SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement
/_/ Confidential, for Use of the Commission Only
(as premitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SYMBOLLON CORPORATION
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/_/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
5) Total fee paid:
_____________________________________________________________________________
/_/ Fee paid previously by written preliminary materials.
/_/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount previously paid: _________________________________________________
2) Form, Schedule or Registration No. ______________________________________
3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
___________
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
SYMBOLLON CORPORATION
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
MAY 20, 1998
TO THE STOCKHOLDERS OF SYMBOLLON CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Symbollon Corporation, a Delaware corporation (the "Company"), will be held at
the Company's executive offices, located at 37 Loring Drive, Framingham,
Massachusetts 01702-8768, on May 20, 1998 at 10:00 a.m., local time, for the
following purposes:
1. To consider and vote upon the election of five directors;
2. To ratify the appointment of Richard A. Eisner & Company, LLP as the
independent auditors of the Company;
3. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
The close of business on April 1, 1998 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the meeting. A complete list of those stockholders will be open to
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours at the executive offices of the Company, 37 Loring
Drive, Framingham, Massachusetts 01702-8768, for a period of 10 days prior to
the meeting. The stock transfer books of the Company will not be closed.
All stockholders are cordially invited to attend the meeting. Whether
or not you expect to attend, you are kindly requested by the Board of Directors
to sign, date and return the enclosed proxy promptly. Stockholders who execute
proxies retain the right to revoke them at any time prior to the voting thereof.
A return envelope which requires no postage if mailed in the United States is
enclosed for your convenience.
By the order of the Board of Directors,
PAUL C. DESJOURDY
Assistant Secretary
Dated: April 8, 1998
<PAGE>
SYMBOLLON CORPORATION
37 LORING DRIVE
FRAMINGHAM, MA 01702-8768
(508) 620-7676
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Symbollon Corporation (the "Company")
for the Annual Meeting of Stockholders to be held at the Company's executive
offices, located at 37 Loring Drive, Framingham, Massachusetts 01702-8768, on
May 20, 1998 at 10:00 a.m., local time, and for any adjournment or adjournments
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
of Stockholders. Any stockholder giving such a proxy has the power to revoke it
at any time before it is voted. Written notice of such revocation should be
forwarded directly to the Assistant Secretary of the Company, at the above
stated address. Attendance at the meeting will not have the effect of revoking
the proxy unless such written notice is given.
If the enclosed proxy is properly executed and returned, the shares
represented thereby will be voted in accordance with the directions thereon and
otherwise in accordance with the judgment of the persons designated as proxies.
Any proxy on which no direction is specified will be voted in favor of the
following actions described in this Proxy Statement: for the election of the
nominees set forth under the caption "Election of Directors," and for the
ratification of the appointment of Richard A. Eisner & Company, LLP as the
independent auditors of the Company.
The approximate date on which the Company intends to mail or otherwise
deliver this Proxy Statement and the accompanying form of proxy to the Company's
stockholders is April 9, 1998.
Your vote is important. Accordingly, you are urged to sign and return
the accompanying proxy card whether or not you plan to attend the meeting. If
you do attend, you may vote by ballot at the meeting, thereby canceling any
proxy previously given.
VOTING
Only holders of shares of the Company's Class B Common Stock, $.001 par
value per share (the "Class B Common Stock"), and Class A Common Stock, $.001
par value per share (the "Class A Common Stock", the shares of Class A Common
Stock and Class B Common Stock are sometimes collectively referred to herein as
the "Shares"), of record as at the close of business on April 1, 1998, are
entitled to vote at the meeting. On the record date there were issued and
outstanding 15,738 shares of Class B Common and 3,182,953 shares of Class A
Common Stock. Each outstanding share of Class B Common Stock is entitled to five
votes, and each outstanding share of Class A Common Stock is entitled to one
vote, upon all matters to be acted upon at the meeting. A majority in interest
of the outstanding Shares, represented at the meeting in person or by proxy,
shall constitute a quorum. The affirmative vote of a plurality of the votes cast
is necessary to elect the nominees as directors. The affirmative vote of a
majority of the votes cast is necessary to ratify the appointment of Richard A.
Eisner & Company, LLP as the independent auditors of the Company. Abstentions
and broker non-votes are included in the determination of the number of Shares
present at the meeting for quorum purposes, and abstentions but not broker
non-votes are counted in the tabulation of the votes cast on proposals presented
to stockholders.
The stockholders vote at the meeting by casting ballots (in person or
by proxy) which are tabulated by a person appointed by the Board of Directors
before the meeting to serve as the inspector of election at the meeting and who
has executed and verified an oath of office. The cost of this solicitation will
be borne by the Company.
<PAGE>
BOARD OF DIRECTORS
Election of Directors
At the meeting, five directors will be elected by the stockholders to
serve until the next Annual Meeting of Stockholders or until their successors
are elected and shall qualify. Each of the nominees is currently a director of
the Company. Management recommends that the persons named below be elected as
directors of the Company and it is intended that the accompanying proxy will be
voted for their election as directors, unless the proxy contains contrary
instructions. The Company has no reason to believe that any of the nominees will
not be a candidate or will be unable to serve. However, in the event that any of
the nominees should become unable or unwilling to serve as a director, the
persons named in the proxy have advised that they will vote for the election of
such person or persons as shall be designated by management.
The following sets forth the names and ages of the five nominees for
election to the Board of Directors, their respective principal occupations or
employments during the past five years and the period during which each has
served as a director of the Company.
Jack H. Kessler, Ph.D., 47
Jack H. Kessler, Ph.D., is the founder of the Company and has served as
Executive Vice-President, Chief Scientific Officer, Secretary, and a director
since the Company's move to Massachusetts in May 1991, and as Chairman of the
Board of Directors since May 1996. Prior to that time, and since the Company was
initially formed in Illinois in 1986, Dr. Kessler was the Company's sole
stockholder and served as its sole officer and director. From January 1990 until
May 1991, he served as principal systems engineer for Kollsman Manufacturing
Company, a diagnostic instrument design and manufacturing company.
James C. Richards, Ph.D., 50
James C. Richards, Ph.D., served as President and Chief Executive
Officer of the Company from May 1991 to September 1995, as Treasurer from May
1991 to May 1994, and as a director since May 1991. Since October 1995, Dr.
Richards has been President, Chief Executive Officer and a director of
IntelliGene Corporation, a privately held company specializing in DNA probe
technologies. From November 1990 to May 1991, he served as Managing Director and
principal stockholder of Carlton Bio Venture Partners, a consulting firm
specializing in financing and acquisition of healthcare, medical products and
biotechnology companies. From 1986 to November 1990, Dr. Richards served as
director of business planning and development for Gene-Trak Systems, a joint
venture originally between AMOCO Corporation and Integrated Genetics, Inc.,
engaged in developing diagnostic test devices using DNA probes for the
healthcare and food industries.
Paul C. Desjourdy, 36
Paul C. Desjourdy has served as Executive Vice President and Chief
Financial Officer since July 1, 1996, as Vice-President - Finance and
Administration and Chief Financial Officer of the Company from September 20,
1993 to June 30, 1996, as Treasurer since May 1994, and as a director since
August 1996. From September 1989 to September 1993, Mr. Desjourdy, a certified
public accountant, was an attorney at the law firm of Choate Hall & Stewart.
<PAGE>
Richard F. Maradie, 50
Richard F. Maradie has served as a director of the Company since April
1998. Since March 1997, Mr. Maradie has been President, Chief Executive Officer
and a director of Novavax, Inc., a public biopharmaceutical company developing
topical and oral drug delivery technologies. From July 1994 to March 1997, he
served as President, Chief Executive Officer and a director of Protyde
Pharmaceuticals, Inc., a private biopharmaceutical company developing products
for the diagnosis and treatment of cancer. From 1991 to 1994, Mr. Maradie served
as Executive Vice President and Chief Operating Officer of Platelet Research
Products, Inc., a private biopharmaceutical company developing therapeutic
products derived from blood platelets. From 1988 to 1991, he served as
President, Chief Operating Officer and a director of VimRx Pharmaceuticals,
Inc., a public pharmaceutical company developing therapeutics based on natural
products. From 1987 to 1988, he served as Executive Vice President and Chief
Operating Officer of Creative Biomolecules, Inc. From 1983 to 1987, Mr. Maradie
served as Senior Director of Cetus Corporation and General Manager and Chairman
of the Board of Managers of Cetus/BenVenue Oncology Therapeutics.
Eugene Lieberstein, 59
Eugene Lieberstein has served as a director of the Company since April
1998. Since June 1993, Mr. Lieberstein has been a partner at the law firm of
Wyatt, Gerber, Meller and O'Rourke specializing in patent procurement and
litigation. From 1970 to 1993, he served as Patent Counsel for Union Carbide
Corporation.
General Information Concerning the Board of Directors and its Committees
All directors of the Company are elected by the stockholders, or in the
case of a vacancy, by the directors then in office, to hold office until the
next annual meeting of stockholders of the Company and until their successors
are elected and qualified or until their earlier resignation or removal.
The Board of Directors of the Company met four times and acted by
unanimous written consent one time in the fiscal year ended December 31, 1997.
The Delaware General Corporation Law provides that the Board of Directors, by
resolution adopted by a majority of the entire board, may designate one or more
committees, each of which shall consist of one or more directors. The Board of
Directors annually elects from its members the Executive Committee, Audit
Committee, and Compensation Committee. The Company does not have a Nominating
Committee. During the last fiscal year each of the directors attended at least
75% of the total number of meetings of the Board of Directors and of the
committees on which each director serves.
Executive Committee. The Executive Committee exercises all the powers
and authority of the Board of Directors in the management and affairs of the
Company between meetings of the Board of Directors, to the extent permitted by
law. During fiscal 1997, the Executive Committee was comprised of two directors,
Directors Kessler and Paley. The Executive Committee did not meet during fiscal
1997.
Audit Committee. The Audit Committee reviews the engagement of the
independent auditors and their independence. The Audit Committee also reviews
the audit and non-audit fees of the independent auditors, the adequacy of the
Company's internal control procedures and financial reports to be filed with the
Securities and Exchange Commission. During fiscal 1997, the Audit Committee was
composed of two non-employee directors, Directors Paley and Mason. The Audit
Committee met four times during fiscal 1997.
Compensation Committee. The Compensation Committee reviews and
recommends to the Board of Directors remuneration arrangements and compensation
plans for the Company's executives. The Compensation Committee also authorizes
stock option grants, administers the 1993 Stock Option Plan and proposes other
stock option plans. During fiscal 1997, the Committee was composed of two
non-employee directors, Directors Mason and Paley. The Compensation Committee
met once during fiscal 1997.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's voting stock as of April 1, 1998 for (i)
each of the Company's directors, (ii) each of the Named Executive Officers,
(iii) all directors and executive officers of the Company as a group and (iv)
each person known by the Company to own beneficially 5% or more of the
outstanding shares of any class of its voting stock:
<TABLE>
<CAPTION>
Shares of Percentage Percentage
Class A of Total of Total
Name and Address of Beneficially Percent of Voting Voting
Beneficial Owner (1) Owned (2)(3) Class (3) Securities (3) Power (4)
- --------------------- ------------ --------- -------------- ---------
<S> <C> <C> <C> <C>
Dr. Jack H. Kessler (5)(6) 494,002 15.3% 15.3% 15.0%
Anthony J. Cantone (7) 377,778 11.9% 11.8% 11.6%
Dr. James C. Richards (5)(8) 361,943 11.4% 11.3% 11.1%
Irwin M. Rosenthal (9) 277,372 8.7% 8.7% 8.5%
Magar, Inc. (9) 277,372 8.7% 8.7% 8.5%
Dr. Herbert Moskowitz (9) 277,372 8.7% 8.7% 8.5%
Martin D. Fife (9) 277,372 8.7% 8.7% 8.5%
Bausch & Lomb Pharmaceuticals, Inc. (10) 266,667 8.4% 8.3% 8.2%
Paul C. Desjourdy (11) 132,866 4.1% 4.0% 4.0%
Richard F. Maradie (5) 0 * * *
Eugene Leiberstein (5) 0 * * *
All Executive Officers
and Directors as a Group (5 persons) (12) 988,811 29.9% 29.7% 29.2%
- ----------------------------
</TABLE>
* Less than 1% of the Class A Common Stock outstanding.
(1) All shares are beneficially owned and sole voting and investment power
is held by the persons named, except as otherwise noted.
(2) "Class A" refers to the Class A Common Stock. Does not include
information regarding the 15,738 shares of Class B Common Stock
(currently convertible into 15,738 shares of Class A Common Stock)
outstanding which are held by three non-affiliate owners. Includes
627,199 shares of Class A Common Stock which are subject to transfer to
the Company for no consideration upon the failure to occur by certain
dates of certain conditions. So long as such shares are subject to such
conditions, the holder may vote but not dispose of such shares. Such
shares are treated as outstanding in the table.
(3) Based upon 3,182,953 of Class A Common Stock and 15,738 of Class B
Common Stock outstanding but also reflecting as outstanding, with
respect to the relevant beneficial owner, the shares which that
beneficial owner could acquire upon exercise of options exercisable
within 60 days.
(4) The Class B Common Stock is entitled to five votes per share, whereas
the Class A Common Stock is entitled to one vote per share.
(5) The address of Directors Kessler, Richards, Desjourdy, Maradie and
Lieberstein is c/o Symbollon Corporation, 37 Loring Drive, Framingham,
MA 01702.
(6) Includes 1,100 shares owned by his minor child and currently
exercisable options to purchase 36,000 shares of Class A Common Stock.
(7) The address of Mr. Cantone is c/o Cantone Research, Inc., 1030 Broad
Street, Shrewsbury, New Jersey 07702.
<PAGE>
(8) Includes currently exercisable options to purchase 3,750 shares of
Class A Common Stock.
(9) Dr. Moskowitz and Messrs. Rosenthal and Fife are each officers,
directors and principal stockholders of Magar. These individuals may be
considered to beneficially own, and to have shared investment and
voting power with respect to, all shares of Class A Common Stock owned
by Magar. Information relating to shares owned by each of these
individuals assumes that each beneficially owns all shares of Class A
Common Stock owned of record by Magar. The address of each of these
individuals is c/o Magar, 30 Rockefeller Plaza, New York, NY 10112.
(10) The address of Bausch & Lomb Pharmaceuticals, Inc. is 8500 Hidden River
Parkway, Tampa, Florida 33637. With certain exceptions, the voting
power over these securities is controlled under agreement by the Board
of Directors of Symbollon.
(11) Includes currently exercisable options to purchase 89,666 shares of
Class A Common Stock.
(12) Includes currently exercisable options to purchase 129,416 shares of
Class A Common Stock.
EXECUTIVE COMPENSATION
The following tables set forth certain information relating to
compensation paid by the Company for each of the Company's last three completed
fiscal years to its executive officers whose annual compensation exceeded
$100,000 for the last completed fiscal year (the "Named Executive Officers").
Only those columns which call for information applicable to the Company or the
Named Executive Officers for the periods indicated have been included in such
tables.
<TABLE>
Summary of Compensation Table
<CAPTION>
Annual Long Term
Compensation Compensation
Salary Securities Underlying All Other
Name and Principal Position Year ($) Options/SARs (#) Compensation ($)(1)
- --------------------------- ---- -------------------- ---------------------- -------------------
<S> <C> <C> <C> <C>
Jack H. Kessler 1997 $150,000 70,281 $ 624
Executive Vice President, Chief 1996 $150,000 96,000 $ 624
Scientific Officer and Secretary 1995 $124,800 $ 1,887
Paul C. Desjourdy 1997 $130,000 70,281 $ 264
Executive Vice President, Chief 1996 $130,000 136,333 $ 264
Financial Officer and Treasurer 1995 $112,400 $ 1,564
- --------------------------------
</TABLE>
(1) For 1997 and 1996 includes premiums paid on term life insurance on
behalf of the Named Executive Officers in the following amounts: Dr.
Kessler: $624 and Mr. Desjourdy: $264. For 1995 includes premiums paid
on term life insurance on behalf of the Named Executive Officers in the
following amounts: Dr. Kessler: $444 and Mr. Desjourdy: $264; and the
Company contributions to the 401(k) accounts of the Named Executive
Officers in the following amounts: Dr. Kessler: $1,443 and Mr.
Desjourdy: $1,300.
Option/SAR Grants in Last Fiscal Year
The following table sets forth information with respect to options
granted during the last fiscal year to the Named Executive Officers of the
Company.
<PAGE>
<TABLE>
Individual Grants
<CAPTION>
Number of % of Total
Securities Options/SAR
Underlying Granted to Exercise
Options/SAR's Employees in or Base
Name Granted(#) Fiscal Year Price ($/Sh) Expiration Date
- ------------------ ------------- ------------- ------------ -----------------
<S> <C> <C> <C> <C>
Jack H. Kessler 11,281 (1) 7.1% $1.05 December 31, 2007
59,000 (2) 37.3% $1.50 December 31, 2007
Paul C. Desjourdy 11,281 (1) 7.1% $1.05 December 31, 2007
59,000 (2) 37.3% $1.50 December 31, 2007
- ---------------------------
</TABLE>
(1) These options vest one-third on December 31, 1998; December 31, 1999; and
December 31, 2000, respectively. (2) These options vest on December 31, 1997 and
become exercisable on December 31, 1998.
Aggregated Fiscal Year-End Option Values
The following table set forth certain information with respect to the
number of unexercised stock options held by each Named Executive Officer on
December 31, 1997, and the value of the unexercised in-the-money options at that
date.
<TABLE>
Aggregated Fiscal Year-End Option Values
<CAPTION>
Value of Unexercised
Number of Securities In-The-Money
Underlying Unexercised Options at Fiscal
Options at Fiscal Year-End Year-End ($) (1)
--------------------------------- -----------------------------
Name (#)Exercisable (#)Unexercisable Exercisable Unexercisable
- ------------------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack H. Kessler 36,000 130,281 $ 0 $ 0
Paul C. Desjourdy 89,666 116,948 $ 0 $ 0
- ------------------
</TABLE>
(1) The value of unexercised in-the-money options at December 31, 1997, was
determined by multiplying the difference between the fair market value
(the closing sales price) of the Company's Class A Common Stock at the
close of business on December 31, 1997 ($0.938 per share) and the
option exercise price, by the number of options outstanding at that
date. The values have not been realized and may not be realized. The
options have not been exercised and may never be exercised. In the
event the options are exercised, their value will depend upon the fair
market value of the underlying Class A Common Stock on the date of
exercise.
<PAGE>
Director Compensation
Each of the Company's non-employee directors will be paid $1,000 for
each board or committee meeting. In addition, each non-employee director is
entitled to receive on January 1st of each year an option (the "Annual Options")
to purchase 2,500 shares of Class A Common Stock at the then fair market value.
The Annual Options may only be exercised with respect to vested shares. One-half
of the shares subject to such options vest on the first anniversary of the date
of grant and the balance vest on the second anniversary of the date of grant.
All directors will be reimbursed for ordinary and necessary travel expenses
incurred in attendance at each board or committee meeting.
Employment Agreements
On December 23, 1995, the Company entered into a new employment
agreement with Dr. Jack H. Kessler, its Executive Vice-President and Chief
Scientific Officer and a director and principal stockholder. On July 1, 1996,
the Company entered into a new employment agreement with Mr. Paul C. Desjourdy,
its Executive Vice-President and Chief Financial Officer and a director. Both
agreements expire in December 2000. In 1998, Dr. Kessler and Mr. Desjourdy will
receive salaries of $160,000 and $145,000, respectively, per annum. The
employment agreements provide for inflationary salary adjustments, and such
compensation may be incrementally increased and bonuses may be given upon the
approval of the Company's Board of Directors. Both Executive Officers have
agreed to devote their full time and best efforts to fulfill their duties and
responsibilities to the Company. They will be entitled to participate in
employee benefit plans.
The Company has the right to terminate the agreements for Cause (as
defined therein) or as a result of the Executive Officers' death or Permanent
Disability (as defined therein). The Executive Officers have the right to
terminate their agreements on account of their Constructive Discharge (as
defined therein). Except in the case of termination for Cause, upon early
termination of their agreements, the Executive Officers shall be entitled to
receive their salaries plus fringe benefits for a period of 18 months from the
date of termination and any bonuses prorated through the date of termination.
Both Executive Officers have agreed not to disclose to anyone
confidential information of the Company during the term of their employment or
thereafter and will not compete with the Company utilizing the Company's
proprietary information, know-how or trade secrets during the term of their
employment or thereafter. All work, research and results thereof, including,
without limitation, inventions, processes or formulae made, conceived or
developed by the Executive Officers during the term of employment which are
related to the business, research, and development work or field of operation of
the Company shall be the property of the Company.
Dr. Kessler is a principal stockholder, officer and director of a
company which has rights to use technology that he developed pertaining to
contact lens disinfection. This technology, which is similar to the Company's
technology, is not expected to be assigned to the Company. As a result, use of
the Company's technology in the area of contact lens disinfection may require
the prior consent of such other company or the then owner of such rights.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act")
requires the Company's directors, officers and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
initial reports of ownership and changes in ownership of such securities with
the Securities and Exchange Commission. Directors, officers and greater than ten
percent beneficial owners are required by applicable regulations to furnish the
Company with copies of all Section 16(a) forms they file.
<PAGE>
Based solely upon a review of the copies of the forms furnished to the
Company and written representations from the Company's directors and officers,
the Company believes that during 1997 all filing requirements applicable to its
directors, officers and greater than ten percent beneficial owners were
satisfied, except that Dr. Kessler and Mr. Cantone inadvertently filed a Form 4
Statement of Changes in Beneficial Ownership for the month of May 1997,
reflecting the termination of options to acquire the Company's Class A Common
Stock, after the applicable filing period.
CERTAIN TRANSACTIONS
From November 1987 through July 1990, Dr. Kessler loaned the Company an
aggregate of $51,495 at varying rates of interest, of which approximately $4,000
had been repaid. In May 1991, these loans were consolidated and the Company
issued Dr. Kessler a new promissory note in the amount of $47,549, payable on
demand at an annual interest rate of 7%. In August 1996, the Company repaid the
outstanding balance of the note, plus accrued interest in part by issuing 44,444
shares of the Company's Series A Preferred Stock, $.001 par value, to Dr.
Kessler as part of a private placement of such Series A Preferred Stock at a
price of $1.125 per share. In May 1997, pursuant to registration of such shares
by the Company, Dr. Kessler converted all of his Series A Preferred Stock into
an equal number of shares of the Company's Class A Common Stock.
During August 1996 the Company issued 400,000 shares of Series A
Preferred Stock to Mr. Anthony Cantone at a purchase price of $1.125 per share
as part of a private placement. In May 1997, pursuant to registration of such
shares by the Company, Mr. Cantone converted all of his Series A Preferred Stock
into an equal number of shares of the Company's Class A Common Stock.
In August 1997, the Company entered into a collaboration and
sale/license agreement with Bausch & Lomb Pharmaceuticals, Inc. Under the
Collaboration and Sale/License Agreement, the parties intend to develop
ophthalmic products based on Symbollon's proprietary enzyme-based iodine
technology. Bausch & Lomb obtained exclusive marketing rights in the United
States and Canada for ophthalmic products that are developed based on
Symbollon's iodine technology. The agreement also provides Bausch & Lomb with
options to broaden its exclusive marketing rights to include the rest of the
world, and to include otic (ear) products. So long as the agreement is in
effect, Bausch & Lomb will make a series of milestone payments to Symbollon
based on the passage of time or the occurrence of certain events, plus royalty
payments on product sales and reimbursement of Symbollon's development efforts
under the agreement.
In conjunction with the Collaboration and Sale/License Agreement, the
parties entered into a stock purchase agreement pursuant to which Bausch & Lomb
purchased 266,667 shares of Class A Common Stock for $500,000. Bausch & Lomb has
agreed to purchase an additional $350,000 of shares of Class A Common Stock on
the first anniversary of the agreement so long as the Collaboration and
Sale/License Agreement has not been terminated prior to that date. 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
at cost redemption of 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.
<PAGE>
For information concerning employment agreements and option agreements with the
Company's officers, see "Executive Compensation".
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Management of the Company recommends a vote for the ratification of
Richard A. Eisner & Company, LLP as the independent auditors for the Company for
1998.
Richard A. Eisner & Company, LLP has served as the Company's
independent accountants. The Company has requested that a representative of
Richard A. Eisner & Company, LLP attend the meeting. Such representative will
have an opportunity to make a statement, if he or she desires, and will be
available to respond to appropriate questions of stockholders.
OTHER MATTERS
The Board of Directors is not aware of any matters not set forth herein
that may come before the meeting. If, however, further business properly comes
before the meeting, the persons named in the proxies will vote the shares
represented thereby in accordance with their judgment.
STOCKHOLDERS PROPOSALS FOR THE 1999 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for
stockholder action at annual meetings in accordance with regulations adopted by
the Securities and Exchange Commission. To be considered for inclusion in the
proxy statement and form of proxy relating to the 1999 annual meeting, such
proposals must be received by the Company no later than December 8, 1998.
Proposals should be directed to the attention of the Assistant Secretary of the
Company.
ANNUAL REPORT ON FORM 10-KSB
The Company is furnishing without charge to each person whose proxy is
being solicited, a copy of the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997, including the financial statements and
schedules thereto, but excluding exhibits. Requests for additional copies of
such report should be directed to the Company, Attention: Investor Relations.
By order of the Board of Directors,
PAUL C. DESJOURDY
Assistant Secretary
Dated: April 8, 1998
PROXY
SYMBOLLON CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jack H. Kessler and Paul C. Desjourdy and each
or either of them (with full power to act without the other), proxies with full
power of substitution, to represent the undersigned and to vote the shares of
stock of the corporation which the undersigned would be entitled to vote, if
personally present, at the Annual Meeting of Stockholders of Symbollon
Corporation to be held on Wednesday, May 20, 1998 at 10:00 a.m. (local time) at
the Company's offices, 37 Loring Drive, Framingham, MA 01702, and any
adjournment thereof, upon matters set forth in the Notice of Annual Meeting and
Proxy Statement dated April 8, 1998, a copy of which has been received by the
undersigned.
(Continued, and to be signed on reverse side)
<PAGE>
Please date, sign and mail your proxy card back as soon as possible!
Annual Meeting of Stockholders
SYMBOLLON CORPORATION
May 20, 1998
\ X \ Please mark your votes as in this example.
FOR all nominees WITHHOLD
(except as marked to AUTHORITY
the contrary below) for all nominees
1. ELECTION OF DIRECTORS \ \ \ \
Nominees: James C. Richards
Jack H. Kessler
Paul C. Desjourdy
Richard F. Maradie
Eugene Lieberstein
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
nominee's name on the line provided below.)
- -----------------------------------------------------
2. TO RATIFY THE APPOINTMENT OF RICHARD A. EISNER & COMPANY, LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY.
FOR AGAINST ABSTAIN
\ \ \ \ \ \
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any adjournments
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THE PROXY WILL BE VOTED
FOR THE ELECTION OF THE DIRECTORS INDICATED AND FOR APPROVAL OF THE PROPOSALS
PRESENTED.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please make any changes in your address alongside the address as it appears in
the proxy.
SIGNATURE(S)___________________________________ DATE________________
Note: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign as full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
SYMBOLLON CORPORATION
ANNUAL REPORT 1997
[COMPANY LOGO]
<PAGE>
To Our Shareholders:
Overview
We are pleased to announce that in 1997 Symbollon achieved its first profitable
year with diluted earnings per share of $0.22. This profit was driven by
milestone payments received from the Company's existing corporate alliances.
In 1997, Symbollon began two new product development programs. In August 1997,
the Company entered into a new relationship with Bausch & Lomb Pharmaceuticals,
Inc. ("B&L") to develop ophthalmic products based on the Company's technology.
Also, the Company made significant pre-clinical progress in its development
effort to utilize its iodine-based technology as a treatment for fibrocystic
breast disease ("FBD"). We ended 1997 with drug development programs ongoing in
three large pharmaceutical application areas: FBD, ophthalmology and
dermatology.
Internal Development Activities
In 1997, the Company began to investigate the possibility of treating FBD with
an oral dosage of its iodine technology. FBD is a term used to describe a range
of benign breast conditions which are reported to affect approximately 30% of
the women of child-bearing age in the world. FBD is characterized by breast
nodularity, lumpiness or cysts which can cause pain or tenderness. It is
generally suspected to be caused by a hormonal imbalance within a women.
Based on the scientific literature on use of iodine to treat the disease, the
Company's development team has finalized a formulation which we believe to be
well suited for this application. In 1997, we also conducted pre-clinical
studies to indicate bioavailability of the compound and finalized a
manufacturing process to allow for the manufacture of materials suitable for
human clinical trials.
As we look to 1998, the Company plans to file an Investigational New Drug
application in the United States to initiate clinical trials in humans. The
Company plans to fund the cost of the initial clinical trials. Further drug
development and commercialization activities beyond these initial clinical
trials will be conducted, if warranted, based, in part, on the Company's ability
to form a corporate alliance covering FBD.
Corporate Alliances
In August 1997, the Company formed a relationship with B&L to develop ophthalmic
products. As part of the formation of the relationship, B&L made a $500,000
equity investment in Symbollon. B&L is responsible for the development and
commercialization efforts, with Symbollon providing technical assistance. In
addition to requiring a further equity investment in Symbollon, the agreement
provides Symbollon with up to $5 million in potential milestone payments, plus a
royalty on future product sales.
The Company's other significant corporate partner, Oclassen Pharmaceuticals, was
acquired in February 1997 by Watson Pharmaceuticals, Inc. In August 1997, the
Company amended its relationship with Oclassen primarily to account for delays
incurred in the development program. In 1998, Symbollon has undertaken to
provide Oclassen with a preliminary formula and analytical methods necessary to
validate formulation stability, without remuneration for its time to complete
such tasks. While the development program delays are unfortunate, we remain
optimistic about the potential for the technology in dermatology.
<PAGE>
Financial Results
In 1997, the Company reported a net income of $511,464, or diluted earnings per
share of $0.22, compared with a net loss of $0.9 million, or a loss per share of
$0.52 in the prior year. Three factors contributed to the 1997 profitable
results. First, license fees from the Company's existing corporate partnerships
provided $1.25 million in revenues in 1997, compared to $500,000 in 1996.
Second, sales of IodoZyme increased by 219.5% to $376,660 in 1997. Lastly, the
Company's research and development expenses decreased by 43.9% to $562,360 in
1997.
We closed 1997 with over $2.5 million in cash and cash equivalents. We have
sufficient capital to operate through the end of 1998. Because the Company is
planning to internally fund the initial human clinical trials for its treatment
for FBS, the Company anticipates needing additional capital after 1998, and will
seek such financing in 1998.
The Future
In 1998, the Company could initiate the first human clinical trials for a drug
compound based on the Company's technology. While the investment in these
clinical trials will likely result in operating losses for the year ended
December 31, 1998, we feel the potential increase in shareholder value from
positive clinical results warrants the investment.
With three major drug development programs ongoing, we feel that the Company is
in position to start achieving its primary objective of increasing shareholder
value. As we move forward, Symbollon plans to continue pursuing
commercialization of its technology in other areas through additional corporate
alliances.
Based on sales forecast provided to Symbollon by its marketing partner, 1998
sales volumes of IodoZyme should continue to increase primarily from the
potential introduction of the product in certain foreign markets
We want to express a sincere thanks to two of our long standing directors, Dr.
Edward Mason and Mr. Stuart Paley, who recently resigned from the Board. Both
of these gentlemen provided years of leadership and counsel which were
invaluable to the growth of the Company. In their place, Mr. Richard Maradie
and Mr. Eugene Lieberstein were appointed to the Board. Mr. Maradie is currently
the Chief Executive Officer, President and a director of Novavax, Inc., a
public company specializing in the development of topical and oral drug
delivery technologies. Mr. Lieberstein is currently a partner in the law firm
of Wyatt, Gerber, Meller and O'Rouke.
As always, increasing shareholder value continues to be our primary objective
and the measure by which we expect you will judge our performance. Your
continued support of the Company is greatly appreciated.
Sincerely,
by /s/ Jack H. Kessler by /s/ Paul C. Desjourdy
--------------------------- ----------------------------
Jack H. Kessler, Paul C. Desjourdy,
Chairman of the Board, Director,
Executive Vice President Executive Vice President
and Chief Scientific Officer and Chief Financial Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1997
OR
[ ] 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
(Name of small business issuer in its charter)
Delaware 36-3463683
(State of incorporation) (I.R.S. employer identification no.)
37 Loring Drive (508) 620-7676
Framingham, Massachusetts 01702 (Issuer's telephone number)
(Address of principal executive offices)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units, each consisting of one share of Class A Common Stock,
$.001 par value per share, one Redeemable
Class A Warrant and one Redeemable Class B Warrant
(Title of class)
Class A Common Stock, $.001 par value per share
(Title of class)
Redeemable Class A Warrants, each Redeemable Class A
Warrant entitling the holder to purchase one share of
Class A Common Stock and one Redeemable Class B Warrant
(Title of class)
Redeemable Class B Warrants, each Redeemable Class
B Warrant entitling the holder to
purchase one share of Class A Common Stock
(Title of class)
Check whether the issuer: (1) has 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 __
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year (year ended
December 31, 1997) were $1,697,349.
As of March 25, 1998, the aggregate market value of the voting stock of
the issuer held by non-affiliates of the issuer was approximately $2,225,339
based upon the closing price of such stock on that date.
As of March 25, 1998, 3,182,953 shares of Class A Common Stock and
15,738 shares of Class B Common Stock of the issuer were outstanding. See
"Market for Common Equity and Related Stockholder Matters."
Transitional Small Business Disclosure Format (check one): Yes _ No X
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Proxy Statement for the 1998 Annual Meeting -- Part III
<PAGE>
PART I
Item 1. Description of Business
General Background
Symbollon Corporation (the "Company" or "Symbollon") is engaged in
research, development and commercialization of proprietary iodine-based
pharmaceutical agents, disinfectants, antiseptics and sanitizers (collectively
referred to as "applications"). The Company is a Delaware corporation
incorporated in August 1993 and is the successor by merger to a Massachusetts
corporation of the same name incorporated in May 1991 which was the successor by
merger to an Illinois corporation which was incorporated in July 1986.
The Company's Technology
The Company has developed proprietary iodine technologies that the
Company believes addresses many of the issues associated with the use of iodine.
The technologies control the ratio of molecular iodine (I2), which is lethal to
microorganisms, to other inactive species of iodine in solution. The Company
believes that this will enable it to produce iodine-based applications having
advantages over currently available iodine-based products. By increasing the
ratio of molecular iodine to other iodine species, the Company's current and
proposed products will have greater killing power per unit of total iodine. The
Company believes that this feature will enable its current and proposed products
to utilize less iodine and therefore minimize or eliminate some of the negative
characteristics associated with the use of iodine.
Overall, the Company believes that the major strengths of its patented
technologies are the minimization of staining and color associated with iodine,
broad spectrum of antimicrobial activity, rapidity of cidal activity, safe
residues, no known resistance, and no environmental disposal concerns. The
primary weaknesses of the Company's technologies are the inconvenience and cost
of a multi-part delivery system and the potential for staining and corrosivity.
Initial Product
The Company focused a majority of its initial development efforts
regarding its technologies on a bovine teat sanitizer, marketed as
"IodoZyme(R)". The Company co-developed IodoZyme with West Agro, Inc. of Kansas
City, MO ("West Agro"), a subsidiary of the Tetra Laval Group and a leading
manufacturer and distributor of iodophor-based products for dairy use. In
January 1995, the Company and West Agro signed a marketing and supply agreement
covering IodoZyme, and the Company began shipping IodoZyme to West Agro in early
1995. Pursuant to this agreement, West Agro was granted the exclusive worldwide
right to market, distribute, promote and sell IodoZyme. Under the agreement, the
Company manufactures and supplies West Agro with IodoZyme in finished product
form.
Total product sales from IodoZyme for 1996 and 1997 were $117,906 and
$376,660, respectively. Substantially all sales were in the United States. West
Agro, through its foreign affiliates, has begun the registration process in
several foreign markets, for which clearances must be received prior to sales in
those foreign markets.
The Company's invoice terms are net 30 days. The Company had no firm
orders for future delivery of products at year end.
<PAGE>
Research and Product Development
During 1997 the Company concentrated its product development work on
proposed product applications for a treatment for fibrocystic breast disease,
the treatment of various dermatological and ophthalmic diseases, and a treatment
for stomach ulcers. Additional development efforts regarding the Company's
technology for use in dental water line disinfection, medical instrument
sterilization and hemodialysis membrane disinfection were conducted during 1997
at various universities and other third party laboratories through grants from
the Small Business Innovation Research ("SBIR") program. See "Small Business
Innovation Research."
The Company spent approximately $1,002,208 and $562,360 on research and
development during the years ended December 31, 1996 and 1997, respectively.
Since inception, the Company has spent approximately $4,036,698 on research and
development. Under certain collaborative relationships, the Company has received
payments which are reflected in the Company's financial statements as contract
and license fee revenues.
Given the Company's limited financial resources, the uncertainty of the
development effort and the necessity for regulatory approval, there can be no
assurance of ultimate success with respect to any product development program or
that resulting products, if any, will be commercially successful. Additionally,
the Company's limited resources will require substantial support for new
business areas from corporate partners who would ultimately introduce the
products into the marketplace. The Company's current strategic corporate
partners are described below.
Material developments in the Company's ongoing programs during fiscal
1997 are detailed below:
Fibrocystic Breast Disease
During 1997, the Company initiated a development program to investigate
the potential use of the Company's technology as a treatment for fibrocystic
breast disease ("FBD"). FBD is a term used to describe a range of benign breast
conditions which affect a large number of women to some degree. FBD is
characterized by breast nodularity, lumpiness or cysts which can cause pain or
tenderness. It is generally suspected to be caused by a hormonal imbalance
within a woman.
The Company's 1997 efforts were focused on identifying an appropriate
formulation, conducting pre-clinical toxicology studies in rats and transferring
the formulation from the laboratory to a current good manufacturing practices
("cGMP") contract manufacturer for production of materials suitable for human
clinical trials. In 1998, the Company anticipates filing an Investigational New
Drug ("IND") application to initiate clinical trials in humans.
Dermatology Applications
In May 1996, the Company signed a collaboration and license agreement
with Oclassen Pharmaceuticals, Inc. ("Oclassen") for dermatological products
based on Symbollon's proprietary iodine technologies. Pursuant to the agreement,
the companies plan to co-develop products for the treatment of certain skin
diseases, with initial development focused on products for acne, bacterial and
fungal skin diseases. Under the terms of the agreement, Oclassen obtained
exclusive marketing rights in the United States and Canada for dermatological
products based on Symbollon's iodine technologies. Subject to continuation of
<PAGE>
the agreement, Oclassen will make a series of milestone payments to Symbollon,
plus royalty payments on product sales. Oclassen is primarily responsible for
product development and commercialization. Symbollon consults, for a fee, on the
product development.
In August 1997, the Company amended its Collaboration and License
Agreement with Oclassen primarily to account for delays incurred in the
development program. The original agreement had anticipated that an IND
application covering use of the Company's chemistry in dermatology would have
been filed by August 1997; however, the development process had not advanced
sufficiently to warrant such filing. Along with certain other changes, in the
amendment Symbollon agreed to remove the time based payment requirement for the
next two milestones which were to be paid in May 1998 and 1999. Such milestone
payments will now be payable only upon the occurrence of certain events. As part
of the amended relationship, Symbollon has agreed to become more active in the
program. In 1998, the Company will undertake to provide Oclassen with a
preliminary formula and analytical methods necessary to validate formulation
stability, without further remuneration for its time.
Ophthalmology Applications
In August 1997, the Company signed a collaboration and sale/license
agreement with Bausch & Lomb Pharmaceuticals, Inc. ("B&L") for ophthalmic
products based on Symbollon's proprietary iodine technologies. Pursuant to the
agreement, the companies plan to develop products for the treatment of infective
diseases of the eye. Under the terms of the agreement, B&L obtained exclusive
marketing rights in the United States and Canada for ophthalmic products based
on Symbollon's iodine technologies. The agreement also provides B&L with options
to broaden its exclusive marketing rights to include the rest of the world, and
to include otic (ear) products. Subject to continuation of the agreement, B&L
will make a series of milestone payments to Symbollon, plus royalty payments on
product sales. In conjunction with the development collaboration, B&L also made
an equity investment in Symbollon. B&L is primarily responsible for product
development and commercialization. Symbollon consults, for a fee, on the product
development. Symbollon anticipates that work under the agreement will continue
throughout 1998.
Ulcer Treatment
In June 1995, the Company entered into an Evaluation and Option
Agreement with Astra Merck Inc. ("Astra Merck") to explore the possible use of
the Company's technology against Helicobacter pylori for the treatment of
stomach ulcers. As of March 1997, the parties amended the agreement to extend
the period Symbollon had to conduct animal studies to March 1998. From March
1998, Astra Merck has six months to evaluate the Company's technology and, in
Astra Merck's discretion, to negotiate a development and commercialization
agreement covering the technology for use as a treatment against Helicobacter
pylori in the gastrointestinal tract. Unless a development and commercialization
agreement is entered into with Astra Merck, Symbollon does not anticipate that
further work in this area will continue in 1998.
Other Potential Applications
The Company believes that its microbicide technologies have potential
applications in the development of a variety of human healthcare and other
products such as topical anti-infectives, oral care and hygiene products, wound
care applications, and as a preventive for urinary tract infection. Given the
Company's limited resources, although certain preliminary research, development
and regulatory activities may be undertaken by the Company in some of these
potential product areas, the Company's ability to fund the development and
commercialization of such applications will depend in large part on entering
into product development and commercialization agreements with corporate
partners.
<PAGE>
Small Business Innovation Research
In 1989, the Company entered into an agreement with Biomedical
Development Corporation located in San Antonio, Texas ("BDC") to cooperate in
applying for and performing under Small Business Innovation Research ("SBIR")
grants based on the Company's technology. The Small Business Innovation
Development Act of 1982 requires agencies of the Federal government engaged in
research to set aside a specified percentage of their research budgets for
grants ranging from approximately $50,000 to $75,000 for Phase I and up to
$500,000 to $600,000 for Phase II.
The Company is required to pay to BDC a royalty of 5% of net sales up
to a maximum of the amount of the SBIR grant related to the product. The results
of research undertaken by BDC become the property of the Company. In some
instances, BDC may cause research to be conducted by employees of academic
institutions. Such institutions may have rights in the results of such research.
Under the agreement, BDC is required to use its best efforts to obtain licenses
to such information and to transfer all such technical information to the
Company. The United States government retains a royalty-free license in the
results of research funded by SBIR grants, whether patented or not.
In May 1997, the Company terminated its agreement with BDC. While no
further SBIR grants covering the Company's technology will be applied for by
BDC, all ongoing grants will continue until their completion. To the Company's
knowledge, grants covering use of the Company's technology for medical equipment
sterilization, dental water line disinfection and hemodialysis membrane
disinfection are ongoing.
Manufacturing and Supplies
The development and manufacture of the Company's products are subject
to good laboratory practices ("GLP") and cGMP requirements prescribed by the
United States Food and Drug Administration (the "FDA") and to other standards
prescribed by the appropriate regulatory agency in the country of use. The
Company currently produces IodoZyme through a combination of internal
manufacturing activities and a network of subcontractors. See "Management's
Discussion and Analysis or Plan of Operation." The Company currently has limited
in-house manufacturing capacity, and if the Company continues to perform
manufacturing activities related to IodoZyme in-house, additional manufacturing
space and equipment may be necessary if product volumes increase. See
"Description of Property."
The Company does not presently have FDA certified facilities capable of
producing quantities of human pharmaceutical products required for clinical
trials or commercial production. The Company will need to rely on collaborators,
licensees or contract manufacturers to produce such materials. There can be no
assurance that the Company will be able to obtain an adequate supply of its
product from a third party manufacturer, or that if such a supply can be
obtained, that it will comply with GLP and cGMP, as applicable
The Company believes that there are adequate sources of the raw
materials required to produce its applications for commercial production and
testing purposes. Pursuant to its agreement with West Agro, all sodium iodide
used by the Company in the manufacture of the bovine teat sanitizer is to be
purchased from West Agro at a price not to exceed the price which West Agro
charges its largest customers. The Company has been and expects to continue to
be able to obtain all materials needed for these purposes without any
significant interruption or sudden price increase, although there can be no
assurance thereof.
<PAGE>
Marketing and Distribution
In accordance with the marketing and supply agreement signed with West
Agro, West Agro is marketing and distributing IodoZyme, and has agreed to market
and distribute other potential cleaners, sanitizers and disinfectants covered by
the agreement to dairy farms and dairy processing plants on an exclusive basis.
The principal market for IodoZyme is dairy farms.
The Company intends to market and distribute its potential products
through others having pre-established marketing and distribution networks
pursuant to contractual arrangements such as joint venture, licensing,
distribution or similar collaborative agreements. The principal markets for the
potential pharmaceutical and healthcare products include hospitals, medical
offices, dental offices, dialysis centers, outpatient clinics and nursing homes.
Government Regulation
The Company's research and development activities and the production
and marketing of the Company's current and proposed products are subject to
regulation by numerous governmental authorities in the United States and
comparable state agencies. Foreign governments also regulate the development,
production and marketing of products in their countries. The development,
manufacturing and marketing of human pharmaceuticals are subject to regulation
in the United States for safety and efficacy by the FDA in accordance with the
Federal Food, Drug and Cosmetic Act. There can be no assurances that regulatory
approvals or clearances will be obtained for any applications of the Company's
technology once developed, that if granted they will not be withdrawn or that
other regulatory action might result in an adverse impact on the ability to
market the Company's proposed products.
In the United States, human pharmaceuticals are subject to rigorous FDA
regulation including preclinical and clinical testing, The process of completing
clinical trials and obtaining FDA approvals for a new drug is likely to take a
number of years, requires the expenditure of substantial resources and is often
subject to unanticipated delays. There can be no assurance that any proposed
product will receive such approval on a timely basis, if at all.
The steps required before new products for use in humans may be
marketed in the United States include (i) preclinical trials, (ii) submission to
the FDA of an application for IND, which must be approved before human clinical
trials commence, (iii) adequate and well-controlled human clinical trials to
establish the safety and efficacy of the product, (iv) submission of a New Drug
Application ("NDA") for a new drug to the FDA and (v) FDA approval of the NDA
prior to any commercial sale or shipment of the product.
Preclinical tests include laboratory evaluation of product formulation,
as well as animal studies (if an appropriate animal model is available) to
assess the potential safety and efficacy of the product. Formulations must be
manufactured according to cGMP and preclinical safety tests must be conducted by
laboratories that comply with FDA regulations regarding GLP. The results of the
preclinical tests are submitted to the FDA as part of an IND application and are
reviewed by the FDA prior to the commencement of human clinical trials. There
can be no assurance that submission of an IND application will result in FDA
authorization to commence clinical trials. Clinical trials involve the
administration of the investigational new drug to healthy volunteers and to
patients under the supervision of a qualified principal investigator.
<PAGE>
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, the investigational new drug
usually is administered to healthy human subjects and is tested for safety,
dosage, tolerance, absorption, distribution, metabolism, excretion and
pharmacokinetics. Phase II involves studies in a limited patient population to
(i) determine the efficacy of the investigational new drug for specific
indications, (ii) determine dosage tolerance and optimal dosage and (iii)
identify possible adverse effects and safety risks. When an investigational new
drug is found to be effective and to have an acceptable safety profile in Phase
II evaluation, Phase III trials are undertaken to further evaluate clinical
efficacy and to further test for safety within an expanded patient population at
geographically dispersed clinical study sites. There can be no assurance that
Phase I, Phase II or Phase III testing will be completed successfully within any
specified time period, if at all, with respect to any of the Company's proposed
products subject to such testing. Furthermore, the Company or the FDA may
suspend clinical trials at any time if the participants are being exposed to an
unacceptable health risk. The FDA may deny an NDA if applicable regulatory
criteria are not satisfied, require additional testing or information, or
require post marketing testing and surveillance to monitor the safety of the
Company's proposed products.
All data obtained from development programs are submitted as an NDA to
the FDA and the corresponding agencies in other countries for review and
approval. FDA approval of the NDA is required before marketing may begin in the
United States. Although the FDA's policy is to review priority applications
within 180 days of their filing, in practice longer times may be required. The
FDA frequently requests that additional information be submitted, requiring
significant additional review time. Essentially, all proposed products of the
Company will be subject to demanding and time-consuming NDA or similar approval
procedures in the countries where the Company intends to market its proposed
products. These regulations define not only the form and content of the
development of safety and efficacy data regarding the proposed product, but also
impose specific requirements regarding manufacture of the proposed product,
quality assurance, packaging, storage, documentation and record keeping,
labeling and advertising and marketing procedures. Effective commercialization
also requires inclusion of the Company's proposed products in national, state,
provincial or institutional formularies or cost reimbursement systems.
In addition to regulations enforced by the FDA, the Company also is
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local regulations. The Company's research and development involves the
controlled use of hazardous materials and chemicals. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result, and any such liability could exceed the resources
of the Company.
In both domestic and foreign markets, the ability of the Company to
commercialize its proposed product candidates will depend, in part, on the
availability of reimbursement from third-party payers, such as government health
administration authorities, private health insurers and other organizations.
Third-party payers are increasingly challenging the price and cost-effectiveness
of medical products. There can be no assurance that Symbollon-developed products
will be considered cost effective. Significant uncertainty exists as to the
reimbursement status of newly-approved medical products. Government and other
third-party payers are increasingly attempting to contain medical costs by
limiting both coverage and the level of reimbursement for new therapeutic
products approved for marketing by the FDA and by refusing, in some cases, to
provide coverage for uses of approved products for disease indications for which
the FDA has not granted marketing approval. There can be no assurance that
adequate third-party insurance coverage will be available for the Company to
establish and maintain price levels sufficient for realization of an appropriate
<PAGE>
return on its investment in developing new therapies. If adequate coverage and
reimbursement levels are not provided by government and third-party payers for
uses of the Company's proposed therapeutic products, the market acceptance of
these products would be adversely affected.
There have been a number of federal and state proposals during the last
few years to subject the pricing of pharmaceuticals to government control and to
make other changes to the medical care system of the United States. It is
uncertain what legislative proposals will be adopted or what actions federal,
state or private payers for medical goods and services may take in response to
any medical reform proposals or legislation. The Company cannot predict the
effect medical reforms may have on its business, and no assurance can be given
that any such reforms will not have a material adverse effect on the Company.
IodoZyme, the bovine teat dip manufactured by the Company, is subject
to regulation by the FDA as an animal drug. Although a lengthy new animal drug
application ("NADA") approval process is generally required prior to marketing
an animal drug, under regulatory discretion afforded by the FDA, the agency does
not currently require manufacturers of bovine teat sanitizers to undergo this
process. The only current FDA requirements applicable to teat treatment
manufacturers are compliance with the FDA's labeling, establishment
registration, drug listing, and manufacturing requirements. The Company believes
that it and its subcontractors are in compliance with the current FDA
requirements applicable to teat treatment manufacturers. However, in February
1993, the FDA issued draft guidelines setting forth the types of data necessary
to demonstrate that a teat treatment is safe for the cow, effective and fulfills
human food safety, manufacturing and environmental requirements. Testing of
IodoZyme was not conducted in accordance with such guidelines. Future required
compliance with these guidelines or other FDA requirements, the probability of
which cannot currently be ascertained by the Company, would have a significant
adverse effect on the marketing of IodoZyme and, consequently, on the Company's
results of operations.
Patents and Proprietary Rights
The Company considers patent protection of its iodine technology to be
critical to its business prospects. The Company currently holds ten patents and
eight additional patent applications filed in the United States relating to its
technology. In addition, the Company holds patents and has filed a number of
patent applications relating to its technology in foreign countries.
The first of the Company's patents was issued in 1984 and relates to
bactericidal compositions and methods for applications to oral cavities. The
second patent was issued in 1990 and relates to the use of the Company's
technology as an aqueous sporicidal microbicide. In 1991, two additional patents
were issued, one of which covers formulations of the Company's technology to
rapidly sterilize and maintain a sterile environment for an extended period of
time, while the other relates to methods to avoid discoloration of plant or
animal tissue during the sterilization process. The fifth patent, which was
issued in 1993, relates to a method to clean and disinfect pathogens on the
epidermis. The sixth patent, which was issued in 1994, relates to a composition
to clean and disinfect pathogens on the epidermis. The seventh patent, which was
issued in 1995, relates to a method for forming a sterilant using an immobilized
enzyme. The Company had three patents issue in 1997, one relating to a method of
forming an iodine germicidal composition using an iodine sequestering agent; one
relating to a method for the therapeutic treatment of a mammalian eye; and the
last relating to an enzymatically generated iodine microbiocide for use in
sensitive biological materials. The Company intends to continue to pursue patent
protection for the various applications of its technology.
<PAGE>
The Company sold to B&L the United States patent that issued in 1997
relating to a method for the therapeutic treatment of a mammalian eye. See
"Research and Product Development - Ophthalmology Applications." The Company
continues to own the foreign rights and any continuations-in-part relating to
the invention.
The Company also relies upon unpatented proprietary technology, and in
the future may determine in some cases that its interest would be better served
by reliance on trade secrets or confidentiality agreements rather than patents.
To the extent that consultants or other third parties apply technological
information independently developed by them or by others to Company projects,
disputes may arise as to the proprietary rights to such information which may
not be resolved in favor of the Company. The Company is required to pay
royalties to a co-inventor on certain patents relating to the Company's
technology based on revenues received by the Company from sales of products
falling within the scope of such patents.
Competition
The Company's proposed products and products incorporating the
Company's proposed products would compete with many other applications currently
on the market. In addition, the Company is aware of other companies engaged in
research and development of other novel approaches to applications in some or
all of the markets identified by the Company as potential fields of application
for its products. Many of the Company's present and potential competitors have
substantially greater financial and other resources and larger research and
development staffs than the Company. Many of these companies also have extensive
experience in testing and applying for regulatory approvals. In addition,
colleges, universities, government agencies, and public and private research
organizations conduct research and are becoming more active in seeking patent
protection and licensing arrangements to collect royalties for the use of
technology that they have developed, some of which may be directly competitive
with that of the Company.
The Company is aware of one company, Mimetix Inc., which is currently
conducting human clinical trials in the United States and Canada utilizing an
iodine-based compound for the treatment of fibrocystic breast disease. If
Mimetix receives marketing approval for its drug compound prior to Symbollon, it
could adversely affect the Company's ability to receive marketing approval, or
if approved, the Company's ability to sell its product.
The bovine teat sanitizer market is currently dominated by iodophor
products, which generally compete on the basis of price and the ratio of
microbial killing power to total iodine. The Company believes that IodoZyme
competes on the basis of its superior convenience, efficiency, safety and high
ratio of killing power to total iodine. Additionally, IodoZyme, manufactured by
the Company and sold by West Agro, competes directly with products currently
being manufactured and sold by West Agro.
Employees
As of December 31, 1997, the Company had six employees, all of whom are
full-time. The Company has relationships with and from time to time engages the
services of university professors and other qualified consultants to assist it
in technological research and development. No employee of the Company is
currently represented by a labor union. Management considers its employee
relations to be good. The Company believes that the future success of the
Company is dependent to a significant degree on its being able to continue to
attract and retain skilled personnel.
<PAGE>
Executive Officers
The Company's executive officers are:
Name Age Position with the Company
---- --- -------------------------
Jack H. Kessler, Ph.D. 47 Executive Vice-President, Chief
Scientific Officer, Secretary and
Chairman of the Board of Directors
Paul C. Desjourdy 36 Executive Vice-President,
Chief Financial Officer,
Treasurer and Director
Certain biographical information regarding each executive officer of
the Company is set forth below:
Jack H. Kessler, Ph.D., is the founder of the Company and has served as
Executive Vice-President, Chief Scientific Officer, Secretary, and a director
since the Company's move to Massachusetts in May 1991, and as Chairman of the
Board of Directors since May 1996. Prior to that time, and since the Company was
initially formed in Illinois in 1986, Dr Kessler was the Company's sole
stockholder and served as its sole officer and director. From January 1990 until
May 1991, he served as principal systems engineer for Kollsman Manufacturing
Company, a diagnostic instrument design and manufacturing company.
Paul C. Desjourdy has served as Executive Vice President and Chief
Financial Officer since July 1996, as Vice-President - Finance and
Administration and Chief Financial Officer of the Company from September 1993 to
June 1996, as Treasurer from May 1994 to present, and as a director since August
1996. From September 1989 to September 1993, Mr. Desjourdy, a certified public
accountant, was an attorney at the law firm of Choate Hall & Stewart.
Officers are elected annually and serve at the discretion of the Board
of Directors.
Item 2. Description of Property
The Company leases approximately 5,400 square feet of office, research
and development and manufacturing space in Framingham, Massachusetts for a
current base annual rental of approximately $28,350 increasing $0.25 per square
foot each year effective September 1 through August 31, 2002. The lease expires
on August 31, 2002 and may be renewed for a five year period at the Company's
option on the same terms and conditions except that the rent shall continue to
increase $0.25 per square foot each year of the renewal period. The Company
believes that this space is suitable and adequate for its current needs;
however, because the existing space has limited in-house manufacturing capacity,
additional manufacturing space may be necessary if product volumes increase.
Item 3. Legal Proceedings
The Company is not a party to any legal proceedings.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1997.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Price Range of Securities
The Company's Class A Common Stock, Class A Warrants and Class B
Warrants trade separately on the Nasdaq SmallCap Market tier of The Nasdaq Stock
Market under the symbols: SYMBA, SYMBW and SYMBZ, respectively. The following
sets forth the high and low sales prices for each of the quarterly periods
during fiscal 1996 and 1997, as reported by Nasdaq.
Fiscal 1996 Fiscal 1997
------------------------- --------------------------
High Low High Low
Class A Common Stock
First quarter 6 15/16 4 1/8 2 7/8 1 5/16
Second quarter 6 3/8 1 5/8 2 3/16 1 9/16
Third quarter 2 1/2 3/4 2 3/8 1 7/16
Fourth quarter 2 5/8 5/8 2 1/8 15/16
Class A Warrants
First quarter 4 3/4 2 5/8 1/8
Second quarter 4 3/4 31/32 1/2 3/16
Third quarter 1 1/16 1/4 1/2 3/16
Fourth quarter 1/2 3/32 5/16 1/16
Class B Warrants
First quarter 4 1 7/8 3/16 1/16
Second quarter 2 3/8 1/4 3/16 1/32
Third quarter 15/32 1/8 5/32 1/32
Fourth quarter 7/32 1/16 5/32 1/32
There is no established public trading market for the Company's Class B
Common Stock.
(b) Approximate Number of Equity Security Holders
Based upon information supplied from the Company's transfer agent, the
Company believes that the number of record holders of the Company's equity
securities as of March 25, 1998 are approximately as follows:
<PAGE>
Title of Class Number of Record Holders
Class A Common Stock 40
Class B Common Stock 3
Class A Warrants 10
Class B Warrants 8
Based upon information supplied from the Company's transfer agent, the
Company believes that the number of beneficial holders of the Company's Class A
Common Stock as of March 25, 1998 is in excess of 600.
(c) Dividends
The Company has never paid a cash dividend on any class of its common
stock and anticipates that for the foreseeable future any earnings will be
retained for use in its business and, accordingly, does not anticipate the
payment of cash dividends.
Item 6. Management's Discussion and Analysis or Plan of Operation
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 in 1996 and 1997 on sales of IodoZyme, the Company's sole revenue
to date has been from licensing/option arrangements and contract research and
development efforts with corporate partners.
Safe Harbor Statements
Any statements contained herein 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 Company's ability to enter into
new arrangements with corporate partners.
Results of Operations
Fiscal 1997 versus Fiscal 1996
Symbollon's net income in fiscal 1997 was $511,464, compared to a net
loss of $905,415 in fiscal 1996. This net income resulted primarily from
increased license fee revenues from research and development programs with
corporate partners, increased net sales of IodoZyme, and decreased research and
development expenses.
<PAGE>
Product revenues from sales of IodoZyme increased by $258,754 or 219.5%
from $117,906 in fiscal 1996 to $376,660 in fiscal 1997. The increased sales
relate primarily to greater market penetration in the United States. Based on
sales forecasts provided to Symbollon by West Agro, Symbollon anticipates
further increases in sales volume for IodoZyme in 1998, primarily related to a
potential introduction of the product in a number of foreign markets.
Cost of goods sold for IodoZyme increased by $108,425 or 154.7% from
$70,106 in fiscal 1996 to $178,531 in fiscal 1997. The increase in the gross
profit margin on product sales in fiscal 1997, from the comparable 1996 period,
was primarily due to manufacturing efficiencies resulting from increased sales
volume. The Company anticipates that the gross profit margin in 1998 will remain
consistent with 1997.
Contract revenues decreased by $74,302 or 51.2% from $144,991 in fiscal
1996 to $70,689 in fiscal 1997. License fee revenues increased by $750,000 or
150.0% from $500,000 in fiscal 1996 to $1,250,000 in fiscal 1997. All of the
contract revenue and $1,000,000 of the license fee revenue generated in fiscal
1997 relate to one corporate relationship entered into in May 1996 in the field
of dermatology. This relationship provided all of the contract and license fee
revenues in fiscal 1996. The remaining license fee revenue in fiscal 1997 was
generated from a new corporate relationship entered into in August 1997 in the
field of ophthalmology. In 1998, subject to continuation of existing research
and development contracts, the Company anticipates receiving $400,000 in license
fees. The level of contract revenues for 1998 is difficult to predict since it
depends on the amount of consulting effort expended by the Company at the
request of corporate partners.
Research and development expenses decreased by $439,848 or 43.9% from
$1,002,208 in fiscal 1996 to $562,360 in fiscal 1997. The decrease resulted from
the discontinuation of the development effort relating to the Company's high
level disinfectant formulation and a decrease in salary and other labor related
costs associated with a reduction in the Company's research and development
staff. The Company is anticipating that research and development expenses will
significantly increase in 1998 as the Company continues the development of a
formulation to treatment fibrocystic breast disease, which development effort
may include conducting clinical trials.
General and administrative expenses decreased by $162,448 or 23.7% from
$686,026 in fiscal 1996 to $523,578 in fiscal 1997. This decrease resulted
primarily from decreases in director and officer insurance premiums and legal
fees.
The Company's interest income increased by $2,710 or 2.9% from $92,098
in fiscal 1996 to $94,808 in fiscal 1997. The Company's interest expense
increased by $14,154 from $2,070 in fiscal 1996 to $16,224 in fiscal 1997. This
increase resulted from borrowings in 1997 under the Company's bank line of
credit which was established in March 1997.
During 1998, the Company anticipates incurring significant development
expenses associated with its proposed formulation for the treatment of
fibrocystic breast disease, including the cost of preparing and filing an IND
application with the FDA, manufacturing supplies for clinical trials and
conducting human clinical trials.
Liquidity and Capital Resources
The Company has funded its activities primarily 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 BDC. See "Small Business
<PAGE>
Innovation Research." The Company's $500,000 bank line of credit expired in
March 1998, and the Company has no current plans to replace such line of credit.
During 1997, the Company generated its first operating profit; however,
it anticipates that 1998 revenues will be less than its 1998 operating expenses.
The Company has incurred a cumulative loss through December 31, 1997 of
$4,821,615. As of December 31, 1997, the Company had working capital of
$2,631,019. The Company believes that it has the necessary liquidity and capital
resources to sustain planned operations for fiscal 1998. In the event that the
Company's internal estimates relating to its planned expenditures prove
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 financing after 1998, and therefore,
the Company will seek new financing in fiscal 1998. The Company's ability to
obtain new financing may, in part, be affected by the Company's ability to
continue to meet the criteria for continued listing of its securities on Nasdaq.
Nasdaq's current continued listing criteria require, in part, that the Company
maintain net tangible assets (total assets less total liabilities and goodwill)
of at least $2,000,000, a minimum bid price of $1.00 per share of common stock
and two market makers for its securities. There can be no assurance that in the
future the Company will be able to continue to meet the criteria for continued
listing of its securities on Nasdaq.
During 1998, the Company is committed to pay approximately $305,000 as
compensation for its current executive officers and approximately $26,100 for
lease payments on its facilities. The Company has no planned material capital
expenditures for fiscal 1998. At December 31, 1997, the Company had a net
operating loss carryforward for Federal income tax purposes of approximately
$4,552,000 expiring through 2011.
In connection with the Company's initial public offering, certain
stockholders of the Company agreed to transfer an aggregate of 700,000 shares of
Common Stock to the Company if the Company does not attain certain minimum
earnings thresholds. In the event the Company attains any of such earnings
thresholds, the position of the Securities and Exchange Commission is that the
release of these restrictions will be treated, for financial reporting purposes
only, as expense to the Company which is nondeductible for income tax purposes.
Accordingly, the Company will, in the event of the release of the restrictions,
recognize during the period in which the earnings thresholds are met or probable
of being met, what could be a substantial one-time charge which would have the
effect of substantially increasing the Company's loss or reducing or eliminating
earnings, if any, at such time. The amount of expense recognized by the Company
will not affect the Company's total stockholders' equity.
<PAGE>
Item 7. Financial Statements
Independent Auditors' Report
The Board of Directors and Stockholders
Symbollon Corporation
Framingham, Massachusetts
We have audited the accompanying balance sheets of Symbollon Corporation (a
development stage company) as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
years in the two-year period ended December 31, 1997 and for the period from
July 15, 1986 (inception) to December 31, 1997. 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 generally accepted auditing
standards. 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 enumerated above present fairly, in all
material respects, the financial position of Symbollon Corporation at December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 1997 and for the period
from July 15, 1986 (inception) to December 31, 1997 in conformity with generally
accepted accounting principles.
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
January 22, 1998
<PAGE>
<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
Balance Sheets
<CAPTION>
December 31,
----------------------
1997 1996
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,527,865 $ 1,707,099
Accounts receivable 24,972 50,406
Inventory 73,629 17,818
Prepaid expenses 75,156 82,439
------------- -------------
Total current assets 2,701,622 1,857,762
Equipment and leasehold improvements,
net of accumulated depreciation and
amortization (Note C) 146,868 124,463
Other assets:
Patent and trademark costs, net of
accumulated amortization (Note D) 153,157 127,097
Deposit 2,364 5,000
------------- -------------
$ 3,004,011 $ 2,114,322
============= =============
LIABILITIES
Current liabilities:
Accounts payable $ 5,879 $ 41,173
Other accrued professional fees 21,867 83,910
Other current liabilities 22,857 14,441
Accrued finder's fee (Note J) 20,000
Deferred revenue 17,596
------------- -------------
Total current liabilities 70,603 157,120
Accrued rent 14,000
------------- -------------
70,603 171,120
------------- -------------
Redeemable common stock, Class A, par
value $.001 per share, 266,667 shares
issued at December 31, 1997 (aggregate
involuntary liquidation value $500,000) (Note F) 500,000
Commitments (Note J)
STOCKHOLDERS' EQUITY (Notes F and G)
Preferred stock, par value $.001 per share,
5,000,000 shares authorized,
444,444 shares issued at December 31, 1996 444
Common stock, Class A, par value $.001 per
share, 18,750,000 shares authorized,
2,916,286 and 1,288,253 shares issued
in 1997 and 1996, respectively 2,916 1,288
Common stock, Class B, par value $.001 per share,
1,250,000 shares authorized, 15,738 and
1,196,275 shares issued in 1997 and 1996,
respectively. Each share is convertible
into one share of Class A common stock 16 1,196
Additional paid-in capital 7,252,091 7,273,353
Deficit accumulated during the development stage (4,821,615) (5,333,079)
------------ -------------
Total stockholders' equity 2,433,408 1,943,202
------------- -------------
$ 3,004,011 $ 2,114,322
============= =============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
Statements of Operations
<CAPTION>
July 15,
1986
(Inception)
Year Ended December 31, to
---------------------------- December 31,
1997 1996 1997
------------ ------------ ---------------
<S> <C> <C> <C>
Income:
Net sales $ 376,660 $ 117,906 $ 617,547
Contract revenue 70,689 144,991 540,680
License fee revenue 1,250,000 500,000 1,790,000
------------ ------------ ---------------
Total income 1,697,349 762,897 2,948,227
------------ ------------ ---------------
Operating expenses:
Cost of goods sold 178,531 70,106 352,237
Research and development costs 562,360 1,002,208 4,036,698
General and administrative expenses 523,578 686,026 3,506,287
------------ ------------ ---------------
Total operating expenses 1,264,469 1,758,340 7,895,222
------------ ------------ ---------------
Income (loss) from operations 432,880 (995,443) (4,946,995)
Interest income 94,808 92,098 481,640
Interest expense and debt issuance costs (16,224) (2,070) (356,260)
------------ ------------ ---------------
Net income (loss) $ 511,464 $ (905,415) $(4,821,615)
============ ============ ===============
Net income (loss) per share of common stock $ .24 $ (.52)
===== ======
Net income per common share - assuming dilution $ .22
=====
Weighted average number of common shares outstanding 2,168,783 1,781,796
============= ============
Weighted average number of common shares and potential
common shares outstanding 2,360,333
=============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
Statements of Stockholders' Equity
<CAPTION>
Common Stock, $.001 Par Value Deficit
--------------------------------- Accumulated
Preferred Stock, Class A Class B Additional During the
$.001 Par Value---------------- ---------------- Paid-in Development
Shares Amount Shares Amount Shares Amount Capital Stage Total
------- ------ --------- ------ --------- ------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992, consisting of net
losses from July 15, 1986 (inception)
through December 31, 1991 $ (143,451) $(143,451)
Merger and recapitalization, May 1991:
Issuance of new shares of Symbollon Corporation 831,316 $ 831 $ 9,169 10,000
Contribution of shares to the Company, September (41,565) (42) 42 0
Issuance of shares, September 425,251 426 299,574 300,000
Net loss for the year (207,457) (207,457)
--------- ------ ---------- ------------ ----------
Balance, December 31, 1992 1,215,002 1,215 308,785 (350,908) (40,908)
Issuance of shares, June 34,998 35 104,965 105,000
Capital contribution as of July 100,000 100,000
Warrants issued with bridge financing 25,000 25,000
Public offering, December:
Issuance of shares 1,000,000 $1,000 5,999,000 6,000,000
Costs of offering (1,244,133) (1,244,133)
Sale of unit purchase option 100 100
Net loss for the year (1,186,132)(1,186,132)
--------- ------ --------- ------ ---------- ------------ ----------
Balance, December 31, 1993 1,000,000 1,000 1,250,000 1,250 5,293,717 (1,537,040) 3,758,927
Issuance of over-allotment units of public offering 150,000 150 899,850 900,000
Additional public offering costs (99,369) (99,369)
Net loss for the year (1,516,913)(1,516,913)
--------- ------ --------- ------ ---------- ------------ ----------
Balance, December 31, 1994 1,150,000 1,150 1,250,000 1,250 6,094,198 (3,053,953) 3,042,645
Warrant conversion, July - August 77,920 78 629,126 629,204
Conversion of Class B to Class A 35,287 35 (35,287) (35) 0
Stock purchase plan sales 2,216 2 9,415 9,417
Net loss for the year (1,373,711)(1,373,711)
--------- ------ --------- ------ ---------- ------------ ----------
Balance, December 31, 1995 1,265,423 1,265 1,214,713 1,215 6,732,739 (4,427,664) 2,307,555
Issuance of preferred stock, August 444,444 $ 444 499,555 499,999
Conversion of Class B to Class A 18,438 19 (18,438) (19) 0
Stock purchase plan sales 4,392 4 7,943 7,947
Reduction of warrant conversion costs 33,116 33,116
Net loss for the year (905,415) (905,415)
------- ----- ---------- ------ --------- ------ ---------- ------------ ----------
Balance, December 31, 1996 444,444 444 1,288,253 1,288 1,196,275 1,196 7,273,353 (5,333,079) 1,943,202
Conversion of preferred stock, May (444,444) (444) 444,444 444 0
Conversion of Class B to Class A 1,180,537 1,180(1,180,537)(1,180) 0
Stock purchase plan sales 3,052 4 3,738 3,742
Issuance costs of redeemable common stock, August (25,000) (25,000)
Net income for the year 511,464 511,464
------- ----- ---------- ------ --------- ------ ---------- ------------ ----------
Balance, December 31, 1997 0 $ 0 2,916,286 $2,916 15,738 $ 16 $7,252,091 $(4,821,615) $2,433,408
======= ===== ========== ====== ========= ====== ========== ============ ==========
See Note F for additional information
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
Statements of Cash Flows
<CAPTION>
July 15,
1986
(Inception)
Year Ended December 31, to
------------------------------- December 31,
1997 1996 1997
------------ -------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 511,464 $ (905,415) $ (4,821,615)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization expense 59,677 57,680 379,202
Amortization of debt issuance costs 130,000
Accrued rent (14,000) (10,500) 0
Loss on disposition of equipment 7,274 7,274
Changes in:
Accounts receivable 25,434 (19,536) (24,972)
Inventory (55,811) 13,461 (73,629)
Prepaid expenses 7,283 (1,885) (75,156)
Deferred revenue (17,596) 17,596 0
Accounts payable and other current liabilities (68,921) 90,758 127,778
------------ ------------- -------------
Net cash provided by (used in) operating activity 454,804 (757,841) (4,351,118)
------------ ------------- -------------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (85,333) (5,828) (340,653)
Patent and trademark costs (41,383) (53,323) (357,148)
Proceeds from sale of equipment 11,300 11,300
Deposit 2,636 (2,364)
------------ ------------- -------------
Net cash used in investing activities (112,780) (59,151) (688,865)
------------ ------------- -------------
Cash flows from financing activities:
Warrant conversion 629,204
Borrowings from stockholders 253,623
Repayment of borrowings from stockholders (21,609) (127,683)
Sale of common stock and units 478,742 7,947 7,706,106
Sale of option to purchase units 100
Public offering costs (1,343,502)
Issuance of preferred stock 450,000 450,000
------------ ------------- -------------
Net cash provided by financing activities 478,742 436,338 7,567,848
------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents 820,766 (380,654) 2,527,865
Cash and cash equivalents at beginning of period 1,707,099 2,087,753
------------ -------------
Cash and cash equivalents at end of period $ 2,527,865 $ 1,707,099 $ 2,527,865
============ ============= =============
Supplemental cash flow information:
Cash paid during the year for interest $ 16,224
See Note F with respect to noncash transactions.
See notes to financial statements
</TABLE>
<PAGE>
NOTE A - CERTAIN TRANSACTIONS AND DESCRIPTION OF BUSINESS
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. Management of the Company
anticipates that additional losses will be incurred as these efforts are
pursued. Management will seek additional financing when, and if, required
although there can be no assurance that such financing will be available or on
terms acceptable to the Company.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Cash and cash equivalents:
Cash and cash equivalents are short-term, highly liquid investments with
maturities of less than three months when acquired.
[2] Inventory:
Inventory is stated at the lower of cost or market.
[3] Revenue recognition:
The Company recognizes revenue when the Company fulfills all of its
obligations under its collaborative research and licensing agreements or
when its products are shipped. Through December 31, 1997 the Company has
generated its revenue from a small number of customers and agreements.
[4] Depreciation and amortization:
Equipment is depreciated over its estimated useful life using the
straight-line method. Leasehold improvements are being amortized by the
straight-line method over the term of the lease which is less than their
estimated useful lives.
Patent and trademark costs are being amortized over their estimated
useful lives of 17 years by the straight-line method. Such costs are
reviewed for impairment periodically. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of such costs, a
loss will be recognized.
[5] Income (loss) per share:
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per share. Statement 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts
for all periods have been presented, and where appropriate, restated to
conform to the Statement 128 requirements.
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[6] Stock-based compensation:
The Company accounts for its employee stock-based compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees". In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 establishes
a fair-value-based method of accounting for stock-based compensation
plans. The Company adopted the disclosure only alternative in 1996 which
requires disclosure of the pro forma effects on loss and loss per share
as if SFAS No. 123 had been adopted, as well as certain other
information.
[7] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE C - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost and consist of the
following:
December 31,
1997 1996
----------- ----------
Equipment and fixtures $ 201,519 $ 218,528
Leasehold improvements 61,811 36,791
----------- ----------
263,330 255,319
Less accumulated depreciation and amortization 116,462 130,856
----------- ----------
Equipment and leasehold improvements, net $ 146,868 $ 124,463
=========== ==========
NOTE D - PATENT AND TRADEMARK COSTS
December 31,
1997 1996
----------- ----------
Patent costs $ 339,340 $ 298,704
Trademark costs 8,520 16,272
----------- -----------
347,860 314,976
Less accumulated amortization 194,703 187,879
----------- -----------
Patent and trademark costs, net $ 153,157 $ 127,097
=========== ===========
<PAGE>
NOTE E - LINE OF CREDIT
On March 27, 1997 the Company signed a loan and security agreement with a bank
which expires on March 26, 1998 and provides for advances to the Company of up
to $500,000 and interest on the advances of 1.5% plus prime. Any advances are
collateralized by essentially all of the assets of the Company. At December 31,
1997 there were no advances outstanding under this agreement.
NOTE F - CAPITALIZATION
The Company has issued both Class A and Class B common stock. The Class A and
Class B common stock are substantially identical except that holders of Class A
common stock have the right to cast one vote for each share held and the Class B
shareholders have the right to cast five votes for each share held. The Class B
shares are automatically convertible into an equal number of Class A shares upon
the sale or transfer of Class B shares by the original holders thereof, subject
to certain exceptions.
On December 13, 1996 the Company requested its Class B common stockholders to
voluntarily convert their outstanding shares of Class B common stock into an
equal number of shares of Class A common stock which convert on a one-for-one
basis. In 1997, 1,180,537 of the 1,196,275 shares of Class B common stock were
converted.
On August 14, 1996 the Company completed a private placement of 444,444 shares
of a new series of convertible preferred stock at a price of $1.125 per share.
In exchange for the shares issued in the private placement, the Company received
net proceeds of approximately $450,000 and the cancellation of $50,000 of
principal and accrued interest on a demand note payable to a stockholder. In May
1997 the preferred stock was converted into an equal number of shares of Class A
common stock.
On August 4, 1997, the Company entered into a Stock Purchase Agreement with a
pharmaceutical company whereby the Company sold 266,667 shares of Class A common
stock for $500,000. Under this agreement, the pharmaceutical company has the
right, up to August 4, 1998, to purchase an additional $350,000 of common stock
at the then fair market value. Pursuant to certain restrictions, the stock is
redeemable at the per share price that it originally paid, as an offset against
future milestone payments. If the collaboration and license agreement is
terminated by the pharmaceutical company before August 4, 2001, then, for the
calendar years ended December 31, 2001, 2002 and 2003 the pharmaceutical company
has the right to require the Company to purchase, at the per share price that it
originally paid, the number of shares which equals 25% of the Company's positive
cash flows from operating activities, not to exceed $350,000.
<PAGE>
NOTE F - CAPITALIZATION (CONTINUED)
In addition to the outstanding options under the Company's stock plans (Note G),
the Company has the following options and warrants outstanding at December 31,
1997:
Number of Exercise Expiration
Units/Warrants Price Date
-------------- -------- ----------
Redeemable Class A warrants 1,572,080 See below December 1998
Redeemable Class B warrants 1,227,920 See below December 1998
Unit purchase option 100,000 units $9.00 December 1998
Each Class A warrant entitles the holder to purchase, for $8.50, one share of
Class A common stock and one Class B warrant. Each Class B warrant entitles the
holder to purchase, for $11.00, one share of Class A common stock. The exercise
prices of the warrants are subject to adjustment and the warrants are subject to
redemption in certain circumstances. The unit purchase option entitles the
holder to purchase one share of Class A common stock, one Class A warrant, and
one Class B warrant.
In connection with the Company's public offering, certain stockholders agreed to
restrictions on 700,000 shares of the then 1,250,000 Class B common shares
outstanding prior to the offering. In January 1997 684,950 of the restricted
shares converted to Class A common stock. These shares will be transferred to
the Company for no consideration if the future earnings thresholds described
below are not achieved. When, and if, the share restrictions are released, the
Company will incur an expense based on the fair market value of the shares at
the time the restrictions lapse, which is a nondeductible expense for tax
purposes.
The restricted shares are to be released if the Company meets any of the
following earnings levels, (defined as income before income taxes, extraordinary
items or any charge related to the release of shares):
Fiscal Year Ending Earnings
December 31, Level
------------------ --------
1998 $ 10,000,000
1999 15,000,000
NOTE G - STOCK PLANS
[1] Stock plans:
The Company has adopted three stock plans: a stock option plan, an
employee stock purchase plan and a nonemployee directors' stock option plan.
The stock option plan provides for the grant of incentive stock options,
nonqualified stock options and stock appreciation rights. At December 31,
1997 the Company has reserved 800,000 shares for issuance under this
plan.
<PAGE>
NOTE G - STOCK PLANS (CONTINUED)
[1] Stock plans: (Continued)
The employee stock purchase plan provides for the purchase of Class A
common stock at 85 percent of the fair market value at specific dates, to
encourage stock ownership by all eligible employees. At December 31,
1997, the Company has reserved 200,000 shares for purchase under this
plan. During the year ended 1997, the plan purchased 3,052 shares from
the Company to satisfy its obligation under the plan.
On May 17, 1995 the Company adopted a nonemployee directors' stock option
plan that provides for the grant of nonstatutory stock options
automatically on January 1 of each calendar year commencing on January 1,
1996. The Company has reserved 100,000 shares for issuance under the
plan. Each outside director shall be granted an option to purchase 2,500
shares of Class A common stock at fair market value, vesting 50% on each
of the first two anniversaries of the grant.
Under the above plans 558,532 shares are available for future grant or
purchase.
On July 1, 1996 all 128,333 of the then outstanding employee stock
options were repriced to the current market price, using the existing
exercise durations.
The Company had the following option activity in 1996 and 1997:
Number Weighted-Average
of Exercise Price
Shares Per Share
----------- ----------------
Balance - December 31, 1995 221,833 $3.74
Granted 251,500 $2.32
Repriced options:
Original (128,333) $5.74
Repriced 128,333 $2.31
Cancelled (16,833) $2.98
Balance - December 31, 1996 456,500 $2.99
Granted 170,562 $1.39
Cancelled (98,167) $4.36
-----------
Balance - December 31, 1997 528,895 $2.21
===========
Options for 342,166 shares are exercisable as of December 31, 1997 at
exercise prices ranging from $1.13 to $10.00 and a weighted-average
exercise price of approximately $2.29 per share, with a weighted-average
remaining contractual life of approximately eight years.
<PAGE>
NOTE G - STOCK PLANS (CONTINUED)
[1] Stock plans: (Continued)
The exercise prices of options outstanding at December 31, 1997 range
from $1.02 to $10.00 per share and have a weighted-average exercise price
of approximately $2.21 per share, with a weighted-average remaining
contractual life of approximately eight years.
All options outstanding at December 31, 1997 are categorized by the
following ranges in the table below:
Weighted-Average Number of
Range Exercise Price Shares
---------------- ---------------- ----------
$1.00 to $4.00 $1.76 465,395
$4.00 to $10.00 $5.50 63,500
----------
528,895
==========
[2] Stock-based compensation:
The Company has adopted the disclosure-only provisions of SFAS No. 123,
but applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. There was no compensation
expense recognized in 1997 or 1996. If the Company had elected to
recognize compensation cost for the plans based on the fair value at the
grant date for awards granted as of January 1, 1995 under the plans,
consistent with the method prescribed by SFAS No. 123, net income or loss
per share would have been changed to the pro forma amounts indicated
below:
Year Ended
December 31,
----------------------------
1997 1996
------------ ------------
Net income (loss) As reported $ 511,464 $ (905,415)
Pro forma 370,530 (1,019,725)
Net income (loss) per share As reported .24 (.52)
Pro forma .17 (.57)
The fair value of the Company's stock options used to compute pro forma net
income (loss) and net income (loss) per share disclosures is the estimated
present value at grant date using the Black-Scholes option-pricing model with
the following weighted-average assumptions for 1997 and 1996: dividend yield of
2.5%; expected volatility of 40%; a risk-free interest rate of between 5.25% and
7.88%; and an expected holding period of 2 to 5 years.
The per share weighted-average grant-date fair value of options granted during
the years ended December 31, 1997 and 1996 was $.20 and $1.23, respectively.
<PAGE>
NOTE H - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share at December 31, 1997:
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS:
Net income and income available
to common stockholders $ 511,464 2,168,783 $.24
Effect of Dilutive Securities:
Convertible preferred stock 170,472
Stock options 21,078
----------- --------- ----
Diluted EPS:
Income available to common
stockholders $ 511,464 2,360,333 $.22
=========== ========= ====
Options to purchase 391,895 shares of common stock at $1.05 to $10.00 per share,
the unit purchase option and warrants (see Note F) were outstanding during 1997
but were not included in the computation of diluted EPS because the exercise
price was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.
At December 31, 1996 the effect of dilutive securities has not been considered
as they are antidilutive.
NOTE I - INCOME TAXES
At December 31, 1997, the Company had no current tax liability or deferred tax
liability. It had deferred tax assets due to net operating loss carryforwards
and research and development tax credits amounting to approximately $1,820,000
and $140,000, respectively, all of which had been fully reserved because the
likelihood of realization of the benefits cannot be established. The net income
for 1997 results in no current tax liability because of the utilization of the
net operating loss carryforwards. The expected tax expense or benefit derived by
applying statutory tax rates to the income or loss before income taxes has been
offset by the increase or decrease in the valuation reserve.
At December 31, 1997, the Company had a net operating loss carryforward
amounting to approximately $4,555,000 which expires at various dates through
2011.
The Company is subject to Internal Revenue Code provisions which limit the loss
carryforwards available for use in any given year if significant changes in
ownership occur.
<PAGE>
NOTE J - COMMITMENTS
[1] Facilities lease:
The Company leases its research facilities under an operating lease that
expires August 31, 2002 with an option to extend for five additional
years. The lease requires payment of real estate taxes and other common
area maintenance expenses. Rent expense for the years ended December 31,
1997 and December 31, 1996 was $32,000 and $34,000, respectively.
Future minimum rental payments due during the years ended December 31,
amount to approximately:
1998 $ 26,100
1999 30,150
2000 31,500
2001 32,850
2002 22,500
-----------
$ 143,100
[2] Employment agreements:
The Company has entered into employment agreements with its principal
officers providing for minimum base compensation and severance pay. For
the years ended December 31, 1997 and December 31, 1996, the aggregate
amount paid under these agreements was $280,000. The employment
agreements provide for inflationary adjustments and are subject to other
increases based on the Board of Director's approval. Two employment
agreements are in effect which expire December 31, 2000. Amounts to be
paid under these agreements in 1998 total approximately $305,000.
[3] Royalty agreement:
A royalty agreement with one of the inventors who assigned certain patent
rights to the Company provides for royalties based on a percentage of the
licensing revenues received by the Company from products falling within
the scope of the patent rights. The percentage varies from 1.5% to 5%
depending on the gross revenues received, with maximum royalty payments
under the agreement not to exceed $2,884,000. Through December 31, 1997
no royalties have been earned under this agreement.
[4] Consulting agreements:
The Company has entered into various scientific advisory and consulting
agreements, including agreements with certain directors of the Company,
to support its development activities. These agreements generally expire
over several future years. Amounts charged to operations in connection
with these agreements for the years ended December 31, 1997 and December
31, 1996 amounted to approximately $42,400 and $162,564, respectively.
The Company expects to incur similar or higher expenses in future years.
<PAGE>
NOTE J - COMMITMENTS (CONTINUED)
[5] Finder's fees:
The Company has entered into an agreement whereby it pays a fee for
agreements entered into with certain companies for investment or revenue
purposes. A percentage of the investment or revenue is paid up to a
maximum of $150,000 with increases if more than one product is
commercialized under the agreements.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act
The Company incorporates herein by reference the information appearing
under the caption "Board of Directors" in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission in connection
with the Company's 1998 Annual Meeting of Stockholders.
Information concerning executive officers of the Company is contained
in Part I of this report under the caption "Executive Officers."
Item 10. Executive Compensation
The Company incorporates herein by reference the information appearing
under the caption "Executive Compensation" in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission in connection
with the Company's 1998 Annual Meeting of Stockholders.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The Company incorporates herein by reference the information appearing
under the caption "Principal Stockholders" in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission in connection
with the Company's 1998 Annual Meeting of Stockholders.
Item 12 Certain Relationships and Related Transactions
The Company incorporates herein by reference the information appearing
under the caption "Certain Transactions" in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission in connection
with the Company's 1998 Annual Meeting of Stockholders.
<PAGE>
Item 13 . Exhibits, List and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits on Page E-1. Compensatory plans and arrangements
required to be filed as exhibits are as follows:
1 1993 Stock Option Plan.
2 Form of Stock Option Agreement to be entered into between the Company
and each option holder.
3 1994 Employee Stock Purchase Plan.
4 1995 Non-Employee Directors' Stock Option Plan.
5 Employment Agreement, dated December 23, 1995, between the Company
and Dr. Jack H. Kessler.
6 Employment Agreement, dated July 1, 1996, between the Company and
Paul C. Desjourdy.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the year
ended December 31, 1997.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SYMBOLLON CORPORATION
By: /s/ Paul C. Desjourdy
------------------------
Paul C. Desjourdy
Executive Vice President, Chief Financial Officer
Date: March 30, 1998
In accordance with the Exchange Act, 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/ Jack H. Kessler Executive Vice-President, March 30, 1998
- ----------------------- Chief Scientific Officer,
Jack H. Kessler Secretary and Chairman
of the Board of Directors
(Principal Executive Officer)
/s/ Paul C. Desjourdy Executive Vice President March 30, 1998
- ----------------------- Treasurer, Chief Financial
Paul C. Desjourdy Officer, and Director (Principal
Financial and Accounting Officer)
/s/ James C. Richards Director March 30, 1998
- -----------------------
James C. Richards
<PAGE>
Symbollon Corporation
Index to Exhibits
3.1 Certificate of Incorporation of the Company; including Certificate of
Designations, Preferences and Rights of Series A Preferred Stock of the
Company. (previously filed as an exhibit to Form 10-QSB for the quarter
ended September 30, 1996 and incorporated by reference.)
3.2 By-Laws of the Company. (1)
3.3 Agreement of Merger, dated as of August 4, 1993, between the Company
and Symbollon Corporation, a Massachusetts corporation, (including
Certificate of Merger and other state filings). (1)
4.1 Form of Warrant Agreement among the Company, D.H. Blair Investment
Banking Corp. (the "Underwriter") and American Stock Transfer and Trust
Company, including forms of Class A and Class B Warrant Certificates.
(1)
4.2 Form of Specimen Class A Common Stock Certificate. (1)
4.3 Form of Stock Restriction Agreement among the Company, the Class B
Stockholders and the Underwriter. (1)
10.1 1993 Stock Option Plan of the Company, as amended. (incorporated by
reference to Exhibit A to the Company's 1994 Annual Stockholders
Meeting Proxy Statement filed under cover of Schedule 14A dated
May 4, 1994.)
10.2 Form of Employment Agreement, effective July 1, 1996, between the
Company and Paul C. Desjourdy. (previously filed as an exhibit to Form
10-QSB for the quarter ended June 30, 1996 and incorporated by
reference.)
10.3 Employment Agreement, dated December 23, 1995, between the Company and
Dr. Jack H. Kessler. (previously filed as an exhibit to Form 10-KSB for
the year ended December 31, 1995 and incorporated by reference.)
10.4 Commercial Lease dated June 5, 1997, between Pine Street Realty Trust
and the Company. (previously filed as an exhibit to Form 10-QSB for
the quarter ended March 31, 1997 and incorporated by reference.)
10.5 Loan and Security Agreement, dated March 26, 1997, between the Company
and Silicon Valley Bank. (previously filed as an exhibit to Form 10-QSB
for the quarter ended March 31, 1997 and incorporated by reference.)
10.6 Form of Indemnification Agreement between the Company and each officer
and director of the Company. (1)
10.7 Marketing and Supply Agreement, dated January 11, 1995 between the
Company and West Agro. (previously filed as an exhibit to Form 8-K of
the Registrant dated January 11, 1995 and incorporated by reference). *
10.8 Agreement, dated August 31, 1992 among the Company, Dr. Jack H. Kessler
and Dr. Robert Rosenbaum. (1)
10.9 Promissory note dated August 1, 1993 issued by the Company to Dr. Jack
Kessler. (1)
10.10 Form of Stock Option Agreement to be entered into between the Company
and each option holder. (1)
10.11 Stock Purchase Agreement, dated August 14, 1996, among the Company,
Anthony J. Cantone and Jack H. Kessler. (previously filed as an exhibit
to Form 10-QSB for the quarter ended September 30, 1996 and
incorporated by reference.)
10.12 Consultant Agreement between Dr. Mason and the Company dated June 1,
1994 (previously filed as an exhibit to Form 10-QSB for the quarter
ended June 30, 1994 and incorporated by reference).
10.13 1994 Employee Stock Purchase Plan of the Company. (incorporated by
reference to Exhibit B to the Company's 1994 Annual Stockholders
Meeting Proxy Statement filed under cover of Schedule 14A dated
May 4, 1994.)
10.14 1995 Non-Employee Directors' Stock Option Plan of the Company.
(previously filed as an exhibit to Form 10-QSB for the quarter ended
June 30, 1995 and incorporated by reference.)
10.15 Collaboration and License Agreement, dated May 14, 1996, between the
Company and Oclassen Pharmaceuticals, Inc. (previously filed as an
exhibit to Form 10-QSB for the quarter ended June 30, 1996 and
incorporated by reference.), as amended on August 14, 1997. (previously
filed as an exhibit to Form 10-QSB for the quarter ended September 30,
1997 and incorporated by reference.) *
10.16 Collaboration and Sale/License Agreement, dated August 4, 1997, between
the Company and Bausch & Lomb Pharmaceuticals, Inc. (previously filed
as an exhibit to Form 10-QSB for the quarter ended June 30, 1997 and
incorporated by reference.) *
10.17 Stock Purchase Agreement, dated August 4, 1997, between the Company and
Bausch & Lomb Pharmaceuticals, Inc. (previously filed as an exhibit to
Form 10-QSB for the quarter ended June 30, 1997 and incorporated by
reference.)
11.1 Statement re Computation of Earnings per Share.
23.1 Consent of Richard A. Eisner & Company, LLP
27.1 Financial Data Schedule
(1) Incorporated by reference to the corresponding exhibit number of the
Registration Statement on Form SB-2 (Registration No. 33-68828) filed on
November 24, 1993 and declared effective on December 7, 1993.
* Indicates that material has been omitted and confidential treatment has been
granted or requested therefore. All such omitted material has been filed
separately with the Commission pursuant to Rule 24b-2.
<PAGE>
Officers
Jack H. Kessler, Ph.D.
Executive Vice President,
Chief Scientific Officer,
Secretary and Chairman of the Board
Paul C. Desjourdy
Executive Vice President,
Chief Financial Officer, Treasurer
and Director
Board of Directors
Jack H. Kessler (Chairman)
Executive Vice President,
Chief Scientific Officer, Secretary
Symbollon Corporation
Paul C. Desjourdy
Executive Vice President,
Chief Financial Officer and Treasurer
Symbollon Corporation
James C. Richards, Ph.D.
President, Chief Executive Officer
and Director
IntelliGene Corporation
(a DNA probe diagnostic company)
Richard F. Maradie
President, Chief Executive Officer
and Director
Novavax, Inc.
(a biopharmaceutical company)
Eugene Lieberstein
Partner
Wyatt, Gerber, Meller and O'Rouke
(a law firm)
Scientific Advisory Board
Waldemar Gottardi, Ph.D.
Associate Professor in Technical Hygiene
Institute of Hygiene
University of Innsbruck, Austria
J. Max Goodson, D.D.S., Ph.D.
Head of Pharmacology Department
Forsyth Dental Institute
Boston, Massachusetts
William A. Rutala, Ph.D., M.P.H.
Professor of the School of Medicine
University of North Carolina
Director of Epidemiology, UNC Hospital
Chapel Hill, North Carolina
Corporate Headquarters
37 Loring Drive
Framingham, Massachusetts 01702
Tel: (508) 620-7676
Fax: (508) 620-7111
Independent Auditors
Richard A. Eisner & Company, LLP
124 Mt. Auburn Street, Suite 200N
Cambridge, Massachusetts 02138
Transfer Agent and Register
American Stock Transfer & Trust Co.
40 Wall Street
New York, New York 10005
(212) 936-5100
Annual Meeting
The annual meeting of stockholders
will be held Wednesday, May 20, 1998
at 10:00 a.m. at the Company's offices
at 37 Loring Drive, Framingham, Massachusetts
SEC Form 10-KSB
A copy of the annual report on Form 10-KSB, as filed by Symbollon Corporation
with the Securities and Exchange Commission, is available without charge upon
written request to:
Corporate and Investor Relations
Symbollon Corporation
37 Loring Drive
Framingham, Massachusetts 01702
