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 June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-14242
CELSION CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1256615
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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
--------------
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 June 30, 1999, the Registrant had outstanding 50,757,992 shares
of Common Stock, $.01 par value.
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- --------------------------------------------------------------------------------
Index to Financial Statements
- --------------------------------------------------------------------------------
Page
----
Balance Sheets 3
June 30, 1999 and September 30, 1998
- --------------------------------------------------------------------------------
Statements of Operations 5
Three months and six months ended
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Statements of Cash Flows 6
Six months ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Notes to Financial Statements 7
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2
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CELSION CORPORATION
BALANCE SHEETS
June 30, 1999 and September 30, 1998
ASSETS
6/30/1999 9/30/1998
---------- ---------
Current assets:
Cash and cash equivalents $ 866,661 $ 54,920
Accounts receivable 3,023 1,812
Inventories 42,059 42,059
Prepaid expenses 19,680 76,944
Other current asset 21,594 -
---------- ---------
Total current assets 953,017 175,735
---------- ---------
Property and equipment - at cost:
---------------------------------
Furniture and office equipment 195,794 195,794
Laboratory and shop equipment 47,982 47,048
---------- ---------
243,776 242,842
Less accumulated depreciation 221,469 212,029
---------- ---------
Net value of property and equipment 22,307 30,813
---------- ---------
Other assets:
-------------
Patent licenses (net of amortization) 112,318 124,190
---------- ---------
Total other assets 112,318 124,190
---------- ---------
Total assets $1,087,642 $330,738
========== =========
3
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<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
6/30/1999 9/30/1998
------------ ------------
Current liabilities:
- --------------------
<S> <C> <C>
Accounts payable - trade $ 91,943 $ 1,034,767
Notes payable-other 10,000 132,778
Notes payable - related parties 0 146,041
Current Portion of Capital Leases 1,240 1,083
Accrued interest payable - related parties 544 150,020
Accrued interest payable - other 169,173 127,538
Accrued compensation 89,433 470,220
Accrued professional fees 0 100,000
Other accrued liabilities 12,114 13,639
Deferred revenues 114,778 --
------------ ------------
Total current liabilities 489,225 2,176,086
------------ ------------
Long term liabilities:
- ----------------------
Long term debt -- --
Total long-term liabilities 4,750 5,719
------------ ------------
Total liabilities 493,975 2,181,805
------------ ------------
Stockholders' equity:
- ---------------------
Capital stock - $.01 par value; 100,000,000 shares
authorized, 50,757,992 and 39,945,826 issued and
outstanding for 6/30/1999 and 9/30/1998, respectively 507,580 399,458
Additional paid-in capital 21,138,564 17,213,485
Accumulated deficit (21,052,477) (19,464,010)
------------ ------------
Total stockholders'(deficit) equity 593,667 (1,851,067)
------------ ------------
Total liabilities and shareholders= equity $ 1,087,642 $ 330,738
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
CELSION CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30
1999 1998 1999 1998
Revenue:
- --------
<S> <C> <C> <C> <C>
Hyperthermia sales and parts $ -- $ -- $ -- $ 110,260
Total revenue -- -- -- 110,260
Cost of sales -- -- -- 45,500
------------ ------------ ------------ ------------
Gross profit -- -- -- 64,760
Operating expenses:
- -------------------
Selling, general and administrative 207,168 898,224 853,470 2,239,292
Research and development 219,976 697,060 683,604 1,298,168
------------ ------------ ------------ ------------
Total operating expenses 427,144 1,595,284 1,537,074 3,537,460
------------ ------------ ------------ ------------
(Loss) Income from operations (427,144) (1,595,284) (1,537,074) (3,472,700)
Loss in investment fund -- -- -- --
Other(expense) income -- -- -- 6,241
Interest income (expense) (427) (12,362) (51,391) (55,367)
------------ ------------ ------------ ------------
(Loss) Income before income taxes (427,571) (1,607,646) (1,588,465) (3,521,826)
Income taxes -- -- -- --
Net (loss) income $ (427,571) $ (1,607,646) $(1,588,465) $ (3,521,826)
============ ============ ============ ============
Net (loss)income per common share $ (0.01) $ (0.04) $ (0.04) $ (0.10)
============ ============ ============ ============
Weighted average shares outstanding 46,914,625 36,609,733 43,787,113 33,952,060
============ ============ ============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
CELSION CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended June 30, Nine Months Ended June 30,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income ($1,588,465) ($3,521,826)
Noncash items included in net (loss) income:
Depreciation and amortization 21,312 17,066
Bad debt expense -- --
Net changes in:
Accounts receivable (1,211) (22,239)
Inventories -- 93,737
Other current assets (21,594) (15,132)
Prepaid expenses 57,264 (210)
Accounts payable-trade (942,825) 658,534
Accrued interest payable - related parties 233 (199,679)
Accrued interest payable - other (108,073) 45,779
Accrued compensation (364,793) 107,808
Accrued professional fees (100,000) (44,149)
Other accrued liabilities (17,519) 4,085
----------- -----------
Net cash (used) provided by operating activities (3,065,671) (2,876,226)
Cash flows from investing activities:
Purchase of property and equipment (935) 15,967
Funds returned - investment contract -- --
----------- -----------
Investment in patents -- (10,000)
----------- -----------
Net cash provided (used) by investing activities (935) 5,967
----------- -----------
Cash flows from financing activities:
Payment on notes (net) (154,040) (41,804)
----------- -----------
Proceeds (Payments)- capital equipment lease (813) 7,039
----------- -----------
Proceeds of stock issuances 4,033,200 2,663,912
----------- -----------
Net cash provided by financing activities 3,878,347 2,629,147
----------- -----------
Net increase(decrease) in cash 811,741 (241,112)
Cash at beginning of period 54,920 267,353
----------- -----------
Cash at end of the period $ 866,661 $ 26,241
=========== ===========
Schedule of noncash investing and financing transactions:
Conversion of debt and accrued interest payable, and compensation
through issuance of common stock
$ 1,040,932 $ 1,877,308
=========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The information presented for the three-month and six-month periods ended June
30, 1999 and June 30, 1998 is unaudited, but includes adjustments (consisting
only of normal recurring accruals) that the management of Celsion Corporation
(the "Company") 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. The interim 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 June 30, 1999 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
6/30/1999 and 9/30/1998 are as follows:
Parts held in inventory as of June 30, 1999 are held as replacements and
spares for occasional repair of older systems sold in previous years
6/30/1999 9/30/1998
Materials $5,059 $5,059
Work - in - process -- --
Finished products 37,000 37,000
------ ------
$42,059 $42,059
======= =======
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Statements and terms such as "expect", "anticipate", "estimate", "plan",
"believe" and words of similar import, regarding the Company's expectations as
to the development and effectiveness of its technology, the potential demand for
its products, and other aspects of its present and future business operations
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, the Company cannot guarantee that
7
<PAGE>
actual results will not differ materially from its expectations. Factors which
could cause actual results to differ from expectations include, but are not
limited to, those referred to in the following paragraph.
General
Since inception, the Company has incurred substantial operating losses. The
Company expects operating losses to continue and possibly increase in the near
term and for the foreseeable future as it continues its product development
efforts, conducts clinical trials and undertakes marketing and sales activities
for new products. The Company's ability to achieve profitability is dependent
upon its ability to successfully integrate new technology into its thermotherapy
systems, conduct clinical trials, obtain governmental approvals, and
manufacture, market and sell its new products. Major obstacles facing the
Company over the last several years have included inadequate funding, a negative
net worth, and the slow development of the thermotherapy market due to technical
shortcomings of the thermotherapy equipment available commercially. The Company
has not continued to market its older thermotherapy system, principally because
of the system's inability to provide heat treatment for other than surface and
sub-surface tumors.
The operating results of the Company have fluctuated significantly in the past
on an annual and a quarterly basis. The Company expects that its operating
results will fluctuate significantly from quarter to quarter in the future and
will depend on a number of factors, many of which are outside the Company's
control.
Results of Operations
Comparison of Nine Months and Three Months Ended June 30, 1999
and Nine Months and Three Months Ended June 30, 1998
There were no product sales for the nine months ended June 30, 1999, compared
with sales of $110,260 for the nine months ended June 30, 1998, which
represented re-orders of the Company's older equipment. Significant product
revenues are not expected until development of equipment incorporating the
Company's new technologies is completed and such equipment is clinically tested
and receives necessary approvals from governmental regulatory agencies.
Cost of sales for the nine months ended June 30, 1998 were $45,500 which was
in line with previous periods.
Research and development expense decreased substantially to $ 683,604 and
$219,976 for the nine and three months ended June 30, 1999 respectively from
$1,298,168 and $697,060 for the nine and three months ended June 30, 1998
respectively. The decrease in 1999 expenditure levels, which were intended to be
comparable to those in 1998, was mainly due to a delay in beginning anticipated
Phase II BPH treatment clinicals and Phase I breast cancer studies. The Company
expects expenditures on research and development expenses to increase for the
remainder of the fiscal year, once Phase II BPH clinical and Phase I breast
cancer clinical trials begin.
Selling, general and administrative expense decreased substantially to
$853,470 and $207,168 for the nine and three months ended June 30, 1999
8
<PAGE>
respectively from $2,239,292 and $898,224 for the nine and three months ended
June 30, 1998 respectively. The decrease in the nine and three months period was
due to the absence in the 1999 periods of the following expenses recorded in the
1998 periods: incentive stock issued to the Company's President, Spencer Volk,
valued on the Company books in the amount of $700,640 for the nine months and
$465,000 for the three months; consulting fees and expenses paid to Stearns
Management in the amount of $195,297 for the nine months and $51,000 for the
three months; legal fees in the amount of $175,000 for the nine months and
$89,300 for the three months; and a write-off of approximately $112,000 of
inventory for the nine months and $85,000 for the three months, stocked as
replacement parts for older equipment sold in prior years by the Company, which
inventory was being carried at the lower of cost or market value and which was
determined to have no appreciable market value at year-end because of the
absence of demand.
Due mainly to the absence of expenditures for clinical trials for the nine and
three months ending June 30, 1999 and the decrease in executive bonus, legal,
and consulting fees, the loss from operations decreased by $1,933,361 and
$1,179,075 respectively to $(1,588,465) and $(427,571) from $(3,521,826) and
$(1,606,646) respectively in the prior year as described in detail above.
Liquidity and Capital Resources
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $21,052,477 at June 30, 1999.
The Company has incurred negative cash flows from operations since its
inception, and has funded its operations primarily through the sale of equity
securities. As of June 30,1999, the Company had cash of $ 866,661 and total
current assets of $953,017 compared with current liabilities of $489,225,
resulting in a working capital surplus of $593,667. As of September 30, 1998 ,
the Company had only $54,920 in cash and total current assets of $175,735
compared with current liabilities of $2,176,086, which resulted in a working
capital deficit of $(1,851,067) at fiscal year-end. The improvement in the
Company's working capital is due to receipt of gross proceeds of $2,300,000 from
private placements, and the conversion of debt, accrued interest payable, and
accrued compensation through the issuance of restricted shares of Common Stock
in the amount of $1,040,932. The Company also received several concessions on
certain accounts payable and debt previously recorded on the books of the
Company. Net cash used in the Company's operating activities was $3,065,671 for
the nine months ending June 30, 1999.
The Company does not have any bank financing arrangements. As of June 30,
1999, the Company's indebtedness consisted of a promissory note payable to Lake
Shu Loon in the principal amount of $10,000.
As of March 1999, the Company had planned to raise and spend approximately
$10,000,000 for calendar 1999, of which between $5 million and $6 million was to
be devoted to research and development and clinical trials for the Company's
breast cancer and BPH therapy products, and approximately $4 million was to be
devoted to research and development in the areas of targeted drug delivery, gene
therapy and prostate cancer, as well as to corporate overhead. As of July 1,
1999, the Company expects to raise and spend a total of about $6 million for all
of calendar 1999, of which $4 million is being devoted to breast cancer and BPH
research and clinical trials, and $2 million to new products and to corporate
overhead. As is indicated by the change in estimated expenditures, the foregoing
9
<PAGE>
amounts are estimates based upon assumptions as to the availability of funding,
the scheduling of research institution personnel, the timing of clinical trials
and other factors, not all of which are fully predictable. Accordingly,
estimates and timing concerning projected expenditures and programs are subject
to change.
Of the currently planned total expenditures of approximately $6 million, the
Company has raised $2.3 million as of June 30, 1999, with approximately $3.7
million remaining to be raised during the remainder of calendar 1999, including
in such remainder the proceeds of this offering. If the Company cannot fund its
operating requirements, and particularly those associated with its obligation to
conduct clinical trials under its licensing agreements, it will be in breach of
its commitments under such licensing agreements and could stand to lose its
license rights unless, at the time of any such breach, it could arrange for
additional time, and could obtain the funding needed, to conduct such clinical
trials. If, because of a failure to obtain funding or other cause, the Company
were to commit a breach of its license agreements, the Company could well lose
any benefit it has previously received from association with various research
institutions with which it has previously worked. See "Risk Factors".
The Company's dependence on raising additional capital will continue at least
until the Company is able to begin marketing its new technologies. The Company's
future capital requirements and the adequacy of its financing depend upon
numerous factors, including the successful commercialization of the
thermotherapy systems, progress in its product development efforts, progress
with preclinical studies and clinical trials, the cost and timing of production
arrangements, the development of effective sales and marketing activities, the
cost of filing, prosecuting, defending and enforcing intellectual property
rights, competing technological and market developments, and the development of
strategic alliances for the marketing of its products. The Company will be
required to obtain such funding through equity or debt financing, strategic
alliances with corporate partners and others, or through other sources not yet
identified. The Company does not have any committed sources of additional
financing, and cannot guarantee that additional funding 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.
Note 2 of the Notes to the Company's Financial Statements describes a going
concern uncertainty based on the continuation of substantial operating losses
and the need for substantial amounts of working capital to fund its present and
intended operations. As discussed above, the continued operation of the Company
is dependent upon the Company's ability to obtain sufficient funding to complete
clinical trials of its products, obtain FDA and other approvals, and conduct a
successful marketing campaign.
During the quarter ended June 30, 1999, the Company completed a private
placement offering of common stock and warrants for a minimum of $500,000,and a
maximum of $1,500,000. The Company closed the offering on June 15, 1999 and
received gross proceeds of $1,305,000.
10
<PAGE>
On July 21, 1999, when its Common Stock had been trading a price in excess of
$1.00 per share, the Company elected to call for redemption its Series 700
Warrants exercisable at a price of $0.50. The Company expects that a number of
holders of the 2,000,000 outstanding Series 700 Warrants will elect to exercise
their rights under such Warrants to purchase Common Stock at a price of $0.50
per share in lieu of accepting the stipulated redemption price of $0.01 per
Warrant. The redemption date is August 21, 1999, and the Company is not
presently able to estimate the number of shares which may be purchased and the
amount of proceeds which will be received as a result of any exercise of the
Warrants.
Year 2000 Compliance
The Company is evaluating the potential impact of what is commonly referred to
as Year 2000 or Y2K issues, concerning the inability of certain information
systems to properly recognize and process dates containing the year 2000 and
beyond. The Company believes that all of its current medical systems are year
2000 compliant. In addition, the Company's older medical systems, which, with
one exception, are no longer under warranty and are no longer being serviced by
the Company, have been tested and are expected to function properly beginning
January 1, 2000, for two reasons. First, the older systems' software,
operations, and control systems are not date-driven, and second, the older
systems are "stand alone" systems and, therefore, are not linked to any other
computer systems. Accordingly, in the Company's view, this older equipment can
continue to function beyond January 1, 2000. The record and storage programs
used by such systems are, however, date driven, and, although not required to do
so, the Company is currently testing the record storage programs to determine
the most effective method for permitting such programs to properly record
treatment information after January 1, 2000.
The Company has installed accounting software that is Y2K compliant. The
Company is currently evaluating its other computerized systems. The aggregate
costs to upgrade such other systems for Y2K compliance are estimated to be below
$8,000. The Company plans to have all internal systems compliant by September
30, 1999 and has the necessary funds to complete the conversion.
Finally, the Company uses various vendors and subcontractors to provide parts
and components. The Company has begun a written survey of its vendors regarding
their Y2K compliance, and expects to complete the survey by September 30, 1999.
The Company continues to monitor the Y2K progress of its vendors to determine
the potential impact on the Company of their Y2K readiness or lack thereof. In
addition, the Company has multiple suppliers for most of the parts used in its
APA-improved Microfocus equipment, and has been seeking alternate sources for
those items now being purchased from single sources. To date, management does
not anticipate that its Y2K readiness plans will result in any material costs to
the Company, and the Company does not view the going concern reservation set
forth in its Financial Statements as having an impact on the Company's ability
to be Y2K compliant.
Although the Company does not anticipate that Y2K will have a material impact
on the Company's financial condition or its ability to operate at current
levels, it cannot guarantee that the steps taken in preparation for the year
2000 will be sufficient to avoid any adverse impact on the Company.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
During the quarter ended June 30, 1999, the Company issued the following
securities in private transactions without registration under the Securities Act
of 1933:
1. The Company issued 17,000 shares to 2 persons who exercised their
warrants for an aggregate exercise price of $8,500.
2. The Company issued an aggregate of 2,081,861 shares, upon conversion of
various outstanding indebtedness in the amount of $1,040,932, owed to various
third parties and to executives on account of accrued and unpaid salaries.
3. The Company issued a total of 2,610,000 shares to accredited
investors in a private placement for gross cash consideration totaling
$1,305,000.
The Company believes these transactions were 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.
In each case, such shares are restricted securities and the stock certificates
issued in connection therewith are legended and subject to stop transfer notice
placed with the Company's transfer agent.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
Additional Licensing Rights
12
<PAGE>
The Company has been granted additional rights under its BPH technology
license agreement with MMTC, Inc., and now has the opportunity to include
testing of such BPH technology in the treatment of prostate cancer in treatment
in its use of the patent. In addition, the Company has entered into an Option
Agreement with Memorial Sloan Kettering Cancer Center for the exclusive
worldwide license to a proprietary technology relating to a heat-activated
biological modifier, designed to improve the effectiveness and decrease the
treatment dosage for chemotherapy, heat and radiation treatment of localized
cancers.
Board of Directors
On May 27, 1999 the Board of Directors, elected to add Dr. Claude Tihon and
Dr. Lasalle Leffall to its Board of Directors as directors with terms expiring
in 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11. Computation of per share earnings.
(b) Reports on Form 8-K.
No report on Form 8-K was filed during the quarter ended June 30, 1999.
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.
13
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DATE: August 9, 1999
CELSION CORPORATION
-------------------
(Registrant)
By:/s/Spencer J. Volk
------------------
Spencer J. Volk
President and Chief Executive Officer
By:/s/John Mon
-----------
John Mon
Treasurer and Chief Accounting Officer
14
EXHIBIT 11
CELSION CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Nine Months Ended June 30,
1999 1998
Net (loss) income $(1,588,465) $(3,521,826)
Net (loss) income per common share* $ (0.04) $ (0.10)
Weighted average shares outstanding 43,787,113 33,952,060
* Common stock equivalents have been excluded from the calculation of net
loss per share as their inclusion would be anti-dilutive.
--------------------------------------------------------
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 866661
<SECURITIES> 0
<RECEIVABLES> 3023
<ALLOWANCES> 0
<INVENTORY> 42059
<CURRENT-ASSETS> 953017
<PP&E> 243776
<DEPRECIATION> 221469
<TOTAL-ASSETS> 1087642
<CURRENT-LIABILITIES> 489225
<BONDS> 0
0
0
<COMMON> 507580
<OTHER-SE> 86087
<TOTAL-LIABILITY-AND-EQUITY> 593667
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 427144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 427
<INCOME-PRETAX> 427571
<INCOME-TAX> 0
<INCOME-CONTINUING> 427571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (427571)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
