x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
06-1245881
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
1
|
|
1
|
|
2
|
|
9
|
|
10
|
|
11
|
|
11
|
|
11
|
|
11
|
|
11
|
|
11
|
|
12
|
|
12
|
|
13
|
Condensed
Financial Statements (Unaudited)
|
|
Page
|
June
30, 2009 and December 31, 2008
|
F-1
|
for the Three and Six Months Ended June 30, 2009 and 2008 and Cumulative
from Inception (August 5, 1988) to June 30, 2009
|
F-2
|
for the Six Months Ended June 30, 2009
|
F-3
|
for the Six Months Ended June 30, 2009 and 2008 and Cumulative from
Inception (August 5, 1988) to June 30, 2009
|
F-4
|
F-5
– F-11
|
June
30,
2009
(Unaudited)
|
December
31,
2008
(Audited)
|
|||||||
Assets
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 7,435,673 | $ | 6,939,233 | ||||
Investments
- CDs
|
1,472,928 | 3,847,904 | ||||||
Investments
– treasury bills
|
– | 200,710 | ||||||
Investments
– marketable equity securities
|
36,000 | 22,000 | ||||||
Income
tax receivable
|
298,535 | – | ||||||
Prepaid
expenses
|
324,253 | 331,346 | ||||||
Total
current assets
|
9,567,389 | 11,341,193 | ||||||
Property
and equipment, net
|
14,558 | 17,489 | ||||||
Total
assets
|
$ | 9,581,947 | $ | 11,358,682 | ||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable and accrued expenses
|
$ | 344,083 | $ | 703,489 | ||||
Derivative
instrument liability
|
7,105,454 | 448,318 | ||||||
Total
current liabilities
|
7,449,537 | 1,151,807 | ||||||
Commitments
and contingencies
|
– | – | ||||||
Stockholders’
equity
|
||||||||
Preferred
stock, $.01 par value; 10,000,000 shares authorized; no shares issued and
outstanding
|
– | – | ||||||
Common
stock, $.01 par value; 70,000,000 shares authorized; 26,252,919 and
25,383,354 shares issued and 26,224,819 and 25,355,254 outstanding at June
30, 2009 and December 31, 2008, respectively
|
262,530 | 253,834 | ||||||
Additional
paid-in capital
|
58,019,453 | 57,343,507 | ||||||
Deficit
accumulated during development stage
|
(56,088,270 | ) | (47,315,163 | ) | ||||
Treasury
stock at cost, 28,100 shares at June 30, 2009 and December 31,
2008
|
(51,103 | ) | (51,103 | ) | ||||
Accumulated
other comprehensive loss
|
(10,200 | ) | (24,200 | ) | ||||
Total
stockholders’ equity
|
2,132,410 | 10,206,875 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 9,581,947 | $ | 11,358,682 |
Three
Months Ended
June
30,
|
Six
Months Ended
June
30,
|
Cumulative
from Inception
(Aug
5, 1988)
to
June
30,
|
||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
||||||||||||||||
Costs
and expenses:
|
||||||||||||||||||||
General
and administrative expenses
|
$ | 544,913 | $ | 699,136 | $ | 1,019,876 | $ | 1,140,140 | $ | 23,798,975 | ||||||||||
Research
and development costs
|
2,195,036 | 1,099,488 | 3,656,226 | 2,088,444 | 33,053,642 | |||||||||||||||
Total costs and
expenses
|
$ | 2,739,949 | $ | 1,798,624 | $ | 4,676,102 | $ | 3,228,584 | $ | 56,852,617 | ||||||||||
Operating
loss
|
(2,739,949 | ) | (1,798,624 | ) | (4,676,102 | ) | (3,228,584 | ) | $ | (56,852,617 | ) | |||||||||
Derivative
instrument (expense) income
|
(3,904,379 | ) | (671,652 | ) | (4,466,157 | ) | (473,401 | ) | (645,475 | ) | ||||||||||
Interest
income
|
18,167 | 50,002 | 68,928 | 223,965 | 2,855,676 | |||||||||||||||
Other
income
|
– | – | 1,689 | – | (74,311 | ) | ||||||||||||||
Interest
expense
|
– | – | – | – | (171,473 | ) | ||||||||||||||
Net
loss before tax benefit
|
$ | (6,626,161 | ) | $ | (2,420,274 | ) | $ | (9,071,642 | ) | $ | (3,478,020 | ) | $ | (54,888,200 | ) | |||||
Income
tax benefit
|
298,535 | – | 298,535 | – | 298,535 | |||||||||||||||
Net
loss
|
$ | (6,327,626 | ) | $ | (2,420,274 | ) | $ | (8,773,107 | ) | $ | (3,478,020 | ) | $ | (54,589,665 | ) | |||||
Common
share data:
|
||||||||||||||||||||
Basic
and diluted loss per share
|
$ | (0.25 | ) | $ | (0.10 | ) | $ | (0.34 | ) | $ | (0.14 | ) | ||||||||
Weighted
average number of shares
of
common stock outstanding
|
25,528,282 | 25,262,031 | 25,455,818 | 25,260,658 |
Common
Stock
$0.01
Par Value
Issued
and Outstanding
|
Treasury
Stock
|
Additional
Paid-in Capital
|
Accumulated
Other Comprehensive Loss
|
Deficit
Accumulated During Development Stage
|
Other
Comprehensive Loss
|
||||||||||||
No.
of Shares
|
Amount
|
No.
of Shares
|
Amount
|
Total
|
|||||||||||||
Balance
at January 1, 2009
|
25,383,354
|
$
253,834
|
28,100
|
$
(51,103)
|
$
57,343,507
|
$ (24,200)
|
$ (47,315,163)
|
$ 10,206,875
|
–
|
||||||||
Compensation
expense for issuance of stock options
|
–
|
–
|
–
|
–
|
120,555
|
–
|
–
|
120,555
|
–
|
||||||||
Compensation
expense for issuance of stock
|
–
|
–
|
–
|
–
|
80,667
|
–
|
–
|
80,667
|
–
|
||||||||
Sale
of stock (including 1,043,478 warrants to purchase one share of common
stock at $3.99)
|
869,565
|
8,696
|
–
|
–
|
474,724
|
–
|
–
|
483,420
|
–
|
||||||||
Components
of comprehensive loss:
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
||||||||
Change
in unrealized loss on investments
|
–
|
–
|
–
|
–
|
–
|
14,000
|
–
|
14,000
|
$ 14,000
|
||||||||
Net
loss
|
–
|
–
|
–
|
–
|
–
|
–
|
(8,773,107)
|
(8,773,107)
|
(8,773,107)
|
||||||||
Total
comprehensive loss
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
$(8,759,107)
|
||||||||
Balance
at June 30, 2009
|
26,252,919
|
$
262,530
|
28,100
|
$
(51,103)
|
$
58,019,453
|
$ (10,200)
|
$ (56,088,270)
|
$ 2,132,410
|
Six
Months Ended
June
30,
|
Cumulative
from inception
(Aug.
5, 1988)
to
June 30,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$ | (8,773,107 | ) | $ | (3,478,020 | ) | $ | (54,589,665 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Stock
option compensation expense
|
120,555 | 70,586 | 5,480,821 | |||||||||
Stock
and warrant compensation expense
|
80,667 | 120,700 | 1,224,945 | |||||||||
Depreciation
expense
|
2,931 | 2,930 | 54,693 | |||||||||
Amortization
of organization costs
|
– | – | 42,165 | |||||||||
Non-cash
interest income
|
(32,928 | ) | – | (40,832 | ) | |||||||
Derivative
liability fair value adjustment
|
4,466,157 | 473,401 | 645,475 | |||||||||
Changes
in assets and liabilities:
|
||||||||||||
Decrease
(increase) in prepaid expenses
|
7,093 | 34,903 | (324,253 | ) | ||||||||
Increase
in income tax receivable
|
(298,535 | ) | – | (298,535 | ) | |||||||
Increase
(decrease) in accounts payable and accrued expenses
|
(359,406 | ) | 30,671 | 344,083 | ||||||||
Net
cash used in operating activities
|
$ | (4,786,573 | ) | $ | (2,744,829 | ) | $ | (47,461,103 | ) | |||
Cash
flows from investing activities:
|
||||||||||||
Purchase
of equipment or furniture and fixtures
|
$ | – | $ | (8,313 | ) | $ | (69,252 | ) | ||||
Purchase
of short-term investments
|
– | (203,172 | ) | (41,411,452 | ) | |||||||
Purchase
of marketable equity securities
|
– | (46,200 | ) | (46,200 | ) | |||||||
Proceeds
from maturities of short-term investments
|
2,608,614 | 9,878,700 | 39,979,356 | |||||||||
Organization
costs
|
– | – | (42,165 | ) | ||||||||
Net
cash provided by (used in) investing activities
|
$ | 2,608,614 | $ | 9,621,015 | $ | (1,589,713 | ) | |||||
Cash
flows from financing activities:
|
||||||||||||
Net
proceeds from sale of stock and exercise of stock options and
warrants
|
$ | 2,674,399 | $ | – | $ | 55,332,163 | ||||||
Repurchases
of common stock
|
– | – | (51,103 | ) | ||||||||
Dividends
paid on preferred stock
|
– | – | (499,535 | ) | ||||||||
Proceeds
from short-term borrowings
|
– | – | 1,704,964 | |||||||||
Net
cash provided by financing activities
|
$ | 2,674,399 | $ | – | $ | 56,486,489 | ||||||
Increase
in cash and cash equivalents
|
496,440 | 6,876,186 | 7,435,673 | |||||||||
Cash
and cash equivalents at beginning of period
|
6,939,233 | 7,886,937 | – | |||||||||
Cash
and cash equivalents at end of period
|
$ | 7,435,673 | $ | 14,763,123 | $ | 7,435,673 | ||||||
Supplemental
cash flow information:
|
||||||||||||
Cash
paid for interest
|
– | – | $ | 171,473 | ||||||||
Supplemental
non-cash activities:
|
||||||||||||
Cashless
exercise of stock options
|
$ | – | $ | – | $ | 544,116 | ||||||
Conversion
of debt to common stock
|
– | – | $ | 1,704,964 | ||||||||
Common
stock issued for preferred stock dividends
|
– | – | $ | 999,070 | ||||||||
Conversion
of preferred stock to common stock
|
– | – | $ | 24,167 | ||||||||
Common
stock issued as compensation for stock sale
|
– | – | $ | 510,000 | ||||||||
Fair
value of warrants issued
|
2,190,979 | – | $ | 6,459,979 |
Note
4:
|
Costs
and Expenses
|
Note
6:
|
Stockholders’
Equity
|
Note
7:
|
Stock
Option Plans
|
The
Plans
|
||||||||||||||||
Stock
Options
|
Exercise
Price per Share
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Life (Years)
|
|||||||||||||
Outstanding
at December 31, 2008
|
1,460,000 | $ | 1.23 – $6.18 | $ | 3.44 | 3.68 | ||||||||||
Granted
|
60,000 | 1.24 – 3.66 | 1.64 | - | ||||||||||||
Expired
|
- | - | - | - | ||||||||||||
Exercised
|
- | - | - | - | ||||||||||||
Outstanding
at June 30, 2009
|
1,520,000 | $ | 1.23 – $6.18 | $ | 3.37 | 3.25 |
Note
8:
|
Assets
and Liabilities Measured at Fair
Value
|
Level
1
|
Level
2
|
Level
3
|
Balance
at June 30, 2009
|
|||||||||||||
Assets
|
||||||||||||||||
Marketable
equity securities
|
$ | 36,000 | $ | – | $ | – | $ | 36,000 | ||||||||
Money
market funds
|
7,340,823 | – | – | 7,340,823 | ||||||||||||
Certificates
of deposit
|
1,472,928 | – | – | 1,472,928 | ||||||||||||
Total
Assets
|
$ | 8,849,751 | $ | – | $ | – | $ | 8,849,751 | ||||||||
Liabilities
|
||||||||||||||||
Derivative
financial instruments
|
$ | – | $ | 7,105,454 | $ | – | $ | 7,105,454 | ||||||||
Total
Liabilities
|
$ | – | $ | 7,105,454 | $ | – | $ | 7,105,454 |
Note
9:
|
Income
Taxes
|
2008,
2nd Quarter
|
University
of Maryland Medical Center
|
St.
Luke’s Cancer Center
|
Albany
Medical Center
|
Atlantic
Melanoma Center of Atlantic Health
|
University
of Texas Medical Branch
|
2008,
3rd
Quarter
|
Swedish
Medical Center
|
John
Wayne Cancer Institute
|
Providence
Health Systems
|
Moffitt
Cancer Center
|
2008,
4th
Quarter
|
University
of Pittsburgh Medical Center
|
2009,
1st
Quarter
|
Ohio
State University Comprehensive Cancer
Center
|
Quantitative
and Qualitative Disclosures about Market
Risk
|
Legal
Proceedings
|
Risk
Factors
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Defaults
upon Senior Securities
|
Submission
of Matters to a Vote of Security
Holders
|
Name |
For
|
Withheld
|
Laura
A.
Philips
|
19,736,287
|
956,717
|
Roger
G. Stoll
|
20,533,365
|
139,639
|
Name
|
Pamela
R. Contag
|
Eamonn
Hobbs
|
Harold
S. Koplewicz
|
Robert
B. Ladd
|
Richard
L. Taney
|
Other
Information
|
Exhibits
|
4.1
|
Form
of Warrant to Purchase Shares of Common Stock issued pursuant to the
Subscription Agreement dated June 9, 2009 (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 10,
2009).
|
10.1
|
2009
Stock Incentive Plan (incorporated by reference to Appendix B to the
Company’s proxy statement on Schedule 14A filed April 30,
2009).
|
10.2
|
Placement
Agency Agreement, dated June 9, 2009 (incorporated by reference to Exhibit
1.1 to the Company’s Current Report on Form 8-K filed June 10,
2009).
|
10.3
|
Subscription
Agreement, dated June 9, 2009 (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed June 10,
2009).
|
10.4
|
Form
of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed April 10,
2009).
|
31.1
|
Certification
of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a)
of the Exchange Act.
|
31.2
|
Certification
of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a)
of the Exchange Act.
|
32.1
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
July
28, 2009
|
DELCATH
SYSTEMS, INC.
(Registrant)
|
|
/s/ Barbra Keck | ||
Barbra
Keck
Controller
(Principal
financial officer)
|
Exhibit
No.
|
Description
|
4.1
|
Form
of Warrant to Purchase Shares of Common Stock issued pursuant to the
Subscription Agreement dated June 9, 2009 (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 10,
2009).
|
10.1
|
2009
Stock Incentive Plan (incorporated by reference to Appendix B to the
Company’s proxy statement on Schedule 14A filed April 30,
2009).
|
10.2
|
Placement
Agency Agreement, dated June 9, 2009 (incorporated by reference to Exhibit
1.1 to the Company’s Current Report on Form 8-K filed June 10,
2009).
|
10.3
|
Subscription
Agreement, dated June 9, 2009 (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed June 10,
2009).
|
10.4
|
Form
of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed April 10,
2009).
|
31.1
|
Certification
of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a)
of the Exchange Act.
|
31.2
|
Certification
of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a)
of the Exchange Act.
|
32.1
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
1)
|
I
have reviewed this quarterly report on Form 10-Q of Delcath Systems,
Inc;
|
2)
|
Based
on my knowledge, this 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
report;
|
3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4)
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being
prepared;
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5)
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
July
28, 2009
|
/s/ Eamonn Hobbs | |
Eamonn
Hobbs
President
and Chief Executive Officer
(Principal
executive officer)
|
1)
|
I
have reviewed this quarterly report on Form 10-Q of Delcath Systems,
Inc;
|
2)
|
Based
on my knowledge, this 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
report;
|
3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4)
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being
prepared;
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
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5)
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
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(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
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(b)
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Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
July
28, 2009
|
/s/ Barbra Keck | |
Barbra
Keck
Controller
(Principal
financial officer)
|
July
28, 2009
|
/s/ Eamonn Hobbs | |
Eamonn
Hobbs
President
and Chief Executive Officer
(Principal
executive officer)
|
July
28, 2009
|
/s/ Barbra Keck | |
Barbra
Keck
Controller
(Principal
financial officer)
|