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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 SK ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10K or any amendment to this Form 10K. [_]
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 123,833,994 shares of the Registrant's
Common Stock issued and outstanding and Warrants to purchase 5,716,502 shares of
Common Stock issued and outstanding.
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.
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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.
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
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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 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.
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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
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
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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 to hemodynamic support, steroids to reduce inflammation, and,
in the case of stroke, the correction of predisposing hematological
abnormalities.
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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 (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
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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
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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.
CORPORATE ALLIANCES
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.
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.
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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.
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
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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 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.
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
10
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.
Name Age Position
- ---- --- --------
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
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
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.
11
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.
12
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.
High Low
---- ---
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
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.
13
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.
Period from Inception
(October 16, 1992)
Through Year Ended
----------------------------------------------
December 31, 1992 December 31, 1993 December 31, 1994
----------------- ----------------- -----------------
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
Period from
Inception
(October 16, 1992)
Year Ended Through
--------------------------------------------------
December 31, 1995 December 31, 1996 December 31, 1996
----------------- ----------------- -----------------
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
December 31,
--------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
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
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION 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.
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.
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
15
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.
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 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
16
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 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.
17
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 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
18
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.
19
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 47 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.
Price Waterhouse LLP
Boston, Massachusetts
February 18, 1997
20
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
December 31,
1996 1995
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' equity $ 26,153,130 $ 6,585,101
============= ============
21
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
For the Year Ended December 31,
From inception
(October 16,
1992) to
December 31,
1996 1995 1994 1996
Revenues $ 200,000 $ 416,940 $ - $ 616,940
------------- ------------- ------------- -------------
Operating Expenses
Research and
development 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
administrative 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 operations (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
============= ============= =============
22
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)
- --------------------------------------------------------------------------------
For the period from inception (October 16, 1992) to December 31, 1996
Series A
Preferred Stock Common Stock Additional
----------------------------- --------------------------
Number of Number of paid-In
shares Par value Shares Par value Capital
Issuance of common stock to founders 15,200,442 $ 152,004 $ (103,279)
Net loss - - -
---------- ---------- -----------
Balance at December 31, 1992 15,200,442 152,004 (103,279)
Issuance of option to purchase common stock to a licensor - - 62,433
Issuance of common stock to a consultant 39,132 391 7,109
Issuance of common stock, net issuance costs of $500,988 15,457,129 154,572 2,319,430
Net loss - - -
------------ ----------- ------------
Balance at December 31, 1993 30,696,703 306,967 2,285,693
Issuance of common stock, net issuance costs of $406,916 9,873,548 98,735 1,549,349
Issuance of common stock upon exercise of option 953,779 9,538 (9,224)
Net loss - - -
------------ ----------- ------------
Balance at December 31, 1994 41,524,030 415,240 3,825,818
Issuance of common stock and warrants related to
bridge financing 1,983,661 19,837 779,556
Issuance of common stock and warrants upon merger 35,197,362 351,973 14,251,975
Issuance of common stock in exchange for minority interest
in certain subsidiaries 1,000,000 10,000 (10,000)
Issuance of common stock upon exercise of options 375,668 3,757 181,570
Issuance of common stock subject to redemption 3,246,753 32,468 (32,468)
Expiration of valuation periods for common stock subject
to redemption - - 180,600
Issuance of convertible debt - - 411,002
Deferred compensation related to stock options and
warrants granted - - 327,146
Compensation expense related to stock options and warrants
Net loss - - - - -
------------ ----------- ------------ ----------- ------------
Balance at December 31, 1995 - - 83,327,474 $ 833,275 $19,915,199
Deficit
accumulated
during the Total
Deferred development stockholders'
compensation stage equity (deficit)
Issuance of common stock to founders $ - $ 48,725
Net loss (295,388) (295,388)
------------- -------------- --------------
Balance at December 31, 1992 (295,388) (246,663)
Issuance of option to purchase common stock to a licensor - 62,433
Issuance of common stock to a consultant - 7,500
Issuance of common stock, net issuance costs of $500,988 - 2,474,002
Net loss (2,254,898) (2,254,898)
------------- -------------- --------------
Balance at December 31, 1993 (2,550,286) 42,374
Issuance of common stock, net issuance costs of $406,916 - 1,648,084
Issuance of common stock upon exercise of option - 314
Net loss (2,596,872) (2,596,872)
------------- -------------- --------------
Balance at December 31, 1994 (5,147,158) (906,100)
Issuance of common stock and warrants related to bridge financing - 799,393
Issuance of common stock and warrants upon merger - 14,603,948
Issuance of common stock in exchange for minority interest in
certain subsidiaries - -
Issuance of common stock upon exercise of options - 185,327
Issuance of common stock subject to redemption - -
Expiration of valuation periods for common stock subject
to redemption - 180,600
Issuance of convertible debt - 411,002
Deferred compensation related to stock options and warrants granted $ (327,146) - -
Compensation expense related to stock options and warrants 60,783 - 60,783
Net loss - (14,149,151) (14,149,151)
------------- -------------- --------------
Balance at December 31, 1995 $ (266,363) $(19,296,309) $ 1,185,802
23
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit), Continued
- --------------------------------------------------------------------------------
For the Period from inception (October 16, 1992) to December 31, 1996
SERIES A
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------- ----------------------
NUMBER OF NUMBER OF PAID-IN DEFERRED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL COMPENSATION
Balance at December 31, 1995 - - 83,327,474 $ 833,275 $ 19,915,199 $ (266,363)
Issuance of preferred stock,
net issuance costs of $3,397,158 239,911 $ 2,399 - - 20,591,443 -
Conversion of preferred stock into
common stock (106,301) (1,063) 18,642,761 186,428 (185,365)
Issuance of common stock, net
issuance costs of $42,537 5,472,741 54,727 4,952,236
Issuance of common stock upon
conversion of convertible debentures 1,566,047 15,660 561,929
Issuance of common stock upon exercise
of warrants and options 2,039,515 20,395 481,410
Expiration of valuation periods for
common stock subject to redemption 1,764,872
Deferred compensation related to
stock options granted 439,607 (439,607)
Compensation expense related to
stock options 465,680
Net loss
-------- -------- ----------- ---------- ------------ -----------
Balance at December 31, 1996 133,610 $ 1,336 111,048,538 $1,110,485 $ 48,521,331 $ (240,290)
======== ======== =========== ========== ============ ===========
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY (DEFICIT)
Balance at December 31, 1995 $ (19,296,309) $ 1,185,802
Issuance of preferred stock,
net issuance costs of $3,397,158 - 20,593,842
Conversion of preferred stock into
common stock -
Issuance of common stock, net
issuance costs of $42,537 5,006,963
Issuance of common stock upon
conversion of convertible debentures 577,589
Issuance of common stock upon exercise
of warrants and options 501,805
Expiration of valuation periods for
common stock subject to redemption 1,764,872
Deferred compensation related to
stock options granted -
Compensation expense related to
stock options 465,680
Net loss (5,996,147) (5,996,147)
-------------- ------------
Balance at December 31, 1996 $ (25,292,456) $24,100,406
============== ============
24
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
For the Year Ended December 31,
From inception
(October 16,
1992) to
December 31,
1996 1995 1994 1996
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
25
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 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.
26
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
FIXED ASSETS
Furniture and equipment are stated at cost. Depreciation is provided using
the straightline 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.
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 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
27
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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 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.
28
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994 (UNAUDITED)
OLD BLSI GREENWICH TOTAL
Revenues $ - $ 414,081 $ 414,081
============= ============= =============
Net loss $ (2,596,872) $ (8,158,682) $ (10,755,554)
============= ============= =============
Loss per share $ (0.14)
=============
YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
OLD BLSI GREENWICH TOTAL
Revenues $ 416,940 $ - $ 416,940
============= ============= =============
Net loss $ (3,727,607) $ (229,984) $ ( 3,957,591)
============= ============= =============
Loss per share $ (0.05)
=============
3. INVESTMENTS consist of the following at December 31:
1996 1995
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
=========== ========
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.
4. FIXED ASSETS consist of the following at December 31:
Estimated
useful life
(years) 1996 1995
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
======== =======
29
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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:
1996 1995
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
========== ==========
7. Notes Payable and Debt consists of the
at December 31:
1996 1995
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
========== ==========
30
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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 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
31
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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 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.
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.
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
32
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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.
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.
1996 1995
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)
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.
33
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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:
1996 1995 1994
-------------------------- -------------------------- ---------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
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
--------- ---------
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
-------------------------------------------------- -------------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-average Exercisable Weighted-Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
$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
--------- --------- ------- --------- -------
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.
34
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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:
Exercise Warrants Warrants
Date Price Exercised Outstanding Expiration
of Issue per Share in 1996 at 12/31/96 Date
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
--------- -----------
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.
35
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. INCOME TAXES
Income tax benefit consists of the following
for the years ended December 31:
1996 1995 1994
Income tax benefit:
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)
------------ ------------ ----------
$ - $ - $ -
============ ============ ==========
Deferred tax assets (liabilities) consist of the following at December 31:
1996 1995
Net operating loss carryforwards $ 11,955,000 $ 7,951,000
Capitalized research and development expenses 4,464,000 5,698,000
Research and developments 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)
------------ ------------
$ - $ -
============ ============
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.
36
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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:
1996 1995 1994
Benefit at statutory rate $ (2,099,000) $ (4,952,000) $ (909,000)
State taxes, net of federal benefit (420,000) (220,000) (203,000)
Charge for purchased research and
development acquired from Greenwich - 3,648,000 -
Research and development credit (72,000) (41,000) (98,000)
Non-deductible research and
development 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
------------- ------------- -----------
$ - $ - $ -
============= ============= ===========
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:
Research and
Net development
Year of operating credit
Expiration loss Federal State
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
=========== ========= ========
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.
37
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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):
Warrants Exercise Cash
Description of Financing Issued Price Payments
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
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.
38
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.
Name Age Position
---- --- --------
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
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.
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.
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
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
39
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.
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.
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.
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.
ITEM 11. EXECUTIVE COMPENSATION
40
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
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. David Hillson 1996 $170,000 $200,000(4) 250,000 None
Chairman of the Board, 1995 170,000 150,000 932,300 None
President and 1994 21,250 None 1,824,053(5) None
Chief Executive Officer
Marc E. Lanser, M.D 1996 166,000 50,000(6) 250,000 $ 8,849
Executive Vice President 1995 158,208 35,000 780,700 10,366
and Chief Scientific 1994 157,000 None 76,002(5) 7,712
Officer
____________________
(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 $45,000 was paid by the
Company in January 1997.
Stock Option Information
41
The following table sets forth, for each of the Named Executive Officers,
certain information concerning the grant of options to such persons in fiscal
1996.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
At Assumed Annual Rates
of Stock Appreciation for
Individual Grants Option Term (3)
- ----------------------------------------------------------------------------------------- --------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#)(1) Fiscal Year ($/sh)(2) Date 5% 10%
- ---- -------------- ------------ ----------- ----------- --------- --------
S. David Hillson, Esq. 250,000 22.16% $0.6563 11/21/06 $103,186 $261,493
Marc E. Lanser 250,000 22.16 0.6563 11/21/06 103,186 261,493
____________________
(1) Options granted to each of Mr. Hillson and Dr. Lanser to purchase 250,000
shares of Common Stock are 33% exercisable on or after November 19, 1996,
67% exercisable on or after November 19, 1997 and 100% exercisable on or
after November 19, 1998.
(2) The exercise price for each option is equal to the fair market value of the
Company's Common Stock on the date of grant.
(3) Potential realizable value is based on the assumed annual growth rates
listed, compounded annually for the ten-year option term. The dollar
amounts set forth under this heading are the results of calculations at the
5% and 10% assumed rates established by the SEC and are not intended to
forecast possible future appreciation, if any, of the value of the Common
Stock.
Neither of the Named Executive Officers exercised any options in fiscal
1996. The following table sets forth, for each of the Named Executive Officers,
certain information concerning the value of unexercised options at December 31,
1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
Number of Securities
Underlying
Unexercised Value of Unexercised In-
Options at Fiscal the-Money Options at
Year-End (#) Fiscal Year-End ($)(1)
------------------------ -------------------------
Shares
Acquired on Value
Name Exercise (#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ----------- ------------------------- -------------------------
S. 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
___________________
(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.
42
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 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
43
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.
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.
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership (1) Of Class (2)
- --------------- ------------------------ -----------
Colin B. Bier, Ph.D.
Director 50,434(3) *
Edson D. de Castro
Director 641,351(3) *
Joseph P. Hernon
Chief Financial Officer 30,000(3) *
S. David Hillson, Esq.
Chairman of the Board,
President and Chief
Executive Officer 2,082,208(4) 1.6%
Steve H. Kanzer, CPA, Esq.
Director and Secretary 462,706(5) *
Marc E. Lanser, M.D.
Director, Executive Vice President
and Chief Scientific Officer 2,583,423(6) 1.9%
Ira W. Lieberman, Ph.D.
Director 214,256(5) *
44
E. Christopher Palmer, CPA
Director 214,256(5) *
All directors and executive
officers as a group (8 persons) 6,278,634(7) 4.7%
___________________
* 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.
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).
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership(1) of Class (2)
- -------------- ------------------ ----------------------- ------------
Common Stock Lindsay A. Rosenwald, M.D. 6,960,096(3) 5.2%
and c/o Paramount Capital, Inc.
Preferred Stock(3) 787 Seventh Avenue
New York, NY 10019
Common Stock Strome-Susskind Investment 12,804,300(4) 9.5%
and Management, L.P.
Preferred Stock(4) 100 Wilshire Blvd., 15th Floor
Santa Monica, CA 90401
____________________
(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.
45
(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 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.
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, totaled approximately $25,000.
46
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.
EXHIBIT # DESCRIPTION AND METHOD OF FILING
--------- --------------------------------
2.1 Amended and Restated Agreement of Merger, dated as of
December 29, 1994, by and between the Company and
Greenwich Pharmaceuticals Incorporated (1)
2.2 Amendment No. 1 to Amended and Restated Agreement of
Merger, dated as of April 6, 1995, by and between the
Company and Greenwich Pharmaceuticals Incorporated (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)
47
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)
================================================================================
(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
48
(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:
Date of Report Item Reported
-------------- -------------
October 15, 1996 5,7
January 13, 1997 5,7
January 23, 1997 5,7
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Boston Life Sciences, Inc.
(Registrant)
March 31, 1997 By:/s/Joseph P. Hernon
-----------------------
Joseph P. Hernon
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/David S. Hillson Chairman, President & March 31, 1997
- -------------------------------------
David S. Hillson Chief Executive Officer
(Principal Executive Officer)
/s/Marc E. Lanser, M.D. Executive Vice President & March 31, 1997
- -------------------------------------
Marc E. Lanser, M.D. Chief Scientific Officer
/s/Joseph P. Hernon Chief Financial Officer March 31, 1997
- -------------------------------------
Joseph P. Hernon (Principal Financial and
Accounting Officer)
/s/Colin B. Bier, M.D. Director March 31, 1997
- -------------------------------------
Colin B. Bier, M.D.
/s/Edson D. de Castro Director March 31, 1997
- -------------------------------------
Edson D. de Castro
/s/Steve H. Kanzer, Esq. Director March 31, 1997
- -------------------------------------
Steve H. Kanzer, Esq.
/s/Ira W. Lieberman, Ph.D. Director March 31, 1997
- -------------------------------------
Ira W. Lieberman, Ph.D.
/s/E. Christopher Palmer Director March 31, 1997
- -------------------------------------
E. Christopher Palmer
50
Exhibit Index
Exhibit # Description and Method of Filing Page Number
- --------- -------------------------------- -----------
2.1 Amended and Restated Agreement of Merger, dated as of December
29, 1994, by and between the Company and Greenwich
Pharmaceuticals Incorporated (1)
2.2 Amendment No. 1 to Amended and Restated Agreement of Merger,
dated as of April 6, 1995, by and between the Company and
Greenwich Pharmaceuticals Incorporated (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)
================================================================================
(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
51
(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
52