UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001
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
Incorporation or Organization Identification No.)
10220-I OLD COLUMBIA ROAD, COLUMBIA, MARYLAND 21046-1705
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (410) 290-5390
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Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
AS OF FEBRUARY 14, 2002, THE REGISTRANT HAD OUTSTANDING 89,608,597 SHARES OF
COMMON STOCK, $.01 PAR VALUE.
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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Index to Financial Statements
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Page
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Balance Sheets
December 31, 2001 and September 30, 2001 3
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Statements of Operations
Three months ended
December 31, 2001 and 2000 5
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Statements of Cash Flows
Three months ended December 31, 2001 and 2000 6
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Notes to Financial Statements 7
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2
CELSION CORPORATION
BALANCE SHEETS
December 31, 2001 and September 30, 2001
ASSETS
December 31, September 30,
------------ -------------
2001 2001
---- ----
(Unaudited)
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Current assets:
Cash and cash equivalents................................ $ 4,335,194 $ 2,510,136
Accounts receivable - trade.............................. 1,205 1,205
Accrued interest receivable.............................. - -
Inventories................................................. - -
Prepaid expenses......................................... 13,501 -
Other current assets..................................... 150,000 150,000
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Total current assets............................... 4,499,900 2,661,341
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Property and equipment - at cost:
Furniture and office equipment........................... 229,643 229,643
Laboratory and shop equipment............................ 87,193 87,193
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316,836 316,836
Less accumulated depreciation......................... 142,139 127,556
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Net value of property and equipment................ 174,697 189,280
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Other assets:
Deposits.................................................... 100,833 29,537
Patent licenses (net of amortization)................... 72,745 76,703
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Total other assets.......................................... 173,578 106,240
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Total assets.................................... $ 4,848,175 $ 2,956,861
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3
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, September 30,
------------ -------------
2001 2001
---- ----
(Unaudited)
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Current liabilities:
Accounts payable -trade................................. $ 34,621 $ 145,520
Notes payable........................................... - -
Accrued interest payable ............................... - -
Other accrued liabilities............................... 8,687 126,921
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Total current liabilities......................... 43,308 272,441
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Long-term Liabilities:
Security deposit....................................... - 15,203
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Total liabilities................................. 43,308 287,644
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Stockholders' equity:
Capital stock $.01 par value; 150,000,000 shares authorized,
85,292,249 and 76,876,761 shares issued and outstanding at
December 31, 2001 and September 30, 2001, respectively...... 852,922 768,768
Series A 10% Convertible Preferred Stock -- $1,000 par value,
7,000 shares authorized, 1,064 and 1,099 shares issued and
outstanding at December 31, 2001 and September 30, 2001,
respectively ............................................... 1,063,560 1,099,584
Additional paid-in capital............................... 38,169,897 34,406,022
Accumulated deficit..................................... (35,281,516) (33,605,157)
------------ ------------
Total stockholders'equity......................... 4,804,863 2,669,217
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Total liabilities and stockholders'
equity...................................................... $ 4,848,175 $ 2,956,861
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See accompanying notes.
4
CELSION CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended December 31,
-------------------------------
2001 2000
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Operating expenses:
Selling, general and administrative.............. $ 541,247 $ 930,600
Research and development......................... 1,123,221 556,375
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Total operating expenses.................... 1,664,468 1,486,975
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Loss from operations................................ (1,664,468) (1,486,975)
Interest income..................................... 11,060 112,576
Interest expense.................................... - (53)
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Loss before income taxes............................ (1,653,408) (1,374,452)
Income taxes........................................ - -
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Net loss............................................ $ (1,653,408) $(1,374,452)
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Net loss per common share (basic)................... $ (0.02) $ (0.02)
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Weighted average shares outstanding................. 78,404,179 64,441,029
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See accompanying notes.
5
CELSION CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended December 31,
-------------------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $ (1,653,408) $ (1,374,452)
Non-cash items included in net loss:
Depreciation and amortization.............................. 18,541 15,270
Common stock option issued for operating expenses.......... 77,901 -
Net changes in:
Accounts receivable........................................ - 7,751
Inventories................................................ - (10)
Prepaid expenses........................................... (13,502) (135,349)
Other current assets....................................... (71,296) (100,000)
Accounts payable-trade..................................... (110,899) 309,716
Other accrued liabilities.................................. (133,437) (2,483)
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Net cash used by operating activities................... (1,882,049) (1,279,557)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... - (59,649)
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Net cash used by investing activities.................... - (59,649)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of stock issuances................................... 3,711,158 -
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Net cash provided by financing activities................ 3,711,158 -
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NET INCREASE (DECREASE) IN CASH................................. 1,825,058 (1,339,206)
Cash at beginning of period 2,510,136 8,820,196
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Cash at end of the period $ 4,335,194 $ 7,480,990
========== ==========
Conversion of accounts payable through issuance of common
stock. $ - $ 216,417
========== ==========
See accompanying notes.
6
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements, which
include the accounts of Celsion Corporation (the "Company"), have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, all adjustments, consisting only of normal
recurring accruals considered necessary for a fair presentation, have been
included in the accompanying unaudited financial statements. Operating results
for the three months ended December 31, 2001 are not necessarily indicative of
the results that may be expected for any other interim period or for the full
year ending September 30, 2002. For further information, refer to the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 2001.
Note 2. Common Stock Outstanding and Per Share Information
For the quarters ended December 31, 2001 and 2000, per share data is
based on the weighted average number of shares of Common Stock outstanding.
Outstanding warrants and options which can be converted into Common Stock are
not included as their effect is anti-dilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Statements and terms such as "expect", "anticipate", "estimate",
"plan", "believe" and words of similar import, regarding the Company's
expectations as to the development and effectiveness of its technology, the
potential demand for its products, and other aspects of its present and future
business operations, constitute forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Although the Company
believes that its expectations are based on reasonable assumptions within the
bounds of its knowledge of its business and operations, the Company cannot
guarantee that actual results will not differ materially from its
expectations. In evaluating such statements, readers should specifically
consider the various factors contained in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 2001, which could cause actual
results to differ materially from those indicated by such forward-looking
statements, including those set forth in "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Risk Factors", as well as
those set forth below and elsewhere in this Report.
GENERAL
Since inception, the Company has incurred substantial operating
losses. The Company expects operating losses to continue and possibly increase
in the near term and for the foreseeable future as it continues its product
development efforts, conducts clinical trials and undertakes marketing and
sales activities for new products. The Company's ability to achieve
profitability is dependent upon its ability successfully to integrate new
technology into its thermotherapy systems, conduct clinical trials, obtain
governmental approvals, and manufacture, market and sell its new products.
Major obstacles facing the Company over the last several years have included
inadequate funding, a negative net worth, and the slow development of the
thermotherapy market due to technical shortcomings of the thermotherapy
equipment available commercially. The Company has not continued to market its
older thermotherapy system, principally because of the system's inability to
provide heat treatment for other than surface and sub-surface tumors, and has
concentrated its efforts on a new generation of thermotherapy products.
7
The operating results of the Company have fluctuated significantly in
the past on an annual and a quarterly basis. The Company expects that its
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, many of which are outside the
Company's control.
RESULTS OF OPERATIONS
Comparison of Three Months Ended December 31, 2001
and Three Months Ended December 31, 2000
There were no product sales for the three months ended December 31,
2001 and 2000. No product revenues are expected until the Company's equipment
incorporating new technologies receives the necessary approvals from
governmental regulatory agencies. The new equipment is currently in pivotal
Phase II clinical testing.
Selling, general and administrative expense decreased by 42% to
$541,247 for the three months ended December 31, 2001, from $930,600 for the
comparable period in 2000. The decrease of $389,353 was due primarily to the
fact that in the fiscal quarter ended December 31, 2001 general expenses
(including rent, utilities, office services, etc) were allocated between
administration and research and development
Research and development expense increased by 102% to $1,123,221 for
the current period from $556,375 for the three months ended December 31, 2000.
The increased expenditure was due to the allocation of expenditures discussed
above, the cost of benign prostatic hyperplasia ("BPH") clinical trials,
establishment of a clinical monitoring team and engineering costs related to
commercializing the design of the BPH device. The Company expects expenditures
on research and development to increase for the remainder of the current
fiscal year as it completes its BPH Phase II clinical trials, submits the data
to the Food and Drug Administration (the "FDA") in connection with its
application for pre-marketing approval and undertakes the approval process.
Additionally the Company intends to accelerate its Phase II breast cancer
clinical trials and expects to submit to the FDA Investigational New Drug
applications, and potentially initiate Phase I trials, for several indications
for its Doxorubicin-laden heat activated liposomes.
The increased expenditures for research and development discussed
above resulted in an increase in the loss from operations for the three month
period ended December 31, 2001 of $177,493, to $1,664,468 from $1,486,975 in
the comparable period during the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's expenses have significantly exceeded
its revenues, resulting in an accumulated deficit of $35,281,516 at December
31, 2001. The Company has incurred negative cash flows from operations since
its inception, and has funded its operations primarily through the sale of
equity securities. As of December 31, 2001, the Company had total current
assets of $4,499,900, including cash and cash equivalents of $4,335,194,
current liabilities of $43,308 and a working capital surplus of $4,456,592. As
of September 30, 2001, the Company had total current assets of $2,661,341,
including cash and cash equivalents of $2,510,136, current liabilities of
$272,441, and a working capital surplus of $2,388,900. Net cash used in the
Company's operating activities was $1,882,049 for the three months ending
December 31, 2001.
The Company does not have any bank financing arrangements and has
funded its operations in recent years primarily through private placement
offerings. For all of fiscal year 2002, the Company expects to expend a total
of about $7.5 million for research, development and administration. This
aggregate expenditure amount is an estimate based upon assumptions such as,
the scheduling and cost of institutional clinical research and testing
personnel, the timing of clinical trials and other factors, not all of which
are fully predictable or within the control of the Company. Accordingly,
estimates and timing concerning projected expenditures and programs are
subject to change.
The Company expects to meet its funding needs for the remainder of
fiscal year 2002 from its current resources and funds generated from a private
placement of equity completed on January 9, 2002.
8
The Company's dependence on raising additional capital will continue
at least until such time, if any, as the Company is able to begin marketing
its new technologies. The Company's future capital requirements and the
adequacy of its financing depend upon numerous factors, including the
successful commercialization of its thermotherapy systems, progress in its
product development efforts, progress with pre-clinical studies and clinical
trials, the cost and timing of production arrangements, the development of
effective sales and marketing activities, the cost of filing, prosecuting,
defending and enforcing intellectual property rights, competing technological
and market developments, and the development of strategic alliances for the
marketing of its products. The Company will be required to obtain such funding
through equity or debt financing, strategic alliances with corporate partners
and others, or through other sources not yet identified. The Company does not
have any committed sources of additional financing and cannot guarantee that
additional funding will be available in a timely manner, or on acceptable
terms, if at all. If adequate funds are not available in a timely manner and
on acceptable terms, the Company may be required to delay, scale back or
eliminate certain aspects of its operations or attempt to obtain funds through
arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, product
candidates, products or potential markets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported, on April 27, 2000, the Company commenced an
action (the "Original Suit") in the United States District Court for the
District of Maryland (the "Maryland Court") against Warren C. Stearns, a
former director of the Company ("W.C. Stearns"), Mr. Stearn's management
company and a number of his affiliates, family members and colleagues
(collectively, the "Original Defendants"), who held warrants (the "Original
Warrants") for the purchase of approximately 4.1 million shares of the
Company's Common Stock at $0.41 per share. On January 18, 2001, the Maryland
Court transferred the case to the United States District Court for the
Northern District of Illinois, in Chicago (the "Chicago Court"). On July 17,
2001, the Company filed a motion to amend its complaint to add a second count,
alleging that Mr. Stearns, on behalf of himself and the other Original
Defendants, had executed a Mutual Release which released any right the
Original Defendants had to exercise the warrants ("Count II"). The motion was
granted on July 19, 2001.
On August 9, 2001, the Original Defendants filed a counterclaim (the
"Counterclaim") against the Company, certain of its officers and directors,
and an attorney and law firm that previously had represented the Company. On
September 10, 2001, the Chicago Court dismissed, with prejudice, Count I of
the Complaint. On November 23, 2001, the Company and certain of its officers
and directors filed a motion to dismiss the Counterclaim.
On January 25, 2002, the Company and Augustine Y. Cheung, Spencer J.
Volk, Walter B. Herbst, LaSalle D. Leffall, Claude Tihon, John Mon, Max E.
Link (all of whom are present or former officers and/or directors of the
Company), George Bresler, Bresler, Goodman & Unterman LLP and The George
Bresler Trust on the one hand (collectively, the "Company Parties"), and
Stearns Management Company, Anthony Riker, Ltd., John T. Horton, The George T.
Horton Trust, Warren R. Stearns, Charles A. Stearns, and W.C. Stearns
(collectively, the "Stearns Parties"), on the other hand, entered into a
settlement agreement (the "Settlement Agreement"). Pursuant to the Settlement
Agreement, the Company, among other things, has agreed (a) to pay to W.C.
Stearns the lesser of (i) the Stearns Parties' actual legal fees, costs and
expenses incurred in connection with the Original Suit, the Counterclaim and
the Settlement Agreement or (ii) $265,000; (b) to issue to the Stearns Parties
warrants (the "Settlement Warrants") to purchase a total of 6,325,821 shares
of the Company's Common Stock, at an exercise price of $0.01 per share; and
(c) to register for resale the shares underlying the Settlement Warrants. The
Settlement Warrants are in replacement of the Original Warrants, the validity
of which was at issue in the Original Suit. However, while the Original
Warrants, among other things, contained anti-dilution provisions ensuring the
Stearns Parties the right to
9
purchase 4.6875% of the Company's Common Stock, on a fully diluted basis,
until completion of the Company's next public offering (as defined) and a
renewal right at the election of the holder, the Settlement Warrants contain
no such provisions. In addition, pursuant to the Settlement Agreement, the
Company Parties, on the one hand, and the Stearns Parties, on the other,
unconditionally released one another from any and all claims arising prior to
the effective date of the Settlement Agreement and agreed to dismiss, with
prejudice, the Original Suit, including the Counterclaim.
The Settlement Agreement has the effect of fully and finally resolving
the matters in dispute in the Original Suit and the Counterclaim between the
Company Parties, on the one hand, and the Stearns Parties, on the other hand.
ITEM 2. CHANGE IN SECURITIES.
During the fiscal quarter ended December 31, 2001, the Company issued
the following securities without registration under the Securities Act of
1933, as amended (the "Securities Act"):
The Company issued a total of 8,271,652 shares of its Common
Stock and warrants to purchase an equal number of shares of its
Common Stock in connection with a private placement offering
made exclusively to "accredited investors" as that term is
defined in Rule 501 under the Securities Act. The Common Stock
and warrants were issued in units, consisting of one share of
Common Stock, and one warrant, exercisable at $0.60 per share
and subject to call under certain circumstances, to purchase
one share of Common Stock. The units were sold at a price of
$0.50 per Unit. As of December 31, 2001, the Company had
realized gross proceeds in the amount of $4,135,826 and paid
placement agent commissions and expenses in the amount of
$428,717 in connection with the sale of these securities. The
shares issued are restricted stock, endorsed with the Company's
standard restricted stock legend, with a stop transfer
instruction recorded by the transfer agent. The certificates
representing the warrants have a similar restrictive legend.
Accordingly, the Company views the shares issued as exempt from
registration under Sections 4(2) and/or 4(6) of the Securities
Act.
The Company also issued 143,836 shares to a shareholder upon
conversion of outstanding shares of the Company's Series A 10%
Convertible Preferred Stock.
The Company also issued warrants and options to a total of three
outside consultants to purchase a total of 335,625 shares of
Common Stock. These warrants and options were valued at $77,901.
The documents evidencing these securities carry the Company's
standard restrictive legend. Accordingly, the Company views the
shares issued as exempt from registration under Sections 4(2)
and/or 4(6) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
Not applicable
.
ITEM 5 OTHER INFORMATION.
Not applicable.
10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11. Computation of per share earnings.
(b) Reports on Form 8-K.
On November 30, 2001, the Company filed with the Securities and
Exchange Commission (the "SEC") a Current Report on Form 8-K
reporting, under Item 5, that on that date it released to its
shareholders a letter (regarding the status of its business and the
development of its products, announcing certain changes in its
management, announcing the date of the 2002 annual meeting of
shareholders and revising the dates of the Company's quarterly
conference calls with its shareholders.
On December 17, 2001,the Company filed with the SEC a Current Report
on Form 8-K reporting, under Item 5, that on December 13, 2001, it had
completed a first closing on its private placement of units consisting
of one share of common stock, par value $0.01 per share and a warrant
to purchase one share of Celsion common stock, at a price of $0.50 per
unit.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: February 14, 2002
CELSION CORPORATION
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(Registrant)
By: /s/ Augustine Y. Cheung
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Augustine Y. Cheung
President and Chief Executive Officer
By: /s/Anthony P. Deasey
---------------------
Anthony P. Deasey
Executive Vice President-Finance and Administration
Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
EXHIBIT 11
CELSION CORPORATION
COMPUTATION OF EARNINGS PER SHARE
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Three Months Ended December 31,
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2001 2000
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$(1,653,408) $(1,374,452)
Net (loss) income
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$(0.02) $(0.02)
Net (loss) income per common share*
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78,404,179 64,441,029
Weighted average shares outstanding
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* Common stock equivalents have been excluded from the calculation of net loss
per share as their inclusion would be anti-dilutive.
12