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 March 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 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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Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
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value $.01 per share
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(Title of Class)
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 March 31, 1999, the Registrant had outstanding 45,850,136 shares
of Common Stock, $.01 par value.
-1-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Financial Statements
-----------------------------
Page
----
Balance Sheets 3
March 31, 1999 and September 30, 1998
Statements of Operations 5
Three months and six months ended
March 31, 1999 and 1998
Statements of Cash Flows 6
Six months ended March 31, 1999 and
1998
Notes to Financial Statements 7
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CELSION CORPORATION
BALANCE SHEETS
March 31, 1999 and September 30, 1998
ASSETS
3/31/1999 9/30/1998
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Current assets:
Cash and cash equivalents $192,089 $ 54,920
Accounts receivable 1,962 1,812
Inventories 42,059 42,059
Prepaid expenses 19,013 76,944
Other current assets -- --
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Total current assets 255,123 175,735
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Property and equipment - at cost:
Furniture and office equipment 195,794 195,794
Laboratory and shop equipment 47,048 47,048
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242,842 242,842
Less accumulated depreciation 218,359 212,029
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Net value of property and equipment 24,483 30,813
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Other assets:
-------------
Patent licenses (net of accumulated amortization of $ 73,675
and $65,760 on 3/31/1999 and 9/30/1998, respectively) 116,275 124,190
--------- ---------
Total assets $395,881 $330,738
========= =========
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LIABILITIES AND STOCKHOLDERS' EQUITY
3/31/1999 9/30/1998
------------ ------------
Current liabilities:
- --------------------
Accounts payable - trade $ 697,064 $ 1,034,767
Notes payable - other 10,000 132,778
Notes payable-related parties -- 146,041
Accrued interest payable - related parties 545 150,020
Accrued interest payable - other 169,174 127,538
Accrued compensation 591,957 470,220
Accrued professional fees 100,000 100,000
Other accrued liabilities 39,297 13,639
Deferred revenues 114,778 --
Capital lease - current 1,188 1,083
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Total current liabilities 1,724,003 2,176,086
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Long term liabilities:
- ----------------------
Capital Leases- Long Term 5,073 5,719
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Total long-term liabilities 5,073 5,719
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Total liabilities 1,729,076 2,181,805
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Stockholders' deficit:
- ----------------------
Capital stock - $.01 par value; 100,000,000 shares
authorized, 45,850,136 and 39,945,826 issued and
outstanding for 3/31/1999 and 9/30/1998, respectively 458,502 399,458
Additional paid-in capital 18,833,209 17,213,485
Accumulated deficit (20,624,906) (19,464,010)
------------ ------------
Total stockholders' deficit (1,333,195) (1,851,067)
------------ ------------
Total liabilities and stockholders' deficit $ 395,881 $ 330,738
============ ============
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CELSION CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31 Six Months Ended March 31
--------------------------- -------------------------
1999 1998 1999 1998
Revenue:
- --------
Hyperthermia sales and parts $ -- $ 110,260 $ -- $ 110,260
Total revenue -- 110,260 -- 110,260
Cost of sales -- 45,500 -- 45,500
------------ ------------ ------------ ------------
Gross profit -- 64,760 -- 64,760
------------ ------------ ------------ ------------
Operating expenses:
- -------------------
Selling, general and administrative 288,724 655,494(1) 646,301 1,341,069(1)
Research and development 296,527 458,780 463,629 601,107
------------ ------------ ------------ ------------
Total operating expenses 585,251 1,114,274 1,109,930 1,942,176
------------ ------------ ------------ ------------
(Loss) Income from operations (585,251) (1,049,514) (1,109,930) (1,877,416)
Other (expense) income -- -- -- 6,239
Interest income (expense) (27,650) (7,494) (50,964) (43,004)
------------ ------------ ------------ ------------
(Loss) Income before income taxes (612,901) (1,057,008) (1,160,894) (1,914,181)
Income taxes -- -- -- --
------------ ------------ ------------ ------------
Net (loss) income $ (612,901) $ (1,057,008) $ (1,160,894) $ (1,914,181)
============ ============ ============ ============
Net (loss) income per common share $ (0.01) $ (0.03) $ (0.03) $ (0.06)
============ ============ ============ ============
Weighted average shares outstanding 43,872,974 34,386,021 42,257,300 32,584,716
============ ============ ============ ============
(1) Including $234,375 in compensation expense recorded for the 250,000 shares
of restricted common stock issued to Mr. Spencer Volk pursuant to the
Employment Agreement between the Company and Mr. Volk.
See accompanying notes.
-5-
CELSION CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended March 31
-------------------------
1999 1998
Cash flows from operating activities:
Net (loss) income $(1,160,894) $(1,914,181)
Noncash items included in net (loss) income:
Depreciation and amortization 14,246 9,947
Net changes in:
Accounts receivable (150) (27,241)
Inventories (58,268)
Prepaid expenses 57,931 (210)
Other current assets (18,449)
Accounts payable-trade (337,704) 209,420
Accrued interest payable - related parties 233 (143,205)
Accrued interest payable - other (108,074) 36,639
Accrued compensation 137,731 28,501
Accrued professional fees (63,204)
Other accrued liabilities and deferred revenue 9,665 5,033
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Net cash (used) provided by operating activities (1,387,016) (1,935,218)
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Cash flows from investing activities:
Purchase of property and equipment -- 26,394
Investment in patents -- (10,000)
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Net cash provided (used) by investing activities -- 16,394
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Cash flows from financing activities:
Payment on notes payable (net) (154,041) (89,522)
Payment on capital leases (net) (542) --
Proceeds of stock issuances 1,678,768 1,853,876
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Net cash provided by financing activities 1,524,185 1,764,354
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Net increase (decrease) in cash 137,169 (154,470)
Cash at beginning of period 54,920 267,352
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Cash at end of the period 192,089 $ 112,882
=========== ===========
See accompanying notes.
-6-
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The information presented for the three-month and six-month periods ended
March 31, 1999 and March 31, 1998 is unaudited, but includes adjustments
(consisting only of normal recurring accruals) that Celsion Corporation (the
"Company") management believes to be necessary for the fair presentation of
results for the periods presented. The September 30, 1998 balance sheet was
derived from audited financial statements. These financial statements should be
read in conjunction with the Company's audited annual statements for the year
ended September 30, 1998, which were included as part of the Company's Report on
Form 10-K.
Note 2. Common Stock Outstanding and Per Share Information
For the quarters ended March 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
3/31/1999 and 9/30/1998 are as follows:
3/31/1999 9/30/1998
Materials $5,059 $5,059
Work - in - process -- --
Finished products 37,000 37,000
------- -------
$42,059 $42,059
======= =======
-7-
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS AND RISKS
Statements included in this Form 10-Q that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, are not
intended as predictions and are subject to certain risks and uncertainties.
Actual results, events or performance may differ materially from estimates or
projections, due to a variety of factors, including the factors described in the
Company's Form 10-K for the year ended September 30, 1998 and technological
regulatory, competitive and financial factors which were not anticipated.
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") is engaged in developing 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
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 adaptive phase array ("APA") technology, which the
Company believes will overcome this problem. This technology, originally
developed for the Strategic Defense Initiative 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) the patented balloon catheter technology from MMTC, Inc.
("MMTC Technology") 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. In January 1999, the
Company received an Investigational Device Exemption ("IDE") approval from the
-8-
FDA for its breast cancer treatment system, which uses heat alone to ablate
(destroy) breast tumors and viable cancer cells. Phase I of the clinical trial
for the breast cancer treatment system is expected to commence in mid-1999.
After the completion of the Phase I clinical trial, subject to FDA approval, the
Company anticipates that Phase II clinical trials will be commenced at three or
more sites at established medical treatment centers. Phase I of the BPH clinical
trials has recently been completed at Montefiore Medical Center in Bronx, New
York. Subject to FDA approval, the Company anticipates Phase II of the BPH
clinical trial at Montefiore Medical Center and additional sites in summer 1999.
All of the above research and studies are dependent on the raising of capital
and there is no assurance that this will be achieved.
Results of Operations
Six Months Ended March 31, 1998 and 1999
The Company is concentrating on the development of the new technologies it
acquired to significantly expand the capabilities and market for its products
and has ceased active sales of its original Microfocus 1000 and BPH hyperthermia
equipment. The Company therefore received no revenue in the six months ended
March 31, 1999, compared to $110,260 for the same period in the prior fiscal
year. With a focus on the development and marketing of new thermotherapy systems
utilizing patented technologies, the Company anticipates that most of its future
revenue will be generated by treatments utilizing its new thermotherapy systems
and by sales of disposable catheter kits for BPH treatment. Revenue from the new
technologies is not expected until the new technologies are developed and
approved for sale by governmental regulatory agencies.
For the six months ended March 31, 1999, the Company did not incur any cost
of sales due to the lack of sales in the period. For the same period in the
prior fiscal year, the cost of sales for the revenue of $110,260 was $45,500.
Research and development expense decreased to $463,628 in the six months
ended March 31, 1999 from $601,107 in the six months ended March 31, 1998. The
larger expense for the same period in the prior fiscal year was primarily
related to the development of the breast cancer treatment system. The Company
expects to significantly increase its expenditures for research and development
to fund the development and clinical studies of products incorporating the APA
technology and the MMTC technology.
Selling, general and administrative expenses decreased by 52 % to $646,301
in the six months ended March 31, 1999 from $1,341,069 in the six months ended
March 31, 1998. The decrease was due to elimination of substantial outside
consulting expenses and reduction in legal and other expenses, as well as the
fact that the earlier period expenses included non-cash compensation expense of
$234,375 reflecting the issuance of 250,000 shares of common stock to the
Company's president and chief executive officer in the 1998 period.
-9-
Net interest expense increased to $50,964 in the six months ended March 31,
1999 from $43,004 in the six months ended March 31, 1998. The increase was due
to compound interest due on the deferred revenue obligation.
The net loss for the six months ended March 31, 1999 was $1,160,894, a 39%
decrease from the net loss of $1,914,181 for the comparable earlier period. The
improved results were primarily due to the decrease in overhead expenses, as
noted above. Management expects operating losses to continue while the Company
is developing its new systems and until the marketing of new products generates
significant revenues.
Liquidity and Capital Resources
Since its inception in 1982, the Company's expenses have significantly
exceeded its revenues, resulting in an accumulated deficit of $20,624,906 and a
shareholders' deficit of $1,333,195 at March 31, 1999. The Company has funded
its operations primarily through the sale of equity securities. At March 31,
1999, the Company had cash, cash equivalents and short-term investments
aggregating approximately $192,089. Net cash used in the Company's operating
activities was $1,387,016 for the six months ended March 31, 1999.
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
seeking FDA approval for the domestic sale of the Company's products, expand 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 its new
technologies.
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 emerging 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 other 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
-10-
to relinquish rights to certain of its technologies, product candidates,
products or potential markets. If adequate funds are not available, the
Company's business, financial condition and results of operations will be
materially and adversely effected.
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 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 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. The record and storage programs used by such systems are,
however, date driven, and all though not required to do so, the Company is
currently testing the data 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.
Finally, the Company is dependent on various vendors and subcontractors
to provide parts and components. The Company has been communicating with these
vendors and subcontractors but has not yet determined the Y2K readiness of these
entities. However, the Company continues to monitor the Y2K progress of its
vendors and customers to determine the potential impact to the Company of their
Y2K readiness or lack thereof.
Although the Company does not anticipate that Y2K will have a material
impact on the Company's ability to operate at current levels, there can be no
assurance that steps taken in preparation for the year 2000 will be sufficient
to avoid any adverse impact on the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company was 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 claiming, inter alia, breach of contract. On December
19, 1998, the U.S. District Court of Maryland found in favor of Celsion. In a
related decision, the U.S. District Court of Maryland also found in favor of
-11-
Celsion regarding its counterclaim, and entered a judgment against Eastwell in
the amount of $100,000. The Company intends to pursue all remedies available to
it to collect the $100,000 judgment. Eastwell had filed an appeal, but, on April
20, 1999, the U.S. Court of Appeals for the Fourth Circuit dismissed the appeal.
Item 2. Change in Securities
During the quarter ended March 31, 1999, the Company issued the following
securities without registration under the Securities Act of 1933:
1. The Company issued 277,861 shares to five persons for compensation
for various services provided to the Company totaling approximately
$132,264. The issuance was made to a limited number of accredited investors.
The Company believes the issuance was exempt from registration under the
Securities Act pursuant to Sections 3(a)(9), 4(2) or 4(6) of the Securities
Act and Regulation D promulgated thereunder.
2. The Company issued 467,808 shares to two persons, upon conversion of
an outstanding debt in the amount of $233,904. 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.
3. The Company issued 3,590,000 shares to thirty nine accredited
investors for cash consideration totaling $905,000. The issuance was made to
a limited number of accredited investors. The Company believes the issuance
was exempt from registration under the Securities Act as sales to limited
numbers of accredited investors pursuant to Sections 4(2) or 4(6) of the
Securities Act and Regulation D promulgated thereunder.
In each case, such shares are restricted securities and the stock
certificates issued in connection therewith are legended and subject to stop
transfer notice placed with the Company's transfer agent.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
Miscellaneous
-12-
The Company was recently contacted by a competitor expressing a concern that
the Company's announced treatment technologies may infringe on patents alleged
by the competitor to be applicable. The Company is reviewing with its legal
counsel and with MIT and with MMTC, Inc., the originators and licensors of the
Company's technologies, whether there is any basis to the competitor's position.
Based on its preliminary evaluation, the Company's management does not believe
there is any such basis.
The Company has been conducting clinical trials of its breast cancer
technology at Massachusetts General Hospital and of its BPH technology at
Montefiore Medical Center. The Company intends to continue and expand its
clinical trials, assuming sufficient financing, and additional hospital sites
may be chosen and/or changed from time to time as needed.
The Company has been granted additional rights under its BPH technology
license agreement with MMTC, Inc., and now has the opportunity to include
prostate cancer in treatment in its use of the patent. In addition, the Company
has entered into an Option Agreement with Memorial Sloan Kettering Cancer Center
for the exclusive worldwide license to a proprietary technology relating to a
heat-activated biological modifier, designed to improve the effectiveness and
decrease the treatment dosage for chemotherapy, heat and radiation treatment of
localized cancers.
Management
There are presently two vacancies on the Board of Directors, and the Company
has recently extended invitations to two candidates who have indicated they are
willing to accept election as outside directors. Under present compensation
arrangements, each employee-director receives a grant of 2,000 shares of common
stock for each year served, or a pro rata portion if less than a full year. Each
outside director receives an option to purchase 100,000 shares of common stock
at 110% of the market price per share at the time of appointment. Such options
vest in two equal installments at the end of the first and second years of
service, respectively, and are valid for a three-year period. Also, each outside
director will receive shares of common stock valued at $20,000, based on the
market price as of September 30 in each year, for full attendance at Board of
Directors meetings in each year.
Financing
During the quarter ended March 31, 1999, the Company commenced a private
placement offering of common stock and warrants for $500,000, expandable to
$1,000,000. As of May 14, 1999, the Company had received written subscription
offers and payments deposited into a segregated account for a total of
$1,000,000, but did not close the offering because it received further
indications of interest and/or offers to subscribe from accredited investors who
expressed a desire to purchase up to approximately $300,000 of additional
securities. The Company is in the process of obtaining subscriber and investor
consents to extend and enlarge the offering to permit receipt of funds from all
interested subscribers, but cannot predict the amount of proceeds which will
ultimately be received.
-13-
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 quarter ended March 31, 1999.
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: May 20, 1999
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
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EXHIBIT 11
CELSION CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Six Months Ended March 31,
1999 1998
Net (loss) income ($1,160,894) ($1,914,181)
Net (loss) income per common share* ($0.03) ($0.06)
Weighted average shares outstanding 42,257,300 32,584,716
* Common stock equivalents have been excluded from the calculation of net
loss per share as their inclusion would be anti-dilutive.
-15-
5
6-MOS
SEP-30-1999
OCT-01-1998
MAR-31-1999
192089
0
1962
0
42059
255123
242842
218359
395881
1724003
0
0
0
458502
18833209
395881
0
0
0
1109930
0
0
50964
(1160894)
0
(1160894)
0
0
0
(1160894)
(0.03)
0
