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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, 2002
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
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AS OF FEBRUARY 14, 2003, THE REGISTRANT HAD OUTSTANDING 111,692,468 SHARES OF
COMMON STOCK, $.01 PAR VALUE.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
Index to Financial Statements
-----------------------------
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Page
- --------------------------------------------------------------------------------
Balance Sheets 3
December 31, 2002 and September 30, 2002
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Statements of Operations 5
Three months ended
December 31, 2002 and 2001
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Statements of Cash Flows 6
Three months ended December 31, 2002 and 2001
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Notes to Financial Statements 7
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2
CELSION CORPORATION
BALANCE SHEETS
December 31, 2002 and September 30, 2002
ASSETS
December 31, September 30,
2002 2002
------------ -------------
(Unaudited)
Current assets:
Cash ....................................... $1,050,606 $ 928,819
Other receivables .......................... -- 84,493
Finished goods ............................. 554,329 382,581
Inventory .................................. 67,027 67,027
Prepaid expenses ........................... 243,796 47,255
---------- ----------
Total current assets ................. 1,915,758 1,510,175
---------- ----------
Property and equipment - at cost:
Furniture and office equipment ............. 311,775 311,481
Laboratory and shop equipment .............. 89,354 89,354
---------- ----------
401,129 400,835
Less accumulated depreciation ........... 211,578 190,658
---------- ----------
Net value of property and equipment .. 189,551 210,177
---------- ----------
Other assets:
Deposits ................................. 23,622 23,622
Prepaid inventory development costs ...... 454,222 486,602
Patent licenses (net of amortization) .... 56,916 60,873
---------- ----------
Total other assets ............................ 534,760 571,097
---------- ----------
Total assets ...................... $2,640,069 $2,291,449
========== ==========
3
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, September 30,
2002 2002
------------ -------------
(Unaudited)
Current liabilities:
Accounts payable - trade .............................................. $ 793,704 $ 494,650
Other accrued liabilities ............................................. 128,741 280,309
------------ ------------
Total current liabilities ....................................... 922,445 774,959
------------ ------------
Long-term Liabilities:
Notes payable ........................................................ 500,000 --
------------ ------------
Total liabilities ............................................... 1,422,445 774,959
------------ ------------
Stockholders' equity:
Common stock $.01 par value; 200,000,000 shares authorized,
97,542,556 and 92,417,556 shares issued and outstanding at December
31, 2002 and September 30, 2002, respectively ............................ 975,426 924,176
Series A 10% Convertible Preferred Stock -- $1,000 par value, 7,000
shares authorized, 1,153 and 1,131 shares issued and outstanding at
December 31, 2002 and September 30, 2002, respectively ................... 1,152,813 1,130,500
Series B 8% Convertible Preferred Stock -- $1,000 par value, 5,000
shares authorized, 1,622 and 1,591shares issued and outstanding at
December 31, 2002 and September 30, 2002, respectively .................. 1,427,285 1,396,285
Additional paid-in capital ............................................ 43,470,317 41,885,610
Accumulated deficit .................................................. (45,808,217) (43,820,081)
------------ ------------
Total stockholders' equity ..................................... 1,217,624 1,516,490
------------ ------------
Total liabilities and stockholders' equity ............... $ 2,640,069 $ 2,291,449
============ ============
See accompanying notes.
4
CELSION CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended December 31,
-------------------------------
2002 2001
------------ ------------
Operating expenses:
General and administrative .............. $ 840,044 $ 541,247
Research and development ................ 1,097,428 1,123,221
------------ ------------
Total operating expenses ........... 1,937,472 1,664,468
------------ ------------
Loss from operations ....................... (1,937,472) (1,664,468)
Interest income ............................ 2,651 1,060
------------ ------------
Loss before income taxes ................... (1,934,821) (1,653,408)
Income taxes ............................... -- --
------------ ------------
Net loss ................................... $ (1,934,821) $ (1,653,408)
Dividends on preferred stock ............... (53,313) (22,950)
------------ ------------
Net loss attributable to common stockholders $ (1,988,134) $ (1,676,358)
============ ============
Net loss per common share (basic) .......... $ (0.02) $ (0.02)
============ ============
Weighted average shares outstanding ........ 95,128,667 78,404,179
============ ============
See accompanying notes.
5
CELSION CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended December 31,
-------------------------------
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................ $(1,934,821) $(1,653,408)
Non-cash items included in net loss:
Depreciation and amortization .................. 24,875 18,541
Common stock issued for operating expenses ..... 132,957 77,901
Net changes in:
Other receivables .............................. 84,493 --
Inventories .................................... (171,748) --
Prepaid expenses ............................... (196,541) (13,502)
Other current assets ........................... -- (71,296)
Prepaid inventory development costs ............ 32,380 --
Accounts payable-trade ......................... 299,054 (110,899)
Other accrued liabilities ...................... (151,568) (133,437)
----------- -----------
Net cash used by operating activities ....... (1,880,919) (1,886,100)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .............. (294) --
----------- -----------
Net cash used by investing activities ........ (294) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of stock issuances ....................... 1,503,000 3,711,158
Note payable ...................................... 500,000 --
----------- -----------
Net cash provided by financing activities .... 2,003,000 3,711,158
----------- -----------
NET INCREASE IN CASH ............................... 121,787 1,825,058
Cash at beginning of period ......................... 928,819 2,510,136
----------- -----------
Cash at end of the period ........................... $ 1,050,606 $ 4,335,194
=========== ===========
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
of America 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 of America 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, 2002 are not necessarily indicative of the results
that may be expected for any other interim period or for the full year ending
September 30, 2003. For further information, refer to the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K/A for the
fiscal year ended September 30, 2002.
Note 2. Common Stock Outstanding and Per Share Information
For the quarters ended December 31, 2002 and 2001, 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.
Note 3. New Accounting Pronouncements
In August 2001, the Financial Accounting Standard Board ("FASB")
approved Statement of Financial Accounting Standards ("SFAS") No. 143,
"Accounting for Asset Retirement Obligations." SFAS No. 143 addresses the
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002.
The Company does not expect the adoption of SFAS No. 143 to have a significant
impact on the Company's financial condition or results of operations.
In October 2001, the FASB approved SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and the accounting and reporting provisions of APB No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" for the disposal of a segment of a business. SFAS No.
144 retains many of the fundamental provisions of SFAS No. 121, but resolves
certain implementation issues associated with that Statement. SFAS No. 144 is
effective for the Company beginning in fiscal 2003. The adoption of SFAS No. 144
has not had a significant impact on the Company's financial condition or results
of operations.
In July 2002, the FASB approved SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses the
financial accounting and reporting for obligations associated with an exit
activity, including restructuring, or with a disposal of long-lived assets. Exit
activities include, but are not limited to, eliminating or reducing product
lines, terminating employees and contracts and relocating plant facilities or
personnel. SFAS No. 146 specifies that a company will record a liability for a
cost associated with an exit or disposal activity only when that liability is
incurred and can be measured at fair value. Therefore, commitment to an exit
plan or a plan of disposal expresses only management's intended future actions
and, therefore, does not meet the requirement for recognizing a liability and
the related expense. SFAS No. 146 is effective prospectively for exit or
disposal activities initiated after December 31, 2002. The Company does not
anticipate that the adoption of SFAS No. 146 will have a material effect on its
financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock
Based Compensation - Transition and Disclosure - an Amendment of SFAS 123." SFAS
No. 148 provides additional transition guidance for those entities that elect to
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voluntarily adopt the provisions of SFAS No. 123, "Accounting for Stock Based
Compensation." Furthermore, SFAS No. 148 mandates new disclosures in both
interim and year-end financial statements of the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002. The Company does not expect to change to using the fair value based method
of accounting for stock-based employee compensation; and therefore, adoption of
SFAS No. 148 is expected to impact only the future disclosures, not the
financial results, of the Company.
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 technologies, 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/A for the fiscal
year ended September 30, 2002, including, without limitation, unforeseen changes
in the course of research and development activities and in clinical trials;
possible changes in cost and timing of development and testing, capital
structure, and other financial items; changes in approaches to medical
treatment; introduction of new products by others; possible acquisitions of
other technologies, assets or businesses; possible actions by customers,
suppliers, competitors, regulatory authorities. These and other risks and
uncertainties 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 to successfully integrate new technology into its thermotherapy
systems, conduct clinical trials, obtain governmental approvals, and
manufacture, market and sell its new products. Major obstacles facing the
Company over the last several years have included inadequate funding, a negative
net worth, and the slow development of the thermotherapy market due to technical
shortcomings of the thermotherapy equipment available commercially. The Company
has not continued to market its older thermotherapy system, principally because
of the system's inability to provide heat treatment for other than surface and
sub-surface tumors, and has concentrated its efforts on a new generation of
thermotherapy products.
The operating results of the Company have fluctuated significantly in
the past on an annual and a quarterly basis. The Company expects that its
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, many of which are outside the
Company's control.
RESULTS OF OPERATIONS
Comparison of Three Months Ended December 31, 2002
and Three Months Ended December 31, 2001
There were no product sales for the three months ended December 31,
2002 and 2001. 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.
General and administrative expense increased by 55% to $840,044 for the
three months ended December 31, 2002, from $541,247 for the comparable period in
2001. The increase of $298,797 was primarily due to the fact that, in the
8
quarter ended December 31, 2002, the Company recorded $105,000 compensation
expense for non-employee directors for their service as members of the Board of
Directors in fiscal 2002 while the compensation expense for non-employee
directors for their service as members of the Board of Directors in fiscal 2001
was recorded in the quarter ended September 30, 2001. In addition, the Company
incurred higher legal fees for the quarter in connection with the Special
Shareholder's Meeting held on November 8, 2002 and the transaction with Boston
Scientific Corporation and patent expenses.
Research and development expense decreased by 2% to $1,097,427 for the
current period from $1,123,221 for the three months ended December 31, 2001. The
decreased expenditure was primarily due to a decrease in research and
development materials and BPH system design costs offset by increased clinical
and engineering salaries for new personnel.
The net increase in expenditures discussed above resulted in an
increase in the loss from operations for the three month period ended December
31, 2002 of $273,004, to $1,937,472 from $1,664,468 in the comparable period
during the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our expenses have significantly exceeded our revenues,
resulting in an accumulated deficit of $45,808,217 at December 31, 2002. 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 December
31, 2002, we had cash of $1,050,606 and total current assets of $1,915,758,
compared with current liabilities of $922,445, resulting in a working capital
surplus of $993,313. As of September 30, 2002, we had $928,819 in cash and total
current assets of $1,510,175, compared with current liabilities of $774,959,
which resulted in a working capital surplus of $735,216 at fiscal year end. Net
cash used in the Company's operating activities was $1,880,919 for the three
months ending December 31, 2002.
We have funded our operations primarily through private placement
offerings of equity securities. On October 15, 2002, Celsion completed a private
placement resulting in net proceeds of approximately $775,000 and, on November
12, 2002, Celsion completed a private placement generating approximately
$300,000 in net proceeds. On December 31, 2002, we received further funding
through a private placement of $425,000 and issuance of a note in the amount of
$500,000 payable to Boston Scientific Corporation.
For all of fiscal year 2003, we expect to expend a total of
approximately $8,500,000 for clinical testing of our breast cancer and BPH
treatment systems, as well as corporate overhead, which we expect to fund 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. We
expect to fund our operations through the 2003 fiscal year through a combination
of private placements of equity and up-front and other funding contributed by
one or more strategic partners for the BPH business. Additionally, if as
currently anticipated our BPH system is approved for marketing during the course
of fiscal 2003 funding could be generated from the sale of catheters.
On January 21, 2003, Celsion reached an agreement with Boston
Scientific Corporation under which Boston Scientific will market and distribute
the Company's BPH treatment system. In connection with this agreement Boston
Scientific purchased 9,375,354 shares of Celsion common stock for an initial
investment of $5,000,000 and agreed to invest an additional $10 million in a
combination of equity and licensing fees upon Celsion meeting certain
milestones. The initial investment will be sufficient to repay the $500,000 note
and to fund the Company's operations through the end of fiscal year 2003 and
further investments will contribute to Celsion's funding requirements for the
future. 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 Microwave Uretheroplasty(TM)
and breast cancer treatment systems, progress in 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
9
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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGE IN SECURITIES.
During the fiscal quarter ended December 31, 2002, the Company issued
the following securities without registration under the Securities Act of 1933,
as amended (the "Securities Act"):
On October 15, 2002, the Company issued 2,325,000 shares of
its common stock in connection with a private placement,
resulting in net proceeds of approximately $775,000. On
November 12, 2002, the Company issued 900,000 shares of its
common stock in connection with a private placement, resulting
in net proceeds of approximately $300,000. On December 31,
2002, the Company issued 1,275,000 shares of its common stock
in connection with a private placement, resulting in net
proceeds of approximately $425,000. These shares were all sold
at a price of $0.33 per share. All these private placement
offerings were made exclusively to "accredited investors" as
that term is defined in Rule 501 under the Securities Act. 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.
Accordingly, the Company views the shares issued as exempt
from registration under Sections 4(2) and/or 4(6) of the
Securities Act.
During the quarter, the Company issued a total of 262,500
shares of its common stock to its non-employee directors for
service as members of the Board of Directors for fiscal year
2002. The Company also issued 62,500 shares of its common
stock to one of its non-employee directors as expense
reimbursement in lieu of cash. These shares are restricted
stock, endorsed with the Company's standard restricted stock
legend, with a stop transfer instruction recorded by the
transfer agent. Accordingly, the Company views the shares
issued as exempt from registration under Sections 4(2) and/or
4(6) of the Securities Act.
At various times during the quarter, the Company issued a
total of 300,000 shares of its common stock for a cash
consideration of $3,000 upon exercise of stock purchase
warrants.
10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
At the Special Meeting held on November 8, 2002, the Company's common
stockholders approved an amendment to the Company's charter increasing the
number of authorized shares of common stock from 150 million to 200 million. The
results of the voting on this matter are as follows:
Votes For................................. 75,948,062
Votes Against............................. 2,229,663
Abstentions and Broker Non-Votes.......... 171,328
ITEM 5 OTHER INFORMATION.
Not applicable.
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 12, 2002, the Company filed with Securities and Exchange
Commission (the "SEC") a Current Report on Form 8-K reporting, under Item5, that
On November 11, 2002 the Company issued a press release stating that, at a
Special Meeting held on November 8, 2002, its stockholders approved an amendment
to the Company's charter increasing the number of authorized shares of common
stock from 150 million to 200 million. A copy of the press release was attached
as Exhibit 99.1 to this Report on Form 8-K.
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, 2003
CELSION CORPORATION
-------------------
(Registrant)
By: /s/ Augustine Y. Cheung
---------------------------------------------------
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)
12