U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ________
Commission file number 0-22872
---------
SYMBOLLON CORPORATION
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 36-3463683
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37 Loring Drive, Framingham, MA 01702
- -------------------------------------------------------------------------------
(Address of principal executive offices)
508-620-7676
- -------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
November 12, 1998
-----------------
Class A Common Stock 3,587,581
Class B Common Stock 15,738
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
SYMBOLLON CORPORATION
(a development stage company)
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Balance Sheets
- September 30, 1998 and December 31, 1997 1
Unaudited Condensed Statements of Operations
and Deficit Accumulated During the Development
Stage - For the nine and three months
ended September 30, 1998 and September 30, 1997
2
Unaudited Condensed Statements of Cash Flows
- For the nine months ended September 30, 1998
and September 30, 1997 3
Notes to the Unaudited Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis
or Plan of Operation 5
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURE 8
INDEX TO EXHIBITS 9
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents............................................... $ 2,066,110 $ 2,527,865
Accounts receivable..................................................... 34,698 24,972
Inventory............................................................... 103,701 73,629
Prepaid expenses........................................................ 244,309 75,156
----------- -----------
Total current assets.............................................. $ 2,448,818 $ 2,701,622
Equipment and leasehold improvements, net of
accumulated depreciation................................................. 138,293 146,868
Other assets:
Patent and trademark cost, net of accumulated amortization............ 191,799 153,157
Deposit............................................................... 2,364 2,364
------------ -----------
TOTAL............................................................. $ 2,781,274 $ 3,004,011
============ ===========
LIABILITIES
Current liabilities:
Accounts payable........................................................ $ 61,618 $ 5,879
Other accrued professional fees......................................... 46,812 21,867
Accrued finder's fee.................................................... 20,000
Other current liabilities............................................... 6,921 22,857
------------ -----------
Total current liabilities......................................... 115,351 70,603
Redeemable common stock, Class A, par value $.001 per share,
669,545 and 266,667 shares issued at September 30, 1998
and December 31, 1997, respectively (aggregate involuntary
liquidation value $850,000 and $500,000, respectively)................... 850,000 500,000
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001 per share, 5,000,000 shares
authorized, none issued..................................................
Common stock, Class A, par value $.001 per share,
18,750,000 shares authorized, 2,918,036 and 2,916,286 shares issued at
September 30, 1998 and December 31, 1997, respectively................... 2,918 2,916
Common stock, Class B, par value $.001 per share,
1,250,000 shares authorized, 15,738 shares issued at
September 30, 1998 and December 31, 1997, respectively,
each convertible into one share of Class A common stock.................. 16 16
Additional paid-in capital................................................ 7,253,401 7,252,091
Deficit accumulated during the development stage.......................... (5,440,412) (4,821,615)
------------ -----------
Total stockholders' equity........................................... 1,815,923 2,433,408
------------ -----------
TOTAL............................................................. $ 2,781,274 $ 3,004,011
============ ===========
</TABLE>
See notes to condensed financial statements.
1
<PAGE>
<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED
DURING THE DEVELOPMENT STAGE
(Unaudited)
<CAPTION>
Period From
July 15, 1986
Three Months Ended Nine Months Ended (Inception) to
September 30, September 30, September 30,
1998 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales......................................... $ 59,675 $ 72,000 $ 170,176 $ 234,338 $ 787,723
Contract revenue.................................. 19,085 17,737 19,085 66,324 559,765
License fee....................................... 400,000 750,000 400,000 750,000 2,190,000
----------- ----------- ----------- ----------- -----------
Total income.............................. 478,760 839,737 589,261 1,050,662 3,537,488
Operating Expenses:
Manufacturing costs........................... $ 36,087 $ 41,064 $ 109,295 $ 127,085 $ 461,532
Research and development costs................ 278,512 145,632 812,407 428,821 4,849,105
General and administrative expenses........... 96,784 164,253 362,033 403,421 3,868,320
----------- ----------- ----------- ----------- -----------
Total operating expenses.................. 411,383 350,949 1,283,735 959,327 9,178,957
----------- ----------- ----------- ----------- -----------
Income (Loss) from operations..................... 67,377 488,788 (694,474) 91,335 (5,641,469)
Interest income................................... 20,601 25,199 75,677 66,186 557,317
Interest expense and debt issuance costs.......... (7,661) (16,224) (356,260)
----------- ----------- ----------- ----------- -----------
Net Income (Loss)................................. $ 87,978 $ 506,326 $ (618,797) $ 141,297 $(5,440,412)
=========== =========== =========== =========== ===========
Net Income (Loss) per share of common stock....... $ 0.03 $ 0.21 $ (0.24) $ 0.07
=========== =========== =========== ===========
Net Income (Loss) per share - assuming dilution... $ 0.03 $ 0.21 $ (0.24) $ 0.07
=========== =========== =========== ===========
Weighted average number of common shares
outstanding...................................... 2,754,429 2,398,465 2,584,874 2,058,171
=========== =========== =========== ===========
Weighted average number of common shares and
potential dilutive common shares outstanding..... 2,754,429 2,442,178 2,584,874 2,106,520
=========== =========== =========== ===========
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Period From
July 15, 1986
Nine Months Ended (Inception) to
September 30, September 30,
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ (618,797) $ 141,297 $(5,440,412)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization expense............... 35,299 46,758 414,501
Amortization of debt issuance costs................. 130,000
Accrued rent........................................ (14,000)
Loss on disposition of equipment.................... 240 7,274
Changes in operating assets and liabilities:
Accounts receivable............................... (9,726) (48,113) (34,698)
Inventory......................................... (30,072) (89,343) (103,701)
Prepaid expenses.................................. (169,153) 68,494 (244,309)
Deferred revenue.................................. (17,596)
Accounts payable and other current liabilities.... 44,748 (4,911) 172,526
----------- ----------- -----------
Net cash provided by (used in)
operating activities.............................. (747,701) 82,826 (5,098,819)
----------- ----------- -----------
Cash flows from investing activities:
Equipment and leasehold improvements costs............ (24,173) (83,615) (364,826)
Patent and trademark costs............................ (41,193) (27,683) (398,341)
Proceeds from sale of equipment....................... 5,300 11,300
Deposit............................................... 2,636 (2,364)
----------- ----------- -----------
Net cash provided by (used in) investing activities. (65,366) (103,362) (754,231)
----------- ----------- -----------
Cash flows from financing activities:
Notes Payable.........................................
Warrant conversion.................................... 629,204
Borrowings from stockholders.......................... 253,623
Repayment to stockholders............................. (127,683)
Sale of common stock and units........................ 351,312 477,066 8,057,418
Sale of option to purchase units...................... 100
Public offering costs................................. (1,343,502)
Issuance of preferred stock........................... 450,000
----------- ----------- -----------
Net cash provided by financing activities........... 351,312 477,066 7,919,160
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH........................... (461,755) 456,530 2,066,110
Cash at beginning of period............................... 2,527,865 1,707,099
----------- ----------- -----------
CASH AT END OF PERIOD..................................... $ 2,066,110 $ 2,163,629 $ 2,066,110
=========== =========== ===========
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
SYMBOLLON CORPORATION
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note A - Description of Business:
Symbollon Corporation (the "Company") was originally incorporated as an
Illinois corporation on July 15, 1986 as Symbollon, Inc. On May 21, 1991,
Symbollon, Inc. was merged into Symbollon Corporation, a newly formed
Massachusetts corporation (which was subsequently reincorporated in Delaware in
August 1993), to carry on the business of Symbollon Inc. Except where otherwise
indicated, references to the Company in these financial statements and notes
thereto include the activities of Symbollon, Inc.
The Company was formed to develop and commercialize proprietary
iodine-based products for infection control and treatment in biomedical and
bioagricultural industries.
The Company is in the development stage and its efforts since inception
have been principally devoted to research and development, securing patent and
trademark protection and raising capital. In connection with its research and
development efforts, several grants under the Small Business Innovation Research
("SBIR") program concerning the Company's technology have been funded.
Management of the Company anticipates that additional losses will be incurred as
these efforts are pursued. In 1995, the Company signed a marketing and supply
agreement for its first product and commenced shipping.
Note B - Accounting Policies and Disclosure:
The accompanying unaudited financial statements do not contain all of
the disclosures required by generally accepted accounting principles and should
be read in conjunction with the financial statements and related notes included
in the Company's Form 10-KSB for the year ended December 31, 1997 filed with the
Securities and Exchange Commission.
In the opinion of management, the financial statements reflect all
adjustments, all of which are of a normal recurring nature, to fairly present
the Company's financial position, results of operations and cash flows. The
results of operations for the nine and three-month periods ended September 30,
1998 are not necessarily indicative of the results to be expected for the full
year.
Note C - Capitalization:
The Company sold 402,878 shares of Class A Common Stock to Bausch &
Lomb Pharmaceuticals, Inc. in a private placement on August 4, 1998 for
$350,000, in conjunction with its collaboration and sale/license agreement with
the Company. The shares are subject to certain voting and transfer restrictions
and may be redeemed at cost at the option of either the Company or the
purchaser.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company is a development stage company. Since inception of the
Company's predecessor in 1986, the Company's efforts have been principally
devoted to research and development, securing patent and trademark protection
and raising capital, most of which efforts commenced after May 1991. Except for
revenue earned since 1995 on sales of IodoZyme, the Company's sole revenue to
date has been from research and development contracts with corporate partners
and interest income.
Forward-Looking Statements
Any statements set forth below or otherwise made in writing or orally
by the Company with regard to its expectations as to financial results and other
aspects of its business may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although the
Company makes such statements based on assumptions, which it believes to be
reasonable, the Company's business is subject to significant risks and there can
be no assurance that actual results will not differ materially from the
Company's expectations. Accordingly, the Company hereby identifies the following
important factors, among others, which could cause its results to differ from
any results which might be projected, forecasted or estimated by the Company in
any such forward-looking statements: (i) the timely development and acceptance
of new products, (ii) the achievement of product development milestones by the
Company's corporate partners, (iii) the timely receipt of regulatory clearances
required to market the Company's proposed products, (iv) the continued sale of
IodoZyme, the Company's only product, (v) the outcomes of clinical trials
involving the Company's proposed products, (vi) the Company's ability to enter
into new arrangements with corporate partners, and (vii) the Company's ability
to obtain financing for the period following September 30, 1999.
Results of Operations
Symbollon's net income for the three month period ended September 30,
1998 was $87,978, reflecting a decrease of $418,348 from a net income of
$506,326 in the comparable 1997 period. Symbollon's net loss for the nine month
period ended September 30, 1998 was $618,797, reflecting a change of $760,094
from a net income of $141,297 in the comparable 1997 period. The decreased
income for the three-month period resulted primarily from decreased license fees
and increased development efforts, partially offset by decreased general and
administrative expenses. The increased loss for the nine-month period resulted
primarily from decreased revenues and increased development efforts, partially
offset by decreased general and administrative expenses. The Company expects to
continue to incur operating losses for the foreseeable future.
Product revenues from sales of IodoZyme for the three and nine-month
periods ended September 30, 1998 were $59,675 and $170,176, respectively,
reflecting a decrease of $12,325 and $64,162, respectively, from the product
sales in the comparable 1997 periods. The decreased sales reflect in part excess
<PAGE>
inventory reduction by the Company's marketing partner, West Agro, Inc.
The gross profit margin on product sales for the three and nine-month
periods ended September 30, 1998 were 40% and 36%, respectively, compared to 43%
and 46%, respectively, in the comparable 1997 periods. The decrease in the gross
profit margin on product sales for the three and nine-month periods ended
September 30, 1998 was primarily due to increased component cost and overhead
expenses.
Contract revenues for the three-month period ended September 30, 1998
were $19,085, reflecting an increase of $1,348 from the contract revenues in the
comparable 1997 period. Contract revenues for the nine-month period ended
September 30, 1998 were $19,085, reflecting a decrease of $47,239 from the
contract revenues in the comparable 1997 period. The decrease for the nine-month
period resulted primarily from Symbollon's commitment to undertake without
compensation certain activities in 1998 relating to the dermatology product
development program with Oclassen Pharmaceuticals, Inc. Once those activities
are completed, Symbollon anticipates receiving compensation in the future for
any other activities undertaken at Oclassen's request.
License fees for the three and nine-month periods ended September 30,
1998 were $400,000, reflecting a decrease of $350,000 from the license fees in
the comparable 1997 periods. The decreases for the three and nine-month periods
resulted primarily from a decrease in license fees from the Company's corporate
relationship in the field of dermatology, partially offset by an increase in
license fees from the Company's corporate relationship in the field of
ophthalmology.
Research and development expenses for the three and nine-month periods
ended September 30, 1998 were $278,512 and $812,407, respectively, reflecting an
increase of $132,880 and $383,586, respectively, from the research and
development expenses in the comparable 1997 periods. The increases resulted from
increased development expenses, including consultants fees and contract
manufacturing cost, associated with the Company's proposed formulation for the
treatment of fibrocystic breast disease. The Company anticipates that research
and development expenses will increase over the remainder of 1998 as the Company
initiates Phase II human clinical trials for its drug to treat fibrocystic
breast disease.
General and administrative expenses for the three and nine-month
periods ended September 30, 1998 were $96,784 and $362,033, respectively,
reflecting a decrease of $67,469 and $41,388, respectively, from the general and
administrative expenses in the comparable 1997 periods. The decreases resulted
primarily from decreased employee salaries and related costs, and decreased
legal fees, insurance costs and other third party fees and services, partially
offset by increased investor and public relations expenses. The Company
anticipates that general and administrative expenses will remain at current
levels for the remainder of 1998.
Liquidity and Capital Resources
The Company has funded its activities through proceeds from private and
public placements of equity and debt securities. Independent research and
development activities regarding the Company's technology has been funded
through SBIR grants received and administered by Biomedical Development
<PAGE>
Corporation ("BDC"). Although ongoing grants will continue until their
completion, no further SBIR grants covering the Company's technology will be
applied for by BDC, as a result of the Company's May 1997 termination of its
agreement with BDC. As of September 30, 1998, the Company had working capital of
$2,333,467.
The Company continues to incur operating losses and has incurred a
cumulative loss through September 30, 1998 of $5,440,412. However, the Company
believes that it has the necessary liquidity and capital resources, together
with anticipated future revenues, to sustain planned operations for the twelve
months following September 30, 1998. In the event that the Company's internal
estimates relating to its planned revenues or expenditures prove materially
inaccurate, the Company may be required to reallocate funds among its planned
activities and curtail certain planned expenditures. In any event, the Company
anticipates that it will require additional funds after September 30, 1999, and
therefore, the Company will seek new financing during the next twelve months.
During the remainder of 1998, the Company anticipates paying
approximately $76,250 as compensation for its current executive officers, and
approximately $7,425 for lease payments on its facilities. The Company
anticipates that the Phase II clinical trial for its drug to treat fibrocystic
breast disease will cost approximately $1,800,000 over the next twelve months.
At December 31, 1997, the Company had a net operating loss carryforward for
Federal income tax purposes of approximately $4,555,000 expiring through 2011.
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to disruptions in
operations. The Company has identified three major areas determined to be
critical for successful Y2K compliance: (1) financial and information system
applications and (2) manufacturing applications and (3) third-party
relationships. In the financial and information system and manufacturing areas,
the Company's core financial and reporting systems are not Y2K compliant and are
scheduled for replacement during 1999. The Company believes it will cost
approximately $10,000 to replace the core financial and reporting systems that
are not Y2K compliant. In the third-party area, the Company is in the process of
identifying areas of exposure. The Company has not determined what costs, if
any, will be incurred in connection with the third-party area.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits on Page E-1.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf of the undersigned, thereunto duly
authorized.
SYMBOLLON CORPORATION
Date: November 12, 1998 By: /s/ Paul C. Desjourdy
-----------------------------------
Paul C. Desjourdy, Exec. Vice President/CFO
and authorized signatory
<PAGE>
SYMBOLLON CORPORATION
INDEX TO EXHIBITS
Page #
11.1 Statement re: Computation of Earnings per Share................
27.1 Financial Data Schedule........................................
Exhibit 11.1
SYMBOLLON CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
The Three-Months The Nine-Months
Ended September 30, Ended September 30,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
Net Income (Loss)
on Per Share Basis..........$ 87,978 $ 506,326 $(618,797) $ 141,297
========== ========= ========== ==========
Basic net income (loss) per share:
Weighted average common shares
outstanding.................3,454,429 3,098,465 3,284,874 2,758,171
Shares subject to restriction.(700,000) (700,000) (700,000) (700,000)
---------- ---------- ---------- ----------
2,754,429 2,398,465 2,584,874 2,058,171
========== ========== ========== ==========
Net Loss per common share: $ 0.03 $ 0.21 $ (0.24) $ 0.07
========== ========== ========== ==========
Net income (loss) per common share - assuming dilution:
Weighted average common shares
outstanding.................3,454,429 3,098,465 3,284,874 2,758,171
Weighted average dilutive potential
common shares outstanding... 43,713 48,349
Shares subject to restriction.(700,000) (700,000) (700,000) (700,000)
---------- ---------- ---------- ----------
2,754,429 2,442,178 2,584,874 2,106,520
========== ========== ========== ==========
Net Loss per common share
- assuming dilution: $ 0.03 $ 0.21 $ (0.24) $ 0.07
========== ========== ========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED UNAUDITED FINANCIAL STATEMENT OF SYMBOLLON CORPORATION FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENT AS FILED IN THE FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,066,110
<SECURITIES> 0
<RECEIVABLES> 34,698
<ALLOWANCES> 0
<INVENTORY> 103,701
<CURRENT-ASSETS> 2,448,818
<PP&E> 287,502
<DEPRECIATION> 149,209
<TOTAL-ASSETS> 2,781,274
<CURRENT-LIABILITIES> 115,351
<BONDS> 0
850,000
0
<COMMON> 2,934
<OTHER-SE> 1,815,923
<TOTAL-LIABILITY-AND-EQUITY> 2,781,274
<SALES> 170,176
<TOTAL-REVENUES> 589,261
<CGS> 109,295
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 812,407
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (618,797)
<INCOME-TAX> 0
<INCOME-CONTINUING> (618,797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (618,797)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
