U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
| | 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
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SYMBOLLON CORPORATION
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 36-3463683
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37 Loring Drive, Framingham, MA 01702
- -------------------------------------------------------------------------------
(Address of principal executive offices)
508-620-7676
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(Issuer's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
May 12, 1999
-----------------
Class A Common Stock 3,589,331
Class B Common Stock 15,738
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
SYMBOLLON CORPORATION
(a development stage company)
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Balance Sheets
- March 31, 1999 and December 31, 1998 1
Unaudited Condensed Statements of Operations
and Deficit Accumulated During the Development
Stage - For the three months
ended March 31, 1999 and March 31, 1998 2
Unaudited Condensed Statements of Cash Flows
- For the three months ended March 31, 1999
and March 31, 1998 3
Notes to the Unaudited Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis
or Plan of Operation 5
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURE 8
INDEX TO EXHIBITS 9
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
<CAPTION>
March 31, December 31,
1999 1998
------------- ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents............................................... $ 1,304,394 $ 1,514,115
Restricted cash......................................................... 299,699 297,554
Accounts receivable..................................................... 255,494 207,172
Inventory............................................................... 79,897 69,382
Prepaid expenses........................................................ 45,755 83,104
----------- -----------
Total current assets.............................................. $ 1,985,239 $ 2,171,327
Equipment and leasehold improvements, net of
accumulated depreciation and amortization................................ 118,763 125,572
Other assets:
Patent and trademark cost, net of accumulated amortization............ 210,654 205,226
Deposit............................................................... 2,364 2,364
------------ -----------
TOTAL............................................................. $ 2,317,020 $ 2,504,489
============ ===========
LIABILITIES
Current liabilities:
Accounts payable........................................................ $ 69,868 $ 87,654
Accrued expenses........................................................ 216,909 4,403
Other current liabilities............................................... 17,744 19,149
------------ -----------
Total current liabilities......................................... 304,521 111,206
Redeemable common stock, Class A, par value $.001 per share,
186,667 and 669,545 shares issued at March 31, 1999
and December 31, 1998, respectively (aggregate involuntary
liquidation value $350,000 and $850,000, respectively)................... 350,000 850,000
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001 per share, 5,000,000 shares
authorized, none issued..................................................
Common stock, Class A, par value $.001 per share,
18,750,000 shares authorized, 3,402,664 and 2,919,786 shares issued at
March 31, 1999 and December 31, 1998, respectively....................... 3,403 2,920
Convertible Common stock, Class B, par value $.001 per share,
1,250,000 shares authorized, 15,738 shares issued at
March 31, 1999 and December 31, 1998, respectively....................... 16 16
Additional paid-in capital................................................ 7,754,229 7,254,712
Deficit accumulated during the development stage.......................... (6,095,149) (5,714,365)
------------ -----------
Total stockholders' equity........................................... 1,662,499 1,543,283
------------ -----------
TOTAL............................................................. $ 2,317,020 $ 2,504,489
============ ===========
</TABLE>
See notes to condensed financial statements.
1
<PAGE>
<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED
DURING THE DEVELOPMENT STAGE
(Unaudited)
<CAPTION>
Period From
July 15, 1986
Three Months Ended (Inception) to
March 31, March 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Net product sales................................. $ 172,500 $ 1,213,488
Contract revenue.................................. 82,993 727,743
License fee revenue............................... 2,190,000
----------- ----------- -----------
Total revenue............................. 255,493 4,131,231
Operating Expenses:
Cost of goods sold............................ 113,008 708,209
Research and development costs................ 440,105 $ 252,387 5,721,819
General and administrative expenses........... 100,294 158,653 4,035,560
----------- ----------- -----------
Total operating expenses.................. 653,407 411,040 10,465,588
----------- ----------- -----------
Income (Loss) from operations..................... (397,914) (411,040) (6,334,357)
Interest income................................... 17,130 30,202 595,468
Interest expense and debt issuance costs.......... (356,260)
----------- ----------- -----------
Net Income (Loss)................................. $ (380,784) $ (380,838) $(6,095,149)
=========== =========== ===========
Basic Net Income (Loss) per share of common stock. $ (0.13) $ (0.15)
=========== ===========
Diluted Net Income (Loss) per share of common stock $ (0.13) $ (0.15)
=========== ===========
Weighted average number of common shares
outstanding...................................... 2,905,069 2,498,691
=========== ===========
Weighted average number of common shares and
potential dilutive common shares outstanding..... 2,905,069 2,498,691
=========== ===========
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Period From
July 15, 1986
Three Months Ended (Inception) to
March 31, March 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ (380,784) $ (380,838) $(6,095,149)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization expense............... 11,446 11,308 439,825
Amortization of debt issuance costs................. 130,000
Accrued rent........................................
Loss on disposition of equipment.................... 19,542
Changes in:
Restricted cash................................... (2,145) (299,699)
Accounts receivable............................... (48,322) 24,852 (255,494)
Inventory......................................... (10,515) 948 (79,897)
Prepaid expenses.................................. 37,349 25,175 (45,755)
Accounts payable and other current liabilities.... 193,315 7,861 361,696
----------- ----------- -----------
Net cash provided by (used in)
operating activities.............................. (199,656) (310,694) (5,824,931)
----------- ----------- -----------
Cash flows from investing activities:
Equipment and leasehold improvements costs............ (2,965) (5,850) (367,791)
Patent and trademark costs............................ (7,100) (26,129) (432,293)
Proceeds from sale of equipment....................... 11,300
Deposit............................................... (2,364)
----------- ----------- -----------
Net cash provided by (used in) investing activities. (10,065) (31,979) (791,148)
----------- ----------- -----------
Cash flows from financing activities:
Warrant conversion.................................... 629,204
Borrowings from stockholders.......................... 253,623
Repayment to stockholders............................. (127,683)
Sale of common stock and units........................ 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........... 7,920,473
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH........................... (209,721) (342,673) 1,304,394
Cash at beginning of period............................... 1,514,115 2,527,865
----------- ----------- -----------
CASH AT END OF PERIOD..................................... $ 1,304,394 $ 2,185,192 $ 1,304,394
=========== =========== ===========
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
SYMBOLLON CORPORATION
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note A - Description of Business:
The Company was formed to develop and commercialize proprietary
iodine-based products for infection control and treatment in biomedical and
bioagricultural industries. The Company is in the development stage and its
efforts since inception have been principally devoted to research and
development, securing patent and trademark protection and raising capital.
Management of the Company anticipates that additional losses will be incurred as
these efforts are pursued. In 1995, the Company signed a marketing and supply
agreement for its first product and commenced shipping.
Note B - Accounting Policies and Disclosure:
The accompanying unaudited financial statements do not contain all of
the disclosures required by generally accepted accounting principles and should
be read in conjunction with the financial statements and related notes included
in the Company's Form 10-KSB for the year ended December 31, 1998 filed with the
Securities and Exchange Commission.
In the opinion of management, the financial statements reflect all
adjustments, all of which are of a normal recurring nature, to fairly present
the Company's financial position, results of operations and cash flows. The
results of operations for the three-month period ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full year.
Note C - Capitalization:
As of March 31, 1999, the Company reclassified $500,000 of the $850,000
redeemable common stock to stockholders' equity to more appropriately reflect
the terms of those securities. All $850,000 of these securities are held by
Bausch & Lomb Pharmaceuticals, Inc. in conjunction with its collaboration and
sale/license agreement with the Company. The securities are subject to certain
voting and transfer restrictions, may be redeemed at cost at the option of the
Company, and may be offset by Bausch & Lomb against certain portions of future
milestone payments due to the Company by requiring at cost redemption of the
securities. If the collaboration and sale/license agreement is terminated by
Bausch & Lomb before August 4, 2001, then up to $350,000 of the securities may
be redeemed at cost against 25% of the Company's positive cash flows from
operating activities for the years ended December 31, 2001, 2002 and 2003.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company is a development stage company. Since inception of the
Company's predecessor in 1986, the Company's efforts have been principally
devoted to research and development, securing patent and trademark protection
and raising capital, most of which efforts commenced after May 1991. Except for
revenue earned since 1995 on sales of IodoZyme, the Company's sole revenue to
date has been from research and development contracts with corporate partners
and interest income.
Forward-Looking Statements
In addition to the historical information contained herein, this
Quarterly Report on Form 10-QSB contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, including, but
not limited to statements concerning plans, objectives, goals, strategies,
prospects, financial needs, future performance, costs and expenditures and Year
2000 matters. 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
Company's early stage of development, dependence on collaborative partners,
additional financing requirements and availability, history (and expectation) of
losses, uncertainty of patent protection, uncertainty associated with
preclinical and clinical testing, market acceptance, intense competition,
government regulation, dependence on key personnel, lack of marketing and
manufacturing experience, reimbursement and drug pricing uncertainty, potential
product liability, material incompatibility, ability to maintain its Nasdaq
SmallCap Market listing, possible Year 2000 problems, hazardous materials, and
the other risks and uncertainties described or discussed in the section "Risk
Factors" in the Annual Report on Form 10-KSB for the period ended December 31,
1998. The forward-looking statements contained herein represent the Company's
judgment as of the date of the Quarterly Report on Form 10-QSB, and the Company
cautions readers not to place undue reliance on such statements.
Results of Operations
Symbollon's net loss decreased slightly by $54 from $380,838 in the
three-month period ended March 31, 1998 to $380,784 in the comparable 1999
period. The loss for the three-month period reflected increased revenues and
decreased general and administrative expenses, offset by increased development
efforts. The Company expects to continue to incur operating losses for the
foreseeable future.
<PAGE>
Product revenues from sales of IodoZyme for the three-month periods
ended March 31, 1999 were $172,500, compared to none in the comparable 1998
period. The increased sales do not necessarily reflect correspondingly increased
sales for the entire year.
Contract revenues for the three-month period ended March 31, 1999 were
$82,993, compared to none in the comparable 1998 period. The contract revenues
for the three-month period ended March 31, 1999 were generated from development
activities related to the corporate relationship with Bausch & Lomb
Pharmaceuticals, Inc.
Research and development expenses increased by $187,718 or 74.4% from
$252,387 in the three-month period ended March 31, 1998 to $440,105 in the
comparable 1999 period. The increase resulted from increased development
expenses related to the Company's drug candidate for the treatment of
fibrocystic breast disease, including consulting fees and clinical costs
associated with the Company's ongoing Phase II clinical trial and conducting a
Phase I clinical trial. The Company anticipates that research and development
expenses will remain high over the remainder of 1999 as the Company completes
its ongoing Phase II clinical trial for its drug to treat fibrocystic breast
disease.
General and administrative expenses decreased by $58,359 or 36.8% from
$158,653 in the three-month period ended March 31, 1998 to $100,294 in the
comparable 1999 period. The decrease resulted primarily from decreased employee
salaries and related costs and investor and public relations expenses.
Liquidity and Capital Resources
The Company has funded its activities through proceeds from private and
public placements of equity and debt securities. As of March 31, 1999, the
Company had working capital of $1,680,718.
The Company continues to incur operating losses and has incurred a
cumulative loss through March 31, 1999 of $6,095,149. However, the Company
believes that it has the necessary liquidity and capital resources, together
with anticipated future revenues, to sustain planned operations for the twelve
months following March 31, 1999. In the event that the Company's internal
estimates relating to its planned revenues or expenditures prove materially
inaccurate, the Company may be required to reallocate funds among its planned
activities and curtail certain planned expenditures. In any event, the Company
anticipates that it will require additional funds after March 31, 2000, and
therefore, the Company will seek new financing during the next twelve months.
The Company's ability to obtain new financing may, in part, be affected
by the Company's ability to maintain its listing on the Nasdaq SmallCap Market.
Nasdaq's current SmallCap continued listing criteria require, in part, that the
Company maintain net tangible assets (as defined by Nasdaq, 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. The
Company has received notification from Nasdaq that the Company failed to meet
the continued listing requirements because its net tangible assets were below
$2,000,000 as of December 31, 1998. According to Nasdaq, the Company's
<PAGE>
redeemable common stock ($500,000 of which has subsequently been reclassified to
stockholders' equity; see Note C above) constitutes liabilities under the net
tangible assets test. The Company plans to request a hearing with Nasdaq to
request a temporary waiver from the continued listing requirements while the
Company proceeds with a planned financing. There can be no assurance that Nasdaq
will grant such waiver, or if such waiver is granted, that the Company will be
able to obtain sufficient equity financing to maintain such Nasdaq listing.
During the remainder of 1999, the Company anticipates paying
approximately $228,750 as compensation for its current executive officers, and
approximately $22,725 for lease payments on its facilities. The Company
anticipates that the Phase II clinical trial for its drug to treat fibrocystic
breast disease will cost approximately $1,400,000 over the remainder of 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>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits on Page E-1.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf of the undersigned, thereunto duly
authorized.
SYMBOLLON CORPORATION
Date: May 14, 1999 By: /s/ Paul C. Desjourdy
----------------------
Paul C. Desjourdy, Exec. Vice President/CFO
and authorized signatory
<PAGE>
SYMBOLLON CORPORATION
INDEX TO EXHIBITS
Page #
27.1 Financial Data Schedule........................................
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED UNAUDITED FINANCIAL STATEMENT OF SYMBOLLON CORPORATION FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENT AS FILED IN THE FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,304,394
<SECURITIES> 0
<RECEIVABLES> 255,494
<ALLOWANCES> 0
<INVENTORY> 79,897
<CURRENT-ASSETS> 1,985,239
<PP&E> 286,923
<DEPRECIATION> 168,160
<TOTAL-ASSETS> 2,317,020
<CURRENT-LIABILITIES> 304,521
<BONDS> 0
350,000
0
<COMMON> 3,403
<OTHER-SE> 1,662,499
<TOTAL-LIABILITY-AND-EQUITY> 2,317,020
<SALES> 172,500
<TOTAL-REVENUES> 255,493
<CGS> 113,008
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 440,105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (380,784)
<INCOME-TAX> 0
<INCOME-CONTINUING> (380,784)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (380,784)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
