SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549


                                   FORM 10-KSB

(Mark One)
[ x ] ANNUAL  REPORT  UNDER  SECTION  13 OR  15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1998
                                       OR

[   ]  TRANSITION  REPORT  UNDER  SECTION  13 OR  15(d)  OF THE  SECURITIES
       EXCHANGE  ACT OF 1934 for the  transition  period  from  _____  to ______

Commission file number 0-22872

                              SYMBOLLON CORPORATION
                 (Name of small business issuer in its charter)

           Delaware                                36-3463683
   (State of incorporation)            (I.R.S. employer identification no.)


         37 Loring Drive
    Framingham, Massachusetts                         01702
(Address of principal executive offices)            (Zip Code)

Issuer's telephone number  (508) 620-7676

Securities registered under Section 12(b) of the Exchange Act:

                                      None
                                (Title of class)

Securities registered under Section 12(g) of the Exchange Act:

                 Class A Common Stock, $.001 par value per share
                                (Title of class)


Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days. Yes X No_

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ X ]

The issuer's  revenues for its most recent fiscal year (year ended  December 31,
1998) were $927,511.

As of March 8, 1999,  the  aggregate  market  value of the  voting  stock of the
issuer held by non-affiliates  of the issuer was approximately  $3,944,981 based
upon the closing price of such stock on that date.

As of March 8, 1999, 3,589,331 shares of Class A Common Stock and 15,738 shares
of Class B Common Stock of the issuer were outstanding.  See "Market for Common
Equity and Related Stockholder Matters."

    Transitional Small Business Disclosure Format (check one): Yes ___ No _X_

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  registrant's  definitive  Proxy  Statement  to be  delivered to
stockholders in connection with the Annual Meeting of Stockholders to be held on
May 26,  1999 are  incorporated  by  reference  into Part III  hereof.  With the
exception of the portions of such Proxy Statement  expressly  incorporated  into
this Annual Report on Form 10-KSB by reference,  such Proxy  Statement shall not
be deemed filed as part of this Annual Report on Form 10-KSB.


<PAGE>


Special Note Regarding Forward Looking Statements

In addition to the historical  information  contained herein, this Annual Report
on Form 10-KSB contains  "forward-looking  statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, including,  but not limited to
statements concerning plans, objections, goals, strategies, prospects, financial
needs, future performance and future costs and expenditures. Such statements may
be  identified  or  qualified,  without  limitation,  by words such as "likely",
"will", "suggests", "may", "would", "could", "should", "expects", "anticipates",
"estimates",  "plans",  "projects",  "believes",  or  similar  expressions  (and
variants  of  such  words  or   expressions).   Investors  are  cautioned   that
forward-looking   statements  are  inherently  uncertain.   Actual  performance,
achievements and results may differ  materially from those expressed,  projected
or  suggested  in the  forward-looking  statements  due  to  certain  risks  and
uncertainties,  including,  but not  limited  to,  the risks  and  uncertainties
described or discussed in the section  "Risk  Factors" in this Annual  Report on
Form 10-KSB.  The  forward-looking  statements  contained  herein  represent the
Company's  judgment as of the date of this Annual Report on Form 10-KSB, and the
Company cautions readers not to place undue reliance on such statements.

                                     PART I

Item 1.  Description of Business

General Background

         Symbollon  Corporation  (the  "Company" or  "Symbollon")  is engaged in
research,   development  and   commercialization  of  proprietary   iodine-based
pharmaceutical agents,  disinfectants,  antiseptics and sanitizers (collectively
referred  to  as  "applications").   The  Company  is  a  Delaware   corporation
incorporated  in August 1993 and is the  successor by merger to a  Massachusetts
corporation of the same name  incorporated in May 1991,  which was the successor
by merger to an Illinois corporation, which was incorporated in July 1986.

The Company's Technology

         The Company has  developed  proprietary  iodine  technologies  that the
Company believes addresses many of the issues associated with the use of iodine.
The technologies  control the ratio of molecular iodine (I2), which is lethal to
microorganisms,  to other  inactive  species of iodine in solution.  The Company
believes that this will enable it to produce  iodine-based  applications  having
advantages over currently  available  iodine-based  products.  By increasing the
ratio of molecular  iodine to other iodine  species,  the Company's  current and
proposed products will have greater killing power per unit of total iodine.  The
Company believes that this feature will enable its current and proposed products
to utilize less iodine and therefore  minimize or eliminate some of the negative
characteristics associated with the use of iodine.

         Overall,  the Company believes that the major strengths of its patented
technologies  are the minimization of staining and color associated with iodine,
broad  spectrum of  antimicrobial  activity,  rapidity of cidal  activity,  safe
residues,  no known  resistance  and no  environmental  disposal  concerns.  The
primary weaknesses of the Company's  technologies are the inconvenience and cost
of a multi-part delivery system and the potential for staining and corrosivity.



<PAGE>


Initial Product

         During 1994, the Company co-developed a bovine teat sanitizer, marketed
as  "IodoZyme(R)",  with West Agro,  Inc. of Kansas City,  MO ("West  Agro"),  a
subsidiary of the Tetra Laval Group and a leading  manufacturer  and distributor
of iodophor-based  products for dairy use. In January 1995, the Company and West
Agro signed a marketing and supply agreement covering IodoZyme,  and the Company
began shipping IodoZyme to West Agro in early 1995.  Pursuant to this agreement,
West Agro was  granted  the  exclusive  worldwide  right to market,  distribute,
promote and sell IodoZyme.  Under the agreement,  the Company  manufactures  and
supplies West Agro with IodoZyme in finished product form.

         Total  product  sales from IodoZyme for 1997 and 1998 were $376,660 and
$423,441,  respectively.  In 1997,  substantially  all sales  were in the United
States.  In 1998,  foreign sales in the United Kingdom and New Zealand accounted
for  $97,506,  or 23%, of the total sales for the year.  West Agro,  through its
foreign affiliates,  is in the process of registering  IodoZyme in certain other
foreign  markets,  for which clearances must be received prior to sales in those
foreign markets.

         The Company's invoice terms are net 30 days. The Company had $33,985 of
firm orders for future delivery of IodoZyme at December 31, 1998, as compared to
no orders for future delivery at December 31, 1997.

Research and Product Development

         During 1998 the Company  concentrated  its product  development work on
proposed product applications for a treatment for fibrocystic breast disease and
the treatment of various dermatological and ophthalmic diseases.

         The Company spent approximately $562,000 and $1,245,000 on research and
development  during the years ended  December  31, 1997 and 1998,  respectively.
Since inception,  the Company has spent approximately $5,282,000 on research and
development. Under certain collaborative relationships, the Company has received
payments which are reflected in the Company's  financial  statements as contract
and license fee revenues.

         Given the Company's limited financial resources, the uncertainty of the
development  effort and the necessity for regulatory  approval,  there can be no
assurance of ultimate success with respect to any product development program or
that resulting products, if any, will be commercially successful.  Additionally,
the  Company's  limited  resources  will  require  substantial  support  for new
business  initiatives from corporate partners who would ultimately introduce the
products into the marketplace.

         The  Company's  current  strategic   corporate  partners  and  material
developments in the Company's  ongoing programs during fiscal 1998 are described
below.

         Fibrocystic Breast Disease

         Fibrocystic  breast  disease  is a benign  breast  condition  affecting
approximately  thirty percent of the women of childbearing age, which represents
in the United States about 24 million women.  However,  estimates  indicate that
only 3.3 million of those women have been formally  diagnosed  with the disease.
Believed to be caused by a hormonal  imbalance,  fibrocystic  breast  disease is
characterized  by breast pain,  lumpiness or tenderness.  Publications  covering
previous  independent third party testing utilizing iodine to treat collectively

<PAGE>

over 1,500 women with  fibrocystic  breast  disease have reported 60% or greater
clinical improvement in breast disease.

         During 1998, the Company began a  multi-center  Phase II clinical trial
of its proprietary iodine-based oral drug candidate, IoGen(TM), in patients with
moderate to severe  fibrocystic  breast disease.  The randomized,  double-blind,
placebo-controlled  study will evaluate the clinical effects and safety of IoGen
at three dose levels  compared  with placebo in a group  intended to include 150
patients.

         Patients will receive IoGen or placebo daily for seven months, followed
by a two-month observation period. Efficacy will be assessed by evaluating pain,
tenderness,  swelling,  nodularity  and breast  thickness/density.  The Phase II
clinical trial is the Company's first human trial for IoGen.

         The Company currently anticipates that the Phase II clinical trial will
be completed in late 1999 or early 2000.  During 1999, the Company also plans to
conduct a Phase I clinical trial of IoGen to determine dose  proportionality and
bioavailability  of the drug. If the results from these clinical trials warrant,
the Company plans to seek a corporate relationship with a pharmaceutical company
to continue the clinical development and commercialization of IoGen.

         Dermatology Applications

         In May 1996, the Company signed a collaboration  and license  agreement
with Oclassen  Pharmaceuticals,  Inc.  ("Oclassen") for dermatological  products
based on Symbollon's proprietary iodine technologies. Pursuant to the agreement,
the  companies  plan to  co-develop  products for the  treatment of certain skin
diseases,  with initial development focused on products for acne,  bacterial and
fungal  skin  diseases.  Under the  terms of the  agreement,  Oclassen  obtained
exclusive  marketing  rights in the United States and Canada for  dermatological
products based on Symbollon's  iodine  technologies.  Subject to continuation of
the agreement,  Oclassen will make a series of milestone  payments to Symbollon,
plus royalty  payments on product sales.  Oclassen is primarily  responsible for
product development and commercialization. Symbollon consults, for a fee, on the
product development.

         In  1997,  Oclassen  was  acquired  by  Watson   Pharmaceutical,   Inc.
("Watson").  In August 1997, the Company amended its  Collaboration  and License
Agreement  with  Oclassen  primarily  to  account  for  delays  incurred  in the
development   program.   The  original   agreement  had   anticipated   that  an
Investigational  New Drug  ("IND")  application  covering  use of the  Company's
chemistry  in  dermatology  would have been filed by August 1997;  however,  the
development process had not advanced  sufficiently to warrant such filing. Among
other changes,  the amendment  eliminated the time based payment requirement for
the next two  milestones,  which  were to be paid in May  1998  and  1999.  Such
milestone  payments  will now be  payable  only upon the  occurrence  of certain
events. As part of the amended relationship, Symbollon has agreed to become more
active in the development program.

         During 1998, the Company undertook to develop a preliminary formula and
analytical  methods  necessary  to  validate  formulation   stability,   without
remuneration  for its time.  To date,  the parties have not advanced the program
beyond the Company's  preliminary efforts. As part of the amended  relationship,
if Oclassen has not submitted an IND application for the Company's technology by
September 30, 1999, then the Company has a right to terminate the  relationship,
subject to certain rights to remedy the default.


<PAGE>


         Ophthalmology Applications

         In August 1997, the Company  signed a  collaboration  and  sale/license
agreement  with  Bausch & Lomb  Pharmaceuticals,  Inc.  ("B&L")  for  ophthalmic
products based on Symbollon's  proprietary iodine technologies.  Pursuant to the
agreement, the companies plan to develop products for the treatment of infective
diseases of the eye.  Under the terms of the agreement,  B&L obtained  exclusive
marketing  rights in the United States and Canada for ophthalmic  products based
on Symbollon's iodine technologies. The agreement also provides B&L with options
to broaden its exclusive  marketing rights to include the rest of the world, and
to include otic (ear) products.  Subject to  continuation of the agreement,  B&L
will make a series of milestone payments to Symbollon,  plus royalty payments on
product sales. In conjunction with the development collaboration,  B&L also made
an equity  investment in  Symbollon.  B&L is primarily  responsible  for product
development and commercialization. Symbollon consults, for a fee, on the product
development.

         During  1998,  the  parties  have been  working  to  develop a suitable
formulation  to initiate  preclinical  testing  and  clinical  trials.  In 1999,
Symbollon  anticipates  that the  development  effort under the  agreement  will
continue with the goal of filing in 1999 an IND application to initiate clinical
trials in humans.

         Other Potential Applications

         The Company believes that its microbicide  technologies  have potential
applications  in the  development  of a variety  of human  healthcare  and other
products such as topical anti-infectives,  oral care and hygiene products, wound
care  applications,  and as a preventive for urinary tract infection.  Given the
Company's limited resources, although certain preliminary research,  development
and  regulatory  activities  may be  undertaken  by the Company in some of these
potential  product  areas,  the Company's  ability to fund the  development  and
commercialization  of such  applications  will  depend in large part on entering
into  product  development  and  commercialization   agreements  with  corporate
partners.

Small Business Innovation Research

         In  1989,  the  Company  entered  into  an  agreement  with  Biomedical
Development  Corporation  located in San Antonio,  Texas ("BDC") to cooperate in
applying for and performing under Small Business  Innovation  Research  ("SBIR")
grants based on the Company's  technology.  In May 1997, the Company  terminated
its agreement with BDC. To the Company's knowledge, all SBIR grants covering use
of the  Company's  technology  covered by the  agreement  have been  effectively
terminated.

Manufacturing and Supplies

         The development  and manufacture of the Company's  products are subject
to good laboratory  practices ("GLP") and current good  manufacturing  practices
("cGMP")   requirements   prescribed   by  the  United   States  Food  and  Drug
Administration (the "FDA") and to other standards  prescribed by the appropriate
regulatory agency in the country of use. The Company currently produces IodoZyme
through  a  combination  of  internal  manufacturing   activities  and  external
subcontractors. See "Management's Discussion and Analysis or Plan of Operation."
The Company currently has limited in-house  manufacturing  capacity,  and if the
Company  continues  to perform  manufacturing  activities  related  to  IodoZyme
in-house,  additional  manufacturing  space and  equipment  may be  necessary if
product volumes increase.
See "Description of Property."


<PAGE>

         The Company does not presently have FDA certified facilities capable of
producing  quantities  of human  pharmaceutical  products  required for clinical
trials or commercial production. The Company will need to rely on collaborators,
licensees or contract  manufacturers to produce such materials.  There can be no
assurance  that the  Company  will be able to obtain an  adequate  supply of its
product  from a third  party  manufacturer,  or that  if  such a  supply  can be
obtained, that it will comply with GLP and cGMP, as applicable.

         The  Company  believes  that  there  are  adequate  sources  of the raw
materials required for commercial  production and testing purposes.  Pursuant to
its  agreement  with West Agro,  all sodium  iodide  used by the  Company in the
manufacture  of the bovine teat sanitizer is to be purchased from West Agro at a
price not to exceed the price which West Agro charges its largest customers. The
Company  has been and  expects to  continue  to be able to obtain all  materials
needed for these purposes  without any significant  interruption or sudden price
increase, although there can be no assurance thereof.

Marketing and Distribution

         In accordance with the marketing and supply  agreement signed with West
Agro, West Agro is marketing and distributing IodoZyme, and has agreed to market
and distribute other potential cleaners, sanitizers and disinfectants covered by
the agreement to dairy farms and dairy processing  plants on an exclusive basis.
The principal market for IodoZyme is dairy farms.

         The Company  intends to market and  distribute  its potential  products
through  others  having  pre-established  marketing  and  distribution  networks
pursuant  to  contractual   arrangements  such  as  joint  venture,   licensing,
distribution or similar collaborative agreements.  The principal markets for the
potential  pharmaceutical  and healthcare  products include  hospitals,  medical
offices, dental offices, dialysis centers, outpatient clinics and nursing homes.

Government Regulation

         The Company's  research and  development  activities and the production
and  marketing of the  Company's  current and  proposed  products are subject to
regulation  by  numerous  governmental  authorities  in the  United  States  and
comparable  state agencies.  Foreign  governments also regulate the development,
production  and  marketing  of products  in their  countries.  The  development,
manufacturing and marketing of human  pharmaceuticals  are subject to regulation
in the United States for safety and efficacy by the FDA in  accordance  with the
Federal Food,  Drug and Cosmetic Act. There can be no assurances that regulatory
approvals or clearances  will be obtained for any  applications of the Company's
technology  once  developed,  that if granted they will not be withdrawn or that
other  regulatory  action  might not have an  adverse  impact on the  ability to
market the Company's proposed products.

         In the United States, human pharmaceuticals are subject to rigorous FDA
regulation including preclinical and clinical testing, The process of completing
clinical  trials and  obtaining FDA approvals for a new drug is likely to take a
number of years,  requires the expenditure of substantial resources and is often
subject to  unanticipated  delays.  There can be no assurance  that any proposed
product will receive such approval on a timely basis, if at all.

         The  steps  required  before  new  products  for use in  humans  may be
marketed in the United States include (i) preclinical trials, (ii) submission to
the FDA of an IND  application,  which must be approved  before  human  clinical
trials  commence,  (iii) adequate and  well-controlled  human clinical trials to

<PAGE>

establish the safety and efficacy of the product,  (iv) submission of a New Drug
Application  ("NDA")  for a new drug to the FDA and (v) FDA  approval of the NDA
prior to any commercial sale or shipment of the product.

         Preclinical tests include laboratory evaluation of product formulation,
as well as animal  studies (if an  appropriate  animal  model is  available)  to
assess the potential  safety and efficacy of the product.  Formulations  must be
manufactured according to cGMP and preclinical safety tests must be conducted by
laboratories that comply with FDA regulations  regarding GLP. The results of the
preclinical tests are submitted to the FDA as part of an IND application and are
reviewed by the FDA prior to the  commencement of human clinical  trials.  There
can be no assurance  that  submission of an IND  application  will result in FDA
authorization  to  commence   clinical  trials.   Clinical  trials  involve  the
administration  of the  investigational  new drug to healthy  volunteers  and to
patients under the supervision of a qualified principal investigator.

         Clinical  trials are typically  conducted in three  sequential  phases,
although  the  phases  may  overlap.  In Phase I, the  investigational  new drug
usually is  administered  to healthy  human  subjects  and is tested for safety,
dosage,  tolerance,   absorption,   distribution,   metabolism,   excretion  and
pharmacokinetics.  Phase II involves studies in a limited patient  population to
(i)  determine  the  efficacy  of the  investigational  new  drug  for  specific
indications,  (ii)  determine  dosage  tolerance  and  optimal  dosage and (iii)
identify possible adverse effects and safety risks. When an investigational  new
drug is found to be effective and to have an acceptable  safety profile in Phase
II  evaluation,  Phase III trials are  undertaken to further  evaluate  clinical
efficacy and to further test for safety within an expanded patient population at
geographically  dispersed  clinical study sites.  There can be no assurance that
Phase I, Phase II or Phase III testing will be completed successfully within any
specified time period, if at all, with respect to any of the Company's  proposed
products  subject  to such  testing.  Furthermore,  the  Company  or the FDA may
suspend  clinical trials at any time if the participants are being exposed to an
unacceptable  health  risk.  The FDA may  deny an NDA if  applicable  regulatory
criteria  are not  satisfied,  require  additional  testing or  information,  or
require  post-marketing  testing and  surveillance  to monitor the safety of the
Company's proposed products.

         All data obtained from development  programs are submitted as an NDA to
the FDA and the  corresponding  agencies  in  other  countries  for  review  and
approval.  FDA approval of the NDA is required before marketing may begin in the
United  States.  Although  the FDA's policy is to review  priority  applications
within 180 days of their filing,  in practice longer times may be required.  The
FDA frequently  requests that  additional  information  be submitted,  requiring
significant  additional review time.  Essentially,  all proposed products of the
Company will be subject to demanding and  time-consuming NDA or similar approval
procedures  in the  countries  where the Company  intends to market its proposed
products.  These  regulations  define  not  only the  form  and  content  of the
development of safety and efficacy data regarding the proposed product, but also
impose  specific  requirements  regarding  manufacture of the proposed  product,
quality  assurance,   packaging,  storage,  documentation  and  record  keeping,
labeling and advertising and marketing procedures.  Effective  commercialization
also requires inclusion of the Company's  proposed products in national,  state,
provincial or institutional formularies or cost reimbursement systems.

         In addition to  regulations  enforced by the FDA,  the Company  also is
subject  to  regulation  under the  Occupational  Safety  and  Health  Act,  the
Environmental  Protection  Act, the Toxic  Substances  Control Act, the Resource
Conservation  and Recovery Act and other present and potential  future  federal,
state or local regulations.  The Company's research and development involves the
controlled  use of  hazardous  materials  and  chemicals.  Although  the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations,  the risk
of accidental  contamination or injury from these materials cannot be completely
eliminated.  In the event of such an accident,  the Company could be held liable

<PAGE>

for any damages that result,  and any such liability  could exceed the resources
of the Company.

         In both  domestic  and foreign  markets,  the ability of the Company to
commercialize  its proposed  product  candidates  will depend,  in part,  on the
availability of reimbursement from third-party payers, such as government health
administration  authorities,  private health  insurers and other  organizations.
Third-party payers are increasingly challenging the price and cost-effectiveness
of medical products. There can be no assurance that Symbollon-developed products
will be considered  cost  effective.  Significant  uncertainty  exists as to the
reimbursement  status of newly-approved  medical products.  Government and other
third-party  payers are  increasingly  attempting  to contain  medical  costs by
limiting  both  coverage  and the  level of  reimbursement  for new  therapeutic
products  approved for marketing by the FDA and by refusing,  in some cases,  to
provide coverage for uses of approved products for disease indications for which
the FDA has not  granted  marketing  approval.  There can be no  assurance  that
adequate  third-party  insurance  coverage  will be available for the Company to
establish and maintain price levels sufficient for realization of an appropriate
return on its investment in developing new therapies.  If adequate  coverage and
reimbursement  levels are not provided by government and third-party  payers for
uses of the Company's proposed  therapeutic  products,  the market acceptance of
these products would be adversely affected.

         There have been a number of federal and state proposals during the last
few years to subject the pricing of pharmaceuticals to government control and to
make other  changes to the  medical  care  system of the  United  States.  It is
uncertain what  legislative  proposals will be adopted or what actions  federal,
state or private  payers for medical  goods and services may take in response to
any medical  reform  proposals or  legislation.  The Company  cannot predict the
effect medical  reforms may have on its business,  and no assurance can be given
that any such reforms will not have a material adverse effect on the Company.

         IodoZyme,  the bovine teat dip manufactured by the Company,  is subject
to regulation  by the FDA as an animal drug.  Although a lengthy new animal drug
application  ("NADA") approval process is generally  required prior to marketing
an animal drug, under regulatory discretion afforded by the FDA, the agency does
not currently  require  manufacturers  of bovine teat sanitizers to undergo this
process.  The  only  current  FDA  requirements  applicable  to  teat  treatment
manufacturers   are   compliance   with  the   FDA's   labeling,   establishment
registration, drug listing, and manufacturing requirements. The Company believes
that  it  and  its  subcontractors  are  in  compliance  with  the  current  FDA
requirements  applicable to teat treatment  manufacturers.  However, in February
1993, the FDA issued draft guidelines  setting forth the types of data necessary
to demonstrate that a teat treatment is safe for the cow, effective and fulfills
human food safety,  manufacturing  and  environmental  requirements.  Testing of
IodoZyme was not conducted in accordance with such  guidelines.  Future required
compliance with these guidelines or other FDA requirements which may be adopted,
the  probability  or scope of  which  cannot  currently  be  ascertained  by the
Company,  would have a significant  adverse  effect on the marketing of IodoZyme
and, consequently, on the Company's results of operations.



<PAGE>


Patents and Proprietary Rights

         The Company  considers patent protection of its iodine technology to be
critical to its business  prospects.  The Company currently holds twelve patents
and four additional patent  applications  filed in the United States relating to
its technology. In addition, the Company holds patents and has filed a number of
patent applications relating to its technology in foreign countries.

                        Listing of United States Patents

 Patent 
 Number              Title                                      Issue Date
 ------              -----                                      ----------
4,476,108     "Bactericidal Method"                           October 9, 1984

4,937,072     "In Situ Sporicidal Disinfectant"               June 26, 1990

4,996,146     "Rapid Sterilization Enzymatic Process          February 26, 1991
              with Persistence"

5,055,287     "Methods to Control Color During Disinfecting   October 8, 1991
              Peroxidase Reactions"

5,227,161     "Method to Clean and Disinfect Pathogens on     July 13, 1993
              the Epidermis by Applying a Composition 
              Containing Peroxidase, Iodide 
              Compound and Surfactant"

5,370,815     "Viscous Epidermal Cleaner and Disinfectant"    December 6, 1994

5,419,902     "Method for Inactivating Pathogens"             May 30, 1995

5,629,024     "Method of Forming an Iodine Based Germicide    May 13, 1997
              Composition"

5,639,481     "Method for the Therapeutic Treatment of a      June 17, 1997
              Mammalian Eye"

5,648,075     "Iodine Based Germicidal Composition"           July 15, 1997

5,772,971     "Iodine-Based Microbial Decontamination System" June 30, 1998

5,849,291     "Ophthalmic Non-Irritating Iodine Medicament"   December 15, 1998


         The  Company  sold to B&L  the  United  States  patent  issued  in 1997
relating to a "Method for the  Therapeutic  Treatment  of a Mammalian  Eye." See
"Research and Product  Development -  Ophthalmology  Applications."  The Company
continues to own the foreign  rights and any  continuations-in-part  relating to
the invention.

         Much of the know-how of importance to the Company's technology and many
of its processes are dependent upon the knowledge,  experience and skills, which
are not patentable,  of key scientific and technical  personnel.  To protect its
rights to and to maintain the  confidentiality  of trade secrets and proprietary
information, the Company requires employees,  Scientific Advisory Board members,
consultants  and   collaborators  to  execute   confidentiality   and  invention
assignment  agreements  upon  commencement  of a relationship  with the Company.
These agreements  prohibit the disclosure of confidential  information to anyone

<PAGE>

outside  the Company and require  disclosure  and  assignment  to the Company of
ideas,  developments,   discoveries  and  inventions  made  by  such  employees,
advisors,  consultants and  collaborators.  There can be no assurance,  however,
that these  agreements  will not be breached or that the Company's trade secrets
or  proprietary  information  will  not  otherwise  become  known  or  developed
independently  by others.  Also, to the extent that  consultants  or other third
parties apply technological  information  independently  developed by them or by
others to Company projects,  disputes may arise as to the proprietary  rights to
such information which may not be resolved in favor of the Company.  The Company
is required to pay royalties to a co-inventor on certain patents relating to the
Company's  technology  based on revenues  received by the Company  from sales of
products falling within the scope of such patents.

Competition

         The  Company's   proposed  products  and  products   incorporating  the
Company's proposed products would compete with many other applications currently
on the market.  In addition,  the Company is aware of other companies engaged in
research and  development of other novel  approaches to  applications in some or
all of the markets  identified by the Company as potential fields of application
for its products.  Many of the Company's present and potential  competitors have
substantially  greater  financial and other  resources  and larger  research and
development staffs than the Company. Many of these companies also have extensive
experience  in testing and  applying  for  regulatory  approvals.  In  addition,
colleges,  universities,  government  agencies,  and public and private research
organizations  conduct  research and are becoming more active in seeking  patent
protection  and  licensing  arrangements  to  collect  royalties  for the use of
technology that they have developed,  some of which may be directly  competitive
with that of the Company.

         The Company is aware of one company,  Mimetix Inc.,  which is currently
conducting  human clinical  trials in the United States and Canada  utilizing an
iodine-based  compound  for the  treatment of  fibrocystic  breast  disease.  If
Mimetix receives marketing approval for its drug compound prior to Symbollon, it
could adversely affect the Company's ability to receive marketing  approval,  or
if approved, the Company's ability to sell its product.

         The bovine teat  sanitizer  market is  currently  dominated by iodophor
products,  which  generally  compete  on the  basis  of price  and the  ratio of
microbial  killing  power to total  iodine.  The Company  believes that IodoZyme
competes  on the basis of its  superior  convenience  and high  ratio of killing
power to total iodine. Additionally,  IodoZyme,  manufactured by the Company and
sold by West Agro,  competes directly with products currently being manufactured
and sold by West Agro.

Employees

         As of December 31, 1998,  the Company had five  employees,  all of whom
are full-time.  The Company has relationships with and from time to time engages
the services of university  professors and other qualified consultants to assist
it in  technological  research  and  development.  No employee of the Company is
currently  represented  by a labor  union.  Management  considers  its  employee
relations  to be good.  The  Company  believes  that the  future  success of the
Company is  dependent to a  significant  degree on its being able to continue to
attract and retain skilled personnel.


<PAGE>


Executive Officers

         The Company's executive officers are:

                  Name              Age       Position with the Company
                  ----              ---       -------------------------
         Jack H. Kessler, Ph.D.     48        Executive Vice-President, Chief
                                              Scientific Officer, Secretary and
                                              Chairman of the Board of Directors

         Paul C. Desjourdy          37        Executive Vice-President,
                                              Chief Financial Officer,
                                              Treasurer and Director

         Certain  biographical  information  regarding each executive officer of
the Company is set forth below:

         Jack H. Kessler, Ph.D., is the founder of the Company and has served as
Executive  Vice-President,  Chief Scientific Officer,  Secretary, and a director
since the Company's  move to  Massachusetts  in May 1991, and as Chairman of the
Board of Directors since May 1996. Prior to that time, and since the Company was
initially  formed  in  Illinois  in 1986,  Dr  Kessler  was the  Company's  sole
stockholder and served as its sole officer and director. From January 1990 until
May 1991,  he served as principal  systems  engineer for Kollsman  Manufacturing
Company, a diagnostic instrument design and manufacturing company.

         Paul C.  Desjourdy  has served as Executive  Vice  President  and Chief
Financial Officer since July 1996, as Vice-President  Finance and Administration
and Chief Financial  Officer of the Company from September 1993 to June 1996, as
Treasurer from May 1994 to present,  and as a director  since August 1996.  From
September 1989 to September 1993, Mr. Desjourdy,  a certified public accountant,
was an attorney at the law firm of Choate Hall & Stewart.

         Officers are elected  annually and serve at the discretion of the Board
of Directors.

Risk Factors

         The following risks and uncertainties, among other factors, could cause
the Company's  performance,  achievements and results to differ  materially from
those expressed or suggested in the Company's forward-looking statements in this
Report or presented elsewhere by management from time to time.

         Development  Stage  Company;  Early  Stage of Product  Development;  No
Assurance of  Successful  Commercialization.  The Company is in the  development
stage and has not conducted any  significant  operations to date or received any
revenues from product sales,  except for revenues from the sale of the Company's
bovine teat sanitizer, marketed under the name IodoZyme, which the Company began
shipping in early 1995. Other than IoGen,  which is in Phase II clinical trials,
the Company's other research and development programs are at an early stage, and
the Company does not expect that IoGen, or any other products resulting from its
research and development  efforts,  or from the joint efforts of the Company and
its  collaborative  partners,  will be commercially  available for a significant
number of years,  if at all.  The Company  does not expect to complete the IoGen
Phase II clinical trial until late 1999 or early 2000. See "Research and Product

<PAGE>

Development -  Fibrocystic  Breast  Disease."  The  Company's  other active drug
development   efforts  in  dermatology  and  ophthalmology  are  in  preclinical
formulation  development.  Any drug  candidates  developed  by the Company  will
require  significant  additional  research and  development  efforts,  including
extensive  preclinical  (animal  and in vitro  data) and  clinical  testing  and
regulatory  approval,  prior to commercial  sale. There can be no assurance that
the Company's approach to formulation development,  acting independently or with
the efforts of any  collaborative  partner of the Company,  will be effective or
will result in the  development of any product.  The Company's  drug  candidates
will  be  subject  to the  risks  of  failure  inherent  in the  development  of
pharmaceutical  products  based on new  technologies.  These  risks  include the
possibilities  that any or all of the Company's drug candidates will be found to
be unsafe,  ineffective or toxic or otherwise fail to meet applicable regulatory
standards  or  receive  necessary   regulatory   clearances;   that  these  drug
candidates,   if  safe  and  effective,   will  be  difficult  to  develop  into
commercially  viable  products  or to  manufacture  on a large  scale or will be
uneconomical to market;  that proprietary  rights of third parties will preclude
the Company from  marketing  such  products;  or that third  parties will market
superior  or  equivalent  products.  The failure to develop  safe,  commercially
viable products would have a material adverse effect on the Company's  business,
operating results and financial condition.

         Dependence on  Collaborative  Partners and Others. A key element of the
Company's strategy is to fund the capital requirements of certain of its product
development  programs  by  entering  into  collaborative  agreements  with major
pharmaceutical  companies.  The Company is a party to  collaborative  agreements
with Oclassen and B&L (collectively,  the "Collaborative Agreements"). Under the
Collaborative  Agreements,  each  of  Oclassen  and B&L is  responsible  for (i)
conducting  preclinical  and clinical trials and obtaining  required  regulatory
approvals of drug candidates,  and (ii)  manufacturing and  commercializing  any
resulting  products.  As a result, the Company's receipt of revenues (whether in
the form of research  funding,  product  development  milestones or royalties on
sales) under the  Collaborative  Agreements is dependent upon the decisions made
by,  and  the  manufacturing  and  marketing  resources  of,  its  collaborative
partners.  The Company's  collaborative partners are not obligated to develop or
commercialize any drug candidates  resulting from the Collaborative  Agreements.
The amount and timing of  resources  dedicated  by the  Company's  collaborative
partners to their respective  collaborations  with the Company is not within the
Company's control.  Moreover,  certain drug candidates  developed  utilizing the
Company's  technology may be viewed by the Company's  collaborative  partners as
competitive with their own drugs or drug candidates.  Accordingly,  there can be
no assurance  that the  Company's  collaborative  partners will elect to proceed
with the  development  of drug  candidates,  which the  Company  believes  to be
promising,   or  that  they  will  not  pursue  their  existing  or  alternative
technologies  in preference to such drug  candidates.  There can be no assurance
that the  interests of the Company will  continue to coincide  with those of its
collaborative  partners,  that some of the Company's collaborative partners will
not develop  independently,  or with third parties,  products that could compete
with products of the types contemplated by the Collaborative Agreements, or that
disagreements over rights or technology or other proprietary  interests will not
occur.

         If any of the Company's  collaborative  partners breaches or terminates
its agreement with the Company,  or otherwise fails to conduct its collaborative
activities in a timely manner, the development or  commercialization of any drug
candidate  or research  program  under  these  Collaborative  Agreements  may be
delayed,  the  Company  may  be  required  to  undertake  unforeseen  additional
responsibilities   or  to  devote  unforeseen   additional   resources  to  such
development or commercialization, or such development or commercialization could
be terminated.  Any such event could  materially  adversely affect the Company's
financial condition, intellectual property position and operations. In addition,
there  have  been  a   significant   number  of  recent   consolidations   among
pharmaceutical companies. Such consolidations among the companies with which the
Company is  collaborating  could result in the diminution or termination  of, or

<PAGE>

delays in, the development or  commercialization  of drug candidates or research
programs under one or more of the Collaborative Agreements.

         In 1997, Watson acquired Oclassen. The original agreement with Oclassen
had anticipated that an IND application  covering use of the Company's chemistry
in dermatology  would have been filed by August 1997;  however,  the development
process had not  advanced  sufficiently  to warrant such  filing.  In 1998,  the
Company  undertook to provide  Oclassen,  without  remuneration,  a  preliminary
formula and  analytical  methods  necessary to validate  formulation  stability.
Despite the Company's  development  efforts during 1998, the development program
with Oclassen still has not advanced  sufficiently to warrant an IND application
filing.  The Company is not certain whether the relationship  with Oclassen will
proceed  beyond  its  current  stage.  See  "Research  and  Product  Development
Dermatology Applications."

         Additional  Financing  Requirements;  Uncertainty of Available Funding.
The  Company  will  require   substantial   additional  funds  for  its  product
development   programs,   for  operating   expenses,   for  pursuing  regulatory
clearances,  and for prosecuting and defending its intellectual  property rights
before it can expect to realize significant  revenues from commercial sales. The
Company  intends  to seek such  additional  funding  through  public or  private
financing or collaborative or other  arrangements  with corporate  partners.  If
additional  funds are raised by issuing equity  securities,  further dilution to
existing  stockholders  may result and future  investors  may be granted  rights
superior to those of existing stockholders.  There can be no assurance, however,
that  additional  financing  will be available  from any of these sources or, if
available,  will be available on  acceptable or  affordable  terms.  If adequate
funds are not available,  the Company may be required to delay, reduce the scope
of or  eliminate  one or more of its  research  and  development  programs or to
obtain funds by entering into arrangements with collaborative partners or others
that require the Company to issue additional  equity securities or to relinquish
rights to certain  technologies or product candidates that the Company would not
otherwise issue or relinquish in order to continue independent  operations.  See
"Management's Discussion and Analysis or Plan of Operation."

         History of Losses and  Expectation  of Future  Losses;  Uncertainty  of
Future  Profitability.  The Company has incurred a cumulative  operating loss of
$5,714,365  through  December 31, 1998.  Losses have resulted  principally  from
costs incurred in research and development  activities  related to the Company's
efforts to develop IodoZyme, IoGen and other potential product formulations, and
from  the  associated   administrative  costs.  The  Company  expects  to  incur
significant  additional operating losses over the next several years and expects
cumulative  losses  to  increase  substantially  due to  expanded  research  and
development efforts, preclinical and clinical trials. In the next few years, the
Company's  revenues  may be  limited  to sales of  IodoZyme,  contract  research
payments and licensing milestone payments under the Collaborative Agreements and
any amounts received under other research or development collaborations that the
Company has established or will establish.  There can be no assurance,  however,
that  the  Company  will be  able  to  establish  any  additional  collaborative
relationships  on terms  acceptable  to the  Company or  maintain  in effect the
current  Collaborative  Agreements or that  IodoZyme  sales will  continue.  The
Company's ability to achieve  significant  revenue or profitability is dependent
on its or its  collaborative  partners'  ability to  successfully  complete  the
development of product  candidates,  to develop and obtain patent protection and
regulatory   approvals  for  the  product  candidates  and  to  manufacture  and
commercialize the resulting  products.  The Company will not receive revenues or
royalties from  commercial  sales for a significant  number of years, if at all.
Failure to receive significant  revenues or achieve profitable  operations would
impair the Company's  ability to sustain  operations.  There can be no assurance
that  the  Company  will  ever  successfully  develop,  commercialize,   patent,
manufacture  and market any products,  obtain required  regulatory  approvals or
achieve  profitability.  See  "Management's  Discussion  and Analysis or Plan of
Operation."


<PAGE>

         Uncertainty of Patents and Proprietary  Rights.  The Company's  success
will depend in part on its ability to obtain U.S. and foreign patent  protection
for its product candidates and processes, preserve its trade secrets and operate
without  infringing  the  proprietary  rights of third  parties.  Because of the
length of time and expense  associated with bringing new drug candidates through
the  development  and  regulatory  approval  process  to  the  marketplace,  the
pharmaceutical  industry has  traditionally  placed  considerable  importance on
obtaining patent and trade secret  protection for significant new  technologies,
products and processes.  There can be no assurance  that any additional  patents
will issue from any of the patent  applications  owned by, or  licensed  to, the
Company. Further, there can be no assurance that any rights the Company may have
under  issued  patents  will  provide the Company  with  significant  protection
against  competitive   products  or  otherwise  be  commercially  viable.  Legal
standards  relating  to the  validity  of patents  covering  pharmaceutical  and
biotechnological  inventions and the scope of claims made under such patents are
still developing.  There is no consistent policy regarding the breadth of claims
allowed in biotechnology patents. The patent position of a biotechnology firm is
highly uncertain and involves complex legal and factual questions.  There can be
no assurance  that any existing or future patents issued to, or licensed by, the
Company will not  subsequently  be challenged,  infringed  upon,  invalidated or
circumvented by others.  In addition,  patents may have been granted,  or may be
granted,  to others covering  products or processes that are necessary or useful
to the development of the Company's product candidates. If the Company's product
candidates  or processes  are found to infringe  upon the patents,  or otherwise
impermissibly  utilize  the  intellectual  property,  of others,  the  Company's
development,  manufacture and sale of such product  candidates could be severely
restricted or prohibited.  In such event,  the Company may be required to obtain
licenses  from third  parties to utilize  the patents or  proprietary  rights of
others.  There can be no assurance  that the Company will be able to obtain such
licenses on acceptable  terms, or at all. There has been significant  litigation
in the industry  regarding patents and other proprietary  rights. If the Company
becomes involved in litigation regarding its intellectual property rights or the
intellectual  property  rights of others,  the potential cost of such litigation
and the  potential  damages  that the Company  could be required to pay could be
substantial.

         In addition to patent protection,  the Company relies on trade secrets,
proprietary  know-how and technological  advances which it seeks to protect,  in
part, by confidentiality  agreements with its collaborative partners,  employees
and consultants. There can be no assurance that these confidentiality agreements
will not be breached, that the Company would have adequate remedies for any such
breach,  or  that  the  Company's  trade  secrets,   proprietary   know-how  and
technological  advances  will not  otherwise  become  known or be  independently
discovered by others.

         Uncertainty  Associated with Preclinical and Clinical  Testing.  Before
obtaining  regulatory  approvals for the commercial sale of any of the Company's
potential products, the drug candidates will be subject to extensive preclinical
and clinical  trials to  demonstrate  their  safety and efficacy in humans.  The
Company is dependent on its  collaborative  partners to conduct  clinical trials
for the drug  candidates  resulting  from the  Collaborative  Agreements and may
become dependent on other third parties to conduct future clinical trials of its
internally  developed  drug  candidates.   The  Company  has  no  experience  in
conducting  preclinical or clinical  trials,  and preclinical or clinical trials
have been commenced  with respect to only one of the Company's drug  candidates.
Furthermore,  there can be no assurance that  preclinical or clinical  trials of
any drug  candidates  will  demonstrate  the  safety and  efficacy  of such drug
candidates  at all or to the extent  necessary to obtain  regulatory  approvals.
Companies in the biotechnology  industry have suffered  significant  setbacks in
advanced clinical trials, even after demonstrating  promising results in earlier
trials. The failure to adequately  demonstrate the safety and efficacy of a drug
candidate under  development could delay or prevent  regulatory  approval of the
drug  candidate  and would  have a  material  adverse  effect  on the  Company's
business, operating results and financial condition.


<PAGE>

         No Assurance of Market  Acceptance.  There can be no assurance that any
drugs  successfully  developed  by  the  Company,   independently  or  with  its
collaborative   partners,  if  approved  for  marketing,   will  achieve  market
acceptance.  The  dermatology  and  ophthalmology  products which the Company is
attempting  to  develop   will,   if   completed,   compete  with  a  number  of
well-established  products  manufactured  and  marketed by major  pharmaceutical
companies.  The degree of market  acceptance  of any  products  developed by the
Company  will depend on a number of factors,  including  the  establishment  and
demonstration  of  the  clinical  efficacy  and  safety  of the  Company's  drug
candidates,  their potential advantage over existing therapies and reimbursement
policies of  government  and  third-party  payers.  There is no  assurance  that
physicians, patients or the medical community in general will accept and utilize
any  products  that may be developed  by the Company  independently  or with its
collaborative partners.

         Intense  Competition.  The biotechnology and pharmaceutical  industries
are intensely  competitive  and subject to rapid and  significant  technological
change.  Competitors  of the  Company in the United  States  and  elsewhere  are
numerous and include,  among  others,  major  multinational  pharmaceutical  and
chemical companies,  specialized  biotechnology firms and universities and other
research  institutions.  Many of these competitors  employ greater financial and
other  resources,  including  larger  research and  development  staffs and more
effective  marketing and  manufacturing  organizations,  than the Company or its
collaborative  partners.  Acquisitions  of  competing  companies  and  potential
competitors by large pharmaceutical companies or others could enhance financial,
marketing  and other  resources  available to such  competitors.  As a result of
academic  and  government   institutions  becoming  increasingly  aware  of  the
commercial value of their research  findings,  such institutions are more likely
to enter  into  exclusive  licensing  agreements  with  commercial  enterprises,
including  competitors of the Company, to market commercial products.  There can
be no assurance  that the Company's  competitors  will not succeed in developing
technologies  and products that are more effective or less costly than any which
are  being  developed  by the  Company  or  which  would  render  the  Company's
technology and future products obsolete and noncompetitive.

         In addition,  some of the Company's competitors have greater experience
than the  Company in  conducting  clinical  trials and  obtaining  FDA and other
regulatory  approvals.  Accordingly,  the Company's  competitors  may succeed in
obtaining FDA or other  regulatory  approvals for drug  candidates  more rapidly
than the Company.  Companies  that complete  clinical  trails,  obtain  required
regulatory  agency  approvals  and commence  commercial  sale of their  products
before  their  competitors  may  achieve a  significant  competitive  advantage,
including certain patent and FDA marketing  exclusivity  rights that would delay
the Company's  ability to market certain  products.  The Company is aware of one
company,  Mimetix Inc.,  that has conducted  human clinical trials in the United
States and Canada  utilizing  an  iodine-based  compound  for the  treatment  of
fibrocystic breast disease.  If Mimetix receives marketing approval for its drug
compound prior to Symbollon,  it could adversely affect the Company's ability to
receive marketing  approval,  or if approved,  the Company's ability to sell its
product.  There can be no assurance  that products  resulting from the Company's
research and development  efforts,  or from the joint efforts of the Company and
its  collaborative   partners,   will  be  able  to  compete  successfully  with
competitors'  existing  products or products under development or that they will
obtain regulatory approval in the United States or elsewhere.

         Impact  of  Extensive  Government  Regulation.  The FDA and  comparable
agencies  in  foreign  countries  impose   substantial   requirements  upon  the
introduction   of   pharmaceutical   products   through   lengthy  and  detailed
preclinical, laboratory and clinical testing procedures, sampling activities and
other  costly  and  time-consuming  procedures  to  establish  their  safety and
efficacy.  All of the Company's  product  candidates  will require  governmental
approvals for commercialization,  none of which have been obtained.  Preclinical
and clinical trials and  manufacturing  of the Company's drug candidates will be

<PAGE>

subject  to  the  rigorous  testing  and  approval  processes  of  the  FDA  and
corresponding foreign regulatory authorities. Satisfaction of these requirements
typically take a significant  number of years and can vary  substantially  based
upon the type, complexity and novelty of the product.  There can be no assurance
as to when Symbollon,  independently or with its collaborative  partners,  might
first submit an IND application for FDA or other regulatory  review.  Government
regulation  also  affects the  manufacturing  and  marketing  of  pharmaceutical
products.

         The effect of government  regulation  may be to delay  marketing of the
Company's  potential  products for a considerable or indefinite  period of time,
impose costly procedural  requirements upon the Company's activities and furnish
a competitive  advantage to larger  companies or companies  more  experienced in
regulatory affairs.  Delays in obtaining governmental  regulatory approval could
adversely  affect the Company's  marketing as well as the  Company's  ability to
generate  significant  revenues from commercial sales. There can be no assurance
that FDA or other regulatory  approvals for any drug candidates developed by the
Company will be granted on a timely  basis or at all.  Moreover,  if  regulatory
approval of a drug candidate is granted, such approval may impose limitations on
the  indicated  use for  which  such  drug  may be  marketed.  Even  if  initial
regulatory  approvals  for the  Company's  drug  candidates  are  obtained,  the
Company,  its products and the  manufacturing  facilities  making such  products
would be  subject  to  continual  review  and  periodic  inspection,  and  later
discovery  of  previously  unknown  problems  with a  product,  manufacturer  or
facility may result in restrictions on such product or  manufacturer,  including
withdrawal of the product from the market. The regulatory  standards are applied
stringently by the FDA and other  regulatory  authorities  and failure to comply
can,  among other  things,  result in fines,  denial or withdrawal of regulatory
approvals,  product  recalls or seizures,  operating  restrictions  and criminal
prosecution.

         Teat sanitizers,  although  considered  animal drugs by the FDA, do not
currently  require  clearance by the FDA prior to marketing.  The FDA,  however,
issued draft guidelines in 1993 governing teat dips and no assurance can be made
that  clearance  by the  FDA  will  not be  required  in  the  future.  Required
compliance with these guidelines or other FDA requirements which may be adopted,
the  probability  or scope of  which  cannot  currently  be  ascertained  by the
Company,  would have a significant  adverse  effect on the marketing of IodoZyme
and, consequently, on the Company's results of operations.

         As with many biotechnology and pharmaceutical companies, the Company is
subject to numerous environmental and safety laws and regulations. Any violation
of,  and  the  cost of  compliance  with,  these  regulations  could  materially
adversely  affect  the  Company's  business,  operating  results  and  financial
condition.

         Dependence  on Key  Personnel.  The Company does not  currently  have a
President or Chief Executive  Officer.  The Company is highly dependent upon the
efforts of its senior management and scientific team,  including the services of
Dr. Jack H. Kessler,  the Executive Vice President,  Chief  Scientific  Officer,
Secretary and Chairman of the Board of Directors and  principal  stockholder  of
the  Company,  and  Paul C.  Desjourdy,  the  Executive  Vice  President,  Chief
Financial Officer,  Treasurer and a director of the Company.  The loss of either
of such  individuals  or a reduction  in the time devoted by such persons to the
Company's  business  could  have a  material  adverse  effect  on the  Company's
business.  The Company has obtained  key-person  life insurance  coverage in the
face amount of  $1,000,000  for Dr.  Kessler  naming the Company as  beneficiary
under such policy.  The loss of the services of one or both of these individuals
might impede the achievement of the Company's development objectives. Because of
the  specialized  scientific  nature of the Company's  business,  the Company is
highly dependent upon its ability to attract and retain qualified scientific and
technical personnel. There is intense competition among major pharmaceutical and
chemical companies,  specialized  biotechnology firms and universities and other

<PAGE>

research  institutions  for  qualified  personnel in the areas of the  Company's
activities.  There can be no assurance that the Company will be able to continue
to attract and retain the qualified  personnel  necessary for the development of
its business. Loss of the services of, or failure to recruit, key scientific and
technical  personnel could adversely  affect the Company's  business,  operating
results and financial condition.

         Lack  of  Marketing  Experience;  Dependence  on  Outside  Parties  for
Marketing and  Distribution;  Uncertainty  of Market  Acceptance of Products and
Proposed  Products.  The marketing and  distribution of IodoZyme is conducted by
West Agro  pursuant to an  exclusive  marketing  and supply  agreement  with the
Company which covers  IodoZyme as well as other  products which may be developed
for use in dairy  facilities.  The Company has granted  marketing  rights to its
collaborative   partners  with  respect  to  products   developed   through  the
Collaborative   Agreements,   and  the  Company   intends  to  rely  on  similar
arrangements  with others for the  marketing  and  distribution  of its products
currently under development, including IoGen, if and when successfully developed
and approved by applicable  regulatory agencies.  This results, and will result,
in a lack of  control  by the  Company  over  some or all of the  marketing  and
distribution of such products. Although the Company has entered into development
agreements  with parties  experienced  in the  marketing of products  similar to
several  of  the  Company's  proposed  products,  which  development  agreements
contemplate  future marketing  arrangements,  there can be no assurance that the
Company will be able to enter into any marketing arrangements for such products,
if and when developed,  on terms acceptable to the Company or that any marketing
efforts  undertaken  on behalf of the Company will be  successful.  Although the
Company has no present plans to do so, the Company may, in the future, determine
to  directly  market  certain  of its  proposed  products.  The  Company  has no
marketing  experience  and  significant   additional  capital  expenditures  and
management  resources  would be required to develop a direct sales force. In the
event the Company elects to engage in direct marketing activities,  there can be
no assurance  that the Company  would be able to obtain the  requisite  funds or
attract and retain the human resources  necessary to successfully  market any of
such products.

         The Company's  future growth and  profitability  will depend,  in large
part, on the success of its personnel and others conducting marketing efforts on
behalf of the Company in fostering  acceptance  among the various markets of the
use of the Company's  products as an alternative to other available  products or
otherwise. The Company's success in marketing its products will be substantially
dependent   on   educating   its   targeted   markets  as  to  the   distinctive
characteristics  and  perceived  benefits  of the  Company's  products.  In this
regard, West Agro, which acts as exclusive marketer and distributor of IodoZyme,
also  markets and  distributes  products  which are  directly  competitive  with
IodoZyme. There can be no assurance that the Company's efforts or the efforts of
others  will be  successful  or that any of the  Company's  products or proposed
products will be favorably accepted in the targeted markets.

         Lack of  Manufacturing  Experience;  Dependence on Outside  Parties for
Manufacturing.  IodoZyme is currently produced through a combination of internal
manufacturing  activities and external contract  manufacturers.  The Company has
granted  manufacturing  rights to its  collaborative  partners  with  respect to
products developed through the Collaborative Agreements, and the Company intends
to rely on  similar  arrangements  with  others  for  the  manufacturing  of its
products  currently under  development,  if and when successfully  developed and
approved by applicable  regulatory  agencies.  The Company's dependence on third
parties for  manufacturing may adversely affect the Company's ability to develop
and deliver  products on a timely and competitive  basis. The Company may in the
future  undertake  to  manufacture  some  or all of its  products  and  proposed
products entirely in-house.  If the Company is unable to develop or contract for
manufacturing capabilities on acceptable terms, the Company's ability to conduct
preclinical  and clinical  trials with the  Company's  drug  candidates  will be
adversely affected, resulting in delays in the submission of drug candidates for
regulatory approvals and in the initiation of new development programs, which in

<PAGE>

turn  could  materially  impair   Symbollon's   competitive   position  and  the
possibility of achieving profitability.

         Except for limited experience  regarding  IodoZyme,  the Company has no
experience with the manufacture of any of its products or proposed products.  In
the event the Company  continues to perform its current  IodoZyme  manufacturing
activities  in-house,  additional  manufacturing  space  and  equipment  may  be
necessary beyond 1998 as product volume increases. In addition, in the event the
Company  undertakes to directly  manufacture any of its proposed  products,  the
Company will be required to attract and retain experienced  personnel to develop
a manufacturing  capability and to comply with extensive government  regulations
with respect to its facilities,  including among others,  the FDA  manufacturing
requirements.  There  can be no  assurance  that  the  Company  will  be able to
successfully establish appropriate manufacturing operations.

         Reimbursement   and   Drug   Pricing   Uncertainty.    The   successful
commercialization  of, and the interest of potential  collaborative  partners to
invest  in,  the  development  of the  Company's  drug  candidates  will  depend
substantially  on  reimbursement  of the  costs of the  resulting  products  and
related  treatments at acceptable  levels from government  authorities,  private
health   insurers   and  other   organizations,   such  as  health   maintenance
organizations  ("HMOs").  There can be no assurance  that  reimbursement  in the
United  States or elsewhere  will be available  for any products the Company may
develop  or,  if  available,  will  not be  decreased  in the  future,  or  that
reimbursement  amounts  will not  reduce the  demand  for,  or the price of, the
Company's  products,  thereby  adversely  affecting the Company's  business.  If
reimbursement is not available or is available only to limited levels, there can
be no assurance that the Company will be able to obtain  collaborative  partners
to  manufacture  and  commercialize  products,  or  would  be able to  obtain  a
sufficient financial return on its own manufacture and  commercialization of any
future products.

         Third-party payers are increasingly  challenging the prices charged for
medical products and services. Also, the trend toward managed health care in the
United States and the concurrent growth of organizations such as HMOs, which can
control or  significantly  influence  the  purchase of health care  services and
products,  as well as  legislative  proposals  to reform  health  care or reduce
government  insurance  programs,  may result in lower prices for  pharmaceutical
products.   The  cost  containment  measures  that  health  care  providers  are
instituting,  including practice protocols and guidelines and clinical pathways,
and the effect of any health care reform,  could materially adversely affect the
Company's  ability to sell any of its  products if  successfully  developed  and
approved. Moreover, the Company is unable to predict what additional legislation
or  regulation,  if any,  relating  to the health care  industry or  third-party
coverage  and  reimbursement  may be enacted in the future or what  effect  such
legislation or regulation would have on the Company's business.

         Potential  Product   Liability  and  Availability  of  Insurance.   The
Company's business exposes it to potential  liability risks that are inherent in
the testing,  manufacturing and marketing of pharmaceutical products. The use of
the  Company's  drug  candidates  in  clinical  trials may expose the Company to
product liability claims and possible adverse publicity. These risks will expand
with respect to the Company's drug candidates,  if any, that receive  regulatory
approval for commercial sale. Product liability  insurance for the biotechnology
industry is  generally  expensive,  if  available  at all. The Company does have
product  liability  insurance  covering its drug  candidates in clinical  trials
which coverage the Company believes to be adequate to cover its current business
exposure.  However, such coverage is becoming  increasingly  expensive and there
can be no assurance that the Company will be able to retain  insurance  coverage
at acceptable costs or in a sufficient amount, or that a product liability claim
would  not  adversely  affect  the  Company's  business,  operating  results  or
financial condition.


<PAGE>

         Materials Incompatibility. An important aspect of the Company's present
and future product  candidates is that they must be compatible with the surfaces
on which they come in  contact.  The  Company  has  ceased  efforts to develop a
microbicide  for  dental  handpieces  and  renal  control  units as a result  of
staining and  corrosion  caused by required  microbicide  formulations,  and the
Company has  encountered  problems of staining in connection with its efforts to
develop a high level disinfectant for flexible endoscopes. The Company continues
to investigate  the balance  between the level of efficacy and the need to avoid
staining and  corrosion.  For any  proposed  product  applications,  staining or
corrosion  from a product  candidate  could be  sufficient to limit or forestall
regulatory  approval of such product candidate or, if approved,  could adversely
affect market  acceptance of such  product.  There can be no assurance  that the
Company   will  be   successful   in   overcoming   any  problems  of  materials
incompatibility.

         Charge to Income in the Event of Release of Restrictions on Shares.  In
connection with the Company's public offering,  certain  stockholders  agreed to
restrictions  on  700,000  shares of the then  1,250,000  Class B common  shares
outstanding  prior to the offering.  To date,  684,262 of the restricted  shares
converted to Class A common stock. The restricted  shares will be transferred to
the Company for no  consideration  if the Company's  1999  earnings  (defined as
income  before income taxes,  extraordinary  items or any charge  related to the
release of shares) are less than $15,000,000.  If the 1999 earnings are at least
$15,000,000,  the share  restrictions  will be released,  and, in such case, the
Company  will incur an expense  based on the fair market  value of the shares at
the time  the  restrictions  lapse,  which is a  nondeductible  expense  for tax
purposes.

         Possible "Year 2000" Problem. The Year 2000 ("Y2K") issue is the result
of computer  programs using a two-digit  format,  as opposed to four digits,  to
indicate the year.  Such  computer  systems  will be unable to  interpret  dates
beyond the year  1999,  which  could  cause a system  failure or other  computer
errors,  leading to disruptions in operations.  The Company has identified three
major areas  determined  to be  critical  for  successful  Y2K  compliance:  (1)
financial and information system  applications,  (2) manufacturing  applications
and (3) third-party  relationships.  In the financial and information system and
manufacturing  areas, the Company's core financial and reporting systems are not
Y2K  compliant  and are  scheduled  for  replacement  during  1999.  The Company
believes it will cost  approximately  $10,000 to replace the core  financial and
reporting  systems  that  are not  Y2K  compliant.  The  Company  is  requesting
assurances  from all software  vendors from which it has purchased or from which
it may purchase  software  that such software  will  correctly  process all date
information at all times. In the third-party area, the Company is in the process
of  identifying  areas of exposure.  The Company is querying its  suppliers  and
contractors  as to their progress in  identifying  and addressing  problems that
their computer systems will face in correctly processing date information as the
Year 2000 approaches. The Company has not determined what costs, if any, will be
incurred in connection with the third-party  area. The failure by the Company or
a third party  supplier or  contractor  to correct a material Y2K problem  could
result in an interruption in, or failure of, certain normal business  activities
or operations. Such failures could materially and adversely affect the Company's
results of  operations,  liquidity and financial  condition.  Due to the general
uncertainty inherent in the Y2K problem,  resulting in part from the uncertainty
of  the  Y2K  readiness  of  the  Company's  customers,   suppliers,  and  other
third-party  providers,  the Company is unable to determine at this time whether
the consequences of any Y2K failures will have a material impact on the
Company's results of operations, liquidity or financial condition.

         Hazardous  Materials;  Compliance with Environmental and Transportation
Regulations. The Company's manufacturing and research and development activities
involve  the  controlled  use and  shipment  of  hazardous  chemicals  and other
materials.  Although  the  Company  believes  that  its  safety  procedures  for
handling,  shipping and  disposing of such  materials  comply with the standards
prescribed  by  federal,  state and local  regulations,  the risk of  accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident,  the Company could be held liable for any damages

<PAGE>

that result and any such  liability  could exceed the  resources of the Company.
There can be no assurance that current or future environmental or transportation
laws, rules,  regulations or policies will not have a material adverse effect on
the Company.

Item 2.  Description of Property

         The Company leases approximately 5,400 square feet of office,  research
and  development  and  manufacturing  space in Framingham,  Massachusetts  for a
current base annual rental of approximately  $29,700 increasing $0.25 per square
foot each year effective  September 1 through August 31, 2002. The lease expires
on August 31, 2002 and may be renewed  for a five year  period at the  Company's
option on the same terms and  conditions  except that the rent shall continue to
increase  $0.25 per square  foot each year of the  renewal  period.  The Company
believes  that this  space is  suitable  and  adequate  for its  current  needs;
however, because the existing space has limited in-house manufacturing capacity,
additional manufacturing space may be necessary if product volumes increase.

Item 3.  Legal Proceedings

         The Company is not a party to any legal proceedings.

 Item 4.  Submission of Matters to a Vote of Security Holders

         No matters  were  submitted  to a vote of security  holders  during the
quarter ended December 31, 1998.

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

(a)  Price Range of Securities

         The Company's Class A Common Stock trades on the Nasdaq SmallCap Market
tier of The  Nasdaq  Stock  Market  under  the  symbol:  SYMBA.  There can be no
assurance  that the Company will be able  maintain  the  criteria for  continued
listing on the Nasdaq SmallCap Market. The following sets forth the high and low
sales prices for each of the quarterly  periods  during fiscal 1997 and 1998, as
reported by Nasdaq.

                               Fiscal 1997                     Fiscal 1998    
                           -------------------            --------------------
                           High          Low              High            Low

         First quarter     2 7/8         1 5/16           1 21/32         15/16
         Second quarter    2 3/16        1 9/16           2               23/32
         Third quarter     2 3/8         1 7/16           1 1/16          1/2
         Fourth quarter    2 1/8         1 5/16           2 1/2           17/32

         There is no established public trading market for the Company's Class B
Common Stock.

         The Company's  Class A Warrants and Class B Warrants,  which had traded
on the Nasdaq SmallCap Market, expired on December 7, 1998.

<PAGE>

(b)  Approximate Number of Equity Security Holders

         Based upon information  supplied from the Company's transfer agent, the
Company  believes  that the  number of record  holders of the  Company's  equity
securities as of March 8, 1999 are approximately as follows:

         Title of Class                              Number of Record Holders
         --------------                              ------------------------
         Class A Common Stock                                 56
         Class B Common Stock                                  3

         Based upon information  supplied from the Company's transfer agent, the
Company believes that the number of beneficial  holders of the Company's Class A
Common Stock as of March 8, 1999 is in excess of 600.

(c)  Dividends

         The Company  has never paid a cash  dividend on any class of its common
stock and  anticipates  that for the  foreseeable  future any  earnings  will be
retained for use in its  business  and,  accordingly,  does not  anticipate  the
payment of cash dividends.

Item 6.  Management's Discussion and Analysis or Plan of Operation

         The Company is a  development  stage  company.  Since  inception of the
Company's  predecessor  in 1986,  the  Company's  efforts have been  principally
devoted to research and  development,  securing patent and trademark  protection
and raising capital,  most of which efforts commenced after May 1991. Except for
revenue  earned since 1995 on sales of IodoZyme,  the Company's  sole revenue to
date has been from  licensing/option  arrangements  and  contract  research  and
development efforts with corporate partners.

         The following  discussion  contains  forward-looking  statements  which
involve risks and  uncertainties.  See "Special Note Regarding  Forward  Looking
Statements" at the front of this Annual Report on Form 10-KSB.

Results of Operations

         Fiscal 1998 versus Fiscal 1997

         Symbollon's  net loss in fiscal  1998 was  $892,750,  compared to a net
income of  $511,464  in  fiscal  1997.  This net loss  resulted  primarily  from
decreased  license fee revenues  from  research and  development  programs  with
corporate  partners and increased research and development  expenses,  partially
offset by decreased general and administration expenses.

         Product  revenues from sales of IodoZyme  increased by $46,781 or 12.4%
from  $376,660 in fiscal 1997 to $423,441 in fiscal 1998.  The  increased  sales
relate  primarily  to $97,506 of foreign  sales of IodoZyme  initiated  in 1998,
partially  offset  by  decreased  domestic  sales  relating  in part  to  excess
inventory reduction. Symbollon anticipates further increases in sales volume for
IodoZyme in 1999, related in part to further foreign market penetration.


<PAGE>

         Cost of goods  sold for  IodoZyme  increased  by  $64,433 or 36.1% from
$178,531 in fiscal 1997 to $242,964 in fiscal 1998.  The gross profit  margin on
product sales  decreased from 52.6% in fiscal 1997 to 42.6% in fiscal 1998. This
decrease  in the gross  profit  margin on  product  sales was  primarily  due to
increased  labor  and  component  cost  and  overhead   expenses.   The  Company
anticipates  that the gross profit  margin in 1999 will remain  consistent  with
1998.

         Contract revenues  increased by $33,381 or 47.2% from $70,689 in fiscal
1997 to $104,070 in fiscal 1998.  License fee revenues  decreased by $850,000 or
68.0% from  $1,250,000  in fiscal 1997 to $400,000 in fiscal  1998.  Most of the
contract  and  license  fee  revenues  generated  in fiscal  1998  relate to the
corporate relationship with B&L. This relationship provided none of the contract
revenues  and only  $250,000  of the license fee  revenues in fiscal  1997.  The
contract  revenues  and the  remaining  license fee revenues in fiscal 1997 were
generated from the corporate  relationship  with Oclassen.  In 1999,  subject to
continuation  of  existing  research  and  development  contracts,  the  Company
anticipates  receiving  $750,000 in license  fees  (subject to possible  partial
offset).  The level of contract  revenues for 1999 is difficult to predict since
it depends on the amount of  consulting  effort  expended  by the Company at the
request of corporate partners.

         Research and development  expenses increased by $682,656 or 121.4% from
$562,360 in fiscal 1997 to $1,245,016 in fiscal 1998. The increase resulted from
increased  development  expenses related to the Company's drug candidate for the
treatment of fibrocystic  breast  disease,  including  consulting fees regarding
regulatory  matters,  contract  manufacturing  cost to produce drug supplies for
clinical trials and clinical costs associated with the Company's initiation of a
Phase  II  clinical  trial.  The  Company  is  anticipating  that  research  and
development  expenses will further increase in 1999 as the Company continues the
development  of its drug  candidate  for the  treatment  of  fibrocystic  breast
disease,  which development  effort will include  approximately  $1.6 million to
complete Phase I and Phase II clinical trials.

         General and administrative  expenses decreased by $94,599 or 18.1% from
$523,578  in fiscal  1997 to  $428,979 in fiscal  1998.  The  decrease  resulted
primarily from  decreased  employee  salaries and related  costs,  and decreased
legal fees,  insurance costs and other third party fees and services,  partially
offset  by  increased  investor  and  public  relations  expenses.  The  Company
anticipates  that  general and  administrative  expenses  will remain at current
levels for 1999.

         The Company's  interest income increased by $1,890 or 2.0% from $94,808
in fiscal  1997 to  $96,698  in fiscal  1998.  The  Company's  interest  expense
decreased by $16,224  from  $16,224 in fiscal 1997 to none in fiscal 1998.  This
decrease resulted from the Company's  decision not to borrow funds in 1998 under
its bank line of credit which expired in March 1998.

Liquidity and Capital Resources

         The Company has funded its activities  primarily  through proceeds from
private  and  public  placements  of  equity  and debt  securities.  Independent
research and development  activities regarding the Company's technology has been
funded through SBIR grants received and administered by BDC. See "Small Business
Innovation  Research."  The Company's  $500,000  bank line of credit  expired in
March 1998, and the Company has no current plans to replace such line of credit.

         During 1998, the Company  continued to incur  operating  losses and has
incurred a  cumulative  loss  through  December  31, 1998 of  $5,714,365.  As of
December 31, 1998, the Company had working  capital of  $2,060,121.  The Company
believes  that it has the necessary  liquidity and capital  resources to sustain
planned  operations  for fiscal 1999. In the event that the  Company's  internal
estimates  relating to its planned  revenues  and  expenditures  for fiscal 1999

<PAGE>

prove  inaccurate,  the Company may be  required to  reallocate  funds among its
planned activities and curtail certain planned  expenditures.  In any event, the
Company  anticipates that it will require  additional  financing after 1999, and
therefore,  the Company will seek new  financing in fiscal 1999.  The  Company's
ability to obtain new  financing  may, in part,  be  affected  by the  Company's
ability to continue to meet the criteria for continued listing of its securities
on the Nasdaq SmallCap  Market.  Nasdaq's  current  SmallCap  continued  listing
criteria require,  in part, that the Company maintain net tangible assets (total
assets less total  liabilities and goodwill) of at least  $2,000,000,  a minimum
bid  price of $1.00 per share of common  stock  and two  market  makers  for its
securities.  There can be no  assurance  that in the future the Company  will be
able to continue to meet the criteria for continued listing of its securities on
Nasdaq.

         During 1999, the Company is committed to pay approximately  $305,000 as
compensation to its current  executive  officers and  approximately  $30,000 for
lease payments on its facilities.  The Company  anticipates that the Phase I and
Phase II  clinical  trial for its drug  candidate  to treat  fibrocystic  breast
disease  will cost  approximately  $1,600,000  during  1999.  The Company has no
planned material capital expenditures for fiscal 1999. At December 31, 1998, the
Company had a net operating loss carryforward for federal income tax purposes of
approximately $5,452,000 expiring through 2018.

         The Year 2000 ("Y2K") issue is the result of computer  programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems  will be unable to  interpret  dates  beyond the year 1999,  which could
cause a system  failure or other  computer  errors,  leading to  disruptions  in
operations.  The Company has  identified  three  major  areas  determined  to be
critical for successful Y2K  compliance:  (1) financial and  information  system
applications,  (2) manufacturing applications and (3) third-party relationships.
In the financial and information  system and manufacturing  areas, the Company's
core financial and reporting systems are not Y2K compliant and are scheduled for
replacement during 1999. The Company believes it will cost approximately $10,000
to replace the core financial and reporting  systems that are not Y2K compliant.
The Company is requesting assurances from all software vendors from which it has
purchased  or from  which it may  purchase  software  that  such  software  will
correctly  process all date  information at all times. In the third-party  area,
the Company is in the process of identifying  areas of exposure.  The Company is
querying its suppliers and  contractors as to their progress in identifying  and
addressing   problems  that  their  computer  systems  will  face  in  correctly
processing  date  information as the Year 2000  approaches.  The Company has not
determined  what  costs,  if any,  will  be  incurred  in  connection  with  the
third-party  area.  The  failure by the  Company or a third  party  supplier  or
contractor to correct a material Y2K problem could result in an interruption in,
or failure of, certain normal business  activities or operations.  Such failures
could  materially  and  adversely  affect the Company's  results of  operations,
liquidity and financial  condition.  Due to the general uncertainty  inherent in
the Y2K problem,  resulting in part from the uncertainty of the Y2K readiness of
the Company's customers, suppliers, and other third-party providers, the Company
is unable to  determine  at this time  whether the  consequences of any Y2K
failures will have a material impact on the Company's results of operations,
liquidity  or financial condition.


<PAGE>



Item 7.  Financial Statements





Independent Auditors' Report


The Board of Directors and Stockholders
Symbollon Corporation
Framingham, Massachusetts


We have  audited the  accompanying  balance  sheet of Symbollon  Corporation  (a
development  stage company) as of December 31, 1998, and the related  statements
of operations,  stockholders'  equity and cash flows for the year then ended and
for the period  from July 15,  1986  (inception)  to December  31,  1998.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of Symbollon  Corporation  (a
development  stage  company)  at  December  31,  1998,  and the  results  of its
operations  and its cash flows for the year then  ended and for the period  from
July 15, 1986  (inception)  to December 31, 1998 in  conformity  with  generally
accepted accounting principles.



BDO Seidman, LLP

Boston, Massachusetts
January 22, 1999


<PAGE>







Independent Auditors' Report


The Board of Directors and Stockholders
Symbollon Corporation
Framingham, Massachusetts


We have  audited the  accompanying  balance  sheet of Symbollon  Corporation  (a
development  stage company) as of December 31, 1997, and the related  statements
of  operations,  stockholders'  equity and cash  flows for the year then  ended.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly, in all
material respects,  the financial position of Symbollon  Corporation at December
31,  1997,  and the results of its  operations  and its cash flows for year then
ended in conformity with generally accepted accounting principles.



Richard A. Eisner & Company, LLP

New York, New York
January 22, 1998



<PAGE>



                                                           Symbollon Corporation
                                                   (a development stage company)

                                                                  Balance Sheets


<TABLE>
<CAPTION>


December 31,                                     1998                  1997
--------------------------------------------------------------------------------
<S>                                           <C>                   <C>

Assets

Current assets:
 Cash and cash equivalents                    $  1,514,115          $ 2,527,865
 Restricted cash (Note 3)                          297,554                    -
 Accounts receivable (Note 12)                     207,172               24,972
 Inventory (Note 4)                                 69,382               73,629
 Prepaid expenses                                   83,104               75,156
--------------------------------------------------------------------------------




       Total current assets                      2,171,327            2,701,622




Equipment and leasehold improvements, net of
 accumulated depreciation and amortization
 (Note 5)                                          125,572              146,868




Other assets:
 Patent and trademark costs, net of accumulated
  amortization (Note 6)                            205,226              153,157
 Deposit                                             2,364                2,364
--------------------------------------------------------------------------------



                                              $  2,504,489          $ 3,004,011
--------------------------------------------------------------------------------

                                                                    (continued)

</TABLE>

<PAGE>

                                                           Symbollon Corporation
                                                   (a development stage company)

                                                                  Balance Sheets
                                                                     (Continued)

<TABLE>
<CAPTION>

December 31,                                      1998                 1997
--------------------------------------------------------------------------------
<S>                                           <C>                   <C>

Liabilities and Stockholders' Equity

Current liabilities:
 Acounts payable                              $     87,654         $      5,879
 Accrued professional fees                           4,403               21,867
 Accrued finder's fee (Note 11)                          -               20,000
 Other                                              19,149               22,857
--------------------------------------------------------------------------------

       Total current liabilities                   111,206               70,603
--------------------------------------------------------------------------------

Redeemable common stock, Class A, par value 
 $.001 per share, 669,545 and 266,667 shares  
 issued, respectively, (aggregate involuntary 
 liquidation value $850,000 at
 December 31, 1998) (Note 7)                       850,000              500,000
--------------------------------------------------------------------------------

Commitments (Notes 8 and 11)

Stockholders' equity (Notes 7 and 8):
 Preferred stock, par value $.001 per share,
  5,000,000 shares authorized                            -                    -
 Common stock, Class A, par value $.001 
  per share, 18,750,000 shares authorized, 
  2,919,786 and 2,916,286 shares issued and
  outstanding, respectively                          2,920                2,916
 Convertible common stock, Class B, 
  par value $.001 per share, 1,250,000 
  shares authorized, 15,738 shares issued
  and outstanding                                       16                   16
 Additional paid-in capital                      7,254,712            7,252,091
 Deficit accumulated during the
  development stage                             (5,714,365)          (4,821,615)
--------------------------------------------------------------------------------

       Total stockholders' equity                1,543,283            2,433,408
--------------------------------------------------------------------------------

                                             $   2,504,489         $  3,004,011
--------------------------------------------------------------------------------

                                See accompanying notes to financial statements.

</TABLE>


<PAGE>



                                                           Symbollon Corporation
                                                   (a development stage company)


                                                        Statements of Operations

<TABLE>
<CAPTION>

                                                                                            For the
                                                                                          Period from
                                                         Year Ended                      July 15, 1986
                                                        December 31,                    (Inception) to
                                                 --------------------------               December 31,
                                                 1998                  1997                   1998
-------------------------------------------------------------------------------------------------------
<S>                                         <C>                    <C>                   <C>

Revenue (Note 12):
 Net product sales                          $   423,441            $  376,660            $   1,040,988
 Contract revenue                               104,070                70,689                  644,750
 License fee revenue                            400,000             1,250,000                2,190,000
-------------------------------------------------------------------------------------------------------

     Total revenue                              927,511             1,697,349                3,875,738
-------------------------------------------------------------------------------------------------------

Operating expenses:
 Cost of goods sold                             242,964               178,531                  595,201
 Research and development costs               1,245,016               562,360                5,281,714
 General and administrative expenses            428,979               523,578                3,935,266
-------------------------------------------------------------------------------------------------------

     Total operating expenses                 1,916,959             1,264,469                9,812,181
-------------------------------------------------------------------------------------------------------

Income (loss) from operations                  (989,448)              432,880               (5,936,443)

Interest income                                  96,698                94,808                  578,338

Interest expense and debt issuance costs              -               (16,224)                (356,260)
-------------------------------------------------------------------------------------------------------

Net income (loss)                           $  (892,750)           $  511,464              $(5,714,365)
-------------------------------------------------------------------------------------------------------

Basic net income (loss) per share of
 common stock (Note 9)                      $      (.33)           $      .24
-------------------------------------------------------------------------------------------------------

Diluted net income (loss) per share of
 common stock (Note 9)                      $      (.33)           $      .22
-------------------------------------------------------------------------------------------------------
                                                       See accompanying notes to financial statements.
</TABLE>

<PAGE>



                                                           Symbollon Corporation
                                                   (a development stage company)


                                              Statements of Stockholders' Equity

<TABLE>
<CAPTION>


------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Deficit
                                       Preferred Stock       Common Stock, $.001 Par Value                   Accumulated
                                       $.001 Par Value        Class A             Class B      Additional    During the
                                       ---------------    ----------------    ---------------    Paid-in     Development
                                       Shares   Amount    Shares    Amount    Shares   Amount    Capital       Stage         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>    <C>     <C>        <C>       <C>         <C>      <C>         <C>          <C>

Balance, January 1, 1992, consisting 
 of net losses from July 15, 1986 
 (inception) through December 31, 1991     -  $   -           -  $     -           -   $     -  $        -  $  (143,451) $ (143,451)
Merger and recapitalization, May 1991:
 Issuance of new shares of Symbollon
 Corporation                               -      -           -        -     831,316       831       9,169            -      10,000
Contribution of shares to the Company,
 September                                 -      -           -        -     (41,565)      (42)         42            -           0
Issuances of shares                        -      -           -        -     425,251       426     299,574            -     300,000
Net loss for the year                      -      -           -        -           -         -           -     (207,457)   (207,457)
------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1992                 -      -           -        -   1,215,002     1,215     308,785     (350,908)    (40,908)
Issuance of shares, June                   -      -           -        -      34,998        35     104,965            -     105,000
Capital contribution as of July            -      -           -        -           -         -     100,000            -     100,000
Warrants issued with bridge financing      -      -           -        -           -         -      25,000            -      25,000
Public offering, December:
   Issuance of shares                      -      -   1,000,000    1,000           -        -    5,999,000            -   6,000,000
   Costs of offering                       -      -           -        -           -        -   (1,244,133)           -  (1,244,133)
   Sale of unit purchase option            -      -           -        -           -        -          100            -         100
Net loss for the year                      -      -           -        -           -        -            -   (1,186,132) (1,186,132)
------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1993                 -      -   1,000,000    1,000   1,250,000    1,250    5,293,717   (1,537,040)  3,758,927
Issuance of over-allotment units
 of public offering                        -      -     150,000      150           -        -      899,850            -     900,000
Additional public offering costs           -      -           -        -           -        -      (99,369)           -     (99,369)
Net loss for the year                      -      -           -        -           -        -            -   (1,516,913) (1,516,913)
------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1994                 -      -   1,150,000    1,150   1,250,000    1,250    6,094,198   (3,053,953)  3,042,645
Warrant conversion, July - August          -      -      77,920       78           -        -      629,126            -     629,204
Conversion of Class B to Class A           -      -      35,287       35     (35,287)     (35)           -            -           -
Stock purchase plan sales                  -      -       2,216        2           -        -        9,415            -       9,417
Net loss for the year                      -      -           -        -           -        -            -   (1,373,711) (1,373,711)
------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1995                 -      -   1,265,423    1,265   1,214,713    1,215    6,732,739   (4,427,664)  2,307,555

                                                                                                                        (continued)

</TABLE>

<PAGE>



                                                           Symbollon Corporation
                                                   (a development stage company)

                                              Statements of Stockholders' Equity
                                                                     (Continued)
<TABLE>
<CAPTION>


------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Deficit
                                       Preferred Stock       Common Stock, $.001 Par Value                   Accumulated
                                       $.001 Par Value        Class A             Class B      Additional    During the
                                       ---------------    ----------------    ---------------    Paid-in     Development
                                       Shares   Amount    Shares    Amount    Shares   Amount    Capital       Stage         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>    <C>     <C>        <C>       <C>         <C>      <C>         <C>          <C>
Balance, December 31, 1995                 -      -   1,265,423    1,265   1,214,713    1,215    6,732,739   (4,427,664)  2,307,555
Issuance of preferred stock, August  444,444    444           -        -           -        -      499,555            -     499,999
Conversion of Class B to Class A           -      -      18,438       19     (18,438)     (19)           -            -           -
Stock purchase plan sales                  -      -       4,392        4           -        -        7,943            -       7,947
Reduction of warrant conversion costs      -      -           -        -           -        -       33,116            -      33,116
Net loss for the year                      -      -           -        -           -        -            -     (905,415)   (905,415)
------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1996           444,444    444   1,288,253    1,288   1,196,275    1,196    7,273,353   (5,333,079)  1,943,202
Conversion of preferred stock, May  (444,444)  (444)    444,444      444           -        -            -            -           -
Conversion of Class B to Class A           -      -   1,180,537    1,180  (1,180,537)  (1,180)           -            -           -
Stock purchase plan sales                  -      -       3,052        4           -        -        3,738            -       3,742
Issuance costs of redeemable
  common stock, August                     -      -           -        -           -        -      (25,000)           -     (25,000)
Net income for the year                    -      -           -        -           -        -            -      511,464     511,464
------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1997                 -      -   2,916,286    2,916      15,738       16    7,252,091   (4,821,615)  2,433,408
Stock purchase plan sales                  -      -       3,500        4           -        -        2,621            -       2,625
Net loss for the year                      -      -           -        -           -        -            -     (892,750)   (892,750)
------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1998                 -  $   -   2,919,786  $ 2,920      15,738  $    16  $ 7,254,712  $(5,714,365) $1,543,283
------------------------------------------------------------------------------------------------------------------------------------

                                                                                   See accompanying notes to financial statements.

</TABLE>


<PAGE>



                                                           Symbollon Corporation
                                                   (a development stage company)


                                                        Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                          
                                                                                                          For the
                                                                                                        Period from
                                                                               Year Ended              July 15, 1986
                                                                               December 31,            (Inception) to
                                                                  ------------------------------        December 31,
                                                                         1998               1997           1998
------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                 <C>                  <C>

Cash flows from operating activities:
   Net income (loss)                                              $  (892,750)        $  511,464           $(5,714,365)
   Adjustments to reconcile net income (loss) to net cash
   provided by ( used in) operating activities:
     Depreciation and amortization                                     49,177             59,677               428,379
     Amortization of debt issuance costs                                    -                  -               130,000
     Accrued rent                                                           -            (14,000)                    -
     Loss on disposition of equipment and patents                      12,268              7,274                19,542
     Changes in:
       Restricted cash                                               (297,554)                 -              (297,554)
       Accounts receivable                                           (182,200)            25,434              (207,172)
       Inventory                                                        4,247            (55,811)              (69,382)
       Prepaid expenses                                                (7,948)             7,283               (83,104)
       Deferred revenue                                                     -            (17,596)                    -
       Accounts payable and other current liabilities                  40,603            (68,921)              168,381
------------------------------------------------------------------------------------------------------------------------
         Net cash provided by (used in) operating activities       (1,274,157)           454,804            (5,625,275)
------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
   Purchase of equipment and leasehold improvements                   (24,173)           (85,333)             (364,826)
   Patent and trademark cost additions                                (68,045)           (41,383)             (425,193)
   Proceeds from sale of equipment                                          -             11,300                11,300
   Deposit                                                                  -              2,636                (2,364)
------------------------------------------------------------------------------------------------------------------------
         Net cash used in investing activities                        (92,218)          (112,780)             (781,083)
------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
   Warrant conversion                                                       -                  -               629,204
   Borrowings from stockholders                                             -                  -               253,623
   Repayment of borrowings from stockholders                                -                  -              (127,683)
   Sale of common stock and units                                     352,625            478,742             8,058,731
   Sale of option to purchase units                                         -                  -                   100
   Public offering costs                                                    -                  -            (1,343,502)
   Issuance of preferred stock                                              -                  -               450,000
------------------------------------------------------------------------------------------------------------------------
         Net cash provided by financing activities                    352,625            478,742             7,920,473
------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents               (1,013,750)           820,766             1,514,115

Cash and cash equivalents, beginning of period                      2,527,865          1,707,099                     -
------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of period                          $ 1,514,115         $2,527,865           $ 1,514,115
------------------------------------------------------------------------------------------------------------------------

Supplemental cash flow information:
   Cash paid during the year for interest                         $         -         $   16,224

                                                                        See accompanying notes to financial statements.

</TABLE>

<PAGE>



                                                           Symbollon Corporation
                                                   (a development stage company)


                                                   Notes to Financial Statements



 1.    Description of                 Symbollon Corporation was formed to 
       Business and                   develop and commercialize proprietary
       Basis of                       iodine-based products for infection 
       Presentation                   control and treatment in biomedical and
                                      bioagricultural  industries.  The Company
                                      is in the development stage and its
                                      efforts since inception have been
                                      principally devoted to research and
                                      development, securing patent and trademark
                                      protection and raising capital.

                                      The  success  of  future   operations  is
                                      subject  to a number of risks  similar  to
                                      those of other companies in the same stage
                                      of  development.   Principal  among  these
                                      risks   are   the   Company's   cumulative
                                      operating    losses,   no   assurance   of
                                      profitable future operations,  early state
                                      of market  development,  competition  from
                                      substitute  products or larger  companies,
                                      dependence   on  key   personnel  and  the
                                      uncertainty of additional future financing
                                      as needed.

 2.    Summary of
       Significant
       Accounting
       Policies

       Use of Estimates               The preparation of financial statements in
                                      conformity  with  generally  accepted
                                      accounting principles requires management
                                      to make estimates and assumptions that
                                      affect the reported  amounts of assets and
                                      liabilities  and  disclosure of contingent
                                      assets and liabilities at the date of the
                                      financial  statements  and the  reported
                                      amounts of revenues and expenses during
                                      the reporting period.  Actual results
                                      could differ from those estimates.

       Cash and Cash                  Cash and cash equivalents are short-term,
       Equivalents                    highly liquid investments with  maturities
                                      of less than three months when acquired.

       Inventory                      Inventory is stated at the lower of cost
                                      (determined on a first-in, first-out
                                       basis) or market.

       Revenue                        The Company  recognizes revenue when the
       Recognition                    Company fulfills all of its obligations
                                      under its collaborative research and
                                      licensing agreements or when its products
                                      are shipped.


<PAGE>


 2.    Summary of
       Significant
       Accounting Policies
       (Continued)

       Depreciation and               Equipment is stated at cost and
       Amortization                   depreciated over its estimated useful life
                                      using the straight-line method.  Leasehold
                                      improvements are stated at cost and are
                                      being amortized by the straight-line
                                      method over the term of the lease which is
                                      less than their estimated useful lives.

                                      Patent  and  trademark   costs  are  being
                                      amortized  over  their  estimated   useful
                                      lives of 15-17 years by the  straight-line
                                      method.   Such  costs  are   reviewed  for
                                      impairment periodically. If the sum of the
                                      expected future undiscounted cash flows is
                                      less  than  the  carrying  amount  of such
                                      costs, a loss will be recognized.

       Research and                   Research and development costs are 
       Development                    expensed as incurred.

       Income (Loss)                  In 1997, the Financial Accounting
       Per Share                      Standards Board issued Statement of
                                      Financial Accounting Standards No. 128
                                      ("SFAS 128"), "Earnings per Share".  SFAS
                                      128 replaced the calculation of primary
                                      and fully diluted earnings per share with
                                      basic and diluted earnings per share.
                                      Unlike primary earnings per share, basic
                                      earnings per share excludes any dilutive
                                      effects of options, warrants and
                                      convertible securities.  Diluted earnings
                                      per share is very similar to the
                                      previously reported fully diluted earnings
                                      per share.  Shares subject to restriction
                                      (Note 7) are not considered as outstanding
                                      for calculation of earnings or loss per
                                      share during any period.

       Fair  value  of                The carrying amounts of cash and cash
       Financial                      equivalents, restricted cash,  accounts 
       Instruments                    receivable, other current assets, accounts
                                      payable, and accrued expenses approximate
                                      fair value.


<PAGE>


 2.    Summary of
       Significant
       Accounting Policies
       (Continued)

       Stock-Based                    The Company  accounts  for its  employee  
       Compensation                   stock-based compensation under Accounting
                                      Principles  Board  Opinion  No. 25,
                                      "Accounting for Stock Issued to
                                      Employees".  In October 1995, the
                                      Financial Accounting Standards Board
                                      issued Statement of Financial Accounting
                                      Standards  No. 123, "Accounting for
                                      Stock-Based  Compensation" ("SFAS No.
                                      123"). SFAS No. 123 establishes
                                      a  fair-value-based  method of  accounting
                                      for stock-based  compensation  plans.  The
                                      Company   adopted  the   disclosure   only
                                      alternative   in   1996   which   requires
                                      disclosure  of the pro  forma  effects  on
                                      loss and loss per share as if SFAS No. 123
                                      had been adopted, as well as certain other
                                      information.

       Recent                         In June 1998, the Financial Accounting
       Accounting                     Standards  Board  issued  SFAS  No.  133,
       Standards                      "Accounting  for  Derivative   Instruments
                                      and  Hedging  Activities."  SFAS  No.  133
                                      requires companies to recognize  all
                                      derivative contracts at their fair values,
                                      as either assets or liabilities   on  the
                                      balance sheet.  If certain  conditions are
                                      met,  a  derivative  may  be  specifically
                                      designated  as a hedge,  the  objective of
                                      which is to match  the  timing  of gain or
                                      loss recognition on the hedging derivative
                                      with the recognition of (1) the changes in
                                      the  fair  value  of the  hedged  asset or
                                      liability  that  are  attributable  to the
                                      hedged risk, or (2) the earnings effect of
                                      the hedged forecasted  transaction.  For a
                                      derivative  not  designated  as a  hedging
                                      instrument, the gain or loss is recognized
                                      in income in the  period of  change.  SFAS
                                      No.  133  is  effective   for  all  fiscal
                                      quarters of fiscal years  beginning  after
                                      June 15, 1999.

                                      Historically,  the Company has not entered
                                      into derivative  contracts either to hedge
                                      existing   risks   or   for    speculative
                                      purposes.  Accordingly,  the Company  does
                                      not expect adoption of the new standard to
                                      affect its financial statements.

<PAGE>


 3.    Restricted Cash                On August 25, 1998, the Company  signed a
                                      clinical  research  agreement  for the
                                      Company's Phase I and Phase II clinical
                                      trials  for its  drug  compound  to treat
                                      fibrocystic breast disease.  In accordance
                                      with the clinical research agreement,  the
                                      Company was required to deposit
                                      approximately $296,000 into a bank account
                                      jointly controlled by the Company and the
                                      clinical research organization.  These
                                      funds will be used to satisfy future
                                      obligations of the Company under the
                                      agreement.

                                       In  the  future,   the  Company  will  be
                                      required to maintain a balance in the bank
                                      account  equal  to  a  percentage  of  the
                                      contractual    obligations    under    the
                                      agreement. These funds are restricted from
                                      the   Company's   use   apart   from   its
                                      obligation  under  the  clinical  research
                                      agreement.  The Company is entitled to all
                                      interest earned on the funds.


 4. Inventory                         Inventory consists of:
                                      <TABLE>
                                      <CAPTION>
                                      <S>                                                     <C>                <C>

                                      December 31,                                                 1998               1997
                                      --------------------------------------------------------------------------------------

                                      Raw materials                                           $  47,379          $  20,907
                                      Finished goods                                             22,003             52,722
                                      --------------------------------------------------------------------------------------

                                      Total                                                   $  69,382          $  73,629
                                      --------------------------------------------------------------------------------------

                                      </TABLE>

<PAGE>


 5.    Equipment and                  Equipment and leasehold improvements are 
       Leasehold                      stated at cost and consist of the 
       Improvements                   following:

                                      <TABLE>
                                      <CAPTION>       

                                      December 31,                                                 1998               1997
                                      --------------------------------------------------------------------------------------
                                      <S>                                                    <C>               <C>

                                      Equipment and fixtures                                 $  221,359        $   201,519

                                      Leasehold improvements                                     61,811             61,811
                                      --------------------------------------------------------------------------------------

                                                                                                283,170            263,330

                                      Less accumulated depreciation
                                       and amortization                                         157,598            116,462
                                      --------------------------------------------------------------------------------------

                                      Equipment and leasehold
                                       improvements, net                                     $  125,572        $   146,868


 6.    Patent and                     December 31,                                                 1998               1997
       Trademark                      --------------------------------------------------------------------------------------
       Costs 
                                      Patent costs                                           $  401,638        $   339,340
                                      Trademark costs                                             2,444              8,520
                                      --------------------------------------------------------------------------------------

                                                                                                404,082            347,860

                                      Less accumulated amortization                             198,856            194,703
                                      --------------------------------------------------------------------------------------

                                      Patent and trademark costs, net                        $  205,226        $   153,157
                                      --------------------------------------------------------------------------------------

                                      </TABLE>

<PAGE>


7.     Stockholders'                  The Company has issued both Class A and
       Equity                         Class B common stock.  The Class A and
                                      Class B common  stock are  substantially
                                      identical except that holders of Class A
                                      common  stock  have the  right to cast one
                                      vote for each  share  held and the Class B
                                      shareholders  have the  right to cast five
                                      votes  for each  share  held.  The Class B
                                      shares are automatically  convertible into
                                      an equal number of Class A shares upon the
                                      sale or  transfer of Class B shares by the
                                      original  holders   thereof,   subject  to
                                      certain exceptions.

                                       On  December   13,   1996,   the  Company
                                      requested its Class B common  stockholders
                                      to voluntarily  convert their  outstanding
                                      shares  of  Class B common  stock  into an
                                      equal  number  of shares of Class A common
                                      stock  which   convert  on  a  one-for-one
                                      basis. In 1997, 1,180,537 of the 1,196,275
                                      shares  of  Class  B  common   stock  were
                                      converted.

                                      On August 14, 1996, the Company  completed
                                      a private placement of 444,444 shares of a
                                      new series of convertible  preferred stock
                                      at  a  price  of  $1.125  per  share.   In
                                      exchange  for  the  shares  issued  in the
                                      private  placement,  the Company  received
                                      net proceeds of approximately $450,000 and
                                      the  cancellation  of $50,000 of principal
                                      and  accrued  interest  on a  demand  note
                                      payable to a stockholder. In May 1997, the
                                      preferred  stock  was  converted  into  an
                                      equal  number  of shares of Class A common
                                      stock.

                                       On August 4, 1997,  the  Company  entered
                                      into a  Stock  Purchase  Agreement  with a
                                      pharmaceutical company whereby the Company
                                      sold  266,667  shares  of  Class A  common
                                      stock for  $500,000.  On  August 4,  1998,
                                      pursuant    to    the    agreement,    the
                                      pharmaceutical    company   purchased   an
                                      additional   402,878  shares  of  Class  A
                                      common  stock for  $350,000.  Pursuant  to
                                      certain   restrictions,   the   stock   is
                                      redeemable at the per share price that was
                                      originally  paid,  as  an  offset  against
                                      future   milestone   payments.    If   the
                                      collaboration  and license  agreement (see
                                      Note    12)   is    terminated    by   the
                                      pharmaceutical  company  before  August 4,
                                      2001,  then,  for the calendar years ended
                                      December  31,  2001,  2002  and  2003  the
                                      pharmaceutical  company  has the  right to
                                      require  the Company to  purchase,  at the
                                      per share price that it  originally  paid,
                                      the number of shares  which  equals 25% of
                                      the  Company's  positive  cash  flows from
                                      operating   activities,   not  to   exceed
                                      $350,000 in total.

<PAGE>

7.     Stockholders'                  On December 7, 1998, the Company's
       Equity                         redeemable  Class A warrants, redeemable
       (Continued)                    Class B warrants and unit purchase option
                                      expired.
      
                                       In  connection  with the  Company's  1993
                                      public  offering,   certain   stockholders
                                      agreed to  restrictions  on 700,000 shares
                                      of  the  then  1,250,000  Class  B  common
                                      shares  outstanding prior to the offering.
                                      In January 1997 684,262 of the  restricted
                                      shares  converted to Class A common stock.
                                      These  shares will be  transferred  to the
                                      Company for no  consideration  if earnings
                                      of  $15,000,000 or more (defined as income
                                      before income taxes,  extraordinary  items
                                      or any charge  related  to the  release of
                                      shares) are not  achieved in fiscal  1999.
                                      When, and if, the share  restrictions  are
                                      released,   the  Company   will  incur  an
                                      expense  based on the fair market value of
                                      the  shares  at the time the  restrictions
                                      lapse,  which is a  nondeductible  expense
                                      for tax purposes. The Company did not meet
                                      the earnings thresholds for 1998.


 8.    Stock Plans                    The Company has adopted  three
                                      stock  plans:  a  stock  option  plan,  an
                                      employee   stock   purchase   plan  and  a
                                      non-employee directors' stock option plan.

                                      The stock  option plan  provides  for the
                                      grant   of   incentive    stock   options,
                                      nonqualified   stock   options  and  stock
                                      appreciation  rights. At December 31, 1998
                                      the Company has  reserved  800,000  shares
                                      for issuance under this plan.

                                      The employee stock purchase plan provides
                                      for the  purchase of Class A common  stock
                                      at 85 percent of the fair market  value at
                                      specific   dates,   to   encourage   stock
                                      ownership  by all eligible  employees.  At
                                      December   31,   1998,   the  Company  has
                                      reserved 200,000 shares for purchase under
                                      this plan.  During the year ended December
                                      31,  1998 and  1997,  the  Company  issued
                                      3,500 and 3,052 shares,  respectively,  to
                                      satisfy its obligation under the plan.

                                      On May 17,  1995 the  Company  adopted  a
                                      nonemployee  directors'  stock option plan
                                      that    provides    for   the   grant   of
                                      nonstatutory  stock options  automatically
                                      on  January  1  of  each   calendar   year
                                      commencing on January 1, 1996. The Company
                                      has reserved  100,000  shares for issuance
                                      under  the  plan.  Each  outside  director
                                      shall be  granted  an option  to  purchase
                                      2,500  shares  of Class A common  stock at
                                      fair market value,  vesting 50% on each of
                                      the first two  anniversaries of the grant.
                                      The fair value of the  options  issued for
                                      the year ended  December  31, 1998 was not
                                      material.

                                      Under the above plans 340,782  shares are
                                      available for future grant or purchase.

<PAGE>

8.     Stock Plans                    The Company had the following option
       (Continued)                    activity in 1997 and 1998:
                                      <TABLE>
                                      <CAPTION>   
                                      

                                                                                                            Weighted -
                                                                                                             Average
                                                                                                          Exercise Price
                                                                                          Shares             Per Share
                                      --------------------------------------------------------------------------------------
                                      <S>                                                 <C>                   <C>   
                                      Balance, December 31, 1996                          456,500               $ 2.99
                                         Granted                                          170,562                 1.39
                                         Cancelled                                        (98,167)                4.36
                                      --------------------------------------------------------------------------------------

                                      Balance, December 31, 1997                          528,895                 2.21
                                         Granted                                          235,500                 1.73
                                         Cancelled                                        (21,250)                3.38
                                      --------------------------------------------------------------------------------------

                                      Balance, December 31, 1998                          743,145               $ 2.10
                                      --------------------------------------------------------------------------------------
                                      </TABLE>

                                       All options  outstanding  at December 31,
                                      1998  are  categorized  by  the  following
                                      ranges in the table below: 

                                      <TABLE>
                                      <CAPTION> 

                                                                                            Weighted-
                                                                        Weighted -           Average
                                                                          Average           Remaining
                                                                         Exercise          Contractual          Number of
                                                        Range              Price          Life (years)           Shares
                                      --------------------------------------------------------------------------------------
                                           <S>                              <C>                    <C>              <C>   

                                           $ 1.02   to  $ 4.00              $ 1.76                 7.0              684,145
                                           $ 4.00   to  $ 7.81              $ 5.07                 2.9               59,000
                                                                                                                    -------
                                                                                                                    743,145
                                                                                                                    -------
                                      </TABLE>


<PAGE>


8.     Stock Plans                    All options exercisable at December 31,  
       (Continued)                    1998 are categorized by the following
                                      ranges in the table below:
     
                                      <TABLE>   
                                      <CAPTION>
                                                                                            Weighted-
                                                                        Weighted -           Average
                                                                          Average           Remaining
                                                                         Exercise          Contractual          Number of
                                                        Range              Price          Life (years)           Shares
                                      --------------------------------------------------------------------------------------
                                           <S>                              <C>                    <C>              <C> 

                                           $ 1.02   to  $ 4.00              $ 1.71                 6.1              399,437
                                           $ 4.00   to  $ 7.81              $ 5.19                 2.4               56,250
                                                                                                                    -------
                                                                                                                    455,687
                                                                                                                    -------
                                      </TABLE>


       Stock Based                    The Company has adopted the
       Compensation                   disclosure-only  provisions  of SFAS No.
                                      123, but applies Accounting Principles
                                      Board Opinion No. 25 and related
                                      interpretations in accounting
                                      for its plans.  There was no  compensation
                                      expense recognized in 1998 or 1997. If the
                                      Company   had    elected   to    recognize
                                      compensation  cost for the plans  based on
                                      the  fair  value  at the  grant  date  for
                                      awards granted as of January 1, 1995 under
                                      the  plans,  consistent  with  the  method
                                      prescribed  by SFAS No. 123, net income or
                                      loss per share would have been  changed to
                                      the pro forma amounts indicated below:

                                      <TABLE>
                                      <CAPTION>
      
                                      Year ended December 31,                                     1998                1997
                                      --------------------------------------------------------------------------------------
                                      <S>                                               <C>                    <C> 

                                      Net income (loss)              As reported        $     (892,750)        $   511,464
                                                                     Pro forma          $   (1,004,059)        $   370,530

                                      Basic net income               As reported        $         (.33)         $      .24
                                       (loss) per share of           Pro forma          $         (.38)         $      .17
                                       common stock

                                      Diluted net income             As reported        $         (.33)         $      .22
                                       (loss) per share of           Pro forma          $         (.38)         $      .16
                                       common stock

                                      </TABLE>


<PAGE>

8.     Stock Plans
       (Continued)

       Stock Based                    The  fair  value of the  Company's  stock
       Compensation                   options  used to  compute  pro  forma  net
       (Continued)                    income  (loss) and net  income  (loss) per
                                      share disclosures is the estimated present
                                      value   at   grant    date    using    the
                                      Black-Scholes  option-pricing  model  with
                                      the following weighted-average assumptions
                                      for 1998 and 1997, respectively:  dividend
                                      yield of 0% and 2.5%;  expected volatility
                                      of 46% and 40%; a risk-free  interest rate
                                      of  between  4.60% and 5.68% and 5.25% and
                                      7.88%; and an expected holding period of 2
                                      to 5 years and 7 to 10 years.

                                       The   weighted-average   fair   value  of
                                      options  granted  during  the years  ended
                                      December  31,  1998  and 1997 was $.85 and
                                      $.20 per share, respectively.



9.     Earnings Per                   The Company follows Statement of Financial
       Share                          Accounting Standards No. 128   
                                      ("SFAS No128"), Earnings per Share, issued
                                      by the Financial Accounting Standards
                                      Board. Under SFAS No. 128,  the basic and
                                      diluted net earnings per share of common
                                      stock for the
                                      years ended  December 31, 1998 and 1997 is
                                      computed by dividing the net income (loss)
                                      by the weighted  average  number of common
                                      shares outstanding during the period.

                                      The  weighted  average  number  of  common
                                      shares outstanding is summarized as
                                      follows:

                                      <TABLE>
                                      <CAPTION>


                                      December 31,                                                1998                1997
                                      --------------------------------------------------------------------------------------
                                      <S>                                                    <C>                  <C>  

                                      Denominator for basic income per share:
                                         Weighted average common
                                          shares outstanding                                 2,665,139           2,168,783
                                      Potential dilutive common shares:
                                         Convertible  preferred stock                                -             170,472
                                         Options                                                     -              21,078
                                      --------------------------------------------------------------------------------------

                                      Denominator for diluted income
                                       per share                                             2,665,139           2,360,333
                                      --------------------------------------------------------------------------------------
                                      </TABLE>


<PAGE>

9.     Earnings Per                   The following table summarizes  securities
       Share                          that were  outstanding  as of December 31,
       (Continued)                    1998  and  1997  but not  included  in the
                                      calculation  of diluted net  earnings  per
                                      share     because    such    shares    are
                                      antidilutive:

                                      <TABLE>
                                      <CAPTION>

                                      December 31,                                                1998                1997
                                      --------------------------------------------------------------------------------------
                                      <S>                                                      <C>               <C> 

                                      Stock options                                            743,145             391,895
                                      Stock warrants                                                 -           2,800,000
                                      Unit purchase option                                           -             100,000

                                      </TABLE>


 10.   Income Taxes                   As a result of the 1998 and 1997  losses,
                                      no income tax  expense  was  incurred  for
                                      these years.

                                      Deferred  income taxes reflect the impact
                                      of  "temporary  differences"  between  the
                                      amount  of  assets  and   liabilities  for
                                      financial   reporting  purposes  and  such
                                      amounts  as   measured  by  tax  laws  and
                                      regulations.   Deferred   tax  assets  are
                                      comprised of the following at December 31:

                                      <TABLE>
                                      <CAPTION>

                                                                                                  1998                1997
                                      --------------------------------------------------------------------------------------
                                      <S>                                               <C>                 <C> 
                                      
                                      Accumulated amortization                          $       46,000      $       50,000
                                      Tax credits                                              205,000             140,000
                                      NOL carryforwards                                      2,181,000           1,820,000
                                      --------------------------------------------------------------------------------------

                                      Gross deferred tax asset                               2,432,000           2,010,000
                                      Deferred tax assets valuation allowance               (2,432,000)         (2,010,000)
                                      --------------------------------------------------------------------------------------

                                      Net deferred tax assets                           $            -      $            -
                                      --------------------------------------------------------------------------------------

                                      </TABLE>


<PAGE>


10.    Income Taxes                   As of December 31, 1998,  the Company has
       (Continued)                    net operating loss carryforwards totaling
                                      approximately $5,452,000.  The amount of
                                      the net operating loss carryforwards which
                                      may be utilized  in any future  period may
                                      be subject to certain  limitations,  based
                                      upon  changes  in  the  ownership  of  the
                                      Company's common stock.

                                       As of  December  31,  1998 and 1997,  the
                                      deferred tax assets have been fully offset
                                      by   valuation   allowances,   since   the
                                      realization of such amounts is uncertain.

                                       The  following  is a breakdown of the net
                                       operating loss expiration period:

                                       <TABLE>
                                       <CAPTION>

                                                                                                             Amount of
                                      Expiration Date                                                      Remaining NOL
                                      --------------------------------------------------------------------------------------
                                      <S>                                                                    <C>

                                      2008                                                                   $     743,000
                                      2009                                                                       1,514,000
                                      2010                                                                       1,374,000
                                      2011                                                                         921,000
                                      2018                                                                         900,000

                                      </TABLE>

                                       In  addition,  the Company has  available
                                      tax  credit  carryforwards   (adjusted  to
                                      reflect  provisions  of the Tax Reform Act
                                      of 1986) of approximately $205,000,  which
                                      are  available  to offset  future  taxable
                                      income and income  tax  liabilities,  when
                                      earned or incurred.  These amounts  expire
                                      in various years through 2018.



<PAGE>


11.    Commitments

       Facilities                     Lease  The  Company  leases  its  research
                                      facilities  under an operating  lease that
                                      expires  August 31, 2002 with an option to
                                      extend  for  five  additional  years.  The
                                      lease  requires  payment  of  real  estate
                                      taxes and other  common  area  maintenance
                                      expenses. Rent expense for the years ended
                                      December  31, 1998 and  December  31, 1997
                                      was $26,000 and $32,000, respectively.

                                      Future minimum rental  payments due are as
                                      follows:

                                      <TABLE>
                                      <CAPTION>


                                      Year ending December 31,                                                       Total
                                      --------------------------------------------------------------------------------------
                                      <S>                                                                      <C>

                                      1999                                                                     $    30,000
                                      2000                                                                          32,000
                                      2001                                                                          33,000
                                      2002                                                                          23,000
                                      ---------------------------------------------------------------------------------------

                                                                                                               $   118,000
                                      ---------------------------------------------------------------------------------------

                                      </TABLE>

       Employment                     The  Company has entered  into  employment
       Agreements                     agreements  with its  principal  officers 
                                      providing for minimum  base  compensation
                                      and  severance  pay.  For the years ended
                                      December  31, 1998 and  December 31, 1997,
                                      the  aggregate  amount  paid  under  these
                                      agreements   was  $305,000  and  $280,000,
                                      respectively.  The  employment  agreements
                                      provide for  inflationary  adjustments and
                                      are  subject to other  increases  based on
                                      the  Board  of  Director's  approval.  Two
                                      employment  agreements are in effect which
                                      expire  December 31,  2000.  Amounts to be
                                      paid under  these  agreements  in 1999 and
                                      2000 total approximately $305,000 for each
                                      year.

       Royalty Agreement              A royalty  agreement with one of the
                                      inventors who assigned  certain patent
                                      rights to the Company provides for
                                      royalties  based on a percentage  of the
                                      licensing revenues received by the Company
                                      from products falling within the scope of
                                      the patent rights.  The percentage varies
                                      from 1.5% to 5% depending on the gross
                                      revenues received, with maximum  royalty
                                      payments under the agreement not to exceed
                                      $2,884,000.  Through December 31, 1998 no
                                      royalties have been earned under this
                                      agreement.


<PAGE>


11.    Commitments
       (Continued)

       Consulting                     The Company has entered into various  
       Agreements                     scientific  advisory and consulting
                                      agreements to  support  its  development
                                      activities.  These  agreements  generally
                                      expire over several future years.  Amounts
                                      charged to operations in connection with
                                      these agreements for the years ended
                                      December 31, 1998 and December 31, 1997
                                      amounted to approximately $236,700 and
                                      $42,400, respectively. The Company expects
                                      to incur similar or higher expenses in
                                     future years.

       Finder's Fees                  The  Company  has  entered  into  an
                                      agreement   to  pay  a  finder's  fee  for
                                      agreements   entered   into  with  certain
                                      companies   for   investment   or  revenue
                                      purposes.  The  finder's fee is based on a
                                      percentage of the investment or revenue up
                                      to a maximum of $150,000 with increases if
                                      more than one  product  is  commercialized
                                      under the agreements.

       Employee  Benefit              Effective January 1, 1999, the Company
       Plan                           established a Savings Incentive Match Plan
                                      for  Employees  of Small  Employers
                                      (SIMPLE) IRA plan covering substantially
                                      all of its employees.  The Company will
                                      make contributions to the plan at  the
                                      discretion of the Board of Directors based
                                      upon a percentage of employee compensation
                                      as provided by the terms of the plan.


<PAGE>


12.    Major Customers                Through December 31, 1998,
                                      the Company has generated its revenue from
                                      a   small   number   of   customers    and
                                      collaborative  agreements.  Revenues  were
                                      generated as follows:

                                      <TABLE>
                                      <CAPTION>

                                                                                      Net                        License
                                                                                    Product      Contract          Fee
                                      Year ended December 31, 1998                   Sales        Revenue        Revenue
                                      --------------------------------------------------------------------------------------
                                      <S>                                       <C>              <C>           <C>
                                      
                                      Customer A                                $   423,441      $       -     $         -
                                      Customer B                                          -         99,570         400,000
                                      --------------------------------------------------------------------------------------

                                                                                $   423,441      $  99,570     $   400,000
                                      --------------------------------------------------------------------------------------

                                                                                      Net                        License
                                                                                     Product      Contract          Fee
                                      Year ended December 31, 1997                   Sales        Revenue        Revenue
                                      --------------------------------------------------------------------------------------
                                     
                                      Customer A                                $   376,660      $       -   $           -
                                      Customer B                                          -              -         250,000
                                      Customer C                                          -         70,689       1,000,000
                                      --------------------------------------------------------------------------------------

                                                                                $   376,660      $  70,689   $   1,250,000
                                      --------------------------------------------------------------------------------------

                                      </TABLE>


<PAGE>


12.    Major Customers                At December 31, 1998, the Company has an 
       (Continued)                    ongoing  collaborative product development
                                      agreement with Customer B and C related to
                                      an ophthalmology and dermatology  product,
                                      respectively.  The agreements  provide for
                                      the collaborative partners to fund certain
                                      research  activities of the Company and to
                                      make certain milestone  payments dependent
                                      on the continuation of the agreements. The
                                      next  milestone   payment,   amounting  to
                                      $750,000  is due  in  August,  1999.  This
                                      payment  is  subject to an offset of up to
                                      $125,000.    The   Company   may   receive
                                      milestone  payments beyond 1999 of several
                                      million  dollars  if  the  agreements  are
                                      continued.

                                      Net product  sales from the United States
                                      and other countries are as follows:

                                      <TABLE>
                                      <CAPTION>


                                      Year ended December 31,                                     1998                1997
                                      --------------------------------------------------------------------------------------
                                      <S>                                                   <C>                <C> 

                                      United States                                         $  325,935         $   376,660
                                      United Kingdom and New Zealand                            97,506                   -
                                      --------------------------------------------------------------------------------------

                                                                                            $  423,441         $   376,660
                                      --------------------------------------------------------------------------------------

                                      </TABLE>


13.    Related Party                  A member of the board of directors
       Transactions                   provides legal services to the Company.
                                      Amounts paid for legal services rendered
                                      by the director during 1998, either
                                      individually or through his firm, totalled
                                      approximately $79,000.


<PAGE>



Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

         Effective  April 1,  1998,  the Boston  office of  Richard A.  Eisner &
Company,  LLP  ("RAE")  was merged into the Boston  office of BDO  Seidman,  LLP
("BDO").  This merger  resulted in RAE no longer  having an office in the Boston
area,  and the Company  concluded  that it would be  appropriate to select a new
accounting  firm.  At a May 20,  1998  meeting,  the Board of  Directors  of the
Company  voted to retain  BDO to serve as the  Company's  independent  auditors,
effective  immediately.  RAE's report on the Company's financial  statements for
the two years ended  December  31,  1997 did not  contain an adverse  opinion or
disclaimer of opinion,  and was not modified as to  uncertainty,  audit scope or
accounting  principles.  During the two years  ended  December  31, 1997 and any
subsequent interim period,  there were no disagreements  between the Company and
RAE on any matter of accounting  principles or  practices,  financial  statement
disclosure,  or  auditing  scope or  procedure  which,  if not  resolved  to the
satisfaction  of RAE,  would have  caused it to make  reference  to the  subject
matter  of the  disagreement  in  connection  with  its  report  on the  audited
financial statements.

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons,
         Compliance with Section 16(a) of the Exchange Act

         The Company incorporates herein by reference the information  appearing
under the  caption  "Board  of  Directors"  in the  Company's  definitive  Proxy
Statement to be filed with the Securities and Exchange  Commission in connection
with the Company's 1999 Annual Meeting of Stockholders.

         Information  concerning  executive officers of the Company is contained
in Part I of this report under the caption "Executive Officers."

Item 10.  Executive Compensation

         The Company incorporates herein by reference the information  appearing
under the caption  "Executive  Compensation"  in the Company's  definitive Proxy
Statement to be filed with the Securities and Exchange  Commission in connection
with the Company's 1999 Annual Meeting of Stockholders.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

         The Company incorporates herein by reference the information  appearing
under the caption  "Principal  Stockholders"  in the Company's  definitive Proxy
Statement to be filed with the Securities and Exchange  Commission in connection
with the Company's 1999 Annual Meeting of Stockholders.

Item 12  .  Certain Relationships and Related Transactions

         The Company incorporates herein by reference the information  appearing
under the caption  "Certain  Transactions"  in the  Company's  definitive  Proxy
Statement to be filed with the Securities and Exchange  Commission in connection
with the Company's 1999 Annual Meeting of Stockholders.



<PAGE>


Item 13  .  Exhibits and Reports on Form 8-K

         (a)  Exhibits

         See Index to Exhibits on Page E-1.  Compensatory plans and arrangements
required to be filed as exhibits are as follows:

1        1993 Stock Option Plan.

2        Form of Stock Option Agreement to be entered into between the Company
         and each option   holder.

3        1994 Employee Stock Purchase Plan.

4        1995 Non-Employee Directors' Stock Option Plan.

5        Employment Agreement, dated December 23, 1995, between the Company and
         Dr.Jack H. Kessler.

6        Employment Agreement, dated July 1, 1996, between the Company and Paul
         C. Desjourdy.

         (b)  Reports on Form 8-K

         No reports on Form 8-K were filed  during the last  quarter of the year
ended December 31, 1998.


<PAGE>


                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                              SYMBOLLON CORPORATION

                              By:   /s/ Paul C. Desjourdy
                                  -----------------------    
                                  Paul C. Desjourdy
                                  Executive Vice President,
                                  Chief Financial Officer

Date: March 8, 1999

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  Registrant and in the capacities and on the
dates indicated.

    Signature                      Title                               Date

  /s/ Jack H. Kessler          Executive Vice-President,          March 8, 1999
--------------------------     Chief Scientific Officer,
     Jack H. Kessler           Secretary and Chairman                  
                               of the Board of Directors
                               (Principal Executive Officer)

 /s/ Paul C. Desjourdy         Executive Vice President           March 8, 1999
---------------------------    Treasurer, Chief Financial
    Paul C. Desjourdy          Officer, and Director (Principal
                               Financial and Accounting Officer)

 /s/ James C. Richards         Director                           March 8, 1999
----------------------------
    James C. Richards

 /s/ Richard F. Maradie        Director                           March 8, 1999
---------------------------
    Richard F. Maradie

/s/ Eugene Lieberstein         Director                           March 8, 1999
---------------------------
  Eugene Lieberstein



<PAGE>


                              Symbollon Corporation
                                Index to Exhibits

3.1      Certificate of Incorporation of the Company;  including  Certificate of
         Designations, Preferences and Rights of Series A Preferred Stock of the
         Company.  (previously  filed  as  exhibit  3.1 to Form  10-QSB  for the
         quarter ended September 30, 1996 and incorporated by reference.)
3.2      By-Laws of the Company.  (previously filed as exhibit number 3.2 of the
         Registration  Statement  (the  "Registration  Statement")  on Form SB-2
         (Registration  No.  33-68828)  filed on November  24, 1993 and declared
         effective on December 7, 1993 and incorporated by reference.)
3.3      Agreement  of Merger,  dated as of August 4, 1993,  between the Company
         and  Symbollon  Corporation,  a  Massachusetts  corporation  (including
         Certificate of Merger and other state  filings).  (previously  filed as
         exhibit number 3.3 of the  Registration  Statement and  incorporated by
         reference.)
4.1      Form of Specimen Class A Common Stock Certificate. (previously filed as
         exhibit number 4.2 of the Registration  Statement and incorporated by
         reference.)
4.2      Form of Stock  Restriction  Agreement  among the  Company,  the Class B
         Stockholders and the Underwriter.  (previously  filed as exhibit number
         4.4 of the Registration Statement and incorporated by reference.)
10.1     1993 Stock Option Plan of the Company,  as amended.  (incorporated  by
         reference  to Exhibit A to the  Company's  1994 Annual Stockholders
         Meeting Proxy Statement filed under cover of Schedule 14A dated
         May 4, 1994.)
10.2     Form of  Employment  Agreement,  effective  July 1, 1996,  between  the
         Company and Paul C. Desjourdy. (previously filed as exhibit number 10.5
         to Form 10-QSB for the quarter ended June 30, 1996 and  incorporated by
         reference.)
10.3     Employment Agreement,  dated December 23, 1995, between the Company and
         Dr. Jack H. Kessler.  (previously  filed as exhibit number 10.3 to Form
         10-KSB  for the  year  ended  December  31,  1995 and  incorporated  by
         reference.)
10.4     Commercial  Lease dated June 5, 1997,  between Pine Street Realty Trust
         and the  Company.  (previously  filed as exhibit  number  10.18 to Form
         10-QSB  for the  quarter  ended  June  30,  1997  and  incorporated  by
         reference.)
10.5     Form of Indemnification  Agreement between the Company and each officer
         and director of the Company.  (previously  filed as exhibit number 10.6
         of the Registration Statement and incorporated by reference.)
10.6     Marketing  and Supply  Agreement,  dated  January 11, 1995  between the
         Company and West Agro. (previously filed as exhibit number 10.1 to Form
         8-K of the  Registrant  dated  January  11,  1995 and  incorporated  by
         reference). *
10.7     Agreement, dated August 31, 1992 among the Company, Dr. Jack H. Kessler
         and Dr. Robert  Rosenbaum.  (previously filed as exhibit number 10.8 of
         the Registration Statement and incorporated by reference.)
10.8     Form of Stock  Option  Agreement to be entered into between the Company
         and each option  holder.  (previously  filed as exhibit number 10.10 to
         Form 10-KSB for the year ended  December 31, 1993 and  incorporated  by
         reference.)
10.9     1994  Employee  Stock  Purchase Plan of the Company.  (incorporated  by
         reference to Exhibit B to the  Company's  1994 Annual Stockholders
         Meeting Proxy Statement filed under cover of Schedule 14A dated
         May 4, 1994.)
10.10    1995  Non-Employee  Directors' Stock Option Plan of the Company.
         (previously  filed as exhibit number 10.1 to Form 10-QSB for
         the quarter ended June 30, 1995 and incorporated by reference.)
10.11    Collaboration and License  Agreement,  dated May 14, 1996,  between the
         Company and Oclassen Pharmaceuticals, Inc. (previously filed as exhibit
         number  10.15 to Form  10-QSB for the  quarter  ended June 30, 1996 and
         incorporated by reference.), as amended on August 14, 1997. (previously
         filed as exhibit  number  10.15.2 to Form 10-QSB for the quarter  ended
         September 30, 1997 and incorporated by reference.) *
10.12    Collaboration and Sale/License Agreement, dated August 4, 1997, between
         the Company and Bausch & Lomb  Pharmaceuticals,  Inc. (previously filed
         as exhibit  number 10.19 to Form 10-QSB for the quarter  ended June 30,
         1997 and incorporated by reference.)
         *
10.13    Stock Purchase Agreement, dated August 4, 1997, between the Company and
         Bausch & Lomb Pharmaceuticals, Inc. (previously filed as exhibit number
         10.20  to  Form  10-QSB  for  the  quarter  ended  June  30,  1997  and
         incorporated by reference.)
23.1     Consent of BDO Seidman, LLP
23.2     Consent of Richard A. Eisner & Company, LLP
27.1     Financial Data Schedule
-------------------------------------
* Indicates that material has been omitted and  confidential  treatment has been
granted  or  requested  therefor.  All such  omitted  material  has  been  filed
separately with the Commission pursuant to Rule 24b-2.