Full Press Release Details
Table of Contents
Consolidated Financial Statements
| Report of Grant Thornton LLP Independent Registered Public Accounting Firm | F-2 | |||
| Consolidated Balance Sheets at December 31, 2017 and 2016 | F-3 | |||
| Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2017, 2016 and 2015 | F-4 | |||
| Consolidated Statements of Stockholders Equity for the years ended December 31, 2017, 2016 and 2015 | F-5 | |||
| Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 | F-6 | |||
| Notes to Consolidated Financial Statements | F-7 |
Table of Contents
Board of Directors and Stockholders
Delcath Systems, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Delcath Systems, Inc. (a Delaware corporation) and subsidiaries (collectively, the
Company ) as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive loss, changes in stockholders equity (deficit), and cash flows for each of the three years in the period ended December
31, 2017, and the related notes (collectively referred to as the consolidated financial statements ). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses from operations and as of December 31, 2017 has an
accumulated deficit of $324.8 million. These conditions, along with other matters as set forth in Note 1, raise substantial doubt about the Company s ability to continue as a going concern. Management s plans in regard to these matters are
also discussed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
These financial statements are the
responsibility of the Company s management. Our responsibility is to express an opinion on the Company s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company s
(except for the matter described in Note 15, fifth paragraph, as to which the date is May 2, 2018)
Table of Contents
DELCATH SYSTEMS, INC.
Consolidated Balance Sheets as of December 31, 2017 and 2016
(in thousands, except share and per share data)
| December 31, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 3,999 | $ | 4,409 | ||||
| Restricted cash | 1,325 | 27,287 | ||||||
| Accounts receivables, net | 317 | 403 | ||||||
| Inventories | 1,248 | 660 | ||||||
| Prepaid expenses and other current assets | 700 | 698 | ||||||
| Deferred financing costs | 699 | |||||||
| Total current assets | 7,589 | 34,156 | ||||||
| Property, plant and equipment, net | 1,298 | 1,083 | ||||||
| Total assets | $ | 8,887 | $ | 35,239 | ||||
| Liabilities and Stockholders Equity (Deficit) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 3,846 | $ | 594 | ||||
| Accrued expenses | 3,408 | 3,407 | ||||||
| Convertible notes payable, net of debt discount | 13,343 | |||||||
| Warrant liability | 560 | 18,751 | ||||||
| Total current liabilities | 7,814 | 36,095 | ||||||
| Deferred revenue | 30 | |||||||
| Other non-current liabilities | 395 | 604 | ||||||
| Total liabilities | 8,209 | 36,729 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders Equity (Deficit) | ||||||||
| Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | ||||||||
| Common stock, $.01 par value; 500,000,000 shares authorized; 228,140 and 24 shares issued and 228,139 and 23 shares outstanding at December 31, 2017 and December 31, 2016, respectively* | 2 | |||||||
| Additional paid-in capital | 325,517 | 277,790 | ||||||
| Accumulated deficit | (324,832 | ) | (279,188 | ) | ||||
| Treasury stock, at cost; 1 share at December 31, 2017 and December 31, 2016, respectively* | (51 | ) | (51 | ) | ||||
| Accumulated other comprehensive loss | 42 | (41 | ) | |||||
| Total stockholders equity (deficit) | 678 | (1,490 | ) | |||||
| Total liabilities and stockholders equity (deficit) | $ | 8,887 | $ | 35,239 |
See Accompanying Notes to these Consolidated Financial Statements.
Table of Contents
DELCATH SYSTEMS, INC.
Consolidated Statements of Operations and Comprehensive Loss
for the Years Ended December 31, 2017, 2016 and 2015
(in thousands, except share and per share data)
| Year ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Revenue | $ | 2,715 | $ | 1,992 | $ | 1,747 | ||||||
| Cost of goods sold | (701 | ) | (550 | ) | (462 | ) | ||||||
| Gross profit | 2,014 | 1,442 | 1,285 | |||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative expenses | 9,684 | 9,434 | 10,009 | |||||||||
| Research and development expenses | 10,495 | 8,448 | 6,486 | |||||||||
| Total operating expenses | 20,179 | 17,882 | 16,495 | |||||||||
| Operating loss | (18,165 | ) | (16,440 | ) | (15,210 | ) | ||||||
| Change in fair value of the warrant liability, net | 15,103 | 12,780 | 564 | |||||||||
| Gain on warrant extinguishment | 9,613 | |||||||||||
| Loss on debt settlements and extinguishments | (29,924 | ) | ||||||||||
| Interest expense | (21,703 | ) | (14,328 | ) | (67 | ) | ||||||
| Other income (expense) | (41 | ) | 17 | 9 | ||||||||
| Net loss | $ | (45,117 | ) | $ | (17,971 | ) | $ | (14,704 | ) | |||
| Other comprehensive loss: | ||||||||||||
| Foreign currency translation adjustments | $ | 83 | $ | (33 | ) | $ | (28 | ) | ||||
| Comprehensive loss | $ | (45,034 | ) | $ | (18,004 | ) | $ | (14,732 | ) | |||
| Common share data: | ||||||||||||
| Basic and diluted loss per share* | $ | (3,250 | ) | $ | 1,853,500 | ) | $ | (2,548,000 | ) | |||
| Weighted average number of basic and diluted shares outstanding* | 14,039 | 10 | 6 |
See Accompanying Notes to these Consolidated Financial Statements.
Table of Contents
DELCATH SYSTEMS, INC.
Consolidated Statements of Stockholders Equity (Deficit)
for the Years Ended December 31, 2017, 2016 and 2015
(in thousands, except share data)
| Common Stock Issued $0.01 Par Value* | In Treasury* | Additional Paid-in Capital* | Accumulated Deficit | Accumulated Other Comprehensive (loss) income | Total Stockholders Equity (Deficit) | |||||||||||||||||||||||||||
| # of Shares | Amount | # of shares | Amount | |||||||||||||||||||||||||||||
| Balance at December 31, 2014 | 5 | (1 | ) | $ | (51 | ) | $ | 264,689 | $ | (246,513 | ) | $ | 20 | $ | 18,145 | |||||||||||||||||
| Compensation expense for issuance of stock options | 349 | 349 | ||||||||||||||||||||||||||||||
| Compensation expense for issuance of restricted stock | 308 | 308 | ||||||||||||||||||||||||||||||
| Sale of common stock, net of expenses | 4 | 8,479 | 8,479 | |||||||||||||||||||||||||||||
| Exercise of warrants | 176 | 176 | ||||||||||||||||||||||||||||||
| Fair value of warrants issued classified as liability | (4,247 | ) | (4,247 | ) | ||||||||||||||||||||||||||||
| Fair value of warrants exercised | 123 | 123 | ||||||||||||||||||||||||||||||
| Net loss | (14,704 | ) | (14,704 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation | (28 | ) | (28 | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2015 | 9 | $ | (1 | ) | $ | (51 | ) | $ | 269,877 | $ | (261,217 | ) | $ | (8 | ) | $ | 8,601 | |||||||||||||||
| Compensation expense for issuance of stock options | 161 | 161 | ||||||||||||||||||||||||||||||
| Compensation expense for issuance of restricted stock | 266 | 266 | ||||||||||||||||||||||||||||||
| Sale of common stock, net of expenses | 2 | 1,011 | 1,011 | |||||||||||||||||||||||||||||
| Issuance of common stock for payments made in shares on convertible notes payable | 10 | 649 | 649 | |||||||||||||||||||||||||||||
| Fair value of beneficial conversion feature of convertible note | 4,435 | 4,435 | ||||||||||||||||||||||||||||||
| Fair value of warrants issued classified as liability | (707 | ) | (707 | ) | ||||||||||||||||||||||||||||
| Exercise of warrants | 3 | 1,372 | 1,372 | |||||||||||||||||||||||||||||
| Fair value of warrants exercised | 726 | 726 | ||||||||||||||||||||||||||||||
| Net loss | (17,971 | ) | (17,971 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation | (33 | ) | (33 | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2016 | 24 | $ | (1 | ) | $ | (51 | ) | $ | 277,790 | $ | (279,188 | ) | $ | (41 | ) | $ | (1,490 | ) | ||||||||||||||
| Compensation expense for issuance of stock options | 50 | 50 | ||||||||||||||||||||||||||||||
| Compensation expense for issuance of restricted stock | 0 | 79 | 79 | |||||||||||||||||||||||||||||
| Issuance of common stock and rights for payments made in shares on convertible notes payable | 227,287 | 2 | 40,119 | 40,121 | ||||||||||||||||||||||||||||
| Fair value of beneficial conversion feature of convertible note | 4,908 | 4,908 | ||||||||||||||||||||||||||||||
| Series B preferred stock dividend | (527 | ) | (527 | ) | ||||||||||||||||||||||||||||
| Warrants exercised | 736 | 19 | 19 | |||||||||||||||||||||||||||||
| Fair value of warrants exercised | 2,552 | 2,552 | ||||||||||||||||||||||||||||||
| Adjustment for rounding related to Nov 2017 reverse stock split | 93 | |||||||||||||||||||||||||||||||
| Net loss | (45,117 | ) | (45,117 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation | 83 | 83 | ||||||||||||||||||||||||||||||
| Balance at December 31, 2017 | 228,140 | $ | 2 | (1 | ) | $ | (51 | ) | $ | 325,517 | $ | (324,832 | ) | $ | 42 | $ | 678 |
See Accompanying Notes to these Consolidated Financial Statements.
Table of Contents
DELCATH SYSTEMS, INC.
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2017, 2016 and 2015
| Year ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (45,117 | ) | (17,971 | ) | (14,704 | ) | |||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Stock option compensation expense | 50 | 161 | 349 | |||||||||
| Restricted stock compensation expense | 79 | 266 | 308 | |||||||||
| Depreciation expense | 310 | 305 | 617 | |||||||||
| Loss on disposal of equipment | 18 | 1 | 15 | |||||||||
| Warrant liability fair value adjustment | (15,103 | ) | (12,780 | ) | (564 | ) | ||||||
| Gain on warrant extinguishment | (9,613 | ) | ||||||||||
| Non-cash interest income | (1 | ) | (1 | ) | (1 | ) | ||||||
| Debt discount and deferred finance costs amortization | 21,544 | 14,268 | ||||||||||
| Loss on debt settlements and extinguishments | 29,924 | |||||||||||
| Changes in assets and liabilities: | ||||||||||||
| Decrease in prepaid expenses and other assets | 7 | 260 | 9 | |||||||||
| (Increase) decrease in accounts receivable | 108 | (138 | ) | (52 | ) | |||||||
| Decrease (increase) in inventories | (543 | ) | 95 | (420 | ) | |||||||
| Increase (decrease) in accounts payable and accrued expenses | 3,180 | 1,507 | (1,757 | ) | ||||||||
| Increase (decrease) in deferred revenue | (32 | ) | 30 | |||||||||
| Decrease in other non-current liabilities | (209 | ) | (216 | ) | (220 | ) | ||||||
| Net cash used in operating activities | (15,398 | ) | (14,213 | ) | (16,420 | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of property, plant and equipment | (524 | ) | (258 | ) | (170 | ) | ||||||
| Increase in restricted cash | (1,087 | ) | ||||||||||
| Proceeds from sales of property, plant and equipment | 180 | |||||||||||
| Net cash (used in) provided by investing activities | (524 | ) | (1,345 | ) | 10 | |||||||
| Cash flows from financing activities: | ||||||||||||
| Increase in restricted cash | (26,200 | ) | ||||||||||
| Net proceeds from the release of restricted cash | 13,120 | |||||||||||
| Release of restricted cash for extinguishment of Series C Warrants | 7,876 | |||||||||||
| Cash paid to extinguish of Series C Warrants | (7,876 | ) | ||||||||||
| Net proceeds from sale of Series B and Series C preferred shares | 2,310 | |||||||||||
| Release of restricted cash for redemption of Series A and Series B preferred shares | 2,360 | |||||||||||
| Cash paid to redeem Series A and Series B preferred shares | (2,360 | ) | ||||||||||
| Release of restricted cash for redemption of Series C Preferred Shares | 590 | |||||||||||
| Cash paid to redeem Series C preferred shares | (590 | ) | ||||||||||
| Net proceeds from convertible note debt financing | 31,226 | |||||||||||
| Net proceeds from sale of stock and exercise of warrants | 15 | 2,383 | 8,655 | |||||||||
| Net cash provided by financing activities | 15,445 | 7,409 | 8,655 | |||||||||
| Fx effect on cash | 67 | (49 | ) | (107 | ) | |||||||
| Increase (decrease) in cash and cash equivalents | (410 | ) | (8,198 | ) | (7,862 | ) | ||||||
| Cash and cash equivalents at beginning of period | 4,409 | 12,607 | 20,469 | |||||||||
| Cash and cash equivalents at end of period | $ | 3,999 | $ | 4,409 | $ | 12,607 | ||||||
| Supplemental non-cash activities: | ||||||||||||
| Conversion of convertible notes | $ | 40,121 | $ | 649 | $ | |||||||
| Fair value of warrants issued | $ | 16,953 | $ | 28,472 | $ | 4,247 | ||||||
| Cashless exercise of warrants | $ | 2,537 | $ | $ | ||||||||
| Deemed dividend | $ | 527 | $ | $ | ||||||||
| Fair value of warrants exercised for cash | $ | 19 | $ | 726 | $ | 123 |
See Accompanying Notes to these Consolidated Financial Statements.
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2017, 2016 and 2015
Delcath Systems, Inc. is an interventional oncology company focused on the treatment of primary and metastatic liver cancers. Our
investigational product Melphalan Hydrochloride for Injection for use with the Delcath Hepatic Delivery System (Melphalan/HDS) is designed to administer high-dose chemotherapy to the liver while controlling systemic exposure and
associated side effects. In Europe, our system is commercially available under the trade name Delcath Hepatic CHEMOSAT Delivery System for Melphalan (CHEMOSAT ), where it has been used at major medical centers to treat a wide range of cancers of the liver.
Our primary research focus is on ocular melanoma liver metastases (mOM) and intrahepatic cholangiocarcinoma (ICC), a type of primary liver
cancer, and certain other cancers that are metastatic to the liver. We believe the disease states we are investigating represent a multi-billion dollar global market opportunity and a clear unmet medical need.
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and has
accumulated deficit of $324.8 million at December 31, 2017. As shown in the accompanying financial statements during the year ended December 31, 2017, the Company incurred net losses of $45.1 million and used $15.4 million
of cash for its operating activities. These factors among others raise substantial doubt about the Company s ability to continue as a going concern for a reasonable period of time.
The Company s existence is dependent upon management s ability to obtain additional funding sources or to enter into strategic
alliances. Adequate additional financing may not be available to us on acceptable terms, or at all. If the Company is unable to raise additional capital and/or enter into strategic alliances when needed or on attractive terms, it would be forced to
delay, reduce or eliminate our research and development programs or any commercialization efforts. There can be no assurance that the Company s efforts will result in the resolution of the Company s liquidity needs. If Delcath is not able
to continue as a going concern, it is likely that holders of its common stock will lose all of their investment. The accompanying consolidated financial statements do not include any adjustments that might result should the Company be unable to
continue as a going concern.
The Company anticipates incurring additional losses until such time, if ever, that it can generate
significant sales. Management believes that its capital resources are adequate to fund operations through May 2018. Additional working capital will be required to continue operations. Operations of the Company are subject to certain risks and
uncertainties, including, among others, uncertainty of product development and clinical trial results; uncertainty regarding regulatory approval; technological uncertainty; uncertainty regarding patents and proprietary rights; comprehensive
government regulations; limited commercial manufacturing, marketing or sales experience; and dependence on key personnel.
The accounting and financial reporting policies of the Company conform to generally accepted accounting principles in the United States of
America (GAAP). The preparation of consolidated financial statements in conformity with GAAP requires management to make assumptions and estimates that impact the amounts reported in the Company s consolidated financial statements. The
consolidated financial statements include the accounts of all entities controlled by Delcath. All significant inter-company accounts and transactions are eliminated.
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2017, 2016 and 2015
The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under
the circumstances. The amounts of assets and liabilities reported in the Company s consolidated balance sheets and the amount of revenues and expenses reported for each of the periods presented are affected by estimates and assumptions, which
are used for, but not limited to, the accounting for derivative instrument liabilities, stock-based compensation, valuation of inventory, impairment of long-lived assets, income taxes and operating expense accruals. Such assumptions and estimates
are subject to change in the future as additional information becomes available or as circumstances are modified. Actual results could differ from these estimates.
Cash Equivalents and Concentrations of Credit Risk
The Company considers investments with original maturities of three months or less at date of acquisition to be cash equivalents. The Company
has deposits that exceed amounts insured by the Federal Deposit Insurance Corporation (FDIC), however, the Company does not consider this a significant concentration of credit risk based on the strength of the financial institution.
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded as
restricted cash on the accompanying consolidated balance sheets.
Accounts receivable, principally trade, are generally due within 30 days and are stated at amounts due from customers. Collections and payments
from customers are monitored and a provision for estimated credit losses may be created based upon historical experience and specific customer collection issues that may be identified.
Inventories are valued at the lower of cost or market value using
the first-in, first-out method. The reported net value of inventory includes finished saleable products, work-in-process, and raw materials that will be sold or used in future periods. The Company reserves for expired, obsolete, and slow-moving inventory.
Prior to obtaining authorization to affix the CE Mark to its Generation Two CHEMOSAT System in April 2012, the Company expensed all of its
inventory costs as research and development. Inventory as of December 31, 2017 includes finished goods and components that have been purchased since April 2012. Therefore, to the extent that materials expensed prior to April 2012 are used in
manufacturing finished goods for sale, the Company s cost of goods sold will be impacted accordingly.
Property, plant and equipment are recorded at cost, less accumulated depreciation. The Company provides for depreciation
on a straight line basis over the estimated useful lives of the assets which range from three to seven years. Leasehold improvements will be amortized over the shorter of the lease term or the
Table of Contents
DELCATH SYSTEMS, INC.
Notes to Consolidated Financial Statements