*reflects a one-for-seven hundred (1:700) reverse stock split effected on December 24, 2019.
Notes to the Condensed Consolidated Financial Statements
The unaudited interim condensed consolidated financial statements of Delcath Systems, Inc. (“Delcath” or the “Company”) as of and for the three and six months ended June 30, 2020 and 2019 should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Annual Report”), which was filed with the Securities Exchange Commission (the “SEC”) on March 25, 2020 and may also be found on the Company’s website (www.delcath.com). In these notes to the condensed consolidated financial statements the terms “us”, “we” or “our” refer to Delcath and its consolidated subsidiaries.
Description of Business
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 CHEMOSAT® Hepatic 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 clinical development program (“CDP”) for Melphalan/HDS is comprised of The FOCUS Clinical Trial for Patients with Hepatic Dominant Ocular Melanoma (the “FOCUS Trial”), a global registration clinical trial that is investigating objective response rate in ocular melanoma liver metastases, or mOM, and the ALIGN Trial, a global Phase 3 clinical trial for intrahepatic cholangiocarcinoma, or ICC (the “ALIGN Trial”). Our CDP also includes a registry for CHEMOSAT commercial cases performed in Europe and sponsorship of select investigator-initiated trials or IITs.
Risks and Uncertainties
The recent outbreak of a novel strain of coronavirus (COVID-19) has had an impact on our ability to monitor data at our clinical trial sites and is likely to cause a decline in product revenue for the foreseeable future as many hospitals are prioritizing the treatment of patients diagnosed with COVID-19. We expected to announce top-line data from our FOCUS trial in mid-2020; however, COVID-19 has impacted our ability to enroll and treat patients in this trial and to monitor data at our clinical trial sites. As a result, we will not be able to release the top-line data from the FOCUS Trial within the timeframe we had anticipated. Once our clinical trial sites are able to return to normal operating procedures, we will assess the impact and update our expected timing accordingly. This situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity or capital resources cannot be reasonably estimated at this time.
Liquidity and Going Concern
The accompanying interim condensed consolidated 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 expects to continue incurring losses for the next several years. These losses, among other factors, raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s existence is dependent upon management’s ability to obtain additional funding sources or to enter into strategic alliances. There can be no assurance that the Company’s efforts will result in the resolution of the Company’s liquidity needs. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
Basis of Presentation
These interim condensed consolidated financial statements are unaudited and were prepared by the Company in accordance with generally accepted accounting principles in the United States of America (GAAP) and with the SEC’s instructions to Form 10-Q and Article 10 of Regulation S-X. They include the accounts of all entities controlled by Delcath and all significant inter-company accounts and transactions have been eliminated in consolidation. All historical share and per share amounts have been retrospectively adjusted for the one-for-seven hundred stock split effected on December 24, 2019.
9
The preparation of interim condensed consolidated financial statements requires management to make assumptions and estimates that impact the amounts reported. These interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s results of operations, financial position and cash flows for the interim periods ended June 30, 2020 and 2019; however, certain information and footnote disclosures normally included in our Annual Report have been condensed or omitted as permitted by GAAP. It is important to note that the Company’s results of operations and cash flows for interim periods are not necessarily indicative of the results of operations and cash flows to be expected for a full fiscal year or any interim period.
Significant Accounting Policies
A description of our significant accounting policies has been provided in Note 3 Summary of Significant Accounting Policies to the Consolidated Financial Statements included in the Company’s Annual Report.
Recently Issued Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes. The list of changes is comprehensive, however the changes will not significantly impact the Company due to the full valuation allowance that is recorded against the Company’s deferred tax assets ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of ASU 2019-12 is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company will adopt ASU 2019-12 in 2021.
(2)
|
Cash, Cash Equivalents and Restricted Cash
|
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in Restricted Cash on the balance sheets. Restricted cash does not include required minimum balances.
Cash, cash equivalents, and restricted cash balances were as follows:
|
|
June 30,
|
|
|
December 31,
|
|
(in thousands)
|
|
|
2020
|
|
|
|
2019
|
|
Cash and cash equivalents
|
|
$
|
16,011
|
|
|
$
|
10,002
|
|
Letters of credit
|
|
|
131
|
|
|
|
131
|
|
Security for credit cards
|
|
|
50
|
|
|
|
50
|
|
Total cash, cash equivalents and restricted cash shown in
the statements of cash flows
|
|
$
|
16,192
|
|
|
$
|
10,183
|
|
Inventories consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Raw materials
|
|
$
|
389
|
|
|
$
|
375
|
|
Work-in-process
|
|
|
334
|
|
|
|
279
|
|
Total inventories
|
|
$
|
723
|
|
|
$
|
654
|
|
10
(4)
|
Prepaid Expenses and Other Current Assets
|
Prepaid expenses and other current assets consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Clinical trial expenses
|
|
$
|
1,497
|
|
|
$
|
725
|
|
Insurance premiums
|
|
|
244
|
|
|
|
589
|
|
Other1
|
|
|
251
|
|
|
|
445
|
|
Total prepaid expenses and other current assets
|
|
$
|
1,992
|
|
|
$
|
1,759
|
|
1 Other consists of various prepaid expenses and other current assets, with no individual item accounting for more than 5% of prepaid expenses and other current assets at June 30, 2020 and December 31, 2019.
(5)
|
Property, Plant, and Equipment
|
Property, plant, and equipment consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
Estimated
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
Useful Life
|
Buildings and land
|
|
$
|
634
|
|
|
$
|
589
|
|
|
30 years - Buildings
|
Enterprise hardware and software
|
|
|
1,802
|
|
|
|
1,739
|
|
|
3 years
|
Leaseholds
|
|
|
1,797
|
|
|
|
1,695
|
|
|
Lesser of lease term or estimated useful life
|
Equipment
|
|
|
1,032
|
|
|
|
1,025
|
|
|
7 years
|
Furniture
|
|
|
202
|
|
|
|
198
|
|
|
5 years
|
Property, plant and equipment, gross
|
|
|
5,467
|
|
|
|
5,246
|
|
|
|
Accumulated depreciation
|
|
|
(4,603
|
)
|
|
|
(4,511
|
)
|
|
|
Property, plant and equipment, net
|
|
$
|
864
|
|
|
$
|
735
|
|
|
|
Depreciation expense for the three and six months ended June 30, 2020 was approximately $44 thousand and $92 thousand as compared to approximately $57 thousand and $122 thousand for the same periods in 2019.
Accrued expenses consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Clinical expenses
|
|
$
|
2,565
|
|
|
$
|
2,497
|
|
Compensation, excluding taxes
|
|
|
2,379
|
|
|
|
3,525
|
|
Other1
|
|
|
485
|
|
|
|
925
|
|
Total accrued expenses
|
|
$
|
5,429
|
|
|
$
|
6,947
|
|
1 Other consists of various accrued expenses, with no individual item accounting for more than 5% of current liabilities at June 30, 2020 and December 31, 2019.
The Company recognizes right-of-use (“ROU”) assets and lease liabilities when it obtains the right to control an asset under a leasing arrangement with an initial term greater than twelve months. The Company leases its facilities under non-cancellable operating and financing leases.
The Company evaluates the nature of each lease at the inception of an arrangement to determine whether it is an operating or financing lease and recognizes the ROU asset and lease liabilities based on the present value of future minimum lease payments over the expected lease term. The Company’s leases do not generally contain an implicit interest rate and therefore the Company
11
uses the incremental borrowing rate it would expect to pay to borrow on a similar collateralized basis over a similar term in order to determine the present value of its lease payments.
Pursuant to a 2014 sublease agreement (the “2014 Sublease”) and a 2015 sublease agreement (the “2015 Sublease”) the Company subleases portions of its leased premises in Dublin, Ireland to a sublessee. On May 15, 2020, the Company and its sublessee entered into amendments to the 2014 Sublease and 2015 Sublease pursuant to which (i) the 2014 Sublease and 2015 Sublease were extended from May 31, 2020 to August 2, 2021, and (ii) effective July 1, 2020, the leased premises under the 2015 Sublease would be expanded to include an additional 4,999 square ft of space, and (ii) effective July 1, 2020, the rent under the 2015 Sublease would increase from approximately $14,559 per month to $20,643 per month. The Company analyzed the terms of the amended 2014 Sublease and 2015 Sublease and determined that its ROU for the master operating lease was not impaired as a result of the amendments.
On June 25, 2020, the Company entered into a sub-lease agreement (the “2021 Sub-Lease”) with its current sublessee under the 2014 Sublease and 2015 Sublease pursuant to which, effective August 2, 2021, the current sublessee would become the lessee and the Company would then sub-lease its portion of the premises from such current sublessee. The Company Rent under the 2021 Sub-Lease will be approximately $3,721.50 per month. Aside from the 2021 Lease, the Company has no operating or financing leases that have not yet commenced.
The following table summarizes the Company’s operating and financing leases as of and for the six months ended June 30, 2020:
(in thousands)
|
|
US
|
|
|
Ireland
|
|
|
Total
|
|
Lease cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
236
|
|
|
$
|
103
|
|
|
$
|
339
|
|
Financing lease cost
|
|
23
|
|
|
|
—
|
|
|
|
23
|
|
Sublease income
|
|
|
—
|
|
|
|
(98
|
)
|
|
|
(98
|
)
|
Total
|
|
$
|
259
|
|
|
$
|
5
|
|
|
$
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows out from operating leases
|
|
|
(236
|
)
|
|
|
(103
|
)
|
|
|
(339
|
)
|
Operating cash flows in from operating leases
|
|
|
-
|
|
|
|
98
|
|
|
|
98
|
|
Operating cash flows out from financing leases
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
(22
|
)
|
Weighted average remaining lease term
|
|
|
0.7
|
|
|
|
1.1
|
|
|
|
|
|
Weighted average discount rate - operating leases
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
|
|
Remaining maturities of the Company’s operating leases, excluding short-term leases, are as follows:
(in thousands)
|
|
US
|
|
|
Ireland
|
|
|
Total
|
|
Year ended December 31, 2020
|
|
$
|
239
|
|
|
$
|
105
|
|
|
$
|
344
|
|
Year ended December 31, 2021
|
|
$
|
78
|
|
|
|
122
|
|
|
|
200
|
|
Total
|
|
$
|
317
|
|
|
|
227
|
|
|
|
544
|
|
Less present value discount
|
|
$
|
(9
|
)
|
|
|
(10
|
)
|
|
|
(19
|
)
|
Operating lease liabilities included in the condensed consolidated balance sheet at June 30, 2020
|
|
$
|
308
|
|
|
$
|
217
|
|
|
$
|
525
|
|
On June 6, 2019, the Company entered into an agreement with two institutional investors, pursuant to which the investors agreed to transfer and surrender to the Company for cancellation, warrants to purchase 5,605 shares of the Company’s common stock (the “Series D Warrants”) and warrants to purchase 0.1 million shares of the Company’s common stock (the “Pre-Funded Series D Warrants”). Under the terms of the Purchase Agreement, the Company agreed to sell and issue to the investors 8% Senior Secured Promissory Notes in an aggregate principal amount of $2.0 million and with a July 16, 2021 maturity date, in full payment and satisfaction of the purchase price for the Series D Warrants and Pre-Funded Series D Warrants. This agreement was effective on July 15, 2019, upon the closing of the Company’s July 2019 Private Placement discussed further in Notes 10 and 11 to the Company’s audited consolidated financial statements contained in its Annual Report. Following the closing of the July 2019 Private Placement, the Company entered into an agreement under which the 8% Senior Secured Promissory Notes became convertible into shares of Series E Preferred Stock and Warrants (the “Unit”) at the price of $1,500 per Unit. The principal is recognized in Convertible notes payable, long-term on the Condensed Consolidated Balance Sheet.
12
The following tables provide a summary of the notes outstanding at June 30, 2020:
|
|
Conversion
price
|
|
|
Current interest
rate
|
|
|
Principal
|
|
Long term convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
8.0% July 2019 Notes
|
|
$
|
1,500
|
|
|
|
8
|
%
|
|
$
|
2,000,000
|
|
Preferred Stock
Series E and Series E-1 Preferred Stock
On July 11, 2019, the Company entered into a securities purchase agreement with certain accredited investors pursuant to which Delcath sold to investors an aggregate of 20,000 shares of our Series E convertible preferred stock, par value $0.01 per share, or the “Series E Preferred Stock”, at a price of $1,000 per share and a warrant, or a “2019 E Warrant”, to purchase a number of shares of common stock equal to the number of shares of common stock issuable upon conversion of the Series E Preferred Stock purchased by the investor, or the “July 2019 Private Placement”. In connection with the July 2019 Private Placement, the Company exchanged $11.8 million of debt, interest and Series D Warrants for 11,500 shares of Series E Preferred Stock and related 2019 E Warrants, $0.1 million in accounts payables for 149 shares of Series E Preferred Stock and related 2019 E Warrants and issued 923 shares of Series E Preferred Stock and related 2019 E Warrants to certain investors in exchange for a waiver of rights under exchange agreements signed in December 2018 and March 2019, or the “Debt Exchange”.
On August 19, 2019, the Company entered into a securities purchase agreement with certain accredited investors pursuant to which Delcath sold to investors an aggregate of 9,510 shares of Series E-1 convertible preferred stock, par value $0.01 per share, or the Series E-1 Preferred Stock, at a price of $1,000 per share and a warrant, or a “2019 E-1 Warrant”, and together with the 2019 E Warrant, the “2019 Warrants”, to purchase a number of shares of common stock of the Company equal to the number of shares of common stock issuable upon conversion of the Series E-1 Preferred Stock purchased by the investor, or the “August 2019 Private Placement”, and, collectively with the July 2019 Private Placement, the “Private Placements”.
Each share of Series E Preferred Stock and Series E-1 Preferred Stock, or, collectively, the “Preferred Stock”, is convertible at any time at the option of the holder into the number of shares of common stock determined by dividing the current conversion price. At December 31, 2019, the conversion price was $23.04 and was subsequently adjusted to $10.00 upon the pricing of a $22.0 million offering on May 5, 2020, as discussed further below. As a result of the price adjustment, the excess of the fair value of the common stock that will be received on conversion, measured on the price reset date, exceeded the original proceeds allocated to the Preferred Stock by $12.0 million. The holders of the Preferred Stock are entitled to receive dividends on shares of Preferred Stock equal (on an “as converted” basis) to and in the same form as dividends paid on shares of the common stock. Any such dividends that are not paid to the holders of the Preferred Stock will increase the stated value. No other dividends will be paid on shares of Preferred Stock.
Each 2019 Warrant had an exercise price equal to $23.04 at December 31, 2019. The exercise price was subsequently adjusted to $10.00 upon the pricing of a $22.0 million offering on May 5, 2020, as discussed further below, which resulted in the recognition of a $55 thousand deemed dividend. The 2019 Warrants are exercisable until 5:00 p.m. (NYC time) on December 24, 2024.
As of June 30, 2020, there were 25,950 shares of Preferred Stock outstanding and 1.8 million 2019 Warrants outstanding.
13
Public Offering and Nasdaq Uplisting
On May 5, 2020, the Company closed a public offering of 1,823,000 shares of common stock, 377,000 pre-funded warrants and Series F warrants to purchase 2,224,900 shares of common stock at an exercise price of $10.00 per share. Delcath received gross proceeds of approximately $22.0 million from the offering, before deducting the underwriting discount and estimated offering expenses. The securities were offered pursuant to a registration statement on Form S-1 (File No. 333-235904) previously filed with the SEC and declared effective on April 30, 2020. In connection with this offering, the Company’s common stock was approved for listing and began trading on the Nasdaq Capital Market on May 1, 2020. As a result of this offering, the Preferred Stock conversion price was adjusted to $10.00 and the exercise price of the 2019 Warrants was adjusted to $10.00 and neither instrument is subject to further price resets.
Other Common Stock Issuances
During the six months ended June 30, 2020 the Company issued 1,549,609 shares of the Company’s common stock pursuant to conversions of Preferred Stock.
During the six months ended June 30, 2020, the Company issued 6,000 shares of common stock associated with the exercise of pre-funded warrants.
During the six months ended June 30, 2020, the Company issued 72,976 shares of common stock as compensation.
Share-Based Compensation
The Company’s 2019 Equity Incentive Plan (the “Plan”) allows for grants in the form of incentive stock options, nonqualified stock options, stock units, stock awards, stock appreciation rights, and other stock-based awards. All of the Company’s officers, directors, employees, consultants and advisors are eligible to receive grants under the Plan. The maximum number of shares reserved for issuance under the Plan is 2,142. Options to purchase shares of common stock are granted at exercise prices not less than 100% of fair value on the dates of grant. As of June 30, 2020, the Plan had approximately 502 shares available for grant.
The following is a summary of stock option activity under the Plan for the six months ended June 30, 2020:
|
|
Number of Shares
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
Aggregate Intrinsic
Value
|
|
Outstanding at December 31, 2019
|
|
|
1,640
|
|
|
$
|
196.70
|
|
|
9.1
|
|
$
|
—
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2020
|
|
|
1,640
|
|
|
$
|
196.70
|
|
|
8.6
|
|
$
|
—
|
|
Exercisable at June 30, 2020
|
|
|
1,640
|
|
|
$
|
196.70
|
|
|
8.6
|
|
$
|
—
|
|
At June 30, 2020, there was no unrecognized compensation expense related to non-vested share-based compensation awards under the Plan. The following is a summary of share-based compensation expense in the statement of operations:
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
(in thousands)
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Selling, general and administrative
|
$
|
606
|
|
|
$
|
58
|
|
|
$
|
655
|
|
|
$
|
106
|
|
Research and development
|
|
—
|
|
|
|
17
|
|
|
|
5
|
|
|
|
27
|
|
Total
|
$
|
606
|
|
|
$
|
75
|
|
|
$
|
660
|
|
|
$
|
133
|
|
14
Warrants
The following is a summary of warrant activity for the six months ended June 30, 2020:
|
|
Warrants
|
|
|
Exercise Price per
Share
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted Average
Remaining Life
(Years)
|
|
Outstanding at December 31, 2019
|
|
|
1,826,608
|
|
|
$7.00 - $23.04
|
|
$
|
23.04
|
|
|
|
5.0
|
|
Issued
|
|
|
2,601,900
|
|
|
|
|
|
10.00
|
|
|
|
|
|
Exercised
|
|
|
(6,000
|
)
|
|
|
|
|
0.01
|
|
|
|
|
|
Expired
|
|
|
(9
|
)
|
|
|
|
|
7.00
|
|
|
|
|
|
Outstanding at June 30, 2020
|
|
|
4,422,499
|
|
|
$0.01- $10.00
|
|
$
|
9.16
|
|
|
|
4.7
|
|
As of June 30, 2020, warrants to purchase 371,000 shares of common stock were pre-funded and the exercise price was $0.01 per share. The remaining warrants were exercisable at $10.00 per share.
(10)
|
Fair Value Measurements
|
|
As a result of the expiration of certain provisions in the 2019 Warrants, the 2019 Warrants were reclassified from liability to equity on February 19, 2020.
|
The table below presents the activity within Level 3 of the fair value hierarchy for the six months ended June 30, 2020:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)
|
|
Warrant Liability
|
|
Balance at December 31, 2019
|
|
$
|
3,368
|
|
Total change in the liability included in earnings
|
|
|
2,832
|
|
Fair value of warrants reclassified from liability to equity
|
|
|
(6,200
|
)
|
Balance at June 30, 2020
|
|
$
|
—
|
|
The fair value of the outstanding warrants at February 19, 2020, the date the 2019 Warrants were no longer classified as a liability, and December 31, 2019 was determined by using option pricing models with the following assumptions:
|
|
February 19,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Expected life (in years)
|
|
4.3
|
|
|
|
4.6
|
|
Expected volatility
|
|
208.2%
|
|
|
207.5%
|
|
Risk-free interest rates
|
|
1.4%
|
|
|
1.7%
|
|
The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2020, aggregated by the level in the fair value hierarchy within which those measurements fall in accordance with ASC 820.
|
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instrument liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,368
|
|
|
$
|
—
|
|
|
$
|
3,368
|
|
(11)
|
Net Loss per Common Share
|
Basic net loss per share is determined by dividing net loss by the weighted average shares of common stock outstanding during the period, without consideration of potentially dilutive securities, except for those shares that are issuable for little or no cash
15
consideration. Diluted net loss per share is determined by dividing net loss by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as stock options and warrants calculated using the treasury stock method. In periods with reported net operating losses, all common stock options and warrants are generally deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal.
The following potentially dilutive securities were excluded from the computation of earnings per share as of June 30, 2020 and 2019 because their effects would be anti-dilutive:
|
|
June 30,
|
|
(in thousands, except share data)
|
|
2020
|
|
|
2019
|
|
Stock options
|
|
|
1,640
|
|
|
|
1,667
|
|
Common stock warrants - equity
|
|
|
4,051,499
|
|
|
|
6,004
|
|
Common stock warrants - liabilities
|
|
|
—
|
|
|
|
179
|
|
Common stock reserved for conversion of preferred shares
|
|
|
2,595,087
|
|
|
|
—
|
|
Assumed conversion of convertible notes
|
|
|
146,288
|
|
|
|
480
|
|
Total
|
|
|
6,794,514
|
|
|
|
8,329
|
|
However, in certain periods in which the exercise price of the warrants was less than the last reported sales price of Delcath’s common stock on the final trading day of the period and there is a gain recorded pursuant to the change in fair value of the warrant derivative liability, the impact of gains related to the mark-to-market adjustment of the warrants outstanding at the end of the period is reversed and the treasury stock method is used to determine diluted earnings per share.
The following table reconciles net loss per share for the three and six months ended June 30, 2020 and 2019:
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
(in thousands, except share data)
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
$
|
(4,275
|
)
|
|
$
|
(5,959
|
)
|
|
$
|
(12,136
|
)
|
|
$
|
(13,853
|
)
|
Deemed dividend for triggering of warrant down round feature
|
|
(55
|
)
|
|
|
—
|
|
|
|
(55
|
)
|
|
|
—
|
|
Net loss attributable to common stockholders
|
$
|
(4,330
|
)
|
|
$
|
(5,959
|
)
|
|
$
|
(12,191
|
)
|
|
$
|
(13,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic*
|
|
2,273,187
|
|
|
|
101,862
|
|
|
|
1,171,994
|
|
|
|
102,956
|
|
Weighted average shares outstanding - diluted*
|
|
2,273,187
|
|
|
|
101,862
|
|
|
|
1,171,994
|
|
|
|
102,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic*
|
$
|
(1.90
|
)
|
|
$
|
(58.50
|
)
|
|
$
|
(10.40
|
)
|
|
$
|
(134.55
|
)
|
Net loss per share - diluted*
|
$
|
(1.90
|
)
|
|
$
|
(58.50
|
)
|
|
$
|
(10.40
|
)
|
|
$
|
(134.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* reflects, one-for-seven hundred (1:700) reverse stock split effected on December 24, 2019.
|
|
At June 30, 2020, the Company had 371,000 pre-funded warrants outstanding. The following table provides a reconciliation of the weighted average shares outstanding calculation for the three and six months ended June 30, 2020 and 2019:
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Weighted average shares issued
|
|
2,038,297
|
|
|
|
25,587
|
|
|
|
1,054,549
|
|
|
|
26,681
|
|
Weighted average pre-funded warrants
|
|
234,890
|
|
|
|
76,275
|
|
|
|
117,445
|
|
|
|
76,275
|
|
Weighted average shares outstanding
|
|
2,273,187
|
|
|
|
101,862
|
|
|
|
1,171,994
|
|
|
|
102,956
|
|
16
(12)Taxes
As discussed in Note 14 Income Taxes, of the Company’s Annual Report, the Company has a valuation allowance against the full amount of its net deferred tax assets. The Company currently provides a valuation allowance against deferred tax assets when it is more likely than not that some portion or all of its deferred tax assets will not be realized. The Company has not recognized any unrecognized tax benefits in its balance sheet.
The Company is subject to income tax in the U.S., as well as various state and international jurisdictions. The federal and state tax authorities can generally reduce a net operating loss (but not create taxable income) for a period outside the statute of limitations in order to determine the correct amount of net operating loss which may be allowed as a deduction against income for a period within the statute of limitations. Additional information regarding the statutes of limitations can be found in Note 14, Income Taxes, of the Company’s Annual Report.
On March 27, 2020, President Trump signed into law the $2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748). The CARES Act includes a variety of economic and tax relief measures intended to stimulate the economy, including loans for small businesses, payroll tax credits/deferrals, and corporate income tax relief. Due to the Company’s history of tax loss carryforwards and full valuation allowance, the CARES Act did not have a significant effect to the income tax provision, as the corporate income tax relief was directed towards cash taxpayers.
During the six months ending June 30, 2020, the Company settled intercompany debt of its two Ireland subsidiaries, Delcath Systems Limited and Delcath Holdings Limited, as capital contributions. During the six months ending June 30, 2020, Delcath Holdings Limited ceased operations with an intent to liquidate after the receipt of tax clearance. When Delcath Holdings Limited liquidates, the Company will generate a $19.9 million U.S. deferred tax benefit from a loss on its investment, which may be subject to limitations under Internal Revenue Code Sections 382 and 383 and will be fully offset by a valuation allowance.
(13) Commitments and Contingencies
Following the May 18, 2020 resignation of Jennifer Simpson, the Company’s former President and Chief Executive Officer, and Barbra Keck, the Company’s former Chief Financial Officer (the “Claimants”), it became evident that there was a dispute regarding the Company’s compensation obligations to the Claimants. In a letter dated, June 29, 2020, an attorney representing the Claimants made certain claims and threatened litigation against the Company. On or about July 27, 2020, the Claimants filed a statement of claim with the American Arbitration Association against the Company. The Claimants seek payment of certain purported unpaid compensation amounts claimed to be due to them, in an approximate amount of $1.14 million in the aggregate, as well as unspecified statutory damages under New York Labor Law, attorneys’ fees and costs, and statutory interest. The Company intends to defend the claims vigorously. As of June 30, 2020, the Company has accrued for the full purported unpaid compensation amounts.
Preferred Stock Conversions
Subsequent to June 30, 2020, the Company issued 372,500 shares of the Company’s common stock upon the conversion of Preferred Stock.
Property Purchase
On July 31, 2020, the Company exercised its option to purchase its 95-97 Park Road office location in Queensbury, NY for $460,263, pursuant to the terms of the lease agreement dated September 17, 2018, as amended on January 29, 2019 and further amended on July 31, 2020.
Stock Warrant Exercises
Subsequent to June 30, 2020, warrants to purchase 41,827 shares of the Company’s common stock with an exercise price of $10.00 per share were exercised for proceeds of $418,270.
17