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, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to _________
Commission file number 000-14242
CELSION CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-1256615
-------- ----------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
10220-I Old Columbia Road
Columbia, Maryland 21046-1705
------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 290-5390
--------------
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, 1998, the Registrant had outstanding 37,285,722 shares
of Common Stock, $.01 par value.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CELSION CORPORATION
BALANCE SHEETS
June 30, 1998 and September 30, 1997
ASSETS
6/30/1998 9/30/1997
Current assets:
Cash and cash equivalents $26,241 $267,353
Accounts receivable 28,130 5,891
Inventories 236,003 329,741
Prepaid expenses 8,417 8,207
Other current asset 41,888 26,755
------ ------
Total current assets 340,679 637,947
------- -------
Property and equipment - at cost:
Furniture and office equipment 195,794 180,348
Laboratory and shop equipment 47,047 92,228
------ ------
242,841 272,576
Less accumulated depreciation 208,761 213,885
------- -------
Net value of property and equipment 34,080 58,691
Other assets:
Patent licenses (net of amortization ) 128,146 126,571
------- -------
Total other assets 128,146 126,571
------- -------
Total assets $502,905 $823,209
======== ========
2
LIABILITIES AND STOCKHOLDERS' EQUITY
6/30/1998 9/30/1997
--------- ---------
Current liabilities:
- --------------------
Accounts payable - trade $1,272,706 $614,173
Notes payable-other 140,542 1,369,800
Notes payable - related parties 82,148 221,943
Accrued interest payable - related parties 46,105 245,784
Accrued interest payable - other 162,384 116,604
Accrued compensation 439,524 331,715
Accrued professional fees 212,151 256,301
Other accrued liabilities 20,626 15,504
Deferred revenues 112,031 112,031
------- -------
Total current liabilities 2,488,217 3,283,855
--------- ---------
Long term liabilities:
- ----------------------
Long term debt - -
Total long-term liabilities 6,002 -
----- -
Total liabilities 2,494,219 3,283,855
--------- ---------
Stockholders' equity:
- ---------------------
Capital stock - $.01 par value; 100,000,000 shares
authorized, 37,285,722 and 29,095,333 issued and
outstanding for 6/30/1998 and 9/30/1997, respectively. 372,857 290,953
Additional paid-in capital 16,421,178 12,511,923
Accumulated deficit (18,785,349) (15,263,522)
------------ ------------
Total stockholders'(deficit) equity (1,991,314) (2,460,646)
----------- -----------
Total liabilities and shareholders' equity $502,905 $823,209
-------- ========
See accompanying notes.
3
CELSION CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, Nine Months Ended June 30
1998 1997 1998 1997
Revenue:
- --------
Hyperthermia sales and parts $- $3,675 $110,260 $116,968
Total revenue - 3,675 110,260 116,968
Cost of sales - 2,029 45,500 46,141
- ----- ------ ------
Gross profit - 1,646 64,760 70,828
Operating expenses:
- ------------------
Selling, general and administrative 898,224 732,784 2,239,292 1,709,454
Research and development 697,060 102,843 1,298,168 144,945
Total operating expenses 1,595,284 835,627 3,537,460 1,854,399
--------- ------- --------- ---------
(Loss) Income from operations (1,595,284) (833,981) (3,472,700) (1,783,572)
Loss in investment fund - - - (40,000)
Other(expense) income - 8,448 6,241 33,313
Interest income (expense) (12,362) (41,752) (55,367) (120,633)
(Loss) Income before income taxes (1,607,646) (867,285) (3,521,826) (1,910,892)
Income taxes - - - -
Net (loss) income ($1,607,646) ($867,285) ($3,521,826) ($1,910,892)
============ ========== ============ ============
Net (loss)income per common share ($0.04) ($0.03) ($0.10) ($0.07)
======= ======= ======= =======
Weighted average shares outstanding 36,609,733 26,495,072 33,952,060 26,007,435
========== ========== ========== ==========
See accompanying notes.
4
CELSION CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended June 30,
1998 1997
Cash flows from operating activities:
Net (loss) income ($3,521,826) ($1,910,892)
Noncash items included in net (loss) income:
Depreciation and amortization 17,066 17,269
Bad debt expense - 1,170
Net changes in:
Accounts receivable (22,239) (14,877)
Inventories 93,737 (36,597)
Accrued interest receivable - (24,810)
Other current assets (15,132) -
Prepaid expenses (210) (1,049)
Accounts payable-trade 658,534 462,860
Accrued interest payable - related parties (199,679) (84,238)
Accrued interest payable - other 45,779 48,813
Accrued compensation 107,808 133,984
Accrued professional fees (44,149) 142,000
Other accrued liabilities 4,085 (84,129)
-----
Net cash (used) provided by operating activities (2,876,226) (1,350,496)
Cash flows from investing activities:
Purchase of property and equipment 15,967 (3,806)
Funds returned - investment contract - 40,000
- ------
Investment in patents (10,000) 0
-------- -
Net cash provided (used) by investing activities 5,967 36,194
----- ------
Cash flows from financing activities:
Payment on notes (net) (41,804) 283,000
Proceeds - capital equipment lease 7,039 -
-----
Proceeds of stock issuances 2,663,912 904,920
--------- -------
Net cash provided by financing activities 2,629,147 1,187,920
--------- ---------
Net increase(decrease) in cash (241,112) (126,382)
Cash at beginning of period 267,353 246,931
------- -------
Cash at end of the period $26,241 120,549
======= =======
Schedule of noncash investing and financing transactions:
Conversion of debt and accrued interest payable, and
compensation through issuance of common stock $1,877,308 $ -
========== =========
See accompanying notes.
5
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited condensed 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 for Form 10-Q and Article 10 of Regulation S-X. The September 30,
1997 balance sheet was derived from audited financial statements. The balance
sheet as of June 30 , 1998 and the statements of operations for the three and
nine month periods ended June 30 , 1998 and 1997, and the statements of cash
flows for the nine month periods ended June 30, 1998 and 1997, are unaudited but
include adjustments (consisting of normal recurring adjustments) which the
Company considers necessary for a fair presentation of the financial position at
such dates and the operating results and cash flows for those periods. Although
the Company believes that the disclosures in these financial statements are
adequate to make the information presented not misleading, certain information
normally included in financial statements and related footnotes prepared in
accordance with generally-accepted accounting principles has been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. These financial statements should be read in conjunction with the
Company's audited financial statements for the year ended September 30, 1997,
which were included as part of the Company's Report on Form 10-K/A.
Note 2. Executive Compensation
During the quarter ended June 30, 1997, the Company recorded $280,000 in
compensation expense for the 500,000 shares of common stock issued to Spencer J.
Volk in accordance to Mr. Volk's Employment Agreement. The closing market price
of the Company's common stock on the date of the issuance was $0.56 per share.
During the quarter ended December 31, 1997, the Company recorded
$234,375 in compensation expense for the 250,000 shares of common stock issued
to Spencer J. Volk in accordance to Mr. Volk's Employment Agreement. The closing
market price of the Company's common stock on the date of the issuance was $0.94
per share.
During the quarter ended June 30, 1998, the Company recorded $465,500 in
compensation expense for the 750,000 shares of common stock issued to Spencer J.
Volk in accordance to Mr. Volk's Employment Agreement. The closing market price
of the Company's common stock on the date of the issuance was $0.62 per share.
Note 3. Common Stock Outstanding and Per Share Information
Net loss per common and common equivalent share was computed by dividing
net loss by the weighted average number of shares of Common Stock. For the nine
months ended June 30, 1998 and the comparable prior year period, weighted
average shares increased to 33,952,060 from 26,007,435. The increase is due
primarily to certain conversions of convertible notes and debts, issuance of
common stock for certain private placements, exercise of stock options, and
executive compensation. In accordance with the requirements of Financial
Accounting Standard No. 128, which the Company adopted as of December 31, 1997,
common stock equivalents have been excluded from the calculation of net loss per
share as their inclusion would be anti-dilutive.
Note 4.. 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
6/30/1998 and 9/30/1997 are as follows:
6/30/1998 9/30/1997
--------- ---------
Materials $168,730 $235,748
Work in process 12,160 16,990
Finished products 55,113 77,003
------ ------
$236,003 $329,741
======== ========
6
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The statements in this report that relate to future plans, events or
performance are forward-looking statements. Actual results, events or
performance may differ materially due to a variety of factors, including the
factors described on the Form 10-K/A for the year ended September 30, 1997.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Overview
Celsion Corporation (the "Company") was incorporated in the State of
Maryland in 1982 under the name A.Y. Cheung Associates, Inc. The Company changed
its name to Cheung Laboratories, Inc. on June 31, 1984 and to Celsion
Corporation on May 1, 1998. It has been engaged in developing and marketing
minimally invasive thermotherapy devices utilized in the treatment of cancer as
well as genitourinary diseases associated with benign growth of the prostate in
older males, the most common being benign prostatic hyperplasia ("BPH").
Thermotherapy (also known as hyperthermia), or heat therapy, is a historically
recognized successful method of treatment. In modern thermotherapy, a controlled
heat dose is targeted to treatment sites using microwave and/or other energy for
therapeutic benefits. Thermotherapy is a clinically established, adjuvant
modality for at least doubling tumor response to radiation therapy or
chemotherapy. However, delivering the necessary heat within the body without
damaging surrounding tissue has been a major impediment to the use of
thermotherapy for deep seated disease. The Company has an exclusive license from
the Massachusetts Institute of Technology ("MIT") for the patented adaptive
phase array ("APA") technology which the Company believes will overcome this
problem. This technology, originally developed for the Strategic Defense
Initiative (Star Wars) plans of the Department of Defense, applies adaptive
phased arrays of microwave energy in conjunction with traditional radiation or
chemotherapy for the deep heating of breast, prostate and other deep seated
cancers.
The Company will be concentrating its business on the development of
two recently acquired technologies: (I) from MIT, APA targeting of microwave
energy, which the Company believes will have broad cancer and other medical
applications, and (ii) patented balloon catheter technology from MMTC, Inc. for
enhanced thermotherapy of BPH and other genitourinary tract conditions. While
the balloon catheter technology is related to the Company's previous BPH
thermotherapy devices, the Company believes the APA technology has the potential
to serve as the core technology for a broad array of medical devices, and
accordingly the Company will devote most of its resources to the exploitation of
the APA technology.
Results of Operations
Nine Months Ended June 30, 1997 and 1998
The Company is concentrating on the development of the new technologies
it acquired to expand the capabilities and market for its products and has
ceased active sales of its current equipment. The Company received revenue of
$110,260 in the nine months ended June 30, 1998, compared to revenue of $116,968
in the same period in the prior fiscal year. With the focus on the development
and marketing of the new thermotherapy systems utilizing the patented
technologies, the Company anticipates that most of its future revenue will be
generated by treatments administered utilizing its thermotherapy systems and the
sales of the related disposable kits. Revenue from the new technologies is not
expected until the new technologies are developed and approved for sale by
governmental regulatory agencies. During the quarter ended June 30, 1998, the
Company did not sell any of its current equipment. The Company does not
currently have the capital to complete clinical trials necessary to sell its new
equipment. The Company can not predict when, it ever, its new equipment will be
available for sale.
Cost of sales for the nine months ended June 30, 1998 was $45,500,
compared to $46,141 in the nine months ended June 30, 1997.
7
Research and development expense increased to $1,298,168 in the nine
months ended June, 1998 from $144,945 in the nine months ended June 30, 1997 due
to increased emphasis on technology enhancements. If capital is available, the
Company expects to significantly increase its expenditures for research and
development to fund the development or enhancement of products by incorporating
the APA technology and the MMTC technology. The Company does not currently have
the capital necessary to complete such research and development. (see discussion
in Liquidity and Capital Resources).
Selling, general and administrative expenses increased substantially to
$2,239,292 in the nine months ended June 30, 1998 from $1,709,454 in the nine
months ended June 30, 1997. The higher expenses were primarily due to the
increase in consulting and compensation expenses, During the quarter ended June
30, 1997, the Company recorded $280,000 in compensation expense for the 500,000
shares of common stock issued to Spencer J. Volk in accordance to Mr. Volk's
Employment Agreement. The closing market price of the Company's common stock on
the date of the issuance was $0.56 per share. During the quarter ended December
31, 1997, the Company recorded $234,375 in compensation expense for the 250,000
shares of common stock issued to Spencer J. Volk in accordance to Mr. Volk's
Employment Agreement. The closing market price of the Company's common stock on
the date of the issuance was $0.94 per share. During the quarter ended June 30,
1998, the Company recorded $465,500 in compensation expense for the 750,000
shares of common stock issued to Spencer J. Volk in accordance to Mr. Volk's
Employment Agreement. The closing market price of the Company's common stock on
the date of the issuance was $0.62 per share. The Company expects general and
administrative expenses to increase substantially as it expands its operation.
Interest expense decreased to $55,367 in the nine months ended June 30,
1998 from $120,633 in the nine months ended June 30, 1997. The decrease was due
to the repayment of certain notes.
The net loss for the nine months ended June 30, 1998 was $3,521,826.
The loss per share(weighted average) was $0.10 on both primary and fully-diluted
basis. Operating losses will continue while the Company is developing its new
equipment. Losses thereafter will depend upon a number of factors including the
market acceptance of the new technologies. As discussed in the Liquidity and
Capital Resources below, the Company does not currently have the ability to
continue sustaining losses of this magnitude.
Liquidity and Capital Resources
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $18,785,349 and a shareholders'
deficit of $1,991,349 at June 30, 1998. The Company has funded its operations
primarily through the sale of equity securities. At June 30, 1998, the Company
had cash, cash equivalents and short-term investments aggregating approximately
$26,241. Net cash used in the Company's operating activities was $2,876,226 for
the nine months ended June 30, 1998. The Company must raise additional cash to
continue its operations. As of June 30, 1998, Company has a negative working
capital of $2,147,539. As of the date of this report, the Company does not have
any firm commitments to fund the negative working capital. The Company engages
third party research institutions and hospitals to perform research and clinical
trials for the Company. As of June 30, 1998, the Company has entered into
agreements to fund a minimum of $720,000 of research and clinical trials through
the end of 1998. In addition to the $720,000 committed, the Company also plans
to fund approximately $1,650,000 of research and clinical trials in the
remainder of 1998. The Company currently does not have the capital to fund such
obligations, nor does it have commitments for such capital. If the Company
cannot fund such obligations, it will lose the data necessary to develop and
commercialize its products. The Company may also lose any benefit it has
previously received from association with well known research institutions. If
the Company does not obtain sufficient capital to fund its proposed research and
trial schedule, the Company may become in breach of its license agreements with
MMTC and MIT and its sponsored research agreements with Duke University. If
adequate funds are not available, the Company's business, financial condition
and results of operations will be materially and adversely effected.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, including
both seeking FDA approval for the domestic sale of the Company's products, and
expanding its sales and marketing activities. The Company expects that its
existing capital resources will not be adequate to fund the Company's operations
through the next twelve months. The Company is dependent on raising additional
capital to fund its development of technology and to implement its business
plan. Such dependence will continue at least until the Company begins marketing
8
its new technologies. The Company does not have any firm commitments for
additional capital and there can be no assurance that the Company will be able
to raise sufficient additional capital to continue its operations.
The Company's future capital requirements and the adequacy of available
funds will depend on numerous factors, including: the successful
commercialization of the thermotherapy systems; progress in its product
development efforts; the magnitude and scope of such efforts; progress with
preclinical studies and clinical trials; the cost and timing of manufacturing
scale-up; the development of effective sales and marketing activities; the cost
of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; the emergence of competing technological and
market developments; and the development of strategic alliances for the
marketing of the Company's products. To the extent that funds generated from the
Company's operations are insufficient to meet current or planned operating
requirements, the Company will be required to obtain additional funds through
equity or debt financing, strategic alliances with corporate partners and
others, or through other sources. The Company does not have any committed
sources of additional financing, and there can be no assurance that additional
funding, if necessary, will be available on acceptable terms, if at all. If
adequate funds are not available, the Company may be required to delay,
scale-back or eliminate certain aspects of its operations or attempt to obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates, products or potential markets.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company presently is not a party to any litigation, except as follows:
The Company has been named as a defendant in a lawsuit filed by
Eastwell Management Services, Ltd. ("Eastwell") in the United States District
Court for the District of Maryland. In the lawsuit, Eastwell is seeking damages
in the amount of $125,000, plus interest. The Company denies that any funds are
due to Eastwell and intends to defend the lawsuit. Eastwell has moved the court
for permission to amend its complaint and demands judgement against the Company
as follows: (I) damages in the amount of $125,000, (ii) applicable interest from
April 1, 1994 through the date of judgment, (iii) incidental and consequential
damages exceeding $275,000 in an amount to be determined at trial, (iv) punitive
damages to be determined at trial, (v) the costs, expenses and attorneys' fees
it incurs in this action, and (vi)such other and further relief as the Court
deems just and proper. The Company has requested that the court deny such
motion.
In the normal course of business, the Company may be subject to
warranty and product liability claims on its thermotherapy equipment. The
Company does not have a product liability insurance policy in effect. The
assertion of any product liability claim against the Company, therefore, may
have an adverse affect on its financial condition.
As of June 30, 1998, no liability claims against the Company have been asserted.
Item 2. Changes in Securities
During the quarter ended June 30, 1998, the Company issued the
following securities without registration under the Securities Act of 1933:
1. The Company issued 521,000 shares of common stock to a limited
number accredited investors for cash consideration totaling $260,500. The
Company believes the issuance was exempt from registration under the Securities
Act pursuant to Section 4(2) or 4(6) of the Securities Act and Regulation D
promulgated thereunder.
2. The Company issued 750,000 shares of common stock to its President
and Chief Executive Officer Spencer J. Volk in accordance to Mr. Volk's
Employment Agreement. The Company believes the issuance was exempt from
registration under the Securities Act pursuant to Section 4(2) or 4(6) of the
Securities Act and Regulation D promulgated thereunder.
9
Item 3. Defaults upon Senior Securities
In its Form 10-Q for the quarter ended December 31, 1997, the Company
reported on a default in its loan from the George T. Horton Trust. During the
quarter ended June 30, 1998 the principal balance of such loan (other than
$100,000 which the holder has agreed to convert to common stock) has been
reduced to $18,000. All accrued interest has been paid.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
In May 1998, Mr. Warren C. Stearns resigned as the Company's Acting Chief
Financial Officer. The position of Chief Financial Officer is currently vacant.
Messrs. Warren C. Stearns and Melvin D. Soule' also resigned as members of the
Company's Board of Directors in July 1998. Remaining Board of Directors have not
filled the two vacancies on the Board as of the date of this report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11. Computation of per share earnings.
27. Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed during the period reported upon.
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: August 17, 1998 Celsion Corporation
(Registrant)
/s/ Spencer J. Volk
-------------------
Spencer J. Volk
President
/s/ John Mon
------------
John Mon
Treasurer, Chief Accounting Officer
11
EXHIBIT 11
CELSION CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended June 30, Nine Months Ended June 30
1998 1997 1998 1997
Net (loss) income (1,607,646) (867,285) (3,521,826) (1,910,892)
Weighted average shares outstanding 36,609,733 26,495,072 33,952,060 26,007,435
Net (loss)income per common share ($0.04) ($0.03) ($0.10) ($0.07)
* Common stock equivalents have been excluded from the calculation of net loss
per share as their inclusion would be anti-dilutive.
12
5
9-MOS
SEP-30-1998
OCT-01-1997
JUN-30-1998
26241
0
28130
0
236003
340679
242841
208761
502905
2488217
0
0
0
(1991314)
0
502905
110260
110260
45500
45500
3472700
0
55367
(3521826)
0
(3521826)
0
0
0
(3521826)
(0.10)
(0.10)
