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, 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
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(Exact name of registrant as specified in its charter)
Maryland 52-1256615
------------------------------- --------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
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
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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, 1999, the Registrant had outstanding 54,188,294 shares of
Common Stock, $.01 par value.
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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Index to Financial Statements
Page
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Balance Sheets 3
December 31, 1999 and September 30, 1999
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Statements of Operations 5
Three months ended
December 31, 1999 and 1998
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Statements of Cash Flows 6
Three months ended December 31, 1999 and
1998
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Notes to Financial Statements 7
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CELSION CORPORATION
BALANCE SHEETS
December 31, 1999 and September 30, 1999
ASSETS
12/31/99 9/30/99
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Current assets:
Cash and cash equivalents $ 766,989 $1,357,464
Accounts receivable 6,080 1,812
Inventories 22,059 22,059
Prepaid expenses 195,807 3,520
Other current assets 93,009 39,203
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Total current assets 1,083,945 1,424,058
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Property and equipment - at cost:
Furniture and office equipment 208,525 203,156
Laboratory and shop equipment 47,983 47,983
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256,508 251,139
Less accumulated depreciation 228,640 224,874
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Net value of property and equipment 27,868 26,265
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Other assets:
Patent licenses (net of amortization ) 104,403 108,361
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Total other assets 1,036,216 1,558,684
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Total assets $1,216,216 $ 330,738
========== ==========
See accompanying notes.
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<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
12/31/1999 9/30/1999
------------ ------------
Current liabilities:
- -------------------
<S> <C> <C>
Accounts payable - trade $ 48,455 $ 130,792
Notes payable-related parties 0 10,000
Notes payable-other 114,778 114,778
Current Portion of Capital Leases 1,327 1,292
Accrued interest payable - related parties 0 13,800
Accrued interest payable - other 155,373 155,373
Accrued compensation 55,116 91,009
Other accrued liabilities 26,121 88
------------ ------------
Total current liabilities 401,170 517,132
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Long term liabilities:
Long term debt -- --
Total long-term liabilities 4,119 4,427
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Total liabilities 405,289 521,559
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Stockholders= equity:
Capital stock - $.01 par value; 100,000,000 shares
authorized, 54,188,294 and 53,370,498 issued and
outstanding for 12/31/1999 and 9/30/1999, respectively 541,883 533,705
Additional paid-in capital 23,003,919 22,403,622
Accumulated deficit (22,734,865) (21,900,202)
------------ ------------
Total stockholders'(deficit) equity 810,927 1,037,125
------------ ------------
Total liabilities and shareholders= equity $ 1,216,216 $ 1,558,684
============ ============
</TABLE>
See accompanying notes.
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<PAGE>
CELSION CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended December 31,
1999 1998
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Revenue:
Hyperthermia sales and parts -- --
Total revenue -- --
Cost of sales -- --
Gross profit (loss) -- --
Operating expenses:
Selling, general and administrative $ 486,465 $ 357,577
Research and development 355,578 167,101
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Total operating expenses 842,043 524,679
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(Loss) Income from operations (842,043) (524,679)
Loss in investment fund -- --
Other(expense) income 7,691 --
Interest expense (311) (23,314)
------------ ------------
(Loss) Income before income taxes (834,663) (547,993)
Income taxes -- --
Net (loss) income (834,663) (547,993)
============ ============
Net (loss)income per common share (basic) ($ 0.016) ($ 0.014)
============ ============
Weighted average shares outstanding 53,833,784 40,595,255
See accompanying notes.
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<PAGE>
<TABLE>
CELSION CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended December 31,
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (834,663) $ (547,993)
Noncash items included in net (loss) income:
Loss in investment fund -- --
Depreciation and amortization 7,723 7,182
Bad debt expense -- --
Net changes in:
Accounts receivable (4,268) --
Inventories -- --
Prepaid expenses (192,286) 31,931
Other current assets (53,807) --
Accounts payable-trade (82,336) 90,540
Accrued interest payable - related parties -- 233
Accrued interest payable - other (13,800) 20,246
Accrued compensation (35,893) 68,346
Other accrued liabilities and deferred revenue 26,033 22,288
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Net cash (used) provided by operating activities (1,183,297) (307,226)
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Cash flows from investing activities:
Purchase of property and equipment (5,369) --
Net cash provided (used) by investing activities (5,369) --
Cash flows from financing activities:
Payment on notes payable (net) (10,000) (55,000)
Payment on capital leases (net) (274) (181)
Proceeds of stock issuances 608,466 407,600
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Net cash provided by financing activities 598,191 352,419
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Net increase (decrease) in cash (590,475) 45,193
Cash at beginning of period 1,357,464 54,921
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Cash at end of the period $ 766,989 $ 100,114
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE>
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements,
which include the accounts of Celsion Corporation (the "Company"), have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring accruals considered necessary for a fair presentation,
have been included in the accompanying unaudited financial statements. Operating
results for the three months ended December 31, 1999 are not necessarily
indicative of the results that may be expected for the full year ending
September 30, 2000. For further information, refer to the consolidated financial
statements and notes thereto, included in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1999.
Note 2. Common Stock Outstanding and Per Share Information
For the quarters ended December 31, 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
12/31/1999 and 9/30/1999 are as follows:
Parts held in inventory as of December 31, 1999 are held as
replacements and spares for occasional repair of older systems sold in previous
years
7
<PAGE>
12/31/1999 9/30/1999
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Materials $5,059 $5,059
Work - in - process - -
Finished products 17,000 17,000
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$22,059 $22,059
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Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIALCONDITION 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 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 and in the
discussion under "Liquidity and Capital Resources."
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 successfully to 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, and has concentrated its efforts on a new generation of
thermotherapy products.
8
<PAGE>
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 Three Months Ended December 31, 1999
and Three Months Ended December 31, 1998
There were no product sales for the three months ended December 31,
1999 and 1998. 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.
Research and development expense increased by 113% to $355,579 for the
current period from $167,101 for the three months ended December 31, 1998. The
increase in 1999 expenditure levels was mainly due to a charge of $149,428,
representing shares of Common Stock issued to Duke University under a license
agreement for Duke University's thermoliposome technology, entered into on
November 10, 1999. The Company also expended $36,298 in the current quarter to
begin its Phase I breast cancer trials at Harbor UCLA Medical Center and
Columbia Hospital during the period ended December 31, 1999. The Company expects
expenditures on research and development expenses to increase for the remainder
of the fiscal year as it completes Phase I of the BPH clinical trials and begins
Phase II clinical trials for its breast cancer and BPH treatment systems.
Selling, general and administrative expense increased by 36% to
$486,465 for the three months ended December 31, 1999, from $357,577 for the
comparable earlier period. The increase was due to the following additional
expenses in the 1999 periods: incentive stock issued in compliance with the
Company's obligations under an employment agreement, valued on the Company's
books at $75,000, and consulting fees and expenses paid in the form of shares of
Common Stock issued to various consultants for public relations and financial
and strategic planning services, in an aggregate amount of $60,000.
9
<PAGE>
Due mainly to the increase in the expenditures listed above for the
three months ending December 31, 1999, the loss from operations for the period
rose by $286,670 to ($834,663) from $(547,993) in the prior year.
Liquidity and Capital Resources
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $22,734,865 at December 31,
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 December 31, 1999, the Company had cash of $766,989 and total
current assets of $1,083,945 compared with current liabilities of $401,170,
resulting in a working capital surplus of $682,775. As of September 30, 1999 ,
the Company had $1,357,464 in cash and total current assets of $1,424,058
compared with current liabilities of $517,132, which resulted in a working
capital surplus of $902,499 at fiscal year-end. Net cash used in the Company's
operating activities was $1,183,297 for the three months ending December 31,
1999.
The Company does not have any bank financing arrangements and has
funded its operations in recent years primarily through private placement
offerings. For all of fiscal year 2000, the Company expects to expend a total of
about $4 million for breast cancer and BPH clinical testing and for corporate
overhead. The foregoing amounts are estimates based upon assumptions as to the
availability of funding, the scheduling of institutional clinical research and
testing 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.
The Company expects to meet its funding needs for fiscal year 2000
through a private placement offering to accredited investors under Regulation D.
The offering was consummated on January 31, 2000, and netted the Company
approximately $4.2 million.
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
10
<PAGE>
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.
Year 2000 Compliance
The Company instituted procedures and changes to prepare for potential
Y2K problems, as disclosed in earlier reports. To date Celsion has not had any
Y2K related problems, and all internal systems have functioned properly since
the beginning of the year 2000. All key vendors have not had any problems that
the Company is aware of, and all of the Company's orders for components have
been filled. At this time, Celsion's management does not foresee significant Y2K
risks resulting from its dealings with vendors or suppliers.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
During the first quarter of the fiscal year ended December 31, 1999,
the Company issued the following securities without registration under the
Securities Act of 1933, as amended (the "Securities Act"):
1. During the current quarter, the Company issued a total of 374,498
shares to nine consultants for services in connection with public relations and
financial and strategic planning. These services were valued at $342,162. The
shares issued to the these consultants were restricted stock, endorsed with the
Company's standard restricted stock legend, with a stop transfer instruction
recorded by the transfer agent. Accordingly, the Company views the shares issued
as exempt from registration under Sections 4(2) and/or 4(6) of the Securities
Act.
11
<PAGE>
2. The Company issued a total of 167,500 shares of Common Stock upon
the exercise of certain outstanding options and warrants, for total cash
consideration of $41,875, an average exercise price of $0.25 per share. The
shares issued to the holders of such options and warrants were restricted stock
endorsed with the Company's standard restricted stock legend, with a stop
transfer instruction recorded by the transfer agent. Accordingly, the Company
views the shares issued as exempt from registration under Sections 4(2) and/or
4(6) of the Securities Act.
3. During the current quarter, the Company issued 100,000 shares of
Common Stock to its President and CEO, Spencer J. Volk, as required under his
employment arrangements with the Company. At the request of the Company, Mr.
Volk had previously deferred the receipt of 400,000 shares which were due to him
under his earlier employment agreement. In November 1999, in lieu of the
issuance of such shares, the Company granted Mr. Volk an option to purchase
400,000 shares of restricted Common Stock at a price equal to two-thirds of the
average closing price of Common Stock during the prior three trading days (which
closing price amounted to approximately $0.75 per share) and the Company agreed
to issue the 100,000 shares of Common Stock. The shares issued were restricted
stock endorsed with the Company's standard restricted stock legend, with a stop
transfer instruction recorded by the transfer agent. Accordingly, the Company
views the shares issued as exempt from registration under Sections 4(2) and/or
4(6) of the Securities Act.
4. During the current quarter, the Company issued 175,798 shares of
Common Stock to Duke University, in lieu of a cash payment, pursuant to the
terms and conditions of a license agreement with Duke University, dated November
10, 1999. The shares were valued at $149,428, and consisted of restricted stock
endorsed with the Company's standard restricted stock legend, with a stop
transfer instruction recorded by the transfer agent. Accordingly, the Company
views the shares issued as exempt from registration under Sections 4(2) and/or
4(6) of the Securities Act.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
12
<PAGE>
Item 5. Other Information
On February 7, 2000, the Company issued a call for redemption of its
Series 700 and Series 800 Warrants, which enable the holders thereof to purchase
shares of Common Stock at prices of $1.00 and $0.90 per share, respectively. The
Series 700 Warrants relate to a total of 2,583,000, and the Series 800 Warrants
relate to a total of 2,610,000 shares of Common Stock. The Company anticipates
that a substantial number of Series 700 and Series 800 Warrants will be
exercised since the redemption price for such Warrants is equal to only $0.01
per share.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11. Computation of per share earnings.
(b) Reports on Form 8-K.
Form 8-K was filed on February 3, 2000, reporting on the
completion of a recent private placement financing and a
related capitalization change, new executive employment
agreements and commencement of clinical trials. No financial
statements were filed with the Form 8-K.
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 14, 2000
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
13
<PAGE>
EXHIBIT 11
CELSION CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended December 31,
1999 1998
---- ----
Net (loss) income $ (834,663) $ (547,993)
Net (loss) income per common share* $ (0.016) $ (0.014)
Weighted average shares outstanding 53,833,784 40,595,255
* Common stock equivalents have been excluded from the calculation of net loss
per share as their inclusion would be anti-dilutive.
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 766989
<SECURITIES> 0
<RECEIVABLES> 6080
<ALLOWANCES> 0
<INVENTORY> 22059
<CURRENT-ASSETS> 1083945
<PP&E> 256508
<DEPRECIATION> 228640
<TOTAL-ASSETS> 1216216
<CURRENT-LIABILITIES> 401170
<BONDS> 0
0
0
<COMMON> 541883
<OTHER-SE> 269054
<TOTAL-LIABILITY-AND-EQUITY> 1216216
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 842043
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 311
<INCOME-PRETAX> (834663)
<INCOME-TAX> 0
<INCOME-CONTINUING> (834663)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (834663)
<EPS-BASIC> .016
<EPS-DILUTED> .016
</TABLE>
