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, 2002
                                       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 PHARMACEUTICALS, INC.
                 (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,
2002) were $379,254.

As of March 24, 2003, the aggregate market value of the voting stock of the
issuer held by non-affiliates of the issuer was approximately $724,917 based
upon the closing price of such stock on that date.

As of March 24, 2003, 4,196,204 shares of Class A Common Stock of the issuer
were outstanding. See "Market for Common Equity and Related Stockholder
Matters."

                       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 21, 2003 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.

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




<PAGE>


Special Note Regarding Forward Looking Statements

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

                                     PART I

Item 1.  Description of Business

General Background

         Symbollon Pharmaceuticals, Inc. (the "Company" or "Symbollon") is
engaged in development and commercialization of proprietary iodine-based
pharmaceutical agents and antimicrobials (collectively referred to as
"applications"). The Company is a Delaware corporation incorporated in August
1993 and is the successor by merger to a Massachusetts corporation incorporated
in May 1991, which was the successor by merger to an Illinois corporation, which
was incorporated in July 1986. Following stockholder approval at the 2001 Annual
Meeting of Stockholders, the Company changed its name from Symbollon Corporation
to its current name.

The Company's Technology

         Iodine has been shown to be a rapid acting, broad-spectrum
antimicrobial and an effective therapeutic for certain pharmaceutical
applications. The Company has developed proprietary iodine technology that the
Company believes maximizes the "therapeutic index" of iodine. The "therapeutic
index" of a drug is the ratio of the largest safe dose to the smallest effective
dose. The Company's technology accomplishes this by controlling the ratio of
molecular iodine (I2), to the other inactive species of iodine typically present
in solution. The Company believes that this will enable it to produce
iodine-based applications having advantages over currently available products.

         The Company believes that its iodine-based technology has potential use
in a number of product application areas. These applications can be grouped into
women's healthcare and infection control.

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

         Concerning women's healthcare, Symbollon believes that a relationship
exists between iodine deficiency and the increased incidence of certain female
health problems. These include some types of premenopausal breast cancer,

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<PAGE>

fibrocystic breast disease and endometriosis. The Company believes that the
underlying causation of these problems relates to the monthly ovarian cycle and
the proper functioning of the gonadotropic hormones.

Bovine Teat Sanitizer Product

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

         Total product sales for 2002 and 2001 from IodoZyme were $379,254 and
$232,914, respectively. All product sales for 2002 and 2001 from IodoZyme were
from the United States. The Company's invoice terms are net 30 days. The Company
had no orders for future delivery of IodoZyme at December 31, 2002.

Product Development

         Since 2000, the Company has concentrated its product development work
on the proposed product application for a treatment for fibrocystic breast
disease.

         The Company spent approximately $315,000 and $979,000 on research and
development during the years ended December 31, 2002 and 2001, respectively.
Since inception, the Company has spent approximately $8,953,000 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.

         Material developments in the Company's ongoing programs during fiscal
2002 are described below.

         Women's Healthcare

         The Company has developed an oral dosage form of its technology which
generates molecular iodine in situ in the stomach of the patient. The Company
refers to this tablet as IoGen(TM). Based on the available scientific
literature, the Company believes that IoGen may be effective in the prevention
and treatment of certain female health problems, including some types of
premenopausal breast cancer, fibrocystic breast disease ("FBD") and
endometriosis.

         We have chosen to pursue a treatment for moderate to severe cyclic pain
and tenderness ("mastalgia") associated with FBD based on the published results
covering previous independent third party testing conducted for this indication.
Collectively, more than 1,500 women afflicted with FBD have been orally
administered various forms of iodine with reported clinical improvement in their
symptoms occurring in 60% or greater of those women. FBD is a benign breast
condition characterized by lumpiness, breast pain and tenderness. FBD affects
approximately thirty-five percent of the women of childbearing age, which

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<PAGE>

represents in the United States about 24 million women. It has been estimated
that moderate to severe mastalgia occurs in approximately 11% of these women, or
about 2.6 million women.

         In 1995, Symbollon discovered a proprietary method for generating
molecular iodine in situ in a person's stomach. IoGen is the first formulation
developed utilizing this novel technique. In 1998, we initiated human clinical
trials evaluating its effectiveness for the treatment of FBD. During 2000,
Symbollon completed Phase I and Phase II trials.

         The Phase I trial was structured as a single-center, open-labeled,
randomized crossover study. Eighteen healthy females participated. The trial was
designed to assess dose proportionality and relative bioavailability of IoGen
tablets at three concentrations, 1.5 mg, 3.0 mg and 6.0 mg. These tablets were
the same as used in the Phase II trials. In the Phase I study, IoGen was well
tolerated at all dose levels. There were no drug-related adverse events.

         The results of the Phase I trial were based on blood and urine samples,
collected over a 48-hour period following dosing. Pharmacokinetic analysis
demonstrated that IoGen is dose-proportional when evaluated by either peak or
mean iodine concentration in the blood samples. The results also indicated
relative bioavailability among the 1.5, 3.0 and 6.0 mg IoGen tablets, as
measured by the excreted iodine in urine samples and serum concentrations.

         The multi-center Phase II clinical trial treated 111 patients with
moderate to severe FBD in a placebo-controlled, double-blinded, randomized
study. Three drug concentrations, 1.5 mg, 3.0 mg and 6.0 mg, were dosed daily
for six months, followed by a two-month observation period.

         In the Phase II trial, IoGen was well tolerated by the patients. There
were also no drug-related serious adverse events. The trial results indicate
that there were no dose-related increases in incidence, severity and causality
of treatment-emergent adverse events or clinically significant changes in
laboratory parameters or vital signs. With regard to treatment-emergent
headaches, a statistically significant decrease in incidence was observed
between the placebo and the IoGen groups. Headaches were reported in 7 of 17
(41%) patients in the placebo, compared to 1 of 16 (6%) patients in the 1.5-mg
group, 10 of 38 (26%) patients in the 3.0-mg group and 5 of 40 (13%) patients in
the 6.0-mg group (p=.033).

         We evaluated IoGen's clinical success utilizing two validated
independent assessment tools. In the first tool, the physicians measured IoGen's
effectiveness by analyzing the three primary endpoints of breast nodularity,
pain and tenderness. The 6.0-mg group showed improvement in 21 of 27 (78%)
patients for pain, 19 of 26 (73%) for tenderness and 10 of 27 (37%) for
nodularity. This compares favorably to the placebo group which had observed
improvement in 6 of 10 (60%) patients for pain, 3 of 10 (30%) for tenderness and
3 of 15 (20%) for nodularity.

         In the second assessment tool the patients evaluated their pain and
tenderness by completing a validated, health-related quality of life
questionnaire. The questionnaire was developed by the Lewin Group for women with
FBD, who were treated with iodine. Its results show a correlation between
increased dosing and improved quality of life symptoms for the women in the
study.

         During 2002, the United States Food and Drug Administration ("FDA")
provided comments regarding the structure of the proposed IoGen Phase III
pivotal trials. Based on FDA's advice, the Company modified the criterion for
measuring the primary endpoint of the IoGen pivotal trials to provide for daily
patient assessment of their breast pain and tenderness. The secondary endpoint
is a clinically significant reduction of the patients' nodularity as measured by
the physicians' assessment. The Company anticipates having to dose approximately
1,500 patients with IoGen prior to filing for marketing approval with the FDA.
The Company does not plan to initiate further clinical trials for IoGen until
the resources necessary to conduct the trials are secured.

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<PAGE>

         During 2002 the Company attempted to secure the resources necessary to
complete the clinical development of IoGen. Our primary focus has been to
identify a corporate partner that would provide the funding required. As a
result of our efforts, various medical professionals have provided insight into
the likely treatment group that would be most appropriate for IoGen. We have
been treating patients with IoGen who have moderate to severe mastalgia. Based
on the benign nature of the condition and the pregnancy category X labeling
indicated for IoGen by FDA, medical professionals have indicated that IoGen is
appropriate for only severely impacted patients.

         The pregnancy category X designation means that the risk to the neonate
involved in the use of the drug by pregnant women clearly outweighs any possible
benefits. The pregnancy category X labeling indicated for IoGen by FDA is based
on the historical medical literature. The medical literature indicates that
increased maternal iodine consumption during pregnancy can cause certain serious
adverse effects to the neonate. While these adverse effects occurred from pure
iodine intake 30 times the 6.0 mg level of iodine contained in an IoGen tablet,
the FDA has indicated that IoGen's proposed label would state that it is not
appropriate for women who are or may become pregnant. However, in the medical
literature adverse effects were observed in doses only twice IoGen's level of
iodine when taken in combination with certain other drugs. The Company has not
conducted any studies to ascertain whether the level of iodine contained in
IoGen would pose a risk to the neonate.

         In March 2003, the Company filed with the FDA an Application for Orphan
Drug Designation for the treatment of severe cyclic mastalgia associated with
FBD. The scientific literature estimates that approximately 5% of the moderate
to severe mastalgia patients can be categorized as severe, or about 130,000
patients. If IoGen is designated an orphan drug, the Company would be entitled
to various incentives including the possible waiver of certain regulatory filing
fees, orphan drug tax credits equal to 50% of the research costs, access to
potential grant funding for non-clinical and clinical research undertaken to
generate required data for marketing approval, and if the orphan drug is
approved by the FDA, seven years of marketing exclusivity. Under the Orphan Drug
Act, the FDA may grant orphan drug designation to drugs intended to treat a
"rare disease or condition." The Orphan Drug Act generally defines a "rare
disease or condition" as one that affects populations of fewer than 200,000
people in the United States. While the orphan drug designation provides a
sponsoring company certain incentives, it does not constitute FDA approval, nor
does it provide any advantages in, or shorten the duration of, the regulatory
approval process. There can be no assurance that the FDA will grant the orphan
drug designation.

         In 2001, the Company conducted a dose-ranging study in rodents for the
purpose of determining the appropriate dose at which to conduct a two-year
toxicity study in rodents. In 2002, the FDA provided its recommendation for the
appropriate dose to carryforward into the two-year study. However, the Company
will need additional resources to continue the development of IoGen, and until
such resources are obtained, Symbollon will not initiate the two-year rodent
study or further clinical development of IoGen. Symbollon is seeking a corporate
relationship with a pharmaceutical company to commercialize IoGen and help
finance the remaining clinical development of IoGen. Clinical investigation of
IoGen for other female health indications will be investigated only as resources
allow.


         Other Potential Applications

         The Company believes that its technology has potential applications in
the development of a variety of human healthcare and other products such as
dermatology, 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. The Company is not currently pursuing any new applications other than
IoGen.


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<PAGE>


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 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. The Company currently has limited in-house
manufacturing capacity, and if the Company continues to perform manufacturing
activities related to IodoZyme in-house, additional manufacturing space and
equipment may be necessary if product volumes increase. See "Description of
Property."

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

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

Marketing and Distribution

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

         If the Company is able to develop any other products, 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.


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<PAGE>


         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 Investigational New Drug ("IND") application, which must be
approved before human clinical trials commence, (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the product, (iv) submission of a New Drug Application ("NDA") for a new drug to
the FDA and (v) FDA approval of the NDA prior to any commercial sale or shipment
of the product.

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

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

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

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         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
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.


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Patents and Proprietary Rights

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

                        Listing of United States Patents

Patent Number         Title                                         Issue Date

4,476,108     "Bactericidal Method"                              October 9, 1984

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

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

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

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

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

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

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

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

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

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

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

5,885,592     "Method & Pharmaceutical  Compositions for Oral     March 23, 1999
                 Administration of Molecular Iodine"

5,962,029     "Iodine Germicides that Continuously Generate     November 5, 1999
                 Free Molecular Iodine"

Re 36,605     "Reissue of 08/963,900 Method to Clean and           March 7, 2000
                 Disinfect Pathogens"

6,248,335     "Stabilized Oral Pharmaceutical Composition          June 19, 2001
                 Containing Iodide and Iodate"

6,261,577     "Non-Staining Topical Iodine Composition"            July 17, 2001

6,432,426     "Non-Staining Topical Iodine Composition           August 13, 2002
                 and Method"

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<PAGE>


         Much of the know-how of importance to the Company's technology and many
of its processes are dependent upon the knowledge, experience and skills, which
are not patentable, of key scientific and technical personnel. To protect its
rights to and to maintain the confidentiality of trade secrets and proprietary
information, the Company requires employees, Scientific Advisory Board members,
consultants and collaborators to execute confidentiality and invention
assignment agreements upon commencement of a relationship with the Company.
These agreements prohibit the disclosure of confidential information to anyone
outside the Company and require disclosure and assignment to the Company of
ideas, developments, discoveries and inventions made by such employees,
advisors, consultants and collaborators while engaged by the Company. There can
be no assurance, however, that these agreements will not be breached or that the
Company's trade secrets or proprietary information will not otherwise become
known or developed independently by others. Also, to the extent that consultants
or other third parties apply technological information independently developed
by them or by others to Company projects, disputes may arise as to the
proprietary rights to such information which may not be resolved in favor of the
Company. The Company is required to pay royalties to a co-inventor on certain
patents relating to the Company's technology based on revenues received by the
Company from sales of products falling within the scope of such patents.

Competition

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

         The Company is aware of one company, Mimetix Inc., which was conducting
human clinical trials in the United States and Canada utilizing an iodine-based
compound for the treatment of FBD. 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, 2002, the Company had two employees, both 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.


                                       10
<PAGE>


Executive Officers

         The Company's executive officers are:

          Name                      Age           Position with the Company
          ----                      ---           -------------------------

  Jack H. Kessler, Ph.D.             52      Chief Executive Officer, Chief
                                             Scientific Officer, Secretary and
                                             Chairman of the Board of Directors

  Paul C. Desjourdy                  41      President, Chief Operating Officer,
                                             Chief Financial Officer, General
                                             Counsel, Treasurer and Director

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

         Jack H. Kessler, Ph.D., is the founder of the Company and has served as
Chief Executive Officer since December 1999, as Chief Scientific Officer,
Secretary, and a director since the Company's move to Massachusetts in May 1991,
and as Chairman of the Board of Directors since May 1996. Dr. Kessler held the
title of Executive Vice-President of the Company from May 1991 to December 1999,
and from the Company's formation in Illinois in 1986 until 1991 Dr. Kessler was
the Company's sole stockholder and served as its sole officer and director. From
January 1990 until May 1991, he served as principal systems engineer for
Kollsman Manufacturing Company, a diagnostic instrument design and manufacturing
company.

         Paul C. Desjourdy has served as President, Chief Operating Officer and
General Counsel since December 1999, as Chief Financial Officer since July 1996,
as Treasurer from May 1994, and as a director since August 1996. He held the
titles of Executive Vice President from July 1996 to December 1999, and
Vice-President - Finance and Administration of the Company from September 1993
to June 1996. From September 1989 to September 1993, Mr. Desjourdy, a certified
public accountant, was an attorney at the law firm of Choate Hall & Stewart.

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

Risk Factors
         The following important factors, among others, could cause our
performance, achievements and results to differ materially from those we express
or suggest in forward-looking statements in this report or in other materials
from time to time. Stockholders and prospective investors should carefully
consider these risk factors when deciding whether to invest in or hold our
common stock.


We expect to incur additional losses in the future that will require us to raise
funding

         We have incurred a cumulative operating loss of $8,890,547 through
December 31, 2002. Our losses have resulted principally from costs incurred in
research and development activities related to our efforts to develop IodoZyme,
IoGen and other potential product formulations, and from the associated
administrative and patent costs. We expect to incur additional operating losses
over the next several years and expect cumulative losses to increase. In the
next few years, our revenues may be limited to sales of IodoZyme and any amounts
received under research or development collaborations that we may establish.

                                       11
<PAGE>

         Based on the current status of our development efforts, we will not
receive revenues or royalties from commercial sales of our drugs under
development for a significant number of years, if at all. For at least the next
few years, we expect our revenues to be less than our expenses. We will
therefore need to raise additional funding or enter into a relationship with a
corporate partner to sustain our operations. If we fail to achieve profitable
operations, raise additional funding to cover losses, or enter into a corporate
partner relationship, we will not be able to sustain operations.

As our corporate licensing relationships are terminated, our revenues
significantly decrease

         We generate our revenues from corporate licensing arrangements. In
1999, Oclassen Pharmaceuticals Inc., our development partner, terminated its
relationship covering the use of our technology in dermatology. In 2000, Bausch
& Lomb Pharmaceuticals, Inc. ("B&L"), our development partner, terminated its
relationship covering the use of our technology in ophthalmology. Our only
remaining relationship is with West Agro, Inc. They can terminate their
collaboration with us at any time. If that happens, and we are not able to enter
into new relationships, our revenues for 2003 and beyond will significantly
decrease.

We have limited data that IoGen will effectively treat fibrocystic breast
disease

         We did not conduct any animal or human studies to evaluate the
potential effectiveness of IoGen before launching the Phase II trial. The Phase
II clinical trial that we completed in 2000 generated the first data regarding
the effectiveness of IoGen. The primary purpose of the Phase II trial was to
evaluate the safety of IoGen. We believe that the Phase II data concerning the
drug's effectiveness indicate that IoGen can successfully treat mastalgia
associated with FBD, but we need to establish IoGen's effectiveness in two
well-controlled clinical trials. We estimate that our investment in the IoGen
development program has exceeded $3 million. We expensed these development costs
as incurred. We do not have the necessary resources to fund further clinical
trials for IoGen. If we are not able to secure the necessary resources or enter
into a relationship with a corporate partner, our financial situation may force
us to discontinue the IoGen development program.

We lack the resources to conduct the necessary clinical trials required prior to
commercial sales of our potential drugs

         Any drug candidates we develop will require significant additional
research and development efforts, including extensive preclinical (animal and in
vitro data) and clinical testing and regulatory approval, prior to commercial
sale. Our only active drug development effort is IoGen. We must pay for all
future clinical trials concerning IoGen. Our ability to conduct the necessary
clinical trials depends on our generating the resources required to pay for this
from future revenues, financings or licensing relationships. We may not be able
to generate the necessary financial resources or enter into the necessary
relationships.

We cannot rely on the limited protection of the Orphan Drug Act

         Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a "rare disease or condition." The Orphan Drug Act
generally defines a "rare disease or condition" as one that affects populations
of fewer than 200,000 people in the United States. If IoGen is designated an
orphan drug, we will receive certain development and marketing incentives.

         In order to obtain the development incentives under the Orphan Drug
Act, IoGen must obtain an "orphan drug designation" from the FDA. After the FDA
grants orphan drug designation, it publishes the generic identity of the
therapeutic agent and the potential orphan use specified in the request. Orphan
drug designation does not constitute FDA approval, nor does it provide any
advantage in, or shorten the duration of, the regulatory approval process.

                                       12
<PAGE>

         In order for IoGen to obtain the marketing incentives under the Orphan
Drug Act, it must have the FDA recognize its "orphan drug status." This step
involves submission of a New Drug Application ("NDA") to the FDA containing all
clinical study results and safety and manufacturing information, and requesting
approval to market a drug for the designated indication. The FDA will grant
orphan drug status to the first company to receive approval of an NDA for the
designated indication. Orphan drug status gives a company the exclusive right to
market the approved product in the United States for a period of seven years,
subject to certain limitations. Obtaining orphan drug status for a particular
product may not, however, prevent another company from developing or marketing
the same drug having a different formulation or composition for the same or
different indication. In addition, orphan drug status does not provide any
marketing exclusivity in foreign markets. While obtaining FDA approval to market
a product with orphan drug status can be advantageous, we cannot assure you that
the scope of protection or the level of marketing exclusivity will remain in
effect in the future or will have meaningful or material value to us. Although
certain foreign countries provide exclusivity, development and marketing
benefits for orphan drugs, we cannot assure you that such benefits can be
obtained or, if obtained, will be of material value to us.

            Our request for an orphan drug designation for IoGen is currently
under review by the FDA. We can not predict the likelihood of the FDA granting
such designation to IoGen. We are aware of one company, Mimetix, which was
conducting human clinical trials in the United States and Canada utilizing an
iodine-based compound for the treatment of FBD. If the FDA approves Mimetix's or
another company's NDA for iodine (the generic identity of the therapeutic agent
for IoGen) for the same indication as IoGen prior to approving IoGen, that
company will be entitled to exclusive marketing rights for iodine, and the FDA
would not approve our application to market IoGen for seven years, if at all.

         Even if the FDA approves an NDA for a drug with an orphan drug
designation, the FDA may still approve the same drug for a different indication,
or a molecular variation of the same drug for the same indication. In addition,
the FDA does not restrict doctors from prescribing an approved drug for uses not
approved by the FDA. Thus, a doctor could prescribe another company's drug for
indications for which IoGen might receive FDA approval and orphan drug status.
Significant "off label" use, that is, prescribing approved drugs for unapproved
uses, could adversely affect the marketing potential of IoGen if it receives
orphan drug status and NDA approval by the FDA.

         The possible amendment of the Orphan Drug Act by Congress has been the
subject of congressional discussion from time to time over the last ten years.
Although Congress has made no significant changes to the Orphan Drug Act for a
number of years, members of Congress have from time to time proposed legislation
that would limit the application of the Orphan Drug Act. We cannot assure you
that the Orphan Drug Act will remain in effect or that it will remain in effect
in its current form. The precise scope of protection that orphan drug
designation and marketing approval may afford in the future is unknown. We
cannot assure you that the current level of exclusivity will remain in effect.

We may lose control over development and commercialization of drugs after we
license them

         A key element of our strategy has been to fund most of our product
development programs through collaborative agreements with larger pharmaceutical
companies. As part of these licensing relationships we may have to grant to the
other party control over the development and commercialization process. For
example, a potential corporate partner may be responsible for:

         o        conducting preclinical and clinical trials;
         o        obtaining required regulatory approvals of drug candidates;
         o        manufacturing any resulting products; and
         o        commercializing any resulting products.

                                       13
<PAGE>

         The potential corporate partner may not be obligated to develop or
commercialize any drug candidates under the collaboration. The potential
corporate partner alone could control the amount and timing of resources
dedicated by it to the program. Accordingly, the potential corporate partner
would control the development program. Moreover, the potential corporate partner
may view certain drug candidates developed utilizing Symbollon's technology as
competitive with its own drugs or drug candidates. Accordingly, the potential
corporate partner may develop its existing or alternative technologies in
preference to the drug candidates based on our technology. In addition, the
potential corporate partner may have the right to terminate the relationship at
any time. Without the involvement of a corporate partner, our limited resources
would severely hamper our ability to develop a product.

         IodoZyme's future growth and profitability will depend, in large part,
on the success of West Agro's personnel and others conducting marketing efforts
on their behalf in fostering acceptance of IodoZyme as an alternative to other
available products. West Agro also markets and distributes products which
compete directly with IodoZyme.

If we cannot raise additional funds or find a corporate partner for IoGen, then
we will have to limit or cease our future activities

         We have adequate cash resources to continue our base operations through
2003. However, we do not have significant resources to initiate the IoGen Phase
III clinical trials or any other remaining development activities required to
commercialize IoGen. We will require substantial additional funds if we are to
continue the clinical development of IoGen or pursue the development of
additional products. We currently estimate that approximately $20 million will
be required over the next three years to complete the clinical development of
IoGen.

         We intend to seek additional funds for such future product development
through public or private financing or collaborative or other arrangements with
corporate partners. We have not been able to enter into a new corporate
relationship since 1997. We believe that before we can enter into any
significant new relationships, we will have to generate clinical results on our
potential drugs. Our limited financial resources may require us to finance the
cost of generating these results. During 1999, when we last sought financing, we
had difficulty raising funds by selling equity. We obtained stockholder approval
to sell up to 1,250,000 shares, with a like number of warrants. We were only
able to sell 836,685 shares and warrants.

         Our common stock was delisted from the Nasdaq SmallCap market in
December 2002. Our common stock is currently traded on the OTC Bulletin Board,
is thinly traded, and is subject to the "penny stock rules." There is very
little market support for our common stock. So long as these conditions exist,
future financings will continue to be difficult. This could impact the terms and
conditions upon which we are able to sell securities and raise funds. In light
of our depressed stock price, and any funds raised through equity financing
would be dilutive to our existing stockholders. If adequate funds are not
available when needed, we would be forced to limit the scope of our development
or perhaps cease operations. We cannot assure you that we will be able to raise
the necessary financing on acceptable terms, or at all, or succeed in entering
into a corporate partnering relationship.

If a competitive drug is marketed to treat fibrocystic breast disease prior to
IoGen, then the potential market opportunity for IoGen will be adversely
affected

         The only drug approved by the United States Food and Drug
Administration (commonly called FDA) for the treatment of FBD is danazol, a
masculinizing hormone. We are aware of one company, Mimetix Inc., that has
conducted human clinical trials in the United States and Canada utilizing an
iodine-based compound for the treatment of FBD. If Mimetix receives marketing
approval for its drug compound before we do, they may achieve a significant

                                       14
<PAGE>


competitive advantage through certain marketing exclusivity rights, which could
extend up to seven years. This would delay our ability to receive marketing
approval.

IodoZyme could become subject to FDA marketing clearance that could affect our
ability to market IodoZyme

         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 it is possible that if
such guidelines are adopted that IodoZyme will require clearance by the FDA in
the future. Required compliance with these guidelines or other FDA requirements
which may be adopted, would have a significant adverse effect on the marketing
of IodoZyme and, consequently, on our results of operations.

We have no marketing experience within our company

         Although we have no present plans to do so, we may, in the future,
determine to directly market certain of our proposed products. We have no
marketing experience and significant additional capital expenditures and
management resources would be required to develop a direct sales force. In the
event we elect to engage in direct marketing activities, we might have
difficulty obtaining the requisite funds or attracting and retaining the human
resources necessary to successfully market any products.

Because our iodine-based products may stain or corrode some surfaces, potential
applications for our products may not be possible

         An important aspect of our present and future product candidates is
that they must be compatible with the surfaces with which they come into
contact. We have ceased efforts to develop products that clean germs from
certain medical and dental instruments as a result of staining and corrosion
caused by the required concentrations of iodine in the formulations. We continue
to investigate the balance between the level of efficacy and the need to avoid
staining and corrosion. For any proposed product application, staining or
corrosion from a product candidate could be sufficient to limit or forestall
regulatory approval or, if approved, could adversely affect market acceptance of
such product. We might not be successful in overcoming these staining and
corrosion problems.

Our use of hazardous materials in our development and commercial efforts exposes
us to material potential liability

         Our manufacturing and development activities involve the controlled use
and shipment of hazardous chemicals and other materials. Although we believe
that our safety procedures for handling, shipping and disposing of such
materials comply with the standards prescribed by federal, state and local
regulations, we cannot completely eliminate the risk of accidental contamination
or injury from these materials. In the event of such an accident, we could be
held liable for any damages that result and any such liability could exceed the
our resources. There can be no assurance that current or future environmental or
transportation laws, rules, regulations or policies will not have a material
adverse effect on us.


Item 2.  Description of Property

         The Company leases approximately 5,400 square feet of office, research
and development and manufacturing space in Framingham, Massachusetts for a
current base annual rental of approximately $34,200 increasing $0.25 per square
foot each year effective September 1. The lease expires on August 31, 2007. The
Company believes that this space is suitable and adequate for its current needs;

                                       15
<PAGE>

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, 2002.

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

(a)  Price Range of Securities

         The Company's Class A Common Stock traded on the Nasdaq SmallCap Market
till December 20, 2002, and thereafter, it has traded on the OTC Bulletin Board
under the symbol "SYMBA." There can be no assurance that the Company will
continue to be listed on the OTC Bulletin Board. The following sets forth the
high and low sales prices for the Class A Common Stock for each of the quarterly
periods during fiscal 2002 and 2001, as reported by Nasdaq (and, after December
20, 2002, the OTC Bulletin Board).

                            Fiscal 2002                    Fiscal 2001
                       ---------------------        -----------------------
                         High           Low             High           Low

  First quarter        $ 2.40        $ 1.50         $   5.50         $0.75
  Second quarter         2.44          1.25             5.00          2.27
  Third quarter          1.50          0.19             4.58          2.66
  Fourth quarter         0.78          0.05             3.95          1.57

         There are no outstanding shares of the Company's Class B Common Stock.

         In August 2001 Symbollon repurchased 93,334 shares of the Company's
common stock from B&L for $175,000.

(b)  Approximate Number of Equity Security Holders

         Based upon information supplied by the Company's transfer agent, the
Company believes that there were 102 record holders of the Company's Class A
Common Stock as of March 24, 2003. Based upon information supplied by 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 24, 2003 is in excess
of 900.

(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.


                                       16
<PAGE>


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 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" and "Risk Factors" above in this Annual Report on Form 10-KSB.

Critical Accounting Policies and Estimates

         The following is a discussion of the more significant accounting
policies and methods used by the Company.

         Estimates - The financial statements are prepared in accordance with
accounting principles generally accepted in the U.S., which require the Company
to make estimates and assumptions. On an on-going basis, the Company evaluates
its estimates related to the useful lives of fixed and intangible assets.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.

         Revenue recognition -The Company's contract and license fee revenues
are based on fixed fee arrangements. Revenues are recognized when all of the
Company's obligations under its research and licensing agreements have been
performed and collectibility is assured. Product sales are recognized upon
shipment.

         Long-lived assets -Long-lived assets, such as intangible assets and
property and equipment are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related assets are written
down to fair value.

Results of Operations

         Fiscal 2002 versus Fiscal 2001

         Symbollon's net loss in fiscal 2002 was $601,853, reflecting a decrease
of $775,421 or 56.3% from a net loss of $1,377,274 in fiscal 2001. This
decreased loss resulted primarily from decreased research and development
expenses related to the IoGen clinical trials and decreased general and
administration expenses, partially offset by decreased interest income.

         Product revenues from sales of IodoZyme increased by $146,340 or 62.8%
from $232,914 in fiscal 2001 to $379,254 in fiscal 2002. Symbollon anticipates
that future sales will be consistent with current sales levels.

         Cost of goods sold for IodoZyme increased by $123,414 or 69.3% from
$178,121 in fiscal 2001 to $301,535 in fiscal 2002. The gross profit margin on
product sales decreased from 23.5% in fiscal 2001 to 20.5% in fiscal 2002. The
Company anticipates that the gross profit margin in 2003 will remain consistent
with 2002.

                                       17
<PAGE>

         Contract revenues were $5,000 in fiscal 2001, compared to none in
fiscal 2002. The Company presently does not have any contractual relationships
which will generate contract or license fee revenues in 2003.

         Research and development expenses decreased by $663,577 or 67.8% from
$978,679 in fiscal 2001 to $315,102 in fiscal 2002. The decrease resulted from
decreased development expenses related to the Company's drug candidate for the
treatment of FBD, including consulting fees regarding regulatory matters and
clinical costs associated with the Company's carcinogenicity dose-ranging study
in rodents and manufacturing scale-up activities. The Company anticipates that
research and development expenses will decrease in 2003 until the Company is
able to secure the resources necessary to continue the clinical development of
IoGen.

         General and administrative expenses decreased by $180,415 or 31.8% from
$567,125 in fiscal 2001 to $386,710 in fiscal 2002. The decrease resulted
primarily from decreased employee salaries and related costs and decreased third
party fees and services. The Company anticipates that general and administrative
expenses in 2003 will remain consistent with 2002.

         The Company's interest income decreased by $86,497 or 79.5% from
$108,737 in fiscal 2001 to $22,240 in fiscal 2002. This decrease resulted from a
decrease in available funds for investment, coupled with a decrease in the
average rate of interest earned throughout 2002.

Financial Condition, Liquidity and Capital Resources

         The Company has funded its activities primarily through proceeds from
private and public placements of equity securities. During 1999, the Company
sold 836,685 shares of Common Stock, together with warrants for a like number of
shares, in a private placement, realizing net proceeds of approximately
$1,356,000. During 2000, the Company received net proceeds of approximately
$1,761,000 from the exercise of 586,910 warrants issued as part of the 1999
private placement.

         During 2002, the Company continued to incur operating losses and has
incurred a cumulative loss through December 31, 2002 of $8,890,547. As of
December 31, 2002, the Company had working capital of $1,304,681. The Company
believes that it has the necessary liquidity and capital resources to sustain
planned operations for fiscal 2003. The Company's planned operations for 2003
include manufacturing IodoZyme and securing additional resources to sustain the
operations of the Company and to complete the clinical development of IoGen. The
Company estimates that it will cost approximately $20 million to complete the
clinical development of IoGen. Until the Company secures additional resources,
it will not be able to conduct any further significant clinical development of
IoGen, including necessary clinical trials or animal toxicity studies that are
required to submit IoGen for FDA marketing approval, on which the Company's
future is likely dependent. If the Company cannot secure additional resources
before existing resources are exhausted, which is estimated to occur by the end
of 2004, the Company will have to curtail, or perhaps cease, operations.

         During 2003, the Company is committed to pay approximately $440,000 as
compensation to its current executive officers and approximately $35,000 for
lease payments on its facilities. The Company has no plans to incur any cost for
development of IoGen or material capital expenditures during fiscal 2003. At
December 31, 2002, the Company had a net operating loss carryforward for federal
income tax purposes of approximately $8,663,000 expiring through 2022.


                                       18
<PAGE>


Item 7.  Financial Statements

Report of Independent Certified Public Accountants

The Board of Directors and Stockholders
Symbollon Pharmaceuticals, Inc.
Framingham, Massachusetts

We have audited the accompanying balance sheets of Symbollon Pharmaceuticals,
Inc., formerly Symbollon Corporation (a development stage company), as of
December 31, 2002 and 2001, and the related statements of operations,
stockholders' equity and cash flows for the years then ended and for the period
from July 15, 1986 (inception) to December 31, 2002. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Symbollon Pharmaceuticals, Inc.
(a development stage company) at December 31, 2002 and 2001, and the results of
its operations and its cash flows for the years then ended and for the period
from July 15, 1986 (inception) to December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.


                                                               BDO Seidman, LLP


Boston, Massachusetts
March 7, 2003




                                       19



<PAGE>



                                                 Symbollon Pharmaceuticals, Inc.
                                                   (a Development Stage Company)

<TABLE>

                                                                  Balance Sheets


<CAPTION>

December 31,                                                                                 2002                 2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                   <C>
Assets

Current assets:
   Cash and cash equivalents                                                         $  1,244,606          $ 1,946,486
   Accounts receivable                                                                    100,999               46,880
   Inventory (Note 3)                                                                      34,642               54,932
   Prepaid expenses                                                                        59,403               59,548
------------------------------------------------------------------------------------------------------------------------------------

       Total current assets                                                             1,439,650            2,107,846

Equipment and leasehold improvements, net of
  accumulated depreciation and amortization (Note 4)                                       76,470               84,530

Other assets:
   Patent and trademark costs, net of accumulated
     amortization (Note 5)                                                                330,767              332,709
   Deposit                                                                                  2,364                2,364
------------------------------------------------------------------------------------------------------------------------------------

                                                                                     $  1,849,251          $ 2,527,449
------------------------------------------------------------------------------------------------------------------------------------


</TABLE>

                                       20
<PAGE>



                                                 Symbollon Pharmaceuticals, Inc.
                                                   (a Development Stage Company)
<TABLE>

                                                                  Balance Sheets
                                                                     (Continued)



<CAPTION>

December 31,                                                                                 2002                 2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                   <C>
Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable                                                                 $      21,559         $     27,269
   Accrued clinical development expenses                                                   92,850              168,307
   Other current liabilities                                                               20,560               26,569
------------------------------------------------------------------------------------------------------------------------------------

       Total current liabilities                                                          134,969              222,145
------------------------------------------------------------------------------------------------------------------------------------

Commitments (Notes 6, 7 and 10)

Stockholders' equity (Notes 6 and 7):
   Common stock, Class A, par value $.001 per share, 18,750,000 shares
     authorized, 4,196,204 and 4,186,204 shares issued and
     outstanding, respectively                                                              4,196                4,186
   Convertible common stock, Class B, par value $.001
     per share, 1,250,000 shares authorized and unissued                                        -                    -
   Preferred stock, par value $.001 per share, 5,000,000 shares
     authorized and unissued                                                                    -                    -
   Additional paid-in capital                                                          11,435,193           11,424,372
   Deficit accumulated during the development stage                                    (8,890,547)          (8,288,694)
------------------------------------------------------------------------------------------------------------------------------------

                                                                                        2,548,842            3,139,864
   Common stock subscriptions receivable                                                 (834,560)            (834,560)
------------------------------------------------------------------------------------------------------------------------------------

       Total stockholders' equity                                                       1,714,282            2,305,304
------------------------------------------------------------------------------------------------------------------------------------

                                                                                    $   1,849,251         $  2,527,449
------------------------------------------------------------------------------------------------------------------------------------

                                                                                     See accompanying notes to financial statements.

</TABLE>

                                       21
<PAGE>



                                                 Symbollon Pharmaceuticals, Inc.
                                                   (a Development Stage Company)

<TABLE>

                                                        Statements of Operations



<CAPTION>


                                                                                                           For the
                                                                                                         Period from
                                                                           Year Ended                   July 15, 1986
                                                                          December 31,                  (Inception) to
                                                                  ---------------------------            December 31,
                                                                   2002                  2001                2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                    <C>                    <C>

Revenue (Note 11):
   Net product sales                                        $   379,254            $  232,914             $  2,329,170
   Contract revenue                                                   -                 5,000                  988,713
   License fee revenue                                                -                     -                3,440,000
------------------------------------------------------------------------------------------------------------------------------------

     Total revenue                                              379,254               237,914                6,757,883
------------------------------------------------------------------------------------------------------------------------------------

Operating expenses (Notes 10 and 12):
   Cost of goods sold                                           301,535               178,121                1,572,627
   Research and development costs                               315,102               978,679                8,952,975
   General and administrative expenses                          386,710               567,125                5,727,580
------------------------------------------------------------------------------------------------------------------------------------

     Total operating expenses                                 1,003,347             1,723,925               16,253,182
------------------------------------------------------------------------------------------------------------------------------------

Loss from operations                                           (624,093)           (1,486,011)              (9,495,299)

Interest income                                                  22,240               108,737                  961,012

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

Net loss                                                  $    (601,853)       $   (1,377,274)          $   (8,890,547)
------------------------------------------------------------------------------------------------------------------------------------

Basic and diluted net loss per share of
  common stock (Note 8)                                     $      (.14)            $    (.33)
----------------------------------------------------------------------------------------------

Weighted average number of common shares
  outstanding - basic and diluted                             4,193,886             4,215,272
----------------------------------------------------------------------------------------------

                                                                                    See accompanying notes to financial statements.

</TABLE>

                                       22
<PAGE>



                                                 Symbollon Pharmaceuticals, Inc.
                                                   (a Development Stage Company)
<TABLE>

                                              Statements of Stockholders' Equity
                                                                        (Note 6)
<CAPTION>





                                                               Common Stock
                                                              $.001 Par Value                          Deficit
                                      Preferred Stock --------------------------------               Accumulated   Common
                                      $.001 Par Value    Class A           Class B       Additional  During the     Stock
                                      -------------   -------------     --------------    Paid-in    Development Subscriptions
                                      Shares Amount   Shares Amount     Shares  Amount    Capital       Stage     Receivable   Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C><C>  <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           -       -            -
   Issuances of shares                     -    -          -       -   425,251     426     299,574           -       -      300,000
   Net loss for the year                   -    -          -       -         -       -           -    (207,457)      -     (207,457)
------------------------------------------------------------------------------------------------------------------------------------

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

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

Balance, December 31, 1994                 -    -  1,150,000   1,150 1,250,000   1,250   6,094,198  (3,053,953)      -    3,042,645
   Warrant conversion, July - August       -    -     77,920      78         -       -     629,126           -       -      629,204
   Conversion of Class B to Class A        -    -     35,287      35   (35,287)    (35)          -           -       -            -
   Stock purchase plan sales               -    -      2,216       2         -       -       9,415           -       -        9,417
   Net loss for the year                   -    -          -       -         -       -           -  (1,373,711)      -   (1,373,711)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995                 -  $ -  1,265,423  $1,265 1,214,713  $1,215 $ 6,732,739 $(4,427,664)  $   -  $ 2,307,555
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

                                       23
<PAGE>


                                                 Symbollon Pharmaceuticals, Inc.
                                                   (a Development Stage Company)
<TABLE>

                                               Statement of Stockholders' Equity
                                                                        (Note 6)
                                                                     (Continued)
<CAPTION>




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

Balance, December 31, 1995                -   $ -  1,265,423 $1,265  1,214,713  $1,215  $ 6,732,739  $(4,427,664) $  -  $ 2,307,555
   Issuance of preferred stock,
    August                          444,444   444          -      -          -       -      499,555            -     -      499,999
   Conversion of Class B to Class A       -     -     18,438     19    (18,438)    (19)           -            -     -            -
   Stock purchase plan sales              -     -      4,392      4          -       -        7,943            -     -        7,947
   Reduction of warrant conversion costs  -     -          -      -          -       -       33,116            -     -       33,116
   Net loss for the year                  -     -          -      -          -       -            -     (905,415)    -     (905,415)
------------------------------------------------------------------------------------------------------------------------------------

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

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

Balance, December 31, 1998                -     - 2,919,786   2,920     15,738      16    7,254,712   (5,714,365)    -    1,543,283
   Stock purchase plan sales              -     -     2,940       3          -       -        4,767            -     -        4,770
   Reclass of redeemable common stock,
    March                                 -     -   482,878     483          -       -      499,517            -     -      500,000
   Issuance of shares, October            -     -   836,685     836          -       -    1,355,171            -     -    1,356,007
   Forfeiture of restricted shares,
    December                              -     -  (684,950)   (685)   (15,050)    (15)         700            -     -            -
   Net loss for the year                  -     -         -       -          -       -            -     (730,404)    -     (730,404)
------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1999                - $   - 3,557,339  $3,557        688  $    1  $ 9,114,867  $(6,444,769)  $ -  $ 2,673,656
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>
                                       24
<PAGE>


                                                 Symbollon Pharmaceuticals, Inc.
                                                   (a Development Stage Company)
<TABLE>

                                               Statement of Stockholders' Equity
                                                                        (Note 6)
                                                                     (Continued)
<CAPTION>



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

Balance, December 31, 1999           -    $ -  3,557,339  $3,557   688   $  1   $ 9,114,867  $(6,444,769)  $       -    $ 2,673,656
   Issuance of shares, August        -      -    586,910     587     -      -     1,760,143            -           -      1,760,730
   Conversion of Class B to Class A  -      -        688       1  (688)    (1)            -            -           -              -
   Stock purchase plan sales         -      -      2,000       2     -      -         4,748            -           -          4,750
   Forfeiture of restricted shares,
    November                         -      -   (482,878)   (483)    -      -      (499,517)           -           -       (500,000)
   Option exercise, February -
    August                           -      -     44,250      44     -      -       188,575            -           -        188,619
   Net loss for the year             -      -          -       -     -      -             -     (466,651)          -       (466,651)
-------------------------------------------------------------------------------------------------------------  ---------------------

Balance, December 31, 2000           -      -  3,708,309   3,708     -      -    10,568,816   (6,911,420)          -      3,661,104
   Stock purchase plan sales         -      -      1,000       1     -      -         1,499            -           -          1,500
   Option exercise, January -
    November                         -      -    476,895     477     -      -       854,057            -    (834,560)        19,974
   Net loss for the year             -      -          -       -     -      -             -   (1,377,274)          -     (1,377,274)
------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2001           -      -  4,186,204   4,186     -      -    11,424,372   (8,288,694)   (834,560)     2,305,304
   Option exercise, January -
    May                              -      -     10,000      10     -      -        10,821            -           -         10,831
   Net loss for the year             -      -          -       -     -      -             -     (601,853)          -       (601,853)
------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2002           -  $   -  4,196,204  $4,196     -   $  -   $11,435,193  $(8,890,547)  $(834,560)   $ 1,714,282
------------------------------------------------------------------------------------------------------------------------------------

                                                                                     See accompanying notes to financial statements.

</TABLE>

                                       25
<PAGE>

                                                 Symbollon Pharmaceuticals, Inc.
                                                   (a Development Stage Company)
<TABLE>

                                                        Statements of Cash Flows

<CAPTION>



                                                                                                            For the
                                                                                                           Period from
                                                                                Year Ended               July 15, 1986
                                                                               December 31,              (Inception) to
                                                                        ------------------------          December 31,
                                                                         2002               2001              2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                <C>                   <C>

Cash flows from operating activities:
   Net loss                                                       $  (601,853)       $(1,377,274)          $(8,890,547)
   Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization                                     45,819             43,826               608,009
     Amortization of debt issuance costs                                    -                  -               130,000
     Loss on disposition of equipment and patents                      14,770                  -                53,487
     License fees recognized for common stock forfeiture                    -                  -              (675,000)
     Changes in operating assets and liabilities:
       Accounts receivable                                            (54,119)            34,798              (100,999)
       Inventory                                                       20,290             38,975               (34,642)
       Prepaid expenses                                                   145             (5,839)              (59,403)
       Accounts payable and other current liabilities                 (87,176)            (2,588)              192,145
------------------------------------------------------------------------------------------------------------------------------------
         Net cash used in operating activities                       (662,124)        (1,268,102)           (8,776,950)
------------------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
   Purchase of equipment and leasehold improvements                   (22,933)           (27,787)             (439,232)
   Patent and trademark cost additions                                (28,404)           (74,781)             (641,553)
   Proceeds from sale of equipment                                        750                  -                12,050
   Deposit                                                                  -                  -                (2,364)
------------------------------------------------------------------------------------------------------------------------------------
         Net cash used in investing activities                        (50,587)          (102,568)           (1,071,099)
------------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
   Issuance of common stock                                                 -              1,500            11,815,692
   Redemption of common stock                                               -           (175,000)             (175,000)
   Warrant and option exercises                                        10,831             19,974               219,425
   Borrowings from stockholders                                             -                  -               253,623
   Repayment of borrowings from stockholders                                -                  -              (127,683)
   Sale of option to purchase units                                         -                  -                   100
   Public offering costs                                                    -                  -            (1,343,502)
   Issuance of preferred stock                                              -                  -               450,000
------------------------------------------------------------------------------------------------------------------------------------
         Net cash provided by (used in) financing activities           10,831           (153,526)           11,092,655
------------------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                 (701,880)        (1,524,196)            1,244,606

Cash and cash equivalents, beginning of period                      1,946,486          3,470,682                     -
------------------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of period                          $ 1,244,606        $ 1,946,486           $ 1,244,606
------------------------------------------------------------------------------------------------------------------------------------

Supplemental information:
   During 2001, the Company issued 462,895 shares of its Class A common stock
   for a subscription receivable of $834,560. There were no payments made for
   interest or income taxes during 2002 or 2001.

                                                                                     See accompanying notes to financial statements.

</TABLE>

                                       26
<PAGE>




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

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

       Concentration of               The Company has very few customers.
       Credit Risks                   Customers' financial condition is reviewed
                                      on  an ongoing basis, and collateral is
                                      not required. The Company maintains
                                      reserves for potential credit losses and
                                      such losses, in the aggregate, have not
                                      exceeded management's expectations.

       Account Receivable             Accounts receivable are customer
       and Allowance for              obligations due under normal trade terms.
       Doubtful Accounts              The Company performs continuing credit
                                      evaluations of its customers' financial
                                      condition  and generally does not require
                                      collateral.

                                      Senior management reviews accounts
                                      receivable on a periodic basis to
                                      determine if any receivables will
                                      potentially be uncollectible. The Company
                                      includes any accounts receivable balances
                                      that are determined to be uncollectible,
                                      if any, along with a general reserve, in
                                      its overall allowance for doubtful
                                      accounts. After all attempts to collect a
                                      receivable have failed, the receivable is
                                      written off against the allowance. Based
                                      on the information available to the
                                      Company, it believes an allowance for
                                      doubtful accounts is not necessary as of
                                      December 31, 2002. However, actual
                                      write-offs might exceed the Company's
                                      estimates.


                                       27
<PAGE>



 2.    Summary of
       Significant
       Accounting
       Policies
       (Continued)

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

       Long-Lived Assets              Long-lived assets, such as
                                      intangible assets and property and
                                      equipment are evaluated for impairment
                                      when events or changes in circumstances
                                      indicate that the carrying amount of the
                                      assets may not be recoverable through the
                                      estimated undiscounted future cash flows
                                      from the use of these assets. When any
                                      such impairment exists, the related assets
                                      are written down to fair value.

                                      In August 2001, the Financial Accounting
                                      Standards Board issued Statement of
                                      Financial Standards No. 144 (SFAS 144),
                                      "Accounting for the Impairment or Disposal
                                      of Long-Lived Assets:" This statement
                                      supersedes Statement of Financial
                                      Accounting Standards No. 121 (SFAS 121),
                                      "Accounting for the Impairment of
                                      Long-Lived Assets and for Long-Lived
                                      Assets to be Disposed Of" and amends
                                      Accounting Principles Board Opinion No.
                                      30, "Reporting Results of Operations -
                                      Reporting the Effects of Disposal of a
                                      Segment of a Business and Extraordinary,
                                      Unusual and Infrequently Occurring Events
                                      and Transactions." SFAS 144 retained the
                                      fundamental provisions of SFAS 121 for
                                      recognition and measurement of impairment,
                                      but amended the accounting and reporting
                                      standards for segments of a business to be
                                      disposed of. SFAS 144 is effective for
                                      fiscal years beginning after December 15,
                                      2001, and interim periods within those
                                      fiscal years. The provisions of SFAS 144
                                      generally are to be applied prospectively.
                                      The adoption of SFAS 144 did not have a
                                      material impact on the Company's financial
                                      position or results of operations.

       Depreciation and               Equipment is stated at cost and is
       Amortization                   depreciated over its estimated useful life
                                      (ranging from 5-7 years) using the
                                      straight-line  method.  Leasehold
                                      improvements are stated at cost and are
                                      being amortized by the straight-line
                                      method over the 10 year term of the lease
                                      which is less than their estimated useful
                                      lives.

       Intangible Assets              Intangible assets subject to amortization
                                      consist of patents and trademarks totaling
                                      $305,326 and $303,076 at December 31, 2002
                                      and 2001,  respectively.  The patents and
                                      trademarks  have  estimated  useful  lives
                                      ranging  from  15-17  years and a weighted
                                      average useful life of 15.26 years.
                                      Amortization  expense  related to these
                                      assets is estimated to be  approximately
                                      $19,900 per year in fiscal  years 2003
                                      through  2007.  Amortization  expense for
                                      the years ended December 31, 2002 and 2001
                                      totaled $19,068 and $19,809, respectively.

                                      Costs related to patent applications are
                                      capitalized as incurred and are amortized
                                      once the patent application is accepted.
                                      Total patent application costs not subject
                                      to amortization totaled $94,980 and
                                      $79,204 as of December 31, 2002 and 2001,
                                      respectively, and are included in patent
                                      and trademark costs in the accompanying
                                      balance sheets.

                                       28
<PAGE>



 2.    Summary of
       Significant
       Accounting
       Policies
       (Continued)

       Income Taxes                   The Company  follows the liability  method
                                      of accounting  for income  taxes,  as set
                                      forth in SFAS No. 109,  "Accounting  For
                                      Income Taxes." Under this method, deferred
                                      tax liabilities and assets are recognized
                                      for the expected future tax consequences
                                      of temporary differences between the
                                      carrying  amount and the tax basis of
                                      assets and liabilities.  The Company
                                      records a valuation  allowance  against
                                      deferred tax assets unless it is more
                                      likely than not that such asset will be
                                      realized in future periods.

       Fair value of                  The carrying amounts of cash and cash
       Financial                      equivalents, accounts receivable, other
       Instruments                    current assets and accounts payable
                                      approximate fair value based on their
                                      short-term  maturities.

       Revenue                        The Company's contract and license fee
       Recognition                    revenues are based on fixed fee
                                      arrangements. Revenues are recognized when
                                      all of the Company's obligations under
                                      its research and licensing agreements have
                                      been performed and collectibility is
                                      assured. Product sales are recognized upon
                                      shipment.

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

       Stock-Based                    The Company accounts for its stock-based
       Compensation                   compensation plan using the intrinsic
                                      value  method. Accordingly, there was no
                                      compensation expense recognized in 2002 or
                                      2001.  The Company provides pro forma
                                      disclosures for compensation expense under
                                      the fair value method of SFAS No. 123,
                                      "Accounting for Stock-Based Compensation,"
                                      and SFAS No. 148, "Accounting for
                                      Stock-Based Compensation-Transition and
                                      Disclosure."  If the Company had elected
                                      to recognize compensation cost for the
                                      plans based on the fair value at the grant
                                      date for awards granted under the plans,
                                      consistent with the method prescribed by
                                      SFAS No. 123, the effect on net loss and
                                      earnings per share would have been as
                                      follows:


                                       29
<PAGE>



 2.    Summary of
       Significant
       Accounting
       Policies
       (Continued)
<TABLE>
<CAPTION>

       Stock-Based                    December 31,                                                2002                2001
       Compensation                   --------------------------------------------------------------------------------------
       (Continued)
                                      <S>                                                   <C>              <C>
                                      Net loss                                              $ (601,853)      $  (1,377,274)

                                      Add: Stock-based employee compensation
                                        expense included in reported net income,
                                        net of related tax effects                                   -                   -

                                      Deduct: Total stock-based employee
                                        contribution determined under fair
                                        value method of all awards, net of
                                        related tax effects                                   (161,036)           (264,525)
                                      --------------------------------------------------------------------------------------

                                      Basic and diluted loss per share                      $ (762,889)      $  (1,641,799)
                                      --------------------------------------------------------------------------------------

                                      Basic and diluted loss per share:
                                         As reported                                        $     (.14)      $        (.33)
                                         Pro forma                                          $     (.18)      $        (.39)
</TABLE>

                                      The fair value of the Company's stock
                                      options used to compute the pro forma net
                                      loss and net loss per share disclosures is
                                      the estimated value at grant date using
                                      the Black-Scholes option-pricing model
                                      with the following weighted-average
                                      assumptions for 2002 and 2001,
                                      respectively: dividend yield of 0% for
                                      both years; expected volatility of 70% and
                                      46%; a risk-free interest rate of between
                                      4.49% and 4.72% and 4.60% and 5.25% and an
                                      expected holding period of 2 to 9 years
                                      and 7 to 10 years, respectively.


       Loss Per Share                 The Company  follows SFAS No. 128,
                                      "Earnings  per Share." Under SFAS No. 128,
                                      basic earnings  per  share  excludes  the
                                      effect of any dilutive  options,  warrants
                                      or convertible  securities and is computed
                                      by dividing the net loss  available to
                                      common shareholders by the weighted
                                      average number of common shares
                                      outstanding  for the period.  Diluted
                                      earnings per share is computed by dividing
                                      the net loss available to common
                                      shareholders  by the sum of the weighted
                                      average  number of common shares and
                                      common share equivalents  computed using
                                      the average market price for the period
                                      under the treasury stock method.

       Recent                         In April 2002, the FASB issued SFAS No.
       Accounting                     145, Rescission of FASB Statements SFAS
       Standards                      Nos.  4, 44 and 64, Amendment of FASB
                                      Statement No. 13 and Technical
                                      Corrections. SFAS No.  145 rescinds
                                      Statement No. 4, Reporting Gains and
                                      Losses from Extinguishments of Debt, and
                                      an amendment of that  Statement,  FASB
                                      Statement No. 64  Extinguishments  of
                                      Debt Made to  Satisfy  Sinking-Fund
                                      Requirements.  SFAS No.  145 also rescinds
                                      FASB Statement No. 44, Accounting for
                                      Intangible Assets of Motor

                                       30
<PAGE>



 2.    Summary of
       Significant
       Accounting
       Policies
       (Continued)

       Recent                         Carriers.  SFAS No. 145 amends FASB
       Accounting                     Statement  No. 13, Accounting  for Leases,
       Standards                      to eliminate  an  inconsistency   between
       (Continued)                    the  required  accounting  for
                                      sale-leaseback transactions and the
                                      required  accounting for certain lease
                                      modifications  that have economic effects
                                      that are similar to  sale-leaseback
                                      transactions.  SFAS No. 145 also
                                      amends other existing authoritative
                                      pronouncements to make various technical
                                      corrections, clarify meanings, or describe
                                      their applicability under changed
                                      conditions. The provision of SFAS No.145
                                      related to the rescission of Statement No.
                                      4 shall be applied in fiscal year
                                      beginning after May 15, 2002. The
                                      provisions of SFAS No. 145 related to
                                      Statement No. 13 should be for
                                      transactions occurring after May 15, 2002.
                                      Early application of the provisions of
                                      this Statement is encouraged. The Company
                                      does not expect that the adoption of SFAS
                                      No. 145 will have a significant impact on
                                      its consolidated results of operations,
                                      financial position or cash flows.

                                      In June 2002, the FASB issued SFAS No.
                                      146, "Accounting for Costs Associated with
                                      Exit or Disposal Activities." This
                                      statement superseded EITF No. 94-3,
                                      "Liability Recognition for Certain
                                      Employee Termination Benefits and Other
                                      Costs to Exit an Activity." Under this
                                      statement, a liability or a cost
                                      associated with a disposal or exit
                                      activity is recognized at fair value when
                                      the liability is incurred rather than at
                                      the date of an entity's commitment to an
                                      exit plan as required under EITF 94-3. The
                                      provision of this statement is effective
                                      for exit or disposal activities that are
                                      initiated after December 31, 2002, with
                                      early adoption permitted. The Company does
                                      not expect that the adoption of SFAS No.
                                      146 will have a significant impact on its
                                      consolidated financial position and
                                      results of operations.

                                      In December 2002, the FASB issued SFAS
                                      No. 148, "Accounting for Stock-Based
                                      Compensation - Transaction and
                                      Disclosure." SFAS No. 148 amends SFAS No.
                                      123, "Accounting for Stock-Based
                                      Compensation." SFAS No. 148 provides
                                      alternative methods of transition for a
                                      voluntary change to the fair value based
                                      method of accounting for stock-based
                                      employee compensation. In addition, it
                                      amends the disclosure requirements of SFAS
                                      No. 123 to require prominent disclosure in
                                      both annual and interim financial
                                      statements about the method of accounting
                                      for stock-based employee compensation and
                                      the effect of the method used on reported
                                      results. The annual requirements of SFAS
                                      No. 148 are effective for fiscal years
                                      ended after December 15, 2002 and the
                                      interim requirements are effective for
                                      interim periods beginning after December
                                      15, 2002. The Company does not plan to
                                      transition to the fair value method of
                                      accounting for its stock-based employee
                                      compensation.


                                       31
<PAGE>



 3.    Inventory                      Inventory consists of the following:
<TABLE>
<CAPTION>

                                      December 31,                                                 2002               2001
                                      --------------------------------------------------------------------------------------
                                      <S>                                                      <C>                <C>

                                      Raw materials                                            $ 34,190           $ 51,107
                                      Finished goods                                                452              3,825
                                      --------------------------------------------------------------------------------------

                                                                                               $ 34,642           $ 54,932
                                      --------------------------------------------------------------------------------------
</TABLE>


 4.    Equipment and                   Equipment and leasehold improvements are
       Leasehold                       stated at cost and consist of the
       Improvements                    following:
<TABLE>
<CAPTION>

                                      December 31,                                                 2002               2001
                                      --------------------------------------------------------------------------------------
                                      <S>                                                     <C>               <C>

                                      Equipment and fixtures                                  $ 190,018         $  216,286
                                      Leasehold improvements                                     63,146             63,146
                                      --------------------------------------------------------------------------------------

                                                                                                253,164            279,432
                                      Less accumulated depreciation and
                                        amortization                                            176,694            194,902
                                      --------------------------------------------------------------------------------------

                                      Equipment and leasehold improvements, net               $  76,470         $   84,530
                                      --------------------------------------------------------------------------------------
</TABLE>


 5. Patent and                        Patent and trademark costs consist of the
    Trademark                         following:
    Costs
<TABLE>
<CAPTION>

                                      December 31,                                                 2002               2001
                                      --------------------------------------------------------------------------------------
                                      <S>                                                     <C>               <C>

                                      Patent costs                                            $ 397,862         $  379,836
                                      Trademark costs                                             2,444              2,444
                                      --------------------------------------------------------------------------------------

                                                                                                400,306            382,280

                                      Less accumulated amortization                              69,539             49,571
                                      --------------------------------------------------------------------------------------

                                      Patent and trademark costs, net                         $ 330,767         $  332,709
                                      --------------------------------------------------------------------------------------
</TABLE>

 6.    Stockholders'
       Equity

       Class A and                    The Company has authorized both Class A
       Class B                        and Class B common stock. The Class A and
       Common Stock                   Class B common stock are substantially
                                      identical except that holders of Class A
                                      common stock have the right to cast one
                                      vote for each share held and the Class B
                                      shareholders have the right to cast five
                                      votes for each share held. As of December
                                      31, 2002, there were no shares of Class B
                                      common stock issued and outstanding.

                                       32
<PAGE>



 6.    Stockholders'
       Equity
       (Continued)

       Redeemable                     During 1997, the Company entered into a
       Common Stock and               Collaboration and License Agreement and a
       Common Stock                   Stock Purchase Agreement (the
       Forfeitures                    "Agreements") with a pharmaceutical
                                      company related to the development of an
                                      ophthalmology product. Under the terms of
                                      the Agreements, the pharmaceutical company
                                      purchased a total of 669,545 shares of
                                      redeemable Class A
                                      common stock for $850,000, subject to
                                      various restrictions. The Company was
                                      required to redeem such shares if certain
                                      cash flow levels were achieved.
                                      Additionally, the pharmaceutical company
                                      could return the Class A common stock to
                                      the Company in exchange for required
                                      milestone payments. On August 4, 1999, the
                                      pharmaceutical company returned 93,333 of
                                      these shares in consideration for a
                                      $175,000 milestone payment due on that
                                      date. On August 1, 2001, the Company
                                      redeemed the remaining 93,334 of these
                                      shares for $175,000.

                                      During 1999, 482,878 of the redeemable
                                      common stock shares were reclassified from
                                      redeemable common stock to Class A common
                                      stock since such shares no longer had
                                      mandatory redemption conditions. During
                                      2000, the Collaboration and License
                                      Agreement was amended to extend the
                                      pharmaceutical company's required 2000
                                      milestone payment and on November 14, 2000
                                      the pharmaceutical company elected to
                                      terminate the Collaboration and License
                                      Agreement with the Company. Upon
                                      termination, the pharmaceutical company
                                      was required to return the 482,878 shares
                                      of the restricted Class A common stock as
                                      a termination fee. The returned Class A
                                      common stock shares were cancelled and the
                                      consideration originally paid of $500,000
                                      was recognized as license fee revenue in
                                      the year ended December 31, 2000.

       Common Stock                   In fiscal 1999, the Company raised net
       Purchase Warrants              proceeds of $1,356,007 in connection with
                                      a  private placement equity offering. The
                                      offering consisted of the sale of 836,685
                                      units, at a price of $1.75 with each unit
                                      consisting of one share of the Company's
                                      Class A common stock and one redeemable
                                      common stock warrant. In addition, the
                                      Company issued to the placement agent
                                      60,940 warrants having terms similar to
                                      the common stock warrant issued with each
                                      unit. In August 2000, the warrant holders
                                      purchased 586,910 shares of Class A common
                                      stock at $3.00 per share in accordance
                                      with the terms of the warrants.

                                      The holders of the remaining 310,715
                                      warrants are entitled to purchase one
                                      share of Class A common stock for each
                                      warrant at an exercise price per share of
                                      $6.00 if exercised on or before August 10,
                                      2003. Warrants may be redeemed by the
                                      Company at $0.01 per warrant in the event
                                      that the average closing bid price as
                                      quoted by Nasdaq (the average last
                                      reported sales price if then listed on any
                                      national securities exchange) of Class A
                                      common stock over twenty successive
                                      trading days is equal to or greater than
                                      $8.00 on or before August 10, 2003,
                                      subject to the holder's right to exercise.
                                      The warrants will expire on August 10,
                                      2003.


                                       33
<PAGE>



 6.    Stockholders'
       Equity
       (Continued)

       Common Stock                   In January 2001, certain officers of the
       Subscriptions                  Company entered into Promissory Notes and
       Receivable                     Pledge Agreements (the "Notes") with the
                                      Company totaling $834,560 in exchange for
                                      462,895 shares of Class A common stock
                                      acquired through the exercise of vested
                                      stock options. The Notes bear interest at
                                      a fixed rate of 5.61% and are due in full
                                      on December 31, 2005. The Notes are
                                      collateralized by the 462,895 shares of
                                      Class A common stock and the Company has
                                      full recourse to pursue collection in the
                                      event of default. The Company's recourse
                                      may be limited to the pledged stock in the
                                      event that the officer is no longer
                                      employed with the Company and if the then
                                      market value of the pledged stock is less
                                      than the outstanding principal and accrued
                                      but unpaid interest on the officer's Note.

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

                                      The stock option plan provides for the
                                      grant of incentive stock options,
                                      nonqualified stock options and stock
                                      appreciation rights. At December 31, 2002
                                      the Company has reserved 1,600,000 shares
                                      for issuance under this plan.

                                      The employee stock purchase plan provides
                                      for the purchase of Class A common stock
                                      at 85 percent of the fair market value at
                                      specific dates, to encourage stock
                                      ownership by all eligible employees. At
                                      December 31, 2002, the Company has
                                      reserved 200,000 shares for purchase under
                                      this plan. During the years ended December
                                      31, 2002 and 2001, the Company issued none
                                      and 1,000 shares, respectively, under the
                                      stock purchase plan.

                                      On May 17, 1995 the Company adopted a
                                      nonemployee directors' stock option plan
                                      that provides for the grant of
                                      nonstatutory stock options automatically
                                      on January 1 of each calendar year
                                      commencing on January 1, 1996. The Company
                                      has reserved 100,000 shares for issuance
                                      under the plan. Each outside director
                                      shall be granted an option to purchase
                                      2,500 shares of Class A common stock at
                                      fair market value, vesting 50% on each of
                                      the first two anniversaries of the grant.

                                      Under the above plans 601,342 shares are
                                      available for future grant or purchase.


                                       34
<PAGE>



 7.    Stock Plans                    The Company had the following option
       (Continued)                    activity under the stock option plan and
                                      the nonemployee directors' stock option
                                      plan in 2002 and 2001:
<TABLE>
<CAPTION>

                                                                                                         Weighted-Average
                                                                                                          Exercise Price
                                                                                          Shares             Per Share
                                      --------------------------------------------------------------------------------------
                                      <S>                                               <C>                      <C>

                                      Balance, December 31, 2000                        1,391,895                $2.68
                                         Granted                                            7,500                 1.61
                                         Exercised                                       (476,895)                1.79
                                         Cancelled                                        (49,500)                2.93
                                      --------------------------------------------------------------------------------------

                                      Balance, December 31, 2001                          873,000                 4.15
                                         Granted                                            7,500                 1.93
                                         Exercised                                        (10,000)                1.08
                                         Cancelled                                       (123,000)                2.27
                                      --------------------------------------------------------------------------------------

                                      Balance, December 31, 2002                          747,500                $4.50
                                      --------------------------------------------------------------------------------------
</TABLE>

                                      All options outstanding at December 31,
                                      2002 are categorized by the following
                                      ranges in the table below:

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

                                           $ 1.02   to   $4.00               $1.93             7.4                  385,000
                                           $ 4.00   to   $9.06               $7.23             2.0                  362,500
                                                                                                                    -------
                                                                                                                    747,500
                                                                                                                    =======

                                       All options exercisable at December 31,
                                      2002 are categorized by the following
                                      ranges in the table below:

                                                                                            Weighted-
                                                                        Weighted -           Average
                                                                          Average           Remaining
                                                     Share               Exercise          Contractual          Number of
                                                  Price Range              Price          Life (years)           Shares
                                      --------------------------------------------------------------------------------------

                                           $ 1.02   to   $4.00               $1.95             7.2                  261,250
                                           $ 4.00   to   $9.06               $7.25             2.0                  360,000
                                                                                                                    -------
                                                                                                                    621,250
                                                                                                                    =======
</TABLE>

                                      The weighted-average fair value of
                                      options granted during the years ended
                                      December 31, 2002 and 2001 was $1.93 and
                                      $1.61 per share, respectively.

                                       35
<PAGE>


8.     Loss Per Share                 The Company's basic and
                                      diluted net loss per share of common stock
                                      for the years ended December 31, 2002 and
                                      2001 is computed by dividing the net loss
                                      by the weighted average number of common
                                      shares outstanding during the period.

                                      The following table summarizes securities
                                      that were outstanding as of December 31,
                                      2002 and 2001 but not included in the
                                      calculation of diluted net loss per share
                                      because such shares are antidilutive:
<TABLE>
<CAPTION>

                                      December 31,                                                2002                2001
                                      --------------------------------------------------------------------------------------
                                      <S>                                                      <C>                 <C>

                                      Stock options                                            747,500             873,000
                                      Stock warrants                                           310,715             310,715
</TABLE>

9.     Income Taxes                   Deferred income taxes reflect
                                      the impact of "temporary differences"
                                      between the amount of assets and
                                      liabilities for financial reporting
                                      purposes and such amounts as measured by
                                      tax laws and regulations. Deferred tax
                                      assets are comprised of the following:
<TABLE>
<CAPTION>

                                      December 31,                                                2002                2001
                                      --------------------------------------------------------------------------------------
                                      <S>                                                 <C>                <C>

                                      Tax credits                                         $    402,000       $     363,000
                                      Net operating loss carryforwards                       3,465,000           3,217,000
                                      --------------------------------------------------------------------------------------

                                      Gross deferred tax asset                               3,867,000           3,580,000

                                      Deferred tax assets valuation
                                        allowance                                           (3,867,000)         (3,580,000)
                                      --------------------------------------------------------------------------------------

                                      Net deferred tax assets                             $          -       $           -
                                      --------------------------------------------------------------------------------------
</TABLE>

                                      As of December 31, 2002 and 2001, the
                                      deferred tax assets have been fully offset
                                      by valuation allowances, since the
                                      realization of such amounts is uncertain.

                                      As of December 31, 2002, the Company has
                                      net operating loss carryforwards totaling
                                      approximately $8,663,000. 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.


                                       36
<PAGE>



9.     Income Taxes                   The following is a breakdown of the net
       (Continued)                    operating loss expiration period:

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

                                      2008                                                                    $    743,000
                                      2009                                                                       1,514,000
                                      2010                                                                       1,374,000
                                      2011                                                                         921,000
                                      2018                                                                         897,000
                                      2019                                                                         739,000
                                      2020                                                                         476,000
                                      2021                                                                       1,387,000
                                      2022                                                                         612,000
                                      ---------------------------------------------------------------------------------------

                                                                                                              $  8,663,000
                                      ---------------------------------------------------------------------------------------
</TABLE>

                                      In addition, the Company has available
                                      tax credit carryforwards (adjusted to
                                      reflect provisions of the Tax Reform Act
                                      of 1986) of approximately $402,000, which
                                      are available to offset future taxable
                                      income and income tax liabilities, when
                                      earned or incurred. These amounts expire
                                      in various years through 2022.

10.    Commitments

       Facilities Lease               The Company leases its research
                                      facilities under an operating lease that
                                      expires August 31, 2007. The lease
                                      requires payment of real estate taxes and
                                      other common area maintenance expenses.
                                      Rent expense for the years ended December
                                      31, 2002 and 2001 was approximately
                                      $34,000 and $33,000, respectively.

                                      Future minimum rental payments due are as
                                      follows:
<TABLE>
<CAPTION>

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

                                      2003                                                                       $  36,000
                                      2004                                                                          37,000
                                      2005                                                                          38,000
                                      2006                                                                          40,000
                                      2007                                                                          27,000
                                      ---------------------------------------------------------------------------------------

                                                                                                                 $ 178,000
                                      ---------------------------------------------------------------------------------------
</TABLE>

                                       37

<PAGE>



10.    Commitments
       (Continued)

       Employment                     The Company has  employment  agreements
       Agreements                     with its principal officers  providing for
                                      minimum base  compensation and severance
                                      pay which expire December 31, 2005.For the
                                      years ended December 31, 2002 and 2001,
                                      the aggregate amount paid under these
                                      agreements was $440,000 per year. The
                                      employment agreements provide for
                                      inflationary adjustments and are subject
                                      to other increases based on the Board of
                                      Directors' approval. Minimum amounts to be
                                      paid under these agreements total
                                      approximately $440,000 per 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,
                                      2002 no royalties have been earned under
                                      this agreement.

       Consulting                     The Company has entered into various
       Agreements                     scientific advisory and consulting
                                      agreements  to support its development
                                      activities.  These agreements generally
                                      expire over several future years. Amounts
                                      charged to operations in connection with
                                      these agreements for the years ended
                                      December 31, 2002 and 2001 amounted to
                                      approximately $37,000 and $149,900,
                                      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 makes contributions
                                      to the plan at the discretion of the Board
                                      of Directors based upon a percentage of
                                      employee compensation as provided by the
                                      terms of the plan. The Company's
                                      contribution to the plan amounted to
                                      approximately $13,200 and $14,200 for the
                                      years ended December 31, 2002 and 2001,
                                      respectively.



                                       38
<PAGE>



11.    Major Customers                Through December 31, 2002,
                                      the Company has generated its revenue from
                                      a small number of customers and
                                      collaborative agreements. Revenues from
                                      major customers were generated as follows:
<TABLE>
<CAPTION>

                                                                                               Net
                                                                                             Product            Contract
                                      Year ended December 31, 2002                            Sales              Revenue
                                      --------------------------------------------------------------------------------------
                                      <S>                                                  <C>                     <C>

                                      Customer A                                           $  379,254              $     -
                                      Customer B                                                    -                    -
                                      --------------------------------------------------------------------------------------

                                                                                           $  379,254              $     -
                                      --------------------------------------------------------------------------------------


                                                                                               Net
                                                                                             Product            Contract
                                      Year ended December 31, 2001                            Sales              Revenue
                                      --------------------------------------------------------------------------------------

                                      Customer A                                           $  232,914              $     -
                                      Customer B                                                    -                5,000
                                      --------------------------------------------------------------------------------------

                                                                                           $  232,914              $ 5,000
                                      --------------------------------------------------------------------------------------
</TABLE>

                                      For the years ended December 31, 2001 and
                                      2002, all net product sales were from a
                                      customer based in the United States.


12.    Related Party                  A member of the board of directors
       Transactions                   provides legal services to the Company.
                                      Amounts paid for legal services rendered
                                      by the director, either individually or
                                      through his firm, totaled approximately
                                      $51,000 and $103,000 for the years ended
                                      December 31, 2002 and 2001, respectively.


                                       39

<PAGE>



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

         None.


                                    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 2003 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 2003 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 2003 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 2003 Annual Meeting of Stockholders.

Item 13.  Exhibits and Reports on Form 8-K

         (a)  Exhibits

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

         1        1993 Stock Option Plan, as amended.

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

                                       40
<PAGE>


         3        1994 Employee Stock Purchase Plan.

         4        1995 Non-Employee Directors' Stock Option Plan.

         5        Employment Agreement, dated December 14, 1999, between the
                  Company and Dr. Jack H. Kessler.

         6        Employment Agreement, dated December 14, 1999, between the
                  Company and Paul C. Desjourdy.

         (b) Reports on Form 8-K

         The Company filed:

                 1.   A report on Form 8-K on November 14, 2002. The report
                      contained an Item 5 disclosure concerning the Company's
                      possible Nasdaq delisting, an Item 7 disclosure covering
                      the press release issued covering the Nasdaq delisting,
                      and an Item 9 disclosure concerning the Section 906
                      certificates filed by the Company's executive officers;
                      and

                 2.   A report on Form 8-K on December 17, 2002. The report
                      contained an Item 5 disclosure concerning the Company's
                      Nasdaq delisting, and an Item 7 disclosure covering the
                      press release issued covering the Nasdaq delisting.

Item 14.  Controls and Procedures

         Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's chief executive officer and chief financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as defined in the Securities Exchange Act of 1934 (the "Exchange
Act") Rule 13a-14(c)). Based upon that evaluation, the Company's chief executive
officer and chief financial officer have concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company required to be included in the Company's
Securities and Exchange Commission filings. There were no significant changes in
the Company's internal controls or in other factors which could significantly
affect internal controls subsequent to the date the Company carried out its
evaluation.

                                       41

<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 PHARMACEUTICALS, INC.

                             By:   /s/ Paul C. Desjourdy
                                ----------------------------
                                Paul C. Desjourdy
                                President

Date: March 27, 2003

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

    Signature                          Title                           Date

 /s/ Jack H. Kessler             Chief Executive Officer,         March 27, 2003
-------------------------------  Chief Scientific Officer,
     Jack H. Kessler             Secretary and Chairman
                                 of the Board of Directors
                                 (Principal Executive Officer)

/s/ Paul C. Desjourdy            President, Chief Operating       March 27, 2003
-------------------------------  Officer, Treasurer, General
    Paul C. Desjourdy            Counsel, Chief Financial
                                 Officer, and Director (Principal
                                 Financial and Accounting Officer)

/s/ James C. Richards            Director                         March 27, 2003
-------------------------------
    James C. Richards

/s/ Richard F. Maradie           Director                         March 27, 2003
-------------------------------
    Richard F. Maradie

/s/ Eugene Lieberstein           Director                         March 27, 2003
-------------------------------
    Eugene Lieberstein

                                       42
<PAGE>


                                 CERTIFICATIONS

I, Jack H. Kessler, certify that:

         1.       I have reviewed this annual report on Form 10-KSB of Symbollon
                  Pharmaceuticals, Inc.;

         2.       Based on my knowledge, this annual report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  annual report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this annual report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the registrant as of,
                  and for, the periods presented in this annual report;

         4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in the Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and have:

           a)     designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

           b)     evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

           c)     presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

         5.       The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of registrant's
                  board of directors (or persons performing the equivalent
                  functions):

           a)     all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

           b)     any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

         6.       The registrant's other certifying officers and I have
                  indicated in this annual report whether or not there were
                  significant changes in internal controls or in other factors
                  that could significantly affect internal controls subsequent
                  to the date of our recent evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.

Date:  March 27, 2003               By: /s/ Jack H. Kessler
                                       ----------------------------------------
                                       Jack H. Kessler, Chief Executive Officer

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<PAGE>


                                 CERTIFICATIONS

I, Paul C. Desjourdy, certify that:

         1.       I have reviewed this annual report on Form 10-KSB of Symbollon
                  Pharmaceuticals, Inc.;

         2.       Based on my knowledge, this annual report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  annual report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this annual report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the registrant as of,
                  and for, the periods presented in this annual report;

         4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in the Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and have:

           a)     designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

           b)     evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

           c)     presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

         5.       The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of registrant's
                  board of directors (or persons performing the equivalent
                  functions):

           a)     all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

           b)     any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

         6.       The registrant's other certifying officers and I have
                  indicated in this annual report whether or not there were
                  significant changes in internal controls or in other factors
                  that could significantly affect internal controls subsequent
                  to the date of our recent evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.

Date:  March 27, 2003        By: /s/ Paul C. Desjourdy
                                ------------------------------------------
                                Paul C. Desjourdy, Chief Financial Officer


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<PAGE>


                         Symbollon Pharmaceuticals, Inc.
                                Index to Exhibits

3.1      Amended Certificate of Incorporation of the Company;  including
         Certificate of Designations,  Preferences and Rights of Series
         A Preferred  Stock of the  Company.  (previously  filed as exhibit 3.1
         to Form 10-QSB for the quarter  ended June 30, 2001 and
         incorporated by reference)
3.2      Amended  By-Laws of the  Company.  (previously  filed as exhibit 3.2 to
         Form  10-QSB for the  quarter  ended June 30, 1999 and
         incorporated by reference)
3.3      Agreement of Merger, dated as of August 4, 1993, between the Company
         and Symbollon Corporation, a Massachusetts corporation (including
         Certificate of Merger and other state filings). (previously filed as
         exhibit number 3.3 of the Registration Statement (the "Registration
         Statement") on Form SB-2 (Registration No. 33-68828) filed on November
         24, 1993 and declared effective on December 7, 1993, and incorporated
         by reference)
4.1      Form of Specimen Class A Common Stock Certificate.  (previously filed
         as exhibit number 4.2 of the Registration  Statement and
         incorporated by reference)
10.1     1993 Stock  Option Plan of the Company,  as amended.  (previously filed
         as exhibit 10.1 to Form 10-QSB for the quarter  ended
         June 30, 1999 and incorporated by reference)
10.2     Employment  Agreement,  dated  December  14, 1999,  between the Company
         and Paul C.  Desjourdy.  (previously  filed as exhibit
         number 10.2 to Form 10-KSB for the year ended December 31, 1999 and
         incorporated by reference)
10.3     Employment  Agreement,  dated  December 14, 1999,  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, 1999 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    Form of Subscription Agreement, dated as of August 10, 1999, between
         the Company and the purchasers of Units. (previously filed as exhibit
         number 10.14 to Form 10-QSB for the quarter ended September 30, 1999
         and incorporated by reference)
10.12    Form of Redeemable Warrant for the purchase of shares of Class A Common
         Stock, dated as of August 10, 1999, issued to purchasers of Units.
         (previously filed as exhibit number 10.15 to Form 10-QSB for the
         quarter ended September 30, 1999 and incorporated by reference)
10.13    Promissory Note, dated January 11, 2001, between the Company and Dr.
         Jack H. Kessler, together with the Pledge Agreement and Letter
         Agreement related thereto. (previously filed as exhibit number 10.13 to
         Form 10-KSB for the year ended December 31, 2000 (the `2000 Form
         10-KSB") and incorporated by reference)
10.14    Promissory Note, dated January 11, 2001, between the Company and Paul
         C. Desjourdy, together with the Pledge Agreement and Letter Agreement
         related thereto. (previously filed as exhibit number 10.14 to the 2000
         Form 10-KSB and incorporated by reference)
23.1     Consent of BDO Seidman, LLP relating to Forms S-3 and S-8.
         ----------------------------------------------------------
* 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.

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