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, 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
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 52-1256615
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State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.)
10220-I Old Columbia Road, Columbia, Maryland 21046-1705
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(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 February 7, 2001, the Registrant had outstanding 72,953,597 shares of
Common Stock, $.01 par value.
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Index to Financial Statements
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Page
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Balance Sheets 3
December 31, 2000 and September 30, 2000
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Statements of Operations 5
Three months ended
December 31, 2000 and 1999
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Statements of Cash Flows 6
Three months ended December 31, 2000 and 1999
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Notes to Financial Statements 7
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2
CELSION CORPORATION
BALANCE SHEETS
December 31, 2000 and September 30, 2000
ASSETS
12/31/2000 9/30/2000
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(Unaudited)
Current assets:
Cash and cash equivalents $7,480,990 $8,820,196
Accounts receivable - trade 2,307 2,307
Accrued interest receivable -- 7,751
Inventories 13,548 13,538
Prepaid expenses 157,766 22,417
Other current assets
134,356 34,356
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Total current assets 7,788,967 8,900,565
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Property and equipment - at cost:
Furniture and office equipment 171,944 146,287
Laboratory and shop equipment 86,969 52,978
Less accumulated depreciation 85,852 74,540
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Net value of property and equipment 173,061 124,725
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Other assets:
Patent licenses (net of amortization ) 88,574 92,531
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Total assets $8,050,602 $9,117,821
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See accompanying notes
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CELSION CORPORATION
BALANCE SHEETS (CONTINUED)
December 31, 2000 and September 30, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
12/31/2000 9/30/2000
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Current liabilities:
Accounts payable - trade $ 153,771 $ 60,472
Notes payable 114,778 114,778
Accrued interest payable 155,373 155,373
Other accrued liabilities 58,286 60,769
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Total current liabilities 482,208 391,392
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Stockholders' equity:
Capital stock $.01 par value; 150,000,000 shares
authorized, 64,487,634 and 64,372,067 shares
issued and outstanding for 12/31/2000 and 9/30/2000,
respectively 644,876 643,721
Series A 10% Convertible Preferred Stock--
$1,000 par value, 7,000 shares authorized, 5,176 shares
issued and outstanding 5,176,000 5,176,000
Additional paid-in capital 29,569,387 29,354,125
Accumulated deficit (27,821,869) (26,447,417)
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Total stockholders' equity 7,568,394 8,726,429
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Total liabilities and shareholders' equity $ 8,050,602 $ 9,117,821
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See accompanying notes.
4
CELSION CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended December 31,
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2000 1999
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Operating expenses:
Selling, general and administrative $ 930,600 $ 486,465
Research and development 556,375 355,578
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Total operating expenses 1,486,975 842,043
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Loss from operations (1,486,975) (842,043)
Interest income 112,576 7,691
Interest expense (53) (311)
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Loss before income taxes (1,374,452) (834,663)
Income taxes -- --
Net loss (1,374,452) (834,663)
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Net loss per common share (basic) ($ 0.021) ($ 0.016)
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Weighted average shares outstanding 64,441,029 53,833,784
See accompanying notes.
5
CELSION CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended December 31,
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2000 1999
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Cash flows from operating activities:
Net loss $(1,374,452) $ (834,663)
Non-cash items included in net loss:
Depreciation and amortization 15,270 7,723
Net changes in:
Accounts receivable 7,751 (4,268)
Inventories (10) --
Prepaid expenses (135,349) (192,286)
Other current assets (100,000) (53,807)
Accounts payable-trade 309,716 (82,336)
Accrued interest payable - other -- (13,800)
Accrued compensation -- (35,893)
Other accrued liabilities and deferred revenue (2,483) 26,033
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Net cash used by operating activities (1,279,557) (1,183,297)
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Cash flows from investing activities:
Purchase of property and equipment (59,649) (5,369)
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Net cash used by investing activities (59,649) (5,369)
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Cash flows from financing activities:
Payment on notes payable (net) -- (10,000)
Payment on capital leases (net) -- (273)
Proceeds of stock issuances -- 608,466
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Net cash provided by financing activities -- 598,191
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Net decrease in cash (1,339,206) (590,475)
Cash at beginning of period 8,820,196 1,357,464
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Cash at end of the period $ 7,480,990 $ 766,989
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Conversion of Accounts Payable through
issuance of common stock 216,417 --
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See accompanying notes.
6
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, 2000 are not necessarily
indicative of the results that may be expected for the full year ending
September 30, 2001. 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, 2000.
Note 2. Common Stock Outstanding and Per Share Information
For the quarters ended December 31, 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 anti-dilutive.
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
12/31/2000 and 9/30/2000 are as follows:
Parts held in inventory as of December 31, 2000 are held as
replacements and spares for occasional repair of older systems sold in previous
years
12/31/2000 9/30/2000
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Materials 5,059 5,059
Work - in - process 8,489 8,479
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Finished products 13,548 13,538
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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
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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.
In evaluating such statements, readers should specifically consider the various
factors contained in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 2000, which could cause actual results to differ
materially from those indicated by such forward-looking statements, including
those set forth in "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Risk Factors", as well as those set forth below and
elsewhere in this Report.
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.
Results of Operations
Comparison of Three Months Ended December 31, 2000
and Three Months Ended December 31, 1999
There were no product sales for the three months ended December 31,
2000 and 1999. No product revenues are expected until the Company's equipment
incorporating new technologies receives the necessary approvals from
governmental regulatory agencies. The new equipment is currently in Phase II
clinical testing.
Selling, general and administrative expense increased by 191% to
$930,600 for the three months ended December 31, 2000, from $486,465 for the
comparable period in 1999. The increase of $444,135 was due primarily to
increased consulting, marketing and promotion, travel, and legal expenses,
associated with a registration statement filed by the Company and subsequently
withdrawn in December 2000. The Company also expanded and upgraded its office
space, to accommodate increased staffing, resulting in an increase in rent.
Research and development expense increased by 156% to $556,375 for the
current period from $355,578 for the three months ended December 31, 1999. The
increase in 2000 expenditure levels was mainly due to the cost of engineering of
the Company's BPH and breast cancer treatment equipment. The Company expects
expenditures on research and development to increase for the remainder of the
current fiscal year as it begins Phase II clinical trials for its breast cancer
and BPH treatment systems.
The increased expenditures discussed above resulted in an increase in
the loss from operations for the three month period ended December 31, 2000, of
$644,932, to ($1,486,975) from $(842,043) in the comparable period during the
prior year.
Liquidity and Capital Resources
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of ($27,821,869) at December 31,
2000. The Company has incurred negative cash flows from operations since its
inception, and has funded its operations primarily through the sale of equity
8
securities. As of December 31, 2000, the Company had total current assets of
$7,788,967, including cash and cash equivalents of $7,480,990, current
liabilities of $482,208 and a working capital surplus of $7,306,759. As of
September 30, 2000, the Company had total current assets of $8,900,565,
including cash and cash equivalents of $8,820,196, current liabilities of
$391,392, and a working capital surplus of $8,509,173. Net cash used in the
Company's operating activities was $1,279,557 for the three months ending
December 31, 2000.
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 2001, the Company expects to expend a total of
about $8 million for research, development and administration. This aggregate
expenditure amount is an estimate based upon assumptions such as, the scheduling
and cost of institutional clinical research and testing personnel, the timing of
clinical trials and other factors, not all of which are fully predictable or
within the control of the Company. Accordingly, estimates and timing concerning
projected expenditures and programs are subject to change.
The Company expects to meet its funding needs for fiscal year 2001 from
its current resources.
The Company's dependence on raising additional capital will continue at
least until such time as 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 its thermotherapy systems, progress in its product
development efforts, progress with pre-clinical 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 in a timely manner, on acceptable terms, if at all. If
adequate funds are not available in a timely manner and on acceptable terms, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On April 27, 2000, we commenced an action in the United States District
Court for the District of Maryland against Warren C. Stearns, a former director,
Mr. Stearn's management company, SMC, and a number of Mr. Stearns' family
members and colleagues who hold certain warrants for the purchase of
approximately 3.4 million shares of our common stock. These warrants were
intended as compensation for certain investment banking, brokerage and financing
services rendered and to be rendered by Mr. Stearns and SMC. . We have reviewed
with our attorneys the circumstances surrounding the issuance of these warrants
and the services that were performed or purported to be performed by Mr. Stearns
and SMC, and have concluded that these warrants should be rescinded. We believe
that the issuance of these warrants was in violation of Section 15 of the
Securities and Exchange Act of 1934 and constitutes a voidable transaction under
the provisions of Section 29 of that Act.
The defendants in the litigation have moved to dismiss the complaint on
various technical grounds, including statute of limitations. On January 18,
2001, the Maryland District Court denied the defendants' motion to dismiss for
lack of personal jurisdiction but granted the defendants' motion that venue was
improper. The Maryland District Court transferred the matter to the United
States District Court for the Northern District of Illinois, in Chicago, and
referred the remaining grounds for dismissal raised in the defendants' motion to
dismiss to the Illinois District Court.
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ITEM 2. CHANGE IN SECURITIES.
During the fiscal quarter ended December 31, 2000, the Company issued
the following securities without registration under the Securities Act of 1933,
as amended (the "Securities Act"):
The Company issued a total of 115,567 shares of its Common
Stock to eight consultants for services in connection with
public relations and financial and strategic planning. These
services were valued at $216,417. These shares are 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.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
Not applicable
.
ITEM 5 OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11. Computation of per share earnings.
(b) Reports on Form 8-K.
On December 29, 2000, the Company filed with the Securities and
Exchange Commission (the "SEC") a Current Report on Form 8-K reporting, under
Item 5, that on that date it withdrew from the SEC its Registration Statement on
Form S-1 (File No. 333-51814) originally filed with the SEC on December 14,
2000.
10
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 7, 2001
CELSION CORPORATION
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(Registrant)
By: /s/ Spencer J. Volk
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Spencer J. Volk
President and Chief Executive Officer
By: /s/ Anthony P. Deasey
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Anthony P. Deasey
Chief Financial Officer
11
EXHIBIT 11
CELSION CORPORATION
COMPUTATION OF EARNINGS PER SHARE
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Three Months Ended December 31,
- -------------------------------------- ------------------------------------
2000 1999
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Net (loss) income ($1,374,452) ($834,663)
- -------------------------------------- ------------- ----------------------
Net (loss) income per common share* ($0.021) ($0.016)
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Weighted average shares outstanding 64,441,029 53,833,784
- -------------------------------------- ------------- ----------------------
* Common stock equivalents have been excluded from the calculation of net loss
per share as their inclusion would be anti-dilutive.
12