Alseres Pharmaceuticals 10-Q 2003 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2003

OR

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

For the transition period from            to            

Commission File Number 0-6533

BOSTON LIFE SCIENCES, INC.

(Exact name of registrant as specified in its charter)

Delaware	87-0277826
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
20 Newbury Street, 5th Floor, Boston, Massachusetts	02116
(Address of principal executive offices)	(Zip code)

(617) 425-0200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

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

As of November 10, 2003 there were 32,469,588 shares of Common Stock outstanding.

BOSTON LIFE SCIENCES, INC.

INDEX TO FORM 10-Q

			Page (s)
Part I	Financial Information
	Item 1	Financial Statements (Unaudited)
		Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002	1
		Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2002, and for the period from inception (October 16, 1992) to September 30, 2003	2
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002, and for the period from inception (October 16, 1992) to September 30, 2003	3
		Notes to Consolidated Financial Statements	4 - 6
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7 - 11
	Item 3	Quantitative and Qualitative Disclosures about Market Risk	11
	Item 4	Controls and Procedures	11
Part II	Other Information
	Item 1	Legal Proceedings	12
	Item 2	Changes in Securities and Use of Proceeds	12
	Item 3	Defaults Upon Senior Securities	12
	Item 4	Submission of Matters to a Vote of Security Holders	12
	Item 5	Other Information	12
	Item 6	Exhibits and Reports on Form 8-K	12
SIGNATURES			13

Part I – Financial Information

Item 1 – Financial Statements

Boston Life Sciences, Inc.

(A Development Stage Enterprise)

Consolidated Balance Sheets

(Unaudited)

	September 30, 2003			December 31, 2002
Assets
Current assets:
Cash and cash equivalents	$	1,596,758		$	794,401
Short-term investments		9,214,897			6,177,705
Other current assets		415,135			421,753
Total current assets		11,226,790			7,393,859
Fixed assets, net		659,161			784,896
Other assets		319,062			349,138
Total assets	$	12,205,013		$	8,527,893
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	1,441,914		$	1,835,168
Non-current liabilities:
10% convertible senior secured promissory notes		3,937,614			3,869,872
Stockholders’ equity:
Convertible preferred stock, $.01 par value; 1,000,000 shares authorized; 525,000 shares designated; no shares issued and outstanding		—			—
Common stock, $.01 par value; 60,000,000 and 50,000,000 shares authorized at September 30, 2003 and December 31, 2002, respectively; 32,469,588 and 22,374,210 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively		324,696			223,742
Additional paid-in capital		98,859,486			88,511,684
Accumulated other comprehensive (loss) income		(58,063	)		115,400
Deficit accumulated during development stage		(92,300,634	)		(86,027,973	)
Total stockholders’ equity		6,825,485			2,822,853
Total liabilities and stockholders’ equity	$	12,205,013		$	8,527,893

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

1

Boston Life Sciences, Inc.

(A Development Stage Enterprise)

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						From Inception (October 16, 1992) to September 30, 2003
	2003			2002			2003			2002
Revenues	$	—		$	—		$	—		$	—		$	900,000
Operating expenses:
Research and development		1,123,895			1,722,338			3,484,460			5,521,737			58,488,466
General and administrative		774,231			794,467			2,629,747			2,559,233			24,936,070
Purchased in-process research and development		—			—			—			—			12,146,544
Total operating expenses		1,898,126			2,516,805			6,114,207			8,080,970			95,571,080
Loss from operations		(1,898,126	)		(2,516,805	)		(6,114,207	)		(8,080,970	)		(94,671,080	)
Other expenses		—			—			—			(287,000	)		(1,580,621	)
Interest expense		(176,340	)		(100,950	)		(493,628	)		(100,950	)		(2,983,695	)
Investment income		56,760			141,502			335,174			376,639			6,934,762
Net loss	$	(2,017,706	)	$	(2,476,253	)	$	(6,272,661	)	$	(8,092,281	)	$	(92,300,634	)
Basic and diluted net loss per share	$	(0.06	)	$	(0.11	)	$	(0.21	)	$	(0.37	)
Weighted average shares outstanding		32,469,588			22,374,210			29,850,502			21,959,507

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

2

Boston Life Sciences, Inc.

(A Development Stage Enterprise)

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,						From Inception (October 16, 1992) to September 30, 2003
	2003			2002
Cash flows from operating activities:
Net loss	$	(6,272,661	)	$	(8,092,281	)	$	(92,300,634	)
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			—			350,500
Non-cash interest expense		149,575			19,872			775,799
Non-cash charges related to options, warrants and common stock		250,984			338,328			4,085,567
Amortization and depreciation		192,954			123,903			1,955,244
Changes in current assets and liabilities:
Decrease in other current assets		6,618			198,017			443,828
(Decrease) increase in accounts payable and accrued expenses		(393,254	)		163,980			669,249
Net cash used for operating activities		(5,858,617	)		(7,248,181	)		(68,373,903	)
Cash flows from investing activities:
Cash acquired through Merger		—			—			1,758,037
Purchases of fixed assets		(40,822	)		(386,332	)		(1,327,177	)
Decrease (increase) in other assets		3,679			(253,545	)		(608,860	)
Purchases of short-term investments		(11,444,934	)		(6,959,705	)		(103,827,576	)
Sales and maturities of short-term investments		8,234,279			9,482,411			94,554,616
Net cash (used for) provided by investing activities		(3,247,798	)		1,882,829			(9,450,960	)
Cash flows from financing activities:
Proceeds from issuance of common stock		10,000,000			3,439,071			44,688,253
Proceeds from issuance of preferred stock		—			—			27,022,170
Preferred stock conversion inducement		—			—			(600,564	)
Proceeds from issuance of notes payable		—			4,000,000			6,585,000
Proceeds from issuance of convertible debentures		—			—			9,000,000
Principal payments of notes payable		—			—			(2,796,467	)
Payments of financing costs		(91,228	)		(693,718	)		(4,476,771	)
Net cash provided by financing activities		9,908,772			6,745,353			79,421,621
Net increase in cash and cash equivalents		802,357			1,380,001			1,596,758
Cash and cash equivalents, beginning of period		794,401			287,302			—
Cash and cash equivalents, end of period	$	1,596,758		$	1,667,303		$	1,596,758
Supplemental cash flow disclosures:
Non-cash transactions (see note 5)

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

3

Boston Life Sciences, Inc.

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2003

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The interim unaudited consolidated financial statements contained herein include, in management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The results of operations for the interim period shown on this report are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes for the year ended December 31, 2002 included in the Company’s Annual Report on Form 10-K.

2. Net Loss Per Share

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

Stock options and warrants to purchase approximately 11.7 million and 10.3 million shares of common stock were outstanding at September 30, 2003 and 2002, respectively, but were not included in the computation of diluted net loss per common share because they were anti-dilutive. The exercise of those stock options and warrants outstanding at September 30, 2003, which could generate proceeds to the Company of up to $40 million, could potentially dilute earnings per share in the future. At September 30, 2003, outstanding promissory notes which are convertible into 4,350,500 shares of common stock were not included in the computation of diluted net loss per common share because they were anti-dilutive.

3. Comprehensive Loss

The Company had total comprehensive loss of $2,011,458 and $2,448,949 for the three months ended September 30, 2003 and 2002, respectively. For the nine months ended September 30, 2003 and 2002, total comprehensive loss was $6,446,124 and $8,098,592, respectively.

4. 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 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring or in Conjunction with Selling, Goods or Services.”

4

Boston Life Sciences, Inc.

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements (Unaudited)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Net loss, as reported	$	(2,017,706	)	$	(2,476,253	)	$	(6,272,661	)	$	(8,092,281	)
Add: Stock-based employee compensation expense recognized		9,713			—			57,024			—
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards		(223,237	)		(275,538	)		(602,464	)		(670,493	)
Pro forma net loss	$	(2,231,230	)	$	(2,751,791	)	$	(6,818,101	)	$	(8,762,774	)
Basic and diluted loss per share
As reported	$	(0.06	)	$	(0.11	)	$	(0.21	)	$	(0.37	)
Pro forma	$	(0.07	)	$	(0.12	)	$	(0.23	)	$	(0.40	)

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 4.00% to 6.00%; and expected lives ranging from three to five years.

5. Stockholders’ Equity

On March 12, 2003, the Company sold and issued an aggregate of 10,000,000 shares of its common stock at a purchase price of $1.00 per share in a private placement. The investors in the private placement included Robert L. Gipson, partners and employees of Ingalls & Snyder LLC, Thomas O. Boucher, Jr. and other individual investors. The Company is obligated to file a registration statement covering the resale of the shares if requested by the investors and may be required to include the shares in future registrations of securities by the Company.

In connection with the private placement, two existing securityholders of the Company, Ingalls & Snyder Value Partners, L.P., or 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 outstanding convertible notes and warrants of the Company. These restrictions provide that if either securityholder converts or exercises all or any portion of the convertible 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.

In connection with the private placement, on March 12, 2003, the Company amended its Rights Agreement, dated as of September 11, 2001, between the Company and Continental Stock Transfer & Trust Company, as rights agent, as amended. As so amended, the Rights Agreement provides that ISVP, Ingalls & Snyder LLC and Robert L. Gipson shall be exempt persons under the Rights Agreement so long as they, collectively, together with all affiliates, shall have beneficial ownership of less than 20% of the Company’s common stock. The securities subject to the voting restrictions discussed above are excluded for purposes of this 20% requirement until June 1, 2005.

5

Boston Life Sciences, Inc.

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements (Unaudited)

As a result of the private placement, the conversion price of the Company’s outstanding convertible 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 over the remaining life of the notes.

As of June 1, 2003, the Company issued $207,167 in additional principal amount of 10% Convertible Senior Secured Promissory Notes to ISVP for interest accrued for the period from December 2, 2002 through June 1, 2003.

As of September 30, 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.

In March 2003, the Company purchased the 10% minority interest in ProCell Pharmaceuticals, one of the Company’s subsidiaries for 95,378 shares of common stock which resulted in a non-cash charge of approximately $90,000.

In June 2001, the Company entered into an agreement with Pictet Global Sector Fund-Biotech, or Pictet, which agreed to defer the effective date of the reset provision contained in its 500,000 warrants (300,000 exercisable at $8.00 per share and 200,000 exercisable at $10.00 per share) until June 30, 2002, at which time the exercise price was reset to $3.00 per share. In return, the Company issued 160,000 additional new warrants exercisable at $3.40 per share to Pictet. The Company was not required to record an initial charge in connection with the transaction because the fair value (as determined under the Black-Scholes pricing model) of the 160,000 new warrants being issued was equivalent to the net decrease in the fair value of the existing warrants resulting from the one year deferral in the reset provision. Under the June 2001 agreement, the Company is also obligated to issue additional warrants in an amount equal to 9.9% of the increase in common stock outstanding from June 25, 2001 through June 30, 2004, provided that the total number of such additional warrants cannot exceed 240,000. In accordance with this agreement, in June 2002, the Company issued an additional 163,110 warrants, exercisable at $1.27 per share, based on the increase in common stock outstanding from June 25, 2001 through June 30, 2002, and, in June 2003, the Company issued an additional 76,890 warrants, exercisable at $1.86 per share, based on the increase in common stock outstanding from July 1, 2002 through June 30, 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 related to this obligation which is included ratably during the first and second quarters of 2002 in Other Expenses in the Consolidated Statement of Operations.

6. Recent Accounting Pronouncement

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 is effective for instruments entered into or modified after May 31, 2003 and is otherwise effective for our third quarter of fiscal year 2003, with the exception of certain provisions of the statement related to certain mandatorily redeemable interests, for which the effective date has been deferred. The Company does not currently have any financial instruments that require reclassification under this standard. Consequently, the adoption of SFAS No. 150 had no material impact on the Company’s results of operations and financial position.

7. Subsequent Event

On November 13, 2003, certain shareholders of the Company filed a complaint against the Company and its directors alleging the directors have breached their fiduciary duty by using the Company’s “poison pill” rights plan to prevent such shareholders from voting for the removal of the directors. Among other things, the complaint seeks injunctive relief and reimbursement of legal costs. The Company believes, based on information currently available, that the ultimate outcome of this matter will not have a material impact on the Company’s consolidated financial position.

6

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements. Specifically, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. There are a number of meaningful factors that could cause the Company’s actual results to differ materially from those indicated by any such forward-looking statements. These factors include, without limitation, the timing of inception, duration and results of pre-clinical testing and clinical trials and their effect on the Food and Drug Administration, or FDA, regulatory process, uncertainties regarding receipt of approvals for any possible products and any commercial acceptance of such products, possible difficulties with obtaining necessary patent protection, and uncertainties regarding the Company’s reliance on outside providers for the conduct of its research and development, pre-clinical and clinical activities. Other factors include those set forth under the caption “Forward-Looking Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and the documents referred to under such caption.

General

Description of Company

The Company is a biotechnology company engaged in the research and development of biopharmaceutical products for the diagnosis and treatment of central nervous system, or CNS, diseases and for the treatment of some cancers. At September 30, 2003, the Company is considered a “development stage enterprise” as defined in Statement of Financial Accounting Standards No. 7.

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 successfully completed one Phase III clinical trial for the diagnosis of PS and plan to conduct a second Phase III clinical trial designed to distinguish Parkinsonian from non-Parkinsonian Syndromes in patients with tremors. In November 2003, we submitted a Special Protocol Assessment, or SPA, to the FDA based on the agreed-upon modifications discussed with the FDA and we are seeking confirmation that this study, together with our previous clinical studies, will be sufficient to achieve approvability. Since we incorporated the FDA’s suggested changes into the revised SPA, we expect acceptance of the protocol by the FDA. If accepted by the FDA, this SPA would form the basis of an agreement with the FDA regarding the steps to be taken to achieve ultimate approvability of our New Drug Application, or NDA. However, there can be no assurance that the FDA will accept our revised SPA or that it will not request additional modifications. 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 second quarter of 2004 and, subsequent to FDA’s approval, initiate clinical trials in humans. In September 2003, we entered into an agreement with Codman & Shurtleff, Inc., 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 & Shurtleff will receive a right of first refusal for Inosine for a specified period and under certain conditions. The agreement is filed as Exhibit 99.1 to this Quarterly Report on Form 10-Q.

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 twelve months.

7

The biotechnology and pharmaceutical industries are highly competitive and are dominated by larger, more experienced and better capitalized companies. Any delays we encounter in completing our clinical trial programs may adversely impact our competitive position in the markets in which we compete. Such delays may also adversely affect our financial position and liquidity.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared by us in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our estimates include those related to investments and research contracts. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For a complete description of our accounting policies, see Note 1 to our consolidated financial statements in our Annual Report on Form 10-K.

Investments

Our investments consist exclusively of investments in United States agency bonds and corporate debt obligations. These marketable securities are adjusted to fair value on the consolidated balance sheet through other comprehensive income. We disclose the value of restricted investments, if any, in the notes to our consolidated financial statements. These investments are classified as a current asset 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.

Results of Operations

Three Months Ended September 30, 2003 and 2002

The Company’s net loss was $2,017,706 during the three months ended September 30, 2003 as compared with $2,476,253 during the three months ended September 30, 2002. Net loss per share equaled $0.06 per share for the 2003 period as compared to $0.11 per share for the 2002 period. The decrease in net loss in the 2003 period was primarily due to lower research and development expenses. The lower net loss per common share in the 2003 period was due to a decrease in net loss in the 2003 period and to the effect of an increase in weighted average shares outstanding of approximately 10.1 million shares in the 2003 period.

Research and development expenses were $1,123,895 during the three months ended September 30, 2003 as compared with $1,722,338 during the three months ended September 30, 2002. The decrease was primarily attributable to lower manufacturing development costs for Troponin of approximately $323,000, lower manufacturing development and NDA preparation costs for ALTROPANE for the diagnosis of PS of approximately $162,000, lower research and development payroll and related costs resulting from decreased headcount of approximately $87,000 and lower pre-clinical costs for earlier stage product candidates of approximately $77,000. The decrease in these expenses was partially offset by higher pre-clinical costs for Inosine of approximately $169,000. 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.

General and administrative expenses were $774,231 during the three months ended September 30, 2003 as compared with $794,467 during the three months ended September 30, 2002. The components of general and administrative expenses in the 2003 period were consistent with the 2002 period.

Interest expense was $176,340 during the three months ended September 30, 2003 as compared with $100,950 during the three months ended September 30, 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, as well as an additional $0.4 million Notes issued in payment of interest accruing on the Notes. During the 2003 period, the Company incurred approximately $108,000 in interest on the 10% coupon, $59,000 in non-cash interest associated with the accretion of the discounted carrying value of the notes and $9,000 in amortization of debt issuance costs.

Investment income was $56,760 during the three months ended September 30, 2003 as compared with $141,502 during the three months ended September 30, 2002. The decrease was primarily due to lower realized gains of approximately $33,000 and lower average interest rates in the 2003 period, partially offset by higher average cash, cash equivalents, and short-term investments in the 2003 period.

8

Nine Months Ended September 30, 2003 and 2002

The Company’s net loss was $6,272,661 during the nine months ended September 30, 2003 as compared with $8,092,281 during the nine months ended September 30, 2002. The decrease in net loss in the 2003 period was primarily due to lower research and development expenses. The lower net loss per common share in the 2003 period was due to a decrease in net loss in the 2003 period and to the effect of an increase in weighted average shares outstanding of approximately 7.9 million shares.

Research and development expenses were $3,484,460 during the nine months ended September 30, 2003 as compared with $5,521,737 during the nine months ended September 30, 2002. The decrease was primarily attributable to lower manufacturing development costs for Troponin of approximately $1,255,000, lower pre-clinical costs for Inosine of approximately $177,000 and lower pre-clinical costs for earlier stage product candidates of approximately $264,000. 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.

General and administrative expenses were $2,629,747 during the nine months ended September 30, 2003 as compared with $2,559,233 during the nine months ended September 30, 2002. The increase was primarily related to higher non-cash consulting and compensation related charges of approximately $90,000 in the 2003 period.

Other expenses were none during the nine months ended September 30, 2003 as compared with $287,000 during the nine months ended September 30, 2002. During the 2002 period, the Company entered into an agreement with a securityholder to modify the terms of certain warrants held by the securityholder. The securityholder agreed to defer the date on which the exercise price of certain warrants would be reset. In return, the Company issued additional warrants to the securityholder. The non-cash charge of $287,000 represents the fair value of the additional warrants issued to the securityholder as determined under the Black-Scholes pricing model.

Interest expense was $493,628 during the nine months ended September 30, 2003 as compared with $100,950 during the nine months ended September 30, 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, as well as an additional $0.4 million Notes issued in payment of interest accruing on the Notes. During the 2003 period, the Company incurred approximately $317,000 in interest on the 10% coupon, $150,000 in non-cash interest associated with the accretion of the discounted carrying value of the notes and $27,000 in amortization of debt issuance costs.

Investment income was $335,174 during the nine months ended September 30, 2003 as compared with $376,639 during the nine months ended September 30, 2002. The decrease was primarily due to lower average interest rates in the 2003 period, partially offset by higher average cash, cash equivalents, and short-term investments and higher realized gains of approximately $76,000 in the 2003 period.

Liquidity and Capital Resources

Net cash used for operating activities, primarily related to our net loss, totaled $5,858,617 during the nine months ended September 30, 2003 as compared with $7,248,181 during the nine months ended September 30, 2002. The decrease in 2003 is primarily related to lower research and development expenses in the 2003 period. Net cash used for investing activities totaled $3,247,798 during the nine months ended September 30, 2003 as compared to net cash provided by investing activities of $1,882,829 during the nine months ended September 30, 2002. The difference in investing activities principally reflects the purchase of short-term investments with the proceeds from the private placements, described below, completed by the Company in 2003 and 2002, net of the sales of short-term investments which were subsequently used to fund operations. Net cash provided by financing activities was $9,908,772 during the nine months ended September 30, 2003 as compared with $6,745,353 during the nine months ended September 30, 2002. The difference in financing activities principally reflects the effect of the private placements, described below, completed by the Company in 2003 and 2002.

As of September 30, 2003, the Company has incurred total net losses since inception of approximately $92 million. To date, the Company has dedicated most of its financial resources to the research and development of its product candidates, preclinical compounds, general and administrative expenses and costs related to obtaining and protecting patents. Since inception, the Company has primarily satisfied its working capital requirements from the sale of the Company’s securities through private placements. These private placements have included the sale of preferred stock and common stock, as well as notes payable and convertible debentures. A summary of financings completed during the three years ended September 30, 2003 is as follows:

Date	Net Proceeds Raised	Securities Issued
March 2003	$9.9 million	Common stock
July 2002	$3.9 million	Convertible notes and warrants to purchase common stock
March 2002	$2.8 million	Common stock and warrants to purchase common stock

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In the future, the Company’s working capital and capital requirements will depend on numerous factors, including the progress of the Company’s research and development activities, the level of resources that the Company devotes to the developmental, clinical, and regulatory aspects of its technologies, and the extent to which the Company enters into collaborative relationships with pharmaceutical and biotechnology companies.

At September 30, 2003, the Company had available cash, cash equivalents, and investments of approximately $10.8 million and working capital of approximately $9.8 million. The Company believes that the cash, cash equivalents, and investments available at September 30, 2003 will provide sufficient working capital to meet its anticipated expenditures for at least the next twelve months. The Company may 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.

Following is information on the direct research and development costs incurred (all amounts in thousands) on the Company’s principal scientific technology programs currently under development. These amounts do not include research and development employee and related overhead costs which total approximately $9.7 million on a cumulative basis.

Program	Period (1)		Year to date		Cumulative
Diagnostic imaging	$	94	$	636	$	15,885
Anti-angiogenesis		85		222		12,953
CNS regeneration		502		1,006		5,166
Other	$	—	$	20	$	767

(1) three months ended September 30, 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 the Company were to enter into a licensing or other collaborative agreement with a corporate partner involving sharing or funding by such corporate partner of development costs, the estimated development costs incurred by the Company could be substantially less than estimated. Additionally, research and development costs are extremely difficult to estimate for early-stage technologies due to the fact that there is generally less comprehensive data available for such technologies to determine the development activities that would be required prior to the filing of an NDA. As a result, the Company cannot reasonably estimate the cost and the date of completion for any technology that is not at least in Phase III clinical development due to the uncertainty regarding the number of required trials, the size of such trials, and the duration of development. The Company has not received final acceptance from the FDA on its revised SPA for the design of the second Phase III clinical trial for ALTROPANE. We presently anticipate the second Phase III clinical trial for ALTROPANE will take approximately nine to twelve months to complete a minimum of 300 patients (150 patients with Parkinsonian tremors and 150 patients with non-Parkinsonian tremors) and cost approximately $2.5 million. However, there can be no assurance that the FDA will accept our revised SPA or that it will not request additional modifications.

Research and development commitments consists of contractual obligations with third parties, as well as the estimated costs of approximately $2.5 million to complete the Phase III clinical trial for ALTROPANE. 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 September 30, 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
2003	$	904,000	$	78,000		—		—
2004		4,273,000		327,000	$	125,000		—
2005		—		335,000		125,000	$	4,350,500
2006		—		296,000		—		—
2007		—		277,000		—		—
Thereafter		—		1,303,000		—		—
	$	5,177,000	$	2,616,000	$	250,000	$	4,350,500

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In July 2002, the Company entered into agreements pursuant to which the Company issued $4.0 million in principal amount of 10% convertible senior secured promissory notes to a single institutional investor in a private placement. 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, additional Notes on the same terms. The Company elected to pay the interest as of December 1, 2002 and June 1, 2003 in additional Notes in the amounts of $143,333 and $207,167, respectively. 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 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 the Company. The Company generally may obtain a release of the security interest by providing alternative collateral in the form of either cash or a bank letter of credit. Until the time, if any, that the Company provides alternative collateral or less than $500,000 principal amount of notes remains outstanding, the agreements also prohibit the Company, among other things, from entering into any merger, consolidation or sale of all or substantially all of its assets, incurring additional indebtedness, encumbering its assets with any liens and redeeming or paying dividends on any of its capital stock. The Company is permitted to grant licenses or sublicenses of its intellectual property to third parties in the ordinary course of its business free from the security interest, but the holders of the notes will receive a first priority security interest and continuing lien on all amounts owing to the Company in respect of any such license or sublicense. The agreements also contain customary events of default, including any change of control of the Company and breach by the Company of its representations and warranties and covenants contained in the agreements. If an event of default were to occur, the Company’s obligations under the notes could be accelerated and become immediately due and payable in full.

Recent Accounting Pronouncement

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 is effective for instruments entered into or modified after May 31, 2003 and is otherwise effective for our third quarter of fiscal year 2003, with the exception of certain provisions of the statement related to certain mandatorily redeemable interests, for which the effective date has been deferred. The Company does not currently have any financial instruments that require reclassification under this standard. Consequently, the adoption of SFAS No. 150 had no material impact on the Company’s results of operations and financial position.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the market risks reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Item 4 – Controls and Procedures

Evaluation of disclosure controls and procedures

The Company’s principal executive and financial officers reviewed and evaluated the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of the end of the fiscal quarter covered by this Form 10-Q. Based on that evaluation, the Company’s principal executive and financial officer concluded that the Company’s disclosure controls and procedures are effective for the purpose of ensuring that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in internal controls

There were no significant changes in the Company’s internal controls or other factors that could significantly affect those controls during the most recent fiscal quarter covered by this Form 10-Q, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART II — OTHER INFORMATION

ITEM 1:LEGAL PROCEEDINGS.

None.

ITEM 2:CHANGES IN SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3:DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5:OTHER INFORMATION.

On September 29, 2003 and October 15, 2003, Robert L. Gipson, Thomas O. Boucher, Jr., Ingalls & Snyder Value Fund, L.P. and Ingalls & Snyder, L.L.C. filed amendments to their Schedule 13D relating to the common stock in which they state their intention to seek the removal of certain members of the Board of Directors and the management of the Company, 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, dated as of September 11, 2001, as amended to date. On October 13, 2003, Messrs. Gipson and Boucher sent a letter to the Board, which letter is attached as an exhibit to the Schedule 13D amendment filed on October 15, 2003, requesting that the Board call and hold a special meeting of stockholders to consider the removal of certain directors and the recommendation that the number of directors comprising the entire Board of Directors be reduced to five. If the Board of Directors calls the special meeting, the letter states that Messrs. Gipson and Boucher intend to solicit proxies from other stockholders in favor of the foregoing proposals.

At a meeting of the Board of Directors held in October 2003, the Board considered the possibility that Mr. Boucher’s holdings of common stock, together with the holdings of certain other shareholders of the Company 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 (“rights”) under the Company’s Rights Agreement. At that meeting, the Board resolved that in the event that Mr. Boucher had exceeded such threshold, the distribution of the rights would be delayed until a specified date, or such earlier or later specified or unspecified date as may be determined by a majority of the Board. By letter from counsel dated October 14, 2003, the Board communicated to the Schedule 13D filing parties that Mr. Boucher may have exceeded the threshold for triggering the distribution of the rights under the Rights Agreement and that the Board has taken action to temporarily delay the distribution of the rights.

Members of the Board of Directors have been in communication with Messrs. Gipson and Boucher regarding the Schedule 13D. Following these discussions, at a meeting of the Board of Directors held in November 2003, the independent, non-executive directors of the Company considered the request made by Messrs. Gipson and Boucher that a special meeting of the stockholders be called for the purposes specified in Gipson’s and Boucher’s October 13, 2003 letter, and unanimously determined that calling such a special meeting at this time would not be in the best interest of the Company and its stockholders.

On November 14, 2003, Messrs. Gipson and Boucher, Ingalls & Snyder Value Fund, L.P. and Ingalls & Snyder, L.L.C. filed an amendment to their Schedule 13D in which they state that on November 13, 2003 they filed a complaint against the Board of Directors and the Company in the Delaware Court of Chancery seeking, among other things, declaratory relief that Mr. Boucher has not exceeded the beneficial ownership threshold for triggering the distribution of rights under the Rights Agreement and that the directors have breached their fiduciary duties in connection with applying the Rights Agreement, and seeking injunctive relief to compel the directors to call and hold a special meeting of stockholders.

ITEM 6:EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

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. (1)
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. (1)
32.1	Certification of the President and Chief Operating Officer and the Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, Unites States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)
99.1	Agreement dated September 23, 2003 between Codman & Shurtleff, Inc. and BLSI. (1) *

(1) Filed herewith.

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

(b) Reports on Form 8-K: The Registrant filed the following reports on Form 8-K during the quarter ended September 30, 2003:

Date of Report	Item Reported
September 12, 2003	5,7
September 22, 2003	5,7

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BOSTON LIFE SCIENCES, INC
	(Registrant)
DATE: November 14, 2003	/s/ MARC E. LANSER
	Marc E. Lanser President and Chief Operating Officer (Principal Executive Officer)
	/s/ JOSEPH P. HERNON
	Joseph Hernon Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

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