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, 2001
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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, 8th 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 November 9, 2001 there were 20,726,638 shares of Common Stock outstanding.
1
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 September 30, 2001 1
and December 31, 2000
Consolidated Statements of Operations for the three and 2
nine months ended September 30, 2001 and 2000, and for the
period from inception (October 16, 1992) to September 30, 2001
Consolidated Statements of Cash Flows for the nine months 3
ended September 30, 2001 and 2000, and for the period from
inception (October 16, 1992) to September 30, 2001
Notes to Consolidated Financial Statements 4 - 7
Item 2 - Management's Discussion and Analysis of Financial 8 - 11
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 11
Part II - Other Information
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 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, December 31,
2001 2000
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 2,388,721 $ 407,327
Short-term investments 11,011,482 19,361,838
Other current assets 265,884 703,867
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Total current assets 13,666,087 20,473,032
Fixed assets, net 233,274 42,034
Other assets 195,926 197,043
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Total assets $ 14,095,287 $ 20,712,109
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,264,375 $ 1,661,293
Stockholders' equity:
Convertible preferred stock, $.01 par value; 525,000 and 15,000
shares authorized at September 30, 2001 and December 31, 2000,
respectively; no shares issued and outstanding - -
Common stock, $.01 par value; 40,000,000 shares authorized;
20,726,638 shares issued and outstanding 207,266 207,266
Additional paid-in capital 84,027,177 83,605,297
Accumulated other comprehensive income 224,922 20,497
Deficit accumulated during development stage (72,628,453) (64,782,244)
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Total stockholders' equity 11,830,912 19,050,816
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Total liabilities and stockholders' equity $ 14,095,287 $ 20,712,109
============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
1
Boston Life Sciences, Inc.
--------------------------
(A Development Stage Enterprise)
Consolidated Statements of Operations
(Unaudited)
From
Inception
(October 16,
Three Months Ended Nine Months Ended 1992) to
September 30, September 30, September 30,
2001 2000 2001 2000 2001
------------- ----------- ----------- ------------ -------------
Revenues $ - $ - $ - $ - $ 900,000
Operating expenses:
Research and development 1,973,858 2,608,037 5,868,485 7,230,012 46,549,248
General and administrative 758,876 692,068 2,427,966 2,364,902 18,169,906
Purchased in-process
research and development - - - - 12,146,544
------------- ----------- ----------- ------------ -------------
Total operating expenses 2,732,734 3,300,105 8,296,451 9,594,914 76,865,698
------------- ----------- ----------- ------------ -------------
Loss from operations (2,732,734) (3,300,105) (8,296,451) (9,594,914) (75,965,698)
Other expenses - - (396,880) - (396,880)
Interest expense - - - (344,870) (2,252,457)
Interest income 242,609 379,868 847,122 740,198 5,986,582
------------- ----------- ----------- ------------ -------------
Net loss $ (2,490,125) $(2,920,237) $(7,846,209) $ (9,199,586) $ (72,628,453)
------------- ----------- ----------- ------------ -------------
Basic and diluted net loss
per share $ (0.12) $ (0.14) $ (0.38) $ (0.48)
------------- ----------- ----------- ------------
Weighted average shares outstanding 20,726,638 20,618,442 20,726,638 19,041,358
============= =========== =========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
2
Boston Life Science, Inc.
(A Development Stage Emterprise)
Consolidated Statements of Cash Flows
(Unaudited)
From Inception
(October 16,
Nine Months Ended 1992) to
September 30, September 30,
2001 2000 2001
----------- ------------ --------------
Cash flows from operating activities:
Net loss $(7,846,209) $ (9,199,586) $(72,628,453)
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
Non-cash expense related to warrants 396,880 - 396,880
Non-cash interest expense - 332,493 579,685
Compensation charge related to options and
warrants 25,000 320,993 2,105,321
Amortization and depreciation 31,673 21,884 1,547,964
Changes in current assets and liabilities:
Decrease in other current assets 437,983 243,387 397,941
Increase in accounts payable and accrued
expenses 603,082 346,337 1,491,710
----------- ------------ ------------
Net cash used for operating activities (6,351,591) (7,934,492) (50,462,408)
Cash flows from investing activities:
Cash acquired through Merger - - 1,758,037
Purchases of fixed assets (222,913) (43,770) (535,763)
Decrease (increase) in other assets 1,117 (2,903) (354,423)
Purchases of short term investments (6,180,347) (15,563,293) (84,418,019)
Sales and maturities of short term investments 14,735,128 10,413,596 73,631,459
----------- ------------ ------------
Net cash provided by (used for) investing activities 8,332,985 (5,196,370) (9,918,709)
Cash flows from financing activities:
Proceeds from issuance of common stock - 14,476,925 31,249,182
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 - (79,423) (3,689,483)
----------- ------------ ------------
Net cash provided by financing activities - 14,397,502 62,769,838
----------- ------------ ------------
Net increase in cash and cash equivalents 1,981,394 1,266,640 2,388,721
Cash and cash equivalents, beginning of period 407,327 260,134 -
----------- ------------ ------------
Cash and cash equivalents, end of period $ 2,388,721 $ 1,526,774 $ 2,388,721
=========== ============ ============
Supplemental cash flow disclosures:
Non cash transactions (see note 3 and 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, 2001
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, 2000 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 8.0 million and 6.9
million shares of common stock were outstanding at September 30, 2001 and
2000, 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, 2001, which could
generate proceeds to the Company of up to $39.3 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. Supplemental Disclosure of Non-Cash Investing and Financing Activities
During the nine months ended September 30, 2000, the Company issued 87,121
and 300,614 shares of common stock resulting from the conversion of 4,983 and
53,669 shares of Series A and Series C preferred stock, respectively. During
the nine months ended September 30, 2000, the Company also issued 1,585,416
shares of common stock resulting from the conversion of convertible
debentures with a face value of $8 million and the payment of accrued
interest of approximately $318,000 in the form of shares of common stock. The
carrying value of the debentures plus the accrued interest thereon, net of
deferred financing costs of approximately $307,000, was reclassified to
additional paid-in capital upon conversion of the debentures and the payment
of accrued interest.
4. Comprehensive Loss
The Company had total comprehensive loss of $2,353,135 and $2,728,246 for the
three months ended September 30, 2001 and 2000, respectively. For the nine
months ended September 30, 2001 and 2000, total comprehensive loss was
$7,641,784 and $8,866,440, respectively.
5. Stockholders' Equity
In the second quarter of 2001, the Company entered into an agreement with a
significant securityholder whereby the exercise price of certain 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 (based on daily trading volume) 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.
5
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements (Unaudited)
In the second quarter of 2001, the Company also entered into an agreement
with a second significant securityholder whereby the securityholder 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 will
be reset to the lower of (x) the weighted average sales price per share for
the 20 trading days ending on June 1, 2001 and (y) the greater of (i) the
weighted average sales price per share of common stock for the 20 trading
days ending on June 30, 2002 and (ii) $3.00. In addition, these agreements
provide that in the event of any reorganization, reclassification,
consolidation, merger or similar transaction involving the Company prior to
June 30, 2002, the exercise price of the warrants will be deemed to be $3.00
per share. In return, the Company issued 160,000 additional new warrants
exercisable at $3.40 per share to the securityholder. The securityholder was
also granted piggyback registration rights with respect to the shares of
common stock issuable upon exercise of the new warrant. The Company was not
required to record any 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.
In June 2000, the Company completed a private placement of 1,405,956 shares
of common stock, which raised approximately $9.9 million 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.
6. Accounting Pronouncements
In January 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which was amended by SFAS No. 137 and SFAS No. 138. The
statement requires that all derivative investments be recorded in the balance
sheet at fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or comprehensive income depending on whether
a derivative is designated as part of a hedge transaction, and the type of
hedge transaction. The Company's adoption of the statement did not have a
material effect on its financial statements.
6
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements (Unaudited)
In July 2001, the Company adopted SFAS No. 141, "Business Combinations", which
requires that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. The Company's
adoption of the statement did not effect its financial statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued 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 provisions of SFAS No. 142 will be
effective for fiscal years beginning after December 15, 2001, and will thus be
adopted by the Company, as required, in fiscal year 2002. The Company does
not expect the adoption of SFAS No. 142 to have a material effect on its
financial statements.
7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
September 30, 2001
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, 2000 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 products to treat chronic
debilitating diseases such as cancer, central nervous system disorders and
autoimmune diseases. The Company expects that its research and development
costs will continue to increase as the Company attempts to gain regulatory
approval for commercial introduction of its proposed products. At September 30,
2001, the Company is considered a "development stage enterprise" as defined in
Statement of Financial Accounting Standards No. 7.
Three Months Ended September 30, 2001 and 2000
The Company's net loss was $2,490,125 during the three months ended
September 30, 2001 as compared with $2,920,237 during the three months ended
September 30, 2000. Net loss per common share equaled $0.12 per share for the
2001 period as compared to $0.14 per share for the 2000 period. The lower net
loss in the 2001 period was primarily due to decreased research and development
costs.
Research and development expenses were $1,973,858 during the three months
ended September 30, 2001 as compared with $2,608,037 during the three months
ended September 30, 2000. The decrease was primarily attributable to
expenditures related to the Phase III clinical trial for the Altropane(TM)
imaging agent for the diagnosis of Parkinson's Disease and the Phase II clinical
trial for the Altropane(TM) imaging agent for the diagnosis of Attention Deficit
Hyperactivity Disorder that completed trial enrollment in September 2000.
General and administrative expenses were $758,876 during the three months
ended September 30, 2001 as compared with $692,068 during the three months ended
September 30, 2000. The increase was primarily attributable to higher
professional service costs.
Interest income was $242,609 during the three months ended September 30,
2001 as compared with $379,868 during the three months ended September 30, 2000.
The decrease was due to lower average cash, cash equivalent, and short-term
investment balances during the 2001 period as compared to the 2000 period.
8
Nine Months Ended September 30, 2001 and 2000
The Company's net loss was $7,846,209 during the nine months ended
September 30, 2001 as compared with $9,199,586 during the nine months ended
September 30, 2000. Net loss per common share equaled $0.38 per share for the
2001 period as compared to $0.48 per share for the 2000 period. The lower net
loss in the 2001 period was primarily due to decreased research and development
costs.
Research and development expenses were $5,868,485 during the nine months
ended September 30, 2001 as compared with $7,230,012 during the nine months
ended September 30, 2000. The decrease was primarily attributable to
expenditures related to the Phase III clinical trial for the Altropane(TM)
imaging agent for the diagnosis of Parkinson's Disease and the Phase II clinical
trial for the Altropane(TM) imaging agent for the diagnosis of Attention Deficit
Hyperactivity Disorder that completed trial enrollment in September 2000. The
decrease in these expenditures were partially offset by higher product
manufacturing costs in the 2001 period related to the establishment of a GMP
manufacturing process for one technology and higher pre-clinical manufacturing
scale-up costs for another technology.
General and administrative expenses were $2,427,966 during the nine months
ended September 30, 2001 as compared with $2,364,902 during the nine months
ended September 30, 2000.
Other expenses were $396,880 during the nine months ended September 30,
2001 as compared with zero during the nine months ended September 30, 2000. The
increase was due to a non-cash charge related to an agreement the Company
entered into with a significant securityholder whereby the exercise price of
certain warrants held by the securityholder were reduced. The charge represents
the increase in the fair value (as determined under the Black Scholes pricing
model) of the warrants as a result of the decrease in the exercise price.
Interest income was $847,122 during the nine months ended September 30,
2001 as compared with $740,198 during the nine months ended September 30, 2000.
The increase was due to higher average cash, cash equivalent, and short-term
investment balances during the 2001 period as compared to the 2000 period.
Interest expense was zero during the nine months ended September 30, 2001 as
compared with $344,870 during the nine months ended September 30, 2000. In
September 1999, the Company issued $8 million of 8% convertible debentures which
were converted into common stock in February and March 2000.
9
Liquidity and Capital Resources
Since its inception, the Company has primarily satisfied its working
capital requirements from the sale of the Company's securities through private
placements. These private placements have included the sale of preferred stock
and common stock, as well as notes payable and convertible debentures. Each
private placement has included the issuance of warrants to purchase common
stock. A summary of financings completed during the three years ended September
30, 2001 is as follows:
Date Net Proceeds Raised Securities Issued
- ---- ------------------- -----------------
June 2000 $9.9 million Common stock
September 1999 $7.4 million Convertible debentures
February 1999 $2.3 million Common stock
February 1999 $5.6 million Preferred stock
In the future, the Company's working capital and capital requirements will
depend on numerous factors, including the progress of the Company's research and
development activities, the level of resources that the Company devotes to the
developmental, clinical, and regulatory aspects of its products, and the extent
to which the Company enters into collaborative relationships with pharmaceutical
and biotechnology companies.
At September 30, 2001, the Company had available cash, cash equivalents and
short-term investments of approximately $13.4 million and working capital of
approximately $11.4 million. The Company believes that the level of financial
resources available at September 30, 2001 will provide sufficient working
capital to meet its anticipated expenditures for more than the next twelve
months. The Company may raise additional capital in the future through
collaborative agreements with other pharmaceutical or biotechnology companies,
debt financings, or 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.
Accounting Pronouncements
In January 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which was amended by SFAS No. 137 and SFAS No. 138. The statement
requires that all derivative investments be recorded in the balance sheet at
fair value. Changes in the fair value of derivatives are recorded each period
in current earnings or comprehensive income depending on whether a derivative is
designated as part of a hedge transaction, and the type of hedge transaction.
The Company's adoption of the statement did not have a material effect on its
financial statements.
In July 2001, the Company adopted SFAS No. 141, "Business Combinations",
which requires that all business combinations be accounted for under the
purchase method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. The Company's adoption
of the statement did not effect its financial statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
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 provisions of SFAS No. 142 will be
effective for fiscal years beginning after December 15, 2001, and will thus be
adopted by the Company, as required, in fiscal year
10
2002. The Company does not expect the adoption of SFAS No. 142 to 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, 2000.
11
PART II -- OTHER INFORMATION
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ITEM 1: LEGAL PROCEEDINGS.
-----------------
None.
ITEM 2: CHANGES IN SECURITIES.
---------------------
None.
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 September 30, 2001:
Date of Report Item Reported
-------------- -------------
September 11, 2001 5,7
12
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 13, 2001 /s/ S. David Hillson
--------------------
S. David Hillson
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Joseph Hernon
------------------
Joseph Hernon
Chief Financial Officer
(Principal Financial and Accounting
Officer)
13