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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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

For the fiscal year ended December 31, 2002



or



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

For the transition period



Commission file number 0-19410



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POINT
THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)



|Delaware                                 |  | 04-3216862         
|---------------------------------------- |  | -------------------
|(State or other jurisdiction of          |  | (I.R.S. Employer   
|incorporation or organization)           |  | Identification No.)
|125 Summer Street                        |  | 02110              
|Boston, Massachusetts                    |  | (Zip Code)         
|(Address of principal executive offices) |  |                    



Registrants telephone number, including area code:

(617) 933-2130



Securities registered pursuant to Section 12(b) of the Act:

NONE



Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.01 Per Share

(Title
of Class)



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



Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.     Yes x No ̈



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



The aggregate
market value of voting stock held by non-affiliates of the Registrant as of June 30, 2002 was approximately $10,554,000.



The number of shares outstanding of the Registrants common stock as of March 21, 2003 was approximately 9,276,000.



Documents incorporated by reference:Portions of the
Registrants definite Proxy Statement with the Securities and Exchange Commission relative to the Registrants 2003 Annual Meeting of Stockholders are incorporated by reference into Items 10, 11, 12 and 13 of Part III of this annual report
on Form 10-K.



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POINT
THERAPEUTICS, INC.



TABL
E OF CONTENTS



Form 10-K



PART I



|ITEM 1.  |  | BUSINESS                                            |  | 3 
|-------- |  | --------------------------------------------------- |  | --
|        
|ITEM 2.  |  | PROPERTIES                                          |  | 20
|        
|ITEM 3.  |  | LEGAL PROCEEDINGS                                   |  | 20
|        
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |  | 20
|        
|ITEM 4A. |  | EXECUTIVE OFFICERS OF THE REGISTRANT                |  | 21



PART II



|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATEDSTOCKHOLDERS MATTERS                |  | 22
|-------- |  | ------------------------------------------------------------------------------------ |  | --
|        
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                              |  | 23
|        
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS |  | 24
|        
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           |  | 31
|        
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          |  | 31
|        
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |  | 31



PART III



|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT             |  | 32
|-------- |  | -------------------------------------------------------------- |  | --
|        
|ITEM 11. |  | EXECUTIVE COMPENSATION                                         |  | 32
|        
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |  | 32
|        
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                 |  | 33
|        
|ITEM 14. |  | CONTROLS AND PROCEDURES                                        |  | 33



PART IV



|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K |  | 34
|-------- |  | ---------------------------------------------------------------- |  | --
|        
|         |  | SIGNATURES                                                       |  | 35
|        
|         |  | CERTIFICATIONS                                                   |  | 36
|        
|         |  | EXHIBITS INDEX                                                   |  | 38



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PART I



Item 1.Business



Overview



Point Therapeutics, Inc. (Point or the Company or we) is developing small molecule drugs for the treatment of certain hematopoietic disorders and for a variety of cancerous tumors. PT-100,
Points lead product candidate, has the potential to treat a number of different hematopoietic disorders as well as certain cancerous tumors.



Points principal executive office is located at 125 Summer Street, Boston, Massachusetts, and the telephone number is (617)
933-2130. The shares of Points common stock, par value $.01 per share (the Common Stock), trade on the OTC Bulletin Board under the symbol POTP.



The Company was originally incorporated in December 1993 as a Delaware corporation under the name Hemacor
Inc. The Company changed its name to HemaSure Inc. in February of 1994. From 1994 to May 2001, the Company developed and supplied innovative blood filtration technologies. On May 28, 2001, the Company sold substantially all of its non-cash assets to
Whatman Biosciences, Inc. a Massachusetts corporation and a subsidiary of Whatman Plc (Whatman), a leader in separations technology. The Company changed its name from Hemasure, Inc. to HMSR Inc. upon the sale to Whatman. From May 2001
until the merger on March 15, 2002 (described below) with Point Therapeutics, Inc., a privately held Massachusetts corporation (Point Massachusetts), the Companys operations consisted primarily of investigating various strategic
business combinations.



On November 15, 2001,
HMSR Inc. entered into an Agreement and Plan of Merger (the Merger Agreement) with Point Massachusetts. On March 15, 2002, the Companys stockholders approved a 1-for-10 reverse split of the Companys common stock and a name
change of the Company from HMSR Inc. to Point Therapeutics, Inc. The stockholders of Point Massachusetts also approved on March 15, 2002 the Merger Agreement, at which time Point Massachusetts became a wholly-owned subsidiary of the Company and
changed its name to Point Therapeutics Massachusetts, Inc.



For additional information regarding the terms of the merger, refer to the Companys Form S-4, which was filed with the Securities and Exchange Commission on February 11, 2002.



Business of the Company After the Merger



The Companys business operations
after the merger consist solely of the business previously conducted by Point Massachusetts. Point is developing small molecule drugs for the treatment of certain hematopoietic disorders and a variety of cancerous tumors. Point believes that PT-100
potentially has the ability to treat hematopoietic disorders involving abnormally low levels of blood cells.



Hematopoietic disorders are medical conditions characterized by an abnormally high or low level of mature blood cells. The different types
of mature blood cells include neutrophils, red blood cells, T and B cells (types of white blood cells) and platelets, each of which plays an important role in the body. For example, neutrophils are the bodys first defense against infection. A
person with an abnormally low level of neutrophils, or neutropenia, is at an increased risk of developing an infection.



Various diseases and disease treatments can suppress the bodys production of blood cells, causing hematopoietic disorders. For
example, chemotherapy, which is one treatment option for individuals with cancer, targets cell types that grow rapidly, such as tumor cells, and destroys them. However, as an unwanted side effect of chemotherapy, neutrophils and other types of blood
cells whose levels are maintained by rapid cell growth



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may also be damaged or destroyed. This can cause the cancer patient receiving chemotherapy to develop neutropenia, anemia and other
hematopoietic disorders. Suppression of blood cell production and destruction of mature blood cells are also thought to arise in other diseases such as AIDS.



The treatment of neutropenia (an abnormally low level of a type of white blood cell called a neutrophil) is the first clinical application
for PT-100 being tested by Point in human clinical trials. PT-100 is currently in a Phase I/II clinical study for the treatment of neutropenia in cancer patients as an adjunct to chemotherapy. The study is evaluating the safety profile of PT-100,
and the studys protocol calls for four increasing dose levels of six patients per dosing regimen. The clinical study is also evaluating certain end points, including the recovery of neutrophils in patients undergoing chemotherapy and other key
biological markers. As of the end of the first quarter of 2003, the Company completed dosing three of the four planned dosing groups. To date, PT-100 has been well tolerated from a safety perspective, and the final dosing group is expected to be
enrolled in the second quarter of 2003. Point believes that PT-100 might also be developed for the treatment of neutropenia in patients with AIDS or other diseases that can cause neutropenia.



If Point is able to obtain Federal Drug Administration
(FDA) approval to market PT-100 for the treatment of neutropenia in cancer patients undergoing chemotherapy, Point believes that PT-100 may have clinical and competitive advantages over currently available products.



In particular, if PT-100 were demonstrated by Point to be
orally effective in such treatments, PT-100 would have the clinical advantage of being able to be administered to patients in tablet form, as opposed to injection or other means of drug administration that must be used by products currently being
marketed for the treatment of neutropenia. Point believes PT-100 is orally bioavailable because increasing amounts of PT-100 were found in the serum of clinical study subjects in initial human safety studies as increasing doses of PT-100 were
administered orally. In addition, an enzyme indicator of PT-100 activity was inhibited in a dose-dependent manner (increased doses caused decreased activity of the enzyme). Moreover, Point has observed in animal models designed to test PT-100s
effects on neutropenia that neutrophil counts in animals increased after PT-100 was given orally. Point also observed, in initial safety studies in healthy human volunteers that, at certain doses, PT-100 administered orally caused increases in
neutrophils. These observations suggest that PT-100, administered orally, could provide an effective treatment of neutropenia.



Another possible advantage of PT-100 over currently available products could be the cost and ease of manufacturing the product. Most of
the products currently available for the treatment of neutropenia are large, complex proteins, which are made in biological systems. In contrast, PT-100 is a member of a class of chemical compounds known as boronated dipeptides, a small molecule
which is chemically synthesized. Synthetic small molecule products are generally less expensive to manufacture than large protein-based treatments. For this reason, Point believes that its costs of production for a treatment regimen of PT-100 would
be less than the costs of producing large protein-based treatments for neutropenia.



Also, Point has obtained some results from preclinical research in animal models indicating that PT-100 potentially has the ability to treat acute anemia. Acute anemia is a condition of an abnormally
low number of red blood cells. For example, cancer patients sometimes develop acute anemia after undergoing chemotherapy because of the chemotherapeutic agents adverse effects on red blood cell production. Similarly, Point believes that PT-100
could potentially serve as a treatment for patients with AIDS suffering from acute anemia caused by bone marrow deficiencies that affect blood cell production. To date, Point has not completed its pre-clinical testing or initiated human clinical
testing of PT-100 in treating these conditions.



In addition to potentially serving as a treatment for different hematopoietic disorders, PT-100 has been observed by Point in animal testing to have an ability to inhibit the growth of different types of tumors. The tumor responses
in animals observed by Point have ranged from tumor growth inhibition for certain types of tumors to full regression of other tumors. Point has also demonstrated in animal models the ability of PT-100 in combination with a tumor-specific monoclonal
antibody (Rituxan®) to enhance the anti-tumor effects when compared to the anti-tumor effects in these animal
models when treated with Rituxan®alone. Point has



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completed the preclinical research on the anti-tumor effects of PT-100 in combination with Rituxan®and the Company filed an amendment in February 2003 to its Investigational New Drug Application (IND) with the FDA in order to initiate
a clinical program to test the safety and efficacy of PT-100 in combination with Rituxan®, initially in patients
with non-Hodgkins lymphoma.



To date, Point
has not submitted PT-100 or any other product to the FDA for marketing approval. Due to risks and uncertainties inherent in clinical testing and the regulatory process, Point is not able to estimate at this time when PT-100 may be submitted to the
FDA for marketing approval or be commercially available for any application, if at all.



Besides the hematopoeitic and anti-tumor applications described above, Point is also exploring a number of different applications for PT-100 and its clinical analogues on a pre-clinical basis. In
addition, Point from time to time evaluates new technology opportunities to broaden its portfolio of potential products, including in-licensing opportunities, collaboration arrangements as well as more expansive corporate relationships, such as
mergers and acquisitions.



Role of PT-100
in Hematopoiesis



Hematopoiesis is a
continuous process of blood cell development within the body. The need for this continuous activity is due to the relatively short life span of most blood cells. Hematopoiesis has several stages, starting in the bone marrow with cells called
hematopoietic stem cells. Hematopoietic stem cells are believed to be the origin of all blood cells, undergoing a well-regulated process of proliferation (increase in cell numbers) and differentiation into different types of blood cells. Under the
influence of certain growth factors, which are proteins which activate cell proliferation and differentiation, hematopoietic stem cells develop into primitive hematopoietic progenitor cells. Primitive hematopoietic progenitor cells are cells in the
bone marrow that have the ability to develop into different blood cell types. Depending on the bodys needs and the presence or absence of specific growth factors, primitive hematopoietic progenitor cells develop into committed progenitor
cells. These cells are programmed to end up as blood cells of a specific type, such as neutrophils, red blood cells and platelets. See the hematopoiesis stem cell chart set forth below.



LOGO



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Various
disease treatments, such as chemotherapy, can have the unintended effect of suppressing the production of blood cells. Certain hematopoietic disorders, such as neutropenia or anemia can arise also due to damage to bone marrow cells caused by AIDS
and other diseases. Since all blood cells have critical functions (for example, neutrophils fight infections and red blood cells carry oxygen), a patients safety is at risk the longer he or she is missing the full complement of blood cells.



Point has observed that PT-100 has the ability
to stimulate the growth of primitive hematopoietic progenitor cells under certain laboratory conditions in human cell cultures. Point has also observed in research animal models that PT-100 appears to stimulate the proliferation of primitive
hematopoietic progenitor cells. Point believes that these observations are due to PT-100s interaction with specialized cells in the bone marrow called stromal cells to increase the production of certain hematopoietic growth factors. These
growth factors are believed to be required for the development and differentiation of mature blood cells. For example, Point has observed in preclinical animal research that PT-100 stimulates the production of the growth factor G-CSF, which is a
protein involved in both the expansion of primitive hematopoietic progenitor cells and the differentiation of committed progenitor cells into neutrophils.



By using well-established mouse models of neutropenia, Point has demonstrated that PT-100 significantly accelerated neutrophil recovery in
mice following treatment with various chemotherapeutic agents. In addition, the effect on the rate of neutrophil regeneration was achieved at microgram doses of PT-100 after only a few days of administration. This supports other observations made by
Point, namely, that PT-100 acts to stimulate cellular growth and differentiation in hematopoiesis in mouse models. Similarly, Point tested PT-100 in an animal model of acute anemia. Results of these tests demonstrated that mice pretreated with
PT-100 developed less severe anemia due to a significantly faster recovery of mature red blood cells than in the control animals. In addition, committed progenitors of red blood cells were substantially increased in PT-100-treated mice, which
supports previous observations that PT-100 increases the primitive hematopoietic progenitor pool in the bone marrow of mice.



Potential Clinical Indications for PT-100



Hematopoietic Disorders



Point believes that PT-100 may be able to treat different hematopoietic disorders in which the hematopoietic
process has been suppressed by disease, chemotherapy, or other causes, because PT-100 appears to not only stimulate differentiation of blood cells, but also to promote growth of primitive hematopoietic progenitor cells. Therefore, PT-100 has the
potential to create a larger pool of uncommitted cells that can be developed by the body into neutrophils, red blood cells, and other types of mature blood cells.



Neutropenia



The treatment of neutropenia (an abnormally low level of a type of white blood cell called a neutrophil) is the first clinical application
for PT-100 being tested by Point in human clinical trials. PT-100 is currently in a Phase I/II clinical study for the treatment of neutropenia in cancer patients as an adjunct to chemotherapy. The study is evaluating the safety profile of PT-100,
and the studys protocol calls for four increasing dose levels of six patients per dosing regimen. The clinical study is also evaluating certain end points, including the recovery of neutrophils in patients undergoing chemotherapy and other key
biological markers. As of the end of the first quarter of 2003, the Company completed dosing three of the four planned dosing groups. To date, PT-100 has been well tolerated from a safety perspective, and the final dosing group is expected to be
enrolled in the second quarter of 2003. Point also believes that PT-100 may have potential for the treatment of neutropenia in AIDS patients, but has not initiated any clinical testing for this indication.



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Acute
Anemia, Thrombocytopenia



Point believes
that PT-100 has potential for the treatment of additional hematopoietic disorders, such as acute anemia and thrombocytopenia (a condition characterized by low levels of platelets which frequently occurs with patients treated with chemotherapy).
Point also believes that PT-100 may have potential for the treatment of acute anemia in AIDS patients. Point has not yet completed its pre-clinical studies or initiated clinical testing of PT-100s safety and efficacy in treating these
conditions.



Anti-Tumor Indication



In addition to the stimulation of the
hematopoiesis, Point has discovered in preclinical animal experiments that PT-100 can stimulate the production of soluble proteins known to promote defenses against malignant tumors. The soluble proteins involved are referred to as cytokines and
chemokines. These cytokines and chemokines regulate the growth and function of specialized blood cell types, including T and B cells, which are necessary in order to provide the bodys immune defense against foreign agents and tumors. PT-100
has been shown, in animal models, to increase the production of certain cytokines and chemokines known to promote the immune systems attack against tumors. Consequently, PT-100 has been evaluated in animal models of cancer and shown to
significantly inhibit the growth of experimental tumors. In certain animal models PT-100 treatment caused rejection of specific tumors. Because PT-100 appears to stimulate multiple blood cell types involved in anti-tumor defenses in animal models,
Point believes that PT-100 might provide a new clinical approach to cancer therapy.



Due to PT-100s potential ability to stimulate certain key cytokines and chemokines, PT-100 was tested in preclinical animal models in combination with a tumor-specific monoclonal antibody
(Rituxan®) to study the combinations effect on tumors. The Company has demonstrated an enhanced anti-tumor
effect when PT-100 was combined with Rituxan®as compared to treatment with either agent alone. Point has
completed the preclinical research on the anti-tumor effects of PT-100 in combination with Rituxan®and the
Company filed an amendment in February 2003 to its IND with the FDA in order to initiate a clinical program to test the safety and efficacy of PT-100 in combination with Rituxan®, initially in patients with non-Hodgkins lymphoma. Point expects to initiate a human clinical study in 2003 to assess the safety and efficacy
of this combination therapy.



Intellectual Property



In May 1997, Point Massachusetts
entered into a license agreement with the Tufts University School of Medicine (Tufts). Under the Tufts license agreement, Point has been granted exclusive, worldwide rights to the boroproline family of small molecule compounds, including
PT-100. In return, Point Massachusetts paid Tufts a non-refundable license fee and issued to Tufts and its designees a total of 90,459 shares of Point Massachusetts common stock. In addition, Point is required to pay Tufts a minimum annual payment
of $20,000; clinical-based milestone payments; royalties on net sales of products covered by the license; and a percentage of milestone payments received by Point from any sublicensor of the Tufts patents or technology. The Tufts license agreement
remains in effect until the later of the date of the last-to-expire patents, or 15 years from the date of initial commercial sale of a licensed product. See Risk FactorsIf Tufts University School of Medicine terminates Points
license, Point could experience delays or be unable to complete the development and commercialization of its potential products.



Protection of Points proprietary compounds and technology is essential to Points business. Points policy is to protect
its technology by, among other things, filing or causing to be filed on its behalf, patent applications for technology relating to the development of its business. Currently, Point is awaiting action on various patent applications relating to
technology or the uses or products thereof which it owns or which it has licensed.



The license from Tufts includes five issued U.S. patents and five issued foreign patents. Additionally, Point has been issued three U.S. patents and three corresponding foreign patents. Points
patents are related to composition of matter covering its small molecules as well as its hematopoietic program. Point has also filed and



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is prosecuting patent applications in the United States and in foreign countries relating to additional composition of matter covering its
small molecules as well as to both its anti-tumor and hematopoietic programs.



The following trademarks are mentioned in this Annual Report on Form 10-K: HemaSure, r/LS, LeukoNet, PT-100 and Point Therapeutics.



Government Regulation



Regulation by governmental authorities in the United States and other countries is a significant factor in
the development, manufacture and marketing of pharmaceuticals and in Points ongoing research and development activities. All of Points products will require regulatory approval by governmental agencies prior to commercialization. In
particular, pharmaceutical drugs are subject to rigorous preclinical testing and clinical trials and other pre-marketing approval requirements by the FDA and regulatory authorities in other countries. In the United States, various federal, and in
some cases state, statutes and regulations also govern or impact upon the manufacturing, safety, labeling, storage, record-keeping and marketing of pharmaceutical products. The lengthy process of seeking required approvals and the continuing need
for compliance with applicable statutes and regulations require the expenditure of substantial resources. Regulatory approval, when and if obtained for any of Points products, may be limited in scope, which may significantly limit the
indicated uses for which Points products may be marketed. Further, approved drugs and manufacturers are subject to ongoing review and discovery of previously unknown problems that may result in restrictions on their manufacture, sale or use or
in their withdrawal from the market.



The
following paragraphs provide a general overview of the approval process for a new drug.



Investigational new drug application.  If a company wants to test a new drug in human patients, an IND must be prepared and filed with the FDA to request FDA authorization to begin
human testing of the drug. The IND becomes effective if not rejected or put on clinical hold by the FDA within 30 days. In addition, an Institutional Review Board, comprised in part of physicians at the hospital or clinic where the proposed studies
will be conducted, must review and approve the study protocol and monitor the study on an ongoing basis. The FDA may, at any time during the 30-day period or at any time thereafter, impose a clinical hold on proposed or ongoing clinical trials. If
the FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization and then only under terms authorized by the FDA. In some instances, the IND application process can result in substantial delay and expense.



Clinical trials.  Clinical
trials typically are conducted in three sequential phases, Phases I, II and III. These phases may be compressed, may overlap or may be omitted in some circumstances.



Phase I clinical trials.  After an IND becomes effective, Phase I human clinical
trials can begin. These studies evaluate a drugs safety profile and the range of safe dosages that can be administered to the patient, including the maximum tolerated dose that can be given to a patient with the target disease. Phase I studies
also determine how a drug is absorbed, distributed, metabolized and excreted by the body and duration of its action.



Phase II clinical trials.  Phase II clinical trials of drugs typically are designed to evaluate the potential
effectiveness of the drug on patients with specific types and stages of disease or medical condition and to further ascertain the safety of the drug at the dosage given in a larger patient population.



Phase III clinical trials.  In Phase
III clinical trials, the drug is usually tested in a controlled randomized trial comparing the investigational new drug to an approved form of therapy in an expanded and well defined patient population and at multiple clinical sites. The goal of
these studies is to obtain definitive statistical evidence of safety and efficacy of the investigational new drug regimen as compared to an approved standard treatment in defined patient populations with a given disease and stage of illness.



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New drug
application.  After completion of clinical trials, if there is substantial evidence that the drug is safe and effective, a New Drug Application, or NDA, is prepared and submitted for the FDA to review. The NDA must contain all of the
essential information on the drug gathered to that date, including data from clinical trials, and the content and format of an NDA must comply with all FDA regulations. Accordingly, the preparation and filing of an NDA is a major undertaking for a
company.



The FDA reviews all NDAs submitted
before it accepts them for filing and may request additional information from the sponsor rather than accepting an NDA for filing. In such an event, the NDA must be submitted with the additional information and, again, is subject to review before
filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. The review process is often significantly extended by the FDA through requests for additional information and clarification. The FDA may refer the
application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation, but gives great weight to
it. If the FDA evaluations of both the NDA and the manufacturing facilities are favorable, the FDA may issue either an approval letter or an approvable letter, which usually contains a number of conditions that must be satisfied in order to secure
final approval. If the FDAs evaluation of the NDA submission or manufacturing facilities is not favorable, the FDA may refuse to approve the NDA or issue a not approvable letter.



Other regulatory requirements.Any products Point manufactures or distributes under FDA approvals
would be subject to pervasive and continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the products. Drug manufacturers and their subcontractors are required to register with the FDA and,
where appropriate, state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with good manufacturing practice regulations, which impose procedural and documentation requirements upon Point and
any third party manufacturers Point utilizes.



Point is also subject to numerous other federal, state, local and foreign laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. Point may incur significant costs to comply with such laws and regulations now or in the future. In addition, Point cannot predict what adverse governmental regulations may arise from future United States or foreign
governmental action.



Approvals outside of the
United States.Point will also be subject to a wide variety of foreign regulations governing the development, manufacture and marketing of its products. Whether or not FDA approval has been obtained, approval of a product by the comparable
regulatory authorities of foreign countries must still be obtained prior to manufacturing or marketing the product in those countries. The approval process varies from country to country and the time needed to secure approval may be longer or
shorter than that required for FDA approval. Point cannot make assurances that clinical trials conducted in one country will be accepted by other countries or that approval in one country will result in approval in any other country.



Competition



The biotechnology and pharmaceutical industries are subject
to rapid and significant technological change. Competitors of Point include among others, major pharmaceutical companies, specialized biotechnology companies, and universities and other research institutions. The following sections describe the
products with which PT-100 would likely compete if it were to be approved for marketing as a treatment of neutropenia in cancer patients undergoing chemotherapy, or as a combination therapy with Rituxan®for the treatment of non-Hodgkins lymphoma, currently the Companys two most advanced clinical indications. Based on SEC filings and
analyst reports of public companies, Point believes that the annual sales of drugs that treat neutropenia currently exceed $2 billion and the annual sales of drugs that treat non-Hodgkins lymphoma currently exceeds $1 billion.



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Treatment of Neutropenia



Any products or technologies that are
directly or indirectly successful in addressing the causes or incidence of low levels of neutrophils could negatively impact the potential market for PT-100 if it is approved for the treatment of neutropenia in cancer patients undergoing
chemotherapy treatment or for treatment of neutropenia in AIDS patients. These include products that could receive approval for indications similar to those for which Point plans to seek for PT-100, development of chemotherapy treatments that are
less myelosuppressive than existing treatments and the availability of anti-cancer modalities that reduce the need for myelosuppressive chemotherapy.



Currently, the primary product marketed for the treatment of neutropenia in cancer patients undergoing chemotherapy treatment is
granulocyte-colony stimulating factor. Amgen, Inc. markets the injectable neutrophil stimulant product, Neupogen®as an adjunct to chemotherapy in the United States, countries of the European Union
(EU), Canada, and Australia. Neupogen®is a recombinant-methionyl human granulocyte colony- stimulating factor (G-CSF). Also, Neulasta®, a polyethylene glycol molecule which extends the half-life of Neupogen®to a once per chemotherapy cycle dose administration, by Amgen, Inc. was approved for marketing in 2002. Chugai markets a G-CSF product in Japan as
an adjunct to chemotherapy. Chugai and Aventis market a G-CSF product in certain EU countries as an adjunct to chemotherapy. Chugai, through its licensee, AMRAD, markets this G-CSF product in Australia as an adjunct to chemotherapy. Under an
agreement with Amgen, Chugai is precluded from selling its G-CSF product in the U.S., Canada and Mexico.



In addition, Schering AG markets a competing injectable CSF product, granulocyte macrophage colony stimulating factor (GM-CSF)
in the U.S. as an adjunct to chemotherapy treatments for acute non-lymphocytic leukemia and acute myelogenous leukemia. Novartis AG markets another GM-CSF product for use in bone marrow transplant patients and as an adjunct to chemotherapy in the EU
and certain other countries. This GM-CSF product is currently being developed for similar indications in the U.S. and Canada. Nartograstim, a modified G-CSF protein, is sold by Kyowa Hakko Kogyo Co., Ltd. in Japan.



Treatment of Certain Cancers



Any products or technologies that are directly or indirectly
successful in addressing the causes or incidence of non-Hodgkins lymphoma could negatively impact the potential market for PT-100 if it is approved as an anti-tumor agent given in combination with Rituxan®.



In the non-Hodgkins lymphoma market, Corixa Corporation filed a revised Biological License Application (BLA) and
received a positive review by the FDAs Oncology Drugs Advisory Committee in December 2002 for Bexxar®(tositumomab and iodine I 131 tositumomab), a drug which may potentially compete with Rituxan®. IDEC received
marketing approval from the FDA and began commercial shipments in late March 2002 for Zevalin(ibritumomab
tiuxetan), a product which could also potentially compete with Rituxan®. Both Bexxar®and Zevalinare radiolabeled molecules while Rituxan®is not. We are also aware of other potentially
competitive biologic therapies for non-Hodgkins lymphoma in development.



Former Business of the Company



From 1994 to May 2001, the Company developed and supplied innovative blood filtration technologies.



In April 2000, the Company was notified that the American Red Cross, the Companys largest customer, was suspending use of the
Companys r/LS System pending the outcome of an investigation of a small number of non-critical adverse reactions in patients who had received a transfusion of blood filtered with the r/LS System. In September 2000, the Company was notified
that the American Red Cross terminated its supply contract for the r/LS System based on the extended period of time taken to prove product improvements resolved these reactions. In August 2001, the Company and the American Red Cross signed a
termination and release agreement in



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connection with the supply contract between the two parties. The agreement provided for the Company to pay the American Red Cross $600,000
and the release of any and all claims that either party may have against the other, with certain exceptions.



In March 2001, the Company signed a termination and release agreement with Gambro BCT (the Companys exclusive distributor of its
r/LS System worldwide, except for sales to the American Red Cross), effective November 2000, which ended the distribution and development agreement. In consideration for the Companys inventory (net book value at December 31, 2000 of $332,000)
of products bearing Gambros company name, and by way of complete resolution of all issues outstanding between the Company and Gambro, Gambro agreed to return 101,169 shares of common stock with a fair market value at closing of $332,000.



The termination of the purchase contract by the
American Red Cross and the distribution and development agreement with Gambro had an adverse impact on the Companys ability to generate revenues from the sale of the Companys r/LS System and on the Companys supply contracts with
manufacturers of key components to the r/LS System. On May 29, 2001, the Company sold substantially all of its non-cash assets to Whatman BioScience Inc., a Massachusetts corporation and a subsidiary of Whatman plc, an English corporation, pursuant
to the terms of an Asset Purchase Agreement by and among the Company, Whatman and Whatman plc, dated as of February 3, 2001 and amended on April 2, 2001. The sale and the name change of HemaSure Inc. to HMSR Inc. were approved at the special meeting
of stockholders of the Company held on May 21, 2001. On June 6, 2001, the Company announced that stockholders of the Company had voted in favor of the sale of the non-cash assets to Whatman and that it had changed its name from HemaSure Inc. to HMSR
Inc.



Under the terms of the Asset Purchase
Agreement, Whatman acquired substantially all of the non-cash assets of the Company for consideration which included a potential royalty payment in the amount of 4% on sales by Whatman or its affiliates of filtration products using the
Companys technology. The royalty payments were subject to a maximum, aggregate amount of $12 million and were subject to certain reductions set forth in the Royalty Agreement, dated as of May 29, 2001, by and among the Company, Whatman and
Whatman plc, including any damages and certain settlement amounts paid by Whatman related to certain patent litigation with Pall Corporation. In March 2003, Whatman sold the non-cash assets it had previously purchased from Hemasure to Pall
Corporation. In connection with that sale, the ongoing patent litigation among Pall Corporation, Whatman and the Company was settled, and the litigation was dismissed, with prejudice, in the United States District Court in the Eastern District of
New York and the District of Colorado. From March 15, 2002, the effective date of the merger of the Company and Point Massachusetts through March 5, 2003, the effective date of the sale of the Whatman assets to Pall Corporation, approximately
$100,000 of net royalties was accrued and is payable to the Company under the Royalty Agreement.



In connection with the Whatman transaction, the Company retained certain liabilities, including without limitation, (i) any liabilities under any benefit plan of the Company, (ii) tax liabilities
incurred which relate to periods prior to the closing of the Whatman transaction, (iii) accounts payable arising prior to the closing of the Whatman transaction, (iv) any liabilities of the Company owed to the Companys security holders in
their capacity as security holders of the Company, and (v) any liabilities of the Company owed to Gambro Inc. or Sepracor, Inc. arising or resulting from their respective contractual relationships with the Company.



After the sale to Whatman and before the merger with Point
Massachusetts, the Companys continuing operations consisted of general and administrative expenses to operate a shell company and to investigate various strategic business combinations.



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Forward-Looking
Statements



This Item and other Items in
this report contain forward-looking information as that term is defined in the Private Securities Litigation Reform act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases. This information
includes statements on the prospects for our drug development activities and results of operations based on our current expectations, such as statements regarding certain milestones with respect to our technologies and product candidates.
Forward-looking statements are statements that are not historical facts, and can be identified by, among other things, the use of forward-looking language, such as believe, expect, may, will,
should, seeks, plans, schedule to, anticipates or intends or the negative of those terms, or other variations of those terms of comparable language, or by discussions of
strategy or intentions. In particular, these forward-looking statements include statements relating to present or anticipated scientific progress, development or regulatory approval of potential products, future revenues, capital expenditures,
research and development expenditures, future collaborations, intellectual property, personnel and manufacturing requirements and capabilities. We caution investors that such forward-looking statements are not guarantees of future performance, and
that known and unknown risks, uncertainties and other factors, including those risks factors identified below, in Managements Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report, may cause
actual results to differ materially from those forward-looking statements. In addition, we caution you that forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them, even if our experience or
future changes make it clear that any projected results expressed or implied herein will not be realized.



Risk Factors



Point operates in a rapidly changing environment that involves a number of risks, some of which are beyond Points control. The following discussion highlights some of these risks and others are
discussed elsewhere herein.



If Point fails
to obtain the capital necessary to fund its operations, Point will be unable to successfully develop or commercialize PT-100



Point expects that its working capital will fund its operations through the end of 2003 and therefore additional funding will be required
in the future to finance its operations. Point does not know whether additional funding will be available when needed, or that, if available, Point will be able to obtain funding on satisfactory terms. Point Massachusetts spent approximately $16.8
million since inception, and Point expects its capital outlays and operating expenditures to increase over the next several years as Point expands its infrastructure and preclinical and clinical trial activities. Point may raise these funds through
corporate partnerships, the sale of securities in both public and private offerings as the markets allow and merger & acquisition activities and consolidations.



Points future capital requirements depend on many factors, including the progress of its research and
development efforts, the scope and results of preclinical research and clinical studies of PT-100, the cost and timing of regulatory approvals of PT-100, technological advances, the reevaluation of the commercial potential of PT-100 in light of
developments in Points industry or market, the status of competitive products, the establishment of a sales force and the development of manufacturing capacity. Unexpected events or other factors beyond Points control could also impact
its capital requirements. See Managements Discussion and Analysis of Financial Condition and Results of Operations of Point.



Point may be required to relinquish rights to its technologies or PT-100, or grant licenses on terms that are not favorable to Point, in
order to raise additional funds through alliance, joint venture and licensing arrangements. To the extent Point raises additional capital by issuing equity securities, all stockholders may experience substantial dilution. If adequate funds are not
available, Point will be required to delay, reduce the scope of or eliminate one or more of its research and development programs.



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Points product candidate, PT-100, is in the early stages of human clinical testing and Point is unable to estimate when it will become commercially available, if at all



Points product candidate, PT-100, is currently
undergoing evaluation in early-stage clinical trials for the treatment of neutropenia. Additional human clinical trials will be required before Point can submit any application for approval to sell, manufacture and distribute PT-100 for the
treatment of neutropenia. For any other applications, additional animal and laboratory testing along with human clinical trials will need to be completed before Point can submit any application for approval to sell, manufacture and distribute
PT-100. PT-100 has not received regulatory approval for commercial sale and Point is unable to estimate when it will become commercially available, if at all.



To obtain regulatory approval for the commercial sale of PT-100 for its intended therapeutic applications, Point must demonstrate in
carefully controlled and well-designed clinical trials that PT-100 is safe and effective in humans for the proposed therapeutic indications. Conducting clinical trials is a lengthy, expensive and highly uncertain process. Point is not able to
estimate at this time when it will complete clinical trials for PT-100 for the treatment of neutropenia in chemotherapy patients, and clinical trials for additional indications have not yet been initiated. The length of time to complete clinical
trials varies according to the type, complexity, novelty and intended use of the product candidate. Points clinical trials may be suspended at any time if the Food and Drug Administration or Point believes the participating patients are
exposed to unacceptable health risks. Point may encounter other problems in its studies that will cause the Food and Drug Administration or Point to delay or suspend the studies. Points ability to timely commence and complete clinical trials
of PT-100 may be adversely affected by many factors, including one or more of the following:



| | · |  | ineffectiveness of PT-100, or perceptions by physicians or the FDA that PT-100 is not effective for a particular indication;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| | · |  | inability to manufacture sufficient quantities of PT-100 for use in clinical trials in compliance with strictly enforced regulatory requirements;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | failure of the FDA to allow Points clinical trials to commence or proceed;
| | - |  | ---------------------------------------------------------------------------



| | · |  | slower than expected rate of eligible patient recruitment in the trials;
| | - |  | ------------------------------------------------------------------------



| | · |  | inability to adequately follow or evaluate patients after treatment;
| | - |  | --------------------------------------------------------------------



| | · |  | unforeseen safety issues such as patients in clinical trials suffering adverse health consequences related to PT-100;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| | · |  | government or regulatory delays;
| | - |  | --------------------------------



| | · |  | problems with clinical trial design;
| | - |  | ------------------------------------



| | · |  | failure to comply with FDA regulations for good clinical practices; or
| | - |  | ----------------------------------------------------------------------



| | · |  | any material compromise of data integrity.
| | - |  | ------------------------------------------



The results Point has obtained to date in its clinical trials are preliminary and the studies are currently ongoing. Point cannot predict
or guarantee that the results of further testing, including later-stage controlled human clinical testing, will be successful or will result in FDA approval. If Points trials are not successful, or are perceived as not successful by the FDA or
physicians, Points business, financial condition, results of operations and prospects will be harmed. If Point obtains FDA approval for PT-100 for one or more therapeutic indications, Point may then elect to perform further clinical studies
intended to broaden the labeling indications. If such studies do not support expanding the labeling indications, Points ability to promote and market such products will be limited.



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If
PT-100 is not a successful drug candidate, Point may be unable to obtain other potential drug candidates



In addition to its substantial efforts developing PT-100 on a pre-clinical and early-stage clinical basis, Point from time
to time evaluates new technology opportunities to broaden its portfolio of potential drug candidates, including in-licensing opportunities, collaboration arrangements as well as more expansive corporate relationships, such as mergers and
acquisitions. However, Point may not be able to consummate a transaction to broaden its portfolio of potential drug candidates on terms satisfactory to the Company. If PT-100 is not ultimately a successful drug candidate and Point cannot obtain
other potential drug candidates through one or more strategic transactions, Points business, financial condition and results of operations could be materially adversely affected.



Point had a history of losses, and Point expects to
continue to incur losses and may not achieve or maintain profitability



As of December 31, 2002,Point had an accumulated deficit of approximately $16.8 million. The extent of Points future losses and the timing of profitability are highly uncertain, and Point
may never achieve profitable operations. Point Massachusetts did not have any products that generated any sales revenue, and Point likely will not until PT-100 or any other product of Point becomes commercially available, if ever. Point expects to
incur losses at least until it begins commercial sales of its first approved product, if any. Point expects that its operating expenses will increase and accelerate as its research and development, preclinical, and clinical operations expand, even
if Point succeeds in developing one or more commercial products. Points ability to achieve product revenue and profitability is dependent on its capability, alone or with partners, to successfully complete the development of PT-100, conduct
clinical trials, obtain necessary regulatory approvals, and manufacture, distribute, market and sell PT-100. Point cannot provide assurance that it will generate product revenues or achieve profitability.



If Tufts University School of Medicine terminates
Points license, Point could experience delays or be unable to complete the development and commercialization of its potential products



Point licenses key technology including the rights to PT-100, its lead product, from Tufts University School of Medicine. The underlying
licenses for this technology terminate on the later of the date of the last-to-expire patents, or 15 years from the date of initial commercial sale of the licensed product. Termination of these licenses prior to or upon expiration of the term could
force Point to delay or discontinue its development and commercialization programs. Pursuant to the terms of the license, Tufts University School of Medicine has the right to terminate the license prior to expiration of the term upon a material
breach of the license by Point, Points ceasing to do business or becoming insolvent, or Points failure to sell a licensed product in the U.S. market by May 2009. Point has no assurance that it would be able to license substitute
technology in the future. Points inability to do so could impair Points ability to conduct its business because it may lack the technology, the necessary rights to such technology, or the finances required, in each case, to develop and
commercialize its potential products.



If
Point fails to obtain regulatory approval for PT-100 in a timely manner, Points operating results and its business may be adversely affected



Point must obtain regulatory approval before marketing or selling PT-100 in any major world pharmaceutical market for any therapeutic
application for PT-100. Due to risks and uncertainties inherent in clinical testing and the regulatory process, Point is not able to estimate when PT-100 may be commercially available for any application, if at all.



In the U.S., Point must obtain FDA approval for PT-100 and
each indication that Point intends to commercialize. The FDA approval process is typically lengthy and expensive, and such approval is never certain and entails a high degree of risk. Products marketed, manufactured or distributed abroad are also
subject to foreign government regulation. PT-100 has not received regulatory approval to be commercially marketed and sold for any therapeutic indication. If Point fails to obtain regulatory approval, it will be unable to market and sell



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PT-100. Point cannot predict with certainty if or when it might submit PT-100 for regulatory approval for any therapeutic indication. Once
Point submits PT-100 for review, it cannot assure you that the FDA or other regulatory agencies will grant approvals on a timely basis or at all. If regulatory approval for any therapeutic application for PT-100 is delayed, Points business,
financial condition or results of operations would be materially adversely affected.



Because Point depends on third parties to conduct human clinical studies, Point may encounter delays in product development and commercialization



Point has relatively few employees and does not have the
resources or experience to design and conduct human clinical trials on its own. Point must therefore contract with third parties to perform the clinical trials needed for Point to submit PT-100 to the FDA for marketing approval. Accordingly, Point
may lose some control over the cost of and time required to conduct these studies. In addition, these third parties might not conduct Points clinical trials in accordance with regulatory requirements. Currently, Point is dependent on a single
contractor for conducting clinical trials of PT-100, although Point believes alternative contractors are available for conducting clinical trials of PT-100 on terms acceptable to Point. The failure of this contractor to carry out its contractual
duties could delay or prevent the successful development and commercialization of PT-100.



Point may fail to adequately protect or enforce its intellectual property rights, and Points products and processes may infringe the intellectual property rights of others



As with any pharmaceutical or
biotechnology company, Points patent and other proprietary rights are subject to uncertainty and risk. Points success will depend in part on its ability to obtain and enforce patent protection for Points products in the U.S. and in
other countries. Point has been issued two U.S. and corresponding foreign patents and has been granted a Notice of Allowance for a third patent. Points patents are related to composition of matter covering its small molecules as well as its
hematopoietic program. Point has also filed and is prosecuting patent applications in the United States and in foreign countries relating to additional composition of matter covering its small molecules as well as to both its anti-tumor and
hematopoietic programs. It is possible that no patents will be issued on any of Points patent applications, and it is possible that the claims issued will not be sufficiently broad to protect Points technology or that the patents will
not provide protection against competitive products or otherwise be commercially valuable.



Points commercial success will also depend in part on Points ability to commercialize PT-100 without infringing patents or other proprietary rights of others. Any patents issued to or
licensed by Point could be challenged, invalidated, infringed, circumvented or held unenforceable. PT-100 may infringe current or future patents or other proprietary rights of others. To date, Point has not received any communications from third
parties nor is Point aware of any claims by third parties that PT-100 or any of Points other activities infringe upon the patent rights of any third party. However, Point cannot assure you that other companies or individuals have not or will
not independently develop substantially equivalent proprietary rights or that other parties have not or will not be issued patents that may prevent the sale of Points products or require licensing and the payment of significant fees or
royalties in order for Point to be able to carry on its business.



Litigation or other legal proceedings could result in substantial costs to Point and may be necessary to enforce any of Points patents or other proprietary rights or to determine the scope and validity or
enforceability of other parties proprietary rights. The defense and enforcement of patent and intellectual property claims are both costly and time consuming, even if the legal outcome is favorable to Point. Any adverse legal outcome could
subject Point to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require Point to cease manufacturing or selling its future products.



Points employees, consultants and advisors are required
to enter into written confidentiality agreements that prohibit the disclosure or use of confidential information. Point also has entered into written confidentiality agreements that are intended to protect its confidential information delivered to
third parties for research and other purposes. However, these agreements could be breached and Point may not have adequate remedies for any breach, or Points trade secrets and proprietary information could otherwise become known or be
independently discovered by others.



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If
Points competitors reach the market sooner or develop products and technologies that are more effective or have reduced side effects, Points commercial opportunity will be reduced or eliminated



The pharmaceutical and biotechnology industries are intensely
competitive. There are existing products on the market that are used for the treatment of patients with the same indications that Point has targeted including, among others, Amgen Inc.s Neupogen®and Neulasta®and IDECs Zevalin. Because PT-100 is still in the early stages of development, Point
does not have the sales, marketing, manufacturing or distribution capabilities necessary to compete with well-established companies. If PT-100 is approved by the FDA for one or more therapeutic applications, Point plans to enter into collaboration
agreements with one or more established companies in order to compete in the marketplace. There can be no assurances that Point will be able to successfully enter into any such collaborations with third parties or that any such collaborations will
be entered into on terms satisfactory to Point.



There are also many public and private pharmaceutical companies, biotechnology companies, public and private universities, governmental agencies and research organizations actively engaged in drug discovery and research and
development of products for the treatment of patients with the same indications that Point has targeted. Many of these organizations have financial, technical, regulatory, patenting, manufacturing and marketing resources that are far greater than
Points. If a competitor were to successfully develop or acquire rights to a similar or more effective treatment of patients with the same indications targeted by Point or one that has reduced side effects or offers significantly lower costs of
treatment, or were to successfully enter the market in advance of Point with a similar or superior therapy, Points business, financial condition or results of operations could be materially adversely affected.



Point cannot provide assurances that research and development
by others will not render Points technology or PT-100 obsolete or non-competitive or result in treatments superior to any therapy or drug developed by Point, or that any drug or therapy developed by Point will be preferred to any existing or
newly developed technologies.



Points
manufacturing strategy presents a number of risks



Point does not currently have its own manufacturing facilities. Point expects in the future to depend on outside contractors for the manufacture of PT-100. Completion of Points clinical trials and the commercialization of
PT-100 will require access to, or development of, manufacturing capabilities. Point has entered into short-term arrangements with third parties with respect to the manufacture of the quantities necessary for preclinical and early-stage clinical
development. As Point approaches later-stage clinical development and commercialization of a product candidate, however, Points intention is to enter into longer-term arrangements with multiple manufacturing sources. Point may not be able to
enter into additional third-party manufacturing arrangements on acceptable terms, if at all. An outside contractor may give greater priority to other products or for other reasons may fail to manufacture or deliver the required supply of PT-100 in a
cost-effective or timely manner. Points current and future manufacturers are and will be subject to ongoing periodic unannounced inspection by the FDA and corresponding state and foreign agencies for compliance with strictly enforced good
manufacturing practice regulations and similar state and foreign standards, and Point does not have control over its third-party manufacturers compliance with these regulations and standards.



Any of these factors could delay clinical trials or
commercialization of PT-100, interfere with sales, entail higher costs or result in Point being unable to effectively sell Points products. To the extent that Point is reliant on a sole source of supply of a drug, any interruption in that
supply could prevent Point from effectively developing, testing and commercializing the drug.



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Points ability to generate revenues will be diminished if PT-100 is not accepted in the marketplace, if Point fails to obtain acceptable prices or if adequate reimbursement is not available for PT-100 from third-party
payors



There are competing products to
PT-100 already in the market for the treatment of neutropenia and non-Hodgkins lymphoma, including Amgen Inc.s Neupogen®and Neulasta®and IDECs Zevalin. See Information Regarding PointCompetition. Even if approved for sale and distribution for one or more therapeutic indications, PT-100 might not achieve market acceptance for such indications or remain on the
market. PT-100 may be rejected by the marketplace due to many factors, including cost and the perceived risks versus the benefits of PT-100. Physicians, patients, payors or the medical community in general may be unwilling to accept, prescribe,
utilize, recommend or reimburse for PT-100 for such indications.



Points ability to commercialize its drugs may be limited due to the continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means. For example, in many markets
outside the U.S., the pricing and profitability of prescription pharmaceuticals are subject to government control. In the U.S., Point expects that there will continue to be federal and state proposals to implement additional government control.
Also, increasing emphasis on managed care in the U.S. and the possibility of government regulation of prescription drug prices will likely continue to put additional pressure on the pricing of pharmaceutical products. Cost control initiatives could
decrease the price that Point might otherwise achieve for PT-100 in the future. Further, cost control initiatives could adversely affect Points ability to commercialize PT-100 and its ability to realize profits and revenues from this
commercialization.



Points ability to
commercialize pharmaceutical products, alone or with distributors or others, may depend in part on the extent to which reimbursement for the products will be available from:



| | · |  | government and health administration authorities;
| | - |  | -------------------------------------------------



| | · |  | private health insurers; and
| | - |  | ----------------------------



| | · |  | other third-party payors.
| | - |  | -------------------------



Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Third-party payors, including
Medicare, are challenging the prices charged for medical products and services. Government and other third-party payors increasingly are attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new drugs
and by refusing, in some cases, to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval. Third-party insurance coverage may not be available to patients for any products Point
discovers and develops, alone or with its strategic alliance partners. If government and other third-party payors do not provide adequate coverage and reimbursement levels for PT-100, the market acceptance of these products may be reduced.



Point uses hazardous chemicals and
radioactive and biological materials in its business; any disputes relating to improper use, handling, storage or disposal of these materials could be time consuming and costly



Points research and development operations involve the use of certain hazardous materials, including
certain chemicals and radioactive and biological materials. The hazardous materials used most frequently by Point in its operations include sodium chromate containing chromium-51 (51 Cr), nucleotides containing phosphorus-32 (32 P) and phenol.
Points operations also produce hazardous waste products. Point is subject to the risk of accidental contamination or discharge or any resultant injury from these materials. Federal, state and local laws and regulations govern the use,
manufacture, storage, handling and disposal of these materials. Point could be subject to damages, fines and penalties in the event of an improper or unauthorized release of, or exposure of individuals to, these hazardous materials, and Points
liability could exceed its total assets. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair Points business. To date, Points compliance costs with respect to
environmental laws and regulations have been minimal.



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Point
may be sued for product or operational liability



Point may be held liable if any of its products or operations cause injury or death or are found otherwise unsuitable during product testing, manufacturing, marketing or sale. Point currently maintains general liability and product
liability insurance related to its clinical trials consistent with industry standards which Point believes is adequate to insure Point against such potential losses. When necessary for Points products, Point intends to obtain additional
product liability insurance. Insurance coverage may be prohibitively expensive, may not fully cover Points potential liabilities or may not be available in the future. Inability to obtain sufficient insurance coverage at an acceptable cost or
otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of Points products. If Point is sued for any injury caused by its products, the litigation could consume substantial time and
attention of Points management and its liability could exceed Points total assets.



If Point loses its key personnel or is unable to attract or retain additional personnel, Point may be unable to develop PT-100 or achieve commercialization objectives



Point is highly dependent on Donald R. Kiepert, Jr., its
Chairman, President and Chief Executive Officer, Richard N. Small, its Senior Vice President, Chief Financial Officer and Treasurer, Michael P. Duffy, its Senior Vice President, General Counsel and Secretary, Barry Jones, its Senior Vice President
for Research, Margaret J. Uprichard, its Vice President of Clinical and Regulatory Affairs, as well as other principal members of Points management and scientific staff. To date, Point has not maintained key-man liability insurance to protect
itself against the loss of any of these personnel. The loss of any of these personnel may have a disruptive effect on its operations until Point replaces the lost personnel, and may have a material adverse effect on Points product development
and commercialization efforts if Point is not able to attract qualified replacements.



Points success depends on its continued ability to attract, retain and motivate highly qualified management and scientific personnel and on Points ability to develop and maintain
relationships with leading academic institutions and scientists. Competition for personnel and medical and research collaborations is intense. In particular, Points product development programs depend on Points ability to attract and
retain highly skilled scientists and clinical development and regulatory affairs personnel. In addition, Point will need to hire additional personnel and develop additional collaborations as it continues to expand its research and development
activities. In April, Dr. Lawrence Nussbaum, Points Chief Medical Officer, will be leaving the Company to pursue other interests. Point plans, at least in the short-term, to replace Dr. Nussbaum with a part-time medical consultant as well as
utilize the medical resources of a clinical research organization. To date, Point has been able to attract and retain key personnel when needed. Point is not aware of any key employee other than Dr. Nussbaum who plans to retire or terminate his or
her employment with the company in the near future.Despite Points ability in the past in attracting and retaining key personnel, Point cannot provide assurances that it will be able to continue to attract, retain or motivate personnel
or develop or maintain such outside relationships in the future.



The Company has contingent liabilities relating to its historical discontinued operations that could give rise to liability risks in the future



Prior to the sale of substantially all of the Companys non-cash assets to Whatman in May of 2001, the
Company was engaged in the business of developing and supplying blood filtration devices. Although Whatman contractually assumed and agreed to indemnify and hold harmless the Company from and against most liabilities and obligations arising out of
the conduct of the Companys blood filtration business, the Company retained certain known and unknown risks that were not contractually assumed by Whatman including. without limitation, (i) any liabilities under any benefit plan of the
Company, (ii) tax liabilities incurred which relate to periods prior to the closing of the Whatman transaction, (iii) accounts payable arising prior to the closing of the Whatman transaction, (iv) any liabilities of the Company which were owed to
the Companys security holders in their capacity as such, and (v) liabilities of the Company which were owed to Gambro Inc. or Sepracor, Inc. arising or resulting from their respective contractual relationships with the Company. If for any
reason Whatman is not able to satisfy any of the assumed liabilities, such outcome could have a material and adverse effect on the Companys financial condition. Accordingly, there can be no assurances that claims arising out of the
Companys historical business and operations



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would not be asserted against the Company in the future and, if asserted, there can be no assurances that the Company would prevail.



Stocks traded on the OTC Bulletin Board
are subject to market risks in addition to those market risks applicable to exchange-traded and Nasdaq Stock Market traded stocks



Shares of common stock of the Company are traded on the OTC Bulletin Board, an electronic, screen-based trading system operated by the
National Association of Securities Dealers, Inc. Securities traded on the OTC Bulletin Board are, for the most part, thinly traded and generally are not subject to the level of regulation imposed on securities listed or traded on the NASDAQ Stock
Market or on a national securities exchange. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the price of, the Company common stock.



For the three-month period ended March 6, 2003, the average daily trading volume for shares of the
Companys common stock ranged from zero to 33,700 shares traded per day, and the average daily trading volume during such three-month period was only 4,743 shares traded per day. Accordingly, investors in the Company who wish to dispose of
their shares of common stock on any given trading day may not be able to do so or may be able to dispose of only a portion of their shares of common stock.



The Companys stock price could be volatile



The price of the Company common stock has been and may in the future continue to be extremely volatile, with
the sale price fluctuating from a low of $0.51 to a high of $14.80 (giving effect for the 1-10 split that occurred on March 15, 2002) in the two-year period ended December 31, 2002. Factors such as the announcements of technological innovations or
new products by the Company or its competitors, governmental regulation, health care legislation, developments in patent or other proprietary rights of the Company or its competitors, including litigation, fluctuations in operating results and
market conditions for health care and life sciences stocks in general could have a significant impact on the future price of the Companys common stock. In addition, the stock market has from time to time experienced extreme price and volume
fluctuations which may be unrelated to the operating performance of particular companies.



Sales of a number of shares eligible for public sale could cause our stock price to decline



Certain holders of the Companys securities, including Sepracor, Gambro, Inc. and Novo Nordisk A/S are entitled to registration
rights with a respect to an aggregate of 1,252,606 shares, including 236,700 shares of common stock underlying the warrants issued to Sepracor. Sales of substantial amounts of these shares in the public market or the prospect of sales of these
shares could adversely affect the market price of the Company common stock. In addition, certain large non-affiliated holders of the Companys securities are entitled to sell their shares without limitation under Rule 144 or otherwise.



Employees



As of March 21, 2003, the Company employed seventeen persons,
of which ten were engaged in research and development and seven in administration, finance and legal. All of the Companys employees have signed an agreement which prohibits the disclosure of confidential information to anyone outside the
Company and assigns to the Company any ideas, developments, discoveries, and inventions made. None of the Companys employees are covered by a collective bargaining agreement, and the Company has experienced no work stoppage. The Company
considers its employee relations to be good.



Available
Information



Our Internet website
address is http://www.pointtherapeutics.com or http://www.pther.com. We make available through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
filed pursuant to Sections 13(a) and 15(d) of the Securities



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Exchange Act of 1934, as amended. We have made these reports available through our website during the period covered by this report and,
since July 2002, we have made these reports available on our website at the same time that they become available on the Securities and Exchange Commissions website.



Item 2.Properties



Currently, the Company subleases approximately 4,600 square feet of office space at 125 Summer Street, Boston, Massachusetts. The sublease term is for three years, ending in April 2005. In addition,
the Company subleases approximately 3,000 square feet of laboratory space at 75 Kneeland Street, Boston, Massachusetts from New England Medical Center (NEMC). NEMC is affiliated with Tufts, from which the Company licenses certain
technology, and is a stockholder of the Company. The Company currently has no written sublease with NEMC and is a tenant-at-will. The Company believes that its current facilities will be adequate and suitable for the Companys present and
future needs for the foreseeable future.



Item 3.Legal Proceedings



As of March 21, 2003, the Company had no outstanding litigation.



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



The Company did not submit any matter to the vote of its security holders during the fourth quarter of 2002.



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Item 4A.Executive Officers of the Company



The following is a list of the executive officers of the Company and their principal positions with the Company as of March 21, 2003. Each
individual officer, with the exception of Michael P. Duffy, who joined the Company in May 2002 and Margaret Uprichard, who joined the Company in January 2003 has served in his respective position with the Company since March 15, 2002, the effective
date of the merger with Point Massachusetts. All officers of the Company are employed pursuant to employment agreements.



|Name                            |  | Age |  | Position                                                    
|------------------------------- |  | --- |  | ------------------------------------------------------------
|Donald R. Kiepert, Jr.          |  | 55  |  | Chairman, President, Chief Executive Officer, and Director  
|                               
|Richard N. Small                |  | 48  |  | Senior Vice President, Chief Financial Officer and Treasurer
|                               
|Michael P. Duffy                |  | 42  |  | Senior Vice President, General Counsel and Secretary        
|                               
|Barry Jones, Ph.D.              |  | 54  |  | Senior Vice President, Research                             
|                               
|Margaret J. Uprichard, Pharm.D. |  | 44  |  | Vice President, Clinical and Regulatory Affairs             



Mr.
Kiepert has served as President, Chief Executive Officer and as a director of Point Massachusetts since its inception in 1996. Prior to that, he was President and Chief Executive Officer of Chartwell Home Therapies, a home infusion services company,
from 1989 to 1996. Mr. Kiepert also started and managed several healthcare-based companies and worked in various management positions at Baxter Travenol, Inc. Mr. Kiepert presently serves as chairman and as a director of two private companies. Mr.
Kiepert received his M.S. degree in clinical pharmacy from Purdue University.



Mr. Small has served as Senior Vice President, Chief Financial Officer and Treasurer of Point Massachusetts since its inception in 1996. Prior to that, he was Vice President, Chief Financial Officer at
ImmuLogic Pharmaceutical Corporation from 1992 to 1996. Mr. Small has also worked in various management positions at Dennison Manufacturing Company and the public accounting firm of Coopers and Lybrand LLP. Mr. Small presently serves as a director
for a private company.



Mr. Duffy has served as
Senior Vice President, General Counsel and Secretary of the Company since May 2002. Prior to that, he was Senior Vice President, General Counsel and Secretary of Digital Broadband Communications, Inc. from 1999 through 2002. Mr. Duffy was also
Senior Vice President, General Counsel and Secretary of ETC w/tci, a sub-portfolio of TCI Ventures, Inc. / Liberty Media Corporation from 1996 through 1999. Prior to that, Mr. Duffy practiced law at Ropes & Gray in Boston, Massachusetts. He is
also a founder and principal of a private business advisory firm.



Dr. Jones has served as Senior Vice President of Research of the Company since January 2003 and Vice President of Research of Point Massachusetts since January 2000, and Director of Immunology of Point Massachusetts since
1997. Prior to joining Point Massachusetts, he was Director of Immunology at Procept, Inc., from 1993 through July 1997. He has also held academic research positions at Yale Universitys School of Medicine and at Pennsylvania State University.



Dr. Uprichard joined the Company in January 2003
as Vice President, Clinical and Regulatory Affairs. Prior to joining the Company, she founded a consulting company in drug development and served as Head of Regulatory, Clinical and/or Preclinical Affairs for both Curis, Inc and Paion, GmbH, from
2001-2003. From 1990-2001, Dr. Uprichard held senior positions in both Clinical and Regulatory Affairs for Warner-Lambert/Pfizer in the oncology, neurology, cardiovascular, and rheumatology areas.



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PART II



Item 5.Market for Registrants Common Equity and Related Stockholder Matters



| | 1. |  | Market Information.
| | -- |  | -------------------



As of March 18, 2002, the Common Stock of the Company has been included for quotation on the OTC Bulletin Board under the symbol
POTP. From January 14, 1998 until March 17, 2002, the Common Stock of the Company had been included for quotation on the OTC Bulletin Board under the symbol HMSR. The following table sets forth for the periods indicated the
range of high and low bid information per share of the Common Stock as included for quotation on the OTC Bulletin Board (giving retroactive effect to the 1-for-10 reverse split that occurred on March 15, 2002).



|               |  | High |       | Low
|-------------- |  | ---- | ----- | ---
|2002           |  |      |       |    
|First Quarter  |  | $    | 5.98  |    
|Second Quarter |  | $    | 3.25  |    
|Third Quarter  |  | $    | 1.60  |    
|Fourth Quarter |  | $    | 1.30  |    
|2001           |  |      |       |    
|First Quarter  |  | $    | 14.80 |    
|Second Quarter |  | $    | 5.50  |    
|Third Quarter  |  | $    | 4.60  |    
|Fourth Quarter |  | $    | 5.80  |    





| | 2. |  | Holders.
| | -- |  | --------



On March 21, 2003, the Companys Common Stock was held by approximately 200 stockholders of record. On March 21, 2003, the last
reported sale price of the Companys Common Stock on the OTC bulletin board was $0.73 per share.



| | 3. |  | Dividend Information.
| | -- |  | ---------------------



The Company has never paid dividends on its Common Stock. The Company does not expect to pay cash dividends in the foreseeable future.



| | 4. |  | Sales of Securities.
| | -- |  | --------------------



Not applicable.



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Item 6.Selected Financial Data



The selected consolidated financial data set forth below have been derived from our consolidated financial statements. These historical
results are not necessarily indicative of results to be expected for any future period. You should read the data set forth below in conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and related Notes included in this Report.



STATEMENT OF OPERATIONS DATA



|                                                      |  | Year Ended December 31,               |       
|----------------------------------------------------- |  | ------------------------------------- | ------
|                                                      |  | 2002                                  |       
|                                                      |  | (In thousands, except per share data) |       
|Revenues:                                             |  |                                       |       
|License revenue                                       |  | $                                     |      
|Sponsored research revenue                            |  |                                       |      
|                                                      |  |                                       |       
|Total revenues                                        |  |                                       |      
|                                                     
|Costs and expenses:                                   |  |                                       |       
|Research and development                              |  |                                       | 5,160 
|General and administrative                            |  |                                       | 2,501 
|                                                      |  |                                       |       
|Income (loss) from operations                         |  |                                       | (7,661
|Other income (expense)                                |  |                                       | 182   
|                                                      |  |                                       |       
|Net income (loss)                                     |  | $                                     | (7,479
|                                                      |  |                                       |       
|                                                     
|Net income (loss) per common share:                   |  |                                       |       
|Basic                                                 |  | $                                     | (0.84 
|                                                      |  |                                       |       
|Diluted                                               |  | $                                     | (0.84 
|                                                      |  |                                       |       
|Shares used in computing net income (loss) per share: |  |                                       |       
|Basic                                                 |  |                                       | 8,898 
|Diluted                                               |  |                                       | 8,898 
|BALANCE SHEET
DATA                                   
|(In thousands)                                        |  |                                       |       
|Cash and marketable securities                        |  | $                                     | 12,005
|Working capital                                       |  |                                       | 10,879
|Total assets                                          |  |                                       | 12,553
|Long-term debt and capital lease obligations          |  |                                       | 57    
|Stockholders equity (deficit)                        |  |                                       | 11,095
|                                                     
|Dividendsnone                                        |  |                                       |       



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Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operation



The following discussion and analysis should be read in conjunction with the Selected Financial
Data and the Companys Consolidated Financial Statements and related Notes included elsewhere in this report.



Managements Discussion and Analysis of Financial Condition and Results of Operations that follows contains forward-looking
statements based on current management expectations. Meaningful factors that could cause future results to differ materially from such expectations include, without limitation, the following: (i) results from the Companys ongoing clinical
trials, (ii) scientific data collected on the Companys technologies currently in preclinical research and development, (iii) decisions made by the FDA or other regulatory bodies with respect to the initiation of human clinical trials, (iv)
decisions made by the FDA or other regulatory bodies with respect to approval and to the commercial sale of any of the Companys proposed products, (v) the commercial acceptance of any products approved for sale and the ability of the Company
to manufacture, distribute and sell for a profit any products approved for sale, (vi) the Companys ability to obtain the necessary patents and proprietary rights to effectively protect its proposed products and technologies, and (vii) the
outcome of any collaborations or alliances to be entered into by the Company in the future with pharmaceutical or other biotechnology companies.



Overview



Point is a development stage enterprise in the business of developing small molecule drugs for the treatment of certain hematopoietic
disorders and a variety of cancerous tumors. PT-100, the Companys lead product candidate, has the potential to treat a number of different hematopoietic disorders as well as certain cancerous tumors. PT-100 is currently being evaluated in a
Phase I/II clinical study where cancer patients undergoing chemotherapy are treated with PT-100 as an adjunct therapy for the treatment of neutropenia. The Company is also developing PT-100 as a potential therapy to inhibit the growth of a variety
of cancerous tumors. Point has completed the preclinical research on the anti-tumor effects of PT-100 in combination with Rituxan®and the Company filed an amendment in February 2003 to its IND with the FDA in order to initiate a clinical program to test the safety and efficacy of PT-100 in combination with Rituxan®. Point expects to initiate a human clinical study in 2003 to assess the safety and efficacy of this combination therapy, initially in patients with
non-Hodgkins lymphoma.



To date, the
Company has generated no revenues from product sales and has depended upon equity financings, interest earned on invested funds, and collaboration payments received from pharmaceutical companies to provide the working capital required to pursue its
intended business activities. The Company has a net accumulated deficit of $16,810,000 through December 31, 2002. The accumulated deficit has resulted principally from the Companys efforts to develop drug candidates and the associated
administrative costs required to support these efforts. The Company expects to incur significant additional operating losses over the next several years due to its ongoing developmental and clinical efforts. The Companys potential for future
profitability is dependent on its ability to effectively develop its current pharmaceutical product candidate, PT-100, and to license and develop new pharmaceutical compounds.



The Company was originally incorporated in December 1993 as a Delaware corporation under the name Hemacor
Inc. The Company changed its name to HemaSure Inc. in February of 1994. From 1994 to May 2001, the Company developed and supplied innovative blood filtration technologies. On May 28, 2001, the Company sold substantially all of its non-cash assets to
Whatman. The Company changed its name from Hemasure, Inc. to HMSR Inc. upon the sale to Whatman. From May 2001 until the merger on March 15, 2002 (described below) with Point Massachusetts, the Companys operations consisted primarily of
investigating various strategic business combinations.



On November 15, 2001, the Company and PT Acquisition Corp., a wholly-owned subsidiary of the Company formed for the purpose of consummating a merger transaction, entered into the Agreement and Plan of Merger with Point Massachusetts.
At that time, HMSR Inc. paid Point Massachusetts a $500,000 lock-up fee which was recorded as deferred merger consideration. The lock-up fee was included when calculating the final stock conversion ratio between Point Massachusetts and HMSR Inc.



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On March 15,
2002, the Companys stockholders approved a 1-for-10 reverse split of the Companys common stock and a name change of the Company from HMSR Inc. to Point Therapeutics, Inc. The stockholders of Point Massachusetts also approved on March 15,
2002 the Merger Agreement previously entered into by both parties. In accordance with the terms of the Merger Agreement, immediately prior to the effective time of the merger, and after taking into account the 1-for-10 reverse split with respect to
the Companys common stock prior to the merger, each share of Point Massachusetts common stock outstanding immediately prior to the effective time of the merger (including all shares of Point Massachusetts preferred stock converted prior to the
effective time) was converted into the right to receive 4.16168 shares of the Companys common stock. This ratio also took into account the $500,000 HMSR Inc. lock-up fee paid on November 15, 2001. In addition, all outstanding options and
warrants of Point Massachusetts were converted at the same conversion rate of 4.16168.



As a result of the merger, the Company acquired all of the outstanding shares of Point Massachusetts capital stock. For accounting purposes, the acquisition has been treated as the acquisition of HMSR
Inc. by Point Massachusetts with Point Massachusetts as the acquiror. The historical financial statements of the Company presented prior to March 15, 2002 are those of Point Massachusetts. Point Massachusetts capital structure has been
restated to reflect all stock issuances as if the merger had taken place prior to all periods presented. In addition, if the merger with HMSR Inc. had occurred at the beginning of the periods presented, the effect of the inclusion of HMSR Inc.
operating results on the financial statements presented would not be material.



The historical financial statements of the Company presented prior to March 15, 2002 are those of Point Massachusetts. Point Massachusetts capital structure has been restated to reflect all stock
issuances as if the merger had taken place prior to all periods presented. In addition, if the merger with HMSR Inc. had occurred at the beginning of the periods presented, the effect of the inclusion of HMSR Inc. operating results on the financial
statements presented would not be material.



For
additional information regarding the terms of the merger, refer to the Companys Form S-4, which was filed with the Securities and Exchange Commission on February 11, 2002.



The Companys business operations after the merger consist solely of the business previously conducted
by Point Massachusetts. Point is developing small molecule drugs for the treatment of certain hematopoietic disorders and a variety of cancerous tumors. Point believes that PT-100 potentially has the ability to treat hematopoietic disorders
involving abnormally low levels of blood cells.



The treatment of neutropenia (an abnormally low level of a type of white blood cell called a neutrophil) is the first clinical application for PT-100 being tested by Point in human clinical trials. PT-100 is currently in a Phase I/II
clinical study for the treatment of neutropenia in cancer patients as an adjunct to chemotherapy. The study is evaluating the safety profile of PT-100, and the studys protocol calls for four increasing dose levels of six patients per dosing
regimen. The clinical study is also evaluating certain end points, including the recovery of neutrophils in patients undergoing chemotherapy and other key biological markers. As of the end of the first quarter of 2003, the Company completed dosing
three of the four planned dosing groups. To date, PT-100 has been well tolerated from a safety perspective, and the final dosing group is expected to be enrolled in the second quarter of 2003. Point believes that PT-100 might also be developed for
the treatment of neutropenia in patients with AIDS or other diseases that can cause neutropenia.



Also, Point has obtained some results from preclinical research in animal models indicating that PT-100 potentially has the ability to treat acute anemia. Acute anemia is a condition of an abnormally
low number of red blood cells. For example, cancer patients sometimes develop acute anemia after undergoing chemotherapy because of the chemotherapeutic agents adverse effects on red blood cell production. Similarly, Point believes that PT-100
could potentially serve as a treatment for patients with AIDS suffering from acute anemia caused by bone marrow deficiencies that affect blood cell production. To date, Point has not completed its pre-clinical testing or initiated human clinical
testing of PT-100 in treating these conditions.



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In addition to
potentially serving as a treatment for different hematopoietic disorders, PT-100 has been observed by Point in animal testing to have an ability to inhibit the growth of different types of tumors. The tumor responses in animals observed by Point
have ranged from tumor growth inhibition for certain types of tumors to full regression of other tumors. Point has also demonstrated in animal models the ability of PT-100 in combination with a tumor-specific monoclonal antibody (Rituxan®) to enhance the anti-tumor effects when compared to the anti-tumor effects in these animal models when treated with
Rituxan®alone. Point has completed the preclinical research on the anti-tumor effects of PT-100 in combination
with Rituxan®and the Company filed an amendment in February 2003 to its IND with the FDA in order to
initiate a clinical program to test the safety and efficacy of  PT-100 in combination with Rituxan®,
initially in patients with non-Hodgkins lymphoma.



Besides the hematopoeitic and anti-tumor applications described above, Point is also exploring a number of different applications for PT-100 and its clinical analogues on a pre-clinical basis. In addition, Point from time to time
evaluates new technology opportunities to broaden its portfolio of potential products, including in-licensing opportunities, collaboration arrangements as well as more expansive corporate relationships, such as mergers and acquisitions.



Critical Accounting Policies and Significant Judgments and
Estimates



Critical Accounting
Policies



In December of 2001, the
Securities and Exchange Commission (SEC) requested that all registrants list their most critical accounting policies in Managements Discussion and Analysis of Financial Condition and Results of Operations. The SEC
indicated that a critical accounting policy is one which is both important to the portrayal of our financial condition and results and requires managements most difficult, subjective or complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently uncertain. Our significant accounting policies are fully described in Note 2 to our consolidated financial statements, included elsewhere in this Annual Report on Form 10-K.



Revenue Recognition



Revenue is deemed earned when all of the following have
occurred: all obligations of the Company relating to the revenue have been met and the earning process is complete; the monies received or receivable are not refundable, irrespective of research results; and there are neither future obligations nor
future milestones to be met by the Company with respect to such revenue incurred.



Revenues from corporate collaborations are earned based upon research expenses incurred and milestones achieved. Non-refundable payments upon initiation of contracts are deferred and amortized over the
period which the company is obligated to participate on a continuing and substantial basis in the research and development activities outlined in each contract. Amounts received in advance of reimbursable expenses are recorded as deferred revenue
until the related expenses are incurred. Milestone payments are recognized as revenue in the period in which the parties agree that the milestone has been achieved.



For the year ended December 31, 2000, we recognized $5,233,000 of revenues relating to research and
development services performed under our corporate collaboration agreements. We have not recognized any revenue under such agreements during the years ended December 31, 2002 and 2001. Royalty revenue is recognized upon the sale of the related
products, provided the royalty amounts are fixed or determinable and collection of the related receivable is reasonably assured.



Clinical Trial Accrual



The Company accrues the estimated cost of patient recruitment and related supporting functions for its clinical trial as patients are
enrolled in the trial. These costs consist primarily of payments made to the clinical



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centers, investigators and patients for participating in the Companys clinical trial. As actual or expected costs become known, they
may differ from estimated costs previously accrued for and this clinical trial accrual would be adjusted accordingly.





Significant Judgments and Estimates



The preparation of our consolidated
financial statements in conformity with accounting principles generally accepted in the United States requires that we make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at our balance
sheet date. Such estimates include the carrying value of property and equipment and the value of certain liabilities. Actual results may differ from such estimates.



Results of Operations



The historical financial statements of the Company presented prior to March 15, 2002 are those of Point
Massachusetts. Point Massachusetts capital structure has been restated to reflect all stock issuances as if the merger had taken place prior to all periods presented. In addition, if the merger with HMSR Inc. had occurred at the beginning of
the periods presented, the effect of the inclusion of HMSR Inc. operating results on the financial statements presented would not be material.



Years Ended December 31, 2002 and December 31, 2001



Revenues



The Company generated no revenues during the years ended December 31, 2002 and December 31, 2001.



Operating expenses



Research and development expenses increased 50.8% to
$5,160,000 for the year ended December 31, 2002 from $3,422,000 for the year ended December 31, 2001. The increase was primarily due to costs associated with the ongoing PT-100 clinical program and preclinical research and development efforts in the
Companys hematopoietic and anti-tumor programs.



Since inception, the Company has incurred $17,363,000 in expenses on research and development activities. Almost all of the Companys research and development efforts have been focused on the preclinical and clinical development
of PT-100 for hematopoietic disorders and for the treatment of a variety of cancerous tumors. During the third quarter of 2001, Point Massachusetts initiated a Phase I/II clinical study under a FDA-approved IND in which cancer patients undergoing
chemotherapy are given PT-100 as an adjunct therapy for the treatment of neutropenia. The study is evaluating the safety profile of PT-100 at four increasing dose levels of six patients per dosing regimen. The clinical end points being studied also
include the recovery of neutrophils in patients undergoing chemotherapy and key biological markers. Three out of the four dosing groups have completed dosing through the first quarter of 2003. To date, PT-100 has been well tolerated and the final
dosing group is expected to be enrolled in the second quarter of 2003.



The Company has no other material research and development programs and thus the $17,363,000 disclosed for research and development in the Companys financial statements has primarily been directed towards developing
PT-100. PT-100 is currently in early-stage clinical trials for its first indication, to treat neutropenia, and filed an amended IND with the FDA in February 2003 to initiate a clinical program to study PT-100 as an anti-tumor agent in combination
with Rituxan®, initially in patients with Non-Hodgkins Lymphoma. The Company cannot predict whether the
results of further testing will be successful or will result in FDA approvals. Thus, due to the uncertainties inherent in clinical testing and the regulatory process, the Company is not able to estimate at this time when PT-100 may be commercially
available for any application, if at all, nor the costs associated with completing the clinical trial process.



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General and
administrative expenses increased 24.4% to $2,501,000 for the year ended December 31, 2002 from $2,010,000 for the year ended December 31, 2001. The increase was primarily due to an increase in needed internal support and external costs associated
with the Company becoming a public entity on March 15, 2002 as a result of the merger between Point Massachusetts and HMSR Inc. and the hiring of a consulting group to assist the Company in developing an optimal commercialization strategy for
PT-100.



Interest income, net



Interest income, net, for the year
ended December 31, 2002 was $183,000 compared to $225,000 for the same period in 2001, a decrease of $42,000 or 18.7%. The decrease resulted from lower interest rates earned on the invested cash balance in 2002 as compared to the same period in
2001, offset in part by a higher invested cash balance compared to the same period in 2001.



Net loss



As a result of the foregoing, the Company incurred a net loss of $7,479,000, or $0.84 per share, for the year ended December 31, 2002 compared to a net loss of $5,207,000, or $0.74 per share, for the year ended
December 31, 2001.



Years Ended December 31, 2001 and
December 31, 2000



Revenues



The Company generated no revenues
during the year ended December 31, 2001. For the year ended December 31, 2000, the Company generated $4,333,000 in license revenue and $900,000 in sponsored research revenue in connection with its collaboration with a pharmaceutical company. The
collaboration was terminated in June 2000.



Operating expenses



Research and development expenses increased 49.0% to $3,422,000 for the year ended December 31, 2001 from $2,296,000 for the year ended December 31, 2000. The increase was primarily due to costs associated with the PT-100 clinical
program which was initiated in 2001.



General and
administrative expenses increased 135.4% to $2,010,000 for the year ended December 31, 2001 from $854,000 for the year ended December 31, 2000. The increase was primarily due to legal costs incurred during 2001 in connection with the merger which
took place on March 15, 2002.



Interest
income, net



Interest income, net for
the year ended December 31, 2001 was $225,000 compared to $259,000 for the same period in 2000, a decrease of $34,000 or 13.1%. The decrease resulted from lower interest rates earned on the invested cash balance in 2001 as compared to the same
period in 2000, offset in part by a higher invested cash balance compared to the same period in 2001.



Net income (loss)



As a result of the foregoing, the Company incurred a net loss of $5,207,000, or $0.74 per share, for the year ended December 31, 2001
compared to net income of $2,342,000, or $0.41 per share, for the year ended December 31, 2000.



Liquidity and Capital Resource



The historical financial statements of the Company presented prior to March 15, 2002 are those of Point Massachusetts. Since Point Massachusetts inception in September 1996, it has financed its
operations



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principally through equity financings, interest earned on invested funds and collaboration payments received from pharmaceutical companies.
In addition, it has raised approximately $12,500,000, net of costs of raising capital, in private equity financings and $7,400,000 from licensing and sponsored research collaborations with pharmaceutical companies. In addition, Point Massachusetts
received $14,335,000 as a result of the completed merger between Point Massachusetts and HMSR Inc., including a $500,000 lock-up fee received in November 2001 upon the signing of the Merger Agreement. Since inception, Point Massachusetts and since
March 15, 2002, the Company, also received $907,000 from interest earned in invested cash balances.



At December 31, 2002, the Companys cash and cash equivalents increased $6,442,000 as compared to December 31, 2001. The increase was
primarily due to proceeds totaling $13,835,000 received as a result of the recently completed merger between Point Massachusetts and HMSR Inc. Offsetting the inflow of cash was $7,141,000 used in operations for the year ended December 31, 2002,
primarily to fund the clinical program for PT-100 and other research and development initiatives as well as expenses incurred in connection with the merger. The Company also increased its investment in office and laboratory equipment by $249,000
from December 31, 2001 to $413,000 at December 31, 2002. The increase resulted from purchases of laboratory equipment, computers and other capital equipment.



At December 31, 2002, the Company had $12,005,000 in cash and cash equivalents. The Company currently anticipates that its existing
capital resources and interest to be received should enable it to maintain current and planned operations through 2003. Over the next year, the Company will be considering all strategic options in order to ensure the continued funding of its
operations after 2003 including, but not limited to, raising additional funds through corporate partnerships, the sale of securities in both public and private offerings as the markets allow and merger and acquisition activities and consolidations.



The Companys expectations regarding its
rate of spending and the sufficiency of its cash resources over future periods are forward-looking statements. The Companys funding requirements are expected to increase over the next several years as the Company continues with the clinical
development of PT-100 and initiates human clinical trials for additional clinical indications for PT-100 and additional product candidates. The rate of spending and sufficiency of such resources will be affected by numerous factors including the
success of the Companys clinical trials and the rate of acquisition of new products and technologies. Success in early-stage clinical trials or acquisition of new products and technologies would lead to an increase in working capital
requirements. The Companys actual cash requirements may vary materially from those now planned because of the results of research and development, clinical trials, product testing, relationships with strategic partners, acquisition of new
products and technologies, changes in the focus and direction of the Companys research and development programs, competitive and technological advances, the process of obtaining United States Food and Drug Administration or other regulatory
approvals and other factors.



Contractual
Obligations



As of December 31, 2002, we
had future payments required under contractual obligations and other commitments approximately as follows:



|                         |  | 2003 |         | 2004 |   | 2005    |  | 2006 |        | 2007 |   | Thereafter
|------------------------ |  | ---- | ------- | ---- | - | ------- |  | ---- | ------ | ---- | - | ----------
|Operating Leases         |  | $    | 172,051 |      | $ | 172,051 |  | $    | 58,721 |      | $ |          
|Licensing obligations    |  |      | 10,000  |      |   | 10,000  |  |      | 10,000 |      |   | 10,000    
|                         |  |      |         |      |   |         |  |      |        |      |   |           
|Total Future Obligations |  | $    | 182,051 |      | $ | 182,051 |  | $    | 68,721 |      | $ | 10,000    
|                         |  |      |         |      |   |         |  |      |        |      |   |           



In
addition, in connection with the sublease for the Companys offices at 125 Summer Street in Boston, the Company issued a letter of credit on April 11, 2002 in the amount of $80,168. The letter of credit is renewable annually on April
11thfor the term of the sublease with the landlord.



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New
Accounting Standards



In June 2002, the
Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). The principal difference between SFAS 146 and Issue 94-3 relates to SFAS 146s requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entitys commitment to an exit
plan. A fundamental conclusion reached by the FASB in this Statement is that an entitys commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, this Statement eliminates the
definition and requirements for recognition of exit costs in Issue 94-3. This Statement also establishes that fair value is the objective for initial measurement of the liability. This Statement is effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The adoption of SFAS 146 has no impact on the Companys financial statements.



In December 2002, the FASB issued SFAS 148 Accounting for Stock-Based Compensation  Transition and Disclosure. SFAS 148
amends SFAS 123 Accounting for Stock-Based Compensation, to provide alternative methods of transition to SFAS 123s fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure
provisions of SFAS 123 and Accounting Principles Board Opinion (APB) No. 28 Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entitys accounting policy with
respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS 148 does not amend SFAS 123 to require companies to account for employee stock options using the fair
value method, the disclosure provisions of SFAS 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS 123 or the intrinsic value
method of APB No. 25 Accounting for Stock Issued to Employees. SFAS 148 became effective for fiscal years ending after December 15, 2002. The Company has elected to continue to account for employee stock-based compensation using the
intrinsic value method as described in APB No. 25 and therefore, the adoption of SFAS No. 148 did not have a material impact on the Companys results of operations in 2002.



In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities, an Interpretation
of ARB No. 51. The primary objective of the Interpretation is to provide guidance on the identification of, and financial reporting for, entities over which control is achieved through means other than voting rights. Such entities are known as
variable-interest entities (VIEs). Although the FASBs initial focus was on special-purpose entities (SPEs), the final guidance applies to a wide range of entities. FIN 46 applies to new entities that are created after the effective date, as
well as applies to existing entities. The FIN is effective to preexisting entities as of the beginning of the first interim period beginning after June 15, 2003, and to any new entities beginning February 1, 2003. Once it goes into effect, FIN 46
will be the guidance that determines (1) whether consolidation is required under the controlling financial interest model of Accounting Research Bulletin No. 51 (ARB 51), Consolidated Financial Statements, or other existing authoritative
guidance, or, alternatively, (2) whether the variable-interest model under FIN 46 should be used to account for existing and new entities. The Company does not expect FIN 46 to have a material impact on the consolidated financial statements.



30



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##### Table of Contents



Item 7A.Quantitative and Qualitative Disclosure About Market Risk



At December 31, 2002, 2001 and 2000, the Companys investments consisted entirely of funds deposited in money market funds and as a
result the Company was not subject to interest rate risk.



Item 8.Financial Statements and Supplementary Data



Financial statements and supplementary data required by Item 8 are set forth at the pages indicated in Item 15(a) below.



Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.



Not applicable.



31



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##### Table of Contents



PART III



Item 10.Directors and Executive Officers of the Registrant.



The information required by this Item 10, with respect to executive officers, is hereby incorporated by reference to the text appearing
under Part 1, Item 4A under the caption Executive Officers of the Registrant in this Report, and, with respect to directors, by reference to the information included under the headings Information Regarding Directors,
Executive Officers, and Section 16(a) Beneficial Ownership Reporting Compliance in the Companys definitive Proxy Statement for the 2003 Annual Meeting of Stockholders to be filed by the Company with the Securities and
Exchange Commission within 120 days after the close of the Companys fiscal year.



Item 11.Executive Compensation.



The information required by this Item 11 is hereby incorporated by reference to the information under the heading Executive
Compensation and Report of Compensation Committee on Executive Compensation in the Companys definitive Proxy Statement for the 2003 Annual Meeting of Stockholders to be filed by the Company with the Securities and Exchange
Commission within 120 days after the close of the Companys fiscal year.



Item 12.Security Ownership of Certain Beneficial Owners and Management.



The information required by this Item 12 is hereby incorporated by reference to the information under the heading Securities
Authorized For Issuance Under Equity Compensation Plans and Security Ownership of Principal Stockholders and Management in the Companys definitive Proxy Statement for the 2003 Annual Meeting of Stockholders to be filed by the
Company with the Securities and Exchange Commission within 120 days after the close of the Companys fiscal year.



The Company maintains three stock option plans; the 1997 Stock Option Plan, as amended, the Amended and Restated 1994 Stock Option Plan,
and the 1994 Directors Stock Option Plan, as amended (the Plans), which were approved by Board of Directors and the stockholders of the Company.



|The |  | following table gives information about awards under the Plans as of December 31, 2002:
|--- |  | ---------------------------------------------------------------------------------------

|
|

|
|

|Plan Category                                          |  | Number of shares to be issued upon exercise of outstanding options, warrants and
rights |  | Weighted average exercise price of outstanding options, warrants and
rights |      | Number of shares remaining available for future issuance under equity compensation plans
(excluding shares reflected in column (a))
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---- | -----------------------------------------------------------------------------------------------------------------------------------
|                                                       |  | (a)                                                                                     |  | (b)                                                                         |      | (c)                                                                                                                                
|Equity compensation plans approved by shareholders     |  | 1,275,638                                                                               |  | $                                                                           | 2.80 |                                                                                                                                    
|Equity compensation plans not approved by shareholders |  |                                                                                        |  |                                                                             |     |                                                                                                                                    
|                                                       |  |                                                                                         |  |                                                                             |      |                                                                                                                                    
|Total                                                  |  | 1,275,638                                                                               |  | $                                                                           | 2.80 |                                                                                                                                    
|                                                       |  |                                                                                         |  |                                                                             |      |                                                                                                                                    



32



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##### Table of Contents



Item 13.Certain Relationships and Related Transactions.



The information required by this Item 13 is hereby incorporated by reference to the information under the heading Certain
Relationships and Related Transactions in the Companys definitive Proxy Statement for the 2003 Annual Meeting of Stockholders to be filed by the Company with the Securities and Exchange Commission within 120 days after the close of the
Companys fiscal year.



Item 14.Controls and Procedures



|(a) |  | Evaluation of disclosure controls and procedures. Based on their evaluation of the Companys disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(g) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Report on Form 10-K, the Companys chief executive officer and chief financial officer have concluded that the
Companys disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms and are operating in an effective manner.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Changes in internal controls. There were no significant changes in the Companys internal controls or in other factors that could significantly affect
those controls subsequent to the date of their most recent evaluation.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



33



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##### Table of Contents



PART IV



Item 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K



|(a)    The |  | following documents are included as part of this Annual Report on Form 10-K.
|---------- |  | ----------------------------------------------------------------------------



1.    Financial Statements

The Consolidated Financial Statements and related Notes filed as part of this Report are listed and indexed on Page F-1.



2.    Financial Statement Schedules

All schedules are omitted because they are inapplicable, not required or the information is included in the Consolidated
Financial Statements or the related Notes.



3.    Exhibits

The Exhibits listed in the Exhibit Index immediately preceding the
Exhibits are filed as part of this Annual Report on Form 10-K.



Accompanying this Annual Report on Form 10-K are the certificates of the Chief Executive Officer and Chief Financial Officer required by Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, copies of which are furnished as exhibits to this report.



|(b) |  | The Registrant filed the following Report on Form 8-K during the fourth quarter of 2002 and through March 21, 2003:
|--- |  | -------------------------------------------------------------------------------------------------------------------



|Date of Report    |  | Reported                                                                                                                                                                                               
|----------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 
|February 27, 2003 |  | Current Report on Form 8-K to report under Item 5 (Other Events) that it had issued a press release
announcing the Companys financial results for the fourth quarter and year ended December 31, 2002.



34



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##### Table of Contents



SIGNATURES



Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 28thday of March, 2003.



|POINT THERAPEUTICS,
INC.
|------------------------
|                        
|By:                     
|                        



Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|Signature                                           |  | Title                                                                                                     |  | Date          
|--------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | --------------
|                                                   
|/s/    DONALD R. KIEPERT,
JR.Donald R. Kiepert, Jr. |  | President, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)   |  | March 28, 2003
|                                                   
|/s/    RICHARD N.
SMALLRichard N. Small             |  | Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |  | March 28, 2003
|                                                   
|/s/    TIMOTHY J.
BARBERICHTimothy J. Barberich     |  | Director                                                                                                  |  | March 28, 2003
|                                                   
|/s/    THOMAS M.
CLAFLINThomas M. Claflin           |  | Director                                                                                                  |  | March 28, 2003
|                                                   
|/s/    DANIEL T.
ROBLEDaniel T. Roble, Esq          |  | Director                                                                                                  |  | March 28, 2003
|                                                   
|/s/    WILLIAM J. WHELAN,
JR.William J. Whelan, Jr. |  | Director                                                                                                  |  | March 28, 2003



35



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##### Table of Contents



CERTIFICATION PURSUANT TO



SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



I, Donald R. Kiepert, Jr., certify that:



1.    I have reviewed this annual report on Form 10-K of Point Therapeutics, Inc.;



2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.    Based on my knowledge, the financial
statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual
report;



4.    The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a)    designed such
disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual
report is being prepared;



b)    evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and



c)    presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5.    The registrants other
certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):



a)    all significant
deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material
weaknesses in internal controls; and



b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6.    The registrants other
certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses.



|                      |  |  |  | 
|--------------------- |  |  |  | 
|                     
|Dated: March 28, 2003 |  |  |  | 
|                      |  |  |  | 



36



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##### Table of Contents



CERTIFICATION PURSUANT TO



SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



I, Richard N. Small, certify that:



1.    I have reviewed this annual report on Form 10-K of Point Therapeutics, Inc.;



2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.    Based on my knowledge, the financial
statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual
report;



4.    The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a)    designed such
disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual
report is being prepared;



b)    evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and



c)    presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5.    The registrants other
certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):



a)    all significant
deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material
weaknesses in internal controls; and



b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6.    The registrants other
certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses.



|                      |  |  |  | 
|--------------------- |  |  |  | 
|                     
|Dated: March 28, 2003 |  |  |  | 
|                      |  |  |  | 



37



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##### Table of Contents



EXHIBIT INDEX



The
following exhibits are filed as part of this Annual Report on Form 10-K:



|Exhibit No. |  | Description                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------
|           
|2.1(12)     |  | Agreement and Plan of Merger, dated November 15, 2001, among HMSR Inc., PT
Acquisition Corp., and Point Therapeutics, Inc.         
|           
|2.2(8)      |  | Asset Purchase Agreement, dated as of February 3, 2001, by and between Point
Therapeutics, Inc., Whatman and Whatman plc.          
|           
|2.3(9)      |  | Amendment to Asset Purchase Agreement, dated as of April 2, 2001, by and between
Point Therapeutics, Inc., Whatman and Whatman plc.
|           
|3.1(1)      |  | Certificate of Incorporation of Point Therapeutics, Inc.                                                                           
|           
|3.2(10)     |  | Certificate of Amendment of Certificate of Incorporation Point Therapeutics,
Inc.                                                  
|           
|3.3(11)     |  | Certificate of Amendment of Certificate of Incorporation of Point Therapeutics,
Inc.                                               
|           
|3.4(13)     |  | Certificate of Amendment of Certificate of Incorporation of Point Therapeutics,
Inc.                                               
|           
|3.5(1)      |  | By-Laws of Point Therapeutics, Inc.                                                                                                
|           
|4.1(14)     |  | Specimen Certificate for shares of Common Stock, $.01 par value, of Point
Therapeutics, Inc.                                       
|           
|4.2(14)     |  | Form of Warrant for Point Therapeutics, Inc.                                                                                       
|           
|4.2(2)      |  | Registration Rights Agreement, dated January 23, 1997, by and among Point
Therapeutics, Inc. and Novo Nordisk A/S.                 
|           
|4.3(3)      |  | Registration Rights Agreement, dated as of September 15, 1998, between Point
Therapeutics, Inc. and Sepracor.                      
|           
|4.4(4)      |  | Warrant Agreement, dated as of September 15, 1998, between Point Therapeutics, Inc.
and Sepracor.                                  
|           
|4.5(4)      |  | Warrant Certificate, dated as of September 15, 1998, between Point Therapeutics, Inc.
and Sepracor.                                
|           
|4.6(5)      |  | Registration Rights Agreement, dated as of March 23, 1999, between Point
Therapeutics, Inc. and Sepracor.                          
|           
|4.7(5)      |  | Warrant Agreement, dated as of March 23, 1999, between Point Therapeutics, Inc. and
Sepracor.                                      
|           
|4.8(5)      |  | Warrant Certificate, dated as of March 23, 1999, between Point Therapeutics, Inc. and
Sepracor.                                    
|           
|4.9         |  | Warrant Agreement, dated as of August 10, 1998, between Point Therapeutics, Inc. and
Thomas D. Foley.                              
|           
|4.10        |  | Warrant Agreement, dated as of July 24, 1998, between Point Therapeutics, Inc. and
Claflin Capital VI.                             
|           
|4.11        |  | Warrant Agreement, dated as of July 24, 1998, between Point Therapeutics, Inc. and
Claflin Capital VII.                            
|           
|4.12        |  | Warrant Agreement, dated as of August 10, 1998, between Point Therapeutics, Inc. and
Dr. Pennington.                               
|           
|4.13        |  | Warrant Agreement, dated as of July 24, 1998, between Point Therapeutics, Inc. and
Fieldmark, Inc.                                 
|           
|4.14        |  | Warrant Agreement, dated as of July 24, 1998, between Point Therapeutics, Inc. and
Graystone.                                      
|           
|4.15        |  | Warrant Agreement, dated as of August 10, 1998, between Point Therapeutics, Inc. and
Kenneth Zito.                                 
|           
|4.16        |  | Warrant Agreement, dated as of August 10, 1998, between Point Therapeutics, Inc. and
Medical Investments.                          



38



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##### Table of Contents

|Exhibit No. |  | Description                                                                                                                 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------
|           
|4.17        |  | Warrant Agreement, dated as of August 10, 1998, between Point Therapeutics, Inc. and
Nancy Finn.                            
|           
|4.18        |  | Warrant Agreement, dated as of August 10, 1998, between Point Therapeutics, Inc. and
Cornelia Stutz.                        
|           
|10.1(2)     |  | Point Therapeutics, Inc.s 1994 Stock Option Plan.                                                                          
|           
|10.2(2)     |  | Point Therapeutics, Inc.s 1994 Director Option Plan.                                                                       
|           
|10.3(2)     |  | Amendment to Point Therapeutics, Inc.s 1994 Director Option Plan, dated June
25, 1996.                                     
|           
|10.4(2)     |  | Amendment to Point Therapeutics, Inc.s 1994 Director Option Plan, effective as
of May 16, 1996.                            
|           
|10.5(2)     |  | Amendment to Point Therapeutics, Inc.s 1994 Stock Option Plan, dated June 25,
1996.                                        
|           
|10.6(2)     |  | Amendment to Point Therapeutics, Inc.s 1994 Stock Option Plan, effective as of
May 16, 1996.                               
|           
|10.7(5)     |  | Securities Purchase Agreement, dated as of March 23, 1999, between Point
Therapeutics, Inc. and Sepracor.                   
|           
|10.8(7)     |  | Form of Purchase Agreement, dated March 2, 2000.                                                                            
|           
|10.9(7)     |  | Schedule of purchasers which purchased shares of common stock pursuant to the Form of
Purchase Agreement set forth in 10.31.
|           
|10.10(9)    |  | Royalty Agreement, dated as of May 29, 2001, by and among Point Therapeutics, Inc.,
Whatman and Whatman plc.                
|           
|10.11(14)   |  | Amended Employment Agreement dated October 31, 2001 by and between Point
Therapeutics, Inc. and Donald R. Kiepert, Jr.      
|           
|10.12(14)   |  | Amended Employment Agreement dated October 31, 2001 by and between Point
Therapeutics, Inc. and Richard N. Small.           
|           
|10.13(14)   |  | Employment Agreement dated September 26, 2001 by and between Point Therapeutics, Inc.
and Dr. Lawrence Nussbaum.            
|           
|10.14(14)   |  | Amended and Restated License Agreement dated January 12, 1999 by and between Point
Therapeutics, Inc. and Tufts University. 
|           
|10.15(15)   |  | Employment Agreement dated May 28, 2002 by and between Point Therapeutics, Inc. and
Michael P. Duffy.                       
|           
|10.16       |  | Employment Agreement dated January 1, 2003 by and between Point Therapeutics, Inc.
and Barry Jones.                         
|           
|10.17       |  | Employment Agreement dated January 13, 2003 by and between Point Therapeutics, Inc.
and Margaret J. Uprichard.              
|           
|10.18(14)   |  | Point Therapeutics Massachusetts, Inc. 1997 Stock Option Plan.                                                              
|           
|21.1        |  | Subsidiaries of the Company.                                                                                                
|           
|23.1        |  | Consent of Ernst & Young LLP.                                                                                               
|           
|99.1        |  | Certification of the Chief Executive Officer.                                                                               
|           
|99.2        |  | Certification of the Chief Financial Officer.                                                                               

---

|(1) |  | Incorporated herein by reference to Point Therapeutics, Inc.s Registration Statement on Form S-1, as amended (File No. 33-75930).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------



39



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##### Table of Contents



|(2) |  | Incorporated by reference to Point Therapeutics, Inc.s Annual Report on Form 10-K for the year ended December 31, 1996.
|--- |  | ------------------------------------------------------------------------------------------------------------------------

|(3) |  | Incorporated by reference to Point Therapeutics, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
|--- |  | --------------------------------------------------------------------------------------------------------------------------

|(4) |  | Incorporated by reference to Point Therapeutics, Inc.s Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 1998.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

|(5) |  | Incorporated by reference to Point Therapeutics, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998.
|--- |  | ------------------------------------------------------------------------------------------------------------------------

|(6) |  | Incorporated by reference to Point Therapeutics, Inc.s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

|(7) |  | Incorporated by reference to Point Therapeutics, Inc.s Annual Report on Form 10-K for the year ended December 31, 1999.
|--- |  | ------------------------------------------------------------------------------------------------------------------------

|(8) |  | Incorporated by reference to Point Therapeutics, Inc.s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

|(9) |  | Incorporated by reference to Point Therapeutics, Inc.s Definitive Proxy Statement on Schedule 14A filed on April 27, 2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

|(10) |  | Incorporated by reference to Point Therapeutics, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
|---- |  | --------------------------------------------------------------------------------------------------------------------------

|(11) |  | Incorporated by reference to Point Therapeutics, Inc.s Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2001.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------

|(12) |  | Incorporated by reference to Point Therapeutics, Inc.s Registration Statement on Form S-4 filed on February 11, 2002.
|---- |  | ----------------------------------------------------------------------------------------------------------------------

|(13) |  | Incorporated by reference to Point Therapeutics, Inc.s Current Report on Form 8-K filed on March 28, 2002.
|---- |  | -----------------------------------------------------------------------------------------------------------

|(14) |  | Incorporated by reference to Point Therapeutics, Inc.s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------

|(15) |  | Incorporated by reference to Point Therapeutics, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
|---- |  | --------------------------------------------------------------------------------------------------------------------------



40



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##### Table of Contents



POINT
THERAPEUTICS, INC.

(A Development Stage Company)



INDEX TO FINANCIAL STATEMENTS



|                                                                                                                                                                                               |  | Page
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                                                               |  |     
|Report of Independent Auditors                                                                                                                                                                 |  | F-2 
|                                                                                                                                                                                               |  |     
|Consolidated Balance Sheets at December 31, 2002 and 2001                                                                                                                                      |  | F-3 
|                                                                                                                                                                                               |  |     
|Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and
2000 and for the Period from Inception (September 3, 1996) through December 31, 2002                     |  | F-4 
|                                                                                                                                                                                               |  |     
|Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended
December 31, 2002, 2001 and 2000 and for the Period from Inception (September 3, 1996) through December 31, 2002 |  | F-5 
|                                                                                                                                                                                               |  |     
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and
2000 and for the Period from Inception (September 3, 1996) through December 31, 2002                     |  | F-7 
|                                                                                                                                                                                               |  |     
|Notes to Consolidated Financial Statements                                                                                                                                                     |  | F-8 



F-1



---

##### Table of Contents



REPORT OF
INDEPENDENT AUDITORS



Board of Directors and Stockholders

Point Therapeutics, Inc.



We have audited the accompanying consolidated balance sheets of Point Therapeutics, Inc. (a development stage company) (the
Company) as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders equity (deficit), and cash flows for each of the three years in the period ended December 31, 2002 and the period from
September 3, 1996 (date of inception) through December 31, 2002. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with
auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Point
Therapeutics, Inc. at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, and the period from September 3, 1996 (date of inception) through December 31,
2002, in conformity with accounting principles generally accepted in the United States.



/s/ Ernst & Young LLP



Boston, Massachusetts

February 10, 2003,

except for Note 14,

as to which
the date

is March 5, 2003





F-2



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                   |  | December 31, |            
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -----------
|                                                                                                                                                                                   |  | 2002         |            
|Assets                                                                                                                                                                             |  |              |            
|Current assets:                                                                                                                                                                    |  |              |            
|Cash and cash equivalents                                                                                                                                                          |  | $            | 12,005,495 
|Prepaid expenses and other current assets                                                                                                                                          |  |              | 273,694    
|                                                                                                                                                                                   |  |              |            
|Total current assets                                                                                                                                                               |  |              | 12,279,189 
|Office and laboratory equipment, net                                                                                                                                               |  |              | 273,385    
|                                                                                                                                                                                   |  |              |            
|Total assets                                                                                                                                                                       |  | $            | 12,552,574 
|                                                                                                                                                                                   |  |              |            
|Liabilities and stockholders equity                                                                                                                                               |  |              |            
|Current liabilities:                                                                                                                                                               |  |              |            
|Accounts payable                                                                                                                                                                   |  | $            | 488,603    
|Accrued expenses                                                                                                                                                                   |  |              | 728,987    
|Accrued professional fees                                                                                                                                                          |  |              | 178,000    
|Deferred merger consideration                                                                                                                                                      |  |              |           
|Accrued severance                                                                                                                                                                  |  |              | 4,713      
|                                                                                                                                                                                   |  |              |            
|Total current liabilities                                                                                                                                                          |  |              | 1,400,303  
|Patent liability, less current portion                                                                                                                                             |  |              | 57,055     
|                                                                                                                                                                                   |  |              |            
|Stockholders equity:                                                                                                                                                              |  |              |            
|Common stock, $0.01 par value; 30,000,000 shares authorized; 9,376,924 shares issued and
9,275,755 shares outstanding in 2002 and 7,386,565 shares issued and outstanding in 2001. |  |              | 93,769     
|Treasury stock (101,169 shares outstanding at $3.28 per share)                                                                                                                     |  |              | (331,936   
|Additional paid-in capital                                                                                                                                                         |  |              | 28,142,973 
|Deficit accumulated during the development stage                                                                                                                                   |  |              | (16,809,590
|                                                                                                                                                                                   |  |              |            
|Total stockholders equity                                                                                                                                                         |  |              | 11,095,216 
|                                                                                                                                                                                   |  |              |            
|Total liabilities and stockholders equity                                                                                                                                         |  | $            | 12,552,574 
|                                                                                                                                                                                   |  |              |            





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



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                     |  | Year ended December 31, |            | Period from September 3, 1996 (date of inception) through December 31,
2002 |     
|---------------------------------------------------- |  | ----------------------- | ---------- | --------------------------------------------------------------------------- | ----
|                                                     |  | 2002                    |            |                                                                             | 2001
|Revenues                                             |  |                         |            |                                                                             |     
|License revenue                                      |  | $                       |           |                                                                             |     
|Sponsored research revenue                           |  |                         |           |                                                                             |     
|                                                     |  |                         |            |                                                                             |     
|Total revenues                                       |  |                         |           |                                                                             |     
|                                                    
|Operating expenses                                   |  |                         |            |                                                                             |     
|Research and development                             |  |                         | 5,159,957  |                                                                             |     
|General and administrative                           |  |                         | 2,501,187  |                                                                             |     
|                                                     |  |                         |            |                                                                             |     
|Total operating expenses                             |  |                         | 7,661,144  |                                                                             |     
|                                                     |  |                         |            |                                                                             |     
|Income (loss) from operations                        |  |                         | (7,661,144 | )                                                                           |     
|                                                     |  |                         |            |                                                                             |     
|                                                    
|Interest income                                      |  |                         | 182,559    |                                                                             |     
|Interest expense                                     |  |                         |           |                                                                             |     
|                                                     |  |                         |            |                                                                             |     
|Net income (loss)                                    |  | $                       | (7,478,585 | )                                                                           |     
|                                                     |  |                         |            |                                                                             |     
|Net income (loss) per share                          |  |                         |            |                                                                             |     
|Basic                                                |  | $                       | (0.84      | )                                                                           |     
|                                                     |  |                         |            |                                                                             |     
|Diluted                                              |  | $                       | (0.84      | )                                                                           |     
|                                                     |  |                         |            |                                                                             |     
|Shares used in computing net income (loss) per share |  |                         |            |                                                                             |     
|Basic                                                |  |                         | 8,897,917  |                                                                             |     
|                                                     |  |                         |            |                                                                             |     
|Diluted                                              |  |                         | 8,897,917  |                                                                             |     
|                                                     |  |                         |            |                                                                             |     





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



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)



|                                                                                     |  | Common Stock |  | Additional Paid In Capital/ Discount on Stock |        |  | Treasury Stock |           | Deficit Accumulated During the Development Stage |  |   | Total Stockholders Equity | 
|------------------------------------------------------------------------------------ |  | ------------ |  | --------------------------------------------- | ------ |  | -------------- | --------- | ------------------------------------------------ |  | - | -------------------------- | 
|                                                                                     |  | Shares       |  | Amount                                        |        |  |                |          
|Issuance of common stock on September 3, 1996                                        |  | 2,300,543    |  | $                                             | 23,005 |  | $              | (3,005    | )                                                |  | $ |                           | 
|Net Loss                                                                             |  |              |  |                                               |        |  |                |           |                                                  |  |   |                            | 
|                                                                                     |  |              |  |                                               |        |  |                |           |                                                  |  |   |                            | 
|Balance at December 31, 1996                                                         |  | 2,300,543    |  |                                               | 23,005 |  |                | (3,005    | )                                                |  |   |                            | 
|Issuance of common stock on January 22, 1997                                         |  | 820,716      |  |                                               | 8,207  |  |                | (1,072    | )                                                |  |   |                            | 
|Issuance of common stock on May 7, 1997                                              |  | 717,890      |  |                                               | 7,179  |  |                | 1,671,412 |                                                  |  |   |                            | 
|Issuance of common stock for license rights on May 7, 1997                           |  | 372,292      |  |                                               | 3,723  |  |                | 890,847   |                                                  |  |   |                            | 
|Issuance of common stock on June 17, 1997                                            |  | 15,606       |  |                                               | 156    |  |                | 37,344    |                                                  |  |   |                            | 
|Issuance of common stock on October 1, 1997                                          |  | 426,572      |  |                                               | 4,266  |  |                | 1,007,293 |                                                  |  |   |                            | 
|Net Loss                                                                             |  |              |  |                                               |        |  |                |           |                                                  |  |   |                            | 
|                                                                                     |  |              |  |                                               |        |  |                |           |                                                  |  |   |                            | 
|Balance at December 31, 1997                                                         |  | 4,653,619    |  |                                               | 46,536 |  |                | 3,602,819 |                                                  |  |   |                            | 
|Issuance of compensatory stock options to non-employees                              |  |              |  |                                               |        |  |                | 45,837    |                                                  |  |   |                            | 
|Issuance of warrants in connection with Convertible note payable                     |  |              |  |                                               |        |  |                | 200,000   |                                                  |  |   |                            | 
|Net Loss                                                                             |  |              |  |                                               |        |  |                |           |                                                  |  |   |                            | 
|                                                                                     |  |              |  |                                               |        |  |                |           |                                                  |  |   |                            | 
|Balance at December 31, 1998                                                         |  | 4,653,619    |  |                                               | 46,536 |  |                | 3,848,656 |                                                  |  |   |                            | 
|Issuance of common stock upon conversion of debt onMarch 9, 1999,
net                |  | 675,549      |  |                                               | 6,756  |  |                | 1,949,523 |                                                  |  |   |                            | 
|Issuance of common stock for license rights onMarch 9, 1999                          |  | 5,002        |  |                                               | 50     |  |                | 16,057    |                                                  |  |   |                            | 
|Issuance of compensatory stock options to non-employees                              |  |              |  |                                               |        |  |                | 39,388    |                                                  |  |   |                            | 
|Issuance of common stock pursuant to private placementagreement on July 2, 1999,
net |  | 201,874      |  |                                               | 2,019  |  |                | 643,111   |                                                  |  |   |                            | 



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





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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)(Continued)



|                                                                                                            |  | Common Stock |  | Additional Paid In Capital/ Discount on Stock |        | Treasury Stock |   |            | Deficit Accumulated During the Development Stage |   |          | Total Stockholders Equity | 
|----------------------------------------------------------------------------------------------------------- |  | ------------ |  | --------------------------------------------- | ------ | -------------- | - | ---------- | ------------------------------------------------ | - | -------- | -------------------------- | 
|                                                                                                            |  | Shares       |  | Amount                                        |        |                |   |           
|Issuance of common stock pursuant to private placementagreement on October 12, 1999,
net                    |  | 185,848      |  |                                               | 1,858  |                |   | 591,666    |                                                  |   |          |                            | 
|Net Loss                                                                                                    |  |              |  |                                               |        |                |   |            |                                                  |   |          |                            | 
|                                                                                                            |  |              |  |                                               |        |                |   |            |                                                  |   |          |                            | 
|Balance at December 31, 1999                                                                                |  | 5,721,892    |  |                                               | 57,219 |                |   | 7,088,401  |                                                  |   |          |                            | 
|Issuance of compensatory stock options to non-employees                                                     |  |              |  |                                               |        |                |   | 32,929     |                                                  |   |          |                            | 
|Issuance of common stock pursuant to private placement agreement on November 2,
2000, net of issuance costs |  | 260,106      |  |                                               | 2,601  |                |   | 981,777    |                                                  |   |          |                            | 
|Net Income                                                                                                  |  |              |  |                                               |        |                |   |            |                                                  |   |          |                            | 
|                                                                                                            |  |              |  |                                               |        |                |   |            |                                                  |   |          |                            | 
|Balance at December 31, 2000                                                                                |  | 5,981,998    |  |                                               | 59,820 |                |   | 8,103,107  |                                                  |   |          |                            | 
|Issuance of compensatory stock options to non-employees                                                     |  |              |  |                                               |        |                |   | 22,052     |                                                  |   |          |                            | 
|Issuance of common stock pursuant to private placement agreement onApril 6, 2001,
net of issuance cost      |  | 1,352,546    |  |                                               | 13,526 |                |   | 5,150,616  |                                                  |   |          |                            | 
|Issuance of common stock on April 30, 2001                                                                  |  | 52,021       |  |                                               | 520    |                |   | 199,480    |                                                  |   |          |                            | 
|Net Loss                                                                                                    |  |              |  |                                               |        |                |   |            |                                                  |   |          |                            | 
|                                                                                                            |  |              |  |                                               |        |                |   |            |                                                  |   |          |                            | 
|Balance at December 31, 2001                                                                                |  | 7,386,565    |  |                                               | 73,866 |                |   | 13,475,255 |                                                  |   |          |                            | 
|Issuance of compensatory stock options to non-employees                                                     |  |              |  |                                               |        |                |   | 20,400     |                                                  |   |          |                            | 
|Issuance of common stock in connection with the merger onMarch 15,
2002                                     |  | 1,889,190    |  |                                               | 18,892 |                |   | 14,647,318 |                                                  |   |          |                            | 
|Treasury stock assumed in connection with the merger onMarch 15,
2002                                       |  | 101,169      |  |                                               | 1,011  |                |   |            |                                                  |   | (331,936 | )                          | 
|Net Loss                                                                                                    |  |              |  |                                               |        |                |   |            |                                                  |   |          |                            | 
|                                                                                                            |  |              |  |                                               |        |                |   |            |                                                  |   |          |                            | 
|Balance at December 31, 2002                                                                                |  | 9,376,924    |  | $                                             | 93,769 |                | $ | 28,142,973 |                                                  | $ | (331,936 | )                          | 
|                                                                                                            |  |              |  |                                               |        |                |   |            |                                                  |   |          |                            | 



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



F-6



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                            |  | Year ended December 31, |            |   | Period from September 3, 1996 (date of inception) through December
31, |  
|--------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---------------------------------------------------------------------- | -
|                                                                            |  | 2002                    |            |   | 2001                                                                   |  
|Operating activities                                                        |  |                         |            |   |                                                                        |  
|Net income (loss)                                                           |  | $                       | (7,478,585 | ) |                                                                        | $
|Adjustments to reconcile net loss to net cash used in operating
activities: |  |                         |            |   |                                                                        |  
|Depreciation                                                                |  |                         | 56,521     |   |                                                                        |  
|Issuance of compensatory stock options                                      |  |                         | 20,400     |   |                                                                        |  
|Common stock issued under license agreement                                 |  |                         |           |   |                                                                        |  
|Accrued interest on convertible notes                                       |  |                         |           |   |                                                                        |  
|Patent costs                                                                |  |                         |           |   |                                                                        |  
|Changes in operating assets and liabilities:                                |  |                         |            |   |                                                                        |  
|Accounts receivable                                                         |  |                         |           |   |                                                                        |  
|Prepaid expenses                                                            |  |                         | (267,162   | ) |                                                                        |  
|Accounts payable and accrued expenses                                       |  |                         | 527,990    |   |                                                                        |  
|Deferred revenues                                                           |  |                         |           |   |                                                                        |  
|                                                                            |  |                         |            |   |                                                                        |  
|Net cash provided by (used in) operating activities                         |  |                         | (7,140,836 | ) |                                                                        |  
|                                                                            |  |                         |            |   |                                                                        |  
|Investing activity                                                          |  |                         |            |   |                                                                        |  
|Purchase of office and laboratory equipment                                 |  |                         | (248,719   | ) |                                                                        |  
|                                                                            |  |                         |            |   |                                                                        |  
|Net cash used in investing activity                                         |  |                         | (248,719   | ) |                                                                        |  
|                                                                            |  |                         |            |   |                                                                        |  
|Financing activities                                                        |  |                         |            |   |                                                                        |  
|Proceeds from merger with HMSR, Inc.                                        |  |                         | 13,835,285 |   |                                                                        |  
|Principal payments of patent liability                                      |  |                         | (3,579     | ) |                                                                        |  
|Proceeds from issuance of convertible notes                                 |  |                         |           |   |                                                                        |  
|Proceeds from issuance of common stock                                      |  |                         |           |   |                                                                        |  
|                                                                            |  |                         |            |   |                                                                        |  
|Net cash provided by financing activities                                   |  |                         | 13,831,706 |   |                                                                        |  
|                                                                            |  |                         |            |   |                                                                        |  
|Net increase in cash and cash equivalents                                   |  |                         | 6,442,151  |   |                                                                        |  
|Cash and cash equivalents at beginning of period                            |  |                         | 5,563,344  |   |                                                                        |  
|                                                                            |  |                         |            |   |                                                                        |  
|Cash and cash equivalents at end of period                                  |  | $                       | 12,005,495 |   |                                                                        | $
|                                                                            |  |                         |            |   |                                                                        |  



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



F-7



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.    Basis of Presentation



The Company



Point Therapeutics, Inc. (Point or the Company or we) is a development stage enterprise developing
small molecule drugs for the treatment of certain hematopoietic disorders and for a variety of cancerous tumors. PT 100, Points lead product candidate, has the potential to treat a number of different hematopoietic disorders as well as certain
cancerous tumors.



The Company was originally
incorporated in December 1993 as a Delaware corporation under the name Hemacor Inc. The Company changed its name to HemaSure Inc. in February of 1994. From 1994 to May 2001, the Company developed and supplied innovative blood filtration
technologies. On May 28, 2001, the Company sold substantially all of its non-cash assets to Whatman Biosciences, Inc. a Massachusetts corporation and a subsidiary of Whatman Plc (Whatman), a leader in separations technology. The Company
changed its name from Hemasure, Inc. to HMSR Inc. upon the sale to Whatman. From May 2001 until the merger on March 15, 2002 (described below) with Point Therapeutics, Inc., a privately held Massachusetts corporation (Point
Massachusetts), the Companys operations consisted primarily of investigating various strategic business combinations.



On November 15, 2001, HMSR Inc. entered into an Agreement and Plan of Merger (the Merger Agreement) with Point Massachusetts.
On March 15, 2002, the Companys stockholders approved a 1 for 10 reverse split of the Companys common stock and a name change of the Company from HMSR Inc. to Point Therapeutics, Inc. The stockholders of Point Massachusetts also approved
on March 15, 2002 the Merger Agreement, at which time Point Massachusetts became a wholly owned subsidiary of the Company and changed its name to Point Therapeutics Massachusetts, Inc.



The historical financial statements of the Company presented
prior to March 15, 2002 are those of Point Massachusetts. Point Massachusetts capital structure has been restated to reflect all stock issuances as if the merger had taken place prior to all periods presented. In addition, if the merger with
HMSR Inc. had occurred at the beginning of the periods presented, the effect of the inclusion of HMSR Inc. operating results on the financial statements presented would not be material.



The treatment of neutropenia (an abnormally low level of a type of white blood cell called a neutrophil) is
the first clinical application for PT 100 being tested by Point in human clinical trials. PT 100 is currently in a Phase I/II clinical study for the treatment of neutropenia in cancer patients as an adjunct to chemotherapy. The study is evaluating
the safety profile of PT-100, and the studys protocol calls for four increasing dose levels of six patients per dosing regimen. The clinical study is also evaluating certain end points, including the recovery of neutrophils in patients
undergoing chemotherapy and other key biological markers. As of the end of the first quarter of 2003, the Company completed dosing three of the four planned dosing groups. To date, PT-100 has been well tolerated from a safety perspective, and the
final dosing group is expected to be enrolled in the second quarter of 2003. Point believes that PT 100 might also be developed for the treatment of neutropenia in patients with AIDS or other diseases that can cause neutropenia.



Also, Point has obtained some results from preclinical
research in animal models indicating that PT 100 potentially has the ability to treat acute anemia. Acute anemia is a condition of an abnormally low number of red blood cells. For example, cancer patients sometimes develop acute anemia after
undergoing chemotherapy because of the chemotherapeutic agents adverse effects on red blood cell production. Similarly, Point believes that PT 100 could potentially serve as a treatment for patients with AIDS suffering from acute anemia caused
by bone marrow deficiencies that affect blood cell production. To date, Point has not completed its pre-clinical testing or initiated human clinical testing of PT 100 in treating these conditions.



F-8



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



1.    Basis of Presentation (continued)



In addition to potentially serving as a treatment for
different hematopoietic disorders, PT 100 has been observed by Point in animal testing to have an ability to inhibit the growth of different types of tumors. The tumor responses in animals observed by Point have ranged from tumor growth inhibition
for certain types of tumors to full regression of other tumors. Point has also demonstrated in animal models the ability of PT-100 in combination with a tumor-specific monoclonal antibody (Rituxan®) to enhance the anti-tumor effects when compared to the anti-tumor effects in these animal models when treated with Rituxan alone. Point has
completed the preclinical research on the anti-tumor effects of PT-100 in combination with Rituxan and the Company filed an amendment in February 2003 to its Investigational New Drug Application (IND) with the Federal Drug Administration
(FDA) in order to initiate a clinical program to test the safety and efficacy of PT 100 in combination with Rituxan®, initially in patients with non-Hodgkins lymphoma.



Besides the hematopoeitic and anti-tumor applications described above, Point is also exploring a number of different applications for PT-100 and its clinical analogues on a pre-clinical basis. In addition, Point from time to
time evaluates new technology opportunities to broaden its portfolio of potential products, including in-licensing opportunities, collaboration arrangements as well as more expansive corporate relationships, such as mergers and acquisitions.



At December 31, 2002, the Company had
$12,005,000 in cash and cash equivalents. The Company currently anticipates that its existing capital resources and interest to be received should enable it to maintain current and planned operations through 2003. Over the next year, the Company
will be considering all strategic options in order to ensure the continued funding of its operations after 2003 including, but not limited to, raising additional funds through corporate partnerships, the sale of securities in both public and private
offerings as the markets allow and merger and acquisition activities and consolidations.



2.    Significant Accounting Policies



Use of Estimates



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.



Reclassifications



Certain amounts in 2001 have been reclassified to conform to the 2002 presentation.



Consolidation



The accompanying consolidated financial statements include the Company and its wholly owned subsidiaries, Point Massachusetts, Inc.,
Hemapharm, Inc., and Hemasure A/S.



Cash
Equivalents



All highly liquid investments
with a maturity of three months or less at date of purchase are considered cash equivalents. The carrying value of cash equivalents approximates fair value. At December 31, 2002, the Companys investments consisted entirely of funds deposited
in money market funds.



Office and Laboratory
Equipment



Office and laboratory equipment
is recorded at cost. Depreciation is calculated using the straight-line half-year convention method over the estimated useful lives of three and five years, respectively.



F-9



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



2.    Significant Accounting Policies (continued)



Research and Development Costs



Research and development costs, including internal and
external costs, are charged to operations as incurred. Certain research and development projects are or have been partially funded by research and development contracts, and the expenses related to these activities are included in research and
development costs. Research and development costs include personnel costs, lab and animal supplies, outside services and contract laboratory costs, and legal costs associated with the Companys patent portfolio.



Income Taxes



The Company provides for income taxes as set forth in
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS 109, the liability method is used in accounting for income taxes. Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates in effect when the differences are expected to reverse.



Net Loss Per Share



Basic net loss per common share is computed using the weighted average number of common shares outstanding
during the period. Diluted net loss per common share is typically computed using the weighted average number of common and dilutive common equivalent shares from stock options, warrants and convertible debt using the treasury stock method. For the
years ended December 31, 2002 and 2001, diluted net loss per share is the same as basic net loss per share, as the inclusion of outstanding common stock options, warrants and convertible debt would be antidilutive.



Stock-Based Compensation



The Company has elected to follow Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), in accounting for its stock based employee compensation plans using the intrinsic value method, rather than the alternative fair value accounting
method provided for under SFAS No. 123, Accounting for Stock Based Compensation (SFAS No. 123), as SFAS No. 123 requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB No.
25, when the exercise price of options granted to employees under these plans equals the market price of the underlying stock on the date of grant, no compensation expense is required.



The reconciliation of net loss and net loss per share, as reported, to pro forma net loss and net loss per
share giving effect to employee stock-based compensation accounted for using the fair value accounting method, is as follows:



|                                                                                                                                                                                                               |  | Year Ended December 31, |           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----------
|                                                                                                                                                                                                               |  | 2002                    |           
|Net income (loss), as reported                                                                                                                                                                                 |  | $                       | (7,478,585
|Add: Stock compensation cost as computed underAPB No. 25                                                                                                                                                       |  |                         | 20,400    
|Deduct: Stock based employee compensation cost, net of related tax effects, that would
have been included in the determination of net loss as reported if the fair value method had been applied to all awards |  |                         | (580,388  
|                                                                                                                                                                                                               |  |                         |           
|Pro Forma Net income (loss)                                                                                                                                                                                    |  | $                       | (8,038,573
|                                                                                                                                                                                                               |  |                         |           
|Diluted net loss per share, as reported                                                                                                                                                                        |  | $                       | (0.84     
|                                                                                                                                                                                                               |  |                         |           
|Diluted net loss per share, pro forma                                                                                                                                                                          |  | $                       | (0.90     
|                                                                                                                                                                                                               |  |                         |           



F-10



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





2.    Significant Accounting Policies (continued)



The fair value of the stock options at the date of grant was estimated using the Black-Scholes option pricing model with the following average assumptions:



|                        |  | 2002        |  | 2001        |  | 2000       
|----------------------- |  | ----------- |  | ----------- |  | -----------
|Expected life (years)   |  | 4.00        |  | 4.00        |  | 4.00  4.25
|Risk-free interest rate |  | 2.6%  4.7% |  | 3.7%  4.3% |  | 4.6%  6.3%
|Volatility              |  | 93%         |  | 93%         |  | 93%        
|Dividends               |  | None        |  | None        |  | None       



Concentration of Credit Risk



Financial instruments that potentially subject the Company to credit risk consist primarily of cash equivalents. The risk is minimized by the Companys policies in which investments have relatively short maturities and are only
placed with highly rated issuers.



Revenue
Recognition



Revenue is deemed earned when
all of the following have occurred: all obligations of the Company relating to the revenue have been met and the earning process is complete; the monies received or receivable are not refundable, irrespective of research results; and there are
neither future obligations nor future milestones to be met by the Company with respect to such revenue incurred.



Revenues from corporate collaborations are earned based upon research expenses incurred and milestones achieved. Non-refundable payments
upon initiation of contracts are deferred and amortized over the period which the company is obligated to participate on a continuing and substantial basis in the research and development activities outlined in each contract. Amounts received in
advance of reimbursable expenses are recorded as deferred revenue until the related expenses are incurred. Milestone payments are recognized as revenue in the period in which the parties agree that the milestone has been achieved.



Comprehensive Income (Loss)



The Company follows Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial
statements. There was no difference between the Companys net loss and its comprehensive loss for the period presented in the accompanying consolidated statements of operations.



New Accounting Pronouncements



In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS 146, Accounting
for Costs Associated with Exit or Disposal Activities. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The principal difference between SFAS 146 and Issue 94-3 relates to SFAS 146s requirements for recognition of a
liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit
cost as generally defined in Issue 94-3 was recognized at the date of an entitys commitment to an exit plan. A fundamental conclusion reached by the FASB in this Statement is that an entitys commitment to a plan, by itself, does not
create an obligation that meets the definition of a liability. Therefore, this Statement eliminates the definition and requirements for recognition of exit costs in Issue 94-3.



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





2.    Significant Accounting Policies (continued)



This Statement also establishes that fair value is the objective for initial measurement of the liability. This Statement is effective for exit or disposal activities that are initiated after December
31, 2002, with early application encouraged. The adoption of SFAS 146 has no impact on the Companys financial statements.



In December 2002, the FASB issued SFAS 148 Accounting for Stock-Based CompensationTransition and Disclosure. SFAS 148
amends SFAS 123 Accounting for Stock-Based Compensation, to provide alternative methods of transition to SFAS 123s fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure
provisions of SFAS 123 and Accounting Principles Board Opinion (APB) No. 28 Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entitys accounting policy with
respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS 148 does not amend SFAS 123 to require companies to account for employee stock options using the fair
value method, the disclosure provisions of SFAS 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS 123 or the intrinsic value
method of APB No. 25 Accounting for Stock Issued to Employees. SFAS 148 became effective for fiscal years ending after December 15, 2002. The Company has elected to continue to account for employee stock-based compensation using the
intrinsic value method as described in APB No. 25 and therefore, the adoption of SFAS No. 148 did not have a material impact on the Companys results of operations in 2002.



In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities, an Interpretation
of ARB No. 51. The primary objective of the Interpretation is to provide guidance on the identification of, and financial reporting for, entities over which control is achieved through means other than voting rights. Such entities are known as
variable-interest entities (VIEs). Although the FASBs initial focus was on special-purpose entities (SPEs), the final guidance applies to a wide range of entities. FIN 46 applies to new entities that are created after the effective date, as
well as applies to existing entities. The FIN is effective to preexisting entities as of the beginning of the first interim period beginning after June 15, 2003, and to any new entities beginning February 1, 2003. Once it goes into effect, FIN 46
will be the guidance that determines (1) whether consolidation is required under the controlling financial interest model of Accounting Research Bulletin No. 51 (ARB 51), Consolidated Financial Statements, or other existing authoritative
guidance, or, alternatively, (2) whether the variable-interest model under FIN 46 should be used to account for existing and new entities. The Company does not expect FIN 46 to have a material impact on the consolidated financial statements.



3.    Merger



On November 15, 2001, the Company and PT Acquisition Corp., a
wholly-owned subsidiary of the Company formed for the purpose of consummating a merger transaction, entered into the Agreement and Plan of Merger with Point Massachusetts. At that time, HMSR Inc. paid Point Massachusetts a $500,000 lock-up fee which
was recorded as deferred merger consideration. The lock-up fee was included when calculating the final stock conversion ratio between Point Massachusetts and HMSR Inc.



The merger allowed Point Massachusetts to increase its capital resources by providing Point Massachusetts
with immediate access to HMSR Inc.s existing cash assets which enabled Point Massachusetts to fund its clinical program and other product development activities through 2003. For HMSR Inc., the merger allowed the HMSR Inc. stockholder to
potentially enhance the value of their shares by investing in Point Massachusetts.



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





3.    Merger (continued)



On March 15, 2002, the Companys stockholders approved a 1-for-10 reverse split of the Companys common stock and a name change of the Company from HMSR Inc. to Point Therapeutics, Inc. The stockholders of Point
Massachusetts also approved on March 15, 2002 the Merger Agreement previously entered into by both parties. In accordance with the terms of the Merger Agreement, immediately prior to the effective time of the merger, and after taking into account
the 1-for-10 reverse split with respect to the Companys common stock prior to the merger, each share of Point Massachusetts common stock outstanding immediately prior to the effective time of the merger (including all shares of Point
Massachusetts preferred stock converted prior to the effective time) was converted into the right to receive 4.16168 shares of the Companys common stock. This ratio also took into account the $500,000 HMSR Inc. lock-up fee paid on November 15,
2001. In addition, all outstanding options and warrants of Point Massachusetts were converted at the same conversion rate of 4.16168.



As a result of the merger, the Company acquired all of the outstanding shares of Point Massachusetts capital stock. For accounting
purposes, the acquisition has been treated as the acquisition of HMSR Inc. by Point Massachusetts with Point Massachusetts as the acquiror. The historical financial statements of the Company presented prior to March 15, 2002 are those of Point
Massachusetts. Point Massachusetts capital structure has been restated to reflect all stock issuances as if the merger had taken place prior to all periods presented. In addition, if the merger with HMSR Inc. had occurred at the beginning of
the periods presented, the effect of the inclusion of HMSR Inc. operating results on the financial statements presented would not be material.



4.    Agreements



On May 7, 1997, Point Massachusetts entered into a license agreement (the Agreement) with the Tufts University School of
Medicine (Tufts). Under the Agreement, the Point Massachusetts has received a worldwide license to certain patent and patent applications in exchange for a nonrefundable license fee of $50,000. In addition, Point Massachusetts issued to
Tufts, or its designee, 372,292 shares of common stock in 1997 valued at $894,570, which was expensed to research and development based on the fair market value of the common stock at the date of issuance. In 1999, 5,002 shares of common stock,
valued at $16,107, were issued to Tufts and expensed in a similar manner.



Commencing in May 1999, Point Massachusetts is required to pay $20,000 per year to Tufts. One-half of this payment is offset against Point Massachusetts patent liability through 2010. Thereafter, each payment will be
credited against royalties due to Tufts. Point Massachusetts is obligated to make an additional $97,895 of patent right payments as follows:



|Year ended December 31:           |  |   |        
|--------------------------------- |  | - | -------
|2003                              |  | $ | 10,000 
|2004                              |  |   | 10,000 
|2005                              |  |   | 10,000 
|2006                              |  |   | 10,000 
|2007                              |  |   | 10,000 
|Thereafter                        |  |   | 47,895 
|                                  |  |   |        
|                                  |  |   | 97,895 
|Less amount representing interest |  |   | (37,261
|                                  |  |   |        
|                                  |  |   | 60,634 
|Less current portion              |  |   | (3,579 
|                                  |  |   |        
|                                  |  | $ | 57,055 
|                                  |  |   |        



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





4.    Agreements (continued)



The present value of the patent reimbursement payments, assuming an interest rate of 10%, was expensed to research and development in 1997.



The Agreement originally called for certain milestone payments totaling $300,000 to be paid to Tufts, and a
royalty based on future sales of products covered under the Agreement. In addition, the Agreement calls for Tufts to perform research jointly agreed upon with Point Massachusetts, in the scientific areas covered under the Agreement. Point
Massachusetts was obligated to reimburse Tufts for $500,000 of such research over a two-year period beginning on May 7, 1997.



On January 12, 1999, Point Massachusetts amended the existing license agreement with Tufts and entered into a collaboration agreement to
license its developed technology to a pharmaceutical company. Upon signing the agreement, Point Massachusetts received an initial $2,000,000 nonrefundable license fee. The collaboration also called for development milestone and royalty payments to
Point Massachusetts, as well as an arrangement to equally share all reasonable expenses incurred while obtaining and defending technology patents subsequent to signing this agreement. In January 2000, Point Massachusetts amended the master license
agreement to reflect the partial completion of a milestone. As a result of this amendment, Point Massachusetts received in cash and recognized as revenue $3,000,000 from the pharmaceutical company in 2000. As part of the Agreement, Point
Massachusetts is required to pay Tufts 10% of all milestone payments received and supplemental milestone payments related to the collaboration with the pharmaceutical company. Total payments to Tufts as a result of milestones achieved totaled
$412,500 in 2000. Under the agreement, Point Massachusetts received $900,000 in 2000 for research and development for the benefit of the pharmaceutical company. In July 2000, the agreement with the pharmaceutical company was terminated.



Upon execution of the collaboration, Point
Massachusetts convertible notes payable were converted into common stock (see Note 5).



5.    Warrants



Sepracor currently holds warrants to purchase up to 170,000 shares of the Companys common stock at a price of $6.90 per share. The warrants will expire in 2003 and have certain registration rights associated with them.
In addition, Sepracor holds warrants to purchase 66,700 shares of common stock at $15 per share which will expire in 2004. The warrants held by Sepracor have certain registration rights associated with them. In certain circumstances, the Company is
entitled to require Sepracor to exercise these warrants.



Also, various investors in the Company hold warrants to purchase a total of 195,062 shares of common stock at a price of $2.90, as determined by the warrant agreement. The warrants expire in 2005.



As of December 31, 2002, no warrants have been exercised.



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





6.    Office and Laboratory Equipment



Office and laboratory equipment consist of the following at December 31:



|                              |  | 2002 |          |   | 2001 |  
|----------------------------- |  | ---- | -------- | - | ---- | -
|Laboratory equipment          |  | $    | 257,171  |   |      | $
|Computer equipment            |  |      | 97,307   |   |      |  
|Furniture                     |  |      | 47,309   |   |      |  
|Leasehold improvements        |  |      | 11,004   |   |      |  
|                              |  |      |          |   |      |  
|                              |  |      | 412,791  |   |      |  
|Less accumulated depreciation |  |      | (139,406 | ) |      |  
|                              |  |      |          |   |      |  
|                              |  | $    | 273,385  |   |      | $
|                              |  |      |          |   |      |  



Depreciation expense was $56,521, $26,317 and $22,483 for the years ended December 31, 2002, 2001 and 2000, respectively. The Company did not incur any material repairs and maintenance expense during the years ended December 31,
2002, 2001 and 2000.



7.    Operating
Leases and Commitments



The Company conducts
all of its operations in leased facilities. The Company subleases approximately 4,600 square feet of office space at 125 Summer Street, Boston, Massachusetts. The sublease term is for three years, ending in April 2005 and is non-renewable. In
connection with the above sublease, the Company issued a letter of credit on April 11, 2002 in the amount of $80,168. The letter of credit is renewable annually on  April 11th for the term of the sublease with the landlord. In addition, the
Company subleases approximately 3,000 square feet of laboratory space at 75 Kneeland Street, Boston, Massachusetts from New England Medical Center (NEMC). The Company currently has no written sublease with NEMC and is a tenant at will.
Rent expense under these arrangements amounted to $290,000, $200,000 and $192,000 in 2002, 2001 and 2000, respectively.



The Company also has in place operating leases for its telephone system and copiers, each with a term of three years ending in 2005. The
Company does not have any capital leases for any of its capital equipment, furniture or fixtures.



At December 31, 2002, future minimum commitments, under leases with noncancelable terms of more than one year are as follows:



|Year ended December 31: |  | Operating Leases
|----------------------- |  | ----------------
|2003                    |  | $               
|2004                    |  |                 
|2005                    |  |                 
|                        |  |                 
|Total                   |  | $               
|                        |  |                 



In
addition to the above future minimum commitments, the Company incurs expense totaling approximately $192,000 per year under the current tenant-at-will arrangement with NEMC and anticipates that the level of expense incurred under the arrangement
will continue into the foreseeable future.



F-15



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





8.    Stock Option Plans



Prior to the merger, which occurred on March 15, 2002, options to purchase stock of Point Massachusetts were granted under the Point Massachusetts 1997 Stock Option Plan, as amended (the 1997 Plan) and options to
purchase stock of HMSR Inc. were granted under HMSR Inc.s Amended and Restated 1994 Stock Option Plan (the 1994 Plan) and HMSR Inc.s Directors Plan, as amended (the Director Plan). All options outstanding
under the 1994 Plan and the Director Plan were adjusted in accordance with the 1-for-10 reverse split of the Companys common stock which took place immediately prior to the merger. All options outstanding under the 1997 Plan at the time of the
merger converted into the right to receive 4.16168 shares of the Companys common stock (see Note 3). From and after the merger, the 1994 Plan and the Director Plan remained in full effect and the 1997 Plan frozen such that options may still be
exercised under that plan but no further grants of options may be made under the 1997 Plan. A total of 2,594,346 shares have been authorized for grants of options or shares under the 1994 Plan, the 1997 Plan, and the Director Plan (the
Plans), of which 1,262,272 are available for grant. Stock options granted during 2002, 2001 and 2000 generally have a maximum term of ten years and vest periodically over a period of two to five years.



The exercise price and vesting period of the options are
determined by the Board of Directors at the date of grant. The exercise price for incentive stock options cannot be below the fair market value of the Companys stock on the date of grant. Furthermore, the option exercise period will not exceed
ten years from the date of grant.



The following
table presents the activity of the Plans for the years ended December 31:



|                                                         |  | 2002   |           | 2001 |                                 | 2000
|-------------------------------------------------------- |  | ------ | --------- | ---- | ------------------------------- | ----
|                                                         |  | Shares |           |      | Weighted-Average Exercise Price |     
|Outstanding at beginning of year                         |  |        | 993,376   |      |                                 | $   
|Granted                                                  |  |        | 375,900   |      |                                 |     
|Canceled                                                 |  |        | (93,638   | )    |                                 |     
|                                                         |  |        |           |      |                                 |     
|Outstanding at end of year                               |  |        | 1,275,638 |      |                                 | $   
|                                                         |  |        |           |      |                                 |     
|Exercisable at end of year                               |  |        | 706,294   |      |                                 | $   
|                                                         |  |        |           |      |                                 |     
|Weighted-average per share fair value of options granted |  | $      | 1.43      |      |                                 |     
|                                                         |  |        |           |      |                                 |     





F-16



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



8.    Stock Option Plans (continued)



The following table presents weighted-average price and life
information about significant option groups outstanding at December 31, 2002:



|Options Outstanding |  |                    |  | Options Exercisable                        
|------------------- |  | ------------------ |  | -------------------------------------------
|Exercise Price      |  | Number Outstanding |  | Weighted-Average Remaining Contractual Life
|                   
|$0.55-$1.45         |  | 191,200            |  | 9.48                                       
|$2.40               |  | 324,380            |  | 4.75                                       
|$3.00               |  | 168,500            |  | 9.23                                       
|$3.22               |  | 381,393            |  | 6.85                                       
|$3.84               |  | 210,165            |  | 8.70                                       



9.    Common Stock



During November 2000, Point Massachusetts issued 260,106 shares of Common Stock to a corporate investor at a price of $3.84 per share. The stock was issued pursuant to a letter of intent that allowed the investor exclusive rights,
but no obligation, to purchase Point Massachusetts within a given period. Subsequent to year-end, the agreement was mutually terminated.



During April 2001, Point Massachusetts issued 52,021 shares of Common Stock at a price of $3.84 per share to an institutional investor.
The investment was made pursuant to the investors right to participate in the sale of Common Stock, up to their ownership percentage, under the current common stockholders agreement.



During April 2001, Point Massachusetts issued 1,352,546 shares
of Common Stock to outside investors at a price of $3.84 per share.



On March 15, 2002, in connection with the merger (see note 3) the Company announced the approval of an amendment of its Certificate of Incorporation to effect a 1 for 10 reverse split of the Companys common stock and
to change the Companys name to Point Therapeutics, Inc. Effective on March 18, 2002, the OTC Bulletin Board stock symbol for the Companys common stock was changed to POTP.



Pursuant to the Merger Agreement, each share of Point
Massachusetts common stock outstanding immediately prior to the effective time of the Merger was converted into the right to receive 4.16168 shares of the Companys common stock. The total number of issued and outstanding shares of the
Companys common stock was approximately 9,276,000 immediately after giving effect to the Merger and the 1 for 10 reverse split.



As a result of the Merger, the former stockholders of Point Massachusetts held, immediately after the Merger, approximately 79.6% of the
issued and outstanding shares of the Companys common stock; the remaining 20.4% of the issued and outstanding shares of the Companys common stock were held by the stockholders who held the Companys common stock immediately before
the Merger became effective.





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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





10.    Income Taxes



The Companys effective income tax rate as of December 31, differed from the expected US federal tax statutory expense as set forth below:



|                                                   |  | December 31, |          
|-------------------------------------------------- |  | ------------ | ---------
|                                                   |  | 2002         |          
|Expected tax expense (benefit)                     |  | $            | (864,524 
|State income taxes, net of federal benefit         |  |              | (468,907 
|Stock compensation expense and other               |  |              | 9,316    
|Carryforward (utilization) of net operating losses |  |              | 1,324,115
|                                                   |  |              |          
|Income tax expense                                 |  | $            |         
|                                                   |  |              |          



As of
December 31, 2002, the Company has net operating loss carryforwards of approximately $14,325,000 and $14,095,000, to offset future federal and state taxable income, respectively. The Company also has research and development tax credit carryforwards
of approximately $386,000 and $241,000 to offset future federal and state tax liability, respectively. The net operating loss and research and development tax credit carryforwards may be subject to annual limitations provided in Internal Revenue
Code (IRC) sections 382 and 383.



Deferred tax
assets at December 31, 2002 and 2001 consist of the following:



|                                              |  | December 31, |           
|--------------------------------------------- |  | ------------ | ----------
|                                              |  | 2002         |           
|Deferred tax liabilities:                     |  |              |           
|Depreciation                                  |  | $            | (13,045   
|                                              |  |              |           
|Total deferred tax liabilities                |  |              | (13,045   
|Deferred tax assets:                          |  |              |           
|Net operating loss carryforwards              |  |              | 5,754,347 
|Research and development credit carryforwards |  |              | 544,695   
|Accrued expenses                              |  |              | 77,816    
|Intangible assets                             |  |              | 268,357   
|                                              |  |              |           
|Total deferred tax assets                     |  |              | 6,645,215 
|                                              |  |              |           
|Net deferred tax assets:                      |  |              | 6,632,170 
|Valuation allowance                           |  |              | (6,632,170
|                                              |  |              |           
|Net deferred taxes                            |  | $            |          
|                                              |  |              |           



The
Company has established a valuation allowance equal to the net deferred tax assets, as their utilization is not probable at this time. The valuation allowance increased by $3,099,420 during 2002.



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





11.    Net Income (Loss) Per Share



Net loss per share is presented under the requirements of FAS No. 128, Earnings per Share (FAS 128), which requires disclosure of basic and diluted earnings per share. Basic and
diluted earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period, less shares subject to repurchase. Diluted earnings per share includes the impact of potentially dilutive securities.
As the Companys potentially dilutive securities (stock options, warrants and convertible preferred stock) were anti-dilutive for the years ended December 31, 2002 and 2001, they have been excluded from the computation of weighted-average
shares used in computing dilutive net loss per share for the years ended December 31, 2002 and 2001. Dilutive shares are included in the calculation for the year ended December 31, 2000.



|                                           |  | Year ended December 31,
|------------------------------------------ |  | -----------------------
|                                           |  | 2002                   
|Net income (loss)                          |  | $                      
|                                           |  |                        
|Weighted-average shares outstanding:       |  |                        
|Denominator for basic earnings per share   |  |                        
|Common stock equivalent:                   |  |                        
|  stock options                           |  |                        
|  warrants                                |  |                        
|                                           |  |                        
|Denominator for diluted earnings per share |  |                        
|                                           |  |                        
|Net income (loss) per share                |  |                        
|Basic                                      |  | $                      
|                                           |  |                        
|Diluted                                    |  | $                      
|                                           |  |                        



12.    Retirement Savings Plan



The Company implemented a 401(k) retirement savings plan covering all of the Companys employees on January 1, 2002. Matching Company contributions are at the discretion of management of the Company. Management
authorized matching contributions up to 3% of participants salaries amounting to approximately $24,000, $0 and $0 for the year ended December 31, 2002, 2001 and 2000, respectively.



13.    Related Party Transactions



The Company utilizes the services of a law firm, of which a Director of the Company is a Partner. During
2002, 2001 and 2000, the Company paid fees totaling approximately $558,000, $703,000 and $72,000, respectively, for legal services in connection with organizational, general corporate, transaction and other related matters. The Company believes that
the fees charged by the law firm to the Company are as fair to the Company for the services provided as could have been obtained from another comparable law firm.



14. Subsequent Event



As of December 31, 2002, the Company was a defendant in a lawsuit brought by Pall Corporation (Pall) in the United States
District Court for the Eastern District of New York and the District of Colorado regarding the



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##### Table of Contents

POINT THERAPEUTICS, INC.

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Companys LeukoNet System, which is no longer made or sold by the Company (the Pall Litigation). In a complaint filed in
November 1996, Pall alleged that the manufacture, use and/or sale of the LeukoNet System infringed upon two patents held by Pall. Pall dropped its allegations concerning infringement of one of the patents and alleges only that the LeukoNet System
infringed Palls U.S. Patent No. 4,952,572 (the 572 Patent).



On March 5, 2003, Whatman sold the non-cash assets it had previously purchased from Hemasure to Pall Corporation. In connection with that sale, the ongoing patent litigation among Pall Corporation,
Whatman and the Company was settled, and the litigation was dismissed, with prejudice, in the United States District Court in the Eastern District of New York and in the District of Colorado. From March 15, 2002, the effective date of the merger of
the Company and Point Massachusetts, through March 5, 2003, the effective date of the sale of the Whatman assets to Pall Corporation, approximately $100,000 of net royalties was accrued and is payable to the Company.





15.    Quarterly Financial Information (unaudited)



|                                             |  | First Quarter Ended March 31, 2002 |            |   | Second Quarter Ended June 30, 2002 |   |            | Third Quarter Ended September 30, 2002 |  |   | Fourth Quarter Ended December 31, 2002 |  
|-------------------------------------------- |  | ---------------------------------- | ---------- | - | ---------------------------------- | - | ---------- | -------------------------------------- |  | - | -------------------------------------- | -
|Total revenues                               |  | $                                  |           |   |                                    | $ |           |                                        |  | $ |                                       |  
|Operating expenses:                          |  |                                    |            |   |                                    |   |            |                                        |  |   |                                        |  
|Research and development                     |  |                                    | 923,671    |   |                                    |   | 1,224,173  |                                        |  |   | 1,506,621                              |  
|General and administrative                   |  |                                    | 695,073    |   |                                    |   | 502,811    |                                        |  |   | 759,787                                |  
|                                             |  |                                    |            |   |                                    |   |            |                                        |  |   |                                        |  
|Total operating expenses                     |  |                                    | 1,618,744  |   |                                    |   | 1,726,984  |                                        |  |   | 2,266,408                              |  
|Loss from operations                         |  |                                    | (1,618,744 | ) |                                    |   | (1,726,984 | )                                      |  |   | (2,266,408                             | )
|Interest income                              |  |                                    | 29,823     |   |                                    |   | 64,691     |                                        |  |   | 49,845                                 |  
|Interest expense                             |  |                                    |           |   |                                    |   |           |                                        |  |   |                                       |  
|                                             |  |                                    |            |   |                                    |   |            |                                        |  |   |                                        |  
|Net loss                                     |  | $                                  | (1,588,921 | ) |                                    | $ | (1,662,293 | )                                      |  | $ | (2,216,563                             | )
|                                             |  |                                    |            |   |                                    |   |            |                                        |  |   |                                        |  
|Basic and diluted net loss per share:        |  | $                                  | (0.21      | ) |                                    | $ | (0.18      | )                                      |  | $ | (0.24                                  | )
|                                             |  |                                    |            |   |                                    |   |            |                                        |  |   |                                        |  
|Shares used in computing net loss per share: |  |                                    | 7,743,413  |   |                                    |   | 9,275,755  |                                        |  |   | 9,275,755                              |  
|                                             |  |                                    |            |   |                                    |   |            |                                        |  |   |                                        |  



|                                             |  | First Quarter Ended March 31, 2001 |            |   | Second Quarter Ended June 30, 2001 |   |            | Third Quarter Ended September 30, 2001 |  |   | Fourth Quarter Ended December 31, 2001 |  
|-------------------------------------------- |  | ---------------------------------- | ---------- | - | ---------------------------------- | - | ---------- | -------------------------------------- |  | - | -------------------------------------- | -
|Total revenues                               |  | $                                  |           |   |                                    | $ |           |                                        |  | $ |                                       |  
|Operating expenses:                          |  |                                    |            |   |                                    |   |            |                                        |  |   |                                        |  
|Research and development                     |  |                                    | 766,090    |   |                                    |   | 1,062,817  |                                        |  |   | 733,149                                |  
|General and administrative                   |  |                                    | 456,470    |   |                                    |   | 410,940    |                                        |  |   | 340,893                                |  
|                                             |  |                                    |            |   |                                    |   |            |                                        |  |   |                                        |  
|Total operating expenses                     |  |                                    | 1,222,560  |   |                                    |   | 1,473,757  |                                        |  |   | 1,074,042                              |  
|Loss from operations                         |  |                                    | (1,222,560 | ) |                                    |   | (1,473,757 | )                                      |  |   | (1,074,042                             | )
|Interest income                              |  |                                    | 55,176     |   |                                    |   | 77,846     |                                        |  |   | 58,245                                 |  
|Interest expense                             |  |                                    |           |   |                                    |   |           |                                        |  |   |                                       |  
|                                             |  |                                    |            |   |                                    |   |            |                                        |  |   |                                        |  
|Net loss                                     |  | $                                  | (1,167,384 | ) |                                    | $ | (1,395,911 | )                                      |  | $ | (1,015,797                             | )
|                                             |  |                                    |            |   |                                    |   |            |                                        |  |   |                                        |  
|Basic and diluted net loss per share:        |  | $                                  | (0.20      | ) |                                    | $ | (0.19      | )                                      |  | $ | (0.14                                  | )
|                                             |  |                                    |            |   |                                    |   |            |                                        |  |   |                                        |  
|Shares used in computing net loss per share: |  |                                    | 5,981,999  |   |                                    |   | 7,295,671  |                                        |  |   | 7,386,565                              |  
|                                             |  |                                    |            |   |                                    |   |            |                                        |  |   |                                        |  



F-20