Table ofContents

** **

 

** **

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

 

| **x**                                                                                                                                                                                                                                     | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                | ** ** | **EXCHANGE  ACT OF 1934**                                                          |
|                                                                                                                                                                                                                                      |
| **For the  quarterly period ended March 31, 2009**                                                                                                                                                                                   |
| ** **                                                                                                                                                                                                                                |
| **OR**                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                      |
| **o**                                                                                                                                                                                                                                     | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES** |
| ** **                                                                                                                                                                                                                                | ** ** | **EXCHANGE  ACT OF 1934**                                                          |
|                                                                                                                                                                                                                                      |
| **For the  transition period from                                    to** |

 

**Commissionfile number:  001-15911**

 

**CELSION CORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                              | ** ** | **52-1256615**       |
|-------------------------------------------|------------|----------------------|
| (State or other  jurisdiction of          |       | (I.R.S. Employer     |
| incorporation or  organization)           |       | Identification  No.) |
|                                      |       |                 |
| **10220-L  Old Columbia Road**            | ** ** | ** **           |
| **Columbia,  Maryland**                   |       | **21076**            |
| (Address of  principal executive offices) |       | (Zip Code)           |

 

**(410)290-5390**

(Registrant’stelephone number, including area code)

 

**None**

(Former name,former address and former fiscal year, if changed since last report)

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.      Yes x No  o

 

Indicate by checkmark whether the registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).      Yeso No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated filer o                     |   | Accelerated filer o         |
|-----------------------------------------------|--------|-----------------------------|
|                                          |   |                        |
| Non-accelerated filer   o                |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                        |

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).     Yes o No x

 

As of May 11, 2009 the Registrant had 10,847,297shares outstanding of Common Stock, $.01 par value per share.

 

 

 

----

Table of Contents

 

**TABLE OF CONTENTS**

 
| ** **  | ** ** | ** **                                                                                  | ** ** | **Page(s)** |
|-------------|------------|---------------------------------------------------------------------------------------------|------------|-------------|
| ** **  | ** ** | ** **                                                                                  | ** ** | ** **  |
| ** **  | ** ** | **PART I: FINANCIAL INFORMATION**                                                      | ** ** | ** **  |
| ** **  | ** ** | ** **                                                                                  | ** ** | ** **  |
| **Item 1.** | ** ** | **Financial Statements and Notes  (Unaudited)**                                             | ** ** | **3  - 12** |
|        |       | Balance Sheets                                                                              |       | 3           |
|        |       | Statements of Operations                                                                    |       | 4           |
|        |       | Statements of  Cash Flows                                                                   |       | 5           |
|        |       | Notes to Financial Statements                                                               |       | 6 - 12      |
|        |       |                                                                                        |       |        |
| Item 2.     |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       | 13          |
|        |       |                                                                                        |       |        |
| Item 3.     |       | Quantitative  and Qualitative Disclosures about Market Risk                                 |       | 15          |
|        |       |                                                                                        |       |        |
| Item 4T.    |       | Controls and  Procedures                                                                    |       | 15          |
|        |       |                                                                                        |       | ** **  |
| ** **  | ** ** | **PART II:  OTHER INFORMATION**                                                        |       |        |
| ** **  | ** ** | ** **                                                                                  |       |        |
| Item 1.     |       | Legal Proceedings                                                                           |       | 16          |
| Item 1A.    |       | Risk Factors                                                                                |       | 16 - 21     |
| Item 2.     |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       | 21          |
| Item 3.     |       | Defaults  Upon Senior Securities                                                            |       | 21          |
| Item 4.     |       | Submission  of Matters to a vote of Security Holders                                        |       | 21          |
| Item 5.     |       | Other Information                                                                           |       | 21          |
| Item 6.     |       | Exhibits                                                                                    |       | 21          |
|        |       |                                                                                        |       |        |
|        |       | SIGNATURES                                                                                  |       | 22          |

 

2

----

Table of Contents

 

**PART I**

**FINANCIALINFORMATION**

**CELSIONCORPORATION**

**BALANCE SHEETS**

 

**Item1.     Financial Statements.**

 
| ** **                                                                                                                                                                     | ** ** | **March 31,  2009** | ** ** | **December  31, 2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                     |       | **(unaudited)**          |       |                        |       |
| **ASSETS**                                                                                                                                                                     |       |                     |       |                        |       |
| **Current  assets**                                                                                                                                                            |       |                     |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                     |       | $                        | 1,920,079  |                        | $          | 3,456,225 |   |
| Short term  investments available for sale                                                                                                                                     |       | 2,346,304                |       | 4,061,320                   |       |
| Due from Boston  Scientific Corporation                                                                                                                                        |       | 15,000,000               |       | 15,000,000                  |       |
| Prepaid expenses  and other receivables                                                                                                                                        |       | 161,156                  |       | 305,888                     |       |
| Total current  assets                                                                                                                                                          |       | 19,427,539               |       | 22,823,433                  |       |
|                                                                                                                                                                           |       |                     |       |                        |       |
| Property and  equipment (at cost less accumulated depreciation of $793,651 and $771,624  respectively)                                                                         |       | 206,952                  |       | 222,638                     |       |
|                                                                                                                                                                           |       |                     |       |                        |       |
| **Other  assets**                                                                                                                                                              |       |                     |       |                        |       |
| Note receivable  (net of allowance and discount of $1,128,820)                                                                                                                 |       | 221,179                  |       | 221,179                     |       |
| Deposits and  other assets                                                                                                                                                     |       | 346,632                  |       | 362,651                     |       |
| Patent licensing  fees (net of accumulated amortization of $16,875 and $15,000, respectively)                                                                                  |       | 56,250                   |       | 58,125                      |       |
| Total other  assets                                                                                                                                                            |       | 624,061                  |       | 641,955                     |       |
|                                                                                                                                                                           |       |                     |       |                        |       |
| **Total  assets**                                                                                                                                                              |       | $                        | 20,258,552 |                        | $          | 23,688,026 |   |
|                                                                                                                                                                           |       |                     |       |                        |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                 |       |                     |       |                        |       |
| **Current  liabilities**                                                                                                                                                       |       |                     |       |                        |       |
| Accounts payable  - trade                                                                                                                                                      |       | $                        | 1,861,536  |                        | $          | 1,186,511 |   |
| Indemnity  reserve                                                                                                                                                             |       | 526,679                  |       | 1,053,357                   |       |
| Other accrued  liabilities                                                                                                                                                     |       | 1,375,613                |       | 1,459,391                   |       |
| Note payable -  current portion                                                                                                                                                |       | 59,117                   |       | 234,735                     |       |
| Total current  liabilities                                                                                                                                                     |       | 3,822,945                |       | 3,933,994                   |       |
|                                                                                                                                                                           |       |                     |       |                        |       |
| Other  liabilities – noncurrent                                                                                                                                           |       | 26,671                   |       | 27,643                      |       |
| Total  liabilities                                                                                                                                                             |       | 3,849,616                |       | 3,961,637                   |       |
|                                                                                                                                                                           |       |                     |       |                        |       |
| **Stockholders’  equity**                                                                                                                                                 |       |                     |       |                        |       |
| Common stock -  $0.01 par value (250,000,000 shares authorized; 10,856,088 and 10,816,088 shares  outstanding at March 31, 2009 and December 31, 2008, respectively) |       | 108,161                  |       | 108,161                     |       |
| Additional  paid-in capital                                                                                                                                                    |       | 89,482,863               |       | 89,183,549                  |       |
| Accumulated  deficit                                                                                                                                                           |       | (70,540,739              | )          | (66,923,972                 | )          |
| Subtotal                                                                                                                                                                       |       | 19,050,285               |       | 22,367,738                  |       |
| Less: Treasury  stock - at cost                                                                                                                                                |       | (2,641,349               | )          | (2,641,349                  | )          |
| Total  stockholders’ equity                                                                                                                                               |       | 16,408,936               |       | 19,726,389                  |       |
|                                                                                                                                                                           |       |                     |       |                        |       |
| **Total liabilities and stockholders’ equity**                                                                                                                            |       | $                        | 20,258,552 |                        | $          | 23,688,026 |   |

 

**Seeaccompanying notes to the financial statements**.

 

3

----

Table of Contents

 

**CELSIONCORPORATION**

**STATEMENTS OF OPERATIONS**

**(Unaudited)**

 
| ** **                                                 | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| **Operating  expenses:**                                   |       |                                                 |       |   |   |
| Research and  development                                  |       | $                                                    | 2,942,727  |   | $ | 2,967,111 |   |
| General and  administrative                                |       | 688,209                                              |       | 1,175,977 |   |
| Total operating  expenses                                  |       | 3,630,936                                            |       | 4,143,088 |   |
|                                                       |       |                                                 |       |   |   |
| **Loss  from operations**                                  |       | (3,630,936                                           | )          | (4,143,088 | ) |
|                                                       |       |                                                 |       |   |   |
| **Other  income (expense):**                               |       |                                                 |       |   |   |
| Other (expense)  income                                    |       | (7                                                   | )          | 94 |   |
| Interest income                                            |       | 20,998                                               |       | 75,510 |   |
| Interest expense                                           |       | (6,822                                               | )          | (14,358 | ) |
| Total other  income (expense), net                         |       | 14,169                                               |       | 61,246 |   |
|                                                       |       |                                                 |       |   |   |
| **Net  loss before income taxes**                          |       | (3,616,767                                           | )          | (4,081,842 | ) |
|                                                       |       |                                                 |       |   |   |
| Income taxes                                               |       | —                                               |       | — |   |
|                                                       |       |                                                 |       |   |   |
| **Net  Loss**                                              |       | $                                                    | (3,616,767 | ) | $ | (4,081,842 | ) |
|                                                       |       |                                                 |       |   |   |
| **Basic  and diluted net loss per common share**           |       | $                                                    | (0.35      | ) | $ | (0.40 | ) |
|                                                       |       |                                                 |       |   |   |
| **Basic  and diluted weighted average shares outstanding** |       | 10,190,489                                           |       | 10,143,442 |   |

 

**See accompanying notes to the financialstatements.**

 

4

----

Table ofContents

 

**CELSIONCORPORATION**

**STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                   | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| **Cash  flows from operating activities**                    |       |                                                 |       |   |   |
| Net loss for the  period                                     |       | $                                                    | (3,616,767 | ) | $ | (4,081,842 | ) |
| Non-cash items  included in net loss:                        |       |                                                 |       |   |   |
| Depreciation and  amortization                               |       | 22,027                                               |       | 31,818 |   |
| Accretion of  discount on note receivable                    |       | —                                               |       | (21,319 | ) |
| Amortization of  indemnity reserve                           |       | (526,678                                             | )          | (526,678 | ) |
| Stock based  compensation - Options                          |       | 226,471                                              |       | 251,679 |   |
| Stock based  compensation - Restricted Stock                 |       | 72,843                                               |       | 39,514 |   |
| Amortization of  deferred license fee                        |       | 1,875                                                |       | 1,875 |   |
| Shares issued in  exchange for services                      |       | —                                               |       | 50 |   |
| Provision for  bad debts                                     |       | —                                               |       | 680,360 |   |
| Net changes in:                                              |       |                                                 |       |   |   |
| Accounts  receivable-trade                                   |       | —                                               |       | 13,322 |   |
| Prepaid expenses  and other receivables                      |       | 144,732                                              |       | 9,710 |   |
| Deposits and  other assets                                   |       | 16,019                                               |       | (103,989 | ) |
| Accounts payable                                             |       | 675,025                                              |       | 658,673 |   |
| Income taxes  payable                                        |       | —                                               |       | (546,000 | ) |
| Other accrued  liabilities                                   |       | (84,750                                              | )          | (618,664 | ) |
| **Net  cash used in operating activities**                   |       | (3,069,203                                           | )          | (4,211,491 | ) |
|                                                         |       |                                                 |       |   |   |
| **Cash  flows from investing activities**                    |       |                                                 |       |   |   |
| Purchases of  short-term investments                         |       | (1,253,290                                           | )          | — |   |
| Sale of  short-term investments                              |       | 2,968,306                                            |       | 3,000,000 |   |
| Advances under  Celsion Canada transition services agreement |       | —                                               |       | (9,377 | ) |
| Purchase of  property and equipment                          |       | (6,341                                               | )          | (7,932 | ) |
| **Net  cash provided by investing activities**               |       | 1,708,675                                            |       | 2,982,691 |   |
|                                                         |       |                                                 |       |   |   |
| **Cash  flows from financing activities**                    |       |                                                 |       |   |   |
| Payments on note  payable                                    |       | (175,618                                             | )          | (165,448 | ) |
| **Net  cash used by financing activities**                   |       | (175,618                                             | )          | (165,448 | ) |
|                                                         |       |                                                 |       |   |   |
| **Net  decrease in cash and cash equivalents**               |       | (1,536,146                                           | )          | (1,394,248 | ) |
| **Cash  and cash equivalents at beginning of period**        |       | 3,456,225                                            |       | 2,937,373 |   |
|                                                         |       |                                                 |       |   |   |
| **Cash  and cash equivalents at end of period**              |       | $                                                    | 1,920,079  |   | $ | 1,543,125 |   |
|                                                         |       |                                                 |       |   |   |
| **Cash  paid for:**                                          |       |                                                 |       |   |   |
| Interest                                                     |       | $                                                    | 6,882      |   | $ | 12,807 |   |
|                                                         |       |                                                 |       |   |   |
| Income taxes                                                 |       | $                                                    | —     |   | $ | 546,000 |   |

 

**Seeaccompanying notes to the financial statements.**

 

5

----

# **Table ofContents**

 

# **CELSIONCORPORATION**

**NOTES TO FINANCIAL STATEMENTS (UNAUDITED)**

**For theThree Months Ended March 31, 2009 and 2008**

 

**Note 1.   Business Description**

 

Celsion Corporation(“Celsion” or the “Company” or “we”) is an innovative oncology drug developmentcompany focused on the development of treatments for those suffering withdifficult to treat forms of cancer. We are working to develop and commercializemore efficient, effective, targeted chemotherapeutic oncology drugs based onour proprietary heat-activated liposomal technology. The promise of this drugtechnology is to maximize efficacy while minimizing side-effects common tocancer treatments.

 

Our lead productThermoDox® is being evaluated in a Phase III clinical trial for primary livercancer and a Phase II study for recurrent chest wall breast cancer. ThermoDox®is a liposomal encapsulation of doxorubicin, an approved and frequently usedoncology drug for the treatment of a wide range of cancers.  Localized mild hyperthermia (39.5-42 degreesCelsius) releases the encapsulated doxorubicin from the liposome enabling highconcentrations of doxorubicin to be deposited preferentially in a targetedtumor.

 

Celsion has also demonstratedfeasibility for a product pipeline of cancer drugs that employ its heatactivated liposomal technology in combination with known chemotherapeuticsincluding docetaxel and Carboplatin.  Webelieve that our technology can improve efficacy and safety of anticanceragents whose mechanism of action and safety profile are well understood by themedical and regulatory communities. Our approach provides a comparatively costeffective, low risk approval pathway.  Additionally,we have formed a joint research agreement with Royal Phillips Electronics toevaluate the combination of Phillips’ high intensity focused ultrasound withCelsion’s ThermoDox® to determine the potential of this combination to treat abroad range of cancers.

 

**Note 2.   Basis of Presentation**

 

The accompanying unaudited financial statements of Celsionhave been prepared in accordance with accounting principles generally acceptedin the United States of America for interim financial information and with theinstructions to Form 10-Q and Article 8 of Regulation S-X.Accordingly, they do not include all of the information and footnotes requiredby accounting principles generally accepted in the United States of America forcomplete financial statements. In the opinion of management, all adjustments,consisting only of normal recurring accruals considered necessary for a fairpresentation, have been included in the accompanying unaudited financialstatements. Operating results for the three month period ended March 31,2009 are not necessarily indicative of the results that may be expected for anyother interim period(s) or for any full year. For further information,refer to the financial statements and notes thereto included in the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31,2008 filed with the Securities and Exchange Commission on March 27, 2009.

 

Certain items in the prior period financial statements havebeen reclassified to conform to the current period presentation.

 

**Note 3.  New Accounting Pronouncements**

 

In June 2008, theFinancial Accounting Standards Board (“FASB”) ratified Emerging Issue TaskForce (EITF) Issue No. 07-5, *DeterminingWhether an Instrument (or an Embedded Feature) is Indexed to an Entity’s OwnStock* “ (EITF 07-5). This issue provides guidance fordetermining whether an equity-linked financial instrument (or embedded feature)is indexed to an entity’s own stock. EITF 07-5 applies to any freestandingfinancial instrument or embedded feature that has all the characteristics of aderivative under paragraphs 6-9 of Statement of Financial AccountingStandards No. 133, *Accounting forDerivative Instruments and Hedging Activities*, (SFAS 133) forpurposes of determining whether that instrument or embedded feature qualifiesfor the first part of the scope exception under paragraph 11(a) ofSFAS 133. EITF 07-5 also applies to any freestanding financialinstrument that is potentially settled in an entity’s own stock, regardless ofwhether the instrument has all the characteristics of a derivative under paragraphs 6-9of SFAS 133, for purposes of determining whether the instrument is withinthe scope of EITF Issue 00-19, *Accountingfor Derivative Financial Instruments Indexed to, and Potentially Settled in, aCompany’s Own Stock* , (Issue 00-19) which provides accountingguidance for instruments that are indexed to, and potentially settled in, theissuer’s own stock. EITF 07-5 is effective for fiscal years beginningafter December 15, 2008.  We haveconcluded that application of EITF 07-5 does not have a material impact on theCompany’s financial statements.

 

6

----

Table of Contents

 

In May 2008, FASB issued SFAS No. 162, “TheHierarchy of Generally Accepted Accounting Principles” (SFAS 162).SFAS 162 identifies the sources of accounting principles and the frameworkfor selecting the principles used in the preparation of financial statements.SFAS No. 162 was effective November 15, 2008. The adoption ofSFAS 162 did not have a material impact on our financial position, resultsof operations or cash flows.

 

In May 2008, the FASB issued FASB Staff Position No. APB 14-1,*Accounting for Convertible Debt InstrumentsThat May Be Settled in Cash Upon Conversion (Including Partial CashSettlement)* (FSP APB 14-1). Under the new rules forconvertible debt instruments that may be settled entirely or partially in cashupon conversion, an entity should separately account for the liability andequity components of the instrument in a manner that reflects the issuer’seconomic interest cost. Previous guidance provided for accounting of this typeof convertible debt instruments entirely as debt. For instruments subject tothe scope of FSP APB 14-1, higher interest expense may result through theaccretion of the discounted carrying value of the convertible debt instrumentsto their face amount over their term. FSP APB 14-1 will be effective forfiscal years beginning after December 15, 2008, and for interim periodswithin those fiscal years, with retrospective application required. Earlyadoption is not permitted. As of the date of these financial statements, we donot have any instruments outstanding that would be subject to FSPAPB 14-1, but any instruments that we may issue in the future will besubject to this pronouncement.

 

**Note 4. Common Stock Outstandingand Per Share Information**

 

Basic earnings per share iscomputed by dividing net income by the weighted average number of common sharesoutstanding. Diluted earnings per share is computed after adjusting thedenominator of the basic earnings per share computation for the effects of alldilutive potential common shares outstanding during the period. The dilutiveeffects of options, warrants and their equivalents are computed using thetreasury stock method.

 

For the three months ended March 31,2009 and 2008, diluted loss per common share was the same as basic loss percommon share as all options and warrants that were convertible into shares ofthe Company’s common stock were excluded from calculation of diluted earningsper share as their effect would have been anti-dilutive. The total number ofoutstanding warrants and options for the periods ended March 31, 2009 and2008 were 1,796,785 and 2,402,302, respectively.

 

**Note 5.   Short Term Investments Available For Sale**

 

Short terminvestments available for sale of $2,346,304 and $4,061,320 as of March 31,2009 and December 31, 2008, respectively, consist of commercial paper,corporate debt securities, and government agency debt securities.  Securities available for sale are evaluatedperiodically to determine whether a decline in their value is other thantemporary.  The term “other thantemporary” is not intended to indicate a permanent decline in value.  Rather, it means that the prospects for nearterm recovery of value are not necessarily favorable, or that there is a lackof evidence to support fair values equal to, or greater than, the carryingvalue of the security.  Managementreviews criteria such as the magnitude and duration of the decline, as well asthe reasons for the decline, to predict whether the loss in value is other thantemporary.  Once a decline in value isdetermined to be other than temporary, the value of the security is reduced anda corresponding charge to earnings is recognized.

** **
| **Short term investments - at fair value** | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                                                     |       |                     |       |                        |       |
| Bonds -  government agencies                                             |       | $                        | 749,072    |                        | $          | 1,400,101 |   |
| Bonds -  corporate issuances                                             |       | 1,597,232                |       | 2,661,219                   |       |
| Total short-term  investments, available for sale                        |       | $                        | 2,346,304  |                        | $          | 4,061,320 |   |

 

7

----

Table ofContents

 

**Note 6.   Fair Values Of Financial Instruments**

 

FASB Statement No. 157establishes a fair value hierarchy which requires an entity to maximize the useof observable inputs and minimize the use of unobservable inputs when measuringfair value. The standard describes three levels of inputs that may be used tomeasure fair value:

 

Level 1: Quotedprices (unadjusted) or identical assets or liabilities in active markets thatthe entity has the ability to access as of the measurement date.

 

Level 2:Significant other observable inputs other than Level 1 prices such as quotedprices for similar assets or liabilities; quoted prices in markets that are notactive; or other inputs that are observable or can be corroborated byobservable market data.

 

Level 3:Significant unobservable inputs that reflect a reporting entity’s ownassumptions that market participants would use in pricing an asset orliability.

 

The fair values ofsecurities available for sale are determined by obtaining quoted prices onnationally recognized exchanges (Level 1 inputs) or matrix pricing, which is amathematical technique widely used in the industry to value debt securitieswithout relying exclusively on quoted prices for the specific securities butrather by relying on the securities’ relationship to other benchmark quotedsecurities (Level 2 inputs). The company did not have any assets valued usingthe measuring criteria of Level 2 or Level 3. Assets measured at fair value on a recurring basis are summarized below:

** **
| ** **                                                           | ** ** | **Total  Short-term  Investments** | ** ** | **Quoted  prices  in active  markets for  identical  assets  (Level 1)** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| Short term  investments available for sale at March 31, 2009    | ** ** | **$**                              | 2,346,304  |                                                                                    | **$**      | 2,346,304 | ** ** |
| ** **                                                           | ** ** | ** **                         | ** ** | ** **                                                                              | ** ** |
| Short term  investments available for sale at December 31, 2008 | ** ** | **$**                              | 4,061,320  | ** **                                                                              | **$**      | 4,061,320 | ** ** |

 

A summary of thecost and fair value of the Company’s short term investments is as follows:

 
| ** **                                | ** ** | **March 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|-------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                | ** ** | **Cost**                     | ** ** | **Fair  Value**                 | ** ** | **Cost** | ** ** | **Fair  Value** | ** ** |
| **Short  term investments**               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Bonds -  government agencies              |       | $                            | 749,072    |                            | $          | 749,072 |   | $ | 2,661,219 |   | $ | 2,661,219 |   |
| Bonds -  corporate issuances              |       | 1,597,232                    |       | 1,597,232                       |       | 1,400,101 |   | 1,400,101 |   |
| **Total  investments available for sale** |       | $                            | 2,346,304  |                            | $          | 2,346,304 |   | $ | 4,061,320 |   | $ | 4,061,320 |   |
| ** **                                | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Maturities**                            | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Within 3 months                           |       | $                            | 899,667    |                            | $          | 899,667 |   | $ | 2,962,978 |   | $ | 2,962,978 |   |
| Between 3-12  months                      |       | 1,446,637                    |       | 1,446,637                       |       | 1,098,342 |   | 1,098,342 |   |
| Between 1-2  years                        |       | —                       |       | —                          |       | — |   | — |   |
| **Total  investments available for sale** |       | $                            | 2,346,304  |                            | $          | 2,346,304 |   | $ | 4,061,320 |   | $ | 4,061,320 |   |

 

8

Table of Contents

 

**Note 7.Note Receivable**

 

On January 16,2006, Celsion contributed to its wholly-owned subsidiary, Celsion (Canada)Limited (“Canada”), all of the Company’s assets relating to its Adaptive PhasedArray (“APA”) technology for the treatment of breast cancer. Also on that date,the Company entered into a Stock Purchase Agreement with the Company’s founderand former officer and director, Dr. Augustine Y. Cheung, whereby theCompany sold to Dr. Cheung all of the issued and outstanding shares ofcapital stock of Canada. The Company also agreed to provide certain services toCanada pursuant to a Transition Services Agreement between the Company andCanada.

 

Under the StockPurchase Agreement, all of the capital stock of Canada was transferred to Dr. Cheungin exchange for a promissory note made by Dr. Cheung in favor of theCompany in the principal amount of $1,500,000 to be paid over a period of up to78 months and secured by a pledge of 100,536 shares of Celsion commonstock owned by Dr. Cheung and his wife and the commitment of Canada to paya 5% royalty on the net sales of certain products sold by, and patent royaltiesreceived by, Canada and its successors and assigns, of up to $18,500,000.

 

The terms of thenote receivable only specify an interest charge in the event that scheduledpayments are in arrears.  The $1,500,000note was therefore discounted at the prime rate in effect January 16, 2006(7.25%) plus 1.0%, or 8.25%, and the balance, net of discount, of $1,146,428was recorded in the financial statements above. Interest income based on this receivable of $21,320 was recorded for thethree months ended March 31, 2008. No interest income was recognized during the three months ended March 31,2009.

 

The Companyevaluated the likelihood that the receivable would be fully collected and as aresult, an allowance was placed against the note to reduce the balance to theestimated net realizable value of the collateral underlying the note. As notedabove, 100,536 shares of Celsion common stock are pledged as collateral to thenote. As of December 31, 2008, the Company reduced the carrying value ofthe note to $221,179 based on a closing price at that date of $2.20.  The closing price of Celsion’s common stockon March 31, 2009 was $3.60, which results in a total collateral value ofapproximately $362,000, however, the Celsion’s Management has decided not toincrease the carrying value of the collateral as of that date.

 

**Note 8. Stock Based Compensation**

 

Treasury Stock

 

In 2007, theCompany purchased 659,738 shares of its Common Stock that was held by BostonScientific Corporation. The purchase price was $2.64 million, which is $4.00per share. The Treasury Stock was accounted for under the cost method and isshown as a reduction of stockholders’ equity.

 

Employee Stock Options

 

The Company haslong-term compensation plans that permit the granting of incentive awards inthe form of stock options. Generally, the terms of these plans require that theexercise price of the options may not be less than the fair market value ofCelsion’s Common Stock on the date the options are granted. Options grantedgenerally vest over various time frames or upon milestone accomplishments.  The Company’s options generally expire tenyears from the date of the grant.

 

2007 Stock Incentive Plan

 

In 2007, the Company adopted the Celsion Corporation 2007 StockIncentive Plan (the “2007 Plan”) under which 1,000,000 shares were authorizedfor issuance. The purpose of the 2007 Plan is to promote the long-term growthand profitability of the Company by providing incentives to improve stockholdervalue and enable the Company to attract, retain and reward the best availablepersons for positions of substantial responsibility.  The 2007 Plan permits the granting of equityawards in the form of incentive stock options, nonqualified stock options,restricted stock, restricted stock units, stock appreciation rights, phantomstock, and performance awards, or in any combination of the foregoing.

 

Prior to the  adoption of the 2007 Plan, the Companypreviously adopted two stock plans for directors, officers and employees (onein 2001 and another in 2004) under which 666,667 shares were reserved for futureissuance under each of these plans.  Asthese plans have been superseded by the 2007 Plan, any options previouslygranted which expire, forfeit, or cancel under these plans can be rolled intothe 2007 Plan.  Stock certificates willbe issued for any options exercised under these plans.

 

9

----

Table ofContents

 

The fair values ofstock options granted were estimated at the date of grant using theBlack-Scholes option pricing model. The Black-Scholes model was originallydeveloped for use in estimating the fair value of traded options, which havedifferent characteristics from Celsion’s nonqualified stock options. The modelis also sensitive to changes in assumptions, which can materially affect thefair value estimate.

 

The Company used the following assumptions for determining the fairvalue of options granted under the Black-Scholes option pricing model:

 
| ** **                | ** ** | **Three months  ended  March 31, 2009** | ** ** | **Three months  ended  March 31, 2008** | ** ** |
|---------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
|                      |       |                                                   |       |                                                   |       |
| Risk-free  interest rate  |       | 1.83                                                   | %          | 2.18% to 2.81%%                                        |       |
| Expected  volatility      |       | 73                                                     | %          | 282% to 283%                                           |       |
| Expected life  (in years) |       | 6                                                      |       | 6                                                      |       |
| Expected  forfeiture rate |       | 10                                                     | %          | 10%                                                    |       |
| Expected  dividend yield  |       | 0.00                                                   | %          | 0.00%                                                  |       |

 

Expectedvolatilities utilized in the model are based on historical volatility of theCompany’s stock price. The risk free interest rate is derived from valuesassigned to U.S. Treasury strips as published in the Wall Street Journal ineffect at the time of grant. The model incorporates exercise, pre-vesting andpost-vesting forfeiture assumptions based on analysis of historical data. Theexpected life of the fiscal 2009 grants was generated using the simplifiedmethod as allowed under Securities and Exchange Commission Staff AccountingBulletin No. 107.

 

Total compensationcost charged related to employee stock options and restricted stock awardsamounted to $299,314 and $291,193 for the three months ended March 31,2009 and 2008, respectively.  No compensationcost related to share-based payments arrangements was capitalized as part ofthe cost of any asset at March 31, 2009 and 2008.

 

As of March 31,2009, there was $2.0 million of total unrecognized compensation cost related tonon-vested share-based compensation arrangements. That cost is expected to berecognized over a weighted-average period of 2.4 years. The weighted averagegrant-date fair values of the options granted during the three months ended March 31,2009 was $1.75 and the weighted average grant-date fair values of therestricted stock awards during the three months ended March 31, 2009 was$2.88.

 

A summary of theCompany’s Common Stock options and restricted stock awards are follows:

 
| ** **                                                              | ** ** | **Stock Options** | ** ** | **Restricted Stock Awards**  | ** ** | **Weighted**                   | ** ** |
|-------------------------------------------------------------------------|------------|------------------------|------------|----------------------------------------|------------|--------------------------------|------------|
| **Equity Awards**                                                  | ** ** | **Options  Awarded**   | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Restricted  Stock  Awarded** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Average  Contractual  Terms of  Equity Awards  (in years)** | ** ** |
| Equity awards  outstanding at December 31, 2008                    |       | 1,255,880              |       | $                                      | 4.38       |                           | 61,871     |   | $ | 2.40 |   |   |   |
| Equity awards  granted                                                  |       | 350,000                |       | $                                      | 2.72       |                           | 45,000     |   | $ | 2.88 |   |   |   |
| Equity awards  issued/exercised                                         |       | —                 |       | —                                 |       | (40,000                        | )          | $ | 2.69 |   |   |   |
| Equity awards  forfeited/cancelled/expired                              |       | (5,000                 | )          | $                                      | 4.05       |                           | —     |   | — |   |   |   |
| Equity awards  outstanding at March 31, 2009                       |       | 1,600,880              |       | $                                      | 4.02       |                           | 66,871     |   | $ | 2.55 |   | 7.5 |   |
| Aggregate  intrinsic value of outstanding awards at March 31, 2009 |       | $                      | 2,275,784  |                                   |       |                           | $          | 170,521 |   |   |   |   |   |
| Equity awards  exercisable at March 31, 2009                       |       | 645,214                |       | $                                      | 4.71       |                           | 66,871     |   | $ | 2.55 |   | 6.4 |   |
| Aggregate  intrinsic value of vested awards at March 31, 2009      |       | $                      | 1,361,848  |                                   |       |                           | $          | 170,521 |   |   |   |   |   |

 

10

----

Tableof Contents

 

Collectively forall the option plans as of March 31, 2009, there were a total of 2,658,495shares reserved which were comprised of outstanding 1,667,751equity awardgranted and 990,744 equity awards still available for future issuance.

 

Warrants

 

Celsion haswarrants outstanding at March 31, 2009 enabling the holders thereof topurchase up to 23,334 shares of the Company’s Common Stock at a weightedaverage exercise price of $9.86 and a weighted average remaining life of 0.9years.  At December 31, 2008, 96,789warrants were outstanding of which 73,455 expired in the three months ended March 31,2009.  No warrants were issued norexercised during this same period.  Thewarrants were originally issued in exchange for consulting and financingservices provided prior to 2007, including prior private placements of equitysecurities. Any compensation or other expense associated with these warrantswas recognized prior to 2008 and no unrecognized expense existed at March 31,2009 related to the warrants outstanding.

 

**Note 9.  Licensing Agreements**

 

In December 2008, the Company enteredinto a licensing agreement with Yakult Honsha (“Yakult”) under which Yakult wasgranted the exclusive right to commercialize and market ThermoDox® for theJapanese market.  Celsion was paid a $2.5million up-front, non refundable licensing fee which was recorded as licensingrevenue in the fourth quarter of 2008. Celsion has the potential to receive anadditional $18 million upon receipt of marketing approval by the JapaneseMinistry of Health, Labor and Welfare and has the potential to receiveadditional milestone payments tied to the achievement of certain levels ofsales and approval for new indications. If marketing approval is obtained inJapan, Celsion will receive double digit escalating royalties on the saleThermoDox® in Japan.  Celsion also willbe the exclusive supplier of ThermoDox® to Yakult.

 

On November 10,1999, the Company entered into a license agreement with Duke University underwhich the Company received exclusive rights (subject to certain exceptions) tocommercialize and use Duke’s thermo-liposome technology. The license agreementcontains annual royalty and minimum payment provisions and also requiresmilestone-based royalty payments measured by various events, including productdevelopment stages, FDA applications and approvals, foreign marketing approvalsand achievement of significant sales. However, in lieu of such milestone-basedcash payments, Duke agreed to accept shares of the Company’s Common Stock to beissued in installments at the time each milestone payment is due, with eachinstallment of shares to be calculated at the average closing price of theCommon Stock during the 20 trading days prior to issuance. The total number ofshares issuable to Duke under these provisions is subject to adjustment incertain cases, and Duke has piggyback registration rights for public offeringstaking place more than one year after the effective date of the licenseagreement. On January 31, 2003, the Company issued 253,691 shares ofCommon Stock to Duke University valued at $2.2 million as payment under thislicensing agreement.

 

With regard to Liposome patents licensed from Duke University, theCompany has filed two additional patents related to the formulation and use ofliposomes. Further, in relation to the patents licensed from Duke, the Companyhas licensed from Valentis, CA certain global rights covering the use ofpegylation for temperature sensitive liposomes.

 

The Duke licenseagreement contains a license fee, royalty and/or research support provisions,testing and regulatory milestones, and other performance requirements that theCompany must meet by certain deadlines with respect to the use of the licensedtechnologies. In conjunction with the patent holders, the Company intends tofile international applications for certain of the United States patents.  For the year ended December 31, 2008,and thus far in 2009, the Company has not incurred any expense under thisagreement but upon commercialization will be obligated to make royalty paymentsuntil the Duke patents expire.

 

The Company’srights under our license agreement with Duke University extend for the longerof 20 years or the term for which any relevant patents are issued by the UnitedStates Patent and Trademark Office. Currently, the Company has rights to Duke’spatent for its thermo-liposome technology in the United States, which expire in2018, and to future patents received by Duke in Canada, Europe, Japan andAustralia, where it has patent applications pending. The European applicationcan result in coverage in the United Kingdom, France and Germany. For thistechnology, license rights are worldwide, with various patent rights coveringthe United States, Canada, the United Kingdom, France, Germany and Japan.

 

11

----

Table of Contents

 

**Note 10. Note Payable**

 

In July 2007, theCompany entered into a Premium Finance Agreement with Flatiron CapitalCorporation (“Flatiron”) whereby Flatiron funded certain insurance premiums inthe amount of $1,313,250 on behalf of the Company. In exchange, the Company wasrequired to make 21 installment payments of approximately $59,000 beginning in August 2007.Interest accrues at a rate of 5.98% on outstanding balances.  As of March 31, 2009, the outstandingbalance owed was $59,117 and is expected to be paid in the second quarter of2009.

 

12

----

Table ofContents

 

**Item 2.    Management’sDiscussion 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 importregarding the Company’s expectations as to the development and effectiveness ofits technologies, the potential demand for our products, and other aspects ofour present and future business operations, constitute forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 1995. Although we believe that our expectations are based on reasonableassumptions within the bounds of our knowledge of our industry, business andoperations, we cannot guarantee that actual results will not differ materiallyfrom our expectations. In evaluating such forward-looking statements, readers shouldspecifically consider the various factors contained in the Company’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2008including, without limitation, unforeseen changes in the course of research anddevelopment activities and in clinical trials; possible changes in cost andtiming of development and testing, capital structure, and other financialitems; changes in approaches to medical treatment; introduction of new productsby others; possible acquisitions of other technologies, assets or businesses;and possible actions by customers, suppliers, competitors and regulatoryauthorities. These and other risks and uncertainties could cause actual resultsto differ materially from those indicated by such forward-looking statements, includingthose set forth in Part I,” Item 1A. Risk Factors” of our Annual Report onForm 10-K for the fiscal year ended December 31, 2008.*

 

*The discussion of risks anduncertainties set forth in this Quarterly Report on Form 10-Q and in ourmost recent Annual Report on Form 10-K as well as in other filings withthe SEC, is not necessarily a complete or exhaustive list of all risks facingthe Company at any particular point in time. We operate in a highlycompetitive, highly regulated and rapidly changing environment and our businessis in a state of evolution. Therefore, it is likely that new risks will emerge,and that the nature and elements of existing risks will change, over time. Itis not possible for management to predict all such risk factors or changestherein, or to assess either the impact of all such risk factors on ourbusiness or the extent to which any individual risk factor, combination offactors, or new or altered factors, may cause results to differ materially fromthose contained in any forward-looking statement. We disclaim any obligation torevise or update any forward-looking statement that may be made from time totime by us or on our behalf.*

 

**Overview**

 

CelsionCorporation (“Celsion” or the “Company” or “we”) is an innovative oncology drugdevelopment company focused on the development of treatments for thosesuffering with difficult to treat forms of cancer. We are working to developand commercialize more efficient, effective, targeted chemotherapeutic oncologydrugs based on our proprietary heat-activated liposomal technology. The promiseof this drug technology is to maximize efficacy while minimizing side-effectscommon to cancer treatments.

 

Our lead productThermoDox® is being evaluated in a Phase III clinical trial for primary livercancer and a Phase II study for recurrent chest wall breast cancer. ThermoDox®is a liposomal encapsulation of doxorubicin, an approved and frequently usedoncology drug for the treatment of a wide range of cancers.  Localized mild hyperthermia (39.5-42 degreesCelsius) releases the encapsulated doxorubicin from the liposome enabling highconcentrations of doxorubicin to be deposited preferentially in a targetedtumor.

 

Celsion has alsodemonstrated feasibility for a product pipeline of cancer drugs that employ itsheat activated liposomal technology in combination with known chemotherapeuticsincluding docetaxel and carboplatin. We believe that our technology can improveefficacy and safety of anticancer agents whose mechanism of action and safetyprofile are well understood by the medical and regulatory communities. Ourapproach provides a comparatively cost effective, low risk approvalpathway.  Additionally, we have formed ajoint research agreement with Royal Phillips Electronics to evaluate the combinationof Phillips’ high intensity focused ultrasound with Celsion’s ThermoDox® todetermine the potential of this combination to treat a broad range of cancers.

 

13

----

Tableof Contents

 

## **Results of Operations**

## ** **

*Comparison of Three Months Ended March 31,2009 and 2008.*

* *
| ** **                  | ** ** | **Three Months Ended  March 31,  ($ amounts in 000’s)** | ** ** | **Change** | ** ** |
|-----------------------------|------------|--------------------------------------------------------------------------------------------|------------|------------|------------|
| ** **                  | ** ** | **2009**                                                                                   | ** ** | **2008**   | ** ** | **$** | ** ** | **%** | ** ** |
| **Operating  expenses:**    |       |                                                                                       |       |       |       |   |   |   |   |
| Research and  development   |       | $                                                                                          | 2,943      |       | $          | 2,967 |   | $ | (24 | ) | (0.8 | )% |
| General and  administrative |       | 688                                                                                        |       | 1,176      |       | (488 | ) | (41.5 | )% |
| Total operating  expenses   |       | $                                                                                          | 3,631      |       | $          | 4,143 |   | $ | (512 | ) | (12.4 | )% |
|                        |       |                                                                                       |       |       |       |   |   |   |   |
| **Loss  from operations**   |       | $                                                                                          | (3,631     | )          | $          | (4,143 | ) | $ | (512 | ) | (12.4 | )% |

 

***Comparisonof the three months ended March 31, 2009 and 2008***

 

*Researchand Development Expenses*

 

Research anddevelopment expenses (“R&D”) decreased by $24 thousand from $2.967 millionin the first quarter of 2008 to $2.943 million in the same period of 2009.   Costs associated with the recurrent chestwall breast cancer clinical trials increased, including the employee headcountassociated with R&D.  This increasewas offset by a decrease in the costs of liver cancer clinical trials.

 

*Generaland Administrative Expenses*

 

General andadministrative expenses (“G&A”) decreased by $488 thousand, from $1.176million in the first quarter of 2008 to $688 thousand in the same period of2009.  In the first quarter of 2008, theCompany recognized a write-down of a note receivable of $680 thousand.  This decrease is partially offset by anincrease in business development costs of approximately $124 thousand and anincrease in G&A salaries.

 

*Interestincome*

 

Interest incomedecreased by $55 thousand from $76 thousand in the first quarter of 2008 to $21thousand in the same period of 2009. The decrease is attributable to lowerinterest rates.

 

*Interestexpense*

 

Interest expensewas insignificant at $7 thousand in the first quarter of 2009 compared to $14thousand in the same period of 2008.

 

## **Financial Condition, Liquidity and Capital Resources**

## ** **

Since inception,excluding the $15 million payments from Boston Scientific received in 2008 andto be received in June 2009, we have incurred negative cash flows fromoperations.  We have financed ouroperations primarily through the sale of equity and through the divestiture ofthe medical device business. Our expenses have significantly and regularlyexceeded our revenues, and we have an accumulated deficit of $70.5 million at March 31,2009.

 

At March 31,2009 we had total current assets of $19.4 million (including cash and shortterm investments of $4.3 million) and current liabilities of $3.8 million,resulting in a working capital surplus of $15.6 million.  At December 31, 2008, we had totalcurrent assets of $22.8 million (including cash and short term investments of$7.5 million) and current liabilities of $3.9 million, resulting in a workingcapital surplus of $18.9 million.

 

14

----

Table ofContents

 

Net cash used inoperating activities for the quarter ended March 31, 2009 was $3.1million.  The $3.1 million net cashrequirement was funded from cash on hand and the $7.3 million short terminvestments held at the beginning of the year. Net cash used in financingactivities was $176 thousand for the quarter ended March 31, 2009 whichrepresents the payments made on notes payable.

 

At March 31,2009, the Company had cash, cash equivalents and short term investments of $4.3million and $15 million due from Boston Scientific in June 2009. The $19.3million of cash resources is expected to be adequate to fund operations to mid2010. The Company will need substantial additional capital to complete itsclinical trials, obtain marketing approvals and to commercialize the products.

 

**Item 3.    Quantitative and Qualitative Disclosureabout Market Risk**.

 

Not required.

 

## **Item 4T. Controls and Procedures**

## ** **

We have carried out anevaluation, under the supervision and with the participation of management,including our principal executive officer and principal financial officer, ofthe effectiveness of the design and operation of our disclosure controls andprocedures, as that term is defined in Rule 13a-15(e) under theSecurities Exchange Act of 1934, as amended. Based on that evaluation, our principal executive officer and principalfinancial officer concluded that as of March 31, 2009, which is the end ofthe period covered by this report, our disclosure controls and procedures areeffective.

 

There has been no change inour internal control over financial reporting identified in connection with theevaluation required by paragraph (d) of Rule 13a-15of the SecuritiesExchange Act of 1934, as amended that occurred during the three months ended March 31,2009 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

15

----

Table of Contents

 

**PART II**

**OTHERINFORMATION**

 

**Item 1. Legal Proceedings**

 

None.

 

**Item 1A. Risk Factors.**

 

The following is asummary of the risk factors that we believe are most relevant to our business.These are factors that, individually or in the aggregate, we think could causeour actual results to differ significantly from anticipated or historicalresults. You should understand that it is not possible to predict or identify allsuch factors. Consequently, you should not consider the following to be acomplete discussion of all potential risks or uncertainties. We undertake noobligation to publicly update forward-looking statements, whether as a resultof new information, future events, or otherwise. You are advised, however, toconsult any further disclosure we make on related subjects in our reports onforms 10-Q and 8-K filed with the SEC.

 

**WE HAVE A HISTORY OF SIGNIFICANTLOSSES FROM CONTINUING OPERATIONS AND EXPECT TO CONTINUE SUCH LOSSES FOR THEFORESEEABLE FUTURE.**

 

Since Celsion’sinception, our expenses have substantially exceeded our revenues, resulting incontinuing losses and an accumulated deficit of $70.5 million at March 31,2009. For the quarter ended March 31, 2009, we incurred a loss fromcontinuing operations of $3.6 million. Because we presently have no productrevenues and we are committed to continuing our product research, developmentand commercialization programs, we will continue to experience significant operatinglosses unless and until we complete the development of ThermoDox® and other newproducts and these products have been clinically tested, approved by the FDAand successfully marketed.

 

**WE DO NOT EXPECT TO GENERATESIGNIFICANT REVENUE FOR THE FORESEEABLE FUTURE.**

 

We have devoted our resources to developing a new generation ofproducts but will not be able to market these products until we have completedclinical testing and obtain all necessary governmental approvals. In addition,our products are still in various stages of development and testing and cannotbe marketed until we have completed clinical testing and obtained necessarygovernmental approval. Accordingly, our revenue sources are, and will remain,extremely limited until our products are clinically tested, approved by the FDAand successfully marketed. We cannot guarantee that any or all of our productswill be successfully tested, approved by the FDA or marketed, successfully orotherwise, at any time in the foreseeable future or at all.

 

**IFWE DO NOT COLLECT THE RECEIVABLES FROM BOSTON SCIENTIFIC CORPORATION, WE MAY NOTBE ABLE TO COMPLETE THE DEVELOPMENT, TESTING AND COMMERCIALIZATION OF OURTREATMENT SYSTEMS.**

 

As of March 31,2009, we had approximately $4.3******million incash, cash equivalents, and short term investments. We also had $15.0 millionin receivables due to us from Boston Scientific in June 2009. ShouldBoston Scientific default on its obligations, we would need substantialadditional funding in order to complete the development, testing andcommercialization of our liver cancer and recurrent chest wall breast cancertreatment systems, as well as other potential new products. Other than the$15.0 million due from Boston Scientific, we do not have any committed sourcesof financing and cannot offer any assurances that alternate funding will beavailable in a timely manner, on acceptable terms or at all.

 

In the event of adefault by Boston Scientific and alternate, adequate funding is not available,we may be required to delay, scale back or eliminate certain aspects of ouroperations or attempt to obtain funds through unfavorable arrangements withpartners or others that may force us to relinquish rights to certain of ourtechnologies, products or potential markets or that could impose onerousfinancial or other terms. Furthermore, if we cannot fund our ongoingdevelopment and other operating requirements, particularly those associatedwith our obligations to conduct clinical trials under our licensing agreements,we will be in breach of these licensing agreements and could therefore lose ourlicense rights, which could have material adverse effects on our business.

 

16

----

Tableof Contents

 

**WE HAVE NO INTERNAL SALES ORMARKETING CAPABILITY AND MUST ENTER INTO ALLIANCES WITH OTHERS POSSESSING SUCHCAPABILITIES TO COMMERCIALIZE OUR PRODUCTS SUCCESSFULLY.**

 

We intend to market our products, if and when such products areapproved for commercialization by the FDA, either directly or through otherstrategic alliances and distribution arrangements with third parties. There canbe no assurance that we will be able to enter into third-party marketing ordistribution arrangements on advantageous terms or at all. To the extent thatwe do enter into such arrangements, we will be dependent on our marketing anddistribution partners. In entering into third-party marketing or distributionarrangements, we expect to incur significant additional expense. There can beno assurance that, to the extent that we sell products directly or we enterinto any commercialization arrangements with third parties, such third partieswill establish adequate sales and distribution capabilities or be successful ingaining market acceptance for our products and services.

 

**OUR BUSINESS DEPENDS ON LICENSEAGREEMENTS WITH THIRD PARTIES TO PERMIT US TO USE PATENTED TECHNOLOGIES. THELOSS OF ANY OF OUR RIGHTS UNDER THESE AGREEMENTS COULD IMPAIR OUR ABILITY TODEVELOP AND MARKET OUR PRODUCTS.**

 

Our success will depend, in substantial part, on our ability tomaintain our rights under license agreements granting us rights to use patentedtechnologies. We have entered into license agreements with Duke University, underwhich we have exclusive rights to commercialize medical treatment products andprocedures based on Duke’s thermo-sensitive liposome technology. The DukeUniversity license agreement contains a license fee, royalty and/or researchsupport provisions, testing and regulatory milestones, and other performancerequirements that we must meet by certain deadlines. If we were to breach theseor other provisions of the license and research agreements, we could lose ourability to use the subject technology, as well as compensation for our effortsin developing or exploiting the technology. Any such loss of rights and accessto technology could have a material adverse effect on our business.

 

Further, we cannotguarantee that any patent or other technology rights licensed to us by otherswill not be challenged or circumvented successfully by third parties, or thatthe rights granted will provide adequate protection. We are aware of publishedpatent applications and issued patents belonging to others, and it is not clearwhether any of these patents or applications, or other patent applications ofwhich we may not have any knowledge, will require us to alter any of ourpotential products or processes, pay licensing fees to others or cease certainactivities. Litigation, which could result in substantial costs, may also benecessary to enforce any patents issued to or licensed by us or to determinethe scope and validity of others’ claimed proprietary rights. We also rely ontrade secrets and confidential information that we seek to protect, in part, byconfidentiality agreements with our corporate partners, collaborators,employees and consultants. We cannot guarantee that these agreements will notbe breached, that, even if not breached, that they are adequate to protect ourtrade secrets, that we will have adequate remedies for any breach, or that ourtrade secrets will not otherwise become known to, or will not be discoveredindependently by, competitors.

 

**WE RELY ON THIRD PARTIES TO CONDUCTALL OF OUR CLINICAL TRIALS. IF THESE THIRD PARTIES DO NOT SUCCESSFULLY CARRYOUT THEIR CONTRACTUAL DUTIES, COMPLY WITH BUDGETS AND OTHER FINANCIALOBLIGATIONS OR MEET EXPECTED DEADLINES, WE MAY NOT BE ABLE TO OBTAINREGULATORY APPROVAL FOR OR COMMERCIALIZE OUR PRODUCT CANDIDATES IN A TIMELY ORCOST-EFFECTIVE MANNER.**

 

We currently have 19 full-time employees*.* We rely, and expectto continue to rely, on third-party Clinical Research Organizations to conductall of our clinical trials. Because we do not conduct our own clinical trials,we must rely on the efforts of others and cannot always control or predictaccurately the timing of such trials, the costs associated with such trials orthe procedures that are followed for such trials. We do not anticipatesignificantly increasing our personnel in the foreseeable future and therefore,expect to continue to rely on third parties to conduct all of our futureclinical trials. If these third parties do not successfully carry out theircontractual duties or obligations or meet expected deadlines, if they do notcarry out the trials in accordance with budgeted amounts, if the quality oraccuracy of the clinical data they obtain is compromised due to their failureto adhere to our clinical protocols or for other reasons, or if they fail to maintaincompliance with applicable government regulations and standards, our clinicaltrials may be extended, delayed or terminated or may become prohibitivelyexpensive, and we may not be able to obtain regulatory approval for orsuccessfully commercialize our product candidates.

 

17

----

Tableof Contents

 

**OUR BUSINESS IS SUBJECT TO NUMEROUSAND EVOLVING STATE, FEDERAL AND FOREIGN REGULATIONS AND WE MAY NOT BE ABLETO SECURE THE GOVERNMENT APPROVALS NEEDED TO DEVELOP AND MARKET OUR PRODUCTS.**

 

Our research anddevelopment activities, pre-clinical tests and clinical trials, and ultimatelythe manufacturing, marketing and labeling of our products, all are subject toextensive regulation by the FDA and foreign regulatory agencies. Pre-clinicaltesting and clinical trial requirements and the regulatory approval processtypically take years and require the expenditure of substantial resources.Additional government regulation may be established that could prevent or delayregulatory approval of our product candidates. Delays or rejections inobtaining regulatory approvals would adversely affect our ability tocommercialize any product candidates and our ability to generate productrevenues or royalties.

 

The FDA andforeign regulatory agencies require that the safety and efficacy of productcandidates be supported through adequate and well-controlled clinical trials.If the results of pivotal clinical trials do not establish the safety andefficacy of our product candidates to the satisfaction of the FDA and otherforeign regulatory agencies, we will not receive the approvals necessary tomarket such product candidates. Even if regulatory approval of a productcandidate is granted, the approval may include significant limitations on theindicated uses for which the product may be marketed.

 

We are subject tothe periodic inspection of our clinical trials, facilities, procedures andoperations and/or the testing of our products by the FDA to determine whetherour systems and processes are in compliance with FDA regulations. Followingsuch inspections, the FDA may issue notices on Form 483 and warningletters that could cause us to modify certain activities identified during theinspection. A Form 483 notice is generally issued at the conclusion of anFDA inspection and lists conditions the FDA inspectors believe may violate FDAregulations. FDA guidelines specify that a warning letter is issued only forviolations of “regulatory significance” for which the failure to adequately andpromptly achieve correction may be expected to result in an enforcement action.

 

Failure to complywith FDA and other governmental regulations can result in fines, unanticipatedcompliance expenditures, recall or seizure of products, total or partial suspensionof production and/or distribution, suspension of the FDA’s review of productapplications, enforcement actions, injunctions and criminal prosecution. Undercertain circumstances, the FDA also has the authority to revoke previouslygranted product approvals. Although we have internal compliance programs, ifthese programs do not meet regulatory agency standards or if our compliance isdeemed deficient in any significant way, it could have a material adverseeffect on the Company.

 

We are alsosubject to recordkeeping and reporting regulations. These regulations require,among other things, the reporting to the FDA of adverse events alleged to havebeen associated with the use of a product or in connection with certain productfailures.

 

Labeling and promotionalactivities also are regulated by the FDA. We must also comply with record keeping requirements as well asrequirements to report certain adverse events involving our products. The FDAcan impose other post-marketing controls on us as well as our productsincluding, but not limited to, restrictions on sale and use, through theapproval process, regulations and otherwise.

 

Many states inwhich we do, or in the future, may do business, or in which our products may besold, impose licensing, labeling or certification requirements that are inaddition to those imposed by the FDA. There can be no assurance that one ormore states will not impose regulations or requirements that have a materialadverse effect on our ability to sell our products.

 

In many of theforeign countries in which we may do business or in which our products may besold, we will be subject to regulation by national governments andsupranational agencies as well as by local agencies affecting, among otherthings, product standards, packaging requirements, labeling requirements,import restrictions, tariff regulations, duties and tax requirements. There canbe no assurance that one or more countries or agencies will not imposeregulations or requirements that could have a material adverse effect on ourability to sell our products.

 

18

----

Tableof Contents

 

**LEGISLATIVE AND REGULATORY CHANGESAFFECTING THE HEALTH CARE INDUSTRY COULD ADVERSELY AFFECT OUR BUSINESS.**

 

There have been anumber of federal and state proposals during the last few years to subject thepricing of health care goods and services to government control and to makeother changes to the United States health care system. It is uncertain whichlegislative proposals, if any, will be adopted (or when) or what actionsfederal, state, or private payors for health care treatment and services maytake in response to any health care reform proposals or legislation. We cannotpredict the effect health care reforms may have on our business and we canoffer no assurances that any of these reforms will not have a material adverseeffect on our business.

 

**THE SUCCESS OF OUR PRODUCTS MAY BEHARMED IF THE GOVERNMENT, PRIVATE HEALTH INSURERS AND OTHER THIRD-PARTY PAYORSDO NOT PROVIDE SUFFICIENT COVERAGE OR REIMBURSEMENT.**

 

Our ability tocommercialize our new cancer treatment systems successfully will depend in parton the extent to which reimbursement for the costs of such products and relatedtreatments will be available from government health administration authorities,private health insurers and other third-party payors. The reimbursement statusof newly approved medical products is subject to significant uncertainty. Wecannot guarantee that adequate third-party insurance coverage will be availablefor us to establish and maintain price levels sufficient for us to realize anappropriate return on our investment in developing new therapies. Government,private health insurers and other third-party payors are increasinglyattempting to contain health care costs by limiting both coverage and the levelof reimbursement for new therapeutic products approved for marketing by theFDA. Accordingly, even if coverage and reimbursement are provided bygovernment, private health insurers and third-party payors for uses of ourproducts, market acceptance of these products would be adversely affected ifthe reimbursement available proves to be unprofitable for health care providers.

 

**OUR PRODUCTS MAY NOT ACHIEVESUFFICIENT ACCEPTANCE BY THE MEDICAL COMMUNITY TO SUSTAIN OUR BUSINESS.**

 

Our cancertreatment development projects using ThermoDox® plus RFA or microwave heating,are currently in clinical trials. Any or all of these projects may prove not tobe effective in practice. If testing and clinical practice do not confirm thesafety and efficacy of our systems or, even if further testing and practiceproduce positive results but the medical community does not view these new formsof treatment as effective and desirable, our efforts to market our new productsmay fail, with material adverse consequences to our business.

 

**TECHNOLOGIES FOR THE TREATMENT OFCANCER ARE SUBJECT TO RAPID CHANGE, AND THE DEVELOPMENT OF TREATMENT STRATEGIESTHAT ARE MORE EFFECTIVE THAN OUR TECHNOLOGIES COULD RENDER OUR TECHNOLOGIESOBSOLETE.**

 

Various methodsfor treating cancer currently are, and in the future are expected to be, thesubject of extensive research and development. Many possible treatments thatare being researched, if successfully developed, may not require, or maysupplant, the use of our technologies. The successful development andacceptance of any one or more of these alternative forms of treatment couldrender our technology obsolete as a cancer treatment method.

 

**WEMAY NOT BE ABLE TO HIRE OR RETAIN KEY OFFICERS OR EMPLOYEES THAT WE NEEDTO IMPLEMENT OUR BUSINESS STRATEGY AND DEVELOP OUR PRODUCTS AND BUSINESS.**

 

Our successdepends significantly on the continued contributions of our executive officers,scientific and technical personnel and consultants, and on our ability toattract additional personnel as we seek to implement our business strategy anddevelop our products and businesses. During our operating history, we haveassigned many essential responsibilities to a relatively small number ofindividuals. However, as our business and the demands on our key employeesexpand, we have been, and will continue to be, required to recruit additionalqualified employees. The competition for such qualified personnel is intense,and the loss of services of certain key personnel or our inability to attractadditional personnel to fill critical positions could adversely affect ourbusiness. Further, we do not carry “key man” insurance on any of our personnel.Therefore, loss of the services of key personnel would not be ameliorated bythe receipt of the proceeds from such insurance.

 

19

----

Table ofContents

 

**OURSUCCESS WILL DEPEND IN PART ON OUR ABILITY TO GROW AND DIVERSIFY, WHICH INTURN WILL REQUIRE THAT WE MANAGE AND CONTROL OUR GROWTH EFFECTIVELY.**

 

Our businessstrategy contemplates growth and diversification. Our ability to manage growtheffectively will require that we continue to expend funds to improve ouroperational, financial and management controls, reporting systems andprocedures. In addition, we must effectively expand, train and manage ouremployees. We will be unable to manage our businesses effectively if we areunable to alleviate the strain on resources caused by growth in a timely andsuccessful manner. There can be no assurance that we will be able to manage ourgrowth and a failure to do so could have a material adverse effect on ourbusiness.

 

**WEFACE INTENSE COMPETITION AND THE FAILURE TO COMPETE EFFECTIVELY COULD ADVERSELYAFFECT OUR ABILITY TO DEVELOP AND MARKET OUR PRODUCTS.**

 

There are manycompanies and other institutions engaged in research and development of varioustechnologies for cancer treatment products that seek treatment outcomes similarto those that we are pursuing. We believe that the level of interest by othersin investigating the potential of possible competitive treatments andalternative technologies will continue and may increase. Potential competitorsengaged in all areas of cancer treatment research in the United States andother countries include, among others, major pharmaceutical, specializedtechnology companies, and universities and other research institutions. Most ofour current and potential competitors have substantially greater financial,technical, human and other resources, and may also have far greater experiencethan do we, both in pre-clinical testing and human clinical trials of newproducts and in obtaining FDA and other regulatory approvals. One or more ofthese companies or institutions could succeed in developing products or othertechnologies that are more effective than the products and technologies that wehave been or are developing, or which would render our technology and productsobsolete and non-competitive. Furthermore, if we are permitted to commencecommercial sales of any of our products, we will also be competing, withrespect to manufacturing efficiency and marketing, with companies havingsubstantially greater resources and experience in these areas.

 

**WE MAY BE SUBJECT TO SIGNIFICANTPRODUCT LIABILITY CLAIMS AND LITIGATION.**

 

Our business exposes us to potential product liability risks inherentin the testing, manufacturing and marketing of human therapeutic products. Wepresently have product liability insurance limited to $10.0 million perincident and $10.0 million annually. If we were to be subject to a claim inexcess of this coverage or to a claim not covered by our insurance and theclaim succeeded, we would be required to pay the claim with our own limitedresources, which could have a material adverse effect on our business. Inaddition, liability or alleged liability could harm the business by divertingthe attention and resources of our management and by damaging our reputation.

 

**WEHAVE NOT PAID DIVIDENDS IN THE PAST AND DO NOT INTEND TO DO SO FOR THEFORESEEABLE FUTURE.**

 

We have never paidcash dividends and do not anticipate paying cash dividends in the foreseeablefuture. Therefore, our stockholders cannot achieve any degree of liquidity withrespect to their shares of Common Stock except by selling such shares.

 

**OUR STOCK PRICE HAS BEEN, AND COULDBE, VOLATILE.**

 

Market prices forour Common Stock and the securities of other medical, high technology companieshave been volatile. Our Common Stock had a high price of $6.00 and a low priceof $1.60 in the 52-week period ending March 31, 2009. Factors such asannouncements of technological innovations or new products by us or by ourcompetitors, government regulatory action, litigation, patent or proprietaryrights developments and market conditions for medical and high technologystocks in general can have a significant impact on the market for our CommonStock.

 

**OUR STOCK HISTORICALLY HAS BEENTHINLY TRADED. THEREFORE, STOCKHOLDERS MAY NOT BE ABLE TO SELL THEIRSHARES FREELY.**

 

While our CommonStock is listed on The NASDAQ Stock Market, LLC (and previously on the AmericanStock Exchange), the volume of trading historically has been relatively light.There can be no assurance that our historically light trading volume, or anytrading volume whatsoever, will be sustained in the future. Therefore, therecan be no assurance that our stockholders will be able to sell their shares ofour Common Stock at the time or at the price that they desire, or at all.

 

20

----

Table ofContents

 

**ANTI-TAKEOVERPROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY ACHANGE IN CONTROL.**

 

Our Certificate of Incorporation and Bylaws may discourage, delay orprevent a merger or acquisition that a stockholder may consider favorable byauthorizing the issuance of “blank check” preferred stock. This preferred stockmay be issued by the Board of Directors (the “Board”), on such terms as itdetermines, without further stockholder approval. Therefore, the Board mayissue such preferred stock on terms unfavorable to a potential bidder in theevent that the Board opposes a merger or acquisition. In addition, ourclassified Board may discourage such transactions by increasing the amount oftime necessary to obtain majority representation on the Board. We also haveimplemented a stockholder rights plan and distributed rights to ourstockholders. When these rights become exercisable, these rights entitle theirholders to purchase one share of our Series C Junior ParticipatingPreferred Stock at a price of $66.90 per one ten-thousandth of a share of Series CPreferred Stock. If any person or group acquires more than 15% of our CommonStock, the holders of rights (other than the person or group crossing the 15%threshold) will be able to purchase, in exchange for the $66.90 exercise price,$133.80 of our Common Stock or the stock of any company into which we aremerged. Because these rights may substantially dilute stock ownership by aperson or group seeking to take us over without the approval of our Board, ourrights plan could make it more difficult for a person or group to take us over(or acquire significant ownership interest in us) without negotiating with ourBoard regarding such a transaction. Certain other provisions of our Bylaws andof Delaware law may also discourage, delay or prevent a third party fromacquiring or merging with us, even if such action were beneficial to some, oreven a majority, of our stockholders.

 

**Item 2.    Unregistered Sales of Equity Securities andUse of Proceeds.**

 

None.

 

**Item 3.Defaults Upon Senior Securities**

 

None.

 

**Item 4.    Submissionof Matters to a Vote of Security Holders.**

 

**None.**

** **

**Item 5. Other Information**

** **

**None.**

** **

**Item 6.    Exhibits.**

 

 
| 31.1   |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. (Filed herewith) |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                              |
| 31.2   |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. (Filed herewith) |
|   |   |                                                                                                                                                                              |
| 32.1   |   | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. (Furnished herewith)                          |

 

21

----

Table ofContents

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

May 12, 2009

 
|   |   | CELSION CORPORATION                                       |
|--------|--------|-----------------------------------------------------------|
|   |   | Registrant                                                |
|   |   |                                                      |
|   | By:    | /s/ *Michael H. Tardugno*                                 |
|   |   | Michael H.  Tardugno                                      |
|   |   | President and  Chief Executive Officer                    |
|   |   |                                                      |
|   |   |                                                      |
|   | By:    | */s/ Sean Moran*                                          |
|   |   | Sean Moran                                                |
|   |   | Senior Vice  President & Chief Financial Officer |

 

22

----