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Earn-out Milestone Liability

12 Months Ended

Dec. 31, 2019

12. EARN-OUT MILESTONE LIABILITY

The total aggregate purchase price for the EGEN Acquisition included potential future Earn-out Payments contingent upon achievement of certain milestones. The difference between the aggregate $30.4 million in future Earn-out Payments and the $13.9 million included in the fair value of the acquisition consideration at June 20, 2014 was based on the Company’s risk-adjusted assessment of each milestone (10% to 67%) and utilizing a discount rate based on the estimated time to achieve the milestone (1.5 to 2.5 years). The earn-out milestone liability will be fair valued at the end of each quarter and any change in their value will be recognized in the financial statements.

On March 28, 2019, the Company and EGWU, Inc, entered into the Amended Asset Purchase Agreement. Pursuant to the Amended Asset Purchase Agreement, payment of the earnout milestone liability related to the Ovarian Cancer Indication of $12.4 million has been modified. The Company has the option to make the payment as follows:

a)	$7.0 million in cash within 10 business days of achieving the milestone; or
b)	$12.4 million in cash, common stock of the Company, or a combination of either, within one year of achieving the milestone.

The Company provided EGWU, Inc. 200,000 warrants to purchase common stock at a strike price of $0.01 per warrant share as consideration for entering into this amended agreement. The warrant shares have no expiration and were fair valued at $2.00 using the closing price of a share of Celsion stock on the date of issuance offset by the exercise price and recorded as a non-cash expense in the income statement and were classified as equity on the balance sheet.

At December 31, 2019, the Company fair valued the earn-out milestone liability at $6.2 million and recognized a non-cash gain of $2.7 million during 2019 as a result of the change in the fair value of earn-out milestone liability of $8.9 million at December 31, 2018. In assessing the earnout milestone liability at December 31, 2019, the Company fair valued each of the two payment options per the Amended Asset Purchase Agreement and weighted them at 65% and 35% probability for the $7.0 million and the $12.4 million payments, respectively.

At December 31, 2018, the Company fair valued the earn-out milestone liability at $8.9 million and recognized a non-cash gain of $3.6 million during 2018 as a result of the change in the fair value of earn-out milestone liability of $12.5 million at December 31, 2017. Included in the non-cash gain during 2018, was the reduction of the liability by $3.9 million during the third quarter of 2017 related to the write down of one of the in-process research and development assets (see Note 5) as the Company believes there is a de minimis probability of the payout of the related earn-out milestone liabilities. The fair value of the remaining earn-out milestone liabilities at December 31, 2018 was based on the Company’s risk-adjusted assessment of each milestone (80%) utilizing a discount rate based on the estimated time to achieve the milestone (1.25 years).

The following is a summary of the changes in the earn-out milestone liability for 2018 and 2019:

Balance at January 1, 2018	$	12,538,525
Non-cash gain from the adjustment for the change in fair value included in 2018 net loss		(3,630,861	)
Balance at December 31, 2018		8,907,664
Non-cash gain from the adjustment for the change in fair value included in 2019 net loss		(3,189,955	)
Balance at December 31, 2019	$	5,717,709