<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
----------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________________ TO _________________
COMMISSION FILE NUMBER 0-6533
--------------------------------------------------------
BOSTON LIFE SCIENCES, INC.
- -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 87-0277826
- -------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
31 NEWBURY STREET, SUITE 300, BOSTON, MASSACHUSETTS 02116
- -------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(617) 425-0200
- -------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
- -------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
(X) YES ( ) NO
AS OF MAY 11, 1998 THERE WERE 13,036,855 SHARES OF COMMON STOCK OUTSTANDING.
<PAGE>
BOSTON LIFE SCIENCES, INC.
INDEX TO FORM 10-Q
PAGE (s)
--------
PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF 1
MARCH 31, 1998 AND DECEMBER 31, 1997
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 2
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 3
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 - 5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF 6 - 8
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 9
ITEM 2 - CHANGES IN SECURITIES 9
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 9
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF 9
SECURITY HOLDERS
ITEM 5 - OTHER INFORMATION 9
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURE (s) 10
<PAGE>
Part I -- Financial Information
Item 1 -- Financial Statements
BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheet
--------------------------
(Unaudited)
<TABLE>
<CAPTION>
31-Mar-98 31-Dec-97
------------------- -------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,504,096 $ 1,713,975
Short-term investments 10,533,383 12,338,496
Prepaid sponsored research & development expenses 190,000 150,000
Other current assets 446,939 508,208
------------------- -------------------
Total current assets 12,674,418 14,710,679
Fixed assets, net 76,126 95,061
Technology acquired 3,500,000 3,500,000
Other assets 273,229 273,229
------------------- -------------------
Total assets $ 16,523,773 $ 18,578,969
=================== ===================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 1,528,859 1,991,804
------------------- -------------------
Total current liabilities 1,528,859 1,991,804
------------------- -------------------
Stockholders' equity:
Series A Convertible Preferred stock, $.01 par value 271 284
1,000,000 shares authorized
27,145 shares outstanding on March 31, 1998 and
28,372 shares outstanding on December 31, 1997
Common stock, $0.01 par value; 130,269 129,938
25,000,000 shares authorized
13,026,929 shares outstanding on March 31, 1998 and
12,993,838 shares outstanding on December 31, 1997
Additional paid-in-capital 49,753,572 49,624,386
Unrealized gains on investments 25,179 99,029
Deficit accumulated during development stage (34,914,377) (33,266,472)
------------------- -------------------
Total stockholders' equity 14,994,914 16,587,165
------------------- -------------------
Total liabilities and stockholders' equity $ 16,523,773 $ 18,578,969
=================== ===================
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended From inception
March 31, (October 16, 1992)
-------------------------------------------- to March 31,
1998 1997 1998
------------------- ------------------- --------------------
<S> <C> <C> <C>
Revenues $ 0 $ 50,000 $ 700,000
Operating Expenses
Research and development expenses 1,117,644 973,992 13,014,757
Licensing fees 55,000 0 708,683
THERAFECTIN/R/ related expenses 127,000 551,045 3,863,831
General and administrative expenses 599,311 517,000 8,767,272
Purchased research and development in-process 0 0 10,421,544
------------------- ------------------- --------------------
Loss from operations (1,898,955) (1,992,037) (36,076,087)
Net interest income (expense) 251,050 327,149 1,161,710
------------------- ------------------- --------------------
Net loss $(1,647,905) $(1,664,888) $(34,914,377)
=================== =================== ====================
Basic and diluted net loss per common share $ (0.13) $ (0.14)
=================== ===================
Weighted average shares outstanding 13,010,383 11,621,225
=================== ===================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Period from
Three Months Ended March 31, inception (October
-------------------------------------------- 16, 1992) through
1998 1997 31-Mar-98
------------------- ------------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,647,905) $(1,664,888) $ (34,914,377)
Adjustments to reconcile net loss to net cash
used for operating activities:
Purchased research and development in-process 0 0 10,421,544
Compensation charge related to options and warrants granted 125,000 72,000 999,540
Amortization and depreciation 20,000 20,000 1,375,583
Loss on disposal of fixed assets 0 0 15,589
Changes in operating assets and liabilities:
Prepaid sponsored research & development expenses (40,000) 391,000 (190,000)
Other current assets 61,269 301,035 48,589
Accounts payable and accrued expenses (462,945) (269,436) 581,194
Deferred revenue 0 (50,000) 0
------------------- ------------------- --------------------
Net cash used for operating activities (1,944,581) (1,200,289) (21,662,338)
------------------- ------------------- --------------------
Cash flows from investing activities:
Net cash provided by acquisition of Greenwich Pharmaceutical 0 0 1,758,037
Increase in fixed assets (1,065) (14,746) (257,766)
Proceeds from sale of fixed assets 0 0 9,800
Increase in other assets 0 0 (273,229)
Short term investments:
Purchases (4,890,671) (3,626,417) (36,448,625)
Sales and maturities 6,621,934 2,867,483 25,940,421
------------------- ------------------- --------------------
Net cash provided by (used in) investing activities 1,730,198 (773,680) (9,271,362)
------------------- ------------------- --------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 4,504 74,560 13,014,249
Proceeds from issuance of convertible preferred stock 0 0 20,872,170
Proceeds from issuance of notes payable 0 0 2,585,000
Proceeds from issuance of convertible debt 0 0 1,000,000
Principal payments of notes payable 0 (37,486) (2,796,467)
Payment of note issuance costs 0 0 (399,702)
Payment of stock issuance and merger transaction costs 0 0 (1,837,454)
------------------- ------------------- --------------------
Net cash provided by financing activities 4,504 37,074 32,437,796
------------------- ------------------- --------------------
Net increase (decrease) in cash and cash equivalents (209,879) (1,936,895) 1,504,096
Cash and cash equivalents at beginning of period 1,713,975 8,580,206 0
------------------- ------------------- --------------------
Cash and cash equivalents at end of period $ 1,504,096 $ 6,643,311 $ 1,504,096
=================== =================== ====================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
BOSTON LIFE SCIENCES, INC.
(a development stage enterprise)
Notes to Unaudited Condensed Consolidated Financial Statements
(March 31, 1998)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, these financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
The interim unaudited condensed consolidated financial statements
contained herein include, in management's opinion, all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation of the financial position, results of operations, and cash flows
for the periods presented. The results of operations for the interim period
shown on this report are not necessarily indicative of results for a full
year. These financial statements should be read in conjunction with the
Company's consolidated financial statements and notes for the year ended
December 31, 1997, appearing in the Company's Annual Report on Form 10-K for
such year.
2. NET LOSS PER SHARE
Net loss per share has been calculated by dividing net loss 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 anti-dilutive.
3. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 1998, the Company issued 21,519
shares of common stock resulting from the conversion of 1,227 shares of
preferred stock.
4. INVESTMENTS
At March 31, 1998, the fair value of short-term investments exceeded their
cost basis by approximately $25,179. These investments, which are classified
as available-for-sale, are reported at fair value, with the unrealized gain
excluded from the statement of operations and reported as a separate
component of stockholders' equity.
4
<PAGE>
BOSTON LIFE SCIENCES, INC.
(a development stage enterprise)
Notes to Unaudited Consolidated Financial Statements
(March 31, 1998)
5. COLLABORATIVE AGREEMENT
In June 1995, the Company entered into a research and development
collaboration agreement (the "Agreement") with the U.K. company, Zeneca
Pharmaceuticals, Inc. ("Zeneca"). Under the terms of the Agreement, which
originally would have expired in June 1997, Zeneca provided funds for a two-
year period to support the research and development of certain technology. In
addition to providing funding, Zeneca has been screening its molecule
collection, seeking to identify an inhibitor of the Company's transcription
factor. The Agreement enabled Zeneca to acquire the product development
rights to the Company's technology. Zeneca requested, and was granted, an
extension, until January 1, 1998, to complete the screening of its molecule
collection before deciding if it will exercise its product development
rights. Zeneca has informed the Company that its screening process will not
be completed until May 31, 1998 and proposed a second extension which has not
been granted by the Company. If Zeneca desires to continue product
development following completion of screening, the Company could receive
additional milestone payments as well as royalties from the sale of any
products originating from the collaboration. However, there can be no
assurance that Zeneca will decide to continue product development, that
Zeneca and the Company will reach a renegotiated development agreement, that
the Company will receive any milestone or royalty payments, or that any
products will result from the collaboration.
6. COMPREHENSIVE NET LOSS
The Company adopted FASBF Statement No. 130, "Reporting Comprehensive
Income", in the first quarter of 1998. This statement establishes standards
for the reporting and display of comprehensive income or loss and its
components in the financial statements. Comprehensive net loss for the three
months ended March 31, was as follows:
1998 1997
Net loss $(1,647,905) $(1,664,888)
Unrealized loss on investments ( 73,850) ( 150,256)
Comprehensive net loss $(1,721,755) $(1,815,144)
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
(March 31, 1998)
This Quarterly Report on Form 10-Q contains forward-looking statements.
Specifically, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "expects,"
and similar expressions are intended to identify forward-looking statements.
There are a number of meaningful factors that could cause the Company's actual
results to differ materially from those indicated by any such forward-looking
statements. These factors include, without limitation, the duration and results
of clinical trials and their effect on the FDA regulatory process, uncertainties
regarding receipt of approvals for any possible products and any commercial
acceptance of such products, possible difficulties with obtaining necessary
patent protection, and uncertainties regarding the outcome of any of the
Company's collaborations or alliances with third parties. Other factors include
those set forth under the caption "Forward-Looking Statements" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 and the
documents referred to under such caption.
RESULTS OF OPERATIONS
Overview
The Company is a biotechnology company engaged in the research and
development of novel therapeutic and diagnostic products to treat chronic
debilitating diseases such as cancer, central nervous system disorders and
autoimmune diseases. The Company expects that its research and development
costs will continue to increase as the Company attempts to gain regulatory
approval for commercial introduction of its proposed products. At March 31,
1998, the Company is considered a "development stage enterprise" as defined in
Statement of Financial Accounting Standards No. 7.
Three Months Ended March 31, 1998 and 1997
The Company's net loss was $1,647,905 during the three months ended March
31, 1998 as compared with $1,664,888 during the three months ended March 31,
1997. Net loss per common share equaled $.13 per share for the 1998 period as
compared to $.14 per share for the 1997 period. The lower net loss in the 1998
period was primarily due to lower Therafectin related expenses partially offset
by increased research and development expenses, a higher level of general and
administrative costs, and a decrease in net interest income.
Revenue was zero during the three months ended March 31, 1998 as compared
with $50,000 during the comparable 1997 period. Revenue for the 1997 period was
attributable to a research and development agreement (the "Agreement") entered
into with Zeneca Pharmaceuticals, Ltd. ("Zeneca Pharmaceuticals") in 1995. Under
the terms of the Agreement, which originally would have expired in June 1997,
Zeneca provided funds for a two year period to support the research and
development of this technology. In addition to providing funding, Zeneca has
been screening its molecule collection, seeking to identify an inhibitor of the
Company's transcription factor. Zeneca requested, and was granted, an
extension, until January 1, 1998, to complete the screening of its molecule
collection before deciding if it will exercise its product development rights.
Zeneca has informed the Company that its screening process will not be
completed until May 31, 1998 and proposed a second extension which has not been
granted by the Company. If Zeneca desires to continue product development
following completion of screening, the Company could receive additional
milestone payments as well as royalties from the sale of any products
originating from the collaboration. However, there can be no assurance that
Zeneca will decide to continue product development, that Zeneca and the Company
will reach a renegotiated
6
<PAGE>
development agreement, that the Company will receive any milestone or royalty
payments, or that any products will result from the collaboration.
Research and development expenses were $1,117,644 during the three months
ended March 31, 1998 as compared with $973,992 during the three months ended
March 31, 1997. The increase was primarily attributable to an increased level of
expenditures for technologies under development as well as an increase in the
number of personnel supporting research and development activities. The
majority of the Company's research and development expenses were sponsored
research obligations paid to Harvard University and its affiliated hospitals.
The Company expects to incur research and development costs between $5 million
to $6 million during 1998.
Licensing fees were $55,000 during the three months ended March 31, 1998 as
compared with zero during the three months ended March 31, 1997. During the
1998 period, the Company paid $15,000 to license one new technology as compared
to no new licensing agreements during the 1997 period. In addition to an initial
licensing fee payment, the Company is obligated to pay additional amounts upon
the attainment of development milestones, as defined in each respective
licensing agreement, as well as royalties upon the sales of any resulting
products. During the 1998 period, the Company made a milestone payment of
$40,000 related to the development of one of its technologies. The Company
expects to pay future licensing fees, the timing and amounts of which will
depend upon the progress attained in developing existing technologies and the
terms of agreements which may be executed for technologies currently being
developed or which may be developed in the future. There can be no assurance
regarding the likelihood or materiality of any such future licensing agreements.
THERAFECTIN(R) related expenses were $127,000 during the three months
ended March 31, 1998 as compared with $551,045 during the three months ended
March 31, 1997. This decrease reflects differences in the status of the Phase
III clinical trial for Therafectin during each respective period. Enrollment in
the trial, which began in March 1996, was completed in March 1997. Expenses
during the 1998 period primarily related to patients enrolled in the extension
phase of the trial in which fewer patients were enrolled, and per-patient
clinical costs were lower. Before any commercially viable product from
Therafectin may be developed, and any revenue generated therefrom, the Company
currently expects that at least $0.5 million of additional future expense will
be necessary. There can be no assurance, however, that the expenditure of these
additional amounts will result in the regulatory approval of any compounds or
that such approval will ever be able to be obtained by the Company.
General and administrative expenses were $599,311 during the three months
ended March 31, 1998 as compared with $517,000 during the comparable 1997
period. This increase was primarily due to the overall growth of the Company as
reflected in the increased level of research and development expenses and an
increase in the number of personnel employed by the Company.
Net interest income was $251,050 during the three months ended March 31,
1998 as compared with net interest income of $327,149 during the three months
ended March 31, 1997. The higher level of interest income recognized during the
1997 period primarily related to higher average short term investment, cash and
cash equivalent balances.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has satisfied its working capital
requirements from the sale of the Company's securities through private
placements. In January and February 1996, the Company raised approximately
$20.7 million of net proceeds by completing a private placement of 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 million of net proceeds by
7
<PAGE>
completing a private placement of 5 million shares of common stock (See Notes 9
and 10 of Notes to the Consolidated Financial Statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997). In the future, the
Company's ability to meet, and the level of, its working capital and capital
requirements will depend on numerous factors, including the progress of the
Company's research and development activities, the level of resources that the
Company devotes to the developmental, clinical, and regulatory aspects of its
products, and the extent to which the Company enters into collaborative
relationships with pharmaceutical and biotechnology companies.
At March 31, 1998, the Company had available cash, cash equivalents and short
term investments of approximately $12.0 million and working capital of
approximately $11.1 million. The Company believes that the level of financial
resources available at March 31, 1998 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 financings
and equity offerings. There can be no assurance, however, that the Company will
be successful in such efforts or that additional funds will be available on
acceptable terms, if at all.
8
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
ITEM 1: LEGAL PROCEEDINGS.
-----------------
NONE.
ITEM 2: CHANGES IN SECURITIES.
---------------------
DURING THE QUARTER ENDED MARCH 31, 1998, THE COMPANY ISSUED 5,480
SHARES OF COMMON STOCK RELATED TO THE EXERCISE OF OUTSTANDING
WARRANTS FOR WHICH THE COMPANY RECEIVED CONSIDERATION TOTALING
$4,504.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
-------------------------------
NONE.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
NONE.
ITEM 5: OTHER INFORMATION.
-----------------
NONE.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits included with this filing:
27 Financial Data Schedule
(b) Reports on Form 8-K: The Registrant filed the following reports
on Form 8-K during the quarter ended March 31, 1998 and through
May 14, 1998.
Date of Report Item Reported
------------------------------- -------------
1 Form 8-K filed January 20, 1998 5,7
2 Form 8-K filed March 9, 1998 5,7
3 Form 8-K filed April 30, 1998 5,7
3 Form 8-K filed May 7, 1998 5,7
9
<PAGE>
SIGNATURE(S)
------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Boston Life Sciences, Inc.
--------------------------
(Registrant)
DATE: May 14, 1998 /s/ S. David Hillson
--------------------
S. David Hillson
President and Chief Executive Officer
/s/ Joseph Hernon
------------------
Joseph Hernon
Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements as reported on Form 10Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,504,096
<SECURITIES> 10,533,383
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,674,418
<PP&E> 264,024
<DEPRECIATION> (187,898)
<TOTAL-ASSETS> 16,523,773
<CURRENT-LIABILITIES> 1,528,859
<BONDS> 0
0
271
<COMMON> 130,269
<OTHER-SE> 16,393,233
<TOTAL-LIABILITY-AND-EQUITY> 16,523,773
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,898,955
<OTHER-EXPENSES> (251,050)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,647,905)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,647,905)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,647,905)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
