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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

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

For the fiscal year ended December 31, 2000

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

For the transition period

Commission file number 0-6533

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BOSTON LIFE SCIENCES, INC.
(Exact name of registrant as specified in its charter)

Delaware 87-0277826
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

137 Newbury Street, 8th Floor 02116
Boston, Massachusetts (Zip Code)
(Address of principal executive offices)

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

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.01 Per Share
Warrants to Purchase Common Stock
Rights to Purchase Preferred Stock
(Title of Class)

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

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

Based on the last sales price of the Registrant's Common Stock as reported
on the Nasdaq National Market on March 16, 2001, the aggregate market value of
the 20,533,758 outstanding shares of voting stock held by nonaffiliates of the
Registrant was $82,751,045.

As of March 16, 2001, there were 20,726,638 shares of the Registrant's
Common Stock issued and outstanding.

Documents incorporated by reference: Portions of the Registrant's definitive
proxy statement to be filed with the Securities and Exchange Commission
relative to the Registrant's 2001 Annual Meeting of Stockholders are
incorporated by reference into Items 10, 11, 12 and 13 of Part III of this
annual report on Form 10-K.

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PART I

Item 1. Business.

Overview

In general, our corporate strategy is to seek to (i) utilize our
affiliations and relationships with Harvard University and its affiliated
hospitals ("Harvard and its Affiliates"), and other scientific institutions, to
license the rights to promising medical discoveries, (ii) fund the preclinical
and clinical development of these licensed technologies, and (iii) enter into
corporate partnering arrangements with established pharmaceutical or
biotechnology companies to support the late-stage development of our
technologies and the marketing of any products as and to the extent they
receive government approval. Additionally, since we do not currently own any
laboratory or manufacturing facilities, we contract for such services and
intend to continue to do so.

We currently have ten technologies in our product portfolio, the majority of
which were invented or discovered by researchers working at Harvard and its
Affiliates and have been licensed to us.

ALTROPANE(TM) Imaging Agent

The ALTROPANE(TM) imaging agent is a small molecule invented by researchers
at Harvard and its Affiliates and the Massachusetts General Hospital that we
are developing as a diagnostic for Parkinson's Disease ("PD") and Attention
Deficit Hyperactivity Disorder ("ADHD"). The ALTROPANE(TM) imaging agent is an
123I-based nuclear medicine imaging agent that binds with extremely high
affinity and specificity to the Dopamine Transporter ("DAT"). Consequently, the
amount of the ALTROPANE(TM) imaging agent taken up by the brain is directly
proportional to the number of DATs that are present in any given area of the
brain. In patients with PD, there is a marked decrease in the number of DATs in
the striatal region of the brain. As a result, when the ALTROPANE(TM) imaging
agent is administered to patients with PD, its uptake is substantially
diminished as compared to patients without PD. This marked decrease in the
ALTROPANE(TM) imaging agent uptake in patients with PD is the basis for the use
of the ALTROPANE(TM) imaging agent as a diagnostic test for early PD.
Conversely, ADHD appears to be associated with an excess number of DATs in this
same region of the brain and thus the ALTROPANE(TM) imaging agent has the
potential to be a valuable diagnostic imaging agent for ADHD as well.

Parkinson's Disease

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

We completed our Phase I clinical trial of the ALTROPANE(TM) imaging agent
for PD in February 1998 and completed our 40 patient, Phase II clinical trial
in February 1999. We believe that the results of the Phase

II study provide clear evidence that the ALTROPANE(TM) imaging agent is useful
in distinguishing normal individuals from those individuals with early PD. The
results of the Phase II trial indicate that patients with early or mild PD were
reliably and easily differentiated from normal patients based on the
ALTROPANE(TM) imaging agent scan results. Normal patients had a mean striatal
binding potential of 1.07 +/- 0.17 vs 0.44 +/- 0.19 for patients with
early/mild PD (p less than 0.00007). The highest binding potential for a PD
patient (0.66) was still well below the lowest binding potential seen in the
normal patients (0.90). Qualitative assessment of the scans revealed moderate
to marked decrease in at least one quadrant of the striatum in the brain of PD
patients compared to the normal patients.

We initiated our Phase III clinical trial in March of 1999 and completed
trial enrollment in March of 2000. The trial was conducted at 20 clinical sites
and was comprised of 165 patients. The Phase III study was designed to assess
the efficacy of the ALTROPANE(TM) imaging agent-SPECT scanning in a sample
population representative of those individuals that consult with neurologists
or internists for undiagnosed movement disorders. The study enrolled 95
subjects having the clinical diagnosis of Parkinsonian Syndrome ("PS") and 70
patients having non-Parkinsonian Syndrome movement disorders with clinical
features similar to PS but whose symptoms are caused by something other than a
destruction of dopamine producing cells. PD is the most common form of PS, the
name for a group of disorders with similar features. These disorders share the
same primary clinical symptoms, and all are the result of the loss of dopamine-
producing brain cells. These clinical diagnoses were made by expert
neurologists specializing in movement disorders. The ALTROPANE(TM) imaging
agent-SPECT scans were performed on each subject and were reviewed by an
independent three-member panel of nuclear medicine physicians specializing in
neuroimaging who had no knowledge of the clinical diagnosis. The ALTROPANE(TM)
imaging agent scans were read and categorized as being consistent with either
PS or non-PS, and were then compared to the expert clinical diagnosis.

In July 2000, we announced that the results of the trial had confirmed the
ALTROPANE(TM) imaging agent's ability to differentiate Parkinson's movement
disorders (including PD) from other movement disorders. The primary efficacy
endpoints were both statistically significant. Only six scans (out of 165)
could not be read due to technical or other difficulties. There were no
ALTROPANE(TM) imaging agent-related adverse events reported in the study.

In August 2000, we signed an agreement with MDS Nordion, Inc. of Ottawa,
Canada to supply the ALTROPANE(TM) imaging agent under the Good Manufacturing
Process ("GMP") required by the Food and Drug Administration ("FDA"). Part of
the agreement calls for MDS Nordion to also manufacture the ALTROPANE(TM)
imaging agent for the commercial market if and when the ALTROPANE(TM) imaging
agent is approved. MDS Nordion specializes in radioisotopes, radiation, and
related technologies used to diagnose, prevent and treat disease, is the
recognized pre-eminent producer of /123/Iodine in North America, and has a
high-quality manufacturing facility for producing finished
radiopharmaceuticals. MDS Nordion is part of MDS Inc., an international health
and life sciences company based in Canada. MDS Nordion provides laboratory
testing, imaging agents for nuclear medicine testing, sterilization systems for
medical and consumer products, research services to speed the discovery and
development of new drugs, therapy systems for planning and delivery of cancer
treatment, analytical instruments to assist in the development of new drugs,
and medical/surgical supplies.

MDS Nordion is expected to complete the establishment of a GMP manufacturing
process for the ALTROPANE(TM) imaging agent in the third quarter of 2001. This
project will include the manufacture of three lots of GMP material. In
addition, MDS Nordion will compile and prepare the regulatory information for
the Chemistry Manufacturing and Controls ("CMC") section of the Company's
potential New Drug Application ("NDA") filing with the FDA. The Company expects
to meet with the FDA in 2001 to review the clinical results obtained to date,
and to discuss the potential filing of an NDA seeking marketing approval for
the ALTROPANE(TM) imaging agent. The Company looks forward to presenting the
Phase III and other related

clinical and regulatory data to the FDA. However, there can be no assurance
that the FDA will agree that the clinical results obtained to date will be
sufficient for the filing of an NDA or for approval of the ALTROPANE(TM)
imaging agent.

Attention Deficit Hyperactivity Disorder (ADHD)

ADHD is the most commonly diagnosed behavioral disorder in children and is
the fastest growing psychiatric disorder in adults. Since 1990, the total
number of American children diagnosed with ADHD has risen from 900,000 to over
5.5 million, and the use of stimulant medication such as Ritalin(R) has
increased 700% in the same period. ADHD is currently diagnosed according to a
set of behavioral criteria defined in the Diagnostic and Statistical Manual
(DSM) used by psychiatrists. However, it has not been possible to validate
these criteria against an objective biological standard since such a standard
has never been established and does not currently exist. Consequently, the DSM
criteria have generated widespread concern and, in the view of many critics,
often are misapplied and misinterpreted. The lack of a clear-cut, demonstrated
biological basis for ADHD has led to a great deal of confusion concerning the
diagnosis of ADHD and has even provoked skepticism regarding the existence of
the disorder.

There is currently no objective test to diagnose ADHD. Researchers have
recently postulated, but have not been able to confirm, that ADHD may be linked
to an abnormality in the DAT. A number of stimulant medications, including
Ritalin(R), currently constitute the most prescribed treatment for the broadly
described disorder labeled "ADHD." Since there has not been an objective test
to differentiate between biochemical abnormality and purely psychological
behavior disorders, the increasing use of potentially addictive drugs among
children has prompted vigorous public debate amongst educators, parents and the
medical community. This concern has escalated in recent years as evidenced by
widespread coverage in the media.

In June 1999, we initiated a development program utilizing the ALTROPANE(TM)
imaging agent for the early diagnosis of ADHD. Under a Physician's Sponsored
Investigational New Drug ("IND") application, adult patients with ADHD
underwent brain scanning using the ALTROPANE(TM) imaging agent, and were found
to have a significantly abnormal elevation in the number of DATs in the
midbrain. All of the patients tested showed this abnormality. The results of
the study were subsequently published in the December 18, 1999 issue of the
British medical journal The Lancet. The senior author of the article was Dr.
Alan Fischman, Chief of Nuclear Medicine at the Massachusetts General Hospital.

The excessive number of dopamine transporters found in the midbrain in these
ADHD subjects suggests that there may be an underlying detectable biochemical
abnormality in at least a certain segment of individuals presenting with
symptoms of ADHD. We believe that this abnormality is related to the production
of excessive amounts of dopamine in the midbrain of individuals with ADHD.
Based on the results obtained in this trial, we convened an independent panel
composed of ADHD experts, neurologists and radiologists to help us determine
the potential utility of the ALTROPANE(TM) imaging agent as a safe, definitive
and rapid diagnostic test for biochemically based ADHD. If successfully
developed, such a diagnostic test could help physicians determine the
appropriate medical therapy, as physicians currently rely solely on the
psychological and behavioral criteria to diagnose ADHD.

In January 2000, we finalized the clinical trial program after discussing
with the FDA the appropriate structure for the Phase II and III clinical
trials. We initiated our Phase II trial in April 2000 and completed trial
enrollment in September 2000. The trial, comprised of 40 adult patients, was
designed to expand the database on normal individuals and to elaborate on the
findings obtained to date. In March 2001, we announced that the ALTROPANE(TM)
imaging agent had succeeded in identifying adults with long-standing expertly-
diagnosed ADHD in the Phase II study. Adults (age 20-40) diagnosed by clinical
experts as having ADHD had highly statistically-significant elevations in the
number of their brain dopamine transporters (p<0.001) compared to normal (non-
ADHD) individuals of the same age group. The 40 subject study was carried out
at four academic medical institutions in the U.S., and the data analysis was
performed at the Massachusetts General Hospital in Boston.

The highly statistically-significant separation of ADHD from normal
individuals based on the ALTROPANE(TM) imaging agent brain scan in this study
confirms the results of our pilot study published in the journal The Lancet. We
believe it represents an important milestone in the development of the
ALTROPANE(TM) imaging agent as an objective, biologically-based test for the
diagnosis of ADHD. We will use the findings of this study to carefully design
our future clinical development program, with the ultimate goal of having a
practical and objective nuclear medicine test for ADHD. Because of the national
controversy presently surrounding the clinical diagnosis of ADHD, we believe
that the need for an objective, biologically-based diagnosis for ADHD has never
been greater, nor more urgent for our society.

We are presently evaluating the next phase of our clinical program. We may
proceed with two parallel Phase III studies in adults 20-40 years of age, or we
may first conduct an additional Phase II trial using a simplified scanning
procedure and algorithm adjustments. Upon obtaining successful results of these
trials, we would then file for marketing approval for the ALTROPANE(TM) imaging
agent to diagnose ADHD in adults. Upon completion of adult trials, in line with
guidance from the FDA, we plan to initiate a comprehensive Phase III study in
children in order to expand the indication for this diagnostic to serve the
approximately five million children for whom the diagnosis of ADHD is often a
perplexing issue for doctors, educators and parents. We hope to obtain "fast
track" designation from the FDA for the ALTROPANE(TM) imaging agent in the ADHD
indication based on "unmet medical need". Under fast track provisions, the FDA
is committed to working with the sponsor for the purpose of expediting the
clinical development and evaluation of the drug's safety and efficacy. There
can be no assurance that we will obtain fast track designation or that, if
obtained, such designation will guarantee a faster development process, review
or approval compared to the conventional FDA procedures.

Market Potential

We believe that the total market prospects for the ALTROPANE(TM) imaging
agent in both PD and ADHD are substantial. It is estimated that 250,000
individuals per year present to their physician with new, undiagnosed movement
disorders, and are therefore candidates for the ALTROPANE(TM) imaging agent
scan to diagnose or rule-out early Parkinson's Disease. In the far larger ADHD
market, a conservatively estimated 1.5 million adults between the ages of 20 to
40 are tentatively diagnosed with ADHD. The most significant single market is,
of course, the 5 million children who are categorized as having ADHD. The
annual incidence (new cases) of ADHD in both adults and children is
approximately 1.6 million. We believe that an effective diagnostic for ADHD
will provide a much-needed objective basis for therapeutic intervention with
drugs such as Ritalin(R). Including its use for both PD and ADHD indications,
we believe that the ALTROPANE(TM) imaging agent has the potential, if approved,
to become one of the largest selling radiopharmaceuticals ever developed. Our
preliminary projections point toward a combined potential of 300,000 to 500,000
scans per year.

Principal Preclinical Development Programs

1. Troponin

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

Our anti-angiogenic agent, Troponin I ("Troponin") was discovered to be
present in cartilage (a tissue devoid of blood vessels) by scientists at
Children's Hospital in Boston, and found to have extremely strong

anti-angiogenic activity, both in vitro and in vivo. Recombinant Troponin has
been shown to inhibit lung metastases in animals at doses that by extrapolation
to the human equivalent appears to yield a convenient clinical dosing regimen.
The scientific basis for our development of Troponin was published in the March
16, 1999 edition of the Proceedings of the National Academy of Sciences
("PNAS"). We own the exclusive license to the issued (November 1998) U.S.
patent for the use of Troponin I to treat a broad spectrum of angiogenic
diseases including solid tumors, eye diseases, atherosclerosis, hypertrophic
scarring (including in the spinal cord), arthritis and psoriasis. A second
patent, covering pharmaceutical compositions of Troponin, was subsequently
issued to us (March 2000) which significantly strengthens our proprietary
position regarding the use of this natural compound.

In January 2001, we announced the development of a proprietary method for
the purification of complex bacterial-produced recombinant proteins, such as
Troponin, that conserves the biological activity of the native protein. We
believe that this method will enable us to produce large amounts of highly
active Troponin at a relatively advantageous cost for our clinical trials and,
if approved, subsequent commercialization. The development of an economic,
scale-up methodology for production of complex proteins while adhering to FDA
mandated standards for purity and still retaining requisite biological activity
has been a very difficult problem for the biotechnology industry. This has been
especially true in the case of several anti-angiogenic agents.

In January 2001, we entered into a supply agreement with Marathon
Biopharmaceuticals under which Marathon will manufacture GMP Troponin for our
IND application and our Phase I/II clinical trials. This agreement represents
the culmination of two years of effort to refine the manufacturing process for
Troponin. We expect that our collaboration with Marathon will enable us to
consistently manufacture Troponin with high levels of anti-angiogenic activity
and purity in the GMP environment mandated by the FDA. Marathon
Biopharmaceuticals is an operating division of CoPharma, Inc., a private
biotechnology company based in Hopkinton, MA. Marathon's 65,000 square foot
manufacturing plant has received full GMP certification from the FDA. According
to Marathon, their facility systems include microbial cell expression systems
from 10L up to 800L, protein purification suites with microfiltration and
ultrafiltration systems, centrifugation and chromatography, fully equipped and
staffed QC laboratories, and fully equipped process development and product
characterization laboratories. Marathon is the current commercial supplier of
one FDA approved product and produces clinical material for over a dozen other
biotechnology and pharmaceutical companies.

We hope to initiate Phase I/II studies in patients with breast cancer and
prostate cancer by the end of 2001, although there can be no assurance that we
can meet this timetable.

2. Inosine and Axogenesis Factor 1 (AF-1)

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

Inosine and Axogenesis Factor 1 (AF-1) are nerve growth factors which
specifically promote axon outgrowth in CNS cells. We acquired the rights to
Inosine and AF-1 from Children's Medical Center in 1995. Since axons form the
connections between cells of the CNS (brain and spinal cord), we believe that
Inosine and AF-1 could provide a means to regenerate those connections
following CNS damage suffered in stroke or spinal cord injury. We believe that
these compounds have the potential to treat other acute and chronic
degenerative CNS disorders, such as PD and Alzheimer's.

The annual incidence of stroke in the U.S. is approximately 500,000 with
more than 3,000,000 stroke survivors currently alive. The incidence of
traumatic brain injury is approximately 50,000 annually. The

incidence of spinal cord injury is approximately 10,000 cases annually.
Treatment for these conditions is presently limited to hemodynamic support,
steroids to reduce inflammation, and, in the case of stroke, the correction of
predisposing hematological abnormalities.

Some of the important findings concerning the regulation of axon growth in
CNS nerve cells that were generated by our collaborating researchers were
initially announced in 1998. These discoveries were presented at the annual
meeting of the Society for Neuroscience and were published in The Journal of
Biological Chemistry in a paper which described the intracellular pathway that
may control axon growth in all nerve cells.

In November 1999, our collaborating scientists at Children's Hospital,
Boston, reported in The Proceedings of the National Academy of Sciences (PNAS)
that Inosine had stimulated axon collateral growth in an animal model that has
many features in common with spinal cord injury in humans. In this model, one
side of the corticospinal tract in rats was severed as it courses through the
brainstem. Inosine was then infused directly into the motor cortex of the
brain, the site of origin for those axons descending into the non-injured side
of the corticospinal tract. After 14 days of treatment, newly grown axon
branches were traced by injecting a dye into the treated nerve cells in the
cortex. Animals were then sacrificed and the spinal cord examined for
histologic evidence of new axon growth. Almost all of the treated animals
showed signs of extensive collateral sprouting of axons from the uninjured to
the injured side of the corticospinal tract reaching below the level of the
hemi-transection. These new axonal branches then continued to descend down the
injured side of the corticospinal tract, effectively replacing severed axons
with new ones. These axons were found to enter the gray matter of the spinal
cord in a normal fashion. The number of collateral (new) axons ranged up to
2,500 per treated animal, compared to 28-170 axons seen in control animals. We
believe that this was the first published study demonstrating that the
corticospinal tract can possibly be extensively reconstituted following
experimental injury. Similar results were subsequently obtained using AF-1.
Since corticospinal tract regeneration is an absolute prerequisite for
obtaining functional recovery after spinal injury in humans, we believe that
these published results demonstrate that we are in the forefront in the search
for potentially important therapeutic agents for spinal cord injury.

In January 2000, our collaborating scientists identified a previously
unknown biological pathway for the stimulation of optic nerve regeneration,
which we believe will greatly enhance the development of Inosine and AF-1. The
discovery of this novel pathway (included in the pending patent rights licensed
to us through our CNS research program) impacts specifically on potential
ophthalmic applications. Consequently, therapeutic treatment for glaucoma is
now encompassed within the possible uses of Inosine and AF-1.

In February 2000, we announced that our collaborating scientists had
isolated the molecular target of Inosine and AF-1. This target appears to be an
enzyme within CNS neurons that specifically controls axon growth of all CNS
nerve cells, whether in the brain or in the spinal cord. Activation of this
enzyme by Inosine and AF-1 is apparently sufficient to overwhelm the natural
inhibitory factor(s) such as Nogo (a naturally occurring protein that inhibits
axon regeneration in the CNS) that ordinarily prevent nerve regeneration in the
CNS. We believe that the identification of this control enzyme represents a
critical breakthrough in our understanding of the mechanisms underlying CNS
nerve regeneration. As documented in the PNAS article, stimulation of this
enzyme by Inosine appears to be far more effective in stimulating axon growth
in the motor tracts of the spinal cord following experimental injury than the
use of antibodies to counteract the natural axon growth inhibitor, Nogo. Direct
comparison of our PNAS data with that published for experiments using
antibodies to Nogo (The Journal of Neuroscience) demonstrates at least a ten-
fold increase in the amount of axon growth produced utilizing Inosine compared
to that achieved through the previously reported use of antibodies to Nogo.
Based on these and other published data, we believe that administration of
Inosine and AF-1 currently appears to offer the most promising potential
approach yet reported in the effort directed at overcoming the long-recognized
natural inhibition to nerve regeneration in the CNS. We believe that these
findings may imply an important clinical advantage for Inosine and AF-1 since
they appear to activate this pivotal enzyme to stimulate axon regeneration.

In April 2000, we announced that Inosine had stimulated "substantial" re-
growth of severed spinal cord motor nerve fibers through the area of
experimental injury in an animal model. To the our knowledge, this

represents the first time that this has been accomplished experimentally. In
the study, a hemi-transection of the corticospinal tract was made in rats and
Inosine was administered to the motor cortex that gave rise to the transected
fibers. After two weeks of treatment, the spinal cord was examined for
microscopic evidence of re-growth through the injury. In four out of five
treated rats, new fibers were seen coursing through the injury to re-establish
their distal connections. We believe that these results represent an important
milestone in our spinal cord program since they indicate that motor function
can potentially be re-established under the control of the same area of the
brain that gave rise to the injured spinal cord fibers. As a result,
rehabilitation could theoretically take place without having to retrain
different areas of the brain to take over the lost motor function.

In May 2000, we initiated a program to develop Inosine as therapy to enhance
functional recovery following stroke. We believe that the use of Inosine to
regenerate nerve connections in stroke represents a totally new approach to
this potentially devastating condition. In simple terms, stroke is essentially
caused by an acute blockage of a blood vessel to a specific area of the brain.
Depending on the extent of the territory vascularized by this vessel, clinical
consequences range from minor debility to death. As far as we are aware, all
current therapies, both approved or in development, are focused on minimizing
the damage to the affected territory of the brain, either by reversing the
blockage (by clot dissolution) or protecting brain cells from the ischemic
injury (cytoprotective agents). However, once the damage is complete, there is
little or no functional recovery, since there is little or no nerve
regeneration in the CNS that could compensate for the irreversible loss of the
nerve cells and their connections. Up to now, the inability to provide
regeneration therapy for stroke has been simply due to the absence of any
effective compounds having the necessary in vivo regenerative activity. Based
on experimental results in animals, we believe that Inosine appears to be the
most effective compound ever identified in regenerating nerve connections in
the CNS. Inosine can be conveniently administered directly into the Cerebral
Spinal Fluid (CSF) which bathes the brain, thereby exposing the specifically
injured brain tissue to therapeutic amounts of Inosine while minimizing the
potential for systemic toxicity. Inosine can potentially be administered via a
widely-used delivery system for several months if necessary, in order to
promote the optimal amount of regeneration.

In June 2000, we announced that our collaborating scientists had developed a
methodology to stimulate regeneration of the optic nerve to a degree far
greater than had previously been documented in the scientific literature. The
results of these studies were published in The Journal of Neuroscience (20;
4615; 200), one of the leading peer-reviewed neuroscience journals. In the
article, written by Dr. Larry Benowitz and colleagues the authors describe how
retinal ganglion cells that give rise to the optic nerve could be stimulated to
regenerate optic nerve fibers following an experimental crush injury to the
optic nerve. Not only was the amount of regeneration far greater than has ever
been reported previously elsewhere, but in addition these regenerated fibers
were observed to pass through the crush injury and extend for several
millimeters distally along the degenerated optic nerve tract towards the brain.
To our knowledge, such substantial nerve growth through a crush injury has
never been previously described. The mechanism and factors responsible for this
regeneration were tentatively identified by our collaborating scientists. The
optimal conditions necessary for optic nerve regeneration turn out to be
somewhat different than those necessary for spinal cord regeneration. While it
appears that AF-1 alone stimulates regeneration in the spinal cord, in the eye
a co-stimulant is necessary to achieve maximal regeneration. In addition to AF-
1 and Inosine, we intend to develop these co-stimulatory molecules as
therapeutics for optic nerve regeneration. We hope to develop the first
regenerative therapy for glaucoma using this approach.

In September 2000, the Company announced that its collaborating scientists
had demonstrated that Inosine treatment apparently produced near total recovery
of limb function in an experimental rat model of stroke. In this study, the
middle cerebral artery was occluded, resulting in an anatomically well-
characterized cerebral infarct with hemi-paresis (weakness) of the fore and
hindlimb on the opposite side. A catheter was immediately placed into the CSF
at the level of the cisterna magna at the base of the brain and connected to a
subcutaneously placed mini-pump loaded with Inosine. Inosine was then infused
at a constant rate of 2.5l microliters/hr for 28 days. It is estimated that
effective, steady state Inosine concentrations in the CSF were reached
approximately 1-2 days after infarct. The Inosine treatment, which began two
days following the

stroke, was administered by continuous infusion into the CSF. Limb function was
assessed in a blinded manner at bi-weekly intervals after the stroke. Such
functional improvement in treated animals was highly statistically significant
compared to control animals, which continued to exhibit severe impairments. The
improvement in limb function in the treated animals, as assessed in a number of
behavioral tasks, was highly statistically significant. Treated animals
recovered greater than 90% of their pre-stroke function. The untreated group
continued to exhibit severe functional impairments, remaining effectively
paralyzed. One of the most significant discoveries in this study is that
Inosine appears to be effective even when given after the damage has been done
and the stroke is complete. This is in sharp contrast to other potential agents
for stroke therapy now in development which must be given almost immediately
after the stroke. Because these other potential therapies rely on
cytoprotection or anti-thrombotic agents to minimize ischemic damage rather
than produce actual regrowth, it is difficult to see how they can be expected
to restore lost function after stroke. Inosine, however, by virtue of its well-
documented potent axon-regenerating ability, has the potential to actually
restore limb and other motor function after the stroke has occurred.

In November 2000, The Journal of Neuroscience reported on the discovery by
our collaborating scientists regarding an important mechanism controlling axon
regeneration in nerve cells. This paper describes for the first time a central
program that controls a whole family of genes required for axon growth, and how
Inosine can directly switch on this program. These findings may help explain
why Inosine appears to have such dramatic positive effects after brain and
spinal cord injury. Normally, CNS cells are unable to re-grow damaged fibers.
Consequently, when such disruption occurs, their communication with other nerve
cells is lost, causing debilitating losses in function for victims of stroke or
traumatic injury. In the paper, Dr. Larry Benowitz (senior author) and co-
workers describe the mechanism by which Inosine apparently works. Benowitz and
his group are hopeful that by activating neurons with Inosine (as demonstrated
in previous in vivo animal studies), they may be able to achieve regenerative
axon growth in humans whose central nervous systems have sustained injury in
stroke and spinal cord trauma. The new findings indicate that Inosine passes
right through the nerve cell's membrane and activates an enzyme that appears to
be the "master switch" that controls the cell's molecular program for axon
growth. This same mechanism is believed to be activated when brain cells are
forming their connections during embryonic development. In their studies, Dr.
Benowitz and his group found that this Inosine-activated program causes nerve
cells to switch on a set of genes that encode the proteins essential for nerve
regeneration. In the adult brain, this cellular program is normally silent, and
nerve cells that have been injured (e.g. by stroke) are not able to regenerate
their axons. Nevertheless, this genetic program can be reactivated by Inosine.
Benowitz's group has identified the actual gene that encodes the enzyme upon
which Inosine works. This, in turn, may enable them to gain further valuable
and clinically relevant insights into the possibilities for regenerative axon
growth in nerve cells. We believe that the addition of this "master switch' to
our licensed patent portfolio reinforces our prominent position in the field of
CNS regeneration.

We have initiated the early preclinical studies necessary for the eventual
filing of an IND, and hope to bring Inosine into human clinical testing in the
second half of 2001 or early 2002 for the treatment of stroke and other CNS
disorders. The Company's Inosine development program will concentrate on the
optimization of dosage and duration of treatment, pharmacokinetic and toxicity
studies, and cGMP production of Inosine for human use.

3. C-MAF

In June 1996, we acquired the rights to a transcription factor called C-MAF
which has been shown, in preclinical in vitro tests, to regulate the switching
of T helper 1 (Th1) cells into T helper 2 (Th2) cells. We believe that the
ability to switch Th1 cells into Th2 cells (and vice versa) may be significant
in the treatment of autoimmune diseases and allergies. The discovery of and
potential role for this factor was the subject of a lead article in the June
28, 1996 edition of Cell. When C-MAF was inserted into Th1 cells, they
transformed themselves into Th2 cells. Our collaborating scientists have since
accomplished the stable transfection of a large proportion of T cells in
culture, which is the first step in creating a gene therapy product for
clinical use. In a "Proof of Principle" experiment, C-MAF was inserted into a
fertilized mouse egg. The T cells of the fully developed animal all appeared to
be of the Th2 subtype, thereby providing evidence that one can transform an

animal's T cells in vivo. In addition, our collaborating scientists believe
that they have identified the C-MAF promoter, which could represent an ideal
target for the development for small molecule inhibition of the
allergic/autoimmune response. A product based upon a successful program in this
area would potentially address a large cross-section of autoimmune and allergic
diseases.

In addition to C-MAF, a second factor, called NIP-45, has been discovered by
our collaborating scientists which appears to synergize with C-MAF and other
factors to significantly boost transcription of the IL4 gene in Th2 cells.
Thus, a gene therapy strategy focused on either inserting C-MAF alone, or C-MAF
together with NIP-45, could potentially lead to the development of a
therapeutic product for the treatment of severe autoimmune diseases, although
results to date are preliminary. This approach to a treatment for allergies
requires the development of an inhibitor to C-MAF, NIP-45, or both, in order to
decrease the number of Th2 cells and to restore the proper balance between the
numbers of Th1 and Th2 cells at the site of inflammation. In the case of asthma
and hay fever, the optimal formulation would be a small molecule that could be
delivered via aerosol to the lung where it would be incorporated into the Th2
cells surrounding the bronchi. Our strategy for the commercialization of this
technology is to collaborate with a corporate partner in the discovery and
clinical development of such a small molecule inhibitor utilizing the basic
research and screening techniques developed by our research program.

In September 1999 we announced that we had entered into a development and
licensing agreement with Pfizer, Inc. to further develop a major sector of our
C-MAF technology. We received an initial payment and will also receive
royalties on eventual sales of any product derived from the devlopment effort.
Under the terms of the agreement Pfizer screened its small molecule collection
for potential inhibitors of C-MAF, with the goal of developing a small molecule
therapeutic drug for the treatment of a wide range of allergies and asthma.
Pfizer completed its initial screening efforts in late 2000 and identified a
number of promising compounds for clinical development. Pfizer is presently
conducting further screening procedures in order to determine which compounds,
if any, will be developed further.

4. Parkinson's Disease Therapeutic

In June 1999, we acquired the licensing rights to a new therapeutic
compound, tentatively named BLS O-1369, from the same collaborating scientists
who developed the ALTROPANE(TM) imaging agent. We believe that this compound
represents a novel and promising approach to the treatment of Parkinson's
Disease (PD). BLS O-1369 is a small molecule that binds with extremely high
selectivity to the dopamine transporter (DAT) thereby blocking the reuptake of
dopamine from nerve connections. This blockade results in an increase in local
dopamine concentrations at the nerve junctions and thus compensates for the
decreased dopamine production characteristic of PD. We believe that the
strategy of DAT blockade represents a new approach to the treatment of PD.
Given the growing depth of our experience in the CNS area, our ultimate goal is
to provide both reliable diagnosis and effective new therapies for PD, ADHD and
other CNS disorders.

In February 2000, we announced preliminary results of a primate study which
demonstrated that BLS O-1369 significantly improved the symptoms of
experimental PD. In these studies, monkeys with mild to moderate PD were
injected with either placebo or BLS O-1369. Movement was scored using vests
containing computer chips to quantify the gross movements of the animals. Prior
to treatment, the monkeys had extremely low scores due to the rigidity of the
induced PD. However, within one hour of drug injection, movement scores
increased to normal. The animals exhibited quantitative and qualitative normal
movement for up to 8 hours post-injection, and then reverted to their former
rigidity. A positive dose response effect to the drug was correlated with a
dose-related improvement in motion.

In November 2000 we announced that BLS O-1369 had successfully reversed the
movement abnormalities exhibited by PD in primates in a more extensive second
round of experiments. This further success appears very exciting because the
characteristics and method of action of this drug offers the potential that
side effects will be greatly reduced compared with other PD therapeutics
currently available. We have initiated the preclinical studies (oral
formulation, bioavailability, toxicology and further dose ranging) necessary
for the filing of an IND which we anticipate filing by the end of 2001 or in
the first quarter of 2002.

5. FLOURATEC(TM) Imaging Agent

In December 1998, we announced that we had started preclinical development
on a "second generation" technetium-based compound for the diagnosis of PD.
This compound differs from the ALTROPANE(TM) imaging agent in structure and in
the advantageous substitution of technetium for iodine as the radio-ligand. The
advantage of technetium is that it has a longer shelf life than iodine.
Subsequent research has shown that this agent can differentiate PD from normal,
but comprehensive data on its performance in human subjects as compared to the
ALTROPANE(TM) imaging agent is not yet available. However, Primate studies
using the technetium compound have demonstrated that this compound is taken up
by the normal striatum in sufficient quantity to provide an easily readable
image. Primates with experimentally-induced PD had markedly decreased uptake of
the compound. Radiation dosimetry, pharmacokinetic, and toxicology studies were
all favorable. Based on these pre-clinical results, a Physician's Sponsored IND
was filed with the FDA and subsequently the FLOURATEC(TM) imaging agent images
were performed in healthy volunteers. The image quality was comparable to that
obtained with the ALTROPANE(TM) imaging agent. We believe that the ability to
eventually follow the ALTROPANE(TM) managing agent to market with a second-
generation technetium product would give us a long-term competitive advantage
in this rapidly emerging diagnostic area.

Therafectin

During 2000, the Company continued to evaluate its next course of action
with respect to Therafectin, a treatment for rheumatoid arthritis. The Company
has had preliminary discussions with parties who have expressed an interest in
acquiring partial marketing rights to Therafectin, and in conducting an
additional Phase III clinical trial. However, there can be no assurances that
any such agreement will be finalized. The Company does not expect to bear any
further significant financial expenditures in the development of Therafectin,
although it could receive royalties on any product sales of Therafectin if it
receives FDA approval. The Company did not incur significant costs with respect
to Therafectin in 2000 and does not expect to incur significant costs in the
future.

Scientific Collaborators

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

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

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

Laurie H. Glimcher, M.D., Irene Heinz Given Professor of Immunology, Harvard
School of Public Health; Professor of Medicine, Harvard Medical School;

Alexander M. Klibanov, Ph.D., Professor of Chemistry and Bioengineering,
Massachusetts Institute of Technology;

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

Bertha K. Madras, Ph.D., Professor of Psychobiology, Department of
Psychiatry, Harvard Medical School;

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

Vladimir Torchilin, Ph.D., Head of the Chemistry Program, Center for Imaging
and Pharmaceutical Research and Associate Professor of Radiology, Harvard
Medical School.

Research and Development

We rely on licensing from third parties, principally Harvard and its
Affiliates, as our source for new technologies and product candidates and do
not maintain our own research and development personnel or facilities. Research
and development expenses for the years ended December 31, 2000, 1999 and 1998
were $8.6 million, $10.4 million and $5.4 million, respectively.

Licensing Agreements, Patents and Intellectual Property

We have entered into a number of exclusive worldwide licenses of patents and
patent applications covering our technologies. These licenses are obtained from
the collaborating institutions where such technologies were invented or
discovered (generally Harvard and its Affiliates), and generally include the
right to sublicense, to make, use or sell, products or processes resulting from
the development of these technologies. The licensing agreements generally
require the payment of an initial licensing fee as well as additional payments
upon reaching development milestones, as defined in each respective agreement.
The licensing agreements also provide for the payment of a royalty to the
collaborating institution based upon the sales of any products developed by us
or our sublicensees. We usually have a first option to license additional
technologies invented or discovered during the course of related research
programs funded by us. There can be no assurance that such research will lead
to the discovery of new technologies or that we will be able to obtain a
license for any newly discovered technologies on acceptable terms, if at all.

Our patent strategy is to pursue patent protection in the U.S. and in major
developed countries for our technologies. At December 31, 2000, we owned or
licensed 12 issued U.S. patents and had 29 pending patent applications in the
U.S. to protect our proprietary methods and processes. We have also filed
corresponding foreign patent applications for certain of these U.S. patent
applications. As of December 31, 2000, our patent portfolio outside the U.S.
comprised of 8 issued patents and over 70 pending patent applications. The
issued U.S. patents relate to imaging the central nervous system, nerve
regeneration, angiogenesis inhibition, and transcription factors and their
therapeutic use. Our goal is to obtain broad patent protection for our
technologies and their related medical indications.

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

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

We also rely on trade secrets and proprietary know-how. We seek to protect
this information primarily through confidentiality agreements with our
collaborators, employees and consultants, but there can be no guarantee that
these agreements will not be breached or that we will have adequate remedies
for such breach.

In addition, if consultants, scientific advisors, or other third parties apply
technological information which they have developed separate from us to our
technologies, there may be disputes as to the ownership of such information
which may not be resolved in our favor.

Competition

The biotechnology and pharmaceutical industries are highly competitive and
are dominated by larger, more experienced and better capitalized companies.
Thus, we compete with a number of pharmaceutical and biotechnology companies
which have financial, technical and marketing resources and experience
significantly greater than ours. Such greater experience and financial strength
may enable them to bring their products to market sooner than us, thereby
gaining a competitive advantage. In addition, research on the causes of, and
possible treatments for diseases for which we are trying to develop products,
including cancer, PD, ADHD, CNS disorders and autoimmune diseases, are
developing rapidly, and there is a potential for extensive technological
innovation in relatively short periods of time. Given that many of our
competitors have greater financial resources, there can be no assurance that we
will be able to keep pace with any new technological developments. In addition,
many of our competitors and potential competitors have significantly greater
experience than we do in completing preclinical and clinical testing of new
pharmaceutical products and obtaining FDA and other regulatory approvals of
products, which could also enable them to bring products to market faster than
we do.

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

A significant amount of research and development in the biotechnology
industry is conducted by academic institutions, governmental agencies and other
public and private research organizations. We do not possess research and
development facilities or personnel and rely on collaborations with these
entities (principally, Harvard and its Affiliates) to acquire new technologies
and product candidates. These entities often seek patent protection and enter
into licensing arrangements to collect royalties for use of technology or for
the sale of products they have discovered or developed. We face competition in
our licensing or acquisition activities from pharmaceutical companies and
biotechnology companies that also seek to collaborate with or acquire
technologies or product candidates from these entities. Accordingly, we may
have difficulty licensing or acquiring technologies or product candidates on
acceptable terms.

Regulation

Our technologies must undergo a rigorous regulatory approval process, which
includes extensive preclinical and clinical testing, to demonstrate safety and
efficiency before any resulting product can be marketed. To date, neither the
FDA nor any of its international equivalents has approved any of our
technologies for marketing. In the biotechnology industry, it is generally
accepted that less than 10 percent of the technologies for which preclinical
efforts are initiated ultimately result in an approved product. The clinical
trial and regulatory approval process can require many years and substantial
cost, and there can be no guarantee that our efforts will result in an approved
product.

Our activities are regulated by a number of government authorities in the
United States and other countries, including the FDA pursuant to the Federal
Food, Drug and Cosmetic Act. The FDA regulates pharmaceutical products,
including their manufacture and labeling. Data obtained from testing is subject
to varying interpretations which can delay, limit or prevent FDA approval. In
addition, changes in existing

regulatory requirements could prevent or affect the timing of our ability to
achieve regulatory compliance. Federal and state laws, regulations and policies
may be changed with possible retroactive effect, and how these rules actually
operate can depend heavily on administrative policies and interpretations over
which we have no control.

Obtaining FDA clearances is time-consuming and expensive. The steps required
before our potential products may be marketed in the United States include (i)
preclinical laboratory and animal tests, (ii) the submission to the FDA of an
application for an Investigational New Drug Exemption, which must become
effective before U.S. human clinical trials may commence, (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the product, (iv) the submission to the FDA of a marketing authorization
application(s) and (v) FDA approval of the application(s) prior to any
commercial sale or shipment of the drug. There is no guarantee that such
clearances will be granted to any of our potential products, or that the FDA
review process will not involve delays that significantly and negatively affect
our potential products. We also may encounter similar delays in foreign
countries. In addition, even if we receive regulatory clearances, they may have
significant limitations on the uses for which any approved products may be
marketed. In addition, any marketed product and its manufacturer are subject to
periodic review and any discovery of previously unrecognized problems with a
product or manufacturer could result in suspension or limitation of approvals.

Manufacturing

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

Marketing and Sales

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

Forward-Looking Statements

This Item and other Items in this report contain "forward-looking"
information as that term is defined in the Private Securities Litigation Reform
act of 1995 or by the Securities and Exchange Commission in its rules,
regulations and releases. This information includes statements on the prospects
for our drug development activities and results of operations based on our
current expectations, such as statements regarding certain milestones with
respect to the our technologies and product candidates. Forward-looking
statements are statements that are not historical facts, and can be identified
by, among other things, the use of forward-looking language, such as "believe,"
"expect," "may," "will," "should," "seeks," "plans," "schedule to,"
"anticipates" or "intends" or the negative of those terms, or other variations
of those terms of comparable language, or by discussions of strategy or
intentions. In particular, these forward-looking statements include statements
relating to present or anticipated scientific progress, development or
regulatory approval of potential products, future revenues, capital
expenditures, research and development expenditures, present and future
collaborations, intellectual property, personnel and manufacturing requirements
and capabilities. We caution investors that such forward-looking statements are
not guarantees of future performance, and that known and

unknown risks, uncertainties and other factors, including those risks factors
identified below, in Management's Discussion and Analysis of Financial
Condition and Results of Operations, and elsewhere in this report, may cause
actual results to differ materially from those forward-looking statements. In
addition, we caution you that forward-looking statements speak only as of the
date they are made, and we undertake no obligation to update them, even if our
experience or future changes make it clear that any projected results
expressed or implied herein will not be realized.

Risk Factors

We operate in a rapidly changing environment that involves a number of
risks, some of which are beyond our control. The following discussion
highlights some of these risks and others are discussed elsewhere herein.

We are a development stage company, we have always had losses from our
operations and we expect future losses.

We are a development stage company and have always had losses from our
operations. We have never generated revenues from product sales and we do not
currently expect to generate revenues from product sales for at least the next
eighteen months, and probably longer. There can be no guarantee that we will
ever generate revenues or operating profits, or that if we do generate
revenues or operating profits, that we will be able to continue to do so.

As of December 31, 2000, we have incurred total net losses since inception
of approximately $65 million. To date, we have dedicated most of our financial
resources to the research and development of our product candidates,
preclinical compounds, and other technologies (which we collectively refer to
in this document as our "technologies"), general and administrative expenses
and costs related to obtaining and protecting patents. We expect to incur
significant operating losses for at least the next eighteen months, and
probably longer, primarily due to the continued expenditures necessary to
support progress of our research and development programs, including
preclinical studies and clinical trials.

Our ability to generate revenue and operating income in the future will
depend on many factors including:

. Successfully completing the research and development of our technologies;

. Protecting our patent and other intellectual rights, as well as the
ability of our licensors and collaborators to protect their patent and
other intellectual rights;

. The time, cost, and effort required to obtain regulatory approvals;

. Establishing collaborative arrangements for manufacturing, sales and
marketing for any of our products;

. Competing technologies and market developments; and

. Manufacturing costs and the market acceptance of our products at prices
sufficient to generate adequate profits.

We will likely require additional funding in the future in order to continue
our business and operations as currently conducted. If we are unable to
secure such funding on acceptable terms, we may need to significantly reduce
or even cease one or more of our research or development programs, or we may
be required to obtain funds through arrangements with others that may require
us to surrender rights to some or all of our technologies.

We spend a significant amount for research and development, including
preclinical studies and clinical trials of our technologies. We expect that
our current cash, cash equivalents and investment balances will be sufficient
to fund our capital requirements through at least the next eighteen months.
Thereafter, we may need to raise substantial additional capital if we are
unable to generate sufficient revenue from product sales or through
collaborative arrangements with third parties. To date, we have always
experienced negative cash flows from operations and have funded our operations
primarily from equity financings. If adequate funds are not readily available,
we may need to significantly reduce or even cease one or more of our research
or

development programs. Alternatively, to secure such funds, we may be required
to enter financing arrangements with others that may require us to surrender
rights to some or all of our technologies. If the results of our current or
future clinical trials are not favorable, it may negatively affect our ability
to raise additional funds. If we are successful in obtaining additional equity
financing, the terms of such financing will have the effect of diluting the
holdings and the rights of our stockholders. Estimates about how much funding
will be required are based on a number of assumptions, all of which are subject
to change based on the results and progress of our research and development
activities.

Our capital requirements will depend on many factors, including:

. The progress of our research and development activities and our clinical
trials, and the degree to which we encounter the problems, delays, and
other complications frequently experienced by development stage
biotechnology companies.

. Our ability to successfully negotiate economically feasible, and meet the
terms of, collaborative research, manufacturing, marketing or other
agreements.

. The cost and timing of, and success in, obtaining FDA and other
regulatory approvals of our products;

. The cost of protecting our patent claims and other intellectual property
rights; and

. Changes in economic, regulatory or competitive conditions of the
pharmaceutical and biotechnology industry.

Our technologies and product candidates are in the early stages of development
and may not result in marketed products at all.

Successful research and product development in the biotechnology industry is
highly uncertain, and very few research and development projects produce a
commercial product. Product candidates that appear promising in the early
phases of development, such as in preclinical study or in early human clinical
trials, may fail to reach the market for a number of reasons, such as:

. The product candidate fails to demonstrate safety and efficacy in pivotal
clinical trials even though it demonstrated positive preclinical or
early-stage clinical trial results;

. The necessary regulatory bodies (such as the FDA) fail to approve the
product candidate;

. The product candidate cannot be manufactured by or for us on an economic
basis;

. Other companies or people possess proprietary rights that prevent our
product candidate from being marketed and they will not provide us with a
license on reasonable terms, or at all; or

. The product candidate is not cost effective in light of existing drugs.

With the exception of the ALTROPANE(TM) imaging agent, all of our
technologies and early-stage product candidates are in preclinical development
and we have not yet submitted INDs, for these product candidates, which will be
required before we can begin clinical trials in the United States. We are not
sure that we will submit INDs for these candidates as planned, or whether the
FDA will permit us to proceed with clinical trials. We may abandon further
development efforts before the products reach clinical trials. We do not know
what the cost to manufacture these products in commercial quantities will be,
or the dose required to treat patients. We do not know whether any of these
product candidates ultimately will be shown to be safe and effective. If we are
unable to successfully develop and commercialize our technologies and early-
stage product candidates, our business and results of operations will be
harmed.

If we are unable to secure adequate patent protection for our technologies,
then we may not be able to compete effectively as a biotechnology company.

At the present time, we do not have patent protection for all uses of our
technologies. There is significant competition in our primary scientific areas
of research and development including CNS disorders, cancer, and autoimmune
diseases. Such competitors will seek patent protection for their technologies,
and such patent

applications or rights might conflict with the patent protection that we are
seeking for our technologies. If we do not obtain patent protection for our
technologies, our business prospects may be significantly and negatively
affected. Further, even if patents can be obtained, there can be no guarantee
that these patents will provide us with any competitive advantage.

Our patent strategy is to obtain broad patent protection, in the U.S. and in
major developed countries, for our technologies and their related medical
indications. The patent application and issuance process generally takes at
least several years and is usually very expensive without any guarantee that a
patent will be issued. In many cases, our know-how and technology may not be
patentable. Risks associated with protecting our patent and proprietary rights
include the following:

. Our ability to protect our technologies could be delayed or negatively
affected if the United States Patent and Trademark Office (the "USPTO")
requires clinical evidence that our technologies work;

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

. Our competitors may develop products which are similar to ours but which
do not infringe on our patents or products, or a third party may
successfully challenge one or more of our patents;

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

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

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

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

We are dependent on expert advisors and institutional collaborations.

Most biotechnology and pharmaceutical companies have established internal
research and development programs, including their own facilities and employees
which are under their direct control. By contrast, we have always outsourced
all of our research and development, preclinical and clinical activities. As a
result, we are dependent upon our network of expert advisors, including the
individuals who serve on our Scientific Advisory Board, and our collaborations
with key medical and research institutions for the development of our
technologies. These expert advisors are not our employees but provide us with
important information and knowledge that may enhance our product development
strategies and plans. Our collaborations with key medical and research
institutions are important for some of the testing and evaluation of our
technologies. The loss of relationships with our expert advisors or medical and
research institutions could harm our ability to develop our technologies.

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

Disputes may arise in the future with respect to the ownership of rights to
any technology developed with our advisors or collaborators. These and other
possible disagreements could lead to delays in the collaborative research,
development or commercialization of our technologies, or could require or
result in litigation to

resolve. Any such event could have a material adverse effect on our business,
financial condition or results of operations.

Our advisors and collaborators sign agreements that provide for
confidentiality of our proprietary information. We cannot provide assurance
that we will be able to maintain the confidentiality of our technology and
other confidential information in connection with every advisory or
collaboration arrangement, and any unauthorized dissemination of our
confidential information could have a material adverse effect on our business,
financial condition or results of operations. Further, there can be no
assurance that any of these advisors or collaborators will not enter into an
employment or consulting arrangement with one or more of our competitors.

If we are unable to maintain our key working relationships with Harvard and
its Affiliates, we may not be successful since substantially all of our
current technologies were licensed from, and most of our research and
development activities were performed by, Harvard and its Affiliates.

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

Universities and other not-for-profit research institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for the use of technology that they have developed. There can be no
guarantee that we will be able to obtain new technologies from Harvard and its
Affiliates or that we can continue to meet our obligations under existing
arrangements.

If we are unable to retain our key personnel and/or recruit additional key
personnel in the future, then we may not be able to operate effectively.

Our success depends significantly upon our ability to attract and retain
highly qualified scientific and management personnel who are able to
formulate, implement and maintain the operations of a biotechnology company
such as ours. As an example, Marc E. Lanser, our Chief Scientific Officer, was
formerly on the staff of, and maintains close affiliations with Harvard
Medical School and its affiliates. Substantially all of our technologies were
licensed from Harvard and its Affiliates. Our past ability to secure these
licenses and to enter into sponsored research and development agreements with
Harvard was enhanced by Dr. Lanser's affiliations and familiarity with the
Harvard Medical School and its affiliates.

We currently outsource all our research and development, preclinical and
clinical activities. If we decide to undertake internally the research and
development of any of our technologies, we may need to hire additional key
management and scientific personnel to assist the limited number of employees
that we currently employ. There is significant competition for such personnel
from other companies, research and academic institutions, government entities
and other organizations. If we fail to attract such personnel, it could have a
significant negative effect on our ability to develop our technologies. There
can be no guarantee that we will be successful in hiring or retaining the
personnel that may be required for such activities in the future.

If we are unable to establish, maintain and rely on new collaborative
relationships, then we may not be able to successfully develop and
commercialize our technologies.

To date, our operations have primarily focused on the pre-clinical
development of most of our technologies, as well as conducting clinical trials
for certain of our technologies. During the next eighteen months, we currently
expect that the continued development of our technologies will result in the
initiation of additional clinical trials, and the market introduction of any
product for which regulatory approval is obtained.

We expect that these developments will require us to establish, maintain and
rely on new collaborative relationships in order to successfully develop and
commercialize our technologies. There is no certainty that:

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

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

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

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

If we are not able to establish or maintain the necessary collaborative
arrangements, we will need more money to research and develop technologies on
our own and we may encounter delays in introducing our products.

Because the current environment of rapid technological change requires
significant financial, technical and marketing resources to successfully
develop and market products, some of our competitors may have an advantage in
developing and marketing products.

The biotechnology and pharmaceutical industries are highly competitive and
are dominated by larger, more experienced and better capitalized companies.
Such greater experience and financial strength may enable them to bring their
products to market sooner than us, thereby gaining the competitive advantage
of being the first to market. Research on the causes of, and possible
treatments for diseases for which we are trying to develop therapeutic or
diagnostic products, including cancer, PD, ADHD, CNS disorders and autoimmune
diseases, are developing rapidly, and there is a potential for extensive
technological innovation in relatively short periods of time. There can be no
assurance that we will be able to keep pace with any new technological
developments. Factors affecting our ability to successfully manage the
technological changes occurring in the biotechnology and pharmaceutical
industries as well as our ability to successfully compete include:

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

. We compete with a number of pharmaceutical and biotechnology companies
which have financial, technical and marketing resources significantly
greater than ours; and

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

If our technologies are unable to successfully complete, or are adversely
effected by, the extensive regulatory process, then we may not be able to
market our products and technologies.

Our technologies must undergo a rigorous regulatory approval process, which
includes extensive preclinical and clinical testing to demonstrate safety and
efficiency before any resulting product can be marketed. To date, neither the
FDA nor any of its international equivalents has approved any of our
technologies for marketing. In the biotechnology industry, it is generally
accepted that less than 10 percent of the technologies for which preclinical
efforts are initiated ultimately result in an approved product. The clinical
trial and regulatory approval process can require many years and substantial
cost, and there can be no guarantee that our efforts will result in an
approved product.

Our activities are regulated by a number of government authorities in the
United States and other countries, including the FDA pursuant to the Federal
Food, Drug and Cosmetic Act. The FDA regulates pharmaceutical products,
including their manufacture and labeling. Data obtained from testing is
subject to varying interpretations which can delay, limit or prevent FDA
approval. Risks associated with the regulatory approval process include:

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

. Obtaining FDA clearances is time-consuming and expensive, and there is no
guarantee that such clearances will be granted or that the FDA review
process will not involve delays that significantly and negatively affect
our products. We may encounter similar delays in foreign countries;

. Regulatory clearances may have significant limitations on the uses for
which any approved products may be marketed; and

. Any marketed product and its manufacturer are subject to periodic review
and any discovery of previously unrecognized problems with a product or
manufacturer could result in suspension or limitation of approvals.

If we are unable to obtain adequate insurance coverage and reimbursement
levels for any of our products which are approved and enter the market, then
they may not be accepted by physicians and patients.

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

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

. There can be no guarantee that adequate insurance coverage will be
available to allow us to charge prices for products which are adequate
for us to realize an appropriate return on our cost for developing these
technologies. If adequate coverage and reimbursement are not provided for
use of our products, the market acceptance of these products will be
negatively affected;

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

. In recent years, bills proposing comprehensive health care reform have
been introduced in Congress that would potentially limit pharmaceutical
prices and establish mandatory or voluntary refunds. There can be no
guarantee that such proposals will not negatively affect us. It is
uncertain if any legislative proposals will be adopted and how federal,
state or private payers for health care goods and services will respond
to any health care reforms.

We have no manufacturing facilities or marketing experience and expect to be
dependent upon third parties to manufacture and market approved products.

We currently have no manufacturing facilities for either clinical trial or
commercial quantities of any of our technologies and currently have no plans
to obtain them. To date, we have obtained the limited amount of

quantities required for preclinical and clinical trials from contract
manufacturing companies. We intend to continue using contract manufacturing
arrangements with experienced firms for the supply of material for both
clinical trials and any eventual commercial sale.

We will depend upon third parties to produce and deliver products in
accordance with all FDA and other governmental regulations. For example, with
respect to our most advanced product candidate, the ALTROPANE(TM) imaging
agent, we have entered into an agreement with, and are highly dependent upon,
MDS Nordion. The agreement provides for MDS Nordion to manufacture the
ALTROPANE(TM) imaging agent for our future clinical trials and, if the drug is
approved, for commercial supply. The agreement also provides that MDS Nordion
will compile and prepare the information regarding manufacturing that will be a
required component of any NDA we file for the ALTROPANE(TM) imaging agent in
the future. There can be no guarantee that MDS Nordion or any similar parties
will consistently perform their obligations in a timely fashion and in
accordance with the applicable regulations. There can be no guarantee that we
will be able to contract with manufacturers who can fulfill our requirements
for quality, quantity and timeliness, or that we would be able to find
substitute manufacturers, if necessary. The failure by any third party to
perform their obligations may delay clinical trials, the commercialization of
products, and the ability to supply product for sale.

We do not have any experience in marketing pharmaceutical products. In order
to earn a profit on any future product, we will be required to either enter
into arrangements with third parties with respect to marketing the products or
internally develop such marketing capability. There can be no assurance that we
will be able to enter into marketing agreements with others on acceptable
terms, or that we can successfully develop such capability on our own.

We have options and warrants outstanding which, when exercised or converted,
may cause dilution to our stockholders.

As of December 31, 2000, options and warrants to purchase approximately 6.8
million shares of our common stock were outstanding at exercise prices ranging
from $0.63-$15.00 per share. Many of these previously granted options and
warrants were issued at exercise prices below the current market price of our
common stock. Certain warrants contain provisions that will decrease the
exercise price of these instruments if we issue stock at a price below the
exercise price of certain of our warrants, with some limited exceptions.
Certain warrants contain a provision that will decrease the exercise price of
these instruments, if, on the first anniversary of the transaction, the market
price of our common stock is less than the exercise price on such date. These
provisions could motivate the holders of these instruments, to sell our common
stock short in the public market, which could negatively affect our stock
price. The exercise of our options and warrants will dilute the percentage
ownership interest of our current stockholders. In addition, the terms upon
which we would be able to obtain additional money through the sale of our stock
may be negatively affected by the existence of these warrants and options,
because new investors may be concerned about the impact upon the future market
price of the stock if these warrants and options were consistently exercised
and the underlying stock sold.

Our stock price may continue to be volatile and can be effected by factors
unrelated to our business and operating performance.

The market prices for securities of biotechnology and emerging
pharmaceutical companies in general have been highly volatile and may continue
to be highly volatile in the future. The stock market has from time to time
experienced extreme price and volume fluctuations that have affected the market
prices for biotechnology and emerging pharmaceutical companies. These price and
volume fluctuations have often been unrelated to the operating performance of
such companies. These broad market fluctuations may adversely affect the market
price of our common stock. The following factors, in addition to other risk
factors described in this section, may have a significant impact on the market
price of our common stock:

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

. Announcements in the scientific and research community;

. Developments concerning proprietary rights, including patents;

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

. Developments concerning our collaborations;

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

. Conditions and publicity regarding the life sciences industry generally;

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

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

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

. Litigation.

Securities class action litigation is often initiated against companies
following periods of volatility in the market price of the companies'
securities. Engaging in securities litigation could result in substantial costs
for us and divert management's attention and resources, potentially resulting
in serious harm to our business. If securities litigation against us is
successful, we could incur significant costs or damages.

Employees

As of December 31, 2000, the Company employed 13 individuals full-time, of
whom five hold Ph.D. and/or M.D. degrees. None of the Company's employees is
covered by a collective bargaining agreement. The Company considers its
employee relations to be good.

Item 2. Properties.

The Company's administrative offices are located in Boston, Massachusetts.
The lease on this 5,000 square foot facility expires in June 2002 and can be
renewed by the Company for an additional two-year period. The Company believes
that its existing facilities are adequate for its present and anticipated
purposes, except that additional facilities will be needed if the Company
builds its own laboratory space or undertakes manufacturing operations. The
Company, however, has no present intention to develop such capabilities for its
technologies.

Item 3. Legal Proceedings.

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

Item 4. Submission of Matters to a Vote of Security Holders.

The Company did not submit any matter to the vote of its security holders
during the fourth quarter of 2000.

Item 4A. Executive Officers of the Registrant.

The following is a list of the executive officers of the Company and their
principal positions with the Company. Except for S. David Hillson, Esq. and
Marc E. Lanser, M.D., who are employed pursuant to employment agreements, each
individual officer serves at the pleasure of the Board of Directors.

Name Age Position
---- --- --------

S. David Hillson, Esq. .. 61 Chairman of the Board of Directors, President and
Chief Executive Officer

Marc E. Lanser, M.D. .... 52 Director, Executive Vice President and
Chief Scientific Officer

Joseph P. Hernon, CPA.... 41 Executive Vice President, Chief Financial Officer
and Secretary

S. David Hillson, Esq. Mr. Hillson has served as President and Chief
Executive Officer (and member of the Board of Directors) of BLSI since June
1995. He has served as Chairman of the Board of Directors since September 1996.
Prior to his responsibilities at BLSI, Mr. Hillson was Senior Vice President of
Josephthal, Lyon & Ross in the research and investment banking divisions in
1994, and was the Senior Managing Director, investment banking, at The Stamford
Company in New York City from November 1992 to January 1994. Mr. Hillson was an
Executive Vice President of the asset management division of Mabon Securities
from October 1990 until October 1992. Earlier in his 15-year career as an
investment manager, Mr. Hillson was a Senior Vice President with Shearson,
Lehman, Hutton from 1983 to 1990, where he managed three mutual funds,
primarily in the emerging growth area, for the SLH Asset Management division.
Prior to his fund management responsibilities, he was the Chairman of the
Equity Committee for Hutton Investment Management (1976- 1982). He started his
business career as an attorney in New York City, having received his Juris
Doctorate from New York University School of Law. He also attended the Columbia
University School of Business Administration and received a Bachelor of Arts
degree from Columbia College.

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

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

PART II

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

The Company's Common Stock is traded on The Nasdaq National Market under the
symbol BLSI. The following table sets forth the high and low sale prices for
the Company's Common Stock by quarter for 2000 and 1999, as reported by Nasdaq.
These prices reflect inter-dealer quotation, without retail mark-up, markdowns
or other fees or commissions, and may not necessarily represent actual
transactions.

High Low
------ -----

2000
First Quarter................................................... $16.13 $3.69
Second Quarter.................................................. 10.19 5.00
Third Quarter................................................... 12.13 6.75
Fourth Quarter.................................................. 7.94 2.56
1999
First Quarter................................................... $10.75 $3.25
Second Quarter.................................................. 8.09 5.25
Third Quarter................................................... 6.69 3.63
Fourth Quarter.................................................. 5.13 3.25

On March 16, 2001, the closing sales price for the Common Stock was $4.03
per share. The number of stockholders of record of Common Stock on March 16,
2001 was approximately 6,400. The Company has not paid any dividends and does
not expect to pay dividends in the foreseeable future.

Item 6. Selected Financial Data.

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

Year Ended December 31,
------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ----------- ----------- ------------ ------------

Statement of Operations
Data
Revenues.............. $ 200,000 $ 83,060 $ -- $ 200,000 $ --
Operating expenses.... 7,047,399 9,202,664 7,682,406 14,556,251 11,453,458
Net loss.............. (5,996,147) (7,974,016) (6,897,024) (13,964,484) (10,654,264)
Preferred stock
preferences and
other................ (34,387,953) -- -- (5,366,054) --
Net loss available to
common shareholders.. $(40,384,100) $(7,974,016) $(6,897,024) $(19,330,538) $(10,654,264)
Basic and diluted net
loss per share....... $ (0.61) $ (0.64) $ (0.52) $ (0.95) $ (0.55)
Per share effect of
preferred stock
preferences and
other................ (3.48) -- -- (0.36) --
Basic and diluted net
loss available to
common shareholders.. $ (4.09) $ (0.64) $ (0.52) $ (1.31) $ (0.55)
Weighted average
number of shares
outstanding.......... 9,880,222 12,378,219 13,138,862 14,731,149 19,461,911

December 31,
-----------------------------------------------------------
1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- -----------

Balance Sheet Data
Total assets.......... $26,153,130 $18,578,969 $12,269,048 $16,072,212 $20,712,109
Working capital....... 20,383,735 12,718,875 6,744,226 13,746,718 18,811,739
Long-term debt........ -- -- -- 4,647,192 --
Stockholders' equity.. $24,100,406 $16,587,165 $10,534,849 $ 8,574,807 $19,050,816

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

Management's Discussion and Analysis of Financial Condition and Results of
Operations that follows contains forward-looking statements based on current
management expectations. Meaningful factors which could cause future results to
differ materially from such expectations include, without limitation, the
following: (i) the results from the Phase III clinical trials for the
ALTROPANE(TM) imaging agent, (ii) scientific data collected on the Company's
technologies currently in preclinical research and development, (iii) decisions
made by the FDA or other regulatory bodies with respect to the initiation of
human clinical trials, (iv) decisions made by the FDA or other regulatory
bodies with respect to approval and to the commercial sale of any of the
Company's proposed products, (v) the commercial acceptance of any products
approved for sale and the ability of the Company to manufacture, distribute and
sell for a profit any products approved for sale, (vi) the Company's ability to
obtain the necessary patents and proprietary rights to effectively protect its
proposed products and technologies, and (vii) the outcome of any collaborations
or alliances currently entered into by the Company or to be entered into by the
Company in the future with pharmaceutical or other biotechnology companies.

Results of Operations

Overview

We are a development stage biotechnology company engaged in the research and
development of novel therapeutic and diagnostic products to treat chronic
debilitating diseases such as cancer, CNS disorders and autoimmune diseases.
During the period from inception through December 31, 2000, the Company has
devoted substantially all of its efforts to business planning, raising
financing, furthering the research and development of its technologies, and
corporate partnering efforts. Accordingly, the Company is considered to be in
the development stage as defined in Statement of Financial Accounting Standards
No. 7.

Year Ended December 31, 2000 and 1999

The Company's net loss was $10,654,264 during the year ended December 31,
2000 as compared with $13,964,484 during the year ended December 31, 1999. Net
loss per common share totaled $0.55 per share during 2000 as compared with
$0.95 per share, excluding preferred stock preferences, during 1999. The lower
net loss in 2000 was primarily due to certain non-recurring charges in 1999,
including the write-off of previously acquired technology of $3,500,000 and a
charge of $1,725,000 for purchased in-process research and development. The
effect of these items were partially offset by higher clinical and pre-clinical
research and development expenses in 2000.

The net loss available to common stockholders for the 1999 period, including
preferred stock preferences of $5,366,054 totaled $19,330,538. Net loss per
common share available to common stockholders for the year ended December 31,
1999, including $0.36 attributable to preferred stock preferences, totaled
$1.31. In February 1999, the Company completed a private placement of Series C
convertible preferred stock and warrants. Based on the market price of the
Company's stock on the date of issuance, the preferred stock had a beneficial
conversion feature with an intrinsic value of approximately $1.9 million, which
is included in the preferred stock preferences. An additional $2.5 million of
preferred stock preferences were recorded to accrete the Series C stock to
redemption value. In addition, in November 1999, the Company extended an
exchange offer to the Series C stockholders wherein it agreed to issue certain
consideration for each share of Series C

Stock converted into common stock. A charge of approximately $1.0 million,
representing the fair value of the consideration issued, is also included in
the preferred stock preferences.

Revenue was zero during the year ended December 31, 2000 as compared with
$200,000 during the year ended December 31, 1999. In September 1999, the
Company recognized an one-time payment related to a licensing agreement with a
major pharmaceutical company as further described below.

Research and development expenses were $8,628,187 during the year ended
December 31, 2000 as compared with $10,379,832 during the year ended December
31, 1999. The decrease in 2000 was primarily due to the write-off of previously
acquired technology of $3,500,000 in 1999, offset by higher clinical trial
expenses and increased product manufacturing costs in 2000. During 2000, a
phase II clinical trial was initiated and the Company incurred higher costs for
a phase III clinical trial that was in process during both periods. The Company
also incurred higher product manufacturing costs during 2000 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 $2,825,271 during the year ended
December 31, 2000 as compared with $2,451,419 during the year ended December
31, 1999. The increase in 2000 was primarily due to higher non-recurring and
non-cash professional service costs.

Purchased in-process research and development expenses were zero during the
year ended December 31, 2000 as compared with $1,725,000 during the year ended
December 31, 1999. In September 1999, the Company issued common stock and
warrants to obtain an option to acquire the licensing rights to certain
technology as further described below.

Interest income was $1,144,064 during the year ended December 31, 2000 as
compared with interest income of $837,525 during the year ended December 31,
1999. The increase in 2000 was due to higher average cash and investment
balances during 2000. Interest expense totaled $344,870 in 2000 as compared to
$445,758 in 1999. The decrease in 2000 was due to a lower daily average balance
on the $8 million of 8% convertible debentures during the 2000 period. The
debentures were issued in September 1999 and were converted into common stock
in February and March 2000.

At December 31, 2000, the Company had net deferred tax assets of
approximately $32.1 million for which a full valuation allowance has been
established. As a result of its concentrated efforts on research and
development, the Company has a history of incurring net operating losses and
expects to incur additional net operating losses for the foreseeable future.
Accordingly, management has concluded that it is more likely than not that the
future benefits related to the deferred tax assets will not be realized and,
therefore, provided a full valuation allowance for these assets. In the event
the Company achieves profitability, these deferred tax assets may be available
to offset future income tax liabilities and expense.

Year Ended December 31, 1999 and 1998

The Company's net loss was $13,964,484 during the year ended December 31,
1999 as compared with $6,897,024 during the year ended December 31, 1998. Net
loss per common share, excluding preferred stock preferences, totaled $0.95 per
share during 1999 as compared with $0.52 per share during 1998. The higher net
loss in 1999 is primarily related to higher research and development expenses,
including the write-off of acquired technology of $3,500,000 and the purchased
in-process research and development charge of $1,725,000.

beneficial conversion feature with an intrinsic value of approximately $1.9
million which is included in the preferred stock preferences. An additional
$2.5 million of preferred stock preferences were recorded to accrete the Series
C stock to redemption value. In addition, in November 1999, the Company
extended an exchange offer to the Series C stockholders wherein it agreed to
issue certain consideration for each share of Series C Stock converted into
common stock. A charge of approximately $1.0 million, representing the fair
value of the consideration issued, is also included in the preferred stock
preferences.

Revenue was $200,000 during the year ended December 31, 1999 as compared
with zero during the year ended December 31, 1998. In September 1999, the
Company announced that it had entered into a development and licensing
agreement with a major pharmaceutical company to develop a major sector of the
Company's transcription factor technology. Under the terms of the agreement,
the pharmaceutical company will screen its small molecule collection for
potential inhibitors of the transcription factor, with the goal of developing a
small molecule therapeutic drug for the treatment of a wide range of allergies
and asthma. The Company will also receive royalties on eventual sales of any
product derived from the development effort. The Company received a one-time
payment upon the execution of the development and licensing agreement, which
was recognized as revenue because the Company has no remaining performance
obligations.

Research and development expenses were $10,379,832 during the year ended
December 31, 1999 as compared with $5,385,117 during the year ended December
31, 1998. The increase in 1999 principally related to the write-off of acquired
technology of $3,500,000 and the initiation and substantial completion of a 160
patient Phase III clinical trial.

General and administrative expenses were $2,451,419 during the year ended
December 31, 1999 as compared with $2,297,289 during the year ended December
31, 1998. The increase in 1999 primarily related to higher professional
services costs which were partially offset by the absence of non-cash charges
related to certain changes in the provisions of the Company's stock option
plans and the issuance of warrants to a financial advisor, both of which
occurred in 1998.

Purchased in-process research and development expenses was $1,725,000 during
the year ended December 31, 1999 as compared with zero during the year ended
December 31, 1998. In September 1999, the Company finalized an agreement under
which it obtained an option to acquire the licensing rights to certain
technology. The Company issued 232,000 shares of common stock and 216,000
warrants exercisable to purchase the Company's common stock at an exercise
price of $4.25 per share as consideration for the option. The fair value of
such consideration of $1,725,000 was recognized as purchased in-process
research and development expense.

Interest income was $837,525 during the year ended December 31, 1999 as
compared with interest income of $785,382 during the year ended December 31,
1998. Average cash and investment balances during 1999 were higher in
comparison to 1998 as the result of three private placements completed in 1999
which raised gross proceeds of $16.7 million. Interest expense totaled $445,758
in 1999 as compared to zero in 1998. In September 1999, the Company issued $8
million of 8% convertible debentures, and incurred $175,000 in interest on the
8% coupon and $247,192 in non-cash interest associated with the accretion of
the discounted carrying value of the debentures.

Liquidity and Capital Resources

Cash used in operating activities totaled $10,103,009 in 2000 as compared to
$8,024,900 in 1999. The increase in 2000 is principally related to increased
research and development expenses after adjusting for non-cash items. Cash used
in investing activities totaled $4,147,300 in 2000 as compared to $7,577,535 in
1999. 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 2000 and 1999, net of the sales of
short-term investments which were subsequently used to fund operations. Cash
flows from financing activities totaled $14,397,502 in 2000 as compared to
$15,790,735 in 1999. The difference in

financing activities principally reflects the effect of the private placements,
described below, completed by the Company in 2000 and 1999.

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 December
31, 2000 is as follows:

Net Proceeds
Date 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 December 31, 2000, the Company had available cash, cash equivalents, and
investments of approximately $19.8 million and working capital of approximately
$18.8 million. The Company believes that the level of financial resources
available at December 31, 2000 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 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.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which was amended by SFAS No.
137 and SFAS No. 138 and is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. 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 does not
expect the adoption of the statement to have a material effect on its financial
statements.

In October 2000, the Company adopted Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 clarifies
the SEC's views related to revenue recognition and disclosure. The adoption of
SAB 101 did not effect the Company's financial position or results of
operations.

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

We currently own financial instruments that are sensitive to market risks as
part of our investment portfolio. Our investment portfolio is used to preserve
our capital until it is required to fund operations, including our research and
development activities. None of these market-risk sensitive instruments are
leveraged or held for trading purposes. Our investment portfolio consists of
United States agency bonds and corporate debt obligations. These investments
are subject to interest rate risk, and could decline in value if interest rates
fluctuate. Due to the conservative nature of these instruments, we do not
believe that we have a material exposure to interest rate risk.

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Boston Life Sciences, Inc.

In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Boston Life Sciences, Inc. and its subsidiaries (the "Company") at December 31,
2000 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 and for the period from
inception (October 16, 1992) through December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
March 2, 2001

F-1

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

CONSOLIDATED BALANCE SHEETS

December 31, December 31,
2000 1999
------------ ------------

ASSETS
------

Current assets:
Cash and cash equivalents........................ $ 407,327 $ 260,134
Short-term investments........................... 19,361,838 14,690,308
Other current assets............................. 703,867 599,943
------------ ------------
Total current assets........................... 20,473,032 15,550,385
Fixed assets, net.................................. 42,034 10,796
Other assets....................................... 197,043 511,031
------------ ------------
Total assets................................... $ 20,712,109 $ 16,072,212
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
Accounts payable and accrued expenses............ $ 1,661,293 $ 1,803,667
8% convertible redeemable debentures............... -- 4,647,192
Series C convertible redeemable preferred stock,
$.01 par value; 475,000 shares authorized; 53,669
shares issued and outstanding at December 31,
1999.............................................. -- 1,046,546

Commitments and contingencies (Note 13)

Stockholders' equity:
Series A convertible preferred stock, $.01 par
value; 15,000 shares authorized; 4,983 shares
issued and outstanding at December 31, 1999..... -- 50
Common stock, $.01 par value; 40,000,000 and
30,000,000 shares authorized at December 31,
2000 and 1999, respectively; 20,726,638 and
16,280,473 shares issued and outstanding at
December 31, 2000 and 1999, respectively........ 207,266 162,805
Additional paid-in capital....................... 83,605,297 63,093,089
Accumulated other comprehensive income (loss).... 20,497 (553,157)
Deficit accumulated during development stage..... (64,782,244) (54,127,980)
------------ ------------
Total stockholders' equity..................... 19,050,816 8,574,807
------------ ------------
Total liabilities and stockholders' equity..... $ 20,712,109 $ 16,072,212
============ ============

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

F-2

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF OPERATIONS

From
Inception
(October 16,
For the Year Ended December 31, 1992) to
--------------------------------------- December 31,
2000 1999 1998 2000
------------ ------------ ----------- ------------

Revenues................ $ -- $ 200,000 $ -- $ 900,000
Operating expenses:
Research and
development.......... 8,628,187 10,379,832 5,385,117 40,680,763
General and
administrative....... 2,825,271 2,451,419 2,297,289 15,741,940
Purchase in-process
research and
development.......... -- 1,725,000 -- 12,146,544
------------ ------------ ----------- ------------
Total operating
expenses........... 11,453,458 14,556,251 7,682,406 68,569,247
------------ ------------ ----------- ------------
Loss from
operations......... (11,453,458) (14,356,251) (7,682,406) (67,669,247)
Interest expense........ (344,870) (445,758) -- (2,252,457)
Interest income......... 1,144,064 837,525 785,382 5,139,460
------------ ------------ ----------- ------------
Net loss............ $(10,654,264) $(13,964,484) $(6,897,024) $(64,782,244)
============ ============ =========== ============
Calculation of net loss
available to common
shareholders:
Net loss............ $(10,654,264) $(13,964,484) $(6,897,024)
Preferred stock
preferences and
other (Note 10).... -- (5,366,054) --
------------ ------------ -----------
Net loss available
to common
shareholders....... $(10,654,264) $(19,330,538) $(6,897,024)
============ ============ ===========
Calculation of basic and
diluted net loss per
share available to
common shareholders:
Net loss per share.. $ (0.55) $ (0.95) $ (0.52)
Preferred stock
preferences and
other per share
(Note 10).......... -- (0.36) --
------------ ------------ -----------
Basic and diluted
net loss per share
available to common
shareholders....... $ (0.55) $ (1.31) $ (0.52)
============ ============ ===========
Weighted average shares
outstanding............ 19,461,911 14,731,149 13,138,862
============ ============ ===========

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

F-3

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period from inception (October 16, 1992) to December 31, 2000

Deficit
Series A Preferred Stock Common Stock Accumulated Accumulated
---------------------------- -------------------- Additional Other During
Number of Number of Paid-in Deferred Comprehensive Development
Shares Par Value Shares Par Value Capital Compensation Income (Loss) Stage
------------- ------------ ---------- --------- ----------- ------------ ------------- ------------

Issuance of
common stock to
founders........ 1,520,044 $15,200 $ 33,525
Issuance of
common stock
upon exercise of
warrants and
options......... 380,247 3,802 738,360
Issuance of
common stock,
net issuance
costs of
$950,441........ 3,603,383 36,034 11,866,766
Issuance of
common stock and
warrants upon
Merger.......... 3,619,736 36,197 14,567,751
Issuance of
common stock
upon conversion
of convertible
debentures...... 156,605 1,566 987,025
Issuance of
preferred stock,
net issuance
costs of
$3,397,158...... 239,911 $ 2,399 20,591,443
Conversion of
preferred stock
into common
stock........... (211,539) (2,115) 3,709,910 37,099 (34,984)
Deferred
compensation
related to stock
options and
warrants
granted......... 804,607 $(804,607)
Compensation
expense related
to stock options
and warrants
granted......... 804,607
Other........... 3,913 40 69,893
Unrealized gain
on investments.. $99,029
Net loss from
inception
(October 16,
1992) to
December 31,
1997............ $(33,266,472)
Comprehensive
loss from
inception
(October 16,
1992) to
December 31,
1997............
------------- ----------- ---------- ------- ----------- --------- ------- ------------
Balance at
December 31,
1997............ 28,372 284 12,993,838 129,938 49,624,386 -- 99,029 (33,266,472)
Conversion of
preferred stock
into common
stock........... (11,376) (114) 199,509 1,995 (1,881)
Issuance of
common stock
upon exercise of
warrants and
options......... 83,631 837 147,472
Compensation
expense related
to stock options
and warrants.... 719,225
Unrealized loss
on investments.. (22,826)
Net loss........ (6,897,024)
Comprehensive
loss............
------------- ----------- ---------- ------- ----------- --------- ------- ------------
Balance at
December 31,
1998............ 16,996 170 13,276,978 132,770 50,489,202 -- 76,203 (40,163,496)

Total
Stockholders'
Equity
--------------

Issuance of
common stock to
founders........ $ 48,725
Issuance of
common stock
upon exercise of
warrants and
options......... 742,162
Issuance of
common stock,
net issuance
costs of
$950,441........ 11,902,800
Issuance of
common stock and
warrants upon
Merger.......... 14,603,948
Issuance of
common stock
upon conversion
of convertible
debentures...... 988,591
Issuance of
preferred stock,
net issuance
costs of
$3,397,158...... 20,593,842
Conversion of
preferred stock
into common
stock........... --
Deferred
compensation
related to stock
options and
warrants
granted......... --
Compensation
expense related
to stock options
and warrants
granted......... 804,607
Other........... 69,933
Unrealized gain
on investments.. 99,029
Net loss from
inception
(October 16,
1992) to
December 31,
1997............ (33,266,472)
--------------
Comprehensive
loss from
inception
(October 16,
1992) to
December 31,
1997............ (33,167,443)
--------------
Balance at
December 31,
1997............ 16,587,165
Conversion of
preferred stock
into common
stock........... --
Issuance of
common stock
upon exercise of
warrants and
options......... 148,309
Compensation
expense related
to stock options
and warrants.... 719,225
Unrealized loss
on investments.. (22,826)
Net loss........ (6,897,024)
--------------
Comprehensive
loss............ (6,919,850)
--------------
Balance at
December 31,
1998............ 10,534,849

F-4

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY --(Continued)
For the Period from inception (October 16, 1992) to December 31, 2000

Balance at
December 31,
1998............ 16,996 170 13,276,978 132,770 50,489,202 -- 76,203 (40,163,496)
Issuance of
warrants in
connection with
debentures, net
issuance costs
of $280,806..... 3,319,194
Issuance of
warrants in
connection with
preferred series
C stock issuance
and related
beneficial
conversion
feature, net
issuance costs
of $590,890..... 3,736,789
Accretion of
preferred series
C stock......... (4,327,679)
Issuance of
common stock and
warrants, net of
issuance costs
of $158,000..... 879,668 8,797 4,058,203
Conversion of
preferred stock
into common
stock........... (12,013) (120) 1,538,209 15,382 5,088,192
Issuance of
common stock
upon exercise of
warrants and
options......... 585,618 5,856 1,108,347
Compensation
expense related
to stock options
and warrants.... 221,405
Preferred stock
conversion
inducement...... (600,564)
Unrealized loss
on investments.. (629,360)
Net loss........ (13,964,484)
Comprehensive
loss............
------------- ---------- ---------- -------- ----------- ----- -------- ------------
Balance at
December 31,
1999............ 4,983 50 16,280,473 162,805 63,093,089 -- (553,157) (54,127,980)
Conversion of
debentures and
payment of
interest in
common stock,
net of issuance
costs of
$307,265........ 1,585,416 15,854 4,831,566
Issuance of
common stock and
warrants, net of
issuance costs
of $79,423...... 1,405,956 14,060 9,906,517
Conversion of
preferred stock
into common
stock........... (4,983) (50) 387,735 3,877 1,042,719
Issuance of
common stock
upon exercise of
warrants and
options......... 1,067,058 10,670 4,466,255
Compensation
expense related
to stock options
and warrants.... 265,151
Unrealized gain
on investments.. 573,654
Net loss........ (10,654,264)
Comprehensive
loss............
------------- ---------- ---------- -------- ----------- ----- -------- ------------
Balance at
December 31,
2000............ -- $ -- 20,726,638 $207,266 $83,605,297 $ -- $ 20,497 $(64,782,244)
============= ========== ========== ======== =========== ===== ======== ============

Total
Stockholders'
Equity
-------------

Balance at
December 31,
1998............ 10,534,849
Issuance of
warrants in
connection with
debentures, net
issuance costs
of $280,806..... 3,319,194
Issuance of
warrants in
connection with
preferred series
C stock issuance
and related
beneficial
conversion
feature, net
issuance costs
of $590,890..... 3,736,789
Accretion of
preferred series
C stock......... (4,327,679)
Issuance of
common stock and
warrants, net of
issuance costs
of $158,000..... 4,067,000
Conversion of
preferred stock
into common
stock........... 5,103,454
Issuance of
common stock
upon exercise of
warrants and
options......... 1,114,203
Compensation
expense related
to stock options
and warrants.... 221,405
Preferred stock
conversion
inducement...... (600,564)
Unrealized loss
on investments.. (629,360)
Net loss........ (13,964,484)
-------------
Comprehensive
loss............ (14,593,844)
-------------
Balance at
December 31,
1999............ 8,574,807
Conversion of
debentures and
payment of
interest in
common stock,
net of issuance
costs of
$307,265........ 4,847,420
Issuance of
common stock and
warrants, net of
issuance costs
of $79,423...... 9,920,577
Conversion of
preferred stock
into common
stock........... 1,046,546
Issuance of
common stock
upon exercise of
warrants and
options......... 4,476,925
Compensation
expense related
to stock options
and warrants.... 265,151
Unrealized gain
on investments.. 573,654
Net loss........ (10,654,264)
-------------
Comprehensive
loss............ (10,080,610)
-------------
Balance at
December 31,
2000............ $19,050,816
=============

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

F-5

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF CASH FLOWS

From
Inception
(October 16,
For the Year Ended December 31, 1992) to
---------------------------------------- December 31,
2000 1999 1998 2000
------------ ------------ ------------ ------------

Cash flows from
operating activities:
Net loss.............. $(10,654,264) $(13,964,484) $ (6,897,024) $(64,782,244)
Adjustments to
reconcile net loss to
net cash used for
operating activities:
Purchased in-process
research and
development......... -- 1,725,000 -- 12,146,544
Write-off of acquired
technology.......... -- 3,500,000 -- 3,500,000
Non-cash interest
expense............. 332,493 247,192 -- 579,685
Compensation charge
related to options
and warrants........ 265,151 221,405 719,225 2,080,321
Amortization and
depreciation........ 24,909 39,566 80,644 1,516,291
Changes in current
assets and
liabilities:
(Increase) decrease
in other current
assets.............. (103,924) 136,953 89,609 (40,042)
Increase (decrease)
in accounts payable
and accrued
expenses............ 32,626 69,468 (257,605) 888,628
------------ ------------ ------------ ------------
Net cash used for
operating
activities......... (10,103,009) (8,024,900) (6,265,151) (44,110,817)
Cash flows from
investing activities:
Cash acquired through
Merger............... -- -- -- 1,758,037
Purchases of fixed
assets............... (43,770) (12,379) -- (312,850)
Increase in other
assets............... (5,654) (83,480) (2,977) (355,540)
Purchases of short-
term investments..... (20,511,252) (12,828,190) (13,340,276) (78,237,672)
Sales and maturities
of short-term
investments.......... 16,413,376 5,346,514 17,817,954 58,896,331
------------ ------------ ------------ ------------
Net cash (used for)
provided by
investing
activities......... (4,147,300) (7,577,535) 4,474,701 (18,251,694)
Cash flows from
financing activities:
Proceeds from issuance
of common stock...... 14,476,925 3,614,203 148,309 31,249,182
Proceeds from issuance
of preferred stock... -- 6,150,000 -- 27,022,170
Preferred stock
conversion
inducement........... -- (600,564) -- (600,564)
Proceeds from issuance
of notes payable..... -- -- -- 2,585,000
Proceeds from issuance
of convertible
debentures........... -- 8,000,000 -- 9,000,000
Principal payment of
notes payable........ -- -- -- (2,796,467)
Payments of financing
costs................ (79,423) (1,372,904) -- (3,689,483)
------------ ------------ ------------ ------------
Net cash provided by
financing
activities......... 14,397,502 15,790,735 148,309 62,769,838
------------ ------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents........... 147,193 188,300 (1,642,141) 407,327
Cash and cash
equivalents, beginning
of period............. 260,134 71,834 1,713,975 --
------------ ------------ ------------ ------------
Cash and cash
equivalents, end of
period................ $ 407,327 $ 260,134 $ 71,834 $ 407,327
============ ============ ============ ============
Supplemental cash flow
disclosures:
Non cash transactions
(see notes 8, 10, and
11).................. $ -- $ -- $ --

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

F-6

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and its Significant Accounting Policies

Boston Life Sciences, Inc. is a development stage biotechnology company
engaged in the research and development of novel therapeutic and diagnostic
products to treat chronic debilitating diseases such as cancer, central nervous
system (CNS) disorders and autoimmune diseases. Boston Life Sciences ("Old
BLSI"), originally a privately held company founded in 1992, merged with a
publicly held company effective June 15, 1995 (the "Merger"). The publicly held
company survived the Merger and changed its name to Boston Life Sciences, Inc.
(the "Company"). However, all of the employees of the public company (other
than a caretaker management) ceased employment six months prior to the Merger,
the company's facilities and equipment were sold, and all directors resigned
effective with the Merger, whereupon the management and directors of Old BLSI
assumed management of the Company. During the period from inception through
December 31, 2000, the Company has devoted substantially all of its efforts to
business planning, raising financing, furthering the research and development
of its technologies, and corporate partnering efforts. Accordingly, the Company
is considered to be in the development stage as defined in Statement of
Financial Accounting Standards No. 7.

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

Basis of Consolidation

The Company's consolidated financial statements include the accounts of its
six subsidiaries where a majority of the operations are conducted. Five of
these subsidiaries are wholly-owned and a minority shareholder owns 10% of the
sixth subsidiary, Procell Pharmaceutical, Inc. All significant intercompany
transactions and balances have been eliminated.

Cash, Cash Equivalents and Investments

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests its cash equivalents primarily in overnight repurchase agreements,
money market funds, and United States treasury and agency obligations. At
December 31, 2000 and periodically throughout the year, the Company had cash
balances at certain financial institutions in excess of federally insured
limits. However, the Company does not believe that it is subject to any unusual
credit risk beyond the normal credit risk associated with commercial banking
relationships.

Investments, which are classified as available-for-sale, are recorded at
fair value. Unrealized gains or losses are not immediately recognized in the
Consolidated Statements of Operations but are reflected in the Consolidated
Statements of Stockholders' Equity as a component of accumulated other
comprehensive loss until realized. Realized gains (losses) are determined based
on the specific identification method. Investments consist of United States
agency bonds and corporate debt obligations (Note 2). 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.

Financial Instruments

The carrying amounts of the Company's financial instruments, which include
cash equivalents, short-term investments, accounts payable and accrued
expenses, and convertible redeemable debentures, approximate their fair values.

Fixed Assets

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

F-7

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

using the straight-line method over the term of the lease or the estimated
useful lives of the assets, whichever is shorter.

Revenue Recognition and Concentration of Customers

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

Research and Development Expenses and Concentration of Outside Researchers

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

The Company has entered into sponsored research agreements with certain
institutions for the research and development of its licensed technologies.
Payments made under these sponsored research agreements are expensed ratably
over the term of the agreement which the Company believes corresponds with the
manner in which the work is performed.

The Company currently conducts a substantial portion of its research and
development through a certain University and its affiliates pursuant to
sponsored research agreements. The majority of the Company's technologies
currently under development were invented or discovered by researchers working
for this University and its affiliates. A substantial portion of the Company's
research is thus dependent upon a continuing business relationship with this
University.

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

Income Taxes

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

F-8

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Net Loss Per Share

Basic and diluted net loss per share available to common shareholders has
been calculated by dividing net loss, adjusted for preferred stock preferences
and other preferred stock-related adjustments, 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 antidilutive.

The following common stock equivalents, on an as exercised or converted
basis, were excluded from the computation of diluted net loss per common share
because they were anti-dilutive. The exercise of those options and warrants
outstanding at December 31, 2000, which could generate proceeds to the Company
of up to $39.5 million, could potentially dilute earnings per share in the
future.

2000 1999 1998
--------- --------- ---------

Stock options................................. 1,956,351 1,836,311 1,368,528
Warrants...................................... 4,487,069 4,934,858 1,832,530
Unit options.................................. 396,475 413,925 413,925
Preferred stock............................... -- 355,735 298,141
Convertible debentures........................ -- 1,523,810 --
--------- --------- ---------
6,839,895 9,064,639 3,913,124
========= ========= =========

Accounting for Stock-Based Compensation

The Company has adopted the disclosure-only alternative permitted under
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" (Note 11). The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans and related equity issuances.
Options and warrants issued to non-employees are subject to a fair value based
method of accounting, using the Black-Scholes pricing model, and compensation
cost is recognized over the vesting period.

Preferred Stock

The Company has, at certain times, issued preferred stock which was
convertible into common stock at a discount from the common stock market price
at the date of issuance. The discounted amount associated with such conversion
rights represents an incremental yield, i.e. a "beneficial conversion feature,"
which is recognized as a return to the preferred shareholders. Such amounts are
included in preferred stock preferences in the Consolidated Statements of
Operations, and represent a non-cash charge in the determination of net loss
available to common shareholders.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported
and disclosed in the financial statements and accompanying footnotes. Actual
results could differ from those estimates.

F-9

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Risks and Uncertainties

The Company is subject to risks and uncertainties common to the
biotechnology industry. Such risks and uncertainties include, but are not
limited to: (i) results from current and planned clinical trials, (ii)
scientific data collected on technologies currently in preclinical research and
development, (iii) decisions made by the Food and Drug Administration ("FDA")
or other regulatory bodies with respect to the initiation of human clinical
trials and the commercial sale of any proposed products, (iv) the Company's
ability to obtain the necessary patents and proprietary rights to effectively
protect its technologies, (v) the outcome of any current or future
collaborations or alliances with pharmaceutical or other biotechnology
companies and universities, and (vi) dependence on key personnel.

Segments

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

Reclassifications

Certain reclassifications have been made to the 1999, 1998 and period from
inception (October 16, 1992) through December 31, 2000 financial statements to
conform to the 2000 presentation.

Recent Accounting Pronouncements

2. Investments consist of the following at December 31:

2000 1999
----------- -----------

U.S. Agency obligations............................. $10,582,114 $14,190,588
Corporate debt obligations.......................... 8,779,724 499,720
----------- -----------
$19,361,838 $14,690,308
=========== ===========

The contractual maturities of the Company's investments at December 31, 2000
are as follows: less than one year--$5,294,657; one to five years--$6,284,749;
six to ten years--$7,782,432. Actual maturities may differ from contractual
maturities because the issuers of these securities may have the right to prepay
obligations without penalty. Gross unrealized gains and (losses) at December
31, 2000 totaled $150,243 and ($129,746), respectively. Net realized gains
(losses) totaled ($87,459), $21,487 and $2,484 in 2000, 1999 and 1998,
respectively, and are included in interest income in the Consolidated
Statements of Operations.

F-10

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. Fixed assets consist of the following at December 31:

2000 1999
------- --------

Office furniture and equipment............................. $24,775 $116,007
Leasehold improvements..................................... 8,379 8,379
Computer equipment......................................... 21,749 58,510
Laboratory equipment....................................... -- 33,018
------- --------
54,903 215,914
Less accumulated depreciation and amortization............. 12,869 205,118
------- --------
$42,034 $ 10,796
======= ========

Depreciation expense on fixed assets for the years ended December 31, 2000,
1999 and 1998 was approximately $12,000, $16,000 and $81,000, respectively, and
$277,000 for the period from inception (October 16, 1992) through December 31,
2000.

4. Acquired Technology

In connection with the Merger, a $3.5 million asset was established
representing the appraised value assigned to certain acquired technology. As
required under accounting principles generally accepted in the United States of
America, the Company periodically evaluated whether a portion of the carrying
amount of the technology was impaired by comparing anticipated undiscounted
future net cash flows from expected product sales of the technology with its
carrying value. The factors considered by management in performing this
assessment included the expected cost to obtain product approval as well as the
effects on expected product sales of competition, demand, and other economic
factors. Based on the information available as of December 31, 1999, the
carrying value of the technology was written down to zero by recording a non-
cash charge of $3,500,000 which is included in research and development
expenses in the Consolidated Statement of Operations for the year ended
December 31, 1999.

5. Purchased In-Process Research and Development

In September 1999, the Company finalized an agreement under which it
obtained an option to acquire the licensing rights to certain technology. The
Company issued 232,000 shares of common stock and 216,000 warrants exercisable
to purchase the Company's common stock at an exercise price of $4.25 per share
as consideration for the option. The fair value of such consideration of
$1,725,000 has been recognized as purchased in-process research and development
in the Consolidated Statement of Operations for the year ended December 31,
1999. The Company elected not to exercise the option rights which expired in
May 2000.

6. Research and Development Agreements

In September 1999, the Company entered into a development and licensing
agreement with a pharmaceutical company to develop one of the Company's
technologies. The Company received an initial, one-time payment, and will also
receive royalties on eventual sales of any product potentially derived from the
development effort.

F-11

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7. Accounts Payable and Accrued Expenses consist of the following at December
31:

2000 1999
---------- ----------

Research and development related...................... $ 974,831 $1,092,427
General and administrative related.................... 404,098 215,160
Accrued professional fees............................. 282,364 321,080
Accrued interest...................................... -- 175,000
---------- ----------
$1,661,293 $1,803,667
========== ==========

8. Notes Payable and Debt

8% Convertible Debentures

In September 1999, the Company issued $8 million in convertible debentures
due September 2003 and warrants to purchase a total of 1,690,000 shares of the
Company's common stock to two institutional investment funds, both managed by
the same institutional investment firm. The net proceeds of $7.4 million were
allocated between the warrants (approximately $3.3 million) and the convertible
debentures (approximately $4.1 million) based on their relative fair values.
The warrants were issued in two classes, the first, or "class A" warrants, are
exercisable to purchase 970,000 shares of common stock at an exercise price of
$5.75 per share. The second, or "class B" warrants, are exercisable to purchase
720,000 shares of common stock at an exercise price of $8.25 per share. In
connection with the financing, the Company paid $480,000 and issued 290,000
warrants exercisable at $5.75 per share to the placement agent.

During 2000, the Company issued 1,585,416 shares of common stock resulting
from the conversion of the convertible debentures with a face value of $8
million and the payment of interest of approximately $318,000 in the form of
shares of common stock. The carrying value of the debentures plus 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.

Interest expense on the convertible debentures totaled $332,493 in 2000, and
consisted of $142,861 in interest accrued on the 8% coupon and $189,632 in
discount accretion. Interest expense totaled $422,192 in 1999, and consisted of
$175,000 in interest accrued on the 8% coupon and $247,192 in discount
accretion.

9. Common Stock

Common Stock Issuances

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. The warrants contain a provision that will decrease the
exercise price of the warrants to the market price (defined as the weighted
average sales price per share for the 20 trading days ending on June 1, 2001)
if the market price is less than the exercise price of the warrants. In
addition, subject to certain exceptions, the exercise price of the warrants
will also be reduced if the Company issues to all of the holders of its common
stock certain dividends or securities.

In February 1999, the Company completed a private placement of 647,668
shares of common stock that raised approximately $2.3 million in net proceeds.
The investor also received warrants to purchase 97,150

F-12

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

shares of common stock at a price of $4.81 per share. The Company is obligated
to issue additional shares to the investor if the Company issues common stock
in a capital raising transaction at a price per share less than that paid by
the investor. Certain issuances, including those related to the exercise of
outstanding warrants and options, are not subject to this provision that
expires in October 2002.

10. Preferred Stock

The Company has authorized 1,000,000 shares of preferred stock of which
15,000 shares have been designated as Series A Convertible Preferred Stock and
475,000 shares have been designated as Series C Convertible Preferred Stock.
The remaining authorized shares have not been designated.

Series A Preferred Stock

In connection with the 1996 private placement of Series A Convertible
Preferred Stock, the Company granted options to acquire 23.991 units to the
placement agent. Each unit consists of 1,000 shares of Series A Convertible
Preferred Stock and warrants to purchase 2,500 shares of common stock at a unit
exercise price of $110,000. At December 31, 2000, 22.607 unit options were
outstanding.

Each share of the Series A Convertible Preferred Stock was convertible into
shares of common stock pursuant to a ratio of 17.53771 shares of common stock
for each share of Series A Convertible Preferred Stock. The Company issued
87,121, 210,681, and 199,509 shares of common stock during 2000, 1999 and 1998,
respectively, related to the conversion of 4,983, 12,013, and 11,376 shares of
Series A Convertible Preferred Stock, respectively.

Series C Preferred Stock

In February 1999, the Company completed a private placement of Series C
Convertible Preferred Stock ("Series C Stock") which raised approximately $5.6
million in net proceeds. In connection with the financing, the Company issued
(i) 315,416 shares of Series C Stock and (ii) 569,248 warrants to purchase
common stock at $5.06 per share and 219,234 warrants to purchase common stock
at $6.09 per share. In connection with this financing, the Company paid
$372,725 to the placement agent and issued 162,307 warrants to purchase common
stock at $5.06 per share and 54,808 warrants to purchase common stock at $6.09
per share to the placement agent.

Each share of the Series C Stock was convertible at the option of the holder
into shares of common stock pursuant to a ratio of five shares of common stock
for each share of Series C Stock. The initial conversion price of the Series C
Stock was at a discount to the market price on the date of issuance and the
terms provided for a minimum return of 25%. The intrinsic value of this
beneficial conversion of approximately $1.9 million was recognized as a
preferred stock preference in the Consolidated Statement of Operations in 1999,
and represented a non-cash charge in the determination of net loss available to
common shareholders. The net proceeds of $5.6 million was allocated between the
warrants and the Series C Stock based on their relative fair values. Because
the redemption of the Series C Stock was not within the control of the Company,
the amount allocated to the Series C Stock was reflected outside of
stockholders' equity as "mezzanine" financing. The Series C Stock was accreted
to its redemption value of $6,150,000, resulting in the recognition of an
additional $2.5 million of preferred stock preferences.

In November 1999, the Company extended an exchange offer to the Series C
stockholders wherein it agreed to issue certain consideration for each share of
Series C Stock converted into common stock, pursuant to

F-13

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the then applicable ratio of five shares of common stock for each share of
Series C Stock. Such consideration consisted of $4 for each share of Series C
Stock converted, as well as one warrant (for each share of Series C Stock
converted) to purchase stock at an exercise price of $6 per share. In
connection with the exchange offer, the Company paid $600,564 and issued
150,141 warrants in exchange for the conversion of a total of 150,141 shares of
Series C Stock into 750,705 shares of common stock. A charge of $1,038,375
representing the fair value of the warrants issued ($437,811) and the cash paid
($600,564) was directly recorded as a preferred stock preference in the
Consolidated Statement of Operations in 1999.

In addition to the shares converted in connection with the exchange offer,
53,669 and 111,606 shares of Series C Stock were converted into 300,614 and
576,824 shares of common stock during 2000 and 1999, respectively.

11. Stock Options and Warrants

Stock Option Plans

The Amended and Restated Omnibus Stock Option Plan allows for the issuance
of options to purchase up to 1,200,000 shares of the Company's common stock
through April 2005. The 1998 Omnibus Plan provides for the issuance of options
to purchase up to 1,500,000 shares of the Company's common stock through April
2008. Both plans provide for the issuance of both nonqualified stock options
and incentive stock options to employees, officers, consultants and scientific
advisors of the Company. The Company's Board of Directors determines the term
of each option, vesting provisions, option price, number of shares for which
each option is granted and the rate at which each option is exercisable. The
term of each option cannot exceed ten years. The exercise price of incentive
stock options shall not be less than the fair market value of the Company's
common stock on the date of grant. Nonqualified stock options may be issued
under the Omnibus Plan at an option price determined by the Board of Directors
which shall not be less than 50% of the fair market value of the Company's
common stock on the date of grant.

The Directors' Plan allows for the issuance of up to 600,000 shares of the
Company's common stock through April 2005. The Director's Plan provides for an
automatic yearly grant of options to all non-employee directors of up to 2,500
options. Non-qualified stock options issued pursuant to the automatic yearly
grant have an exercise price equivalent to 20% of the quoted market price of
the Company's common stock on the date of grant. Compensation expense related
to the intrinsic value of options issued in connection with the annual grant in
2000, 1999 and 1998 totaled approximately $25,000, $25,000 and $19,000,
respectively. During 1996, the Directors' Plan was amended to provide for the
granting of additional options at the discretion of the Board of Directors.
During 1998, the Directors' Plan was amended to provide for the granting of
options to employees of the Company. All options granted under the Directors'
Plan have a term of ten years from the date of grant and generally vest over
periods up to three years.

Stock Options

A summary of the status of the Company's stock option plans as of December
31, 2000, 1999, and 1998 and changes during the years ending on those dates is
presented below. In January 1998, the Company issued 372,000 options to
employees and directors at a price that was $0.13 less than the market price of
the Company's stock on the date of grant, for which the Company recorded a non-
cash charge of approximately $48,000. During 1998, the Company amended its
Stock Options Plans to provide employees and directors with extended exercise
rights upon termination subject to the option holder meeting certain
requirements, including minimum terms of employment. In connection with these
changes the Company recorded a non-cash charge of approximately $410,000.

F-14

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2000 1999 1998
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- --------- --------- ---------

Outstanding at beginning
of year................ 1,836,311 $3.88 1,368,528 $3.74 1,039,668 $4.33
Granted................. 516,530 3.75 712,850 3.25 503,204 2.13
Exercised............... (309,428) 2.47 (235,067) 1.25 (10,770) 1.10
Forfeited and expired... (87,062) 4.62 (10,000) 2.00 (163,574) 2.69
--------- --------- ---------
Outstanding at end of
year................... 1,956,351 4.04 1,836,311 3.88 1,368,528 3.74
========= ========= =========
Options exercisable at
year-end............... 1,795,851 4.04 1,514,705 3.91 1,077,212 3.72
========= ========= =========
Weighted-average fair
valur of options
granted during the
year................... $3.75 $3.83 $1.46

The following table summarizes information about stock options outstanding
at December 31, 2000:

Options Outstanding Options Exercisable
--------------------------------- ---------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
----------------- ----------- ----------- --------- ----------- ---------

$0.63--$0.83.......... 91,506 2.0 years $0.81 91,506 $0.81
$1.04--$1.20.......... 10,822 5.5 years 1.16 10,822 1.16
$1.79--$2.21.......... 168,058 6.5 years 2.15 167,308 2.15
$3.24--$4.54.......... 1,373,390 7.6 years 3.73 1,227,140 3.74
$5.74--$7.82.......... 297,575 5.2 years 7.33 290,075 7.35
$9.38................. 15,000 7.3 years 9.38 9,000 9.38
--------- --------- ----- --------- -----
1,956,351 6.9 years $4.04 1,795,851 $4.04
========= ========= ===== ========= =====

At December 31, 2000, 629,707 shares are available for grant under the
Company's option plans.

Stock-Based Compensation

If the Company had valued awards to qualified employees using the fair value
methodology prescribed by SFAS 123, the Company's net loss, and basic and
diluted net loss per share, would have equaled the pro forma amounts indicated
below.

2000 1999 1998
------------ ------------ -----------

Net loss
As reported..................... $(10,654,264) $(13,964,484) $(6,897,024)
Pro forma....................... $(11,969,875) $(16,398,389) $(7,900,270)
Basic and diluted loss per share
available to common shareholders
As reported..................... $ (0.55) $ (0.95) $ (0.52)
Pro forma....................... $ (0.62) $ (1.11) $ (0.60)

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 ranging from

F-15

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

80 to 100 percent; risk-free interest rates, based on the date of grant,
ranging from 4.61% to 6.46%; and expected lives ranging from three to five
years.

Warrants

The Company issued 50,000, 33,187, and 225,000 warrants to certain
consultants and business advisors as partial compensation for their services
during the years ending December 31, 2000, 1999, and 1998, respectively. The
Company recorded non-cash charges of $146,710, $110,317, and $290,000
representing the fair value of those warrants during 2000, 1999, and 1998,
respectively. In addition, warrants have been issued in connection with
financing transactions as described above.

At December 31, 2000, warrants outstanding were as follows:

Exercise
Price per Warrants
Date of Issue Share Outstanding Expiration Date
- ------------- ------------- ----------- ------------------------

June 2000................... $8.00--$10.00 500,000 May 2005
January 2000................ 5.00--6.00 50,000 January 2003
November 1999............... 6.00 133,531 November 2004
September 1999.............. 4.25 216,000 September 2004
September 1999.............. 5.75--8.25 1,980,000 September 2004
January 1999--March 1999.... 2.50--6.00 23,187 January 2004--March 2004
February 1999............... 4.81--6.09 945,252 February 2004
January 1998................ 2.13--4.00 39,800 January 2003
January 1997................ 15.00 20,000 January 2007
June 1996................... 11.00 32,749 June 2006
February 1996............... 6.71 521,627 February 2006
August 1995................. 6.81 24,923 July 2005
---------
4,487,069
=========

Each warrant is exercisable into one share of common stock. The Company has
reserved sufficient shares of common stock to meet its stock option and warrant
obligations. A total of 745,767 and 276,831 warrants were exercised and
cancelled, respectively, in 2000.

Stockholder Rights Plan

On September 26, 1991, the Board of Directors of Old BLSI adopted a
Stockholder Rights Plan (the "Rights Plan"), declared a dividend of one
preferred stock purchase right (a "Right") for each share of common stock held
of record at the close of business on October 7, 1991 and directed the issuance
of one Right in respect of each share of common stock that becomes outstanding
after that date. With certain exceptions, if a person or group (the "Acquirer")
acquires 15 percent or more of the outstanding shares of the Company's common
stock, the Rights will separate from the shares of common stock and become
exercisable. Once the Rights become exercisable, and in certain circumstances
if additional conditions are met, the Rights Plan allows holders of the Rights
(other than the Acquirer) to buy common stock of the Company or the Acquirer at
a substantial discount. The Rights will expire on September 26, 2001 unless
they are earlier exercised by the holders or redeemed or exchanged by the
Company.

F-16

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12. Income Taxes

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

2000 1999 1998
----------- ----------- -----------

Federal............................... $ 3,367,000 $ 3,633,000 $ 2,326,000
State................................. 1,218,000 1,233,000 794,000
----------- ----------- -----------
4,585,000 4,866,000 3,120,000
Valuation allowance................... (4,585,000) (4,866,000) (3,120,000)
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========

Deferred tax assets (liabilities) consist of the following at December 31:

2000 1999 1998
------------ ------------ ------------

Net operating loss
carryforwards................... $ 28,640,000 $ 23,981,000 $ 19,676,000
Capitalized research and
development expenses............ 1,792,000 1,792,000 2,812,000
Research and development credit
carryforwards................... 1,345,000 987,000 961,000
Other............................ 304,000 736,000 616,000
------------ ------------ ------------
Gross deferred tax assets........ 32,081,000 27,496,000 24,065,000
Acquired technology.............. -- -- (1,435,000)
------------ ------------ ------------
Net deferred tax assets.......... 32,081,000 27,496,000 22,630,000
Valuation allowance.............. (32,081,000) (27,496,000) (22,630,000)
------------ ------------ ------------
$ -- $ -- $ --
============ ============ ============

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

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

2000 1999 1998
----------- ----------- -----------

Benefit at statutory rate........... $(3,729,000) $(4,888,000) $(2,417,000)
State taxes, net of federal
benefit............................ (668,000) (877,000) (504,000)
Research and development credit..... (437,000) (243,000) (180,000)
In process research and development
costs acquired through warrants.... -- 484,000 --
Other............................... 249,000 658,000 (19,000)
----------- ----------- -----------
(4,585,000) (4,866,000) (3,120,000)
Benefit of loss not recognized,
increase in valuation allowance.... 4,585,000 4,866,000 3,120,000
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========

As of December 31, 2000, the Company has federal net operating loss
carryforwards of $72,966,000 which expire beginning in 2007 and ending in 2020.
In addition, the Company has federal and state research

F-17

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and development credits of $947,000 and $612,000, respectively, which expire
beginning in 2010 and 2012, respectively, and ending in 2020 and 2015,
respectively. These net operating loss carryforwards and research and
development credits may be used to offset future federal and state taxable
income and tax liabilities. A portion of the net operating loss carryforwards
totaling approximately $1,486,000 relates to deductions for the exercise of
non-qualified options and certain warrants and will be credited to additional
paid-in capital upon realization.

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

13. Commitments and Contingencies

Operating Leases

The Company leases certain office equipment and its office space and
warehouse facilities under noncancelable operating leases. Terms of the lease
for office space include a renewal option of two years. Approximate future
minimum lease commitments at December 31, 2000 are as follows: 2001--$184,000,
2002--$93,000. Total rent expense under noncancelable operating leases was
approximately $183,000, $161,000, and $124,000 during the years ended December
31, 2000, 1999, and 1998, respectively, and approximately $825,000 for the
period from inception (October 16, 1992) through December 31, 2000.

Litigation

14. Related Party Transactions

In April 1997, the Company's primary banking institution (the "Bank") loaned
$150,000 to an officer of the Company (the "Loan"). As a condition to and as
security for the Loan, the Bank requested that the Company pledge an amount
equal to the Loan to the Bank. Such funds, including the accumulated interest
thereon, were held by the Bank in a restricted escrow account until the Loan
was repaid. In February 2000, the officer repaid the entire loan balance and
the Bank released the Company from its pledge commitment. At December 31, 1999,
other current assets included approximately $168,000 invested in a certificate
of deposit pledged as security for the Loan.

A director of the Company is a member of the Company's Scientific Advisory
Board pursuant to which the Company paid the director consulting fees totaling
approximately $53,000 in 2000.

A director of the Company is a director and Chairman of the Executive
Committee of the Bank. The Company paid approximately $51,000 to the Bank
during fiscal 2000 primarily for investment management advisory services.

F-18

BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A director of the Company was a Managing Director of the placement agents
hired by the Company in connection with the Company's private placements of
Series C preferred stock (Note 10) and 8% convertible debentures (Note 8).

15. Supplementary Quarterly Financial Data (Unaudited)

The following tables present a condensed summary of quarterly consolidated
results of operations for the years ended December 31, 2000 and 1999:

Quarter Ended
----------------------------------------------------
March 31, June 30, September 30, December 31,
----------- ----------- ------------- ------------

2000
Revenues................ $ -- $ -- $ -- $ --
Net loss................ (2,951,150) (3,328,199) (2,920,237) (1,454,678)
Basic and diluted net
loss per share......... $ (0.17) $ (0.17) $ (0.14) $ (0.07)
1999
Revenues................ $ -- $ -- $ 200,000 $ --
Net loss................ (2,079,285) (1,636,042) (4,076,635) (6,172,522)
Basic and diluted net
loss per share......... $ (0.15) $ (0.11) $ (0.27) $ (0.39)

F-19

PART III

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

Not applicable.

Item 10. Directors and Executive Officers of the Registrant.

The information required by this Item 10, with respect to executive
officers, is hereby incorporated by reference to the text appearing under Part
1, Item 4A under the caption "Executive Officers of the Registrant" in this
Report, and, with respect to directors, by reference to the information
included under the headings "Information Regarding Directors", "Executive
Officers", and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders to be filed by the Company with the Securities and Exchange
Commission within 120 days after the close of the Company's fiscal year.

Item 11. Executive Compensation.

The information required by this Item 11 is hereby incorporated by reference
to the information under the heading "Executive Compensation" and "Report of
Compensation Committee on Executive Compensation" in the Company's definitive
Proxy Statement for the 2001 Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission within 120 days after the close of its
fiscal year.

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

The information required by this Item 12 is hereby incorporated by reference
to the information under the heading "Security Ownership of Principal
Stockholders and Management" in the Company's definitive Proxy Statement for
the 2001 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission within 120 days after the close of its fiscal year.

Item 13. Certain Relationships and Related Transactions.

The information required by this Item 13 is hereby incorporated by reference
to the information under the heading "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of its fiscal year.

F-20

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)(1) Consolidated Financial Statements of the Company

Financial Statements of the Registrant and Report of Independent
Accountants thereon
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Operations for the fiscal years ended December
31, 2000, 1999 and 1998 and for the period from inception (October 16,
1992) through December 31, 2000
Consolidated Statements of Stockholders' Equity (Deficit) for the fiscal
years ended December 31, 2000, 1999 and 1998 and for the period from
inception (October 16, 1992) through December 31, 2000
Consolidated Statements of Cash Flows for the fiscal years ended December
31, 2000, 1999 and 1998, and for the period from inception (October 16,
1992) through December 31, 2000
Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules

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

(a)(3) Exhibits.

The following exhibits are incorporated in this report by reference or
included and submitted with this report, as indicated.

Exhibit
Number Description and Method of Filing
------- --------------------------------

2.1 Amended and Restated Agreement of Merger, dated as of December 29,
1994, by and between the Company and Greenwich Pharmaceuticals
Incorporated(1)

2.2 Amendment No. 1 to Amended and Restated Agreement of Merger, dated as
of April 6, 1995, by and between the Company and Greenwich
Pharmaceuticals Incorporated(2)

3.1 Amended and Restated Certificate of Incorporation, dated March 29,
1996, as amended on June 9, 1997, and by the Certificate of
Designations, Rights and Preferences of Series B Convertible Preferred
Stock filed on February 5, 1999, the Certificate of Decrease of Series
B Convertible Preferred Stock filed on February 18, 1999, and the
Certificate of Designations, Rights and Preferences of Series C
Convertible Preferred Stock filed on February 18, 1999(3)

3.2 Certificate of Decrease and Elimination of Series B Convertible
Preferred Stock filed on June 29, 1999; Certificate of Decrease of
Series A Convertible Preferred Stock filed on June 29, 1999;
Certificate of Correction Filed on June 29, 1999; Certificate of
Amendment of Amended and Restated Certificate of Incorporation filed
on June 29, 1999(4)

3.3 Certificate of Designations, Preferences and Rights of Series A
Preferred Stock filed December 30, 1999; Certificate of Amendment of
Amended and Restated Certificate of Incorporation filed June 15, 2000;
Certificate of Correction filed March 16, 2001; Certificate of
Elimination of Series A Convertible Preferred Stock filed on March 16,
2001; Certificate of Elimination of Series C Convertible Preferred
Stock filed on March 16, 2001; Certificate of Designations,
Preferences, and Rights of Series A Convertible Preferred Stock filed
March 19, 2001; Certificate of Designations, Preferences, and Rights
of Series D Preferred Stock filed March 19, 2001(17)

3.4 Amended and Restated By Laws, effective as of June 26, 1995(5)

4.1 Rights Agreement between the Company and Continental Stock Transfer &
Trust Company, as successor Rights Agent dated September 26, 1991, as
amended(6)

II-1

Exhibit
Number Description and Method of Filing
------- --------------------------------

4.2 Specimen Common Stock Certificate(7)

4.3 Form of Warrant Agreement by and among the Company, the Warrant Agent
and Paramount Capital, Inc. and related Form of Warrant Certificate
for Purchase of Common Stock(8)

4.4 Form of Common Stock Purchase Warrants received by The Tail Wind Fund,
Ltd. ("Tail Wind") and Form of Common Stock Purchase Warrant received
by certain other investors(9)

4.5 Form of Common Stock Purchase Warrant received by purchasers of Series
B Preferred Stock and Series C preferred Stock(10)

4.6 Form of Common Stock Purchase Warrant received by holders of Series C
preferred Stock(11)

4.7 Form of 8% Convertible Debenture dated as of September 22, 1999, Form
of Class A Warrant dated as of September 22, 1999, Form of Class B
Warrant dated as of September 22, 1999(12)

4.8 Form of Common Stock Purchase Warrant received by Pictet Global Sector
Fund-Biotech(13)

4.9 Form of Common Stock Purchase Warrant received by MTR and the Trout
Group and Form of Common Stock Purchase Warrant received by HCW,
Matthew Balk, Scott Weisman, Jason Adelman and Eric Singer(14)

10.1 Boston Life Sciences, Inc. Amended and Restated Omnibus Stock Option
Plan(2)

10.2 Boston Life Sciences, Inc. Amended and Restated 1990 Non-Employee
Directors' Non Qualified Stock Option Plan, as amended(15)

10.3 Boston Life Sciences, Inc. 1998 Omnibus Stock Option Plan, as
amended(16)

10.4 Purchase Agreement dated February 5, 1999 between Tail Wind and the
Company(3)

10.5 Registration Rights Agreement dated February 5, 1999 between Tail Wind
and the Company(3)

10.6 Form of Subscription Agreement for Series B Preferred Stock(3)

10.7 Form of Exchange Agreement between the Company and Holders of Series B
Preferred Stock(3)

10.8 Supplement of Subscription Agreement for Series B Preferred Stock(3)

10.9 Securities Purchase Agreement among the Company and the purchasers of
the 8% Convertible Debentures dated as of September 22, 1999(12)

10.10 Registration Rights Agreement among the Company and the purchasers of
the 8% Convertible Debentures dated as of September 22, 1999(12)

10.11 Securities Purchase Agreement dated June 1, 2000 between the Pictet
Global Sector Fund-Biotech and the Company(10)

10.12 Registration Rights Agreement dated June 1, 2000 between the Pictet
Global Sector Fund-Biotech and the Company(10)

21.1 Subsidiaries of the Registrant(17)

23.1 Consent of Independent Accountants(17)

- --------
(1) Incorporated by reference to Greenwich's Annual Report on Form 10-K for
the year ended December 31, 1994
(2) Incorporated by reference to the Registration Statement of Greenwich
Pharmaceuticals Incorporated on Form S-4, Registration No. 33-91106
(3) Incorporated by reference to BLSI's Annual Report on Form 10-K for the
year ended December 31, 1998
(4) Incorporated by reference to BLSI's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999

II-2

(5) Incorporated by reference to BLSI's Annual Report on Form 10-K for the
year ended December 31, 1995
(6) Incorporated by reference to Greenwich's Current Report on Form 8-K dated
September 26, 1991, Greenwich's Registration Statement on Form 8-A dated
October 22, 1991, Greenwich's Form 8 dated July 28, 1993, Greenwich's Form
8-A/A dated August 8, 1994 and BLSI's Form 8-A/A dated March 20, 2001
(7) Incorporated by reference to BLSI's Registration Statement on Form S-3
(No. 33-25955)
(8) Incorporated by reference to BLSI's Registration Statement on Form S-3
(No. 333-2730)
(9) Incorporated by reference to BLSI's Registration Statement on Form S-3
(No. 333-75175)
(10) Incorporated by reference to BLSI's Registration Statement on Form S-3
(No. 333-44298)
(11) Incorporated by reference to BLSI's Registration Statement on Form S-3
(No. 333-74775)
(12) Incorporated by reference to BLSI's Report on Form 8-K dated September 27,
1999
(13) Incorporated by reference to BLSI's Report on Form 8-K dated June 1, 2000
(14) Incorporated by reference to BLSI's Registration Statement on Form S-3
(No. 333-40408)
(15) Incorporated by reference to BLSI's Proxy Statement in connection with its
1999 Annual Meeting of Stockholders
(16) Incorporated by reference to BLSI's Proxy Statement in connection with its
2000 Annual Meeting of Stockholders
(17) Filed herewith

(b) Reports on Form 8-K: The Registrant filed the following Reports on Form
8-K during the fourth quarter of 2000 and through March 16, 2001: None

II-3

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

Boston Life Sciences, Inc.
(Registrant)

/s/ S. David Hillson
March 29, 2001 By: _________________________________
S. David Hillson
Chairman, President & Chief
Executive Officer

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

Signature Title Date
--------- ----- ----

/s/ S. David Hillson Chairman, President & March 29, 2001
______________________________________ Chief Executive Officer
S. David Hillson, Esq. (Principal Executive
Officer)

/s/ Joseph P. Hernon Executive Vice President, March 29, 2001
______________________________________ Chief Financial Officer
Joseph P. Hernon, CPA and Secretary (Principal
Financial and Accounting
Officer)

/s/ Marc E. Lanser Director, Executive Vice March 29, 2001
______________________________________ President & Chief
Marc E. Lanser, M.D. Scientific Officer

/s/ Colin B. Bier Director March 29, 2001
______________________________________
Colin B. Bier, Ph.D.

/s/ Scott Weisman Director March 29, 2001
______________________________________
Scott Weisman, Esq.

/s/ Robert Langer Director March 29, 2001
______________________________________
Robert Langer, Sc.D.

/s/ Ira W. Lieberman Director March 29, 2001
______________________________________
Ira W. Lieberman, Ph.D.

/s/ E. Christopher Palmer Director March 29, 2001
______________________________________
E. Christopher Palmer, CPA

II-4

EXHIBIT INDEX

Exhibit Page
Number Description and Method of Filing Number
------- -------------------------------- ------

2.1 Amended and Restated Agreement of Merger, dated as of
December 29, 1994, by and between the Company and Greenwich
Pharmaceuticals Incorporated(1)

2.2 Amendment No. 1 to Amended and Restated Agreement of Merger,
dated as of April 6, 1995, by and between the Company and
Greenwich Pharmaceuticals Incorporated(2)

3.1 Amended and Restated Certificate of Incorporation, dated
March 29, 1996, as amended on June 9, 1997, and by the
Certificate of Designations, Rights and Preferences of Series
B Convertible Preferred Stock filed on February 5, 1999, the
Certificate of Decrease of Series B Convertible Preferred
Stock filed on February 18, 1999, and the Certificate of
Designations, Rights and Preferences of Series C Convertible
Preferred Stock filed on February 18, 1999(3)

3.2 Certificate of Decrease and Elimination of Series B
Convertible Preferred Stock filed on June 29, 1999;
Certificate of Decrease of Series A Convertible Preferred
Stock filed on June 29, 1999; Certificate of Correction Filed
on June 29, 1999; Certificate of Amendment of Amended and
Restated Certificate of Incorporation filed on June 29,
1999(4)

3.3 Certificate of Designations, Preferences and Rights of Series
A Preferred Stock filed December 30, 1999; Certificate of
Amendment of Amended and Restated Certificate of
Incorporation filed June 15, 2000; Certificate of Correction
filed March 16, 2001; Certificate of Elimination of Series A
Convertible Preferred Stock filed on March 16, 2001;
Certificate of Elimination of Series C Convertible Preferred
Stock filed on March 16, 2001; Certificate of Designations,
Preferences, and Rights of Series A Convertible Preferred
Stock filed March 19, 2001; Certificate of Designations,
Preferences, and Rights of Series D Preferred Stock filed
March 19, 2001(17)

3.4 Amended and Restated By Laws, effective as of June 26,
1995(5)

4.1 Rights Agreement between the Company and Continental Stock
Transfer & Trust Company, as successor Rights Agent dated
September 26, 1991, as amended(6)

4.2 Specimen Common Stock Certificate(7)

4.3 Form of Warrant Agreement by and among the Company, the
Warrant Agent and Paramount Capital, Inc. and related Form of
Warrant Certificate for Purchase of Common Stock(8)

4.4 Form of Common Stock Purchase Warrants received by The Tail
Wind Fund, Ltd. ("Tail Wind") and Form of Common Stock
Purchase Warrant received by certain other investors(9)

4.5 Form of Common Stock Purchase Warrant received by purchasers
of Series B Preferred Stock and Series C preferred Stock(10)

4.6 Form of Common Stock Purchase Warrant received by holders of
Series C preferred Stock(11)

4.7 Form of 8% Convertible Debenture dated as of September 22,
1999, Form of Class A Warrant dated as of September 22, 1999,
Form of Class B Warrant dated as of September 22, 1999(12)

4.8 Form of Common Stock Purchase Warrant received by Pictet
Global Sector Fund-Biotech(13)

4.9 Form of Common Stock Purchase Warrant received by MTR and the
Trout Group and Form of Common Stock Purchase Warrant
received by HCW, Matthew Balk, Scott Weisman, Jason Adelman
and Eric Singer(14)

Exhibit Page
Number Description and Method of Filing Number
------- -------------------------------- ------

10.1 Boston Life Sciences, Inc. Amended and Restated Omnibus Stock
Option Plan(2)

10.2 Boston Life Sciences, Inc. Amended and Restated 1990 Non-
Employee Directors' Non Qualified Stock Option Plan, as
amended(15)

10.3 Boston Life Sciences, Inc. 1998 Omnibus Stock Option Plan, as
amended(16)

10.4 Purchase Agreement dated February 5, 1999 between Tail Wind
and the Company(3)

10.5 Registration Rights Agreement dated February 5, 1999 between
Tail Wind and the Company(3)

10.6 Form of Subscription Agreement for Series B Preferred
Stock(3)

10.7 Form of Exchange Agreement between the Company and Holders of
Series B Preferred Stock(3)

10.8 Supplement of Subscription Agreement for Series B Preferred
Stock(3)

10.9 Securities Purchase Agreement among the Company and the
purchasers of the 8% Convertible Debentures dated as of
September 22, 1999(12)

10.10 Registration Rights Agreement among the Company and the
purchasers of the 8% Convertible Debentures dated as of
September 22, 1999(12)

10.11 Securities Purchase Agreement dated June 1, 2000 between the
Pictet Global Sector Fund-Biotech and the Company(10)

10.12 Registration Rights Agreement dated June 1, 2000 between the
Pictet Global Sector Fund-Biotech and the Company(10)

21.1 Subsidiaries of the Registrant(17)

23.1 Consent of Independent Accountants(17)