UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended December 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to _________
Commission file number 000-14242
CELSION CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1256615
- ------------------------------ ------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
10220-I Old Columbia Road
Columbia, Maryland 21046-1705
------------------------------ ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 290-5390
-----------------
Securities registered pursuant to Section 12(b) of the Act: None
-----------------
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per
share
-----------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
As of December 31, 1998, the Registrant had outstanding 41,514,467
shares of Common Stock, $.01 par value.
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CELSION CORPORATION
BALANCE SHEETS
December 31, 1998 and September 30, 1998
ASSETS
12/31/1998 9/30/1998
Current assets: ---------- ---------
Cash and cash equivalents $100,114 $ 54,920
Accounts receivable 1,812 1,812
Inventories 42,059 42,059
Prepaid expenses 45,013 76,944
Other current asset -- --
Total current assets 188,998 175,735
-------- --------
Property and equipment - at cost:
---------------------------------
Furniture and office equipment 195,794 195,794
Laboratory and shop equipment 47,048 47,048
-------- --------
242,842 242,842
Less accumulated depreciation 215,253 212,029
-------- --------
Net value of property and equipment 27,588 30,813
Other assets:
- -------------
Patent licenses (net of accumulated amortization of
$ 69,718 and $65,760 on 12/31/1998 and 9/30/1998,
respectively) 120,232 124,190
-------- --------
Total assets $336,819 $330,738
======== ========
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<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
12/31/1998 9/30/1998
------------ ------------
<S> <C> <C>
Current liabilities:
- --------------------
Accounts payable - trade $ 1,125,309 $ 1,034,767
Notes payable - other 109,041 132,778
Notes payable-related parties 0 146,041
Accrued interest payable - related parties 544 150,020
Accrued interest payable - other 297,493 127,538
Accrued compensation 522,572 470,220
Accrued professional fees 100,000 100,000
Other accrued liabilities 51,921 13,639
Deferred revenues 114,778 --
Capital lease - current 1,118 1,083
------------ ------------
Total current liabilities 2,322,776 2,176,086
Long term liabilities:
- ----------------------
Capital Leases- Long Term 5,504 5,719
------------ ------------
Total long-term liabilities 5,504 --
------------ ------------
Total liabilities 2,328,280 2.181,805
------------ ------------
Stockholders' deficit:
- ----------------------
Capital stock - $.01 par value; 100,000,000 shares
authorized, 41,514,467 and 39,945,826 issued and
outstanding for 12/31/1998 and 9/30/1998, respectively 415,145 399,458
Additional paid-in capital 17,605,399 17,213,485
Accumulated deficit (20,012,005) (19,464,010)
------------ ------------
Total stockholders' deficit (1,991,461) (1,851,067)
------------ ------------
Total liabilities and shareholders' deficit
$ 336,819 $ 330,738
------------ ============
</TABLE>
See accompanying notes.
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<PAGE>
CELSION CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended December 31,
1998 1997
Revenue:
- --------
Hyperthermia sales and parts -- --
Total revenue -- --
Cost of sales -- --
Gross profit (loss) -- --
Operating expenses:
- -------------------
Selling, general and administrative* $ 357,577 $ 725,058
Research and development 167,101 102,844
------------ ------------
Total operating expenses 524,679 827,902
------------ ------------
(Loss) Income from operations (524,679) (827,902)
Loss in investment fund -- --
Other(expense) income -- 6,255
Interest expense (23,314) (35,525)
------------ ------------
(Loss) Income before income taxes (547,993) (857,172)
Income taxes -- --
Net (loss) income (547,993) (857,172)
============ ============
Net (loss)income per common share (basic) ($ 0.014) ($ 0.028)
============ ============
Weighted average shares outstanding 40,595,255 30,802,001
See accompanying notes.
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<PAGE>
CELSION CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended December 31,
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (547,993) $ (857,172)
Noncash items included in net (loss) income:
Loss in investment fund -- --
Depreciation and amortization 7,182 3,876
Bad debt expense -- (54,313)
Net changes in:
Accounts receivable -- --
Inventories -- (19,362)
Prepaid expenses 31,931 (210)
Accounts payable-trade 90,540 (37,997)
Accrued interest payable - related parties 233 (52,911)
Accrued interest payable - other 20,246 (61,984)
Accrued compensation 68,346 53,150
Accrued professional fees -- (151,648)
Other accrued liabilities and deferred revenue 22,288 41,864
----------- -----------
Net cash (used) provided by operating activities (307,226) (1,136,707)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment -- (7,400)
Net cash provided (used) by investing activities -- (7,400)
-----------
Cash flows from financing activities:
Payment on notes payable (net) (55,000) (885,040)
Payment on capital leases (net) (181) --
Proceeds of stock issuances 407,600 1,794,405
----------- -----------
Net cash provided by financing activities 352,419 909,365
Net increase(decrease) in cash 45,193 (234,742)
Cash at beginning of period 54,921 267,353
----------- -----------
Cash at end of the period $ 100,114 $ 32,611
----------- -----------
</TABLE>
See accompanying notes.
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<PAGE>
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The information presented for the three month periods ended December
31, 1997 and December 31, 1998 is unaudited, but includes adjustments
(consisting only of normal recurring accruals) that Celsion Corporation (the
"Company") management believes to be necessary for the fair presentation of
results for the periods presented. The September 30, 1998 balance sheet was
derived from audited financial statements. These financial statements should be
read in conjunction with the Company's audited annual statements for the year
ended September 30, 1998, which were included as part of the Company's Report on
Form 10-K.
Note 2. Common Stock Outstanding and Per Share Information
For the quarters ended December 31, 1997 and 1998, per share data is
based on the weighted average number of shares of Common Stock outstanding.
Outstanding warrants and options which can be converted into Common Stock are
not included as their effect is antidilutive.
Note 3. Inventories
Inventories are carried at the lower of actual cost or market, and cost
is determined using the average cost method. The components of inventories on
12/31/1998 and 9/30/1998 are as follows:
12/31/1998 9/30/1998
Materials $5,059 $5,059
Work - in - process - -
Finished products 37,000 37,000
------- -------
$42,059 $42,059
======= =======
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<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The statements in this report that relate to future plans, events or
performance are forward-looking statements. Actual results, events or
performance may differ materially due to a variety of factors, including the
factors described on the Form 10-K for the year ended September 30, 1998.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Overview
Celsion Corporation (the "Company") has been engaged in developing and
marketing minimally invasive thermotherapy devices utilized in the treatment of
cancer as well as genitourinary diseases associated with benign growth of the
prostate in older males, the most common being benign prostatic hyperplasia
("BPH"). Thermotherapy (also known as hyperthermia), or heat therapy, is a
historically recognized successful method of treatment. In modern thermotherapy,
a controlled heat dose is targeted to treatment sites using microwave and/or
other energy for therapeutic benefits. Thermotherapy is a clinically
established, adjuvant modality for at least doubling tumor response to radiation
therapy or chemotherapy. However, delivering the necessary heat within the body
without damaging surrounding tissue has been a major impediment to the use of
thermotherapy for deep seated disease. The Company has an exclusive license from
the Massachusetts Institute of Technology ("MIT") for adaptive phase array
("APA") technology which the Company believes will overcome this problem. This
technology, originally developed for the Strategic Defense Initiative (Star
Wars) plans of the Department of Defense, applies adaptive phased arrays of
microwave energy in conjunction with traditional radiation or chemotherapy for
the deep heating of breast, prostate and other deep seated cancers.
The Company will be concentrating its business on the development of
two recently acquired technologies: (i) from MIT, APA targeting of microwave
energy, which the Company believes will have broad cancer and other medical
applications, and (ii) balloon catheter technology for enhanced thermotherapy of
BPH and other genitourinary tract conditions. While the balloon catheter
technology is related to the Company's previous BPH thermotherapy devices, the
Company believes the APA technology has the potential to serve as the core
technology for a broad array of medical devices, and accordingly the Company
will devote most of its resources to the exploitation of the APA technology.
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<PAGE>
Results of Operations
Three Months Ended December 31, 1997 and 1998
The Company is concentrating on the development of the new technologies
it recently acquired to significantly expand the capabilities and market for its
products and has ceased active sales of its current equipment. The Company
therefore did not receive any revenue in the three months ended December 31,
1997 and 1998. With the focus on the development and marketing of the new
thermotherapy systems utilizing the patented technologies, the Company
anticipates that most of its future revenue will be generated by treatments
administered utilizing its thermotherapy systems and the sales of disposable
kits. Revenue from the new technologies is not expected until the new
technologies are developed and approved for sale by governmental regulatory
agencies.
Given the lack of sales and sales efforts in the quarter ended December
31, 1997 and 1998, there were no cost of sales in the quarters.
Research and development expense increased to $167,101 in the three
months ended December 31, 1998 from $102,844 in the three months ended December
31, 1997 due to increased emphasis on technology enhancements. The Company
expects to significantly increase its expenditures for research and development
to fund the development or enhancement of products by incorporating the APA
technology and the MMTC technology.
Selling, general and administrative expenses decreased substantially to
$357,577 in the three months ended December 31, 1998 from $725,058 in the three
months ended December 31, 1997. The higher expenses during the quarter ending
December 31, 1997 were primarily due to the increase in consulting and legal
expenses, and compensation expenses, including $234,375 in compensation expense
recorded for the 250,000 shares of common stock issued to Spencer Volk. The
Company expects selling and marketing expense to increase substantially as it
expands its advertising and promotional activities and increases its marketing
and sales force, in anticipation of the commercialization of its new
thermotherapy systems.
Interest expense decreased to $23,314 in the three months ended
December 31, 1998 from $35,525 in the three months ended December 31, 1997. The
decrease was due to the repayment on certain notes.
The net loss for the quarter ended December 31, 1998 was $547,993. The
loss per share was $0.014. Operating losses will continue while the Company is
developing its new equipment. Losses thereafter will depend upon a number of
factors including the market acceptance of the new technologies.
-8-
<PAGE>
Liquidity and Capital Resources
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $20,012,005 and a shareholders'
deficit of $1,991,461 at December 31, 1998. The Company has funded its
operations primarily through the sale of equity securities. At December 31,
1998, the Company had cash, cash equivalents and short-term investments
aggregating approximately $100,114. Net cash used in the Company's operating
activities was $301,226 for the three months ended December 31, 1998.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, including
seeking FDA approval for the domestic sale of the Company's products, expand its
sales and marketing activities. The Company expects that its existing capital
resources will not be adequate to fund the Company's operations through the next
twelve months. The Company is dependent on raising additional capital to fund
its development of technology and to implement its business plan. Such
dependence will continue at least until the Company begins marketing its new
technologies.
The Company's future capital requirements and the adequacy of available
funds will depend on numerous factors, including: the successful
commercialization of the thermotherapy systems; progress in its product
development efforts; the magnitude and scope of such efforts; progress with
preclinical studies and clinical trials; the cost and timing of manufacturing
scale- up; the development of effective sales and marketing activities; the cost
of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; the emerging of competing technological and market
developments; and the development of strategic alliances for the marketing of
the Company's products. To the extent that funds generated from the Company's
operations are insufficient to meet current or planned operating requirements,
the Company will be required to obtain additional funds through equity or debt
financing, strategic alliances with corporate partners and others, or through
other sources. The Company completed a $1 million private placement on February
3, 1999. These funds should allow the company to continue Phase I BPH clinical
trials and begin Phase I clinical trials for the Company's Breast Cancer
Treatment System. The Company does not have any other committed sources of
additional financing, and there can be no assurance that additional funding, if
necessary, will be available on acceptable terms, if at all. If adequate funds
are not available, the Company may be required to delay, scale-back or eliminate
certain aspects of its operations or attempt to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates,
products or potential markets. If adequate funds are not available, the
Company's business, financial condition and results of operations will be
materially and adversely effected.
-9-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company was named as a defendant in a lawsuit filed by Eastwell
Management Services, Ltd. ("Eastwell") in the United States District Court for
the District of Maryland claiming, inter alia, breach of contract. On December
19, 1998, the U.S. District Court of Maryland found in favor of Celsion. In a
related decision, the U.S. District Court of Maryland also found in favor of
Celsion regarding its countersuit, entering a judgement against Eastwell in the
amount of $100,000. The Company intends to pursue all legal avenues available to
collect the $100,000. Eastwell has filed an appeal of the case, which is now
pending with the U.S.
District Court.
Item 2. Change in Securities
During the quarter ended December 31, 1998, the Company issued the
following securities without registration under the Securities Act of 1933:
1. The Company issued 448,641 shares to eight persons for
compensation for various services provided to the Company totaling
approximately $95,600. The issuance was made to a limited number of
accredited investors. The Company believes the issuance was exempt from
registration under the Securities Act pursuant to Sections 3(a)(9),
4(2) or 4(6) of the Securities Act and Regulation D promulgated
thereunder.
2. The Company issued 200,000 shares to Spencer Volk, the
President of the Company upon conversion of an outstanding note in the
amount of $50,000. The Company believes the issuance was exempt from
registration under the Securities Act pursuant to Section 4(2) or 4(6)
of the Securities Act and Regulation D promulgated thereunder.
3. The Company issued 920,000 shares to eight accredited
investors for cash consideration totaling $230,000. The issuance was
made to a limited number of accredited investors. The Company believes
the issuance was exempt from registration under the Securities Act as
sales to limited numbers of accredited investors pursuant to Sections
4(2) or 4(6) of the Securities Act and Regulation D promulgated
thereunder.
Item 3. Defaults upon Senior Securities
None.
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<PAGE>
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11. Computation of per share earnings.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
No report on Form 8-K was filed during the period reported upon.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: February 12, 1999 CELSION CORPORATION
(Registrant)
By: /s/Spencer J. Volk
----------------------
Spencer J. Volk
President
By: /s/John Mon
----------------------
John Mon
Treasurer
-11-
EXHIBIT 11
CELSION CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended December 31,
1998 1997
Net (loss) income ($ 547,993) ($ 857,172)
Net (loss) income per common share (0.014) ($ 0.028)
Weighted average shares outstanding 40,595,255 30,802,001
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 100114
<SECURITIES> 0
<RECEIVABLES> 1812
<ALLOWANCES> 0
<INVENTORY> 42059
<CURRENT-ASSETS> 188998
<PP&E> 242842
<DEPRECIATION> 215253
<TOTAL-ASSETS> 336819
<CURRENT-LIABILITIES> 2322776
<BONDS> 0
0
0
<COMMON> 415145
<OTHER-SE> (2406610)
<TOTAL-LIABILITY-AND-EQUITY> 336819
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 524679
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23314
<INCOME-PRETAX> (547993)
<INCOME-TAX> 0
<INCOME-CONTINUING> (547993)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (547993)
<EPS-PRIMARY> (0.014)
<EPS-DILUTED> (0.014)
</TABLE>
