UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number 0-6533
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BOSTON LIFE SCIENCES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 87-0277826
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
137 Newbury Street, 8th Floor, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
(617) 425-0200
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(X) Yes ( ) No
As of November 11, 1999 there were 15,327,950 shares of Common Stock
outstanding.
BOSTON LIFE SCIENCES, INC.
INDEX TO FORM 10-Q
Page (s)
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Part I - Financial Information:
Item 1 - Financial Statements (unaudited)
Condensed Consolidated Balance Sheet as of 1
September 30, 1999 and December 31, 1998
Condensed Consolidated Statement of Operations for 2
the three and nine months ended September 30, 1999 and
1998, and for the period from inception (October 16, 1992)
to September 30, 1999
Condensed Consolidated Statement of Cash Flows 3
for the nine months ended September 30, 1999 and 1998,
and for the period from inception (October 16, 1992) to
September 30, 1999
Notes to Condensed Consolidated Financial Statements 4 - 6
Item 2 - Management's Discussion and Analysis of 7 - 11
Financial Condition and Results of Operations
Part II - Other Information
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults Upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of 12
Security Holders
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 13
Signature (s) 14
Part I--Financial Information
Item 1--Financial Statements
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Consolidated Balance Sheets
---------------------------
(Unaudited)
September 30, 1999 December 31, 1998
------------------ -----------------
Assets
Current assets:
Cash and cash equivalents $ 8,014,920 $ 71,834
Short-term investments 10,322,846 7,837,992
Other current assets 258,460 568,599
------------------ -----------------
Total current assets 18,596,226 8,478,425
Fixed assets, net 12,465 14,417
Technology acquired 3,500,000 3,500,000
Other assets 456,402 276,206
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Total assets $ 22,565,093 $ 12,269,048
================== =================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 1,697,072 $ 1,734,199
8% Convertible Redeemable Debentures,
due September 2003 4,339,063 --
Series C Convertible Redeemable Preferred Stock,
$.01 par value; 475,000 shares authorized
197,621 shares outstanding on September 30, 1999 3,853,610 --
Stockholders' equity:
Series A Convertible Preferred stock, $.01 par value
13,404 shares authorized as of September 30, 1999,
5,233 shares outstanding on September 30, 1999 and
16,996 shares outstanding on December 31, 1998 52 170
Common Stock, $0.01 par value;
30,000,000 shares authorized
15,247,210 shares outstanding on September 30, 1999 and
13,276,978 shares outstanding on December 31, 1998 152,472 132,770
Additional paid-in capital 60,870,956 50,489,202
Unrealized gains (losses) on investments (393,174) 76,203
Deficit accumulated during development stage (47,954,958) (40,163,496)
------------------ -----------------
Total stockholders' equity 12,675,348 10,534,849
------------------ -----------------
Total liabilities and stockholders' equity $ 22,565,093 $ 12,269,048
================== =================
See notes to consolidated financial statements.
1
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Operations
-------------------------------------
(Unaudited)
Three Months Ended Nine Months Ended From inception
September 30, September 30, (October 16, 1992)
------------------------- ------------------------ to September 30,
1999 1998 1999 1998 1999
---------- ---------- ---------- ---------- -----------------
Revenues $ 200,000 - $ 200,000 - $ 900,000
Operating Expenses
Research and development expenses 1,843,481 $ 1,169,010 3,522,274 $ 3,414,362 20,301,276
Licensing fees - - - 55,000 733,683
Therafectin(R) related expenses 1,777 31,339 1,083,398 292,121 5,243,457
General and administrative expenses 682,872 587,831 2,001,897 1,854,909 12,467,147
Purchased research and development
in-process 1,725,000 - 1,725,000 - 12,146,544
---------- ---------- ---------- ---------- ----------
Total operating expenses 4,253,130 1,788,180 8,332,569 5,616,392 50,892,107
---------- ---------- ---------- ---------- ----------
Loss from operations (4,053,130) (1,788,180) (8,132,569) (5,616,392) (49,992,107)
Interest expense (214,063) - (214,063) - (1,675,892)
Interest income 190,558 191,802 555,170 636,661 3,713,041
---------- ---------- ---------- ---------- ----------
Net loss $(4,076,635) $(1,596,378) $ (7,791,462) $(4,979,731) $(47,954,958)
========== ========== ========== ========== ==========
Calculation of net loss available to
common stockholders:
Net loss $(4,076,635) $(1,596,378) $ (7,791,462) $(4,979,731)
Preferred stock preferences
(Note 5) - - $ (4,240,000) -
---------- ---------- ---------- ----------
Net loss available to common
shareholders $(4,076,635) $(1,596,378) $(12,031,462) $(4,979,731)
========== ========== ========== ==========
Calculation of basic and diluted
net loss per share available
to common stockholders:
Net loss per share $ (0.27) $ (0.12) $ (0.84) $ (0.38)
Preferred stock preferences
per share (Note 5) - - $ (0.30) -
---------- ---------- ---------- ----------
Basic and diluted net loss
available to common
stockholders: $ (0.27) $ (0.12) $ (1.14) $ (0.38)
========== ========== ========== ==========
Weighted average shares
outstanding 14,894,266 13,221,610 14,253,961 13,094,321
========== ========== ========== ==========
See notes to consolidated financial statements.
2
BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
Period from
Nine Months Ended September 30, Inception (October
------------------------------ 16, 1992) through
1999 1998 September 30, 1999
------------- ----------- -----------------------
Cash flows from operating activities:
Net loss ($7,791,462) ($4,979,731) ($47,954,958)
Adjustments to reconcile net loss to net cash
used for operating activities:
Purchased research and development in-process 1,725,000 0 12,146,544
Compensation charge related to options and warrants granted 115,000 555,000 1,708,765
Amortization and depreciation 11,185 60,000 1,463,001
Accretion of discount on convertible debentures 214,063 0 214,063
Changes in assets and liabilities:
Other current assets 310,139 379,875 237,068
Accounts payable and accrued expenses (37,127) (495,179) 749,407
----------- ----------- ------------
Net cash used for operating activities (5,453,202) (4,480,035) (31,436,110)
----------- ----------- ------------
Cash flows from investing activities:
Cash acquired through the merger with
Greenwich Pharmaceuticals 0 1,758,037
Increase in fixed assets (9,233) (4,415) (265,934)
Increase in other assets (180,196) (12,824) (446,602)
Short term investments:
Purchases (7,318,466) (8,850,358) (52,216,696)
Sales and Maturities 4,364,235 14,277,309 41,500,676
----------- ----------- ------------
Net cash provided by (used in) investing activities (3,143,660) 5,409,712 (9,670,519)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 3,574,709 156,458 16,732,763
Proceeds from issuance of convertible preferred stock 6,150,000 0 27,022,170
Proceeds from issuance of notes payable 0 0 2,585,000
Proceeds from issuance of convertible debt and warrants 8,000,000 0 9,000,000
Principal payments of notes payable 0 0 (2,796,467)
Payment of note issuance costs 0 0 (399,702)
Payment of stock issuance and merger transaction costs (1,184,761) 0 (3,022,215)
----------- ----------- ------------
Net cash provided by financing activities 16,539,948 156,458 49,121,549
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents 7,943,086 1,086,135 8,014,920
Cash and cash equivalents at beginning of period 71,834 1,713,975 0
----------- ----------- ------------
Cash and cash equivalents at end of period $8,014,920 $2,800,110 $8,014,920
=========== =========== ============
Supplemental disclosure of non-cash transactions:
Conversion of preferred stock to common (Notes 3 and 5)
Purchase of research and development option (Note 7)
See notes to consolidated financial statements.
3
BOSTON LIFE SCIENCES, INC.
(a development stage enterprise)
Notes to Unaudited Consolidated Financial Statements
(September 30, 1999)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, these financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
The interim unaudited consolidated financial statements contained herein
include, in management's opinion, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial
position, results of operations, and cash flows for the periods presented.
The results of operations for the interim period shown on this report are not
necessarily indicative of results for a full year. These financial statements
should be read in conjunction with the Company's consolidated financial
statements and notes for the year ended December 31, 1998, appearing in the
Company's Annual Report on Form 10-K, as amended, for such year.
2. NET LOSS PER SHARE
Basic and diluted net loss per share available to common stockholders has
been calculated by dividing net loss, adjusted for preferred stock
preferences, by the weighted average number of common shares outstanding
during the period. All potential common shares have been excluded from the
calculation of weighted average common shares outstanding since their
inclusion would be anti-dilutive.
Stock options and warrants to purchase approximately 6.3 million and
approximately 3.2 million shares of common stock were outstanding at
September 30, 1999 and 1998, respectively, but were not included in the
computation of diluted net loss per common share because they were
anti-dilutive. Also excluded were approximately 92,000 and approximately
298,000 shares of common stock issuable upon the conversion of Series A
preferred stock outstanding at September 30, 1999 and 1998, respectively.
Also excluded from the computation were approximately 988,000 and
approximately 1.5 million shares of common stock issuable upon the conversion
of Series C preferred stock and convertible debentures, respectively,
outstanding at September 30, 1999. The exercise of these stock options and
warrants, or the conversion of the preferred stock or convertible debentures,
could potentially dilute earnings per share in the future.
3. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the nine months ended September 30, 1999, the Company issued 206,296
and 588,975 shares of common stock resulting from the conversion of 11,763
and 117,795 shares of Series A and Series C preferred stock, respectively.
During the nine months ended September 30, 1998, the Company issued 1,501,246
shares of common stock resulting from the conversion of 85,601 shares of
Series A preferred stock.
4
BOSTON LIFE SCIENCES, INC.
(a development stage enterprise)
Notes to Unaudited Consolidated Financial Statements
(September 30, 1999)
4. COMPREHENSIVE NET LOSS
Comprehensive net loss for the nine months ended September 30, 1999 and
1998, and for the period from inception to date, was as follows:
FROM INCEPTION
(OCTOBER 16,
1992) TO
SEPTEMBER 30,
1999 1998 1999
--------------- ---------------- -----------------
Net loss............................................... $ (7,791,462) $(4,979,731) $(47,954,958)
Preferred stock preferences (Note 5).................. (4,240,000) -- (38,627,953)
Unrealized gains (losses) on securities
Unrealized holding gains (losses) arising during
the period........................................ (469,377) 89,769 (392,390)
Investment gains (losses) included in net loss..... 21,487 81,139 20,203
------------ ----------- ------------
Comprehensive loss..................................... $(12,479,352) $(4,808,823) $(86,955,098)
============ =========== ============
Comprehensive net loss for the three months ended September 30, 1999 and 1998
was $4,140,597 and $1,451,158, respectively.
5. PREFERRED STOCK ISSUANCE
In February 1999, the Company completed a private placement of Series C
Convertible Preferred Stock, $.01 par value, ("Series C Stock") which raised
proceeds of approximately $5.7 million, net of approximately $0.5 million of
issuance costs. 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 219,238 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 is convertible at any time 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 Series C Stock provides
for a minimum return of 25% whereby the Company may be required to issue up
to one additional share of common stock for each share of common stock
underlying Series C Stock still held by an investor on the date that is 270
days after the closing, if the market price of the common stock is below a
specified level on such date. However, the investor's right to receive
additional shares terminates if the market price of the common stock is above
a specified level for a certain period, as defined. The initial conversion
price of the Series C Stock was at a discount to the market price on the date
of issuance. The intrinsic value of this beneficial conversion feature
totaled approximately $1.9 million. The net proceeds of approximately $5.7
million has been allocated between the warrants (approximately $1.9 million)
and the Series C Stock (approximately $3.8 million) based on their relative
fair values. The value attributable to the beneficial conversion feature
($1.9 million) and the warrants ($1.9 million) has been included in the
amount recognized as a preferred stock preference in the statement of
operations for the nine months ended September 30, 1999. These amounts
represent a non-cash charge in the determination of net loss available to
common shareholders.
5
Under certain circumstances, the Company may be required to redeem any shares
of Series C Stock then outstanding. Because the redemption of the Series C
Stock is not completely within the control of the Company, the required
redemption amount has been reflected outside of stockholders' equity as
"mezzanine" financing.
As of September 30, 1999, a total of 117,795 shares of Series C stock has
been converted into 588,975 shares of common stock, resulting in a decrease
in the amount reported as Series C Preferred Stock of approximately $2.3
million with a corresponding increase in stockholders' equity.
6. CONVERTIBLE DEBENTURE FINANCING
In September 1999, the Company issued $8 million in convertible debentures
due September 2003 and warrants to purchase a total of 1,680,000 shares of
the Company's common stock to two institutional investment funds, both
managed by the same institutional investment firm. The warrants were issued
in two classes, the first, or "class A" warrants, are exercisable to purchase
960,000 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.
The debentures accrue interest at 8% per annum, payable semi-annually, and
are convertible by the holders into common stock at a conversion price of
$5.25 per share, subject to certain anti-dilution adjustments. The conversion
price will be adjusted to the then market price of the Company's common stock
on the first and second anniversary dates, provided however that such
adjustments can only reduce the conversion price subject to certain maximum
adjustments. The Company may elect to pay interest accrued on the debentures
in shares of common stock, subject to certain limitations.
The net proceeds of $7.5 million has been allocated between the warrants
(approximately $3.4 million) and the convertible debentures (approximately
$4.1 million) based on their relative fair values. The initial carrying value
of the debentures will be accreted ratably, over the term of the debenture,
to the $8 million amount due at maturity, with the quarterly accretion amount
of approximately $242,000 also recognized as non-cash interest expense in the
statement of operations.
7. ACQUISITION OF FUSION TOXIN TECHNOLOGY
In September 1999, the Company finalized an agreement with MTR Technologies,
Inc. ("MTR") under which it acquired an option to acquire the licensing
rights to certain technology covering fusion toxins for the treatment of a
wide variety of solid tumors, as well as multiple sclerosis and allergies.
The technology was invented by scientists at Hadassah Medical School of the
Hebrew University in Jerusalem, and was initially licensed to MTR by Yissum
Research Development Company of the Hebrew University in Jerusalem
("Yissum").
The option expires in May 2000, during which period the Company will complete
certain pre-clinical studies to determine whether it wants to acquire the
licensed rights to the 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 in the statement of operations as purchased research and
development in-process. If the Company elects to exercise its option to
acquire the licensing rights to the technology, it will pay additional
consideration to MTR (in the form of cash or additional shares, equal to $1.4
million less the fair value of the 232,000 shares originally issued), as well
as milestone payments upon the completion of clinical trials and royalties on
any future product sales related to the technology.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(September 30, 1999)
This Quarterly Report on Form 10-Q containS forward-looking statements.
Specifically, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," and
similar expressions are intended to identify forward-looking statements. There
are a number of meaningful factors that could cause the Company's actual results
to differ materially from those indicated by any such forward-looking
statements. These factors include, without limitation, the duration and results
of clinical trials and their effect on the FDA regulatory process, uncertainties
regarding receipt of approvals for any possible products and any commercial
acceptance of such products, possible difficulties with obtaining necessary
patent protection, and uncertainties regarding the outcome of any of the
Company's collaborations or alliances with third parties. Other factors include
those set forth under the caption "Forward-Looking Statements" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 and the
documents referred to under such caption.
RESULTS OF OPERATIONS
Overview
The Company is a biotechnology company engaged in the research and
development of novel therapeutic and diagnostic products to treat chronic
debilitating diseases such as cancer, central nervous system disorders and
autoimmune diseases. The Company expects that its research and development costs
will continue to increase as the Company attempts to gain regulatory approval
for commercial introduction of its proposed products. At September 30, 1999, the
Company is considered a "development stage enterprise" as defined in Statement
of Financial Accounting Standards No. 7.
Three Months Ended September 30, 1999 and 1998
Revenues were $200,000 for the three months ended September 30, 1999 as
compared with zero for the three months ended September 30, 1998. In September
1999, the Company announced that it had entered into a development and licensing
agreement with a major pharmaceutical company to further 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's net loss was $4,076,635 during the three months ended September
30, 1999 as compared with $1,596,378 during the three months ended September 30,
1998. The higher net loss in the 1999 period was primarily due to higher
research and development expenses including a purchased research and development
charge of $1,725,000 related to the acquisition of an option to acquire the
rights to certain new technologies. Net loss per common share equaled $.27 per
share for the 1999 period as compared to $.12 per share for the 1998 period. The
number of weighted average shares outstanding increased by approximately 13%
primarily resulting from the private placement of common stock completed in the
first quarter of 1999.
Research and development expenses were $1,843,481 during the three months
ended September 30, 1999 as compared with $1,169,010 during the three months
ended September 30, 1998. The increase was primarily attributable to increased
expenditures related to the Phase III clinical trial for Altropane and the
initiation of pre-clinical activities for two new technologies. The majority of
the Company's research and development expenses were sponsored research
obligations paid to Harvard University and
7
its affiliated hospitals. The Company expects to incur total research and
development costs between $5 million and $6 million during 1999, and between $6
and $7 million in 2000.
Licensing fees were zero during both the three months ended September 30,
1999 and during the three months ended September 30, 1998. The Company did not
execute any new licensing agreements during either period or incur any
obligations under its existing licensing agreements. In addition to an initial
licensing fee payment, the Company is obligated to pay additional amounts upon
the attainment of development milestones, as defined in each respective
licensing agreement, as well as royalties upon the sales of any resulting
products. The Company expects to pay future licensing fees, the timing and
amounts of which will depend upon the progress attained in developing existing
technologies and the terms of agreements which may be executed for technologies
currently being developed or which may be developed in the future. There can be
no assurance regarding the likelihood or materiality of any such future
licensing agreements.
Therafectin(R) related expenses were $1,777 during the three months ended
September 30, 1999 as compared with $31,339 during the three months ended
September 30, 1998. The Company is presently awaiting a decision from the Food
and Drug Administration ("FDA") related to its amended NDA ("New Drug
Application") for Therafectin filed with the FDA in June 1998. Before any
commercially viable product from Therafectin may be developed, and any revenue
generated therefrom, the Company currently expects that at least $0.5 million of
additional future expense will be necessary. There can be no assurance, however,
that the expenditure of these additional amounts will result in the regulatory
approval of any compounds or that such approval will ever be able to be obtained
by the Company. Moreover, if the Company is ultimately unsuccessful in obtaining
regulatory approval for Therafectin, the Company would be required to write off
the $3.5 million asset value attributable to Therafectin as reflected on the
Company's balance sheet.
General and administrative expenses were $682,872 during the three months
ended September 30, 1999 as compared with $587,831 during the three months ended
September 30, 1998. An increase in professional service costs during the 1999
period was partially offset by the absence of a non-recurring, non-cash charge
related to certain changes in the provisions of the Company's stock option plans
during the 1998 period.
Interest income was $190,558 during the three months ended September 30,
1999 as compared with interest income of $191,802 during the three months ended
September 30, 1998. Interest expense was $214,063 during the three months ended
September 30, 1999 as compared with zero during the three months ended September
30, 1998. The 1999 expense represents a non-cash charge associated with the
accretion of the carrying amount of the convertible debentures to their maturity
value over the term of the debentures.
Nine Months Ended September 30, 1999 and 1998
Revenues were $200,000 for the nine months ended September 30, 1999 as
compared with zero for the nine months ended September 30, 1998. In September
1999, the Company announced that it had entered into a development and licensing
agreement with a major pharmaceutical company to further 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's net loss, excluding preferred stock preferences, was
$7,791,462 during the nine months ended September 30, 1999 as compared with
$4,979,731 during the nine months ended September 30, 1998. Net loss per common
share, excluding preferred stock preferences, equaled $.84
8
per share for the 1999 period as compared to $.38 per share for the 1998 period.
The higher net loss in the 1999 period was primarily due to higher
Therafectin/R/ related expenses and a purchased research and development charge
of $1,725,000 related to the acquisition of an option to acquire the rights to
certain new technologies.
The net loss available to common stockholders for the 1999 period,
including preferred stock preferences of $4,240,000, totaled $12,031,462. Net
loss per common share available to common stockholders for the nine months ended
September 30, 1999 including $0.30 attributable to preferred stock preferences,
totaled $1.14. 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 and the warrants had a fair value of approximately $1.9 million, which
amounts are included in the preferred stock preferences.
Research and development expenses were $3,522,274 during the nine months
ended September 30, 1999 as compared with $3,414,362 during the nine months
ended September 30, 1998. The increase was primarily attributable to increased
expenditures related to the Phase III clinical trial for Altropane, partially
offset by lower expenditures for four of the technologies currently under pre-
clinical development. Expenditure levels for a specific technology can fluctuate
significantly from period to period depending upon the nature of the pre-
clinical and clinical activities in process during each respective period. The
majority of the Company's research and development expenses were sponsored
research obligations paid to Harvard University and its affiliated hospitals.
The Company expects to incur total research and development costs between $5
million and $6 million during 1999, and between $6 and $7 million in 2000.
Licensing fees were zero during the nine months ended September 30, 1999 as
compared with $55,000 during the nine months ended September 30, 1998. During
the 1998 period, the Company paid $15,000 to license one new technology as
compared to no new licensing agreements during the 1999 period. In addition to
an initial licensing fee payment, the Company is obligated to pay additional
amounts upon the attainment of development milestones, as defined in each
respective licensing agreement, as well as royalties upon the sales of any
resulting products. During the 1998 period, the Company made a milestone payment
of $40,000 related to the development of one of its technologies. The Company
expects to pay future licensing fees, the timing and amounts of which will
depend upon the progress attained in developing existing technologies and the
terms of agreements which may be executed for technologies currently being
developed or which may be developed in the future. There can be no assurance
regarding the likelihood or materiality of any such future licensing agreements.
Therafectin(R) related expenses were $1,083,398 during the nine months
ended September 30, 1999 as compared with $292,121 during the nine months ended
September 30, 1998. This increase reflects differences in the development status
of Therafectin(R) during each respective period. Expenses during the 1999 period
primarily related to manufacturing costs related to the production of three lots
of GMP ("Good Manufacturing Practices") material as required under applicable
law and regulations for the Company's amended NDA filing with the FDA. Expenses
during the 1998 period primarily related to patients enrolled in the extension
phase of the Phase III trial. Before any commercially viable product from
Therafectin(R) may be developed, and any revenue generated therefrom, the
Company currently expects that at least $0.5 million of additional future
expense will be necessary. There can be no assurance, however, that the
expenditure of these additional amounts will result in the regulatory approval
of any compounds or that such approval will ever be able to be obtained by the
Company. Moreover, if the Company is ultimately unsuccessful in obtaining
regulatory approval for Therafectin, the Company would be required to write off
the $3.5 million asset value attributable to Therafectin as reflected on the
Company's balance sheet.
9
General and administrative expenses were $2,001,897 during the nine months
ended September 30, 1999 as compared with $1,854,909 during the nine months
ended September 30, 1998. An increase in professional service costs during the
1999 period was offset by the absence of a non-recurring, non-cash charge
related to certain changes in the provisions of the Company's stock option plans
during the 1998 period.
Interest income was $555,170 during the nine months ended September 30,
1999 as compared with interest income of $636,661 during the nine months ended
September 30, 1998. The higher level of interest income recognized during the
1998 period primarily related to higher average short-term investment, cash and
cash equivalent balances. Interest expense was $214,063 during the nine months
ended September 30, 1999 as compared with zero during the nine months ended
September 30, 1998. The 1999 expense represents a non-cash charge associated
with the accretion of the carrying amount of the convertible debentures to their
maturity value over the term of the debentures.
YEAR 2000 READINESS DISCLOSURE
The Company continues to address issues related to the upcoming new millenium.
These issues derive from the use of software and hardware with embedded chips or
processors that use two digits to refer to a year and do not properly recognize
a year that begins with "20" instead of the familiar "19." The Company's efforts
to address these issues and to enhance the Company's readiness for the Year 2000
has primarily focused on (1) network and facility infrastructure, (2) business
applications and software, and (3) external partners. Within each area, the Year
2000 program involves (a) the identification of systems that may be susceptible
to Year 2000 issues, (b) the assessment of the degree of readiness of those
systems for the Year 2000 and an assessment of the risks to the Company's
business, (c) the remediation of problems that are identified, and (d)
contingency planning.
The Company's network and facility infrastructure, located at its Boston
headquarters, includes personal computers and other network equipment, together
with general facility systems such as telephone and security systems. The
Company has completed the identification and assessment phases, and does not
believe that significant remediation and contingency actions need to be
initiated. The Company primarily operates its business applications software
using the Microsoft Office suite of products. For its software applications, the
Company plans to rely on the software developer's representations regarding Year
2000 compliance of their software. There can be no assurance, however, that
software applications represented by developers as being Year 2000 compliant
will be free from Year 2000 errors and defects.
The Company continues to assess the possible effects on its operations of the
Year 2000 compliance of certain relevant third parties, primarily its service
providers, by requesting confirmation from such parties regarding their Year
2000 readiness. In the event the Company identifies a problem with respect to a
particular vendor, then the Company may be forced to identify alternative
sources of supply or services. However, the Company's ability to seek
alternative sources of supply is subject to FDA restrictions and may involve
extensive validation processes. The failure to timely identify and validate an
alternative supplier could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company does not expect to incur costs in its Year 2000 program that will
be material to its business, financial condition or results of operations. The
Company may utilize both internal and external resources, such as consultants
and professional advisors, in implementing the Year 2000 program and the Company
currently estimates that the external resources required during the
identification and assessment phases of the Year 2000 program will not cost more
than approximately $15,000. Because the Year 2000 program is an ongoing process,
all cost estimates are subject to change.
10
Although the Company intends to complete all phases of its Year 2000 program
by December 31, 1999, there can be no assurance, even if this program is
successfully completed on schedule, that disruptions in the Company's business
will be avoided. Year 2000 issues are pervasive in nature and involve highly
technical issues, not all of which are under the Company's control. Possible
consequences of Year 2000 issues that the Company is unable to adequately
identify, assess or remediate include but are not limited to: delays in
obtaining supplies from vendors, errors in processing transactions and diversion
of management time and effort to address difficulties that emerge. The goal of
the Company's Year 2000 program is to plan for and reduce the risk of such
difficulties. There can be no assurance that the Year 2000 program will be
completed in a timely manner or will be successful.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has satisfied its working capital
requirements from the sale of the Company's securities through private
placements. In January and February 1996, the Company raised approximately $20.7
million of net proceeds by completing a private placement of Series A
Convertible Preferred Stock. In June 1996, the Company raised approximately $5
million of net proceeds by completing a private placement of common stock. In
February 1999, the Company received approximately $8.2 million of net proceeds
by completing two separate private placements, one consisting of shares of
Series C Convertible Preferred Stock and a second private placement consisting
of common stock (See Notes 8 and 9 of Notes to the Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998). In September 1999, the Company raised approximately $7.5
million of net proceeds by completing a private placement of convertible
debentures. In the future, the Company's ability to meet, and the level of, its
working capital and capital requirements will depend on numerous factors,
including the progress of the Company's research and development activities, the
level of resources that the Company devotes to the developmental, clinical, and
regulatory aspects of its products, and the extent to which the Company enters
into collaborative relationships with pharmaceutical and biotechnology
companies.
At September 30, 1999, the Company had available cash, cash equivalents and
short term investments of approximately $18.3 million and working capital of
approximately $16.9 million. The Company believes that the level of financial
resources available at September 30, 1999 will provide sufficient working
capital to meet its anticipated expenditures for at least the next twelve
months. The Company may raise additional capital in the future through
collaborative agreements with other pharmaceutical or biotechnology companies,
debt financings and equity offerings. There can be no assurance, however, that
the Company will be successful in such efforts or that additional funds will be
available on acceptable terms, if at all.
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PART II -- OTHER INFORMATION
----------------------------
ITEM 1: LEGAL PROCEEDINGS.
-----------------
None.
ITEM 2: CHANGES IN SECURITIES.
---------------------
During the three months ended September 30, 1999, the Company issued, in
transactions qualifying as transactions not involving public offerings
under Section 4(2) of the Securities Act of 1933, as amended (a "private
placement"), 140,529 shares of common stock related to the exercise of
options and warrants outstanding for which the Company received
consideration in the amount of $355,965.
In September 1999, the Company issued $8 million in convertible
debentures due September 2003 and warrants to purchase a total of
1,680,000 shares of the Company's common stock to two institutional
investment funds, both managed by the same institutional investment firm.
The warrants were issued in two classes, the first, or "class A"
warrants, are exercisable to purchase 960,000 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 September 1999, the Company finalized an agreement under which it
acquired 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 exercisable
price of $4.25 per share as consideration for the option.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
-------------------------------
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
ITEM 5: OTHER INFORMATION.
-----------------
(a) Exhibits.
None.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits.
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. (1)
3.2 Certificate of Decrease and Elimination of Series B Convertible
Preferred Stock filed on June 29, 1999. (3)
3.3 Certificate of Decrease of Series A Convertible Preferred Stock
filed on June 29, 1999. (3)
3.4 Certificate of Correction filed on February 18, 1999. (3)
3.5 Certificate of Amendment of Amended and Restated Certificate of
Incorporation filed on June 29, 1999. (3)
3.6 Securities Purchase Agreement among the Company and the purchasers
listed therein dated as of September 22, 1999, 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, Registration Rights Agreement among
the Company and the purchasers dated as of September 22, 1999. (2)
27.1 Financial Data Schedule
(1) Incorporated by reference to BLSI's Annual Report on Form 10-K/A
for the year ended December 31, 1998.
(2) Incorporated by reference to BLSI's Report on Form 8-K dated
September 23, 1999.
(3) Filed herewith.
12
(b) Reports on Form 8-K: The Registrant filed the following reports on
Form 8-K during the quarter ended September 30, 1999 and through
November 10, 1999.
Date of Report Item Reported
-------------------------------- ---------------------------
July 7, 1999 5, 7
August 6, 1999 5, 7
August 20, 1999 5, 7
September 23, 1999 5, 7
September 30, 1999 5, 7
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOSTON LIFE SCIENCES, INC.
--------------------------
(Registrant)
DATE: November 15, 1999 /s/ S. David Hillson
--------------------
S. David Hillson
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Joseph Hernon
------------------
Joseph Hernon
Chief Financial Officer
(Principal Financial and Accounting
Officer)
14