving legal and factual questions. The patent application and issuance process generally takes at least several years and is usually very expensive without any guarantee that a patent will be issued. In many cases, our know-how and technology may not be patentable, and if it is, the coverage sought in a patent application can be denied or significantly reduced before or after the patent is issued. Since patent applications are secret until the applications are published and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to make inventions covered by each of our pending patent applications or that we were the first to file patent applications for such inventions. There can be no assurance that patents will issue from our pending or future patent applications or, if issued, that such patents will be of commercial benefit to us, afford us adequate protection from competing products, or not be challenged or declared invalid. In addition, even if we secure patent protection, our products may still infringe on the patents or rights of other parties, and they may decide not to grant a license to us. We may have to change our products or processes, engage in legal challenges to the validity of third party patents that block our ability to market a product, pay licensing fees or stop certain activities because of the patent rights of third parties, any of which could cause additional unexpected costs and delays.

In the event that a third party has also filed a patent application relating to inventions claimed in our patent applications, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties and cost for us, even if the eventual outcome is favorable to us. We cannot provide assurance that our patents and patent applications, if issued, would be held valid by a court of competent jurisdiction.

We also rely on trade secrets and proprietary know-how. We seek to protect this information primarily through confidentiality agreements with our collaborators and consultants, but there can be no guarantee that these agreements will not be breached or that we will have adequate remedies for such breach. In addition, if consultants, scientific advisors, or other third parties apply technological information which they have developed separate from us to our technologies, there may be disputes as to the ownership of such information which may not be resolved in our favor.

Competition

The biotechnology and pharmaceutical industries are highly competitive and are dominated by larger, more experienced and better capitalized companies. Thus, we compete with a number of pharmaceutical and biotechnology companies which have financial, technical and marketing resources and experience significantly greater than ours. Such greater experience and financial strength may enable them to bring their products to market sooner than us, thereby gaining a competitive advantage. In addition, research on the causes of, and possible treatments for diseases for which we are trying to develop products, including CNS disorders such as stroke, PD and ADHD and cancers diseases, are developing rapidly, and there is a potential for extensive

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technological innovation in relatively short periods of time. Given that many of our competitors have greater financial resources, there can be no assurance that we will be able to keep pace with any new technological developments. In addition, many of our competitors and potential competitors have significantly greater experience than we do in completing preclinical and clinical testing of new pharmaceutical products and obtaining FDA and other regulatory approvals of products, which could also enable them to bring products to market faster than us.

We expect that our products will compete with a variety of products currently offered and under development by a number of pharmaceutical and biotechnology companies that have greater financial and marketing resources than ours. We believe that our products, if successfully developed, will compete with these products principally on the basis of improved and extended efficacy and safety and the overall economic benefit to the health care system offered by such products. However, there can be no assurance that our products, if developed, will achieve better efficacy and safety profiles than current drugs now offered or products under development by our competitors. Competition among pharmaceutical products approved for sale also may be based on, among other things, patent position, availability and price. In addition, we expect that our competitors will have greater marketing resources and experience than we do, which may enable them to market their products more successfully than we market ours.

A significant amount of research and development in the biotechnology industry is conducted by academic institutions, governmental agencies and other public and private research organizations. We possess only limited internal research and development facilities and personnel and rely on collaborations with these entities (principally, Harvard and its Affiliates) to acquire new technologies and product candidates. These entities often seek patent protection and enter into licensing arrangements to collect royalties for use of technology or for the sale of products they have discovered or developed. We face competition in our licensing or acquisition activities from pharmaceutical companies and biotechnology companies that also seek to collaborate with or acquire technologies or product candidates from these entities. Accordingly, we may have difficulty licensing or acquiring technologies or product candidates on acceptable terms.

Regulatory Considerations

Our technologies must undergo a rigorous regulatory approval process, which includes extensive preclinical and clinical testing, to demonstrate safety and efficacy before any resulting product can be marketed. To date, neither the FDA nor any of its international equivalents has approved any of our technologies for marketing. In the biotechnology industry, it has been estimated that less than five percent of the technologies for which clinical efforts are initiated ultimately result in an approved product. The clinical trial and regulatory approval process can require many years and substantial cost, and there can be no guarantee that our efforts will result in an approved product.

Our activities are regulated by a number of government authorities in the United States and other countries, including the FDA pursuant to the Federal Food, Drug and Cosmetic Act. The FDA regulates pharmaceutical products, including their manufacture and labeling. Data obtained from testing is subject to varying interpretations which can delay, limit or prevent FDA approval. In addition, changes in existing regulatory requirements could prevent or affect the timing of our ability to achieve regulatory compliance. Federal and state laws, regulations and policies may be changed with possible retroactive effect, and how these rules actually operate can depend heavily on administrative policies and interpretations over which we have no control.

Obtaining FDA approvals is time-consuming and expensive. The steps required before our potential products may be marketed in the United States include (i) preclinical laboratory and animal tests, (ii) the submission to the FDA of an application for an IND, which must become effective before U.S. human clinical trials may commence, (iii) adequate and well-controlled human clinical trials to establish the safety and efficacy of the product, (iv) the submission to the FDA of a marketing authorization application(s) and (v) FDA approval of the application(s) prior to any commercial sale or shipment of the drug. There is no guarantee that such

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approvals will be granted for any of our potential products, or that the FDA review process will not involve delays that significantly and negatively affect our potential products. We also may encounter similar delays in foreign countries. In addition, even if we receive regulatory approvals, they may have significant limitations on the uses for which any approved products may be marketed. In addition, any marketed product and its manufacturer are subject to periodic review, and any discovery of previously unrecognized problems with a product or manufacturer could result in suspension or limitation of approvals.

Manufacturing

We currently outsource manufacturing for all of our products, with the exception of Troponin, and expect to continue to outsource manufacturing in the future. We believe our current suppliers will be able to manufacture our products efficiently in sufficient quantities and on a timely basis, while maintaining product quality. We seek to maintain quality control over manufacturing through ongoing inspections, rigorous review, control over documented operating procedures and thorough analytical testing by outside laboratories. We believe that our current strategy of primarily outsourcing manufacturing is cost-effective since we avoid the high fixed costs of plant, equipment and large manufacturing staffs.

FDA regulations require that we establish a manufacturing source for the commercial supply of ALTROPANE under the Good Manufacturing Practice, or GMP, regulations established by the FDA. In August 2000, we signed an agreement with MDS Nordion, Inc., or MDS Nordion, of Ottawa, Canada to supply ALTROPANE under the GMP standards. MDS Nordion is a well-recognized manufacturer of ¹²³I and specializes in the production of radioactive isotopes and in radioactively labeling imaging agents. MDS Nordion completed the GMP commercial manufacturing scale-up process for the ALTROPANE imaging agent in September 2001. According to the terms of the Development and Supply Contract, MDS Nordion compiled and prepared the regulatory information for the Chemistry Manufacturing and Controls, or CMC, section of our planned NDA for PD. In February 2003, MDS Nordion submitted a Drug Master File describing the manufacture of ALTROPANE to the FDA. MDS Nordion will also supply the GMP ALTROPANE imaging agent for our ADHD and other clinical trials, as well as manufacture and distribute ALTROPANE following commercial launch, when and if the NDA filing is approved by the FDA.

In May 2001, we entered into a lease agreement for certain laboratory space in Baltimore, Maryland. We acquired this space in connection with our hiring of a Senior Vice President of Protein Development to support our efforts to establish a consistent manufacturing process for Troponin. In May 2002, we increased the amount of space we are leasing in Baltimore to a total of approximately 3,300 square feet. To date, much of our effort has focused on the development of a reliable manufacturing process for Troponin. The development of an economic, scale-up methodology for the production of complex proteins while still retaining the necessary biological activity has been a very difficult problem for the biotechnology industry. This has been especially true in the case of most anti-angiogenic agents. We believe that we have developed a proprietary method for the purification of complex bacterial-produced recombinant proteins, such as Troponin, that conserves the biological activity of the native protein.We have scaled-up the manufacturing process for Troponin in order to produce material for our pre-clinical efficacy study. If this study is successful, we will then increase the scale-up process to the level required for clinical trial production.

Marketing and Sales

We continue to evaluate opportunities for corporate alliances and partners to assist us in developing, commercializing and marketing our products. Our strategy is to enter into collaborative arrangements with pharmaceutical and other companies for the development, manufacturing, marketing and sales of our products, including internationally. These collaborators are generally expected to be responsible for funding or reimbursing all or a portion of the development costs, including the costs of clinical testing necessary to obtain regulatory approvals and for commercial manufacturing, in exchange for rights to market certain products in particular geographic territories.

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Forward-Looking Statements

This Item and other Items in this report contain “forward-looking” information as that term is defined in the Private Securities Litigation Reform Act of 1995, as amended, or by the Securities and Exchange Commission in its rules, regulations and releases. This information includes statements on the prospects for our drug development activities, regulatory approvals and results of operations based on our current expectations, such as statements regarding certain milestones with respect to the development of our technologies and product candidates. Forward-looking statements are statements that are not historical facts, and can be identified by, among other things, the use of forward-looking language, such as “believe,” “expect,” “may,” “will,” “should,” “seeks,” “plans,” “schedule to,” “anticipates” or “intends” or the negative of those terms, or other variations of those terms of comparable language, or by discussions of strategy or intentions. In particular, these forward-looking statements include statements relating to present or anticipated scientific progress, development or regulatory approval of potential products, the timing of filings with regulatory agencies or commencement of clinical trials, future revenues, capital expenditures, research and development expenditures, present and future collaborations, intellectual property, personnel and manufacturing requirements and capabilities. We caution investors that such forward-looking statements are not guarantees of future performance, and that known and unknown risks, uncertainties and other factors, including those risks factors identified below, in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report, may cause actual results to differ materially from those forward-looking statements. In addition, we caution you that forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them, even if our experience or future changes make it clear that any projected results expressed or implied herein will not be realized.

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 some of these risks and others are discussed elsewhere herein.

WE ARE A DEVELOPMENT STAGE COMPANY, WE HAVE ALWAYS HAD LOSSES FROM OUR OPERATIONS AND WE EXPECT FUTURE LOSSES. WE WILL NEVER BE PROFITABLE UNLESS WE DEVELOP, AND OBTAIN REGULATORY APPROVAL AND MARKET ACCEPTANCE OF, OUR PRODUCT CANDIDATES.

Biotechnology companies that have no approved products or other sources of revenue are generally referred to as development stage companies. The majority of biotechnology companies are development stage companies. As of December 31, 2003, we have incurred cumulative net losses of approximately $94 million since inception. We have never generated revenues from product sales. We do not currently expect to generate revenues from product sales for at least the next eighteen months, and probably longer. If we do generate revenues and operating profits in the future, our ability to continue to do so in the long term could be affected by the introduction of competitors’ products and other market factors. We expect to incur significant operating losses for at least the next twenty-four months, and probably longer. The level of our operating losses may increase in the future if more of our product candidates begin human clinical trials. We will never generate revenues or achieve profitability unless we develop and obtain regulatory approval and market acceptance of our product candidates.

WE WILL REQUIRE ADDITIONAL FUNDING IN THE FUTURE IN ORDER TO CONTINUE OUR BUSINESS AND OPERATIONS AS CURRENTLY CONDUCTED. IF WE ARE UNABLE TO SECURE SUCH FUNDING ON ACCEPTABLE TERMS, WE MAY NEED TO SIGNIFICANTLY REDUCE OR EVEN CEASE ONE OR MORE OF OUR RESEARCH OR DEVELOPMENT PROGRAMS, OR WE MAY BE REQUIRED TO OBTAIN FUNDS THROUGH ARRANGEMENTS WITH OTHERS THAT MAY REQUIRE US TO SURRENDER RIGHTS TO SOME OR ALL OF OUR TECHNOLOGIES.

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We spend a significant amount for research and development, including pre-clinical studies and clinical trials of our technologies. We believe that the cash, cash equivalents, and marketable securities available at December 31, 2003 will provide sufficient working capital to meet our anticipated expenditures for at least the next twelve months. Thereafter, we will need to raise substantial additional capital if we are unable to generate sufficient revenue from product sales or through collaborative arrangements with third parties. To date, we have always experienced negative cash flows from operations and have funded our operations primarily from equity financings. If adequate funds are not readily available, we may need to significantly reduce or even cease one or more of our research or development programs. Alternatively, to secure such funds, we may be required to enter financing arrangements with others that may require us to surrender rights to some or all of our technologies. If the results of our current or future clinical trials are not favorable, it may negatively affect our ability to raise additional funds. If we are successful in obtaining additional equity financing, the terms of such financing will have the effect of diluting the holdings and the rights of our shareholders. Estimates about how much funding will be required are based on a number of assumptions, all of which are subject to change based on the results and progress of our research and development activities.

WE HAVE CONVERTIBLE NOTES, PREFERRED STOCK AND CERTAIN WARRANTS OUTSTANDING WHICH MAY NEGATIVELY AFFECT OUR ABILITY TO ATTRACT ADDITIONAL FINANCING AND MAINTAIN LIQUIDITY.

We have $4,350,500 in principal of 10% convertible senior secured convertible promissory notes, the Notes, that become due in June 2005. We have set aside approximately $5.0 million in restricted cash and marketable securities to repay the Notes and the future interest on the Notes in accordance with the terms of our Series E Cumulative Convertible Preferred Stock, or Series E Stock, agreements. However, there can be no assurance that we will not need to raise additional capital before June 2005 in order to maintain enough restricted cash and marketable securities to satisfy the Notes and future interest payments on the Notes when they become due.

The repayment of the Notes is secured by a first priority security interest and continuing lien on substantially all of our property (which may however, under certain conditions, be released). The existence of this secured interest held by the holders of the Notes could negatively impact our ability to favorably negotiate future financings because potential investors may not want to subordinate their rights to those of the holders of the Notes.

In addition, under our agreements with the holders of our Notes, the holders of our Series E Stock and the holders of certain of our warrants, our ability to obtain future financing through the issuance of debt and equity securities could be limited by covenants in those agreements restricting, among other things, our ability to pay cash dividends, incur additional indebtedness, issue securities more senior in rank than our current securities, and engage in any transaction resulting in a change of control without the consent of such securityholders. For example, subject to specified exceptions, each holder of our Series E Stock has the right to invest in any financing completed by us involving equity or equity-linked securities through June 9, 2005. Each holder has the right to participate in any such financing in an amount equal to 50% of the amount invested in the Series E financing. Subject to specified exceptions, in the event of any financing by us after June 9, 2005 involving equity or equity-linked securities other than common stock, the holders of Series E Stock will have the right to exchange any of their outstanding shares of Series E Stock for securities in the new financing at 100% of its liquidation preference.

OUR SUCCESS DEPENDS ON OUR ABILITY TO SUCCESSFULLY DEVELOP OUR PRODUCT CANDIDATES INTO COMMERCIAL PRODUCTS.

To date, we have not marketed, distributed or sold any products and, with the exception of the ALTROPANE imaging agent, all of our technologies and early-stage product candidates are in pre-clinical development. The success of our business depends primarily upon our ability to successfully develop and commercialize our product candidates. Successful research and product development in the biotechnology

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industry is highly uncertain, and very few research and development projects produce a commercial product. In the biotechnology industry, it has been estimated that less than five percent of the technologies for which research and development efforts are initiated ultimately result in an approved product.

IF OUR PRECLINICAL TESTING AND CLINICAL TRIALS ARE NOT SUCCESSFUL, WE WILL NOT OBTAIN REGULATORY APPROVAL FOR COMMERCIAL SALE OF OUR PRODUCT CANDIDATES.

We will be required to demonstrate, through pre-clinical testing and clinical trials, that our drug candidates are safe and effective before we can obtain regulatory approval for the commercial sale of our drug candidates. Pre-clinical testing and clinical trials are lengthy and expensive and the historical rate of failure for drug candidates is high. Product candidates that appear promising in the early phases of development, such as in pre-clinical study or in early human clinical trials, may fail to demonstrate safety and efficacy in pivotal clinical trials.

Except for the ALTROPANE imaging agent, we have not yet submitted INDs for our other product candidates which will be required before we can begin clinical trials in the United States. We may not submit INDs for these product candidates if we are unable to accumulate the necessary pre-clinical data for the filing of an IND. The FDA may request additional pre-clinical data before allowing us to commence clinical trials. The FDA or other applicable regulatory authorities may suspend clinical trials of a drug candidate at any time if we or they believe the subjects or patients participating in such trials are being exposed to unacceptable health risks or for other reasons. Adverse side effects of a drug candidate on subjects or patients in a clinical trial could result in the FDA or foreign regulatory authorities refusing to approve a particular drug candidate for any or all indications of use.

We plan to conduct a new Phase III clinical trial of ALTROPANE for use in distinguishing Parkinsonian from non-Parkinsonian Syndromes in patients with tremors and are seeking a written agreement with the FDA relating to the design and analysis of the study protocol for this new Phase III trial. The primary endpoint of the new Phase III trial will be confirmation of the hypothesis that the diagnostic accuracy of ALTROPANE is significantly superior to the diagnostic accuracy of the internist or general practitioner, when compared against the “gold standard” of diagnosis by a movement disorder specialist. Because we have elected to pursue a single, large Phase III trial for this indication, rather than two replicate, smaller trials, the FDA has required that we power the trial to achieve a p-value of 0.02 or less and we expect that the FDA will require that level of statistical significance for the primary endpoint in order to achieve approvability. Even if we reach an agreement with the FDA regarding the design of this study, we will need to complete the study and obtain successful results prior to the filing of an NDA for ALTROPANE. Even if successfully completed, there is no assurance that this new Phase III clinical trial will be sufficient to achieve the approvability of ALTROPANE.

Clinical trials require sufficient patient enrollment which is a function of many factors, including the size of the potential patient population, the nature of the protocol, the availability of existing treatments for the indicated disease and the eligibility criteria for enrolling in the clinical trial. Delays or difficulties in completing patient enrollment can result in increased costs and longer development times.

We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical trials that will cause us or regulatory authorities to delay or suspend those trials, or delay the analysis of data from our completed or ongoing clinical trials. Any of the following could delay the initiation or the completion of our ongoing and planned clinical trials:

• Ongoing discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

• Delays in enrolling patients and volunteers into clinical trials;

• Lower than anticipated retention rate of patients and volunteers in clinical trials;

• Negative results of clinical trials;

• Insufficient supply or deficient quality of drug candidate materials or other materials necessary for the conduct of our clinical trials; or

• Serious and unexpected drug-related side-effects experienced by participants in our clinical trials.

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OUR PRODUCT CANDIDATES ARE SUBJECT TO RIGOROUS REGULATORY REVIEW AND, EVEN IF APPROVED, REMAIN SUBJECT TO EXTENSIVE REGULATION.

Our technologies 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. Our research and development activities are regulated by a number of government authorities in the United States and other countries, including the FDA pursuant to the Federal Food, Drug, and Cosmetic Act. The clinical trial and regulatory approval process usually requires many years and substantial cost. To date, neither the FDA nor any of its international equivalents has approved any of our product candidates for marketing.

The FDA regulates pharmaceutical products in the United States, including their testing, manufacturing and marketing. Data obtained from testing is subject to varying interpretations which can delay, limit or prevent FDA approval. 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. Examples of these standards include Good Laboratory Practices, or GLP, and Good Manufacturing Practices, or GMP. Our compliance with these standards are subject to initial certification by independent inspectors and continuing audits thereafter. Obtaining FDA approval to sell our product candidates is time-consuming and expensive. The FDA usually takes at least 12 to 18 months to review a New Drug Application, or NDA, which must be submitted before the FDA will consider granting approval to sell a product. If the FDA requests additional information, it may take even longer for them to make a decision especially if the additional information that they request requires us to complete additional studies. We may encounter similar delays in foreign countries. After reviewing any NDA we submit, the FDA or its foreign equivalents may decide not to approve our products.

Other risks associated with the regulatory approval process include:

• Regulatory approvals may impose significant limitations on the uses for which any approved products may be marketed;

• Any marketed product and its manufacturer are subject to periodic reviews and audits, and any discovery of previously unrecognized problems with a product or manufacturer could result in suspension or limitation of approvals; and

• Changes in existing regulatory requirements could prevent or affect the timing of our ability to achieve regulatory compliance. Federal and state laws, regulations and policies may be changed with possible retroactive effect, and how these rules actually operate can depend heavily on administrative policies and interpretation over which we have no control, and we may possess inadequate experience to assess their full impact upon our business.

IF WE ARE UNABLE TO SECURE ADEQUATE PATENT PROTECTION FOR OUR TECHNOLOGIES, THEN WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AS A BIOTECHNOLOGY COMPANY.

At the present time, we do not have patent protection for all uses of our technologies. There is significant competition in our primary scientific areas of research and development including CNS disorders and cancer. Such competitors will seek patent protection for their technologies, and such patent applications or rights might conflict with the patent protection that we are seeking for our technologies. If we do not obtain patent protection for our technologies, or if others obtain patent rights that block our ability to develop and market our technologies, our business prospects may be significantly and negatively affected. Further, even if patents can be obtained, these patents may not provide us with any competitive advantage if our competitors have stronger patent positions or if their product candidates work better in clinical trials than our product candidates.

Our patent strategy is to obtain broad patent protection, in the U.S. and in major developed countries, for our technologies and their related medical indications. The patent application and issuance process generally takes at least several years and is usually very expensive without any guarantee that a patent will be issued. In many

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cases, our know-how and technology may not be patentable. Risks associated with protecting our patent and proprietary rights include the following:

• Our ability to protect our technologies could be delayed or negatively affected if the United States Patent and Trademark Office, the USPTO, requires additional experimental evidence that our technologies work;

• Our competitors may develop similar technologies or products, or duplicate any technology developed by us;

• Our competitors may develop products which are similar to ours but which do not infringe on our patents or products;

• Our competitors may successfully challenge one or more of our patents in an interfence or litigation proceeding;

• Our patents may infringe on the patents or rights of other parties who may decide not to grant a license to us. We may have to change our products or processes, pay licensing fees or stop certain activities because of the patent rights of third parties which could cause additional unexpected costs and delays;

• Patent law in the fields of healthcare and biotechnology is still evolving and future changes in such laws might conflict with our existing and future patent rights, or the rights of others;

• Our collaborators, employees and consultants may breach the confidentiality agreements that we enter into to protect our trade secrets and propriety know-how. We may not have adequate remedies for such breach; and

• There may be disputes as to the ownership of technological information developed by consultants, scientific advisors or other third parties which may not be resolved in our favor.

WE ARE DEPENDENT ON EXPERT ADVISORS AND OUR COLLABORATIONS WITH RESEARCH AND DEVELOPMENT SERVICE PROVIDERS.

Most biotechnology and pharmaceutical companies have established internal research and development programs, including their own facilities and employees which are under their direct control. By contrast, we have limited internal research capability and have always outsourced substantially all of our research and development, pre-clinical and clinical activities. As a result, we are dependent upon our network of expert advisors and our collaborations with other research and development service providers for the development of our technologies and product candidates. These expert advisors are not our employees but provide us with important information and knowledge that may enhance our product development strategies and plans. Our collaborations with other research and development service providers are important for the testing and evaluation of our technologies, in both the pre-clinical and clinical stages.

Many of our expert advisors are employed by, or have their own collaborative relationship with Harvard and its Affiliates. A summary of the key scientific, research and development professionals with whom we work, and a composite of their professional background and affiliations is as follows:

• Larry I. Benowitz, Ph.D., Director, Laboratories for Neuroscience Research in Neurosurgery, Children’s Hospital, Boston; Associate Professor of Neuroscience, Department of Surgery, Harvard Medical School.

• Alan J. Fischman, M.D., Ph.D., Director, Department of Nuclear Medicine, Massachusetts General Hospital; Professor of Radiology, Harvard Medical School.

• Robert S. Langer, Sc.D., Germeshausen Professor of Chemical and Biomedical Engineering, Massachusetts Institute of Technology.

• Marsha A. Moses, Ph.D., Associate Professor, Harvard Medical School and Children’s Hospital.

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Dr. Benowitz, Dr. Fischman, Dr. Langer and Dr. Moses provide us scientific consultative services under agreements renewed annually by mutual agreement of the parties, which generally provide for total payments in the aggregate of less than $250,000 per year. Dr. Benowitz provides scientific consultative services primarily related to the research and development of Inosine and AF-1. Dr. Langer and Dr. Moses provide scientific consultative services primarily related to the research and development of Troponin. Dr. Fischman provides scientific consultative services primarily related to the research and development of the ALTROPANE imaging agent.

We do not have a formal agreement with Dr. Meltzer individually but do enter into research and development contracts from time to time with Organix, Inc., of which Dr. Meltzer is president.

Many of our institutional collaborations are also with Harvard and its Affiliates. Those institutions with which we have collaborative relationships include:

• Children’s Hospital in Boston, Massachusetts where certain of our collaborating scientists perform their research efforts;

• Organix in Woburn, Massachusetts which manufactures our compounds for the treatment of PD and provides non-radioactive ALTROPANE for FDA mandated studies;

• Harvard Medical School in Boston, Massachusetts where certain of our collaborating scientists perform their research efforts;

• MDS Nordion in Vancouver, British Colombia which manufactures the ALTROPANE imaging agent;

• Chemic Laboratories in Canton, Massachusetts which provides ALTROPANE raw material and performs certain analytic services for our pre-clinical programs;

• Provident Preclinical, Inc. in Doylestown, Pennsylvania which conducts pre-clinical toxicology studies for us;

• Bio-Concept in Derry, New Hampshire which performs certain analytic and packaging services for us; and

• Charles River Laboratories in Worcester, Massachusetts which conducts pre-clinical toxicology and efficacy studies for us.

We generally have a number of collaborations with research and development service providers ongoing at any point in time. These agreements generally cover a specific project or study, are usually for a duration between one month to one year, and expire upon completion of the project. Under these agreements, we are usually required to make an initial payment upon execution of the agreement with the remaining payments based upon the completion of certain specified milestones such as completion of a study or delivery of a report.

We cannot control the amount and timing of resources our advisors and collaborators devote to our programs or technologies. Our advisors and collaborators may have employment commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. If any of our advisors or collaborators were to breach or terminate their agreement with us or otherwise fail to conduct their activities successfully and in a timely manner, the pre-clinical or clinical development or commercialization of our technologies and product candidates or our research programs could be delayed or terminated. Any such delay or termination could have a material adverse effect on our business, financial condition or results of operations.

Disputes may arise in the future with respect to the ownership of rights to any technology developed with our advisors or collaborators. These and other possible disagreements could lead to delays in the collaborative research, development or commercialization of our technologies, or could require or result in litigation to resolve. Any such event could have a material adverse effect on our business, financial condition or results of operations.

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Our advisors and collaborators sign agreements that provide for confidentiality of our proprietary information. Nonetheless, they may not maintain the confidentiality of our technology and other confidential information in connection with every advisory or collaboration arrangement, and any unauthorized dissemination of our confidential information could have a material adverse effect on our business, financial condition or results of operations.

IF WE ARE UNABLE TO MAINTAIN OUR KEY WORKING RELATIONSHIPS WITH HARVARD AND ITS AFFILIATES, WE MAY NOT BE SUCCESSFUL SINCE SUBSTANTIALLY ALL OF OUR CURRENT TECHNOLOGIES WERE LICENSED FROM, AND MOST OF OUR RESEARCH AND DEVELOPMENT ACTIVITIES WERE PERFORMED BY, HARVARD AND ITS AFFILIATES.

Historically, we have been heavily dependent on our relationship with Harvard and its Affiliates because substantially all of our technologies were licensed from, and most of our research and development activities were performed by, Harvard and its Affiliates. Now that a portion of our early-stage research at Harvard and its Affiliates has yielded an identified product in each area of research, we have begun and expect to continue to conduct much of our later stage development work and all of our formal pre-clinical and clinical programs outside of Harvard and its Affiliates. Nevertheless, the originating scientists still play important advisory roles. Each of our collaborative research agreements is managed by a sponsoring scientist and/or researcher who has his or her own independent affiliation with Harvard and its Affiliates.

Under the terms of our license agreements with Harvard and its Affiliates, we acquire the exclusive, worldwide license to make, use, and sell the technology covered by each respective license agreement. Among other things, the technologies licensed under these agreements include:

• ALTROPANE imaging agent compositions and methods of use;

• Inosine compositions and methods of use; and

• Troponin I compositions and methods of medical use.

Generally, each license agreement is effective until the patent relating to the technology expires. The patents on the ALTROPANE imaging agent expire beginning in February 2013, with the last issued U.S. patent expiring in October 2013. The patents on Inosine expire in September 2017 and the Troponin composition and method patents expire in February 2016.

We are required to make certain licensing and related payments to Harvard and its Affiliates which generally include:

• An initial licensing fee payment upon the execution of the agreement;

• Reimbursement payments for all patent related costs incurred by Harvard and its Affiliates;

• Milestone payments as licensed technology progresses through each stage of development (filing of IND, completion of one or more clinical stages and submission and approval of an NDA); and

• Royalty payments on the sales of any products based on the licensed technology.

In aggregate, we have paid Harvard and its Affiliates approximately $500,000 in initial licensing fees and reimbursed 100% of patent costs. In addition, we have paid an aggregate of approximately $200,000 in milestone payments. Under the terms of our licensing agreements with Harvard and its Affiliates, we may become obligated to pay up to an aggregate of $5.8 million in milestone payments in the future. These future milestone payments are generally payable only upon the completion of later stage clinical trials and the filing of an NDA or similar application seeking product approval. Most of these contingent milestone payments are associated with technologies that are presently in early stage development.

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We have entered into a small number of sponsored research agreements with Harvard and its Affiliates. Under these agreements, we provide funding so that the sponsoring scientists can continue their research efforts. These payments are generally made in equal quarterly installments over the term of the agreements which are usually for one year.

Universities and other not-for-profit research institutions are becoming increasingly aware of the commercial value of their findings and are becoming more active in seeking patent protection and licensing arrangements to collect royalties for the use of technology that they have developed. While this increased awareness will not impact our rights to previously licensed technologies, it may make it more costly and difficult for us to obtain the licensing rights to new scientific discoveries at Harvard and its Affiliates.

IF WE ARE UNABLE TO RETAIN OUR KEY PERSONNEL AND/OR RECRUIT ADDITIONAL KEY PERSONNEL IN THE FUTURE, THEN WE MAY NOT BE ABLE TO OPERATE EFFECTIVELY.

Our success depends significantly upon our ability to attract and retain highly qualified scientific and management personnel who are able to formulate, implement and maintain the operations of a biotechnology company such as ours. The loss of the service of any of the key members of our senior management team may significantly delay or prevent the achievement of product development and other business objectives. As an example, Dr. Marc E. Lanser, our President, was formerly on the staff of, and maintains close affiliations with Harvard and its Affiliates. Substantially all of our technologies were licensed from Harvard and its Affiliates. Our past ability to secure these licenses and to enter into sponsored research and development agreements with Harvard and its Affiliates was enhanced by Dr. Lanser’s affiliations and familiarity with Harvard and its Affiliates. Other key members of our senior management team include David Hillson, our Chairman, Joseph Hernon, our Chief Financial Officer, Jeanne Marie Varga, our Senior Vice President, Regulatory Affairs, Dr. Richard Thorn, our Senior Vice President of Manufacturing, and Dr. Irene Gonzalez, our Senior Vice President of Protein Development. None of these key executives, other than Mr. Hillson, have agreed not to compete with us following any termination of their employment. We do not presently carry key person life insurance on any of our scientific or management personnel. We do not have employment agreements with any of these key executives, other than Mr. Hillson.

We currently outsource most of our research and development, pre-clinical and clinical activities. If we decide to increase our internal research and development capabilities for any of our technologies, we may need to hire additional key management and scientific personnel to assist the limited number of employees that we currently employ. There is significant competition for such personnel from other companies, research and academic institutions, government entities and other organizations. If we fail to attract such personnel, it could have a significant negative effect on our ability to develop our technologies.

IF WE ARE UNABLE TO ESTABLISH, MAINTAIN AND RELY ON NEW COLLABORATIVE RELATIONSHIPS, THEN WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE OUR TECHNOLOGIES.

To date, our operations have primarily focused on the pre-clinical development of most of our technologies, as well as conducting clinical trials for certain of our technologies. During the next eighteen months, we currently expect that the continued development of our technologies will result in the initiation of additional clinical trials, and the market introduction of any product for which regulatory approval is obtained. We expect that these developments will require us to establish, maintain and rely on new collaborative relationships in order to successfully develop and commercialize our technologies. There is no certainty that:

• We will be able to enter into such collaborations on economically feasible and otherwise acceptable terms and conditions;

• That such collaborations will not require us to undertake substantial additional obligations or require us to devote additional resources beyond those we have identified at present;

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• That any of our collaborators will not breach or terminate their agreements with us or otherwise fail to conduct their activities on time, thereby delaying the development or commercialization of the technology for which the parties are collaborating; and

• The parties will not dispute the ownership rights to any technologies developed under such collaborations.

WE ARE ENGAGED IN HIGHLY COMPETITIVE INDUSTRIES DOMINATED BY LARGER, MORE EXPERIENCED AND BETTER CAPITALIZED COMPANIES.

The biotechnology and pharmaceutical industries are highly competitive and are dominated by larger, more experienced and better capitalized companies. Such greater experience and financial strength may enable them to bring their products to market sooner than us, thereby gaining the competitive advantage of being the first to market. Research on the causes of, and possible treatments for diseases for which we are trying to develop therapeutic or diagnostic products, are developing rapidly and there is a potential for extensive technological innovation in relatively short periods of time. Factors affecting our ability to successfully manage the technological changes occurring in the biotechnology and pharmaceutical industries as well as our ability to successfully compete include:

• Many of our potential competitors have significantly greater experience than we do in completing pre-clinical and clinical testing of new pharmaceutical products and obtaining FDA and other regulatory approvals of products;

• Many of our potential competitors are in a stronger financial position than us, and are thus better able to finance the significant cost of developing new products; and

• Companies with established positions and prior experience in the pharmaceutical industry may be better able to develop and market products for the treatment of those diseases for which we are trying to develop products.

Many of the largest biotechnology and pharmaceutical companies in the world are trying to develop products in the same product markets as us. There are presently more than sixty companies developing cancer products using an anti-angiogenic or similar approach, and there are hundreds of other companies utilizing different approaches in developing cancer products. To our knowledge, there is only one company, Nycomed Amersham, that has successfully developed a diagnostic for Parkinson’s Disease which is the medical purpose for which our most advanced product candidate, the ALTROPANE imaging agent, is being developed. To date, Nycomed has obtained marketing approval only in Europe, and to the best of our knowledge, is not presently seeking approval in the United States. However, Nycomed has significantly greater financial resources than us, and their decision to seek approval in the United States could significantly adversely affect our competitive position. The established market presence, and greater financial strength, of Nycomed in the European market will make it difficult for us to successfully market the ALTROPANE imaging agent in Europe.

IF WE ARE UNABLE TO OBTAIN ADEQUATE INSURANCE COVERAGE AND REIMBURSEMENT LEVELS FOR ANY OF OUR PRODUCTS WHICH ARE APPROVED AND ENTER THE MARKET, THEN THEY MAY NOT BE ACCEPTED BY PHYSICIANS AND PATIENTS.

Substantially all biotechnology products are distributed to patients by physicians and hospitals, and in most cases, such patients rely on insurance coverage and reimbursement to pay for some or all of the cost of the product. In recent years, the continuing efforts of government and third party payers to contain or reduce health care costs have limited, and in certain cases prevented, physicians and patients from receiving insurance coverage and reimbursement for medical products, especially newer technologies. Our ability to generate adequate revenues and operating profits could be adversely affected if such limitations or restrictions are placed on the sale of our products. Specific risks associated with medical insurance coverage and reimbursement include:

• Significant uncertainty exists as to the reimbursement status of newly approved health care products, and third party payers are increasingly challenging the prices charged for medical products and services;

• Adequate insurance coverage may not be available to allow us to charge prices for products which are adequate for us to realize an appropriate return on our development costs. If adequate coverage and

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reimbursement are not provided for use of our products, the market acceptance of these products will be negatively affected;

• Health maintenance organizations and other managed care companies may seek to negotiate substantial volume discounts for the sale of our products to their members thereby reducing our profit margins;

• In December 2003, President Bush signed into law new Medicare prescription drug coverage legislation. Because we have not received marketing approval or established a price for any product, it is difficult to predict how this new legislation will affect us, but the legislation generally is expected to result in reduced reimbursement for certain types of drugs; and

• In recent years, other bills proposing comprehensive health care reform have been introduced in Congress that would potentially limit pharmaceutical prices and establish mandatory or voluntary refunds. It is uncertain if any legislative proposals will be adopted and how federal, state or private payers for health care goods and services will respond to any health care reforms.

WE HAVE LIMITED MANUFACTURING CAPACITY AND MARKETING EXPERIENCE AND EXPECT TO BE HEAVILY DEPENDENT UPON THIRD PARTIES TO MANUFACTURE AND MARKET APPROVED PRODUCTS.

We currently have limited manufacturing facilities for either clinical trial or commercial quantities of any of our technologies and currently have no plans to obtain additional facilities. To date, we have obtained the limited amount of quantities required for pre-clinical and clinical trials from contract manufacturing companies. We intend to continue using contract manufacturing arrangements with experienced firms for the supply of material for both clinical trials and any eventual commercial sale, with the exception of Troponin, which we presently plan to produce in our facility in Baltimore, Maryland.

We will depend upon third parties to produce and deliver products in accordance with all FDA and other governmental regulations. We may not be able to contract with manufacturers who can fulfill our requirements for quality, quantity and timeliness, or be able to find substitute manufacturers, if necessary. The failure by any third party to perform their obligations in a timely fashion and in accordance with the applicable regulations may delay clinical trials, the commercialization of products, and the ability to supply product for sale.

With respect to our most advanced product candidate, the ALTROPANE imaging agent, we have entered into an agreement with, and are highly dependent upon, MDS Nordion. Under the terms of the agreement, which currently expires on December 31, 2004, we paid MDS Nordion a one-time fee of $300,000 in connection with its commitment to designate certain of its facilities exclusively for the production of the ALTROPANE imaging agent. We also paid MDS Nordion approximately $900,000 to establish a GMP certified manufacturing process for the production of the ALTROPANE imaging agent. Finally, we have agreed to minimum monthly purchases of the ALTROPANE imaging agent of at least $20,000 through December 31, 2004. The agreement provides for MDS Nordion to manufacture the ALTROPANE imaging agent for our future clinical trials and, if the drug is approved, for commercial supply. The agreement also provides that MDS Nordion will compile and prepare the information regarding manufacturing that will be a required component of any NDA we file for the ALTROPANE imaging agent in the future. We do not presently have arrangements with any other suppliers in the event that Nordion is unable to manufacture ALTROPANE for us. We could encounter a significant delay before another supplier could manufacture ALTROPANE for us due to the time required to establish a GMP manufacturing process for the ALTROPANE imaging agent.

We do not have any experience in marketing pharmaceutical products. In order to earn a profit on any future product, we will be required to either enter into arrangements with third parties with respect to marketing the products or internally develop such marketing capability. We may encounter difficulty in negotiating sales and marketing arrangements with third parties on favorable terms for us. Most of the companies who can provide such services are financially stronger and more experienced in selling pharmaceutical products than we are. As a

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result, they may be in a position to negotiate an arrangement that is more favorable to them. We could experience significant delays in marketing any of our products if we are required to internally develop a sales and marketing organization. We have no experience in performing such activities and could incur significant costs in developing such a capability.

WE HAVE CONVERTIBLE PREFERRED STOCK, CONVERTIBLE NOTES, OPTIONS AND WARRANTS OUTSTANDING WHICH, WHEN EXERCISED OR CONVERTED, MAY CAUSE DILUTION TO OUR SHAREHOLDERS.

As of December 31, 2003, we had the following convertible preferred stock, convertible notes, options and warrants outstanding which, when exercised or converted, may cause dilution to our shareholders.

Type of Common Stock Equivalent	Conversion or Exercise Price		Shares of Common Stock Issuable upon Exercise or Conversion (in millions)
Convertible preferred stock	$	1.25	6.4
Convertible notes	$	1.00	4.4
Stock options	$	0.27 – $  9.38	4.3
Unit options	$	6.27	0.4
Warrants	$	1.00 – $15.00	9.7
			25.2

As of December 31, 2003, approximately 0.7, 1.4, and 2.2 million of the stock options are exercisable at prices below $1.50, ranging from $1.50 to $3.00, and greater than $3.00, respectively. As of December 31, 2003, approximately 0.8, 6.5, and 2.4 million of the warrants are exercisable at prices below $1.50, ranging from $1.50 to $3.00, and greater than $3.00, respectively. The convertible preferred stock and convertible notes include provisions whereby the conversion price of the preferred stock and notes is reduced if we issue common stock at a price less than the then applicable conversion price of the preferred stock and notes ($1.25 and $1.00, respectively, at December 31, 2003). Such provisions could motivate the holders of these instruments to sell our common stock short in the public market, which could negatively affect our stock price. The exercise or conversion of our common stock equivalents will dilute the percentage ownership interest of our current shareholders. In addition, the terms upon which we would be able to obtain additional money through the sale of our stock may be negatively affected by the existence of these common stock equivalents because new investors may be concerned about the impact upon the future market price of the stock if these common stock equivalents were consistently exercised and the underlying stock sold.

OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE AND CAN BE AFFECTED BY FACTORS UNRELATED TO OUR BUSINESS AND OPERATING PERFORMANCE.

The market prices for securities of biotechnology and emerging pharmaceutical companies in general have been highly volatile and may continue to be highly volatile in the future. These price and volume fluctuations have often been unrelated to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of our common stock.

IF WE ARE UNABLE TO MAINTAIN COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS, OUR SHARES COULD BE DELISTED.

Our listing on the NASDAQ Markets is conditioned upon our compliance with the NASD’s continued listing requirements. The minimum standards for listing on the NASDAQ National Market is stockholders’ equity of $10 million or market capitalization of $50 million. The minimum standards for listing on the NASDAQ SmallCap Market is stockholders’ equity of $2.5 million or market capitalization of $35 million. In January 2003, we received a NASDAQ Staff Determination Letter indicating that we failed to comply with the

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new stockholders’ equity requirements for continued listing on the NASDAQ Markets and that our securities were, therefore, subject to delisting. We requested a hearing before a NASDAQ Listing Qualifications Panel to appeal the Staff Determination and present our plan to secure compliance with the $2.5 million stockholders’ equity requirement for transfer to the NASDAQ SmallCap Market. Subsequent to the hearing, we completed a private placement of common stock which generated gross proceeds of $10 million. In March 2003, we received a notification from NASDAQ approving its transfer to the NASDAQ SmallCap Market. However, there can be no assurances that we will be able to maintain compliance with NASDAQ’s present listing standards, or that NASDAQ will not implement additional listing standards with which we are unable to comply. Failure to maintain compliance with NASDAQ listing requirements could result in the delisting of our shares from trading on the NASDAQ system, which could have a material adverse effect on the trading price, volume and marketability of our common shares.

THE FOLLOWING FACTORS, IN ADDITION TO OTHER RISK FACTORS DESCRIBED IN THIS SECTION, MAY HAVE A SIGNIFICANT IMPACT ON THE MARKET PRICE OF OUR COMMON STOCK:

• Announcements of technological innovations or new commercial products by our competitors or us;

• Announcements in the scientific and research community;

• Developments concerning proprietary rights, including patents;

• Delay or failure in initiating, conducting, completing or analyzing clinical trials or problems relating to the design, conduct or results of these trials;

• Developments concerning our collaborations;

• Publicity regarding actual or potential medical results relating to products under development by our competitors or us;

• Conditions and publicity regarding the life sciences industry generally;

• Regulatory developments in the U.S. and foreign countries;

• Period-to-period fluctuations in our financial results;

• Differences in actual financial results versus financial estimates by securities analysts and changes in those estimates; and

• Litigation.

WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS WHICH COULD DISCOURAGE OR PREVENT A TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR SHAREHOLDERS.

Provisions of our shareholder rights plan, our amended and restated certificate of incorporation and our bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our shareholders. These provisions may also make it more difficult for our shareholders to remove members of our board of directors or management. If a change of control is delayed or prevented the market price of our common stock could suffer.

THE ANNOUNCEMENT OF PLANS BY CERTAIN OF OUR SHAREHOLDERS TO CONDUCT A PROXY CONTEST FOR THE ELECTION OF DIRECTORS AT OUR NEXT ANNUAL MEETING AND RELATED LITIGATION COULD DISTRACT OUR MANAGEMENT, DIVERT OUR RESOURCES, DISCOURAGE POTENTIAL BUSINESS PARTNERS AND SUPPLIERS AND NEGATIVELY IMPACT OUR STOCK PRICE.

Certain of the holders of our securities, namely, Robert L. Gipson, Thomas O. Boucher, Jr., Ingalls & Snyder L.L.C. and Ingalls & Snyder Value Partners L.P., have filed Schedule 13Ds with the Securities and

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Exchange Commission stating their intention to engage in a proxy solicitation contest for the election of directors at our 2004 annual meeting. These securityholders have also brought litigation against us and our directors relating to our shareholder rights plan and our December 2003 private placement. These securityholders also recently submitted a books and records request to us under Delaware law. The Schedule 13Ds, the related litigation and the books and records request could distract our management from our operations, divert our resources from operations, discourage potential business partners and suppliers from approaching us and negatively impact our stock price.

Employees

As of December 31, 2003, we employed 10 individuals full-time, three of whom hold Ph.D. and/or M.D. degrees and another four of whom hold other advanced degrees. In addition, we engaged the services of seven individuals as scientific collaborators on a contractual basis. None of our employees are covered by a collective bargaining agreement. We consider our employee relations to be good.

Available Information

Our internet website is http://www.bostonlifesciences.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practical after such reports are filed with, or furnished to, the Securities and Exchange Commission. We have made these reports available through our website during the period covered by this report.

ITEM 2.    Properties.

Our corporate office is located in Boston, Massachusetts. The lease on this 6,600 square foot facility expires in 2012. The lease contains provisions whereby we can sublet all or part of the space and fully retain any sublease income generated. We also lease 3,300 square feet of laboratory space located in Baltimore, Maryland that expires in May 2006. We believe that our existing facilities are adequate for their present and anticipated purposes, except that additional facilities will be needed if we elect to expand our laboratory and/or manufacturing activities.

ITEM 3.    Legal Proceedings.

On November 13, 2003, Robert L. Gipson, Thomas O. Boucher, Jr., Ingalls & Snyder Value Partners, L.P. and Ingalls & Snyder, L.L.C., the plaintiffs, filed a complaint against us and the members of our Board of Directors in the Delaware Court of Chancery alleging an improper entrenchment motive regarding the Board of Director’s interpretation of our 2001 Rights Agreement, as amended to date. On September 29, 2003 and October 15, 2003, the plaintiffs filed amendments to their Schedule 13D relating to our common stock in which they stated their intention to seek the removal of certain members of our Board of Directors and management, to nominate an alternate slate of directors for election at our next annual meeting and to seek redemption of our Rights Agreement. In October 2003, the Board of Directors considered the possibility that Mr. Boucher’s holdings of our common stock, together with the holdings of certain other shareholders being attributed to Mr. Boucher by virtue of his acting in concert with such shareholders, may have exceeded a beneficial ownership threshold that could trigger a distribution of preferred stock purchase rights under our Rights Agreement.

By letter from counsel dated October 14, 2003, the Board of Directors communicated to the plaintiffs that Mr. Boucher may have exceeded the threshold for triggering the distribution of the rights under our Rights Agreement and that the Board of Directors had taken action to temporarily delay the distribution of the rights. The complaint filed by the plaintiffs was seeking, among other things, declaratory relief that Mr. Boucher had not exceeded the beneficial ownership threshold for triggering the distribution of rights under our Rights Agreement

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and that the directors had breached their fiduciary duties in connection with applying our Rights Agreement, and injunctive relief to compel the directors to call and hold a special meeting of stockholders. In December 2003, the plaintiffs requested expedited relief in the form of a preliminary injunction regarding Mr. Boucher’s status under our Rights Agreement. On December 23, 2003, we amended our Rights Agreement in order to clarify Mr. Boucher’s status under our Rights Agreement and the plaintiffs withdrew their request for expedited relief. There have been no subsequent developments regarding this litigation.

On December 31, 2003, the plaintiffs filed another complaint in the Delaware Court of Chancery against us and the members of our Board of Directors alleging an improper entrenchment motive and breach of fiduciary duty by the directors in connection with our issuance of preferred stock and warrants in our December 2003 private placement. The complaint filed by the plaintiffs was seeking unspecified equitable and monetary relief. We asked the court to dismiss this lawsuit because it lacked any factual basis and ignored fundamental principles of law. Instead of responding to our motion to dismiss, on March 9, 2004, the plaintiffs moved to dismiss their own lawsuit without prejudice prior to the deadline to explain to the court why their claim was legitimate. The Delaware Court of Chancery immediately granted the motion and dismissed the case. On March 22, 2004, the plaintiffs made a books and records request under Delaware law seeking additional information regarding our December 2003 private placement and seeking information on a number of unrelated matters.

ITEM 4.    Submission of Matters to a Vote of SecurityHolders.

We did not submit any matter to the vote of our securityholders during the fourth quarter of 2003.

Executive Officers of the Registrant

The following is a list of our executive officers and their principal positions. Each individual officer serves at the pleasure of the Board of Directors.

Name	Age	Position
Marc E. Lanser, M.D.	55	Director, President and Chief Operating Officer
Joseph P. Hernon, CPA	44	Executive Vice President, Chief Financial Officer and Secretary

Marc E. Lanser, M.D. Dr. Lanser has been President and Chief Operating Officer and a member of the Board since October 2003. Prior to October 2003, Dr. Lanser had been Executive Vice President and Chief Scientific Officer and a member of the Board since June 1995. Prior to June 1995, Dr. Lanser held the same position with the Company from November 1994. From October 1992 until November 1994, Dr. Lanser was President and Chief Executive Officer of the Company. Prior to assuming the position of President and Chief Executive Officer of the Company, Dr. Lanser was an Assistant Professor of Surgery at Harvard Medical School and member of the full-time academic faculty, where he directed an NIH funded research project in immunology and received an NIH Research Career Development Award. Dr. Lanser has published more than 30 scientific articles in his field in peer-reviewed journals. Dr. Lanser received his M.D. from Albany Medical College.

Joseph P. Hernon, CPA. Mr. Hernon has been Chief Financial Officer since August 1996, and Secretary since 1998. Prior to joining the Company, Mr. Hernon was a Business Assurance Manager at Coopers & Lybrand where he was employed from January 1987 to August 1996. Mr. Hernon holds a Masters of Science in Accountancy from Bentley College and a Bachelor of Science in Business Administration from the University of Lowell.

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PART II

Item 5.    Market for Registrant’s Common Equity and Related Stockholder Matters.

Since March 27, 2003, our Common Stock has traded on the NASDAQ SmallCap Market under the symbol BLSI. Prior to March 27, 2003, our Common Stock was traded on the NASDAQ National Market under the same symbol. The following table sets forth the high and low sale prices for our Common Stock by quarter for 2003 and 2002, as reported by NASDAQ. These prices reflect inter-dealer quotation, without retail mark-up, markdowns or other fees or commissions, and may not necessarily represent actual transactions.

	High		Low
Year Ended December 31, 2003
Quarter ended March 31, 2003	$	1.52	$	0.65
Quarter ended June 30, 2003	$	3.00	$	0.91
Quarter ended September 30, 2003	$	2.10	$	1.38
Quarter ended December 31, 2003	$	2.00	$	1.14
Year Ended December 31, 2002
Quarter ended March 31, 2002	$	3.71	$	1.98
Quarter ended June 30, 2002	$	2.44	$	1.21
Quarter ended September 30, 2002	$	1.61	$	0.96
Quarter ended December 31, 2002	$	1.73	$	1.00

On March 24, 2004, the closing sales price for our Common Stock was $1.19 per share. The number of stockholders of record of Common Stock on March 24, 2004 was approximately 5,500. We have not paid any dividends on our Common Stock and do not expect to pay dividends on our Common Stock in the foreseeable future.

On December 9, 2003, we completed a private placement with a group of institutional and private investors raising gross proceeds of $8 million. In the private placement, we issued and sold 800 shares of our new Series E Cumulative Convertible Preferred Stock, or Series E Stock, accompanied by warrants to purchase 2,880,000 shares of our Common Stock. The purchase price of each share of Series E Stock was $10,000. Each share of Series E Stock is convertible into 8,000 shares of Common Stock based on an initial conversion price of $1.25 per share and was accompanied by a warrant to purchase 3,600 shares of Common Stock at an exercise price of $1.55 per share. The warrants will become exercisable on June 9, 2004 and will expire on December 9, 2007.

Burnham Hill Partners, a division of Pali Capital, Inc., acted as placement agent with respect to the private placement and received a cash fee and placement agent warrants to purchase 640,000 shares of Common Stock at an exercise price of $1.49 per share. The placement agent warrants will become exercisable on June 9, 2004 and will expire on December 9, 2008. Burnham Hill Partners will also receive a cash fee equal to 4% of the cash we receive upon the exercise of the investor warrants.

The Series E Stock is initially convertible into Common Stock at $1.25 per share, and is subject to a weighted average anti-dilution adjustment if we issue equity securities in the future at a lower price. The holders of Series E Stock are entitled to receive a dividend of 4% per annum, payable beginning on October 31, 2004 and on each anniversary thereof. The dividend rate will increase to 8% on June 9, 2005. The dividend is payable in cash, but we may elect to pay it in shares of Common Stock under specified circumstances.

The warrants issued to investors purchasing Series E Stock will become exercisable on June 9, 2004 and will expire at the close of business on December 9, 2007. The $1.55 per share exercise price of the investor warrants will be adjusted based on a weighted average anti-dilution formula in the event we issue securities below that price, subject to a floor of $1.48 per share.

The Series E Stock and the warrants were sold in a private placement pursuant to Regulation D under the Securities Act of 1933, as amended. We relied on representations from the investors to establish this exemption.

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Item 6.    Selected Financial Data.

The selected consolidated financial information presented below has been derived from the audited consolidated financial statements of the Company. This data is qualified in its entirety by reference to, and should be read in conjunction with, the Company’s Consolidated Financial Statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere herein.

	Year Ended December 31,
	1999			2000			2001			2002			2003
Statement of Operations Data
Revenues	$	200,000		$	—		$	—		$	—		$	—
Operating expenses		14,556,251			11,453,458			10,585,618			10,302,008			7,914,887
Net loss		(13,964,484	)		(10,654,264	)		(10,252,587	)		(10,993,142	)		(8,367,994	)
Preferred stock beneficial conversion feature		(5,366,054	)		—			—			—			(2,696,658	)
Accrual of preferred stock dividends		—			—			—			—			(34,029	)
Net loss available to common shareholders	$	(19,330,538	)	$	(10,654,264	)	$	(10,252,587	)	$	(10,993,142	)	$	(11,098,681	)
Basic and diluted net loss available to common stockholders	$	(1.31	)	$	(0.55	)	$	(0.49	)	$	(0.50	)	$	(0.36	)
Weighted average number of common shares outstanding		14,731,149			19,461,911			20,733,160			22,063,183			30,507,040
Balance Sheet Data
Cash and cash equivalents	$	260,134		$	407,327		$	287,302		$	794,401		$	6,088,458
Marketable securities		14,690,308			19,361,838			10,012,198			6,177,705			4,876,402
Restricted cash and marketable securities		—			—			—			—			5,036,248
Total assets		16,072,212			20,712,109			11,426,419			8,527,893			17,432,894
Working capital (excludes restricted cash and marketable securities)		13,746,718			18,811,739			9,095,717			5,558,691			9,974,660
Long-term debt		4,647,192			—			—			3,869,872			3,811,129
Convertible redeemable preferred stock		1,046,546			—			—			—			—
Stockholders’ equity	$	8,574,807		$	19,050,816		$	9,622,835		$	2,822,853		$	12,115,618

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This section contains forward-looking statements based on current management expectations. Meaningful factors which could cause future results to differ materially from such expectations include, without limitation, the following: (i) results from current and planned clinical trials, (ii) scientific data collected on our technologies currently in preclinical research and development, (iii) decisions made by the FDA or other regulatory bodies with respect to the initiation of human clinical trials, (iv) decisions made by the FDA or other regulatory bodies with respect to approval and commercial sale of any of our proposed products, (v) the commercial acceptance of any products approved for sale and our ability to manufacture, distribute and sell for a profit any products approved for sale, (vi) our ability to obtain the necessary patents and proprietary rights to effectively protect our technologies, (vii) the outcome of any collaborations or alliances entered into by us in the future with pharmaceutical or other biotechnology companies, (viii) dependence on key personnel, and (ix) maintaining NASDAQ listing requirements.

Overview

Description of Company

We are a biotechnology company engaged in the research and development of biopharmaceutical products for the diagnosis and treatment of central nervous system, or CNS, and diseases and for the treatment of some cancers. At December 31, 2003, we are considered a “development stage enterprise” as defined in Statement of Financial Accounting Standards No. 7.

As of December 31, 2003, we have experienced total net losses since inception of approximately $94 million. For the foreseeable future, we expect to experience continuing operating losses and negative cash flows as management executes our current business plan. We believe that the cash, cash equivalents, and marketable securities available at December 31, 2003 will provide sufficient working capital to meet our anticipated expenditures for at least the next twelve months. We will need to raise additional capital in the future through collaboration agreements with other pharmaceutical or biotechnology companies, debt financing and equity offerings. There can be no assurance, however, that we will be successful or that additional funds will be available on acceptable terms, if at all. We have $4,350,500 in principal of Notes that become due in June 2005. We have set aside approximately $5.0 million in restricted cash and marketable securities to repay the Notes and the future interest on the Notes in accordance with the terms of our Series E Stock agreements. However, there can be no assurance that we will not need to raise additional capital before June 2005 in order to maintain enough restricted cash and marketable securities to satisfy the Notes and future interest payments on the Notes when they become due.

Product Development

ALTROPANE is an imaging agent being developed for the diagnosis of Parkinsonian Syndromes, or PS (including Parkinson’s Disease, or PD), Parkinsonian Tremor, and Attention Deficit Hyperactivity Disorder, or ADHD. We have completed a Phase III trial of ALTROPANE for use in differentiating PS movement disorders from non-PS movement disorders. We intend to conduct a new Phase III trial of ALTOPANE for use in distinguishing Parkinsonian from non-Parkinsonian Syndromes in patients with tremors and are seeking a binding written agreement with the FDA relating to the design and analysis of the study protocol for this new Phase III trial. We have had several communications with FDA since the initial SPA was filed with the Agency. The FDA has provided recommendations pertaining to the design of the clinical protocol, including alternatives for inclusion criteria for the clinical indication being sought by us, and guidance concerning primary and secondary endpoints proposed in the statistical plan. The FDA also provided advice on further clarification of the SPECT imaging criteria. In December 2003 and in February 2004, we submitted revised protocols addressing FDA’s recommendations concerning study design, statistical plan and safety assessments. We are currently awaiting final agreement from the FDA on the most recent protocol submission for the new Phase III trial. In order to expedite reaching a written agreement with the FDA, our most recent submission was not made under the SPA process, but rather was submitted under an alternative, expedited procedure. The FDA has assured us that a binding agreement reached under this alternative procedure will be equivalent to an agreement reached pursuant to the SPA process. We currently expect to receive correspondence from the FDA containing a binding

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agreement relating to this protocol and to initiate the new Phase III trial in the first half of 2004. Once initiated, we presently anticipate this new Phase III trial for ALTROPANE will take approximately twelve months to complete. If the results of this Phase III trial are successful, we hope to submit an NDA for ALTROPANE for use in distinguishing Parkinsonian from non-Parkinsonian Syndromes in patients with tremors within six months of the trial’s completion.

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 are currently conducting pre-clinical studies required for the filing of an Investigational New Drug application, or IND. We expect to file an IND for treatment of ischemic stroke for Inosine in the third quarter of 2004 and, subsequent to FDA’s approval, initiate clinical trials in humans.

Troponin I, or Troponin, is our anti-angiogenic agent under development as a potential treatment for cancer. Troponin is presently in pre-clinical development.

Earlier stage product candidates include FLUORATEC, a “second-generation” imaging agent for the diagnosis of PD and ADHD 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 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 eighteen 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 and Estimates

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 marketable securities and research contracts. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For a complete description of our significant accounting policies, see Note 1 to our consolidated financial statements in our Annual Report on Form 10-K.

Marketable Securities

Our marketable securities 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

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other comprehensive income. We disclose the value of restricted marketable securities, if any, in the notes to our consolidated financial statements. If a decline in the fair value of a security is considered to be other than temporary, the investment is written down to a new cost basis and the unrealized loss is removed from accumulated other comprehensive loss and recorded in the Consolidated Statement of Operations. We evaluate whether a decline in fair value is other than temporary based on factors such as the significance of the decline, the duration of time for which the decline has been in existence and our ability and intent to hold the security to maturity. To date, we have not recorded any other than temporary impairments related to our marketable securities. These marketable securities are classified as current assets because they are highly liquid and are available, as required, to meet working capital and other operating requirements.

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 recognized ratably over the term of the contract which we believe corresponds to the manner in which the work is performed. Clinical trial, contract services and other outside costs require that we make estimates of the costs incurred in a given accounting period and record accruals at period end as the third party service periods and billing terms do not always coincide with our period end. We base our estimates on our knowledge of the research and development programs, services performed for the period, past history for related activities and the expected duration of the third party service contract where applicable.

Fair Value and Classification of Equity Instruments

Historically, in connection with our debt and equity financings we have issued warrants to purchase shares of our common stock. We record each of the securities issued on a relative fair value basis up to the amount of the proceeds received. We estimate the fair value of the warrants using the Black-Scholes option pricing model. The Black-Scholes model is dependent on a number of variables and estimates including: interest rates, dividend yield, volatility and the expected term of the warrants. Our estimates are based on market interest rates at the date of issuance, our past history for declaring dividends, our stock price volatility and the contractual term of the warrants. The value ascribed to the warrants in connection with debt offerings is considered a cost of capital and amortized to interest expense over the term of the debt.

We have, at certain times, issued preferred stock and notes, which was convertible into common stock at a discount from the common stock market price at the date of issuance. The discounted amount associated with such conversion rights represents an incremental yield, ie. a “beneficial conversion feature is recorded when the consideration allocated to the convertible security, divided by the number of common stock at the date of issuance of the convertible instrument.

A beneficial conversion feature associated with the preferred stock is recognized as a return to the preferred shareholders and represents a non-cash charge in the determination of net loss available to common stockholders. The beneficial conversion feature is recognized in full immediately if there is no redemption date for the preferred stock, or over the period of issuance through the redemption date, if applicable. A beneficial conversion feature associated with debentures, notes or other debt instruments is recognized as discount to the debt and is amortized as additional interest expense ratably over the remaining term of the debt instrument.

Results of Operations

Year Ended December 31, 2003 and 2002

Our net loss was $8,367,994 during the year ended December 31, 2003 as compared with $10,993,142 during the year ended December 31, 2002. Net loss attributable to common stockholders totaled $0.36 per share during 2003 as compared with $0.50 per share during 2002. The lower net loss in 2003 was primarily due to

34

lower research and development expenses and the absence in 2003 of certain non-recurring equity related charges, partially offset by higher interest expense in 2003. The lower net loss attributable to common stockholders on a per share basis in the 2003 period was primarily due to an increase in weighted average shares outstanding of approximately 8.4 million shares, which was primarily the result of a private placement of common stock completed by us in the 2003 period.

Research and development expenses were $4,383,237 during the year ended December 31, 2003 as compared with $6,906,254 during the year ended December 31, 2002. The decrease in 2003 was primarily attributable to lower manufacturing development costs for Troponin of approximately $1,319,000, lower manufacturing development and NDA preparation costs for ALTROPANE for the diagnosis of PS of approximately $351,000, and lower pre-clinical costs for earlier stage product candidates of approximately $271,000. During the 2002 period, the Company’s manufacturing efforts on Troponin were focused on continuing work on the development of the manufacturing process whereas in the 2003 period such efforts were focused on refining the purification process and accumulating material for further pre-clinical studies. We currently anticipate research and development expenses to increase during the year ended December 31, 2004 primarily due to our new Phase III trial for ALTROPANE.

General and administrative expenses were $3,531,650 during the year ended December 31, 2003 as compared with $3,395,754 during the year ended December 31, 2002. The increase in 2003 was primarily due to higher payroll and related costs of approximately $91,000.

Other expenses were zero during the year ended December 31, 2003 as compared with $896,741 during the year ended December 31, 2002. The decrease in 2003 was due to non-cash charges related to agreements we entered into in 2002 and 2001 with significant securityholders to modify outstanding warrants. In November 2002, we agreed to extend the expiration date and lower the exercise price of certain warrants in return for the elimination of certain reset provisions of those warrants. We recorded a one-time charge of approximately $610,000 in 2002 related to this transaction. In June 2001, we agreed to issue additional warrants to a securityholder in return for a delay of the reset of the exercise price of certain warrants held by the securityholder. We recorded charges of approximately $287,000 in both 2002 and 2001 related to this transaction. The non-cash charges recognized in each transaction were based upon a fair value calculation of the warrants modified or issued in each transaction as determined under the Black-Scholes pricing model.

Interest expense totaled $755,850 during the year ended December 31, 2003 as compared to $237,610 during the year ended December 31, 2002. The increase was due to higher daily average balances in the 2003 period related to the 10% Convertible Senior Secured Promissory Notes, or the Notes, which were issued in July 2002, and therefore, outstanding for all of 2003 compared to less than half of 2002. During the 2003 period, we incurred approximately $429,000 in interest on the 10% coupon on the Notes, $292,000 in non-cash interest associated with the amortization of the discounted carrying value of the notes and $35,000 in amortization of debt issuance costs.

Interest income was $302,743 during the year ended December 31, 2003 as compared with interest income of $443,217 during the year ended December 31, 2002. The decrease was primarily due to lower average interest rates in the 2003 period, partially offset by higher average cash, cash equivalents, and marketable securities balances and higher realized gains of approximately $73,000 in the 2003 period.

Accrual of preferred stock dividends was $34,029 during the year ended December 31, 2003 as compared with none during the year ended December 31, 2002. In December 2003, we issued 800 shares of Series E Stock with a purchase price of $10,000 per share of Series E Stock. The holders of Series E Stock are entitled to receive a cumulative dividend of 4% per annum, payable beginning on October 31, 2004 and on each anniversary thereof. The dividend rate will increase to 8% on June 9, 2005. In connection with the issuance of Series E Stock, we recorded a beneficial conversion feature of $2,696,658 during the year ended December 31, 2003 as compared to none during the year ended December 31, 2002. A beneficial conversion feature is recorded when

35

the consideration allocated to the convertible security, divided by the number of common shares into which the security converts, is below the fair value of the common stock at the date of issuance of the convertible instrument. The amount of the beneficial conversion feature has been immediately accreted and resulted in a deemed dividend as the preferred stock does not have a redemption term. The value of the beneficial conversion feature has been reflected as an adjustment to the net loss attributable to common stockholders on the Company’s Statement of Operations.

At December 31, 2003, we had net deferred tax assets of approximately $43 million for which a full valuation allowance has been established. As a result of our concentrated efforts on research and development, we have a history of incurring net operating losses and expect to incur additional net operating losses for the foreseeable future. Accordingly, we have concluded that it is more likely than not that the future benefits related to the deferred tax assets will not be realized and, therefore, provided a full valuation allowance for these assets. In the event we achieve profitability, these deferred tax assets may be available to offset future income tax liabilities and expense.

Year Ended December 31, 2002 and 2001

Our net loss was $10,993,142 during the year ended December 31, 2002 as compared with $10,252,587 during the year ended December 31, 2001. Net loss per share totaled $0.50 per share during 2002 as compared with $0.49 per share during 2001. The higher net loss in 2002 was primarily due to lower interest income in 2002. The decrease in interest income was partially offset by lower research and development expenses in 2002.

Research and development expenses were $6,906,254 during the year ended December 31, 2002 as compared with $7,416,989 during the year ended December 31, 2001. The decrease in 2002 was primarily attributable to lower manufacturing development costs for Troponin of approximately $1,323,000. The decrease in these expenses was partially offset by higher pre-clinical costs for Inosine of approximately $491,000 and higher research and development wages resulting from increased headcount of approximately $257,000.

General and administrative expenses were $3,395,754 during the year ended December 31, 2002 as compared with $3,168,629 during the year ended December 31, 2001. The increase in 2002 was primarily due to higher professional service costs of approximately $565,000, including an increase in non-cash expenses of $125,000 primarily related to the issuance of warrants to consultants. The increase in these expenses was partially offset by the absence of approximately $196,000 in personnel recruitment costs that were incurred in the 2001 period when we hired a number of senior executives.

Other expenses were $896,741 during the year ended December 31, 2002 as compared with $683,880 during the year ended December 31, 2001. The increase in 2002 was due to non-cash charges related to agreements we entered into in 2002 and 2001 with significant securityholders to modify outstanding warrants. In November 2002, we agreed to extend the expiration date and lower the exercise price of certain warrants in return for the elimination of certain reset provisions of those warrants. We recorded a one-time charge of approximately $610,000 in 2002 related to this transaction. During 2001, we lowered the exercise price of certain warrants held by a securityholder in return for daily trading restrictions on the number of shares of common stock that the securityholder could sell through May 2002, which resulted in a one-time charge of $396,880. In June 2001, we agreed to issue additional warrants to a securityholder in return for a delay of the reset of the exercise price of certain warrants held by the securityholder. We recorded charges of approximately $287,000 in both 2002 and 2001 related to this transaction. The non-cash charges recognized in each transaction were based upon a fair value calculation of the warrants modified or issued in each transaction as determined under the Black-Scholes pricing model.

Interest expense totaled $237,610 during the year ended December 31, 2002 as compared to zero during the during the year ended December 31, 2001. In July 2002, we issued $4 million of Notes, and incurred $175,715 in interest on the 10% coupon, $46,539 in non-cash interest associated with the accretion of the discounted carrying value of the Notes and approximately $15,000 in amortization of debt issuance costs.

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Interest income was $443,217 during the year ended December 31, 2002 as compared with interest income of $1,016,911 during the year ended December 31, 2001. The decrease was primarily due to lower average cash, cash equivalents, and marketable securities balances during the 2002 period as compared to the 2001 period.

Liquidity and Capital Resources

Cash used for operating activities, primarily related to our net loss, totaled $7,814,164 in 2003 as compared to $9,367,353 in 2002. The decrease in 2003 is primarily related to lower research and development expenses in the 2003 period. Cash used for investing activities totaled $3,890,462 in 2003 as compared to cash provided by investing activities of $3,131,441 in 2002. The difference in investing activities principally reflects the increase in restricted cash in 2003 and the purchase of marketable securities with the proceeds from the private placements, described below, completed by us in 2003, net of the sales of marketable securities which were subsequently used to fund operations. Cash provided by financing activities was $16,998,683 in 2003 as compared to $6,743,011 in 2002. The difference in financing activities principally reflects the effect of the private placements, described below, completed by us in 2003 and 2002.

As of December 31, 2003, we have incurred total net losses since inception of approximately $94 million. To date, we have dedicated most of our financial resources to the research and development of our product candidates, preclinical compounds, general and administrative expenses and costs related to obtaining and protecting patents. Since inception, we have primarily satisfied our working capital requirements from the sale of our 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. A summary of financings completed during the three years ended December 31, 2003 is as follows:

Date	Net Proceeds Raised		Securities Issued
December 2003	$	7.0 million	Convertible preferred stock and warrants
March 2003	$	9.9 million	Common stock
July 2002	$	3.9 million	Convertible 10% senior secured promissory notes and warrants
March 2002	$	2.8 million	Common stock and warrants

In the future, our working capital and capital requirements will depend on numerous factors, including the progress of our research and development activities, the level of resources that we devote to the developmental, clinical, and regulatory aspects of our technologies, and the extent to which we enter into collaborative relationships with pharmaceutical and biotechnology companies.

At December 31, 2003, we had available cash, cash equivalents, and marketable securities of approximately $11.0 million and working capital of approximately $10.0 million. We believe that the cash, cash equivalents, and marketable securities available at December 31, 2003 will provide sufficient working capital to meet our anticipated expenditures for at least the next twelve months. In addition, we have approximately $5.0 million in a segregated account to satisfy our obligations with respect to the Notes which mature in June 2005. These segregated funds are not included in the available cash, cash equivalents, and marketable securities and working capital amounts referenced above. We will need to raise additional capital in the future through collaboration agreements with other pharmaceutical or biotechnology companies, debt financing and/or equity offerings. There can be no assurance, however, that we will be successful or that additional funds will be available on acceptable terms, if at all. In addition, we have certain covenants with the holders of our Notes and the purchasers of our Series E Stock that may limit our ability to engage in certain types of financings in the future. Pending approval of additional authorized shares of common stock by stockholders at our 2004 annual meeting, we have a limited number of shares of authorized common stock for issuance in future financings.

Following is information on the direct research and development costs incurred (all amounts in thousands) on our principal scientific technology programs currently under development. These amounts do not include

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research and development employee and related overhead costs which total approximately $10.1 million on a cumulative basis.

Program	4th Quarter 2003 (1)		Fiscal 2003		Cumulative
Diagnostic imaging	$	92	$	728	$	15,977
Anti-angiogenesis		78		300		13,031
CNS regeneration		294		1,300		5,460
Other		—		20		767

(1) three months ended December 31, 2003

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 we 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 us 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, we 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 regarding the number of required trials, the size of such trials, and the duration of development. We have not received final agreement from the FDA on our revised protocol for the design of our new Phase III clinical trial for ALTROPANE. We presently anticipate this trial will take approximately twelve months to complete and cost approximately $3.5 million. However, there can be no assurance that the FDA will accept our revised protocol or that it will not request additional modifications.

Contractual Obligations and Commitments

Research and development commitments consists of contractual obligations with third parties, as well as the estimated costs of approximately $3.5 million to complete our new Phase III clinical trial for ALTROPANE. We lease certain office equipment, office space and laboratory space under noncancelable operating leases. Our current corporate office lease expires in 2012 and contains provisions whereby we can sublet all or part of the space and fully retain any sublease income generated. We also lease laboratory space that expires in May 2006. As of December 31, 2003, approximate future minimum commitments under the above leases and other contractual obligations are as follows:

Year Ended December 31,	Research and Development		Operating Lease		Other General and Administrative		Maturity Of Debt
2004	$	5,408,000	$	327,000	$	125,000		—
2005		1,242,000		335,000		125,000	$	4,350,500
2006		—		296,000		—		—
2007		—		277,000		—		—
2008		—		285,000		—		—
Thereafter		—		1,019,000		—		—
	$	6,650,000	$	2,539,000	$	250,000	$	4,350,500

In July 2002, we entered into agreements pursuant to which we issued $4.0 million in principal amount of Notes to a single institutional investor in a private placement. The Notes mature in June 2005 and bear interest at 10% per annum, payable semi-annually on June 1 and December 1. We may elect to pay interest on the Notes in

38

either cash or, subject to certain limitations, additional Notes on the same terms. We elected to pay the interest due on December 1, 2002 and June 1, 2003 in additional Notes in the amounts of $143,333 and $207,167, respectively. In December 2003, we elected to pay the interest due on December 1, 2003 in the amount of $217,525 in cash. Among other adjustments, unless the investor consents otherwise, if we issue 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 currently convertible into common stock at a conversion price of $1.00 per share. The Notes are secured by a first priority security interest and continuing lien on all current and after acquired property of ours. We 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 we provide alternative collateral or less than $500,000 principal amount of Notes remains outstanding, the agreements also prohibit us, among other things, from entering into any merger, consolidation or sale of all or substantially all of our assets, incurring additional indebtedness, encumbering our assets with any liens and redeeming or paying cash dividends on any of our capital stock. We are permitted to grant licenses or sublicenses of our intellectual property to third parties in the ordinary course of 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 us in respect of any such license or sublicense. The agreements also contain customary events of default, including any change of control and breach by us of our representations and warranties and covenants contained in the agreements. If an event of default were to occur, our obligations under the Notes could be accelerated and become immediately due and payable in full.

As a condition of our December 2003 private placement of Series E Stock and warrants, we agreed to exercise our right to obtain a release of the security interest and continuing lien on our property that currently secure our outstanding Notes by providing alternative collateral in the form of cash or a standby letter-of-credit in the amount of all remaining principal and interest payments on the Notes through maturity. The remaining principal and interest payments on the Notes through maturity total approximately $5,000,000. We communicated to the holders of the Notes our intention to obtain a release of the lien on our property by providing alternative collateral in the form of an irrevocable standby letter of credit in the amount of our remaining obligations. To date, we have been unable to reach agreement with the noteholders on the terms of such a letter of credit. We are currently reviewing our options regarding the release of liens and in the interim have set aside sufficient funds in a segregated account to satisfy our remaining obligations under the Notes in order to comply with our covenant to the December 2003 private placement investors.

Our Series E Stock includes a dividend obligation of 4% through June 2005, increasing to 8% thereafter. Generally, we may elect to pay the dividend in cash or in shares of our common stock. We have reserved a sufficient number of shares to pay the dividends payable in October 2004 and October 2005 in shares of our common stock.

Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” and in December 2003 issued a revised FIN 46 (“FIN 46R”) which addresses the period of adoption of FIN 46 for entities created before January 31, 2003. FIN 46 provides a new consolidation model which determines control and consolidation based on potential variability in gains and losses. The provisions of FIN 46 are effective for enterprises with variable interest entities created after January 31, 2003. We must adopt the provisions of FIN 46 in the first quarter of fiscal 2004 and do not expect the adoption to have a material impact on our financial statements.

In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments

39

entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after December 15, 2004. The adoption of SFAS 150 is not expected to have a material effect on our financial statements.

Off-Balance Sheet Arrangements

We had no “off balance sheet arrangements” (as defined in the applicable Securities and Exchange Commission rule) during the year end December 31, 2003.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk.

We generally maintain a portfolio of cash equivalents, and short-term and long-term marketable securities in a variety of securities which can include commercial paper, certificates of deposit, money market funds and government and non-government debt securities. The fair value of these available-for-sale securities are subject to changes in market interest rates and may fall in value if market interest rates increase. Our investment portfolio includes only marketable securities with active secondary or resale markets to help insure liquidity. We have implemented policies regarding the amount and credit ratings of investments. Due to the conservative nature of these policies, we do not believe we have material exposure due to market risk. We may not have the ability to hold our fixed income investments until maturity, and therefore our future operating results or cash flows could be affected if we are required to sell investments during a period in which increases in market interest rates have adversely affected the value of our securities portfolio.

40

Item 8.    Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders

     of Boston Life Sciences, Inc.

In our opinion, the accompanying consolidated balance sheets and related consolidated statements of operations, of comprehensive loss and stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of Boston Life Sciences, Inc. and its subsidiaries (the “Company”) (a development stage enterprise) at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 and, cumulatively, for the period from October 16, 1992 (date of inception) to December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/    PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts

March 30, 2004

41

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

CONSOLIDATED BALANCE SHEETS

	December 31, 2003			December 31, 2002
ASSETS
Current assets:
Cash and cash equivalents	$	6,088,458		$	794,401
Marketable securities		4,876,402			6,177,705
Restricted cash and marketable securities (Notes 1 and 7)		445,926			—
Other current assets		515,947			421,753
Total current assets		11,926,733			7,393,859
Restricted cash and marketable securities (Notes 1 and 7)		4,590,322			—
Fixed assets, net		604,662			784,896
Other assets		311,177			349,138
Total assets	$	17,432,894		$	8,527,893
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	1,506,147		$	1,835,168
10% convertible senior secured promissory notes, due June 2005		3,811,129			3,869,872
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized; 25,000 shares designated Convertible Series A, 500,000 shares designated Convertible Series D, and 800 shares designated Convertible Series E; 800 shares Convertible Series E issued and outstanding at December 31, 2003 (liquidation preference of $8,034,029)		4,990,614			—
Common stock, $.01 par value; 60,000,000 and 50,000,000 shares authorized at December 31, 2003 and 2002, respectively; 32,519,588 and 22,374,210 shares issued and outstanding at December 31, 2003 and 2002, respectively		325,196			223,742
Additional paid-in capital		101,195,170			88,511,684
Accumulated other comprehensive income		605			115,400
Deficit accumulated during development stage		(94,395,967	)		(86,027,973	)
Total stockholders’ equity		12,115,618			2,822,853
Total liabilities and stockholders’ equity	$	17,432,894		$	8,527,893

The accompanying notes are an integral part of the consolidated financial statements.

42

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Year Ended December 31,									From Inception (October 16, 1992) to December 31, 2003
	2003			2002			2001
Revenues	$	—		$	—		$	—		$	900,000
Operating expenses:
Research and development		4,383,237			6,906,254			7,416,989			59,387,243
General and administrative		3,531,650			3,395,754			3,168,629			25,837,973
Purchased in-process research and development		—			—			—			12,146,544
Total operating expenses		7,914,887			10,302,008			10,585,618			97,371,760
Loss from operations		(7,914,887	)		(10,302,008	)		(10,585,618	)		(96,471,760	)
Other expenses		—			(896,741	)		(683,880	)		(1,580,621	)
Interest expense		(755,850	)		(237,610	)		—			(3,245,917	)
Investment income		302,743			443,217			1,016,911			6,902,331
Net loss		(8,367,994	)		(10,993,142	)		(10,252,587	)		(94,395,967	)
Preferred stock beneficial conversion feature (Note 7)		(2,696,658	)		—			—			(8,062,712	)
Accrual of preferred stock dividends (Note 7)		(34,029	)		—			—			(34,029	)
Net loss attributable to common stockholders	$	(11,098,681	)	$	(10,993,142	)	$	(10,252,587	)	$	(102,492,708	)
Basic and diluted net loss attributable to common stockholders per share	$	(0.36	)	$	(0.50	)	$	(0.49	)
Weighted average common shares outstanding		30,507,040			22,063,183			20,733,160

The accompanying notes are an integral part of the consolidated financial statements.

43

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS AND STOCKHOLDERS’ EQUITY

For the Period from inception (October 16, 1992) to December 31, 2003

	Series A, C and E Preferred Stock					Common Stock			Additional Paid-in Capital			Deferred Compensation			Accumulated Other Comprehensive Income (Loss)		Deficit Accumulated During Development Stage			Total Stockholders’ Equity
	Number of Shares		Amount			Number of Shares	Par Value
Issuance of common stock to founders						1,520,044	$	15,200	$	33,525										$	48,725
Issuance of common stock upon exercise of warrants and options						2,116,554		21,165		6,460,434											6,481,599
Issuance of common stock and warrants, net of issuance costs of $1,187,864						5,889,007		58,891		25,831,486											25,890,377
Issuance of common stock and warrants upon Merger						3,619,736		36,197		14,567,751											14,603,948
Issuance of common stock upon conversion of convertible debentures						156,605		1,566		987,025											988,591
Issuance of warrants in connection with debentures, net of issuance costs of $280,806										3,319,194											3,319,194
Issuance of warrants in connection with preferred series C stock issuance and related beneficial conversion feature, net of issuance costs of $590,890										3,736,789											3,736,789
Accretion of preferred series C stock										(4,327,679	)										(4,327,679	)
Issuance of preferred stock, net of issuance costs of $3,397,158	239,911		$	2,399						20,591,443											20,593,842
Conversion of preferred stock into common stock	(239,911	)		(2,399	)	5,835,363		58,353		6,094,046											6,150,000
Conversion of debentures and payment of interest in common stock, net of issuance costs of $307,265						1,585,416		15,854		4,831,566											4,847,420
Preferred stock conversion inducement										(600,564	)										(600,564	)
Deferred compensation related to stock options and warrants granted										804,607		$	(804,607	)							—
Compensation expense related to stock options and warrants										1,205,781			804,607								2,010,388
Other						3,913		40		69,893											69,933
Comprehensive loss:
Unrealized gain on marketable securities															$	20,497					20,497
Net loss from inception (October 16, 1992) to December 31, 2000																	$	(64,782,244	)		(64,782,244	)
Comprehensive loss from inception (October 16, 1992) to December 31, 2000																					(64,761,747	)
Balance at December 31, 2000	—			—		20,726,638		207,266		83,605,297			—			20,497		(64,782,244	)		19,050,816

The accompanying notes are an integral part of the consolidated financial statements.

44

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS AND STOCKHOLDERS’ EQUITY —(Continued)

For the Period from inception (October 16, 1992) to December 31, 2003

	Series A, C and E Preferred Stock			Common Stock			Additional Paid-in Capital			Deferred Compensation		Accumulated Other Comprehensive Income (Loss)			Deficit Accumulated During Development Stage			Total Stockholders’ Equity
	Number of Shares	Amount		Number of Shares	Par Value
Modification of warrants								683,880											683,880
Issuance of common stock upon exercise of warrants and options				48,004		480		(480	)										—
Compensation expense related to stock options and warrants								30,405											30,405
Comprehensive loss:
Unrealized gain on marketable securities													110,321						110,321
Net loss																(10,252,587	)		(10,252,587	)
Comprehensive loss																			(10,142,266	)
Balance at December 31, 2001	—		—	20,774,642		207,746		84,319,102			—		130,818			(75,034,831	)		9,622,835
Modification of warrants								896,741											896,741
Issuance of common stock and warrants, net of issuance costs of $583,908				1,599,568		15,996		2,839,167											2,855,163
Issuance of warrants in connection with debentures, net of issuance costs of $112,152								313,438											313,438
Compensation expense related to stock options and warrants								143,236											143,236
Comprehensive loss:
Unrealized loss on marketable securities													(15,418	)					(15,418	)
Net loss																(10,993,142	)		(10,993,142	)
Comprehensive loss																			(11,008,560	)
Balance at December 31, 2002	—		—	22,374,210		223,742		88,511,684			—		115,400			(86,027,973	)		2,822,853
Issuance of common stock, net of issuance costs of $91,228				10,095,378		100,954		9,897,473											9,998,427
Issuance of common stock upon exercise of options				50,000		500		49,500											50,000
Issuance of preferred stock Series E, net of issuance costs of $681,663	800		2,293,956					2,696,658											4,990,614
Amortization of preferred stock Series E beneficial conversion feature			2,696,658					(2,696,658	)										—
Issuance of warrants in connection with Series E Stock, net of issuance costs of $278,426								2,049,297											2,049,297
Accrual of dividends on preferred Series E stock								(34,029	)										(34,029	)
Beneficial conversion feature on 10% convertible secured promissory notes								558,000											558,000
Compensation expense related to stock options and warrants								163,245											163,245
Comprehensive loss:
Unrealized loss on marketable securities													(114,795	)					(114,795	)
Net loss																(8,367,994	)		(8,367,994	)
Comprehensive loss																			(8,482,789	)
Balance at December 31, 2003	800	$	4,990,614	32,519,588	$	325,196	$	101,195,170		$	—	$	605		$	(94,395,967	)	$	12,115,618

The accompanying notes are an integral part of the consolidated financial statements.

45

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended December 31,									From Inception (October 16, 1992) to December 31, 2003
	2003			2002			2001
Cash flows from operating activities:
Net loss	$	(8,367,994	)	$	(10,993,142	)	$	(10,252,587	)	$	(94,395,967	)
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
Interest expense settled through issuance of notes payable		207,167			143,333			—			350,500
Non-cash interest expense		327,286			61,895			—			968,866
Non-cash charges related to options, warrants and common stock		252,900			1,039,977			714,285			4,087,483
Amortization and depreciation		223,721			170,952			59,691			1,970,655
Changes in current assets and liabilities:
(Increase) decrease in other current assets		(94,194	)		178,048			299,204			343,016
(Decrease) increase in accounts payable and accrued expenses		(363,050	)		31,584			142,291			699,453
Net cash used for operating activities		(7,814,164	)		(9,367,353	)		(9,037,116	)		(70,329,450	)
Cash flows from investing activities:
Cash acquired through Merger		—			—			—			1,758,037
Purchases of fixed assets		(43,487	)		(432,343	)		(541,162	)		(1,329,842	)
Decrease (increase) in other assets		2,765			(255,291	)		(1,708	)		(609,774	)
Increase in restricted cash and marketable securities		(5,036,248	)		—			—			(5,036,248	)
Purchases of marketable securities		(13,354,221	)		(7,538,990	)		(6,605,980	)		(105,736,863	)
Sales and maturities of marketable securities		14,540,729			11,358,065			16,065,941			100,861,066
Net cash (used for) provided by investing activities		(3,890,462	)		3,131,441			8,917,091			(10,093,624	)
Cash flows from financing activities:
Proceeds from issuance of common stock		10,050,000			3,439,071			—			44,738,253
Proceeds from issuance of preferred stock		8,000,000			—			—			35,022,170
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		(1,051,317	)		(696,060	)		—			(5,436,860	)
Net cash provided by financing activities		16,998,683			6,743,011			—			86,511,532
Net increase (decrease) in cash and cash equivalents		5,294,057			507,099			(120,025	)		6,088,458
Cash and cash equivalents, beginning of period		794,401			287,302			407,327			—
Cash and cash equivalents, end of period	$	6,088,458		$	794,401		$	287,302		$	6,088,458
Supplemental cash flow disclosures:
Non-cash transactions (see notes 1, 5, 7, and 8)
Cash paid for interest	$	217,525			—			—		$	217,525

The accompanying notes are an integral part of the consolidated financial statements.

46

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    The Company and its Significant Accounting Policies

Boston Life Sciences, Inc. is a development stage 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. Boston Life Sciences (“Old BLSI”), originally a privately held company founded in 1992, merged with a publicly held company effective June 15, 1995 (the “Merger”). The publicly held company survived the Merger and changed its name to Boston Life Sciences, Inc. (the “Company”). However, all of the employees of the public company ceased employment six months prior to the Merger, the company’s facilities and equipment were sold, and all directors resigned effective with the Merger, whereupon the management and directors of Old BLSI assumed management of the Company. During the period from inception through December 31, 2003, the Company has devoted substantially all of its efforts to business planning, raising financing, furthering the research and development of its technologies, and corporate partnering efforts. Accordingly, the Company is considered to be in the development stage as defined in SFAS No. 7, “Accounting and Reporting by Development Stage Enterprises.”

As of December 31, 2003, the Company has experienced total net losses since inception of approximately $94 million. For the foreseeable future, the Company expects to experience continuing operating losses and negative cash flows as management executes its current business plan. The Company believes that the cash, cash equivalents, and marketable securities available at December 31, 2003 will provide sufficient working capital to meet its anticipated expenditures for at least the next twelve months. The Company will need to raise additional capital in the future through collaboration agreements with other pharmaceutical or biotechnology companies, debt financing 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. The Company has $4,350,500 in principal of 10% convertible senior secured convertible promissory notes (the “Notes”) that become due in June 2005. The Company has set aside approximately $5,036,000 in restricted cash and marketable securities to repay the Notes and the future interest on the Notes in accordance with the terms of its Series E Cumulative Convertible Preferred Stock (“Series E Stock”) agreements. However, there can be no assurance that the Company will not need to raise additional capital before June 2005 in order to maintain enough restricted cash and marketable securities to satisfy the Notes and future interest payments on the Notes when they become due.

A summary of the Company’s significant accounting policies is as follows:

Basis of Consolidation

The Company’s consolidated financial statements include the accounts of its six subsidiaries where a majority of the operations are conducted. At December 31, 2003, all of the subsidiaries were wholly-owned. In March 2003, the Company purchased the remaining 10% of ProCell Pharmaceuticals from the minority shareholder for 95,378 shares of common stock which had a fair market value of approximately $90,000. All significant intercompany transactions and balances have been eliminated.

Cash, Cash Equivalents and Marketable Securities

The Company considers all highly liquid marketable securities purchased with an original maturity of three months or less to be cash equivalents. The Company invests its cash equivalents primarily in overnight repurchase agreements, money market funds, and United States treasury and agency obligations. At December 31, 2003 and periodically throughout the year, the Company had cash balances at certain financial institutions in excess of federally insured limits. However, the Company does not believe that it is subject to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

47

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Marketable securities, which are classified as available-for-sale, are recorded at fair value. Unrealized gains or losses are not immediately recognized in the Consolidated Statements of Operations but are reflected in the Consolidated Statements of Comprehensive Loss and Stockholders’ Equity as a component of accumulated other comprehensive income (loss) until realized. Realized gains (losses) are determined based on the specific identification method. If a decline in the fair value of a security is considered to be other than temporary, the investment is written down to a new cost basis and the unrealized loss is removed from accumulated other comprehensive loss and recorded in the Consolidated Statement of Operations. The Company evaluates whether a decline in fair value is other than temporary based on factors such as the significance of the decline, the duration of time for which the decline has been in existence and the Company’s ability and intent to hold the security to maturity. To date, the Company has not recorded any other than temporary impairments related to marketable securities. Marketable securities consist of United States agency bonds and corporate debt obligations (Note 2). These marketable securities are classified as current assets because they are highly liquid and are available, as required, to meet working capital and other operating requirements.

Restricted cash and marketable securities represent amounts which have been placed into a separate investment account in accordance with certain obligations under the Company’s Series E Preferred Stock agreements (see Note 7).

Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, marketable securities, accounts payable, accrued expenses and debt approximate their fair values as of December 31, 2003 and 2002 due to their short maturity.

Fixed Assets

Fixed assets are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, ranging from three to five years. Leasehold improvements are stated at cost and amortized using the straight-line method over the term of the lease or the estimated useful lives of the assets, whichever is shorter.

Revenue Recognition and Concentration of Customers

Since inception, the Company has entered into two separate licensing and development agreements with certain pharmaceutical companies related to the development of certain of its technologies. Under the terms of the agreements, the pharmaceutical companies were provided with a specified period during which they had the right to evaluate the Company’s technology. The Company received cash payments from the pharmaceutical companies, and will also receive royalties on eventual sales of any product derived from the development effort. One agreement provided for periodic payments over a three-year period which were recognized ratably over the term of the agreement. The other agreement provided for an initial, non-recurring payment which was recognized in full upon receipt because the Company had no remaining performance obligations.

Research and Development Expenses and Concentration of Outside Researchers

The Company has entered into licensing agreements with certain institutions that provide the Company with the rights to certain patents and technologies, and the right to market and distribute any products developed. Obligations initially incurred to acquire these rights are recognized and expensed on the date that the Company acquires the rights due to the early stage of the related technology.

The Company has entered into sponsored research agreements with certain institutions for the research and development of its licensed technologies. Payments made under these sponsored research agreements are

48

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

expensed ratably over the term of the agreement which the Company believes corresponds with the manner in which the work is performed.

The majority of the Company’s technologies currently under development were invented or discovered by researchers working for Harvard University and its affiliated Hospitals (“Harvard and its Affiliates”). The Company currently conducts a substantial portion of its research and development through Harvard and its Affiliates pursuant to sponsored research agreements and is thus dependent upon a continuing business relationship with Harvard and its Affiliates.

Research and development activities cease when developmental work is substantially complete and when the Company believes appropriate efficacy has been demonstrated.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the expected future tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized.

Net Loss Per Share

Basic and diluted net loss per share available to common stockholders has been calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. All potentially dilutive common shares have been excluded from the calculation of weighted average common shares outstanding since their inclusion would be antidilutive.

The following common stock equivalents, on an as exercised or converted basis, were excluded from the computation of diluted net loss per common share because they were anti-dilutive. The exercise or conversion of those common stock equivalents outstanding at December 31, 2003, which could generate proceeds to the Company of up to $42 million, could potentially dilute earnings per share in the future.

	2003	2002	2001
Stock options	4,285,918	4,274,168	3,563,918
Warrants	9,735,597	6,218,507	4,657,069
Unit options	396,475	396,475	396,475
Preferred stock	6,400,000	—	—
Convertible debentures	4,350,500	2,071,667	—
	25,168,490	12,960,817	8,617,462

Accounting for Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations, in accounting for its employee stock-based compensation plans and related equity issuances, rather than the alternative fair value accounting method provided for under SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS No. 123”). Under APB 25, when the exercise price of options granted under these plans equals the market price of the underlying stock on the date of grant, provided other criteria are met, no compensation expense is recognized. All stock-based awards to non-employees are accounted for in accordance with SFAS No. 123 and Emerging Issues Task Force

49

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

96-18, “ Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring or in Conjunction with Selling, Goods or Services.”

The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:

	2003			2002			2001
Net loss, as reported	$	(8,367,994	)	$	(10,993,142	)	$	(10,252,587	)
Add: Stock-based employee compensation expense recognized		57,024			13,600			25,000
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards		(740,844	)		(936,820	)		(2,029,583	)
Pro forma net loss	$	(9,051,814	)	$	(11,916,362	)	$	(12,257,170	)
Preferred stock beneficial conversion feature (Note 7)		(2,696,658	)		—			—
Accrual of preferred stock dividends (Note 7)		(34,029	)		—			—
Pro forma net loss attributable to common stockholders	$	(11,782,501	)	$	(11,916,362	)	$	(12,257,170	)
Basic and diluted net loss attributable to common stockholders per share
As reported	$	(0.36	)	$	(0.50	)	$	(0.49	)
Pro forma	$	(0.39	)	$	(0.54	)	$	(0.59	)

The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of zero percent; expected volatility of 100%; risk-free interest rates, based on the date of grant, ranging from 2% to 6%; and expected lives ranging from three to five years.

Beneficial Conversion Feature

The Company has, at certain times, issued preferred stock and notes, which was convertible into common stock at a discount from the common stock market price at the date of issuance. The discounted amount associated with such conversion rights represents an incremental yield, ie. a “beneficial conversion feature”. A beneficial conversion feature is recorded when the consideration allocated to the convertible security, divided by the number of common shares into which the security converts, is below the fair value of the common stock at the date of issuance of the convertible instrument.

A beneficial conversion feature associated with preferred stock is recognized as a return to the preferred stockholders and represents a non-cash charge in the determination of net loss available to common stockholders. The beneficial conversion feature is recognized in full immediately if there is no redemption date for the preferred stock, or over the period of issuance through the redemption date, if applicable. A beneficial conversion feature associated with debentures, notes or other debt instruments is recognized as discount to the debt and is amortized as additional interest expense ratably over the remaining term of the debt instrument.

50

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Segments

The Company operates as one segment reporting to the chief operating decision maker. Substantially all long-lived assets are maintained in the United States of America.

Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” and in December 2003 issued a revised FIN 46 (“FIN 46R”) which addresses the period of adoption of FIN 46 for entities created before January 31, 2003. FIN 46 provides a new consolidation model which determines control and consolidation based on potential variability in gains and losses. The provisions of FIN 46 are effective for enterprises with variable interest entities created after January 31, 2003. The Company must adopt the provisions of FIN 46 in the first quarter of fiscal 2004 and does not expect the adoption to have a material impact on our financial statements.

In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after December 15, 2004. The adoption of SFAS 150 is not expected to have a material effect on the Company’s financial statements.

Guarantor Arrangements

In November 2002, the FASB issued FIN No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.” The Interpretation requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The Interpretation also requires additional disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The accounting requirements for the initial recognition of guarantees are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The adoption of FIN No. 45 did not have a material effect on our consolidated financial statements. The following is a summary of the Company’s agreements that have been determined to be within the scope of FIN No. 45.

As permitted under Delaware law, the Company has entered into agreements whereby the Company indemnifies its executive officers and directors for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The term of the indemnification period is for the

51

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a Director and Officer insurance policy that limits the Company’s exposure and enables the Company to recover a portion of any future amounts paid. As a result of the Company’s insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.

The Company enters into arrangements with certain service providers to perform research, development, and clinical services for the Company. Under the terms of these arrangements, such service providers may use the Company’s technologies in performing their services. The Company enters into standard indemnification agreements with those service providers, whereby the Company indemnifies them for any liability associated with their use of the Company’s technologies. The maximum potential amount of future payments the Company would be required to make under these indemnification agreements is unlimited; however, the Company has product liability and general liability policies that enable the Company to recover a portion of any amounts paid. As a result of the Company’s insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.

Risks and Uncertainties

The Company is subject to risks and uncertainties common to the biotechnology industry. Such risks and uncertainties include, but are not limited to: (i) results from current and planned clinical trials, (ii) scientific data collected on the Company’s technologies currently in preclinical research and development, (iii) decisions made by the FDA or other regulatory bodies with respect to the initiation of human clinical trials, (iv) decisions made by the FDA or other regulatory bodies with respect to approval and commercial sale of any of the Company’s proposed products, (v) the commercial acceptance of any products approved for sale and the ability of the Company to manufacture, distribute and sell for a profit any products approved for sale, (vi) the Company’s ability to obtain the necessary patents and proprietary rights to effectively protect its technologies, (vii) the outcome of any collaborations or alliances entered into by the Company in the future with pharmaceutical or other biotechnology companies, (viii) dependence on key personnel, and (ix) maintaining NASDAQ listing requirements.

2.    Marketable securities

Marketable securities consist of the following at December 31:

	2003		2002
U.S. Agency obligations	$	4,190,821	$	1,949,504
Corporate debt obligations		5,645,129		4,228,201
		9,835,950		6,177,705
Restricted marketable securities		4,959,548		—
Unrestricted marketable securities	$	4,876,402	$	6,177,705

The contractual maturities of the Company’s marketable securities at December 31, 2003 are as follows: less than one year—$3,753,682; one to two years—$6,082,268. Actual maturities may differ from contractual maturities because the issuers of these securities may have the right to prepay obligations without penalty. Gross unrealized gains and (losses) at December 31, 2003 totaled $15,266 and ($14,661), respectively. Gross unrealized gains and (losses) at December 31, 2002 totaled $141,529 and ($26,129), respectively. Net realized gains totaled

52

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

$114,577, $55,066 and $129,578 in 2003, 2002 and 2001, respectively, and are included in investment income in the Consolidated Statements of Operations.

At December 31, 2003, the Company has classified $5,036,248 in cash and marketable securities as restricted in the Consolidated Balance Sheet (see Note 7).

3.    Fixed Assets

Fixed assets consist of the following at December 31:

	2003		2002
Laboratory equipment	$	876,078	$	872,855
Office furniture and equipment		40,568		30,869
Leasehold improvements		58,804		58,804
Computer equipment		81,892		51,905
		1,057,342		1,014,433
Less accumulated depreciation and amortization		452,680		229,537
	$	604,662	$	784,896

Amortization and depreciation expense on fixed assets for the years ended December 31, 2003, 2002 and 2001 was approximately $224,000, $171,000 and $60,000, respectively, and $732,000 for the period from inception (October 16, 1992) through December 31, 2003.

4.    Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following at December 31:

	2003		2002
Research and development related	$	480,741	$	1,217,483
Accrued professional fees		533,766		376,952
General and administrative related		421,357		208,351
Accrued dividends		34,029		—
Accrued interest		36,254		32,382
	$	1,506,147	$	1,835,168

5.    Notes Payable and Debt

10% Convertible Senior Secured 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 Ingalls & Snyder Value Partners, L.P. (“ISVP”) in a private placement with an original conversion price of $2.16 per share. Warrants to purchase a total of 500,000 shares of the Company’s common stock at $2.16 per share were also issued to ISVP.

The Notes mature in June 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,

53

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

additional notes on the same terms. The Notes may be converted into the Company’s common stock at the option of the holder, 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 cash 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, 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.

As a condition of the Company’s December 2003 private placement of preferred stock and warrants, the Company agreed to exercise its right to obtain a release of the security interest and continuing lien on its property that currently secure its outstanding Notes by providing alternative collateral in the form of cash or a standby letter-of-credit in the amount of all remaining principal and interest payments on the Notes through maturity. The remaining principal and interest payments on the Notes through maturity total approximately $5,036,000. The Company communicated to the noteholders its intention to obtain a release of the lien on its property by providing alternative collateral in the form of an irrevocable standby letter of credit in the amount of its remaining obligations. To date, the Company has been unable to reach agreement with the noteholders on the terms of such a letter of credit. The Company is currently reviewing its options regarding the release of liens and in the interim has set aside sufficient funds in a segregated account to satisfy its remaining obligations under the Notes in order to comply with its covenant to the December 2003 private placement investors. These funds are classified as restricted cash and marketable securities on the Consolidated Balance Sheet.

The net proceeds of approximately $3,885,000 were allocated between the warrants (approximately $311,000) and the Notes (approximately $3,574,000) based on their relative fair values. The value of the warrants was calculated using the Black-Scholes pricing model with the following assumptions: dividend yield of zero percent; expected volatility of 100%; risk free interest rate of approximately five percent and a term of five years. Based on the fair value of the Notes, they bear an effective interest rate of 12.6%. The initial carrying value of the Notes is being accreted ratably, over the term of the Notes, to the $4,000,000 amount due at maturity. The carrying value of the Notes approximates their fair values as of December 31, 2003. Debt issuance costs totaling $105,590 have been capitalized and are being amortized over the life of the Notes. Interest expense totaled $755,850 and $237,610 in 2003 and 2002, and included $292,090 and $46,539 in discount accretion and $35,196 and $15,356 in debt issuance cost amortization, respectively.

In November 2002, the Company entered into a Consent to Transfer and Warrant Amendment (the “Warrant Amendment”) with Ingalls & Snyder, L.L.C. (“I&S”), Robert L. Gipson (“Gipson”), Nikolaos D. Monoyios (“Monoyios”) and ISVP. Pursuant to the Agreement, the Company consented to the transfer of outstanding warrants to purchase 1,820,123 shares of the Company’s common stock (the “Warrants”) by Brown Simpson Partners I, Ltd. to Gipson and Monoyios. Effective upon the transfer, the terms of the Warrants were amended,

54

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

among other things, to reduce the exercise price from $2.15 per share to $2.00 per share, to extend the expiration date from September 22, 2004 to December 31, 2006 and to eliminate the reset and anti-dilution provisions. The Company also agreed that the conversion price of the Notes issued to ISVP would be reduced from $2.16 per share to $2.00 per share. In connection with these transactions, the Company recorded a charge of approximately $610,000, as determined under the Black Scholes pricing model, in 2002 which is included in Other Expenses in the Consolidated Statement of Operations. In addition, the existing registration rights applicable to the shares of common stock issuable upon exercise of the Warrants were terminated, and the Company granted Gipson and Monoyios new registration rights with respect to such shares equivalent to those granted to ISVP with respect to the Notes.

In connection with the March 2003 private placement (see Note 6), the conversion price of the Company’s Notes has been reduced to $1.00 per share in accordance with the anti-dilution provisions of the Notes. The reduction in the conversion price created a beneficial conversion feature, which was recognized as a decrease in the carrying value of the Notes and an increase in additional paid in capital of approximately $289,000. The value of the beneficial conversion feature will be recognized as interest expense ratably over the remaining life of the Notes.

In December 2002, the Company issued $143,333 in principal amount of Notes to ISVP for interest accrued through December 1, 2002. In March 2003, the conversion price of the $143,333 Note was reset from $2.00 to $1.00 in connection with the private placement of common stock at $1.00 (see Note 6). The reduction in the conversion price created a beneficial conversion feature of approximately $79,000, which was recognized as a decrease in the carrying value of the Notes and an increase in additional paid in capital. The value of the beneficial conversion feature will be recognized as interest expense ratably over the remaining life of the Notes. In June 2003, the Company issued $207,167 in principal amount of Notes to ISVP for interest accrued through June 1, 2003. The $207,167 Note was issued with a conversion price of $1.00 which was below the market price of the common stock at the date of issuance. This resulted in a beneficial conversion feature of approximately $190,000, which was recognized as a decrease in the carrying value of the Notes and an increase in additional paid in capital. The value of the beneficial conversion feature will be recognized as interest expense ratably over the remaining life of the Notes. In December 2003, the Company paid $217,525 in cash to ISVP for interest accrued through December 1, 2003.

As of December 31, 2003, ISVP held a total of $4,350,500 in principal amount of 10% Convertible Senior Secured Promissory Notes which are convertible into 4,350,500 shares of common stock.

8% Convertible Debentures

In September 1999, the Company issued $8,000,000 in convertible debentures due September 2003 and warrants to purchase a total of 1,690,000 shares of the Company’s common stock. The net proceeds of approximately $7,376,000 were allocated between the warrants (approximately $3,319,000) and the convertible debentures (approximately $4,057,000) based on their relative fair values. The warrants were issued in two classes, the first, or “class A” warrants, were originally exercisable to purchase 970,000 shares of common stock at an exercise price of $5.75 per share. The second, or “class B” warrants, were originally exercisable to purchase 720,000 shares of common stock at an exercise price of $8.25 per share. In connection with the financing, the Company paid $480,000 and issued 290,000 warrants exercisable at $5.75 per share to the placement agent.

During 2000, the Company issued 1,585,416 shares of common stock resulting from the conversion of the entire $8 million of convertible debentures and the payment of interest of approximately $318,000.

55

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During 2001, the Company entered into an agreement with the securityholder whereby the exercise price of the warrants held by the securityholder were reduced. The exercise price of 720,000 warrants previously exercisable at $8.25 per share were reduced to $4.625 and the exercise price of 970,000 warrants previously exercisable at $5.75 per share were also reduced to $4.625. In return, the securityholder agreed to significant restrictions on the number of shares of common stock that it could sell through May 2002. 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. 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 as a result of a private placement of common stock completed at that time. As provided in the original warrant terms, the exercise price of the 1,690,000 warrants was reduced to $2.15 which represents the per share selling price of the private placement of common stock. In addition, the securityholder received an additional 130,123 warrants exercisable at $2.15 per share under the anti-dilution provision included in the original warrant terms.

In November 2002, the securityholder transferred their 1,820,123 warrants to another securityholder as previously described above.

6.    Common Stock

In June 2000, the Company completed a private placement of 1,405,956 shares of common stock with Pictet Global Sector Fund-Biotech (“Pictet”) which raised approximately $9,921,000 in net proceeds. In connection with the financing, the Company issued 200,000 warrants to purchase common stock at $10.00 per share and 300,000 warrants to purchase common stock at $8.00 per share. The warrants contain a provision that would have decreased the exercise price of the warrants in June 2001.

In June 2001, the Company entered into an agreement with Pictet which agreed to defer the effective date of the reset provision relating to the exercise price 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 was also obligated to issue additional warrants in an amount equal to 9.9% of the increase in common stock outstanding from June 25, 2001 through June 30, 2004, subject to a maximum of 240,000 additional warrants. In accordance with this agreement, the Company issued an additional 163,110 warrants, exercisable at $1.27 per share in June 2002 and an additional 76,890 warrants, exercisable at $1.86 per share in June 2003. At June 30, 2003, the Company had issued all the warrants that it is obligated to issue under the 2001 agreement. The Company recorded a charge of approximately $287,000 in both 2002 and 2001 which is included in Other Expenses in the Consolidated Statement of Operations related to this obligation.

In March 2002, the Company completed a private placement of 1,599,568 shares of common stock which raised approximately $3,439,000 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. The Company also 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.

56

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In March 2003, the Company completed a private placement of 10,000,000 shares of its common stock which raised approximately $10,000,000 in gross proceeds. The investors in the private placement included Robert L. Gipson, partners and employees of I&S, Thomas O. Boucher, Jr. and other individual investors. In connection with the private placement, two existing securityholders of the Company, ISVP and Robert L. Gipson, agreed to restrictions on the voting of any shares of common stock issued to them prior to June 1, 2005 pursuant to their conversion or exercise of certain Notes and warrants of the Company. These restrictions provide that if either securityholder converts or exercises all or any portion of the Notes and warrants prior to June 1, 2005, such securityholder will not (a) vote the shares of common stock received upon such conversion or exercise, (b) deposit any such common stock in a voting trust, or subject such common stock to any other arrangement or agreement with respect to voting, or (c) communicate with or seek to advise or influence any other person with respect to the solicitation or voting of such common stock in opposition to any matter that has been recommended by the Board of Directors or in favor of any matter that has not been approved by the Board of Directors.

7.    Preferred Stock

The Company has authorized 1,000,000 shares of preferred stock of which 25,000 shares have been designated as Series A Convertible Preferred Stock, 500,000 shares have been designated as Series D Convertible Preferred Stock, and 800 shares have been designated as Series E Cumulative Convertible Preferred Stock. The remaining authorized shares have not been designated.

Series A Preferred Stock

In connection with the 1996 private placement of Series A Convertible Preferred Stock, the Company granted options to acquire 23.991 units to the placement agent. Each unit consists of 1,000 shares of Series A Convertible Preferred Stock and warrants to purchase 2,500 shares of common stock at a unit exercise price of $110,000. Each share of the Series A Convertible Preferred Stock is convertible into shares of common stock pursuant to a ratio of 17.53771 shares of common stock for each share of Series A Convertible Preferred Stock. There were 22.607 unit options outstanding at December 31, 2003.

Series E Preferred Stock

On December 9, 2003, the Company completed a private placement with a group of institutional and private investors. In connection with the financing, the Company issued 800 shares of Series E Cumulative Convertible Preferred Stock (“Series E Stock”), accompanied by warrants to purchase 2,880,000 shares of common stock. The purchase price of each share of Series E Stock was $10,000. Each share of Series E Stock is initially convertible into 8,000 shares of common stock based on an initial conversion price of $1.25 per share and was accompanied by a warrant to purchase 3,600 shares of common stock at an exercise price of $1.55 per share. The warrants will become exercisable on June 9, 2004 and will expire on December 9, 2007.

Burnham Hill Partners, a division of Pali Capital, Inc., acted as placement agent with respect to the private placement and received a cash fee and placement agent warrants to purchase 640,000 shares of common stock at an exercise price of $1.49 per share. The placement agent warrants will become exercisable on June 9, 2004 and will expire on December 9, 2008. Burnham Hill Partners will also receive a cash fee equal to 4% of the cash received by the Company upon the exercise of the investor warrants.

The net proceeds of approximately $7,040,000 were allocated between the warrants (approximately $2,049,000) and the Series E Stock (approximately $4,991,000) based on their relative fair values. The value of

57

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the warrants was calculated using the Black-Scholes pricing model with the following assumptions: dividend yield of zero percent; expected volatility of 100%; risk free interest rate of approximately three percent and a term of four years for the investor warrants and five years for the placement agent warrants. In connection with the issuance of Series E Stock, we recorded a beneficial conversion feature of $2,696,658. A beneficial conversion feature is recorded when the consideration allocated to the convertible security, divided by the number of common shares into which the security converts, is below the fair value of the common stock at the date of issuance of the convertible instrument. The amount of the beneficial conversion feature has been immediately accreted and the accretion resulted in a deemed dividend as the preferred stock does not have a redemption term. The value of the beneficial conversion feature has been reflected as an adjustment to the net loss attributable to common stockholders on the Company’s Statement of Operations.

The terms of the Series E stock are as follows:

Conversion and Dividends

The Series E Stock is initially convertible into common stock at $1.25 per share, and is subject to a weighted average anti-dilution adjustment if the Company issues equity securities in the future at a lower price. Effective August 11, 2004, if the Company’s common stock closes at a price of $4.00 per share or greater for 10 consecutive trading days and other specified conditions are met, the Series E Stock will automatically convert into common stock at the then effective conversion price. The holders of Series E Stock are entitled to receive a cumulative dividend of 4% per annum, payable beginning on October 31, 2004 and on each anniversary thereof. The dividend rate will increase to 8% on June 9, 2005. The dividend is payable in cash, but the Company may elect to pay the dividend in shares of common stock under specified circumstances. Upon conversion, accrued dividends are paid in common stock based on the then conversion price of the Series E Stock.

Voting Rights

The Series E Stock generally will vote together with the common stock as one class. Each holder of Series E Stock generally is entitled to the number of votes equal to the number of shares of common stock into which its shares of Series E Stock could be converted on the record date for the vote assuming for such purpose a conversion price of $1.48 per share.

Redemption and Liquidation Preference

Effective December 10, 2007, the Company can elect to redeem the Series E Stock in whole or in part in cash in an amount equal to any accrued but unpaid dividends on the Series E Stock plus the greater of 125% of the liquidation preference or the current market value of the common stock into which the shares of Series E Stock are then convertible.

In the event of specified transactions involving a change of control of the Company, the holders of Series E Stock can elect to have their shares of Series E Stock redeemed. The Company generally has the option to satisfy such a redemption request in cash, by delivery of the common stock into which such Series E Stock would have been convertible, or by causing the successor or acquiring corporation to assume the Series E Stock. In most circumstances, the liquidation preference of the Series E Stock for purposes of such redemption will be deemed to be 125% of the liquidation preference. In addition, the Company has agreed not to effect a change of control of the Company without the prior consent of the holders of a majority of the Series E Stock and the holders of a majority in interest of the warrants issued in the private placement, unless the acquiring entity assumes all of the

58

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company’s obligations relating to the preferred stock and warrants, and the securities into which the preferred stock and warrants then become convertible or exercisable are securities of a publicly traded corporation.

Participation in Future Financings

Subject to specified exceptions, each holder of Series E Stock has the right to invest in any financing completed by the Company involving equity or equity-linked securities through June 9, 2005. Each holder has the right to participate in any such financing in an amount equal to 50% of the amount invested in the Series E financing. Subject to specified exceptions, in the event of any financing by us after June 9, 2005 involving equity or equity-linked securities other than common stock, the holders of Series E Stock will have the right to exchange any of their outstanding shares of Series E Stock for securities in the new financing at 100% of the liquidation preference of the Series E Stock.

Alternative Collateral

Under the terms of the private placement, the Company agreed to exercise its right to obtain a release of the security interest and continuing lien on its assets that secure the Notes held by ISVP by providing alternative collateral in the form of cash or a standby letter-of-credit in the amount of all remaining principal and interest payments on the Notes through maturity. If the security interest and lien were not released within a specified period, the Company agreed to deposit sufficient funds in a segregated account to make all remaining principal and interest payments on the notes through maturity and not to utilize those funds for any other purpose until such release occurs. The remaining principal and interest payments on the Notes through maturity total approximately $5,036,000. In January 2004, the Company communicated to ISVP its intention to obtain a release of the lien on its assets by providing alternative collateral in the form of an irrevocable standby letter of credit in the amount of its remaining obligations. The letter of credit was to be issued on January 16, 2004 by the Company’s primary banking institution, along with a confirmatory letter of credit issued that day by a second bank with a long term rating of AA minus from Standard & Poor’s. On January 15, 2004, ISVP communicated to the Company that the letter of credit as presented was unacceptable because it was not from a AAA rated commercial bank. The Company believes that there are no commercial banks in the United States currently rated AAA by Standard & Poor’s, and that the AA minus rating of the second bank is the same as that of the leading commercial banks in the United States. The Company is currently reviewing its options regarding the release of liens in response to ISVP’s refusal of the irrevocable letter of credit. In the interim, the Company has set aside sufficient funds in a segregated account to satisfy its remaining obligations under the notes in order to comply with its covenant to the holders of Series E Stock. At December 31, 2003, the Company has classified approximately $5 million in cash and marketable securities as restricted in the Consolidated Balance Sheet related to this obligation.

8.    Stock Options and Warrants

Stock Option Plans

The Company has two stock option plans under which it can issue both nonqualified stock options and incentive stock options to employees, officers, consultants and scientific advisors of the Company. The Amended and Restated Omnibus Stock Option Plan allows for the issuance of options to purchase up to 1,200,000 shares of the Company’s common stock through April 2005. The 1998 Omnibus Plan provides for the issuance of options to purchase up to 4,100,000 shares of the Company’s common stock through April 2008. The Company’s Board of Directors determines the term of each option, vesting provisions, option price, number of shares for which

59

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

each option is granted and the rate at which each option is exercisable. The term of each option cannot exceed ten years. The exercise price of incentive stock options shall not be less than the fair market value of the Company’s common stock on the date of grant. Nonqualified stock options may be issued under the Omnibus Plan at an option price determined by the Board of Directors which shall not be less than 50% of the fair market value of the Company’s common stock on the date of grant.

The Company has a third stock option plan, the Directors’ Plan, that allows for the issuance of up to 1,400,000 shares of the Company’s common stock through April 2005. The Director’s Plan provides for an automatic yearly grant of options to all non-employee directors of up to 2,500 options. Non-qualified stock options issued pursuant to the automatic yearly grant have an exercise price equivalent to 20% of the quoted market price of the Company’s common stock on the date of grant. Compensation expense related to the intrinsic value of options issued in connection with the annual grant totaled approximately $9,700, $13,600 and $25,000 in 2003, 2002 and 2001, respectively. All options granted under the Directors’ Plan have a term of ten years from the date of grant and generally vest over periods up to three years.

Stock Options

A summary of the Company’s outstanding stock options as of December 31, 2003, 2002, and 2001 and changes during the years ending on those dates is presented below.

	2003				2002				2001
	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding at beginning of year	4,274,168		$	3.34	3,563,918		$	3.33	1,956,351		$	4.04
Granted	835,000			1.01	848,000			3.33	1,809,080			2.49
Exercised	(50,000	)		1.00	—			—	(48,004	)		0.91
Forfeited and expired	(773,250	)		3.41	(137,750	)		2.74	(153,509	)		3.31
Outstanding at end of year	4,285,918			2.91	4,274,168			3.34	3,563,918			3.33
Options exercisable at year-end	3,822,874			3.11	3,195,885			3.43	2,754,968			3.58
Granted below fair market value	12,500				12,500				9,080
Weighted-average fair value of options granted during the year at fair market value			$	0.70			$	0.78			$	1.61
Weighted-average fair value of options granted during the year below fair market value			$	1.32			$	1.09			$	3.06

60

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes information about stock options outstanding at December 31, 2003:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
$0.27	10,000	6.8 years	$	0.27	10,000	$	0.27
$0.63—$0.82	37,808	2.1 years		0.76	37,808		0.76
$1.00—$1.40	716,712	8.8 years		1.01	317,543		1.01
$1.64—$2.21	974,558	5.6 years		1.95	952,683		1.96
$2.58—$3.63	1,893,865	5.9 years		3.17	1,851,865		3.18
$4.46—$6.57	456,875	3.4 years		4.92	456,875		4.92
$7.65—$9.38	196,100	2.0 years		7.91	196,100		7.91
	4,285,918	5.9 years	$	2.91	3,822,874	$	3.11

As of December 31, 2003, 1,752,136 shares are available for grant under the Company’s option plans.

Warrants

The Company issued 10,000, 210,756 and 10,000 warrants to certain consultants and business advisors as partial compensation for their services during the years ending December 31, 2003, 2002, and 2001, respectively. The Company recorded non-cash charges of $41,841, $124,764 and $5,405 representing the fair value of those warrants during 2003, 2002, and 2001, respectively. In addition, warrants have been issued in connection with financing transactions (Notes 5, 6 and 7).

61

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of December 31, 2003, warrants outstanding to purchase common stock were as follows:

Date of Issue	Exercise  Price per Share		Warrants Outstanding	Expiration Date
December 2003	$	1.49	640,000	December 2008
December 2003		1.55	2,880,000	December 2007
June 2003		1.86	76,890	June 2006
April 2003		1.00	10,000	April 2013
October 2002		2.50–3.50	165,000	October 2007
July 2002		2.16	505,000	July 2007
June 2002		1.27	163,110	June 2006
April 2002		2.00	25,000	April 2007
March 2002		2.75	573,205	March 2007
October 2001		1.90	10,000	October 2011
June 2001		3.40	160,000	June 2006
June 2000		3.00	500,000	May 2005
November 1999		6.00	133,531	November 2004
September 1999		4.25	216,000	September 2004
September 1999–March 2002		2.00	1,820,123	December 2006
September 1999		5.75	290,000	September 2004
February 1999–March 1999		3.25–6.00	23,187	February 2004—March 2004
February 1999		4.81–6.09	945,252	February 2004
January 1997		15.00	20,000	January 2007
June 1996		11.00	32,749	June 2006
February 1996		6.71	521,627	February 2006
August 1995		6.81	24,923	July 2005
			9,735,597

Each warrant is exercisable into one share of common stock. No warrants were exercised in 2003. At December 31, 2003, the Company has reserved 27,461,167 shares of common stock to meet its option, debt and warrant obligations.

Rights Agreement

On September 11, 2001, the Board of Directors of the Company declared a dividend distribution of one preferred stock purchase right (a “Right”) for each share of common stock. Each Right entitles the registered holder to purchase from the Company one-thousandth of a share of its Series D Preferred Stock at an exercise price of $25. The distribution of Rights was payable on September 13, 2001 to the record holders of common stock at the close of business on that date. The Rights will expire on September 11, 2011.

In general, the Rights will be exercisable only if a person or group acquires 15% or more of the Company’s common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 15% or more of the Company’s common stock. If, after the Rights become exercisable, the Company is acquired in a merger or other business combination transaction, or sells 25% or more of its assets or earning power, each unexercised Right will entitle its holder to purchase, at the Right’s then-current exercise price, a number of the acquiring Company’s common shares having a market value at the time of twice the Right’s

62

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

exercise price. At any time after any person or group has acquired beneficial ownership of 15% or more of the Company’s common stock, the Board, in its sole discretion, may exchange all or part of the then outstanding and exercisable Rights for shares of common stock at an exchange ratio of one share of common stock per Right.

In November 2002, the Company and Continental Stock Transfer & Trust Company, as rights agent (the “Rights Agent”), entered into an amendment to the Rights Agreement (the “Rights Plan Amendment”) dated as of September 11, 2001, between the Company and the Rights Agent, as amended (the “Rights Plan”). The Rights Plan Amendment provides that, for purposes of any calculation under the Rights Plan of the percentage of outstanding shares of common stock beneficially owned by a person, any shares of common stock such person beneficially owns that are not outstanding (such as shares underlying options, warrants, rights or convertible securities) shall be deemed to be outstanding. The Rights Plan Amendment also exempts each of I&S, ISVP and Robert L. Gipson from being an “Acquiring Person” under the Rights Plan so long as such persons, collectively, together with all affiliates of such persons, shall beneficially own less than 20% of the shares of common stock then outstanding.

On March 12, 2003, the Company and the Rights Agent amended the Rights Plan to provide that prior to June 1, 2005, ISVP, Robert L. Gipson and their affiliates will be deemed not to beneficially own certain convertible notes and warrants of the Company and any common stock issued or issuable upon their conversion or exercise for purposes of determining whether such person is an “Exempt Person” under the Rights Plan.

On December 23, 2003, the Company and the Rights Agent amended the Rights Plan, as amended, to add Thomas O. Boucher, Jr. to the list of “Exempt Persons” who are exempt from being an “Acquiring Person” so long as such persons, collectively, together with all affiliates of such persons, shall beneficially own less than 20% of the shares of common stock then outstanding. In addition, the amendment provides that a person shall not be deemed to beneficially own securities held by another person solely by reason of an agreement, arrangement or understanding among such persons to vote such securities, if such agreement, arrangement or understanding is for the purpose of (i) soliciting revocable proxies or consents to elect or remove directors of the Company pursuant to a proxy or consent solicitation made or to be made pursuant to, and in accordance with, the applicable proxy solicitation rules and regulations promulgated under the Securities Exchange Act of 1934, as amended, and/or (ii) nominating one or more individuals (or being nominated) for election to the Company’s Board of Directors or serving as a director of the Company.

9.    Income Taxes

Income tax benefit consists of the following for the years ended December 31:

	2003			2002			2001
Federal	$	2,139,000		$	2,780,000		$	2,700,000
State		811,000			1,017,000			1,128,000
		2,950,000			3,797,000			3,828,000
Valuation allowance		(2,950,000	)		(3,797,000	)		(3,828,000	)
	$	—		$	—		$	—

63

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred tax assets consist of the following at December 31:

	2003			2002			2001
Net operating loss carryforwards	$	31,293,000		$	29,220,000		$	26,967,000
Capitalized research and development expenses		8,690,000			8,065,000			6,860,000
Research and development credit carryforwards		2,519,000			2,111,000			1,737,000
Other		155,000			310,000			345,000
Gross deferred tax assets		42,657,000			39,706,000			35,909,000
Valuation allowance		(42,657,000	)		(39,706,000	)		(35,909,000	)
	$	—		$	—		$	—

The Company has provided a full valuation allowance for its deferred tax assets since it is more likely than not that the future benefits will not be realized. In the event the Company achieves profitability, these deferred tax assets could be available to offset future income tax liabilities and expense.

A reconciliation between the amount of reported tax benefit and the amount computed using the U.S. Federal statutory rate of 35% for the year ended December 31 is as follows:

	2003			2002			2001
Benefit at statutory rate	$	(2,929,000	)	$	(3,848,000	)	$	(3,588,000	)
State taxes, net of federal benefit		(436,000	)		(570,000	)		(579,000	)
Research and development credit		(422,000	)		(413,000	)		(461,000	)
Permanent items		309,000			448,000			—
Other		528,000			586,000			800,000
		(2,950,000	)		(3,797,000	)		(3,828,000	)
Benefit of loss not recognized, increase in valuation allowance		2,950,000			3,797,000			3,828,000
	$	—		$	—		$	—

As of December 31, 2003, the Company has federal net operating loss carryforwards of approximately $83,241,000 which expire at various dates through 2023. In addition, the Company has federal and state research and development credits of approximately $1,900,000 and $940,000, respectively, which expire at various dates through 2023 and 2018, respectively. These net operating loss carryforwards and research and development credits may be used to offset future federal and state taxable income and tax liabilities. A portion of the net operating loss carryforwards totaling approximately $1,539,000 relates to deductions for the exercise of non-qualified options and certain warrants and will be credited to additional paid-in capital upon realization.

In connection with the Merger, the Company acquired approximately $90 million of net operating loss carryforwards of which approximately $11.6 million can be utilized by the Company under the ownership change provisions of the Internal Revenue Code. These net operating losses, which expire in 2009 and 2010, cannot offset the taxable income of any of the subsidiaries of the Company. In addition, ownership changes resulting from the Company’s issuance of common stock or convertible preferred stock may limit the amount of net operating loss and tax credit carryforwards that can be utilized to offset future taxable income. The amount of the limitation is determined based upon the Company’s value immediately prior to the ownership change. Subsequent significant changes in ownership could further affect the limitation in future years.

64

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10.    Commitments and Contingencies

The Company recognizes and discloses commitments when it enters into executed contractual obligations with other parties. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonable estimated.

Commitments

Research and development commitments consists of contractual obligations with third parties, as well as the estimated costs of approximately $3.5 million to complete the planned Phase III clinical trial for ALTROPANE in patients with tremors. The Company leases certain office equipment, office space and laboratory space under noncancelable operating leases. The Company’s current corporate office lease expires in 2012 and contains provisions whereby the Company can sublet all or part of the space and fully retain any sublease income generated. The Company also leases laboratory space that expires in May 2006. As of December 31, 2003, approximate future minimum commitments under the above leases and other contractual obligations are as follows:

Year Ended December 31,	Research and Development		Operating Lease		Other General and Administrative		Maturity of Debt
2004	$	5,408,000	$	327,000	$	125,000		—
2005		1,242,000		335,000		125,000	$	4,350,500
2006		—		296,000		—		—
2007		—		277,000		—		—
2008		—		285,000		—		—
Thereafter		—		1,019,000		—		—
	$	6,650,000	$	2,539,000	$	250,000	$	4,350,500

Total rent expense under noncancelable operating leases was approximately $341,000, $310,000 and $207,000 for the years ended December 31, 2003, 2001, and 2000, respectively, and approximately $1,683,000 for the period from inception (October 16, 1992) through December 31, 2003.

License Agreements

Since inception, the Company has paid Harvard and its Affiliates approximately $500,000 in initial licensing fees and approximately $200,000 in milestone payments. Under the terms of these licensing agreements with Harvard and its Affiliates, the Company may become obligated to pay up to an aggregate of $5.8 million in milestone payments in the future. These future milestone payments are generally payable only upon the completion of later stage clinical trials and the filing of an NDA or similar application seeking product approval. Most of these contingent milestone payments are associated with technologies that are presently in early stage development.

Litigation

On November 13, 2003, Robert L. Gipson, Thomas O. Boucher, Jr., Ingalls & Snyder Value Partners, L.P. and Ingalls & Snyder, L.L.C., the plaintiffs, filed a complaint against the Company and the members of the Company’s Board of Directors in the Delaware Court of Chancery alleging an improper entrenchment motive regarding the Board of Director’s interpretation of the Company’s 2001 Rights Agreement, as amended to date.

65

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On September 29, 2003 and October 15, 2003, the plaintiffs filed amendments to their Schedule 13D relating to the Company’s common stock in which they stated their intention to seek the removal of certain members of the Company’s Board of Directors and management, to nominate an alternate slate of directors for election at the Company’s next annual meeting and to seek redemption of the Company’s Rights Agreement. In October 2003, the Board of Directors considered the possibility that Mr. Boucher’s holdings of the Company’s common stock, together with the holdings of certain other shareholders being attributed to Mr. Boucher by virtue of his acting in concert with such shareholders, may have exceeded a beneficial ownership threshold that could trigger a distribution of preferred stock purchase rights under the Company’s Rights Agreement.

By letter from counsel dated October 14, 2003, the Board of Directors communicated to the plaintiffs that Mr. Boucher may have exceeded the threshold for triggering the distribution of the rights under the Rights Agreement and that the Board of Directors had taken action to temporarily delay the distribution of the rights. The complaint filed by the plaintiffs was seeking, among other things, declaratory relief that Mr. Boucher had not exceeded the beneficial ownership threshold for triggering the distribution of rights under the Rights Agreement and that the directors had breached their fiduciary duties in connection with applying the Rights Agreement, and injunctive relief to compel the directors to call and hold a special meeting of stockholders. In December 2003, the plaintiffs requested expedited relief in the form of a preliminary injunction regarding Mr. Boucher’s status under the Rights Agreement. On December 23, 2003, the Company amended the Rights Agreement in order to clarify Mr. Boucher’s status under the Rights Agreement and the plaintiffs withdrew their request for expedited relief. There have been no subsequent developments regarding this litigation.

On December 31, 2003, the plaintiffs filed another complaint in the Delaware Court of Chancery against the Company and the members of its Board of Directors alleging an improper entrenchment motive and breach of fiduciary duty by the directors in connection with the issuance of preferred stock and warrants in the Company’s December 2003 private placement. The complaint filed by the plaintiffs was seeking unspecified equitable and monetary relief. The Company asked the court to dismiss this lawsuit because it lacked any factual basis and ignored fundamental principles of law. Instead of responding to the Company’s motion to dismiss, on March 9, 2004, the plaintiffs moved to dismiss their own lawsuit without prejudice prior to the deadline to explain to the court why their claim was legitimate. The Delaware Court of Chancery immediately granted the motion and dismissed the case. On March 22, 2004, the plaintiffs made a books and records request under Delaware law seeking additional information regarding the Company’s December 2003 private placement and seeking information on a number of unrelated matters.

The Company believes these proceedings will not have a material impact on the consolidated financial statements.

Contingencies

The Company is subject to legal proceedings in the normal course of business. Management believes that these proceedings will not have a material adverse effect on the consolidated financial statements.

In March 2004, the Company received notice from Rodman & Renshaw claiming that Rodman & Renshaw was entitled to a cash payment of approximately $452,000 and 361,000 warrants in connection with the Company’s private placement completed in December 2003. The Company responded shortly thereafter, advising Rodman & Renshaw that there was no legal or equitable basis for the payment of compensation to Rodman & Renshaw in connection with the private placement. Management does not believe that this matter will have a material adverse effect on the consolidated financial statements.

66

BOSTON LIFE SCIENCES, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

11.    Related Party Transactions

A director of the Company is a member of the Company’s Scientific Advisory Board pursuant to which the Company paid the director consulting fees totaling approximately $53,000 in 2003 and 2002, respectively.

A director of the Company is a director and Chairman of the Executive Committee of the bank where the Company maintains its cash, cash equivalent and marketable securities accounts. The Company paid approximately $33,000 and $28,000 to the bank during fiscal 2003 and 2002, respectively, primarily for investment management advisory services. This director also purchased 24,000 shares of common stock and warrants to purchase 6,000 shares of common stock at an exercise price equal to $2.75 in the Company’s March 2002 private placement (Note 6).

During 2001, the Company issued a promissory note to an officer of the Company in the amount of $55,000. The note was payable on demand and accrued interest at a rate of 6%. As of December 31, 2002, the balance outstanding on the note was $32,901, and in the first quarter of 2003, the remaining outstanding principal and interest was repaid in full.

During 2003, the Company entered into an agreement with a director to provide consulting services to the Company from January 1, 2004 through December 31, 2005 at an annual fee of $125,000. In addition, the director remains eligible through December 31, 2004, for executive bonus awards based on the Company’s achievement of certain milestones, in accordance with terms established by the Compensation Committee.

12.    Employee Benefit Plan

The Company maintains a savings plan (the “Plan”) with employer matching provisions which was designed to be qualified under Section 401(k) of the Internal Revenue Code. Eligible employees are permitted to contribute to the Plan through payroll deductions within statutory and Plan limits. For the years ended December 31, 2003, 2002 and 2001, the Company made matching contributions of approximately $26,000, $19,000 and $20,000, respectively, to the Plan.

13.    Subsequent Event

As of March 24, 2004, the Company has issued 1,381,600 shares of common stock in connection with the conversion of 172.7 shares of Series E Stock and 12,451 shares of common stock in connection with the payment of dividends accrued through the date of conversion.

14.    Supplementary Quarterly Financial Data (Unaudited)

The following tables present a condensed summary of quarterly consolidated results of operations for the years ended December 31, 2003 and 2002:

	Quarter Ended
	March 31,			June 30,			September 30,			December 31,
2003
Revenues	$	—		$	—		$	—		$	—
Net loss		(2,353,598	)		(1,901,357	)		(2,017,706	)		(2,095,333	)
Basic and diluted net loss per share	$	(0.10	)	$	(0.06	)	$	(0.06	)	$	(0.06	)
2002
Revenues	$	—		$	—		$	—		$	—
Net loss		(3,019,791	)		(2,596,237	)		(2,476,253	)		(2,900,861	)
Basic and diluted net loss per share	$	(0.14	)	$	(0.12	)	$	(0.11	)	$	(0.13	)

67

PART III

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. The Company’s principal executive officer and principal financial and accounting officer have reviewed and evaluated the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report on Form 10-K (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective.

Changes in Internal Controls

There have not been any significant changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 10.    Directors and Executive Officers of the Registrant.

Code of Business Conduct and Ethics

The Company has adopted a Code of Business Conduct and Ethics (“Code”). The Code constitutes the Company’s Code of Ethics applicable for all of the Company’s employees. The Code is intended to promote honest and ethical conduct, full and accurate reporting, and compliance with laws as well as other matters. A copy of the Code is included as Exhibit 14.1 to this Annual Report on Form 10-K.

All other information required by this Item 10, with respect to executive officers, is hereby incorporated by reference to the text appearing under Part 1, Item 4 under the caption “Executive Officers of the Registrant” in this Report, and, with respect to directors, by reference to the information included under the headings “Information Regarding Directors”, “Executive Officers”, and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive Proxy Statement for the 2004 Annual Meeting of Stockholders to be filed by the Company with the Securities and Exchange Commission within 120 days after the close of the Company’s fiscal year.

Item 11.    Executive Compensation.

The information required by this Item 11 is hereby incorporated by reference to the information under the heading “Executive Compensation” and “Report of Compensation Committee on Executive Compensation” in the Company’s definitive Proxy Statement for the 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of its fiscal year.

68

Item 12.    Security Ownership of Certain Beneficial Owners and Management.

Equity Compensation Plan Information

This table shows information about our common stock that may be issued upon the exercise of options under all of our equity compensation plans as of December 31, 2003. As required by the Securities and Exchange Commission rules, we include in footnote (2) to this table a brief description of the material features of our option issuances that have not been approved by the Company’s stockholders.

Plan Category	Number of securities to be issued upon exercise of outstanding options (a)	Weighted-average exercise price of outstanding options (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders(1)	4,135,918	$	2.94	1,752,136
Equity compensation plans not approved by security holders(2)	150,000	$	2.00	—
Total	4,285,918	$	2.91	1,752,136

(1) Includes our:

• Amended and Restated Omnibus Stock Option Plan

• 1998 Omnibus Plan

• Amended and Restated 1990 Non-Employee Directors’ Non-Qualified Stock Option Plan

(2) Relates to stock options granted to Robert J. Rosenthal, Ph.D., in connection with his joining the Company in July 2002. Dr. Rosenthal resigned as President and Chief Executive Officer of the Company on September 22, 2003 and the options expired in January 2004.

All other information required by this Item 12 is hereby incorporated by reference to the information under the heading “Security Ownership of Principal Stockholders and Management” in the Company’s definitive Proxy Statement for the 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of its fiscal year.

Item 13.    Certain Relationships and Related Transactions.

We have entered into indemnity agreements with each of our directors and executive officers containing provisions that may require us, among other things, to indemnify those directors and officers against liabilities that may arise by reason of their status or service as directors and officers. The agreements also provide for us to advance to the directors and officers expenses that they expect to incur as a result of any proceeding against them related to their service as directors and officers.

All other information required by this Item 13 is hereby incorporated by reference to the information under the heading “Certain Relationships and Related Transactions” in the Company’s definitive Proxy Statement for the 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of its fiscal year.

Item 14.    Principal Accounting Fees and Services.

The information required by this Item 14 is hereby incorporated by reference to the information under the heading “Independent Auditors Fees” in the Company’s definitive Proxy Statement for the 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of its fiscal year.

69

PART IV

Item 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) The following documents are included as part of this Annual Report on Form 10-K.

1. Financial Statements:

Consolidated Financial Statements of the Company

Financial Statements of the Registrant and Report of Independent Auditors thereon

Consolidated Balance Sheets at December 31, 2003 and 2002

Consolidated Statements of Operations for the fiscal years ended December 31, 2003, 2002 and 2001 and for the period from inception (October 16, 1992) through December 31, 2003

Consolidated Statements of Comprehensive Loss and Stockholders’ Equity for the fiscal years ended December 31, 2003, 2002 and 2001 and for the period from inception (October 16, 1992) through December 31, 2003

Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2003, 2002 and 2001, and for the period from inception (October 16, 1992) through December 31, 2003

Notes to Consolidated Financial Statements

2. Financial Statement Schedules:

Schedules are omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or Notes thereto.

3. Exhibits:

The Exhibits listed in the Exhibit Index immediately preceding the Exhibits are filed as a part of this Annual Report on Form 10-K.

(b) REPORTS ON FORM 8-K: The Registrant filed the following Reports on Form 8-K during the fourth quarter of 2003 and through March 24, 2004:

Date of Report	Items Reported
October 8, 2003	5,7
October 16, 2003	5,7
October 30, 2003	5,7
December 9, 2003	5,7
January 16, 2004	5
February 12, 2004	5
February 17, 2004	5,7
March 12, 2004	5,7
March 16, 2004	5,7

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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.

	BOSTON LIFE SCIENCES, INC. (Registrant)
March 30, 2004	By:	/s/    MARC E. LANSER
		Marc E. Lanser, M.D. Director, President & Chief Operating Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/    MARC E. LANSER         Marc E. Lanser, M.D.	Director, President & Chief Operating Officer (Principal Executive Officer)	March 30, 2004
/s/    JOSEPH P. HERNON         Joseph P. Hernon, CPA	Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)	March 30, 2004
/s/    COLIN B. BIER         Colin B. Bier, Ph.D.	Director	March 30, 2004
/s/    S. DAVID HILLSON         S. David Hillson, Esq.	Chairman	March 30, 2004
/s/    ROBERT LANGER         Robert Langer, Sc.D.	Director	March 30, 2004
/s/    E. CHRISTOPHER PALMER         E. Christopher Palmer, CPA	Director	March 30, 2004
/s/    STEPHEN M. PECK         Stephen M. Peck	Director	March 30, 2004

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EXHIBIT INDEX

Exhibit Number	Description and Method of Filing
2.1	Amended and Restated Agreement of Merger, dated as of December 29, 1994, by and between the Company and Greenwich Pharmaceuticals Incorporated (1)
2.2	Amendment No. 1 to Amended and Restated Agreement of Merger, dated as of April 6, 1995, by and between the Company and Greenwich Pharmaceuticals Incorporated (2)
3.1	Amended and Restated Certificate of Incorporation, dated March 29, 1996, as amended on June 9, 1997, and by the Certificate of Designations, Rights and Preferences of Series B Convertible Preferred Stock filed on February 5, 1999, the Certificate of Decrease of Series B Convertible Preferred Stock filed on February 18, 1999, and the Certificate of Designations, Rights and Preferences of Series C Convertible Preferred Stock filed on February 18, 1999 (3)
3.2	Certificate of Decrease and Elimination of Series B Convertible Preferred Stock filed on June 29, 1999; Certificate of Decrease of Series A Convertible Preferred Stock filed on June 29, 1999; Certificate of Correction filed on June 29, 1999; Certificate of Amendment of Amended and Restated Certificate of Incorporation filed on June 29, 1999 (4)
3.3	Certificate of Designations, Preferences and Rights of Series A Preferred Stock filed December 30, 1999; Certificate of Amendment of Amended and Restated Certificate of Incorporation filed June 15, 2000; Certificate of Correction filed March 16, 2001; Certificate of Elimination of Series A Convertible Preferred Stock filed on March 16, 2001; Certificate of Elimination of Series C Convertible Preferred Stock filed on March 16, 2001; Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock filed March 19, 2001; Certificate of Designations, Preferences, and Rights of Series D Preferred Stock filed March 19, 2001 (26)
3.4	Restated Certificate of Designations, Preferences, and Rights of Series D Preferred Stock filed September 13, 2001 (18); Certificate of Amendment of Amended and Restated Certificate of Incorporation filed on June 11, 2002 (25); Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company, dated as of July 9, 2003 (6); Certificate of Designations, Rights and Preferences of the Series E Cumulative Convertible Preferred Stock of the Company (24)
3.5	Amended and Restated By Laws, effective as of June 26, 1995 (8); Amended and Restated By Laws, effective as of March 16, 2004 (31)
4.1	Rights Agreement dated as of September 11, 2001 between the Company and Continental Stock Transfer & Trust Company, as Rights Agent, as amended on November 13, 2001, November 22, 2002, March 12, 2003, and December 23, 2003 (9)
4.2	Specimen Common Stock Certificate (10)
4.3	Form of Warrant Agreement by and among the Company, the Warrant Agent and Paramount Capital, Inc. and related Form of Warrant Certificate for Purchase of Common Stock (11)
4.4	Form of Common Stock Purchase Warrants received by The Tail Wind Fund, Ltd. (“Tail Wind”) and Form of Common Stock Purchase Warrant received by certain other investors (12)
4.5	Form of Common Stock Purchase Warrant received by purchasers of Series B Preferred Stock and Series C Preferred Stock (14)
4.6	Form of Common Stock Purchase Warrant received by holders of Series C Preferred Stock (13)
4.7	Form of 8% Convertible Debenture dated as of September 22, 1999, Form of Class A Warrant dated as of September 22, 1999, Form of Class B Warrant dated as of September 22, 1999 (15)
4.8	Form of Common Stock Purchase Warrant received by Pictet Global Sector Fund-Biotech (18); as amended on March 27, 2001 and June 25, 2001 (5)
4.9	Common Stock Purchase Warrant received by Pictet Global Sector Fund-Biotech (5)
4.10	Omnibus Agreement, dated as of May 31, 2001, by and between the Company and Brown Simpson Partners I, Ltd. (5)

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Exhibit Number	Description and Method of Filing
4.11	Form of Common Stock Purchase Warrant received by MTR Technologies, Inc., the Trout Group LLC, and Form of Common Stock Purchase Warrant received by HCW, Matthew Balk, Scott Weisman, Jason Adelman, Eric Singer Alexandros Partners LLC, Celia Kupferberg and Robert Licho (19)
4.12	Form of Common Stock Purchase Warrant received by the Investors to the March 2002 Private Placement (17)
4.13	Common Stock Purchase Warrant received by the Investor named therein dated as of July 25, 2002 (21)
4.14	Form of Warrant delivered to Robert L. Gipson and Nikolaos D. Monoyios (22)
4.15	Form of Common Stock Purchase Warrant received by purchasers of Series E Preferred Stock (24)
4.16	Form of Placement Agent Common Stock Purchase Warrant received by the placement agents of Series E Preferred Stock (24)
10.1	Boston Life Sciences, Inc. Amended and Restated Omnibus Stock Option Plan (2) (+)
10.2	Employment Agreement between Boston Life Sciences, Inc. and S. David Hillson dated as of November 7, 1994; Election Notice from S. David Hillson to Boston Life Sciences, Inc. dated December 29, 1994 relating to election of certain compensation pursuant to the terms of the Employment Agreement between Boston Life Sciences, Inc. and S. David Hillson; First Amendment dated January 25, 1995 to Employment Agreement between Boston Life Sciences, Inc. and S. David Hillson (2) (+)
10.3	Amendment and Extension dated January 9, 1997 of Employment Agreement between Boston Life Sciences, Inc. and S. David Hillson; Renewal of Employment Agreement dated December 28, 1999 between Boston Life Sciences, Inc. and S. David Hillson; Employment Contract, Extension and Special Retirement Provision dated January 23, 2001 between Boston Life Sciences, Inc. and S. David Hillson; Restated Executive Consulting and Director Agreement dated April 13, 2003 between Boston Life Sciences, Inc. and S. David Hillson (29) (+)
10.4	Boston Life Sciences, Inc. Amended and Restated 1990 Non-Employee Directors’ Non Qualified Stock Option Plan, as amended (30) (+)
10.5	License Agreement between Children’s Medical Center Corporation and ProCell Pharmaceuticals, Inc. (a subsidiary of the Company) dated as of March 15, 1993 (relating to Troponin) (2)
10.6	License Agreement between HARVARD and NeuroBiologics, Inc. (a subsidiary of the Company) dated as of December 10, 1993 (relating to ALTROPANE) (2)
10.7	Amendment, dated March 18, 1996, to License Agreement between Children’s Medical Center Corporation and ProCell Pharmaceuticals, Inc. (a subsidiary of the Company) dated as March 15, 1993 (16)
10.8	Exclusive License Agreement between Children’s Medical Center Corporation and Boston Life Sciences, Inc. dated as of December 15, 1998 (relating to Inosine) (16)
10.9	Boston Life Sciences, Inc. 1998 Omnibus Stock Option Plan, as amended (30) (+)
10.10	Purchase Agreement dated February 5, 1999 between Tail Wind and the Company (3)
10.11	Registration Rights Agreement dated February 5, 1999 between Tail Wind and the Company (3)
10.12	License Agreement between President and Fellows of Harvard College and Boston Life Sciences, Inc. dated as of March 15, 2000 (relating to ALTROPANE) (16)
10.13	Securities Purchase Agreement dated June 1, 2000 between the Pictet Global Sector Fund-Biotech and the Company (18)
10.14	Registration Rights Agreement dated June 1, 2000 between the Pictet Global Sector Fund-Biotech and the Company (18)
10.15	Manufacturing Agreement dated August 9, 2000 between Boston Life Sciences, Inc. and MDS Nordion, Inc. (“Manufacturing Agreement”) (27)*
10.16	License Agreement between Children’s Medical Center Corporation and Boston Life Sciences, Inc. dated as of August 13, 2001 (relating to Macrophage Factor) (32)

73

Exhibit Number	Description and Method of Filing
10.17	Amendment dated August 23, 2001 to Manufacturing Agreement (27); Amendment dated September 18, 2002 to Manufacturing Agreement (28) Amendment dated November 22, 2003 to Manufacturing Agreement (32)
10.18	Form of Subscription Agreement, dated as of March 11, 2002, executed by the Company and each investor in the private placement (17)
10.19	Registration Rights Agreement, dated as of March 11, 2002, by and among the Company and the investors named therein (17)
10.20	Employment Agreement between Boston Life Sciences, Inc. and Robert J. Rosenthal dated as of July 9, 2002 (20) (+)
10.21	Securities Purchase Agreement, dated as of July 25, 2002, by and among the Company and the investor named therein (21)
10.22	10% Convertible Senior Secured Promissory Note, dated as of July 25, 2002 (21)
10.23	Registration Rights Agreement, dated as of July 25, 2002, by and among the Company and the investor named therein (21)
10.24	Consent to Transfer and Warrant Amendment dated as of November 22, 2002, by and among the Company, Ingalls & Snyder, L.L.C., Robert L. Gipson, Nikolaos D. Monoyios and Ingalls & Snyder Value Partners, L.P. (22)
10.25	First Addendum to Registration Rights Agreement, dated as of November 22, 2002, by and among the Company, Robert L. Gipson and Nikolaos D. Monoyios (22)
10.26	Common Stock Purchase Agreement, dated as of March 12, 2003, by and among the Company and the investors named therein (23)
10.27	Second Addendum to Registration Rights Agreement, dated as of March 12, 2003, by and among the Company and the investors named therein (23)
10.28	Letter Agreements, each dated as of March 12, 2003, by and among the Company and the securityholders named therein (23)
10.29	Agreement dated September 23, 2003 between Codman & Shurtleff, Inc. and the Company (7) **
10.30	Preferred Stock and Warrant Purchase Agreement, dated as of December 9, 2003, by and among the Company and the investors named therein (24)
10.31	Registration Rights Agreement, dated as of December 9, 2003, by and among the Company and the investors named therein (24)
10.32	Form of Indemnity Agreement for directors and executive officers of the Company (32) (+)
14.1	Code of Business Conduct and Ethics (32)
21.1	Subsidiaries of the Registrant (32)
23.1	Consent of Independent Auditors (32)
31.1	Certification of the President and Chief Operating Officer pursuant to Section 1350 of Title 18, Unites States Code, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (32)
31.2	Certification of the Chief Financial Officer pursuant to Section 1350 of Title 18, Unites States Code, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (32)
32.1	Certification of President and Chief Operating 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 (32)
32.2	Certification of 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 (32)

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(1) Incorporated by reference to Greenwich’s Annual Report on Form 10-K for the year ended December 31, 1994

(2) Incorporated by reference to Greenwich Pharmaceuticals, Inc.’s Registration Statement on Form S-4 (No. 33-91106) (Greenwich Pharmaceuticals is the former name of the Company. The Company acquired the license agreements described above in connection with its June 1995 merger with Boston Life Sciences. The entities indicated above were subsidiaries of Boston Life Sciences)

(3) Incorporated by reference to BLSI’s Annual Report on Form 10-K for the year ended December 31, 1998

(4) Incorporated by reference to BLSI’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999

(5) Incorporated by reference to BLSI’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001

(6) Incorporated by reference to BLSI’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003

(7) Incorporated by reference to BLSI’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003

(8) Incorporated by reference to BLSI’s Annual Report on Form 10-K for the year ended December 31, 1995

(9) Incorporated by reference to Greenwich’s Current Report on Form 8-K dated September 26, 1991, Greenwich’s Registration Statement on Form 8-A dated October 22, 1991, Greenwich’s Form 8-A/A dated July 28, 1993, Greenwich’s Form 8-A/A dated August 8, 1994, BLSI’s Form 8-A/A dated March 20, 2001, BLSI’s Form 8-A/A dated September 13, 2001, BLSI’s Form 8-A/A dated November 22, 2002, BLSI’s Form 8-A/A dated March 18, 2003, and BLSI’s Form 8-A/A dated December 29, 2003 (9)

(10) Incorporated by reference to BLSI’s Registration Statement on Form S-3 (No. 33-25955)

(11) Incorporated by reference to BLSI’s Registration Statement on Form S-3 (No. 333-2730)

(12) Incorporated by reference to BLSI’s Registration Statement on Form S-3 (No. 333-75175)

(13) Incorporated by reference to BLSI’s Registration Statement on Form S-3 (No. 333-44298)

(14) Incorporated by reference to BLSI’s Registration Statement on Form S-3 (No. 333-74775)

(15) Incorporated by reference to BLSI’s Registration Statement on Form S-3 (No. 333-40408)

(16) Incorporated by reference to BLSI’s Registration Statement on Form S-3/A (No. 333-88726)

(17) Incorporated by reference to BLSI’s Report on Form 8-K dated September 27, 1999

(18) Incorporated by reference to BLSI’s Report on Form 8-K dated June 1, 2000

(19) Incorporated by reference to BLSI’s Report on Form 8-K dated March 11, 2002

(20) Incorporated by reference to BLSI’s Report on Form 8-K dated July 10, 2002

(21) Incorporated by reference to BLSI’s Report on Form 8-K dated July 25, 2002

(22) Incorporated by reference to BLSI’s Report on Form 8-K dated November 22, 2002

(23) Incorporated by reference to BLSI’s Report on Form 8-K dated March 12, 2003

(24) Incorporated by reference to BLSI’s Report on Form 8-K dated December 9, 2003

(25) Incorporated by reference to BLSI’s Proxy Statement in connection with its 2002 Annual Meeting of Stockholders

(26) Incorporated by reference to BLSI’s annual report on Form 10-K for the year ended December 31, 2000

(27) Incorporated by reference to BLSI’s annual report on Form 10-K for the year ended December 31, 2001

(28) Incorporated by reference to BLSI’s annual report on Form 10-K for the year ended December 31, 2002

(29) Incorporated by reference to BLSI’s annual report on Form 10-K/A for the year ended December 31, 2002

(30) Incorporated by reference to BLSI’s Proxy Statement in connection with its 2003 Annual Meeting of Stockholders

(31) Incorporated by reference to BLSI’s Report on Form 8-K dated March 16, 2004

(32) Filed herewith

* An extension to the Order Granting Confidential Treatment has been requested, which request has been separately filed with the Securities and Exchange Commission.

** Confidential status has been granted for certain portions thereof pursuant to an Application for Confidential Treatment, which portions have been separately filed with the Securities and Exchange Commission.

+ This identifies management contracts or compensatory plans.

75

EX-10.16

Exhibit 10.16

EXCLUSIVE LICENSE AGREEMENT

BETWEEN

CHILDREN’S MEDICAL CENTER CORPORATION

AND

BOSTON LIFE SCIENCES INC.

TABLE OF CONTENTS

Articles		Page
I.	Definitions	1
II.	Grant	3
III.	Due Diligence	4
IV.	Royalties and Other Payments	6
V.	Reports and Records	7
VI.	Patent Prosecution	8
VII.	Infringement	9
VIII.	Uniform Indemnification and Insurance Provisions	10
IX.	Export Controls	11
X.	Arbitration	11
XI.	Non-Use of Names	12
XII.	Assignment	12
XIII.	Term and Termination	13
XIV.	Payments, Notices and Other Communications	14
XV.	Confidentiality	14
XVI.	General Provisions	15

EXCLUSIVE LICENSE AGREEMENT

This Agreement is made and entered into as of the date last written below (the Effective Date), by and between CHILDREN’S MEDICAL CENTER CORPORATION, a charitable corporation duly organized and existing under the laws of the Commonwealth of Massachusetts and having its principal office at 300 Longwood Avenue, Boston, Massachusetts, 02115, U.S.A. (hereinafter referred to as “CMCC”), and Boston Life Sciences, Inc., a business corporation organized and existing under the laws of the State of Delaware and having its principal office at 137 Newbury Street, 8`’ Floor, Boston, MA 02116 (hereinafter referred to as “LICENSEE”).

WHEREAS, CMCC is the owner of certain Patent Rights (as that term shall be defined hereafter) that have been developed as set forth in U.S. Patent Application Serial No. 60/208,778, filed June 1, 2000, entitled “Macrophage-derived factors that enable nerve cells to survive injury and regenerate their axons (CMCC 797) by Larry Benowitz, and has the right to grant exclusive licenses under said Patent Rights, subject only to a royalty-free, nonexclusive license heretofore granted to the United States Government for those patents developed with U.S. Government funding;

WHEREAS, CMCC desires to have the Patent Rights utilized in the public interest and is willing to grant a license thereunder on the terms and conditions described herein;

WHEREAS, LICENSEE has represented to CMCC that LICENSEE is ready, willing and able to engage in the commercial development, production, manufacture, marketing and sale of Licensed Products (as that term shall be defined hereafter) and/or the use of Licensed Processes(as that term shall be defined hereafter) and that it shall commit itself to a thorough, vigorous and diligent program of exploiting the Patent Rights in accordance with the terms and conditions described herein so that public utilization shall result therefrom; and

WHEREAS, LICENSEE desires to obtain an exclusive license under the Patent Rights on the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

ARTICLE I. DEFINITIONS

For the purpose of this Agreement, the following words and phrases shall have the meanings set forth below:

A. “Affiliate” shall mean any company or other legal entity controlling, controlled by or under common control with LICENSEE. For purposes of the definition of “Affiliate” the term “control” shall mean: (i) in the case of a corporate entity, the direct or indirect ownership of at least a majority of the stock or participating shares entitled to vote for the election of directors of that entity; (ii) in the case of a partnership, the power customarily held by a general partner to direct the management and policies of such partnership; or (iii) in the case of a joint venture, whether in corporate, partnership or other legal form, a more than nominal economic interest and managerial role.

B. “Combination Product(s) or Process(es)” shall mean a product or process that includes a Licensed Product or Licensed Process sold in combination with another component(s) whose manufacture, use or sale by an unlicensed party would not constitute an infringement of the Patent Rights.

1

C. “Field of Use” shall mean the diagnosis, prevention or treatment of nervous system disease or condition in humans.

D. “First Commercial Sale” shall mean with respect to each country: (1) the first sale of any Licensed Product or Licensed Process by LICENSEE, following approval of such Licensed Product’s or Licensed Process’s marketing by the appropriate governmental agency, if any such approval is necessary, for the country in which the sale is to be made; or (ii) when governmental approval is not required, the first sale in that country of the Licensed Product or Licensed Process.

E. “Licensed Product” shall mean any product or part thereof:

1. The manufacture, use or sale of which would infringe any one of the issued, valid, enforceable, unexpired claim(s) or any one of the pending claim(s) contained in the Patent Rights in any country.

2. The manufacture of which uses a “Licensed Process” as that term shall be defined hereafter.

F. “Licensed Process” shall mean any process that would infringe any one of the issued, valid, enforceable, unexpired claim(s) or any one of the pending claim(s) contained in the Patent Rights in any country.

G. “LICENSEE” shall mean LICENSEE and/or its successor(s) or assignee(s) and/or its Affiliates.

H. “Net Sales” shall mean gross receipts received by LICENSEE, LICENSEE’s SUBLICENSEE’s or LICENSEE’s Affiliates for Licensed Products and Licensed Processes produced hereunder, less the sum of the following:

1. Discounts allowed in. amounts customary in the trade.

2. Sales taxes, tariff duties and/or use taxes directly imposed and with reference to particular sales.

3. Outbound transportation and delivery charges (including insurance premiums related to transportation and delivery) prepaid or allowed.

4. Amounts allowed or credited on returns.

No deductions shall be made for commissions paid to individuals whether they are with independent sales agencies or regularly employed by LICENSEE and on its payroll or for the cost of collections. Licensed Products and Licensed Processes shall be considered “sold” when billed out or invoiced. Notwithstanding anything herein to the contrary, the following shall not be considered a sale of a Licensed Product or Licensed Process under this Agreement: (1) the transfer of a Licensed Product or Licensed Process to an Affiliate for sale by the Affiliate in a transaction that will be royalty bearing; (ii) the transfer of a Licensed Product or Licensed Process to a third party without consideration to LICENSEE in connection with the development or testing of a Licensed Product or Licensed Process; or (iii) the transfer of a Licensed Product or Licensed Process to a third party without consideration in connection with the marketing or promotion of the Licensed Product or Licensed Process.

2

I. “Patent Rights” shall mean all of the following intellectual property which CMCC owns or has rights to during the term of this Agreement:

1. The United States and foreign patents and/or patent applications listed in Appendix 1 attached hereto and incorporated herein by reference and divisionals and continuations thereof.

2. The United States and foreign patents issued from the applications listed in Appendix 1 and from divisionals and continuations of those applications.

3. Claims of United States and foreign continuation-in-part applications, and of the resulting patents, which relate to subject matter specifically described in the United States and foreign patent applications described in Appendix 1.

4. Claims of all later filed foreign patent applications, and of the resulting patents, which relate to subject matter specifically described in the United States patent and/or patent applications described in subparagraphs 1, 2 or 3 of this Article I, Paragraph I.

5. Any reissues, divisions, amendments or extensions of the United States or foreign patents described in subparagraphs 1, 2, 3 or 4 of this Article I, Paragraph I.

J. “SUBLICENSEE” shall mean a person or entity unaffiliated with LICENSEE to whom LICENSEE has granted a sublicense under this Agreement.

ARTICLE II. GRANT

A. CMCC hereby grants to LICENSEE the worldwide right and exclusive license to make, have made, use, lease and sell the Licensed Products and to practice the Licensed Processes for the Field of Use to the end of the term for which the Patent Rights are granted, unless sooner terminated as provided in this Agreement.

B. Notwithstanding anything above to the contrary, CMCC shall retain a royaltyfree, nonexclusive, irrevocable license to practice, and to sublicense other non-profit research organizations to practice, the Patent Rights for noncommercial research purposes only.

C. Notwithstanding anything above to the contrary, the license granted hereunder shall be subject to the rights of the United States government, if any, under Public Laws 96-517, 97-226, and 98-620, codified at 35 U.S.C. sec. 200-212 and any regulations promulgated thereunder.

D. LICENSEE agrees that Licensed Products leased or sold in the United States shall be manufactured substantially in the United States.

E. In order to establish exclusivity for LICENSEE, CMCC hereby agrees that it shall not, without LICENSEE’s prior written consent, grant to any other commercial party a license to make, have made, use, lease and/or sell Licensed Products or to use the Licensed Processes in the Field of Use during the period of time in which this Agreement is in effect, except as otherwise specified in this Agreement or as required by law to grant rights to the United States Government.

3

F. LICENSEE shall have the right to enter into sublicensing agreements with respect to any of the rights, privileges, and licenses granted hereunder, subject to the terms andconditions hereof. Such sublicenses will terminate upon the termination of LICENSEE’s rights granted herein unless events of default are cured by LICENSEE or SUBLICENSEE within thirty (30) days of notification by CMCC of default and/or as provided by the terms of this Agreement.

G. LICENSEE agrees that any sublicense granted by it shall provide that the obligations to CMCC of Articles II (Grant), V (Reports and Records), VII (Infringement), VIII (Insurance and Indemnification), IX (Export Controls), X (Non-Use of Names), XI(Assignment), XII (Dispute Resolution), XIII (Term and Termination) and XV (Miscellaneous Provisions) of this Agreement shall be binding upon the SUBLICENSEE as if it were a party to this Agreement. LICENSEE further agrees to attach a copy of this Agreement to all sublicense agreements, deleting economic terms when and as appropriate.

H. LICENSEE agrees to provide to CMCC notice of any sublicense granted hereunder and to forward to CMCC a copy of any and all fully executed sublicense agreements. LICENSEE further agrees to forward to CMCC annually a copy of such reports received byLICENSEE from its SUBLICENSEES during the preceding twelve (12) month period as shall be pertinent to a royalty accounting under the applicable sublicense.

I. LICENSEE shall advise CMCC in writing of any consideration received from SUBLICENSEES. LICENSEE shall not accept from any SUBLICENSEE anything of value in lieu of cash payments to discharge SUBLICENSEE’s payment obligations under any sublicense granted under this Agreement, without the express written permission of CMCC, which permission shall not be unreasonably withheld.

J. The license granted hereunder shall not be construed to confer any rights upon LICENSEE by implication, estoppel or otherwise as to any technology not described in the Patent Rights.

ARTICLE III. DUE DILIGENCE

A. Licensee shall use its good faith and diligent efforts to bring one or more Licensed Products and/or Licensed Processes to market as soon as reasonably practicable, consistent with sound and reasonable business practices and judgement, through a thorough, vigorous and aggressive development program. Thereafter, Licensee agrees that until expiration or termination of this Agreement, Licensee shall continue active and diligent efforts to keep Licensed Products and/or Licensed Processes reasonably available to the public. In the event Licensee decides not to exploit a licensed Patent Right, it shall promptly inform CMCC in writing and shall surrender to CMCC its license to that Patent Right.

B. The parties acknowledge that LICENSEE has provided to CMCC prior to the date of execution of this Agreement a written commercialization development plan (“Development Plan”), setting forth the initial indications and markets for Licensed Products and Licensed Processes, including to the extent practicable: (1) time-delimited targets for pre-clinical development, clinical trials, regulatory approval, manufacturing and marketing that represent reasonable efforts, consistent with industry norms for similar technology and applications, to

4

bring Licensed Products and Licensed Processes to the marketplace; and (ii) actual or projected financial resources and/or strategic alliances that will be required to implement the Development Plan. The Development Plan is attached hereto as Appendix 2 and is hereby incorporated herein by reference.

C. LICENSEE shall use good faith and diligent efforts to accomplish the following milestones, as set forth in the Development Plan, and to manufacture and distribute Licensed Products and Licensed Processes:

3.C.1. within 18 months of Effective Date, the filing of an IND (Investigational New Drug Application) in the U.S. for a Licensed Product by LICENSEE

3.C.2. within 2 years of Effective :Date, the sublicensing of Patent Rights to a Development partner

3.C.3 upon sublicensing of Patent Rights to a Development Partner, provision of sponsored research monies to Dr. Larry Benowitz’s laboratory to fund two years of work on projects relating to subject matter specifically described in Patent Rights

3.C.4. within 2 years of Effective Date, the initiation of Phase I or Phase I/II clinical trials of a Licensed Product

3.C.5. within 4 years of Effective Date, the initiation of Phase III Clinical Trials of a Licensed Product

3.C.6. within 6 years of Effective Date the filing of an BLA in the U.S. for a Licensed Product by Licensee

D. Notwithstanding anything above to the contrary, CMCC shall not unreasonably withhold its assent to any revision of the objective(s) set forth in the Development Plan when requested in writing by LICENSEE and supported by evidence reasonably acceptable to CMCC: (i) of technical difficulties or delays in the clinical studies or regulatory process that LICENSEE could not have reasonably avoided; or (ii) that LICENSEE, its Affiliates and/or SUBLICENSEES have expended good faith and diligent efforts and adequate resources to meet said objective.

E. In the event CMCC reasonably believes that LICENSEE is not diligently seeking to achieve the objectives set forth in the Development Plan in a timely manner, CMCC shall so notify LICENSEE in writing. LICENSEE shall have the option, exercisable by written notice to CMCC provided within ten (10) days after receipt of any such notice, to either: (i) receive a three (3) months grace period to establish to CMCC’s reasonable satisfaction that LICENSEE is expending its good faith and diligent efforts and adequate resources to achieve said objectives; or (ii) agree to CMCC’s termination of this Agreement as provided hereafter. In the event LICENSEE agrees to termination of this Agreement, CMCC shall immediately terminate the license granted to LICENSEE under this Agreement. In the event LICENSEE fails to establish its diligence to CMCC’s reasonable satisfaction as provided above prior to expiration of the three (3) months grace period, CMCC shall have the right to terminate the license granted to LICENSEE under this Agreement.

F. In the event LICENSEE fails to meet the objective(s) set forth in 3.C above in a timely manner, CMCC shall notify LICENSEE thereof in writing, and LICENSEE shall; have thirty (30) days following such notification to establish to the reasonable satisfaction of CMCC that (i) it has met such objective(s); or (ii) a revision to 3.C is necessary and appropriate as contemplated above. In the event LICENSEE fails to establish the same to CMCC’s reasonable satisfaction, CMCC shall have the right in its discretion to terminate the license granted to

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LICENSEE under this Agreement or to convert the license granted to LICENSEE hereunder to a non-exclusive license on financial terms and conditions mutually agreed to by CMCC and LICENSEE.

ARTICLE IV. ROYALTIES AND OTHER PAYMENTS

A. For the rights, privileges and exclusive licenses granted hereunder, LICENSEE shall pay to CMCC the following amounts in the manner hereinafter provided until the end of theterm of the last to expire Patent Right, unless this Agreement shall be sooner terminated as hereinafter provided:

1. A license issue fee of $25,000 which license issue fee shall be deemed earned and due immediately upon the execution of this Agreement.

2. LICENSEE shall make the following milestone payments to CMCC upon the occurrence of the following events (“Milestones”):

(a) $50,000 at the filing of an IND

(b) $75,000 at the completion of Phase I clinical Trials for any indication

(c) $100,000 at the initiation of Phase III Clinical Trials

(d) $200,000 at the filing of an NDA

3. Running Royalties in an amount equal to six percent (6%) of Net Sales of Licensed Products or Licensed Processes used, leased or sold by and/or for LICENSEE and/or its Affiliates.

4. In the event LICENSEE has granted sublicenses under this Agreement, twenty percent (20%) of any and all payments received by LICENSEE from said SUBLICENSEES in consideration of permitting the SUBLICENSEE to practice the Patent Rights, including but not limited to sublicense issue fees, any lump sum payments, milestone payments, technology transfer payments or other similar fees, and royalties; provided that with respect to running royalties in connection with a SUBLICENSEE’s sales of Licensed Products or Licensed Processes, LICENSEE shall pay to CMCC hereunder an amount equal to the royalty CMCC would have received from LICENSEE if such sales had been made by LICENSEE.

B. No multiple royalties shall be payable because any Licensed Product or Licensed Process, its manufacture, use, lease or sale are or shall be covered by more than one Patent Rights patent application or Patent Rights patent licensed under this Agreement.

C. To the extent that LICENSEE obtains subsequent to the date of this Agreement licenses to third party patents or other intellectual property that are necessary to produce or sell Licensed Products or Licensed Processes, LICENSEE may deduct from the royalty due to CMCC fifty percent (50%) of the royalties due on such third party patents or intellectual property up to an amount equal to fifty percent (50%) of royalties hereunder.

D. For purposes of calculating royalties, in the event that a Licensed Product or Licensed Process includes both component(s) covered by a valid claim of a Patent Right (“Patented Component”) and a component which is diagnostically useable or therapeutically active alone or in a combination which does not require the Patented Component, and such

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component is not covered by a valid claim of a Patent Right (“Unpatented Component”), then Net Sales of the Combination Product or Combination Process shall be calculated using one of the following methods; provided that in no event shall royalties payable to CMCC hereunder be reduced to less than fifty percent (50%) of those otherwise due hereunder:

1. By multiplying the Net Sales of the Combination Product or Combination Process during the applicable royalty accounting period (“accounting period”) by a fraction, the numerator of which is the aggregate grossselling price of the Patented Component(s) contained in the Combination Product or Combination Process if sold separately, and the denominator of which is the sum of the gross selling price of both the Patented Component(s) and the Unpatented Component(s) contained in the Combination Product or Combination Process if sold separately; or

2. In the event that no such separate sales are made of the Patented Component(s) or the Unpatented Components during the applicable accounting period, Net Sales for purposes of determining royalties payable hereunder shall be calculated by multiplying the Net Sales of the Combination Product or Combination Process by a fraction, the numerator of which is the fully allocated production cost of the Patented Component(s) and the denominator of which is the sum of the fully allocated production costs of the Patented Component(s) and the Unpatented Component(s) contained in the Combination Product or Combination Process. Such fully allocated costs shall be determined by using LICENSEE’s standard accounting procedures, which procedures must conform to standard cost accounting procedures.

E. Royalty payments shall be paid in United States dollars in Boston, Massachusetts, or at such other place as CMCC may reasonably designate consistent with the laws and regulations controlling in any foreign country. If the currency conversion shall be required in connection with the payments of royalties or other amounts hereunder, the conversion shall be made by using the exchange rate prevailing at the Bank of Boston on the last business day of the calendar quarterly reporting period to which such royalty payments relate.

F. The royalty payments set forth in this Agreement shall, if overdue, bear interest until payment at a per annum rate of four percent (4%) above the prime rate in effect at Fleet Bank on the due date. The payment of such interest shall not foreclose CMCC from exercising any other rights it may have as a consequence of the lateness of any payment.

ARTICLE V. REPORTS AND RECORDS

A. LICENSEE shall keep, and shall require its Affiliates and SUBLICENSEES to keep, full, true and accurate books of account in accordance with generally accepted accounting principles and containing sufficient detail to enable CMCC to determine the royalty and other amounts payable to CMCC under this Agreement. Said books of account shall be kept at LICENSEE’s principal place of business or the principal place of business of the appropriate division of LICENSEE to which this Agreement relates. Said books and the supporting data shall be retained for at least five (5) years following the end of the calendar year to which they pertain.

B. CMCC shall have the right to audit the books of account described above from time to time to the extent necessary to verify the reports provided for herein or compliance in other respects with this Agreement. CMCC omits agents shall perform these audits at CMCC’s expense during LICENSEE’s regular business hours.

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C. LICENSEE shall deliver to CMCC true and accurate reports by March 31st, for the period July 1 through December 31 of the previous year, and on September 30th, for the period January 1 st through June 30th of the current year, giving such particulars of the businessconducted by LICENSEE, its Affiliates and its SUBLICENSEES under this Agreement as shall be pertinent to a royalty accounting hereunder. These reports shall include at least the following:

1. Number of Licensed Products and Licensed Processes manufactured and sold.

2. Aggregate billings for Licensed Products and Licensed Processes sold.

3. Accounting for all Licensed Products and Licensed Processes sold.

4. Applicable deductions.

5. Total royalties due based on Net Sales by or for LICENSEE.

6. Names and addressers of all SUBLICENSEES of LICENSEE.

7. Payments received by LICENSEE from Affiliates and SUBLICENSEES.

8. Licensed Products manufactured and sold to the U.S. Government. No royalty obligations shall arise from sales or use by, for or on behalf of the U.S. Government in view of a royalty-free, nonexclusive license that may heretofore have been granted to the U.S. Government.

9. Royalties and Fees received from SUBLICENSEES.

D. Until the First Commercial Sale of a Licensed Product or Licensed Process, LICENSEE shall provide to CMCC at least annually reasonable detail regarding the activities of LICENSEE and LICENSEE’s Affiliates and SUBLICENSEES relative to achieving the objectives set forth in the Development Plan in a timely manner, including but not limited to, reports of financial expenditures to achieve said objectives, research and development activities, regulatory approvals, strategic alliances and manufacturing, sublicensing and marketing efforts.

E. With each such report submitted, LICENSEE shall pay to CMCC the royalties due and payable under this Agreement. If no royalties shall be due, LICENSEE shall so report.

F. On or before the ninetieth (90th) day following the close of LICENSEE’s fiscal year, LICENSEE shall provide CMCC with LICENSEE’s certified financial statements for the preceding fiscal year, including at a minimum a balance sheet and an operating statement.

ARTICLE VI. PATENT PROSECUTION

A. LICENSEE, at its own expense and utilizing the Patent Attorneys of its choice, shall have the sole right and responsibility, after consultation with CMCC, for the filing, prosecution and maintenance during the term of this Agreement of any patent application and patents contained in the Patent Rights set forth in Appendix 1; provided, however, that CMCC

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shall have the right to approve LICENSEE’s choice of patent attorneys, such approval not to be unreasonably withheld LICENSEE or its patent counsel shall provide CMCC with copies of all correspondence and documents filed with, or received from the United States Patent and Trademark Office or any foreign patent office or patent agent. In addition, LICENSEE agrees that, where permitted, any patent applications shall be filed, and/or issued in the name of CMCC, and that any and all official or `ribbon’ copies of issued patents shall be forwarded to, and retained by, CMCC.

B. In the event LICENSEE elects not to file, prosecute, and/or maintain any patent applications and/or patents contained in the Patent Rights LICENSEE shall so notify CMCC at least thirty (30) days prior to taking, or not taking, any action which would result in abandonment, withdrawal or lapse of such patent or patent application. In such event, LICENSEE shall provide to CMCC any authorization necessary to permit CMCC to file, prosecute and/or maintain said patent applications and/or patents, at its own expense utilizing counsel of its choice, and, further, CMCC shall be free to license such patent applications and/or patents to any other party. LICENSEE shall have no further royalty obligations under this Agreement with respect to any such Patent Right.

ARTICLE VII. INFRINGEMENT

A. LICENSEE and CMCC shall each inform the other promptly in writing of any alleged infringement by a third party of the Patent Rights in the Field of Use and of any available evidence thereof.’

B. During the term of this License Agreement, LICENSEE shall have the right, but not the obligation, to prosecute and/or defend, at its own expense and utilizing counsel of its choice, any infringement of, and/or challenge to, the Patent Rights; provided, however that CMCC shall have the right to approve LICENSEE’s choice of counsel, such approval not to be unreasonably withheld. In furtherance of such right, CMCC hereby agrees that LICENSEE may join CMCC as a party in any such suit, without expense to CMCC. No settlement, consent judgment or other voluntary final disposition of any such suit may be entered into without the consent of CMCC which consent shall not unreasonably be withheld. LICENSEE shall indemnify CMCC against any order for costs that may be made against CMCC in any such suit.

C. In the event that LICENSEE shall undertake the enforcement and/or defense of the Patent Rights, as provided in Paragraph 7.2, LICENSEE may withhold up to fifty percent (50%) of the royalties otherwise thereafter due CMCC in Article IV(A)(3) and apply such amount toward reimbursement of LICENSE.E’s expenses, including attorneys’ fees, in connection therewith. Any recovery of damages by LICENSEE, in any such suit, shall be applied first in satisfaction of any unreimbursed expenses and legal fees of LICENSEE relating to the suit, and next toward reimbursement of CMCC for any royalties past due or withheld and applied pursuant to this paragraph. Any balance remaining from any such recovery shall be apportioned 50% to LICENSEE and 50% to CMCC.

D. If within six (6) months after receiving notice of any alleged infringement, LICENSEE shall have been unsuccessful in persuading the alleged infringement to desist, or shall not have brought and shall not be diligently prosecuting an infringement action, or if LICENSEE Shall notify CMCC, at any time prior thereto, of its intention not to bring suit against the alleged infringer, then, and in those events only, CMCC shall have the right, but not the obligation, to prosecute, at its own expense and utilizing counsel of its choice, any cost of any such infringement action commenced solely by CMCC shall be borne by CMCC and CMCC

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shall keep any recovery or damages for past infringement derived therefrom. CMCC shall indemnify LICENSEE against any order for costs that may be made against LICENSEE in any such suit.

E. In any suit to enforce and/or defend the Patent Rights pursuant to this License Agreement, the party not in control of such suit shall, at the request and expense of the controlling party, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens, and the like.

F. LICENSEE during the period of this License Agreement, shall have the sole right, in accordance with the terms and conditions herein, to sublicense any alleged infringer for future use of the Patent Rights.

ARTICLE VIII. UNIFORM INDEMNIFICATION

AND INSURANCE PROVISIONS

A. LICENSEE shall indemnify, defend and hold harmless CMCC, its corporate affiliates, current or future directors, trustees, officers, faculty, medical and professional staff, employees, students and agents and their respective successors, heirs and assigns (the”Indemmtees”), against any liability, damage, loss or expense (including reasonable attorney’s fees and expenses of litigation) incurred by or imposed upon the Indemnitees or any one of them in connection with any claims, suits, actions, demands or judgments arising out of any theory of product liability (including, but not limited to, actions in the form of tort, warranty, or strict liability) concerning any product, process or service made, used or sold pursuant to any right or license granted under this Agreement.

B. LICENSEE’s indemnification under Article VIII, Paragraph A above shall not apply to any liability, damage, loss or expense to the extent that it is directly attributable to the negligent activities, reckless misconduct or intentional misconduct of the Indemnitees.

C. LICENSEE agrees, at its own expense, to provide attorneys reasonably acceptable to CMCC to defend against any actions brought or filed against any party indemnified hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought.

D. Beginning at the time as any such product, process or service is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by LICENSEE or by a SUBLICENSEE, Affiliate or agent of LICENSEE, LICENSEE shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate and naming the Indemnitees as additional insureds. Such commercial general liability insurance shall provide (i) product liability coverage and (ii) contractual liability coverage for LICENSEE’s indemnification under Article VIII, Paragraphs A through C of this Agreement. If LICENSEE elects to self-insure all or part of the limits described above (including deductibles or retentions which are in excess of $250,000 annual aggregate), such self-insurance program must be acceptable to CMCC and the Risk Management Foundation of the Harvard Medical Institutions, Inc. The minimum amount of insurance coverage required under this Article VIII, Paragraph E. shall not be construed to create a limit of LICENSEE’s liability with respect to its indemnification under Article VIII, Paragraphs A through C of this Agreement.

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E. LICENSEE shall provide CMCC with written evidence of such insurance upon request of CMCC. LICENSEE shall provide CMCC with written notice at least fifteen (15) days prior to the cancellation, non-renewal or material change in such insurance. If LICENSEE does not obtain replacement insurance providing comparable coverage within such fifteen (15) day period, CMCC shall have the right to terminate this Agreement effective at the end of such fifteen (15) day period without notice of any additional waiting periods.

F. LICENSEE shall maintain such commercial general liability insurance during (i) the period that any such product, process or service is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by LICENSEE or by a SUDLICENSEE, Affiliate or agent of LICENSEE and (ii) a reasonable period after the period referred to above, which in no event shall be less than fifteen (15) years.

G. Article VIII, Paragraphs A through F shall survive expiration or termination of this Agreement.

H. OTHER THAN WARRANTIES SET FORTH HEREIN, CMCC MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT, TRADEMARK, SOFTWARE, TRADE SECRET, TANGIBLE RESEARCH PROPERTY, INFORMATION OR DATA LICENSED OR OTHERWISE PROVIDED TO LICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME.

ARTICLE IX. EXPORT CONTROLS

It is understood that CMCC is subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and other commodities (including the Arms Export Control Act, as amended and the Export Administration Act of 1979), and that its obligations hereunder are contingent on compliance with applicable United States export laws and regulations. The transfer of certain technical data and commodities may require a license from the cognizant agency of the United States Government and/or written assurances by LICENSEE that LICENSEE shall not export data or commodities to certain foreign countries without prior approval of such agency. CMCC neither represents that a license shall not be required, nor that if required, it shall be issued.

ARTICLE X. ARBITRATION

A. Any and all claims, disputes or controversies arising under, out of, or in connection with this Agreement, which have not been resolved by good faith negotiations between the parties within three (3) months following the initiation of said negotiations will be resolved in accordance with this paragraph.

(a) Either party may give, the other written notice of any dispute arising out of or relating to this Research Agreement which is not resolved in the ordinary course of business within said three (3) month period. Within fifteen (15) days of receipt of said notice, the parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to settle the dispute. If the matter has not been resolved within thirty (30) days of receipt of the notice prided above, or in the event the parties fail to meet within twenty (20) days of the receipt of said notice, either party may request in writing that the matter be submitted to mediation in accordance with subparagraph (b) below.

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(b) Within fifteen (15) days of receipt of a request for mediation as described above, the parties agree to commence mediation as described above, the parties agree to commence mediation in the City of Boston, Commonwealth of Massachusetts in accordance with the policies and procedures of Endispute, Inc. (“Endispute”). The parties shall select a mediator acceptable to both CMCC and LICENSEE fbrm a list prided by Endispute. The parties agree to cooperate in good faith in said mediator’s efforts to assist the parties to resolve the dispute. Each party agrees to pay fifty percent (50%) of the costs of said mediation. If the matter has not been resolved within thirty (30) days of the commencement of mediation, either party may request in writing that the matter be submitted to arbitration in accordance with subparagraph (c) below.

(c) Any dispute arising under this License Agreement which is not resolved in accordance with either subparagraph (a) or (b), shall be determined by arbitration in the City of Boston, Commonwealth of Massachusetts, in accordance with the rules and regulations of the American Arbitration Association (“AAA”). Any such arbitration shall be conducted before a single arbitrator agreed upon by the parties, or, if the parties are unable to agree upon a mutually acceptable arbitrator, an arbitrator shall be chosen in accordance with AAA rules and regulations. The arbitrators determination may be filed with the clerk of the court of competent jurisdiction as a final adjudication of the matter at issue, or application may be made to such court for judicial acceptance of the award and an order of enforcement, as the case may be.

(d) Nothing herein shall restrict the right of either party to institute legal proceeding to enable such party to obtain provisional injunctive relief while any arbitration is still pending.

B. Notwithstanding the foregoing, nothing in this Article shall be construed to waive any rights or timely performance of any obligations existing under this Agreement.

ARTICLE XI. NON-USE OF NAMES

LICENSEE shall not use the name of Children’s Medical Center Corporation nor the name of any of its corporate affiliates or employees, nor any adaptation thereof, in any advertising, promotional or sales literature without prior written consent obtained from CMCC in each case, except that LICENSEE may state that it is licensed by CMCC under one or more of the patents and/or applications comprising the Patent Rights, and LICENSEE may comply with disclosure requirements of all applicable laws relating to its business, including United States and state security laws.

ARTICLE XII. ASSIGNMENT

A. Except as otherwise provided herein, this Agreement is not assignable in whole or in part, and any attempt to do so shall be void and of no effect.

B. CMCC may assign this Agreement at any time to any corporate affiliate of CMCC without the prior consent of LICENSEE.

C. Except as provided in Article XI, Paragraph D below, LICENSEE may assign this Agreement to another entity only with the prior written consent of CMCC, which consent shall not be unreasonably withheld or delayed.

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D. Notwithstanding anything herein to the contrary, in the event LICENSEE merges with another entity, is acquired by another entity, or sells all or substantially all of its assets to another entity, LICENSEE may assign its rights and obligations hereunder to, in the event of a merger or acquisition, the surviving entity, and in the event of a sale, the acquiring entity, without CMCC’s consent so long as: (i) LICENSEE is not then in breach of this Agreement; (ii) the proposed assignee has a net worth at least equivalent to the net worth LICENSEE had as of the date of this Agreement; (iii) the proposed assignee has available resources and sufficient scientific, business and other expertise comparable to LICENSEE in order to satisfy its obligations hereunder; (iv) LICENSEE provides written notice of the assignment to CMCC, together with documentation sufficient to demonstrate the requirements set forth in subparagraphs (i) through (iii) above, at least thirty (30) days prior to the effective date of the assignment; and (v) CMCC receives from the assignee, in writing, at least thirty (30) days prior to the effective date of the assignment: (a) reaffirmation of the terms of this Agreement; (b) an agreement to be bound by the terms of this Agreement; and (c) an agreement to perform the obligations of LICENSEE under this Agreement.

ARTICLE XIII. TERM AND TERMINATION

A. The term of this Agreement shall be not less than fifteen (15) years or the life of the last expiring Patent Right, whichever period is the longer term.

B. CMCC may terminate this Agreement immediately upon the bankruptcy, insolvency, liquidation, dissolution or cessation of operations of LICENSEE; or the filing of any voluntary petition for bankruptcy, dissolution, liquidation or winding-up of the affairs of LICENSEE; or any assignment by LICENSEE for the benefit of creditors; or the filing of any involuntary petition for bankruptcy, dissolution, liquidation or winding-up of the affairs of LICENSEE which is not dismissed within ninety (90) days of the date on which it is filed or commenced.

C. CMCC may terminate this Agreement upon thirty (30) days prior written notice in the event of LICENSEE’s failure to pay to CMCC royalties due and payable hereunder in a timely manner, unless LICENSEE shall make all such payments to CMCC within said thirty (30) day period. Upon the expiration of the thirty (30) day period, if LICENSEE shall not have made all such payments to CMCC, the rights, privileges and licenses granted hereunder shall terminate.

D. Except as otherwise provided in Paragraph C above, CMCC may terminate this Agreement upon sixty (60) days prior written notice in the event of LICENSEE’s breach or default of any material term or condition or warranty contained in this Agreement, unless LICENSEE shall cure such breach to CMCC’s reasonable satisfaction within said sixty (60) day period. Upon the expiration of the sixty- (60) day period, if LICENSEE shall not have cured said breach to the reasonable satisfaction of CMCC, the rights, privileges and license granted hereunder shall terminate.

E. LICENSEE shall have the right to terminate this Agreement at any time upon six (6) months’ prior written notice to CMCC, and upon payment by LICENSEE of all amounts due CMCC through the effective date of termination.

F. Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. LICENSEE and any SUBLICENSEE thereof may, however, after the effective

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date of such termination, sell all Licensed Products and complete Licensed Products in the process of manufacture at the time of such termination and sell the same, provided that LICENSEE shall pay to CMCC the royalties thereon as required under this Agreement and shall submit the reports required under this Agreement on the sales of Licensed Products.

ARTICLE XIV. PAYMENTS, NOTICES, AND OTHER COMMUNICATIONS

A. All payments, notices, reports and/or other communications made in accordance with this Agreement, shall be sufficiently made or given on the date of the mailing if delivered by hand, by facsimile or sent by first class mail postage prepaid and addressed as follows:

In the case of CMCC:

Director, Technology Transfer

Office of Research Administration

Children’s Hospital

300 Longwood Avenue

Boston, MA 02115

In the case of LICENSEE:

Marc E. Lanser, M.D.

Executive Vice President

Boston Life Sciences, Inc.

137 Newbury Street 8th Floor

Boston, MA 02116

or such other address as either party shall notify the other in writing.

ARTICLE XV. CONFIDENTIALITY

A. The parties agree to limit access to CMCC/LICENSEE Material that is marked as “Confidential,” to exercise at least reasonable care to prevent disclosure of such Material to any third party, and to use such Material for research purposes only. These obligations of confidentiality shall not apply to information which can be demonstrated by written records to be previously known to the party receiving information or to information or material which is available to or becomes available from a public source or which is required to be disclosed to comply with a governmental law or regulation. This obligation shall continue for three (3) years following the date of termination of this Agreement, but may be modified by written agreement.

B. Notwithstanding anything herein to the contrary, Licensee further acknowledges and agrees that Licensee Confidential Information shall not include data generated by CMCC or CMCC’s employees, his/her associates, co-workers or staff in connection with the work done relating to the subject matter described in Patent Rights. Licensee and CMCC acknowledge that such data is subject to the disclosure limitation included in Article X of this Agreement.

C. Licensee agrees that CMCC shall not be liable to Licensee or to any third party claiming by or through Licensee for any unauthorized disclosure or use of Licensee Confidential Material which occurs despite CMCC’s compliance with its obligations under article 15.A above.

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ARTICLE XVI. GENERAL PROVISIONS

A. All rights and remedies hereunder will be cumulative and not alternative, and this Agreement shall be construed and governed by the laws of the Commonwealth of Massachusetts.

B. This Agreement may be amernded only by written agreement signed by the parties.

C. It is expressly agreed by the parties hereto that CMCC and LICENSEE are independent contractors and nothing in this Agreement is intended to create an employer relationship, joint venture, or partnership between the parties. No party has the authority to bind the other.

D. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all proposals, negotiations and other communications between the parties, whether written or oral, with respect to the subject matter hereof.

E. If any provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be impaired thereby.

F. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against the party whose signature appears thereon, but all of which taken together shall constitute but one and the same instrument.

G. The failure of either party to assert a right to which it is entitled or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other party.

H. LICENSEE agrees to mark any Licensed Products sold in the United States with all applicable United States patent numbers. All Licensed Products shipped to or sold in other countries shall be marked in such a manner as to conform with the patent laws and practices of the country of manufacture or sale.

I. Each party hereto agrees to execute, acknowledge and deliver such further instruments and do all such further acts as may be necessary or appropriate to carry out the purposes and intent of this Agreement.

J. The paragraph headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date last written below.

CHILDREN’S MEDICAL CENTER			BOSTON LIFE SCIENCES, INC. CORPORATION
By:	/s/ Donald P. Lombardi		By: :	/s/ Marc E. Lanser
	Name:	Donald P. Lombardi		Name:	Marc E. Lanser, M.D.
	Title:	Chief Intellectual Property Officer		Title:	Executive Vice President
Date:	September 11, 2001		Date:	August 13, 2001

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Appendix 1

U.S. Patent Applications:

Serial No.	Filing Date:
60/208,778	June l, 2001

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Appendix 2

Development Plan for macrophage-derived factors that enable nerve cells to survive injury and regenerate their axons.

Licensee will provide CMCC with a more detailed Development Plan, according to
Section III.B in the Agreement	3rd. quarter 2003
IND Filing	3rd. quarter 2005
Beginning Phase I Clinical Trial	3rd Quarter 2007
Beginning Phase II Clinical Trial	3rd Quarter 2009
Beginning Phase III Clinical Trial	3rd Quarter 2011
Filing of a BLA	3rd Quarter 2013

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EX-10.17

Exhibit 10.17

November 22, 2003

Boston Life Sciences Inc.

20 Newbury Street

Boston, Massachusetts

02116 USA

Dear Sirs:

Re: Amendment #3 to Agreement between MDS Nordion Inc.

(now NDS Nordion, a division of MDS (Canada) Inc.

dated the 9^th day of August, 2000 (the “Agreement”)

Reference is made to the agreement between MDS Nordion Inc. (now MDS Nordion, a division of MDS (Canada) Inc.) and Boston Life Sciences Inc. dated the 9^th day of August 2000 (the “Agreement”).

In consideration of $1.00 and other valuable consideration the sufficiency of which is hereby acknowledged, the parties desire to further amend the Agreement and extend the term.

Section 16.1 of the Agreement shall be amended in its entirety and shall read as follows:

“The term of this Agreement shall commence upon the

Effective Date, and unless terminated earlier pursuant to

this Agreement, shall expire on the earlier of (i) FDA

granting of BLSI’s NDA with respect to Altropane for

Parkinson’s Disease or (ii) December 31, 2004”

All other terms and conditions in this Agreement shall remain in full force and effect.

The foregoing amendment shall be effective as of the date first written above.

If you agree with the foregoing, please execute this agreement in the space provided below.

Sincerely,

MDS Nordion
Per:	/s/ Gerry Vantellingen
	Name:    Gerry Vantellingen
	Title:      Vice President, Sales

We agree this 22nd day of November, 2003.

Boston Life Sciences, Inc.
Per:	/s/ Marc E. Lanser
	Name:    Marc E. Lanser, M.D.
	Title:      President

EX-10.32

Exhibit 10.32

INDEMNITY AGREEMENT

This Indemnity Agreement (“Agreement”) is made as of                     , 2004 by and between Boston Life Sciences, Inc., a Delaware corporation (the “Company”), and              (“Indemnitee”).

RECITALS

WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation.

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The by-laws of the Company (the “By-laws”) require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to applicable provisions of the Delaware General Corporation Law (“DGCL”). The By-laws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification.

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons.

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future.

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified.

WHEREAS, this Agreement is a supplement to and in furtherance of the By-laws of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

WHEREAS, Indemnitee does not regard the protection available under the Company’s By-laws and insurance as adequate in the present circumstances, and may not be willing to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified.

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

1. Services to the Company. Indemnitee will serve or continue to serve as an officer, director or key employee of the Company for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his resignation.

2. Definitions. As used in this Agreement:

(a) References to “agent” shall mean any person who is or was a director, officer, or employee of the Company or a subsidiary of the Company or other person authorized by the Company to act for the Company, to include such person serving in such capacity as a director, officer, employee, fiduciary or other official of another corporation, partnership, limited liability company, joint venture, trust or other enterprise at the request of, for the convenience of, or to represent the interests of the Company or a subsidiary of the Company.

(b) The terms “Beneficial Owner” and “Beneficial Ownership” shall have the meanings set forth in Rule 13d-3 promulgated under the Exchange Act (as defined below) as in effect on the date hereof.

(c) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(i) Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors, unless (1) the change in the relative Beneficial Ownership of the Company’s securities by any Person results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors, or (2) such acquisition was approved in advance by the Continuing Directors (as defined below) and such acquisition would not constitute a Change in Control under part (iii) of this definition;

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(ii) Change in Board of Directors. Individuals who, as of the date hereof, constitute the Board, and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two thirds of the directors then still in office who were directors on the date hereof or whose election for nomination for election was previously so approved (collectively, the “Continuing Directors”), cease for any reason to constitute at least a majority of the members of the Board;

(iii) Corporate Transactions. The effective date of a reorganization, merger or consolidation of the Company (a “Business Combination”), in each case, unless, following such Business Combination: (1) all or substantially all of the individuals and entities who were the Beneficial Owners of securities entitled to vote generally in the election of directors immediately prior to such Business Combination beneficially own, directly or indirectly, more than 51% of the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more Subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the securities entitled to vote generally in the election of directors; (2) no Person (excluding any corporation resulting from such Business Combination) is the Beneficial Owner, directly or indirectly, of 25% or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation except to the extent that such ownership existed prior to the Business Combination; and (3) at least a majority of the Board of Directors of the corporation resulting from such Business Combination were Continuing Directors at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination;

(iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than factoring the Company’s current receivables or escrows due (or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale, or disposition in one transaction or a series of related transactions); or

(v) Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.

(d) “Corporate Status” describes the status of a person who is or was a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of the Company or of any other Enterprise (as defined below) which such person is or was serving at the request of the Company.

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(e) “Delaware Court” shall mean the Court of Chancery of the State of Delaware.

(f) “Disinterested Director” shall mean a director of the Company who is not and was not a party to the Proceeding (as defined below) in respect of which indemnification is sought by Indemnitee.

(g) “Enterprise” shall mean the Company and any other corporation, constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which the Company (or any of its wholly owned subsidiaries) is a party, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent.

(h) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(i) “Expenses” shall include attorneys’ fees and costs, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding (as defined below). Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding (as defined below), including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(j) “Independent Counsel” shall mean a law firm or a member of a law firm that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements); or (ii) any other party to the Proceeding (as defined below) giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

(k) References to “fines” shall include any excise tax assessed on Indemnitee with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee, agent or fiduciary of the Company

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which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

(l) The term “Person” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act as in effect on the date hereof; provided, however, that “Person” shall exclude: (i) the Company; (ii) any Subsidiaries (as defined below) of the Company; (iii) any employment benefit plan of the Company or of a Subsidiary (as defined below) of the Company or of any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company; and (iv) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a Subsidiary (as defined below) of the Company or of a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(m) A “Potential Change in Control” shall be deemed to have occurred if: (i) the Company enters into an agreement or arrangement, the consummation of which would result in the occurrence of a Change in Control; (ii) any Person or the Company publicly announces an intention to take or consider taking actions which if consummated would constitute a Change in Control; (iii) any Person who becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors increases his Beneficial Ownership of such securities by 5% or more over the percentage so owned by such Person on the date hereof; or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

(n) The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil (including intentional or unintentional tort claims), criminal, administrative or investigative nature, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action (or failure to act) taken by him or of any action (or failure to act) on his part while acting as a director or officer of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of any other Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses can be provided under this Agreement.

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(o) The term “Subsidiary,” with respect to any Person, shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by that Person.

3. Indemnity in Third-Party Proceedings. The Company shall indemnify and hold harmless Indemnitee in accordance with the provisions of this Section 3 if Indemnitee was, is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, liabilities, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal Proceeding, had no reasonable cause to believe that his conduct was unlawful.

4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify and hold harmless Indemnitee in accordance with the provisions of this Section 4 if Indemnitee was, is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that any court in which the Proceeding was brought or the Delaware Court shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.

5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify and hold harmless Indemnitee against all Expenses actually and reasonably incurred by him in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify and hold harmless Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. If the Indemnitee is not wholly successful in such Proceeding, the Company also shall indemnify and hold harmless Indemnitee against all Expenses reasonably incurred in connection with a claim, issue or matter related to any claim,

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issue, or matter on which the Indemnitee was successful. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

6. Indemnification For Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified and held harmless against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

7. Additional Indemnification.

(a) Notwithstanding any limitation in Sections 3, 4, or 5, the Company shall indemnify and hold harmless Indemnitee if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding. No indemnity shall be made under this Section 7(a) on account of Indemnitee’s conduct which constitutes a breach of Indemnitee’s duty of loyalty to the Company or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.

(b) Notwithstanding any limitation in Sections 3, 4, 5 or 7(a), the Company shall indemnify and hold harmless Indemnitee if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding.

8. Contribution in the Event of Joint Liability.

(a) To the fullest extent permissible under applicable law, if the indemnification and hold harmless rights provided for in this Agreement are unavailable to Indemnitee in whole or in part for any reason whatsoever, the Company, in lieu of indemnifying and holding harmless Indemnitee, shall pay, in the first instance, the entire amount incurred by Indemnitee, whether for judgments, liabilities, fines, penalties, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have at any time against Indemnitee.

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(b) The Company shall not enter into any settlement of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

(c) The Company hereby agrees to fully indemnify and hold harmless Indemnitee from any claims for contribution which may be brought by officers, directors or employees of the Company other than Indemnitee who may be jointly liable with Indemnitee.

9. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

(a) for which payment has actually been received by or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount actually received under any insurance policy, contract, agreement, other indemnity provision or otherwise;

(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law; or

(c) except as otherwise provided in Sections 14(e)-(f) hereof, prior to a Change in Control, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.

10. Advances of Expenses; Defense of Claim.

(a) Notwithstanding any provision of this Agreement to the contrary, and to the fullest extent permitted by applicable law, the Company shall advance the Expenses incurred by Indemnitee (or reasonably expected by Indemnitee to be incurred by Indemnitee within three months) in connection with any Proceeding within ten (10) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred pursuing a Proceeding to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. The Indemnitee shall

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qualify for advances, to the fullest extent permitted by applicable law, solely upon the execution and delivery to the Company of an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the By-laws of the Company, applicable law or otherwise. This Section 10(a) shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 9.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

(c) The Company shall not settle any action, claim or Proceeding (in whole or in part) which would impose any Expense, judgment, fine, penalty or limitation on the Indemnitee without the Indemnitee’s prior written consent.

11. Procedure for Notification and Application for Indemnification.

(a) Indemnitee agrees to notify promptly the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement, or otherwise.

(b) Indemnitee may deliver to the Company a written application to indemnify and hold harmless Indemnitee in accordance with this Agreement. Such application(s) may be delivered from time to time and at such time(s) as Indemnitee deems appropriate in his or her sole discretion. Following such a written application for indemnification by Indemnitee, the Indemnitee’s entitlement to indemnification shall be determined according to Section 12(a) of this Agreement.

12. Procedure Upon Application for Indemnification.

(a) A determination, if required by applicable law, with respect to Indemnitee’s entitlement to indemnification shall be made in the specific case by one of the following methods, which shall be at the election of Indemnitee: (i) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board or (ii) by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee. The Company promptly will advise Indemnitee in writing with respect to any determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has been denied. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall reasonably cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation

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or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or Expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) hereof, the Independent Counsel shall be selected as provided in this Section 12(b). The Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected and certifying that the Independent Counsel so selected meets the requirements of “Independent Counsel” as defined in Section 2 of this Agreement. If the Independent Counsel is selected by the Board, the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected and certifying that the Independent Counsel so selected meets the requirements of “Independent Counsel” as defined in Section 2 of this Agreement. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been received, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction has determined that such objection is without merit. If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 11(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Delaware Court for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Delaware Court, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 12(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 14(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

(c) The Company agrees to pay the reasonable fees and expenses of Independent Counsel and to fully indemnify and hold harmless such Independent Counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

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13. Presumptions and Effect of Certain Proceedings.

(a) In making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 11(b) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

(b) If the person, persons or entity empowered or selected under Section 12 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within thirty (30) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a final judicial determination that any or all such indemnification is expressly prohibited under applicable law; provided, however, that such 30-day period may be extended for a reasonable time, not to exceed an additional fifteen (15) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto.

(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

(d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal

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counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected by the Enterprise. The provisions of this Section 13(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement.

(e) The knowledge and/or actions, or failure to act, of any other director, officer, trustee, partner, managing member, fiduciary, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

14. Remedies of Indemnitee.

(a) In the event that (i) a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses, to the fullest extent permitted by applicable law, is not timely made pursuant to Section 10 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 12(a) of this Agreement within thirty (30) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5, 6, 7 or the last sentence of Section 12(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor, (v) a contribution payment is not made in a timely manner pursuant to Section 8 of this Agreement, or (vi) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court to such indemnification, contribution or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Except as set forth herein, the provisions of Delaware law (without regard to its conflict of laws rules) shall apply to any such arbitration. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b) In the event that a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 14 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 14, Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 12(a) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 14, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 10 until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).

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(c) If a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 14, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 14 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

(e) The Company shall indemnify and hold harmless Indemnitee to the fullest extent permitted by law against all Expenses and, if requested by Indemnitee, shall (within ten (10) days after the Company’s receipt of such written request) advance to Indemnitee, to the fullest extent permitted by applicable law, such Expenses which are incurred by Indemnitee in connection with any judicial proceeding or arbitration brought by Indemnitee (i) to enforce his rights under, or to recover damages for breach of, this Agreement or any other indemnification, advancement or contribution agreement or provision of the Company’s By-laws now or hereafter in effect; or (ii) for recovery or advances under any insurance policy maintained by any person for the benefit of Indemnitee, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance, contribution or insurance recovery, as the case may be.

(f) Interest shall be paid by the Company to Indemnitee at the legal rate under Delaware law for amounts which the Company indemnifies or is obliged to indemnify for the period commencing with the date on which Indemnitee requests indemnification, contribution, reimbursement or advancement of any Expenses and ending with the date on which such payment is made to Indemnitee by the Company.

15. Establishment of Trust. In the event of a Potential Change in Control, the Company shall, upon written request by Indemnitee, create a “Trust” for the benefit of Indemnitee and from time to time upon written request of Indemnitee shall fund such Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for, participating in or defending any Proceedings, and any and all judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such judgments, fines penalties and amounts paid in settlement) in connection with any and all Proceedings from time to time actually paid or claimed, reasonably anticipated or proposed to be paid. The trustee of the Trust (the “Trustee”) shall be a bank or trust company or other individual or entity chosen by the Indemnitee and reasonably acceptable

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to the Company. Nothing in this Section 15 shall relieve the Company of any of its obligations under this Agreement. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by mutual agreement of the Indemnitee and the Company or, if the Company and the Indemnitee are unable to reach such an agreement, by Independent Counsel selected in accordance with Section 12(b) of this Agreement. The terms of the Trust shall provide that, except upon the consent of both the Indemnitee and the Company, upon a Change in Control: (a) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee; (b) the Trustee shall advance, to the fullest extent permitted by applicable law, within two (2) business days of a request by the Indemnitee and upon the execution and delivery to the Company of an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company, any and all Expenses to the Indemnitee; (c) the Trust shall continue to be funded by the Company in accordance with the funding obligations set forth above; (d) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise; and (e) all unexpended funds in such Trust shall revert to the Company upon mutual agreement by the Indemnitee and the Company or, if the Indemnitee and the Company are unable to reach such an agreement, by Independent Counsel selected in accordance with Section 12(b) of this Agreement, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trust shall be governed by Delaware law (without regard to its conflicts of laws rules) and the Trustee shall consent to the exclusive jurisdiction of the Delaware Court in accordance with Section 23 of this Agreement.

16. Security. Notwithstanding anything herein to the contrary, to the extent requested by the Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to the Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to the Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.

17. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.

(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company’s By-laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in applicable law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company’s By-laws or this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred

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is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) The DGCL and the Company’s By-laws permit the Company to purchase and maintain insurance or furnish similar protection or make other arrangements including, but not limited to, providing a trust fund, letter of credit, or surety bond (“Indemnification Arrangements”) on behalf of Indemnitee against any liability asserted against him or incurred by or on behalf of him or in such capacity as a director, officer, employee or agent of the Company, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of this Agreement or under the DGCL, as it may then be in effect. The purchase, establishment, and maintenance of any such Indemnification Arrangement shall not in any way limit or affect the rights and obligations of the Company or of the Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and the Indemnitee shall not in any way limit or affect the rights and obligations of the Company or the other party or parties thereto under any such Indemnification Arrangement.

(c) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, trustees, partners, managing members, fiduciaries, employees, or agents of the Company or of any other Enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, trustee, partner, managing member, fiduciary, employee or agent under such policy or policies. If, at the time the Company receives notice from any source of a Proceeding as to which Indemnitee is a party or a participant (as a witness or otherwise), the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

(d) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such Enterprise.

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18. Duration of Agreement. All agreements and obligations of the Company contained herein shall continue during the period Indemnitee serves as a director or officer of the Company or as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other Enterprise which Indemnitee serves at the request of the Company and shall continue thereafter so long as Indemnitee shall be subject to any possible Proceeding (including any rights of appeal thereto and any Proceeding commenced by Indemnitee pursuant to Section 14 of this Agreement) by reason of his Corporate Status, whether or not he is acting in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement.

19. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

20. Enforcement and Binding Effect.

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director, officer or key employee of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director, officer or key employee of the Company.

(b) Without limiting any of the rights of Indemnitee under the By-laws of the Company as they may be amended from time to time, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

(c) The indemnification and advancement of expenses provided by or granted pursuant to this Agreement shall be binding upon and be enforceable by the parties hereto and

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their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise at the Company’s request, and shall inure to the benefit of Indemnitee and his or her spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(d) The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to the Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

(e) The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which he may be entitled. The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the Court, and the Company hereby waives any such requirement of such a bond or undertaking.

21. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

22. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (i) if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third (3rd) business day after the date on which it is so mailed:

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company.

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(b) If to the Company, to:

Boston Life Sciences, Inc.

20 Newbury Street, 5^th Floor

Boston, MA 02116

Attention: Corporate Secretary

or to any other address as may have been furnished to Indemnitee in writing by the Company.

23. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 14(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally: (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court and not in any other state or federal court in the United States of America or any court in any other country; (b) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement; (c) appoint irrevocably, to the extent such party is not a resident of the State of Delaware, RL&F Service Corp., One Rodney Square, 10th Floor, 10th and King Streets, Wilmington, Delaware 19801 as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware; (d) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court; and (e) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum, or is subject (in whole or in part) to a jury trial.

24. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

25. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

BOSTON LIFE SCIENCES, INC.		INDEMNITEE
By:
	President	Name:
		Address:

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EX-14.1

Exhibit 14.1

Boston Life Sciences, Inc.

Code of Business Conduct and Ethics

(Effective January 1, 2004)

I. Purpose

This Code of Business Conduct and Ethics (this “Code”) provides a general statement of the Company’s expectations regarding the ethical standards that each director, officer and employee should adhere to while acting on behalf of the Company. Each director, officer and employee is expected to read and become familiar with the ethical standards described in this Code and may be required, from time to time, to affirm his or her agreement to adhere to such standards by signing the Compliance Certificate that appears at the end of this Code.

II. Administration

The Company’s Board of Directors is responsible for setting the standards of business conduct contained in this Code and updating these standards as it deems appropriate to reflect changes in the legal and regulatory framework applicable to the Company, the business practices within the Company’s industry, the Company’s own business practices, and the prevailing ethical standards of the communities in which the Company operates. While the Company’s President and Chief Executive Officer will oversee the procedures designed to implement this Code to ensure that they are operating effectively, it is the individual responsibility of each director, officer and employee of the Company to comply with this Code.

III. Compliance with Laws, Rules and Regulations

The Company will comply with all laws, rules and regulations that are applicable to the Company’s activities, and expects that all directors, officers and employees acting on behalf of the Company will obey the law. Specifically, the Company is committed to:

• maintaining a safe and healthy work environment;

• promoting a workplace that is free from discrimination or harassment based on race, color, religion, sex, sexual orientation, or other factors that are unrelated to the Company’s business interests;

• supporting fair competition and laws prohibiting restraints of trade and other unfair trade practices;

• conducting its activities in full compliance with all applicable environmental laws;

• keeping the political activities of the Company’s directors, officers and employees separate from the Company’s business;

• prohibiting any illegal payments to any government officials or political party representatives of any country; and

• complying with all applicable state and federal securities laws.

IV. Conflicts of Interest; Corporate Opportunities

Directors, officers and employees should not be involved in any activity which creates or gives the appearance of a conflict of interest between their personal interests and the Company’s interests. In particular, other than arrangements in effect and disclosed to the Board of Directors prior to the effective date of this Code, no director, officer or employee shall:

• Be a consultant to, or a director, officer or employee of, or otherwise operate an outside business:

– that markets products or services in competition with the Company’s existing or potential products and services;

– that supplies products or services to the Company in amounts that are significant relative to the Company’s operations or in amounts that are significant relative to the outside business;

– that purchases products or services from the Company in amounts that are significant relative to the Company’s operations or in amounts that are significant relative to the outside business;

• have any financial interest, including stock ownership, in any such outside business that is substantial enough, in light of the individual’s financial situation, to create a conflict of interest;

• seek or accept any personal loan or services from any such outside business, except from financial institutions or service providers offering similar loans or services to third parties under similar terms in the ordinary course of their respective businesses;

• be a consultant to, or a director, officer or employee of, or otherwise operate an outside business if the demands of the outside business would materially interfere with the director’s, officer’s or employee’s responsibilities with the Company;

• accept any personal loan or guarantee of obligations from the Company, except to the extent such arrangements are legally permissible;

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• conduct business on behalf of the Company with immediate family members, which include spouses, children, parents, siblings and persons sharing the same home whether or not legal relatives; or

• use the Company’s property, information or position for personal gain.

Directors and officers shall notify the Chair of the Audit Committee of the Board of Directors, and employees who are not directors or officers shall notify the President and/or Chief Executive Officer, of the existence of any actual or potential conflict of interest of which they become aware.

The appearance of a conflict of interest may exist if an immediate family member of a director, officer or employee of the Company acts in a capacity that is restricted for a director, officer of employee under the first bullet point of this Section IV. Employees of the Company should notify the President and/or the Chief Executive Officer and officers and directors should notify the Chair of the Audit Committee of any such situation. If in the judgment of the individual so notified a potential conflict of interest is implicated, that individual will bring such situation to the attention of the Chair of the Audit Committee of the Board of Directors.

V. Insider Trading

Employees, officers and directors who have material non-public information about the Company or other companies, including our suppliers and customers, as a result of their relationship with the Company are prohibited by law and Company policy from trading in securities of the Company or such other companies, as well as from communicating such information to others who might trade on the basis of that information. To help ensure that you do not engage in prohibited insider trading and avoid even the appearance of an improper transaction, the Company has adopted an Insider Trading Policy, which is distributed annually to all employees and directors, and which is available from the Chief Financial Officer.

If you are uncertain about the constraints on your purchase or sale of any Company securities or the securities of any other company that you are familiar with by virtue of your relationship with the Company, you should consult with the Company’s Chief Financial Officer before making any such purchase or sale.

VI. Confidentiality; Protection and Proper Use of the Company’s Assets

Directors, officers and employees shall maintain the confidentiality of all information entrusted to them by the Company or its suppliers, customers or other business partners, except when disclosure is authorized by the Company or legally required.

Confidential information includes (1) information marked “Confidential,” “Private,” “For Internal Use Only,” or similar legends, (2) technical or scientific information relating to

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current and future products, services or research, (3) business or marketing plans or projections, (4) earnings and other internal financial data, (5) personnel information, (6) supply and customer lists and (7) other non-public information that, if disclosed, might be of use to the Company’s competitors, or harmful to the Company or its suppliers, customers or other business partners.

To avoid inadvertent disclosure of confidential information, directors, officers and employees shall not discuss confidential information with or in the presence of any unauthorized persons, including family members and friends.

The foregoing confidentiality obligations are in addition to any other confidentiality obligations that a director, officer or employee may have to the Company.

Directors, officers and employees are personally responsible for protecting those Company assets that are entrusted to them and for helping to protect the Company’s assets in general.

Directors, officers and employees shall use the Company’s assets for the Company’s legitimate business purposes only.

VII. Fair Dealing

The Company is committed to promoting the values of honesty, integrity and fairness in the conduct of its business and sustaining a work environment that fosters mutual respect, openness and individual integrity. Directors, officers and employees are expected to deal honestly and fairly with the Company’s customers, suppliers, competitors and other third parties. To this end, directors, officers and employees shall not:

• make false or misleading statements to customers or suppliers;

• make false or misleading statements about competitors;

• solicit or accept any fee, commission or other compensation for referring customers to third-party vendors; or

• otherwise take unfair advantage of the Company’s customers, suppliers, or other third parties, through manipulation, concealment, abuse of privileged information or any other unfair-dealing practice.

VIII. Gifts and Gratuities

The use of Company funds or assets for gifts, gratuities or other favors to employees or government officials is prohibited, except to the extent such gifts are in compliance with applicable law, insignificant in amount and not given in consideration or expectation of any action by the recipient.

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Employees, officers and directors must not accept, or permit any member of his or her immediate family to accept, any gifts, gratuities or other favors from any customer, supplier or other person doing or seeking to do business with the Company, other than items of insignificant value. Any gifts that are not of insignificant value should be returned immediately and, in the case of any employee, reported to the President and/or Chief Executive Officer and in the case of an Officer or Director, reported to the Chairman of the Audit Committee. If immediate return is not practical, they should be given to the Company for charitable disposition or such other disposition as the Company, in its sole discretion, believes appropriate.

Common sense and moderation should prevail in travel and business entertainment undertaken on behalf of the Company. Employees, officers and directors should provide, or accept, business entertainment to or from anyone doing business with the Company only if the entertainment is infrequent, modest and intended to serve legitimate business goals.

Bribes and kickbacks are criminal acts, strictly prohibited by law. You must not offer, give, solicit or receive any form of bribe or kickback anywhere in the world.

IX. Accurate and Timely Periodic Reports

The Company is committed to providing investors with full, fair, accurate, timely and understandable disclosure in the reports that it is required to file and in its other public communications. To this end, the Company shall:

• comply with generally accepted accounting principles at all times;

• maintain a system of internal accounting controls that will provide reasonable assurances to management that all transactions are properly recorded;

• maintain books and records that accurately and fairly reflect the Company’s transactions;

• prohibit the establishment of any material undisclosed or unrecorded funds or assets;

• maintain a system of internal controls that will provide reasonable assurances to management that material information about the Company is made known to management, particularly during the periods in which the Company’s periodic reports are being prepared; and

• present information in a clear and orderly manner and avoid the use of unnecessary legal and financial jargon in the Company’s reports and public communications.

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X. Dealing with Independent Auditors

No director, officer or employee shall, directly or indirectly, make or cause to be made a materially false or misleading statement to an accountant in connection with (or omit to state, or cause another person to omit to state, any material fact necessary in order to make statements made, in light of circumstances under which such statements were made, not misleading to, an accountant in connection with) any audit, review or examination of the Company’s financial statements or the preparation or filing of any document or report with the Securities and Exchange Commission. No director, officer or employee shall, directly or indirectly, take any action to coerce, manipulate, mislead or fraudulently influence any independent public or certified public accountant engaged in the performance of an audit or review of the Company’s financial statements.

XI. Reporting and Effect of Violations

You may report violations of this Code, on a confidential or anonymous basis, by contacting the Company’s Hotline. In addition, the Company has established a toll-free telephone number where you can leave a recorded message about any violation or suspected violation of this Code. While we prefer that you identify yourself when reporting violations so that we may follow up with you, as necessary, for additional information, you may leave messages anonymously if you wish.

Directors and officers shall promptly report, in person, by telephone or in writing, any known or suspected violations of laws, rules or regulations or this Code to the Chair of the Audit Committee of the Company’s Board of Directors.

The Company will not allow any retaliation against and will make all efforts to protect a director, officer or employee who acts in good faith in reporting any such violation.

Other than complaints with respect to accounting and auditing practices, which are handled according to procedures established by the Audit Committee, the designated individuals who receive reports of violations will investigate the reported violation and will oversee an appropriate response, including corrective action and preventative measures. Directors, officers and employees who violate any laws, rules, regulations or this Code will face appropriate, case specific disciplinary action, which may include demotion or discharge. Enforcement under this Code will be applied in a prompt and consistent manner using the standards for compliance set forth herein to ensure a fair process by which violations may be determined.

XII. Waivers

The provisions of this Code may be waived for directors or executive officers only by a resolution of the Company’s directors who satisfy the independence requirements of the NASDAQ Stock Market. The provisions of this Code may be waived for employees who

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are not directors or executive officers by the resolution of the Board of Directors. Any amendment to or waiver of, including an implicit waiver resulting from the failure to take action in response to a violation of any provisions of this Code that applies to or is granted to a director or executive officer of the Company, including, but not limited to, the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, will be publicly disclosed to the extent and in the manner required by the securities exchange or association on which the Company’s securities are listed for trading or any applicable rule or regulation of the Securities and Exchange Commission.

XIII. Dissemination and Amendment

This Code shall be distributed to each new employee, officer and director of the Company upon commencement of his or her employment or other relationship with the Company and shall also be distributed annually to each employee, officer and director of the Company, and each employee, officer and director shall be asked to certify that he or she has received, read and understood the Code and has complied with the terms.

The Company reserves the right to amend, alter or terminate this Code at any time for any reason.

This document is not an employment contract between the Company and any of its employees, officers or directors.

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COMPLIANCE CERTIFICATE

I have read and understand the Company’s Code of Business Conduct and Ethics (the “Code”). I will adhere in all respects to the ethical standards described in the Code. I further confirm my understanding that any violation of the Code will subject me to appropriate disciplinary action, which may include demotion or discharge.

I certify to the Company that I am not in violation of the Code (assuming, if this certificate is executed prior to the effective date of this Code, that this Code is effective at such time), unless I have noted such violation in a signed Statement of Exceptions attached to this Compliance Certificate.

Date:
	Name:
	Title/Position:

Check one of the following:

¨ A Statement of Exceptions is attached.

¨ No Statement of Exceptions is attached.

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EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

Name of Subsidiary	State of Incorporation
Acumed Pharmaceuticals, Inc.	Delaware
Ara Pharmaceuticals, Inc.	Delaware
Boston Life Sciences International, Inc.	Delaware
Coda Pharmaceuticals, Inc.	Delaware
Neurobiologics, Inc.	Delaware
ProCell Pharmaceuticals, Inc.	Delaware

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation by reference in the Registration Statements on Forms S-3 (File Nos. 333-112123, 333-113015, 333-88726, 333-74775, 333-75175, 333-89159, 333-40408 and 333-44298) and on Forms S-8 (File Nos. 333-80065, 333-80067 and 333-80069) of Boston Life Sciences, Inc. and its subsidiaries of our report dated March 30, 2004 relating the financial statements, which appears in this Form 10-K.

/s/    PricewaterhouseCoopers LLP

Boston, Massachusetts

March 30, 2004

EX-31.1

Exhibit 31.1

BOSTON LIFE SCIENCES, INC. AND SUBSIDIARIES

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Marc E. Lanser, President and Chief Operating Officer of Boston Life Sciences, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of Boston Life Sciences, Inc.;

2. Based on my knowledge, this annual 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 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 the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 annual report is being prepared;

b) [Intentionally omitted]

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  March 30, 2004	/s/    Marc E. Lanser
	Marc E. Lanser Director, President & Chief Operating Officer

EX-31.2

Exhibit 31.2

BOSTON LIFE SCIENCES, INC. AND SUBSIDIARIES

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph P. Hernon, Executive Vice President and Chief Financial Officer of Boston Life Sciences, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of Boston Life Sciences, Inc.;

2. Based on my knowledge, this annual 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 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 the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 annual report is being prepared;

b) [Intentionally omitted]

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  March 30, 2004	/s/    Joseph P. Hernon
	Joseph P. Hernon Executive Vice President, Chief Financial Officer & Secretary

EX-32.1

Exhibit 32.1

BOSTON LIFE SCIENCES, INC. AND SUBSIDIARIES

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Boston Life Sciences, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission (the “Report”), I, Marc. E. Lanser, President and Chief Operating Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report 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 Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  March 30, 2004	/s/    Marc E. Lanser
	Marc E. Lanser Director, President & Chief Operating Officer

EX-32.2

Exhibit 32.2

BOSTON LIFE SCIENCES, INC. AND SUBSIDIARIES

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Boston Life Sciences, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission (the “Report”), I, Joseph P. Hernon, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report 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 Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  March 30, 2004	/s/    Joseph P. Hernon
	Joseph P. Hernon Executive Vice President, Chief Financial Officer & Secretary