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, 1999
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. [ ]
The issuer's revenues for its most recent fiscal year (year ended December 31,
1999) were $1,514,172.
As of March 17, 2000, the aggregate market value of the voting stock of the
issuer held by non-affiliates of the issuer was approximately $34,618,250 based
upon the closing price of such stock on that date.
As of March 17, 2000, 3,694,611 shares of Class A 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 24, 2000 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, objectives, 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
development and commercialization of proprietary iodine-based pharmaceutical
agents and antimicrobials (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 technology that the
Company believes maximizes the "therapeutic index" of iodine. The "therapeutic
index" of a drug is the ratio of the largest safe dose to the smallest effective
dose. Iodine has been shown to be a rapid acting, broad-spectrum antimicrobial
and an effective therapeutic for certain pharmaceutical applications. The
Company's technology accomplishes this by controlling the ratio of molecular
iodine (I2), to the other inactive species of iodine typically present in
solution. The Company believes that this will enable it to produce iodine-based
applications having advantages over currently available products.
The Company believes that its iodine-based technology has potential use
in a number of diverse product application areas. These applications can be
grouped into the following categories: women's healthcare and infection control.
When used for infection control applications, the Company believes that
the major strengths of its patented technology are the minimization of staining
and color associated with traditional iodine products, 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>
Concerning women's healthcare, Symbollon believes that a relationship
exists between iodine deficiency and the increased incidence of certain female
health problems. These female health problems include some types of
pre-menopausal breast cancer, fibrocystic breast disease and endometriosis. The
Company believes that the underlying causation of these problems relates to the
monthly ovarian cycle and the proper functioning of the gonadotropic hormones.
Certain supporting medical research conducted over the last twenty years has
suggested that therapeutically administered molecular iodine may normalize the
estrogen/progesterone hormone levels.
Bovine Teat Sanitizer 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 for 1999 and 1998 from IodoZyme are as follows:
Year Ended December 31,
------------------------------------
1999 1998
---- ----
United States $283,758 $325,935
Rest of World 141,451 97,506
------- -------
Total Product Sales $425,209 $423,441
======== ========
The Company's invoice terms are net 30 days. The Company had no orders
for future delivery of IodoZyme at December 31, 1999, as compared to $33,985 of
firm orders for future delivery at December 31, 1998.
Product Development
During 1999 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 $1,245,000 and $1,643,000 on research
and development during the years ended December 31, 1998 and 1999, respectively.
Since inception, the Company has spent approximately $6,925,000 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.
<PAGE>
The Company's current strategic corporate partners and material
developments in the Company's ongoing programs during fiscal 1999 are described
below.
Women's Healthcare
The Company has developed an oral dosage form of its technology which
generates molecular iodine in situ in the stomach of the patient. The Company
refers to this tablet as IoGen(TM). Based on the available scientific
literature, the Company believes that IoGen may be effective in the prevention
and treatment of certain female health problems, including some types of
pre-menopausal breast cancer, fibrocystic breast disease and endometriosis.
We chose to initially pursue fibrocystic breast disease based on the
published results covering previous independent third party testing conducted
for this indication. Collectively, more than 1,500 women afflicted with
fibrocystic breast disease have been orally administered various forms of iodine
with reported clinical improvement in breast disease occurring in 60% or greater
of those women. 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. Fibrocystic breast disease is characterized by lumpiness, breast
pain and tenderness.
During 1998, the Company began a multi-center Phase II clinical trial
evaluating IoGen 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 of approximately 100 patients. In the Phase II trial, patients
received 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.
In July 1999, the Company closed enrollment in the Phase II trial. The
last patient will therefore finish dosing in March 2000 and complete the
two-month observation period in May 2000. The Company anticipates that the data
from this trial will be available in the third quarter of 2000.
During 1999, the Company also conducted a Phase I clinical trial of
IoGen to determine dose proportionality and bioavailability of the drug. The
results from this Phase I study should be available in the second quarter of
2000. If the results from these clinical trials warrant, the Company plans to
continue the clinical development of IoGen. The Company may need additional
resources to continue the clinical development of IoGen. If the clinical
development of IoGen does continue, Symbollon anticipates seeking a corporate
relationship with a pharmaceutical company to commercialize IoGen. Clinical
investigation of IoGen for use in certain of the other female health indications
may be pursued during 2000 and beyond as resources allow.
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.
<PAGE>
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 1999, the parties continued to develop a suitable formulation
and initiated certain preclinical testing. The collaboration and sale/license
agreement had anticipated that an Investigational New Drug ("IND") application
covering use of the Company's chemistry in ophthalmology would have been filed
by approximately August 1998; however, the development process has not advanced
sufficiently to warrant such filing. The continuation of the collaboration
between the companies is subject to B&L's right to termination. Given the
continued delay to initiate clinical trials, the potential for B&L to exercise
its termination right increases. In 2000, the Company plans to continue its
consulting efforts to assist B&L in advancing the program toward filing an IND
application to initiate clinical trials in humans.
Dermatology Applications
No development activity occurred under the Company's collaboration and
license agreement with Oclassen Pharmaceuticals, Inc. ("Oclassen") to develop
dermatological products based on Symbollon's proprietary iodine technology.
Pursuant to the agreement, Oclassen exercised its right to terminate the
agreement. Upon termination, all rights to exploit the Company's technology in
the field of dermatology reverted back to Symbollon.
During 2000, the Company plans to pursue development of dermatological
products based on its technology. Resources allowing, the Company's goal is to
initiate human clinical trials in dermatology.
Other Potential Applications
The Company believes that its technology has 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
<PAGE>
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."
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
<PAGE>
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
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
<PAGE>
Conservation and Recovery Act and other present and potential future federal,
state or local regulations. The Company's research and development involves the
controlled use of hazardous materials and chemicals. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result, and any such liability could exceed the resources
of the Company.
In both domestic and foreign markets, the ability of the Company to
commercialize its proposed product candidates will depend, in part, on the
availability of reimbursement from third-party payers, such as government health
administration authorities, private health insurers and other organizations.
Third-party payers are increasingly challenging the price and cost-effectiveness
of medical products. There can be no assurance that Symbollon-developed products
will be considered cost effective. Significant uncertainty exists as to the
reimbursement status of newly-approved medical products. Government and other
third-party payers are increasingly attempting to contain medical costs by
limiting both coverage and the level of reimbursement for new therapeutic
products approved for marketing by the FDA and by refusing, in some cases, to
provide coverage for uses of approved products for disease indications for which
the FDA has not granted marketing approval. There can be no assurance that
adequate third-party insurance coverage will be available for the Company to
establish and maintain price levels sufficient for realization of an appropriate
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 fourteen 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 with February 26, 1991
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 the July 13, 1993
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
5,885,592 "Method & Pharmaceutical Compositions for Oral March 23, 1999
Administration of Molecular Iodine"
5,962,029 "Iodine Germicides that Continuously Generate November 5, 1999
Free Molecular Iodine"
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." If B&L
terminates its collaboration and sale/license agreement with Symbollon, then the
<PAGE>
patent rights will revert back to Symbollon for no consideration. 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
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 was 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, 1999, the Company had four 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
<PAGE>
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.
Executive Officers
The Company's executive officers are:
Name Age Position with the Company
---- --- -------------------------
Jack H. Kessler, Ph.D. 49 Chief Executive Officer, Chief
Scientific Officer, Secretary and
Chairman of the Board of Directors
Paul C. Desjourdy 38 President, Chief Operating Officer,
Chief Financial Officer, General
Counsel, 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
Chief Executive Officer since December 1999, as 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. Dr. Kessler held the
title of Executive Vice-President of the Company from May 1991 to December 1999,
and from the Company's formation in Illinois in 1986 until 1991 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 President, Chief Operating Officer and
General Counsel since December 1999, as Chief Financial Officer since July 1996,
as Treasurer from May 1994, and as a director since August 1996. Prior to that
time, he held the titles of Executive Vice President from July 1996 to December
1999, and Vice-President - Finance and Administration of the Company from
September 1993 to June 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 important factors, among others, could cause our
performance, achievements and results to differ materially from those we express
or suggest in forward-looking statements in this report or in other materials
from time to time. Stockholders and prospective investors should carefully
consider these risk factors when deciding whether to invest in or hold our
common stock.
<PAGE>
Our future revenues are dependent on existence of corporate licensing
relationships
We generate our revenues from corporate licensing arrangements. In the
last two years, we had licensing relationships with West Agro, Inc., Bausch &
Lomb and Oclassen. In 1999, Oclassen terminated their relationship covering the
use of our technology in dermatology. All of our 1998 and 1999 revenues came
from our remaining relationships with West Agro, Inc. and Bausch & Lomb. They
can terminate their collaboration with us at any time. Since the development
program with Bausch & Lomb has not progressed as quickly as expected, they might
choose to terminate their relationship with us. If that happens, and we are not
able to enter into new licensing relationships, our revenues for 2000 and beyond
will significantly decrease.
We have no data that IoGen will effectively treat fibrocystic breast disease
The Phase II clinical trial that we initiated in 1998 is the first
trial run on IoGen. We did not conduct any animal or human studies to evaluate
the potential effectiveness of IoGen before launching the Phase II trial. Our
decision to invest in the clinical development of IoGen was based on information
we obtained from the scientific literature. That literature indicated that prior
studies utilizing iodine to treat fibrocystic breast disease reported clinical
improvement in over 60% of the patients. We expect to complete the IoGen Phase
II trial in the summer of 2000. See "Research and Product Development - Women's
Healthcare." We do not know if the IoGen trials will be successful.
We lack the resources to conduct the necessary clinical trials required prior to
commercial sales of our potential drugs
Any drug candidates we develop 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. In addition to IoGen, our other active drug development efforts are in
dermatology and ophthalmology. We have not initiated our clinical trials in
dermatology or ophthalmology. Under our arrangement with Bausch & Lomb, they are
financially responsible for any clinical trials conducted in ophthalmology. We
must pay for any future clinical trials in women's healthcare and dermatology.
Our ability to conduct the necessary clinical trials depends on our generating
the resources required to pay for this from future revenues, financings or
licensing relationships. We may not be able to generate the necessary financial
resources.
We may lose control over development and commercialization of drugs after we
license them
A key element of our strategy has been to fund most of our product
development programs through collaborative agreements with major pharmaceutical
companies. As part of these licensing relationships we may have to grant to the
other party control over the development and commercialization process. If we
enter into these relationships, we incur risks beyond those related to whether
our technology can be formulated into an acceptable drug compound under
regulatory requirements. These new risks include:
o the business priorities of our partner;
o the committed resources to the program;
o changes in management or ownership of our partner; and
o internal competition with other drug candidates of our partner.
<PAGE>
For example, our only existing collaborative agreement is with Bausch &
Lomb. Under that collaboration, Bausch & Lomb is responsible for:
o conducting preclinical and clinical trials;
o obtaining required regulatory approvals of drug candidates;
o manufacturing any resulting products; and
o commercializing any resulting products.
Bausch & Lomb is not obligated to develop or commercialize any drug
candidates under the collaboration. Bausch & Lomb alone controls the amount and
timing of resources dedicated by it to the program. Accordingly, Bausch & Lomb
controls development progress. Moreover, Bausch & Lomb may view certain drug
candidates developed utilizing Symbollon's technology as competitive with its
own drugs or drug candidates. Accordingly, Bausch & Lomb may develop its
existing or alternative technologies in preference to the drug candidates based
on our technology. In addition, Bausch & Lomb may terminate the relationship at
any time. If they did, our ability to further develop an ophthalmic product
would be severely hampered without greater resources than we presently have.
West Agro markets and distributes IodoZyme under an exclusive marketing
and supply agreement which covers IodoZyme as well as other products which may
be developed for use in dairy facilities. IodoZyme's future growth and
profitability will depend, in large part, on the success of West Agro's
personnel and others conducting marketing efforts on their behalf in fostering
acceptance of IodoZyme as an alternative to other available products. In this
regard, West Agro also markets and distributes products which are directly
competitive with IodoZyme.
We have had difficulty raising additional funds
We will require substantial additional funds to run our company.
We need funds for
o developing our potential products;
o operating the company;
o pursuing regulatory clearances; and
o protecting our intellectual property rights.
We intend to seek additional funds through public or private financing
or collaborative or other arrangements with corporate partners. We have not been
able to enter into a new corporate relationship since 1997. We believe that
before we can enter into any significant new relationships, we will have to
generate clinical results on our potential drugs. Our limited financial
resources may require us to finance the cost of generating these results. During
1999, we had difficulty raising funds by selling equity. We obtained shareholder
approval to sell up to 1,250,000 shares, with a like number of warrants. We were
only able to sell 836,685 shares and warrants.
Our common stock remains thinly traded. There is very little market
support for our common stock. So long as these conditions exist, future
financings will continue to be difficult. Ultimately, this could impact the
terms and conditions upon which we are able to sell securities and raise funds.
If adequate funds were not available when needed, we would be forced to limit
the scope of our development or perhaps cease operations. See "Management's
Discussion and Analysis or Plan of Operation."
<PAGE>
We have a history of operating losses that may continue in the future
We have incurred a cumulative operating loss of $6,444,769 through
December 31, 1999. Our losses have resulted principally from costs incurred in
research and development activities related to our efforts to develop IodoZyme,
IoGen and other potential product formulations, and from the associated
administrative and patent costs. We expect to incur additional significant
operating losses over the next several years and expect cumulative losses to
increase substantially due to expanded development efforts, preclinical and
clinical trials. In the next few years, our revenues may be limited to sales of
IodoZyme, contract research payments and licensing milestone payments under the
Bausch & Lomb agreement (unless terminated) and any amounts received under other
research or development collaborations that we may establish. Ultimately, our
long term profitability is dependent on our ability to
o complete the clinical development of our product candidates,
o develop and obtain patent protection,
o obtain regulatory approvals for our product candidates,
o manufacture the resulting products and
o commercialize the resulting products.
Based on the current status of our development efforts, we will not
receive revenues or royalties from commercial sales for a significant number of
years, if at all. Our failure to receive significant revenues or achieve
profitable operations would impair our ability to sustain operations. See
"Management's Discussion and Analysis or Plan of Operation."
Patent and proprietary rights are difficult to obtain and enforce
Obtaining and enforcing patent and proprietary rights that cover our
product candidates and processes is essential to our future success. Because of
the length of time and considerable 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. However, 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 uncertain and involves
complex legal and factual questions.
We might not receive any additional patents from the patent
applications we have filed. Further, any rights we may have under issued patents
might not provide us with significant protection against competitive products or
otherwise be commercially viable. Any existing or future patents issued to, or
licensed by, us may 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 our product candidates. Our development, manufacture and
sale of product candidates could be severely restricted or prohibited if they
are found to infringe upon the patents, or otherwise impermissibly utilize the
intellectual property, of others. In such event, we may be required to obtain
licenses from third parties. We may not 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 we become involved
in litigation regarding our intellectual property rights or the intellectual
property rights of others, we might incur substantial litigation costs and have
to pay substantial damages.
<PAGE>
In addition to patent protection, we rely on trade secrets, proprietary
know-how and technological advances which we seek to protect, in part, by
confidentiality agreements with our collaborative partners, employees and
consultants. But these confidentiality agreements might be breached, and we
might not have adequate remedies for any such breach. Moreover, our trade
secrets, proprietary know-how and technological advances might otherwise become
known or be independently discovered by others.
The outcome of clinical drug development cannot be predicted
Our drug candidates will be subject to extensive preclinical and
clinical trials to demonstrate their safety and efficacy in humans before we can
obtain regulatory approvals for the commercial sale of any of our potential
products. We are dependent on our collaborative partners to conduct clinical
trials for the drug candidates covered by our collaborative agreements and may
become dependent on other third parties to conduct future clinical trials of our
internally developed drug candidates. Our only experience in conducting
preclinical or clinical trials is with IoGen.
We can not predict the successful outcome of our preclinical or
clinical trials for our drug candidates. 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 our business, operating results and financial
condition. Our 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 failure
o to satisfy applicable regulatory standards for safety and
effectiveness;
o to receive necessary regulatory clearances,
o to manufacture the product on a large scale,
o to develop into commercially viable products,
o to obtain and enforce adequate proprietary protection for such
product or
o to avoid infringement of third party proprietary rights when
marketing such products.
The drug industry is extremely competitive
The biotechnology and pharmaceutical industries are intensely
competitive and subject to rapid and significant technological change. Our
competitors 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. Most of
these competitors employ greater financial and other resources, including larger
research and development staffs and more effective marketing and manufacturing
organizations, than we or our 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 our competitors, to market commercial
products. Our competitors may succeed in developing technologies and products
that are more effective or less costly than any which we develop or which make
our technology and future products obsolete and noncompetitive.
<PAGE>
In addition, most of our competitors have greater experience in
conducting clinical trials and obtaining FDA and other regulatory approvals.
Accordingly, our competitors may succeed in obtaining FDA or other regulatory
approvals for drug candidates more rapidly. 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 our ability to market certain products. We are 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
before we do, it could adversely affect our ability to receive marketing
approval, or if approved, our ability to sell our product. Products resulting
from our technology may not be able to compete successfully with competitors'
existing products or products under development.
Drug development and commercialization is subject to 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 our product candidates will require governmental
approvals for commercialization, none of which we have obtained. 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.
Government regulation also affects the manufacturing and marketing of
pharmaceutical products. The effects of government regulation on our potential
products are far-reaching, and include
o possible delays in or denials to market them,
o costly procedural requirements may be imposed upon our activities,
o competitive advantages may be obtained by companies with greater
resources or experience,
o possible limitations imposed on the indicated use for which they
may be marketed and
o continual review and periodic inspection of the manufacturing
facilities for them.
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,
would have a significant adverse effect on the marketing of IodoZyme and,
consequently, on our results of operations.
As with many biotechnology and pharmaceutical companies, we are subject
to numerous environmental and safety laws and regulations. Any violation of, and
the cost of compliance with, these regulations could materially adversely affect
our business, operating results and financial condition.
We are dependent on the continued employment of our executive officers
We are highly dependent upon the efforts of our senior management and
scientific team, including the services of Dr. Jack H. Kessler, the Chief
Executive Officer, Chief Scientific Officer, Secretary and Chairman of the Board
of Directors, and Paul C. Desjourdy, the President, Chief Operating Officer,
<PAGE>
Chief Financial Officer, General Counsel, Treasurer and a director of Symbollon.
Losing the services of one or both of these individuals might impede the
achievement of our development objectives and could have a material adverse
effect on our business. Because of the specialized scientific nature of our
business, we are highly dependent upon our ability to attract and retain
qualified scientific and technical personnel. Major pharmaceutical and chemical
companies, specialized biotechnology firms and universities and other research
institutions compete intensively for qualified personnel in our field of
activity. We may not be able to continue to attract and retain the qualified
personnel necessary for the development of our business. Loss of the services
of, or failure to recruit, key scientific and technical personnel could
adversely affect our business, operating results and financial condition.
We have no marketing experience within our company
We have granted marketing rights to our collaborative partners with
respect to products developed based on our technology, and we intend to rely on
similar arrangements with others for the marketing and distribution of our
products currently under development, including IoGen, if and when successfully
developed and approved by applicable regulatory agencies. This results, and will
result, in our not having control over some or all of the marketing and
distribution of these products. We believe that we have entered into development
agreements with parties experienced in the marketing of products in the areas
licensed to them. Although we have no present plans to do so, we may, in the
future, determine to directly market certain of our proposed products. We have
no marketing experience and significant additional capital expenditures and
management resources would be required to develop a direct sales force. In the
event we elect to engage in direct marketing activities, there can be no
assurance that we can obtain the requisite funds or attract and retain the human
resources necessary to successfully market any products.
We have limited manufacturing experience within our company
IodoZyme is currently produced through a combination of internal
manufacturing activities and external contract manufacturers. We have granted
manufacturing rights to Bausch & Lomb with respect to products developed under
our collaboration, and we intend to rely on similar arrangements with others for
the manufacturing of our products currently under development, if and when
successfully developed and approved by applicable regulatory agencies. Our
dependence on third parties for manufacturing may adversely affect our ability
to develop and deliver products on a timely and competitive basis. If we are
unable to develop or contract for manufacturing on acceptable terms, our ability
to conduct preclinical and clinical trials with our drug candidates will be
adversely affected. This could result in delays in the submission of drug
candidates for regulatory approvals or in the initiation of new development
programs, which in turn could materially impair our competitive position and the
possibility of achieving profitability.
Except for limited experience regarding IodoZyme, we have no experience
with the manufacture of any of our products or proposed products. In the event
we continue to perform our current IodoZyme manufacturing activities in-house,
additional manufacturing space and equipment may be necessary beyond 1999 if our
product volume increases. In addition, if we undertake to directly manufacture
any of our proposed products, we will be required to attract and retain
experienced personnel to develop a manufacturing capability and to comply with
extensive government regulations with respect to our facilities, including among
others, the FDA manufacturing requirements. We may not be able to successfully
establish appropriate manufacturing operations.
<PAGE>
Our proposed drug candidates will be impacted by cost reimbursement and drug
pricing uncertainty
The successful commercialization of, and the interest of potential
collaborative partners to invest in, the development of our 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. Reimbursement in the United States or elsewhere may not be
available for any products we may develop or, if available, may be decreased in
the future. Limited reimbursement amounts may reduce the demand for, or the
price of, our products, thereby adversely affecting our business. If
reimbursement is not available or is available only to limited levels, we may
not be able to obtain collaborative partners who will manufacture and
commercialize our products, or we may not be able to obtain a sufficient
financial return on our 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 our
ability to sell any of our products if successfully developed and approved.
Moreover, we are 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 our business.
Drug development and commercialization is subject to potential product liability
Our business exposes us to potential liability risks that are inherent
in the testing, manufacturing and marketing of pharmaceutical products. The use
of our drug candidates in clinical trials may expose us to product liability
claims and possible adverse publicity. These risks will expand with respect to
our 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. We have product liability insurance covering our
drug candidates in clinical trials which we believe is adequate to cover our
current business exposure. However, such coverage is becoming increasingly
expensive and we may not be able to retain insurance coverage at acceptable
costs or in a sufficient amount. A product liability claim could adversely
affect our business, operating results or financial condition.
Our technology has material incompatibility issues
An important aspect of our present and future product candidates is
that they must be compatible with the surfaces with which they come into
contact. We have 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 we have encountered problems of staining in
connection with our efforts to develop a high level disinfectant for flexible
endoscopes. We continue 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 or, if approved, could adversely
<PAGE>
affect market acceptance of such product. We might not be successful in
overcoming any problems of materials incompatibility.
We use hazardous materials in our development and commercial efforts
Our manufacturing and development activities involve the controlled use
and shipment of hazardous chemicals and other materials. Although we believe
that our safety procedures for handling, shipping and disposing of such
materials comply with the standards prescribed by federal, state and local
regulations, we cannot completely eliminate the risk of accidental contamination
or injury from these materials. In the event of such an accident, we could be
held liable for any damages that result and any such liability could exceed the
our resources. 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 us.
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 $31,050 increasing $0.25 per square
foot each year effective September 1. 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, 1999.
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
under the symbol "SYMBA." There can be no assurance that the Company will
continue to meet the criteria for continued listing on the Nasdaq SmallCap
Market. The following sets forth the high and low sales prices for the Class A
Common Stock for each of the quarterly periods during fiscal 1998 and 1999, as
reported by Nasdaq.
<PAGE>
Fiscal 1998 Fiscal 1999
-------------------------- ---------------------------
High Low High Low
First quarter 1 21/32 15/16 3 7/8 1 1/2
Second quarter 2 23/32 2 3/8 1 3/4
Third quarter 1 1/16 1/2 2 13/16 1 3/4
Fourth quarter 2 1/2 17/32 5 2 1/16
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. Effective December
31, 1999, 684,950 previously outstanding shares of Class A Common Stock and
15,050 previously outstanding shares of Class B Common Stock were transferred to
the Company for no consideration pursuant to a stock restriction agreement
entered into by certain stockholders in connection with the Company's 1993
initial public offering.
(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 17, 2000 are approximately as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Class A Common Stock 100
Class B Common Stock 1
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 17, 2000 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.
<PAGE>
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 1999 versus Fiscal 1998
Symbollon's net loss in fiscal 1999 was $730,404, reflecting a decrease
of $162,346 or 18.2% from a net loss of $892,750 in fiscal 1998. This decreased
loss resulted primarily from increased contract and license fee revenues from
research and development programs with corporate partners and decreased general
and administration expenses, partially offset by increased research and
development expenses related to the IoGen clinical trials.
Product revenues from sales of IodoZyme increased by $1,768 or .4% from
$423,441 in fiscal 1998 to $425,209 in fiscal 1999. The nominal increase in
sales reflected an increase in foreign sales of IodoZyme, partially offset by
decreased domestic sales. Symbollon anticipates that future sales will be
consistent with current sales levels.
Cost of goods sold for IodoZyme increased by $75,887 or 31.2% from
$242,964 in fiscal 1998 to $318,851 in fiscal 1999. The gross profit margin on
product sales decreased from 42.6% in fiscal 1998 to 25.0% in fiscal 1999. 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 2000 will remain consistent with
1999.
Contract revenues increased by $234,893 or 225.7% from $104,070 in
fiscal 1998 to $338,963 in fiscal 1999. License fee revenues increased by
$350,000 or 87.5% from $400,000 in fiscal 1998 to $750,000 in fiscal 1999. The
contract and license fee revenues generated in fiscal 1999 and 1998 primarily
relate to the corporate relationship with B&L. In 2000, subject to continuation
of existing research and development contracts, the Company anticipates
receiving $800,000 in license fees (subject to possible partial offset). The
level of contract revenues for 2000 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 $398,247 or 32.0% from
$1,245,016 in fiscal 1998 to $1,643,263 in fiscal 1999. 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 and clinical costs associated with the Company's Phase I and
II clinical trials. The Company is anticipating that research and development
expenses will further increase in 2000 as the Company continues the clinical
development of IoGen.
General and administrative expenses decreased by $61,324 or 14.3% from
$428,979 in fiscal 1998 to $367,655 in fiscal 1999. The decrease resulted
primarily from decreased employee salaries and related costs, and decreased
investor and public relations expenses and other third party fees and services.
The Company anticipates that general and administrative expenses will increase
over current levels for 2000 as the Company anticipates increasing investor and
public relations expenses.
The Company's interest income decreased by $11,505 or 11.9% from
$96,698 in fiscal 1998 to $85,193 in fiscal 1999. This decrease resulted from a
decrease in available funds for investment.
<PAGE>
Liquidity and Capital Resources
The Company has funded its activities primarily through proceeds from
private and public placements of equity and debt securities. During 1999, the
Company sold 836,685 shares of Common Stock, together with warrants for a like
number of shares, in a private placement, realizing net proceeds of
approximately $1,360,000.
During 1999, the Company continued to incur operating losses and has
incurred a cumulative loss through December 31, 1999 of $6,444,769. As of
December 31, 1999, the Company had working capital of $2,535,099. The Company
believes that it has the necessary liquidity and capital resources to sustain
planned operations for fiscal 2000. In the event that the Company's internal
estimates relating to its planned revenues and expenditures for fiscal 2000
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 2000, and
therefore, the Company will seek new financing in fiscal 2000. 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 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 2000, the Company is committed to pay approximately $345,000 as
compensation to its current executive officers and approximately $32,000 for
lease payments on its facilities. The Company anticipates that the continued
clinical development of IoGen will cost approximately $500,000 during 2000. The
Company has no planned material capital expenditures for fiscal 2000. At
December 31, 1999, the Company had a net operating loss carryforward for federal
income tax purposes of approximately $6,292,000 expiring through 2019.
The term "Year 2000" ("Y2K") issue was a general term used to describe
the various problems that might have resulted from the improper processing of
dates and date-sensitive calculations by computers and other machinery for dates
subsequent to December 31, 1999. These problems generally could have arisen from
the fact that most of the world's computer hardware and software have
historically used only two digits to identify the year in a date, often meaning
that the computer could fail to distinguish dates in the "2000's" from dates in
the "1900's." These problems could have arisen from other sources as well, such
as the use of special codes and conventions in software that make use of the
date field. The Y2K computer software compliance issues were anticipated to have
a possible adverse affect on the Company and most companies in the world. The
failure to correct a material Y2K problem could have resulted in an interruption
in, or failure of, certain normal business activities or operations. Such
failures could have had an adverse affect on the Company's results of
operations, liquidity and financial conditions.
As of December 31, 1999 the Company had completed all aspects of its
Y2K readiness program and to date has not experienced any significant problems
related to the Y2K issue. The Company will continue to monitor its operations to
insure that it is compliant. Through December 31, 1999 the Company estimates
that it has spent approximately $5,000 to be Y2K compliant.
<PAGE>
Item 7. Financial Statements
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Symbollon Corporation
Framingham, Massachusetts
We have audited the accompanying balance sheets of Symbollon Corporation (a
development stage company) as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' equity and cash flows for the years then
ended and for the period from July 15, 1986 (inception) to December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Symbollon Corporation (a
development stage company) at December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended and for the period from
July 15, 1986 (inception) to December 31, 1999 in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
Boston, Massachusetts
January 21, 2000
<PAGE>
<TABLE>
Symbollon Corporation
(a development stage company)
Balance Sheets
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,771,821 $ 1,514,115
Restricted cash (Note 3) 52,615 297,554
Accounts receivable 72,015 207,172
Inventory (Note 4) 96,354 69,382
Prepaid expenses 54,217 83,104
- ------------------------------------------------------------------------------------------------------------------
Total current assets 3,047,022 2,171,327
Equipment and leasehold improvements, net of
accumulated depreciation and amortization (Note 5) 89,710 125,572
Other assets:
Patent and trademark costs, net of accumulated
amortization (Note 6) 221,483 205,226
Deposit 2,364 2,364
- ------------------------------------------------------------------------------------------------------------------
$ 3,360,579 $ 2,504,489
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Symbollon Corporation
(a development stage company)
Balance Sheets
(Continued)
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 65,903 $ 87,654
Accrued clinical studies 414,862 4,403
Other 31,158 19,149
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 511,923 111,206
- ------------------------------------------------------------------------------------------------------------------
Redeemable common stock, Class A, par value $.001 per share, 93,334 and 669,545
shares issued, respectively, (aggregate involuntary liquidation value $175,000
at December 31, 1999) (Note 7) 175,000 850,000
- ------------------------------------------------------------------------------------------------------------------
Commitments (Notes 8 and 11)
Stockholders' equity (Notes 7 and 8):
Preferred stock, par value $.001 per share, 5,000,000 shares
authorized and unissued - -
Common stock, Class A, par value $.001 per share, 18,750,000
shares authorized, 3,557,339 and 2,919,786 shares issued and
outstanding, respectively 3,557 2,920
Convertible common stock, Class B, par value $.001
per share, 1,250,000 shares authorized, 688 and 15,738 shares
issued and outstanding, respectively 1 16
Additional paid-in capital 9,114,867 7,254,712
Deficit accumulated during the development stage (6,444,769) (5,714,365)
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,673,656 1,543,283
- ------------------------------------------------------------------------------------------------------------------
$ 3,360,579 $ 2,504,489
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Symbollon Corporation
(a development stage company)
Statements of Operations
<CAPTION>
For the
Period from
Year Ended July 15, 1986
December 31, (Inception) to
--------------------------- December 31,
1999 1998 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue (Note 12):
Net product sales $ 425,209 $ 423,441 $ 1,466,197
Contract revenue 338,963 104,070 983,713
License fee revenue 750,000 400,000 2,940,000
- --------------------------------------------------------------------------------------------------------------------------
Total revenue 1,514,172 927,511 5,389,910
- --------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Cost of goods sold 318,851 242,964 914,052
Research and development costs 1,643,263 1,245,016 6,924,977
General and administrative expenses 367,655 428,979 4,302,921
- --------------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,329,769 1,916,959 12,141,950
- --------------------------------------------------------------------------------------------------------------------------
Loss from operations (815,597) (989,448) (6,752,040)
Interest income 85,193 96,698 663,531
Interest expense and debt issuance costs - - (356,260)
- --------------------------------------------------------------------------------------------------------------------------
Net loss $ (730,404) $ (892,750) $(6,444,769)
- --------------------------------------------------------------------------------------------------------------------------
Basic and diluted net loss per share of
common stock (Note 9) $ (.24) $ (.33)
- --------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding - basic and diluted 3,104,697 2,665,139
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Symbollon Corporation
(a development stage company)
Statements of Stockholders' Equity
(Note 7)
<CAPTION>
Common Stock
$.001 Par Value Deficit
Preferred Stock ------------------------------ 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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Symbollon Corporation
(a development stage company)
Statements of Stockholders' Equity
(Note 7)
(Continued)
<CAPTION>
Common Stock
$.001 Par Value Deficit
Preferred Stock ------------------------------ 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
Stock purchase plan sales - - 2,940 3 - - 4,767 - 4,770
Reclass of redeemable common stock, March - - 482,878 483 - - 499,517 - 500,000
Issuance of shares, October - - 836,685 836 - - 1,355,171 - 1,356,007
Forfeiture of restricted shares, December - - (684,950) (685) (15,050) (15) 700 - -
Net loss for the year - - - - - - - (730,404) (730,404)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 - $ - 3,557,339 $3,557 688 $ 1 $9,114,867 $(6,444,769) $2,673,656
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Symbollon Corporation
(a development stage company)
Statements of Cash Flows
<CAPTION>
For the
Period from
Year Ended July 15, 1986
December 31, (Inception) to
------------------------ December 31,
1999 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (730,404) $ (892,750) $(6,444,769)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 47,355 49,177 475,734
Amortization of debt issuance costs - - 130,000
Loss on disposition of equipment and patents 19,175 12,268 38,717
Reduction of redeemable common stock in lieu of
receipt of license payment (175,000) - (175,000)
Changes in:
Restricted cash 244,939 (297,554) (52,615)
Accounts receivable 135,157 (182,200) (72,015)
Inventory (26,972) 4,247 (96,354)
Prepaid expenses 28,887 (7,948) (54,217)
Accounts payable and other current liabilities 400,717 40,603 569,098
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (56,146) (1,274,157) (5,681,421)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (3,562) (24,173) (368,388)
Patent and trademark cost additions (43,363) (68,045) (468,556)
Proceeds from sale of equipment - - 11,300
Deposit - - (2,364)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (46,925) (92,218) (828,008)
- ------------------------------------------------------------------------------------------------------------------------------------
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 warrants 1,360,777 352,625 9,419,508
Sale of option to purchase units - - 100
Public offering costs - - (1,343,502)
Issuance of preferred stock - - 450,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,360,777 352,625 9,281,250
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,257,706 (1,013,750) 2,771,821
Cash and cash equivalents, beginning of period 1,514,115 2,527,865 -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 2,771,821 $1,514,115 $ 2,771,821
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid for income taxes $ 541 $ 2,803
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.
Concentration of The Company has very few customers.
Credit Risks Customers' financial condition is reviewed
on an ongoing basis, and collateral is not
required. The Company maintains reserves
for potential credit losses and such
losses, in the aggregate, have not
exceeded management's expectations.
<PAGE>
2. Summary of
Significant
Accounting
Policies
(Continued)
Inventory Inventory is stated at the lower of cost
(determined on a first-in, first-out
basis) or market.
Long-Lived Assets The Company follows the provisions
of Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"),
"Accounting for the Impairment of
Long-Lived Assets and Assets to be
Disposed of," which establishes accounting
standards for the impairment of long-lived
assets and certain identifiable
intangibles to be held and used and for
long-lived assets and certain identifiable
intangibles to be disposed of.
The Company reviews the carrying values of
its long-lived and identifiable intangible
assets for possible impairment whenever
events or changes in circumstances
indicate that the carrying amount of the
assets may not be recoverable. Any
long-lived assets held for disposal are
reported at the lower of their carrying
amounts or fair value less cost to sell.
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.
Income Taxes The Company follows the liability method
of accounting for income taxes, as set
forth in Statement of Financial Accounting
Standards No. 109, "Accounting For Income
Taxes." Under this method, deferred tax
liabilities and assets are recognized for
the expected future tax consequences of
temporary differences between the carrying
amount and the tax basis of assets and
liabilities. The Company records a
valuation allowance against deferred tax
assets unless it is more likely than not
that such asset will be realized in future
periods.
<PAGE>
2. Summary of
Significant
Accounting
Policies
(Continued)
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.
Revenue The Company recognizes contract and
Recognition license fee revenues when the Company
fulfills all of its obligations under its
collaborative research and licensing
agreements. Product sales are recognized
upon shipment.
Research and Research and development costs are
Development expensed as incurred.
Stock-Based The Company follows the provisions of
Compensation Statement of Financial Accounting
Standard No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation."
The Company has elected to continue to
account for stock options at their
intrinsic value with disclosure of the
effects of fair value accounting on net
loss and loss per basic and diluted share
of common stock on a pro forma basis.
Loss Per Share The Company follows Statement of
Financial Accounting Standards No. 128
("SFAS No. 128"), "Earnings per Share."
Under SFAS No. 128, basic earnings per
share excludes the effect of any dilutive
options, warrants or convertible
securities and is computed by dividing the
net loss available to common shareholders
by the weighted average number of common
shares outstanding for the period. Diluted
earnings per share is computed by dividing
the net loss available to common
shareholders by the sum of the weighted
average number of common shares and common
share equivalents computed using the
average market price for the period under
the treasury stock method.
<PAGE>
2. Summary of
Significant
Accounting
Policies
(Continued)
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 as amended by SFAS No. 137, is
effective for all fiscal quarters of
fiscal years beginning after June 15,
2000.
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.
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. As part of the
agreement, $52,615 remains deposited in a
bank account jointly controlled by
the Company and the clinical research
organization. The remaining funds in the
account will be used to satisfy future
obligations of the Company 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.
<PAGE>
<TABLE>
<CAPTION>
4. Inventory Inventory consists of:
December 31, 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 95,198 $ 47,379
Finished goods 1,156 22,003
--------------------------------------------------------------------------------------
$ 96,354 $ 69,382
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
5. Equipment and Equipment and leasehold improvements are stated at cost and consist of the following:
Leasehold
Improvements December 31, 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C>
Equipment and fixtures $ 191,503 $ 221,359
Leasehold improvements 61,811 61,811
--------------------------------------------------------------------------------------
253,314 283,170
Less accumulated depreciation
and amortization 163,604 157,598
--------------------------------------------------------------------------------------
Equipment and leasehold
improvements, net $ 89,710 $ 125,572
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. Patent and December 31, 1999 1998
Trademark --------------------------------------------------------------------------------------
Costs <S> <C> <C>
Patent costs $ 235,243 $ 401,638
Trademark costs 2,444 2,444
--------------------------------------------------------------------------------------
237,687 404,082
Less accumulated amortization 16,204 198,856
--------------------------------------------------------------------------------------
Patent and trademark costs, net $ 221,483 $ 205,226
--------------------------------------------------------------------------------------
</TABLE>
7. Stockholders'
Equity
Class A and The Company has issued both Class A and
Class B Class B common stock. The Class A and
Common Stock 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.
Redeemable On August 4, 1997, the Company entered
Common Stock into a Stock Purchase Agreement (the
"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 due from the
pharmaceutical company. On August 4, 1999,
the pharmaceutical company returned 93,333
of these shares in consideration for a
milestone payment due on that date. During
1999, 482,878 of these shares were
reclassified from redeemable common stock
to Class A common stock since such shares
no longer have mandatory redemption
conditions.
<PAGE>
7. Stockholders'
Equity
(Continued)
Redeemable If the collaboration and license agreement
Common Stock (see Note 12) is terminated by the
(Continued) 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
$175,000 in total.
Restricted In connection with the Company's 1993
Common Stock 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.
The Agreement with the stockholders
provided that the restricted shares would
be transferred to the Company for no
consideration if certain earnings and
stock price criteria were not achieved
prior to December 31, 1999. On December
31, 1999, the 700,000 restricted shares
were retired since the established
thresholds were not achieved.
Common Stock In fiscal 1999, the Company raised net
Purchase Warrants proceeds of $1,356,007 in connection with
a private placement equity offering. The
offering consisted of the sale of up to
1,250,000 units, at a price of $1.75 with
each unit consisting of one share of the
Company's Class A common stock and one
redeemable common stock warrant. In
addition, the Company issued to the
placement agent 60,940 warrants having
terms similar to the common stock warrant
issued with each unit. The offering
resulted in the sale of 836,685 units.
<PAGE>
7. Stockholders'
Equity
(Continued)
Common Stock Each warrant is exercisable for a four
Purchase Warrants year period beginning on the date of the
(Continued) 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. Warrants may be
redeemed by the 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 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. The following is a summary
of shares issuable upon the exercise of
warrants issued in connection with the
1999 private placement all of which are
exercisable at December 31, 1999.
<TABLE>
<CAPTION>
Exercise Shares Expiration
Price Range Issuable Date
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Warrants issued in connection with
Class A common stock issuance $3.00 - $6.00 836,685 2003
Placement agent warrants issued in
connection with Class A common
stock issuance $3.00 - $6.00 60,990 2003
</TABLE>
During fiscal 1998, the Company's then
outstanding redeemable Class A warrants,
redeemable Class B warrants and unit
purchase options expired.
<PAGE>
8. Stock Plans The Company has adopted three stock plans:
a stock option plan, an employee stock
purchase plan and a nonemployee directors'
stock option plan.
The stock option plan provides for the
grant of incentive stock options,
nonqualified stock options and stock
appreciation rights. At December 31, 1999
the Company has reserved 1,600,000 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, 1999, the Company has
reserved 200,000 shares for purchase under
this plan. During the years ended December
31, 1999 and 1998, the Company issued
2,940 and 3,500 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.
Under the above plans 760,342 shares are
available for future grant or purchase.
<PAGE>
8. Stock Plans The Company had the following option
(Continued) activity in 1999 and 1998:
<TABLE>
<CAPTION>
Weighted -
Average
Exercise Price
Shares Per Share
--------------------------------------------------------------------------------------
<S> <C> <C>
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
Granted 397,500 6.87
Cancelled (20,000) 1.44
--------------------------------------------------------------------------------------
Balance, December 31, 1999 1,120,645 $ 3.80
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
All options outstanding at December 31,
1999 are categorized by the following
ranges in the table below:
Weighted-
Weighted - Average
Average Remaining
Share Exercise Contractual Number of
Price Range Price Life (years) Shares
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1.02 to $ 4.00 $ 1.84 6.2 702,895
$ 4.00 to $ 9.06 $ 6.96 4.5 417,750
---------
1,120,645
=========
</TABLE>
<PAGE>
8. Stock Plans All options exercisable at December 31,
(Continued) 1999 are categorized by the following
ranges in the table below:
<TABLE>
<CAPTION>
Weighted-
Weighted - Average
Average Remaining
Share Exercise Contractual Number of
Price Range Price Life (years) Shares
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1.02 to $ 4.00 $ 1.80 5.5 524,624
$ 4.00 to $ 9.06 $ 5.17 1.5 57,750
-------
582,374
=======
</TABLE>
Stock Based The Company accounts for its stock-based
Compensation compensation plan using the intrinsic
value method. Accordingly, there was no
compensation expense recognized in 1999 or
1998. If the Company had elected to
recognize compensation cost for the plans
based on the fair value at the grant date
for awards granted under the plans,
consistent with the method prescribed by
SFAS No. 123, net loss per share would
have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss As reported $ (730,404) $ (892,750)
Pro forma $ (821,494) $ (1,004,059)
Basic and diluted net As reported $ (.24) $ (.33)
loss per share of Pro forma $ (.26) $ (.38)
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 loss
(Continued) and net 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 1999 and 1998,
respectively: dividend
yield of 0% for both years; expected
volatility of 46% for both years; a
risk-free interest rate of between 5.85%
and 6.30% and 4.60% and 5.25%; and an
expected holding period of 2 to 9 years
and 7 to 10 years.
The weighted-average fair value of
options granted during the years ended
December 31, 1999 and 1998 was $1.06 and
$.85 per share, respectively.
9. Loss Per Share The Company's basic and
diluted net loss per share of common stock
for the years ended December 31, 1999 and
1998 is computed by dividing the net loss
by the weighted average number of common
shares outstanding during the period.
The following table summarizes securities
that were outstanding as of December 31,
1999 and 1998 but not included in the
calculation of diluted net loss per share
because such shares are antidilutive:
<TABLE>
<CAPTION>
December 31, 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C>
Stock options 1,120,645 743,145
Stock warrants 897,675 -
</TABLE>
<PAGE>
10. Income Taxes 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:
<TABLE>
<CAPTION>
December 31, 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated amortization $ - $ 46,000
Tax credits 277,000 205,000
Net operating loss carryforwards 2,517,000 2,181,000
--------------------------------------------------------------------------------------
Gross deferred tax asset 2,794,000 2,432,000
Deferred tax assets valuation
allowance (2,794,000) (2,432,000)
--------------------------------------------------------------------------------------
Net deferred tax assets $ - $ -
--------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1999 and 1998, the
deferred tax assets have been fully offset
by valuation allowances, since the
realization of such amounts is uncertain.
As of December 31, 1999, the Company has
net operating loss carryforwards totaling
approximately $6,292,000. 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.
<PAGE>
10. Income Taxes The following is a breakdown of the net
(Continued) 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
2019 840,000
</TABLE>
In addition, the Company has available
tax credit carryforwards (adjusted to
reflect provisions of the Tax Reform Act
of 1986) of approximately $277,000, which
are available to offset future taxable
income and income tax liabilities, when
earned or incurred. These amounts expire
in various years through 2019.
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, 1999 and 1998 was $30,000 and
$26,000, respectively.
Future minimum rental payments due are as
follows:
<TABLE>
<CAPTION>
Year ending December 31, Total
--------------------------------------------------------------------------------------
<S> <C>
2000 $ 32,000
2001 33,000
2002 23,000
---------------------------------------------------------------------------------------
$ 88,000
---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
11. Commitments
(Continued)
Employment The Company has employment agreements
Agreements with its principal officers providing
for minimum base compensation and
severance pay which expire December 31,
2005. For theyears ended December 31, 1999
and 1998, the aggregate amount paid under
these agreements was $305,000 in each
year. The employment agreements provide
for inflationary adjustments and are
subject to other increases based on the
Board of Directors' approval. Minimum
amounts to be paid under these agreements
in fiscal 2000 total approximately
$345,000.
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,
1999 no royalties have been earned under
this agreement.
Consulting The Company has entered into various
Agreements scientific advisory and consulting
agreements to support its development
activities. These agreements generally
expire overseveral future years. Amounts
charged to operations in connection
with these agreements for the years ended
December 31, 1999 and 1998 amounted to
approximately $40,900 and $236,700,
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.
<PAGE>
11. Commitments
(Continued)
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 makes
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. The Company's
contribution to the plan amounted to
approximately $4,400 for the year ended
December 31, 1999.
12. Major Customers Through December 31, 1999,
the Company has generated its revenue from
a small number of customers and
collaborative agreements. Revenues from
major customers were generated as follows:
<TABLE>
<CAPTION>
Net License
Product Contract Fee
Year ended December 31, 1999 Sales Revenue Revenue
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer A $ 425,209 $ - $ -
Customer B - 338,963 750,000
--------------------------------------------------------------------------------------
$ 425,209 $ 338,963 $ 750,000
--------------------------------------------------------------------------------------
Net License
Product Contract Fee
Year ended December 31, 1998 Sales Revenue Revenue
--------------------------------------------------------------------------------------
Customer A $ 423,441 $ - $ -
Customer B - 99,570 400,000
--------------------------------------------------------------------------------------
$ 423,441 $ 99,570 $ 400,000
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
12. Major Customers At December 31, 1999, the Company has an
(Continued) ongoing collaborative product development
agreement with Customer B related to
an ophthalmology product. The agreement
provides for the collaborative partner to
fund certain research activities of the
Company and to make certain milestone
payments dependent on the continuation of
the agreement. The next milestone payment,
amounting to $800,000 is due in August,
2000. This payment is subject to an offset
of up to $175,000 of redeemable Class A
common stock. The Company may receive
additional milestone payments beyond 2000
if the agreement is continued.
Net product sales based on customer
location are as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C>
United States $ 283,758 $ 325,935
United Kingdom and New Zealand 141,451 97,506
--------------------------------------------------------------------------------------
$ 425,209 $ 423,441
--------------------------------------------------------------------------------------
</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, either individually or
through hisfirm, totalled approximately
$63,000 and $79,000 for the years ended
December 31, 1999 and 1998, respectively.
<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 2000 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 2000 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 2000 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 2000 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, as amended.
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 14, 1999, between the Company and
Dr. Jack H. Kessler.
6 Employment Agreement, dated December 14, 1999, between the Company and
Paul C. Desjourdy.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on October 13, 1999 reporting
information under item 5 concerning the Company's continued listing on the
Nasdaq SmallCap Market. The Form 8-K contained a condensed balance sheet dated
August 31, 1999 including pro forma adjustments for subsequent financing.
<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
President
Date: March 27, 2000
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 Chief Executive Officer, March 27, 2000
- --------------------- Chief Scientific Officer,
Jack H. Kessler Secretary and Chairman
of the Board of Directors
(Principal Executive Officer)
/s/ Paul C. Desjourdy President, Chief Operating Officer, March 27, 2000
- ---------------------- Treasurer, General Counsel, Chief
Paul C. Desjourdy Financial Officer, and Director (Principal
Financial and Accounting Officer)
/s/ James C. Richards Director March 27, 2000
- ----------------------
James C. Richards
/s/ Richard F. Maradie Director March 27, 2000
- ----------------------
Richard F. Maradie
/s/ Eugene Lieberstein Director March 27, 2000
- ----------------------
Eugene Lieberstein
<PAGE>
Symbollon Corporation
Index to Exhibits
3.1 Amended 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 June 30, 1999 and
incorporated by reference.)
3.2 Amended By-Laws of the Company. (previously filed as exhibit 3.2 to
Form 10-QSB for the quarter ended June 30, 1999 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 (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.)
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. (previously filed
as exhibit 10.1 to Form 10-QSB for the quarter ended
June 30, 1999 and incorporated by reference.)
10.2 Employment Agreement, dated December 14, 1999, between the Company and
Paul C. Desjourdy.
10.3 Employment Agreement, dated December 14, 1999, between the Company and
Dr. Jack H. Kessler.
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 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.) *
10.12 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.)
10.13 Form of Subscription Agreement, dated as of August 10, 1999, between
the Company and the purchasers of Units (previously filed as exhibit
number 10.14 to Form 10-QSB for the quarter ended September 30, 1999
and incorporated by reference.)
10.14 Form of Redeemable Warrant for the purchase of shares of Class A Common
Stock, dated as of August 10, 1999, issued to purchasers of Units
(previously filed as exhibit number 10.15 to Form 10-QSB for the
quarter ended September 30, 1999 and incorporated by reference.)
23.1 Consent of BDO Seidman, 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.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Employment Agreement is made as of the 14 day of December, 1999,
by and between Symbollon Corporation, a Delaware corporation with its principal
place of business at 37 Loring Drive, Framingham, MA 01702 (the "Company"), and
Paul C. Desjourdy, residing at 25 Eastmount Road, Medfield, MA 02052 (the
"Employee").
In consideration of the mutual promises contained in this Agreement,
the parties agree as follows:
1. Titles and Responsibilities. The Company employs the Employee, and
the Employee accepts employment, as President, Chief Operating Officer, General
Counsel and Chief Financial Officer of the Company. The Employee shall be
directly responsible for management of all business operations and setting of
overall corporate strategy. Subject to the general direction and control of the
Board of Directors of the Company (the "Board"), the Employee agrees to devote
his full time and best efforts to his duties and responsibilities for the
Company, subject only to the provisions of Section 7 of this Agreement. The
Employee shall report directly to the Chief Executive Officer.
2. Term. The term of this Agreement shall be deemed to have commenced
as of the date hereof and, subject to the provisions of Section 12 of this
Agreement, shall continue in full force and effect until December 31, 2005.
3. Base Salary. During the term of this Agreement, the Employee shall
be entitled to receive base salary at the rate of $170,000 per year, payable not
less than monthly in arrears, commencing January, 2000. The Employee's base
salary (at the rate then in effect) shall be increased each year by a
cost-of-living factor determined by reference to the Consumers Price Index for
All Urban Consumers applicable to Boston, Massachusetts, published by the Bureau
of Labor Statistics of the U.S. Department of Labor (the "Index"). The amount of
such increase shall be effective in January of each year, commencing January,
2001, and shall be equal to the percentage increase in the Index from the
previous January. The Company may, but shall not be obligated to, increase the
Employee's base salary in any year in an amount in excess of the cost-of-living
factor provided above.
4. Bonuses.
(a). Annual. In addition to the base salary described in Section 3,
during the term of this Agreement, the Employee may be entitled in each calendar
year to receive a cash bonus, stock options and/or such other bonuses, in such
amounts and on such terms as the Board or the Compensation Committee of the
Board (the "Compensation Committee") may determine. In the event of the
termination of the employment of the Employee for (i) any reason other than
Cause or (ii) by reason of Constructive Discharge, the Employee shall be
entitled to receive an amount equal to the bonus which would otherwise have been
payable to the Employee under any established Company incentive plans, if any,
in effect at the time in respect of the year during which such termination
occurs, pro rated for the portion of the year in which such termination occurs.
<PAGE>
(b). Signing. As an incentive to execute this Agreement, the
Employee shall be granted as of the date hereof options to purchase Class A
Common Stock as detailed on Exhibit A hereto.
5. Employee Benefits. The Employee shall have the right to participate
in all benefit plans and programs generally made available to executives of the
Company, including without limitation health, dental, life, and disability
insurance, vacation programs, retirement plans, employee stock plans or benefits
and profit sharing plans.
6. Reimbursement of Expenses. The Company shall reimburse the Employee
for all reasonable and necessary expenses incurred by him in the performance of
his duties hereunder, following his appropriate substantiation thereof, in each
case in accordance with the Company's policies as in effect from time to time.
7. Outside Consulting. With prior notification to the Compensation
Committee, the Employee may provide consulting services to third parties. The
Employee may serve as a consultant in any field which does not directly compete
with the Company, including without limitation, medical diagnostic products,
provided, that in no event shall such proposed consulting interfere with the
operations of the Company or the performance of the Employee's duties under this
Agreement more particularly described in Section 1 hereof. If the Compensation
Committee shall determine that any consulting activity engaged in by the
Employee is not permitted hereunder, the Compensation Committee shall provide
the Employee a written statement setting forth the basis for its determination.
The Employee agrees that in no event will he devote more than four days per
month in the aggregate in his capacity as a consultant to third parties.
8. Severance and Other Arrangements.
(a) Generally. In the event of the termination of the employment
of the Employee by the Company without Cause, or by
the Employee as the result of a Constructive Discharge, the Company shall:
(i). Continue to pay the Employee, in accordance with the
Company's normal payroll practices and policies in effect from time to time
(including any required withholding), his base salary at the monthly base salary
rate in effect for such Employee immediately prior to the termination of his
employment) for a period of eighteen (18) months following the termination of
the Employee's employment.
(ii). Provide the Employee with health, dental, life and
disability insurance substantially similar to that which the Employee was
receiving immediately prior to the termination of his employment until the
earlier of: (x) the date which is eighteen (18) months following the termination
of the Employee's employment; or (y) the date the Employment begins receiving
substantially similar insurance from a subsequent employer. The end of the
period during which severance is paid, rather than the termination date of
employment, will be deemed to be a "qualifying event" which would entitle the
<PAGE>
Employee to acquire at his own expense during the minimum election period
permitted by the Consolidated Omnibus Budget Reconciliation Act (commonly known
as "COBRA") or such law as may then be in effect continuation of coverage under
the Company's health and benefit plans.
(iii). Provide that the Employee shall have three (3) years to
exercise any then-exercisable, unexpired installments of any stock options held
by the Employee on the Employee's last date of employment or if later, the date
when the Employee ceases to be a member of the Board.
(b) Disability. In the event of any illness (mental or physical) or
accident which renders the Employee unable to perform his duties and
responsibilities, the Company shall, during the first 3 months of any such
illness or after such accident, as the case may be, continue to pay the
Employee's base salary hereunder; and thereafter, during any such period in
excess of 3 months the Company shall supplement any disability benefits which
the Employee is entitled to receive under the Company's disability plans then in
effect, for a period of up to 9 additional months, in an amount such that,
together with any amounts the Employee is entitled to receive under such plans,
the Employee shall receive an aggregate amount equal to his base salary during
such period.
(c). Change of Control. Upon a Change of Control, all stock
options held by the Employee shall vest and become
immediately exercisable in full.
9. Non-competition. During the term of this Agreement and thereafter
the Employee will not directly or indirectly, participant in any business that
utilizes the Company's proprietary information, know-how or trade secrets in any
field of activity, including specifically those fields that are competitive with
the business of the Company, nor will the Employee interfere with the
contractual relations between the Company and any of its employees. The
provisions of this Section shall not prohibit the ownership of stock in any
entity whose stock is publicly traded or 5% or less of the outstanding stock of
any entity whose stock is not publicly traded.
10. Ownership of Developments. The Employee agrees that any work or
research, or the result thereof including without limitation, inventions,
processes, formula, data, information, programs, systems, software or know-how
(hereinafter collectively "Proprietary Information") made, conceived or
developed by Employee, alone or in connection with others, prior to or during
the term of his employment under this Agreement, whether during or out of the
usual hours of employment, which are related to the business, research and
development work within the Company's Field of Operation are the sole and
exclusive property of the Company. The Employee agrees that he will fully assign
the foregoing to Company. The Employee further agrees to disclose all
Proprietary Information completely and in writing to the Board. To the extent of
the Employee's interest therein, all papers and records of every kind, relating
to Proprietary Information included within the terms of this Agreement, which
shall at any time come into the possession of the Employee shall be the sole and
exclusive property of the Company and shall be surrendered to the Company upon
termination of the Employee's employment by the Company or upon the Company's
request at any time either during or after the termination of such employment.
<PAGE>
11. Confidential Information. Employee covenants and agrees with the
Company that Employee will not during or after the term of employment disclose
to anyone (except to the extent reasonably necessary for Employee to perform his
duties hereunder) any Proprietary Information or other confidential information
concerning the business or affairs of the Company or of any of its affiliates or
subsidiaries or any of their customers which Employee may have acquired in the
course of or as incident to Employee's employment or prior dealings with the
Company or with any of its affiliates, including without limitation, customers
lists, or business trade secrets of, or methods or techniques used by Employee
or any of its affiliates in or about their respective business. Nothing
contained in this paragraph shall impair or restrict the right of Employee to
use or disclose any information already in the public domain.
12. Termination. Notwithstanding the provisions of Section 2 of this
Agreement, the Company shall have the right to terminate the employment of the
Employee for Cause or as a result of his death or Permanent Disability, and the
Employee shall have the right to terminate his employment as the result of a
Constructive Discharge, in each case without violation of the terms of this
Agreement.
In no event shall the Company terminate this Agreement without Cause,
unless the Employee shall have been granted a prior meeting with, and an
opportunity to be heard by, the Board, and a majority of the members of the
Board shall have determined that the Employee has (i) failed to fulfill his
duties to the Company in a satisfactory manner or (ii) engaged in conduct
detrimental to the Company.
13. Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated:
"Cause" means (i) the deliberate dishonesty of the Employee
with respect to the Company or any subsidiary or affiliate thereof; (ii)
conviction of the Employee of a felony punishable by imprisonment for more than
one year or a fine of $100,000 or more; or (iii) the willful failure of Employee
to perform the material lawful duties assigned to him under this Agreement as
determined by the Board, which failure the Employee shall not have substantially
remedied within 30 days after receiving written notice from the Company
describing such failure in reasonable detail.
"Change of Control" means (i) the sale, lease, transfer or
other disposition by the Company of all or substantially all of its assets in a
single transaction or a series of related transactions; (ii) the merger or
consolidation of the Company with another entity in which the stockholders of
the Company immediately prior to such merger or consolidation hold less than 50%
of the outstanding voting stock of the surviving or resulting corporation
immediately following such transaction; or (iii) the sale or exchange (to or
with any person or entity other than the Company) by the stockholders of the
Company of more than 50% of the outstanding voting stock of the Company in a
single transaction or series of related transactions.
<PAGE>
"Company's Field of Operation" means all therapeutic and/or
anti-microbial products, including without limitation iodine-based products, and
any additional products or services developed, marketed, distributed, planned,
sold or otherwise provided by the Company from time to time prior to or during
the term of this Agreement.
"Constructive Discharge" means the termination of employment
by the Employee on the grounds that (a) there has been a significant reduction
in the nature or scope of the Employee's responsibilities, authorities, powers,
functions or duties, (b) there has been a material change in the Company's
policies or management which was intended other than in good faith to and which
has resulted in the inability of the employee to exercise substantially the
responsibilities, authorities, powers, functions or duties exercised by him
immediately prior to such change, (c) there has been a decrease in the total
annual compensation payable by the Company to the Employee, other than as a
result of a material decrease in compensation payable to the Employee and to all
other employees of similar rank and stature of the Company on the basis of the
financial performance of the Company, provided, however, that nothing contained
herein shall be construed as giving the Company the right to decrease the
Employee's base salary specified in Section 3 hereof, (d) there has been a
Change of Control within the past twelve (12) months, or (e) the relocation of
the Company's business to a site more than twenty-five (25) miles from the
Employee's residence.
"Permanent Disability" means illness (mental or physical) or
accident which renders the Employee unable to perform his duties and
responsibilities for a period of six consecutive months or six months in any
twelve-month period, and which is confirmed to the Board as continuing at the
end of such period by expert medical opinion. Nothing contained in this
Agreement shall affect the right of the Employee to receive long-term disability
benefits under any long-term disability insurance plan(s) of the Company then in
effect.
14. Miscellaneous.
(a) Notices. Any notice hereunder shall be effective if delivered
personally, by registered or certified mail, return receipt requested, by
overnight or special courier with a signed receipt, or by facsimile where
confirmation of receipt may be verified, at the addresses set forth in the
preamble to this Agreement or to any other properly noticed address given by the
parties to each other.
(b) Governing Law. This Agreement shall be construed and governed
by the law of the Commonwealth of Massachusetts.
(c) Amendments. This Agreement may not be modified or amended
orally. All amendments shall be in writing and signed by
the Company and Employee.
<PAGE>
(d) Assignments. This Agreement may not be assigned in whole or in part
by the Employee. This Agreement may be assigned by the Company to any entity
acquiring or succeeding to control of ownership of the Company or substantially
all of the assets of the Company. This Agreement shall be binding upon and inure
to the benefit of the parties and to their permitted successors and assigns.
(e) Entire Agreement. This Agreement constitutes the entire
understanding of the parties with respect to its subject
matter and supersedes any other agreements between the parties with respect to
such subject matter.
(f) Enforceability. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provisions of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
(g) Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
(h) Arbitration. Any controversy or claim which arises out of or
relating to this Agreement, or the breach thereof (other than controversies or
claims with regard to Sections 9, 10 or 11 of this Agreement), shall be settled
by arbitration in accordance with the Rules of the American Arbitration
Association then in effect. The controversy or claim shall be submitted to three
arbitrators, one of whom shall be chosen by the Employee, one of whom shall be
chosen by the Company, and one of whom shall be chosen by the two so selected.
The party desiring arbitration shall give written notice to the other party of
its desire to arbitrate the particular matter in question, naming the arbitrator
selected by it. If the other party shall fail within a period of 15 days after
such notice shall have been given to reply in writing naming the arbitrator
chosen as above provided, or if the two arbitrators selected by the parties
shall fail within 15 days after their selection to agree upon the third
arbitrator, then either party may apply to the American Arbitration Association
for the appointment of an arbitrator to fill the place so remaining vacant. The
decision of any two of the arbitrators shall be final and binding upon the
parties hereto. Judgement upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
The proceedings shall be held in Boston, Massachusetts. The arbitrators
shall have no power to award punitive or exemplary damages or to ignore or vary
the terms of this Agreement, and shall be bound to apply controlling law.
Arbitration shall be binding and the remedy for the settlement of the
controversy or claims (except as set forth in the preceding paragraph of this
Section).
<PAGE>
(i) Certain Remedies. The restrictions contained in Sections 9, 10 and
11 of this Agreement are necessary for the protection of the business and
goodwill of the Company and are considered by the Employee to be reasonable for
such purpose. Without limiting the remedies available to the Company, the
Employee acknowledges that a breach of any of the covenants contained in any of
such Sections 9, 10 and 11 would result in irreparable injury to the Company for
which there might be no adequate remedy at law, and that, in the event of such a
breach or threat thereof, the Company shall be entitled to obtain a temporary
restraining order and/or such other equitable relief as may be required to
enforce specifically any of the covenants of such Sections 9, 10 and 11. The
provisions of such Sections 9, 10 and 11 shall survive the termination of this
Agreement and shall continue thereafter indefinitely in full force and effect in
accordance with their respective terms.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date and year first above written.
SYMBOLLON CORPORATION
By: /s/ Jack H. Kessler
--------------------------------
Jack H. Kessler
Chief Executive Officer
/s/ Paul C. Desjourdy
-------------------------------
Paul C. Desjourdy
<PAGE>
Exhibit A
Option Grant
Number of Shares Exercise Price Vesting Date
60,000 150% of Fair Market Value* First Anniversary
60,000 200% of Fair Market Value* Second Anniversary
60,000 250% of Fair Market Value* Third Anniversary
------
180,000
* Fair Market Value of the Class A Common Stock, as determined under the
Company's 1993 Employee Stock Option Plan, as amended, on the date of grant.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Employment Agreement is made as of the 14 day of December, 1999,
by and between Symbollon Corporation, a Delaware corporation with its principal
place of business at 37 Loring Drive, Framingham, MA 01702 (the "Company"), and
Jack H. Kessler, residing at 56 Presidential Drive, Southborough, MA 01772 (the
"Employee").
In consideration of the mutual promises contained in this Agreement,
the parties agree as follows:
1. Titles and Responsibilities. The Company employs the Employee, and
the Employee accepts employment, as Chief Executive Officer and Chief Scientific
Officer of the Company. The Employee shall be directly responsible for
management of all business operations and setting of overall corporate strategy.
Subject to the general direction and control of the Board of Directors of the
Company (the "Board"), the Employee agrees to devote his full time and best
efforts to his duties and responsibilities for the Company, subject only to the
provisions of Section 7 of this Agreement. The Employee shall report directly to
the Board.
2. Term. The term of this Agreement shall be deemed to have commenced
as of the date hereof and, subject to the provisions of Section 12 of this
Agreement, shall continue in full force and effect until December 31, 2005.
3. Base Salary. During the term of this Agreement, the Employee shall
be entitled to receive base salary at the rate of $175,000 per year, payable not
less than monthly in arrears, commencing January, 2000. The Employee's base
salary (at the rate then in effect) shall be increased each year by a
cost-of-living factor determined by reference to the Consumers Price Index for
All Urban Consumers applicable to Boston, Massachusetts, published by the Bureau
of Labor Statistics of the U.S. Department of Labor (the "Index"). The amount of
such increase shall be effective in January of each year, commencing January,
2001, and shall be equal to the percentage increase in the Index from the
previous January. The Company may, but shall not be obligated to, increase the
Employee's base salary in any year in an amount in excess of the cost-of-living
factor provided above.
4. Bonuses.
(a). Annual. In addition to the base salary described in Section 3,
during the term of this Agreement, the Employee may be entitled in each calendar
year to receive a cash bonus, stock options and/or such other bonuses, in such
amounts and on such terms as the Board or the Compensation Committee of the
Board (the "Compensation Committee") may determine. In the event of the
termination of the employment of the Employee for (i) any reason other than
Cause or (ii) by reason of Constructive Discharge, the Employee shall be
entitled to receive an amount equal to the bonus which would otherwise have been
payable to the Employee under any established Company incentive plans, if any,
in effect at the time in respect of the year during which such termination
occurs, pro rated for the portion of the year in which such termination occurs.
<PAGE>
(b). Signing. As an incentive to execute this Agreement, the
Employee shall be granted as of the date hereof options to purchase Class A
Common Stock as detailed on Exhibit A hereto.
5. Employee Benefits. The Employee shall have the right to participate
in all benefit plans and programs generally made available to executives of the
Company, including without limitation health, dental, life, and disability
insurance, vacation programs, retirement plans, employee stock plans or benefits
and profit sharing plans.
6. Reimbursement of Expenses. The Company shall reimburse the Employee
for all reasonable and necessary expenses incurred by him in the performance of
his duties hereunder, following his appropriate substantiation thereof, in each
case in accordance with the Company's policies as in effect from time to time.
7. Outside Consulting. With prior notification to the Compensation
Committee, the Employee may provide consulting services to third parties. The
Employee may serve as a consultant in any field which does not directly compete
with the Company, including without limitation, medical diagnostic products,
provided, that in no event shall such proposed consulting interfere with the
operations of the Company or the performance of the Employee's duties under this
Agreement more particularly described in Section 1 hereof. If the Compensation
Committee shall determine that any consulting activity engaged in by the
Employee is not permitted hereunder, the Compensation Committee shall provide
the Employee a written statement setting forth the basis for its determination.
The Employee agrees that in no event will he devote more than four days per
month in the aggregate in his capacity as a consultant to third parties.
The Company acknowledges that the Employee is a principal of and
participant in K&R Associates, that K&R Associates owns rights to certain
elements of the Company's technology as it relates to the disinfection of
contact lenses, and that the Employee is currently providing consulting services
to K&R Associates and Ciba-Vision Corporation in the field of contact lens
disinfection. The Company hereby consents to the Employee's aforementioned
consulting activities.
8. Severance and Other Arrangements.
(a) Generally. In the event of the termination of the
employment of the Employee by the Company without Cause, or by the Employee as
the result of a Constructive Discharge, the Company shall:
(i). Continue to pay the Employee, in accordance with the
Company's normal payroll practices and policies in effect from time to time
(including any required withholding), his base salary at the monthly base salary
rate in effect for such Employee immediately prior to the termination of his
employment) for a period of eighteen (18) months following the termination of
the Employee's employment.
(ii). Provide the Employee with health, dental, life and
disability insurance substantially similar to that which the Employee was
receiving immediately prior to the termination of his employment until the
earlier of: (x) the date which is eighteen (18) months following the termination
of the Employee's employment; or (y) the date the Employment begins receiving
substantially similar insurance from a subsequent employer. The end of the
period during which severance is paid, rather than the termination date of
employment, will be deemed to be a "qualifying event" which would entitle the
<PAGE>
Employee to acquire at his own expense during the minimum election period
permitted by the Consolidated Omnibus Budget Reconciliation Act (commonly known
as "COBRA") or such law as may then be in effect continuation of coverage under
the Company's health and benefit plans.
(iii). Provide that the Employee shall have three (3) years to
exercise any then-exercisable, unexpired installments of any stock options held
by the Employee on the Employee's last date of employment or if later, the date
when the Employee ceases to be a member of the Board.
(b) Disability. In the event of any illness (mental or physical) or
accident which renders the Employee unable to perform his duties and
responsibilities, the Company shall, during the first 3 months of any such
illness or after such accident, as the case may be, continue to pay the
Employee's base salary hereunder; and thereafter, during any such period in
excess of 3 months the Company shall supplement any disability benefits which
the Employee is entitled to receive under the Company's disability plans then in
effect, for a period of up to 9 additional months, in an amount such that,
together with any amounts the Employee is entitled to receive under such plans,
the Employee shall receive an aggregate amount equal to his base salary during
such period.
(c). Change of Control. Upon a Change of Control, all stock
options held by the Employee shall vest and become immediately exercisable
in full.
9. Non-competition. During the term of this Agreement and thereafter
the Employee will not directly or indirectly, participant in any business that
utilizes the Company's proprietary information, know-how or trade secrets in any
field of activity, including specifically those fields that are competitive with
the business of the Company, nor will the Employee interfere with the
contractual relations between the Company and any of its employees. The
provisions of this Section shall not prohibit the ownership of stock in any
entity whose stock is publicly traded or 5% or less of the outstanding stock of
any entity whose stock is not publicly traded.
The Company acknowledges that certain rights to commercialize the
Company's enzyme-based iodine technology in the field of contact lens
disinfection are owned by K&R Associates.
10. Ownership of Developments. The Employee agrees that any work or
research, or the result thereof including without limitation, inventions,
processes, formula, data, information, programs, systems, software or know-how
(hereinafter collectively "Proprietary Information") made, conceived or
developed by Employee, alone or in connection with others, prior to or during
the term of his employment under this Agreement, whether during or out of the
usual hours of employment, which are related to the business, research and
development work within the Company's Field of Operation are the sole and
exclusive property of the Company. The Employee agrees that he will fully assign
the foregoing to Company. The Employee further agrees to disclose all
Proprietary Information completely and in writing to the Board. To the extent of
the Employee's interest therein, all papers and records of every kind, relating
to Proprietary Information included within the terms of this Agreement, which
shall at any time come into the possession of the Employee shall be the sole and
exclusive property of the Company and shall be surrendered to the Company upon
termination of the Employee's employment by the Company or upon the Company's
request at any time either during or after the termination of such employment.
<PAGE>
11. Confidential Information. Employee covenants and agrees with the
Company that Employee will not during or after the term of employment disclose
to anyone (except to the extent reasonably necessary for Employee to perform his
duties hereunder) any Proprietary Information or other confidential information
concerning the business or affairs of the Company or of any of its affiliates or
subsidiaries or any of their customers which Employee may have acquired in the
course of or as incident to Employee's employment or prior dealings with the
Company or with any of its affiliates, including without limitation, customers
lists, or business trade secrets of, or methods or techniques used by Employee
or any of its affiliates in or about their respective business. Nothing
contained in this paragraph shall impair or restrict the right of Employee to
use or disclose any information already in the public domain.
12. Termination. Notwithstanding the provisions of Section 2 of this
Agreement, the Company shall have the right to terminate the employment of the
Employee for Cause or as a result of his death or Permanent Disability, and the
Employee shall have the right to terminate his employment as the result of a
Constructive Discharge, in each case without violation of the terms of this
Agreement.
In no event shall the Company terminate this Agreement without Cause,
unless the Employee shall have been granted a prior meeting with, and an
opportunity to be heard by, the Board, and a majority of the members of the
Board shall have determined that the Employee has (i) failed to fulfill his
duties to the Company in a satisfactory manner or (ii) engaged in conduct
detrimental to the Company.
13. Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated:
"Cause" means (i) the deliberate dishonesty of the Employee
with respect to the Company or any subsidiary or affiliate thereof; (ii)
conviction of the Employee of a felony punishable by imprisonment for more than
one year or a fine of $100,000 or more; or (iii) the willful failure of Employee
to perform the material lawful duties assigned to him under this Agreement as
determined by the Board, which failure the Employee shall not have substantially
remedied within 30 days after receiving written notice from the Company
describing such failure in reasonable detail.
<PAGE>
"Change of Control" means (i) the sale, lease, transfer or
other disposition by the Company of all or substantially all of its assets in a
single transaction or a series of related transactions; (ii) the merger or
consolidation of the Company with another entity in which the stockholders of
the Company immediately prior to such merger or consolidation hold less than 50%
of the outstanding voting stock of the surviving or resulting corporation
immediately following such transaction; or (iii) the sale or exchange (to or
with any person or entity other than the Company) by the stockholders of the
Company of more than 50% of the outstanding voting stock of the Company in a
single transaction or series of related transactions.
"Company's Field of Operation" means all therapeutic and/or
anti-microbial products, including without limitation iodine-based products, and
any additional products or services developed, marketed, distributed, planned,
sold or otherwise provided by the Company from time to time prior to or during
the term of this Agreement.
"Constructive Discharge" means the termination of employment
by the Employee on the grounds that (a) there has been a significant reduction
in the nature or scope of the Employee's responsibilities, authorities, powers,
functions or duties, (b) there has been a material change in the Company's
policies or management which was intended other than in good faith to and which
has resulted in the inability of the employee to exercise substantially the
responsibilities, authorities, powers, functions or duties exercised by him
immediately prior to such change, (c) there has been a decrease in the total
annual compensation payable by the Company to the Employee, other than as a
result of a material decrease in compensation payable to the Employee and to all
other employees of similar rank and stature of the Company on the basis of the
financial performance of the Company, provided, however, that nothing contained
herein shall be construed as giving the Company the right to decrease the
Employee's base salary specified in Section 3 hereof, (d) there has been a
Change of Control within the past twelve (12) months, or (e) the relocation of
the Company's business to a site more than twenty-five (25) miles from the
Employee's residence.
"Permanent Disability" means illness (mental or physical) or
accident which renders the Employee unable to perform his duties and
responsibilities for a period of six consecutive months or six months in any
twelve-month period, and which is confirmed to the Board as continuing at the
end of such period by expert medical opinion. Nothing contained in this
Agreement shall affect the right of the Employee to receive long-term disability
benefits under any long-term disability insurance plan(s) of the Company then in
effect.
14. Miscellaneous.
(a) Notices. Any notice hereunder shall be effective if delivered
personally, by registered or certified mail, return receipt requested, by
overnight or special courier with a signed receipt, or by facsimile where
confirmation of receipt may be verified, at the addresses set forth in the
preamble to this Agreement or to any other properly noticed address given by the
parties to each other.
<PAGE>
(b) Governing Law. This Agreement shall be construed and
governed by the law of the Commonwealth of Massachusetts.
(c) Amendments. This Agreement may not be modified or amended
orally. All amendments shall be in writing and signed by the Company and
Employee.
(d) Assignments. This Agreement may not be assigned in whole or in part
by the Employee. This Agreement may be assigned by the Company to any entity
acquiring or succeeding to control of ownership of the Company or substantially
all of the assets of the Company. This Agreement shall be binding upon and inure
to the benefit of the parties and to their permitted successors and assigns.
(e) Entire Agreement. This Agreement constitutes the entire
understanding of the parties with respect to its subject matter and
supersedes any other agreements between the parties with respect to such
subject matter.
(f) Enforceability. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provisions of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
(g) Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
(h) Arbitration. Any controversy or claim which arises out of or
relating to this Agreement, or the breach thereof (other than controversies or
claims with regard to Sections 9, 10 or 11 of this Agreement), shall be settled
by arbitration in accordance with the Rules of the American Arbitration
Association then in effect. The controversy or claim shall be submitted to three
arbitrators, one of whom shall be chosen by the Employee, one of whom shall be
chosen by the Company, and one of whom shall be chosen by the two so selected.
The party desiring arbitration shall give written notice to the other party of
its desire to arbitrate the particular matter in question, naming the arbitrator
selected by it. If the other party shall fail within a period of 15 days after
such notice shall have been given to reply in writing naming the arbitrator
chosen as above provided, or if the two arbitrators selected by the parties
shall fail within 15 days after their selection to agree upon the third
arbitrator, then either party may apply to the American Arbitration Association
for the appointment of an arbitrator to fill the place so remaining vacant. The
decision of any two of the arbitrators shall be final and binding upon the
parties hereto. Judgement upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
The proceedings shall be held in Boston, Massachusetts. The arbitrators
shall have no power to award punitive or exemplary damages or to ignore or vary
the terms of this Agreement, and shall be bound to apply controlling law.
Arbitration shall be binding and the remedy for the settlement of the
controversy or claims (except as set forth in the preceding paragraph of this
Section).
<PAGE>
(i) Certain Remedies. The restrictions contained in Sections 9, 10 and
11 of this Agreement are necessary for the protection of the business and
goodwill of the Company and are considered by the Employee to be reasonable for
such purpose. Without limiting the remedies available to the Company, the
Employee acknowledges that a breach of any of the covenants contained in any of
such Sections 9, 10 and 11 would result in irreparable injury to the Company for
which there might be no adequate remedy at law, and that, in the event of such a
breach or threat thereof, the Company shall be entitled to obtain a temporary
restraining order and/or such other equitable relief as may be required to
enforce specifically any of the covenants of such Sections 9, 10 and 11. The
provisions of such Sections 9, 10 and 11 shall survive the termination of this
Agreement and shall continue thereafter indefinitely in full force and effect in
accordance with their respective terms.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date and year first above written.
SYMBOLLON CORPORATION
By: /s/ Paul C. Desjourdy
-------------------------------
Paul C. Desjourdy
President
/s/ Jack H. Kessler
-------------------------------
Jack H. Kessler
<PAGE>
Exhibit A
Option Grant
Number of Shares Exercise Price Vesting Date
60,000 150% of Fair Market Value* First Anniversary
60,000 200% of Fair Market Value* Second Anniversary
60,000 250% of Fair Market Value* Third Anniversary
------
180,000
* Fair Market Value of the Class A Common Stock, as determined under the
Company's 1993 Employee Stock Option Plan, as amended, on the date of grant.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Symbollon Corporation
Framingham, Massachusetts
We hereby consent to the incorporation by reference in the Form S-8 of
our report dated January 21, 2000 relating to the financial statements of
Symbollon Corporation (a development stage company) as of December 31, 1999
and 1998, and for the years then ended, and amounts for the period from
inception (July 15, 1986) to December 31, 1999 (not presented separately
therein) appearing in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Boston, Massachusetts
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED FINANCIAL STATEMENTS OF SYMBOLLON CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AS FILED IN THE FORM 10-KSB.
</LEGEND>
<CIK> 0000912086
<NAME> Symbollon Corporation
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,771,821
<SECURITIES> 0
<RECEIVABLES> 72,015
<ALLOWANCES> 0
<INVENTORY> 96,354
<CURRENT-ASSETS> 3,047,022
<PP&E> 253,314
<DEPRECIATION> 163,604
<TOTAL-ASSETS> 3,360,579
<CURRENT-LIABILITIES> 511,923
<BONDS> 0
175,000
0
<COMMON> 3,558
<OTHER-SE> 2,673,656
<TOTAL-LIABILITY-AND-EQUITY> 3,360,579
<SALES> 425,209
<TOTAL-REVENUES> 1,514,172
<CGS> 318,851
<TOTAL-COSTS> 318,851
<OTHER-EXPENSES> 1,643,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (730,404)
<INCOME-TAX> 0
<INCOME-CONTINUING> (730,404)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (730,404)
<EPS-BASIC> (.24)
<EPS-DILUTED> (.24)
</TABLE>
