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, 1998
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
Framingham, Massachusetts 01702
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (508) 620-7676
Securities registered under Section 12(b) of the Exchange Act:
None
(Title of class)
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock, $.001 par value per share
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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 disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not 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. [ X ]
The issuer's revenues for its most recent fiscal year (year ended December 31,
1998) were $927,511.
As of March 8, 1999, the aggregate market value of the voting stock of the
issuer held by non-affiliates of the issuer was approximately $3,944,981 based
upon the closing price of such stock on that date.
As of March 8, 1999, 3,589,331 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 registrant's definitive Proxy Statement to be delivered to
stockholders in connection with the Annual Meeting of Stockholders to be held on
May 26, 1999 are incorporated by reference into Part III hereof. With the
exception of the portions of such Proxy Statement expressly incorporated into
this Annual Report on Form 10-KSB by reference, such Proxy Statement shall not
be deemed filed as part of this Annual Report on Form 10-KSB.
<PAGE>
Special Note Regarding Forward Looking Statements
In addition to the historical information contained herein, this Annual Report
on Form 10-KSB contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, including, but not limited to
statements concerning plans, objections, goals, strategies, prospects, financial
needs, future performance and future costs and expenditures. Such statements may
be identified or qualified, without limitation, by words such as "likely",
"will", "suggests", "may", "would", "could", "should", "expects", "anticipates",
"estimates", "plans", "projects", "believes", or similar expressions (and
variants of such words or expressions). Investors are cautioned that
forward-looking statements are inherently uncertain. Actual performance,
achievements and results may differ materially from those expressed, projected
or suggested in the forward-looking statements due to certain risks and
uncertainties, including, but not limited to, the risks and uncertainties
described or discussed in the section "Risk Factors" in this Annual Report on
Form 10-KSB. The forward-looking statements contained herein represent the
Company's judgment as of the date of this Annual Report on Form 10-KSB, and the
Company cautions readers not to place undue reliance on such statements.
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.
<PAGE>
Initial Product
During 1994, the Company co-developed a bovine teat sanitizer, marketed
as "IodoZyme(R)", 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 1997 and 1998 were $376,660 and
$423,441, respectively. In 1997, substantially all sales were in the United
States. In 1998, foreign sales in the United Kingdom and New Zealand accounted
for $97,506, or 23%, of the total sales for the year. West Agro, through its
foreign affiliates, is in the process of registering IodoZyme in certain other
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 $33,985 of
firm orders for future delivery of IodoZyme at December 31, 1998, as compared to
no orders for future delivery at December 31, 1997.
Research and Product Development
During 1998 the Company concentrated its product development work on
proposed product applications for a treatment for fibrocystic breast disease and
the treatment of various dermatological and ophthalmic diseases.
The Company spent approximately $562,000 and $1,245,000 on research and
development during the years ended December 31, 1997 and 1998, respectively.
Since inception, the Company has spent approximately $5,282,000 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 initiatives from corporate partners who would ultimately introduce the
products into the marketplace.
The Company's current strategic corporate partners and material
developments in the Company's ongoing programs during fiscal 1998 are described
below.
Fibrocystic Breast Disease
Fibrocystic breast disease is a benign breast condition affecting
approximately thirty percent of the women of childbearing age, which represents
in the United States about 24 million women. However, estimates indicate that
only 3.3 million of those women have been formally diagnosed with the disease.
Believed to be caused by a hormonal imbalance, fibrocystic breast disease is
characterized by breast pain, lumpiness or tenderness. Publications covering
previous independent third party testing utilizing iodine to treat collectively
<PAGE>
over 1,500 women with fibrocystic breast disease have reported 60% or greater
clinical improvement in breast disease.
During 1998, the Company began a multi-center Phase II clinical trial
of its proprietary iodine-based oral drug candidate, IoGen(TM), in patients with
moderate to severe fibrocystic breast disease. The randomized, double-blind,
placebo-controlled study will evaluate the clinical effects and safety of IoGen
at three dose levels compared with placebo in a group intended to include 150
patients.
Patients will receive IoGen or placebo daily for seven months, followed
by a two-month observation period. Efficacy will be assessed by evaluating pain,
tenderness, swelling, nodularity and breast thickness/density. The Phase II
clinical trial is the Company's first human trial for IoGen.
The Company currently anticipates that the Phase II clinical trial will
be completed in late 1999 or early 2000. During 1999, the Company also plans to
conduct a Phase I clinical trial of IoGen to determine dose proportionality and
bioavailability of the drug. If the results from these clinical trials warrant,
the Company plans to seek a corporate relationship with a pharmaceutical company
to continue the clinical development and commercialization of IoGen.
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
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 1997, Oclassen was acquired by Watson Pharmaceutical, Inc.
("Watson"). 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
Investigational New Drug ("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. Among
other changes, the amendment eliminated 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 development program.
During 1998, the Company undertook to develop a preliminary formula and
analytical methods necessary to validate formulation stability, without
remuneration for its time. To date, the parties have not advanced the program
beyond the Company's preliminary efforts. As part of the amended relationship,
if Oclassen has not submitted an IND application for the Company's technology by
September 30, 1999, then the Company has a right to terminate the relationship,
subject to certain rights to remedy the default.
<PAGE>
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.
During 1998, the parties have been working to develop a suitable
formulation to initiate preclinical testing and clinical trials. In 1999,
Symbollon anticipates that the development effort under the agreement will
continue with the goal of filing in 1999 an IND application to initiate clinical
trials in humans.
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.
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. In May 1997, the Company terminated
its agreement with BDC. To the Company's knowledge, all SBIR grants covering use
of the Company's technology covered by the agreement have been effectively
terminated.
Manufacturing and Supplies
The development and manufacture of the Company's products are subject
to good laboratory practices ("GLP") and current good manufacturing practices
("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 external
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."
<PAGE>
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 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.
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 not have 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 IND application, which must be approved before human clinical
trials commence, (iii) adequate and well-controlled human clinical trials to
<PAGE>
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.
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
<PAGE>
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
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 which may be adopted,
the probability or scope 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.
<PAGE>
Patents and Proprietary Rights
The Company considers patent protection of its iodine technology to be
critical to its business prospects. The Company currently holds twelve patents
and four 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.
Listing of United States Patents
Patent
Number Title Issue Date
------ ----- ----------
4,476,108 "Bactericidal Method" October 9, 1984
4,937,072 "In Situ Sporicidal Disinfectant" June 26, 1990
4,996,146 "Rapid Sterilization Enzymatic Process February 26, 1991
with Persistence"
5,055,287 "Methods to Control Color During Disinfecting October 8, 1991
Peroxidase Reactions"
5,227,161 "Method to Clean and Disinfect Pathogens on July 13, 1993
the Epidermis by Applying a Composition
Containing Peroxidase, Iodide
Compound and Surfactant"
5,370,815 "Viscous Epidermal Cleaner and Disinfectant" December 6, 1994
5,419,902 "Method for Inactivating Pathogens" May 30, 1995
5,629,024 "Method of Forming an Iodine Based Germicide May 13, 1997
Composition"
5,639,481 "Method for the Therapeutic Treatment of a June 17, 1997
Mammalian Eye"
5,648,075 "Iodine Based Germicidal Composition" July 15, 1997
5,772,971 "Iodine-Based Microbial Decontamination System" June 30, 1998
5,849,291 "Ophthalmic Non-Irritating Iodine Medicament" December 15, 1998
The Company sold to B&L the United States patent 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.
Much of the know-how of importance to the Company's technology and many
of its processes are dependent upon the knowledge, experience and skills, which
are not patentable, of key scientific and technical personnel. To protect its
rights to and to maintain the confidentiality of trade secrets and proprietary
information, the Company requires employees, Scientific Advisory Board members,
consultants and collaborators to execute confidentiality and invention
assignment agreements upon commencement of a relationship with the Company.
These agreements prohibit the disclosure of confidential information to anyone
<PAGE>
outside the Company and require disclosure and assignment to the Company of
ideas, developments, discoveries and inventions made by such employees,
advisors, consultants and collaborators. There can be no assurance, however,
that these agreements will not be breached or that the Company's trade secrets
or proprietary information will not otherwise become known or developed
independently by others. Also, 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 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, 1998, the Company had five 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. 48 Executive Vice-President, Chief
Scientific Officer, Secretary and
Chairman of the Board of Directors
Paul C. Desjourdy 37 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.
Risk Factors
The following risks and uncertainties, among other factors, could cause
the Company's performance, achievements and results to differ materially from
those expressed or suggested in the Company's forward-looking statements in this
Report or presented elsewhere by management from time to time.
Development Stage Company; Early Stage of Product Development; No
Assurance of Successful Commercialization. The Company is in the development
stage and has not conducted any significant operations to date or received any
revenues from product sales, except for revenues from the sale of the Company's
bovine teat sanitizer, marketed under the name IodoZyme, which the Company began
shipping in early 1995. Other than IoGen, which is in Phase II clinical trials,
the Company's other research and development programs are at an early stage, and
the Company does not expect that IoGen, or any other products resulting from its
research and development efforts, or from the joint efforts of the Company and
its collaborative partners, will be commercially available for a significant
number of years, if at all. The Company does not expect to complete the IoGen
Phase II clinical trial until late 1999 or early 2000. See "Research and Product
<PAGE>
Development - Fibrocystic Breast Disease." The Company's other active drug
development efforts in dermatology and ophthalmology are in preclinical
formulation development. Any drug candidates developed by the Company will
require significant additional research and development efforts, including
extensive preclinical (animal and in vitro data) and clinical testing and
regulatory approval, prior to commercial sale. There can be no assurance that
the Company's approach to formulation development, acting independently or with
the efforts of any collaborative partner of the Company, will be effective or
will result in the development of any product. The Company's drug candidates
will be subject to the risks of failure inherent in the development of
pharmaceutical products based on new technologies. These risks include the
possibilities that any or all of the Company's drug candidates will be found to
be unsafe, ineffective or toxic or otherwise fail to meet applicable regulatory
standards or receive necessary regulatory clearances; that these drug
candidates, if safe and effective, will be difficult to develop into
commercially viable products or to manufacture on a large scale or will be
uneconomical to market; that proprietary rights of third parties will preclude
the Company from marketing such products; or that third parties will market
superior or equivalent products. The failure to develop safe, commercially
viable products would have a material adverse effect on the Company's business,
operating results and financial condition.
Dependence on Collaborative Partners and Others. A key element of the
Company's strategy is to fund the capital requirements of certain of its product
development programs by entering into collaborative agreements with major
pharmaceutical companies. The Company is a party to collaborative agreements
with Oclassen and B&L (collectively, the "Collaborative Agreements"). Under the
Collaborative Agreements, each of Oclassen and B&L is responsible for (i)
conducting preclinical and clinical trials and obtaining required regulatory
approvals of drug candidates, and (ii) manufacturing and commercializing any
resulting products. As a result, the Company's receipt of revenues (whether in
the form of research funding, product development milestones or royalties on
sales) under the Collaborative Agreements is dependent upon the decisions made
by, and the manufacturing and marketing resources of, its collaborative
partners. The Company's collaborative partners are not obligated to develop or
commercialize any drug candidates resulting from the Collaborative Agreements.
The amount and timing of resources dedicated by the Company's collaborative
partners to their respective collaborations with the Company is not within the
Company's control. Moreover, certain drug candidates developed utilizing the
Company's technology may be viewed by the Company's collaborative partners as
competitive with their own drugs or drug candidates. Accordingly, there can be
no assurance that the Company's collaborative partners will elect to proceed
with the development of drug candidates, which the Company believes to be
promising, or that they will not pursue their existing or alternative
technologies in preference to such drug candidates. There can be no assurance
that the interests of the Company will continue to coincide with those of its
collaborative partners, that some of the Company's collaborative partners will
not develop independently, or with third parties, products that could compete
with products of the types contemplated by the Collaborative Agreements, or that
disagreements over rights or technology or other proprietary interests will not
occur.
If any of the Company's collaborative partners breaches or terminates
its agreement with the Company, or otherwise fails to conduct its collaborative
activities in a timely manner, the development or commercialization of any drug
candidate or research program under these Collaborative Agreements may be
delayed, the Company may be required to undertake unforeseen additional
responsibilities or to devote unforeseen additional resources to such
development or commercialization, or such development or commercialization could
be terminated. Any such event could materially adversely affect the Company's
financial condition, intellectual property position and operations. In addition,
there have been a significant number of recent consolidations among
pharmaceutical companies. Such consolidations among the companies with which the
Company is collaborating could result in the diminution or termination of, or
<PAGE>
delays in, the development or commercialization of drug candidates or research
programs under one or more of the Collaborative Agreements.
In 1997, Watson acquired Oclassen. The original agreement with Oclassen
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. In 1998, the
Company undertook to provide Oclassen, without remuneration, a preliminary
formula and analytical methods necessary to validate formulation stability.
Despite the Company's development efforts during 1998, the development program
with Oclassen still has not advanced sufficiently to warrant an IND application
filing. The Company is not certain whether the relationship with Oclassen will
proceed beyond its current stage. See "Research and Product Development
Dermatology Applications."
Additional Financing Requirements; Uncertainty of Available Funding.
The Company will require substantial additional funds for its product
development programs, for operating expenses, for pursuing regulatory
clearances, and for prosecuting and defending its intellectual property rights
before it can expect to realize significant revenues from commercial sales. The
Company intends to seek such additional funding through public or private
financing or collaborative or other arrangements with corporate partners. If
additional funds are raised by issuing equity securities, further dilution to
existing stockholders may result and future investors may be granted rights
superior to those of existing stockholders. There can be no assurance, however,
that additional financing will be available from any of these sources or, if
available, will be available on acceptable or affordable terms. If adequate
funds are not available, the Company may be required to delay, reduce the scope
of or eliminate one or more of its research and development programs or to
obtain funds by entering into arrangements with collaborative partners or others
that require the Company to issue additional equity securities or to relinquish
rights to certain technologies or product candidates that the Company would not
otherwise issue or relinquish in order to continue independent operations. See
"Management's Discussion and Analysis or Plan of Operation."
History of Losses and Expectation of Future Losses; Uncertainty of
Future Profitability. The Company has incurred a cumulative operating loss of
$5,714,365 through December 31, 1998. Losses have resulted principally from
costs incurred in research and development activities related to the Company's
efforts to develop IodoZyme, IoGen and other potential product formulations, and
from the associated administrative costs. The Company expects to incur
significant additional operating losses over the next several years and expects
cumulative losses to increase substantially due to expanded research and
development efforts, preclinical and clinical trials. In the next few years, the
Company's revenues may be limited to sales of IodoZyme, contract research
payments and licensing milestone payments under the Collaborative Agreements and
any amounts received under other research or development collaborations that the
Company has established or will establish. There can be no assurance, however,
that the Company will be able to establish any additional collaborative
relationships on terms acceptable to the Company or maintain in effect the
current Collaborative Agreements or that IodoZyme sales will continue. The
Company's ability to achieve significant revenue or profitability is dependent
on its or its collaborative partners' ability to successfully complete the
development of product candidates, to develop and obtain patent protection and
regulatory approvals for the product candidates and to manufacture and
commercialize the resulting products. The Company will not receive revenues or
royalties from commercial sales for a significant number of years, if at all.
Failure to receive significant revenues or achieve profitable operations would
impair the Company's ability to sustain operations. There can be no assurance
that the Company will ever successfully develop, commercialize, patent,
manufacture and market any products, obtain required regulatory approvals or
achieve profitability. See "Management's Discussion and Analysis or Plan of
Operation."
<PAGE>
Uncertainty of Patents and Proprietary Rights. The Company's success
will depend in part on its ability to obtain U.S. and foreign patent protection
for its product candidates and processes, preserve its trade secrets and operate
without infringing the proprietary rights of third parties. Because of the
length of time and expense associated with bringing new drug candidates through
the development and regulatory approval process to the marketplace, the
pharmaceutical industry has traditionally placed considerable importance on
obtaining patent and trade secret protection for significant new technologies,
products and processes. There can be no assurance that any additional patents
will issue from any of the patent applications owned by, or licensed to, the
Company. Further, there can be no assurance that any rights the Company may have
under issued patents will provide the Company with significant protection
against competitive products or otherwise be commercially viable. Legal
standards relating to the validity of patents covering pharmaceutical and
biotechnological inventions and the scope of claims made under such patents are
still developing. There is no consistent policy regarding the breadth of claims
allowed in biotechnology patents. The patent position of a biotechnology firm is
highly uncertain and involves complex legal and factual questions. There can be
no assurance that any existing or future patents issued to, or licensed by, the
Company will not subsequently be challenged, infringed upon, invalidated or
circumvented by others. In addition, patents may have been granted, or may be
granted, to others covering products or processes that are necessary or useful
to the development of the Company's product candidates. If the Company's product
candidates or processes are found to infringe upon the patents, or otherwise
impermissibly utilize the intellectual property, of others, the Company's
development, manufacture and sale of such product candidates could be severely
restricted or prohibited. In such event, the Company may be required to obtain
licenses from third parties to utilize the patents or proprietary rights of
others. There can be no assurance that the Company will be able to obtain such
licenses on acceptable terms, or at all. There has been significant litigation
in the industry regarding patents and other proprietary rights. If the Company
becomes involved in litigation regarding its intellectual property rights or the
intellectual property rights of others, the potential cost of such litigation
and the potential damages that the Company could be required to pay could be
substantial.
In addition to patent protection, the Company relies on trade secrets,
proprietary know-how and technological advances which it seeks to protect, in
part, by confidentiality agreements with its collaborative partners, employees
and consultants. There can be no assurance that these confidentiality agreements
will not be breached, that the Company would have adequate remedies for any such
breach, or that the Company's trade secrets, proprietary know-how and
technological advances will not otherwise become known or be independently
discovered by others.
Uncertainty Associated with Preclinical and Clinical Testing. Before
obtaining regulatory approvals for the commercial sale of any of the Company's
potential products, the drug candidates will be subject to extensive preclinical
and clinical trials to demonstrate their safety and efficacy in humans. The
Company is dependent on its collaborative partners to conduct clinical trials
for the drug candidates resulting from the Collaborative Agreements and may
become dependent on other third parties to conduct future clinical trials of its
internally developed drug candidates. The Company has no experience in
conducting preclinical or clinical trials, and preclinical or clinical trials
have been commenced with respect to only one of the Company's drug candidates.
Furthermore, there can be no assurance that preclinical or clinical trials of
any drug candidates will demonstrate the safety and efficacy of such drug
candidates at all or to the extent necessary to obtain regulatory approvals.
Companies in the biotechnology industry have suffered significant setbacks in
advanced clinical trials, even after demonstrating promising results in earlier
trials. The failure to adequately demonstrate the safety and efficacy of a drug
candidate under development could delay or prevent regulatory approval of the
drug candidate and would have a material adverse effect on the Company's
business, operating results and financial condition.
<PAGE>
No Assurance of Market Acceptance. There can be no assurance that any
drugs successfully developed by the Company, independently or with its
collaborative partners, if approved for marketing, will achieve market
acceptance. The dermatology and ophthalmology products which the Company is
attempting to develop will, if completed, compete with a number of
well-established products manufactured and marketed by major pharmaceutical
companies. The degree of market acceptance of any products developed by the
Company will depend on a number of factors, including the establishment and
demonstration of the clinical efficacy and safety of the Company's drug
candidates, their potential advantage over existing therapies and reimbursement
policies of government and third-party payers. There is no assurance that
physicians, patients or the medical community in general will accept and utilize
any products that may be developed by the Company independently or with its
collaborative partners.
Intense Competition. The biotechnology and pharmaceutical industries
are intensely competitive and subject to rapid and significant technological
change. Competitors of the Company in the United States and elsewhere are
numerous and include, among others, major multinational pharmaceutical and
chemical companies, specialized biotechnology firms and universities and other
research institutions. Many of these competitors employ greater financial and
other resources, including larger research and development staffs and more
effective marketing and manufacturing organizations, than the Company or its
collaborative partners. Acquisitions of competing companies and potential
competitors by large pharmaceutical companies or others could enhance financial,
marketing and other resources available to such competitors. As a result of
academic and government institutions becoming increasingly aware of the
commercial value of their research findings, such institutions are more likely
to enter into exclusive licensing agreements with commercial enterprises,
including competitors of the Company, to market commercial products. There can
be no assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective or less costly than any which
are being developed by the Company or which would render the Company's
technology and future products obsolete and noncompetitive.
In addition, some of the Company's competitors have greater experience
than the Company in conducting clinical trials and obtaining FDA and other
regulatory approvals. Accordingly, the Company's competitors may succeed in
obtaining FDA or other regulatory approvals for drug candidates more rapidly
than the Company. Companies that complete clinical trails, obtain required
regulatory agency approvals and commence commercial sale of their products
before their competitors may achieve a significant competitive advantage,
including certain patent and FDA marketing exclusivity rights that would delay
the Company's ability to market certain products. The Company is aware of one
company, Mimetix Inc., that has conducted 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. There can be no assurance that products resulting from the Company's
research and development efforts, or from the joint efforts of the Company and
its collaborative partners, will be able to compete successfully with
competitors' existing products or products under development or that they will
obtain regulatory approval in the United States or elsewhere.
Impact of Extensive Government Regulation. The FDA and comparable
agencies in foreign countries impose substantial requirements upon the
introduction of pharmaceutical products through lengthy and detailed
preclinical, laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures to establish their safety and
efficacy. All of the Company's product candidates will require governmental
approvals for commercialization, none of which have been obtained. Preclinical
and clinical trials and manufacturing of the Company's drug candidates will be
<PAGE>
subject to the rigorous testing and approval processes of the FDA and
corresponding foreign regulatory authorities. Satisfaction of these requirements
typically take a significant number of years and can vary substantially based
upon the type, complexity and novelty of the product. There can be no assurance
as to when Symbollon, independently or with its collaborative partners, might
first submit an IND application for FDA or other regulatory review. Government
regulation also affects the manufacturing and marketing of pharmaceutical
products.
The effect of government regulation may be to delay marketing of the
Company's potential products for a considerable or indefinite period of time,
impose costly procedural requirements upon the Company's activities and furnish
a competitive advantage to larger companies or companies more experienced in
regulatory affairs. Delays in obtaining governmental regulatory approval could
adversely affect the Company's marketing as well as the Company's ability to
generate significant revenues from commercial sales. There can be no assurance
that FDA or other regulatory approvals for any drug candidates developed by the
Company will be granted on a timely basis or at all. Moreover, if regulatory
approval of a drug candidate is granted, such approval may impose limitations on
the indicated use for which such drug may be marketed. Even if initial
regulatory approvals for the Company's drug candidates are obtained, the
Company, its products and the manufacturing facilities making such products
would be subject to continual review and periodic inspection, and later
discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
withdrawal of the product from the market. The regulatory standards are applied
stringently by the FDA and other regulatory authorities and failure to comply
can, among other things, result in fines, denial or withdrawal of regulatory
approvals, product recalls or seizures, operating restrictions and criminal
prosecution.
Teat sanitizers, although considered animal drugs by the FDA, do not
currently require clearance by the FDA prior to marketing. The FDA, however,
issued draft guidelines in 1993 governing teat dips and no assurance can be made
that clearance by the FDA will not be required in the future. Required
compliance with these guidelines or other FDA requirements which may be adopted,
the probability or scope 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.
As with many biotechnology and pharmaceutical companies, the Company is
subject to numerous environmental and safety laws and regulations. Any violation
of, and the cost of compliance with, these regulations could materially
adversely affect the Company's business, operating results and financial
condition.
Dependence on Key Personnel. The Company does not currently have a
President or Chief Executive Officer. The Company is highly dependent upon the
efforts of its senior management and scientific team, including the services of
Dr. Jack H. Kessler, the Executive Vice President, Chief Scientific Officer,
Secretary and Chairman of the Board of Directors and principal stockholder of
the Company, and Paul C. Desjourdy, the Executive Vice President, Chief
Financial Officer, Treasurer and a director of the Company. The loss of either
of such individuals or a reduction in the time devoted by such persons to the
Company's business could have a material adverse effect on the Company's
business. The Company has obtained key-person life insurance coverage in the
face amount of $1,000,000 for Dr. Kessler naming the Company as beneficiary
under such policy. The loss of the services of one or both of these individuals
might impede the achievement of the Company's development objectives. Because of
the specialized scientific nature of the Company's business, the Company is
highly dependent upon its ability to attract and retain qualified scientific and
technical personnel. There is intense competition among major pharmaceutical and
chemical companies, specialized biotechnology firms and universities and other
<PAGE>
research institutions for qualified personnel in the areas of the Company's
activities. There can be no assurance that the Company will be able to continue
to attract and retain the qualified personnel necessary for the development of
its business. Loss of the services of, or failure to recruit, key scientific and
technical personnel could adversely affect the Company's business, operating
results and financial condition.
Lack of Marketing Experience; Dependence on Outside Parties for
Marketing and Distribution; Uncertainty of Market Acceptance of Products and
Proposed Products. The marketing and distribution of IodoZyme is conducted by
West Agro pursuant to an exclusive marketing and supply agreement with the
Company which covers IodoZyme as well as other products which may be developed
for use in dairy facilities. The Company has granted marketing rights to its
collaborative partners with respect to products developed through the
Collaborative Agreements, and the Company intends to rely on similar
arrangements with others for the marketing and distribution of its products
currently under development, including IoGen, if and when successfully developed
and approved by applicable regulatory agencies. This results, and will result,
in a lack of control by the Company over some or all of the marketing and
distribution of such products. Although the Company has entered into development
agreements with parties experienced in the marketing of products similar to
several of the Company's proposed products, which development agreements
contemplate future marketing arrangements, there can be no assurance that the
Company will be able to enter into any marketing arrangements for such products,
if and when developed, on terms acceptable to the Company or that any marketing
efforts undertaken on behalf of the Company will be successful. Although the
Company has no present plans to do so, the Company may, in the future, determine
to directly market certain of its proposed products. The Company has no
marketing experience and significant additional capital expenditures and
management resources would be required to develop a direct sales force. In the
event the Company elects to engage in direct marketing activities, there can be
no assurance that the Company would be able to obtain the requisite funds or
attract and retain the human resources necessary to successfully market any of
such products.
The Company's future growth and profitability will depend, in large
part, on the success of its personnel and others conducting marketing efforts on
behalf of the Company in fostering acceptance among the various markets of the
use of the Company's products as an alternative to other available products or
otherwise. The Company's success in marketing its products will be substantially
dependent on educating its targeted markets as to the distinctive
characteristics and perceived benefits of the Company's products. In this
regard, West Agro, which acts as exclusive marketer and distributor of IodoZyme,
also markets and distributes products which are directly competitive with
IodoZyme. There can be no assurance that the Company's efforts or the efforts of
others will be successful or that any of the Company's products or proposed
products will be favorably accepted in the targeted markets.
Lack of Manufacturing Experience; Dependence on Outside Parties for
Manufacturing. IodoZyme is currently produced through a combination of internal
manufacturing activities and external contract manufacturers. The Company has
granted manufacturing rights to its collaborative partners with respect to
products developed through the Collaborative Agreements, and the Company intends
to rely on similar arrangements with others for the manufacturing of its
products currently under development, if and when successfully developed and
approved by applicable regulatory agencies. The Company's dependence on third
parties for manufacturing may adversely affect the Company's ability to develop
and deliver products on a timely and competitive basis. The Company may in the
future undertake to manufacture some or all of its products and proposed
products entirely in-house. If the Company is unable to develop or contract for
manufacturing capabilities on acceptable terms, the Company's ability to conduct
preclinical and clinical trials with the Company's drug candidates will be
adversely affected, resulting in delays in the submission of drug candidates for
regulatory approvals and in the initiation of new development programs, which in
<PAGE>
turn could materially impair Symbollon's competitive position and the
possibility of achieving profitability.
Except for limited experience regarding IodoZyme, the Company has no
experience with the manufacture of any of its products or proposed products. In
the event the Company continues to perform its current IodoZyme manufacturing
activities in-house, additional manufacturing space and equipment may be
necessary beyond 1998 as product volume increases. In addition, in the event the
Company undertakes to directly manufacture any of its proposed products, the
Company will be required to attract and retain experienced personnel to develop
a manufacturing capability and to comply with extensive government regulations
with respect to its facilities, including among others, the FDA manufacturing
requirements. There can be no assurance that the Company will be able to
successfully establish appropriate manufacturing operations.
Reimbursement and Drug Pricing Uncertainty. The successful
commercialization of, and the interest of potential collaborative partners to
invest in, the development of the Company's drug candidates will depend
substantially on reimbursement of the costs of the resulting products and
related treatments at acceptable levels from government authorities, private
health insurers and other organizations, such as health maintenance
organizations ("HMOs"). There can be no assurance that reimbursement in the
United States or elsewhere will be available for any products the Company may
develop or, if available, will not be decreased in the future, or that
reimbursement amounts will not reduce the demand for, or the price of, the
Company's products, thereby adversely affecting the Company's business. If
reimbursement is not available or is available only to limited levels, there can
be no assurance that the Company will be able to obtain collaborative partners
to manufacture and commercialize products, or would be able to obtain a
sufficient financial return on its own manufacture and commercialization of any
future products.
Third-party payers are increasingly challenging the prices charged for
medical products and services. Also, the trend toward managed health care in the
United States and the concurrent growth of organizations such as HMOs, which can
control or significantly influence the purchase of health care services and
products, as well as legislative proposals to reform health care or reduce
government insurance programs, may result in lower prices for pharmaceutical
products. The cost containment measures that health care providers are
instituting, including practice protocols and guidelines and clinical pathways,
and the effect of any health care reform, could materially adversely affect the
Company's ability to sell any of its products if successfully developed and
approved. Moreover, the Company is unable to predict what additional legislation
or regulation, if any, relating to the health care industry or third-party
coverage and reimbursement may be enacted in the future or what effect such
legislation or regulation would have on the Company's business.
Potential Product Liability and Availability of Insurance. The
Company's business exposes it to potential liability risks that are inherent in
the testing, manufacturing and marketing of pharmaceutical products. The use of
the Company's drug candidates in clinical trials may expose the Company to
product liability claims and possible adverse publicity. These risks will expand
with respect to the Company's drug candidates, if any, that receive regulatory
approval for commercial sale. Product liability insurance for the biotechnology
industry is generally expensive, if available at all. The Company does have
product liability insurance covering its drug candidates in clinical trials
which coverage the Company believes to be adequate to cover its current business
exposure. However, such coverage is becoming increasingly expensive and there
can be no assurance that the Company will be able to retain insurance coverage
at acceptable costs or in a sufficient amount, or that a product liability claim
would not adversely affect the Company's business, operating results or
financial condition.
<PAGE>
Materials Incompatibility. An important aspect of the Company's present
and future product candidates is that they must be compatible with the surfaces
on which they come in contact. The Company has ceased efforts to develop a
microbicide for dental handpieces and renal control units as a result of
staining and corrosion caused by required microbicide formulations, and the
Company has encountered problems of staining in connection with its efforts to
develop a high level disinfectant for flexible endoscopes. The Company continues
to investigate the balance between the level of efficacy and the need to avoid
staining and corrosion. For any proposed product applications, staining or
corrosion from a product candidate could be sufficient to limit or forestall
regulatory approval of such product candidate or, if approved, could adversely
affect market acceptance of such product. There can be no assurance that the
Company will be successful in overcoming any problems of materials
incompatibility.
Charge to Income in the Event of Release of Restrictions on Shares. 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. To date, 684,262 of the restricted shares
converted to Class A common stock. The restricted shares will be transferred to
the Company for no consideration if the Company's 1999 earnings (defined as
income before income taxes, extraordinary items or any charge related to the
release of shares) are less than $15,000,000. If the 1999 earnings are at least
$15,000,000, the share restrictions will be released, and, in such case, 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.
Possible "Year 2000" Problem. The Year 2000 ("Y2K") issue is the result
of computer programs using a two-digit format, as opposed to four digits, to
indicate the year. Such computer systems will be unable to interpret dates
beyond the year 1999, which could cause a system failure or other computer
errors, leading to disruptions in operations. The Company has identified three
major areas determined to be critical for successful Y2K compliance: (1)
financial and information system applications, (2) manufacturing applications
and (3) third-party relationships. In the financial and information system and
manufacturing areas, the Company's core financial and reporting systems are not
Y2K compliant and are scheduled for replacement during 1999. The Company
believes it will cost approximately $10,000 to replace the core financial and
reporting systems that are not Y2K compliant. The Company is requesting
assurances from all software vendors from which it has purchased or from which
it may purchase software that such software will correctly process all date
information at all times. In the third-party area, the Company is in the process
of identifying areas of exposure. The Company is querying its suppliers and
contractors as to their progress in identifying and addressing problems that
their computer systems will face in correctly processing date information as the
Year 2000 approaches. The Company has not determined what costs, if any, will be
incurred in connection with the third-party area. The failure by the Company or
a third party supplier or contractor to correct a material Y2K problem could
result in an interruption in, or failure of, certain normal business activities
or operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Y2K problem, resulting in part from the uncertainty
of the Y2K readiness of the Company's customers, suppliers, and other
third-party providers, the Company is unable to determine at this time whether
the consequences of any Y2K failures will have a material impact on the
Company's results of operations, liquidity or financial condition.
Hazardous Materials; Compliance with Environmental and Transportation
Regulations. The Company's manufacturing and research and development activities
involve the controlled use and shipment of hazardous chemicals and other
materials. Although the Company believes that its safety procedures for
handling, shipping and disposing of such materials comply with the standards
prescribed by federal, state and local 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
<PAGE>
that result and any such liability could exceed the resources of the Company.
There can be no assurance that current or future environmental or transportation
laws, rules, regulations or policies will not have a material adverse effect on
the Company.
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 $29,700 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.
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, 1998.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Price Range of Securities
The Company's Class A Common Stock trades on the Nasdaq SmallCap Market
tier of The Nasdaq Stock Market under the symbol: SYMBA. There can be no
assurance that the Company will be able maintain the criteria for continued
listing on the Nasdaq SmallCap Market. The following sets forth the high and low
sales prices for each of the quarterly periods during fiscal 1997 and 1998, as
reported by Nasdaq.
Fiscal 1997 Fiscal 1998
------------------- --------------------
High Low High Low
First quarter 2 7/8 1 5/16 1 21/32 15/16
Second quarter 2 3/16 1 9/16 2 23/32
Third quarter 2 3/8 1 7/16 1 1/16 1/2
Fourth quarter 2 1/8 1 5/16 2 1/2 17/32
There is no established public trading market for the Company's Class B
Common Stock.
The Company's Class A Warrants and Class B Warrants, which had traded
on the Nasdaq SmallCap Market, expired on December 7, 1998.
<PAGE>
(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 8, 1999 are approximately as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Class A Common Stock 56
Class B Common Stock 3
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 8, 1999 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 since 1995 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.
The following discussion contains forward-looking statements which
involve risks and uncertainties. See "Special Note Regarding Forward Looking
Statements" at the front of this Annual Report on Form 10-KSB.
Results of Operations
Fiscal 1998 versus Fiscal 1997
Symbollon's net loss in fiscal 1998 was $892,750, compared to a net
income of $511,464 in fiscal 1997. This net loss resulted primarily from
decreased license fee revenues from research and development programs with
corporate partners and increased research and development expenses, partially
offset by decreased general and administration expenses.
Product revenues from sales of IodoZyme increased by $46,781 or 12.4%
from $376,660 in fiscal 1997 to $423,441 in fiscal 1998. The increased sales
relate primarily to $97,506 of foreign sales of IodoZyme initiated in 1998,
partially offset by decreased domestic sales relating in part to excess
inventory reduction. Symbollon anticipates further increases in sales volume for
IodoZyme in 1999, related in part to further foreign market penetration.
<PAGE>
Cost of goods sold for IodoZyme increased by $64,433 or 36.1% from
$178,531 in fiscal 1997 to $242,964 in fiscal 1998. The gross profit margin on
product sales decreased from 52.6% in fiscal 1997 to 42.6% in fiscal 1998. This
decrease in the gross profit margin on product sales was primarily due to
increased labor and component cost and overhead expenses. The Company
anticipates that the gross profit margin in 1999 will remain consistent with
1998.
Contract revenues increased by $33,381 or 47.2% from $70,689 in fiscal
1997 to $104,070 in fiscal 1998. License fee revenues decreased by $850,000 or
68.0% from $1,250,000 in fiscal 1997 to $400,000 in fiscal 1998. Most of the
contract and license fee revenues generated in fiscal 1998 relate to the
corporate relationship with B&L. This relationship provided none of the contract
revenues and only $250,000 of the license fee revenues in fiscal 1997. The
contract revenues and the remaining license fee revenues in fiscal 1997 were
generated from the corporate relationship with Oclassen. In 1999, subject to
continuation of existing research and development contracts, the Company
anticipates receiving $750,000 in license fees (subject to possible partial
offset). The level of contract revenues for 1999 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 increased by $682,656 or 121.4% from
$562,360 in fiscal 1997 to $1,245,016 in fiscal 1998. The increase resulted from
increased development expenses related to the Company's drug candidate for the
treatment of fibrocystic breast disease, including consulting fees regarding
regulatory matters, contract manufacturing cost to produce drug supplies for
clinical trials and clinical costs associated with the Company's initiation of a
Phase II clinical trial. The Company is anticipating that research and
development expenses will further increase in 1999 as the Company continues the
development of its drug candidate for the treatment of fibrocystic breast
disease, which development effort will include approximately $1.6 million to
complete Phase I and Phase II clinical trials.
General and administrative expenses decreased by $94,599 or 18.1% from
$523,578 in fiscal 1997 to $428,979 in fiscal 1998. The decrease resulted
primarily from decreased employee salaries and related costs, and decreased
legal fees, insurance costs and other third party fees and services, partially
offset by increased investor and public relations expenses. The Company
anticipates that general and administrative expenses will remain at current
levels for 1999.
The Company's interest income increased by $1,890 or 2.0% from $94,808
in fiscal 1997 to $96,698 in fiscal 1998. The Company's interest expense
decreased by $16,224 from $16,224 in fiscal 1997 to none in fiscal 1998. This
decrease resulted from the Company's decision not to borrow funds in 1998 under
its bank line of credit which expired in March 1998.
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
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 1998, the Company continued to incur operating losses and has
incurred a cumulative loss through December 31, 1998 of $5,714,365. As of
December 31, 1998, the Company had working capital of $2,060,121. The Company
believes that it has the necessary liquidity and capital resources to sustain
planned operations for fiscal 1999. In the event that the Company's internal
estimates relating to its planned revenues and expenditures for fiscal 1999
<PAGE>
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 1999, and
therefore, the Company will seek new financing in fiscal 1999. 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 the Nasdaq SmallCap Market. Nasdaq's current SmallCap 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 1999, the Company is committed to pay approximately $305,000 as
compensation to its current executive officers and approximately $30,000 for
lease payments on its facilities. The Company anticipates that the Phase I and
Phase II clinical trial for its drug candidate to treat fibrocystic breast
disease will cost approximately $1,600,000 during 1999. The Company has no
planned material capital expenditures for fiscal 1999. At December 31, 1998, the
Company had a net operating loss carryforward for federal income tax purposes of
approximately $5,452,000 expiring through 2018.
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to disruptions in
operations. The Company has identified three major areas determined to be
critical for successful Y2K compliance: (1) financial and information system
applications, (2) manufacturing applications and (3) third-party relationships.
In the financial and information system and manufacturing areas, the Company's
core financial and reporting systems are not Y2K compliant and are scheduled for
replacement during 1999. The Company believes it will cost approximately $10,000
to replace the core financial and reporting systems that are not Y2K compliant.
The Company is requesting assurances from all software vendors from which it has
purchased or from which it may purchase software that such software will
correctly process all date information at all times. In the third-party area,
the Company is in the process of identifying areas of exposure. The Company is
querying its suppliers and contractors as to their progress in identifying and
addressing problems that their computer systems will face in correctly
processing date information as the Year 2000 approaches. The Company has not
determined what costs, if any, will be incurred in connection with the
third-party area. The failure by the Company or a third party supplier or
contractor to correct a material Y2K problem could result in an interruption in,
or failure of, certain normal business activities or operations. Such failures
could materially and adversely affect the Company's results of operations,
liquidity and financial condition. Due to the general uncertainty inherent in
the Y2K problem, resulting in part from the uncertainty of the Y2K readiness of
the Company's customers, suppliers, and other third-party providers, the Company
is unable to determine at this time whether the consequences of any Y2K
failures will have a material impact on the Company's results of operations,
liquidity or financial condition.
<PAGE>
Item 7. Financial Statements
Independent Auditors' Report
The Board of Directors and Stockholders
Symbollon Corporation
Framingham, Massachusetts
We have audited the accompanying balance sheet of Symbollon Corporation (a
development stage company) as of December 31, 1998, and the related statements
of operations, stockholders' equity and cash flows for the year then ended and
for the period from July 15, 1986 (inception) to December 31, 1998. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Symbollon Corporation (a
development stage company) at December 31, 1998, and the results of its
operations and its cash flows for the year then ended and for the period from
July 15, 1986 (inception) to December 31, 1998 in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
Boston, Massachusetts
January 22, 1999
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Symbollon Corporation
Framingham, Massachusetts
We have audited the accompanying balance sheet of Symbollon Corporation (a
development stage company) as of December 31, 1997, and the related statements
of operations, stockholders' equity and cash flows for the year then ended.
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 audit.
We conducted our audit 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 audit provides 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 the results of its operations and its cash flows for year then
ended in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
January 22, 1998
<PAGE>
Symbollon Corporation
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
December 31, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,514,115 $ 2,527,865
Restricted cash (Note 3) 297,554 -
Accounts receivable (Note 12) 207,172 24,972
Inventory (Note 4) 69,382 73,629
Prepaid expenses 83,104 75,156
- --------------------------------------------------------------------------------
Total current assets 2,171,327 2,701,622
Equipment and leasehold improvements, net of
accumulated depreciation and amortization
(Note 5) 125,572 146,868
Other assets:
Patent and trademark costs, net of accumulated
amortization (Note 6) 205,226 153,157
Deposit 2,364 2,364
- --------------------------------------------------------------------------------
$ 2,504,489 $ 3,004,011
- --------------------------------------------------------------------------------
(continued)
</TABLE>
<PAGE>
Symbollon Corporation
(a development stage company)
Balance Sheets
(Continued)
<TABLE>
<CAPTION>
December 31, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Acounts payable $ 87,654 $ 5,879
Accrued professional fees 4,403 21,867
Accrued finder's fee (Note 11) - 20,000
Other 19,149 22,857
- --------------------------------------------------------------------------------
Total current liabilities 111,206 70,603
- --------------------------------------------------------------------------------
Redeemable common stock, Class A, par value
$.001 per share, 669,545 and 266,667 shares
issued, respectively, (aggregate involuntary
liquidation value $850,000 at
December 31, 1998) (Note 7) 850,000 500,000
- --------------------------------------------------------------------------------
Commitments (Notes 8 and 11)
Stockholders' equity (Notes 7 and 8):
Preferred stock, par value $.001 per share,
5,000,000 shares authorized - -
Common stock, Class A, par value $.001
per share, 18,750,000 shares authorized,
2,919,786 and 2,916,286 shares issued and
outstanding, respectively 2,920 2,916
Convertible common stock, Class B,
par value $.001 per share, 1,250,000
shares authorized, 15,738 shares issued
and outstanding 16 16
Additional paid-in capital 7,254,712 7,252,091
Deficit accumulated during the
development stage (5,714,365) (4,821,615)
- --------------------------------------------------------------------------------
Total stockholders' equity 1,543,283 2,433,408
- --------------------------------------------------------------------------------
$ 2,504,489 $ 3,004,011
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Symbollon Corporation
(a development stage company)
Statements of Operations
<TABLE>
<CAPTION>
For the
Period from
Year Ended July 15, 1986
December 31, (Inception) to
-------------------------- December 31,
1998 1997 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue (Note 12):
Net product sales $ 423,441 $ 376,660 $ 1,040,988
Contract revenue 104,070 70,689 644,750
License fee revenue 400,000 1,250,000 2,190,000
- -------------------------------------------------------------------------------------------------------
Total revenue 927,511 1,697,349 3,875,738
- -------------------------------------------------------------------------------------------------------
Operating expenses:
Cost of goods sold 242,964 178,531 595,201
Research and development costs 1,245,016 562,360 5,281,714
General and administrative expenses 428,979 523,578 3,935,266
- -------------------------------------------------------------------------------------------------------
Total operating expenses 1,916,959 1,264,469 9,812,181
- -------------------------------------------------------------------------------------------------------
Income (loss) from operations (989,448) 432,880 (5,936,443)
Interest income 96,698 94,808 578,338
Interest expense and debt issuance costs - (16,224) (356,260)
- -------------------------------------------------------------------------------------------------------
Net income (loss) $ (892,750) $ 511,464 $(5,714,365)
- -------------------------------------------------------------------------------------------------------
Basic net income (loss) per share of
common stock (Note 9) $ (.33) $ .24
- -------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share of
common stock (Note 9) $ (.33) $ .22
- -------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Symbollon Corporation
(a development stage company)
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit
Preferred Stock Common Stock, $.001 Par Value Accumulated
$.001 Par Value Class A Class B Additional During the
--------------- ---------------- --------------- 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
Issuances of shares - - - - 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) - - -
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
(continued)
</TABLE>
<PAGE>
Symbollon Corporation
(a development stage company)
Statements of Stockholders' Equity
(Continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit
Preferred Stock Common Stock, $.001 Par Value Accumulated
$.001 Par Value Class A Class B Additional During the
--------------- ---------------- --------------- Paid-in Development
Shares Amount Shares Amount Shares Amount Capital Stage Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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) - - -
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 - - - - -
Conversion of Class B to Class A - - 1,180,537 1,180 (1,180,537) (1,180) - - -
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 - - 2,916,286 2,916 15,738 16 7,252,091 (4,821,615) 2,433,408
Stock purchase plan sales - - 3,500 4 - - 2,621 - 2,625
Net loss for the year - - - - - - - (892,750) (892,750)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 - $ - 2,919,786 $ 2,920 15,738 $ 16 $ 7,254,712 $(5,714,365) $1,543,283
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Symbollon Corporation
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
For the
Period from
Year Ended July 15, 1986
December 31, (Inception) to
------------------------------ December 31,
1998 1997 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (892,750) $ 511,464 $(5,714,365)
Adjustments to reconcile net income (loss) to net cash
provided by ( used in) operating activities:
Depreciation and amortization 49,177 59,677 428,379
Amortization of debt issuance costs - - 130,000
Accrued rent - (14,000) -
Loss on disposition of equipment and patents 12,268 7,274 19,542
Changes in:
Restricted cash (297,554) - (297,554)
Accounts receivable (182,200) 25,434 (207,172)
Inventory 4,247 (55,811) (69,382)
Prepaid expenses (7,948) 7,283 (83,104)
Deferred revenue - (17,596) -
Accounts payable and other current liabilities 40,603 (68,921) 168,381
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (1,274,157) 454,804 (5,625,275)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (24,173) (85,333) (364,826)
Patent and trademark cost additions (68,045) (41,383) (425,193)
Proceeds from sale of equipment - 11,300 11,300
Deposit - 2,636 (2,364)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (92,218) (112,780) (781,083)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Warrant conversion - - 629,204
Borrowings from stockholders - - 253,623
Repayment of borrowings from stockholders - - (127,683)
Sale of common stock and units 352,625 478,742 8,058,731
Sale of option to purchase units - - 100
Public offering costs - - (1,343,502)
Issuance of preferred stock - - 450,000
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 352,625 478,742 7,920,473
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,013,750) 820,766 1,514,115
Cash and cash equivalents, beginning of period 2,527,865 1,707,099 -
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,514,115 $2,527,865 $ 1,514,115
- ------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid during the year for interest $ - $ 16,224
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Symbollon Corporation
(a development stage company)
Notes to Financial Statements
1. Description of Symbollon Corporation was formed to
Business and develop and commercialize proprietary
Basis of iodine-based products for infection
Presentation 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.
The success of future operations is
subject to a number of risks similar to
those of other companies in the same stage
of development. Principal among these
risks are the Company's cumulative
operating losses, no assurance of
profitable future operations, early state
of market development, competition from
substitute products or larger companies,
dependence on key personnel and the
uncertainty of additional future financing
as needed.
2. Summary of
Significant
Accounting
Policies
Use of Estimates The preparation of financial statements in
conformity with generally accepted
accounting principles requires management
to make estimates and assumptions that
affect the 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.
Cash and Cash Cash and cash equivalents are short-term,
Equivalents highly liquid investments with maturities
of less than three months when acquired.
Inventory Inventory is stated at the lower of cost
(determined on a first-in, first-out
basis) or market.
Revenue The Company recognizes revenue when the
Recognition Company fulfills all of its obligations
under its collaborative research and
licensing agreements or when its products
are shipped.
<PAGE>
2. Summary of
Significant
Accounting Policies
(Continued)
Depreciation and Equipment is stated at cost and
Amortization depreciated over its estimated useful life
using the straight-line method. Leasehold
improvements are stated at cost and 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 15-17 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.
Research and Research and development costs are
Development expensed as incurred.
Income (Loss) In 1997, the Financial Accounting
Per Share Standards Board issued Statement of
Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share". SFAS
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. Shares subject to restriction
(Note 7) are not considered as outstanding
for calculation of earnings or loss per
share during any period.
Fair value of The carrying amounts of cash and cash
Financial equivalents, restricted cash, accounts
Instruments receivable, other current assets, accounts
payable, and accrued expenses approximate
fair value.
<PAGE>
2. Summary of
Significant
Accounting Policies
(Continued)
Stock-Based The Company accounts for its employee
Compensation 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.
Recent In June 1998, the Financial Accounting
Accounting Standards Board issued SFAS No. 133,
Standards "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133
requires companies to recognize all
derivative contracts at their fair values,
as either assets or liabilities on the
balance sheet. If certain conditions are
met, a derivative may be specifically
designated as a hedge, the objective of
which is to match the timing of gain or
loss recognition on the hedging derivative
with the recognition of (1) the changes in
the fair value of the hedged asset or
liability that are attributable to the
hedged risk, or (2) the earnings effect of
the hedged forecasted transaction. For a
derivative not designated as a hedging
instrument, the gain or loss is recognized
in income in the period of change. SFAS
No. 133 is effective for all fiscal
quarters of fiscal years beginning after
June 15, 1999.
Historically, the Company has not entered
into derivative contracts either to hedge
existing risks or for speculative
purposes. Accordingly, the Company does
not expect adoption of the new standard to
affect its financial statements.
<PAGE>
3. Restricted Cash On August 25, 1998, the Company signed a
clinical research agreement for the
Company's Phase I and Phase II clinical
trials for its drug compound to treat
fibrocystic breast disease. In accordance
with the clinical research agreement, the
Company was required to deposit
approximately $296,000 into a bank account
jointly controlled by the Company and the
clinical research organization. These
funds will be used to satisfy future
obligations of the Company under the
agreement.
In the future, the Company will be
required to maintain a balance in the bank
account equal to a percentage of the
contractual obligations under the
agreement. These funds are restricted from
the Company's use apart from its
obligation under the clinical research
agreement. The Company is entitled to all
interest earned on the funds.
4. Inventory Inventory consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1998 1997
--------------------------------------------------------------------------------------
Raw materials $ 47,379 $ 20,907
Finished goods 22,003 52,722
--------------------------------------------------------------------------------------
Total $ 69,382 $ 73,629
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
5. Equipment and Equipment and leasehold improvements are
Leasehold stated at cost and consist of the
Improvements following:
<TABLE>
<CAPTION>
December 31, 1998 1997
--------------------------------------------------------------------------------------
<S> <C> <C>
Equipment and fixtures $ 221,359 $ 201,519
Leasehold improvements 61,811 61,811
--------------------------------------------------------------------------------------
283,170 263,330
Less accumulated depreciation
and amortization 157,598 116,462
--------------------------------------------------------------------------------------
Equipment and leasehold
improvements, net $ 125,572 $ 146,868
6. Patent and December 31, 1998 1997
Trademark --------------------------------------------------------------------------------------
Costs
Patent costs $ 401,638 $ 339,340
Trademark costs 2,444 8,520
--------------------------------------------------------------------------------------
404,082 347,860
Less accumulated amortization 198,856 194,703
--------------------------------------------------------------------------------------
Patent and trademark costs, net $ 205,226 $ 153,157
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
7. Stockholders' The Company has issued both Class A and
Equity 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. On August 4, 1998,
pursuant to the agreement, the
pharmaceutical company purchased an
additional 402,878 shares of Class A
common stock for $350,000. Pursuant to
certain restrictions, the stock is
redeemable at the per share price that was
originally paid, as an offset against
future milestone payments. If the
collaboration and license agreement (see
Note 12) 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 in total.
<PAGE>
7. Stockholders' On December 7, 1998, the Company's
Equity redeemable Class A warrants, redeemable
(Continued) Class B warrants and unit purchase option
expired.
In connection with the Company's 1993
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 684,262 of the restricted
shares converted to Class A common stock.
These shares will be transferred to the
Company for no consideration if earnings
of $15,000,000 or more (defined as income
before income taxes, extraordinary items
or any charge related to the release of
shares) are not achieved in fiscal 1999.
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 Company did not meet
the earnings thresholds for 1998.
8. Stock Plans The Company has adopted three
stock plans: a stock option plan, an
employee stock purchase plan and a
non-employee 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, 1998
the Company has reserved 800,000 shares
for issuance under this plan.
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, 1998, the Company has
reserved 200,000 shares for purchase under
this plan. During the year ended December
31, 1998 and 1997, the Company issued
3,500 and 3,052 shares, respectively, 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.
The fair value of the options issued for
the year ended December 31, 1998 was not
material.
Under the above plans 340,782 shares are
available for future grant or purchase.
<PAGE>
8. Stock Plans The Company had the following option
(Continued) activity in 1997 and 1998:
<TABLE>
<CAPTION>
Weighted -
Average
Exercise Price
Shares Per Share
--------------------------------------------------------------------------------------
<S> <C> <C>
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
Granted 235,500 1.73
Cancelled (21,250) 3.38
--------------------------------------------------------------------------------------
Balance, December 31, 1998 743,145 $ 2.10
--------------------------------------------------------------------------------------
</TABLE>
All options outstanding at December 31,
1998 are categorized by the following
ranges in the table below:
<TABLE>
<CAPTION>
Weighted-
Weighted - Average
Average Remaining
Exercise Contractual Number of
Range Price Life (years) Shares
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1.02 to $ 4.00 $ 1.76 7.0 684,145
$ 4.00 to $ 7.81 $ 5.07 2.9 59,000
-------
743,145
-------
</TABLE>
<PAGE>
8. Stock Plans All options exercisable at December 31,
(Continued) 1998 are categorized by the following
ranges in the table below:
<TABLE>
<CAPTION>
Weighted-
Weighted - Average
Average Remaining
Exercise Contractual Number of
Range Price Life (years) Shares
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1.02 to $ 4.00 $ 1.71 6.1 399,437
$ 4.00 to $ 7.81 $ 5.19 2.4 56,250
-------
455,687
-------
</TABLE>
Stock Based The Company has adopted the
Compensation 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 1998 or 1997. 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:
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997
--------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) As reported $ (892,750) $ 511,464
Pro forma $ (1,004,059) $ 370,530
Basic net income As reported $ (.33) $ .24
(loss) per share of Pro forma $ (.38) $ .17
common stock
Diluted net income As reported $ (.33) $ .22
(loss) per share of Pro forma $ (.38) $ .16
common stock
</TABLE>
<PAGE>
8. Stock Plans
(Continued)
Stock Based The fair value of the Company's stock
Compensation options used to compute pro forma net
(Continued) 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 1998 and 1997, respectively: dividend
yield of 0% and 2.5%; expected volatility
of 46% and 40%; a risk-free interest rate
of between 4.60% and 5.68% and 5.25% and
7.88%; and an expected holding period of 2
to 5 years and 7 to 10 years.
The weighted-average fair value of
options granted during the years ended
December 31, 1998 and 1997 was $.85 and
$.20 per share, respectively.
9. Earnings Per The Company follows Statement of Financial
Share Accounting Standards No. 128
("SFAS No128"), Earnings per Share, issued
by the Financial Accounting Standards
Board. Under SFAS No. 128, the basic and
diluted net earnings per share of common
stock for the
years ended December 31, 1998 and 1997 is
computed by dividing the net income (loss)
by the weighted average number of common
shares outstanding during the period.
The weighted average number of common
shares outstanding is summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
--------------------------------------------------------------------------------------
<S> <C> <C>
Denominator for basic income per share:
Weighted average common
shares outstanding 2,665,139 2,168,783
Potential dilutive common shares:
Convertible preferred stock - 170,472
Options - 21,078
--------------------------------------------------------------------------------------
Denominator for diluted income
per share 2,665,139 2,360,333
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
9. Earnings Per The following table summarizes securities
Share that were outstanding as of December 31,
(Continued) 1998 and 1997 but not included in the
calculation of diluted net earnings per
share because such shares are
antidilutive:
<TABLE>
<CAPTION>
December 31, 1998 1997
--------------------------------------------------------------------------------------
<S> <C> <C>
Stock options 743,145 391,895
Stock warrants - 2,800,000
Unit purchase option - 100,000
</TABLE>
10. Income Taxes As a result of the 1998 and 1997 losses,
no income tax expense was incurred for
these years.
Deferred income taxes reflect the impact
of "temporary differences" between the
amount of assets and liabilities for
financial reporting purposes and such
amounts as measured by tax laws and
regulations. Deferred tax assets are
comprised of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated amortization $ 46,000 $ 50,000
Tax credits 205,000 140,000
NOL carryforwards 2,181,000 1,820,000
--------------------------------------------------------------------------------------
Gross deferred tax asset 2,432,000 2,010,000
Deferred tax assets valuation allowance (2,432,000) (2,010,000)
--------------------------------------------------------------------------------------
Net deferred tax assets $ - $ -
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
10. Income Taxes As of December 31, 1998, the Company has
(Continued) net operating loss carryforwards totaling
approximately $5,452,000. The amount of
the net operating loss carryforwards which
may be utilized in any future period may
be subject to certain limitations, based
upon changes in the ownership of the
Company's common stock.
As of December 31, 1998 and 1997, the
deferred tax assets have been fully offset
by valuation allowances, since the
realization of such amounts is uncertain.
The following is a breakdown of the net
operating loss expiration period:
<TABLE>
<CAPTION>
Amount of
Expiration Date Remaining NOL
--------------------------------------------------------------------------------------
<S> <C>
2008 $ 743,000
2009 1,514,000
2010 1,374,000
2011 921,000
2018 900,000
</TABLE>
In addition, the Company has available
tax credit carryforwards (adjusted to
reflect provisions of the Tax Reform Act
of 1986) of approximately $205,000, which
are available to offset future taxable
income and income tax liabilities, when
earned or incurred. These amounts expire
in various years through 2018.
<PAGE>
11. Commitments
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, 1998 and December 31, 1997
was $26,000 and $32,000, respectively.
Future minimum rental payments due are as
follows:
<TABLE>
<CAPTION>
Year ending December 31, Total
--------------------------------------------------------------------------------------
<S> <C>
1999 $ 30,000
2000 32,000
2001 33,000
2002 23,000
---------------------------------------------------------------------------------------
$ 118,000
---------------------------------------------------------------------------------------
</TABLE>
Employment The Company has entered into employment
Agreements agreements with its principal officers
providing for minimum base compensation
and severance pay. For the years ended
December 31, 1998 and December 31, 1997,
the aggregate amount paid under these
agreements was $305,000 and $280,000,
respectively. 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 1999 and
2000 total approximately $305,000 for each
year.
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, 1998 no
royalties have been earned under this
agreement.
<PAGE>
11. Commitments
(Continued)
Consulting The Company has entered into various
Agreements scientific advisory and consulting
agreements 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, 1998 and December 31, 1997
amounted to approximately $236,700 and
$42,400, respectively. The Company expects
to incur similar or higher expenses in
future years.
Finder's Fees The Company has entered into an
agreement to pay a finder's fee for
agreements entered into with certain
companies for investment or revenue
purposes. The finder's fee is based on a
percentage of the investment or revenue up
to a maximum of $150,000 with increases if
more than one product is commercialized
under the agreements.
Employee Benefit Effective January 1, 1999, the Company
Plan established a Savings Incentive Match Plan
for Employees of Small Employers
(SIMPLE) IRA plan covering substantially
all of its employees. The Company will
make contributions to the plan at the
discretion of the Board of Directors based
upon a percentage of employee compensation
as provided by the terms of the plan.
<PAGE>
12. Major Customers Through December 31, 1998,
the Company has generated its revenue from
a small number of customers and
collaborative agreements. Revenues were
generated as follows:
<TABLE>
<CAPTION>
Net License
Product Contract Fee
Year ended December 31, 1998 Sales Revenue Revenue
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer A $ 423,441 $ - $ -
Customer B - 99,570 400,000
--------------------------------------------------------------------------------------
$ 423,441 $ 99,570 $ 400,000
--------------------------------------------------------------------------------------
Net License
Product Contract Fee
Year ended December 31, 1997 Sales Revenue Revenue
--------------------------------------------------------------------------------------
Customer A $ 376,660 $ - $ -
Customer B - - 250,000
Customer C - 70,689 1,000,000
--------------------------------------------------------------------------------------
$ 376,660 $ 70,689 $ 1,250,000
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
12. Major Customers At December 31, 1998, the Company has an
(Continued) ongoing collaborative product development
agreement with Customer B and C related to
an ophthalmology and dermatology product,
respectively. The agreements provide for
the collaborative partners to fund certain
research activities of the Company and to
make certain milestone payments dependent
on the continuation of the agreements. The
next milestone payment, amounting to
$750,000 is due in August, 1999. This
payment is subject to an offset of up to
$125,000. The Company may receive
milestone payments beyond 1999 of several
million dollars if the agreements are
continued.
Net product sales from the United States
and other countries are as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997
--------------------------------------------------------------------------------------
<S> <C> <C>
United States $ 325,935 $ 376,660
United Kingdom and New Zealand 97,506 -
--------------------------------------------------------------------------------------
$ 423,441 $ 376,660
--------------------------------------------------------------------------------------
</TABLE>
13. Related Party A member of the board of directors
Transactions provides legal services to the Company.
Amounts paid for legal services rendered
by the director during 1998, either
individually or through his firm, totalled
approximately $79,000.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Effective April 1, 1998, the Boston office of Richard A. Eisner &
Company, LLP ("RAE") was merged into the Boston office of BDO Seidman, LLP
("BDO"). This merger resulted in RAE no longer having an office in the Boston
area, and the Company concluded that it would be appropriate to select a new
accounting firm. At a May 20, 1998 meeting, the Board of Directors of the
Company voted to retain BDO to serve as the Company's independent auditors,
effective immediately. RAE's report on the Company's financial statements for
the two years ended December 31, 1997 did not contain an adverse opinion or
disclaimer of opinion, and was not modified as to uncertainty, audit scope or
accounting principles. During the two years ended December 31, 1997 and any
subsequent interim period, there were no disagreements between the Company and
RAE on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of RAE, would have caused it to make reference to the subject
matter of the disagreement in connection with its report on the audited
financial statements.
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 1999 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 1999 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 1999 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 1999 Annual Meeting of Stockholders.
<PAGE>
Item 13 . Exhibits 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, 1998.
<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 8, 1999
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 8, 1999
- -------------------------- 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 8, 1999
- --------------------------- Treasurer, Chief Financial
Paul C. Desjourdy Officer, and Director (Principal
Financial and Accounting Officer)
/s/ James C. Richards Director March 8, 1999
- ----------------------------
James C. Richards
/s/ Richard F. Maradie Director March 8, 1999
- ---------------------------
Richard F. Maradie
/s/ Eugene Lieberstein Director March 8, 1999
- ---------------------------
Eugene Lieberstein
<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 exhibit 3.1 to Form 10-QSB for the
quarter ended September 30, 1996 and incorporated by reference.)
3.2 By-Laws of the Company. (previously filed as exhibit number 3.2 of the
Registration Statement (the "Registration Statement") on Form SB-2
(Registration No. 33-68828) filed on November 24, 1993 and declared
effective on December 7, 1993 and incorporated by reference.)
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). (previously filed as
exhibit number 3.3 of the Registration Statement and incorporated by
reference.)
4.1 Form of Specimen Class A Common Stock Certificate. (previously filed as
exhibit number 4.2 of the Registration Statement and incorporated by
reference.)
4.2 Form of Stock Restriction Agreement among the Company, the Class B
Stockholders and the Underwriter. (previously filed as exhibit number
4.4 of the Registration Statement and incorporated by reference.)
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 exhibit number 10.5
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 exhibit number 10.3 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 exhibit number 10.18 to Form
10-QSB for the quarter ended June 30, 1997 and incorporated by
reference.)
10.5 Form of Indemnification Agreement between the Company and each officer
and director of the Company. (previously filed as exhibit number 10.6
of the Registration Statement and incorporated by reference.)
10.6 Marketing and Supply Agreement, dated January 11, 1995 between the
Company and West Agro. (previously filed as exhibit number 10.1 to Form
8-K of the Registrant dated January 11, 1995 and incorporated by
reference). *
10.7 Agreement, dated August 31, 1992 among the Company, Dr. Jack H. Kessler
and Dr. Robert Rosenbaum. (previously filed as exhibit number 10.8 of
the Registration Statement and incorporated by reference.)
10.8 Form of Stock Option Agreement to be entered into between the Company
and each option holder. (previously filed as exhibit number 10.10 to
Form 10-KSB for the year ended December 31, 1993 and incorporated by
reference.)
10.9 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.)
10.10 1995 Non-Employee Directors' Stock Option Plan of the Company.
(previously filed as exhibit number 10.1 to Form 10-QSB for
the quarter ended June 30, 1995 and incorporated by reference.)
10.11 Collaboration and License Agreement, dated May 14, 1996, between the
Company and Oclassen Pharmaceuticals, Inc. (previously filed as exhibit
number 10.15 to Form 10-QSB for the quarter ended June 30, 1996 and
incorporated by reference.), as amended on August 14, 1997. (previously
filed as exhibit number 10.15.2 to Form 10-QSB for the quarter ended
September 30, 1997 and incorporated by reference.) *
10.12 Collaboration and Sale/License Agreement, dated August 4, 1997, between
the Company and Bausch & Lomb Pharmaceuticals, Inc. (previously filed
as exhibit number 10.19 to Form 10-QSB for the quarter ended June 30,
1997 and incorporated by reference.)
*
10.13 Stock Purchase Agreement, dated August 4, 1997, between the Company and
Bausch & Lomb Pharmaceuticals, Inc. (previously filed as exhibit number
10.20 to Form 10-QSB for the quarter ended June 30, 1997 and
incorporated by reference.)
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Richard A. Eisner & Company, LLP
27.1 Financial Data Schedule
- -------------------------------------
* Indicates that material has been omitted and confidential treatment has been
granted or requested therefor. All such omitted material has been filed
separately with the Commission pursuant to Rule 24b-2.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Symbollon Corporation
Framingham, Massachusetts
We hereby consent to the incorporation by reference in the Form S-8 of
our report dated January 22, 1999 relating to the financial statements of
Symbollon Corporation as of December 31, 1998 and for the year then ended and
amounts for the period from inception (July 15, 1986) to December 31, 1998 (not
presented separately therein) appearing in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Boston, Massachusetts
March 8, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Form S-8 of our
report dated January 22, 1998 on our audit of the financial statements of
Symbollon Corporation as of December 31, 1997 and for the year then ended
included in the Form 10-KSB for the year ended December 31, 1998.
Richard A. Eisner & Company, LLP
New York, New York
March 8, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED FINANCIAL STATEMENTS OF SYMBOLLON CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AS FILED IN THE FORM 10-KSB.
</LEGEND>
<CIK> 0000912086
<NAME> Symbollon Corporation
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,514,115
<SECURITIES> 0
<RECEIVABLES> 207,172
<ALLOWANCES> 0
<INVENTORY> 69,382
<CURRENT-ASSETS> 2,171,327
<PP&E> 283,170
<DEPRECIATION> 157,598
<TOTAL-ASSETS> 2,504,489
<CURRENT-LIABILITIES> 111,206
<BONDS> 0
850,000
0
<COMMON> 2,920
<OTHER-SE> 1,543,283
<TOTAL-LIABILITY-AND-EQUITY> 2,504,489
<SALES> 423,441
<TOTAL-REVENUES> 927,511
<CGS> 242,964
<TOTAL-COSTS> 242,964
<OTHER-EXPENSES> 1,245,016
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (892,750)
<INCOME-TAX> 0
<INCOME-CONTINUING> (892,750)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (892,750)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.33)
</TABLE>
