SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement
/_/ Confidential, for Use of the Commission Only
(as premitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SYMBOLLON CORPORATION
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/_/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
5) Total fee paid:
_____________________________________________________________________________
/_/ Fee paid previously by written preliminary materials.
/_/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount previously paid: _________________________________________________
2) Form, Schedule or Registration No. ______________________________________
3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
___________
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
SYMBOLLON CORPORATION
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
MAY 26, 1999
TO THE STOCKHOLDERS OF SYMBOLLON CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Symbollon Corporation, a Delaware corporation (the "Company"), will be held at
the Company's executive offices, located at 37 Loring Drive, Framingham,
Massachusetts 01702-8768, on May 26, 1999 at 10:00 a.m., local time, for the
following purposes:
1. To consider and act upon the election of five directors to serve
for the next year, or to serve for staggered terms in the event
that the proposed amendment set forth in Item 3 is approved;
2. To consider and act upon a proposal to amend the Company's 1993
Stock Option Plan to (a) increase the aggregate number of shares
of stock authorized for issuance and delivery in connection with
awards under such Plan from 800,000 shares of Class A Common Stock
to 1,600,000 shares of Class A Common Stock and (b) extend the
expiration date of such Plan from August 4, 2003 to August 4,
2008;
3. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation to: (a) classify the Board of
Directors into three classes, with members of each class serving
for staggered terms; (b) provide that directors may be removed
only for cause by the affirmative vote of the holders of at least
eighty percent (80%) of the voting power of all shares of capital
stock of the Company entitled to vote generally in the election of
directors, voting together as a single class; (c) provide that
any vacancy on the Board may be filled only by a majority vote of
the directors then in office, even if less than a quorum, and that
a director elected to fill a vacancy hold office until the
next election of the class for which such director shall have
been chosen; (d) provide that the stockholder vote required to
alter, amend, repeal or adopt any provision inconsistent with
these amendments shall be at least eighty percent (80%) of the
voting power of all of the shares of capital stock of the Company
entitled to vote generally in the election of directors, voting
together as a single class; and (e) provide for certain other
related matters;
4. To consider and act upon, for purposes of the shareholder approval
policy of the Nasdaq SmallCap Market, a proposal to issue and sell
the final 910,000 of up to 1,250,000 Units, each consisting of one
share of Class A Common Stock and one redeemable Warrant to
purchase one share of Class A Common Stock, and all shares of
Class A Common Stock issuable upon exercise of such Warrants, in a
private placement to accredited investors;
5. To consider and act upon a proposal to ratify the appointment of
BDO Seidman, LLP as the independent auditors of the Company; and
6. To transact such other business as may properly come before
the Annual Meeting or any adjournments thereof.
The close of business on April 1, 1999 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the meeting. A complete list of those stockholders will be open to
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours at the executive offices of the Company, 37 Loring
Drive, Framingham, Massachusetts 01702-8768, for a period of 10 days prior to
the meeting. The stock transfer books of the Company will not be closed.
All stockholders are cordially invited to attend the meeting. Whether
or not you expect to attend, you are kindly requested by the Board of Directors
to sign, date and return the enclosed proxy promptly. Stockholders who execute
proxies retain the right to revoke them at any time prior to the voting thereof.
A return envelope which requires no postage if mailed in the United States is
enclosed for your convenience.
By the order of the Board of Directors,
PAUL C. DESJOURDY
Assistant Secretary
Dated: April 23, 1999
<PAGE>
SYMBOLLON CORPORATION
37 LORING DRIVE
FRAMINGHAM, MA 01702-8768
(508) 620-7676
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Symbollon Corporation (the "Company" or
"Symbollon") for the Annual Meeting of Stockholders to be held at the Company's
executive offices, located at 37 Loring Drive, Framingham, Massachusetts
01702-8768, on May 26, 1999 at 10:00 a.m., local time, and for any adjournment
or adjournments thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting of Stockholders. Any stockholder giving such a proxy has the
power to revoke it at any time before it is voted. Written notice of such
revocation should be forwarded directly to the Assistant Secretary of the
Company, at the above stated address. Attendance at the meeting will not have
the effect of revoking the proxy unless such written notice is given.
If the enclosed proxy is properly executed and returned, the shares
represented thereby will be voted in accordance with the directions thereon and
otherwise in accordance with the judgment of the persons designated as proxies.
Any proxy on which no direction is specified will be voted in favor of the
following actions described in this Proxy Statement: (1) for the election of the
nominees set forth under the caption "Election of Directors;" (2) for the
proposed amendments to the Company's 1993 Stock Option Plan; (3) for the
proposed amendments to the Certificate of Incorporation regarding the
classification of the Board of Directors and related matters; (4) for the
issuance and sale of Units in a private placement; and (5) for the ratification
of the appointment of BDO Seidman, LLP as the independent auditors of the
Company.
The approximate date on which the Company intends to mail or otherwise
deliver copies of this Proxy Statement and the accompanying form of proxy to the
Company's stockholders is April 26, 1999.
Your vote is important. Accordingly, you are urged to sign and return
the accompanying proxy card whether or not you plan to attend the meeting. If
you do attend, you may vote by ballot at the meeting, thereby canceling any
proxy previously given.
VOTING
Only holders of shares of the Company's Class B Common Stock, $.001 par
value per share (the "Class B Common Stock"), and Class A Common Stock, $.001
par value per share (the "Class A Common Stock", the shares of Class A Common
Stock and Class B Common Stock are sometimes collectively referred to herein as
the "Shares"), of record as at the close of business on April 1, 1999, are
entitled to vote at the meeting. On the record date there were issued and
outstanding 15,738 shares of Class B Common and 3,589,331 shares of Class A
Common Stock. Each outstanding share of Class B Common Stock is entitled to five
votes, and each outstanding share of Class A Common Stock is entitled to one
vote, upon all matters to be acted upon at the meeting. A majority in interest
of the outstanding Shares, represented at the meeting in person or by proxy,
shall constitute a quorum. The affirmative vote of a plurality of the votes cast
is necessary to elect the nominees as directors. The affirmative vote of a
majority of the votes cast is necessary to approve the proposed amendments to
the Company's 1993 Stock Option Plan, to approve the issuance and sale of Units
in a private placement and to ratify the appointment of BDO Seidman, LLP as the
independent auditors of the Company. The affirmative vote of a majority of the
voting power of the outstanding Shares is necessary to approve the proposed
amendments to the Certificate of Incorporation. Abstentions and broker non-votes
are included in the determination of the number of Shares present at the meeting
for quorum purposes, but not in the tabulation of the votes cast on proposals
<PAGE>
presented to stockholders. Since Shares which abstain or are represented by
broker non-votes are still outstanding Shares, abstentions and broker non-votes
with respect to the proposed amendments to the Certificate of Incorporation have
the same effect as a vote against such proposed amendments.
The stockholders vote at the meeting by casting ballots (in person or
by proxy) which are tabulated by a person appointed by the Board of Directors
before the meeting to serve as the inspector of election at the meeting and who
has executed and verified an oath of office. The cost of preparing, assembling
and mailing the proxy, this Proxy Statement and the other material enclosed will
be borne by the Company. In addition to the solicitation of proxies by use of
the mails, officers and employees of the Company may solicit proxies by
telephone or other means of communication. The Company, through its transfer
agent, will request brokerage houses, banking institutions, and other
custodians, nominees and fiduciaries, with respect to Shares held of record in
their names or in the names of their nominees, to forward the proxy material to
the beneficial owners of such Shares and will reimburse them for their
reasonable expenses in forwarding the proxy material.
BOARD OF DIRECTORS
Election of Directors
Unless authority to do so has been withheld or limited in the proxy, it
is the intention of the persons named as proxies to vote at the meeting the
Shares to which the proxy relates to elect the nominees named below. Each of the
nominees is currently a director of the Company. Management recommends that the
persons named below be elected as directors of the Company and it is intended
that the accompanying proxy will be voted for their election as directors,
unless the proxy contains contrary instructions. The Company has no reason to
believe that any of the nominees will not be a candidate or will be unable to
serve. However, in the event that any of the nominees should become unable or
unwilling to serve as a director, the persons named in the proxy have advised
that they will vote for the election of such person or persons as shall be
designated by management.
If Item 3 is approved, Messrs. Desjourdy and Lieberstein will be
designated Class I directors and elected for a term of one year expiring at the
2000 Annual Meeting of Stockholders and until their successors are elected and
qualified; Messrs. Richards and Maradie will be designated Class II directors
and elected for a term of two years expiring at the 2001 Annual Meeting of
Stockholders and until their successors are elected and qualified; and Mr.
Kessler will be designated a Class III director and elected for a term of three
years expiring at the 2002 Annual Meeting of Stockholders and until his
successor is elected and qualified. If Item 3 is not approved, then five
directors are to be elected to serve as directors until the next Annual Meeting
and until their successors are elected and qualified.
The following sets forth the names and ages of the five nominees for
election to the Board of Directors, their respective principal occupations or
employments during the past five years and the period during which each has
served as a director of the Company.
Jack H. Kessler, Ph.D., 48
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.
<PAGE>
James C. Richards, Ph.D., 51
James C. Richards, Ph.D., served as President and Chief Executive
Officer of the Company from May 1991 to September 1995, as Treasurer from May
1991 to May 1994, and as a director since May 1991. Since October 1995, Dr.
Richards has been President, Chief Executive Officer and a director of
IntelliGene, Inc., a privately held company specializing in DNA probe
technologies. From November 1990 to May 1991, he served as Managing Director and
principal stockholder of Carlton Bio Venture Partners, a consulting firm
specializing in financing and acquisition of healthcare, medical products and
biotechnology companies. From 1986 to November 1990, Dr. Richards served as
director of business planning and development for Gene-Trak Systems, a joint
venture originally between AMOCO Corporation and Integrated Genetics, Inc.,
engaged in developing diagnostic test devices using DNA probes for the
healthcare and food industries.
Paul C. Desjourdy, 37
Paul C. Desjourdy has served as Executive Vice President and Chief
Financial Officer since July 1, 1996, as Vice-President - Finance and
Administration and Chief Financial Officer of the Company from September 20,
1993 to June 30, 1996, as Treasurer since May 1994, and as a director since
August 1996. From September 1989 to September 1993, Mr. Desjourdy, a certified
public accountant, was an attorney at the law firm of Choate Hall & Stewart.
Richard F. Maradie, 51
Richard F. Maradie has served as a director of the Company since April
1998. Since February 1999, Mr. Maradie has served as Senior Vice President of
Commercial Development of Oakwood Laboratories, a private biopharmaceutical
company developing drug delivery technologies. From March 1997 to August 1998,
Mr. Maradie served as President, Chief Executive Officer and a director of
Novavax, Inc., a public biopharmaceutical company developing topical and oral
drug delivery technologies. From July 1994 to March 1997, he served as
President, Chief Executive Officer and a director of Protyde Pharmaceuticals,
Inc., a private biopharmaceutical company developing products for the diagnosis
and treatment of cancer. From 1991 to 1994, Mr. Maradie served as Executive Vice
President and Chief Operating Officer of Platelet Research Products, Inc., a
private biopharmaceutical company developing therapeutic products derived from
blood platelets. From 1988 to 1991, he served as President, Chief Operating
Officer and a director of VimRx Pharmaceuticals, Inc., a public pharmaceutical
company developing therapeutics based on natural products.
Eugene Lieberstein, 60
Eugene Lieberstein has served as a director of the Company since April
1998. Since June 1993, Mr. Lieberstein has been a partner at the law firm of
Wyatt, Gerber, Meller and O'Rourke specializing in patent procurement and
litigation (Mr. Lieberstein and his firm serve as patent counsel for the
Company). From 1970 to 1993, he served as Patent Counsel for Union Carbide
Corporation.
The Board of Directors recommends that the Stockholders vote FOR each
of the five nominees.
General Information Concerning the Board of Directors and its Committees
The Board of Directors of the Company met three times in the fiscal
year ended December 31, 1998. The Delaware General Corporation Law provides that
the Board of Directors, by resolution adopted by a majority of the entire board,
may designate one or more committees, each of which shall consist of one or more
directors. The Board of Directors annually elects from its members the Executive
Committee, Audit Committee, and Compensation Committee. The Company does not
have a Nominating Committee. During the last fiscal year each of the directors
attended at least 75% of the total number of meetings of the Board of Directors
and of the committees on which each director serves.
<PAGE>
Executive Committee. The Executive Committee exercises all the powers
and authority of the Board of Directors in the management and affairs of the
Company between meetings of the Board of Directors, to the extent permitted
by law. During fiscal 1998, the Executive Committee was composed of three
directors, Messrs. Kessler, Desjourdy and Richards. The Executive Committee
did not meet during fiscal 1998.
Audit Committee. The Audit Committee reviews the engagement of the
independent auditors and their independence. The Audit Committee also reviews
the audit and non-audit fees of the independent auditors, the adequacy of the
Company's internal control procedures and financial reports to be filed with the
Securities and Exchange Commission. During fiscal 1998, the Audit Committee was
composed of three directors, Messrs. Desjourdy, Maradie and Lieberstein. The
Audit Committee met once during fiscal 1998.
Compensation Committee. The Compensation Committee reviews and
recommends to the Board of Directors remuneration arrangements and compensation
plans for the Company's executives. The Compensation Committee also authorizes
stock option grants, administers the 1993 Stock Option Plan and proposes other
stock option plans. During fiscal 1998, the Committee was composed of three
directors, Messrs. Kessler, Maradie and Lieberstein. The Compensation Committee
met once during fiscal 1998.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's voting stock as of April 1, 1999 for (i)
each of the Company's directors, (ii) each of the Named Executive Officers,
(iii) all directors and executive officers of the Company as a group and (iv)
each person known by the Company to own beneficially 5% or more of the
outstanding shares of any class of its voting stock:
<TABLE>
<CAPTION>
Shares of Percentage Percentage
Class A of Total of Total
Name and Address of Beneficially Percent of Voting Voting
Beneficial Owner (1) Owned (2)(3) Class (3) Securities (3) Power (4)
- -------------------- ------------ ----------- -------------- ----------
<S> <C> <C> <C> <C>
Bausch & Lomb Pharmaceuticals, Inc. (5) 669,545 18.7% 18.6% 18.3%
Dr. Jack H. Kessler (6)(7) 586,762 15.8% 15.7% 15.5%
Anthony J. Cantone (8) 377,778 10.5% 10.5% 10.3%
Dr. James C. Richards (6)(9) 364,443 10.1% 10.1% 9.9%
Irwin M. Rosenthal (10) 277,372 7.7% 7.7% 7.6%
Magar, Inc. (10) 277,372 7.7% 7.7% 7.6%
Dr. Herbert Moskowitz (10) 277,372 7.7% 7.7% 7.6%
Martin D. Fife (10) 277,372 7.7% 7.7% 7.6%
Paul C. Desjourdy (6) (11) 224,960 6.0% 5.9% 5.8%
Richard M. Lilly (12) 190,600 5.3% 5.3% 5.2%
Eugene Lieberstein (6)(13) 8,333 * * *
Richard F. Maradie (6)(13) 3,333 * * *
All Executive Officers
and Directors as a Group (5 persons) (14) 1,857,376 51.8% 51.5% 50.6%
- ----------------------------
* Less than 1% of the Class A Common Stock outstanding.
</TABLE>
<PAGE>
(1) All shares are beneficially owned and sole voting and investment
power is held by the persons named, except as otherwise noted.
(2) "Class A" refers to the Class A Common Stock. Does not include
information regarding the 15,738 shares of Class B Common Stock
(currently convertible into 15,738 shares of Class A Common Stock)
outstanding which are held by three non-affiliate owners. Includes
627,199 shares of Class A Common Stock which are subject to transfer to
the Company for no consideration if the Company's pretax income (before
extraordinary items and any charge related to the release of shares) is
less than $15,000,000 in fiscal 1999. So long as such shares are
subject to this condition, the holder may vote but not dispose of such
shares. Such shares are treated as outstanding in the table. Messrs.
Kessler and Richards and Magar, Inc. hold 232,769, 209,492 and 160,928
of such 627,199 shares, respectively.
(3) Based upon 3,589,331 shares of Class A Common Stock and 15,738 shares
of Class B Common Stock outstanding but also reflecting as outstanding,
with respect to the relevant beneficial owner, the shares which that
beneficial owner could acquire upon exercise of options exercisable
within 60 days.
(4) The Class B Common Stock is entitled to five votes per share, whereas
the Class A Common Stock is entitled to one vote per share. See Note 2.
(5) The address of Bausch & Lomb Pharmaceuticals, Inc. ("Bausch & Lomb") is
8500 Hidden River Parkway, Tampa, Florida 33637. With certain
exceptions, these securities are voted in accordance with the
recommendations of the Board of Directors of Symbollon. See Note 14.
These securities may be redeemed at cost at the option of either the
Company or Bausch & Lomb. See "Certain Transactions".
(6) The address of Directors Kessler, Richards, Desjourdy, Maradie and
Lieberstein is c/o Symbollon Corporation, 37 Loring Drive,
Framingham, MA 01702.
(7) Includes 1,100 shares owned by his minor child and currently
exercisable options to purchase 128,760 shares of Class A Common Stock.
(8) The address of Mr. Cantone is c/o Cantone Research, Inc., 766
Shrewsbury Avenue, Tinton Falls, New Jersey 07724.
(9) Includes currently exercisable options to purchase 6,250 shares of
Class A Common Stock.
(10) Dr. Moskowitz and Messrs. Rosenthal and Fife are
each officers, directors and principal stockholders of Magar,
Inc. ("Magar"). These individuals may be considered to beneficially
own, and to have shared investment and voting power with respect to,
all shares of Class A Common Stock owned by Magar. Information relating
to shares owned by each of these individuals assumes that each
beneficially owns all shares of Class A Common Stock owned of record by
Magar. The address of each of these individuals is c/o Graham & James,
LLP, 885 Third Avenue, 21st Floor, New York, NY 10022.
(11) Includes currently exercisable options to purchase 180,760 shares of
Class A Common Stock.
(12) The address of Mr. Lilly is c/o Indianapolis Securities, Inc., 2424
North Federal Highway, Boca Raton, FL 33431.
(13) Includes currently exercisable options to purchase 3,333 shares of
Class A Common Stock.
(14) Includes the 669,545 shares owned by Bausch & Lomb which, with certain
exceptions, are voted in accordance with the recommendations of the
Board of Directors of Symbollon and currently exercisable options
to purchase 322,436 shares of Class A Common Stock.
EXECUTIVE COMPENSATION
The following tables set forth certain information relating to
compensation paid by the Company for each of the Company's last three completed
fiscal years to its executive officers whose annual compensation exceeded
$100,000 for the last completed fiscal year (the "Named Executive Officers").
Only those columns which call for information applicable to the Company or the
Named Executive Officers for the periods indicated have been included in such
tables.
<TABLE>
<CAPTION>
Summary of Compensation Table
Annual Long Term
Compensation Compensation
------------ ---------------------
Salary Securities Underlying All Other
Name and Principal Position Year ($) Options/SARs (#) Compensation ($)(1)
- --------------------------- ---- -------- ------------------- -------------------
<S> <C> <C> <C> <C>
Jack H. Kessler 1998 $160,000 60,000 $ 624
Executive Vice President, Chief 1997 $150,000 70,281 $ 624
Scientific Officer and Secretary 1996 $150,000 96,000 $ 624
Paul C. Desjourdy 1998 $145,000 60,000 $ 264
Executive Vice President, Chief 1997 $130,000 70,281 $ 264
Financial Officer and Treasurer 1996 $130,000 136,333 $ 264
</TABLE>
(1) For each year includes premiums paid on term life insurance on
behalf of the Named Executive Officers in the
following amounts: Dr. Kessler: $624 and Mr. Desjourdy: $264.
Option/SAR Grants in Last Fiscal Year
The following table sets forth information with respect to options
granted during the last fiscal year to the Named Executive Officers of the
Company.
<TABLE>
<CAPTION>
Individual Grants
Number of % of Total
Securities Options/SAR
Underlying Granted to Exercise
Options/SAR's Employees in or Base
Name Granted(#) Fiscal Year Price ($/Sh) Expiration Date
---- ------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Jack H. Kessler 45,000 (1) 21.6% $1.86 December 1, 2003
15,000 (2) 7.2% $1.86 December 1, 2003
Paul C. Desjourdy 45,000 (1) 21.6% $1.69 December 1, 2008
15,000 (2) 7.2% $1.69 December 1, 2008
</TABLE>
(1) These options vest and become exercisable one-third on
December 1, 1999, December 1, 2000 and December 1, 2001, respectively.
(2) These options vest on December 1, 1998 and become exercisable on
December 1, 1999.
Aggregated Fiscal Year-End Option Values
The following table set forth certain information with respect to the
number of unexercised stock options held by each Named Executive Officer on
December 31, 1998, and the value of the unexercised in-the-money options at that
date.
<TABLE>
<CAPTION>
Aggregated Fiscal Year-End Option Values
Value of Unexercised
Number of Securities In-The-Money
Underlying Unexercised Options at Fiscal
Options at Fiscal Year-End Year-End ($) (1)
---------------------------------- -------------------------------
Name (#)Exercisable (#)Unexercisable Exercisable Unexercisable
---- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack H. Kessler 128,760 97,521 $ 15,192 $ 3,384
Paul C. Desjourdy 180,760 85,854 $ 11,442 $ 7,134
</TABLE>
(1) The value of unexercised in-the-money options at December 31, 1998, was
determined by multiplying the difference between the fair market value
(the closing sales price) of the Company's Class A Common Stock at the
close of business on December 31, 1998 ($1.50 per share) and the option
exercise price, by the number of options outstanding at that date. The
values have not been realized and may not be realized. The options have
not been exercised and may never be exercised. In the event the options
are exercised, their value will depend upon the fair market value of
the underlying Class A Common Stock on the date of exercise.
<PAGE>
Director Compensation
Upon Board of Directors' approval in May 1998, the Company no longer
provides cash compensation to directors for attendance at board or committee
meetings. Each non-employee director is entitled to receive on January 1st of
each year an option (the "Annual Options") to purchase 2,500 shares of Class A
Common Stock at the then fair market value under the Company's 1995 Non-Employee
Directors' Stock Option Plan. The Annual Options may only be exercised with
respect to vested shares. One-half of the shares subject to such options vest on
the first anniversary of the date of grant and the balance vest on the second
anniversary of the date of grant. In addition, Messrs. Lieberstein and Maradie
were each granted an option under the Company's 1993 Stock Option Plan at the
then fair market value, vesting equally over three years, to purchase 10,000
shares of Class A Common Stock in 1998 when they joined the Board of Directors.
All directors will be reimbursed for ordinary and necessary travel expenses
incurred in attendance at each board or committee meeting.
Employment Agreements
On December 23, 1995, the Company entered into a new employment
agreement with Dr. Jack H. Kessler, its Executive Vice-President and Chief
Scientific Officer and a director and principal stockholder. On July 1, 1996,
the Company entered into a new employment agreement with Mr. Paul C. Desjourdy,
its Executive Vice-President and Chief Financial Officer and a director. Both
agreements expire in December 2000. In 1999, Dr. Kessler and Mr. Desjourdy will
receive salaries of $160,000 and $145,000, respectively, per annum. The
employment agreements provide for inflationary salary adjustments, and such
compensation may be incrementally increased and bonuses may be given upon the
approval of the Company's Board of Directors. Both Executive Officers have
agreed to devote their full time and best efforts to fulfill their duties and
responsibilities to the Company. They will be entitled to participate in
employee benefit plans.
The Company has the right to terminate the agreements for Cause (as
defined therein) or as a result of the Executive Officers' death or Permanent
Disability (as defined therein). The Executive Officers have the right to
terminate their agreements on account of their Constructive Discharge (as
defined therein). Except in the case of termination for Cause, upon early
termination of their agreements, the Executive Officers shall be entitled to
receive their salaries plus fringe benefits for a period of 18 months from the
date of termination and any bonuses prorated through the date of termination.
Both Executive Officers have agreed not to disclose to anyone
confidential information of the Company during the term of their employment or
thereafter and will not compete with the Company utilizing the Company's
proprietary information, know-how or trade secrets during the term of their
employment or thereafter. All work, research and results thereof, including,
without limitation, inventions, processes or formulae made, conceived or
developed by the Executive Officers during the term of employment which are
related to the business, research, and development work or field of operation of
the Company shall be the property of the Company.
Dr. Kessler is a principal stockholder, officer and director of a
company which has rights to use technology that he developed pertaining to
contact lens disinfection. This technology, which is similar to the Company's
technology, is not expected to be assigned to the Company. As a result, use of
the Company's technology in the area of contact lens disinfection may require
the prior consent of such other company or the then owner of such rights.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act") requires the Company's directors, officers and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file initial reports of ownership and changes in ownership of such securities
with the Securities and Exchange Commission. Directors, officers and greater
than ten percent beneficial owners are required by applicable regulations to
furnish the Company with copies of all Section 16(a) forms they file.
<PAGE>
Based solely upon a review of the copies of the forms furnished to the
Company and written representations from the Company's directors and officers,
the Company believes that during 1998 all filing requirements applicable to its
directors, officers and greater than ten percent beneficial owners were
satisfied.
CERTAIN TRANSACTIONS
From November 1987 through July 1990, Dr. Kessler loaned the Company an
aggregate of $51,495 at varying rates of interest, of which approximately $4,000
had been repaid. In May 1991, these loans were consolidated and the Company
issued Dr. Kessler a new promissory note in the amount of $47,549, payable on
demand at an annual interest rate of 7%. In August 1996, the Company repaid the
outstanding balance of the note, plus accrued interest, in part by issuing
44,444 shares of the Company's Series A Preferred Stock, $.001 par value, to Dr.
Kessler as part of a private placement of such Series A Preferred Stock at a
price of $1.125 per share. In May 1997, Dr. Kessler converted all of his Series
A Preferred Stock into an equal number of shares of the Company's Class A Common
Stock, pursuant to registration of such shares by the Company.
During August 1996 the Company issued 400,000 shares of Series A
Preferred Stock to Mr. Anthony Cantone at a purchase price of $1.125 per share
as part of a private placement. In May 1997, Mr. Cantone converted all of his
Series A Preferred Stock into an equal number of shares of the Company's Class A
Common Stock, pursuant to registration of such shares by the Company.
In August 1997, the Company entered into a Collaboration and
Sale/License Agreement with Bausch & Lomb. Under the Collaboration and
Sale/License Agreement, the parties intend to develop ophthalmic products based
on Symbollon's proprietary enzyme-based iodine technology. Bausch & Lomb
obtained exclusive marketing rights in the United States and Canada for
ophthalmic products that are developed based on Symbollon's iodine technology.
The agreement also provides Bausch & Lomb with options to broaden its exclusive
marketing rights to include the rest of the world, and to include otic (ear)
products. So long as the agreement is in effect, Bausch & Lomb will make a
series of milestone payments to Symbollon based on the passage of time or the
occurrence of certain events, plus royalty payments on product sales and
reimbursement of Symbollon's development efforts under the agreement.
In conjunction with the Collaboration and Sale/License Agreement, the
parties entered into a Stock Purchase Agreement pursuant to which Bausch & Lomb
has purchased in August 1997 and 1998 an aggregate of 669,545 shares of Class A
Common Stock for $850,000. Subject to certain exceptions, Bausch & Lomb has
agreed to vote its shares of Class A Common Stock in accordance with the
recommendations of Symbollon's Board of Directors. Bausch & Lomb may offset
certain portions of the future milestone payments due to Symbollon pursuant to
the Collaboration and Sale/License Agreement by requiring at cost redemption of
the shares purchased pursuant to the Stock Purchase Agreement. Under certain
circumstances, if the Collaboration and Sale/License Agreement is terminated
prior to Symbollon's receipt of the required milestone payments, then Bausch &
Lomb has agreed to transfer to Symbollon for no consideration up to $500,000
worth (valued at their original purchase price) of the shares. Additionally, if
the Collaboration and Sale/License Agreement is terminated by Bausch & Lomb
prior to its fourth anniversary, Bausch & Lomb may require the Company to
repurchase up to $350,000 worth (valued at their original purchase price) of the
shares annually through the seventh anniversary of the Stock Purchase Agreement
in an amount equal to 25% of the Company's positive cash flows from operating
activities. Symbollon has the right to repurchase varying portions of the shares
(valued at their original purchase price) through the seventh anniversary of the
Stock Purchase Agreement.
For information concerning employment agreements and option agreements
with the Company's officers, see "Executive Compensation".
<PAGE>
APPROVAL OF AMENDMENTS TO THE
COMPANY'S 1993 STOCK OPTION PLAN
The Company's 1993 Stock Option Plan was approved by the directors and
stockholders of the Company in August 1993 and amended by the directors and
stockholders in 1995 and 1996. The purpose of the 1993 Stock Option Plan, as
amended (the "1993 Stock Option Plan"), is to enable the Company to provide an
incentive to certain employees, agents, consultants and directors of the Company
to contribute to the success of the Company. There are currently five employees
and three non-employee directors eligible to participate in the 1993 Stock
Option Plan.
The 1993 Stock Option Plan provided that (a) the total number of shares
of Common Stock with respect to which options and stock appreciation rights
("SARs") may be granted thereunder is 800,000 and (b) the expiration date of the
Plan was August 4, 2003 . The Board of Directors has adopted amendments to the
1993 Stock Option Plan, subject to the approval of stockholders pursuant to
Section 22 of the Plan, to (a) increase the total number of shares of Common
Stock with respect to which options and SARs may be granted thereunder to
1,600,000 shares and (b) extend the expiration date to August 4, 2008 (the
"Amendments"). The Amendments will enable the 1993 Stock Option Plan to continue
to achieve its purpose as described in the immediately preceding paragraph. To
date, options for an aggregate of 728,145 shares have been granted (net of
forfeitures) pursuant to the Plan to various individuals, including Messrs.
Desjourdy, Kessler, Maradie and Lieberstein (see "Executive Compensation"
above).
The complete text of the 1993 Stock Option Plan has been filed by the
Company with Securities and Exchange Commission as Exhibit A to the Company's
1994 Annual Stockholders Meeting Proxy Statement filed under cover of Schedule
14A dated May 4, 1994. These proposed Amendments (which will be reflected in
Sections 2(a) and 22 thereof), will (a) increase the total number of shares from
800,000 to 1,600,000 and (b) extend the expiration date from August 4, 2003 to
August 4, 2008. The following summary of material features of the 1993 Stock
Option Plan as proposed to be amended by the Amendments does not purport to be
complete and is qualified in its entirety by reference to the complete text of
the 1993 Stock Option Plan.
The 1993 Stock Option Plan may be administered by either the entire
Board of Directors or a committee (the "Committee") of two or more directors
appointed by the Board of Directors. Members of the Committee must be
"non-employee" directors (as defined under Rule 16b-3 promulgated under the
Exchange Act). The Board of Directors or Committee, as the case may be, is to
determine, among other things, the recipients of grants, whether a grant will
consist of incentive stock options ("ISOs"), non qualified stock options or SARs
(in tandem with an option or free-standing) or a combination thereof, and the
number of shares to be subject to such options and SARs. In the event that a
duly constituted Committee is not in existence at any time, the entire Board of
Directors is to administer the 1993 Stock Option Plan.
The 1993 Stock Option Plan provides for the granting of ISOs to
purchase the Company's Class A Common Stock at not less than the fair market
value on the date of the option grant and the granting of non-qualified options
and SARs with an exercise price not less than 85% of fair market value. SARs
granted in tandem with an option have the same exercise price as the related
option. The 1993 Stock Option Plan contains certain limitations applicable only
to ISOs granted thereunder. To the extent that the aggregate fair market value,
as of the date of grant, of the shares as to which ISOs become exercisable for
the first time by an optionee during any calendar year exceeds $100,000, the
option will be treated as a non qualified option. In addition, if an optionee
owns more than 10% of the total voting power of all classes of the Company's
stock at the time the individual is granted an ISO, the option price per share
cannot be less than 110% of the fair market value per share and the term of the
ISO cannot exceed five years. No option or SAR may be granted under the 1993
Stock Option Plan after August 4, 2003 (to be extended to August 4, 2008 by the
proposed Amendments) and no option or SAR may be outstanding for more than ten
years after its grant.
Upon the exercise of an option, the holder must make payment of the
full exercise price. Such payment may be made in cash, check or, under certain
circumstances, in shares of any class of the Company's common stock, or any
<PAGE>
combination thereof. The 1993 Stock Option Plan permits the Company to lend to
the holder of an option funds sufficient to pay the exercise price. SARs which
give the holder the privilege of surrendering such rights for the appreciation
in the Class A Common Stock between the time of the grant and the surrender, may
be settled, in the discretion of the Board or Committee, as the case may be, in
cash, common stock, or in any combination thereof. The exercise of an SAR
granted in tandem with an option cancels the option to which it relates with
respect to the same number of shares as to which the SAR was exercised. The
exercise of an option cancels any related SAR with respect to the same number of
shares as to which the option was exercised. Generally options and SARs may be
exercised while the recipient is performing services to the Company and within
three months after termination of such services.
The 1993 Stock Option Plan may be terminated at any time by the Board
of Directors, which may also amend the 1993 Stock Option Plan, except that
without stockholder approval it may not increase the number of shares subject to
the 1993 Stock Option Plan or change the class of persons eligible to receive
options and SARs under the 1993 Stock Option Plan.
Plan Benefits
The specific future benefits or amounts to be received by executive
officers, employees and directors under the 1993 Stock Option Plan as proposed
to be amended by the Amendments is not determinable. Since the adoption of the
Plan, Messrs. Kessler and Desjourdy have received options for an aggregate of
226,281 and 266,614 shares, respectively (60,000 and 60,000 of which were
received in 1998), the non-employee director group received options for an
aggregate of 20,000 shares, all in 1998 (see "Executive Compensation"), and all
employees, other than executive officers and the non-employee director group,
currently consisting of three persons, received options for 150,000 shares under
the 1993 Stock Option Plan, 88,000 of which were in 1998. No SARs have been
granted under the 1993 Stock Option Plan.
In addition to the 1993 Stock Option Plan, the Company has in effect a
1995 Non-Employee Directors' Stock Option Plan. See "Executive Compensation -
Director Compensation" above for a description of the benefits thereunder.
Federal Income Tax Consequences
Neither the receipt nor the exercise of an ISO is a taxable event, and
if the optionee does not dispose of stock acquired under an ISO prior to the
expiration of the requisite holding periods, any gain resulting from the sale of
the stock is long term capital gain. In such case the Company is not entitled to
any tax deduction with respect to the grant or the exercise of the option.
However, the amount by which the fair market value of shares at the time of
exercise of the option exceeds the option price will constitute an item of tax
preference for purposes of the alternative minimum tax for the optionee. The
statutory holding period is at least two years from the date the ISO is granted
and one year from the date the optionee receives his shares of Common Stock
pursuant to the exercise. If the stock is disposed of before the end of the
statutory holding period, the lesser of the difference between the exercise
price and the fair market value of the stock on the date of exercise or the
total amount of gain realized on the sale must be reported by the optionee as
ordinary income and the Company is entitled to a tax deduction for that amount.
The remaining gain, if any, is taxed to the optionee as long or short-term
capital gain.
The receipt of a non-qualified stock option issued under the 1993 Stock
Option Plan will not result in any taxable income to the optionee or a tax
deduction to the Company at the time the option is granted. Generally, the
optionee will recognize ordinary income at the time the non-qualified stock
option is exercised in an amount equal to the excess of the fair market value on
the date of exercise of the shares received over the exercise price, and the
Company will be entitled to a tax deduction of an equal amount in the year the
optionee recognizes such income. The optionee will have a tax basis for his
shares equal to their fair market value at the time the optionee recognizes
ordinary income and any additional gain or loss recognized by the optionee on
disposition of the shares will
<PAGE>
generally be a short or long term capital gain or loss and will not result in
any additional tax deduction to the Company.
The holder of an SAR will not realize any taxable income upon the grant
of such right. The holder will realize ordinary income in the tax year in which
payment is realized in an amount equal to the amount of such cash and/or the
then fair market value of the shares of Common Stock received upon exercise, and
the Company will normally be entitled to a tax deduction for an equal amount for
the same year.
The Board of Directors recommends that the Stockholders vote FOR the
proposal to approve the Amendments.
PROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
CONCERNING CLASSIFICATION OF THE BOARD OF DIRECTORS,
THE REMOVAL OF DIRECTORS AND RELATED MATTERS
General
The Delaware General Corporation Law currently provides that the
Certificate of Incorporation may provide for classification of the Board into
one, two or three classes. The Board of Directors has adopted proposed
amendments to the Company's Certificate of Incorporation to: (a) classify the
Board, effective with this 1999 Annual Meeting, into three classes, as nearly as
equal as possible, so that each director (after a transitional period) will
serve for three years, with one class of directors being elected each year; (b)
provide that directors may be removed only for cause by the affirmative vote of
at least eighty percent (80%) of the voting power of all of the outstanding
shares of capital stock of the Company entitled to vote generally in the
election of directors, voting together as a single class; (c) provide that any
vacancy on the Board may be filled only by a majority vote of the directors then
in office, even if less than a quorum, and that a director elected to fill a
vacancy hold office until the next election of the class for which such director
shall have been chosen; (d) increase the stockholder vote required to alter,
amend, repeal or adopt any provision inconsistent with these proposed amendments
to at least eighty percent (80%) of the voting power of all of the outstanding
shares of capital stock of the Company entitled to vote generally in the
elections of directors, voting together as a single class; and (e) provide for
certain other related matters. The full text of the proposed amendments to the
Certificate of Incorporation are set forth in Exhibit A to this Proxy Statement,
and the descriptions thereof in this Proxy Statement are qualified in their
entirety by reference thereto.
The Board of Directors believes that the proposed amendments are
advisable and in the best interest of the stockholders and recommends that the
stockholders approve the amendments. If the proposed amendments are approved,
the five directors elected to the Board at the 1999 Annual Meeting will be
divided into three classes as provided under "Board of Directors - Election of
Directors" and certain conforming amendments, in substantially the form set
forth in Exhibit B to this Proxy Statement, will be made by the Board of
Directors to the By-laws of the Company.
The Board believes that a classified Board will help lend continuity
and stability to the management of the Company. Following adoption of the
classified Board structure, at any given time approximately two-thirds of the
members of the Board will generally have had experience as directors of the
Company. The Board believes that this will facilitate long-range business
planning, strategic planning and policy making. In particular, the Company
believes that a classified Board will permit the Company to more effectively
represent the interests of all of its stockholders in a variety of situations,
including responding to circumstances which might be created by the demands or
actions of a single stockholder or stockholder group, than might be the case if
the Board were not classified and a measure of continuity from year to year were
not thereby assured.
The proposed classified Board amendment could discourage efforts to
obtain control of the Company. Accordingly, before voting on the proposed
amendments, stockholders should read carefully the description contained below
<PAGE>
in "Anti-Takeover Effects of Existing Provisions of the Certificate of
Incorporation Relating to the Class B Common Stock and Preferred Stock" as well
as the following description of the proposed amendments. The classification of
directors will have the effect of making it more difficult for stockholders to
change the composition of the Board in a relatively short period of time since
at least two Annual Meetings of Stockholders will be required to effect a change
in a majority of the members of the Board. The delay afforded by the proposed
amendments will help ensure that the Board, if confronted with a hostile tender
offer, a proxy contest or other similar proposal, would have sufficient time to
review and consider the proposal and appropriate alternatives to the proposal
and to act in what it believes to be the best interests of the stockholders.
The Company's management is not presently aware of any pending or
threatened effort to take over control of the Company or to change management,
either by a third party or by any holder or holders of any substantial block of
the Company's capital stock, whether by merger, tender offer, solicitation in
opposition to management or otherwise. Accordingly, the proposed amendments to
the Certificate of Incorporation are not being recommended in response to any
specific effort to obtain control of the Company of which the Company is aware.
The Board of Directors has concluded, however, that it is desirable to consider
these amendments at a time when the Company is not subject to a takeover attempt
because the Board of Directors believes it is prudent to seek stockholder
approval of these measures in advance since, given time and other constraints,
such action would often be impractical once a hostile attempt has been
announced.
Description of the Proposed Amendments
Classification of the Board of Directors. The Company's By-laws now
provide that directors shall hold office until the next annual meeting of
stockholders and until their successors are elected and have been qualified. The
proposed amended Article SIXTH of the Certificate of Incorporation provides that
the Board shall be divided into three classes of directors. Pursuant to the
amendments, each class will be as nearly equal in number of directors as
possible. If the proposed amendments are adopted, the Company's directors will
be divided into three classes and two directors will be elected for a term
expiring at the 2000 Annual Meeting of Stockholders, two directors will be
elected for a term expiring at the 2001 Annual Meeting of Stockholders, and one
director will be elected for a term expiring at the 2002 Annual Meeting of
Stockholders (in each case, until their respective successors are elected and
qualified or such director's earlier death, resignation or removal). Starting
with the 2000 Annual Meeting of Stockholders, one class of directors will be
elected each year for a three-year term. For information regarding the nominees
for election at this 1999 Annual Meeting and the class of Directors in which
each nominee will initially serve if the proposed amendments are adopted, see
"Board of Directors - Election of Directors".
The classification of directors will have the effect of making it more
difficult to change the composition of the Board. At least two stockholder
meetings, instead of one, will be required to effect a change in the control of
the Board. Although, the Company has not experienced any significant problems to
date with the continuity and stability of the Company's management and policies,
the Board believes that the longer time required to elect a majority of a
classified Board will help to assure the continuity and stability of the
Company's management and policies in the future, because a majority of the
directors at any given time will have prior experience as directors of the
Company. It should be noted that the classification provisions will apply to
every election of directors, not only when there is a contest for control, and
will apply whether or not a change in the Board would be beneficial to the
Company and its stockholders and whether or not a majority of the Company's
stockholders believes that such a change would be desirable.
Removal of Directors; Filling Vacancies on the Board of Directors.
Under the Delaware General Corporation Law, directors serving on a classified
board may be removed only for cause unless the Certificate of Incorporation
provides otherwise. The Company's By-laws now provide that directors may be
removed for cause or without cause by the stockholders or for cause by the Board
of Directors. In order to protect the classification mechanism, the proposed
amendments provide that a director may be removed only for cause, by the
<PAGE>
affirmative vote of the holders of at least eighty percent (80%) of the voting
power of all outstanding shares of capital stock entitled to vote generally in
the election of directors, voting together as a single class.
The proposed amendments provide that a vacancy on the Board resulting
from such a removal may be filled only by vote of a majority of the directors
then in office. The proposed amendments would also permit the remaining
directors then in office to fill such a vacancy on the Board even if less than a
quorum. In addition, the proposed amendments provide that any new director
elected to fill such a vacancy on the Board will serve for the remainder of the
full term of the class in which the vacancy occurred. It also provides that no
decrease in the number of directors shall shorten the term of any incumbent.
Currently the Company's By-laws provide that a vacancy on the Board resulting
from removal of a director may be filled by a majority vote of the remaining
directors then in office, even if less than a quorum, or by the sole remaining
director. The By-laws currently also provide that any director elected to fill
such a vacancy on the Board will hold office until the election of their
successor at the next annual meeting of stockholders. The provisions of the
proposed amendments to the Certificate of Incorporation relating to the removal
of directors and the filling of vacancies on the Board will preclude a third
party from removing incumbent directors without cause (or in the case of a
sudden change of control of the Company, even with cause, unless the acquirer
controls eighty percent (80%) of the voting power) and simultaneously gaining
control of the Board by filling the vacancies created by removal with its own
nominees. The proposed amendments would also have the effect of allowing
directors to fill any vacancy created by removal of a director for cause by the
affirmative vote of stockholders having at least eighty percent (80%) of the
voting power. Therefore, if any director is removed by such a vote of the
stockholders, the directors then in office would have the right to replace such
director with a nominee of their choosing without stockholder approval.
Increased Stockholder Vote for Alteration, Amendment or Repeal of
Proposed Amendments. Under the Delaware General Corporation Law, stockholder
approval of most amendments to the Certificate of Incorporation requires, in the
absence of a greater voting requirement in the Certificate of Incorporation, the
favorable vote of at least a majority of the outstanding stock entitled to vote
thereon. The Delaware General Corporation Law also permits provisions to be
contained in the Certificate of Incorporation to require a greater vote. With
respect to such greater-voting provisions, the Delaware General Corporation Law
requires that any alterations, amendment or repeal thereof be approved by such
greater stockholder vote. As permitted by these provisions of the Delaware
General Corporation Law, the proposed amendments require approval of at least
eighty percent (80%) of the votes cast on the matter by all of the outstanding
shares of capital stock of the Company entitled to vote generally in the
election of directors, voting together, for the alteration, amendment or repeal
of, or the adoption of any provision inconsistent with, the proposed amendments
as embodied in amended Article SIXTH of the Certificate of Incorporation.
The requirement of an increased stockholder vote is designed to prevent
a stockholder or a group of stockholders controlling a majority (but less than
eighty percent (80%)) of the voting power of all the outstanding shares of
capital stock of the Company entitled to vote from avoiding the requirements of
the proposed amendments by simply repealing them.
Anti-Takeover Effects of Existing Provisions of the Certificate of Incorporation
Relating to the Class B Common Stock and Preferred Stock.
The Company presently has in effect certain provisions in its
Certificate of Incorporation which, by themselves, or when added to the proposed
amendments to the Certificate of Incorporation, could preclude or inhibit the
takeover of the Company by a transaction not favored by the incumbent directors
and executive officers.
The Company's Certificate of Incorporation authorizes the issuance of
1,250,000 shares of Class B Common Stock, of which 15,738 shares are currently
outstanding. The Board of Directors, without further stockholder approval, may
authorize the issuance of additional authorized but unissued shares of Class B
Common Stock in the future and sell shares of Class B Common Stock held in the
Company's treasury subject to compliance with listing requirements of the Nasdaq
SmallCap Market, if then applicable. The holders of Class A Common Stock are
<PAGE>
entitled to one vote for each share held on all matters voted on by common
stockholders, including the election of directors. The holders of Class B Common
Stock are entitled to five votes for each share held in the election of
directors and on all matters voted on by common stockholders. The Class B Common
Stock is generally nontransferable, and while there is no trading market for the
Class B Common Stock, the Class B Common Stock is freely convertible into Class
A Common Stock on a share-for-share basis and, subject to compliance with
applicable securities laws, transferable thereafter.
The Company's Certificate of Incorporation also authorizes the issuance
of 5,000,000 shares of preferred stock on terms which may be fixed by the
Company's Board of Directors without further stockholder action subject to
compliance with listing requirements of the Nasdaq SmallCap Market, if then
applicable. The terms of any series of preferred stock, which may include
priority claims to assets and dividends, and special voting rights, could
adversely affect the rights of holders of the Class A Common Stock. No preferred
stock is outstanding, and the Company has no current plans to issue such
preferred stock.
The issuance of such Class B Common Stock or preferred stock could make
the possible takeover of the Company or the removal of management or the Board
of Directors of the Company more difficult, discourage hostile bids for control
of the Company in which stockholders may receive premiums for their shares of
Class A Common Stock, or otherwise dilute the rights of holders of Class A
Common Stock and the market price of the Class A Common Stock.
The Board of Directors recommends that the Stockholders vote FOR the
proposal to approve the amendments to the Certificate of Incorporation.
PROPOSED ISSUANCE AND ISSUE OF UP TO 1,250,000 UNITS
IN A PRIVATE PLACEMENT
General
The Company is planning to offer (the "Offering") in a private
placement for sale to persons who qualify as "accredited investors" as that term
is defined in Rule 501 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), units (the "Units"), each Unit consisting of one share
of Class A Common Stock and one redeemable warrant (the "Warrants"), with a
minimum offering of 100,000 Units and a maximum offering of 1,250,000 Units (the
"Maximum Offering"). The Company intends to price the Units at a discount to the
market value of the Class A Common Stock at the start of the Offering. It is
currently anticipated that each Warrant will be exercisable for a four-year
period, beginning on the date of the initial closing of the Offering, to
purchase one share of Class A Common Stock at exercise prices per share of $3.00
during the first year, $4.00 during the second year, $5.00 during the third year
and $6.00 thereafter. It is currently anticipated that the Warrants will be
redeemable at the option of Company at $0.01 per Warrant in the event that the
average closing bid price as quoted by Nasdaq (the average last reported sales
price if then listed on any national securities exchange) of the Class A Common
Stock over twenty successive trading days is equal to or greater than $5.00
during the first year, $6.00 during the second year, $7.00 during the third year
and $8.00 thereafter, subject to the holder's right to exercise. If the Class A
Common Stock is neither quoted on the Nasdaq Market nor listed on any national
securities exchange, it is anticipated that the Warrants will be redeemable at
the option of the Company if the average closing bid price of the Common Stock
as reported in the over-the-counter market in the so-called "pink sheets" or the
"OTC Bulletin Board Service" over twenty successive trading days is $1.00 higher
than the price for each relevant redemption period set forth in the preceding
sentence.
The Company has retained a National Association of Securities Dealers
(NASD) member as placement agent (the "Placement Agent") in connection with the
Offering of the Units on a "best efforts" basis. Richard M. Lilly, a principal
and employee of the Placement Agent, is the beneficial owner of more than five
percent (5%) of the Company's Class A Common Stock. See "Security Ownership of
Certain Beneficial Owners and Management." The Company has agreed to pay the
Placement Agent a ten percent (10.0%) cash commission and Warrants equal to
<PAGE>
10.0% of the Units sold (the "Placement Agent Warrants") for investors
identified and brought to the Offering by the Placement Agent. For investors
identified and brought to the Offering by the Company, the Placement Agent will
not receive any cash commissions or Placement Agent Warrant allocations.
The Units will be offered in accordance with Rule 506 of Regulation D
promulgated under the Securities Act, and accordingly the securities offered in
the Offering will not be registered under the Securities Act and may not be
offered or sold by the holders thereof absent registration or an applicable
exemption from the registration requirements. The Company will, however,
undertake to use its commercially reasonable best efforts to file a registration
statement under the Securities Act to register for resale the shares of the
Class A Common Stock included in the Units and issuable upon exercise of the
Warrants no later than eight (8) months following the final closing of the
Offering.
Reason for this Proposal; Nasdaq Stockholder Approval Requirement
Stockholder approval of the issuance and sale of the Units is not
required under the Delaware General Corporation Law, the Company's Certificate
of Incorporation, or the Company's By-laws. However, as discussed below, the
Company is seeking stockholder approval of the issuance and sale of the Units in
excess of the first 340,000 Units (the "Additional Units"), which approval shall
include the shares of Class A Common Stock and the Warrants included therein and
the shares of Class A Common Stock issuable upon exercise of the Warrants, in
order to satisfy certain listing requirements under the Nasdaq Marketplace Rules
for continued inclusion of the Company's Class A Common Stock in the Nasdaq
SmallCap Market. Even with such stockholder approval, such continued inclusion
remains uncertain. See "Nasdaq Listing Status" below.
The Class A Common Stock is currently traded in the over-the-counter
market and is quoted on the Nasdaq SmallCap Market. In order to qualify for
inclusion in the Nasdaq SmallCap Market, it is necessary that the Company
satisfy certain financial and other criteria set forth in the Nasdaq Marketplace
Rules (the "Rules"). Some of which are described under "Requirements for
Continued Nasdaq Listing" below. In addition, in order to maintain such
inclusion under the Rules, the Company must, among other things, follow certain
corporate governance procedures, including obtaining stockholder approval in
connection with certain corporate transactions.
Rule 4310(c)(25)(H) of the Rules requires stockholder approval of the
issuance of securities by an issuer under various circumstances. In particular,
Subsections (i)b and d of paragraph (H) require stockholder approval prior to
the issuance of securities in the following situations:
"b. when the issuance will result in a change of control of the
issuer; . . . . . . or
d. in connection with a transaction other than a public offering
involving:
1. the sale or issuance by the issuer of common stock (or securities
convertible into or exercisable for common stock) at a price less than
the greater of book or market value which together with sales by
officers, directors or substantial shareholders of the Company equals
20% or more of common stock or 20% or more of the voting power
outstanding before the issuance; or
2. the sale or issuance by the company of common stock (or securities
convertible into or exercisable for common stock) equal to 20% or more
of the common stock or 20% or more of the voting power outstanding
before the issuance for less than the greater of book or market value
of the stock."
Prior to the Offering, the Company had 3,589,331 shares of Class A
Common Stock and 15,738 shares of Class B Common Stock outstanding. The Company
may issue and sell up to 340,000 Units (constituting approximately 19% of the
currently outstanding Class A Common Stock assuming exercise of the Warrants
included in these Units) without stockholder approval. If the 910,000 Additional
Units (representing approximately 50% of the currently outstanding Class A
Common Stock assuming exercise of the Warrants included in these Units) are
<PAGE>
issued, the Company will have issued securities representing approximately 69%
of the shares of Class A Common Stock outstanding immediately prior to the
Offering. Accordingly, in order to comply with the Rules, it will be necessary
for the Company to obtain stockholder approval of the issuance of the Additional
Units in the Offering before consummating the sale of the Additional Units.
Although the Company could, instead of seeking stockholder approval for
the Additional Units, either not seek to issue and sell the Additional Units or,
alternatively, sell the Additional Units and be delisted from the Nasdaq
SmallCap Market, the Company believes it is in the stockholders' best interest
for the Company to both (1) seek the funds hoped to be raised by the Additional
Units in order to continue its development efforts, and (2) try to retain its
Nasdaq SmallCap Market listing, for the reasons set forth in the immediately
following section. However, as described below, even if stockholder approval for
the issuance and sale of the Additional Units is obtained and the Maximum
Offering is completed, there can be no assurance that the Company will be able
to retain its listing on the Nasdaq SmallCap Market.
Requirements for Continued Nasdaq Listing
In order to maintain the Class A Common Stock's listing on the Nasdaq
SmallCap Market, the Company must meet the continued listing requirements of
Rule 4310(c)(2) of the Rules, which requires that an issuer maintain (i) net
tangible assets of $2,000,000; (ii) market capitalization of $35,000,000; or
(iii) net income of $500,000 in the most recently completed fiscal year or in
two of the last three most recently completed fiscal years.
The continued listing criteria under the Rules also require, among
other things, that the minimum bid price per share of the Company's Class A
Common Stock be at least $1.00. If the Company is unable to meet this criterion
for a period of thirty (30) consecutive business days, the Company, upon notice
from Nasdaq, shall have a period of ninety (90) calendar days to achieve
compliance. Compliance can be achieved by meeting the criterion for a minimum of
ten (10) consecutive business days during such ninety (90) day compliance
period. From time to time during 1998, the minimum bid price for the Company's
Class A Common Stock has been below $1.00 per share.
Consequences of Failure to Meet Continued Listing Requirements
If the Company should become unable to meet the continued listing
criteria of the Nasdaq SmallCap Market and is delisted therefrom, trading, if
any, in the Class A Common Stock would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or, if then available,
the "OTC Bulletin Board Service." As a result, an investor would likely find it
more difficult to dispose of, or to obtain accurate quotations as to the value
of, the Company's securities. If the Company's securities were delisted from
Nasdaq, they may become subject to penny stock restrictions. If the Company's
securities were subject to the rules on penny stocks, the market liquidity for
the Company's securities could be severely adversely affected.
The "penny stock" rules under the Exchange Act impose additional sales
practice and market-making requirements on broker-dealers who sell and/or make a
market in such securities. For transactions covered by the penny stock rules, a
broker-dealer must make special suitability determinations for purchasers and
must have received the purchaser's written consent to the transaction prior to
sale. In addition, for any transaction involving a penny stock, unless exempt,
the rules require delivery prior to any transaction in a penny stock of a
disclosure schedule prepared by the Securities and Exchange Commission relating
to the penny stock market. Disclosure is also required to be made about
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held
in the account and information on the limited market and penny stocks. As a
result, the Company's delisting from the Nasdaq SmallCap Market and its becoming
subject to the rules on penny stock would negatively affect the ability or
willingness of broker-dealers to sell or make a market in the Company's
securities and, therefore, could severely and adversely affect the market
liquidity for the Company's Class A Common Stock.
<PAGE>
Once delisted from Nasdaq, in order to regain listing on the Nasdaq
SmallCap Market the Company would have to meet the more stringent initial
listing qualifications which will require, among other things, (A) (i) net
tangible assets of $4,000,000, (ii) market capitalization of $50,000,000, or
(iii) net income of $750,000 in the most recently completed fiscal year, or in
two of the most recently completed fiscal years, and (B) a common stock bid
price of at least $4.00 per share. There can be no assurance that the Company
could ever meet these stricter listing requirements, if delisted.
Nasdaq Listing Status
The Company has received notification from Nasdaq that the Company
failed to meet the continued listing requirements of Rule 4310(c)(2) of the
Rules because its net tangible assets were below $2,000,000. At December 31,
1998, the Company's balance sheet reflects total assets of $2,504,489, total
liabilities of $111,206, stockholders' equity of $1,543,283 and redeemable
common stock of $850,000. Nasdaq has publicly defined net tangible assets as
"total assets, excluding goodwill, minus total liabilities." According to
Nasdaq's staff, it is Nasdaq's position that redeemable securities with the
redemption provision within the sole control of the holder are classified for
purposes of the net tangible assets test as liabilities. Based on the above
Nasdaq interpretation of Rule 4310(c)(2), Symbollon's net tangible assets at
December 31, 1998 were $1,543,283.
The Company plans to request a conference with Nasdaq to clarify the
Company's compliance with the continued listing requirements at December 31,
1998. The Company believes that in light of the particular provisions of its
redeemable common stock (issued to Bausch & Lomb; See "Certain Transactions"
above) it should not be classified as a liability for purposes of the net
tangible assets test. Nevertheless, the Company plans to request a temporary
waiver from the continued listing requirements so that it can complete the
Offering and meet the net tangible assets test as interpreted by Nasdaq. There
can be no assurance that Nasdaq will grant the waiver. Thus, even if
stockholders approve the issuance and sale of the Additional Units, the Company
may lose its Nasdaq SmallCap Market listing before it is able to consummate the
Offering. Moreover, even if the waiver is granted, there can be no assurance
that the Maximum Offering will be successfully completed, and even if the waiver
is obtained and the Maximum Offering is completed, there can be no assurance
that the Company will be able to retain its Nasdaq SmallCap Market listing in
the future, particularly after December 31, 1999. This paragraph contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Stockholders 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 the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998, to which stockholders are referred.
Impact of Issuance of Additional Units
The following table sets forth certain information regarding the
beneficial ownership of the Class A Common Stock of (i) Company's directors,
executive officers, and beneficial holders of 5% or more of the Class A Common
Stock ("Affiliated Shareholders"), (ii) all other current shareholders ("Other
Current Shareholders") and (iii) purchasers of Units in the proposed Offering
("New Shareholders"), before and after consummation of the proposed Maximum
Offering. The information reflecting consummation of the Maximum Offering
assumes that no Affiliated Shareholders or Other Current Shareholders will
purchase any Units (although they may do so):
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Owned (1) Percent of Class A Common Stock (1)
-------------------------- -----------------------------------
Before the After the Before the After the
Maximum Maximum Maximum Maximum
Class of Owner Offering Offering Offering Offering
- -------------- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Affiliated Shareholders 2,380,690 2,380,690 66.3% 49.2%
Other Current Shareholders 1,208,641 1,208,641 33.7% 25.0%
New Shareholders 1,250,000 0.0% 25.8%
</TABLE>
(1) Shares which could be acquired upon exercise of the Warrants or
outstanding options and the 15,738 shares of five-vote per share Class
B Common Stock (held by Other Current Shareholders) are not reflected
for purposes of this table.
The following table includes the information set forth in the preceding
table based on similar assumptions but, in addition, assumes exercise of all
Warrants, including the Placement Agent Warrants (all of which are assumed to be
owned by the Placement Agent and are included in the beneficial ownership of the
related Affiliated Shareholder), outstanding before and after consummation of
the proposed Maximum Offering:
<TABLE>
<CAPTION>
Number of Shares Owned (2) Percent of Class A Common Stock (2)
-------------------------- -----------------------------------
Before the After the Before the After the
Maximum Maximum Maximum Maximum
Class of Owner Offering Offering Offering Offering
- -------------- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Affiliated Shareholders 2,380,690 2,505,690 66.3% 40.3%
Other Current Shareholders 1,208,641 1,208,641 33.7% 19.5%
New Shareholders 2,500,000 0.0% 40.2%
</TABLE>
(2) Shares which could be acquired upon exercise of outstanding options and
the 15,738 shares of five-vote per share Class B Common Stock (held by
Other Current Shareholders) are not reflected for purposes of this
table.
Although the issuance of the Units in the proposed Offering will have a
dilutive effect on the Company's current stockholders, the Board of Directors
believes that stockholder approval of the Additional Units is in the best
interest of the Company in order to enable the Company to continue its
development efforts.
Impact of a Vote Against Issuance of Additional Units
If the issuance and sale of the Additional Units is not approved, the
Company would be unable to issue the Additional Units without endangering its
Nasdaq SmallCap Market listing, even if the Board of Directors determined to
issue the Additional Units notwithstanding the stockholder vote. Delisting from
the Nasdaq SmallCap Market would have the possible adverse consequences
described above. Even if the Company is able to obtain a temporary waiver from
Nasdaq to retain it Nasdaq SmallCap listing at this time, if the Company does
not issue the Additional Units because of a negative stockholder vote, the
Company will not satisfy the net tangible asset requirements under the Rules
after the expiration of such waiver and accordingly will no longer qualify for
continued inclusion on the Nasdaq SmallCap Market. In addition, the Company's
development efforts might be sooner hampered for lack of funds. However, even if
the issuance and sale of the Additional Units is approved by stockholders, there
can be no assurance that the Company will successfully complete the Maximum
Offering and be able to retain its Nasdaq SmallCap Market listing after the
expiration of a temporary waiver (if obtained) from Nasdaq.
<PAGE>
The Board of Directors recommends that the Stockholders vote FOR the
proposal to issue the Additional Units.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Management of the Company recommends a vote for the ratification of BDO
Seidman, LLP ("BDO") as the independent auditors for the Company for 1999.
BDO served as the Company's independent accountants for its 1998 fiscal
year. The Company has requested that a representative of BDO attend the meeting.
Such representative will have an opportunity to make a statement, if he or she
desires, and will be available to respond to appropriate questions of
stockholders.
Effective April 1, 1998, the Boston office of Richard A. Eisner &
Company, LLP ("RAE"), the Company's former independent accountants, was merged
into the Boston office of 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.
OTHER MATTERS
The Board of Directors is not aware of any matters not set forth herein
that may come before the meeting. If, however, further business properly comes
before the meeting, the persons named in the proxies will vote the shares
represented thereby in accordance with their judgment.
STOCKHOLDERS PROPOSALS FOR THE 2000 PROXY STATEMENT
Stockholders may submit proposals on matters appropriate for
stockholder action at annual meetings in accordance with regulations adopted by
the Securities and Exchange Commission. To be considered for inclusion in the
proxy statement and form of proxy relating to the 2000 annual meeting, such
proposals must be received by the Company no later than December 14, 1999.
Proposals should be directed to the attention of the Assistant Secretary of the
Company.
STOCKHOLDERS PROPOSALS FOR PRESENTATION AT THE 2000 ANNUAL MEETING WITHOUT
INCLUSION IN THE PROXY STATEMENT
Stockholders who wish to present any proposal or matter at the 2000
Annual Meeting of Stockholders (other than by the process for including
stockholder proposals in the proxy statement) are required to notify the
Investor Relations Department of the Company of their intent no later than
February 24, 2000. The notice should describe the proposal or matter. This
requirement does not apply to the deadline for submitting stockholder proposals
for inclusion in the proxy statement (see "Stockholders Proposals for the 2000
Proxy Statement" above), nor does it apply to questions a stockholder may wish
to ask at the meeting.
The Company retains discretion to vote proxies it receives with respect
to such proposals received after February 24, 2000. The Company retains
discretion to vote proxies it receives with respect to such proposals received
prior to February 24, 2000 provided (i) the Company includes in its proxy
statement advice on the nature of the proposal and how it intends to exercise
<PAGE>
its voting discretion and (ii) the proponent does not issue a proxy statement.
ANNUAL REPORT ON FORM 10-KSB
The Company is furnishing without charge to each person whose proxy is
being solicited, a copy of the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998, including the financial statements and
schedules thereto, but excluding exhibits. Requests for additional copies of
such report should be directed to the Company, Attention: Investor Relations.
By order of the Board of Directors,
PAUL C. DESJOURDY
Assistant Secretary
Dated: April 23, 1999
<PAGE>
Exhibit A
Proposed Amended Article SIXTH of the Certificate of Incorporation (Item 3)
Relating to Classification of Directors and Related Matters
SIXTH.
I. Number of Directors. The number of directors of the
Corporation shall not be less than three. The exact number of directors within
the limitations specified in the preceding sentence shall be fixed from time to
time by the Board of Directors.
II. Classes of Directors. The Board of Directors shall be and
is divided into three classes: Class I, Class II and Class III. No one class
shall have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and one of the extra directors
shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
III. Terms of Office. Each director shall serve for a term
ending on the date of the third annual meeting following the annual meeting at
which such director was elected; provided, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting in 2000; each
initial director in Class II shall serve for a term ending on the date of the
annual meeting in 2001; and each initial director in Class III shall serve for a
term ending on the date of the annual meeting in 2002; and provided further,
that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
IV. Allocation of Directors Among Classes in the Event of
Increases or Decreases in the Number of Directors. In the event of any increase
or decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as a director of the class of which
he is a member for the full term of such class and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of directors so as
to ensure that no one class has more than one director more than any other
class. To the extent possible, consistent with the foregoing rule, any newly
created directorships shall be added to those classes whose terms of office are
to expire at the latest dates following such allocation, and any newly
eliminated directorships shall be subtracted from those classes whose terms of
offices are to expire at the earliest dates following such allocation, unless
otherwise provided from time to time by resolution adopted by the Board of
Directors.
V. Quorum; Action at Meeting. A majority of the number of
directors fixed pursuant to Section I above shall constitute a quorum except
when a vacancy or vacancies exist, whereupon a majority of the directors then in
office shall constitute a quorum for the transaction of business, provided that
in no case shall less than one-third of the number of directors fixed pursuant
to Section I above constitute a quorum. If at any meeting of the Board of
Directors there shall be less than such a quorum, a majority of those present
may adjourn the meeting from time to time. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors unless a greater
number is required by law, by the By-laws of the Corporation or by this
Certificate of Incorporation.
VI. Removal. Directors of the Corporation may be removed only
for cause by the affirmative vote of the holders of at least eighty percent
(80%) of the combined voting power of all shares of the capital stock of the
Corporation issued and outstanding and entitled to vote generally in the
election of directors, voting together as a single class.
VII. Vacancies. Any vacancy in the Board of Directors, however
occurring, including (without limitation) a vacancy resulting from an increase
in the number of directors, shall be filled only by a vote of a majority of the
<PAGE>
directors then in office, even if less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected to hold office
until the next election of the class for which such director shall have been
chosen, subject to the election and qualification of his successor and to his
earlier death, resignation or removal.
VIII. Preferred Stock. Notwithstanding the foregoing, whenever
the holders of any one or more series of Preferred Stock issued by the
Corporation after approval by the Board of Directors shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Certificate of Incorporation (including such terms as may be adopted by the
Board of Directors pursuant to Section III of Article FOURTH of the Certificate
of Incorporation) applicable thereto, such directors so elected shall not be
divided into classes pursuant to this Article SIXTH, and the number of such
directors shall not be counted in determining the maximum number of directors
permitted under the foregoing provisions of this Article SIXTH, in each case
unless expressly provided by such terms.
IX. Amendments to Article. Notwithstanding any other provisions
of law, the Certificate of Incorporation or the By-laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least eighty percent (80%) of the combined
voting power of all shares of capital stock of the Corporation issued and
outstanding and entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal, or to adopt
any provision inconsistent with, any provision of this Article SIXTH.
<PAGE>
Exhibit B
By-law Amendments to be Adopted by the Board of Directors
Upon Stockholder Approval of Proposed Amendments to the Certificate of
Incorporation Relating to Classification of Directors and Related Matters
Section 2, 3 and 5 of Article III of the By-laws are hereby amended to
read as follows:
Section 2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. Unless otherwise set forth in the Certificate of Incorporation, the
number of directors shall be determined from time to time by resolution of the
board of directors.
Section 3. CLASSIFICATION OF DIRECTORS; ELECTION AND TERM. The board of
directors shall be and is divided into three classes: Class I, Class II and
Class III. No one class shall have more than one director more than any other
class. If a fraction is contained in the quotient arrived at by dividing the
designated number of directors by three, then if such fraction is one third, the
extra director shall be a member of Class I, and if such fraction is two-thirds,
one of the extra directors shall be a member of Class I and one of the extra
directors shall be a member of Class II, unless otherwise provided from time to
time by resolution adopted by the board of directors. Each director shall serve
for a term ending on the date of the third annual meeting of stockholders
following the annual meeting of stockholders at which such director was elected;
provided, that each initial director in Class I shall serve for a term ending on
the date of the annual meeting of stockholders in 2000; each initial director in
Class II shall serve for a term ending on the date of the annual meeting of
stockholders in 2001, and each initial director in Class III shall serve for a
term ending on the date of the annual meeting of stockholders in 2002; and
provided further, that the term of each director shall be subject to the
election and qualification of his successor and to his earlier death,
resignation or removal. In the event of any increase or decrease in the
authorized number of directors, (i) each director then serving as such shall
nevertheless continue as a director of the class of which he is a member for the
full term of such class and (ii) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the board of
directors among the three classes of a directors so as to ensure that no one
class has more than one director more than any other class. To the extent
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of offices are to expire at
the earliest dates following such allocation, unless otherwise provided from
time to time by resolution adopted by the board of directors. Any vacancy in the
board of directors, however occurring, including (without limitation) a vacancy
resulting from an increase in the number of directors, shall be filled only by a
vote of a majority of the directors then in office, although less than a quorum,
or by a sole remaining director. A director elected to fill a vacancy shall be
elected to hold office until the next election of the class for which such
director shall have been chosen, subject to the election and qualification of
his successor and to his earlier death, resignation or removal. Notwithstanding
the foregoing, whenever the holders of any one or more series of Preferred Stock
issued by the Corporation after approval by the Board of Directors shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Certificate of Incorporation (including such terms as may be
adopted by the Board of Directors pursuant to Section III of Article FOURTH of
the Certificate of Incorporation) applicable thereto, such directors so elected
shall not be divided into classes pursuant to this Article III, Section 3, and
the number of such directors shall not be counted in determining the maximum
number of directors permitted under the foregoing provisions of this Article
III, Section 3, in each case unless expressly provided by such terms.
Section 5. REMOVAL OF DIRECTORS. Directors of the Corporation may be
removed only for cause by the affirmative vote of the holders of at least eighty
percent (80%) of the combined voting power of all shares of the capital stock of
the Corporation issued and outstanding and entitled to vote generally in the
election of directors, voting together as a single class.
PROXY
SYMBOLLON CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jack H. Kessler and Paul C. Desjourdy and each
or either of them (with full power to act without the other), proxies with full
power of substitution, to represent the undersigned and to vote the shares of
stock of the corporation which the undersigned would be entitled to vote, if
personally present, at the Annual Meeting of Stockholders of Symbollon
Corporation to be held on Wednesday, May 26, 1999 at 10:00 a.m. (local time) at
the Company's offices, 37 Loring Drive, Framingham, MA 01702, and any
adjournment thereof, upon matters set forth in the Notice of Annual Meeting and
Proxy Statement dated April 23, 1998, a copy of which has been received by the
undersigned.
(Continued, and to be signed on reverse side)
<PAGE>
Please date, sign and mail your proxy card back as soon as possible!
Annual Meeting of Stockholders
SYMBOLLON CORPORATION
May 20, 1998
\ X \ Please mark your votes as in this example.
FOR all nominees WITHHOLD
(except as marked to AUTHORITY
the contrary below) for all nominees
1. ELECTION OF DIRECTORS \ \ \ \
Nominees: James C. Richards
Jack H. Kessler
Paul C. Desjourdy
Richard F. Maradie
Eugene Lieberstein
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
nominee's name on the line provided below.)
- -----------------------------------------------------
2. TO AMEND THE COMPANY'S 1993 STOCK OPTION PLAN TO INCREASE SHARES AND EXTEND
THE EXPIRATION DATE.
FOR AGAINST ABSTAIN
\ \ \ \ \ \
3. TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO CLASSIFY THE BOARD
OF DIRECTORS AND CHANGE CERTAIN OTHER RELATED MATTERS.
FOR AGAINST ABSTAIN
\ \ \ \ \ \
4. TO APPROVE ISSUANCE AND SALE OF UNITS IN A PRIVATE PLACEMENT.
FOR AGAINST ABSTAIN
\ \ \ \ \ \
5. TO RATIFY THE APPOINTMENT OF BDO SEIDMAN, LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY.
FOR AGAINST ABSTAIN
\ \ \ \ \ \
6. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any adjournments
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THE PROXY WILL BE VOTED
FOR THE ELECTION OF THE DIRECTORS INDICATED AND FOR APPROVAL OF THE PROPOSALS
PRESENTED.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please make any changes in your address alongside the address as it appears in
the proxy.
SIGNATURE(S)___________________________________ DATE________________
Note: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign as full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
SYMBOLLON CORPORATION
ANNUAL REPORT 1998
[COMPANY LOGO]
<PAGE>
To Our Shareholders:
Overview
During 1998, the Company began a multi-center Phase II clinical trial of its
proprietary iodine-based oral drug, IoGen(TM), in patients with moderate to
severe fibrocystic breast disease ("FBD"). As we anticipated, Symbollon incurred
operating losses for the year ended December 31, 1998 primarily because of this
product development investment. We are pleased with the Company's progress to
date in its clinical development of IoGen, and want to thank our employees and
outside consultants for their dedicated efforts to advance the IoGen program.
In 1998, Symbollon also made significant progress in its development efforts
with its ophthalmic partner, Bausch & Lomb Pharmaceuticals, Inc. ("B&L").
Unfortunately, in 1998 the Company's development efforts in the area of
dermatology with Oclassen Pharmaceuticals, Inc. ("Oclassen") have not advanced
beyond the Company's preliminary development efforts. As we ended 1998,
Symbollon's active drug development activities were focused on FBD and
ophthalmology.
Fibrocystic Breast Disease
FBD is a term used to describe a range of benign breast conditions that are
reported to affect approximately 30% of the women of child-bearing age in the
world. FBD is characterized by breast nodularity, lumpiness or cysts which can
cause pain or tenderness. It is generally suspected to be caused by a hormonal
imbalance within women.
Based on the scientific literature on use of iodine to treat the disease, the
Company's development team filed an Investigational New Drug ("IND") application
in the United States to initiate clinical trials in humans. Under its IND
application the Company began a multi-center Phase II clinical trial of IoGen.
The Phase II trial is intended to assess the toxicity and efficacy of IoGen over
a six-month period in approximately 150 patients.
In 1999, Symbollon intends to complete enrollment of its IoGen Phase II clinical
trial and to conduct a Phase I clinical trial for IoGen. Results from the Phase
II clinical trial are expected to be available in early-2000.
Corporate Alliances
In August 1997, the Company formed a relationship with B&L to develop ophthalmic
products. During 1998, the parties have been working to develop a suitable
formulation to initiate preclinical testing and clinical trials. Also, in 1998
B&L increased its equity investment by $350,000 in Symbollon. In 1999, we are
anticipating that the development effort in ophthalmology will advance
sufficiently to file an IND application to initiate clinical trials in humans.
The Company's other significant development relationship with Oclassen has seen
little progress. In 1998, Symbollon provided Oclassen with a preliminary formula
and analytical methods necessary to validate formulation stability, without
remuneration for its time to complete such tasks. To date, the parties have not
advanced the program beyond the Company's preliminary efforts. We do not believe
that the Oclassen relationship will continue beyond 1999. If we do lose the
Oclassen relationship, the Company intends, as resources allow, to initiate an
internal drug development program in dermatology.
<PAGE>
Financial Results
In 1998, the Company reported a net loss of $892,750, or diluted losses per
share of $0.33, compared with a net income of $511,464, or diluted earnings per
share of $0.22 in the prior year. Two factors contributed to the 1998 losses.
First, the Company's research and development expenses increased by 121% to
$1.25 million in 1998 directly related to the Company's FBD drug development
efforts. Second, license fees from the Company's existing corporate partnerships
provided $400,000 in revenues in 1998, compared to $1.25 million in 1997.
We closed 1998 with over $1.5 million in cash and cash equivalents. We have
sufficient capital to operate through the end of 1999. However, we believe that
additional financial resources will provide the Company with greater stability
and flexibility. Therefore, the Company is planning to raise additional capital
in 1999.
The Future
The future looks bright for Symbollon. The results of the IoGen Phase II
clinical trial, expected to be available in early-2000, could have a significant
influence on shareholder value. Additionally, based on the progress made in the
ophthalmic area, a second drug candidate based on Symbollon's technology could
enter clinical trials during 1999. Based on the present market price of
Symbollon's common stock, the Company's market capitalization is below $10
million. We believe that future success in FBD and ophthalmology should help
position Symbollon to start achieving its primary objective of increasing
shareholder value. As we move forward, Symbollon plans to continue pursuing
commercialization of its technology in other areas through additional corporate
alliances.
As always, increasing shareholder value continues to be our primary objective
and the measure by which we expect you will judge our performance. Your
continued support of the Company is greatly appreciated.
Sincerely,
/S/ Jack H. Kessler /s/ Paul C. Desjourdy
- ------------------- ---------------------
Jack H. Kessler, Paul C. Desjourdy,
Chairman of the Board, Director,
Executive Vice President Executive Vice President
and Chief Scientific Officer and Chief Financial Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[ x ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 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.
<PAGE>
Officers
Jack H. Kessler, Ph.D.
Executive Vice President,
Chief Scientific Officer,
Secretary and Chairman of the Board
Paul C. Desjourdy
Executive Vice President,
Chief Financial Officer, Treasurer
and Director
Board of Directors
Jack H. Kessler (Chairman)
Executive Vice President,
Chief Scientific Officer, Secretary
Symbollon Corporation
Paul C. Desjourdy
Executive Vice President,
Chief Financial Officer and Treasurer
Symbollon Corporation
James C. Richards, Ph.D.
President, Chief Executive Officer
and Director
IntelliGene Corporation
(a DNA probe diagnostic company)
Richard F. Maradie
Senior Vice President,
Commercial Development
Oakwood Laboratories
(a biopharmaceutical company)
Eugene Lieberstein
Partner
Wyatt, Gerber, Meller and O'Rouke
(a law firm)
Scientific Advisory Board
Waldemar Gottardi, Ph.D.
Associate Professor in Technical Hygiene
Institute of Hygiene
University of Innsbruck, Austria
William A. Rutala, Ph.D., M.P.H.
Professor of the School of Medicine
University of North Carolina
Director of Epidemiology, UNC Hospital
Chapel Hill, North Carolina
Corporate Headquarters
37 Loring Drive
Framingham, Massachusetts 01702
Tel: (508) 620-7676
Fax: (508) 620-7111
Independent Auditors
BDO Seidman, LLP
40 Broad Street, Suite 500
Boston, Massachusetts 02109
Transfer Agent and Register
American Stock Transfer & Trust Co.
40 Wall Street
New York, New York 10005
(212) 936-5100
Annual Meeting
The annual meeting of stockholders will be held Wednesday, May 26, 1999 at 10:00
a.m. at the Company's offices at 37 Loring Drive, Framingham, Massachusetts
SEC Form 10-KSB
A copy of the annual report on Form 10-KSB, as filed by Symbollon Corporation
with the Securities and Exchange Commission, is available without charge upon
written request to:
Corporate and Investor Relations
Symbollon Corporation
37 Loring Drive
Framingham, Massachusetts 01702
