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 JUNE 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.
August 6, 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
- June 30, 1998 and December 31, 1997 1
Unaudited Condensed Statements of Operations
and Deficit Accumulated During the Development
Stage - For the six and three months
ended June 30, 1998 and June 30, 1997 2
Unaudited Condensed Statements of Cash Flows
- For the six months ended June 30, 1998
and June 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 2. Changes in Securities and Use of Proceeds 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURE 9
INDEX TO EXHIBITS 10
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
<CAPTION>
June 30, December 31,
1998 1997
------------- ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents............................................... $ 1,874,884 $ 2,527,865
Accounts receivable..................................................... 46,925 24,972
Inventory............................................................... 57,018 73,629
Prepaid expenses........................................................ 30,806 75,156
----------- -----------
Total current assets.............................................. $ 2,009,633 $ 2,701,622
Equipment and leasehold improvements, net of
accumulated depreciation................................................. 149,209 146,868
Other assets:
Patent and trademark cost, net of accumulated amortization............ 187,322 153,157
Deposit............................................................... 2,364 2,364
------------ -----------
TOTAL............................................................. $ 2,348,528 $ 3,004,011
============ ===========
LIABILITIES
Current liabilities:
Accounts payable........................................................ $ 51,248 $ 5,879
Other accrued professional fees......................................... 56,386 21,867
Accrued finder's fee.................................................... 20,000
Other current liabilities............................................... 12,949 22,857
------------ -----------
Total current liabilities......................................... 120,583 70,603
Redeemable common stock, Class A, par value $.001 per share,
266,667 shares issued at June 30, 1998 and December 31, 1997
(aggregate involuntary liquidation value $500,000) 500,000 500,000
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
June 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
June 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.......................... (5,528,390) (4,821,615)
------------ -----------
Total stockholders' equity........................................... 1,727,945 2,433,408
------------ -----------
TOTAL............................................................. $ 2,348,528 $ 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 Six Months Ended (Inception) to
June 30, June 30, June 30,
1998 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales......................................... $ 110,501 $ 162,338 $ 110,501 $ 162,338 $ 728,048
Contract revenue.................................. 8,250 48,587 540,680
License fee....................................... 1,790,000
----------- ----------- ----------- ----------- -----------
Total income.............................. 110,501 170,588 110,501 210,925 3,058,728
Operating Expenses:
Manufacturing costs........................... $ 73,208 $ 86,021 $ 73,208 $ 86,021 $ 425,445
Research and development costs................ 281,508 134,873 533,895 283,189 4,570,593
General and administrative expenses........... 106,596 114,897 265,249 239,168 3,771,536
----------- ----------- ----------- ----------- -----------
Total operating expenses.................. 461,312 335,791 872,352 608,378 8,767,574
----------- ----------- ----------- ----------- -----------
Income (Loss) from operations..................... (350,811) (165,203) (761,851) (397,453) (5,708,846)
Interest income................................... 24,874 21,438 55,076 40,987 536,716
Interest expense and debt issuance costs.......... (8,213) (8,563) (356,260)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)................................. (325,937) (151,978) (706,775) (365,029) (5,528,390)
Deficit accumulated during the development stage,
beginning of period.............................. (5,202,453) (5,546,130) (4,821,615) (5,333,079)
----------- ----------- ----------- ----------- -----------
Deficit accumulated during the development stage,
end of period.................................... $(5,528,390) $(5,698,108) $(5,528,390) $(5,698,108) $(5,528,390)
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE................ $ (0.13) $ (0.07) $ (0.28) $ (0.19)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding............................... 2,498,691 2,083,253 2,498,691 1,885,203
=========== =========== =========== ===========
</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
Six Months Ended (Inception) to
June 30, June 30,
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ (706,775) $ (365,029) $(5,528,390)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization expense............... 23,533 14,835 402,735
Amortization of debt issuance costs................. 130,000
Accrued rent........................................ (9,333)
Loss on disposition of equipment.................... 7,274
Changes in operating assets and liabilities:
Accounts receivable............................... (21,953) (91,660) (46,925)
Inventory......................................... 16,611 2,146 (57,018)
Prepaid expenses.................................. 44,350 46,001 (30,806)
Deferred revenue.................................. (17,596)
Accounts payable and other current liabilities.... 49,980 (59,222) 177,758
----------- ----------- -----------
Net cash provided by (used in)
operating activities.............................. (594,254) (479,858) (4,945,372)
----------- ----------- -----------
Cash flows from investing activities:
Equipment and leasehold improvements costs............ (24,173) 15,907 (364,826)
Patent and trademark costs............................ (35,866) (13,066) (393,014)
Proceeds from sale of equipment....................... 11,300
Deposit............................................... (2,364)
----------- ----------- -----------
Net cash provided by (used in) investing activities. (60,039) 2,841 (748,904)
----------- ----------- -----------
Cash flows from financing activities:
Notes Payable......................................... 492,500
Warrant conversion.................................... 629,204
Borrowings from stockholders.......................... 253,623
Repayment to stockholders............................. (127,683)
Sale of common stock and units........................ 1,312 2,066 7,707,418
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........... 1,312 494,566 7,569,160
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH........................... (652,981) 17,549 1,874,884
Cash at beginning of period............................... 2,527,865 1,707,099
----------- ----------- -----------
CASH AT END OF PERIOD..................................... $ 1,874,884 $ 1,724,648 $ 1,874,884
=========== =========== ===========
</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 six and three-month periods ended June 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 (see Part II - Item 5. "Other Information" below). 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, and (v) the Company's ability to enter
into new arrangements with corporate partners.
Results of Operations
Symbollon's net loss for the three month period ended June 30, 1998 was
$325,937, reflecting an increase of $173,959 from a net loss of $151,978 in the
comparable 1997 period. Symbollon's net loss for the six month period ended June
30, 1998 was $706,775, reflecting an increase of $341,746 from a net loss of
$365,029 in the comparable 1997 period. The increased loss for the three-month
period resulted primarily from decreased product revenues and increased
development efforts. The increased loss for the six-month period resulted
primarily from decreased product and contract revenues and increased development
efforts. The Company expects to continue to incur operating losses for the
foreseeable future.
Product revenues from sales of IodoZyme for the three and six-month
periods ended June 30, 1998 were $110,501, reflecting a decrease of $51,837 from
the product sales in the comparable 1997 periods. The decreased sales reflect in
part excess inventory reduction by the Company's marketing partner, West Agro,
Inc.
<PAGE>
The gross profit margin on product sales for the three and six-month
periods ended June 30, 1998 were 34%, compared to 47% in the comparable 1997
periods. The decrease in the gross profit margin on product sales for the three
and six-month periods ended June 30, 1998 were primarily due to increased
component cost and overhead expenses.
Contract revenues for the three and six-month periods ended June 30,
1998 were none, reflecting a decrease of $8,250 and $48,587, respectively, from
the contract revenues in the comparable 1997 periods. The decreases 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.
Research and development expenses for the three and six-month periods
ended June 30, 1998 were $281,508 and $533,895, respectively, reflecting an
increase of $146,635 and $250,706, 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 human clinical trials for its drug to treat fibrocystic breast
disease.
General and administrative expenses for the three and six-month periods
ended June 30, 1998 were $106,596 and $265,249, respectively, reflecting a
decrease of $8,301 and an increase of $26,081, respectively, from the general
and administrative expenses in the comparable 1997 periods. The increase for the
six-month period resulted primarily from 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
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 June 30, 1998, the Company had working capital of
$1,889,050.
The Company has had no significant revenue and has incurred a
cumulative loss through June 30, 1998 of $5,528,390. 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 June 30, 1998. In the event that the Company's internal
estimates
<PAGE>
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 June 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 $152,500 as compensation for its current executive officers, and
approximately $13,950 for lease payments on its facilities. 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.
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds
See "Item 5. Other Information" below for a description of the sale of
402,878 shares of Class A Common Stock for $350,000 to Bausch & Lomb
Pharmaceuticals, Inc. in a transaction exempt from registration under the
Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders
The following items were submitted to a vote of the stockholders at the
Company's Annual Meeting on May 20, 1998:
1. Election of Directors. The following directors were elected:
Votes .
For Against Withheld
James C. Richards 2,728,971 24,750 0
Jack H. Kessler 2,728,871 24,850 0
Paul C. Desjourdy 2,728,971 24,750 0
Richard F. Maradie 2,728,971 24,750 0
Eugene Lieberstein 2,728,971 24,750 0
2. Ratification of Richard A. Eisner & Company, LLP as the
independent auditors of the Company:
Votes
For Against Withheld
2,734,821 16,400 2,500
Each item identified above was described in the Company's Proxy
Statement for the Annual Meeting of Stockholders. Each item received the
necessary votes for approval.
<PAGE>
Item 5. Other Information
1. On August 4, 1998, pursuant to the Company's collaboration and
sale/license agreement with Bausch & Lomb Pharmaceuticals, Inc., Symbollon
received a $400,000 milestone payment. In addition, Bausch & Lomb purchased
402,878 shares of Class A Common Stock for $350,000. Pursuant to the Stock
Purchase Agreement, the shares purchased by Bausch & Lomb are subject to certain
voting and transfer restrictions and may be redeemed at cost at the option of
either the Company or the purchaser. Subject to certain exceptions, Bausch &
Lomb has agreed to vote its shares of Class A Common Stock in accordance with
the recommendations of Symbollon's Board of Directors. Bausch & Lomb may offset
certain portions of the future milestone payments due to Symbollon pursuant to
the Collaboration and Sale/License Agreement by requiring Symbollon to redeem at
cost the shares purchased pursuant to the Stock Purchase Agreement. Under
certain circumstances, if the Collaboration and Sale/License Agreement is
terminated prior to Symbollon's receipt of the required milestone payments, then
Bausch & Lomb has agreed to transfer to Symbollon for no consideration up to
$500,000 worth (valued at their original purchase price) of the shares.
Additionally, if the Collaboration and Sale/License Agreement is terminated by
Bausch & Lomb prior to its fourth anniversary, Bausch & Lomb may require the
Company to repurchase up to $350,000 worth (valued at their original purchase
price) of the shares annually through the seventh anniversary of the Stock
Purchase Agreement in an amount equal to 25% of the Company's positive cash
flows from operating activities.
2. Any shareholder proposal submitted with respect to the Company's
1999 Annual Meeting of Stockholders, which proposal is submitted outside the
requirements of Rule 14a-8 under the Securities Exchange Act of 1934, will be
considered untimely for purposes of Rules 14a-4 and 14a-5 under said Act if
notice thereof is received by the Company after February 25, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits on Page E-1.
(b) Reports on Form 8-K
A Form 8-K was filed on May 27, 1998 under Item 4 regarding
the Company's change in certifying accountant to BDO Seidman, LLP.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf of the undersigned, thereunto duly
authorized.
SYMBOLLON CORPORATION
Date: August 6, 1998 By: /s/ Paul C. Desjourdy
----------------------------------
Paul C. Desjourdy,
Exec. Vice President/CFO
and authorized signatory
<PAGE>
SYMBOLLON CORPORATION
INDEX TO EXHIBITS
Page #
11.1 Statement re: Computation of Earnings per Share.................
27.1 Financial Data Schedule.........................................
Exhibit 11.1
SYMBOLLON CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
The Three-Months The Six-Months
Ended June 30, Ended June 30,
---------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Net Loss on Per Share Basis..$(325,937) $(151,978) $(706,775) $(365,029)
========== ========= ========== ==========
Basic loss per share:
Weighted average common shares
outstanding.................3,198,691 2,783,253 3,198,691 2,585,203
Shares subject to restriction.(700,000) (700,000) (700,000) (700,000)
---------- ---------- ---------- ----------
2,498,691 2,083,253 2,498,691 1,885,203
========== ========== ========== ==========
Net Loss per common share(1):$ (0.13) $ (0.07) $ (0.28) $ (0.19)
========== ========== ========== ==========
(1) There is no difference between basic and diluted loss per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED UNAUDITED FINANCIAL STATEMENT OF SYMBOLLON CORPORATION FOR THE SIX
MONTHS ENDED JUNE 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,874,884
<SECURITIES> 0
<RECEIVABLES> 46,925
<ALLOWANCES> 0
<INVENTORY> 57,018
<CURRENT-ASSETS> 2,009,633
<PP&E> 287,502
<DEPRECIATION> 138,293
<TOTAL-ASSETS> 2,348,528
<CURRENT-LIABILITIES> 120,583
<BONDS> 0
500,000
0
<COMMON> 2,934
<OTHER-SE> 1,725,011
<TOTAL-LIABILITY-AND-EQUITY> 2,348,528
<SALES> 110,501
<TOTAL-REVENUES> 110,501
<CGS> 73,208
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 533,895
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (706,775)
<INCOME-TAX> 0
<INCOME-CONTINUING> (706,775)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (706,775)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
