UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ___________to
_________
Commission file number 000-14242
CELSION CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 52-1256615
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State or other jurisdiction of (I.R.S. Employer 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
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Securities registered pursuant
to Section 12(g) of the Act: Common Stock, par 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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
As of November 30, 2000, 64,487,634 shares of the Registrant's Common
Stock were issued and outstanding. As of November 30, 2000, the aggregate market
value of voting stock held by non-affiliates of the Registrant was approximately
$74,759,418 based on the closing price for the Registrant's Common Stock on that
date as quoted on the American Stock Exchange.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference in this Report on Form 10-K: None.
PART I
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ITEM 1. BUSINESS
General
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We develop medical treatment systems primarily to treat breast cancer
and a chronic prostate enlargement condition, common in older males, known as
benign prostatic hyperplasia, or BPH, using minimally invasive focused heat
technology. Also, we are working with Duke University in the development of
heat-sensitive liposome compounds for use in the delivery of chemotherapy drugs
to tumor sites, and with Sloan-Kettering on the development of heat-activated
gene therapy compounds.
Breast Cancer Treatment System
Current Treatment for Breast Cancer
According to statistics published in the American Cancer Society's A
Cancer Journal for Clinicians, there were an average of 183,000 newly diagnosed
breast cancer cases in each of the years from 1995 through 1999, and breast
cancer is one of the leading causes of death among women in the United States.
This form of cancer is presently treated by mastectomy, the surgical removal of
the entire breast, or by lumpectomy, the surgical removal of the tumor and
surrounding tissue. Both procedures are often followed by radiation therapy or
chemotherapy. The more severe forms of surgical intervention can result in
disfigurement and a need for extended prosthetic and rehabilitation therapy.
Heat Therapy in Conjunction with Radiation; Earlier Celsion Equipment
Heat therapy (also known as hyperthermia or thermotherapy) is a
historically recognized method of treatment of various medical conditions, and
heat therapy has been used in the past to treat malignant tumors in conjunction
with radiation and chemotherapy. As summarized in the Fourth Edition of
Radiobiology for the Radiologist, published in 1994 by J.B. Lippincott Company,
in 24 independent studies on an aggregate of 2,234 tumors, treatment consisting
of heat plus radiation resulted in an average doubling of the complete response
rate of tumors, compared to the use of radiation alone. The complete response
rate for this purpose means the total absence of a treated tumor for a minimum
of two years. Comparable increases in the complete response rate were reported
with the use of heat combined with chemotherapy. In addition, it has been
demonstrated on numerous occasions that properly applied heat, alone and without
the concurrent use of radiation, can also kill cancer cells.
In 1989 we obtained FDA pre-marketing approval for our microwave-based
Microfocus 1000 heat therapy machine for use on surface and subsurface tumors in
conjunction with radiation therapy. Until 1995, we marketed our Microfocus
equipment for this use in 23 countries, but microwave heat therapy was not
widely accepted in the United States medical community as an effective cancer
treatment. Moreover, due to the limitations of microwave technology available at
that time, it was difficult to deliver a controlled amount of heat to subsurface
tumors without overheating surrounding healthy tissue.
New Microwave Technology from MIT
In 1993 we began working with researchers at MIT who had developed,
originally for the United States Defense Department, the microwave control
technology known as adaptive phased array, or APA. This technology permits
properly designed microwave equipment to focus and concentrate energy targeted
at diseased tissue areas deep within the body and to heat them selectively,
without adverse impact on surrounding healthy tissue. In 1996 MIT granted us an
exclusive worldwide license to use this technology for medical applications, and
we concentrated our efforts on developing a second generation of Microfocus
equipment capable of focusing microwave energy on specific tissue areas. We have
now incorporated the APA technology in our second generation microwave therapy
equipment.
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Celsion Breast Cancer Treatment System
Using the APA technology, we have developed a prototype breast cancer
treatment system intended to destroy localized breast tumors through the
application of heat alone. The system consists of a microwave generator and
conductors, a computer and computer software programs that control the focusing,
application and duration of the thermotherapy and a specially designed patient
treatment table.
In 1998 we completed preclinical animal testing of our prototype system
at the Massachusetts General Hospital, a teaching hospital for Harvard Medical
School in Boston, Massachusetts. Using breast tissue-equivalent phantoms and
tumors in live animals, these studies demonstrated that our system is capable of
selectively heating tumors at temperatures up to 46(0) Celsius without damage to
surrounding healthy tissues. High temperatures maintained for eight to ten
minutes can cause complete tumor necrosis (death), leading to the death of
viable cancer cells within the tumor and in its immediate vicinity. A second
prototype clinical breast cancer treatment system at Oxford University in
England was used to demonstrate successfully the ability of our equipment to
focus heat deep into animal tissue at precise locations and in small target
areas. In our view, these animal tests demonstrate that it is possible to
eliminate tumors by heat alone and without the use of radiation. Using the
preclinical data from Massachusetts General, the FDA granted Celsion a
supplemental pre-marketing approval to incorporate the APA technology with
Celsion's already approved Microfocus 1000 system. The APA technology enhances
the ability of the Microfocus 1000 system to focus energy.
Testing and FDA Approval Process
In January 1999 we received an Investigational Device Exemption, or IDE,
approval from the FDA to permit clinical testing of our breast cancer treatment
system, and also received FDA approval to proceed with Phase I human clinical
studies. In August 2000 we completed the treatment of ten patients in the Phase
I study at Columbia Hospital in West Palm Beach, Florida, and at Harbor UCLA
Medical Center in Torrance, California, using our breast cancer equipment. In
the study, our equipment was clinically tested on female breast tumors on a
minimally invasive basis through a single application of precisely controlled
and targeted heat. In December 2000, we received approval from the FDA to
commence Phase II trials for our breast cancer system. We are planning
multi-site Phase II clinical trials to obtain the safety and efficacy data
necessary to apply for the addition of two new indications of use to the
existing FDA pre-marketing approval for our Microfocus equipment
Ultimate FDA approval for a device such as our equipment typically
requires two phases of clinical testing. The purpose of Phase I testing is to
show feasibility and safety and involves a small group of patients. Phase II
testing may involve as many as 160 patients and is designed to show safety and
efficacy. We have completed Phase I testing of our breast cancer treatment
system and received approval to commence Phase II clinical trials in December
2000. If Phase II tests are successful, we expect to apply for the addition of a
new indication of use to the existing FDA pre-marketing approval for our
Microfocus equipment, denoting that the system can be used to destroy cancerous
tumors and viable cancer cells within the human breast through the application
of focused microwave heat energy alone. If testing and approvals proceed as
planned, we expect the breast cancer system will be available for marketing in
2002 through a strategic partner that we expect to identify and select as the
approval process nears completion.
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BPH Treatment System
Benign Prostatic Hyperplasia
Millions of aging men experience symptoms resulting from a non-cancerous
urological disease in which the prostate enlarges and constricts the urethra.
This condition is known medically as benign prostatic hyperplasia, or BPH. The
prostate is a walnut-sized gland surrounding the male urethra that produces
seminal fluid and plays a key role in sperm preservation and transportation. The
prostate frequently enlarges with age. As the prostate expands, it compresses or
constricts the urethra, thereby restricting the normal passage of urine. This
restriction of the urethra may require a patient to exert excessive bladder
pressure to urinate. Because the urination process is one of the body's primary
means of cleansing impurities, the inability to urinate adequately increases the
possibility of infection and bladder and kidney damage.
Prevalence of BPH
Because BPH is an age-related disorder, its incidence increases with
maturation of the population. Industry estimates suggest that more than 17
million men in the United States aged 50 and over experience BPH symptoms and
that more than 26 million men in similar age categories are affected by BPH
worldwide. As the U.S. population continues to age, it is expected that the
prevalence of BPH will continue to increase. It is generally estimated that
approximately 50% of all men over 55 and 90% of all men over 75 will have BPH
symptoms at various times. Also, industry studies estimate the overall costs of
BPH therapy at approximately $2.5 to $3.0 billion annually in the United States
and $8.0 to $10.0 billion worldwide for patients currently seeking treatment.
Current Treatment Alternatives for BPH
Like cancerous tumors, BPH historically has been treated by surgical
intervention or by drug therapy. The primary treatment for BPH currently is
transurethral resection of the prostate, or TURP, a surgical procedure in which
the prostatic urethra and surrounding diseased tissue in the prostate are
trimmed, thereby widening the urethral channel for urine flow. While the TURP
procedure typically has been considered the most effective treatment available
for the relief of BPH symptoms, the procedure has shortcomings. A large number
of patients who undergo TURP encounter significant complications, which can
include painful urination, infection, impotence, incontinence and excessive
bleeding. Furthermore, the cost of the TURP procedure and the related
hospitalization is high, ranging from $8,000 to $12,000. This cost does not take
into account the costs of lost work time, which could amount to several weeks,
and of reduction in quality of life.
Other less radical surgical procedures are available as alternatives to
the TURP procedure. For example, interstitial RF therapy and laser therapy are
procedures which employ, respectively, concentrated radio frequency waves or
laser radiation to reduce prostate swelling by cauterization of tissue instead
of removal of tissue with a surgical knife. However, these procedures require
puncture incisions to be made in order to insert cauterizing RF or laser probes
into the affected tissue, and therefore also involve the use of a full operating
facility and anesthesia, as well as the burning of prostate tissue by the
probes. Although these procedures result in less internal bleeding and damage to
the urethra compared with the TURP procedure and may decrease the adverse
effects and costs associated with surgery, anesthesia and post-operative tissue
recovery, they do not entirely eliminate these adverse consequences.
Finally, drug therapy has emerged as an alternative to surgery in the
last several years. There are several drugs available for BPH treatment, the two
most widely prescribed being Hytrin and Proscar. Hytrin works by relaxing
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certain involuntary muscles surrounding the urethra, thereby easing urinary
flow, and Proscar is intended actually to shrink the enlarged gland. However,
industry studies have asserted that drug therapy costs $500 to $800 per year or
more, must be maintained for life, and does not offer consistent relief to a
large number of BPH patients. Also, all of the BPH drugs have appreciable side
effects. Accordingly, neither the medicinal treatments nor the surgical
alternatives available for BPH appear to provide fully satisfactory,
cost-effective treatment solutions for BPH sufferers.
Celsion BPH Treatment System
We have developed a BPH treatment system that combines our microwave
thermotherapy capability with a proprietary balloon compression technology
licensed from MMTC, Inc. The treatment system is intended to deal with the
problem of enlarged prostates in two ways. A catheter incorporating a balloon
enlargement device delivers computer-controlled transurethral microwave heating
that damages and kills the enlarged prostate cells constricting the wall of the
urethra. Simultaneously, the balloon device inflates and expands to press the
walls of the urethra from the inside outward as the surrounding prostate tissue
is heated.
Preclinical animal studies have demonstrated that a natural "stent," or
reinforced opening, in the urethra of the animals tested forms after the
combined heat plus compression treatment. Also, the BPH system's relatively low
temperature (43?C to 45?C) appears to be sufficient to kill prostatic cells
surrounding the urethra wall, thereby creating space for the enlargement of the
urethra opening. However, the temperature is not high enough to cause swelling
in the urethra.
The FDA approved an IDE to allow clinical testing of our BPH system in
June 1998 and we completed initial Phase I clinical feasibility human trials of
the BPH system at Montefiore Medical Center in May 1999. In the Phase I trials,
the combination of computer-controlled microwave heat and balloon catheter
expansion was able to increase peak flow rates and to provide immediate relief
of symptoms caused by BPH. In addition, we undertook an expanded Phase I study
to test an accelerated treatment protocol, which was completed in May 2000, at
Montefiore Medical Center. In July 2000 the FDA approved the commencement of
multiple-site Phase II studies to collect the safety and efficacy data necessary
for FDA pre-marketing approval for commercialization. Montefiore Medical Center
commenced Phase II studies effective October 18, 2000. We expect approval from
Bayview Johns Hopkins Medical Center and other hospitals shortly. If Phase II
testing produces anticipated results and if our BPH system meets all other
requirements for FDA approval and receives such approval, we intend to begin
marketing the BPH system by early 2002, using a strategic partner that we expect
to identify and select prior to that time.
Based on the information we have collected to date, we believe that our
BPH system has the potential to deliver a treatment that is performed in one
hour or less on an outpatient basis, would not require post-treatment
catheterization and would deliver symptomatic relief and an increase in urinary
flow rates promptly after the procedure is completed.
Thermo-Liposomes; Duke University Technology
Liposomes are man-made microscopic spheres with a liquid membrane,
developed in the 1980's to encapsulate drugs for targeted delivery. Commercial
liposomes can now encapsulate chemotherapeutic drugs, enabling them to avoid
destruction by the body's immune system, and allowing them to accumulate in
tumors. However, with presently available technology, it often takes two to four
hours for commercial liposomes to release their drug contents to the tumors,
severely limiting the clinical efficacy of liposome chemotherapy treatments.
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A team of Duke University scientists has developed heat-sensitive
liposomes comprised of materials that rapidly change porosity when heated to a
specific point. For application to mammalian tissue, the heat-sensitive
liposomes are injected into the blood stream. As the heat-sensitive liposomes
circulate within the small arteries, arterioles, and capillaries, the drug
contents of the liposomes are released in significantly higher levels in those
tissue areas which have been heated for 30 to 60 minutes than in areas that do
not receive heat. In animal trials it has been determined that 50 times the
amount of drugs carried by heat-sensitive liposomes were deposited at a specific
heated tissue site, when compared to conventional liposomes. We have been a
sponsor of this research, which is part of a larger Duke University project to
develop new temperature-sensitive liposomes, temperature-sensitive gene
promoters and related compounds.
Celsion and Duke University are pursuing further development work and
preclinical studies aimed at using the new thermo-liposome technology in
conjunction with our APA focused heat technology for a variety of applications,
including cancer chemotherapy. We view the Duke thermo-liposome technology as a
highly promising improvement in the delivery of medicines used to combat serious
diseases. For example, the drugs used in chemotherapy regimens to fight cancer
are often toxic when administered in large quantities, and produce nausea,
vomiting, and exhaustion -- all side effects of the body being poisoned.
However, if such a drug can be delivered directly to a tissue area where it is
needed, as opposed to being distributed through the entire circulatory system,
the local concentration of the drug could be increased without the side effects
that accompany large systemic dosing.
On November 10, 1999 Celsion and Duke University entered into a
licensing agreement under which we received exclusive rights (subject to certain
exceptions) to commercialize and use Duke's thermo-liposome technology. The
license is for a term that is the longer of 20 years or the end of any term for
which any relevant patents are issued by the U.S. Patent and Trademark Office
and includes the right to sub-license. For portions of the technology, our
rights are worldwide, and, for various patent rights, the license covers the
United States, Canada, the United Kingdom, France, Germany and Japan, and other
countries in which we desire to seek patent protection, provided that we will be
responsible for the costs of obtaining this protection. We believe that the
thermo-liposome technology, once tested satisfactorily, has potential for
serving as a basis for new, more effective drug therapies.
The license agreement contains annual royalty and minimum payment
provisions and also requires us to make milestone-based royalty payments
measured by various events, including product development stages, FDA
applications and approvals, foreign marketing approvals and achievement of
significant sales. However, in lieu of such milestone-based cash payments, Duke
has agreed to accept shares of our common stock to be issued in installments at
the time each milestone payment is due, with each installment of shares to be
calculated at the average closing price of the common stock during the 20
trading days prior to issuance. The total number of shares issuable to Duke
under these provisions is subject to adjustment in certain cases, and Duke has
"piggyback" registration rights for public offerings taking place more than one
year after the effective date of the license agreement.
In addition, in the July 1, 2000 issue of Cancer Research, a Duke
University research scientist reported on his initial use of heat to activate
gene therapy and to increase the production in animals of Interleukin-12, a
genetic protein, in order to delay tumor growth. On August 8, 2000 we entered
into an agreement with Duke University, under which Celsion has the right, for a
period of six months thereafter, to negotiate an exclusive license for this
technology.
Sloan-Kettering / Celsion Heat-Activated Gene Therapy Compounds
We have also been working with Sloan-Kettering on the development of a
thermo-genetic technology for cancer treatment that employs a heat-activated
genetic modifier. The modifier is designed to improve the effectiveness of, and
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lower the treatment dose for, chemotherapy, heat, and radiation treatment of
localized cancers by suppressing the action of the protein responsible for DNA
damage repair in tumor cells. Once heated, the genetic modifier multiplies
rapidly in the cancer cells. The genetic modifier deletes the repairing protein
from the cancer cells, rendering them temporarily incapable of reversing DNA
damage incurred during chemotherapy, heat, and radiation treatment. Preclinical
studies in vitro suggest that the genetic modifier has the potential to reduce
significantly the levels of a radiation or chemotherapy dose required to destroy
a tumor, thus decreasing the toxicity and associated side effects of such
treatment on other areas of the body.
Celsion and scientists from Sloan-Kettering are conducting initial
preclinical tests to evaluate the safety and efficacy of the modifier in an
animal model.
In May 2000 we entered into an exclusive worldwide agreement with
Sloan-Kettering for the commercial rights to the heat-activated gene therapy
technology developed by Sloan-Kettering.
Development, Marketing and Sales Strategy
We are not currently engaged in marketing and sales, and are focusing
our activities on the development and testing of our products. Our strategic
plan is based upon our expertise and experience in the medical application of
focused microwave heat and our relationships with and license rights from our
institutional research partners. Our goal has been to employ these resources to
develop minimally invasive or non-invasive, non-toxic treatment technologies
with efficacy significantly exceeding that available from other sources. Using
our management and staff, scientific advisory personnel and available financial
resources, we are focusing our efforts on the following goals:
Short-Term Goals; 12 to 24 Months
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o complete the development, testing, and commercialization of our second
generation technology for the eradication of cancerous breast tumors;
o complete the clinical testing and commercialization of our BPH treatment
system; and
o pursue the development and testing of targeted drug delivery via
heat-sensitive liposomes for the purpose of concentrating chemotherapeutic
drugs at tumor sites.
Longer-Term Goals; 18 Months and Beyond
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o continue the development of gene therapy to significantly improve the
effectiveness of radiation and chemotherapy on tumors; and
o initiate, either alone or with partners, the development of cost-effective
enhancements and variations of our technology, including a version of our
Microfocus equipment for treating prostate and other cancers, and
additional potential applications for heat-sensitive liposome therapy and
heat-activated gene therapy in the treatment of inflammatory, infectious
and genetic diseases.
If we successfully complete our product development efforts, we plan to
place our new products with hospitals, clinics, health maintenance organizations
and pharmaceutical companies at modest initial cost. The emphasis of our
marketing strategy for our breast cancer and BPH systems will be to create
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ongoing cash flow by selling disposable medical procedure kits for each patient
use and by charging a per-usage fee. We intend to stimulate demand for our
treatment systems by educating patients through various forms of media
publicity, consistent with FDA regulations.
We anticipate that, in the near term (up to 24 months), the source of
our revenues will be our proprietary technology for BPH and for treatment of
breast cancer and deep-seated tumors through the use of focused microwave heat
therapy equipment, if the necessary testing and regulatory approval processes
are completed. We intend to generate initial sales through a combination of
direct marketing and development of marketing alliances.
In the longer term (from 18 months to 36 months and beyond), we will
seek to develop new revenue streams from our current work with Duke University
in targeted drug delivery systems and with Sloan-Kettering in gene therapy. We
anticipate that revenues will come from the licensing of this technology to
pharmaceutical manufacturers and major institutional health care providers who
would employ these technologies to deliver drug regimens or gene therapy
throughout the body. Also, because this technology is designed to be used in
conjunction with our APA-improved microwave equipment, we expect that the
acceptance of the technology will generate demand for our equipment which, in
turn, is expected to create equipment sales revenues. To prepare for future
marketing of our heat-sensitive drug delivery systems, we intend to explore the
possibilities of forming alliances with pharmaceutical companies, major
hospitals and health maintenance organizations.
License Agreements and Proprietary Rights
We do not own any patents. Although we do have two U.S. patents pending
which we plan to file internationally. The pending U.S. applications are
directed to our breast cancer and BPH treatments. Through our license agreements
with MIT and MMTC, we have exclusive rights within defined fields of use to
seven U.S. patents. Four of the patents relate to thermotherapy for cancer,
including the APA technology, and three relate to the treatment of BPH.
The term of our exclusive rights under the MIT license agreement
expires on the earlier of ten years after the first commercial sale of a product
using the licensed technology or October 24, 2009, but our rights continue on a
non-exclusive basis for the life of the MIT patents. Our exclusive rights under
the MIT license agreement relate to use of the technology in conjunction with
application of heat to breast tumor conditions, the application of heat to
prostate conditions and all other medical uses. MIT has retained certain rights
in the licensed technology for non-commercial research purposes.
Our exclusive rights under the MMTC license agreements extend for the
life of MMTC's patents. The patent terms expire at various times from May 2011
to November 2014.
Our rights under our license agreement with Duke University extend for
the longer of 20 years or the end of any term for which any relevant patents are
issued by the U.S. Patent and Trademark Office. For portions of the technology,
our rights are worldwide, and for the various patent rights, the license covers
the United States, Canada, the United Kingdom, France, Germany and Japan.
Our rights under our license agreement with Sloan-Kettering will
terminate at the later of 20 years after the date of the license agreement or
the last expiration date of any patent rights covered by the agreement.
The MIT, MMTC, Duke University and Sloan-Kettering license agreements
each contains license fee, royalty and/or research support provisions, testing
and regulatory milestones, and other performance requirements that we must meet
by certain deadlines with respect to the use of the licensed technologies. In
conjunction with the patent holders, we intend to file international
applications for certain of the U.S. patents.
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In addition to the rights available to us under completed or pending
license agreements, we rely on our own proprietary know-how and experience in
the development and use of microwave thermotherapy equipment, which we seek to
protect, in part, through proprietary information agreements with employees,
consultants and others. We cannot offer assurances that these information
agreements will not be breached, that we will have adequate remedies for any
breach or that these agreements, even if fully enforced, will be adequate to
prevent third-party use of our proprietary technology. Similarly, we cannot
guarantee that technology rights licensed to us by others will not be
successfully challenged or circumvented by third parties, or that the rights
granted will provide us with adequate protection. We are aware of patent
applications and issued patents belonging to other companies, and it is
uncertain whether any of these, or patent applications filed of which we may not
have any knowledge, will require us to alter our potential products or
processes, pay licensing fees, or cease certain activities.
Manufacturing of Products
We believe we are best suited to conduct basic research and development
activities, to pursue a prototype product through clinical testing and
regulatory approval and to market the final product. Accordingly, we do not
intend to engage in manufacturing, but instead intend to outsource the
manufacture of final commercial products, components and disposables. Based on
past experience, we do not anticipate any significant obstacles in identifying
and contracting with qualified suppliers and manufacturers
Third-party Reimbursement
Third-party reimbursement arrangements will likely be essential to
commercial acceptance of our new devices, and overall cost-effectiveness and
physician advocacy will be keys to obtaining such reimbursement. We believe that
our equipment can be used to deliver treatment at substantially lower total cost
than surgical treatments for BPH or cancer or continuous drug therapy.
Consequently, we believe that third-party payors seeking procedures that provide
quality clinical outcomes at lower cost will help drive acceptance of our
products.
Our strategy for obtaining new reimbursement authorizations in the
United States is to obtain appropriate reimbursement codes and to perform
studies in conjunction with clinical trials to establish the efficacy and
cost-effectiveness of the procedures as compared to surgical and drug treatments
for BPH and cancerous breast tumors. We plan to use this information when
approaching health care payors to obtain new reimbursement authorizations.
With the increasing use of managed care and capitation as a means to
control health care costs in the United States, we believe that physicians may
view our products as a tool to treat BPH and breast cancer patients at a lower
total cost, thus providing them with a competitive advantage when negotiating
managed care contracts. This is especially important in the United States, where
a significant portion of the aging, Medicare-eligible population is moving into
a managed care system.
Subject to regulatory approval for the use of our equipment to treat
breast cancer and BPH, we anticipate that physicians will submit insurance
claims for reimbursement for such procedures to third-party payors, such as
Medicare carriers, Medicaid carriers, health maintenance organizations and
private insurers. In the United States and in international markets, third-party
reimbursement is generally available for existing therapies used to treat cancer
and BPH. The availability and level of reimbursement from such payors for the
use of our new products will be a significant factor in our ability to
commercialize these systems.
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We expect that new regulations regarding third-party reimbursement for
certain investigational devices in the United States will allow us to pursue
early reimbursement from Medicare with individual clinical sites prior to
receiving FDA approval. However, FDA approval likely will be necessary to obtain
a national coverage determination from Medicare. The national coverage
determination for third-party reimbursement will depend on the determination of
the United States Health Care Financing Administration, or HCFA, which
establishes national coverage policies for Medicare carriers, including the
amount to be reimbursed, for coverage of claims submitted for reimbursement
related to specific procedures. Private insurance companies and health
maintenance organizations make their own determinations regarding coverage and
reimbursement based upon "usual and customary" fees. Reimbursement experience
with a particular third-party payor does not reflect a formal reimbursement
determination by the third-party payor. New outpatient procedure codes were
instituted on August 1, 2000. Our ability to petition successfully for these new
reimbursement codes will ultimately determine the degree of success we achieve
in implementing our business model.
Internationally, we expect to seek reimbursement approvals for
procedures utilizing our new products on an individual country basis. Some
countries currently have established reimbursement authorizations for
transurethral microwave therapy. We expect to use clinical studies and physician
advocacy to support reimbursement requests in countries in which there is
currently no reimbursement for such procedures.
United States Regulation
In the United States, our products are comprehensively regulated by FDA
as medical devices under the Federal Food, Drug, and Cosmetic Act ("FD&C Act").
The FD&C Act and FDA's implementing regulations and policies govern, among other
things, the manufacturing, safety, efficacy, labeling, storage, and marketing of
medical devices. The FDA classifies medical devices as Class I, Class II or
Class III, depending on the nature of the medical device and the existence in
the market of any similar devices. Class I medical devices are subject to
general controls, including labeling, premarket notification and good
manufacturing practice requirements. Class II medical devices are subject to
general and special controls, including performance standards, postmarket
surveillance, patient registries and FDA guidelines. Class III medical devices
are those which must receive premarket ("PMA") approval by FDA to ensure their
safety and effectiveness, typically including life-sustaining, life-supporting,
or implantable devices or new devices which have been found not to be
substantially equivalent to currently marketed medical devices.
Before a new device can be introduced into the U.S. market, it must, in
most cases, receive either premarket notification clearance under section 510(k)
of the FD&C Act or approval pursuant to the more costly and time-consuming PMA
process. A PMA application must be supported by valid scientific evidence to
demonstrate the safety and effectiveness of the device, typically including the
results of clinical trials pursuant to an approved IDE, bench tests, laboratory
and animal studies. Thus far, the FDA has classified our products as Class III
products requiring PMAs. If we fail to obtain PMA approval for any of our new
systems, or if the PMA process is extended for a considerable length of time,
the commencement of commercial sales of any such system could be delayed
substantially or indefinitely.
The Federal Communications Commission, or FCC, regulates the
frequencies of microwave and radio-frequency emissions from medical and other
types of equipment to prevent interference with commercial and governmental
communications networks. The FCC has approved the frequency of 915 MHZ for
medical applications, and machines utilizing that frequency do not require
shielding to prevent interference with communications. Our Microfocus and BPH
treatment products utilize the 915 MHZ frequency.
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In December 1984 the HCFA approved reimbursement under Medicare and
Medicaid for thermotherapy treatment when used in conjunction with radiation
therapy for the treatment of surface and subsurface tumors. At this time, most
of the large medical insurance carriers in the United States have approved
reimbursement for this type of thermotherapy treatment under their health
policies. Thermotherapy treatment administered using equipment that has received
pre-marketing approval is eligible for such reimbursement.
We are subject to inspection by the FDA at any time to ensure
compliance with FDA regulations in the production and sale of medical products.
We believe that we are substantially in compliance with FDA regulations
governing the manufacturing and marketing of medical devices. Previously, we
received pre-marketing approval from the FDA for our original Microfocus 1000
cancer treatment equipment for surface and subsurface tumors in conjunction with
radiation. We have also received a supplemental pre-marketing approval to add
the APA technology from MIT to the Microfocus 1000 equipment. We are seeking a
new indication of use to enable our improved Microfocus equipment with APA to be
used for breast tumor ablation using heat alone.
We also received approval to conduct an expanded Phase I study using
our BPH treatment system. The purpose of the expanded Phase I study was to test
a revised protocol, intended both to shorten significantly the BPH treatment
time for each patient application and to lower the manufacturing cost for a
disposable device used during the treatment. This expanded Phase I study was
completed in May 2000. In July 2000 the FDA approved the commencement of
multiple-site Phase II studies, and the first of such studies commenced
effective October 18, 2000.
In August 2000 we completed the treatment of ten patients in a Phase I
Study of our breast cancer treatment system and, in December 2000, we received
FDA approval to commence Phase II clinical trials.
Regulation of Foreign Sales
Sales of domestically produced medical devices outside of the United
States are subject to United States export requirements and foreign regulatory
controls. Export sales of investigational devices that are subject to
pre-marketing approval requirements and have not received FDA marketing approval
generally may be subject to FDA export permit requirements under the FD&C Act,
depending upon, among other things, the purpose of the export (investigational
or commercial) and on whether the device has valid marketing authorization in a
country listed in the FDA Export Reform and Enhancement Act of 1996. In order to
obtain a permit, when required, we must provide the FDA with documentation that
the medical device regulatory authority of the country in which the purchaser is
located has approved the device. In addition, the FDA must find that export of
the device is not contrary to public health and safety of the country in which
the purchaser is located.
We have sold our original products in 23 countries in Asia, Europe, and
South America. Meeting the registration requirements within these countries was
the responsibility of our distributors in each of these countries. Legal
restrictions on the sale of imported medical devices vary from country to
country. The time required to obtain approval by a foreign country may be longer
or shorter than that required for FDA approval, and the requirements may differ.
We expect to receive approvals for marketing in a number of countries outside
the United States prior to the time that we will be able to market our products
in the United States. However, the timing for such approvals currently is not
known.
11
Competition
Many companies and institutions are engaged in research and development
of thermotherapy technologies for both cancer and prostate disease products that
seek treatment outcomes similar to those we are pursuing. In addition, a number
of companies and institutions are pursuing alternative treatment strategies
through the use of radio frequency, laser and ultrasound energy sources, all of
which appear to be in the early stages of development and testing. We believe
that the level of interest by others in investigating the potential of
thermotherapy and alternative technologies will continue and may increase.
Potential competitors engaged in all areas of cancer and prostate treatment
research in the United States and other countries include, among others, major
pharmaceutical and chemical companies, specialized technology companies,
universities and other research institutions. Most of our competitors and
potential competitors have substantially greater financial, technical, human and
other resources, and may also have far greater experience than we have, both in
preclinical testing and human clinical trials of new products and in obtaining
FDA and other regulatory approvals. One or more of these companies or
institutions could succeed in developing products or other technologies that are
more effective than any which we have been or are developing, or which could
render our technology and products obsolete and non-competitive. Furthermore, if
we are permitted to commence commercial sales of products, we will also be
competing, with respect to manufacturing efficiency and marketing, with
companies having greater resources and experience in these areas.
Several U.S. and overseas companies, including BSD Medical Corporation
and Labthermics Technology, Inc., have marketed equipment using heat produced by
microwaves or ultrasound to treat surface and subsurface cancer, either with or
without the concurrent use of radiation or chemotherapy. To our knowledge, among
these entities, BSD Medical Corporation has the longest business history and has
sold the largest number of microwave thermotherapy units for the treatment of
surface and subsurface cancer, but we do not believe that BSD Medical
Corporation has a dominant competitive position or that its equipment has been
widely accepted for use in the treatment of cancer. We believe BSD Medical
Corporation is attempting to develop more advanced versions of its equipment for
use in treating deep-seated tumors.
In the treatment of BPH, EDAP TMS S.A., a French company, has marketed
a device named the "Prostatron," both in the U.S. and overseas, which uses
microwave-generated heat to destroy enlarged prostate tissue. Also, Urologix,
Inc., a domestic company, has introduced a BPH medical device similar to the
Prostatron. In October 2000, Urologix acquired the Prostatron product line from
EDAP. While we believe these devices have not been widely used or accepted by
providers of medical treatment for BPH, there is no guarantee that EDAP TMS S.A.
or Urologix, Inc. will not seek to introduce improved equipment for the
treatment of BPH. We are aware of other companies currently developing or
marketing devices using other forms of energy, including laser, radio frequency,
ultrasound and infrared technologies, for the treatment of BPH. If any of these
treatment technologies become widely accepted by the medical community in the
future, such acceptance could pose a pose a significant competitive risk to us.
Product Liability and Insurance
Our business exposes us to potential product liability risks that are
inherent in the testing, manufacturing, and marketing of human therapeutic
products. We presently have product liability insurance limited to $5,000,000
per incident, and, if we were to be subject to a claim in excess of this
coverage or to a claim not covered by our insurance and the claim succeeded, we
would be required to pay the claim out of our own limited resources.
12
Employees
We presently utilize the services of 28 individuals on a regular basis,
including 13 full-time employees and 15 part-time consultants. In addition, our
Scientific Advisory Board and Business Advisory Board each actively assists our
management with advice on various projects. None of our employees are
represented by a collective bargaining organization, and we consider our
relations with our employees to be good.
ITEM 2. PROPERTIES
Our present facilities consist of approximately 7,000 square feet of
administrative office, laboratory and workshop space at 10220-I Old Columbia
Road, Columbia, Maryland 21046-1705. We lease the premises from an unaffiliated
party under a five-year lease that expires May 31, 2005. The monthly rent under
the lease is $9,300
ITEM 3. LEGAL PROCEEDINGS
On April 27, 2000, we commenced an action in the United States District
Court for the District of Maryland against Warren C. Stearns, a former director,
Mr. Stearn's management company, SMC, and a number of Mr. Stearns' family
members and colleagues who hold certain warrants for the purchase of
approximately 3.4 million shares of our common stock. These warrants were
intended as compensation for certain investment banking, brokerage and financing
services rendered and to be rendered by Mr. Stearns and SMC. We have reviewed
with our attorneys the circumstances surrounding the issuance of these warrants
and the services that were performed or purported to be performed by Mr. Stearns
and SMC, and have concluded that these warrants should be rescinded. We believe
that the issuance of these warrants was in violation of Section 15 of the
Securities and Exchange Act of 1934 and constitutes a voidable transaction under
the provisions of Section 29 of that Act.
The defendants in the litigation have moved to dismiss the complaint on
various technical grounds, including statute of limitations. We are opposing
this motion and intend to prosecute the litigation vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Market Price for Our Common Stock
Since May 31, 2000, our common stock has traded on The American Stock
Exchange. Prior to that time, the common stock traded on the over-the-counter
market. The following table sets forth the high and low sales prices for our
common stock reported by The American Stock Exchange since, May 31, 2000 and,
prior to that date, the high and low bid prices for our shares as quoted in the
Electronic Bulletin Board operated by The Nasdaq Stock Market, Inc. The
quotations set forth below do not include retail markups, markdowns or
commissions, and, with respect to periods before May 31, 2000, may not
necessarily represent actual transactions.
13
High Low
------- -------
Fiscal Year ended September 30, 1999
First Quarter (October 1-- December 31, 1998)................................ $ 0.34 $0.23
Second Quarter (January 1-- March 31, 1999).................................. $ 2.26 $0.25
Third Quarter (April 1-- June 30, 1999)...................................... $ 0.84 $0.75
Fourth Quarter (July 1-- September 30, 1999)................................. $ 1.21 $0.81
Fiscal Year ended September 30, 2000
First Quarter (October 1-- December 31, 1999)................................ $ 4.13 $0.71
Second Quarter (January 1-- March 31, 2000).................................. $10.25 $1.68
Third Quarter (April 1-- June 30, 2000)...................................... $ 6.00 $2.84
Fourth Quarter (July 1-- September 30, 2000)................................. $ 3.56 $1.88
On December 12, 2000, the last reported sale price for our common stock
on The American Stock Exchange was $1.5625. As of December 12, 2000, there were
approximately 1,242 holders of record of our common stock. This does not include
holders of approximately 32,000,0000 shares of common stock held in "street
name".
Dividend Policy
We have never declared or paid any cash dividends on our common stock
or other securities and do not currently anticipate paying cash dividends in the
foreseeable future.
Issuance of Shares Without Registration
During the fiscal quarter ended September 30, 2000, we issued a the
following securities without registration under the Securities Act of 1933, as
amended (the "Securities Act"):
o At various times throughout the quarter, we issued a total of
284,037 shares of our common stock to holders of outstanding
options and warrants, upon exercise of such options and warrants,
for aggregate cash consideration of $127,497.
o On August 1, 2000, we issued a total of 10,719 shares of our
common stock to an outside consultant in return for services
valued at $35,000.
o On August 9, 2000, we issued a total of 10,588 shares of our
common stock to an outside consultant in return for services
valued at $22,499.
o On September 30, 2000, we issued a total of 32,820 shares valued
at $80,000 to four non-employee directors in lieu of cash fees for
their services as directors during the fiscal year ended September
30, 2000. '.
The certificates representing all of the shares issued as described
above were endorsed with Celsion's standard restricted stock legend, and a stop
transfer instruction was recorded by the transfer agent. Accordingly, the
Company views such issuances as exempt from registration under Sections 4(2)
and/or 4(6) of the Securities Act as transactions by an issuer not involving any
public offering.
14
ITEM 6. SELECTED FINANCIAL DATA
The following table contains certain financial data for the Company for the five
fiscal years ended September 30, 2000 is qualified in its entirety by, and
should be read in conjunction with, the "Item 8. Financial Statements and
Supplementary Data and Financial Disclosure" and "Item 7. '"Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Year Ended September 30,
----------------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
Statement of Operations Data:
Revenues:
Product Sales (Net) $ 74,006 $ 121,257 $ 174,182 $ -- $ 3,420
Research and development
contracts -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total revenues 74,006 121,257 174,182 -- 3,420
Cost of sales 64,406 46,734 136,500 -- 246
------------ ------------ ------------ ------------ ------------
Gross profit on product sales 9,600 74,523 37,682 -- 3,174
------------ ------------ ------------ ------------ ------------
Other costs and expenses:
Selling, general and
administrative 1,321,361 2,283,245 2,515,822 1,371,161 2,661,333
Research and development 94,012 185,974 1,534,872 1,019,941 2,238,292
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,415,373 2,469,219 4,050,694 2,391,102 4,899,625
------------ ------------ ------------ ------------ ------------
(Loss) from operations (1,405,773) (2,394,696) (4,013,012) 2,391,102 (4,896,451)
------------ ------------ ------------ ------------ ------------
Other income (expense) (442,192) (471,631) 11,870 15,744 --
Interest income (expense) (85,506) (185,562) (199,346) (60,834) 349,236
------------ ------------ ------------ ------------ ------------
Net (loss) $ (1,933,471) $ (3,051,889) $ (4,200,488) $ (2,436,192) $ (4,547,215)
============ ============ ============ ============ ============
Net loss per share $ (0.05) $ (0.11) $ (0.12) $ (0.05) $ (0.08)
============ ============ ============ ============ ============
Weighted average shares outstanding 39,499,650 28,386,145 34,867,001 45,900,424 59,406,921
As of September 30,
----------------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
Balance Sheet Data:
Cash and cash equivalents $ 246,931 $ 267,353 $ 54,920 $ 1,357,464 $ 8,820,196
Working Capital (646,754) (2,645,908) (2,000,351) 906,926 8,509,173
Total Assets 9,321,600 823,209 330,738 1,558,684 9,117,821
Long-term debt, less current 1,213,000 -- -- -- --
maturities
Accumulated deficit (12,211,633) (15,263,522) (21,900,202) (26,447,417)
Total stockholders' equity 6,755,874 2,460,646 (1,851,067) 1,037,125 8,726,429
(deficit)
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain of the statements contained in this Annual Report on Form 10-K,
including certain in this section, are forward looking. In addition, from time
to time, we may publish forward looking statements relating to such matters as
anticipated financial performance, business prospects, technological
developments, new products, research and development activities and similar
matters. These statements involve known and unknown risks, uncertainties, and
other factors that may cause our or our industry's actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under "--Risk Factors" below and elsewhere in this Annual
Report on Form 10-K. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue" or the negative of
such terms or other comparable terminology. Forward-looking statements are only
predictions. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined under "Risk Factors." Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. Moreover,
neither we nor any other person assumes responsibility for the accuracy and
completeness of such statements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform such
statements to actual results.
General
Since inception, we have incurred substantial operating losses. We
expect operating losses to continue and possibly increase in the near term and
for the foreseeable future as we continue our product development efforts,
conduct clinical trials and undertake marketing and sales activities for new
products. Our ability to achieve profitability is dependent upon our ability
successfully to integrate new technology into our thermotherapy systems, conduct
clinical trials, obtain governmental approvals, and manufacture, market and sell
our new products. We have faced a number of major obstacles over the last
several years, including inadequate funding, a negative net worth, and the slow
development of the thermotherapy market due to technical shortcomings of the
thermotherapy equipment previously available commercially. We have not continued
to market our older thermotherapy system, principally because of the system's
inability to provide precise and consistent heat treatment for other than
surface and subsurface tumors. Instead, we have concentrated on a new generation
of thermotherapy products.
Our operating results have fluctuated significantly in the past on an
annual and a quarterly basis. We expect that operating results will continue to
fluctuate significantly from quarter to quarter for the foreseeable future and
will depend on a number of factors, many of which are outside of our control.
Material Non-Operating Transactions and Losses in 1997
For the year ended September 30, 1997, we had a non-operating loss of
($438,803) resulting from our 1996 investment in Ardex Equipment, LLC, or Ardex.
The Ardex investment arrangements were originally made with persons who were
then directors of Celsion and principals of Ardex, as described under "Certain
Relationships and Related Transactions." After Ardex experienced financial
difficulties, we reviewed the financial status of Ardex and determined that the
entire amount due from Ardex, including accrued interest, was uncollectible as
of September 30, 1997.
16
Results of Operations
Comparison of Fiscal Year Ended September 30, 2000 and Fiscal Year Ended
September 30, 1999
Product sales for the year ended September 30, 2000 were only $3,420,
as compared to none for the prior fiscal year. The limited revenue in the
current period resulted from a parts reorder for older, previously sold
equipment. Additional significant product revenues are not expected unless and
until development of our second generation, of equipment incorporating APA
technology, is completed and such equipment is clinically tested and receives
necessary approvals from governmental regulatory agencies.
Research and development expense increased by 120%, to $2,238,292 for
the year ended September 30, 2000 from $1,019,941 for the fiscal year ended
September 30, 1999. The increase of $1,218,351 in the year ended September 30,
2000 was attributable to the issuance of shares of common stock to Duke
University under a license agreement for thermo-liposome technology, research on
thermo-liposome technology during the period, expenditures for Phase I breast
cancer trials at Harbor UCLA Medical Center and Columbia Hospital, expenditures
for our upcoming Phase II BPH and breast cancer treatment trials and payments
made to Sloan-Kettering for licensing of its gene therapy technology during the
year ended September 30, 2000. We expect expenditures on research and
development expenses to increase for fiscal year 2001 as we conduct our Phase II
clinical trials for our breast cancer and BPH treatment systems, and begin
developing the thermo-liposome technology.
Selling, general and administrative expense increased by 94%, to
$2,661,333 for the year ended September 30, 2000 from $1,371,161 from the fiscal
year ended September 30, 1999. The increase of $1,290,172 was due primarily to
increased legal and financial services associated with our recent securities
offerings and technology licensing, increased office staffing, costs associated
with our annual meeting, and increased public relations activities.
Due mainly to the increase in the expenditures listed above for the
year ending September 30, 2000, the loss from operations for the period rose by
$2,505,349, to ($4,896,451) from $(2,391,102) in the prior year.
Interest income net of interest expense increased to $349,236 for the
year ended September 30, 2000 from ($60,834) for the period ended September 30,
1999. The $410,070 increase was due to the high cash balances from our private
placement in January 2000 invested in money market instruments and time
deposits. Because we currently have no revenues, these balances will decrease as
we draw on our cash reserves to pay for our ongoing operations.
Comparison of Fiscal Year Ended September 30, 1999 to Fiscal Year Ended
September 30, 1998
There were no product sales for the year ended September 30, 1999,
compared with sales of $174,182 for the year ended September 30, 1998. The
earlier year sales represented re-orders of our older equipment. Additional
significant product revenues are not expected unless and until development of
our second generation equipment, incorporating APA technology, is completed and
such equipment is clinically tested and receives necessary approvals from
governmental regulatory agencies.
There was no cost of sales for the year ended September 30, 1999, as
compared with the cost of sales for the prior year of $136,500.
Research and development expense decreased substantially, to $1,019,941
for the year ended September 30, 1999 from $1,534,872 for the prior year. The
difference in expenditure levels reflects the fact that the major portion of
development work on our new generation of equipment took place in the earlier
period. However, we expect research and development expenses to increase over
the next several months as BPH clinical trials and Phase II breast cancer
testing begin.
17
Selling, general and administrative expense decreased substantially, to
$1,371,161 for the year ended September 30, 1999 from $2,515,822 for the
previous year. The decrease was due to the absence, in fiscal 1999, of the
following expenses which were recorded in the earlier period: incentive stock
issued to our President, recorded in the amount of $700,640; consulting fees and
expenses paid to Stearns Management, a company affiliated with a former officer
and director, in the amount of $195,297; legal fees in the amount of $145,000;
and a write-off of approximately $112,000 of inventory stocked as replacement
parts for older equipment sold in prior years.
Due primarily to the absence of expenditures for equipment development
and for clinical trials for the year ended September 30, 1999 and the absence of
or decrease in executive bonus, legal, and consulting fees, our net loss
decreased by $1,764,296, to ($2,436,192) for the fiscal year ended September 30,
1999 from ($4,200,488) in the prior year.
Comparison of Fiscal Year Ended September 30, 1998 to Fiscal Year Ended
September 30, 1997
Product sales for the fiscal year ended September 30, 1998 were
$174,182. These sales represented limited re-orders of our older equipment.
During the year ended September 30, 1997, product sales, taking returns and
allowances into consideration, were $121,257. Additional significant product
revenues are not expected unless and until development of our second generation
of equipment incorporating APA technology, is completed and such equipment is
clinically tested and receives necessary approvals from governmental regulatory
agencies.
Cost of sales increased to $136,500 in the year ended September 30, 1998
from $46,734 in the prior year. Cost of sales as a percentage of sales increased
to 78.4% for the year ended September 30, 1998 from 38.5% for the prior year,
because newer components and enhancements were added to existing inventory in
conjunction with upgrading our products to incorporate new technology.
Research and development expense grew substantially, to $1,534,872 in
the year ended September 30, 1998 from $185,974 in the prior year. During fiscal
1998, we increased our research and development efforts to enhance our products
and to incorporate APA and other technological advances into our equipment. The
increase during fiscal year 1998 included $561,238 for engineering work
performed by outsider parties on our breast cancer treatment device, $289,868
for animal studies for the improved BPH system, $245,976 for animal studies and
other development work on the new breast cancer equipment and $76,000 for work
at Duke University in connection with the development of targeted drug delivery
and genetherapy technology. In addition, after a review of our inventory,
approximately $175,000 of components and parts acquired in the course of
developing older equipment, including slower, DOS-based electronic components,
were deemed to be unusable for the development of our newer models, and were
therefore classified as obsolete and written off as additional research and
development expense during fiscal 1998. We expect to continue our higher levels
of expenditures for research and development in order to continue to enhance our
products.
Selling, general and administrative expense increased to $2,515,822 in
the year ended September 30, 1998 from $2,283,245 in the prior year. Such
increased expense included a write-off of approximately $112,000 of inventory
stocked as replacement parts for older equipment sold in prior years, which
inventory was being carried at the lower of cost or market value and which, in
light of the absence of demand, was determined to have no appreciable market
value at year end. The remainder of the increase was attributable to somewhat
higher outside consulting, advertising and administrative expenses. We expect
selling and marketing expense to increase substantially as we complete the
development and testing of our new thermotherapy systems and expand our related
advertising and promotional and marketing activities.
18
Due mainly to increased research and development activities in the year
ended September 30, 1998, the loss from operations increased by $1,618,316, to
($4,013,012) from ($2,394,696) in the prior year. However, the increase in the
1998 loss before income taxes was not as large compared with 1997 because of the
non-operating losses reflected in the earlier year as described above.
Liquidity and Capital Resources
Since inception, our expenses have significantly exceeded our revenues,
resulting in an accumulated deficit of $26,447,417 at September 30, 2000. We
have incurred negative cash flows from operations since our inception and have
funded our operations primarily through the sale of equity securities. As of
September 30, 2000, we had cash of $8,820,196 and total current assets of
$8,900,565, compared with current liabilities of $391,392, resulting in a
working capital surplus of $8,509,173. As of September 30, 1999, we 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. The increase in working capital at September 30, 2000 as
compared to September 30, 1999 was due to the closing of a private placement
offering on January 31, 2000, from which we received net proceeds of
approximately $4,200,000, the exercise of warrants (primarily Series 700 and
800) from which we received proceeds of $5,467,118, and the exercise of warrants
(primarily Series 500 and 550) during the quarter ended June 30, 2000, from
which we received proceeds of $1,588,889.
We do not have any bank financing arrangements and have funded our
operations in recent years primarily through private placement offerings of
equity securities. For all of fiscal year 2001, we expect to expend a total of
approximately $8,000,000 for breast cancer and BPH clinical testing and for
corporate overhead, which will be funded from our 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.
Our dependence on raising additional capital will continue at least
until we are able to begin marketing our new technologies. Our future capital
requirements and the adequacy of our financing depend upon numerous factors,
including the successful commercialization of our thermotherapy systems,
progress in 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 our products. We 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. We do not have any
committed sources of additional financing, and cannot guarantee that additional
funding will be available in a timely manner, on acceptable terms, or at all. If
adequate funds are not available, we may be required to delay, scale back or
eliminate certain aspects of our operations or attempt to obtain funds through
unfavorable arrangements with partners or others that may require us to
relinquish rights to certain of our technologies, product candidates, products
or potential markets or which otherwise may be materially unfavorable to us.
Furthermore, if we cannot fund our ongoing development and other operating
requirements, particularly those associated with our obligation to conduct
clinical trials under our licensing agreements, we will be in breach of our
commitments under these licensing agreements and could therefore lose our
license rights, which could have material adverse effects on our business.
19
Risk Factors
Among numerous risk factors which may affect the future performance of
the Company and its ability to achieve profitable operations are the following:
We have a history of losses and expect continued losses for the foreseeable
future.
Since our inception in 1982, our expenses have substantially exceeded
our revenues, resulting in continuing losses and an accumulated deficit of
($26,447,417) at September 30, 2000, including losses of ($2,436,192) for the
year ended September 30, 1999 and ($4,547,215) for the year ended September 30,
2000. Because we presently have no significant source of revenues and are
committed to continuing our product research and development program, we will
continue to experience significant operating losses until and unless we complete
the development of new products and these products have been clinically tested,
approved by the FDA and successfully marketed. In addition, we have funded our
operations for many years primarily through the sale of our securities and have
limited working capital for our desired product development and other
activities.
We do not expect to generate significant revenue in the foreseeable future.
We marketed and sold our original microwave thermotherapy products,
which produced modest revenues from 1990 to 1994, but ceased marketing these
products in 1995. We have devoted our resources in recent years to developing a
new generation of thermotherapy products, but we cannot market these products
unless and until we complete clinical testing and obtain all necessary
governmental approvals. Accordingly, we have no current source of revenues, much
less profits, to sustain our present operations, and no revenues will be
available until and unless our new products are clinically tested, approved by
the FDA and successfully marketed. We cannot guarantee that any or all of our
products will be successfully tested, approved by the FDA or marketed at any
time in the foreseeable future or at all.
Our microwave heat therapy technology is still in the initial of human
testing and may not be sufficiently accepted by the medical community to
sustain our business.
To date, microwave heat therapy has not been widely accepted in the
United States medical community as an effective cancer treatment, with or
without the concurrent use of radiation. We believe that this is due primarily
to the inability of earlier technology adequately to focus and control heat
directed at specific tissue locations and to conclusions that were drawn from a
widely publicized study by the Radiation Oncology Therapy Group that purported
to show that thermotherapy in conjunction with radiation was only marginally
effective. Subsequent to the publication of this study, the U.S. Health Care
Financing Administration ("HCFA") established a low medical reimbursement rate
for all thermotherapy equipment designed to be used in conjunction with
radiation. While we believe our new technology is capable of overcoming the
limitations of the earlier technology, the medical community may not embrace the
perceived advantages of our APA-focused heat therapy without more extensive
testing and clinical experience than we will be able to provide. To date, our
new cancer treatment technology and new BPH system have been subjected only to
Phase I testing on humans. Accordingly, our technology may not prove as
effective in practice as we anticipate based on preliminary testing. If further
testing and clinical practice do not confirm the safety and efficacy of our
technology or, even if further testing and practice produces positive results
but the medical community does not view this new form of heat therapy as
effective and desirable, our efforts to market our new products may fail, with
material adverse consequences to our business. We intend to petition HCFA for
new reimbursement codes for both breast cancer and BPH treatments. The success
of our business model depends significantly upon our ability to successfully
petition for the new reimbursement codes.
20
If we are not able to obtain necessary funding, we will not be able to
complete the development, testing and commercialization of our treatments
and products.
We will need substantial additional funding in order to complete the
development, testing and commercialization of our cancer treatment and BPH
products, as well as other potential new products. We currently plan to expend
approximately $8.0 million in the fiscal year ending September 30, 2001, and
currently have available a total of approximately $8.8 million for that purpose.
It is our current intention both to increase the pace of development work on our
present products and to make a significant commitment to thermosensitive
liposome and gene therapy research and development projects. The increase in the
scope of present development work and the commitment to these new projects will
require additional external funding, at least until we are able to begin
marketing our products. We do not have any committed sources of financing and
cannot offer any assurance that additional funding will be available in a timely
manner, on acceptable terms or at all. See """Management's Discussion and
Analysis of Financial Condition and Results of Operations."
If adequate funding is not available in the future, we may be required
to delay, scale back or eliminate certain aspects of our operations or to
attempt to obtain funds through unfavorable arrangements with partners or others
that may force us to relinquish rights to certain of our technologies, products
or potential markets or that could impose onerous financial or other terms.
Furthermore, if we cannot fund our ongoing development and other operating
requirements, particularly those associated with our obligation to conduct
clinical trials under our licensing agreements, we will be in breach of our
commitments under these licensing agreements and could therefore lose our
license rights, which could have material adverse effects on our business.
Our business is subject to extensive government regulation and we may not
be able to secure the government approvals needed to develop and market our
products.
The FDA and similar government agencies in foreign countries impose
substantial requirements upon the introduction of medical products including
lengthy and detailed laboratory and clinical testing procedures, sampling
activities and other costly and time-consuming procedures. Satisfaction of these
requirements typically takes several years or more and varies substantially
based upon the type, complexity, and novelty of the product. For medical systems
such as our breast cancer treatment product, the FDA has thus far required data
from a Phase I clinical feasibility and safety demonstration using at least ten
patients. For a Phase II patient study that addresses safety and efficacy, we
anticipate a requirement of testing 173 patients in order to support an
application for commercialization approval. Similarly, the BPH treatment system
will require data from a Phase II study.
Government regulation, including the need for FDA approval, may delay
marketing of our new products for a considerable period of time, impose costly
procedures upon our activities and provide an advantage to larger companies that
compete with us. There can be no assurance that we will receive FDA or other
regulatory approvals for any products we develop on a timely basis or at all.
Any delay in obtaining, or failure to obtain, necessary approvals would
materially and adversely affect the marketing of any of our contemplated
products and our ability to generate revenue. Further, regulation of
manufacturing facilities by federal, state, local, and other authorities is
subject to change. Any additional regulation could result in limitations or
restrictions on our ability to utilize any of our technologies, thereby
adversely affecting our business.
21
Our business depends on license agreements that we have entered into with
third parties to use patented technologies and the loss of any of our
rights under these agreements could impair our ability to develop and
market our products.
Currently, we have two utility patents pending in the U.S. Patent &
Trademark Office. One is directed to Celsion's breast cancer treatment, and the
other is directed to our BPH treatment. However, our business still would depend
on license agreements that we have entered into with third parties until the
third parties' patents expire, even when our pending applications mature into
U.S. patents.
Our success will depend, in substantial part, on our ability to maintain
our rights under license agreements granting us rights to use patented
technology. We have entered into exclusive license agreements with MIT for APA
technology and with MMTC, Inc., or MMTC, a privately owned developer of medical
devices, for microwave balloon catheter technology. We have also entered into a
license agreement with Duke University, under which we have exclusive rights to
commercialize medical treatment products and procedures based on Duke
University's thermo-liposome technology and a license agreement with
Sloan-Kettering under which we have rights to commercialize certain gene therapy
products. The MIT, MMTC, Duke University and Sloan-Kettering agreements each
contains license fee, royalty and/or research support provisions, testing and
regulatory milestones, and other performance requirements that we must meet by
certain deadlines. If we were to breach these or other provisions of our license
and research agreements, we could lose our ability to use the applicable
technology as well as compensation for our efforts in developing or exploiting
the technology. Also, loss of our rights under the MIT license agreement would
prevent us from proceeding with most of our current product development efforts,
which are dependent on licensed APA technology. Any such loss of rights and
access to technology would have a material and adverse effect in our business.
Further, we cannot guarantee that any patent or other technology rights
licensed to us by others will not be challenged or circumvented successfully by
third parties, or that the rights granted will provide adequate protection to
us. We are aware of patent applications and issued patents belonging to others,
and it is not clear whether any of these patents or applications, or patent
applications of which we may not have any knowledge, will require us to alter
our potential products or processes, pay licensing fees or cease certain
activities. Litigation, which could result in substantial costs, may also be
necessary to enforce any patents issued to or licensed by us or determine the
scope and validity of others' claimed proprietary rights. We also rely on trade
secrets and confidential information that we seek to protect, in part, by
confidentiality agreements with our corporate partners, collaborators,
employees, and consultants. We cannot guarantee that these agreements will not
be breached, that we will have adequate remedies for any such breach or that our
trade secrets will not otherwise become known or will not be discovered
independently by competitors.
Technologies for the treatment of cancer are subject to rapid change and
the development of treatment strategies that are more effective than our
thermotherapy technology could render our technology obsolete.
Various methods for treating cancer are the subject of extensive
research and development. Many possible treatments that are being researched, if
successfully developed, may not require, or may supplant, the use of our
thermotherapy technology. These alternate treatment strategies include the use
of radio frequency, laser and ultrasound energy sources. The successful
development and acceptance of any of these alternative forms of treatment could
render our technology obsolete.
22
We may not be able to hire or retain key officers or employees whom we need
to implement our business strategy.
Our success depends on the continued contributions of our executive
officers, scientific and technical personnel and consultants, and on our ability
to attract new personnel as we seek to implement our business strategy. During
our operating history, we have assigned many key responsibilities to a
relatively small number of individuals. The competition for qualified personnel
is intense, and the loss of services of certain key personnel could adversely
affect our business. ""
The success of our products may be harmed if the government, private health
insurers and other third-party payors do not provide sufficient coverage or
reimbursement for the use of our products.
Our ability to commercialize our thermotherapy technology successfully
will depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health insurers and other third-party
payors. The reimbursement status of newly approved medical products is subject
to significant uncertainty. We cannot guarantee that adequate third-party
insurance coverage will be available for us to establish and maintain price
levels sufficient for realization of an appropriate return on our investment in
developing new therapies. Government, private health insurers and other
third-party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products approved by the FDA for marketing. Accordingly, even if coverage and
reimbursement are provided by government, private health insurers and
third-party payors for uses of our products, the market acceptance of these
products would be adversely affected if the reimbursement available for the use
of our therapies proves to be unprofitable for health care providers.
We face intense competition and the failure to compete effectively could
adversely affect our ability to develop and market our products.
There are many companies and institutions engaged in research and
development of thermotherapy technologies for both cancer and prostate disease
products, that seek treatment outcomes similar to those we are pursuing. In
addition, a number of companies and institutions are pursuing alternative
treatment strategies through the use of microwave, infrared, and radio
frequency, laser and ultrasound energy sources, all of which appear to be in the
early stages of development and testing. We believe that the level of interest
by others in investigating the potential of thermotherapy and alternative
technologies will continue and may increase. Potential competitors engaged in
all areas of cancer and prostate treatment research in the United States and
other countries include, among others, major pharmaceutical and chemical
companies, specialized technology companies, universities and other research
institutions. Most of our competitors and potential competitors have
substantially greater financial, technical, human and other resources, and may
also have far greater experience than we do, both in preclinical testing and
human clinical trials of new products and in obtaining FDA and other regulatory
approvals. One or more of these companies or institutions could succeed in
developing products or other technologies that are more effective than the
products and technologies we have been or are developing, or which would render
our technology and products obsolete and non-competitive. Furthermore, if we are
permitted to commence commercial sales of products, we will also be competing,
with respect to manufacturing efficiency and marketing, with companies having
substantially greater resources and experience in these areas.
23
Legislative and regulatory changes affecting the health care industry could
adversely affect our business.
There have been a number of federal and state proposals during the last
few years to subject the pricing of health care goods and services to government
control and to make other changes to the United States health care system. It is
uncertain which legislative proposals, if any, will be adopted (or when) or what
actions federal, state, or private payors for health care treatment and services
may take in response to any health care reform proposals or legislation. We
cannot predict the effect health care reforms may have on our business, and we
can offer no assurances that any of these reforms will not have a material
adverse effect on our business.
We may be subject to significant product liability claims and litigation.
Our business exposes us to potential product liability risks inherent in
the testing, manufacturing, and marketing of human therapeutic products. We
presently have product liability insurance limited to $5,000,000 per incident.
If we were to be subject to a claim in excess of this coverage or to a claim not
covered by our insurance and the claim succeeded, we would be required to pay
the claim with our own limited resources, which could have a material adverse
effect on operations. In addition, liability or alleged liability could harm our
business by diverting the attention and resources of our management and by
damaging our reputation.
We depend on third-party suppliers to provide us with components required
for our products and may not be able to obtain these components on
favorable terms or at all.
We are currently not manufacturing any products, but are using our
facilities to assemble prototypes of our equipment for research and development
purposes. We currently purchase certain specialized microwave and thermometry
components and applicator materials and the catheter unit used for our BPH
equipment from single or limited source suppliers because of the small
quantities involved. While we have not experienced any significant difficulties
in obtaining these components, the loss of an important current supplier could
require us to obtain a replacement supplier, which might result in delays and
additional expense in being able to make prototype equipment available for
clinical trials and other research purposes. Also, in the event we succeed in
marketing our products, we will most likely use outside contractors to supply
components and to assemble finished equipment, at which time we could become
dependent on key vendors.
The exercise or conversion of our outstanding options, warrants and
convertible preferred stock could result in significant dilution of your
ownership interest in common stock.
Options and Warrants. As of November 30, 2000, we had outstanding a
total of 7,726,094 warrants and options, having exercise prices ranging from
$0.16 to $3.00 per share (and a weighted average exercise price of approximately
$0.46 per share). Most of the prices are below the current market price of our
common stock, which has ranged from a low of $1.25 to a high of $2.06 over the
20 trading days ending November, 30, 2000. If holders choose to exercise such
warrants and options, the resulting purchase of a substantial number of shares
of our common stock at prices below the current market price of the common stock
would have a dilutive effect on our stockholders and could adversely affect the
market price of our issued and outstanding common stock. Also, the holders of a
substantial portion of such warrants and options have various registration
rights which, if exercised, would require us to register such shares for sale in
the public market. Furthermore, even without such registration, holders of the
warrants and options who are able, after the exercise of such warrants and
options, to satisfy the one-year holding period and other requirements of Rule
144 of the Securities and Exchange Commission, will be able to sell shares of
common stock purchased upon such exercise in the public market.
24
Preferred Stock. As of November 30, 2000, we had outstanding a total of
4,853.5 shares of Series A 10% Convertible Preferred Stock (plus 323 shares in
accrued dividends as of September 30, 2000). The shares of Series A Preferred
Stock are subject to exchange and conversion privileges upon the occurrence of
major events, including a public offering of our securities or the merger into a
public company. If we do not consummate this a public offering by January 31,
2001, the holders of the Series A Preferred Stock will be entitled to convert
their preferred shares into shares of common stock at a conversion price of
$0.41 per share of common stock, subject to certain adjustments. Even if a
public offering is completed by January 31, 2001, holders of the Series A
Preferred Stock will be able to convert half of such shares at a price of $0.41
per share and the other half at a price equal to 70% of the price of shares in
this offering. In either event, conversion of the Series A Preferred Stock would
have a dilutive effect on our stockholders and could adversely affect the market
price of our issued and outstanding common stock. The holders of the Series A
Preferred Stock also have registration rights at the time we undertake a
registered public offering of securities and may require registration of the
common stock issued upon conversion even if we do not otherwise undertake a
public offering for our own account. Even without a registration, holders of the
Series A Preferred Stock who satisfy the requirements of Rule 144 of the
Securities and Exchange Commission, will be able to sell in the public market
shares of common stock acquired upon the conversion of Series A Preferred Stock.
If the price of our shares remains low, it may be delisted by the American
Stock Exchange and become subject to special rules applicable to low priced
stocks.
Our stock currently trades on the American Stock Exchange. The Amex, as
a matter of policy, will consider the suspension of trading in, or removal from
listing of any stock when, in the opinion of the Amex (i) the financial
condition and/or operating results of an issuer of stock listed on the Amex
appear to be unsatisfactory, (ii) it appears that the extent of public
distribution or the aggregate market value of the stock has become so reduced as
to make further dealings on the Amex inadvisable, (iii) the issuer has sold or
otherwise disposed of its principal operating assets, or (iv) the issuer has
sustained losses which are so substantial in relation to its overall operations
or its existing financial condition has become so impaired that it appears
questionable, in the opinion of Amex, whether the issuer will be able to
continue operations and/or meet its obligations as they mature. For example, the
Amex will consider suspending dealings in, or delisting the stock of an issuer
if the issuer has sustained losses from continuing operations and/or net losses
in its five most recent fiscal years. Another instance where the Amex would
consider suspension or delisting of a stock is if it has been selling for a
substantial period of time at a low price per share and the issuer fails to
effect a reverse split of such stock within a reasonable time after being
notified that the Amex deems such action to be appropriate. The aggregate market
value of our stock has been significantly higher than the Amex's delisting
thresholds for market value. However, we have sustained net losses for our last
five fiscal years and our stock has been trading at relatively low prices.
Therefore our stock may be at risk of getting delisted by the Amex. Upon any
such delisting, the stock would become subject to the penny stock rules of the
Securities and Exchange Commission, which generally are applicable to equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the Nasdaq system, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system)). The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document
prepared by the Commission that provides information about penny stocks and the
nature and level of risks in the penny stock market. The broker-dealer also must
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior to
a transaction in a penny stock, not otherwise exempt from such rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. If 'our common stock becomes
subject to the penny stock rules, investors in this offering may find it more
difficult to sell their shares.
25
Our stock price could be volatile.
Market prices for our common stock and the securities of other medical
and high technology companies have been volatile. Factors such as announcements
of technological innovations or new products by us or our competitors,
government regulatory action, litigation, patent or proprietary rights
developments, and market conditions for medical and high technology stocks in
general can have a significant impact on the market for our common stock.
Anti-takeover provisions in our charter documents and Delaware law could
prevent or delay a change in control.
Our Certificate of Incorporation and Bylaws may discourage, delay or
prevent a merger or acquisition that a stockholder may consider favorable by
authorizing the issuance of "blank check" preferred stock. Certain provisions of
Delaware law may also discourage, delay or prevent a third party from acquiring
or merging with us.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We do not currently hold any derivative instruments and do not engage
in hedging activities and currently do not enter into any transactions
denominated in a foreign currency. Thus, our exposure to interest rate and
foreign exchange fluctuations is minimal.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA AND FINANCIAL DISCLOSURE
The financial statements, supplementary data and report of independent
public accountants are filed as part of this report on pages F-1 through F-17.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of November 30, 2000, certain
information concerning our executive officers and directors:
- -------------------------------- ------- ---------------------------------------------------------------------
Name Age Position
- -------------------------------- ------- ---------------------------------------------------------------------
Spencer J. Volk 66 President, Chief Executive Officer and Director
- -------------------------------- ------- ---------------------------------------------------------------------
Augustine Y. Cheung 53 Chairman of the Board, Chief Scientific Officer and Director
- -------------------------------- ------- ---------------------------------------------------------------------
Max E. Link 60 Director
- -------------------------------- ------- ---------------------------------------------------------------------
LaSalle D. Leffall, Jr. 70 Director
- -------------------------------- ------- ---------------------------------------------------------------------
Claude Tihon 55 Director
- -------------------------------- ------- ---------------------------------------------------------------------
Anthony P. Deasey 51 Senior Vice President-Finance and Chief Financial Officer
- -------------------------------- ------- ---------------------------------------------------------------------
John Mon 48 Vice President, Secretary, Treasurer, General Manager and Director
- -------------------------------- ------- ---------------------------------------------------------------------
Dennis Smith 47 Vice President, Engineering
- -------------------------------- ------- ---------------------------------------------------------------------
Spencer J. Volk. Mr. Volk has been a director, President, and Chief
Executive Officer of Celsion since May 22, 1997. From 1994 to 1996 Mr. Volk was
President and Chief Operating Officer of Sunbeam International. From 1991 to
1993, Mr. Volk was President and Chief Executive Officer of Liggett Group Inc.
From 1989 to 1991 he was the President and Chief Operating Officer of Church &
Dwight Co., Inc. (Arm and Hammer), and from 1984 to 1986 he was the President
and Chief Executive Officer of Tropicana Products, Inc. Prior to that, he spent
13 years in various staff and management positions at PepsiCo., Inc., ultimately
as Senior Vice President for the Western Hemisphere. Mr. Volk holds an Honors BA
in Economics and Math from Queens University in Ontario, Canada and a BA in
Economics from Royal Military College in Ontario, Canada.
Augustine Y. Cheung. Dr. Cheung is Chairman of the Board of Directors
and has served as a directorand Chief Scientific Officer of Celsion since 1982.
Dr. Cheung was the founder of Celsion and served as President from 1982 to 1986
and Chief Executive Officer from 1982 to 1996. From 1982 to 1985 Dr. Cheung was
a Research Associate Professor in the Department of Electrical Engineering and
Computer Science at George Washington University and from 1975 to 1981 was a
Research Associate Professor and Assistant Professor at the Institute for
Physical Science and Technology and the Department of Radiation Therapy at the
University of Maryland. Dr. Cheung holds a Ph.D. and an MS degree from the
University of Maryland. Dr. Cheung is the brother-in-law of John Mon, a director
and executive officer of Celsion.
Max E. Link. Dr. Link has been a director of Celsion since September
23, 1997. Dr. Link currently serves on the Board of Directors of several
pharmaceutical and biotechnology companies. From 1993 to 1994 Dr. Link served as
Chief Executive Officer of Corange, Ltd., a medical diagnostics and
pharmaceuticals company acquired by Hoffman-LaRoche. From 1971 to 1993 Dr. Link
served in numerous positions with Sandoz Pharma AG, culminating in his
appointment as Chairman of the Board of Directors in 1992. Dr. Link serves on
the Board of Directors of the following publicly held companies: Human Genome
Sciences, Inc., Alexion Pharmaceuticals, Inc., Cell Therapeutics, Inc., Access
Pharmaceuticals, Inc., Protein Design Labs., Inc., Osiris Therapeutics, Inc.,
Heavenly Door.com, Inc., Discovery Laboratories, Inc. and CytRx Corporation. Dr.
Link holds a Ph.D. in Economics from the University of St. Galen (Switzerland).
La Salle D. Leffall, Jr. Dr. Leffall has been a director of Celsion
since May 27, 1999. Dr. Leffall has served as Professor of Surgery at Howard
University College of Medicine since 1970 and in 1992 was named the Charles R.
Drew Professor of Surgery. Dr. Leffall also served as Chairman of the College's
Department of Surgery from 1970 to 1995. He is also a Professorial Lecturer in
Surgery at Georgetown University. Dr. Leffall holds a BS from Florida A&M and a
medical degree from Howard University. Dr. Leffall is a director of Mutual of
America, Chevy Chase Bank, F.S.B. and the Charles A. Dana Foundation. He is a
former President of the American College of Surgeons and the American Cancer
Society. He is also a consultant for the National Cancer Institute, a diplomate
of the American Board of Surgery and a fellow of the American College of
Surgeons.
27
Claude Tihon. Dr. Tihon has been a director of Celsion since May 27,
1999. Dr. Tihon is currently President and Chief Executive Officer of ContiMed,
Inc., a medical device company engaged in developing urological products to
manage women's stress incontinence and men's prostate obstruction. From 1987 to
1995 Dr. Tihon served in numerous positions with Pfizer, Inc., culminating in
his appointment as Vice President of Research and Technology Assessment of
American Medical Systems, Inc., a Pfizer subsidiary. From 1983 to 1987 Dr. Tihon
served as Director of Cellular Diagnostics Development of Miles Scientific, a
division of Miles Laboratories, Inc. From 1979 to 1983 Dr. Tihon served as
Senior Research Scientist and Assistant Director of Clinical Cancer Research of
Bristol Laboratories, Inc., a division of Bristol-Myers Squibb Company. Dr.
Tihon holds a Ph.D. in Pathology from Columbia University.
Anthony P. Deasey. Mr. Deasey joined the Company as Senior Vice
President-Finance and Chief Financial Officer on November 27, 2000. Prior to
joining Celsion he was Senior Vice President-Finance and Chief Financial Officer
of World Kitchen, Inc. (formerly Corning Consumer Products Company) from June
1998 to October 2000. From March 1996 to March 1998 he was Senior Vice
President-Chief Financial Officer of Rollerblade Inc. and from 1988 to October
1995 he was Senior Vice President, Chief Financial Officer of Church & Dwight
Co. Inc.
John Mon. Mr. Mon has been employed by Celsion since 1986 and has
served as our Treasurer and General Manager since 1989, and as Secretary and a
director since June 1997. During the first two years of his employment with
Celsion, Mr. Mon was responsible for our FDA filings, which resulted in
obtaining pre-marketing approval for the Microfocus 1000. From 1983 to 1986 he
was an economist with the U.S. Department of Commerce in charge of forecasting
business sales, inventory and prices for all business sectors in the estimation
of Gross National Product. Mr. Mon holds a BS degree from the University of
Maryland. Mr. Mon is the brother-in-law of Dr. Cheung.
Dennis Smith. Mr. Smith has served as our Vice President of Engineering
since June 2000. From 1985 to 1995 Mr. Smith was our Director of Engineering,
and also served as a member of our Board of Directors. >From 1995 to 2000 Mr.
Smith was Director of Engineering and a member of the executive staff of
Talla-Com Industries Inc, a division of Tadiran Electronics Industries (Israel),
manufacturing and designing high power RF amplifiers for the U.S. military
communications marketplace. During his original service with Celsion, Mr. Smith
was responsible for the development of electronic components and design elements
for our original Microfocus and BPH products, portions of which are incorporated
in our current products.
Committees of the Board of Directors
The Board of Directors presently maintains an Audit Committee, a
Compensation Committee and a Research and Development Oversight Committee. The
Audit Committee's principal responsibilities are to recommend annually a firm of
independent auditors to the Board of Directors, to review the annual audit of
our financial statements and to meet with our independent auditors from time to
time in order to review our general policies and procedures with respect to
audits and accounting and financial controls and to perform the various acts
required by the rules and regulations of the Securities and Exchange Commission.
The principal responsibilities of the Compensation Committee are to establish
compensation policies for our executive officers and the administration of our
incentive plans. The Research and Development Oversight Committee is responsible
for reviewing the performance, scheduling and cost-effectiveness of our research
and development programs. Drs. Link, Leffall and Tihon serve on the Audit
Committee, Mr. Volk and Drs. Tihon and Link comprise the Compensation Committee
and Drs. Cheung and Leffall are the members of the Research and Development
Oversight Committee.
28
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between the Compensation Committee
or the Board of Directors and any other company's board of directors or
compensation committee. Mr. Volk's 1997 employment agreement with Celsion was
entered into prior to the formation of the Compensation Committee. New
employment agreements with Mr. Volk and Dr. Cheung, entered into in January
2000, were reviewed by the Compensation Committee and approved by the full
Board, and neither Mr. Volk nor Mr. Cheung participated in the deliberations
concerning their respective agreements. The Compensation Committee believes that
the compensation arrangements for Mr. Volk and Dr. Cheung align their respective
interests with those of the stockholders. See "Item 11. Executive Compensation"
and "Item 13. Certain Relationships and Related Transactions" for a more
detailed discussion of our compensation arrangements with Mr. Volk and Dr.
Cheung.
Directors' Compensation
For the year ended September 30, 2000, each of the four members of the
Board of Directors who is not an officer of Celsion was paid in shares of common
stock equivalent to $20,000 for their service. The shares were valued at $2.44
per share.
Officers who also act as directors previously received 2,000 shares
each of common stock for a full year of service on the Board, but, beginning in
the 2000 fiscal year, no separate compensation was paid to any of our officers
for service on the Board or any Board committee.
Scientific Advisory Board
We currently have a Scientific Advisory Board, or SAB, which is chaired
by Dr. Cheung, our Chief Scientific Officer, and is comprised of the persons
listed below. The main purpose of the SAB is to assist our management in
identifying and developing technology trends and business opportunities within
our industry. The SAB members, with the exception of Dr. Barnett, who is
employed as Medical Director, operate as consultants of Celsion.
Robert Barnett. Dr. Barnett is currently employed at Celsion
as our Medical Director. He holds an American Board of Surgery Diplomate, and is
the former President of the Maryland Chapter of the American Cancer Society.
Donald Beard. Mr. Beard is a retired businessman and is the
former senior program manager for the United States Department of Energy. Mr.
Beard consults with us in connection with technology and business development
matters.
Mark Dewhirst, Ph.D. Dr. Dewhirst currently serves as a
Professor of Radiology and Oncology and the Director of the Tumor
Microcirculation Laboratories in the Department of Radiation & Oncology at Duke
University. Dr. Dewhirst consults with us in connection with research on
temperature-sensitive liposomes.
29
Gloria Li, Ph.D. Dr. Li currently serves as the Director of
the Radiation Biology Laboratory at Memorial Sloan-Kettering Hospital. Dr. Li
consults with us on heat shock and gene therapy.
Arnold Melman, M.D. Dr. Melman currently serves as the
Chairman of the Department of Urology at Albert Einstein College of Medicine.
Dr. Melman consults with us on clinical studies in urology and is our primary
investigator on BPH.
David Needham, Ph.D. Dr. Needham currently serves as the
Director of Cell and Micro-carrier Research and as an Associate Professor in the
Duke University Department of Mechanical Engineering and Materials Science. Dr.
Needham consults with us in connection with research on temperature-sensitive
liposomes.
Thomas Ripley, Ph.D. Dr. Ripley currently serves as Director
of Operations for the Grace Biomedical Division at W.R. Grace & Co. Dr. Ripley
consults with us on technology and business development.
Mays Swicord, Ph.D. Dr. Swicord currently serves as Director
of Research at Motorola, Inc. Dr. Swicord consults with us on the biological
effects of microwave technology.
All members of the SAB serve at the discretion of the Board of
Directors. Each member of the SAB, other than Dr. Cheung and Dr. Swicord,
received an option to purchase 5,000 shares of our common stock at the time they
were appointed. The options are exercisable for a five-year term at $0.50 per
share. In addition, each member of the SAB will receive an option exercisable
over a five-year term to purchase 3,000 shares of our common stock for each 12
months served by such member on the SAB, exercisable at the market price of the
common stock on the date of grant. For fiscal year 2000, each member of the SAB,
other than Drs. Cheung and Swicord, received an option to purchase 3,000 shares
of our common stock at $2.44 per share. Beginning from fiscal year 2001, each
member of the SAB, other than Drs. Cheung and Swicord, will receive an option to
purchase 5,000 shares of our common stock for each full year service. The
exercise price of the option will be equal to the market closing price of
Celsion's common stock on September 30, the last day of the fiscal year. In
addition, members of the SAB (except for Dr. Cheung) are compensated at the rate
of $125 per hour or a maximum of $1,000 per day, together with expenses, on
consulting matters undertaken by such member.
Business Advisory Board
Our Business Advisory Board presently consists of the following members
Anthony Buono Mr. Buono is the General Manager of the
Hartz Group, a consumer packaged goods
company, who advises us on our sales
agreement and business strategy
Brian Cunningham Mr. Cunningham is the former Chairman/Chief
Executive Officer, Computer Entry Systems
Corp. Mr. Cunningham is a successful
entrepreneur who built a $180 million
company through acquisitions. He has
assisted with our American Stock Exchange
Listing and on strategy issues.
William Federman Mr. Federman is a principal of the law firm
of Dreier, Baritz & Federman, LLP. He
advises on legal matters.
30
Margaret Grayson Ms. Grayson is the CEO of V1 Corporation.
Ms. Grayson provides start-up company
experience to Celsion.
William F. Leimkuhler Mr. Leimkuhler is the former Vice
President/General Counsel, Allen & Company
Incorporated, Mr. Leimkuhler has been
available to provide legal advice.
Gordon S. Macklin Mr. Macklin was first President of the
National Association of Securities Dealers,
Inc. (NASD) and is a former Chief Executive
Officer of Hambrecht & Quist. Mr. Macklin
was instrumental in Celsion being listed on
The American Stock Exchange.
Jonathan J. Prinz Mr. Prinz is a consultant and former
President of The Schechter Group. Mr. Prinz
created Celsion's name and logo and consults
on matters relating to our business plan.
Alan Pottash Mr. Pottash was the senior creative head for
PesiCo's brands. He consults on Celsion's
planned BPH advertising to consumers and
medical trade.
Members of the Business Advisory Board serve at the discretion of the
Board of Directors, provide consulting services as needed on specific projects
from time to time, and are compensated through the issuance of shares or
options. The compensation for each member of the Business Advisory Board for
their first year service on the Business Advisory Board is 10,000 shares of
common stock and an option to purchase 10,000 shares of common stock at $1.00
per share. Beginning from fiscal year 2001, each member of the Business Advisory
Board will receive an option to purchase 5,000 shares of our common stock for a
full year service. The exercise price of the option will be equal to the market
closing price of Celsion's common stock on September 30, the last day of the
fiscal year.
Company Performance and Chief Executive Officer Compensation
The compensation of Spencer Volk was established prior to organization
of the Compensation Committee. The Committee believes that Spencer Volk's
compensation package aligns his interests with those of the stockholders.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the National Association of Securities Dealers. Officers, directors and
greater than ten-percent shareholders are required by Securities and Exchange
Commission regulations to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on a review of the copies of such forms furnished
to the Company between October 1, 1999 and September 30, 2000, and on
discussions with directors and officers, the Company believes that during the
last fiscal year all applicable 16(a) filing requirements were met.
31
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid
during each year in the three-year periods ended September 30, 2000 to our Chief
Executive Officer and to each of our other executive officers whose annual
salary and bonus for the most recent fiscal year exceeded $100,000 (the "Named
Executive Officers").
- ----------------------------------------------------------------------------------------------------------------------
Summary Compensation Table
- ---------------------------------------------------------------------------- -----------------------------------------
Annual Compensation Long-Term Compensation Awards
- ---------------------------------------------------------------------------- -----------------------------------------
Name and Principal Fiscal Other Annual Restricted Stock
Position Year Salary ($) Compensation ($) Awards ($) Stock Options (#)
- --------------------- ------------ -------------------- -------------------- -------------------- --------------------
Augustine Y. 2000 $220,000 $3,600 100,000
Cheung, Chairman of
the Board of
Directors
------------ -------------------- -------------------- -------------------- --------------------
1999 $180,000 $1,760(1)
------------ -------------------- -------------------- -------------------- --------------------
1998 $125,000(3) $ 640(1)
- --------------------- ------------ -------------------- -------------------- -------------------- --------------------
Spencer J. Volk, 2000 $240,000 $3,600 $75,000 650,000
President and Chief
Executive Officer 1999 $240,000 $1,760(1)
------------ -------------------- -------------------- -------------------- --------------------
1998 $240,000(3) $700,640 (1)(2)
- --------------------- ------------ -------------------- -------------------- -------------------- --------------------
(1) In each of fiscal years 1998 and 1999, Dr. Cheung received 2,000 shares
of our common stock for his services as a member of our Board of
Directors. For his services on the Board, Mr. Volk received 2,000
shares of common stock for fiscal years 1998 and 1999.
(2) See "Item 11. Executive Compensation" for more information on
compensation to Mr. Volk in the form of shares.
(3) A major portion of the salaries due Dr. Cheung, and Mr. Volk during the
1998 fiscal year was accrued and not paid, due to our limited working
capital at the time. All accrued amounts were paid through the issuance
of shares of common stock to Dr. Cheung and Mr. Volk . See "Item 13.
Certain Relationships and Related Transactions."
32
Aggregate Option Exercises and Year-End Option Values in 2000
The following table summarizes, for each of the Named Executive
Officers, the number of stock options held at September 30, 2000 and the
aggregate dollar value of in-the-money unexercised options. The value of
unexercised, in-the-money options at September 30, 2000 is the difference
between the exercise price and the fair market value of the underlying stock on
September 30, 2000, which was $2.44 per share based on the closing price of our
common stock on September 30, 2000. The options described have not been and may
never be exercised, and actual gains, if any, on exercise will depend on the
value of our common stock on the actual date of exercise.
Aggregate Option Exercises in Fiscal 2000 and Year-End Option Values
- ----------------------- ---------------- --------------- ----------------------------- ----------------------------
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
9/30/00 9/30/00
- ----------------------- ---------------- --------------- ------------- --------------- ------------ ---------------
Shares
Name Acquired on Value Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- -------------- ----------- ------------- ----------- -------------
Exercise Realized ($)
-------- ------------
- ----------------------- ---------------- --------------- ------------- --------------- ------------ ---------------
Augustine Y. Cheung 500,000 $998,000
- ----------------------- ---------------- --------------- ------------- --------------- ------------ ---------------
Spencer J. Volk 650,000 $1,035,999
- ----------------------- ---------------- --------------- ------------- --------------- ------------ ---------------
Option Grants in Fiscal Year 2000
The following table provides information concerning grants of options
to purchase our common stock that we made to our chief executive officer Named
Executive Officers during the fiscal year ended September 30, 2000.
Option Grants in Fiscal Year 2000 (1)
Individual Grants
---------------------------------------------------------------
Percentage of
Total Options ----------------------------
Number of Granted to Potential Realizable Value
SecuritiesUndeEmployeesiins at Assumed Annual Rates of
Exercise Price Stock Price Appreciation
Per Expiration for Option Term(8)
Name Granted(2) Fiscal 2000 Share Date 5% 10%
- ---- ---------- ----------- ----- ---- -- ---
Augustine Y. Cheung ....
100,000 $1.22 (3) Jan. 1, 2005 $253,000 $531,340
Spencer J. Volk......... 400,000 $0.75 (4) Jan. 6,2005 $1,474,242 $2,018,495
250,000 $1.22 (5) Jan. 14, 2005
- -----------
(1) Since the end of fiscal year 2000, an exercisable option to purchase
167,000 shares of common stock at an exercise price of $1.4375 was issued
to Anthony P. Deasey, the new Senior Vice President -- Finance and Chief
Financial Officer pursuant to the employment agreement between the Company
and Mr. Deasey.
(2) All of the options listed in the table above are exercisable.
(3) Pursuant to Mr. Cheung's employment agreement, the exercise price is equal
to the closing price of the common stock during the fiscal quarter ended
December 31, 1999.
(4) Of the options to purchase the 650,000 shares owned by Mr. Volk, the option
to purchase 250,000 shares was granted pursuant to the new employment
contract between Celsion and Mr. Volk. The exercise price of the 250,000 is
equal to the average closing price of the common stock during the fiscal
quarter ended December 31, 1999.
33
(5) Separately, 100,000 shares of common stock and an option to purchase
400,000 shares were granted to Mr. Volk in exchange of the 400,000 shares
of common stock due to Mr. Volk pursuant to the first employment contract
between Celsion and Mr. Volk. The exercise price of the option to purchase
400,000 shares is equal to 66.67% of the average closing price of the
common stock during the three trading days prior to November 11, 1999.
(6) Potential Realizable Value assumes that the common stock appreciates at the
indicated annual rate (compounded annually) from the grant date until the
expiration of the option term and is calculated based on the rules
promulgated by the Securities and Exchange Commission. Potential Realizable
Value does not represent our estimate of future stock price performance.
The potential realizable value at 5% and 10% appreciation is calculated by
assuming that the estimated fair market value on the date of grant
appreciates at the indicated rate for the entire term of the option and
that the option is exercised at the exercise price and sold on the last day
of its term at the appreciated price. The public offering price is higher
than the estimated fair market value on the date of grant, and the
potential realizable value of the option grants would be significantly
higher than the numbers shown in the table if future stock prices were
projected to the end of the option term by applying the same annual rates
of stock price appreciation to the public offering price.
Stock Option Plan
At our annual meeting held on April 27, 1998, our stockholders approved
a stock option plan. The plan reserved up to 2,000,000 shares for option grants
to directors, employees and consultants, of which options for 1,635,000 shares
were available for grant as of November 30, 2000. We have agreed to allow
Spencer J. Volk, our President and Chief Executive Officer, to recommend the
recipients of such options, subject to approval by the Board of Directors.
Executive Employment Agreements
Pursuant to an agreement with the placement agent that conducted the
private placement offering that we consummated on January 31, 2000, we entered
into three-year employment agreements with Augustine Y. Cheung, our Chairman and
Chief Scientific Officer, and Spencer J. Volk, our President and Chief Executive
Officer. The new agreements are intended to encourage continuity of management
and were effective as of January 1, 2000. The terms of our prior executive
employment arrangements and a summary of the new agreements are described below.
The new executive employment agreement with Dr. Cheung provides for an
annual salary of $240,000 per year commencing as of January 1, 2000. As a form
of bonus, the agreement grants Dr. Cheung an option to purchase up to 300,000
shares of common stock at intervals until October 1, 2002 at an exercise price
of $1.22 per share, which is equal to the average closing price of our common
stock during our fiscal quarter ended December 31, 1999. If Dr. Cheung continues
to be employed by Celsion on each exercise date, he will be entitled to exercise
the bonus option in three separate installments of 100,000 shares each. The
first installment became exercisable on March 16, 2000, the next installment
will become exercisable after October 1, 2001, with the final installment
exercisable after October 1, 2002. Shares purchased under the bonus option will
be subject to restrictions on transfer for a minimum period of two years after
purchase. Dr. Cheung's employment agreement also grants to him performance-based
options to purchase up to a maximum of 700,000 incentive shares of common stock,
at exercise prices ranging from a low of $0.80 to a high of $1.60 per share, on
achieving five significant corporate milestones. Those performance objectives
include obtaining final FDA approval for our products, consummating alliances
with strategic marketing and distribution partners and attaining annual pre-tax
earnings of at least $1,000,000. A performance-based option may be exercised
only after the milestone has been achieved and during the term of Dr. Cheung's
employment. Shares issued on exercise of performance-based options will be
subject to restrictions comparable to those imposed on the annual bonus option
shares.
34
In May 1997 we entered into a one-year executive employment agreement
with Spencer J. Volk to serve as our President and Chief Executive Officer,
which agreement was automatically renewable annually for additional one-year
periods unless terminated by either party at least 90 days prior to the end of
the then-current one-year period. The agreement provided for an initial annual
salary of $240,000, which was to be adjusted to at least $360,000 upon our
successful raising of an aggregate of at least $5,000,000 in additional capital.
In addition, Mr. Volk received 500,000 shares of our common stock at the
commencement of his employment as incentive compensation. He also had the right
to receive up to 1,400,000 additional shares subject both to an increase in our
capital base and to Mr. Volk's continued employment. Under Mr. Volk's
leadership, we achieved the specified capital goals, but as of September 30,
1999, Mr. Volk had received only 1,000,000 of the additional shares. At our
request, he deferred receipt of the remaining 400,000 shares to a later date.
Similarly, although the pre-condition for Mr. Volk's salary adjustment had been
met, Mr. Volk agreed, at our request, to waive the salary increase due him for
any period prior to September 30, 1999.
With regard to the deferred 400,000 shares, on November 11, 1999, we
requested Mr. Volk to waive his right under his existing employment agreement to
receive these shares. Simultaneously, we granted him an option to purchase
400,000 shares of restricted common stock at a price equal to two-thirds of the
average closing price of common stock during the prior three trading days (which
closing price amounted to approximately $0.75 per share) and we agreed to issue
100,000 shares of common stock to him no later than February 15, 2000. Mr. Volk
agreed to our proposal.
At our request and the request of the placement agent, Mr. Volk agreed
to terminate his prior employment agreement and to enter into a new three-year
employment agreement, effective January 1, 2000. Mr. Volk's salary currently is
$240,000. His compensation arrangements contain annual bonus and
performance-based option provisions similar to those contained in Dr. Cheung's
employment agreement, except that Mr. Volk was issued an initial annual bonus
option for the purchase of 250,000 shares in fiscal year 2000 instead of the
100,000 share bonus option provided for that year in Dr. Cheung's agreement. Mr.
Volk's annual bonus for each of fiscal 2001 and 2002 will be 100,000 shares, as
in Dr. Cheung's agreement. For the 2001 fiscal year and the balance of the
contract term, Mr. Volk's annual salary will be $360,000, of which, at Celsion's
option, only $240,000 may be paid on a current basis. In the event that Celsion
elects to defer the increase, the salary differential will accrue as an unpaid
obligation to Mr. Volk at the rate of $10,000 per month, and will be represented
by a junior convertible note of Celsion, carrying interest at an annual rate of
8.75%, payable interest only until September 30, 2001. After October 1, 2001,
the outstanding principal amount of the note will be payable in four quarterly
installments of principal and interest. However, the balance of the note will
become payable in full, and regular salary payments will be made at the annual
rate of $360,000 at such time, if any, as we achieve annual revenues of at least
$2.5 million. At the option of Mr. Volk, the balance payable at any time under
the note will be convertible into shares of our common stock at a price equal to
80% of the average closing price of such common stock during any ten consecutive
trading days selected by Mr. Volk within the 40 trading days immediately prior
to the date of any conversion of the note.
The new agreements for each executive provide for continued payment of
salary and benefits during the full terms of the agreements in the event of a
change of control of Celsion. A change of control is defined as a merger, asset
sale, tender offer or other substantial change in voting control, or the
election of a new majority of the Board of Directors or of three or more
directors whose election is opposed by a majority of the Board. In addition, the
agreements provide for Consumer Price Index adjustments, restrictive covenants
and confidentiality and other protections in the form generally included in
employment agreements for senior management.
In addition, in May of 2000, we entered into a three-year employment
agreement with Dennis Smith, our Director of Engineering. Mr. Smith's agreement
provides for an annual salary of $100,000. The agreement also provides for
35
performance-based incentive options to purchase up to 150,000 shares of common
stock, exercisable only if certain corporate milestones are reached during his
employment, at exercise prices ranging from $2.80 to $3.20. In addition, the
agreement grants Mr. Smith an option, not subject to performance conditions, for
the purchase of 100,000 shares of common stock at a purchase price of $2.82 per
share.
Finally, in June 2000 we entered into a three-year employment agreement with
John Mon, a director and our Treasurer, Secretary and General Manager. Mr. Mon's
agreement provides for an annual salary of $100,000. Dr. Cheung's agreement also
provides for performance-based incentive options to purchase up to 250,000
shares of common stock, exercisable only if certain corporate milestones are
reached during his employment, on terms similar to those governing the incentive
options provided for Mr. Volk and Dr. Cheung. In addition, the agreement grants
Mr. Mon an option, not subject to performance conditions, for the purchase of
50,000 shares of common stock at a price of $2.75 per share.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding shares of voting
securities of the Company beneficially owned as of September 30, 2000,
determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, by: (i) each person known by the Company to beneficially own 5% or more of
the outstanding voting securities; (ii) by each current director, (iii) by each
current executive officer and (iv) by all current directors and executive
officers of the Company as a group. Unless otherwise indicated, the persons
included in the table have sole voting and investment power with respect to all
shares beneficially owned. Shares of common stock subject to options that are
currently exercisable or are exercisable within 60 days of November 30, 2000 are
treated as outstanding and beneficially owned with respect to the person holding
such options for the purpose of computing the percentage ownership of such
person. However, these shares are not treated as outstanding for purposes of
computing the percentage ownership of any other person.
Shares of Common Stock Percentage of Common
Name of Beneficial Owner Beneficially Owned (1) Stock Beneficially Owned
- ---------------------- ---------------------- ------------------------
Directors, Named Executive Officers* and more
than 5% Stockholders:
Augustine Y. Cheung (2) 7,131,176 10.95%
Spencer J. Volk (3) 3,439,485 5.28%
John Mon (4) 1,058,288 1.62%
Max E. Link (5) 242,970 **
LaSalle D. Leffall, Jr. (6) 65,781 **
Claude Tihon (7) 81,781 **
Anthony P. Deasey (8) 243,667 **
Dennis Smith (9) 34,000 **
Executive Officers and Directors as a group (8 12,251,148 18.83%
individuals)
- -------------------------------------------------------------------------------
* The address of each of the named principal stockholders is c/o Celsion
Corporation, 10220-I Old Columbia Road, Columbia, MD 21046-1705.
** Less than 1%.
36
(1) Except as noted, the percentages shown in the above table do not give
effect to outstanding options and warrants, shares reserved for
issuance under our stock option plan, or shares of preferred stock
which are convertible into shares of common stock. Outstanding options,
warrants and shares of preferred stock do not carry voting rights.
(2) Includes currently exercisable options to purchase 500,000 shares of
common stock.
(3) Includes currently exercisable options to purchase 650,000 shares of
common stock.
(4) Includes currently exercisable options to purchase 650,000 shares of
common stock.
(5) Includes currently exercisable options to purchase 50,000 shares of
common stock
(6) Includes currently exercisable options to purchase 50,000 shares of
common stock.
(7) Includes currently exercisable options to purchase 61,000 shares of
common stock.
(8) Includes currently exercisable options to purchase 167,000 shares of
common stock.
(9) Includes options to purchase 34,000 shares of common stock, which will
be exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Compensation to Warren C. Stearns
Warren C. Stearns, a former director and financial consultant to
Celsion, was previously engaged to provide services to Celsion for a two-year
period beginning May 1996 under a consulting agreement between Celsion and Mr.
Stearns' company, SMC. Pursuant to the agreement, Mr. Stearns was to perform
various services related to financing and investment banking for Celsion. In
consideration for such services, the agreement provided for the issuance of, and
we issued to designees of SMC and Mr. Stearns, five-year warrants to purchase
shares of our common stock.
We have reviewed with our attorneys the circumstances surrounding the
issuance of the above warrants and the services that were performed or purported
to be performed by Mr. Stearns and SMC. We believe that the issuance of such
warrants constituted a voidable transaction under provisions of the Securities
Exchange Act of 1934 and have commenced litigation against SMC, Mr. Stearns and
the warrant holders to cancel the warrants.
See "Item 3. Legal Proceedings."
George T. Horton Trust Loan
We were obligated under a secured note to the George T. Horton Trust in
the original principal amount of $220,000, which bore interest at 1% per month,
was payable December 15, 1997, and was secured by certain equipment and
software. The George T. Horton Trust is a part equity owner of SMC. In full
satisfaction of such note, we paid $120,000 and issued 200,000 shares of our
common stock.
37
HLB
We previously used the services of HLB, an engineering firm, to assist
in the development of commercial versions of our new breast cancer and BPH
treatment systems. Walter B. Herbst, one of our directors until October 2000,
was the founder and is a director of HLB. In the 1998 fiscal year, HLB billed
Celsion $561,238 for extensive engineering and design work it performed, on
terms which, in the judgment of the Board of Directors, were comparable to terms
which would be available from a non-affiliated vendor. Of this amount, HLB was
paid $106,500 in cash, and on September 23, 1998, HLB converted $250,000 of the
amount owed into 833,334 shares of restricted common stock at the then-current
market price of $0.30 per share. On June 16, 1999 HLB converted the remaining
balance of $204,738 into 409,476 shares of restricted common stock at $0.50 per
share.
Promissory Notes and Conversions into Common Stock; Purchase of Common Stock
From 1987 through 1998 we borrowed sums needed for working capital at
various times from related parties, and issued promissory notes as follows:
o A note dated January 26, 1987 payable to Dr. Augustine Cheung,
accruing interest at the rate of 12% per annum, in the principal
amount of $78,750 due December 31, 1998.
o A note dated June 30, 1994 payable to Dr. Augustine Cheung,
accruing interest at the rate of 10% per annum, in the principal
amount of $42,669 due December 31, 1998.
All of such notes and accrued interest have been converted into common
stock at prices equal to fair market value at the time of conversion. In
addition to conversion of the foregoing notes, on September 23, 1998, Mr. Volk
converted $50,134 of amounts we owed him for unpaid expense reimbursements into
167,114 shares of our common stock at $0.30 per share.
On June 16, 1999, certain officers converted accrued salary payable to
them into restricted common stock as follows: Spencer J. Volk converted $289,884
into 579,768 shares at $0.50 per share. Dr. Augustine Cheung converted $177,884
into 355,768 shares at $0.50 per share. John Mon converted $68,538 into 137,076
shares at $0.50 per share.
Rescission of Ardex Acquisition
On or about March 31, 1995, we paid $400,000 to Ardex Equipment, LLC
and $50,000 to Charles C. Shelton and Joseph Colino in exchange for an aggregate
19.25% interest in Ardex. At the time, Messrs. Shelton and Colino were directors
of Celsion. In 1996, we received a $50,000 distribution from Ardex.
On August 2, 1996, we entered into an agreement with Ardex rescinding
our investment in Ardex. Pursuant to the Rescission Agreement, we were to
receive a 5-year negotiable promissory note for $350,000 bearing interest at 8%
per annum. Interest only was to be paid until the principal became due.
Principal was due upon the first of the following events to occur: (i)
completion of public or private offerings by Ardex in the aggregate of
$1,500,000 or more; (ii) 90 days following the year end in which sales have been
or exceed $3,000,000; or (iii) Ardex having a cash balance of $800,000 or more
from operations; or (iv) five years from the date of the note. The note was to
be secured by a limited guarantee of Charles C. Shelton, Joseph Colino and John
Kohlman, but only to the extent of their interest in Ardex and their options in
Celsion. In addition, Messrs. Shelton, Colino and Kohlman were to deliver their
personal promissory notes for a total of $50,000.
38
The terms of the Recission Agreement were not performed by Ardex and
Messrs. Shelton, Colino and Kohlman, and we were advised by Ardex and these
persons that they could not honor the terms of the Recission Agreement because
Ardex had not been successful and the Ardex individuals were in financial
difficulties. We are no longer continuing with our efforts to obtain the
documents contemplated by the Rescission Agreement.
On September 30, 1998, we entered into a settlement agreement with
Charles Shelton pursuant to which we released any claims against Mr. Shelton and
Mr. Shelton waived his right to an option to purchase 420,000 shares of our
common stock at a price of $.35 per share and his claim for approximately
$110,000 against us in exchange for 50,000 shares of our common stock. At the
time of such settlement, our shares were trading at a price of approximately of
$0.30 per share.
39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS,
SCHEDULES AND REPORTS ON FORM 8-K
(a)
1. Financial Statements
The following is a list of the financial statements of Celsion
Corporation, together with the report of its independent public accountants.
Title of Documents Page No.
- ------------------ --------
Independent Auditors' Report F-3
Balance Sheet F-4
Statements of Operations F-6
Statements of Changes in Stockholders' Equity F-7
Statements of Cash Flows F-9
Notes to Financial Statements F-11
2. Financial Statement Schedules.
No schedules are provided because of the absence of conditions under
which they are required.
3. Exhibits.
The following documents are included as exhibits to this report:
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1.1+ Certificate of Incorporation of Celsion Corporation
(the "Company") as filed with the Secretary of
State of the State of Delaware on May 17, 2000.
3.1.2+ Certificate of Designations regarding the Series A
10% Preferred Stock of the Company as filed with
the Secretary of State of the State of Delaware on
August 17, 2000.
3.1.3+ Certificate of Ownership and Merger of Celsion
Corporation (a Maryland Corporation) into Celsion
(Delaware) Corporation (inter alia, changing our
name to "Celsion Corporation" from "Celsion
(Delaware) Corporation) as filed with the Secretary
of State of the State of Delaware on August 17,
2000.
3.2+ By-laws of the Company adopted June 1, 2000.
4.1+ Form of Common Stock Certificate, par value $0.01
per share.
40
10.1 Patent License Agreement between the Company and
Massachusetts Institute of technology dated June 1
1996, Incorporated herein by reference to Exhibit
10.1 to the Annual Report on Form 10-K of the
Company for the year ended September 30, 1996
(Confidential Treatment Requested).
10.2 License Agreement between the Company and MMTC,
Inc. dated August 23, 1996, incorporated herein by
reference to Exhibit 10.2 to the Annual Report on
Form 10-K of the Company for the year ended
September 30, 1996 (Confidential Treatment
Requested).
10.3 Letter Agreement between the Company and H.B.C.I.,
Inc., dated September 17, 1996, incorporated herein
by reference to Exhibit 10.3 to the Annual Report
on Form 10-K of the Company for the year ended
September 30, 1996.
10.4 Patent License Agreement between the Company and
Massachusetts Institute of Technology dated October
17, 1997, incorporated herein by reference to
Exhibit 10.7 to the Annual Report on Form 10-K
(amended) of the Company for the year ended
September 30, 1998. (Confidential Treatment
Requested).
10.5 Amendment dated November 25, 1997 to the License
Agreement between the Company and MMTC, Inc. dated
August 23, 1996, incorporated herein by reference
to Exhibit 10.8 to the Annual Report on Form 10-K
(amended) of the Company for the year ended
September 30, 1998. (Confidential Treatment
Requested).
10.6 Patent License Agreement between the Company and
Duke University dated November 10, 1999,
incorporated herein by reference to Exhibit 10.9 to
the Annual Report on Form 10-K of the Company for
the year ended September 30, 1999 (Confidential
Treatment Requested).
10.7 Amendment dated March 23, 1999 to the License
Agreement between the Company and MMTC, Inc. dated
August 23, 1996, incorporated herein by reference
to Exhibit 10.10 to the Annual Report on Form 10-K
of the Company for the year ended September 30,
1999. (Confidential Treatment Requested).
10.8 Amendment dated August 31, 1999 to the Option
Agreement between the Company and Sloan-Kettering
Institute for Cancer Research dated February 26,
1999, incorporated herein by reference to Exhibit
10.11 to the Annual Report on Form 10-K of the
Company for the year ended September 30, 1999.
(Confidential Treatment Requested).
10.9 Amendment Letter dated August 31, 1999 to the
Option Agreement between the Company and
Sloan-Kettering Institute for Cancer Research dated
February 26, 1999, incorporated herein by reference
to Exhibit 10.12 to the Annual Report on Form 10-K
of the Company for the year ended September 30,
1999.
10.10 Omnibus Stock Option Plan, incorporated herein by
reference to Exhibit 10.1 to the Quarterly Report
on Form 10-Q of the Company for the quarter ended
March 30, 1998.
10.11 Form of Series 200 Warrant issued to certain
employees, directors and consultants to Purchase
Common Stock of the Company, incorporated herein by
reference to Exhibit 10.11 to the Annual Report on
Form 10-K of the Company for the year ended
September 30, 1998.
41
10.12 Form of Series 250 Warrant issued to DunnHughes
Holding, Inc. to Purchase Common Stock of the
Company, incorporated herein by reference to
Exhibit 10.12 to the Annual Report on Form 10-K of
the Company for the year ended September 30,1998
10.13 Form of Series 300 Warrant issued to Nace
Resources, Inc. to purchase Common Stock of the
Company, incorporated herein by reference to
Exhibit 10.13 to the Annual Report on Form 10-K of
the Company for the year ended September 30, 1998.
10.14 Form of Series 400 Warrant issued to Stearns
Management Company Assignees to Purchase Common
Stock of the Company, incorporated herein by
reference to Exhibit 10.14 to the Annual Report on
Form 10-K of the Company for the year ended
September 30, 1998.
10.15 Form of Series 500 Warrant to Purchase Common Stock
of the Company pursuant to the Private Placement
Memorandum of the Company dated January 6, 1997, as
amended, incorporated herein by reference to
Exhibit 10.15 to the Annual Report on Form 10-K of
the Company for the year ended September 30, 1998.
10.16 Form of Series 600 Warrant issued to Certain
Employees and Directors on May 16, 1996 to Purchase
Common Stock of the Company, incorporated herein by
reference to Exhibit 10.17 to the Annual Report on
Form 10-K of the Company for the year ended
September 30, 1998.
10.17 Form of Registration Rights Agreement pursuant to
the Private Placement Memorandum of the Company
dated September 10, 1998, as amended, incorporated
herein by reference to Exhibit 10.20 to the Annual
Report on Form 10-K of the Company for the year
ended September 30, 1998.
10.18+ License Agreement between the Company and
Sloan-Kettering Institute for Cancer Research dated
May 19, 2000.
10.19 Employment Agreement between the Company and
Spencer J. Volk dated January 14, 2000,
incorporated herein by reference to Exhibit 10.1 to
the Quarterly Report on Form 10-Q (amended) of the
Company for the quarter ended December 31, 1999.
10.10 Employment Agreement between the Company and
Augustine Y. Cheung dated January 1, 2000,
incorporated herein by reference to Exhibit 10.2 to
the Quarterly Report on Form 10-Q (amended) of the
Company for the quarter ended December 31, 1999.
10.21+ Employment Agreement between the Company and John
Mon dated June 8, 2000.
10.22+ Employment Agreement between the Company and Dennis
Smith dated May 19, 2000.
10.23+ Option Agreement between the Company and Duke
University dated August 8, 2000.
10.24+ Service Agreement between the British Columbia
Cancer Agency, Division of Medical Oncology,
Investigational Drug Section, Propharma
Pharmaceutical Clean Room and the Company dated
September 20, 2000. (Confidential Treatment
Requested).
42
21.1 Subsidiaries of the Registrant, incorporated herein
by reference to Exhibit 21.1 to the Annual Report
on Form 10-K of the Company for the year ended
September 30, 1996.
23.1+ Consent of Stegman & Company, independent public
accountants of the Company.
27.1 + Financial Data Schedule.
+ Filed herewith.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the fourth quarter of
its fiscal year ended September 30, 2000.
43
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused its annual report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Spencer J. Volk Director, President and Chief December 20, 2000
----------------- Executive Officer
Spencer J. Volk (Principal Executive Officer)
/s/ Anthony P. Deasey Senior Vice President and Chief December 20, 2000
- --------------------- Financial Officer
Anthony P. Deasey (Principal Financial and
Accounting Officer)
/s/ John Mon Vice President, Secretary, December 20, 2000
- ------------ Treasurer and Director
John Mon
/s/ Augustine Y. Cheung Chairman of the Board December 20, 2000
- -----------------------
Augustine Y. Cheung
/s/ Max E. Link Director December 20, 2000
- ---------------
Max E. Link
/s/ LaSalle D. Leffall, Jr. Director December 20, 2000
- ---------------------------
LaSalle D. Leffall, Jr.
/s/ Claude Tihon Director December 20, 2000
- ----------------
Claude Tihon
44
CELSION CORPORATION
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED
SEPTEMBER 30, 2000, 1999 AND 1997
F-1
TABLE OF CONTENTS
Page
----
INDEPENDENT AUDITORS' REPORT F-3
FINANCIAL STATEMENTS
Balance Sheets F-4 - F-5
Statements of Operations F-6
Statements of Changes in Stockholders' Equity (Deficit) F-7 - F-8
Statements of Cash Flows F-9 - F-10
NOTES TO FINANCIAL STATEMENTS F-10- F-17
Finacial Statement Schedule 75
F-2
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
Celsion Corporation
Columbia, Maryland
We have audited the accompanying balance sheets of Celsion
Corporation as of September 30, 2000 and 1999, and the related statements of
operations, changes in stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Celsion
Corporation as of September 30, 2000 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
2000 in conformity with generally accepted accounting principles.
/s/ Stegman & Co.
- -----------------
Stegman & Co.
Baltimore, Maryland
October 20, 2000
F-3
CELSION CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
ASSETS
------
2000 1999
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $8,820,196 $1,357,464
Accounts receivable - trade 2,307 1,812
Accrued interest receivable 7,751 --
Inventories 13,538 22,059
Prepaid expenses 22,417 3,520
Other current assets 34,356 39,203
------------ ------------
Total current assets 8,900,565 1,424,058
---------- ----------
PROPERTY AND EQUIPMENT - at cost:
Furniture and office equipment 146,287 203,156
Laboratory and shop equipment 52,978 47,983
------------ -----------
199,265 251,139
Less accumulated depreciation 74,540 224,874
------------ ----------
Net value of property and equipment 124,725 26,265
----------- -----------
OTHER ASSETS:
Patent licenses (net of accumulated amortization
of $97,419 and $81,589 in 2000 and 1999,
respectively) 92,531 108,361
----------- -----------
TOTAL ASSETS $9,117,821 $1,558,684
========== ==========
See accompanying notes.
F-4
CELSION CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
2000 1999
------------ ------------
CURRENT LIABILITIES:
Accounts payable - trade $ 60,472 $ 130,792
Notes payable - other 114,778 114,778
Notes payable - related parties -- 10,000
Accrued interest payable - related parties -- 13,800
Accrued interest payable - other 155,373 155,373
Accrued compensation -- 91,009
Other accrued liabilities 60,769 88
Capital lease - current -- 1,292
------------ ------------
Total current liabilities 391,392 517,132
LONG-TERM LIABILITIES:
Capital lease - long-term -- 4,427
------------ ------------
Total liabilities 391,392 521,559
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; 150,000,000 shares
authorized, 64,372,067 and 53,370,498 issued
and outstanding for 2000 and 1999, respectively 643,721 533,705
Series A 10% Convertible Preferred Stock, $1,000
par value, 7,000 shares authorized, 5,176 shares
issued and outstanding 5,176,000 --
Additional paid-in capital 29,354,125 22,403,622
Accumulated deficit (26,447,417) (21,900,202)
------------ ------------
Total stockholders' equity 8,726,429 1,037,125
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,117,821 $ 1,558,684
============ ============
See accompanying notes.
F-5
CELSION CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
REVENUES:
Equipment sales and parts $ 3,420 $ -- $ 174,182
Returns and allowances -- -- --
------------
Total revenues 3,420 -- 174,182
COST OF SALES 246 -- 136,500
------------ ------------ ------------
GROSS PROFIT 3,174 -- 37,682
------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 2,661,333 1,371,161 2,515,822
Research and development 2,238,292 1,019,941 1,534,872
------------ ------------ ------------
Total operating expenses 4,899,625 2,391,102 4,050,694
------------ ------------ ------------
LOSS FROM OPERATIONS (4,896,451) (2,391,102) (4,013,012)
INTEREST INCOME 350,526 15,744 11,870
INTEREST EXPENSE (1,290) (60,834) (199,346)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (4,547,215) (2,436,192) (4,200,488)
INCOME TAXES -- -- --
------------ ------------ ------------
NET LOSS $ (4,547,215) $ (2,436,192) $ (4,200,488)
============ ============ ============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (.08) $ (.05) $ (.12)
============ ============ ============
BASIC AND DILUTED WEIGHTED
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 59,406,921 45,900,424 34,867,001
============ ============ ============
F-6
See accompanying notes.
CELSION CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
Series A
10% Convertible
Common Stock Preferred Stock
-------------------------------- --------------------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
Balances at October 1, 1997 29,095,333 $ 290,953 -- $ --
Sale of common stock 4,315,000 43,150 -- --
Issuance of 6,535,493 shares
of common stock as payment
of indebtedness and expenses 6,535,493 65,355 -- --
Net loss -- -- -- --
---------- ---------- ---------- ----------
Balances at September 30, 1998 39,945,826 399,458 -- --
Sale of common stock 9,545,500 95,455 -- --
Issuance of 3,879,172 shares of
common stock as payment
of indebtedness and expenses 3,879,172 38,792 -- --
Net loss -- -- -- --
---------- ---------- ---------- ----------
Balances at September 30, 1999 53,370,498 533,705 -- --
Sale of common stock 10,248,544 102,485 -- --
Issuance of 753,025 shares of
common stock as payment
of indebtedness and expenses 753,025 7,531 -- --
Issuance of 4,853 shares of Series A
10% convertible preferred
stock (net of issuance costs) -- -- 4,853 4,852,500
Preferred stock dividend 323 323,500
Net loss -- -- -- --
---------- ---------- ---------- ----------
Balances at September 30, 2000 64,372,067 $ 643,721 5,176 $5,176,000
========== ========== ========== ==========
See accompanying notes.
F-7
CELSION CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
Additional
Paid-In
Capital Deficit Total
------------ ------------ ------------
Balances at October 1, 1997 $ 12,511,923 $(15,263,522) $ (2,460,646)
Sale of common stock 1,981,850 -- 2,025,000
Issuance of 6,535,493 shares
of common stock as payment
of indebtedness and expenses 2,719,712 -- 2,785,067
Net loss -- (4,200,488) (4,200,488)
------------ ------------ ------------
Balances at September 30, 1998 17,213,485 (19,464,010) (1,851,067)
Sale of common stock 3,517,420 -- 3,612,875
Issuance of 3,879,172 shares of
common stock as payment
of indebtedness and expenses 1,672,717 -- 1,711,509
Net loss -- (2,436,192) (2,436,192)
------------ ------------ ------------
Balances at September 30, 1999 22,403,622 (21,900,202) 1,037,125
Sale of common stock 7,122,893 -- 7,225,378
Issuance of 753,025 shares of
common stock as payment
of indebtedness and expenses 771,965 -- 779,496
Issuance of 4,853 shares of Series
10% convertible preferred
stock (net of issuance costs) (620,855) -- 4,231,645
Preferred stock dividend (323,500) -- --
Net loss -- (4,547,215) (4,547,215)
------------ ------------ ------------
Balances at September 30, 2000 $ 29,354,125 $(26,447,417) $ 8,726,429
============ ============ ============
See accompanying notes.
F-8
CELSION CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,547,215) $ (2,436,192) $ (4,200,488)
Noncash items included in net loss:
Depreciation and amortization 39,478 28,674 24,291
Loss on disposal of property and equipment -- -- 45,180
Inventory valuation 17,000 20,000 287,682
Common stock issued for operating expenses 542,745 200,304 796,745
Net changes in:
Accounts receivable (495) -- 4,079
Inventories (8,479) -- --
Accrued interest receivable - related parties (7,751) -- --
Prepaid expenses 197,103 73,424 5,430
Other current assets 4,847 (21,594) 10,085
Accounts payable and accrued interest payable (73,370) (223,255) 903,900
Accrued compensation (91,009) 189,239 168,732
Accrued professional fees -- (100,000) (156,300)
Other accrued liabilities 60,681 (13,551) (1,865)
------------ ------------ ------------
Net cash used in operating activities (3,866,465) (2,282,951) (2,112,529)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of patent licenses -- -- (10,000)
Purchase of property and equipment (122,108) (8,297) (21,935)
------------ ------------ ------------
Net cash used in investing activities (122,108) (8,297) (31,935)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable -- -- 50,000
Payment on notes payable - related parties -- -- (63,240)
Payment on notes payable - other -- (18,000) (79,254)
Payment on capital lease obligation (5,719) (1,083) (475)
Proceeds of stock issuances 11,457,024 3,612,875 2,025,000
------------ ------------ ------------
Net cash provided by financing activities 11,451,305 3,593,792 1,932,031
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 7,462,732 1,302,544 (212,433)
CASH AT BEGINNING OF YEAR 1,357,464 54,920 267,353
------------ ------------ ------------
CASH AT END OF YEAR $ 8,820,196 $ 1,357,464 $ 54,920
============ ============ ============
See accompanying notes.
F-9
Celsion Corporation
Statements of Cash Flows (Continued)
For the Years Ended September 30, 2000, 1999 and 1998
2000 1999 1998
---------- ------------ -----------
Conversion of accounts payable, debt and accrued
interest payable through issuance of common stock $ 20,750 $ 1,511,205 $ 1,988,322
========== ============ ===========
Prepaid expenses funded through issuance of
common stock $ 216,000 $ -- $ --
========== ============ ===========
Acquisition of equipment:
Cost of equipment $ -- $ -- $ 7,277
Capital lease payable -- -- (7,277)
---------- ------------ -----------
Cash down payment for equipment $ -- $ -- $ --
========== ============ ===========
Payment on notes payable:
Decrease in notes payable $ -- $ -- 16,670
Offset of accounts receivable -- -- (16,670)
---------- ------------ -----------
Net cash paid $ -- $ -- $ --
========== ============ ===========
Cash paid during the year for interest $ 1,290 $ 21,356 $ 103,470
========== ============ ===========
See accompanying notes.
F-10
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Celsion Corporation ("Celsion" or the "Company") develops
medical treatment systems primarily to treat breast cancer and a chronic
prostate enlargement condition, common in older males, known as benign prostatic
hyperplasia ("BPH"), using minimally invasive focused heat technology. The
Company has also been working with Duke University on the development of
heat-sensitive liposome compounds for use in the delivery of chemotherapy drugs
to tumor sites, and with Memorial Sloan-Kettering Cancer Center on the
development of heat-activated gene therapy compounds.
Cash and Cash Equivalents
-------------------------
The Company classifies highly liquid investments with original
maturities of 90 days or less to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is
determined using the average cost method.
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation is
provided over the estimated useful lives of the related assets of three to seven
years using the straight-line method. Major renewals and betterments are
capitalized at cost and ordinary repairs and maintenance are charged against
operations as incurred. Depreciation expense was $23,648, $12,845 and $11,910
for the years ended September 30, 2000, 1999 and 1998, respectively.
Patent Licenses
---------------
The Company has purchased several licenses to use the rights
to patented technologies. Patent license costs are amortized straight-line over
the remaining patent life.
Revenue Recognition
-------------------
Revenue is recognized when systems, products or components are
shipped and when consulting services are rendered. Deferred revenue is recorded
for customer deposits received on contingent sale agreements.
Research and Development
------------------------
Research and development costs are expensed as incurred.
Equipment and facilities acquired for research and development activities which
have alternative future uses are capitalized and charged to expense over their
estimated useful lives.
F-11
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
Net Loss Per Common Share
-------------------------
Basic and diluted net loss per common share was computed by
dividing net loss by the weighted average number of shares of common stock
outstanding during each period. The impact of common stock equivalents has been
excluded from the computation of weighted average common shares outstanding, as
the effect would be antidilutive.
Nonmonetary Transactions
------------------------
Nonmonetary transactions are accounted for in accordance with
Accounting Principles Board Opinion No. 29 "Accounting for Nonmonetary
Transactions" which requires that the transfer or distribution of a nonmonetary
asset or liability generally is based on the fair value of the asset or
liability that is received or surrendered whichever is more clearly evident.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial Instruments
---------------------
For most financial instruments, including cash, accounts
payable and accruals, management believes that the carrying amount approximates
fair value, as the majority of these instruments are short-term in nature.
2. FINANCIAL CONDITION
Since inception, the Company has incurred substantial
operating losses, principally from expenses associated with the Company's
research and development programs, the clinical trials conducted in connection
with the Company's thermotherapy systems and applications for submission to the
Food and Drug Administration. The Company believes these expenditures are
essential for the commercialization of its technologies. The Company has
experienced significant operating losses and as of September 30, 2000 had an
accumulated deficit of approximately $26 million. The Company expects such
operating losses to continue and possibly increase in the near term and for the
foreseeable future as it continues its product development efforts, and
undertakes marketing and sales activities. The Company's ability to achieve
profitability is dependent upon its ability to successfully obtain governmental
approvals, produce, market and sell its new technology and integrate such
technology into its thermotherapy systems. The Company has not been able to
successfully market its older thermotherapy cancer treatment system because of
its inability to provide heat treatment for other than surface and sub-surface
tumors. There can be no assurance that the Company will be able to successfully
commercialize its newer technology or that profitability will ever be achieved.
The operating results of the Company have fluctuated significantly in the past.
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.
The Company will need substantial additional funding in order
to complete the development, testing and commercialization of its cancer
treatment and BPH products and of potential new products. It is the Company's
current intention both to increase the pace of development work on its present
products and to make a significant commitment to thermosensitive liposome and
gene therapy research and development projects. The increase in the scope of
present development work and such new projects will require additional funding,
at least until the Company is able to begin marketing its products. The Company
does not have any committed sources of financing, and cannot guarantee that such
additional funding will be available on acceptable terms, if at all.
If adequate funding is not available in the future, the
Company may be required to delay, scale-back or eliminate certain aspects of its
operations or to attempt to obtain funds through onerous arrangements with
partners or others that may force the Company to relinquish rights to certain of
F-12
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
its technologies, products or potential markers. Furthermore, if the Company
cannot fund its ongoing development and other 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 therefore lose its license rights, with
material adverse effects on the Company.
3. INVENTORIES
Inventories are comprised of the following:
2000 1999
------- -------
Materials $13,538 $ 5,059
Finished products -- 17,000
------- -------
$13,538 $22,059
======= =======
During the year ended September 30, 1998, management completed
a thorough review of all its components inventory. As a result of this review
the Company identified and wrote off approximately $287,000 of parts and
components inventory acquired in the course of developing older equipment now
considered to be obsolete. This includes approximately $175,000 of components
and parts acquired in the course of developing the Company's older equipment,
which was deemed unusable in the Company's newer models that incorporate
advanced microwave technology, and $112,000 of replacement parts inventory for
older equipment sold in prior years by the Company which was determined to have
no appreciable market value because of absence of demand. The write off of
$175,000 is included in research and development expenses and the write off of
$112,000 is included in operating expenses. During the years ended September 30,
2000 and 1999 additional write-offs of $17,000 and $20,000, respectively, were
recognized through a charge to operating expenses.
4. NOTES PAYABLE - OTHER
Notes payable - other consists of a term note without interest
and payable on demand.
5. INCOME TAXES
A reconciliation of the Company's statutory tax rate to the
effective rate for the years ended September 30 is as follows:
2000 1999 1998
------- ------- -------
Federal statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit 4.6 4.6 4.6
Valuation allowance (38.6) (38.6) (38.6)
------- ------- -------
.0% .0% .0%
======= ======= =======
As of September 30, 2000, the Company had net operating loss
carryforwards of approximately $24 million for federal income tax purposes that
are available to offset future taxable income through the year 2020.
F-13
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
The components of the Company's deferred tax asset for the years ended
September 30 is as follows:
2000 1999
----------- -----------
Net operating loss carryforwards $ 9,215,000 $ 7,893,000
Valuation allowance (9,215,000) (7,893,000)
----------- -----------
$ -- $ --
=========== ===========
The evaluation of the realizability of such deferred tax assets in
future periods is made based upon a variety of factors for generating future
taxable income, such as intent and ability to sell assets and historical and
projected operating performance. At this time, the Company has established a
valuation reserve for all of its deferred tax assets. Such tax assets are
available to be recognized and benefit future periods.
6. RETIREMENT PLAN
The Company provides a SAR-SEP savings plan to which eligible
employees may make pretax payroll contributions up to 15% of compensation. The
Company does not make contributions to the plan.
7. PREFERRED STOCK
During the year ended September 30, 2000 the Company issued
4,852.5 shares of Series A 10% convertible preferred stock. Holders of shares of
preferred stock are entitled to receive when, as and if declared by the
Company's Board of Directors, dividends at the annual rate of 10% per share
payable semi-annually on March 31 and September 30. Such dividends are payable
in shares and fractional shares of preferred stock, valued for this purpose at
the rate of $1,000 per share.
The shares of preferred stock are subject to exchange and
conversion provisions based on certain capital raising initiatives of the
Company whereby holders may exchange preferred shares for common shares at
various conversion rates. If the holder does not exercise these exchange on
conversion provisions, the Company will redeem the shares at a redemption price
of 105% of par value of the shares. If certain capital raising initiatives of
the Company do not occur within 12 months of the close of the preferred stock
offering, the shares may be converted into shares of the Company's common stock
at a conversion price of $0.41 per share of common stock. The Company may call
all or any portion of the outstanding shares of preferred stock as a redemption
price equal to 105% of the par value of such share plus all accrued and unpaid
dividends.
8. STOCK OPTIONS AND WARRANTS
The Company has issued stock options to employees, directors,
vendors and debt holders. Options are granted at market value at the date of the
grant and are generally exercisable immediately.
A summary of the Company's stock option activity and related
information for the years ended September 30, 2000, 1999 and 1998 is as follows:
2000 1999 1998
--------------------- ----------------------- -------------------------
Weighted Weighted Weighted
Common Average Common Average Common Average
Stock Exercise Stock Exercise Stock Exercise
Options Price Options Price Options Price
---------- ---------- --------- ---------- --------- ---------
Price
Outstanding at beginning of year 2,147,500 $ .31 2,745,000 $ .30 3,565,000 $ .29
Granted -- -- -- -- -- --
Exercised (705,030) .35 (587,500) .25 (125,000) .45
Expired/cancelled -- -- (10,000) .69 (695,000) .25
---------- ---------- ---------- ---------- ----------- ---------
Outstanding at end of year 1,442,470 $ .29 2,147,500 $ .31 2,745,000 $ .30
=========== ========== ========== ========== =========== ==========
F-14
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
Additionally, the Company has issued warrants to purchase the
Company's stock as follows:
2000 1999 1998
--------------------- ----------------------- -------------------------
Weighted Weighted Weighted
Common Average Common Average Common Average
Stock Exercise Stock Exercise Stock Exercise
Options Price Options Price Options Price
---------- ---------- --------- ---------- --------- ---------
Outstanding at beginning
of year 14,506,270 $ .60 7,858,983 $ .42 3,276,818 $ .28
Issued 1,125,214 .94 6,749,627 .81 4,582,165 .52
Expired/cancelled (9,542,044) .73 (102,340) .50 -- .00
---------- ---------- --------- ---------- --------- ---------
Outstanding at end of year 6,089,440 $ .47 14,506,270 $ .60 7,858,983 $ .42
=========== =========== =========== =========== ========= =========
The following summarizes information about options and warrants
at September 30, 2000:
Options/Warrants Outstanding and Exercisable
--------------------------------------------------------------------------
Weighted Average Weighted
Range of Remaining Average
Exercise Prices Number Contractual Life Exercise Price
--------------- ------ ---------------- --------------
$.16 - $3.00 7,531,910 4.83 years $.43
In connection with the issuance of the Series A 10%
convertible preferred stock, the Company issued 728 warrants to purchase
preferred stock at $1,100 per share. These warrants expire January 31, 2005.
Additionally, certain agreements with stockholders have
antidilutive provisions which require that additional shares and options be
issued under certain circumstances.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), but applies Accounting Principles Board Opinion No.
25 and related interpretations. No compensation expense related to the granting
of stock options was recorded during the three years ended September 30, 1999.
The fair value of these equity awards was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997: risk-free interest rate of 6.54%, 5.16% and
5.75% for 2000, 1999 and 1998, respectively; expected volatility of 50%;
expected option life of 3 to 5 years from vesting and an expected dividend yield
of 0.0%. If the Company had elected to recognize cost based on the fair value at
the grant dates consistent with the method prescribed by SFAS No. 123, net loss
and loss per share would have been changed to the pro forma amounts as follows:
Year Ended September 30,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
Net loss $(5,032,715) $(2,448,402) $(5,272,699)
Net loss per common share - basic (.07) (.05) (.12)
9. LICENSE AGREEMENTS AND PROPRIETARY RISKS
The Company owns no patents. Through the Company's license
agreements with Massachusetts Institute of Technology ("MIT") and MMTC, Inc.,
the Company has exclusive rights within defined fields of use to seven U.S.
patents. Four of the patents relate to thermotherapy for cancer, including
adaptive phased array ("APA") technology and three relate to the treatment of
BPH.
F-15
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
The term of the Company's exclusive rights under the MIT
license agreements expires ten years after the first commercial sale of a
product using the licensed technology or October 24, 2009, whichever occurs
first, but the Company's rights continue on a non-exclusive basis for the life
of the MIT patents. The Company's exclusive rights under the MIT license
agreement relate to use of the technology in conjunction with (i) application of
heat to breast tumor conditions, (ii) the application of heat to prostate
conditions, and (iii) all other medical uses. MIT has retained certain rights in
the licensed technology for non-commercial research purposes.
The Company's exclusive rights under the MMTC license
agreements extend for the life of MMTC's patents. The patent terms expire at
various times from May 2011 to November 2014.
The Company's rights under the license agreement with Duke
University extend for the longer of 20 years or the end of any term for which
any relevant patents are issued by the U.S. Patent and Trademark Office. For
portions of the technology, the Company's rights are world wide, and the various
patent rights, the license covers the United States, Canada, the United Kingdom,
France, Germany and Japan and other countries in which Celsion desires to seek
patent protection.
The Company's rights under its license agreement with
Sloan-Kettering will terminate at the later of 20 years after the date of the
license agreement or the last expiration date of any patent rights covered by
the agreement.
The MIT, MMTC, Duke University and Sloan-Kettering license
agreements each contain license fee, royalty and/or research support provisions,
testing and regulatory milestones, and other performance requirements which the
company must meet by certain deadlines with respect to the use of the licensed
technologies. In conjunction with the patent holders, the Company intends to
file international applications for certain of the U.S. patents.
10. RELATED PARTY TRANSACTIONS
Note Payable - Related Parties
------------------------------
Note payable to related parties as of September 30 are
comprised of the following:
1999 2000
--------- -------
Term notes payable to interested parties of the
Company accruing interest at 12% per annum. $ - 10,000
Less current portion - 10,000
--------- -------
Long-term portion - due in 1998 $ - $ -
========== =======
Accrued interest payable on these notes amounted to $0 and
$13,800 at September 30, 2000 and 1999, respectively.
Stock Based Compensation Plan
-----------------------------
As part of the Company's employment agreement with the current
chief executive officer (CEO), the Company has granted to the CEO 1,900,000
shares of the Company's capital stock which vests in certain milestones
throughout the term of employment. The shares become fully vested provided that
the CEO remains with the Company through the term of the contract. Under the
Plan the amount of compensation expense recognized in the years ended September
30, 2000, 1999 and 1998 were $75,000, $0 and $699,375, respectively.
F-16
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
-----------------
The Company has entered into a lease for their facilities
located in Columbia, Maryland. Future lease obligations are as follows:
2001 $ 93,704
2002 $ 96,385
2003 $ 99,207
2004 $ 102,100
2005 $ 76,205 (through June 30, 2005)
Rent expense for the years ended September 30, 2000, 1999 and
1998 was $70,848, $67,796 and $75,018, respectively.
Product Liability Insurance
---------------------------
The Company's business exposes it to potential product
liability risks which are inherent in the testing, manufacturing, and marketing
of human therapeutic products. The Company presently has product liability
insurance limited to $5,000,000 per incident, and, if the Company were to be
subject to a claim in excess of such coverage and such claim succeeded, the
Company would be required to pay such claim out of its own limited resources.
12. CONCENTRATIONS OF CREDIT RISK
As of September 30, 2000, the Company has a concentration of
credit represented by cash balances in one large commercial bank in amounts
which exceed current federal deposit insurance limits. The financial stability
of this institution is continually reviewed by senior management.
13. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------- -------------- ------------- --------------
Gross profit on sales $ - $ 3,174 $ - $ -
General and administrative expenses (486,465) (746,081) (460,233) (968,554)
Research and development expenses (355,578) (400,196) (644,106) (838,412)
Other income/expense 7,380 60,562 142,040 139,254
-------------- -------------- ------------- --------------
Net loss $ (834,663) $ (1,082,541) $ (962,299) $ (1,667,712)
============== ============== ============== ==============
Net loss per share - basic and diluted $(0.016) $(0.014) $(0.02) $(0.03)
============== ============== ============== ==============
F-17