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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 12b-25
Commission File Number
NOTIFICATION OF LATE FILING
(Check One): [X] Form 10-K [_] Form 11-K [_] Form 20-F [_] Form 10-Q
[_] Form N-SAR
For Period Ended: September 30, 1998
[_] Transition Report on Form 10-K
[_] Transition Report on Form 20-F
[_] Transition Report on Form 11-K
[_] Transition Report on Form 10-Q
[_] Transition Report on Form N-SAR
For the Transition Period Ended:
Read attached instruction sheet before preparing form. Please print or
type.
Nothing in this form shall be construed to imply that the Commission has
verified any information contained herein.
If the notification relates to a portion of the filing checked above,
identify the item(s) to which the notification relates:
PART I
REGISTRANT INFORMATION
Celsion Corporation
- --------------------------------------------------------------------------------
Full Name of Registrant
Cheung Laboratories, Inc.
- --------------------------------------------------------------------------------
Former Name if Applicable
10220-I Old Columbia Road
- --------------------------------------------------------------------------------
Address of Principal Executive Office
Columbia, Maryland 21046-1705
- --------------------------------------------------------------------------------
City, State and Zip Code
<PAGE>
PART II
RULE 12b-25(b) AND (c)
If the subject report could not be filed without unreasonable effort or
expense and the registrant seeks relief pursuant to Rule 12b-25(b), the
following should be completed. (Check box if appropriate.)
| (a) The reasons described in reasonable detail in Part III of this
| form could not be eliminated without unreasonable effort or
| expense;
|
| (b) The subject annual report, semi-annual report, transition report
| on Form 10-K, Form 20-F, Form 11-K or Form N-SAR, or portion
[X] | thereof will be filed on or before the 15th calendar day
| following the prescribed due date; or the subject quarterly
| report or transition report on Form 10-Q, or portion thereof will
| be filed on or before the fifth calendar day following the
| prescribed due date; and
|
| (c) The accountant's statement or other exhibit required by Rule
| 12b-25(c) has been attached if applicable.
PART III
NARRATIVE
State below in reasonable detail why the Form 10-K, 11-K, 20-F 10-Q, N-SAR
or the transition report portion thereof could not be filed within the
prescribed time period. (Attach extra sheets if needed.)
Management's review of the draft Form 10-K immediately prior to its anticipated
filing date prompted revisions to ensure accuracy of narrative and financial
statement disclosure. In addition, the need to circulate revised drafts of the
Form 10-K and to obtain comments thereto from numerous parties during the
holiday season required additional time.
PART IV
OTHER INFORMATION
(1) Name and telephone number of person to contact in regard to this
notification
John Mon, Secretary/Treasurer 410-290-5390
---------------------------------------------------------------------------
(Name) (Area Code) (Telephone Number)
(2) Have all other periodic reports required under Section 13 or 15(d) of the
Securities Exchange Act of 1934 or Section 30 of the Investment Company Act
of 1940 during the preceding 12 months or for such shorter period that the
registrant was required to file such report(s) been filed? If the answer is
no, identify report(s).
[X] Yes [_] No
(3) Is it anticipated that any significant change in results of operations from
the corresponding period for the last fiscal year will be reflected by the
earnings statements to be included in the subject report or portion
thereof?
[X] Yes [_] No
If so: attach an explanation of the anticipated change, both narratively
and quantitatively, and, if appropriate, state the reasons why a reasonable
estimate of the results cannot be made.
Celsion Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Charter)
Has caused this notification to be signed on its behalf by the undersigned
thereunto duly authorized.
Date December 29, 1998 By /s/ John Mon
--------------------- -------------------------------
John Mon, Secretary/Treasurer
<PAGE>
INSTRUCTION: The form may be signed by an executive officer of the
registrant or by any other duly authorized representative. The name and
title of the person signing the form shall be typed or printed beneath the
signature. If the statement is signed on behalf of the registrant by an
authorized representative (other than an executive officer), evidence of
the representative's authority to sign on behalf of the registrant shall be
filed with the form.
ATTENTION
Intentional misstatements or omissions of fact constitute Federal Criminal
Violations (see 18 U.S.C. 1001).
GENERAL INSTRUCTIONS
1. This form is required by Rule 12b-25 of the General Rules and
Regulations under the Securities Exchange Act of 1934.
2. One signed original and four conformed copies of this form and
amendments thereto must be completed and filed with the Securities and Exchange
Commission, Washington, D.C. 20549, in accordance with Rule 0-3 of the General
Rules and Regulations under the Act. The information contained in or filed with
3the form will be made a matter of public record in the Commission files.
3. A manually signed copy of the form and amendments thereto shall be filed
with each national securities exchange on which any class of securities of the
registrant is registered.
4. Amendments to the notifications must also be filed on Form 12b-25 but
need not restate information that has been correctly furnished. The form shall
be clearly identified as an amended notification.
5. ELECTRONIC FILERS. This form shall not be used by electronic filers
unable to timely file a report solely due to electronic difficulties. Filers
unable to submit a report within the time period prescribed due to difficulties
in electronic filing should comply with either Rule 201 or Rule 202 of
Regulation S-T or apply for an adjustment in filing date pursuant to Rule 13(b)
of Regulation S-T.
<PAGE>
CELSION CORPORATION
REPORT ON AUDITS OF
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
SEPTEMBER 30, 1998, 1997 AND 1996
<PAGE>
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENTS Page
----
Balance Sheets 1 - 2
Statements of Operations 3
Statements of Changes in Stockholders' Deficit 4
Statements of Cash Flows 5 - 6
NOTES TO FINANCIAL STATEMENTS 7 - 15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Celsion Corporation
Columbia, Maryland
We have audited the accompanying balance sheets of Celsion
Corporation as of September 30, 1998 and 1997, and the related statements of
operations, changes in stockholders' deficit, and cash flows for each of the
three years in the period ended September 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Celsion
Corporation as of September 30, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1998 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 of the financial statements, the Company has suffered recurring losses from
operations, which raise substantial doubt about its ability to continue as a
going concern. Management's plans regarding those matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Stegman & Co.
Baltimore, Maryland
November 18, 1998
1
<PAGE>
CELSION CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
ASSETS
1998 1997
-------- --------
CURRENT ASSETS:
Cash $ 54,920 $267,353
Accounts receivable 1,812 5,891
Inventories 42,059 329,741
Prepaid expenses 76,944 8,207
Other current assets -- 26,755
-------- --------
Total current assets 175,735 637,947
-------- --------
PROPERTY AND EQUIPMENT - at cost:
Furniture and office equipment 195,794 180,348
Laboratory and shop equipment 47,048 92,228
-------- --------
242,842 272,576
Less accumulated depreciation 212,029 213,885
-------- --------
Net value of property and equipment 30,813 58,691
-------- --------
OTHER ASSETS:
Patent licenses (net of accumulated amortization
of $ 65,760 and $53,379 in 1998 and 1997,
respectively) 124,190 126,571
-------- --------
TOTAL ASSETS $330,738 $823,209
======== ========
See accompanying notes.
2
<PAGE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade $ 1,034,767 $ 614,173
Notes payable - other 132,778 1,481,831
Notes payable - related parties 146,041 221,943
Accrued interest payable - related parties 150,020 245,784
Accrued interest payable - other 127,538 116,604
Accrued compensation 470,220 331,715
Accrued professional fees 100,000 256,301
Other accrued liabilities 13,639 15,504
Capital lease - current 1,083 --
------------ ------------
Total current liabilities 2,176,086 3,283,855
LONG-TERM LIABILITIES:
Capital lease - long-term 5,719 --
------------ ------------
Total liabilities 2,181,805 3,283,855
------------ ------------
STOCKHOLDERS' DEFICIT:
Capital stock - $.01 par value; 51,000,000 shares
authorized, 39,945,826 and 29,095,333 issued and
outstanding for 1998 and 1997, respectively 399,458 290,953
Additional paid-in capital 17,213,485 12,511,923
Accumulated deficit (19,464,010) (15,263,522)
------------ ------------
Total stockholders' deficit (1,851,067) (2,460,646)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 330,738 $ 823,209
============ ============
</TABLE>
3
<PAGE>
CELSION CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Equipment sales and parts $ 174,182 $ 121,257 $ 134,006
Returns and allowances -- -- (60,000)
------------ ------------ ------------
Total revenues 174,182 121,257 74,006
COST OF SALES 136,500 46,734 64,406
------------ ------------ ------------
GROSS PROFIT 37,682 74,523 9,600
------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 2,515,822 2,283,245 1,321,361
Research and development 1,534,872 185,974 94,012
------------ ------------ ------------
Total operating expenses 4,050,694 2,469,219 1,415,373
------------ ------------ ------------
LOSS FROM OPERATIONS (4,013,012) (2,394,696) (1,405,773)
LOSS ON COSMETICS DIVISION -- -- (471,000)
LOSS ON FUNDS HELD IN INVESTMENT
CONTRACT -- (40,000) --
LOSS ON WRITE-OFF OF ARDEX EQUIPMENT,
L.L.C. NOTES RECEIVABLE AND RELATED
ACCRUED INTEREST RECEIVABLE -- (438,803) --
OTHER INCOME 11,870 7,172 28,808
INTEREST EXPENSE (199,346) (185,562) (85,506)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (4,200,488) (3,051,889) (1,933,471)
INCOME TAXES -- -- --
------------ ------------ ------------
NET LOSS $ (4,200,488) $ (3,051,889) $ (1,933,471)
============ ============ ============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (.12) $ (.11) $ (.05)
============ ============ ============
BASIC AND DILUTED WEIGHTED
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 34,867,001 28,386,145 39,499,650
============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
CELSION CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at October 1, 1995 39,207,664 $ 392,076 $ 18,014,854 $(10,278,162) $ 8,128,768
Sale of common stock 1,299,711 12,997 406,513 -- 419,510
Issuance of 698,985 shares of
common stock as payment of
indebtedness and expenses 698,985 6,990 134,077 -- 141,067
Net loss -- -- -- (1,933,471) (1,933,471)
------------ ------------ ------------ ------------ ------------
Balances at September 30, 1996 41,206,360 412,063 18,555,444 (12,211,633) 6,755,874
Sale of common stock 1,409,902 14,099 668,901 -- 683,000
Issuance of 2,479,071 shares
of common stock as payment
of indebtedness and expenses 2,479,071 24,791 1,127,578 -- 1,152,369
Retirement of shares (16,000,000) (160,000) (7,840,000) -- (8,000,000)
Net loss -- -- -- (3,051,889) (3,051,889)
------------ ------------ ------------ ------------ ------------
Balances at September 30, 1997 29,095,333 290,953 12,511,923 (15,263,522) (2,460,646)
Sale of common stock 4,315,000 43,150 1,981,850 -- 2,025,000
Issurance of 6,535,493 shares of
common stock as payment
of indebtedness and expenses 6,535,493 65,355 2,719,712 -- 2,785,067
Net loss -- -- -- (4,200,488) (4,200,488)
------------ ------------ ------------ ------------ ------------
Balance at September 30, 1998 39,945,826 $ 399,458 $ 17,213,485 $(19,464,010) $ (1,851,067)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
CELSION CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,200,488) $(3,051,889) $(1,933,471)
Noncash items included in net loss:
Funds held under investment contract used
for cosmetic division expenses -- 40,000 471,000
Depreciation and amortization 24,291 24,169 18,545
Bad debt expense -- 120,865 51,397
Loss on disposal of property and equipment 45,180 -- --
Gain on disposition of investment in Ardex
Equipment, L.L.C -- -- (17,009)
Write-off of obsolete inventory 287,682 -- --
Write-off of Ardex Equipment - note receivable
and accrued interest -- 438,803 --
Common stock issued for operating expenses 796,745 297,542 9,000
Net changes in:
Accounts receivable 4,079 (2,421) (68,631)
Inventories -- (58,789) 45,327
Accrued interest receivable - related parties -- (33,470) (5,333)
Prepaid expenses 5,430 (6,538) 6,000
Other current assets 10,085 -- (1,204)
Accounts payable and accrued interest payable 903,900 837,172 25,445
Accrued compensation 168,732 145,256 (166,039)
Accrued professional fees (156,300) 179,950 74,852
Other accrued liabilities (1,865) (85,401) 27,533
-------------- -------------- --------------
Net cash used in operating activities (2,112,529) (1,154,751) (1,462,588)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Rescission of investment in Ardex Equipment, L.L.C -- -- 100,000
Purchases of patent licenses (10,000) -- (100,000)
Purchase of property and equipment (21,935) (3,807) (10,256)
Funds returned - investment contract -- -- 139,000
-------------- -------------- --------------
Net cash (used) provided by investing activities (31,935) (3,807) 128,744
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 50,000 615,000 1,205,000
Payment on notes payable - related parties (63,240) (24,020) (48,973)
Payment on notes payable - other (79,254) (95,000) (2,000)
Payment on capital lease obligation (475) -- --
Proceeds of stock issuances 2,025,000 683,000 419,510
-------------- -------------- --------------
Net cash provided by financing activities 1,932,031 1,178,980 1,573,537
-------------- -------------- --------------
NET (DECREASE) INCREASE IN CASH (212,433) 20,422 239,693
CASH AT BEGINNING OF YEAR 267,353 246,931 7,238
-------------- -------------- --------------
CASH AT END OF YEAR $ 54,920 $ 267,353 $ 246,931
============== ============== ==============
</TABLE>
6
<PAGE>
Celsion Corporation
Statements of Cash Flows (Continued)
For the Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ---------
<S> <C> <C> <C>
Schedule of noncash investing and financing transactions:
Acquisition and rescission of a 9.5% interest
in the Aestar Fine Chemical Company in
exchange for 16,000,000 shares of
common stock $ -- $ (8,000,000) $ --
=========== ============ =========
Conversion of accounts payable, debt and accrued
interest payable through issuance of common stock $ 1,988,322 $ 854,826 $ 132,067
=========== ============ =========
Equipment repossessed for internal use $ -- $ 30,000 $ --
=========== ============ =========
Acquisition of equipment:
Cost of equipment $ 7,277 $ -- $ --
Capital lease payable (7,277) -- --
----------- ------------ ---------
Cash down payment for equipment $ -- $ -- $ --
=========== ============ =========
Payment on notes payable:
Decrease in notes payable $ 16,670 $ -- $ 25,223
Offset of accounts receivable (16,670) -- (25,223)
----------- ------------ ---------
Net cash paid $ -- $ -- $ --
=========== ============ =========
Rescission of investment in Ardex Equipment,
L.L.C. in exchange for notes receivable $ -- $ -- $ 400,000
=========== ============ =========
Cash paid during the year for:
Interest $ 103,470 $ -- $ 45,000
=========== ============ =========
Income taxes $ -- $ -- $ --
=========== ============ =========
</TABLE>
See accompanying notes.
7
<PAGE>
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
1. DESCRIPTION OF BUSINESS
Celsion Corporation (the "Company") is in the business of developing
thermotherapy products for medical applications.
2. GOING CONCERN UNCERTAINTY
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
sustained substantial operating losses in recent years and has used substantial
amounts of working capital in its operations. Further, at September 30, 1998,
current liabilities exceed current assets by $2,000,351. The continued operation
of the Company is dependent upon its ability to obtain funding necessary to
complete clinical trials of its products. Management continues to attempt to
obtain funding through both private and public offerings. The realization of the
majority of the Company's assets is dependent upon the success of these
offerings.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
-------------------------
The Company classifies highly liquid investments with original
maturities of 90 days or less to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is
determined using the average cost method.
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation is
provided over the estimated useful lives of the related assets of five years.
Major renewals and betterments are capitalized at cost and ordinary repairs and
maintenance are charged against operations as incurred.
Patent Licenses
---------------
The Company has purchased several licenses to use the rights to
patented technologies. Patent licenses are amortized straight-line over the
remaining patent life.
8
<PAGE>
Revenue Recognition
-------------------
Revenue is recognized when systems, products or components are
shipped and when consulting services are rendered. Deferred revenue is recorded
for customer deposits received on contingent sale agreements.
Research and Development
------------------------
Research and development costs are expensed as incurred.
Equipment and facilities acquired for research and development activities which
have alternative future uses are capitalized and charged to expense over their
estimated useful lives.
Net Loss Per Common Share
-------------------------
Basic and diluted net loss per common share was computed by
dividing net loss by the weighted average number of shares of common stock
outstanding during each period. The impact of common stock equivalents has been
excluded from the computation of weighted average common shares outstanding, as
the effect would be antidilutive.
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.
Financial Institutions
----------------------
For most financial instruments, including cash, accounts
payable and accruals, management believes that the carrying amount approximates
fair value, as the majority of these instruments are short-term in nature.
New Accounting Pronouncements
-----------------------------
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (SFAS No. 123), which was effective for the Company's year ended
September 30, 1997. SFAS No. 123 allows companies either to continue to account
for stock-based employee compensation plans under existing accounting standards
or to adopt a fair value based method of accounting as defined in the new
standard. The Company will follow the existing accounting standards for these
plans, and has provided pro forma disclosure of net income and earnings per
share as if the expense provisions of SFAS No. 123 had been adopted.
Implementation of SFAS No. 123 did not have a material impact on results of
operations or financial condition.
9
<PAGE>
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS
No. 128), which establishes new standards for computing and presenting earnings
per share. SFAS No. 128 is effective for the Company's September 30, 1998
financial statements, including restatement of interim periods; earlier
application was not permitted. The effect of the new standard did not have a
material impact on previously reported earnings per share.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (SFAS No. 130), which establishes standards for reporting and displaying
comprehensive income and its components. SFAS No. 130 requires comprehensive
income and its components, as recognized under the accounting standards, to be
displayed in a financial statement with the same prominence as other financial
statements. The Company has adopted the standard, as required, in the fiscal
year ended September 30, 1998. The Company had no items of comprehensive income
for the three years ended September 30, 1998.
Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information (SFAS No. 131), also
issued in June 1997, establishes new standards for reporting information about
operating segments in annul and interim financial statements. The standard also
requires descriptive information about the way the operating segments are
determined, the products and services provided by the segments, and the nature
of differences between reportable segment measurements and those used for the
consolidated enterprise. This standard is effective for years beginning after
December 15, 1997. Adoption in interim financial statements is not required
until the year after initial adoption, however, comparative prior period
information is required. The Company is evaluating the standard and plans
adoption as required in 1999; adoption of this disclosure requirement will not
have a material impact on the Company's results of operations or financial
position.
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
1998 1997
------ ------
Trade receivables $1,812 $4,431
Related party receivables:
Microfocus -- 1,460
------ ------
$1,812 $5,891
====== ======
5. INVENTORIES
Inventories are comprised of the following at September 30:
1998 1997
-------- --------
Materials $ 5,059 $235,748
Work-in-process -- 16,990
Finished products 37,000 77,003
-------- --------
$ 42,059 $329,741
======== ========
10
<PAGE>
During the year ended September 30, 1998, management completed a
thorough review of all its components inventory. Based on this review,
management wrote off as obsolete a substantial portion of its inventory. This
write off, totaling $287,682, is included in operating expenses for the year
ended September 30, 1998.
6. RELATED PARTY TRANSACTIONS
Notes Payable - Related Parties
-------------------------------
Notes payable to related parties as of September 30 are
comprised of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Term note payable to an officer and stockholder of
the Company, accruing interest at 10% per annum $ -- $ 28,650
Term notes payable to an officer and stockholder of
the Company, accruing interest at 12% per annum -- 68,750
Demand note payable to relative of an officer and
stockholder of the Company, accruing interest at
12% per annum 36,041 36,041
Demand note payable to related party of remainder
of funds borrowed for discontinued project, note
bears interest at 12% per annum -- 28,502
Term notes payable to interested parties of the
Company accruing interest at 12% per annum 10,000 10,000
Term note payable to an officer and stockholder of
the Company accruing interest at 8% per annum 50,000 --
Term note payable to stockholder of the Company accruing interest at
10% per annum payable in monthly payments of $2,000 for 25 months
The note is secured by all accounts receivable and
general intangibles of the Company 50,000 50,000
-------- --------
146,041 221,943
Less current portion 146,041 221,943
-------- --------
Long-term portion - due in 1998 $ -- $ --
======== ========
</TABLE>
Accrued interest payable on these notes amounted to $150,020 and
$245,784 at September 30, 1998 and 1997, respectively.
Stock Based Compensation Plan
-----------------------------
As part of the Company's employment agreement with the current
11
<PAGE>
chief executive officer (CEO), the Company has granted to the CEO 1,900,000
shares of the Company's capital stock which vests in certain milestones
throughout the term of employment. Ultimately all shares become fully vested,
provided that the CEO remains with the Company through the term of the contract.
The total amount charged to compensation expense for 1998 and 1997 under this
plan was $699,375 and $280,000, respectively.
7. NOTES PAYABLE - OTHER
Notes payable - other consist of the following as of September 30:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Senior secured convertible notes, resulting from private placement
offerings in July 1996 and June 1997, accruing interest at 8% per annum.
The notes are secured by the Company's common stock held by an executive
officer. The notes matured December 31,
1997. $ - $1,169,800
Term note with interest accruing at 24% per annum,
compounded monthly. The note matured April 30, 1996. 114,778 112,031
Term note with accrued interest payable each month
at 12% per annum. The note is secured by inventory
and property. The note matured December 18, 1997. 18,000 200,000
---------- ----------
$132,778 $1,481,831
========== ==========
</TABLE>
Accrued interest payable on these notes amounted to $127,538 and
$116,604 at September 30, 1998 and 1997, respectively.
8. RETIREMENT PLAN
The Company provides a SAR-SEP savings plan to which eligible
employees may make pretax payroll contributions up to 15% of compensation. The
Company does not make contributions to the plan.
9. INVESTMENT IN AESTAR FINE CHEMICAL COMPANY - AT COST
During 1995, the Company acquired a 9.5% equity interest in Aestar
Fine Chemical Company (Aestar) in exchange for 16,000,000 shares of its common
stock. The investment was carried at cost, as measured by the $.50 per share
fair market value of the 16,000,000 shares of the Company's common stock. The
Company has subsequently rescinded this investment during the year ended
September 30, 1997.
10. INVESTMENT IN ARDEX EQUIPMENT, L.L.C. - AT EQUITY
The Company purchased a 19.25% equity interest in Ardex Equipment,
L.L.C. (Ardex) in 1995. The investment was carried at cost, adjusted for the
Company's proportionate share of Ardex's loss from the purchase date through
September 30, 1995. During 1996, the Company rescinded its investment in Ardex,
the effects of which are reflected in these financial statements.
12
<PAGE>
11. LOSS ON COSMETICS DIVISION
During 1995, the Company issued 20,000,000 shares of common stock to
an investor which enabled the investor to obtain a majority interest in the
Company by recapitalizing the Company through this investment of $2,000,000 in
cash and an $8,000,000 interest in a foreign corporation. In connection with
this recapitalization, the Company agreed to the initiation of the development
of a cosmetics division and to the investment of excess funds in an investment
contract. During the year ended September 30, 1996, this agreement was rescinded
and the Company recognized a loss on the cosmetics division in the amount of
$471,000. Additionally as a result of the recision agreement, the balance of the
investment contract of $40,000 was written-off in the year ended September 30,
1997.
12. INCOME TAXES
A reconciliation of the Company's statutory tax rate to the
effective rate for the years ended September 30 is as follows:
1998 1997 1996
------ ------ ------
Federal statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit 4.6 4.6 4.6
Valuation allowance (38.6) (38.6) (38.6)
------ ------ ------
.0% .0% .0%
====== ====== ======
As of September 30, 1998, the Company had net operating loss
carryforwards of approximately $18,000,000 for federal income tax purposes that
are available to offset future taxable income through the year 2018.
The components of the Company's deferred tax asset for the years
ended September 30 is as follows:
1998 1997
------------ ------------
Net operating loss carryforwards $6,952,000 $5,330,000
Valuation allowance (6,952,000) (5,330,000)
------------ ------------
$ - $ -
============ ============
The evaluation of the realizability of such deferred tax assets in future
periods is made based upon a variety of factors for generating future taxable
income, such as intent and ability to sell assets and historical and projected
operating performance. At this time, the Company has established a valuation
reserve for all of its deferred tax assets. Such tax assets are available to be
recognized and benefit future periods.
13
<PAGE>
13. COMMON STOCK
During the year ended September 30, 1998, the Company issued
4,315,000 shares of common stock for $2,025,000, 5,274,961 shares were issued to
extinguish debt, and 1,260,532 shares were issued as payment for various
operating expenses.
During the year ended September 30, 1997, the Company issued
1,409,902 shares of common stock for $683,000, 1,317,143 shares were issued to
extinguish debt, and 1,161,828 shares were issued as payment for various
operating expenses. Additionally, the Company retired 16,000,000 shares of
common stock in connection with the rescission in its investment in Aestar.
During the year ended September 30, 1996, the Company issued
1,299,711 shares of common stock for $419,510, 689,985 shares were issued to
extinguish debt, and 9,000 shares were issued as payments for various operating
expenses.
14. STOCK OPTIONS AND WARRANTS
The Company has issued stock options to employees, directors,
vendors and debt holders. Options are granted at market value at the date of the
grant and are immediately exercisable.
A summary of the Company's stock option activity and related
information for the years ended September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- --------------------------
Weighted Weighted
Common Average Common Average
Stock Exercise Stock Exercise
Options Price Options Price
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 3,565,000 $.38 3,050,000 $.34
Granted - .00 515,000 .61
Exercised (125,000) .45 - .00
Expired/canceled (695,000) .25 - .00
--------- ---------
Outstanding at end of year 2,745,000 $.41 3,565,000 $.38
========= ========= ========= =========
</TABLE>
Additionally, the Company has issued warrants to purchase the
Company's stock as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- ------------------------
Weighted Weighted
Common Average Common Average
Stock Exercise Stock Exercise
Warrants Price Warrants Price
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 3,276,818 $.35 2,218,035 $.29
Issued 4,582,165 .52 1,058,783 .48
--------- ---------
Outstanding at end of year 7,858,983 $.45 3,276,818 $.35
========= ========= ========= =========
</TABLE>
The following summarizes information about options and warrants at
September 30, 1998:
14
<PAGE>
<TABLE>
<CAPTION>
Options/
Options/Warrants Outstanding Warrants Exercisable
------------------------------------------------- ----------------------------
Weighted Average Weighted Weighted
Range of Remaining Average Average
Exercise Prices Number Contractual Life Exercise Price Number Exercise Price
--------------- ------ ---------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
$0.22 - $3.00 10,603,982 3.77 years $.44 7,060,731 $.41
</TABLE>
The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), but applies Accounting Principles Board Opinion No.
25 and related interpretations. No compensation expense related to the granting
of stock options was recorded during the three years ended September 30, 1998.
The fair value of these equity awards was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1998 and 1997: risk-free interest rate of 5.75% and 6.5% for
1998 and 1997, respectively; expected volatility of 50%; expected option life of
3 to 5 years from vesting and an expected dividend yield of 0.0%. If the Company
had elected to recognize cost based on the fair value at the grant dates
consistent with the method of prescribed by SFAS No. 123, net loss and loss per
share would have been changed to the pro forma amounts as follows:
1998 1997 1996
------------ ------------ ------------
Net loss $(5,272,699) $(3,476,159) $(2,708,362)
Net loss per common share - basic (.12) (.12) (.07)
15. COMMITMENTS AND CONTINGENCIES
Potential Liability and Insurance
---------------------------------
In the normal course of business, the Company may be subject to
warranty and product liability claims on its hyperthermia equipment. Currently,
the Company does not have a product liability insurance policy in effect
although management does anticipate obtaining such coverage when adequate
financial resources are available. The assertion of any product liability claim
against the Company, therefore, may have an adverse effect on its financial
condition. As of September 30, 1998, no product, warranty claims or other
liabilities against the Company have been asserted.
Warranty Reserve
----------------
The Company warrants its hyperthermia units to be free from
defects in material and workmanship under normal use and service for the period
of one year from the date of shipment. Claims have been confined to basic
repairs. Given the one year limitation of the warranty, management has elected
to not set up a warranty reserve but, instead, to expense repairs as costs are
incurred.
16. OTHER BUSINESS VENTURES - TERMINATION OF PURCHASE OPTION
On April 26, 1995, the Company entered into an agreement to purchase
a 50% interest in the United Aerosol and Home Products Company, LTD ("Unisol"),
located in Zhongshan, China. Unisol is a specialty chemical and fine chemical
aerosol packaging and bottle/can filling business. The purchase price was to be
20% of the appraised value of Unisol equipment, payable in the Company's common
stock at the close of business on April 26, 1996. This agreement was terminated
during the year ended September 30, 1997.
15
<PAGE>
17. LEASE OBLIGATIONS
During the year ended September 30, 1997, the Company has entered
into a 3-year lease for their facilities in Columbia, Maryland. Future minimum
lease obligations are as follows:
1999 $ 69,131
2000 55,877
---------
$125,008
=========
Total amounts charged to rent expense for 1998, 1997 and 1996 were
$75,018, $64,594 and $55,982, respectively.
