##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from  to



Commission File Number 0-6533



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BOSTON LIFE SCIENCES, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 87-0277826                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)
|                                                               | 
|20 Newbury Street, 5th Floor, Boston, Massachusetts            |  | 02116                            
|(Address of principal executive offices)                       |  | (Zip code)                       



(617) 425-0200

(Registrants telephone number, including area code)



Not Applicable

(Former name, former address and former fiscal year, if changed since last report)



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



Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



As of May 7, 2004 there were 34,112,037 shares of Common Stock outstanding.



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##### Table of Contents

BOSTON LIFE SCIENCES, INC.



INDEX TO
FORM 10-Q



|                                                                                                                                                                 |  |         
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|                                                                                                                                                                 |  | Page (s)
|Part I 
Financial Information                                                                                                                                   |  |         
|                                                                                                                                                                 | 
|Item 1 
Financial Statements (Unaudited)                                                                                                                        |  |         
|                                                                                                                                                                 | 
|Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003                                                                                           |  | 1       
|                                                                                                                                                                 | 
|Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003, and for the period from inception (October 16, 1992) to March 31, 2004 |  | 2       
|                                                                                                                                                                 | 
|Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003, and for the period from inception (October 16, 1992) to March 31, 2004 |  | 3       
|                                                                                                                                                                 | 
|Notes to Consolidated Financial Statements                                                                                                                       |  | 46     
|                                                                                                                                                                 | 
|Item 2 
Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                   |  | 7 11   
|                                                                                                                                                                 | 
|Item 3 
Quantitative and Qualitative Disclosures about Market Risk                                                                                              |  | 12      
|                                                                                                                                                                 | 
|Item 4 
Controls and Procedures                                                                                                                                 |  | 12      
|                                                                                                                                                                 | 
|Part II 
Other Information                                                                                                                                      |  |         
|                                                                                                                                                                 | 
|Item 1 
Legal Proceedings                                                                                                                                       |  | 13      
|                                                                                                                                                                 | 
|Item 2 
Changes in Securities and Use of Proceeds                                                                                                               |  | 13      
|                                                                                                                                                                 | 
|Item 3 
Defaults Upon Senior Securities                                                                                                                         |  | 13      
|                                                                                                                                                                 | 
|Item 4 
Submission of Matters to a Vote of Security Holders                                                                                                     |  | 13      
|                                                                                                                                                                 | 
|Item 5 
Other Information                                                                                                                                       |  | 13      
|                                                                                                                                                                 | 
|Item 6 
Exhibits and Reports on Form 8-K                                                                                                                        |  | 13      
|                                                                                                                                                                 | 
|Signatures                                                                                                                                                       |  | 14      



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##### Table of Contents

Part I  Financial Information



Item 1  Financial Statements



Boston Life Sciences, Inc.

(A Development Stage Enterprise)



Consolidated Balance Sheets



|                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                            |             |   |                   |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                  |  | (Unaudited) March 31, 2004 |             |   | December 31, 2003 |  
|Assets                                                                                                                                                                                                                                                                                                                                                                                                            |  |                            |             |   |                   |   |             |  
|Current assets:                                                                                                                                                                                                                                                                                                                                                                                                   |  |                            |             |   |                   |   |             |  
|Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                         |  | $                          | 1,391,304   |   |                   | $ | 6,088,458   |  
|Marketable securities                                                                                                                                                                                                                                                                                                                                                                                             |  |                            | 7,245,098   |   |                   |   | 4,876,402   |  
|Restricted cash and marketable securities                                                                                                                                                                                                                                                                                                                                                                         |  |                            | 445,926     |   |                   |   | 445,926     |  
|Other current assets                                                                                                                                                                                                                                                                                                                                                                                              |  |                            | 843,454     |   |                   |   | 515,947     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                            |             |   |                   |   |             |  
|Total current assets                                                                                                                                                                                                                                                                                                                                                                                              |  |                            | 9,925,782   |   |                   |   | 11,926,733  |  
|Restricted cash and marketable securities                                                                                                                                                                                                                                                                                                                                                                         |  |                            | 4,590,322   |   |                   |   | 4,590,322   |  
|Fixed assets, net                                                                                                                                                                                                                                                                                                                                                                                                 |  |                            | 551,558     |   |                   |   | 604,662     |  
|Other assets                                                                                                                                                                                                                                                                                                                                                                                                      |  |                            | 303,308     |   |                   |   | 311,177     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                            |             |   |                   |   |             |  
|Total assets                                                                                                                                                                                                                                                                                                                                                                                                      |  | $                          | 15,370,970  |   |                   | $ | 17,432,894  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                            |             |   |                   |   |             |  
|Liabilities and Stockholders Equity                                                                                                                                                                                                                                                                                                                                                                              |  |                            |             |   |                   |   |             |  
|Current liabilities:                                                                                                                                                                                                                                                                                                                                                                                              |  |                            |             |   |                   |   |             |  
|Accounts payable and accrued expenses                                                                                                                                                                                                                                                                                                                                                                             |  | $                          | 2,188,476   |   |                   | $ | 1,506,147   |  
|Non-current liabilities:                                                                                                                                                                                                                                                                                                                                                                                          |  |                            |             |   |                   |   |             |  
|10% convertible senior secured promissory notes                                                                                                                                                                                                                                                                                                                                                                   |  |                            | 3,902,435   |   |                   |   | 3,811,129   |  
|Contingencies (Note 6)                                                                                                                                                                                                                                                                                                                                                                                            |  |                            |             |   |                   |   |             |  
|Stockholders equity:                                                                                                                                                                                                                                                                                                                                                                                             |  |                            |             |   |                   |   |             |  
|Preferred stock, $.01 par value; 1,000,000 shares authorized; 25,000 shares designated Convertible Series A, 500,000 shares designated
Convertible Series D, and 800 shares designated Convertible Series E; 623.3 and 800 shares Convertible Series E issued and outstanding at March 31, 2004 (liquidation preference of $6,380,611) and December 31, 2003 (liquidation preference of
$8,034,029), respectively |  |                            | 3,888,312   |   |                   |   | 4,990,614   |  
|Common stock, $.01 par value; 60,000,000 shares authorized; 33,949,742 and 32,519,588 shares issued and outstanding at March 31, 2004 and
December 31, 2003, respectively                                                                                                                                                                                                                                         |  |                            | 339,497     |   |                   |   | 325,196     |  
|Additional paid-in capital                                                                                                                                                                                                                                                                                                                                                                                        |  |                            | 102,147,794 |   |                   |   | 101,195,170 |  
|Accumulated other comprehensive income                                                                                                                                                                                                                                                                                                                                                                            |  |                            | 22,897      |   |                   |   | 605         |  
|Deficit accumulated during development stage                                                                                                                                                                                                                                                                                                                                                                      |  |                            | (97,118,441 | ) |                   |   | (94,395,967 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                            |             |   |                   |   |             |  
|Total stockholders equity                                                                                                                                                                                                                                                                                                                                                                                        |  |                            | 9,280,059   |   |                   |   | 12,115,618  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                            |             |   |                   |   |             |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                                                                                                                                                                        |  | $                          | 15,370,970  |   |                   | $ | 17,432,894  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                            |             |   |                   |   |             |  



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



1



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##### Table of Contents

Boston Life Sciences, Inc.

(A Development Stage Enterprise)



Consolidated Statements of Operations

(Unaudited)



|                                                                         |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|------------------------------------------------------------------------ |  | ---------------------------- | ---------- | - | -------------------------------------------------- | - | ---------- | - |  | - | ------------ | -
|                                                                         |  | Three Months Ended March 31, |            |   | From Inception(October 16, 1992) to March 31,
2004 |  
|                                                                         |  | 2004                         |            |   | 2003                                               |   |           
|Revenues                                                                 |  | $                            |           |   |                                                    | $ |           |   |  | $ | 900,000      |  
|Operating expenses:                                                      |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Research and development                                                 |  |                              | 1,588,427  |   |                                                    |   | 1,364,466  |   |  |   | 60,975,670   |  
|General and administrative                                               |  |                              | 982,420    |   |                                                    |   | 971,196    |   |  |   | 26,820,393   |  
|Purchased in-process research and development                            |  |                              |           |   |                                                    |   |           |   |  |   | 12,146,544   |  
|                                                                         |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Total operating expenses                                                 |  |                              | 2,570,847  |   |                                                    |   | 2,335,662  |   |  |   | 99,942,607   |  
|                                                                         |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Loss from operations                                                     |  |                              | (2,570,847 | ) |                                                    |   | (2,335,662 | ) |  |   | (99,042,607  | )
|Other expenses                                                           |  |                              |           |   |                                                    |   |           |   |  |   | (1,580,621   | )
|Interest expense                                                         |  |                              | (208,868   | ) |                                                    |   | (144,401   | ) |  |   | (3,454,785   | )
|Investment income                                                        |  |                              | 57,241     |   |                                                    |   | 126,465    |   |  |   | 6,959,572    |  
|                                                                         |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Net loss                                                                 |  |                              | (2,722,474 | ) |                                                    |   | (2,353,598 | ) |  |   | (97,118,441  | )
|Preferred stock beneficial conversion feature                            |  |                              |           |   |                                                    |   |           |   |  |   | (8,062,712   | )
|Accrual of preferred stock dividends                                     |  |                              | (144,283   | ) |                                                    |   |           |   |  |   | (178,312     | )
|                                                                         |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Net loss attributable to common stockholders                             |  |                              | (2,866,757 | ) |                                                    |   | (2,353,598 | ) |  | $ | (105,359,465 | )
|                                                                         |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Basic and diluted net loss attributable to common stockholders per share |  | $                            | (0.09      | ) |                                                    | $ | (0.10      | ) |  |   |              |  
|                                                                         |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Weighted average shares outstanding                                      |  |                              | 33,007,893 |   |                                                    |   | 24,612,329 |   |  |   |              |  
|                                                                         |  |                              |            |   |                                                    |   |            |   |  |   |              |  



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



2



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##### Table of Contents

Boston Life Sciences, Inc.

(A Development Stage Enterprise)



Consolidated Statements of Cash Flows

(Unaudited)



|                                                                             |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|---------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | -------------------------------------------------- | - | ---------- | - |  | - | ------------ | -
|                                                                             |  | Three Months Ended March 31, |            |   | From Inception(October 16, 1992) to March 31,
2004 |  
|                                                                             |  | 2004                         |            |   | 2003                                               |   |           
|Cash flows from operating activities:                                        |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Net loss                                                                     |  | $                            | (2,722,474 | ) |                                                    | $ | (2,353,598 | ) |  | $ | (97,118,441  | )
|Adjustments to reconcile net loss to net cash used for operating activities: |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Purchased in-process research and development                                |  |                              |           |   |                                                    |   |           |   |  |   | 12,146,544   |  
|Write-off of acquired technology                                             |  |                              |           |   |                                                    |   |           |   |  |   | 3,500,000    |  
|Interest expense settled through issuance of notes payable                   |  |                              |           |   |                                                    |   |           |   |  |   | 350,500      |  
|Non-cash interest expense                                                    |  |                              | 100,105    |   |                                                    |   | 40,818     |   |  |   | 1,068,971    |  
|Non-cash charges related to options, warrants and common stock               |  |                              | 4,620      |   |                                                    |   | 162,849    |   |  |   | 4,092,103    |  
|Amortization and depreciation                                                |  |                              | 57,495     |   |                                                    |   | 54,175     |   |  |   | 2,028,150    |  
|Changes in current assets and liabilities:                                   |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|(Increase) decrease in other current assets                                  |  |                              | (327,507   | ) |                                                    |   | (8,644     | ) |  |   | 15,509       |  
|Increase in accounts payable and accrued expenses                            |  |                              | 568,747    |   |                                                    |   | 5,779      |   |  |   | 1,268,200    |  
|                                                                             |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Net cash used for operating activities                                       |  |                              | (2,319,014 | ) |                                                    |   | (2,098,621 | ) |  |   | (72,648,464  | )
|Cash flows from investing activities:                                        |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Cash acquired through Merger                                                 |  |                              |           |   |                                                    |   |           |   |  |   | 1,758,037    |  
|Purchases of fixed assets                                                    |  |                              | (4,391     | ) |                                                    |   | (8,258     | ) |  |   | (1,334,233   | )
|Increase in other assets                                                     |  |                              | (930       | ) |                                                    |   | (1,246     | ) |  |   | (610,704     | )
|Increase in restricted cash and marketable securities                        |  |                              |           |   |                                                    |   |           |   |  |   | (5,036,248   | )
|Purchases of marketable securities                                           |  |                              | (3,722,513 | ) |                                                    |   | (2,262,291 | ) |  |   | (109,459,376 | )
|Sales and maturities of marketable securities                                |  |                              | 1,376,109  |   |                                                    |   | 2,864,878  |   |  |   | 102,237,175  |  
|                                                                             |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Net cash (used for) provided by investing activities                         |  |                              | (2,351,725 | ) |                                                    |   | 593,083    |   |  |   | (12,445,349  | )
|Cash flows from financing activities:                                        |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Proceeds from issuance of common stock                                       |  |                              | 1,249      |   |                                                    |   | 10,000,000 |   |  |   | 44,739,502   |  
|Proceeds from issuance of preferred stock                                    |  |                              |           |   |                                                    |   |           |   |  |   | 35,022,170   |  
|Preferred stock conversion inducement                                        |  |                              |           |   |                                                    |   |           |   |  |   | (600,564     | )
|Proceeds from issuance of notes payable                                      |  |                              |           |   |                                                    |   |           |   |  |   | 6,585,000    |  
|Proceeds from issuance of convertible debentures                             |  |                              |           |   |                                                    |   |           |   |  |   | 9,000,000    |  
|Principal payments of notes payable                                          |  |                              |           |   |                                                    |   |           |   |  |   | (2,796,467   | )
|Payments of financing costs                                                  |  |                              | (27,664    | ) |                                                    |   | (69,931    | ) |  |   | (5,464,524   | )
|                                                                             |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Net cash (used for) provided by financing activities                         |  |                              | (26,415    | ) |                                                    |   | 9,930,069  |   |  |   | 86,485,117   |  
|                                                                             |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Net (decrease) increase in cash and cash equivalents                         |  |                              | (4,697,154 | ) |                                                    |   | 8,424,531  |   |  |   | 1,391,304    |  
|Cash and cash equivalents, beginning of period                               |  |                              | 6,088,458  |   |                                                    |   | 794,401    |   |  |   |             |  
|                                                                             |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Cash and cash equivalents, end of period                                     |  | $                            | 1,391,304  |   |                                                    | $ | 9,218,932  |   |  | $ | 1,391,304    |  
|                                                                             |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Supplemental cash flow disclosures:                                          |  |                              |            |   |                                                    |   |            |   |  |   |              |  
|Non-cash transactions (see note 5)                                           |  |                              |            |   |                                                    |   |            |   |  |   |              |  



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



3



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##### Table of Contents

Boston Life Sciences, Inc.

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements (Unaudited)

March 31, 2004



1. Basis of Presentation



The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete
financial statements.



The interim unaudited consolidated
financial statements contained herein include, in managements opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the
periods presented. The results of operations for the interim period shown on this report are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the Companys consolidated
financial statements and notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2003.



As of March 31, 2004, the Company has experienced total net losses since inception of approximately $97 million. For the foreseeable future, the Company
expects to experience continuing operating losses and negative cash flows as management executes its current business plan. The Company believes that the cash, cash equivalents, and marketable securities available at March 31, 2004 will provide
sufficient working capital to meet its anticipated expenditures for at least the next nine months. The Company will need to raise additional capital in the future through collaboration agreements with other pharmaceutical or biotechnology companies,
debt financing and/or 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. The Company has $4,350,500 in principal of 10% Convertible
Senior Secured Convertible Promissory Notes (the Notes) that become due in June 2005. The Company has set aside approximately $5,036,000 in restricted cash and marketable securities to repay the Notes and the future interest on the Notes
in accordance with the terms of its Series E Cumulative Convertible Preferred Stock (Series E Stock) agreements. However, there can be no assurance that the Company will not need to raise additional capital before June 2005 in order to
maintain enough restricted cash and marketable securities to satisfy the Notes and future interest payments on the Notes when they become due. The financial statements do not include any adjustments as a result of this uncertainty.



2. Net Loss Per Share



Basic and diluted net loss per share available to common stockholders has been calculated by dividing net loss attributable
to common stockholders by the weighted average number of common shares outstanding during the period. All potentially dilutive common shares have been excluded from the calculation of weighted average common shares outstanding since their inclusion
would be anti-dilutive.



Stock options and warrants to purchase
approximately 14.4 million and 10.8 million shares of common stock were outstanding at March 31, 2004 and 2003, respectively, but were not included in the computation of diluted net loss per common share because they were anti-dilutive. The exercise
of those stock options and warrants outstanding at March 31, 2004, which could generate proceeds to the Company of up to $38 million, could potentially dilute earnings per share in the future. At March 31, 2004, outstanding promissory notes and
preferred stock which are convertible into 4,350,500 shares and 4,986,400 shares of common stock, respectively, were not included in the computation of diluted net loss per common share because they were anti-dilutive.



3. Comprehensive Loss



The Company had total comprehensive loss of $2,700,182 and $2,444,434 for the three months ended March 31, 2004 and 2003,
respectively.



4. Accounting for Stock-Based Compensation



The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related interpretations, in accounting for its employee stock-based compensation plans and related equity issuances, rather than the alternative fair value accounting
method provided for under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (SFAS No. 123). Under APB 25, when the exercise price of options granted under these plans equals the
market price of the underlying stock on the date of grant, provided other criteria are met, no compensation expense is recognized. All stock-based awards to non-employees are accounted for in accordance with SFAS No. 123 and Emerging Issues Task
Force 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring or in Conjunction with Selling, Goods or Services.



4



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##### Table of Contents

Boston Life Sciences, Inc.

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements (Unaudited)



The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:



|                                                                                                                 |  |                              |            |   |      |   |            |  
|---------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                 |  | Three Months Ended March 31, |           
|                                                                                                                 |  | 2004                         |            |   | 2003 |  
|Net loss, as reported                                                                                            |  | $                            | (2,722,474 | ) |      | $ | (2,353,598 | )
|Add: Stock-based employee compensation expense recognized                                                        |  |                              |           |   |      |   |           |  
|Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards |  |                              | (171,415   | ) |      |   | (181,476   | )
|                                                                                                                 |  |                              |            |   |      |   |            |  
|Pro forma net loss                                                                                               |  | $                            | (2,893,889 | ) |      | $ | (2,535,074 | )
|Accrual of preferred stock dividends                                                                             |  |                              | (144,283   | ) |      |   |           |  
|                                                                                                                 |  |                              |            |   |      |   |            |  
|Pro forma net loss attributable to common stockholders                                                           |  | $                            | (3,038,172 | ) |      | $ | (2,535,074 | )
|                                                                                                                 |  |                              |            |   |      |   |            |  
|Basic and diluted loss per share                                                                                 |  |                              |            |   |      |   |            |  
|As reported                                                                                                      |  | $                            | (0.09      | ) |      | $ | (0.10      | )
|Pro forma                                                                                                        |  | $                            | (0.09      | ) |      | $ | (0.10      | )



The fair value of each
option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of zero percent; expected volatility of 100%; risk-free interest rates, based on the date of grant,
ranging from 2% to 6%; and expected lives ranging from three to five years.



5. Stockholders Equity



The Company
issued 1,413,600 shares of common stock in connection with the conversion of 176.7 shares of Series E Stock during the three months ended March 31, 2004. In addition, the Company issued 12,844 shares of common stock in connection with the dividend
payable upon conversion of the Series E Stock during the three months ended March 31, 2004.



As a condition of our December 2003 private placement of Series E Stock and warrants, we agreed to exercise our right to obtain a release of the security interest and continuing lien on our property that currently
secure our outstanding Notes by providing alternative collateral in the form of cash or a standby letter-of-credit in the amount of all remaining principal and interest payments on the Notes through maturity. The remaining principal and interest
payments on the Notes through maturity total approximately $5,036,000. We communicated to the holder of the Notes our intention to obtain a release of the lien on our property by providing alternative collateral in the form of an irrevocable standby
letter of credit in the amount of our remaining obligations. To date, we have been unable to reach agreement with the noteholder on the terms of such a letter of credit. We are currently reviewing our options regarding the release of liens and in
the interim have set aside sufficient funds in a segregated account to satisfy our remaining obligations under the Notes in order to comply with our covenant to the December 2003 private placement investors. At March 31, 2004 and December 31, 2003,
the Company has classified approximately $5,036,000 in cash and marketable securities as restricted in the Consolidated Balance Sheet related to this obligation.



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##### Table of Contents

Boston Life Sciences, Inc.

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements (Unaudited)



6. Contingencies



The Company accrues
contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonable estimated.



Litigation



On November 13, 2003, Robert L. Gipson, Thomas O. Boucher, Jr., Ingalls & Snyder Value Partners, L.P. and Ingalls & Snyder, L.L.C., the
plaintiffs, filed a complaint against the Company and the members of the Companys Board of Directors in the Delaware Court of Chancery alleging an improper entrenchment motive regarding the Board of Directors interpretation of the
Companys 2001 Rights Agreement, as amended to date. On September 29, 2003 and October 15, 2003, the plaintiffs filed amendments to their Schedule 13D relating to the Companys common stock in which they stated their intention to seek the
removal of certain members of the Companys Board of Directors and management, to nominate an alternate slate of directors for election at the Companys next annual meeting and to seek redemption of the Companys Rights Agreement. In
October 2003, the Board of Directors considered the possibility that Mr. Bouchers holdings of the Companys common stock, together with the holdings of certain other shareholders being attributed to Mr. Boucher by virtue of his acting in
concert with such shareholders, may have exceeded a beneficial ownership threshold that could trigger a distribution of preferred stock purchase rights under the Companys Rights Agreement.



By letter from counsel dated October 14, 2003, the Board of Directors
communicated to the plaintiffs that Mr. Boucher may have exceeded the threshold for triggering the distribution of the rights under the Rights Agreement and that the Board of Directors had taken action to temporarily delay the distribution of the
rights. The complaint filed by the plaintiffs was seeking, among other things, declaratory relief that Mr. Boucher had not exceeded the beneficial ownership threshold for triggering the distribution of rights under the Rights Agreement and that the
directors had breached their fiduciary duties in connection with applying the Rights Agreement, and injunctive relief to compel the directors to call and hold a special meeting of stockholders. In December 2003, the plaintiffs requested expedited
relief in the form of a preliminary injunction regarding Mr. Bouchers status under the Rights Agreement. On December 23, 2003, the Company amended the Rights Agreement in order to clarify Mr. Bouchers status under the Rights Agreement
and the plaintiffs withdrew their request for expedited relief. There have been no subsequent developments regarding this litigation.



On December 31, 2003, the plaintiffs filed another complaint in the Delaware Court of Chancery against the Company and the members of its Board of
Directors alleging an improper entrenchment motive and breach of fiduciary duty by the directors in connection with the issuance of preferred stock and warrants in the Companys December 2003 private placement. The complaint filed by the
plaintiffs was seeking unspecified equitable and monetary relief. The Company asked the court to dismiss this lawsuit because it lacked any factual basis and ignored fundamental principles of law. Instead of responding to the Companys motion
to dismiss, on March 9, 2004, the plaintiffs moved to dismiss their own lawsuit without prejudice prior to the deadline to explain to the court why their claim was legitimate. The Delaware Court of Chancery immediately granted the motion and
dismissed the case. On March 22, 2004, the plaintiffs made a books and records request under Delaware law seeking additional information regarding the Companys December 2003 private placement and seeking information on a number of unrelated
matters.



The Company believes these proceedings will not have
a material impact on the consolidated financial statements.



Contingencies



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



In March 2004, the Company received notice from Rodman & Renshaw claiming
that Rodman & Renshaw was entitled to a cash payment of approximately $452,000 and 361,000 warrants in connection with the Companys private placement completed in December 2003. The Company responded shortly thereafter, advising Rodman
& Renshaw that there was no legal or equitable basis for the payment of compensation to Rodman & Renshaw in connection with the private placement. Management believes that the resolution of this matter will not have a material adverse effect
on the consolidated financial statements.



Guarantor
Arrangements



In November 2002, the FASB issued FIN No. 45
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34. The
Interpretation requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The Interpretation also requires additional disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The accounting requirements for the initial recognition of guarantees are applicable on a prospective basis for guarantees issued
or modified after December 31, 2002. The adoption of FIN No. 45 did not have a material effect on our consolidated financial statements. The following is a summary of the Companys agreements that have been determined to be within the scope of
FIN No. 45.



As permitted under Delaware law, the Company has
entered into agreements whereby the Company indemnifies its executive officers and directors for certain events or occurrences while the officer or director is, or was serving, at the Companys request in such capacity. The term of the
indemnification period is for the officers or directors lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a
Director and Officer insurance policy that limits the Companys exposure and enables the Company to recover a portion of any future amounts paid. As a result of the Companys insurance policy coverage, the Company believes the estimated
fair value of these indemnification agreements is minimal.



The
Company enters into arrangements with certain service providers to perform research, development, and clinical services for the Company. Under the terms of these arrangements, such service providers may use the Companys technologies in
performing their services. The Company enters into standard indemnification agreements with those service providers, whereby the Company indemnifies them for any liability associated with their use of the Companys technologies. The maximum
potential amount of future payments the Company would be required to make under these indemnification agreements is unlimited; however, the Company has product liability and general liability policies that enable the Company to recover a portion of
any amounts paid. As a result of the Companys insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.



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##### Table of Contents

Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations



This Quarterly Report on Form 10-Q contains forward-looking statements. Specifically, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify
forward-looking statements. Such statements include, without limitation, statements regarding expectations or beliefs as to future results or events, such as the expected timing and results of clinical trials, discussions with regulatory agencies,
schedules of Investigational New Drug application, or IND, New Drug Application, or NDA, and all other regulatory submissions, the timing of product introductions, the possible approval of products (including the ultimate approvability of
ALTROPANE), and the market size and possible advantages of our products. All such forward-looking statements involve substantial risks and uncertainties, and actual results may vary materially from these statements. Factors that may affect future
results include: the availability and adequacy of financial resources, delays in the regulatory or development processes, results from clinical and pre-clinical trials, regulatory decisions (including the discretion of the Food and Drug
Administration, or FDA, following completion of a single, pivotal Phase III trial to require us to conduct additional clinical trials in order to achieve approvability of ALTROPANE), market acceptance of our products, the ability to obtain
intellectual property protection, the outcome of discussions with potential partners and other possible risks and uncertainties that have been noted in reports filed by us with the Securities and Exchange Commission, including our Annual Report on
Form 10-K for the year ended December 31, 2003.



General



Description of Company



We are a biotechnology company engaged in the research and development of
biopharmaceutical products for the diagnosis and treatment of central nervous system, or CNS, diseases and for the treatment of some cancers. At March 31, 2004, we are considered a development stage enterprise as defined in Statement of
Financial Accounting Standards No. 7, Accounting and Reporting by Development Stage Enterprises.



As of March 31, 2004, we have experienced total net losses since inception of approximately $97 million. For the foreseeable future, we expect to
experience continuing operating losses and negative cash flows as management executes our current business plan. We believe that the cash, cash equivalents, and marketable securities available at March 31, 2004 will provide sufficient working
capital to meet our anticipated expenditures for at least the next nine months. We will need to raise additional capital in the future through collaboration agreements with other pharmaceutical or biotechnology companies, debt financing and/or
equity offerings. There can be no assurance, however, that we will be successful or that additional funds will be available on acceptable terms, if at all. We have $4,350,500 in principal of 10% Convertible Senior Secured Promissory Notes, or Notes,
that become due in June 2005. We have set aside approximately $5,036,000 in restricted cash and marketable securities to repay the Notes and the future interest on the Notes in accordance with the terms of our Series E Cumulative Convertible
Preferred Stock, or Series E Stock, agreements. However, there can be no assurance that we will not need to raise additional capital before June 2005 in order to maintain enough restricted cash and marketable securities to satisfy the Notes and
future interest payments on the Notes when they become due.



Product Development



ALTROPANE is an imaging
agent being developed for the diagnosis of Parkinsonian Syndromes, or PS (including Parkinsons Disease, or PD), Parkinsonian Tremor, and Attention Deficit Hyperactivity Disorder, or ADHD. We have completed a Phase III trial of ALTROPANE for
use in differentiating PS movement disorders from non-PS movement disorders. In April 2004, we announced that we had reached a binding agreement with the FDA regarding our protocol design for a new Phase III clinical trial of ALTROPANE for the
differentiation of Parkinsonian tremors from tremors due to other, non-Parkinsonian causes. This written agreement represents the culmination of a number of teleconferences, meetings and protocol revisions occurring over an eight-month period in
which we and the FDA refined the study design for this single, pivotal trial. The resulting agreement binds us and the FDA to the precise design and statistical plan outlined in the approved protocol. This Phase III study will enroll at least 500
subjects (250 with Parkinsonian tremor and 250 with non-Parkinsonian tremor) in up to 25 centers in the U.S., most of which are university-based. Subjects suspected of having tremor will be referred to a neurology clinic for enrollment in the study.
Upon diagnosis of Parkinsonian or non-Parkinsonian tremor by the subjects internist or general practitioner, the subjects will be administered ALTROPANE and a SPECT image will be obtained. Subsequent to SPECT scanning, the subject will be
evaluated and diagnosed by a Movement Disorders Specialist, or MDS. Throughout the two-day period of evaluation, the subjects will be monitored for safety. Upon completion of the study, various analyses of the data will be conducted. Primary
analyses will comprise assessments of the sensitivity and specificity of the ALTROPANE SPECT procedure versus the diagnosis of an internist or general practitioner. The primary endpoint of the study is to demonstrate statistically significant
superiority of the ALTROPANE scan diagnosis compared to that of an internist or general practitioner, using the diagnosis of a MDS as the gold standard. Because we have elected to pursue this single, large Phase III trial, rather than
two smaller, replicate trials, we have powered the trial to achieve a high level of statistical significance and expect that the FDA will require a high level of statistical significance in order to achieve approvability.



We currently expect to initiate enrollment for this Phase III trial in the
second quarter of 2004. Once enrollment has initiated, we currently anticipate this new Phase III trial for ALTROPANE will take approximately twelve months to complete. We believe that, if successful, i.e. that the endpoints are met and no
significant safety concerns or protocol deviations occur, this Phase III trial will provide the basis for a NDA submission and ultimate approvability of ALTROPANE. We hope to submit an NDA for ALTROPANE for use in distinguishing Parkinsonian from
non-Parkinsonian Syndromes in patients with tremors within six months of the trials successful completion.



We are currently conducting our second Phase II trial of ALTROPANE for the diagnosis of ADHD in adults using a simplified scanning procedure and algorithm
adjustments. If we obtain successful results in this trial, we will then proceed to a Phase III clinical trial.



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##### Table of Contents

Inosine is a nerve growth factor which specifically promotes axon outgrowth in CNS cells. We are
currently conducting pre-clinical studies required for the filing of an IND. We expect to file an IND for treatment of ischemic stroke for Inosine in the third quarter of 2004 and, subsequent to FDAs approval, initiate clinical trials in
humans.



Troponin I, or Troponin, is our anti-angiogenic agent
under development as a potential treatment for cancer. Troponin is presently in pre-clinical development.



Our earlier stage product candidates include FLUORATEC, a second-generation imaging agent for the diagnosis of PD and ADHD and compounds for
the treatment of PD and other central nervous system disorders.



To date, we have not marketed, distributed or sold any products and, with the exception of the ALTROPANE imaging agent, all of our technologies and early-stage product candidates are in pre-clinical development. Our product candidates must
undergo a rigorous regulatory approval process which includes extensive pre-clinical and clinical testing to demonstrate safety and efficacy before any resulting product can be marketed. The FDA has stringent laboratory and manufacturing standards
which must be complied with before we can test our product candidates in people or make them commercially available. Pre-clinical testing and clinical trials are lengthy and expensive and the historical rate of failure for product candidates is
high. Clinical trials require sufficient patient enrollment which is a function of many factors, and delays and difficulties in completing patient enrollment can result in increased costs and longer development times. The foregoing uncertainties and
risks limit our ability to estimate the timing and amount of future costs that will be required to complete the clinical development of each program. In addition, we are unable to estimate when material net cash inflows are expected to commence as a
result of the successful completion of one or more of our programs. However, we do not currently expect to generate revenues from product sales for at least the next eighteen months.



The biotechnology and pharmaceutical industries are highly competitive and are dominated by larger, more experienced and
better capitalized companies. Any delays we encounter in completing our clinical trial programs may adversely impact our competitive position in the markets in which we compete. Such delays may also adversely affect our financial position and
liquidity.



Critical Accounting Policies



Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements which have been prepared by us in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our estimates include those related to marketable securities, research
contracts, and the fair value and classification of equity instruments. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. For a complete description of our accounting policies, see Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2003.



Marketable Securities



Our marketable securities consist exclusively of investments in United
States agency bonds and corporate debt obligations. These marketable securities are adjusted to fair value on the consolidated balance sheet through other comprehensive income. If a decline in the fair value of a security is considered to be other
than temporary, the investment is written down to a new cost basis and the unrealized loss is removed from accumulated other comprehensive loss and recorded in the Consolidated Statement of Operations. We evaluate whether a decline in fair value is
other than temporary based on factors such as the significance of the decline, the duration of time for which the decline has been in existence and our ability and intent to hold the security to maturity. To date, we have not recorded any other than
temporary impairments related to our marketable securities. These marketable securities are classified as current assets because they are highly liquid and are available, as required, to meet working capital and other operating requirements.



Research Contracts



We regularly enter into contracts with third parties to perform research and
development activities in connection with our scientific technologies. Costs incurred under these contracts are recognized ratably over the term of the contract which we believe corresponds to the manner in which the work is performed. Clinical
trial, contract services and other outside costs require that we make estimates of the costs incurred in a given accounting period and record accruals at period end as the third party service periods and billing terms do not always coincide with our
period end. We base our estimates on our knowledge of the research and development programs, services performed for the period, past history for related activities and the expected duration of the third party service contract where applicable.



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##### Table of Contents

Fair Value and Classification of Equity Instruments



Historically, we have issued warrants to purchase shares of our common stock
in connection with our debt and equity financings. We record each of the securities issued on a relative fair value basis up to the amount of the proceeds received. We estimate the fair value of the warrants using the Black-Scholes option pricing
model. The Black-Scholes model is dependent on a number of variables and estimates including: interest rates, dividend yield, volatility and the expected term of the warrants. Our estimates are based on market interest rates at the date of issuance,
our past history for declaring dividends, our stock price volatility and the contractual term of the warrants. The value ascribed to the warrants in connection with debt offerings is considered a cost of capital and amortized to interest expense
over the term of the debt.



We have, at certain times, issued
preferred stock and notes, which was convertible into common stock at a discount from the common stock market price at the date of issuance. The discounted amount associated with such conversion rights represents an incremental yield, i.e. a
beneficial conversion feature that is recorded when the consideration allocated to the convertible security, divided by the number of common shares into which the security converts, is below the fair value of the common stock at the date
of issuance of the convertible instrument.



A beneficial
conversion feature associated with the preferred stock is recognized as a return to the preferred shareholders and represents a non-cash charge in the determination of net loss available to common stockholders. The beneficial conversion feature is
recognized in full immediately if there is no redemption date for the preferred stock, or over the period of issuance through the redemption date, if applicable. A beneficial conversion feature associated with debentures, notes or other debt
instruments is recognized as discount to the debt and is amortized as additional interest expense ratably over the remaining term of the debt instrument.



Results of Operations



Three Months Ended March 31, 2004 and 2003



Our net loss was $2,722,474 during the three months ended March 31, 2004 as compared with $2,353,598 during the three months ended March 31, 2003. Net
loss attributable to common stockholders totaled $0.09 per share for the 2004 period as compared to $0.10 per share for the 2003 period. The increase in net loss in the 2004 period was primarily due to higher research and development expenses. The
lower net loss attributable to common stockholders on a per share basis in the 2004 period was primarily due to an increase in weighted average shares outstanding of approximately 8.4 million shares, which was primarily the result of a private
placement of common stock completed by us in March 2003. The increase in weighted average shares outstanding was partially offset by higher research and development expenses in the 2004 period.



Research and development expenses were $1,588,427 during the three months
ended March 31, 2004 as compared with $1,364,466 during the three months ended March 31, 2003. The increase in the 2004 period was primarily attributable to higher pre-clinical costs for Inosine of approximately $566,000 associated with certain
animal toxicology studies. This increase was partially offset by lower costs in the 2004 period related to ALTROPANE of approximately $210,000 associated with decreased sponsored research activity, payroll of approximately $108,000 due to lower
headcount, and manufacturing development costs for Troponin of approximately $78,000.



General and administrative expenses were $982,420 during the three months ended March 31, 2004 as compared with $971,196 during the three months ended March 31, 2003. The increase in the 2004 period was primarily
related to higher legal expenses of approximately $237,000 associated with certain litigation as described in footnote 6. This increase was offset by lower payroll costs of approximately $160,000 due to lower headcount and lower non-cash consulting
expenses of $73,000.



Interest expense was $208,868 during the
three months ended March 31, 2004 as compared with $144,401 during the three months ended March 31, 2003. The increase in the 2004 period was primarily related to higher non-cash interest expense related to the amortization of the discounted
carrying value of the Notes resulting from the beneficial conversion features recorded in fiscal 2003. In connection with our March 2003 private placement, the conversion price of the Notes was reduced to $1.00 per share in accordance with the
anti-dilution provisions of the Notes creating beneficial conversion features of approximately $368,000. In June 2003, we issued $207,167 in principal amount of Notes for interest accrued through June 1, 2003. The $207,167 Note was issued with a
conversion price of $1.00 which was below the market price of the common stock at the date of issuance resulting in a beneficial conversion feature of approximately $190,000. Beneficial conversion features are recognized as a decrease in the
carrying value of the Notes and an increase in additional paid in capital. During the 2004 period, we incurred approximately $109,000 in interest payable in cash on the 10% coupon on the Notes, $91,000 in non-cash interest associated with the
amortization of the discounted carrying value of the Notes and $9,000 in amortization of debt issuance costs. During the 2004 period, the Notes bore an effective interest rate of 18% based on the fair value of the Notes.



Investment income was $57,241 during the three months ended March 31, 2004 as
compared with $126,465 during the three months ended March 31, 2003. The decrease was primarily due to lower realized gains of approximately $93,000 in the 2004 period, partially offset by the effect on interest income of higher average cash, cash
equivalent, and marketable securities balances during the 2004 period.



Accrual of preferred stock dividends was $144,283 during the three months ended March 31, 2004 as compared with none during the three months ended March 31, 2003. In December 2003, we issued 800 shares of Series E Stock with a purchase
price of $10,000 per share of Series E Stock which initially yields a cumulative dividend of 4% per annum. The dividend rate will increase to 8% in June 2005.



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Liquidity and Capital Resources



Cash used for operating activities, primarily related to our net loss, totaled $2,319,014 during the three months ended
March 31, 2004 as compared with $2,098,621 during the three months ended March 31, 2003. The increase in 2004 is primarily related to higher research and development expenses in the 2004 period. Cash used for investing activities totaled $2,351,725
during the three months ended March 31, 2004 as compared with cash provided by investing activities of $593,083 during the three months ended March 31, 2003. The difference in investing activities principally reflects the purchase of marketable
securities with the proceeds from the private placements, described below, completed by us in 2003, net of the sales of marketable securities which were subsequently used to fund operations. Cash used for financing activities was $26,415 during the
three months ended March 31, 2004 as compared with cash provided by financing activities of $9,930,069 during the three months ended March 31, 2003. The difference in financing activities principally reflects the effect of the private placements,
described below, completed by us in 2003.



As of March 31,
2004, we had incurred total net losses since inception of approximately $97 million. To date, we have dedicated most of our financial resources to the research and development of our product candidates, preclinical compounds, general and
administrative expenses and costs related to obtaining and protecting patents. Since inception, we have primarily satisfied our working capital requirements from the sale of our securities through private placements. These private placements have
included the sale of preferred stock and common stock, as well as notes payable and convertible debentures. A summary of financings completed during the three years ended March 31, 2004 is as follows:



|              |  |                    |  |                                                             
|------------- |  | ------------------ |  | ------------------------------------------------------------
|Date          |  | Net ProceedsRaised |  | Securities Issued                                           
|December 2003 |  | $7.0 million       |  | Convertible preferred stock and warrants                    
|March 2003    |  | $9.9 million       |  | Common stock                                                
|July 2002     |  | $3.9 million       |  | Convertible 10% senior secured promissory notes and warrants
|March 2002    |  | $2.8 million       |  | Common stock and warrants                                   



In the future, our
working capital and capital requirements will depend on numerous factors, including the progress of our research and development activities, the level of resources that we devote to the developmental, clinical, and regulatory aspects of our
technologies, and the extent to which we enter into collaborative relationships with pharmaceutical and biotechnology companies.



At March 31, 2004, we had available cash, cash equivalents, and marketable securities of approximately $8.6 million and working capital of approximately
$7.3 million. We believe that the cash, cash equivalents, and marketable securities available at March 31, 2004 will provide sufficient working capital to meet our anticipated expenditures for at least the next nine months. In addition, we have
approximately $5.0 million in a segregated account to satisfy our obligations with respect to the Notes which mature in June 2005. These segregated funds are not included in the available cash, cash equivalents, and marketable securities and working
capital amounts referenced above. We will need to raise additional capital in the future through collaboration agreements with other pharmaceutical or biotechnology companies, debt financing and/or equity offerings. There can be no assurance,
however, that we will be successful or that additional funds will be available on acceptable terms, if at all. In addition, we have certain covenants with the holders of our Notes and the purchasers of our Series E Stock that may limit our ability
to engage in certain types of financings in the future. Pending approval of additional authorized shares of common stock by stockholders at our 2004 annual meeting, we have a limited number of shares of authorized common stock for issuance in future
financings.



Following is appropriate information on the direct
research and development costs incurred on our principal scientific technology programs currently under development. These amounts do not include research and development employee and related overhead costs which total approximately $10.6 million on
a cumulative basis.



|                   |  |                     |         |             |   |            |  |   |           
|------------------ |  | ------------------- | ------- | ----------- | - | ---------- |  | - | ----------
|Program            |  | 1st Quarter2004 (1) |         | Year todate |   | Cumulative
|Diagnostic imaging |  | $                   | 180,000 |             | $ | 180,000    |  | $ | 16,157,000
|Anti-angiogenesis  |  |                     | 57,000  |             |   | 57,000     |  |   | 13,088,000
|CNS regeneration   |  |                     | 829,000 |             |   | 829,000    |  |   | 6,289,000 
|Other              |  | $                   | 50,000  |             | $ | 50,000     |  | $ | 817,000   

---

|(1) | three months ended March 31, 2004
|--- | ---------------------------------



Estimating costs and time to complete development of a specific program or technology is difficult due to the uncertainties of the development process and
the requirements of the FDA which could require additional clinical trials or other development and testing. Results of any testing could lead to a decision to change or terminate development of a technology, in which case estimated future costs
could change substantially. In the event we were to enter into a licensing or other collaborative agreement with a corporate partner involving sharing or funding by such corporate partner of development costs, the estimated development costs
incurred by us could be substantially less than estimated. Additionally, research and development costs are extremely difficult to estimate for early-stage technologies due to the fact that there is generally less comprehensive data available for
such technologies to determine the



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##### Table of Contents

development activities that would be required prior to the filing of an NDA. As a result, we cannot reasonably estimate
the cost and the date of completion for any technology that is not at least in Phase III clinical development due to the uncertainty regarding the number of required trials, the size of such trials, and the duration of development. We presently
anticipate our new Phase III clinical trial for ALTROPANE will take approximately twelve months to complete and cost approximately $4 million. However, there can be no assurance that the FDA will accept our revised protocol or that it will not
request additional modifications, or that it will not take longer than twelve months and/or cost more than $4 million to complete the new Phase III trial.



Contractual Obligations and Commitments



Research and development commitments consist of contractual obligations with third parties, as well as the estimated costs of approximately $4 million to
complete our new Phase III clinical trial for ALTROPANE. We lease certain office equipment, office space and laboratory space under noncancelable operating leases. Our current corporate office lease expires in 2012 and contains provisions whereby we
can sublet all or part of the space and fully retain any sublease income generated. We also lease laboratory space that expires in May 2006. As of March 31, 2004, approximate future minimum commitments under the above leases and other contractual
obligations are as follows:



|                        |  |                        |           |                |   |                                 |  |                 |         |  |   |          
|----------------------- |  | ---------------------- | --------- | -------------- | - | ------------------------------- |  | --------------- | ------- |  | - | ---------
|Year Ended December 31, |  | ResearchandDevelopment |           | OperatingLease |   | Other General andAdministrative |  | Maturity OfDebt
|2004                    |  | $                      | 4,610,000 |                | $ | 247,000                         |  | $               | 94,000  |  |   |         
|2005                    |  |                        | 1,917,000 |                |   | 335,000                         |  |                 | 125,000 |  | $ | 4,350,500
|2006                    |  |                        |          |                |   | 296,000                         |  |                 |        |  |   |         
|2007                    |  |                        |          |                |   | 277,000                         |  |                 |        |  |   |         
|2008                    |  |                        |          |                |   | 285,000                         |  |                 |        |  |   |         
|Thereafter              |  |                        |          |                |   | 1,019,000                       |  |                 |        |  |   |         
|                        |  |                        |           |                |   |                                 |  |                 |         |  |   |          
|                        |  | $                      | 6,527,000 |                | $ | 2,459,000                       |  | $               | 219,000 |  | $ | 4,350,500
|                        |  |                        |           |                |   |                                 |  |                 |         |  |   |          



In July 2002, we
entered into agreements pursuant to which we issued $4.0 million in principal amount of Notes to a single institutional investor in a private placement. The Notes mature in June 2005 and bear interest at 10% per annum, payable semi-annually on June
1 and December 1. We may elect to pay interest on the Notes in either cash or, subject to certain limitations, additional Notes on the same terms. We elected to pay the interest due on December 1, 2002 and June 1, 2003 in additional Notes in the
amounts of $143,333 and $207,167, respectively. In December 2003, we elected to pay the interest due on December 1, 2003 in the amount of $217,525 in cash. Among other adjustments, unless the investor consents otherwise, if we issue equity
securities in the future for consideration per share of common stock less than the then applicable conversion price of the Notes, the conversion price of the Notes will be reduced to equal that lower price. The Notes are currently convertible into
common stock at a conversion price of $1.00 per share. The Notes are secured by a first priority security interest and continuing lien on all current and after acquired property of ours. We generally may obtain a release of the security interest by
providing alternative collateral in the form of either cash or a bank letter of credit. Until the time, if any, that we provide alternative collateral or less than $500,000 principal amount of Notes remains outstanding, the agreements also prohibit
us, among other things, from entering into any merger, consolidation or sale of all or substantially all of our assets, incurring additional indebtedness, encumbering our assets with any liens and redeeming or paying cash dividends on any of our
capital stock. We are permitted to grant licenses or sublicenses of our intellectual property to third parties in the ordinary course of business free from the security interest, but the holders of the Notes will receive a first priority security
interest and continuing lien on all amounts owing to us in respect of any such license or sublicense. The agreements also contain customary events of default, including any change of control and breach by us of our representations and warranties and
covenants contained in the agreements. If an event of default were to occur, our obligations under the Notes could be accelerated and become immediately due and payable in full.



As a condition of our December 2003 private placement of Series E Stock and warrants, we agreed to exercise our right to
obtain a release of the security interest and continuing lien on our property that currently secure our outstanding Notes by providing alternative collateral in the form of cash or a standby letter-of-credit in the amount of all remaining principal
and interest payments on the Notes through maturity. The remaining principal and interest payments on the Notes through maturity total approximately $5,000,000. We communicated to the holder of the Notes our intention to obtain a release of the lien
on our property by providing alternative collateral in the form of an irrevocable standby letter of credit in the amount of our remaining obligations. To date, we have been unable to reach agreement with the noteholder on the terms of such a letter
of credit. We are currently reviewing our options regarding the release of liens and in the interim have set aside sufficient funds in a segregated account to satisfy our remaining obligations under the Notes in order to comply with our covenant to
the December 2003 private placement investors.



Our Series E
Stock includes a dividend obligation of 4% through June 2005, increasing to 8% thereafter. Generally, we may elect to pay the dividend in cash or in shares of our common stock. We have reserved a sufficient number of shares to pay the dividends
payable in October 2004 and October 2005 in shares of our common stock.



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Item 3  Quantitative and Qualitative Disclosures about Market Risk



There have been no material changes in the market risks reported in our Annual Report on Form 10-K for the year ended December 31, 2003.



Item 4  Controls and Procedures



Evaluation of disclosure controls and procedures



We maintain disclosure controls and procedures designed to ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. Our
principal executive officer and principal financial and accounting officer have reviewed and evaluated our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act) as of the end of the period covered by this report on Form 10-Q (the Evaluation Date). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and
procedures are effective.



Changes in internal controls



There were no changes in our internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.



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##### Table of Contents

Part II  Other Information



Item 1: Legal Proceedings.



On
December 31, 2003, Robert L. Gipson, Thomas O. Boucher, Jr., Ingalls & Snyder Value Partners, L.P. and Ingalls & Snyder, L.L.C., the plaintiffs, filed a complaint in the Delaware Court of Chancery against us and the members of our Board of
Directors alleging an improper entrenchment motive and breach of fiduciary duty by the directors in connection with our issuance of preferred stock and warrants in our December 2003 private placement. The complaint filed by the plaintiffs was
seeking unspecified equitable and monetary relief. We asked the court to dismiss this lawsuit because it lacked any factual basis and ignored fundamental principles of law. Instead of responding to our motion to dismiss, on March 9, 2004, the
plaintiffs moved to dismiss their own lawsuit without prejudice prior to the deadline to explain to the court why their claim was legitimate. The Delaware Court of Chancery immediately granted the motion and dismissed the case. On March 22, 2004,
the plaintiffs made a books and records request under Delaware law seeking additional information regarding our December 2003 private placement and seeking information on a number of unrelated matters.



Item 2: Changes in Securities and Use of Proceeds.



We issued 1,413,600 shares of common stock in connection with the conversion of 176.7 shares of Series E Cumulative Convertible Preferred Stock (Series E Stock) during the three months ended March 31,
2004. In addition, we issued 12,844 shares of common stock in connection with the dividend payable upon conversion of the Series E Stock during the three months ended March 31, 2004.



Item 3: Defaults Upon Senior Securities.



None.



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



None.



Item 5: Other Information.



|(a) | On May 14, 2004, our Board of Directors approved an amendment to our by-laws in order to postpone the deadline for advance notice to the company for nominations or other business to
be properly brought by stockholders before the 2004 annual meeting of stockholders to May 28, 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 6: Exhibits and Reports on Form 8-K.



(a) Exhibits.



|     |  |                                                                                                                                                                                               
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2  |  | Amended and Restated By-Laws, effective as of May 14, 2004. (1)                                                                                                                               
|     | 
|31.1 |  | Certification of the President and Chief Operating Officer pursuant to Section 1350 of Title 18, Unites States Code, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(1)
|     | 
|31.2 |  | Certification of the Chief Financial Officer pursuant to Section 1350 of Title 18, Unites States Code, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(1)              
|     | 
|32.1 |  | Certification of the President and Chief Operating Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)                      
|     | 
|32.2 |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)                                    

---

|(1) | Filed herewith.
|--- | ---------------



(b) Reports on Form 8-K: The Registrant filed the following reports on Form 8-K during the quarter ended March 31, 2004:



|                  |  |              
|----------------- |  | -------------
|Date of Report    |  | Item Reported
|January 16, 2004  |  | 5            
|February 12, 2004 |  | 5            
|February 17, 2004 |  | 5,7          
|March 12, 2004    |  | 5,7          
|March 16, 2004    |  | 5,7          



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SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |                                                                
|------------------ |  | ---------------------------------------------------------------
|                   |  | BOSTON LIFE SCIENCES, INC                                      
|                   |  | (Registrant)                                                   
|                   | 
|DATE: May 14, 2004 |  | /s/ MARC E. LANSER                                             
|                   |  | Marc E. Lanser                                                 
|                   |  | Director, President and Chief Operating Officer                
|                   |  | (Principal Executive Officer)                                  
|                   | 
|                   |  | /s/ JOSEPH P. HERNON                                           
|                   |  | Joseph P. Hernon                                               
|                   |  | Executive Vice President, Chief Financial Officer and Secretary
|                   |  | (Principal Financial and Accounting Officer)                   



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