BOSTON LIFE SCIENCES INC /DE, 10-K/A, 1997-11-19

BOSTON LIFE SCIENCES INC /DE
10-K/A, 1997-11-19
PHARMACEUTICAL PREPARATIONS

Previous: STANDARD COMMERCIAL CORP, S-4/A, 1997-11-19

Next: BOSTON LIFE SCIENCES INC /DE, 10-Q, 1997-11-19

<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

FORM 10K/A

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

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

COMMISSION FILE NUMBER 0-6533

BOSTON LIFE SCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 87-0277826
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

31 NEWBURY STREET, SUITE 300 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, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)

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 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/A or any amendment to
this Form 10-K/A. [_]

Based on the last sales price of the Registrant's Common Stock as reported
on the Nasdaq Small Cap Market on March 24, 1997, the aggregate market value
of the 117,849,919 outstanding shares of voting stock held by nonaffiliates of
the Registrant was $77,339,009.

As of March 24, 1997, there were 123,833,944 shares of the Registrant's
Common Stock issued and outstanding and Warrants to purchase 5,716,502 shares
of Common Stock issued and outstanding.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART I

ITEM 1. BUSINESS.

FORWARD-LOOKING STATEMENTS

The description of the business of Boston Life Sciences, Inc. ("BLSI" or the
"Company") that follows contains certain forward-looking statements on the
Company's prospects for its pharmaceutical development activities and results
of operations based on current management expectations. For a description of
meaningful factors which could cause future results to differ materially from
such expectations, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part II of this Annual Report on Form
10-K for the fiscal year ended December 31, 1996.

OVERVIEW

BLSI 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. The Company was incorporated in Delaware in 1972
under the name Greenwich Pharmaceuticals Incorporated ("Greenwich"). Effective
June 15, 1995, Greenwich merged with a privately-held company named Boston
Life Sciences, Inc. (the "Merger"). Greenwich survived the Merger and changed
its name to Boston Life Sciences, Inc. The Company's principal executive
offices are located at 31 Newbury Street, Suite 300, Boston, Massachusetts,
and its telephone number is (617) 425-0200.

In general, the Company's corporate strategy is to (i) fund the early
development of its compounds in preclinical development and (ii) enter into
corporate partnering arrangements with established pharmaceutical or
biotechnology companies to support the continued development of its compounds
and the marketing of any products as and to the extent they receive government
approval. Additionally, since the Company does not currently own any
laboratory or manufacturing facilities, it contracts for such services and
intends to continue to do so.

The Company currently has six technologies under development. Therafectin, a
potential treatment for rheumatiod arthritis, was acquired as a result of the
Merger. The balance of the Company's technologies currently under development
were invented or discovered by researchers working at Harvard University and
its affiliated hospitals ("Harvard and its Affiliates") and have been licensed
to BLSI.

PRODUCTS IN CLINICAL TRIALS

1. Therafectin(R) (AMIPRILOSE HCL)

THERAFECTIN is a synthetic small molecule developed for the treatment of
Rheumatoid Arthritis which has undergone extensive preclinical and clinical
testing in which the molecule has been demonstrated to be safe and extremely
well-tolerated. A New Drug Application ("NDA") was initially filed with the
FDA in 1993 by Greenwich. Rheumatoid Arthritis affects approximately 2.5
million individuals in the U.S. It is estimated that the total U.S. market for
Rheumatoid Arthritis drug sales is approximately $1.5 billion per year.

Subsequent to the Merger, the Company completed a review of the THERAFECTIN
preclinical and clinical data provided by Greenwich, including the
Investigational New Drug ("IND") and New Drug Application ("NDA") filings,
correspondence between Greenwich and the Food and Drug Administration ("FDA"),
and the transcripts of the Arthritis Advisory Committee meetings. The Company
sought input from outside independent regulatory affairs consultants and
reviewed such preclinical and clinical data with certain of Greenwich's
scientific and regulatory affairs personnel. Based on its preliminary
analysis, the Company concluded that there was sufficient evidence of
therapeutic efficacy and that further investigation of the clinical strategy
of THERAFECTIN was warranted. To this end, the Company assembled a panel
comprised of expert academic clinical rheumatologists (the "Expert Panel") and
enlisted the aid of medical, regulatory, and statistical consultants to assist
in the formulation of a clinical strategy for THERAFECTIN. The Company held a
consensus meeting with the entire Expert Panel and other consultants to
discuss such strategy (including potential protocols for any possible
additional clinical study) for THERAFECTIN.

1
<PAGE>

Based on input from the Expert Panel as well as its own analysis, the
Company initiated a Phase III trial in March 1996. The trial is designed to
closely resemble and replicate the successful results of Greenwich's Phase III
RA-9 trial. RA-9 was a 200 patient, double-blind trial conducted by Greenwich
which demonstrated that THERAFECTIN was more effective than placebo with
statistical significance, starting at about week six and extending through the
end of the twelve week trial. The Company's longer, 20 week double-blind,
placebo-controlled trial is expected to enroll approximately 220 patients.
Initially expected to be conducted at approximately 10-15 centers across the
United States, the number of sites was increased to 25 centers in January
1997. The Company expects to complete enrollment in March 1997 which should
result in completion of the trial in the third quarter of 1997.

The Company believes that a successful clinical trial will demonstrate, to
the extent required, the efficacy of THERAFECTIN. If the trial is successful,
the Company intends to submit an amendment to the pending NDA with the goal of
attaining marketing approval for THERAFECTIN from the FDA. There can be no
assurances, however, that the FDA will approve THERAFECTIN based on successful
completion of the current clinical trial, or if THERAFECTIN is approved, that
the Company will be able to successfully manufacture, market, and distribute
THERAFECTIN.

2. Altropane(TM) to Diagnose Parkinson's Disease

Altropane is a /123/I-based nuclear medicine imaging agent that the Company
believes may be useful in the diagnosis of Parkinson's Disease prior to the
onset of specific symptoms. Since administration of currently available
therapies in the early stages of Parkinson's Disease may delay the progression
of the disease, early definitive diagnosis may be of substantial benefit.
Parkinson's Disease ("PD") afflicts about 250,000-500,000 Americans and about
4 million individuals worldwide. The number of individuals having PD is
expected to grow substantially as life expectancy grows worldwide. PD is a
chronic, irreversible neurodegenerative disease generally afflicting those
over 50. It is caused by a marked decrease in the number of dopamine terminals
in specific areas of the brain. Inadequate production of dopamine causes the
classic PD symptoms of resting tremor, muscle retardation, and rigidity.

In July 1996, the Company completed a physician-sponsored Phase I/II study
of Altropane. In the Phase I portion of the study, Altropane was administered
to ten healthy normal volunteers in order to determine safety and brain image
quality. The Phase II portion of the study was designed to test Altropane's
ability to detect changes in the number of dopamine transporters in the brain
in nine patients with clinically diagnosed PD. The study was carried out at
the Massachusetts General Hospital ("MGH") under the guidance of Dr. Alan
Fishman, chief of nuclear medicine at the MGH.

The Company believes that the results from this study showed that Altropane
is a safe, accurate, and convenient agent to image the dopamine transporter
system in the brain. Quantitative data from this study also showed that the
number of dopamine transporters in the affected region of the brain can be
obtained within 90 minutes of injection. The use of Altropane together with
SPECT brain scanning appeared to demonstrate a greater than 70% loss of
dopamine transporters in patients with mild clinical disease and an even
greater loss in patients with more severe disease. In one patient in whom the
diagnosis of PD was in dispute, physicians using Altropane were able to
demonstrate that the patient did not in fact have PD.

Based upon the results of the physician sponsored Phase I/II study, the
Company filed an IND application in November 1996 seeking permission to
conduct full scale clinical trials. In January 1997, the FDA notified the
Company that it could proceed with the trials. The Company plans to initiate
its corporate clinical trial in the second quarter of 1997. The Company plans
to perform a small phase I study to confirm the results of the previous
physician-sponsored study, and then to proceed with its phase II and phase III
studies simultaneously. The Company expects to complete its clinical testing
program by the end of 1997 although there can be no assurance that this timing
in fact will be met.

In October 1996, the Company acquired the rights to a technetium-based
imaging agent called Technepine for the potential diagnosis of PD. The Company
believes that Technepine could eventually supplement Altropane

2
<PAGE>

in the PD diagnostic market and thus represents a "second generation"
radioimaging agent for the diagnosis of PD. Technetium has potential
advantages over 123I as a radioligand for imaging because of its longer half-
life, lower production costs, and ease of use. The Company believes that it
should attempt to maintain its potential lead position with Altropane in the
PD diagnostic market, and therefore has decided to invest in the development
of newer and hopefully improved versions of Altropane. Technepine is in the
early stages of preclinical development and substantial work needs to be
completed prior to the commencement of human clinical testing.

PRECLINICAL DEVELOPMENT PROGRAMS

1. Inhibition of MHC Class II Expression

Autoimmune diseases are characterized by the production of antibodies
directed against the body's own tissues, and the consequent destruction of
those tissues by the body's immune cells. Central to the pathogenesis of these
diseases is the expression of MHC (Major Histocompatibility Complex) class II
DR molecules on the surface of antigen-presenting cells that are found within
the tissues that are attacked in autoimmune disease. The cause of this
expression of the MHC DR molecules is not known but it is apparent that the
expression of these molecules plays a role in triggering the immune system to
attack these tissues. The Company is seeking to develop a means to
specifically inhibit MHC DR expression. Inhibition of DR expression might
provide a specific treatment for autoimmune diseases, and because of its
specificity, this treatment might be relatively free of side effects.

Currently, the treatment of autoimmune disease consists of administering
nonspecific anti-inflammatory drugs, or in the most severe cases, nonspecific
immunosuppressives. These drugs, particularly steroids and the
immunosuppressives, are dangerous medications. The side effects of steroids
are particularly severe, and consist of bloating, muscle wasting,
osteoporosis, cataract formation, and psychosis. Therefore, there is a great
need for a specific treatment that addresses the underlying pathology in
autoimmune diseases.

In June of 1995, the Company entered into a Research and Development
collaboration with the U.K. company, Zeneca Pharmaceuticals, Inc. ("Zeneca")
under which Zeneca has been screening its small molecule collection for an
inhibitor of the Company's transcription factors. If such an inhibitor is
identified, Zeneca will take the compound through its preclinical development
program and into the clinic, if warranted. Under the terms of the agreement,
the Company has received funding from Zeneca for an initial two year period
expiring in June 1997. Zeneca holds a product development option which it may
exercise, at a cost of $300,000, at any time prior to the expiration of the
agreement. The Company is currently considering a request from Zeneca to
extend the option period. If Zeneca exercises its product development option,
the Company will receive payments totaling up to $7.5 million if Zeneca
attains certain product development milestones, as defined. The Company is
also entitled to receive royalties from the sale of any products originating
from the collaboration. There can be no assurances, however, that Zeneca will
exercise its product development option, or if Zeneca does exercise its
option, that the Company will receive any milestone or royalty payments, or
that any products will result from the collaboration.

2. Antiangiogenesis Factor (Troponin)

Troponin is a naturally occurring factor that inhibits new blood vessel
formation. Originally derived from cartilage and, therefore, initially called
Cartilage-Derived Inhibitor, this inhibiting factor proved to be a protein
called Troponin. Angiogenesis (new blood vessel formation) plays a key role in
the growth and spread of solid tumors throughout the body because cancerous
tumors require new blood vessels in order to grow and metastasize. The Company
intends to develop Troponin for the treatment of solid tumors and other
diseases of neovascularization, including rheumatoid arthritis and numerous
eye diseases. BLSI's collaborating scientists at The Children's Hospital
Corporation of Boston ("Children's") have successfully purified and cloned
this protein, and the Company is presently having recombinant Troponin
manufactured on a subcontract basis.

In September 1996, an experiment completed in an animal model of
angiogenesis indicated that Troponin appeared to significantly inhibit
angiogenesis. In the experiment, fibroblast growth factor (FGF) was implanted

3
<PAGE>

into the eyes of mice to stimulate angiogenesis in the cornea. The mice were
then treated for six days with subcutaneous injections of Troponin. At the end
of the six day experiment, the extent of corneal blood vessel formation was
measured in control and treated animals. Compared to control animals, there
was significantly less new corneal blood vessel formation in animals treated
with Troponin. The Company believes that this experiment demonstrates that
subcutaneous administration of its recombinant anti-angiogenic factor is able
to inhibit blood vessel formation in a standard animal model of angiogenesis.

In January 1997, additional testing indicated that Troponin significantly
inhibited tumor growth in mice. In the experiment, human prostate tumors were
implanted subcutaneously into the backs of mice and allowed to grow to a
uniform size. Half the mice were then treated with Troponin for 28 days during
which time the growth of the tumors were measured. The other half of the mice
served as untreated controls. In the untreated control mice, tumors continued
to grow in a linear fashion, reaching approximately four times their original
volume after 28 days. In contrast, treated mice exhibited an approximate 75%
inhibition in the growth of their tumors. Furthermore, treated mice
demonstrated no significant growth in their tumors after approximately
fourteen days of treatment, while the tumors in the untreated mice continued
to grow at a rapid rate throughout the 28 day period.

The Company believes that the results of this experiment represent one of
the first times that a recombinantly-produced, systemically-administered
native human anti-angiogenic protein has inhibited tumor growth, apparently by
inhibiting the tumor's blood supply, thereby providing evidence of its
potential usefulness as a treatment for metastatic cancer. The Company plans
to expand on these results, to optimize the dose and administration schedule,
and to initiate the preclinical studies necessary for the filing of an IND.
The Company's objective is to file an IND in 1998 and to initiate clinical
trials as early as possible thereafter.

3. Axogenesis Factor 1 (AF-1)

Axogenesis Factor 1 (AF-1) is a nerve growth factor that appears to be the
only peptide identified to date that promotes axon outgrowth from central
nervous system (CNS) cells. This property is significant since the zone of
partial injury surrounding the central necrotic zone of a stroke contains live
but damaged nerve cells that have lost their axons. AF-1 would potentially
salvage these partially injured cells, resulting in some recovery of function.
The same phenomena occurs in brain injury and in spinal cord trauma. The
Company hopes that AF-1 could provide the first truly "regenerative" treatment
for these conditions.

Since the discovery of AF-1, the Company's collaborating scientists believe
that they have purified AF-1, and are in the process of sequencing the
molecule. AF-1 is a peptide made up of six amino acids, which should make it
relatively simple to manufacture using conventional peptide production
techniques. Following amino acid sequencing of AF-1, the Company believes that
quantities sufficient for in vitro and in vivo testing could be made without
difficulty and at a reasonable price. This material will then be tested in an
animal model of spinal cord injury and stroke. If the animal models are
successful, then reformulation to maximize crossing of the blood-brain barrier
would have to be done prior to the filing of an IND. The Company believes that
an IND could be filed within three years although there can be no assurance to
that effect.

The Company believes that AF-1 could prove effective for the treatment of
acute CNS injury such as that occurring after stroke, brain trauma, and spinal
cord injury. The rationale for pursuing these indications is that AF-1 acts by
promoting growth of nerve cell projections. These projections are the most
sensitive to injury and they regress if the nerve cell is stressed but still
alive. Thus the cells on the periphery of the injury may still be alive but
their axons have regressed. The Company expects that AF-1 might promote the
regrowth of these axons and presumably allow them to reestablish physiologic
connections with neighboring cells although there can be no assurance that it
will do so.

The annual incidence of stroke in the U.S. is approximately 500,000 with
more than 3,000,000 stroke survivors currently alive in the U.S. The incidence
of traumatic brain injury is approximately 50,000. The incidence of spinal
cord injury is approximately 10,000 cases. Treatment for these conditions is
presently limited

4
<PAGE>

to hemodynamic support, steroids to reduce inflammation, and, in the case of
stroke, the correction of predisposing hematological abnormalities.

4. C-MAF

In June 1996, the Company acquired the rights to a recently-discovered
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. The Company believes 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 the prestigious biological
journal Cell. When C-MAF was inserted into Th1 cells, they transformed
themselves into Th2 cells. The Company's 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 to C-MAF, a second factor, called NIP-45, has been discovered
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 yield a powerful therapeutic product for the treatment of severe
autoimmune diseases, although there can be no assurance in this regard.

The approach to the 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. The Company expects to identify and collaborate with
a corporate partner in the development of such a small molecule inhibitor.

COLLABORATIVE RESEARCH AGREEMENTS

Most of the Company's technologies currently under development were invented
or discovered by researchers working at Harvard and its Affiliates. With
respect to all of its technologies, the Company has funded the research and
development of these technologies through a variety of sponsored research and
licensing agreements with the collaborating institution. The Company
anticipates that it will continue to fund its research and development work in
this manner by entering into sponsored research agreements, licensing
agreements, and contracts with certain contract research organizations.

Each of the Company's collaborative research agreements, primarily with
Harvard and its Affiliates, is managed by a sponsoring scientist and/or
researcher who has his or her own independent affiliation with the
collaborating institution. In addition, the Company may enter into consulting,
advisory, and related arrangements with other scientific, research and
development professionals whom the Company believes can assist the Company in
the development of its technologies. 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

5
<PAGE>

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, 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., Associate Professor of Psychobiology, Harvard
Medical School

PETER MELTZER, PH.D., President, Organix, Inc., Woburn, MA

VLADIMIR TORCHILIN, PH.D., Head of the Chemistry Program, Center for Imaging
and Pharmaceutical Research and Associate Professor of Radiology, Harvard
Medical School

LICENSING AGREEMENTS

The Company has entered into a number of exclusive worldwide licenses to
patent applications covering the technologies currently under development.
These licenses are secured through the collaborating institutions where such
technologies were invented or discovered, 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
the attainment of 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 resulting
products by the Company or its sublicensees. The Company also has a first
option to license additional technologies invented or discovered during the
course of any related research programs funded by the Company. There can be no
assurance that such research will lead to the discovery of new technologies or
that the Company will be able to obtain a license with respect to such newly
discovered technologies on acceptable terms, if at all.

PATENTS

The Company's patent strategy has been to aggressively pursue patent
protection for compounds and technologies in the development pipeline. The
ultimate goal has been to obtain broad patent protection for the compounds and
technologies under development and the relating medical indications of those
technologies. BLSI has also aggressively pursued similar international patent
protection to the extent available for certain compounds and technologies, and
has filed patent applications covering these compounds and technologies in
most major industrialized countries.

There can be no assurance that patent applications owned by, or licensed to,
the Company will be issued or that, if issued, the Company's patents will be
valid or that they will provide the Company with meaningful protection against
competitors or with a competitive advantage. There can be no assurance that
the Company will not need to acquire licenses under patents belonging to
others for technology potentially useful or necessary to the Company and there
can be no assurance that such licenses will be available to the Company, if at
all, on terms acceptable to the Company. Moreover, there can be no assurance
that any patent issued to or licensed by the Company will not be infringed
upon or circumvented by others. In particular, if the Company is unable to
obtain issuance of a patent with broad claims, a competitor may be able to
design a treatment based on a treatment that is covered by valid patent
claims.

Much of the Company's know-how and technology may not be patentable. To
protect its rights, the Company requires employees, consultants, advisors and
collaborators to enter into confidentiality agreements. There can be no
assurance, however, that these agreements will provide meaningful protection
for the Company's trade secrets, know-how or other proprietary information in
the event of any unauthorized use or disclosure. In addition, the Company's
business may be adversely affected by competitors who independently develop
competing technologies, especially if the Company obtains no, or only narrow,
patent protection.

6
<PAGE>

CORPORATE ALLIANCES

SCIENTIFIC ADVISORY BOARD

BLSI has organized a Scientific Advisory Board, which currently consists of
six members (the "Scientific Advisors"). The Scientific Advisors have
extensive experience in fields related to BLSI's fields of research. The
Scientific Advisors may be asked to review and evaluate the research programs
of the Company, to advise it with respect to technical matters in fields in
which it is involved, and to recommend personnel to the Company.

The Scientific Advisors are employed by or have consulting agreements with
other entities, some of which may conflict or compete with the Company, and
they are expected to devote only a portion of their time to the Company. With
the exception of the members of the Scientific Advisory Board who are also
consultants to the Company or its subsidiaries, the Scientific Advisors are
not expected to participate actively in the Company's activities or in the
development of its technologies. Certain of the institutions with which the
Scientific Advisors are affiliated may have regulations or policies which
limit the ability of such personnel to act as parttime consultants or in other
capacities for a commercial enterprise. Regulations or policies not in effect
and adopted in the future might limit the ability of the Scientific Advisors
to consult with the Company. The loss of the services of certain of the
Scientific Advisors could have a material adverse effect on the Company.

Furthermore, no inventions or processes discovered by the Scientific
Advisors will become the property of BLSI but will remain the property of such
persons' fulltime employers, other than those inventions or processes that may
be covered by consulting agreements between the Company and such advisors. In
addition, the institutions with which the Scientific Advisors are affiliated
may make available the research services of their scientific and other skilled
personnel, including the Scientific Advisors, to entities other than the
Company pursuant to sponsored research agreements with others. Under such
sponsored research agreements, such institutions may be obligated to assign or
license patents and other proprietary information which may result from
research sponsored by an entity other than BLSI, including research performed
by a Scientific Advisor for a competitor of the Company.

The members of the Scientific Advisory Board and a composite of their
professional background and affiliations is as follows:

HARRY BREM, M.D. Dr. Brem is Professor of Neurosurgery, Ophthalmology, and
Oncology at Johns Hopkins University, and Director of Neurosurgical Oncology
at Johns Hopkins Hospital.

JOSEPH P. VACANTI, M.D. Dr. Vacanti is Associate Professor of Surgery,
Harvard Medical School, and Director of the Laboratory for Transplantation and
Tissue Engineering at the Children's Hospital, Boston.

ALEXANDER M. KLIBANOV, PH.D. Dr. Klibanov is Professor of Chemistry at
Massachusetts Institute of Technology.

MICHAEL A. MOSKOWITZ, M.D. Dr. Moskowitz is Professor of Neurology, Harvard
Medical School, and Associate Neurologist at Massachusetts General Hospital.

7
<PAGE>

PHILIP S. PORTOGHESE, PH.D. Dr. Portoghese is Professor of Medicinal
Chemistry and Pharmacology, University of Minnesota.

VLADIMIR TORCHILIN, PH.D. Dr. Torchilin is the Head of the Chemistry Program
at the Center for Imaging and Pharmaceutical Research, and Associate Professor
of Radiology at the Harvard Medical School.

MANUFACTURING

The Company currently has no manufacturing facilities for either clinical
trial or commercial quantities of any of its products. To date, the Company
has obtained the limited amount of products required for clinical trials from
contract manufacturing companies. The Company intends to establish contract
manufacturing arrangements with experienced firms for the supply of material
for both clinical trials and commercial sale. As a result of these contract
manufacturing arrangements, the Company will depend upon third parties to
produce and deliver products in accordance with all applicable regulations.
There can be no assurance that such parties will perform their obligations in
a timely fashion and that any failures by such third parties would not cause a
delay in clinical trials, commercialization of products, or the ability to
supply the market.

OBTAINING FDA AND OTHER GOVERNMENTAL APPROVALS

The Company's products and its manufacturing and research activities are and
will be subject to varying degrees of regulation 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. Prior to
marketing, any product developed by the Company must undergo an extensive
regulatory approval process which includes preclinical and clinical testing of
such product to demonstrate its safety and efficacy. This regulatory process
can require many years and the expenditure of substantial resources. Data
obtained from preclincal and clinical trials are subject to varying
interpretations, which can delay, limit or prevent FDA approval.

None of the Company's product candidates, preclinical compounds and
technologies have been approved for marketing by the FDA or its international
equivalent. The Company cannot predict all relevant regulatory requirements or
issues that may arise with respect to its current and future products. Changes
in existing laws, regulations, policies or interpretations of prior events
could prevent the Company or its licensees, licensors or collaborators from,
or could affect the timing of, achieving compliance with regulatory
requirements including obtaining current and future regulatory clearances,
where necessary. Federal and state laws, regulations and policies are always
subject to change with possible retroactive effect, and depend heavily on
administrative policies and interpretations. There can be no assurance that
any changes with respect to Federal and state laws, regulations and policies,
and particularly, with respect to FDA and other such regulatory bodies, will
not have a material adverse effect on the Company.

The process of obtaining FDA clearances can be time-consuming and expensive,
and there is no assurance that such clearances will be granted or that the FDA
review process will not involve delays that materially and adversely affect
the testing, marketing and sale of the Company's products. Similar delays may
be encountered in foreign countries. Moreover, regulatory clearances for new
products, even if granted, may include significant limitations on the uses for
which such products may be marketed. In addition, even if regulatory approval
is obtained, any marketed product and its manufacturer are subject to
continual review and any discovery of previously unrecognized problems with a
product or manufacturer could result in suspension or limitation of approvals.
There can be no assurance that any clearances that are required, once
obtained, will not be withdrawn or that compliance with other regulatory
requirements can be maintained to the degree that the Company may have already
complied.

COMPETITION

The pharmaceutical industry is highly competitive and research on the causes
of, and possible treatments for, cancer, Parkinson's Disease, central nervous
system disorders and autoimmune diseases are developing rapidly. The Company
competes with a number of pharmaceutical and biotechnology companies which
have

8
<PAGE>

financial, technical and marketing resources significantly greater than those
of the Company. Some companies with established positions in the
pharmaceutical industry may be better equipped than the Company to develop and
market products based on the application of new technologies for the treatment
of these diseases. A significant amount of research in the field is also being
carried out at universities and other not-for-profit research organizations.
These 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 use of technology that they
have developed. These institutions may also market competitive commercial
products on their own or through joint ventures and will compete with the
Company in recruiting highly qualified scientific personnel.

The Company is pursuing areas of product development in which there is a
potential for extensive technological innovation in relatively short periods
of time. The Company's competitors may succeed in developing products that are
more effective than those of the Company. Rapid technological change or
developments by others may result in the Company's potential products becoming
obsolete or non-competitive.

EMPLOYEES

As of March 24, 1997, the Company employed six individuals full-time, of
whom two hold Ph.D. or M.D. degrees. None of the Company's employees is
covered by a collective bargaining agreement.

RESTATEMENT OF 1996 NET LOSS PER COMMON SHARE TO REFLECT RECENT SEC ANNOUNCEMENT
REGARDING CERTAIN TREATMENT OF PREFERRED STOCK TRANSACTIONS.

In a recent 1997 announcement, the staff of the Securities and Exchange
Commission ("SEC") indicated that when preferred stock is convertible at a
discount from the then current common stock market price, the discounted amount
reflects at that time an incremental yield, e.g. a "beneficial conversion
feature", which should be recognized as a return to the preferred shareholders.
In January and February 1996, the Company issued 239,910 shares of Series C
Convertible Preferred Stock and warrants to purchase 599,775 shares of common
stock at $6.708 per share resulting in net proceeds of approximately $20.6
million. The preferred stock was immediately convertible and the warrants were
immediately exercisable. Based on the market price of the Company's common stock
on the various dates of issuance, the preferred stock had a beneficial
conversion feature of $28,389,846 at such point in time. In addition, the
warrants had a fair value of $5,998,107. The beneficial conversion feature and
the value attributable to the warrants was not included in the calculation of
net loss per common share in the Company's previously filed Form 10-K for the
year ended December 31, 1996. Because of the SEC announcement, the Company has
restated its 1996 net loss per common share information to reflect such
announcement. The net effect of the restatement represents a non-cash charge in
the determination of net loss available to common shareholders.

ITEM 2. PROPERTIES.

The Company's administrative offices are located in Boston, Massachusetts.
The lease on this 3,500 square foot facility expires on June 30, 1999 and can
be renewed by the Company for additional three year periods. In addition, the
Company has 4,000 square feet of warehouse space in Horsham, Pennsylvania.
This lease will terminate on March 31, 1998. 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 not a party to any legal proceedings and is not aware of any
threatened litigation that could have a material adverse effect on the
Company's business, results of operations or financial position.

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

Not applicable.

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.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
S. David Hillson, Esq... 56 Chairman of the Board of Directors, President
and Chief Executive Officer
Marc E. Lanser, M.D..... 48 Executive Vice President and Chief Scientific Officer
Steve H. Kanzer, Esq.... 34 Secretary
Joseph Hernon, CPA...... 37 Chief Financial Officer
</TABLE>

S. DAVID HILLSON, ESQ. Mr. Hillson has been President and Chief Executive
Officer and a member of the Board since the Merger with Greenwich in June
1995. He also has served as Chairman of the Board of Directors since September
1996. Prior to the Merger, Mr. Hillson served as President, Chief Executive
Officer

9
<PAGE>

and a member of the Board of Directors of Old BLSI from November 1994. Prior
to his responsibilities at Old BLSI, from January to November 1994, Mr.
Hillson was Senior Vice President of Josephthal, Lyon & Ross, Incorporated in
the research and investment banking divisions and from November 1992 to
January 1994, Mr. Hillson was the Senior Managing Director, investment
banking, at The Stamford Company in New York City. From October 1990 until
October 1992, Mr. Hillson was an Executive Vice President of the asset
management division of Mabon Securities. Earlier in his 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 a NIH funded research project in immunology and
received a 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.

STEVE H. KANZER, CPA, ESQ. Mr. Kanzer has been Secretary and a member of the
Board since June 1995. Prior to the Merger, Mr. Kanzer held the same position
with Old BLSI from October 1992. Mr. Kanzer is a Senior Managing Director--
Head of Venture Capital of Paramount Capital Investments, LLC, a firm
specializing in organizing and providing capital for biotechnology
acquisitions and startups, and Senior Managing Director of Paramount Capital,
Inc., a New York-based investment banking firm. Mr. Kanzer is also a member of
the board of directors of Atlantic Pharmaceuticals, Inc. and Endorex
Corporation, both publicly traded biopharmaceutical companies, and Chairman of
Discovery Laboratories, Inc., a privately held biopharmaceutical company. From
October 1991 until January 1995, Mr. Kanzer was the General Counsel of The
Castle Group Ltd., a privately held biotechnology venture capital firm. Prior
to joining Paramount Capital Investments, LLC and Paramount Capital, Inc. in
1991, Mr. Kanzer was an associate at Skadden, Arps, Slate, Meagher & Flom in
New York City from 1988 to 1991. Mr. Kanzer received his J.D. from New York
University School of Law and a B.B.A. from Baruch College.

JOSEPH P. HERNON, CPA. Mr. Hernon has been Chief Financial Officer since
August 1996. 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.

10
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's Common Stock is traded on The Nasdaq SmallCap Market under the
symbol BLSI. From October 28, 1994, until the Merger was completed in June
1995, the Company's Common Stock was traded on the Nasdaq Small Cap Market
under the symbol GRPI. Prior to October 28, 1994, the Company's Common Stock
was traded on The Nasdaq National Market under the symbol GRPI.

The following table sets forth the high and low sale prices for the
Company's Common Stock by quarter for 1995 and 1996, as reported by Nasdaq.
These prices reflect inter-dealer quotation, without retail mark-up, mark-
downs or other fees or commissions, and may not necessarily represent actual
transactions.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter......................................... $ 11/32 1/8
Second Quarter........................................ 1 9/32 1/4
Third Quarter......................................... 1 1/8 9/16
Fourth Quarter........................................ 1 11/32
1996
First Quarter......................................... $2 $ 5/8
Second Quarter........................................ 1 51/64 7/8
Third Quarter......................................... 1 1/4 11/16
Fourth Quarter........................................ 15/16 17/32
</TABLE>

On March 24, 1997, the closing sales price for the Common Stock was $ 21/32
per share. The number of stockholders of record of Common Stock on March 24,
1997 was approximately 7,046. The Company has not paid any dividends and does
not expect to pay dividends in the foreseeable future.

11
<PAGE>

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.
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------
PERIOD FROM INCEPTION
(OCTOBER 16, 1992)
THROUGH DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1992 1993 1994
--------------------- ------------ ------------
<S> <C> <C> <C>
Statement of Operations Data
Revenues..................... $ 0 $ 0 $ 0
Operating expenses........... 294,805 2,260,874 2,609,068
Net loss..................... (295,388) (2,254,898) (2,596,872)
Net loss per share........... (0.02) $ (0.08) $ (0.07)
Weighted average number of
shares outstanding.......... 15,200,442 28,939,403 39,339,212
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------
PERIOD FROM
INCEPTION
(OCTOBER 16, 1992)
THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1996
------------ ------------ ------------------
<S> <C> <C> <C>
Statement of Operations Data
Revenues....................... $ 416,940 $ 200,000 $ 616,940
Operating expenses............. 13,462,322 7,047,399 25,674,468
Net loss (*)................... (14,149,151) (5,996,147) (25,292,456)
Net loss per share (*)......... $ (0.22) $ (.06)
Weighted average number of
shares outstanding............ 63,479,928 98,802,218
</TABLE>

*The net loss available to common shareholders for 1996,
including preferred stock preferences of $34,387,953,
totaled $40,384,100. Net loss per common share for 1996,
including $0.35 attributable to preferred stock preferences,
totaled $0.41 (see Note 9 to Financial Statements).
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets.......... $ 314,136 $ 483,835 $ 806,502 $6,585,101 $26,153,130
Working capital....... (262,725) (145,178) (1,518,571) (297,303) 20,383,735
Long-term debt........ 0 0 0 658,735 0
Stockholders' equity
(deficit)............ (246,663) 42,374 (906,100) 1,185,802 24,100,406
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.

The 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 current Phase III clinical
trial for THERAFECTIN and the pending Phase I/II/III clinical trial for
Altropane, (ii) scientific data collected on the Company's 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, (iv) decisions made by the FDA or
other regulatory bodies with respect 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.

12
<PAGE>

RESULTS OF OPERATIONS

Overview

On June 15, 1995, Greenwich Pharmaceuticals Incorporated ("Greenwich")
acquired all of the outstanding common stock of Boston Life Sciences, Inc.
("Old BLSI") and merged with and into Old BLSI. Effective June 15, 1995, the
merged company was renamed "Boston Life Sciences, Inc." (the "Company") and
the management and Board of Directors of Old BLSI assumed the management of
the Company. The acquisition of Old BLSI by Greenwich has been treated as a
recapitalization of Old BLSI with Old BLSI as the acquiror (reverse
acquisition). The historical financial statements prior to June 15, 1995 are
those of Old BLSI.

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 anticipates that its (i) research and
development and (ii) general and administrative costs will continue to
increase as the Company attempts to gain regulatory approval for the
commercial introduction of its proposed products. At December 31, 1996, the
Company is considered a development stage enterprise as defined in Statement
of Financial Accounting Standards No. 7.

Restatement of 1996 Net Loss per Common Share to Reflect Recent SEC Announcement
Regarding Certain Treatment of Preferred Stock Transactions.

In a recent 1997 announcement, the staff of the Securities and Exchange
Commission ("SEC") indicated that when preferred stock is convertible at a
discount from the then current common stock market price, the discounted amount
reflects at that time an incremental yield, e.g. a "beneficial conversion
feature", which should be recognized as a return to the preferred shareholders.
In January and February 1996, the Company issued 239,910 shares of Series A
Convertible Preferred Stock and warrants to purchase 599,775 share of common
stock at $6.708 per share resulting in net proceeds of approximately $20.6
million. The preferred stock was immediately convertible and the warrants were
immediately exercisable. Based on the market price of the Company's common stock
on the various dates of issuance, the preferred stock had a beneficial
conversion feature of $28,389,846 at such point in time. In addition, the
warrants had a fair value of $5,998,107. The beneficial conversion feature and
the value attributable to the warrants was not included in the calculation of
net loss per common share in the Company's previously filed Form 10-K for the
year ended December 31, 1996. Because of the SEC announcement, the Company has
restated its 1996 net loss per common share information to reflect such
announcement. The net effect of the restatement represents a non-cash charge in
the determination of net loss available to common shareholders.

Year Ended December 31, 1996 and 1995

The Company's net loss was $5,996,147 during the year ended December 31,
1996 as compared with $14,149,151 during the year ended December 31, 1995. Net
loss per common share decreased to $.06 per share during 1996 as compared with
$.22 per share during 1995. The Company's operating loss for the year ended
December 31, 1995 totaled $13,045,382 which included approximately $10.4
million of purchased research and development in-process which was expensed in
conjunction with the Company's Merger with Greenwich on June 15, 1995.
Exclusive of the purchased research and development in-process, the Company's
operating loss increased from $2,623,838 for the year ended December 31, 1995
to $6,847,399 for the year ended December 31, 1996. The higher operating loss
in 1996 was primarily due to (i) lower revenues, as further described in the
next paragraph, (ii) costs associated with the preparation and initiation of
the Phase III clinical trial for THERAFECTIN(R) (amiprilose HCl) which began
in March 1996, (iii) an increase in the number of technologies licensed to the
Company by its collaborative partners and the resulting incurrence of
licensing fees and research and development expenses, and (iv) higher costs
associated with being a publicly traded company during the entire year ended
December 31, 1996 as compared to only a portion of 1995.

The net loss available to common shareholders for the 1996 period, including
preferred stock preferences of $34,387,953, totaled $40,384,100. Net loss per
common share for the 1996 period, including $0.35 attributable to preferred
stock preferences, totaled $0.41. In January and February 1996, the Company
completed a private placement of Series A 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 of $28,389,846
and the warrants had a fair value of $5,998,107.

Revenue was $200,000 during the year ended December 31, 1996 as compared
with $416,940 during the year ended December 31, 1995. Revenue for both
periods includes approximately $200,000 and $167,000, respectively,
attributable to the research and development agreement entered into by the
Company and Zeneca in 1995. Revenue for the year ended December 31, 1995 also
includes the recognition of $250,000 of revenue which had previously been
deferred until the conclusion of negotiations regarding the treatment of such
amounts with a potential corporate partner.

Research and development expenses were $2,408,734 during the year ended
December 31, 1996 as compared with $1,446,298 during the year ended December
31, 1995. This increase was primarily due to (i) the Company incurring a
higher level of research and development expenses for its existing
technologies in 1996 as compared to 1995 related to the continued advancement
of its clinical efforts, (ii) the initiation of new Company sponsored research
contracts with its collaborators for the development of technologies licensed
to the Company in 1996 by these partners, and (iii) an increase in the number
of personnel supporting the Company's research and development activities. The
majority of the Company's research and development expenses were, and will
continue to be in 1997, sponsored research obligations paid to Harvard
University and its affiliated hospitals.

Licensing fees were $390,000 during the year ended December 31, 1996 as
compared with $71,250 during the year ended December 31, 1995. The increase
primarily related to $340,000 of licensing fee payments for three new
technologies licensed to the Company in 1996 as compared to licensing fee
payments of $35,000 for two technologies initially licensed to the Company in
1995. In addition to an initial licensing fee payment, the

13
<PAGE>

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 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) (amiprilose HCI) related expenses were $1,546,791 during the
year ended December 31, 1996 as compared with zero during the comparable 1995
period. The Company commenced its Phase III clinical trial for THERAFECTIN(R)
in March 1996. Before any commercially viable product from Therafectin(R) may
be developed, and any revenue generated therefrom, the Company currently
expects that approximately $1.5 million dollars of additional future expense
will be necessary. There can be no assurance, however, that such expenditure
will result in the approval of any compounds or that approval will ever be
able to be obtained by the Company.

General and administrative expenses were $2,701,874 during the year ended
December 31, 1996 as compared with $1,523,230 during the year ended December
31, 1995. This increase was primarily due to the Company (i) expanding its
operations, including its headcount, and (ii) incurring higher costs,
primarily legal, public relations, and other professional services expenses,
associated with being a publicly traded company during the entire year ended
December 31, 1996 as compared with only a portion of the year ended
December 31, 1995.

Interest income was $1,151,810 during the year ended December 31, 1996 as
compared with interest income of $51,120 during the year ended December 31,
1995. The increase in 1996 related to higher average cash and investment
balances associated with the Company raising net proceeds of approximately
$25.6 million from two private placements completed in 1996. Interest expense
totaled $300,558 during the year ended December 31, 1996 as compared to
$1,154,889 during the year ended December 31, 1995. Interest expense incurred
in 1995 included amounts related to (i) the issuance of $2.175 million of
notes payable during the first quarter of 1995, (ii) the issuance of $1.0
million of convertible subordinated debentures in the fourth quarter of 1995,
and (iii) the amortization of the discount and debt issuance costs associated
with both debt instruments. Interest expense incurred in 1996 included amounts
related to (i) the notes payable, which were fully repaid on April 1, 1996,
(ii) the convertible debentures, which were converted to common stock in the
first quarter of 1996, and (iii) the amortization of the discount and debt
issuance costs on both debt instruments during the period outstanding in 1996.

At December 31, 1996, the Company had net deferred tax assets of
approximately $15.6 million for which a full valuation allowance has been
established. As a result of its concentrated efforts on research and
development, and Therafectin(R) related expenses, the Company has a history of
incurring net operating losses and expects to incur additonal net operating
losses for the foreseeable future. Accordingly, management believes that, at
the present time, it is appropriate to conclude that it is more likely than
not that the future benefits related to the deferred tax assets will not be
realized and, therefore, has 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, 1995 and 1994

The Company's net loss was $14,149,151 during the year ended December 31,
1995 as compared with $2,596,872 during the year ended December 31, 1994. Net
loss per common share increased to $.22 per share during 1995 as compared with
$.07 per share during 1994. The Company's operating loss for the year ended
December 31, 1995 totaled $13,045,382 as compared with $2,609,068 for the year
ended December 31, 1994. The higher operating loss in 1995 primarily related
to the completion of the Merger, effective June 15, 1995, of Old BLSI with and
into Greenwich. In connection with the Merger, $10,421,544 of the purchase
price was ascribed to purchased research and development in-process. Based on
the lack of available evidence supporting that the appropriate clinical
efficacy was demonstrated for the compounds acquired from Greenwich, exclusive

14
<PAGE>

of THERAFECTIN, and the excessive costs and time estimated to develop these
compounds, management does not expect to continue to pursue the research or
development of these compounds. Accordingly, the $10,421,544 ascribed to
purchased research and development was expensed in the statement of operations
for the year ended December 31, 1995. Approximately $3.5 million of the
purchase price was ascribed to acquired technology, representing the
approximate value of THERAFECTIN, whereby the appropriate efficacy has been
demonstrated and management does expect to continue the research and
development of such technology.

Revenue was $416,940 during the year ended December 31, 1995 as compared
with zero during the year ended December 31, 1994. This increase was due to
(i) the recognition of $250,000 of previously deferred revenue upon the
resolution of certain unresolved issues with a potential corporate partner and
(ii) the recognition of revenue attributable to the research and development
agreement entered into by the Company and Zeneca.

Research and development expenses were $1,446,298 during the year ended
December 31, 1995 as compared with $1,711,759 during the year ended December
31, 1994. This decrease was primarily due to the Company decreasing research
funding on one of its programs in 1995 while increasing funding for another,
and incurring pre-clinical development expenses in 1994 for a completed
project which did not recur in 1995. The majority of the Company's research
and development expenses were sponsored research obligations paid to Harvard
University and its affiliated hospitals.

Licensing fees were $71,250 during the year ended December 31, 1995 as
compared with zero during 1994. This increase was due to the Company executing
certain licensing agreements during 1995 as compared with not executing any
licensing agreement during 1994. 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.

General and administrative expenses were $1,523,230 during the year ended
December 31, 1995 as compared with $897,309 during the year ended December 31,
1994. This increase was primarily due to the Company expanding its operations,
including its headcount, and incurring higher costs associated with being a
publicly traded company during the second half of 1995.

Interest expense was $1,154,889 during the year ended December 31, 1995 as
compared with interest expense of zero during the year ended December 31,
1994. The interest expense in 1995 related to the issuance of (i) $2,175,000
of notes payable in the first quarter of 1995 and (ii) $1,000,000 of
convertible subordinated debentures in the fourth quarter of 1995, neither of
which were outstanding in 1994. Interest expense also included the
amortization of the discount and debt issuance costs associated with both debt
transactions. Interest income was $51,120 during the year ended December 31,
1995 as compared to $12,196 during the year ended December 31, 1994. The
increase in 1995 related to higher cash balances associated with the Company
raising net proceeds of $3,175,000 from debt financing transactions completed
in 1995.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has primarily satisfied its working capital
requirements from the sale of the Company's securities through private
placements. In January and February 1996, the Company raised approximately
$20.6 million of net proceeds by completing a private placement of units
consisting of (i) shares of its Series A Convertible Preferred Stock and (ii)
warrants to purchase shares of the Company's common stock. In June 1996, the
Company raised approximately $5.0 million of net proceeds by completing a
private placement of 5 million shares of common stock. For additional
information related to the private placements, see Notes 8 and 9 of the Notes
to the Consolidated Financial Statements included in this Form 10-K.

In addition, the Company has raised working capital through the issuance of
notes payable and convertible debentures. In March 1995, Old BLSI issued
$2,175,000 of units consisting of notes payable, common stock and warrants to
purchase shares of Old BLSI's Series B Preferred Stock. The $2,175,000 of
notes payable became obligations of the Company and the warrants exercisable
for shares of Old BLSI Series B Preferred Stock were exchanged for warrants
exercisable for shares of the Company's common stock. In the second quarter of
1996, the Company repaid all accrued interest plus the remaining principal of
$1,525,000 of the notes payable. In

15
<PAGE>

December 1995, the Company also issued $1,000,000 of convertible subordinated
debentures. During the first quarter of 1996, the entire $1,000,000 of
convertible subordinated debentures were converted into 1,566,047 shares of
common 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, 1996, the Company had available cash, cash equivalents, and
investments of approximately $22 million and working capital of approximately
$20 million. The Company believes that the level of financial resources
available at December 31, 1996 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.

16
<PAGE>

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 financial statements listed in
the index on page 44 present fairly, in all material respects, the financial
position of Boston Life Sciences, Inc. (a development stage enterprise) and
its subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 and for the period from inception (October 16, 1992)
through December 31, 1996, in conformity with generally accepted accounting
principles. 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 financial
statements in accordance with generally accepted auditing standards 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 the opinion expressed above.

As discussed in Note 9 to the consolidated financial statements, the Company
has restated its 1996 net loss per common share calculation to comply with a
recently announced Securities and Exchange Commission Staff position on
accounting for convertible securities having beneficial conversion features.

PRICE WATERHOUSE LLP

Boston, Massachusetts

February 18, 1997, except as to the last paragraph of Note 9, which is as of
November 19, 1997

17
<PAGE>

BOSTON LIFE SCIENCES, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 8,580,206 $ 2,125,838
Short-term investments....................... 12,995,022 248,320
Prepaid sponsored research and development
expenses.................................... 431,000 117,902
Other current assets......................... 430,231 321,201
------------ ------------
Total current assets....................... 22,436,459 2,813,261
Fixed assets, net.............................. 100,997 52,046
Stock issuance costs and deferred financing
fees.......................................... -- 211,794
Acquired technology............................ 3,500,000 3,500,000
Other assets................................... 115,674 8,000
------------ ------------
Total assets............................... $ 26,153,130 $ 6,585,101
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable and long-
term debt................................... $ 61,752 $ 1,516,333
Accounts payable and accrued expenses........ 1,907,912 1,511,171
Deferred revenue............................. 83,060 83,060
------------ ------------
Total current liabilities.................. 2,052,724 3,110,564
------------ ------------
Long-term debt................................. -- 658,735
------------ ------------
Common stock subject to redemption............. -- 1,630,000
------------ ------------
Commitments and contingencies (Note 12)
Stockholders' equity:
Series A Convertible Preferred stock, $.01
par value, 264,000 shares authorized;
133,610 shares outstanding at December 31,
1996........................................ 1,336 --
Common stock, $.01 par value; 175,000,000
shares authorized; 111,048,538 and
83,327,474 shares issued and outstanding at
December 31, 1996 and 1995, respectively.... 1,110,485 833,275
Additional paid-in capital..................... 48,521,331 19,915,199
Deferred compensation.......................... (240,290) (266,363)
Deficit accumulated during development stage... (25,292,456) (19,296,309)
------------ ------------
Total stockholders' equity................. 24,100,406 1,185,802
============ ============
Total liabilities and stockholders' equi-
ty........................................ $ 26,153,130 $ 6,585,101
============ ============
</TABLE>

18
<PAGE>

BOSTON LIFE SCIENCES, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
FROM INCEPTION
(OCTOBER 16,
1992) TO
DECEMBER 31,
1996 1995 1994 1996
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Revenues................ $ 200,000 $ 416,940 $ -- $ 616,940
----------- ------------ ----------- ------------
Operating Expenses
Research and develop-
ment................. 2,408,734 1,446,298 1,711,759 7,022,880
Licensing fees........ 390,000 71,250 -- 633,683
Therafectin related... 1,546,791 -- -- 1,546,791
General and adminis-
trative.............. 2,701,874 1,523,230 897,309 6,049,570
Purchased research and
development
in-process........... -- 10,421,544 -- 10,421,544
----------- ------------ ----------- ------------
7,047,399 13,462,322 2,609,068 25,674,468
----------- ------------ ----------- ------------
Loss from opera-
tions.............. (6,847,399) (13,045,382) (2,609,068) (25,057,528)
Interest expense........ (300,558) (1,154,889) -- (1,459,392)
Interest income......... 1,151,810 51,120 12,196 1,224,464
----------- ------------ ----------- ------------
Net loss.............. $(5,996,147) $(14,149,151) $(2,596,872) $(25,292,456)
=========== ============ =========== ============
Net loss per common
share................ $ (0.06) $ (0.22) $ (0.07)
=========== ============ ===========
Weighted average
shares outstanding... 98,802,218 63,479,928 39,339,212
=========== ============ ===========
Calculation of net loss
available to common
shareholders (restated
Note 9)...............
Net loss.............. $(5,996,147) $(14,149,151) $(2,596,872)
Preferred stock
preferences (Note 9). (34,387,953) -- --
----------- ------------ -----------
Net loss available to
common shareholders.. $40,384,100) $(14,149,151) $(2,596,872)
=========== ============ ===========

Calculation of net loss
per common share
(restated Note 9)
Net loss.............. $ (0.06) $ (0.22) $ (0.07)
Preferred stock
preferences (Note 9). (0.35) -- --
----------- ------------ -----------
Net loss per common
share................ $ (0.41) $ (0.22) $ (0.07)
=========== ============ ===========
Weighted average
common shares
outstanding.......... 98,802,218 63,479,928 39,339,212
=========== ============ ===========

</TABLE>

19
<PAGE>

BOSTON LIFE SCIENCES, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 16, 1992) TO DECEMBER 31, 1996

<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK
--------------------
NUMBER OF
SHARES PAR VALUE
--------- ---------
<S> <C> <C>
Issuance of common stock to founders.....................
Net loss.................................................
Balance at December 31, 1992.............................
Issuance of option to purchase common stock to a
licensor................................................
Issuance of common stock to a consultant.................
Issuance of common stock, net issuance costs of
$500,988................................................
Net loss.................................................
Balance at December 31, 1993.............................
Issuance of common stock, net issuance costs of
$406,916................................................
Issuance of common stock upon exercise of option.........
Net loss.................................................
Balance at December 31, 1994.............................
Issuance of common stock and warrants related to bridge
financing...............................................
Issuance of common stock and warrants upon merger........
Issuance of common stock in exchange for minority
interest in certain subsidiaries........................
Issuance of common stock upon exercise of options........
Issuance of common stock subject to redemption...........
Expiration of valuation periods for common stock subject
to redemption...........................................
Issuance of convertible debt.............................
Deferred compensation related to stock options and
warrants granted........................................
Compensation expense related to stock options and
warrants................................................
Net loss.................................................
-------- -------
Balance at December 31, 1995............................. -- --
Issuance of preferred stock, net issuance costs of
$3,397,158.............................................. 239,911 2,399
Conversion of preferred stock into common stock.......... (106,301) (1,063)
Issuance of common stock, net issuance costs of $42,537..
Issuance of common stock upon conversion of convertible
debentures..............................................
Issuance of common stock upon exercise of warrants and
options.................................................
Expiration of valuation periods for common stock subject
to redemption...........................................
Deferred compensation related to stock options granted...
Compensation expense related to stock options............
Net loss.................................................
-------- -------
Balance at December 31, 1996............................. 133,610 $ 1,336
======== =======
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
- ----------------------- ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER OF PAID IN DEFERRED DEVELOPMENT EQUITY
SHARES PAR VALUE CAPITAL COMPENSATION STAGE (DEFICIT)
- ----------- ---------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
15,200,442 $ 152,004 $ (103,279) $ -- $ 48,725
-- -- -- (295,388) (295,388)
- ----------- ---------- ----------- ------------ ------------
15,200,442 152,004 (103,279) (295,388) (246,663)
-- -- 62,433 -- 62,433
39,132 391 7,109 -- 7,500
15,457,129 154,572 2,319,430 -- 2,474,002
-- -- -- (2,254,898) (2,254,898)
- ----------- ---------- ----------- ------------ ------------
30,696,703 306,967 2,285,693 (2,550,286) 42,374
9,873,548 98,735 1,549,349 -- 1,648,084
953,779 9,538 (9,224) -- 314
-- -- -- (2,596,872) (2,596,872)
- ----------- ---------- ----------- ------------ ------------
41,524,030 415,240 3,825,818 (5,147,158) (906,100)
1,983,661 19,837 779,556 799,393
35,197,362 351,973 14,251,975 14,603,948
1,000,000 10,000 (10,000) --
375,668 3,757 181,570 185,327
3,246,753 32,468 (32,468) --
180,600 180,600
411,002 411,002
327,146 $(327,146) --
-- 60,783 60,783
-- -- (14,149,151) (14,149,151)
- ----------- ---------- ----------- --------- ------------ ------------
83,327,474 833,275 19,915,199 (266,363) (19,296,309) 1,185,802
-- -- 20,591,443 -- -- 20,593,842
18,642,761 186,428 (185,365) --
5,472,741 54,727 4,952,236 5,006,963
1,566,047 15,660 561,929 577,589
2,039,515 20,395 481,410 501,805
1,764,872 1,764,872
439,607 (439,607) --
465,680 465,680
(5,996,147) (5,996,147)
- ----------- ---------- ----------- --------- ------------ ------------
111,048,538 $1,110,485 $48,521,331 $(240,290) $(25,292,456) $ 24,100,406
=========== ========== =========== ========= ============ ============
</TABLE>

21
<PAGE>

BOSTON LIFE SCIENCES, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
FROM INCEPTION
(OCTOBER 16,
1992) TO
DECEMBER 31,
1996 1995 1994 1996
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... (5,996,147) $ (14,149,151) $ (2,596,872) $ (25,292,456)
Adjustments to
reconcile net loss to
net cash used for
operating activities:
Purchased research and
development in-
process............... -- 10,421,544 -- 10,421,544
Compensation charge
related to options and
warrants granted...... 465,680 60,783 -- 596,396
Amortization and
depreciation.......... 297,839 962,252 9,557 1,275,637
Loss on disposal of
fixed assets.......... -- 15,589 -- 15,589
Changes in assets and
liabilities:
(Increase) decrease in
prepaid sponsored
research and
development
expenses............. (313,098) (86,089) 23,579 (431,000)
Decrease (increase) in
other current
assets............... (109,030) 189,713 (4,312) 65,297
(Decrease) increase in
accounts payable and
accrued expenses..... 396,741 (298,896) 554,092 960,247
(Decrease) Increase in
deferred revenue..... -- (166,940) 250,000 83,060
----------- ------------- ------------ -------------
Net cash used for
operating activities.. (5,258,015) (3,051,195) (1,763,956) (12,305,686)
----------- ------------- ------------ -------------
Cash flows from
investing activities:
Cash acquired through
the merger with
Greenwich
Pharmaceuticals,
Inc................... -- 1,758,037 -- 1,758,037
Purchase of fixed
assets................ (107,384) (27,115) (3,247) (182,691)
Proceeds from sale of
fixed assets.......... -- 9,800 -- 9,800
Increase in other
assets................ (107,674) -- -- (115,674)
Short term investments:
Purchases.............. (22,324,741) (248,320) -- (22,573,061)
Sales and maturities... 9,578,039 -- -- 9,578,039
----------- ------------- ------------ -------------
Net cash provided by
(used for) investing
activities............ (12,961,760) 1,492,402 (3,247) (11,525,550)
----------- ------------- ------------ -------------
Cash flows from
financing activities:
Proceeds from issuance
of common stock....... 5,686,177 2,190,927 2,055,314 12,926,143
Proceeds from issuance
of preferred stock.... 20,872,170 -- -- 20,872,170
Proceeds from issuance
of notes payable...... -- 2,175,000 -- 2,585,000
Proceeds from issuance
of convertible debt... -- 1,000,000 -- 1,000,000
Principal payments of
notes payable......... (1,628,062) (696,653) -- (2,734,715)
Payment of note
issuance costs........ -- (399,702) -- (399,702)
Payment of stock
issuance and merger
transaction costs..... (256,142) (731,773) (371,096) (1,837,454)
----------- ------------- ------------ -------------
Net cash provided by
financing activities.. 24,674,143 3,537,799 1,684,218 32,411,442
----------- ------------- ------------ -------------
Net increase (decrease)
in cash and cash
equivalents............ 6,454,368 1,979,006 (82,985) 8,580,206
Cash and cash
equivalents, beginning
of period.............. 2,125,838 146,832 229,817 --
----------- ------------- ------------ -------------
Cash and cash
equivalents, end of
period................. $ 8,580,206 $ 2,125,838 $ 146,832 $ 8,580,206
=========== ============= ============ =============
Supplemental cash flow
disclosures:
Interest paid.......... $ 198,739 $ 66,815 -- 268,916
Noncash transactions
Described in
footnotes............. 7, 8, 9 2, 7, 10
</TABLE>

22
<PAGE>

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. (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. On June 15, 1995, Greenwich
Pharmaceutical Incorporated ("Greenwich") acquired all of the outstanding
capital stock of Boston Life Sciences, Inc. ("Old BLSI"). Effective June 15,
1995, the merged company was renamed "Boston Life Sciences, Inc." (the
"Company") and the management and Board of Directors of Old BLSI assumed
management of the Company (Note 2).

During the period from inception (October 16, 1992) through December 31,
1996, the Company has devoted substantially all of its efforts to business
planning, raising financing, consummating the merger with Greenwich, the
research and development of its technologies and corporate partnering
activities. 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, Ara Pharmaceutical, Inc., Acumed Pharmaceutical, Inc.,
Boston Life Sciences International, Inc., Coda Pharmaceutical, Inc. and
NeuroBiologics, Inc., are wholly-owned. A minority shareholder owns 10% of the
sixth subsidiary, Procell Pharmaceutical, Inc. ("Procell"). For the period
from inception (October 16, 1992) through December 31, 1996, each subsidiary
has incurred losses which are included in the Company's consolidated statement
of operations. 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, 1996 and periodically throughout the year, the Company had cash
balances 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. At December 31, 1996,
approximately $168,000 of cash was maintained in a restricted escrow account.

Investments, which are classified as available-for-sale, are recorded at
fair value which approximates cost. Investments consist of United States
treasury and agency bonds, and domestic and foreign corporate bonds (Note 3).
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

At December 31, 1996, the carrying amounts of cash, cash equivalents, short-
term investments and notes payable approximate fair value because of their
high credit quality, or the short maturity or holding period of these
instruments.

Revenue Recognition and Concentration of Customers

In June 1995, the Company entered into a research and development
collaboration agreement for a certain specified technology with a certain
pharmaceutical company. Under the terms of the agreement, which expires in
June 1997, the pharmaceutical company provided funds to support the research
and development of the

23
<PAGE>

BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

specified technology. Payments received are being recognized as revenue
ratably over the term of the agreement which the Company believes corresponds
with the manner in which the work is performed.

In August 1995, the Company resolved the remaining issues associated with
the deferral of $250,000 of revenue associated with a potential corporate
partner and recognized such revenue in 1995.

Fixed Assets

Furniture and equipment are stated at cost. Depreciation is provided using
the straight-line method based on the estimated useful lives of the assets.
Maintenance and repair expenditures are charged to expense as incurred.

Licensing Fees, 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
under these licensing agreements 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. In connection with its merger with Greenwich, the Company
acquired technology related to Therafectin, a treatment for rheumatoid
arthritis. Greenwich had previously conducted clinical trials which management
believes demonstrated the efficacy of the technology. Accordingly, costs
incurred in 1996 related to Therafectin have been separately stated in the
consolidated statement of operations. The Company did not incur any
Therafectin related costs in 1995 subsequent to the Merger.

Acquired Technology

In connection with the Merger, $3,500,000 of the purchase price was ascribed
to acquired technology. Concurrent with such acquisition, the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("FAS
121"). Adoption of the Standard did not have any impact on the Company's
financial condition, results of operations, or cash flows. FAS 121 requires
the assessment of whether there has been impairment whenever events or changes
in circumstances indicate that the carrying amount of the technology may not
be recoverable. The Company evaluates potential impairment by comparing
anticipated undiscounted future operating income from expected product sales
of the technology with its carrying value. The factors considered by
management in performing this assessment include the expected cost to obtain
product approval as well as the effects on expected product sales of demand,
competition, and other economic factors. At December 31, 1996, management
believes that there has been no impairment in the value of the technology.

24
<PAGE>

BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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
statement and tax bases of assets and liabilities. A valuation allowance is
established to reduce deferred tax assets to the amount expected to be
realized.

Net Loss Per Share

Net loss per share has been calculated by dividing net loss, after giving
effect to the beneficial conversion feature and warrants issued in connection
with convertible preferred stock (Note 9), by the weighted average number of
common shares outstanding during the period. All common stock equivalents have
been excluded from the calculation of weighted average common shares outstanding
since their inclusion would be antidilutive.

Accounting for Stock-Based Compensation

The Company applies APB Opinion No. 25 and related interpretations in
accounting for its Stock-Based Compensation plans and related equity
issuances. Under these standards, no compensation expense is recognized for
stock options issued to employees and directors ("qualified employees")
provided the exercise price for one share of common stock equals the market
price of the Company's common stock at the date of grant. Non-qualified
options issued at less than the market price result in the recognition of
compensation expense equal to the intrinsic value (difference between market
price and exercise price). Options and warrants issued to non- employees are
subject to a fair value based method of accounting under which compensation
cost is measured at the grant date based on the value of the award. The value
is determined using the Black-Scholes pricing model and the resulting expense
is recognized over the service period which is usually the vesting period.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). This standard became effective in 1996 and requires
that stock options and related equity instruments issued to qualified
employees be valued on the same fair value methodology as applied to issuances
to non-employees. The Company has elected to implement FAS 123 on a disclosure
basis only (Note 10).

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses for the periods
presented. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation. These reclassifications had no
effect on net loss for 1995 and 1994.

2. ACQUISITION AND MERGER WITH GREENWICH

The acquisition of Old BLSI by Greenwich (the "Merger") has been treated as
a recapitalization of Old BLSI with Old BLSI as the acquiror (reverse
acquisition). The historical financial statements prior to June 15, 1995 are
those of Old BLSI. Historical stockholders' equity of Old BLSI prior to the
Merger has been retroactively restated for the equivalent number of shares
received in the Merger after giving effect to any

25
<PAGE>

BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

difference in par value of Greenwich's and Old BLSI's common stock, with an
offset to paid-in capital. Under the terms of the Merger, the outstanding
shares of common stock of BLSI were exchanged for approximately 43.5 million
shares of the Company's common stock. The total purchase price, including
approximately 35.2 million shares of the Company's common stock (with a value
of approximately $14.3 million), transaction costs, and the value ascribed to
outstanding Greenwich stock options and warrants, was approximately $15.5
million. Under the purchase method used to account for this transaction, the
purchase price was allocated based on the estimated fair value of the assets
and liabilities acquired at the date of acquisition. Based upon management's
review and the results of an independent appraisal, $3.5 million of the
purchase price was ascribed to acquired technology (Note 1). In addition,
approximately $10.4 million of the purchase price was allocated to acquired
research and development in-process, whereby appropriate efficacy had not been
demonstrated and no alternative future use identified. Accordingly, such
amount was expensed in the 1995 statement of operations. The results of
operations of Greenwich have been consolidated with the Company's results from
June 15, 1995.

The following unaudited pro forma summary presents the consolidated results
of operations assuming that the merger of Greenwich and Old BLSI (the
"Merger") had occurred on January 1, 1994. No adjustments are required to
conform the accounting policies of Old BLSI and Greenwich. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what would have occurred had the transaction been effected on
the date indicated above or of results which may occur in the future. In
addition, for purposes of preparing the pro forma information, the $10.4
million charge for in-process research and development resulting from the
acquisition has been excluded.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, 1994 (UNAUDITED)
-----------------------------------------
OLDBLSI GREENWICH TOTAL
------------ ------------ -------------
<S> <C> <C> <C>
Revenues....................... $ -- $ 414,081 $ 414,081
============ ============ =============
Net loss....................... $ (2,596,872) $ (8,158,682) $ (10,755,554)
============ ============ =============
Loss per share................. $ (0.14)
============ ============ =============
<CAPTION>
YEAR ENDED DECEMBER
31, 1995 (UNAUDITED)
-----------------------------------------
OLDBLSI GREENWICH TOTAL
------------ ------------ -------------
<S> <C> <C> <C>
Revenues....................... $ 416,940 $ -- $ 416,940
============ ============ =============
Net loss....................... $ (3,727,607) $ (229,984) $ ( 3,957,591)
============ ============ =============
Loss per share................. $ (0.05)
============ ============ =============
</TABLE>

3. INVESTMENTS CONSIST OF THE FOLLOWING AT DECEMBER 31:

<TABLE>
<CAPTION>
1996 1995
----------- --------
<S> <C> <C>
U.S. Treasury obligations........................... $ 3,003,800 $248,320
U.S. Agency obligations............................. 6,987,591 --
Corporate debt obligations.......................... 3,003,631 --
----------- --------
$12,995,022 $248,320
=========== ========
</TABLE>

The contractual maturities of the Company's investments at December 31, 1996
is as follows: less than one year--$3,534,448; one to five years--$5,396,063;
six to ten years--$4,064,511. Actual maturities may differ from contractual
maturities because the issuers of these securities may have the right to
prepay obligations without penalty. Realized gains, based on the specific
identification method, totaled $28,223 in 1996 and are included in interest
income in the statement of operations.

26
<PAGE>

BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. FIXED ASSETS CONSIST OF THE FOLLOWING AT DECEMBER 31:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
(YEARS) 1996 1995
----------- -------- -------
<S> <C> <C> <C>
Office furniture and equipment.............. 3-5 $ 85,511 $27,513
Leasehold improvements...................... 3 42,924 --
Computer equipment.......................... 3-5 31,920 25,919
Laboratory equipment........................ 3-5 28,593 28,132
-------- -------
188,948 81,564
Less Accumulated depreciation............... 87,951 29,518
-------- -------
$100,997 $52,046
======== =======
</TABLE>

Depreciation and amortization expense on fixed assets for the years ended
December 31, 1996, 1995 and 1994 was approximately $58,000, $14,000, and
$10,000, respectively, and $88,000 for the period from inception (October 16,
1992) through December 31, 1996.

5. RESEARCH AND DEVELOPMENT AGREEMENT

In June 1995, the Company entered into a research and development
collaboration agreement with a pharmaceutical company in the United Kingdom to
develop small molecule inhibitors of Major Histocompatibilty Complex (MHC)
Class II gene transcription to treat autoimmune diseases. Under the terms of
the agreement, which expires in June 1997, the pharmaceutical company provided
funds to support the research and development of the specified technology.
Revenues recognized related to this portion of the agreement totaled $200,000
and $166,940 during 1996 and 1995, respectively. The pharmaceutical company
holds a product development option which it may exercise, at a cost of
$300,000, at any time prior to the expiration of the agreement. If the
pharmaceutical company exercises its product development option and attains
certain product development milestones, as defined, the Company will receive
milestone payments as defined. The Company is also entitled to receive
royalties from the sale of any products originating from the collaboration.

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES CONSIST OF THE FOLLOWING AT DECEMBER
31:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Accrued professional fees................................ $ 735,639 $ 809,120
Accounts payable and other accrued expenses.............. 388,740 333,925
Accrued Therafectin related expenses..................... 338,500 --
Accrued research and development expenses................ 172,500 228,331
Accrued licensing fees................................... 165,000 --
Accrued payroll related.................................. 107,533 --
Accrued interest......................................... -- 139,795
---------- ----------
$1,907,912 $1,511,171
========== ==========
</TABLE>

27
<PAGE>

BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. NOTES PAYABLE AND DEBT CONSISTS OF THE FOLLOWING AT DECEMBER 31:

<TABLE>
<CAPTION>
1996 1995
------- ----------
<S> <C> <C>
12% senior bridge notes, due March 1996 unsecured,
net of unamortized discount of $105,153.................... $ --- $1,419,847
7% convertible debenture, due December 1997, unsecured,
net of unamortized discount of $409,593.................... -- 590,407
Note payable, imputed interest rate of 13.26%, monthly
installments
of $9,900, expiring on July 1997, unsecured................ 61,752 164,814
------- ----------
61,752 2,175,068
Less-current portion........................................ 61,752 1,516,333
------- ----------
Total long-term debt...................................... $ -- $ 658,735
======= ==========
</TABLE>

Senior Bridge Notes

In March 1995, Old BLSI executed unit purchase agreements with certain
investors whereby Old BLSI raised an aggregate amount of $2,175,000 through a
bridge loan financing. The unit purchase agreements included 652,500 shares of
Old BLSI common stock and warrants to purchase 1,305,000 shares of Old BLSI
Series B Preferred Stock. In connection with the Merger, such warrants were
exchanged for warrants to purchase 7,837,612 shares of the Company's common
stock exercisable at prices ranging from $.15 to $1.00 per share (Note 10).

In connection with the financing, the placement agent, a related party (Note
13), received fees totaling approximately $320,000 and warrants currently
exercisable for 982,122 shares of common stock at prices ranging from $.01 to
$1.10 per share (Note 10).

In connection with the issuance of the notes, approximately $603,000 of the
issuance price was ascribed to the common stock and warrants included in the
unit purchase and was treated as a discount on the notes. In addition, the
warrants issued to the placement agent were ascribed a value of approximately
$53,000 and were included in deferred financing fees. The debt discount and
deferred financing fees were amortized over the term of the notes which were
repaid in full on March 31, 1996.

In connection with the Company extending the maturity of certain of the
notes by approximately 60 days, the Company issued additional warrants to
purchase 231,750 shares of the Company's common stock with an exercise price
of $.35 per share (Note 10). The ascribed value of approximately $143,000 for
these additional warrants was recorded as interest expense in 1995.

7% Convertible Subordinated Debentures

In December 1995, the Company issued, pursuant to an investment agreement
(the "Subscription Agreement") under Regulation S of the Securities Act of
1933, an aggregate of $1 million of 7% convertible subordinated debentures
maturing in December 1997. The debentures were convertible, at the option of
the holder, into shares of common stock at sixty-five percent of the market
price of the common stock at the time of conversion. In addition, the
Subscription Agreement contained certain restrictions on the sale of common
stock issued upon conversion of the debentures. Because of the significant
discount associated with the conversion feature, an estimated value of
approximately $411,000 was ascribed to such feature and was recorded as a debt
discount and additional paid-in capital. The debt discount was initially being
amortized over the period the debentures were expected to be outstanding. In
February 1996, the holder elected to convert all of the 7% convertible
debentures into 1,566,047 shares of common stock. Approximately $70,000 of the
debt discount was

28
<PAGE>

BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

amortized and recognized as interest expense in 1996 prior to the conversion.
The remaining unamortized discount and related deferred financing fees were
included in the carrying amount of the debt upon conversion.

8. COMMON STOCK

Common Stock Subject to Redemption

In September and November 1995, the Company sold, pursuant to investment
agreements (each, individually, the "September Investment Agreements" and the
"November Investment Agreements") under Regulation S of the Securities Act of
1933, an aggregate of approximately 3.2 million shares of common stock
resulting in net proceeds of approximately $1,805,000. Both agreements
provided that, based upon the average price of the Company's common stock
through June 1996 and July 1996 for the September Investment Agreements and
the November Investment Agreements, respectively, (i) the Company was
contingently obligated to issue additional shares of common stock to the
investors, (ii) such investors were contingently obligated to make additional
payments to the Company for shares purchased, and (iii) the Company was
contingently obligated to make repayment to such investors for certain amounts
of the investment. If certain conditions were met, the Company could have been
required to refund amounts in excess of the net proceeds received. Until the
circumstances providing for the possible repayment by the Company of certain
amounts of the equity investment no longer existed, the portion of the net
proceeds which the Company was contingently obligated to repay was classified
as common stock subject to redemption on the Company's balance sheet. The
portion of the equity investment that was no longer subject to possible
repayment was reclassified to stockholders' equity upon the expiration of the
valuation periods as defined in the investment agreements.

In December 1995, $175,000 of the net proceeds subject to redemption was
reclassified to equity concurrent with the expiration of the first valuation
period. During 1996, the Company received approximately $135,000 in additional
payments from the investors based upon the average price of the Company's
common stock for certain periods specified in the agreements. In addition, the
amount of $1,630,000 previously classified as common stock subject to
redemption was reclassified to stockholders' equity.

Common Stock Issuance

In June 1996, the Company completed a private placement of 5 million shares
of common stock which raised approximately $5 million in net proceeds. In
connection with this financing, the Company issued to the placement agent, as
payment for its services, 472,741 shares of common stock and warrants to
purchase 547,274 shares at a price of $1.10 per share (Note 10).

9. PREFERRED STOCK

The Company has authorized 1,000,000 shares of preferred stock of which
264,000 shares have been designated as Series A Convertible Preferred Stock.
The remaining authorized shares have not been designated.

In January and February 1996, the Company raised, through a private placement
of its securities, net proceeds of approximately $20.6 million, net of
approximately $3.4 million of issuance costs. In connection with the private
placement, the Company issued (i) 239,910 shares of Series A Convertible
Preferred Stock and (ii) granted warrants to purchase 5,997,750 shares of common
stock at $.6708 per share (Note 10). The preferred stock was immediately
convertible and the warrants were immediately exercisable. The warrants may be
redeemed at the election of the Company, in whole but not in part, one year
after issuance under certain conditions as defined in the warrant agreements. In
connection with this financing, the Company has granted to the placement agent,
a related party (Note 13), options to acquire 23.991 units with each unit
consisting of 1,000 shares of Series A Convertible Preferred stock and warrants
to purchase 25,000 shares of common stock at a unit exercise price of $110,000.
These options expire in February 2006.

29
<PAGE>

BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Each share of the Series A Convertible Preferred Stock was initially
convertible at any time at the option of the holder into shares of common
stock pursuant to a ratio of 175.3771 shares of common stock for each share of
Series A Convertible Preferred Stock. The conversion ratio was subject to
adjustment on February 28, 1997 if the average fair market value, for the
thirty trading days prior to February 28, 1997 (the "valuation period"), of
the Company's common stock issuable upon conversion of one share of the Series
A Convertible Preferred Stock was worth less than $130. On February 28, 1997,
it was determined that there would be no adjustment to the conversion rate.
Commencing March 1, 1997, the Company may, under certain conditions defined in
the preferred stock agreement, cause the conversion of the preferred stock, in
whole or in part, into common stock.

In a recent 1997 announcement, the staff of the Securities and Exchange
Commission ("SEC") indicated that when preferred stock is convertible at a
discount from the then current common stock market price, the discounted amount
reflects at that time an incremental yield, e.g. a "beneficial conversion
feature", which should be recognized as a return to the preferred shareholders.
Based on the market price of the Company's common stock on the various dates of
issuance, the preferred stock had a beneficial conversion feature of $28,389,846
at such point in time. In addition, the warrants had a fair value of $5,998,107.
The beneficial conversion feature and the value attributable to the warrants was
not included in the calculations of net loss per common share in the Company's
previously filed Form 10-K for the year ended December 31, 1996. Because of the
SEC announcement, the Company has restated its 1996 net loss per common share
information to reflect such announcement. The net effect of the restatement
represents a non-cash charge in the determination of net loss available to
common shareholders.

10. STOCK OPTIONS AND WARRANTS

Stock Option Plans

In connection with the Merger (Note 2), the restated and amended Greenwich
Omnibus Stock Option Plan was adopted on June 15, 1995 and renamed the BLSI
Amended and Restated Omnibus Stock Plan (the "Omnibus Plan"). In connection
with the Merger and in exchange for options to purchase Old BLSI common stock
held by certain employees, officers, consultants, directors and members of the
Scientific Board of Old BLSI which were outstanding on June 15, 1995, the
Omnibus Plan provided for a one-time grant to these individuals of options to
purchase, at an exercise price of $.08 per share, up to 3,997,701 shares of
the Company's common stock. All options granted prior to the merger under the
Greenwich Omnibus Stock Option Plan have expired as of December 31, 1996. In
addition, in connection with the Merger, the amended and restated Greenwich
1990 Non-Employee Directors' Non-Qualified Stock Option Plan was adopted on
June 15, 1995 and renamed the BLSI Amended and Restated 1990 Non-Employee
Directors' Non-Qualified Stock Option Plan (the "Director's Plan", and
together with the Omnibus Plan, the "Amended and Restated Option Plans"). As a
result of the adoption of the Amended and Restated Options Plans, all other
stock options plans of Greenwich and Old BLSI were terminated.

Omnibus Plan

The Omnibus Plan provides for the issuance of both nonqualified stock
options and incentive stock options to employees, officers, consultants and
scientific advisors of the Company. The Omnibus Plan allows for the issuance
of options to purchase up to 9,000,000 shares of the Company's common stock
through April 2005. The Compensation Committee of the Company's Board of
Directors determines the term of each option, 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 (five years for
options granted to holders of more than 10% of the voting stock of the
Company). 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 (110%
of fair market value for options granted to holders of more than 10% of the
voting stock of the Company). Nonqualified stock options may be issued under
the Omnibus Plan at an option price determined by the Compensation Committee
of 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.

In 1995 and 1996, the Company granted, in recognition of services to be
performed by certain employees, consultants and scientific advisors, non-
qualified stock options under the Omnibus Plan. Options granted totaled
756,000 and 304,000 during 1996 and 1995, respectively. The total value
(intrinsic and fair value) of approximately $274,000 and $236,000 ascribed to
the options granted in 1996 and 1995, respectively, was recorded as deferred
compensation and is being charged to operations over the vesting period of the
options which management believes fairly approximates the service period. The
charge to operations for the years ended December 31, 1996 and 1995 totaled
approximately $292,000 and $13,000, respectively.

30
<PAGE>

BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Directors' Plan

The Directors' Plan allows for the issuance of up to 3,000,000 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
25,000 options. Non-qualified stock options granted under the Directors' Plan
generally vest 75% six months from the grant date and the remaining 25% on the
later of six months from the date of grant or December 31st of the year of
grant, and have an exercise price equivalent to 20% of the quoted market price
of the Company's common stock on the date of grant. For new non-employee
Directors, the Directors' Plan also provides for the one-time issuance of
options to purchase 75,000 shares of the Company's common stock at fair market
value at the time of grant with such options vesting over a period of four
years. During 1996, the Directors' Plan was amended to provide for the
granting of additional options at the discretion of the Board of Directors.
All options granted under the Directors' Plan have a term of ten years.
Compensation expense related to the intrinsic value of options issued in 1996
and 1995 totaled approximately $98,000 and $7,500, respectively.

Stock-Based Compensation

If the Company had valued awards to qualified employees on the fair value
methodology proscribed by FAS 123, the Company's net loss and net loss per
share would have equaled the pro forma amounts indicated below.

<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C> <C>
Net income....................... As reported $ (5,996,147) $ (14,149,151)
Pro forma $ (6,507,376) $ (14,962,786)
Earnings per share............... As reported $ (0.06) $ (0.22)
Pro forma $ (0.07) $ (0.24)
</TABLE>

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
used for grants in 1995 and 1996: dividend yield of zero percent; expected
volatility of 80 percent; risk-free interest rates, based on the date of
grant, ranging from 5.38% to 6.46%; and expected lives of 5 years.

A summary of the status of the Company's stock option plans as of December
31, 1996, 1995 and 1994 and changes during the years ending on those dates
[restated for the Merger (Note 2)] is presented below:

<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 6,612,599 $0.23 4,134,520 $0.08 0
Greenwich options
outstanding at date of
merger................. 914,162 1.23
Granted................. 1,743,675 .67 2,532,915 .77 4,940,144 $.08
Exercised............... (928,301) .21 (375,668) .49 0
Forfeited and expired... (267,901) 1.91 (593,330) .97 (805,624) .08
--------- --------- ---------
Outstanding at end of
year................... 7,160,072 .43 6,612,599 .40 4,134,520 .08
========= ===== ========= ===== ========= ====
Options exercisable at
year-end............... 4,755,773 .37 2,511,757 .23 1,440,242 .08
========= ===== ========= ===== ========= ====
Weighted-average fair
value of options
granted during the
year................... $ 0.57 $ 0.53
========= =========
</TABLE>

31
<PAGE>

BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table summarizes information about stock options outstanding
at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXRCISE PRICESE AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.08--$0.22............ 3,280,322 7.8 years $ 0.08 2,676,106 $ 0.08
$0.63--$0.94............ 3,879,750 9.3 years $ 0.73 2,079,667 0.75
--------- ---------
$0.08--$0.94............ 7,160,072 8.6 years $ 0.43 4,755,773 0.37
========= =========
</TABLE>

At December 31, 1996, 453,036 and 2,626,610 shares are available for grant
under the Omnibus Plan and the Director's Plan, respectively.

Other Stock Activity

In July 1995, the minority shareholder in certain of the Company's
subsidiaries exercised his option to exchange his minority ownership into
1,000,000 shares of common stock of the Company. As a result of this exercise,
Ara Pharmaceutical, Inc., Acumed Pharmaceutical, Inc., Coda Pharmaceutical,
Inc., and NeuroBiologics, Inc. became wholly-owned subsidiaries of the
Company.

Warrants

In August 1995, the Company granted 250,000 warrants pursuant to a letter
agreement between the Company and its financial advisor. Such warrants are not
exercisable until January 1, 1997. The warrants were ascribed a value of
approximately $150,000 and were recorded as deferred compensation. These fees
are being amortized over the two-year term of the advisory agreement. The
charge to operations totaled approximately $75,000 and $38,000 in 1996 and
1995, respectively.

In December 1995, the Company granted 231,750 warrants to certain bridge
note holders in connection with the Company extending the maturity of certain
bridge notes (Note 7).

In January and February 1996, the Company granted 6,599,550 warrants in
connection with a private placement of its Series A Preferred Stock (Notes 9
and 13).

In June 1996, the Company granted 547,274 warrants in connection with a
private placement of its common stock (Note 8).

At December 31, 1996, warrants outstanding were as follows:

<TABLE>
<CAPTION>
EXERCISE WARRANTS WARRANTS
DATE PRICE EXERCISED OUTSTANDING EXPIRATION
F ISSUEO PER SHARE IN 1996 AT 12/31/96 DATE
- -------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C>
June 1996..................... $ 1.10 -- 547,274 June 2006
February 1996................. .67 203,525 6,396,025 February 2006
December 1995................. .35 -- 231,750 December 2000
August 1995................... .69 -- 250,000 July 2005
June 1995..................... .01--1.10 18,241 963,881 March 2000
June 1995..................... .23 411,879 575,476 July 1999
June 1995..................... .21 50,872 1,347,129 April 1998
June 1995..................... .15--1.00 315,308 7,522,304 March 2000
------- ----------
999,825 17,833,839
======= ==========
</TABLE>

32
<PAGE>

BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Each warrant is exercisable into one share of common stock. No warrants were
exercised in 1995 or 1994. The weighted average exercise price of warrants
outstanding at December 31, 1996 was $0.54. The Company has reserved
sufficient shares of common stock to meet its stock option and warrant
obligations.

Stockholder Rights Plan

On September 29, 1991, the Board of Directors of Greenwich adopted a
Stockholder Rights Plan (the "Rights Plan"), which was amended during 1994 and
1993 and adopted by the Company in connection with the Merger (Note 2). Under
the Rights Plan, stockholders received as a dividend, for each share of common
stock owned by them, one right (the "Right") to purchase a fractional share of
a new class of preferred stock. With certain exceptions, if a person or group
(the "Acquirer") acquires 80 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 are exercised, 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 dividend was issued to
stockholders of record on October 7, 1991. The Rights will expire in ten years
unless exercised by the holders or redeemed or exchanged by the Company.

11. INCOME TAXES

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

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Federal............................. $ 2,139,000 $ 1,054,000 $ 897,000
State............................... 680,000 348,000 319,000
----------- ----------- ----------
2,819,000 1,402,000 1,216,000
Valuation allowance................. (2,819,000) (1,402,000) (1,216,000)
----------- ----------- ----------
$ -- $ -- $ --
=========== =========== ==========
</TABLE>

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

<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Net operating loss carryforwards............. $ 11,955,000 $ 7,951,000
Capitalized research and development ex-
penses...................................... 4,464,000 5,698,000
Research and development credit
carryforwards............................... 404,000 333,000
Other........................................ 234,000 256,000
------------ -----------
Gross deferred tax assets.................... 17,057,000 14,238,000
Acquired technology.......................... (1,435,000) (1,435,000)
------------ -----------
Net deferred tax assets...................... 15,622,000 12,803,000
Valuation allowance.......................... (15,622,000) (12,803,000)
------------ -----------
$ -- $ --
============ ===========
</TABLE>

The Company has provided a full valuation allowance for its deferred tax
assets since realization of these future benefits is not sufficiently assured.
In the event the Company achieves profitability, these deferred tax assets
will be available to offset future income tax liabilities and expense.
Approximately $7,856,000 of the valuation allowance at December 31, 1996
relates to deferred tax assets acquired in the merger with Greenwich (Note 2).
When the valuation allowance related to these assets is released, the credits
will first be recorded to reduce the carrying value, if any, of acquired
technology purchased in the Merger.

33
<PAGE>

BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Benefit at statutory rate.......... $ (2,099,000) $ (4,952,000) $ (909,000)
State taxes, net of federal bene-
fit............................... (420,000) (220,000) (203,000)
Charge for purchased research and
development acquired from Green-
wich.............................. -- 3,648,000 --
Research and development credit.... (72,000) (41,000) (98,000)
Non-deductible research and devel-
opment expenses................... -- 14,000 34,000
Other.............................. (228,000) 149,000 (40,000)
------------ ------------ ----------
(2,819,000) (1,402,000) (1,216,000)
Benefit of loss not recognized,
increase in valuation allowance... 2,819,000 1,402,000 1,216,000
------------ ------------ ----------
$ -- $ -- $ --
============ ============ ==========
</TABLE>

As of December 31, 1996, the Company has federal net operating loss
carryforwards and research and development credits which may be used to offset
future federal and state taxable income and tax liabilities as follows:
<TABLE>
<CAPTION>
RESEARCH AND
DEVELOPMENT CREDIT
-------------------
NET
YEAR OF OPERATING
EXPIRATION LOSS FEDERAL STATE
---------- ----------- -------------------
<S> <C> <C> <C>
2007................................... $ 226,000 $ 6,000 $ 0
2008................................... 1,977,000 83,000 7,000
2009................................... 14,172,000 106,000 53,000
2010................................... 4,714,000 26,000 33,000
2011................................... 8,745,000 72,000 76,000
----------- --------- ---------
$29,834,000 $ 293,000 $ 169,000
=========== ========= =========
</TABLE>

A portion of the net operating loss carryforwards totaling approximately
$758,000 relates to deductions for the exercise of non-qualified options and
will be credited to additional paid-in capital upon realization.

In connection with the Merger (Note 2), 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.

34
<PAGE>

BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. 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 three years. Approximate future
minimum lease commitments at December 31, 1996 are as follows: 1997--$92,000;
1998--$85,000 and 1999--$42,000.

Total rent expense under noncancelable operating leases was approximately
$100,000, $60,000 and $40,000 during the years ended December 31, 1996, 1995,
and 1994, respectively, and $226,000 for the period from inception (October
16, 1992) through December 31, 1996.

Sponsored Research and Development, and Consulting Agreements

Pursuant to sponsored research and development agreements and consulting
agreements, the Company is committed to make payments totaling approximately
$1.8 million in 1997 and approximately $618,000 in 1998.

Litigation

At December 31, 1996, the Company is not a party to any legal proceedings
and is not aware of any threatened litigation that could have a material
adverse effect on the Company's business, results of operations or financial
position.

13. RELATED PARTY TRANSACTIONS

Placement Agent Fees

The Chief Executive Officer and sole stockholder of the placement agent
("Principal Agent") involved with a significant portion of the Company's prior
equity and debt financings is a significant common stockholder of the Company.
During the three years ended December 31, 1996, compensation to the Principal
Agent, including its designees, were as follows (warrants adjusted on a post-
merger basis):

<TABLE>
<CAPTION>
WARRANTS EXERCISE CASH
DESCRIPTION OF FINANCING ISSUED PRICE PAYMENTS
------------------------ -------- --------- --------
<S> <C> <C> <C>
Senior Bridge Notes (Note 7)................... 982,122 $.01-1.10 $322,000
Old BLSI Series B Preferred stock issuance in
1994.......................................... 987,355 $ .23 $259,000
</TABLE>

In addition, the Principal Agent received options to acquire 23.991 units in
connection with the Company's 1996 private placement of Series A Convertible
Preferred Stock (Note 9). Each unit consists of 1,000 shares of Series A
Convertible Preferred Stock and warrants to purchase 25,000 shares of common
stock at a unit exercise price of $110,000.

Service Agreements with Placement Agent

In August 1995, the Company entered into a two-year financial advisory
services agreement with the Principal Agent. In connection with the agreement,
the Company issued warrants to the Principal Agent for the purchase of 250,000
shares of the Company's common stock (Note 10).

In addition, effective February 1996, the Principal Agent receives a monthly
retainer fee of $2,500 per month and will also receive standard success fees,
on terms to be determined, for corporate partners first introduced to the
Company by the Principal Agent.

35
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Incorporated by reference from the Company's Current Report on Form 8-K
dated July 28, 1995, as amended by the Company's Current Report on Form 8-K/A
dated September 1, 1995.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The table below sets forth the name of each of the Directors and Executive
Officers of the Company. Each of the persons listed below, except for Mr.
Hernon, has been nominated by the Board of Directors to serve as a Director
for the ensuing year.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Colin B. Bier, Ph.D..... 51 Member of the Board of Directors
Edson D. de Castro...... 58 Member of the Board of Directors
Joseph P. Hernon........ 37 Chief Financial Officer
S. David Hillson,
Esq. .................. 57 Chairman of the Board of Directors, President, Chief Executive Officer
Marc E. Lanser, M.D. ... 48 Executive Vice President, Chief Scientific Officer, Director
Steve H. Kanzer, CPA,
Esq. .................. 34 Secretary, Director
Ira W. Lieberman,
Ph.D. ................. 54 Member of the Board of Directors
E. Christopher Palmer,
CPA.................... 55 Member of the Board of Directors
</TABLE>

COLIN B. BIER, PH.D. Dr. Bier has been a member of the Board since February
1996. Since 1990, Dr. Bier has been the Managing Director of ABA BioResearch,
Inc., an independent bioregulatory consulting firm, located in Montreal,
Canada. Dr. Bier is a special advisor to the Mount Sinai Hospital in Montreal,
Canada and is a Lecturer in Pathology, Faculty of Medicine, McGill University.
Dr. Bier is also a member of the Board of Directors of Sparta Pharmaceuticals,
Inc. and Maxim Pharmaceuticals. Prior to his association with ABA BioResearch,
Inc., Dr. Bier was founder, President and Chief Executive Officer of ITR
Laboratories, Inc. Before founding ITR Laboratories, Inc., Dr. Bier spent over
ten years with Bio-Research Laboratories, a clinical research organization,
where he was Vice President and Director of Experimental Toxicology and
Clinical Pathology. Dr. Bier has published more than twenty-five scientific
articles. Dr. Bier received his Ph.D. from Colorado State University.

EDSON D. DE CASTRO. Mr. de Castro has been a member of the Board since June
1995, and served as Chairman of the Board until September 1996. Prior to the
Merger, Mr. de Castro held the same position with Old BLSI from August 1993.
Mr. de Castro was one of five founders of Data General Corporation ("DGC") and
was responsible for the designs of the original NOVA computers. He served as
DGC's President and Chief Executive Officer until 1989 and as its Chairman of
the Board of Directors from 1989 to 1990. Mr. de Castro is Chairman of the
Board of Directors, and until January 1996, was Chief Executive Officer, of
Xenometrix, Inc., a biotechnology testing company in Boulder, Colorado. He is
a Trustee of Boston University. Mr. de Castro received his B.S. in Electrical
Engineering from the University of Lowell, MA.

36
<PAGE>

and a member of the Board of Directors of Old BLSI from November 1994, Prior
to his responsibilities at Old BLSI, from January to November 1994, Mr.
Hillson was Senior Vice President of Josephthal, Lyon & Ross, Incorporated in
the research and investment banking divisions and from November 1992 to
January 1994, Mr. Hillson was the Senior Managing Director, investment
banking, at The Stamford Company in New York City. From October 1990 until
October 1992, Mr. Hillson was an Executive Vice President of the asset
management division of Mabon Securities. Earlier in his 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.

IRA W. LIEBERMAN, PH.D. Dr. Lieberman has been a member of the Board since
the inception of Old BLSI in 1992. Dr. Lieberman is currently on the staff of
the World Bank and is involved in advising foreign governments on their
privatization programs. From 1987 to 1992, Dr. Lieberman was President of
LIPAM International, Inc. an international consulting and investment firm.
From 1985 to 1987, Dr. Lieberman was on the staff of the World Bank and from
1975 to 1982 he was a senior executive with ICC Industries, Inc., where he
served as Chief Financial Officer, Executive Vice President and Chief
Executive Officer of Primex Plastics Corp., a subsidiary of ICC Industries,
Inc. Dr. Lieberman received his M.B.A. from Columbia University and his Ph.D.
from Oxford University.

E. CHRISTOPHER PALMER, CPA. Mr. Palmer has been a member of the Board since
the inception of Old BLSI in 1992. Mr. Palmer is a Certified Public Accountant
and founder of his own firm, providing tax and financial advisory services to
high net-worth family groups. Prior to 1977, Mr. Palmer was a partner in the
accounting firm of Peat Marwick Mitchell & Co. Mr. Palmer is a Director of
Boston Private Bancorp, Inc., Director and Chairman of the Trust and
Investment Committee of Boston Private Bank & Trust Company, a Director of
Coastal International Inc. and a trustee of two private foundations. Mr.
Palmer received his M.B.A. from Rutgers University and his A.B. from Dartmouth
College.

37
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the aggregate compensation paid by the
Company for the year ended December 31, 1996 for services rendered in all
capacities to each of the most highly compensated executive officers whose
total annual salary and bonus for that period exceeded $100,000 (collectively,
the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
----------------------- ------------
COMMON
STOCK
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY(2) BONUS(2) OPTIONS COMPENSATION(3)
------------------ ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
S. David Hillson........ 1996 $170,000 $200,000(4) 250,000 None
Chairman of the Board,
President 1995 170,000 150,000 932,300 None
and Chief Executive Of-
ficer 1994 21,250 None 1,824,053(5) None
Marc E. Lanser, M.D..... 1996 166,000 50,000(6) 250,000 $ 8,849
Executive Vice Presi-
dent 1995 158,208 35,000 780,700 10,366
and Chief Scientific
Officer 1994 157,000 None 76,002(5) 7,712
</TABLE>
- --------
(1) Includes compensation only for the period of the applicable year during
which the individual was employed by the Company.
(2) Amounts shown represent cash compensation earned by the Named Executive
Officers in the fiscal years presented even if paid in subsequent years.
(3) All Other Compensation for Dr. Lanser includes the following amounts for
fiscal 1996, 1995 and 1994, respectively: the dollar value of matching
contributions during the fiscal year under the Company's 401(k) plan, in
the amount of $4,500, $2,449 and $0, respectively; and the dollar value of
premiums paid by the Company during the fiscal year with respect to life
insurance and disability insurance for the benefit of Dr. Lanser in the
amount of $6,749, $7,917 and $7,712, respectively. In addition, in fiscal
1996 All Other Compensation for Dr. Lanser includes $2,100 attributable to
parking reimbursement in excess of the limits permitted under the Internal
Revenue Code.
(4) Mr. Hillson received a non-discretionary bonus from the Company based upon
the Board's determination that he had met certain performance targets
specified in his agreement of employment, dated November 7, 1994, which by
its terms expires in December 1998.
(5) Represents the number of replacement options issued in conjunction with
the Merger.
(6) Such amount was earned by Dr. Lanser in 1996, but $45,000 was paid by the
Company in January 1997.

38
<PAGE>

STOCK OPTION INFORMATION

The following table sets forth, for each of the Named Executive Officers,
certain information concerning the grant of options to such persons in fiscal
1996.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (3)
-------------------------------------------------- ---------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) DATE 5% 10%
---- -------------- ------------ ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
S. David Hillson, Esq... 250,000 22.16% $0.6563 11/21/06 $ 103,186 $ 261,493
Marc E. Lanser.......... 250,000 22.16 0.6563 11/21/06 103,186 261,493
</TABLE>
- --------
(1) Options granted to each of Mr. Hillson and Dr. Lanser to purchase 250,000
shares of Common Stock are 33% exercisable on or after November 19, 1996,
67% exercisable on or after November 19, 1997 and 100% exercisable on or
after November 19, 1998.
(2) The exercise price for each option is equal to the fair market value of
the Company's Common Stock on the date of grant.
(3) Potential realizable value is based on the assumed annual growth rates
listed, compounded annually for the ten-year option term. The dollar
amounts set forth under this heading are the results of calculations at
the 5% and 10% assumed rates established by the SEC and are not intended
to forecast possible future appreciation, if any, of the value of the
Common Stock.

Neither of the Named Executive Officers exercised any options in fiscal
1996. The following table sets forth, for each of the Named Executive
Officers, certain information concerning the value of unexercised options at
December 31, 1996.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL THE-MONEY OPTIONS AT
YEAR-END (#) FISCAL YEAR-END ($)(1)
------------------------- -------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
S. David Hillson, Esq... None None 2,067,009/939,344 $830,675/$281,224
Marc E. Lanser.......... None None 737,702/369,000 37,103/16,701
</TABLE>
- --------
(1) The fair market value of "in-the-money" options was calculated on the
basis of the difference between the exercise price of the options held and
the closing price per share for Common Stock on the Nasdaq SmallCap Market
of $0.6875 on December 31, 1996, multiplied by the number of options held.

COMPENSATION OF DIRECTORS

Annual Retainers

Independent directors, that is, those directors who are not employees of the
Company ("Independent Directors") receive cash compensation in the amount of
$500 per meeting attended in person and $250 per meeting attended
telephonically, although all directors are reimbursed for ordinary and
reasonable expenses of

39
<PAGE>

attending any board or committee meetings. In addition, Independent Directors
were compensated in fiscal 1996 with an annual retainer with a value of $5,000
and will receive the same amount in fiscal 1997. The annual retainer is not
paid in cash but is paid to the Independent Directors through options to
purchase shares of the Company's Common Stock pursuant to an Amended and
Restated 1990 Non-Employee Directors' Non-Qualified Stock Option Plan (the
"Directors' Plan"), valued as described below. Each Independent Director
elected at an annual meeting of stockholders of the Company will automatically
be granted options on the thirteenth trading day after the date of such annual
meeting (the "Retainer Grant Date") to purchase a number of shares of the
Company equal to the lesser of (a) 25,000 shares and (b) the quotient of the
value of the annual retainer for service as an Independent Director of the
Company and 80% of the average of the fair market value of a share of the
Company's Common Stock on the ten trading days following the third trading day
after the date of such annual meeting of stockholders. If the number of shares
of the Company's Common Stock calculated pursuant to clause (b) above exceeds
25,000 shares, each Independent Director will automatically receive on the
Retainer Grant Date, in addition to options to purchase 25,000 shares of the
Company's common stock, a cash payment equal to the remaining portion of the
value of the annual retainer not provided for by the grant of such options.
Additionally, pursuant to the Directors' Plan, discretionary option grants
were made in 1996 to each Independent Director. In fiscal 1996, Dr. Bier
received a discretionary grant of options to purchase 18,750 shares and each
of Messrs. Kanzer and Palmer and Dr. Lieberman received a grant of options to
purchase 75,000 shares of the Company's Common Stock.

In addition, each director who serves as Chairman of a committee of the
Board receives an annual retainer of $1,000. The Chairmen of the Audit
Committee, the Compensation Committee and the Press Release Review Committee
who received this annual retainer in fiscal 1996 were Mr. Palmer, Mr. Kanzer
and Dr. Lieberman, respectively.

EXERCISE AND VESTING

The options granted to the Independent Directors pursuant to the foregoing
terms are exercisable at a per share price of 20% of the average fair market
value per share of the Company's Common Stock used to calculate such grant.
Subject to provisions regarding expiration and termination of options, the
options will become exercisable as to 75% of the shares of Common Stock of the
Company issuable upon exercise of such options six months after the date of
grant and as to 100% of such shares on the later of six months after the date
of grant and December 31 of the year in which the grant is made.

NEW DIRECTOR OPTIONS

Each person who is elected or appointed an Independent Director for the
first time will automatically upon such election or appointment (the
"Automatic Grant Date") be granted an option to purchase 75,000 shares of the
Company's Common Stock ("New Director Options"). The exercise price of any New
Director Options granted under the Directors' Plan may not be less than 100%
of the fair market value of shares of the Company's Common Stock subject
thereto on the Automatic Grant Date. Subject to provisions regarding
expiration and termination of options, any New Director Options will become
exercisable as to 20% of the shares of the Company's Common Stock subject
thereto on the Automatic Grant Date and shall become exercisable as to an
additional 20% of the shares of the Company's Common Stock issuable upon
exercise thereof on each of the first, second, third and fourth anniversaries
of such Automatic Grant Date.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Company's Board during the last completed
fiscal year was composed of Steve Kanzer, Ira Lieberman, and E. Christopher
Palmer. Mr. Kanzer was also the Secretary of the Company.

Boston Private Bank & Trust Company (the "Bank") is the Company's primary
banking institution. E. Christopher Palmer, CPA, a director of the Company, is
a Director and Chairman of the Trust and Investment Committee of the Bank and
a director of Boston Private Bancorp, Inc., which is an affiliate of the Bank.
Fees paid to the Bank during fiscal 1996, primarily for investment management
advisory services, totalled approximately $25,000.

40
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

MANAGEMENT

As of March 24, 1997, the following members of the Company's management were
known to the Company to be beneficial owners (as defined in regulations issued
by the Securities and Exchange Commission (the "SEC")) of the amounts of the
Company's outstanding Common Stock set forth below.

<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- ---------------- ----------------------- -----------
<S> <C> <C>
Colin B. Bier, Ph.D........................ 50,434(3) *
Director
Edson D. de Castro......................... 641,351(3) *
Director
Joseph P. Hernon........................... 30,000(3) *
Chief Financial Officer
S. David Hillson, Esq...................... 2,082,208(4) 1.6%
Chairman of the Board, President
and Chief Executive Officer
Steve H. Kanzer, CPA, Esq.................. 462,706(5) *
Director and Secretary
Marc E. Lanser, M.D........................ 2,583,423(6) 1.9%
Director, Executive Vice President
and Chief Scientific Officer
Ira W. Lieberman, Ph.D..................... 214,256(5) *
Director
E. Christopher Palmer, CPA................. 214,256(5) *
Director
All directors and executive
officers as a group (8 persons) 6,278,634(7) 4.7%
</TABLE>
- --------
* Represents Less than 1% of the outstanding shares.
(1) Except as otherwise specified in footnotes to this table, the persons
named in this table have sole voting and investment power with respect to
all shares of Common Stock owned. The information in the table was
furnished by the owners listed.
(2) The percentages in this table are based on the number of shares of Common
Stock and Preferred Stock (on an as converted basis) outstanding as of
March 24, 1997.
(3) Consists of shares of Common Stock issuable upon exercise of options which
are exercisable or which will become exercisable within 60 days of March
24, 1997.
(4) Includes 2,067,007 shares of Common Stock issuable upon exercise of
options which are exercisable or which will become exercisable within 60
days of March 24, 1997.
(5) Includes 138,254 shares of Common Stock issuable upon exercise of options
which are exercisable or will which become exercisable within 60 days of
March 24, 1997.
(6) Includes 756,702 shares of Common Stock issuable upon exercise of options
which are exercisable or which will become exercisable within 60 days of
March 24, 1997.
(7) Includes 3,960,256 shares of Common Stock issuable upon exercise of
options which are exercisable or which will become exercisable within 60
days of March 24, 1997.

41
<PAGE>

As of March 24, 1997 the following persons were known to the Company to be
beneficial owners (as defined in regulations issued by the SEC) of more than
five percent of the Company's outstanding Common Stock and/or Preferred Stock
(on an as converted basis).

<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS (2)
-------------- ------------------------------ ----------------------- ------------
<S> <C> <C> <C>
Common Stock and Pre-
ferred Stock(3) Lindsay A. Rosenwald, M.D. 6,960,096(3) 5.2%
c/o Paramount Capital, Inc.
787 Seventh Avenue
New York, NY 10019
Common Stock and Pre-
ferred Stock(4) Strome-Susskind Investment 12,804,300(4) 9.5%
Management, L.P.
100 Wilshire Blvd., 15th Floor
Santa Monica, CA 90401
</TABLE>
- --------
(1) Except as otherwise specified in footnotes to this table, the persons
named have sole voting and investment power with respect to all shares of
Common Stock or Preferred Stock owned. The information in the table was
furnished by the owners listed by reports to the Company and by filings
with the SEC or through information otherwise available in documents held
by the Company.
(2) The percentages in this table are based on the number of shares of Common
Stock and Preferred Stock (on an as converted basis) outstanding as of
March 24, 1997.
(3) Includes 2,629,407 shares of Common Stock issuable upon the exercise of
warrants which are currently exercisable and 6.69115 units of the Company
(which consist of 6,691 shares of Preferred Stock (which are convertible
into approximately 1,173,448 shares of Common Stock and represent
approximately 0.87% of the Common Stock on a fully diluted basis) and
warrants to purchase 167,279 shares of Common Stock) issuable upon
exercise of a unit purchase option which is currently exercisable. Such
figure does not include 2,655,271 shares of Common Stock beneficially
owned by Dr. Rosenwald's spouse and by trusts for the benefit of his minor
children, of which his spouse is the sole trustee and as to which he
disclaims beneficial ownership. The information relating to Dr. Rosenwald
that appears in the table represents his entire beneficial ownership and
is based on information that was furnished by Dr. Rosenwald in a Schedule
13G filed with the Securities and Exchange Commission (the "SEC") pursuant
to Section 13(d) or 13(g) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), dated February 1, 1996 and other information
available to the Company.

(4) Includes 1,193,751 shares of Common Stock issuable upon the exercise of
warrants which are currently exercisable and 1.07438 units of the Company
(which consist of 1,074 shares of Preferred Stock (which are convertible
into approximately 188,355 shares of Common Stock and represent
approximately 0.14% of the Common Stock on a fully diluted basis) and
warrants to purchase 26,859 shares of Common Stock) issuable upon exercise
of a unit purchase option which is currently exercisable. According to its
filings under Sections 13(d) or 13(g) of the 1934 Act, Strome-Susskind
Investment Management, L.P. ("SSIM") is the sole general partner of and
investment adviser to two investment limited partnerships, and is also the
investment advisor to two offshore investment corporations. The investment
limited partnerships and the offshore investment corporations beneficially
own the securities of the Company set forth in the table. SSIM has voting
control over these securities. SSCO, Inc. is the sole general partner of
SSIM. The Strome Family Trust dated 12/9/93, of which Mark E. Strome is a
settlor and trustee, is the controlling shareholder of SSCO, Inc. The
information relating to Strome-Susskind Investment Management, L.P. that
appears in the table represents its entire beneficial ownership and is
based on information that was furnished by SSIM, SSCO, Inc. and Mark E.
Strome in a Schedule 13G that was filed with the SEC on September 11,
1996, and other information available to the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the Company's January and February 1996 equity offerings,
the Company paid a fee to Paramount Capital, Inc. ("Paramount"), as the
placement agent involved with such offerings, consisting of

42
<PAGE>

23.991 units (each unit consisting of 1,000 shares of Series A Convertible
Preferred Stock and warrants to purchase 25,000 shares of Common Stock).
Lindsay A. Rosenwald, M.D., the Chairman of the Board of Directors, Chief
Executive Officer and sole stockholder of Paramount, is currently one of two
holders of more than 5% of the outstanding Common Stock of the Company.
Additionally, the Company executed an agreement which provides that, effective
February 1996, Paramount will receive a retainer fee of $2,500 per month, for
a minimum of twenty four months, and an as yet to be agreed-upon success fee
with respect to corporate partners first introduced to the Company by
Paramount.

In August 1995, the Company entered into a two-year financial advisory
services agreement with Paramount. In connection therewith, the Company issued
warrants to Paramount for the purchase of 250,000 shares of the Company's
Common Stock which were 50% exercisable at the time of issuance and 100%
exercisable in August 1996.

43
<PAGE>

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, 1996 and 1995

Consolidated Statements of Operations for the fiscal years ended
December 31, 1996, 1995 and 1994 and for the period from inception
(October 16, 1992) through December 31, 1996

Consolidated Statements of Stockholders' Equity (Deficit) for the
fiscal years ended December 31, 1996, 1995 and 1994 and for the
period from inception (October 16, 1992) through December 31, 1996

Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 1996, 1995 and 1994, and for the period from inception
(October 16, 1992) through December 31, 1996

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.

<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION AND METHOD OF FILING
--------- --------------------------------
<C> <S>
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(4)
3.1 Amended and Restated Certificate of Incorporation dated March 29,
1996(6)
3.2 Amended and Restated ByLaws, effective as of June 26, 1995(6)
4.1 Rights Agreement between the Company and Chemical Trust Group
(formerly Manufacturers Hanover Trust Company) as Rights Agent dated
September 26, 1991(2)
10.1 Form of Indemnity Agreement to be entered into by the Company and
its directors and officers(3)
10.2 Boston Life Sciences, Inc. Amended and Restated Omnibus Stock Option
Plan(4)
10.3 Boston Life Sciences, Inc. Amended and Restated 1990 Non-Employee
Directors' NonQualified Stock Option Plan(4)
10.4 Agreement dated as of April 1, 1992 between the Company and Pickwick
Plaza Associates(5)
21.1 Subsidiaries of the Registrant(7)
23.1 Consent of Independent Accountants(7)
27.1 Financial Data Schedule(7)
</TABLE>

- --------
(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 Greenwich's Current Report on Form 8-K dated
September 26, 1991

44
<PAGE>

(3) Incorporated by reference to Greenwich's proxy statement in connection with
its 1987 Annual Meeting of Stockholders
(4) Incorporated by reference to the Registration Statement of Greenwich
Pharmaceuticals Incorporated on Form S-4, Registration No. 33-91106
(5) Incorporated by reference to Greenwich's Registration Statement on Form S-
8, Reg. No. 33-38283
(6) Incorporated by reference to BLSI's Annual Report on Form 10-K for the year
ended December 31, 1995
(7) Filed herewith

(b) REPORTS ON FORM 8K: The Registrant filed the following Reports on Form
8-K during the fourth quarter of 1996 and through March 24, 1997:

<TABLE>
<CAPTION>
DATE OF REPORT ITEM REPORTED
-------------- -------------
<S> <C>
October 15, 1996............................................ 5,7
January 13, 1997............................................ 5,7
January 23, 1997............................................ 5,7
</TABLE>

45
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 12(b)(15) 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)

November 19, 1997 By /s/ JOSEPH P. HERNON
--------------------------------------
Joseph P. Hernon
Chief Financial Officer

46
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING PAGE NUMBER
------- -------------------------------- -----------
<C> <S> <C>
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 (4)
3.1 Amended and Restated Certificate of
Incorporation dated March 29, 1996 (6)
3.2 Amended and Restated ByLaws, effective
as of June 26, 1995 (6)
4.1 Rights Agreement between the Company
and Chemical Trust Group (formerly
Manufacturers Hanover Trust Company)
as Rights Agent dated September 26,
1991 (2)
10.1 Form of Indemnity Agreement to be
entered into by the Company and its
directors and officers (3)
10.2 Boston Life Sciences, Inc. Amended and
Restated Omnibus Stock Option Plan (4)
10.3 Boston Life Sciences, Inc. Amended and
Restated 1990 Non-Employee Directors'
NonQualified Stock Option Plan (4)
10.4 Agreement dated as of April 1, 1992
between the Company and Pickwick Plaza
Associates (5)
21.1 Subsidiaries of the Registrant (7)
23.1 Consent of Independent Accountants (7)
27.1 Financial Data Schedule (7)
</TABLE>
- --------
(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 Greenwich's Current Report on Form 8-K dated
September 26, 1991
(3) Incorporated by reference to Greenwich's proxy statement in connection with
its 1987 Annual Meeting of Stockholders
(4) Incorporated by reference to the Registration Statement of Greenwich
Pharmaceuticals Incorporated on Form S-4, Registration No. 33-91106
(5) Incorporated by reference to Greenwich's Registration Statement on Form S-
8, Reg. No. 33-38283
(6) Incorporated by reference to BLSI's Annual Report on Form 10-K for the year
ended December 31, 1995
(7) Filed herewith

<PAGE>

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION
------------------ ----------------------
<S> <C>
Acumed Pharmaceuticals, Inc.............................. Delaware
Ara Pharmaceuticals, Inc................................. Delaware
Boston Life Sciences International, Inc.................. Delaware
Coda Pharmaceuticals, Inc. .............................. Delaware
Neurobiologics, Inc. .................................... Delaware
ProCell Pharmaceuticals, Inc. ........................... Delaware
</TABLE>

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 33-98104 and No. 33-98138) and in the Prospectus
constituting part of the Registration Statements on Forms S-3 (No. 333-02730 and
No. 333-08993) of Boston Life Sciences, Inc. and its subsidiaries (the
"Company") of our report dated February 18, 1997, except as to the last
paragraph of Note 9 which is as of November 19, 1997, appearing on page 17
of the Company's Annual Report on Form 10-K/A for the year ended December 31,
1996.

/s/ PRICE WATERHOUSE LLP

Price Waterhouse LLP
Boston, Massachusetts
November 19, 1997

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AS REPORTED ON FORM 10-K/A AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<FN>
<F1>"Changes" amount consists of preferred stock preferences (See Note 9 to
financial statements). EPS-Diluted amount of ($0.41) includes ($0.35) related to
preferred stock preferences.
</FN>

</TABLE>