UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-2
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to _________
Commission file number 000-14242
CELSION CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 52-1256615
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
10220-I Old Columbia Road
Columbia, Maryland 21046-1705
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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
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As of June 30, 1999, the Registrant had outstanding 50,757,992 shares
of Common Stock, $.01 par value.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Statements and terms such as "expect", "anticipate", "estimate",
"plan","believe" and words of similar import, regarding the Company's
expectations as to the development and effectiveness of its technology, the
potential demand for its products, and other aspects of its present and future
business operations constitute forward looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Although the Company
believes that its expectations are based on reasonable assumptions within the
bounds of its knowledge of its business and operations, the Company cannot
guarantee that actual results will not differ materially from its expectations.
Factors which could cause actual results to differ from expectations include,
but are not limited to, those referred to in the following paragraph.
General
Since inception, the Company has incurred substantial operating losses.
The Company expects operating losses to continue and possibly increase in the
near term and for the foreseeable future as it continues its product development
efforts, conducts clinical trials and undertakes marketing and sales activities
for new products. The Company's ability to achieve profitability is dependent
upon its ability to successfully integrate new technology into its thermotherapy
systems, conduct clinical trials, obtain governmental approvals, and
manufacture, market and sell its new products. Major obstacles facing the
Company over the last several years have included inadequate funding, a negative
net worth, and the slow development of the thermotherapy market due to technical
shortcomings of the thermotherapy equipment available commercially. The Company
has not continued to market its older thermotherapy system, principally because
of the system's inability to provide heat treatment for other than surface and
sub-surface tumors.
The operating results of the Company have fluctuated significantly in
the past on an annual and a quarterly basis. The Company expects that its
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, many of which are outside the
Company's control.
Results of Operations
Comparison of Nine Months and Three Months Ended June 30, 1999
and Nine Months and Three Months Ended June 30, 1998
There were no product sales for the nine months ended June 30, 1999,
compared with sales of $110,260 for the nine months ended June 30, 1998, which
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represented re-orders of the Company's older equipment. Significant product
revenues are not expected until development of equipment incorporating the
Company's new technologies is completed and such equipment is clinically tested
and receives necessary approvals from governmental regulatory agencies.
Cost of sales for the nine months ended June 30, 1998 were $45,500
which was in line with previous periods.
Research and development expense decreased substantially to $ 683,604
and $219,976 for the nine and three months ended June 30, 1999 respectively from
$1,298,168 and $697,060 for the nine and three months ended June 30, 1998
respectively. The decrease in 1999 expenditure levels, which were intended to be
comparable to those in 1998, was mainly due to a reduction in research and
development requirements. Significant system development costs were expended in
the nine months ended June 30, 1998, which will no longer be necessary in future
periods. The Company expects expenditures on research and development expenses
to increase for the remainder of the fiscal year, once Phase II BPH clinical and
Phase I breast cancer clinical trials begin.
Selling, general and administrative expense decreased substantially to
$853,470 and $207,168 for the nine and three months ended June 30, 1999
respectively from $2,239,292 and $898,224 for the nine and three months ended
June 30, 1998 respectively. The decrease in the nine and three months period was
due to the absence in the 1999 periods of the following expenses recorded in the
1998 periods: incentive stock issued to the Company's President, Spencer J.
Volk, valued on the Company books in the amount of $700,640 for the nine months
and $465,000 for the three months; consulting fees and expenses paid to Stearns
Management in the amount of $195,297 for the nine months and $51,000 for the
three months; legal fees in the amount of $175,000 for the nine months and
$89,300 for the three months; and a write-off of approximately $112,000 of
inventory for the nine months and $85,000 for the three months, stocked as
replacement parts for older equipment sold in prior years by the Company, which
inventory was being carried at the lower of cost or market value and which was
determined to have no appreciable market value at year-end because of the
absence of demand.
Due mainly to the absence of expenditures for clinical trials for the
nine and three months ending June 30, 1999 and the decrease in executive bonus,
legal, and consulting fees, the loss from operations decreased by $1,933,361 and
$1,179,075 respectively to $(1,588,465) and $(427,571) from $(3,521,826) and
$(1,606,646) respectively in the prior year as described in detail above.
Liquidity and Capital Resources
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $21,052,477 at June 30, 1999.
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The Company has incurred negative cash flows from operations since its
inception, and has funded its operations primarily through the sale of equity
securities. As of June 30,1999, the Company had cash of $ 866,661 and total
current assets of $953,017 compared with current liabilities of $489,225,
resulting in a working capital surplus of $593,667. As of September 30, 1998 ,
the Company had only $54,920 in cash and total current assets of $175,735
compared with current liabilities of $2,176,086, which resulted in a working
capital deficit of $(1,851,067) at fiscal year-end. The improvement in the
Company's working capital is due to receipt of gross proceeds of $2,300,000 from
private placements, and the conversion of debt, accrued interest payable, and
accrued compensation through the issuance of restricted shares of Common Stock
in the amount of $1,040,932. The Company also received several concessions on
certain accounts payable and debt previously recorded on the books of the
Company. Net cash used in the Company's operating activities was $3,065,671 for
the nine months ending June 30, 1999.
The Company does not have any bank financing arrangements. As of June
30, 1999, the Company's indebtedness consisted of a promissory note payable to
Lake Shu Loon in the principal amount of $10,000.
As of March 1999, the Company had planned to raise and spend
approximately $10,000,000 for calendar 1999, of which between $5 million and $6
million was to be devoted to research and development and clinical trials for
the Company's breast cancer and BPH therapy products, and approximately $4
million was to be devoted to research and development in the areas of targeted
drug delivery, gene therapy and prostate cancer, as well as to corporate
overhead. As of July 1,1999, the Company expects to raise and spend a total of
about $6 million for all of calendar 1999, of which $4 million is being devoted
to breast cancer and BPH research and clinical trials, and $2 million to new
products and to corporate overhead. As is indicated by the change in estimated
expenditures, the foregoing amounts are estimates based upon assumptions as to
the availability of funding, the scheduling of research institution personnel,
the timing of clinical trials and other factors, not all of which are fully
predictable. Accordingly, estimates and timing concerning projected expenditures
and programs are subject to change.
Of the currently planned total expenditures of approximately $6
million, the Company has raised $2.3 million as of June 30, 1999, with
approximately $3.7 million remaining to be raised during the remainder of
calendar 1999, including in such remainder the proceeds of this offering. If the
Company cannot fund its operating requirements, and particularly those
associated with its obligation to conduct clinical trials under its licensing
agreements, it will be in breach of its commitments under such licensing
agreements and could stand to lose its license rights unless, at the time of any
such breach, it could arrange for additional time, and could obtain the funding
needed, to conduct such clinical trials. If, because of a failure to obtain
funding or other cause, the Company were to commit a breach of its license
agreements, the Company could well lose any benefit it has previously received
from association with various research institutions with which it has previously
worked. See "Risk Factors".
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The Company's dependence on raising additional capital will continue at
least until the Company is able to begin marketing its new technologies. The
Company's future capital requirements and the adequacy of its financing depend
upon numerous factors, including the successful commercialization of the
thermotherapy systems, progress in its product development efforts, progress
with preclinical studies and clinical trials, the cost and timing of production
arrangements, the development of effective sales and marketing activities, the
cost of filing, prosecuting, defending and enforcing intellectual property
rights, competing technological and market developments, and the development of
strategic alliances for the marketing of its products. The Company will be
required to obtain such funding through equity or debt financing, strategic
alliances with corporate partners and others, or through other sources not yet
identified. The Company does not have any committed sources of additional
financing, and cannot guarantee that additional funding will be available on
acceptable terms, if at all. If adequate funds are not available, the Company
may be required to delay, scale-back or eliminate certain aspects of its
operations or attempt to obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
of its technologies, product candidates, products or potential markets.
Note 2 of the Notes to the Company's Financial Statements describes a
going concern uncertainty based on the continuation of substantial operating
losses and the need for substantial amounts of working capital to fund its
present and intended operations. As discussed above, the continued operation of
the Company is dependent upon the Company's ability to obtain sufficient funding
to complete clinical trials of its products, obtain FDA and other approvals, and
conduct a successful marketing campaign.
During the quarter ended June 30, 1999, the Company completed a private
placement offering of common stock and warrants for a minimum of $500,000,and a
maximum of $1,500,000. The Company closed the offering on June 15, 1999 and
received gross proceeds of $1,305,000.
On July 21, 1999, when its Common Stock had been trading a price in
excess of $1.00 per share, the Company elected to call for redemption its Series
700 Warrants exercisable at a price of $0.50. The Company expects that a number
of holders of the 2,000,000 outstanding Series 700 Warrants will elect to
exercise their rights under such Warrants to purchase Common Stock at a price of
$0.50 per share in lieu of accepting the stipulated redemption price of $0.01
per Warrant. The redemption date is August 21, 1999, and the Company is not
presently able to estimate the number of shares which may be purchased and the
amount of proceeds which will be received as a result of any exercise of the
Warrants.
Year 2000 Compliance
The Company is evaluating the potential impact of what is commonly
referred to as Year 2000 or Y2K issues, concerning the inability of certain
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information systems to properly recognize and process dates containing the year
2000 and beyond. The Company believes that all of its current medical systems
are year 2000 compliant. In addition, the Company's older medical systems,
which, with one exception, are no longer under warranty and are no longer being
serviced by the Company, have been tested and are expected to function properly
beginning January 1, 2000, for two reasons. First, the older systems' software,
operations, and control systems are not date-driven, and second, the older
systems are "stand alone" systems and, therefore, are not linked to any other
computer systems. Accordingly, in the Company's view, this older equipment can
continue to function beyond January 1, 2000. The record and storage programs
used by such systems are, however, date driven, and, although not required to do
so, the Company is currently testing the record storage programs to determine
the most effective method for permitting such programs to properly record
treatment information after January 1, 2000.
The Company has installed accounting software that is Y2K compliant.
The Company is currently evaluating its other computerized systems. The
aggregate costs to upgrade such other systems for Y2K compliance are estimated
to be below $8,000. The Company plans to have all internal systems compliant by
September 30, 1999 and has the necessary funds to complete the conversion.
Finally, the Company uses various vendors and subcontractors to provide
parts and components. The Company has begun a written survey of its vendors
regarding their Y2K compliance, and expects to complete the survey by September
30, 1999. The Company continues to monitor the Y2K progress of its vendors to
determine the potential impact on the Company of their Y2K readiness or lack
thereof. In addition, the Company has multiple suppliers for most of the parts
used in its APA-improved Microfocus equipment, and has been seeking alternate
sources for those items now being purchased from single sources. To date,
management does not anticipate that its Y2K readiness plans will result in any
material costs to the Company, and the Company does not view the going concern
reservation set forth in its Financial Statements as having an impact on the
Company's ability to be Y2K compliant.
Although the Company does not anticipate that Y2K will have a material
impact on the Company's financial condition or its ability to operate at current
levels, it cannot guarantee that the steps taken in preparation for the year
2000 will be sufficient to avoid any adverse impact on the Company.
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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: November 3, 1999
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/ John Mon
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John Mon
Treasurer and Chief Accounting
Officer
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