SEC Filing | IMUNON INC.

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, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- ----------- Commission file number 000-14242 CELSION CORPORATION ------------------- (Exact name of registrant as specified in its charter) Maryland 52-1256615 -------------------------- ---------------- State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 10220-I Old Columbia Road, Columbia, Maryland 21046-1705 --------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (410) 290-5390 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of March 31, 2000, the Registrant had outstanding 60,639,686 shares of Common Stock, $.01 par value.

PART I - FINANCIAL INFORMATION - -------------------------------------------------------------------------------- Item 1. Financial Statements - -------------------------------------------------------------------------------- Index to Financial Statements - -------------------------------------------------------------------------------- Page Balance Sheets 3 March 31, 2000 and September 30, 1999 - -------------------------------------------------------------------------------- Statements of Operations 5 Six months ended March 31, 2000 and 1999 - -------------------------------------------------------------------------------- Statements of Cash Flows 6 Six months ended March 31, 2000 and 1999 - -------------------------------------------------------------------------------- Notes to Financial Statements 7 - --------------------------------------------------------------------------------

PART I - FINANCIAL INFORMATION Item 1. Financial Statements CELSION CORPORATION BALANCE SHEETS March 31, 2000 and September 30, 1999 ASSETS ------ 3/31/2000 9/30/99 ----------- ----------- Current assets: Cash and cash equivalents $ 9,619,276 $ 1,357,464 Accounts receivable 11,824 1,812 Inventories 22,059 22,059 Prepaid expenses 193,139 3,520 Other current assets 75,400 39,203 ----------- ----------- Total current assets 9,921,698 1,424,058 ----------- ----------- Property and equipment - at cost: Furniture and office equipment 256,681 203,156 Laboratory and shop equipment 47,983 47,983 ----------- ----------- 304,664 251,139 Less accumulated depreciation 234,041 224,874 ----------- ----------- Net value of property and equipment 70,623 26,265 ----------- ----------- Other assets: Patent licenses (net of amortization ) 100,446 108,361 ----------- ----------- Total other assets 100,446 108,361 ----------- ----------- Total assets $10,092,767 $ 1,558,684 =========== =========== See accompanying notes.

LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ 3/31/2000 9/30/1999 ----------- ----------- Current liabilities: - ------------------- Accounts payable - trade $233,090 $130,792 Notes payable-related parties 0 10,000 Notes payable-other 114,778 114,778 Current Portion of Capital Leases 1,143 1,292 Accrued interest payable - related parties 0 13,800 Accrued interest payable - other 155,373 155,373 Accrued compensation 0 91,009 Other accrued liabilities 93,940 88 ------------ ------------ Total current liabilities 598,324 517,132 ------------ ------------ Long term liabilities: Long term debt - - Total long-term liabilities 3,939 4,427 ------------ ------------ Total liabilities 602,263 521,559 ------------ ------------ Stockholders equity: - -------------------- Capital stock - $.01 par value ; 100,000,000 shares authorized, 60,639,686 and 53,370,498 issued and outstanding for 3/31/2000 and 9/30/1999, respectively. 606,397 533,705 Preferred stock - $1,000 par value, 4,853 and 0 shares issued and outstanding for 3/31/2000 and 9/30/1999, respectively. 4,852,500 - Preferred Stock Dividend to be distributed 80,875 - Additional paid-in capital 27,849,008 22,403,622 Accumulated deficit (23,898,276) (21,900,202) ------------ ------------ Total stockholders' equity 9,490,504 1,037,125 ------------ ------------ Total liabilities and shareholders equity $10,092,767 $1,558,684 ============ =========== See accompanying notes.

CELSION CORPORATION STATEMENTS OF OPERATIONS (Unaudited) Six Months Ended March 31, 2000 1999 ------------ ------------ Revenue: Hyperthermia sales and parts $ 3,465 -- ------------ ------------ Total revenue 3,465 -- ------------ ------------ Cost of sales -- -- ------------ ------------ Gross profit 3,465 -- Operating expenses: Selling, general and administrative $ 1,232,837 $ 646,301 Research and development 755,774 463,629 ------------ ------------ Total operating expenses 1,988,611 1,109,930 ------------ ------------ (Loss) Income from operations (1,985,141) (1,109,930) Other income 68,441 -- Interest expense (499) (50,964) ------------ ------------ (Loss) Income before income taxes (1,917,199) (1,160,894) Income taxes -- -- ------------ ------------ Net (loss) income (1,917,199) (1,160,894) ============ ============ Net (loss) income per common share (basic) ($ 0.03) ($ 0.03) ============ ============ Weighted average shares outstanding 55,120,781 42,257,300 ============ ============ See accompanying notes.

CELSION CORPORATION STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended March 31, 2000 1999 ------------ ------------ Cash flows from operating activities: Net (loss) income $ (1,917,199) $ (1,160,894) Noncash items included in net (loss) income: Loss in investment fund -- -- Depreciation and amortization 17,082 14,246 Bad debt expense -- -- Net changes in: Accounts receivable (10,012) (150) Inventories -- -- Prepaid expenses (189,619) 57,931 Other current assets (36,197) -- Accounts payable-trade 102,298 (337,704) Accrued interest payable - related parties -- 233 Accrued interest payable - other (13,800) (108,074) Accrued compensation (91,009) 137,731 Other accrued liabilities and deferred revenue 93,852 9,665 ------------ ------------ Net cash (used) provided by operating activities (2,044,604) (1,387,016) ------------ ------------ Cash flows from investing activities: Purchase of property and equipment (53,525) -- ------------ ------------ Net cash provided (used) by investing activities (53,525) -- ------------ ------------ Cash flows from financing activities: Payment on notes payable (net) (10,000) (154,041) Payment on capital leases (net) (638) (542) Proceeds of stock issuances 10,370,579 1,678,768 ------------ ------------ Net cash provided by financing activities 10,359,941 1,524,185 ------------ ------------ Net increase (decrease) in cash 8,261,812 137,169 Cash at beginning of period 1,357,464 54,920 ------------ ------------ Cash at end of the period $ 9,619,276 $ 192,089 ============ ============ See accompanying notes. CELSION CORPORATION NOTES TO FINANCIAL STATEMENTS Note 1. Basis of Presentation The accompanying unaudited financial statements, of Celsion Corporation (the "Company"), have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals considered necessary for a fair presentation, have been included in the accompanying unaudited financial statements. Operating results for the six months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2000. For further information, refer to the consolidated financial statements and notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. Note 2. Common Stock Outstanding and Per Share Information For the quarters ended March 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 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 March 31, 2000 and September 30, 1999 are as follows: March 31, 2000 September 30, 2000 ------------------ ------------------ Materials $5,059 $5,059 Finished products 17,000 17,000 ------------------ ------------------ $22,059 $22,059 ================== ================== Parts held in inventory as of March 31, 2000 are held as replacements and spares for occasional repair of older systems sold in previous years. Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements Statements and terms such as "expect", "anticipate", "estimate", "plan", "believe" and words of similar import, regarding the Company's expectations as to the development and effectiveness of its technology, the potential demand for its products, and other aspects of its present and future business operations, constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, the Company cannot guarantee that actual results will not differ materially from its expectations. Factors which could cause actual results to differ from expectations include, but are not limited to, those referred to in the following paragraph and in the discussion under "Liquidity and Capital Resources." General Since inception, the Company has incurred substantial operating losses. The Company expects operating losses to continue and possibly increase in the near term and for the foreseeable future as it continues its product development efforts, conducts clinical trials and undertakes marketing and sales activities for new products. The Company's ability to achieve profitability is dependent upon its ability successfully to integrate new technology into its thermotherapy systems, conduct clinical trials, obtain governmental approvals, and manufacture, market and sell its new products. Major obstacles facing the Company over the last several years have included inadequate funding, a negative net worth, and the slow development of the thermotherapy market due to technical shortcomings of the thermotherapy equipment available commercially. The Company has not continued to market its older thermotherapy system, principally because of the system's inability to provide heat treatment for other than surface and sub-surface tumors, and has concentrated its efforts on a new generation of thermotherapy products. The operating results of the Company have fluctuated significantly in the past on an annual and a quarterly basis. The Company expects that its operating results will fluctuate significantly from quarter to quarter in the future and will depend on a number of factors, many of which are outside the Company's control.

Results of Operations Comparison of Six Months Ended March 31, 2000 and Six Months Ended March 31, 1999 Product sales for the six months ended March 31, 2000 were only $3,465 as compared to none for the same period in 1999. The limited revenue in the current period resulted from a parts reorder for older, previously sold equipment. Product revenues are not expected until development of equipment incorporating the Company's new technologies is completed and such equipment is clinically tested and receives necessary approvals from governmental regulatory agencies. Research and development expense increased by 63% to $755,774 for the current period from $463,629 for the six months ended March 31, 1999. The increase of $292,145 in 2000 expenditure levels was attributable to the issuance of shares of Common Stock issued to Duke University under a license agreement for thermoliposome technology, research on thermoliposome technology during the period, and expenditures for its Phase I breast cancer trials at Harbor UCLA Medical Center and Columbia Hospital during the period ended March 31, 2000. The Company's expenditures levels for its ongoing BPH trials were consistent with expenditures in the year earlier. The Company expects expenditures on research and development expenses to increase for the remainder of the fiscal year as it completes Phase I of the BPH clinical trials and begins Phase II clinical trials for its breast cancer and BPH treatment systems. Selling, general and administrative expense increased by 91% to $1,232,837 for the six months ended March 31, 2000, from $646,301 for the comparable earlier period. The increase of approximately $586,000 was due primarily to increased legal and financial services associated with the Company's recent securities offerings and technology licensing and to increased public relations activities. Due mainly to the increase in the expenditures listed above for the six months ending March 31, 2000, the loss from operations for the period rose by $756,305 to ($1,917,199) from $(1,160,894) in the prior year.

Liquidity and Capital Resources Since inception, the Company's expenses have significantly exceeded its revenues, resulting in an accumulated deficit of $23,898,276 at March 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 securities. As of March 31, 2000, the Company had cash of $9,619,276 and total current assets of $9,921,698 compared with current liabilities of $598,324, resulting in a working capital surplus of $9,323,374. As of September 30, 1999, the Company had $1,357,464 in cash and total current assets of $1,424,058 compared with current liabilities of $517,132, which resulted in a working capital surplus of $902,499 at fiscal year-end. Net cash used in the Company's operating activities was $2,044,604 for the six months ending March 31, 2000. The increase in working capital is due to the closing of a private placement offering on January 31, 2000 netting the Company approximately $4,200,000 and exercise of warrants (primarily Series 700 and 800) during the period netting the Company $5,467,118. The Company does not have any bank financing arrangements and has funded its operations in recent years primarily through private placement offerings. For all of fiscal year 2000, the Company expects to expend a total of about $4 million for breast cancer and BPH clinical testing and for corporate overhead, which will be funded from its current resources. The foregoing amounts are estimates based upon assumptions as to the availability of funding, the scheduling of institutional clinical research and testing personnel, the timing of clinical trials and other factors, not all of which are fully predictable. Accordingly, estimates and timing concerning projected expenditures and programs are subject to change. The Company's dependence on raising additional capital will continue at least until the Company is able to begin marketing its new technologies. The Company's future capital requirements and the adequacy of its financing depend upon numerous factors, including the successful commercialization of the thermotherapy systems, progress in its product development efforts, progress with preclinical studies and clinical trials, the cost and timing of production arrangements, the development of effective sales and marketing activities, the cost of filing, prosecuting, defending and enforcing intellectual property rights, competing technological and market developments, and the development of strategic alliances for the marketing of its products. The Company will be required to obtain such funding through equity or debt financing, strategic alliances with corporate partners and others, or through other sources not yet identified. The Company does not have any committed sources of additional financing, and cannot guarantee that additional funding will be available on acceptable terms, if at all. If adequate funds are not available, the Company may be required to delay, scale-back or eliminate certain aspects of its operations or attempt to obtain funds through arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its technologies, product candidates, products or potential markets.

PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Change in Securities During the quarter ended March 31, 2000, the Company issued the following securities without registration under the Securities Act of 1933, as amended (the "Securities Act"): 1. The Company issued a total of 6,366,392 shares of Common Stock upon the exercise of outstanding options and warrants, including Series 700 and 800 warrants which were called for redemption, for total cash consideration of $5,467,118, an average exercise price of $0.86 per share. The shares issued to the holders of such options and warrants consisted of restricted stock endorsed with the Company's standard restricted stock legend, with a stop transfer instruction recorded by the transfer agent. Accordingly, the Company views the shares issued as exempt from registration under Sections 4(2) and/or 4(6) of the Securities Act. 2. During the current quarter, the Company sold 4,852.5 shares of a new Series A 10% Convertible Preferred Stock ("Preferred Stock") at a price of $1,000 per share, to investors in a private placement offering (the "Offering"). The Offering was made through a placement agent ("Placement Agent") which is a broker-dealer member of the National Association of Securities Dealers, and shares of Preferred Stock were sold only to accredited investors under Regulation D promulgated by the Securities and Exchange Commission. The Company received net proceeds of $4,231,675 from the Offering. 3. On February 14, 2000 the Company's Board of Directors declared a Preferred Stock dividend to the holders of its Series A Preferred Stock as of March 31, 2000 at the annual rate of 10% per share. As provided under the terms of issuance of the Series A Preferred Stock, which will result in the issuance of 80.875 shares of the Company's Series A Preferred Stock valued at $1,000 per share during the next quarter. 4. On January 13, 2000 the Company granted 35,000 shares of its Common Stock to various members of its newly formed Business Advisory Board.

Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Securities Holders None. Item 5. Other Information During the quarter ended March 31, 2000, John Mon, who is a director and has acted as the Company's principal operating officer, Secretary and Treasurer, agreed to enter into a formal three-year employment arrangement with the Company, effective as of February 15, 2000, which will provide for an annual salary of $100,000 plus cost-of-living increases and for incentive options which are exercisable upon the achievement of various corporate milestones. This option exercise prices are based upon the average closing price of the Company's Common Stock during the last ten trading days of January 2000, with step-ups which will result in an exercise range between $2.75 and $3.45 per share. Also, the Company has been taking steps to increase its key personnel resources. In addition to adding administrative assistants, the Company has been negotiating with candidates (including a current member of its Board of Directors) for executive-level positions in medical and pharmaceutical product development and in medical systems engineering. Proposed formal agreements are under consideration and it is expected that at least two new executives will join the Company during the third fiscal quarter. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 11. Computation of per share earnings. (b) Reports on Form 8-K. Form 8-K was filed on February 3, 2000, reporting on the completion of a recent private placement financing and a related capitalization change, new executive employment agreements and commencement of clinical trials. No financial statements were filed with the Form 8-K.

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 5, 2000 CELSION CORPORATION (Registrant) By: /s/Spencer J. Volk ------------------ Spencer J. Volk President and Chief Executive Officer By: /s/John Mon ----------- John Mon Treasurer and Chief Accounting Officer

EXHIBIT 11 CELSION CORPORATION COMPUTATION OF EARNINGS PER SHARE Six Months Ended March 31, 2000 1999 Net (loss) income ($1,917,199) ($1,160,894) Net (loss) income per common share* ($0.03) ($0.03) Weighted average shares outstanding 55,120,781 42,257,300 * Common stock equivalents have been excluded from the calculation of net loss per share as their inclusion would be anti-dilutive.

5 3-MOS SEP-30-2000 JAN-01-2000 MAR-31-2000 9619276 0 11824 0 22059 9921698 304664 234041 10092767 598324 0 0 4852500 606397 4633870 10092767 3465 3465 0 0 1988611 (1985141) 499 (1917199) (1917199) 0 0 0 0 (1917199) (.03) (.03)