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, 2000
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
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
--------------
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, 2000, the Registrant had outstanding 64,033,831 shares of Common
Stock, $.01 par value.
20
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Financial Statements
-----------------------------
Page
----
Balance Sheets 3
June 30, 2000 and September 30, 1999
Statements of Operations 5
Nine months ended June 30, 2000 and 1999
Three months ended June 30, 2000 and 1999
Statements of Cash Flows 6
Nine months ended June 30, 2000 and 1999
Notes to Financial Statements 7
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CELSION CORPORATION
BALANCE SHEETS
June 30, 2000 and September 30, 1999
ASSETS
6/30/2000 9/30/1999
----------- -----------
Current assets:
Cash and cash equivalents $10,089,917 $ 1,357,464
Accounts receivable 1,812 1,812
Inventories 22,059 22,059
Prepaid expenses 135,025 3,520
Other current assets
123,535 39,203
----------- -----------
Total current assets
10,372,348 1,424,058
Property and equipment - at cost:
Furniture and office equipment 257,898 203,156
Laboratory and shop equipment 47,983 47,983
----------- -----------
305,881 251,139
Less accumulated depreciation 241,560 224,874
----------- -----------
Net value of property and equipment 64,321 26,265
----------- -----------
Other assets:
Patent licenses (net of amortization ) 96,489 108,361
----------- -----------
Total other assets 96,489 108,361
----------- -----------
Total assets $10,553,158 $ 1,558,684
=========== ===========
3
LIABILITIES AND STOCKHOLDERS' EQUITY
6/30/2000 9/30/1999
------------ ------------
Current liabilities:
Accounts payable - trade $105,781 $130,792
Notes payable-related parties - 10,000
Notes payable-other 114,778 114,778
Current Portion of Capital Leases - 1,292
Accrued interest payable - related parties - 13,800
Accrued interest payable - other 155,373 155,373
Accrued compensation - 91,009
Other accrued liabilities 26,151 88
------------ ------------
Total current liabilities 402,083 517,132
------------ ------------
Long term liabilities:
Long term debt - -
Total long-term liabilities - 4,427
------------ ------------
Total liabilities 402,083 521,559
------------ ------------
Stockholders equity:
Capital stock - $.01 par value; 100,000,000 shares
authorized, 64,033,831 and 53,370,498 issued and
outstanding for 6/30/2000 and 9/30/1999, respectively. 640,338 533,705
Preferred stock - $1,000 par value, 4,853 and
0 shares issued and outstanding as of 6/30/2000 and
9/30/1999, respectively. 4,852,500 -
Preferred Stock Dividend to be distributed 80,875 -
Additional paid-in capital 29,417,937 22,403,622
Accumulated deficit (24,860,575) (21,900,202)
------------ ------------
Total stockholders' equity 10,131,075 1,037,125
------------ ------------
Total liabilities and shareholders equity $ 10,533,158 $ 1,558,684
------------ ------------
See accompanying notes.
4
CELSION CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months Ended June 30, Nine Months Ended June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
Revenue:
Hyperthermia sales and parts $ -- $ -- 3,465 $ --
------------ ------------ ------------ ------------
Total revenue -- -- 3,465 --
------------ ------------ ------------ ------------
Cost of sales -- -- -- --
------------ ------------ ------------ ------------
Gross profit -- -- 3,465 --
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative 460,233 207,168 1,216,002 853,470
Research and development 644,106 219,976 1,876,943 683,604
------------ ------------ ------------ ------------
Total operating expenses 1,104,339 427,144 3,092,945 1,537,074
------------ ------------ ------------ ------------
(Loss) Income from operations (1,104,339) (427,144) (3,089,480) (1,537,074)
------------ ------------ ------------ ------------
Other(expense) income -- -- -- --
Interest income (expense) 142,040 (427) 209,982 (51,391)
------------ ------------ ------------ ------------
(Loss) Income before income taxes (962,299) (427,571) (2,879,498) (1,588,465)
Income taxes -- -- -- --
Net (loss) income ($ 962,299) ($ 427,571) ($ 2,879,498) ($ 1,588,465)
============ ============ ============ ============
Net (loss)income per common share ($ 0.02) ($ 0.01) ($ 0.05) ($ 0.04)
============ ============ ============ ============
Weighted average shares outstanding 63,050,849 46,914,625 57,790,252 43,787,113
============ ============ ============ ============
See accompanying notes.
5
CELSION CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended June 30,
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss ($ 2,879,498) ($ 1,588,465)
Noncash items included in net loss:
Depreciation and amortization 28,558 21,312
Bad debt expense -- --
Net changes in:
Accounts receivable -- (1,211)
Inventories -- --
Other current assets (84,333) (21,594)
Prepaid expenses (131,505) 57,264
Accounts payable-trade (25,010) (942,825)
Accrued interest payable - related parties -- 233
Accrued interest payable - other (13,800) (108,073)
Accrued compensation (91,009) (364,793)
Accrued professional fees -- (100,000)
Other accrued liabilities 26,063 (17,519)
------------ ------------
Net cash used by operating activities (3,170,534) (3,065,671)
Cash flows from investing activities:
Purchase of property and equipment (54,742) (935)
Net cash used by investing activities (54,742) (935)
------------ ------------
Cash flows from financing activities:
Payment on notes (net) (10,000) (154,040)
Payments- capital equipment lease (5,719) (813)
Proceeds of stock issuances 11,973,448 4,033,200
------------ ------------
Net cash provided by financing activities 11,957,728 3,878,347
------------ ------------
Net increase in cash 8,732,452 811,741
Cash at beginning of period 1,357,464 54,920
------------ ------------
Cash at end of the period 10,089,917 $ 866,661
============ ============
Schedule of noncash investing and
financing transactions: Conversion of
debt and accrued interest payable,
and compensation through issuance of
common stock $ 681,224 $ 1,040,932
============ ============
See accompanying notes.
6
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited financial statements, 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 nine
months ended June 30, 2000 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 June 30, 2000 and 1999, 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
June 30, 2000 and September 30, 1999 are as follows:
June 30, 2000 September 30, 1999
------------- ------------------
Materials $5,059 $5,059
Finished products 17,000 17,000
------ ------
$22,059 $22,059
7
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.
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.
8
Results of Operations
Comparison of Nine Months Ended June 30, 2000
and Nine Months Ended June 30, 1999
Product sales for the nine months ended June 30, 2000 were only $3,465
as compared to none for the same period in 1999. The limited revenue in the
current period resulted from a parts reorder for older, previously sold
equipment. 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 175% to $1,876,943 for
the nine months ended June 30,2000 from $683,604 for the comparable period ended
June 30, 1999. The increase of $1,193,339 in the nine months ended June 30, 2000
was attributable to the issuance of shares of Common Stock to Duke University
under a license agreement for thermoliposome technology, research on
thermoliposome technology during the period, expenditures for its Phase I breast
cancer trials at Harbor UCLA Medical Center and Columbia Hospital, expenditures
for the Company's upcoming Phase II BPH and Breast Cancer trials, and payments
made to Sloan-Kettering Cancer Institute for licensing of it's gene therapy
technology during the period ended June 30, 2000. 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 43% to
$1,216,002 for the nine months ended June 30, 2000 from $853,470 from the
comparable period ended June 30, 1999. The increase of approximately $362,532
was due primarily to increased legal and financial services associated with the
Company's recent securities offerings and technology licensing, increased office
staffing, costs associated with the Company's annual meeting, and to increased
public relations activities.
Due mainly to the increase in the expenditures listed above for the
nine months ending June 30, 2000, the loss from operations for the period rose
by $1,552,406 to ($3,089,480) from $(1,537,074) in the prior year.
Interest income net of interest expense increased to $209,982 for the
nine months ended June 30, 2000 from ($51,391) for the comparable period ended
June 30, 1999. The $261,373 increase was due to the high cash balances invested
in money market instruments and time deposits. Since the Company has currently
no revenues, these balances will decrease as the Company draws on its cash
reserves to pay for the Company's on going operations.
9
Comparison of Three Months Ended June 30, 2000
and Three Months Ended June 30, 1999
Research and development expense increased by 192% to $644,106 for the three
months ended June 30, 2000 from $219,976 from the comparable periods ended June
30, 1999. The increase of $424,130 for the three months ended June 30, 2000 was
attributable to expenditures for its Phase I breast cancer trials at Harbor UCLA
Medical Center and Columbia Hospital, and expenditures for the Company's
upcoming Phase II Breast and BPH clinical trials, and payments made to
Sloan-Kettering Cancer Institute for licensing of its gene therapy technology
during the period ended June 30, 2000. 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 122% to
$460,233 for the three months ended June 30, 2000 from $207,168 from the
comparable period ended June 30, 1999. The increase of approximately $253,065
was due primarily to increased legal and financial services, increased office
staffing, costs associated with the Company's annual meeting, and to increased
public relations activities.
Due mainly to the increase in the expenditures listed above for the
three months ending June 30, 2000, the loss from operations for the period rose
by $677,195 to ($1,104,339) from $(427,144) in the prior year.
Interest income net of interest expense increased to $142,040 for the three
months ended June 30, 2000 from ($427) for the comparable period ended June 30,
1999. The $142,467 increase was due to the high cash balances invested in money
market instruments and time deposits. Since the Company has currently no
revenues, these balances will decrease as the Company draws on its cash reserves
to pay for the Company's on going operations.
10
Liquidity and Capital Resources
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $24,860,575 at June 30, 2000.
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, 2000, the Company had cash of $10,089,917 and total
current assets of $10,372,348 compared with current liabilities of $402,083
resulting in a working capital surplus of $9,970,265. 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 $3,170,534 for the nine months ending June 30, 2000.
The increase in working capital is due to the closing of a private placement
offering on January 31, 2000 netting the Company approximately $4,200,000,
exercise of warrants (primarily Series 700 and 800) during the period from which
the Company received $5,467,118, and during the current quarter, the exercise of
warrants (primarily Series 500 and 550) from which the Company received
$1,588,889.
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, which will be funded from its current resources. 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'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.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has commenced an action in the United States District Court
for the District of Maryland against Warren C. Stearns, a former Company
director, Mr. Stearn's management company, SMC, and a number of Mr. Stearns'
family members and colleagues who hold certain Celsion warrants (the "Stearns
Warrants") for the purchase of approximately 3.4 million Celsion shares. The
Stearns Warrants were intended as compensation for certain investment banking,
brokerage and financing services rendered and to be rendered and to be rendered
by Mr. Stearns and SMC. The Company and its attorneys have reviewed the
circumstances surrounding the issuance of Stearns Warrants and the services
which were performed or purported to be performed by Mr. Stearns and SMC, and
have concluded that the Stearns Warrants should be rescinded. The Company
believes that the issuance of the Stearns Warrants was in violation of Section
15 of the Securities and Exchange Act of 1934 and constitudes a voidable
transaction under the provisions of Section 29 of such Act.
The defendants in the litigation have moved to dismiss the complaint on
various technical grounds, including statue of limitations. The Company is
opposing this motion and intends to prosecute the litigation vigorously.
Item 2. Change in Securities
During the quarter ended June 30, 2000, the Company issued the
following securities without registration under the Securities Act of 1933, as
amended (the "Securities Act"):
1. The Company issued a total of 3,380,616 shares of Common Stock upon
the exercise of outstanding options and warrants, of Series 500 and 550
warrants, for total cash consideration of $1,588,889, an average exercise price
of $0.47 per share. The shares issued to the holders of such options and
warrants 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.
2. During the current quarter, the Company issued a total of 48,530
shares of Common Stock to two consultants in lieu of cash fees for services
rendered valued at $77,330. The shares issued to the consultants 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.
12
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
During the quarter ended June 30, 2000 the Company entered into an
employment agreement with Dennis Smith, who was formally employed with the
Company as an engineer from 1985 to 1995. Mr. Smith will manage the Medical
Systems Division and will report to Dr. Augustine Y. Cheung, Chief Scientific
Officer.
Also, the Company has been taking steps to increase its key personnel
resources. In addition to adding administrative assistants, the Company has been
negotiating with candidates for executive-level positions in medical and
pharmaceutical product development and in medical systems engineering. Proposed
formal agreements are under consideration and it is expected that one or more
new executives will join the Company during the fourth fiscal quarter.
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.
13
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: August 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
14
EXHIBIT 11
CELSION CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Nine Months Ended June 30,
2000 1999
------------- -------------
Net (loss) income ($ 2,879,498) ($ 1,588,465)
Net (loss) income per common share* ($ 0.05) ($ 0.04)
Weighted average shares outstanding 57,790,252 43,787,113
* Common stock equivalents have been excluded from the calculation of net loss
per share as their inclusion would be anti-dilutive.
15
5
3-MOS
SEP-30-1999
APR-01-2000
JUN-30-2000
10089917
0
1812
0
22059
10372348
3058
241560
10553158
105741
0
0
4852500
640338
4638237
10553158
0
0
0
0
1104339
(1104339)
(142040)
(962299)
0
(962299)
0
0
0
(962299)
(0.02)
(0.02)
