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 March 31, 2002
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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
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BOSTON LIFE SCIENCES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 87-0277826
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
137 Newbury Street, 8/th/ Floor, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
(617) 425-0200
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(X) Yes (_) No
As of May 9, 2002 there were 22,374,210 shares of Common Stock outstanding.
BOSTON LIFE SCIENCES, INC.
INDEX TO FORM 10-Q
Page(s)
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Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2002 1
and December 31, 2001
Consolidated Statements of Operations for the three months 2
ended March 31, 2002 and 2001, and for the period from
inception (October 16, 1992) to March 31, 2002
Consolidated Statements of Cash Flows for the three months 3
ended March 31, 2002 and 2001, and for the period from
inception (October 16, 1992) to March 31, 2002
Notes to Consolidated Financial Statements 4-5
Item 2 - Management's Discussion and Analysis of Financial 6-8
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 8
Part II - Other Information
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults Upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of Security Holders 9
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 10
Part I - Financial Information
Item 1 - Financial Statements
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2002 2001
--------------------- ---------------------
Assets
Current assets:
Cash and cash equivalents $ 2,861,770 $ 287,302
Short-term investments 7,789,558 10,012,198
Other current assets 644,769 599,801
--------------------- ---------------------
Total current assets 11,296,097 10,899,301
Fixed assets, net 523,837 523,505
Other assets 253,613 3,613
--------------------- ---------------------
Total assets $ 12,073,547 $ 11,426,419
===================== =====================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,470,472 $ 1,803,584
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; 40,000,000 shares authorized;
22,374,210 and 20,774,642 shares issued and outstanding at
March 31, 2002 and December 31, 2001, respectively 223,742 207,746
Additional paid-in capital 87,379,378 84,319,102
Accumulated other comprehensive income 54,577 130,818
Deficit accumulated during development stage (78,054,622) (75,034,831)
--------------------- ---------------------
Total stockholders' equity 9,603,075 9,622,835
--------------------- ---------------------
Total liabilities and stockholders' equity $ 12,073,547 $ 11,426,419
===================== =====================
The accompanying notes are an integral part of the consolidated financial
statements.
1
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Operations
(Unaudited)
From Inception
(October 16,
Three Months Ended March 31, 1992) to
2002 2001 March 31, 2002
---------------------- ---------------------- -----------------------
Revenues $ - $ - $ 900,000
Operating expenses:
Research and development 2,062,876 1,744,168 50,160,628
General and administrative 912,757 695,511 19,823,326
Purchased in-process research and
development - - 12,146,544
---------------------- ---------------------- -----------------------
Total operating expenses 2,975,633 2,439,679 82,130,498
---------------------- ---------------------- -----------------------
Loss from operations (2,975,633) (2,439,679) (81,230,498)
Other expenses (143,500) - (827,380)
Interest expense - - (2,252,457)
Interest income 99,342 317,942 6,255,713
---------------------- ---------------------- -----------------------
Net loss $ (3,019,791) $(2,121,737) $(78,054,622)
====================== ====================== =======================
Basic and diluted net loss per share $ (0.14) $ (0.10)
====================== ======================
Weighted average shares outstanding 21,130,102 20,726,638
====================== ======================
The accompanying notes are an integral part of the consolidated financial
statements.
2
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Unaudited)
From Inception
(October 16,
Three Months Ended March 31, 1992) to
2002 2001 March 31, 2002
--------------------- ---------------------- --------------------
Cash flows from operating activities:
Net loss $(3,019,791) $(2,121,737) $(78,054,622)
Adjustments to reconcile net loss to net
cash used for operating activities:
Purchased in-process research and development - - 12,146,544
Write-off of acquired technology - - 3,500,000
Modification of warrants 143,500 - 827,380
Non-cash interest expense - - 579,685
Compensation charge related to options and
warrants 4,376 - 2,115,102
Amortization and depreciation 34,281 5,941 1,610,263
Changes in current assets and liabilities:
(Increase) decrease in other current assets (44,968) 122,392 214,194
Increase in accounts payable and accrued
expenses 666,888 240,995 1,697,807
--------------------- ---------------------- --------------------
Net cash used for operating activities (2,215,714) (1,752,409) (55,363,647)
Cash flows from investing activities:
Cash acquired through Merger - - 1,758,037
Purchases of fixed assets (34,613) (175,000) (888,625)
Increase in other assets (250,000) (2,661) (607,248)
Purchases of short-term investments (2,430,559) (2,621,157) (87,274,211)
Sales and maturities of short-term investments 4,576,958 6,928,129 79,539,230
--------------------- ---------------------- --------------------
Net cash provided by (used for) investing activities 1,861,786 4,129,311 (7,472,817)
Cash flows from financing activities:
Proceeds from issuance of common stock 3,439,071 - 34,688,253
Proceeds from issuance of preferred stock - - 27,022,170
Preferred stock conversion inducement - - (600,564)
Proceeds from issuance of notes payable - - 2,585,000
Proceeds from issuance of convertible debentures - - 9,000,000
Principal payments of notes payable - - (2,796,467)
Payments of financing costs (510,675) - (4,200,158)
--------------------- ---------------------- --------------------
Net cash provided by financing activities 2,928,396 - 65,698,234
--------------------- ---------------------- --------------------
Net increase in cash and cash equivalents 2,574,468 2,376,902 2,861,770
Cash and cash equivalents, beginning of period 287,302 407,327 -
--------------------- ---------------------- --------------------
Cash and cash equivalents, end of period $ 2,861,770 $ 2,784,229 $ 2,861,770
===================== ====================== ====================
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)
March 31, 2002
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, 2001
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 potential common shares
have been excluded from the calculation of weighted average common shares
outstanding since their inclusion would be anti-dilutive.
Stock options and warrants to purchase approximately 9.2 million and 7.5
million shares of common stock were outstanding at March 31, 2002 and
2001, respectively, but were not included in the computation of diluted
net loss per common share because they were anti-dilutive. The exercise of
those stock options and warrants outstanding at March 31, 2002, which
could generate proceeds to the Company of up to $39 million, could
potentially dilute earnings per share in the future.
4
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements (Unaudited)
3. Comprehensive Loss
The Company had total comprehensive loss of $3,096,032 and $1,942,735 for
the three months ended March 31, 2002 and 2001, respectively.
4. Stockholders' Equity
In March 2002, the Company completed a private placement of 1,599,568
shares of common stock, which raised approximately $3.4 million in gross
proceeds. In connection with the financing, the Company issued warrants to
the investors to purchase 399,892 shares of common stock at an exercise
price equal to $2.75 per share. In connection with this financing, the
Company paid $271,772 in cash and issued a warrant to purchase 157,557
shares of common stock at an exercise price equal to $2.75 per share to the
placement agent.
5. Accounting Pronouncements
In January 2002, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No.
142 requires that ratable amortization of goodwill be replaced with
periodic tests of the goodwill's impairment and that intangible assets
other than goodwill be amortized over their useful lives. The Company's
adoption of SFAS No. 142 did not have a material effect on its financial
statements.
In January 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses the financial
accounting and reporting for the disposal of long-lived assets. The
Company's adoption of SFAS No. 144 did not have a material effect on its
financial statements.
5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
March 31, 2002
This Quarterly Report on Form 10-Q contains forward-looking statements.
Specifically, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," and
similar expressions are intended to identify forward-looking statements. There
are a number of meaningful factors that could cause the Company's actual results
to differ materially from those indicated by any such forward-looking
statements. These factors include, without limitation, the duration and results
of clinical trials and their effect on the Food & Drug Administration ("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 outcome of any of the Company's collaborations or alliances with
third parties. Other factors include those set forth under the caption
"Forward-Looking Statements" in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001 and the documents referred to under such caption.
Results of Operations
Overview
The Company is a biotechnology company engaged in the research and
development of novel therapeutic and diagnostic solutions for central nervous
system diseases. The Company also has programs in cancer and autoimmune
diseases. The Company expects that its research and development costs will
continue as the Company attempts to gain regulatory approval for commercial
introduction of its proposed products. At March 31, 2002, the Company is
considered a "development stage enterprise" as defined in Statement of Financial
Accounting Standards No. 7.
Critical Accounting Policies
There have been no material changes in the critical accounting policies
reported in the Company's Annual Report on Form 10-K for the year ended December
31, 2001.
Three Months Ended March 31, 2002 and 2001
The Company's net loss was $3,019,791 during the three months ended March
31, 2002 as compared with $2,121,737 during the three months ended March 31,
2001. Net loss per common share equaled $0.14 per share for the 2002 period as
compared to $0.10 per share for the 2001 period. The increased net loss in the
2002 period was primarily due to higher expenses across all components of
operations, including research and development, and general and administrative.
In addition, the Company realized lower levels of interest income and incurred
certain other non-operating expenses.
Research and development expenses were $2,062,876 during the three months
ended March 31, 2002 as compared with $1,744,168 during the three months ended
March 31, 2001. The increase was primarily attributable to expenditures of
approximately $80,000 related to an ongoing clinical trial which was initiated
in December 2001 and approximately $130,000 in higher pre-clinical costs for
another of the Company's technologies.
General and administrative expenses were $912,757 during the three months
ended March 31, 2002 as compared with $695,511 during the three months ended
March 31, 2001. The increase was
6
primarily related to higher professional services costs, including approximately
$170,000 in higher legal fees incurred in connection with patent and
intellectual property efforts.
Other expenses were $143,500 during the three months ended March 31, 2002
as compared with zero during the three months ended March 31, 2001. The increase
in 2002 was due to a non-cash charge related to an agreement the Company entered
into 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 the warrants would be reset. In return, the Company issued
additional warrants to the securityholder. The non-cash charge was based upon a
fair value calculation of the additional warrants issued to the securityholder
as determined under the Black-Scholes pricing model.
Interest income was $99,342 during the three months ended March 31, 2002 as
compared with $317,942 during the three months ended March 31, 2001. The
decrease was primarily due to lower average cash, cash equivalent, and
short-term investment balances during the 2002 period as compared to the 2001
period.
Liquidity and Capital Resources
Since its inception, the Company has primarily satisfied its working
capital requirements from the sale of the Company's securities through private
placements. These private placements have included the sale of preferred stock
and common stock, as well as notes payable and convertible debentures. Each
private placement has included the issuance of warrants to purchase common
stock. A summary of financings completed during the three years ended March 31,
2002 is as follows:
Date Net Proceeds Raised Securities Issued
- ---- ------------------- -----------------
March 2002 $2.9 million Common stock
June 2000 $9.9 million Common stock
September 1999 $7.4 million Convertible debentures
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 March 31, 2002, the Company had available cash, cash equivalents and
short-term investments of approximately $10.7 million and working capital of
approximately $8.8 million. The Company believes that the level of financial
resources available at March 31, 2002 will provide sufficient working capital to
meet its anticipated expenditures for the next twelve months. The Company may
raise additional capital in the future through collaborative agreements with
other pharmaceutical or biotechnology companies, debt financings and equity
offerings. There can be no assurance, however, that the Company will be
successful or that additional funds will be available on acceptable terms, if at
all.
There have been no material changes in the commitments and contingencies
reported in the Company's Annual Report on Form 10-K for the year ended December
31, 2001.
7
Accounting Pronouncements
In January 2002, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142
requires that ratable amortization of goodwill be replaced with periodic tests
of the goodwill's impairment and that intangible assets other than goodwill be
amortized over their useful lives. The Company's adoption of SFAS No. 142 did
not have a material effect on its financial statements.
In January 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses the financial
accounting and reporting for the disposal of long-lived assets. The Company's
adoption of SFAS No. 144 did not have a material effect on its financial
statements.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the market risks reported in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001.
8
PART II -- OTHER INFORMATION
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Item 1: Legal Proceedings.
-----------------
None.
Item 2: Changes in Securities.
---------------------
In March 2002, the Company completed a private placement of
1,599,568 shares of common stock, which raised approximately $3.4
million in gross proceeds. In connection with the financing, the
Company issued warrants to the investors to purchase 399,892
shares of common stock at an exercise price equal to $2.75 per
share. In connection with this financing, the Company paid
$271,772 in cash and issued a warrant to purchase 157,557 shares
of common stock at an exercise price equal to $2.75 per share to
the placement agent.
Item 3: Defaults Upon Senior Securities.
-------------------------------
None.
Item 4: Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
Item 5: Other Information.
-----------------
(a) Exhibits.
None.
Item 6: Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
None.
(b) Reports on Form 8-K: The Registrant filed the following
reports on Form 8-K during the quarter ended March 31, 2002:
Date of Report Item Reported
-------------- -------------
March 11, 2002 5,7
March 12, 2002 5,7
9
SIGNATURES
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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: May 14, 2002 /s/ S. David Hillson
-------------------------------------
S. David Hillson
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Joseph Hernon
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Joseph Hernon
Chief Financial Officer
(Principal Financial and Accounting
Officer)
10