Note

Acquisition

of EGEN Assets

June

20,

2014,

we completed the acquisition of substantially all of the assets of EGEN, Inc., an Alabama corporation, which has changed its company name to EGWU, Inc. after the closing of the acquisition (“EGEN”), pursuant to an asset purchase agreement dated as of

June

2014,

by and between EGEN and Celsion (the “Asset Purchase Agreement”). We acquired all of EGEN’s right, title and interest in and to substantially all of the assets of EGEN, including cash and cash equivalents, patents, trademarks and other intellectual property rights, clinical data, certain contracts, licenses and permits, equipment, furniture, office equipment, furnishings, supplies and other tangible personal property. In addition, CLSN Laboratories assumed certain specified liabilities of EGEN, including the liabilities arising out of the acquired contracts and other assets relating to periods after the closing date.

The total purchase price for the asset acquisition is up to

$44.4

million, including potential future earnout payments of up to

$30.4

million contingent upon achievement of certain earnout milestones set forth in the Asset Purchase Agreement. At the closing, we paid approximately

$3.0

million in cash after the expense adjustment and issued

193,728

shares of our common stock to EGEN. The shares of common stock were issued in a private transaction exempt from registration under the Securities Act, pursuant to Section

(

) thereof. In addition,

47,862

shares of common stock were held back by us at the closing and are issuable to EGEN pending satisfactory resolution of any post-closing adjustments for expenses or in relation to EGEN’s indemnification obligations under the Asset Purchase Agreement. These shares were issued on

June 16, 2017.

The earnout payments of up to

$30.4

million will become payable, in cash, shares of our common stock or a combination thereof, at our option upon achievement of

three

major milestone events as follows:

●

$12.4

million will become payable upon achieving certain specified development milestones relating to an ovarian cancer study of GEN-

(formerly known as EGEN-

001

) to be conducted by us or our subsidiary;

●

$12.0

million will become payable upon achieving certain specified development milestones relating to a GEN-

glioblastoma multiforme brain cancer study to be conducted by us or our subsidiary; and

●

up to

$6.0

million will become payable upon achieving certain specified milestones relating to the TheraSilence technology acquired from EGEN in the acquisition.

The following table summarizes the fair values of these assets acquired and liabilities assumed related to the acquisition.

Property and equipment, net	$	35,000
In-process research and development		24,211,000
Other intangible assets (Covenant not to compete)		1,591,000
Goodwill		1,976,000
Total assets		27,813,000
Accounts payable and accrued liabilities		(235,000	)
Net assets acquired	$	27,578,000

Acquired In-Process Research and Development (IPR&D) consists of EGEN's drug technology platforms

known as “TheraPlas” and “TheraSilence”. The fair value of the IPR&D drug technology platforms was estimated to be

$24.2

million as of the acquisition date using the Multi-Period Excess Earnings Method (MPEEM). Under the MPEEM, the fair value of an intangible asset is equal to the present value of the asset’s incremental after-tax cash flows (excess earnings) remaining after deducting the market rates of the return of the estimated value of contributory assets (contributory charge) over its remaining useful life. As of the closing of the acquisition, the IPR&D is considered indefinite lived intangible assets and will

not

be amortized.

IPR&D is reviewed for impairment at least annually as of our

third

quarter ended

September 30,

and whenever events or changes in circumstances indicate that the carrying value

of the assets might

not

be recoverable.

December 31, 2016,

the Company determined

one

of the IPR&D assets related to the development of its RNA delivery system being developed with collaborators using their RNA product candidates, valued at

$1.4

million, was impaired. Therefore, the Company wrote off the value of this IPR&D asset incurring a non-cash charge of

$1.4

million in the

fourth

quarter of

2016.

September 30, 2017,

after the Company’s assessment of the totality of the events that could impair IPR&D, the Company determined certain IPR&D assets related to the development of its glioblastoma multiforme cancer (GBM) product candidate

may

be impaired. To arrive at this determination, the Company assessed the status of studies in GBM conducted by its competitors and the Company’s strategic commitment of resources to its studies in primary liver cancer and ovarian cancer. The Company estimated the fair value of the IPR&D related to GBM at

September 30, 2017

using the MPEEM. The Company concluded that the GBM asset, valued at

$9.4

million, was partially impaired and wrote down the GBM asset to

$6.9

million incurring a non-cash charge of

$2.5

million in the

third

quarter of

2017.

In connection with the writeoff of this IPR&D asset, the Company concluded there was a reduced probability of payments of the earn-out milestones associated with the GBM asset and therefore reduced the earn-out milestone liability from

$13.8

million to

$12.5

million, recording a non-cash benefit of approximately

$1,246,151

in the

third

quarter of

2017.

The Company concluded

none

of the other IPR&D assets were impaired at

September 30, 2017.

Pursuant to the EGEN Purchase Agreement, EGEN provided certain covenants (“Covenant

Not

To Compete”) to the Company whereby EGEN agreed, during the period ending on the

seventh

anniversary of the closing date of the acquisition on

June 20, 2014,

not

to enter into any business, directly or indirectly, which competes with the business of the Company nor will it contact, solicit or approach any of the employees of the Company for purposes of offering employment.

Amortization expense was

$56,829

and

$170,487

during the

three

months and

nine

months ended

September 30, 2017,

respectively. The carrying value of the Covenant

Not

To Compete was

$852,437,

net of

$738,777

accumulated amortization, as of

September 30, 2017

and was

$1,022,924,

net of

$568,290

accumulated amortization, as of

December 31, 2016.

The purchase price exceeded the estimated fair

value of the net assets acquired by approximately

$2.0

million which was recorded as Goodwill. Goodwill represents the difference between the total purchase price for the net assets purchased from EGEN and the aggregate fair values of tangible and intangible assets acquired, less liabilities assumed. Goodwill is reviewed for impairment at least annually as of our

third

quarter ended

September 30

or sooner if we believe indicators of impairment exist.

As of

September 30,

201

we concluded that the Company’s fair value exceeded its carrying value therefore “it is

not

more likely than

not”

that the Goodwill was impaired.