UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 AMENDMENT NO. 1
                                       ON
                                   FORM 10-K/A

(Mark One)

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

        FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002

                                       or

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

         For the transition period from ___________to _________

                        Commission file number 000-14242

                               CELSION CORPORATION
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

              DELAWARE                                   52-1256615
   ---------------------------------                ------------------------
     State or Other Jurisdiction                       (I.R.S.  Employer
   of Incorporation or Organization                   Identification No.)

      10220-I OLD COLUMBIA ROAD
         COLUMBIA, MARYLAND                                  21046-1705
 ----------------------------------------            -----------------------
 (Address of Principal Executive Offices)                    (Zip Code)

                                 (410) 290-5390
       -------------------------------------------------------------------
               Registrant's telephone number, including area code

ecurities registered pursuant to Section 12(b) of the Act:

                                                      Name of Each Exchange
           Title of Each Class                        on Which Registered
--------------------------------------               ---------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE                AMERICAN STOCK EXCHANGE
--------------------------------------               ---------------------------

          Securities registered pursuant to Section 12(g) of the Act:

                                 Not Applicable
    -------------------------------------------------------------------------

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-K/A or any
further amendment to this Form 10-K/A. [X]

         Indicate by check mark whether the registrant is an  accelerated  filer
(as defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

         As of December 26, 2002,  96,492,556 shares of the Registrant's  Common
Stock were issued and outstanding. As of December 26, 2002, the aggregate market
value of voting stock held by non-affiliates of the Registrant was approximately
$38,188,207,  based on the closing  price for the  Registrant's  Common Stock on
that date as quoted on the American Stock Exchange.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the  Registrant's  Definitive Proxy Statement in connection
with its Annual Meeting of Stockholders,  scheduled for February 18, 2003, filed
with the Securities and Exchange Commission on January 10, 200, are incorporated
by this reference into Part III hereof, as indicated herein.



                                     PART I

ITEM 1.         BUSINESS

                                     GENERAL

         We develop medical  treatment  systems primarily to treat breast cancer
and a chronic prostate  enlargement  condition,  common in older males, known as
benign  prostatic  hyperplasia,  or BPH, using minimally  invasive  focused heat
technology.  We also are working  with Duke  University  on the  development  of
heat-sensitive  liposome compounds for use in the delivery of chemotherapy drugs
to  tumor  sites,  and with  the  Memorial  Sloan-Kettering  Cancer  Center,  or
Sloan-Kettering, on the development of heat-activated gene therapy compounds.

BPH TREATMENT SYSTEM

         Benign Prostatic Hyperplasia

         Millions  of aging  men  experience  symptoms  resulting  from  BPH,  a
non-cancerous  urological  disease in which the prostate enlarges and constricts
the urethra.  The prostate is a walnut-sized  gland surrounding the male urethra
that  produces  seminal  fluid  and plays a key role in sperm  preservation  and
transportation.  The  prostate  frequently  enlarges  with age. As the  prostate
expands, it compresses or constricts the urethra, thereby restricting the normal
passage of urine. This restriction of the urethra may require a patient to exert
excessive  bladder pressure to urinate.  Because the urination process is one of
the body's  primary  means of  cleansing  impurities,  the  inability to urinate
adequately increases the possibility of infection and bladder and kidney damage.

         Prevalence of BPH

         As  BPH  is an  age-related  disorder,  its  incidence  increases  with
maturation  of the  population.  Industry  estimates  suggest  that  more than 9
million men in the United States  experience  BPH symptoms and that more than 26
million men are affected by BPH worldwide.  As the population  continues to age,
the  prevalence of BPH can be expected to continue to increase.  It is generally
estimated that  approximately  50% of men over the age of 55 and 90% of men over
75 will have BPH  symptoms  at various  times.  Industry  studies  estimate  the
overall costs of BPH therapy for those patients  currently  seeking treatment to
be approximately  $2.5 to $3.0 billion annually in the United States and $8.0 to
$10.0 billion worldwide.

         Current Treatment Alternatives for BPH

         Like cancerous  tumors,  BPH  historically has been treated by surgical
intervention  or by drug  therapy.  The primary  treatment  for BPH currently is
transurethral  resection of the prostate, or TURP, a surgical procedure in which
the  prostatic  urethra and  surrounding  diseased  tissue in the  prostate  are
trimmed with a telescopic knife, thereby widening the urethral channel for urine
flow. While the TURP procedure  typically has been considered the most effective
treatment  available  for  the  relief  of  BPH  symptoms,   the  procedure  has
shortcomings.  In the first instance,  TURP generally requires from one to three
days of post-operative hospitalization. In addition, a significant percentage of
patients who undergo TURP encounter significant complications, which can include
painful urination,  infection, retrograde ejaculation,  impotence,  incontinence
and  excessive  bleeding.  Furthermore,  the cost of the TURP  procedure and the
related  hospitalization is high, ranging from $8,000 to $12,000. This cost does
not take into account the costs of lost work time, which could amount to several
weeks, or the costs related to adverse effects on patients' quality of life.

         Other,  less radical,  surgical  procedures,  generally  categorized as
"minimally  invasive," or MI,  therapies,  are available as  alternatives to the
TURP procedure.  The primary MI treatments use microwave heating  (transurethral
microwave  thermotherapy of the prostate,  or TUMT) to treat BPH by incinerating
the obstructing portion of the prostate. TUMT involves sedation, catheterization
and high levels of heat to  incinerate a portion of the  prostate.  Two other MI
therapies--interstitial  RF  therapy  and laser  therapy--employ,  respectively,
concentrated radio frequency, or RF, waves or laser radiation to reduce prostate
swelling by  cauterizing  tissue  instead of removing it with a surgical  knife.
However,  these  procedures  require  puncture  incisions  in  order  to  insert
cauterizing  RF or laser probes into the affected  tissue and,  therefore,  also
involve the use of a full  operating  facility  and  anesthesia,  as well as the
burning of prostate tissue by the probes.  Although these  procedures  result in
less internal bleeding and damage to the urethra than the TURP procedure and may
decrease the adverse effects and costs  associated with surgery,  anesthesia and
post-operative  tissue  recovery,  they do not entirely  eliminate these adverse
consequences.

                                       2


         Finally,  drug therapy has emerged as an  alternative to surgery in the
last  several  years.  There  currently  are  several  drugs  available  for BPH
treatment, the two most widely prescribed being Hytrin and Proscar. Hytrin works
by relaxing certain involuntary muscles surrounding the urethra,  thereby easing
urinary  flow and  Proscar is intended to shrink the  enlarged  gland.  However,
industry  studies have asserted that drug therapy costs $500 to $800 per year or
more,  must be  maintained  for life and does not offer  consistent  relief to a
large number of BPH patients.  In fact,  studies have shown that 45% of patients
who begin drug therapy for BPH drop out within the first year,  primarily due to
the  ineffectiveness  of currently  available drug  therapies.  Also, all of the
currently available BPH drugs have appreciable side effects.

         Accordingly,   neither  the  medicinal   treatments  nor  the  surgical
alternatives   presently   available  appear  to  provide  fully   satisfactory,
cost-effective treatment solutions for BPH sufferers.

         Celsion BPH Treatment System

         We    have    developed    a    BPH    treatment     system--"Microwave
Uretheroplasty(TM)"--that combines our microwave thermotherapy capability with a
proprietary balloon  compression  technology licensed from MMTC, Inc. The system
consists of a microwave  generator  and  conductors  and a computer and computer
software  programs  that control the focusing and  application  of heat,  plus a
specially designed balloon catheter. Treatment using this system consists of two
fundamental elements:

    -    Celsion's  proprietary  catheter,  incorporating a balloon  enlargement
         device,  delivers  computer-controlled  transurethral microwave heating
         directly to the prostate at temperatures greater than 44 degrees C (111
         degrees F).

    -    Simultaneously,  the balloon  inflates  the device and expands to press
         the walls of the  urethra  from the inside  outward as the  surrounding
         prostate tissue is heated.

        The combined effect of this "heat plus compression"  therapy is twofold:
first,  the heat  denatures  the proteins in the wall of the urethra,  causing a
stiffening  of the opening  created by the inflated  balloon.  Second,  the heat
effectively  kills off prostate  cells outside the wall of the urethra,  thereby
creating sufficient space for the enlarged natural opening.

         Pre-clinical  animal studies have  demonstrated that a natural "stent,"
or  reinforced  opening,  in the  urethra  forms  after the  combined  heat plus
compression  treatment.  Also, the BPH system's  relatively low  temperature (43
degrees C to 45  degrees  C) (109  degrees F to 113  degrees  F)  appears  to be
sufficient  to kill  prostatic  cells  surrounding  the  urethra  wall,  thereby
creating  space  for  the  enlargement  of the  urethra  opening.  However,  the
temperature is not high enough to cause swelling in the urethra.

         Celsion's     investigational,     minimally     invasive     Microwave
Uretheroplasty(TM)  treatment  system is designed to overcome the limitations of
all three of the current  treatment  systems.  It is designed to be a relatively
painless,  rapid  procedure  that  delivers the efficacy of surgical  treatments
without significant risks and the potential for life-altering side effects.  The
potential benefits of the Microwave  Uretheroplasty(TM)  system include walk-in,
outpatient  treatment  that can be completed  in less than an hour;  no required
sedation;  generally no  post-operative  catheterization;  and rapid symptomatic
relief from BPH.

         Ultimate Food and Drug  Administration,  or FDA,  approval for a device
such as our equipment  typically  requires two phases of clinical  testing.  The
purpose of Phase I testing  is to show  feasibility  and  safety and  involves a
small  group of  patients.  Phase II  testing  is  designed  to show  safety and
efficacy. The FDA approved an Investigational Device Exemption, or IDE, to allow
clinical testing of our BPH system in June 1998 and we completed initial Phase I
clinical feasibility human trials of the BPH system at Montefiore Medical Center
in May 1999.  In the  Phase I trials,  the  combination  of  computer-controlled
microwave  heat and balloon  catheter  expansion  was able to increase peak flow
rates and to provide immediate relief of symptoms caused by BPH. In addition, we
undertook an expanded Phase I study to test an accelerated  treatment  protocol,
which was completed in May 2000, at Montefiore Medical Center. In July 2000, the
FDA approved the commencement of  multiple-site  Phase II studies to collect the
safety and efficacy data  necessary for FDA  premarketing  approval  ("PMA") for
commercialization.  All 160 patients  required to be treated  under the Phase II
trial had been  treated  as of  November  29,  2001  and,  as of that  date,  we
submitted the first two of three  required  modules to the FDA in support of the
PMA. We expect to submit the last module,  consisting of clinical data, early in
2003.  If Phase II testing  produces  anticipated  results and if our BPH system
meets all other  requirements  for FDA approval and receives such  approval,  we
intend to begin marketing the BPH system during the second  calendar  quarter of
2003.

         Based on the information we have collected to date, we believe that our
BPH system has the  potential  to deliver a treatment  that is  performed in one
hour or less on an outpatient basis,  generally would not require post-treatment
catheterization, and would deliver symptomatic relief and an increase in urinary
flow rates promptly after the procedure is completed.

                                       3


BREAST CANCER TREATMENT SYSTEM

         Prevalence of Breast Cancer

         Breast cancer is one of the leading  causes of death among women in the
United  States.  According  to  statistics  published  in  the  American  Cancer
Society's  A Cancer  Journal  for  Clinicians,  there were an average of 183,000
newly  diagnosed  breast  cancer cases in the United States in each of the years
from 1995 through 1999.

         Current Treatment for Breast Cancer

         Breast  cancer  is  presently  generally  treated  by  mastectomy,  the
surgical removal of the entire breast, or by lumpectomy, the surgical removal of
the tumor  and  surrounding  tissue.  Both  procedures  are  often  followed  by
radiation   therapy  or   chemotherapy.   The  more  severe  forms  of  surgical
intervention can result in disfigurement and a need for extended  prosthetic and
rehabilitation therapy.

         In addition, heat therapy (also known as hyperthermia or thermotherapy)
is a historically  recognized method of treatment of various medical conditions,
and  heat  therapy  has  been  used in the past to  treat  malignant  tumors  in
conjunction with radiation and chemotherapy. As summarized in the Fourth Edition
of  Radiobiology  for the  Radiologist,  published  in  1994 by J.B.  Lippincott
Company,  in 24 independent  studies on an aggregate of 2,234 tumors,  treatment
consisting  of heat  plus  radiation  resulted  in an  average  doubling  of the
complete  response rate of tumors,  compared to the use of radiation  alone. The
complete  response  rate for this purpose  means the total  absence of a treated
tumor for a minimum of two years.  Comparable increases in the complete response
rate were reported with the use of heat combined with chemotherapy. In addition,
it has been demonstrated on numerous occasions that properly applied heat, alone
and without the concurrent use of radiation, can also kill cancer cells.

         Heat Therapy in Conjunction with Radiation;
         First Generation Celsion Equipment

         In 1989, we obtained FDA premarketing  approval for our microwave-based
Microfocus 1000 heat therapy  equipment for use on surface and subsurface tumors
in conjunction  with radiation  therapy.  Until 1995, we marketed our Microfocus
equipment  for this use in 23  countries,  but  microwave  heat  therapy was not
widely  accepted in the United States medical  community as an effective  cancer
treatment. Moreover, due to the limitations of microwave technology available at
the time, it was difficult to deliver a controlled  amount of heat to subsurface
tumors without overheating surrounding healthy tissue.

         New Microwave Technology from MIT

         In  1993,  we  began  working  with  researchers  at the  Massachusetts
Institute of Technology,  or MIT, who had  developed,  originally for the United
States Defense  Department,  the microwave control technology known as "Adaptive
Phased Array",  or APA. This  technology  permits  properly  designed  microwave
equipment to focus and concentrate energy targeted at diseased tissue areas deep
within  the  body  and to heat  them  selectively,  without  adverse  impact  on
surrounding  healthy  tissue.  In 1996,  MIT granted us an  exclusive  worldwide
license to use this technology for medical applications and, since that time, we
have  concentrated  on developing a second  generation  of Microfocus  equipment
capable of focusing  microwave  energy on  specific  tissue  areas.  We have now
incorporated  the APA  technology  in our  second-generation  microwave  therapy
equipment.

         Second Generation Celsion Breast Cancer Treatment System

         Using the APA technology,  we have developed a prototype  breast cancer
treatment  system  intended  to destroy  localized  breast  tumors  through  the
application  of heat alone.  The system  consists of a microwave  generator  and
conductors, a computer and computer software programs that control the focusing,
application and duration of the thermotherapy,  and a specially designed patient
treatment table.

                                       4


         In 1998,  we completed  pre-clinical  animal  testing of our  prototype
system at the Massachusetts  General  Hospital,  a teaching hospital for Harvard
Medical School in Boston, Massachusetts. Using breast tissue-equivalent phantoms
and  tumors in live  animals,  these  studies  demonstrated  that our  system is
capable of selectively  heating tumors at  temperatures  up to 46 degrees C (115
degrees F) without  damage to surrounding  healthy  tissues.  High  temperatures
maintained for eight to ten minutes can cause  complete tumor necrosis  (death),
leading  to the  death of  viable  cancer  cells  within  the  tumor  and in its
immediate  vicinity.  A second prototype clinical breast cancer treatment system
at Oxford University in England was used to demonstrate successfully the ability
of our equipment to focus heat deep into animal tissue at precise  locations and
in small target areas. In our view,  these animal tests  demonstrate  that it is
possible to  eliminate  tumors by heat alone and  without the use of  radiation.
Using the pre-clinical data from Massachusetts  General, the FDA granted Celsion
a  supplemental  premarketing  approval to incorporate  the APA technology  with
Celsion's already approved  Microfocus 1000 system. The APA technology  enhances
the ability of the Microfocus 1000 system to focus energy.

         In January  1999,  we received  an IDE from the FDA to permit  clinical
testing of our breast cancer treatment system, and also received FDA approval to
proceed with Phase I human  clinical  studies.  In August 2000, we completed the
treatment of ten patients in the Phase I study using our breast cancer equipment
at Columbia  Hospital in West Palm Beach,  Florida,  and at Harbor UCLA  Medical
Center in Torrance,  California.  In the study,  our  equipment  was  clinically
tested on female  breast tumors on a minimally  invasive  basis through a single
application  of precisely  controlled  and targeted  heat. In December  2000, we
received approval from the FDA to commence Phase II trials for our breast cancer
system.

         The  Phase II  trials  consist  of two  protocols--the  first  (IIA) is
designed to ablate  (kill) small  breast  tumors using heat alone and the second
(IIB) is designed to downsize  large breast cancer tumors using a combination of
heat and  chemotherapy,  thus allowing a surgeon to perform a lumpectomy  rather
than a mastectomy,  thereby  preserving  the affected  breast.  These trials are
currently under way at The Center for Breast Surgery  (Columbia/HCA) in Florida,
Comprehensive  Breast Center in Florida,  Harbor UCLA in California,  Mroz-Baier
Breast Care Center in Memphis,  Tennessee,  Halle Martin Luther Breast Center in
Halle,  Germany, and with Dr. Lynne Clarke in Tacoma,  Washington.  We expect to
add a total of four additional sites, in the United States and in Europe,  early
in  2003.  In July  2002,  we  reached  the  endpoint  for the IIB  protocol  by
determining the maximum heat dosage required to optimize the treatment.  We have
learned from our current and potential  clinical  investigators  that our breast
cancer  treatment  system has the potential to meet a significant  unmet need in
the realm of breast cancer  treatment.  Currently  25% to 30% of all  lumpectomy
patients  are recalled for a second  surgery  (commonly  referred to as a second
incision) when, through  pathological  examinations,  the surgeon discovers that
viable  cancer cells remain in the margins  surrounding  the area from which the
tumor has been removed.  This additional procedure is costly for the surgeon and
other medical providers and traumatic for the patient.

         We believe that studies will demonstrate that our treatment  system, in
conjunction  with  lumpectomy,  would lead to a reduction  in the rate of second
incisions.  Based on our Phase II trial results to date and our new learning, we
decided to revise our IIB protocol to provide a clinical endpoint  demonstrating
that the  incidence  of second  incision  could be  significantly  reduced  if a
patient  underwent  treatment with our system prior to lumpectomy.  We submitted
the  revision of our IIB  protocol to the FDA in July 2002 and, in August  2002,
the FDA  approved  our  revised  protocol  on  condition  that the IIB trials be
expanded  from 43 to 222  patients,  with half the patients  being  treated with
Celsion's   system   followed  by  lumpectomy   and  the  remainder   undergoing
conventional  lumpectomies  alone. At the same time, we reviewed and revised our
IIA protocol to clarify the clinical endpoints.  As revised, the IIA trials will
now be fully randomized  against patients  receiving  preoperative  chemotherapy
alone and the study size has been increased from 130 to 312 patients. Treatments
under both  protocols  were  halted  while the  revisions  were in  process.  We
anticipate  that both the IIA and IIB  trials  will be  completed  by the end of
calendar year 2003 and, if successful, that we will file for the addition of new
indications of use to the existing FDA premarketing  approval for our Microfocus
1000 equipment early in 2004.

THERMO-LIPOSOMES--DUKE UNIVERSITY TECHNOLOGY

         Background

         Liposomes  are man-made  microscopic  spheres  with a liquid  membrane,
developed in the 1980's to encapsulate drugs for targeted  delivery.  Commercial
liposomes can now  encapsulate  chemotherapeutic  drugs,  enabling them to avoid
destruction  by the body's  immune  system,  and allowing  them to accumulate in
tumors. However, with presently available technology, it often takes two to four
hours for  commercial  liposomes  to  release  their drug  contents  to a tumor,
severely limiting the clinical efficacy of liposome chemotherapy treatments.

                                       5


         Development of Thermo-Sensitive Liposomes

         A team of  Duke  University  scientists  has  developed  heat-sensitive
liposomes  comprised of materials that rapidly change  porosity when heated to a
specific  point.  As the  heat-sensitive  liposomes  circulate  within the small
arteries,  arterioles,  and capillaries,  the drug contents of the liposomes are
released at  significantly  higher  levels in those tissue areas which have been
heated for 30 to 60 minutes  than in areas that do not receive  heat.  In animal
trials, it has been determined that heat-sensitive  liposomes deposited 50 times
the  amount  of drugs  at a  specific  heated  tissue  site,  when  compared  to
conventional liposomes.  We have been a sponsor of this research,  which is part
of a  larger  Duke  University  project  to  develop  new  temperature-sensitive
liposomes,  temperature-sensitive  gene promoters and related compounds,  and we
are  the  exclusive  licensee  of  Duke  University's   heat-activated  liposome
technology.

         Celsion's  focused  microwave  equipment  is used to provide  minimally
invasive heating of cancerous tumors to trigger heat-activated  liposomes within
the tumors. The  heat-activated  liposomes,  which encapsulate  chemotherapeutic
agents, are injected into the bloodstream,  where they remain encapsulated until
they release their drug payload inside the heated tumor.  In  preliminary  tumor
growth delay studies conducted at Duke University, tumor-bearing mice received a
single intravenous injection of the liposome with a 5mg per kilogram Doxorubicin
concentration.  This was  immediately  followed  by  heating  of the tumor to 42
degrees C (108  degrees F) for one hour.  The result of the study was a complete
disappearance of the tumors in 11 out of 11 mice. These animals remained disease
free through the 60 days of the study.

         In November 2001, we completed large animal toxicity studies  involving
our  Doxorubicin-laden  thermo-liposome at the Roswell Park Cancer Institute,  a
cancer research  organization  in Buffalo,  New York. In March 2002, we filed an
Investigational  New Drug, or IND,  application with the FDA for the use of this
liposome in the treatment of prostate  cancer using our Microfocus  equipment as
the means of heat activation.  In June 2002, the IND became effective,  allowing
us to  proceed  with  human  clinical  trials.  We  expect  to start the Phase I
clinical trials at Roswell Park Cancer Institute early in 2003.

         In  addition,  in January  2001,  we entered  into a Material  Transfer
Agreement,  or MTA, with the National Cancer  Institute,  or NCI, under which we
are  supplying  heat-activated  liposomes to enable the NCI to conduct  clinical
trials on liver cancer.  NCI will use an RF heating device to isolate the tumors
and to heat the liver,  activating  Celsion's  heat-activated  liposomes to kill
peripheral  cancer cells.  Liver cancer has yet to be successfully  treated with
existing  treatment  modalities.  NCI  expects to complete  the animal  toxicity
studies and submit an IND application to the FDA for approval early in 2003.

         Celsion and Duke University are pursuing  further  development work and
pre-clinical  studies  aimed  at using  the new  thermo-liposome  technology  in
conjunction  with our APA focused heat technology for a variety of applications,
including cancer chemotherapy.  We view the Duke thermo-liposome technology as a
highly promising improvement in the delivery of medicines used to combat serious
diseases.  For example, the drugs used to fight cancer in chemotherapy  regimens
are often toxic when  administered  in large  quantities,  and  produce  nausea,
vomiting, and exhaustion--all side effects of the body being poisoned.  However,
if such a drug can be delivered directly to a tissue area where it is needed, as
opposed to being distributed  through the entire  circulatory  system, the local
concentration  of the drug could be  increased  without  the side  effects  that
accompany large systemic dosing.

         In  addition,  in the July 1,  2000  issue of Cancer  Research,  a Duke
University  research  scientist  reported on his initial use of heat to activate
gene  therapy and to increase the  production  in animals of  Interleukin-12,  a
genetic protein,  in order to delay tumor growth.  On August 8, 2000, we entered
into an  agreement  with Duke  University,  subsequently  renewed for  six-month
periods,  under  which  Celsion  has  the  right,  for a  period  of six  months
thereafter, to negotiate an exclusive license for this technology.

         Production of Heat-Sensitive Liposomes

         We  have  established  a  relationship  with  British  Columbia  Cancer
Authority,  or BCCA, of Vancouver,  Canada to provide Quality System Regulation,
or QSR  (formerly  Good  Manufacturing  Practices,  or GMP),  production  of our
heat-activated liposome for our large animal toxicity studies under our Material
Transfer  Agreement with the National Cancer Institute and for our planned Phase
I clinical  study in humans.  BCCA is a leading drug  formulation  and discovery
company that  specializes in liposome drug  development.  Celsion will require a
large-scale  liposome  manufacturer at such time, if any, as it reaches Phase II
clinical  trials  and  beyond.  Toward  that  end,  we  are in  the  process  of
identifying  a  large-scale  producer  of the  Doxorubicin-based  heat-activated
liposome.

                                       6



HEAT-ACTIVATED GENE THERAPY COMPOUNDS--SLOAN-KETTERING TECHNOLOGY

         Background

         Cancer cells have the ability to repair  themselves  after radiation or
chemotherapy.   Thus,   patients   require   repeated   treatments   to  destroy
substantially  all of the cancer  cells.  Celsion  has  licensed  from  Memorial
Sloan-Kettering  Cancer  Center a  biomedical  innovation  that we  believe  has
significant potential to improve cancer therapy. Sloan-Kettering has developed a
biological  modifier that inhibits  cancer cells' ability to repair  themselves.
Activated by focused heat,  this Cancer Repair  Inhibitor,  or CRI,  temporarily
disables  the repair  mechanism  of cancer  cells,  making it possible to reduce
significantly the number of  radiation/chemotherapy  treatments and/or lower the
treatment dosage.

         A standard  approach to treating cancer is radiation  therapy  combined
with  chemotherapy.  High doses of radiation kill cancer cells or keep them from
dividing,  but  produce  chronic  or  acute  side  effects,  including  fatigue,
neutropenia,  anemia and  leukopenia.  Also,  depending  on the  location of the
tumor,  other acute side effects may occur,  including  diarrhea,  allopecia and
various foreign ulcers.  Chemotherapy  presents  comparable or more serious side
effects.

         Oncologists  are seeking  methods to mitigate  these side  effects.  In
radiation   therapy,   such   methods   include   hyperfractionated   radiation,
intra-operative    radiation,    three-dimensional    radiation,    stereotactic
radiosurgery  and the  use of  radio-labeled  monoclonal  antibodies  and  radio
sensitizers.  CRI falls into this  latter  category  because it  "sensitizes"  a
cancer cell for treatment by making it more  susceptible to DNA-damaging  agents
such as heat, chemicals or radiation. A product of advances in the understanding
of the  biology of  cancer,  CRI is one of a new class of  "biologics"  that are
expected to become part of the cancer treatment protocol.

         The Celsion Technology--CRI Plus Focused Heat

         CRI can be activated in tumors by  minimally  invasive  focused heat in
the range of 41 degrees C (106 degrees F). This focused heat may be generated by
Celsion's  Adaptive  Phased Array  microwave  technology,  which  provides  deep
heating  without  damage to surrounding  healthy  tissue.  Having  increased the
susceptibility   of  cancer  cells  to   DNA-damaging   agents,   radiation  and
chemotherapy  treatment may then be administered  with less frequency  and/or at
lower  doses than  currently  is  possible.  CRI would then  deactivate  and the
patient would resume normal post-treatment care.

         In September 2001, scientists at Sloan-Kettering successfully completed
pre-clinical  laboratory  feasibility  demonstrations  to assess  the safety and
biological  activity of CRI. In December 2001, a small animal  feasibility study
was completed at  Sloan-Kettering's  Good Laboratory Practice facility to assist
in drug  formulation.  Further  studies  with large  animals to assess  toxicity
effects are being conducted and are expected to continue into 2003. Based on the
current development timeline, we expect to file an IND application with the Food
and Drug  Administration by the end of calendar year 2003 and anticipate that we
will be in a position to commence Phase I clinical (human) trials before the end
of calendar  year 2004.  At such time as we  determine  safety and dosage in our
preliminary  studies,  we  expect to form  partnership(s)  with one or more drug
companies to scale-up manufacturing and marketing for larger pivotal studies.

         In May 2000, we entered into an exclusive  worldwide  agreement for the
commercial rights to the CRI,  heat-activated gene therapy technology  developed
by Sloan-Kettering.

                    DEVELOPMENT, MARKETING AND SALES STRATEGY

OVERVIEW AND GOALS

         We are not currently  engaged in marketing and sales,  and are focusing
our  activities on the  development  and testing of our products.  Our strategic
plan is based upon our expertise and  experience in the medical  application  of
focused  microwave heat and our  relationships  with and license rights from our
institutional  research partners. Our goal has been to employ these resources to
develop minimally invasive or non-invasive  treatment technologies with efficacy
significantly  exceeding that available from other sources. Using our management
and staff,  scientific advisory personnel and available financial resources,  we
are focusing our efforts on the following goals:

o   Short-Term Goals: 12 to 24 Months

    -    complete  the  clinical  testing  and   commercialization  of  our  BPH
         treatment system;

    -    complete the development,  clinical testing,  and  commercialization of
         our second  generation  technology  for the  eradication  of  cancerous
         breast tumors; and

                                       7


    -    pursue the  development  and  testing of  targeted  drug  delivery  via
         heat-sensitive    liposomes   for   the   purpose   of    concentrating
         chemotherapeutic drugs at tumor sites.

o    Longer-Term Goals: 18 Months and Beyond

    -    continue the development of gene therapy to  significantly  improve the
         effectiveness of radiation and chemotherapy on tumors; and

    -    initiate,   either  alone  or  with   partners,   the   development  of
         cost-effective enhancements and variations of our technology, including
         a version of our Microfocus  equipment for treating  prostate and other
         cancers,  and  additional  potential  applications  for  heat-sensitive
         liposome  therapy and  heat-activated  gene therapy in the treatment of
         inflammatory, infectious and genetic diseases.

         We anticipate  that, in the near term (up to 24 months),  the source of
our revenues will be from our  proprietary  technology for BPH and for treatment
of breast cancer and  deep-seated  tumors  through the use of focused  microwave
heat  therapy  equipment,  if the  necessary  testing  and  regulatory  approval
processes  are  completed.  We intend to  generate  initial  sales  through  the
development of marketing alliances.

         In the longer  term (from 18 months to 36 months and  beyond),  we will
seek to develop new revenue  streams from our current work with Duke  University
in targeted drug delivery systems and with  Sloan-Kettering in gene therapy.  We
anticipate  that  revenues  will come from the  licensing of this  technology to
pharmaceutical  manufacturers and major institutional  health care providers who
would  employ  these  technologies  to deliver  drug  regimens  or gene  therapy
throughout  the body.  Also,  because this  technology is designed to be used in
conjunction  with our  APA-improved  microwave  equipment,  we  expect  that the
acceptance of the technology  will generate  demand for our equipment  which, in
turn,  is expected to create  equipment  sales  revenues.  To prepare for future
marketing of our heat-sensitive  drug delivery systems, we intend to explore the
possibilities  of  forming  alliances  with  pharmaceutical   companies,   major
hospitals and health maintenance organizations.

BPH TREATMENT SYSTEM

         Our  BPH   treatment   system  is   expected  to  be  marketed  to  the
constituencies critical to its success. Particularly,  towards the approximately
two million readily identified BPH sufferers currently employing drug therapies,
as well as the estimated  seven million United States men afflicted with BPH who
are not currently being treated--the "watchful  waiters"--with a focused message
designed to encourage  these BPH sufferers to take  advantage of a solution that
will relieve their  symptoms and help to restore the quality of their lives.  We
expect that this marketing effort will include the following elements:

o        Reimbursement

    -   We have established  reimbursement under the TUMT reimbursement code for
        Medicare patients  participating in our Phase II clinical trials.  Based
        on this precedent, we expect that our BPH treatment will be covered in a
        like manner by private insurers.

o   Targeting Key Constituencies:

    -   Urology  Practices.  We expect first to target large urology  practices,
        starting with the large practices  participating  in our Phase II trial.
        We expect that our Microwave Uretheroplasty(TM) equipment will be placed
        in urologists'  offices with no up-front capital cost to the physicians.
        The urologists will purchase a unique  disposable  catheter from Celsion
        or its  marketing  partner for each  treatment.  We believe that urology
        practices have  experienced a loss of revenue to primary care physicians
        as a result  of new drug  therapies  introduced  to treat  BPH and other
        urological  disorders  and that  urologists  will be favorably  disposed
        toward our Microwave Uretheroplasty(TM) system, which could offer them a
        significant new revenue source.

    -   Consumers.  We  also  expect  BPH  sufferers  will be  targeted  through
        aggressive  use  of  promotional  and  advertising  media.  Due  to  the
        specificity  of our target patient  audience  (males 50 years and older)
        and the geographic  concentration  of retirees,  we expect that specific
        media in well defined and discrete markets will generate a high level of
        awareness of the availability of, and interest in, our treatment system.
        We also expect that the  Internet and other  electronic  methods will be
        utilized to direct  prospective  patients to urology offices equipped to
        perform our Microwave Uretheroplasty(TM) procedure.

                                       8


    -   Primary Care  Physicians.  The  marketing  approach has been designed to
        bypass  primary  care  physicians,  whom  we  believe  to  be  the  most
        significant  barrier  to  the  success  of  our  BPH  treatment  system.
        Generally,  under current managed care  protocols,  a patient must first
        visit his primary care  physician  who,  after  reviewing  the patient's
        symptoms,  may  either  treat  him or refer  him to a  specialist.  With
        increasing availability of drug therapies to treat urological disorders,
        the number of referrals to urologists has been  declining.  We intend to
        ensure that BPH sufferers are aware of our Microwave  Uretheroplasty(TM)
        treatment  system so that they are in a position  to insist that they be
        referred to a urologist to obtain treatment.

         Celsion  does not plan to  develop  an  internal  sales  and  marketing
capability  for its BPH  business.  Rather,  Celsion  intends  to  enter  into a
strategic  alliance with a larger medical products company  regarding the sales,
supply and distribution of its Microwave  Uretheroplasty(TM)  treatment  system.
Such a strategic  relationship should allow Celsion to maintain its focus on its
core development  activities while leveraging its sales force infrastructure and
marketing expertise. To this end, effective January 21, 2003, Celsion entered in
to a Distribution  Agreement  with Boston  Scientific  Corporation,  pursuant to
which  Celsion  has granted  Boston  Scientific  exclusive  rights to market and
distribute  the  Microwave  BPH 800  Urethroplasty(TM)  System and its component
parts for the treatment BPH in all territories  other than China,  Taiwan,  Hong
Kong,  Macao,  Mexico and  Central  and South  America.  Additional  information
relating to Celsion's  strategic  partnership with Boston Scientific  appears in
our Current Report on Form8-K filed with the Securities and Exchange  Commission
on January 22, 2003.

                    LICENSE AGREEMENTS AND PROPRIETARY RIGHTS

         We do not own any  patents,  although  we do have three  United  States
patents  pending,  two of which  have  been  filed  internationally.  Two of our
pending  United  States  patent  applications  are directed to our BPH treatment
system,  with the third  directed to our breast  cancer  treatment.  Through our
license agreements with MIT, MMTC, Duke and  Sloan-Kettering,  we have exclusive
rights,  within defined fields of use, to nine United States  patents.  Three of
these patents relate to the treatment of BPH, four relate to  thermotherapy  for
cancer,  including the APA technology,  one relates to heat-sensitive  liposomes
and one relates to gene therapy.

         The MIT, MMTC, Duke University and  Sloan-Kettering  license agreements
each contain license fee,  royalty and/or research support  provisions,  testing
and regulatory milestones,  and other performance requirements that we must meet
by certain  deadlines with respect to the use of the licensed  technologies.  In
conjunction   with  the  patent  holders,   we  intend  to  file   international
applications for certain of the United States patents.

         In 1996, we entered into a patent license  agreement with MIT, pursuant
to which we obtained exclusive rights to use of MIT's patented APA technology in
conjunction with application of heat to breast tumor conditions, the application
of heat to prostate  conditions  and all other  medical  uses.  MIT has retained
certain rights in the licensed technology for non-commercial  research purposes.
MIT's  technology  has been  patented  in the United  States and MIT has patents
pending for its technology in China,  Europe,  Canada and Japan. The term of our
exclusive rights under the MIT license  agreement  expires on the earlier of ten
years after the first commercial sale of a product using the licensed technology
or October 24, 2009, but our rights  continue on a  non-exclusive  basis for the
life of the MIT patents.

         We entered into license agreements with MMTC in 1996 and 2002, by which
we currently have exclusive  worldwide  rights to MMTC's patents  related to its
balloon compression technology for the treatment of prostatic disease in humans.
Our exclusive  rights under the MMTC license  agreements  extend for the life of
MMTC's patents.  MMTC currently has patents in the United States and Canada. The
terms of these patents expire at various times from April 2008 to November 2014.
In addition, MMTC also has patent applications pending in Japan and Europe.

         On November 10, 1999,  we entered  into a license  agreement  with Duke
University  under  which  we  received  exclusive  rights  (subject  to  certain
exceptions) to  commercialize  and use Duke's  thermo-liposome  technology.  The
license  agreement  contains annual royalty and minimum  payment  provisions and
also requires us to make  milestone-based  royalty payments  measured by various
events,  including product  development  stages, FDA applications and approvals,
foreign marketing  approvals and achievement of significant sales.  However,  in
lieu of such milestone-based cash payments,  Duke has agreed to accept shares of
our Common Stock to be issued in installments at the time each milestone payment
is due, with each  installment of shares to be calculated at the average closing
price of the Common  Stock  during the 20 trading  days prior to  issuance.  The
total  number of shares  issuable to Duke under these  provisions  is subject to
adjustment in certain cases,  and Duke has "piggyback"  registration  rights for
public offerings taking place more than one year after the effective date of the
license  agreement.   We  are  currently  renegotiating  certain  terms  of  our
contractual arrangements with Duke.

         Our rights under our license  agreement with Duke University extend for
the longer of 20 years or the end of any term for which any relevant patents are
issued by the United  States  Patent and Trademark  Office.  Currently,  we have


                                       9


rights to Duke's patent for its thermo-liposome technology in the United States,
which expires in 2018, and to future patents received by Duke in Canada, Europe,
Japan and  Australia,  where it has patent  applications  pending.  The European
application  can result in coverage in the United  Kingdom,  France and Germany.
For this  technology,  our license  rights are  worldwide,  with various  patent
rights covering the United States,  Canada, the United Kingdom,  France, Germany
and Japan.

        We entered into a license  agreement  with  Sloan-Kettering  in November
2000 by which we obtained  exclusive rights to  Sloan-Kettering's  United States
patent and to patents  that  Sloan-Kettering  may  receive in the future for its
heat-sensitive  gene  therapy in Japan,  Canada and Europe,  where it has patent
applications  pending.  Our rights under the agreement with Sloan-Kettering will
terminate  at the later of 20 years after the date of the  agreement or the last
expiration date of any patent rights covered by the agreement.

         In addition to the rights  available  to us under  completed or pending
license  agreements,  we rely on our own proprietary  know-how and experience in
the development and use of microwave thermotherapy  equipment,  which we seek to
protect,  in part, through  proprietary  information  agreements with employees,
consultants  and  others.  We cannot  offer  assurances  that these  information
agreements  will not be breached,  that we will have  adequate  remedies for any
breach or that these  agreements,  even if fully  enforced,  will be adequate to
prevent  third-party use of our  proprietary  technology.  Similarly,  we cannot
guarantee  that  technology  rights  licensed  to  us  by  others  will  not  be
successfully  challenged or  circumvented  by third parties,  or that the rights
granted  will  provide us with  adequate  protection.  We are aware of published
patent  applications  filed after November 29, 2001 and issued patents belonging
to other companies,  and it is uncertain  whether any of those patent documents,
or patent  applications  filed before November 29, 2001 of which we may not have
any knowledge, will require us to alter our potential products or processes, pay
licensing fees, or cease certain activities.

                                  MANUFACTURING

         Celsion   presently   manufactures  its  BPH  equipment   in-house  and
anticipates that it will continue to do so for the immediate future. However, as
the market  develops,  we expect that we will  outsource  some or all of our BPH
equipment manufacturing.

         We believe we are best suited to conduct basic research and development
activities,   to  pursue  a  prototype  product  through  clinical  testing  and
regulatory  approval,  to  engage in  initial  manufacturing  activities  during
product launch and to market the final product. Accordingly, we do not intend to
engage in large-scale  manufacturing with respect to our breast cancer treatment
system or any other possible future  products,  but instead intend  generally to
outsource  the  manufacture  of  final  commercial   products,   components  and
disposables.  Based on past  experience,  we do not anticipate  any  significant
obstacles  in  identifying   and  contracting   with  qualified   suppliers  and
manufacturers.

                            THIRD-PARTY REIMBURSEMENT

         Third-party  reimbursement  arrangements  will likely be  essential  to
commercial  acceptance of our new devices,  and overall  cost-effectiveness  and
physician advocacy will be keys to obtaining such reimbursement. We believe that
our equipment can be used to deliver treatment at substantially lower total cost
than  surgical  treatments  for BPH or cancer or than  continuous  drug therapy.
Consequently, we believe that third-party payors seeking procedures that provide
quality clinical outcomes at relatively lower cost will help drive acceptance of
our products.

         For BPH, our strategy is to use reimbursement  codes currently approved
for TUMT in the United States and which have been approved for Medicare patients
in  connection  with BPH treatment in our Phase II clinical  trials.  For breast
cancer,   we  expect  that  our  strategy  for   obtaining   new   reimbursement
authorizations in the United States will be to obtain appropriate  reimbursement
codes and to perform  studies in conjunction  with clinical  trials to establish
the efficacy and  cost-effectiveness  of the  procedures as compared to surgical
and drug  treatments for BPH and cancerous  breast  tumors.  We plan to use this
information  when  approaching  health care  payors to obtain new  reimbursement
authorizations.

         With the  increasing  use of managed  care and  capitation  as means to
control health care costs in the United States,  we believe that  physicians may
view our products as a tool to treat BPH and breast  cancer  patients at a lower
total cost,  thus providing them with a competitive  advantage when  negotiating
managed care contracts. This is especially important in the United States, where
a significant portion of the aging,  Medicare-eligible population is moving into
a managed care system.

         Subject to  regulatory  approval for the use of our  equipment to treat
BPH and breast  cancer,  we anticipate  that  physicians  will submit  insurance
claims for  reimbursement  for such  procedures to third-party  payors,  such as
Medicare  carriers,  Medicaid  carriers,  health  maintenance  organizations and


                                       10


private insurers. In the United States and in international markets, third-party
reimbursement is generally available for existing therapies used to treat cancer
and BPH. The availability  and level of  reimbursement  from such payors for the
use of our  new  products  will  be a  significant  factor  in  our  ability  to
commercialize these systems.

         We expect that new regulations regarding third-party  reimbursement for
certain  investigational  devices in the United  States  will allow us to pursue
early  reimbursement  from  Medicare  with  individual  clinical  sites prior to
receiving FDA approval. However, FDA approval likely will be necessary to obtain
a  national  coverage   determination  from  Medicare.   The  national  coverage
determination for third-party  reimbursement will depend on the determination of
the Centers for Medicare and Medicaid  Service,  or CMS  (formerly  known as the
United States Health Care Financing Administration,  or HCFA), which establishes
national  coverage  policies for Medicare  carriers,  including the amount to be
reimbursed,  for  coverage  of claims  submitted  for  reimbursement  related to
specific   procedures.   Private  insurance  companies  and  health  maintenance
organizations make their own determinations regarding coverage and reimbursement
based  upon  "usual  and  customary"  fees.   Reimbursement  experience  with  a
particular   third-party   payor  does  not   reflect  a  formal   reimbursement
determination  by the  third-party  payor.  New outpatient  procedure codes were
instituted on August 1, 2000. Our ability to petition successfully for these new
reimbursement  codes will ultimately  determine the degree of success we achieve
in implementing our business model.

         Internationally,   we  expect  to  seek  reimbursement   approvals  for
procedures  utilizing  our new products on an  individual  country  basis.  Some
countries   currently  have   established   reimbursement   authorizations   for
transurethral microwave therapy. We expect to use clinical studies and physician
advocacy  to support  reimbursement  requests  in  countries  in which  there is
currently no reimbursement for such procedures.

                    REGULATION OF SALES IN THE UNITED STATES

FDA REGULATION--RESEARCH AND APPROVAL

         Our  research  and  development  activities,   pre-clinical  tests  and
clinical trials and,  ultimately,  the manufacturing,  marketing and labeling of
our products,  are subject to extensive regulation by the FDA. The Federal Food,
Drug  and  Cosmetic  Act,  the  Public  Health  Service  Act,  or  PHSA  and the
regulations  promulgated  by the FDA govern,  among other  things,  the testing,
manufacture,  safety,  efficacy,  labeling,  storage, record keeping,  approval,
advertising, promotion, import and export of our products.

         Under these statutes, our Microwave Uretheroplasty(TM) treatment system
is regulated as a class III medical device, our heat-activated  liposomes may be
regulated as a new drug and our CRI may be  regulated  as a biological  product.
The steps  ordinarily  required before such products can be marketed in the U.S.
include; (a) pre-clinical and clinical studies; (b) the submission to the FDA of
an IDE or an IND which must become  effective  before human clinical  trials may
commence;  (c) adequate and  well-controlled  human clinical trials to establish
the safety and  efficacy of the  product;  (d) the  submission  to the FDA of an
application for premarketing  approval (PMA), a New Drug Application (NDA), or a
Biological  License  Application (BLA); and (e) FDA approval of the application,
including approval of all product labeling.

         Pre-clinical tests include laboratory  evaluation of product chemistry,
formulation  and  stability,  as well as animal  studies to assess the potential
safety and efficacy of the product.  Pre-clinical safety tests must be conducted
by  laboratories  that comply with FDA  regulations  regarding  Good  Laboratory
Practice.  The results of pre-clinical tests are submitted to the FDA as part of
an IDE or IND and are  reviewed  by the FDA  before  the  commencement  of human
clinical trials.  Submission of an IDE or IND will not necessarily result in FDA
authorization to commence clinical trials or and the absence of FDA objection to
an IDE or IND does not necessarily  mean that the FDA will ultimately  approve a
PMA or that a product candidate otherwise will come to market.

         Clinical trials involve the  administration  of therapy to humans under
the supervision of a qualified principal  investigator.  Clinical trials must be
conducted in accordance with good clinical  practices under protocols  submitted
to the FDA as part of an IDE or IND. Also,  each clinical trial must be approved
and conducted  under the auspices of an internal  review board, or IRB, and with
patient informed  consent.  The IRB will consider,  among other things,  ethical
factors,  the  safety  of  human  subjects  and the  possible  liability  of the
institution conducting the clinical trials.

         Clinical  trials are  typically  conducted  in two or three  sequential
phases, but the phases may overlap.  Phase I clinical trials involve the initial
introduction  of the therapy to a small number of subjects.  Phase II trials are
generally larger trials conducted in the target population.  For devices such as
our Microwave Uretheroplasty(TM) treatment system, Phase II studies may serve as
the pivotal trials demonstrating safety and effectiveness required for approval.
In the case of drugs and biological products, Phase II clinical trials generally
are  conducted  in a target  patient  population  to gather  evidence  about the
pharmacokinetics,  safety and  biological  or clinical  efficacy of the drug for
specific  indications,  to determine  dosage tolerance and optimal dosage and to


                                       11


identify  possible  adverse effects and safety risks.  When a drug or biological
compound has shown  evidence of efficacy  and an  acceptable  safety  profile in
Phase II  evaluations,  Phase III clinical trials are undertaken to serve as the
pivotal  trials to  demonstrate  clinical  efficacy  and  safety in an  expanded
patient population.

         There  can be no  assurance  that any of our  clinical  trials  will be
completed  successfully,  within any specified time period or at all. Either the
FDA or we may  suspend  clinical  trials  at any time,  if either  the FDA or we
conclude that clinical subjects are being exposed to an unacceptable health risk
or for other  reasons.  The FDA  inspects  and  reviews  clinical  trial  sites,
informed  consent  forms,  data from the clinical  trial sites  (including  case
report forms and record keeping procedures) and the performance of the protocols
by  clinical  trial  personnel  to  determine   compliance  with  good  clinical
practices.  The FDA also  examines  whether  there  was bias in the  conduct  of
clinical  trials.  The  conduct of  clinical  trials is complex  and  difficult,
especially  in pivotal  Phase II or Phase III trials.  There can be no assurance
that the design or the  performance of the pivotal  clinical trial  protocols or
any of our current or future product candidates will be successful.

         The results of pre-clinical studies and clinical trials, if successful,
are submitted in an application  for FDA approval to market the device,  drug or
biological  product  for a specified  use.  The  testing  and  approval  process
requires  substantial  time and effort,  and there can be no assurance  that any
approval will be granted for any product at any time, according to any schedule,
or at all.  The FDA may refuse to approve an  application  if it  believes  that
applicable  regulatory  criteria  are not  satisfied.  The FDA may also  require
additional testing for safety and efficacy.  Moreover, if regulatory approval is
granted, the approval will be limited to specific  indications.  There can be no
assurance that any of our product candidates will receive  regulatory  approvals
for  marketing  or, if  approved,  that  approval  will be for any or all of the
indications that we request.

         The FDA is authorized  to require user fees for  submission of NDAs and
BLAs.  The current user fee for such  applications  is $267,606 and may increase
from year to year.

          The FDA is also  authorized  to require  annual user fees for approved
products and for companies with  establishments  at which finished  products are
manufactured,  which fees may increase  from year to year.  The FDA may waive or
reduce such user fees under special circumstances.  We intend to seek waivers or
reductions of user fees where possible, but we cannot be assured that we will be
eligible for any such waiver or reduction.

FDA REGULATION--POST-APPROVAL REQUIREMENTS

         Even if we receive  necessary  regulatory  approvals for one or more of
our product candidates, our manufacturing facilities and products are subject to
ongoing  review and periodic  inspection.  Each U.S.  device,  drug and biologic
manufacturing  establishment  must be  registered  with the  FDA.  Manufacturing
establishments  in the U.S. and abroad are subject to inspections by the FDA and
must comply with the FDA's QSR  regulations.  Medical  devices  also must comply
with the FDA's QSR  regulations.  In order to ensure full  technical  compliance
with such regulations,  manufacturers  must expend funds, time and effort in the
areas of production and quality control.

FDA REGULATION--MANUFACTURING STANDARDS

         We are also  subject  to  record  keeping  and  reporting  regulations,
including the FDA's mandatory  Medical Device  Reporting,  or MDR,  regulations.
These regulations  require,  among other things, the reporting to FDA of adverse
events  alleged  to  have  been  associated  with  the  use of a  product  or in
connection with certain product failures.

         Labeling and promotional  activities also are regulated by the FDA and,
in certain instances, by the Federal Trade Commission (FTC). We must also comply
with record  keeping  requirements  as well as  requirements  to report  certain
adverse events involving our products.  The FDA can impose other  post-marketing
controls  on us  as  well  as  our  products  including,  but  not  limited  to,
restrictions  on sale and use,  through the  approval  process  regulations  and
otherwise.

         Failure to comply with applicable  regulatory  requirements  can result
in, among other things, warning letters, fines,  injunctions and other equitable
remedies,  civil  penalties,  recall or  seizure of  products,  total or partial
suspension  of  production,  refusal  of  the  government  to  grant  approvals,
pre-market  clearance  or  pre-market  approval,  withdrawal  of  approvals  and
criminal prosecution.

OTHER FEDERAL REGULATION

         The Federal  Communications  Commission (FCC) regulates the frequencies
of  microwave  and  radio-frequency  emissions  from  medical and other types of
equipment   to   prevent   interference   with   commercial   and   governmental


                                       12


communications  networks.  The FCC has  approved  the  frequency  of 915 MHZ for
medical  applications,  and  machines  utilizing  that  frequency do not require
shielding to prevent  interference with  communications.  Our Microfocus and BPH
treatment products utilize the 915 MHZ frequency.

         In December 1984, the Health Care Financing  Administration  (now known
as the Centers for Medicare and Medicaid  Service (CMS)) approved  reimbursement
under Medicare and Medicaid for thermotherapy treatment when used in conjunction
with radiation  therapy for the treatment of surface and subsurface  tumors.  At
this  time,  most of the  large  medical  insurance  carriers  in the U.S.  have
approved  reimbursement  for this type of  thermotherapy  treatment  under their
health policies.  Thermotherapy  treatment administered using equipment that has
received a PMA is eligible for such reimbursement.

                           REGULATION OF FOREIGN SALES

         Sales of  domestically  produced  drugs,  biologics and medical devices
outside of the U.S. are subject to United States export requirements and foreign
regulatory  controls.  Drugs,  biologics,  and  devices  that are subject to PMA
requirements  and have not received FDA  marketing  approval  cannot be exported
unless they are approved in the European  Union (EU),  in a country in the EU or
the European Free Trade Association,  or in certain other countries specified in
the Federal Food, Drug and Cosmetic Act.

         Products approved in these countries may be exported to other countries
in which they are legal for  marketing.  Such  products  must bear labeling that
complies  with both the country of approval and the country to which the product
is  exported.  In the case of drugs and  biologics,  there  must also be a valid
marketing  authorization  by a responsible  authority and FDA must make detailed
determinations   regarding   the  adequacy  of  the   statutory  or   regulatory
requirements of the importing country.

         Exported  products  that are not  approved  in the U.S.  are subject to
other FDA regulatory requirements as well, including substantial compliance with
good manufacturing practice  requirements.  The FDA may prohibit export if there
is a  determination  that the  exportation  of the product  presents an imminent
hazard  to the  public  health  of the  importing  country  or to  the  U.S.  if
reimported.

         Upon  exportation,  our  products  would be  subject to  regulation  by
national  governments  and  supranational  agencies as well as by local agencies
affecting,  among  other  things,  product  standards,  packaging  requirements,
labeling requirements,  import restrictions,  tariff regulations, duties and tax
requirements.  There can be no assurance  that one or more countries or agencies
will not impose  regulations or requirements  that could have a material adverse
effect on our  ability to sell our  products.  In the EU, the  harmonization  of
standards has caused a shift from a country-by-country regulatory system towards
an  EU-wide  single  regulatory  system.  However,  many  members of the EU have
imposed  additional  country-specific  regulations/requirements.   The  approval
procedure varies from member state to member state, and the time required may be
longer or shorter than that required for FDA approval. There can be no assurance
that  the  changes  in  the  regulatory   schemes  imposed  either  by  the  EU,
supranational  agencies or individual  countries affecting our products will not
have a  material  adverse  effect on the our  ability  to sell our  products  in
countries other than the U.S.

         Failure to comply with foreign  regulatory  requirements can result in,
among other things,  warning  letters,  fines,  injunctions  and other equitable
remedies,  civil  penalties,  recall  orders or  seizure of  products,  total or
partial  suspension of  production,  refusal of the health  authorities to grant
desired approvals, the withdrawal of approvals and criminal prosecution.

         We sold our original products in 23 countries in Asia, Europe and South
America.  Meeting the registration  requirements  within these countries was the
responsibility   of  our  distributors  in  each  of  these   countries.   Legal
restrictions  on the sale of  imported  medical  devices  vary from  country  to
country. The time required to obtain approval by a foreign country may be longer
or shorter than that required for FDA approval, and the requirements may differ.
We expect to receive  approvals for  marketing in a number of countries  outside
the U.S.  prior to the time that we will be able to market our  products  in the
U.S. However, the timing for such approvals currently is not known.

                                   COMPETITION

         Many companies and institutions are engaged in research and development
of thermotherapy technologies for both cancer and prostate disease products that
seek treatment outcomes similar to those we are pursuing.  In addition, a number
of companies and  institutions  are pursuing  alternative  treatment  strategies
through the use of RF, laser and ultrasound energy sources,  all of which appear
to be in the early  stages of  development  and testing.  Potential  competitors
engaged in all areas of cancer and prostate  treatment  research in the U.S. and
other  countries  include,  among  others,  major  pharmaceutical  and  chemical
companies,  specialized  technology  companies,  universities and other research
institutions. See "Risk Factors."

                                       13



         There  currently are three  principal  competitors in the MI market for
BPH  treatment  systems:   Medtronic  (NYSE:MDT),   Urologix  (NASDAQ:ULGX)  and
TherMatrx  (private).  In  addition  to  Celsion,  one  other  company,  ACMI (a
privately held company selling  Prostalund  technology  from Sweden),  is in the
process  of FDA review of a  minimally  invasive  BPH  treatment  system.  These
companies utilize one of two major approaches to BPH treatment:

         o    Transurethral needle ablation, or TUNA, which uses radio frequency
              ablation and is offered by Medtronic; and

         o    TUMT,  which uses  microwave  heating to ablate  tissue within the
              prostate and is offered by the remaining companies.

         Medtronic  acquired  its TUNA  business as part of its  acquisition  of
Vidamed, Inc. for $329 million in April 2002. TUNA technology is labor intensive
for the physician and requires a significant  learning curve prior to perfecting
the technique.  Patients require post-treatment  catheterization and significant
pre-medication is common.

         TUMT technology is currently the dominant MI  alternative.  Urologix is
the market leader in TUMT systems. Its machines currently list for approximately
$90,000 and its single use catheters cost between $1,000 and $1,200.  Urologix's
technology  uses a  "water  cooled"  catheter,  which  is  designed  to use high
microwave energy without damaging the urethral lining. TherMatrx takes a simpler
approach,  offering a low power machine that does not require cooling. The sales
price of the TherMatrx equipment is approximately $25,000, due to its relatively
less complex design.  The catheter used in conjunction with this equipment sells
in the same range as the Urologix  catheter.  Both  Urologix's  and  TherMatrx's
products  (and  ACMI's   Prostalund,   which  has  not  been  approved)  require
pre-medication,  are more difficult for the physician to administer  than is the
Celsion   Microwave   Urethroplasty(TM)   system  and   require   post-treatment
catheterization of the patient.

         We believe that our technology is a leap forward in the  advancement of
microwave therapy. Celsion relies on Microwave  Urethroplasty(TM) in addition to
traditional  microwave energy.  The addition of balloon  compression  within the
prostatic  portion of the urethra allows for immediate relief to the patient and
in  most  cases  can  avoid  post  treatment  catheterization.  Thus,  Celsion's
technology  allows  for the  type of  rapid  relief  for  the  patient  normally
associated  with drug therapies  while avoiding the side effects and significant
delays in patient  symptomatic  relief associated with other minimally  invasive
therapies.

                         PRODUCT LIABILITY AND INSURANCE

         Our business exposes us to potential  product  liability risks that are
inherent  in the  testing,  manufacturing  and  marketing  of human  therapeutic
products.  We presently have product  liability  insurance limited to $5,000,000
per  incident,  and,  if we were to be  subject  to a claim  in  excess  of this
coverage or to a claim not covered by our insurance and the claim succeeded,  we
would be required to pay the claim out of our own limited resources.

                                    EMPLOYEES

         We presently employ 23 full-time  employees and one part-time  employee
and also  utilize the services of part-time  consultants  from time to time.  In
addition,  our Scientific  Advisory Board actively  assists our management  with
advice  on  various  projects.  None  of  our  employees  are  represented  by a
collective  bargaining  organization,  and we consider  our  relations  with our
employees to be good.

ITEM 2.         PROPERTIES

         We lease  premises  consisting of  approximately  22,451 square feet of
administrative  office,  laboratory  and workshop  space at 10220-I Old Columbia
Road, Columbia, Maryland 21046-1705 from an unaffiliated party under a five-year
lease (7,056  square feet) that expires on June 30, 2005 and a sublease  (15,395
square feet), which expires on October 31, 2005. Rent expense for the year ended
September  30,  2002 was  $359,206.  Future  minimum  lease  obligations  are as
follows:

                             2003             $ 302,779
                             2004              $311,789
                             2005              $239,018

                                       14


ITEM 3.         LEGAL PROCEEDINGS

         The  following  information  was reported by Celsion  under Item 5 in a
Current  Report on Form 8-K dated January 25, 2002 filed with the Securities and
Exchange Commission (SEC) on January 29, 2002:

                           As previously  reported,  on April 27, 2000,  Celsion
                  commenced an action (the "Original Suit") in the United States
                  District  Court for the  District of Maryland  (the  "Maryland
                  Court")  against Warren C. Stearns,  a former  director of the
                  Company ("W.C. Stearns"),  Mr. Stearns' management company and
                  a number of his  affiliates,  family  members  and  colleagues
                  (collectively,  the "Original Defendants"),  who held warrants
                  (the "Original  Warrants")  for the purchase of  approximately
                  4.1  million  shares of  Celsion's  Common  Stock at $0.41 per
                  share. On January 18, 2001, the Maryland Court transferred the
                  case to the  United  States  District  Court for the  Northern
                  District of Illinois,  in Chicago (the  "Chicago  Court").  On
                  July 17, 2001,  Celsion  filed a motion to amend its complaint
                  to add a second count, alleging that Mr. Stearns, on behalf of
                  himself  and the other  Original  Defendants,  had  executed a
                  Mutual   Release   which   released  any  right  the  Original
                  Defendants  had to exercise the  warrants  ("Count  II").  The
                  motion was granted on July 19, 2001.

                           On August 9, 2001,  the Original  Defendants  filed a
                  counterclaim (the "Counterclaim") against the Celsion, certain
                  of its  officers and  directors,  and an attorney and law firm
                  that  previously  had  represented  Celsion.  On September 10,
                  2001, the Chicago Court dismissed, with prejudice,  Count I of
                  the  Complaint.  On November 23, 2001,  Celsion and certain of
                  its  officers  and  directors  filed a motion to  dismiss  the
                  Counterclaim.

                           On January 25, 2002, Celsion and Augustine Y. Cheung,
                  Spencer J. Volk, Walter B. Herbst, LaSalle D. Leffall,  Claude
                  Tihon,  John  Mon,  Max E. Link  (all of whom are  present  or
                  former  officers  and/or  directors  of the  Company),  George
                  Bresler,  Bresler,  Goodman  &  Unterman  LLP and  The  George
                  Bresler  Trust on the one  hand  (collectively,  the  "Company
                  Parties"),  and Stearns  Management  Company,  Anthony  Riker,
                  Ltd.,  John T. Horton,  The George T. Horton Trust,  Warren R.
                  Stearns,  Charles A. Stearns, and W.C. Stearns  (collectively,
                  the  "Stearns  Parties"),  on the other hand,  entered  into a
                  settlement agreement (the "Settlement Agreement"). Pursuant to
                  the Settlement  Agreement,  Celsion,  among other things,  has
                  agreed  (a) to pay to  W.C.  Stearns  the  lesser  of (i)  the
                  Stearns   Parties'  actual  legal  fees,  costs  and  expenses
                  incurred  in   connection   with  the   Original   Suit,   the
                  Counterclaim  and the  Settlement  Agreement or (ii) $265,000;
                  (b) to issue to the Stearns Parties  warrants (the "Settlement
                  Warrants")  to  purchase  a  total  of  6,325,821   shares  of
                  Celsion's  Common  Stock,  at an  exercise  price of $0.01 per
                  share;  and (c) to register  for resale the shares  underlying
                  the  Settlement  Warrants.  The  Settlement  Warrants  are  in
                  replacement  of the Original  Warrants,  the validity of which
                  was at issue in the Original Suit. However, while the Original
                  Warrants,   among   other   things,   contained   antidilution
                  provisions  ensuring the Stearns Parties the right to purchase
                  4.6875% of Celsion's  Common Stock,  on a fully diluted basis,
                  until  completion  of the Celsion's  next public  offering (as
                  defined)  and a renewal  right at the  election of the holder,
                  the  Settlement  Warrants  contain  no  such  provisions.   In
                  addition,  pursuant to the Settlement  Agreement,  the Company
                  Parties,  on the one hand,  and the  Stearns  Parties,  on the
                  other,  unconditionally  released one another from any and all
                  claims  arising prior to the effective  date of the Settlement
                  Agreement and agreed to dismiss, with prejudice,  the Original
                  Suit, including the Counterclaim.

                           The Settlement  Agreement has the effect of fully and
                  finally  resolving the matters in dispute in the Original Suit
                  and the Counterclaim  between the Company Parties,  on the one
                  hand, and the Stearns Parties, on the other hand.

ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.


                                       15


                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET PRICE FOR OUR COMMON STOCK

         Our Common Stock trades on The American Stock  Exchange.  The following
table sets forth the high and low sales prices for our Common Stock  reported by
The  American  Stock  Exchange.  The  quotations  set forth below do not include
retail markups, markdowns or commissions.



                                                                        High             Low
          FISCAL YEAR ENDED SEPTEMBER 30, 2001
                                                                               
                First Quarter (October 1 - December 31, 2000)          $   2.19      $  0.75
                Second Quarter (January 1 - March 31, 2001)            $   3.75      $  0.94
                Third Quarter (April 1 - June 30, 2001)                $   1.25      $  0.60
                Fourth Quarter (July 1 - September 30, 2001)           $   0.85      $  0.40

          FISCAL YEAR ENDED SEPTEMBER 30, 2002
                First Quarter (October 1 - December 31, 2001)          $   0.68      $  0.40
                Second Quarter (January 1 - March 31, 2002)            $   0.98      $  0.59
                Third Quarter (April 1 - June 30, 2002)                $   0.80      $  0.40
                Fourth Quarter (July 1 - September 30, 2002)           $   0.53      $  0.34


         On December 23, 2002, the last reported sale price for our Common Stock
on The American  Stock  Exchange  was $0.41 As of December 23, 2002,  there were
approximately 1,300 holders of record of our Common Stock.

DIVIDEND POLICY

         We have never  declared or paid any cash  dividends on our Common Stock
or other securities and do not currently anticipate paying cash dividends in the
foreseeable future.

ISSUANCE OF SHARES WITHOUT REGISTRATION

         During the fiscal  quarter  ended  September  30,  2002,  we issued the
following  securities without  registration under the Securities Act of 1933, as
amended (the "Securities Act"):

-       On August  1,  2002,  Celsion  issued a total of  200,000  shares of its
        Common  Stock for cash  consideration  of $2,000 upon  exercise of stock
        purchase  warrants.  On  September  4, 2002,  Celsion  issued a total of
        150,000 shares of its Common Stock for cash consideration of $1,500 upon
        exercise of stock  purchase  warrants.  On September  12, 2002,  Celsion
        issued  a  total  of  200,000  shares  of  its  Common  Stock  for  cash
        consideration  of $2,000 upon exercise of stock  purchase  warrants.  On
        September  24,  2002,  Celsion  issued a total of 250,000  shares of its
        Common  Stock for cash  consideration  of $2,500 upon  exercise of stock
        purchase  warrants.  On September  26, 2002,  Celsion  issued a total of
        200,000 shares of its Common Stock for cash consideration of $2,000 upon
        exercise of stock purchase warrants.  These shares are restricted stock,
        and  the  certificates   representing  such  shares  are  endorsed  with
        Celsion's standard  restrictive legend, with a stop transfer instruction
        recorded by the transfer  agent.  Accordingly,  Celsion views the shares
        issued as exempt from  registration  under  Sections 4(2) and/or 4(6) of
        the Securities Act.

-       On July 1, 2002,  Celsion also issued  14,709 shares of its Common Stock
        to a  consultant  for  services  valued  at  $7,500.  These  shares  are
        restricted  stock,  and the  certificates  representing  such shares are
        endorsed with the Celsion's  standard  restricted  stock legend,  with a
        stop transfer instruction  recorded by the transfer agent.  Accordingly,
        Celsion  views  the  shares  issued as exempt  from  registration  under
        Sections 4(2) and/or 4(6) of the Securities Act.

-       On September 4, 2002,  Celsion issued 918,000 shares of its Common Stock
        upon  conversion of 459 shares of its Series B 8% Convertible  Preferred
        Stock.   These  shares  are  restricted   stock,  and  the  certificates
        representing such shares are endorsed with Celsion's standard restricted
        stock legend, with a stop transfer  instruction recorded by the transfer
        agent.  Accordingly,  Celsion  views the  shares  issued as exempt  from
        registration under Sections 4(2) and/or 4(6) of the Securities Act.

                                       16


Celsion  views these  issuances as  transactions  by an issuer not involving any
public  offering and therefore as exempt from  registration  under Sections 4(2)
and/or 4(6) of the Securities Act.

         See also "Item 12. Security  Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters."

ITEM 6.         SELECTED FINANCIAL DATA

         The following table contains certain financial data for Celsion for the
five fiscal years ended  September 30, 2002 is qualified in its entirety by, and
should be read in  conjunction  with,  the  "Item 8.  Financial  Statements  and
Supplementary   Data  and  Financial   Disclosure"  and  "Item  7.  Management's
Discussion and Analysis of Financial Condition and Results of Operations."




                                                                          YEAR ENDED SEPTEMBER 30,
                                                 1998          1999            2000            2001             2002
                                            ------------    ------------    ------------    ------------    ------------
STATEMENT OF OPERATIONS DATA:

Revenues:

                                                                                             
     Product Sales (Net)                    $    174,182    $       --      $      3,420    $       --      $       --

     Research  and development contracts            --              --              --              --              --
                                            ------------    ------------    ------------    ------------    ------------

Total revenues                                   174,182           3,420

Cost of sales                                    136,500            --               246            --              --
                                            ------------    ------------    ------------    ------------    ------------

Gross profit on product sales                     37,682            --             3,174            --              --
                                            ------------    ------------    ------------    ------------    ------------

Other costs and expenses:

     Selling, general and  administrative      2,515,822       1,371,161       2,662,623       3,211,625       4,833,005

     Research and development                  1,534,872       1,019,941       2,238,292       4,075,249       5,004,687
                                            ------------    ------------    ------------    ------------    ------------


Total operating expenses                       4,050,694       2,391,102       4,900,915       7,286,874       9,837,692
                                            ------------    ------------    ------------    ------------    ------------

(Loss) from operations                        (4,013,012)     (2,391,102)     (4,897,741)     (7,286,874)     (9,837,692)
                                            ------------    ------------    ------------    ------------    ------------

Other income (expense)                            11,870          15,744            --            45,609
                                                                                                                  38,289

Interest income (expense)                       (199,346)        (60,834)        350,526         318,038          48,321
                                            ------------    ------------    ------------    ------------    ------------

Net (loss)                                  $ (4,200,488)   $ (2,436,192)   $ (4,547,215)   $ (6,923,227)   $ (9,751,082)
                                            ============    ============    ============    ============    ============

Net loss per share                          $      (0.12)   $      (0.05)   $      (0.08)   $      (0.10)   $      (0.12)
                                            ============    ============    ============    ============    ============

Weighted average shares outstanding           34,867,001      45,900,424      59,406,921      72,249,920      87,257,672





                                                                           AS OF SEPTEMBER 30,
                                                1998           1999            2000            2001             2002
                                            ------------    ------------    ------------    ------------    ------------
BALANCE SHEET DATA:

                                                                                              
Cash and cash equivalents                    $     54,920    $  1,357,464    $  8,820,196    $  2,510,136    $    928,819

Working Capital                                (2,000,351)        906,926       8,509,173       2,388,900         735,216

Total Assets                                      330,738       1,558,684       9,117,821       2,956,861       2,291,449

Long-term debt, less current maturities              --              --              --            15,203            --

Redeemable preferred stock:

  Series A 10% Convertible Preferred Stock           --              --         5,176,000       1,099,584       1,130,500

  Series B 8% Convertible Preferred Stock            --              --              --              --         1,396,285

Accumulated deficit                           (19,464,010)    (21,900,202)    (26,770,917)    (33,928,781)    (43,820,081)

Total stockholders' equity (deficit)           (1,851,067)      1,037,125       8,726,429       2,669,217       1,516,490



                                       17



ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

         Certain  of the  statements  contained  in this  Annual  Report on Form
10-K/A,  including certain in this section,  are  forward-looking.  In addition,
from time to time we may  publish  forward-looking  statements  relating to such
matters as anticipated financial performance, business prospects,  technological
developments,  new products,  research and  development  activities  and similar
matters.  These statements involve known and unknown risks,  uncertainties,  and
other factors that may cause our or our  industry's  actual  results,  levels of
activity,  performance,  or  achievements  to be materially  different  from any
future results,  levels of activity,  performance,  or achievements expressed or
implied by such forward-looking  statements.  Such factors include,  among other
things,  unforeseen changes in the course of research and development activities
and in clinical  trials;  possible changes in cost and timing of development and
testing,  capital structure, and other financial items; changes in approaches to
medical treatment; introduction of new products by others; possible acquisitions
of other  technologies,  assets or  businesses;  possible  actions by customers,
suppliers,  strategic partners,  potential  strategic partners,  competitors and
regulatory  authorities,  as well as those listed under "Risk Factors" below and
elsewhere in this Annual Report on Form 10-K/A.  In some cases, you can identify
forward-looking  statements  by  terminology  such as "may,"  "will,"  "should,"
"expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or
"continue"  or the  negative  of such  terms  or other  comparable  terminology.
Forward-looking  statements are only  predictions.  Actual events or results may
differ  materially.  In evaluating  these  statements,  you should  specifically
consider  various  factors,  including the risks outlined under "Risk  Factors."
Although  we believe  that the  expectations  reflected  in the  forward-looking
statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements,  or
for updating such statements after the date hereof.

BASIS OF PRESENTATION

         Since inception, the Company has incurred substantial operating losses,
principally from expenses associated with our research and development programs,
the clinical trials conducted in connection with our  thermotherapy  systems and
applications  for  submission  to the Food and Drug  Administration.  We believe
these expenditures are essential for the  commercialization of our technologies.
As a result of these expenditures, as well as related general and administrative
expenses  Celsion had an accumulated  deficit of $43,820,081 as of September 30,
2002. We expect such  operating  losses to continue in the near term and for the
foreseeable future as we continue our product development efforts, and undertake
marketing and sales activities.  Celsion's  ability to achieve  profitability is
dependent  upon its  ability  to  successfully  obtain  governmental  approvals,
produce,  market and sell its new technology and integrate such  technology into
its  thermotherapy  systems.  There can be no assurance  that we will be able to
commercialize  our  technology   successfully  or  that  we  ever  will  achieve
profitability.  Our operating results have fluctuated  significantly in the past
and we expect that such results  will  fluctuate  significantly  from quarter to
quarter in the future and will depend on a number of factors,  many of which are
outside Celsion's control.

         We will need  substantial  additional  funding in order to complete the
development,  testing  and  commercialization  of our cancer  treatment  and BPH
products and of potential  new  products.  It is our current  intention  both to
increase  the pace of  development  work on our present  products  and to make a
significant  commitment to  thermo-sensitive  liposome and gene therapy research
and development projects.  The increase in the scope of present development work
and such new projects  will require  additional  funding,  at least until we are
able to begin marketing our products.

         If adequate  funding is not  available  in the  future,  Celsion may be
required to delay,  scale-back or eliminate certain aspects of its operations or
to attempt to obtain funds through onerous  arrangements with partners or others
that may force us to relinquish rights to certain of our technologies,  products
or potential markers. Furthermore, if we cannot fund its ongoing development and
other  operating  requirements,  and  particularly  those  associated  with  our
obligation to conduct  clinical trials under our licensing  agreements,  Celsion
will be in breach of its commitments  under such licensing  agreements and could
therefore  lose its license  rights,  with  material  adverse  effects  Celsion.
Management is continuing its efforts to obtain  additional funds so that Celsion
can meet its obligations and sustain operations.

                                       18


RESULTS OF OPERATIONS

Comparison  of Fiscal  Year  Ended  September  30,  2002 and  Fiscal  Year Ended
September 30, 2001

         We generated  no revenues  during the fiscal year ended  September  30,
2002 or the fiscal year ended September 30, 2001.

         Research and  development  expenditures in the year ended September 30,
2002 were $5,004,687,  an increase of $929,438,  or 23%,  compared to the fiscal
year ended  September 30, 2001. The increase was  attributable to costs incurred
in  undertaking  pivotal  Phase II  clinical  trials for both our BPH and breast
cancer treatment systems. These costs included increased personnel costs as well
as costs related to the  acquisition  of equipment  and  materials  necessary to
complete the trials. Additionally, during the year we completed the large animal
toxicity studies using our heat-activated liposomes.

         Selling,  general  and  administrative  expense  increased  by 52%,  to
$4,833,005  for the fiscal year ended  September 30, 2002 compared to $3,211,625
for the fiscal year ended  September 30, 2002. The increase was due primarily to
increased  staffing  and legal costs  associated  with  private  placements  and
various SEC filings.  Celsion also incurred costs  associated with settlement of
its ongoing lawsuit with Warren C. Stearns and his  associates.  Under the terms
of the  settlement,  Celsion  issued to the Stearns group  certain  Common Stock
purchase warrants that were at issue in the litigation, together with additional
warrants as compensation  for  relinquishment  of certain  anti-dilution  rights
under the disputed  warrants and up to $265,000 in cash to reimburse Stearns for
costs incurred up to the settlement date.  Celsion accrued the remaining amounts
due to Spencer J. Volk, its former President and Chief Executive Officer,  under
the terms of the agreement governing his retirement.  Finally,  Celsion incurred
consulting  costs related to the  exploration of the feasibility of setting up a
business in China (including Hong Kong, Taiwan and Macao).

         The  increase  in  research  and  development,   selling,  general  and
administrative  expenses described above,  together with the absence of revenues
during the relevant  periods,  resulted in a loss from  operations of $9,837,692
for the year ending  September  30, 2002 compared to a loss  $7,286,874  for the
year ended September 30, 2001, representing an increase of $2,550,818.

         Interest  income net of  interest  expense  decreased  by  $269,717  to
$48,321 for the fiscal year ended  September  30, 2002  compared to $318,038 for
the fiscal  year ended  September  30,  2001.  This  decrease is the result of a
combination  of lower average funds  available for investment and lower interest
rates in fiscal 2002.

Comparison  of Fiscal  Year  Ended  September  30,  2001 and  Fiscal  Year Ended
September 30, 2000

         We generated  no revenues  during the fiscal year ended  September  30,
2001,  compared to revenues on the sale of parts and  equipment in the amount of
$3,240 during the fiscal year ended September 30, 2000.

         Research and  development  expenditures in the year ended September 30,
2001 were $4,075,249,  an increase of $1,836,957, or 82%, compared to the fiscal
year ended  September 30, 2000. The increase was  attributable to costs incurred
in  undertaking  pivotal  Phase II  clinical  trials for both our BPH and breast
cancer treatment systems. These costs included increased personnel costs as well
as costs related to the  acquisition  of equipment  and  materials  necessary to
complete the trials.  Additionally,  during the year we initiated development of
our  heat-activated  liposomes by  formulating  the drug and  undertaking  large
animal toxicity studies.

         Selling,  general  and  administrative  expense  increased  by 21%,  to
$3,211,625  for the fiscal year ended  September 30, 2001 compared to $2,662,623
for the fiscal year ended  September 30, 2000. The increase was due primarily to
increased staffing,  principally our newly retained Chief Financial Officer, and
legal  costs  associated  with the  conversion  of the Series A 10%  Convertible
Preferred  Stock,  various SEC filings and settlement of a  long-standing  trade
dispute with a former distributor in Hong Kong.

         The  increase  in  research  and  development,   selling,  general  and
administrative  expenses described above, together with the absence of revenues,
resulted in a loss from  operations of $7,286,874 for the year ending  September
30, 2001 compared to a loss  $4,897,741  for the year ended  September 30, 2000,
representing an increase of $2,389,133.

         Interest  income net of  interest  expense  decreased  by  $32,488,  to
$318,038 for the fiscal year ended  September  30, 2001 compared to $350,526 for
the fiscal year ended September 30, 2000. This decrease  reflects the fact that,
as Celsion has no revenues, all expenditures are met from cash reserves. As cash
reserves declined, interest income is likewise reduced.

                                       19


LIQUIDITY AND CAPITAL RESOURCES

         Since inception, our expenses have significantly exceeded our revenues,
resulting in an  accumulated  deficit of  $43,820,081  at September 30, 2002. We
have incurred  negative cash flows from operations  since our inception and have
funded our operations  primarily  through the sale of equity  securities.  As of
September  30,  2002,  we had cash of  $928,819  and  total  current  assets  of
$1,510,175,  compared  with  current  liabilities  of  $774,959,  resulting in a
working capital surplus of $735,216. As of September 30, 2001, we had $2,510,136
in  cash  and  total  current  assets  of  $2,661,341,   compared  with  current
liabilities  of  $272,441,  which  resulted  in a  working  capital  surplus  of
$2,388,900 at fiscal year end. The decrease in working  capital at September 30,
2002 as compared to September 30, 2001 was due to the fact that, during the past
fiscal year, we drew on our cash reserves to pay for our ongoing operations.

         We do not have any bank  financing  arrangements  and have  funded  our
operations  primarily through private placement  offerings of equity securities.
On October 15,  2002,  Celsion  completed a private  placement  resulting in net
proceeds of approximately  $748,000 and, on November 12, 2002, Celsion completed
a private placement generating approximately $300,000 in net proceeds.

         For  all  of  fiscal  year  2003,  we  expect  to  expend  a  total  of
approximately  $8,500,000  for  clinical  testing of our  breast  cancer and BPH
treatment systems, as well as corporate  overhead,  which we expect to fund from
our  current   resources.   The  foregoing  amounts  are  estimates  based  upon
assumptions as to the  availability of funding,  the scheduling of institutional
clinical research and testing personnel, the timing of clinical trials and other
factors,  not all of which are fully  predictable.  Accordingly,  estimates  and
timing concerning projected  expenditures and programs are subject to change. We
expect to fund our operations  through the 2003 fiscal year though a combination
of private  placements of equity and up-front and other funding  contributed  by
one or  more  strategic  partners  for  the BPH  business.  Additionally,  if as
currently anticipated our BPH system is approved for marketing during the course
of fiscal 2003 funding could be generated from the sale of catheters.

         Our available cash on hand is sufficient to fund our activities through
December 31, 2002.  Subsequent to December 30, 2002, we received further funding
through a private  placement of $425,000 and issuance of a note in the amount of
$500,000  which funds will be sufficient  to fund  operations  through  February
2003. On January 21, 2003,  Celsion reached an agreement with Boston  Scientific
Corporation  under  which  Boston  Scientific  will  market and  distribute  the
Company's  BPH  treatment  system.  In  connection  with this  agreement  Boston
Scientifc  purchased  $5 million of Celsion  Common Stock and agreed to invest a
further $10 million in a  combination  equity and  licensing  fees upon  Celsion
meeting certain  milestones.  The initial investment will be sufficient to repay
the $500,000 note and to fund the Company's operations through the end of fiscal
year  2003  and  further   investments  will  contribute  to  Celsion's  funding
requirements for the future.  Our dependence on raising  additional capital will
continue at least until we are able to begin marketing our new technologies. Our
future  capital  requirements  and the  adequacy  of our  financing  depend upon
numerous factors,  including the successful  commercialization  of our Microwave
Uretheroplasty(TM)  and breast  cancer  treatment  systems,  progress in product
development efforts, progress with pre-clinical studies and clinical trials, the
cost and timing of production  arrangements,  the development of effective sales
and  marketing  activities,  the  cost of  filing,  prosecuting,  defending  and
enforcing  intellectual  property  rights,  competing  technological  and market
developments and the development of strategic alliances for the marketing of our
products.  We will be  required to obtain such  funding  through  equity or debt
financing,  strategic  alliances with corporate  partners and others, or through
other  sources  not yet  identified.  We do not have any  committed  sources  of
financing,  and cannot guarantee that additional  funding will be available in a
timely  manner,  on  acceptable  terms,  or at all.  If  adequate  funds are not
available,  we may be required to delay, scale back or eliminate certain aspects
of our  operations or attempt to obtain funds through  unfavorable  arrangements
with partners or others that may require us to  relinquish  rights to certain of
our  technologies,  product  candidates,  products or potential markets or which
otherwise may be materially  unfavorable to us.  Furthermore,  if we cannot fund
our ongoing  development and other operating  requirements,  particularly  those
associated  with our obligation to conduct  clinical  trials under our licensing
agreements,  we will be in  breach  of our  commitments  under  these  licensing
agreements  and could  therefore  lose our  license  rights,  which  could  have
material adverse effects on our business.




                                       20



RISK FACTORS

         Among numerous risk factors that may affect our future  performance and
our ability to achieve profitable operations are the following:

         WE HAVE A HISTORY OF  SIGNIFICANT  LOSSES AND EXPECT TO  CONTINUE  SUCH
LOSSES FOR THE FORESEEABLE FUTURE.
--------------------------------------------------------------------------------
         Since  Celsion's  inception in 1982,  our expenses  have  substantially
exceeded our revenues, resulting in continuing losses and an accumulated deficit
of  $43,820,081  at September 30, 2002,  including  losses of $6,923,227 for the
fiscal year ended  September 30, 2001 and  $9,751,082  for the fiscal year ended
September 30, 2002.  Because we presently  have no revenues and are committed to
continuing our product research,  development and commercialization programs, we
will continue to  experience  significant  operating  losses unless and until we
complete the development of new products and these products have been clinically
tested,  approved  by the FDA and  successfully  marketed.  We have  funded  our
operations  primarily through the sale of Celsion's  securities and have limited
working capital for our product  research,  development,  commercialization  and
other activities.

         WE DO NOT EXPECT TO GENERATE  SIGNIFICANT  REVENUE FOR THE  FORESEEABLE
FUTURE.
--------------------------------------------------------------------------------
         We marketed and sold our  original  microwave  thermotherapy  products,
which produced  modest  revenues from 1990 to 1994, but ceased  marketing  these
products in 1995. We have devoted our resources in ensuing years to developing a
new  generation of  thermotherapy  and other  products,  but cannot market these
products  unless and until we have completed  clinical  testing and obtained all
necessary  governmental  approvals.  Accordingly,  we have no current  source of
revenues, much less profits, to sustain our present operations,  and no revenues
will be  available  unless and until our new  products  are  clinically  tested,
approved by the FDA and successfully  marketed.  We cannot guarantee that any or
all  of our  products  will  be  successfully  tested,  approved  by the  FDA or
marketed, successfully or otherwise, at any time in the foreseeable future or at
all.

         OUR  MICROWAVE  HEAT THERAPY  TECHNOLOGY IS STILL  UNDERGOING  CLINICAL
TESTING AND MAY NOT ACHIEVE  SUFFICIENT  ACCEPTANCE BY THE MEDICAL  COMMUNITY TO
SUSTAIN OUR BUSINESS.
--------------------------------------------------------------------------------
         To date,  microwave  heat  therapy has not been widely  accepted in the
United States medical community as an effective  treatment for BPH or for cancer
treatment, with or without the concurrent use of radiation. We believe that this
is primarily due to the inability of earlier technology  adequately to focus and
control heat directed at specific tissue  locations and to conclusions that were
drawn from a widely  publicized  study by the Radiation  Oncology  Therapy Group
that purported to show that thermotherapy in conjunction with radiation was only
marginally  effective.  Subsequent to the publication of that study,  the Health
Care Financing Administration, a HCFA (now known as the Centers for Medicare and
Medicaid Services,  or CMS) established a low medical reimbursement rate for all
thermotherapy equipment designed to be used in conjunction with radiation. While
management  believes  that our new  technology  is  capable  of  overcoming  the
limitations of the earlier technology, the medical community may not embrace the
perceived  advantages  of our  "adaptive  phased  array," or APA,  focused  heat
therapy without more extensive  testing and clinical  experience than we will be
able to provide.  To date, we have completed and submitted to the FDA only Phase
I clinical trials of our Microwave Uretheroplasty(TM) treatment system, although
we have completed patient treatments in our Phase II trials. Our PMA application
is being submitted on a modular basis,  consisting of three separate filings:  a
manufacturing  module, a pre-clinical module and a module consisting of 12-month
patient  follow-up  data.  The first two out of three modules were  submitted in
November  2001 and we expect to submit the  remaining  module after the 12-month
patient  follow-up  data has been  collected and the first two modules have been
cleared by the FDA. The  manufacturing  module has been  cleared,  we anticipate
that the FDA will clear the  pre-clinical  module in the near future and we have
completed  collection of the 12-month  patient  follow-up  data.  Therefore,  we
presently anticipate that we will submit the third module early in 2003. Our new
breast  cancer  treatment  technology  is  currently  in  Phase II  trials.  Our
technology  may not prove as  effective  in practice as we  anticipate  based on
testing to date.  If further  testing and  clinical  practice do not confirm the
safety and efficacy of our technology  or, even if further  testing and practice
produce positive  results but the medical  community does not view this new form
of heat  therapy  as  effective  and  desirable,  our  efforts to market our new
products may fail, with material adverse consequences to our business. We intend
to petition CMS for a new  reimbursement  code for our breast cancer  treatment.
The success of our  business  model  depends  significantly  upon our ability to
petition  successfully for favorable  reimbursement  codes.  However,  we cannot
offer  any  assurances  as to  when,  if  ever,  CMS may act on our  request  to
establish  a  reimbursement  code for our breast  cancer  treatment  system.  In
addition, there can be no assurance that the reimbursement level established for
our breast cancer treatment system, if established, will be sufficient for us to
carry out our business plan effectively.

         IF WE ARE NOT ABLE TO OBTAIN NECESSARY FUNDING,  WE WILL NOT BE ABLE TO
COMPLETE THE DEVELOPMENT,  TESTING AND  COMMERCIALIZATION  OF OUR TREATMENTS AND
PRODUCTS.
--------------------------------------------------------------------------------

         We will need  substantial  additional  funding in order to complete the
development,  testing  and  commercialization  of  our  BPH  and  breast  cancer
treatment  systems  and  heat-activated  liposome  and cancer  repair  inhibitor
products,  as well as other  potential new products.  We expended  approximately
$9,359,311 in the 12 months  ending  September 30, 2002. As of that date, we had



                                       21



available a total of approximately $928,900 to fund additional expenditures.  On
October  15,  2002,  Celsion  completed  a private  placement  resulting  in net
proceeds of approximately  $748,000 and, on November 12, 2002, Celsion completed
a private  placement  generating  approximately  $300,000 in net  proceeds.  Our
available cash on hand is sufficient to fund our activities through December 31,
2002,  although since December 30, 2002 we received  further  funding  through a
private  placement of $425,000 and issuance of a note in the amount of $500,000,
which funds will be  sufficient to fund  operations  through  February  2003. On
January  21,  2003,   Celsion  reached  an  agreement  with  Boston   Scientific
Corporation  under  which  Boston  Scientific  will  market and  distribute  the
Company's  BPH  treatment  system.  In  connection  with this  agreement  Boston
Scientifc  purchased  $5 million of Celsion  Common Stock and agreed to invest a
further $10 million in a combination  of equity and licensing  fees upon Celsion
meeting certain  milestones.  The initial investment will be sufficient to repay
the $500,000  note and fund  operations  through the end of fiscal year 2003 and
further  investments will contribute to Celsion's  funding  requirements for the
future.  In addition,  it is our current  intention both to increase the pace of
development work on our present products and to make a significant commitment to
our heat-activated liposome and cancer repair inhibitor research and development
projects.  The  increase  in the  scope  of  present  development  work  and the
commitment  to these  new  projects,  as well as our  ongoing  activities,  will
require  additional  external  funding,  at  least  until  we are  able to begin
marketing  our  products and to generate  sufficient  cash flow from the sale of
those products to support our continued operations.

         We do not have any committed  sources of financing and cannot offer any
assurances  that  additional  funding will be available in a timely  manner,  on
acceptable  terms or at all. If  adequate  funding is not  available,  we may be
required to delay,  scale back or eliminate certain aspects of our operations or
attempt to obtain funds through unfavorable arrangements with partners or others
that may force us to relinquish rights to certain of our technologies,  products
or  potential  markets or that could  impose  onerous  financial or other terms.
Furthermore,  if we cannot  fund our  ongoing  development  and other  operating
requirements,  particularly  those  associated  with our  obligations to conduct
clinical  trials under our licensing  agreements,  we will be in breach of these
licensing  agreements and could therefore lose our license  rights,  which could
have material adverse effects on our business.

         OUR  BUSINESS IS SUBJECT TO NUMEROUS AND  EVOLVING  STATE,  FEDERAL AND
FOREIGN  REGULATIONS  AND WE MAY NOT BE ABLE TO SECURE THE GOVERNMENT  APPROVALS
NEEDED TO DEVELOP AND MARKET OUR PRODUCTS.
--------------------------------------------------------------------------------
         Our  research  and  development  activities,   pre-clinical  tests  and
clinical trials, and ultimately the manufacturing, marketing and labeling of our
products,  all are  subject  to  extensive  regulation  by the  FDA and  foreign
regulatory  agencies.  Pre-clinical  testing and clinical trial requirements and
the regulatory approval process typically take years and require the expenditure
of substantial  resources.  Additional  government regulation may be established
that could  prevent or delay  regulatory  approval  of our  product  candidates.
Delays or rejections in obtaining  regulatory  approvals would adversely  affect
our ability to commercialize any product  candidates and our ability to generate
product revenues or royalties.

         The FDA and foreign  regulatory  agencies  require  that the safety and
efficacy of product candidates be supported through adequate and well-controlled
clinical trials.  If the results of pivotal clinical trials do not establish the
safety and efficacy of our product candidates to the satisfaction of the FDA and
other foreign regulatory  agencies,  we will not receive the approvals necessary
to market such product candidates.

         Even if  regulatory  approval of a product  candidate  is granted,  the
approval may include significant limitations on the indicated uses for which the
product may be marketed. Also, manufacturing establishments in the United States
and abroad are  subject  to  inspections  and  regulations  by the FDA.  Medical
devices must also continue to comply with the FDA's Quality  System  Regulation,
or QSR. Compliance with such regulations  requires  significant  expenditures of
time and effort to ensure full technical compliance. The FDA stringently applies
regulatory standards for manufacturing.

         We are also  subject  to  record  keeping  and  reporting  regulations,
including FDA's mandatory Medical Device Reporting, or MDR regulation.  Labeling
and promotional  activities are regulated by the FDA and, in certain  instances,
by the Federal Trade Commission.

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

         In many of the  foreign  countries  in which we may do  business  or in
which our products  may be sold,  we will be subject to  regulation  by national
governments and supranational  agencies as well as by local agencies  affecting,
among  other  things,  product  standards,   packaging  requirements,   labeling
requirements,   import   restrictions,   tariff  regulations,   duties  and  tax


                                       22



requirements.  There can be no assurance  that one or more countries or agencies
will not impose  regulations or requirements  that could have a material adverse
effect on our ability to sell our products.

         The European  Union,  or EU, has a  registration  process that includes
registration of  manufacturing  facilities  (known as "ISO  certification")  and
product certification (known as a "CE Mark"). We have obtained ISO certification
for our existing  facilities.  However,  there is no  guarantee  that we will be
successful  in obtaining EU  certifications  for any new  facilities  or for our
products, or that we will be able to maintain our existing certifications in the
future.

         Foreign  government  regulation may delay marketing of our new products
for a considerable  period of time, impose costly procedures upon our activities
or provide an advantage to larger  companies  that compete with us. There can be
no assurance that we will be able to obtain necessary regulatory approvals, on a
timely  basis  or at all,  for  any  products  that we  develop.  Any  delay  in
obtaining,  or failure to  obtain,  necessary  approvals  would  materially  and
adversely  affect the  marketing of our  contemplated  products  subject to such
approvals and, therefore, our ability to generate revenue from such products.

         Even if regulatory  authorities  approve our product  candidates,  such
products and our facilities, including facilities located outside the EU, may be
subject to  ongoing  testing,  review and  inspections  by the  European  health
regulatory  authorities.  After  receiving  premarketing  approval,  in order to
manufacture  and  market  any of its  products,  we  will  have to  comply  with
regulations and requirements governing manufacture,  labeling and advertising on
an ongoing basis.

         Failure to comply  with  applicable  domestic  and  foreign  regulatory
requirements,  can  result in,  among  other  things,  warning  letters,  fines,
injunctions and other equitable remedies, civil penalties,  recall or seizure of
products,  total or partial suspension of production,  refusal of the government
to grant approvals,  pre-market clearance or pre-market approval,  withdrawal of
approvals and criminal  prosecution of Celsion and its  employees,  all of which
would have a material adverse effect on our business.

         OUR BUSINESS DEPENDS ON LICENSE AGREEMENTS WITH THIRD PARTIES TO PERMIT
US TO USE  PATENTED  TECHNOLOGIES.  THE LOSS OF ANY OF OUR  RIGHTS  UNDER  THESE
AGREEMENTS COULD IMPAIR OUR ABILITY TO DEVELOP AND MARKET OUR PRODUCTS.
--------------------------------------------------------------------------------
         Currently,  we have nine utility  patents  pending in the United States
Patent &  Trademark  Office.  One  application  directed  to our  breast  cancer
treatment and another application  directed to our Microwave  Uretheroplasty(TM)
treatment  for BPH have been allowed and should issue as United  States  patents
within  the next few  months.  We have  filed  international  applications  with
respect to the above technologies in various countries  including Japan,  China,
Europe,  and Canada.  Three  additional U.S.  utility  applications  are on file
directed to various features of our breast cancer treatment and three additional
applications  are on file  directed to different  features of our  thermotherapy
treatment  of BPH. The ninth  application  on file is directed to our deep tumor
therapy  treatment.  However,  even when our  pending  applications  mature into
United States patents, our business will still depend on license agreements that
we have entered into with third parties until the third parties' patents expire.
We  intend  to  file  applications  for  international  patent  protections  for
inventions covered by our U.S. applications.  However, there can be no assurance
when, if ever, we will receive such international patent protection.

         Our  success  will  depend,  in  substantial  part,  on our  ability to
maintain our rights under license agreements  granting us rights to use patented
technologies.  We have entered into exclusive  license  agreements with MIT, for
APA technology,  and with MMTC, a privately owned developer of medical  devices,
for microwave balloon catheter  technology.  We have also entered into a license
agreement  with  Duke  University,  under  which  we have  exclusive  rights  to
commercialize   medical   treatment   products  and  procedures  based  on  Duke
University's  thermo-liposome  technology and a license  agreement with Memorial
Sloan-Kettering  Cancer  Center  under  which we have  rights  to  commercialize
certain cancer repair  inhibitor  products.  The MIT, MMTC,  Duke University and
Sloan-Kettering  agreements  each contain  license fee,  royalty and/or research
support  provisions,  testing and regulatory  milestones,  and other performance
requirements that we must meet by certain deadlines.  If we were to breach these
or other  provisions of the license and research  agreements,  we could lose our
ability to use the subject  technology,  as well as compensation for our efforts
in developing or exploiting the  technology.  Also, loss of our rights under the
MIT license  agreement  would prevent us from  proceeding  with our most current
product development efforts, which are dependent on licensed APA technology. Any
such loss of rights and  access to  technology  would  have a  material  adverse
effect on our business.

         Further, we cannot guarantee that any patent or other technology rights
licensed to us by others will not be challenged or circumvented  successfully by
third parties, or that the rights granted will provide adequate  protection.  We
are aware of  published  patent  applications  and issued  patents  belonging to
others,  and it is not clear  whether any of these patents or  applications,  or


                                       23



other patent  applications of which we may not have any knowledge,  will require
us to alter any of our potential  products or processes,  pay licensing  fees to
others  or  cease  certain  activities.   Litigation,   which  could  result  in
substantial  costs,  may also be necessary  to enforce any patents  issued to or
licensed  by us or to  determine  the  scope and  validity  of  others'  claimed
proprietary  rights. We also rely on trade secrets and confidential  information
that we seek to  protect,  in  part,  by  confidentiality  agreements  with  our
corporate  partners,   collaborators,   employees  and  consultants.  We  cannot
guarantee  that  these  agreements  will  not be  breached,  that,  even  if not
breached,  they are  adequate  to protect our trade  secrets,  that we will have
adequate  remedies for any breach or that our trade  secrets will not  otherwise
become known to, or will not be discovered independently by, competitors.

         TECHNOLOGIES  FOR THE  TREATMENT  OF CANCER ARE SUBJECT TO RAPID CHANGE
AND THE  DEVELOPMENT  OF TREATMENT  STRATEGIES  THAT ARE MORE EFFECTIVE THAN OUR
THERMOTHERAPY TECHNOLOGY COULD RENDER OUR TECHNOLOGY OBSOLETE.
--------------------------------------------------------------------------------
         Various  methods for treating  cancer  currently are, and in the future
may be expected to be, the subject of extensive  research and development.  Many
possible treatments that are being researched,  if successfully  developed,  may
not require,  or may supplant,  the use of our thermotherapy  technology.  These
alternate  treatment  strategies  include the use of radio frequency (RF), laser
and ultrasound energy sources. The successful  development and acceptance of any
one or more of these  alternative forms of treatment could render our technology
obsolete as a cancer treatment method.

         WE MAY NOT BE ABLE TO HIRE OR RETAIN KEY OFFICERS OR EMPLOYEES  THAT WE
NEED TO IMPLEMENT OUR BUSINESS STRATEGY AND DEVELOP OUR PRODUCTS AND BUSINESSES.
--------------------------------------------------------------------------------
         Our success depends significantly on the continued contributions of our
executive officers,  scientific and technical personnel and consultants,  and on
our ability to attract additional personnel as we seek to implement our business
strategy and develop our products and businesses.  During our operating history,
we have assigned many essential responsibilities to a relatively small number of
individuals.  However,  as our  business  and the  demands on our key  employees
expand,  we have been, and will continue to be,  required to recruit  additional
qualified  employees.  The competition for such qualified  personnel is intense,
and the loss of services of certain key  personnel  or our  inability to attract
additional  personnel to fill  critical  positions as we implement  our business
strategy could adversely affect our business.

         Effective  October 4, 2001,  Spencer J. Volk,  formerly the  President,
Chief  Executive  Officer and a director of Celsion,  resigned from all of these
positions.  Our Board has  appointed  Dr.  Augustine  Y.  Cheung,  formerly  the
Chairman and Chief Scientific Officer, to serve as Celsion's President and Chief
Executive  Officer  and Dr. Max Link,  a director  since  1997,  has assumed the
position of Chairman of the Board.  Effective  September 20, 2002,  Dr.  LaSalle
Leffall  resigned  as a member  of our Board of  Directors.  At its  meeting  on
December 27, 2002,  the Board  appointed  Dr. Gary Pace to fill the remainder of
Dr. Leffall's term and to reduce the number of directors  constituting the whole
Board from seven to six.

         OUR SUCCESS  WILL DEPEND IN PART ON OUR ABILITY TO GROW AND  DIVERSIFY,
WHICH IN TURN WILL REQUIRE THAT WE MANAGE AND CONTROL OUR GROWTH EFFECTIVELY.
--------------------------------------------------------------------------------
         Our business strategy  contemplates growth and  diversification.  As we
add to our manufacturing,  marketing,  sales, research and development and other
capabilities, our operating expenses and capital requirements will increase. Our
ability to manage  growth  effectively  will  require that we continue to expend
funds to improve our operational,  financial and management controls,  reporting
systems and  procedures.  In addition,  we must  effectively  expand,  train and
manage our employees. We will be unable to manage our business effectively if we
are unable to alleviate the strain on resources caused by growth in a timely and
successful manner.  There can be no assurance that we will be able to manage our
growth  and a  failure  to do so could  have a  material  adverse  effect on our
business.

         THE SUCCESS OF OUR  PRODUCTS MAY BE HARMED IF THE  GOVERNMENT,  PRIVATE
HEALTH INSURERS AND OTHER THIRD-PARTY PAYORS DO NOT PROVIDE SUFFICIENT  COVERAGE
OR REIMBURSEMENT.
--------------------------------------------------------------------------------
         Our ability to commercialize our thermotherapy  technology successfully
will depend in part on the extent to which  reimbursement  for the costs of such
products  and  related  treatments  will be  available  from  government  health
administration  authorities,  private  health  insurers  and  other  third-party
payors.  The reimbursement  status of newly approved medical products is subject
to  significant  uncertainty.  We cannot  guarantee  that  adequate  third-party
insurance  coverage  will be available  for us to establish  and maintain  price
levels  sufficient for us to realize an appropriate  return on our investment in
developing  new  therapies.   Government,  private  health  insurers  and  other
third-party  payors are increasingly  attempting to contain health care costs by
limiting  both  coverage  and the  level of  reimbursement  for new  therapeutic



                                       24



products  approved for marketing by the FDA.  Accordingly,  even if coverage and
reimbursement   are  provided  by  government,   private  health   insurers  and
third-party payors for uses of our products, market acceptance of these products
would  be  adversely  affected  if  the  reimbursement  available  proves  to be
unprofitable for health care providers.

         WE FACE  INTENSE  COMPETITION  AND THE  FAILURE TO COMPETE  EFFECTIVELY
COULD ADVERSELY AFFECT OUR ABILITY TO DEVELOP AND MARKET OUR PRODUCTS.
--------------------------------------------------------------------------------
         There are many companies and other institutions engaged in research and
development of thermotherapy technologies,  both for prostate disease and cancer
treatment  products,  which seek treatment outcomes similar to those that we are
pursuing. In addition, a number of companies and other institutions are pursuing
alternative treatment strategies through the use of microwave,  infrared,  radio
frequency, laser and ultrasound energy sources, all of which appear to be in the
early stages of development  and testing.  We believe that the level of interest
by others in  investigating  the  potential  of  thermotherapy  and  alternative
technologies will continue and may increase.  Potential  competitors  engaged in
all areas of prostate  and cancer  treatment  research in the United  States and
other  countries  include,  among  others,  major  pharmaceutical  and  chemical
companies,  specialized  technology  companies,  universities and other research
institutions.  Substantially  all of our competitors  and potential  competitors
have significantly greater financial,  technical, human and other resources, and
may also have far greater experience,  than do we, both in pre-clinical  testing
and  human  clinical  trials  of new  products  and in  obtaining  FDA and other
regulatory  approvals.  One or more of these  companies  or  institutions  could
succeed in developing  products or other  technologies  that are more  effective
than the products and technologies that we have been or are developing, or which
would  render  our  technology  and  products   obsolete  and   non-competitive.
Furthermore,  if we are  permitted  to commence  commercial  sales of any of our
products,  we will also be competing,  with respect to manufacturing  efficiency
and  marketing,  with  companies  having  substantially  greater  resources  and
experience in these areas.

         LEGISLATIVE AND REGULATORY  CHANGES  AFFECTING THE HEALTH CARE INDUSTRY
COULD ADVERSELY AFFECT OUR BUSINESS.
--------------------------------------------------------------------------------
         There have been a number of federal and state proposals during the last
few years to subject the pricing of health care goods and services to government
control and to make other changes to the United States health care system. It is
uncertain which legislative proposals, if any, will be adopted (or when) or what
actions federal, state, or private payors for health care treatment and services
may take in  response to any health care reform  proposals  or  legislation.  We
cannot  predict the effect  health care  reforms may have on our business and we
can  offer no  assurances  that any of these  reforms  will not have a  material
adverse effect on that business.

         WE  MAY  BE  SUBJECT  TO  SIGNIFICANT   PRODUCT  LIABILITY  CLAIMS  AND
LITIGATION.
--------------------------------------------------------------------------------
         Our business exposes us to potential  product  liability risks inherent
in the testing,  manufacturing and marketing of human therapeutic  products.  We
presently have product  liability  insurance limited to $5,000,000 per incident.
If we were to be subject to a claim in excess of this coverage or to a claim not
covered by our  insurance and the claim  succeeded,  we would be required to pay
the claim with our own limited  resources,  which could have a material  adverse
effect on our business.  In addition,  liability or alleged liability could harm
the business by diverting the attention and resources of our  management  and by
damaging our reputation.

         WE PRESENTLY  HAVE LIMITED  MARKETING AND SALES  CAPABILITY AND WILL BE
REQUIRED TO DEVELOP SUCH  CAPABILITIES  AND TO ENTER INTO  ALLIANCES WITH OTHERS
POSSESSING   SUCH   CAPABILITIES   IN  ORDER  TO   COMMERCIALIZE   OUR  PRODUCTS
SUCCESSFULLY.
--------------------------------------------------------------------------------
         We intend to market our Microwave  Uretheroplasty(TM)  treatment system
through a strategic  alliances with a third party at such time, if any, as it is
approved  for  commercialization  by the FDA,  and to market our  breast  cancer
treatment system, if and when so approved, through such third parties. There can
be no  assurance  that  we  will  be  able  to  establish  sales  and  marketing
capabilities  successfully or successfully  enter into third-party  marketing or
distribution   arrangements.   In  addition,  we  have  limited  experience  and
capabilities in marketing,  distribution and direct sales, although we intend to
develop   an   effective   sales   and   marketing   capability   as  we  pursue
commercialization.   We  expect  to  incur  significant  additional  expense  in
attracting, establishing and maintaining a marketing and sales force or entering
into third-party marketing or distribution  arrangements.  Effective January 21,
2003  we  entered  in  to  a  Distribution   Agreement  with  Boston  Scientific
Corporation,  pursuant to which Celsion has granted Boston Scientific  exclusive
rights to market and distribute the Microwave BPH 800  Urethroplasty(TM)  System
in all  territories  other than  China,  Taiwan,  Hong Kong,  Macao,  Mexico and
Central  and South  America.  However,  there can be no  assurance  that  Boston
Scientific or other third parties with which me may enter into commercialization
arrangements will establish  adequate sales and distribution  capabilities or be
successful in gaining market acceptance for our products and services. There can



                                       25


be no assurance  that our direct sales,  marketing,  licensing and  distribution
efforts  would be  successful  or that revenue  from such  efforts  would exceed
expenses.

         WE  DEPEND ON  THIRD-PARTY  SUPPLIERS  TO  PROVIDE  US WITH  COMPONENTS
REQUIRED  FOR OUR PRODUCTS  AND MAY NOT BE ABLE TO OBTAIN  THESE  COMPONENTS  ON
FAVORABLE TERMS OR AT ALL.
--------------------------------------------------------------------------------
         We are not  currently  manufacturing  any  products,  but are using our
facilities to assemble  prototypes of the equipment for research and development
purposes.  We currently purchase certain  specialized  microwave and thermometry
components and applicator materials and the catheter unit used for our Microwave
Uretheroplasty(TM)  equipment from single or limited source suppliers because of
the small  quantities  involved.  While we have not  experienced any significant
difficulties in obtaining  these  components,  the loss of an important  current
supplier could require that we obtain a replacement supplier, which might result
in delays  and  additional  expense in being  able to make  prototype  equipment
available for clinical trials and other research purposes. In addition, inasmuch
as we expect to manufacture our Microwave  Uretheroplasty(TM) equipment at least
for  some  period   subsequent   to  FDA  approval  and  the   commencement   of
commercialization,  such  manufacturing  and  commercialization  also  could  be
delayed. In addition, in the event that we succeed in marketing our products, we
intend  to use  outside  contractors  to  supply  components  and the  Microwave
Uretheroplasty(TM)  catheter,  and may use such contractors to assemble finished
equipment in the future,  which could cause us to become increasingly  dependent
on key vendors.

         WE HAVE NOT PAID  DIVIDENDS  IN THE PAST AND DO NOT INTEND TO DO SO FOR
THE FORESEEABLE FUTURE.
--------------------------------------------------------------------------------
         We have never paid cash  dividends  and do not  anticipate  paying cash
dividends  on our Common  Stock or Preferred  Stock in the  foreseeable  future.
Therefore,  our stockholders cannot achieve any degree of liquidity with respect
to their shares of Common Stock except by selling such shares.

         THE EXERCISE OR CONVERSION  OF OUR  OUTSTANDING  OPTIONS,  WARRANTS AND
CONVERTIBLE  PREFERRED  STOCK COULD RESULT IN SIGNIFICANT  DILUTION OF OWNERSHIP
INTERESTS IN OUR COMMON STOCK OR OTHER CONVERTIBLE SECURITIES.
--------------------------------------------------------------------------------
         Options and Warrants.  As of September 30, 2002, we had outstanding and
exercisable warrants and options to purchase a total of 30,288,795 shares of our
Common  Stock at exercise  prices  ranging  from $0.01 to $5.00 per share (and a
weighted average exercise price of approximately  $0.60 per share).  We also had
outstanding  but  unexercisable  and  unvested  options  to  purchase a total of
4,394,998  shares of our Common Stock at exercise  prices  ranging from $0.50 to
$1.36 per share.  Some of the exercise prices are below the current market price
of our Common  Stock,  which has  ranged  from a low of $0.36 to a high of $0.46
over the 20 trading  days  ending  September  30,  2002.  If  holders  choose to
exercise such warrants and options at prices below the  prevailing  market price
for the Common Stock, the resulting  purchase of a substantial  number of shares
of our Common Stock would have a dilutive effect on our  stockholders  and could
adversely affect the market price of our issued and outstanding Common Stock and
convertible securities.  In addition,  holders of these options and warrants who
have the  right to  require  registration  of the  Common  Stock  under  certain
circumstances and who elect to require such registration,  or who exercise their
options or warrants  and then  satisfy  the  one-year  holding  period and other
requirements  of Rule  144 of the  Securities  Act,  will be able to sell in the
public  market some or all of their shares of Common Stock  purchased  upon such
exercise.

         Preferred  Stock.  As of September 30, 2002, we had outstanding a total
of 893 shares of Series A 10% Convertible  Preferred  Stock,  with an additional
238 shares of such preferred stock  representing  accrued  dividends,  and 1,591
shares of Series B 8% Convertible Preferred Stock (collectively,  the "Preferred
Stock").  The shares of Series A 10% Convertible  Preferred Stock are subject to
exchange  and  conversion  privileges  upon  the  occurrence  of  major  events,
including a public offering of our securities or a merger of our subsidiary with
a public  company.  The shares of Series B 8%  Convertible  Preferred  Stock are
entitled  to convert  their  shares at any time  after  September  3,  2002.  In
addition,  the  holders of the Series A and B  Preferred  Stock are  entitled to
convert their preferred shares into shares of Common Stock at a conversion price
of $0.41 and $0.50 per share of Common Stock,  respectively,  subject to certain
adjustments.  The conversion of the Preferred Stock could have a dilutive effect
on our  stockholders  and could adversely  affect the market price of our issued
and  outstanding  Common Stock and  convertible  securities.  The holders of the
Series A 10% Convertible  Preferred Stock have registration rights at such time,
if any, as we undertake a registered public offering of securities.  The holders
of the Series B 8% Convertible  Preferred  Stock became entitled to registration
of the shares of Common  Stock  underlying  their  shares of Series B  Preferred
Stock as of  September  3,  2002,  the  date on which  the  shares  of  Series B
Preferred  Stock first  became  convertible.  Even  without  such  registration,
holders of the Preferred  Stock who satisfy the  requirements of Rule 144 of the
Securities  Act will be able to sell in the public market shares of Common Stock
acquired upon the conversion of Preferred Stock.


                                       26



         In addition,  future sales of our Common Stock, including shares issued
upon the  exercise  of  outstanding  options and  warrants  or other  derivative
transactions with respect to our stock, could have a significant negative effect
on the  market  price  of our  Common  Stock.  These  sales  might  make it more
difficult for us to sell equity  securities or  equity-linked  securities in the
future at a time and price that we would deem appropriate.

          IF THE PRICE OF OUR  SHARES  REMAINS  LOW OR OUR  FINANCIAL  CONDITION
CONTINUES TO DETERIORATE,  WE MAY BE DELISTED BY THE AMERICAN STOCK EXCHANGE AND
BECOME SUBJECT TO SPECIAL RULES APPLICABLE TO LOW PRICED STOCKS.
--------------------------------------------------------------------------------
         Our  Common  Stock  currently  trades on The  American  Stock  Exchange
(Amex). The Amex, as a matter of policy, will consider the suspension of trading
in, or removal from listing of, any stock when, in the opinion of the Amex,  (i)
the  financial  condition  and/or  operating  results of an issuer  appear to be
unsatisfactory;  (ii) it appears that the extent of public  distribution  or the
aggregate  market  value of the stock has become so  reduced as to make  further
dealings  on the Amex  inadvisable;  (iii)  the  issuer  has  sold or  otherwise
disposed of its  principal  operating  assets;  or (iv) the issuer has sustained
losses which are so  substantial  in relation to its overall  operations  or its
existing   financial   condition   has  become  so  impaired   that  it  appears
questionable,  in the  opinion of the Amex,  whether  the issuer will be able to
continue operations and/or meet its obligations as they mature. For example, the
Amex will consider suspending dealings in or delisting the stock of an issuer if
the issuer has sustained losses from continuing  operations and/or net losses in
its five most recent fiscal years or for other reasons.  Another  instance where
the Amex would  consider  suspension or delisting of a stock is if the stock has
been selling for a  substantial  period of time at a low price per share and the
issuer fails to effect a reverse  split of such stock  within a reasonable  time
after being notified that the Amex deems such action to be appropriate.  We have
sustained  net losses for our last five fiscal years (and beyond) and our Common
Stock has been trading at  relatively  low prices.  Therefore,  our Common Stock
could be at risk for delisting by the Amex.

         Upon any such  delisting,  the Common Stock would become subject to the
penny  stock  rules  of the  SEC,  which  generally  are  applicable  to  equity
securities  with a price of less than  $5.00 per share  (other  than  securities
registered  on certain  national  securities  exchanges  or quoted on the Nasdaq
system,  provided  that  current  price and volume  information  with respect to
transactions  in such  securities  is provided by the  exchange or system).  The
penny stock rules require a  broker-dealer,  prior to a  transaction  in a penny
stock not  otherwise  exempt  from the  rules,  to deliver a  standardized  risk
disclosure  document  prepared by the SEC that provides  information about penny
stocks  and the  nature  and  level of  risks in the  penny  stock  market.  The
broker-dealer also must provide the customer with bid and ask quotations for the
penny stock,  the compensation of the  broker-dealer  and its salesperson in the
transaction  and monthly  account  statements  showing the market  value of each
penny stock held in the customer's account.  In addition,  the penny stock rules
require  that,  prior to a  transaction  in a penny stock that is not  otherwise
exempt  from  such  rules,  the  broker-dealer   must  make  a  special  written
determination  that the penny stock is a suitable  investment  for the purchaser
and  receive  the  purchaser's  written  agreement  to  the  transaction.  These
disclosure  requirements  are likely to have a material  and  adverse  effect on
price and the level of trading activity in the secondary market for a stock that
becomes  subject to the penny stock  rules.  If our Common  Stock were to become
subject to the penny stock rules it is likely that the price of the Common Stock
would  decline and that our  stockholders  would find it more  difficult to sell
their shares.

         OUR STOCK IS THINLY TRADED.  THEREFORE  INVESTORS MAY FIND IT DIFFICULT
TO SELL THEIR SHARES.
--------------------------------------------------------------------------------
         While our Common Stock is listed on The American  Stock  Exchange,  the
volume of trading historically has been relatively light. Further,  there can be
no  assurance  that the market in our shares  will be  sustained  in the future.
Therefore,  there can be no assurances  that  stockholders  will be able to sell
their  shares  at the  time  or  price  that  they  desire  or at  all  or  that
stockholders will be able to achieve liquidity as desired.

         OUR STOCK PRICE COULD BE VOLATILE.
--------------------------------------------------------------------------------
         Market prices for our Common Stock and the securities of other medical,
high technology  companies have been volatile.  Factors such as announcements of
technological  innovations  or  new  products  by  us  or  by  our  competitors,
government   regulatory  action,   litigation,   patent  or  proprietary  rights
developments  and market  conditions for medical and high  technology  stocks in
general can have a significant impact on the market for our Common Stock.

         ANTI-TAKEOVER  PROVISIONS  IN OUR CHARTER  DOCUMENTS  AND  DELAWARE LAW
COULD PREVENT OR DELAY A CHANGE IN CONTROL.
--------------------------------------------------------------------------------
         Our Certificate of  Incorporation  and Bylaws may discourage,  delay or
prevent a merger or  acquisition  that a stockholder  may consider  favorable by
authorizing  the issuance of "blank check"  preferred  stock.  In addition,  our


                                       27


classified Board of Directors may discourage such transactions by increasing the
amount of time necessary to obtain majority representation on the Board. Certain
other provisions of our Bylaws and of Delaware law may also discourage, delay or
prevent a third  party from  acquiring  or merging  with us, even if such action
were beneficial to some, or even a majority,  of our stockholders.  We also have
adopted a stockholder  rights plan and declared a dividend  distribution  of one
right for each outstanding share of Common Stock to stockholders of record as of
August 6, 2002. When it becomes exercisable,  each right entitles the registered
holder to purchase from Celsion one ten-thousandth of a share of Series C Junior
Participating  Preferred Stock, par value $0.01 per share, or Series C Preferred
Stock,  at a price  of $4.46  per one  ten-thousandth  (1/10,000)  of a share of
Series C Preferred Stock, subject to adjustment. Under certain circumstances, if
a person or group acquires 15% or more of our outstanding Common Stock,  holders
of the rights (other than the person or group triggering their exercise) will be
able to purchase, in exchange for the $4.46 exercise price, shares of our Common
Stock or of any company  into which we are merged  having a value of $8.92.  The
rights  expire on August  15,  2012,  unless  earlier  redeemed  by our Board of
Directors.  Because the rights may substantially dilute the stock ownership of a
person or group  attempting to take us over without the approval of our Board of
Directors,  our rights plan also could make it more  difficult for a third party
to acquire us (or a significant  percentage of our  outstanding  capital  stock)
without  first   negotiating   with  our  Board  of  Directors   regarding  such
acquisition.

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We do not currently hold any derivative  instruments  and do not engage
in  hedging  activities  and  currently  do  not  enter  into  any  transactions
denominated  in a foreign  currency.  Thus,  our  exposure to interest  rate and
foreign exchange fluctuations is minimal.

ITEM 8.       FINANCIAL   STATEMENTS  AND   SUPPLEMENTARY   DATA  AND  FINANCIAL
              DISCLOSURE

         The financial statements,  supplementary data and report of independent
public accountants are filed as part of this report on pages F-1 through F-14.

ITEM 9.       CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

         Not applicable.

                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS

         The  information  required by this item is incorporated by reference to
the information set forth under the captions  "Directors and Executive Officers"
and  "Compliance  with Section 16(a) of the  Securities  Exchange At of 1934, as
Amended" in Celsion's  Definitive  Proxy Statement in connection with the Annual
Meeting  of  Stockholders  to be held on  February  18,  2003,  filed  with  the
Securities and Exchange Commission on January 10, 2003.

ITEM 11.        EXECUTIVE COMPENSATION

         The  information  required  by this  item  is  incorporated  herein  by
reference   to  the   information   set  forth  under  the  caption   "Executive
Compensation"  in Celsion's  Definitive  Proxy  Statement in connection with the
Annual Meeting of Stockholders  to be held on February 18, 2003,  filed with the
Securities and Exchange Commission on January 10, 2003.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
              RELATED STOCKHOLDER MATTERS




                                              Equity Compensation Plan Information

                                                                                           Number of securities
                                                                                         remaining available for
                                Number of securities to         Weighted-average          future issuance under
                                be issued upon exercise        exercise price of        equity compensation plans
                                of outstanding options,       outstanding options,        (excluding securities
                                  warrants and rights         warrants and rights        reflected in column (a))
        Plan category                     (a)                         (b)                          (c)
---------------------------   ----------------------------  --------------------------------------------------------
                                                                                       
Equity compensation plans             7,952,125(1)                   $0.71                      2,439,375
approved by security holders
Equity compensation plans            12,381,601                      $0.58                        - (2)
not approved by security
holders
                               ---------------------------  -------------------------  -----------------------------
            Total                      20,333,726                    $0.63                    2,439,375 (2)
                               ===========================  =========================  =============================


                                       28



(1)      Includes  both vested and  unvested  options to purchase  Common  Stock
         issued to employees,  officers, directors and outside consultants under
         the  Company's  2001 Stock Option Plan (the  "Plan").  Certain of these
         options  to  purchase  Common  Stock  were  issued  under  the  Plan in
         connection with employment agreements. An aggregate of 391,500 of these
         options were issued  pursuant to the  Company's  previous  stock option
         plan.

(2)      Certain of the  securities  exercisable  to purchase  Common  Stock set
         forth in column (a) of this row have price  protection or  antidilution
         rights that  entitle the holders to reduce the  exercise  price of such
         securities if the Company issues additional stock, options, warrants or
         other  convertible  securities  below the exercise price of the subject
         securities.


         Certain of the information required by this item is incorporated herein
by reference to the information set forth under the caption "Security  Ownership
of Certain  Beneficial  Owners and  Management"  in Celsion's  Definitive  Proxy
Statement in connection  with the Annual Meeting of  Stockholders  to be held on
February 18, 2003, filed with the Securities and Exchange  Commission on January
10, 2003.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


         The  information  required  by this  item  is  incorporated  herein  by
reference to the information set forth under the caption "Certain  Transactions"
in Celsion's Definitive Proxy Statement in connection with the Annual Meeting of
Stockholders  to be held on February 18,  2003,  filed with the  Securities  and
Exchange Commission on January 10, 2003.

ITEM 14.   CONTROLS AND PROCEDURES

         Our Chief Executive  Officer and Chief Financial Officer have evaluated
the  effectiveness  of our  disclosure  controls and procedures (as such term is
defined in Rules  13a-14(c) and 15d-14(c)  under the Securities  Exchange Act of
1934) as of an  evaluation  date within 90 days prior to the filing date of this
Annual  Report on Form 10-K/A.  Based on this  evaluation,  they have  concluded
that, as of the  evaluation  date,  our  disclosure  controls and procedures are
effective  to ensure that  information  required to be disclosed in reports that
Celsion  files  or  submits  under  the  Exchange  Act is  recorded,  processed,
summarized and reported in a timely manner.  Since the evaluation  date referred
to above,  there have not been any significant  changes in our internal controls
or in other factors that could significantly affect such controls.

ITEM 15.   EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K



         1.       FINANCIAL STATEMENTS

         The  following  is a  list  of  the  financial  statements  of  Celsion
Corporation  filed with this Annual  Report on Form  10-K/A,  together  with the
report of our independent public accountants.

                                TITLE OF DOCUMENTS                   PAGE NO.
                -------------------------------------------------   ----------
                Independent Auditors' Report                         F-1

                Balance Sheet                                        F-2

                Statements of Operations                             F-4

                Statements of Changes in Stockholders' Equity        F-5

                Statements of Cash Flows                             F-6

                Notes to Financial Statements                        F-7

         2.       FINANCIAL STATEMENT SCHEDULES

         No schedules are provided  because of the absence of  conditions  under
which they are required.

                                       29


         3.       EXHIBITS

        .The following documents are included as exhibits to this report:

         EXHIBIT NO.
                                                       DESCRIPTION

         3.1.1         Certificate of  Incorporation of Celsion (the "Company"),
                       as amended,  incorporated  herein by reference to Exhibit
                       3.1.1 to the  Annual  Report on Form 10-K of the  Company
                       for the Year Ended September 30, 2002.

         3.1.2         Certificate  of  Designations  regarding the Series A 10%
                       Preferred  Stock of the Company,  incorporated  herein by
                       reference to Exhibit  3.1.2 to the Annual  Report on Form
                       10-K of the  Company  for the Year  Ended  September  30,
                       2001.

         3.1.3         Certificate   of   Ownership   and   Merger  of   Celsion
                       Corporation   (a  Maryland   Corporation)   into  Celsion
                       (Delaware)   Corporation   (inter   alia,   changing  the
                       Company's  name to "Celsion  Corporation"  from  "Celsion
                       (Delaware) Corporation), incorporated herein by reference
                       to Exhibit 3.1.3 to the Annual Report on Form 10-K of the
                       Company for the Year Ended September 30, 2000.

         3.1.4         Certificate of the Designations,  Powers, Preferences and
                       Rights of the Series B 8% Convertible  Preferred Stock of
                       Celsion Corporation,  incorporated herein by reference to
                       Exhibit 4.3 to the Form S-3 Registration  Statement (File
                       No. 333-100638) filed October 18, 2002.

         3.1.5         Certificate   of   Designations   of   Series   C  Junior
                       Participating  Preferred  Stock of  Celsion  Corporation,
                       incorporated  herein by  reference  to Exhibit 4.4 to the
                       Form S-3  Registration  Statement  (File No.  333-100638)
                       filed October 18, 2002.

         3.2           By-laws of the Company,  as amended,  incorporated herein
                       by  reference to Exhibit 3.2 to the  Quarterly  Report on
                       Form 10-Q of the Company  for the Quarter  Ended June 30,
                       2001.

         4.1           Form  of  Common  Stock  Certificate,  par  value  $0.01,
                       incorporated  herein by  reference  to Exhibit 4.1 to the
                       Annual  Report on Form 10-K of the  Company  for the Year
                       Ended September 30, 2001.

         4.2           Celsion  Corporation  and American Stock Transfer & Trust
                       Company  Rights  Agreement  dated as of August 15,  2002,
                       incorporated  by reference to Exhibit 99.1 to the Current
                       Report on Form 8-K filed August 21, 2002.

         10.1          Patent   License   Agreement   between  the  Company  and
                       Massachusetts  Institute of Technology dated June 1 1996,
                       incorporated  herein by  reference to Exhibit 10.1 to the
                       Annual  Report on Form 10-K of the  Company  for the year
                       ended   September   30,  1996   (Confidential   Treatment
                       Requested).

         10.2          License  Agreement  between the  Company  and MMTC,  Inc.
                       dated August 23, 1996,  incorporated  herein by reference
                       to Exhibit 10.2 to the Annual  Report on Form 10-K of the
                       Company   for  the  year   ended   September   30,   1996
                       (Confidential Treatment Requested).

         10.3          Patent   License   Agreement   between  the  Company  and
                       Massachusetts  Institute of Technology  dated October 17,
                       1997, incorporated herein by reference to Exhibit 10.7 to
                       the Annual  Report on Form 10-K  (amended) of the Company
                       for the year  ended  September  30,  1998.  (Confidential
                       Treatment Requested).

         10.4          Amendment   dated   November  25,  1997  to  the  License
                       Agreement between the Company and MMTC, Inc. dated August
                       23,  1996,  incorporated  herein by  reference to Exhibit
                       10.8 to the Annual  Report on Form 10-K  (amended) of the
                       Company   for  the  year  ended   September   30,   1998.
                       (Confidential Treatment Requested).

         10.5          Patent  License  Agreement  between  the Company and Duke
                       University dated November 10, 1999,  incorporated  herein
                       by reference to Exhibit 10.9 to the Annual Report on Form
                       10-K of the Company for the year ended September 30, 1999
                       (Confidential Treatment Requested).

         10.6          Amendment  dated March 23, 1999 to the License  Agreement
                       between the Company and MMTC, Inc. dated August 23, 1996,
                       incorporated  herein by reference to Exhibit 10.10 to the
                       Annual  Report on Form 10-K of the  Company  for the year
                       ended   September  30,  1999.   (Confidential   Treatment
                       Requested).

         10.7       *  Celsion Corporation 2001 Stock Option Plan.  Incorporated
                       herein by reference to Exhibit 10.23 to the Annual Report
                       on Form 10-K of the Company for the year ended  September
                       30, 2001.

         10.8       *  Form of Series 200 Warrant  issued to certain  employees,
                       directors and consultants to Purchase Common Stock of the
                       Company,  Incorporated  herein by  reference  to  Exhibit
                       10.11 to the  Annual  Report on Form 10-K of the  Company
                       for the year ended September 30, 1998.

                                       30


         10.9          Form of Series 250 Warrant issued to DunnHughes  Holding,
                       Inc.   to   Purchase   Common   Stock  of  the   Company,
                       incorporated  herein by reference to Exhibit 10.12 to the
                       Annual  Report on Form 10-K of the  Company  for the year
                       ended September 30, 1998.

         10.10         Form of Series 300 Warrant issued to Nace Resources, Inc.
                       to purchase  Common  Stock of the  Company,  incorporated
                       herein by reference to Exhibit 10.13 to the Annual Report
                       on Form 10-K of the Company for the year ended  September
                       30, 1998.

         10.11         Form of Series 400  Settlement  Warrant issued to Stearns
                       Management  Company,  incorporated herein by reference to
                       Exhibit 4.7 to the Registration  Statement of Form S-3 of
                       the Company (File No. 333-82450) filed February 8, 2002.

         10.12         Form of Series 500  Warrant to Purchase  Common  Stock of
                       the Company pursuant to the Private Placement  Memorandum
                       dated January 6, 1997, as amended, incorporated herein by
                       reference to Exhibit  10.15 to the Annual  Report on Form
                       10-K of the  Company  for the year  ended  September  30,
                       1998.

         10.13         Intentionally omitted.

         10.14      *  Form of Series 600  Warrant  issued to Certain  Employees
                       and Directors on May 16, 1996 to Purchase Common Stock of
                       the Company,  incorporated herein by reference to Exhibit
                       10.17 to the  Annual  Report on Form 10-K of the  Company
                       for the year ended September 30, 1998.

         10.15         License Agreement between the Company and Sloan-Kettering
                       Institute  for  Cancer   Research  dated  May  19,  2000,
                       incorporated  herein by reference to Exhibit 10.18 to the
                       Annual  Report on Form 10-K of the  Company  for the year
                       ended September 30, 2000.

         10.16      *  Employment  Agreement  between the Company and Anthony P.
                       Deasey dated  November 27, 2000,  incorporated  herein by
                       reference to Exhibit 10.1 to the Quarterly Report on Form
                       10-K of the Company for the quarter ended June 30, 2001.

         10.17      *  Amended  and  Restated  Executive   Employment  Agreement
                       between the Company and  Augustine Y.  Cheung,  effective
                       January  1, 2000,  incorporated  herein by  reference  to
                       Exhibit  10.17 to the  Annual  Report on Form 10-K of the
                       Company for the Year Ended September 30, 2002.

         10.18      *  Amended  and  Restated  Executive   Employment  Agreement
                       between the Company and John Mon, effective June 8, 2000,
                       incorporated  herein by reference to Exhibit 10.18 to the
                       Annual  Report on Form 10-K of the  Company  for the Year
                       Ended September 30, 2002.

         10.19      *  Amended  and  Restated  Executive   Employment  Agreement
                       between the Company and Dennis Smith, dated effective May
                       19,  2000,  incorporated  herein by  reference to Exhibit
                       10.19 to the  Annual  Report on Form 10-K of the  Company
                       for the Year Ended September 30, 2002.

         10.20         Option Agreement  between the Company and Duke University
                       dated August 8, 2000, incorporated herein by reference to
                       Exhibit  10.23 to the  Annual  Report on Form 10-K of the
                       Company for the year ended September 30, 2000.

         10.21      *  Employment  Agreement  between  the Company and Daniel S.
                       Reale  dated  April  9,  2001,   incorporated  herein  by
                       reference  to the  Annual  Report  on  Form  10-K  of the
                       Company for the year ended September 30, 2001.

         10.22         Service  Agreement  between the British  Columbia  Cancer
                       Agency,  Division  of Medical  Oncology,  Investigational
                       Drug Section, Propharma Pharmaceutical Clean Room and the
                       Company dated September 20, 2000,  incorporated herein by
                       reference to Exhibit  10.24 to the Annual  Report on Form
                       10-K of the Company for the year ended September 30, 2000
                       (Confidential Treatment Requested).

         10.23         Form of Warrant to Purchase  Common  Stock of the Company
                       pursuant  to  the  Private  Placement   Memorandum  dated
                       October 11,  2001,  incorporated  herein by  reference to
                       Exhibit  10.23 to the  Annual  Report on Form 10-K of the
                       Company for the year ended September 30, 2001.

         10.24      *  Advisory  Agreement  between  the  Company  and Dr.  Kris
                       Venkat  dated  August  1,  2001,  incorporated  herein by
                       reference to Exhibit  10.24 to the Annual  Report on Form
                       10-K of the  Company  for the Year  Ended  September  30,
                       2001.

         10.25         Amendment  dated  May  23,  2002  to the  Patent  License
                       Agreement between the Company and Massachusetts Institute
                       of Technology dated October 17, 1997, incorporated herein
                       by  reference  to Exhibit  10.25 to the Annual  Report on
                       Form 10-K of the Company for the Year Ended September 30,
                       2002. (Confidential Treatment Requested).

                                       31


         10.26         Amendment   dated  September  17,  2002  to  the  License
                       Agreement between the Company and MMTC, Inc. dated August
                       23,  1996,  incorporated  herein by  reference to Exhibit
                       10.26 to the  Annual  Report on Form 10-K of the  Company
                       for the Year Ended September 30, 2002.

         10.27      *  Employment  Agreement  between the Company and William W.
                       Gannon, Jr. dated January 15, 2002,  incorporated  herein
                       by  reference  to Exhibit  10.27 to the Annual  Report on
                       Form 10-K of the Company for the Year Ended September 30,
                       2002.

         10.28         Form of Warrant to  Purchase  Common  Stock  Units of the
                       Company  issued  to  Placement  Agents  pursuant  to  the
                       Private  Placement  Memorandum  dated  October 18,  2001,
                       incorporated  herein by  reference  to Exhibit 4.4 to the
                       Registration  Statement on Form S-3 of the Company  (File
                       No. 333-82450) filed February 8, 2002.

         10.29         Form of Warrant to Purchase  Common  Stock of the Company
                       pursuant to private placement by the Company which closed
                       on June 3,  2002,  incorporated  herein by  reference  to
                       Exhibit 4.6 to the Form S-3 Registration Statement of the
                       Company (File No. 333-100638) filed October 18, 2002.

         10.30         Letter  dated May 8, 2002,  from Legg Mason Wood  Walker,
                       Incorporated  ("Legg  Mason")  to the  Company  regarding
                       retention   of   Legg   Mason   as   financial   advisor,
                       incorporated  herein by reference to Exhibit 10.30 to the
                       Annual  Report on Form 10-K of the  Company  for the Year
                       Ended September 30, 2002.

         10.31         Letter Agreement with Goldpac  Investment  Partners dated
                       October 17,  2001,  incorporated  herein by  reference to
                       Exhibit 4.5 to the Form S-3 Registration  Statement (File
                       No. 333-82450) filed February 8, 2002.

         10.32         Letter  Agreement  with  Equity   Communications,   dated
                       November 5, 2001,  incorporated  herein by  reference  to
                       Exhibit 4.6 to the Form S-3 Registration  Statement (File
                       No. 333-82450) filed February 8, 2002.

         23.1+         Consent  of  Stegman  &   Company,   independent   public
                       accountants of the Company.

         99.1+         Certification  of Chief Executive  Officer Pursuant to 18
                       U.S.C.  Section 1350, as adopted  pursuant to Section 906
                       of the Sarbanes-Oxley Act of 2002.

         99.2+         Certification  of Chief Financial  Officer Pursuant to 18
                       U.S.C.  Section 1350, as adopted  pursuant to Section 906
                       of the Sarbanes-Oxley Act of 2002.

+ Filed herewith.
*Management contract or compensatory plan, contract or arrangement.

(b) REPORTS ON FORM 8-K.

         Celsion  filed a report on Form 8-K on August 21, 2002  disclosing  the
adoption  of  its  stockholder   rights  plan  and  declaration  of  a  dividend
distribution related to such plan.



                                       32






                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934,  the  Registrant has duly caused its annual report on Form
10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized.

                                         CELSION CORPORATION

            January 28, 2003             By: /s/ Anthony P. Deasey
                                         -------------------------
                                         Anthony P. Deasey
                                         Chief  Financial Officer
                                         (Principal Financial and
                                         Accounting Officer)







                                       33




                                 CERTIFICATIONS

I, Augustine Y. Cheung, certify that:

         1. I have reviewed this amended annual report on Form 10-K/A of Celsion
Corporation;

         2. Based on my knowledge,  this amended  annual report does not contain
any  untrue  statement  of a  material  fact or omit to  state a  material  fact
necessary to make the statements made, in light of the circumstances under which
such  statements were made, not misleading with respect to the period covered by
this amended annual report;

         3. Based on my knowledge, the financial statements, and other financial
information  included  in this  amended  annual  report,  fairly  present in all
material respects the financial  condition,  results of operation and cash flows
of the  registrant as of, and for, the periods  presented in this amended annual
report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14, for the registrant and have:

                  a. Designed such disclosure  controls and procedures to ensure
         that material  information  relating to the  registrant,  including its
         consolidated  subsidiaries,  is made known to us by others within those
         entities,  particularly  during the period in which this amended annual
         report is being prepared;

                  b. Evaluated the effectiveness of the registrant's  disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this amended annual report (the "Evaluation Date"); and

                  c.  Presented in this amended  annual  report our  conclusions
         about the effectiveness of the disclosure controls and procedures based
         on our evaluation as of the Evaluation Date;

         5. The  registrant's  other  certifying  officers and I have disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

                  a. All significant  deficiencies in the design or operation of
         internal controls which could adversely affect the registrant's ability
         to  record,  process,  summarize  and  report  financial  data and have
         identified  for the  registrant's  auditors any material  weaknesses in
         internal controls; and

                  b.  Any  fraud,   whether  or  not  material,   that  involves
         management  or  other  employees  who  have a  significant  role in the
         registrant's internal controls; and

         6. The registrant's  other certifying  officers and I have indicated in
this amended  annual report whether there were  significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    January 28, 2003

By:      /s/ Augustine Y. Cheung
         --------------------------------------
         President and Chief Executive Officer



                                       34






I, Anthony P. Deasey, certify that:

         1. I have reviewed this amended annual report on Form 10-K/A of Celsion
Corporation;

         2. Based on my knowledge,  this amended  annual report does not contain
any  untrue  statement  of a  material  fact or omit to  state a  material  fact
necessary to make the statements made, in light of the circumstances under which
such  statements were made, not misleading with respect to the period covered by
this amended annual report;

         3. Based on my knowledge, the financial statements, and other financial
information  included  in this  amended  annual  report,  fairly  present in all
material respects the financial  condition,  results of operation and cash flows
of the  registrant as of, and for, the periods  presented in this amended annual
report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14, for the registrant and have:

                  a. Designed such disclosure  controls and procedures to ensure
         that material  information  relating to the  registrant,  including its
         consolidated  subsidiaries,  is made known to us by others within those
         entities,  particularly  during the period in which this amended annual
         report is being prepared;

                  b. Evaluated the effectiveness of the registrant's  disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this amended annual report (the "Evaluation Date"); and

                  c.  Presented in this amended  annual  report our  conclusions
         about the effectiveness of the disclosure controls and procedures based
         on our evaluation as of the Evaluation Date;

         5. The  registrant's  other  certifying  officers and I have disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

                  a. All significant  deficiencies in the design or operation of
         internal controls which could adversely affect the registrant's ability
         to  record,  process,  summarize  and  report  financial  data and have
         identified  for the  registrant's  auditors any material  weaknesses in
         internal controls; and

                  b.  Any  fraud,   whether  or  not  material,   that  involves
         management  or  other  employees  who  have a  significant  role in the
         registrant's internal controls; and

         6. The registrant's  other certifying  officers and I have indicated in
this amended  annual report whether there were  significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    January 28, 2003

By:      /s/ Anthony P. Deasey
         -----------------------------------------------------
         Executive Vice President--Finance and Administration
           and Chief Financial Officer



                                       35












                               CELSION CORPORATION


                    REPORT ON AUDITS OF FINANCIAL STATEMENTS

              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000




































No extracts from this report may be published without our written consent.
Stegman & Company









                               CELSION CORPORATION


                    REPORT ON AUDITS OF FINANCIAL STATEMENTS


              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000


                                    CONTENTS

                                                                          Page
                                                                          ----

                  INDEPENDENT AUDITORS' REPORT                             F-1

                  FINANCIAL STATEMENTS

                    Balance Sheets                                         F-2

                    Statements of Operations                               F-4

                    Statements of Changes in Stockholders' Equity          F-5

                    Statements of Cash Flows                               F-6

                  NOTES TO FINANCIAL STATEMENTS                            F-7












                          INDEPENDENT AUDITORS' REPORT




The Board of Directors and Stockholders
Celsion Corporation
Columbia, Maryland


          We have audited the accompanying balance sheets of Celsion Corporation
(the "Company") as of September 30, 2002 and 2001, and the related statements of
operations,  changes  in  stockholders'  equity,  and cash flows for each of the
three years in the period ended September 30, 2002.  These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

          We  conducted  our  audits  in  accordance  with  auditing   standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

          In our opinion,  the  financial  statements  referred to above present
fairly, in all material respects,  the financial position of Celsion Corporation
as of September  30, 2002 and 2001,  and the results of its  operations  and its
cash flows for each of the three years in the period ended September 30, 2002 in
conformity with accounting principles generally accepted in the United States of
America.




/s/Stegman & Company
--------------------
Baltimore,  Maryland
November 18, 2002, except as to Notes 2
and 13, which are dated January 24, 2003



                                      F-1







                               CELSION CORPORATION
                                 BALANCE SHEETS
                           SEPTEMBER 30, 2002 AND 2001

                                     ASSETS

                                                          2002         2001
                                                      ----------   ----------
CURRENT ASSETS:
   Cash                                               $  928,819   $2,510,136
   Accounts receivable - trade                              --          1,205
   Other receivables                                      84,493         --
   Inventories                                           449,608         --
   Prepaid expenses                                       47,255         --
   Other current assets                                     --        150,000
                                                      ----------   ----------

           Total current assets                        1,510,175    2,661,341
                                                      ----------   ----------


PROPERTY AND EQUIPMENT - at cost:
   Furniture and office equipment                        311,481      229,643
   Laboratory and shop equipment                          89,354       87,193
                                                      ----------   ----------
                                                         400,835      316,836
     Less accumulated depreciation                       190,658      127,556
                                                      ----------   ----------

           Net value of property and equipment           210,177      189,280
                                                      ----------   ----------


OTHER ASSETS:
   Deposits23,622                                         29,537
   Prepaid inventory development costs                   486,602         --
   Patent licenses (net of accumulated amortization
     of $129,077 and $113,247 in 2002 and 2001,
     respectively)                                        60,873       76,703
                                                      ----------   ----------

           Total other assets                            571,097      106,240
                                                      ----------   ----------

           TOTAL ASSETS                               $2,291,449   $2,956,861
                                                      ==========   ==========



                            See accompanying notes.


                                      F-2














                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                              2002            2001
                                                          ------------    ------------
                                                                    
CURRENT LIABILITIES:
   Accounts payable - trade                               $    494,650    $    145,520
   Other accrued liabilities                                   280,309         126,921
                                                          ------------    ------------

           Total current liabilities                           774,959         272,441

LONG-TERM LIABILITIES - Security deposit                          --            15,203
                                                          ------------    ------------

           Total liabilities                                   774,959         287,644
                                                          ------------    ------------

STOCKHOLDERS' EQUITY:
   Common stock - $.01 par value; 150,000,000
     shares authorized,  92,417,556 and
     76,876,761 shares issued and outstanding
     for 2002 and 2001,  respectively                          924,176         768,768
   Series A 10% Convertible Preferred Stock, $1,000
     par value, 7,000 shares authorized, 1,131 and
     1,099 shares issued and outstanding for 2002
     and 2001, respectively                                  1,130,500       1,099,584
   Series B 8% Convertible Preferred Stock, $1,000
     par value; 5,000 shares authorized, 1,591 and zero
     shares issued and outstanding for 2002 and 2001,
     respectively                                            1,396,285            --
   Additional paid-in capital                               41,885,610      34,729,646
   Accumulated deficit                                     (43,820,081)    (33,928,781)
                                                          ------------    ------------

           Total stockholders' equity                        1,516,490       2,669,217
                                                          ------------    ------------

           TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $  2,291,449    $  2,956,861
                                                          ============    ============


                            See accompanying notes.


                                      F-3







                               CELSION CORPORATION

                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000


                                             2002            2001             2000
                                         ------------    ------------    ------------

REVENUES:
                                                                
   Equipment sales and parts             $       --      $       --      $      3,420
   Returns and allowances                        --              --              --
                                         ------------    ------------    ------------


           Total revenues                        --              --             3,420

COST OF SALES                                    --              --               246
                                         ------------    ------------    ------------

GROSS PROFIT                                     --              --             3,174
                                         ------------    ------------    ------------

OPERATING EXPENSES:
   Selling, general and administrative      4,833,005       3,211,625       2,662,623
   Research and development                 5,004,687       4,075,249       2,238,292
                                         ------------    ------------    ------------

           Total operating expenses        (9,837,692)     (7,286,874)     (4,900,915)
                                         ------------    ------------    ------------

INTEREST INCOME                                48,321         318,038         350,526

RENTAL INCOME                                  38,289          45,609            --
                                         ------------    ------------    ------------

NET LOSS                                   (9,751,082)     (6,923,227)     (4,547,215)

BENEFICIAL CONVERSION FEATURE
   AND DIVIDENDS ON PREFERRED STOCK          (391,888)       (234,513)       (323,500)
                                         ------------    ------------    ------------

NET LOSS ATTRIBUTABLE TO COMMON
   STOCKHOLDERS                          $(10,142,970)   $ (7,157,740)   $ (4,870,715)
                                         ============    ============    ============

BASIC AND DILUTED NET LOSS PER
   COMMON SHARE                          $      (0.12)   $      (0.10)   $      (0.08)
                                         ============    ============    ============

BASIC AND DILUTED WEIGHTED AVERAGE
   NUMBER OF COMMON SHARES
   OUTSTANDING                             87,257,672      72,249,920      59,406,921
                                         ============    ============    ============





                            See accompanying notes.


                                      F-4






                                          CELSION CORPORATION

                             STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                        FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000


                                                                                 Series A
                                                                             10% Convertible
                                                    Common Stock             Preferred Stock
                                             -------------------------     --------------------
                                               Shares         Amount       Shares          Amount
                                             -----------   -----------   -----------    -----------


                                                                            
Balances at October 1, 1999                   53,370,498   $   533,705          --      $      --

   Sale of common stock                       10,248,544       102,485          --             --
   Issuance of warrants/options and common
     stock for payment of indebtedness and
     expenses                                    753,025         7,531          --             --
   Issuance of shares of Series A
     10% convertible, preferred stock
     (net of issuance costs)                        --            --           4,853      4,852,500
   Preferred stock dividend                         --            --             323        323,500
   Net loss                                         --            --            --             --
                                             -----------   -----------   -----------    -----------

Balances at September 30, 2000                64,372,067       643,721         5,176      5,176,000

   Sale of common stock                          510,000         5,100          --             --
   Issuance of warrants/options and common
     stock for payment of expenses               319,174         3,192          --             --
   Conversion of shares of Series A
     10% convertible, preferred stock
     plus accrued dividends                   10,514,763       105,148        (4,311)    (4,311,053)
   Exercise of common stock
     warrants and options                      1,160,757        11,607          --             --
   Preferred stock dividend                         --            --             234        234,637
   Stock compensation                               --            --            --             --
   Net loss                                         --            --            --             --
                                             -----------   -----------   -----------    -----------

Balances at September 30, 2001                76,876,761       768,768         1,099      1,099,584

   Sale of preferred and common stock         12,500,000       125,000          --             --
   Issuance of warrants/options and common
     stock for payment of expenses               507,709         5,077          --             --
   Conversion of shares of Series A 10%
     convertible, preferred stock plus
     accrued dividends                           143,836         1,438           (58)       (58,972)
   Conversion of shares of Series B 8%
     convertible, preferred stock plus
     accrued dividends                           918,000         9,180          --             --
   Exercise of common stock
     warrants and options                      1,471,250        14,713          --             --
   Preferred stock dividend                         --            --              90         89,888
   Beneficial conversion                            --            --            --             --
   Stock compensation                               --            --            --             --
   Net loss                                         --            --            --             --
                                             -----------   -----------   -----------    -----------

Balances at September 30, 2002                92,417,556   $   924,176         1,131    $ 1,130,500
                                             ===========   ===========   ===========    ===========



                            See accompanying notes.


                                      F-5










          Series B
        8% Convertible
       Preferred Stock            Additional
----------------------------       Paid-in       Accumulated
   Shares           Amount         Capital         Deficit          Total
------------    ------------    ------------    ------------    ------------
        --      $       --      $ 22,403,622    $(21,900,202)   $  1,037,125

        --              --         7,122,893            --         7,225,378


        --              --           771,965            --           779,496


        --              --          (620,855)           --         4,231,645
        --              --              --          (323,500)           --
        --              --              --        (4,547,215)     (4,547,215)
------------    ------------    ------------    ------------    ------------

        --              --        29,677,625     (26,770,917)      8,726,429

        --              --           147,400            --           152,500

        --              --           337,690            --           340,882


        --              --         4,205,905            --              --

        --              --           (11,607)           --              --
        --              --              --          (234,637)           --
        --              --           372,633            --           372,633
        --              --              --        (6,923,227)     (6,923,227)
------------    ------------    ------------    ------------    ------------

        --              --        34,729,646     (33,928,781)      2,669,217

       2,000       2,000,000       5,454,532            --         7,579,532

        --              --           705,048            --           710,125


        --              --            57,534            --              --


        (459)       (402,375)        393,195            --              --

        --              --            34,814            --            49,527
          50          50,330            --          (140,218)           --
        --          (251,670)        251,670            --              --
        --              --           259,171            --           259,171
        --              --              --        (9,751,082)     (9,751,082)
------------    ------------    ------------    ------------    ------------

       1,591    $  1,396,285    $ 41,885,610    $(43,820,081)   $  1,516,490
============    ============    ============    ============    ============


                            See accompanying notes.

                                      F-6









                               CELSION CORPORATION

                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000



                                                              2002            2001            2000
                                                          ------------    ------------    ------------
                                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                               $ (9,751,082)   $ (6,923,227)   $ (4,547,215)
   Noncash items included in net loss:
     Depreciation and amortization                              82,437          68,845          39,478
     Inventory valuation                                          --            13,538          17,000
     Stock option compensation                                 259,172         372,633            --
     Warrants issued for legal settlement                      476,724            --              --
     Common stock issued for operating expenses                233,401         340,758         542,745
     Loss from disposal of property and equipment                1,825            --              --
   Net changes in:
     Accounts receivable and other receivables                 (83,288)          1,102            (495)
     Inventories                                              (449,608)           --            (8,479)
     Accrued interest receivable - related parties                --             7,751          (7,751)
     Prepaid expenses                                          (47,255)         14,832         197,103
     Other current assets                                      150,000        (115,644)          4,847
     Investment in prepaid inventory
       development costs                                      (486,602)           --              --
     Accounts payable and accrued interest payable             349,130         (70,324)        (73,370)
     Accrued compensation                                         --              --           (91,009)
     Other accrued liabilities                                 153,388          66,275          60,681
                                                          ------------    ------------    ------------

              Net cash used in operating activities         (9,111,758)     (6,223,461)     (3,866,465)
                                                          ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Decrease (increase) in deposits                               5,915         (21,952)           --
   (Decrease) increase in security deposit liability           (15,203)         15,203            --
   Purchase of property and equipment                          (89,329)       (117,572)       (122,108)
                                                          ------------    ------------    ------------

              Net cash used in investing activities            (98,617)       (124,321)       (122,108)
                                                          ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Payment on notes payable - other                               --          (114,778)           --
   Payment on capital lease obligation                            --              --            (5,719)
   Proceeds of stock issuances                               7,629,058         152,500      11,457,024
                                                          ------------    ------------    ------------

              Net cash provided by financing activities      7,629,058          37,722      11,451,305
                                                          ------------    ------------    ------------

NET (DECREASE) INCREASE IN CASH                             (1,581,317)     (6,310,060)      7,462,732

CASH AT BEGINNING OF YEAR                                    2,510,136       8,820,196       1,357,464
                                                          ------------    ------------    ------------

CASH AT END OF YEAR                                       $    928,819    $  2,510,136    $  8,820,196
                                                          ============    ============    ============



                            See accompanying notes.



                                      F-7









Celsion Corporation

Statements of Cash Flows (Continued)
For the Years Ended September 30, 2002, 2001 and 2000




                                                                            2002       2001           2000
                                                                      ------------ ------------  ------------
                                                                                        
Conversion of accounts payable, debt and accrued interest
   payable through issuance of common stock                           $     --     $      --     $ 20,750
Prepaid expenses funded through issuance of
   common stock                                                       $     --     $      --     $216,000

Cash paid during the year for interest                                $     --     $      --     $  1,290












                            See accompanying notes.


                                      F-8





                               CELSION CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000



1.     DESCRIPTION OF BUSINESS AND SUMMARY OF
         SIGNIFICANT ACCOUNTING POLICIES

         Description of Business
         -----------------------

         Celsion   Corporation   ("Celsion"  or  the   "Company"),   a  Delaware
corporation,  is a research and development company dedicated to the development
of medical  treatment  systems  primarily to treat  breast  cancer and a chronic
prostate enlargement condition, common in older males, known as benign prostatic
hyperplasia,  or BPH, using  minimally  invasive  focused heat  technology.  The
Company  is  also  working  with  Duke   University   on  the   development   of
heat-sensitive  liposome compounds for use in the delivery of chemotherapy drugs
to  tumor  sites,  and with  the  Memorial  Sloan-Kettering  Cancer  Center,  or
Sloan-Kettering on the development of heat-activated gene therapy compounds.

         Inventories
         -----------

         Inventories  are  stated  at the  lower  of  cost  or  market.  Cost is
determined using the average cost method.

         Property and Equipment
         ----------------------

         Property and equipment is stated at cost. Depreciation is provided over
the estimated  useful lives of the related  assets of three to seven years using
the  straight-line  method.  Major renewals and  improvements are capitalized at
cost and ordinary  repairs and  maintenance  are charged  against  operations as
incurred.  Depreciation  expense was $66,608,  $53,016 and $23,648 for the years
ended September 30, 2002, 2001 and 2000, respectively.

         Prepaid Inventory Development Costs
         -----------------------------------

         The    balance    in    prepaid     development     costs    represents
research/development  costs paid to a vendor for the design and  development  of
catheters which are to be used with the Company's BPH machines.

         Patent Licenses
         ---------------

         The  Company  has  purchased  several  licenses  to use the  rights  to
patented technologies. Patent license costs are amortized straight-line over the
remaining patent life.




                                      F-9


                               CELSION CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000


         Research and Development
         ------------------------

         Research and development costs are expensed as incurred.  Equipment and
facilities   acquired  for  research  and  development   activities  which  have
alternative  future  uses are  capitalized  and  charged to  expense  over their
estimated useful lives.

         Net Loss Per Common Share
         -------------------------

         Basic and  diluted net loss per common  share was  computed by dividing
net loss  attributable to common  stockholders by the weighted average number of
shares of common  stock  outstanding  during each  period.  The impact of common
stock  equivalents  has been excluded from the  computation of weighted  average
common shares outstanding, as the effect would be antidilutive.

         Nonmonetary Transactions
         ------------------------

         Nonmonetary   transactions   are  accounted  for  in  accordance   with
Accounting   Principles   Board  Opinion  No.  29  "Accounting  for  Nonmonetary
Transactions"  which requires that the transfer or distribution of a nonmonetary
asset  or  liability  generally  is based  on the  fair  value  of the  asset or
liability that is received or surrendered whichever is more clearly evident.

         Use of Estimates
         ----------------

         The  preparation of financial  statements in conformity with accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

         Financial Instruments
         ---------------------

         For most financial  instruments,  including cash,  accounts payable and
accruals,  management believes that the carrying amount approximates fair value,
as the majority of these instruments are short-term in nature.

2.     FINANCIAL CONDITION

              Since inception,  the Company has incurred  substantial  operating
losses,  principally  from expenses  associated with the Company's  research and
development  programs,  the clinical  trials  conducted in  connection  with the
Company's  thermotherapy systems and applications for submission to the Food and
Drug  Administration.  The Company believes these expenditures are essential for
the commercialization of its technologies. As a result of these expenditures, as
well  as  related  general  and  administrative  expenses  the  Company  had  an
accumulated deficit of $44 million as of September 30, 2002. The Company expects
such  operating  losses to  continue  in the near  term and for the  foreseeable
future as it continues its product development efforts, and undertakes marketing
and  sales  activities.  The  Company's  ability  to  achieve  profitability  is
dependent  upon its  ability  to  successfully  obtain  governmental  approvals,
produce,  market and sell its new technology and integrate such  technology into
its  thermotherapy  systems.  There can be no assurance that the Company will be
able to commercialize  its technology  successfully or that  profitability  will
ever  be  achieved.  The  operating  results  of  the  Company  have  fluctuated
significantly  in the past. The Company expects that its operating  results will
fluctuate significantly from quarter to quarter in the future and will depend on
a number of factors, many of which are outside the Company's control.

                                      F-10



                               CELSION CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000

         The  Company  will  need  substantial  additional  funding  in order to
complete the development,  testing and commercialization of its cancer treatment
and BPH products and of potential  new  products.  It is the  Company's  current
intention both to increase the pace of development  work on its present products
and to make a  significant  commitment  to  thermo-sensitive  liposome  and gene
therapy research and development projects.  The increase in the scope of present
development work and such new projects will require additional funding, at least
until the Company is able to begin marketing its products.

         If adequate funding is not available in the future,  the Company may be
required to delay,  scale-back or eliminate certain aspects of its operations or
to attempt to obtain funds through onerous  arrangements with partners or others
that may force the Company to relinquish  rights to certain of its technologies,
products or  potential  markets.  Furthermore,  if the  Company  cannot fund its
ongoing  development and other operating  requirements,  and particularly  those
associated  with its obligation to conduct  clinical  trials under its licensing
agreements,  it  will be in  breach  of its  commitments  under  such  licensing
agreements and could  therefore lose its license rights,  with material  adverse
effects on the Company.


         As  a  result  of  the  Company's   agreement  with  Boston  Scientific
Corporation  dated  January 21, 2003 (Note 13), the Company  received an initial
equity investment of $5,000,000.  Management  believes that this investment will
be adequate to fund operations through September 30, 2003.

3.    INVENTORIES

         Inventories  are stated at the lower of cost or market  and  consist of
the following:

                                          2002                     2001
                                       ---------                ----------
           Materials                    $373,786                $    --
           Work-in-process                75,822                     --
                                       ---------                ----------

                                        $449,608                $    --
                                       =========                ==========



                                      F-11


                               CELSION CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000




4.       INCOME TAXES

         A reconciliation  of the Company's  statutory tax rate to the effective
rate for the years ended September 30 is as follows:



                                                     2002             2001               2000
                                                   -------           -------           -------
                                                                                
Federal statutory rate                               34.0%             34.0%             34.0%
State taxes, net of federal tax benefit               4.6               4.6               4.6
Valuation allowance                                 (38.6)            (38.6)            (38.6)
                                                   -------           -------           -------

                                                       .0%               .0%               .0%
                                                   =======           =======           =======


         As  of  September  30,  2002,   the  Company  had  net  operating  loss
carryforwards of approximately  $37 million for federal income tax purposes that
are available to offset future taxable income through the year 2021.

         The components of the Company's  deferred tax asset for the years ended
September 30 is as follows:



                                                         2002                      2001
                                                     ------------              ------------

                                                                         
       Net operating loss carryforwards              $ 14,300,000              $ 11,400,000
       Valuation allowance                            (14,300,000)              (11,400,000)
                                                     ------------              ------------

                                                     $    --           $       $    --
                                                     ============              ============


              The evaluation of the realizability of such deferred tax assets in
future  periods is made based upon a variety of factors  for  generating  future
taxable  income,  such as intent and ability to sell assets and  historical  and
projected  operating  performance.  At this time, the Company has  established a
valuation  reserve  for all of its  deferred  tax  assets.  Such tax  assets are
available to be recognized and benefit future periods.

5.     RETIREMENT PLAN

              The  Company  provides a SAR-SEP  savings  plan to which  eligible
employees may make pretax payroll  contributions up to 15% of compensation.  The
Company does not make contributions to the plan.

6.     PREFERRED STOCK

              The Company has preferred  stock known as Series A 10% convertible
preferred  stock.  Holders of shares of preferred stock are entitled to receive,
as and if declared by the Company's Board of Directors,  dividends at the annual
rate of 10% per share payable  semi-annually  on March 31 and September 30. Such
dividends are payable in shares and fractional shares of preferred stock, valued
for this  purpose  at the rate of $1,000  per  share.  There are 1,131 and 1,099
(including  accrued  dividends)  shares of this stock issued and  outstanding at
September 30, 2002 and 2001, respectively.

              The shares of Series A preferred stock are subject to exchange and
conversion  privileges  upon the occurrence of major events,  including a public
offering of the Company's securities or the Company's merger into another public
company.  In addition,  the holders of the Series A preferred stock are entitled
to convert  their  preferred  shares into shares of common stock at a conversion
price of $0.41 per share of common stock, subject to certain adjustments.

              There are  outstanding  warrants to purchase 36 shares of Series A
preferred stock  (convertible  into an additional 87,805 shares of common stock)
as of September 30, 2002.

                                      F-12




                               CELSION CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000


              During the year ended  September 30, 2002 the Company issued 2,000
shares of Series B 8% convertible  preferred stock on a private placement basis.
Holders of shares of preferred stock are entitled to receive, as and if declared
by the  Company's  Board of  Directors,  dividends  at the annual rate of 8% per
share  payable  semi-annually  on June 30 and  December 31. Such  dividends  are
payable in shares and  fractional  shares of  preferred  stock,  valued for this
purpose  at the rate of $1,000  per  share.  There are 1,591 and -0-  (including
accrued  dividends) shares of this stock issued and outstanding at September 30,
2002 and 2001, respectively.

       The  shares of Series B  preferred  stock are  subject  to  exchange  and
conversion  privileges at any time after September 3, 2002 at a conversion price
of $0.50 per share of common stock.

         As of September 30, 2002, 1,591.33 (including accrued dividends) shares
of Series B 8% preferred stock was outstanding.

7.     STOCK OPTIONS AND WARRANTS

         The  Company  has issued  stock  options  and  warrants  to  employees,
directors,  vendors and debt holders. Options and warrants are generally granted
at market value at the date of the grant.

         A summary of the  Company's  stock  option  and  warrant  activity  and
related  information for the years ended September 30, 2002, 2001 and 2000 is as
follows:



                                                                                    Weighted
                                                      Options/                       Average
                                                      Warrants                       Exercise
                                                     Outstanding                       Price
                                                    ------------                   -----------

                                                                             
Outstanding at October 1, 1999                       16,653,770                        .59
  Granted                                             1,125,214                        .94
  Exercised                                         (10,247,074)                       .70
  Expired/cancelled                                        --                           --
                                                    ------------                   -----------

Outstanding at September 30, 2000                     7,531,910                        .44
  Granted                                             8,158,308                       1.36
  Exercised                                            (585,000)                       .35
  Expired/cancelled                                        --                           --
                                                   ------------                   -----------

Outstanding at September 30, 2001                    15,105,218                        .94
  Granted                                            31,307,874                        .52
  Exercised                                          (1,471,250)                       .03
  Expired/cancelled                                 (10,258,049)                       .91
                                                   ------------                   -----------

Outstanding at September 30, 2002                    34,683,793                        .61
                                                   ============                   ===========



                                      F-13




                               CELSION CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000




Following  is  additional  information  with  respect  to options  and  warrants
outstanding at September 30, 2002:



                                                          Exercise         Exercise         Exercise         Exercise
                                                         Price from       Price from       Price from       Price from
                                                        $.01 to $.25     $.41 to $.70     $.71 to $1.50   $1.50 to $5.00
                                                        ------------     ------------     -------------   --------------
                                                                                                
Outstanding at September 30, 2002:
   Number of options/warrants                            6,279,226       22,500,497        5,058,070        846,000
   Weighted average exercise price                         $ .06$           $ .60$           $ .94$           $  3.12
   Weighted average remaining contractual
     life in years                                           3.72             5.01            6.36               3.44

Exercisable at September 30, 2002:
   Number of options/warrants                            6,279,226       20,118,832        3,044,737        846,000
   Weighted average exercise price                         $ .06            $ .60$           $1.01$           $  3.12



         Option Repricing
         ----------------

         On  March  25,  2002,  in  order  to  provide   meaningful   continuing
stock-based  incentives  for members of  management,  and in  recognition of the
decline in the market price of the  Company's  Common  Stock,  the  Compensation
Committee of the Board of  Directors  approved  the  cancellation  of options to
purchase  a total of  3,625,000  shares  of Common  Stock  held by  certain  key
executives  and issued  new  options to  purchase a total of  3,150,000  shares,
resulting in a net decrease of options to purchase 475,000 shares. The cancelled
options had been issued to the Company's executives pursuant to their respective
employment contracts at exercise prices in excess of the current market price of
the Company's Common Stock. These options consisted of certain options vested at
the time of cancellation, as well as options with vesting dates through April of
2003, and with  expiration  dates through April of 2011. The new options consist
of currently vested compensatory options, bonus options,  one-third of which are
currently vested and the remainder of which vest on March 31, 2003 and 2004, and
performance-based awards that vest, if at all, upon achievement, by the Company,
of certain specified milestones,  all of which expire in May of 2012. All of the
new options were issued  pursuant to the  Company's  2001 Stock Option Plan,  at
exercise  prices at or in excess of the market price for the common stock on the
date of grant.  The Company will account for the repriced options using variable
accounting under FASB Interpretation No. 44, Accounting for Certain Transactions
Involving  Stock   Compensation-An   Interpretation   of  APB  Opinion  No.  25.
Consequently,  during each reporting period the Company will record compensation
expense  relating to the vested  portion of the  repriced  options to the extent
that the fair market value of the  Company's  Common Stock  exceeds the exercise
price of such options.  During the year ended September 30, 2002 the Company did
not record any compensation expense of this kind.

         During the year ended  September  30,  2002,  the Company  entered into
agreements with  consultants in which the consultants  received stock options in
exchange for services. The fair value of these options was estimated at the date
of the grant  using a  Black-Scholes  option  pricing  model with the  following
weighted  average  assumptions:   risk-free  interest  rate  of  5.0%,  expected
volatility  of 50%;  expected  option life 5 years from  vesting and an expected
dividend  yield of 0%. As a result of these  agreements  expense of $259,171 was
recognized in the year ended September 30, 2002.

         The Company has adopted the disclosure-only  provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based  Compensation
(SFAS No.  123),  but applies  Accounting  Principles  Board  Opinion No. 25 and
related  interpretations.  No  compensation  expense  related to the granting of
stock  options to  employees or  directors  was recorded  during the three years
ended September 30, 2002. The fair value of these equity awards was estimated at
the date of grant using a Black-Scholes  option pricing model with the following
weighted average assumptions for 2002, 2001 and 2000: risk-free interest rate of
5.27%,  4.77%  and  6.54%  for  2002,  2001  and  2000,  respectively;  expected
volatility  of 78%;  expected  option  life of 3 to 5 years from  vesting and an
expected  dividend yield of 0%. If the Company had elected to recognize  expense
based on the fair value at the grant dates consistent with the method prescribed
by SFAS No. 123,  net loss and loss per share would have been changed to the pro
forma amounts as follows:

                                      F-14



                               CELSION CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000







                                                                                 Year Ended September 30,
                                                                 -------------------------------------------------------

                                                                      2002                 2001                  2000
                                                                 ---------------      --------------       -------------
                                                                                                   
              Net loss attributable
                  to common stockholders                          $(11,123,932)         $(7,834,189)        $(5,356,215)
              Net loss per common share - basic                         (.13)                 (.11)              (.09)


8.       LICENSE AGREEMENTS AND PROPRIETARY RIGHTS

         The  Company  does not own any  patents  but has  three  United  States
patents pending, two of which have been filed internationally.  Two of the three
pending  United  States  patent  applications  are directed to the BPH treatment
system with the third directed to our breast cancer treatment.

         Through the Company's license agreements with  Massachusetts  Institute
of Technology ("MIT") MMTC, Inc., Duke University ("Duke") and  Sloan-Kettering,
the Company has exclusive  rights,  within  defined fields of use of nine United
States  patents.  Three of these  patents  relate to the  treatment of BPH, four
relate to thermotherapy for cancer, one relates to heat-sensitive  liposomes and
one relates to gene therapy.

         The  MIT,  MMTC,  Duke  and  Sloan-Kettering  license  agreements  each
contains license fee, royalty and/or research  support  provisions,  testing and
regulatory milestones,  and other performance requirements that the Company must
meet by certain deadlines with respect to the use of the licensed  technologies.
In  conjunction   with  the  patent   holders,   the  Company  intends  to  file
international applications for certain of the United States patents.

         In 1996, the Company entered into a patent license  agreement with MIT,
pursuant to which the Company obtained exclusive rights to use of MIT's patented
APA  technology  in  conjunction  with  application  of  heat  to  breast  tumor
conditions, the application of heat to prostate conditions and all other medical
uses.  MIT  has  retained   certain  rights  in  the  licensed   technology  for
non-commercial  research  purposes.  MIT's  technology  has been patented in the
United  States  and MIT has  patents  pending  for its  technology  in China and
Europe.  The  term of the  Company's  exclusive  rights  under  the MIT  license
agreement expires on the earlier of ten years after the first commercial sale of
a product  using the licensed  technology  or October 24,  2009,  but the rights
continue on a non-exclusive basis for the life of the MIT patents.

         The Company  entered into a license  agreement  with MMTC in 1996,  for
exclusive  worldwide rights to MMTC's patents related to its balloon compression
technology  for the  treatment of  prostatic  disease in humans.  The  exclusive
rights under the MMTC license  agreements extend for the life of MMTC's patents.
MMTC  currently has patents in the United States and Canada.  The terms of these
patents  expire at various times from April 2008 to November  2014. In addition,
MMTC also has patent applications pending in Japan and Europe.

         On November 10, 1999, the Company entered into a license agreement with
Duke under  which the  Company  received  exclusive  rights  (subject to certain
exceptions) to  commercialize  and use Duke's  thermo-liposome  technology.  The
license  agreement  contains annual royalty and minimum  payment  provisions and
also  requires  milestone-based  royalty  payments  measured by various  events,
including product  development  stages, FDA applications and approvals,  foreign
marketing  approvals and achievement of significant sales.  However,  in lieu of
such  milestone-based  cash  payments,  Duke has agreed to accept  shares of the
Company  common stock to be issued in  installments  at the time each  milestone
payment is due, with each  installment of shares to be calculated at the average
closing  price of the common stock during the 20 trading days prior to issuance.
The total number of shares issuable to Duke under these provisions is subject to
adjustment in certain cases,  and Duke has "piggyback"  registration  rights for
public offerings taking place more than one year after the effective date of the
license agreement.

                                      F-15




                               CELSION CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000


         The rights under the license  agreement with Duke extend for the longer
of 20 years or the end of any term for which any relevant  patents are issued by
the United States Patent and Trademark Office. Currently, the Company has rights
to Duke's patent for its thermo-liposome  technology in the United States, which
expires in 2018, and to future patents received by Duke in Canada, Europe, Japan
and Australia, where it has patent applications pending.

         The Company entered into a license  agreement with  Sloan-Kettering  in
2000 by which we obtained  exclusive rights to  Sloan-Kettering's  United States
patent and to patents  that  Sloan-Kettering  may  receive in the future for its
heat-sensitive  gene  therapy in Japan,  Canada and Europe,  where it has patent
applications  pending.  Rights under the  agreement  with  Sloan-Kettering  will
terminate  at the later of 20 years after the date of the  agreement or the last
expiration date of any patent rights covered by the agreement.

9.       LITIGATION SETTLEMENT

         During  the  year  ended   September  30,  2002,  the  Company  settled
litigation with a former director and a related  investment  group (the "Group")
related  to the  issuance  of  common  stock  warrants.  In  settlement  of this
litigation  the  Company  agreed to pay the  lesser of  certain  legal  costs or
$265,000  and to adjust the  exercise  price of  6,325,821  warrants  originally
issued to the Group.  Expense related to this settlement totaled $741,724 and is
included in  selling,  general and  administrative  expenses  for the year ended
September 30, 2002.

10.      COMMITMENTS AND CONTINGENCIES

         Lease Commitments
         -----------------

         The Company has entered  into a lease for their  facilities  located in
Columbia, Maryland. Future minimum lease obligations are as follows:

                    2003                       $ 302,779
                    2004                         311,789
                    2005                         239,018
               Thereafter                         -

         Rent expense for the years ended  September 30, 2002, 2001 and 2000 was
$359,206, $227,961 and $70,848, respectively.


                                      F-16



                               CELSION CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000


         Rental Income
         -------------

         In July 2001, the Company began subleasing some of its office/warehouse
space to an unrelated  party.  The Company rented this space for three months in
each of the years  ended  September  30, 2002 and 2001,  generating  $38,289 and
$45,609, respectively. The sublease ended January 1, 2002 and since that time no
other sublease has been signed.

         Product Liability Insurance
         ---------------------------

         The Company's  business exposes it to potential product liability risks
which  are  inherent  in the  testing,  manufacturing,  and  marketing  of human
therapeutic  products.  The Company  presently has product  liability  insurance
limited to $5,000,000  per incident,  and, if the Company was to be subject to a
claim in excess of such coverage and such claim succeeded,  the Company would be
required to pay such claim out of its own limited resources.

11.    CONCENTRATIONS OF CREDIT RISK

         As of September  30, 2002,  the Company has a  concentration  of credit
represented  by cash  balances  in one large  commercial  bank in amounts  which
exceed current federal deposit insurance limits. The financial stability of this
institution is continually reviewed by senior management.

12.    SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)



                                                     First           Second               Third             Fourth
                                                    Quarter           Quarter            Quarter           Quarter
                                               -------------        ------------      ------------       ------------

                                                                                         
Gross profit on sales                       $         --        $         --       $       --        $         --
General and administrative expenses                 (541,247)         (1,521,682)         (987,306)        (1,304,221)
Research and development expenses                 (1,123,221)         (1,759,775)       (1,646,710)          (474,981)
Other income/expense                                  11,060            (459,800)           11,154             45,647
                                               -------------        ------------      ------------       ------------

Net loss                                         $(1,653,408)        $(3,741,257)      $(2,622,862)       $(1,733,555)
                                               =============        ============      ============       ============

Net loss per share - basic and diluted            $(.02)              $(.04)             $(.03)            $(.03)
                                               =============       ============      ============       ============




13.    AGREEMENT WITH BOSTON SCIENTIFIC CORPORATION

         On January  21,  2003 the  Company  and Boston  Scientific  Corporation
("BSC") entered into a distribution  agreement pursuant to which the Company has
granted  BSC  certain   rights  to  market  and  distribute  the  Company's  BPH
technology.

         The  Company  and BSC also  entered  into a  transaction  agreement  on
January 21,  2003.  Pursuant to this  agreement,  upon  attainment  of specified
milestones by Celsion,  BSC will make equity  investments in Celsion through the
purchase of the  Company's  common  stock.  On January  21,  2003 BSC  purchased
9,375,354 shares of the Company's common stock for $5,000,000.

       The Company  has also  granted BSC the  exclusive  right to purchase  the
assets and technology relating to the manufacture,  marketing sale, distribution
and/or  research  and  development  of products  using  thermal  therapy for the
treatment of BPH.



                                      F-17